Distribution of Cable Royalty Funds, 54166-54282 [2024-13597]
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Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Notices
Final Determination of Royalty
Allocation
LIBRARY OF CONGRESS
Copyright Royalty Board
[Docket No. 16–CRB–0009–CD (2014–17)]
Distribution of Cable Royalty Funds
Copyright Royalty Board (CRB),
Library of Congress.
ACTION: Final allocation determination.
AGENCY:
The Copyright Royalty Judges
announce the allocation of shares of
cable royalty funds for the years 2014,
2015, 2016, and 2017 among six
claimant groups.
DATES: This determination is effective
June 28, 2024.
ADDRESSES: The final determination is
posted in eCRB at https://app.crb.gov/.
For access to the docket to read the final
determination and submitted
background documents, go to eCRB and
search for docket number 16–CRB–
0009–CD (2014–17).
FOR FURTHER INFORMATION CONTACT:
Anita Brown, CRB Program Specialist,
(202) 707–7658, crb@loc.gov.
SUPPLEMENTARY INFORMATION:
SUMMARY:
The purpose of this proceeding is to
determine the allocation of shares of the
2014–2017 cable royalty funds among
six claimant groups: the Joint Sports
Claimants, Commercial Television
Claimants, Public Television Claimants,
Canadian Claimants Group, Settling
Devotional Claimants, and Program
Suppliers.1 The parties have agreed to
settlements regarding the shares to be
allocated to the Music Claimants and
National Public Radio (NPR). Joint
Notice of Settlement Regarding 2014–
2017 Royalty Claims of Music Claimants
. . . at 1–2 (June 29, 2022); Joint Notice
of Settlement and Motion for Final
Distribution Regarding Royalty Claims
of National Public Radio at 1 (Jan. 7,
2022).
Between 2016 and 2022, the Judges
ordered partial distributions of the
2014–2017 cable funds to the ‘‘Phase I’’
participants (including Music Claimants
and NPR) according to allocation
percentages agreed upon by the
participants. Order Granting Motion for
Partial Distribution (May 22, 2019);
Order Granting Motion for Partial
Distribution, Docket No. 16–CRB–0009
CD (2014) (Aug. 15, 2016); Order
Granting Motion for Partial Distribution,
Docket No. 16–CRB–0020 CD (2015)
(June 6, 2017); Order Granting Motion
for Partial Distribution, Docket No. 17–
CRB–0017 CD (2016) (Jul. 30, 2018).
In 2022, the Judges ordered the final
distribution of the settled shares from
the remaining funds to Music Claimants
and National Public Radio. Order
Granting Motion for Final Distribution
to National Public Radio (Feb. 14, 2022),
Order 23 Granting 2014–15 Cable Final
Distribution to Music Claimants . . .
(Dec. 7, 2022).
When the Judges ultimately order the
final distribution of the remaining
2014–17 cable royalty funds, they will
direct the Licensing Division of the
Copyright Office to adjust distributions
to each participant to account for partial
distributions and to apply the allocation
percentages determined herein.
Based on the record in this
proceeding, the Judges make the
following allocation of deposited
royalties.
TABLE 1—ROYALTY ALLOCATIONS
2014
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Basic Fund:
CCG ..........................................................................................................
CTV ...........................................................................................................
JSC ...........................................................................................................
Program Suppliers ....................................................................................
PTV ...........................................................................................................
SDC ..........................................................................................................
3.75% Fund:
CCG ..........................................................................................................
CTV ...........................................................................................................
JSC ...........................................................................................................
Program Suppliers ....................................................................................
SDC ..........................................................................................................
Syndex Fund:
Program Suppliers ....................................................................................
2015
2016
2017
6.19
20.55
36.13
21.21
11.07
4.85
14.59
19.78
11.42
28.29
19.18
6.74
14.60
17.36
10.72
25.53
24.78
7.01
15.77
17.50
12.36
23.29
25.25
5.83
6.96
23.11
40.63
23.85
5.45
18.05
24.48
14.13
35.00
8.34
19.41
23.08
14.25
33.94
9.32
21.10
23.41
16.53
31.16
7.80
100
100
100
100
PTV and JSC filed timely requests for
rehearing on September 21, 2023
(Rehearing Requests). The Judges issued
their ruling on the Rehearing Requests
on March 21, 2024 (Order on
Rehearing), denying rehearing on any
basis asserted by JSC in its Rehearing
Request and granting rehearing on a
basis asserted by PTV in its Rehearing
Request to correct arithmetic errors.
This Final Determination includes the
corrections contained in the Initial
Determination of Royalty Allocation
(Corrected and Redacted) filed on March
29, 2024, which addressed technical
and clerical errors.2 This Final
Determination also includes the
corrections set forth in the March 29,
1 The program categories at issue are as follows:
‘‘Canadian Claimants.’’ All programs broadcast on
Canadian television stations, except: (1) live
telecasts of Major League Baseball, National Hockey
League, and U.S. college team sports, and (2)
programs owned by U.S. copyright owners;
‘‘Commercial Television Claimants.’’ Programs
produced by or for a U.S. commercial television
station and broadcast only by that station during the
calendar year in question, except those listed in
subpart (3) of the Program Suppliers category;
‘‘Devotional Claimants.’’ Syndicated programs of a
primarily religious theme, but not limited to
programs produced by or for religious institutions;
‘‘Joint Sports Claimants.’’ Live telecasts of
professional and college team sports broadcast by
U.S. and Canadian television stations, except
programs in the Canadian Claimants category;
‘‘Program Suppliers.’’ Syndicated series, specials,
and movies, except those included in the
Devotional Claimants category. Syndicated series
and specials are defined as including (1) programs
licensed to and broadcast by at least one U.S.
commercial television station during the calendar
year in question, (2) programs produced by or for
a broadcast station that are broadcast by two or
more U.S. television stations during the calendar
year in question, and (3) programs produced by or
for a U.S. commercial television station that are
comprised predominantly of syndicated elements,
such as music videos, cartoons, ‘‘PM Magazine,’’
and locally-hosted movies; ‘‘Public Television
Claimants.’’ All programs broadcast on U.S.
noncommercial educational television stations.
Order Lifting Stay and Adopting Claimant
Categories (Apr. 5, 2021). The categories are
mutually exclusive and, in aggregate,
comprehensive.
2 See Initial Determination of Royalty Allocation
(Corrected and Redacted) at 1.
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Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Notices
2024 Order on Rehearing, which is
included herein, as ‘‘Addendum A’’, to
be published in the Federal Register.3
I. Background
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A. Legal Context
In 1976, Congress granted cable
television operators a statutory license
to enable them to clear the copyrights to
over-the-air television and radio
broadcast programming which they
retransmit to their subscribers. The
license requires cable operators to
submit semi-annual royalty payments,
along with accompanying statements of
account, to the Copyright Office for
subsequent distribution to copyright
owners of the broadcast programming
that those cable operators retransmit.
See 17 U.S.C. 111(d)(1). To determine
how the collected royalties are to be
distributed among the copyright owners
filing claims for them, the Copyright
Royalty Judges (Judges) conduct a
proceeding in accordance with chapter
8 of the Copyright Act. This
determination is the culmination of one
of those proceedings.4 Proceedings for
determining the distribution of the cable
license royalties historically were
conducted in two phases. In Phase I, the
royalties were divided among
programming categories. The claimants
to the royalties have previously
organized themselves into eight
categories of programming retransmitted
by cable systems: movies and
syndicated television programming;
sports programming; commercial
broadcast programming; religious
broadcast programming; noncommercial
3 See Order on Rehearing at 83 n.63 (‘‘To the
extent that corrections set forth in this Order might
be construed to reach beyond those identified in the
Motions for rehearing or the rehearing authority in
17 U.S.C. 803(c)(2), the Judges also make such
corrections under their authority to correct
technical or clerical errors in 17 U.S.C. 803(c)(4).
For this reason, the Judges set forth the analysis
herein also as a written addendum to the Initial
Determination, which is distributed to the
participants of the proceeding via this Order and
will be published as part of the Final
Determination, pursuant to 17 U.S.C. 803(c)(4).’’)
4 Prior to enactment of the Copyright Royalty and
Distribution Reform Act of 2004, which established
the Judges program, royalty allocation
determinations under the section 111 license were
made by two other bodies. The first was the
Copyright Royalty Tribunal, which made
distributions beginning with the 1978 royalty year,
the first year in which cable royalties were collected
under the 1976 Copyright Act. Congress abolished
the Tribunal in 1993 and replaced it with the
Copyright Arbitration Royalty Panel (‘‘CARP’’)
system. Under this regime, the Librarian of
Congress appointed a CARP, consisting of three
arbitrators, which recommended to the Librarian
how the royalties should be allocated. Final
distribution authority, however, rested with the
Librarian. The CARP system ended in 2004. See
Copyright Royalty Distribution and Reform Act of
2004, Public Law 108–419, 118 Stat. 2341 (Nov. 30,
2004).
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television broadcast programming;
Canadian broadcast programming;
noncommercial radio broadcast
programming; and music contained on
all broadcast programming. In Phase II,
the royalties allotted to each category at
Phase I were subdivided among the
various copyright holders within that
category.5 In the most recent
proceeding, regarding cable royalties for
the 2010–2013 period, the Judges broke
with past practice by combining Phase
I and Phase II into a single proceeding
in which the functions of allocating
funds between program categories and
distributing funds among claimants
within those categories proceeded in
parallel.6 This determination addresses
the Allocation Phase for royalties
collected from cable operators for the
years 2014, 2015, 2016 and 2017.
The statutory cable license places
cable systems into three classes based
upon the fees they receive from their
subscribers for the retransmission of
over-the-air broadcast signals. Smalland medium-sized systems pay a flat
fee. See 17 U.S.C. 111(d)(1). Large cable
systems (‘‘Form 3’’ systems) 7—whose
royalty payments comprise the lion’s
share of the royalties distributed in this
proceeding—pay a percentage of the
gross receipts they receive from their
subscribers for each distant over-the-air
broadcast station signal they
retransmit.8 The amount of royalties
5 The Judges last adjudicated an allocation (Phase
I) determination for royalty years 2010 to 2013. See
Final Allocation Determination, Distribution of the
2010 to 2013 Cable Royalty Funds, 84 FR 3552 (Feb.
12, 2019) (2010–13 Determination).
6 Second Reissued Order Granting in Part
Allocation Phase Parties’ Motion to Dismiss
Multigroup Claimants and Denying Multigroup
Claimants’ Motion for Sanctions Against Allocation
Phase Parties, Docket No. 14–CRB–0010–CD (2010–
13) (Apr. 25, 2018). The Judges discontinued use of
the terms Phase I and Phase II and use the terms
Allocation Phase and Distribution Phase instead. Id.
n.4. This determination addresses the Allocation
Phase of the proceeding.
7 ‘‘Form 3’’ cable systems, so named because they
account to the Copyright Office for retransmissions
and royalties on ‘‘Form 3.’’ The Form 3 filing is
required because they have semiannual gross
receipts in excess of $527,600. These systems must
submit an SA3 Long Form to the US Copyright
Office. They are the only systems required to
identify which of the stations they carry are distant
signals. Royalty payments from Form 3 systems
accounted for over 90% of the total royalties that
cable systems paid during 2014–2017. Expert
Report of Christopher J. Bennett, Ph.D., Amended
Corrected, Trial Ex. 7203, ¶ 11 n.2 (Bennett
ACWDT).
8 The cable license is premised on the
Congressional judgment that large cable systems
should only pay royalties for the distant broadcast
station signals that they retransmit to their
subscribers and not for the local broadcast station
signals they provide. However, cable systems that
carry only local stations are still required to submit
a statement of account and pay a basic minimum
fee. See Distribution Order, Distribution of the
2000–2003 Cable Royalty Funds, 75 FR 26798 n.2
(May 12, 2010) (2000–03 Distribution Order).
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that a cable system must pay for each
broadcast station signal it retransmits
depends upon how the carriage of that
signal would have been regulated by the
Federal Communications Commission
(‘‘FCC’’) in 1976, the year in which the
current Copyright Act was enacted.
The royalty scheme for large cable
systems employs a statutory device
known as the distant signal equivalent
(DSE), which is defined at 17 U.S.C.
111(f)(5). The cable systems, other than
those paying the minimum fee, pay
royalties based upon the number of
DSEs they retransmit. The greater the
number of DSEs a cable system
retransmits the larger its total royalty
payment. The cable system pays these
royalties to the Copyright Office. These
fees comprise the ‘‘Basic Fund.’’ See 17
U.S.C. 111(d)(1)(B). In addition to the
Basic Fund, large cable systems also
may be required to pay royalties into
one of two other funds that the
Copyright Office maintains: the Syndex
Fund and the 3.75% Fund.
As noted above, the utilization of the
cable license is linked with how the
FCC regulated the cable industry in
1976.9 FCC rules at the time restricted
the number of distant broadcast signals
a cable system was permitted to carry
(‘‘the distant signal carriage rules’’).
National Cable Television Assoc., Inc. v.
Copyright Royalty Tribunal, 724 F.2d
176, 180 (D.C. Cir. 1983). FCC rules also
allowed local broadcasters and
copyright holders to require cable
systems to delete (or blackout)
syndicated programming from imported
signals if the local station had
purchased exclusive rights to the
programming (‘‘syndicated exclusivity’’
or ‘‘syndex’’ rules). Id. at 187. In 1980,
the FCC repealed both sets of rules. Id.
at 181.
The Copyright Royalty Tribunal (CRT)
initiated a cable rate adjustment
proceeding to compensate copyright
owners for royalties lost as a result of
the FCC’s repeal of the rules. Final rule,
Adjustment of the Royalty Rate for
Cable Systems; Federal
Communications Commission’s
Deregulation of the Cable Industry,
Docket No. CRT 81–2, 47 FR 52146
(Nov. 19, 1982). The CRT adopted two
new rates applicable to large cable
systems making section 111 royalty
payments. The first, to compensate for
repeal of the distant signal carriage
rules, was a 3.75% surcharge of a large
9 FCC regulation of the cable industry was
impacted by passage of the 1976 Copyright Act that
created the compulsory license for cable
retransmissions codified in section 111. See Report
and Order, Docket Nos. 20988 & 21284, 79 F.C.C.
663 (1980), aff’d sub nom. Malrite T.V. v. FCC, 652
F.2d 1140, 1146 (2d Cir. 1981).
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cable system’s gross receipts for each
distant signal the carriage of which
would not have been permitted under
the FCC’s distant signal carriage rules.
Royalties paid at the 3.75% rate—
sometimes referred to by the cable
industry as the ‘‘penalty fee’’—are
accounted for by the Copyright Office in
the ‘‘3.75% Fund,’’ which is separate
from royalties kept in the Basic Fund.
See id.; see also 17 U.S.C. 111(d); 37
CFR part 387.The second rate the CRT
adopted, to compensate for the FCC’s
repeal of its syndicated exclusivity
rules, is known as the ‘‘syndex
surcharge.’’ Large cable operators were
required to pay this additional fee for
carrying signals that were or would have
been subject to the FCC’s syndex rules.
Syndex Fund fees are accounted for
separately from royalties paid into the
Basic Fund.10
Royalties in the three funds—Basic,
3.75%, and Syndex—are the royalties to
be distributed to copyright owners of
non-network broadcast programming in
a section 111 cable license distribution
proceeding. See 37 CFR part 387.11
Cable system operators are required to
file Statements of Account with the
Copyright Office detailing subscription
revenues and specific television signals
they retransmit distantly, and to deposit
section 111 royalties calculated
according to the reported figures.
Testimony of Gregory S. Crawford,
Ph.D., Corrected (2010–2013), Trial Ex.
7031, ¶ 74 & n.37 (‘‘Crawford 2010–2013
CWDT’’).
10 In 1989, in response to changes in the cable
television industry and passage of the Satellite
Home Viewer Act of 1988, the FCC reinstated
syndicated exclusivity rules. The reinstated rules
differed from the original syndex rules, giving rise
to a petition to the CRT for adjustment or
elimination of the syndex surcharge. See Final Rule,
Adjustment of the Syndicated Exclusivity
Surcharge, Docket No. 89–5–CRA, 55 FR 33604
(Aug. 16, 1990). The CRT held that ‘‘the syndicated
exclusivity surcharge paid by Form 3 cable systems
in the top 100 television markets is eliminated,
except for those instances when a cable system is
importing a distant commercial VHF station which
places a predicted Grade B contour, as defined by
FCC rules, over the cable system, and the station is
not ‘‘significantly viewed’’ or otherwise exempt
from the syndicated exclusivity rules in effect as of
June 24, 1981. In such cases, the syndicated
exclusivity surcharge shall continue to be paid at
the same level as before.’’ (Id. See Final Rule, Cable
Television Services; Program Exclusivity in the
Cable and Broadcast Industry, 54 FR 12913 (Mar.
29, 1989), aff’d sub nom. United Video, Inc. v. FCC,
890 F.2d 1173 (D.C. Cir. 1989); 47 CFR 73.658(m)(2)
(1989); 47 CFR 76.156 (1989). The present
proceeding deals only with allocation of those
royalties among copyright owners in the various
program categories.)
11 The CRB last adjusted cable Basic, 3.75%, and
Syndex rates in 2021, for the period January 1,
2020, through December 31, 2024. See Final
Determination, Adjustment of Cable Statutory
License Royalty Rates, Docket No. 20–CRB–0008–
CA (2020–2024), 86 FR 72845 (Dec. 23, 2021). This
adjustment was pursuant to a negotiated agreement.
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B. Posture of the Current Proceeding
In February 2019, the Copyright
Royalty Board (CRB) published notice in
the Federal Register announcing
commencement of proceedings and
seeking Petitions to Participate to
determine distribution of 2014, 2015,
2016, and 2017 royalties under the cable
and satellite licenses.12
On March 20, 2019, the Judges issued
a Notice of Participants and Order for
Preliminary Action to Address
Categories of Claims. On April 5, 2021,
they issued an Order . . . Adopting
Claimant Categories in which they
identified eight categories of claimants
for the proceeding: (1) Canadian
Claimants, (2) Commercial Television
Claimants; (3) Devotional Claimants, (4)
Joint Sports Claimants, (5) Music
Claimants, (6) National Public Radio, (7)
Program Suppliers, and (8) Public
Television Claimants. National Public
Radio and Music Claimants reached
settlements with the other claimant
groups and received respective final
distributions. Order Granting Motion for
Final Distribution to National Public
Radio (Feb. 14, 2022), Order 23 Granting
2014–15 Cable Final Distribution to
Music Claimants . . . (Dec. 7, 2022).
With the settlement of the Music
Claimants’ share, only the Program
Suppliers claimant group has an interest
in the royalties in the Syndex Fund.
Program Suppliers’ Post Hearing Brief
¶ 81 (PS PHB). Public TV Claimants
claim a share only of the Basic Fund.
Public Television’s Post-Hearing Brief at
83 (PTV PHB).
The hearing in the present proceeding
commenced on March 20, 2023, and
concluded on April 20, 2023. During
that period, the Judges heard live
testimony from 33 witnesses and
12 Notice . . ., Distribution of Cable Royalty
Funds, Docket No. 16–CRB–0009–CD (2014–17), 84
FR 2930 (Feb. 8, 2019); Notice . . ., Distribution of
Satellite Royalty Funds, Docket No. 16–CRB–0010–
SD (2014–17), 84 FR 2931 (Feb. 8, 2019). The CRB
received Petitions to Participate from Broadcast
Music, Inc. (‘‘BMI’’), the American Society of
Composers, Authors and Publishers (‘‘ASCAP’’),
and SEASAC Performing Rights (jointly, the ‘‘Music
Claimants’’); Canadian Claimants Group (‘‘CCG’’);
Global Music Rights; Public Broadcasting System
(‘‘PBS’’) on behalf of Public Television Claimants
(‘‘PTV’’); Settling Devotional Claimants (‘‘SDC’’);
Joint Sports Claimants (‘‘JSC’’); Major League Soccer
(‘‘MLS’’); Multigroup Claimants; Commercial
Television Claimants represented by the National
Association of Broadcasters (‘‘CTV’’), National
Public Radio for NPR Joint Claimants (‘‘NPR’’);
David Powell; and the Motion Picture Association
of America for MPAA-represented Program
Suppliers (‘‘Program Suppliers’’ or ‘‘PS’’).
Subsequently, MLS filed a notice that it would not
participate separately in the allocation phase, eCRB
no. 26935, and Mr. Powell was dismissed as a
participant, eCRB. no. 22314. Multigroup Claimants
expressed an intention to participate in the
allocation phase, eCRB no. 25455, but did not file
a written direct statement and did not participate.
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admitted written and designated
testimony from a number of additional
witnesses. The Judges admitted into the
record more than 400 exhibits. Many
motions related to the hearing were filed
and ruled on. Participants made closing
arguments on June 12, 2023, after which
time the Judges closed the record.
C. Allocation Standard
Congress did not establish a statutory
standard in section 111 for the Judges
(or their predecessors) to apply when
allocating royalties among copyright
owners or categories of copyright
owners. However, through
determinations by the Judges and their
predecessors (the Copyright Royalty
Tribunal, the CARPs, and the Librarian
of Congress), the allocation standard has
evolved, and the present standard is one
of ‘‘relative marketplace value.’’ 13 See
Distribution Order, Distribution of the
2004 and 2005 Cable Royalty Funds, 75
FR 57065 (Sept. 17, 2010) (2004–05
Distribution Order).
‘‘Relative marketplace values’’ in
these proceedings have been defined as
valuations that ‘‘simulate [relative]
market valuations as if no compulsory
license existed.’’ Final Rule,
Distribution of 1998 and 1999 Cable
Royalty Funds, 69 FR 3608 (Jan. 26,
2004) (1998–99 Librarian Order).
Because such a market does not exist
(having been supplanted by the
regulatory structure), the Judges are
required to construct a ‘‘hypothetical
market’’ that generates the relative
values that approximate those that
would arise in an unregulated market.
2004–05 Distribution Order at 57065;
see also Program Suppliers v. Librarian
of Congress, 409 F.3d 395, 401–02 (D.C.
Cir. 2001) (‘‘[I]t makes perfect sense to
compensate copyright owners by
awarding them what they would have
gotten relative to other owners
. . . .’’).14
II. Introduction To Regression Section
Four parties have proposed that the
Judges utilize regression analysis to
estimate the relative marketplace value
of each party’s programs distantly
retransmitted by CSOs during the fouryear period 2014–2017. Each party
relies on testimony from economic
13 In this proceeding, the Judges distinguish
between ‘‘relative values’’ (to describe the
allocation shares), and absolute ‘‘fair market
values.’’ Because the royalties at issue in this
proceeding are regulated and not derived from any
actual market transactions, they do not correspond
with absolute dollar royalties that would be
generated in a market and thus would not reflect
absolute ‘‘fair market value.’’
14 The Judges discuss the relative marketplace
value standard in more detail, infra, as applied to
the facts of this proceeding.
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experts to support its position. CCG
relies on the testimony of Dr. Lisa
George. CTV relies on the testimony of
Dr. Leslie Marx and the supportive
testimony of Dr. Cristopher Bennett.
Program Suppliers rely on the testimony
of Dr. Cleve Tyler and the supportive
testimony of Dr. Gray. Finally, PTV
relies on the testimony of Dr. John
Johnson.
Two parties oppose all of the
regression approaches on which each of
the above parties relies. The SDC,
through the testimony of economists
Drs. Erkan Erdem and Daniel Rubinfeld,
oppose the regression approach for
many of the same reasons it
(unsuccessfully) opposed the
regressions proffered in the 2010–13
allocation proceeding, which was the
most recent section 111 allocation
proceeding. However, the SDC has also
presented arguments that are
differentiated from those it made in that
prior proceeding. JSC, although it relied
in part on a regression approach in the
prior proceeding, opposes the regression
approaches through the testimony of
two economists, Dr. W. Robert Majure
and Dr. John Asker, and a statistician,
Mr. R. Garrison Harvey.
Dr. Marx, identified above as an
expert who relies on the regression
approach, does so only for the 2014
royalty year. For the 2015–2017 period,
she opposes the use of the regression
approach, based on industry changes
that she maintains (consistent with a
criticism from the other opposing
experts listed above) diminished the
quality of the available economic data
necessary to conduct an appropriate
regression.
The models of each of the four experts
who proffered regression analyses are
discussed individually below, together
with the rebuttals levied by the
opposing experts. However, in order to
understand and contextualize the
regression-related evidence, it is helpful
to address several overarching issues
that color the Judges’ analysis and
conclusions. Accordingly, before
jumping into the specific regression
models, the Judges first (1) consider in
greater detail their allocation standard
of ‘‘relative marketplace value’’, (2)
address the changing impact of the
‘‘minimum fee’’ in the 2014–2017
period, (3) evaluate assertions of
inappropriate econometric practice
(‘‘specification searching’’) that may
compromise the regression approaches,
and (4) analyze questions regarding
whether certain types of PTV programs
are properly included within the
regression analyses.
After clearing this analytical
underbrush, the Judges proceed to a
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discussion of the sequential
presentation of the parties’ regression
models, followed by the Judges’
‘‘Analysis and Conclusions’’ regarding
those models. Finally, the Judges
consider several additional important
issues arising from the regressions that
relate specifically to (1) the CCG claims
for Canadian programming issues and
(2) the 3.75% Fund.
III. The Data Relied On By The Parties
All of the parties’ experts who relied
on data detailing royalty reporting and
programming information essentially
utilized the same data sources and
processed the data in basically the same
manner. Specifically, the parties
engaged in the following steps:
1. Establish a method to link the CSOs
distant signal carriage to the programs
carried on each signal, by merging CSO
and distant signal carriage data to
television programming and scheduling
data (as detailed below).
2. Obtain a dataset on distant signal
carriage from Cable Data Corporation
(CDC), that covers each semiannual
accounting period from 2014–1 through
2017–2 for the larger ‘‘Form 3’’ cable
systems.15 CDC compiles and digitizes
this dataset data directly from the SA3
Statement of Account (SOA) forms that
Form 3 cable systems are required to file
semiannually at the Licensing Section of
the Copyright Office. (The CDC data is
set forth in the Written Direct
Testimony of Jonda K. Martin.)
3. Obtain through these SOAs, for
each CSO, information about its (a)
ownership, rates, gross receipts, total
number of subscribers, and
communities served, and (b) the identity
of every broadcast television station
carried and a calculation of royalties
owed for the transmission of distant
signals under section 111.
4. Obtain station, program, and
scheduling data from Red Bee Media
(formerly FYI Television, Inc.) to merge
with the foregoing carriage and royalty
data. (Red Bee Media is an international
broadcasting and media services
company that publishes television
airing data, using programming data that
it sources directly from stations in the
form of interactive program guides.)
5. Examine the Red Bee Media’s
database of U.S. and Canadian broadcast
and cable channels carried by U.S.
CSOs, together with network data and
15 ‘‘Form 3’’ systems are cable systems with
semiannual gross receipts in excess of $527,600 that
are required to submit an SA3 Long Form to the US
Copyright Office. They are the only systems
required to identify which of the stations they carry
are distant signals, and they account for over 90%
of the total royalties paid by all cable systems
during 2014–2017.
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detailed program and scheduling data
for the period January 1, 2014, through
December 31, 2017, to identify, per
station, (a) program titles, (b) program
type/category, (c) originating station,
and (d) date and time of program airing.
6. Obtain Canadian television
program log data from the Canadian
Radio-Television and
Telecommunications Commission
(CRTC), which regulates and supervises
broadcasting and telecommunications
within Canada.
7. Develop and apply an algorithm,
using the aforementioned data, that
assigns program airings to their correct
categories.
8. Review and confirm the results and
make any modifications that are
appropriate.
Amended Corrected Written Direct
Testimony of Christopher Bennett,
Ph.D., Trial Ex. 7203, ¶¶ 10–27 (Bennett
ACWDT) (describing the CTV data
process); Corrected Written Direct
Testimony of R. Garrison Harvey, Trial
Ex. 7105, tech. app., pt. A (Harvey
CWDT) (describing the JSC data
process); Written Direct Testimony of
John H. Johnson, IV, Trial Ex. 7300,
¶¶ 46–51 & app. G (Johnson WDT)
(describing the PTV data process);
Written Direct Testimony of Lisa M.
George, Ph.D., Trial Ex. 7403, at 47–50
& app. B (George WDT) (describing the
CCG data process, also supplemented
with U.S. Census income information);
Amended Corrected Written Direct
Testimony of Jeffrey S. Gray, Trial Ex.
7605, ¶¶ 16–18; 32–34, & 39 n.23
(describing the Program Suppliers’ data
process).
Given the voluminous nature of the
data relating to programming and
minutes, the data-related processes
suffered from several hiccups during
assembly and analysis for the several
experts. The record reflects that most of
the data-based problems were resolved
before the experts filed their direct
testimonies, and there were some datarelated amendments and corrections set
forth in subsequent testimonies. To the
extent any of the data problems were
unresolved, material, and need to be
addressed in order for the Judges to
properly allocate shares, those data
problems are discussed in this
determination.
IV. The Role of Regression Analysis In
The Statutory Context
Section 111 sets forth no standard for
the Judges (or their predecessors) to
apply in allocating royalties arising from
the payments made by CSOs. This was
no mere oversight. The legislative
history makes it clear that Congress
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intentionally omitted a standard to
guide the Judges:
[T]he bill does not include specific
provisions to guide . . . determining the
appropriate division among competing
copyright owners of the royalty fees collected
from cable systems under section 111
[because] it would not be appropriate to
specify particular, limiting standards for
distribution. Rather, the Committee believes
that the [adjudicator] should consider all
pertinent data and considerations presented
by the claimants.
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House Report No. 94–1476, Notes of
Committee on the Judiciary. This
standardless delegation has led the
parties, as well as the Judges and their
predecessors, to invoke an evolving set
of five broad factors, that have waxed
and waned, to consider when allocating
royalties among program category
claimants. As the Judges recounted in a
prior proceeding:
[T]he standards for determining
distribution awards have changed
dramatically since the inception of the
license. In the first Phase I [allocation]
proceeding, the Copyright Royalty Tribunal
identified three primary factors to guide its
determinations: (1) The harm to copyright
owners caused by distant signal
retransmissions; (2) the benefit derived by
cable systems from those retransmissions;
and (3) the marketplace value of the
copyrighted works retransmitted. 45 FR
63026, 63035 (September 23, 1980). The
Tribunal also identified two secondary
factors: (1) The quality of the retransmitted
material; and (2) time-related considerations.
Id. By the time of the last fully litigated
Tribunal determination, the Tribunal
dropped its consideration of the two
secondary factors. 57 FR 15286 (April 27,
1992). The first CARP to undertake a Phase
I distribution, the 1990–92 proceeding,
discarded the ‘‘harm’’ criterion in its
consideration . . . . That action was upheld
by the Librarian of Congress and,
subsequently, the Court of Appeals. Nat’l
Ass’n of Broadcasters v. Librarian of
Congress, 146 F.3d 907 (D.C. Cir. 1998). The
1998–99 CARP refined the approach further
still, noting that ‘‘every party to this
proceeding appears to accept ‘relative
marketplace value’ as the sole relevant
criterion that should be applied by the
Panel.’’ CARP Report at 10 (emphasis in
original). As a consequence, the CARP
announced that its ‘‘primary objective is to
‘simulate [relative] market valuation’ as if no
compulsory license existed.’’ Id. The
Librarian upheld this conclusion as well, and
the Court of Appeals once again affirmed.
Program Suppliers v. Librarian of Congress,
409 F.3d 395 (D.C. Cir. 2005).
Distribution Order, Distribution of the
2000–2003 Cable Royalty Funds, 75 FR
26798, 26801–02 (May 12, 2010) (2000–
03 Distribution Order).16
16 ‘‘Fee-generation,’’ discussed elsewhere in this
determination, is a method proffered to identify
relative marketplace value. Id. at 26804 (the ‘‘fee
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The D.C. Circuit Court of Appeals has
recognized that ‘‘the process that
Congress ordained’’ has placed the
Judges and their predecessors in a
context where ‘‘mathematical exactitude
. . . appears well-nigh impossible [and]
rough justice in dividing up the royalty
pie seems to be . . . inevitable.’’ Nat’l
Ass’n of Broadcasters v. Copyright
Royalty Tribunal, 772 F.2d 922, 926
(D.C. Cir.1985) (emphasis added)
(‘‘NAB’’). Moreover, despite the shifts in
the administrative standard for
allocating royalties, the D.C. Circuit has
continued to note this practical concern.
See, e.g., Settling Devotional Claimants
v. Copyright Royalty Board, 797 F.3d
1106, 1121 (D.C. Cir. 2015).
It is in the context of this ‘‘rough
balancing of hotly competing claims,’’
NAB at 940, that the Judges find it
appropriate to rely (in part) on
regression approaches in this
proceeding. The counter-argument that
the regressions do not generate a proxy
for price that meets the exactitudes of
econometric theorizing may be correct,
but it appears to be a precise answer to
the wrong question, namely, what is the
price that would obtain in a marketplace
ill-defined in the record in this
proceeding?
The Judges have experience in
considering market proxies when
exercising their companion jurisdiction
of setting royalty rates for certain forms
of music and sound recording
distributions. In those proceedings, the
parties proffer, and the Judges consider,
benchmark evidence from analogous
markets, market-based evidence from
the regulated market itself, economic
models, economic experiments, and
survey evidence—all in an attempt to
identify applicable market factors.
Often, more than one of these
approaches are proffered in the same
proceeding, and the Judges consider
whether to apply more than one model
in rendering a determination. Here, the
parties have provided evidence from the
regulated market itself, in the form of
regression analyses, and survey
evidence, in the form of the Bortz
Survey.
Focusing here on the criticism of the
regression evidence generated from the
regulated market itself,17 the Judges
generation approach should be accorded deference,
not as the methodology to determine the relative
marketplace value but as a methodology to
determine that value.’’). Other approaches proffered
more recently have been advanced in order to apply
the present standard, ‘‘relative marketplace value.’’
See 2010–13 Determination at 3556 (identifying
[r]egression analyses, CSO survey results,
viewership measurements, a changed circumstances
analysis, and a cable content analysis’’ as
approaches to estimate relative marketplace value).
17 The Judges focus on the Bortz Survey infra.
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consider the emphasis of the regression
opponents upon the exactitude of the
price proxies, and find that fixation to
be dubious. As the Judges have
explained, also in their rate
determinations, intellectual property
goods (whether retransmitted television
stations or streams of musical works or
sound recordings) are often licensed at
various royalty rates because the nature
of these goods invites price
discrimination. See, e.g., Final rule and
order, Determination of Royalty Rates
and Terms for Making and Distributing
Phonorecords (Phonorecords III), 84 FR
1918, 1980 (Feb. 5, 2019) (dissent,
Strickler, J.) (for intellectual property
goods there ‘‘exist many alternative rate
structures with varying rates for various
segments of the market . . . forms of
‘price discrimination,’ which, in the
broadest sense, means simply a
departure from a single, per-unit
price.’’). Thus, the very idea of a single
econometrically correct price for the
royalties at issue in this proceeding is
fanciful, particularly in the absence of
any evidence of such prices or even a
methodology to establish price.
Additionally, in line with the D.C.
Circuit’s acknowledgment that these
allocation proceedings may afford the
Judges only the ability to dispense
‘‘rough justice,’’ the Judges note an
economic corollary: It is better to be
‘‘roughly correct’’ than ‘‘precisely
wrong.’’ 18 Similarly, in matters of
econometrics, Professor Kennedy, cited
infra by parties on both sides of the
regression divide in this proceeding, has
cautioned econometricians against
making what he calls ‘‘Type III errors[,]
. . . when a researcher produces the
right answer to the wrong question.’’
Peter Kennedy, A Guide to
Econometrics 391 (5th ed. 2003).
Indeed, Professor Kennedy, then
echoing the quote attributed to Keynes,
advises that in econometric practice ‘‘a
corollary of this rule is that an
appropriate answer to the right question
is worth a great deal more than a precise
answer to the wrong question.’’ Id.
In this proceeding, counsel for the
SDC, a party vigorously advancing the
price-based criticism of the regressions,
argues that application of any regression
analyses would indeed be ‘‘rough’’ but
acknowledges that, as for ‘‘justice,’’ only
the Judges could say. 6/12/23 Tr. 6007–
08 (closing argument). Counsel is
essentially correct on both points. First,
the use of regression analyses is not
precise, but rather ‘‘rough,’’ at least
compared to the exactitude of a full18 Attributed to John Maynard Keynes. See,
e.g.,https://graciousquotes.com/john-maynardkeynes/ (last accessed August 28, 2023).
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fledged hedonic regression or a discrete
choice approach noted by SDC’s
economic witnesses as possible
alternatives (but not proffered as
alternative models). And further,
Congress most clearly left to the Judges
the decision as to the standard to be
applied and the methods by which the
standards could be effectuated.19
V. Minimum Fee Issue
A. CCG Position on the Minimum Fee
Issue
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CCG argues that ‘‘[it] is incorrect to
claim that regressions are not useful
. . . because of the minimum fee
structure,’’ or because of ‘‘the presence
of more minimum fee or ‘excess
capacity’ systems’’ in the 2015–2017
period compared to the prior four years.
Proposed Findings of Fact and
Conclusions of Law of the Canadian
Claimants Group (CCG PFF) at 72–73. In
support of this argument, CCG asserts
that the regressions proffered in this
proceeding do not require accurate
measures when the royalty fees
‘‘actually paid’’ are the minimum fees,
even though they may be ‘‘poor proxies
for price.’’ CCG PFF ¶ 197 (and record
citations therein) (emphasis added).
Rather, CCG maintains that the
regression coefficients—which are
calculated using unpaid subscribergroup base fees—nonetheless provide
useful information regarding the
correlation between ‘‘carriage decisions
and royalty payments.’’ CCG PFF ¶ 197
(and record citations therein). In further
support, CCG cites to a statement by the
Judges in the prior proceeding, citing
Final Allocation Determination,
Distribution of Cable Royalty Funds,
Docket No. CONSOLIDATED 14–CRB–
0010–CD (2010–2013), 84 FR 3552,
19 SDC’s counsel’s argument was in line with the
D.C. Circuit’s understanding that the Judges must
by necessity engage in ‘‘rough justice’’ in these
allocation proceedings, but he protested that any
rough variant of justice that relied on one or more
of these regressions would not constitute ‘‘rough
economic justice.’’ Id. (emphasis added). The
Judges disagree, as do their predecessors who have
relied on these models, and as do the economists/
econometricians who have proffered regressionbased models in this and prior proceedings. In this
regard, the Judges were struck by a warning given
by SDC’s counsel that, if the Judges ‘‘adopt[ed] the
Tyler [M]odel on a theory of ‘‘rough economic
justice’’ without discarding the ‘‘relative market
value’’ standard, [they] would inhibit the parties’
ability to present top-shelf economists . . . ’’ SDC
PHB at 64 (emphasis in original). The Judges agree
with Program Suppliers’ counsel who rightly took
umbrage at the ‘‘not-so-subtle condescending
posture of this remark . . . ’’ Program Suppliers
PHRB at 41. The expert witnesses certainly do
disagree among each other, but the experience and
education of the economists/econometricians who
have proffered their regression approaches belie the
ad hominem argument by SDC’s counsel.
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3555–56 n.17 (Feb. 12, 2019) (2010–13
Determination).20
CCG acknowledges though that
reliance in these regressions on
minimum-fee-paying CSOs generates
‘‘measurement error,’’ but claims that
this is not a concern, because it is ‘‘an
ordinary part of regression . . .
reduc[ing] precision but . . . not
bias[ing] claimant shares.’’ CCG PFF
¶ 198 (citing 4/18/23 Tr. 5125–26
(George)). In fact, CCG maintains that
the data pertaining to CSOs that pay
only the minimum fee reveals that, for
them, the value of the distant signal is
essentially zero—information that could
not have been ascertained from data in
an unregulated market.21 CCG ¶ 199
(citing 4/18/23 Tr. 5139–41 (George);
Written Rebuttal Testimony of Lisa
George, Trial Ex. 7404, at 15–16, 47
(George WRT)).
Focusing on the dramatic increase in
the number of minimum-fee-only CSOs,
CCG dichotomizes this cohort. With
regard to CSOs that ‘‘do not carry
distant signals’’ at all, CCG reasons that
their voluntarily refusal to retransmit
means that they cannot be used to
determine the value of distant signals in
a regression.22 CCG PFF ¶ 201 (citing
George WRT at 15; 4/18/23 Tr. 5141
(George). And, with regard to the CSOs
that do carry some distant signals, but
still have ‘‘excess capacity’’ and thus
also pay only the minimum fee, CCG
maintains that ‘‘these are the same ones
that would determine value absent the
compulsory license.’’ CCG PFF ¶ 201
(citing George WRT at 15; 4/18/23 Tr.
5141 (George)).
B. Program Suppliers Position on the
Minimum Fee Issue
According to Program Suppliers,
notwithstanding the increase in the
number of minimum-fee-only CSOs,
regression remains the most useful
technique for estimating relative
marketplace value. Program Suppliers’
Proposed Findings of Fact and
Conclusions of Law (PS PFF) at 78.
They note that, despite this increase,
still ‘‘20% of CSOs who carry distant
signals have a calculated royalty fee
which is approximately the size of the
minimum fee.’’ This ‘‘cluster of CSOs at
the threshold . . . provides evidence
20 In fact, footnote 17 cited by CCG does not
address this minimum fee issue.
21 The minimum fee is a fixed (sunk) cost. A CSO
that pays only the minimum fee has a marginal
royalty cost to retransmit a signal equal to zero.
Thus, a minimum-fee-paying CSO’s decision not to
retransmit any signal indicates that the net value of
retransmittal is zero for that CSO (and may even be
negative given transmission and/or opportunity
costs).
22 CCG maintains that these non-transmitting
CSOs also cannot be utilized in the Bortz Survey.
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54171
that . . . certain CSOs that paid the
minimum fee nevertheless engaged in
economic decision-making with regard
to distantly retransmitted signals
carried.’’ Amended and Corrected
Written Direct Testimony of Cleve B.
Tyler, Ph.D., Trial Ex. 7600, ¶¶ 151–52
(Tyler ACWDT). Further elucidating this
point, Program Suppliers rely on
additional oral testimony by Dr. Tyler,
explaining that his regression model ‘‘is
based in part on the . . . likely
uncertainty, at the time that carriage
decisions are made, as to whether the
minimum fee or the calculated rate [i.e.,
the base rate] would bind . . .
increas[ing] the economic content
within the decision-making process,
even where the minimum fee ultimately
binds.’’ PS PFF ¶ 323 (citing 4/19/23 Tr.
at 5521–22 (Tyler)) (emphasis added).23
Further in this regard, Program
Suppliers aver that even CSOs with zero
distant signal carriage derive ‘‘option
value’’ from the section 111 license,
because they are always permitted
(‘‘privileged’’ in the language of section
111) to engage in such retransmission.
Tyler ACWDT ¶ 102. According to Dr.
Tyler, the base fee calculation would
tacitly reflect this option value. Id.
In any event, Dr. Tyler rejects as ‘‘too
extreme’’ the alternative of ‘‘[d]ropping
most of the observations’’ by excluding
the minimum-fee-only CSOs, because
that would implicitly incorporate the
assumption that ‘‘there is essentially no
value associated with any of the
minutes for the systems paying the
minimum fee.’’ 4/19/23 Tr. 5474 (Tyler).
In support of this point, Program
Suppliers note that ‘‘[n]o expert in this
proceeding took the approach of
dropping minimum fee systems from
the analysis.’’ PS PFF ¶ 327 (and record
citations therein).24 25
Despite Program Suppliers’ assertion
that there is economic evidence from
the carriage decisions of minimum-feeonly CSOs, they acknowledge that there
is also merit to considering a version of
the model that includes only CSOs
paying above the minimum fee. Tyler
23 In a following colloquy with Judge Strickler,
Dr. Tyler acknowledged that, by contrast, where the
base fees calculated by CSOs were well below the
minimum fee ultimately paid, their base fees
provided ‘‘less economic content.’’ 4/19/23 Tr. 5525
(Tyler).
24 This argument is misleading. As described
infra, the SDC, JSC, and CTV, through their experts,
all relied on the large number of minimum-fee-only
CSOs as a basis to throw out the regressions entirely
for the 2015–2017 period (and the SDC and JSC also
reject the minimum-fee-only data for 2014 as part
and parcel of their wholesale rejection of the
regression approach).
25 Program Suppliers also note that the Bortz
Survey likewise considers the stated preferences of
survey respondents whose systems pay only the
minimum fee. PS PFF ¶ 328.
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ACWDT ¶¶ 155–156. According to Dr.
Tyler, this restricted data set presents
with the ‘‘highest degree of confidence’’
the CSO tradeoffs between different
stations and categories of minutes. Tyler
ACWDT ¶ 155. To this end, Dr. Tyler
undertook a ‘‘sensitivity’’ analysis that
considered only CSOs paying more than
the minimum fee, and determined the
following estimated shares (and
standard errors):
FIGURE 6.3
Model Including Only CSOs Paying More than the Minimum Royalty
Year
2014
2015
2016
2017
Program
Su liers
JSC
29.1%
32.4%
4.7%
9.2%
41.0%
2.1%
2.4%
1.5%
31.3%
1.3%
3.0%
1.9%
33.0%
0.5%
2.2%
1.0%
Adjusted 83.8%
R2:
CTV
PTV
SDC
CCG
11.3%
2.6%
11.3%
2.2%
13.3%
3.4%
9.9%
2.0%
14.3%
1.9%
12.7%
0.8%
14.7%
0.8%
14.2%
0.8%
5.1%
1.2%
9.7%
1.2%
8.3%
1.0%
7.8%
1.0%
7.6%
1.1%
23.2%
0.9%
31.1%
1.4%
34.6%
2.1%
According to Dr. Tyler, these shares
are sufficiently close to the shares he
proposes through his analysis of all
CSOs, i.e., including those only paying
the minimum fee. Compare Tyler
ACWDT fig.3.2, with Tyler ACWDT
fig.6.3. According to Dr. Tyler, this
‘‘sensitivity’’ comparison of his
recommended share allocation and the
allocation generated by aboveminimum-fee-only CSOs reveals that his
‘‘modeling approach . . . is reasonably
robust and . . . sufficiently reliable for
informing allocation of the 2014–2017
Cable Royalties among the Allocation
Phase claimant categories.’’ Tyler
ACWDT ¶ 105.
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C. PTV Position on the Minimum Fee
Issue
PTV, like CCG, finds economic
significance in the choices of a CSO ‘‘to
retransmit a distant signal to particular
subscriber groups’’ despite the fact that
the CSO pays the minimum fee, relying
in part on Dr. Marx’s testimony that
those choices reveal only ordinal
preferences as to distant programming
types. Public Television’s Proposed
Findings of Fact and Conclusions of
Law (PTV PFF) ¶ 58 (citing, inter alia,
4/11/23 Tr. 4165 (Marx)). Thus, PTV
finds it appropriate to rely on what it
describes as the ‘‘ample variation in the
decision-making of CSOs that pay the
minimum fee . . . to . . . inform[ ] . . .
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relative marketplace value. . . .’’ PTV
PFF ¶ 59.
As an alternative basis for finding
relevance in the decision-making of
CSOs that paid only the minimum fee
after the WGNA conversion, PTV finds
relevance in the fact that many CSOs
had distantly carried certain PTV
signals pre-conversion together with
WGNA, paying above the minimum fee,
and continued to transmit that
companion signal post-conversion,
when only the minimum fee applied.
According to PTV, this continuity of
PTV carriage is record evidence of the
value of the PTV carriage during the
minimum-fee-only periods. PTV PFF
¶ 60; Johnson WRT ¶ 78 (‘‘The WGN
conversion in 2015 does not mean the
value of KAET–DT [Public Television
signal] declined or disappeared
altogether.’’); see generally Johnson
WRT ¶ 79 (As in the KAET example,
‘‘there were 1,115 CSO-Public
Television distant signal combinations
in the 2015–2017 period where the CSO
paid a minimum fee during those years
[and] [f]or 55 percent of these
combinations, the same CSO also
carried the same Public Television
distant signal, at a different point in
time, when it paid section 111 royalties
greater than the minimum
fee.’’(emphasis added)).
As another alternative, Dr. Johnson,
on behalf of PTV, and like Dr. Tyler,
undertook a ‘‘sensitivity test’’ that
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excluded the minimum-fee-paying
CSOs. According to PTV, the results of
this sensitivity test were sufficiently
consonant with the coefficients in Dr.
Johnson’s preferred ‘‘baseline’’ fee-based
regression, which included the
minimum-fee-only CSOs, to suggest that
decisions made by CSOs that paid
minimum fees are informative as to the
question of relative value. PTV PFF ¶ 84
(and record citations therein); compare
Johnson WDT fig.11 (baseline model
coefficient, with Johnson WDT fig.14
(‘‘sensitivity test’’ coefficients excluding
minimum-fee-paying CSOs). This
consonance was important, according to
Dr. Johnson, because it justified his use
of the ‘‘baseline’’ model, which, because
it included the minimum-fee-paying
CSOs, relied on 18,666 observations,
and therefore was more precise than his
‘‘sensitivity test’’ approach. Johnson
WDT ¶ 84.
From yet another economic
perspective, PTV maintain that for
minimum-fee-paying CSOs making
some retransmissions, the value of the
retransmitted programming must have
some marginal value, in excess of
‘‘opportunity costs’’ regarding
alternative uses of bandwidth including
streaming alternatives. PTV PFF ¶¶ 62–
63. Taken together, PTV asserts that the
foregoing facts support the inclusion of
the base-fee decisions of minimum-feepaying CSOs. PTV PFF ¶ 97.
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D. CTV Position on the Minimum Fee
Issue
CTV presents a nuanced argument
regarding the relevancy of minimumfee-only CSOs, consistent with the
opinions of their economic expert, Dr.
Leslie Marx. On the one hand, CTV and
Dr. Marx maintain that the
retransmission decisions of minimumfee-only CSOs were not so numerous as
to preclude the use of base fee data from
minimum-fee-only CSOs in a regression
for the years 2010–2013 (addressed in
the prior determination) and for 2014
(the earliest year addressed in the
present proceeding). 4/11/23 Tr. 4157
(Marx) (testifying that ‘‘the mere
presence of royalties from excess
capacity CSOs’’ does not make the feebased regressions invalid’’ because ‘‘it’s
a matter of degree . . . .’’). On the other
hand, CTV and Dr. Marx maintain that
the retransmission decisions of the
minimum-fee-only CSOs were so
pervasive during the years 2015–2017 as
to preclude the use of fee-based
regressions for those three years. Id. at
4157–58. See generally Commercial
Television’s Proposed Findings of Fact
and Conclusions of Law (CTV PFF) at 38
(describing CTV’s and Dr, Marx’s
approach as measured, because it
‘‘utilize[ed] a fee-based regression only
for 2014, [which was] the sole year at
issue in this proceeding without
significant marketplace changes.’’) 26
CTV continues its argument on this
point by pointing out that when a CSO
elects to carry a set of distant signals
resulting in a payment higher than the
minimum fee, that indicates the CSO
sufficiently values the programming
minutes bundled into the carriage to
make it willing to pay marginal royalty
payments above the minimum fee.
Written Rebuttal Testimony of Leslie M.
Marx, Ph.D., Trial Ex. 7208, ¶ 21 (Marx
WRT). Alternatively stated, for these
CSOs which CTV accurately describes
as ‘‘above-capacity’’, i.e., retransmitting
more than 1.0 DSE and thereby paying
above the minimum fee, the base fee
royalties reported by their subscriber
groups are their actual royalty
payments, revealing the CSO’s
perceived value of the distantly
retransmitted stations and their
constituent programs. Written Rebuttal
Testimony of Christopher Bennett,
Ph.D., Trial Ex. 7035, ¶ 15 (Bennett
WRT); CTV PFF ¶ 158.
To contrast from the ‘‘above-capacity’’
CSOs, CTV and its experts examine the
carriage decisions of CSOs that had
carried WGNA in 2014, either solely or
with other signals, but could not, and
thus did not, carry WGNA after 2014.
CTV asserts that because the WGNA
conversion generated the explosion of
minimum-fee-only CSOs, the majority of
the royalties and CSOs do not reflect
incremental costs associated with
incremental carriage. CTV PFF ¶¶ 177,
186. This change is reflected in a series
of figures presented by Dr. Marx. First,
she demonstrates the share of royalty
payments by CSOs carrying distant
signals relative to the minimum fee,
across the relevant years:
Figure 2: Shares of royalty payments, by the extent of royalties relative to the
minimum fee
Royalties paid by
CSOs carrying distant
si nals $ millions
> the minimum fee
$106.9
$108.5
$85.1
$80.2
$72.7
$71.6
$73.0
$73.4
59%
57%
24%
12%
7%
7%
7%
7%
= minimum fee
23%
24%
18%
14%
2%
3%
3%
3%
< minimum fee
18%
19%
58%
74%
91%
91%
91%
90%
75%-99%
34%
38%
4%
4%
3%
5%
5%
4%
50%-75%
10%
8%
9%
6%
4%
4%
5%
4%
25%-50%
19%
19%
16%
20%
20%
21%
20%
25%
26 This nuanced position is not an inconsistent
economic argument. Rather, it is an argument
regarding data differentiation and the concomitant
weighing of evidence. CTV and Dr. Marx assert that,
as a matter of ‘‘degree,’’ too high a percentage of the
number of CSOs paying only the minimum fee
(and/or too high a percentage of all royalties paid
by minimum-fee-only CSOs) will render the
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incorporation of the retransmission decisions of
those CSOs (and/or the royalties they paid) fatal to
a fee-based regression. However, they assert that
when those minimum-fee-only CSOs and their
royalties are only approximately half of the CSOs
and royalties paid, as in the 2010–2013 period, and
when they principally apply to CSOs with only one
subscriber group (and thus are excluded anyway
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from the Crawford-style regression), their inclusion
is too small to preclude use of a fee-based
regression. See generally CTV PFF at 20 et seq.
(‘‘The lack of informative data renders any feebased regression inappropriate and unreliable for
2015, 2016 and 2017.’’).
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< 25%
38%
35%
71%
70%
73%
71%
70%
67%
Note: For each accounting period (2014-1 - 2017-2), the SOA reports the imputed royalties for a given
subscriber group of a CSO. The sum across the CSO's subscriber groups is the imputed royalties of the
CSO. For each CSO, I calculate the minimum fee as 1.064% of the CSO's gross receipts. I categorize
CSOs as (1) "minimum fee" CSOs if they paid [99%, 101 %] of the calculated minimum fee, (2) "above the
minimum fee" CSOs if they paid more than 101 % of the calculated minimum fee, and (3) "excesscapacity" CSOs if their imputed royalties are less than 99% of the calculated minimum fee. Excesscapacity CSOs are further categorized into those whose imputed royalties are [75%, 99%), [50%, 75%),
[25%, 50%), and less than 25% of the calculated minimum fee. The share of royalties in each category is
the share of royalties associated with CSOs in each category in that accounting period. Source: CDC data
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Next, Dr. Marx identifies the
percentage of all CSOs carrying distant
signals that are paying the minimum fee
over the relevant years:
Figure 3: Categorization of CSOs, by the extent of royalties relative to the minimum
fee
Count of CSOs
c
in distant si nals
> the minimum fee
826
819
674
585
525
515
516
508
48%
47%
30%
21%
19%
19%
20%
19%
= minimum fee
35%
36%
25%
16%
6%
7%
6%
8%
< minimum fee
17%
17%
45%
63%
74%
74%
74%
73%
75%-99%
17%
22%
10%
11%
11%
14%
14%
11%
50%-75%
18%
13%
12%
11%
9%
12%
13%
13%
25%-50%
21%
22%
23%
23%
26%
24%
23%
23%
< 25%
43%
42%
55%
55%
54%
51%
49%
53%
Note: For each accounting period (2014-1 - 2017-2), the SOA reports the imputed royalties for a given
subscriber group of a CSO. The sum across the CSO's subscriber groups is the imputed royalties of the
CSO. For each CSO, I calculate the minimum fee as 1.064% of the CSO's gross receipts. I categorize
CSOs as (1) "minimum fee" CSOs if they paid [99%, 101 %] of the calculated minimum fee, (2) "above the
minimum fee" CSOs if they paid more than 101 % of the calculated minimum fee, and (3) "excesscapacity" CSOs if their imputed royalties are less than 99% of the calculated minimum fee. Excesscapacity CSOs are further categorized into those whose imputed royalties are [75%, 99%), [50%, 75%),
[25%, 50%), and less than 25% of the calculated minimum fee. The share of royalties in each category is
the share of royalties associated with CSOs in each category in that accounting period. Source: CDC data
These data present the contrast
between how the actual royalty
obligations through 2014 were directly
linked to base fees at the subscribergroup level and the actual royalty
obligations in the 2015–2017 period
where they were instead predominantly
a function of the minimum fee. CTV
PFF ¶ 167 (citing Bennett WRT fig.5).
Likewise, Dr. Marx testified that there
was no substantial dissimilarity in the
2010–2014 period between: (1) the
overall regression coefficients (not
allocation shares) for all CSOs and (2)
the regression coefficients for only CSOs
carrying fewer distant signals than the
minimum fee would permit, which Dr.
Marx aptly described as ‘‘excess
capacity’’ CSOs. Marx WRT ¶ 62. This
substantially similarity was depicted as
follows by Dr. Marx:
Figure 4: Normalized coefficients from Crawford model using 2010-2014 data
7.7%
2.9%
7.5%
1.7%
7.8%
3.0%
7.4%
0.8%
0.4%
Moreover, according to Dr. Marx,
many of the CSOs with ‘‘excess
capacity’’ also had less than the two
subscriber groups necessary to be
observed by the Crawford regression,
thus making their ‘‘excess capacity’’
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status inconsequential to the regression
for this independent reason. 4/11/23 Tr.
4157 (Marx).
The scenario for the 2015–2017
period was drastically different,
according to Dr. Marx. She also presents
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coefficients (not allocation shares) for
this latter three-year period, and shows
how the coefficients for all CSOs
differed from those with no excess
capacity:
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All CSOs
76.2%
4.0%
CSOs with no excess
77.2%
3.9%
ca acit
Average absolute
difference
Note: Estimated coefficients multiplied by 1,000,000.
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Figure 5: Normalized coefficients from Crawford model using 2015-2017 data
All CSOs
CSOs with no excess
ca acit
Average absolute
difference
63.7%
3.3%
9.9%
3.9%
14.7%
4.5%
15.0%
2.2%
17.9%
2.8%
43.4%
18.7%
17.0%
Note: Estimated coefficients multiplied by 1,000,000.
Source: CDC data and Red Bee Media data
Marx WRT fig.5.
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CSO carriage of fewer distant signals after
2014 sharply increased the percentage
number of excess capacity CSOs, from less
than 20% of CSOs in 2014 to 73% of CSOs
in 2016 onward. Marx WRT ¶ 64.
The percentage of CSOs paying more than
the minimum fee decreased from 48% in
2014 to only 19% by the end of 2017
(measured by including CSOs with zero
retransmittals).
CTV PFF ¶¶ 209–210 (and record
citations therein).
Based on the foregoing, CTV relies on Dr.
Marx’s conclusions that:
The changed circumstances in the realworld market have infected the quality of the
data and reduced the quantity of the data
utilized by the proffered fee-based
regressions making those regressions in the
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2015 to 2017 timeframe unreliable. 4/11/23
Tr. 4510–12 (Marx).
A regression requires reliable data that fits
the underlying assumptions, otherwise the
model is putting ‘‘garbage in’’ and getting
‘‘garbage out.’’ The data no longer represents
carriage decisions based off of royalty
payments from the CSOs. 4/11/23 Tr. 4147;
4194 (Marx).
CTV PFF ¶¶ 299–300. See also Marx
WRT ¶ 82 (‘‘[F]or a minimum fee-paying
CSO, the inclusion of a distant signal in
the channel line-up to a subscriber
group . . . reflects the CSO’s choice
over other alternative signals that also
have no incremental cost. This can be
informative as to the value of the
program minutes on whatever signal the
CSO elects to offer.’’).
E. JSC Position on the Minimum Fee
Issue
Like CTV, JSC contrasts the 2010–
2014 period with the years 2015–2017.
In the former period, JSC notes, most
CSOs calculated ‘‘a Base Fee + their
3.75% Fee that equaled or exceeded the
Minimum Fee.’’ More particularly, JSC
specifies that, ‘‘in 2014, 71.8% of all
CSOs calculated a Base + 3.75% Fee
that met or exceeded their minimum fee
obligation, and during the 2010–13
period, 73.0% of all CSOs did so . . .
account[ing]for 76.5% of total royalties
paid in 2014 and 79.9% of total royalty
fees paid during the 2010–13 period.’’
Proposed Findings of Fact and
Conclusions of Law of the Joint Sports
Claimants (JSC PFF) ¶ 17 (citing 3/30/23
Tr. 2578 (Majure); Harvey CWDT ¶ 17 &
tbl.3; Corrected Bortz Report, Trial Ex.
7101, at 9 (Bortz Report).
Further, JSC maintains that even if an
economic model could produce reliable
ordinal rankings, which none of the
regressions in evidence attempted, it is
not possible to make the leap from such
rankings to cardinal relative values, i.e.,
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allocation of specific royalty amounts to
each of the claimant categories in this
proceeding. 3/30/23 Tr. 2512–13
(Asker).
JSC also maintains that the base fee
calculations of any minimum-fee-only
CSO cannot reveal the programming
preferences of such CSOs or otherwise
be useful in the estimation of relative
marketplace value. Specifically, JSC first
maintains that ‘‘[a]ny alleged
uncertainty about application of the
Minimum Fee is speculative.’’ Reply
Proposed Findings of Fact and
Conclusions of Law of the Joint Sports
Claimants (JSC RPFF) at 11. Not only
does JSC find this uncertainty to be
speculative, they further argue that it is
‘‘highly unlikely that most Minimum
Fee CSOs would have been uncertain
about whether a carriage decision would
affect their royalty payment.’’ JSC RPFF
¶ 32. In support of this point, JSC notes
that, after 2014, among minimum-feeonly CSOs that retransmitted at least
one distant signal, approximately 86%
calculated a base fee + 3.75% Fee that
was 75% or less of the CSO’s minimum
fee. JSC RPFF ¶ 32. Further to this point,
JSC takes note of Dr. Tyler’s
acknowledgement that ‘‘the further you
are away from the minimum fee
threshold, the less likely it would be
that there would be that risk of
exceeding it.’’ JSC RPFF ¶ 32.27
In further criticism of the usefulness
of regressions, particularly for the twoyear 2016–2017 period, JSC notes that
only 55.2% of [CSOs chose to carry]
distant signals. Harvey CWDT ¶ 26. JSC
further notes that, out of this 55.2%,
27 However, JSC also acknowledges that the Bortz
Survey, on which it relies, likewise ‘‘decided to
adopt Base [Fee] + 3.75% Fee . . . weighting
‘‘[o]nce Bortz realized that many . . . systems were
paying the Minimum Fee. . . .’’ JSC RPFF ¶ 105.
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With regard to the necessity of at least
two subscriber groups within a system
during an accounting period (required
by Dr. Crawford’s system-accounting
period fixed effect), Dr. Marx reported
that, beginning in 2015, fully 62% of
CSOs, accounting for almost 35% of
total royalties, did not satisfy this
requirement. Amended Corrected
Written Direct Testimony of Leslie M.
Marx, Ph.D., Trial Ex. 7204, ¶ 58 (Marx
ACWDT). By 2017, 93.8% of the
royalties were paid via the minimum
fee, rather than the base fees. CTV ¶ 189
(citing Marx WRT, fig.14).
Although CTV and Dr. Marx do not
consistently characterize the evidentiary
weight of the royalty data from ‘‘excesscapacity’’ CSOs as wholly
uninformative, they unambiguously
report Dr. Marx’s own opinion that the
2015–2017 minimum fee royalty data is
decidedly ‘‘less informative’’ than the
royalty data from CSOs that transmitted
more than 1.0 DSE. Marx WRT ¶ 22.
Further bolstering the point that
minimum-fee-only-CSO royalty data
dominated the 2015–2017 landscape,
CTV points to the following data:
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approximately 74% paid only the
minimum fee.
Additionally, JSC notes that during
the two-year 2016–2017 period, 14% of
all CSOs met or exceeded the minimum
fee, accounting for but 6.8% of total
royalty payments, which reflected a
91% decrease compared to 2014. Harvey
CWDT tbl.11.28
With regard to 2015, JSC relies on Mr.
Harvey’s finding that, after he removes
reported WGNA carriage, 72% of CSOs
carrying at least one distant signal then
paid only the minimum fee. JSC notes
that Mr. Harvey found that only 13.4%
of CSOs calculated a minimum fee,
accounting for 85.2% of total royalty
payments for that year. JSC PFF ¶ 46
(citing the Harvey CWDT).29
Considering these 2015 data from the
opposite perspective, JSC cites Mr.
Harvey’s calculation that only 13.4% of
CSOs calculated a base fee + a 3.75% fee
in excess of the minimum fee, reflecting
only 9.8% of the total royalties paid in
that year. JSC PFF ¶ 47 (further the
Harvey CWDT).
JSC also relies on another of its expert
witnesses, the economist Dr. W. Robert
Majure, who explained that, in the
2015–2017 period, most CSOs that
formerly carried WGNA under the
section 111 license chose not to replace
it with an equivalent number of DSEs,
and as a result ‘‘made far less use of the
section 111 license.’’ JSC PFF ¶ 49
(citing Written Direct Testimony of W.
Robert Majure, Ph.D., Trial Ex. 7103,
¶ 77 (Majure WDT)).
Based on these data related to the
minimum fee, JSC maintains that the
fee-based regressions, as they relate to
the 2015–2017, period wrongly use base
fees (with or without the 3.75% fee) as
‘‘price proxies,’’ in that when the
minimum fee binds, the marginal
royalty cost of carriage is zero. JSC PFF
¶¶ 148–152 (and record citations
therein).
28 More particularly, in the years 2016–2017, only
3.2% of CSOs calculated a base fee + 3.75% Fee
that ‘‘met’’ (rather than ‘‘exceeded) the minimum
fee. JSC PFF ¶ 54 (citing Harvey CWDT tbl.14).
29 It is hardly clear that Mr. Harvey was justified
in removing reported carriage of WGNA in 2015.
The record reflects the existence of SOAs filed for
2015 that reported such carriage, and there is
uncertainty as to whether those SOAs were
erroneous or whether there was residual WGNA
carriage as WGNA transitioned from a broadcast
channel to a cable station. But see Kent Gibbons,
WGN America Converts to Cable in Five Markets,
Broadcasting & Cable (Dec. 14, 2014) (‘‘Tribune
Media Co. said its WGN America is debuting on
cable television systems in Chicago, Boston,
Philadelphia, Seattle and Washington, DC, starting
Tuesday, as it begins converting from a superstation
to a cable network . . . on Comcast systems [with]
more launches and conversions . . . happening on
distributors this month and throughout 2015.’’)
(emphasis added).
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In econometric terms, Dr. Asker, on
behalf of JSC, measured the alleged
errors that Drs. George, Johnson, and
Tyler introduced into their regressions
by using the incorrect base-fee-related
price proxies. These alleged
‘‘measurement errors,’’ according to Dr.
Asker, were correlated with the
variables measuring distant signal
content minutes in the entire 2014–2017
period and equal the difference between
the improper price proxies y and the
zero price implied by the payment of
the minimum fee. Written Rebuttal
Testimony of John Asker, Ph.D., Trial
Ex. 7114, ¶ 79 (Asker WRT).
JSC further notes in this regard that
Dr. George herself conceded that the
link between base rate royalties and
actual CSO demand is ‘‘not super tight,’’
and adds the very sort of ‘‘measurement
error to the dependent variable’’ that Dr.
Asker has calculated. JSC PFF ¶ 154
(citing Dr. George’s hearing testimony).
Dr. Asker also takes issue with the
regression experts’ use of the base fee as
a price proxy even for CSOs paying
above the minimum fee. He explains
that for a perfectly rational CSO
calculating price, the true marginal cost
of distantly retransmitting a local station
in this context—the difference in cost to
the CSO between retransmitting and not
retransmitting—is not the base fee, but
rather the difference between (1) the
total fees that would bind, which may
have been the minimum fee, without
retransmitting that local station, and (2)
the total base fees that would bind (the
minimum fee having been exceeded) if
that local station was distantly
retransmitted. See Asker WRT ¶¶ 59–77
(applying the definition of price, stated
in ¶ 61, as ‘‘the extra expenditure
required to have it, as compared to not
having it.’’).
Finally, JSC takes note of Dr. Asker’s
point that it is standard practice among
statisticians and econometricians to test
the validity of a regression against other
available external evidence, as a sort of
‘‘reality filter.’’ JSC PFF ¶ 169 (citing
Asker WRT ¶ 104); see also 3/28/23 Tr.
1910–11 (Harvey) (agreeing with Judge
Strickler that ‘‘validity test’’ is
synonymous with ‘‘reality filter’’). Here,
JSC points out that the validity of the
regressions is refuted by the fact that,
during the 2015–2017 period, CSOs did
not behave in accordance with the
assumption behind the regressions. That
is, despite the assumption that the
incremental benefits of distant carriage
were positive (according to the
regression estimates) and the
incremental royalty cost was zero, most
CSOs elected not to add additional
distant signals. Thus, the regressions
purportedly were invalid, unrealistic,
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and self-contradictory (‘‘false within
their own premise’’ one might say),
according to JSC. Written Rebuttal
Testimony of W. Robert Majure, Ph.D.,
Trial Ex. 7104, ¶¶ 15, 47–50 (Majure
WRT); 3/30/23 Tr. 2594–95, 2598–99
(Majure).
F. SDC Position on the Minimum Fee
Issue
At the outset, when framing the
relevant minimum fee issue, the SDC
maintain that, ‘‘while it may be true’’
that CSOs’ ordinal decision-making
shows their ranked preferences, ‘‘no
regression model in this case has been
specified for such a theory.’’ SDC PFF
¶ 39. Rather, these regressions consider
the calculated (but not paid) base fees
(and the 3.75% Fee, depending on the
regression at issue) of these minimumfee-only CSOs.
But the SDC maintain that the
minimum fee ‘‘confounds any
interpretation of a fee-based regression’’
premised on the CSOs’ ‘‘willingness-topay.’’ Settling Devotional Claimants’
Proposed Findings of Fact and
Conclusions of Law (SDC PFF) at 27. In
this regard, the SDC point to the
testimony of several experts who opine
that the minimum fee structure ‘‘largely
obviate[s] the purported causal theory
based on ‘willingness-to-pay,’ ’’ because
the minimum-fee-only CSOs ‘‘are
required to pay a minimum fee
equivalent to a 1.0 DSE . . . whether
they are ‘willing’ or not.’’ SDC PFF ¶ 60
(citing Asker WRT ¶¶ 78–86; Marx WRT
¶ 22.). Stating the point in economic
terms, the SDC state that ‘‘there is no
marginal cost’’ incurred by a CSO unless
and until ‘‘the minimum fee is
exceeded.’’ SDC PFF ¶ 60.
The SDC do not limit their criticism
of the minimum fee issue to the
regressions proffered in this proceeding.
They also look back to the 2010–13
proceeding, where ‘‘approximately 50%
of the CSOs paid only the Minimum
Fee,’’ which, the SDC maintain now (as
they did in the 2010–13 proceeding),
constituted a ‘‘serious problem’’ for the
Crawford regression upon which the
Judges relied in the prior proceeding.
SDC PFF ¶ 61.
But the SDC assert that their criticism
in the 2010–13 proceeding is even more
relevant in the present proceeding, in
that this minimum fee problem is
‘‘exacerbated after 2014, [because] the
proportion of fees paid by systems
paying the Minimum Fee went up from
39.2% to 93.8%.’’ SDC PFF ¶ 62 (citing
Ex. 7204 at 29, Marx ACWDT ¶ 65). In
this environment, the SDC maintain, it
is difficult to see how any inferences
could be drawn about ‘‘willingness to
pay.’’ SDC PFF ¶ 62.
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The SDC then evaluate the attempts
by the regression experts to address the
minimum fee issue, as summarized
below:
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—The SDC acknowledge that Dr. Tyler’s
‘‘sensitivity test of this issue,’’ in which he
dropped the minimum-fee-only CSOs,
‘‘might provide some rough guidance as to
the potential direction and magnitude of
bias introduced by the presence of
minimum fees.’’ SDC PFF ¶ 63 (emphasis
added) (citing Tyler ACWDT ¶ 156). But
the SDC take note of what they characterize
as ‘‘the vast amount of data’’ that Dr. Tyler
had to discard to apply this sensitivity test,
leading the SDC to conclude that Dr.
Tyler’s attempt to drop all minimum-feepaying CSOs was ‘‘probably too extreme.’’
SDC PFF ¶ 63 (citing 4/19/23 Tr. 5473–74
(Tyler).
—Dr. Johnson’s sensitivity test, in which he
too applied his model only to systems
paying above the minimum fee, resulted in
large swings in the JSC coefficients,
rendering them statistically insignificant.
SDC PFF ¶ 104.
—The SDC acknowledge that Dr. Marx
‘‘makes good points about the confounding
effects of minimum fee-paying systems
. . . in the 2015–2017 timeframe,’’ but find
‘‘her position on the reliability of the
model before 2015 . . . too convenient to
credit.’’ Harkening back to their criticism
of the 2010–13 Determination’s adoption of
the Crawford regression, the SDC maintain
that Dr Marx’s Bayesian regression for 2014
is deficient with regard to this minimum
fee issue because ‘‘ ‘CSOs paying the
minimum fees accounted for a large
proportion already before the conversion of
WGNA,’ ’’ and any 2014 modeling
‘‘ ‘should have been specified’ ’’ to address
this issue. SDC PFF ¶ 130 (citing Written
Rebuttal Testimony of Daniel L. Rubinfeld,
Trial Ex. 7505, ¶ 95 (Rubinfeld WRT) (‘‘The
fact that Dr. Crawford’s model does not
hold up when applied to 2014–2017 data
in the current proceeding reveals that the
regression specification put forth by Dr.
Crawford was not robust or informative.’’).
G. The Judges’ Analysis and
Conclusions Regarding the Minimum
Fee Issue
The Judges find that the dramatic
increase in the number of minimum-feeonly CSOs (i.e., those with no distant
retransmittals and those with some
distant retransmittals but with ‘‘excess
capacity’’) renders regression analyses
that include those CSOs less reliable
and thus can be accorded only very
limited economic evidentiary weight.
Moreover, the Judges accord
significantly more evidentiary weight to
regression modeling that focuses only
on the CSOs that actually revealed their
preferences by willingly paying above
the minimum fee, i.e., at the base fee
level.
In particular, as discussed infra, the
Judges rely on the Tyler Model, as Dr.
Tyler applied his model to the CSOs
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paying above the minimum fee. See
Tyler ACWDT ¶ 156 & fig.6.3 (discussed
infra). Although there is hardly a
consensus as to the adoption of this
variant of the Tyler Model, the Judges
are struck by the supportive argument of
the SDC, set forth below, regarding the
Tyler Model as applied to aboveminimum-fee-paying CSOs:
Dr. Tyler, whose rate-based methodology is
the most explicitly based on a ‘‘minimum
willingness to pay’’ theory . . . offers a
sensitivity test of this issue. Tyler [ACWDT]
¶ 156. (It is a fairer sensitivity test than Dr.
Johnson’s similar test, which was selected
retrospectively out of hundreds of tests that
were tried and is performed in the presence
of the distortion of multiple
misspecifications). Dr. Tyler’s sensitivity test
might provide some rough guidance as to the
potential direction and magnitude of bias
introduced by the presence of minimum fees.
SDC PFF ¶ 156. See also 4/19/23 Tr.
5473 (SDC’s counsel’s statement to Dr.
Tyler on cross-examination) (‘‘I do want
to point out to your credit that your first
sensitivity test tries to address this
issue.’’). This argument is generally
consistent with Dr. Tyler’s response to
SDC counsel on this point, agreeing that
it was important to be ‘‘cognizant’’ of
this minimum fee issue and that it be
‘‘considered and addressed’’ because
there is ‘‘reasonable disagreement about
how to handle the issue.’’ Id. at 5473–
74.
The Judges do not see the
disagreement as necessarily
‘‘reasonable’’ regarding whether to rely
on the calculated base fee data of all
CSOs (including the CSOs paying only
the minimum fee) or only those who
actually paid their calculated base fees.
But, however one couches this
disagreement, the Judges find the latter
approach appropriate, and that—to
borrow the SDC’s phrase—the variant of
the Tyler Model in Figure 6.3 of the
Tyler ACWDT offers the Judges’ ‘‘rough
guidance’’ in the allocation of shares.30
With regard to the issue of precision,
mathematical or economic, the Judges
do not adopt Dr. Asker’s analysis,
discussed above, that the appropriate
method to calculate royalties for aboveminimum-fee-paying CSOs should be
based on the difference between (1) the
actual royalty amount paid when a
distant station is added; and (2) the
amount that the CSO would have paid
pursuant to the minimum fee
calculation if it would bind in the
30 Evidence that provides ‘‘rough guidance’’ is
useful evidence in these proceedings. As noted
elsewhere in this determination, the D.C. Circuit
has acknowledged that the nature of this statutorilymandated, but statutorily standardless, allocation
process can require a measure of ‘‘rough justice,’’
in the face of inevitable mathematical imprecision.
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absence of transmittal of that station.
Although in theory that would appear to
be a rational approach, there is no
evidence that any CSO actually engages
in such an activity. Further, as the
Judges note elsewhere in this
determination, they credit the
designated testimony of Ms. Hamilton, a
cable industry expert, who stated that
the amount of money at issue regarding
section 111 royalties is essentially de
minimis to the CSOs (although quite
significant to the parties in this
proceeding), and that the CSOs do not
devote much attention to issues
regarding distant retransmittals. In this
context, and in the absence of any
evidence to the contrary, the Judges
cannot assume, let alone apply, a
pricing rationale that suggests a tunnelvision sort of hyperrationality, when
Ms. Hamilton’s testimony suggests a
broader rationality, whereby CSOs
rationally apply their scarce time and
attention to more economically
consequential matters.31
VI. The Allegations of ‘‘Specification
Searching’’ 32
A. Allegations of Concealed
Specification Searching by Dr. Crawford
Applicable to the Present Proceeding
In their determination in the 2010–13
cable proceeding, the Judges relied
predominantly, although not solely, on
the fee-based regression model
presented by Dr. Crawford, who was
then a witness on behalf of CTV. In
deciding to rely on Dr. Crawford’s
regression (the Crawford Model), the
Judges credited his testimony denying
allegations by the SDC that he had
improperly attempted and rejected
many alternative regression models.
2010–13 Determination at 3566–3567;
see also SDC PFF ¶ 68 (and record
citations therein).
31 This finding is consistent with a broader point
made by the economist Ronald Coase, who won the
Nobel Prize for his foundational work on
transaction costs, regarding an overemphasis on
what he coined ‘‘blackboard economics.’’ As Dr.
Coase explained: ‘‘[When] [t]he policy under
consideration is one which is implemented on the
blackboard [and] [a]ll the information needed is
assumed to be available and the teacher plays all
the parts . . . there is no counterpart to the teacher
within the real economic system . . . no one who
is entrusted with the task that is performed on the
blackboard.’’ R. Coase, The Firm, the Market, and
the Law 19 (1990). Substitute ‘‘expert witness’’ for
‘‘teacher’’ and ‘‘in the testimony’’ for ‘‘on the
blackboard’’ and Dr. Coase’s point applies here.
32 Specification searching (also known as ‘‘data
fishing.’’) is defined as ‘‘the practice of searching
numerous research methodologies—including
different models, design components, analytical
methods, and hypotheses—and selectively
reporting only those that produce significant or
otherwise favorable results. H. Bavli, Credibility in
Empirical Legal Analysis, 87 Brook. L. Rev. 501, 509
(2022).
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The SDC maintain that three of the
four fee-based regression models
presented in this proceeding, PTV’s,
CCG’s, and CTV’s, are based upon the
Crawford Model. In order to understand
the relationship of these three models to
the Crawford Model, the SDC argue (and
the Judges agree) that it is necessary to
understand the characteristics and
history of the Crawford Model,
comparing what was known at the time
of the 2010–13 cable proceeding with
what was subsequently uncovered. SDC
PFF ¶ 69 (and record citations therein).
To begin its review of the Crawford
Model, the SDC point to the basic
hypothesis undergirding the approach—
attempting to ‘‘relat[e] a measure of
royalty fees to numbers of [program]
category minutes.’’ SDC PFF ¶ 70. The
SDC state that, although the Crawford
Model ‘‘followed a framework that
somewhat resembled . . . the model
offered by Dr. Waldfogel [the Waldfogel
Model] in the 2004–05 cable
proceeding,’’ Dr. Crawford actually
made ‘‘multiple dramatic departures.’’
SDC PFF ¶ 70 (citing 2010–13
Determination at 3557 for a description
of Dr. Waldfogel’s model). Dr. Crawford
departed from the Waldfogel Model,
according to the SDC, because after he
‘‘tested Dr. Waldfogel’s model as a
starting point using 2010–13 data
(which he falsely denied doing), the
Waldfogel [M]odel yielded implausible
results . . . demonstrating, at a
minimum, that [the Waldfogel Model]
. . . performed poorly on out-of-sample
data.’’ SDC PFF¶ 70 (and record
citations therein). Moreover, the SDC
assert that Dr. Crawford undertook, but
failed to disclose, his sensitivity testing
when he constructed the Crawford
Model, which showed that the results of
the Waldfogel Model were extremely
sensitive to annual changes, suggesting
that the Waldfogel Model may have
been ‘‘selected to fit the data in 2004–
05.’’ SDC PFF ¶ 70 (and record citations
therein).
Expanding on the foregoing, the SDC
imply that specification searching is
widespread, noting that ‘‘[a]t least 10
different expert witnesses have
presented at least 10 different fee-based
regression models in the last five
allocation proceedings: Dr. Rosston
(CTV, 1998–99 cable), Dr. Waldfogel
(CTV, 2004–05 cable), Dr. Crawford
(CTV, 2010–13 cable), Dr. Israel (JSC,
2010–13 cable), Dr. George (CCG, 2010–
13 cable, 2014–17 cable), Dr. Heeb
(CTV, 2010–13 satellite), Dr. Gray (PS,
2010–13 satellite), Dr. Johnson (PTV,
2014–17 cable), Dr. Tyler (PS, 2014–17
cable), and Dr. Marx (CTV, 2014–17
cable). Further, the SDC emphasize that
only Dr. George has appeared more than
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once, and that her models in the 2010–
13 proceeding and in this proceeding
are ‘‘very different’’ from each other.
SDC PFF ¶ 73 (and record citations
therein).
Dr. Erdem, also, later discovered,
based on CTV’s compelled production
in the 2010–13 satellite case, that Dr.
Crawford had actually tested many
different functional forms before
deciding to use the log-linear form. Only
then did he perform the appropriate
statistical test (the ‘‘Box-Cox’’ test),
which Dr. Erdem claims ‘‘specifically
rejected the log-linear form.’’ Dr. Erdem
further claims that Dr. Crawford
improperly failed to run the test on the
independent variables, limiting the test
to the dependent variable (the royalty
measure). Amended Written Direct
Testimony of Erkan Erdem, Ph.D., Trial
Ex 7502, ¶¶ 41–42 (Erdem AWDT); see
also Supplemental Written Rebuttal
Testimony of Erkan Erdem (2010–13
satellite proceeding), Trial Ex. 7054,
¶¶ 16–18 & Ex. 3. See SDC PFF ¶ 76
(and record citations therein).
According to Dr. Erdem, the failure of
Dr. Crawford and CTV, in the 2010–13
cable proceeding to disclose, in Dr.
Crawford’s direct testimony or in
discovery, this testing and the results
thereof served to conceal the potential
for ‘‘distortion and bias’’ in the
Crawford Model arising from the use of
a ‘‘linear form’’ of a control variable for
the number of subscribers in the
subscriber group during the prior
accounting period (the so-called ‘‘lagged
subscribers’’) as affecting the dependent
variable (royalties) expressed not in
level (i.e., linear) form, but rather in log
form. See Erdem AWDT ¶¶ 51, 71; see
also Asker WRT ¶¶ 98–99; Written
Rebuttal Testimony of R. Garrison
Harvey, Trial Ex. 7106, ¶¶ 194, 197, 202
& Ex. H (Harvey WRT); see also SDC
PFF ¶ 77.
The SDC maintain that the foregoing
exemplifies the ‘‘poor economic
practice’’ and econometric ‘‘sin’’ of
specification searching broadly
undertaken by Dr. Crawford. SDC PFF
¶ 87 (citing Kennedy, supra, at 367).33
33 A pernicious aspect of covert specification
searching is that it masks from the reader (whether
Judge, adversary party, journal editor or academic
referee) conduct that bears importantly on the
regression ultimately produced. The classic
example of a simple hidden specification search is
the following: ‘‘[Although] the probability of
flipping a coin and obtaining heads in ten
consecutive flips out of ten tries is almost zero. . . .
if 15,000 individuals attempt this, it is virtually
certain that one or more will succeed.’’ M. Klock,
Finding Random Coincidences while Searching for
the Holy Writ of Truth: Specification Searches in
Law and Public Policy or Cum Hoc Ergo Propter
Hoc, Wis. L. Rev. 1007, 1010 (2001). An
experimenter who ‘‘searches’’ for, and reports only,
the 1 out of 15,000 times the experiment generates
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Moreover, the SDC assert that Dr.
Crawford did not merely commit the
‘‘sin’’ of specification searching; he also
lied by repeatedly denying his
econometric misconduct. Erdem AWDT
¶ 36; Written Rebuttal Testimony of
Erkan Erdem, Ph.D., Trial Ex. 7503, ¶ 77
(Erdem WRT). According to the SDC,
Dr. Crawford instead ‘‘acknowledged
performing only a single alternative
analysis,’’ and the Judges trusted and
relied on his testimony. SDC PFF ¶ 88
(citing 2010–13 Determination at 3568
(finding that Dr. Crawford ‘‘had not run
such an alternative regression by
generating a regression and then
discarding it . . . .’’)). In fact, according
to the SDC, Dr. Crawford ‘‘had
performed and rejected . . .
undisclosed alternative models . . .
with different combinations of variables,
interactions of variables, no fixed
effects, different forms of fixed effects,
and a wide range of functional forms
. . . produc[ing] wide ranges of implied
shares, including 0% shares for every
. . . category in . . . some models.’’
SDC PFF ¶ 88 (and record citations
therein).
According to the SDC, a telltale sign
that Dr. Crawford had engaged in
specification searching was the
Crawford Model’s inclusion of
‘‘indicator variables that had no
function . . . [given] his systemaccounting period fixed effects . . .
[thereby] suggesting that he had tested
the regression with no fixed effects or at
other levels of fixed effects . . . . [But]
Dr. Crawford repeatedly denied trying a
specification without fixed effects or at
a different level of fixed effects.’’ SDC
PFF ¶ 90 (and record citations therein).
Moreover, the SDC claim that, in
response to a question from Judge Feder,
Dr. Crawford lied by claiming he did not
test regressions without fixed effects; his
test results, later produced in the
satellite proceeding, showed that he
‘‘ran most of his hundreds of models
without fixed effects and at different
levels of fixed effects, searching for the
best results.’’ SDC PFF ¶ 91 (and record
citations therein) (emphasis added).
Returning to the issue of whether to
transform variables from linear to log
form, the SDC claim to have identified
‘‘[p]erhaps the clearest fingerprint’’ of
Dr. Crawford’s specification search.
Specifically, although Dr. Crawford had
testified that he did not perform a
sensitivity test on a log-log form of
regression because he ‘‘strongly fe[lt]
that including log subscribers is not an
appropriate specification as an
ten consecutive heads, and who conceals the 14,999
times this result did not occur, is misrepresenting
his or her work and the usefulness of the result.
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explanatory variable’’, this ‘‘was a lie’’
because the discovery in the satellite
proceeding showed that Dr. Crawford
did test a log-log form of regression,
which resulted in ‘‘an approximately
10-point drop in CTV shares (about an
$80 million value).’’ SDC PFF ¶ 93 (and
record citations therein).
After reviewing the satellite
discovery, which included
approximately 500 regression model
runs, and weighing it against Dr.
Crawford’s cable testimony, SDC expert
Dr. Rubinfeld stated: ‘‘I’ve never seen
anything on this scale . . . .’’ 4/6/23 Tr.
3638 (Rubinfeld). The SDC characterize
Dr. Crawford’s purported specification
searching and related alleged untruths
as ‘‘[e]vidence of fraud in a past
proceeding’’ that constitutes ‘‘changed
circumstances,’’ thus ‘‘requir[ing] a
reevaluation of those characteristics of a
Crawford-like regression that have
infected the regression models
presented in this proceeding.’’ SDC PFF
¶ 96 (emphasis added).
In this regard, the SDC take particular
note that Dr. Marx acknowledges that
because her Bayesian model relies
directly on Dr. Crawford’s results her
results are unreliable if Dr. Crawford’s
results are unreliable. SDC PFF ¶ 129
(citing 4/11/23 Tr. 4323–24 (Marx)).
B. CCG Response Regarding Alleged
Specification Searching by Dr. Crawford
CCG’s ‘‘primary response’’ to the
SDC’s claim is that any specification
searching by Dr. Crawford is irrelevant
because ‘‘regression has the advantage
of transparency and replicability.’’ CCG
PFF ¶ 217 (and record citations therein).
This occurred in the present proceeding,
CCG maintains, as the work of various
experts presenting testimony in this
case showed, that every aspect of a
regression such as the Crawford Model
could be and was examined and tested.
4/18/23 Tr. 5177–79 (George); George
WRT at 53.
Further, CCG maintains it is
appropriate for experts in the present
proceeding not to ‘‘mov[e] away from an
approach that the Judges have found
highly useful in determining relative
market value’’ unless there were ‘‘clear
theoretical or empirical reasons’’ to do
so. CCG PFF ¶ 218 (and record citations
therein). CCG analogizes to the
‘‘academic setting,’’ in which ‘‘differing
views’’ among econometricians can be
‘‘addressed through the ‘referee’ process
. . . where the most important criterion
for evaluating a proposed alternative
model is whether the proposed change
undermines the theoretical relationships
in some way . . . .’’ George WRT at 52.
Applying the foregoing points, Dr.
George was unconcerned that Dr.
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Crawford’s procedures appeared to
include ‘‘more than one model.’’ She
analyzed the Crawford Model on its
merits, concluding that it ‘‘was tightly
linked to the economics of the cable
marketplace and estimated to minimize
bias.’’ It was on this basis, as well as the
Judges’ endorsement of the model, that
Dr. George used the Crawford Model as
the basis for her work in this
proceeding. 4/18/23 Tr. 5131, 5176
(George); George WDT at 6; Ex. 7404;
George WRT at 10–11, 13, 43–44; see
also CCG PFF ¶ 220.
C. CTV Response Regarding Alleged
Specification Searching by Dr. Crawford
When asked whether she believed Dr.
Crawford had or had not engaged in
improper specification searching, Dr.
Marx demurred stating that she was
‘‘not offering that opinion.’’ 4/11/23 Tr.
4119 (Marx). When asked specifically
about the more detailed arguments
made by the SDC witnesses regarding
Dr. Crawford’s alleged specification
searching based on supplemental
discovery Dr. Marx sought to make sure
her ‘‘no-opinion’’ testimony was
unambiguous:
I want to be clear that I didn’t reach an
opinion about whether or not [Dr.] Crawford
had a fair underlying theoretical structure
behind the regressions that he ran. I didn’t
see anything in what I reviewed that raised
red flags that that was not the case, but what
I saw was consistent with or at least not
inconsistent with proper econometric
practice.
4/11/23 Tr. 4121 (Marx) (emphasis
added). See also 4/11/23 Tr. 4226
(Marx) (testifying similarly in response
to questioning by Judge Strickler); 4/11/
23 Tr. 4257 (Marx) (same). On crossexamination, Dr. Marx elaborated while
reiterating her ‘‘no opinion’’ regarding
the characterization of Dr. Crawford’s
consideration of hundreds of regression
alternatives:
[Dr. Marx]
[I]n my direct testimony . . . I wanted to
emphasize that I am not opining that [Dr.]
Crawford had an underlying theoretical
structure. I’m just saying that what I saw was
consistent with that. What I saw was not
inconsistent with proper econometric
practice, but I’m not offering an opinion
about what [Dr.] Crawford was thinking in
the process of running these tests. And I’m
not trying to speak for [Dr.] Crawford.
[SDC counsel Mr. MacLean]
So you would agree that . . . running
hundreds of different models and then
selecting models based on preferred or
expected results or what you referred to as
casting about, that would not be a good
research practice . . . ?
[Dr. Marx]
It is not a good research practice to cast
about without thinking and without an
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underlying theoretical structure . . . without
the underlying economics being kept in
mind. The mere observation of a large
number of regressions being run, by itself, in
the context of the 2010 to 2013 proceeding,
I don’t find at all surprising, and seeing that
did not raise any concerns in my mind about
either the reliability of the work or my ability
to use my usual procedure and thinking to
assess the reliability of the work.
4/11/23 Tr. 4325–27 (Marx).
However, after being confronted with
Dr. Crawford’s testimony that he had
‘‘perform[ed] only one alternative
analysis, that he hadn’t provided’’ in
discovery, in contrast to what was
uncovered in the satellite discovery, Dr.
Marx acknowledged that as to Dr.
Crawford’s oral testimony ‘‘there are
statements that were made that seem in
retrospect not accurate.’’ 4/11/23 Tr.
4332 (Marx). Dr. Marx then nonetheless
retreated to one of her stock statements,
asserting that ‘‘nothing that I saw raised
any concerns in my mind that [Dr.]
Crawford’s results were not reliable
. . . .’’ 4/11/23 Tr. 4334 (Marx).
Accordingly, rather than render her
own judgment as to the appropriateness
of Dr. Crawford’s conduct or adjust her
application of the Crawford Model in
light of these issues, Dr. Marx testified
that she reviewed and assessed Dr.
Crawford’s 2010–13 regression model as
she would consider any such model,
whether in her role as an economist or
as an academic journal referee (which is
a function she performs). On this basis,
she determined that Dr. Crawford’s
model was reliable, i.e., regardless of
any of the specification searching and
dissembling that SDC claimed had been
uncovered in the satellite proceeding
discovery. Marx WRT ¶¶ 42–54; 4/11/23
Tr. 4112–20, 4325–4327, 4334 (Marx);
CTV PFF ¶¶ 366–69; Reply of the
Commercial Television Claimants to
Proposed Findings of Fact and
Conclusions of Law (CTV RPFF) ¶ 169.
A key reason why Dr. Marx declined
to express an opinion as to Dr.
Crawford’s alleged specification
searching is the following: What the
SDC characterize as Dr. Crawford’s
wrongful experimentation with
alternative model specifications, Dr.
Marx maintains it can also be
understood as a form of sensitivity
analysis—not only a standard activity,
but actually a best practice in
econometric analysis. Marx WRT ¶ 10;
4/11/23 Tr. 4120–21 (Marx). More
broadly, CTV asserts that what Drs.
Erdem and Rubinfeld criticize as
evidence of the improper practice of
specification searches can all be
understood as the ‘‘standard practice of
economists’’—involving ‘‘[r]obustness
checks, sensitivity analyses, and
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differences across economists in
regression specifications.’’ CTV PFF
¶ 371 (citing Marx WRT ¶¶ 31–36).
D. PTV Response Regarding Alleged
Specification Searching by Dr. Crawford
PTV’s expert economic witness, Dr.
Johnson, did not address the soundness
of Dr. Crawford’s 2010–13 regression
methodology, which, to repeat, the SDC
economic experts characterize as the
wrongful undertaking of a specification
search.34 But PTV emphasizes that,
although Dr. Johnson acknowledges that
his own regression analysis is based on
the economic theory and principles
underlying Dr. Crawford’s regression
analysis, Dr. Johnson modified and
improved some aspects of Dr.
Crawford’s regression model. PTV PFF
¶¶ 113, 115 (citing Crawford WDT
¶¶ 32–36, 46.) Thus, PTV argues, even if
Dr. Crawford engaged in wrongful
specification searching to construct his
2010–13 model, ‘‘it makes no sense for
it to adversely affect the reliability of Dr.
Johnson’s regression specification,
which has a different set of variables
and has been tested on the 2014–17
data.’’ PTV PFF ¶ 143.
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E. Allegations of Concealed
Specification Searching by Dr. Johnson
in This Proceeding
Turning from the work of Dr.
Crawford to the work of Dr. Johnson, on
behalf of PTV in the present proceeding,
the SDC accuse PTV and Dr. Johnson of
similar misconduct as they allege was
committed by Dr. Crawford in the 2010–
13 proceeding. SDC charge that Dr.
Johnson concealed numerous regression
modeling tests in discovery, limiting
production to only a few sensitivity
tests. SDC PFF ¶ 105. Despite this
modest discovery, based on the
documentation that had been produced
by PTV, Dr. Erdem saw evidence
suggestive of specification searching. 4/
5/23 Tr. 3429; 4/6/23 Tr. 3552–55
(Erdem). These suspicions gave rise to
the SDC’s motion to compel SDC’s
production of all regression models that
Dr. Johnson had considered, and the
Judges granted the motion. See Order 24
Granting the SDC Motion to Compel
PTV to Produce Documents (Jan. 19,
2023).
34 Dr. Johnson testified he never received Dr.
Crawford’s workpapers unearthed in discovery in
the 2010–13 satellite proceeding on which the SDC
relies for its specification search allegation (despite
the production of those documents by the SDC to
all counsel, including PTV’s counsel, in this
proceeding.).
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F. SDC Assertions After Further
Discovery
After PTV was compelled by the
Judges to provide further discovery, it
produced documents revealing that Dr.
Johnson’s team had selected the four
models that he presented out of more
than four hundred models. He and his
professional subordinates had actually
engaged in over 400 runs of regression
approaches over several different data
sets (resulting in numerous different
results in terms of program category
coefficients implied allocation shares).
Erdem WRT ¶ 82; Supplemental Written
Rebuttal Testimony of Erkan Erdem,
Trial Ex. 7504, ¶ 3 n.3 (Erdem SWRT);
4/5/23 Tr. 3403 (Erdem); SDC PFF
¶ 106. Further, the SDC cataloged the
use by Dr. Johnson and his professional
subordinates of 44 different dependent
variables (including log transformations)
and wide ranges of shares (negative as
well as positive) in all claimant
categories. Erdem WRT ¶ 82;
Supplemental Written Rebuttal
Testimony of Daniel L. Rubinfeld, Trial
Ex. 7506, ¶ 21, tab 2 (Rubinfeld SWRT).
Dr. Erdem analyzed these tests
according to dates and sequence
numbers included in the documents
produced by PTV and claimed to find
that the successive testing by Dr.
Johnson and/or his team was correlated
with a steady rise in PTV’s allocation
share. Erdem SWRT Ex. 2.
The SDC dismissed as implausible Dr.
Johnson’s explanation of this
correlation. Specifically, the SDC rejects
Dr. Johnson’s claims that the correlation
was a ‘‘coincidence’’ or that it could be
explained by incomplete and erroneous
data that needed to be corrected or
updated. SDC PFF ¶ 109 (citing 3/22/Tr.
737–39 (Johnson)).35
In any event, Dr. Erdem testified that
if Dr. Johnson and his team were not
engaged in specification searching, the
allocation results arising from the data
updates or corrections should have been
more randomly distributed, and, further,
that as a matter of regression
methodology it was inexplicable that
data changes would serve to generate
hundreds of regressions with different
combinations of specifications. 4/6/23
Tr. 3565–67 (Erdem). Moreover, Dr.
Erdem accused Dr. Johnson and his
35 It is important to note here that the SDC is
mischaracterizing Dr. Johnson’s specific testimony.
He clearly did not say the correlation was a mere
coincidence or explainable as a data issue. Rather
he claimed in his testimony that the increase in
PTV shares was coincidental with and caused by
the inputting of additional and correct data, and
that it was the data that generated PTV’s higher
share. See 3/22/23 Tr. 738 (Johnson) (‘‘I completely
refute . . . that it’s a coincidence. The reason that
this happened is . . . tied to specific data issues
. . . [and] the data is what it is.’’) (emphasis added).
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professional subordinates of selfservingly searching not only for the
specifications that would increase PTV’s
allocation share, but also of attempting
to search for an optimal combination of
a specification set and a dataset for
increasing PTV’s allocation share. 4/6/
23 Tr. 3552–55 (Erdem). As purported
proof, Dr. Erdem points to his running
of Dr. Johnson’s preferred (‘‘baseline’’)
model, but with Dr. George’s dataset,
which caused PTV’s allocation share to
decrease by 8 percentage points, with
the share of every other category
increasing. Erdem WRT Ex. 8.
In addition to the more technical
econometric evidence relied on by the
SDC, they also point to physical
evidence. Specifically, the SDC relies on
notes left by a project manager on this
assignment, Ms. Yan, which showed the
search criteria that Dr. Johnson’s team
applied: a search for positive and
statistically significant coefficients on
all content and a high allocation share
for PTV, denoted in a document as
‘‘PBS↑’’ (i.e., an ‘‘increase value to shift
w/lots of minutes’’). Erdem SWRT ¶¶ 8–
9 & app. E; SDC PFF ¶ 114. The SDC’s
other econometric expert, Dr. Rubinfeld,
using the essentially synonymous
phrase ‘‘p hacking’’ to describe the
alleged specification searching conduct
of Dr. Johnson’s professional
subordinates, asserts that this behavior
‘‘invalidates’’ Dr. Johnson’s statistical
tests. Rubinfeld SWRT ¶ 23. SDC’s
counsel characterizes this note from Ms.
Yan as the proverbial ‘‘smoking gun.’’
SDC PFF ¶ 115.
The SDC further assert that when the
hundreds of regression models
developed by Dr. Johnson and his team
were culled to a sub-group of those with
‘‘positive and statistically significant
coefficients for all categories,’’ only four
had higher share allocations for PTV.
Moreover, Dr. Erdem opined that these
other four had data and statistical
anomalies that would have made them
difficult for Dr. Johnson to defend in
any event. 4/5/323 Tr. 3424–25 (Erdem).
The SDC thus concludes that Dr.
Johnson and his team essentially chose
the model with the highest PTV share
that they thought they could defend.
SDC PFF ¶ 116.
The SDC also maintain that there was
an intentional separation between Dr.
Johnson and other professionals at his
consulting firm, Edgeworth Economics
(‘‘Edgeworth’’) intended to shield Dr.
Johnson from regression specifications
that would have generated lower shares
for PTV—a form of ‘‘plausible
deniability.’’ In support of this
assertion, the SDC point to written
communications within Edgeworth
indicating that certain documents
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needed to be kept from Dr. Johnson or
else PTV would be required to turn
them over in discovery. See, e.g., Erdem
SWRT ¶ 8 (reproducing notes of
Edgeworth employee Eduardo MunozAlonso, dated 7/8/2021, distinguishing
between material for ‘‘John’s report
(he’ll see) [and] other stuff (John
won’t)’’; Erdem SWRT ¶¶ 8–9 & app. E
(5/26/22 note written by Esther Yan, 5/
26/2022 stating ‘‘Anything we show
John gets turned over. . . .’’); and
Erdem SWRT ¶ 8 (an email containing a
link to CDC distant signals data sent to
Dr. Johnson’s team includes the caveat:
‘‘. . . these data files are being shared
for consulting purposes only and should
not be shared with John’’).
Looking at the entirety of the record
regarding the procedures undertaken by
Dr. Johnson and others at Edgeworth,
Dr. Rubinfeld, one of the two SDC
expert witnesses, opined:
Dr. Johnson’s practices (or the practices of
other experts or their staff on behalf of PTV
Claimants) are counter to sound empirical
research practices. Their analyses involve the
misuse of the regression methodology to
obtain statistically significant results that
deliver coefficient values that generated
relatively high shares for PTV Claimants.
Rubinfeld SWRT ¶¶ 28–30.36
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G. Rebuttals to the SDC’s Assertions of
Specification Searching
Dr. Johnson maintains that the SDC
and other critics of his work (including
Dr. Tyler and Mr. Harvey) have
misunderstood the nature of the many
regression specifications that were
generated and run on behalf of PTV.
More particularly, he explains in detail
that he and his team ran many of the
regression specifications for the purpose
36 A JSC expert statistical witness, Mr. Harvey,
likewise concluded that Dr. Johnson had engaged in
a specification search. However, the JSC did not
emphasize this point, maintaining instead that ‘‘it
is unnecessary to conclude that Dr. Johnson
intentionally searched for a specification favoring
PTV in order to find his model untrustworthy
[because] the selection of data inputs and
specifications’’ was improperly undertaken. JSC
PFF ¶¶ 195–196 (and record citations therein).
Program Suppliers’ expert economic witness, Dr,
Tyler, also concluded that the work by Dr. Johnson
and/or his team ‘‘provides evidence that, rather
than letting the facts of the industry guide the
modeling decision, [they] tested many different
models, and then sought to justify certain
specifications with economic theory.’’ PS PFF ¶ 377
(and record citations therein). Further, Program
Suppliers maintain that ‘‘[t]he evolution of Dr.
Johnson’s calculated shares for PTV over time
provides evidence that data mining [i.e.,
specification searching] and/or overfitting
occurred.’’ Id. Further, Program Suppliers find it
problematic that, in this context, ‘‘[o]ut of the many
regression specifications that Dr. Johnson ran, he
selected for his baseline model one in which the
PTV share is substantially higher than the median
results from the models considered . . . .’’ Id. at
¶¶ 377–378 (and record citations therein).
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of testing the data, a process that needed
to be repeated to incorporate corrections
and updates to the data. 3/21/23 Tr.
416–23, 627–745 (Johnson) (explaining
the regression log, the research process,
Edgeworth team structure and
personnel, timing of data receipts and
updates from vendors and scope of
discovery productions). See also PTV
PFF ¶¶ 139, 145.
Dr. Johnson further maintains that
assuming arguendo there was any
untoward activity in the nature of a
specification search, it is essentially a
moot point because through discovery
(including the discovery PTV at first
withheld and later produced only in
response to an order compelling
production) every regression
specification that he and his team ran
has now been produced. This
production, according to Dr. Johnson,
eliminates any concern that the Johnson
Model was misspecified, whether
intentionally or otherwise. 3/21/23 Tr.
641 (Johnson) (‘‘Again, you actually
have everything. . . . I followed . . .
what counsel instructed me to do in
terms of what I was required to turn
over. And when we were required to
turn over everything, everything has
been turned over that my team ever ran,
so we have given you everything.’’). See
also PTV PFF ¶ 146.
Additionally, many of the regression
models generated and run by Dr.
Johnson and other professionals at
Edgeworth Economics (Dr. Johnson is
the founder and CEO), according to Dr.
Johnson, reflected their efforts to
understand the Crawford Model
proffered in the 2010–13 proceeding
and to determine whether the Crawford
Model could be applied to the 2014–17
data. 3/21/23 Tr. 367–68, 370–73
(Johnson). Those purposes, PTV
maintain, are inconsistent with a
characterization of their work as
specification searching. Public
Television’s Reply Proposed Findings of
Fact and Conclusions of Law (PTV
RPFF) ¶ 208.
Overall, given the full disclosure of all
the work by Dr. Johnson and his fellow
professionals at PTV, PTV maintains
that this comprehensive body of
evidence shows that the Johnson Model
generated regression results that are
unbiased and best reflect the data
available to be input into the Johnson
Model. PTV RPFF ¶ 210.
H. The Judges’ Analysis and
Conclusions
As an initial matter, the Judges reject
SDC’s argument that Dr. Crawford’s
deviations from the prior regression
models presented by Drs. Joel Waldfogel
and Gregory Rosston ipso facto
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demonstrate, or even suggest, that Dr.
Crawford engaged in the wrongful
process of specification searching. The
record reflects no legal, economic or
econometric principle that an expert
cannot alter, revise, add to or subtract
from a prior economic model. Indeed,
the history of the Judges’ acceptance of
fee-based regression models as evidence
shows quite the opposite. A brief
examination of the evolution the
regression methodology, set forth
immediately below, makes that clear.
In the allocation (Phase I) proceedings
for the 1998–99 royalties, the CARP
described the first fee-based regression
relies upon in such proceedings:
Dr. Rosston’s regression attempts to
analyze the relationship between royalties
paid by cable operators for the carriage of
distant signals in 1998–1999 and the quantity
of programming minutes by programming
category on those distant signals. . . . It
compares the relative volume of the various
Phase I categories of programming contained
in the station signals actually purchased by
CSOs in 1998 1999 with the total royalties
each CSO actually paid for that programming
. . . identifying the amount of royalties as
the dependent variable . . . .
. . .
Dr. Rosston included more than royalties
and programming minutes in the dataset he
used for his regression analysis. In order to
account for the non-programming factors that
may affect the royalties paid by a cable
system, Dr. Rosston added the following
variables: (1) the number of subscribers to the
cable system in the prior period (the socalled ‘‘lagged subscribers’’ variable); (2) the
number of activated channels for the cable
system; (3) the average household income of
the market in which the cable system was
located; (4) the total number of local
channels carried; (5) a variable to account for
the payment of 3.75% royalties; and (6) a
variable to account for the carriage of
partially distant signals.
Report of the Copyright Arbitration
Royalty Panel to the Librarian of
Congress, in Docket No. 2001–8 CARP
CD 98–99 (‘‘1998–99 CARP Report’’) at
45–46 (Oct. 21, 2003). The CARP
accepted Dr. Rosston’s fee-based
regression, but only as corroborative of
survey results also in evidence. Id. at 50.
The CARP declined to give more
evidentiary weight to the Rosston
regression, relative to the Bortz Survey
(which the CARP found to be
‘‘extremely robust,’’ id. at 30).
In the allocation (Phase I) proceeding
for the 2004–05 years, the Judges
received in evidence the Waldfogel feebased regression. Dr. George has
described in her testimony in this
proceeding the key changes made by Dr.
Waldfogel to the Rosston regressions:
(1) estimating the marginal value of
additional programming minutes (regression
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coefficients) using pooled data for all years,
improving the precision of the estimates;
(2) calculating claimant shares using only
compensable programming; and
(3) estimating the regression model with a
sample of programming covering three full
weeks per accounting period.
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George WDT at 24 n.22. See also 2004–
05 Distribution Order at 57068 (noting
that the Waldfogel regression was
‘‘similar’’ to the Rosston regression, not
identical).
Similarly, in the 2010–13 proceeding,
the Judges found that the regression
approach on which they relied—the
Crawford Model—reflected an
improvement over the Waldfogel Model,
because, inter alia, the Crawford Model:
(1) relied on more granular subscriber
group data (made available by statutory
changes in CSO reporting requirements);
and (2) employed ‘‘fixed effects’’ to
diminish the impact of potentially
‘‘omitted variables.’’ 2010–13
Determination at 3569. See also George
WDT at 24–26 (identifying the
improvements made by Dr. Crawford).
This history clearly shows that the
Judges have not found that the mere
presence of model modifications reveals
any inherent defect in fee-based
regressions writ large or in any such
model in particular. Rather, a
modification of a fee-based regression
model may properly reflect (1)
improvements in the model; (2)
improvements in the data; (3) changes
in the underlying industry; (4) changes
in applicable economic theory; and/or
(4) wrongful specification searching.
Without further analysis, deviations
from prior models is not itself
informative.
But the SDC maintain that Dr.
Crawford’s development of his model
was—to say the least—troubling, and
not consistent with an attempt simply to
improve upon prior regression models
or to generate a more relevant model for
this proceeding. As noted supra, SDC
argue essentially that Dr. Crawford
engage in the improper process of
specification searching, and lied on the
witness stand to cover-up that improper
conduct. To summarize, SDC contends
that Dr. Crawford lied under oath about
the following:
—his testing of many different functional
forms
—his development and rejection of many
undisclosed alternative models
—his inclusion of indicator variables with no
apparent function
—his running of hundreds of models without
Fixed Effects when he actually ran these
models at various levels of Fixed Effects.
See SDC PFF ¶¶ 90–91, 99, 106.
As Chief Judge Shaw noted at the
hearing, the Judges are not in a position
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to find whether Dr. Crawford did or did
not engage in improper professional
conduct, as alleged by SDC, because he
is not appearing as a witness in this
proceeding. 3/22/23 Tr. 894–95 (Shaw,
C.J.) Thus, the Judges were loath to
conduct a ‘‘trial-within-a-trial’’ as to Dr.
Crawford’s work and procedures.
However, that is hardly the end of the
matter. SDC has presented compelling
evidence of potential specification
searching and dissembling by Dr.
Crawford. Moreover, SDC provided to
the other parties in this proceeding, as
voluntary discovery disclosures, Dr.
Crawford’s internal workpapers, which
the Judges had ordered produced in the
2010–13 satellite proceeding that
followed on the heels of the 2010–13
cable proceeding—disclosed only after
SDC’s Motion to Compel and the Judges’
in camera review of those documents.
The fee-based regression experts view
Dr. Crawford’s potential transgressions
with less concern. Dr. George, CCG’s
expert witness, maintains that Dr.
Crawford’s non-disclosures and
untruths, as cataloged and characterized
by SDC, are of no consequence, because
she, and the other experts, were able to
examine the Crawford Model as it was
presented, and evaluate it on its merits.
George WRT at 53. In essence, this
response is in the nature of a ‘‘no harm,
no foul’’ rationale for disregarding any
of Dr. Crawford’s alleged improprieties
as alleged by SDC. And, in that context,
Dr. George examined the Crawford
Model and found no cause to reject it as
a starting point for her analysis
(although she modified the Crawford
Model to account for marketplace
changes, arising predominantly from the
WGNA conversion, that she found to
necessitate modeling changes
particularly with regard to the use of
fixed effects). George WRT at 50–54.
Dr. Marx’s carefully repeated
testimony is similar, but nuanced,
hedged and cast in the form of a double
negative: ‘‘[W]hat I saw was consistent
with or at least not inconsistent with
proper econometric practice.’’ 4/11/23
Tr. 4121 (Marx). She does make a more
specific defense of Dr. Crawford,
offering her opinion that, the ‘‘mere
observation of a large number of
regressions’’ in Dr. Crawford’s
workpapers is ‘‘not surprising,’’ and is
what one would expect to see as a
‘‘sensitivity’’ analysis, which is a ‘‘best
practice’’ in regression modeling. Marx
WRT ¶ 10. As a final defense of Dr.
Crawford’s modeling conduct, Dr. Marx
analogizes his proffer of expert
testimony before the Judges to an
academic economist’s submission of a
proposed article to a professional
journal, which would be reviewed by an
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editor and referees, in a process that is
within the ambit of Dr. Marx’s
professional responsibilities. In that
context, Dr. Marx would not require that
all the modeling decisions by the
econometrician be set forth in the
proposed article, 4/11/23 Tr. 4328
(Marx) (‘‘in my work as a professional
economist, as a referee, as an editor, I
don’t expect to see the full list of every
regression that was ever run.’’) and she
notes that she was able to evaluate Dr.
Crawford’s submission on its own
merits, like a proposed article, without
all the prior regression runs. Id. at 4111–
4115.37
The Judges find that the other experts
in this proceeding—particularly Drs.
Johnson, George and Marx—who
proffered fee-based regression models—
were obligated to adequately address the
impact of Dr. Crawford’s workpapers, as
well as the assertion that they
demonstrated he lied in his testimony in
the prior proceeding. This obligation
existed because, as SDC witness Dr.
Rubinfeld testified, in his decades of
experience, he has ‘‘never seen anything
on this scale’’ where ‘‘a researcher
selected a model from hundreds that
were tried.’’ 4/6/23 Tr. 3638 (Rubinfeld).
The economists’ careful analysis of Dr.
Crawford’s work is necessary, because—
as explained in more detail infra—the
discovery of his potential concealment
and dissembling, which was unearthed
in discovery in the satellite proceeding,
may have been procedural in origin, but
procedural matters can be outcomedeterminative, or at least impactful as to
the outcome of a legal proceeding.38 As
explained below, Drs. George, Johnson
and Marx all failed in this regard.
The fundamental problem with the
self-exculpations by these experts is that
they failed to address an issue that the
Judges made explicit in the 2010–13
Determination. Specifically, in response
to the SDC’s speculation that Dr.
Crawford had engaged in specification
searching, the Judges agreed that the
problem inherent in such improper
37 The Judges also take note of Dr. Marx’s
awkward position as to this issue. As SDC notes,
she is a partner at Bates White, an economic and
econometric consulting firm (in addition to her
position as an economics professor at Duke
University’s Fuqua School of Business). Dr.
Crawford likewise is a partner at Bates White (as is
another CTV testifying expert in this proceeding
and in the 2010–13 proceeding, Dr. Bennett).
Further, Dr. Crawford testified in the prior
proceeding on behalf of CTV, whereas Dr. Marx is
the economic expert now testifying on behalf of the
same party, CTV.
38 Courts have long been concerned with whether
what appears facially to be procedural is in
actuality outcome-determinative. See Erie R. Co. v.
Tompkins, 304 U.S. 64 (1938). The Judges in the
present case expected the same concern from the
economic experts in the context of their analysis.
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behavior was that it would ‘‘consum[e]
. . . ‘phantom degrees of freedom,’ i.e.,
‘variables that were tried and rejected—
rather than included in the regression
model in evidence.’ ’’ 2010–13
Determination at 3566.39
In that prior proceeding, the Judges
found that the record did not reveal
evidence of specification searching
(recall that this finding was made prior
to the CTV’s compelled production of
Dr. Crawford’s workpapers in the
companion satellite proceeding).
However, in response to an SDC Motion
to Strike Dr. Crawford’s testimony,
which the Judges denied given the
absence of evidence of specification
searching, they did reserve the right to
reduce the weight they accord to the
regression Dr.] Crawford presented. Id.
n.64. Ultimately though, the Judges
declined to reduce the weight they
accorded to Dr. Crawford’s regression
analysis based on the claim of
specification searching. Id.
Of course, between the two cable
proceedings then and now, the satellite
proceeding intervened. In Order 24 in
the present proceeding, the Judges
granted SDC’s Motion to Compel
another party, PTV, to produce
document that might reflect
specification searching by its expert Dr.
Johnson (discussed infra). The Judges’
discussion of specification searching in
Order 24 also bears on the Judges’
present consideration of how Dr.
Crawford’s modeling procedures
impacted the models proffered by Drs.
George, Johnson and Marx in this
proceeding, all of which were based on
the Crawford Model. In summary
fashion,40 below is what the Judges
stated regarding specification searching
in Order 24:
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39 As
the Judges noted in that prior proceeding:
‘Degrees of freedom’ are defined ‘‘[i]n multiple
regression analysis, [as] the number of observations
minus the number of estimated parameters.’’
[citation omitted] Accordingly, statisticians
understand ‘‘degrees of freedom’ to be measures of
how much can be learned from a regression, with
the quality of knowledge improved by increasing
the number of observations, reducing the number of
estimated parameters, or by some combination of
both that serves to widen the difference between the
number of observations and parameters. [citation
omitted] . . . [A] ‘phantom degree of freedom’ can
be generated when the modeler reduces the number
of parameters by his or her rejection of other models
that would have added a greater number of
parameters—nothing more has really been learned
but the explicit number of degrees of freedom
appears larger, as an artifact (a ‘ ‘‘phantom’) arising
from the econometrician’s rejection of models
containing additional parameters. [citation
omitted].
2010–13 Determination at 3566 n.63.
40 Although the following is a summary, with
citations omitted, the Judges adopt in full herein
their reasoning in Order 24.
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—the particular importance of discovery
relating to econometric evidence is
underscored by the potential for models to
be manufactured in the service of a
particular result, where findings are
presented with ‘‘notoriously misleading
accounts of how the research itself was
conducted.’’
—it is important that econometricians
explain fully their specification search in
order to judge how the results may have
been affected.
—econometricians should disclose ‘‘all the
regressions that were run, not just the good
ones . . . basically an ‘honesty is the best
policy approach.’’
—these criticisms of special import here,
where the applied econometric work can
affect the allocation of significant royalty
sums.
—specification searching is a concern here
because the ‘‘hired gun’’ role of the expert
creates an environment in which
specification searching can cause ‘‘farreaching harm.’’
—but what can be construed as improper
‘‘specification searching’’ can ‘‘in fact
constitute good econometric practice’’ by
using the empirical evidence to rank
models and let the data speak for itself;
—adding specifications to the modeling can
assist in solving the econometric problem
at hand
—suppressing failed specifications and
arbitrarily presenting one successful
specification is a ‘‘spurious success,’’ but it
is not necessarily dishonest.
—it would be fallacious to prefer not to
search but simply to write down a model
and to conduct a one-shot test. . . .
—there are search methodologies that
support, rather than distort statistical
hypothesis tests.
—specification searches are necessary,
provided there is a ‘‘full accounting’’ of all
alternative models, specifications and
datasets
Order 24 at 48–51 & n.65. (citations
omitted).
In sum, as one authority cited by the
Judges concluded: ‘‘[T]here are good
and bad search procedures.’’ Order 24
at 51 (emphasis added).
The foregoing summary makes clear
that, on the surface, the methods and
practice of an econometrician may look
either like improper specification
searching or like a proper searching for
the appropriate model specifications. In
order to determine which
characterization is more accurate,
further expert analysis is needed.
However, as to this, the parties that
relied on the Crawford Model punted.
Most startingly, Dr. Johnson testified
that he never received the satellite case
documents that SDC’s counsel produced
to PTV’s counsel (and to all counsel) or
the testimony by Dr. Erdem in the
satellite proceeding that was designated
as evidence (Ex. 7054) in this
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proceeding by the SDC. 3/21/23 Tr.
340–41; 611, 616–17 (Johnson).41
For her part, Dr. Marx in essence
simply restates the difficult nature of
the process, testifying that she was
unable to distinguish Dr. Crawford’s
process as either an improper
specification search or a useful
sensitivity search. But Dr. Marx did not
indicate that she examined the
documents produced by SDC in any
detail approximating the analysis
engaged in by Dr. Erdem on behalf of
SDC, before figuratively throwing up her
hands and declaring the
characterization of Dr. Crawford’s
position as unknowable. Moreover,
although Dr. Marx was troubled by Dr.
Crawford’s apparently false statements
under oath, she remained incurious as
to whether his troubling testimony was
indicative of a covering-up of
specification searching.42
Moreover, when the specification
process has been shrouded, as here, the
position taken by Drs. Johnson and
George becomes untenable. Their
analysis and replication of the Crawford
Model is materially incomplete, given
that it has credibly been described as
allegedly constructed by a specification
search that may have generated the
‘‘phantom degrees of freedom’’
discussed supra, or through a process
which is analogous to the equivalent of
the spurious coin flip experiment also
discussed supra. The problem for the
regression experts who ignore the
evidence of potential specification
searching is that they simply cannot
appreciate the problems that may have
been generated, unless and until they
have engaged in a reasonable forensic
41 The record does not reflect whether PTV’s
counsel ever provided copies of these materials to
Dr. Johnson.
42 The SDC also convincingly explained that
whatever it was that Dr. Crawford was doing, it did
not qualify as a ‘‘sensitivity’’ test. Settling
Devotional Claimants’ Proposed Reply Findings of
Fact and Conclusions of Law ¶ 2. The Judges agree.
A sensitivity test is ‘‘[t]he process of checking
whether the estimated effects and statistical
significance of key explanatory variables are
sensitive to inclusion of other explanatory
variables, functional form, dropping of potential
out-lying observations, or different modes of
estimating.’’ 2010–13 Determination at 3562 n.48
(citation omitted). But the same authority quoted in
note 34 situates the ‘‘sensitivity analysis’’ as
occurring after the econometrician has estimated
his or her original model, not during the
specification process. Wooldridge, Introductory
Economics 687 (3d ed. 2006). To engage in what
would otherwise be a sensitivity analysis in order
to search a model places the cart before the horse,
and may be a telltale sign of ‘‘data mining,’’ i.e.,
specification searching. See Wooldridge, supra, at
688 (The ‘‘inclination . . . to try different models,
different estimation techniques, or perhaps different
subsets of data until the results correspond more
closely to what was expected [is] data
mining[which] violates the assumptions we have
made in our econometric analysis.’’).
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analysis of the work (and workpapers)
of the expert who constructed the model
at issue.
The failure of Drs. George, Johnson
and Marx to thoroughly re-examine the
Crawford Model in light of the
discovery obtained by SDC in the 2010–
13 satellite proceeding has
consequences. Although, as noted
supra, the Judges are not in a position
to engage in a ‘‘trial within a trial’’ and
render findings regarding the Crawford
Model in this proceeding (where Dr.
Crawford is absent), these three expert
witnesses were not similarly
constrained. They had a duty to review
all materials relevant to their
assignments, in a sufficient manner, and
the satellite discovery pertaining to Dr.
Crawford’s work clearly falls within that
category of materials. For Dr. Johnson to
have not even received that material is
inexplicable. For Dr. Marx to
acknowledge the problematic nature of
Dr. Crawford’s apparent dissembling
under oath without further analysis of
his work is troubling. And for Dr.
George to dismiss the assertions of
improper specification searching by
claiming that she could independently
evaluate the Crawford Model is to
dismiss the very idea that specification
searching may generate hidden
problems.
Indeed, among the witnesses
proffering regressions, only Dr. Tyler
appeared to respond reasonably, relying
(in part) on the troubling facts
uncovered in the satellite proceeding
regarding Dr. Crawford’s processes to
generate his own model that deviated in
important ways from the Crawford
Model.
The impact of Dr. Crawford’s
troubling conduct is that it raises an
issue familiar to judges and lawyers in
another context—how to handle
testimony and evidence that may be
characterized as the ‘‘fruit of the
poisonous tree.’’ Although this
evidentiary concept is typically
pertinent to the criminal law, it is
instructive in other areas, including
intellectual property matters:
The animating principle of the fruit of the
poisonous tree doctrine is causation: If you
had not violated the law, you wouldn’t have
found the evidence, and you wouldn’t have
followed whatever investigative path that
was triggered by finding that evidence. The
newly discovered evidence-the fruit-is
tainted by the poison of the illegal search.
Civil law also concerns itself with chains of
causation . . . [b]ut it does not typically
apply the logic of the fruit of the poisonous
tree to chase down every consequence of a
wrong.
M. Lemley, The Fruit of the Poisonous
Tree in IP Law, 103 Iowa L. Rev. 245,
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246 (2017). As to the present issue, the
‘‘fruit of the poisonous tree’’ logic—if
the source of the evidence or evidence
itself is tainted, then anything gained
from it is tainted as well—has
application because it would be
inequitable for the Judges to adopt
regression evidence built on the
Crawford Model, when the witnesses
who proffered that evidence
inadequately addressed reasonable
questions regarding the appropriateness
of the methods used to generate the
Crawford Model.
If the Crawford Model had been the
first regression model utilized in these
allocation proceedings, the Judges might
consider rejecting the models proffered
by Drs. George, Johnson and Marx for
their failure to address in more and
sufficient detail how the factual bases
for the allegations of Dr. Crawford’s
specification searching impacted their
models. But, as described supra, the
Crawford Model itself was built upon,
but differentiated from, the prior
regressions produced by Drs. Rosston
and Waldfogel and relied upon by the
Judges. Thus, the regression models of
Drs. George, Johnson and Marx are not
the product merely of the Crawford
Model, but also of those models that
preceded it. Moreover, Drs. George and
Johnson take pains to explain how their
models are different from Dr.
Crawford’s, particularly in the reduction
or elimination, respectively, of fixed
effects, in order to generate more
observations (as discussed elsewhere in
this determination).43 So, it is clear that
these two experts engaged in
independent economic analysis separate
and apart from what was undertaken by
Dr. Crawford.
The consideration of Dr. Marx’s full
adoption of the Crawford Model, as it
pertained to the year 2013, in order for
her to generate her Bayesian model for
2014, must be considered separately. Dr.
Marx explicitly relies on the Crawford
Model, despite her inability to explain
or address his apparent prevarications
and despite her unwillingness to
determine whether his methods
constituted specification searching,
sensitivity analysis or something else.
However, Dr. Marx’s qualitative and
directional economic (not econometric)
testimony regarding the years 2015–
2017 are not compromised in this
regard.
Accordingly, among the regression
approaches proffered in this proceeding,
the experts’ responses and nonresponses to Dr. Crawford’s conduct
43 Whether those particular differentiations from
the Crawford Model were appropriate is likewise
discussed elsewhere in this determination.
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lead the Judges, ceteris paribus, to give
diminished weight to the Johnson and
George Models, and the least weight to
the Marx Model for 2014. The Judges do
not diminish the weight they shall give
to the Tyler Model on this basis, given
his deviation from the Crawford Model.
I. The Allegation That Dr. Johnson
Engaged in Improper Specification
Searching
Unlike the specification searching
issue regarding the Crawford Model,
there is no valid allegation that Dr.
Johnson made any material
misrepresentations in his testimony.
Although SDC correctly notes that PTV
did not provide full discovery of the
work by Dr. Johnson and other
professionals at Edgeworth until
compelled to do so pursuant to SDC’s
motion and the Judges’ Order 24, PTV
appears to have withheld production of
documents regarding this regression
work based on its understanding that
the Federal Rules of Civil Procedure do
not require production of documents
which related to regressions that an
expert had rejected or had not otherwise
seen or upon which he did not rely.44
However, the Judges remain troubled,
as they so expressed in Order 24, that
PTV appeared to allow for the creation
of two different ‘‘teams’’ within Dr.
Johnson’s firm—one identified as the
‘‘consulting team,’’ and the other as the
‘‘testifying’’ team. As noted supra, the
regression-related documents generated
by the ‘‘consulting team’’ were not
provided to Dr. Johnson. The Judges
noted in Order 24 that a ‘‘consulting
team’’ of experts can be utilized by a
party’s law firm, to allow for work
product confidentiality in connection
with the law firm’s evaluation of the
facts. However, as Order 24 further
explained, when the ‘‘consulting team’’
is created withing the same firm of
economists who are also preparing
testimony and actually testifying, there
is the risk that work by the ‘‘consulting’’
team will be utilized as a screening
device for work that should have been
undertaken by the ‘‘testifying’’ team.
Thus, the use of a ‘‘consulting’’ team
can allow a party to also cloak from
discovery expert work by claiming the
protection of the work-product rule.
This is essentially what SDC alleges,
when it points to evidence, as noted
supra, that Edgeworth had shielded Dr.
44 In Order 24, the Judges noted that, although
they look to the Federal Rules of Civil Procedure for
guidance, they are bound on this issue by 37 CFR
351.10 (e), regarding the production of documents
relating to an expert witness’s methodology, and
that this rule also applies to the production of
documents in discovery pertaining to expert
methodology.
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Johnson from certain documents.
Moreover, the soundness of the ‘‘wall’’
between the ‘‘consulting’’ team and the
‘‘testifying’’ team was questionable,
given that the ‘‘consulting’’ team was
led by Drs. Michael Kheyfets and David
Colino, but they also were the senior
members of the ‘‘testifying’’ team that
reported to Dr. Johnson, along with dual
team members Dr. Stephanie Cheng and
Esther Yan. 3/21/23 Tr. 664–65
(Johnson). Additionally, when PTV first
produced documents to SDC, it did not
also provide a privilege log describing
the Edgeworth documents otherwise
withheld because of an assertion of a
privilege relating to a consulting team.
(After SDC’s motion to compel, PTV
provided a privilege log, but, after Order
24 issued, PTV produced virtually all of
the previously withheld material.) Thus,
the Judges find some evidence that PTV
attempted to avoid discovery of the
work undertaken by the firm it engaged
for expert work in this proceeding—the
work that has been characterized by
SDC as evidence of specification
searching.45 This evidence serves to
diminish the Judges’ reliance on the
Johnson Model that was generated out
of this scenario, although the Judges
stop well short of any finding that
Edgeworth, or any of its professionals,
engaged in any misconduct.46
Turning to the substance of the
documents produced in response to
Order 24, the Judges are struck, as was
SDC, with the sheer number of
regression runs undertaken by
Edgeworth. In particular, the Judges
agree with SDC that the experimentation
with 44 dependent variables is
specifically troubling, as it suggests that
the model-building was not wellgrounded in economic theory.
Also troubling was the fact that, over
a prolonged period, successive testing
by Dr. Johnson and other Edgeworth
Economics professionals was highly
correlated with a steady rise in PTV’s
allocation shares. Although the Judges
disagree with SDC’s distortion of Dr.
Johnson’s testimony as to the
‘‘coincidental’’ nature of this
correlation, as noted supra, the Judges
do not find any sufficient basis in the
record to explain this correlation
45 The Judges take particular note of the fact that
an email that was withheld from Dr. Johnson as
‘‘consulting’’ team material contained ‘‘a link to
CDC distant signals [with] the caveat: ‘. . . these
data files are being shared for consulting purposes
only and should not be shared with John’.’’.
Rubinfeld SWRT at 6. It is difficult to fathom why
raw data regarding distant signals would be
withheld from the testifying expert.
46 Rather, the Judges perceive from the facts that
PTV and its experts took a very aggressive litigation
posture, one that SDC successfully challenged,
leading to the issuance of Order 24.
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were ‘‘generally indicative’’ of mustcarry carriage. PTV PFF ¶ 72.
Specifically, Mr. Harvey categorized
distantly retransmitted signals as ‘‘mustcarry’’ if they were:
(1) carried to all subscriber groups
within the system,
(2) local to at least one subscriber
group within the system, and
(3) were licensed to a community
whose reference point was within 50
miles of the location where the CSO
received signals for cable distribution
(the ‘‘headend’’).
PTV PFF ¶ 72 (and record citations
therein). A primary assertion by PTV is
that, because of the third criterion
above, these stations, designated as
‘‘must-carry’’ while technically
‘‘distant’’ within the meaning of section
111, ‘‘were more likely to reflect the
demands and preferences of regional
viewers’’ and thus contained ‘‘valuable
programming.’’ PTV PFF ¶ 72 (and
record citations therein).
But PTV takes issue with the entirety
of Mr. Harvey’s approach to designating
VII. Issues Specific to PTV
‘‘must-carry’’ stations. First, PTV points
A. How should ‘‘must-carry’’ PTV
out that ‘‘even . . . expert witnesses
stations be analyzed in the regression
whose opinions rely on Mr. Harvey’s
analyses?
must-carry analysis’’ acknowledge that
his analysis ‘‘did not definitively
1. PTV’s Position on the ‘‘Must-Carry’’
identify must-carry signals.’’ PTV PFF
Issue
¶ 73 (and record citations therein)
PTV first emphasizes its legal
argument. They begin by acknowledging (emphasis added).
Second, PTV argues that ‘‘Mr. Harvey
that under the Cable Television
failed
to provide a reason for adopting
Consumer Protection and Competition
his first criterion that the must-carry
Act of 1992 (the ‘‘Cable Act’’) and the
rules should apply to signals carried ‘‘to
regulations of the Federal
all subscriber groups within the
Communications Commission (‘‘FCC’’)
system.’’ PTV PFF ¶ 74 (and record
(the ‘‘must-carry’’ rules), CSOs are
citations therein). PTV maintains that
required to retransmit certain broadcast
there presumably would be no reason to
signals. PTV PFF ¶ 70 (citing 47 U.S.C.
use that as a criterion unless he thought
534–35). Nonetheless, PTV maintain
that the must-carry law required
that ‘‘the Judges and their predecessors
carriage ‘‘to all subscriber groups within
. . . have never found that must-carry
requirements materially affect the value the system.’’ PTV PFF ¶ 74 (and record
citations therein). More particularly,
of distant retransmissions of Public
Television programming.’’ PTV PFF ¶ 71 PTV understands that a ‘‘cable system,’’
as defined in the must-carry rules, ‘‘is a
(emphasis added).
smaller unit than the ‘cable system’ as
PTV follows this legal point with a
factual issue, challenging the testimony defined in section 111.’’ PTV PFF ¶ 75
(and record citations therein). Thus,
of JSC’s witness, Mr. Harvey, who
PTV argues that ‘‘carriage of such a
identifies 15.5 percent of PTV distant
signal to all of the subscriber groups in
signals as having been retransmitted in
compliance with these must-carry rules, a system may be evidence of that cable
system’s choice to carry that signal more
using criteria that Mr. Harvey believed
broadly than the must-carry rules
require.’’ PTV PFF ¶ 75 (and record
47 The Judges are less concerned with SDC’s
assertion that proof of PTV’s specification searching citations therein). PTV concludes that
is supported by evidence that PTV’s goal was to
Mr. Harvey’s must-carry analysis ‘‘likely
maximize PTV’s share. The Judges are not naı̈ve,
results in overstating the [number] of
and they recognize that experts will work to
[PTV] signals subject to mandatory
produce the best results for the party on whose
carriage, perhaps dramatically so.’’ PTV
behalf they provide testimony. Rather, the Judges
are concerned with whether the evidence suggests
PFF ¶ 75 (emphasis added).
that experts may have engaged in any inappropriate
PTV further makes what can be
or questionable acts in the course of attempting to
characterized as a ‘‘no changed
maximize the return to the party on whose behalf
circumstance’’ argument. Specifically,
they give testimony.
between sequential regression runs and
the growth of PTV’s allocation share.
Although PTV argues that this
correlation subsided as data corrections
were completed, PTV presented no
sufficient basis to rebut SDC’s charge
that data changes should not
consistently be correlated with the
growth of PTV’s share allocation, as
opposed to a randomized effect on share
percentages.47
On balance, the Judges find that the
regression analyses undertaken on
behalf of PTV at least demonstrate an
appearance—in the words of SDC’s
expert, Dr. Rubinfeld—of practices that
ran ‘‘counter to sound empirical
research practice,’’ and that this work
may well have been undertaken with an
overzealous attempt ‘‘to obtain . . .
results that . . . generated relatively
high shares for PTV Claimants.’’
Rubinfeld SWRT ¶ 28. For this reason—
and for other reasons set forth elsewhere
in this determination—the Judges give
reduced weight to the Johnson Model.
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PTV points out that Mr. Harvey fails to
address the fact that mandatory carriage
of PTV distant signals has become more
expansive since the 2010–2013
proceeding, and that no party argued in
that proceeding that the must-carry
rules had any material impact on
relative market value. Further, PTV
avers that ‘‘the fraction of PTV signals
that Mr. Harvey identified as . . . mustcarry declined substantially over the
period from 2014 to 2017,’’ suggesting
that, even under his analysis, ‘‘the share
of PTV distant retransmissions that were
subject to must-carry is less than in
prior proceedings.’’ PTV PFF ¶ 76 (and
record citations therein).
Additionally, PTV asserts that Mr.
Harvey incorrectly implied that PTV’s
multicast streams 48 are subject to the
must-carry rules. PTV PFF ¶ 77 (and
record citations therein). To the
contrary, PTV avers that ‘‘it is
undisputed that the must-carry rules do
not require CSOs to retransmit those
non-primary signals of a PTV broadcast
station, and all carriage of Public
Television multicast streams was due to
the voluntary choice of the cable
operators.’’ PTV PFF ¶ 77 (and record
citations therein).
Beyond its legal and factual
arguments, PTV adds an argument based
on economic analysis. Taking on a point
made by another JSC witness, Dr.
Majure, PTV opines that ‘‘there is no
basis to assume that any distant signal
carried pursuant to the must-carry rules
provide ‘$0’ of value to the CSO, as Dr.
Majure argues.’’ PTV PFF ¶ 78 (and
record citations therein). More
particularly, PTV explains that
‘‘[p]eople are routinely required to
purchase things, such as health
insurance and seat belts, which they
may value highly.’’ PTV PFF ¶ 78 (and
record citations therein). See also PTV
PFF ¶ 81 (‘‘Dr. Majure’s theory of ‘$0’
value fails [to pass through a] ‘reality
filter’ [by] suggest[ing] that all local
[PTV] programming has [zero] value.’’)
Changing tacks, PTV points out that,
without dispute, ‘‘many CSOs chose to
retransmit [PTV] distant signals when
they could have carried another distant
signal instead.’’ PTV PFF ¶ 79 (and
record citations therein) Additionally,
PTV compares this CSO decisionmaking to the CSOs’ responses to the
Bortz Survey, in which ‘‘[s]everal CSOs
that carried the purportedly must-carry
[PTV] distant signals attributed
significant value to those Public
Television distant signals in their
[survey] responses . . . .’’ PTV PFF ¶ 79
(and record citations therein).
48 The Judges define and discuss ‘‘multicast
streams’’ infra.
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PTV further points to various
‘‘sensitivity tests’’ undertaken by Drs.
Johnson, Bennett and George, all of
which ‘‘found that those purportedly
must-carry Public Television distant
signals do not have relative marketplace
value that is statistically significantly
different from the relative marketplace
value of other Public Television distant
signals.’’ PTV PFF ¶ 82 (and record
citations therein). Thus, PTV takes issue
with any implicit assumption ‘‘that any
distant signal carried pursuant to the
must-carry rules are, on average, less
valuable to the CSOs.’’ PTV PFF ¶ 82.
But PTV also acknowledges the
presence of an indemnification
provision in the must-carry statute,
whereby Congress exempted from
mandatory carriage any noncommercial
educational signals that qualify as
distant signals, ‘‘unless [the
noncommercial educational broadcast
station] indemnifies the cable operator
for any increased copyright costs
resulting from carriage of such signal.’’
PTV PFF ¶ 84 (quoting 47 U.S.C.
535(i)(2)). Thus, a CSO ‘‘was eligible for
indemnification only if and to the extent
that its section 111 royalty fee increased
due to the carriage of a distant signal
that was subject to must-carry; and the
station then had the choice of declining
indemnification, in which case the
[CSO] was released from any must-carry
obligation.’’ PTV PFF ¶ 84. Nonetheless,
PTV criticizes any party seeking to
exclude must-carry stations from the
regressions based on this statutory
provision, which cancels out any royalty
payment, because PTV argues (echoing
its criticism of Mr. Harvey’s analysis),
that no party has ‘‘reliably identified
any distant signals that are subject to
mandatory carriage . . . for which the
retransmitting cable operator received
indemnification.’’ PTV PFF ¶ 85 (and
record citations therein).
PTV also makes a more general
argument that would apply to PTV
‘‘must-carry’’ stations, even assuming
they had no value. Specifically, PTV
maintains that ‘‘[a] fee-based regression
model is designed to estimate the
average relative value of programming
in a bundle, such that bundling of
programming of different values does
not bias the regression estimates of
relative marketplace value.’’ PTV PFF
¶ 91.
2. The Other Parties’ Positions
Regarding PTV ‘‘Must-Carry’’ Signals
As a matter of legal interpretation, JSC
argues that it would not be reasonable
to remove from the hypothetical market
any statutory provisions that apply to
the distant signal market, other than the
section 111 license. JSC PFF ¶ 2 (and
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record citations therein). Applying this
approach, JSC notes that, as a matter of
statutory law, the Must Carry statutory
and regulatory provisions are not found
within the section 111 license
provisions, but rather are statutorily set
forth at 47 U.S.C. 535, and therefore
should remain in effect in the
hypothetical market the Judges must
construct in this proceeding. And,
because the Must-Carry provisions
preclude any finding of Willingness-toPay and fail to reveal CSO’s preferences,
it is also economically reasonable to
maintain the impact of the Must Carry
provisions on the regression approach
by excluding such stations from that
valuation methodology. JSC PFF ¶ 3
(and record citations therein).
JSC also points to the following 1992
legislative history of the must-carry
provisions as supporting, from both the
legal and economic perspectives, a
finding that must-carry PTV stations do
not generate additional value that can be
incorporated into the fee-based
regressions:
The [House Committee on Energy and
Commerce] Committee believes that absent
statutory carriage requirements, there is a
substantial likelihood that local public
television stations will be deleted, will not be
carried, or will be switched to undesirable
channels on cable systems. Because cable
operators are for-profit enterprises, they
necessarily seek to provide customers with
the package of programming and services that
will maximize the operators’ profits. As
commercial enterprises, cable operators
ordinarily lack strong incentive to carry
programming that does not attract sufficient
dollars or audiences. Traditionally, public
television has provided precisely the type of
programming commercial broadcasters and
cable operators find economically
unattractive. For this reason, the Committee
believes that, without ‘must carry’
provisions, public television service
increasingly will become unavailable to cable
subscribers.
JSC PFF ¶ 475 (citing Trial Ex. 1003
(House of Representatives Report 102–
628) at 62).
JSC points out that this was not only
the Congressional viewpoint at the time
of enactment of the must-carry law, but
also that PTV has continued to agree
with Congress’s assessment of the
economic circumstances described in
the above legislative history, insisting
that public television stations need
must-carry status to guarantee carriage.
JSC PFF ¶¶ 476–478, 488–489 (and
record citations therein).
Last, but certainly not least, in
apparent response to PTV’s criticism of
Mr. Harvey’s estimate of the number of
must-carry stations, JSC suggests that
PTV knew or should have known how
many of the stations it represents in this
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proceeding in fact were must-carry
stations. JSC PCOL ¶ 13 (‘‘When a party
is in a position to proffer testimony or
evidence that would elucidate a point,
or rebut an adverse point, but declines
to do so, a finder of fact may determine
that the testimony would not have been
supportive of that party’s position.’’)
(citing Final Rule and Order,
Determination of Rates and Terms for
Digital Performance of Sound
Recordings and Making of Ephemeral
Copies to Facilitate Those Performances
(Web V), 86 FR 59452, 59476 (Oct. 27,
2021) (Web V Final Determination),
(citing in turn Huthnance v. District of
Columbia, 722 F.3d 371 (D.C. Cir.
2013)), aff’d NRBNMLC v. CRB, 77 F.4th
949, 2023 WL 4831376 (July 28, 2023).
a. The SDC Position on the ‘‘MustCarry’’ Issue
The SDC apply their broad criticism
of minimum-fee-only CSOs to the
question of how to address the mustcarry PTV stations: ‘‘[N]o inference can
be drawn regarding ‘willingness to pay’
or any other potential theory on the
basis of cable system decision-making in
the presence of mandatory carriage of
certain PTV signals.’’ Asker WRT ¶ 17
n.11; 4/11/23 Tr. 4319–21 (Marx); see
also SDC PFF ¶ 64.
Like the JSC, the SDC maintain that,
as a legal issue, the Judges’
consideration of economic market forces
to determine relative market value does
not mean that the statutory must-carry
rules should be ignored:
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The task in these royalty distribution
proceedings is to determine the relative value
of the relevant program categories in a
hypothetical market that exists in the absence
of the section 111 compulsory license. There
is no basis for assuming away the existence
of other aspects of the regulated market, nor
has any party in this proceeding presented a
rational framework by which one could pick
and choose which other aspects of the
regulated market would survive. At a
minimum, the Retransmission Consent and
Must-Carry Requirements set forth in the
Communications Act and Federal
Communications Commission’s (‘‘FCC’’)
rules would continue to regulate the
relationship between broadcast stations and
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CSOs. See 47 U.S.C. 325(b); 47 CFR 76.55,
76.64.
SDC PFF ¶ 218.
The SDC also emphasize a point
central to their general criticism of the
fee-based regressions—the impact of
geography on retransmission decisions:
Unlike commercial stations, the must-carry
zone for noncommercial stations is
determined by distance from the cable
system rather than by DMA [Designated
Market Area]: a noncommercial station is
entitled to cable carriage under the FCC’s
must-carry rules if its city of license is within
50 miles of the cable system’s principal
headend. 47 CFR 76.55.
SDC PFF ¶ 222. Further, the SDC note
the indemnification provision,
discussed supra, also compromises the
attempt to derive marketplace evidence
of the value of must-carry stations:
[Although] [u]nder section 111, a
noncommercial station is only considered
‘‘local’’ within 35 miles of the cable system’s
headend . . . [a] cable operator is not
required to carry a noncommercial station
that would be considered distant for
copyright purposes unless the
noncommercial station agrees to indemnify
the CSO for any increased copyright liability
resulting from such carriage.
Presumably, this indemnification
requirement would be moot in the absence of
section 111, because there would be no cost
at all to cable systems carrying
noncommercial signals within the FCC’s 50mile must-carry zone in the absence of
section 111. There is no basis to believe the
inapplicability of the indemnification
requirement would affect the relative
marketplace value of noncommercial
stations, as carriage of noncommercial
stations would still result from the federal
must-carry mandate rather than any CSO
choice.
SDC PFF ¶ 222 (citing 17 U.S.C.
111(f)(4)).
b. The CTV Position on the ‘‘MustCarry’’ Issue
CTV emphasizes the substantial
importance of the must-carry issue,
noting first that ‘‘[d]uring 2014–2017, no
less than 33.9% PTV signals were
carried pursuant to must-carry rules.’’
CTV PFF ¶ 249 (citing Harvey CWDT
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¶ 87; 3/28/23 Tr. 1836–37 (Harvey)). See
also CTV PFF ¶¶ 256–57 (42.6% of all
PTV distant reported base fee royalties
are from PTV signals subject to the
must-carry rule.)
CTV also expands upon the
evidentiary point made by JSC, noted
supra, regarding PTV’s failure to
produce evidence as to the number of
must-carry stations:
PTV, the claimant with the most accurate
information regarding PTV distant stations
carried by CSOs pursuant to the must-carry
rules, has provided no evidence or statistics
to refute the foregoing. At most, PTV
economics witness Dr. Johnson contends that
Mr. Harvey’s findings are speculative, but he
neither contested nor provided any
alternative calculations to Mr. Harvey’s
conclusions.
CTV PFF ¶ 258. Echoing the criticism
noted supra, CTV maintains that
carriage of a PTV signal under the mustcarry rules does not reflect a CSO’s
revealed preference through a weighing
of incremental costs versus incremental
benefits, and thus does not reflect
relative marketplace value. CTV PFF
¶ 272 (and record citations therein).
Moreover, CTV also points out that
even when CSOs retransmitting mustcarry stations pay more than the
minimum fee, they nonetheless cannot
reveal a willingness to pay for that
programming because of the
indemnification obligation, discussed
supra, of PTV stations to pay back CSOs
for any additional royalty costs
associated with the required (i.e., mustcarry) retransmission of its
programming. CTV PFF ¶ 259.
CTV further notes the ‘‘material’’
effect of the must-carry issue on PTV’s
regression and allocation shares, both
individually and jointly. CTV PFF
¶ 264. Pointing to a sensitivity analysis
by one of its expert witnesses, Dr.
Bennett, CTV notes that eliminating the
royalty payments the Johnson Model
has attributed to must-carry stations
substantially reduces the PTV values on
either attribute, and in combination.
Bennett WRT ¶ 95. These adjustments
are shown in the figure below:
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Figure 38: Effect of removing must-carry PTV stations on Dr. Johnson's estimated
PTV shares
2014
2015
2016
2017
35.88%
46.20%
53.43%
58.87%
-0.28%
-8.03%
-10.75%
-9.43%
-9.19%
-3.55%
-3.40%
-3.44%
-9.43%
--1.36%
-14.05%
-12.94%
Bennett WRT fig.38.
Similarly, Dr. Bennett undertakes the
same adjustment to Dr. George’s
regression coefficient and allocation
share regression results for PTV:
Figure 21: Impact of removing must-carry PTV stations from Professor George's
implied shares for PTV
2014
2015
2016
2017
30.2%
36.6%
41.6%
47.0%
-0.2%
-5.6%
-8.2%
-7.7%
-10.3%
-6.0%
-6.3%
-6.9%
-10.5%
-11.1%
-13.7%
-14.1%
And in like fashion, Dr. Bennett makes
the same must-carry adjustment for PTV
to Dr. Tyler’s analysis:
In conclusion, CTV underscores the
existence of a consensus on this mustcarry issue, noting that Drs. Marx,
Bennett, and Majure all agree that
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0.27%
0.54%
0.81%
including PTV must-carry stations in
the regressions results in an
overestimation of the value of PTV
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-0.64%
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content for all four years. CTV PFF
¶ 534 (and record citations therein).
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2015
2016
2017
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Figure 52: Impact of Tyler's implied shares for PTV after removing must-carry
PTV stations in allocation
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c. The Program Suppliers Position on
the ‘‘Must-Carry’’ Issue
Program Suppliers join with the other
parties that maintain the FCC’s mustcarry rules should still be deemed by
the Judges to apply in their modeling of
the economic and marketplace
environment necessary to allocate the
royalties at issue. That is, in the
hypothetical environment, even though
the section 111 conditions are relaxed,
Program Suppliers argue that the parties
must ‘‘still continue to be subject to the
same must-carry rule and agreement
obligations . . . .’’ PS PFF ¶ 101 (and
record citations therein).
However, Program Suppliers take
issue with any assertion that accounting
for PTV’s must-carry stations would
have a significant effect. Their expert,
Dr. Tyler, noted that Dr. Bennett’s
calculations—reproduced supra—
showed that removing the must-carry
stations (that were identified by Mr.
Harvey) from the Tyler Model barely
changed the PTV share allocation. 4/19/
23 Tr. 5456 (Tyler). Moreover, Dr. Tyler
opines, consistent with the testimony by
PTV’s expert Dr. Johnson that, ‘‘even
with must-carry, CSOs may still have
some value related to that carriage.’’ 4/
19/23 Tr. 5456 (Tyler).49 See also PS PFF
¶ 337.
d. The CCG Position on the ‘‘MustCarry’’ Issue
CCG is part of the chorus asserting
that the Judges should include the
impact of the must-carry provisions in
their economic analysis of relative
marketplace value. CCG PFF ¶ 62.
However, CCG parts company with
those parties arguing that the compelled
nature of such retransmission decisively
compromises the informational worth of
that carriage in estimating such value.
Specifically, Dr. George, CCG’s expert,
like Dr. Johnson, analogizes public
television programming to other ‘‘realworld examples’’ of goods that have
value, notwithstanding the fact they are
mandated by the government. In this
regard, as examples, she points to health
insurance, which she says generates
value, and to automobile airbags and
seatbelts which, although mandated,
increase the value of an automobile.
Similarly, she points to the federal
government requirement that
individuals carry health insurance to
argue that the mandate does not mean
that the product does not have value to
them. 4/18/23 Tr. 5346. (George). Based
49 But note Dr. Marx’s point that must-carry
stations that were distantly retransmitted by CSOs
paying only the minimum fee would not generate
a CSO royalty obligation, mooting the need for a
royalty indemnification payment. Marx WRT ¶ 79.
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on these analogies, CCG maintains that
the must-carry rules have a positive
effect on the value of PTV programming.
CCG PFF at 81. See also CCG PFF ¶ 224.
Nonetheless, Dr. George recognizes
the possibility of an alternative
finding—that any assertion of value in
must-carry stations would be rejected.
Accordingly, she turns to Dr. Bennett’s
analysis cited supra—at Bennett WRT
fig. 21—which she recognizes as
showing the ‘‘downward adjustments’’
to her ‘‘regression’’ to account for a
finding of the absence of value in PTV’s
must-carry signals. CCG PFF ¶ 225 (and
record citations therein).
3. The Judges’ Analysis and Conclusions
Regarding the ‘‘Must-Carry’’ Issue
The Judges agree with JSC and CTV,
based on the caselaw cited by JSC, that
PTV, whose clients include the public
television stations that are in fact
subject to must-carry requirements, bore
the twin burdens of proof—the burden
of producing evidence and the burden of
persuasion—regarding which stations
were subject to the must-carry
provisions and which were not. Further,
because PTV is seeking a determination
including must-carry station data in the
regression, those burdens are
apportioned to PTV as a matter of
statute. See 5 U.S.C. 556(d).
But rather than produce such
evidence or prove its significance, PTV
elected to attack Mr. Harvey’s attempt to
estimate the number of must-carry
stations. Those attacks are insufficient.
The Judges first take note that PTV
argues only that Mr. Harvey ‘‘perhaps’’
or ‘‘likely’’ overstated the number of
must-carry stations. But Mr. Harvey
engaged in a reasonable attempt to
estimate this number, which PTV could
have set forth in its submissions, but did
not.
Further, the Judges do not credit
PTV’s argument that the must-carry
status of some PTV stations can be
deemed irrelevant because the issue of
must-carry stations was not raised in
previous section 111 allocation
proceedings. Each of these proceedings
is de novo in nature, and the
determination is based on the
evidentiary record in that proceeding, as
well as on the pertinent findings and
conclusions in prior proceedings.
Although regurgitated factual argument
from prior findings may be summarily
rejected by reference back to the
findings in prior determinations, and
although renewed legal arguments are
cabined by the precedential effect of
prior determinations, new arguments
are not similarly restricted. Moreover,
the absence of an issue in a prior
proceeding, such as the impact of the
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must-carry status of PTV stations,
certainly does not preclude
consideration of that issue in this
proceeding.
The Judges also reject the argument
made by PTV and CCG that the mustcarry stations have value,
notwithstanding that indemnification
provisions would offset any royalty
payments. There are two reasons why
this argument is incorrect. First, the
point is not that the programs on mustcarry stations, including those subject to
royalty indemnification payment back
to the CSOs, lack value; rather, the point
is that they lack objective and
measurable value. On the issue of
objective value, the experts for PTV and
CCG mistakenly seek to analogize mustcarry PTV stations to two ‘‘must-buy’’
automobile attributes, seat belts and air
bags, and to ‘‘must-carry’’ health
insurance, which come at a cost. There
are two problems with this argument.
First, although one can quite reasonably
argue that these coerced purchases are
beneficial, from an economic point of
view the purchase does not reveal a
buyer’s preference because seatbelts, air
bags, and health insurance are coerced,
not voluntary.50 Second, a price proxy
could likely be generated for seat belts
and air bags by comparing the retail
price of cars immediately before and
after their inclusion was mandated for
new cars, or by comparing the spread in
price between new cars (with such a
safety device) and used cars (lacking
such safety devices). Regressions
seeking to use such data would be true,
full-fledged hedonic regressions. But
here, the task is markedly different and
more difficult, because no such
historical or comparative comparisons
were possible. Thus, as noted elsewhere
in this determination, the regressions
are ‘‘inspired’’ by, and in the nature of,
hedonic regressions, using the context
of section 111 to identify the marketrelated revealed preferences of CSOs,
just as fee-based regressions have been
utilized in previous allocation
proceedings. But the attempted analogy
to market-generated attributes included
in market-priced products misses the
mark and continues the unfortunate
strained attempts by the experts
supporting and criticizing fee-based
50 It might be reasonable to assume that a
consumer would prefer an automobile with these
safety features over an automobile lacking them, or
the protection of health insurance rather than the
risk associated with its absence, but without a
structure for monetizing such preferences, the
measure is only ordinal in nature, rather than
cardinal. PTV alludes to this problem when, as
noted supra, it notes that these are items that
purchasers ‘‘may’’ value. But that implies that they
may not value them in a context where there is an
associated out-of-pocket or opportunity cost.
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regressions to compare the fee-based
regressions to hedonic regressions.
As to the issue of measurable value,
PTV and CCG fail to address the fact
that, if these stations do not generate net
royalties, then the regressions should
not be attributing (correlating) their
minutes with royalties. The regressions
will not ‘‘see’’ the indemnification
payments made by the PTV stations
back to the CSOs who made royalty
payments. Thus, to the extent these
royalty payments are recorded as base
fee payments on the SOA forms relating
to subscriber groups, they will falsely be
‘‘seen’’ by the regressions as indicating
that the minutes were associated
(correlated) with additional royalties,
when that was not the case. As several
witnesses have noted, the regressions
are ‘‘dumb,’’ and will calculate
whatever it is they are programmed to
calculate. It is up to the econometrician
who constructs and evaluates the
regression to ‘‘think,’’ and decide
whether the regression has reflected
reality (legal, institutional, and
economic) in a proper manner. The
Judges find that Mr. Harvey made a
prima facie case regarding the number
of PTV stations that were must-carry.
The Judges also do not credit PTV’s
point that many CSOs chose to
retransmit PTV signals when they could
have carried another distant signal
instead. Not only does that point ignore
the problem of whether a station was
subject to indemnification, it also
indicates merely an ordinal preference.
The Judges also reject the argument
that the regressions can include the
must-carry station data because CSOs
responded to the Bortz Survey by
attributing value to such signals. This
‘‘whataboutism’’ argument holds no
purchase—either the data belongs in the
regressions, or it does not. The Bortz
Survey is a form of model seeking to
address relative marketplace value from
a different perspective, and the
requisites or output of one model do not
necessarily map onto another model. Cf.
NRBNLMC v. CRB, supra, slip op. at 41
(affirming the Judges’ Web V rate
determination that a finding applicable
to one economic model (the issue of
opportunity cost) did not automatically
apply to the same issue when addressed
in a different type of model).
PTV’s assertions regarding the value
of any adjustment regarding presence of
must-carry stations with their attendant
indemnification requirements is merely
an argument regarding the extent of the
adjustment, not regarding the need for
one. As noted, the extent of the
adjustment varies, depending upon how
it is applied and to which regression
model it is applied. The Judges consider
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that point in making their adjustments,
infra.
Finally, the Judges agree with the
argument that the legislative history
relating to the must-carry provisions,
and PTV’s own prior positions, reflect
an understanding that public television
stations need must-carry status in order
to obtain carriage. Such real-world facts
serve as ‘‘reality filters’’ that can and
should override the ‘‘dumb’’ manner in
which a regression ‘‘sees’’ the royalty
and carriage data.
For these reasons, the Judges find that
PTV failed to discharge its evidentiary
burdens, failed to demonstrate that Mr.
Harvey’s estimation should be rejected
by the Judges, and failed to adequately
demonstrate the existence of value in
must-carry stations sufficient to include
them as part of the relative marketplace
value generated by the regression
approach.
In terms of the necessary adjustments,
the Judges agree with Dr. Bennett’s
approach, in which he eliminates the
value attributed to the must-carry
stations in both the regressions and the
allocations, as there is no evidence or
testimony sufficient to warrant only an
adjustment in one of these regards.
Thus, the Judges agree with the
adjustments in column number 3 in Dr.
Bennett’s adjustment made in figures
38, 21 and 52, respectively, set forth
supra.
B. Are PTV’s Multicast Stations Exempt
From Royalty Payments? 51
The parties dispute whether multicast
stations should be included in the feebased regressions. Before setting forth
the parties’ respective positions, it is
helpful to set forth a brief history of the
relevant statutory provisions and the
industry reaction. In this regard, the
SDC’s overview of the context is
accurate and succinct:
Prior to the analog-to-digital television
transition, a broadcast station could transmit
only a single stream of programming. The
transition to digital broadcasting, completed
for all full-power stations in 2009, enabled
stations to broadcast multiple streams of
programming, i.e., a ‘‘primary stream’’ and
one or more ‘‘multicast streams.’’
51 The definition of multicasting is not in dispute.
Basically, it refers to ‘‘a type of national television
service designed to be broadcast terrestrially . . .
on their digital subchannels . . . by the conversion
from analog to digital television broadcasting,
which le[aves] room for additional services to be
broadcast from an individual transmitter . . . .’’
Digital multicast television network, Wikipedia,
https://en.wikipedia.org/wiki/Digital_multicast_
television_network (last visited Aug. 9, 2023). The
exempt/non-exempt nomenclature is somewhat
confusing; ‘‘exempt’’ means CSOs do not pay
section 111 royalties, and ‘‘non-exempt’’ means
CSOs shall pay section 111 royalties (unless, by
agreement with the copyright owners, section 111
royalty payments are waived).
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Accordingly, the Satellite Television
Extension and Localism Act (‘‘STELA’’) of
2010 added a DSE for distant transmissions
of multicast streams. STELA, Public Law
111–175, 124 Stat. 1218, 1239 (2010).
Certain multicast streams were temporarily
exempted from having a DSE value assigned,
including those that (a) had been carried by
a CSO prior to February 27, 2010, or (b) had
an agreement in place prior to June 30, 2009,
for free carriage on a CSO. See STELA, 124
Stat. 1218, 1239; see also Marx ACWDT ¶ 70.
The Association of Public Television
Stations (‘‘APTS’’) entered into such an
agreement with the National Cable and
Telecommunications Association (‘‘NCTA’’)
in 2005, which was renewed in 2016 . . . .
[REDACTED]. . . .
The PBS–NCTA agreement governed
carriage of PTV stations during the 2014–
2017 time period and required participating
CSOs to carry up to four programming
streams per PTV station (i.e., the primary
stream and three multicast streams). The
agreement thus served to ‘‘exempt’’ up to
three multicast streams per station from
generating copyright liability until its
expiration and renewal in 2016, at which
time the exempted multicast streams were
reclassified for royalty purposes as ‘‘nonexempt’’ streams with a DSE value of 0.25.
SDC PFF ¶¶ 223–224 (and record
citations therein). Accord PTV PFF ¶ 67
(and record citations therein).
The record in this proceeding also
reflects the parties’ and the industry’s
awareness of the terms of the 2016
renewal of the 2005 PBS–NCTA
agreement referenced above.
Accordingly, although the Judges
denied the post-hearing admission of
the PBS–NCTA agreement into the
record,52 the Judges have relied upon
the record evidence of the parties’
understanding of that agreement.
1. PTV’s Position on Multicast Stations
PTV maintains that, for the years 2016
and 2017, multicast stations should be
treated like all other distantly
retransmitted broadcast stations for the
purposes of establishing relative
marketplace value through the fee-based
regression analysis, noting that, under
section 111, they ‘‘are assigned the same
DSE value as that station’s primary
stream.’’ PTV PFF ¶ 66 (citing 17 U.S.C.
111(f)(5); PTV PFF ¶ 67 (and record
citations therein).
PTV distinguishes the multicast
stations from the must-carry rules,
asserting ‘‘it is undisputed that the
must-carry rules do not require CSOs to
retransmit those non-primary signals of
a [PTV] broadcast station, and all
carriage of PTV multicast streams was
due to the voluntary choice of the cable
operators.’’ PTV PFF ¶ 77 (and record
52 See Order 41 Denying as Moot Public
Television’s Motion for Reconsideration of Order
33.
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citations therein). PTV acknowledges
that PTV primary and multicast stations
are functionally retransmitted distantly
as a ‘‘bundle,’’ but that fact is neither
unique to distant carriage of PTV
stations nor consequential with regard
to the inclusion of the multicast stations
in a fee-based regression model. As to
the latter point, PTV asserts that,
because ‘‘[a] fee-based regression model
is designed to estimate the average
relative value of programming in a
bundle, such . . . bundling of
programming of different values does
not bias the regression estimates of
relative marketplace value.’’ PTV PFF
¶ 91. More particularly, PTV explains
that the Waldfogel-style regressions of
Drs. Johnson and George rely on
‘‘average relative valuations,’’ and that
programming which does not correlate
with higher royalties ‘‘will be factored
into the regression.’’ PTV PFF ¶ 91
n.140 (citing George WDT at 51; 4/18/
23 Tr. 5170–74 (George); 3/21/23 Tr.
350, 456–58:15, 595 (Johnson); Johnson
WRT ¶ 65.
Because he understood that
programming of multicast streams on
distantly retransmitted broadcast signals
to be compensable under section 111,
Dr. Johnson applied his regression
model to estimate the average relative
value of distantly retransmitted
programming inclusive of multicast
streaming. And, as indicated supra, he
understood that, to the extent CSOs
might value PBS primary and multicast
streams differently, these different
values for ‘‘multicast streams would be
averaged out by the subscriber-weighted
distant minutes.’’ PTV PFF ¶¶ 133–34
(and record citations therein).
PTV also notes how relative values, as
between JSC and PTV programming,
moved in opposite directions during the
2014–2017 period. That is, in 2015,
when WGNA converted from a
broadcast station to a national cable
network, JSC could not claim section
111 royalties for sports programming
that was televised on WGNA. But for
PTV, the converse was the case:
Compensable programming arguably
increased when in 2016 multicast
stations transformed from being
statutorily exempt (no right to section
111 royalties) to non-exempt (royaltygenerating). PTV PFF ¶ 135.
2. CCG’s Position on Multicast Stations
CCG argues that the minutes of
programming on the PTV multicast
stations that were reclassified from
exempt to non-exempt should be
included in the fee-based regressions
because their continued retransmission
as royalty-generating stations is the
consequence of deliberate strategies by
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CSOs. CCG PFF at 25. Specifically, CCG
relies on the fact that the substantial
portion of stations that had been
distantly retransmitted by Bright House
(an MSO) while exempt (from royalties)
continued to be retransmitted in 2016 as
non-exempt (royalty-bearing)
contemporaneously with the acquisition
of Bright House by a larger MSO,
Charter Communications (formerly
Time Warner Cable). CCG PFF ¶ 79
(citing Marx ACWDT ¶ 78).
According to Dr. George, Charter
Communications could have chosen to
cease distantly retransmitting these PTV
multicast stations after they became
non-exempt (royalty-bearing), but for
commercial purposes they elected to
maintain carriage, indicating that
Charter Communications perceived
value in these multicast stations. George
WRT at 20. In this regard, Dr. George
concluded that the fact that Charter
decided to include the PTV signals in its
cable lineup and treat those PTV signals
as paid while deciding not to carry other
distant signals ‘‘reveals the relative
value of the programming to the cable
system.’’ George WRT at 20. See also
CCG PFF ¶ 547.53
3. CTV’s Position on Multicast Stations
Like, CCG, CTV states that the
reclassification of PTV multicast signals
from exempt to ‘‘paid’’ (i.e., nonexempt, or royalty-bearing) had a
‘‘significant impact in the industry.’’
CTV PFF at 17. But quite unlike CCG,
CTV disagrees with the inclusion of the
‘‘paid’’ multicast signal minutes in the
fee-based regressions. After reciting the
same industry merger history recounted
supra, CTV PFF ¶ 75, CTV notes that the
reclassification of these multicast PTV
stations increased both (1) PTV
subscriber-weighted minutes and (2) the
data inputted into the regression
(seeking to measure the correlation
between category minutes and
royalties). CTV PFF ¶ 76.
More particularly, 231 PTV signals
were reclassified from exempt to paid
from 2014 to 2017, ‘‘with over 90% of
the reclassification of PTV minutes
taking place in 2016 and 81% of those
reclassifications associated with Charter
Communications’ acquisitions of Time
Warner and Bright House.’’ CTV PFF
¶ 77 (and record citations therein). CTV
further notes the combined industry
concentration of Charter
Communications, Time Warner, and
Bright House prior to the 2016 merger,
together accounting for 26.2% of total
53 Program Suppliers are essentially in agreement
with CCG in this regard. See PS PFF ¶ 387 (citing
Tyler WRT ¶ 71 for the assertion that ‘‘non-exempt
signals are part of the question studied and properly
included in the analysis.’’).
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54191
cable industry subscribers. CTV PFF
¶ 78.
But CTV argues that the
reclassification had no impact on
whether those PTV multicast minutes
should have been inputted into the feebased regressions. Specifically, CTV
asserts, ‘‘The increase in PTV paid
minutes did not create any changes
subscribers would notice; there was no
change in channel line-ups, viewer
access to programming, or content
broadcast. Rather, PTV signals that had
previously existed on channel lineups
became ‘nonexempt.’ ’’ CTV PFF ¶ 79
(and record citations therein). Thus,
CTV concludes that the reclassification
merely ‘‘created an illusion’’ of an
increase in the number of distantly
retransmitted PTV minutes.’’ CTV PFF
¶ 237 (and record citations therein).
4. SDC’s Position on Multicast Stations
The SDC echoes Dr. Marx’s position
on behalf of CTV, that, although
reclassification from exempt to nonexempt ‘‘changes the reporting of PTV
minutes in the data, [it] does not change
the content or value that CSOs offer to
their subscribers.’’ SDC PFF ¶ 241
(citing Marx ACWDT ¶ 71).
Further, Dr. Marx takes note, in her
consideration of the Charter acquisitions
discussed supra, of the existence of the
PBS–NCTA agreement in place that
maintained the exempt (no royalty)
status of a number of public television
stations. 4/11/23 Tr. 4272 (Marx).
5. JSC’s Position on Multicast Stations
JSC takes note that, although the
number of primary PTV signals did not
increase significantly, ‘‘CSOs . . . began
carrying significantly more PTV
multicast channels, with the share of
PTV volume comprised of multicast
channels nearly doubling between the
beginning of 2014 and the end of 2017.’’
JSC PFF ¶ 74 (and record citations
therein) (emphasis added). More
particularly, JSC acknowledges that
some of this increase in reported PTV
multicast carriage is attributable to the
change in status of certain PTV
multicasts from ‘‘exempt’’ to ‘‘nonexempt,’’ as a result of Charter
Communications’ acquisitions of Time
Warner Cable and Bright House
Networks in 2016. JSC PFF ¶ 75 (and
record citations therein).
But JSC rejects the notion that the
increase in non-exempt (royalty-bearing)
multicast carriage reflects an increase in
value for which the PTV allocation
should increase. In support of this
argument, one of JSC’s economic
experts, Dr. Majure opines that (1) mere
reclassification from exempt to nonexempt itself does not reflect an
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increase in value and (2) CSOs chose to
carry additional PTV multicasts during
2015–2017 when doing so was typically
cost-free, even if they were non-exempt)
because their carriage addition did not
cause the CSO to exceed the minimum
fee. JSC PFF ¶¶ 76–77 (and record
citations therein).
Moreover, JSC relies on the testimony
of PTV’s own witness, Dr. Johnson, who
acknowledged that the PBS–NCTA
agreement provides for CSOs who were
NCTA members to carry up to three PTV
multicasts in addition to the carriage of
the primary PTV signal, that PTV would
not require payment for the carriage of
these multicasts, and that, should the
CSO incur financial liability under
section 111 for such multicast carriage,
PTV would be obligated to either
indemnify the CSO for the royalty costs
(as with must-carry primary signals), or
waive the PTV station’s right to compel
carriage. JSC PFF ¶ 7 (citing 3/22/23 Tr.
985–88 (Johnson)).
Based on the foregoing, JSC claims
that, without the multicast provisions in
the PBS–NCTA agreement, which JSC
characterizes as ‘‘marketplace’’ facts,
CSOs would pay ‘‘little or nothing’’ for
the programming on the multicast
stations. JSC PFF ¶ 9 (and record
citations therein). See also JSC PFF
¶¶ 25, 395; Harvey CWDT tbls.37–39.
6. The Judges’ Analysis and Conclusions
Regarding Multicast Stations
The Judges have the same type of
problem with PTV’s claim for royalties
for the multicast programming as they
do for the must-carry station
programming discussed supra. That is,
there was evidence available to be
produced by PTV, namely the PBS–
NCTA agreement as well as the number
of entities it represents that would
provide significant marketplace
evidence of how PTV stations and the
licensor CSOs valued multicast station
programming. But, as noted supra, PTV
did not produce either this agreement or
the number of entities bound by it as
evidence, although its own expert
witness testified as to some of the
agreement’s contents.
Thus, the Judges were deprived of full
knowledge of the terms of the
agreement, the parties’ fulsome
testimony as to the meaning of its
provisions and the number of entities
signing on to the agreement. Moreover,
PTV opposed the admission of that
agreement into evidence. See Order 41
Denying as Moot Public Television’s
Motion for Reconsideration of Order 33.
Accordingly, the Judges here, too, find
that PTV bore, but failed to discharge,
the burdens of production and
persuasion with regard to the details of
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the agreement and the extent of its
coverage. See Web V Final
Determination at 59452; Huthnance v.
District of Columbia, 722 F.3d 371 (D.C.
Cir. 2013); see also 5 U.S.C. 556(d)
(placing the burden of proof regarding
facts on the party seeking an order based
on those facts).
Nonetheless, relevant terms of the
PBS–NCTA agreement were wellunderstood by the parties, without
dispute. As noted supra, PTV’s own
expert, Dr. Johnson, understood what
the agreement provided with regard to
multicast stations and the absence of a
royalty obligation attendant to their
carriage. This constitutes a market-based
fact, which has two implications. First,
as a direct agreement among parties in
the sector at interest in this proceeding,
it is an agreement that reflects actual
value, not hypothetical value. As such,
it is more credible than attempts to tease
out market value via regression-derived
price proxies or a constant sum survey
such as the Bortz Survey. Second,
within the context of a fee-based
regression, the existence of such zero
valuations would certainly affect the
regression as well as the number of
minutes by which the impacted PTV
regression coefficient would be
multiplied. But without any information
regarding the number of PTV stations
covered by the PBS–NCTA agreement,
the Judges cannot simply assume that
no multicast stations that generated zero
net royalties were covered by this
agreement.54
If the Judges had full information
regarding the PBS–NCTA agreement
from PTV, whose clients are signatories
thereto, as well as information from PTV
regarding the number of its station
clients and base fee royalties impacted
by the agreement, the Judges’ analysis
could have been different. For example,
the Judges are not convinced that the
fact that these signals had been exempt
(not royalty-bearing) previously is a
dispositive point. The argument in favor
of that position is that the mere change
in legal obligation has no impact on
economic value. But a simple thought
experiment demonstrates the paucity of
that reasoning: What if these multicast
signals had started off as non-exempt
(royalty-bearing) and then were changed
54 The fact that Charter changed some PTV
multicast stations from exempt (non-royaltybearing) to non-exempt (royalty-bearing) after
acquiring certain CSOs is anecdotal evidence that
suggests these PTV multicast stations were
generating royalties, but anecdotes are not
substitutes in this context for more comprehensive
data. (And some of these royalty-bearing PTV
stations may also have been retransmitted by CSOs
with excess capacity, thereby not actually
generating any revealed preference information for
the retransmitting CSOs.)
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to exempt (non-royalty-bearing)? It
would have been the same change, only
in reverse. Would the original
classification remain in place in this
juxtaposed scenario, such that royalties
would continue to be included in the
regression?
Also, there was a contentious dispute
regarding whether the multicast PTV
stations’ programming was
‘‘duplicative’’ of the PTV primary signal
programming or of each other.
Questions arose regarding whether
duplication should be narrowly tailored
to mean the retransmitting of the
identical program at the identical time,
at the same proximate time or within a
certain period of time, and whether
different episodes from the same series
retransmitted at the same or some
proximate time or day were likewise
duplicative. But without information as
to whether any multicast station that
had retransmitted such potentially
duplicative programming was
contractually unable to generate
royalties under the PBS–NCTA
agreement in any event, these issues of
potential duplication appear to be
indeterminate.55
VIII. Parties’ Positions Regarding
Regression Models
A. Introduction
Four parties, CCG, CTV (for 2014
only), Program Suppliers and PTV,
through their expert witnesses, proffer
regressions that they assert are useful
methodologies to determine relative
market value. An overview of each
regression model and the criticisms
thereof are set forth below.
B. CTV’s Regression Approach: The
Marx Model
On behalf of CTV, Dr. Leslie Marx 56
adopted a fee-based regression model
(the ‘‘Marx Model’’) applicable to 2014,
55 As explained infra, among the regression
approaches, the Judges rely on the Tyler Model’s
allocation of shares based upon CSOs that actually
paid the base fee (not the minimum fee). But
although Dr. Bennett’s testimony (Bennett WRT
fig.52) provides evidence for a downward
adjustment of PTV’s share to reflect the Must Carry
issue discussed supra, the Judges see no clear
evidence in the record to identify how much of a
downward adjustment should be made to the PTV
share to reflect the Multicast and Duplicative
Programming issues. However, because the PBS–
NCTA agreement indicates that CSOs would carry
up to three Multicast stations as Must Carry
stations, i.e., without a net royalty obligation, the
Judges find that their application of Dr. Bennett’s
downward adjustment for Must Carry stations
essentially embodies any Multicast adjustment,
including any duplicative programming within
those Multicast channels.
56 Dr, Marx was received by the Judges as an
‘‘expert economist and econometrician with
experience in statistical methods and
measurements.’’ 4/11/23 Tr. 4109 (Marx).
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but not for the 2015–2017 period,
because she found that data issues
rendered the use of such a regression
approach ‘‘substantially less reliable
and informative’’ for the 2015–2017
timeframe. 4/11/23 Tr. 4117 (Marx).
More particularly, for 2014, she adopted
a ‘‘Bayesian’’ approach in her fee-based
regression model, using that
methodological technique to mitigate
concerns regarding the reduction in the
quantity and quality of 2015–17 data.
At a high level, she described the
Bayesian approach as ‘‘a technique that
allows [an econometrician] to use
results from one period and add
additional data to it to then update . . .
inferences based on . . . that earlier
period.’’ 4/11/23 Tr. 4209:3–6 (Marx).57
According to Dr. Marx, three basic
reasons supported her use of a Bayesian
regression:
1. In the prior proceeding, the Judges found
Dr. Crawford’s approach to be appropriate for
allocating, inter alia, 2013 royalties.
2. The 2014 data largely patterns the 2013
data analyzed by Dr. Crawford because
(unlike the 2015–2017 data) the 2014 data
had not been affected by the growing
predominance of excess capacity CSOs,
reductions the number of SGs, or the
reclassification of PTV stations.
3. Although the 2014 data alone would not
be robust enough to adequately or reliably
model a regression, the Bayesian approach
incorporates a methodological technique that
helps to resolve concerns regarding the
quantity of data.
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4/11/23 Tr. 4207–08 (Marx).
Accordingly, Dr. Marx ran her
Bayesian fee-based regression only for
2014. The estimates she generated from
her regression generated 2014 shares
aligned with the shares calculated from
Dr. Crawford’s fee-based regression in
the 2010–13 Determination. 4/11/23 Tr.
4126:16–4127:4. (Marx).58
As noted supra, Dr. Marx found that
the data generated for the 2015–17
57 See also Marx ACWDT ¶ 101 (‘‘Bayesian
regression is a well-accepted tool in economic and
scientific research that is well-suited to situations
in which the researcher has a ‘prior belief’ about the
distribution (e.g., mean and variance) of parameters
of interest and wishes to use additional data in
order to update conclusions about the
parameters.’’).
58 In her Bayesian model, Dr. Marx adopted Dr.
Crawford’s model that had removed simultaneous
‘‘duplicated minutes’’ (i.e., minutes of distantly
retransmitted programming that were also
transmitted on local stations), opining that CSOs
would not realize incremental value from offerings
of duplicative programming. 4/11/23 Tr. 4213
(Marx). In this regard, Dr. Marx’s approach deviated
from the Judges’ prior determination in which they
found a problem with Dr. Crawford’s duplicated
minutes analysis and elected instead to rely upon
his nonduplicated minutes analysis. See 2010–13
Determination at 3562. Dr. Marx’s specific change
in this regard does not materially affect the Judges’
consideration of her Bayesian approach in this
proceeding.
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period was insufficient to allow her to
use a fee-based regression for those
years. To be clear, the paucity of data
she identified was not a data collection
problem, but rather what she considered
to be an insufficient quantity of data
borne from significant ‘‘changed
circumstances,’’ namely the 2015
conversion of WGNA to a cable station
from a local station that had previously
been the most distantly transmitted.
These changed circumstances led Dr.
Marx to highlight as a key finding from
her analysis that ‘‘a regression similar to
[Dr.] Crawford’s would [be] less
informative and less reliable.’’ Marx
ACWDT ¶ 9(c) (emphasis added); see
also Marx ACWDT ¶ 67 (reiterating after
her full analysis that in her opinion a
Crawford-style regression would be
‘‘less informative and less reliable for
estimating relative marketplace value
after 2014.’’) (emphasis added).
In granular detail, Dr. Marx identified
the following dramatic modeling
ramifications arising from the WGNA
conversion:
1. The fulsome data set utilized by Dr.
Crawford in the 2010–13 proceeding did not
exist for the 2015–2017 period.
2. The number of CSOs carrying at least
one distant signal declined substantially after
2014. More particularly, more than 800 CSOs
carried distant signals in 2014, but only
approximately 500 CSOs carried distant
signals by 2017.
3. Total royalties declined by
approximately 32% from 2014 to 2017.
4. There was a dramatic reduction in the
number of subscriber-weighted minutes.
5. The number of ‘‘excess capacity’’ CSOs
increased dramatically.59
6. More than 90% of royalties in 2016 and
2017 were paid by these ‘‘excess capacity’’
CSOs, i.e., systems that could have carried
more DSEs but declined, notwithstanding the
zero marginal royalty cost associated with
additional carriage.
7. Alternately stated, less than 10% of the
SG-level calculated royalties reported by
CSOs reflect royalties actually paid for
retransmission of signals by CSOs in 2016
and 2017.
8. Consequently, all the royalties
calculated for each subscriber group in a
cable system do not represent actual or
incremental costs paid by the CSO because
of the minimum fee requirement.60
9. Underscoring the impact of the WGNA
conversion, 92% of CSOs that had previously
59 In her rebuttal testimony, Dr. Marx coined the
apt phrase ‘‘excess capacity CSO’’ as an identifier
of a CSO that distantly retransmitted less than one
Distant Signal Equivalent (DSE), had the capacity to
distantly retransmit one or more additional distant
signals without increasing its royalty obligation
above the minimum fee, and yet chose not to make
any such additional retransmissions. Marx WRT
¶¶ 6, 13. The Judges adopt this phrase throughout
this Determination.
60 The minimum fee issue is separately discussed
elsewhere in this determination. It is referenced in
this section discussing the experts’ models to
provide a more complete context.
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carried WGNA (with or without an additional
distant signal) in 2014, were paying only the
minimum fee.
10. Finally, whereas the percentage of all
CSOs that carried no distant signals had
increased from only 13% in 2014, 30% in
2015, 44.6% in 2016, and then to 44.8% in
2017.
CTV PFF ¶¶ 93–94; 156–163; 167; 170;
195–199 (and record citations therein).
With regard to the effect of these
changed circumstances on a fee-based
regression, Dr. Marx testified that Dr.
Crawford’s regression model relies on
variation between the distant
retransmission decisions at the SG
level—but only within a given CSO.
Marx ACWDT ¶ 57. Thus, the Crawford
Model included a CSO only if the CSO
had at least two SGs. But with the
dramatically changed circumstances
caused principally by the WGNA
conversion and the resulting increase in
the number of excess-capacity CSOs,
there were far fewer CSOs in the 2015–
2017 period who created the necessary
multiplicity of SGs. Id. More
particularly, Dr. Marx relied on the
following facts:
1. In 2015, 62% of CSOs—accounting for
almost 35% of total royalties—did not meet
the Crawford regression threshold that a CSO
have at least two subscriber groups.
2. The proportion of CSOs with fewer than
two SGs increased from 54.9% to 68.8%.
3. The percent of CSOs with zero SGs
increased from 13% to 44.8% from 2014 to
2017.
4. The number of CSOs qualified to be
included in a Crawford fee-based regression
continued to decline throughout the relevant
time period, with only 31.2% of CSOs
included in 2017.
Marx ACWDT ¶¶ 58–59 & fig.12; 4/11/
23 Tr. 4178 (Marx).
These are the detailed changed
circumstances, referred to supra, which
Dr. Marx found to render a Crawford
fee-based regression less informative
and reliable in the present proceeding
than in the 2010–13 proceeding. Marx
ACWDT ¶¶ 64, 67. More particularly,
she noted that, in her opinion, the
relatively small percent of CSOs that
otherwise satisfied the requisites for
inclusion in a Crawford-style regression
could not be considered a representative
sample or a representation of the
Willingness to Pay of the larger CSO
market. 4/11/23 Tr. 4161, 4173 (Marx).61
61 Dr. Marx testified that the other regression
experts essentially agreed with her opinion that the
Crawford-style fee- based regression would suffer
from an absence of sufficient data on SG variations
within a CSO. She identified such agreement in the
testimonies of Drs. George, Johnson and Tyler by
their relaxation of the number and types of ‘‘fixed
effects’’ used by Dr. Crawford to isolate the
correlation of category minutes and royalties which
his regression seeks to identify. However, as
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For the foregoing reasons, Dr. Marx
utilized a fee-based regression only to
estimate the regression coefficients and
share allocations for 2014. Her results—
are set forth in the figures below:
Figure 6. Regression coefficients on minutes of claimant group programming:
Crawford (2010-2013) and Bayesian updates (2014), including duplicative minutes
20102013
2.31
32.55
4.88
1.84
1.08
4.08
2014
2.39
35.16
4.44
1.41
1.11
3.95
Source: Crawford CWDT, Figure 15; CDC data and Red Bee Media data.
Note: All estimates are statistically significant; for coefficients with standard errors, see Appendix C.
Figure 7. Regression coefficients on minutes of claimant group programming:
Crawford (2010-2013) and Bayesian updates (2014), excluding duplicative minutes
20102013
2.49
34.96
5.77
1.98
1.17
4.26
2014
2.73
43.01
5.64
1.62
1.31
4.11
Source: Crawford CWDT, Figure 18; CDC data and Red Bee Media data.
Note: All estimates are statistically significant; for coefficients with standard errors, see Appendix C.
Estimated 2014 Shares
PS—19.73%
JSC—43.89%
CTV—15.56%
PTV—16.41%
SDC—0.48%
CCG—3.93%.
(B) Applying the inclusion of
duplicated minutes as in the 2010–13
Determination:
Estimated 2014 Shares
discussed in more detail infra, Dr. Marx criticizes
the removal of some or all of these ‘‘fixed effects’’
by these other experts as introducing ‘‘omitted
variable bias’’ into their regressions, thus
compromising their usefulness in this proceeding.
See Marx WRT ¶¶ 14, 20 & 37; 4/11/23 Tr. 4179,
4181, 4255 (Marx) (removing ‘‘fixed effects’’ in
order to introduce into the model different
variations across CSOs and across time to address
the problem of fewer subscriber groups is improper
because it generates a new problem—the
introduction of ‘‘omitted variable bias,’’ which
metaphorically was adding ‘‘garbage’’ into their
regressions). The Judges consider the alteration of
‘‘fixed effects’’ by these other experts, and the
criticisms of that decision infra, in their
consideration of those proffered regression models.
62 In her Bayesian regression for 2014, Dr. Marx
adjusted the valuation analysis for PTV by
addressing certain alleged anomalies in the PTV
minutes, including those arising from the presence
of PTV ‘‘must carry’’ stations, the transition of PTV
stations from exempt (no royalty paid) to nonexempt (royalty paid) and the indemnification of
CSOs for royalties paid to transmit PTV signals. The
figures reproduced in the text, supra, from Dr.
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PS—20.69%
JSC—41.73%
CTV—13.94%
PTV—18.85%
SDC—0.47%
CCG—4.31%.
Marx ACWDT ¶ 39.
Marx’s WRT embody Dr. Marx’s conclusions in
these regards. The Judges consider these PTVspecific issues elsewhere in this Determination.
63 See Bennett ACWDT figs.1 & 2.
64 In the 2010–13 Determination, the Judges
adopted Dr. Crawford’s model that included
duplicate minutes because the duplicated minutes
calculation was more accurate than the
unduplicated minutes calculation. See 2010–13
Determination at 3565. Dr. Marx calculates
coefficients (and thus shares) under both scenarios,
noting that there is minimal difference between the
two approaches. Marx ACWDT ¶ 38.
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Dr. Marx then multiplied the
subscriber-weighted minutes for each
program category, as calculated by
another CTV expert, Dr. Christopher
Bennett,63 by her Bayesian coefficients
(as adjusted pursuant to her PTV
analysis) and she estimated the
following allocation shares for 2014:
(A) Applying Dr. Marx’s ’s preferred
analysis excluding duplicated
minutes: 64
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Source: Marx ACWDT ~~ 37, 39, figs.6-7. 62
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1. Dr. Marx’s ‘‘Directional’’ Analysis for
2015–2017
Having rejected the use of a fee-based
regression to estimate relative
marketplace value for the 2015–2017
period, Dr. Marx switches gears in two
contexts. First, she shifts the demandside focus, by analyzing how choices of
downstream consumers of cable
television programming have
purportedly changed—and how those
changes impact the ‘‘derived
demand’’ 65 for categories of
programming delineated in this
proceeding. Second, Dr. Marx uses this
analysis to provide what she describes
as a ‘‘directional’’ approach, which she
opines should guide the Judges
regarding the relative increases or
decreases in category royalty shares.
This ‘‘directional’’ approach is in
contrast to both the regression and the
survey methods for ascertaining relative
marketplace value, which seek to
provide specific estimates of the
category values. See Marx ACWDT ¶ 83
(‘‘This is a ‘directional’ analysis in that
I do not quantitatively measure the
effect of streaming on relative market
values.’’).66
More particularly, Dr. Marx evaluates
the changes in how consumers viewed
cable television programming content in
the 2014–2017 period, compared to
viewing in prior years. Specifically, Dr.
Marx examined how the introduction
and growth of streaming of
programming through over-the-top
(OTT) platforms during the 2014–2017
period affected not only how consumers
chose to access content but also,
derivatively, the ‘‘differential effects’’ of
this change in distribution ‘‘across the
claimant groups.’’ Marx ACWDT ¶ 82.
Dr. Marx’s directional ‘‘derived
demand’’ evaluation proceeds as
follows:
khammond on DSKJM1Z7X2PROD with NOTICES2
1. She summarizes the expansion of
streaming prior to and during the 2014–2017
period.
65 In the 2010–13 Determination, the Judges
explained that the concept of ‘‘derived demand’’
was applicable to ‘‘[t]he demand for programming
at each step in the [distribution] chain . . . all the
way to the television viewer,’’ although, with regard
to distant retransmissions of local stations, this
derived demand is impacted by ‘‘the role of
bundling and ‘niche’ programming’’ that can affect
‘‘the premium that certain categories of
programming fetch in an open market’’ that would
impact ‘‘value among disparate program categories’’
in these allocation proceedings. 2010–13
Determination at 3600.
66 Dr. Marx’s ‘‘directional’’ analysis is akin to the
testimony of television industry witnesses
discussed infra. In fact, Dr. Marx opines that her
‘‘directional’’ analysis is consistent with the
testimonies of five industry witnesses—Mr. Singer,
Mr. Warren, Ms. Witmer, Mr. Hartman and Ms.
Alany. 4/11/23 Tr. 4234 (Marx).
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2. Dr. Marx then uses viewership data 67 to
identify evidence indicating how the growth
of streaming was likely to have increased or
decreased the relative value of the claimants’
respective program categories groups to a
CSO. More particularly, Dr. Marx opines that
a program category with ‘‘content [that] had
a larger shift to streaming would, all else
equal, be likely to have a decrease in relative
importance when it comes to delivery as a
distant signal by CSOs [and] [c]onversely,
claimant groups whose content had smaller
shifts to streaming likely would, all else
equal, have an increase in relative
importance.’’
3. She next reviews data on household
viewership over the relevant period, focusing
on the ‘‘directional relative effects of
streaming growth on CTV, PTV, and Program
Suppliers categories . . . .’’ 68
In sum, streaming grew rapidly during
2014–2017 [and] Nielsen data show
concomitant declines in viewership of the
PTV and Program Suppliers claimant groups’
content. CTV content viewership also
declined, but that decline was smaller than
for PTV and Program Suppliers. This implies
that the growth of streaming likely had a
greater adverse impact on Program Suppliers
and PTV claimants than on CTV claimants.
All else equal, this is consistent with a higher
relative market value for CTV claimants over
the 2014–2017 period as compared with
Program Suppliers and PTV claimants.
Marx ACWDT ¶¶ 83–84.
Through this analysis, Dr. Marx
reaches the following conclusions:
a. Rebuttals to Dr. Marx’s WDT by SDC
Witness Dr. Erdem
1. From as far back as 2010, ‘‘streaming and
smart device penetration have increased
while CSOs have lost subscribers.’’
2. Viewership data reveals a reduction in
TV viewership over the 2014–2017 period.
3. Because of increased streaming and
lower cable subscribership the ‘‘importance
of ‘‘PTV and Program Suppliers content
appear[s] to have diminished . . . relative to
CTV content.’’
4. Although the data reveal a decline in the
absolute number of households watching
content within the CTV, PTV, and Program
Suppliers categories, the relative declines
were greater for PTV’s and Program
Suppliers’ content than for CTVs’ content.
5. The absolute and relative decline in the
share of viewership on cable of Program
Suppliers content is consistent with the
contemporaneous improvement in the
‘‘quality of streaming video content provided
on platforms such as Netflix, Amazon Prime
Video, and Hulu.’’
6. In addition to licensed TV shows, these
streaming platforms also transmit original
content which they have produced, with
quality levels generating Emmy Award
nominations, indicating the growing and
high quality of content carried by streaming
platforms.
Marx ACWDT ¶¶ 85–98 & figs.21–24.
Applying the foregoing to the Judges’
present task of estimating relative
marketplace value across the claimant
67 Dr. Marx relies on local viewing data generated
by the Nielsen audience research firm. The
probative value, vel non, of viewership data, and
local viewership in particular, as a proxy for
changes in the relative marketplace value of
distantly retransmitted local stations, is discussed
infra.
68 Dr. Marx focuses on these three categories
because her data source only contains one Canadian
station, and because the small size of the SDC
category renders it less reliable and impactful. She
also testifies that ‘‘sports content is more
challenging to evaluate with this [Nielsen] data due
to geographic and temporal variation in ratings
driven by factors unrelated to the growth of
streaming,’’ and that she understood ‘‘streaming of
[JSC] content was limited during the 2014–2017
period.’’ Marx ACWDT ¶ 84 n.66.
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categories, Dr. Marx concludes as
follows:
Marx ACWDT ¶ 99.
2. Rebuttals to Dr. Marx’s Analyses
One of the SDC’s expert economic
witnesses, Dr. Erkan Erdem,69
characterizes Dr. Marx’s rejection of the
applicability of the fee-based regression
approach in a broader context than Dr.
Marx. Instead, Dr. Erdem avers that the
inconsistency between the 2010–2013
data and the data over the entirety of the
2014–2017 period reveals something
more profound: that the ‘‘Crawford
model was made specifically only for
the 2010–2013 data . . . [and] is not
robust enough to measure the market
value of distant minutes per claimant to
fit data from other proceedings.’’ Erdem
WRT ¶ 126. By this criticism, Dr. Erdem
tacitly criticizes Dr. Marx’s Bayesian
approach for not applying her criticism
with appropriate breadth, maintaining
that ‘‘[e]ven if there is a shift in the
trend of this proceeding’s data, [her
modeling] should still theoretically be
useful for this proceeding, if one were
to believe it was useful in the first place,
since they are dealing with the same
variables.’’ Erdem WRT ¶ 126. See also
Erdem WRT ¶ 130 (opining that Dr.
Marx was wrong to maintain that after
the WGNA conversion all that was
needed was ‘‘an adjustment . . . in the
Crawford model’’ because, although
‘‘[t]he underlying trends in the data . . .
shifted, . . . the variables used are still
the same, as well as the computation of
distant minutes and distant signals.’’).
Whereas Dr. Erdem finds the forgoing
criticism of the use of a Crawford feebased regression as incomplete, he finds
a second criticism by Dr. Marx to be
exaggerated. Specifically, he takes issue
with her concern that the number of
CSOs with two or more subscriber
groups had decreased after 2014,
thereby reducing the presence of the
69 Dr. Erdem was received as an expert in the
fields of economics, econometrics, and data
analysis. 4/5/23 Tr. 3395 (Erdem).
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sufficient observations of programming
decisions arising from the different
stations retransmitted by such
subscriber groups. Erdem WRT ¶ 131.
Dr. Erdem finds this criticism
overblown because the percentage of
CSOs with fewer than two subscriber
groups only increased from 54.9% to
68.8% from 2014 to 2017, and the CSOs
thus excluded from the fee-based
regressions would ‘‘only account for
38% of the total royalties.’’ Erdem WRT
¶ 131. Thus, he finds Dr. Marx’s reliance
on this changed circumstance as
obscuring his essential point, to wit,
that if the Crawford Model had been
‘‘correctly specified in the first place’’ it
would not need ‘‘to be adjusted for
changes in the data,’’ but rather ‘‘should
be able to withstand [data changes] to
remain accurate.’’ Erdem WRT ¶ 131.
Finally, but in the same vein, Dr.
Erdem disagrees with Dr. Marx’s
conclusions that the reduction in the
percentage of CSOs paying only the
minimum fee limits only the
applicability of the fee-based regression
approach, as opposed to (as Dr. Erdem
maintains) demonstrating the overall
incorrectness of the model’s
specifications. Erdem WRT ¶ 132. More
specifically, Dr. Erdem characterizes the
39% of CSOs paying only the minimum
fee in 2014 as itself a ‘‘large
proportion,’’ which would have
required the Crawford Model, or a
model fashioned in the manner of the
Crawford Model, to have been
‘‘specified’’ for this effect. Instead, Dr.
Marx treats the increase in the shift in
CSOs paying minimum fees after 2014
only as grounds to find the fee-based
regression model inapplicable for 2015–
2017, rather than misspecified, and she
wrongly deemed the 39% figure in 2014
sufficient to incorporate into her
Bayesian regression. Erdem WRT
¶ 132.70
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b. Rebuttals to Dr. Marx’s WDT by
Program Suppliers Witness Dr. Tyler
Dr. Tyler 71 levies three criticisms at
Dr. Marx’s direct testimony. First, he
criticizes Dr. Marx’s regression-based
70 The SDC’s other econometric expert, Dr.
Rubinfeld, criticizes Dr. Marx’s use of a fee-based
regression in her Bayesian approach for the same
reasons he criticizes fee-based regressions writ
large, and those criticisms are addressed elsewhere
in this determination. But the Judges note here that
Dr. Rubinfeld found Dr. Marx’s ‘‘directional’’
analysis for 2015–2017, relating to the growth of
streaming as impacting relative share values, as
proof that ‘‘the regression specification put forth by
Dr. Crawford was not robust or informative
[because] the model does not adequately
characterize the changing U.S. video distribution
marketplace.’’ Rubinfeld WRT ¶ 95.
71 Dr. Tyler was received as an expert in the fields
of economics, data analysis, and econometrics. 4/
19/23 Tr. 5428 (Tyler).
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approach for estimating 2014 values for
the same reason he criticizes all the
other fee-based regression proffered in
this proceeding (and Dr. Crawford’s
model as well).72 That is, Dr. Tyler
criticizes Dr. Marx’s 2014 modeling
because her dependent variable, as in
the models of Drs. Crawford, George and
Johnson, is ‘‘a royalty amount.’’ Written
Rebuttal Testimony of Cleve B. Tyler,
Ph.D., Trial Ex. 7601, ¶ 30 (Tyler WRT).
Dr. Tyler’s criticism of this form of
dependent variable is that it ‘‘contain[s]
a substantial amount of variability due
to factors other than categories of
distantly retransmitted minutes for a
subscriber group.’’ Tyler WRT ¶ 31.
According to Dr. Tyler, these models
then need to include fixed effects to
limit this unrelated variability, but Dr.
Crawford’s model—subsumed in Dr.
Marx’s 2014 model—suffers from a loss
of information arising from these fixed
effects.
Moreover, Dr. Tyler notes that, for the
2015–2017 period, Professor Marx’s
inability to apply a fee-based regression
arises from data limitations generated by
the WGNA conversion, but such data
limitations are obviated by the change
in the dependent variable to his
Subscriber Group Royalty Percentage
(‘‘SGRP’’), which he avers does not
require fixed effects, and thus his model
does not discard information from the
substantial number of CSOs that have
just one Subscriber Group. Tyler WRT
¶ 70.
Dr. Tyler also maintains that because
Dr. Marx relies on Dr. Crawford’s 2010–
2013 model, she began her regression
analysis from an ‘‘imprecise starting
point’’ and a potentially biased ‘‘prior
belief.’’ Tyler WRT ¶ 57. That is,
because Dr. Tyler is of the opinion that
Dr. Crawford’s process in generating his
model generates ‘‘serious questions,’’ 73
she has implicitly ported those
problems into her model, which ‘‘cast[s]
a substantial shadow of doubt on any of
her conclusions.’’ Tyler WRT ¶ 57.
Finally, Dr. Tyler takes aim at Dr.
Marx’s default to a directional analysis
in which she opined that expanded
streaming services likely ‘‘reduc[ed] the
value of Program Suppliers and PTV
claimants’ retransmitted programming
relative to the programming offered by
CTV claimants.’’ While not disputing
the relative value shift posited by Dr.
72 To be clear, Dr. Tyler does not criticize Dr.
Marx’s application of a Bayesian approach to the
2014 allocation issue.
73 Dr. Tyler’s criticisms of Dr. Crawford’s work are
set forth at Tyler ACWDT ¶¶ 106–127 tech. app. A.
The Judges discuss elsewhere in this determination
the impact of the criticism of Dr. Crawford’s work
on the fee-based regressions proffered in this
proceeding.
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Marx, Dr. Tyler maintains that an
appropriate regression analysis, such as
his approach, would capture this effect
and in a manner superior to the
inappropriate speculation embodied in
Dr. Marx’s ‘‘directional’’ analysis. Tyler
WRT ¶ 72.
c. Rebuttals to Dr. Marx’s WDT by
Program Supplier Expert Dr. Gray
Dr. Gray 74 raises the following
criticisms of Dr. Marx’s approach:
1. In support of her ‘‘directional’’ analysis,
Dr. Marx claims only that local viewership
declined for each of the Program Suppliers,
Commercial Television, and Public
Television claimant categories, but she fails
to provide information on the level or trend
of distant viewing of these locally produced
programs. Written Rebuttal Testimony of
Jeffrey S. Gray, Trial Ex. 7606, ¶¶ 47–48
(Gray WRT).
2. Relatedly, although the Judges have
previously ruled that local viewing patterns
are not probative of distant viewing patterns,
absent contemporaneous local and distant
measures demonstrating that local viewing
patterns are sufficiently informative as to
subscribers’ distant viewing patterns, Dr.
Marx offers only local viewing data, which
the Judges have previously found not
probative of distant viewing pattern rather
than evidence of distant viewing patterns.
Gray WRT ¶ 48 n.40 (citing Order Reopening
Record and Scheduling Further Proceedings,
Consolidated Docket Nos. 2012–6 CRB CD
2004–2009 (Phase II) and 2012–7 CRB SD
1999–2009 (Phase II) at 3–4 (May 4, 2016)).
3. Dr. Marx fails to account for the
substantially diminished number of
households which even had distantretransmitted access to CTV programming in
the years 2015–2017. Thus, she fails to
address the fact that ‘‘the relative number of
subscribers receiving [CTV] programming on
a distant basis declined precipitously over
the 2014–2017 royalty years,’’ as shown even
in ‘‘[s]tatistics presented in Dr. Marx’s direct
testimony show[ing][CTV’s] share of claimant
category minutes weighted by the number of
distant subscribers reached [had] declined
72% between 2014 and 2017.’’ Gray WRT
¶ 49.
d. Rebuttals to Dr. Marx’s WDT by
PTV’s Expert Dr. Johnson
Dr. Johnson 75 recognizes that he and
Dr. Marx essentially agree as to the use
of fee-based regressions and allocation
methodologies for 2014, but that they
disagree with regard to the usefulness of
a fee-based regression to determine
allocation shares for the 2015–2017
period. Johnson WRT ¶ 88. With regard
to the latter three years, Dr. Johnson
takes issue with Dr. Marx’s opinion that
the WGNA conversion would
74 The Judges received Dr. Gray as an expert in
the fields of economics, statistics, and
econometrics. 4/13/23 Tr. 4850 (Gray).
75 The Judges received Dr. Johnson as an expert
in the fields of economics and econometrics. 3/21/
23 Tr. 362 (Johnson).
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necessarily ‘‘ ‘exclude a large proportion
of CSOs and royalties from the
analysis,’ ’’ rendering a fee-based
regression approach ‘‘ ‘less informative
and reliable.’ ’’ Johnson WRT ¶ 89. More
particularly, Dr. Johnson criticizes Dr.
Marx for not presenting in her WDT
‘‘any regression analysis or testing that
would support this claim,’’ and,
moreover, that although she produced
what appeared to be ‘‘computer code
. . . appl[ying] Dr. Crawford’s model to
the entire 2014–2017 period,’’ she did
not provide any explanation how that
code might have supported her
otherwise conclusory opinion that a feebased regression for the 2015–2017
period would be ‘‘ ‘less informative and
less reliable.’ ’’ Johnson WRT ¶ 89 n.163.
Regarding Dr. Marx’s substitution of
her ‘‘directional’’ analysis for a
regression approach to analyze the
2015–2017 period, Dr. Johnson raises
two criticisms. First, he finds her
decision to not apply any modeling
approach for that period to be too
severe. Johnson WRT ¶ 91. Second, Dr.
Johnson criticizes Dr. Marx’s
‘‘directional analysis’’ as lacking any
specificity, information or guidance as
to what any particular claimant groups’
royalty shares should be in the 2015–
2017 period. Rather, her analysis is
nothing more than a recitation of
purported ‘‘qualitative changes Dr. Marx
believes were ‘likely’ to have
happened.’’ Johnson WRT ¶ 92.
Further, Dr. George ‘‘agrees with Dr.
Marx that programming on streaming
services is likely a closer substitute for
[PTV] and Program Supplier
programming than other claimant
types,’’ Dr. George finds that Dr. Marx’s
analysis ‘‘likely overstates the relative
decline of Program Supplier and Public
Television programming relative to
Commercial Television content.’’ George
WDT at 21. She reaches this finding by
noting that Dr. Marx’s reliance on local
(rather than distant) viewing neglects
the likely fact that local CTV news
programming would be less popular in
distant markets, whereas Program
Suppliers’ content is not geographically
distinct and would not be less valued
for this reason. George WRT at 21.
Finally, Dr. George takes issue with
Dr. Marx’s use of a Bayesian regression
incorporating 2013 data into the
methodology used to calculate 2014
share estimates.
Dr. George emphasizes that pooled
data from 2010–2013 reflects the
choices made by CSOs in that earlier
period with different market conditions.
In this regard, Dr. George notes that
decisions in 2010–2013 reflect neither
the WGNA conversion nor later cable
industry acquisitions and entry. George
WDT at 22.78
e. Rebuttals to Dr. Marx’s WDT by CCG’s
Expert Dr. George
Dr. George 76 first addresses Dr.
Marx’s critique of Dr. Crawford’s model
somewhat obliquely—not by disputing
the critique that his model reduces the
available number of meaningful
variations (among subscriber groups
within CSOs) but by purportedly failing
to recognize (as Dr. George opines) that
relaxing fixed effects in Dr. Crawford’s
model would increase the number of
subscriber group variations, thus
salvaging the use of a fee-based
regression. That is, an adjustment
allowing for ‘‘estimating coefficients
from variations within systems over
time rather than within each system
each accounting period,’’ allows for a
regression to analyze ‘‘all systems
carrying distant signals in two or more
accounting periods [to be] included,
regardless of the number of subscriber
groups.’’ George WRT at 18.77
Having considered all aspects of the
CTV Marx Model and directional
analysis presented by Dr. Marx, as well
as all the criticisms of those approaches
contained in the submissions by the
other parties, the Judges find as follows:
76 The Judges received Dr. George as an expert in
the fields of economics, with experience in
econometrics, media markets, and industrial
organization. 4/18/23 Tr. 5111 (George).
77 Dr. George acknowledges that relaxing Dr.
Crawford’s ‘‘fixed effects’’ in this manner risks the
introduction of bias from omitted variables created
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3. The Judges’ Analysis and Findings
Regarding the Marx Model and
Directional Approach
1. Dr. Marx’s Bayesian modeling, ceteris
paribus, is an appropriate econometric tool to
use in the process of estimating relative
marketplace value across the program
categories for 2014. The Judges do not credit
Dr. George’s criticism that Dr. Marx’s
Bayesian approach is deficient because it
pools 2014 data with data from the 2010–
2013 period. Dr. Marx opined, and the Judges
agree, that 2014 was sufficiently similar to
this prior period to justify the Bayesian
approach.79
by industry and system changes over time left
unobserved by the regression, but she believes this
trade-off is acceptable. George WRT at 18. By
contrast, Dr. Marx maintains that allowing for the
introduction of potential ‘‘omitted variable bias’’
would invite application of the metaphor ‘‘garbage
in, garbage out.’’
78 None of the JSC witnesses levied substantive
criticisms of Dr. Marx’s 2014 Bayesian regression or
her 2015–2017 ‘‘directional’’ analysis. This is
perhaps unsurprising, because a JSC expert witness,
Dr. Majure, does not take issue with the results of
Dr. Marx’s 2014 Bayesian regression or with her
‘‘directional’’ analysis.
79 The Judges also note that Dr. George herself
pooled data from 2014 with the 2015–2017 data,
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2. Dr. Marx’s directional analysis for the
2015–2017 period can be useful, despite the
absence of any allocation share estimates, in
that it suggests to the Judges which of the
quantitative estimates on which the Judges
do rely could be more probative, in that they
are consonant with Dr. Marx’s directional
analysis. However, in the present proceeding,
as discussed infra, the Judges adopt the Tyler
Model as a regression model that is probative
of relative marketplace values over the entire
2014–2017 period. Accordingly, the Judges
find Dr. Marx’s ‘directional’’ analysis,
although useful, not as probative or definitive
as the Tyler Model. Nonetheless, the Judges
will utilize the Marx Model, as appropriate,
to reconcile differences between the Tyler
Model and the adjusted Bortz approach
undertaken infra.
3. Nonetheless, the Judges emphasize the
appropriateness of Dr. Marx’s ‘directional’’
analysis, because they do not want to leave
the implication that such qualitative analyses
are inappropriate. Dr. Marx’s 2015–2017
directional analysis was an appropriate
alternative to a fee-based regression—because
(as discussed elsewhere in this
determination) the WGNA conversion
substantially increased the number of
minimum-fee-only CSOs and the number of
CSOs with less than two subscriber groups—
reducing significantly the number of CSOs
and subscriber groups that was accepted by
the Judges in the 2010–13 Determination. In
this regard, the Judges do not credit Dr.
Erdem’s reliance on separate arguments,
seeking to discredit Dr. Marx’s use of the
regression approach have evidentiary weight
commensurate for 2014, regarding the impact
of (a) the reduction in the number of CSOs
with two or more subscriber groups; and (b)
the increase in the number of minimum-feeonly CSOs. Rather, Dr. Marx has considered
the combined effect of these factors.
4. Although Dr. Marx’s ‘‘directional’’
approach is probative and useful, she
overstated the point that the reduction in
above-minimum-fee-paying CSOs rendered
their revealed preferences without benefit.
Rather, their channel selections/
programming preferences are also probative
and useful, even if less so than in the 2010–
13 Determination because of the reduction in
the number of such CSOs and in the
percentage of royalties they represent.
5. Dr. Marx’s allocation shares related to
‘‘duplicated’’ minutes is superior to her share
allocation excluding ‘‘duplicated’’ minutes,
because the Judges adopted the former in the
2010–13 proceeding, because of problems
relating to the latter as described in the prior
determination. See 2010–13 Determination at
3565, 3569, 3591, and 3610–11.
6. The evidentiary weight of Dr. Marx’s
‘‘directional’’ analysis for the 2015–2017
period is not diminished due to her reliance
on local viewership data, because the
evidence in this proceeding indicates that a
substantial percentage of distant viewing is
retransmitted to areas in close proximity to
the origin of the local signal. See, e.g., Erdem
WRT 59 (‘‘91% of systems are retransmitting
the same signal on a local basis to some
where the data distinction was dramatic, having
arisen from the WGNA conversion.
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subscriber groups and on a distant basis to
other subscriber groups [and] [of]f these
systems, on average, 76% of the channels
that are distant to a subscriber group are
retransmitted as local to another subscriber
group . . . .’’).
7. Dr. Marx’s ‘‘directional’’ analysis
provides evidence suggesting that PTV and
Program Suppliers content declined in
viewership relative to CTV, implying, ceteris
paribus, a higher relative share value for
CTV. The Judges note that Dr. George agrees
with this point (but see point (8) below).
8. However, the Judges’ prior reluctance to
use viewership as a direct proxy for value in
the allocation (Phase I) proceedings cautions
against applying too much probative weight
to this ‘‘directional’’ analysis. Accordingly,
the Judges adopt Dr. Gray’s criticism
regarding Dr. Marx’s reliance on local
viewership data, but only as a caution
regarding its evidentiary weight. In this
regard, Dr. George agrees that the weight
placed on Dr. Marx’s viewership-based
approach be limited.
9. The Judges further limit the evidentiary
weight of Dr. Marx’s ‘‘directional ‘‘analysis,
because, as Dr. Gray further notes, Dr. Marx’s
own data shows that CTV’s share of claimant
category minutes declined significantly
between 2014 and 2017.
C. Program Suppliers’ Regression
Approach: The Tyler Model
On behalf of Program Suppliers, its
expert witness, Dr. Tyler, proffered a
regression analysis that, while within
the broad category of fee-based
regressions, is differentiated in ways
that Dr. Tyler opines to be important in
this proceeding. The Judges’ review of
his testimony, infra, highlights these
broad similarities and the assertedly
important differences.
At a high level, Dr. Tyler agrees with
the finding in the 2010–13
Determination that regression analysis is
very informative for estimating relative
marketplace value in this case. But by
way of differentiating his approach, Dr.
Tyler notes that a regression seeking to
establish relative marketplace value
should estimate incremental value,
which he posits here to be the marginal
value of an additional minute of
different types of programming content
relative value—rather than a value
relative to a reference or base category,
as in the other proffered regressions.
Tyler ACWDT ¶ 65; 4/19/23 Tr. 5439–40
(Tyler).
Next, Dr. Tyler notes that—although
the statutory royalty formula in section
111 prevents the setting of market prices
for distantly retransmitted stations—a
regression can observe how CSOs reveal
their preferences for different types of
stations bundling various types of
programming content, given the preexisting section 111 royalty rate
provisions. In turn, the observations of
the decision-making by CSOs provides
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insight into their willingness-to-pay
(WTP) for different programming
categories on their distantly
retransmitted local stations. The final
link in this analytic chain, according to
Dr. Tyler, is that the regression can
measure this WTP and thus estimate the
‘‘relative values of market outcomes’’
that cannot be directly observed. Tyler
ACWDT ¶ 65.
More particularly, Dr. Tyler explains
that regression analysis as applied to
determine relative marketplace value in
these proceedings ‘‘exploits the fact that
CSOs make choices as to which bundles
of content they retransmit.’’ Tyler
ACWDT ¶ 66. He adds that the
regression will estimate the incremental
royalty amount that CSOs paid (or, more
accurately appeared willing to pay) 80 to
acquire different types of content,
which, he opines, ‘‘is akin to finding the
relative value of programming content,
based on actual choices made by
marketplace participants.’’ Id. Finally,
Dr. Tyler explains that the ‘‘marginal
values’’ calculated via his regression
must be multiplied by the quantities of
minutes ‘‘to compute relative
marketplace value.’’ Tyler ACWDT ¶ 68.
Notwithstanding his broad agreement
with other experts in this and prior
proceedings that fee-based regressions
are useful, he parts company with them
in an important way. Rather than start
from the assumption that Dr. Crawford’s
2010–13 model is useful or correct, Dr.
Tyler constructed a regression model
that differed from the approach taken by
Dr. Crawford and from Drs. Johnson
George and Marx (for 2014), whose
approaches were modified versions of
Dr. Crawford’s model. More specifically,
he avers that the Tyler Model diverges
importantly and beneficially from prior
fee-based regressions and from the feebased regressions proffered by the other
experts here, because of his model’s use
of a Rate as the dependent variable.
In this regard, Dr. Tyler explains that
Crawford-style regressions use actual
dollar royalty amounts as the dependent
(left-hand side) variable, which is
80 The Judges understand that Dr. Tyler found it
necessary to include this qualifier because in a
majority of instances in the 2015–2017 period,
CSOs paid the minimum fee rather than the ‘‘base
fee’’ calculated on a subscriber group basis. See
Tyler ACWDT ¶ 67 (tacitly acknowledging that
where the minimum fee is binding, a fee-based
regression does not provide the CSOs’ actualized
revealed preferences, but rather only ‘‘insight into
how the CSOs would actually value these program
categories in an unregulated market.’’).
In this regard, the Judges discuss elsewhere in
this determination the distinction in evidentiary
value between instances where the CSO actually
pays the calculated subscriber group base fee, and
instances where the CSO actually pays the
minimum fee (not the calculated subscriber group
base fee).
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problematic because ‘‘substantial
variability exists across the royalty
amounts calculated for each subscriber
group . . . . ’’ More particularly,
because ‘‘copyright royalties are
determined on the basis of gross receipt
percentages . . . greater [dollar] royalty
amounts . . . for a subscriber group
[may occur] for no other reason than
that one CSO has more subscribers or
higher prices, or both, than another
CSO.’’ Tyler ACWDT ¶ 83.
Accordingly, a regression model using
royalty amounts calculated (such as the
Crawford Model) ‘‘must control for
these sources of variability to attempt to
isolate the incremental value of minutes
by category type.’’ Tyler ACWDT ¶ 83.
This control is made in the Crawfordstyle regression by the use of ‘‘fixed
effects,’’ which ‘‘discard information
from the substantial number of CSOs
that have just one subscriber group,’’ a
loss of data that is unnecessary in the
Tyler model. Tyler WRT ¶ 70.
Dr. Tyler’s use of royalties as a
percentage of gross receipts, at the
subscriber group level, allows him to
calculate what he coins (as noted supra)
the ‘‘Subscriber Group Royalty
Percentage’’ (‘‘SGRP’’). When the SGRP
is regressed against the number of
transmitted minutes for each category,
Dr, Tyler obtains coefficients for his
regression equation that he describes as
‘‘represent[ing] a type of price.’’ Tyler
ACWDT ¶ 84.
This attempt by Dr. Tyler to
characterize the SGRP dependent
variable as a ‘‘type of price’’ is no mere
academic detail. By making this
characterization, Dr. Tyler claims that
his model sits within a well-accepted
class of econometric regressions known
as ‘‘hedonic regressions,’’ which he
defines as follows:
Hedonic regression . . . model[s] . . .
estimate the influence that various factors
have on the price of a good, or sometimes the
demand for a good. In a hedonic regression
model, the dependent variable is the price (or
demand) of the good, and the independent
variables are the attributes of the good
believed to influence utility for the buyer or
consumer of the good. The resulting
estimated coefficients on the independent
variables can be interpreted as the weights
that buyers place on the various qualities of
the good.
Tyler ACWDT ¶ 85.
Dr. Tyler then constructs his
purported hedonic regression by using
what he describes as the calculated
‘‘actual’’ 81 royalty rate per subscriber—
81 The word ‘‘actual’’ in this context is rather
Orwellian. For the 2015–2017 period, a substantial
majority of the CSOs in which the subscriber groups
are situated ‘‘actually’’ paid the minimum fee. A
Base Fee was ‘‘actually’’ calculated, as required by
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determined by the base fee royalty as a
percent of each subscriber group’s gross
receipts. Tyler ACWDT ¶ 87. He
proceeds to weight the regression model
by the gross receipts of the CSOs, which
he opines is ‘‘consistent with assessing
relative marketplace value [because]
[s]ubscriber groups with larger gross
receipts would tend to contain more
information [and] CSOs would be
expected to scrutinize decisions
regarding distantly retransmitted signals
more carefully when there are more
dollars at stake.’’ Tyler ACWDT ¶ 88.82
Dr. Tyler’s regression model
‘‘includes interaction terms for each
year . . . which allows for estimated
valuations that vary’’ for each year in
the 2014–17 period. This annualizing of
the valuations is distinguishable from
the ‘‘pooled’’ approach of other
regression experts in this proceeding,
who (in the models proffered in their
direct testimonies) ‘‘pool’’ their data
across all four years. Dr. Tyler rejects
this approach and utilizes an
annualized approach instead, because,
he opines, utilizing the same coefficient
across the four years is both (1) legally
inappropriate because calculating share
allocations for specific years is
statutorily required and (2) inconsistent
with ‘‘best practices’’ for hedonic
regressions (data permitting), which
allow the underlying relationships
between types of minutes and SGRP to
vary over time. Tyler ACWDT ¶ 91.
Summing up, Dr. Tyler identifies
what he understands to be the many
advantages of his model:
1. SGRP—as a type of price—reflects a
‘‘minimum willingness to pay’’ and thus has
a ‘‘clear economic interpretation.’’ PS PFF
¶ 285 (and record citations therein).
2. The focus of the regression is on ‘‘nearly
20,000 observations/data points, and more
than 2,000 distinct pricing relationships,
providing the variation needed for a
meaningful regression. PS PFF ¶ 286 (and
record citations therein).
3. By using SGRP as the dependent
variable instead of royalties (in any
functional form), the Tyler Model is not
influenced by variability in gross receipts
caused by the number of subscribers in a
subscriber group or higher CSO subscription
prices arising from for example, the number
and type of cable networks carried, the
quality of (or deficiency in) customer service,
and the bundled pricing of cable, internet
and/or phone. Unlike the regressions that use
royalties as the dependent variable, the Tyler
Model does not need to control for these
statutorily unrelated effects, thus avoiding
the potential for bias when fixed effects are
introduced. PS PFF ¶¶ 290–292 (and record
citations therein).
4. Because the SGRP is a ‘‘type of price’’
the Tyler Model is ‘‘closer’’ to the definition
of a traditional hedonic regression and
‘‘closer to the definition of a traditional
hedonic model.’’ PS PFF ¶ 293 (and record
citations therein).
5. By establishing values and shares for
each year, rather than pooling the results
over the four-year period, the Tyler Model:
(a) is in line with the Judges’ statutory task;
(b) captures annual industry changes; and (c)
is consistent with ‘‘best practices for hedonic
regressions.’’ PS PFF ¶¶ 294–296 (and record
citations therein).
6. The Tyler Model looks at the more
economically logical hypothetical marginal
expansion per minute of a program type to
determine value rather than the hypothetical
shift of minutes among program categories.
PS PFF ¶ 298 (and record citations therein).
7. The Tyler Model avoids the problem
inherent in the other regressions that must
rely on incorrect subscriber number
estimates. PS PFF ¶¶ 299–300, 358, 360–3623
(and record citations therein). Unlike the
models proffered by Drs. George, Johnson
and Marx, the Tyler Model is not based on
the Crawford Model. Therefore, unlike those
models, the Tyler Model is not tainted by the
potential ‘‘specification searching’’ suggested
by the high number of models and
specifications tested by Dr. Crawford.
Moreover, Dr. Tyler only considered the
results of fewer than two dozen models (all
linear in functional form) many of which
were robustness/sensitivity checks and not
generated as potential alternative base
models. PS PFF ¶¶ 305, 307, 311–313, 315–
316, 376–379 (and record citations therein).
8. Despite its differentiation from the
Crawford Model, particularly with regard to
the SGRP as the dependent variable in the
Tyler Model and in the absence of a need for
fixed effects, the Tyler Model is an
improvement of the fee-based regression
approach, not a departure. PS PFF ¶ 317 (and
record citations therein).
9. The Tyler Model does not cherry-pick or
otherwise overstate an allocation share for
Program Suppliers, for whom Dr. Tyler
presented testimony. PS PFF ¶ 308–309 (and
record citations therein).
Applying his model in the foregoing
manner, Tyler estimates royalty shares
(and standard errors) for each year as
follows:
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Yea
r
201
4
201
5
201
6
201
7
Program
Suppliers
26.6%
(3.8%)
39.7%
(1.5%)
34.0%
(1.5%)
31.8%
(1.1%)
Adiusted R2:
the regulations, but not ‘‘actually’’ paid, because the
Minimum Fee bound. Dr. Tyler’s misleading
semantic use of the adjective ‘‘actual’’ does not
assist the Judges in deciding whether any or all of
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JSC
37.2%
(7.5%)
2.8%
(1.0%)
2.5%
(0.9%)
1.8%
(1.0%)
83.3%
CTV
PTV
SDC
CCG
11.3%
(2.6%)
10.2%
(1.5%)
8.2%
(1.8%)
6.9%
(0.9%)
14.0%
(1.7%)
27.9%
(0.6%)
37.4%
(0.7%)
40.4%
(0.6%)
4.3%
(0.9%)
6.2%
(0.6%)
4.4%
(0.6%)
4.0%
(0.4%)
6.5%
(0.9%)
13.3%
(0.5%)
13.6%
(0.5%)
15.2%
(0.9%)
the Base Fee calculations have objective evidentiary
weight.
82 The use of weights in hedonic regressions has
support in the economic literature. See Tyler
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ACWDT § VI.G. (tech. app. C)).
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1. Criticisms of the Tyler Model
a. Criticisms of the Tyler Model by SDC
Expert Witness Dr. Erdem
Dr. Erdem opines that,
notwithstanding Dr. Tyler’s claim that
his model is differentiated to address
defects in the approach used by Dr.
Crawford, the Tyler Model ‘‘essentially
carries the same flaws.’’ Erdem WRT
¶ 43. But before examining alleged flaws
in the Tyler Model, Dr. Erdem
acknowledges that, in his opinion, the
other regression experts’ modeling is
more ‘‘egregious’’ than Tyler’s model.
Erdem WRT ¶ 121. More particularly,
Dr. Erdem recognizes that Dr. Tyler has
made what Dr. Erdem understands to be
the following salutary changes from the
approach used by Dr. Crawford:
1. A change in the dependent variable from
the log of royalties into a fees/revenue ratio.
2. The removal of fixed effects.83
3. Division of each claimant category into
‘‘Canada’’ and ‘‘non-Canada’’ zone minutes.84
4. Removal of the effect of ‘‘the number of
subscribers’’ by ‘‘divid[ing] the . . . fees paid
by a metric [gross receipts] that scales with
the number of subscribers.’’
Erdem WRT ¶¶ 43, 61.
However, according to Dr. Erdem,
despite the positive significance in these
model changes, the core principle of the
Tyler Model remains unchanged from
other regressions, because ‘‘the
dependent variable Dr. Tyler uses is still
driven by fees [and] attempt[s] to
estimate the relationship between fees
and programming minutes.’’ Erdem
WRT ¶ 43.85 More granularly, Dr. Erdem
criticizes Dr. Tyler’s use of the SGRP as
the dependent variable because it
‘‘basically boils down to the number of
DSEs.’’ In this regard, Dr. Erdem further
opines:
This is because a system’s royalty fees are
calculated by multiplying their revenues by
a specified amount that increases as the
system adds more DSEs, so dividing the fees
by revenue will produce a number that
correlates strongly with the number of DSEs
the system carried. As a result, Dr. Tyler is
essentially saying that DSEs equate to market
value.
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Erdem WRT ¶ 122. Dr. Erdem asserts
that this change in the dependent
variable from the log of royalties to the
SGRP does not cure the fundamental
problem in all fee-based regressions, to
wit: fee-based regressions are ‘‘trying to
83 Dr. Erdem opined that the inclusion of fixed
effects obscured the more impactful predictive
effects of other independent variables on the
royalty-based related dependent variable.
84 The experts’ treatment of issues relating
specifically to the Canada Zone is set forth infra in
this determination.
85 This is a reprise of the overarching criticism
that Dr. Erdem made in the 2010–13 Determination,
which was rejected by the Judges.
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calculate market value when no market
exists, using variables determined by
regulation.’’ Erdem WRT ¶ 122.
b. Criticisms of the Tyler Model by SDC
Expert Witness Dr. Rubinfeld
Dr. Rubinfeld testifies about the
deficiencies in all the fee-based
regressions, but he pointedly criticizes
Dr. Tyler for characterizing his
regression as a hedonic regression.
Rubinfeld WRT ¶ 71. Dr. Rubinfeld
levies this objection because he is of the
opinion that Dr. Tyler’s dependent
variable, the SGRP, does not equate or
analogize to a ‘‘market price’’—a
necessary element for a regression to
qualify as hedonic. Rubinfeld WRT ¶ 71.
Thus, according to Dr. Rubinfeld, Dr.
Tyler’s dependent variable, the SGRP,
falls victim to the same deficiency as the
other regressions, in that there is ‘‘no
reason to believe that a regression based
on statutory royalty fees—whether in
dollar terms or expressed as a
percentage of gross receipts—will
identify the marginal value of
programming that would prevail if the
royalty fees were determined in a free
market.’’ Rubinfeld WRT ¶ 75.
However, Dr. Rubinfeld approvingly
cites Dr. Tyler’s testimony (in the same
vein as Dr. Erdem) for its critique of the
modeling undertaken by Dr. Crawford.
In this regard, Dr. Rubinfeld notes:
1. Dr. Tyler examines Dr. Crawford’s
regression model to the 2014–2017 data
available in the current proceeding and finds
a ‘‘serious’’ underlying modeling problem in
the fact that ‘‘the Crawford Model estimates
zero shares for JSC in 2014 (as well as the
other years) . . . .’’
2. Dr. Tyler analyzes the troubling pattern
of the regression’s ‘‘residuals’’ in Dr.
Crawford’s model—again using 2014–2017
data—and finds that the latter’s regression
model is ‘‘not well specified for the 2014–
2017 data.’’ 86
Rubinfeld WRT ¶ 93.
In sum, Dr. Rubinfeld does not find
economic support for Dr. Tyler’s
regression model, but does find
common cause with Dr. Tyler’ broad
criticism of other fee-based
regressions.87
86 More technically, Dr. Rubinfeld (like Dr.
Erdem) finds the ‘‘hammer-shaped pattern of
residuals violates the classical zero conditional
mean of the disturbance assumption for the OLS
estimator to be unbiased.’’ Erdem WRT ¶ 93. This
means that the residuals exhibit non-random data
points, whereas a well-specified regression would
contain have random error terms. In (perhaps)
somewhat less technical terms, Dr. Rubinfeld is
agreeing with Dr. Tyler that the unexplained
portions of the Crawford Model are actually
correlated with one or more omitted independent
variables.
87 Another SDC expert witness, Mr. John Sanders,
likewise does not ‘‘endorse’’ Dr. Tyler’s modeling,
but relies on Dr. Tyler’s critiques to discredit the
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c. Criticisms of the Tyler Model by CTV
Expert Witness Dr. Bennett
As an initial criticism, Dr. Bennett
avers that Dr. Tyler’s use of his SGRP as
the dependent variable, instead of
royalties, may potentially and illogically
fail to link ‘‘variation in the composition
of minutes [to] value unless that
variation is also accompanied with a
change in . . . the SGRP.’’ Bennett WRT
¶ 124. To make this point, Dr. Bennett
hypothesizes a scenario in which two
minimum-fee-paying CSOs make
subscriber-increasing changes in
distantly retransmitted stations, thus
increasing royalties, but each maintains
the same SGRP because royalties have
not increased (remaining at the
minimum fee level). Bennett WRT
¶ 125.
Moving to another critique, Dr.
Bennett opines that Dr. Tyler’s
regression sample ‘‘is based on a
relatively small and non-representative
sample of the CSOs whose royalty
payments comprise the aggregate of the
royalty pool.’’ Bennett WRT ¶ 135. Dr.
Bennett does not suggest that this small
sample is unique to Dr. Tyler among the
regression experts, acknowledging that
this applies to ‘‘the other witnesses
relying on regressions for 2014–2017.’’
Bennett WRT ¶ 136.88
d. Criticisms of the Tyler Model WDT
by JSC Expert Witness Dr. Majure
In addition to his general criticisms of
all fee-based regressions, Dr. Majure
levies criticisms that he aims most
particularly against Dr. Tyler’s
regression approach. Dr. Majure
acknowledges that ‘‘[p]rior to WGNA’s
conversion, there was some variation in
the royalty rate a CSO would pay for
incremental content,’’ such that only
‘‘[t]he regressions that rely on data for
2015–2017 have little to no connection
with how much CSOs value the
content.’’ Majure WRT ¶¶ 75, 77. Thus,
he opines that ‘‘only after the WGNA
conversion [the regressions] do not—
and cannot—estimate the value of a
minute of content to CSOs.’’ Majure
WRT ¶ 75.
Dr. Majure maintains that the Tyler
Model well-demonstrates the foregoing
fee-based regressions proffered by other experts.
See, e.g., Sanders WRT ¶ 3 nn.4, 9, & 20. Mr.
Sanders also notes the divergence of Dr. Tyler’s
estimated share for PTV and, respectively, SDC
content, from the results of other fee-based
regressions as, in his opinion, indicative of the
unreliability of such regressions in these
proceedings. Sanders WRT ¶¶ 11, 18.
88 Although Dr. Bennett does not state here why
the sample is so truncated, the Judges understand
this point to be based on the growing number of
CSOs, without any distant retransmissions and thus
no subscriber groups, which Dr. Bennett indicates
increased over the 2015–17 period.
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point, and that the Tyler Model
essentially estimates only ‘‘the equation
given by the statutory formula . . . .’’
Majure WRT ¶ 78. Thus, he opines that
the SGRP in the Tyler Model does not
establish a ‘‘price’’ that can be explained
and applied as in a bona fide hedonic
regression. Majure WRT ¶¶ 78–79 (‘‘For
example, [in the Tyler Model] the ‘price’
calculated for the subscriber groups of a
CSO carrying a full DSE or less than a
full DSE across all subscriber groups
would be 1.064 percent of the subscriber
group’s revenues multiplied by its total
number of DSEs.’’).
However, Dr. Majure is careful to
acknowledge that ‘‘the statutory formula
could lead to variation in Dr. Tyler’s
‘price’ beyond what comes from the DSE
value’’ in 2014 but ‘‘this is not the case
after 2014 [because] after 2014, the vast
majority of subscriber groups belong to
CSOs that paid the minimum fee,
leaving little variation in the percentage
of royalties they would owe.’’ Majure
WRT ¶ 80. Thus, Dr. Majure appears to
recognize that for 2014 the Tyler Model
presented an acceptable proxy for
‘‘price’’ as its the dependent variable.
e. Criticisms of the Tyler Model WDT by
JSC Expert Witness Mr. Harvey
Although Mr. Harvey opines that the
Tyler Model, like the other regression
models, is unable to correctly value JSC
programming for the 2015–17 period, he
acknowledges that the Tyler Model is
superior to the others in one respect: it
calculates annual coefficients rather
than ‘‘pooled’’ coefficients for all four
years (2014–2017). Harvey WRT ¶¶ 28,
35.
But Mr. Harvey is otherwise
decidedly critical of the Tyler Model—
maintaining first that it does not
‘‘reliably estimate[e] [JSC] value[ ] in
2015–2017,’’ because ‘‘[s]ixty-six
percent (4 of 6) of the compensable
sports coefficients are not statistically
significantly different than zero.’’
Harvey WRT ¶ 45 & tbl.9.
Next, Mr. Harvey separates out
minimum fee systems from the Tyler
Model, in order to isolate those CSOs
making retransmission decisions that
Mr. Harvey asserts had economic
consequence in terms of royalty
payments. Harvey WRT ¶ 46 & tbl.10.
He then turns to various ‘‘sensitivity
tests’’ undertaken by Dr. Tyler, that
were not contained in the Tyler Written
Direct Testimony but which were
produced in discovery by Program
Suppliers. Harvey WRT ¶ 68. Looking at
these tests, Mr. Harvey notes that Dr.
Tyler ‘‘selected a specification that,
among his many sensitivity analyses,
resulted in one of the lowest shares for
JSC and one of the highest for Program
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Suppliers.’’ Harvey WRT ¶ 70. See also
Harvey WRT fig.6.89
f. Criticisms of the Tyler Model by CCG
Expert Witness Dr. George
At the outset, Dr. George, avers that
Dr. Tyler’s model ‘‘diverges from
economic theory’’ through his
consideration of the SGRP, rather than
a measure of royalties, as the dependent
variable affected by claimant
programming minutes. George WRT at
11–12. More particularly, Dr. George
maintains that this change in the
dependent variable:
removes the link between the value of distant
signal programming to [CSO] and royalty cost
that lies at the heart of the theoretical
framework [and] effectively replicates the
regulatory formula [rather than] reflect value.
George WRT at 12. Further to this point,
Dr. George asserts that the inclusion of
the SGRP as the dependent variable
‘‘attenuate[s]’’ the differentiated
marginal value of assorted types of
programs. She explains that by looking
at royalties from all retransmitted
programming as a proportion of gross
receipts, the Tyler Model ‘‘understates
the value of high-quality, differentiated
program and overstates the value of
undifferentiated, low-quality
programming.’’ George WRT at 12.
Another criticism levied against the
Tyler Model by Dr. George is that (as
with the Johnson Model, discussed
infra) it suffers from the consequential
defect of:
includ[ing] no fixed effects at all [and the]
coefficients [thus] are estimated using
variation across different cable systems . . .
the variation most likely to be contaminated
by the effect of unobserved factors, also
known as bias from omitted variables . . .
[the coefficients therefore] cannot be relied
on to reflect underlying value.
George WRT at 13 (emphasis added).
g. Criticisms of the Tyler Model by PTV
Expert Witness Dr. Johnson
Although Dr. Johnson finds that he
and Dr. Tyler agree on a number of
points, see Johnson WRT ¶ 26, Dr.
Johnson takes issue with the following
aspects of Dr. Tyler’s WDT.
At the outset, Dr. Johnson criticizes
Dr. Tyler’s use of the SGRP as the
89 To be clear, figure 6 generated by Mr. Harvey
shows that the share allocations arising from the
proffered Tyler Model were neither higher than all
the Program Supplier shares nor lower than all the
JSC shares generated by the sensitivity tests.
Moreover, Mr. Harvey does not state why the
sensitivity test results should have led Dr. Tyler to
alter his share allocations, nor does Mr. Harvey
state why Dr. Tyler should have abandoned the
Tyler Model merely because the shares differed in
the sensitivity test, albeit not in a manner that even
Mr. Harvey avers had called into question the
model’s robustness.
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dependent variable in the Tyler Model
because, according to Dr. Johnson, ‘‘the
SGRP does not capture the CSO
decision-making process and identify
their valuation of such programming,’’
because the SGRP essentially replicates
the statutory formula without regard to
‘‘the type of programming . . . on the
signals the CSO retransmits.’’ Johnson
WRT ¶ 34. Thus, according to Dr.
Johnson, the SGRP dependent variable
in the Tyler Model fails to capture the
‘‘chain of logic’’ of the correlation in the
fee-based regressions, i.e., that ‘‘[t]o the
extent . . . a CSO’s bundle of
programming includes more valuable
programming, the price of that bundle
will be higher, the CSO’s gross receipts
will be higher, and thus the amount of
royalties that the CSO pays will be
higher.’’ Johnson WRT ¶ 35.
Next, Dr. Johnson looks at the
‘‘sensitivity tests’’ Dr. Tyler applied to
his own model and notes ‘‘the extreme
variability in Dr. Tyler’s regression
results’’ uncovered by these tests
relative to Dr. Johnson’s more stable
results, which, according to Dr. Johnson
‘‘suggests that modeling royalty
amounts rather than the statutory
royalty rate is more appropriate.’’
Johnson WRT ¶ 40.
2. The Judges’ Analysis and Findings
Regarding the Tyler Model 90
The Judges make the following
findings with regard to the Tyler Model:
1. Dr. Tyler’s measurement of ‘‘an
additional minute’’ of programming content,
as contrasted with a ‘‘value relative to a
reference or base category’’ in other
regressions, is appropriate, but neither
approach is superior inter se.
2. The base fee calculations of minimumfee-only CSOs do provide some ‘‘insight’’
into how those CSOs might actually value
different program categories, but that
‘‘insight’’ is limited, because it is
predominantly informative as to ordinal
rankings of relative value, rather than
cardinal measures, as required in these
proceedings. See 2010–13 Determination at
3578 (‘‘the Judges do not place much weight
on the relative rankings of the program
categories’’); cf. Phonorecords III, Initial
Ruling and Order after Remand at 38 (July 1,
2022) (distinguishing the benefit of an
economic model’s ‘‘insight’’ from a useful
‘‘real-world relationship’’).
3. A CSO whose base fee calculations are
more proximate to the minimum fee it
eventually paid would be more probative of
CSOs’ willingness-to-pay than when there is
a large gap between the calculated base fee
and the paid minimum fee, because the CSO
could have understood that the base fee
might bind. However, the record provides
90 The Judges’ analysis and findings in this
section are separate and apart from their analysis
and findings on the specific issues considered in
separate sections of this determination.
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insufficient evidentiary basis to apply this
point in the present proceeding.
4. On the present factual record, the Tyler
Model’s SGRP is preferable to the log of
royalties, or royalties themselves, as the
dependent variable in a fee-based regression,
because it does not require the use of
questionable controls and fixed effects, and
remains appropriate even in the absence of
such controls and fixed effects. However, the
log of royalties, or royalties themselves, are
appropriate dependent variables, provided
the factual record and the specifications of
the regression are appropriate.
5. The Tyler Model is not a hedonic
regression as generally understood by
economists, because it is not based on actual
market prices. Dr. Tyler at times
acknowledges this point, by describing his
SGRP as a ‘‘type’’ of price, rather than an
actual price and by also describing the SGRP
as ‘‘closer’’ to the definition of a traditional
hedonic model. However, the approach taken
by the Tyler Model is in the nature of a
hedonic regression, in that it utilizes a
similar approach by creating a useful proxy
for price proxy in the form of a budget
constraint, i.e., the SGRP. (See also the
discussion regarding ‘‘relative marketplace
value’’ supra and the section, infra,
comparing the Tyler Model to a ‘‘fee
generation’’ approach).
6. The Tyler Model’s use of weighting of
each CSO’s gross receipts is appropriate of
the CSOs because the decisions by CSOs with
larger gross receipts will have a greater
impact on the royalty pool making the
programming category information they
provide more important.
7. The Tyler Model, calculating coefficients
for each year, is superior to the other
regression models in this proceeding to the
extent those models were originally proffered
as ‘‘pooled’’ models, using one coefficient for
the entire 2014–2017 period. (However, this
advantage is mitigated where there is
evidence or testimony that such ‘‘pooled’’
models were themselves subsequently
recalculated on an ‘‘unpooled’’ basis either
by the proffering regression expert or by
other expert witnesses in their rebuttal
testimonies.)
8. The Tyler Model provides sufficient
variation among the CSOs’ decisions because
it contains approximately 20,000 data points
for observation, and more than 2,000 distinct
pricing relationships. 4/19/23 Tr. 5436
(Tyler).
9. The Tyler Model is superior to the other
fee-based regressions by not requiring as a
control variable an estimate of the number of
subscribers in a subscriber group, which
cannot be estimated without measurement
error. PS PFF ¶¶ 300, 360–362 (and record
citations therein). This issue is a critical
reason why the Judges give greater weight to
the Tyler Model vis-à-vis the other regression
models, and thus necessitates getting ‘‘into
the weeds’’ for a more detailed explanation.
The control for the number of subscribers
is very important in the other fee-based
regressions where the dependent variable is
a functional form of royalties, because the
number of subscribers clearly would have a
substantial effect on the level of royalties
(i.e., more subscribers = more royalties).
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Moreover, the number of subscribers must be
controlled because the number of subscribers
could also be positively correlated with the
number of minutes. Thus, it must be
controlled in order to isolate the ‘‘effect’’ of
interest, which is the impact of different
program category minutes on the royalties.
However, there is no data available regarding
the number of subscribers in a subscriber
group, and the other fee-based regression
experts are forced to make an estimate by
‘‘proportionally assigning the number of
overall CSO subscribers to each subscriber
group based on the gross receipts for each
subscriber group.’’ Tyler WRT ¶ 41 (emphasis
added).
The problem with this estimate is two-fold,
inaccuracy and impact on the regression. As
Dr. Tyler explains:
The estimate is ‘‘inaccurate because
allocating the number of subscribers based on
the distribution of gross receipts is akin to
assuming that customers in each subscriber
group are paying the same monthly rates on
average. [T]his assumption is flawed because,
as Dr. Johnson acknowledges, CSOs may
broadcast one set of stations to one set of
subscribers and a different set of stations to
another set of subscribers [and] cable prices
vary across customer type, geography, and
over time. . . . The only way that subscriber
groups would have the same average prices
is if they all bought the same products at the
same prices in the same proportions across
groups. Thus, one would expect the average
prices to be different across subscriber
groups, not the same as assumed by Dr.
Johnson and Dr. George.’’ Tyler WRT ¶¶ 42–
43; 45–46.91
This inaccurate estimate of the number of
subscribers is also impactful on the other feebased regressions that must use the number
of subscribers as a control variable. Dr. Tyler
explains:
For example, assume that customers in
suburbs have a higher average price than
downtown customers, such that Dr. George
and Dr. Johnson undercount subscribers in
the suburbs and overcount subscribers in
urban areas. The types of distantly
retransmitted signals that are broadcast to
these two types of customers are likely to
vary. Thus, the use of inaccurate subscriber
group numbers would lead to a
mismeasurement of the incremental value of
the minute categories in the regression
analysis.
In short, the use of inaccurate subscriber
group numbers is potentially a serious
problem for Dr. George and Dr. Johnson. The
use of ‘‘filled-in’’ data when actual numbers
are not available may have introduced bias
into their results and this could have
important consequences for their estimates.
Tyler WRT ¶¶ 49, 52.
10. Because the Tyler Model is not based
on the Crawford Model, it is not tainted by
the potential ‘‘specification searching’’ that
haunts the Crawford Model through its
consumption of ‘‘phantom degrees of
freedom,’’ as discussed in the 2010–13
Determination. Moreover, there is no
91 Dr. Tyler provides an empirical example of the
varying subscription rates among a CSO’s
subscribers. Tyler WRT ¶ 44.
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persuasive evidence that Dr. Tyler engaged in
anything that could be construed as
specification searching.
11. The Tyler Model is also not the subject
of the criticisms levied against the other fee
regressions. For example. Dr. Erdem
applauds the Tyler Model for its
abandonment of the royalty-based dependent
variable, the unnecessity and removal of
fixed effects and the use of a dubious
measure of the number of subscribers as a
control variable.
12. The overarching criticism that Dr.
Erdem does levy against the Tyler Model are
insufficient to damage its usefulness.
Specifically, Dr. Erdem states the obvious as
a criticism: ‘‘[T]rying to calculate market
value when no market exists . . . .’’ Erdem
WRT ¶ 122. But that is simply a restatement
of the problem created by the structure of
section 111. As the Judges explain in more
detail elsewhere in this determination, as
they explained in the 2010–13 Determination
and as acknowledged by the D.C. Circuit, the
regressions identify market-based behavior
among CSOs, in the form of revealed
preferences for different program categories,
and such behavior is relevant evidence useful
for estimating relative marketplace value.
And, with specific reference to the Tyler
Model, the SGRP is reflective of, first, the
budget constraint that limits the CSOs’
distant retransmittals and, second, the
program categories they select when so
constrained. (This point is discussed further
infra in the discussion of the Tyler Model to
a fee-generation approach.)
13. The other SDC expert, Dr. Rubinfeld,
likewise applauds Dr. Tyler’s approach to the
problem, agreeing with him that there exist
serious modeling problems in connection
with the Crawford Model and those based on
that model. However, Dr. Rubinfeld—like Dr.
Erdem—restates the statutory problem—the
absence of a ‘‘market price,’’ in order to argue
that the Tyler Model is not a true ‘‘hedonic’’
regression. (Dr. Majure makes the same
argument.) As noted supra, the Judges find
that the Tyler Model is not a true ‘‘hedonic’’
regression, as Dr. Tyler (albeit sometimes
grudgingly) seems to concede. However, as
discussed in more detail elsewhere in this
determination, the Judges find the Tyler
regression to be a ‘‘Hedonic-inspired’’
regression, useful in this proceeding to
identify an appropriate market-factor driven
allocation of royalty shares.
14. Dr. Bennett’s attacks on Dr. Tyler for
originally engaging in an erroneous critique
of the Crawford Model is inconsequential. Dr.
Tyler acknowledged his error and withdrew
the portion of his original WDT that
contained his erroneous critique of the
Crawford Model. There is no reason to
consider this issue relevant, and, if anything,
it indicates that Dr. Tyler is willing to
acknowledge a mistake.
15. More broadly, the Judges do not find
the criticisms by Dr. Bennett or by Dr. George
that relate to Dr. Tyler’s other criticisms of
the Crawford Model to be relevant to the
issues pertaining to the Tyler Model itself.
16. Dr. Bennett’s Tyler Model-specific
criticism—regarding the impact of channel
lineup changes by two hypothetical CSOs
paying the minimum fee—is of no
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consequence in the Judges’ analysis, because
the Judges—as discussed elsewhere in this
determination—are focusing on the aboveminimum-fee CSOs in their application of
the Tyler Model. More specifically, the
Judges credit the testimony of JSC’s expert,
Mr. Harvey, who separated out the
minimum-fee-only systems from the Tyler
Model, in order to isolate those CSOIs
making transmission decisions that had
economic consequences in terms of royalty
payments. See Harvey WRT ¶ 46 & tbl.10.
17. The Judges do not question the Tyler
Model for selection a specification that
resulted in ‘‘one of the lowest shares for JSC
and one of the highest for Program
Suppliers.’’ Absent a showing of
specification searching, which is not even
alleged against Dr. Tyler, these results are not
indicative of any wrongdoing.
18. Dr. Majure’s criticism that the Tyler
Model essentially estimates only ‘‘the
equation given by the statutory formula’’ is
incorrect. See the discussion of the Tyler
Model as related to a ‘‘fee generation’’
approach, infra.
19. The absence of a ‘‘reference category (a/
k/a ‘‘numeraire’’ or index) in the Tyler Model
is not a fault. As noted above, the Tyler
Model measures the minimum willingness to
pay for an additional minute of distant
programming across each program category,
not the value of a minute of one program
replacing minutes from a reference category.
20. Any greater precision or stability in the
Johnson Model compared with the Tyler
Model is a consequence of Dr. Johnson’s
decision to remove ‘‘fixed effects’’ from his
model where, unlike in the Tyler Model, the
dependent variable was royalty-based, not
the SGRP. That is, Dr. Johnson obtained more
precision, but at the expense of generating
‘‘omitted variable bias.’’ Although this
econometric jargon suggests an analysis
‘‘deep in the weeds,’’ it is of great
importance: Precision and stability are not
particularly helpful if the model is measuring
the wrong thing—here, with the Johnson
Model more in the nature of predicting the
royalty level by omitting ‘‘fixed effects’’
rather than focusing on the effect of program
category minute on royalties (subject to the
cost constraint reflected in the SGRP).
D. CCG’s Regression Approach: The
George Model
Dr. Lisa George, a CCG expert
witness,92 explicitly relied on Dr.
Crawford’s approach from the 2010–13
proceeding, ‘‘[b]ecause [Dr.] Crawford’s
approach was determined by the
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92 Dr. George was received as expert witness in
the ‘‘field of economics, with experience in
econometrics, media markets, and industrial
organization.’’ 4/18/23 Tr. 5111 (George).
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Copyright Royalty Board to be ‘highly
useful in estimating relative values’
. . . . .’’ George WDT at 26–27.93 More
particularly, Dr. George followed Dr.
Crawford’s approach by ‘‘estimat[ing] a
regression model at the subscriber group
level with fixed effects and [royalties as]
a logged dependent variable.’’ George
WDT at 27.
However, Dr. George adjusted the
specifications in her model in a manner
that differentiated her model from Dr.
Crawford’s model in two ways to reflect:
(1) changes in the distant signal market;
and (2) to address comments from the
Judges in the 2010–13 Determination.
George WDT at 27. The key
differentiators are (1) Dr. George’s
inclusion of separate ‘‘system
accounting period fixed effects’’ rather
than Dr. Crawford’s ‘‘interacted systemaccounting period fixed effects’’ and (2)
the elimination of an interacting of
controls for the (a) top multi-system
operators (MSOs) with (b) lagged
subscribers (i.e., subscribers from the
preceding accounting period). George
WDT at 27.
More particularly, Dr. George
significantly reduced the number of
fixed effects in her preferred regression
model compared to Dr. Crawford’s
number of fixed effects. Specifically, Dr.
George testifies that her preferred model
‘‘includes one fixed effect for each
system plus one for each accounting
period (number of systems plus 8 [sixmonth accounting periods]),’’ whereas
Dr. Crawford’s model included ‘‘one
fixed effect for every system every
accounting period (number of systems
times 8 [six-month accounting
periods])’’. George WDT at 27 (emphasis
93 The Judges must emphasize here the fact that
the SDC provided to CCG (and all of the other
participants), in voluntary discovery in the present
proceeding, promptly after the filing of written
direct statements, copies of materials from the
2010–13 satellite allocation proceeding that at the
least suggested Dr. Crawford may have engaged in
inappropriate specification searching in the
development of his regression framework. However,
neither Dr. George nor any other CCG witness
specifically addressed in written rebuttal testimony
the discovery from the 2010–13 satellite proceeding
suggesting Dr. Crawford’s potential specification
searching. (However, Dr. George more generally
explained how she was able to evaluate Dr.
Crawford’s regression work, even though she did
not address the discovery suggestive of Dr.
Crawford’s specification searching and of
dissembling in his testimony before the Judges in
the 2010–13 proceeding. See George WRT at 50–54.)
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added). According to Dr. George, this
deviation for Dr. Crawford’s approach
was measured and beneficial:
Since fixed effects operate by narrowing
the variation used to identify coefficients, my
specification is less restrictive than [Dr.]
Crawford’s. In other words, I make use of
variation within cable systems over time but
not across cable systems. [Dr.] Crawford’s
specification did not make use of variation
within cable systems over time or across
cable systems, identifying coefficients using
only variation within systems each
accounting period.
George WDT at 27 (emphasis added).
As in the Crawford Model, Dr.
George’s dependent variable is the
natural log 94 of royalty fees and, as in
the Crawford Model, is related by the
regression to the subscriber groups’
respective distant programming minutes
for each claimant’s program category.
George WDT at 51. The regression
process produces an estimate of
coefficients, one for each claimant
program category, showing the effect of
one additional programming minute on
the natural log of royalty payments.
George WDT at 51. She then uses these
coefficients to calculate, in dollars, the
‘‘average marginal value’’ of an
additional programming minute for each
claimant category. George WDT at 51–
52.
To calculate shares, Dr. George
likewise adopts the method used by Dr.
Crawford and, indeed, consistently
across fee-based regression models. That
is, she multiplies these average marginal
values by compensable programming
minutes for each subscriber group, thus
producing a value of compensable
programming for each claimant program
category. For each category, she uses
that category’s values as a numerator in
a fraction where the denominator is the
sum of the totals over each claimant.
Dr. George reported the following
claimant shares:
94 Technically, the ‘‘natural log’’ (shorthand for
logarithm) is ‘‘[a] mathematical function defined for
a positive argument; its slope is always positive but
with a diminishing slope tending to zero,’’ and it
‘‘is the inverse of the exponential function X =
ln(ex).’’ James H. Stock & Mark W. Watson,
Introduction to Econometrics 821 (3d ed. 2015).
Practically, for purposes of applied econometrics,
using the logarithmic functional form, which shows
the percentage changes in the variables, may be
more practical.
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TABLE 22—IMPLIED CLAIMANT SHARES, 2014–2017
Program suppliers
(%)
2014 .....................
2015 .....................
2016 .....................
2017 .....................
Joint sports
(%)
20.86
(1.99)
31.71
(1.75)
29.53
(1.61)
26.11
(1.43)
Commercial TV
(%)
25.64
(5.16)
3.61
(0.94)
3.45
(0.90)
3.23
(0.85)
Public TV
(%)
14.88
(2.13)
12.04
(1.72)
11.43
(1.65)
10.19
(1.49)
Devotional
claimants
(%)
30.21
(2.74)
36.56
(1.89)
41.59
(1.99)
47.03
(2.08)
Canadian
claimants
(%)
1.91
(0.49)
2.41
(0.55)
1.70
(0.39)
1.40
(0.32)
6.49
(0.95)
13.67
(1.91)
12.30
(1.75)
12.03
(1.73)
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Note: The table reports the implied claimant shares of distant signal royalties each year derived from the regression model, which includes
system and accounting period fixed effects. Standard errors in parentheses
Highlighting an important aspect of her
analysis, Dr. George states that ‘‘[a]s
expected, estimated shares for 2014 are
substantially different from those for
2015–2017 due to exit of WGNA.’’
George WDT at 57.
Delving deeper into her regression
equation, Dr. George explains that she
includes a number of control variables.
As she explains, ‘‘[T]hese control
variables are included in the
econometric model based on the
expected economic relationship with
royalty payments [and] [e]ach of these
terms has been included in prior
regression models for these
proceedings.’’ George WDT at 54.
Specifically, Dr. George includes,
explicitly or implicitly, the following
controls:
CSOs paying minimum fees
CSOs paying into the 3.75 fund
CSOs paying into the Syndex fund
Canada Zone System in Canadian retransmission zone
Number of permitted stations in the
subscriber group
Number of distant stations in the
subscriber group
Number of local stations in the
subscriber group
Activated channels in the prior
accounting period (lagged channels in
subscriber group)
Subscribers in prior accounting period
(lagged subscribers in subscriber
group)
Median income in primary county
served by the system
System operated by top MSO, i.e.,
Comcast, Verizon, AT&T, Charter,
Cox, Time Warner, Cablevision,
Altice.
George WDT at 53 tbl.19. Dr. George
explained her reasons for including
these controls as follows:
[I]indicators for systems paying minimum
fees, syndicated exclusivity surcharges, or
3.75 fees as well as the number of permitted
stations carried in the subscriber group [are]
all variables expected to be correlated with
royalty payments.
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An indicator for systems in the Canadian
Zone is needed because re-transmission rules
are different in this region and may affect
subscribers and royalty payments.
The (lagged) number of subscribers is an
important control because royalties increase
with gross receipts, which in turn increase
with the number of subscribers. The number
of subscribers is entered in lagged form to
avoid the possibility of reverse causality
biasing the coefficients on program minutes.
(Channels activated enters as a lag for the
same reason.)
The number of distant stations is included
to ensure that the coefficients on
programming minutes are estimated all else
equal. In other words, estimates of the . . .
coefficients should measure how a change in
claimant minutes affects royalty payments
holding constant the total number of distant
minutes broadcast, which is a function of the
number of distant signals re-transmitted.
Indicators for each of the top MSO’s
(Comcast, Verizon, AT&T, Charter, Cox, Time
Warner, Cablevision and Altice) are included
to account for potential differences in
strategies that might affect the demand for
system offerings not otherwise included in
the econometric model. For example,
changes in strategy by Time Warner Cable
systems acquired by Charter
Communications would be captured by the
MSO indicators. While [Dr.] Crawford
included indicators for only the top six
MSO’s, I add Cablevision and Altice because
the largest transaction in the 2014–2017
period was the Altice acquisition of
Cablevision, which was the 7th largest MSO
at the time of acquisition.
George WDT at 53–54.
To determine whether her regression
model was robust to certain
specification changes, Dr. George
conducted sensitivity checks whereby
she made certain changes to her model.
Specifically, she conducted the
following three robustness/sensitivity
checks:
(1) Changing her regression model
specifications to include ‘‘interacted systemaccounting period fixed effects (number of
systems times 8).’’
(2) Changing her regression model
specifications to include ‘‘not only indicators
for the top MSO’s but also these indicators
interacted with lagged subscribers.’’
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(3) Changing her regression model to
include ‘‘both adjustments [i.e., (1) and (2)
above] . . . thus correspond[ing] to the
model estimated by [Dr.] Crawford for his
2010–2013 analysis.’’
George WDT at 58.
Dr. George found that the estimated
shares in these three robustness/
specification tests ‘‘are close to those
derived from the preferred model.’’
George WDT at 59; see also id. at
tbls.25–26. She also notes that the
confidence intervals are tighter in the
third alternative robustness/sensitivity
checks, see George WDT tbl.27,
reflecting the smaller standard errors
contained in that check, which she
attributes to the fact that the changed
specifications in that checks are
‘‘restricting the variation on which
coefficients are estimated.’’ George WDT
at 61–62. Despite her acknowledgement
that this greater precision is ‘‘useful,’’ 95
Dr. George is willing to tolerate ‘‘the
point estimates from [her preferred]
baseline model because they make use
of more variation in the data while still
precisely estimated.’’ George WDT at 62.
1. Criticisms of the George Model
a. Criticisms of the George Model by
SDC Expert Witness Dr. Erdem
Beyond his criticisms of the Crawford
Model that are derivatively applicable to
Dr. George’s model, Dr. Erdem levies
further criticisms of the George Model.
He asserts that although she has altered
and reduced the number of fixed effects
from the Crawford Model, her
alterations do nothing to redeem her
approach. Rather, he notes that Dr.
95 The Judges understand that the usefulness of
this greater precision is that the increased types of
fixed effects limit the variation in the regression to
variation caused by the difference in programming
category minutes, whereas Dr. George prefers to
obtain additional data points in order to observe
more variation, notwithstanding that relaxing fixed
effects in these manners opens the door for bias, in
the form of variations caused by unobserved
variables otherwise captured by the fixed effects.
The Judges discuss this tradeoff in greater detail
elsewhere in this determination.
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George’s specifications continue to
remain very close to those in versions
that Dr. Crawford ran in the previous
proceeding.
But, Dr. Erdem acknowledges that,
unlike in the Crawford Model, Dr.
George applies two separate fixed effects
for accounting period and system ID,
and yet he finds this to be a difference
that fails to rescue her model from the
overfitting defects that he claims to
pervade Dr. Crawford’s regression
approach. Dr. Erdem also opines that.
Dr. George retains some variables from
the Crawford Model which lack a ‘‘clear
basis for their helpfulness in the model,
such as the lag of subscribers
(subscribers in the previous accounting
period).’’ Erdem WRT ¶ 41. Finally, he
opines that Dr. George aggravates an
already-present overfitting problem by
adding ‘‘other variables such as median
county income,’’ without adequately
supporting her decisions. Erdem WRT
¶ 41.
b. Criticisms of the George Model by
SDC Expert Witness Dr. Rubinfeld
Dr. Rubinfeld likewise notes that
although Dr. George essentially ‘‘applied
Dr. Crawford’s specification to the
2014–2017 data,’’ she ‘‘replaced systemperiod fixed effects with separate
system and period fixed effects [and
dropped] [s]ome explanatory variables
. . . . ’’ But, like Dr. Erdem, he did not
find that these alterations salvaged her
model from the defects that, in his
opinion, pervade the Crawford Model
and, indeed, all fee-based regressions.
Rubinfeld WRT ¶ 94.96
c. Criticisms of the George Model by JSC
Expert Witness Mr. Harvey 97
Mr. Harvey opines that Dr. George
introduced ‘‘multicollinearity’’ 98 into
her regression by including ‘‘a variable
on the independent side of [her]
regression equation[ ] that controls for
the number of distant stations broadcast
to the subscriber group.’’ Harvey WRT
¶ 170. Mr. Harvey understands that this
control variable was likely introduced
‘‘to control for non-compensable
broadcast minutes, such as Big-3
minutes,’’ but he asserts that the
regression should have been specified
by ‘‘simply includ[ing] the ‘Big-3’
variables . . . achiev[ing] the same
stated goal more directly while avoiding
problems of multicollinearity.’’ Harvey
WRT ¶ 174.
There is a formal statistical test to
identify multicollinearity called the
variance inflation factor (VIF). Harvey
WRT ¶ 176. When he ran the VIF test on
the George Model, Mr. Harvey found
meaningful multicollinearity between
these variables. Harvey WRT ¶ 182.
Accordingly, Mr. Harvey performed a
sensitivity test on the George Model in
which he removed the distant stations
and permitted stations variables. Harvey
WRT ¶ 183. The resultant change in the
coefficients for the program categories
translated into revised share allocations
that included substantially higher JSC
shares, as set forth in the table below: 99
TABLE 31—GEORGE REGRESSION MODEL SHARE ESTIMATES EXCLUDE DISTANT AND PERMITTED STATION VARIABLES
Educational
%
2014 ..........................................................................................
2015 ..........................................................................................
2016 ..........................................................................................
2017 ..........................................................................................
2014–2017 ................................................................................
% Change in Total vs Base Model ...........................................
7.0
15.5
18.6
21.5
12.0
¥67.8
Joint Sports
%
Devotional
%
71.8
18.6
18.7
18.0
48.9
290.7
Canadian
%
1.1
2.5
1.8
1.5
1.4
¥22.5
10.5
40.6
38.4
38.5
22.8
124.9
Commercial
TV
%
3.3
4.9
4.9
4.5
3.9
¥69.0
Program
suppliers
%
6.4
17.9
17.5
15.9
11.0
¥57.2
Sources:
• Electronic file ‘‘programs/208_george_regressions.do’’.
d. Criticisms of the George Model by
CTV’s Expert Witnesses Dr. Marx and
Dr. Bennett
CTV’s experts criticize the George
Model for the following reasons:
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1. Because of the dramatic increase in the
number of minimum-fee-only CSOs, the
George Model relies too heavily on royalty
payments that do not reflect the revealed
preferences of CSOs. CTV PFF ¶¶ 289, 302
(and record citations therein).
2. The ‘‘pooling’’ of data to generate
common coefficients within each claimant
category skews the share allocations because
of the sharp distinction between 2014 and
2015–2017 due to the WGNA conversion.
Moreover, the ‘‘precision’’ generated by
lumping all the data points together across
these four years is overhyped, because it is
96 Another SDC Expert, Mr. Sanders, essentially
echoes and refers to the critiques by Drs. Erdem and
Rubinfeld. But Mr. Sanders also notes that Dr.
George’s approach is remarkable when compared
with other fee-based regressions proffered in this
proceeding, in that ‘‘the various regressions yield
significantly divergent results which raise[] the
questions not just of which ones are wrong but
whether any of them could be right,’’ and he
particularly notes the divergence among the SDC
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a statistical precision unreflective of reality,
and Dr. George did not perform any statistical
tests to confirm that pooling was appropriate.
CTV PFF ¶¶ 331, 334 (and record citations
therein); Bennett WRT, figs.12–13; see also
4/18/23 Tr. 5309, 5366–68 (George).
3. Dr. Bennett unpooled Dr. George’s
calculations, revealing the lack of actual
precision compared with her pooled
approach. CTV PFF ¶¶ 335–36, 342 (and
record citations therein).
1. Royalties in any functional form are
inferior as the dependent variable compared
with the SGRP in the Tyler Model. PS PFF
¶¶ 351–52 (and record citations therein).
2. Pooling of data across all four royalty
years is distortionary and improper. PS PFF
¶ 363 (and record citations therein).
3. Dr. George’s reliance on the Crawford
Model, without regard to the potential
specification searching that may have marred
its genesis, calls into question the reliability
of the George Model. By way of example, Dr.
Tyler takes note of the ‘‘hammer-shaped’’
graphical plotting of residuals in the George
Model, which would typically be random
rather than concentrated (in ‘‘hammershaped’’ form), as indicative of one or more
model specification errors, such as the
omission of important independent variables
or improper or mismatched functional forms
(e.g., the misapplication of the linear form or
share across the fee-based regressions. Sanders
WRT ¶ 18.
97 The criticism of the George WDT by the two
other JSC expert witnesses, Drs. Majure and Asker,
relate to broader themes common to the fee-based
regression, discussed separately in this
determination. Mr. Harvey also raises the broadbased criticisms that are discussed separately
herein.
98 For a definition of ‘‘multicollinearity,’’ see
2010–13 Determination at 3562 n.47.
99 Mr. Harvey also administered two other
sensitivities to address this multicollinearity: (1)
adding a control variable for non-compensable
minutes to the model and (2) including
compensable claimant minutes in the regression
and dropping the number of permitted and distant
stations. In both tests, he reports that the
multicollinearity fades, and the share allocations
also change, with JSC shares again increasing
compared to the JSC shares in the George Model.
Harvey WRT ¶¶ 185–187.
e. Criticisms of the George Model by
Program Suppliers’ Expert Witness Dr.
Tyler
Dr. Tyler levied the following
criticisms at the George Model:
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an improper log transformation of data). PS
PFF ¶ 365.
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2. The Judges’ Analysis and Findings
Regarding the George Model 100
The Judges make the following
findings with regard to the George
Model:
1. The George Model reasonably altered the
Crawford Model by estimating a model with
fewer fixed effects, in an attempt to increase
the number of observations lost after the
WGNA conversion, by attempting to balance
precision with an acceptable increase in
omitted variable bias.
2. The George Model reasonably included
control variables in order to isolate the effect
of interest, the correlation between program
category minutes and royalties.
3. Dr. George utilized appropriate
sensitivity tests that modified her fixed
effects, which showed a level of robustness
in the George Model.
4. But Dr. George’s tolerance for greater
bias, in the form of omitted variable bias,
eliminated the benefit created by the
Crawford Model that gave the Crawford
Model a level of primary weight vis-à-vis
other methodologies for estimating relative
marketplace value.
5. There is no sufficient evidence that the
George Model suffers from overfitting, and
her decision to include certain control
variables, such as a control for ‘‘median
county income,’’ was a reasonable exercise of
discretion that an econometrician could
make in specifying her model.
6. The George Model reasonably utilized
the Big 3 network minutes as a reference
category (a/k/a numeraire or index). Contrary
to Mr. Harvey’s critique, this which was
unrelated to the separate control in the
George Model for the number of distant
stations, which was included in order to
avoid a cause of changes in the number of
minutes that would bias the relationship
between program category minutes and
royalties which was the ‘‘effect’’ the
regression was seeking to evaluate.
7. The pooling of all four years over the
2014–2017 period in the George Model was
inappropriate, given the substantial break in
market conduct created by the WGNA
conversion commencing in 2015.
8. Dr. Bennett’s recalculation of an
unpooled version of the George Model is a
more probative model.
9. Dr. Bennett’s further revision of the
George Model, correcting for an admitted
error in her JSC programming miscategorization, is more accurate than the
George Model originally proffered by Dr.
George.
10. The non-random (hammer-shaped)
residuals in the George Model are suggestive
of omitted variables or misspecification of
functional form, as in the Crawford Model
upon which the George Model is predicated,
and appear to be examples of the problems
that may have arisen because of Dr.
Crawford’s alleged specification search.
100 The Judges’ analysis and findings in this
section are separate and apart from their analysis
and findings on the specific issues considered in
separate sections of this determination.
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E. PTV’S Regression Approach: The
Johnson Model
Dr. Johnson, PTV’s expert witness,101
constructed a fee-based regression
model based on the framework of a
‘‘Waldfogel-type’’ regression. Johnson
WDT ¶ 55. He also acknowledges that he
reviewed Dr. Crawford’s testimony from
the 2010–13 proceeding, and that his
model ‘‘generally follows the framework
used by [Dr.] Crawford’’ and,
parenthetically, he notes a general
consistency with the model proffered by
Dr. Joel Waldfogel in a prior proceeding.
Johnson WDT ¶ 57. See also 3/21/23 Tr.
367–68 (‘‘[T]he starting point . . . was
to look at the prior work, particularly
[Dr.] Crawford’s Waldfogel-type
regression model that was adopted in
the prior proceeding. . . . However, I
did not, and my assignment was not to
just simply blindly accept Dr.
Crawford’s work, but to put it to the test,
understand what it did, understand how
it worked, and then build that model
and determine whether it could apply
here.’’).102
Dr. Johnson also ‘‘assessed the Judges’
deliberation from the previous
proceeding,’’ and ‘‘address[ed]
econometric modeling concerns . . .
raised by the Judges in the previous
proceeding [and] changes in the
industry from the 2010–2013 to the
2014–2017 period.’’ Johnson WDT ¶ 57.
Dr. Johnson identifies the following
aspects of his regression model:
1. The regression analyzes each subscriber
group in each six-month accounting period.
2. The dependent variable is the ‘‘natural
log’’ of the base royalties accrued by a CSO
for each subscriber group in an accounting
period.
3. The explanatory variables include—as
the variable of interest—the number of
minutes of each claimant group’s
programming content distantly retransmitted
to that subscriber group in that accounting
period.
4. The coefficients for this explanatory
variable for each claimant group’s content,
which estimate the percentage change in base
royalties (the dependent variable) associated
101 Dr. Johnson was received as an expert in
‘‘economics and econometrics.’’ 3/21/23 Tr. 362
(Johnson).
102 However, Dr. Johnson testified that he did not
review—or even have access to—Dr. Crawford’s
underlying regression workpapers from the 2010–13
satellite allocation proceeding (regarding the same
regression model as in the 2010–13 cable allocation
proceeding), even though PTV’s counsel had
received those workpapers in voluntary disclosures
made by the SDC. 3/21/23 Tr. 340–41 (Johnson).
(The hearing record does not indicate whether or
not PTV’s counsel provided those workpapers to Dr.
Johnson.). See also 3/21/23 Tr. 617 (Johnson) (Dr.
Johnson acknowledging that he also never saw
designated testimony filed in the present
proceeding by the SDC comprising their experts’
testimony in the satellite proceeding, with Dr.
Crawford’s documents attached).
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with an additional minute of that type of
content.
5. The control variables below:
a. A control for the number of subscribers
in each subscriber group and accounting
period, because, ‘‘[in] addition to being
driven by CSOs’ distant retransmission
decisions, royalties paid also increase with
the number of subscribers (and associated
gross receipts) in each subscriber group.’’ By
adding a control variable for the number of
subscribers, the regression accounts for this
relationship.
b. A control for the number of distant
broadcast stations retransmitted by each CSO
to its subscriber groups because it ‘‘creates a
‘control group’ against which the relative
marketplace valuations for each claimant
group at issue are estimated[,]’’ with this
control group consisting of ‘‘programming
that is either ‘off-air,’ ‘Big 3’ network
programming that is not compensable or
associated to any relevant claimant group, or
content for which program information was
not specified in the data, including ‘To Be
Announced’ programs.’’
c. An indicator variable for CSOs that paid
the minimum fee, in order to account for the
possibility that decision-making is
systematically different between CSOs that
paid the minimum fee (i.e., those that
potentially could have retransmitted distant
signals without experiencing an increase in
their royalty payment) and CSOs that paid
royalties above the minimum fee (and thus,
would have faced an incremental cost to any
additional distant signal). This indicator
variable does not separate out the model’s
reported coefficients, but ‘‘allows [the]
model’’ to generate information ‘‘to account
for these differences . . . . ’’
d. An indicator variable distinguishing
between subscriber groups that also
generated 3.75 fees (in addition to the base
fee payments included in the regression) and
subscriber groups that did not generate 3.75
fees.
Johnson WDT ¶¶ 55–56.103
Dr. Johnson also emphasizes what he
has omitted from his regression model
that had been included in Dr.
Crawford’s model. First, Dr. Johnson
omits a set of controls in the form of
‘‘system-accounting period fixed
effects.’’ Although Dr. Johnson
acknowledged that these fixed effects
had attempted to establish a relative
value unbiased by factors irrelevant to
the correlation at interest (the effect of
programming minutes on the log of
royalties) by isolating and comparing
variation only in ‘‘a given CSO’s
retransmission decisions across its
subscriber groups,’’ Dr. Johnson wanted
to address the Judges’ statement that in
the 2010–13 Determination that they
were ‘‘troubled’’ by Dr. Crawford’s
inadequate response to the argument
that these controls ‘‘effectively
103 Note that the Johnson Model includes far
fewer control variables than the George Model. See
text following this footnote.
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discarded’’ approximately 15% of his
observations [generated by]
‘‘approximately half of all systems in his
data set . . . . ’’ Johnson WDT ¶ 59. Dr.
Johnson claimed that the same issue
exists to a greater extent in the present
proceeding, because ‘‘49 percent of
CSOs that retransmitted at least one
distant signal reported only one
subscriber group,’’ thus excluding them
from the regression through the
inclusion of these ‘‘system-accounting
period fixed effects.’’ Johnson WDT
¶ 59.104
Second, Dr. Johnson also omits from
his regression several so-called ‘‘lagged’’
variables included by Dr. Crawford,
because these ‘‘lagged’’ variables
‘‘assume[ ] that outcomes from an earlier
point in time affect outcomes in the
present time.’’ Johnson WDT ¶ 59 &
n.84. Whatever merit lie in these lagged
variables was a moot point for Dr.
Johnson, because he found that the
available data was insufficient to
measure this ‘‘lagged’’ effect, and
because the data did not allow for
subscriber groups to be ‘‘consistently
tracked over time’’ (due to, most
noteworthily, the WGNA conversion
and the cable system acquisitions by
Charter Communication). More
particularly, and by way of example, Dr.
Johnson explained that there was
insufficient data to construct a ‘‘prior
period’’ for the first six-month period of
2014, which (if he had retained the
lagged subscriber variable) would have
‘‘effectively discard[ed] data on CSO
distant retransmission decisions [for]
about one-eighth of all data.’’ Johnson
WDT ¶ 59.105
104 To be clear, in the 2010–13 proceeding, the
Judges found that Dr. Crawford’s use of these fixed
effects and other controls did not ‘‘diminish the
Judges’ reliance on Professor Crawford’s regression
analysis.’’ More particularly, the Judges explained
that Dr. Crawford’s ‘‘use of ‘‘system-accounting
period fixed effects’’ was the ‘‘result of a tradeoff,’’
necessitated by Dr. Crawford’s use of a ‘‘subscriber
group analysis [which] reduced the number of
observations in [Dr.] Crawford’s data set.’’ Although
this decision could result in an ‘‘overfitting’’ of the
model (see 2010–13 Determination at 3565 defining
‘‘overfitting’’), his use of data from the entire
population of Form 3 CSOs provided him with a
wealth of data that mitigated a potential problem
with regard to potential overfitting arising from
sampling that provided too little data relative to the
number of parameters.’’ 2010–13 Determination at
3566–67 & n.65. The Judges discuss elsewhere in
this determination the impact of the decision by Dr.
Johnson (and Dr. George) to make a different tradeoff in their regression models through their
handling of this specific fixed effects issue,
particularly in the context of the purpose of these
fee-based regressions as ‘‘explanatory’’ of an
isolated ‘‘effect,’’ rather than ‘‘predictive’’ of the
total royalties paid.
105 That is, if the lagged variable control was
included despite the unavailability of data for the
second accounting period of 2013, the model would
not have generated results in a consistent manner
for the first accounting period of 2014, and one
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Further, Dr. Johnson excluded from
his model the following additional
controls included by Dr. Crawford in his
model, which Dr. Johnson found to be
‘‘redundant or inappropriate . . . [and]
also hind[rances] to the model’s ability
to perform the task at hand’’: 106
1. A control for county-level median
income, which Dr. Crawford had included to
account for variation in demand for cable
services by impacting the number of
subscribers, the total CSO revenue and,
accordingly, ‘‘the royalty paid by that CSO.
Dr. Johnson omitted this control because he
found it to be redundant and confounding, in
that it seeks to control for the number of
subscribers, which is already included in the
model at the more informative subscriber
group level. This subscriber count at the
subscriber group level, according to Dr.
Johnson, implicitly takes into account of
variations in demand and the impact of
relatively different values in high-demand
areas.
2. Controls for the number of local stations
and the (lagged) number of activated
channels. Although Dr. Crawford opined that
these controls would have the salutary effect
of ‘‘account[ing] for other features of the
cable service on which distant signals may be
offered which could influence the number of
subscribers to that service,’’ Dr. Johnson
found these controls unnecessary and
potentially problematic because (1) Dr.
Crawford did not explain how the second of
these controls, i.e., the number of local and
‘‘activated’’ channels would impact CSOs’
decision-making process with respect to
distant channels and (2) as proffered proxies
for factors that might ‘‘influence the number
of subscribers,’’ they too are redundant and
potentially confounding, given the presence
in the regression model of a direct control for
the number of subscribers.
3. Controls for the six largest MSOs, which
Dr. Crawford included ‘‘to capture potential
differences in factors not included in the
econometric model that could shift demand
for bundles that include imported distant
broadcast signals.’’ Dr. Johnson notes that Dr.
Crawford provided no explanation as to what
‘‘factors’’ these controls were intended to
reflect, and Dr. Johnson asserts that these
controls are redundant and potentially
confounding. Dr. Johnson avers that potential
differences between and among the six
largest MSOs ‘‘could shift demand,’’ and thus
‘‘[r]eflect[ ] valuable information for the
model’s estimation of relative value.’’
Johnson WDT 60.
Dr. Johnson further explains that his
regression (like the regressions of Dr.
George and Dr. Crawford, and the 2014
Bayesian regression by Dr. Marx)
calculated the relative coefficients for
accounting period reflects 1⁄8 of the eight six-month
accounting periods in the four-year 2014–2017
period.
106 Dr. Johnson also discarded controls from the
Crawford Model ‘‘for whether a CSO lies in the area
where it is permissible to carry Canadian signals
(‘‘Canada zone’’).’’ The Judges consider the Canada
zone issues separately, infra.
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the six compensable program categories
by relating them to a ‘‘control group’’ of
program minutes that are ‘‘noncompensable’’ in section 111
proceedings. Specifically, Dr. Johnson
testified:
The number of distant broadcast stations
[compensable and non-compensable]
retransmitted by each CSO represents the
universe of that CSO’s distantly retransmitted
content. . . . [T]he difference between the
universe of content and that corresponding to
the claimant groups at issue is content that
does not correspond to any claimant group at
issue. This non-claimant content ‘‘control
group’’ is a mix of programming that is either
‘‘off-air,’’ ‘‘Big 3’’ network programming that
is not compensable or associated to any
relevant claimant group, or content for which
program information was not specified in the
data, including ‘‘To Be Announced’’
programs. [The] model is specified in a way
that allows for the ‘‘control group’’ content to
have absolute value to subscribers (and thus
to cable operators), even if it is not
compensable in this proceeding. However,
using this content as a control group allows
my model to estimate relative valuations for
the compensable claimant groups.
Johnson WDT 55 n.76.107
Utilizing the foregoing inputs, Dr.
Johnson calculates regression
coefficients estimated by his model, as
well as the associated standard errors.
Johnson WDT fig.11. In words, Dr.
Johnson helpfully describes these
coefficients, which are the common
output of fee-based regressions, as
measur[ing] the percent change in royalties
associated with an additional minute of each
claimant’s programming, after controlling for
the other relevant factors present in the
regression [and] represent[ing] the relative
value of each claimant group’s content on a
per-minute basis.
Johnson WDT ¶ 61. Dr. Johnson, in the
model he recommends (his ‘‘baseline’’
model), and like Dr. George and Dr.
Crawford—but unlike Dr. Tyler—did
not generate separate coefficients for
each of the four years. Crawford WDT
fig.14. (However, Dr. Johnson did an
annualized break-out as well. See 3/21/
23 Tr. 467–68 (Johnson).)
Dr. Johnson reports that the estimated
regression coefficients in his preferred
‘‘baseline’’ model ‘‘are all statistically
significant, at the 99 percent level or
higher.’’ Johnson WDT ¶ 62. In lay
terms, he again helpfully explains that
this level of statistical significance
means that ‘‘given the data analyzed,
[the] regression can reject with 99
percent (or higher) certainty the
107 This ‘‘control group’’ is alternatively
denominated by the experts in this proceeding as
a ‘‘numeraire,’’ a ‘‘reference group,’’ and a
‘‘benchmark.’’ The Judges discuss the use of this
device to stablish coefficients in their Analysis,
infra.
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hypothesis that an additional minute of
programming of each of the claimant
groups has no effect on royalties.’’
Johnson WDT ¶ 62. According to Dr.
Johnson, his regression can estimate
coefficient value with this high level of
‘‘precision’’ because the model is based
on ‘‘over 18,000 subscriber group-level
observations . . . . ’’ Johnson WDT
¶ 62.
Next, Dr. Johnson uses these
coefficient values to generate his
estimated royalty shares, in dollars,
undertaken in all fee-based regressions.
Specifically, and as in regressions
proffered in previous proceedings and
in this case, he multiplies the coefficient
by the total number of compensable
minutes for the respective program
category. This product generates the
shares of base royalties associated with
each claimant group in each year.
Johnson WDT ¶ 63.
In the figure below, Dr. Johnson
presents the implied shares of the Basic
Fund royalty, but excluding the 3.75
Fund and the Syndex Fund royalties
that can also accrue to one or more of
the six claimant groups:
BILLING CODE 1410–72–P
FIGURE 13
IMPLIED BASIC FUND ROYALTY SHARES
BASELINE MODEL
2014-2017
Claimant
2014
2015
2016
2017
20142017
[a]
[b]
[c]
[d]
[e]
[f]
Public Television
35.9%
46.2%
53.4%
58.9%
48.5%
Joint Sports
17.1%
2.4%
1.8%
1.7%
5.8%
Devotional Programs
0.9%
0.8%
0.7%
0.6%
0.7%
Canadian Claimants
4.2%
7.8%
6.8%
6.3%
6.3%
8.2%
7.2%
10.2%
29.0%
25.3%
28.5%
ii
Commercial
Television
16.1%
Program Suppliers
25.8%
9.1%
••
1111.ii■ia
1111
11M mna
33.7%
Sources: CDC Royalties Data; CRTC Program Logs; Red Bee Data.
Johnson WDT ~ 67 fig.13.
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BILLING CODE 1410–72–C
[A]lthough the relative value of a minute
of [JSC] content, on average, is typically
larger than that of other content types, the
quantity of compensable [JSC] content is
relatively small (and decreased substantially
after the WGN conversion). As a result, the
implied royalty share for Sports claimants is
smaller than . . . for . . . Program Suppliers,
which had a lower per-minute value but
much more distantly retransmitted content
during the relevant period.
Johnson WDT ¶ 66.
In addition to his foregoing proffered
regression model, Dr. Johnson
performed what he described as a
sensitivity analysis, to test the
robustness of that model against
alternative specifications and to assess
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the ‘‘key drivers’’ of the results of his
model. Johnson WDT ¶ 68.108
Specifically, Dr. Johnson conducted two
such analytical tests.
First, he looked at the subset of CSOs
from his proffered model that only
‘‘paid above the minimum fee.’’ Johnson
WDT ¶ 68. His purpose in performing
this test was to address the concern in
the 2010–13 Determination that the
‘‘carriage decisions of CSOs . . .
pay[ing] minimum fees [were]
‘potentially less informative than
108 Dr. Johnson also asserted that he performed
two ‘‘other sensitivities,’’ on missing CCG
programming data and program descriptions that
were ambiguous as to the claimant category to
which they belonged, respectively. Johnson WDT
¶ 49 n.64 & ¶ 50 n.68. But although he tried to
categorize these tests in this manner, by his own
acknowledgement, the ‘‘purpose of those tests [was
to] assess[ ] the effects of different approaches to
treating the imperfections in the available data.’’
Johnson WDT ¶ 68 n.102.
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discretionary decisions by CSOs to
incur an additional royalty expense in
order to distantly retransmit particular
stations.’ ’’ Johnson WDT ¶ 68 (citing
2010–13 Determination at 3575). This
first sensitivity test, according to Dr.
Johnson, found ‘‘positive relative
valuations’’ for the coefficients of all six
claimant categories, although the
valuations were ‘‘not statistically
significant’’ for the JSC and SDC
content. Johnson WDT ¶ 69 fig.14, cols.
[a]–[c]; and app. K.109 Apparently
109 Dr. Johnson does not report share allocations
for minimum-fee-only CSOs in his WDT. However,
in response to criticism of his direct testimony, Dr.
Johnson included in his WRT figures showing a
close relationship between: (a) the allocation shares
based on the subscriber group Base Fees calculated
(but not paid) by these minimum-fee-only CSOs on
an annualized (unpooled) basis for 2014–2017; and
(b) the allocation shares in his proffered baseline
model (presented on an unpooled basis) for all
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Dr. Johnson explains why the implied
relative share values are starkly
different:
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focusing on the absence of statistical
significance for the JSC and SDC
content, Dr. Johnson concludes that this
sensitivity test shows the
appropriateness—indeed, the
‘‘importance’’—of his proffered model’s
inclusion of ‘‘CSOs that paid minimum
fees,’’ because exclusion of such CSOs
‘‘would cause the model to lose
precision with respect to’’ the JSC and
SDC claimant content. Johnson WDT
¶ 69. In further support of his
interpretation of this sensitivity test
results, Dr. Johnson adds that CSOs
paying only the minimum fee
nonetheless ‘‘still make affirmative
distant retransmission decisions that
can be informative about the relative
value of content.’’ Johnson WDT ¶ 69 &
n.103.
In his second sensitivity/robustness
analysis, referred to supra, Dr. Johnson
‘‘allow[s] the coefficients to vary from
year to year.’’ Johnson WDT ¶ 68; see
also id. at fig.14, cols. [a], [d]–[g]. He
opines that this analysis ‘‘indicates . . .
there is a statistically significant
difference’’ in the coefficient values
between 2014 and 2015–2017 for JSC
program content. Johnson WRT ¶ 121
fig. K–3 (notes).
According to Dr. Johnson, this second
sensitivity test shows the following:
1. Relative marketplace values for the PTV,
SDC, CCG, CTV and Program Suppliers
claimant categories were not statistically
different across the 2014 to 2017 period.
2. However, the relative marketplace value
of JSC content significantly declined from
2014, when WGNA was the most distantly
retransmitted signal (broadcasting high
volumes of MLB, NBA, and NFL game
content), to the 2015–2017 period, after WGN
converted to a cable network, and the volume
of such games was concomitantly
significantly reduced.110
3. This second sensitivity test demonstrates
that Dr. Johnson’s proffered baseline model
has ‘‘appropriately captur[ed]’’ the declining
value of JSC content in the average ‘‘over the
entire 2014–2017 period. . . .’’
b. Criticisms of the Johnson Model by
PTV Expert Witness Dr. Bennett
Dr. Bennett lodges the following
criticisms specific to the Johnson
Model:
Johnson WDT ¶¶ 70–71; see also id.,
fig.15.
1. Criticisms of the Johnson Model 111
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a. Criticisms of the Johnson Model by
CCG Expert Witness Dr. George
Dr. George levies the following
criticisms of the Johnson Model:
1. The base fees and the 3.75% Fees
reported by CSOs are decoupled from each
other and are often less than the CSOs’ actual
royalty payments. Bennett WRT ¶¶ 66–69,
CSOs considered in his analysis. Johnson WRT app.
D, figs.D–6 and D–7.
110 The coefficient for JSC content in the 2015–
2017 period remained high, but was not statistically
significant. Johnson WDT ¶ 70 & fig.14.
111 An overarching procedural critique of the
manner in which Dr. Johnson generated his
model—alleging that he engaged in improper
econometric activities, in the form of what is known
as ‘‘specification searching’’ and George WRT at its
related questionable activities, ‘‘data mining’’ and
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1. The Johnson Model produces biased
results because it excludes 3.75% fees, failing
therefore to reflect the full willingness-to-pay
of all claimant categories, either in the base
fee or the separate 3.75% calculations made
by Dr. Johnson. George WRT at 23–24.
2. The Johnson Model is ‘‘subject to bias
from unobserved market characteristics and
time trends’’ because Dr. Johnson abandoned
all system effects and accounting-period
effects, whether separately considered (as in
the George Model) or interacted (as in the
Crawford Model), without appropriately
considering how that abandonment would
likely generate omitted variable bias. The
omitted variables risk inclusion of bias
regarding variations in programming.
Moreover, Dr. Johnson misconstrued the
2010–13 Determination as justification for
this error. George WRT at 24–25.
3. Dr. Johnson’s substitution of
‘‘contemporaneous’’ for ‘‘lagged’’ subscribers
‘‘undermines causal inference’’ because
‘‘[l]agged control variables . . . common in
applied regression . . . minimize the
potential for unobserved shocks [that can]
bias coefficients . . . such as the acquisition
of a cable system by a large MSO . . . . ’’
Further, the lagged subscriber input has been
used in fee-based regressions since Dr.
Waldfogel’s regression in the 2004–05
proceeding and Dr. Johnson wrongly claims
that ‘‘lagged subscriber’’ data was
unavailable, because they are readily
available from Cable Data Corporation.
George WRT at 26–27.
4. The Johnson Model excludes controls—
included in past proceedings—for
unobservable factors that undermine causal
interpretation, specifically excluding controls
for market income, the number of local
stations offered, and MSO ownership of
CSOs. Dr. Johnson fails to recognize that
‘‘these controls establish the ‘all else equal’
conditions that allow coefficient estimates to
take a causal interpretation as value per
minute.’’ 112 Because ‘‘it is not possible to
express, let alone control for, all the factors
that vary across cable systems,’’ the
econometrician must judiciously use control
variables (and fixed effects, discussed supra),
or otherwise bear ‘‘the burden . . . to justify
why coefficients are not absorbing the effects
of omitted variables and warrant the desired
causal interpretation.’’ George WRT at 27–30.
‘‘p-hacking’’, is separately discussed elsewhere in
this determination.
112 For example, Dr. George notes that FCC data
indicates that cable subscription prices (and thus
royalties) are lower in less wealthy markets.
Likewise, Dr. Crawford showed in 2010–2013 that
‘‘top MSO’s earned higher revenues per subscriber
than other systems, suggesting that large MSO’s are
able to charge higher prices for cable packages.’’
George WRT at 28.
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figs.24–26. This is problematic because CSO
carriage decisions underlying the base fees
and the 3.75% fees are ‘‘inextricably linked,’’
in that the cost factor in the decision whether
to add a station is based on the total royalty
cost, which includes both the (1) the base fee
or minimum fee, as applicable, and (2) the
3.75% fee. But by treating the two royalty
funds separately, the Johnson Model
materially increases PTV’s overall share,
compared to what it would be if the two
royalty funds were jointly considered.
Bennett WRT ¶¶ 74–78, figs.27–28.
2. Dr. Johnson provides no basis for
extrapolating from the subset of Subscriber
Groups with positive Base Rate fees to the
broader royalty pool. Bennett WRT ¶¶ 70–73.
3. The Johnson Model excludes fixed
effects, which means that his regressions do
not account for omitted variable bias. But Dr.
Johnson introduces the risk of such bias
based on a trumped-up concern that the
Judges noted in the 2010–13 Determination
but which had no impact. Moreover, the
resulting bias in the regression coefficient is
caused by eliminating fixed effects that
would have impacted royalties but were
unrelated to program category minutes, for
example, where different CSOs charge
different subscription prices because of
differences in the number of specialty
channels they provide in their basic service.
Similar omitted variables arise when fixed
effects are eliminated because of
uncontrolled differences in subscription
revenue (and thus section 111 royalties)
between and within MSOs. Bennett WRT
¶¶ 79–89, figs.29–35.
4. Dr. Johnson’s decision to eliminate fixed
effects was particularly puzzling, because he
had the endorsed Dr. Crawford’s ‘‘regression
framework’’ as ‘‘appropriate’’ for present
purposes and acknowledges that he
‘‘generally follows the framework used by
[Dr.] Crawford.’’ Nonetheless, he eliminated
Dr. Crawford’s fixed effects, inflating PTV’s
shares as reported in the Johnson WDT. See
Bennett WRT ¶¶ 90–92, figs.36–37.
c. Criticisms of the Johnson Model by
PTV Expert Witness Dr. Marx
Dr. Marx essentially echoes the
criticisms of Dr. Bennett with regard to
Dr. Johnson’s allegedly improper
removal of fixed effects from the
regression. She emphasizes that Dr.
Johnson did not appear to test or
evaluate the size or direction of the bias
created by eliminating fixed effects,
even for 2014, which was ‘‘a year that
in most significant respects was similar
to 2010–2013, which is the time period
for which the Judges found the
Crawford regression with fixed effects to
be ‘highly useful.’’’ Marx WRT ¶ 39.
d. Criticisms of the Johnson Model by
Program Suppliers Expert Witness Dr.
Tyler
Dr. Tyler does not raise any specific
criticisms of the Johnson Model. Rather,
he criticizes it in the same way he
criticizes all the other regressions that
use a form of royalties as the dependent
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variable (as explained supra, in the
Judges’ summary of Dr. Tyler’s advocacy
for the model he has proffered in this
proceeding). See Tyler WRT ¶ 29. To
summarize, Dr. Tyler rebutted the
Johnson Model by asserting the
following:
1. The Johnson Model needed to avoid the
substantial degree of variability, causing a
loss of observations.
2. The Johnson Model, like the George
Model, ‘‘guesses’’ at the number of
subscribers in each Subscriber Group,
introducing potential bias into the regression.
3. The Johnson Model, like the George
Model, has ‘‘hammer-shaped’’ residuals,
which indicate that a regression is
misspecified.
See Tyler WRT ¶¶ 29–55.
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e. Criticisms of the Johnson Model by
SDC Expert Witnesses Dr. Asker, Dr.
Majure, and Mr. Harvey
JSC’s several expert economic
witnesses levy the following criticisms
at the Johnson Model:
1. The Johnson Model (like the George
Model) improperly engages in the pooling of
data across the 2014–2017 period to estimate
a single coefficient for each program
category. According to the JSC economic
witnesses, such pooling generally results in
‘‘unreliable’’ coefficients and, specifically,
led in this case to an underestimation of
JSC’s 2014 share. More particularly, three JSC
experts testified as follows:
a. Dr. Asker testified that ‘‘there was a
significant change in behavior following the
conversion of WGNA in 2015. . . . To adopt
a specification that doesn’t recognize that
change and then allow the regression to
adjust . . . is a considerable flaw.’’ 3/30/23
Tr. 2431 (Asker); see also Asker WRT ¶ 103.
b. Dr. Majure testified that ‘‘[t]he data are
very different between these two periods,
reflecting changes in distant signal carriage
patterns from the exit of WGNA. Given the
differences in the data, it is important to run
separate regressions on the different time
periods.’’ Majure WRT ¶ 38.
c. According to Mr. Harvey, the Johnson
Model estimates that JSC went from the
highest per minute value in 2014 to the
lowest in 2015–2017 and, moreover, CSOs
would pay less for a minute of JSC content
during 2015–2017 than for a minute of any
of the other claimant categories. Harvey WRT
¶ 37 tbl.5; 3/28/23 Tr. 1883–87, 1889–90
(Harvey).
d. Mr. Harvey further testified that for the
2015–2017 period data alone, using the
Johnson Model (and the George Model)
generated JSC sports coefficients that were
not statistically significant and, according to
Mr. Harvey, were thus unreliable in that the
data implied that JSC programming had no
value in those years. Harvey WRT ¶¶ 37–38
& tbl.5.
e. Mr. Harvey calculated that when a 2015–
17 coefficient is estimated only for systems
paying more than the minimum fee, the
Johnson Model then estimates a statistically
significant negative coefficient for JSC
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content. Harvey WRT ¶ 38 & tbl.6; 3/28/23
Tr. 1895–96 (Harvey).
2. The Johnson Model lacks ‘‘robustness’’
and is ‘‘unstable.’’ According to Mr. Harvey,
these defects are evidence that Dr. Johnson
had engaged in a specification search
(discussed elsewhere in this Determination).
But Mr. Harvey asserts that even if Dr.
Johnson had not engaged in an intentional
specification search, his many specifications
generated results that evidenced the lack of
robustness and stability. 3/28/23 Tr. 2091
(Harvey); Harvey WRT ¶ 155 & tbl.26; see
also JSC PFF ¶ 196.
3. Reiterating a criticism rejected in the
2010–13 Determination, the Johnson Model
(like the George Model) wrongly utilizes a
log-linear specification, with the dependent
variable (royalties) expressed in log form and
the subscriber count variable expressed in
linear form. Harvey WRT ¶ 170; 3/28/23 Tr.
1965–66 (Harvey).
4. The Johnson Model wrongly omits fixed
effects (as also noted by other witnesses,
discussed supra). According to Mr. Harvey,
applying the fixed effects contained in the
George Model triples Dr. Johnson’s estimate
of the JSC share. Harvey WRT ¶ 111 & tbl.5.
f. Criticisms of the Johnson Model by
SDC Expert Witness Dr. Erdem 113
Dr. Erdem levies the following
criticisms at the Johnson Model:
1. The specifications in the Johnson Model
(i.e., Dr. Johnson’s preferred ‘‘baseline’’
model) is but ‘‘a stripped-down version’’ of
the fatally flawed Crawford Model, shorn of
‘‘numerous control variables such as MSO
indicators and the lag of subscribers and . . .
fixed effects . . . . ’’ Erdem WRT ¶ 42.
2. When the Johnson Model’s regression
was run ‘‘using the CCG data that Dr. George
used for her regressions . . . PTV shares
decreased by eight points [and] [e]very other
claimant . . . had their implied shares . . .
with] JS[C] [gaining] a five-point increase in
shares.’’ This allegedly indicated that ‘‘[t]he
processed data that PTV used for their
regression was clearly made to benefit their
shares . . . . ’’ Erdem WRT ¶¶ 98–99.
3. All of Dr. Erdem’s sensitivity tests
showed a similar tendency, i.e., compared to
the Johnson Model, ‘‘all the sensitivities . . .
[gave] PTV lower implied shares.’’ Erdem
WRT ¶ 101.
2. The Judges’ Analysis and Findings
Regarding the Johnson Model 114
The Judges make the following
findings with regard to the Johnson
Model:
1. Although Dr. Johnson used the Crawford
Model as his ‘‘starting point,’’ he made
changes to the Crawford Model.
113 In addition to the specific criticisms by Dr.
Erdem of the particulars of the Johnson Model, Dr.
Erdem criticizes Dr. Johnson for engaging in the
improper process of specification searching (also
described as ‘‘data mining’’ and ‘‘p-hacking’’). The
Judges consider that issue separately in this
Determination.
114 The Judges’ analysis and findings in this
section are separate and apart from their analysis
and findings on the specific issues considered in
separate sections of this determination.
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2. A major change Dr. Johnson made to the
Crawford Model was to eliminate all ‘‘fixed
effects’’ in the Johnson Model.
3. By removing all ‘‘fixed effects,’’ Dr.
Johnson altered the Crawford Model by
eliminating the protection against ‘‘omitted
variable bias.’’ That is, Dr. Johnson failed to
capture the effects of differences among
systems (CSOs) and across accounting
-periods that impacted the dependent
variable in the Johnson Model, i.e., the log of
royalties. The absence of these ‘‘fixed effects’’
therefore rendered significantly reduces the
evidentiary usefulness of the Johnson
Model.115
4. A purpose in Dr. Johnson’s removal of
‘‘fixed effects’’ from his regression model was
to generate what he understood to be a
sufficient number of observations of CSO
decisions regarding program category
retransmittal decisions (through their
retransmitted channel selections) to generate
the variation needed for a useful regression.
These additional observations were required
because, after the WGNA conversion, there
was a significant reduction in the number of
CSOs with two or more subscriber groups,
reducing the variation created by the ‘‘fixed
effects’’ control in the Crawford Model. But,
as Dr. Marx, for example, has explained, this
attempt at greater ‘‘precision’’ came at the
unacceptable expense of the generation of
‘‘omitted variable bias’’ discussed above.
5. Dr. Johnson’s further claim—that he
eliminated ‘‘fixed effects’’ in response to a
statement in the 2010–13 Determination that
the Judges were troubled by the resulting loss
of 15% of the otherwise observable CSO
decisions—is a red herring. The Judges in the
2010–13 Determination did not rely on the
loss of such observations as a basis for
diminishing the evidentiary weight of the
Crawford Model. And regardless, if the lost
number of observations increased in the
present proceeding because of the
aforementioned reduction in useful
subscriber groups, the more appropriate
response was not to inject ‘‘omitted variable
bias’’ into the regression, but rather to utilize
other approaches (as, for example, in the
Tyler Model).
6. Dr. Johnson’s inclusion in his
regressions of data regarding the
programming decisions of the vast majority
of CSOs paying the minimum fee or less
significantly reduces the evidentiary weight
of the Johnson Model for the three-year
2015–2017 period. (This finding of course
also applies to the George and Tyler Models.)
These decisions did not reveal their
preferences in a cardinal manner, that is,
these CSOs did not reflect relative values
because their choices did not affect the actual
fees paid. At most, their decisions reflected
ordinal values, in terms of which program
categories they valued more than others, but
115 The irony of this criticism is that Dr. Johnson
relied on the Crawford Model as a ‘‘starting point’’
for his modeling, deemphasizing the need to
develop an independent economic theory, and
ignored the potential specification searching in Dr.
Crawford’s modeling, but removed the feature of the
Crawford Model (‘‘fixed effects’’) that was the
positive basis for the Judges’ elevation of the
regression approach to a position of evidentiary
primacy in the 2010–13 Determination.
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not how much more, which is necessary for
the distribution of the royalty fund.116
7. But Dr. Johnson properly relied on the
data relating to the subset of CSOs in his
model that only paid above the minimum fee.
The Judges credit that data as reflective of
actual economic decision-making that is
useful in determining the allocation shares in
this proceeding. This cohort of CSOs can
properly be viewed as essentially the only
CSOs who provide revealed preference
information as to the variation in relative
values among the program categories (in
contrast with CSOs who did not retransmit
any distant local stations or those with
‘‘excess capacity’’), which in that sense is a
cohort unto itself, rather than a sub-sample.
On the other hand, this cohort can also
reasonably be viewed as but a small sample
of all the CSO, which reduces the evidentiary
weight of their preferences. Both perspectives
on the revealed preferences of these aboveminimum-fee-paying CSOs are properly
considered in weighting the various strands
of useful evidence in order to allocate royalty
shares in this proceeding.
8. The probative value of the Johnson
Model is incomplete and thus weakened,
because it excludes the 3.75% fees paid by
most of the claimants, thus not reflecting the
full willingness-to-pay of all claimant
categories. Further, Dr. Johnson’s separation
of the basic royalty fund and the 3.75%
royalty fund materially increased PTV’s
overall share.
9. The probative value of the Johnson
Model is weakened because it wrongly
substitutes ‘‘contemporaneous’’ for ‘‘lagged’’
subscribers. This substitution is incorrect
because: (a) lagged controls minimize the
subsequent impact of potential unobserved
factors such as the acquisition of a CSO by
a large MSO; (b)’’lagged’’ subscribers were
used since the Waldfogel regression in the
2004–05 proceeding; and (c) contrary to Dr.
Johnson’s assertion, ‘‘lagged subscriber’’ data
was available from Cable Data Corporation,
the source of much of the data utilized in the
regressions proffered in this and prior
allocation proceedings.
10. The probative value of the Johnson
Model is weakened because its omission of
certain control variables lessens its ability to
identify the causal interpretation of interest,
i.e., the correlation between program category
minutes and the log of royalties. Specifically,
the evidentiary weight of the Johnson Model
is compromised by its exclusion of control
variables for market income, the number of
local stations offered and MSO ownership of
CSOs. In this regard, Dr. Johnson has
essentially ignored the 2010–13
Determination which explains at length why
the inclusion of an MSO control variable is
necessary. 2010–13 Determination at 3566–
67 (describing ‘‘differences . . . among the
six largest MSOs in terms of their average
receipts per subscriber . . . . suggest[ing]
. . . important differences . . . regarding
their signal carriage strategies, pricing, and
116 In the 2010–13 Determination by contrast, as
Dr. Marx has explained, the Judges found there was
a sufficiently high percentage of CSOs paying above
the minimum fee and thus making decisions with
an economic (royalty) impact that served as a strong
evidentiary basis for allocating shares.
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other relevant dimensions,’’ and contrasting
‘‘a regression without the six MSO
Interaction variables [where] unobserved
differences in average revenue per subscriber
could bias estimates of relative value of
different programming.’’).117
11. The Johnson Model improperly ‘‘pools’’
data across the 2014–2017 period to estimate
a single coefficient for each program
category. Although ‘‘pooling’’ in this manner
is not inherently improper in these allocation
proceedings, when there is a sharp
demarcation in the relevant data, as existed
here as of 2015 upon the WGNA conversion,
‘‘pooling’’ data to generate a single coefficient
obscures reality. The most consequential
impact of ‘‘pooling’’ was the underestimating
of the JSC share for 2014 and its
overestimation for the years 2015–2017.
IX. A General Criticism of the
Regressions: Dr. Erdem’s Eight-Model
Argument In Rebuttal to the Use of the
Proffered Regressions
Undaunted by the Judges’ findings in
the 2010–13 Determination discussed
supra, Dr. Erdem endeavors to convince
the Judges to reverse course by once
more presenting an argument that all
fee-based regressions should be rejected
as probative evidence of relative market
value, as that standard has been defined
by the Judges and their predecessors.118
To this end, Dr. Erdem presented in
rebuttal eight models as pedagogical
117 One might fairly ask: Why rely on Dr.
Crawford’s specification decisions now, after
raising the concerns about his potential
specification searching? The answer is that Dr.
Crawford’s detailed and persuasive explanation for
adding this additional control variable in the course
of specifying his model was a reason why the
Judges did not agree with the SDC in the 2010–13
proceeding that it was evidence of inappropriate
specification searching. The troublesome facts were
generated subsequently, in the discovery phase of
the companion 2010–13 satellite proceeding.
118 Nothing in the prior determinations precludes
the Judges from considering what appear to be new
arguments by Dr. Erdem, because the Judges’ (and
their predecessors’) reliance on fee-based
regressions constitutes a factual finding, not a legal
conclusion, and thus there is no ‘‘precedent’’ that
precludes a new line of factual expert argument.
See 2010–13 Determination at 3557 & n.26
(distinguishing ‘‘legal precedent’’ from the
oxymoronic concept of a ‘‘factual precedent.’’ See
also 17 U.S.C. 803(a) (directing the Judges to act on
the basis of both: (1) ‘‘a written record’’ which
includes record evidence; and (2) prior
‘‘determinations and interpretations’’ of identified
judicial and administrative entities.).
However, factual matters that the Judges decided
in the 2010–13 Determination need not be fully
revisited in this proceeding, in the absence of any
new persuasive argument to the contrary. Such
factual matters include: (1) the rejected sweeping
claim that fee-based regressions do not embody
economic principles such as profit maximization
(see 2010–13 Determination at 3560), (2) the
rejected characterization of fee-based regressions as
merely ‘‘volume analyses’’ (see id. at 3560–61), (3)
the rejected argument that it was wrong for feebased regressions to ignore distant local signals that
CSOs chose not to carry (see id. at 3563), and (4)
the rejected argument that the fee-based regressions
used the wrong form for the control variable for
number of subscribers (see id. at 3563–64).
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tools only (not as proposed models for
use in allocating shares). He and the
SDC aver that his are ‘‘simple models,’’
demonstrating that ‘‘all fee-based
regression models’’ do not estimate ‘‘any
plausible measure of fair market
value,’’ 119 but rather are ‘‘leveraged on
correlations driven predominantly by
geography (location of cable systems
and the subscriber groups) and other
features of the copyright royalty system
. . . .’’ SDC PFF ¶ 44 (quoting Erdem
WRT ¶ 2).120
The Judges go through each of the
eight models below. Also set forth
below are the rejoinders to these models
presented comprehensively through the
submission by CCG and the testimony of
CCG’s economic expert, Dr. George.
A. Erdem’s Rebuttal Model 1
Model 1 shows ‘‘a negative correlation
between the number of minutes
retransmitted on a distant basis and the
amount of subscriber group base fees.’’
SDC PFF ¶ 45 (citing Erdem WRT
¶¶ 52–53). This means, according to Dr.
Erdem, that subscriber groups
retransmitting fewer distant minutes
tend to pay more in royalty fees. Erdem
WRT ¶ 53. Dr. Erdem interprets these
negative coefficients as a ‘‘hedonic’’
regression, implying that CSOs place
negative value on retransmission of
distant signals.’’ SDC PFF ¶ 45 (citing
Erdem WRT ¶ 53) (emphasis added).121
Given the perverse nature of this result,
the SDC maintains that its negative
value puts the lie to the claim that the
number of minutes has something ‘‘to
do with value,’’ but rather shows that
the regression coefficients are artifacts
‘‘of the regulatory structure.’’ SDC PFF
¶ 45.122
119 It is not lost on the Judges that Dr. Erdem uses
the phrase ‘‘fair market value’’ here, rather than the
actual standard of ‘‘relative marketplace value.’’ In
the 2010–13 Determination, the Judges explicitly
distinguished the two concepts. 2010–13
Determination at 3555 n.17 (‘‘Because the royalties
at issue in this proceeding are regulated and not
derived from any actual market transactions, they
do not correspond with absolute dollar royalties
that would be generated in a market and thus would
not reflect absolute ‘‘fair market value.’’) See also
the Judges’ discussion of the ‘‘relative marketplace
value’’ standard, supra.
120 Elsewhere in his testimony, Dr. Erdem offers
a more sinister conclusion from his ‘‘eight-model’’
analysis: ‘‘[A]s I will show, it is precisely these
modeling choices that allow the analyst to select a
model based on expected or desired results.’’ Erdem
WRT ¶ 51. Thus, his argument is that the very
structure of the fee-based regressions provides all
the expert witnesses, not just the two he singled
out, Drs. Crawford and Johnson, with the
opportunity to engage in specification searches.
121 The Judges discuss elsewhere in this
determination the concept and label of a hedonic
regression and their significance in this proceeding.
122 Dr. Erdem states that to test the hypothesis of
a positive correlation, on average, between royalties
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Dr. Erdem advances what he argues is
an alternative explanation for the
inverse relationship between minutes
and royalties that he claimed to identify:
‘‘[This] result can be explained by
distance between the signal and the
subscriber group [because] I argue that
the number of subscribers reduce with
distance, implying that the signal is
being re-transmitted to fewer
subscribers over longer distances.’’
Erdem WRT ¶ 53. See also Erdem WRT
¶ 59 (‘‘91% of systems are retransmitting
the same signal on a local basis to some
subscriber groups and on a distant basis
to other subscriber groups[,] . . . [and]
on average 76% of the channels that are
distant to a subscriber group are
retransmitted as local to another
subscriber group’’); SDC PFF ¶¶ 46–47;
see also Bennett ACWDT ¶ 33 (Across
2014–2017, nearly 95% of the distant
signals imported were within 150 miles
of the community served, and over 97%
were within 200 miles.).
[C]able systems place a high positive
value on the number of subscribers in a
subscriber group.’’ Erdem WRT ¶ 58. As
alternatively stated by Dr. Erdem, ‘‘[W]e
may need to treat the number of
subscribers as a measure of volume.’’
Erdem WRT ¶ 58. Relatedly, Dr. Erdem
opines that ‘‘there is a negative
correlation between the number of
subscribers in a subscriber group and
the number of distant minutes the
subscriber group receives’’—meaning
that, for the more populous subscriber
groups, fewer distant signals (and
minutes) are retransmitted to them and,
thus, the more sparse the number of
subscribers in a subscriber group, the
greater the number of distant signal
minutes. According to Dr. Erdem, this
negative correlation is inconsistent with
the positive correlation between distant
minutes and royalties posited by the
theoretical underpinnings of the feebased regressions. See Erdem WRT
¶ 59.124
B. Erdem’s Rebuttal Model 2
D. Erdem’s Rebuttal Model 4
Dr. Erdem’s Model 4 seeks to address
a finding from his Model 3: ‘‘[T]he
relationship between the number of
subscribers and royalty fees is positive.’’
Erdem WRT ¶ 58 & fig.4. Keeping with
his interpretive context, which treats
these regressions as hedonic in nature,
Dr. Erdem posits that ‘‘[a]n analyst . . .
will conclude that [CSOs] place a high
positive value on the number of
subscribers in a subscriber group,’’ such
that ‘‘we may need to treat the number
of subscribers as a measure of volume.’’
Erdem WRT ¶ 58. But he then asks,
rhetorically: Could it be that, on
average, subscriber groups with fewer
subscribers receive more distant
minutes of programming? Erdem WRT
¶ 58 (emphasis added). Dr. Erdem then
turns to his next pedagogical regression
model, Model 4, to address this issue.
Dr. Erdem’s Model 4 indeed
demonstrated a ‘‘negative correlation
between the number of subscribers in a
subscriber group and the number of
distant minutes the subscriber group
receives.’’ Erdem WRT ¶ 59. Dr. Erdem
explained his intuitive explanation for
this negative correlation:
In his second rebuttal model, Dr.
Erdem analyzed the relationship
between claimant category minutes and
base royalty fees. He testified that, quite
similar to the results from his Model 1,
he found that a negative or statistically
insignificant relationship largely
persists (except for JSC minutes). As
with Model 1, Dr. Erdem interprets this
result through the lens of a hedonic
regression, finding that it implies that
CSOs place a negative value on all
distant retransmissions of local
programming, except for JSC. Erdem
WRT ¶ 54. And also as with Model 1,
Dr. Erdem recognizes that these results
are ‘‘counterintuitive’’ in the context of
reflecting value, but rather are a
function of the fragmentation of
subscriber groups. Erdem WRT ¶ 54. See
also SDC PFF ¶ 48.123
C. Erdem’s Rebuttal Model 3
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In his third rebuttal model, Dr. Erdem
tested the effect of the number of
subscribers in a subscriber group (the
independent variable) on subscriber
group royalty fees and found a strong
positive correlation. Erdem WRT ¶ 58.
Dr. Erdem, again viewing the modeling
as a hedonic regression, has a ready and
what he describes as an obvious
explanation for this positive correlation:
and minutes, he would need to ‘‘control[] for
appropriate variables.’’ Erdem WRT ¶ 52. However,
there is no sufficient indication in the record that
Dr. Erdem applied control variables, or any other
controls through fixed effects with regard to his
Model 1.
123 Again, Dr. Erdem does not indicate whether he
applied control variables, and, if he did, what they
were.
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One of the principal reasons why a rational
CSO might choose to use subscriber groups
is because the cable system’s reach straddles
124 The Judges note Dr. Tyler’s testimony,
discussed elsewhere in this determination, that
there is no data identifying the number of
subscribers in a subscriber group, in the course of
his positive differentiation of the Tyler Model from
the other regression models (which unlike the Tyler
Model, must estimate the number of such
subscribers in an inaccurate manner). It is not
apparent from the record that Dr. Erdem had
estimated the number of such subscribers in an
accurate manner.
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the edge of the 35-mile radius in which a
station is considered ‘‘local’’ for cable royalty
purposes. In this situation, a signal is ‘‘local’’
to some subscribers and ‘‘distant’’ to other
subscribers. The cable system can save
money by breaking its subscribers into
geographically based subscriber groups so
that it is paying for the distant retransmission
only for the subscribers receiving it on a
‘‘distant’’ basis.
Erdem WRT ¶ 59 (emphasis added). Dr.
Erdem then presents the data (discussed
supra) regarding the localized emphasis
on ‘‘distant’’ retransmission contiguous
to the 35-mile legal boundary between
local and distance transmissions. Erdem
WRT ¶¶ 59–60.
Dr. Erdem recognizes that the several
regression experts sought to remove this
cost-based negative effect of the number
of subscribers in a subscriber group on
the number of distant minutes a
subscriber group receives. First, he
noted that Dr. Tyler, with his SGRP
divided the dollar value of fees (the
numerator in Dr. Tyler’s SGRP) by ‘‘a
metric that scales with the number of
subscribers,’’ i.e., total receipts. (the
denominator in Dr. Tyler’s SGRP).
Second, as an alternative approach, Drs.
George and Johnson (and apparently Dr.
Crawford previously) introduced a
control variable to remove the influence
of the number of subscribers (whose
increasing numbers would increase
receipts and potentially increase
royalties either through higher binding
base fees or by triggering a base fee
obligation in excess of the minimum fee
that would otherwise bind). Erdem WRT
¶ 61.125
E. Erdem’s Rebuttal Model 5
Dr. Erdem then apparently adds to his
pedagogical model the control variable
that Drs. George and Johnson include,
‘‘controlling for the number of
subscribers.’’ When Dr. Erdem does so
(using lagged and unlagged subscriber
numbers, respectively in his modeling),
he finds that his ‘‘correlation between
total minutes and royalty fees is now
positive.’’ Erdem WRT ¶ 62 & fig.6
(emphasis added). He emphasizes that
what he terms the ‘‘fixed price’’ for the
retransmissions in his modeling is
‘‘based primarily on the type and
number of signals and revenues for the
subscriber group,’’ despite the fact that
‘‘[r]evenues are largely based on the
number of subscribers.’’ Erdem WRT
¶ 62.
What still remains uncontrolled, Dr.
Erdem, notes, is the ‘‘impact . . . from
the number of distant signals.’’ Erdem
125 Note that when discussing Model 7 considered
infra, Dr. Erdem admits that ‘‘inclusion of a variable
for subscribers . . . could be justified as a volumebased control.’’ Erdem WRT ¶ 69.
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WRT ¶ 62. He notes the perhaps selfevident point that ‘‘[t]he more signals
there are, the more minutes there are, so
I would expect a positive relationship
after controlling for subscribers.’’ Erdem
WRT ¶ 62.
F. Erdem’s Rebuttal Model 6
Dr. Erdem then breaks the
retransmitted minutes into their
respective programming categories, and
proceeds to test whether the positive
correlation between total minutes and
royalties (which the regression experts
understood to exist) continues to hold
on a per-category basis. Erdem WRT
¶ 63. He finds that this positive
relationship between minutes and
royalties—on a program category
basis—remains positive and is
statistically significant for four of the six
category participants—PTV, Program
Suppliers, JSC, and the SDC. However,
his modeling resulted in mainly positive
but statistically insignificant results for
CTV and CCG, and, for a minority of
CCG observations, a negative relation.
(Dr. Erdem’s modeling also showed
negative correlations for ‘‘network
programming’’ (not a category at issue).
Erdem WRT ¶¶ 63–64 & fig.7. Dr. Erdem
interpreted these results to mean that
‘‘the control for the number of
subscribers lifted the coefficients for
program categories into positive
territory by removing the influence of
the number of subscribers, but not
enough to give all categories a positive
and statistically significant coefficient.’’
Erdem WRT ¶ 64.
Dr. Erdem asserts that these results
‘‘pose a problem for any analyst hoping
to interpret the model as a hedonic
regression.’’ Erdem WRT ¶ 65. More
particularly, continuing from the binary
perspective of whether the fee-based
regressions are hedonic or not, he
unambiguously opines that these
regressions are invalid because they are
not hedonic, in that ‘‘[t]he price is not
actually varying based on the valuation
of minutes,’’ but rather varying based on
‘‘other factors such as the type of signal
or the revenue-per-subscriber for the
subscriber group or system.’’ Erdem
WRT ¶¶ 65–66.
Dr. Erdem then states that the
regression analyst who nonetheless
‘‘wishes’’ to describe his or her
regression as hedonic must manipulate
the negative coefficients into positive
coefficients, so that they ‘‘appear’’
plausible as proxies for prices. Erdem
WRT ¶ 67.
It is in this context that Dr. Erdem
accuses the regression experts of
‘‘leveraging’’ the ‘‘negative coefficients
for network programming’’ (which are
ineligible for an allocation of the
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royalties to be divided in this
proceeding). Erdem WRT ¶ 68. To
generate this leverage, Dr. Erdem asserts
that the fee regression analysts engage in
two manipulations (1) they add another
control variable for ‘‘the number of
distant signals, which correlates directly
with the total number of minutes’’ and
(2) they exclude the variable for ‘‘the
number of distant minutes of network
programming,’’ ‘‘render[ing] all category
coefficients ‘relative’ to the negative
coefficient for network programming.’’
Erdem WRT ¶ 68. Dr. Erdem emphasizes
the elementary point that ‘‘[b]ecause any
number is positive in relation to the
largest negative number, the exclusion
of the variable for network programming
has the effect of lifting the variables for
all category minutes comfortably into
positive territory, creating an apparent
positive and statistically significant
correlation where there previously was
none in some categories.’’ Erdem WRT
¶ 68.
G. Erdem’s Rebuttal Model 7
To the adjustments included through
Models 1–6, Dr. Erdem now injects a
control for ‘‘the number of distant
stations on royalty fees.’’ Also, his
Model 7 ‘‘drops network distant
minutes in order to get relative
numbers’’ in the manner undertaken by
the fee regression experts. Erdem WRT
¶ 69.
Although (as noted supra) Dr. Erdem
concedes that the prior ‘‘inclusion of a
variable for subscribers . . . could be
justified as a volume-based control,’’ he
finds ‘‘no econometric justification for
seeking to value category minutes
relative to the negative coefficient value
of network programming.’’ Erdem WRT
¶ 69. He states that as a general matter,
‘‘even if one believed that the
coefficients were related to value, there
could be no justification for trying to
measure value relative to an arbitrarily
chosen category with a negative value.’’
Erdem WRT ¶ 69 (emphasis added).
Dr. Erdem also characterizes the
negative coefficient for network
programming as ‘‘an artifact of the
operation of the copyright royalty
system, not a measure of how much
anyone values programming, and
certainly not a measure of how
programming would be valued in the
free market.’’ Erdem WRT ¶ 70.
Alternately stated, he declares that
[t]here is no intuitive reason why
network programming would be
expected to have negative market value
when retransmitted on a distant basis.’’
Erdem WRT ¶ 70.
Dr. Erdem does acknowledge that,
through what he calls this excluded
network minute ‘‘manipulation,’’ all the
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54213
coefficients in the categories of interest
(for the distant retransmission that is
permitted by law) now become positive.
Erdem WRT ¶ 70 (‘‘This is exactly how
Professor Crawford’s model—and, by
extension, Dr. George’s model and Dr.
Johnson’s model—works.’’).126
From this point forward, Dr. Erdem
maintains that the fee-based regression
experts ‘‘are free from the constraints of
econometric reasoning.’’ More
particularly, he asserts they can,
without appropriate justifications use
various (1) control variables, (2) fixed
effects, (3) transformations and
functional forms, and (3) unspecified
miscellaneous fine-tuning, all in the
service of ‘‘generat[ing] whatever
coefficients [they] desire or expect.’’
Erdem WRT ¶ 71.
H. Erdem’s Rebuttal Model 8
The final model, Model 8, is actually
not a ‘‘model’’ at all, but rather Dr.
Erdem’s more particular catalog of
‘‘manipulations’’ in which a fee-based
regression expert could engage, with a
model built up through Dr. Erdem’s
Models 1–7. Without linking any of the
following ‘‘manipulations’’ specifically
to any of the experts in this proceeding,
Dr. Erdem states in this ‘‘Model 8’’ that
the following ‘‘manipulations’’ are
possible:
1. ‘‘bringing in variations in the number of
subscribers to increase or decrease the effect
on the dependent variable. For example, we
can try the lagged number of subscribers;’’
2. ‘‘add[ing] interactions with the number
of subscribers’’ (as he states Dr. Crawford did
in his model); and
3. ‘‘add[ing] fixed effects, which controls
for any variation due to inherent
characteristics of a subscriber group.’’
Dr. Erdem does not assert that such
additions would be ad hoc, but rather
that, consistent with the fundamental
defect he finds in the fee-based
regressions, they would ‘‘merely
leverage the features of the copyright
royalty system.’’ Erdem WRT ¶ 72.
I. Dr. George’s and CCG’s Rejoinder to
Erdem’s Modeling Exercise 127
At a high level,128 CCG takes issue
with the SDC’s emphasis on the
126 To be clear, Dr. Erdem does not lodge this
criticism at Dr. Tyler’s model.
127 CCG and Dr. George, among the other
regression experts and parties, were the ones who
responded to Dr. Erdem’s testimony, apparently
because Dr. Erdem’s pedagogical modeling was
based on ‘‘Dr. George’s methodology and
production.’’ Erdem WRT ¶ 51 n.23.
128 This high-level ‘‘General Criticism’’ also
responds specifically to Dr. Erdem’s Model 4
discussed supra, regarding ‘‘geographic’’ effects,
which are ‘‘key’’ elements of Dr. Erdem’s general
critique of fee-based regressions. See 4/6/23 Tr.
3643–44 (Rubinfeld) (identifying ‘‘changes in the
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assertion that fee-based regressions are
predominantly rooted in correlations
with (a) the geographic location of CSOs
and their constituent subscriber groups
and (b) statutory features of the
copyright royalty system. In this regard,
CCG essentially attacks this assertion as
much ado about nothing, because the
reason why CSOs and their subscriber
groups retransmit signals as they do
does not bear on the fundamental point
of the regressions, i.e., to identify what
the CSOs actually retransmit in order to
appropriately compensate copyright
owners. Dr. George emphasizes that
whether or not subscriber group
configurations are geographic artifacts,
they nonetheless reflect the strategic
profit-maximizing decisions of CSOs as
to where they will transmit distant
signals. It is this profit maximizing
retransmission decision that is the
kernel of information that provides
insight into ‘‘what would determine
relative market value absent regulation.’’
See George WDT at 15–17, 27–28; The
Canadian Claimant Groups’ Reply to
Proposed Findings of Fact and
Conclusions of Law (CCG RPFF) ¶¶ 21–
22.
More broadly, CCG characterizes Dr.
Erdem’s eight-model analysis as
incomplete and economically flawed. In
this regard, Dr. George criticizes Dr.
Erdem’s rebuttal pedagogical modeling
because therein he analyzes
relationships in the data across CSOs,
whereas the George Model emphasizes
variation within CSOs to identify
coefficients. Thus, CCG and Dr. George
essentially attack Dr. Erdem’s modeling
as a straw man exercise. CCG RPFF ¶ 22;
George WDT at 27–28.
At the conceptual economic level,129
Dr. George takes note of the point
(identified by the Judges supra) that Dr.
Erdem has contextualized his analysis
in the wrong economic and legal
standard:
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SDC’s false criticism that regressions are
not driven ‘‘by any plausible measure of fair
number or size of subscriber groups’’ as a ‘‘key
issue.’’).
129 All the economic experts in this proceeding
agree that the initial step in building a regression
model is to identify ‘‘a theory that describes the
variables to be included in the study.’’ American
Bar Association, Econometrics, Legal, Practical and
Technical Issues 8 (1st ed. 2005) (‘‘ABA
Econometrics’’). See also Stock & Watson, supra
note 92, at 282 (‘‘First, a core or base set of
regressors should be chosen,’’ which includes the
‘‘variables of primary interest’’ and the ‘‘control
variables’’ suggested by, inter alia, ‘‘economic
theory.’’) (emphasis added); Kennedy, supra, at 391
(identifying as ‘‘Rule 1’’ of applied econometrics:
‘‘Use common sense and economic theory.’’)
(emphasis added).’’ Perhaps even more pertinent
here is Professor Kennedy’s ‘‘Rule 2,’’ which states
that an econometrician must avoid attempting to
‘‘produce[ ] the right answer to the wrong question.’’
Id. at 391.
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market value’’ suggests that measuring fair
market value was a goal of regression. . . .
No pro-regression expert claims that
correlations are driven by ‘‘fair market
value.’’ As the Judges wrote in the prior
proceeding: ‘‘In this proceeding, the Judges
distinguish between ‘relative values’ (to
describe the allocation shares), and absolute
‘fair market values.’ Because the royalties at
issue in this proceeding are regulated and not
derived from any actual market transactions,
they do not correspond with absolute dollar
royalties that would be generated in a market
and thus would not reflect absolute ‘fair
market value.’ ’’
CCG RPFF ¶ 12 (quoting 2010–13
Determination at 3555 n.17) (emphasis
added).
More granularly, CCG asserts that the
negative correlations in Dr. Erdem’s
modeling between royalties (the
dependent variable) and, respectively,
(a) total distant minutes (Model 1), (b)
claimant distant minutes (Model 2), and
(c) subscriber group size (Model 3), do
not, as Dr. Erdem claims, reveal a
modeling ‘‘hurdle’’ or ‘‘problem’’ that
bedevils the fee-based regressions.
Rather, it is claimed that Dr. Erdem’s
first three pedagogical rebuttal models
fail to consider that CSOs configure
their subscriber groups strategically to
maximize profits and therefore will only
retransmit distant signals to groups of
subscribers when the anticipated benefit
(essentially, more new or retained
subscriptions) exceeds the anticipated
costs (royalties). CCG RPFF ¶ 24 (citing,
from the 2010–13 proceeding, Crawford
CWDT ¶¶ 66–68; Israel WDT ¶¶ 12–14.).
CCG also takes note of the finding in
Dr. Erdem’s Model 3 130 of ‘‘a positive
relationship between the number of
distant signals and subscriber group
royalties,’’ suggestive of the regression
experts’ hypothesis that cable systems
place a high positive value on the
number of subscribers in a subscriber
group.’’ CCG RPFF ¶ 24. Unsurprisingly,
CCG and Dr. George do not disagree
with his finding.131
CCG and Dr. George then address Dr.
Erdem’s next point regarding: (1) the
purportedly problematic ‘‘negative
correlations’’ in Models 4 and 6
‘‘between the number of subscribers in
a subscriber group and the number of
distant minutes the subscriber group
receives’’ (Erdem WRT ¶ 59); and (2) the
attempt to control for the number of
subscribers considered in Model 5
130 CCG misidentifies this point as within Dr.
Erdem’s Model 4. CCG RPFF ¶ 24.
131 As noted supra regarding CCG’s and Dr.
George’s ‘‘General Criticisms’’ of Dr. Erdem’s
pedagogical modeling, they dispute his assertion in
Model 4 that fee-based regressions do not reflect the
category-by-category preferences of CSOs as
revealed by the minutes of program categories
retransmitted.
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(Erdem WRT ¶ 62). In defending the use
of a control for the ‘‘number of
subscribers’’ as an important feature for
a fee-based regression, CCG states:
The negative correlations documented in
Dr. Erdem’s models are not ‘‘problems.’’ The
negative correlation with subscriber group
size results from the strategic choices of cable
systems to minimize the cost associated with
distant signal carriage. The negative
coefficient for one category of minutes
reflects the fact that programming minutes
per station sum to a total of 24 hours per day.
The goal of the regression is to evaluate how
royalty expenditure correlates with claimant
programming on distant signals
retransmitted, all else equal. A control
variable for the number of subscribers in a
subscriber group creates these all-else-equal
conditions.
CCG RPFF ¶ 25 (citing George WDT at
52–54; George WRT at 60) (emphasis
added).
Turning to Dr. Erdem’s pedagogical
rebuttal Model 7, Dr. George and CCG
assert that Dr. Erdem has changed the
fee-based regression modeling in two
ways by (1) ‘‘excluding the variable for
network minutes’’ and (2) ‘‘including a
variable for the number of distant
signals.’’ CCG RPFF ¶ 26. Regarding the
alleged error in Dr. Erdem’s exclusion of
the network minutes variable, CCG
avers:
Since all stations broadcast approximately
24 hours per day, and subscriber groups must
have whole numbers of distant signals,
programming minutes sum to a constant
equal to the number of distant signals times
24 hours per day for 6 months. Dr. Erdem has
. . . effectively forc[ed] one of the program
categories to produce a negative coefficient.
[Dr.] Crawford and [Dr.] George address th[is]
. . . by specifying a model with a control for
. . . a reference category of ‘‘big-3’’ network
minutes. Network minutes are a convenient
reference choice because they are noncompensable and no coefficient for this
category need be estimated.
CCG RPFF ¶ 26 (citing George WRT at
31–32, 57–58, 63–64) (emphasis
added).132
Turning to her objection to Dr.
Erdem’s second alteration identified in
the immediately preceding paragraph,
viz., removing of the control for the
number of distant signals, Dr. George
responded as follows:
[R]emoving the control for distant stations
changes the interpretation of program
coefficients so that they no longer show the
effect of an additional program minute taking
away a minute of network or off-air
132 Moreover, Dr. George pointed out that, at first,
Dr. Tyler made the same mistake as Dr. Erdem,
neglecting to include or address this reference
category when critiquing the Crawford Model.
When he realized his error, Dr. Tyler withdrew his
attempted replication of the Crawford Model. See
George WRT at 31–32; see also Bennett WRT
¶¶ 127–134.
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programming. . . . removing the control for
distant signals [thus] alters the ‘‘all else
equal’’ framework of the model so that
program coefficients no longer isolate the
effect of additional program minutes, but
instead also capture the (omitted)
incremental value of additional distant
signals.
George WRT at 57–58 (emphasis
omitted); see also id. at 63–64.133
Finally, in responding to Dr. Erdem’s
conclusory Model 8, CCG concludes by
describing Dr. Erdem’s pedagogical
exercise as merely his recapitulation
and criticism of ‘‘his own incomplete
models,’’ rather than ‘‘a criticism of the
well-specified Crawford [M]odel or
those presented in this proceeding.’’
CCG RPFF ¶ 21. See also George WRT
at 53 ‘‘(just as there is the potential for
experts to ‘cherry-pick’ results, there is
the potential for adversaries to ‘cherrypick’ their critiques.’’).
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J. The Judges’ Analysis and Conclusions
The Judges find that Dr. Erdem’s
pedagogical eight-model approach does
not support an abandonment of the
Judges’ long-standing reliance on feebased regressions as evidence of relative
market value in these section 111
allocation proceedings. The Judges
make this finding based on the
following:
The Judges agree with SDC’s counsel that
Dr. Erdem’s eight-model analysis is not
substantively any different than what he
presented in the 2010–13 proceeding. As
such, it does not raise new factual arguments.
1. Dr. Erdem acknowledges at the outset
that his critique is intended to show that the
fee-based regressions fail to generate ‘‘fair
market value.’’ This is a consequential error
on his part, because (a) the Judges’ longexisting standard is ‘‘relative marketplace
value,’’ (b) the Judges expressly distinguished
their standard from ‘‘fair market value’’ in the
2010–13 Determination, and (c) Dr. Erdem
did not attempt to explain his switch in
standards. Accordingly, it appears to the
Judges that Dr. Erdem expressly
characterized his eight-step modeling
approach in a manner that attempted to
answer ‘‘the wrong question,’’ in violation of
Professor Kennedy’s econometric ‘‘Rule #2’’
discussed supra.
2. Dr. Erdem’s approach is to build up from
models which lack control variables, and
then to posit that the relationships he finds
are inconsistent with the hypothesis behind
the fee-based regressions. But that approach
leaves out all the control variables that the
fee-based regression experts have included in
their models, essentially causing Dr. Erdem’s
simple models to be burdened by omitted
variables, which cause regressions to suffer
from the eponymously named ‘‘omitted
133 Dr. George had the opportunity to express this
criticism in her WRT because Dr. Erdem had made
this particular criticism in his amended direct
testimony (which he later incorporated it into his
eight-model exercise.)
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variable bias.’’ Moreover, in Models 1 and 2,
Dr. Erdem is thus not even engaged in
‘‘multiple regression’’ analysis, because he is
analyzing only the effect of a single
independent variable.
3. Related to the immediately preceding
criticism, Dr. Erdem’s rebuttal modeling
approach thus reflects his own modeling
choices and approach, not one utilized by the
fee-based regression experts. Thus, his
approach is in the nature of a straw man
argument. Moreover, his approach does not
appear to be so much pedagogical in nature,
but rather more of an attempt to utilize his
rebuttal testimony to set forth the rudiments
of an alternative modeling exercise—after
SDC had declined to proffer any such
modeling approach in its original or
amended written direct statement (when it
was fully aware of the points it subsequently
raised on rebuttal through Dr. Erdem’s eightmodel approach).
4. Dr. Erdem does not clearly explain how
he estimated the number of subscribers in a
subscriber group. If he did so by the same
estimation approach as Drs. George, Johnson,
and Marx (via Dr. Crawford) then his
criticism is as questionable as their analyses
in this regard. Moreover, the deficiency of
this criticism underscores the relative
strength of the Tyler Model, which did not
require a control for the number of
subscribers, given its use of SGRP as the
dependent variable.
5. The Judges cannot credit Dr. Erdem’s
criticism of the relationship between the
negative coefficients he discussed and the
use of a ‘‘reference category’’ of ‘‘Big-3’’
network minutes in the fee-based regressions.
The Judges are struck by the fact that Dr.
Erdem ignored the rationale given by Dr.
George (and other regression experts), viz.,
that a ‘‘reference category’’ serves as a
measure of value generated by the regression
but not a value at issue under the statutory
scheme, and thus the six categories of value
can be measured against that ‘‘reference
category.’’ (Other experts have characterized
such a ‘‘reference category’’ approach as an
‘‘index’’ or ‘‘numeraire.’’ 134). Any sufficient
criticism of this approach would need to
address the ‘‘reference category’’ purpose
head-on, rather than ignore it.
6. Further, with regard to the reference
category issue, the Judges agree with Dr.
George that Dr. Erdem’s rejection of a
referenced category/numeraire effectively
forced program categories at issue in this
proceeding to produce a negative coefficient,
because in a 24-hour day, absent this control,
any increase in one royalty-generating
category’s minutes would necessarily reflect
a decrease in another category’s minutes.
Separate and apart from the Judges’
evaluation of Dr. Erdem’s testimony, as
discussed above, the Judges note an
aspect of Dr. Erdem’s testimony that
134 See, e.g., 4/11/23 Tr. 4141–42 (Marx) (referring
to ‘‘the Big 3 network programming’’—which is
already available on local affiliates in the CSO
system and therefore has the lowest coefficient—as
the ‘‘numeraire’’ that allows for the six category
values coefficient values to be positive in
relationship to those ‘‘numeraire’’/’’reference
category’’ minutes.)
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called into question its reliability. By
way of brief background, Dr. Erdem
testified in the 2010–13 proceeding as
well as the present proceeding, and his
testimony was consistently reliable and
thought-provoking, regardless of
whether the Judges ultimately agreed
with his opinions. But he also
inexplicably endorsed in his testimony
the present Bortz Survey as ‘‘very
useful.’’ 4/5/23 Tr. 3465 (Erdem). Dr.
Erdem’s testimony in this regard was
inexplicable—and jarring—because SDC
did not seek to have Dr. Erdem qualified
as a survey expert, he was not received
as such by the Judges, and, perhaps
even more unsettling, he pronounced
his endorsement of the Bortz Survey
‘‘sight unseen,’’ that is, he endorsed it
without reading it. 4/5/23 Tr. 3466
(Erdem) ([Q]: ‘‘[I]n your initial
testimony that was submitted in this
proceeding, you expressed your support
for the Bortz Survey sight unseen,
correct? [Dr. Erdem] That’s correct.’’)
(emphasis added)). Nonetheless, Dr.
Erdem continued to attempt to justify
this testimony in colloquy with Judge
Strickler:
Q: Dr. Erdem, but you are not qualified as
a survey expert. How can you weigh the
value of a survey . . . . I understand [you]
to say while there may be no perfect way to
estimate relative market value, you say I’ll
tell you one way that isn’t, and that’s these
fee-based regressions. I understand your
testimony. But why would we credit your
testimony about the survey being appropriate
when it comes to that issue? You’re just a lay
witness.
Dr. Erdem: You are correct, Your Honor, I
am not a survey expert as an economist.
4/5/23 Tr. 3476 (colloquy) (emphasis
added). Dr. Erdem could have chosen to
stop there, but he elected to keep
digging, seeking to justify his Bortz
Survey endorsement:
Dr. Erdem: I am involved in projects and
analyses that rely on survey methodologies
and survey data. I have a team that supports
me in those.
*
*
*
*
*
Judge Strickler: Before you gave your
testimony in this case about the Bortz Survey
being an appropriate tool to measure relative
market value, did you consult with that
survey team?
Dr. Erdem: I did, Your Honor. You may
recall the name Hilary Johnson, who is my
director. She is a statistician by training. And
I also have a Ph.D. statistician who supported
me in the 2010-’13 proceeding. He reviewed
the materials. . . . I had conversations with
him about methodology. So I had a team that
supported me in my reports.
Judge Strickler: Well, I don’t remember you
saying anything in your testimony that you
relied on your survey team in any way.
Hilary Johnson’s name I recall, [but] [s]he
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didn’t testify in her written testimony . . .
about the survey at all, did she?
*
*
*
*
*
Dr. Erdem: Correct.
Judge Strickler: Why didn’t she give
testimony that the Bortz Survey was a good
and proper way to estimate value if she’s an
expert in this field and you’re not?
Dr. Erdem: That’s a good question.
Judge Strickler: That’s why I asked it.
Dr. Erdem: [W]e didn’t specifically focus
on the methodology aspects of Bortz Survey,
you are correct in that.
Judge Strickler: Thank you, Doctor.
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4/5/23 Tr. 3476–79 (colloquy) (emphasis
added).
The foregoing rather remarkable
testimony damaged Dr. Erdem’s
credibility, suggesting he would be
willing to testify regarding matters as to
which he lacked both expertise and
knowledge. Moreover, it is ironic that he
would attempt to salvage his Bortz
Survey opinion by reference to his
‘‘team’’ of other professionals with the
necessary background to offer such an
opinion, only to admit in short order
under questioning from the bench that
they did not ‘‘specifically focus on the
methodology aspects of the Bortz
Survey.’’ His testimony in this regard is
rich with irony because Dr. Erdem is the
witness who has most forcefully
attacked Dr. (John) Johnson of PTV for
delegating work to his team of
professionals without personal
involvement or knowledge of the work
of the team.
Thus, separate and apart from the
enumerated points set forth above that
lead to the Judges’ finding that Dr.
Erdem’s eight-model analysis is
insufficient to invalidate the use of feebased regressions, his foregoing surveyrelated testimony casts doubt as to his
credibility.
In sum, the Judges find that Dr.
Erdem’s eight-model pedagogical
exercise is insufficient to discredit feebased regressions as a form of evidence
on which the Judges may rely.
X. Sub-Category Values
JSC, through its statistical expert, Mr.
Harvey, ran what he described as
‘‘validity tests’’ that decomposed certain
program categories to isolate the
coefficients attributable to the
decomposed elements. Specifically, he
concentrated on (1) paid programming
(including ‘‘infomercials’’) within the
Program Suppliers category and (2) the
rare NFL football games that appeared
on distantly retransmitted local stations
(as opposed to being broadcast on
network or cable stations, which are
noncompensable in these section 111
proceedings). Harvey WRT ¶¶ 71–90.
With regard to paid programming, Mr.
Harvey separated the paid programming
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out of the Program Suppliers category
and created a new category for paid
programming. Joint Sports Claimants’
Post-Hearing Brief in Support of
Proposed Royalty Allocations at 32–33
(and citations therein) (JSC PHB).
Performing this task on the Johnson
Model, Mr. Harvey calculated that the
coefficient for paid programming is
larger than the coefficients for the other
Program Suppliers content, PTV
content, SDC content, and CCG content,
and that, on average, the Johnson
regression would assign paid
programming a share of about 6.8% of
the royalty pool per year. JSC PFF ¶ 176.
For further perspective, Mr. Harvey
computed that this paid programming
share is greater than the share of
royalties that the Johnson Model
assigned to the approximately 2,000
annual JSC games, and approximately
three times greater than all the 2015–
2017 royalties for all JSC content. Id.
In response, Program Suppliers argues
that Mr. Harvey failed to properly place
his findings within the context of the
regression approaches in these
proceedings. Specifically, PTV’s expert,
Dr. Johnson, testified that it was
incorrect to decompose the entire
category of Program Suppliers’
programming and focus on any one subcategory, because the regressions offer
‘‘average relative valuations’’ for entire
categories. More granularly, Program
Suppliers take note of the following
testimony on this issue by PTV’s expert,
Dr. Johnson:
[I]t is an average relative valuation, so I
don’t think that’s an appropriate use of the
model. But his theory is that paidprogramming has no value at all, but he
didn’t remove them from the model. If he
had simply removed the minutes that he
thinks are problematic, he would have found
that the estimates really don’t change very
much at all. So I just don’t think that’s a
valid critique.
3/21/23 Tr. 605 (Johnson).
As a second response, Program
Suppliers assert that Mr. Harvey’s paid
programming argument is ‘‘cherrypicked,’’ because he admitted to
running other ‘‘validity tests whose
subject matters and results he and JSC
did not produce in these proceedings.’’
PS PFF ¶ 346 (and record citations
therein).
CCG, relying on the testimony of its
economic expert, Dr. George, also levied
Program Suppliers’ first criticism above,
asserting that Mr. Harvey’s validity test
on paid programming ignores the very
purpose of the fee-based regressions: to
estimate the average relative values of
the six programming categories at issue.
CCG PFF ¶ 148 (and record citations
therein). CCG adds, in this regard, that
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none of the economic expert witnesses
who proffered fee-based regressions in
this proceeding has maintained that it
was the purpose or capacity of their
models to precisely estimate the relative
value of sub-groups of programs. Id.
At the hearing, Dr. George provided
further detail with regard to this
criticism:
So the paid programming is fixed hours at
night. There’s just not independent variation
with other Program Supplier category. So
. . . when [Mr. Harvey] breaks this up, he
effectively forces one of the coefficients to be
negative because . . . you can’t really
independently increase paid programming
without decreasing the other Program
Suppliers’ programming.
*
*
*
*
*
[T]he coefficients for claimant
programming . . . reflect an average. So right
now the values per minute are telling us the
average of the different—like the diversity of
this kind of programming. So, Program
Supplier programming has different sorts of
things. And so the value per minute is an
average [a]nd we’re applying it to quantities.
And so if I were to design a regression that
really wanted to get at the value of paid
versus non-paid programming, I could do
that, but it would be a pretty different model.
4/18/23 Tr. 5163, 5166–67 (George).
In their post-hearing filings, JSC
responds by emphasizing more
narrowly that this ‘‘validity’’ test reveals
the pitfall of the regression models’ use
of retransmission decisions by
minimum fee-paying CSOs:
The failure of the regressions to accurately
capture revealed preferences from Minimum
Fee CSOs is clearly demonstrated by Mr.
Harvey’s validity tests, which reveal that the
regressions would attribute substantial value
to programming with no value (i.e.,
infomercials) . . . .
JSC PHRB at 16–17 (and citations
therein) (emphasis added).
With regard to the rare NFL game that
appeared on a distantly retransmitted
station (as opposed to a broadcast or
cable network), Mr. Harvey performed
an additional ‘‘validity’’ test.
Specifically, he separated NFL games
from other JSC content, in order to
ascertain whether the regression models
had the capacity to realistically estimate
the relative value of NFL programming.
JSC PFF ¶ 180. Mr. Harvey found that
across the Johnson, George, and Tyler
Models, the NFL retransmissions had
lower coefficients than other JSC
programming (and sometimes negative
coefficients). JSC PFF ¶¶ 181–85 (and
record citations therein). Based on these
results, Mr. Harvey opined that these
regression models were unable to
identify realistic values because the
high value of NFL games on television
is common knowledge and undisputed,
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and should have been confirmed by this
validity test. JSC PFF ¶ 180.
In response, Program Suppliers and
Dr. Tyler first reiterate the same points
they made with regard to Mr. Harvey’s
‘‘validity test’’ pertaining to paid
programming, i.e., (1) that the
regressions offer average relative values
across a category, (2) the program
category is too small to generate
meaningful results, and (3) the test was
‘‘cherry-picked’’ out of a number of
validity tests that Mr. Harvey elected
not to disclose. But Program Suppliers
specifically hones in on the second
criticism above, that the program
category is simply too small. In this
regard, Program Suppliers maintain:
During the 2014–17 time period, WNBC
(one of the handful of distant signals that Mr.
Harvey chose to highlight) carried just one
compensable regular season NFL game,
meaning that compensable regular season
NFL content accounted for less than one onehundredth of one percent of the content on
that station.
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PS PHB at 3 & 25 (citing to PS PFF
¶ 174 (and record citations therein)). See
also 3/29/23 Tr. 2062–64 (Harvey)
(admitting to this percentage
calculation).
Regarding this NFL ‘‘validity test,’’
CCG made the same argument it made
in criticism of Mr. Harvey’s ‘‘validity
test’’ relating to paid programming,
described supra. In her oral testimony,
Dr. George elaborated more broadly
regarding the attempt to decompose JSC
programming into the rarely
retransmitted NFL games, stating that
Dr. Harvey failed to appreciate that
because ‘‘there’s a fixed number of
regular season and post-season games in
the NFL . . . we don’t have
independent variation there [and] our
24 model isn’t capable of [that]
separation . . . and it doesn’t need to.
4/18/23 Tr. 5162 (George).
In his oral testimony, Dr. Johnson had
a response to Mr. Harvey’s NFL decomposition of JSC programming that
was consonant with the former’s
response regarding the paid
programming issue. Dr. Johnson
testified:
Mr. Harvey argues that he can change the
model and try to separate out NFL or
playoffs. He says: Look, I get nonsensical
results. I get negative values for these things.
The problem is . . . he is trying to parse the
regression so finely that he has got less than
.01 and .04 of the total minutes that are used
in the entire estimation. . . . The model
wasn’t intended to only estimate isolated
values for NFL and playoffs. It’s an average
relative valuation for the claimants. It can do
that well. And that’s the purpose of the
model.
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3/21/23 Tr. 605–06 (Johnson).135
The Judges find that Mr. Harvey’s
‘‘validity tests’’ do not serve to
invalidate the usefulness and relevance
of the regressions proffered in this
proceeding. There are several reasons
for this finding.
First, the Judges agree with the
criticisms that Mr. Harvey’s ‘‘validity
tests’’ fail to appreciate the fact that the
regressions are estimated average
valuations. When an average is decomposed, looking at any one element
in the average fails to consider the
average itself and, depending on the
question at hand, may offer an
interpretation that is off-point.136
Second, if it in fact is the case that
paid programming, by some other
metric, or by the use of common sense,
can clearly be found to have far less
value than other program types, the fact
that the regression provides paid
programming with value via the
averaging function of the regression
does not mean that the Program
Suppliers category (where paid
programming is situated) received an
inflated coefficient. In this regard, the
Judges note Dr. Johnson’s testimony,
cited above, in which he notes that Mr.
Harvey did not even attempt to show
how, if at all, the coefficients in the
regression would have changed if he
had simply removed the paid
programming minutes from the
regression.137
135 The Judges find no merit in the allegation that
Mr. Harvey may have ‘‘cherry-picked’’ which
‘‘validity tests’’ to produce. The issue here is the
importance, vel non, of his validity tests. In that
regard, the Judges find that the tests he discussed
in his WRT, including but not limited to the ones
highlighted here, all suffer from the problems
inherent in de-composing the regression results.
Moreover, because Mr. Harvey is a JSC witness, it
was incumbent upon JSC to bear the burdens of
production and persuasion regarding the impact of
these de-composed sub-categories on the regression
results, burdens which they have not satisfied.
136 For example, consider the grade point average
(GPA) of a college student for a semester, where the
student received 3 As in English Literature, World
History, and Economics, and one C in biology.
Assuming an A = 4.0 points and a C = 2.0 points,
the student has a GPA of 3.5. This is the relevant
data point if one wants to know generally whether
the student is performing well. But if the question
is whether the student is showing an aptitude to
perform well in medical school, the de-composition
is more appropriate, because the 2.0 in biology is
the more relevant data point. Here, there is no
reason why the paid programming or the NFL data
points should be separated out, when the purpose
of the regression is to obtain the average.
137 It appears that there would be no change. A
simple thought experiment is instructive. Assume
the Program Suppliers category consists of two
types of programs: (1) situation comedies and (2)
paid programming. For simplicity, assume equal
subscriber minutes for both categories and that each
situation comedy has the same value to a CSO as
any other situation comedy, and each Paid
Programming segment has the same value as
another such segment to a CSO. Also assume a
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Third, Mr. Harvey indicates that the
paid programming issue is a factor (or
perhaps more of a factor) as it pertains
to minimum-fee-only CSOs, as noted
supra. But because the Judges are
relying on the results from the cohort of
above-minimum-fee-only CSOs, Mr.
Harvey’s point in this regard is of less
importance.
Further, the program categories were
configured by the parties. Although the
parties have raised the issue of whether
the definitions of the program categories
should be changed, the categorizations
in this proceeding are the same as the
parties have long utilized. The Judges
understand these program categories to
have been designed to reduce
transaction costs, so that each subcategory, or each program, does not
make its own claim for royalties,
rendering the process prohibitively
costly. (The bifurcation of the process
into allocation (formerly Phase I) and
distribution (formerly Phase II)
proceedings is in furtherance of the
reduction in transaction costs.) 138
reality, such as Mr. Harvey has not unreasonably
posited, that all paid programming has zero value
to a CSO.
Because the regression is constructed to correlate
royalties with minutes of programming, none of the
minutes attributable to paid programming would
correlate with royalties because it is assumed CSOs
do not value paid programming. So, all the royalties
attributable to Program Suppliers would have been
generated by the situation comedies. However, the
total subscriber minutes would include both
situation comedy and paid programming minutes,
reducing the per minute coefficient value (and
diluting (by 50%) the value generated by the
situation comedies).
Consider some hypothetical numbers: Situation
comedies and paid programming each accounted
for 262,800 minutes (50% of the 525,600 minutes
in a year). The regression, de-composed, gives
situation comedies, hypothetically, a .0005
coefficient. But paid programming gets a zero
coefficient. The average coefficient across both
categories is .00025 which, when multiplied by the
number of annual programming minutes (as the
regressions do) of 525,600, yields 131.4, and that is
the figure that would be compared to the figure
similarly computed for the other claimant
categories.
What if we excluded paid programming from the
regression? There would be 262,800 minutes of
situation comedy programming, with a coefficient
value of .0005, as assumed. What would be the
figure to be used for allocation purposes? It would
be 262,800 × .0005, which also equals 131.4. Thus,
there is no reason to assume zero-value paid
programming is inflating the value of the category
in which it is situated if the validity/reality
assumption of zero value is correct. (Economists
will recognize this result as analogous to the point
made by Nobel laureate George Stigler in his
explanation of block-booking of movies by a studio
to a theatre. See G. Stigler, United States v. Loew’s
Inc.: A Note on Block-Booking, 1963 Sup. Ct. Rev.
152 (1963)).
138 If paid programming indeed contributes little
or nothing in royalties, the Program Suppliers’
representative may address that in the distribution
(Phase II) process, but that is of no moment in this
proceeding.
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However, these tests do underscore
the importance of integrating the Bortz
Survey as an approach to ascertaining
relative marketplace value. It may be the
case that a small number of games has
value, outside of what is measured by
the regression, in retaining subscribers,
a measure of value which might be
captured by the Bortz Survey, but not by
the regressions.
More broadly, the question of the
value of different sub-categories of
programming takes on salience when
the issue is whether certain types of
programming have a relative
marketplace value independent of the
number of minutes they contribute to
the category in which they are situated.
And an entire category may have value
not reflected in the minutes of
programming associated with that
category and its programming. That is,
because these various categories and
sub-categories are bundled together in
the local stations that are distantly
retransmitted, minutes alone may well
not reflect the relative values of key
drivers of the decision of a CSO to
retransmit a station with a bundle of
programming category content. For this
reason, the Judges are also utilizing the
results of the Bortz Survey, which
reflect (albeit imperfectly) how CSOs
value different types of programming.
1. It attempts to correlate variation in the
program category composition of distant
signal bundles with the royalties paid by
CSOs to estimate the relative marketplace
value of programming;
2. It regresses observed royalty payments
for the bundle on the numbers of minutes in
each programming category; and
3. It may employ econometric controls in
the form of ‘‘control variables’’ and ‘‘fixed
effects’’ in order to isolate the correlation
between the dependent variable (some
measure of royalties) and the independent
(explanatory) variable of interest (the number
of programming minutes) from the controlled
other drivers of CSO payments.
A. Regression Analyses
In the 2010–13 Determination, the
Judges placed ‘‘primary reliance’’ on a
regression analysis 139 to allocate royalty
shares among the six program
categories. 2010–13 Determination at
3610. In particular, they found a
regression model presented by CTV’s
econometric expert, Dr. Gregory
Crawford, ‘‘on balance . . . to be highly
useful in estimating relative values in
this proceeding.’’ Id. at 3569.
Accordingly, the Judges gave greater
weight to regression analysis than they
had in prior proceedings, both in
absolute terms and relative to other
evidence and approaches, such as
surveys and descriptive industry
witness testimony. An important reason
for the Judges’ increased reliance on
regression analysis was that this
methodology approached the relative
marketplace value from the perspective
of what CSOs actually had done in
terms of deciding which distant signals
to retransmit on their systems.’’ Id. at
3610 (emphasis in original).
The general form of this regression
model is identified, alternatively, as a
‘‘fee-based’’ regression, a ‘‘Waldfogel-
See 2010–13 Determination at 3557
(record citations omitted).
In proceedings prior to the 2010–13
Determination, the Judges (and their
predecessors) relied on fee-based
regressions but did not place a primary
weight on this approach. In the
allocation proceeding for 1998–99
royalties, a Copyright Arbitration
Royalty Panel (CARP) relied on such a
regression model put forth by an
economist, Dr. Gregory Rosston, not as
a primary allocation measure, but rather
as corroboration of the allocation shares
generated by the Bortz survey. See
1998–99 CARP Report at 46.
Subsequently, in the allocation
proceeding for 2004–05 royalties, the
Judges relied on the fee-based regression
model advanced by Dr. Joel Waldfogel
(the now eponymous ‘‘Waldfogelregression’’) as ‘‘generally reasonable’’
and thus ‘‘helpful to some degree’’
because it ‘‘more fully delineat[es] all of
the boundaries of reasonableness with
respect to the relative value of distant
signal programming’’ and ‘‘provid[es]
some additional useful, independent
information about how cable operators
may view the value of adding distant
signals based on the programming mix
on such signals.’’ 2004–05 Distribution
Order at 57063, 57068. Accordingly, the
Judges found, as did their predecessors
in the 2004–05 proceeding, that the feebased regression approach served to
‘‘corroborate’’ some aspects of the Bortz
survey and that it also served ‘‘to
provide an independent reasoned basis’’
for departing in one respect from the
Bortz methodology. Id. at 57069.
Chronologically, the 2010–13
Determination was the next allocation
decision to consider the evidentiary
weight to be given to a fee-based
regression. In that case, the Judges
139 For an overview of the general concept of
regressions, see 2010–13 Determination at 3556.
140 The Judges use these monikers
interchangeably in this determination.
XI. Regression Decision
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style’’ regression, and, subsequent to the
2010–13 proceeding, a ‘‘Crawford-style’’
regression.140 At a high level, a feebased regression is characterized by the
following elements:
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elevated the regression methodology,
namely the model proffered by Dr.
Gregory Crawford (the Crawford Model),
to a primary body of evidence in terms
of explanatory power. The Judges noted
that the Crawford Model, like the
Rosston and Waldfogel regressions that
preceded it, contained a useful
differentiating feature: In contrast with
the survey approach, regression
modeling ‘‘analyzed value from the
perspective of what CSOs actually had
done in terms of deciding which distant
signals to retransmit on their systems.’’
2010–13 Determination at 3610.141 But
why did the Judges elevate the fee-based
regression approach from the junior
status of corroborative tool to a position
of evidentiary primacy?
The answer mainly lies in the
improved way in which the Crawford
Model was constructed. Explaining this
answer requires the Judges to present a
brief tutorial on regressions, based upon
the testimony of the econometricians in
this proceeding, the textbooks they
cited, and the background information
set forth in the 2010–13 Determination.
Regression analysis is a ‘‘method of
determining the relationship between
two or more variables, and it can be a
valuable tool for resolving factual
disputes.’’ 2010–13 Determination at
3556 (citation omitted). When a
regression attempts to identify the
correlation between a ‘‘dependent
variable’’ 142 and more than one
‘‘independent variable,’’ 143 the
approach is known as a ‘‘multiple
regression analysis.’’ 144 This is the
technique that was employed by Dr.
Crawford (and Dr. George) in the 2010–
13 proceeding and in the present
proceeding by Drs. George, Johnson and
Tyler.145 Multiple regression ‘‘is the
technique used in most econometric
141 By contrast, the survey approach, as in the
Bortz Survey proffered in this proceeding, asked
each CSO-employed survey respondent, for a given
year: ‘‘What percentage, if any, of [a] fixed dollar
amount would your system have spent for each
category or programming?’’ Bortz Survey, app. B,
attached to Trautman WDT (emphasis added).
142 Typically, the dependent variable has been a
functional form of royalties, see 2010–13
Determination at 3557 n.27, but in this proceeding,
Dr. Tyler specifies a different dependent variable,
the SGRP.
143 An ‘‘independent variable’’ serves to explain
the dependent variable and is therefore also
described as an ‘‘explanatory’’ variable. 2010–13
Determination at 3567.
144 Multiple regression analysis ‘‘is the technique
used in most econometric studies, because it is well
suited to the analysis of diverse data necessary to
evaluate competing theories about the relationships
that may exist among a number of explanatory
facts.’’ 2010–13 Determination at 3556 (citing ABA
Econometrics, supra note 127, at 4).
145 Dr. Marx utilized a Bayesian regression
(described in detail infra) for 2014 that builds upon
the multiple regression work done by Dr. Crawford
for 2013.
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2010–13 Determination at 3554
(emphasis added).
This statutory change permitted the
participants in these section 111
allocation proceedings to analyze
relative value at the subscriber-group
level. 2010–13 Determination at 3554
(citing Corrected Written Direct
Testimony of Gregory Crawford, Ex.
2004 (Crawford CWDT) ¶ 66). More
particularly, Dr. Crawford’s regression
‘‘looked for a correlation in a subscriber
group between changes in the number of
minutes of programming the subscribers
watched by categories and changes in
the percentage of royalties the
subscriber group paid while holding
constant other potential explanatory
variables (called control variables).’’
2010–13 Determination at 3558. As Dr.
George succinctly explained in her
testimony in the present proceeding,
‘‘[w]ith [Dr.] Crawford’s specification,
coefficients are identified using only
variation within systems in each
accounting period.’’ George WDT at 9
(emphasis added).
Dr. Crawford’s approach thus required
the existence of at least two subscriber
groups in a cable system in order for the
retransmission (and thus the
programming) decisions of a cable
systems operator (CSO) to be used in the
regression. The purpose of so limiting
the regression was to focus on the
relationship at interest in the regression,
which is the association between the
minutes of per-category programming
retransmitted and the CSO’s royalties
calculated at the subscriber group level.
However, by so doing, the Crawford
Model reduced the number of
observations that it could utilize. In the
2010–13 proceeding, the Crawford
model was criticized by the SDC and
one of its experts, who argued that his
regression approach was
‘‘compromised’’ by this limitation,
which ‘‘ ‘effectively discarded’
approximately 15% of his observations
by disregarding observations from
systems with a single subscriber group
. . . ‘approximately half of all systems
in his data set’ . . . .’’ 2010–13
Determination at 3566 (citations
omitted).
But what the SDC saw as vice, Dr.
Crawford (and ultimately, the Judges)
understood as virtue. That is, Dr.
Crawford included this combined
control limiting the observations to
intra-cable system subscriber group
variations in a particular six-month
accounting period in his regression to
avoid introducing (i.e., to control for)
effects on royalties of different business
strategies among CSOs (‘‘system’’
effects) and different economic
conditions over time (‘‘accounting
period’’ effects). In a regression, these
two joint interactive controls are
examples of a particular form of control
known as a ‘‘fixed effect.’’ 147
146 For the definition of a ‘‘control variable’’ see
2010–13 Determination at 3558 n.33.
147 For the definition of ‘‘fixed effects,’’ see 2010–
13 Determination at 3563 n.52. Graphically, the
studies, because it is well-suited to the
analysis of diverse data necessary to
evaluate competing theories about the
relationships that may exist among a
number of explanatory facts.’’ 2010–13
Determination at 3556 (citing ABA
Econometrics, supra note 127, at 4). The
basic notation for a multiple regression
would be, for example:
Y = a + bX + cZ + u
where
Y is the dependent variable
X is an independent (explanatory) variable
Z is a different independent (explanatory)
variable
a is the intercept with the vertical axis (on
a graphed regression)
b is the coefficient (value) of X
c is the coefficient (value) of Z
u is the error term, a/k/a the ‘‘regression
residual’’ (reflecting unobserved factors
that determine Y)
See 2010–13 Determination at 3556
n.23; Stock & Watson, supra note 92, at
158–59. If econometricians are
specifically interested in the impact of,
say, independent (explanatory) variable
X on dependent variable Y, they will
hold constant the effect of any other
independent (explanatory) variable,
such as Z in the above example, which
reclassifies Z as a ‘‘control variable.’’ 146
Because of changes in generated data
as a result of statutory changes that
occurred subsequent to the
determination covering the 2004–05
royalty years, Dr. Crawford was able to
construct a fee-based regression with
more granular detail. The Judges
explained this change in data generation
in their 2010–13 Determination:
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Between the time of the last adjudicated
cable royalty allocation proceeding and the
present [2010–13] proceeding, Congress
passed the Satellite Television and Localism
Act of 2010 (STELA). Before STELA, cable
operators were required to pay for the
carriage of distant signals on a system-wide
basis, even though each signal was not made
available to every subscriber in the cable
system. . . . STELA . . . amend[ed] section
111(d)(1) of the Copyright Act, which details
the method by which cable operators can
calculate royalties on a community-bycommunity or subscriber-group basis. Id.
From the 2010/1 accounting period and all
periods thereafter, cable operators have been
required to pay royalties based upon where
a distant broadcast signal is offered rather
than on a system-wide basis.
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Additionally, while his regression
was a work in process, Dr. Crawford
added another fixed effect for the ‘‘topsix’’ MSOs 148 for similar reasons, i.e., to
control for their variable ‘‘average
receipts . . . signal carriage strategies,
pricing, and other relevant dimensions.’’
2010–13 Determination at 3567 (record
citations omitted).
More broadly, Dr. Crawford explained
that his fee-based regression was
intended to explain the association
between program category minutes and
royalties paid. To that end, it was
necessary to control for other factors,
specifically including ‘‘the numbers of
local and distant stations, the number of
activated cable channels, and the size of
the CSO.’’ 2010–13 Determination at
3558 (record citations omitted). These
were in addition to other independent
variables that Dr. Waldfogel identified
as ‘‘control variables’’, including ‘‘the
number of subscribers, local median
income, and the number of local
channels.’’ 2010–13 Determination at
3557.
In the present proceeding, Dr. George
has well stated the role of control
variables in multiple regressions relied
upon by Dr. Crawford and by experts in
the present proceeding:
The purpose of control variables is to
account for factors other than coefficients of
interest that might affect the dependent
variable. In the case at hand, control
variables are chosen to account for market
factors other than distant signal programming
minutes that might affect royalty payments.
Of particular concern are factors that affect
demand for cable services, which in turn can
affect the number of subscribers, system
revenue, and royalty payments. Failing to
control for factors that shift demand and are
correlated with programming minutes can
lead to bias in the . . . coefficients that are
of primary interest. Income, the number of
local stations and (lagged) number of
activated channels are all factors that might
affect the number of subscribers or revenue
so are included as controls.
George WDT at 52. Indeed, as the Judges
explained in the 2010–13
inclusion of ‘‘fixed effects’’ generates different
intercepts, such that ‘‘a’’ in the example supra
would have a different value for each ‘‘fixed effect.’’
(Econometricians sometimes describe ‘‘fixed
effects’’ as a type of ‘‘control variable,’’ but they are
more often specifically characterized as ‘‘indicator’’
or ‘‘dummy’’ variables. See 2010–13 Determination
at 3562 n.45.
148 ‘‘MSO’’ is an acronym for a ‘‘multi-system
operator,’’ for example Verizon, 3/21/23 Tr. 347
(Johnson), and refers to ‘‘an operator of multiple
cable or direct-broadcast satellite television systems
[and is] usually reserved for companies that own
multiple cable systems, such as Altice USA, Charter
Communications, Comcast and Cox
Communications . . . .’’ List of Multiple-System
Operators, Wikipedia, https://en.wikipedia.org/
wiki/List_of_multiple-system operators (last visited
Aug. 10, 2023).
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Determination, Dr. Crawford’s approach
was designed so as to accept some loss
of precision (i.e., a greater variance and
larger standard errors) in exchange for
less bias (by excluding other
independent variables). This tradeoff is
an inevitable problem for an
econometrician, and how an
econometrician balances these impacts
is just as much an art as it is a science.
2010–13 Determination at 3565 & n.59.
The Judges noted though, that the
tradeoff was moderated because Dr.
Crawford ‘‘used the universe of all
programming on all distant signals,
rather than a sampling’’ which created
a ‘‘rich data set’’ that served to
‘‘mitigate’’ the impact of his fixed effects
‘‘so that his parameters remained
relatively precise.’’ 2010–13
Determination at 3569.
Accordingly, in the 2010–13
Determination, the Judges essentially
agreed with Dr. Crawford’s modeling
decision to include his fixed effects,
because he threaded the needle,
minimizing bias while maintaining a
sufficiently precise relationship
between per-category programming
minutes and royalties generated. Indeed,
a key reason the Judges elevated the
Crawford Model to primary evidentiary
status was that ‘‘his use of a fixed
effects approach avoided the criticism
that he had omitted key variables.’’
2010–13 Determination at 3569 (citing
Crawford CWDT ¶ 107; 2/28/18 Tr. 1398
(Crawford)) (emphasis added).
According to all the experts utilizing
fee-based regressions, in whole or in
part, this econometric virtue extended
through 2014. But in 2015, a
commercial earthquake struck the
retransmission market: WGNA, by far
the most distantly retransmitted
channel, converted from a broadcast
station into a cable channel. See, e.g.,
Majure WDT ¶ 75 (JSC expert witness
noting that ‘‘[t]he removal of the widely
carried WGNA materially changed the
manner in which CSOs used the section
111 license.’’). This metamorphosis had
several dramatic effects, one of which
was the diminished evidentiary value of
Dr. Crawford’s new approach of limiting
the observations to subscriber group
variations within a cable system
(accomplished by imposing his systemsaccounting period fixed effects.) 149
After the WGNA conversion,
commencing in 2015, the number of
cable systems with more than one
subscriber group declined significantly.
149 The WGNA conversion also (1) substantially
reduced the number of CSOs paying the base fee
(and concomitantly increased the converse, the
number of CSOs paying only the minimum fee) and
(2) drastically reduced the number of JSC
subscriber-minutes distantly retransmitted.
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Moreover, what had been a robust
source of data for analysis of variation
of distantly retransmitted program
categories among the local channels
distantly retransmitted by CSOs had
shrunk. To address the loss of this
robust set of data, the fee-based
regression experts in the present
proceeding each constructed a model
that, although premised on the Crawford
Model, sought a work-around for this
significant change.
Dr. Johnson addressed the problem by
eliminating all fixed effects from his
preferred model, i.e., the ‘‘baseline’’
model presented in his WDT. In doing
so, the Johnson Model was able to
generate observable data points that
showed programming variations not just
among subscriber groups within a cable
system in a specific accounting period
(as the Crawford Model had done), but
also program variations among
subscriber groups across systems and
across (not within) the six-month
accounting periods in the SOAs.
Curiously, Dr. Johnson’s justification
for this change was that it allowed for
an increase in the number of
observations for his regression, thus
addressing what he understood to be a
key concern of the Judges in the 2010–
13 Determination. Compare Johnson
WDT ¶ 59 (‘‘Professor Crawford’s model
was criticized because it ‘effectively
discarded’ approximately 15% of his
observations . . . which totaled
approximately half of all systems in his
data set’’) with id. at ¶ 62 (touting his
model for containing ‘‘18,000 subscriber
group-level observations’’).
The Judges in that proceeding did not
find the level of number of Dr.
Crawford’s observations to be a
debilitating problem, declining to find
that the Crawford Model was overfit.
Rather, the Judges instead found that Dr.
Crawford’s balancing of a minimization
of explanatory bias with an acceptable
loss of measurement precision was
appropriate to the task the regression
was seeking to measure, i.e., the
correlation between program category
minutes and the log of royalties paid. In
so finding, the Judges had
acknowledged the value of the fixed
effects (and the control variables) in his
model in allowing for the isolation of
the correlation. 2010–13 Determination
at 3569.
Accordingly, Dr. Johnson’s claimed
justification for eliminating all of these
important fixed effects rings hollow.
Moreover, their absence from his model
increased the bias in his measurements,
which meant that the correlation was
subject to mismeasurement. More
particularly, the bias in question is what
econometricians and statisticians in
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general refer to as ‘‘omitted variable
bias.’’ Here, the ‘‘omitted variables’’ are
the ones that the Crawford Model had
accounted for with its fixed effects, but
which Dr. Johnson injects into his
model by eliminating the fixed effects.
Accordingly, by this change, the
Johnson Model became less probative of
the claimed correlation between
program category minutes and royalties,
and for that reason alone the Judges
place less weight on the Johnson Model
in this proceeding than they did on the
Crawford Model in the 2010–13
Determination.
Dr. George, unlike Dr. Johnson, did
not eliminate all fixed effects. Rather, as
discussed supra, she eliminated some,
retained and/or modified others, and
included new fixed effects. Most
importantly, the George Model modified
Dr. Crawford’s ‘‘systems-accounting
period fixed effects.’’ Whereas the
Crawford Model limited the observed
data points to differences among
subscriber groups within a cable system
during an accounting period, Dr. George
relaxed that fixed effect. Specifically,
she only limited the number of observed
data points by separately fixing the
effect at the ‘‘systems’’ level and at the
‘‘accounting period’’ levels. So, for
example, if there were two subscriber
groups in the Verizon Buffalo cable
system, the Crawford Model would only
observe the variations between them in
a given (six-month) accounting period.
By contrast, the George Model would:
(1) observe variations between those two
subscriber groups in the given (sixmonth) accounting period; and also (2)
beyond the (six month) accounting
period. Thus, Dr. George maintained a
fixed effect that still controlled for the
difference in CSO business practices
and a fixed effect control for changes
over time (the ‘‘accounting period’’
control), but, unlike Dr. Crawford, she
did not combine the two fixed effects.
Alternately stated, Dr. George sought
to address the loss of observable data
points caused by the 2015 WGNA
conversion by making a different
tradeoff in the inevitable bias/variance
dilemma faced by the econometrician in
this context. She opted for somewhat
more bias, accepting somewhat less
precision, in order to generate what she
understood to be a useful number of
observations for her regression to
analyze.
Although Dr. George makes a less
draconian change from the Crawford
Model than the Johnson Model does in
this regard, she nonetheless introduces
‘‘omitted variable bias’’ into her
regression. That is, by allowing
variations over time (within a cable
system) to impact the correlation, the
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George Model treats temporal changes
as reflective of a correlation between
program category choices and
royalties.150 In sum, the George Model
introduces omitted variable bias that
was absent from the Crawford Model,
but to a lesser degree than the Johnson
Model. Accordingly, ceteris paribus, the
Judges give more evidentiary weight to
the George Model than to the Johnson
Model.
By contrast, Dr. Tyler’s approach
circumvents this fixed effects dilemma.
As explained supra, the Tyler Model
does not use royalties (linear or log
form) as the dependent variable. Rather,
the Tyler Model uses the SGRP as the
dependent variable. Recall that the
SGRP is a fraction: the dollar amount of
base fee royalties calculated by a
subscriber group divided by the SG’s
gross receipts. The Tyler Model then
looks at the variability in this SGRP
across all cable systems. So, what
happens to the effects arising from
different CSOs (the ‘‘systems’’ effects)
and the changes over time (the
‘‘accounting period’’ effect) for which
Drs. Crawford and George (but not Dr.
Johnson) sought to control with ‘‘fixed
effects’’? As Dr. Tyler explains, the
system and temporal (‘‘accounting
period’’), indeed, essentially all fixed
effects, are rendered inapplicable when
the dependent variable is the SGRP,
rather than a form of royalties:
The Crawford Model used fixed effects.
The inclusion of fixed effects would make
sense if the SGRPs varied across CSOs due
to unobserved factors in the marketplace
(other than and apart from choices related to
stations, and the minutes in those stations).
If that were the case, the use of . . . fixed
effects would focus the model on the
economic decision-making by a CSO for an
accounting period across subscriber groups,
having controlled for these unobserved
factors.
However, my model . . . instead . . .
us[es] SGRP for the dependent variable. The
SGRPs for each subscriber group are
specified by statute (following the carriage
decisions made by CSOs)—an industry
characteristic that greatly reduces (and
possibly eliminates) concerns over
unobserved factors that might impact SGRPs.
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Tyler ACWDT ¶ 87 n.71. Program
Suppliers added an equivalent
explanation of this point in their posthearing briefing:
150 This bias is particularly pertinent vis-à-vis the
cleave between 2014 and the 2015–2017 period,
given the WGNA conversion that shook the
distantly retransmitted sector. Moreover, Dr. George
(like Dr. Johnson) ‘‘pooled’’ her data and applied it
to generate one set of coefficients spanning the
entire four-year (2014–17) period. By relaxing the
fixed effects to obscure the impact of changes over
time, the George Model failed to appropriately
address the WGNA-conversion effect.
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Substantial irrelevant variability exists
across the royalty amounts calculated for
each subscriber group. For example, greater
royalty amounts might be determined for a
subscriber group for no other reason than one
subscriber group has more subscribers or
higher prices, or both, than another
subscriber group. PFF ¶¶ 290, 351. And those
prices may vary based on factors like cable
networks carried, customer service, bundling
with internet and phone, or other factors
unrelated to distant signal carriage. PFF
¶ 290. A regression model using royalty
amounts calculated as the dependent variable
must control for these sources of variability
in an attempt to isolate the incremental value
of minutes by category type. PFF ¶ 290.
Unlike royalty dollar amounts, SGRP does
not vary across CSOs due to unobserved
factors in the marketplace—other than from
choices related to distant signals. Thus,
because the Tyler Model uses the more
targeted SGRP, and not royalties, the Tyler
Model can more precisely measure the
incremental value of various types of minutes
within each year. PFF ¶¶ 291–92. With less
irrelevant variability to explain in the
dependent variable, the Tyler Model can
focus on the relationships at issue in a way
that other models, which use royalties as the
dependent variable, cannot. PFF ¶¶ 291–92.
Furthermore, because SGRP does not vary for
reasons unrelated to distant signal carriage,
fixed effects (meant to control for unobserved
sources of irrelevant variability) are not
necessary. PFF ¶ 292.
PS PHB at 38.
Thus, the Judges understand that
other demand effects (such as the
impact on demand from differences in,
e.g., service quality, pricing, etc.) impact
the gross receipts, not the royalty
decisions.151 The Judges further note
that—although other parties and their
experts criticize the Tyler Model for not
including fixed effects and note how
shares would change in fixed effects
were added—none of the partis or
experts addresses Dr. Tyler’s point,
discussed supra, that when the
dependent variable is the SGRP rather
than a form of royalties, fixed effects are
unnecessary because there is no variable
omitted that will impact the dependent
variable.
Another way to understand the
evidentiary problem caused by
151 Critics of the Tyler Model maintain that by
avoiding the fixed effects problem in this manner,
the Tyler Model throws out the baby with the
bathwater, in that it fails to correlate the royalties
paid with the discrete categories of program
minutes, which is the entire point of the exercise.
That is, the Tyler Model allegedly fails to uncover
the variation in royalties associated with different
categories of programming minutes. (And, as some
econometric critics of the Tyler Model have
testified, it merely ‘‘reproduces the statutory
formula.’’). As explained infra, the Tyler Model,
like the other regression approaches, multiplies its
derived coefficients by the number of program
minutes associated with each of the six program
categories, generating allocation shares on a perprogram category basis.
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eliminating or relaxing the fixed effects
(as in the Johnson and George Models
(but not the Tyler Model)) is to consider
a crucial point made in the 2010–13
Determination and again in this
proceeding—the difference between an
‘‘explanatory’’ regression and a
‘‘prediction’’ regression. In this regard,
the Judges stated in the 2010–13
Determination:
The Waldfogel-type regression is an
example of modeling utilized to explain the
effects of different program categories on the
relative payment of royalties—rather than an
attempt to predict the level of royalties. Thus,
. . . the choice of variables can reasonably be
based on the ‘‘underlying theoretical model.’’
[G. Shmueli, To Explain or to Predict?, 25
Statistical Science 289, 290–91, 297 (2010)];
see also F.M. Fisher, Econometricians and
Adversary Proceedings, 81 J. Am. Stat. Ass’n
277, 279 (1986) (‘‘There is a natural view that
models are supposed to do nothing other
than predict . . .’’ resulting in the ‘‘danger’’
of ignoring ‘‘better models that do not fit or
predict quite so well but are in fact
informative about the phenomena being
investigated.’’) (emphasis added).
2010–13 Determination at 3564. As in
that prior proceeding, the purpose of the
fee-based regressions is to ‘‘explain’’ the
posited correlation between distantly
retransmitted program minutes and
royalties. It is unsurprising that other
variables may be more useful as
‘‘predictors’’ of royalties, but that is
quite another matter. In this regard, in
the 2010 Determination the Judges
approvingly cited the following
testimony by Dr. Crawford:
Dr. Erdem misunderstands the purpose of
an econometric analysis in this proceeding
. . . . For the goal of prediction, the focus is
on finding the explanatory variables that best
predict the outcome of interest . . . . [I]f the
goal is to predict stock prices[,] and the price
of tea in China helps, then . . . include it in
the model (and don’t worry about the
economic interpretation of its coefficient).
That is not the purpose in this proceeding,
however. In this proceeding, experts are
using econometric analyses to help the
Judges determine . . . relative marketplace
value . . . . The dependent variable in these
regressions, the royalties cable operators pay
for the carriage of the distant signals, are
informative of this relationship . . . . The
key explanatory variables in this
relationship, the minutes of programming of
the various types carried on distant signals,
are informative as the impact they have on
royalties reveals the relative market value of
each programming type. Other explanatory
variables are included in the model to control
for other possible determinants of cable
operator royalties. This helps improve the
statistical fit of the regression (to ‘‘reduce its
noise’’), providing more precise estimates of
the impact of programming minutes that are
the focus of the analysis. . .
The goal here is to find the econometric
model that can best reveal relative
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marketplace value. Doing so means crafting
the econometric model to reflect the
institutional and economic features of the
environment that is generating the data being
used . . . . Crawford WRT ¶¶ 91–94
(footnotes omitted) (emphasis added).
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2010–13 Determination at 3564. No
critic of the regression approach has
persuasively addressed this finding in
the 2010–13 Determination that relies
on the distinction between a regression
designed for ‘‘prediction’’ and a
regression designed to measure the
‘‘effect’’ of a variable of interest, has
persuasively addressed this finding in
the 2010–13 Determination that relies
on the distinction between a regression
designed for ‘‘prediction’’ and a
regression designed to measure the
‘‘effect’’ of a variable of interest,
Consistent with this testimony, the
Judges held that it is not their ‘‘statutory
task . . . to identify and rank all the
causes of a change in total royalties.’’
Rather, the Judges’ ‘‘legal, regulatory,
and economic task . . . is to determine
the relative market value of different
categories of programming,’’ and thus
correlations between royalties and other
independent variables, for example,
between royalties and the number of
subscribers, ‘‘is not in furtherance of
that objective.’’ 2010–13 Determination
at 3564.
The WGNA conversion not only
reduced the number of subscriber
groups, as discussed supra, but also
significantly reduced the number of
CSOs that actually paid the base fee, as
opposed to the minimum fee. A number
of experts captured this undisputed
effect, and Dr. Marx’s testimony below
in this regard is clear and illustrative:
For necessary context, it is instructive
at the outset of this section to consider
how the minimum fee issue was
addressed in the 2010–13
Determination. There, the Judges found
as follows:
1. ‘‘[A] CSO’s decision to distantly
retransmit any particular station, when that
CSO is otherwise obligated to pay the
minimum royalty fee, does not indicate a
direct correlation between the decision to
retransmit and the decision to incur a royalty
obligation.’’ 2010–13 Determination at 3568.
2. ‘‘[D]uring the 2010–2013 period, on
average 527 out of the 1,004 Form 3 CSOs
analyzed (52.5%) chose to retransmit the
exact or fewer number of signals than the
regulated fees permitted [and] 83 paid the
minimum fee yet elected not to retransmit
any local stations. . . . Those decisions
reveal that the CSO has concluded (whether
by analysis or resort to a heuristic) that any
of the marginal costs (physical or
opportunity) associated with retransmission
likely exceed the value to the CSO of such
retransmission, even accounting for
minimum royalties, which the CSO must pay
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in any event.’’ 2010–13 Determination at
3568.
3. ‘‘Although there is no marginal royalty
cost associated with th[e] decision [to
retransmit stations when . . . obligated to
pay only the minimum royalty], the CSO’s
decision as to which stations to retransmit
remains a function of choice, preference, and
ranking. Thus, the CSO in this context would
still have the incentive to select distant local
stations for retransmission that are more
likely to maximize CSO profits, through
either an increase in subscribership or, as Ms.
Hamilton emphasized, by avoiding the loss of
subscribers through the preservation of
‘legacy carriage’ through the non-analytical
heuristic of maintaining the status quo.’’
2010–13 Determination at 3569.
4. ‘‘There are substantial economic bases
for this finding. Because the ‘tax’ of the
minimum fee is paid regardless of whether
distant retransmission occurs, that ‘tax’ is
also in the nature of a sunk cost.
Fundamental economic analysis provides
that a seller should ignore sunk costs when
making marginal decisions (although they
should try to recoup these costs if the buyers’
willingness-to-pay allows it). Nonetheless, a
CSO that decides to distantly retransmit a
station when the marginal royalty cost is zero
has revealed that the particular station
contains programming that would increase
marginal value to that CSO, over and above
the next best alternative ‘retransmittable’
local station and above any other marginal
costs (e.g., physical retransmission costs or
the opportunity cost of foregoing a different
type of cable channel in the CSO’s channel
lineup).’’ 2010–13 Determination at 3569.
5. ‘‘CSOs that pay only the minimum
royalty fee and elect to distantly retransmit
one station might have elected to pay a
positive fee in the absence of the minimum
fee. For example, assuming Program
Suppliers’ programs were more valuable to a
CSO than the minimum fee and
disproportionately more valuable than any
other program category, that CSO would have
retransmitted a station that
disproportionately included Program
Supplier content and willingly paid the
minimum fee (or more).’’ 2010–13
Determination at 3659.
6. ’’[A]n analysis of the CSOs paying only
the minimum fee might provide some useful
information. However, . . . the record does
not provide an adequate basis to incorporate
any ‘‘relative value’’ differences based on a
distinction between CSOs that do and do not
pay only the minimum fee.’’ 2010–13
Determination at 3582. See also id. at 3575
(‘‘[T]he Judges find no basis in the record by
which they could or should make a
reasonable ‘relative value’ adjustment based
on whether a CSO did or did not pay only
the minimum fee.’’).
7. ‘‘[T]he data regarding the carriage
decisions of CSOs who pay only the
minimum fee should not be disregarded
[because] even when a CSO is obligated to
pay the minimum royalty fee, it still has the
incentive to select stations for distant
retransmission that it believes will maximize
the benefits (or, in economic terms, utility) to
the CSO. However, because carriage
decisions are not tied even indirectly to a
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contemporaneous discretionary decision to
pay royalties (beyond the mandatory
minimum 1.064% for the first DSE), they
strike the Judges as potentially less
informative than discretionary decisions by
CSOs to incur an additional royalty expense
in order to distantly retransmit particular
stations.’’ 2010–13 Determination at 3575.
The Judges consider these minimumfee-related points in the context of the
present factual record, which reveals a
dramatically different retransmittal
landscape for the final three years of the
period at issue, 2015 through 2017.152
There is a sub-group within the
minimum-fee-only CSOs that decided
not to distantly retransmit any local
signals despite their duty to pay the
minimum fee. Exactly what this
decision indicates as to their revealed
preferences is unclear from the record.
One industry witness suggests that some
or all of these CSOs had alternative uses
for their bandwidth, for, e.g., other cable
programming or internet traffic. Written
Rebuttal Testimony of Lynne Costantini,
Trial Ex. 7304, at 4–5 (Costantini WRT);
3/27/23 Tr. 1597–1605 (Costantini). But
several other witnesses testified that
bandwidth concerns no longer existed
in the 2014–2017 period, because cable
television had converted from analog to
digital signals. Written Direct Testimony
of Allan Singer, Trial Ex. 7108, ¶ 15 n.1
(Singer WDT); Written Rebuttal
Testimony of Allan Singer, Trial Ex.
7109, ¶ 8 n.1; (Singer WRT); 4/3/23 Tr.
2764–65 (Singer); Written Rebuttal
Testimony of Melinda Witmer, Trial Ex.
7115, ¶ 13 n.3 (Witmer WRT); 4/10/23
Tr. 4069–70 (Witmer).
Other evidence indicated that CSOs
that previously retransmitted WGNA
until its conversion to a cable channel
simply found no other value in
alternative out-of-market local channel
programming sufficiently attractive to
existing or potential new subscribers
that was worth retransmitting. Of
course, this argument raises its own
questions, because, given that the
marginal royalty cost is zero, the
presumption of economic rationality
strongly suggests that, ceteris paribus,
these CSOs would have distantly
retransmitted some out-of-market local
channels’ programming.153 But the
reasonable presumption of economic
rationality requires the presumption
that these CSOs were incentivized not to
distantly retransmit additional stations.
152 The Judges discuss the minimum fee issues
separately and in depth elsewhere in this
determination.
153 This point also applies to CSOs that distantly
retransmitted some local stations, but had excess
capacity, i.e., the capacity to distantly retransmit
more of these stations and still not pay more than
the minimum fee.
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One logical reason would be that they
saw no value at all in retransmitting
those stations and programming, such
that any organizational effort in that
regard would be a soft cost sufficient to
preclude such transmissions. In this
regard, the Judges again take note of Ms.
Hamilton’s designated testimony, in
which she emphasized the de minimis
nature of the revenues at issue with
regard to these potential
retransmissions.154
But the foregoing points hardly end
this analysis. When CSOs have ‘‘excesscapacity’’ to retransmit signals/
programming at zero marginal royalty
cost, or when a CSO has declined to
exercise its section 111 ‘‘privilege’’ to
retransmit any signals or programming,
they have differentiated themselves
from above-minimum-fee-paying CSOs
in a manner that is of both significant
economic and of evidentiary
importance. The minimum-fee-paying
CSOs have revealed a marginal
willingness-to-pay of zero for the distant
retransmittal of local broadcast stations.
The several parties and their economic
experts opposing the regression
approach in this proceeding make a
reasonable objection that it is improper
to treat the calculated-but-unpaid base
fees of these CSOs as any evidence of
the revealed preferences and
willingness-to-pay of a minimum-feeonly CSO. But, assuming, arguendo, that
this reasonable objection is entirely
correct,155 what is the appropriate way
154 Ms. Hamilton’s point would tend to explain
more than why some CSOs do not retransmit any
signals. It may explain, for example, why Bortz
Survey respondents have a myriad of job titles, and
why the respondents are not consistently the same
from year-to-year (i.e., that no one is really
dedicated to this function). Her point would also
seem to explain why the CSO decisions from 2010–
13 and from 2014 were so consistent: because
concomitant with Ms. Hamilton’s de minimis
argument is her point that the CSOs focused on
preserving existing subscribers whose subscription
decisions might turn on the continued presence of
niche programming from distantly retransmitted
stations. Indeed, Ms. Hamilton seems to have been
prescient: After 2014, the abandonment of all
distant retransmissions by CSOs that had only
distantly retransmitted WGNA is consistent with
her emphasis on legacy carriage. (That is, viewers
who had valued WGNA enough to subscribe to a
CSO on that basis were no longer legacy viewers
who could be retained once WGNA converted.)
The Judges are also struck by the absence of
evidence that would be compelling, to wit, the
absence of evidence that any CSO has marketed its
service to any subscribers who might be induced to
remain or become subscribers based on the program
offerings by out-of-market stations they distantly
retransmit. The Judges decline to take
administrative notice that CSOs (or their
subscribers) actually contemplate these offerings
when considering subscription decisions; in fact,
the Judges’ own ‘‘reality filter’’ would suggest that
the opposite presumption would be more realistic.
155 It is not entirely correct. As noted by Dr. Tyler,
discussed infra, the calculated-but-unpaid base fees
of CSOs that ultimately pay the minimum fee
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to consider the decisions of CSOs who
do not reveal a positive value for such
distant retransmittals?
The Judges find that these CSO
decisions can be construed in two ways.
First, they can be considered to reveal
a zero value for these retransmittals,
given that the marginal royalty cost of
retransmittal is zero through a
retransmittal of 1.0 DSE. And second,
they could be construed as simply not
providing any useful data regarding the
value the CSOs assign to these
retransmittals, because that value,
although perhaps positive, is still less
than the (non-royalty) cost of
retransmitting.156 But in either
construal, the relevant takeaway is that
these CSO decisions do not provide the
Judges with any useful information 157
regarding the relative value of the
retransmittal of the various
programming categories, the
determination of which is the statutory
task assigned to the Judges under
section 111.
So understood, why should the
decisions of these minimum-fee-only
CSOs serve to diminish the economic
and evidentiary usefulness of the
decisions of the other CSOs who pay
base fees above the minimum fee. That
is, it is misleading, to say the least, to
categorize the base-fee-paying CSOs as
merely a small cohort of the larger
population of CSOs, when they are
differentiated by the key marker for
section 111 purposes: whether they
assign a relative value to the
retransmittals and thus relative values
to the retransmitted programs. The
Judges find it more accurate and
appropriate to consider the base-feepaying CSOs essentially as a separate
cohort of CSOs whose decision-making
is pertinent to a regression analysis in
this statutory context.
Indeed, this is precisely how the
Judges perceived the issue in the 2010–
13 Determination. There, only a
minority of CSOs, 47.5% paid above the
would have some probative weight as those base
fees approach the minimum fee, given the
uncertainty, ex ante royalty payment, as to whether
the base fee or the minimum fee would ultimately
bind. However, the record does not provide the
Judges with disaggregated data sufficient to analyze
the minimum-fee-paying CSOs on this basis.
156 These non-royalty costs include, but are not
necessarily limited to, (1) the physical cost of
retransmittal and (2) the transaction costs and
opportunity costs associated with expending effort
making retransmittal choices regarding distant local
stations that had de minimis value (the choices, if
not the stations and programming themselves)
relative to the other decision-making undertaken by
CSOs.
157 That is, a zero value for all retransmitted
programming is invariant and thus uninformative of
relative value, and an absence of a revealed value
fails to provide absolute value as well as relative
value.
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minimum fee, but their decisions were
extrapolated to the entire market. 2010–
13 Determination at 3568 (‘‘during the
2010–2013 period, on average 527 out of
the 1,004 Form 3 CSOs analyzed
(52.5%) chose to retransmit the exact or
fewer number of signals than the
regulated fees permitted [and] 83 paid
the minimum fee yet elected not to
retransmit any local stations’’—meaning
that less than half of CSOs ‘‘voluntarily
paid a royalty greater than the minimum
fee.’’). Nonetheless, the Judges deemed
that minority of CSOs sufficient to
justify using the entirety of the base fee
calculations (whether paid or unpaid) to
establish relative marketplace value.
But that extrapolation was hardly
precise in the context of the slight
majority presence of minimum-fee-only
CSOs, a context which could have
suggested a need for a proportionate
weighting of the decisions of the basefee-paying CSOs.158 But, when the basefee-only CSOs are considered as the
separate and only cohort actually
revealing their relative programming
valuations, rather than a mere
subsample of the entire population of
CSOs, then their revealed preferences
are seen to reflect 100% of the
information regarding relative value
generated from CSO decision-making.
Implicitly, that is what the Judges did in
the 2010–13 Determination.
Further, the Judges are mindful of the
testimony by Dr. Marx (herself no fan of
the application of the fee-based
regression for the 2015–2017 period)
that ‘‘the most informative observations
in a Crawford-style regression are ones
in which a CSO elects to pay more than
the minimum fee in royalties in order to
carry additional distant signals . . . .’’
Marx WRT ¶ 64 (emphasis added).159
158 Dr. Marx noted that the 52.5% of CSOs not
covered in the Crawford Model included many that
had only one subscriber group and would have
been excluded from Dr. Crawford’s regression
anyway, so 80% of all the CSOs eligible for
inclusion in the Crawford Model (and their
programming and royalty data) were in the
regression. There are two problems with this point.
First, because only 80–85% of the CSOs were
covered, even then the evidentiary weight of the
decision-making of those CSOs should have been
discounted proportionately, if proportionality is
relevant. Indeed, in this proceeding, Dr. Marx
testified that, in her opinion, whether to consider
the revealed preferences of some CSOs should be
a matter of ‘‘degree,’’ which is distinct from treating
some proportion as a tipping point sufficient to be
used en toto. Second, the reason why ‘‘only’’ 47.5%
of the CSOs were included in the Crawford Model
is not really relevant to the question of why this
minority cohort should generate the entirety of
revealed preference value for regression purposes.
159 Dr. Marx also equates a CSO paying above the
minimum fee with a CSO that ‘‘pays the minimum
fee with no capacity for carrying additional
signals.’’ Marx WRT ¶ 64. The Judges disagree. Such
a minimum-fee-paying CSO is not revealing a
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Colloquially, the issue may be
characterized as whether the Judges
should let the perfect be the enemy of
the good. Here, the ‘‘perfect’’ fact
pattern would be where all or most of
the data is generated by CSOs paying
above the minimum fee. That is not the
factual context here. But there is ‘‘good’’
evidence from the CSOs who did
retransmit enough programming to
trigger the base fees of their subscriber
groups, and that the Judges do not
ignore that data.160
Accordingly, the Judges will give due
weight to the minority of CSOs that, in
the 2015–2017 period, paid above the
minimum fee and thus revealed their
preferences by paying an additional
royalty in order to retransmit one or
more additional stations. To be clear, in
their weighing of this evidence, the
Judges perceive the above-minimum-fee
CSOs as providing evidence from three
perspectives: (1) reflecting 100% of all
the CSOs who did reveal their
preferences in a cardinal manner, which
supports the assignment of due weight
to their station and programming
choices; and (2) reflecting only a
minority of the revealed preferences of
the CSOs that found the value in distant
retransmissions of local broadcast
stations sufficient to add such stations
to their lineup—a lower percentage
which therefore would support a lower
evidentiary weight; and (3) reflecting
the revealed preference of an even
smaller slice of CSOs and their
programming, thus supporting the
lowest level of evidentiary weight
among these three perspectives.161
B. A Separate Criticism: The Tyler
Model as a ‘‘Fee Generation’’ Model
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Two parties, SDC and PTV, ask the
Judges to reject the Tyler Model by
characterizing it as ‘‘similar’’ to a ‘‘fee
generation’’ approach to the section 111
royalty allocation issue, asserting that
this approach is improper and has been
rejected previously by the Judges and
their predecessors. SDC and JSC are
preference in the same manner as a CSO paying
above the minimum fee, but rather is taking full
advantage of the zero-marginal-royalty cost feature
of the minimum fee obligation. The Judges find it
more appropriate to treat such minimum-fee/noexcess-capacity CSOs in the same manner as an
excess-capacity CSO because the actual marginal
cost of their respective retransmittal preferences is
zero.
160 Even information from data that includes
CSOs paying only the minimum fee has an
evidentiary purpose, as noted infra regarding an
adjustment to the allocations based on the Tyler
Model.
161 As noted supra, the Judges will discuss infra
the evidentiary weights they apply, in combination
with the evidentiary weights they give to all of the
probative evidence.
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incorrect, and this criticism deserves its
own separate section.
The fee generation approach has been
defined as ‘‘a valuation method that
attempts to measure the amount of
royalties actually generated by a
particular claimant group.’’ Report of
the Copyright Arbitration Royalty Panel
to the Librarian of Congress, Docket No.
2001–8 (CARP CD 98–99) at 60. In its
attempt to characterize the Tyler Model
as a fee generation approach, SDC
maintains as follows:
analyses of fees-generated. In their postInitial Determination Order Denying
Rehearing [in the 2010–13 proceeding] . . .
the Judges specifically rejected the claim that
fee-based regressions are the same as ‘‘fee
generation’’ approaches. They held that feebased regressions ‘‘identif[y] a positive
statistical relationship between (a) royalties
paid by CSOs; and (b) program categories on
distant local stations that had been
retransmitted to subscribers by CSOs.
Clearly, any ‘fee generation’ approach that
did not make use of this regression approach
is distinguishable.’’ See Order Denying
Rehearing at 5 (emphasis added).
[Dr. Tyler’s] approach could be viewed as
similar in notion to the ‘‘fee generation’’
approaches that the Judges and their
predecessors rejected in days long past (see,
e.g., 2004–05 Distribution Order, 75 FR at
57071–73 (‘‘[F]ee generation is not persuasive
as the best method for determining relative
marketplace value because of the Canadian
Claimants’ failure to firmly link the
relationship between section 111 royalties to
that value’’)).
Even if the Tyler Model could be
likened to a fee generation approach,
SDC and PTV are wrong to suggest that
such approaches have been categorically
rejected by the Judges and their
predecessors. Again, the Judges
considered and rejected the identical
argument in their Order Denying
Rehearing:
SDC PFF ¶ 138. See also 6/12/23 Tr.
6007 (SDC counsel’s closing argument)
(describing the Tyler Model as ‘‘a feegeneration methodology.’’).
Similarly, PTV argues:
[N]either the Judges nor their predecessors
have categorically rejected use of the broad
category of fee generation approaches to
ascertain relative value in section 111
allocation proceedings. As the Librarian
concluded when accepting in full the CARP
Report for the 1998–99 distribution years:
‘‘[W]hile it is true that fees generated do not
measure the absolute value of programming,
it does not mean that they are not capable of
measuring the relative value of programming
between the claimant groups.’’ Librarian’s
Order, 69 FR at 3618 (emphasis added). In
that Order, the Librarian expressly noted that
‘there does exist precedent,’ in the 1990–
1992 CARP Report, for using the ‘‘fee
generation’’ approach to determine relative
market value. Id. When the Judges succeeded
to the CARP’s jurisdiction, they likewise
stated that ‘‘we are not persuaded that we are
precluded from ever considering fee
generation as a distribution
methodology. . . .’’ 2000–03 Determination,
75 FR at 26805. In fact, in the [Initial 2010–
13] Determination, the Judges acknowledged
the ongoing use of a fee generation approach
in particular instances, notwithstanding that
it had been ‘‘generally discounted’’ in some
prior cases. See Determination at 48 n.45; 78
n.145.
Dr. Tyler’s regression resembles the fee
generation methodology, which attempts to
assess relative value based on statutory
royalties generated by cable retransmissions.
[The] [j]udges have repeatedly considered
and rejected the fee generation methodology
because the statutory royalties do not relate
to the relative value of the distantly
retransmitted programming.
PTV PFF ¶ 159.
Of course, to assert, as SDC and PTV
do, that the Tyler Model may merely
‘‘resemble,’’ or be ‘‘similar to’’ a fee
generation model, is also to say that the
Tyler Model is not a fee generation
model. Moreover, the Judges disagree
with these fee-generation-based
arguments for two further reasons. First,
the assertion that the Judges have
rejected the fee generation methodology
is simply wrong. Second, the argument
(that the Tyler Model’s passing
resemblance to a fee-generation
approach invalidates its use) fails to
address the particular merit of this
approach given the evidentiary record.
With regard to the prior rulings
regarding fee-generation approaches,
Program Suppliers accurately and
compellingly demonstrate the
incorrectness of the claim that these
rulings have rejected a fee-generation
approach and precluded its use (or the
use of any similar model) in these
allocation proceedings. Specifically,
Program Suppliers emphasize the
Judges’ most recent ruling on this issue,
in the 2010–13 proceeding:
[T]he Judges ruled that fees-based
regression analyses are distinguishable from
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Program Suppliers’ Reply to Proposed
Findings of Fact and Conclusions of
Law (PS RPFF) ¶ 88 (and record
citations therein). See also id. ¶ 96.
Program Suppliers have also properly
relied on the earlier rulings of the
Judges and their predecessors in this
regard. See 2000–03 Distribution Order
at 26805 (after detailing the ‘‘origins’’
and the ‘‘history’’ of the fee generation
approach, the Judges stated this
approach never had been ‘‘flatly rejected
. . . as a methodology,’’ and the Judges
thus held that they were ‘‘not persuaded
that we are precluded from ever
considering fee generation as a
distribution methodology. . . .’’);
1998–99 Librarian Order at 3606, 3618
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(the CARP panel rejecting opposition to
‘‘the fee generation method’’ because
‘‘there does exist precedent’’ for using
this methodology). More broadly, the
Judges’ predecessors have long
understood the appropriateness of
incorporating fee-generation models in
the precise process in which the present
Judges are now engaged—analyzing,
weighing, and combining multiple
approaches to the allocation of
royalties—when, as now, the Judges
cannot identify only ‘‘a single formula
or rationale adequate to reach our
determination and allocations in [the]
proceeding.’’ 1979 Cable Royalty
Distribution Determination, 47 FR 9879,
9892 (Mar. 8, 1982) (considering a fee
generation approach together with eight
other allocation methods) (emphasis
added).
As to the second point, assuming
arguendo the Tyler Model bears a
passing resemblance to a fee-generation
approach, the Judges find, on this
evidentiary record, such affinity
constitutes virtue rather than vice. A
key criticism of the Tyler model’s feegeneration resemblance is premised on
the fact that both appear to ‘‘ignore[ ]
variation relevant to revealing CSO
preferences’’ among program categories.
CTV PFF ¶ 354 (and record citations
therein); accord CCG PFF ¶ 186 (and
record citations therein) (‘‘Dividing the
royalty payment by gross receipts
removes the variation different signals
contribute to revenue.’’). However, that
argument misapprehends Dr. Tyler’s
approach. It is decidedly not merely a
‘‘measure [of] the amount of royalties
actually generated by a particular
claimant group,’’ which is the definition
of a fee-generation model, as set forth
supra. Rather, the Tyler Model
calculates coefficients that ‘‘represent
the incremental impact on the SGRP for
each type of compensable minute.’’
Tyler ACWDT ¶ 90. Further, the Tyler
Model then weights these coefficient
values by total receipts, Tyler ACWDT
¶ 88, and then multiplies these weighted
coefficients by the number of minutes of
each claimant’s program category. Tyler
ACWDT ¶ 144. That is quite different
from the basic fee-generation approach.
But the proponents of the other feebased regressions are onto something in
their observation that the Tyler Model
generates less variation than would
otherwise be captured when the
dependent variable is royalty-specified
rather than specified as the SGRP.
However, the Judges see this
distinguishing feature of the Tyler
Model as an improvement over the other
fee-based regressions proffered in the
present case.
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From the perspective of the parties
proffering fee-based regressions, the
only way to estimate the appropriate
variations among program categories is
by utilizing a royalty-based parameter
(the log of royalties to be precise) as the
dependent variable. That is, these more
traditional forms of fee-based
regressions posit that there is an
ascertainable and measurable
correlation between program category
minutes and the log of royalties,
detectable once sufficient fixed effects
and control variables are specified. So,
there is a black-and-white debate:
Which is the preferrable dependent
variable for the fee-based regressions in
the present case, a royalty based
variable or Dr. Tyler’s SGRP?
Recall that the first step in any
regression modeling is to identify an
economic theory which will guide the
selection of model specifications. What
is that economic theory? Perhaps the
more salient phrasing of this question is:
What economic theory is most
consonant with the record evidence of
the industry details? Let’s take stock:
1. The royalties paid by CSOs for 1.0 DSE
is a minimum of 1.064% of gross receipts,
with two marginally lower brackets of
percentage rates for additional DSEs,
flattening out at 0.330% at 5.0 DSE. A CSO
needs to decide how many, if any, local
broadcast stations to distantly retransmit.
To answer this question, all the economist
witnesses attempt to zero-in on what, in their
respective opinions, would constitute
economically rational decision-making.
However, in identifying what is rational, they
implicitly assume a CSO would be able to
determine if it is retransmitting a profitmaximizing or a sub-optimal bundle of
distant programming, but there is no record
evidence as to how a CSO would know this.
More particularly, there is no evidence of
a measure of estimated subscribers retained,
obtained, or lost, or of a change in
subscription rates, caused by distant
retransmission decisions. Are such changes
even occurring because of the configuration
of distantly retransmitted stations? On this,
the record is barren.162
2. But, as all the witnesses acknowledge,
over the last three years of the relevant
162 The Judges also find it telling that there is no
evidence in this proceeding, nor apparently in any
other allocation proceeding, that any CSO has
solicited subscriptions by touting its distantly
retransmitted lineup. That this dog has not barked
speaks loudly as to the de minimis impact of the
distant retransmission market. Also absent from the
record is any evidence that there is a deriveddemand effect at play. That is, there is no evidence
that consumers make subscription decisions based
on the programming content of distant
retransmissions. In this regard, a corollary to the
need for identifying an economic theory from the
record evidence to guide this Determination is the
concomitant need for a ‘‘reality filter,’’ by which the
Judges can address the reality that the market in
question is relatively miniscule (although
substantial royalty dollars are most certainly at
stake!).
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54225
period, 2015–2017, the overwhelming
percentage of CSOs pay only the minimum
fee, and the vast majority of section 111
royalties are generated by those minimumfee-paying CSOs. That is, most CSOs do not
even retransmit enough distant signals to
trigger a base fee obligation. Moreover, a large
minority of those CSOs elect not to
retransmit any signals, demonstrating, as Dr.
George notes, that they have a zero
willingness-to-pay for programming that is
royalty costless. Why have these changes
occurred?
3. The answer is to be found in the
evidentiary record. An industry expert
witness, Sue Ann R. Hamilton (whose 2010–
13 testimony was properly designated as
evidence in this proceeding by Program
Suppliers), stated (as summarized in the
2010–13 Determination) that:
[A] CSOs’ selection of stations for distant
retransmission is marked by inertia, not by
an affirmative analysis and weighing of
alternative stations, [because: (1)] distant
retransmission costs represent a non-material
expenditure for CSOs compared with their
other more expensive programming and
carriage decisions [and (2)] CSOs are more
concerned with losing existing subscriber
[‘legacy distant carriage’] if they drop certain
stations and the associated programs than
they are with whether or not any new
retransmitted station and its associated
programs might entice new subscribers[, or
with] adjusting the roster of distantly
retransmitted stations.
2010–13 Determination at 3567 (emphasis
added).
4. Ms. Hamilton’s testimony regarding the
CSO’s primary concern over retaining legacy
subscribers proved prescient when CSOs did
not meaningfully substitute for the lost sports
programming on WGNA, but rather just
retransmitted fewer stations and programs,
and thus defaulted to a binding minimum fee
rather than a calculated base fee. That is, the
phenomena that Ms. Hamilton described has
been validated by the impact of the WGNA
conversion. JSC professional and college
team sports that were retransmitted on
WGNA clearly were valuable, both in terms
of the regressions (with the highest
coefficients) and in terms of the survey
results. But when WGNA converted to a
cable station, despite the high value of JSC
programming (its coefficient fell but
remained higher than other category
coefficients), JSC programming value vis-àvis the retransmission sector, as measured by
the regression methodologies, dropped
precipitously, because the number of
subscribers to whom JSC sports were
transmitted dropped by over 90%. Although
at first blush it may seem odd given the high
value of JSC programming that CSOs did not
‘‘backfill’’ that loss, Ms. Hamilton’s ‘‘inertia’’
and ‘‘legacy’’ arguments explain the absence
of such a ‘‘backfill.’’ 163 Such inertia, and the
163 The loss of WGNA should be contrasted with
the loss years earlier of TBS, another sports-based
superstation that had been distantly retransmitted.
That loss did not eliminate all such sports-basedsuperstation retransmittals, because WGNA
remained available. But after WGNA transformed
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loss of WGNA as a legacy channel,
apparently made it not worth the effort for
CSOs to search for and retransmit a sufficient
number of replacement channels and
programs.
5. In the context of this backdrop, Dr.
Erdem’s drumbeat that CSOs’ priority is to
minimize their costs takes on a bit more
significance. CSOs appeared to be relatively
less concerned with the ‘‘demand side’’ for
distantly retransmitted channels and
programming, and thus, relatively more
concerned with the ‘‘supply side,’’
particularly with the royalty costs.
6. In this more cost-centric context, Dr.
Tyler’s regression appears to the Judges to
better reflect the realities of the market than
the other fee-based regressions. The Tyler
Model does not put the cart before the horse;
that is, it does not place priority on program
category (‘‘demand side’’) decisions. Rather,
it prioritizes the ‘‘budget constraint’’
(‘‘supply side’’) decisions of CSOs, by which
they calculate the percentage of their
subscriber group’s gross receipts they will
pay in royalties.
7. However, for those CSOs transmitting
above 1.0 DSE, they have economic decisions
to make regarding the mix of programming
they will transmit via their signal decisions.
Given the economics and reality of this
retransmission market, as described above,
only then will the relative value of program
categories be of material economic
importance. It is at this stage that the Tyler
Model generates information as to relative
value, through the Tyler model’s coefficients.
8. To return to the issue at hand, as its
critics assert: Does the Tyler Model identify
fewer variations across program categories
compared to the other regression models?
Apparently, the answer is yes. But those
other regressions, although not without
evidentiary value, do not appear to be as
consonant with the evidentiary record as the
Tyler Model.
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C. The Economics of the Tyler Model
The foregoing points help to focus on
the underlying economics of the Tyler
Model. By using the SGRP as the
dependent variable, the Tyler Model
reflects economic principles relating to
the value of a ‘‘public good,’’ which is
a good ‘‘for which the marginal costs of
providing it to an additional person are
strictly zero and for which it is
impossible to exclude people from
receiving the good.’’ Joseph E. Stiglitz &
itself into a cable station, there was no other sportsbased superstation to substitute in order to satisfy
legacy viewers of such programming. (Also, recall
that the JSC is simply a representative of the major
professional sports leagues and the NCAA, and the
record does not reflect that they suffered any
economic loss because of the reduction of
subscriber minutes distantly retransmitted. Indeed,
the Judges take administrative notice that their
games have been aired on ESPN and other cable
stations, national networks, and regional sports
networks. The Judges decline to assume that these
leagues and associations voluntarily abandoned
local broadcasting and thereby deprived themselves
of profits, but rather they assume these sports
leagues and associations moved to these more
lucrative distribution methods.)
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Jay L. Rosengard, Economics of the
Public Sector 107 (4th ed. 2015). But
when the good is excludable, but still
bears a marginal cost of zero (nonrivalrous in ‘‘econo-speak’’), it is
considered an ‘‘impure’’ (or ‘‘quasi-’’)
public good. See also 3/27/23 Tr. 1496
(Boyle) (a PTV expert witness with a
Ph.D. in applied economics agreeing
that there are ‘‘characteristics’’ and
‘‘elements’’ of a ‘‘quasi-public good’’ in
these distantly retransmitted channels
and programs.).
Unlike ‘‘private goods’’ (rivalrous and
excludable), the demand curve for
public goods, impure or otherwise, ‘‘can
be thought of as a ‘marginal willingnessto-pay’ curve [which], at each level of
output of the public good, . . . says how
much the individual would be willing
to pay for an extra unit of the public
good.’’ Stiglitz & Rosengard, supra, at
107. This is consistent with the
economic logic of the Tyler Model. See
Tyler ACWDT ¶ 67 (‘‘Even though the
amount of the royalty is determined by
statute—and so constitutes a measure of
minimum willingness to pay as opposed
to the outcome of a negotiation—the
estimated incremental royalties for the
different program types relative to one
another provide insight into how the
CSOs would actually value these
program categories in an unregulated
market.’’) (emphasis added). Also, the
Tyler Model’s SGRP is in the nature of
an economist’s ‘‘budget line’’ (a/k/a
‘‘budget constraint’’), limiting the
combinations of goods that a buyer can
purchase. See Robert S. Pindyck &
Daniel L. Rubinfeld, Microeconomics 82
(8th ed. 2013).164 The Tyler Model’s
SGRP identifies the percentage of total
costs (including profits, which reflect
opportunity costs) incurred by CSOs
across their subscriber groups in the
form of section 111 royalties. With that
percentage/budget line established, the
Tyler Model then allocates the portions
of the weighted category minutes
attributable to that SGRP calculation.
In sum, there is a real economic and
market-based foundation for the Tyler
Model in the context of the present
record relating to the 2014–2017
retransmission market. Moreover, the
Tyler Model is essentially a fee-based
regression, with characteristics of the
fee-generation approach, constructed in
a manner that reflects both Ms.
Hamilton’s persuasive testimony and
164 The Judges examined two of the expert
witnesses at the hearing regarding the concept of
the ‘‘budget line’’ as it relates to the estimation of
section 111 royalties. See 3/23/23 Tr. 1080–86
(PTV’s Johnson); 4/3/23 Tr. 2671–73 (JSC’s Majure).
Dr. Johnson found the concept applicable to the
regressions at issue, but Dr. Majure disagreed.
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the reduction in distant retransmissions
following the WGNA conversion.
XII. Canada Zone
CTV maintains that Dr. George’s
calculation of the CCG share is incorrect
for two related reasons: (1) the George
Model as specified implies that CCG
had compensable programming outside
the Canada Zone; and (2) the George
Model overrepresents the Canada Zone.
CTV PFF ¶ 330.
This problem arises because the
George Model assumes that CCG
programming would be available and
valuable throughout the United States
(i.e., outside of the Canadian Zone) if
one assumes the inapplicability of this
geographic limitation in the section 111
license for purposes of estimating
relative marketplace value for CCG
programming. Dr. George explains why
this assumption is adopted in the
George Model:
It is in most circumstances right to infer
that programming on distant signals retransmitted has higher value than other
programming not transmitted. The primary
exception is when cable systems are
prohibited from carrying particular signals,
such as the case with Canadian signals
outside of the Canadian re-transmission
zone.
. . .
Failing to control for the fact that
transmission of Canadian stations is
prohibited outside of the Canadian retransmission zone introduces downward bias
in the value of Canadian Claimant
programming since the absence of carriage is
equated with zero value.
. . .
It is worth repeating that the underlying
economic framework is what governs model
specification. The prohibition on distant
signal carriage on its face imposes a
restriction on cable system choices so must
be reflected in the model. No further
‘‘evidence’’ is needed, or, in fact, possible,
since we cannot observe prohibited carriage.
George WRT at 16, 25–26 (emphasis
added).
Program Suppliers, through Dr. Tyler,
makes the same argument as CTV, and
responds to Dr. George’s point above as
follows:
Within the Canada zone, CSOs can choose
among all of the content categories. But
outside the Canada zone, CSOs do not have
the option of choosing CCG content. There is
a difference between having something
available and not chosen versus not having
something available at all. Estimating the
relationships separately when the Canadian
minutes are available or not recognizes this,
and this approach makes more economic
sense.
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PS PFF ¶ 297 (and record citations
therein).
Dr. Bennett, on behalf of CTV,
calculated and tabulated the impact on
allocation shares of the difference
54227
between the approaches of Drs. George
and Tyler as summarized above: 165
Figure 20. Comparison of CCG shares from George Model with and without
correcting for imbalance.
2014
2015
2016
2017
$225,787,643
$207,614,933
$200,603,016
$200,192,670
6.5%
13.7%
12.3%
12.0%
$14,662,427
$28,373,785
$24,679,633
$24,090,393
5.6%
8.7%
8.0%
8.3%
$12,746,544
$18,147,786
$16,045,116
$16,549,108
Bennett WRT ~ 55 & fig.20.
165 Dr. Bennett also accounted for the fact that the
George Model ‘‘assigns too much weight to the
minutes within the Canada Zone . . . because [the
George Model] bases [its] weights on the minutes
within [its] non-representative regression sample
(which is over-representative of the Canada Zone)
instead of on the contribution that each zone makes
to the aggregate royalty pool.’’ Bennett WRT ¶ 54.
See also id. ¶ 50 & fig.17.
166 The Judges note CCG’s argument that in prior
proceedings, including one applying the feegeneration approach, the Judges and their
predecessors did not make this geographic
distinction. See CCG PFF ¶ 567–568 (and cases
cited therein). But those cases either did not involve
regression analysis or did not rely on the regression
approach (Dr. Rosston’s model) as anything other
than corroboration. In the regression context, the
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matter, such transmissions further away
from the Canada Zone would be
feasible. See SDC PFF ¶ 219 (‘‘[W]hile
the statutory limitation restricting
carriage of Canadian television stations
to within 150 miles of the U.S.-Canada
border or north of the forty-second
parallel (the ‘‘Canadian Zone’’) is set
forth in section 111(c)(4) and could
therefore be rendered inapplicable in a
hypothetical market without the section
111 compulsory license, the laws of
physics would still operate as a practical
physical limitation on Canadian station
broadcast signals, absent an alternative
(and more costly) delivery method such
as fiber or satellite feeds.’’) (emphasis
added).166
appropriate regression model in this
record.167 To recapitulate the principal
reasons:
The Judges have considered all of the
regression models proffered by the
parties in this proceeding. None of the
models were excluded from
consideration. Based on the Judges’
analysis and conclusions regarding each
model, as set forth supra, and
comparing each of them, the Judges find
the Tyler Model to be the most
1. On the present factual record, the Tyler
Model’s SGRP is preferable to the log of
royalties, or royalties themselves, as the
dependent variable in a fee-based regression.
2. The Tyler Model avoids the conundrum
of the variance/bias dilemma that is of
particular concern in this case for other
proffered regression models. By contrast, Drs.
George and Johnson found themselves on the
horns of this dilemma. They require fixed
effects to avoid bias by isolating the effect of
program category minutes on royalties. But
given the post-WGNA conversion, the use of
fixed effects, as in the model applied in the
prior proceeding, would not generate enough
observations. And yet relaxing or eliminating
fixed effects to obtain more observations
weakens the isolation of the effect of interest,
the impact of program minutes on royalties,
and creates bias.
3. Among the control variables which the
Tyler Model does not require is the control
for the number of subscribers in a subscriber
group, which is required in the other feebased regressions, but cannot be estimated
without measurement error.
4. The Tyler Model utilizes as a useful
analogy to price a price proxy in the form of
a budget constraint, i.e., the SGRP.
Judges find it too speculative to assign value by
correlating royalties to distant minutes that were
never retransmitted. Moreover, although the Tyler
Model, on which the Judges place the most
evidentiary weight among the regression models,
resembles a fee-generation approach, it is not a feegeneration approach, as discussed supra. As the
Judges have also noted supra, a benefit of the Tyler
Model is that it better looks at the actual nature of
the market and uses the evidence available over the
years in question. To allow for value to be estimated
by consideration of hypothetical programming
retransmission outside of the Canada Zone would
be inconsistent with this ‘‘real-world’’ rationale for
crediting the Tyler Model. Additionally, because
the regression approach, unlike the constant sum
survey approach, is based on what CSOs actually
retransmitted, in order to identify their market-
based revealed preferences from those actual
decisions, a grafting of the hypothetical
retransmission of Canadian signals onto that
approach appears inconsistent to the Judges.
However, the Judges emphasize that these critiques
apply only to the regression models of relative
marketplace value, and are not intended to address
any other adjustments that have been proffered in
connection with the Bortz Survey, or with any other
evidence, in this proceeding.
167 The Judges also considered variations
proffered by Drs. Johnson and George on their
preferred models in their direct and rebuttal
testimonies. Although some of those iterations
mitigated certain problems in their models, none of
them was sufficient to overcome the Judges’
preference for the Tyler Model.
XIII. The Judges’ Allocation of Shares
Pursuant to the Regression Approach
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Based on the foregoing, the Judges
find that the George Model of Canadian
programming’s relative marketplace
value is not adequately proven by her
assumptions regarding the value of such
signals if Canadian signals had been
made available outside the Canada
Zone. Rather, such values are
speculative, and no extrapolations can
be credibly made from the royalty data.
To be clear, the Judges are not saying
that programming on Canadian signals
would not have value outside of the
Canada Zone. But, like the programming
retransmitted by minimum-fee-only
CSOs, the value of retransmitted
programming is not subject to accurate
measurement via a revealed preference
approach that is the economic concept
behind these regressions. Indeed,
because this point applies even with
regard to minimum-fee-only CSOs who
actually retransmitted distant
programming, a fortiori it applies to the
hypothetical retransmission of
programming outside of the Canada
Zone. Further, not only is the value of
any hypothetical retransmission outside
the Canada Zone speculative, there is
also no showing that, as a technical
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5. Although the Tyler Model is not based
on a hedonic regression,168 it can reasonably
be described as a ‘‘hedonic-inspired’’
regression.169
6. The Tyler Model’s use of weighting by
each CSO’s gross receipts is appropriate.
7. The Tyler Model calculates coefficients
for each year, rather than ‘‘pooling’’ the data
to generate a single coefficient for each
program category across all four years.
8. The Tyler Model provides sufficient
variation among the CSOs’ decisions.
9. There is no credible evidence (or even
a credible allegation) that Dr. Tyler engaged
in anything that could be construed as
specification searching. In fact, the SDC and
JSC experts—who criticize the other
regression models (including Dr. Marx’s) for
ignoring the impact of potential specification
searching—acknowledge that the Tyler
Model alone is free from this infirmity. The
Judges agree, because the absence of
specification searching in connection with
the Tyler Model allows it to be transparent
and, specifically, free from the consumption
of ‘‘phantom degrees of freedom.’’
10. The alleged superficial resemblance of
the Tyler Model to a fee-generation model is
not only factually off-the-mark and legally
irrelevant, the shared characteristics of the
two models in fact better reflect the realworld decision-making of CSOs, as described
in Ms. Hamilton’s testimony.
However, as also discussed supra, the
Judges cannot simply adopt (for all
circumstances) the Tyler Model to the
extent it includes the base fees of CSOs
who only paid the minimum fee from
2015–2017. Rather, for those years, the
Judges, for the most part, rely on Dr.
Tyler’s calculation of allocation shares
as derived from the coefficients he
calculated for the CSOs paying more
than the minimum fee.
In applying Dr. Tyler’s approach, the
Judges first note that, for 2014, the
allocation of shares can be identified by
reference to all the CSOs, including
those who paid the minimum fee, as
explained, for example by Dr. Marx. See
Marx ACWDT ¶ 34 (‘‘data on
programming minutes and royalties
based on the carriage of distant signals
for 2014 are a close match to
comparable data from the 2010–2013
proceeding.’’) The allocation shares for
2014 in the Tyler Model, using the data
for all CSOs in the regression, are the
following:
ALLOCATION SHARES FOR 2014 IN THE TYLER MODEL
Year
2014 .........................................................
Program
suppliers
(%)
JSC
(%)
CTV
(%)
PTV
(%)
SDC
(%)
CCG
(%)
26.6
(3.8)
37.2
(7.5)
11.3
(2.6)
14.0
(1.7)
4.3
(0.9)
6.5
(0.9)
(standard errors in parentheses).
See Tyler ACWDT fig.3.2.
However, for the years 2015–2017, the
Judges principally rely on Dr. Tyler’s
allocation share calculations pertaining
only to the CSOs who paid more than
the minimum fee, i.e., those whose
preferences were revealed by their
retransmission decisions. These
allocation shares as calculated by Dr.
Tyler are the following:
Fig.6.3 Royalty Allocations based on Tyler Model Regression
(only CSOs Paying More than the Minimum Royalty)
Year
2014
2015
2016
2017
Pro2ram Suppliers
29.1%
(4.7%)
41.0%
(2.4%)
31.3%
(3.0%)
33.0%
(2.2%)
JSC
32.4%
(9.2%)
2.1%
(1.5%)
1.3%
(1.9%)
0.5%
(1.0%)
CTV
11.3%
(2.6%)
11.3%
(2.2%)
13.3%
(3.4%)
9.9%
(2.0%)
PTV
14.3%
(1.9%)
12.7%
(0.8%)
14.7%
(0.8%)
14.2%
(0.8%)
SDC
5.1%
(1.2%)
9.7%
(1.2%)
8.3%
(1.0%)
7.8%
(1.0%)
CCG
7.6%
(1.1%)
23.2%
(0.9%)
31.1%
(1.4%)
34.6%
(2.1%)
Dr. Tyler noted that these 2015–2017
share allocations were not ‘‘strikingly’’
different from the share allocations he
recommended by reliance on his
regression results for all CSOs, even if
they paid only the minimum fee. Tyler
ACWDT ¶ 103. Moreover, as a
theoretical economic matter, Dr. Tyler
opined that he was not aware of ‘‘any
logic, a priori,’’ that there would be any
difference in ‘‘relative marketplace
values’’ as between ‘‘Above Minimum
Fee CSOs’’ and ‘‘Positive Carriage
Minimum Fee CSOs’’ (i.e., including
excess capacity CSOs). Id. In this regard,
compare Tyler ACWDT fig.6.3 (above)
with Tyler ACWDT fig.3.2 (below):
168 Dr. Tyler at times appears to describe his
approach as a ‘‘hedonic’’ regression, see Tyler
ACWDT ¶¶ 10(e), 85, perhaps on the mistaken
belief that such a label was necessary to enhance
his approach.
169 Cf. Final rule and order, Determination of
Royalty Rates and Terms for Making and
Distributing Phonorecords (Phonorecords III), 84 FR
1918, 1947–48, 1950 (Feb. 5, 2019) (the Judges
relied in part upon an economic model that was
admittedly not an established model (the Shapley
Model), but rather was a Shapley-‘‘inspired’’
model), vacated and remanded on other grounds
sub nom. Johnson v. Copyright Royalty Board, 969
F.3d 363 (D.C. Cir. 2020).
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See Tyler ACWDT fig.6.3.
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Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Notices
Figure 3.2 Royalty Allocations based on Tyler Model Regression (all CSOs)
Yea
r
201
4
201
5
201
6
201
7
Program
Su liers
26.6%
3.8%
39.7%
1.5%
34.0%
1.5%
31.8%
1.1%
However, Figure 6.3 reports an
anomalous increase in the share
allocated to the CCG claimants. This
anomaly is explainable.
CCG programming is unique among
the program categories in this
proceeding because it is limited in
geographic scope to CSOs located
within a 150-mile belt below the U.S./
Canadian border. See CCG PFF ¶ 59
(‘‘Under the section 111 compulsory
license, it is prohibited for a cable
company to distantly retransmit a
Canadian broadcast signal to
communities located more than 150
miles from the United States-Canada
border and also south of the 42nd
parallel.’’) (citing 17 U.S.C.
111(c)(4)(A)).
As such, the data reported in Tyler
ACWDT fig.6.3—limited to CSOs paying
above the minimum fee—would reflect
the unique value of Canadian
programming in that region. More
particularly, CCG programming is
uniquely valuable in the Canada Zone
in good measure because of the
retransmittal of French language
programming, a niche sub-category. See
CCG PFF ¶ 20 (‘‘The programming on
Canadian French-language stations
plays an important role for Americans
living in the northeast United States and
either speak French or have French
ancestry. . . . An example . . . is in the
successful grassroots campaign of
Sanford, Maine residents who lobbied
the Metrocast cable company and their
local government to restore carriage of
the CBC’s French-language station
JSC
CTV
PTV
SDC
CCG
37.2%
7.5%
2.8%
1.0%
2.5%
0.9%
1.8%
1.0%
11.3%
2.6%
10.2%
1.5%
8.2%
1.8%
6.9%
0.9%
14.0%
1.7%
27.9%
0.8%
37.4%
0.7%
40.4%
0.6%
4.3%
0.9%
6.2%
0.6%
4.4%
0.6%
4.0%
0.4%
6.5%
0.9%
13.3%
0.5%
13.6%
0.5%
15.2%
0.9%
CKSH.’’); see generally id. ¶ 19 (noting
the distinct nature of French language
programming in demand by CSOs to
serve residents of ‘‘New York, Vermont,
Maine, New Hampshire, and
Massachusetts—that have a sizeable
proportion of residents with
connections to the French language
through a current spoken language or
ancestry.’’); see also Written Direct
Testimony of Beverley Kirshenblatt,
Trial Ex. 7400, p. 6 (Kirshenblatt WDT)
(the CBC programming on Canadian
stations retransmitted into the Canada
Zone is provided ‘‘in English, French,
and eight Indigenous languages . . .
broadcast . . . from around the world
[as] a pan-Canadian service reflect[ing]
Canada and Canadians in both official
languages . . . and is a significant
contributor to the cultural fabric of
Canada through the promotion and
creation of a variety of programming.’’).
Thus, in addition to the demand for
the usual complement of distantly
retransmitted programming that exists
throughout the wider United States, in
the Canada Zone there exists this
additional demand. Such greater
demand means that CSOs would choose
to pay more than the minimum fee by
adding CCG stations, and thus Canadian
claimant programming, to their channel
lineup. Accordingly, CSOs in the
Canada Zone would very likely be
overrepresented in the cohort of aboveminimum-fee-paying CSOs in Tyler
ACWDT fig.6.3.
The problem this creates, for present
purposes, is that the Judges are
allocating a royalty pool for which, over
the period 2015–2017, more than 90%
of the funding came from minimum-feeonly CSOs. Thus, while the data from
above-minimum-fee-paying CSOs (i.e.,
in Tyler ACWDT fig.6.3) provides useful
economic evidence of CSOs’ revealed
preferences for other claimant
categories, with regard to CCG content
and value, this data is distortionary as
applied to the Judges’ task of allocating
all U.S. royalties.
Confirmatory of this distinction is the
fact that CCG itself has not proposed
that it receive the anomalously high
allocations suggested by the data in
Tyler ACWDT fig.6.3 (23.2% in 2015,
31.1% in 2016, and 34.6% in 2017).
Rather, CCG has proposed that it receive
14.8% for 2015, 13.7% for 2016, and
13.6% for 2017. CCG PFF ¶ 617 fig.53.
Further, CCG filed its Proposed
Findings of Fact on June 15, 2023, and
it was aware of the higher CCG shares
in Tyler ACWDT fig.6.3 since that
document was filed on September 2,
2022. And yet at no time did CCG ever
seek to adopt the higher CCG share set
forth in Tyler ACWDT fig.6.3.
Accordingly, in their allocations
based on the Tyler Model regression, for
2015–2017, the Judges utilize the CCG
shares reported at Tyler ACWDT,
Fig.3.2. The difference in shares,
compared to the CCG share in Tyler
ACWDT 6.3, is allocated
proportionately among the other five
categories, as set forth in the table for
Adjustment A below:
Program
suppliers
(%)
Year
2014 .........................................................
2015 .........................................................
2016 .........................................................
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JSC
(%)
CTV
(%)
37.2
2.37
1.63
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PTV
(%)
11.3
12.76
16.68
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SDC
(%)
14.0
14.34
18.43
28JNN2
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10.95
10.41
CCG
(%)
6.5
13.3
13.6
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ADJUSTMENT A TABLE
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ADJUSTMENT A TABLE—Continued
Program
suppliers
(%)
Year
2017 .........................................................
JSC
(%)
42.79
CTV
(%)
0.65
PTV
(%)
12.84
SDC
(%)
18.41
CCG
(%)
10.11
15.2
The Judges recalculated the shares of the other five claimant categories by: (1) calculating the percentage each category represents of all the
categories’ shares except CCG; (2) multiplying each percentage by the reduction in the CCG share generated by replacing the CCG column of
Tyler ACWDT fig.6.3 with Tyler ACWDT fig.3.2; and (3) adding that product to the shares of each claimant category.
A further adjustment is still required.
As noted supra regarding the PTV share,
the Judges are adopting the downward
adjustments made by Dr. Bennett to
reflect the presence of Must Carry PTV
stations. See Bennett WRT fig.52. The
Judges apply those adjustments, and
recalculate the shares of the other
parties as set forth in the table for
Adjustment B below:
ADJUSTMENT B TABLE
Program
suppliers
(%)
Year
2014
2015
2016
2017
..........................................................................................
..........................................................................................
..........................................................................................
..........................................................................................
JSC
(%)
26.80
47.67
40.75
44.07
CTV
(%)
37.48
2.44
1.69
0.67
PTV
(%)
11.38
13.14
17.32
13.23
SDC
(%)
13.36
11.78
15.32
15.96
CCG
(%)
4.33
11.28
10.81
10.41
6.55
13.70
14.12
15.66
The Must Carry adjustment in Bennett WRT fig.52 was based on the PTV shares of all CSO royalties, whereas the Judges are applying this adjustment to the
shares of CSO royalties attributable to shares generated by CSOs paying above the minimum fee (subject to the prior adjustment for CCG, discussed supra). So, for
2014, the percentage point adjustment to the PTV share is the percentage point adjustment in Bennett WRT fig.52. For 2015–2017, the percentage point adjustment
to the PTV share is calculated for each year by (1) finding the percentage of PTV shares reflected by the PTV shares from Tyler WRT fig.6.3 ÷ PTV’s shares from
Tyler WRT fig.3.2, (2) multiplying that percentage by the percentage point adjustment in Bennett WRT fig.52, and (3) subtracting that product from the PTV share
from the table above.
The shares of the other claimants are adjusted upward by: (1) calculating the percentage each category represents of all the categories’ shares except PTV, (2)
multiplying each percentage by the Bennett Must Carry adjustment (reduced as set forth above), and (3) adding that product to the shares of each claimant category.
There remains a final adjustment. The
Judges note that PTV argued that a
significant number of its stations were
retransmitted by CSOs together with
WGNA prior to the WGNA conversion,
thereby generating a base fee royalty and
an expressly revealed preference and
willingness-to-pay. PTV further notes
that post the WGNA conversion, many
of these CSOs continued to retransmit
the same PTV station, but this did not
trigger the base fee because the
minimum fee applied (with WGNA
gone). PTV maintains that the preWGNA conversion carriage is probative
of the fact that the post-WGNA
conversion evidences economic value as
if it were generating base fee royalties.
PTV PFF ¶ 60 (and record citations
therein). The Judges agree.
On this issue, there is evidence in the
form of Mr. Harvey’s analysis done on
behalf of JSC. Specifically, Mr. Harvey
reported:
The number of PTV Only systems
increased after the WGNA conversion from
44 at the end of 2014 to 173 by the end of
2017. PTV Only Systems that had carried
WGNA and PTV in 2014 account for threefifths of that increase.
Harvey WDT ¶ 106. The Judges find that
Mr. Harvey’s reporting demonstrates
that 44% of the PTV stations that were
identified as retransmitted by
minimum-fee-paying CSOs after the
WGNA conversion had been transmitted
pre-conversion and generated base fee
royalties. That is persuasive evidence of
ongoing marketplace value.
Accordingly, the Judges use that factual
finding to increase by 44% the PTV
share modification, as set forth in the
table for Adjustment C below:
ADJUSTMENT C TABLE—APPLYING THE PTV ADJUSTMENT TO REFLECT WTP OF CSOS THAT MAINTAINED PTV
CARRIAGE AFTER WGNA CONVERSION
Program
suppliers
(%)
Year
2015 .........................................................
2016 .........................................................
2017 .........................................................
44.87
37.51
40.39
JSC
(%)
CTV
(%)
2.30
1.56
0.61
PTV
(%)
12.37
15.94
12.12
SDC
(%)
16.96
22.06
22.98
10.62
9.95
9.54
CCG
(%)
12.90
13.00
14.35
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The Judges recalculated the shares of the other five claimant categories by: (1) calculating the percentage each category represents of all the
categories’ shares except PTV, (2) multiplying each percentage by the increase in the PTV share generated by adjusting to reflect WTP of CSOs
that maintained PTV carriage after WGNA conversion, and (3) subtracting that product from the shares of each claimant category.
Returning to Tyler ACWDT fig.6.3,
upon which the Judges principally rely,
the Judges’ decision to utilize and adjust
the share allocations therein is
strengthened by consideration of the
confidence intervals at various levels of
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statistical significance, relating to those
share allocations. That is, those
confidence intervals serve to confirm
the reasonableness of their share
allocation approach. In that regard, as
set forth in the table below, only one
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claimant category, JSC, has a negative
low range bound in its confidence
interval at the 90%, 95%, and 99%
confidence intervals. Moreover, the
negative value diminishes, as the
confidence interval widens. The Judges
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do not find that this one lower bound
issue is sufficient to call into question
the usefulness of the share allocations
on which they rely.
Additionally, at the 55% confidence
interval, this lower bound in fact turns
positive, as also noted in the table
below.
55%/90%/95%/99% CONFIDENCE INTERVALS FOR CLAIMANT SHARES FROM TYLER ONLY CSOS PAYING MORE THAN
MINIMUM FEE MODEL
Claimant
55% Confidence
interval
Share
90% Confidence
interval
95% Confidence
interval
99% Confidence
interval
2015
Program Suppliers ...............
JSC .......................................
CTV ......................................
PTV ......................................
SDC ......................................
CCG .....................................
41.0%
(2.4%)
2.1%
(1.5%)
11.3%
(2.2%)
12.7%
(0.8%)
9.7%
(1.2%)
23.2%
(0.9%)
39.19% to 42.81% ...............
37.05% to 44.95% ...............
36.3% to 45.7% ...................
34.82% to 47.18%
0.97% to 3.23% ...................
¥0.37% to 4.57% ...............
¥0.84% to 5.04% ...............
¥1.76% to 5.96%
9.64% to 12.96% .................
7.68% to 14.92% .................
6.99% to 15.61% .................
5.63% to 16.97%
12.10% to 13.30% ...............
11.38% to 14.02% ...............
11.13% to 14.27% ...............
10.64% to 14.76%
8.79% to 10.61% .................
7.73% to 11.67% .................
7.35% to 12.05% .................
6.61% to 12.79%
22.52% to 23.88% ...............
21.72% to 24.68% ...............
21.44% to 24.96% ...............
20.88% to 25.52%
2016
Program Suppliers ...............
JSC .......................................
CTV ......................................
PTV ......................................
SDC ......................................
CCG .....................................
31.3%
(3.0%)
1.3%
(1.9%)
13.3%
(3.4%)
14.7%
(0.8%)
8.3%
(1.0%)
31.3%
(1.4%)
29.04% to 33.57% ...............
26.37% to 36.24% ...............
25.42% to 37.18% ...............
23.57% to 39.03%
¥0.13% to 2.735% .............
¥1.83% to 4.43% ...............
¥2.42% to 5.02% ...............
¥3.59% to 6.19%
10.73% to 15.87% ...............
7.71% to 18.89% .................
6.64% to 19.96% .................
4.54% to 22.06%
14.10% to 15.30% ...............
13.38% to 16.02% ...............
13.13% to 16.27% ...............
12.64% to 16.76%
7.55% to 9.06% ...................
6.66% to 9.95% ...................
6.34% to 10.26% .................
5.72% to 10.88%
30.04% to 32.16% ...............
28.80% to 33.40% ...............
28.36% to 33.84% ...............
27.49% to 34.71%
2017
Program Supplier .................
JSC .......................................
CTV ......................................
PTV ......................................
SDC ......................................
CCG .....................................
33.0%
(2.2%)
0.5%
(1.0%)
9.9%
(2.0%)
14.2%
(0.8%)
7.8%
(1.0%)
34.6%
(2.1%)
31.34% to 34.66% ...............
29.38% to 36.62% ...............
28.69% to 37.31% ...............
27.33% to 38.67%
¥0.26% to 1.26% ...............
¥1.15% to 2.15% ...............
¥1.46% to 2.46% ...............
¥2.08% to 3.08%
8.39% to 11.41% .................
6.61% to 13.19% .................
5.98% to 13.82% .................
4.75% to 15.05%
13.60% to 14.80% ...............
12.88% to 15.52% ...............
12.63% to 15.77% ...............
12.14% to 16.26%
7.05% to 8.56% ...................
6.16% to 9.45% ...................
5.84% to 9.76% ...................
5.22% to 10.38%
33.01% to 36.19% ...............
31.15% to 38.05% ...............
30.48% to 38.72% ...............
29.19% to 40.01%
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Source: Derived from data in Tyler ACWDT fig.6.3.
Note: standard errors in parentheses.
The Judges take note of the 55%
confidence level because, as they stated
in the 2010–13 Determination, there is
nothing sacrosanct about the three
confidence levels of 90%, 95%, and
99% when a court is considering
econometric analyses. In this regard, the
Judges take note of the position of the
United States Supreme Court regarding
the limited evidentiary value of
confidence intervals/statistical
significance. See Matrixx Initiatives, Inc.
v. Siracusano, 563 U.S. 27, 40 (2011)
(‘‘the premise that statistical
significance is the only reliable
indication of causation . . . is flawed.’’).
In this regard, the Judges stated in the
2010–13 Determination:
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A statistical significance level of .01, .05
and .1 . . . is ‘‘often referred to inversely as
the . . . confidence level,’’ equivalent to
99%, 95% and 90%, respectively. [ABA
Econometrics at 18]. Although ‘‘[s]ignificance
levels of five percent and one percent are
generally used by statisticians in testing
hypotheses . . . this does not mean that only
results significant at the five percent level
should be presented or considered [because]
[l]ess significant results may be suggestive,
even if not probative, and suggestive
evidence is certainly worth something.’’ [F.
M. Fisher, Multiple Regression in Legal
Proceedings, 80 Colum. L. Rev. 717–718
(1980)]. Thus, ‘‘[in] multiple regressions, one
should never eliminate a variable that there
is a firm foundation for including, just
because its estimated coefficient happens not
to be significant in a particular sample.’’ Id.
However, care must be taken not to confuse
the ‘‘significance level’’ with the
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‘‘preponderance of the evidence’’ standard,
because ‘‘the significance level tells us only
the probability of obtaining the measured
coefficient if the true value is zero,’’ so one
cannot ‘‘subtract[ ] the significance level from
one hundred percent’’ to determine whether
a hypothesis is more or less likely to be
correct. Id. See also D. Rubinfeld,
Econometrics in the Courtroom, 85 Col. L.
Rev. 1048, 1050 (1985) (‘‘[I]f significance
levels are to be used, it is inappropriate to
set a fixed statistical standard irrespective of
the substantive nature of the litigation.’’); D.
McCloskey & S. Ziliak, The Standard Error of
Regressions, 34 J. Econ. Lit. 97, 98, 101
(1996) (‘‘statistically significant’’ means
neither ‘‘economically significant’’ nor
‘‘significant [in] everyday usage [where]
‘significant’ means ‘of practical importance’
. . . .’’).
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2010–13 Determination at 3571 n.78.
The Judges apply the foregoing
principles here. To be clear, the Judges
are not substituting the significance
levels/confidence levels for the
preponderance of evidence (marginally
greater than 50%) standard. Rather, the
Judges are looking to various levels of
statistical significance/confidence
intervals to determine the probability of
obtaining Dr. Tyler’s measured
coefficient if the true value was in fact
zero. And, the Judges are not wedded to
the convention of the 90%, 95% and
99% confidence levels, because they
agree with Dr. Rubinfeld, whose treatise
is cited above, for the proposition that
‘‘if significance levels are to be used, it
is inappropriate to set a fixed statistical
standard irrespective of the substantive
nature of the litigation.’’
The nature of this litigation, as the
D.C. Circuit has held (discussed
elsewhere in this determination) is an
intensely practical endeavor, one in
which mathematical precision is not
possible, and where ‘‘rough justice’’ is
the norm. In this regard, the Judges also
follow—in addition to the Supreme
Court holding in Matrixx—the guidance
of two scholars (also quoted above in
the 2010–13 Determination) who have
written extensively to caution, as a
matter of economic ethics, against a
fixation on statistical significance:
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Statistical significance is not equivalent to
economic significance nor to . . . legal . . .
significance. . . . The core problem is that
statistical significance is neither necessary
nor sufficient for testing . . . material fact in
a court of law. . . .
Stephen T. Ziliak & Deirdre McCloskey,
Lady Justice Versus Cult of Statistical
Significance, in George F. DeMartino &
Deirdre McCloskey, The Oxford
Handbook of Professional Economic
Ethics 352–53 (2016). The need to avoid
overreliance on low levels of statistical
significance (i.e., large confidence
intervals) has been emphasized by Dr.
Kennedy, in his textbook cited by the
parties and the Judges in this
proceeding. See Kennedy, supra, at 366
(listing as one of his ‘‘Ten
Commandments of Applied
Econometrics’’: ‘‘Do not confuse
statistical significance with meaningful
magnitude.’’).
Accordingly, the Judges note
specifically that the table above shows,
with regard to the confidence intervals
for Dr. Tyler’s shares, only positive
numbers for all claimant categories in
2015 at the 55% level. Further, the table
also shows only positive numbers for all
claimant categories for all confidence
levels in all years except for JSC, with
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a lower bound value for JSC of only
¥0.13 in 2016 and ¥0.26 in 2017.170
Although the Judges find these data to
be persuasive in demonstrating that Dr.
Tyler’s shares are reasonable, they are
concerned that the intervals remain
somewhat wide, and they do not simply
dismiss out-of-hand the one negative
lower bound at the higher confidence
intervals. Relatively wide ranges in
regression results have been a previous
concern in these proceedings, as noted
with regard to the Waldfogel Model
applied to the 2004–05 proceeding:
[W]hile the Waldfogel regression analysis
provides useful information, we also find
that there are limits to that usefulness in
corroborating the Bortz survey, largely
stemming from the wide confidence intervals
for the Waldfogel coefficients. Thus, the
implied share of royalties calculated by Dr.
Waldfogel would change substantially if the
true value of the variable was at one end of
the confidence interval rather than at the
point estimate value used by Dr. Waldfogel
in his calculations. . . . Nevertheless, while
one may question the precision of the results
on this basis, it only cautions against
assigning too much weight to its
corroborative value.
2004–05 Distribution Order at 57063,
57068.
The reconciliation is different here
than in the 2004–05 proceeding,
because here the Judges are considering
the regression evidence and the Bortz
Survey evidence as essentially equally
weighted and useful (but not flawless)
evidence, rather than treating the
regression evidence as merely
corroborative of the survey evidence.
Likewise, the reconciliation will be
different than in the 2010–13
proceeding, because the Judges are not
giving any primacy to the regression
evidence in this proceeding, given how
the changes in the retransmission sector
after the WGNA conversion have
affected the available data. But the
overall point remains: As in prior
proceedings, the Judges take note of the
wide confidence intervals (and the
negative JSC coefficient at the lower
bound), as one reason to balance the
shares implied by the Tyler Model, as
adjusted above, against the results of the
Bortz Survey, also as adjusted.
XIV. 3.75% Fund
In the 2010–13 Determination, the
Judges made no distinction within the
regression approaches themselves
between allocation shares attributable to
170 The negative JSC number at the higher
confidence intervals may be the consequence of the
lower number of minutes in the regression after the
full WGNA conversion. As noted supra with regard
to small sub-categories of programming, when there
are very few minutes in the regression, the
estimates can be inaccurate.
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the Basic Fund and to the 3.75% Fund.
Rather, as here, the Judges first made
their overall allocation share decision
after applying all the useful evidence,
including evidence from the surveys
and regressions. Only then did the
Judges consider how to allocate the
claimants’ royalty shares as between the
Basic Fund and the 3.75% Fund.
Specifically, the Judges in the 2010–
13 Determination engaged in the
following approach in reconciling the
3.75% Fund with the Basic Fund: (1)
The Basic Fund percentage allocations
were made without disaggregating
royalties attributable to the 3.75% Fund
and (2) the 3.75% Fund percentage
allocations were made by ‘‘reallocat[ing]
the PTV share from [the Basic Fund]
proportionally among the categories that
participate in that fund.’’ 2010–13
Determination at 3611. In reaching this
ruling, the Judges ‘‘considered and
rejected PTV’s arguments that the
allocations of Basic Fund royalties must
be adjusted to account for PTV’s nonparticipation in the 3.75% Fund.’’ Id. (It
is undisputed that PTV cannot receive
any share from the 3.75% Fund.)
In the present case, all the parties,
except PTV, made arguments and
presented testimony proposing that the
Judges make the 3.75% Fund allocations
in the same manner as in the 2010–13
Determination.171 PTV, however,
through the Johnson Model, has
departed from the prior approach and
calculated, via regression analysis,
separate allocations for the Basic Fund
and for the 3.75% Fund. According to
PTV, this is warranted because, even
though it was not the method used
previously, the Judges have
acknowledged the ‘‘need to allocate the
Basic Fund and the 3.75% Fund
separately.’’ PTV PHRB at 36–37. But
PTV elides the fact that Dr. Johnson’s
separate modeling of the two rates is not
how the separate allocations were
accomplished in the 2010–13
Determination, as noted supra.
As other parties note, the approach
sought by PTV and Dr. Johnson is not
only inconsistent with the Judges’ prior
approach, but also inconsistent with the
facts and with economic theory. As Dr.
George comprehensively explained:
171 CTV, through its counsel, proposed an
alternative method for allocating the 3.75% Fund in
its RPHB at 64–65. However, this proposed
alternative was not linked to any portion of the
record, directly or indirectly. Factual assertions
cannot be made after the close of evidence and, in
any event, cannot be made by counsel. The Judges
therefore do not consider CTV’s alternative 3.75%
Fund proposal. See Johnson v. Copyright Royalty
Board, 969 F.3d 363, 383 (D.C. Cir. 2020) (rejecting
the Judges’ reliance on a party’s proposal made ‘‘for
the very first time after the evidentiary record was
closed.’’).
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Dr. Johnson’s model produces biased
results because it excludes 3.75% fees. Dr.
Johnson’s model relates base rate royalties
rather than total royalties to claimant
programming minutes. . . . [T}his approach
does not align with the economic theory that
supports regression estimates in these
proceedings. Specifically, profit
maximization dictates that systems add
distant signals if the full incremental value
exceeds the full incremental cost. By
excluding royalties associated with 3.75%
fees, coefficient estimates do not reflect the
full cost of distant signal carriage and hence
do not reflect the full value of claimant
programming. Stated another way, a cable
system’s choice to carry a signal subject to
3.75% fees reveals the system’s willingness
to pay for signals to be higher than the
royalty expenditure Dr. Johnson includes in
his regression. Omitting 3.75% fees from the
dependent variable will produce regression
coefficients that systematically overstate the
value of public television programming not
subject to 3.75% fees and systematically
understate the value of other programming.
Dr. Johnson separately estimates his
regression model using only fees paid to the
3.75% fund. This model suffers from the
same problem as considering base rate
royalties alone: the dependent variable does
not reflect the full incremental costs of
carriage, so the model produces biased
estimates of program values. These estimates
also cannot be used to estimate the relative
market value of programming because they
do not reflect the economic choices of
systems in the cable marketplace.
George WRT at 23–24 (emphasis added).
See also Commercial Television
Claimants’ Post-Hearing Brief in
Support of Proposed Royalty
Allocations at 48 (CTV PHB) (‘‘Dr.
Johnson’s isolation of the base and
3.75% fees is inconsistent both with
basic economic intuition and statistical
evidence of a correlation between those
carriage decisions and thus does not
account for the link between these
retransmission decisions.’’); PS PHB at
55 (‘‘There is no rational economic
reason to exclude decisions relating to
the carriage of non-permitted stations in
assessing CSO preferences.’’).
The Judges agree that it makes no
economic sense to separate out the two
royalty fund payments when the CSOs
would economically make no
distinction between the two funds when
identifying their royalty costs and
benefits. (That is, money is fungible,
and the CSOs would be indifferent as to
how their royalty payments were
divided between the two funds.)
Further, the Judges are struck by the fact
that PTV and Dr. Johnson did not take
note of this point when proposing their
novel approach, and that PTV’s novel
approach just so happened to
significantly increase PTV’s allocation
share in the Basic Fund. See CTV PHB
at 48 (and record citations therein) (‘‘[I]f
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Dr. Johnson had estimated his
regression using both the base fee and
3.75% fee, the implied shares for PTV
would have dropped by more than 5%
. . . from 2015 to 2017.’’). See also
Johnson WRT tbl.4 (acknowledging a
five-percentage point increase in PTV’s
Basic Fund over the 2014–2017 period,
from 43.5% to 48.5% (an 11.5%
increase in PTV’s share), by separating
out the allocations for the two funds).
Accordingly, nothing was
persuasively presented in the regression
analyses to support a deviation by the
Judges from establishing the 3.75% fund
allocations as they adopted in the 2010–
13 Determination.
XV. Industry Experts
A. Assumptions Regarding CSO
Behavior
PTV offered industry expert testimony
Lynne Costantini who testified that
cable companies evaluate whether to
add, delete or maintain channels on
their lineups by analyzing the overall
value a particular channel adds to their
content offerings and the ability of the
programs on the channel to attract and
retain pay TV subscribers, within the
context of the programming mix on the
then-current lineup, as well as
technological and economic
constraints.172 Written Direct Testimony
of Lynne Costantini, Trial Ex. 7301, at
5 (Costantini WDT); 3/27/23 Tr. 1591–
92 (Costantini). She then offered her
opinion that, based on the
aforementioned programming goals of
CSOs, the relative value to cable
companies of programs included in PTV
Distant Broadcast Stations had
increased. Costantini WDT at 8–10.
Several other industry experts attested
to the value of programming that attracts
and retains subscribers. See, e.g.,
Written Direct Testimony of Kate Alany,
Trial Ex. 7302, at 2 (Alany WDT); Singer
WDT at 7–8; Written Direct Testimony
of Daniel Hartman, Trial Ex. 7110, at 7–
9 (Hartman WDT); Witmer WRT at 7;
Written Direct Testimony of Alex Paen,
Trial Ex. 7603, at 13.
Sue Ann Hamilton, an industry expert
whose testimony on behalf of Program
Suppliers in the 2010–13 Cable
Proceeding has been submitted as
designated testimony in this proceeding,
testified that a CSO’s selection of
stations for distant retransmission is
marked by inertia, not by an affirmative
analysis and weighing of alternative
172 This testimony is consistent with the Judges’
findings in prior distribution proceedings 2010–13
Determination at 3590 (‘‘CSO executives’ valuations
reflect their conclusions regarding the extent to
which the category of programming contributes to
the return on that investment; i.e., helps the cable
system attract and retain subscribers.’’).
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54233
stations. Written Direct Testimony of
Sue Ann Hamilton (2010–2013), Trial
Ex. 7061, at 7 (Hamilton WDT (2010–
13)). She identified two reasons for CSO
inertia. First, distant retransmission
costs represent a non-material
expenditure for CSOs compared with
their other more expensive
programming and carriage decisions. Id.
at 9. Second, she testified that CSOs are
more concerned with losing existing
subscribers if they drop certain stations
and the associated programs than they
are with whether or not any new
retransmitted station and its associated
programs might entice new subscribers.
Id. In industry jargon, CSOs are more
concerned with legacy distant signal
carriage than with adjusting the roster of
distantly retransmitted stations. Id. at
15. Thus, Ms. Hamilton implied, any
correlation between program categories
and royalties is spurious, because it is
‘‘inconsistent with [her] understanding
of how CSOs actually make distant
signal carriage decisions.’’ Id.
The Judges again find that Ms.
Hamilton was a knowledgeable and
credible witness, particularly with
regard to the de minimis impact of
distantly retransmitted stations on CSOs
and the importance of ‘‘legacy carriage.’’
Moreover, the Judges take note that CSO
time and effort are themselves finite
resources (opportunity costs), and, as
Ms. Hamilton implied, it would
behoove a rational CSO to expend more
of those resources making carriage and
programming decisions with a greater
financial impact.173
Based on the entirety of the record,
the Judges do not find that the relative
unimportance of distantly retransmitted
stations to a CSO has deprived the
regressions in evidence of value in this
proceeding. Even if CSOs emphasize
legacy carriage over potential increases
in value from adding or substituting
different local stations for distant
retransmission, otherwise wellconstructed regressions remain a
reliable approach to capture the relative
values of those legacy-based decisions.
The Judges are mindful that regression
analyses provide benefit because they
look for a correlation between economic
actors’ choices (the independent
explanatory variables) and the
dependent variables as potential
circumstantial evidence of a causal
173 Given the low value of retransmitted stations,
a CSO might rationally emphasize the value of
‘‘legacy carriage’’ as a heuristic (without further
analytical effort), assuming as Ms. Hamilton
implies, that eliminating a distantly retransmitted
legacy station and its programs is more likely to
cause a loss in subscribers than a change in station
lineup is likely (without further and costly
analytical effort) to increase the number of
subscribers.
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relationship, but they do not purport to
explain what lies behind such a
potential causal relation.
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B. Value
1. Volume of Programming Minutes
Several industry expert witnesses
testified that, from a distributor’s
perspective, the value and volume of
certain categories of programming are
not correlated. See, e.g. Witmer WRT at
11; 4/10/2023 Tr. 4050:11–4051:8
(Witmer); 4066:1–3, Singer WDT at 19;
Singer WRT at 8; Hartman WDT at 23;
Written Rebuttal Testimony of Daniel
Hartman, Trial Ex. 7111, at 9 (Hartman
WRT); Written Direct Testimony of John
S. Sanders, Trial Ex. 7500, at 25
(Sanders WDT).174 Such testimony was
generally offered to challenge the
regression analyses that look to the
relationship between the total royalties
paid by cable operators for carriage of
distant signals and the quantity of
programming minutes by programming
category a reliable methods to assign
relative market value. A similar
indication, that value and volume of
certain categories of programming are
not necessarily correlated, was also
expressed by industry experts who
testified on behalf of proponents of
regression analyses using minutes of
programming. For instance, Lynne
Costantini, industry expert offered by
PTV, testified that ‘‘you don’t sell
programming or buy programming
based upon the number of minutes.’’ 3/
28/23 Tr. 1735–36 (Costantini).
However, industry experts also
cautioned against simply looking at the
price of programming and not weighing
the volume of licensed content available
to consumers when assessing relative
marketplace value. 4/19/23 Tr. 5406–07
(Homonoff).
Based on the entirety of the record,
the Judges are not persuaded by
industry expert testimony that the value
and volume of programming are not
correlated. The industry expert evidence
is set against the more well-established
sound economic reasoning underlying
the regression analyses in this
proceeding. The explanation for the
Judges finding logical economic bases to
rely on allocations based on
programming minutes by programming
category from the regression analyses is
addressed supra.
That is not to say that regressions
correlating program category minutes
174 At the same time, several of the same JSC
experts conceded that there is a relationship
between price, or willingness to pay, and quantity
of live team and professional sports games. 4/3/23
Tr. at 2798–99 (Singer); 4/05/23 Tr. at 3317, 3318
(Warren); 4/10/23 Tr. at 4072–73 (Witmer).
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and a measure of royalties is necessarily
the only way to determine value. As
discussed elsewhere in this
determination, and as confirmed by
some of the industry testimony, the
Judges recognize that certain categories
of programming, particularly JSC
programming, bundled together with
programming from other claimant
categories, can have a value (in terms of
retaining or adding subscribers)
necessarily that is not well-correlated
with overall program minutes. To the
extent that this bundling of
programming with varying values is not
smoothed out by the averaging
undertaken by the regressions, survey
analysis would be an appropriate tool to
identify such value to a CSO within a
station bundle.
2. Unique Niche Content
CCG, JSC, and SDC assert that the
regression analyses fail to adequately
capture the value of ‘‘niche’’
programming or to appropriately reflect
the testimony of industry expert fact
witnesses concerning the salient market
conditions in the cable industry during
the years at issue in this proceeding.
CCG PFF at 178–79 and record citations
therein; SDC PFF at 64 and record
citations therein; JSC PFF at 58–59 and
record citations therein.175 The Judges
were urged to test the validity of
regression analyses against other
evidence of value, as a ‘‘reality
filter.’’ 176
JSC’s industry expert witnesses
testified that JSC content is unique as
‘‘perishable’’ content. 4/3/23 Tr. 2750
(Singer). That is, each live game is a
singular, real-time event. Mr. Singer
asserted that JSC content is largely
unique in the marketplace as among the
last regularly scheduled ‘‘tune-in’’
programs. He added that live sports
competitions are mostly only important
while they are taking place, do not lend
themselves to recording, and are not
compelling on replay. He further stated
that sports are popular with a passionate
segment of customers of the type that
television distributors focus on
175 JSC
also asserted that regression analysis was
unreliable as it overvalued certain content types in
relation to JSC content, pointing to valuations of
paid programming, devotional content, and public
television content. JSC PFF at 60–65 and record
citations therein
176 Asker WRT at 45 (‘‘It is standard practice in
econometric research to test the external validity of
findings whenever alternative methods are available
to answer the same question.’’); Harvey WRT at 38–
41; 3/28/23 Tr. 1910:3–1911:3 (Harvey) (agreeing
with Judge Strickler that ‘‘validity test’’ is
synonymous with ‘‘reality filter’’); 4/18/23 Tr. at
5168:8–5169:8 (George) (urging that the reality filter
should reflect the relevant marketplace being
considered/measured), See also, CCG PPFCOL at 31
and record citations therein.
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retaining. Singer WRT at 4–5.177 Such
sentiments, offered as an indication of
the unreliability of regression analyses
and their results, were reiterated by
additional JSC industry expert
witnesses. 4/5/23 Tr. 3349–50
(Hartman); Witmer WRT at 9; 4/10/23
Tr. 4061–62 (Witmer); Hartman WDT at
10; JSC PFF at 134–41 and record
citations therein.
SDC points to similar assertions from
industry experts regarding the value of
its niche content. Written Direct
Testimony of Toby Berlin, Trial Ex.
7508, at 7–10; Written Rebuttal
Testimony of John S. Sanders, Trial Ex.
7501, at 27 (Sanders WRT); SDC PFF at
76–79 and record citations therein.
Program Suppliers noted that niche
programming is not limited to
devotional content, and that non-JSC
‘‘Other Sports’’ programming is valued
as niche programming. PS PFF at 18–19,
citing 4/10/23 Tr. at 3824–25 (Berlin),
and other record citations therein.
Similarly, CCG observed that its
programming, including French content,
qualifies as unique and valuable niche
programming that attracts and retains
subscribers. CCG PFF at 178–79, citing
Kirshenblatt WDT at 10–18.
The Judges find Mr. Singer and Mr.
Berlin to be particularly credible
witnesses in relation to their testimony
regarding the unique value of JSC
content and SDC content in relation to
the other content categories during the
relevant time period. Based on the
entirety of the record, the Judges are
persuaded that evidence of the unique
value of CCG, JSC, and SDC content
serves as a limitation on the
applicability of certain proposed
regression analyses and their resulting
proposed allocation results. These
validity test or reality filter findings do
not negate valid application of
regression analyses as a basis for
allocation. However, these factors are
taken into account within the Judges’
weighting of the allocation
methodologies, including application of
the Bortz survey, as addressed infra.
3. Streaming and Availability on Other
Platforms
JSC testified that the value of
programming is diminished when that
same type of content is available
elsewhere, especially for cheaper or no
cost. 4/3/23 Tr. 2749 (Singer); 4/5/23 Tr.
177 Mr. Singer asserted that games are particularly
valuable cases of retransmission to geographic areas
with deep affinity to specific teams. Singer WDT at
17–18. Several examples of such transmissions
were cited to by JSC. JSC PFF at 28–30 and record
citations therein. This assertion was disputed by
Program Suppliers as merely anecdotal. PS PFF at
43–44 and record citations therein.
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3357 (Hartman); Hartman WDT at 18–
19. The JSC industry expert witnesses
testified that there is a lower risk of
losing any subscribers when such
content is not carried. Witmer WRT at
14; 4/5/23 Tr. 3378:12–24 (Hartman);
Hartman WDT at 18–19. These
sentiments were echoed by PTV’s
industry expert Lynne Costantini.
Costantini WDT at 7; 3/28/23 Tr. 1718–
19 (Costantini).
SDC pointed to testimony of a similar
dilutive effect from streaming, regarding
Program Suppliers’ programming. SDC
noted that syndicated series and movies,
represented in Program Suppliers
content, historically had often
exclusively run on broadcast stations,
but were increasingly becoming
available on streaming platforms, which
grew in popularity during the relevant
period. SDC PFF at 108, citing
Costantini WDT at 7; Hartman WRT at
10–11. SDC also argued that its content
did not suffer from a dilutive effect from
streaming, as streaming services were
not designed to cater to devotional
audiences, thus preserving the retentive
value of SDC content to CSOs. SDC PFF
at 109–10 and record citations therein.
Program Suppliers asserted that while
syndicated shows and movies are
available on streaming platforms, that
does not necessarily detract from the
value of such programs on distant
signals. It noted that that as streaming
rose, the volume of Program Supplier
content carried on distant signals rose as
well. 4/19/23 Tr. at 5408 (Homonoff).
CCG testified that while significant
CCG content was offered through
streaming, it was generally only after
exclusive premier via broadcast.
Kirshenblatt WDT at 11–13; see also
Written Direct Testimony of Tom Cox,
Trial Ex. 7401, at 1–2. PTV offered
testimony that during the relevant years
significant portions of PBS
programming were offered and viewed
free through various digital streaming
options. PTV also testified that PBS sold
streaming devices related to such free
streaming content. 3/27/23 Tr. 1545–50
(Alany).
CTV offered that during the relevant
period, the dilutive effects of streaming
were not present for original live and
local CTV programming or for JSC
programming, which was largely
unavailable on streaming platforms.
Written Rebuttal Testimony of Robert
Papper, Trial Ex. 7206, at 45 (Papper
WRT); Written Rebuttal Testimony of
Mike Vaughn, Trial Ex. 7205, at 4. CTV
PFF at 11–15, and record citations
therein. CTV’s industry experts, as well
as Professor Marx, were especially
convincing in distinguishing the effects
that streaming had on CTV content
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versus other types of programming. See,
e.g., 4/11/23 Tr. 4240:22–4241:12; Tr.
4234:6–10 (Marx).
The Judges find credible evidence that
Program Suppliers’ content was more
predominantly available through
streaming channels during the relevant
period. Therefore, based on the entirety
of the record, the Judges find evidence
of dilutive effects to be persuasive as an
indicator of decreased relative value of
Program Suppliers content.
Additionally, the Judges find that CTV
content, especially original live local
news content, was generally not diluted
by streaming and that this is a
persuasive indicator of relative
increased value of CTV content. The
Judges apply these factors into their
weighting of allocation methodologies.
Duplication
Industry executives testified that
duplicative content does not add value
as it does not further CSOs’ goals of
subscriber retention. Singer WRT at 15–
16; Hartman WRT at 12; Witmer WRT
at.15. JSC asserted that a significant
proportion of the programming on
distant PBS signals was duplicative of
what was already available from CSOs
to subscribers, and reiterated that such
duplication did not provide value.
Harvey CWDT at 51; Witmer WRT at 14;
4/10/23 Tr. 4064:18–4065:4 (Witmer).178
JSC pointed to a study that found rates
of duplication for these programs to be
as high as 98.9%. Harvey CWDT at 55
tbl.28. Mr. Papper also asserted that
programming on PTV stations is mostly
duplicative and much of it at the exact
same time. Papper WRT at 15. Mr.
Papper provides specific examples to
demonstrate duplicative airing of
programming, all demonstrating higher
duplication than the overall result
average. Id at 16–41. Mr. Papper notes
that the duplication was a bit lower in
2016 and 2017, but there still is
significant duplication of programming.
Id. at 41. In contrast, duplication with
CTV signals was perceived as minimal.
Id. at 42. Mr. Papper argues the large
amount of duplicative programming
rarely provides a good reason to import
a distant PTV signal unless there really
is not a local one. He argues this is
supported by the data in which during
the 2014–2017 period, only slightly
more than a third of the systems and
slightly over a quarter of the subscriber
groups had both a distant and local PTV
signal. Id.
The assertions against finding value of
duplicative programming were
criticized for treating programs as
duplicative even if they did not air at
178 SDC offered a similar view of PTV content.
See SDC PPFCOL at 112, record citations therein.
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the same time on both the distant and
the local signal or even if the distant
and local signals aired different
episodes of the same program. Johnson
WRT Ex. 7303 at 40–44.179 Dr. Johnson
argued that different episodes of the
same program are distinct programming,
and a single episode of a program can
create incremental value if shown at a
different time. Dr. Johnson conducted
an analysis of duplication and found
that only approximately 20 percent of
PTV programs were retransmitted to
subscriber groups at the same time as a
local broadcast. Id. at 41. JSC addressed
the former point by the minimal value
of time-shifted programming does not
accrue to retaining cable subscribers. 4/
3/23 Tr. 2764:13–19 (Singer).
Based on the entirety of the records,
the Judges find that significant
duplicative content does not, in general,
have the same value as non-duplicative
programming. The industry experts
presented reliable testimony that
simultaneous or near simultaneous
programming does not enhance the
ability to attract and retain customers.
However, the Judges also find that time
shifted programming does have some
value to customers, affording them
greater flexibility in their viewing, and
therefore provides customer retention
value to CSOs. The Judges address this
factor in making adjustments to
regression methodologies (the Bennett
adjustment) and in the Judges’
weighting of the allocation
methodologies.
4. Bandwidth
Ms. Costantini testified that CSOs’
programming decisions should reflect
the highest and best use of scarce
bandwidth, and that all decisions to
carry programming are thus necessarily
indicative of value. Regarding
bandwidth issues, Ms. Costantini
challenged the testimony of other
industry experts (addressed below) by
asserting that bandwidth considerations
were a significant factor in the
programming decision-making of cable
companies during the relevant time
period. Costantini WRT at 3–6. She
testified that during the relevant period,
many cable companies provided three
distinct products: pay TV, broadband
internet (important to support internet
video products) and IP phone, each of
which competed within the CSO that
was seeking the most profit able uses of
179 PTV’s witness Ms. Alany acknowledged
duplication as an issue, suggesting that local public
television stations may adjust programming
schedules in order to avoid or minimize
duplication, but did not offer any evidence of such
adjustments having taken place. Alany WDT at 21;
3/27/23 Tr. 1557:20–25 (Alany).
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appropriate amounts of bandwidth. Ms.
Costantini testified that CSOs placed
more value on broadband internet than
CSO television programming. Costantini
WRT at 4; 3/27/23 Tr. 1597–1605
(Costantini). In support of this view, she
pointed to her professional experience
while seeking cable distribution during
the period 2012–2016, including
negotiations with CSOs that oftentimes
cited bandwidth allocation as a reason
not to carry a new channel. Costantini
WRT at 5–6. However, Ms. Costantini
also testified to an inability to determine
whether ‘‘most or many or the majority’’
of CSOs even provided internet service
(bandwidth) during the relevant time
period. 3/27/23 Tr. 1613 (Costantini).
Ms. Witmer testified that during the
relevant period, advances in digital
technology meant that bandwidth was
no longer a significant driver of carriage
decisions. Witmer WRT at 7 n.3. Ms.
Witmer asserted that deployment of
switched digital technology, headend
consolidations, and reclamation of
analog bandwidth cable channels
opened up considerable digital
bandwidth on systems that enabled the
launch of more channels and other
consumer products such as telephone
and broadband services. Several other
industry experts also testified that
bandwidth was no longer a constraint
during the relevant period. Singer WDT
at 7; Singer WRT at 5; 3/30/23 Tr.
2595:13–2597:24 (Majure); 4/3/23 Tr.
2764:20–2765:14 (Singer).
Based on the entirety of the record,
the Judges are not persuaded that
bandwidth remained a significant
concern for most CSOs who the record
established employed more advanced
technology than in previous periods.
Bandwidth allocation may have been a
legitimate but un-specific concern for
smaller CSOs that had not employed
improved digital technologies in the
early years of the relevant time period.
However, on the current record, the
Judges are not able to perceive any
reliable scope of bandwidth being a
significant concern for CSOs in relation
to programming decisions. Therefore,
the issue does not impact the Judges
consideration of the methodologies or
resulting allocations offered this
proceeding.
5. Other Factors: Cost, Acclaim, Trust
Ms. Alany’s offered testimony to
indicate relative market value of PTV
content is demonstrated by production
cost and quality/acclaim of content as
well as the level of trust that PBS enjoys
in the public eye. See, e.g., Alany WDT
at 6–12, citing PBS Trust Brochures
2014–2018; 3/27/23 Tr. 1535:16–1537:1
(Alany). Other industry experts also
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offered similar testimony regarding
production cost matters and quality/
acclaim. 4/13/23 Tr. at 4918–21 (Paen).
In response, other expert witnesses
argued that such characteristics do not
equate to the ability to attract and retain
subscribers and economic value. Singer
WRT at 17–18; Hartman WRT at 13–15;
Witmer WRT at 16. Ms. Witmer, on
behalf of JSC, added that the notion that
costs of such programming should be
considered in royalty share allocation is
contrary to the standard for determining
the share allocation, namely what
would a cable system pay for the
content absent the section 111 license.
Witmer WRT at 15.
Based on the entirety of this record,
the Judges are not persuaded that issues
of production cost, quality/acclaim of
content or the level of trust that a
producer enjoys in the public eye are
meaningful toward the Judges’
determination of relative market value.
The Judges understand that, at some
level, programming cost and acclaim
may impact value. However, the present
record does not equip the Judges to
evaluate these factors on a comparative
level. Sufficiently established studies of
comparative public trust in a producer’s
content especially, news content, might
be properly presented as a valid
indication of relative market value.
However, the present record, including
PBS-commissioned trust survey, does
not provide a reliable basis for
determining the ability to attract and
retain subscribers or for adjusting the
Judges’ determination of relative market
value. In this regard the Judges note that
PTV did not adequately correlate levels
of public trust with what CSO might be
willing to pay for programming.
Therefore, these factors do not impact
the Judges’ weighting of the main
methodologies or resulting allocations
offered this proceeding.
C. Industry Experts Regarding Bortz
Survey Respondents’ Identity and
Capacity
In her rebuttal and hearing testimony,
for PTV, Ms. Costantini challenged the
Bortz survey by asserting that the survey
likely did not reach the correct
executive that is most responsible for
carriage programming decision-making
in more than 75 percent of the surveyed
cable systems across the four years for
the following reasons. Costantini WRT
at 6–10, 18–47; 3/27/23 Tr. 1621–25,
1595–96 (Costantini). She maintained
that the survey likely did not interview
the individuals most responsible for
programming carriage decisions for
these cable systems. Id. She appeared to
accept that Bortz Media used the
Television & Cable Factbook (Factbook)
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to identify contacts for each respective
system, particularly telephone numbers,
and that Bortz Media usually selected
the senior-most executive from that
cable system to list as the initial point
of contact or the survey questionnaire.
Costantini WRT at 6–7. However, she
indicated the approach was faulty
because the Factbook does not
specifically identify programming
carriage decision-makers. She stated
that in her experience job position titles
at cable companies are insufficient
without other data points to assess
whether the individual is likely to be
most responsible for programming
decisions. She testified that in the
majority of instances, the description of
Bortz respondents’ positions do not
indicate programming decision-making
responsibilities. Costantini WRT at 8.
Ms. Costantini also noted that while
some respondents are unlikely to be
most responsible for programming
carriage decisions, especially for larger
cable companies, in some instances,
they may provide valuable input
regarding programming carriage to the
ultimate decision-makers. She added
that the persons holding regional
management positions are not
necessarily more likely to be most
responsible for making programming
decisions and that at larger cable
companies persons holding regional
management positions would not be the
persons most responsible for making
programming decisions. 3/27/23 Tr.
1621–22 (Costantini). She also found
that it would be highly unlikely for the
title or position of the person most
responsible for making programming
decisions at a cable system to change
year to year, as was alleged to be the
case in the Bortz survey. Costantini
WRT at 9. These factors led Ms.
Costantini to opine that Bortz likely did
not interview the persons most
responsible for programming carriage
decisions for more than 75% of the
surveyed cable systems across the four
survey years. A summary of these issues
was included as Table 1 to her rebuttal
testimony. Costantini WRT at 18–47.
Ms. Costantini added that the
Factbook data are potentially unreliable
as a foundation from which Bortz could
ascertain the persons most responsible
for making programming decisions at
the surveyed CSOs. Costantini WRT at
6–7. She also found fault with the Bortz
survey’s failure to attempt to
independently validate the respondents’
roles and responsibilities utilizing
publicly available sources such as
LinkedIn or cable companies’ websites,
or by asking other questions to confirm
they were speaking to the appropriate
person. Costantini WRT at 6–7.
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Ms. Costantini testified that the
questions asking respondents to assign
importance, cost, and value to
programming on distant broadcast
stations are inconsistent with how
programming carriage decisions are
made by cable companies. Costantini
WRT at 10. She maintained that station
carriage decisions are not made based
upon inclusion or exclusion of a
category or genre of programming, but
rather on the entire bundle of the distant
broadcast station’s programming
schedule. Costantini WRT at 9.
Ms. Costantini opined that the Bortz
survey questions lacked the qualitative
and quantitative specificity needed for
respondents to accurately answer
questions and that respondents would
not necessarily understand the
terminology used in the questions, and
that the questions do not sufficiently
address the interplay and overlap across
some categories. Costantini WRT at 12–
13. A similar concern was also asserted
by Sue Ann Hamilton who testified in
the 2010–13 Cable Proceeding that the
programming categories adopted in
royalty distribution proceedings are
unique and ‘‘quite different from the
industry understanding of what
programming typically falls in a
particular programing genre.’’ Hamilton
WDT (2010–13) at 10. Oral Testimony of
Sue Ann Hamilton (2010–13), Trial Ex.
7063, at 4309, 4312; Written Rebuttal
Testimony of Sue Ann Hamilton (2010–
13), Trial Ex. 7062, at 17–18 (Hamilton
WRT (2010–13)). For example, she
testified that ‘‘most cable operators’’
would not recognize that pre- and postgame interviews and highlight
compilation telecasts would fall into the
Program Suppliers category, or that
locally produced high school team
sports would fall into the Commercial
Television category. Id. at 11. Ms.
Hamilton further opined that cable
operators were not likely to differentiate
between network and non-network
sports telecasts and that migration of
live team sports programming to
regional cable networks further
complicates the equation. See Hamilton
WRT (2010–13) at 17–18.
Ms. Costantini criticizes the Bortz
Survey for not providing enough
information and time for the
respondents to answer the questions
accurately. Ms. Costantini expressed
doubt that any respondent could
accurately answer the survey questions
in the course of the telephone interview.
She also testified that it is highly
doubtful that the respondent would
need access to extensive information
that would not be readily available to
most respondents. Costantini WRT at
10–13.
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Mr. Singer and Ms. Witmer, testifying
on behalf of JSC, disagreed with Ms.
Costantini regarding inappropriate
respondents in the Bortz survey. They
testified that, while ultimate
responsibility for carriage decisions may
be at the corporate level, the individuals
with the knowledge of why specific
distant signals were carried, and why
they were valuable to the system in a
specific area, would be at the local or
regional level. 4/3/23 Tr. 2769–73
(Singer); 4/10/23 Tr. 4054–55, 4061
(Witmer). Mr. Trautman also agreed
with this assessment, adding that there
is no one-size-fits-all standard for what
position or level within a cable system
is going to be associated with the person
most responsible for programming
decisions. 4/3/23 Tr. 2845–46; 2849
(Trautman).180 Mr. Singer noted that the
relevant titles at cable systems for
individuals responsible for
programming were ‘‘all over the place’’
and that there was not necessarily just
one person responsible for programming
carriage decisions at CSOs. 3/20/23 Tr.
2770–71 (Singer). Ms. Witmer also
testified that the titles of relevant
executives were a legacy of the history
of lots of small systems that rolled up
into bigger consolidated systems, and
often had various titles, and they were
not necessarily consistent from one
system to the next. 4/10/23 Tr. 4060–61
(Witmer).
Mr. Trautman testified that use of the
Factbook as an initial point of contact or
the survey questionnaire is a feature, not
a flaw, of the Bortz survey that is an
effective tool for assuring survey
respondents are qualified. 4/3/23 Tr.
2848–49 (Trautman). He added that
while the initial target is often not the
survey respondent because ultimately,
the survey’s goal is to speak with the
person most responsible for carriage
decisions. Id.
Regarding the alleged difficult of
accurately answer the survey questions
or understand the categories at issue,
Ms. Witmer testified that the
respondents would have been able to
answer the questions. She further
testified that the categories of
programming listed in the questionnaire
make sense to her as a cable executive.
She explained that it is common in the
cable industry for channels to have
different kinds of content on them, but
that people working the cable industry
and the programming area would be
more than capable of understanding the
categories of content separate and apart
180 JSC
also noted that in a prior proceeding the
Judges noted that it is not unreasonable to think
that CSOs have maintained an institutional memory
of the requirements of these proceedings. JSC RPFF
at 32 and citations therein.
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from particular linear channels. 4/10/23
Tr. 4052–55 (Witmer).
Regarding the alleged complexity of
addressing the complexity of the Bortz
questions, JSC pointed to designated
testimony from the 2010–13 proceeding
from Mr. Hartman who explained that
‘‘when you look at the type of linear
channels that we negotiate for, they
really do fall into categories.’’ Mr.
Hartman also testified that ‘‘it’s our dayto-day job to kind of know . . . that type
of programming.’’ 2010–13 Hartman
Oral Testimony Tr., Trial Ex. 7056, at
74–75.
While Ms. Costantini raises some
reasonable concerns about the Bortz
survey, including concerns that the
titles of some respondents may not be
indicative of those most responsible for
programming carriage decisions, the
Judges observe that her criticisms were
routinely accompanied by significant
caveats, such as being generally
applicable, and focused on larger cable
companies. Furthermore, the Judges
note her acknowledging that ‘‘there are
lots of corner cases’’ regarding
appropriate titles of respondents.181 3/
27/23 Tr. at 1621–22 (Costantini). Based
on the entirety of the record, the Judges
are not persuaded that the issue of the
respondents’ titles is reason to disregard
reliance on the Bortz survey.
Furthermore, the Judges find that use of
the Factbook as a starting point in
pursuing the appropriate respondents is
not unreasonable. The Judges do not
discount the reasonable concerns that
were established regarding titles, which
is a factor the Judges take into account
within the Judges’ weighting of the
Judges’ reliance on the various
allocation methodologies.
Additionally, the Judges find some
aspects of Ms. Costantini’s criticism of
the Bortz survey questions are
undermined by her testimony, which
depicted a high level of competency as
a cable industry executive who
possessed a detailed understanding of
nuances underlying the questions in the
Bortz survey. The Judges note Ms.
Costantini’s testimony of her own prior
roles in which she held significant
responsibility for programming carriage
decisions for the Time Warner cable
system and was [REDACTED] 3/27/23
Tr. at 1642–43 (Costantini). Ms.
Costantini’s written and oral testimony
indicated that she would be capable of
providing meaningful responses to the
sort of questions posed in the Bortz
181 The reference to lots of ‘‘corner cases’’
represents the use of an engineering term indicating
a situation that occurs outside normal operating
parameters. See Corner Case, Wikipedia, https://
en.wikipedia.org/wiki/Corner_case (last visited
Aug. 28, 2023).
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survey, including while in roles that she
was not the person most responsible for
programming carriage decisions.
With regard to the categories in the
Bortz survey questions and the
categories in this proceeding, the Judges
observe that they have not changed for
decades, giving CSOs time to acquaint
themselves fully with the programming
comprising each agreed category. In the
Judges view, it is not unreasonable to
conclude that, even with changes in
personnel, the CSOs have maintained an
institutional awareness of the subjects
and categories at issue in the survey and
in this proceeding, and therefore that
the Bortz respondents had adequate
ability to understand the relevant
terminology in the Bortz questions.
Based on the entirety of the record,
the Judges find that the industry experts
that responded to the Bortz survey were
sufficiently equipped to offer reliable
evidence indicative of relative
marketplace value. The Judges do not
find that the respondents’ capacity to
accurately answer the survey questions
or understand the categories at issue
serves as a reason to disregard the Bortz
survey. Furthermore, the Judges do not
find that respondents’ capacity serves as
a significant negative factor in the
weighting of the various allocation
methodologies at issue in this
proceeding.
In sum, the Judges agree that the Bortz
surveys are far from a perfect measure
of relative market value, as discussed
infra. However, based on the entirety of
the record, the Judges find that despite
the offered criticisms, the surveyed
cable system executives were
sufficiently identified, competent and
familiar with the subject matter to
provide reasonably reliable
responses.182
XVI. Changed Circumstances
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The Judges may vary from prior
decisions when there are (1) changed
circumstances from a prior proceeding
or (2) evidence on the record before the
Judges that requires prior conclusions to
be modified regardless of whether there
are changed circumstances.183
In the 2014–2017 period, several
widely agreed upon changed
circumstances have taken place
including (1) WGNA’s conversion to a
cable network,184 (2) the reclassification
182 Regarding faulting the survey for excluding
PTV-only CSOs from the 2014 through 2017 surveys
received in this proceeding, the Judges address and
account for the issue infra/supra (addressing
application of adjustment).
183 2010–13 Determination at 3557 citing 1998–99
Librarian Order at 3613–14.
184 See, e.g., Harvey CWDT ¶ 7. (Distant signal
carriage patterns in 2014 closely resembled those
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of PTV signals from exempt to nonexempt,185 and (3) the rise in streaming
on alternative platforms.186
Additionally, the Judges observe that
the record regarding the conduct and
development of the survey and
regression methodologies has become
more detailed than in prior proceedings.
Based on the agreed upon record and
Judges’ findings here and throughout
the determination, the Judges find that
significant changed circumstances
occurred across the relevant period.
XVII. Survey Evidence and Expert
Testimony Relying On Surveys
A. Background
Three of the six parties in this
proceeding rely on survey evidence to
support their arguments concerning the
allocation of shares of the subject
royalty funds. For more than 40 years,
a survey approach has been offered in
royalty distribution proceedings before
the CRB and its predecessor bodies (the
CRT and CARP), more recently in
Distribution of the 2004 and 2005 Cable
Royalty Funds 187 and Distribution of
Cable Royalty Funds, Docket No.
CONSOLIDATED 14–CRB–0010–CD
(2010–2013).188 In the latter proceeding,
data from three separate surveys
administered to cable system operators
(CSOs) were offered during the hearing,
and then analyzed by the Judges in
connection with their final allocation
distribution. See 2010–13 Determination
at 3582; 4/3/2023 Tr. 2825 (Trautman).
In this proceeding, only one survey was
conducted for use in possible litigation
in connection with royalty distribution
pursuant to section 111 of the Copyright
Act, produced during discovery in
accordance with applicable
regulations,189 190 and then offered by a
from the 2010–2013 period. By contrast, starting in
2015, following the conversion of WGNA from a
superstation to a cable network at the end of 2014,
CSOs significantly decreased their use of the
section 111 license, with the vast majority of
systems electing to carry far fewer distant signals.);
See also, Marx WRT ¶¶ 6, 60; Marx ACWDT at 16,
20–26, ¶ 43; Bennett ACWDT at 11.
185 See, e.g., Marx ACWDT ¶¶ 76–77, pp.28–29.
186 See, e.g., Witmer WRT ¶ 33, p.14; Costantini
WDT ¶ 20, p.7; Alany WDT at 12.
187 See 2004–05 Distribution Order.
188 See 2010–13 Determination at 3552, 3582.
189 See, e.g., Order 27 Granting in Part and
Denying in Part PTV Motion to Compel JSC to
Produce Documents (Feb. 15, 2023); Order 30 On
Public Television’s Order to Enforce Order 27 (Mar.
31, 2023); Order 31 Further to Order 30 on Public
Television’s Motion to Enforce Order 27 (Apr. 12,
2023).
190 The Judges entered a Protective Order on
February 17, 2022, pursuant to a Joint Motion filed
by all participants. Order No. 27 created a subset
of further restricted information consisting of the
identities or other personally identifiable
information (PII) of Bortz Survey respondents for
the years 2014–2017. See Order 27 at 5 n.6, 57.
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party during the hearing. In particular,
JSC, as supported by fact and expert
testimony, argues that a constant sum
survey (in which survey respondents
allocate a fixed sum across different
categories, at least in this case, adding
up to 100 percent) is well-suited to
revealing relative market values of
distant signal programming to CSOs.
Specifically, JSC argues that the Bortz
Surveys,191 which it commissioned and
offered for the years 2014 through 2017,
reliably reveal market value relevant to
this proceeding.192 See, e.g., JSC PHB at
43–71; 4/3/2023 Tr. 2822–23
(Trautman). CTV and SDC also make
arguments that rely on the Bortz
Surveys, as did some of their experts
who testified during the hearing. See,
e.g., CTV PHB at 1–3, 42–79; Settling
Devotional Claimants’ Post-Hearing
Brief at 64–85 (SDC PHB). Yet, CCG,
Program Suppliers and PTV, supported
by testimony of their experts, oppose
reliance on the Bortz Surveys. See, e.g.,
Post-Hearing Brief of The Canadian
Claimants Group at 50–77 (CCG PHB);
PS PHB at 9–10, 57–77; PTV PHB at 38–
71, 81–82.
In addition, CTV called as an expert
witness, Prof. Robert A. Papper,193 who
testified as to trends in the local
television news industry, and
particularly his opinion as to the impact
of those trends on the relative value of
CTV programming during the period
2014–2017. His opinion relied in large
part on the results of an annual survey
that he has directed for many years,
which is called the Radio Television
Digital News Association Annual
Survey (RTDNA Survey),194 especially
articles and studies (mainly authored or
co-authored by Prof. Papper) that
concern the results of the RTDNA
Surveys for the period 2014–2017.
RTDNA Survey information, and the
articles and studies on which Prof.
Papper relied, are appended to his
written direct testimony. See, e.g., 4/11/
23 Tr. 4361–63 (Papper); Written Direct
191 JSC presented the Bortz Survey in
documentary form in a report, entitled ‘‘Cable
Operator Valuation of Distant Signal Non-Network
Programming: 2014–17’’ (Bortz Report). During the
hearing, the Bortz Report was received into
evidence as Trial Ex. 7101. 3/20/2023 Tr. 305, 316.
192 JSC offered the first Bortz Survey to the CRT
in 1983. 4/3/2023 Tr. 2824–25 (Trautman); Bortz
Rep. app. A; 2010–13 Determination at 3582.
193 Prof. Papper was qualified as an expert in
broadcast and digital journalism. 4/11/23 Tr. 4370
(Papper). He was retained by the National
Association of Broadcasters on behalf of CTV (i.e.,
the CTV claimants in this proceeding). Papper WDT
at 1.
194 The RTDNA survey was conducted for at least
two decades before Prof. Papper began to
administer it in 1994. 4/11/23 Tr. 4367 (Papper).
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Testimony of Robert Papper, Trial Ex.
7201 (Papper WDT); Papper WRT.
An issue was raised as to whether or
not large portions of Prof. Papper’s
testimony should be viewed as the
introduction of a survey or surveys,
governed by 37 CFR 351.10(e) and, if so,
whether CTV has complied with the
production requirements set forth
therein. Indeed, before the hearing,
Program Suppliers filed their Motion in
Limine to Exclude Portions of the
Testimony of Professor Robert A. Papper
(MIL) (eCRB no. 27485). In denying the
MIL, the Judges determined, inter alia,
that the written direct and rebuttal
testimonies, including the portions
subject to the MIL, ‘‘express detailed
opinions based in large part on certain
RTDNA Surveys, allowing Professor
Papper to be examined on his
opinions,’’ but that ‘‘would not
necessarily mean that the surveys were
offered or received into evidence.’’
Order 29 at 8. Application of section
351.10(e) was not required at that time.
Id. Program Suppliers made similar
objections to portions of the Papper
testimonies during the hearing. See 4/
11/23 Tr. 4354–55, 4366 (Papper); 4/12/
23 Tr. 4445–52 (Papper). Subsequently,
Program Suppliers filed their Motion to
Strike Portions of the Written and Oral
Testimony of Robert A. Papper (eCRB
no. 28213). As discussed in Order 39
denying the motion to strike, the
RTDNA Surveys were not conducted for
the purpose of litigation or offered
independently during the hearing as
evidence. Rather, the RTDNA Surveys
were relied on by Prof. Papper in
forming and presenting his expert
opinions, and the weight to be accorded
data from the RTDNA Surveys shall be
determined within the context of
evaluating Prof. Papper’s expert
opinions.
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B. The Bortz Surveys
1. Conduct of the Bortz Surveys for 2014
Through 2017
During the hearing, JSC called James
M. Trautman, Managing Director of
Bortz Media & Sports Group, Inc. (aka
Bortz Media), to sponsor the Bortz
Surveys, and their report (Bortz Report)
which formed part of Mr. Trautman’s
written direct testimony. Indeed, the
Bortz Surveys, including their report,
were prepared under Mr. Trautman’s
direct supervision at the request of
Major League Baseball, the National
Football League, National Basketball
Association, Women’s National
Basketball Association, National Hockey
League and the National Collegiate
Athletic Association (i.e., JSC in this
proceeding). Written Direct Testimony
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of James M. Trautman, Trial Ex. 7100,
at 1 (Trautman WDT); 4/3/2023 Tr.
2816–20 (Trautman). For nearly forty
years, Mr. Trautman has supervised
market research addressing a wide range
of issues, for a variety of clients,
affecting the cable and satellite
television industries, including issues
related to the valuation of television
programming. Mr. Trautman has had
primary responsibility for management
of previous CSO studies conducted by
Bortz Media for JSC and has testified
concerning these studies in several
proceedings before the Judges of the
CRB and their predecessors. In the
2010–13 cable royalty distribution
proceeding, he was qualified as an
expert; and in this proceeding, he was
qualified as an expert in market
research, including survey research,
applied market analysis and valuation
in the cable and broadcast television
industries. 4/3/2023 Tr. 2821
(Trautman).
As explained by Mr. Trautman, the
Bortz Survey is a telephone survey. He
further testified that each Bortz Survey
offered in this proceeding is a survey of
local CSOs and was designed to address
the relative value that distant signal
programming has to cable operators, or
would have in a free market. See 4/3/
2023 Tr. 2821–22 (Trautman). As
explained by Dr. Mathiowetz,195 the
Bortz Survey may be termed an
establishment survey because
respondents answered questions of
behalf of a business or other entity
rather than themselves. 4/10/2023 Tr.
3835 (Mathiowetz).
After a Bortz Survey was first offered
in a royalty proceeding in 1983, changes
have been made to the design of the
survey, sometimes in consultation with
experts outside Bortz Media or its
predecessor company. Changes were
made for the Bortz Surveys offered in
this proceeding, as compared to those
offered in prior royalty proceedings,
including the most recent proceedings
for distribution of 2010–2013 royalties.
See 4/3/2023 Tr. 2824 (Trautman); 4/4/
2023 Tr. 3013 (Trautman); 2010–13
Determination at 3582. For example, in
2015–2017, the number of cable systems
eligible for inclusion in the Bortz survey
had decreased, falling from 788 (in
2014) to 328–361 (for 2015–2017). Bortz
Media responded by shifting from
sampling eligible systems for 2014 (as it
had also done in earlier surveys) to
195 Dr. Nancy Mathiowetz was called by JSC as an
expert witness at the hearing, and was qualified as
an expert in survey research methodology,
questionnaire design and statistics. Dr. Mathiowetz
has testified before on behalf of JSC. 4/10/2023 Tr.
3828, 3835 (Mathiowetz); Mathiowetz CWDT;
2010–13 Determination at 3587.
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attempting what it refers to as a census
of all eligible systems for the surveys
conducted for 2015, 2016 and 2017.196
Thus, for 2015–2017, Bortz Media states
that all eligible systems had an
opportunity to respond to the surveys.
See Bortz Rep. at 21. Furthermore, in
response to additional changes in the
cable industry, Bortz Media modified its
questionnaire in 2015–2017 to account
for WGNA’s conversion to a cable
network, which has already been
discussed with respect to the regression
evidence received in this proceeding.197
As in earlier surveys, for the 2014–
2017 period at issue in this proceeding,
Bortz Media surveyed so-called ‘‘Form
3’’ cable systems. Form 3 systems are
those that had at least $527,600 in
semiannual gross receipts from
retransmitting broadcast signals to their
subscribers.198 According to the Cable
196 Dr. Mathiowetz testified that she treated each
of the Bortz Surveys for 2015 through 2017 as a
sample rather than a census. She testified that while
the Bortz Survey goal was to include each eligible
CSO, there is a different expectation with respect
to those Bortz Surveys and the data collection effort
compared to, for example, that of the decennial
census in the United States in which the goal is to
measure absolutely every single person in the
country. 4/10/2023 Tr. 3842–47 (Mathiowetz).
Thus, when Dr. Mathiowetz made computations of
standard errors for the Bortz Survey for 2015
through 2017, she treated each survey as a sample.
4/10/2023 Tr. 3844 (Mathiowetz).
197 Specifically, Bortz Media used two survey
instruments for the 2014 cable operator survey.
There was one form for survey respondents whose
cable systems carried distant signals in addition to,
or other than, WGNA. Appendix B (entitled
‘‘Survey Instruments’’) to the Bortz Report contains
the additional distant signals (ADS) questionnaire
that was used with those survey respondents. There
was a second form for respondents whose cable
systems carried WGNA as their only distant signal
(also included in the Bortz Report, app. B). When
using the second form, respondents were provided
with specific information about (and asked to value
only) the compensable programming on WGNA. For
the years 2015 through 2017, only the ADS
questionnaire was used because WGNA was no
longer a distant signal. Bortz Rep. at 24–25.
Similarly, changes were made to the Bortz
weighting and projection approach for 2015–2017
to account for the changes to the distant signal
landscape in that time period. See id. at 21 (citing
Bortz Rep., Section II).
198 As indicated by Dr. Mathiowetz in her written
direct testimony, pursuant to section 111 of the
Copyright Act, cable systems are classified into
three tiers based on the level of gross receipts that
they receive from their subscribers for the
retransmission of over-the-air broadcast signals.
Small-sized and medium-sized systems pay a flat
royalty fee. With respect to large cable systems (that
use ‘‘Form 3’’ when filing their SOAs at the United
States Copyright Office), royalties are calculated as
a percentage of their gross receipts based on the
distant signals they retransmit. Yet, without regard
to what (if any) distant signals a system retransmits,
all Form 3 systems must pay at least a minimum
royalty fee. See Mathiowetz CWDT at 6–7 (citing
2010–13 Determination at 3553 and 17 U.S.C.
111(d)(1)(B)–(C)). See also United States Copyright
Office, Statement of Account, SA3 (Long Form),
https://www.copyright.gov/forms/sa3.pdf (current)
(for use when a system’s ‘‘semiannual gross receipts
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Data Corporation (CDC), which
compiles data from the statements of
account (SOAs) that cable systems file
with the Copyright Office, Form 3
systems accounted for more than 95
percent of total royalty payments made
by cable operators from 2014–2017.
Furthermore, Form 3 systems, unlike
the smaller Form 1 and 2 systems, are
well-suited for Bortz surveys because
they identify in their SOAs the distant
signals that they retransmitted. Bortz
Rep. at 20. Nevertheless, inasmuch as
some Form 3 cable systems carry either
no distant signals, or carry only distant
signals representing a single
programming category (i.e., only PTV
signals or only Canadian signals), Bortz
Media determined that it would not be
possible to obtain a comparative value
judgment from survey respondents
regarding their distant signal
programming. Therefore, as it has done
in connection with surveys offered in
previous proceedings, Bortz Media did
not interview, or attempt to interview,
those systems in connection with the
2014–2017 Bortz Surveys. Id.
The level of copyright royalty
payments played an additional role with
respect to the 2014 Bortz Survey. As
discussed above, for the 2014 survey,
Bortz Media attempted to contact what
it terms ‘‘a stratified random sampling
of Form 3 cable systems,’’ with the
stratification based on copyright royalty
payments. Bortz Rep. at 20. JSC’s expert
witness, Dr. Mathiowetz testified that as
in the proceeding for 2010–2013
royalties, her opinion is that ‘‘the use of
a stratified sample results in an efficient
sample that assures the resulting sample
mirrors the population of interest.’’
Corrected Written Direct Testimony of
Nancy Mathiowetz, Ph.D., Trial Ex.
7107, at 7 (Mathiowetz CWDT). In this
case, Bortz Media obtained data from
records compiled by CDC, indicating the
royalty amounts paid by all Form 3
systems, based on SOAs filed by cable
systems for the first accounting period
of each survey year. Bortz Media then
constructed a sampling plan so that
proportionately more systems with large
royalty payments were sampled relative
to systems with small royalty payments.
Specifically, the stratified sample
included 361 Form 3 cable systems that
collectively paid approximately 86
percent of the total Form 3 royalties.
Bortz Media reasoned that cable systems
that carried distant signals in 2014 were
overwhelmingly paying copyright
for secondary transmissions (the figure you give in
space K of the form) is $527,600 or more. . . .’’);
United States Copyright Office, Old Cable
Statement of Account Forms, https://
www.copyright.gov/licensing/saold.html.
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royalties that were derived directly from
the distant signals they actually chose to
carry, and further, while systems paying
the largest royalties were typically larger
systems (as measured by subscribers
served), they also reported carrying
more distant signals on average. Thus,
Bortz Media concluded that, in general,
systems paying more royalties were
making more use of the section 111
license. Bortz Rep. at 20–21.
Once the CSOs for inclusion in the
surveys were identified, Bortz Media
used the Television & Cable Factbook
(Factbook), as it has in the past, to
identify contacts for each respective
system, particularly telephone numbers.
The Factbook usually lists
approximately three to six managers or
executives for each system. Bortz Media
usually selects the senior-most
executive from that cable system to list
as the initial point of contact or the
survey questionnaire. 4/3/2023 Tr.
2844–55 (Trautman); Bortz Rep. at A–17
n.57.
Bortz Media retained Sandra
Grossman (then, of THA Research) to
conduct telephone interviewing for the
2014–2017 cable operator surveys. Ms.
Grossman specializes in conducting
executive interviews, particularly in the
cable industry. Indeed, she has provided
market research to cable television
industry clients for more than two
decades, during which she and her
company have been retained by Bortz
Media or its predecessor for 17 cable
operator surveys, starting with the 2001
survey and continuing through the 2017
survey received in this proceeding. Ms.
Grossman personally conducted
approximately 65 percent of the
interviews for the 2014–2017 surveys. It
is unclear whether Ms. Grossman relied
solely on the information compiled by
Bortz Media from the Factbook to
contact potential respondents, or
whether she also performed internet
searches to obtain contact information.
Three or four additional interviewers
were supervised by Ms. Grossman, and
each specialized in surveying
professional and managerial personnel,
with at least five years of such
experience. Interviewers were
instructed to call back each cable system
as often as necessary to obtain a
completed interview or refusal. For
almost every completed interview, no
more than three direct contacts with the
eventual respondent were required. Tr.
2841–45, 3258 (Trautman); Bortz Rep. at
A15–17.
Interviewers were instructed that once
they had made contact with a cable
system, they should ask first for the
system executive identified in advance
as most likely to have responsibility for
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programming decisions, and to confirm
that he individual was the person ‘‘most
responsible for programming carriage
decisions made’’ by the system. The
interviewers were instructed that if the
identified executive did not fit the
description, the interviewer was to ask
for the person who was most
responsible for programming carriage
decisions. Calls were placed to the cable
system until the individual on the
telephone indicated that he or she was
the individual most responsible for
programming carriage decisions. In all
cases, the eventual survey respondents
were required to confirm that they were
most responsible for programming
carriage decisions made by their
systems. Bortz Rep. at A–17.
Indeed, the ADS questionnaire which,
as discussed above, was used for many
respondents for 2014, and all
respondents for 2015–2017, comprised
four questions for the respondent.199
Question 1 asked the respondent, ‘‘Are
you the person most responsible for
programming carriage decisions made
by your system during [the year in
question] or not?’’ Bortz Rep. app. B. If
the response was no, the questionnaire
(e.g., for 2014) instructs the interviewer,
‘‘ASK TO SPEAK WITH PERSON MOST
RESPONSIBLE FOR THE SYSTEM’S
PROGRAMMING CARRIAGE
DECISIONS IN 2014. REPEAT
INTRODUCTION AND Q.1.’’ Id.
After the survey respondents were
qualified, the interviewers proceeded to
the next questions. Questions 2 and 3 in
the cable operator survey are designed
by Bortz Media as preliminary questions
intended to focus respondents on the
particular distant signals carried by the
system in the survey year, the types of
programming on those signals, and
certain factors (importance and cost) 200
that contribute to the key allocation
(which Bortz Media sometimes calls a
‘‘budget’’ question) that will be required
in the fourth and final survey question.
199 The WGNA questionnaire used for 2014 had
differences in wording specific to carriage of
WGNA. See Bortz Rep. at 83–86.
200 The Bortz Report notes that in the 2010–13
Determination, the Judges stated that the reference
to expense in Question 3 ‘‘muddled the concepts of
cost and value’’ and that ‘‘[t]his may have injected
some confusion into the respondent’s estimation of
relative value.’’ Bortz Rep. at 27 n.38 (quoting
2010–13 Determination at 3590); 4/3/2023 Tr. 2895
(Trautman); 4/5/2023 Tr. 3466 (Trautman). Mr.
Trautman, on behalf of Bortz Media stated in the
report that he respectfully disagrees with this
criticism, and did not find any evidence of
confusion in the 2010–13 Bortz surveys, or in the
2014–2017 Bortz surveys. In any event, the 2010–
13 Determination was not available until October
2018, when the 2014–2016 surveys had already
been completed, and the 2017 questionnaires were
in the field. Thus, there was no opportunity for
Bortz Media to evaluate potential changes to this
survey question. Id.
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Bortz Rep. at 27, 30. In Question 2, the
interviewer identified the particular
distant signals (including call letters) for
a specific respondent’s cable system
(Question 2a). Bortz Media obtained the
distant signals for each system by
reviewing each system’s SOA at for the
year in question that was filed at the
Copyright Office.201 The interviewer
then asked the respondent to rank up to
seven202 non-network programming
categories on those distant signals in
order of how important it was for the
system to offer each category.203 Id. at
24–27; 4/3/2023; Tr. 2861–64
(Trautman). Indeed, for Questions 2, 3
and 4, the number of programming
categories provided to each respondent
depended on whether the distant signals
listed on the respondent’s SOA
included public television, Canadian, or
live professional and college team sports
programming, with the corresponding
categories excluded when the
respondent CSO did not carry the
relevant programming on a distant basis.
Bortz Rep. at 26 n.36.
When asking Question 3, the
interviewer asked the respondent to
rank the same categories of non-network
201 For each of questions 2, 3 and 4, respondents
that reported carrying more than eight distant
signals were only asked about their eight most
widely carried distant signals. This approach was
also followed in the 2010–2013 surveys. Bortz Rep.
at 25 n.35; 2010–13 Determination at 3587 (‘‘In the
Bortz Survey, interviewers asked respondents about
a maximum of eight distant signals even if their
systems carried more.’’).
202 The seven categories, which could be tailored
for each respondent, were: (1) Movies; (2) Live,
Professional and College Team Sports; (3)
Syndicated Shows, Series and Specials; (4) News
and Other Station-Produced Programs; (5) PBS and
All Other Programming Broadcast by
Noncommercial Station(s) llll; (6) Devotional
Programs; and (7) All Programming Broadcast by
Canadian Station(s) llll. Bortz Rep. at 32 &
app. B at 79. These categories were intended by
Bortz Media to correspond with the program
category definitions adopted by the Judges. Id. at
26, app. C (‘‘Program Category Definitions’’).
203 For example, for 2014, Question 2b of the
survey instrument reads: ‘‘Now, I’d like to ask you
how important it was for your system to offer
certain categories of programming that are carried
by these stations. When you consider this, please
exclude from consideration any national network
programming from ABC, CBS and NBC. I’ve
grouped the non-network programming on these
broadcast stations into seven categories. I will read
these seven categories to you to give you a chance
to think about their relative importance (READ
EACH CATEGORY BELOW, STARTING WITH THE
CATEGORY MARKED BY THE NUMBER ‘‘1’’).
Considering only the non-network programming on
these broadcast stations, please rank these seven
categories in order of their importance to your
system in 2014, with one being the most important
category and seven being the least important
category. What is your ranking of importance for the
2014 (READ FIRST CATEGORY, AS MARKED BY
THE NUMBER ‘‘1’’) programming on the broadcast
stations I listed. (REPEAT FOR ALL SEVEN
CATEGORIES, IN ORDER LISTED BELOW. ENTER
NUMERICAL RANK ON TABLE BELOW.)’’
Bortz Rep. app.B at 79.
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programming broadcast by the same
stations in order of how expensive it
would have been to acquire that
programming if the system had been
required to purchase it directly in the
marketplace. Id. at 26–27, app. B (Ex.
7101 at 80).
The final question, again for the ADS
questionnaire only, was Question 4, the
constant sum question. In this question,
the interviewer asked the respondent to
value the various types of non-network
programming on the distant signals that
the respondent’s system carried during
the relevant year. This required the
respondent to allocate a percentage of a
finite dollar amount to each of the
program categories on the distant
signals that the system retransmitted. Id.
at 27–29. For example, Question 4a in
the survey instrument that incorporated
the year 2014 in the text was, as follows:
4a. Now, I would like you to estimate the
relative value to your cable system of each
category of programming actually broadcast
by the stations I mentioned during 2014,
excluding any national network
programming from ABC, CBS and NBC. Just
as a reminder, we are only interested in U.S.
commercial station(s)llllll, U.S. noncommercial station(s) llll, and
Canadian station(s) llll.
I’ll read each of the seven programming
categories we’ve been discussing again to
give you a chance to think about them; please
write the categories down as I am reading
them. (READ PROGRAM CATEGORIES IN
ORDER, STARTING WITH CATEGORY
MARKED BY THE NUMBER ‘‘1’’.)204 Assume
your system spent a fixed dollar amount in
2014 to acquire all the non-network
programming actually broadcast during 2014
by the stations I listed. What percentage, if
any, of the fixed dollar amount would your
system have spent for each category of
programming? Please write down your
estimates, and make sure they add to 100
percent. What percentage, if any, of the fixed
dollar amount would your system have spent
on (READ PROGRAM CATEGORY MARKED
BY THE NUMBER ‘‘1’’)?205 And what
204 To prevent ordering bias, for each
questionnaire, the interviewer was provided with a
preset, computer-generated random order in which
to read the program types, in order to prevent
ordering bias. Bortz Rep. at 29.
205 For Question 4, the categories, among other
things, incorporated the survey year, and other
slight variations to the categories listed for
Questions 2 and 3. The possible seven categories,
to be identified by the interviewer, were: (1) Movies
broadcast during (survey year) by the U.S.
commercial stations I listed; (2) Live professional
and college team sports broadcast during (survey
year) by the U.S. commercial stations I listed; (3)
Syndicated shows, series and specials distributed to
more than one television station and broadcast
during (survey year) by the U.S. commercial
stations I listed; (4) News and public affairs
programs produced by or for any of the U.S.
commercial stations I listed, for broadcast during
(survey year) only by that station; (5) PBS and all
other programming broadcast during (survey year)
by U.S. noncommercial station(s) llll; (6)
Devotional and religious programming broadcast
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54241
percentage, if any, would your system have
spent on (READ NEXT PROGRAM
CATEGORY)? (COMPLETE LIST IN THIS
MANNER.)
Id., app. B (Ex. 7101 at 81).
The survey instrument instructed the
interviewer to prompt the respondent if
the percentages did not add up to 100
percent. Id., app. B (Ex. 7101 at 81). As
Question 4b, the interviewer read back
the categories and estimates, and then
asked whether each respondent wanted
to make any changes. Question 4b
concludes the survey; and the Question
ends the interviewers thanking the
respondents were for their time and
cooperation. Id., app B (Ex. 7101 at 82).
The interviews were conducted after
the calendar year in question.206
Interviews were completed with
between approximately 54 and 58
percent of eligible cable systems.207
Upon completion of the survey, THA
Research returned the completed
questionnaires to Bortz Media for
proofing and data entry. Bortz Rep. at
A–16.
2. Results Reported From the Bortz
Surveys
As in prior distribution proceedings,
in order to address the issues relevant
to this proceeding, the responses
provided by the Bortz Surveys,
particularly the constant sum rankings
obtained through Question 4, must be
expressed in terms of percentage
allocations of the cable royalty funds to
be distributed for the years surveyed,
which in this case are 2014 through
2017. The procedures used by Bortz
Media to perform obtain such results are
in the Bortz Report. See, e.g., Bortz Rep.
at A–18 through A–26.208
during (survey year) by the U.S. commercial
stations I listed; and (7) All programming broadcast
during (survey year) by Canadian station(s)
llll. Bortz Rep. at 28, app. B (7101 at 81) (2014
survey instrument). These categories were intended
to correspond with the program category definitions
adopted by the Judges. Id. at 28, app. C (‘‘Program
Category Definitions’’).
206 For the 2014, the survey period was 8/11/15–
4/7/16; for 2015, the survey period was 8/11/16–4/
23/17; for 2016, the survey period was 10/06/17–
4/26/18; and for 2017, the survey period was 7/01/
18–6/26/19. Bortz Rep. at A–16.
207 For 2014, the response rate was 53.8% (170
surveys completed); for 2015, the response rate was
54.3% (197 surveys completed); for 2016, the
response rate was 57.7% (199 surveys completed);
and for 2017, the response rate was 54.6% (179
surveys completed). Bortz Rep. at A–16.
208 Bortz weighted survey results for 2014 based
on the royalties paid by responding systems in the
first half of 2014, and applied those results to the
universe of Form 3 system royalties (consistent with
the weighting approach used in all prior Bortz
surveys). For the 2015 through 2017 surveys,
inasmuch as most systems carrying distant signals
had become Minimum Fee Systems, the
methodology was changed to weight the results
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Table I–1. Bortz Survey Relative
Value Allocation by Year, 2014–17 from
the Bortz Report shows the following
compiled results:
TABLE I—1 BORTZ SURVEY RELATIVE VALUE ALLOCATION BY YEAR, 2014–17
Year
2014
(n=170)
(%)
2016
(n=199)
(%)
2017
(n=179)
(%)
Average:
2014–17
(%)
Live Professional and College Team Sports .......................
News and Public Affairs Programs ......................................
Syndicated Shows, Series and Specials .............................
Movies ..................................................................................
PBS and All Other Programming on Noncommercial Distant Signals .......................................................................
Devotional and Religious Programming ..............................
All Programming on Canadian Signals ................................
40.4
26.0
10.4
11.4
28.5
29.7
12.7
13.8
28.5
30.0
14.8
13.1
31.5
30.6
14.9
9.0
32.2
29.1
13.2
11.8
5.9
5.6
0.3
7.9
6.5
1.0
6.8
6.0
0.8
7.8
5.4
0.6
7.1
5.9
0.7
Total ..............................................................................
100.0
100.0
100.0
100.0
100.0
Bortz Rep. at 2; see CTV PHB at 81
(summary of results for 2014 through
2017, with acronyms of claimant groups
substituted for program categories).
Nevertheless, as discussed below, no
party unequivocally proposes that the
initial results, or allocations, of the 2014
through 2017 Bortz Surveys, reflected in
Table I–1 of the Bortz Report, be used
directly to allocate shares of the royalty
funds that are the subject of this
proceeding.209
3. Issues Raised With Respect to the
Bortz Surveys
a. The Exclusion of PTV-Only and
Canadian-Only Systems
As already detailed, Bortz Media
chose not to survey Form 3 cable
systems that carried no distant signal, or
that carried only distant signals
representing a single programming
category. Thus, as it has for surveys
used in connection with prior
proceedings, Bortz Media excluded all
PTV-only CSOs and Canadian-only
CSOs from the 2014 through 2017
surveys received in this proceeding. See
Bortz Rep. at 20; 2010–13 Determination
at 3583; 2004–05 Distribution Order at
57067. Bortz Media’s stated rationale for
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2015
(n=197)
(%)
based on the Base-plus-3.75 fees attributable to the
actual signal carriage of the Form 3 systems, and to
apply the results using signal carriage-based fee
calculations rather than actual royalties paid. Bortz
Rep. at 21–24, A–18.
209 See JSC WDS at 12–13 (‘‘Claim of JSC’’); but
see JSC PHB at 82 (‘‘the evidence demonstrates that
the adjusted Bortz survey results are the most
accurate and reliable basis for allocating the 2014–
17 cable royalty funds’’), 84.
210 In her testimony during the 2010–2013
proceeding, Ms. McLaughlin explained the
adjustment, as follows: Q. In order to do your
augmentation of the Bortz survey, what were your
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this decision is that if PTV-only and
Canadian-only CSO were survey
respondents, they would not be able to
provide comparative value judgments
regarding their distant signal
programming. Id. While PTV-only and
Canadian-only CSOs may be limited in
their ability to respond to provide a
response to the Bortz Survey value
question as formulated, in prior
proceedings, the Judges have found that,
while one must not ‘‘overstate the
impact of this problem,’’ the exclusion
of such cable systems ‘‘clearly biases the
Bortz estimates downward for PTV and
Canadian programming;’’ and further, it
has been observed that ‘‘the Bortz
survey may well be improved in this
regard, either through the reformulation
of the questions asked in the survey
and/or by revisiting the underlying
survey sample plan.’’ Id. In any event,
the Bortz Media surveys at issue in this
proceeding exclude PTV-only and
Canadian-only CSO, and even the
parties that rely on the Bortz Surveys,
cognizant of adjustments made in prior
proceedings, offer certain adjustments to
the initial results of the Bortz Surveys.
See, e.g., JSC PHB at 83–84; SDC PHB
at 82–85; CTV PHB at 79–84.
The adjustments were offered largely
with the so-called ‘‘McLaughlin
Adjustment’’ in mind, which has a long
history in connection with the Bortz
Survey. For example, in the 2004 and
2005 proceeding, Linda McLaughlin, an
economist, set forth calculations to the
Bortz Survey results to make, what the
Judges deemed to be, an ‘‘appropriate
adjustment to the PTV share,’’ although
her efforts did not fully mitigate
deficiencies in the Bortz results with
respect to others, such Canadian
claimants. 2004–05 Distribution Order
at 57064, 57070, 57073 (her ‘‘efforts to
correct for cable systems excluded from
the survey because they only carry a
distant Canadian signal do somewhat
ameliorate the under-representation of
Canadian signals in the overall survey
results’’). In the 2010–13 proceeding,
Ms. McLaughlin and another witness,
David Blackburn, set forth
methodologies for augmented PTV and
CCG shares, referred to as the
‘‘McLaughlin/Blackburn adjustments,’’
which assume, for example, that the
PTV-only systems would assign a
relative value to PTV of 100%.210
initial assumptions? A. I assumed that the systems
that I was adding back in would have to answer the
survey in the same way it was asked for the other
people, and that is they were only allowed to
respond to the category they are carrying and they
are supposed to split up their value among the
categories they are carrying. So they would have to
say 100 percent for PTV, if that’s all they carried.
And if all they carried was Canadian signal, they’d
have to say 100 percent for Canadian. And if they
carried both, they’d have to say something between,
you know, zero for one and 100 to the other or 100
for one and zero to the other. Q. How about with
regard to response rate? Did you make any
assumptions about that? A. Oh, when I added them
in, I—I followed the same response rate. If you look
at the—some of the highlighted numbers, so in the
final eligible sample for the year that we’re looking
at, 2010, in all the strata together, there were 288
cable systems but only 163 of them completed the
surveys. So the response rate, 163 over 288, or, you
know, maybe that’s, you know, 60 percent, say, 50,
60 percent. So I used that same response rate and
I did it actually by strata and applied that to the
omitted signal. So I didn’t assume that all 16 were
included. I only assumed, you know, approximately
half of the 16 were included.
Oral Testimony of L. McLaughlin (2010–2013),
Trial Ex. 7017, at 27–29.
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2010–13 Determination at 3583–85,
3602. In that proceeding, three surveys
were received, the Bortz Survey, the
Horowitz Survey (which ‘‘did not
exclude from its sample systems that
distantly carried only PTV and/or
Canadian signals’’) and the Ringold
Survey (which ‘‘focused on Canadian
signals’’).211 Id. at 3582, 3591. Despite
the availability of McLaughlin/
Blackburn adjustments ‘‘to augment’’
the Bortz Survey results, the Judges
placed more weight on the Horowitz
results, for several reasons but
‘‘particularly the acknowledged
systematic bias against PTV and CCG
programming,’’ and thus ‘‘the Judges
accord relatively less weight to the
‘Augmented’ Bortz Survey.’ ’’ Id. at
3591. The weighting of the Bortz Survey
evidence below that of the Horowitz
survey did not, however, mean that the
Bortz Survey evidence had no weight or
played no role in the Judges final
allocations. To the contrary, before
setting forth the Judges’ final Basic Fund
allocation, the Judges defined ‘‘ranges of
reasonable allocations for each program
category, and in doing so relied on
‘‘[t]he Bortz and Horowitz Surveys,
together with the McLaughlin
‘Augmented Bortz’ results and the
Crawford and George regressions, taking
into account the confidence intervals
(when available) surrounding the point
estimates . . . .’’ Id. at 3610.
In this proceeding, only the Bortz
Surveys were offered (i.e., no survey
such as Horowitz was offered by any
party), and the surveys continue to
exclude the PTV-only and Canadianonly distant signal cable systems.
Although Bortz Media and Mr.
Trautman are highly critical of the
McLaughlin Adjustment, nevertheless,
Bortz Media includes two approaches
for adjusting its initial results, both of
which bear some relationship to the
McLaughlin Adjustment. Bortz Media’s
‘‘Adjustment One’’ 212 accepts (while
not agreeing with) the McLaughlin
assumption of attributing 100 percent of
value to the PTV (or Canadian category)
when that is the only category the
system carries distantly, but does not do
so for PTV-only systems in 2015
through 2017 that previously carried
WGNA. As to the latter group of
systems, Bortz Media instead attempts
to predict the average valuation from all
systems that carried only PTV and
WGNA in 2014. The stated rationale is
there is no reason to assume that a CSO
changed its valuation of PTV content
simply because of the WGNA
conversion, and indeed, CSOs surveyed
in 2015–2017 did not increase their
relative valuation of PTV with regard to
systems that carried signals containing
both PTV and other claimant categories.
As for Bortz-eligible systems that were
surveyed, Bortz Media weighted the
results based on Base-plus-3.75 fees
attributable to the distant signals
actually carried by the PTV-only
systems.213 See id. at 42–43, app. D
(‘‘Potential Bortz Adjustments’’). Bortz
Media obtained the following, applying
its Adjustment One:
POTENTIAL ALLOCATION OF ROYALTIES AMONG CLAIMANT GROUPS, 2014–17 (ADJUSTMENT ONE)
Year
2014
(%)
2015
(%)
Average
2016
(%)
2017
(%)
2014–17
(%)
JSC ......................................................................................
CTV ......................................................................................
PS ........................................................................................
PTV ......................................................................................
Devotional ............................................................................
Canadian ..............................................................................
39.1
25.2
21.0
8.2
5.5
1.0
25.6
26.6
23.7
14.0
5.8
4.4
24.3
25.6
23.7
16.6
5.1
4.8
26.0
25.3
19.8
19.5
4.5
4.9
28.8
25.7
22.1
14.6
5.2
3.8
Total ..............................................................................
100.0
100.0
100.0
100.0
100.0
Id. at 43 (Table IV–1).214
Bortz Media’s ‘‘Adjustment Two’’ also
attributes 100 percent of value to either
the PTV or Canadian category when that
is the only category the system carries
distantly, even for systems that became
PTV-only by default as result of the
WGNA conversion. However, PTV-only
systems that only carried distant PTV
signals within those signals’ originating
DMAs are excluded. The stated
rationale is that those systems have not
demonstrated any preference for distant
PTV programming based on their actual
carriage patterns. Again, consistent with
the treatment of Bortz-eligible systems
that were surveyed, Bortz performed
weighting based on the Base-plus-3.75
fees attributable to the distant signals
actually carried by the PTV-only
systems. See id. at 43, app. D (‘‘Potential
Bortz Adjustments’’). Bortz Media
obtained the following application,
applying its Adjustment Two:
POTENTIAL ALLOCATION OF ROYALTIES AMONG CLAIMANT GROUPS, 2014–17 (ADJUSTMENT TWO)
Year
khammond on DSKJM1Z7X2PROD with NOTICES2
2014
(%)
JSC ......................................................................................
CTV ......................................................................................
211 Professor Ringold has previously testified, or
otherwise given evidence, in proceedings before the
CARP, and the CRB. See CCG PFF 601; 2010–13
Determination at 3585. In this proceeding, Prof.
Ringold was called to testify by CCG, and was
qualified as an expert in survey research
methodology. 4/17/2023 Tr. 4950–51 (Ringold).
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2015
(%)
39.8
25.7
2016
(%)
25.2
26.2
212 Bortz Media’s Adjustment One is referenced in
some of the parties’ post-hearing filings as
Adjustment 1. See, e.g., SDC PHB at 85; CTV PFF
434.
213 In Adjustment One, systems that carried both
PTV and Canadian distant signals (but no U.S.
commercial distant signals) are weighted in the
same manner, but with the fees allocated equally
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Average
2017
(%)
23.5
24.8
2014–17
(%)
24.8
24.1
28.3
25.2
among the PTV and Canadian categories. Bortz Rep.
at 43 n.45.
214 The Adjustment One results for 2014 are
nearly identical with Mr. Trautman’s calculation of
the 2014 Bortz results when subjected to the
McLaughlin Adjustment. See JSC Production
Materials, Trial Ex. 3049 (discussed in detail later
in the main text).
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POTENTIAL ALLOCATION OF ROYALTIES AMONG CLAIMANT GROUPS, 2014–17 (ADJUSTMENT TWO)—Continued
Year
2014
(%)
2015
(%)
Average
2016
(%)
2017
(%)
2014–17
(%)
PS ........................................................................................
PTV ......................................................................................
Devotional ............................................................................
Canadian ..............................................................................
21.4
6.5
5.6
1.0
23.3
15.3
5.7
4.3
23.0
19.2
4.9
4.6
18.9
23.4
4.3
4.6
21.6
16.1
5.1
3.6
Total ..............................................................................
100.0
100.0
100.0
100.0
100.0
Id. at 43–44 (Table IV–2).
JSC endorses the adjustments
calculated by Bortz Media, rather than
the McLaughlin Adjustment.215 JSC
does so first by raising a number of
supposed faults in the McLaughlin
Adjustment. It is argued that PTV-only
systems were almost all well below the
minimum fee, and by 2016 and 2017, an
average of over 93% of PTV-only
systems could have carried at least one
additional PTV signal to all of their
subscribers without having to pay more
than the minimum fee, and the
calculated Base + 3.75 royalty fee
attributable to the signals actually
carried on PTV-only systems amounted
to only 14 percent of the minimum fee
royalties ultimately paid by these
systems. Yet, JSC observes, the
McLaughlin Adjustment would assume
that these systems have an extreme
preference for distant PTV programming
based on their carriage decisions, even
though there was almost never an
incremental royalty payment associated
with those carriage decisions.
Furthermore, JSC argues, over 30
percent of the distant signals carried by
PTV-only systems in 2014–17 were
carried pursuant to the Must Carry rules
or the related multicast agreement. The
McLaughlin Adjustment nonetheless
would assume that these systems valued
their distant PTV signals more than any
other categories of programming, even
though the systems were required to
carry the signals, and PTV was
prohibited from charging for the
content. JSC argues that inasmuch as the
price of these signals would be $0 in the
hypothetical market, it makes no sense
to assign them 100% of the relative
value. JSC PHB at 65–67.
Additionally, JSC argues that while
more than half of the PTV-only systems
during 2016–17 had carried both WGNA
and PTV prior to the WGNA conversion,
back in 2014, systems that carried
WGNA and one or more PTV distant
signals valued PTV in Bortz surveys at
just 8.8%. JSC argues that the
McLaughlin Adjustment would assume
a sudden and major shift in valuation.
Id. at 67 (quoting 3/30/2023 Tr. 2621
(Majure)).216 Finally, with regard to the
McLaughlin Adjustment, JSC argues that
the majority of PTV-only systems only
carried PTV signals within the signals’
originating DMA. Yet, because only the
PTV signal is deemed distant, the
McLaughlin Adjustment would assume
that these systems only care about the
PTV content in that bundle of
programming, thereby improperly
inferring a set of preferences based on
distinct regulatory treatment rather than
the actual behavior of the cable systems.
It is argued that there is no reason to
assume that these systems value distant
PTV programming more highly than any
other category of content, much less at
a 100% relative valuation. Id. at 67–68.
In contrast, JSC argues, the
alternatives calculated by Bortz Media,
Adjustment One and Adjustment Two,
is supported by evidence and economic
theory, and yields similar valuations
among the program categories. Id. at 68–
69 (citing, inter alia, JSC PFF 414 (citing
Majure)). Indeed, JSC expert witness, Dr.
Majure, testified that the Bortz
Adjustments ‘‘avoid these gross
misinterpretations that the McLaughlin
adjustment would otherwise be adding
into the calculations. I don’t know that
they completely resolve the
fundamental issue of the McLaughlin
adjustment, however. There’s still no
reason to think, for any particular PTV
system, they have this very strongly
different set of preferences, that the only
thing they like is Public Television
content.’’ 3/30/23 Tr. 2624 (Majure).
JSC’s allocation request is based only
on the Bortz survey, specifically Bortz
Media’s Adjustment One, whose results
are reproduced above. JSC states that it
prefers Adjustment One because it
accounts for the fact that CSOs did not
change their valuation of PTV simply
because WGNA was no longer available
as a distant signal. JSC PHB at 83–84.
JSC claims no share of the Syndex
royalties. With respect to the 3.75%
royalty fund, JSC argues that the Judges
should reallocate the shares attributable
to PTV proportionally among the other
parties, as PTV is not entitled to a share
of the 3.75% royalty funds, as follows:
JSC’S PROPOSED REALLOCATION OF SHARES OF THE 3.75% ROYALTY FUNDS
Year
khammond on DSKJM1Z7X2PROD with NOTICES2
2014
(%)
JSC ..................................................................................................................
CTV ..................................................................................................................
PS ....................................................................................................................
PTV ..................................................................................................................
Devotional ........................................................................................................
Canadian ..........................................................................................................
215 Mr. Trautman did calculate a McLaughlin
Adjustment, which he does not recommend. The
table he prepared in that regard is set forth infra.
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2015
(%)
42.6
27.5
22.9
0.0
6.0
1.1
216 Dr. Majure was qualified as an expert in
economics and industrial organization, including
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2016
(%)
29.8
30.9
27.6
0.0
6.7
5.1
2017
(%)
29.1
30.7
28.4
0.0
6.1
5.8
32.3
31.4
24.6
0.0
5.6
6.1
their application to the cable industry. 3/30/2023
Tr. 2551 (Majure).
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Id. at 83–84.
Similarly, SDC supports reliance on
the Bortz Surveys for 2014 through 2017
in this proceeding, and supports the
application of Bortz Media’s Adjustment
One. SDC PHB at 81. SDC argues that
the McLaughlin Adjustment has always
been economically unsound, and in this
proceeding, there is new evidence that
militates against an application of a
McLaughlin Adjustment that assigns a
100% value to PTV and CCG-only
stations. Id. at 82.
SDC argues that unlike past
proceedings, the record here shows that
a majority of PTV-only systems’ distant
carriage occurred exclusively within the
DMAs in which the PTV signals
originate, and were treated as distant
only as a result of a regulatory reporting.
Indeed, it is argued, PTV signals are the
only category of distant content that
CSOs can be required to report as
‘‘distant’’ under section 111 when such
a signal is actually carried locally to
subscribers within the signal’s DMA,
and all other similarly situated, but
commercial, signals would be reported
as local signals that are ineligible for
section 111 royalties; and accordingly, a
CSO’s choice to carry a PTV signal
within its originating DMA cannot be
compared to a CSO’s choice to carry
other signals and programming, and
there is no economic basis to assume
that a majority of the PTV-only CSOs
had a relatively greater preference for
PTV programming than other categories
of programming, much less valued at a
100% relative valuation (as past
adjustments have considered). Id. at 83
(citing, inter alia, Harvey WRT ¶¶ 126–
131;217 Bortz Rep. at 17–18
(‘‘throughout 2016–17 approximately
77% percent of the aggregate subscribers
served by the PTV Only Systems did not
receive any distant signals.’’); Majure
WDT ¶¶ 150–51).
Additionally, SDC argues that
adjusting the Bortz survey results to
account for PTV-only systems that were
excluded from the Bortz sample would
inappropriately assign a 100% value to
PTV content on the significant number
of systems that were compelled to carry
PTV programming and reimbursed for
such carriage pursuant to the Must
Carry rule. See Id. at 83–84 (citing Bortz
Rep. at 46; Majure WDT ¶¶ 144; Harvey
CWDT ¶ 119 (‘‘[a]pproximately 36
percent of the time that a PTV Only
system distantly retransmitted a primary
PTV call sign, it was pursuant to the
Must Carry rule’’). It is argued that there
217 Mr. R. Garrison Harvey was called to testify by
JSC, and was qualified as an expert in statistics and
applied mathematics. 3/28/2023 Tr. 1772, 1777–78
(Harvey).
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is no reason to expect that PTV-only
systems value PTV content that they
were compelled to carry at all, let alone
at 100%. See Majure WDT ¶¶ 144–45.
Thus, it is argued, there is also no
economic basis to apply a McLaughlin
Adjustment to the significant number
PTV-only stations carried under the
primary channel or multicast
subchannel Must Carry rules. Id. at 84
(citing Tr. 2566 (Asker)).218
Nevertheless, SDC argues, SDC’s and
JSC’s valuation experts have
acknowledged that some adjustment to
the PTV and CCG shares is appropriate,
and the only potential Bortz
adjustments presented in this
proceeding were set forth by JSC and in
the Bortz Report. It is argued that as its
evaluation expert John Sanders
testified,219 Bortz Adjustment One in
the Bortz Report is preferable to the
historic McLaughlin Adjustment and to
Bortz Adjustment Two because
Adjustment One is substantially
‘‘grounded in the survey data that was
collected’’ and yields reasonable relative
value allocations for each of the
participating claimant groups. Id. at 84
(citing, inter alia, Sanders WRT ¶¶ 43–
44).
SDC argues that the Judges should
conclude that the Bortz survey is the
methodology that best reveals relative
market value in this proceeding, but that
there is no economic basis for applying
the conventional McLaughlin
Adjustment in this proceeding. Rather,
it is argued, the Judges should find that
some modest adjustment for PTV and
CCG may be appropriate, and the Judges
should additionally find that the Bortz
survey’s point estimates should be
adjusted under Bortz Adjustment One.
SDC argues that thus the following
relative value allocations are
appropriate shares for the Devotional
claimants with respect to the Basic
Fund: 5.5% for 2014; 5.8% for 2015;
5.1% for 2016; 4.5% for 2017; with
5.2% as the average. Id. at 85 (citing
Bortz Rep. at 48, SDC PFF 246). SDC
further argues that to arrive at the
Devotional allocation for the 3.75%
Fund, the Judges should, consistent
with their decision in the 2010–13
proceeding, reallocate the PTV share of
royalties proportionally among the
categories that participate in that fund,
and make the following allocation of the
3.75% Fund to the Devotional
claimants: 6.0% for 2014; 6.7% for
2015; 6.1% for 2016; 5.6% for 2017;
with 6.1% as the average. Id. at 85; SDC
PFF 247 (citing 2010–13 Determination
at 3611).
CTV argues that the fee-based
regression estimates for 2014 that were
made by Prof. Marx,220 and the Bortz
survey results for 2014–2017 provide
the most appropriate starting point to
determine the relative value of claimant
shares in this proceeding. It is argued
that the cumulative evidence of record
in this proceeding shows that the feebased regressions overestimate the value
of PTV programming, while the Bortz
survey underestimates the value of PTV
and CCG programming. CTV proposes
an adjustment to the Bortz initial
results, but not the McLaughlin
Adjustment, or Adjustment One or
Adjustment Two calculated by Bortz
Media. Rather, CTV proposes a share
adjustment approach that relies on the
estimates from the Marx model and the
Bortz Surveys in an attempt to what it
terms ‘‘the primary challenge of both
methodologies,’’ which is how to obtain
a reasonable and more reliable estimate
of the value of PTV programming during
the 2014–17 period. See CTV PHB at
79–80.
CTV argues that the Bortz Survey’s
underestimation of PTV and CCG
programming due to the purposeful
exclusion of PTV-only and CCG-only
systems from the survey, affects results
in each year, but not the year-to-year
trends obtained from the survey. Thus,
CTV proposes a share adjustment
approach that combines the Marx nonduplicated minute estimates for 2014
with the Bortz results for 2014 to
establish a starting point for allocating
shares, and then applies the year-to-year
net change in each category derived
from the Bortz survey results for each
year in 2015, 2016 and 2017. CTV
argues, in its view, this provides a the
only reliable basis to use regression
estimates offered in this proceeding to
assist in the determination of relative
value of the shares. Id. at 81–82. To
establish the starting point for shares in
2014, CTV proposes taking the average
of the Marx 2014 Bayesian regression
and Bortz survey estimates in 2014 for
PS, JSC, CTV and PTV, and the
maximum amount under either method
in 2014, inexplicably for SDC,221 and
218 Professor Asker was called to testify by JSC,
and was qualified as an expert in economics,
industrial organization, and econometrics. 3/30/
2023 Tr. 2390–91 (Asker).
219 Mr. John Sanders was called to testify by SDC
and was qualified as expert in the valuation of
media assets, including television programs. 4/6/
2013 Tr. 3694 (Sanders).
220 Professor Marx was called by CTV and was
qualified as an expert economist and
econometrician with experience in statistical
methods and measurements. 4/11/2023 Tr. 4109
(Marx).
221 Cf. Commercial Television Claimants’ PostHearing Reply Brief in Support of Proposed Royalty
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also for CCG, as illustrated in the
following table. Id. at 81–82.
CTV’S PROPOSED STARTING POINT FOR SHARES IN 2014
Valuation Method & Steps
PS
(%)
JSC
(%)
CTV
(%)
PTV
(%)
SDC
(%)
CCG
(%)
Total
(%)
Marx 2014—excluding duplicates .............................................
Bortz 2014 .................................................................................
Step 1: average of Bortz and Marx ..........................................
Step 2: maximum of Bortz and Marx ........................................
Step 1 + 2 .................................................................................
Normalizing 1 + 2 (to add up to 100%) ....................................
19.7
21.8
20.8
....................
20.8
19.9
43.9
40.4
42.1
....................
42.1
40.4
15.6
26.0
20.8
....................
20.8
19.9
16.4
5.9
11.2
....................
11.2
10.7
0.5
5.6
....................
5.6
5.6
5.4
3.9
0.3
....................
3.9
3.9
3.8
100.0
100.0
....................
....................
104.4
100.0
Id. at 81–82. Applying the net change
from the Bortz survey results in 2015,
2016, and 2017 to the starting points
established for 2014, provides the
proposed shares reflected in the
following table, which are presented
along with the shares awarded in the
10–13 Final Determination for reference.
CTV’S PROPOSED SHARES
Year
khammond on DSKJM1Z7X2PROD with NOTICES2
2010
2011
2012
2013
2014
2015
PS
(%)
JSC
(%)
CTV
(%)
PTV
(%)
SDC
(%)
CCG
(%)
Total
(%)
Source
..........
..........
..........
..........
..........
..........
26.5
23.9
21.5
19.3
19.9
24.6
32.9
30.2
33.9
36.1
40.4
28.5
16.8
16.8
16.2
15.3
19.9
23.6
14.8
18.6
17.9
19.5
10.7
12.7
4.0
5.5
5.5
4.3
5.4
6.3
5.0
5.0
5.0
5.5
3.8
4.5
100.0
100.0
100.0
100.0
100.0
100.1
2016 ..........
26.0
28.5
23.9
11.6
5.8
4.3
100.0
2017 ..........
22.0
31.5
24.5
12.6
5.2
4.1
99.8
Id. at 82. CTV argues that no individual
valuation method or share adjustment
approach is perfect, but its proposed
share adjustment approach helps
address several evidentiary trends
established in this proceeding,
including: (1) correcting the overestimation of PTV programming value
under the fee-based regressions and
aligning PTV shares more closely with
the overwhelming evidence in the
record that CSOs would not be willing
to pay much, if anything, for the right
to retransmit distant PTV stations absent
the compulsory license; (2) aligning the
value of shares during the 4-year period
in a manner that reflects the impact of
streaming on the value of programming
to CSOs, which supports an increase in
CTV and JSC programming relative to
Program Suppliers and PTV
programming; (3) providing a consistent
allocation of shares for PS, JSC, CTV,
SDC and CCG since 2010 which more
reasonably and realistically reflects how
CSOs would assess relative value over
time; and (4) provides a reliable and
reasonable basis for adjusting shares
during the 2015–2017 time period when
the estimates from the fee-based
regressions are meaningless and
uninformative and should not be given
any weight in determining shares in this
case. Id. at 83.
PTV argues that the Bortz Surveys for
2014 through 2017 should be rejected in
their entirety due to numerous
deficiencies in the way that that they
were conducted, including their
overwhelming bias against Public
Television. Nevertheless, PTV
acknowledges that the Judges and their
predecessors have accepted the Bortz
survey results but only after applying
the conventional McLaughlin
Adjustment to account for the bias
against Public Television, and even
then, only as a relative value floor for
Public Television’s allocation award.
PTV PHB at 81–82 (citing PTV PCL ¶ 41;
PTV PFF ¶ 204 (citing Distribution of
1998 and 1999 Cable Royalty Funds,
Dkt. No. 2001–8 CARP CD 98–99,
Determination at 24; Report of the
Copyright Arbitration Royalty Panel,
Dkt. No. 94–3–CARP–CD–90–92, at
123–24; 1998 Cable Royalty Distribution
Proceeding, Dkt. No. CRT–91–2–89CD,
57 FR 15286, 15299–300 (Apr. 27,
1992); 1983 Cable Royalty Distribution
Proceeding, Dkt. No. CRT–84–1 83CD,
51 FR 12792, 12811 (Apr. 15, 1986);
2004–05 Distribution Order at 57070–71
n.20; 2010–13 Determination at 3610; 4/
4/2023 Tr. 3139–41 (Trautman)).
2010–13 Final determination.
2010–13 Final determination.
2010–13 Final determination.
2010–13 Final determination.
Combined 2014 Bortz and Marx shares.
2014 proposed shares + 2015 Bortz net
change.
2015 proposed shares + 2016 Bortz net
change.
2016 proposed shares + 2017 Bortz net
change.
PTV argues that at the hearing, Mr.
Trautman conceded that he calculated a
McLaughlin Adjustment for this
proceeding two years before filing his
written direct testimony, which showed
Public Television’s annual shares for
2014–17 as 8.4%, 43.6%, 48.4%, and
48.2%, respectively, with average shares
of 37.1%. PTV argues that, although Mr.
Trautman then embarked on a multiyear quest ‘‘to conjure up’’ additional
adjustments that would reduce Public
Television’s shares, neither of Mr.
Trautman’s alternative proposed
adjustments has any reliable basis.
Indeed, it is argued, the Bortz Survey
results, and Mr. Trautman’s two
proposed adjustments, give Public
Television a lower share of royalties
than the Judges awarded in 2013,
despite significant changed
circumstances such as the elimination
of WGN as a distant signal and the
substantial changes in the quantity and
quality of compensable JSC and Public
Television programming—all of which
are realities that would warrant
substantially increasing Public
Television’s relative share from 2013
levels. PTV PHB at 42 (citing, inter alia,
4/4/2023 Tr. 3142–43 (Trautman)
(concerning table in Trial Ex. 3049)).
Allocations at 63–64 (CTV RPHB) (referring to the
adjustments proposed by Bortz Media).
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PTV argues that if the Judges were to
use the Bortz survey to guide allocations
in this proceeding, which PTV believes
would be inappropriate, given their
unreliability, several adjustments, at a
minimum, would be needed to correct
for clear methodological biases and
flaws. It is argued that the adjustments
offered by JSC (Bortz Media’s
Adjustment One and Adjustment Two),
which result in shares for Public
Television that are less than Public
Television’s 2013 share, are not
credible. PTV argues that only the
conventional McLaughlin Adjustment
adopted in prior proceedings yields
shares that approximate relative
valuations for Public Television in
2014–17. Id. at 82. Mr. Trautman
testified during direct and crossexamination that he calculated the
conventional McLaughlin Adjustment to
the 2014 through 2017 Bortz surveys. A
table prepared by him, and upon which
PTV relies is, as follows:
WEIGHTED BORTZ SURVEY RESULTS BY YEAR, 2014–17 (AFTER CONVENTIONAL MCLAUGHLIN ADJUSTMENT)
Year
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2014
(n=171)
(%)
2015
(n=199)
(%)
2016
(n=199)
(%)
2017
(n=179)
(%)
Average:
2014–17
(%)
PBS ......................................................................................
Sports ...................................................................................
News ....................................................................................
Syndicated ...........................................................................
Movies ..................................................................................
Devotional ............................................................................
Canadian ..............................................................................
8.4
39.0
25.2
10.0
11.0
5.4
1.0
43.6
12.7
19.2
9.3
9.1
4.4
1.8
48.4
12.2
15.3
9.8
8.0
5.0
1.3
48.2
14.8
17.2
9.8
5.0
3.9
1.2
37.1
19.7
19.2
9.7
8.3
4.7
1.3
Total ..............................................................................
100.0
100.0
100.0
100.0
100.0
PTV PHB at 82; PTV PFF 208; Trial Ex.
3049 (from calculations prepared by Mr.
Trautman); 4/4/2023 Tr. 2881–82, 3142–
43 (Trautman).
PS argues that there are fundamental
issues with the Bortz Survey that cannot
be remedied by after-the-fact
adjustments, such that putting ex-post
fixes on the Bortz Survey is like putting
a Band-Aid on a bad wound. Indeed, the
requests for royalty allocation shares
made by Program Suppliers are based
on Dr. Tyler’s regression model,222 and
do not reference the Bortz Surveys. PS
PHB at 80–82 (citing PS PFF ¶ 502 (3/
27/2023 Tr. 1490–91 223 (Boyle))); see PS
PRFF ¶¶ 59–62.
CCG argues that it is time for the
Judges to abandon reliance on the Bortz
Survey, and does not propose any
adjustment to the Bortz initial results.
CCG PHB at 66–71, 77. In its reply
briefing, CCG again argues that the Bortz
results should not be used for any party,
and further argues that Bortz results
have never been used, and should never
be used, for the CCG, with or without
these adjustments. CCG argues that the
proposed adjustments do not correct the
Bortz Survey’s fundamental failure to
measure relative market value, and do
not remedy their utter inapplicability to
the CCG. Reply Post-Hearing Brief of
The Canadian Claimants Group at 56
222 Dr. Tyler was called by PS, and was qualified
as an expert in the fields of economics, data
analysis, and econometrics. 4/19/2023 Tr. 5423,
5428 (Tyler).
223 Professor Boyle was called by PTV and was
qualified as an expert in the field of survey research
and design. 3/27/2023 Tr. 1400, 1410–11 (Boyle).
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(CCG RPHB). Indeed, CCG specifically
criticizes the adjustment to Bortz offered
by CTV, which is based on Prof. Marx’s
regression analysis, arguing, ‘‘CTV
offered no evidence that would support
that conclusion that even though the
relative quantity of their programming
declined by 60% their relative unit
price went up by 370%. The CTV
hybrid model represents the worst of
both worlds, an incomplete regression
model that relies on data from the
wrong period combined with the faulty
Bortz Survey results.’’ CCG RPHB at 56–
57.
With respect to the issue of which, if
any, adjustment should be made to the
Bortz initial results for 2014–2017, it is
remarkable that no party had its expert
calculate the McLaughlin Adjustment
for those results, at least not for
presentation at the hearing. While no
party argues that royalty fund
allocations in this proceeding should be
made strictly according to the Bortz
initial results subject to the McLaughlin
Adjustment, all parties knew that the
Judges applied the McLaughlin
Adjustment to the Bortz Survey initial
results in the 2004 and 2005 proceeding,
as well as in the more recent 2010–13
proceeding. Moreover, several parties
knew that they would raise the
McLaughlin Adjustment at the hearing
and in their posthearing filings. As
summarized above, some parties
specifically criticized the McLaughlin
Adjustment and some, despite their
criticisms or the criticisms of others,
argued for application of the
McLaughlin Adjustment in the
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alternative, or for a calculation that is
based upon or otherwise relates to the
McLaughlin Adjustment. To see the
figures obtained when the McLaughlin
Adjustment is applied to the Bortz
Survey initial results at issue in this
proceeding, the Judges are referred to a
chart taken from a spreadsheet prepared
by Mr. Trautman, originally for Bortz
Media’s internal use (Trial Ex. 3049,
duplicated above). Fortunately, no party
has challenged the figures contained
therein as accurately reflecting
application of the McLaughlin
Adjustment to the Bortz Survey initial
results; and as previously noted, the
figures on the chart resemble those
presented in connection with Bortz
Media’s Adjustment One to the extent
that one would expect similar figures.
The application of the McLaughlin
Adjustment to the initial Bortz results
for the years now at issue, 2014 through
2017, is relevant, and the adjusted
results (or ‘‘augmented’’ results, as they
were termed in the 2010–13 proceeding)
should be given varied weight,
depending on whether one is
considering the adjusted results for
2014, or for 2015 through 2017. With
respect to 2014, the Bortz Survey for
that year covers the year immediately
following the last year at issue in the
2010–13 proceeding. For the 2014
survey, Bortz Media used a similar
sampling method, and asked similar
questions. While other factors, such as
the Horowitz survey results and
regression evidence, weighed more
heavily in the Judges’ decision, the 2013
Bortz results with the McLaughlin
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Adjustment were taken into
consideration by the Judges, even when
making their final allocations. See
2010–13 Determination at 3591, 3610–
11. Thus, the 2014 adjusted results may
be used for comparison with earlier
results, and would be expected to
provide useful insight into relative
marketplace value of distant broadcast
signal programming retransmitted by
cable systems during that year.
Nevertheless, when weighing all the
evidence presented in this proceeding,
including regression evidence, a
concern is presented by the fact that the
McLaughlin Adjustment assigns value
to PTV content on cable systems that
were compelled to carry PTV
programming and reimbursed for such
carriage pursuant to the Must Carry rule;
and further, the value it assigns to PTV,
even in such circumstances, is 100
percent. As discussed above, the
evidence shows that more than 30
percent of PTV-only systems were
subject to the Must Carry rule. See, e.g.,
Majure WDT ¶¶ 144; Harvey CWDT
¶ 119 (‘‘[a]pproximately 36 percent of
the time that a PTV Only system
distantly retransmitted a primary PTV
call sign, it was pursuant to the Must
Carry rule’’)). That certain PTV signals
are subject to the Must Carry rule is not
a new circumstance, and neither is the
fact that the McLaughlin Adjustment
brings PTV-only systems into the Bortz
results with an assigned value of 100%
for PTV. Inasmuch as PTV-only systems
are still not surveyed by Bortz Media,
and there is no empirical evidence to
show how PTV-only systems value PTV
distant signals, there is no cause now to
discard the McLaughlin Adjustment due
to the Must Carry rule, especially for the
2014 results which pertain to
circumstances similar to 2013. The
McLaughlin Adjustment has always
been presented as a 100-percent or
nothing approach, and the Judges can
take that characteristic of the adjustment
into consideration. To the extent that
one would specifically exclude Must
Carry signals, such as in a regression
analysis, the fact that the McLaughlin
Adjustment is applied to Must Carry
signals diminishes the value of such
adjusted Bortz results when making a
comparison to such other evidence that
devalues Must Carry signals.
It has also been shown that PTV
signals comprise the only category of
content that CSOs can be required to
report as ‘‘distant’’ under section 111
when such signals are actually carried
to subscribers within the signals’ DMA,
and further that a majority of the PTVonly systems reported such distant
signals during the years at issue. As
discussed above, it has been argued that
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similarly situated commercial signals
would be reported as local, and thus
would be ineligible for section 111
royalties. Bortz Rep. at 17–18
(‘‘throughout 2016–17 approximately
77% percent of the aggregate subscribers
served by the PTV Only Systems did not
receive any distant signals.’’); Majure
WDT ¶¶ 150–51. Yet, the designation as
‘‘distant’’ is rooted in statutory
definitions and requirements, and thus
it is not established that such signals
have no place in the hypothetical
marketplace considered in this
proceeding.
Furthermore, with respect to distant
signals carried within their DMAs, again
certain parties argue that there is no
basis to assume that a majority of the
PTV-only CSOs had a relatively greater
preference for PTV programming over
other categories of programming, much
less at 100% of relative value. Yet, it has
always been the nature of the
McLaughlin Adjustment to augment the
Bortz results with PTV-only signals, and
to impute a 100-percent valuation.
Accordingly, the McLaughlin
Adjustment is recognized as an
adjustment that helps to remedy a bias
in the Bortz methodology but may do so
on an imprecise basis.
For 2015 through 2017, the Bortz
results, when subjected to the
McLaughlin Adjustment, show a
dramatic increase in the PTV results,
i.e., an increase to 8.4% in 2014 to
43.6% in 2015, then to 48.4% in 2016,
and by 2017, the results are 48.2%. A
significant change is also seen for JSC,
whose result is 39% in 2014 but only
12.7% for 2015, declining to 12.2% in
2016, with the JSC result at declining to
only 14.8%. See Trial Ex. 3049. The
unadjusted, initial Bortz results show
increases for PTV, and decreases for
JSC, but they are not nearly as
precipitous between 2014 and 2015, and
not nearly as steep overall. See Bortz
Rep. at 2. Considering the relative value
question that the Bortz Surveys set out
to have answered, and the adjusted
Bortz results, it is hard to see why
within only about one year many CSOs
went from ascribing relatively small
value to PTV to considering it the most
valuable. See 3/30/2023 Tr. 2621
(Majure) (‘‘just coincidentally at the
point where WGNA converted, the
system suddenly went from having a
small value for the Public Television
content to that being the only thing they
like.’’). Thus, an issue is raised as to
whether the Bortz Surveys, particularly
after application of the McLaughlin
Adjustment, are best suited for the years
2015 through 2017.
With the loss of WGNA as a distant
signal, many CSOs that had
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retransmitted only PTV and WGNA as
distant signals became PTV-only
systems, which meant that they were no
longer eligible for participation in the
Bortz Survey. They also became subject
to the McLaughlin Adjustment; and
according to the adjustment, the value
assigned to PTV was, as always, 100
percent.224 It was also during this time
that the universe of Bortz-eligible CSOs
declined.225 That change in the number
of eligible CSOs during 2015–2017 was
so great that, as already discussed, Bortz
Media went from the use of a sampling
technique in 2014, which was similar to
that employed for many preceding
years, to a new and different technique
in 2015 and thereafter, which Bortz
Media and Mr. Trautman described as
an attempt as a census.
Although the bias caused by
exclusion of PTV-only systems from the
Bortz Survey became more profound in
2015–2017, as many systems that
carried only PTV and WGNA as distant
signals became PTV-only systems after
the WGNA conversion, as illustrated
above, there is little evidence to indicate
that the application of the McLaughlin
Adjustment rectifies the situation.
Indeed, no party, not even PTV, argues
that the Bortz Survey with the
McLaughlin Adjustment is the best
methodology of record for arriving at an
allocation for 2015–2017.
Adjustment One, proposed by Bortz
Media and Mr. Trautman, and
supported by JSC and SDC, is offered as
a response to the situation in which
CSOs once carrying only PTV and
WGNA as distant signals suddenly
became PTV-only systems. Adjustment
One also addresses Canadian-only
systems, although it is opposed by CCG;
and it has not been shown that
Adjustment One calculations would be
useful on allocation CCG’s share of the
subject royalty funds.
As described more fully above,
Adjustment One uses the McLaughlin
assumption of attributing 100 percent of
value to the PTV (or Canadian category)
224 The number of PTV-only systems grew
substantially in 2015–2017. In the second
accounting period of 2014, there were 44 PTV-only
systems, but that number increased to 173 in the
second half of 2017. This increase occurred in large
part because systems that previously carried both
PTV and WGNA became PTV-only systems when
WGNA converted to a cable network at the end of
2014. Indeed, between 50 and 55 percent of the
PTV-only systems in 2016–2017 had carried WGNA
in 2014. Bortz Rep. at 10–11; Harvey CWDT tbl.32.
225 This decline in Form 3 CSOs carrying distant
signals was largely the result of systems that had
previously carried only WGNA electing not to carry
any distant signals. Out of the 275 systems that
carried WGNA as their lone distant signal in 2014,
only 15 (5.5%) of these systems carried a nonWGNA distant signal from 2015–2017. Bortz Rep.
at 8.
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when that is the only category the
system carries distantly, but does not do
so for PTV-only systems in 2015
through 2017 that previously carried
WGNA. As to those systems,
Adjustment One attempts to predict the
average valuation from all systems that
carried only PTV and WGNA in 2014
because it is not assumed that a CSO
changed its valuation of PTV content
simply because of the WGNA
conversion. Furthermore, systems that
carried both PTV and Canadian distant
signals (but no U.S. commercial distant
signals) are weighted in the same
manner, but with the fees allocated
equally among the PTV and Canadian
categories. See Bortz Rep. at 42–43.
The results seen from the application
of Adjustment One tend to confirm the
fact that the conversion of WGNA had
a profound effect on the way that the
McLaughlin Adjustment affected the
Bortz results for 2015–2017. The
application of Adjustment One prevents
the steep swings seen in the
McLaughlin-adjusted results. Yet, as
pointed out by PTV, it does so at a cost.
Adjustment One keeps the new PTVonly CSOs from bringing 100-percent
PTV value into the calculation because
they may have once valued another
signal that no longer exists. It treats the
class of new PTV-only CSOs differently
from other PTV-only CSOs, even though
they clearly have not replaced WGNA
with other distant signals. Moreover,
due to the fact that Adjustment One
calculates shares for 2015 through 2017
based on the average valuation from all
systems that carried only PTV and
WGNA in 2014, the application of
Adjustment One, for the purpose of
allocating royalties, would in effect
attribute a portion of section 111
royalties according to the former
existence of WGNA, even though
WGNA no longer existed as a distant
signal in 2015–2017. Consequently,
while Adjustment One is worth
considering in the context of gauging
the impact of the WGNA conversion on
the Bortz results, it does not provide
figures that can be used to calculate the
allocation of shares of the subject
royalty funds.226
CTV’s proposed adjustment is not a
proposed adjustment to the survey
evidence available in this proceeding,
i.e., the Bortz Survey for 2014 through
2017. Rather CTV proposes that data
connected to the survey for 2014
(without adjustment for the exclusion of
PTV-only CSOs) be used to expand the
application of regression evidence from
its expert, Dr. Marx. As detailed above,
CTV proposes a share allocation
approach that combines the Marx nonduplicated minute estimates for 2014
with the Bortz results for 2014 to
establish a starting point for allocating
shares, and then applies the year-to-year
net change in each category derived
from the Bortz survey results for each
year in 2015, 2016 and 2017. There is
a dearth of expert testimony concerning
CTV’s proposal. CTV’s proposal is
supported by no other party. CTV’s
proposal hinges on acceptance of Dr.
Marx’s fee-based regression estimates
for 2014, which as discussed above has
not been accorded the greatest weight.
Accordingly, the McLaughlin
Adjustment, provided one understands
its aforementioned limitations, is most
helpful among the proposed
adjustments in understanding the Bortz
results. The following table shows the
McLaughlin Adjustment allocations
when organized according to the
claimant groups in this proceeding.
MCLAUGHLIN-ADJUSTED ROYALTY ALLOCATIONS
2014
(%)
Basic Fund
Canadian Claimants ........................................................................................
Commercial TV ................................................................................................
Devotional Programs .......................................................................................
Program Suppliers ...........................................................................................
Public TV .........................................................................................................
JSC ..................................................................................................................
1.0
25.2
5.4
21.0
8.4
39.0
2016
(%)
1.8
19.2
4.4
18.4
43.6
12.7
2017
(%)
1.3
15.3
5.0
17.8
48.4
12.2
1.2
17.2
3.9
14.8
48.2
14.8
In the 2010–13 proceeding, some
criticisms of Bortz and other survey
evidence went to the way constant sum
questions were worded or executed, but
some criticisms went to use of the
methodology per se. Dr. Mathiowetz
provided an opinion in support of the
particular methodology used in the
Bortz Surveys received in that
proceeding. See 2010–13 Determination
at 3587. Ultimately, the Judges found
certain regression analyses to be more
persuasive than the survey results. Yet,
far from rejecting the survey results, the
Judges concluded, after considering all
of the evidence presented in that
proceeding, ‘‘the constant sum survey
methodology, with adjustments,
provides relevant information relating to
the relative value for each of the six
categories remaining at issue.’’ Id. at
3591 (emphasis added).
Many criticisms have been leveled
against the Bortz Surveys now at issue.
Yet, even among parties that do not
support use of the Bortz Survey in this
proceeding, for the most part there has
been an acknowledgement that constant
sum surveys, if properly designed and
executed, might yield useful data, even
if the Bortz Surveys presented in this
proceeding fall short.227 In this
proceeding, Dr. Mathiowetz testified
that a constant sum methodology was
used as early as the 1980s in royalty
allocation proceedings before the CRB
predecessors. Her testimony in this
proceeding is that a constant sum
question offers a perfect solution to the
relevant research question. Mathiowetz
CWDT at 4–6; 4/10/2023 Tr. 3849–54
(Mathiowetz). The Judges must allocate
100% of the royalty funds at issue
across several different categories, and
an increased allocation for one category
will necessarily require a decrease
elsewhere so as to allocate 100 percent.
Consequently, survey evidence that
226 Additionally, Bortz Media’s Adjustment Two
addresses the question of whether PTV signals
transmitted within their DMA should be treated
differently. It also attempts to address the exclusion
of Canadian-only systems. As already described in
the main text, Adjustment Two accepts (while not
agreeing with) the McLaughlin assumption of
attributing 100 percent of value to either the PTV
or Canadian category when that is the only category
the system carries distantly, even for systems that
became PTV-only by default as result of the WGNA
conversion. However, PTV-only systems that only
carried distant PTV signals within those signals’
originating DMAs are excluded. Bortz Rep. at 43.
Adjustment Two, therefore, does not accept the
definition of a distant signal imposed by statute,
and may also create a gap in compensation for
copyrighted programming within a DMA.
Furthermore, no party presents its requested
allocation based on implementation of Adjustment
Two, or made an adequate record concerning this
potential adjustment.
227 See, e.g., CCG PHB at 50–51; CCG RPFF at 40–
41, 47–48.
b. The Constant Sum Methodology
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employs constant sum methodology,
such as the Bortz Survey, could again
provide relevant evidence.
PTV has a one-paragraph subsection
in its main brief devoted to an
argument, which it claims is unrebutted,
that the key constant sum question in
the Bortz Surveys (Question 4) is
incapable of producing valid and
reliable results because it is not
‘‘incentive compatible.’’ It is argued that
PTV’s expert witness Dr. Boyle is one of
the foremost experts on stated
preference surveys, of which Bortz’s
constant-sum question is an example,
and further that his written and oral
testimony is that the literature has
developed on stated preference surveys,
and it is now settled that stated
preference surveys must be ‘‘incentive
compatible.’’ His opinion is that the
Bortz Survey constant sum question
fails multiple requirements for incentive
compatibility. PTV PHB at 68 (citing
PTV PFF ¶¶ 355–57 (essentially tracking
PTV’s brief, or vice versa)); see Written
Rebuttal Testimony of Kevin J. Boyle,
Trial Ex. 7306, at 15, 32–36, 42–43
(Boyle WRT).
A review of the parties’ briefs and
proposed findings of fact shows that,
contrary to PTV’s claim, PTV’s incentive
compatibility argument was not in any
sense unrebutted.228 JSC addressed the
issue of incentive compatibility at least
as much as PTV did in its briefs.229 See
JSC PHB 45–46; JSC RPFF 40; JSC PFF
¶¶ 247, 248–51; JSC PRFF ¶ 67.
Furthermore, during the hearing, PTV
conducted a substantive direct
examination concerning incentive
compatibility; and then JSC conducted a
vigorous cross-examination of Prof.
Boyle on his opinion regarding
incentive compatibility. Prof. Boyle also
answered questions from the bench on
this topic.230
There is some discussion in PTV’s
reply as to whether, in response to Prof.
Boyle’s opinion about incentive
compatibility, JSC was wrong to set out
to show that constant sum surveys are
reasonable or widely used. See Public
Television’s Post-Hearing Reply Brief at
45 (PTV RPHB). Yet, Prof. Boyle’s
written testimony linked the reliability
of constant sum methodology to
incentive incompatibility, at least for
purposes of PTV’s case. Furthermore,
the presentation of his incentive
228 A review of the parties’ filings shows that
incentive compatibility was addressed primarily, if
not entirely, only by PTV and JSC.
229 PTV’s reply brief and reply proposed findings
provided more substance to its argument than PTV
provided in its initial briefing. See PTV RPHB at
39–40, 44–45; PTV PRFF ¶¶ 252–63.
230 See 3/27/2023 Tr. 1419–21, 1453–54, 1492–
512 (Boyle).
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compatibility opinion appears as an
alternative to evidence concerning the
validity and reliability of constant sum
questions. In particular, under the
heading ‘‘Validity and Reliability of
Constant-Sum Questions,’’ Prof. Boyle
testified in writing, ‘‘There is limited
peer-reviewed research on the validity
and reliability of constant sum
questions. In the absence of evidence on
the credibility of constant-sum
questions for eliciting preferences to
support decision making, I turn to the
well-known concept in economics and
political science of incentive
compatibility (Groves and Ledyard,
1987; Ledyard, 1989) to consider the
validity of the Bortz survey constantsum question.’’ Boyle WRT at 32–33
(footnote omitted, which shows Prof.
Boyle’s reliance on a Google Scholar
search, with his search terms, to show
limited peer-reviewed research). Far
from leaving that statement unrebutted,
at the hearing, JSC questioned Dr.
Mathiowetz, and she responded, as
follows:
Q. * * * Professor Mathiowetz, did you
see the assertion by Dr. Boyle that there is a
‘‘absence of evidence on the credibility of
constant sum questions for eliciting
preferences to support decision-making’’?
A. I did see that by Dr. Boyle. And I
disagree with that assertion. First of all, we
still see constant sum being used and
appearing in the peer-reviewed journal
literature. Whether it is being used as an end
in and of itself for a substantive topic or
sometimes you see the constant sum question
being used as a benchmark to compare other
relative value methodologies.
Second, in light of Dr. Boyle’s comment, I
thought it would be useful to go and look at
recent marketing research text, because
constant sum is often taught in MBA
programs dealing with marketing research.
And I found textbooks published as recently
as 2017, I think was the most recent one, I
found, that are still teaching constant sum
methodology.
4/10/2023 Tr. 3852–53 (Mathiowetz).
Accordingly, in view of that testimony,
the use of constant sum evidence in
prior proceedings, and other record
evidence concerning constant sum
methodology, the Judges do not adopt
an opinion that there is an absence of
evidence on the credibility of constant
sum questions, or in the absence of such
evidence one must turn to incentive
compatibility (notwithstanding the
importance that incentive compatibility
may otherwise have).
PTV’s reply brief, and the proposed
reply findings cited therein, provide a
summary of Dr. Boyle’s testimony on
incentive compatibility to the effect
‘‘that (1) a stated-preference question
must be incentive compatible for it to
produce valid and reliable results; (2)
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there are four requirements for a statedpreference question to be incentive
compatible; and (3) Bortz’s constantsum question is fatally flawed because
it fails multiple requirements for
incentive compatibility.’’ Yet, the
requirements for a stated-preference
question are not explained in detail. See
PTV RPHB at 44 (citing PTV PHB at 68;
PTV RPFF ¶¶ 254–63). Turning to Prof.
Boyle’s hearing testimony, he explained,
as follows:
A. So the constant sum, as I said before,
is one example of stated preference surveys.
And the literature for that has been
developing for a long time.
And as it has developed in a variety of
different areas of economics, in terms of
stated preference questions, it’s developed
standards that a question needs to be
incentive-compatible. And that started,
really, evolving in the early 1990s and
codified, really, in the 2000s.
But there are kind of four basic axioms of
it; that it needs to be consequential, it needs
to be truthful, it needs to be a binary choice,
and payment needs to be coursed.
And so if you fail one of them, then you’re
in problems for incentive compatibility. If
you fail more than one, you’re even more in
trouble in terms of incentive compatibility.
And, you know, I have—three of them are
listed here on the slide, but probably the two
most important ones are the truthful and
binary because they apply directly to the way
the constant sum question is framed.
3/27/2023 Tr. 1419–20 (Boyle); cf. Boyle
WRT at 34 (quoting Carson and Groves,
Incentive and Informational Properties
of Preference Questions, 37
Environmental and Resource Econ.,
181–210 (2007), and a different
formulation of the axioms).
Prof. Boyle also testified as to why, in
his opinion, the Bortz Survey,
particularly Question 4, is not incentive
compatible, as follows:
Q. And why isn’t the constant sum
question incentive-compatible?
A. It’s not incentive-compatible because
it’s not a binary question and a single
application. And so when I was talking about
what we did with the Deepwater Horizon,
that was a specific dollar amount for a
specific valuation that you answered yes or
no.
There’s no incentive for somebody to
answer wrong on that. You have got to
answer yes or no. And if you answer wrong,
you get an undesirable outcome for yourself.
With the Bortz Survey, when you have the
different categories that you can allocate
percentages to, there’s a potential there for
somebody to misallocate across categories
when you have what’s called an open-ended
response that you can fill in.
You know, in the Bortz Survey, there was
an enumerator, so they were giving the
information to the enumerator to fill in.
But, you know, I think one of the examples
I used in my report was that if someone had
a devotional affinity, they could explicitly or
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implicitly allocate more to devotional or less
to others. If they are an atheist, it could be
the opposite one.
So there’s an opportunity, by how you
allocate the percentages, that you could
either explicitly, implicitly, or accidentally
misconstrue what the true value is that is
estimated from the questions.
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3/27/2023 Tr. 1420–21 (Boyle).
PTV’s argument concerning incentive
compatibility is not persuasive. As
pointed out by JSC, Prof. Boyle held up
as a positive example an incentive
compatible public resource survey in
which respondents may in fact have had
a financial interest in the outcome of the
survey. JSC PFF ¶ 249; 3/27/2023 Tr.
1406–07, 1420 (Boyle) (‘‘And if you
answer wrong, you get an undesirable
outcome for yourself’’). Additionally,
whether a Bortz survey respondent’s
personal beliefs, such as religious
beliefs (or the absence thereof), might
cause a respondent to ‘‘misconstrue’’
true value in the Bortz Surveys remains
highly speculative.
Moreover, with respect to the Bortz
Surveys, Dr. Mathiowetz explained that
Prof. Boyle’s argument is wrong because
‘‘[c]able system operators are paying
[the] royalty fee regardless of how they
allocate’’ value to program categories in
the surveys. See 4/10/2023 Tr. 3854
(Mathiowetz). Indeed, it was not shown
that Prof. Boyle had any knowledge of
whether or how respondents’ answers to
Bortz Survey questions might actually
affect respondents or their CSOs, and
what respondents’ perceptions might be
on the subject. Further, JSC’s suspicion
that Prof. Boyle lacked knowledge in
this area was confirmed on crossexamination, when Prof. Boyle could
not provide clear answers to simple
questions on this topic. He was, for
example, specifically asked, ‘‘whether
you have an understanding as to
whether cable system operators have a
financial interest in the outcome of
these proceedings,’’ and he testified, ‘‘I
am not testifying as an expert on cable
systems. I’m testifying as an expert on
survey design. And that’s how I am
answering you.’’ Furthermore, when
forming his opinions, Prof. Boyle did
not consult with anyone who had
worked at a cable system. 3/27/2023 Tr.
1502–05, 1513–15 (Boyle).
c. Value Measurement
On behalf of Program Suppliers, Dr.
Stec,231 testified that at best the Bortz
Survey results represent an estimate of
the cable system operators’ relative
willingness to pay for the different
program categories they were asked to
231 Dr. Stec was called to testify by PS, and was
qualified as an expert witness in economics and
survey research. 4/19/2023 Tr. 5641 (Stec).
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consider, but willingness to pay is not
the same as a market price or market
value.232 Furthermore, it is his opinion
that the Bortz Survey does not account
for the supply side of the transactions,
which was noted as early as the CARP
1990–1992 cable royalty proceeding. He
opined that although Mr. Trautman
indicates that the survey respondents
are familiar with the rates charged for
programming, as CSOs they do not
purchase the individual programming
categories as identified in the survey
and instead purchase entire broadcast
signals that include multiple categories
of programming. He opined that survey
respondents are unfamiliar with the
actual prices charged in the marketplace
for the specific programming categories
when they are retransmitted on distant
signals. Written Rebuttal Testimony of
Jeffrey Stec, Trial Ex. 7608, at 21–22
(Stec WRT); 4/19/2023 Tr. 5655 (Stec);
PS Brief at 67–71; PS PFF ¶¶ 513–29.
Measurement of sheer willingness to
pay may not be identical with a
determination of market value. Yet, as
discussed throughout this
determination, including with respect to
regression evidence presented by
another Program Supplier expert
witness, Dr. Tyler, evidence concerning
CSOs’ willingness to pay is an
important indicator when examining the
hypothetical market examined by the
Judges in this and prior proceedings.
Furthermore, as pointed out by JSC,
Dr. Stec expressed some of the same
negative opinions about the Bortz
Survey in the 2010–13 proceedings, and
although considered by the Judges, the
opinions did not prevent the Bortz
Survey results from being used by the
Judges in making their allocations. See
JSC PHB at 46; JSC PFF ¶ 253. Indeed,
the Judges recognized that the CARP
had determined that in the relevant
hypothetical market, the supply of
programming would be fixed and value
would be determined only by the CSOs’
demand as reflected in their willingness
to pay. Additionally, in the 2010–13
proceeding, the Judges ‘‘agree[d] with
the pronouncement in prior
determinations that the royalties that
232 Dr. Stec, citing to an article on willingness to
pay at the point of purchase, opines ‘‘research
studies show that, when controlling for question
formats, the hypothetical bias in consumer-intent
type measures, like willingness-to-pay, can be
substantial with the hypothetical willingness to pay
exceeding the real willingness to pay. Even in the
absence of any other flaws, by not accounting for
this hypothetical bias, the Bortz Survey likely
measured willingness to pay, in the form of budget
percentages, inaccurately.’’ Stec WRT at 26
(footnote omitted); PS PHB at 70–71; PS PFF
¶¶ 527, 529. The relevancy of this consumer-intent,
point of purchase opinion to the Bortz Survey
remains unclear, especially in view of a dearth of
testimony on the subject.
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54251
would be paid in the hypothetical
market would essentially be a function
only of the CSOs’ demand and the
copyright owners’ costs, and their
supply curves (if any) would not be
important determinants of the marketbased royalty.’’ See 2010–13
Determination at 3583, 3555 n.18
(citing, as an example, 1998–99
Librarian Order at 3606, 3608).233 In any
event, the wording of Question 4 of each
Bortz Survey for a particular year does
not seek a response about actual prices
charged in the marketplace, referenced
by Dr. Stec. Rather, it seeks a CSO
response about percentages of a fixed
dollar amount the system ‘‘would have
spent’’ and specific categories of
programming that the system carried as
distant signals in the subject year.
The parties have made further
arguments to the effect that Bortz
Survey, and its results, are unable to
shed light on market value relevant to
this proceeding. For example, Program
Suppliers argue that the Bortz results
are not credible because they are
inconsistent with market changes,
noting that with the conversion of
WGNA to a cable system, the share of
compensable minutes for JSC and CTV
content significantly declined; and
further, while in 2014, over 90% of the
sports programming was JSC content, by
2015 that share dropped to
approximately 65%, with the balance of
35% being Program Suppliers or CTV
content, yet changes to programming
shares observed in the marketplace are
not reflected in the Bortz Survey results.
It is argued, among other things, that
despite the 94% decline in JSC content,
the Bortz Survey suggests that JSC’s
volume fell by only 22% and remained
the most valuable category in 2017. See
PS PHB at 77. Similarly, CCG argues
that according to the Bortz Survey
results, JSC content retains a constant
relative value, and is ranked the most
expensive and most valuable according
to Bortz Survey results, but that is
unrealistic after 2014 when WGNA
converted to a cable station. Such
consistency, it is argued, does not
comport with reality, inasmuch as
WGNA carried 94.2% of compensable
distant JSC programming minutes in
2014, and with WGNA’s conversion,
compensable distant programming
minutes of JSC content dropped
precipitously. CCG argues that the yearto-year consistency in average JSC
relative values from Question 4 despite
233 As Dr. Majure testified, Question 4 is
essentially a budget-setting exercise, and as such it
is his opinion that importance and expected cost
are relevant to the value of distant signal
programming, as they are to forming a budget. 3/
30/2023 Tr. 2616 (Majure).
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a loss of over more than 90% of
retransmitted content after 2014 can
only be explained through heuristics,
question order bias, and the possible
knowledge of the survey’s purpose. See
CCG PHB at 60.
JSC argues that while CCG and
Program Suppliers take the position that
the Bortz Survey responses are not
sensitive enough (by some unspecified
degree) to the change in volume of
subscriber-weighted minutes resulting
from the WGNA conversion, the Bortz
results show a strength of the Bortz
survey that the Judges’ predecessors
have highlighted. JSC points out that in
the 1998–1999 proceeding, following
the conversion of WTBS from a
superstation to a cable network, the
Bortz survey results showed only a
modest decrease in JSC’s relative value
allocation, despite a similar drop in
volume as the one at issue in this
proceeding. Indeed, JSC argues, it is
wrong to expect that changes in value
will track with changes in the volume
of programming, as might be the case in
other industries where value is driven
by per-unit sales. Further, it is argued,
it is entirely reasonable that, as the
Bortz Surveys show, CSOs continue to
value highly the other JSC programming
they carry after a superstation
conversion, and perhaps value it even
more. JSC points to the CARP’s
assessment that the ‘‘Bortz respondents
take account of changes in volume,
viewing, and all other material factors;’’
and argues that as a result, the Bortz
surveys, unlike other methodologies,
would not lead the factfinders astray by
confusing volume with value. Rather, it
is argued, as the CARP found in its
determination, affirmed by the Circuit
Court, the surveys would ‘‘best inform
[the CARP] as to whether any changes
in sheer programming volume, viewing
minutes, subscriber instances, or any
other volume metric, truly translate into
changes in value.’’ Joint Sports
Claimants’ Post-Hearing Reply Brief at
54–55 (JSC RPHB); JSC PFF at 167
¶¶ 17, 18 (quoting 1998–99 CARP Rep.
at 30–31 and Program Suppliers v. Libr.
of Cong., 409 F.3d 395, 401–02 (D.C. Cir.
2005)).
JSC correctly argues that value,
particularly as ascertained for the
purpose of royalty allocation, is not
merely reflective of compensable
minutes or of the volume of
programming. Furthermore, as
recognized by the CARP, when
determining the value of programming,
CSOs, such as Bortz respondents, have
the ability to take account of changes in
volume, viewing, and all other material
factors when assigning value. Therefore,
to some extent, the Bortz results may
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show that the CSOs contacted for the
Bortz Surveys, as argued by JSC, always
valued JSC programming highly, and
taking many factors into consideration
may have continued to do so, or may
have done so to an even greater extent,
after the loss of WGNA as a distant
signal. Thus, to retain usefulness in
allocations proceedings, the Bortz
Survey results need not track precisely
the availability of WGNA. Furthermore,
as JSC suggests, it is unclear exactly
how closely the Bortz results would
have to track such a market change for
its detractors to be satisfied.
Nevertheless, the magnitude of the
changes caused by the conversion of
WGNA is so great that one could expect
some appreciable reflection of that event
in the Bortz results, particularly if there
had not been significant changes in the
Bortz methodology as changes in the
market occurred. Indeed, the Bortz
results do show diminished percentages
for JSC after 2014. Yet, as already
detailed, it was at the time of the
conversion that, citing various factors,
Bortz Media made a radical change in
its methodology such that it abandoned
its prior sampling methodology in favor
of an attempt to contact all CSOs it
deemed eligible to participate in a Bortz
Survey, while still excluding CSOs that
carried only PTV or Canadian
programming as distant signals. Bortz
Media also calculated alternative
adjustments to be used when
interpreting the Bortz initial results after
the WGNA conversion to replace the
McLaughlin Adjustment used
previously by the Judges. Thus, it is not
simply a question of whether the Bortz
Surveys were sensitive to changes that
occurred from 2014 through 2017. There
should be a realization that after 2014,
one is looking at Bortz results that in
certain respects are based on a different
methodology, and that different
adjustments have been proposed.
Consequently, one must exercise
caution when comparing results from
2014 (or before) with results for 2015–
2017.
As explained by Dr. Stec, for 2014,
Bortz Media sought to interview a
random sample of Bortz-eligible CSOs,
but for 2015 through 2017 Bortz Media
attempted something like a census
while failing to interview anything near
all eligible CSOs. In fact, about 46% of
eligible CSOs did not participate in
those surveys. Dr. Stec testified that
participation or non-participation in the
surveys was ‘‘self-selected,’’ which
maybe an accurate appellation; but in
any case, the sampling that Bortz Media
obtained was not a random sample.
Thus, in Dr. Stec’s opinion, one cannot
ignore whatever differences might exist
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between respondents and nonrespondents and, relying on the
statistical properties of randomness,
impute the results obtained from the
respondents to the non-respondents,
and thus for the entire target population.
To do so, he opines, could introduce
bias or inaccuracies into the results. See
4/19/2023 Tr. 5671–74 (Stec); CCG PFF
¶ 354.234
Somewhat similarly, PTV argues there
is no dispute that the massive number
of Public Television and/or CanadianOnly Systems excluded from the 2014
through 2017 Bortz surveys would have
responded differently than the CSOs
Bortz actually surveyed, and further,
Bortz’s exclusion also creates a clear
non-response bias in the years that Bortz
attempted to conduct the surveys as a
‘‘census.’’ It is argued that Bortz defined
its target population, in part, based on
the amount of the section 111 royalties
they represent, but by 2017, the scope
of Bortz’s exclusion of PTV- and/or
Canadian-only systems exceeded the
scope of CSOs that were actually
surveyed as part of the attempted
census, including in terms of the
numbers of systems (37% of systems
were excluded while 34% of systems
were surveyed), the section 111
royalties they paid (45% of royalties
were paid by excluded systems while
28% of royalties were paid by surveyed
systems), and the number of subscribers
they represented (41% of subscribers
were subscribed to excluded systems
while 30% of subscribers were
subscribed to surveyed systems). PTV
PHB at 40 (citing PTV PFF ¶¶ 199–200
(relying in part on Boyle WRT at 38–
39)).
JSC argues that the Bortz opponents
fail to rebut Dr. Mathiowetz’s finding
that there was no evidence of nonresponse bias impacting the Bortz
estimates in any year. It is argued that,
as Dr. Mathiowetz explained, the ‘‘risk
and type of non-response bias’’ is the
same under either the sampling or the
‘‘census’’ approach, with no assumed
statistical difference or indeterminacy in
one compared to the other. JSC argues
that there is an established method to
test for non-response bias, which Dr.
Mathiowetz applied, and found no bias.
JSC RPHB at 48; JSC PFF 381. Indeed,
during the hearing, Dr. Mathiowetz
234 Even after the WGNA conversion in 2014,
small numbers of cable systems continued to report
carriage of the signal. The reasons for doing so may
be varied on the part of the cable systems, but in
any event remain unclear. See Trautman WRT at 2–
3; Bortz Rep. at 7 n.6. As discussed, supra note 27,
there may have been some residual WGNA carriage
as WGNA transitioned from a broadcast channel to
a cable station.
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provided a succinct explanation of her
assessment, as follows:
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Q. * * * Just in the interest of time, if you
could give us at a high level what you did
to assess whether there was a problem of
non-response bias here and what you
concluded?
A. So as we have already established, right,
there are respondents and there are nonrespondents. And you worry about nonresponse bias to the extent that those who
don’t respond differ from those who do
respond to the survey.
In order to make that assessment, you have
to take two steps. First of all, you have to take
and look at characteristics or variables that
you have for both respondents and nonrespondents.
So we have a lot of information about these
cable systems. We know their total royalty
payments. We know the region of the
country. We know the distant signal
equivalents. We know the programming mix
being offered by those cable systems.
So the first step is to say: Are there any of
these characteristics related to non-response?
And as Dr. Boyle asserts, there is—we see
that there is a relationship between size of
royalty and non-response.
But you have to take the second step and
you have to say: Now, among the
respondents, is the characteristic that I saw
related to non-response related to valuations?
And when you look at that, total royalty
payments is not related to average program
valuations.
So while we see a difference in nonresponse rates, there is no indication of nonresponse bias in any of the years of the Bortz
Survey.
4/10/2023 Tr. 3906–08 (Mathiowetz).
Dr. Mathiowetz’s opinion expressed at
the hearing is supported by her written
testimony.235 See Mathiowetz CWDT at
18–19.
Dr. Mathiowetz’s analysis does not
answer the theoretical question of
whether or not the samples obtained
through the Bortz’s census-type
approach in 2015 through 2017 can be
treated the same way as random
samples. Nevertheless, with respect to
the target population of the Bortz
Surveys, Dr. Mathiowetz’s analysis
provides actual evidence of the absence
of non-response bias in the Bortz
Surveys for 2014 through 2017, which
the Judges take into consideration when
determining the extent to which the
Bortz results indicate value.
Yet, Dr. Mathiowetz’s analysis does
not speak to a different bias, which is
the bias in the design of the Bortz
Survey caused by the complete
235 In his written rebuttal to Dr. Mathiowetz’s
written direct testimony, Prof. Boyle questions Dr.
Mathiowetz’s use of Census regions when reviewing
cable system responses, opining that her
investigation might have been appropriate if one
were doing a survey of the population but not for
a survey to provide input to cable royalty revenue
allocations. Boyle WRT at 43–44.
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exclusion of PTV-only and Canadianonly CSOs. The hypothetical allocation
by those CSO’s under Question 4 would
presumably have to have been 100% for
the only distant signal that they carried.
See 3/23/2023 Simonson Tr. 1228;236 4/
4/2023 Tr. 3131–34 (Trautman). The
changes in the Bortz results that occur
when PTV-only or Canadian-only CSO
are taken into account, especially after
the conversion of WGNA, are significant
and have already been discussed.
d. The Identification and Qualification
Process of Survey Respondents
Questions have been raised
concerning the identification and
qualification of the respondents that
Bortz Media contacted for participation
in its surveys. An inaccuracy found
among the criticisms of the Bortz
surveys is that the executives identified
as initial contacts for the interviewers
(whose identities and phone numbers
were obtained primarily through the
Factbook) were the targets, or target
populations of the surveys, or the targets
for the interviewers.237 Yet, the target
for the interviewers, and for the surveys,
was always the person most responsible
for programming carriage decisions.
While the initial contacts may in fact
serve as the survey respondents, in most
cases, the interviewer was referred to a
subsequent contact within the CSO.
Notwithstanding some arguments to the
contrary, the method of making an
initial contact, and then pursuing a
referral when needed, is not a new
method for the 2014–2017 surveys. See
2010–2013 Trautman Oral Testimony,
Trial Ex. 7043, at 103–05. Furthermore,
despite suggestions to the contrary, Mr.
Trautman’s hearing testimony on this
topic is consistent with the Bortz
Report, and with the interviewer
instructions of the survey instrument.238
236 Dr. Simonson was called by PTV, and
qualified as an expert in an expert in the fields of
survey methodology, marketing, and managerial
decision-making. 3/23/2023 Tr. 1170–71
(Simonson).
237 See, e.g., PS PHB at 63 (‘‘Since Mr. Trautman
only reached between 5.9% and 9.0% of his
intended target population, there should have been
a process for qualifying respondents who were not
the intended targets.’’).
238 The survey instrument instructs interviewers,
when introducing themselves, to ask to speak with
the listed respondent, and if unavailable to confirm
he/she is the person most responsible for
programming carriage decisions for the system and
to arrange for a call back; and if not, then to ask
to speak with the person most responsible for
programming carriage decisions for the system. In
addition, Question 1 on the survey instrument is:
‘‘Are you the person most responsible for
programming carriage decisions made by your
system during [year] or not?’’ If the response is
negative, the interviewer is instructed by the survey
instrument to ask to speak with the person most
responsible for the system’s programming carriage
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The Bortz Survey has also been
criticized as failing to reach the person
most responsible for programming
carriage decisions because decisionmaking authority within the systems
might be at the national or corporate
level, or because the survey respondents
worked in the marketing or video
product departments. While one cannot
say with certainty that in all cases the
Bortz interviewers reached the right
respondents, the evidence shows that
during the time period in question,
individuals with the knowledge of why
specific distant signals were carried
often worked at the local or regional
level, and furthermore could work in
departments with titles such as
marketing or video rather than
programming. See 4/3/2023 Tr. 2769–73
(Singer);239 4/10/2023 Tr. 4054–55,
4060–61 (Witmer);240 3/28/2023 Tr.
1714–16 (Costantini); 241 4/17/2023 Tr.
5066–67 (Ringold).
e. Whether There Was Interviewer Error,
Interviewer Bias, or a Lack of Training
Opponents of the Bortz Survey argue
that they have found ‘‘error’’ by the
interviewers in as many as 90% of the
survey responses, although none seems
to involve recording the survey
responses. The alleged error, it is
argued, occurred in recording
information such as the recording of
‘‘partial names’’ or ‘‘multiple positions’’
for the same respondent. There are even
criticisms based on respondents’
LinkedIn profiles (which assumes,
without record evidence, that LinkedIn
accounts would be accurate, and up-todate for the survey periods in question).
See, e.g., PS PHB at 64–65; PTV PHB at
52–53; CCG PHB at 54; Tr. 1278–79
(Simonson). Yet, as explained by Mr.
Trautman, respondents in these
telephone surveys often hesitate to
provide detailed information about
themselves such as full names, or
happen to provide abbreviated titles.242
decisions for the subject year, and then to repeat the
introduction and Question 1. See Bortz Rep. app.
B; 4/5/2023 Tr. 3220–21 (Trautman).
239 Mr. Singer was called by JSC, and qualified as
an expert in the operation of cable systems and
cable networks, including the valuation of
television programming in the cable industry. 4/3/
2023 Tr. 2738, 2745 (Singer).
240 Ms. Witmer was called by JSC, and qualified
as an expert in the operation of cable systems,
including the valuation of cable and broadcast
television programming. 4/10/2023 Tr. 4035
(Witmer).
241 Ms. Costantini was called by PTV, and
qualified as an expert in the cable television
industry and valuation of television programming.
3/27/2023 Tr. 1583, 1588 (Costantini).
242 There is an email in which Mr. Trautman asks
his contractor running the interview process to
make sure interviewers do not record titles short-
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4/4/2023 Tr. 2992, 3004–05 (Trautman).
Furthermore, it is not uncommon for
regional personnel to oversee activities
at individual systems, depending on the
size and individual system
characteristics and responsibilities. Nor
is it uncommon to find individuals who
are responsible for more than one
function within a company. See 3/27/
2023 Tr. 1622 (Costantini).
Bortz opponents argue that Ms.
Grossman’s long experience working on
the Bortz surveys, and the large number
of interviews she conducted, could have
resulted in bias in the surveys she
performed. That criticism is somewhat
speculative. Furthermore, Dr.
Mathiowetz tested for that question, and
found no such bias. Specifically, it was
found that on average, responses to the
surveys Ms. Grossman performed did
not differ from those of obtained from
other interviewers. 4/10/2023 Tr. 3893–
94 (Mathiowetz). On the other hand,
despite the long history Bortz Media has
with Ms. Grossman, there are criticisms
about a supposed lack of training
materials, although the record shows
that it is standard to use the survey
instrument, or the questionnaire, as the
training material when there is a small
team of interviewers as in the case of the
Bortz Surveys.243 4/10/2023 Tr. 3895–
96 (Mathiowetz). Moreover, Bortz Media
conferred with Ms. Grossman and her
team with respect to the 2014–2017
interviews before starting each survey.
4/3/2023 Tr. 2841 (Trautman); 4/4/2023
Tr. 3006 (Trautman). Subsequently,
Bortz Media monitored approximately
20 percent of the interviews ‘‘to ensure
accurate interviewing techniques and to
observe any issues related to the
respondent’s comprehension or ability
to respond to the constant sum
valuation question.’’ Bortz Rep. at A–15.
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f. Whether the Bortz Survey Questions
Are Overly Complex or Caused
Confusion or Recall Bias
When examining the actual Bortz
Survey constant sum question, industry
experts explained that cable system
executives are more than capable of
understanding the categories of content
separate and apart from particular linear
channels, that they know these types of
programming as part of their day-to-day
job. The survey respondents also have
experience running businesses and
hand form. While Mr. Trautman was doing the due
diligence of quality control, there is no proof of
actual error. See 4/10/2023 Tr. 3967–68
(Mathiowetz).
243 Bortz only used a separate, one-page training
document for these surveys in the late 1980s to
early 1990s, when it worked with a large contractor
whose interviewers were not as clearly experienced
in executive interviewing. 4/4/2023 Tr. 3168–69
(Trautman).
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expenses. Thus, the constant sum
question is the type of question one
would ask them. See 4/10/2023 Tr.
4052–55 (Witmer); 4/3/2023 Tr. 2769
(Singer).
With respect to the terms used during
the Bortz Survey interviews, there is
argument and testimony that in some
cases the terms used to describe the
program categories are undefined or
vague. See, e.g., PS PHB at 72. The
terms used to describe the program
categories are by necessity
generalizations. Yet, there is no showing
of widespread confusion among survey
respondents. On the contrary, there is
evidence that the categories are
generally understood, in particular a
term such as ‘‘live professional and
college team sports.’’ See 2010–2013
Hartman Oral Testimony, Trial Ex.
7056, at 73–77; 3/28/2023 Tr. 1722–23
(Costantini).
With respect to the general
complexity of the Bortz Survey, and
especially Question 4, Dr. Mathiowetz,
who has studied and conducted
establishment surveys, testified that the
Bortz constant sum question was similar
in complexity to other establishment
survey questions, and underscored that
the executives contacted for the survey
have a sophisticated level of knowledge
about the concepts in the survey. 4/10/
2023 Tr. 3854–55 (Mathiowetz). Indeed,
Dr. Ringold has conducted surveys of
CSO employees, and has asked
respondents a constant sum question
that required respondents to allocate
100 points among seven different
claimant categories. See 4/17/2023 Tr.
5014–16 (Ringold).
Furthermore, one well-known
indication of respondents who were
overwhelmed or confused could be
what is termed ‘‘satisficing,’’ in which a
respondent may take a cognitive short
cut to stay in the role of a respondent
albeit at a minimum.244 See 4/10/2023
Tr. 3855–56 (Mathiowetz). Yet, Dr.
Mathiowetz found no pattern of
respondent confusion or satisficing
behavior in the Bortz survey data. There
was, for example, a case cited by PTV
of a Bortz respondent who gave the
same rankings and value allocations for
two different systems. Dr. Mathiowetz
testified, however, ‘‘[w]hat you want to
see when you’re looking for evidence
that there are problems with the
244 With respect to satisficing, during the hearing,
Dr. Mathiowetz quoted from the Encyclopedia of
Survey Research Methods, as follows: ‘‘Satisficing
has been posited to at least partly explain several
response effects, including acquiescence effects,
non-response order effects, no opinion option
effects, and non-differentiation in answering
batteries of rating scales.’’ 4/10/2023 Tr. 3856
(Mathiowetz).
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question is that you see that pattern [of
satisficing] overall across most
respondents,’’ not just ‘‘one or two.’’ 4/
10/2023 Tr. 4015–26 (Mathiowetz).245
A question has been raised as to
whether the timing of the Bortz surveys
led to recall error or bias. Mr. Trautman
testified that as a matter of best survey
practices, in general it is better to
perform the Bortz Survey closer to the
end of the survey year, rather than
farther from it. As discussed above, the
Bortz Surveys did not begin until
several months after the end of the
preceding calendar year. Nonetheless,
Mr. Trautman did not conclude that
there was recall bias in this the surveys
now at issue. 4/4/2023 Trautman Tr.
3012, 3029–34. Yet, as Dr. Simonson
observed, ‘‘the Bortz Survey mistakenly
asked a few respondents about
programming categories that they did
not actually carry.’’ 246 3/23/2023
Simonson Tr. 1223. In all such cases,
the respondents should have realized
that their systems had not carried
distant signal programming in those
categories, and allocated zero value to
such programming. Yet, Dr. Simonson
testified, for 2017, for example, over 11
percent of respondents allocated values
of up to 50 percent to categories they
did not carry. Id. Dr. Mathiowetz was
candid about the fact that there are some
errors in the Bortz Survey. She testified,
‘‘I think there are cases in any data
collection effort where there is
misinformation, respondent error,
respondent recall. That’s the nature of
the beast when you go and interview
humans. And the best you can do is
understand how that can impact the
data.’’ It was her opinion, which
appears reasonable, that incorrect
answers in those cases, i.e., answers
other than zero for a programming
category that was not carried, could be
the result of recall error. She explained
that ‘‘a respondent is under the
impression that the interviewer is giving
them—most respondents work under
the impression that the information
being conveyed by an interviewer is
accurate. And so we may have cases of
recall error as opposed to just not
245 Even before the production of more detailed
information, as originally produced, the redacted
Bortz data contained anonymized respondent
identifications showing every time the same
individual responded on behalf of multiple systems
in a given survey year. 4/10/2023 Tr. 2922–24
(Mathiowetz). It appears, therefore, that early in this
proceeding any party could have used such
information to track potential satisficing.
246 Such occurrences are indeed few in number,
but not to be ignored. Specifically, for 2014 through
2017, 90 respondents overall, four in 2014, 33 in
2015, 24 in 2016, and 29 in 2017, provided relative
value allocation to compensable programming that
they did not carry. See PS PFF 541 (citing Stec WRT
at 41).
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understanding.’’ 4/10/2023 Mathiowetz
Tr. 4030–31.
Despite a relationship between
importance and cost, already discussed,
there is a concern that because ‘‘warmup’’ Question 3 asks about cost, it might
have influenced responses to Question
4, which asks about value. See, e.g.,
2010–13 Determination at 3590 (‘‘This
may have injected some confusion into
the respondent’s estimation of relative
value.’’); 3/27/2023 Boyle Tr. 1422 (‘‘But
if I was doing it, I probably would not
have had Question 3 before Question 4,
if it was something that was important.
I would have had Question 3 after
Question 4, after the primary source of
information that I was looking to
get.’’).247
In this proceeding, there is no strong
evidence offered either way to show
whether Question 3 unduly influenced
responses to Question 4. The best
evidence was, however, found in the
opinion of Dr. Mathiowetz who
testified, ‘‘when you look at the
relationship between importance and
relative value, you see a stronger
relationship in the [Bortz] data between
importance and relative value than you
do between expense and relative value.’’
When asked whether Question 3 biases
response to Question 4, she answered,
that ‘‘My analysis suggests that it is not
biasing, that there is a very logical
relationship, but it is one that also
includes understanding how
respondents answered the importance
question.’’ 4/10/2023 Tr. 3878
(Mathiowetz); see Mathiowetz CWDT at
11 (‘‘One means by which questionnaire
designers can signal the distinction
among related concepts is by employing
different question forms, thereby
presenting the respondent with a
different task. In the case of the Bortz
surveys, the warm-up questions require
the respondent to rank order among the
program categories, from 1 to k, whereas
the key question of interest related to
247 Dr. Conrad was called by CCG, and qualified
as an expert in survey methodology with
specialization in questionnaire design and data
collection. 4/13/2023 Tr. 4796–97, 4806 (Conrad).
He expressed concern over Question 3, and its order
in the survey. See Written Rebuttal Testimony of
Frederick Conrad, Ph.D., Trial Ex. 7405, at 4 (‘‘The
cost question (Q3) was intended as a warm-up but
the information respondents used to answer it was
almost certainly salient and particularly accessible
in their working (short-term) memory when they
answered the value question (Q4) immediately
afterward, allowing the cost information to
dominate the valuation process; if the order of these
two questions had been reversed, i.e., if Q4 had
been asked before Q3, cost information would less
likely be the central consideration in the valuation
process. This pattern, if observed, would be what
survey researchers call a question order effect—
considered a type of measurement error’’)
(emphasis added).
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relative valuations is a constant sum
task’’).
g. Whether Pre-Testing and Post-Testing
Verification Procedures Were Needed
PTV and CCG criticize the Bortz
survey for not performing ‘‘qualitative
pre-testing’’ or ‘‘post-survey
verifications.’’ For example, CCG argues
that pretesting is a best practice even for
longitudinal surveys that are fielded
with the same instrument over a long
period of time, according to the
American Association for Public
Opinion Research (AAPOR),248 so that
changes or adjustments can be made to
the questions asked. CCG PHB at 51–52.
PTV argues in favor of pre-testing, and
also that Bortz failed to conduct any
post-survey verification to confirm
validity and reliability, such as test/
retest reliability or recontacting
respondents to confirm ‘‘that they
actually exist, the survey actually
happened, or that the respondents were
qualified, and to learn how the
respondent understood and answered.’’
PTV PHB at 58.
JSC argues that it is inaccurate to
suggest that pre-testing is the only way
to assess whether the surveys produce
valid and reliable results. JSC argues
that there are many ways to test for, for
example, internal consistency in
responses, evidence of satisficing, and
bias; and Dr. Mathiowetz tested for all
of those things, even if other experts did
not do so. JSC RPHB at 52.
While neither JSC nor Dr. Mathiowetz
disputes the value of pre-testing in
general, Dr. Mathiowetz testified that
pretesting of the 2014–2017 Bortz
surveys was not necessary because the
survey has been fielded for many years
and has been established in prior
proceedings as a valid approach to
looking at relative market value. She
explained that the need for pre-testing is
different than if one were undertaking
brand new questionnaire development.
Furthermore, Dr. Mathiowetz testified
that there is also a significant downside
to pre-testing a survey such as the Bortz
Survey because there is a small
population, and Bortz Media goes back
to them in the next year. Also, any cases
used for pre-testing usually would not
be used in the main study. Tr. 3863–64,
3958–60 (Mathiowetz).
With respect to post-survey
verification, Dr. Mathiowetz explained
that due to the small population, and
248 The
AAPOR is a leading organization on
survey research standards, and its past presidents
include JSC’s expert witness Dr. Mathiowetz. In
2015, she was awarded the AAPOR Award for
Exceptional Distinguished Achievement. See
Mathiowetz CWDT at 1–2; 4/10/2023 Tr. 3943–44
(Mathiowetz).
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recurring nature of the survey, ‘‘you
don’t want to burn bridges’’ by
recontacting CSOs that Bortz Media
knows it will want to survey again, just
to verify their prior identification of the
respondent. Indeed, Dr. Mathiowetz had
never seen such a verification process
for an establishment survey in the
literature, nor had she done it herself. 4/
10/2023 Tr. 3897–98 (Mathiowetz).
Similarly, Mr. Trautman’s reason for not
contacting survey respondents after
each survey is a concern about ‘‘placing
an additional burden on respondents or
potential respondents,’’ who are ‘‘busy
executives,’’ and the resulting ‘‘risk of
not being able to continue to interview
respondents in the future.’’ 4/4/2023 Tr.
3106–07 (Trautman).
h. Whether Bortz Media Used
Undisclosed Quotas, Financial
Incentives, and Pressure To Produce
‘‘Extraordinary’’ Results That Biased the
Data
PTV argues in one paragraph of its
brief that JSC has trumpeted high
response rates achieved for the Bortz
surveys, but never disclosed any
response rate quotas it imposed, as
revealed in compelled discovery
showing that Bortz imposed substantial
quotas on Ms. Grossman and her team,
and pressured them to produce
‘‘extraordinary’’ results; 249 and despite
persistent and increasing difficulty,
specifically pressured them to ‘‘keep the
response rate as high as possible
because it has been a big selling point
for the Bortz survey in these
proceedings . . . based on past
emphasis by the Judges.’’ It is further
argued that Mr. Trautman admitted, and
documents confirmed, that Ms.
Grossman and her team had a financial
interest in meeting these quotas in order
to keep the surveys going, and did
‘‘everything possible to reach those
numbers that [Mr. Trautman] needed,’’
including placing many calls, pleading,
calling neighboring systems,
disregarding institutional policies
against participating in surveys, and
staying in the field for a longer time. See
PTV PHB at 50 (citing PTV PFF ¶¶ 266–
73).
JSC argues that Bortz Media
appropriately sought to obtain high
response rates, and to do so through its
contractor, and at higher expense, spent
more time in the field and made more
249 Dr. Simonson testified that he never heard the
term ‘‘establishment survey’’ before testifying, and
had never heard of a business or organization
survey obtaining a response rate of 50% without
offering compensation (and did know of any
compensation for respondents in connection with
the Bortz Surveys). 3/23/2023 Tr. 1248–51
(Simonson).
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efforts to reach respondents than one
might otherwise do. It is argued that no
expert testified to the existence of
‘‘quotas’’ or resulting bias in the Bortz
results. It is argued that to the contrary,
Dr. Mathiowetz testified that there is
‘‘absolutely not’’ anything problematic
about telling a survey organization to
work hard to obtain good response rates,
even if that requires interviewers to
make more frequent calls or leads to
cost overruns. Furthermore, it is argued,
Mr. Trautman testified unequivocally
that interviewers were never paid for
completing an individual interview or
completing a specific number of
interviews. JSC RPHB at 4, 55.
JSC argues that PTV is simply
misreading the AAPOR disclosure
standard, which it never submitted into
evidence and never showed to any of
the numerous testifying survey expert,
including former AAPOR President, Dr.
Mathiowetz. Furthermore, JSC argues
that the AAPOR standards require
disclosure of quotas used as part of the
‘‘methods of sampling’’ for the survey,
sometimes referred to as ‘‘quota
sampling.’’ Quota sampling is used to
‘‘achieve a pre-specified distribution on
some set of variables’’ (such as gender
or Census region) within a survey
sample, and there is no suggestion that
Bortz used quota sampling or anything
like it, and thus nothing that Bortz
improperly failed to disclose. See id. at
55–56.
Indeed, there was a lack of
development of any accusation that
Bortz Media, or any party associated
with the Bortz Surveys at issue used
undisclosed sampling quotas, let alone
to obtain extraordinary results.
Furthermore, it has not been established
that interviewers or anyone else
associated with Bortz Media or its
contractors received undisclosed
financial incentives to obtain results,250
or the Bortz Media or anyone else
associated with the Bortz Surveys
engaged in ‘‘quota sampling,’’ as it has
been explained in the meager record on
the topic.
250 PTV’s Proposed Finding of Fact 270 contains
the statement: ‘‘Ms. Grossman and her team were
financially incentivized to meet Mr. Trautman’s
quotas because their compensation was a product
of keeping the study going, and the time and effort
needed to do so. Ms. Grossman and her team
required, inter alia, more money, resources, longer
time in the field.’’ PTV PFF at 96 (footnotes
omitted) (emphasis added). An examination of the
evidence cited in supporting footnotes (i.e., 4/4/
2023 Tr. 3195–202 (Trautman)) confirms that the
financial incentives involved were, as indicated in
PTV’s proposed finding, only in the nature of
compensation for the time, effort and resources
needed to keep the study going and to exceed
expectations.
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C. The Testimony of Professor Papper
CTV argues that the testimony its
expert witness Prof. Papper, referenced
above, is based on empirical analysis
and his decades-long expert assessment
of trends in the local television news
industry generally and their impact on
the relative value of CTV programming
during the 2014–2017 period. In
particular, Prof. Papper opines that
there has been a steady rise in the
production and airing of local news.251
Thus, CTV argues that it is entitled to
an increased share of royalties. See CTV
PHB at 4–6. In its reply, CTV argues that
despite criticisms of RTDNA surveys,
Program Suppliers provide no evidence,
empirical or otherwise, to rebut or refute
what Prof. Papper consistently presents
throughout his testimony, which is that
that local television stations across the
country, including those that were
distantly retransmitted, were producing
and airing increasingly more local news
programming over the course of 2014–
2017.252 Further, CTV argues that as
Prof. Marx testified, CSOs’ inability to
offer as much CTV content in 2015–
2017 was divorced from any actual
choice made by the CSOs, and was due
to the reduction of available CTV
programming as a result of the WGNA
conversion. CTV Reply at 52–53.
Program Suppliers argue that the
RTDNA Surveys should be given no
weight for several reasons, including the
fact that Prof. Papper failed to provide
the information necessary to evaluate
his target population, sample design, the
data he collected (and did not collect)
from the RTDNA Surveys, the quality of
that data, or the accuracy of the data
251 CTV, based on the written testimony of Prof.
Papper, argues that there has been a steady increase
on the amount of news broadcasts by station,
including an increase in the amount of local news
from 5.3 hours in 2014 to 5.7 hours in 2017; and
the amount of local news also went up on the
weekend, from an average of 2 hours per Saturday
in 2014 to 2.1 hours in 2017, while the amount of
local news on Sunday rose from 1.9 hours in 2014
to 2.1 hours in 2017. Further, it is argued, the
number of stations running local news rose from
1026 in 2014 to 1062 in 2017, and as television
stations continued to increase their local news
budgets during the four-year period, they added
more local newscasts to their lineups in the 4 p.m.
to 7 p.m. time slots, and the 5 a.m. to 7 a.m. time
slots. See CTV PHB at 5; CTV PFF ¶¶ 10–11.
252 CTV argues that in support of the value of
their own content, Program Suppliers continue to
rely on reports that are like those they find
objectionable from Prof. Papper, and the articles
Prof. Papper writes that in part rely on the RTDNA
Survey. Specifically, CTV argues that Program
Suppliers relies on the content of the Nielsen Year
in Sports Media Report, U.S. 2017. It is argued that
this Nielsen Report, which includes and relies on
a variety of sports media data, studies and survey
results, is no different from Prof. Papper’s articles
and opinions that are informed, in part, by results
from the RTDNA Survey. CTV RPHB at 53 n.267
(citing PS PHB at 13).
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collection and recording of that data.
Moreover, Program Suppliers argue that
Mr. Papper’s hearing testimony revealed
that the reliability issues are more
severe, pervasive, and disqualifying
than originally thought. Indeed, it is
argued, the RTDNA Surveys are not
surveys at all, but are instead part of
what CTV terms a ‘‘fact-gathering
exercise,’’ presumably because Prof.
Papper admitted that he is not a survey
expert and lacks the expertise necessary
to sponsor the RTDNA Surveys as
evidence in this proceeding. CTV PHB
4. In addition, Program Suppliers argue
that while CTV takes the position, based
solely on Mr. Papper’s RTDNA Survey,
that there was an increase in the amount
of CTV programming appearing on
distant signals, this summary
conclusion is directly contrary to the
quantitative study conducted by the
other CTV experts, Dr. Bennett 253 and
Dr. Marx, which shows the dramatic
decline in CTV distant carriage over
time. Program Suppliers’ Post Hearing
Reply Brief at 22 (PS RPHB).
The RTDNA Surveys were not offered
or received as survey evidence, but
rather as information, along with
articles, that Prof. Papper relied upon in
forming his expert opinions. As such,
the RTDNA Surveys were not
scrutinized as, for example, the Bortz
Surveys were scrutinized in this
proceeding. Based on the totality of
Prof. Papper’s opinions and the sources
upon which he relies, including his
involvement in the broadcast journalism
industry, it is found that there was a
trend toward increased production and
airing of local news during the 2014–
2017 time period, although the extent of
that trend is difficult to gauge from Prof.
Papper’s testimony. Furthermore, that
trend does not in and of itself translate
to a greater allocation of section 111
royalties for CTV, and the opinions of
Dr. Bennett, Dr. Marx and others who
testified on the subject of CTV
programming are addressed elsewhere.
For the foregoing reasons, the Judges
accord evidentiary weight to the Bortz
Survey, with the McLaughlin
Adjustment—relatively equivalent with
the weight given to the regression
analysis as discussed supra. A
reconciliation of these two useful (albeit
imperfect) approaches, augmented by
the testimony of industry witnesses, is
set forth below.
253 Dr. Bennett was called by CTV, and qualified
as an expert in statistical methods and
measurement. 4/12/2023 Tr. 4497, 4504–05
(Bennett).
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XVIII. Conclusion And Award
Regression evidence was presented
through Drs. Johnson, Tyler, George and
Marx, with the Johnson, Tyler and
George regression models generating
proposed royalty fund shares for each of
the claimant groups in each of the years
2014 through 2017. Furthermore, survey
evidence was presented only in the form
of the Bortz Survey, which was
conducted for each of the years at issue,
along with adjustments that could be
made to the initial results to account for
certain factors (most notably the
exclusion of CSOs from the surveys
because they carried only PTV or only
Canadian programming as distant
signals). In addition, the Judges received
evidence from industry experts who
testified from their unique perspectives
about the regressions and annual
surveys presented at the hearing, as well
as the valuation of programming relative
to several of the claimant groups.
For the reasons detailed in this
determination, the Judges have found
that no form of evidence, be it a
regression, the Bortz Survey or the
testimony of industry experts, provided
data that translates directly into the
allocation of royalty fund shares needed
for this determination.254 The results of
all regression models in evidence have
been considered, but the Judges find
that the Tyler Model is the most
appropriate regression model in this
record, and have accorded it the most
weight. The Bortz Surveys provide
relevant illustrations of the values
placed on distant signal programming
during the relevant time period. For
2014–2017, the Bortz Surveys had
limitations that other Judges and
tribunals have long recognized. In some
cases, a more comprehensive
assessment of values can be made by
applying adjustments proposed by
various parties, especially the
McLaughlin Adjustment, which has
been used at least since the 2004 and
2005 proceeding. The Judges have also
taken into consideration the fact that
Bortz Survey methodology, like the
regression models, faced challenges over
the period following 2014, especially
due to the conversion of WGNA.
In view of the totality of the evidence
presented in this proceeding, the Judges
find that a synthesis of regression and
survey results is necessary to arrive at
the required allocations. In particular,
with respect to JSC, the Judges weighted
heavily evidence from the Bortz
Surveys. While the record shows that
minute volume is not as applicable to
sports programming (which is more
dependent, for example, on games
carried), JSC’s allocation must be
limited by the fact that significantly less
sports was transmitted after the WGNA
conversion. Yet, with respect to PTV,
the regression evidence was accorded
greater weight for 2014, and dispositive
weight for 2015–2017. As already
described, the regression evidence
accounted for the reduction of shares
due to the Must Carry signals, as well
as increases due to the implicit
willingness to pay as shown by cable
systems that continued to carry PTV
even when WGNA was no longer
available as a distant signal. By contrast,
the Bortz Surveys did not examine such
circumstances, and there is no rationale
for augmenting the survey results with
the McLaughlin Adjustment for all the
PTV-only systems that came into
existence after 2014.
For CTV, the Bortz Surveys weighed
heavily in making the allocation, which
is not inconsistent with evidence
presented by industry experts Mr.
Vaughn and Prof. Papper, as well as the
industry analysis provided by Dr. Marx.
Relatively speaking, the value of CTV
should have increased since 2013, with
the rise of streaming and over the top
programming, more than one sees when
simply looking at the regression results.
Much of the CTV programming was not
available on streaming, and would
increase its relative value in what was
technically distant signal programming
because it was retransmitted to a
contiguous area.
With respect to the allocation for the
Program Suppliers, the Bortz Survey
evidence weighed more heavily than the
regression evidence. Expert testimony
showed that streaming services could
substitute for retransmitted signals. This
factor was not reflected in the regression
evidence, but the Bortz Survey
respondents, as cable industry
executives, would have understood the
factors affecting the value of Program
Suppliers programming in much the
same way as the testifying industry
experts.
There is ample evidence in the record
that SDC provides niche programming
whose value is not so much determined
by minutes, and might not show up well
in regressions. Yet, the niche value of
SDC has been reflected well in the Bortz
Surveys received in this proceeding,
and previously, and is reflected in
relatively consistent numbers. Inasmuch
as the allocations for SDC, by any
parties’ estimation, resulted in low
numbers, one sees share allocations
with relatively steep jumps or declines
between years, but when compared to
the overall allocations to be made, the
variations are not great in absolute
terms.
With respect to CCG, in general, the
regressions examined the value of
Canadian programming in detail, and
were relied upon in making allocations.
Yet, even the regression evidence was
weighed carefully because although
CCG had strength as a niche offering, it
also overwhelmed some regressions,
including the above-minimum-fee
programming model. The Bortz Surveys
were considered, but accorded no
weight when arriving at the Basic Fund
allocations because much Canadian
programming is not taken into
consideration, and the Bortz results
were clearly off the mark.
Accordingly, the allocations are, as
follows:
TABLE 2—BASIC FUND ROYALTY ALLOCATIONS
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Basic Fund
2014
CCG .................................................................................................................
CTV ..................................................................................................................
JSC ..................................................................................................................
Program Suppliers ...........................................................................................
PTV ..................................................................................................................
SDC .................................................................................................................
254 To the extent that any criticism of, or
deficiency in, the record evidence was not
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2015
6.19
20.55
36.13
21.21
11.07
4.85
14.59
19.78
11.42
28.29
19.18
6.74
discussed, it is because said criticism or deficiency
does not change the outcome of this determination.
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2016
14.60
17.36
10.72
25.53
24.78
7.01
2017
15.77
17.50
12.36
23.29
25.25
5.83
54258
Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Notices
With respect to the 3.75% fund, it is
recognized that PTV is a nonparticipant.
To arrive at the allocations for the
3.75% fund set forth in Table 1, the
Judges have reallocated the PTV shares
proportionally among the claimant
categories that participated in that fund.
The Register of Copyrights may
review the Judges’ Final Determination
for legal error in resolving a material
issue of substantive copyright law. The
Librarian shall cause the Judges’ Final
Determination, and any correction
thereto by the Register, to be published
in the Federal Register no later than the
conclusion of the 60-day review period.
Dated: April 17, 2024
David R. Strickler,
Copyright Royalty Judge.
Steve Ruwe,
Copyright Royalty Judge.
David P. Shaw,
Chief Copyright Royalty Judge.
The Register of Copyrights closed her
review of this Determination on June 13,
2024, with no finding of legal error.
Dated: June 13, 2024.
David P. Shaw,
Chief Copyright Royalty Judge.
Approved by:
Carla B. Hayden,
Librarian of Congress.
ADDENDUM A
Before the Copyright Royalty Judges
The Library of Congress
In re Distribution of Cable Royalty
Funds
Docket No. 16–CRB–0009 CD (2014–17)
Public
Order 46 Granting in Part and Denying
in Part PTV’s Motion for Rehearing and
Denying JSC’s Motion for Rehearing
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I. Procedural Background and Legal
Standard
a. Procedural Background
On September 6, 2023, the Copyright
Royalty Judges (‘‘Judges’’) issued their
Initial Determination of Royalty
Allocation (‘‘Initial Determination’’ or
‘‘ID’’) in the captioned proceeding
(eCRB no. 28762).
On September 21, 2023, the Public
Television Claimants (‘‘PTV’’) and the
Joint Sports Claimants (‘‘JSC’’) filed
motions for rehearing (eCRB nos. 30637
and 30638, respectively).
On September 25, 2023, the Judges
issued Order 43, permitting written
responses to the motions for rehearing
by October 5, 2023.
On October 5, 2023, the Canadian
Claimants Group (‘‘CCG’’), Program
Suppliers (‘‘PS’’ or ‘‘Program
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Suppliers’’) and Settling Devotional
Claimants (‘‘SDC’’) filed a Joint
Response in Opposition to the Motions
for Rehearing (eCRB no. 32670) (‘‘Joint
Response’’).
On October 5, 2023, JSC and the
Commercial Television Claimants
(‘‘CTV’’) filed responses in opposition to
PTV’s Motion for Rehearing (eCRB nos.
32671 and 40001, respectively).
On October 5, 2023, PTV filed a
Response in Opposition to JSC’s Motion
for Rehearing (eCRB no. 32673).
On October 10, 2023, the Judges
issued Order 44, granting movants leave
to file replies by October 19, 2023.
On October 19, 2023, JSC filed a reply
in support of its motion for rehearing
(eCRB no. 33842) and PTV filed a reply
in support of its motion for rehearing
(eCRB no. 33843).
b. Legal Standard
Pursuant to the Copyright Act, the
Judges may grant a motion for rehearing
in exceptional cases. 17 U.S.C. 803(c)(2).
Applying this statutory ‘‘exceptional
case’’ requirement, the Judges’
regulations state that the movant must
show that an aspect of the
determination is ‘‘erroneous.’’ i.e.,
‘‘without evidentiary support in the
record or contrary to legal
requirements.’’ 37 CFR 353.1–.2.
In applying these statutory and
regulatory standards, the Judges grant
rehearing only ‘‘when (1) there has been
an intervening change in controlling
law; (2) new evidence is available; or (3)
there is a need to correct a clear error
or prevent manifest injustice.’’ See
Order Granting in Part and Denying in
Part Motions for Rehearing at 2 n.3,
Determination of Royalty Rates and
Terms for Making and Distributing
Phonorecords (Phonorecords III), Docket
No. 16–CRB–0003–PR (2018–2022) (Oct.
29, 2018) (citing Order Denying Motion
for Reh’g at 1, Determination of Rates
and Terms for Preexisting Subscription
Services and Satellite Digital Audio
Radio Services (SDARS I), Docket No.
2006–1 CRB DSTRA (Jan. 8, 2008)
(applying federal district court standard
under Fed. R. Civ. P. 59(e))). See also
Order Granting in Part and Denying in
Part Sirius XM’s Motion for Rehearing
and Denying Music Choice’s Motion for
Rehearing at 1–2, Determination of
Royalty Rates and Terms for
Transmission of Sound Recordings by
Satellite Radio and ‘‘Preexisting’’
Subscription Services (SDARS III),
Docket No. 16–CRB–0001 SR/PSSR
(2018–2022) (Apr. 18, 2018) (‘‘SDARS III
Order’’) (same). Moreover, in the SDARS
III Order, the Judges made clear what
would not be sufficient to warrant
rehearing: ‘‘A rehearing motion does not
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provide a vehicle ‘to re-litigate old
matters, or to raise arguments or present
evidence that could have been raised
prior to the entry of judgment.’ ’’ 255 Id. at
2 (quoting Exxon Shipping Co. v. Baker,
554 U.S. 471, 485 n.5 (2008) (quoting C.
Wright & A. Miller, Federal Practice and
Procedure § 2810.1 (2d ed. 1995))).256
II. JSC’S Motion For Rehearing
Pursuant to 17 U.S.C. 803(c)(2) and 37
CFR 353.1, JSC requests rehearing,
arguing that the Judges’ allocations must
conform to the record evidence and the
law by: ‘‘(1) correcting the Initial
Determination’s reliance on an outdated
and unreliable version of the
‘McLaughlin adjustment’ calculation; (2)
adjusting JSC’s 2014 share to align with
the record evidence and the reasoning of
the Initial Determination; and (3)
eliminating reliance on a regression
model for the 2015–17 time period that
no witness endorsed and is at odds with
the record evidence.’’ JSC Motion at 1.
a. JSC’s Motion Is Deficient Because It
Does Not State a Standard Under Which
It Can Seek Rehearing
The JSC Motion fails to explicitly set
forth a governing rehearing standard for
the Judges to apply that would support
the substantive arguments on which JSC
seeks rehearing. As the Judges noted
supra, a party may seek rehearing if (1)
it demonstrates the existence of an
‘‘exceptional’’ case under the applicable
statutory section, which, (2) by
regulation, means that a party must
show that the aspects of the
determination identified by the movant
were ‘‘erroneous,’’ pursuant to (3)
specific grounds, such as, e.g., ‘‘clear
error’’ or ‘‘manifest injustice.’’ 257 JSC
255 An attempt to re-litigate old matters, or to raise
arguments or present evidence that could have been
raised prior to the entry of judgment, is colloquially
referred to as an improper attempt at ‘‘a second bite
at the apple.’’
256 In determining whether to grant motions for
rehearing, the Judges have also previously relied on
Fresh Kist Produce, LLC v. Choi Corp., 251 F. Supp.
2d 138, 140 (D.D.C. 2003), which involved a Rule
59(e) motion in a case relating to economic rights.
See, e.g., SDARS III Order at 2, 7. In view of the
facts in Fresh Kist, the district court held that
‘‘[a]lthough the court disapproves of parties raising
arguments that they could have advanced earlier,
the court recognizes that the interests of justice and
fairness support reviewing the plaintiff’s motion.’’
Fresh Kist, 251 F. Supp. 2d at 141. Accordingly, the
Judges recognize a tension between the proscription
against using a rehearing motion to obtain a
‘‘second bite at the apple’’ and the need to prevent
an unfairness that constitutes a ‘‘manifest
injustice,’’ which can be addressed on a case-bycase basis.
257 As also noted supra, a ‘‘negative’’ requirement
for a proper rehearing motion is that the motion
cannot simply attempt to relitigate matters that
were addressed at the hearing (the so-called ‘‘no
second bite at the apple’’ requirement) or to raise
issues that the movant could have presented at the
hearing but did not.
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does not express and apply these
specific standards, let alone maintain
that its arguments meet these standards.
The Judges should not have to guess
at the standard on which a movant
relies for seeking rehearing.
Accordingly, the standardless nature of
the JSC Motion renders it deficient on
this basis alone.258
Further, the Judges note that JSC sets
forth an incorrect standard for
consideration of requests for rehearing,
by repeating three times that the Judges’
adjustments were ‘‘arbitrary’’. Motion at
8–10. However, that standard is an
appellate standard, not a standard for
rehearing. See, e.g., Hammond v.
Reynolds Metals Co. Pension Plan for
Hourly Emps., 2006 WL 8436765, at *2
(N.D. Ala. May 25, 2006) (holding that
the ‘‘arbitrary and capricious’’ appellate
standard of review is inapplicable to the
court’s ‘‘stringent standard’’ for
consideration of a Rule 59(e) motion
and ‘‘the judicial interest in finality of
decisions . . . .’’); Perrin v. Hartford
Life Ins. Co., 2008 WL 11472191, at *2
(E.D. Ky. Mar. 24, 2008) (‘‘the court
finds that the defendant cannot attain
arbitrary and capricious review of its
decision. The court concludes that the
defendant has failed to demonstrate
appropriate grounds for relief under
Rule 59(e)).259
258 JSC does cite 17 U.S.C. 803(c)(2) and 37 CFR
353.1, which provide parties with the right to seek
rehearing, but those mere citations are not enough.
The Motion must attempt to tie the movants’
substantive arguments regarding the challenged
aspects of the determination to specific rehearing
standards.
The Judges also note that JSC does attempt to tie
its arguments to actual standards in its Reply.
However, the Judges are highly reluctant to permit
new arguments to be made for the first time in a
Reply, because such delinquent assertions sandbag
the adverse parties, who had already filed their
permitted Responses and are unable to address the
delinquent arguments in the Reply.
In any event, the Judges’ discussion infra
rejecting JSC’s arguments makes it clear that, even
had JSC made a timely attempt to identify allegedly
applicable specified standards for rehearing and
attempted to connect its factual arguments to those
standards, the JSC Motion would nonetheless be
denied (in part). (In this regard, the Judges note
that, in its Reply, JSC cites the Judges’ order in the
2010–13 allocation proceeding which noted the
rehearing standard in 37 CFR 353.2, requiring a
movant to state why it believes the determination
is ‘‘without evidentiary support in the record or
contrary to legal requirements.’’ JSC Reply at 2. JSC
makes no allegation of legal error and, as discussed
infra, there is abundant evidentiary support for the
factual findings with which JSC takes issue.)
259 The paucity of cases in which a party even
attempted to rely on the appellate issue of whether
a decision was ‘‘arbitrary and capricious’’ is
indicative of the inapplicability of that issue in the
context of a Rule 59(e) type of motion. But see Arias
v. DynCorp, 752 F.3d 1011, 1016 (D.C. Cir. 2014)
(‘‘We have squarely held that a party must preserve
an issue for appeal even if the only opportunity was
a post-judgment motion.’’); see also Jones v. Horne,
634 F.3d 588, 603 (D.C. Cir. 2011) (same). The
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Despite the legal deficiency of JSC’s
‘‘arbitrariness’’ argument as a basis for
rehearing, in the interest of
completeness, the Judges explain infra
why JSC’s substantive assertion that the
adjustments were arbitrary is factually
deficient.
b. Whether the Judges’ Initial
Determination Relies on an Incorrect
Version of the McLaughlin Adjustment
As JSC states in its pending motion,
in the Initial Determination, the Judges
relied in part on the Bortz Survey with
the McLaughlin Adjustment, as the
adjustment is found in Exhibit 3049. JSC
Motion at 1–2 (citing ID at 177–78, 181,
197–98). JSC argues, however, that
Exhibit 3049 is an ‘‘inaccurate version
of the McLaughlin adjustment,’’ and
reliance upon Exhibit 3049 reflects two
separate errors. Id. at 1.
According to JSC, the first error is that
Exhibit 3049 was an early, preliminary
calculation of the ‘‘conventional
McLaughlin adjustment,’’ as proposed
in prior proceedings, that was
subsequently updated in Exhibit 3105,
and ‘‘[t]hus, as between Exhibit 3049
and 3105, Exhibit 3105 is the more
accurate calculation of the McLaughlin
adjustment.’’ Id. at 1–2. The second
error, according to JSC, is that ‘‘Exhibit
3049, as well as Exhibit 3105, rely on
royalty-based weighting that is
economically inappropriate after the
conversion of WGNA and the enormous
increase in minimum fee systems.’’ Id.
at 2. JSC argues that
Judges perceive JSC’s ‘‘arbitrary and capricious’’
arguments as potentially prophylactic measures
intended to preserve this issue on appeal, rather
than a proper basis for rehearing pursuant to
statute, regulation, and the Judges’ prior rulings
regarding rehearing, which are expressly patterned
on Fed. R. Civ. P. 59(e).
Further, JSC relies on a case which does not
involve a Rule 59(e) motion, but rather addresses
the standard by which the D.C. Circuit reviews a
district court’s entry of summary judgment. See N.
Cent. Airlines, Inc. v. Cont’l Oil Co., 574 F.2d 582,
587 n.14 (D.C. Cir. 1978) (cited in Reply at 2). But
in the same breath, JSC acknowledges the narrower
Rule 59(e) standard. Reply at 2 (citing School for
Arts in Learning Public Charter School v. Barrie,
810 F. Supp. 2d 52, 55 (D.D.C. 2011) for the narrow
standard, as ‘‘routinely’’ held by courts (and CRB
Judges), that Rule 59(e) motions are not vehicles for
(1) rearguing facts and theories upon which a court
has already ruled or (2) for raising new issues that
could have been raised previously, and that such
motions are disfavored and granted only upon a
showing of ‘‘extraordinary circumstances’’).
Additionally, JSC relies on another case, Dyson v.
Winfield, 129 F. Supp. 2d 22 (D.D.C. 2001), in
which the district court found an error regarding a
question of law, rendering that decision inapposite.
But again, the broader defect is that JSC afforded
Respondents no opportunity to address the JSC
Reply’s application of these prior decisions.
Accordingly, the Judges understand JSC’s Reply
as setting forth the same standards that the courts
in the D.C. Circuit routinely apply to Rule 59(e)
motions and, as stated in the prior footnote,
consider the JSC Motion on that basis.
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54259
Bortz subsequently implemented a revised
weighting system (referred to as ‘‘base plus
3.75’’) that takes account of the proliferation
of minimum fee systems in 2015–17 by
weighting based on what the CSO would
have paid according to the system’s distant
signal usage absent the minimum fee. Use of
royalty-based weighting for 2015–17 conflicts
with the Judges’ findings regarding minimum
fee systems.
Id. JSC further argues, ‘‘[i]f the Judges
are relying on Bortz with the
McLaughlin adjustment, they should
use the version set forth in Exhibits
4001–4003, which applies base plus
3.75 weighting.’’ Id. Each of these two
alleged errors (i.e., (1) using Exhibit
3049 rather than Exhibit 3105, and (2)
not using a ‘‘base plus 3.75’’ adjustment
supposedly set for in Exhibits 4001–
4003) are further detailed separately in
JSC’s motion, and are addressed
separately, as follows.
i. Whether Exhibit 3049 Is Outdated,
and Should Not Be Used To Determine
Shares
1. Summary of the Parties’ Arguments
a. The JSC Motion
In addition to the JSC arguments
recounted above, specifically with
respect to the use of Exhibit 3049, JSC
argues:
Mr. Trautman prepared Exhibit 3049 in
July 2020, roughly two years before he
submitted testimony in this proceeding. See
Tr. at 3142:22–3143:8, 3145:2–3146:11
(Trautman); Ex. 7100 (Trautman Corrected
WDT). As Mr. Trautman testified, it takes an
extensive period of time—well beyond when
the surveys are fielded—for Bortz to obtain
and evaluate the voluminous programming
data presented in this proceeding. See Tr. at
2886:21–2887:9 (Trautman). That
programming data is used in the Bortz results
to project allocations to non-respondents
according to programming carriage patterns.
See Ex. 7101 (Corrected Bortz Report), at 29
(‘‘Bortz projected non-respondent values
based on signal carriage characteristics,’’
including ‘‘the carriage (or lack thereof) of
JSC programming’’). Thus, while the survey
responses are not changed over time, the
weighted results of the survey can be
expected to become more accurate over time,
as Bortz evaluates more comprehensive
programming information.
Mr. Trautman performed, and JSC
produced, ‘‘UPDATED’’ calculations of the
weighted Bortz Survey results and
‘‘conventional McLaughlin adjustment’’
dated ‘‘1–21–21’’ which are different in small
but significant respects from the July 2020
calculations. These ‘‘UPDATED’’ calculations
are in the record at Exhibit 3105 and a copy
is attached as Exhibit 1 hereto. See Tr. at
3099:12–21 (admitting Exhibit 3105).
There is no reasoned basis or record
support for relying on the outdated, incorrect
version of the ‘‘conventional McLaughlin
adjustment’’ calculation in Exhibit 3049
given that an updated version is in the record
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at Exhibit 3105 and was cited to the Judges.
Indeed, the proposed findings of fact of
Public Television Claimants (‘‘PTV’’) cite to
Exhibit 3105 (not Exhibit 3049) in presenting
the ‘‘Proposed Shares’’ of PTV and JSC
‘‘Determined by Various Analyses of Relative
Marketplace Value in 2014–17.’’ PTV
Corrected PFF ¶ 12, Table 3 & ¶ 43, Table 5.
At a minimum, if the Judges are to rely on
Mr. Trautman’s calculation of the
‘‘conventional McLaughlin adjustment,’’ they
should rely on the ‘‘UPDATED’’ calculation
in Exhibit 3105.
The existing record supports the use of
Exhibit 3105 rather than Exhibit 3049.
However, if the Judges believe that additional
information on this issue would be helpful,
JSC respectfully requests that rehearing be
granted to present additional evidence.
Throughout the course of this proceeding,
‘‘[n]o party argue[d] that royalty fund
allocations . . . should be made strictly
according to the Bortz initial results subject
to the McLaughlin adjustment,’’ and ‘‘no
party had its expert calculate the McLaughlin
adjustment . . . for presentation at the
hearing.’’ Initial Determination at 178. As a
result—while JSC vigorously argued that the
McLaughlin adjustment should not be used
in the abstract, see, e.g., JSC Post-Hearing Br.
at 65–68—JSC has not had an opportunity to
present evidence on which specific version
of that calculation is most accurate and
reliable.
JSC Motion at 2–4.
b. The CCG, PS, and SDC Joint Response
In their joint response, CCG, the
Program Suppliers, and SDC oppose
JSC’s motion with respect to the
McLaughlin Adjustment, arguing that
merely because Exhibit 3049 was an
‘‘early’’ calculation that Mr. Trautman
subsequently ‘‘updated’’ with a
recalculation ‘‘does not by itself render
the original version outdated or
incorrect.’’ Joint Response at 4–5.
Furthermore, they argue,
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JSC has only itself to blame for failing to
explain away the earlier results or to
advocate more forcefully for reliance on the
later results, particularly considering that Mr.
Trautman was specifically asked about
Exhibit 3049 and his preparation of ‘other
documents regarding potential adjustments
and weights that would alter those shares’ on
cross-examination.
Id. at 5 (citing 4/4/2023 Tr. 3142–3145
(Trautman)). Indeed, they argue that,
contrary to JSC’s assertion, nothing
precluded JSC from ‘‘present[ing]
evidence on which specific version of
that calculation is most accurate and
reliable.’’ Id. at 5 (quoting JSC Motion at
3–4). They argue, ‘‘[a]s the Initial
Determination observes, ‘all parties
knew that the Judges applied the
McLaughlin [A]djustment to the Bortz
Survey initial results in the 2004 and
2005 proceeding, as well as in the more
recent 2010–2013 proceeding.’ ’’ Id.
(quoting ID at 178). According to CCG,
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the Program Suppliers, and SDC, ‘‘JSC
was on notice and cannot use rehearing
as a vehicle to present arguments or
evidence that it could have raised prior
to issuance of the Initial Determination.
Exxon Shipping Co., 554 U.S. at 485
n.5.’’ Id.
c. The PTV Response
PTV argues that JSC and the other
parties devoted considerable time and
pages during the hearing and in posthearing briefing to the question of the
appropriate weighting for the Bortz
Survey responses, and the Judges,
having evaluated those arguments,
reached a conclusion based on the
evidence and the arguments. PTV argues
that JSC’s motion for rehearing ‘‘merely
attempts to relitigate these issues, and
now inappropriately advocates for yet
another of its panoply of preferred
weighting methodologies (another
version of a ‘base plus 3.75’ weighting
scheme), among dozens of options that
JSC’s experts mined to identify shares
that increased JSC’s allocation.’’ PTV
Response at 3 (citing Ex. 3039). PTV
argues that JSC, apparently aware that
its attempt to advance yet another
weighting methodology does not meet
the standard for rehearing,
argues alternatively (indeed, primarily) in
favor of a more modest adjustment—that the
Judges should use Exhibit 3105 rather than
Exhibit 3049 as the most accurate calculation
of the conventional McLaughlin-adjusted
Bortz Survey results. While the differences
between these two exhibits appear relatively
small, the record lacks evidence supporting
JSC’s argument, and JSC had more than
ample opportunity to introduce evidence
during the hearing on this point but chose
not to do so.
Id. Accordingly, PTV argues, rehearing
is inappropriate under the wellestablished requirements for a motion
for rehearing. Id.
Specifically with respect to Exhibit
3015, PTV argues that ‘‘[k]nowing that
its broad arguments for re-weighting
pursuant to a new methodology exceed
what has typically been allowed on
rehearing, JSC’s more modest lead
argument is that the Judges should rely
on a purportedly ‘updated’ calculation
of the conventional McLaughlin
[A]djustment. JSC’s argument should be
rejected because JSC failed to argue the
point . . . .’’ Id. at 3. It is further
asserted that
JSC failed to . . . introduce evidence
supporting its argument prior to its motion
for rehearing, despite ample opportunity to
respond to Public Television’s questioning at
the hearing and arguments in its post-hearing
briefing. JSC’s request does not meet the
rehearing standard because it seeks ‘‘to raise
arguments or present evidence that could
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have been raised prior to the entry of
judgment.’’
Id. at 3–4 (citing Order Denying Program
Suppliers’ Motion for Rehearing and
Correcting 2012–13 Allocations for
Certain Parties, Docket No. 14–CRB–
0010–CD, at 1 (Dec. 13, 2018) (‘‘2018
Rehearing Order’’)). Indeed, PTV argues
that during the hearing, Mr. Trautman
was questioned extensively about
Exhibit 3049, and Exhibit 3049 was the
basis for Public Television’s request, in
the alternative, that the Judges use the
McLaughlin-adjusted Bortz Survey
results as the ‘‘royalty floor.’’ See id. at
4 (citing PTV PFFCL ¶ 208 & n.327; PTV
Post-Hearing Br. at 42–43 (citing PTV
PFFCL ¶ 208 (depicting Ex. 3049))). PTV
argues, ‘‘Despite these arguments, JSC
chose not to introduce evidence
regarding the relative accuracy of
Exhibits 3105 and 3049, and chose not
to challenge the figures in Exhibit 3049
until its rehearing motion.’’ See id. PTV
observes,
[a]ccordingly, in the Initial Determination,
the Judges noted that they were ‘‘referred to
a chart taken from a spreadsheet prepared by
Mr. Trautman, originally for Bortz Media’s
internal use (Ex. 3049 . . .),’’ and correctly
observed that, ‘‘[f]ortunately, no party has
challenged the figures contained therein as
accurately reflecting application of the
McLaughlin adjustment to the Bortz Survey
initial results.’’ Initial Determination at 178.
Id. at 4.
PTV argues that JSC belatedly asserts
that Exhibit 3049 is an ‘‘outdated,
incorrect version of the ‘conventional
McLaughlin adjustment’’’ and that
Exhibit 3105 is ‘‘an updated version.’’
Id. (quoting JSC Motion at 3). Yet, PTV
argues, ‘‘There is no support in the
record for this assertion. Nor is there
support (or even any citation) for JSC’s
assertion that ‘the weighted results of
the survey can be expected to become
more accurate over time.’ ’’ Id. Rather, it
is argued, ‘‘there was substantial
evidence that over time, Mr. Trautman
attempted to develop a number of
creative weighting schemes with the
purpose of seeking to increase JSC’s
share, not to achieve more ‘accurate’
results.’’ Id. at 4–5.
Finally, PTV argues that JSC is
incorrect to argue that JSC lacked the
opportunity to present evidence on
which specific version of the
conventional McLaughlin Adjustment is
most accurate and reliable. Id. at 5. PTV
argues that JSC ‘‘had ample opportunity
to present evidence and argument on
this issue, including during the
extensive examination of Mr. Trautman
regarding Exhibit 3049, or in response to
Public Television’s post-hearing
submissions.’’ Id. It is argued that while
JSC asserts that PTV cited to Exhibit
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3105 (not Exhibit 3049), such citation
‘‘was only in two illustrative
comparison tables collecting various
calculations by various witnesses, in
order to show that all allocation
methodologies showed an increase in
Public Television’s share, and a decline
in JSC’s shares.’’ Id. (citing PTV PFFCL
¶¶ 12, 13 & tbls. 3, 5; PTV Post-Hearing
Br. at 41–42). PTV argues that it
‘‘proposed that Exhibit 3049 could be
used in the alternative as a ‘royalty
floor.’ See PTV PFFCL ¶ 208 & n.327;
PTV Post-Hearing Br. at 42–43. Public
Television did not advocate for the
adoption of Exhibit 3105 as a basis for
share allocation.’’ Id. (footnote
omitted).260
d. The JSC Reply
In its reply, JSC reiterates that one
reason Exhibit 3049 is incorrect is
because it is an early, preliminary
calculation that was updated in Exhibit
3105. JSC Reply at 5–6 (citing JSC
Motion at 1–4). JSC argues that ‘‘[n]o
party disputes that Exhibit 3105 is a
more recent, ‘UPDATED’ version of the
calculation in Exhibit 3049’’, or that
‘‘over time, Bortz incorporates more
comprehensive programming
information into its calculations.’’ Id. at
5. JSC argues the ‘‘Responding Parties’
speculative attempts to justify reliance
on Exhibit 3049 instead of Exhibit 3105
are contrary to the record.’’ Id. JSC
argues that while the
Joint Respondents posit that a ‘‘later’’
calculation ‘‘does not by itself render the
original version outdated or incorrect’’ . . .
Exhibit 3105 is not simply a ‘‘later’’
calculation; the record supports the
conclusion that Exhibit 3105 is more accurate
because it incorporates more comprehensive
programming data to project allocations to
non-respondents.
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Id. (citing, inter alia, JSC Motion at 2–
3). JSC further argues that while PTV
speculates that Mr. Trautman may have
applied some creative weighting scheme
with the purpose of seeking to increase
JSC’s share in Exhibit 3105, there is no
evidence of that. Id. (citing PTV Resp.
at 4–5). Rather, JSC argues, ‘‘Exhibit
3105 was created for Bortz’s internal
use, not to present a proposed share
allocation in these proceedings.’’ Id.
(citing 4/3/2023 Tr. 2881–2882
(Trautman)).
2. Discussion
As addressed in the Initial
Determination, the parties knew going
into the hearing that the McLaughlin
260 In the footnote, PTV argues, ‘‘That said, the
differences between Exhibit 3049 and Exhibit 3105
appear relatively small, although the record
evidence does not explain the basis for those
differences.’’ PTV Response at 5 n.1.
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Adjustment, having been applied to
Bortz surveys in the 2004 and 2005
allocation proceeding, and in the 2010–
2013 allocation proceeding, would be
relevant to the issues addressed during
the allocation hearing for 2014–2017.
See ID at 178. Indeed, during its
opening argument, JSC expressed its
disagreement with use of the
McLaughlin Adjustment to allocate
shares, particularly with respect to 2015
through 2017. See 3/20/23 Tr. 69. JSC
also knew that it had produced
calculations found in Exhibits 3049 and
3105,261 which showed that Mr.
Trautman, JSC’s witness from Bortz
Media who sponsored the Bortz 2014–
2017 surveys, had calculated the
McLaughlin Adjustment for the 2014–
2017 time period. See, e.g., JSC Motion
at 2–3; ID at 161. During Mr. Trautman’s
direct examination at the hearing, JSC
asked Mr. Trautman questions about the
McLaughlin Adjustment, including
questions concerning the fact that he
had performed the McLaughlin
Adjustment, as follows:
Q. * * * In the course of doing your work
for 2014 to ‘17, did you ever run the
McLaughlin adjustment?
A. Early on, I did, yes.
Q. Why did you do that?
A. Well, I was aware that some form of the
McLaughlin adjustment had been applied in
past proceedings, including in 2010 to ‘13,
and so I was interested to see what the
outcome would be if that were applied for
2014 to 2017.
Q. And if someone were to say: Well, the
fact that Mr. Trautman ran the McLaughlin
adjustment shows that it was his view that
McLaughlin adjustment was appropriate,
what would your response be?
A. That that’s not the case at all. I was
simply performing a calculation in order to
see what the outcome would be.
4/3/2023 Tr. 2881–2882 (Trautman).
Thus, Mr. Trautman testified that
‘‘[e]arly on’’ he performed ‘‘a
calculation.’’
Subsequently, during the crossexamination of Mr. Trautman, PTV
raised the fact that he calculated the
McLaughlin Adjustment, as follows:
Q. * * * Mr. Trautman, you did attempt to
calculate the McLaughlin adjustment for the
2014 to ‘17 Bortz Survey results before you
filed your written direct testimony in this
proceeding, correct?
A. Yes. Early on in my review of 2014 to
‘17, I did prepare spreadsheets that
calculated what the outcome of the
McLaughlin adjustment would be or could
be.
Q. So let’s take a look at Exhibit 3049,
which was produced as JSC 00081249. Mr.
Trautman, you recognize Exhibit 3049 as one
of your documents, correct?
261 Exhibits 3049 and 3105 were received into
evidence with no objection and no argument. See
4/4/23 Tr. 3099.
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A. Yes.
Q. And I’ll represent to you that the last
modified date on this document, as it was
produced to us, is July 27th, 2020, nearly two
years before written direct testimony was due
in this case. Is that consistent with your
recollection?
A. It is, yes.
Q. And there are two tables in Exhibit
3049, correct?
A. Correct.
Q. And the bottom table is titled
‘‘Weighted Bortz Survey Results By Year,
2014-‘17 (After Conventional McLaughlin
Adjustment).’’ Correct?
A. Correct.
Q. And the bottom—and in this table, PBS
is identified in the first column at the top—
well, in the first row at the top of the table,
row 25, correct?
A. Correct.
Q. And there are columns labeled, from left
to right, 2014, 2015, 2016, 2017, and average
2014 to ‘17, correct?
A. Correct.
Q. And in this table, you calculated PBS’s
share as 8.4 percent in 2014, 43.6 percent in
2015, 48.4 percent in 2016, and 48.2 percent
in 2017, with a 37.1 percent average from
2014 to 2017, correct?
A. That’s correct.
Q. And then let’s go down to the next row
the Sports share. The Sports share is listed
as 39 percent in 2014, 12.7 percent in 2015,
12.2 percent in 2016 and 14.8 percent in
2017, with an average 2014-to-‘17 share of
19.7 percent; is that correct?
A. Yes, it is.
Q. Now, after Bortz prepared this
document that we just looked at—and we can
take that down. And let me, I guess, rephrase
that. I mean, I don’t know whether you used
the term ‘‘Bortz’’ or you interchangeably. I’m
happy—do you have a preference in that, Mr.
Trautman?
A. I really don’t.
Q. Okay. Well, after you prepared the
document we just looked at, you prepared
other documents regarding potential
adjustments and weights that would alter
those shares, correct?
A. I recall that I did, yes. I don’t recall a
specific sequence or, you know, exactly
which took place when in the sequence, but
I did look at other ways of examining the
issue.
4/4/2023 Tr. 3142–3145 (Trautman).
As seen from the preceding transcript
portion, the witness’s attention, and the
attention of the Judges, was directed
exclusively to Exhibit 3049. On redirect,
JSC did not conduct any examination to
show that there was any error in Exhibit
3049 as a calculation of the McLaughlin
Adjustment, or that it had been in any
way updated or superseded, for
example, by Exhibit 3015 or the
calculations contained therein. In
neither JSC’s pending motion nor its
reply is there any such citation to the
hearing record.
Given the hearing testimony
concerning Exhibit 3049 and the
McLaughlin Adjustment, it was not
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surprising that PTV relied on pertinent
portions of Exhibit 3049 in its Proposed
Finding of Fact (PTV PFF ¶ 208), The
Judges expressly relied on this proposed
factual finding in the Initial
Determination. See ID at 177 (citing PTV
PFF ¶ 208); see also PTV Post-Hearing
Br. at 82. In its pending motion and
reply, JSC has cited to no initial or reply
filing in which it pointed out any
particular error in Exhibit 3049.262
Not even in the pending motion and
reply has JSC shown that any data point
contained in Exhibit 3049 is erroneous.
Although Exhibit 3015 is labeled
‘‘UPDATED’’ and the data were
calculated after the tables in Exhibit
3049, it cannot be presumed that Exhibit
3049 contains error.
The closest JSC has come to
explaining why Exhibit 3105 should be
considered ‘‘updated’’ appears only in
its pending motion, in which JSC
argues,
it takes an extensive period of time—well
beyond when the surveys are fielded—for
Bortz to obtain and evaluate the voluminous
programming data presented in this
proceeding. See Tr. at 2886:21–2887:9
(Trautman). That programming data is used
in the Bortz results to project allocations to
non-respondents according to programming
carriage patterns. See Ex. 7101 (Corrected
Bortz Report) at 29 (‘‘Bortz projected nonrespondent values based on signal carriage
characteristics,’’ including ‘‘the carriage (or
lack thereof) of JSC programming’’). Thus,
while the survey responses are not changed
over time, the weighted results of the survey
can be expected to become more accurate
over time, as Bortz evaluates more
comprehensive programming information.
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JSC Motion at 2–3.
Consequently, only now after the
hearing, JSC argues that Exhibit 3105
can be considered ‘‘updated’’ because
when the tables in Exhibit 3105 were
calculated, Bortz Media projected
allocations for non-respondents
differently than it had at the time that
the tables in Exhibit 3049 were
calculated. JSC refers to such differences
as ‘‘small but significant.’’ Id. at 3. Yet,
inasmuch as JSC’s citation to a
documentary exhibit is general in nature
and does not reference Exhibit 3105 and
the calculation contained herein, and
further JSC did not examine Mr.
Trautman about his McLaughlin
Adjustment calculations at the hearing
262 In the Initial Determination, the Judges stated,
‘‘To see the figures obtained when the McLaughlin
adjustment is applied to the Bortz Survey initial
results at issue in this proceeding, the Judges are
referred to a chart taken from a spreadsheet
prepared by Mr. Trautman, originally for Bortz
Media’s internal use (Ex. 3049, duplicated above).
Fortunately, no party has challenged the figures
contained therein as accurately reflecting
application of the McLaughlin adjustment to the
Bortz Survey initial results . . . .’’ ID at 178.
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(even after the relevant crossexamination by PTV), there is no way to
determine whether JSC’s belated
characterization of Exhibit 3105 is
accurate, and that the data contained
therein is accurate.
In its pending motion, JSC argues,
‘‘the proposed findings of fact of Public
Television Claimants (‘PTV’) cite to
Exhibit 3105 (not Exhibit 3049) in
presenting the ‘Proposed Shares’ of PTV
and JSC ‘Determined by Various
Analyses of Relative Marketplace Value
in 2014–17.’ PTV Corrected PFF ¶ 12,
Table 3 & ¶ 43, Table 5.’’ JSC Motion at
3; see JSC Reply at 8. That argument
does not portray the full picture. PTV
cited expressly to Exhibit 3105 in its
Proposed Finding of Fact ¶ 12, in a
string cite showing support for a table
it created to illustrate proposed share
allocations resulting from seven
proposed methodologies. See PTV PFF
¶ 12; see also PTV PFF ¶ 43 (table with
citation to Ex. 3105). Yet, as already
discussed, PTV cited, and reproduced a
table from, Exhibit 3049 in its Proposed
Finding of Fact. See PTV PFF ¶ 208.
Furthermore, PTV cited to Exhibit 3049
(rather than Exhibit 3105) in a table
found in the PTV initial post-hearing
brief, and again cited to Exhibit 3049
(via PTV PFF ¶ 208) when making its
substantive argument concerning a
‘‘relative value floor’’ for PTV. See PTV
Post-Hearing Br. at 15, 42–43. None of
the citations made by PTV in its posthearing brief and proposed findings
clarify or contextualize the content of
Exhibit 3105, or, more importantly,
diminish the weight the Judges were
able to accord to Exhibit 3049.263
263 The Judges also remain concerned by the fact
that Mr. Trautman twice stated in his testimony in
this proceeding that he initially generated a version
of the original McLaughlin Adjustment ‘‘to see what
the outcome would be.’’ 4/3/2023 Tr. 2881–2882
(Trautman). But an expert generating his prior
preferred approach in order ‘‘to see what the
outcome would be’’ (here, what the allocations
would be) undermines his role as an objective
expert, who should first identify the elements of his
or her methodology and then disclose—for better or
worse—the results of that action. Here, Mr.
Trautman acknowledged that he ran his prior
McLaughlin Adjustment ‘‘to see what the outcome
would be’’ and then abandoned it in favor of
making other adjustments (increasing the JSC
share), which, as PTV stated, indicates that ‘‘Mr.
Trautman . . . embarked on a multi-year quest ‘to
conjure up’ additional adjustments.’’ Initial
Determination at 176. Indeed, Mr. Trautman’s
sequential modeling of the McLaughlin Adjustment
resembles the revisionary work of other experts,
which the Judges criticized as evidencing improper
‘‘searches’’ for an allocation model that would
increase the allocations of the parties by whom they
were engaged. See Initial Determination at 39 &
n.45 (‘‘Also troubling was the fact that, over a
prolonged period, successive testing by [the expert]
was highly correlated with a steady rise in PTV’s
allocation shares’’ . . . ‘‘[T]he Judges are concerned
with whether the evidence suggests that experts
may have engaged in any inappropriate or
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ii. Whether Use of the McLaughlin
Adjustment Requires Base Plus 3.75
Weighting Rather Than Royalty-Based
Weighting
1. Summary of the Parties’ Arguments
a. The JSC Motion
In addition to the JSC arguments
recounted above, specifically with
respect to the use of base plus 3.75
weighting, JSC argues:
There is a second, independent issue
concerning the Judges’ application of the
McLaughlin adjustment. Both Exhibit 3049
(the outdated version) and Exhibit 3105 (the
updated version) use royalty-based
weighting. However, after creating these
exhibits, Mr. Trautman determined that
royalty-based weighting is not appropriate for
2015–17 due to the overwhelming number of
minimum fees systems. Mr. Trautman
subsequently ran the Bortz results with the
McLaughlin adjustment using the revised
base plus 3.75 weighting, as set forth at
Exhibits 4001–4003. If the Judges are relying
on the Bortz Survey with the McLaughlin
adjustment, they should use this version that
applies base plus 3.75 weighting rather than
royalty-based weighting.
As Mr. Trautman and Dr. Majure testified,
use of royalty-based weighting improperly
skews the survey calculations by giving
inordinate weight to minimum fee systems
that typically did not even use their full
minimum fee budget. See JSC PFOF ¶ 302.
The Judges similarly concluded that
decisions by minimum fee systems during
the 2015–17 period are not probative of
relative market value. See Initial
Determination at 129 & n.155 (‘‘[T]hese
[minimum-fee-paying] CSO decisions do not
provide the Judges with any useful
information regarding the relative value of
the retransmittal of the various programming
categories . . . .’’).
The Initial Determination explains that in
‘‘2015–2017, the overwhelming percentage of
CSOs pay only the minimum fee, and the
vast majority of section 111 royalties are
generated by those minimum-fee-paying
CSOs.’’ Id. at 134. The Initial Determination
likewise discusses how both the regression
and survey methodologies changed (or
should have changed) to account for the
‘‘dramatic increase in the number of
minimum-fee only’’ systems in these years.
See, e.g., id. at 21–22, 167 n.206. As relevant
here, the Bortz Survey methodology
‘‘changed to weight the results based on the
Base-plus-3.75 fees attributable to the actual
signal carriage of the Form 3 systems, and to
apply the results using signal carriage-based
fee calculations rather than actual royalties
paid.’’ Id. at 167 n.206. This change in the
weighting was necessary to avoid
‘‘ ‘introduc[ing] a distortion, by giving
excessive weight to systems with large
Minimum Fee payments even when they
have chosen to carry very little distant signal
programming.’ ’’ JSC Post-Hearing Br. at 56
questionable acts in the course of attempting to
maximize the return to the party on whose behalf
they give testimony.’’).
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(quoting testimony of Dr. Majure). No party
disputed the propriety of Bortz’s new
weighting approach, nor is it questioned in
the Initial Determination.
Bortz developed its revised base plus 3.75
weighting approach over time, after
recognizing that there were many more CSOs
paying the minimum fee in 2015–17. See Tr.
at 3149:11–3151:11 (Trautman). The first
calculation in the record using an early
version of the revised weighting approach
(initially only applied to PTV-only systems)
was performed in June 2021. See Ex. 3048;
Tr. at 3147:19–3149:5 (Trautman). The
‘‘conventional McLaughlin adjustment’’
calculations in Exhibits 3105 and 3049
predate that change, see supra at pp. 2–3,
instead applying the historical, royalty-based
weighting that undisputedly distorts the
results, making them unreliable for 2015–17.
The record contains more recent
calculations of the McLaughlin adjustment
for the years 2015–17 applying the corrected,
base plus 3.75 weighting. These calculations
are part of the Bortz Survey data that JSC
produced in connection with Mr. Trautman’s
written direct testimony. See Ex. 4001, ‘‘2015
Data File’’ at Rows 588–590, Columns W–AD
(showing ‘‘Adjusted Royalties’’ after ‘‘PTV/
Canadian Adjustment’’ for 2015); Ex. 4002,
‘‘2016 Data File’’ at Rows 573–575, Columns
W–AD (same for 2016); Ex. 4003, ‘‘2017 Data
File’’ at Rows 571–573, Columns W–AD
(same for 2017); see also Tr. at 4792:7–
4793:20 (Carbert) (identifying and admitting
Exhibits 4000–4003). These calculations are
the most accurate and reliable version of the
McLaughlin adjustment in the record, on
which the Judges should rely to the extent
they give weight to the adjustment. A table
setting forth the relevant results from
Exhibits 4001–4003 is attached as Exhibit 2
hereto.
If the Judges conclude that identifying the
correctly weighted McLaughlin adjustment
calculation requires further information, JSC
respectfully requests that the Judges grant
rehearing to present additional evidence on
the issue. In the post-hearing briefing, JSC
raised the problem of royalty-based
weighting in the ‘‘conventional McLaughlin
adjustment’’ calculation in response to PTV’s
citation to Exhibits 3049 and 3105. See JSC
Post-Hearing Reply Br. at 62 (‘‘[B]lindly
applying the McLaughlin adjustment as it
was proposed in prior proceedings, PTV
argues that it should be attributed . . . 100%
of all of those royalties, massively inflating
its share . . . . PTV overlooks that almost all
PTV Only CSOs were paying the Minimum
Fee in 2015–17, so their substantial royalty
payments have nothing to do with their
distant signal usage.’’). However, because
PTV first embraced this calculation in its
post-trial briefing, without having previously
offered any witness who endorsed it, JSC did
not have an opportunity to directly address
the reliability of the calculation through its
own witnesses.
JSC Motion at 4–6 (footnote omitted).264
264 JSC argues, ‘‘With proper weighting, the Bortz
Survey results with the McLaughlin adjustment
estimate shares for PTV that are within 4 percentage
points of the Judges’ final award to PTV in each
year 2015–17.’’ JSC Motion at 6 n.1.
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b. The CCG, PS, and SDC Joint Response
As discussed above, CCG, Program
Suppliers, and SDC argue that ‘‘coming
up with a different calculation or
weighting system later does not by itself
render the original version outdated or
incorrect.’’ Joint Response at 4–5.
Furthermore, they argue, JSC was on
notice that the McLaughlin Adjustment
was relevant to the hearing, ‘‘and cannot
use rehearing as a vehicle to present
arguments or evidence that it could
have raised prior to issuance of the
Initial Determination.’’ Id.
c. The PTV Response
PTV argues:
In a transparent overreach that is plainly
improper on a motion for rehearing, JSC now
argues for yet another alternative weighting
methodology for the Bortz Survey that
purportedly uses a ‘‘base plus 3.75’’
weighting scheme. JSC never presented this
calculation on its own as a potential
allocation methodology during the
proceeding. The two Bortz adjustments that
JSC actually did choose to advocate in the
hearing were fully vetted in written
testimony, at the hearing, and in post-hearing
submissions, and the Judges ultimately
rejected them. JSC had every opportunity to
also present this calculation of the
McLaughlin adjustment with ‘‘base plus
3.75’’ weighting, and chose not to do so.
JSC’s request accordingly must be denied.
See 2018 Rehearing Order at 7.
PTV Resp. at 5–6.
PTV argues that while JSC
acknowledges that Mr. Trautman
originally focused on the conventional
McLaughlin-adjusted Bortz Survey
results, he
argues that he later preferred alternative
weighting methods, including various
versions of a ‘‘base plus 3.75 weighting’’ for
which JSC now belatedly advocates. JSC
Motion for Reh’g at 4. In fact, Mr. Trautman
testified that, after initially calculating the
conventional McLaughlin adjustment, he
spent years testing multiple adjustments and
weights, including those that specifically
singled out Public Television, to reduce
Public Television’s shares from those that
result from the conventional McLaughlin
Adjustment.
Id. at 6 (citing PTV PFF ¶ 209; Tr. 3142–
3154 (Trautman); Exs. 3048, 3049)
(footnote omitted).265 PTV argues that,
265 In the omitted footnote, PTV’s response directs
the reader to representative portions of the hearing
transcript. See PTV Response at 6 n.2 (‘‘Tr.
3150:15–20 (Q. ‘[T]he analysis there would have
applied the McLaughlin adjustment but then would
have weighted systems that carried only Public
Television distant signals differently from all the
other systems? Is that Right?’ A. ‘My recollection is
that’s correct.’); Tr. 3153:4–14 (Q. ‘So you then
considered other adjustments that could be
combined with the new weighting approach,
correct?’ A. ‘Broadly, I think that’s correct.’ Q.
‘Those included assigning various values of less
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‘‘[c]ontrary to JSC’s suggestion, there is
no reason to believe that Mr. Trautman’s
weighting innovations became more
reliable over time, as they appear to
have been focused instead on achieving
his results-oriented purpose of reducing
Public Television’s shares as generated
by the conventional McLaughlin
adjustment.’’ Id. (citing PTV PFF
¶¶ 208–13).
Moreover, PTV argues,
[t]he ‘‘base plus 3.75’’ weighting is
inconsistent with the weighting principles
that undergirded the McLaughlin-adjusted
Bortz Survey in prior proceedings. The Bortz
Surveys ask respondents to value only the
signals that their CSOs actually distantly
carried, and instruct that the sum of the
values must equal 100%. As a result, the
conventional McLaughlin Adjustment
reflects the only possible response when a
CSO distantly carried only Public Television
signals: 100% to Public Television.
Id. at 6–7. Further, specifically with
regard to the weighting of the
McLaughlin-adjusted Bortz Survey
results, it is argued,
Mr. Trautman testified unequivocally in
the 2010–13 proceeding that weighting by
total royalties was the correct approach—
even as to PTV-only systems, which by
definition were almost always ‘‘minimum-fee
systems.’’ When asked, ‘‘But in your view
. . . , the McLaughlin-Blackburn
augmentation of the Bortz survey assures that
an appropriate weight is applied to the PTVonly systems; correct[?],’’ Mr. Trautman said,
‘‘Yes, it considers the systems in the context
of royalties, the total royalties that they pay.’’
Id. at 7 (citing Ex. 7043 at 551 (2010–
13 Trautman Oral Testimony)).
Accordingly, PTV observes,
the Initial Determination rejected JSC’s
proposed adjustment that would have
assigned less than 100% of the value to
Public Television. Initial Determination at
180; see also id. at 178–79 (‘‘Inasmuch as
PTV-only systems are still not surveyed by
Bortz Media, and there is no empirical
evidence to show how PTV-only systems
value PTV distant signals, there is no cause
now to discard the McLaughlin adjustment
. . . . The McLaughlin adjustment has
always been presented as a 100-percent or
nothing approach, and the Judges can take
that characteristic into consideration.’’).
Id. at 7.
d. The JSC Reply
In its reply, JSC argues against using
Exhibit 3049 or Exhibit 3105 ‘‘because
they use incorrect, royalty-based
weighting.’’ JSC Reply at 6. JSC further
argues that its ‘‘witnesses explained at
the hearing that royalty-based weighting
than 100 percent to Public Television for systems
that carried only Public Television distant signals,
right?’ A. ‘Well, certainly my two adjustments do
employ that approach based on the particular
characteristics of some of the PTV-only systems.’)’’).
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would improperly skew the survey
calculations in the 2015–17 period due
to the overwhelming number of
minimum fee systems.’’ Id. (citing JSC
Motion at 4). JSC also seeks to analogize
to the Judges’ analysis of the regression
evidence, arguing that,
in the context of the regression analyses, the
Judges similarly recognized that the increase
in minimum fee systems during the 2015–17
period required methodological changes.
Initial Determination at 21–22. Accordingly,
Bortz revised its methodology to use base
plus 3.75 weighting. JSC Mot. at 4.
Calculations of the McLaughlin adjustment
for the years 2015–17 applying the corrected,
base plus 3.75 weighting are in the record at
Exhibits 4001–4003. Id. at 5–6.
Id.
JSC argues,
None of the Responding Parties opposed
Bortz’s change to base plus 3.75 weighting
during the proceeding (indeed, SDC and PTV
affirmatively bolstered it), and none of them
can explain why the reliance on royaltybased weighting in Exhibit 3049 is anything
but clear error. The Joint Respondents do not
address the issue at all.
Id. (footnote omitted).
JSC argues that PTV,
lacking any evidence from the 2014–17
proceeding, attempts to rely on testimony
from the 2010–13 proceeding supporting
royalty-based weighting. See PTV Resp. at 6–
7. But the difference between this proceeding
and the last one is critical: royalty-based
weighting became a problem in 2015–17
when, as the Judges found, there was a
‘dramatic increase in the number of
minimum-fee only’ systems. Initial
Determination at 21. Testimony that royaltybased weighting was appropriate in 2010–13
does not support its use in the changed
landscape of 2015–17.
Id. at 6–7.
In addition, JSC argues in its reply
that it was diligent, and
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promptly objected to PTV’s belated embrace
of the McLaughlin adjustment with royaltybased weighting when it first arose in posthearing briefing. See JSC Post-Hearing Reply
Br. at 62. Nothing in the rehearing standard,
or common sense, justifies requiring a party
to spend its limited hearing time and briefing
space clarifying the most accurate version of
each un-endorsed calculation that comes up,
particularly where, as here, the alternative
calculations presented for even a single base
regression numbered in the hundreds.
Id. at 7.
JSC argues, with respect to the crossexamination of Mr. Trautman, that
‘‘pointing a witness to his own
alternative calculation is a common
form of criticizing a methodology, not
an affirmative endorsement of the
alternative,’’ and with respect to PTV’s
citations, JSC argues, inter alia, ‘‘JSC
had no reason to argue for the use of
Exhibit 3105 over Exhibit 3049 because
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PTV’s average share does not
meaningfully differ between the two
exhibits (only the shares of the other
parties do).’’ Id. at 7–8.
JSC argues,
The implausible degree of foresight that the
Joint Respondents and PTV would demand of
any party seeking rehearing is well beyond
anything necessary to deter parties from ‘‘relitigat[ing] old matters’’ or raising new
arguments out of time. PTV Response at 2 &
Joint Response at 2. Rather, denying
rehearing on this record would incentivize
parties to disguise their intent to rely on a
specific calculation as long as possible, so as
to immunize that calculation from the full
adversarial vetting process.
Id. at 8–9.
2. Discussion
As an initial matter, the proposed
adjustment contained in JSC’s Motion
Exhibit 2 (derived from Exs. 4001–4003)
would, as indicated in the pending
motion, apply only to the Bortz survey
results for 2015 through 2017. Thus, the
adoption of JSC’s Motion Exhibit 2
would leave unanswered any questions
pertaining to the McLaughlin
Adjustment for 2014. In any event, the
underlying problem that gives rise to the
McLaughlin Adjustment, and all other
adjustments advanced by the parties, is
in the way that the Bortz surveys
exclude certain PTV and Canadian
signals. While the problem should not
be overstated, the Bortz surveys contain
downward biases with respect to
relevant PTV and Canadian
programming. See ID at 168. The
McLaughlin Adjustment has been
recognized as an adjustment, or
augmentation, that helps to remedy bias
in the Bortz methodology but may do so
on an imprecise basis. Id. at 168, 179.
There is no indication that any
adjustment exists that compensates
completely for weakness in the design
of the Bortz surveys.
With respect to JSC’s newly advanced
adjustment, there is no indication in
JSC’s pending motion and reply that the
adjustment derived from Exhibits 4001–
4003 was the subject of hearing
testimony. Indeed, the available details
surrounding the calculations made
therein, and condensed in JSC’s Motion
Exhibit 2, remain scant. JSC argues,
‘‘because PTV first embraced this
[McLaughlin] calculation in its post-trial
briefing, without having previously
offered any witness who endorsed it,
JSC did not have an opportunity to
directly address the reliability of the
calculation through its own witnesses.’’
JSC Motion at 6. Yet, this argument is
unavailing for several reasons. As
discussed above, all parties knew that
the McLaughlin Adjustment would be at
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issue in the hearing. JSC even addressed
the McLaughlin Adjustment in its
opening argument, and later during the
direct examination of its witness Mr.
Trautman. As JSC expected, PTV crossexamined Mr. Trautman on the
McLaughlin Adjustment, yet without
corresponding redirect by JSC.
Moreover, JSC did not need to wait,
nor did it wait, to find out what PTV
would say in its post-hearing filings in
order to set forth JSC arguments and
evidence concerning adjustments to the
Bortz survey results, including its own
proposed adjustments. Indeed, during
the hearing, JSC presented evidence
with respect to its proposed
‘‘Adjustment One’’ and ‘‘Adjustment
Two,’’ which were discussed at length
in the Initial Determination.266 See, e.g.,
ID at 170–180. One feature of the
adjustments proposed by JSC was that
Bortz Media weighted the results based
on base-plus-3.75 fees attributable to the
distant signals actually carried by the
PTV-only systems. See id. at 170, 171.
Aside from the substantive deficiencies
in this alternative adjustment, it is not
appropriate for JSC to use the rehearing
process to advance this argument, when
it could have (and should have) been
articulated during the hearing.
In addition, JSC’s motion fails to
adequately address the fact that in the
Initial Determination, the Judges already
recognized strengths and weaknesses of
the Bortz surveys, particularly after
application of the conventional
McLaughlin Adjustment. See, e.g., id. at
178 (‘‘The application of the
McLaughlin adjustment to the initial
Bortz results for the years now at issue,
2014 through 2017, is relevant, and the
adjusted results . . . should be given
varied weight, depending on whether
one is considering the adjusted results
for 2014, or for 2015 through 2017.’’); id.
at 179 (‘‘To the extent that one would
specifically exclude Must Carry signals,
such as in a regression analysis, the fact
that the McLaughlin adjustment is
applied to Must Carry signals
diminishes the value of such adjusted
Bortz results when making a
comparison to such other evidence that
devalues Must Carry signals.’’); id. at
180 (‘‘no party, not even PTV, argues
that the Bortz Survey with the
McLaughlin adjustment is the best
methodology of record for arriving at an
allocation for 2015–2017’’). Having
reviewed all adjustments proposed by
the parties during the hearing, the
266 In view of the hearing that JSC has already
received, PTV argues that ‘‘the Judges should deny
JSC’s motion for rehearing, to the extent that the
prospective rehearing would rehash which
weighting methodology should be applied to the
Bortz Surveys . . . .’’ PTV Response at 10.
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Judges determined, ‘‘the McLaughlin
adjustment, provided one understands
its aforementioned limitations, is most
helpful among the proposed
adjustments in understanding the Bortz
results.’’ Id. at 181. Consequently, in
allocating shares, the Judges made
judicious use of the Bortz surveys (with
the McLaughlin Adjustment), in some
instances according the Bortz survey
evidence no weight at all. Id. at 197–98.
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iii. Conclusion Concerning the
McLaughlin Adjustment and the
Request for Rehearing 267
For the reasons detailed above, the
Judges find that it has not been shown
that an exceptional case exists, and that
an aspect of the Initial Determination is
erroneous due to its reliance on Exhibit
3049 and data contained therein. The
movant for rehearing, JSC, has not
demonstrated that aspects of the
determination relating to the
McLaughlin Adjustment and Exhibit
3049 are without evidentiary support in
the record or are contrary to legal
requirements. In that regard, it has not
been shown that there is a need to
correct a clear error or to prevent
manifest injustice with respect to the
Initial Determination’s cautious use of
the Bortz surveys with the McLaughlin
Adjustment. Rather, a review of the
parties’ filings and relevant portions of
the hearing record shows that evidence
concerning Exhibit 3049 went
unrebutted during the hearing, and
there is no reason to disturb the hearing
record or the findings of the Initial
Determination in favor of another
exhibit or exhibits (and other
calculations contained therein) as to
which there is less evidentiary support,
whether that be Exhibit 3015 or JSC’s
newly advanced adjustment as
summarized in JSC’s Motion Exhibit 2.
Furthermore, other approaches to
adjustment or augmentation of the Bortz
Survey results were presented by JSC
during the hearing. It has not been
shown that it is necessary or appropriate
to rehear any portion of the case with
respect to yet another proposed
adjustment. As the Judges noted supra,
the rehearing process cannot be utilized
to obtain a ‘‘second bite at the apple,’’
i.e., to re-litigate old matters or to raise
arguments or present evidence that
could have been raised prior to the entry
of judgment.
Consequently, JSC’s motion for
rehearing with respect to reliance on the
McLaughlin Adjustment is denied.
267 JSC’s argument, noted supra, seeking to justify
rehearing by analogy to the Judges’ analysis of the
impact of the Minimum Fee CSOs on the regression
methodology, is discussed separately, infra.
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c. Whether JSC’s Share for 2014 Is
Inconsistent With the Record Evidence
and the Reasoning of the Initial
Determination
i. Introduction
As explained above, it is clear that in
the Initial Determination the Judges
appropriately and sufficiently
considered—and rejected—JSC’s
proffered alternative adjustments to the
Bortz Survey. JSC’s request for rehearing
as to this issue is properly dismissed, as
indicated supra, as an attempt to
relitigate the issue, i.e., a violation of the
‘‘second bite at the-apple’’ proscription.
However, JSC also argues something
else—that rehearing is required because,
according to JSC, the Judges erred in the
Initial Determination by applying the
Minimum Fee issue differently to the
survey methodology than they did to the
regression methodology.268
ii. The Parties’ Positions
1. The JSC Motion
To put JSC’s ‘‘inconsistency’’
argument in context, it is helpful to
begin by taking note of the basic
argument in JSC’s Motion regarding the
alleged effect of Minimum Fee royalty
payments on the Bortz Survey results. In
this regard, JSC maintains the following:
[R]oyalty-based weighting is not
appropriate for 2015–17 due to the
overwhelming number of minimum fees
systems. . . . [U]se of royalty-based
weighting improperly skews the survey
calculations by giving inordinate weight to
minimum fee systems that typically did not
even use their full minimum fee budget. . . .
As relevant here, the Bortz Survey
methodology changed to weight the results
based on the Base-plus-3.75 fees attributable
to the actual 269 signal carriage of the Form
3 systems, and to apply the results using
signal carriage-based fee calculations rather
than actual royalties paid.
. . .
This change in the weighting was
necessary to avoid ‘‘ ‘introduc[ing] a
268 This specific argument cannot be rejected
under the ‘‘second bite at the apple’’ proscription
because JSC’s claim of inconsistency is based on a
comparison of two aspects of the Initial
Determination. However, as explained infra, this
argument fails to support JSC’s request for rehearing
for other reasons.
269 JSC’s use of the word ‘‘actual’’ here is
misleading, in the manner previously described by
the Judges. See Initial Determination at 69 n.79
(‘‘The word ‘‘actual’’ in this context is rather
Orwellian. For the 2015–2017 period, a substantial
majority of the CSOs in which the subscriber groups
are situated ‘‘actually’’ paid the minimum fee. A
Base Fee was ‘‘actually’’ calculated, as required by
the regulations, but not ‘‘actually’’ paid, because the
Minimum Fee bound. . . . [M]isleading semantic
use of the adjective ‘‘actual’’ does not assist the
Judges in deciding whether any or all of the Base
Fee calculations have objective evidentiary
weight. . . .’’).
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distortion, by giving excessive weight to
systems with large Minimum Fee
payments. . . .’ ’’
JSC Motion at 4–5 (citations omitted).
But, as noted supra, the JSC Motion
also maintains something more than an
error occurred in the Judges’ adopting of
this weighting. JSC asserts as well that
the Judges acted inconsistently, because
their ‘‘[ ]use of royalty-based weighting
for 2015–17 conflicts with the Judges’
findings regarding minimum fee
systems.’’ JSC Motion at 2.270
2. The PTV Response 271
Relating to this issue, PTV responded
that it is JSC that is inconsistent as to
this issue:
[T]he ‘‘base plus 3.75’’ weighting is
inconsistent with the weighting principles
that undergirded the McLaughlin-adjusted
Bortz Survey in prior proceedings. . . .
Specifically . . . Mr. Trautman testified
unequivocally in the 2010–13 proceeding
that weighting by total royalties was the
correct approach—even as to PTV-only
systems, which by definition were almost
always ‘‘minimum-fee systems.’’ When
asked, ‘‘But in your view . . ., the
McLaughlin-Blackburn augmentation of the
Bortz survey assures that an appropriate
weight is applied to the PTV-only systems;
correct[?],’’ Mr. Trautman said, ‘‘Yes, it
considers the systems in the context of
royalties, the total royalties that they pay.’’
Ex. 7043 at 551:9–15 (2010–13 Trautman
Oral Testimony).
PTV Response at 6–7.
3. The JSC Reply 272
In Reply, JSC explained why the PTV
Response fails to rebut JSC’s argument
as to this issue. Specifically with regard
to the issue of inconsistency vis-à-vis
the treatment of the Minimum Fee in
the regression analyses, JSC argued:
1. The evidentiary weight the Judges gave
to Minimum Fee royalty payments in the
Bortz Survey model was inconsistent with the
lesser evidentiary weight the Judges gave to
Minimum Fee royalty payments in the
regression models.
2. The Judges found that—with regard to
the regression models—Minimum Fee royalty
payments, standing alone, for the most part
did not provide useful information regarding
the ‘‘relative value’’ of the retransmitted
270 The Judges discuss infra at footnote 28 JSC’s
problematic use of the word ‘‘weighting’’ to
characterize its application of the Bortz Survey
allocations. For clarity, the Judges defer that
discussion until after they have explained the error
in JSC’s argument that the Judges should have
treated the Bortz Survey results and the regression
analyses in the same manner vis-à-vis the Minimum
Fee royalties.
271 The Joint Respondents did not address this
issue and, as noted supra, CTV did not file a
response to the JSC Motion.
272 As noted supra, JSC described the Judges’
finding as to this (and all other) rehearing issues as
‘‘clear error’’ for the first time in the JSC Reply.
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programming, therefore requiring
‘‘methodological changes’’ to the regression
approach.
3. Bortz revised its methodology used in
prior allocation proceedings, substituting
instead its new ‘‘base plus 3.75 weighting,’’
to account for Minimum Fee royalty
payments as applied to the Bortz Survey
model.
4. The adverse parties fail to rebut the
argument that the Judges wrongly employed
a royalty-based weighting approach which
gives undue weight to Minimum Fee royalty
payments during the 2015–17 period.
Specifically, all the responding parties except
PTV ignored the issue. And, as for PTV, it
cites no evidence from the present
proceeding, and instead relies on testimony
from the 2010–13 proceeding supporting
royalty-based weighting—ignoring the JSC’s
assertion that royalty-based weighting only
became a problem in 2015–17, with the
significant increase in the number of
Minimum Fee-only CSOs.
JSC Reply at 1–2, 6–7.
iii. The Judges’ Analysis
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JSC Wrongly Maintains That the Judges
Erred by Inconsistently Applying the
Bortz Survey Results to the Royalties
Actually Paid Inclusive of Minimum
Fee Payments, While Declining To
Similarly Rely on Minimum Fee
Payments When Considering the
Regression Results
The Judges categorically reject JSC’s
argument that they acted inconsistently,
and thus committed ‘‘clear error,’’ by
giving less evidentiary weight to
Minimum Fee royalty payments in the
regression models compared to the
weight they gave to Minimum Fee
royalties in the Bortz Survey model.
Indeed, as explained infra, by
comparing JSC’s rehearing argument
with the hearing testimony of its
economic experts’ and its post-hearing
filings, it is clear that it is the JSC
analysis (incorrectly advanced in
support of its motion for rehearing) that
is inconsistent.273
Specifically, JSC argues on rehearing
that the Judges clearly erred because
their ‘‘use of royalty-based weighting
improperly skews the survey
calculations by giving inordinate weight
to minimum fee systems’’ which, JSC
maintains, is inconsistent with the
Judges’ conclusion that in the regression
models ‘‘decisions by minimum fee
systems during the 2015–17 period are
not probative of relative market value.’’
JSC Motion at 4 (citing Initial
Determination at 129 n.155, 134).
273 To be clear, the Judges’ analysis and findings
as to this issue do not rely on PTV’s argument,
noted supra, that the testimony of the Bortz Survey
witness, Mr. Trautman, in the prior 2010–13
proceeding, precluded or diminished JSC’s ability
to assert its ‘‘inconsistency’’ argument.
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Moreover, in this regard JSC claims that
‘‘[t]he Initial Determination likewise
discusses how both the regression and
survey methodologies changed (or
should have changed) to account for the
‘dramatic increase in the number of
minimum-fee only’ systems in these
years.’’ JSC Motion at 4–5 (emphasis
added) (citing Initial Determination at
21–22, 167 n.206).
Before proceeding to discuss the
substance of this argument, the Judges
take note that JSC has misleadingly
utilized the Initial Determination in the
quote above from the JSC Motion. In the
Initial Determination, the Judges
explained how they apply the Minimum
Fee problem only in the context of a
regression model. See Initial
Determination at 21–22, 129 n.155, 134.
By contrast, when referring to the Bortz
Survey, the Judges simply recited how
Bortz, not the Judges, sought to
insinuate the Minimum Fee issue into
the survey approach. See Initial
Determination at 167 n.206. In this
regard, the Judges note that the
emphasized parenthetical quote from
the JSC Motion in the paragraph
immediately above wrongly intimates
that the Initial Determination expressly
discusses how ‘‘both the regression and
survey methodologies . . . should have
changed’’ to address the Minimum Fee
issue. JSC Motion at 4–5 (emphasis
added). The Judges in fact made no such
finding in the Initial Determination
regarding how the Bortz Survey
methodology should have changed.
Accordingly, the overt inconsistency
that JSC suggests is set forth in the
Initial Determination simply does not
exist (and as explained infra, for good
reason). With the foregoing misconstrual
of the Initial Determination corrected,
the Judges proceed infra to explain the
substantive error and inconsistency in
JSC’s argument that the Judges’ erred in
their consideration of the effect of the
Minimum Fee on the regression
approach compared to its non- effect on
the Bortz Survey approach.
To make clear the fundamental error
in JSC’s argument, it is instructive to
begin with certain first principles. The
statutory scheme supplants marketplace
pricing of distantly retransmitted local
programming by CSOs. Thus, the parties
proffer economic models that they claim
to be sufficient to represent relative
marketplace value.274 Here, and as in
274 The models may be supported by the
testimony of industry witnesses and industry
documents. Parties who eschew formal modeling
may elect to rely solely on industry-based evidence
and testimony (as did CTV through the ‘‘directional
analysis’’ undertaken by its expert witness, Dr.
Leslie Marx, for the 2015–17 period. See Marx
ACWDT ¶ 83).
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prior proceedings, the Judges were
presented with two starkly different
types of models—the regression model
and the survey model.275 In the
difference between how these two
models approach the concept of relative
marketplace lies the explanation why
the Minimum Fee issue is a concern in
the regression context, but not in the
survey context.276
Broadly stated, the regression
approach seeks to identify value from
the expressions of the willingness-topay of CSOs, by analyzing their actual
decisions (i.e., their ‘‘revealed
preferences’’) as to which local stations,
and thus which program categories on
those stations, they decide to retransmit.
See, e.g., Initial Determination at 78
(‘‘the regressions identify market-based
behavior among CSOs, in the form of
revealed preferences for different
program categories, and such behavior
is relevant evidence useful for
estimating relative marketplace value.’’).
The ‘‘value’’ element of this willingnessto-pay (the CSO’s ‘‘revealed
preference’’) is the royalty-based value
of a minute of retransmittal of
programming within the program
categories. However, the presence
(indeed, the prevalence) of Minimum
Fee-only CSOs complicates this form of
value analysis because such CSOs did
not incur any royalty cost associated
with their specific choices. Accordingly,
the Judges needed to take into account
this Minimum Fee factor in order to
reasonably apply the regression
approach. ID at 21 (‘‘The Judges find
that the dramatic increase in the number
of minimum fee-only CSOs . . . renders
regression analyses that include those
275 The existence of competing models in
economic litigation is hardly uncommon. As the
Judges have previously explained: ‘‘Benchmarks,
Shapley and Nash models, surveys and experiments
are all models, in that a model is a representation
of something beyond itself being used as a
representative of that something, and in prompting
questions of resemblance between the model . . .
and their target systems.’’ Initial Ruling after
Remand at 87 n.125, in Final Determination after
Remand at App. A, Phonorecords III (June 22,
2023).
276 As the Judges noted in the Initial
Determination, the D.C. Circuit has approvingly
noted that there is no reason to require that
assumptions or findings applicable to one type of
economic model addressing an issue necessarily
apply to a different type of economic model
attempting to address the same issue. See Initial
Determination at 48 (citing NRBNLMC v. CRB, 77
F.4th 949, 971 (D.C. Cir. 2023) (affirming the Judges’
finding in their Web V Determination declining to
apply the ‘‘opportunity cost’’ value in one economic
model (a Shapley Value model) to an economic
model (a benchmarking model) with different
assumptions)). Of course, the assumptions in each
economic model must be internally consistent. See
J. Schlefer, The Assumptions Economists Make at
29 (2012) (an economic model ‘‘provides a check on
thinking: it restricts us to at least consistent
economic worlds . . . .’’) (emphasis added).
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CSOs less reliable and thus can be
accorded only very limited economic
evidentiary weight.’’).
By contrast, a constant-sum survey,
such as the Bortz Survey, does not seek
to estimate relative value by examining
actual decision-making, in a regression
or otherwise. Rather, the Bortz Survey
seeks to estimate relative value by
examining hypothetical decisionmaking by presumably informed CSO
employees, who are asked to allocate a
fixed but unspecified monetary budget
by percentages across identified
program categories, totaling 100%. See
JSC PFF ¶ 296 (and record citations
therein). But at no point in the survey
are the respondents asked to consider
whether the relative values are affected
by the CSO’s payment of the Minimum
Fee for any programming.277 Rather, the
Bortz Survey is an attitudinal survey,
asking respondents to state the relative
values they would hypothetically assign
to some program categories (but not to
PTV-only and CCG-only categories as
discussed elsewhere in this order and in
the Initial Determination), whereas the
regressions seek to reveal relative value
based on how much CSOs in fact paid
in royalties to retransmit programs
within all the program categories.
Indeed, the JSC’s own expert
economic witnesses dismissed the very
idea that any royalty-based valuation
could be probative, characterizing all
statutory royalty amounts as
‘‘uninformative’’ and as mere ‘‘artifacts’’
of the statutory system. Dr. Asker, on
behalf of JSC, testified in this regard:
[F]ollowing the WGNA conversion, the
experts’ price proxies, which are based on
base rate (plus 3.75%) royalty fees and
therefore ignore the minimum fee, were
uninformative measures of the incremental
cost cable system operators paid for distant
signal content. . . . As a result, these price
proxies became biased. . . .
. . .
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[V]ariation introduced solely due to this
feature of the base rate (plus 3.75%) royalty
fee calculation is an artifact of the
computation of the fee. . . .’’
Asker WRT ¶¶ 58, 98 (emphasis added).
In like manner, another JSC economic
expert witness, Dr. Majure, testified that
all the regression models merely reflect
‘‘the statutory relationship [between
DSEs, revenues, and royalties owed]
parrot[ing] back the relative values of
distant signals set by Congress.’’ Majure
WRT ¶ 8.278
277 Also, there is no record evidence that survey
respondents took into account—or even knew—
whether their CSO employer had paid the
Minimum Fee or the Base Fee for such
programming.
278 Dr. Majure offered the same opinion with
regard to the 3.75% Fund as he did regarding the
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Importantly for the issue at hand, Dr.
Majure explicitly opined that the Bortz
Survey did not have share this defect:
By contrast with the regression models
. . ., the Bortz [S]urvey method does not
have the same problem of a disconnect
between the data and the conceptual model
that is necessary to interpret the data within
a regression. . . . [T]he survey does not rely
on the notion that a minute of each type of
content has a specific incremental value. The
Bortz survey only requires that respondents
have some experience with different types of
content available on distant signals, so that
they will have formed preferences for these
types of content. . . . The Bortz survey thus
connects directly to actual market value.
Majure WRT ¶¶ 59, 61 (emphasis
added).
The economic import of this point
was emphasized in further testimony by
Dr. Majure, explaining this distinction
between the regression model and the
survey model:
[T]he scarcity of valid observations for the
regression method due to the increase, postWGNA conversion, in CSOs carrying fewer
signals than they could without exceeding
the minimum royalty fee . . . results in a
significant gap between a CSO’s distant
carriage decisions and how much that system
paid in royalties. This creates an issue
peculiar to the regression method [which]
depends on statistical inferences that are
more powerful and reliable when applied to
more independent observations that are
derived from the same underlying model of
economic choices. Unlike the regression,
which depends critically on the relationship
between these measures to identify the
relative values of content, the survey does
not . . . because the survey does not rely on
the incremental cost of the content to identify
value. Whether a survey respondent carried
enough distant signals to be above or below
the minimum royalty, their response can
address equally well how that CSO would
apportion a fixed sum between the content
types that it did carry.
A survey can reveal CSO preferences
reliably because the survey does not rely
upon inference but instead directly poses the
relative value question to the buyers in the
hypothetical market.
* * *
In summary, the survey method has the
advantage of not suffering from any of the
problems that make the regression method
unreliable in the wake of WGNA’s
conversion.
Majure WDT ¶¶ 129–130, 133
(emphases added).
This expert testimony distinguishing
the regression and survey approaches
was foundational to JSC’s economic
theory of the case. See JSC PFF ¶ 236
(quoting Majure WDT ¶ 130 to
distinguish the survey model from the
Basic Fund, testifying that ‘‘the 3.75 royalty fee . . .
after 2014 . . . explains only the Congressionallymandated framework . . . .’’ Majure WRT ¶ 80.
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54267
regression model because the former
model ‘‘reveal[s] CSO preferences
reliably because the survey does not rely
upon inference but instead directly
poses the relative value question to the
buyers in the hypothetical market.’’);
JSC Post-Hearing Brief at 3 (‘‘Unlike the
Bortz Survey, the fee-based regressions
are entirely incapable of estimating
relative value in the post-WGNA world
predominated by minimum fee
systems.’’) (emphasis added).
Likewise, in its Post-Hearing Reply
Brief (responding to Program Suppliers
argument), JSC expounded upon this
fundamental difference between the
regression approach and the survey
approach to the Minimum Fee issue:
Program Suppliers mistakenly conflate the
manner in which the Bortz Surveys and the
fee-based regressions treat Minimum Fee
CSOs, arguing that ‘‘like the regressions
offered in this case, the Bortz Survey
considers the stated preferences of survey
respondents whose systems pay only the
Minimum Fee—in this way, the Bortz Survey
considers Minimum Fee systems the same
way as the regressions do.’’ Program
Suppliers misunderstand a fundamental
difference between the Bortz Surveys and the
regressions.
The fee-based regressions attempt to
estimate relative marketplace value by
associating minutes of programming with
calculated royalty fees. For Minimum Fee
CSOs, this presents an insurmountable issue,
because Minimum Fee CSOs do not pay their
calculated royalty fees but instead face an
incremental royalty cost of $0 for the distant
signals they choose to retransmit. In contrast,
the Bortz Surveys do not rely upon a nominal
royalty fee calculation to draw inferences
about CSO preferences. Instead, the Bortz
Surveys avoid the problem . . . by directly
asking knowledgeable CSO executives to
assign relative values to the distant signal
programming they carry.
JSC Post-Hearing Reply Brief at 26
(footnotes omitted) (emphases added).
And yet, having repeatedly claimed
that the Bortz Survey avoided the
alleged analytical vice of associating the
statutory nature of the royalties with
relative marketplace value, JSC
nonetheless now seeks to convert that
vice into virtue, by seeking to justify its
use of a different survey-weighting
approach because of the problem of the
Minimum Fee. Not only is that
argument self-contradictory, as
explained supra, it is also lacking in
substantive merit regarding the analysis
of economic models, as discussed
infra.279 In more general economic
terms, the regression approach and the
survey approach each considers relative
279 PTV also argues that JSC’s experts ‘‘mined’’
this and other ‘‘weighting scheme[s]’’ to ‘‘increase[]
JSC’s allocation.’’ PTV Response at 3. In rejecting
this rehearing argument, the Judges need not and
do not inquire into the motives of JSC’s experts.
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marketplace value from different
modeling perspectives. The Bortz
Survey approach does not seek to define
value a priori—rather it surveys
industry employees who, in response to
Question 4 of the Bortz Survey, assign
their relative value to the several
program categories identified by the
Bortz interviewer. That is, the
respondent may, for example, be
focused on demand-side concepts
regarding subscriber growth or
retention, or supply-side issues such as
the hypothetical cost of acquiring the
signals necessary to obtain the
retransmitted programming, or both. But
the reasons why survey respondents
assign particular values are neither
sought nor known by Bortz. In
particular, the Bortz Survey respondents
are not asked to address any potential
impact on value arising from the
statutory nature of the royalties actually
paid, whether via the Minimum Fee, the
Base Fee, the 3.75% fee, or otherwise.
Thus, for the Judges to make any
adjustments to the Bortz Survey results
based on how the respondents may or
may not have incorporated concepts
relating to the statutory royalty
framework would be untenable, because
the underlying economic reasons
lurking in the minds of the respondents
are not in the record.
Moreover, the thought processes of
the survey respondents are irrelevant to
what constitutes the probative value
according to JSC and the Bortz Survey.
That is, it is the status of the survey
respondents as knowledgeable industry
participants that makes the Bortz Survey
responses probative and allows the
Judges to give it an appropriate
evidentiary weight. In this regard, the
survey approach shares a characteristic
of the benchmarking approach used by
the Judges in their ratemaking cases, in
which the underlying economic
considerations of market participants
are deemed to have been ‘‘baked-in’’ to
the decisions of licensors and licensees,
and their subjective reasons for
establishing value are not relevant. See
Web IV Determination, 86 FR 26316,
26326 (May 2, 2016) (‘‘The Judges hold
in this determination, as they have held
consistently in the past, that the use of
benchmarks ‘‘bakes-in’’ the contracting
parties’ expectations . . . .’’), aff’d
SoundExchange, Inc. v. Copyright
Royalty Bd., 904 F.3d 41 (2018). So
understood, any connection between the
Bortz Survey results and the statutory
fees is both unknowable and irrelevant.
By contrast, as noted supra, the
regression approach is based on an a
priori assumption as to what constitutes
value in this proceeding, positing that a
CSO’s relative valuation of the various
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program categories can be derived from
their actual decision-making, i.e., their
revealed preferences, based upon the
royalties associated with a minute of
programming in each category. Thus, for
the regression approach, the Judges
found (rejecting the arguments of the
regression proponents) that the
existence of the Minimum Fee royalties
was a matter to be addressed, because
the evidentiary strength of this a priori
assumption is compromised by the
presence of the royalties paid by
Minimum Fee-only CSOs, which are not
associated with the cost of any
programming (absent particular
circumstances necessitating adjustments
(such as discussed in the Initial
Determination regarding PTV and CCG
programming)).
iv. Conclusion
Simply put, whereas the value
proposition in the regression model lies
in the actual retransmission decisions
by CSOs, the value proposition in the
Bortz Survey approach lies in the
responses to the survey instrument.
Properly understood, the evidentiary
weight of the Bortz Survey approach,
compared to the regression modeling,
lies in the fact that the survey model
circumvents what JSC and its expert
witnesses characterize as the economic
irrelevancy of the Minimum Fee and
other elements of the statutory royalty
formula set forth in 17 U.S.C. 111. That
is, rather than rely on what they claim
to be economic ‘‘artifacts,’’ JSC and
Bortz rely instead on the survey
responses of CSO representatives as a
practical way to value and allocate
royalties that are paid according to
statutory fiat rather than by revealed
preference. However, by attempting to
inject concerns regarding the Minimum
Fee that apply to regression analyses—
through its misconceived plea for
consistency—JSC actually reveals its
inconsistent understanding of its own
survey model,280 converting it into a
tool that, so to speak, is neither fish nor
fowl. The Judges appropriately declined
to make this analytical error.
For the foregoing reasons, the Judges
find that there is no inconsistency
between the Judges’ decision to address
the Minimum Fee issue in connection
with the regression model, but not with
regard to the Bortz Survey model.
Indeed, as explained supra, the
inconsistency revealed by JSC’s
rehearing argument lies in JSC’s own
willingness to abandon its experts’
testimonies regarding the fundamental
280 As noted supra, an economic model’s
assumptions need to be internally consistent. See
Schlefer, supra.
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economic modeling differences between
the regression and survey approaches,
and to pollute the survey approach with
irrelevant aspects of the statutory fee.281
Accordingly, the Judges’ decisions in
these regards do not constitute error—
let alone ‘‘clear error,’’ or otherwise
serve as a basis for granting
rehearing.282
281 One might question why the Judges criticize
JSC for making an inconsistent argument, when the
Judges used Dr. Tyler’s above-Minimum Fee data
but found two instances in which it was necessary
and appropriate to utilize his full set of calculated
Base Fee royalty data. But the Judges did not engage
in an inconsistent analysis. Rather, there were
unique fact-based reasons, as described in this
Order and in the Initial Determination, which made
the above-Minimum Fee data an incomplete
measure of regression-based value, to an extent, for
PTV and CCG. The needed adjustments that
followed did not demonstrate inconsistency, but
rather a careful parsing of the record evidence. By
contrast, JSC’s position is inconsistent at the
conceptual level—it first argues (as explained
supra) that the statutory royalty fee structure does
not provide evidence of value and that the survey
method is the appropriate valuation tool—only to
then alter course and adjust the royalty shares by
relying on that very statutory fee structure it
discredits as a value metric.
Alternately stated, it would be contrary to the
evidence for the Judges to ignore the divergent
marketplace impact of the WGNA conversion on
Minimum Fee royalty payments. In this regard, the
Judges are mindful of the aphorism that a ‘‘foolish
consistency is the hobgoblin of little minds.’’ See
generally R.W. Emerson, Self-Reliance and Other
Essays 24 (Dover unabridged ed. 1993) (emphasis
added).
Further, even if JSC’s approach somehow could
be construed, like the Judges’ approach, as not
internally inconsistent, it was hardly error, let alone
‘‘clear error,’’ for the Judges to exercise their factfinding duty and their discretion by adopting the
approach they found reflects the record evidence
and the relative marketplace value standard—and
reject one (JSC’s approach) they found to be
logically questionable and insufficiently probative
of marketplace value. (That is, even if the general
‘‘logic’’ of JSC’s argument were correct, the Judges
were under no duty to adopt it.)
282 As stated in footnote 16, supra, the Judges’
foregoing analysis indicates why JSC’s use of the
word ‘‘weighting’’ can be misleading in the context
of its shift away from its former weighting method.
One common meaning of ‘‘weighting’’ is an
‘‘allowance or adjustment made in order to . . .
compensate for a distorting factor.’’ https://
en.bab.la/dictionary/english/weighting. (For
example, weighting is often used to correct for
perceived inaccuracies in ‘‘unweighted’’ values—as
when an election survey has failed to poll a
representative sample of voters from a political
party or other sub-set of the population of voters.)
Here, JSC/Bortz are not changing the weighting of
the survey results to correct for a factor that, in their
own experts’ opinions, is not only non-distorting,
but wholly irrelevant (as discussed in detail, supra).
That is, JSC and its expert economic witnesses
acknowledge that the Bortz Survey methodology,
unlike the regression modeling, is not distorted by
the nature of the statutory formula for royalty fees.
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d. Whether the Judges Adopted a
Version of the Tyler Model That No
Witness Endorsed for the 2015–2017
Time Period, and Whether It Is at Odds
With the Record Evidence
i. The Parties’ Filings
1. The JSC Motion
In its Motion for Rehearing regarding
the Judges’ adoption of the Tyler Model
and the adjustments thereto, JSC argues
the following points:
1. The Initial Determination adopts a
version of the Tyler Model that no witness
endorsed for the 2015–17 time period. JSC
Motion at 8–9.
2. The other experts opined that the Tyler
Model merely ‘‘parroted’’ the statutory
formula. JSC Motion at 9.
3. The Initial Determination makes
‘‘arbitrary’’ adjustments to the Judges’
adopted Tyler Model contrary to record
evidence. JSC Motion at 9–10.
4. The Initial Determination allocates
shares to PTV and CCG that are beyond
‘‘reasonable limits’’ because for PTV they are
greater than the unadjusted levels, and, for
CCG, they are greater than levels from prior
years. JSC Motion at 10.
5. The Initial Determination fails to credit
allegedly unrebutted testimony of industry
fact witnesses inconsistent with the
allocations made by the Judges to PTV and
CCG. JSC Motion at 10.
2. The Adverse Parties’ Responses 283
a. The Joint Response
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In their Joint Response, CCG, Program
Suppliers, and SDC respond as follows:
1. JSC does not satisfy any standard for
rehearing because it is merely raising points
as to which it did not meet its burden of
persuasion. Joint Response at 3–4.
2. JSC’s attempt to litigate issues already
considered or which it failed to consider
constitutes an improper attempt to obtain the
so-called ‘‘second bite at the apple’’ that the
Judges’ reject as a proper basis for rehearing.
Joint Response at 4.
3. The Judges adoption of and adjustment
to a version of the Tyler Model based on
record evidence is consistent with the D.C.
Circuit’s prior ruling that the Judges are ‘‘not
strictly limited to choosing from among
proposals set forth by the parties,’’ but, like
agencies in general, ‘‘have authority to
modify proposals set forth by the parties, or
to suggest models of their own.’’ Joint
Response at 4 n.2; see also id. at 6.
4. JSC fails to note that the higher shares
for PTV and CCG were consistent with the
regression evidence on which the Judges
relied, and, by contrast, JSC asks the Judges
instead to rely fully on the Bortz Survey
evidence, an argument which the Judges
expressly considered and rejected. Joint
Response at 6.
283 CTV did not file a response to the JSC Motion
for Rehearing or otherwise oppose it in any other
filing.
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The PTV Response
In its Response, PTV argues as
follows:
1. JSC correctly asserts that the record
contains no evidence to support the Judges’
reliance on the Tyler above-Minimum Fee
Model.
2. The record contains ‘‘minimal’’ yet
‘‘disputed’’ evidence—i.e., the ‘‘conventional
McLaughlin-adjusted Survey’’ and the Tyler
Model inclusive of Minimum Fee-paying
CSOs—to support a higher PTV share than
determined by the Judges.
3. JSC incorrectly maintains that there is no
record evidence to support what JSC
characterizes as the ‘‘large shares’’ awarded
to PTV in the Initial Determination for the
2015–17 period.
PTV Response at 1–2, 9–10.
JSC’s Reply contains the following
points:
1. JSC identifies the ‘‘clear error’’ standard
as its specific standard for seeking rehearing.
JSC Reply at 2.
2. JSC’s arguments in its Motion regarding
alleged methodological errors cannot be
construed as a mere ‘‘rehashing’’ of
arguments previously considered at the
hearing and in the Initial Determination (a/
k/a seeking a ‘‘second bite at the apple’’)
because the above-Minimum Fee version of
the Tyler Model was not ‘‘endorsed’’ by any
witness. JSC Reply at 2, 9.
3. JSC minimizes the importance of its own
motion argument that cited industry
executive testimony supporting their request
for rehearing. Rather, JSC states in their
Reply that this is not the ‘‘heart’’ of their
argument, but rather only reveals that the
differences between the regression results
and the cited industry witness testimonies
‘‘are so at odds’’ as to indicate problems with
the regression evidence on which the Judges
relied. JSC Reply at 9.
ii. The Judges’ Analysis and Conclusion
1. The Judges’ Adoption of a Version of
the Tyler Model in the Record Does Not
Warrant Rehearing
a. The Judges Did Not Err by Adopting
the Above-Minimum Fee Tyler Model,
Let Alone Commit ‘‘Clear Error’’
JSC maintains that the Judges wrongly
adopted the above-Minimum Fee
analysis undertaken by Program
Supplier’s expert economic witness, Dr.
Tyler. As recounted in detail below, the
Judges explained in the Initial
Determination why regression modeling
for 2015–17 that relied only on aboveMinimum Fee CSOs was more useful
and why, by contrast, modeling that
relied on the Base Fees calculated by the
subscriber groups of CSOs who actually
paid only the Minimum Fee was of
limited usefulness (as when used to
adjust for economic value from the
regressions uncaptured by the aboveMinimum Fee modeling). See Initial
Determination at 21 (‘‘The Judges find
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that the dramatic increase in the number
of minimum fee-only CSOs . . . renders
regression analyses that include those
CSOs less reliable and thus can be
accorded only very limited economic
evidentiary weight [and] the Judges
accord significantly more evidentiary
weight to regression modeling that
focuses only on the CSOs that actually
revealed their preferences by willingly
paying above the minimum fee, i.e., at
the base fee level.’’); id. at 142–144
(noting particular regression
adjustments 284 to economic value
necessitated by the evidence).
The Judges further recognized that,
despite the evidentiary usefulness of the
royalties paid by the above-Minimum
Fee cohort in this proceeding, that
group generated a smaller portion of the
CSO market than in the prior (2010–13)
allocation proceeding. Accordingly, the
Judges did not accord this regression
approach primary weight vis-à-vis the
results of the Bortz Survey, as they had
in that prior proceeding. See Initial
Determination at 147 (‘‘[T]he Judges are
not giving any primacy to the regression
evidence in this proceeding, given how
the changes in the retransmission sector
after the WGNA conversion have
affected the available data.’’); id. at 197
(‘‘[T]he Judges accord evidentiary
weight to the Bortz Survey, with the
McLaughlin Adjustment—relatively
equivalent with the weight given to the
regression analysis . . . . [T]he Judges
find that a synthesis of regression and
survey results is necessary to arrive at
the required allocations.’’).
Turning to a more granular review,
the record is replete with evidence,
argument, and judicial colloquy
regarding the use of above-Minimum
Fee evidence as a building block for the
ascertainment of relative value. See
Initial Determination at 12–13. There,
the Judges relied on the testimony of Dr.
Tyler, who expressly found ‘‘merit’’ in
a ‘‘version of the model that includes
only CSOs paying above the minimum
fee [which] presents with the ‘‘highest
degree of confidence’’ the CSO tradeoffs
between different stations and
categories of minutes.’’ Id. at 12–13
(quoting Tyler ACWDT ¶ 155) (emphasis
added). As a general matter, when the
Judges have decided to rely, as here, on
the specific opinion testimony of an
expert whom they have credited and
who himself has the ‘‘highest degree of
confidence’’ in that specific opinion,
under no standard could the Judges’
ruling in that regard be subject to
rehearing.
284 These are the three adjustments (Adjustments
A through C) in the Initial Determination.
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Moreover, further support exists in
the record for the Judges’ adoption of
this above-Minimum Fee modeling. See
id. at 15 (‘‘for these CSOs which CTV
accurately describes as ‘above-capacity’
. . . paying above the minimum fee, the
base fee royalties reported by their
subscriber groups are their actual
royalty payments, revealing the CSO’s
perceived value of the distantly
retransmitted stations and their
constituent programs.’’ (citing Bennett
WRT ¶ 15 (a CTV economic expert));
CTV PFF ¶ 158 (For above capacity
CSOs, ‘‘the reported [Subscriber Group]
royalties reflected the amount of
royalties actually paid . . . [by CSOs]
[that] decided to incur an increased
marginal royalty cost[,] . . . revealing
the CSO’s perceived value of the
distantly retransmitted stations.’’).
Additionally, the Judges were
persuaded by the following supportive
argument of the SDC (no fan of the
regression approach, to say the least)
regarding the Tyler Model as applied to
above-Minimum Fee-paying CSOs:
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Dr. Tyler, whose rate-based methodology is
the most explicitly based on a ‘‘minimum
willingness to pay’’ theory . . . offers a
sensitivity test [the above-Minimum Fee
modeling] of this issue. Tyler [ACWDT]
¶ 156. . . . Dr. Tyler’s sensitivity test might
provide some rough guidance as to the
potential direction and magnitude of bias
introduced by the presence of minimum fees.
SDC PFF ¶ 156. See also 4/19/23 Tr. 5473
(SDC’s counsel’s statement to Dr. Tyler on
cross-examination) (‘‘I do want to point out
to your credit that your first sensitivity test
tries to address this issue.’’). This argument
is generally consistent with Dr. Tyler’s
response to SDC counsel on this point,
agreeing that it was important to be
‘‘cognizant’’ of this minimum fee issue and
that it be ‘‘considered and addressed’’
because there is ‘‘reasonable disagreement
about how to handle the issue.’’ Id. at 5473–
74. . . . [T]he Judges find . . . . the variant
of the Tyler Model in Figure 6.3 of the Tyler
ACWDT offers the Judges’ ‘‘rough guidance’’
in the allocation of shares.
Initial Determination at 21–22 (quoting
SDC and its counsel) (emphasis added).
Additionally, the Judges carefully
considered this issue at the hearing,
questioning witnesses from the bench.
See 4/13/23 Tr. 4719 (Bennett) (CTV
economic expert responding to Judge
Strickler that ‘‘the idea that you’re
relating carriage with the cost or
willingness to pay for that carriage, I
think, is an entirely reasonable
modeling approach where the data
exists to link the carriage to . . . those
payments. And that is certainly true
where you have above-minimum-feepaying systems for which the
incremental cost is apparent . . .’’)
(emphasis added); 4/18/23 Tr. 5125
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(George) (CCG expert Dr. Lisa George
responding to Judge Ruwe that ‘‘the
royalty payments are not exact measures
of incremental cost. They are more so
when we’re above minimum fees.’’)
(emphasis added); see also 4/19 Tr.
5503 (Tyler) (agreeing on crossexamination that ‘‘CSOs paying above
the minimum fee [is]where you have
economic decision-making because the
costs that they’re paying for each of
those distant signals are actual binding
costs . . . .’’).
The Judges further noted at length
multiple perspectives in which an
above-Minimum Fee cohort of CSOs can
be viewed:
This cohort of CSOs can properly be
viewed as essentially the only CSOs who
provide revealed preference information as to
the variation in relative values among the
program categories (in contrast with CSOs
who did not retransmit any distant local
stations or those with ‘‘excess capacity’’),
which in that sense is a cohort unto itself,
rather than a sub-sample. On the other hand,
this cohort can also reasonably be viewed as
but a small sample of all the CSOs, which
reduces the evidentiary weight of their
preferences. Both perspectives on the
revealed preferences of these aboveminimum fee paying CSOs are properly
considered in weighting the various strands
of useful evidence in order to allocate royalty
shares in this proceeding.
. . .
[I]t is misleading, to say the least, to
categorize the base-fee-paying CSOs as
merely a small cohort of the larger
population of CSOs, when they are
differentiated by the key marker for section
111 purposes: whether they assign a relative
value to the retransmittals and thus relative
values to the retransmitted programs. The
Judges find it more accurate and appropriate
to consider the base-fee-paying CSOs
essentially as a separate cohort of CSOs
whose decision-making is pertinent to a
regression analysis in this statutory context.
. . .
Colloquially, the issue may be
characterized as whether the Judges should
let the perfect be the enemy of the good.
Here, the ‘‘perfect’’ fact pattern would be
where all or most of the data is generated by
CSOs paying above the Minimum Fee. That
is not the factual context here. But there is
‘‘good’’ evidence from the CSOs who did
retransmit enough programming to trigger the
base fees of their subscriber groups, and that
the Judges do not ignore that data.
Accordingly, the Judges will give due
weight to the minority of CSOs that, in the
2015–2017 period, paid above the minimum
fee and thus revealed their preferences by
paying an additional royalty in order to
retransmit one or more additional stations.
Initial Determination at 100, 130–131
(emphasis added).
The Judges made it clear that they
found important economic evidence in
the above-Minimum Fee version of the
Tyler Model:
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[F]or those CSOs transmitting above 1.0
DSE, they have economic decisions to make
regarding the mix of programming they will
transmit via their signal decisions. Given the
economics and reality of this retransmission
market, as described above, only then will
the relative value of program categories be of
material economic importance. It is at this
stage that the Tyler Model generates
information as to relative value, through the
Tyler model’s coefficients.
Initial Determination at 136.
Relying on this abundant record, the
Judges held as follows:
[T]he Judges rely on the Tyler Model, as
Dr. Tyler applied his model to the CSOs
paying above the minimum fee. . . .
[A]bove-minimum fee paying CSOs[’]
channel selections/programming preferences
are . . . probative and useful, even if less so
than in the 2010–2013 Determination
because of the reduction in the number of
such CSOs and in the percentage of royalties
they represent.’’
Initial Determination at 21, 66.
But, as indicated supra, the Judges
did not ignore the fact that the aboveMinimum Fee CSO cohort was
substantially smaller than identified in
the 2010–13 Determination.
Specifically, the Judges stated:
[H]ere the Judges are considering the
regression evidence and the Bortz Survey
evidence as essentially equally weighted and
useful (but not flawless) evidence . . . .
[T]he reconciliation will be different than in
the 2010–13 proceeding, because the Judges
are not giving any primacy to the regression
evidence in this proceeding, given how the
changes in the retransmission sector after the
WGNA conversion have affected the
available data.
Initial Determination at 147.
To be sure, in its Motion, JSC
disagrees with the Judges’ adoption of
the above-Minimum Fee modeling
undertaken by Dr. Tyler. But JSC made
its disagreements known at the hearing
stage of this proceeding, and supported
those disagreements with expert
testimony. See Initial Determination at
19–20.
In particular, one criticism, as
described by the Judges, was levied by
one of JSC’s expert economic witnesses,
Dr. Asker, who maintained that it was
improper to ‘‘use . . . the base fee as a
price proxy even for CSOs paying above
the minimum fee.’’ Id. at 19.285 The
Judges declined to adopt Dr. Asker’s
analysis because: (1) it amounted to
285 More specifically, Dr. Asker opined that a
rational CSO would calculate the actual ‘‘price’’ of
an above-Minimum Fee retransmission of a local
station as the difference between: ‘‘(1) the total fees
that would bind, which may have been the
minimum fee, without retransmitting that local
station, and (2) the total base fees that would bind
(the minimum fee having been exceeded) if that
local station was distantly retransmitted.’’ Initial
Determination at 20.
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mere ‘‘blackboard economics,’’ 286 in
that there was ‘‘no evidence’’ that any
CSO actually engages in the ‘‘tunnelvision sort of hyperrationality’’
described by Dr. Asker; and (2) it was
at odds with the testimony of a cable
industry expert witness, Sue Ann
Hamilton, who stated, in testimony
credited by the Judges, that ‘‘CSOs do
not devote much attention to issues
regarding distant retransmittals.’’ Id. at
22 & n.29.
As a second criticism regarding this
issue, JSC also relied—at the hearing
stage of the proceeding—on what its
statistical expert, Mr. Harvey opined
was the lack of ‘‘statistical significance’’
in Dr. Tyler’s above-Minimum Fee
modeling. See JSC RPFF ¶¶ 29–30;
Harvey WRT ¶¶ 45–46 & tbl.10 287 (More
specifically, JSC and Mr. Harvey
maintained that Dr. Tyler’s aboveMinimum Fee modeling ‘‘failed to
obtain statistically significant results for
JSC minutes in 2015, 2016 and 2017
. . . .’’); see also JSC Post-Hearing Brief
at 27; Harvey WRT ¶¶ 45–46.
In the Initial Determination, the
Judges explained in detail why they
disagreed, finding that the aboveMinimum Fee Tyler Model was
statistically sufficient to carry the level
of evidentiary weight the Judges
accorded to that model. See Initial
Determination at 144–148. Accordingly,
although JSC may disagree with the
Judges’ reasoning as to this issue (even
though JSC does not in fact address the
Judges’ reasoning in their Motion
seeking rehearing), their disagreement
does not remotely suggest that rehearing
is warranted as to this issue.
In their present Motion seeking
rehearing, JSC makes a further criticism
of the Judges’ reliance on the above286 See id. at 22 n.29 for the Judges’ application
of the economic criticism of unrealistic ‘‘blackboard
economics.’’
287 JSC premises its argument on the fact that far
fewer CSOs paid royalties at above-Minimum Fee
levels in the years 2015–17 than in the pre-WGNA
conversion period of 2010–2014 (which straddles
this and the prior allocation proceeding). See Initial
Determination at 18–20. As explained in the Initial
Determination, and recounted elsewhere in this
Order, the Judges did not dispute this point, and
therefore accorded Dr. Tyler’s above-Minimum Fee
results less evidentiary weight than when more
CSOs paid above-Minimum Fee royalties, but they
declined to adopt JSC’s argument that the Judges
therefore should give zero weight to the evidence
of CSO decision-making by CSOs that did pay
above-Minimum Fee royalties. Id. at 131 (‘‘there is
‘good’ evidence from the CSOs who did retransmit
enough programming to trigger the base fees of their
subscriber groups, and the Judges do not ignore that
data.
Accordingly, the Judges will give due weight to
the minority of CSOs that, in the 2015–2017 period,
paid above the Minimum Fee and thus revealed
their preferences by paying an additional royalty in
order to retransmit one or more additional
stations.’’).
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Minimum Fee Tyler Model.
Specifically, JSC relies on Dr. Tyler’s
recommendation at the hearing that the
Judges rely on his preferred model in
which he applies all the Base Fees
calculated by the Subscriber Groups
within CSOs, including those for whom
the Minimum Fee would bind. But JSC’s
present post-hearing reliance on Dr.
Tyler’s preference is seriously
misleading.
Although Dr. Tyler preferred one of
his models over another, his preference
does not dictate which of his analyses
the Judges may credit. Here, the Judges
declined to defer to his preference
because regression models that included
the royalty payments of CSOs paying
only the Minimum Fee were less useful
in reflecting economic decision-making
(an argument advanced by JSC and other
parties). Instead, the Judges relied
heavily on the Tyler Model based on
only above-Minimum Fee paying CSOs,
for the reasons explained supra, as
supported by abundant aspects of the
record evidence. Initial Determination at
21 (‘‘The Judges find that the dramatic
increase in the number of minimum feeonly CSOs (i.e., those with no distant
retransmittals and those with some
distant retransmittals but with ‘excess
capacity’) renders regression analyses
that include those CSOs less reliable
and thus can be accorded only very
limited economic evidentiary weight.
Moreover, the Judges accord
significantly more evidentiary weight to
regression modeling that focuses only
on the CSOs that actually revealed their
preferences by willingly paying above
the minimum fee, i.e., at the base fee
level.’’).
JSC also overplays its hand. Dr. Tyler
did not maintain that his aboveMinimum Fee modeling lacked
probative value. Quite the contrary, he
testified (as noted supra) that his aboveMinimum Fee modeling showed, with
the ‘‘highest degree of confidence,’’
actual economic tradeoffs made by
CSOs, even though he preferred his
model inclusive of the Minimum Feepaying CSOs. Initial Determination at 13
(quoting Tyler ACWDT ¶ 155).
Moreover, as a general matter, there is
no doubt that the Judges may give
greater weight to evidence that the
proffering witnesses recommend should
have less weight. Indeed, such an
expert’s disagreement in this regard
ultimately is of little value, as it
intrudes upon the Judges’ exercise of
their core judicial function to weigh
evidence, and, for present purposes,
cannot support a claim for rehearing
under any of the available standards.
In a related criticism, JSC maintains
that the Judges wrongly adopted the
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above-Minimum Fee Tyler Model
because other experts supported their
own models and approaches over the
adoption of any version of Dr. Tyler’s
modeling. Motion at 9.288 But again,
because one of the Judges’ core duties is
to weigh competing testimony,
including expert testimony, their
decision to adopt an opinion proffered
by one expert which clashes with
opinions of others, is certainly not ipso
facto erroneous.
More broadly, the Judges are not
locked into the recommendations of the
parties and the experts. This statutory
process is not like ‘‘final offer’’
arbitration. As noted by the Joint
Respondents, the D.C. Circuit has held
that the Judges are ‘‘not strictly limited
to choosing from among proposals set
forth by the parties,’’ but, like agencies
in general, ‘‘have authority to modify
proposals set forth by the parties, or to
suggest models of their own.’’ Joint
Response at 4 n.2; see also id. at 6; see
also Johnson v. Copyright Royalty Bd.,
969 F.3d 363, 381–82 (D.C. Cir. 2020)
(citing SoundExchange, Inc. v.
Copyright Royalty Bd., 904 F.3d 41, 50–
51, 57 (D.C. Cir. 2018); Association of
American Publishers, Inc. v. Governors
of USPS, 485 F.2d 768, 773 (D.C. Cir.
1973)).
b. JSC Is Improperly Seeking a ‘‘Second
Bite at the Apple’’ by Asking To Submit
Additional Evidence Regarding Dr.
Tyler’s Above-Minimum Fee Model
As discussed supra, JSC submitted
testimony from two expert witnesses,
Dr. Asker, an economist, and Mr.
Harvey, a statistician, in unsuccessful
attempts to undermine Dr. Tyler’s
above-Minimum Fee modeling. Thus,
this issue has already been considered
and, as Joint Respondents assert, JSC
cannot obtain rehearing to introduce
further evidence that JSC ‘‘could have
submitted at the hearing, but did not,’’
and as to which JSC ‘‘did not meet their
burden of persuasion.’’ Joint Response
at 3–4.
Alternately stated, the JSC Motion
fails to satisfy the ‘‘negative’’ standard
for rehearing noted earlier in this
order—a demonstration that the movant
is not seeking the ‘‘second bite at the
apple’’ that the Judges have ruled is
insufficient to support a request for
rehearing.
288 Imagine that—the other experts preferred their
own models over another expert’s opinion: Quelle
surprise.
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2. The Judges’ Adjustments to the
Version of the Tyler Model They
Adopted Do Not Support JSC’s Motion
for Rehearing
a. Introduction
JSC also argues that rehearing is
warranted because the Judges made two
‘‘adjustments’’ via the Initial
Determination that were improper.289
JSC’s argument is deficient for several
reasons. At a high level, JSC simply
ignores the Judges’ explanations in the
Initial Determination for why the aboveMinimum Fee version of the Tyler
Model—albeit a highly useful lens for
broadly identifying relative value—
generated certain results that required
the Judges to make relative value
adjustments for CCG and PTV
programming. It is quite simple, but also
simply wrong, for JSC to argue that the
Judges erred in their reasoning, by
omitting any reference to the Judges’
actual reasoning.
To highlight the importance of these
omissions, the Judges recapitulate the
reasoning in the Initial Determination
which JSC ignores.
b. The CCG Share Adjustment
(Adjustment A) 290
First, with regard to the CCG share
(Adjustment A) the Judges reasoned as
follows in the Initial Determination:
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1. The above-Minimum Fee Tyler Model
generates ‘‘an anomalous increase’’ in the
share allocated to the CCG claimants.
2. This anomaly arose because ‘‘CCG
programming is unique among the program
categories in this proceeding [in that] it is
limited in geographic scope to CSOs located
within a 150-mile belt below the U.S./
Canadian border’’ (known as the ‘‘Canada
Zone’’).
3. Thus, the above-Minimum Fee Tyler
Model ‘‘reflect[s] the unique value of
289 JSC’s ‘‘adjustment’’ argument comes in two
varieties. First, JSC objects to ‘‘Adjustment C’’ in the
Initial Determination which increased PTV shares.
Second, JSC objects to the adjustment of the shares
allocated by the Initial Determination to CCG and
PTV for 2015–17, in comparison to their share
percentages in the prior years of 2010–13 (in the
prior allocation proceeding) and 2014 (in this
proceeding.) JSC does not object to ‘‘Adjustment A’’
in this proceeding that lowered CCG’s allocation
share, or to ‘‘Adjustment B’’ in this proceeding that
lowered PTV’s share. Alternately stated, JSC claims
error by the Judges in the adjustments that reduced
their royalty allocation, but assert no error in
adjustments that increased JSC’s royalty allocation.
(JSC’s argument pertaining to Adjustment B does
identify a computational error in the Initial
Determination that the Judges acknowledge and
correct infra.)
290 Although JSC does not seek rehearing on
Adjustment A regarding CCG, that adjustment is
relevant to this discussion because it is part and
parcel of the Judges’ derivation of the CCG share
that JSC claims to be too high relative to prior years.
The deficiency in JSC’s argument in that regard is
best understood by including in the text following
this footnote a summary of the reasoning for
Adjustment A.
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Canadian programming in the Canada Zone,
including the uniquely valuable . . . French
language programming, a niche subcategory.’’
4. Accordingly, in addition to the demand
for the usual complement of distantly
retransmitted programming that exists
throughout the wider United States, in the
Canada Zone there exists this additional
demand. Such greater demand means that
CSOs would choose to pay more than the
Minimum Fee by adding CCG stations, and
thus Canadian claimant programming, to
their channel lineup.
5. Therefore, CSOs in the Canada Zone
would very likely be overrepresented in the
above-Minimum Fee Tyler Model.
6. This phenomenon creates a problem
because the Judges are allocating a royalty
pool for which, over the period 2015–2017,
more than 90% of the funding came from
Minimum Fee-only CSOs. Accordingly,
although the data from the above-Minimum
Fee Tyler Model provides useful economic
evidence of CSOs’ revealed preferences for
other claimant categories, with regard to CCG
content and value, this data is distortionary.
7. Confirming this anomaly, CCG itself did
not propose receiving the high allocations
suggested by the above-Minimum Fee Tyler
Model (23.2% in 2015; 31.1% in 2016; and
34.6% in 2017). Rather, CCG proposed that
it receive 14.8% for 2015, 13.7% for 2016,
and 13.6% for 2017.291
8. Accordingly, in their 2015–2017
allocations, the Judges utilize the lower CCG
shares reported by Dr. Tyler for all CSOs,
rather than only the above-Minimum Fee
Tyler Model.
Initial Determination at 142–143.
As noted supra, JSC studiously
ignores this substantial downward
adjustment of CCG’s 2015–17 share,
which benefited JSC and the other
claimants by raising their share
allocations, ceteris paribus. Rather, as
noted supra, JSC focuses on a
comparison of the CCG shares for 2015–
17 with the CCG shares for 2010 through
2014 and claims error sufficient to
warrant rehearing based on the increase
in CCG shares in this proceeding.
Simply put, JSC does not object to the
Judges’ adoption of adjustments to its
above-Minimum Fee approach, but
rather only to those adjustments that
reduce its inter-year allocations. That
argument, now in proper context, is
addressed in the subsection below.
1. JSC Misapprehends the Process for
Ascertaining Relative Value in
Allocation Proceedings
JSC argues that the sheer increase in
the size of the Judges’ allocation for PTV
and CCG are ‘‘arbitrary.’’ Motion at 8.
More particularly, JSC calculates that
291 It is also noteworthy that CCG has not sought
rehearing to challenge this significant downward
adjustment in its 2015–17 share of the royalty pool
nor to criticize the wider application of the aboveMinimum Fee Tyler Model.
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‘‘after the Judges made multiple
adjustments to the results, PTV’s share
in the adjusted regression increased by
51% in 2015, by 69% in 2016, and by
105% in 2017. JSC Motion at 9. With
regard to CCG, JSC makes an interperiod argument, asserting that CCG’s
shares more than doubled in the 2015–
17 period compared to the pre-WGNA
conversion years of 2010–13 (in the
prior allocation proceeding) and 2014
(in the present proceeding). JSC Motion
at 10. As explained infra, JSC’s
argument in these regards
fundamentally misapprehends the
statutory process by which relative
values and shares are determined.292
Addressing first the CCG inter-period
share increase, the Judges note that they
do not begin with some pre-determined
allocation of shares and then make
certain that they can ‘‘back into’’ that
‘‘pre-determination’’ by conjuring up a
comporting analysis. That would not
only, to put it colloquially, ‘‘place the
cart-before-the horse,’’ but would also
be antithetical to the Judges’ fact-finding
duty. In this regard, as the Judges
proceed through their analysis, as here,
by applying the probative facts—they do
not decide ex ante that their factual
findings cannot exceed (or fall below)
some arbitrary level (whether an interim
pre-adjusted level or a level from a prior
proceeding). Indeed, that too would be
an improper exercise by the Judges of
their duty to weigh the facts. Alternately
stated, when the Judges weight the
evidence, they are agnostic as to the
share percentages that would ultimately
result.
Nonetheless, as noted supra, JSC
complains that CCG’s shares are higher
than the shares CCG received in the
2010–13 Final Allocation Determination
and in 2014 in the present proceeding.
But JSC cites no authority to suggest that
allocations should equal or approximate
allocations in prior years or from prior
proceedings. Indeed, there is no
authority in that regard because in each
allocation proceeding the Judges
consider the allocation issues de novo,
based on the record developed in that
proceeding. To be sure, a party can
argue that the underlying facts in the
latter proceeding mirror those of the
prior proceeding, suggesting it would be
correct for the Judges not to deviate
from the allocations in the prior
292 In addition to the specific points discussed
infra regarding the CCG and PTV adjustments, it is
important to remain mindful that the Judges are
ascertaining relative values, not absolute values.
That is, the WGNA conversion significantly
scrambled CSOs’ retransmission decisions, which
the record reflects changed the relative value of
program categories. This does not necessarily
indicate that, in an absolute sense, any one program
category became more or less valuable.
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proceeding. And because factual
patterns may remain relatively stable
across years within a given proceeding,
a party may argue that the annual years
at issue should all reflect similar
allocations.
Of course, the converse is true as well:
If the facts reveal substantial differences
between the years in different
proceedings, or across years within a
proceeding, the allocations made by the
Judges should reflect those facts.
Indeed, the Judges have described their
consideration of this issue as a
‘‘Changed Circumstances’’ analysis.
In the present case, the Judges
addressed this very issue in section XVI
of the Initial Determination:
XVI. Changed Circumstances
The Judges may vary from prior decisions
when there are (1) changed circumstances
from a prior proceeding; or (2) evidence on
the record before the Judges that requires
prior conclusions to be modified regardless
of whether there are changed circumstances.
In the 2014–2017 period, several widely
agreed upon changed circumstances have
taken place including 1) WGNA’s conversion
to a cable network, the reclassification of
PTV signals from exempt to non-exempt, and
3) the rise in streaming on alternative
platforms. . . . Based on the agreed upon
record and Judges’ findings here and
throughout the determination, the Judges
find that significant changed circumstances
occurred across the relevant period.
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Initial Determination at 159–160 (citing
the testimonial consensus regarding
these changed circumstances.).
Thus, not only was it permissible for
the Judges to deviate from allocation
shares in prior years and/or
proceedings, the facts of the case
required the Judges to adjust the share
allocations. Quite clearly, therefore, the
Judges did not make any findings that—
under any standard—would support
rehearing based on changes in the
Judges’ share adjustments.
Second, with regard to the upward
adjustment for PTV’s relative value
(Adjustment C), the Judges reasoned as
follows in the Initial Determination:
1. PTV argued that, when WGNA was a
local station retransmitted by CSOs pursuant
to section 111, a significant number of PTV’s
stations were retransmitted by CSOs together
with WGNA.
2. Thus, prior to the WGNA conversion, a
CSO’s decision to retransmit PTV and WGNA
jointly generated a Base Fee royalty and
revealed that CSO’s revealed preference and
willingness-to-pay.
3. PTV further noted that post the WGNA
conversion, many of these CSOs continued to
retransmit the same PTV station, but this did
not trigger the Base Fee because the
Minimum Fee applied (with WGNA gone).
4. PTV maintained that the pre-WGNA
conversion carriage is probative of the fact
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that the PTV carriage post-WGNA conversion
demonstrates economic value.
The Judges agreed with this analysis,
increasing PTV’s 2015–17 share of
royalties as calculated in Adjustment
C.293
But JSC objects to this Adjustment C
on the same general basis that it objects
to the CCG increase—it is simply too
large an increase. As to this issue, JSC
compares the Judges’ interim work-inprogress (i.e., pre-adjustment) PTV
shares with the Judges’ final postadjustment analysis. But its argument
hinges on the same mistaken
assumption made by JSC regarding the
CCG share increase across the relevant
years—that the Judges are somehow
precluded from increasing a party’s
shares by too great a percentage,
regardless of where the Judges’ factual
findings lead.
3. JSC’s Proposal That the Judges
Disregard the Regression Evidence on
Which They Relied—and Instead ‘‘Fully
Rely’’ on JSC’s Industry Witnesses by
Adopting the Bortz Survey—Is a
Blatantly Impermissible Request for a
‘‘Second Bite at the Apple’’
Further, JSC’s proposed alternative to
the Judges’ approach underscores the
paucity of its argument. JSC argues that
the Judges should ‘‘fully rely’’ on their
version of the Bortz Survey approach,
which the Judges rejected in the Initial
Determination. JSC Motion at 8.
But this argument, like other JSC
arguments discussed supra, constitutes
a request for the proverbial ‘‘second bite
at the apple’’ that is an insufficient basis
for granting rehearing. The Judges agree
with the Joint Respondents that because
‘‘JSC forcefully advocated for reliance
on the Bortz Survey before, during and
after the 5-week hearing,’’ this argument
is ‘‘‘nothing more than a recapitulation
of arguments that the Judges fully
considered in fashioning their [Initial
Determination] and therefore do[es] not
present the type of exceptional case that
would warrant a rehearing or
reconsideration.’’’ Joint Response at 6.
See also PTV Response at 2. More
particularly as explained below, in the
Initial Determination, the Judges
credited industry witness testimony
293 As explained in the section of this order
denying PTV’s request for rehearing, to adjust for
this increase in PTV’s relative value, the Judges
found probative the analysis and testimony by a JSC
expert statistical witness, Mr. Harvey. His analysis
and testimony indicated that 44% of the PTV
stations that were identified as being retransmitted
by Minimum Fee-paying CSOs after the WGNA
conversion had also been transmitted preconversion jointly with WGNA and thus generated
Base Fee (above-Minimum Fee) royalties. The
Judges adopted this testimony via Adjustment C,
increasing PTV’s share of the royalties.
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from JSC witnesses by significantly
increasing the JSC shares above the
small shares arising from the aboveMinimum Fee Tyler Model (and all
other regression modeling).
To place JSC’s present argument—and
the Judges’ rejection of same—in
appropriate context, it is necessary to
begin with the Judges’ factual finding
that, in the 2015–17 period, ‘‘[t]he
WGNA conversion . . . drastically
reduced the number of JSC subscriberminutes distantly retransmitted.’’ Initial
Determination at 122 n.147. There was
no dispute as to this fact. See generally
JSC PFF ¶ 101 (stating, without denying,
that ‘‘[a]ccording to multiple non-JSC
witnesses [citing Dr. Tyler and multiple
other expert and fact witnesses], the
absolute and relative volume of JSC
programming declined significantly
following the WGNA conversion when
measured in subscriber-weighted
minutes.’’); id. at ¶ 111 (citing JSC’s own
expert witness, Dr. Majure, who did not
deny the drastic reduction in the
number of JSC subscriber-minutes, but
instead argued ‘‘that it would be wrong
to infer a drop in JSC value from a drop
in subscriber-weighted minutes
. . . .’’). In like manner, JSC relied on
the testimony of three industry
witnesses who, while not denying the
drastic reduction in JSC subscriberweighted minutes, testified that, from a
CSO’s perspective, ‘‘the value and
volume of different categories of
programming are not correlated.’’ JSC
PFF ¶ 112. See also Program Suppliers
RPFF ¶ 26 (‘‘JSC’s witnesses did not
dispute that JSC’s relative subscriberweighted volume share declined by 91
to 92 percent between 2014 and 2015,
and [] JSC’s relative volume share fell
from approximately 7% in 2014 to 0.6%
in 2015, and by 2017, it had fallen to
0.4%, representing a 94% decline.’’).
This background is pertinent to JSC’s
present argument because the Judges (1)
in fact did credit the testimony by JSC
industry witnesses that subscriberweighted minutes alone were
insufficient to determine relative value
for JSC programming; and (2) therefore
substantially increased the relative
value of JSC shares above the levels
generated by the above-Minimum Fee
Tyler Model and other regression
modeling. However, the Judges declined
to ignore the significant impact on
relative value of the substantial
reduction in the volume of subscriberweighted JSC minutes distantly
retransmitted. See Initial Determination
at 122 n.147.
The following portions of the Initial
Determination make this point in detail:
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Based on the entirety of the record, the
Judges are not persuaded by industry expert
testimony that the value and volume of
programming are not correlated. The industry
expert evidence is set against the more wellestablished sound economic reasoning
underlying the regression analyses in this
proceeding.
. . .
That is not to say that regressions
correlating program category minutes and a
measure of royalties is necessarily the only
way to determine value. . . . [A]s confirmed
by some of the industry testimony, the Judges
recognize that . . . JSC programming,
bundled together with programming from
other claimant categories, can have a value
(in terms of retaining or adding subscribers)
. . . that is not well-correlated with overall
program minutes.
. . .
The Judges find [JSC witnesses] to be
particularly credible . . . regarding the
unique value of JSC content . . . . Based on
the entirety of the record, the Judges are
persuaded that evidence of the unique value
of . . . JSC content . . . serves as a limitation
on the applicability of certain proposed
regression analyses and their proposed
allocation results. These [findings] do not
negate valid application of regression
analyses as a basis for allocation. However,
these factors are taken into account within
the Judges’ weighting of the allocation
methodologies, including application of the
Bortz survey . . . .
Initial Determination at 151–152
(emphasis added).
Consequently, the Judges set the
2015–17 post-WGNA conversion
allocation shares for JSC substantially
above the shares proposed by the aboveMinimum Fee Tyler Model, as can be
seen in the comparison of the two tables
below:
SHARES AWARDED TO JSC IN INITIAL
DETERMINATION
2015
2016
2017
11.44%
10.76%
11.91%
Initial Determination at 2 tbl.1.294
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SHARES ALLOCATED TO JSC BY
ABOVE-MINIMUM FEE TYLER MODEL
2015
2016
2017
2.1%
1.3%
0.5%
Initial Determination at 13.
As a comparison of these two tables
shows, by departing from the aboveMinimum Fee Tyler Model, and giving
due weight to the Bortz Survey, as
suggested by JSC’s industry witnesses,
the Judges increased JSC’s shares by
294 These final totals are changed marginally via
the correction of a mathematical error in the Initial
Determination, as discussed infra.
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445% for 2015, 728% for 2016, and by
2,282% for 2017. To be sure, these
higher shares are still well below what
the Bortz Survey proposed, and what
JSC sought, both at the hearing and
again via rehearing. But, as noted above,
the JSC share of subscriber-weighted
minutes declined by over 90% during
this period, which is reflected in the
effect of the regression analysis in the
above-Minimum Fee Tyler Model, and
which the Judges found highly relevant.
Thus, JSC’s claim of purported error
regarding this issue is not premised on
any failure by the Judges to ignore its
expert witnesses or the Bortz Survey.
Rather, JSC’s complaint is that the
Judges did not give zero weight to the
regression model and 100% weight to
the Bortz Survey (based on the survey
itself and the industry witnesses JSC
proffered). Of course, as noted supra, a
party’s disagreement as to the Judges’
weighing of record evidence, including
expert testimony, does not satisfy any
grounds for granting a motion for
rehearing.295
4. JSC’s Argument—That Rehearing Is
Necessary Because the Tyler Modeling
Simply ‘‘Parrots’’ the Statutory
Formula—Cannot Be Grounds for
Rehearing Because This Argument Was
Made at the Hearing, and Because JSC
Fails to Note in Its Motion the Judges’
Detailed Explanation for Rejecting that
Argument
JSC argues that the Tyler modeling (in
its several varieties) should have been
rejected because it simply ‘‘parrots’’ the
295 Implicit
in JSC’s argument is that JSC should
not suffer such a loss in royalty revenues compared
to past years. But no implied assumptions regarding
a JSC loss in royalty revenues arising from these
lower shares is warranted by the record. Rather, the
record indicates that ‘‘JSC sports content has been
migrating from broadcast stations to other
platforms, including cable networks like TNT, TBS,
and ESPN, regional sports networks, and pay-TV
platforms.’’ See Program Suppliers PFF ¶ 237 (citing
witness testimony, including the testimony of JSC
expert Allan Singer). Further, the record reflects
that such migration ‘‘has increased significantly for
the past several years, resulting in corresponding
decreases of distantly retransmitted JSC
programming volume’’ [indicating that] [t]he
significantly low 2014 through 2017 JSC
programming volumes are consistent with a
continuing migratory pattern. Id. ¶¶ 239–40.
Thus, as the Judges explained in their Initial
Determination, there is no reason to assume that the
reduction in JSC shares caused JSC to lose revenue
realized from the transmission of JSC content
formerly on WGNA. That is, there is no record
evidence to support an assumption that JSC had
irrationally sought out less profitable distribution
outlets than distantly retransmitted local stations
after the conversion of WGNA to cable station
status. See Initial Determination at 135 n.161
(‘‘[T]he JSC is simply a representative of the major
professional sports leagues and the NCAA, and the
record does not reflect that they suffered any
economic loss because of the reduction of
subscriber minutes distantly retransmitted.’’)
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statutory formula. JSC Motion at 9.
Ironically, this basis for rehearing must
be denied because it ‘‘parrots’’ the
argument made by JSC and other parties
at the hearing. See Initial Determination
at 74 (‘‘Dr. Majure maintains that the
Tyler Model . . . essentially estimates
only ‘the equation given by the statutory
formula . . . .’ ’’); id. at 75 (noting that
CCG’s expert economic witness, Dr. Lisa
George, likewise criticized the Tyler
modeling because it ‘‘effectively
replicates the regulatory formula . . . .’’
and noting that PTV’s expert, Dr. John
Johnson, likewise maintained that the
Tyler modeling ‘‘essentially replicates
the statutory formula . . . .’’).
However, the Judges comprehensively
analyzed and then rejected this
argument, in all its iterations. See id.
Section XIB at 131–136. Nonetheless,
JSC simply ignores the Judges’ detailed
explanation why this ‘‘statutory
formula’’/‘‘fee generation’’ criticism
lacks merit.
In sum, JSC once again asks for that
improper ‘‘second bite at the apple’’ by
seeking to reargue an issue. Moreover,
JSC does not even claim that the Judges’
extended discussion and findings as to
this issue were incorrect. Accordingly,
this JSC point is insufficient to justify
rehearing.
5. Conclusion
Accordingly, JSC’s Motion for
Rehearing as to these issues is
denied.296
III. PTV’S Motion for Rehearing
a. Whether ‘‘Adjustment B’’ in the
Judges’ Initial Determination Is
Premised on Clear Error That Must Be
Corrected
The PTV Motion seeks rehearing with
regard to the Judges’ application of
‘‘Adjustment B’’ in the Initial
Determination, which is a downward
adjustment of the PTV shares derived
from the Tyler Model for aboveMinimum Fee CSOs. This adjustment
was made by the Judges to reflect the
presence of must-carry PTV signals,
whose value had not been adequately
demonstrated to be included as part of
the relative marketplace value generated
by regression approaches. However,
296 The Judges also do not credit PTV’s invitation
for the Judges to ‘‘amend[] the Initial Determination
to award [PTV] shares for the 2015–2017 royalty
years based on or adjusted upward from either the
conventional McLaughlin-adjusted Bortz Surveys or
Dr. Tyler’s primary regression model . . . .’’ PTV
Response at 10. PTV’s representation that it would
be amenable to this alternative is little more than
the statement by a party that it supports an
approach that increases its allocation. Obviously,
such argument based on naked self-interest does not
support a rehearing or amendment of the Initial
Determination.
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PTV maintains that the adjustment is
incompatible with the record evidence
and amounts to an erroneous doublecounting of the Judges’ intended
adjustment. PTV Motion at 1.
PTV alleges that it is clearly erroneous
for the Judges to derive its shares from
the Tyler above-Minimum Fee Model
for the 2015–17 period and also apply
a downward adjustment based on
Bennett Figure 52. PTV notes that the
Tyler above-Minimum Fee Model
excludes CSOs that paid the Minimum
Fee, whereas Dr. Bennett (Figure 52)
carried out the analysis applied by the
Judges only based on CSOs that paid the
Minimum Fee. PTV Motion at 3.
In their Joint Response, CCG, Program
Suppliers, and SDC clarify that the
Judges explained Adjustment B as
weighting Dr. Bennett’s Figure 52
analysis in order to avoid the double
counting that is alleged in PTV’s
motion. Joint Response at 7, citing ID at
143 (note to Adjustment B Table). The
Joint Response adds that the applied
adjustment is likely a conservative one,
understating the bias from must-carry
PTV signals, because must-carry signals
were also retransmitted by aboveMinimum Fee cable systems. Joint
Response at 7, citing ID at 45.
Similarly, JSC’s response to PTV’s
proposed elimination of Adjustment B
notes the Judges’ recognition of the need
to lower the Tyler Model’s estimates for
PTV to correct the issue of fee-based
regressions falsely associating mustcarry signals with additional royalties.
JSC Response at 2. JSC challenges PTV’s
view that excluding Minimum Fee
systems from the Tyler Model somehow
accounts for must-carry carriage within
the Tyler regression. JSC argues that the
Judges were correct to conclude that all
must-carry signals are being falsely
interpreted by the regressions.
Furthermore, JSC observes that reliance
on the Tyler above-Minimum Fee Model
without adopting Adjustment B, would
incorporate the false inferences from
must-carry signals, because the
regression would ‘‘see’’ systems carrying
those stations and making royalty
payments, but would not ‘‘see’’
indemnification payments made by the
PTV stations back to the CSO. Id.
CTV asserts that PTV’s motion
regarding Adjustment B reflects a
fundamental misunderstanding of the
evidence. CTV notes that the Tyler
Model does not exclude any PTV
stations that were retransmitted
pursuant to must-carry requirements.
CTV Response at 3, citing Ex. 7207
(Bennett WRT) at 63–64 and 4/12/23 Tr.
4608 (Bennett); Ex. 7600 (Tyler
ACWDT) at 37, 64. And, for that reason,
Dr. Bennett developed a must-carry
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sensitivity analysis to measure the
impact of must-carry signals on share
allocations, which is reflected in Figure
52. Id. CTV also notes that the Judges’
weighting methodology effectively
decreases the downward adjustment to
PTV’s share determination based on the
ratio of the PTV shares reflected in Dr.
Tyler’s baseline regression model,
Figure 3.2 (including all CSO royalties),
and the PTV shares reflected in Dr.
Tyler’s Figure 6.3 (including only
above-Minimum Fee-paying CSO
royalties), as explained by the Judges
note accompanying Adjustment Table B
on page 143 of the Initial Determination.
Id.
PTV’s Reply reiterates its initial
arguments regarding Adjustment B and
argues that any weighting contained
within the adjustment is also
unsupported. PTV asserts that in order
for the applied weighting to be
appropriate, the proportion of Public
Television value derived from mustcarry signals estimated by Dr. Bennett
must have been the same within the
above-Minimum Fee CSOs as within the
Minimum Fee-paying CSOs. PTV Reply
at 1–2.
PTV asserts that Dr. Bennett’s analysis
only examined the value of must-carry
signals carried by Minimum-Fee-paying
CSOs. PTV maintains that the values
estimated by Dr. Bennett are not
proportionally distributed among
Minimum Fee and above Minimum Fee
CSOs. PTV argues that that such
estimates do not reflect carriage among
above-Minimum Fee CSOs, and that
there is no basis for using the numbers
calculated by Dr. Bennett to attempt to
estimate that value. Id. at 3.
PTV asserts that the CSOs paying
more than the Minimum Fee could have
chosen to decline to carry any distant
PTV signals. PTV argues that, under the
relevant must-carry regulations, for the
above-Minimum Fee CSOs, distant
retransmission of a must-carry signal
necessarily incurs an incremental
royalty cost. PTV notes that under those
regulations above-Minimum Fee CSOs
thus have the right to demand
indemnification from the originating
station for that incremental royalty
burden. If a station refuses
indemnification, then the CSO is not
obligated to carry the signal under the
must-carry rules. Therefore, PTV argues,
a CSO’s decision to carry the signal
without indemnification necessarily
demonstrates value of the programs on
that signal. PTV adds that the record
indicates that no indemnification
payments were made. Id. at 4.
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i. The Judges’ Analysis and Conclusion
Regarding PTV’s Adjustment B
Rehearing Motion Arguments
The Initial Determination clearly
explains the finding that must-carry
signals are problematic when fee-based
regressions are used to establish relative
value, and thus require an adjustment.
More particularly, this need for
adjustment exists for Dr. Tyler’s
allocation share calculations pertaining
only to the CSOs who paid more than
the Minimum Fee. The Tyler Model
does not exclude any PTV stations that
were retransmitted pursuant to mustcarry requirements. PTV proposes to
ignore the effect of must-carry signals on
the Tyler Model. PTV takes the position
that the must-carry issue is addressed
because the adopted Tyler Model
excluded Minimum Fee systems. But
excluding Minimum Fee systems from
the Tyler Model does not account for
PTV must-carry signals that are carried
by above-Minimum Fee CSOs.
Therefore, the Judges’ determination on
this proceeding record makes clear that
the absence of an adjustment, rather
than the adjustment itself, would more
likely impose a clear error and manifest
injustice.
PTV asserts that the Judges cannot
apply an adjustment based on Dr.
Bennett’s analysis because Dr. Bennett
examined only the value of must-carry
signals carried by Minimum Fee paying
CSOs. This argument does not
undermine the need for an adjustment.
It simply attacks the applied
Adjustment B as supposedly having
inadequate precision or basis in the
record. There is a reason that the record
evidence does not provide for greater
precision, and that is the noted
evidentiary failure of PTV regarding
which stations were subject to the mustcarry provisions and which were not.
See ID at 47. However, the application
of Adjustment B is reasonable, and is
clearly based on evidence in the record
and the Judges’ assessment of the
entirety of the record.297
Further, Adjustment B, which is
properly weighted, does not amount to
an erroneous double-counting of the
intended adjustment. While employing
the best evidence available to determine
a necessary adjustment, the Judges
weighted the Bennett analysis, for 2015–
2017, prior to applying it to the Tyler
regression allocations. This is a
reasonable approach, with sufficient
297 Dr. Bennett’s adjustments are based upon Mr.
Harvey’s identification of stations likely carried
pursuant to the must-carry provision. See Bennett
WRT at 57. Furthermore, as the Judges observed,
‘‘Mr. Harvey engaged in a reasonable attempt to
estimate this number, which PTV could have set
forth in its submissions, but did not.’’ ID at 47.
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evidentiary support, consistent with the
relevant legal requirements.
As explained in the Initial
Determination:
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The Must Carry adjustment in Bennett
WRT fig. 52 was based on the PTV shares of
all CSO royalties, whereas the Judges are
applying this adjustment to the shares of CSO
royalties attributable to shares generated by
CSOs paying above the minimum fee (subject
to the prior adjustment for CCG, discussed
supra). So, for [2014], the percentage point
adjustment to the PTV share is the percentage
point adjustment in Bennett WRT Fig 52. For
2015–2017, the percentage point adjustment
to the PTV share is calculated for each year
by: (1) finding the percentage of PTV shares
reflected by the PTV shares from Tyler/WRT
fig. 6.3 ÷ PTV’s shares from Tyler WRT fig.
3.2; (2) multiplying that percentage by the
percentage point adjustment in Bennett WRT
fig 52; and (3) subtracting that product from
the PTV share from the table above.
ID at 143 (note to Adjustment B Table).
The weighting described above, for
2015–2017, serves to discount the
Bennett downward adjustment by ratios
derived from PTV allocations of aboveMinimum Fee CSOs divided by the PTV
allocations of all CSOs. As the Joint
Response notes, these ratios and the
resulting downward adjustments are
conservative in that they may tend to
understate the bias introduced by Dr.
Tyler’s inclusion of must-carry PTV
signals, precisely because they do not
exclude must-carry signals
retransmitted by above-Minimum Fee
systems. At the same time, the approach
remains based in record evidence and is
a reflection of reasonable and
conservative judgments derived from
the entirety of the record. The Judges
appropriately employed the thusly
discounted Bennett adjustments
(derived for Minimum Fee-paying
systems) when applied to the Tyler
model allocations for above-Minimum
Fee CSOs.
For the reasons explained herein, and
based on the entirety of the record, PTV
has not shown that an exceptional case
exists, or that the Initial Determination
is erroneous in relation to Adjustment
B. Further, PTV has not demonstrated
that aspects of the determination
relating to Adjustment B are without
evidentiary support in the record or are
contrary to legal requirements. In that
latter regard, PTV has not shown that,
with respect to the Initial
Determination’s application of
Adjustment B, there exists either clear
error or manifest injustice that would
support granting of PTV’s request for
rehearing.298
298 PTV’s Reply raises concerns regarding
indemnification, in relation to value of must-carry
signals. The Judges point to section VII.A.5. of the
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b. Whether ‘‘Adjustment C’’ in the
Judges’ Initial Determination Reflects a
Clear Error That Must Be Corrected
The PTV Motion also seeks rehearing
with regard to the Judges’ application of
what the Judges identified as
‘‘Adjustment C’’ in the Initial
Determination. By this Adjustment, the
Judges substantially increased the value
of certain PTV stations, and thus PTV’s
share of royalties. However, PTV
maintains now that the Judges should
have used ‘‘Adjustment C’’ to increase
its share even more. PTV Motion at 1–
2.
By way of background, the Judges
found in the Initial Determination that
‘‘the dramatic increase in the number of
minimum fee-only CSOs (i.e., those
with no distant retransmittals and those
with some distant retransmittals but
with ‘excess capacity’) renders
regression analyses that include those
CSOs less reliable and thus can be
accorded only very limited economic
evidentiary weight.’’ Initial
Determination at 21. In so holding, the
Judges rejected PTV’s argument
(proffered through the testimony of its
economic expert, Dr. John Johnson) that
the Judges should find predominant
‘‘economic significance in the choices of
a CSO ‘to retransmit a distant signal to
particular subscriber groups’ despite the
fact that the CSO pays the minimum fee
. . . .’’ Initial Determination at 13
(emphasis added) (explicitly rejecting
the argument in PTV PFF ¶ 58 that
‘‘[t]he decision of a CSO paying the
minimum fee to retransmit a distant
signal to particular subscriber groups
shows the CSO’s preference for distantly
retransmitted programming without the
effect of the statutory royalty, which is
an economic context that more closely
resembles the hypothetical
marketplace.’’ (citing, inter alios, at n.83
therein, Dr. Johnson’s hearing
testimony)).299
In contrast with the Judges’
misgivings as to Dr. Johnson’s regression
testimony, they agreed with his
argument that, ceteris paribus, the
record contained sufficient evidence to
increase PTV’s allocation. In this regard,
the Judges found that—although certain
PTV stations were only retransmitted by
Initial Determination ‘‘The Judges’ Analysis &
Conclusions regarding the ‘Must-Carry’ Issue’’ and
the Judges’ undisturbed and valid analysis and
conclusions as to why must-carry signals lack
objective and measurable value. See Initial
Determination at 47–49.
299 The Judges also declined to rely on Dr.
Johnson’s analysis (including his broad Minimum
Fee and above-Minimum Fee arguments) and PTV’s
case, because of certain decisions regarding
methodological approaches and decisions which
the Judges found troubling, as discussed infra.
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Minimum Fee-paying CSOs—these
CSOs had previously retransmitted PTV
stations when such retransmissions had
been combined with retransmissions of
WGNA, the most retransmitted local
station, thereby triggering a CSO royalty
obligation above the Minimum Fee. As
Dr. Johnson testified, there was
evidence that CSOs’ immediately prior
retransmissions of PTV stations that
triggered an incremental royalty cost
revealed an incremental value in those
retransmissions and that it was
reasonable to conclude that the PTV
stations continued to have incremental
value when they were uncoupled from
WGNA (and thus generated only the
Minimum Fee). PTV made this specific
argument in its post-hearing PFF and
post-hearing brief. See PTV PFF ¶ 60
(and record citations therein); PTV PostHearing Brief at 27–28. The Judges were
persuaded that this WGNA-related
evidence reflected ‘‘ongoing
marketplace value,’’ notwithstanding
the general principle that Minimum Fee
royalty payments did not otherwise
disclose actual economic decision
making or reveal the preferences of
CSOs. Initial Determination at 143–144.
To calculate PTV’s upward
adjustment based on this point, the
Judges identified evidence and
testimony proffered by a JSC statistical
expert, Mr. R. Garrison Harvey. Mr.
Harvey testified as follows: ‘‘[T]he
number of PTV Only systems increased
after the WGNA conversion from 44 at
the end of 2014 to 173 by the end of
2017. PTV Only Systems that had
carried WGNA and PTV in 2014 account
for three-fifths of that increase.’’ Harvey
WDT ¶ 106.
The Judges found that that Mr. Harvey
demonstrated that 44% of the PTV
stations that were identified as
retransmitted by Minimum Fee-paying
CSOs after the WGNA conversion had
been transmitted pre-conversion and
generated Base Fee royalties. That is
sufficient evidence of ongoing
marketplace value. Moreover, Mr.
Harvey supported this testimony with
reference to specific data, citing to his
underlying workpapers, which were not
called into question or contradicted at
the hearing. Harvey WDT ¶ 106 n.86.
Accordingly, the Judges used that
factual finding to increase by 44% the
PTV share modification, as set forth in
the table for Adjustment C. Initial
Determination at 144.
This adjustment substantially
increased PTV’s allocation of the
royalties. Compare Adjustment B Table
with Adjustment C Table, Initial
Determination at 143–144. The PTV
Motion does not challenge the accuracy
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or the credibility of this evidence or Mr.
Harvey’s testimony in this regard.
But PTV maintains that other
testimony indicates that this increased
adjustment was insufficient. In this
regard, PTV avers that the Judges erred
by limiting their adjustment to evidence
concerning the specific combination of
Public Television signals with WGNA.
That is, PTV claims that testimony it
had proffered showed that PTV’s
upward adjustment should have been
55% rather than 44%. PTV Motion at 5.
In support of this argument, PTV
points to a single one-paragraph
statement in Dr. Johnson’s Written
Rebuttal Testimony, wherein he
claimed, without identifying any
underlying workpapers or other
evidence:
There were 1,115 CSO-Public Television
distant signal combinations in the 2015–2017
period where the CSO paid a minimum fee
during those years. For 609 (or 55 percent)
of these combinations, the same CSO also
carried the same Public Television distant
signal, at a different point in time, when it
paid section 111 royalties greater than the
minimum fee. In those instances, the CSOs
elected to pay incremental royalties for these
signals (because they generated more than
one DSE). Put differently, the CSOs’ carriage
decisions indicate that these Public
Television signals did have value.
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PTV Motion at 6 (quoting Ex. 7303 ¶ 79
(Johnson WRT)) (emphasis added).300
PTV also maintains that Mr. Harvey’s
testimony, quoted above, refers to the
number of CSOs (systems) that
continued to retransmit PTV stations
after WGNA was unavailable, rather
than the number of PTV stations
retransmitted after the WGNA
conversion. PTV Motion at 5 n.4.
On these bases, PTV invokes two
aspects of the standard for rehearing.
Specifically, PTV contends that ‘‘the
Judges’ ‘Adjustment C’ reflects a clear
error that must be corrected to prevent
manifest injustice.’’ PTV Motion at 5
(emphasis added).
In their Joint Response, CCG, Program
Suppliers, and SDC assert that PTV’s
argument regarding this rehearing issue,
like the others, fails to satisfy the
requisites for granting a rehearing,
300 In their Motion, PTV also cites to Johnson
WRT ¶¶ 76–78 as attribution for this quote. PTV
Motion at 6. However, no portion of the quote is
contained in those paragraphs, and none of those
paragraphs support this rehearing argument.
Moreover, paragraph 78 sets forth as an example a
PTV station that had been retransmitted by an
Arizona CSO together with WGNA and continued
to be retransmitted after WGNA was no longer a
broadcast station that could be distantly
retransmitted. This example supports the Judges’
increase in PTV’s share for the reason set forth in
Adjustment C in the Initial Determination, and in
no way supports PTV’s rehearing argument for a
more lucrative adjustment.
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particularly the assertions of ‘‘clear
error’’ and ‘‘manifest injustice’’ levied
by PTV with regard to ‘‘Adjustment C.’’
Joint Response at 1–3. More
particularly, these parties assert that:
1. The WGNA conversion was a ‘‘supplyside phenomenon’’ inapplicable to PTV +
non-WGNA commercial station
combinations.
2. Record evidence suggests that CSOs
retransmitting PTV stations may have been
indemnified by the latter for any royalties
paid above the Minimum Fee.
3. PTV acknowledges that it presented
these very facts and arguments at the hearing
(citing PTV Motion at 6), and PTV’s failure
to persuade the Judges to apply these facts
and adopt this argument at the hearing
preclude PTV from using the rehearing
process to get a ‘‘second bite at the apple.’’
(citing 2010–2013 Rehearing Order at 2.).
Joint Response at 4, 7–8.
In its Reply to the Joint Response,
PTV argues:
1. The Joint Response wrongly concludes,
without explanation, that the issues relating
to, inter alia, Adjustment C, ‘‘could have
been ‘address[ed] . . . during the hearing’ ’’,
despite the fact that ‘‘it was impossible to
anticipate that the Judges would apply [inter
alia] their Adjustment[ ] C to Dr. Tyler’s
sensitivity limited to Above Minimum Fee
CSOs.’’ Thus, PTV maintains, the rehearing
process constituted the first occasion for it to
litigate this issue, and the rehearing motion
thus is not an impermissible attempt to ‘‘relitigate’’ a matter considered at the hearing.
PTV Reply at 1–2.
2. The Joint Response wrongly maintains
that the Judges acted ‘‘well within their
discretion by limiting Adjustment C to ‘‘PTV
+ WGNA’’ combinations, because the Judges
did not account for their differentiation of
‘‘PTV + non-WGNA combinations that also
generated a base fee royalty . . . .’’ PTV
Reply at 10–11 (quoting 17 U.S.C. 803(c)(3)
(‘‘A determination of the Copyright Royalty
Judges shall be supported by the written
record and shall set forth the findings of fact
relied on by the Copyright Royalty Judges.’’).
PTV Reply at 10.
In its separate response, JSC argues
that PTV’s request for rehearing
regarding ‘‘Adjustment C’’ should be
denied because:
1. Any initial royalty obligation for the
CSO above the Minimum Fee is subject to
offset via indemnification; 301
2. Adjustment C ‘‘fails to account for the
must-carry issue,’’ an issue which uncouples
continuing carriage of PTV signals after 2014
from any finding of ‘‘CSO’s revealed
willingness to pay for those signals;’’
3. More broadly, Adjustment C wrongly
relies on data from Minimum Fee-only CSOs;
and
4. Adjustment C treats similarly situated
parties differently because some Minimum
Fee-only CSOs in 2017 also carried
301 This argument echoes the argument made in
the Joint Response, as noted supra.
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commercial signals that ‘‘generated base fee
royalties’’ in 2014.
JSC Response at 4–7.
In its Reply to the JSC Response, PTV
argues:
1. JSC’s criticism of Adjustment C as
arbitrary is wrong, because this adjustment is
‘‘necessary to mitigate the unreasonably low
estimates of [PTV’s] shares’’ as set forth in
the Tyler Model’s analysis of only ‘‘Above
Minimum Fee CSOs.’’ PTV Reply at 6.
2. JSC’s criticism of Adjustment C for
supposedly treating different parties
differently is an incorrect criticism because
the Judges explained that the ‘‘Above
Minimum Fee-Only’’ version of the Tyler
Model disproportionately ignored
circumstantial evidence demonstrating post2014 PTV value through the continuation of
PTV retransmittals in that period after the
retransmittal of a combination of ‘‘WGNA +
PTV’’ signals became moot (with the WGNA
conversion to a cable system). By contrast, no
other program category suffered from a
similar loss of share value because of the
WGNA conversion. PTV Reply at 9–10.
In its separate response to the PTV
Motion, CTV maintains that there is no
basis to find that the Judges’ adoption of
Adjustment C was incorrect or
incomplete—let alone ‘‘clearly
erroneous’’ or that it caused PTV
‘‘manifest injustice’’. CTV Response at
5–6. In support, CTV argues the
following points:
1. PTV wrongly asserts that the Judges
committed clear error in the way they
applied Adjustment C to the share
allocations, because the Judges articulated in
the Initial Determination a proper rationale
for applying Adjustment C; and
2. The Judges were within their authority
to adopt Mr. Harvey’s record testimony and
evidence, rather than Dr. Johnson’s record
testimony, to calculate Adjustment C,
particularly because Adjustment C focused
on PTV’s specific argument ‘‘regarding
demonstrated willingness to pay’’ by CSOs
for a PTV signal after the WGNA conversion.
CTV Response at 2, 5–6.
In Reply to the CTV Response, PTV
maintains:
1. Instead of offering a substantive
argument, CTV incorrectly argues that, as a
matter of law, the Judges may adopt
whichever percentage (Mr. Harvey’s or Dr.
Johnson’s) they deem ‘‘most appropriate’’;
and
2. The Judges do not have such discretion;
rather, their findings ‘‘may not be arbitrary[,]
must be supported by substantial evidence’’
and shall be the product of a ‘‘reasoned
decision.’’
PTV Reply at 10.
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i. The Judges’ Analysis and Conclusion
Regarding PTV’s Adjustment C
Rehearing Motion Arguments
1. Application of the Rehearing Bases on
Which PTV Relies for Adjustment C:
‘‘Manifest Injustice’’ and ‘‘Clear Error’’
a. PTV Has Not Satisfied the ‘‘Manifest
Injustice’’ Standard
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As an initial matter, the Judges find
that—for several reasons—PTV’s basis
for a requested rehearing regarding the
Adjustment C issue fails to satisfy the
‘‘manifest injustice’’ standard. First, the
Judges agree with the Joint Respondents
that the concept of ‘‘manifest injustice’’
is ‘‘exceptionally narrow,’’ requiring a
showing of not only ‘‘clear and certain
prejudice’’ to the movant, but also a
harm to the movant that is
‘‘fundamentally unfair.’’ Joint Response
at 3 (citing Leidos, Inc. v. Hellenic
Republic, 881 F.3d 213, 217 (D.C. Cir.
2018); Mohammadi v. Islamic Republic
of Iran, 947 F.Supp.2d 48, 78 (D.D.C.
2013). Here, PTV maintains that even
though the Judges recognized that their
primary regression model (the Tyler
Model for above-Minimum Fee CSOs)
failed to adequately reflect a revealed
preference for PTV signals—and
accordingly increased PTV’s share
substantially—other evidence indicated
that the PTV share should have been
increased even more. The Judges detect
neither ‘‘fundamental unfairness’’ nor
‘‘prejudice’’ (let alone ‘‘clear and certain
prejudice’’) arising from the fact that
PTV’s increase was not as great under
the evidence relied upon by the Judges
(44%, pursuant to Mr. Harvey’s
calculations) as it would have been had
the Judges instead relied on PTV’s
witness, Dr. Johnson.
In applying the above D.C. Circuit test
for ‘‘manifest injustice,’’ a district court
noted that ‘‘a dollar-and-cents
comparison’’ serves to ‘‘undercut[ ] the
significance of the ‘‘manifest injustice
standard.’’ Fraenkel v. Islamic Republic
of Iran, 326 FRD. 341, 345 (D.D.C. 2018),
rev’d on other grounds 892 F.3d 348
(D.C. Cir.). (abuse of discretion in
applying a statute).302 The Judges agree,
especially where, as here, the movant is
complaining of ‘‘manifest injustice’’
because a substantial upward
302 The D.C. Circuit reversed because the district
court misconstrued a statute by finding that
relatives of a person with American citizenship
murdered by terrorists should be lower if the
murder victim had dual Israeli citizenship and was
targeted for death because of his latter citizenship.
Fraenkel, 892 F.3d 348 (D.C. Cir. 2018). That
holding is clearly not analogous to the present issue
of ‘‘manifest injustice.’’
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adjustment in its favor should have been
even greater.303
With regard to a specific point made
by JSC, the Judges reject JSC’s argument
for eliminating Adjustment C en toto on
the basis that this adjustment is itself
erroneous because it purportedly treats
similarly situated parties differently.
JSC Response at 6–7. Although the
Judges address this argument, and the
opposition thereto, in the section of this
order denying JSC’s Motion seeking to
eliminate Adjustment C en toto, the
Judges here take specific note of an
important concession by JSC in its
Response. Although JSC claims that
categories of programming other than
PTV might have benefitted from the
same pre- and post-WGNA conversion
analysis of CSO retransmissions, JSC
concedes, in a footnote, that, no witness,
including its witness, Mr. Harvey,
‘‘analyze[d] whether these CSOs were
carrying the same non-WGNA signals in
2017 as they were in 2014.’’ JSC
Response at 7 n.2. So, not only did no
party other than PTV make the
argument that this analysis might favor
its particular programming, the
evidence cited does not permit an
allocation among other program
categories based on this argument.
b. PTV Has Not Satisfied the ‘‘Clear
Error’’ Standard
Pursuant to the Judges’ rules, the
statutory ‘‘exceptional case’’
requirement for rehearing—based on an
allegedly ‘‘erroneous’’ factual aspect of
a determination—is satisfied only if that
factual finding is ‘‘without evidentiary
support in the record.’’ 17 U.S.C.
803(c)(2); 37 CFR 353.1–.2; see also
Order Denying Motion for Rehearing at
1, In re Distribution of 2000–03 Cable
Royalty Funds, Docket No. 2008–02 CRB
CD 2000–2003 (Phase II), (Aug. 7, 2013).
Further, pursuant to D.C. Circuit
precedent, when the movant’s asserted
factual predicate for the assertion of
‘‘clear error’’ relies on the uncredited
testimony of its expert, a Rule 59(e)
303 PTV’s reliance on the Judges’ order on
rehearing in SDARS III is misplaced. There, the
Judges found that ‘‘it would be manifestly unjust to
maintain a royalty rate . . . not based on the . . .
calculation that prevailed at the time the record was
closed,’’ and the alternative methodology could
change the royalty obligation by $150 million.
SDARS III Order at 7–8. The Judges’ reference to the
potential royalty dollars at issue, standing alone,
was not the dispositive basis for finding potential
manifest injustice; rather manifest injustice would
be the consequence of the use of a calculation
methodology not prevailing according to the extant
record. The reference to the $150 million disparity
underscored the importance of the manifest
injustice of using an improper methodology. By
contrast, in the present case, the differing
methodologies for calculating PTV’s upward
adjustment (Mr. Harvey’s or Dr. Johnson’s) both are
in the record, and they are discussed infra.
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motion 304 must be denied if the expert’s
testimony does not provide sufficient
‘‘factual . . . reasons for [the expert’s]
conclusion.’’ Martin v. Omni Hotels
Mgmt. Corp., 321 FRD. 35, 40 (D.D.C.
2017) (citing New York State
Ophthalmological Soc. v. Bowen, 854
F.2d 1379, 1391 (D.C. Cir. 1988)), aff’d,
409 F. A’ppx 362 (D.C. Cir. 2011).
Moreover, a request for rehearing
based on a judge’s reliance on a
‘‘specific factual determination[ ]’’ does
not satisfy the ‘‘clear error’’ test if (1) the
evidence which the motion challenges
is ‘‘sufficiently reliable to credit’’ or (2)
if the evidence on which the movant
relies is inconsistent with ‘‘the entire
evidence,’’ and thus the court is ‘‘left
with the definite and firm conviction
that a mistake has been committed.’’
Obaydullah v. Obama, 688 F.3d 784,
792 (D.C. Cir. 2012) (emphasis added).
Applying these standards, PTV’s
motion for rehearing with regard to
Adjustment C must be denied. First, the
Judges’ Adjustment C is based on
evidence in the record, i.e., the
testimony of JSC’s statistical expert
witness, Mr. Harvey, and the
documentation on which he relied.
Moreover, this testimony and evidence
was not challenged, either at the hearing
or on rehearing. On this basis alone
PTV’s motion for rehearing fails to
demonstrate any error, let alone clear
error.
Second, PTV relies upon the
testimony of its own economic expert,
Dr. Johnson, which PTV maintains is
superior to the testimony of Mr. Harvey
on this issue. However, this argument
fails the second ‘‘clear error’’ standard
cited above, because Dr. Johnson’s
testimony, on which PTV relies to seek,
via rehearing, a 55% Adjustment C
increase in its royalty share (instead of
the 44% Adjustment C increase
provided by the Judges) does not
provide sufficient factual reasons for his
conclusion. Specifically, Dr. Johnson’s
opinion regarding the 55% increase
sought by PTV is not supported by any
record evidence cited by PTV. See PTV
Rehearing Motion at 6; Johnson WRT
¶ 79.305
304 As noted supra, the Judges pattern their
rehearing analysis pursuant to the standards
applicable to motions under Fed. R. Civ. P. 59(e).
305 Although PTV also cites to Johnson WRT
¶¶ 76–78, which are irrelevant as to the Adjustment
C rehearing issue, the Judges note that those
paragraphs likewise do not cite to or provide any
documentary support for Dr. Johnson’s opinion. (By
contrast, Mr. Harvey’s testimony, on which the
Judges relied, was supported by documentary
evidence, in the form of Mr. Harvey’s cited
workpapers. Harvey WDT ¶ 106 n.86. Moreover, Mr.
Harvey’s testimony was not subject to challenges
that the Judges found sufficient to call into question
his testimony, unlike the case with Dr. Johnson’s
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Additionally, PTV does not maintain
that Mr. Harvey’s analysis that led to the
Judges’ 44% upward adjustment in
favor of PTV was erroneous; rather PTV
argues that it is Dr. Johnson’s opinion
which would favor a 55% adjustment
which ‘‘best comports’’ with the Initial
Determination. PTV Motion at 10.
However, the Judges’ exercise of their
discretion in deciding which of two (or
more) alternative factual approaches to
follow cannot constitute ‘‘clear error’’
(or any error at all) when the party
seeking rehearing itself simply
maintains merely that its preference is
better. Moreover, for the reasons
articulated below, the Judges had good
cause to rely on Mr. Harvey’s testimony
over that of Dr. Johnson.
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2. PTV’s Claims of ‘‘Manifest Injustice’’
and ‘‘Clear Error’’ Also Fail Because
PTV Is Seeking To Relitigate an Issue
Raised and Determined in the Initial
Determination
As the Judges have noted previously,
a motion seeking rehearing based on,
inter alia, assertions of ‘‘manifest
injustice’’ or ‘‘clear error,’’ shall be
rejected if the movant has ‘‘merely
restate[d] . . . evidence that was
presented during the proceeding.’’
Order Denying Motions for Rehearing at
2, In re Digital Performance Right in
Sound Recordings and Ephemeral
Recordings, Docket No. 2005–1 CRB
DTRA (Webcasting II) (Apr. 16, 2007). It
is in such context that the movant seeks
rehearing—over an issue that was raised
and determined in the Initial
Determination. This principle has been
aptly described by the Judges, and other
tribunals, as an improper attempt to
seek ‘‘a second bite at the apple’’:
[When] the Judges consider whether there
exists . . . a need to correct a clear error or
prevent manifest injustice[ ] . . . the Judges
must subject the rehearing arguments to a
strict standard, in order ‘‘to dissuade
repetitive arguments on issues that have
already been fully considered . . . .’’ Order
Denying Motions for Reh’g, Docket No. 2005–
1 CRB DTRA, at 1–2 (Apr. 16, 2007). Under
this strict standard, a rehearing motion does
not provide a litigant with a ‘‘second bite at
the apple,’’ allowing it ‘‘to re-litigate old
matters, or to raise arguments or present
evidence that could have been raised prior to
the entry of judgment.’’ Exxon Shipping Co.
v. Baker, 554 U.S. 471, 485 n.5 (2008)
(quoting C. Wright & A. Miller, Federal
Practice and Procedure § 2810.1 (2d ed.
1995)).
Order Denying Program Suppliers’
Motion for Rehearing . . . at 1,
Distribution of Cable Royalty Funds,
Consolidated Proceeding Docket No.
testimony, as discussed in the text immediately
following this footnote.)
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14–CRB–0010–CD (2010–13) (Dec. 13,
2018).
Here, PTV is seeking the metaphorical
‘‘second bite at the apple.’’ In this
regard, it has not escaped the Judges’
notice that PTV does not meaningfully
attempt to counter the ‘‘second bite’’
problem—but rather simply avoids it.
Perhaps that is because the Judges
explicitly did take note in the Initial
Determination that Dr. Johnson had
made this precise claim. See Initial
Determination at 13–14 (citing and
quoting Johnson WRT ¶ 79). Clearly,
PTV’s rehearing argument regarding
Adjustment C is—to say the least—
complicated by the fact that the Judges
were fully aware of Dr. Johnson’s
relevant testimony—yet did not adopt
that testimony in the Initial
Determination.306
306 The Judges recalled Dr. Johnson’s testimony in
this regard, even though it was not set forth
expressly in PTV’s Proposed Findings of Fact or
Conclusions of Law (or PTV’s replies to other
parties’ post-hearing submissions). In fact, in both
of its post-hearing filings regarding proposed factual
findings, PTV only expressly referenced this issue
in connection with CSOs retransmitting PTV +
WGNA, and failed to argue for the wider application
it now seeks via rehearing. See PTV PFF ¶¶ 60, 126;
PTV RPFF 136 & n.188. That failure on PTV’s part
alone would have sufficed for the Judges to have
disregarded PTV’s argument. See 37 CFR 351.14
(‘‘A party waives any objection to a provision in the
determination unless the provision conflicts with a
proposed finding of fact or conclusion of law filed
by the party.’’). Although PTV claims that ‘‘it was
impossible to anticipate that the Judges would
apply their Adjustment[ ] . . . C to Dr. Tyler’s
sensitivity limited to Above Minimum Fee CSOs,’’
PTV Reply at 1, a crucial theme of Dr. Johnson’s
testimony was that the Minimum Fee data should
have been used en toto to establish value. Thus, it
was incumbent upon PTV to make this point by
including it explicitly in its post-hearing
submission.
But nonetheless the Judges, sua sponte, recalled,
referenced, and quoted testimony as to this issue,
rather than deem PTV’s upward adjustment
argument to have been waived. However, the Judges
did decline to credit Dr. Johnson’s testimony (as
discussed in the following text), adopting instead
the substantial 44% upward adjustment indicated
by the testimony of JSC’s statistical expert, Mr.
Harvey. PTV’s argument strikes the Judges as a fine
example of chutzpah, or as Joint Respondents’ put
it, ‘‘looking a gift horse in the mouth,’’ by
characterizing only a 44% upward adjustment as
‘‘manifest injustice’’ and ‘‘clear error.’’ See Joint
Response at 7.
In this vein, PTV also takes issue (when assuming
arguendo the correctness of Mr. Harvey’s analysis)
with the Judges setting of PTV’s Adjustment C share
percentage increase by 44%, rather than setting the
adjustment at 44.5%. PTV Motion at 5 n.4. The
Judges disagree with PTV’s argument as to this
issue. An agency has the discretion to truncate a
value expressed in decimal form. See North
Carolina v. E.P.A., 531 F.3d 896, 915–916 (D.C. Cir.
2008 (‘‘[W]e cannot say that EPA’s decision to
truncate rather than round . . . was arbitrary. . . .
Without a rule mandating any particular method,
EPA is free to round or truncate the numbers it is
comparing . . . as long as its choice is
reasonable.’’). Here, there was no regulation guiding
the Judges. Moreover, given the uncertainties
generated by PTV’s failures, as discussed elsewhere
in this order, to proffer sufficiently credible
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54279
As made clear in the Initial
Determination, the Judges had
substantial problems with regard to Dr.
Johnson’s testimony and analyses,
which should have made obvious their
unwillingness to credit his testimony on
which PTV relies for its objection that
the Judges’ 44% Adjustment C in favor
of PTV is too low. To make this point
explicit, the Judges recount their
difficulties in connection with Dr.
Johnson’s hearing testimony, as
expressed in the Initial Determination.
First, the Judges were troubled by Dr.
Johnson’s reliance on the modeling of a
witness in a prior proceeding because
the testimony and modeling of that
witness had been called into serious
question. Initial Determination at 36.307
Second, and relatedly, the Judges were
stunned when Dr. Johnson claimed at
the hearing that he had ‘‘never
received’’ the satellite case documents
calling into question the modeling and
testimony on which Dr. Johnson had
relied, which SDC’s counsel had
produced (as voluntary discovery) to
PTV’s counsel (and to all counsel).308
Third, and also relatedly, PTV’s counsel
never volunteered whether it had in fact
transmitted that important discovery to
Dr. Johnson, or whether PTV’s counsel
had (intentionally or otherwise) not
transmitted that material. Initial
Determination at 36 n.39. Thus, the
Judges were unable to determine
whether the failure to consider and
address this important evidence was the
fault of Dr. Johnson, PTV’s counsel, or
evidence and to meet its evidentiary burdens
regarding which PTV signals among the CSO
systems were must-carry, multicast or subject to
royalty indemnification—truncating the percentage
to 44% continues to strike the Judges as a
reasonable decision, and certainly not one that
generated ‘‘manifest injustice’’ or ‘‘clear error,’’ as
those standards are described in this order. (It
should be noted that PTV has not argued on
rehearing that the Judges should have rounded the
percentage increase to 45%, rather than truncate the
increase to 44%, nor did PTV argue that the Judges
are bound by a mathematical convention to do so.)
307 To recount, these materials revealed
‘‘compelling’’ evidence of ‘‘potential specification
searching and [of] dissembling’’ by the expert
econometric witness on whose testimony the Judges
had relied in the 2010–13 cable allocation
proceeding (before serious questions were raised in
the companion satellite proceeding). Initial
Determination at 33. That prior testimony and
modeling served as a starting point for Dr. Johnson’s
econometric work in the present proceeding. Id. at
27. The Judges thus found in this proceeding that,
inter alios, Dr. Johnson—in order to support his
testimony—was ‘‘obligated,’’ yet failed, ‘‘to
adequately address the impact of Dr. Crawford’s
workpapers, as well as the assertion that they
demonstrated he lied in his testimony in the prior
proceeding.’’); Id. at 36.
308 Id. (‘‘[S]tartlingly, Dr. Johnson testified that he
never received the satellite case documents that
SDC’s counsel produced to PTV’s counsel . . . or
the [relevant] testimony . . . [from] the satellite
proceeding that was designated as evidence [in the
present proceeding . . . .’’]).
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both. For these three related reasons, the
Judges gave ‘‘diminished weight’’ to Dr.
Johnson’s testimony. Id. at 38.
Fourth, as explained in the Initial
Determination, the Judges were also
‘‘troubled’’ that PTV appeared to have
created two different ‘‘teams’’ within Dr.
Johnson’s firm, Edgeworth Economics
(‘‘Edgeworth’’), in order to allow
Edgeworth to use a so-called
‘‘consulting team’’ which excluded Dr.
Johnson, in order for PTV to provide
him with deniability about specification
searching and to withhold discovery of
such dubious activity.309 More
particularly, the Judges explained that,
‘‘when the ‘consulting team’ is created
within[ ] the same firm of economists
who are also preparing testimony and
actually testifying, there is the risk that
work by the ‘consulting’ team will be
utilized as a screening device for work
that should have been undertaken by
the ‘testifying’ team . . . [and] the use
of a ‘consulting’ team can allow a party
to also cloak from discovery expert work
by claiming the protection of the workproduct rule.’’ Id. In this regard, the
Judges took particular note that
an email that was withheld from Dr. Johnson
as ‘‘consulting’’ team material contained a
link to CDC distant signals with the caveat:
‘‘these data files are being shared for
consulting purposes only and should not be
shared with John’’). It is difficult to fathom
why raw data regarding distant signals would
be withheld from the testifying expert.
Initial Determination at 39 n.43.
Additional detailed facts only further
undermined the credibility of PTV and
Dr. Johnson:
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Moreover, the soundness of the ‘‘wall’’
between the ‘‘consulting’’ team and the
‘‘testifying’’ team was questionable, given
that the ‘‘consulting’’ team was led by Drs.
Michael Kheyfets and David Colino, but they
also were the senior members of the
‘‘testifying’’ team that reported to Dr.
Johnson, along with dual team members Dr.
Stephanie Cheng and Esther Yan. . . . . .
Additionally, when PTV first produced
documents to SDC, it did not also provide a
privilege log describing the Edgeworth
documents otherwise withheld because of an
assertion of a privilege relating to a
consulting team. (After SDC’[s] motion to
compel, PTV provided a privilege log, but,
after [ordered to produce the documents,]
PTV produced virtually all of the previously
withheld material.)
Initial Determination at 39. The Judges
thus determined that not only was there
evidence that PTV attempted to avoid
discovery of its alleged specification
searching, but that this attempted
309 A
bona fide ‘‘‘consulting team’ of experts can
be utilized by a party’s law firm, to allow for work
product confidentiality in connection with the law
firm’s evaluation of the facts.’’ Initial Determination
at 38.
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concealment ‘‘serves to diminish the
Judges’ reliance on the Johnson Model
. . . .’’ Id.
Fifth, when evaluating the substance
of the work undertaken by Dr. Johnson,
the Judges were further concerned by
the absence of ‘‘any sufficient basis in
the record to explain [the] correlation
between sequential regression runs and
the growth of PTV’s allocation share,’’
and PTV’s failure to present a
‘‘sufficient basis to rebut SDC’s charge
that data changes should not
consistently be correlated with the
growth of PTV’s share allocation, as
opposed to a randomized effect on share
percentages.’’ Id. Thus, the Judges
agreed with SDC’s economic expert, Dr.
Daniel Rubinfeld, finding that Dr.
Johnson’s work demonstrated ‘‘an
appearance . . . of practices that ran
counter to sound empirical research
practice . . . .’’ Initial Determination at
39–40. For these reasons alone, the
Judges decided to ‘‘give reduced
weight’’ to the work undertaken by Dr.
Johnson on behalf of PTV. Initial
Determination at 40.
Sixth, the Judges were frustrated by
PTV’s failure to produce important
evidence with regard to another issue.
Although PTV claimed royalties for
multicast programming and must-carry
stations, PTV failed to produce
sufficient proof in that regard.310 As the
Initial Determination explains:
[T]here was evidence available to be
produced by PTV, namely the PBS–NCTA
agreement as well as the number of entities
it represents that would provide significant
marketplace evidence . . . . But . . . PTV
did not produce either this agreement or the
number of entities bound by it as evidence,
although its own expert witness testified as
to some of the agreement’s contents.
Thus, the Judges were deprived of full
knowledge of the terms of the agreement, the
parties’ fulsome testimony as to the meaning
of its provisions and the number of entities
signing on to the agreement. Moreover, PTV
opposed the admission of that agreement into
evidence. . . . Accordingly, the Judges . . .
find that PTV bore, but failed to discharge,
the burdens of production and persuasion
with regard to the details of the agreement
and the extent of its coverage.
Initial Determination at 53.
Regarding the ‘‘Must Carry’’ issue,
PTV’s failure to carry its burdens of
production and persuasion are
especially instructive, because they are
juxtaposed against the testimony of Mr.
Harvey, as in the rehearing issue
pertaining to Adjustment C. Mr. Harvey
310 ‘‘Must Carry’’ stations were those PTV stations
which CSOs were legally obligated to transmit,
potentially belying any assertion that the value of
such stations was demonstrated by their carriage.
See Initial Determination at 47–49; see also id. at
40, 42–43.
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identified 15.5% of PTV distant signals
as having been retransmitted in
compliance with these must-carry rules.
Initial Determination at 40. But, as the
Judges noted, ‘‘PTV takes issue with the
entirety of Mr. Harvey’s approach to
designating ‘must-carry’ stations.’’ Id.
The Judges rejected PTV’s argument,
chastising PTV for failing to satisfy its
burden of proof to provide affirmative
evidence and for instead attempting to
cast doubt on Mr. Harvey’s otherwise
credible testimony and analysis. As the
Initial Determination states:
The Judges agree with JSC and CTV, based
on the case law cited by JSC, that PTV, whose
clients include the public television stations
that are in fact subject to must-carry
requirements, bore the twin burdens of
proof—the burden of producing evidence and
the burden of persuasion—regarding which
stations were subject to the must-carry
provisions and which were not. Further,
because PTV is seeking a determination
including must-carry station data in the
regression, those burdens are apportioned to
PTV as a matter of statute. See 5 U.S.C.
556(d).
But rather than produce such evidence or
prove its significance, PTV elected to attack
Mr. Harvey’s attempt to estimate the number
of must-carry stations. Those attacks are
insufficient. . . . Mr. Harvey engaged in a
reasonable attempt to estimate this number,
which PTV could have set forth in its
submissions, but did not.
Initial Determination at 47 (emphases in
original).311
Seventh, and finally, as noted at the
outset of this discussion of PTV’s
rehearing request vis-à-vis Adjustment
C, Dr. Johnson’s rebuttal testimony on
311 PTV also questions the use of Mr. Harvey’s
analysis because it identifies the number of
‘‘systems’’ (i.e., CSOs) that continued to retransmit
a PTV signal after the WGNA conversion, rather
than the total number of PTV stations retransmitted
by these CSOs. PTV Motion at 5 n.4. The Judges do
not agree with this criticism. Recall the problems
(discussed supra) related to PTV’s failure to meet
its evidentiary burdens related to ‘‘must carry’’ and
multicast signals, as well as to indemnified
transmissions. The Judges find it prudent to rely on
Mr. Harvey’s ‘‘system’’ calculation, which is
equivalent to establishing one PTV signal per CSO
as retaining in the 2015–2017 post-WGNA era its
pre-2014 value, as evidenced by its above-Minimum
Fee carriage in that year. Utilizing PTV’s per station
approach would require the Judges to assume that
the retransmission of all PTV stations in 2015–2017
were generating royalties, regardless of whether
they were ‘‘must carry’’ or multicast signals, or
whether they were subject to indemnification of any
royalties due. As noted supra, the Judges declined
to adopt PTV’s arguments regarding the number or
percent of ‘‘must carry’’ stations (for which no net
royalty obligation exists), because of PTV’s failure
to meet its evidentiary burdens in those regards (a
point unaddressed in the PTV Motion). As the D.C.
Circuit has noted, the daunting factual nature of the
statutory task of allocating royalties necessitates a
measure of ‘‘rough justice,’’ which the Judges find
to be well-administered as to this issue by making
allocation decisions dependent in part on whether
a party had met its evidentiary burden. See Initial
Determination at 9 (and citations therein).
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which PTV relies does not include a
reference to documentation on which he
relied to support that testimony. The
Judges are hesitant (to say the least) to
grant rehearing based upon an expert’s
testimony when the party relying on
that testimony fails to cite to any
underlying documentation of factual
analysis or support for that opinion.
Moreover, when the Judges consider the
absence of such documentation in the
cumulative context of the assorted
problems with PTV’s failures to meet its
evidentiary burdens and Dr. Johnson’s
lack of knowledge of critical facts and
evidence (as cataloged supra), their
reluctance to grant the ‘‘exceptional’’
section 803 relief of rehearing is
reinforced.
The foregoing analysis makes it clear
that the Judges had—and continue to
have—serious questions regarding the
credibility, reliability, and sufficiency of
the evidence and testimony put forth by
PTV and Dr. Johnson. Each of the
Judges’ findings and conclusions in
these multiple areas is sufficient
grounds for the Judges’ election to rely
on the testimony and evidence provided
by JSC’s expert statistician, Mr. Harvey,
rather than PTV’s Dr. Johnson, regarding
the basis for, and size of, Adjustment C.
Moreover, when the foregoing seven
points calling into question the
testimony of Dr. Johnson and PTV’s
position are considered as a whole, the
Judges’ decision to rely on Mr. Harvey’s
testimony instead of that of Dr. Johnson,
most certainly did not constitute an
error, let alone clear error that could
serve as a basis for rehearing.
For these reasons, the Judges agree
with the Joint Respondents that the
Judges acted within their discretion in
making Adjustment C as set forth in the
Initial Determination.312 313
IV. Correction of Typographical and
Arithmetic Errors
The PTV Motion noted errors in the
Adjustment B Table for 2014, observing
that ‘‘typographical errors result in total
2014 shares that do not equal 100%.’’
PTV Motion at 4 n.2. PTV argued that,
in order to correct the 2014 shares,
‘‘Program Suppliers’ share should be
changed from 28.8% to 26.8%, JSC’s
share should be changed from 37.5% to
37.48%, and CTV’s share should be
changed from 11.39% to 11.38%.’’ Id.314
The Judges have reviewed the
Adjustment B calculations questioned
by PTV and agree that they are
erroneous as a consequence of a
typographical error. PTV’s proposed
correct shares adjust for this error. The
Judges grant the motion for rehearing
regarding the identified typographical
errors, finding that there is a need to
correct a clear error or prevent manifest
injustice. Having found the Motions for
rehearing and related filings a sufficient
rehearing record from the participants,
the Judges correct the typographical
errors for 2014.
Further, the Judges correct
mathematical errors, not only in 2014
but in all years, that affected the shares
reported in the Adjustment B Table.
PTV, JSC, and CTV note that PTV’s
share of 19.09% reported in the
Adjustment B table for 2017 is in
error.315 PTV Motion at 4 n.3; JSC
Motion at 9 n.4; CTV Response to PTV
Motion at 6. The Judges grant the
motion for rehearing regarding these
arithmetic errors, finding that there is a
need to correct a clear error or prevent
manifest injustice. Having found the
Motions for rehearing and related filings
a sufficient rehearing record from the
participants, the Judges correct the
arithmetic errors.316
All of these corrections are applied in
Adjustment B Table below: 317
ADJUSTMENT B TABLE
Program
suppliers
(%)
Year
2014
2015
2016
2017
.........................................................
.........................................................
.........................................................
.........................................................
26.80
47.67
40.75
44.07
JSC
(%)
CTV
(%)
37.48
2.44
1.69
0.67
PTV
(%)
11.38
13.14
17.32
13.23
SDC
(%)
13.36
11.78
15.32
15.96
4.33
11.28
10.81
10.41
CCG
(%)
6.55
13.70
14.12
15.66
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The Must Carry adjustment in Bennett WRT fig. 52 was based on the PTV shares of all CSO royalties, whereas the Judges are applying this
adjustment to the shares of CSO royalties attributable to shares generated by CSOs paying above the Minimum Fee (subject to the prior adjustment for CCG, discussed supra). So, for 2014, the percentage point adjustment to the PTV share is the percentage point adjustment in Bennett
WRT Fig 52. For 2015–2017, the percentage point adjustment to the PTV share is calculated for each year by: (1) finding the percentage of PTV
shares reflected by the PTV shares from Tyler/WRT fig. 6.3 ÷ PTV’s shares from Tyler WRT fig. 3.2; (2) multiplying that percentage by the percentage point adjustment in Bennett WRT fig 52; and (3) subtracting that product from the PTV share from the table above.
312 PTV appears to implicitly argue that the
‘‘second bite at the apple’’ argument is not
applicable because it did not know that the Judges
would apply Dr. Johnson’s opinion in favor of
applying the Minimum Fee royalty data as an
adjustment (Adjustment C). PTV Motion at 1
(arguing it was ‘‘impossible to anticipate that the
Judges would apply their Adjustment[ ] C to Dr.
Tyler’s sensitivity limited to Above Minimum Fee
CSOs.’’). This argument is meritless. PTV argued
emphatically for the Judges to utilize Minimum Fee
royalty data to establish program values and
allocation shares in this proceeding. The Judges did
use Minimum Fee evidence in making Adjustment
C in PTV’s favor—just not the Minimum Fee
evidence that PTV prefers, nor as extensively as
PTV had sought. As noted supra, the D.C. Circuit
has held, the Judges are ‘‘not . . . strictly limited
to choosing from among the proposals set forth by
the parties’’ and, like all agencies, ‘‘have the
authority to modify proposals set forth by the
parties, or to suggest models of their own.’’ Johnson
v. Copyright Royalty Bd., 969 F.3d 363, 381–82
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(D.C. Cir. 2020). See also SoundExchange, Inc. v.
Copyright Royalty Bd., 904 F.3d 41, 50–51, 57 (D.C.
Cir. 2018) (upholding the Judges’ decision to
modify a party’s proposed rates in light of the
Judges’ application of the relevant statute); Ass’n of
American Publishers, Inc. v. Governors of USPS,
485 F.2d 768, 773 (D.C. Cir. 1973) (when a ratesetting agency partially disregards two experts in
connection with ‘‘suggested adjustments . . . [the]
rate-making body may fashion its own adjustments
within reasonable limits.’’).
313 The Joint Respondents’ argument that the PTV
Motion as it relates to Adjustment C should be
denied because the analysis of WGNA + PTV
transmissions is a ‘‘supply-side’’ scenario and thus
differentiated from PTV pairing with other signals
is moot in light of this order.
314 When computing the allocation shares in the
adjustment tables, the Judges necessarily rounded
figures. When such rounding was applied it was
done consistently across parties and years. Due to
rounding, the sum of allocation shares may not
equal exactly 100% for a given year.
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315 PTV and CTV describe the error as an
arithmetic error.
316 The first arithmetic error corrected was in the
calculation of the proportional increase to other
claimants’ shares relating to the reduction in the
PTV share due to the presence of ‘‘must-carry’’
stations. The second arithmetic error corrected was
in the calculation of the PTV share for 2017 to
account for this ‘‘must-carry’’ issue.
317 To the extent that corrections set forth in this
Order might be construed to reach beyond those
identified in the Motions for rehearing or the
rehearing authority in 17 U.S.C. 803(c)(2), the
Judges also make such corrections under their
authority to correct technical or clerical errors in 17
U.S.C. 803(c)(4). For this reason, the Judges set forth
the analysis herein also as a written addendum to
the Initial Determination, which is distributed to
the participants of the proceeding via this Order
and will be published as part of the Final
Determination, pursuant to 17 U.S.C. 803(c)(4).
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The shares of the other claimants are adjusted upward by: (1) calculating the percentage each category represents of all the categories’
shares except PTV; (2) multiplying each percentage by the Bennett Must Carry adjustment (reduced as set forth above); and (3) adding that
product to the shares of each claimant category.
The Judges recalculate the
Adjustment C Table to reflect the
corrections to the Adjustment B Table:
ADJUSTMENT C TABLE
Program
suppliers
(%)
Year
2015 .........................................................
2016 .........................................................
2017 .........................................................
44.87
37.51
40.39
JSC
(%)
CTV
(%)
2.30
1.56
0.61
PTV
(%)
12.37
15.94
12.12
SDC
(%)
16.96
22.06
22.98
CCG
(%)
10.62
9.95
9.54
12.90
13.00
14.35
The Judges recalculated the shares of the other five claimant categories by: (1) calculating the percentage each category represents of all the
categories’ shares except PTV; (2) multiplying each percentage by the increase in the PTV share generated by adjusting to reflect WTP of CSOs
that maintained PTV carriage after WGNA conversion; and (3) subtracting that product from the shares of each claimant category.
As discussed in the Initial
Determination, the Judges allocated
shares of the Basic Fund to each party
based on their review and weighting of
the record evidence. ID at 197–198. The
corrected Basic Fund and 3.75% Fund
allocations incorporate the corrections
discussed above.
For each year, the aggregate sum of
the share allocations did not sum to
100% for the Basic Fund. In 2014, the
allocations summed to marginally
greater than 100 percent and, in 2015–
2017, marginally less than 100 percent.
The Judges therefore adjusted the
allocated shares proportionally to
achieve an aggregate allocation of 100%;
in 2014 shares this process required a
modest downward adjustment and, in
2015–2017, this process required a
modest upward adjustment in shares.
The resulting corrected Basic Fund and
3.75% Fund 318 allocations are as
follows:
BASIC FUND ROYALTY ALLOCATIONS
2014
(%)
CCG .................................................................................................................
CTV ..................................................................................................................
JSC ..................................................................................................................
Program Suppliers ...........................................................................................
PTV ..................................................................................................................
SDC .................................................................................................................
2015
(%)
6.19
20.55
36.13
21.21
11.07
4.85
2016
(%)
14.59
19.78
11.42
28.29
19.18
6.74
2017
(%)
14.60
17.36
10.72
25.53
24.78
7.01
15.77
17.50
12.36
23.29
25.25
5.83
3.75% FUND ROYALTY ALLOCATIONS
2014
(%)
CCG .................................................................................................................
CTV ..................................................................................................................
JSC ..................................................................................................................
Program Suppliers ...........................................................................................
SDC .................................................................................................................
6.96
23.11
40.63
23.85
5.45
2016
(%)
18.05
24.48
14.13
35.00
8.34
2017
(%)
19.41
23.08
14.25
33.94
9.32
21.10
23.41
16.53
31.16
7.80
For the foregoing reasons, PTV’s
motion for rehearing is granted in part
and denied in part and JSC’s motion for
rehearing is denied.
The affected parties shall file a joint
proposed redacted public version of this
Order for public viewing within ten
days.
So ordered.
Dated: March 21, 2024.
David P. Shaw,
Chief Copyright Royalty Judge.
318 For years 2015 and 2017, the calculated
allocation shares did not equal 100%. In the case
of 2015, the total calculated shares were just below
100%. To achieve the full 100%, the Judges
reviewed the results and provided an increase to
the claimant whose share was the closest to being
rounded up at the second decimal place. In 2017,
the total calculated shares were just above 100%
and the Judges did not round up the claimant
whose share was the closest to not being rounded
up at the second decimal place to achieve a 100%
allocation.
V. Ruling and Order
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(%)
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BILLING CODE 1410–72–P
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]]>Agencies
[Federal Register Volume 89, Number 125 (Friday, June 28, 2024)]
[Notices]
[Pages 54166-54282]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-13597]
[[Page 54165]]
Vol. 89
Friday,
No. 125
June 28, 2024
Part II
Library of Congress
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Copyright Royalty Board
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Distribution of Cable Royalty Funds; Notice
Federal Register / Vol. 89 , No. 125 / Friday, June 28, 2024 /
Notices
[[Page 54166]]
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LIBRARY OF CONGRESS
Copyright Royalty Board
[Docket No. 16-CRB-0009-CD (2014-17)]
Distribution of Cable Royalty Funds
AGENCY: Copyright Royalty Board (CRB), Library of Congress.
ACTION: Final allocation determination.
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SUMMARY: The Copyright Royalty Judges announce the allocation of shares
of cable royalty funds for the years 2014, 2015, 2016, and 2017 among
six claimant groups.
DATES: This determination is effective June 28, 2024.
ADDRESSES: The final determination is posted in eCRB at https://app.crb.gov/. For access to the docket to read the final determination
and submitted background documents, go to eCRB and search for docket
number 16-CRB-0009-CD (2014-17).
FOR FURTHER INFORMATION CONTACT: Anita Brown, CRB Program Specialist,
(202) 707-7658, [email protected].
SUPPLEMENTARY INFORMATION:
Final Determination of Royalty Allocation
The purpose of this proceeding is to determine the allocation of
shares of the 2014-2017 cable royalty funds among six claimant groups:
the Joint Sports Claimants, Commercial Television Claimants, Public
Television Claimants, Canadian Claimants Group, Settling Devotional
Claimants, and Program Suppliers.\1\ The parties have agreed to
settlements regarding the shares to be allocated to the Music Claimants
and National Public Radio (NPR). Joint Notice of Settlement Regarding
2014-2017 Royalty Claims of Music Claimants . . . at 1-2 (June 29,
2022); Joint Notice of Settlement and Motion for Final Distribution
Regarding Royalty Claims of National Public Radio at 1 (Jan. 7, 2022).
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\1\ The program categories at issue are as follows: ``Canadian
Claimants.'' All programs broadcast on Canadian television stations,
except: (1) live telecasts of Major League Baseball, National Hockey
League, and U.S. college team sports, and (2) programs owned by U.S.
copyright owners; ``Commercial Television Claimants.'' Programs
produced by or for a U.S. commercial television station and
broadcast only by that station during the calendar year in question,
except those listed in subpart (3) of the Program Suppliers
category; ``Devotional Claimants.'' Syndicated programs of a
primarily religious theme, but not limited to programs produced by
or for religious institutions; ``Joint Sports Claimants.'' Live
telecasts of professional and college team sports broadcast by U.S.
and Canadian television stations, except programs in the Canadian
Claimants category; ``Program Suppliers.'' Syndicated series,
specials, and movies, except those included in the Devotional
Claimants category. Syndicated series and specials are defined as
including (1) programs licensed to and broadcast by at least one
U.S. commercial television station during the calendar year in
question, (2) programs produced by or for a broadcast station that
are broadcast by two or more U.S. television stations during the
calendar year in question, and (3) programs produced by or for a
U.S. commercial television station that are comprised predominantly
of syndicated elements, such as music videos, cartoons, ``PM
Magazine,'' and locally-hosted movies; ``Public Television
Claimants.'' All programs broadcast on U.S. noncommercial
educational television stations. Order Lifting Stay and Adopting
Claimant Categories (Apr. 5, 2021). The categories are mutually
exclusive and, in aggregate, comprehensive.
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Between 2016 and 2022, the Judges ordered partial distributions of
the 2014-2017 cable funds to the ``Phase I'' participants (including
Music Claimants and NPR) according to allocation percentages agreed
upon by the participants. Order Granting Motion for Partial
Distribution (May 22, 2019); Order Granting Motion for Partial
Distribution, Docket No. 16-CRB-0009 CD (2014) (Aug. 15, 2016); Order
Granting Motion for Partial Distribution, Docket No. 16-CRB-0020 CD
(2015) (June 6, 2017); Order Granting Motion for Partial Distribution,
Docket No. 17-CRB-0017 CD (2016) (Jul. 30, 2018).
In 2022, the Judges ordered the final distribution of the settled
shares from the remaining funds to Music Claimants and National Public
Radio. Order Granting Motion for Final Distribution to National Public
Radio (Feb. 14, 2022), Order 23 Granting 2014-15 Cable Final
Distribution to Music Claimants . . . (Dec. 7, 2022).
When the Judges ultimately order the final distribution of the
remaining 2014-17 cable royalty funds, they will direct the Licensing
Division of the Copyright Office to adjust distributions to each
participant to account for partial distributions and to apply the
allocation percentages determined herein.
Based on the record in this proceeding, the Judges make the
following allocation of deposited royalties.
Table 1--Royalty Allocations
----------------------------------------------------------------------------------------------------------------
2014 2015 2016 2017
----------------------------------------------------------------------------------------------------------------
Basic Fund:
CCG......................................... 6.19 14.59 14.60 15.77
CTV......................................... 20.55 19.78 17.36 17.50
JSC......................................... 36.13 11.42 10.72 12.36
Program Suppliers........................... 21.21 28.29 25.53 23.29
PTV......................................... 11.07 19.18 24.78 25.25
SDC......................................... 4.85 6.74 7.01 5.83
3.75% Fund:
CCG......................................... 6.96 18.05 19.41 21.10
CTV......................................... 23.11 24.48 23.08 23.41
JSC......................................... 40.63 14.13 14.25 16.53
Program Suppliers........................... 23.85 35.00 33.94 31.16
SDC......................................... 5.45 8.34 9.32 7.80
Syndex Fund:
Program Suppliers........................... 100 100 100 100
----------------------------------------------------------------------------------------------------------------
PTV and JSC filed timely requests for rehearing on September 21,
2023 (Rehearing Requests). The Judges issued their ruling on the
Rehearing Requests on March 21, 2024 (Order on Rehearing), denying
rehearing on any basis asserted by JSC in its Rehearing Request and
granting rehearing on a basis asserted by PTV in its Rehearing Request
to correct arithmetic errors. This Final Determination includes the
corrections contained in the Initial Determination of Royalty
Allocation (Corrected and Redacted) filed on March 29, 2024, which
addressed technical and clerical errors.\2\ This Final Determination
also includes the corrections set forth in the March 29,
[[Page 54167]]
2024 Order on Rehearing, which is included herein, as ``Addendum A'',
to be published in the Federal Register.\3\
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\2\ See Initial Determination of Royalty Allocation (Corrected
and Redacted) at 1.
\3\ See Order on Rehearing at 83 n.63 (``To the extent that
corrections set forth in this Order might be construed to reach
beyond those identified in the Motions for rehearing or the
rehearing authority in 17 U.S.C. 803(c)(2), the Judges also make
such corrections under their authority to correct technical or
clerical errors in 17 U.S.C. 803(c)(4). For this reason, the Judges
set forth the analysis herein also as a written addendum to the
Initial Determination, which is distributed to the participants of
the proceeding via this Order and will be published as part of the
Final Determination, pursuant to 17 U.S.C. 803(c)(4).'')
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I. Background
A. Legal Context
In 1976, Congress granted cable television operators a statutory
license to enable them to clear the copyrights to over-the-air
television and radio broadcast programming which they retransmit to
their subscribers. The license requires cable operators to submit semi-
annual royalty payments, along with accompanying statements of account,
to the Copyright Office for subsequent distribution to copyright owners
of the broadcast programming that those cable operators retransmit. See
17 U.S.C. 111(d)(1). To determine how the collected royalties are to be
distributed among the copyright owners filing claims for them, the
Copyright Royalty Judges (Judges) conduct a proceeding in accordance
with chapter 8 of the Copyright Act. This determination is the
culmination of one of those proceedings.\4\ Proceedings for determining
the distribution of the cable license royalties historically were
conducted in two phases. In Phase I, the royalties were divided among
programming categories. The claimants to the royalties have previously
organized themselves into eight categories of programming retransmitted
by cable systems: movies and syndicated television programming; sports
programming; commercial broadcast programming; religious broadcast
programming; noncommercial television broadcast programming; Canadian
broadcast programming; noncommercial radio broadcast programming; and
music contained on all broadcast programming. In Phase II, the
royalties allotted to each category at Phase I were subdivided among
the various copyright holders within that category.\5\ In the most
recent proceeding, regarding cable royalties for the 2010-2013 period,
the Judges broke with past practice by combining Phase I and Phase II
into a single proceeding in which the functions of allocating funds
between program categories and distributing funds among claimants
within those categories proceeded in parallel.\6\ This determination
addresses the Allocation Phase for royalties collected from cable
operators for the years 2014, 2015, 2016 and 2017.
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\4\ Prior to enactment of the Copyright Royalty and Distribution
Reform Act of 2004, which established the Judges program, royalty
allocation determinations under the section 111 license were made by
two other bodies. The first was the Copyright Royalty Tribunal,
which made distributions beginning with the 1978 royalty year, the
first year in which cable royalties were collected under the 1976
Copyright Act. Congress abolished the Tribunal in 1993 and replaced
it with the Copyright Arbitration Royalty Panel (``CARP'') system.
Under this regime, the Librarian of Congress appointed a CARP,
consisting of three arbitrators, which recommended to the Librarian
how the royalties should be allocated. Final distribution authority,
however, rested with the Librarian. The CARP system ended in 2004.
See Copyright Royalty Distribution and Reform Act of 2004, Public
Law 108-419, 118 Stat. 2341 (Nov. 30, 2004).
\5\ The Judges last adjudicated an allocation (Phase I)
determination for royalty years 2010 to 2013. See Final Allocation
Determination, Distribution of the 2010 to 2013 Cable Royalty Funds,
84 FR 3552 (Feb. 12, 2019) (2010-13 Determination).
\6\ Second Reissued Order Granting in Part Allocation Phase
Parties' Motion to Dismiss Multigroup Claimants and Denying
Multigroup Claimants' Motion for Sanctions Against Allocation Phase
Parties, Docket No. 14-CRB-0010-CD (2010-13) (Apr. 25, 2018). The
Judges discontinued use of the terms Phase I and Phase II and use
the terms Allocation Phase and Distribution Phase instead. Id. n.4.
This determination addresses the Allocation Phase of the proceeding.
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The statutory cable license places cable systems into three classes
based upon the fees they receive from their subscribers for the
retransmission of over-the-air broadcast signals. Small- and medium-
sized systems pay a flat fee. See 17 U.S.C. 111(d)(1). Large cable
systems (``Form 3'' systems) \7\--whose royalty payments comprise the
lion's share of the royalties distributed in this proceeding--pay a
percentage of the gross receipts they receive from their subscribers
for each distant over-the-air broadcast station signal they
retransmit.\8\ The amount of royalties that a cable system must pay for
each broadcast station signal it retransmits depends upon how the
carriage of that signal would have been regulated by the Federal
Communications Commission (``FCC'') in 1976, the year in which the
current Copyright Act was enacted.
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\7\ ``Form 3'' cable systems, so named because they account to
the Copyright Office for retransmissions and royalties on ``Form
3.'' The Form 3 filing is required because they have semiannual
gross receipts in excess of $527,600. These systems must submit an
SA3 Long Form to the US Copyright Office. They are the only systems
required to identify which of the stations they carry are distant
signals. Royalty payments from Form 3 systems accounted for over 90%
of the total royalties that cable systems paid during 2014-2017.
Expert Report of Christopher J. Bennett, Ph.D., Amended Corrected,
Trial Ex. 7203, ] 11 n.2 (Bennett ACWDT).
\8\ The cable license is premised on the Congressional judgment
that large cable systems should only pay royalties for the distant
broadcast station signals that they retransmit to their subscribers
and not for the local broadcast station signals they provide.
However, cable systems that carry only local stations are still
required to submit a statement of account and pay a basic minimum
fee. See Distribution Order, Distribution of the 2000-2003 Cable
Royalty Funds, 75 FR 26798 n.2 (May 12, 2010) (2000-03 Distribution
Order).
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The royalty scheme for large cable systems employs a statutory
device known as the distant signal equivalent (DSE), which is defined
at 17 U.S.C. 111(f)(5). The cable systems, other than those paying the
minimum fee, pay royalties based upon the number of DSEs they
retransmit. The greater the number of DSEs a cable system retransmits
the larger its total royalty payment. The cable system pays these
royalties to the Copyright Office. These fees comprise the ``Basic
Fund.'' See 17 U.S.C. 111(d)(1)(B). In addition to the Basic Fund,
large cable systems also may be required to pay royalties into one of
two other funds that the Copyright Office maintains: the Syndex Fund
and the 3.75% Fund.
As noted above, the utilization of the cable license is linked with
how the FCC regulated the cable industry in 1976.\9\ FCC rules at the
time restricted the number of distant broadcast signals a cable system
was permitted to carry (``the distant signal carriage rules'').
National Cable Television Assoc., Inc. v. Copyright Royalty Tribunal,
724 F.2d 176, 180 (D.C. Cir. 1983). FCC rules also allowed local
broadcasters and copyright holders to require cable systems to delete
(or blackout) syndicated programming from imported signals if the local
station had purchased exclusive rights to the programming (``syndicated
exclusivity'' or ``syndex'' rules). Id. at 187. In 1980, the FCC
repealed both sets of rules. Id. at 181.
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\9\ FCC regulation of the cable industry was impacted by passage
of the 1976 Copyright Act that created the compulsory license for
cable retransmissions codified in section 111. See Report and Order,
Docket Nos. 20988 & 21284, 79 F.C.C. 663 (1980), aff'd sub nom.
Malrite T.V. v. FCC, 652 F.2d 1140, 1146 (2d Cir. 1981).
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The Copyright Royalty Tribunal (CRT) initiated a cable rate
adjustment proceeding to compensate copyright owners for royalties lost
as a result of the FCC's repeal of the rules. Final rule, Adjustment of
the Royalty Rate for Cable Systems; Federal Communications Commission's
Deregulation of the Cable Industry, Docket No. CRT 81-2, 47 FR 52146
(Nov. 19, 1982). The CRT adopted two new rates applicable to large
cable systems making section 111 royalty payments. The first, to
compensate for repeal of the distant signal carriage rules, was a 3.75%
surcharge of a large
[[Page 54168]]
cable system's gross receipts for each distant signal the carriage of
which would not have been permitted under the FCC's distant signal
carriage rules. Royalties paid at the 3.75% rate--sometimes referred to
by the cable industry as the ``penalty fee''--are accounted for by the
Copyright Office in the ``3.75% Fund,'' which is separate from
royalties kept in the Basic Fund. See id.; see also 17 U.S.C. 111(d);
37 CFR part 387.The second rate the CRT adopted, to compensate for the
FCC's repeal of its syndicated exclusivity rules, is known as the
``syndex surcharge.'' Large cable operators were required to pay this
additional fee for carrying signals that were or would have been
subject to the FCC's syndex rules. Syndex Fund fees are accounted for
separately from royalties paid into the Basic Fund.\10\
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\10\ In 1989, in response to changes in the cable television
industry and passage of the Satellite Home Viewer Act of 1988, the
FCC reinstated syndicated exclusivity rules. The reinstated rules
differed from the original syndex rules, giving rise to a petition
to the CRT for adjustment or elimination of the syndex surcharge.
See Final Rule, Adjustment of the Syndicated Exclusivity Surcharge,
Docket No. 89-5-CRA, 55 FR 33604 (Aug. 16, 1990). The CRT held that
``the syndicated exclusivity surcharge paid by Form 3 cable systems
in the top 100 television markets is eliminated, except for those
instances when a cable system is importing a distant commercial VHF
station which places a predicted Grade B contour, as defined by FCC
rules, over the cable system, and the station is not ``significantly
viewed'' or otherwise exempt from the syndicated exclusivity rules
in effect as of June 24, 1981. In such cases, the syndicated
exclusivity surcharge shall continue to be paid at the same level as
before.'' (Id. See Final Rule, Cable Television Services; Program
Exclusivity in the Cable and Broadcast Industry, 54 FR 12913 (Mar.
29, 1989), aff'd sub nom. United Video, Inc. v. FCC, 890 F.2d 1173
(D.C. Cir. 1989); 47 CFR 73.658(m)(2) (1989); 47 CFR 76.156 (1989).
The present proceeding deals only with allocation of those royalties
among copyright owners in the various program categories.)
---------------------------------------------------------------------------
Royalties in the three funds--Basic, 3.75%, and Syndex--are the
royalties to be distributed to copyright owners of non-network
broadcast programming in a section 111 cable license distribution
proceeding. See 37 CFR part 387.\11\
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\11\ The CRB last adjusted cable Basic, 3.75%, and Syndex rates
in 2021, for the period January 1, 2020, through December 31, 2024.
See Final Determination, Adjustment of Cable Statutory License
Royalty Rates, Docket No. 20-CRB-0008-CA (2020-2024), 86 FR 72845
(Dec. 23, 2021). This adjustment was pursuant to a negotiated
agreement.
---------------------------------------------------------------------------
Cable system operators are required to file Statements of Account
with the Copyright Office detailing subscription revenues and specific
television signals they retransmit distantly, and to deposit section
111 royalties calculated according to the reported figures. Testimony
of Gregory S. Crawford, Ph.D., Corrected (2010-2013), Trial Ex. 7031, ]
74 & n.37 (``Crawford 2010-2013 CWDT'').
B. Posture of the Current Proceeding
In February 2019, the Copyright Royalty Board (CRB) published
notice in the Federal Register announcing commencement of proceedings
and seeking Petitions to Participate to determine distribution of 2014,
2015, 2016, and 2017 royalties under the cable and satellite
licenses.\12\
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\12\ Notice . . ., Distribution of Cable Royalty Funds, Docket
No. 16-CRB-0009-CD (2014-17), 84 FR 2930 (Feb. 8, 2019); Notice . .
., Distribution of Satellite Royalty Funds, Docket No. 16-CRB-0010-
SD (2014-17), 84 FR 2931 (Feb. 8, 2019). The CRB received Petitions
to Participate from Broadcast Music, Inc. (``BMI''), the American
Society of Composers, Authors and Publishers (``ASCAP''), and SEASAC
Performing Rights (jointly, the ``Music Claimants''); Canadian
Claimants Group (``CCG''); Global Music Rights; Public Broadcasting
System (``PBS'') on behalf of Public Television Claimants (``PTV'');
Settling Devotional Claimants (``SDC''); Joint Sports Claimants
(``JSC''); Major League Soccer (``MLS''); Multigroup Claimants;
Commercial Television Claimants represented by the National
Association of Broadcasters (``CTV''), National Public Radio for NPR
Joint Claimants (``NPR''); David Powell; and the Motion Picture
Association of America for MPAA-represented Program Suppliers
(``Program Suppliers'' or ``PS''). Subsequently, MLS filed a notice
that it would not participate separately in the allocation phase,
eCRB no. 26935, and Mr. Powell was dismissed as a participant, eCRB.
no. 22314. Multigroup Claimants expressed an intention to
participate in the allocation phase, eCRB no. 25455, but did not
file a written direct statement and did not participate.
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On March 20, 2019, the Judges issued a Notice of Participants and
Order for Preliminary Action to Address Categories of Claims. On April
5, 2021, they issued an Order . . . Adopting Claimant Categories in
which they identified eight categories of claimants for the proceeding:
(1) Canadian Claimants, (2) Commercial Television Claimants; (3)
Devotional Claimants, (4) Joint Sports Claimants, (5) Music Claimants,
(6) National Public Radio, (7) Program Suppliers, and (8) Public
Television Claimants. National Public Radio and Music Claimants reached
settlements with the other claimant groups and received respective
final distributions. Order Granting Motion for Final Distribution to
National Public Radio (Feb. 14, 2022), Order 23 Granting 2014-15 Cable
Final Distribution to Music Claimants . . . (Dec. 7, 2022).
With the settlement of the Music Claimants' share, only the Program
Suppliers claimant group has an interest in the royalties in the Syndex
Fund. Program Suppliers' Post Hearing Brief ] 81 (PS PHB). Public TV
Claimants claim a share only of the Basic Fund. Public Television's
Post-Hearing Brief at 83 (PTV PHB).
The hearing in the present proceeding commenced on March 20, 2023,
and concluded on April 20, 2023. During that period, the Judges heard
live testimony from 33 witnesses and admitted written and designated
testimony from a number of additional witnesses. The Judges admitted
into the record more than 400 exhibits. Many motions related to the
hearing were filed and ruled on. Participants made closing arguments on
June 12, 2023, after which time the Judges closed the record.
C. Allocation Standard
Congress did not establish a statutory standard in section 111 for
the Judges (or their predecessors) to apply when allocating royalties
among copyright owners or categories of copyright owners. However,
through determinations by the Judges and their predecessors (the
Copyright Royalty Tribunal, the CARPs, and the Librarian of Congress),
the allocation standard has evolved, and the present standard is one of
``relative marketplace value.'' \13\ See Distribution Order,
Distribution of the 2004 and 2005 Cable Royalty Funds, 75 FR 57065
(Sept. 17, 2010) (2004-05 Distribution Order).
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\13\ In this proceeding, the Judges distinguish between
``relative values'' (to describe the allocation shares), and
absolute ``fair market values.'' Because the royalties at issue in
this proceeding are regulated and not derived from any actual market
transactions, they do not correspond with absolute dollar royalties
that would be generated in a market and thus would not reflect
absolute ``fair market value.''
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``Relative marketplace values'' in these proceedings have been
defined as valuations that ``simulate [relative] market valuations as
if no compulsory license existed.'' Final Rule, Distribution of 1998
and 1999 Cable Royalty Funds, 69 FR 3608 (Jan. 26, 2004) (1998-99
Librarian Order). Because such a market does not exist (having been
supplanted by the regulatory structure), the Judges are required to
construct a ``hypothetical market'' that generates the relative values
that approximate those that would arise in an unregulated market. 2004-
05 Distribution Order at 57065; see also Program Suppliers v. Librarian
of Congress, 409 F.3d 395, 401-02 (D.C. Cir. 2001) (``[I]t makes
perfect sense to compensate copyright owners by awarding them what they
would have gotten relative to other owners . . . .'').\14\
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\14\ The Judges discuss the relative marketplace value standard
in more detail, infra, as applied to the facts of this proceeding.
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II. Introduction To Regression Section
Four parties have proposed that the Judges utilize regression
analysis to estimate the relative marketplace value of each party's
programs distantly retransmitted by CSOs during the four-year period
2014-2017. Each party relies on testimony from economic
[[Page 54169]]
experts to support its position. CCG relies on the testimony of Dr.
Lisa George. CTV relies on the testimony of Dr. Leslie Marx and the
supportive testimony of Dr. Cristopher Bennett. Program Suppliers rely
on the testimony of Dr. Cleve Tyler and the supportive testimony of Dr.
Gray. Finally, PTV relies on the testimony of Dr. John Johnson.
Two parties oppose all of the regression approaches on which each
of the above parties relies. The SDC, through the testimony of
economists Drs. Erkan Erdem and Daniel Rubinfeld, oppose the regression
approach for many of the same reasons it (unsuccessfully) opposed the
regressions proffered in the 2010-13 allocation proceeding, which was
the most recent section 111 allocation proceeding. However, the SDC has
also presented arguments that are differentiated from those it made in
that prior proceeding. JSC, although it relied in part on a regression
approach in the prior proceeding, opposes the regression approaches
through the testimony of two economists, Dr. W. Robert Majure and Dr.
John Asker, and a statistician, Mr. R. Garrison Harvey.
Dr. Marx, identified above as an expert who relies on the
regression approach, does so only for the 2014 royalty year. For the
2015-2017 period, she opposes the use of the regression approach, based
on industry changes that she maintains (consistent with a criticism
from the other opposing experts listed above) diminished the quality of
the available economic data necessary to conduct an appropriate
regression.
The models of each of the four experts who proffered regression
analyses are discussed individually below, together with the rebuttals
levied by the opposing experts. However, in order to understand and
contextualize the regression-related evidence, it is helpful to address
several overarching issues that color the Judges' analysis and
conclusions. Accordingly, before jumping into the specific regression
models, the Judges first (1) consider in greater detail their
allocation standard of ``relative marketplace value'', (2) address the
changing impact of the ``minimum fee'' in the 2014-2017 period, (3)
evaluate assertions of inappropriate econometric practice
(``specification searching'') that may compromise the regression
approaches, and (4) analyze questions regarding whether certain types
of PTV programs are properly included within the regression analyses.
After clearing this analytical underbrush, the Judges proceed to a
discussion of the sequential presentation of the parties' regression
models, followed by the Judges' ``Analysis and Conclusions'' regarding
those models. Finally, the Judges consider several additional important
issues arising from the regressions that relate specifically to (1) the
CCG claims for Canadian programming issues and (2) the 3.75% Fund.
III. The Data Relied On By The Parties
All of the parties' experts who relied on data detailing royalty
reporting and programming information essentially utilized the same
data sources and processed the data in basically the same manner.
Specifically, the parties engaged in the following steps:
1. Establish a method to link the CSOs distant signal carriage to
the programs carried on each signal, by merging CSO and distant signal
carriage data to television programming and scheduling data (as
detailed below).
2. Obtain a dataset on distant signal carriage from Cable Data
Corporation (CDC), that covers each semiannual accounting period from
2014-1 through 2017-2 for the larger ``Form 3'' cable systems.\15\ CDC
compiles and digitizes this dataset data directly from the SA3
Statement of Account (SOA) forms that Form 3 cable systems are required
to file semiannually at the Licensing Section of the Copyright Office.
(The CDC data is set forth in the Written Direct Testimony of Jonda K.
Martin.)
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\15\ ``Form 3'' systems are cable systems with semiannual gross
receipts in excess of $527,600 that are required to submit an SA3
Long Form to the US Copyright Office. They are the only systems
required to identify which of the stations they carry are distant
signals, and they account for over 90% of the total royalties paid
by all cable systems during 2014-2017.
---------------------------------------------------------------------------
3. Obtain through these SOAs, for each CSO, information about its
(a) ownership, rates, gross receipts, total number of subscribers, and
communities served, and (b) the identity of every broadcast television
station carried and a calculation of royalties owed for the
transmission of distant signals under section 111.
4. Obtain station, program, and scheduling data from Red Bee Media
(formerly FYI Television, Inc.) to merge with the foregoing carriage
and royalty data. (Red Bee Media is an international broadcasting and
media services company that publishes television airing data, using
programming data that it sources directly from stations in the form of
interactive program guides.)
5. Examine the Red Bee Media's database of U.S. and Canadian
broadcast and cable channels carried by U.S. CSOs, together with
network data and detailed program and scheduling data for the period
January 1, 2014, through December 31, 2017, to identify, per station,
(a) program titles, (b) program type/category, (c) originating station,
and (d) date and time of program airing.
6. Obtain Canadian television program log data from the Canadian
Radio-Television and Telecommunications Commission (CRTC), which
regulates and supervises broadcasting and telecommunications within
Canada.
7. Develop and apply an algorithm, using the aforementioned data,
that assigns program airings to their correct categories.
8. Review and confirm the results and make any modifications that
are appropriate.
Amended Corrected Written Direct Testimony of Christopher Bennett,
Ph.D., Trial Ex. 7203, ]] 10-27 (Bennett ACWDT) (describing the CTV
data process); Corrected Written Direct Testimony of R. Garrison
Harvey, Trial Ex. 7105, tech. app., pt. A (Harvey CWDT) (describing the
JSC data process); Written Direct Testimony of John H. Johnson, IV,
Trial Ex. 7300, ]] 46-51 & app. G (Johnson WDT) (describing the PTV
data process); Written Direct Testimony of Lisa M. George, Ph.D., Trial
Ex. 7403, at 47-50 & app. B (George WDT) (describing the CCG data
process, also supplemented with U.S. Census income information);
Amended Corrected Written Direct Testimony of Jeffrey S. Gray, Trial
Ex. 7605, ]] 16-18; 32-34, & 39 n.23 (describing the Program Suppliers'
data process).
Given the voluminous nature of the data relating to programming and
minutes, the data-related processes suffered from several hiccups
during assembly and analysis for the several experts. The record
reflects that most of the data-based problems were resolved before the
experts filed their direct testimonies, and there were some data-
related amendments and corrections set forth in subsequent testimonies.
To the extent any of the data problems were unresolved, material, and
need to be addressed in order for the Judges to properly allocate
shares, those data problems are discussed in this determination.
IV. The Role of Regression Analysis In The Statutory Context
Section 111 sets forth no standard for the Judges (or their
predecessors) to apply in allocating royalties arising from the
payments made by CSOs. This was no mere oversight. The legislative
history makes it clear that Congress
[[Page 54170]]
intentionally omitted a standard to guide the Judges:
[T]he bill does not include specific provisions to guide . . .
determining the appropriate division among competing copyright
owners of the royalty fees collected from cable systems under
section 111 [because] it would not be appropriate to specify
particular, limiting standards for distribution. Rather, the
Committee believes that the [adjudicator] should consider all
pertinent data and considerations presented by the claimants.
House Report No. 94-1476, Notes of Committee on the Judiciary. This
standardless delegation has led the parties, as well as the Judges and
their predecessors, to invoke an evolving set of five broad factors,
that have waxed and waned, to consider when allocating royalties among
program category claimants. As the Judges recounted in a prior
proceeding:
[T]he standards for determining distribution awards have changed
dramatically since the inception of the license. In the first Phase
I [allocation] proceeding, the Copyright Royalty Tribunal identified
three primary factors to guide its determinations: (1) The harm to
copyright owners caused by distant signal retransmissions; (2) the
benefit derived by cable systems from those retransmissions; and (3)
the marketplace value of the copyrighted works retransmitted. 45 FR
63026, 63035 (September 23, 1980). The Tribunal also identified two
secondary factors: (1) The quality of the retransmitted material;
and (2) time-related considerations. Id. By the time of the last
fully litigated Tribunal determination, the Tribunal dropped its
consideration of the two secondary factors. 57 FR 15286 (April 27,
1992). The first CARP to undertake a Phase I distribution, the 1990-
92 proceeding, discarded the ``harm'' criterion in its consideration
. . . . That action was upheld by the Librarian of Congress and,
subsequently, the Court of Appeals. Nat'l Ass'n of Broadcasters v.
Librarian of Congress, 146 F.3d 907 (D.C. Cir. 1998). The 1998-99
CARP refined the approach further still, noting that ``every party
to this proceeding appears to accept `relative marketplace value' as
the sole relevant criterion that should be applied by the Panel.''
CARP Report at 10 (emphasis in original). As a consequence, the CARP
announced that its ``primary objective is to `simulate [relative]
market valuation' as if no compulsory license existed.'' Id. The
Librarian upheld this conclusion as well, and the Court of Appeals
once again affirmed. Program Suppliers v. Librarian of Congress, 409
F.3d 395 (D.C. Cir. 2005).
Distribution Order, Distribution of the 2000-2003 Cable Royalty
Funds, 75 FR 26798, 26801-02 (May 12, 2010) (2000-03 Distribution
Order).\16\
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\16\ ``Fee-generation,'' discussed elsewhere in this
determination, is a method proffered to identify relative
marketplace value. Id. at 26804 (the ``fee generation approach
should be accorded deference, not as the methodology to determine
the relative marketplace value but as a methodology to determine
that value.''). Other approaches proffered more recently have been
advanced in order to apply the present standard, ``relative
marketplace value.'' See 2010-13 Determination at 3556 (identifying
[r]egression analyses, CSO survey results, viewership measurements,
a changed circumstances analysis, and a cable content analysis'' as
approaches to estimate relative marketplace value).
---------------------------------------------------------------------------
The D.C. Circuit Court of Appeals has recognized that ``the process
that Congress ordained'' has placed the Judges and their predecessors
in a context where ``mathematical exactitude . . . appears well-nigh
impossible [and] rough justice in dividing up the royalty pie seems to
be . . . inevitable.'' Nat'l Ass'n of Broadcasters v. Copyright Royalty
Tribunal, 772 F.2d 922, 926 (D.C. Cir.1985) (emphasis added) (``NAB'').
Moreover, despite the shifts in the administrative standard for
allocating royalties, the D.C. Circuit has continued to note this
practical concern. See, e.g., Settling Devotional Claimants v.
Copyright Royalty Board, 797 F.3d 1106, 1121 (D.C. Cir. 2015).
It is in the context of this ``rough balancing of hotly competing
claims,'' NAB at 940, that the Judges find it appropriate to rely (in
part) on regression approaches in this proceeding. The counter-argument
that the regressions do not generate a proxy for price that meets the
exactitudes of econometric theorizing may be correct, but it appears to
be a precise answer to the wrong question, namely, what is the price
that would obtain in a marketplace ill-defined in the record in this
proceeding?
The Judges have experience in considering market proxies when
exercising their companion jurisdiction of setting royalty rates for
certain forms of music and sound recording distributions. In those
proceedings, the parties proffer, and the Judges consider, benchmark
evidence from analogous markets, market-based evidence from the
regulated market itself, economic models, economic experiments, and
survey evidence--all in an attempt to identify applicable market
factors. Often, more than one of these approaches are proffered in the
same proceeding, and the Judges consider whether to apply more than one
model in rendering a determination. Here, the parties have provided
evidence from the regulated market itself, in the form of regression
analyses, and survey evidence, in the form of the Bortz Survey.
Focusing here on the criticism of the regression evidence generated
from the regulated market itself,\17\ the Judges consider the emphasis
of the regression opponents upon the exactitude of the price proxies,
and find that fixation to be dubious. As the Judges have explained,
also in their rate determinations, intellectual property goods (whether
retransmitted television stations or streams of musical works or sound
recordings) are often licensed at various royalty rates because the
nature of these goods invites price discrimination. See, e.g., Final
rule and order, Determination of Royalty Rates and Terms for Making and
Distributing Phonorecords (Phonorecords III), 84 FR 1918, 1980 (Feb. 5,
2019) (dissent, Strickler, J.) (for intellectual property goods there
``exist many alternative rate structures with varying rates for various
segments of the market . . . forms of `price discrimination,' which, in
the broadest sense, means simply a departure from a single, per-unit
price.''). Thus, the very idea of a single econometrically correct
price for the royalties at issue in this proceeding is fanciful,
particularly in the absence of any evidence of such prices or even a
methodology to establish price.
---------------------------------------------------------------------------
\17\ The Judges focus on the Bortz Survey infra.
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Additionally, in line with the D.C. Circuit's acknowledgment that
these allocation proceedings may afford the Judges only the ability to
dispense ``rough justice,'' the Judges note an economic corollary: It
is better to be ``roughly correct'' than ``precisely wrong.'' \18\
Similarly, in matters of econometrics, Professor Kennedy, cited infra
by parties on both sides of the regression divide in this proceeding,
has cautioned econometricians against making what he calls ``Type III
errors[,] . . . when a researcher produces the right answer to the
wrong question.'' Peter Kennedy, A Guide to Econometrics 391 (5th ed.
2003). Indeed, Professor Kennedy, then echoing the quote attributed to
Keynes, advises that in econometric practice ``a corollary of this rule
is that an appropriate answer to the right question is worth a great
deal more than a precise answer to the wrong question.'' Id.
---------------------------------------------------------------------------
\18\ Attributed to John Maynard Keynes. See, e.g.,https://graciousquotes.com/john-maynard-keynes/ (last accessed August 28,
2023).
---------------------------------------------------------------------------
In this proceeding, counsel for the SDC, a party vigorously
advancing the price-based criticism of the regressions, argues that
application of any regression analyses would indeed be ``rough'' but
acknowledges that, as for ``justice,'' only the Judges could say. 6/12/
23 Tr. 6007-08 (closing argument). Counsel is essentially correct on
both points. First, the use of regression analyses is not precise, but
rather ``rough,'' at least compared to the exactitude of a full-
[[Page 54171]]
fledged hedonic regression or a discrete choice approach noted by SDC's
economic witnesses as possible alternatives (but not proffered as
alternative models). And further, Congress most clearly left to the
Judges the decision as to the standard to be applied and the methods by
which the standards could be effectuated.\19\
---------------------------------------------------------------------------
\19\ SDC's counsel's argument was in line with the D.C.
Circuit's understanding that the Judges must by necessity engage in
``rough justice'' in these allocation proceedings, but he protested
that any rough variant of justice that relied on one or more of
these regressions would not constitute ``rough economic justice.''
Id. (emphasis added). The Judges disagree, as do their predecessors
who have relied on these models, and as do the economists/
econometricians who have proffered regression-based models in this
and prior proceedings. In this regard, the Judges were struck by a
warning given by SDC's counsel that, if the Judges ``adopt[ed] the
Tyler [M]odel on a theory of ``rough economic justice'' without
discarding the ``relative market value'' standard, [they] would
inhibit the parties' ability to present top-shelf economists . . .
'' SDC PHB at 64 (emphasis in original). The Judges agree with
Program Suppliers' counsel who rightly took umbrage at the ``not-so-
subtle condescending posture of this remark . . . '' Program
Suppliers PHRB at 41. The expert witnesses certainly do disagree
among each other, but the experience and education of the
economists/econometricians who have proffered their regression
approaches belie the ad hominem argument by SDC's counsel.
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V. Minimum Fee Issue
A. CCG Position on the Minimum Fee Issue
CCG argues that ``[it] is incorrect to claim that regressions are
not useful . . . because of the minimum fee structure,'' or because of
``the presence of more minimum fee or `excess capacity' systems'' in
the 2015-2017 period compared to the prior four years. Proposed
Findings of Fact and Conclusions of Law of the Canadian Claimants Group
(CCG PFF) at 72-73. In support of this argument, CCG asserts that the
regressions proffered in this proceeding do not require accurate
measures when the royalty fees ``actually paid'' are the minimum fees,
even though they may be ``poor proxies for price.'' CCG PFF ] 197 (and
record citations therein) (emphasis added). Rather, CCG maintains that
the regression coefficients--which are calculated using unpaid
subscriber-group base fees--nonetheless provide useful information
regarding the correlation between ``carriage decisions and royalty
payments.'' CCG PFF ] 197 (and record citations therein). In further
support, CCG cites to a statement by the Judges in the prior
proceeding, citing Final Allocation Determination, Distribution of
Cable Royalty Funds, Docket No. CONSOLIDATED 14-CRB-0010-CD (2010-
2013), 84 FR 3552, 3555-56 n.17 (Feb. 12, 2019) (2010-13
Determination).\20\
---------------------------------------------------------------------------
\20\ In fact, footnote 17 cited by CCG does not address this
minimum fee issue.
---------------------------------------------------------------------------
CCG acknowledges though that reliance in these regressions on
minimum-fee-paying CSOs generates ``measurement error,'' but claims
that this is not a concern, because it is ``an ordinary part of
regression . . . reduc[ing] precision but . . . not bias[ing] claimant
shares.'' CCG PFF ] 198 (citing 4/18/23 Tr. 5125-26 (George)). In fact,
CCG maintains that the data pertaining to CSOs that pay only the
minimum fee reveals that, for them, the value of the distant signal is
essentially zero--information that could not have been ascertained from
data in an unregulated market.\21\ CCG ] 199 (citing 4/18/23 Tr. 5139-
41 (George); Written Rebuttal Testimony of Lisa George, Trial Ex. 7404,
at 15-16, 47 (George WRT)).
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\21\ The minimum fee is a fixed (sunk) cost. A CSO that pays
only the minimum fee has a marginal royalty cost to retransmit a
signal equal to zero. Thus, a minimum-fee-paying CSO's decision not
to retransmit any signal indicates that the net value of
retransmittal is zero for that CSO (and may even be negative given
transmission and/or opportunity costs).
---------------------------------------------------------------------------
Focusing on the dramatic increase in the number of minimum-fee-only
CSOs, CCG dichotomizes this cohort. With regard to CSOs that ``do not
carry distant signals'' at all, CCG reasons that their voluntarily
refusal to retransmit means that they cannot be used to determine the
value of distant signals in a regression.\22\ CCG PFF ] 201 (citing
George WRT at 15; 4/18/23 Tr. 5141 (George). And, with regard to the
CSOs that do carry some distant signals, but still have ``excess
capacity'' and thus also pay only the minimum fee, CCG maintains that
``these are the same ones that would determine value absent the
compulsory license.'' CCG PFF ] 201 (citing George WRT at 15; 4/18/23
Tr. 5141 (George)).
---------------------------------------------------------------------------
\22\ CCG maintains that these non-transmitting CSOs also cannot
be utilized in the Bortz Survey.
---------------------------------------------------------------------------
B. Program Suppliers Position on the Minimum Fee Issue
According to Program Suppliers, notwithstanding the increase in the
number of minimum-fee-only CSOs, regression remains the most useful
technique for estimating relative marketplace value. Program Suppliers'
Proposed Findings of Fact and Conclusions of Law (PS PFF) at 78. They
note that, despite this increase, still ``20% of CSOs who carry distant
signals have a calculated royalty fee which is approximately the size
of the minimum fee.'' This ``cluster of CSOs at the threshold . . .
provides evidence that . . . certain CSOs that paid the minimum fee
nevertheless engaged in economic decision-making with regard to
distantly retransmitted signals carried.'' Amended and Corrected
Written Direct Testimony of Cleve B. Tyler, Ph.D., Trial Ex. 7600, ]]
151-52 (Tyler ACWDT). Further elucidating this point, Program Suppliers
rely on additional oral testimony by Dr. Tyler, explaining that his
regression model ``is based in part on the . . . likely uncertainty, at
the time that carriage decisions are made, as to whether the minimum
fee or the calculated rate [i.e., the base rate] would bind . . .
increas[ing] the economic content within the decision-making process,
even where the minimum fee ultimately binds.'' PS PFF ] 323 (citing 4/
19/23 Tr. at 5521-22 (Tyler)) (emphasis added).\23\ Further in this
regard, Program Suppliers aver that even CSOs with zero distant signal
carriage derive ``option value'' from the section 111 license, because
they are always permitted (``privileged'' in the language of section
111) to engage in such retransmission. Tyler ACWDT ] 102. According to
Dr. Tyler, the base fee calculation would tacitly reflect this option
value. Id.
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\23\ In a following colloquy with Judge Strickler, Dr. Tyler
acknowledged that, by contrast, where the base fees calculated by
CSOs were well below the minimum fee ultimately paid, their base
fees provided ``less economic content.'' 4/19/23 Tr. 5525 (Tyler).
---------------------------------------------------------------------------
In any event, Dr. Tyler rejects as ``too extreme'' the alternative
of ``[d]ropping most of the observations'' by excluding the minimum-
fee-only CSOs, because that would implicitly incorporate the assumption
that ``there is essentially no value associated with any of the minutes
for the systems paying the minimum fee.'' 4/19/23 Tr. 5474 (Tyler). In
support of this point, Program Suppliers note that ``[n]o expert in
this proceeding took the approach of dropping minimum fee systems from
the analysis.'' PS PFF ] 327 (and record citations
therein).24 25
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\24\ This argument is misleading. As described infra, the SDC,
JSC, and CTV, through their experts, all relied on the large number
of minimum-fee-only CSOs as a basis to throw out the regressions
entirely for the 2015-2017 period (and the SDC and JSC also reject
the minimum-fee-only data for 2014 as part and parcel of their
wholesale rejection of the regression approach).
\25\ Program Suppliers also note that the Bortz Survey likewise
considers the stated preferences of survey respondents whose systems
pay only the minimum fee. PS PFF ] 328.
---------------------------------------------------------------------------
Despite Program Suppliers' assertion that there is economic
evidence from the carriage decisions of minimum-fee-only CSOs, they
acknowledge that there is also merit to considering a version of the
model that includes only CSOs paying above the minimum fee. Tyler
[[Page 54172]]
ACWDT ]] 155-156. According to Dr. Tyler, this restricted data set
presents with the ``highest degree of confidence'' the CSO tradeoffs
between different stations and categories of minutes. Tyler ACWDT ]
155. To this end, Dr. Tyler undertook a ``sensitivity'' analysis that
considered only CSOs paying more than the minimum fee, and determined
the following estimated shares (and standard errors):
[GRAPHIC] [TIFF OMITTED] TN28JN24.000
According to Dr. Tyler, these shares are sufficiently close to the
shares he proposes through his analysis of all CSOs, i.e., including
those only paying the minimum fee. Compare Tyler ACWDT fig.3.2, with
Tyler ACWDT fig.6.3. According to Dr. Tyler, this ``sensitivity''
comparison of his recommended share allocation and the allocation
generated by above-minimum-fee-only CSOs reveals that his ``modeling
approach . . . is reasonably robust and . . . sufficiently reliable for
informing allocation of the 2014-2017 Cable Royalties among the
Allocation Phase claimant categories.'' Tyler ACWDT ] 105.
C. PTV Position on the Minimum Fee Issue
PTV, like CCG, finds economic significance in the choices of a CSO
``to retransmit a distant signal to particular subscriber groups''
despite the fact that the CSO pays the minimum fee, relying in part on
Dr. Marx's testimony that those choices reveal only ordinal preferences
as to distant programming types. Public Television's Proposed Findings
of Fact and Conclusions of Law (PTV PFF) ] 58 (citing, inter alia, 4/
11/23 Tr. 4165 (Marx)). Thus, PTV finds it appropriate to rely on what
it describes as the ``ample variation in the decision-making of CSOs
that pay the minimum fee . . . to . . . inform[ ] . . . relative
marketplace value. . . .'' PTV PFF ] 59.
As an alternative basis for finding relevance in the decision-
making of CSOs that paid only the minimum fee after the WGNA
conversion, PTV finds relevance in the fact that many CSOs had
distantly carried certain PTV signals pre-conversion together with
WGNA, paying above the minimum fee, and continued to transmit that
companion signal post-conversion, when only the minimum fee applied.
According to PTV, this continuity of PTV carriage is record evidence of
the value of the PTV carriage during the minimum-fee-only periods. PTV
PFF ] 60; Johnson WRT ] 78 (``The WGN conversion in 2015 does not mean
the value of KAET-DT [Public Television signal] declined or disappeared
altogether.''); see generally Johnson WRT ] 79 (As in the KAET example,
``there were 1,115 CSO-Public Television distant signal combinations in
the 2015-2017 period where the CSO paid a minimum fee during those
years [and] [f]or 55 percent of these combinations, the same CSO also
carried the same Public Television distant signal, at a different point
in time, when it paid section 111 royalties greater than the minimum
fee.''(emphasis added)).
As another alternative, Dr. Johnson, on behalf of PTV, and like Dr.
Tyler, undertook a ``sensitivity test'' that excluded the minimum-fee-
paying CSOs. According to PTV, the results of this sensitivity test
were sufficiently consonant with the coefficients in Dr. Johnson's
preferred ``baseline'' fee-based regression, which included the
minimum-fee-only CSOs, to suggest that decisions made by CSOs that paid
minimum fees are informative as to the question of relative value. PTV
PFF ] 84 (and record citations therein); compare Johnson WDT fig.11
(baseline model coefficient, with Johnson WDT fig.14 (``sensitivity
test'' coefficients excluding minimum-fee-paying CSOs). This consonance
was important, according to Dr. Johnson, because it justified his use
of the ``baseline'' model, which, because it included the minimum-fee-
paying CSOs, relied on 18,666 observations, and therefore was more
precise than his ``sensitivity test'' approach. Johnson WDT ] 84.
From yet another economic perspective, PTV maintain that for
minimum-fee-paying CSOs making some retransmissions, the value of the
retransmitted programming must have some marginal value, in excess of
``opportunity costs'' regarding alternative uses of bandwidth including
streaming alternatives. PTV PFF ]] 62-63. Taken together, PTV asserts
that the foregoing facts support the inclusion of the base-fee
decisions of minimum-fee-paying CSOs. PTV PFF ] 97.
[[Page 54173]]
D. CTV Position on the Minimum Fee Issue
CTV presents a nuanced argument regarding the relevancy of minimum-
fee-only CSOs, consistent with the opinions of their economic expert,
Dr. Leslie Marx. On the one hand, CTV and Dr. Marx maintain that the
retransmission decisions of minimum-fee-only CSOs were not so numerous
as to preclude the use of base fee data from minimum-fee-only CSOs in a
regression for the years 2010-2013 (addressed in the prior
determination) and for 2014 (the earliest year addressed in the present
proceeding). 4/11/23 Tr. 4157 (Marx) (testifying that ``the mere
presence of royalties from excess capacity CSOs'' does not make the
fee-based regressions invalid'' because ``it's a matter of degree . . .
.''). On the other hand, CTV and Dr. Marx maintain that the
retransmission decisions of the minimum-fee-only CSOs were so pervasive
during the years 2015-2017 as to preclude the use of fee-based
regressions for those three years. Id. at 4157-58. See generally
Commercial Television's Proposed Findings of Fact and Conclusions of
Law (CTV PFF) at 38 (describing CTV's and Dr, Marx's approach as
measured, because it ``utilize[ed] a fee-based regression only for
2014, [which was] the sole year at issue in this proceeding without
significant marketplace changes.'') \26\
---------------------------------------------------------------------------
\26\ This nuanced position is not an inconsistent economic
argument. Rather, it is an argument regarding data differentiation
and the concomitant weighing of evidence. CTV and Dr. Marx assert
that, as a matter of ``degree,'' too high a percentage of the number
of CSOs paying only the minimum fee (and/or too high a percentage of
all royalties paid by minimum-fee-only CSOs) will render the
incorporation of the retransmission decisions of those CSOs (and/or
the royalties they paid) fatal to a fee-based regression. However,
they assert that when those minimum-fee-only CSOs and their
royalties are only approximately half of the CSOs and royalties
paid, as in the 2010-2013 period, and when they principally apply to
CSOs with only one subscriber group (and thus are excluded anyway
from the Crawford-style regression), their inclusion is too small to
preclude use of a fee-based regression. See generally CTV PFF at 20
et seq. (``The lack of informative data renders any fee-based
regression inappropriate and unreliable for 2015, 2016 and 2017.'').
---------------------------------------------------------------------------
CTV continues its argument on this point by pointing out that when
a CSO elects to carry a set of distant signals resulting in a payment
higher than the minimum fee, that indicates the CSO sufficiently values
the programming minutes bundled into the carriage to make it willing to
pay marginal royalty payments above the minimum fee. Written Rebuttal
Testimony of Leslie M. Marx, Ph.D., Trial Ex. 7208, ] 21 (Marx WRT).
Alternatively stated, for these CSOs which CTV accurately describes as
``above-capacity'', i.e., retransmitting more than 1.0 DSE and thereby
paying above the minimum fee, the base fee royalties reported by their
subscriber groups are their actual royalty payments, revealing the
CSO's perceived value of the distantly retransmitted stations and their
constituent programs. Written Rebuttal Testimony of Christopher
Bennett, Ph.D., Trial Ex. 7035, ] 15 (Bennett WRT); CTV PFF ] 158.
To contrast from the ``above-capacity'' CSOs, CTV and its experts
examine the carriage decisions of CSOs that had carried WGNA in 2014,
either solely or with other signals, but could not, and thus did not,
carry WGNA after 2014. CTV asserts that because the WGNA conversion
generated the explosion of minimum-fee-only CSOs, the majority of the
royalties and CSOs do not reflect incremental costs associated with
incremental carriage. CTV PFF ]] 177, 186. This change is reflected in
a series of figures presented by Dr. Marx. First, she demonstrates the
share of royalty payments by CSOs carrying distant signals relative to
the minimum fee, across the relevant years:
[GRAPHIC] [TIFF OMITTED] TN28JN24.001
[[Page 54174]]
Next, Dr. Marx identifies the percentage of all CSOs carrying
distant signals that are paying the minimum fee over the relevant
years:
[GRAPHIC] [TIFF OMITTED] TN28JN24.002
These data present the contrast between how the actual royalty
obligations through 2014 were directly linked to base fees at the
subscriber-group level and the actual royalty obligations in the 2015-
2017 period where they were instead predominantly a function of the
minimum fee. CTV PFF ] 167 (citing Bennett WRT fig.5). Likewise, Dr.
Marx testified that there was no substantial dissimilarity in the 2010-
2014 period between: (1) the overall regression coefficients (not
allocation shares) for all CSOs and (2) the regression coefficients for
only CSOs carrying fewer distant signals than the minimum fee would
permit, which Dr. Marx aptly described as ``excess capacity'' CSOs.
Marx WRT ] 62. This substantially similarity was depicted as follows by
Dr. Marx:
[GRAPHIC] [TIFF OMITTED] TN28JN24.003
Moreover, according to Dr. Marx, many of the CSOs with ``excess
capacity'' also had less than the two subscriber groups necessary to be
observed by the Crawford regression, thus making their ``excess
capacity'' status inconsequential to the regression for this
independent reason. 4/11/23 Tr. 4157 (Marx).
The scenario for the 2015-2017 period was drastically different,
according to Dr. Marx. She also presents coefficients (not allocation
shares) for this latter three-year period, and shows how the
coefficients for all CSOs differed from those with no excess capacity:
[[Page 54175]]
[GRAPHIC] [TIFF OMITTED] TN28JN24.004
With regard to the necessity of at least two subscriber groups
within a system during an accounting period (required by Dr. Crawford's
system-accounting period fixed effect), Dr. Marx reported that,
beginning in 2015, fully 62% of CSOs, accounting for almost 35% of
total royalties, did not satisfy this requirement. Amended Corrected
Written Direct Testimony of Leslie M. Marx, Ph.D., Trial Ex. 7204, ] 58
(Marx ACWDT). By 2017, 93.8% of the royalties were paid via the minimum
fee, rather than the base fees. CTV ] 189 (citing Marx WRT, fig.14).
Although CTV and Dr. Marx do not consistently characterize the
evidentiary weight of the royalty data from ``excess-capacity'' CSOs as
wholly uninformative, they unambiguously report Dr. Marx's own opinion
that the 2015-2017 minimum fee royalty data is decidedly ``less
informative'' than the royalty data from CSOs that transmitted more
than 1.0 DSE. Marx WRT ] 22.
Further bolstering the point that minimum-fee-only-CSO royalty data
dominated the 2015-2017 landscape, CTV points to the following data:
CSO carriage of fewer distant signals after 2014 sharply
increased the percentage number of excess capacity CSOs, from less
than 20% of CSOs in 2014 to 73% of CSOs in 2016 onward. Marx WRT ]
64.
The percentage of CSOs paying more than the minimum fee
decreased from 48% in 2014 to only 19% by the end of 2017 (measured
by including CSOs with zero retransmittals).
CTV PFF ]] 209-210 (and record citations therein).
Based on the foregoing, CTV relies on Dr. Marx's conclusions
that:
The changed circumstances in the real-world market have infected
the quality of the data and reduced the quantity of the data
utilized by the proffered fee-based regressions making those
regressions in the 2015 to 2017 timeframe unreliable. 4/11/23 Tr.
4510-12 (Marx).
A regression requires reliable data that fits the underlying
assumptions, otherwise the model is putting ``garbage in'' and
getting ``garbage out.'' The data no longer represents carriage
decisions based off of royalty payments from the CSOs. 4/11/23 Tr.
4147; 4194 (Marx).
CTV PFF ]] 299-300. See also Marx WRT ] 82 (``[F]or a minimum fee-
paying CSO, the inclusion of a distant signal in the channel line-up to
a subscriber group . . . reflects the CSO's choice over other
alternative signals that also have no incremental cost. This can be
informative as to the value of the program minutes on whatever signal
the CSO elects to offer.'').
E. JSC Position on the Minimum Fee Issue
Like CTV, JSC contrasts the 2010-2014 period with the years 2015-
2017. In the former period, JSC notes, most CSOs calculated ``a Base
Fee + their 3.75% Fee that equaled or exceeded the Minimum Fee.'' More
particularly, JSC specifies that, ``in 2014, 71.8% of all CSOs
calculated a Base + 3.75% Fee that met or exceeded their minimum fee
obligation, and during the 2010-13 period, 73.0% of all CSOs did so . .
. account[ing]for 76.5% of total royalties paid in 2014 and 79.9% of
total royalty fees paid during the 2010-13 period.'' Proposed Findings
of Fact and Conclusions of Law of the Joint Sports Claimants (JSC PFF)
] 17 (citing 3/30/23 Tr. 2578 (Majure); Harvey CWDT ] 17 & tbl.3;
Corrected Bortz Report, Trial Ex. 7101, at 9 (Bortz Report).
Further, JSC maintains that even if an economic model could produce
reliable ordinal rankings, which none of the regressions in evidence
attempted, it is not possible to make the leap from such rankings to
cardinal relative values, i.e., allocation of specific royalty amounts
to each of the claimant categories in this proceeding. 3/30/23 Tr.
2512-13 (Asker).
JSC also maintains that the base fee calculations of any minimum-
fee-only CSO cannot reveal the programming preferences of such CSOs or
otherwise be useful in the estimation of relative marketplace value.
Specifically, JSC first maintains that ``[a]ny alleged uncertainty
about application of the Minimum Fee is speculative.'' Reply Proposed
Findings of Fact and Conclusions of Law of the Joint Sports Claimants
(JSC RPFF) at 11. Not only does JSC find this uncertainty to be
speculative, they further argue that it is ``highly unlikely that most
Minimum Fee CSOs would have been uncertain about whether a carriage
decision would affect their royalty payment.'' JSC RPFF ] 32. In
support of this point, JSC notes that, after 2014, among minimum-fee-
only CSOs that retransmitted at least one distant signal, approximately
86% calculated a base fee + 3.75% Fee that was 75% or less of the CSO's
minimum fee. JSC RPFF ] 32. Further to this point, JSC takes note of
Dr. Tyler's acknowledgement that ``the further you are away from the
minimum fee threshold, the less likely it would be that there would be
that risk of exceeding it.'' JSC RPFF ] 32.\27\
---------------------------------------------------------------------------
\27\ However, JSC also acknowledges that the Bortz Survey, on
which it relies, likewise ``decided to adopt Base [Fee] + 3.75% Fee
. . . weighting ``[o]nce Bortz realized that many . . . systems were
paying the Minimum Fee. . . .'' JSC RPFF ] 105.
---------------------------------------------------------------------------
In further criticism of the usefulness of regressions, particularly
for the two-year 2016-2017 period, JSC notes that only 55.2% of [CSOs
chose to carry] distant signals. Harvey CWDT ] 26. JSC further notes
that, out of this 55.2%,
[[Page 54176]]
approximately 74% paid only the minimum fee.
Additionally, JSC notes that during the two-year 2016-2017 period,
14% of all CSOs met or exceeded the minimum fee, accounting for but
6.8% of total royalty payments, which reflected a 91% decrease compared
to 2014. Harvey CWDT tbl.11.\28\
---------------------------------------------------------------------------
\28\ More particularly, in the years 2016-2017, only 3.2% of
CSOs calculated a base fee + 3.75% Fee that ``met'' (rather than
``exceeded) the minimum fee. JSC PFF ] 54 (citing Harvey CWDT
tbl.14).
---------------------------------------------------------------------------
With regard to 2015, JSC relies on Mr. Harvey's finding that, after
he removes reported WGNA carriage, 72% of CSOs carrying at least one
distant signal then paid only the minimum fee. JSC notes that Mr.
Harvey found that only 13.4% of CSOs calculated a minimum fee,
accounting for 85.2% of total royalty payments for that year. JSC PFF ]
46 (citing the Harvey CWDT).\29\ Considering these 2015 data from the
opposite perspective, JSC cites Mr. Harvey's calculation that only
13.4% of CSOs calculated a base fee + a 3.75% fee in excess of the
minimum fee, reflecting only 9.8% of the total royalties paid in that
year. JSC PFF ] 47 (further the Harvey CWDT).
---------------------------------------------------------------------------
\29\ It is hardly clear that Mr. Harvey was justified in
removing reported carriage of WGNA in 2015. The record reflects the
existence of SOAs filed for 2015 that reported such carriage, and
there is uncertainty as to whether those SOAs were erroneous or
whether there was residual WGNA carriage as WGNA transitioned from a
broadcast channel to a cable station. But see Kent Gibbons, WGN
America Converts to Cable in Five Markets, Broadcasting & Cable
(Dec. 14, 2014) (``Tribune Media Co. said its WGN America is
debuting on cable television systems in Chicago, Boston,
Philadelphia, Seattle and Washington, DC, starting Tuesday, as it
begins converting from a superstation to a cable network . . . on
Comcast systems [with] more launches and conversions . . . happening
on distributors this month and throughout 2015.'') (emphasis added).
---------------------------------------------------------------------------
JSC also relies on another of its expert witnesses, the economist
Dr. W. Robert Majure, who explained that, in the 2015-2017 period, most
CSOs that formerly carried WGNA under the section 111 license chose not
to replace it with an equivalent number of DSEs, and as a result ``made
far less use of the section 111 license.'' JSC PFF ] 49 (citing Written
Direct Testimony of W. Robert Majure, Ph.D., Trial Ex. 7103, ] 77
(Majure WDT)).
Based on these data related to the minimum fee, JSC maintains that
the fee-based regressions, as they relate to the 2015-2017, period
wrongly use base fees (with or without the 3.75% fee) as ``price
proxies,'' in that when the minimum fee binds, the marginal royalty
cost of carriage is zero. JSC PFF ]] 148-152 (and record citations
therein).
In econometric terms, Dr. Asker, on behalf of JSC, measured the
alleged errors that Drs. George, Johnson, and Tyler introduced into
their regressions by using the incorrect base-fee-related price
proxies. These alleged ``measurement errors,'' according to Dr. Asker,
were correlated with the variables measuring distant signal content
minutes in the entire 2014-2017 period and equal the difference between
the improper price proxies y and the zero price implied by the payment
of the minimum fee. Written Rebuttal Testimony of John Asker, Ph.D.,
Trial Ex. 7114, ] 79 (Asker WRT).
JSC further notes in this regard that Dr. George herself conceded
that the link between base rate royalties and actual CSO demand is
``not super tight,'' and adds the very sort of ``measurement error to
the dependent variable'' that Dr. Asker has calculated. JSC PFF ] 154
(citing Dr. George's hearing testimony).
Dr. Asker also takes issue with the regression experts' use of the
base fee as a price proxy even for CSOs paying above the minimum fee.
He explains that for a perfectly rational CSO calculating price, the
true marginal cost of distantly retransmitting a local station in this
context--the difference in cost to the CSO between retransmitting and
not retransmitting--is not the base fee, but rather the difference
between (1) the total fees that would bind, which may have been the
minimum fee, without retransmitting that local station, and (2) the
total base fees that would bind (the minimum fee having been exceeded)
if that local station was distantly retransmitted. See Asker WRT ]] 59-
77 (applying the definition of price, stated in ] 61, as ``the extra
expenditure required to have it, as compared to not having it.'').
Finally, JSC takes note of Dr. Asker's point that it is standard
practice among statisticians and econometricians to test the validity
of a regression against other available external evidence, as a sort of
``reality filter.'' JSC PFF ] 169 (citing Asker WRT ] 104); see also 3/
28/23 Tr. 1910-11 (Harvey) (agreeing with Judge Strickler that
``validity test'' is synonymous with ``reality filter''). Here, JSC
points out that the validity of the regressions is refuted by the fact
that, during the 2015-2017 period, CSOs did not behave in accordance
with the assumption behind the regressions. That is, despite the
assumption that the incremental benefits of distant carriage were
positive (according to the regression estimates) and the incremental
royalty cost was zero, most CSOs elected not to add additional distant
signals. Thus, the regressions purportedly were invalid, unrealistic,
and self-contradictory (``false within their own premise'' one might
say), according to JSC. Written Rebuttal Testimony of W. Robert Majure,
Ph.D., Trial Ex. 7104, ]] 15, 47-50 (Majure WRT); 3/30/23 Tr. 2594-95,
2598-99 (Majure).
F. SDC Position on the Minimum Fee Issue
At the outset, when framing the relevant minimum fee issue, the SDC
maintain that, ``while it may be true'' that CSOs' ordinal decision-
making shows their ranked preferences, ``no regression model in this
case has been specified for such a theory.'' SDC PFF ] 39. Rather,
these regressions consider the calculated (but not paid) base fees (and
the 3.75% Fee, depending on the regression at issue) of these minimum-
fee-only CSOs.
But the SDC maintain that the minimum fee ``confounds any
interpretation of a fee-based regression'' premised on the CSOs'
``willingness-to-pay.'' Settling Devotional Claimants' Proposed
Findings of Fact and Conclusions of Law (SDC PFF) at 27. In this
regard, the SDC point to the testimony of several experts who opine
that the minimum fee structure ``largely obviate[s] the purported
causal theory based on `willingness-to-pay,' '' because the minimum-
fee-only CSOs ``are required to pay a minimum fee equivalent to a 1.0
DSE . . . whether they are `willing' or not.'' SDC PFF ] 60 (citing
Asker WRT ]] 78-86; Marx WRT ] 22.). Stating the point in economic
terms, the SDC state that ``there is no marginal cost'' incurred by a
CSO unless and until ``the minimum fee is exceeded.'' SDC PFF ] 60.
The SDC do not limit their criticism of the minimum fee issue to
the regressions proffered in this proceeding. They also look back to
the 2010-13 proceeding, where ``approximately 50% of the CSOs paid only
the Minimum Fee,'' which, the SDC maintain now (as they did in the
2010-13 proceeding), constituted a ``serious problem'' for the Crawford
regression upon which the Judges relied in the prior proceeding. SDC
PFF ] 61.
But the SDC assert that their criticism in the 2010-13 proceeding
is even more relevant in the present proceeding, in that this minimum
fee problem is ``exacerbated after 2014, [because] the proportion of
fees paid by systems paying the Minimum Fee went up from 39.2% to
93.8%.'' SDC PFF ] 62 (citing Ex. 7204 at 29, Marx ACWDT ] 65). In this
environment, the SDC maintain, it is difficult to see how any
inferences could be drawn about ``willingness to pay.'' SDC PFF ] 62.
[[Page 54177]]
The SDC then evaluate the attempts by the regression experts to
address the minimum fee issue, as summarized below:
--The SDC acknowledge that Dr. Tyler's ``sensitivity test of this
issue,'' in which he dropped the minimum-fee-only CSOs, ``might
provide some rough guidance as to the potential direction and
magnitude of bias introduced by the presence of minimum fees.'' SDC
PFF ] 63 (emphasis added) (citing Tyler ACWDT ] 156). But the SDC
take note of what they characterize as ``the vast amount of data''
that Dr. Tyler had to discard to apply this sensitivity test,
leading the SDC to conclude that Dr. Tyler's attempt to drop all
minimum-fee-paying CSOs was ``probably too extreme.'' SDC PFF ] 63
(citing 4/19/23 Tr. 5473-74 (Tyler).
--Dr. Johnson's sensitivity test, in which he too applied his model
only to systems paying above the minimum fee, resulted in large
swings in the JSC coefficients, rendering them statistically
insignificant. SDC PFF ] 104.
--The SDC acknowledge that Dr. Marx ``makes good points about the
confounding effects of minimum fee-paying systems . . . in the 2015-
2017 timeframe,'' but find ``her position on the reliability of the
model before 2015 . . . too convenient to credit.'' Harkening back
to their criticism of the 2010-13 Determination's adoption of the
Crawford regression, the SDC maintain that Dr Marx's Bayesian
regression for 2014 is deficient with regard to this minimum fee
issue because `` `CSOs paying the minimum fees accounted for a large
proportion already before the conversion of WGNA,' '' and any 2014
modeling `` `should have been specified' '' to address this issue.
SDC PFF ] 130 (citing Written Rebuttal Testimony of Daniel L.
Rubinfeld, Trial Ex. 7505, ] 95 (Rubinfeld WRT) (``The fact that Dr.
Crawford's model does not hold up when applied to 2014-2017 data in
the current proceeding reveals that the regression specification put
forth by Dr. Crawford was not robust or informative.'').
G. The Judges' Analysis and Conclusions Regarding the Minimum Fee Issue
The Judges find that the dramatic increase in the number of
minimum-fee-only CSOs (i.e., those with no distant retransmittals and
those with some distant retransmittals but with ``excess capacity'')
renders regression analyses that include those CSOs less reliable and
thus can be accorded only very limited economic evidentiary weight.
Moreover, the Judges accord significantly more evidentiary weight to
regression modeling that focuses only on the CSOs that actually
revealed their preferences by willingly paying above the minimum fee,
i.e., at the base fee level.
In particular, as discussed infra, the Judges rely on the Tyler
Model, as Dr. Tyler applied his model to the CSOs paying above the
minimum fee. See Tyler ACWDT ] 156 & fig.6.3 (discussed infra).
Although there is hardly a consensus as to the adoption of this variant
of the Tyler Model, the Judges are struck by the supportive argument of
the SDC, set forth below, regarding the Tyler Model as applied to
above-minimum-fee-paying CSOs:
Dr. Tyler, whose rate-based methodology is the most explicitly
based on a ``minimum willingness to pay'' theory . . . offers a
sensitivity test of this issue. Tyler [ACWDT] ] 156. (It is a fairer
sensitivity test than Dr. Johnson's similar test, which was selected
retrospectively out of hundreds of tests that were tried and is
performed in the presence of the distortion of multiple
misspecifications). Dr. Tyler's sensitivity test might provide some
rough guidance as to the potential direction and magnitude of bias
introduced by the presence of minimum fees.
SDC PFF ] 156. See also 4/19/23 Tr. 5473 (SDC's counsel's statement to
Dr. Tyler on cross-examination) (``I do want to point out to your
credit that your first sensitivity test tries to address this
issue.''). This argument is generally consistent with Dr. Tyler's
response to SDC counsel on this point, agreeing that it was important
to be ``cognizant'' of this minimum fee issue and that it be
``considered and addressed'' because there is ``reasonable disagreement
about how to handle the issue.'' Id. at 5473-74.
The Judges do not see the disagreement as necessarily
``reasonable'' regarding whether to rely on the calculated base fee
data of all CSOs (including the CSOs paying only the minimum fee) or
only those who actually paid their calculated base fees. But, however
one couches this disagreement, the Judges find the latter approach
appropriate, and that--to borrow the SDC's phrase--the variant of the
Tyler Model in Figure 6.3 of the Tyler ACWDT offers the Judges' ``rough
guidance'' in the allocation of shares.\30\
---------------------------------------------------------------------------
\30\ Evidence that provides ``rough guidance'' is useful
evidence in these proceedings. As noted elsewhere in this
determination, the D.C. Circuit has acknowledged that the nature of
this statutorily-mandated, but statutorily standardless, allocation
process can require a measure of ``rough justice,'' in the face of
inevitable mathematical imprecision.
---------------------------------------------------------------------------
With regard to the issue of precision, mathematical or economic,
the Judges do not adopt Dr. Asker's analysis, discussed above, that the
appropriate method to calculate royalties for above-minimum-fee-paying
CSOs should be based on the difference between (1) the actual royalty
amount paid when a distant station is added; and (2) the amount that
the CSO would have paid pursuant to the minimum fee calculation if it
would bind in the absence of transmittal of that station. Although in
theory that would appear to be a rational approach, there is no
evidence that any CSO actually engages in such an activity. Further, as
the Judges note elsewhere in this determination, they credit the
designated testimony of Ms. Hamilton, a cable industry expert, who
stated that the amount of money at issue regarding section 111
royalties is essentially de minimis to the CSOs (although quite
significant to the parties in this proceeding), and that the CSOs do
not devote much attention to issues regarding distant retransmittals.
In this context, and in the absence of any evidence to the contrary,
the Judges cannot assume, let alone apply, a pricing rationale that
suggests a tunnel-vision sort of hyperrationality, when Ms. Hamilton's
testimony suggests a broader rationality, whereby CSOs rationally apply
their scarce time and attention to more economically consequential
matters.\31\
---------------------------------------------------------------------------
\31\ This finding is consistent with a broader point made by the
economist Ronald Coase, who won the Nobel Prize for his foundational
work on transaction costs, regarding an overemphasis on what he
coined ``blackboard economics.'' As Dr. Coase explained: ``[When]
[t]he policy under consideration is one which is implemented on the
blackboard [and] [a]ll the information needed is assumed to be
available and the teacher plays all the parts . . . there is no
counterpart to the teacher within the real economic system . . . no
one who is entrusted with the task that is performed on the
blackboard.'' R. Coase, The Firm, the Market, and the Law 19 (1990).
Substitute ``expert witness'' for ``teacher'' and ``in the
testimony'' for ``on the blackboard'' and Dr. Coase's point applies
here.
---------------------------------------------------------------------------
VI. The Allegations of ``Specification Searching'' 32
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\32\ Specification searching (also known as ``data fishing.'')
is defined as ``the practice of searching numerous research
methodologies--including different models, design components,
analytical methods, and hypotheses--and selectively reporting only
those that produce significant or otherwise favorable results. H.
Bavli, Credibility in Empirical Legal Analysis, 87 Brook. L. Rev.
501, 509 (2022).
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A. Allegations of Concealed Specification Searching by Dr. Crawford
Applicable to the Present Proceeding
In their determination in the 2010-13 cable proceeding, the Judges
relied predominantly, although not solely, on the fee-based regression
model presented by Dr. Crawford, who was then a witness on behalf of
CTV. In deciding to rely on Dr. Crawford's regression (the Crawford
Model), the Judges credited his testimony denying allegations by the
SDC that he had improperly attempted and rejected many alternative
regression models. 2010-13 Determination at 3566-3567; see also SDC PFF
] 68 (and record citations therein).
[[Page 54178]]
The SDC maintain that three of the four fee-based regression models
presented in this proceeding, PTV's, CCG's, and CTV's, are based upon
the Crawford Model. In order to understand the relationship of these
three models to the Crawford Model, the SDC argue (and the Judges
agree) that it is necessary to understand the characteristics and
history of the Crawford Model, comparing what was known at the time of
the 2010-13 cable proceeding with what was subsequently uncovered. SDC
PFF ] 69 (and record citations therein).
To begin its review of the Crawford Model, the SDC point to the
basic hypothesis undergirding the approach--attempting to ``relat[e] a
measure of royalty fees to numbers of [program] category minutes.'' SDC
PFF ] 70. The SDC state that, although the Crawford Model ``followed a
framework that somewhat resembled . . . the model offered by Dr.
Waldfogel [the Waldfogel Model] in the 2004-05 cable proceeding,'' Dr.
Crawford actually made ``multiple dramatic departures.'' SDC PFF ] 70
(citing 2010-13 Determination at 3557 for a description of Dr.
Waldfogel's model). Dr. Crawford departed from the Waldfogel Model,
according to the SDC, because after he ``tested Dr. Waldfogel's model
as a starting point using 2010-13 data (which he falsely denied doing),
the Waldfogel [M]odel yielded implausible results . . . demonstrating,
at a minimum, that [the Waldfogel Model] . . . performed poorly on out-
of-sample data.'' SDC PFF] 70 (and record citations therein). Moreover,
the SDC assert that Dr. Crawford undertook, but failed to disclose, his
sensitivity testing when he constructed the Crawford Model, which
showed that the results of the Waldfogel Model were extremely sensitive
to annual changes, suggesting that the Waldfogel Model may have been
``selected to fit the data in 2004-05.'' SDC PFF ] 70 (and record
citations therein).
Expanding on the foregoing, the SDC imply that specification
searching is widespread, noting that ``[a]t least 10 different expert
witnesses have presented at least 10 different fee-based regression
models in the last five allocation proceedings: Dr. Rosston (CTV, 1998-
99 cable), Dr. Waldfogel (CTV, 2004-05 cable), Dr. Crawford (CTV, 2010-
13 cable), Dr. Israel (JSC, 2010-13 cable), Dr. George (CCG, 2010-13
cable, 2014-17 cable), Dr. Heeb (CTV, 2010-13 satellite), Dr. Gray (PS,
2010-13 satellite), Dr. Johnson (PTV, 2014-17 cable), Dr. Tyler (PS,
2014-17 cable), and Dr. Marx (CTV, 2014-17 cable). Further, the SDC
emphasize that only Dr. George has appeared more than once, and that
her models in the 2010-13 proceeding and in this proceeding are ``very
different'' from each other. SDC PFF ] 73 (and record citations
therein).
Dr. Erdem, also, later discovered, based on CTV's compelled
production in the 2010-13 satellite case, that Dr. Crawford had
actually tested many different functional forms before deciding to use
the log-linear form. Only then did he perform the appropriate
statistical test (the ``Box-Cox'' test), which Dr. Erdem claims
``specifically rejected the log-linear form.'' Dr. Erdem further claims
that Dr. Crawford improperly failed to run the test on the independent
variables, limiting the test to the dependent variable (the royalty
measure). Amended Written Direct Testimony of Erkan Erdem, Ph.D., Trial
Ex 7502, ]] 41-42 (Erdem AWDT); see also Supplemental Written Rebuttal
Testimony of Erkan Erdem (2010-13 satellite proceeding), Trial Ex.
7054, ]] 16-18 & Ex. 3. See SDC PFF ] 76 (and record citations
therein).
According to Dr. Erdem, the failure of Dr. Crawford and CTV, in the
2010-13 cable proceeding to disclose, in Dr. Crawford's direct
testimony or in discovery, this testing and the results thereof served
to conceal the potential for ``distortion and bias'' in the Crawford
Model arising from the use of a ``linear form'' of a control variable
for the number of subscribers in the subscriber group during the prior
accounting period (the so-called ``lagged subscribers'') as affecting
the dependent variable (royalties) expressed not in level (i.e.,
linear) form, but rather in log form. See Erdem AWDT ]] 51, 71; see
also Asker WRT ]] 98-99; Written Rebuttal Testimony of R. Garrison
Harvey, Trial Ex. 7106, ]] 194, 197, 202 & Ex. H (Harvey WRT); see also
SDC PFF ] 77.
The SDC maintain that the foregoing exemplifies the ``poor economic
practice'' and econometric ``sin'' of specification searching broadly
undertaken by Dr. Crawford. SDC PFF ] 87 (citing Kennedy, supra, at
367).\33\ Moreover, the SDC assert that Dr. Crawford did not merely
commit the ``sin'' of specification searching; he also lied by
repeatedly denying his econometric misconduct. Erdem AWDT ] 36; Written
Rebuttal Testimony of Erkan Erdem, Ph.D., Trial Ex. 7503, ] 77 (Erdem
WRT). According to the SDC, Dr. Crawford instead ``acknowledged
performing only a single alternative analysis,'' and the Judges trusted
and relied on his testimony. SDC PFF ] 88 (citing 2010-13 Determination
at 3568 (finding that Dr. Crawford ``had not run such an alternative
regression by generating a regression and then discarding it . . .
.'')). In fact, according to the SDC, Dr. Crawford ``had performed and
rejected . . . undisclosed alternative models . . . with different
combinations of variables, interactions of variables, no fixed effects,
different forms of fixed effects, and a wide range of functional forms
. . . produc[ing] wide ranges of implied shares, including 0% shares
for every . . . category in . . . some models.'' SDC PFF ] 88 (and
record citations therein).
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\33\ A pernicious aspect of covert specification searching is
that it masks from the reader (whether Judge, adversary party,
journal editor or academic referee) conduct that bears importantly
on the regression ultimately produced. The classic example of a
simple hidden specification search is the following: ``[Although]
the probability of flipping a coin and obtaining heads in ten
consecutive flips out of ten tries is almost zero. . . . if 15,000
individuals attempt this, it is virtually certain that one or more
will succeed.'' M. Klock, Finding Random Coincidences while
Searching for the Holy Writ of Truth: Specification Searches in Law
and Public Policy or Cum Hoc Ergo Propter Hoc, Wis. L. Rev. 1007,
1010 (2001). An experimenter who ``searches'' for, and reports only,
the 1 out of 15,000 times the experiment generates ten consecutive
heads, and who conceals the 14,999 times this result did not occur,
is misrepresenting his or her work and the usefulness of the result.
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According to the SDC, a telltale sign that Dr. Crawford had engaged
in specification searching was the Crawford Model's inclusion of
``indicator variables that had no function . . . [given] his system-
accounting period fixed effects . . . [thereby] suggesting that he had
tested the regression with no fixed effects or at other levels of fixed
effects . . . . [But] Dr. Crawford repeatedly denied trying a
specification without fixed effects or at a different level of fixed
effects.'' SDC PFF ] 90 (and record citations therein). Moreover, the
SDC claim that, in response to a question from Judge Feder, Dr.
Crawford lied by claiming he did not test regressions without fixed
effects; his test results, later produced in the satellite proceeding,
showed that he ``ran most of his hundreds of models without fixed
effects and at different levels of fixed effects, searching for the
best results.'' SDC PFF ] 91 (and record citations therein) (emphasis
added).
Returning to the issue of whether to transform variables from
linear to log form, the SDC claim to have identified ``[p]erhaps the
clearest fingerprint'' of Dr. Crawford's specification search.
Specifically, although Dr. Crawford had testified that he did not
perform a sensitivity test on a log-log form of regression because he
``strongly fe[lt] that including log subscribers is not an appropriate
specification as an
[[Page 54179]]
explanatory variable'', this ``was a lie'' because the discovery in the
satellite proceeding showed that Dr. Crawford did test a log-log form
of regression, which resulted in ``an approximately 10-point drop in
CTV shares (about an $80 million value).'' SDC PFF ] 93 (and record
citations therein).
After reviewing the satellite discovery, which included
approximately 500 regression model runs, and weighing it against Dr.
Crawford's cable testimony, SDC expert Dr. Rubinfeld stated: ``I've
never seen anything on this scale . . . .'' 4/6/23 Tr. 3638
(Rubinfeld). The SDC characterize Dr. Crawford's purported
specification searching and related alleged untruths as ``[e]vidence of
fraud in a past proceeding'' that constitutes ``changed
circumstances,'' thus ``requir[ing] a reevaluation of those
characteristics of a Crawford-like regression that have infected the
regression models presented in this proceeding.'' SDC PFF ] 96
(emphasis added).
In this regard, the SDC take particular note that Dr. Marx
acknowledges that because her Bayesian model relies directly on Dr.
Crawford's results her results are unreliable if Dr. Crawford's results
are unreliable. SDC PFF ] 129 (citing 4/11/23 Tr. 4323-24 (Marx)).
B. CCG Response Regarding Alleged Specification Searching by Dr.
Crawford
CCG's ``primary response'' to the SDC's claim is that any
specification searching by Dr. Crawford is irrelevant because
``regression has the advantage of transparency and replicability.'' CCG
PFF ] 217 (and record citations therein). This occurred in the present
proceeding, CCG maintains, as the work of various experts presenting
testimony in this case showed, that every aspect of a regression such
as the Crawford Model could be and was examined and tested. 4/18/23 Tr.
5177-79 (George); George WRT at 53.
Further, CCG maintains it is appropriate for experts in the present
proceeding not to ``mov[e] away from an approach that the Judges have
found highly useful in determining relative market value'' unless there
were ``clear theoretical or empirical reasons'' to do so. CCG PFF ] 218
(and record citations therein). CCG analogizes to the ``academic
setting,'' in which ``differing views'' among econometricians can be
``addressed through the `referee' process . . . where the most
important criterion for evaluating a proposed alternative model is
whether the proposed change undermines the theoretical relationships in
some way . . . .'' George WRT at 52.
Applying the foregoing points, Dr. George was unconcerned that Dr.
Crawford's procedures appeared to include ``more than one model.'' She
analyzed the Crawford Model on its merits, concluding that it ``was
tightly linked to the economics of the cable marketplace and estimated
to minimize bias.'' It was on this basis, as well as the Judges'
endorsement of the model, that Dr. George used the Crawford Model as
the basis for her work in this proceeding. 4/18/23 Tr. 5131, 5176
(George); George WDT at 6; Ex. 7404; George WRT at 10-11, 13, 43-44;
see also CCG PFF ] 220.
C. CTV Response Regarding Alleged Specification Searching by Dr.
Crawford
When asked whether she believed Dr. Crawford had or had not engaged
in improper specification searching, Dr. Marx demurred stating that she
was ``not offering that opinion.'' 4/11/23 Tr. 4119 (Marx). When asked
specifically about the more detailed arguments made by the SDC
witnesses regarding Dr. Crawford's alleged specification searching
based on supplemental discovery Dr. Marx sought to make sure her ``no-
opinion'' testimony was unambiguous:
I want to be clear that I didn't reach an opinion about whether
or not [Dr.] Crawford had a fair underlying theoretical structure
behind the regressions that he ran. I didn't see anything in what I
reviewed that raised red flags that that was not the case, but what
I saw was consistent with or at least not inconsistent with proper
econometric practice.
4/11/23 Tr. 4121 (Marx) (emphasis added). See also 4/11/23 Tr. 4226
(Marx) (testifying similarly in response to questioning by Judge
Strickler); 4/11/23 Tr. 4257 (Marx) (same). On cross-examination, Dr.
Marx elaborated while reiterating her ``no opinion'' regarding the
characterization of Dr. Crawford's consideration of hundreds of
regression alternatives:
[Dr. Marx]
[I]n my direct testimony . . . I wanted to emphasize that I am
not opining that [Dr.] Crawford had an underlying theoretical
structure. I'm just saying that what I saw was consistent with that.
What I saw was not inconsistent with proper econometric practice,
but I'm not offering an opinion about what [Dr.] Crawford was
thinking in the process of running these tests. And I'm not trying
to speak for [Dr.] Crawford.
[SDC counsel Mr. MacLean]
So you would agree that . . . running hundreds of different
models and then selecting models based on preferred or expected
results or what you referred to as casting about, that would not be
a good research practice . . . ?
[Dr. Marx]
It is not a good research practice to cast about without
thinking and without an underlying theoretical structure . . .
without the underlying economics being kept in mind. The mere
observation of a large number of regressions being run, by itself,
in the context of the 2010 to 2013 proceeding, I don't find at all
surprising, and seeing that did not raise any concerns in my mind
about either the reliability of the work or my ability to use my
usual procedure and thinking to assess the reliability of the work.
4/11/23 Tr. 4325-27 (Marx).
However, after being confronted with Dr. Crawford's testimony that
he had ``perform[ed] only one alternative analysis, that he hadn't
provided'' in discovery, in contrast to what was uncovered in the
satellite discovery, Dr. Marx acknowledged that as to Dr. Crawford's
oral testimony ``there are statements that were made that seem in
retrospect not accurate.'' 4/11/23 Tr. 4332 (Marx). Dr. Marx then
nonetheless retreated to one of her stock statements, asserting that
``nothing that I saw raised any concerns in my mind that [Dr.]
Crawford's results were not reliable . . . .'' 4/11/23 Tr. 4334 (Marx).
Accordingly, rather than render her own judgment as to the
appropriateness of Dr. Crawford's conduct or adjust her application of
the Crawford Model in light of these issues, Dr. Marx testified that
she reviewed and assessed Dr. Crawford's 2010-13 regression model as
she would consider any such model, whether in her role as an economist
or as an academic journal referee (which is a function she performs).
On this basis, she determined that Dr. Crawford's model was reliable,
i.e., regardless of any of the specification searching and dissembling
that SDC claimed had been uncovered in the satellite proceeding
discovery. Marx WRT ]] 42-54; 4/11/23 Tr. 4112-20, 4325-4327, 4334
(Marx); CTV PFF ]] 366-69; Reply of the Commercial Television Claimants
to Proposed Findings of Fact and Conclusions of Law (CTV RPFF) ] 169.
A key reason why Dr. Marx declined to express an opinion as to Dr.
Crawford's alleged specification searching is the following: What the
SDC characterize as Dr. Crawford's wrongful experimentation with
alternative model specifications, Dr. Marx maintains it can also be
understood as a form of sensitivity analysis--not only a standard
activity, but actually a best practice in econometric analysis. Marx
WRT ] 10; 4/11/23 Tr. 4120-21 (Marx). More broadly, CTV asserts that
what Drs. Erdem and Rubinfeld criticize as evidence of the improper
practice of specification searches can all be understood as the
``standard practice of economists''--involving ``[r]obustness checks,
sensitivity analyses, and
[[Page 54180]]
differences across economists in regression specifications.'' CTV PFF ]
371 (citing Marx WRT ]] 31-36).
D. PTV Response Regarding Alleged Specification Searching by Dr.
Crawford
PTV's expert economic witness, Dr. Johnson, did not address the
soundness of Dr. Crawford's 2010-13 regression methodology, which, to
repeat, the SDC economic experts characterize as the wrongful
undertaking of a specification search.\34\ But PTV emphasizes that,
although Dr. Johnson acknowledges that his own regression analysis is
based on the economic theory and principles underlying Dr. Crawford's
regression analysis, Dr. Johnson modified and improved some aspects of
Dr. Crawford's regression model. PTV PFF ]] 113, 115 (citing Crawford
WDT ]] 32-36, 46.) Thus, PTV argues, even if Dr. Crawford engaged in
wrongful specification searching to construct his 2010-13 model, ``it
makes no sense for it to adversely affect the reliability of Dr.
Johnson's regression specification, which has a different set of
variables and has been tested on the 2014-17 data.'' PTV PFF ] 143.
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\34\ Dr. Johnson testified he never received Dr. Crawford's
workpapers unearthed in discovery in the 2010-13 satellite
proceeding on which the SDC relies for its specification search
allegation (despite the production of those documents by the SDC to
all counsel, including PTV's counsel, in this proceeding.).
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E. Allegations of Concealed Specification Searching by Dr. Johnson in
This Proceeding
Turning from the work of Dr. Crawford to the work of Dr. Johnson,
on behalf of PTV in the present proceeding, the SDC accuse PTV and Dr.
Johnson of similar misconduct as they allege was committed by Dr.
Crawford in the 2010-13 proceeding. SDC charge that Dr. Johnson
concealed numerous regression modeling tests in discovery, limiting
production to only a few sensitivity tests. SDC PFF ] 105. Despite this
modest discovery, based on the documentation that had been produced by
PTV, Dr. Erdem saw evidence suggestive of specification searching. 4/5/
23 Tr. 3429; 4/6/23 Tr. 3552-55 (Erdem). These suspicions gave rise to
the SDC's motion to compel SDC's production of all regression models
that Dr. Johnson had considered, and the Judges granted the motion. See
Order 24 Granting the SDC Motion to Compel PTV to Produce Documents
(Jan. 19, 2023).
F. SDC Assertions After Further Discovery
After PTV was compelled by the Judges to provide further discovery,
it produced documents revealing that Dr. Johnson's team had selected
the four models that he presented out of more than four hundred models.
He and his professional subordinates had actually engaged in over 400
runs of regression approaches over several different data sets
(resulting in numerous different results in terms of program category
coefficients implied allocation shares). Erdem WRT ] 82; Supplemental
Written Rebuttal Testimony of Erkan Erdem, Trial Ex. 7504, ] 3 n.3
(Erdem SWRT); 4/5/23 Tr. 3403 (Erdem); SDC PFF ] 106. Further, the SDC
cataloged the use by Dr. Johnson and his professional subordinates of
44 different dependent variables (including log transformations) and
wide ranges of shares (negative as well as positive) in all claimant
categories. Erdem WRT ] 82; Supplemental Written Rebuttal Testimony of
Daniel L. Rubinfeld, Trial Ex. 7506, ] 21, tab 2 (Rubinfeld SWRT).
Dr. Erdem analyzed these tests according to dates and sequence
numbers included in the documents produced by PTV and claimed to find
that the successive testing by Dr. Johnson and/or his team was
correlated with a steady rise in PTV's allocation share. Erdem SWRT Ex.
2.
The SDC dismissed as implausible Dr. Johnson's explanation of this
correlation. Specifically, the SDC rejects Dr. Johnson's claims that
the correlation was a ``coincidence'' or that it could be explained by
incomplete and erroneous data that needed to be corrected or updated.
SDC PFF ] 109 (citing 3/22/Tr. 737-39 (Johnson)).\35\
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\35\ It is important to note here that the SDC is
mischaracterizing Dr. Johnson's specific testimony. He clearly did
not say the correlation was a mere coincidence or explainable as a
data issue. Rather he claimed in his testimony that the increase in
PTV shares was coincidental with and caused by the inputting of
additional and correct data, and that it was the data that generated
PTV's higher share. See 3/22/23 Tr. 738 (Johnson) (``I completely
refute . . . that it's a coincidence. The reason that this happened
is . . . tied to specific data issues . . . [and] the data is what
it is.'') (emphasis added).
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In any event, Dr. Erdem testified that if Dr. Johnson and his team
were not engaged in specification searching, the allocation results
arising from the data updates or corrections should have been more
randomly distributed, and, further, that as a matter of regression
methodology it was inexplicable that data changes would serve to
generate hundreds of regressions with different combinations of
specifications. 4/6/23 Tr. 3565-67 (Erdem). Moreover, Dr. Erdem accused
Dr. Johnson and his professional subordinates of self-servingly
searching not only for the specifications that would increase PTV's
allocation share, but also of attempting to search for an optimal
combination of a specification set and a dataset for increasing PTV's
allocation share. 4/6/23 Tr. 3552-55 (Erdem). As purported proof, Dr.
Erdem points to his running of Dr. Johnson's preferred (``baseline'')
model, but with Dr. George's dataset, which caused PTV's allocation
share to decrease by 8 percentage points, with the share of every other
category increasing. Erdem WRT Ex. 8.
In addition to the more technical econometric evidence relied on by
the SDC, they also point to physical evidence. Specifically, the SDC
relies on notes left by a project manager on this assignment, Ms. Yan,
which showed the search criteria that Dr. Johnson's team applied: a
search for positive and statistically significant coefficients on all
content and a high allocation share for PTV, denoted in a document as
``PBS[uarr]'' (i.e., an ``increase value to shift w/lots of minutes'').
Erdem SWRT ]] 8-9 & app. E; SDC PFF ] 114. The SDC's other econometric
expert, Dr. Rubinfeld, using the essentially synonymous phrase ``p
hacking'' to describe the alleged specification searching conduct of
Dr. Johnson's professional subordinates, asserts that this behavior
``invalidates'' Dr. Johnson's statistical tests. Rubinfeld SWRT ] 23.
SDC's counsel characterizes this note from Ms. Yan as the proverbial
``smoking gun.'' SDC PFF ] 115.
The SDC further assert that when the hundreds of regression models
developed by Dr. Johnson and his team were culled to a sub-group of
those with ``positive and statistically significant coefficients for
all categories,'' only four had higher share allocations for PTV.
Moreover, Dr. Erdem opined that these other four had data and
statistical anomalies that would have made them difficult for Dr.
Johnson to defend in any event. 4/5/323 Tr. 3424-25 (Erdem). The SDC
thus concludes that Dr. Johnson and his team essentially chose the
model with the highest PTV share that they thought they could defend.
SDC PFF ] 116.
The SDC also maintain that there was an intentional separation
between Dr. Johnson and other professionals at his consulting firm,
Edgeworth Economics (``Edgeworth'') intended to shield Dr. Johnson from
regression specifications that would have generated lower shares for
PTV--a form of ``plausible deniability.'' In support of this assertion,
the SDC point to written communications within Edgeworth indicating
that certain documents
[[Page 54181]]
needed to be kept from Dr. Johnson or else PTV would be required to
turn them over in discovery. See, e.g., Erdem SWRT ] 8 (reproducing
notes of Edgeworth employee Eduardo Munoz-Alonso, dated 7/8/2021,
distinguishing between material for ``John's report (he'll see) [and]
other stuff (John won't)''; Erdem SWRT ]] 8-9 & app. E (5/26/22 note
written by Esther Yan, 5/26/2022 stating ``Anything we show John gets
turned over. . . .''); and Erdem SWRT ] 8 (an email containing a link
to CDC distant signals data sent to Dr. Johnson's team includes the
caveat: ``. . . these data files are being shared for consulting
purposes only and should not be shared with John'').
Looking at the entirety of the record regarding the procedures
undertaken by Dr. Johnson and others at Edgeworth, Dr. Rubinfeld, one
of the two SDC expert witnesses, opined:
Dr. Johnson's practices (or the practices of other experts or
their staff on behalf of PTV Claimants) are counter to sound
empirical research practices. Their analyses involve the misuse of
the regression methodology to obtain statistically significant
results that deliver coefficient values that generated relatively
high shares for PTV Claimants.
Rubinfeld SWRT ]] 28-30.\36\
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\36\ A JSC expert statistical witness, Mr. Harvey, likewise
concluded that Dr. Johnson had engaged in a specification search.
However, the JSC did not emphasize this point, maintaining instead
that ``it is unnecessary to conclude that Dr. Johnson intentionally
searched for a specification favoring PTV in order to find his model
untrustworthy [because] the selection of data inputs and
specifications'' was improperly undertaken. JSC PFF ]] 195-196 (and
record citations therein).
Program Suppliers' expert economic witness, Dr, Tyler, also
concluded that the work by Dr. Johnson and/or his team ``provides
evidence that, rather than letting the facts of the industry guide
the modeling decision, [they] tested many different models, and then
sought to justify certain specifications with economic theory.'' PS
PFF ] 377 (and record citations therein). Further, Program Suppliers
maintain that ``[t]he evolution of Dr. Johnson's calculated shares
for PTV over time provides evidence that data mining [i.e.,
specification searching] and/or overfitting occurred.'' Id. Further,
Program Suppliers find it problematic that, in this context, ``[o]ut
of the many regression specifications that Dr. Johnson ran, he
selected for his baseline model one in which the PTV share is
substantially higher than the median results from the models
considered . . . .'' Id. at ]] 377-378 (and record citations
therein).
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G. Rebuttals to the SDC's Assertions of Specification Searching
Dr. Johnson maintains that the SDC and other critics of his work
(including Dr. Tyler and Mr. Harvey) have misunderstood the nature of
the many regression specifications that were generated and run on
behalf of PTV. More particularly, he explains in detail that he and his
team ran many of the regression specifications for the purpose of
testing the data, a process that needed to be repeated to incorporate
corrections and updates to the data. 3/21/23 Tr. 416-23, 627-745
(Johnson) (explaining the regression log, the research process,
Edgeworth team structure and personnel, timing of data receipts and
updates from vendors and scope of discovery productions). See also PTV
PFF ]] 139, 145.
Dr. Johnson further maintains that assuming arguendo there was any
untoward activity in the nature of a specification search, it is
essentially a moot point because through discovery (including the
discovery PTV at first withheld and later produced only in response to
an order compelling production) every regression specification that he
and his team ran has now been produced. This production, according to
Dr. Johnson, eliminates any concern that the Johnson Model was
misspecified, whether intentionally or otherwise. 3/21/23 Tr. 641
(Johnson) (``Again, you actually have everything. . . . I followed . .
. what counsel instructed me to do in terms of what I was required to
turn over. And when we were required to turn over everything,
everything has been turned over that my team ever ran, so we have given
you everything.''). See also PTV PFF ] 146.
Additionally, many of the regression models generated and run by
Dr. Johnson and other professionals at Edgeworth Economics (Dr. Johnson
is the founder and CEO), according to Dr. Johnson, reflected their
efforts to understand the Crawford Model proffered in the 2010-13
proceeding and to determine whether the Crawford Model could be applied
to the 2014-17 data. 3/21/23 Tr. 367-68, 370-73 (Johnson). Those
purposes, PTV maintain, are inconsistent with a characterization of
their work as specification searching. Public Television's Reply
Proposed Findings of Fact and Conclusions of Law (PTV RPFF) ] 208.
Overall, given the full disclosure of all the work by Dr. Johnson
and his fellow professionals at PTV, PTV maintains that this
comprehensive body of evidence shows that the Johnson Model generated
regression results that are unbiased and best reflect the data
available to be input into the Johnson Model. PTV RPFF ] 210.
H. The Judges' Analysis and Conclusions
As an initial matter, the Judges reject SDC's argument that Dr.
Crawford's deviations from the prior regression models presented by
Drs. Joel Waldfogel and Gregory Rosston ipso facto demonstrate, or even
suggest, that Dr. Crawford engaged in the wrongful process of
specification searching. The record reflects no legal, economic or
econometric principle that an expert cannot alter, revise, add to or
subtract from a prior economic model. Indeed, the history of the
Judges' acceptance of fee-based regression models as evidence shows
quite the opposite. A brief examination of the evolution the regression
methodology, set forth immediately below, makes that clear.
In the allocation (Phase I) proceedings for the 1998-99 royalties,
the CARP described the first fee-based regression relies upon in such
proceedings:
Dr. Rosston's regression attempts to analyze the relationship
between royalties paid by cable operators for the carriage of
distant signals in 1998-1999 and the quantity of programming minutes
by programming category on those distant signals. . . . It compares
the relative volume of the various Phase I categories of programming
contained in the station signals actually purchased by CSOs in 1998
1999 with the total royalties each CSO actually paid for that
programming . . . identifying the amount of royalties as the
dependent variable . . . .
. . .
Dr. Rosston included more than royalties and programming minutes
in the dataset he used for his regression analysis. In order to
account for the non-programming factors that may affect the
royalties paid by a cable system, Dr. Rosston added the following
variables: (1) the number of subscribers to the cable system in the
prior period (the so-called ``lagged subscribers'' variable); (2)
the number of activated channels for the cable system; (3) the
average household income of the market in which the cable system was
located; (4) the total number of local channels carried; (5) a
variable to account for the payment of 3.75% royalties; and (6) a
variable to account for the carriage of partially distant signals.
Report of the Copyright Arbitration Royalty Panel to the Librarian of
Congress, in Docket No. 2001-8 CARP CD 98-99 (``1998-99 CARP Report'')
at 45-46 (Oct. 21, 2003). The CARP accepted Dr. Rosston's fee-based
regression, but only as corroborative of survey results also in
evidence. Id. at 50. The CARP declined to give more evidentiary weight
to the Rosston regression, relative to the Bortz Survey (which the CARP
found to be ``extremely robust,'' id. at 30).
In the allocation (Phase I) proceeding for the 2004-05 years, the
Judges received in evidence the Waldfogel fee-based regression. Dr.
George has described in her testimony in this proceeding the key
changes made by Dr. Waldfogel to the Rosston regressions:
(1) estimating the marginal value of additional programming
minutes (regression
[[Page 54182]]
coefficients) using pooled data for all years, improving the
precision of the estimates;
(2) calculating claimant shares using only compensable
programming; and
(3) estimating the regression model with a sample of programming
covering three full weeks per accounting period.
George WDT at 24 n.22. See also 2004-05 Distribution Order at 57068
(noting that the Waldfogel regression was ``similar'' to the Rosston
regression, not identical).
Similarly, in the 2010-13 proceeding, the Judges found that the
regression approach on which they relied--the Crawford Model--reflected
an improvement over the Waldfogel Model, because, inter alia, the
Crawford Model: (1) relied on more granular subscriber group data (made
available by statutory changes in CSO reporting requirements); and (2)
employed ``fixed effects'' to diminish the impact of potentially
``omitted variables.'' 2010-13 Determination at 3569. See also George
WDT at 24-26 (identifying the improvements made by Dr. Crawford).
This history clearly shows that the Judges have not found that the
mere presence of model modifications reveals any inherent defect in
fee-based regressions writ large or in any such model in particular.
Rather, a modification of a fee-based regression model may properly
reflect (1) improvements in the model; (2) improvements in the data;
(3) changes in the underlying industry; (4) changes in applicable
economic theory; and/or (4) wrongful specification searching. Without
further analysis, deviations from prior models is not itself
informative.
But the SDC maintain that Dr. Crawford's development of his model
was--to say the least--troubling, and not consistent with an attempt
simply to improve upon prior regression models or to generate a more
relevant model for this proceeding. As noted supra, SDC argue
essentially that Dr. Crawford engage in the improper process of
specification searching, and lied on the witness stand to cover-up that
improper conduct. To summarize, SDC contends that Dr. Crawford lied
under oath about the following:
--his testing of many different functional forms
--his development and rejection of many undisclosed alternative
models
--his inclusion of indicator variables with no apparent function
--his running of hundreds of models without Fixed Effects when he
actually ran these models at various levels of Fixed Effects.
See SDC PFF ]] 90-91, 99, 106.
As Chief Judge Shaw noted at the hearing, the Judges are not in a
position to find whether Dr. Crawford did or did not engage in improper
professional conduct, as alleged by SDC, because he is not appearing as
a witness in this proceeding. 3/22/23 Tr. 894-95 (Shaw, C.J.) Thus, the
Judges were loath to conduct a ``trial-within-a-trial'' as to Dr.
Crawford's work and procedures.
However, that is hardly the end of the matter. SDC has presented
compelling evidence of potential specification searching and
dissembling by Dr. Crawford. Moreover, SDC provided to the other
parties in this proceeding, as voluntary discovery disclosures, Dr.
Crawford's internal workpapers, which the Judges had ordered produced
in the 2010-13 satellite proceeding that followed on the heels of the
2010-13 cable proceeding--disclosed only after SDC's Motion to Compel
and the Judges' in camera review of those documents.
The fee-based regression experts view Dr. Crawford's potential
transgressions with less concern. Dr. George, CCG's expert witness,
maintains that Dr. Crawford's non-disclosures and untruths, as
cataloged and characterized by SDC, are of no consequence, because she,
and the other experts, were able to examine the Crawford Model as it
was presented, and evaluate it on its merits. George WRT at 53. In
essence, this response is in the nature of a ``no harm, no foul''
rationale for disregarding any of Dr. Crawford's alleged improprieties
as alleged by SDC. And, in that context, Dr. George examined the
Crawford Model and found no cause to reject it as a starting point for
her analysis (although she modified the Crawford Model to account for
marketplace changes, arising predominantly from the WGNA conversion,
that she found to necessitate modeling changes particularly with regard
to the use of fixed effects). George WRT at 50-54.
Dr. Marx's carefully repeated testimony is similar, but nuanced,
hedged and cast in the form of a double negative: ``[W]hat I saw was
consistent with or at least not inconsistent with proper econometric
practice.'' 4/11/23 Tr. 4121 (Marx). She does make a more specific
defense of Dr. Crawford, offering her opinion that, the ``mere
observation of a large number of regressions'' in Dr. Crawford's
workpapers is ``not surprising,'' and is what one would expect to see
as a ``sensitivity'' analysis, which is a ``best practice'' in
regression modeling. Marx WRT ] 10. As a final defense of Dr.
Crawford's modeling conduct, Dr. Marx analogizes his proffer of expert
testimony before the Judges to an academic economist's submission of a
proposed article to a professional journal, which would be reviewed by
an editor and referees, in a process that is within the ambit of Dr.
Marx's professional responsibilities. In that context, Dr. Marx would
not require that all the modeling decisions by the econometrician be
set forth in the proposed article, 4/11/23 Tr. 4328 (Marx) (``in my
work as a professional economist, as a referee, as an editor, I don't
expect to see the full list of every regression that was ever run.'')
and she notes that she was able to evaluate Dr. Crawford's submission
on its own merits, like a proposed article, without all the prior
regression runs. Id. at 4111-4115.\37\
---------------------------------------------------------------------------
\37\ The Judges also take note of Dr. Marx's awkward position as
to this issue. As SDC notes, she is a partner at Bates White, an
economic and econometric consulting firm (in addition to her
position as an economics professor at Duke University's Fuqua School
of Business). Dr. Crawford likewise is a partner at Bates White (as
is another CTV testifying expert in this proceeding and in the 2010-
13 proceeding, Dr. Bennett). Further, Dr. Crawford testified in the
prior proceeding on behalf of CTV, whereas Dr. Marx is the economic
expert now testifying on behalf of the same party, CTV.
---------------------------------------------------------------------------
The Judges find that the other experts in this proceeding--
particularly Drs. Johnson, George and Marx--who proffered fee-based
regression models--were obligated to adequately address the impact of
Dr. Crawford's workpapers, as well as the assertion that they
demonstrated he lied in his testimony in the prior proceeding. This
obligation existed because, as SDC witness Dr. Rubinfeld testified, in
his decades of experience, he has ``never seen anything on this scale''
where ``a researcher selected a model from hundreds that were tried.''
4/6/23 Tr. 3638 (Rubinfeld). The economists' careful analysis of Dr.
Crawford's work is necessary, because--as explained in more detail
infra--the discovery of his potential concealment and dissembling,
which was unearthed in discovery in the satellite proceeding, may have
been procedural in origin, but procedural matters can be outcome-
determinative, or at least impactful as to the outcome of a legal
proceeding.\38\ As explained below, Drs. George, Johnson and Marx all
failed in this regard.
---------------------------------------------------------------------------
\38\ Courts have long been concerned with whether what appears
facially to be procedural is in actuality outcome-determinative. See
Erie R. Co. v. Tompkins, 304 U.S. 64 (1938). The Judges in the
present case expected the same concern from the economic experts in
the context of their analysis.
---------------------------------------------------------------------------
The fundamental problem with the self-exculpations by these experts
is that they failed to address an issue that the Judges made explicit
in the 2010-13 Determination. Specifically, in response to the SDC's
speculation that Dr. Crawford had engaged in specification searching,
the Judges agreed that the problem inherent in such improper
[[Page 54183]]
behavior was that it would ``consum[e] . . . `phantom degrees of
freedom,' i.e., `variables that were tried and rejected--rather than
included in the regression model in evidence.' '' 2010-13 Determination
at 3566.\39\
---------------------------------------------------------------------------
\39\ As the Judges noted in that prior proceeding:
`Degrees of freedom' are defined ``[i]n multiple regression
analysis, [as] the number of observations minus the number of
estimated parameters.'' [citation omitted] Accordingly,
statisticians understand ``degrees of freedom' to be measures of how
much can be learned from a regression, with the quality of knowledge
improved by increasing the number of observations, reducing the
number of estimated parameters, or by some combination of both that
serves to widen the difference between the number of observations
and parameters. [citation omitted] . . . [A] `phantom degree of
freedom' can be generated when the modeler reduces the number of
parameters by his or her rejection of other models that would have
added a greater number of parameters--nothing more has really been
learned but the explicit number of degrees of freedom appears
larger, as an artifact (a ` ``phantom') arising from the
econometrician's rejection of models containing additional
parameters. [citation omitted].
2010-13 Determination at 3566 n.63.
---------------------------------------------------------------------------
In that prior proceeding, the Judges found that the record did not
reveal evidence of specification searching (recall that this finding
was made prior to the CTV's compelled production of Dr. Crawford's
workpapers in the companion satellite proceeding). However, in response
to an SDC Motion to Strike Dr. Crawford's testimony, which the Judges
denied given the absence of evidence of specification searching, they
did reserve the right to reduce the weight they accord to the
regression Dr.] Crawford presented. Id. n.64. Ultimately though, the
Judges declined to reduce the weight they accorded to Dr. Crawford's
regression analysis based on the claim of specification searching. Id.
Of course, between the two cable proceedings then and now, the
satellite proceeding intervened. In Order 24 in the present proceeding,
the Judges granted SDC's Motion to Compel another party, PTV, to
produce document that might reflect specification searching by its
expert Dr. Johnson (discussed infra). The Judges' discussion of
specification searching in Order 24 also bears on the Judges' present
consideration of how Dr. Crawford's modeling procedures impacted the
models proffered by Drs. George, Johnson and Marx in this proceeding,
all of which were based on the Crawford Model. In summary fashion,\40\
below is what the Judges stated regarding specification searching in
Order 24:
---------------------------------------------------------------------------
\40\ Although the following is a summary, with citations
omitted, the Judges adopt in full herein their reasoning in Order
24.
--the particular importance of discovery relating to econometric
evidence is underscored by the potential for models to be
manufactured in the service of a particular result, where findings
are presented with ``notoriously misleading accounts of how the
research itself was conducted.''
--it is important that econometricians explain fully their
specification search in order to judge how the results may have been
affected.
--econometricians should disclose ``all the regressions that were
run, not just the good ones . . . basically an `honesty is the best
policy approach.''
--these criticisms of special import here, where the applied
econometric work can affect the allocation of significant royalty
sums.
--specification searching is a concern here because the ``hired
gun'' role of the expert creates an environment in which
specification searching can cause ``far-reaching harm.''
--but what can be construed as improper ``specification searching''
can ``in fact constitute good econometric practice'' by using the
empirical evidence to rank models and let the data speak for itself;
--adding specifications to the modeling can assist in solving the
econometric problem at hand
--suppressing failed specifications and arbitrarily presenting one
successful specification is a ``spurious success,'' but it is not
necessarily dishonest.
--it would be fallacious to prefer not to search but simply to write
down a model and to conduct a one-shot test. . . .
--there are search methodologies that support, rather than distort
statistical hypothesis tests.
--specification searches are necessary, provided there is a ``full
accounting'' of all alternative models, specifications and datasets
Order 24 at 48-51 & n.65. (citations omitted).
In sum, as one authority cited by the Judges concluded: ``[T]here
are good and bad search procedures.'' Order 24 at 51 (emphasis added).
The foregoing summary makes clear that, on the surface, the methods
and practice of an econometrician may look either like improper
specification searching or like a proper searching for the appropriate
model specifications. In order to determine which characterization is
more accurate, further expert analysis is needed.
However, as to this, the parties that relied on the Crawford Model
punted. Most startingly, Dr. Johnson testified that he never received
the satellite case documents that SDC's counsel produced to PTV's
counsel (and to all counsel) or the testimony by Dr. Erdem in the
satellite proceeding that was designated as evidence (Ex. 7054) in this
proceeding by the SDC. 3/21/23 Tr. 340-41; 611, 616-17 (Johnson).\41\
---------------------------------------------------------------------------
\41\ The record does not reflect whether PTV's counsel ever
provided copies of these materials to Dr. Johnson.
---------------------------------------------------------------------------
For her part, Dr. Marx in essence simply restates the difficult
nature of the process, testifying that she was unable to distinguish
Dr. Crawford's process as either an improper specification search or a
useful sensitivity search. But Dr. Marx did not indicate that she
examined the documents produced by SDC in any detail approximating the
analysis engaged in by Dr. Erdem on behalf of SDC, before figuratively
throwing up her hands and declaring the characterization of Dr.
Crawford's position as unknowable. Moreover, although Dr. Marx was
troubled by Dr. Crawford's apparently false statements under oath, she
remained incurious as to whether his troubling testimony was indicative
of a covering-up of specification searching.\42\
---------------------------------------------------------------------------
\42\ The SDC also convincingly explained that whatever it was
that Dr. Crawford was doing, it did not qualify as a ``sensitivity''
test. Settling Devotional Claimants' Proposed Reply Findings of Fact
and Conclusions of Law ] 2. The Judges agree. A sensitivity test is
``[t]he process of checking whether the estimated effects and
statistical significance of key explanatory variables are sensitive
to inclusion of other explanatory variables, functional form,
dropping of potential out-lying observations, or different modes of
estimating.'' 2010-13 Determination at 3562 n.48 (citation omitted).
But the same authority quoted in note 34 situates the ``sensitivity
analysis'' as occurring after the econometrician has estimated his
or her original model, not during the specification process.
Wooldridge, Introductory Economics 687 (3d ed. 2006). To engage in
what would otherwise be a sensitivity analysis in order to search a
model places the cart before the horse, and may be a telltale sign
of ``data mining,'' i.e., specification searching. See Wooldridge,
supra, at 688 (The ``inclination . . . to try different models,
different estimation techniques, or perhaps different subsets of
data until the results correspond more closely to what was expected
[is] data mining[which] violates the assumptions we have made in our
econometric analysis.'').
---------------------------------------------------------------------------
Moreover, when the specification process has been shrouded, as
here, the position taken by Drs. Johnson and George becomes untenable.
Their analysis and replication of the Crawford Model is materially
incomplete, given that it has credibly been described as allegedly
constructed by a specification search that may have generated the
``phantom degrees of freedom'' discussed supra, or through a process
which is analogous to the equivalent of the spurious coin flip
experiment also discussed supra. The problem for the regression experts
who ignore the evidence of potential specification searching is that
they simply cannot appreciate the problems that may have been
generated, unless and until they have engaged in a reasonable forensic
[[Page 54184]]
analysis of the work (and workpapers) of the expert who constructed the
model at issue.
The failure of Drs. George, Johnson and Marx to thoroughly re-
examine the Crawford Model in light of the discovery obtained by SDC in
the 2010-13 satellite proceeding has consequences. Although, as noted
supra, the Judges are not in a position to engage in a ``trial within a
trial'' and render findings regarding the Crawford Model in this
proceeding (where Dr. Crawford is absent), these three expert witnesses
were not similarly constrained. They had a duty to review all materials
relevant to their assignments, in a sufficient manner, and the
satellite discovery pertaining to Dr. Crawford's work clearly falls
within that category of materials. For Dr. Johnson to have not even
received that material is inexplicable. For Dr. Marx to acknowledge the
problematic nature of Dr. Crawford's apparent dissembling under oath
without further analysis of his work is troubling. And for Dr. George
to dismiss the assertions of improper specification searching by
claiming that she could independently evaluate the Crawford Model is to
dismiss the very idea that specification searching may generate hidden
problems.
Indeed, among the witnesses proffering regressions, only Dr. Tyler
appeared to respond reasonably, relying (in part) on the troubling
facts uncovered in the satellite proceeding regarding Dr. Crawford's
processes to generate his own model that deviated in important ways
from the Crawford Model.
The impact of Dr. Crawford's troubling conduct is that it raises an
issue familiar to judges and lawyers in another context--how to handle
testimony and evidence that may be characterized as the ``fruit of the
poisonous tree.'' Although this evidentiary concept is typically
pertinent to the criminal law, it is instructive in other areas,
including intellectual property matters:
The animating principle of the fruit of the poisonous tree
doctrine is causation: If you had not violated the law, you wouldn't
have found the evidence, and you wouldn't have followed whatever
investigative path that was triggered by finding that evidence. The
newly discovered evidence-the fruit-is tainted by the poison of the
illegal search. Civil law also concerns itself with chains of
causation . . . [b]ut it does not typically apply the logic of the
fruit of the poisonous tree to chase down every consequence of a
wrong.
M. Lemley, The Fruit of the Poisonous Tree in IP Law, 103 Iowa L. Rev.
245, 246 (2017). As to the present issue, the ``fruit of the poisonous
tree'' logic--if the source of the evidence or evidence itself is
tainted, then anything gained from it is tainted as well--has
application because it would be inequitable for the Judges to adopt
regression evidence built on the Crawford Model, when the witnesses who
proffered that evidence inadequately addressed reasonable questions
regarding the appropriateness of the methods used to generate the
Crawford Model.
If the Crawford Model had been the first regression model utilized
in these allocation proceedings, the Judges might consider rejecting
the models proffered by Drs. George, Johnson and Marx for their failure
to address in more and sufficient detail how the factual bases for the
allegations of Dr. Crawford's specification searching impacted their
models. But, as described supra, the Crawford Model itself was built
upon, but differentiated from, the prior regressions produced by Drs.
Rosston and Waldfogel and relied upon by the Judges. Thus, the
regression models of Drs. George, Johnson and Marx are not the product
merely of the Crawford Model, but also of those models that preceded
it. Moreover, Drs. George and Johnson take pains to explain how their
models are different from Dr. Crawford's, particularly in the reduction
or elimination, respectively, of fixed effects, in order to generate
more observations (as discussed elsewhere in this determination).\43\
So, it is clear that these two experts engaged in independent economic
analysis separate and apart from what was undertaken by Dr. Crawford.
---------------------------------------------------------------------------
\43\ Whether those particular differentiations from the Crawford
Model were appropriate is likewise discussed elsewhere in this
determination.
---------------------------------------------------------------------------
The consideration of Dr. Marx's full adoption of the Crawford
Model, as it pertained to the year 2013, in order for her to generate
her Bayesian model for 2014, must be considered separately. Dr. Marx
explicitly relies on the Crawford Model, despite her inability to
explain or address his apparent prevarications and despite her
unwillingness to determine whether his methods constituted
specification searching, sensitivity analysis or something else.
However, Dr. Marx's qualitative and directional economic (not
econometric) testimony regarding the years 2015-2017 are not
compromised in this regard.
Accordingly, among the regression approaches proffered in this
proceeding, the experts' responses and non-responses to Dr. Crawford's
conduct lead the Judges, ceteris paribus, to give diminished weight to
the Johnson and George Models, and the least weight to the Marx Model
for 2014. The Judges do not diminish the weight they shall give to the
Tyler Model on this basis, given his deviation from the Crawford Model.
I. The Allegation That Dr. Johnson Engaged in Improper Specification
Searching
Unlike the specification searching issue regarding the Crawford
Model, there is no valid allegation that Dr. Johnson made any material
misrepresentations in his testimony. Although SDC correctly notes that
PTV did not provide full discovery of the work by Dr. Johnson and other
professionals at Edgeworth until compelled to do so pursuant to SDC's
motion and the Judges' Order 24, PTV appears to have withheld
production of documents regarding this regression work based on its
understanding that the Federal Rules of Civil Procedure do not require
production of documents which related to regressions that an expert had
rejected or had not otherwise seen or upon which he did not rely.\44\
---------------------------------------------------------------------------
\44\ In Order 24, the Judges noted that, although they look to
the Federal Rules of Civil Procedure for guidance, they are bound on
this issue by 37 CFR 351.10 (e), regarding the production of
documents relating to an expert witness's methodology, and that this
rule also applies to the production of documents in discovery
pertaining to expert methodology.
---------------------------------------------------------------------------
However, the Judges remain troubled, as they so expressed in Order
24, that PTV appeared to allow for the creation of two different
``teams'' within Dr. Johnson's firm--one identified as the ``consulting
team,'' and the other as the ``testifying'' team. As noted supra, the
regression-related documents generated by the ``consulting team'' were
not provided to Dr. Johnson. The Judges noted in Order 24 that a
``consulting team'' of experts can be utilized by a party's law firm,
to allow for work product confidentiality in connection with the law
firm's evaluation of the facts. However, as Order 24 further explained,
when the ``consulting team'' is created withing the same firm of
economists who are also preparing testimony and actually testifying,
there is the risk that work by the ``consulting'' team will be utilized
as a screening device for work that should have been undertaken by the
``testifying'' team. Thus, the use of a ``consulting'' team can allow a
party to also cloak from discovery expert work by claiming the
protection of the work-product rule.
This is essentially what SDC alleges, when it points to evidence,
as noted supra, that Edgeworth had shielded Dr.
[[Page 54185]]
Johnson from certain documents. Moreover, the soundness of the ``wall''
between the ``consulting'' team and the ``testifying'' team was
questionable, given that the ``consulting'' team was led by Drs.
Michael Kheyfets and David Colino, but they also were the senior
members of the ``testifying'' team that reported to Dr. Johnson, along
with dual team members Dr. Stephanie Cheng and Esther Yan. 3/21/23 Tr.
664-65 (Johnson). Additionally, when PTV first produced documents to
SDC, it did not also provide a privilege log describing the Edgeworth
documents otherwise withheld because of an assertion of a privilege
relating to a consulting team. (After SDC's motion to compel, PTV
provided a privilege log, but, after Order 24 issued, PTV produced
virtually all of the previously withheld material.) Thus, the Judges
find some evidence that PTV attempted to avoid discovery of the work
undertaken by the firm it engaged for expert work in this proceeding--
the work that has been characterized by SDC as evidence of
specification searching.\45\ This evidence serves to diminish the
Judges' reliance on the Johnson Model that was generated out of this
scenario, although the Judges stop well short of any finding that
Edgeworth, or any of its professionals, engaged in any misconduct.\46\
---------------------------------------------------------------------------
\45\ The Judges take particular note of the fact that an email
that was withheld from Dr. Johnson as ``consulting'' team material
contained ``a link to CDC distant signals [with] the caveat: `. . .
these data files are being shared for consulting purposes only and
should not be shared with John'.''. Rubinfeld SWRT at 6. It is
difficult to fathom why raw data regarding distant signals would be
withheld from the testifying expert.
\46\ Rather, the Judges perceive from the facts that PTV and its
experts took a very aggressive litigation posture, one that SDC
successfully challenged, leading to the issuance of Order 24.
---------------------------------------------------------------------------
Turning to the substance of the documents produced in response to
Order 24, the Judges are struck, as was SDC, with the sheer number of
regression runs undertaken by Edgeworth. In particular, the Judges
agree with SDC that the experimentation with 44 dependent variables is
specifically troubling, as it suggests that the model-building was not
well-grounded in economic theory.
Also troubling was the fact that, over a prolonged period,
successive testing by Dr. Johnson and other Edgeworth Economics
professionals was highly correlated with a steady rise in PTV's
allocation shares. Although the Judges disagree with SDC's distortion
of Dr. Johnson's testimony as to the ``coincidental'' nature of this
correlation, as noted supra, the Judges do not find any sufficient
basis in the record to explain this correlation between sequential
regression runs and the growth of PTV's allocation share. Although PTV
argues that this correlation subsided as data corrections were
completed, PTV presented no sufficient basis to rebut SDC's charge that
data changes should not consistently be correlated with the growth of
PTV's share allocation, as opposed to a randomized effect on share
percentages.\47\
---------------------------------------------------------------------------
\47\ The Judges are less concerned with SDC's assertion that
proof of PTV's specification searching is supported by evidence that
PTV's goal was to maximize PTV's share. The Judges are not
na[iuml]ve, and they recognize that experts will work to produce the
best results for the party on whose behalf they provide testimony.
Rather, the Judges are concerned with whether the evidence suggests
that experts may have engaged in any inappropriate or questionable
acts in the course of attempting to maximize the return to the party
on whose behalf they give testimony.
---------------------------------------------------------------------------
On balance, the Judges find that the regression analyses undertaken
on behalf of PTV at least demonstrate an appearance--in the words of
SDC's expert, Dr. Rubinfeld--of practices that ran ``counter to sound
empirical research practice,'' and that this work may well have been
undertaken with an overzealous attempt ``to obtain . . . results that .
. . generated relatively high shares for PTV Claimants.'' Rubinfeld
SWRT ] 28. For this reason--and for other reasons set forth elsewhere
in this determination--the Judges give reduced weight to the Johnson
Model.
VII. Issues Specific to PTV
A. How should ``must-carry'' PTV stations be analyzed in the regression
analyses?
1. PTV's Position on the ``Must-Carry'' Issue
PTV first emphasizes its legal argument. They begin by
acknowledging that under the Cable Television Consumer Protection and
Competition Act of 1992 (the ``Cable Act'') and the regulations of the
Federal Communications Commission (``FCC'') (the ``must-carry'' rules),
CSOs are required to retransmit certain broadcast signals. PTV PFF ] 70
(citing 47 U.S.C. 534-35). Nonetheless, PTV maintain that ``the Judges
and their predecessors . . . have never found that must-carry
requirements materially affect the value of distant retransmissions of
Public Television programming.'' PTV PFF ] 71 (emphasis added).
PTV follows this legal point with a factual issue, challenging the
testimony of JSC's witness, Mr. Harvey, who identifies 15.5 percent of
PTV distant signals as having been retransmitted in compliance with
these must-carry rules, using criteria that Mr. Harvey believed were
``generally indicative'' of must-carry carriage. PTV PFF ] 72.
Specifically, Mr. Harvey categorized distantly retransmitted signals as
``must-carry'' if they were:
(1) carried to all subscriber groups within the system,
(2) local to at least one subscriber group within the system, and
(3) were licensed to a community whose reference point was within
50 miles of the location where the CSO received signals for cable
distribution (the ``headend'').
PTV PFF ] 72 (and record citations therein). A primary assertion by PTV
is that, because of the third criterion above, these stations,
designated as ``must-carry'' while technically ``distant'' within the
meaning of section 111, ``were more likely to reflect the demands and
preferences of regional viewers'' and thus contained ``valuable
programming.'' PTV PFF ] 72 (and record citations therein).
But PTV takes issue with the entirety of Mr. Harvey's approach to
designating ``must-carry'' stations. First, PTV points out that ``even
. . . expert witnesses whose opinions rely on Mr. Harvey's must-carry
analysis'' acknowledge that his analysis ``did not definitively
identify must-carry signals.'' PTV PFF ] 73 (and record citations
therein) (emphasis added).
Second, PTV argues that ``Mr. Harvey failed to provide a reason for
adopting his first criterion that the must-carry rules should apply to
signals carried ``to all subscriber groups within the system.'' PTV PFF
] 74 (and record citations therein). PTV maintains that there
presumably would be no reason to use that as a criterion unless he
thought that the must-carry law required carriage ``to all subscriber
groups within the system.'' PTV PFF ] 74 (and record citations
therein). More particularly, PTV understands that a ``cable system,''
as defined in the must-carry rules, ``is a smaller unit than the `cable
system' as defined in section 111.'' PTV PFF ] 75 (and record citations
therein). Thus, PTV argues that ``carriage of such a signal to all of
the subscriber groups in a system may be evidence of that cable
system's choice to carry that signal more broadly than the must-carry
rules require.'' PTV PFF ] 75 (and record citations therein). PTV
concludes that Mr. Harvey's must-carry analysis ``likely results in
overstating the [number] of [PTV] signals subject to mandatory
carriage, perhaps dramatically so.'' PTV PFF ] 75 (emphasis added).
PTV further makes what can be characterized as a ``no changed
circumstance'' argument. Specifically,
[[Page 54186]]
PTV points out that Mr. Harvey fails to address the fact that mandatory
carriage of PTV distant signals has become more expansive since the
2010-2013 proceeding, and that no party argued in that proceeding that
the must-carry rules had any material impact on relative market value.
Further, PTV avers that ``the fraction of PTV signals that Mr. Harvey
identified as . . . must-carry declined substantially over the period
from 2014 to 2017,'' suggesting that, even under his analysis, ``the
share of PTV distant retransmissions that were subject to must-carry is
less than in prior proceedings.'' PTV PFF ] 76 (and record citations
therein).
Additionally, PTV asserts that Mr. Harvey incorrectly implied that
PTV's multicast streams \48\ are subject to the must-carry rules. PTV
PFF ] 77 (and record citations therein). To the contrary, PTV avers
that ``it is undisputed that the must-carry rules do not require CSOs
to retransmit those non-primary signals of a PTV broadcast station, and
all carriage of Public Television multicast streams was due to the
voluntary choice of the cable operators.'' PTV PFF ] 77 (and record
citations therein).
---------------------------------------------------------------------------
\48\ The Judges define and discuss ``multicast streams'' infra.
---------------------------------------------------------------------------
Beyond its legal and factual arguments, PTV adds an argument based
on economic analysis. Taking on a point made by another JSC witness,
Dr. Majure, PTV opines that ``there is no basis to assume that any
distant signal carried pursuant to the must-carry rules provide `$0' of
value to the CSO, as Dr. Majure argues.'' PTV PFF ] 78 (and record
citations therein). More particularly, PTV explains that ``[p]eople are
routinely required to purchase things, such as health insurance and
seat belts, which they may value highly.'' PTV PFF ] 78 (and record
citations therein). See also PTV PFF ] 81 (``Dr. Majure's theory of
`$0' value fails [to pass through a] `reality filter' [by] suggest[ing]
that all local [PTV] programming has [zero] value.'')
Changing tacks, PTV points out that, without dispute, ``many CSOs
chose to retransmit [PTV] distant signals when they could have carried
another distant signal instead.'' PTV PFF ] 79 (and record citations
therein) Additionally, PTV compares this CSO decision-making to the
CSOs' responses to the Bortz Survey, in which ``[s]everal CSOs that
carried the purportedly must-carry [PTV] distant signals attributed
significant value to those Public Television distant signals in their
[survey] responses . . . .'' PTV PFF ] 79 (and record citations
therein).
PTV further points to various ``sensitivity tests'' undertaken by
Drs. Johnson, Bennett and George, all of which ``found that those
purportedly must-carry Public Television distant signals do not have
relative marketplace value that is statistically significantly
different from the relative marketplace value of other Public
Television distant signals.'' PTV PFF ] 82 (and record citations
therein). Thus, PTV takes issue with any implicit assumption ``that any
distant signal carried pursuant to the must-carry rules are, on
average, less valuable to the CSOs.'' PTV PFF ] 82.
But PTV also acknowledges the presence of an indemnification
provision in the must-carry statute, whereby Congress exempted from
mandatory carriage any noncommercial educational signals that qualify
as distant signals, ``unless [the noncommercial educational broadcast
station] indemnifies the cable operator for any increased copyright
costs resulting from carriage of such signal.'' PTV PFF ] 84 (quoting
47 U.S.C. 535(i)(2)). Thus, a CSO ``was eligible for indemnification
only if and to the extent that its section 111 royalty fee increased
due to the carriage of a distant signal that was subject to must-carry;
and the station then had the choice of declining indemnification, in
which case the [CSO] was released from any must-carry obligation.'' PTV
PFF ] 84. Nonetheless, PTV criticizes any party seeking to exclude
must-carry stations from the regressions based on this statutory
provision, which cancels out any royalty payment, because PTV argues
(echoing its criticism of Mr. Harvey's analysis), that no party has
``reliably identified any distant signals that are subject to mandatory
carriage . . . for which the retransmitting cable operator received
indemnification.'' PTV PFF ] 85 (and record citations therein).
PTV also makes a more general argument that would apply to PTV
``must-carry'' stations, even assuming they had no value. Specifically,
PTV maintains that ``[a] fee-based regression model is designed to
estimate the average relative value of programming in a bundle, such
that bundling of programming of different values does not bias the
regression estimates of relative marketplace value.'' PTV PFF ] 91.
2. The Other Parties' Positions Regarding PTV ``Must-Carry'' Signals
As a matter of legal interpretation, JSC argues that it would not
be reasonable to remove from the hypothetical market any statutory
provisions that apply to the distant signal market, other than the
section 111 license. JSC PFF ] 2 (and record citations therein).
Applying this approach, JSC notes that, as a matter of statutory law,
the Must Carry statutory and regulatory provisions are not found within
the section 111 license provisions, but rather are statutorily set
forth at 47 U.S.C. 535, and therefore should remain in effect in the
hypothetical market the Judges must construct in this proceeding. And,
because the Must-Carry provisions preclude any finding of Willingness-
to-Pay and fail to reveal CSO's preferences, it is also economically
reasonable to maintain the impact of the Must Carry provisions on the
regression approach by excluding such stations from that valuation
methodology. JSC PFF ] 3 (and record citations therein).
JSC also points to the following 1992 legislative history of the
must-carry provisions as supporting, from both the legal and economic
perspectives, a finding that must-carry PTV stations do not generate
additional value that can be incorporated into the fee-based
regressions:
The [House Committee on Energy and Commerce] Committee believes
that absent statutory carriage requirements, there is a substantial
likelihood that local public television stations will be deleted,
will not be carried, or will be switched to undesirable channels on
cable systems. Because cable operators are for-profit enterprises,
they necessarily seek to provide customers with the package of
programming and services that will maximize the operators' profits.
As commercial enterprises, cable operators ordinarily lack strong
incentive to carry programming that does not attract sufficient
dollars or audiences. Traditionally, public television has provided
precisely the type of programming commercial broadcasters and cable
operators find economically unattractive. For this reason, the
Committee believes that, without `must carry' provisions, public
television service increasingly will become unavailable to cable
subscribers.
JSC PFF ] 475 (citing Trial Ex. 1003 (House of Representatives Report
102-628) at 62).
JSC points out that this was not only the Congressional viewpoint
at the time of enactment of the must-carry law, but also that PTV has
continued to agree with Congress's assessment of the economic
circumstances described in the above legislative history, insisting
that public television stations need must-carry status to guarantee
carriage. JSC PFF ]] 476-478, 488-489 (and record citations therein).
Last, but certainly not least, in apparent response to PTV's
criticism of Mr. Harvey's estimate of the number of must-carry
stations, JSC suggests that PTV knew or should have known how many of
the stations it represents in this
[[Page 54187]]
proceeding in fact were must-carry stations. JSC PCOL ] 13 (``When a
party is in a position to proffer testimony or evidence that would
elucidate a point, or rebut an adverse point, but declines to do so, a
finder of fact may determine that the testimony would not have been
supportive of that party's position.'') (citing Final Rule and Order,
Determination of Rates and Terms for Digital Performance of Sound
Recordings and Making of Ephemeral Copies to Facilitate Those
Performances (Web V), 86 FR 59452, 59476 (Oct. 27, 2021) (Web V Final
Determination), (citing in turn Huthnance v. District of Columbia, 722
F.3d 371 (D.C. Cir. 2013)), aff'd NRBNMLC v. CRB, 77 F.4th 949, 2023 WL
4831376 (July 28, 2023).
a. The SDC Position on the ``Must-Carry'' Issue
The SDC apply their broad criticism of minimum-fee-only CSOs to the
question of how to address the must-carry PTV stations: ``[N]o
inference can be drawn regarding `willingness to pay' or any other
potential theory on the basis of cable system decision-making in the
presence of mandatory carriage of certain PTV signals.'' Asker WRT ] 17
n.11; 4/11/23 Tr. 4319-21 (Marx); see also SDC PFF ] 64.
Like the JSC, the SDC maintain that, as a legal issue, the Judges'
consideration of economic market forces to determine relative market
value does not mean that the statutory must-carry rules should be
ignored:
The task in these royalty distribution proceedings is to
determine the relative value of the relevant program categories in a
hypothetical market that exists in the absence of the section 111
compulsory license. There is no basis for assuming away the
existence of other aspects of the regulated market, nor has any
party in this proceeding presented a rational framework by which one
could pick and choose which other aspects of the regulated market
would survive. At a minimum, the Retransmission Consent and Must-
Carry Requirements set forth in the Communications Act and Federal
Communications Commission's (``FCC'') rules would continue to
regulate the relationship between broadcast stations and CSOs. See
47 U.S.C. 325(b); 47 CFR 76.55, 76.64.
SDC PFF ] 218.
The SDC also emphasize a point central to their general criticism
of the fee-based regressions--the impact of geography on retransmission
decisions:
Unlike commercial stations, the must-carry zone for
noncommercial stations is determined by distance from the cable
system rather than by DMA [Designated Market Area]: a noncommercial
station is entitled to cable carriage under the FCC's must-carry
rules if its city of license is within 50 miles of the cable
system's principal headend. 47 CFR 76.55.
SDC PFF ] 222. Further, the SDC note the indemnification provision,
discussed supra, also compromises the attempt to derive marketplace
evidence of the value of must-carry stations:
[Although] [u]nder section 111, a noncommercial station is only
considered ``local'' within 35 miles of the cable system's headend .
. . [a] cable operator is not required to carry a noncommercial
station that would be considered distant for copyright purposes
unless the noncommercial station agrees to indemnify the CSO for any
increased copyright liability resulting from such carriage.
Presumably, this indemnification requirement would be moot in
the absence of section 111, because there would be no cost at all to
cable systems carrying noncommercial signals within the FCC's 50-
mile must-carry zone in the absence of section 111. There is no
basis to believe the inapplicability of the indemnification
requirement would affect the relative marketplace value of
noncommercial stations, as carriage of noncommercial stations would
still result from the federal must-carry mandate rather than any CSO
choice.
SDC PFF ] 222 (citing 17 U.S.C. 111(f)(4)).
b. The CTV Position on the ``Must-Carry'' Issue
CTV emphasizes the substantial importance of the must-carry issue,
noting first that ``[d]uring 2014-2017, no less than 33.9% PTV signals
were carried pursuant to must-carry rules.'' CTV PFF ] 249 (citing
Harvey CWDT ] 87; 3/28/23 Tr. 1836-37 (Harvey)). See also CTV PFF ]]
256-57 (42.6% of all PTV distant reported base fee royalties are from
PTV signals subject to the must-carry rule.)
CTV also expands upon the evidentiary point made by JSC, noted
supra, regarding PTV's failure to produce evidence as to the number of
must-carry stations:
PTV, the claimant with the most accurate information regarding
PTV distant stations carried by CSOs pursuant to the must-carry
rules, has provided no evidence or statistics to refute the
foregoing. At most, PTV economics witness Dr. Johnson contends that
Mr. Harvey's findings are speculative, but he neither contested nor
provided any alternative calculations to Mr. Harvey's conclusions.
CTV PFF ] 258. Echoing the criticism noted supra, CTV maintains that
carriage of a PTV signal under the must-carry rules does not reflect a
CSO's revealed preference through a weighing of incremental costs
versus incremental benefits, and thus does not reflect relative
marketplace value. CTV PFF ] 272 (and record citations therein).
Moreover, CTV also points out that even when CSOs retransmitting
must-carry stations pay more than the minimum fee, they nonetheless
cannot reveal a willingness to pay for that programming because of the
indemnification obligation, discussed supra, of PTV stations to pay
back CSOs for any additional royalty costs associated with the required
(i.e., must-carry) retransmission of its programming. CTV PFF ] 259.
CTV further notes the ``material'' effect of the must-carry issue
on PTV's regression and allocation shares, both individually and
jointly. CTV PFF ] 264. Pointing to a sensitivity analysis by one of
its expert witnesses, Dr. Bennett, CTV notes that eliminating the
royalty payments the Johnson Model has attributed to must-carry
stations substantially reduces the PTV values on either attribute, and
in combination. Bennett WRT ] 95. These adjustments are shown in the
figure below:
[[Page 54188]]
[GRAPHIC] [TIFF OMITTED] TN28JN24.005
Similarly, Dr. Bennett undertakes the same adjustment to Dr.
George's regression coefficient and allocation share regression results
for PTV:
[GRAPHIC] [TIFF OMITTED] TN28JN24.006
And in like fashion, Dr. Bennett makes the same must-carry adjustment
for PTV to Dr. Tyler's analysis:
[GRAPHIC] [TIFF OMITTED] TN28JN24.007
In conclusion, CTV underscores the existence of a consensus on this
must-carry issue, noting that Drs. Marx, Bennett, and Majure all agree
that including PTV must-carry stations in the regressions results in an
overestimation of the value of PTV content for all four years. CTV PFF
] 534 (and record citations therein).
[[Page 54189]]
c. The Program Suppliers Position on the ``Must-Carry'' Issue
Program Suppliers join with the other parties that maintain the
FCC's must-carry rules should still be deemed by the Judges to apply in
their modeling of the economic and marketplace environment necessary to
allocate the royalties at issue. That is, in the hypothetical
environment, even though the section 111 conditions are relaxed,
Program Suppliers argue that the parties must ``still continue to be
subject to the same must-carry rule and agreement obligations . . . .''
PS PFF ] 101 (and record citations therein).
However, Program Suppliers take issue with any assertion that
accounting for PTV's must-carry stations would have a significant
effect. Their expert, Dr. Tyler, noted that Dr. Bennett's
calculations--reproduced supra--showed that removing the must-carry
stations (that were identified by Mr. Harvey) from the Tyler Model
barely changed the PTV share allocation. 4/19/23 Tr. 5456 (Tyler).
Moreover, Dr. Tyler opines, consistent with the testimony by PTV's
expert Dr. Johnson that, ``even with must-carry, CSOs may still have
some value related to that carriage.'' 4/19/23 Tr. 5456 (Tyler).\49\
See also PS PFF ] 337.
---------------------------------------------------------------------------
\49\ But note Dr. Marx's point that must-carry stations that
were distantly retransmitted by CSOs paying only the minimum fee
would not generate a CSO royalty obligation, mooting the need for a
royalty indemnification payment. Marx WRT ] 79.
---------------------------------------------------------------------------
d. The CCG Position on the ``Must-Carry'' Issue
CCG is part of the chorus asserting that the Judges should include
the impact of the must-carry provisions in their economic analysis of
relative marketplace value. CCG PFF ] 62. However, CCG parts company
with those parties arguing that the compelled nature of such
retransmission decisively compromises the informational worth of that
carriage in estimating such value.
Specifically, Dr. George, CCG's expert, like Dr. Johnson,
analogizes public television programming to other ``real-world
examples'' of goods that have value, notwithstanding the fact they are
mandated by the government. In this regard, as examples, she points to
health insurance, which she says generates value, and to automobile
airbags and seatbelts which, although mandated, increase the value of
an automobile. Similarly, she points to the federal government
requirement that individuals carry health insurance to argue that the
mandate does not mean that the product does not have value to them. 4/
18/23 Tr. 5346. (George). Based on these analogies, CCG maintains that
the must-carry rules have a positive effect on the value of PTV
programming. CCG PFF at 81. See also CCG PFF ] 224.
Nonetheless, Dr. George recognizes the possibility of an
alternative finding--that any assertion of value in must-carry stations
would be rejected. Accordingly, she turns to Dr. Bennett's analysis
cited supra--at Bennett WRT fig. 21--which she recognizes as showing
the ``downward adjustments'' to her ``regression'' to account for a
finding of the absence of value in PTV's must-carry signals. CCG PFF ]
225 (and record citations therein).
3. The Judges' Analysis and Conclusions Regarding the ``Must-Carry''
Issue
The Judges agree with JSC and CTV, based on the caselaw cited by
JSC, that PTV, whose clients include the public television stations
that are in fact subject to must-carry requirements, bore the twin
burdens of proof--the burden of producing evidence and the burden of
persuasion--regarding which stations were subject to the must-carry
provisions and which were not. Further, because PTV is seeking a
determination including must-carry station data in the regression,
those burdens are apportioned to PTV as a matter of statute. See 5
U.S.C. 556(d).
But rather than produce such evidence or prove its significance,
PTV elected to attack Mr. Harvey's attempt to estimate the number of
must-carry stations. Those attacks are insufficient. The Judges first
take note that PTV argues only that Mr. Harvey ``perhaps'' or
``likely'' overstated the number of must-carry stations. But Mr. Harvey
engaged in a reasonable attempt to estimate this number, which PTV
could have set forth in its submissions, but did not.
Further, the Judges do not credit PTV's argument that the must-
carry status of some PTV stations can be deemed irrelevant because the
issue of must-carry stations was not raised in previous section 111
allocation proceedings. Each of these proceedings is de novo in nature,
and the determination is based on the evidentiary record in that
proceeding, as well as on the pertinent findings and conclusions in
prior proceedings. Although regurgitated factual argument from prior
findings may be summarily rejected by reference back to the findings in
prior determinations, and although renewed legal arguments are cabined
by the precedential effect of prior determinations, new arguments are
not similarly restricted. Moreover, the absence of an issue in a prior
proceeding, such as the impact of the must-carry status of PTV
stations, certainly does not preclude consideration of that issue in
this proceeding.
The Judges also reject the argument made by PTV and CCG that the
must-carry stations have value, notwithstanding that indemnification
provisions would offset any royalty payments. There are two reasons why
this argument is incorrect. First, the point is not that the programs
on must-carry stations, including those subject to royalty
indemnification payment back to the CSOs, lack value; rather, the point
is that they lack objective and measurable value. On the issue of
objective value, the experts for PTV and CCG mistakenly seek to
analogize must-carry PTV stations to two ``must-buy'' automobile
attributes, seat belts and air bags, and to ``must-carry'' health
insurance, which come at a cost. There are two problems with this
argument. First, although one can quite reasonably argue that these
coerced purchases are beneficial, from an economic point of view the
purchase does not reveal a buyer's preference because seatbelts, air
bags, and health insurance are coerced, not voluntary.\50\ Second, a
price proxy could likely be generated for seat belts and air bags by
comparing the retail price of cars immediately before and after their
inclusion was mandated for new cars, or by comparing the spread in
price between new cars (with such a safety device) and used cars
(lacking such safety devices). Regressions seeking to use such data
would be true, full-fledged hedonic regressions. But here, the task is
markedly different and more difficult, because no such historical or
comparative comparisons were possible. Thus, as noted elsewhere in this
determination, the regressions are ``inspired'' by, and in the nature
of, hedonic regressions, using the context of section 111 to identify
the market-related revealed preferences of CSOs, just as fee-based
regressions have been utilized in previous allocation proceedings. But
the attempted analogy to market-generated attributes included in
market-priced products misses the mark and continues the unfortunate
strained attempts by the experts supporting and criticizing fee-based
[[Page 54190]]
regressions to compare the fee-based regressions to hedonic
regressions.
---------------------------------------------------------------------------
\50\ It might be reasonable to assume that a consumer would
prefer an automobile with these safety features over an automobile
lacking them, or the protection of health insurance rather than the
risk associated with its absence, but without a structure for
monetizing such preferences, the measure is only ordinal in nature,
rather than cardinal. PTV alludes to this problem when, as noted
supra, it notes that these are items that purchasers ``may'' value.
But that implies that they may not value them in a context where
there is an associated out-of-pocket or opportunity cost.
---------------------------------------------------------------------------
As to the issue of measurable value, PTV and CCG fail to address
the fact that, if these stations do not generate net royalties, then
the regressions should not be attributing (correlating) their minutes
with royalties. The regressions will not ``see'' the indemnification
payments made by the PTV stations back to the CSOs who made royalty
payments. Thus, to the extent these royalty payments are recorded as
base fee payments on the SOA forms relating to subscriber groups, they
will falsely be ``seen'' by the regressions as indicating that the
minutes were associated (correlated) with additional royalties, when
that was not the case. As several witnesses have noted, the regressions
are ``dumb,'' and will calculate whatever it is they are programmed to
calculate. It is up to the econometrician who constructs and evaluates
the regression to ``think,'' and decide whether the regression has
reflected reality (legal, institutional, and economic) in a proper
manner. The Judges find that Mr. Harvey made a prima facie case
regarding the number of PTV stations that were must-carry.
The Judges also do not credit PTV's point that many CSOs chose to
retransmit PTV signals when they could have carried another distant
signal instead. Not only does that point ignore the problem of whether
a station was subject to indemnification, it also indicates merely an
ordinal preference.
The Judges also reject the argument that the regressions can
include the must-carry station data because CSOs responded to the Bortz
Survey by attributing value to such signals. This ``whataboutism''
argument holds no purchase--either the data belongs in the regressions,
or it does not. The Bortz Survey is a form of model seeking to address
relative marketplace value from a different perspective, and the
requisites or output of one model do not necessarily map onto another
model. Cf. NRBNLMC v. CRB, supra, slip op. at 41 (affirming the Judges'
Web V rate determination that a finding applicable to one economic
model (the issue of opportunity cost) did not automatically apply to
the same issue when addressed in a different type of model).
PTV's assertions regarding the value of any adjustment regarding
presence of must-carry stations with their attendant indemnification
requirements is merely an argument regarding the extent of the
adjustment, not regarding the need for one. As noted, the extent of the
adjustment varies, depending upon how it is applied and to which
regression model it is applied. The Judges consider that point in
making their adjustments, infra.
Finally, the Judges agree with the argument that the legislative
history relating to the must-carry provisions, and PTV's own prior
positions, reflect an understanding that public television stations
need must-carry status in order to obtain carriage. Such real-world
facts serve as ``reality filters'' that can and should override the
``dumb'' manner in which a regression ``sees'' the royalty and carriage
data.
For these reasons, the Judges find that PTV failed to discharge its
evidentiary burdens, failed to demonstrate that Mr. Harvey's estimation
should be rejected by the Judges, and failed to adequately demonstrate
the existence of value in must-carry stations sufficient to include
them as part of the relative marketplace value generated by the
regression approach.
In terms of the necessary adjustments, the Judges agree with Dr.
Bennett's approach, in which he eliminates the value attributed to the
must-carry stations in both the regressions and the allocations, as
there is no evidence or testimony sufficient to warrant only an
adjustment in one of these regards. Thus, the Judges agree with the
adjustments in column number 3 in Dr. Bennett's adjustment made in
figures 38, 21 and 52, respectively, set forth supra.
B. Are PTV's Multicast Stations Exempt From Royalty Payments? \51\
---------------------------------------------------------------------------
\51\ The definition of multicasting is not in dispute.
Basically, it refers to ``a type of national television service
designed to be broadcast terrestrially . . . on their digital
subchannels . . . by the conversion from analog to digital
television broadcasting, which le[aves] room for additional services
to be broadcast from an individual transmitter . . . .'' Digital
multicast television network, Wikipedia, https://en.wikipedia.org/wiki/Digital_multicast_television_network (last visited Aug. 9,
2023). The exempt/non-exempt nomenclature is somewhat confusing;
``exempt'' means CSOs do not pay section 111 royalties, and ``non-
exempt'' means CSOs shall pay section 111 royalties (unless, by
agreement with the copyright owners, section 111 royalty payments
are waived).
---------------------------------------------------------------------------
The parties dispute whether multicast stations should be included
in the fee-based regressions. Before setting forth the parties'
respective positions, it is helpful to set forth a brief history of the
relevant statutory provisions and the industry reaction. In this
regard, the SDC's overview of the context is accurate and succinct:
Prior to the analog-to-digital television transition, a
broadcast station could transmit only a single stream of
programming. The transition to digital broadcasting, completed for
all full-power stations in 2009, enabled stations to broadcast
multiple streams of programming, i.e., a ``primary stream'' and one
or more ``multicast streams.''
Accordingly, the Satellite Television Extension and Localism Act
(``STELA'') of 2010 added a DSE for distant transmissions of
multicast streams. STELA, Public Law 111-175, 124 Stat. 1218, 1239
(2010).
Certain multicast streams were temporarily exempted from having
a DSE value assigned, including those that (a) had been carried by a
CSO prior to February 27, 2010, or (b) had an agreement in place
prior to June 30, 2009, for free carriage on a CSO. See STELA, 124
Stat. 1218, 1239; see also Marx ACWDT ] 70.
The Association of Public Television Stations (``APTS'') entered
into such an agreement with the National Cable and
Telecommunications Association (``NCTA'') in 2005, which was renewed
in 2016 . . . . [REDACTED]. . . .
The PBS-NCTA agreement governed carriage of PTV stations during
the 2014-2017 time period and required participating CSOs to carry
up to four programming streams per PTV station (i.e., the primary
stream and three multicast streams). The agreement thus served to
``exempt'' up to three multicast streams per station from generating
copyright liability until its expiration and renewal in 2016, at
which time the exempted multicast streams were reclassified for
royalty purposes as ``non-exempt'' streams with a DSE value of 0.25.
SDC PFF ]] 223-224 (and record citations therein). Accord PTV PFF ] 67
(and record citations therein).
The record in this proceeding also reflects the parties' and the
industry's awareness of the terms of the 2016 renewal of the 2005 PBS-
NCTA agreement referenced above. Accordingly, although the Judges
denied the post-hearing admission of the PBS-NCTA agreement into the
record,\52\ the Judges have relied upon the record evidence of the
parties' understanding of that agreement.
---------------------------------------------------------------------------
\52\ See Order 41 Denying as Moot Public Television's Motion for
Reconsideration of Order 33.
---------------------------------------------------------------------------
1. PTV's Position on Multicast Stations
PTV maintains that, for the years 2016 and 2017, multicast stations
should be treated like all other distantly retransmitted broadcast
stations for the purposes of establishing relative marketplace value
through the fee-based regression analysis, noting that, under section
111, they ``are assigned the same DSE value as that station's primary
stream.'' PTV PFF ] 66 (citing 17 U.S.C. 111(f)(5); PTV PFF ] 67 (and
record citations therein).
PTV distinguishes the multicast stations from the must-carry rules,
asserting ``it is undisputed that the must-carry rules do not require
CSOs to retransmit those non-primary signals of a [PTV] broadcast
station, and all carriage of PTV multicast streams was due to the
voluntary choice of the cable operators.'' PTV PFF ] 77 (and record
[[Page 54191]]
citations therein). PTV acknowledges that PTV primary and multicast
stations are functionally retransmitted distantly as a ``bundle,'' but
that fact is neither unique to distant carriage of PTV stations nor
consequential with regard to the inclusion of the multicast stations in
a fee-based regression model. As to the latter point, PTV asserts that,
because ``[a] fee-based regression model is designed to estimate the
average relative value of programming in a bundle, such . . . bundling
of programming of different values does not bias the regression
estimates of relative marketplace value.'' PTV PFF ] 91. More
particularly, PTV explains that the Waldfogel-style regressions of Drs.
Johnson and George rely on ``average relative valuations,'' and that
programming which does not correlate with higher royalties ``will be
factored into the regression.'' PTV PFF ] 91 n.140 (citing George WDT
at 51; 4/18/23 Tr. 5170-74 (George); 3/21/23 Tr. 350, 456-58:15, 595
(Johnson); Johnson WRT ] 65.
Because he understood that programming of multicast streams on
distantly retransmitted broadcast signals to be compensable under
section 111, Dr. Johnson applied his regression model to estimate the
average relative value of distantly retransmitted programming inclusive
of multicast streaming. And, as indicated supra, he understood that, to
the extent CSOs might value PBS primary and multicast streams
differently, these different values for ``multicast streams would be
averaged out by the subscriber-weighted distant minutes.'' PTV PFF ]]
133-34 (and record citations therein).
PTV also notes how relative values, as between JSC and PTV
programming, moved in opposite directions during the 2014-2017 period.
That is, in 2015, when WGNA converted from a broadcast station to a
national cable network, JSC could not claim section 111 royalties for
sports programming that was televised on WGNA. But for PTV, the
converse was the case: Compensable programming arguably increased when
in 2016 multicast stations transformed from being statutorily exempt
(no right to section 111 royalties) to non-exempt (royalty-generating).
PTV PFF ] 135.
2. CCG's Position on Multicast Stations
CCG argues that the minutes of programming on the PTV multicast
stations that were reclassified from exempt to non-exempt should be
included in the fee-based regressions because their continued
retransmission as royalty-generating stations is the consequence of
deliberate strategies by CSOs. CCG PFF at 25. Specifically, CCG relies
on the fact that the substantial portion of stations that had been
distantly retransmitted by Bright House (an MSO) while exempt (from
royalties) continued to be retransmitted in 2016 as non-exempt
(royalty-bearing) contemporaneously with the acquisition of Bright
House by a larger MSO, Charter Communications (formerly Time Warner
Cable). CCG PFF ] 79 (citing Marx ACWDT ] 78).
According to Dr. George, Charter Communications could have chosen
to cease distantly retransmitting these PTV multicast stations after
they became non-exempt (royalty-bearing), but for commercial purposes
they elected to maintain carriage, indicating that Charter
Communications perceived value in these multicast stations. George WRT
at 20. In this regard, Dr. George concluded that the fact that Charter
decided to include the PTV signals in its cable lineup and treat those
PTV signals as paid while deciding not to carry other distant signals
``reveals the relative value of the programming to the cable system.''
George WRT at 20. See also CCG PFF ] 547.\53\
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\53\ Program Suppliers are essentially in agreement with CCG in
this regard. See PS PFF ] 387 (citing Tyler WRT ] 71 for the
assertion that ``non-exempt signals are part of the question studied
and properly included in the analysis.'').
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3. CTV's Position on Multicast Stations
Like, CCG, CTV states that the reclassification of PTV multicast
signals from exempt to ``paid'' (i.e., non-exempt, or royalty-bearing)
had a ``significant impact in the industry.'' CTV PFF at 17. But quite
unlike CCG, CTV disagrees with the inclusion of the ``paid'' multicast
signal minutes in the fee-based regressions. After reciting the same
industry merger history recounted supra, CTV PFF ] 75, CTV notes that
the reclassification of these multicast PTV stations increased both (1)
PTV subscriber-weighted minutes and (2) the data inputted into the
regression (seeking to measure the correlation between category minutes
and royalties). CTV PFF ] 76.
More particularly, 231 PTV signals were reclassified from exempt to
paid from 2014 to 2017, ``with over 90% of the reclassification of PTV
minutes taking place in 2016 and 81% of those reclassifications
associated with Charter Communications' acquisitions of Time Warner and
Bright House.'' CTV PFF ] 77 (and record citations therein). CTV
further notes the combined industry concentration of Charter
Communications, Time Warner, and Bright House prior to the 2016 merger,
together accounting for 26.2% of total cable industry subscribers. CTV
PFF ] 78.
But CTV argues that the reclassification had no impact on whether
those PTV multicast minutes should have been inputted into the fee-
based regressions. Specifically, CTV asserts, ``The increase in PTV
paid minutes did not create any changes subscribers would notice; there
was no change in channel line-ups, viewer access to programming, or
content broadcast. Rather, PTV signals that had previously existed on
channel lineups became `nonexempt.' '' CTV PFF ] 79 (and record
citations therein). Thus, CTV concludes that the reclassification
merely ``created an illusion'' of an increase in the number of
distantly retransmitted PTV minutes.'' CTV PFF ] 237 (and record
citations therein).
4. SDC's Position on Multicast Stations
The SDC echoes Dr. Marx's position on behalf of CTV, that, although
reclassification from exempt to non-exempt ``changes the reporting of
PTV minutes in the data, [it] does not change the content or value that
CSOs offer to their subscribers.'' SDC PFF ] 241 (citing Marx ACWDT ]
71).
Further, Dr. Marx takes note, in her consideration of the Charter
acquisitions discussed supra, of the existence of the PBS-NCTA
agreement in place that maintained the exempt (no royalty) status of a
number of public television stations. 4/11/23 Tr. 4272 (Marx).
5. JSC's Position on Multicast Stations
JSC takes note that, although the number of primary PTV signals did
not increase significantly, ``CSOs . . . began carrying significantly
more PTV multicast channels, with the share of PTV volume comprised of
multicast channels nearly doubling between the beginning of 2014 and
the end of 2017.'' JSC PFF ] 74 (and record citations therein)
(emphasis added). More particularly, JSC acknowledges that some of this
increase in reported PTV multicast carriage is attributable to the
change in status of certain PTV multicasts from ``exempt'' to ``non-
exempt,'' as a result of Charter Communications' acquisitions of Time
Warner Cable and Bright House Networks in 2016. JSC PFF ] 75 (and
record citations therein).
But JSC rejects the notion that the increase in non-exempt
(royalty-bearing) multicast carriage reflects an increase in value for
which the PTV allocation should increase. In support of this argument,
one of JSC's economic experts, Dr. Majure opines that (1) mere
reclassification from exempt to non-exempt itself does not reflect an
[[Page 54192]]
increase in value and (2) CSOs chose to carry additional PTV multicasts
during 2015-2017 when doing so was typically cost-free, even if they
were non-exempt) because their carriage addition did not cause the CSO
to exceed the minimum fee. JSC PFF ]] 76-77 (and record citations
therein).
Moreover, JSC relies on the testimony of PTV's own witness, Dr.
Johnson, who acknowledged that the PBS-NCTA agreement provides for CSOs
who were NCTA members to carry up to three PTV multicasts in addition
to the carriage of the primary PTV signal, that PTV would not require
payment for the carriage of these multicasts, and that, should the CSO
incur financial liability under section 111 for such multicast
carriage, PTV would be obligated to either indemnify the CSO for the
royalty costs (as with must-carry primary signals), or waive the PTV
station's right to compel carriage. JSC PFF ] 7 (citing 3/22/23 Tr.
985-88 (Johnson)).
Based on the foregoing, JSC claims that, without the multicast
provisions in the PBS-NCTA agreement, which JSC characterizes as
``marketplace'' facts, CSOs would pay ``little or nothing'' for the
programming on the multicast stations. JSC PFF ] 9 (and record
citations therein). See also JSC PFF ]] 25, 395; Harvey CWDT tbls.37-
39.
6. The Judges' Analysis and Conclusions Regarding Multicast Stations
The Judges have the same type of problem with PTV's claim for
royalties for the multicast programming as they do for the must-carry
station programming discussed supra. That is, there was evidence
available to be produced by PTV, namely the PBS-NCTA agreement as well
as the number of entities it represents that would provide significant
marketplace evidence of how PTV stations and the licensor CSOs valued
multicast station programming. But, as noted supra, PTV did not produce
either this agreement or the number of entities bound by it as
evidence, although its own expert witness testified as to some of the
agreement's contents.
Thus, the Judges were deprived of full knowledge of the terms of
the agreement, the parties' fulsome testimony as to the meaning of its
provisions and the number of entities signing on to the agreement.
Moreover, PTV opposed the admission of that agreement into evidence.
See Order 41 Denying as Moot Public Television's Motion for
Reconsideration of Order 33. Accordingly, the Judges here, too, find
that PTV bore, but failed to discharge, the burdens of production and
persuasion with regard to the details of the agreement and the extent
of its coverage. See Web V Final Determination at 59452; Huthnance v.
District of Columbia, 722 F.3d 371 (D.C. Cir. 2013); see also 5 U.S.C.
556(d) (placing the burden of proof regarding facts on the party
seeking an order based on those facts).
Nonetheless, relevant terms of the PBS-NCTA agreement were well-
understood by the parties, without dispute. As noted supra, PTV's own
expert, Dr. Johnson, understood what the agreement provided with regard
to multicast stations and the absence of a royalty obligation attendant
to their carriage. This constitutes a market-based fact, which has two
implications. First, as a direct agreement among parties in the sector
at interest in this proceeding, it is an agreement that reflects actual
value, not hypothetical value. As such, it is more credible than
attempts to tease out market value via regression-derived price proxies
or a constant sum survey such as the Bortz Survey. Second, within the
context of a fee-based regression, the existence of such zero
valuations would certainly affect the regression as well as the number
of minutes by which the impacted PTV regression coefficient would be
multiplied. But without any information regarding the number of PTV
stations covered by the PBS-NCTA agreement, the Judges cannot simply
assume that no multicast stations that generated zero net royalties
were covered by this agreement.\54\
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\54\ The fact that Charter changed some PTV multicast stations
from exempt (non-royalty-bearing) to non-exempt (royalty-bearing)
after acquiring certain CSOs is anecdotal evidence that suggests
these PTV multicast stations were generating royalties, but
anecdotes are not substitutes in this context for more comprehensive
data. (And some of these royalty-bearing PTV stations may also have
been retransmitted by CSOs with excess capacity, thereby not
actually generating any revealed preference information for the
retransmitting CSOs.)
---------------------------------------------------------------------------
If the Judges had full information regarding the PBS-NCTA agreement
from PTV, whose clients are signatories thereto, as well as information
from PTV regarding the number of its station clients and base fee
royalties impacted by the agreement, the Judges' analysis could have
been different. For example, the Judges are not convinced that the fact
that these signals had been exempt (not royalty-bearing) previously is
a dispositive point. The argument in favor of that position is that the
mere change in legal obligation has no impact on economic value. But a
simple thought experiment demonstrates the paucity of that reasoning:
What if these multicast signals had started off as non-exempt (royalty-
bearing) and then were changed to exempt (non-royalty-bearing)? It
would have been the same change, only in reverse. Would the original
classification remain in place in this juxtaposed scenario, such that
royalties would continue to be included in the regression?
Also, there was a contentious dispute regarding whether the
multicast PTV stations' programming was ``duplicative'' of the PTV
primary signal programming or of each other. Questions arose regarding
whether duplication should be narrowly tailored to mean the
retransmitting of the identical program at the identical time, at the
same proximate time or within a certain period of time, and whether
different episodes from the same series retransmitted at the same or
some proximate time or day were likewise duplicative. But without
information as to whether any multicast station that had retransmitted
such potentially duplicative programming was contractually unable to
generate royalties under the PBS-NCTA agreement in any event, these
issues of potential duplication appear to be indeterminate.\55\
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\55\ As explained infra, among the regression approaches, the
Judges rely on the Tyler Model's allocation of shares based upon
CSOs that actually paid the base fee (not the minimum fee). But
although Dr. Bennett's testimony (Bennett WRT fig.52) provides
evidence for a downward adjustment of PTV's share to reflect the
Must Carry issue discussed supra, the Judges see no clear evidence
in the record to identify how much of a downward adjustment should
be made to the PTV share to reflect the Multicast and Duplicative
Programming issues. However, because the PBS-NCTA agreement
indicates that CSOs would carry up to three Multicast stations as
Must Carry stations, i.e., without a net royalty obligation, the
Judges find that their application of Dr. Bennett's downward
adjustment for Must Carry stations essentially embodies any
Multicast adjustment, including any duplicative programming within
those Multicast channels.
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VIII. Parties' Positions Regarding Regression Models
A. Introduction
Four parties, CCG, CTV (for 2014 only), Program Suppliers and PTV,
through their expert witnesses, proffer regressions that they assert
are useful methodologies to determine relative market value. An
overview of each regression model and the criticisms thereof are set
forth below.
B. CTV's Regression Approach: The Marx Model
On behalf of CTV, Dr. Leslie Marx \56\ adopted a fee-based
regression model (the ``Marx Model'') applicable to 2014,
[[Page 54193]]
but not for the 2015-2017 period, because she found that data issues
rendered the use of such a regression approach ``substantially less
reliable and informative'' for the 2015-2017 timeframe. 4/11/23 Tr.
4117 (Marx). More particularly, for 2014, she adopted a ``Bayesian''
approach in her fee-based regression model, using that methodological
technique to mitigate concerns regarding the reduction in the quantity
and quality of 2015-17 data.
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\56\ Dr, Marx was received by the Judges as an ``expert
economist and econometrician with experience in statistical methods
and measurements.'' 4/11/23 Tr. 4109 (Marx).
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At a high level, she described the Bayesian approach as ``a
technique that allows [an econometrician] to use results from one
period and add additional data to it to then update . . . inferences
based on . . . that earlier period.'' 4/11/23 Tr. 4209:3-6 (Marx).\57\
According to Dr. Marx, three basic reasons supported her use of a
Bayesian regression:
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\57\ See also Marx ACWDT ] 101 (``Bayesian regression is a well-
accepted tool in economic and scientific research that is well-
suited to situations in which the researcher has a `prior belief'
about the distribution (e.g., mean and variance) of parameters of
interest and wishes to use additional data in order to update
conclusions about the parameters.'').
1. In the prior proceeding, the Judges found Dr. Crawford's
approach to be appropriate for allocating, inter alia, 2013
royalties.
2. The 2014 data largely patterns the 2013 data analyzed by Dr.
Crawford because (unlike the 2015-2017 data) the 2014 data had not
been affected by the growing predominance of excess capacity CSOs,
reductions the number of SGs, or the reclassification of PTV
stations.
3. Although the 2014 data alone would not be robust enough to
adequately or reliably model a regression, the Bayesian approach
incorporates a methodological technique that helps to resolve
concerns regarding the quantity of data.
4/11/23 Tr. 4207-08 (Marx).
Accordingly, Dr. Marx ran her Bayesian fee-based regression only
for 2014. The estimates she generated from her regression generated
2014 shares aligned with the shares calculated from Dr. Crawford's fee-
based regression in the 2010-13 Determination. 4/11/23 Tr. 4126:16-
4127:4. (Marx).\58\
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\58\ In her Bayesian model, Dr. Marx adopted Dr. Crawford's
model that had removed simultaneous ``duplicated minutes'' (i.e.,
minutes of distantly retransmitted programming that were also
transmitted on local stations), opining that CSOs would not realize
incremental value from offerings of duplicative programming. 4/11/23
Tr. 4213 (Marx). In this regard, Dr. Marx's approach deviated from
the Judges' prior determination in which they found a problem with
Dr. Crawford's duplicated minutes analysis and elected instead to
rely upon his nonduplicated minutes analysis. See 2010-13
Determination at 3562. Dr. Marx's specific change in this regard
does not materially affect the Judges' consideration of her Bayesian
approach in this proceeding.
---------------------------------------------------------------------------
As noted supra, Dr. Marx found that the data generated for the
2015-17 period was insufficient to allow her to use a fee-based
regression for those years. To be clear, the paucity of data she
identified was not a data collection problem, but rather what she
considered to be an insufficient quantity of data borne from
significant ``changed circumstances,'' namely the 2015 conversion of
WGNA to a cable station from a local station that had previously been
the most distantly transmitted. These changed circumstances led Dr.
Marx to highlight as a key finding from her analysis that ``a
regression similar to [Dr.] Crawford's would [be] less informative and
less reliable.'' Marx ACWDT ] 9(c) (emphasis added); see also Marx
ACWDT ] 67 (reiterating after her full analysis that in her opinion a
Crawford-style regression would be ``less informative and less reliable
for estimating relative marketplace value after 2014.'') (emphasis
added).
In granular detail, Dr. Marx identified the following dramatic
modeling ramifications arising from the WGNA conversion:
1. The fulsome data set utilized by Dr. Crawford in the 2010-13
proceeding did not exist for the 2015-2017 period.
2. The number of CSOs carrying at least one distant signal
declined substantially after 2014. More particularly, more than 800
CSOs carried distant signals in 2014, but only approximately 500
CSOs carried distant signals by 2017.
3. Total royalties declined by approximately 32% from 2014 to
2017.
4. There was a dramatic reduction in the number of subscriber-
weighted minutes.
5. The number of ``excess capacity'' CSOs increased
dramatically.\59\
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\59\ In her rebuttal testimony, Dr. Marx coined the apt phrase
``excess capacity CSO'' as an identifier of a CSO that distantly
retransmitted less than one Distant Signal Equivalent (DSE), had the
capacity to distantly retransmit one or more additional distant
signals without increasing its royalty obligation above the minimum
fee, and yet chose not to make any such additional retransmissions.
Marx WRT ]] 6, 13. The Judges adopt this phrase throughout this
Determination.
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6. More than 90% of royalties in 2016 and 2017 were paid by
these ``excess capacity'' CSOs, i.e., systems that could have
carried more DSEs but declined, notwithstanding the zero marginal
royalty cost associated with additional carriage.
7. Alternately stated, less than 10% of the SG-level calculated
royalties reported by CSOs reflect royalties actually paid for
retransmission of signals by CSOs in 2016 and 2017.
8. Consequently, all the royalties calculated for each
subscriber group in a cable system do not represent actual or
incremental costs paid by the CSO because of the minimum fee
requirement.\60\
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\60\ The minimum fee issue is separately discussed elsewhere in
this determination. It is referenced in this section discussing the
experts' models to provide a more complete context.
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9. Underscoring the impact of the WGNA conversion, 92% of CSOs
that had previously carried WGNA (with or without an additional
distant signal) in 2014, were paying only the minimum fee.
10. Finally, whereas the percentage of all CSOs that carried no
distant signals had increased from only 13% in 2014, 30% in 2015,
44.6% in 2016, and then to 44.8% in 2017.
CTV PFF ]] 93-94; 156-163; 167; 170; 195-199 (and record citations
therein).
With regard to the effect of these changed circumstances on a fee-
based regression, Dr. Marx testified that Dr. Crawford's regression
model relies on variation between the distant retransmission decisions
at the SG level--but only within a given CSO. Marx ACWDT ] 57. Thus,
the Crawford Model included a CSO only if the CSO had at least two SGs.
But with the dramatically changed circumstances caused principally by
the WGNA conversion and the resulting increase in the number of excess-
capacity CSOs, there were far fewer CSOs in the 2015-2017 period who
created the necessary multiplicity of SGs. Id. More particularly, Dr.
Marx relied on the following facts:
1. In 2015, 62% of CSOs--accounting for almost 35% of total
royalties--did not meet the Crawford regression threshold that a CSO
have at least two subscriber groups.
2. The proportion of CSOs with fewer than two SGs increased from
54.9% to 68.8%.
3. The percent of CSOs with zero SGs increased from 13% to 44.8%
from 2014 to 2017.
4. The number of CSOs qualified to be included in a Crawford
fee-based regression continued to decline throughout the relevant
time period, with only 31.2% of CSOs included in 2017.
Marx ACWDT ]] 58-59 & fig.12; 4/11/23 Tr. 4178 (Marx).
These are the detailed changed circumstances, referred to supra,
which Dr. Marx found to render a Crawford fee-based regression less
informative and reliable in the present proceeding than in the 2010-13
proceeding. Marx ACWDT ]] 64, 67. More particularly, she noted that, in
her opinion, the relatively small percent of CSOs that otherwise
satisfied the requisites for inclusion in a Crawford-style regression
could not be considered a representative sample or a representation of
the Willingness to Pay of the larger CSO market. 4/11/23 Tr. 4161, 4173
(Marx).\61\
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\61\ Dr. Marx testified that the other regression experts
essentially agreed with her opinion that the Crawford-style fee-
based regression would suffer from an absence of sufficient data on
SG variations within a CSO. She identified such agreement in the
testimonies of Drs. George, Johnson and Tyler by their relaxation of
the number and types of ``fixed effects'' used by Dr. Crawford to
isolate the correlation of category minutes and royalties which his
regression seeks to identify. However, as discussed in more detail
infra, Dr. Marx criticizes the removal of some or all of these
``fixed effects'' by these other experts as introducing ``omitted
variable bias'' into their regressions, thus compromising their
usefulness in this proceeding. See Marx WRT ]] 14, 20 & 37; 4/11/23
Tr. 4179, 4181, 4255 (Marx) (removing ``fixed effects'' in order to
introduce into the model different variations across CSOs and across
time to address the problem of fewer subscriber groups is improper
because it generates a new problem--the introduction of ``omitted
variable bias,'' which metaphorically was adding ``garbage'' into
their regressions). The Judges consider the alteration of ``fixed
effects'' by these other experts, and the criticisms of that
decision infra, in their consideration of those proffered regression
models.
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[[Page 54194]]
For the foregoing reasons, Dr. Marx utilized a fee-based regression
only to estimate the regression coefficients and share allocations for
2014. Her results--are set forth in the figures below:
[GRAPHIC] [TIFF OMITTED] TN28JN24.008
[GRAPHIC] [TIFF OMITTED] TN28JN24.009
Dr. Marx then multiplied the subscriber-weighted minutes for each
program category, as calculated by another CTV expert, Dr. Christopher
Bennett,\63\ by her Bayesian coefficients (as adjusted pursuant to her
PTV analysis) and she estimated the following allocation shares for
2014:
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\62\ In her Bayesian regression for 2014, Dr. Marx adjusted the
valuation analysis for PTV by addressing certain alleged anomalies
in the PTV minutes, including those arising from the presence of PTV
``must carry'' stations, the transition of PTV stations from exempt
(no royalty paid) to non-exempt (royalty paid) and the
indemnification of CSOs for royalties paid to transmit PTV signals.
The figures reproduced in the text, supra, from Dr. Marx's WRT
embody Dr. Marx's conclusions in these regards. The Judges consider
these PTV-specific issues elsewhere in this Determination.
\63\ See Bennett ACWDT figs.1 & 2.
---------------------------------------------------------------------------
(A) Applying Dr. Marx's 's preferred analysis excluding duplicated
minutes: \64\
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\64\ In the 2010-13 Determination, the Judges adopted Dr.
Crawford's model that included duplicate minutes because the
duplicated minutes calculation was more accurate than the
unduplicated minutes calculation. See 2010-13 Determination at 3565.
Dr. Marx calculates coefficients (and thus shares) under both
scenarios, noting that there is minimal difference between the two
approaches. Marx ACWDT ] 38.
Estimated 2014 Shares
PS--19.73%
JSC--43.89%
CTV--15.56%
PTV--16.41%
SDC--0.48%
CCG--3.93%.
(B) Applying the inclusion of duplicated minutes as in the 2010-13
Determination:
Estimated 2014 Shares
PS--20.69%
JSC--41.73%
CTV--13.94%
PTV--18.85%
SDC--0.47%
CCG--4.31%.
Marx ACWDT ] 39.
[[Page 54195]]
1. Dr. Marx's ``Directional'' Analysis for 2015-2017
Having rejected the use of a fee-based regression to estimate
relative marketplace value for the 2015-2017 period, Dr. Marx switches
gears in two contexts. First, she shifts the demand-side focus, by
analyzing how choices of downstream consumers of cable television
programming have purportedly changed--and how those changes impact the
``derived demand'' \65\ for categories of programming delineated in
this proceeding. Second, Dr. Marx uses this analysis to provide what
she describes as a ``directional'' approach, which she opines should
guide the Judges regarding the relative increases or decreases in
category royalty shares. This ``directional'' approach is in contrast
to both the regression and the survey methods for ascertaining relative
marketplace value, which seek to provide specific estimates of the
category values. See Marx ACWDT ] 83 (``This is a `directional'
analysis in that I do not quantitatively measure the effect of
streaming on relative market values.'').\66\
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\65\ In the 2010-13 Determination, the Judges explained that the
concept of ``derived demand'' was applicable to ``[t]he demand for
programming at each step in the [distribution] chain . . . all the
way to the television viewer,'' although, with regard to distant
retransmissions of local stations, this derived demand is impacted
by ``the role of bundling and `niche' programming'' that can affect
``the premium that certain categories of programming fetch in an
open market'' that would impact ``value among disparate program
categories'' in these allocation proceedings. 2010-13 Determination
at 3600.
\66\ Dr. Marx's ``directional'' analysis is akin to the
testimony of television industry witnesses discussed infra. In fact,
Dr. Marx opines that her ``directional'' analysis is consistent with
the testimonies of five industry witnesses--Mr. Singer, Mr. Warren,
Ms. Witmer, Mr. Hartman and Ms. Alany. 4/11/23 Tr. 4234 (Marx).
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More particularly, Dr. Marx evaluates the changes in how consumers
viewed cable television programming content in the 2014-2017 period,
compared to viewing in prior years. Specifically, Dr. Marx examined how
the introduction and growth of streaming of programming through over-
the-top (OTT) platforms during the 2014-2017 period affected not only
how consumers chose to access content but also, derivatively, the
``differential effects'' of this change in distribution ``across the
claimant groups.'' Marx ACWDT ] 82.
Dr. Marx's directional ``derived demand'' evaluation proceeds as
follows:
1. She summarizes the expansion of streaming prior to and during
the 2014-2017 period.
2. Dr. Marx then uses viewership data \67\ to identify evidence
indicating how the growth of streaming was likely to have increased
or decreased the relative value of the claimants' respective program
categories groups to a CSO. More particularly, Dr. Marx opines that
a program category with ``content [that] had a larger shift to
streaming would, all else equal, be likely to have a decrease in
relative importance when it comes to delivery as a distant signal by
CSOs [and] [c]onversely, claimant groups whose content had smaller
shifts to streaming likely would, all else equal, have an increase
in relative importance.''
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\67\ Dr. Marx relies on local viewing data generated by the
Nielsen audience research firm. The probative value, vel non, of
viewership data, and local viewership in particular, as a proxy for
changes in the relative marketplace value of distantly retransmitted
local stations, is discussed infra.
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3. She next reviews data on household viewership over the
relevant period, focusing on the ``directional relative effects of
streaming growth on CTV, PTV, and Program Suppliers categories . . .
.'' \68\
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\68\ Dr. Marx focuses on these three categories because her data
source only contains one Canadian station, and because the small
size of the SDC category renders it less reliable and impactful. She
also testifies that ``sports content is more challenging to evaluate
with this [Nielsen] data due to geographic and temporal variation in
ratings driven by factors unrelated to the growth of streaming,''
and that she understood ``streaming of [JSC] content was limited
during the 2014-2017 period.'' Marx ACWDT ] 84 n.66.
Marx ACWDT ]] 83-84.
Through this analysis, Dr. Marx reaches the following conclusions:
1. From as far back as 2010, ``streaming and smart device
penetration have increased while CSOs have lost subscribers.''
2. Viewership data reveals a reduction in TV viewership over the
2014-2017 period.
3. Because of increased streaming and lower cable subscribership
the ``importance of ``PTV and Program Suppliers content appear[s] to
have diminished . . . relative to CTV content.''
4. Although the data reveal a decline in the absolute number of
households watching content within the CTV, PTV, and Program
Suppliers categories, the relative declines were greater for PTV's
and Program Suppliers' content than for CTVs' content.
5. The absolute and relative decline in the share of viewership
on cable of Program Suppliers content is consistent with the
contemporaneous improvement in the ``quality of streaming video
content provided on platforms such as Netflix, Amazon Prime Video,
and Hulu.''
6. In addition to licensed TV shows, these streaming platforms
also transmit original content which they have produced, with
quality levels generating Emmy Award nominations, indicating the
growing and high quality of content carried by streaming platforms.
Marx ACWDT ]] 85-98 & figs.21-24.
Applying the foregoing to the Judges' present task of estimating
relative marketplace value across the claimant categories, Dr. Marx
concludes as follows:
In sum, streaming grew rapidly during 2014-2017 [and] Nielsen
data show concomitant declines in viewership of the PTV and Program
Suppliers claimant groups' content. CTV content viewership also
declined, but that decline was smaller than for PTV and Program
Suppliers. This implies that the growth of streaming likely had a
greater adverse impact on Program Suppliers and PTV claimants than
on CTV claimants. All else equal, this is consistent with a higher
relative market value for CTV claimants over the 2014-2017 period as
compared with Program Suppliers and PTV claimants.
Marx ACWDT ] 99.
2. Rebuttals to Dr. Marx's Analyses
a. Rebuttals to Dr. Marx's WDT by SDC Witness Dr. Erdem
One of the SDC's expert economic witnesses, Dr. Erkan Erdem,\69\
characterizes Dr. Marx's rejection of the applicability of the fee-
based regression approach in a broader context than Dr. Marx. Instead,
Dr. Erdem avers that the inconsistency between the 2010-2013 data and
the data over the entirety of the 2014-2017 period reveals something
more profound: that the ``Crawford model was made specifically only for
the 2010-2013 data . . . [and] is not robust enough to measure the
market value of distant minutes per claimant to fit data from other
proceedings.'' Erdem WRT ] 126. By this criticism, Dr. Erdem tacitly
criticizes Dr. Marx's Bayesian approach for not applying her criticism
with appropriate breadth, maintaining that ``[e]ven if there is a shift
in the trend of this proceeding's data, [her modeling] should still
theoretically be useful for this proceeding, if one were to believe it
was useful in the first place, since they are dealing with the same
variables.'' Erdem WRT ] 126. See also Erdem WRT ] 130 (opining that
Dr. Marx was wrong to maintain that after the WGNA conversion all that
was needed was ``an adjustment . . . in the Crawford model'' because,
although ``[t]he underlying trends in the data . . . shifted, . . . the
variables used are still the same, as well as the computation of
distant minutes and distant signals.'').
---------------------------------------------------------------------------
\69\ Dr. Erdem was received as an expert in the fields of
economics, econometrics, and data analysis. 4/5/23 Tr. 3395 (Erdem).
---------------------------------------------------------------------------
Whereas Dr. Erdem finds the forgoing criticism of the use of a
Crawford fee-based regression as incomplete, he finds a second
criticism by Dr. Marx to be exaggerated. Specifically, he takes issue
with her concern that the number of CSOs with two or more subscriber
groups had decreased after 2014, thereby reducing the presence of the
[[Page 54196]]
sufficient observations of programming decisions arising from the
different stations retransmitted by such subscriber groups. Erdem WRT ]
131. Dr. Erdem finds this criticism overblown because the percentage of
CSOs with fewer than two subscriber groups only increased from 54.9% to
68.8% from 2014 to 2017, and the CSOs thus excluded from the fee-based
regressions would ``only account for 38% of the total royalties.''
Erdem WRT ] 131. Thus, he finds Dr. Marx's reliance on this changed
circumstance as obscuring his essential point, to wit, that if the
Crawford Model had been ``correctly specified in the first place'' it
would not need ``to be adjusted for changes in the data,'' but rather
``should be able to withstand [data changes] to remain accurate.''
Erdem WRT ] 131.
Finally, but in the same vein, Dr. Erdem disagrees with Dr. Marx's
conclusions that the reduction in the percentage of CSOs paying only
the minimum fee limits only the applicability of the fee-based
regression approach, as opposed to (as Dr. Erdem maintains)
demonstrating the overall incorrectness of the model's specifications.
Erdem WRT ] 132. More specifically, Dr. Erdem characterizes the 39% of
CSOs paying only the minimum fee in 2014 as itself a ``large
proportion,'' which would have required the Crawford Model, or a model
fashioned in the manner of the Crawford Model, to have been
``specified'' for this effect. Instead, Dr. Marx treats the increase in
the shift in CSOs paying minimum fees after 2014 only as grounds to
find the fee-based regression model inapplicable for 2015-2017, rather
than misspecified, and she wrongly deemed the 39% figure in 2014
sufficient to incorporate into her Bayesian regression. Erdem WRT ]
132.\70\
---------------------------------------------------------------------------
\70\ The SDC's other econometric expert, Dr. Rubinfeld,
criticizes Dr. Marx's use of a fee-based regression in her Bayesian
approach for the same reasons he criticizes fee-based regressions
writ large, and those criticisms are addressed elsewhere in this
determination. But the Judges note here that Dr. Rubinfeld found Dr.
Marx's ``directional'' analysis for 2015-2017, relating to the
growth of streaming as impacting relative share values, as proof
that ``the regression specification put forth by Dr. Crawford was
not robust or informative [because] the model does not adequately
characterize the changing U.S. video distribution marketplace.''
Rubinfeld WRT ] 95.
---------------------------------------------------------------------------
b. Rebuttals to Dr. Marx's WDT by Program Suppliers Witness Dr. Tyler
Dr. Tyler \71\ levies three criticisms at Dr. Marx's direct
testimony. First, he criticizes Dr. Marx's regression-based approach
for estimating 2014 values for the same reason he criticizes all the
other fee-based regression proffered in this proceeding (and Dr.
Crawford's model as well).\72\ That is, Dr. Tyler criticizes Dr. Marx's
2014 modeling because her dependent variable, as in the models of Drs.
Crawford, George and Johnson, is ``a royalty amount.'' Written Rebuttal
Testimony of Cleve B. Tyler, Ph.D., Trial Ex. 7601, ] 30 (Tyler WRT).
Dr. Tyler's criticism of this form of dependent variable is that it
``contain[s] a substantial amount of variability due to factors other
than categories of distantly retransmitted minutes for a subscriber
group.'' Tyler WRT ] 31. According to Dr. Tyler, these models then need
to include fixed effects to limit this unrelated variability, but Dr.
Crawford's model--subsumed in Dr. Marx's 2014 model--suffers from a
loss of information arising from these fixed effects.
---------------------------------------------------------------------------
\71\ Dr. Tyler was received as an expert in the fields of
economics, data analysis, and econometrics. 4/19/23 Tr. 5428
(Tyler).
\72\ To be clear, Dr. Tyler does not criticize Dr. Marx's
application of a Bayesian approach to the 2014 allocation issue.
---------------------------------------------------------------------------
Moreover, Dr. Tyler notes that, for the 2015-2017 period, Professor
Marx's inability to apply a fee-based regression arises from data
limitations generated by the WGNA conversion, but such data limitations
are obviated by the change in the dependent variable to his Subscriber
Group Royalty Percentage (``SGRP''), which he avers does not require
fixed effects, and thus his model does not discard information from the
substantial number of CSOs that have just one Subscriber Group. Tyler
WRT ] 70.
Dr. Tyler also maintains that because Dr. Marx relies on Dr.
Crawford's 2010-2013 model, she began her regression analysis from an
``imprecise starting point'' and a potentially biased ``prior belief.''
Tyler WRT ] 57. That is, because Dr. Tyler is of the opinion that Dr.
Crawford's process in generating his model generates ``serious
questions,'' \73\ she has implicitly ported those problems into her
model, which ``cast[s] a substantial shadow of doubt on any of her
conclusions.'' Tyler WRT ] 57.
---------------------------------------------------------------------------
\73\ Dr. Tyler's criticisms of Dr. Crawford's work are set forth
at Tyler ACWDT ]] 106-127 tech. app. A. The Judges discuss elsewhere
in this determination the impact of the criticism of Dr. Crawford's
work on the fee-based regressions proffered in this proceeding.
---------------------------------------------------------------------------
Finally, Dr. Tyler takes aim at Dr. Marx's default to a directional
analysis in which she opined that expanded streaming services likely
``reduc[ed] the value of Program Suppliers and PTV claimants'
retransmitted programming relative to the programming offered by CTV
claimants.'' While not disputing the relative value shift posited by
Dr. Marx, Dr. Tyler maintains that an appropriate regression analysis,
such as his approach, would capture this effect and in a manner
superior to the inappropriate speculation embodied in Dr. Marx's
``directional'' analysis. Tyler WRT ] 72.
c. Rebuttals to Dr. Marx's WDT by Program Supplier Expert Dr. Gray
Dr. Gray \74\ raises the following criticisms of Dr. Marx's
approach:
---------------------------------------------------------------------------
\74\ The Judges received Dr. Gray as an expert in the fields of
economics, statistics, and econometrics. 4/13/23 Tr. 4850 (Gray).
1. In support of her ``directional'' analysis, Dr. Marx claims
only that local viewership declined for each of the Program
Suppliers, Commercial Television, and Public Television claimant
categories, but she fails to provide information on the level or
trend of distant viewing of these locally produced programs. Written
Rebuttal Testimony of Jeffrey S. Gray, Trial Ex. 7606, ]] 47-48
(Gray WRT).
2. Relatedly, although the Judges have previously ruled that
local viewing patterns are not probative of distant viewing
patterns, absent contemporaneous local and distant measures
demonstrating that local viewing patterns are sufficiently
informative as to subscribers' distant viewing patterns, Dr. Marx
offers only local viewing data, which the Judges have previously
found not probative of distant viewing pattern rather than evidence
of distant viewing patterns. Gray WRT ] 48 n.40 (citing Order
Reopening Record and Scheduling Further Proceedings, Consolidated
Docket Nos. 2012-6 CRB CD 2004-2009 (Phase II) and 2012-7 CRB SD
1999-2009 (Phase II) at 3-4 (May 4, 2016)).
3. Dr. Marx fails to account for the substantially diminished
number of households which even had distant-retransmitted access to
CTV programming in the years 2015-2017. Thus, she fails to address
the fact that ``the relative number of subscribers receiving [CTV]
programming on a distant basis declined precipitously over the 2014-
2017 royalty years,'' as shown even in ``[s]tatistics presented in
Dr. Marx's direct testimony show[ing][CTV's] share of claimant
category minutes weighted by the number of distant subscribers
reached [had] declined 72% between 2014 and 2017.'' Gray WRT ] 49.
d. Rebuttals to Dr. Marx's WDT by PTV's Expert Dr. Johnson
Dr. Johnson \75\ recognizes that he and Dr. Marx essentially agree
as to the use of fee-based regressions and allocation methodologies for
2014, but that they disagree with regard to the usefulness of a fee-
based regression to determine allocation shares for the 2015-2017
period. Johnson WRT ] 88. With regard to the latter three years, Dr.
Johnson takes issue with Dr. Marx's opinion that the WGNA conversion
would
[[Page 54197]]
necessarily `` `exclude a large proportion of CSOs and royalties from
the analysis,' '' rendering a fee-based regression approach `` `less
informative and reliable.' '' Johnson WRT ] 89. More particularly, Dr.
Johnson criticizes Dr. Marx for not presenting in her WDT ``any
regression analysis or testing that would support this claim,'' and,
moreover, that although she produced what appeared to be ``computer
code . . . appl[ying] Dr. Crawford's model to the entire 2014-2017
period,'' she did not provide any explanation how that code might have
supported her otherwise conclusory opinion that a fee-based regression
for the 2015-2017 period would be `` `less informative and less
reliable.' '' Johnson WRT ] 89 n.163.
---------------------------------------------------------------------------
\75\ The Judges received Dr. Johnson as an expert in the fields
of economics and econometrics. 3/21/23 Tr. 362 (Johnson).
---------------------------------------------------------------------------
Regarding Dr. Marx's substitution of her ``directional'' analysis
for a regression approach to analyze the 2015-2017 period, Dr. Johnson
raises two criticisms. First, he finds her decision to not apply any
modeling approach for that period to be too severe. Johnson WRT ] 91.
Second, Dr. Johnson criticizes Dr. Marx's ``directional analysis'' as
lacking any specificity, information or guidance as to what any
particular claimant groups' royalty shares should be in the 2015-2017
period. Rather, her analysis is nothing more than a recitation of
purported ``qualitative changes Dr. Marx believes were `likely' to have
happened.'' Johnson WRT ] 92.
e. Rebuttals to Dr. Marx's WDT by CCG's Expert Dr. George
Dr. George \76\ first addresses Dr. Marx's critique of Dr.
Crawford's model somewhat obliquely--not by disputing the critique that
his model reduces the available number of meaningful variations (among
subscriber groups within CSOs) but by purportedly failing to recognize
(as Dr. George opines) that relaxing fixed effects in Dr. Crawford's
model would increase the number of subscriber group variations, thus
salvaging the use of a fee-based regression. That is, an adjustment
allowing for ``estimating coefficients from variations within systems
over time rather than within each system each accounting period,''
allows for a regression to analyze ``all systems carrying distant
signals in two or more accounting periods [to be] included, regardless
of the number of subscriber groups.'' George WRT at 18.\77\
---------------------------------------------------------------------------
\76\ The Judges received Dr. George as an expert in the fields
of economics, with experience in econometrics, media markets, and
industrial organization. 4/18/23 Tr. 5111 (George).
\77\ Dr. George acknowledges that relaxing Dr. Crawford's
``fixed effects'' in this manner risks the introduction of bias from
omitted variables created by industry and system changes over time
left unobserved by the regression, but she believes this trade-off
is acceptable. George WRT at 18. By contrast, Dr. Marx maintains
that allowing for the introduction of potential ``omitted variable
bias'' would invite application of the metaphor ``garbage in,
garbage out.''
---------------------------------------------------------------------------
Further, Dr. George ``agrees with Dr. Marx that programming on
streaming services is likely a closer substitute for [PTV] and Program
Supplier programming than other claimant types,'' Dr. George finds that
Dr. Marx's analysis ``likely overstates the relative decline of Program
Supplier and Public Television programming relative to Commercial
Television content.'' George WDT at 21. She reaches this finding by
noting that Dr. Marx's reliance on local (rather than distant) viewing
neglects the likely fact that local CTV news programming would be less
popular in distant markets, whereas Program Suppliers' content is not
geographically distinct and would not be less valued for this reason.
George WRT at 21.
Finally, Dr. George takes issue with Dr. Marx's use of a Bayesian
regression incorporating 2013 data into the methodology used to
calculate 2014 share estimates.
Dr. George emphasizes that pooled data from 2010-2013 reflects the
choices made by CSOs in that earlier period with different market
conditions. In this regard, Dr. George notes that decisions in 2010-
2013 reflect neither the WGNA conversion nor later cable industry
acquisitions and entry. George WDT at 22.\78\
---------------------------------------------------------------------------
\78\ None of the JSC witnesses levied substantive criticisms of
Dr. Marx's 2014 Bayesian regression or her 2015-2017 ``directional''
analysis. This is perhaps unsurprising, because a JSC expert
witness, Dr. Majure, does not take issue with the results of Dr.
Marx's 2014 Bayesian regression or with her ``directional''
analysis.
---------------------------------------------------------------------------
3. The Judges' Analysis and Findings Regarding the Marx Model and
Directional Approach
Having considered all aspects of the CTV Marx Model and directional
analysis presented by Dr. Marx, as well as all the criticisms of those
approaches contained in the submissions by the other parties, the
Judges find as follows:
1. Dr. Marx's Bayesian modeling, ceteris paribus, is an
appropriate econometric tool to use in the process of estimating
relative marketplace value across the program categories for 2014.
The Judges do not credit Dr. George's criticism that Dr. Marx's
Bayesian approach is deficient because it pools 2014 data with data
from the 2010-2013 period. Dr. Marx opined, and the Judges agree,
that 2014 was sufficiently similar to this prior period to justify
the Bayesian approach.\79\
---------------------------------------------------------------------------
\79\ The Judges also note that Dr. George herself pooled data
from 2014 with the 2015-2017 data, where the data distinction was
dramatic, having arisen from the WGNA conversion.
---------------------------------------------------------------------------
2. Dr. Marx's directional analysis for the 2015-2017 period can
be useful, despite the absence of any allocation share estimates, in
that it suggests to the Judges which of the quantitative estimates
on which the Judges do rely could be more probative, in that they
are consonant with Dr. Marx's directional analysis. However, in the
present proceeding, as discussed infra, the Judges adopt the Tyler
Model as a regression model that is probative of relative
marketplace values over the entire 2014-2017 period. Accordingly,
the Judges find Dr. Marx's `directional'' analysis, although useful,
not as probative or definitive as the Tyler Model. Nonetheless, the
Judges will utilize the Marx Model, as appropriate, to reconcile
differences between the Tyler Model and the adjusted Bortz approach
undertaken infra.
3. Nonetheless, the Judges emphasize the appropriateness of Dr.
Marx's `directional'' analysis, because they do not want to leave
the implication that such qualitative analyses are inappropriate.
Dr. Marx's 2015-2017 directional analysis was an appropriate
alternative to a fee-based regression--because (as discussed
elsewhere in this determination) the WGNA conversion substantially
increased the number of minimum-fee-only CSOs and the number of CSOs
with less than two subscriber groups--reducing significantly the
number of CSOs and subscriber groups that was accepted by the Judges
in the 2010-13 Determination. In this regard, the Judges do not
credit Dr. Erdem's reliance on separate arguments, seeking to
discredit Dr. Marx's use of the regression approach have evidentiary
weight commensurate for 2014, regarding the impact of (a) the
reduction in the number of CSOs with two or more subscriber groups;
and (b) the increase in the number of minimum-fee-only CSOs. Rather,
Dr. Marx has considered the combined effect of these factors.
4. Although Dr. Marx's ``directional'' approach is probative and
useful, she overstated the point that the reduction in above-
minimum-fee-paying CSOs rendered their revealed preferences without
benefit. Rather, their channel selections/programming preferences
are also probative and useful, even if less so than in the 2010-13
Determination because of the reduction in the number of such CSOs
and in the percentage of royalties they represent.
5. Dr. Marx's allocation shares related to ``duplicated''
minutes is superior to her share allocation excluding ``duplicated''
minutes, because the Judges adopted the former in the 2010-13
proceeding, because of problems relating to the latter as described
in the prior determination. See 2010-13 Determination at 3565, 3569,
3591, and 3610-11.
6. The evidentiary weight of Dr. Marx's ``directional'' analysis
for the 2015-2017 period is not diminished due to her reliance on
local viewership data, because the evidence in this proceeding
indicates that a substantial percentage of distant viewing is
retransmitted to areas in close proximity to the origin of the local
signal. See, e.g., Erdem WRT 59 (``91% of systems are retransmitting
the same signal on a local basis to some
[[Page 54198]]
subscriber groups and on a distant basis to other subscriber groups
[and] [of]f these systems, on average, 76% of the channels that are
distant to a subscriber group are retransmitted as local to another
subscriber group . . . .'').
7. Dr. Marx's ``directional'' analysis provides evidence
suggesting that PTV and Program Suppliers content declined in
viewership relative to CTV, implying, ceteris paribus, a higher
relative share value for CTV. The Judges note that Dr. George agrees
with this point (but see point (8) below).
8. However, the Judges' prior reluctance to use viewership as a
direct proxy for value in the allocation (Phase I) proceedings
cautions against applying too much probative weight to this
``directional'' analysis. Accordingly, the Judges adopt Dr. Gray's
criticism regarding Dr. Marx's reliance on local viewership data,
but only as a caution regarding its evidentiary weight. In this
regard, Dr. George agrees that the weight placed on Dr. Marx's
viewership-based approach be limited.
9. The Judges further limit the evidentiary weight of Dr. Marx's
``directional ``analysis, because, as Dr. Gray further notes, Dr.
Marx's own data shows that CTV's share of claimant category minutes
declined significantly between 2014 and 2017.
C. Program Suppliers' Regression Approach: The Tyler Model
On behalf of Program Suppliers, its expert witness, Dr. Tyler,
proffered a regression analysis that, while within the broad category
of fee-based regressions, is differentiated in ways that Dr. Tyler
opines to be important in this proceeding. The Judges' review of his
testimony, infra, highlights these broad similarities and the
assertedly important differences.
At a high level, Dr. Tyler agrees with the finding in the 2010-13
Determination that regression analysis is very informative for
estimating relative marketplace value in this case. But by way of
differentiating his approach, Dr. Tyler notes that a regression seeking
to establish relative marketplace value should estimate incremental
value, which he posits here to be the marginal value of an additional
minute of different types of programming content relative value--rather
than a value relative to a reference or base category, as in the other
proffered regressions. Tyler ACWDT ] 65; 4/19/23 Tr. 5439-40 (Tyler).
Next, Dr. Tyler notes that--although the statutory royalty formula
in section 111 prevents the setting of market prices for distantly
retransmitted stations--a regression can observe how CSOs reveal their
preferences for different types of stations bundling various types of
programming content, given the pre-existing section 111 royalty rate
provisions. In turn, the observations of the decision-making by CSOs
provides insight into their willingness-to-pay (WTP) for different
programming categories on their distantly retransmitted local stations.
The final link in this analytic chain, according to Dr. Tyler, is that
the regression can measure this WTP and thus estimate the ``relative
values of market outcomes'' that cannot be directly observed. Tyler
ACWDT ] 65.
More particularly, Dr. Tyler explains that regression analysis as
applied to determine relative marketplace value in these proceedings
``exploits the fact that CSOs make choices as to which bundles of
content they retransmit.'' Tyler ACWDT ] 66. He adds that the
regression will estimate the incremental royalty amount that CSOs paid
(or, more accurately appeared willing to pay) \80\ to acquire different
types of content, which, he opines, ``is akin to finding the relative
value of programming content, based on actual choices made by
marketplace participants.'' Id. Finally, Dr. Tyler explains that the
``marginal values'' calculated via his regression must be multiplied by
the quantities of minutes ``to compute relative marketplace value.''
Tyler ACWDT ] 68.
---------------------------------------------------------------------------
\80\ The Judges understand that Dr. Tyler found it necessary to
include this qualifier because in a majority of instances in the
2015-2017 period, CSOs paid the minimum fee rather than the ``base
fee'' calculated on a subscriber group basis. See Tyler ACWDT ] 67
(tacitly acknowledging that where the minimum fee is binding, a fee-
based regression does not provide the CSOs' actualized revealed
preferences, but rather only ``insight into how the CSOs would
actually value these program categories in an unregulated
market.'').
In this regard, the Judges discuss elsewhere in this
determination the distinction in evidentiary value between instances
where the CSO actually pays the calculated subscriber group base
fee, and instances where the CSO actually pays the minimum fee (not
the calculated subscriber group base fee).
---------------------------------------------------------------------------
Notwithstanding his broad agreement with other experts in this and
prior proceedings that fee-based regressions are useful, he parts
company with them in an important way. Rather than start from the
assumption that Dr. Crawford's 2010-13 model is useful or correct, Dr.
Tyler constructed a regression model that differed from the approach
taken by Dr. Crawford and from Drs. Johnson George and Marx (for 2014),
whose approaches were modified versions of Dr. Crawford's model. More
specifically, he avers that the Tyler Model diverges importantly and
beneficially from prior fee-based regressions and from the fee-based
regressions proffered by the other experts here, because of his model's
use of a Rate as the dependent variable.
In this regard, Dr. Tyler explains that Crawford-style regressions
use actual dollar royalty amounts as the dependent (left-hand side)
variable, which is problematic because ``substantial variability exists
across the royalty amounts calculated for each subscriber group . . . .
'' More particularly, because ``copyright royalties are determined on
the basis of gross receipt percentages . . . greater [dollar] royalty
amounts . . . for a subscriber group [may occur] for no other reason
than that one CSO has more subscribers or higher prices, or both, than
another CSO.'' Tyler ACWDT ] 83.
Accordingly, a regression model using royalty amounts calculated
(such as the Crawford Model) ``must control for these sources of
variability to attempt to isolate the incremental value of minutes by
category type.'' Tyler ACWDT ] 83. This control is made in the
Crawford-style regression by the use of ``fixed effects,'' which
``discard information from the substantial number of CSOs that have
just one subscriber group,'' a loss of data that is unnecessary in the
Tyler model. Tyler WRT ] 70.
Dr. Tyler's use of royalties as a percentage of gross receipts, at
the subscriber group level, allows him to calculate what he coins (as
noted supra) the ``Subscriber Group Royalty Percentage'' (``SGRP'').
When the SGRP is regressed against the number of transmitted minutes
for each category, Dr, Tyler obtains coefficients for his regression
equation that he describes as ``represent[ing] a type of price.'' Tyler
ACWDT ] 84.
This attempt by Dr. Tyler to characterize the SGRP dependent
variable as a ``type of price'' is no mere academic detail. By making
this characterization, Dr. Tyler claims that his model sits within a
well-accepted class of econometric regressions known as ``hedonic
regressions,'' which he defines as follows:
Hedonic regression . . . model[s] . . . estimate the influence
that various factors have on the price of a good, or sometimes the
demand for a good. In a hedonic regression model, the dependent
variable is the price (or demand) of the good, and the independent
variables are the attributes of the good believed to influence
utility for the buyer or consumer of the good. The resulting
estimated coefficients on the independent variables can be
interpreted as the weights that buyers place on the various
qualities of the good.
Tyler ACWDT ] 85.
Dr. Tyler then constructs his purported hedonic regression by using
what he describes as the calculated ``actual'' \81\ royalty rate per
subscriber--
[[Page 54199]]
determined by the base fee royalty as a percent of each subscriber
group's gross receipts. Tyler ACWDT ] 87. He proceeds to weight the
regression model by the gross receipts of the CSOs, which he opines is
``consistent with assessing relative marketplace value [because]
[s]ubscriber groups with larger gross receipts would tend to contain
more information [and] CSOs would be expected to scrutinize decisions
regarding distantly retransmitted signals more carefully when there are
more dollars at stake.'' Tyler ACWDT ] 88.\82\
---------------------------------------------------------------------------
\81\ The word ``actual'' in this context is rather Orwellian.
For the 2015-2017 period, a substantial majority of the CSOs in
which the subscriber groups are situated ``actually'' paid the
minimum fee. A Base Fee was ``actually'' calculated, as required by
the regulations, but not ``actually'' paid, because the Minimum Fee
bound. Dr. Tyler's misleading semantic use of the adjective
``actual'' does not assist the Judges in deciding whether any or all
of the Base Fee calculations have objective evidentiary weight.
\82\ The use of weights in hedonic regressions has support in
the economic literature. See Tyler ACWDT ] 88 n.72 (citing sources).
(Dr. Tyler also includes a sensitivity analysis in which he shows
the results of his model without weights Tyler ACWDT Sec. VI.G.
(tech. app. C)).
---------------------------------------------------------------------------
Dr. Tyler's regression model ``includes interaction terms for each
year . . . which allows for estimated valuations that vary'' for each
year in the 2014-17 period. This annualizing of the valuations is
distinguishable from the ``pooled'' approach of other regression
experts in this proceeding, who (in the models proffered in their
direct testimonies) ``pool'' their data across all four years. Dr.
Tyler rejects this approach and utilizes an annualized approach
instead, because, he opines, utilizing the same coefficient across the
four years is both (1) legally inappropriate because calculating share
allocations for specific years is statutorily required and (2)
inconsistent with ``best practices'' for hedonic regressions (data
permitting), which allow the underlying relationships between types of
minutes and SGRP to vary over time. Tyler ACWDT ] 91.
Summing up, Dr. Tyler identifies what he understands to be the many
advantages of his model:
1. SGRP--as a type of price--reflects a ``minimum willingness to
pay'' and thus has a ``clear economic interpretation.'' PS PFF ] 285
(and record citations therein).
2. The focus of the regression is on ``nearly 20,000
observations/data points, and more than 2,000 distinct pricing
relationships, providing the variation needed for a meaningful
regression. PS PFF ] 286 (and record citations therein).
3. By using SGRP as the dependent variable instead of royalties
(in any functional form), the Tyler Model is not influenced by
variability in gross receipts caused by the number of subscribers in
a subscriber group or higher CSO subscription prices arising from
for example, the number and type of cable networks carried, the
quality of (or deficiency in) customer service, and the bundled
pricing of cable, internet and/or phone. Unlike the regressions that
use royalties as the dependent variable, the Tyler Model does not
need to control for these statutorily unrelated effects, thus
avoiding the potential for bias when fixed effects are introduced.
PS PFF ]] 290-292 (and record citations therein).
4. Because the SGRP is a ``type of price'' the Tyler Model is
``closer'' to the definition of a traditional hedonic regression and
``closer to the definition of a traditional hedonic model.'' PS PFF
] 293 (and record citations therein).
5. By establishing values and shares for each year, rather than
pooling the results over the four-year period, the Tyler Model: (a)
is in line with the Judges' statutory task; (b) captures annual
industry changes; and (c) is consistent with ``best practices for
hedonic regressions.'' PS PFF ]] 294-296 (and record citations
therein).
6. The Tyler Model looks at the more economically logical
hypothetical marginal expansion per minute of a program type to
determine value rather than the hypothetical shift of minutes among
program categories. PS PFF ] 298 (and record citations therein).
7. The Tyler Model avoids the problem inherent in the other
regressions that must rely on incorrect subscriber number estimates.
PS PFF ]] 299-300, 358, 360-3623 (and record citations therein).
Unlike the models proffered by Drs. George, Johnson and Marx, the
Tyler Model is not based on the Crawford Model. Therefore, unlike
those models, the Tyler Model is not tainted by the potential
``specification searching'' suggested by the high number of models
and specifications tested by Dr. Crawford. Moreover, Dr. Tyler only
considered the results of fewer than two dozen models (all linear in
functional form) many of which were robustness/sensitivity checks
and not generated as potential alternative base models. PS PFF ]]
305, 307, 311-313, 315-316, 376-379 (and record citations therein).
8. Despite its differentiation from the Crawford Model,
particularly with regard to the SGRP as the dependent variable in
the Tyler Model and in the absence of a need for fixed effects, the
Tyler Model is an improvement of the fee-based regression approach,
not a departure. PS PFF ] 317 (and record citations therein).
9. The Tyler Model does not cherry-pick or otherwise overstate
an allocation share for Program Suppliers, for whom Dr. Tyler
presented testimony. PS PFF ] 308-309 (and record citations
therein).
Applying his model in the foregoing manner, Tyler estimates royalty
shares (and standard errors) for each year as follows:
[GRAPHIC] [TIFF OMITTED] TN28JN24.010
[[Page 54200]]
1. Criticisms of the Tyler Model
a. Criticisms of the Tyler Model by SDC Expert Witness Dr. Erdem
Dr. Erdem opines that, notwithstanding Dr. Tyler's claim that his
model is differentiated to address defects in the approach used by Dr.
Crawford, the Tyler Model ``essentially carries the same flaws.'' Erdem
WRT ] 43. But before examining alleged flaws in the Tyler Model, Dr.
Erdem acknowledges that, in his opinion, the other regression experts'
modeling is more ``egregious'' than Tyler's model. Erdem WRT ] 121.
More particularly, Dr. Erdem recognizes that Dr. Tyler has made what
Dr. Erdem understands to be the following salutary changes from the
approach used by Dr. Crawford:
1. A change in the dependent variable from the log of royalties
into a fees/revenue ratio.
2. The removal of fixed effects.\83\
---------------------------------------------------------------------------
\83\ Dr. Erdem opined that the inclusion of fixed effects
obscured the more impactful predictive effects of other independent
variables on the royalty-based related dependent variable.
---------------------------------------------------------------------------
3. Division of each claimant category into ``Canada'' and ``non-
Canada'' zone minutes.\84\
---------------------------------------------------------------------------
\84\ The experts' treatment of issues relating specifically to
the Canada Zone is set forth infra in this determination.
---------------------------------------------------------------------------
4. Removal of the effect of ``the number of subscribers'' by
``divid[ing] the . . . fees paid by a metric [gross receipts] that
scales with the number of subscribers.''
Erdem WRT ]] 43, 61.
However, according to Dr. Erdem, despite the positive significance
in these model changes, the core principle of the Tyler Model remains
unchanged from other regressions, because ``the dependent variable Dr.
Tyler uses is still driven by fees [and] attempt[s] to estimate the
relationship between fees and programming minutes.'' Erdem WRT ]
43.\85\ More granularly, Dr. Erdem criticizes Dr. Tyler's use of the
SGRP as the dependent variable because it ``basically boils down to the
number of DSEs.'' In this regard, Dr. Erdem further opines:
---------------------------------------------------------------------------
\85\ This is a reprise of the overarching criticism that Dr.
Erdem made in the 2010-13 Determination, which was rejected by the
Judges.
This is because a system's royalty fees are calculated by
multiplying their revenues by a specified amount that increases as
the system adds more DSEs, so dividing the fees by revenue will
produce a number that correlates strongly with the number of DSEs
the system carried. As a result, Dr. Tyler is essentially saying
---------------------------------------------------------------------------
that DSEs equate to market value.
Erdem WRT ] 122. Dr. Erdem asserts that this change in the dependent
variable from the log of royalties to the SGRP does not cure the
fundamental problem in all fee-based regressions, to wit: fee-based
regressions are ``trying to calculate market value when no market
exists, using variables determined by regulation.'' Erdem WRT ] 122.
b. Criticisms of the Tyler Model by SDC Expert Witness Dr. Rubinfeld
Dr. Rubinfeld testifies about the deficiencies in all the fee-based
regressions, but he pointedly criticizes Dr. Tyler for characterizing
his regression as a hedonic regression. Rubinfeld WRT ] 71. Dr.
Rubinfeld levies this objection because he is of the opinion that Dr.
Tyler's dependent variable, the SGRP, does not equate or analogize to a
``market price''--a necessary element for a regression to qualify as
hedonic. Rubinfeld WRT ] 71. Thus, according to Dr. Rubinfeld, Dr.
Tyler's dependent variable, the SGRP, falls victim to the same
deficiency as the other regressions, in that there is ``no reason to
believe that a regression based on statutory royalty fees--whether in
dollar terms or expressed as a percentage of gross receipts--will
identify the marginal value of programming that would prevail if the
royalty fees were determined in a free market.'' Rubinfeld WRT ] 75.
However, Dr. Rubinfeld approvingly cites Dr. Tyler's testimony (in
the same vein as Dr. Erdem) for its critique of the modeling undertaken
by Dr. Crawford. In this regard, Dr. Rubinfeld notes:
1. Dr. Tyler examines Dr. Crawford's regression model to the
2014-2017 data available in the current proceeding and finds a
``serious'' underlying modeling problem in the fact that ``the
Crawford Model estimates zero shares for JSC in 2014 (as well as the
other years) . . . .''
2. Dr. Tyler analyzes the troubling pattern of the regression's
``residuals'' in Dr. Crawford's model--again using 2014-2017 data--
and finds that the latter's regression model is ``not well specified
for the 2014-2017 data.'' \86\
---------------------------------------------------------------------------
\86\ More technically, Dr. Rubinfeld (like Dr. Erdem) finds the
``hammer-shaped pattern of residuals violates the classical zero
conditional mean of the disturbance assumption for the OLS estimator
to be unbiased.'' Erdem WRT ] 93. This means that the residuals
exhibit non-random data points, whereas a well-specified regression
would contain have random error terms. In (perhaps) somewhat less
technical terms, Dr. Rubinfeld is agreeing with Dr. Tyler that the
unexplained portions of the Crawford Model are actually correlated
with one or more omitted independent variables.
Rubinfeld WRT ] 93.
In sum, Dr. Rubinfeld does not find economic support for Dr.
Tyler's regression model, but does find common cause with Dr. Tyler'
broad criticism of other fee-based regressions.\87\
---------------------------------------------------------------------------
\87\ Another SDC expert witness, Mr. John Sanders, likewise does
not ``endorse'' Dr. Tyler's modeling, but relies on Dr. Tyler's
critiques to discredit the fee-based regressions proffered by other
experts. See, e.g., Sanders WRT ] 3 nn.4, 9, & 20. Mr. Sanders also
notes the divergence of Dr. Tyler's estimated share for PTV and,
respectively, SDC content, from the results of other fee-based
regressions as, in his opinion, indicative of the unreliability of
such regressions in these proceedings. Sanders WRT ]] 11, 18.
---------------------------------------------------------------------------
c. Criticisms of the Tyler Model by CTV Expert Witness Dr. Bennett
As an initial criticism, Dr. Bennett avers that Dr. Tyler's use of
his SGRP as the dependent variable, instead of royalties, may
potentially and illogically fail to link ``variation in the composition
of minutes [to] value unless that variation is also accompanied with a
change in . . . the SGRP.'' Bennett WRT ] 124. To make this point, Dr.
Bennett hypothesizes a scenario in which two minimum-fee-paying CSOs
make subscriber-increasing changes in distantly retransmitted stations,
thus increasing royalties, but each maintains the same SGRP because
royalties have not increased (remaining at the minimum fee level).
Bennett WRT ] 125.
Moving to another critique, Dr. Bennett opines that Dr. Tyler's
regression sample ``is based on a relatively small and non-
representative sample of the CSOs whose royalty payments comprise the
aggregate of the royalty pool.'' Bennett WRT ] 135. Dr. Bennett does
not suggest that this small sample is unique to Dr. Tyler among the
regression experts, acknowledging that this applies to ``the other
witnesses relying on regressions for 2014-2017.'' Bennett WRT ]
136.\88\
---------------------------------------------------------------------------
\88\ Although Dr. Bennett does not state here why the sample is
so truncated, the Judges understand this point to be based on the
growing number of CSOs, without any distant retransmissions and thus
no subscriber groups, which Dr. Bennett indicates increased over the
2015-17 period.
---------------------------------------------------------------------------
d. Criticisms of the Tyler Model WDT by JSC Expert Witness Dr. Majure
In addition to his general criticisms of all fee-based regressions,
Dr. Majure levies criticisms that he aims most particularly against Dr.
Tyler's regression approach. Dr. Majure acknowledges that ``[p]rior to
WGNA's conversion, there was some variation in the royalty rate a CSO
would pay for incremental content,'' such that only ``[t]he regressions
that rely on data for 2015-2017 have little to no connection with how
much CSOs value the content.'' Majure WRT ]] 75, 77. Thus, he opines
that ``only after the WGNA conversion [the regressions] do not--and
cannot--estimate the value of a minute of content to CSOs.'' Majure WRT
] 75.
Dr. Majure maintains that the Tyler Model well-demonstrates the
foregoing
[[Page 54201]]
point, and that the Tyler Model essentially estimates only ``the
equation given by the statutory formula . . . .'' Majure WRT ] 78.
Thus, he opines that the SGRP in the Tyler Model does not establish a
``price'' that can be explained and applied as in a bona fide hedonic
regression. Majure WRT ]] 78-79 (``For example, [in the Tyler Model]
the `price' calculated for the subscriber groups of a CSO carrying a
full DSE or less than a full DSE across all subscriber groups would be
1.064 percent of the subscriber group's revenues multiplied by its
total number of DSEs.'').
However, Dr. Majure is careful to acknowledge that ``the statutory
formula could lead to variation in Dr. Tyler's `price' beyond what
comes from the DSE value'' in 2014 but ``this is not the case after
2014 [because] after 2014, the vast majority of subscriber groups
belong to CSOs that paid the minimum fee, leaving little variation in
the percentage of royalties they would owe.'' Majure WRT ] 80. Thus,
Dr. Majure appears to recognize that for 2014 the Tyler Model presented
an acceptable proxy for ``price'' as its the dependent variable.
e. Criticisms of the Tyler Model WDT by JSC Expert Witness Mr. Harvey
Although Mr. Harvey opines that the Tyler Model, like the other
regression models, is unable to correctly value JSC programming for the
2015-17 period, he acknowledges that the Tyler Model is superior to the
others in one respect: it calculates annual coefficients rather than
``pooled'' coefficients for all four years (2014-2017). Harvey WRT ]]
28, 35.
But Mr. Harvey is otherwise decidedly critical of the Tyler Model--
maintaining first that it does not ``reliably estimate[e] [JSC] value[
] in 2015-2017,'' because ``[s]ixty-six percent (4 of 6) of the
compensable sports coefficients are not statistically significantly
different than zero.'' Harvey WRT ] 45 & tbl.9.
Next, Mr. Harvey separates out minimum fee systems from the Tyler
Model, in order to isolate those CSOs making retransmission decisions
that Mr. Harvey asserts had economic consequence in terms of royalty
payments. Harvey WRT ] 46 & tbl.10. He then turns to various
``sensitivity tests'' undertaken by Dr. Tyler, that were not contained
in the Tyler Written Direct Testimony but which were produced in
discovery by Program Suppliers. Harvey WRT ] 68. Looking at these
tests, Mr. Harvey notes that Dr. Tyler ``selected a specification that,
among his many sensitivity analyses, resulted in one of the lowest
shares for JSC and one of the highest for Program Suppliers.'' Harvey
WRT ] 70. See also Harvey WRT fig.6.\89\
---------------------------------------------------------------------------
\89\ To be clear, figure 6 generated by Mr. Harvey shows that
the share allocations arising from the proffered Tyler Model were
neither higher than all the Program Supplier shares nor lower than
all the JSC shares generated by the sensitivity tests. Moreover, Mr.
Harvey does not state why the sensitivity test results should have
led Dr. Tyler to alter his share allocations, nor does Mr. Harvey
state why Dr. Tyler should have abandoned the Tyler Model merely
because the shares differed in the sensitivity test, albeit not in a
manner that even Mr. Harvey avers had called into question the
model's robustness.
---------------------------------------------------------------------------
f. Criticisms of the Tyler Model by CCG Expert Witness Dr. George
At the outset, Dr. George, avers that Dr. Tyler's model ``diverges
from economic theory'' through his consideration of the SGRP, rather
than a measure of royalties, as the dependent variable affected by
claimant programming minutes. George WRT at 11-12. More particularly,
Dr. George maintains that this change in the dependent variable:
removes the link between the value of distant signal programming to
[CSO] and royalty cost that lies at the heart of the theoretical
framework [and] effectively replicates the regulatory formula
[rather than] reflect value.
George WRT at 12. Further to this point, Dr. George asserts that the
inclusion of the SGRP as the dependent variable ``attenuate[s]'' the
differentiated marginal value of assorted types of programs. She
explains that by looking at royalties from all retransmitted
programming as a proportion of gross receipts, the Tyler Model
``understates the value of high-quality, differentiated program and
overstates the value of undifferentiated, low-quality programming.''
George WRT at 12.
Another criticism levied against the Tyler Model by Dr. George is
that (as with the Johnson Model, discussed infra) it suffers from the
consequential defect of:
includ[ing] no fixed effects at all [and the] coefficients [thus]
are estimated using variation across different cable systems . . .
the variation most likely to be contaminated by the effect of
unobserved factors, also known as bias from omitted variables . . .
[the coefficients therefore] cannot be relied on to reflect
underlying value.
George WRT at 13 (emphasis added).
g. Criticisms of the Tyler Model by PTV Expert Witness Dr. Johnson
Although Dr. Johnson finds that he and Dr. Tyler agree on a number
of points, see Johnson WRT ] 26, Dr. Johnson takes issue with the
following aspects of Dr. Tyler's WDT.
At the outset, Dr. Johnson criticizes Dr. Tyler's use of the SGRP
as the dependent variable in the Tyler Model because, according to Dr.
Johnson, ``the SGRP does not capture the CSO decision-making process
and identify their valuation of such programming,'' because the SGRP
essentially replicates the statutory formula without regard to ``the
type of programming . . . on the signals the CSO retransmits.'' Johnson
WRT ] 34. Thus, according to Dr. Johnson, the SGRP dependent variable
in the Tyler Model fails to capture the ``chain of logic'' of the
correlation in the fee-based regressions, i.e., that ``[t]o the extent
. . . a CSO's bundle of programming includes more valuable programming,
the price of that bundle will be higher, the CSO's gross receipts will
be higher, and thus the amount of royalties that the CSO pays will be
higher.'' Johnson WRT ] 35.
Next, Dr. Johnson looks at the ``sensitivity tests'' Dr. Tyler
applied to his own model and notes ``the extreme variability in Dr.
Tyler's regression results'' uncovered by these tests relative to Dr.
Johnson's more stable results, which, according to Dr. Johnson
``suggests that modeling royalty amounts rather than the statutory
royalty rate is more appropriate.'' Johnson WRT ] 40.
2. The Judges' Analysis and Findings Regarding the Tyler Model \90\
---------------------------------------------------------------------------
\90\ The Judges' analysis and findings in this section are
separate and apart from their analysis and findings on the specific
issues considered in separate sections of this determination.
---------------------------------------------------------------------------
The Judges make the following findings with regard to the Tyler
Model:
1. Dr. Tyler's measurement of ``an additional minute'' of
programming content, as contrasted with a ``value relative to a
reference or base category'' in other regressions, is appropriate,
but neither approach is superior inter se.
2. The base fee calculations of minimum-fee-only CSOs do provide
some ``insight'' into how those CSOs might actually value different
program categories, but that ``insight'' is limited, because it is
predominantly informative as to ordinal rankings of relative value,
rather than cardinal measures, as required in these proceedings. See
2010-13 Determination at 3578 (``the Judges do not place much weight
on the relative rankings of the program categories''); cf.
Phonorecords III, Initial Ruling and Order after Remand at 38 (July
1, 2022) (distinguishing the benefit of an economic model's
``insight'' from a useful ``real-world relationship'').
3. A CSO whose base fee calculations are more proximate to the
minimum fee it eventually paid would be more probative of CSOs'
willingness-to-pay than when there is a large gap between the
calculated base fee and the paid minimum fee, because the CSO could
have understood that the base fee might bind. However, the record
provides
[[Page 54202]]
insufficient evidentiary basis to apply this point in the present
proceeding.
4. On the present factual record, the Tyler Model's SGRP is
preferable to the log of royalties, or royalties themselves, as the
dependent variable in a fee-based regression, because it does not
require the use of questionable controls and fixed effects, and
remains appropriate even in the absence of such controls and fixed
effects. However, the log of royalties, or royalties themselves, are
appropriate dependent variables, provided the factual record and the
specifications of the regression are appropriate.
5. The Tyler Model is not a hedonic regression as generally
understood by economists, because it is not based on actual market
prices. Dr. Tyler at times acknowledges this point, by describing
his SGRP as a ``type'' of price, rather than an actual price and by
also describing the SGRP as ``closer'' to the definition of a
traditional hedonic model. However, the approach taken by the Tyler
Model is in the nature of a hedonic regression, in that it utilizes
a similar approach by creating a useful proxy for price proxy in the
form of a budget constraint, i.e., the SGRP. (See also the
discussion regarding ``relative marketplace value'' supra and the
section, infra, comparing the Tyler Model to a ``fee generation''
approach).
6. The Tyler Model's use of weighting of each CSO's gross
receipts is appropriate of the CSOs because the decisions by CSOs
with larger gross receipts will have a greater impact on the royalty
pool making the programming category information they provide more
important.
7. The Tyler Model, calculating coefficients for each year, is
superior to the other regression models in this proceeding to the
extent those models were originally proffered as ``pooled'' models,
using one coefficient for the entire 2014-2017 period. (However,
this advantage is mitigated where there is evidence or testimony
that such ``pooled'' models were themselves subsequently
recalculated on an ``unpooled'' basis either by the proffering
regression expert or by other expert witnesses in their rebuttal
testimonies.)
8. The Tyler Model provides sufficient variation among the CSOs'
decisions because it contains approximately 20,000 data points for
observation, and more than 2,000 distinct pricing relationships. 4/
19/23 Tr. 5436 (Tyler).
9. The Tyler Model is superior to the other fee-based
regressions by not requiring as a control variable an estimate of
the number of subscribers in a subscriber group, which cannot be
estimated without measurement error. PS PFF ]] 300, 360-362 (and
record citations therein). This issue is a critical reason why the
Judges give greater weight to the Tyler Model vis-[agrave]-vis the
other regression models, and thus necessitates getting ``into the
weeds'' for a more detailed explanation.
The control for the number of subscribers is very important in
the other fee-based regressions where the dependent variable is a
functional form of royalties, because the number of subscribers
clearly would have a substantial effect on the level of royalties
(i.e., more subscribers = more royalties). Moreover, the number of
subscribers must be controlled because the number of subscribers
could also be positively correlated with the number of minutes.
Thus, it must be controlled in order to isolate the ``effect'' of
interest, which is the impact of different program category minutes
on the royalties. However, there is no data available regarding the
number of subscribers in a subscriber group, and the other fee-based
regression experts are forced to make an estimate by
``proportionally assigning the number of overall CSO subscribers to
each subscriber group based on the gross receipts for each
subscriber group.'' Tyler WRT ] 41 (emphasis added).
The problem with this estimate is two-fold, inaccuracy and
impact on the regression. As Dr. Tyler explains:
The estimate is ``inaccurate because allocating the number of
subscribers based on the distribution of gross receipts is akin to
assuming that customers in each subscriber group are paying the same
monthly rates on average. [T]his assumption is flawed because, as
Dr. Johnson acknowledges, CSOs may broadcast one set of stations to
one set of subscribers and a different set of stations to another
set of subscribers [and] cable prices vary across customer type,
geography, and over time. . . . The only way that subscriber groups
would have the same average prices is if they all bought the same
products at the same prices in the same proportions across groups.
Thus, one would expect the average prices to be different across
subscriber groups, not the same as assumed by Dr. Johnson and Dr.
George.'' Tyler WRT ]] 42-43; 45-46.\91\
---------------------------------------------------------------------------
\91\ Dr. Tyler provides an empirical example of the varying
subscription rates among a CSO's subscribers. Tyler WRT ] 44.
---------------------------------------------------------------------------
This inaccurate estimate of the number of subscribers is also
impactful on the other fee-based regressions that must use the
number of subscribers as a control variable. Dr. Tyler explains:
For example, assume that customers in suburbs have a higher
average price than downtown customers, such that Dr. George and Dr.
Johnson undercount subscribers in the suburbs and overcount
subscribers in urban areas. The types of distantly retransmitted
signals that are broadcast to these two types of customers are
likely to vary. Thus, the use of inaccurate subscriber group numbers
would lead to a mismeasurement of the incremental value of the
minute categories in the regression analysis.
In short, the use of inaccurate subscriber group numbers is
potentially a serious problem for Dr. George and Dr. Johnson. The
use of ``filled-in'' data when actual numbers are not available may
have introduced bias into their results and this could have
important consequences for their estimates. Tyler WRT ]] 49, 52.
10. Because the Tyler Model is not based on the Crawford Model,
it is not tainted by the potential ``specification searching'' that
haunts the Crawford Model through its consumption of ``phantom
degrees of freedom,'' as discussed in the 2010-13 Determination.
Moreover, there is no persuasive evidence that Dr. Tyler engaged in
anything that could be construed as specification searching.
11. The Tyler Model is also not the subject of the criticisms
levied against the other fee regressions. For example. Dr. Erdem
applauds the Tyler Model for its abandonment of the royalty-based
dependent variable, the unnecessity and removal of fixed effects and
the use of a dubious measure of the number of subscribers as a
control variable.
12. The overarching criticism that Dr. Erdem does levy against
the Tyler Model are insufficient to damage its usefulness.
Specifically, Dr. Erdem states the obvious as a criticism:
``[T]rying to calculate market value when no market exists . . . .''
Erdem WRT ] 122. But that is simply a restatement of the problem
created by the structure of section 111. As the Judges explain in
more detail elsewhere in this determination, as they explained in
the 2010-13 Determination and as acknowledged by the D.C. Circuit,
the regressions identify market-based behavior among CSOs, in the
form of revealed preferences for different program categories, and
such behavior is relevant evidence useful for estimating relative
marketplace value. And, with specific reference to the Tyler Model,
the SGRP is reflective of, first, the budget constraint that limits
the CSOs' distant retransmittals and, second, the program categories
they select when so constrained. (This point is discussed further
infra in the discussion of the Tyler Model to a fee-generation
approach.)
13. The other SDC expert, Dr. Rubinfeld, likewise applauds Dr.
Tyler's approach to the problem, agreeing with him that there exist
serious modeling problems in connection with the Crawford Model and
those based on that model. However, Dr. Rubinfeld--like Dr. Erdem--
restates the statutory problem--the absence of a ``market price,''
in order to argue that the Tyler Model is not a true ``hedonic''
regression. (Dr. Majure makes the same argument.) As noted supra,
the Judges find that the Tyler Model is not a true ``hedonic''
regression, as Dr. Tyler (albeit sometimes grudgingly) seems to
concede. However, as discussed in more detail elsewhere in this
determination, the Judges find the Tyler regression to be a
``Hedonic-inspired'' regression, useful in this proceeding to
identify an appropriate market-factor driven allocation of royalty
shares.
14. Dr. Bennett's attacks on Dr. Tyler for originally engaging
in an erroneous critique of the Crawford Model is inconsequential.
Dr. Tyler acknowledged his error and withdrew the portion of his
original WDT that contained his erroneous critique of the Crawford
Model. There is no reason to consider this issue relevant, and, if
anything, it indicates that Dr. Tyler is willing to acknowledge a
mistake.
15. More broadly, the Judges do not find the criticisms by Dr.
Bennett or by Dr. George that relate to Dr. Tyler's other criticisms
of the Crawford Model to be relevant to the issues pertaining to the
Tyler Model itself.
16. Dr. Bennett's Tyler Model-specific criticism--regarding the
impact of channel lineup changes by two hypothetical CSOs paying the
minimum fee--is of no
[[Page 54203]]
consequence in the Judges' analysis, because the Judges--as
discussed elsewhere in this determination--are focusing on the
above-minimum-fee CSOs in their application of the Tyler Model. More
specifically, the Judges credit the testimony of JSC's expert, Mr.
Harvey, who separated out the minimum-fee-only systems from the
Tyler Model, in order to isolate those CSOIs making transmission
decisions that had economic consequences in terms of royalty
payments. See Harvey WRT ] 46 & tbl.10.
17. The Judges do not question the Tyler Model for selection a
specification that resulted in ``one of the lowest shares for JSC
and one of the highest for Program Suppliers.'' Absent a showing of
specification searching, which is not even alleged against Dr.
Tyler, these results are not indicative of any wrongdoing.
18. Dr. Majure's criticism that the Tyler Model essentially
estimates only ``the equation given by the statutory formula'' is
incorrect. See the discussion of the Tyler Model as related to a
``fee generation'' approach, infra.
19. The absence of a ``reference category (a/k/a ``numeraire''
or index) in the Tyler Model is not a fault. As noted above, the
Tyler Model measures the minimum willingness to pay for an
additional minute of distant programming across each program
category, not the value of a minute of one program replacing minutes
from a reference category.
20. Any greater precision or stability in the Johnson Model
compared with the Tyler Model is a consequence of Dr. Johnson's
decision to remove ``fixed effects'' from his model where, unlike in
the Tyler Model, the dependent variable was royalty-based, not the
SGRP. That is, Dr. Johnson obtained more precision, but at the
expense of generating ``omitted variable bias.'' Although this
econometric jargon suggests an analysis ``deep in the weeds,'' it is
of great importance: Precision and stability are not particularly
helpful if the model is measuring the wrong thing--here, with the
Johnson Model more in the nature of predicting the royalty level by
omitting ``fixed effects'' rather than focusing on the effect of
program category minute on royalties (subject to the cost constraint
reflected in the SGRP).
D. CCG's Regression Approach: The George Model
Dr. Lisa George, a CCG expert witness,\92\ explicitly relied on Dr.
Crawford's approach from the 2010-13 proceeding, ``[b]ecause [Dr.]
Crawford's approach was determined by the Copyright Royalty Board to be
`highly useful in estimating relative values' . . . . .'' George WDT at
26-27.\93\ More particularly, Dr. George followed Dr. Crawford's
approach by ``estimat[ing] a regression model at the subscriber group
level with fixed effects and [royalties as] a logged dependent
variable.'' George WDT at 27.
---------------------------------------------------------------------------
\92\ Dr. George was received as expert witness in the ``field of
economics, with experience in econometrics, media markets, and
industrial organization.'' 4/18/23 Tr. 5111 (George).
\93\ The Judges must emphasize here the fact that the SDC
provided to CCG (and all of the other participants), in voluntary
discovery in the present proceeding, promptly after the filing of
written direct statements, copies of materials from the 2010-13
satellite allocation proceeding that at the least suggested Dr.
Crawford may have engaged in inappropriate specification searching
in the development of his regression framework. However, neither Dr.
George nor any other CCG witness specifically addressed in written
rebuttal testimony the discovery from the 2010-13 satellite
proceeding suggesting Dr. Crawford's potential specification
searching. (However, Dr. George more generally explained how she was
able to evaluate Dr. Crawford's regression work, even though she did
not address the discovery suggestive of Dr. Crawford's specification
searching and of dissembling in his testimony before the Judges in
the 2010-13 proceeding. See George WRT at 50-54.)
---------------------------------------------------------------------------
However, Dr. George adjusted the specifications in her model in a
manner that differentiated her model from Dr. Crawford's model in two
ways to reflect: (1) changes in the distant signal market; and (2) to
address comments from the Judges in the 2010-13 Determination. George
WDT at 27. The key differentiators are (1) Dr. George's inclusion of
separate ``system accounting period fixed effects'' rather than Dr.
Crawford's ``interacted system-accounting period fixed effects'' and
(2) the elimination of an interacting of controls for the (a) top
multi-system operators (MSOs) with (b) lagged subscribers (i.e.,
subscribers from the preceding accounting period). George WDT at 27.
More particularly, Dr. George significantly reduced the number of
fixed effects in her preferred regression model compared to Dr.
Crawford's number of fixed effects. Specifically, Dr. George testifies
that her preferred model ``includes one fixed effect for each system
plus one for each accounting period (number of systems plus 8 [six-
month accounting periods]),'' whereas Dr. Crawford's model included
``one fixed effect for every system every accounting period (number of
systems times 8 [six-month accounting periods])''. George WDT at 27
(emphasis added). According to Dr. George, this deviation for Dr.
Crawford's approach was measured and beneficial:
Since fixed effects operate by narrowing the variation used to
identify coefficients, my specification is less restrictive than
[Dr.] Crawford's. In other words, I make use of variation within
cable systems over time but not across cable systems. [Dr.]
Crawford's specification did not make use of variation within cable
systems over time or across cable systems, identifying coefficients
using only variation within systems each accounting period.
George WDT at 27 (emphasis added).
As in the Crawford Model, Dr. George's dependent variable is the
natural log \94\ of royalty fees and, as in the Crawford Model, is
related by the regression to the subscriber groups' respective distant
programming minutes for each claimant's program category. George WDT at
51. The regression process produces an estimate of coefficients, one
for each claimant program category, showing the effect of one
additional programming minute on the natural log of royalty payments.
George WDT at 51. She then uses these coefficients to calculate, in
dollars, the ``average marginal value'' of an additional programming
minute for each claimant category. George WDT at 51-52.
---------------------------------------------------------------------------
\94\ Technically, the ``natural log'' (shorthand for logarithm)
is ``[a] mathematical function defined for a positive argument; its
slope is always positive but with a diminishing slope tending to
zero,'' and it ``is the inverse of the exponential function X =
ln(ex).'' James H. Stock & Mark W. Watson, Introduction to
Econometrics 821 (3d ed. 2015). Practically, for purposes of applied
econometrics, using the logarithmic functional form, which shows the
percentage changes in the variables, may be more practical.
---------------------------------------------------------------------------
To calculate shares, Dr. George likewise adopts the method used by
Dr. Crawford and, indeed, consistently across fee-based regression
models. That is, she multiplies these average marginal values by
compensable programming minutes for each subscriber group, thus
producing a value of compensable programming for each claimant program
category. For each category, she uses that category's values as a
numerator in a fraction where the denominator is the sum of the totals
over each claimant.
Dr. George reported the following claimant shares:
[[Page 54204]]
Table 22--Implied Claimant Shares, 2014-2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
Program suppliers Devotional Canadian
(%) Joint sports (%) Commercial TV (%) Public TV (%) claimants (%) claimants (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014.................................. 20.86 25.64 14.88 30.21 1.91 6.49
(1.99) (5.16) (2.13) (2.74) (0.49) (0.95)
2015.................................. 31.71 3.61 12.04 36.56 2.41 13.67
(1.75) (0.94) (1.72) (1.89) (0.55) (1.91)
2016.................................. 29.53 3.45 11.43 41.59 1.70 12.30
(1.61) (0.90) (1.65) (1.99) (0.39) (1.75)
2017.................................. 26.11 3.23 10.19 47.03 1.40 12.03
(1.43) (0.85) (1.49) (2.08) (0.32) (1.73)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The table reports the implied claimant shares of distant signal royalties each year derived from the regression model, which includes system and
accounting period fixed effects. Standard errors in parentheses
Highlighting an important aspect of her analysis, Dr. George states
that ``[a]s expected, estimated shares for 2014 are substantially
different from those for 2015-2017 due to exit of WGNA.'' George WDT at
57.
Delving deeper into her regression equation, Dr. George explains
that she includes a number of control variables. As she explains,
``[T]hese control variables are included in the econometric model based
on the expected economic relationship with royalty payments [and]
[e]ach of these terms has been included in prior regression models for
these proceedings.'' George WDT at 54.
Specifically, Dr. George includes, explicitly or implicitly, the
following controls:
CSOs paying minimum fees
CSOs paying into the 3.75 fund
CSOs paying into the Syndex fund
Canada Zone System in Canadian re-transmission zone
Number of permitted stations in the subscriber group
Number of distant stations in the subscriber group
Number of local stations in the subscriber group
Activated channels in the prior accounting period (lagged channels in
subscriber group)
Subscribers in prior accounting period (lagged subscribers in
subscriber group)
Median income in primary county served by the system
System operated by top MSO, i.e., Comcast, Verizon, AT&T, Charter, Cox,
Time Warner, Cablevision, Altice.
George WDT at 53 tbl.19. Dr. George explained her reasons for including
these controls as follows:
[I]indicators for systems paying minimum fees, syndicated
exclusivity surcharges, or 3.75 fees as well as the number of
permitted stations carried in the subscriber group [are] all
variables expected to be correlated with royalty payments.
An indicator for systems in the Canadian Zone is needed because
re-transmission rules are different in this region and may affect
subscribers and royalty payments.
The (lagged) number of subscribers is an important control
because royalties increase with gross receipts, which in turn
increase with the number of subscribers. The number of subscribers
is entered in lagged form to avoid the possibility of reverse
causality biasing the coefficients on program minutes. (Channels
activated enters as a lag for the same reason.)
The number of distant stations is included to ensure that the
coefficients on programming minutes are estimated all else equal. In
other words, estimates of the . . . coefficients should measure how
a change in claimant minutes affects royalty payments holding
constant the total number of distant minutes broadcast, which is a
function of the number of distant signals re-transmitted.
Indicators for each of the top MSO's (Comcast, Verizon, AT&T,
Charter, Cox, Time Warner, Cablevision and Altice) are included to
account for potential differences in strategies that might affect
the demand for system offerings not otherwise included in the
econometric model. For example, changes in strategy by Time Warner
Cable systems acquired by Charter Communications would be captured
by the MSO indicators. While [Dr.] Crawford included indicators for
only the top six MSO's, I add Cablevision and Altice because the
largest transaction in the 2014-2017 period was the Altice
acquisition of Cablevision, which was the 7th largest MSO at the
time of acquisition.
George WDT at 53-54.
To determine whether her regression model was robust to certain
specification changes, Dr. George conducted sensitivity checks whereby
she made certain changes to her model. Specifically, she conducted the
following three robustness/sensitivity checks:
(1) Changing her regression model specifications to include
``interacted system-accounting period fixed effects (number of
systems times 8).''
(2) Changing her regression model specifications to include
``not only indicators for the top MSO's but also these indicators
interacted with lagged subscribers.''
(3) Changing her regression model to include ``both adjustments
[i.e., (1) and (2) above] . . . thus correspond[ing] to the model
estimated by [Dr.] Crawford for his 2010-2013 analysis.''
George WDT at 58.
Dr. George found that the estimated shares in these three
robustness/specification tests ``are close to those derived from the
preferred model.'' George WDT at 59; see also id. at tbls.25-26. She
also notes that the confidence intervals are tighter in the third
alternative robustness/sensitivity checks, see George WDT tbl.27,
reflecting the smaller standard errors contained in that check, which
she attributes to the fact that the changed specifications in that
checks are ``restricting the variation on which coefficients are
estimated.'' George WDT at 61-62. Despite her acknowledgement that this
greater precision is ``useful,'' \95\ Dr. George is willing to tolerate
``the point estimates from [her preferred] baseline model because they
make use of more variation in the data while still precisely
estimated.'' George WDT at 62.
---------------------------------------------------------------------------
\95\ The Judges understand that the usefulness of this greater
precision is that the increased types of fixed effects limit the
variation in the regression to variation caused by the difference in
programming category minutes, whereas Dr. George prefers to obtain
additional data points in order to observe more variation,
notwithstanding that relaxing fixed effects in these manners opens
the door for bias, in the form of variations caused by unobserved
variables otherwise captured by the fixed effects. The Judges
discuss this tradeoff in greater detail elsewhere in this
determination.
---------------------------------------------------------------------------
1. Criticisms of the George Model
a. Criticisms of the George Model by SDC Expert Witness Dr. Erdem
Beyond his criticisms of the Crawford Model that are derivatively
applicable to Dr. George's model, Dr. Erdem levies further criticisms
of the George Model. He asserts that although she has altered and
reduced the number of fixed effects from the Crawford Model, her
alterations do nothing to redeem her approach. Rather, he notes that
Dr.
[[Page 54205]]
George's specifications continue to remain very close to those in
versions that Dr. Crawford ran in the previous proceeding.
But, Dr. Erdem acknowledges that, unlike in the Crawford Model, Dr.
George applies two separate fixed effects for accounting period and
system ID, and yet he finds this to be a difference that fails to
rescue her model from the overfitting defects that he claims to pervade
Dr. Crawford's regression approach. Dr. Erdem also opines that. Dr.
George retains some variables from the Crawford Model which lack a
``clear basis for their helpfulness in the model, such as the lag of
subscribers (subscribers in the previous accounting period).'' Erdem
WRT ] 41. Finally, he opines that Dr. George aggravates an already-
present overfitting problem by adding ``other variables such as median
county income,'' without adequately supporting her decisions. Erdem WRT
] 41.
b. Criticisms of the George Model by SDC Expert Witness Dr. Rubinfeld
Dr. Rubinfeld likewise notes that although Dr. George essentially
``applied Dr. Crawford's specification to the 2014-2017 data,'' she
``replaced system-period fixed effects with separate system and period
fixed effects [and dropped] [s]ome explanatory variables . . . . ''
But, like Dr. Erdem, he did not find that these alterations salvaged
her model from the defects that, in his opinion, pervade the Crawford
Model and, indeed, all fee-based regressions. Rubinfeld WRT ] 94.\96\
---------------------------------------------------------------------------
\96\ Another SDC Expert, Mr. Sanders, essentially echoes and
refers to the critiques by Drs. Erdem and Rubinfeld. But Mr. Sanders
also notes that Dr. George's approach is remarkable when compared
with other fee-based regressions proffered in this proceeding, in
that ``the various regressions yield significantly divergent results
which raise[] the questions not just of which ones are wrong but
whether any of them could be right,'' and he particularly notes the
divergence among the SDC share across the fee-based regressions.
Sanders WRT ] 18.
---------------------------------------------------------------------------
c. Criticisms of the George Model by JSC Expert Witness Mr. Harvey \97\
---------------------------------------------------------------------------
\97\ The criticism of the George WDT by the two other JSC expert
witnesses, Drs. Majure and Asker, relate to broader themes common to
the fee-based regression, discussed separately in this
determination. Mr. Harvey also raises the broad-based criticisms
that are discussed separately herein.
---------------------------------------------------------------------------
Mr. Harvey opines that Dr. George introduced ``multicollinearity''
\98\ into her regression by including ``a variable on the independent
side of [her] regression equation[ ] that controls for the number of
distant stations broadcast to the subscriber group.'' Harvey WRT ] 170.
Mr. Harvey understands that this control variable was likely introduced
``to control for non-compensable broadcast minutes, such as Big-3
minutes,'' but he asserts that the regression should have been
specified by ``simply includ[ing] the `Big-3' variables . . .
achiev[ing] the same stated goal more directly while avoiding problems
of multicollinearity.'' Harvey WRT ] 174.
---------------------------------------------------------------------------
\98\ For a definition of ``multicollinearity,'' see 2010-13
Determination at 3562 n.47.
---------------------------------------------------------------------------
There is a formal statistical test to identify multicollinearity
called the variance inflation factor (VIF). Harvey WRT ] 176. When he
ran the VIF test on the George Model, Mr. Harvey found meaningful
multicollinearity between these variables. Harvey WRT ] 182.
Accordingly, Mr. Harvey performed a sensitivity test on the George
Model in which he removed the distant stations and permitted stations
variables. Harvey WRT ] 183. The resultant change in the coefficients
for the program categories translated into revised share allocations
that included substantially higher JSC shares, as set forth in the
table below: \99\
---------------------------------------------------------------------------
\99\ Mr. Harvey also administered two other sensitivities to
address this multicollinearity: (1) adding a control variable for
non-compensable minutes to the model and (2) including compensable
claimant minutes in the regression and dropping the number of
permitted and distant stations. In both tests, he reports that the
multicollinearity fades, and the share allocations also change, with
JSC shares again increasing compared to the JSC shares in the George
Model. Harvey WRT ]] 185-187.
Table 31--George Regression Model Share Estimates Exclude Distant and Permitted Station Variables
--------------------------------------------------------------------------------------------------------------------------------------------------------
Joint Sports Commercial TV Program
Educational % % Devotional % Canadian % % suppliers %
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014.................................................... 7.0 71.8 1.1 10.5 3.3 6.4
2015.................................................... 15.5 18.6 2.5 40.6 4.9 17.9
2016.................................................... 18.6 18.7 1.8 38.4 4.9 17.5
2017.................................................... 21.5 18.0 1.5 38.5 4.5 15.9
2014-2017............................................... 12.0 48.9 1.4 22.8 3.9 11.0
% Change in Total vs Base Model......................... -67.8 290.7 -22.5 124.9 -69.0 -57.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources:
Electronic file ``programs/208_george_regressions.do''.
d. Criticisms of the George Model by CTV's Expert Witnesses Dr. Marx
and Dr. Bennett
CTV's experts criticize the George Model for the following reasons:
1. Because of the dramatic increase in the number of minimum-
fee-only CSOs, the George Model relies too heavily on royalty
payments that do not reflect the revealed preferences of CSOs. CTV
PFF ]] 289, 302 (and record citations therein).
2. The ``pooling'' of data to generate common coefficients
within each claimant category skews the share allocations because of
the sharp distinction between 2014 and 2015-2017 due to the WGNA
conversion. Moreover, the ``precision'' generated by lumping all the
data points together across these four years is overhyped, because
it is a statistical precision unreflective of reality, and Dr.
George did not perform any statistical tests to confirm that pooling
was appropriate. CTV PFF ]] 331, 334 (and record citations therein);
Bennett WRT, figs.12-13; see also 4/18/23 Tr. 5309, 5366-68
(George).
3. Dr. Bennett unpooled Dr. George's calculations, revealing the
lack of actual precision compared with her pooled approach. CTV PFF
]] 335-36, 342 (and record citations therein).
e. Criticisms of the George Model by Program Suppliers' Expert Witness
Dr. Tyler
Dr. Tyler levied the following criticisms at the George Model:
1. Royalties in any functional form are inferior as the
dependent variable compared with the SGRP in the Tyler Model. PS PFF
]] 351-52 (and record citations therein).
2. Pooling of data across all four royalty years is
distortionary and improper. PS PFF ] 363 (and record citations
therein).
3. Dr. George's reliance on the Crawford Model, without regard
to the potential specification searching that may have marred its
genesis, calls into question the reliability of the George Model. By
way of example, Dr. Tyler takes note of the ``hammer-shaped''
graphical plotting of residuals in the George Model, which would
typically be random rather than concentrated (in ``hammer-shaped''
form), as indicative of one or more model specification errors, such
as the omission of important independent variables or improper or
mismatched functional forms (e.g., the misapplication of the linear
form or
[[Page 54206]]
an improper log transformation of data). PS PFF ] 365.
2. The Judges' Analysis and Findings Regarding the George Model \100\
---------------------------------------------------------------------------
\100\ The Judges' analysis and findings in this section are
separate and apart from their analysis and findings on the specific
issues considered in separate sections of this determination.
---------------------------------------------------------------------------
The Judges make the following findings with regard to the George
Model:
1. The George Model reasonably altered the Crawford Model by
estimating a model with fewer fixed effects, in an attempt to
increase the number of observations lost after the WGNA conversion,
by attempting to balance precision with an acceptable increase in
omitted variable bias.
2. The George Model reasonably included control variables in
order to isolate the effect of interest, the correlation between
program category minutes and royalties.
3. Dr. George utilized appropriate sensitivity tests that
modified her fixed effects, which showed a level of robustness in
the George Model.
4. But Dr. George's tolerance for greater bias, in the form of
omitted variable bias, eliminated the benefit created by the
Crawford Model that gave the Crawford Model a level of primary
weight vis-[agrave]-vis other methodologies for estimating relative
marketplace value.
5. There is no sufficient evidence that the George Model suffers
from overfitting, and her decision to include certain control
variables, such as a control for ``median county income,'' was a
reasonable exercise of discretion that an econometrician could make
in specifying her model.
6. The George Model reasonably utilized the Big 3 network
minutes as a reference category (a/k/a numeraire or index). Contrary
to Mr. Harvey's critique, this which was unrelated to the separate
control in the George Model for the number of distant stations,
which was included in order to avoid a cause of changes in the
number of minutes that would bias the relationship between program
category minutes and royalties which was the ``effect'' the
regression was seeking to evaluate.
7. The pooling of all four years over the 2014-2017 period in
the George Model was inappropriate, given the substantial break in
market conduct created by the WGNA conversion commencing in 2015.
8. Dr. Bennett's recalculation of an unpooled version of the
George Model is a more probative model.
9. Dr. Bennett's further revision of the George Model,
correcting for an admitted error in her JSC programming mis-
categorization, is more accurate than the George Model originally
proffered by Dr. George.
10. The non-random (hammer-shaped) residuals in the George Model
are suggestive of omitted variables or misspecification of
functional form, as in the Crawford Model upon which the George
Model is predicated, and appear to be examples of the problems that
may have arisen because of Dr. Crawford's alleged specification
search.
E. PTV'S Regression Approach: The Johnson Model
Dr. Johnson, PTV's expert witness,\101\ constructed a fee-based
regression model based on the framework of a ``Waldfogel-type''
regression. Johnson WDT ] 55. He also acknowledges that he reviewed Dr.
Crawford's testimony from the 2010-13 proceeding, and that his model
``generally follows the framework used by [Dr.] Crawford'' and,
parenthetically, he notes a general consistency with the model
proffered by Dr. Joel Waldfogel in a prior proceeding. Johnson WDT ]
57. See also 3/21/23 Tr. 367-68 (``[T]he starting point . . . was to
look at the prior work, particularly [Dr.] Crawford's Waldfogel-type
regression model that was adopted in the prior proceeding. . . .
However, I did not, and my assignment was not to just simply blindly
accept Dr. Crawford's work, but to put it to the test, understand what
it did, understand how it worked, and then build that model and
determine whether it could apply here.'').\102\
---------------------------------------------------------------------------
\101\ Dr. Johnson was received as an expert in ``economics and
econometrics.'' 3/21/23 Tr. 362 (Johnson).
\102\ However, Dr. Johnson testified that he did not review--or
even have access to--Dr. Crawford's underlying regression workpapers
from the 2010-13 satellite allocation proceeding (regarding the same
regression model as in the 2010-13 cable allocation proceeding),
even though PTV's counsel had received those workpapers in voluntary
disclosures made by the SDC. 3/21/23 Tr. 340-41 (Johnson). (The
hearing record does not indicate whether or not PTV's counsel
provided those workpapers to Dr. Johnson.). See also 3/21/23 Tr. 617
(Johnson) (Dr. Johnson acknowledging that he also never saw
designated testimony filed in the present proceeding by the SDC
comprising their experts' testimony in the satellite proceeding,
with Dr. Crawford's documents attached).
---------------------------------------------------------------------------
Dr. Johnson also ``assessed the Judges' deliberation from the
previous proceeding,'' and ``address[ed] econometric modeling concerns
. . . raised by the Judges in the previous proceeding [and] changes in
the industry from the 2010-2013 to the 2014-2017 period.'' Johnson WDT
] 57.
Dr. Johnson identifies the following aspects of his regression
model:
1. The regression analyzes each subscriber group in each six-
month accounting period.
2. The dependent variable is the ``natural log'' of the base
royalties accrued by a CSO for each subscriber group in an
accounting period.
3. The explanatory variables include--as the variable of
interest--the number of minutes of each claimant group's programming
content distantly retransmitted to that subscriber group in that
accounting period.
4. The coefficients for this explanatory variable for each
claimant group's content, which estimate the percentage change in
base royalties (the dependent variable) associated with an
additional minute of that type of content.
5. The control variables below:
a. A control for the number of subscribers in each subscriber
group and accounting period, because, ``[in] addition to being
driven by CSOs' distant retransmission decisions, royalties paid
also increase with the number of subscribers (and associated gross
receipts) in each subscriber group.'' By adding a control variable
for the number of subscribers, the regression accounts for this
relationship.
b. A control for the number of distant broadcast stations
retransmitted by each CSO to its subscriber groups because it
``creates a `control group' against which the relative marketplace
valuations for each claimant group at issue are estimated[,]'' with
this control group consisting of ``programming that is either `off-
air,' `Big 3' network programming that is not compensable or
associated to any relevant claimant group, or content for which
program information was not specified in the data, including `To Be
Announced' programs.''
c. An indicator variable for CSOs that paid the minimum fee, in
order to account for the possibility that decision-making is
systematically different between CSOs that paid the minimum fee
(i.e., those that potentially could have retransmitted distant
signals without experiencing an increase in their royalty payment)
and CSOs that paid royalties above the minimum fee (and thus, would
have faced an incremental cost to any additional distant signal).
This indicator variable does not separate out the model's reported
coefficients, but ``allows [the] model'' to generate information
``to account for these differences . . . . ''
d. An indicator variable distinguishing between subscriber
groups that also generated 3.75 fees (in addition to the base fee
payments included in the regression) and subscriber groups that did
not generate 3.75 fees.
Johnson WDT ]] 55-56.\103\
---------------------------------------------------------------------------
\103\ Note that the Johnson Model includes far fewer control
variables than the George Model. See text following this footnote.
---------------------------------------------------------------------------
Dr. Johnson also emphasizes what he has omitted from his regression
model that had been included in Dr. Crawford's model. First, Dr.
Johnson omits a set of controls in the form of ``system-accounting
period fixed effects.'' Although Dr. Johnson acknowledged that these
fixed effects had attempted to establish a relative value unbiased by
factors irrelevant to the correlation at interest (the effect of
programming minutes on the log of royalties) by isolating and comparing
variation only in ``a given CSO's retransmission decisions across its
subscriber groups,'' Dr. Johnson wanted to address the Judges'
statement that in the 2010-13 Determination that they were ``troubled''
by Dr. Crawford's inadequate response to the argument that these
controls ``effectively
[[Page 54207]]
discarded'' approximately 15% of his observations [generated by]
``approximately half of all systems in his data set . . . . '' Johnson
WDT ] 59. Dr. Johnson claimed that the same issue exists to a greater
extent in the present proceeding, because ``49 percent of CSOs that
retransmitted at least one distant signal reported only one subscriber
group,'' thus excluding them from the regression through the inclusion
of these ``system-accounting period fixed effects.'' Johnson WDT ]
59.\104\
---------------------------------------------------------------------------
\104\ To be clear, in the 2010-13 proceeding, the Judges found
that Dr. Crawford's use of these fixed effects and other controls
did not ``diminish the Judges' reliance on Professor Crawford's
regression analysis.'' More particularly, the Judges explained that
Dr. Crawford's ``use of ``system-accounting period fixed effects''
was the ``result of a tradeoff,'' necessitated by Dr. Crawford's use
of a ``subscriber group analysis [which] reduced the number of
observations in [Dr.] Crawford's data set.'' Although this decision
could result in an ``overfitting'' of the model (see 2010-13
Determination at 3565 defining ``overfitting''), his use of data
from the entire population of Form 3 CSOs provided him with a wealth
of data that mitigated a potential problem with regard to potential
overfitting arising from sampling that provided too little data
relative to the number of parameters.'' 2010-13 Determination at
3566-67 & n.65. The Judges discuss elsewhere in this determination
the impact of the decision by Dr. Johnson (and Dr. George) to make a
different trade-off in their regression models through their
handling of this specific fixed effects issue, particularly in the
context of the purpose of these fee-based regressions as
``explanatory'' of an isolated ``effect,'' rather than
``predictive'' of the total royalties paid.
---------------------------------------------------------------------------
Second, Dr. Johnson also omits from his regression several so-
called ``lagged'' variables included by Dr. Crawford, because these
``lagged'' variables ``assume[ ] that outcomes from an earlier point in
time affect outcomes in the present time.'' Johnson WDT ] 59 & n.84.
Whatever merit lie in these lagged variables was a moot point for Dr.
Johnson, because he found that the available data was insufficient to
measure this ``lagged'' effect, and because the data did not allow for
subscriber groups to be ``consistently tracked over time'' (due to,
most noteworthily, the WGNA conversion and the cable system
acquisitions by Charter Communication). More particularly, and by way
of example, Dr. Johnson explained that there was insufficient data to
construct a ``prior period'' for the first six-month period of 2014,
which (if he had retained the lagged subscriber variable) would have
``effectively discard[ed] data on CSO distant retransmission decisions
[for] about one-eighth of all data.'' Johnson WDT ] 59.\105\
---------------------------------------------------------------------------
\105\ That is, if the lagged variable control was included
despite the unavailability of data for the second accounting period
of 2013, the model would not have generated results in a consistent
manner for the first accounting period of 2014, and one accounting
period reflects \1/8\ of the eight six-month accounting periods in
the four-year 2014-2017 period.
---------------------------------------------------------------------------
Further, Dr. Johnson excluded from his model the following
additional controls included by Dr. Crawford in his model, which Dr.
Johnson found to be ``redundant or inappropriate . . . [and] also
hind[rances] to the model's ability to perform the task at hand'':
\106\
---------------------------------------------------------------------------
\106\ Dr. Johnson also discarded controls from the Crawford
Model ``for whether a CSO lies in the area where it is permissible
to carry Canadian signals (``Canada zone'').'' The Judges consider
the Canada zone issues separately, infra.
1. A control for county-level median income, which Dr. Crawford
had included to account for variation in demand for cable services
by impacting the number of subscribers, the total CSO revenue and,
accordingly, ``the royalty paid by that CSO. Dr. Johnson omitted
this control because he found it to be redundant and confounding, in
that it seeks to control for the number of subscribers, which is
already included in the model at the more informative subscriber
group level. This subscriber count at the subscriber group level,
according to Dr. Johnson, implicitly takes into account of
variations in demand and the impact of relatively different values
in high-demand areas.
2. Controls for the number of local stations and the (lagged)
number of activated channels. Although Dr. Crawford opined that
these controls would have the salutary effect of ``account[ing] for
other features of the cable service on which distant signals may be
offered which could influence the number of subscribers to that
service,'' Dr. Johnson found these controls unnecessary and
potentially problematic because (1) Dr. Crawford did not explain how
the second of these controls, i.e., the number of local and
``activated'' channels would impact CSOs' decision-making process
with respect to distant channels and (2) as proffered proxies for
factors that might ``influence the number of subscribers,'' they too
are redundant and potentially confounding, given the presence in the
regression model of a direct control for the number of subscribers.
3. Controls for the six largest MSOs, which Dr. Crawford
included ``to capture potential differences in factors not included
in the econometric model that could shift demand for bundles that
include imported distant broadcast signals.'' Dr. Johnson notes that
Dr. Crawford provided no explanation as to what ``factors'' these
controls were intended to reflect, and Dr. Johnson asserts that
these controls are redundant and potentially confounding. Dr.
Johnson avers that potential differences between and among the six
largest MSOs ``could shift demand,'' and thus ``[r]eflect[ ]
valuable information for the model's estimation of relative value.''
Johnson WDT 60.
Dr. Johnson further explains that his regression (like the
regressions of Dr. George and Dr. Crawford, and the 2014 Bayesian
regression by Dr. Marx) calculated the relative coefficients for the
six compensable program categories by relating them to a ``control
group'' of program minutes that are ``non-compensable'' in section 111
proceedings. Specifically, Dr. Johnson testified:
The number of distant broadcast stations [compensable and non-
compensable] retransmitted by each CSO represents the universe of
that CSO's distantly retransmitted content. . . . [T]he difference
between the universe of content and that corresponding to the
claimant groups at issue is content that does not correspond to any
claimant group at issue. This non-claimant content ``control group''
is a mix of programming that is either ``off-air,'' ``Big 3''
network programming that is not compensable or associated to any
relevant claimant group, or content for which program information
was not specified in the data, including ``To Be Announced''
programs. [The] model is specified in a way that allows for the
``control group'' content to have absolute value to subscribers (and
thus to cable operators), even if it is not compensable in this
proceeding. However, using this content as a control group allows my
model to estimate relative valuations for the compensable claimant
groups.
Johnson WDT 55 n.76.\107\
---------------------------------------------------------------------------
\107\ This ``control group'' is alternatively denominated by the
experts in this proceeding as a ``numeraire,'' a ``reference
group,'' and a ``benchmark.'' The Judges discuss the use of this
device to stablish coefficients in their Analysis, infra.
---------------------------------------------------------------------------
Utilizing the foregoing inputs, Dr. Johnson calculates regression
coefficients estimated by his model, as well as the associated standard
errors. Johnson WDT fig.11. In words, Dr. Johnson helpfully describes
these coefficients, which are the common output of fee-based
regressions, as
measur[ing] the percent change in royalties associated with an
additional minute of each claimant's programming, after controlling
for the other relevant factors present in the regression [and]
represent[ing] the relative value of each claimant group's content
on a per-minute basis.
Johnson WDT ] 61. Dr. Johnson, in the model he recommends (his
``baseline'' model), and like Dr. George and Dr. Crawford--but unlike
Dr. Tyler--did not generate separate coefficients for each of the four
years. Crawford WDT fig.14. (However, Dr. Johnson did an annualized
break-out as well. See 3/21/23 Tr. 467-68 (Johnson).)
Dr. Johnson reports that the estimated regression coefficients in
his preferred ``baseline'' model ``are all statistically significant,
at the 99 percent level or higher.'' Johnson WDT ] 62. In lay terms, he
again helpfully explains that this level of statistical significance
means that ``given the data analyzed, [the] regression can reject with
99 percent (or higher) certainty the
[[Page 54208]]
hypothesis that an additional minute of programming of each of the
claimant groups has no effect on royalties.'' Johnson WDT ] 62.
According to Dr. Johnson, his regression can estimate coefficient value
with this high level of ``precision'' because the model is based on
``over 18,000 subscriber group-level observations . . . . '' Johnson
WDT ] 62.
Next, Dr. Johnson uses these coefficient values to generate his
estimated royalty shares, in dollars, undertaken in all fee-based
regressions. Specifically, and as in regressions proffered in previous
proceedings and in this case, he multiplies the coefficient by the
total number of compensable minutes for the respective program
category. This product generates the shares of base royalties
associated with each claimant group in each year. Johnson WDT ] 63.
In the figure below, Dr. Johnson presents the implied shares of the
Basic Fund royalty, but excluding the 3.75 Fund and the Syndex Fund
royalties that can also accrue to one or more of the six claimant
groups:
BILLING CODE 1410-72-P
[GRAPHIC] [TIFF OMITTED] TN28JN24.011
Dr. Johnson explains why the implied relative share values are
starkly different:
BILLING CODE 1410-72-C
[A]lthough the relative value of a minute of [JSC] content, on
average, is typically larger than that of other content types, the
quantity of compensable [JSC] content is relatively small (and
decreased substantially after the WGN conversion). As a result, the
implied royalty share for Sports claimants is smaller than . . . for
. . . Program Suppliers, which had a lower per-minute value but much
more distantly retransmitted content during the relevant period.
Johnson WDT ] 66.
In addition to his foregoing proffered regression model, Dr.
Johnson performed what he described as a sensitivity analysis, to test
the robustness of that model against alternative specifications and to
assess the ``key drivers'' of the results of his model. Johnson WDT ]
68.\108\ Specifically, Dr. Johnson conducted two such analytical tests.
---------------------------------------------------------------------------
\108\ Dr. Johnson also asserted that he performed two ``other
sensitivities,'' on missing CCG programming data and program
descriptions that were ambiguous as to the claimant category to
which they belonged, respectively. Johnson WDT ] 49 n.64 & ] 50
n.68. But although he tried to categorize these tests in this
manner, by his own acknowledgement, the ``purpose of those tests
[was to] assess[ ] the effects of different approaches to treating
the imperfections in the available data.'' Johnson WDT ] 68 n.102.
---------------------------------------------------------------------------
First, he looked at the subset of CSOs from his proffered model
that only ``paid above the minimum fee.'' Johnson WDT ] 68. His purpose
in performing this test was to address the concern in the 2010-13
Determination that the ``carriage decisions of CSOs . . . pay[ing]
minimum fees [were] `potentially less informative than discretionary
decisions by CSOs to incur an additional royalty expense in order to
distantly retransmit particular stations.' '' Johnson WDT ] 68 (citing
2010-13 Determination at 3575). This first sensitivity test, according
to Dr. Johnson, found ``positive relative valuations'' for the
coefficients of all six claimant categories, although the valuations
were ``not statistically significant'' for the JSC and SDC content.
Johnson WDT ] 69 fig.14, cols. [a]-[c]; and app. K.\109\ Apparently
[[Page 54209]]
focusing on the absence of statistical significance for the JSC and SDC
content, Dr. Johnson concludes that this sensitivity test shows the
appropriateness--indeed, the ``importance''--of his proffered model's
inclusion of ``CSOs that paid minimum fees,'' because exclusion of such
CSOs ``would cause the model to lose precision with respect to'' the
JSC and SDC claimant content. Johnson WDT ] 69. In further support of
his interpretation of this sensitivity test results, Dr. Johnson adds
that CSOs paying only the minimum fee nonetheless ``still make
affirmative distant retransmission decisions that can be informative
about the relative value of content.'' Johnson WDT ] 69 & n.103.
---------------------------------------------------------------------------
\109\ Dr. Johnson does not report share allocations for minimum-
fee-only CSOs in his WDT. However, in response to criticism of his
direct testimony, Dr. Johnson included in his WRT figures showing a
close relationship between: (a) the allocation shares based on the
subscriber group Base Fees calculated (but not paid) by these
minimum-fee-only CSOs on an annualized (unpooled) basis for 2014-
2017; and (b) the allocation shares in his proffered baseline model
(presented on an unpooled basis) for all CSOs considered in his
analysis. Johnson WRT app. D, figs.D-6 and D-7.
---------------------------------------------------------------------------
In his second sensitivity/robustness analysis, referred to supra,
Dr. Johnson ``allow[s] the coefficients to vary from year to year.''
Johnson WDT ] 68; see also id. at fig.14, cols. [a], [d]-[g]. He opines
that this analysis ``indicates . . . there is a statistically
significant difference'' in the coefficient values between 2014 and
2015-2017 for JSC program content. Johnson WRT ] 121 fig. K-3 (notes).
According to Dr. Johnson, this second sensitivity test shows the
following:
1. Relative marketplace values for the PTV, SDC, CCG, CTV and
Program Suppliers claimant categories were not statistically
different across the 2014 to 2017 period.
2. However, the relative marketplace value of JSC content
significantly declined from 2014, when WGNA was the most distantly
retransmitted signal (broadcasting high volumes of MLB, NBA, and NFL
game content), to the 2015-2017 period, after WGN converted to a
cable network, and the volume of such games was concomitantly
significantly reduced.\110\
---------------------------------------------------------------------------
\110\ The coefficient for JSC content in the 2015-2017 period
remained high, but was not statistically significant. Johnson WDT ]
70 & fig.14.
---------------------------------------------------------------------------
3. This second sensitivity test demonstrates that Dr. Johnson's
proffered baseline model has ``appropriately captur[ed]'' the
declining value of JSC content in the average ``over the entire
2014-2017 period. . . .''
Johnson WDT ]] 70-71; see also id., fig.15.
1. Criticisms of the Johnson Model \111\
---------------------------------------------------------------------------
\111\ An overarching procedural critique of the manner in which
Dr. Johnson generated his model--alleging that he engaged in
improper econometric activities, in the form of what is known as
``specification searching'' and George WRT at its related
questionable activities, ``data mining'' and ``p-hacking'', is
separately discussed elsewhere in this determination.
---------------------------------------------------------------------------
a. Criticisms of the Johnson Model by CCG Expert Witness Dr. George
Dr. George levies the following criticisms of the Johnson Model:
1. The Johnson Model produces biased results because it excludes
3.75% fees, failing therefore to reflect the full willingness-to-pay
of all claimant categories, either in the base fee or the separate
3.75% calculations made by Dr. Johnson. George WRT at 23-24.
2. The Johnson Model is ``subject to bias from unobserved market
characteristics and time trends'' because Dr. Johnson abandoned all
system effects and accounting-period effects, whether separately
considered (as in the George Model) or interacted (as in the
Crawford Model), without appropriately considering how that
abandonment would likely generate omitted variable bias. The omitted
variables risk inclusion of bias regarding variations in
programming. Moreover, Dr. Johnson misconstrued the 2010-13
Determination as justification for this error. George WRT at 24-25.
3. Dr. Johnson's substitution of ``contemporaneous'' for
``lagged'' subscribers ``undermines causal inference'' because
``[l]agged control variables . . . common in applied regression . .
. minimize the potential for unobserved shocks [that can] bias
coefficients . . . such as the acquisition of a cable system by a
large MSO . . . . '' Further, the lagged subscriber input has been
used in fee-based regressions since Dr. Waldfogel's regression in
the 2004-05 proceeding and Dr. Johnson wrongly claims that ``lagged
subscriber'' data was unavailable, because they are readily
available from Cable Data Corporation. George WRT at 26-27.
4. The Johnson Model excludes controls--included in past
proceedings--for unobservable factors that undermine causal
interpretation, specifically excluding controls for market income,
the number of local stations offered, and MSO ownership of CSOs. Dr.
Johnson fails to recognize that ``these controls establish the `all
else equal' conditions that allow coefficient estimates to take a
causal interpretation as value per minute.'' \112\ Because ``it is
not possible to express, let alone control for, all the factors that
vary across cable systems,'' the econometrician must judiciously use
control variables (and fixed effects, discussed supra), or otherwise
bear ``the burden . . . to justify why coefficients are not
absorbing the effects of omitted variables and warrant the desired
causal interpretation.'' George WRT at 27-30.
---------------------------------------------------------------------------
\112\ For example, Dr. George notes that FCC data indicates that
cable subscription prices (and thus royalties) are lower in less
wealthy markets. Likewise, Dr. Crawford showed in 2010-2013 that
``top MSO's earned higher revenues per subscriber than other
systems, suggesting that large MSO's are able to charge higher
prices for cable packages.'' George WRT at 28.
---------------------------------------------------------------------------
b. Criticisms of the Johnson Model by PTV Expert Witness Dr. Bennett
Dr. Bennett lodges the following criticisms specific to the Johnson
Model:
1. The base fees and the 3.75% Fees reported by CSOs are
decoupled from each other and are often less than the CSOs' actual
royalty payments. Bennett WRT ]] 66-69, figs.24-26. This is
problematic because CSO carriage decisions underlying the base fees
and the 3.75% fees are ``inextricably linked,'' in that the cost
factor in the decision whether to add a station is based on the
total royalty cost, which includes both the (1) the base fee or
minimum fee, as applicable, and (2) the 3.75% fee. But by treating
the two royalty funds separately, the Johnson Model materially
increases PTV's overall share, compared to what it would be if the
two royalty funds were jointly considered. Bennett WRT ]] 74-78,
figs.27-28.
2. Dr. Johnson provides no basis for extrapolating from the
subset of Subscriber Groups with positive Base Rate fees to the
broader royalty pool. Bennett WRT ]] 70-73.
3. The Johnson Model excludes fixed effects, which means that
his regressions do not account for omitted variable bias. But Dr.
Johnson introduces the risk of such bias based on a trumped-up
concern that the Judges noted in the 2010-13 Determination but which
had no impact. Moreover, the resulting bias in the regression
coefficient is caused by eliminating fixed effects that would have
impacted royalties but were unrelated to program category minutes,
for example, where different CSOs charge different subscription
prices because of differences in the number of specialty channels
they provide in their basic service. Similar omitted variables arise
when fixed effects are eliminated because of uncontrolled
differences in subscription revenue (and thus section 111 royalties)
between and within MSOs. Bennett WRT ]] 79-89, figs.29-35.
4. Dr. Johnson's decision to eliminate fixed effects was
particularly puzzling, because he had the endorsed Dr. Crawford's
``regression framework'' as ``appropriate'' for present purposes and
acknowledges that he ``generally follows the framework used by [Dr.]
Crawford.'' Nonetheless, he eliminated Dr. Crawford's fixed effects,
inflating PTV's shares as reported in the Johnson WDT. See Bennett
WRT ]] 90-92, figs.36-37.
c. Criticisms of the Johnson Model by PTV Expert Witness Dr. Marx
Dr. Marx essentially echoes the criticisms of Dr. Bennett with
regard to Dr. Johnson's allegedly improper removal of fixed effects
from the regression. She emphasizes that Dr. Johnson did not appear to
test or evaluate the size or direction of the bias created by
eliminating fixed effects, even for 2014, which was ``a year that in
most significant respects was similar to 2010-2013, which is the time
period for which the Judges found the Crawford regression with fixed
effects to be `highly useful.''' Marx WRT ] 39.
d. Criticisms of the Johnson Model by Program Suppliers Expert Witness
Dr. Tyler
Dr. Tyler does not raise any specific criticisms of the Johnson
Model. Rather, he criticizes it in the same way he criticizes all the
other regressions that use a form of royalties as the dependent
[[Page 54210]]
variable (as explained supra, in the Judges' summary of Dr. Tyler's
advocacy for the model he has proffered in this proceeding). See Tyler
WRT ] 29. To summarize, Dr. Tyler rebutted the Johnson Model by
asserting the following:
1. The Johnson Model needed to avoid the substantial degree of
variability, causing a loss of observations.
2. The Johnson Model, like the George Model, ``guesses'' at the
number of subscribers in each Subscriber Group, introducing
potential bias into the regression.
3. The Johnson Model, like the George Model, has ``hammer-
shaped'' residuals, which indicate that a regression is
misspecified.
See Tyler WRT ]] 29-55.
e. Criticisms of the Johnson Model by SDC Expert Witnesses Dr. Asker,
Dr. Majure, and Mr. Harvey
JSC's several expert economic witnesses levy the following
criticisms at the Johnson Model:
1. The Johnson Model (like the George Model) improperly engages
in the pooling of data across the 2014-2017 period to estimate a
single coefficient for each program category. According to the JSC
economic witnesses, such pooling generally results in ``unreliable''
coefficients and, specifically, led in this case to an
underestimation of JSC's 2014 share. More particularly, three JSC
experts testified as follows:
a. Dr. Asker testified that ``there was a significant change in
behavior following the conversion of WGNA in 2015. . . . To adopt a
specification that doesn't recognize that change and then allow the
regression to adjust . . . is a considerable flaw.'' 3/30/23 Tr.
2431 (Asker); see also Asker WRT ] 103.
b. Dr. Majure testified that ``[t]he data are very different
between these two periods, reflecting changes in distant signal
carriage patterns from the exit of WGNA. Given the differences in
the data, it is important to run separate regressions on the
different time periods.'' Majure WRT ] 38.
c. According to Mr. Harvey, the Johnson Model estimates that JSC
went from the highest per minute value in 2014 to the lowest in
2015-2017 and, moreover, CSOs would pay less for a minute of JSC
content during 2015-2017 than for a minute of any of the other
claimant categories. Harvey WRT ] 37 tbl.5; 3/28/23 Tr. 1883-87,
1889-90 (Harvey).
d. Mr. Harvey further testified that for the 2015-2017 period
data alone, using the Johnson Model (and the George Model) generated
JSC sports coefficients that were not statistically significant and,
according to Mr. Harvey, were thus unreliable in that the data
implied that JSC programming had no value in those years. Harvey WRT
]] 37-38 & tbl.5.
e. Mr. Harvey calculated that when a 2015-17 coefficient is
estimated only for systems paying more than the minimum fee, the
Johnson Model then estimates a statistically significant negative
coefficient for JSC content. Harvey WRT ] 38 & tbl.6; 3/28/23 Tr.
1895-96 (Harvey).
2. The Johnson Model lacks ``robustness'' and is ``unstable.''
According to Mr. Harvey, these defects are evidence that Dr. Johnson
had engaged in a specification search (discussed elsewhere in this
Determination). But Mr. Harvey asserts that even if Dr. Johnson had
not engaged in an intentional specification search, his many
specifications generated results that evidenced the lack of
robustness and stability. 3/28/23 Tr. 2091 (Harvey); Harvey WRT ]
155 & tbl.26; see also JSC PFF ] 196.
3. Reiterating a criticism rejected in the 2010-13
Determination, the Johnson Model (like the George Model) wrongly
utilizes a log-linear specification, with the dependent variable
(royalties) expressed in log form and the subscriber count variable
expressed in linear form. Harvey WRT ] 170; 3/28/23 Tr. 1965-66
(Harvey).
4. The Johnson Model wrongly omits fixed effects (as also noted
by other witnesses, discussed supra). According to Mr. Harvey,
applying the fixed effects contained in the George Model triples Dr.
Johnson's estimate of the JSC share. Harvey WRT ] 111 & tbl.5.
f. Criticisms of the Johnson Model by SDC Expert Witness Dr. Erdem
\113\
---------------------------------------------------------------------------
\113\ In addition to the specific criticisms by Dr. Erdem of the
particulars of the Johnson Model, Dr. Erdem criticizes Dr. Johnson
for engaging in the improper process of specification searching
(also described as ``data mining'' and ``p-hacking''). The Judges
consider that issue separately in this Determination.
---------------------------------------------------------------------------
Dr. Erdem levies the following criticisms at the Johnson Model:
1. The specifications in the Johnson Model (i.e., Dr. Johnson's
preferred ``baseline'' model) is but ``a stripped-down version'' of
the fatally flawed Crawford Model, shorn of ``numerous control
variables such as MSO indicators and the lag of subscribers and . .
. fixed effects . . . . '' Erdem WRT ] 42.
2. When the Johnson Model's regression was run ``using the CCG
data that Dr. George used for her regressions . . . PTV shares
decreased by eight points [and] [e]very other claimant . . . had
their implied shares . . . with] JS[C] [gaining] a five-point
increase in shares.'' This allegedly indicated that ``[t]he
processed data that PTV used for their regression was clearly made
to benefit their shares . . . . '' Erdem WRT ]] 98-99.
3. All of Dr. Erdem's sensitivity tests showed a similar
tendency, i.e., compared to the Johnson Model, ``all the
sensitivities . . . [gave] PTV lower implied shares.'' Erdem WRT ]
101.
2. The Judges' Analysis and Findings Regarding the Johnson Model \114\
---------------------------------------------------------------------------
\114\ The Judges' analysis and findings in this section are
separate and apart from their analysis and findings on the specific
issues considered in separate sections of this determination.
---------------------------------------------------------------------------
The Judges make the following findings with regard to the Johnson
Model:
1. Although Dr. Johnson used the Crawford Model as his
``starting point,'' he made changes to the Crawford Model.
2. A major change Dr. Johnson made to the Crawford Model was to
eliminate all ``fixed effects'' in the Johnson Model.
3. By removing all ``fixed effects,'' Dr. Johnson altered the
Crawford Model by eliminating the protection against ``omitted
variable bias.'' That is, Dr. Johnson failed to capture the effects
of differences among systems (CSOs) and across accounting -periods
that impacted the dependent variable in the Johnson Model, i.e., the
log of royalties. The absence of these ``fixed effects'' therefore
rendered significantly reduces the evidentiary usefulness of the
Johnson Model.\115\
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\115\ The irony of this criticism is that Dr. Johnson relied on
the Crawford Model as a ``starting point'' for his modeling,
deemphasizing the need to develop an independent economic theory,
and ignored the potential specification searching in Dr. Crawford's
modeling, but removed the feature of the Crawford Model (``fixed
effects'') that was the positive basis for the Judges' elevation of
the regression approach to a position of evidentiary primacy in the
2010-13 Determination.
---------------------------------------------------------------------------
4. A purpose in Dr. Johnson's removal of ``fixed effects'' from
his regression model was to generate what he understood to be a
sufficient number of observations of CSO decisions regarding program
category retransmittal decisions (through their retransmitted
channel selections) to generate the variation needed for a useful
regression. These additional observations were required because,
after the WGNA conversion, there was a significant reduction in the
number of CSOs with two or more subscriber groups, reducing the
variation created by the ``fixed effects'' control in the Crawford
Model. But, as Dr. Marx, for example, has explained, this attempt at
greater ``precision'' came at the unacceptable expense of the
generation of ``omitted variable bias'' discussed above.
5. Dr. Johnson's further claim--that he eliminated ``fixed
effects'' in response to a statement in the 2010-13 Determination
that the Judges were troubled by the resulting loss of 15% of the
otherwise observable CSO decisions--is a red herring. The Judges in
the 2010-13 Determination did not rely on the loss of such
observations as a basis for diminishing the evidentiary weight of
the Crawford Model. And regardless, if the lost number of
observations increased in the present proceeding because of the
aforementioned reduction in useful subscriber groups, the more
appropriate response was not to inject ``omitted variable bias''
into the regression, but rather to utilize other approaches (as, for
example, in the Tyler Model).
6. Dr. Johnson's inclusion in his regressions of data regarding
the programming decisions of the vast majority of CSOs paying the
minimum fee or less significantly reduces the evidentiary weight of
the Johnson Model for the three-year 2015-2017 period. (This finding
of course also applies to the George and Tyler Models.) These
decisions did not reveal their preferences in a cardinal manner,
that is, these CSOs did not reflect relative values because their
choices did not affect the actual fees paid. At most, their
decisions reflected ordinal values, in terms of which program
categories they valued more than others, but
[[Page 54211]]
not how much more, which is necessary for the distribution of the
royalty fund.\116\
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\116\ In the 2010-13 Determination by contrast, as Dr. Marx has
explained, the Judges found there was a sufficiently high percentage
of CSOs paying above the minimum fee and thus making decisions with
an economic (royalty) impact that served as a strong evidentiary
basis for allocating shares.
---------------------------------------------------------------------------
7. But Dr. Johnson properly relied on the data relating to the
subset of CSOs in his model that only paid above the minimum fee.
The Judges credit that data as reflective of actual economic
decision-making that is useful in determining the allocation shares
in this proceeding. This cohort of CSOs can properly be viewed as
essentially the only CSOs who provide revealed preference
information as to the variation in relative values among the program
categories (in contrast with CSOs who did not retransmit any distant
local stations or those with ``excess capacity''), which in that
sense is a cohort unto itself, rather than a sub-sample. On the
other hand, this cohort can also reasonably be viewed as but a small
sample of all the CSO, which reduces the evidentiary weight of their
preferences. Both perspectives on the revealed preferences of these
above-minimum-fee-paying CSOs are properly considered in weighting
the various strands of useful evidence in order to allocate royalty
shares in this proceeding.
8. The probative value of the Johnson Model is incomplete and
thus weakened, because it excludes the 3.75% fees paid by most of
the claimants, thus not reflecting the full willingness-to-pay of
all claimant categories. Further, Dr. Johnson's separation of the
basic royalty fund and the 3.75% royalty fund materially increased
PTV's overall share.
9. The probative value of the Johnson Model is weakened because
it wrongly substitutes ``contemporaneous'' for ``lagged''
subscribers. This substitution is incorrect because: (a) lagged
controls minimize the subsequent impact of potential unobserved
factors such as the acquisition of a CSO by a large MSO;
(b)''lagged'' subscribers were used since the Waldfogel regression
in the 2004-05 proceeding; and (c) contrary to Dr. Johnson's
assertion, ``lagged subscriber'' data was available from Cable Data
Corporation, the source of much of the data utilized in the
regressions proffered in this and prior allocation proceedings.
10. The probative value of the Johnson Model is weakened because
its omission of certain control variables lessens its ability to
identify the causal interpretation of interest, i.e., the
correlation between program category minutes and the log of
royalties. Specifically, the evidentiary weight of the Johnson Model
is compromised by its exclusion of control variables for market
income, the number of local stations offered and MSO ownership of
CSOs. In this regard, Dr. Johnson has essentially ignored the 2010-
13 Determination which explains at length why the inclusion of an
MSO control variable is necessary. 2010-13 Determination at 3566-67
(describing ``differences . . . among the six largest MSOs in terms
of their average receipts per subscriber . . . . suggest[ing] . . .
important differences . . . regarding their signal carriage
strategies, pricing, and other relevant dimensions,'' and
contrasting ``a regression without the six MSO Interaction variables
[where] unobserved differences in average revenue per subscriber
could bias estimates of relative value of different
programming.'').\117\
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\117\ One might fairly ask: Why rely on Dr. Crawford's
specification decisions now, after raising the concerns about his
potential specification searching? The answer is that Dr. Crawford's
detailed and persuasive explanation for adding this additional
control variable in the course of specifying his model was a reason
why the Judges did not agree with the SDC in the 2010-13 proceeding
that it was evidence of inappropriate specification searching. The
troublesome facts were generated subsequently, in the discovery
phase of the companion 2010-13 satellite proceeding.
---------------------------------------------------------------------------
11. The Johnson Model improperly ``pools'' data across the 2014-
2017 period to estimate a single coefficient for each program
category. Although ``pooling'' in this manner is not inherently
improper in these allocation proceedings, when there is a sharp
demarcation in the relevant data, as existed here as of 2015 upon
the WGNA conversion, ``pooling'' data to generate a single
coefficient obscures reality. The most consequential impact of
``pooling'' was the underestimating of the JSC share for 2014 and
its overestimation for the years 2015-2017.
IX. A General Criticism of the Regressions: Dr. Erdem's Eight-Model
Argument In Rebuttal to the Use of the Proffered Regressions
Undaunted by the Judges' findings in the 2010-13 Determination
discussed supra, Dr. Erdem endeavors to convince the Judges to reverse
course by once more presenting an argument that all fee-based
regressions should be rejected as probative evidence of relative market
value, as that standard has been defined by the Judges and their
predecessors.\118\ To this end, Dr. Erdem presented in rebuttal eight
models as pedagogical tools only (not as proposed models for use in
allocating shares). He and the SDC aver that his are ``simple models,''
demonstrating that ``all fee-based regression models'' do not estimate
``any plausible measure of fair market value,'' \119\ but rather are
``leveraged on correlations driven predominantly by geography (location
of cable systems and the subscriber groups) and other features of the
copyright royalty system . . . .'' SDC PFF ] 44 (quoting Erdem WRT ]
2).\120\
---------------------------------------------------------------------------
\118\ Nothing in the prior determinations precludes the Judges
from considering what appear to be new arguments by Dr. Erdem,
because the Judges' (and their predecessors') reliance on fee-based
regressions constitutes a factual finding, not a legal conclusion,
and thus there is no ``precedent'' that precludes a new line of
factual expert argument. See 2010-13 Determination at 3557 & n.26
(distinguishing ``legal precedent'' from the oxymoronic concept of a
``factual precedent.'' See also 17 U.S.C. 803(a) (directing the
Judges to act on the basis of both: (1) ``a written record'' which
includes record evidence; and (2) prior ``determinations and
interpretations'' of identified judicial and administrative
entities.).
However, factual matters that the Judges decided in the 2010-13
Determination need not be fully revisited in this proceeding, in the
absence of any new persuasive argument to the contrary. Such factual
matters include: (1) the rejected sweeping claim that fee-based
regressions do not embody economic principles such as profit
maximization (see 2010-13 Determination at 3560), (2) the rejected
characterization of fee-based regressions as merely ``volume
analyses'' (see id. at 3560-61), (3) the rejected argument that it
was wrong for fee-based regressions to ignore distant local signals
that CSOs chose not to carry (see id. at 3563), and (4) the rejected
argument that the fee-based regressions used the wrong form for the
control variable for number of subscribers (see id. at 3563-64).
\119\ It is not lost on the Judges that Dr. Erdem uses the
phrase ``fair market value'' here, rather than the actual standard
of ``relative marketplace value.'' In the 2010-13 Determination, the
Judges explicitly distinguished the two concepts. 2010-13
Determination at 3555 n.17 (``Because the royalties at issue in this
proceeding are regulated and not derived from any actual market
transactions, they do not correspond with absolute dollar royalties
that would be generated in a market and thus would not reflect
absolute ``fair market value.'') See also the Judges' discussion of
the ``relative marketplace value'' standard, supra.
\120\ Elsewhere in his testimony, Dr. Erdem offers a more
sinister conclusion from his ``eight-model'' analysis: ``[A]s I will
show, it is precisely these modeling choices that allow the analyst
to select a model based on expected or desired results.'' Erdem WRT
] 51. Thus, his argument is that the very structure of the fee-based
regressions provides all the expert witnesses, not just the two he
singled out, Drs. Crawford and Johnson, with the opportunity to
engage in specification searches.
---------------------------------------------------------------------------
The Judges go through each of the eight models below. Also set
forth below are the rejoinders to these models presented
comprehensively through the submission by CCG and the testimony of
CCG's economic expert, Dr. George.
A. Erdem's Rebuttal Model 1
Model 1 shows ``a negative correlation between the number of
minutes retransmitted on a distant basis and the amount of subscriber
group base fees.'' SDC PFF ] 45 (citing Erdem WRT ]] 52-53). This
means, according to Dr. Erdem, that subscriber groups retransmitting
fewer distant minutes tend to pay more in royalty fees. Erdem WRT ] 53.
Dr. Erdem interprets these negative coefficients as a ``hedonic''
regression, implying that CSOs place negative value on retransmission
of distant signals.'' SDC PFF ] 45 (citing Erdem WRT ] 53) (emphasis
added).\121\ Given the perverse nature of this result, the SDC
maintains that its negative value puts the lie to the claim that the
number of minutes has something ``to do with value,'' but rather shows
that the regression coefficients are artifacts ``of the regulatory
structure.'' SDC PFF ] 45.\122\
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\121\ The Judges discuss elsewhere in this determination the
concept and label of a hedonic regression and their significance in
this proceeding.
\122\ Dr. Erdem states that to test the hypothesis of a positive
correlation, on average, between royalties and minutes, he would
need to ``control[] for appropriate variables.'' Erdem WRT ] 52.
However, there is no sufficient indication in the record that Dr.
Erdem applied control variables, or any other controls through fixed
effects with regard to his Model 1.
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[[Page 54212]]
Dr. Erdem advances what he argues is an alternative explanation for
the inverse relationship between minutes and royalties that he claimed
to identify: ``[This] result can be explained by distance between the
signal and the subscriber group [because] I argue that the number of
subscribers reduce with distance, implying that the signal is being re-
transmitted to fewer subscribers over longer distances.'' Erdem WRT ]
53. See also Erdem WRT ] 59 (``91% of systems are retransmitting the
same signal on a local basis to some subscriber groups and on a distant
basis to other subscriber groups[,] . . . [and] on average 76% of the
channels that are distant to a subscriber group are retransmitted as
local to another subscriber group''); SDC PFF ]] 46-47; see also
Bennett ACWDT ] 33 (Across 2014-2017, nearly 95% of the distant signals
imported were within 150 miles of the community served, and over 97%
were within 200 miles.).
B. Erdem's Rebuttal Model 2
In his second rebuttal model, Dr. Erdem analyzed the relationship
between claimant category minutes and base royalty fees. He testified
that, quite similar to the results from his Model 1, he found that a
negative or statistically insignificant relationship largely persists
(except for JSC minutes). As with Model 1, Dr. Erdem interprets this
result through the lens of a hedonic regression, finding that it
implies that CSOs place a negative value on all distant retransmissions
of local programming, except for JSC. Erdem WRT ] 54. And also as with
Model 1, Dr. Erdem recognizes that these results are
``counterintuitive'' in the context of reflecting value, but rather are
a function of the fragmentation of subscriber groups. Erdem WRT ] 54.
See also SDC PFF ] 48.\123\
---------------------------------------------------------------------------
\123\ Again, Dr. Erdem does not indicate whether he applied
control variables, and, if he did, what they were.
---------------------------------------------------------------------------
C. Erdem's Rebuttal Model 3
In his third rebuttal model, Dr. Erdem tested the effect of the
number of subscribers in a subscriber group (the independent variable)
on subscriber group royalty fees and found a strong positive
correlation. Erdem WRT ] 58. Dr. Erdem, again viewing the modeling as a
hedonic regression, has a ready and what he describes as an obvious
explanation for this positive correlation: [C]able systems place a high
positive value on the number of subscribers in a subscriber group.''
Erdem WRT ] 58. As alternatively stated by Dr. Erdem, ``[W]e may need
to treat the number of subscribers as a measure of volume.'' Erdem WRT
] 58. Relatedly, Dr. Erdem opines that ``there is a negative
correlation between the number of subscribers in a subscriber group and
the number of distant minutes the subscriber group receives''--meaning
that, for the more populous subscriber groups, fewer distant signals
(and minutes) are retransmitted to them and, thus, the more sparse the
number of subscribers in a subscriber group, the greater the number of
distant signal minutes. According to Dr. Erdem, this negative
correlation is inconsistent with the positive correlation between
distant minutes and royalties posited by the theoretical underpinnings
of the fee-based regressions. See Erdem WRT ] 59.\124\
---------------------------------------------------------------------------
\124\ The Judges note Dr. Tyler's testimony, discussed elsewhere
in this determination, that there is no data identifying the number
of subscribers in a subscriber group, in the course of his positive
differentiation of the Tyler Model from the other regression models
(which unlike the Tyler Model, must estimate the number of such
subscribers in an inaccurate manner). It is not apparent from the
record that Dr. Erdem had estimated the number of such subscribers
in an accurate manner.
---------------------------------------------------------------------------
D. Erdem's Rebuttal Model 4
Dr. Erdem's Model 4 seeks to address a finding from his Model 3:
``[T]he relationship between the number of subscribers and royalty fees
is positive.'' Erdem WRT ] 58 & fig.4. Keeping with his interpretive
context, which treats these regressions as hedonic in nature, Dr. Erdem
posits that ``[a]n analyst . . . will conclude that [CSOs] place a high
positive value on the number of subscribers in a subscriber group,''
such that ``we may need to treat the number of subscribers as a measure
of volume.'' Erdem WRT ] 58. But he then asks, rhetorically: Could it
be that, on average, subscriber groups with fewer subscribers receive
more distant minutes of programming? Erdem WRT ] 58 (emphasis added).
Dr. Erdem then turns to his next pedagogical regression model, Model 4,
to address this issue.
Dr. Erdem's Model 4 indeed demonstrated a ``negative correlation
between the number of subscribers in a subscriber group and the number
of distant minutes the subscriber group receives.'' Erdem WRT ] 59. Dr.
Erdem explained his intuitive explanation for this negative
correlation:
One of the principal reasons why a rational CSO might choose to
use subscriber groups is because the cable system's reach straddles
the edge of the 35-mile radius in which a station is considered
``local'' for cable royalty purposes. In this situation, a signal is
``local'' to some subscribers and ``distant'' to other subscribers.
The cable system can save money by breaking its subscribers into
geographically based subscriber groups so that it is paying for the
distant retransmission only for the subscribers receiving it on a
``distant'' basis.
Erdem WRT ] 59 (emphasis added). Dr. Erdem then presents the data
(discussed supra) regarding the localized emphasis on ``distant''
retransmission contiguous to the 35-mile legal boundary between local
and distance transmissions. Erdem WRT ]] 59-60.
Dr. Erdem recognizes that the several regression experts sought to
remove this cost-based negative effect of the number of subscribers in
a subscriber group on the number of distant minutes a subscriber group
receives. First, he noted that Dr. Tyler, with his SGRP divided the
dollar value of fees (the numerator in Dr. Tyler's SGRP) by ``a metric
that scales with the number of subscribers,'' i.e., total receipts.
(the denominator in Dr. Tyler's SGRP). Second, as an alternative
approach, Drs. George and Johnson (and apparently Dr. Crawford
previously) introduced a control variable to remove the influence of
the number of subscribers (whose increasing numbers would increase
receipts and potentially increase royalties either through higher
binding base fees or by triggering a base fee obligation in excess of
the minimum fee that would otherwise bind). Erdem WRT ] 61.\125\
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\125\ Note that when discussing Model 7 considered infra, Dr.
Erdem admits that ``inclusion of a variable for subscribers . . .
could be justified as a volume-based control.'' Erdem WRT ] 69.
---------------------------------------------------------------------------
E. Erdem's Rebuttal Model 5
Dr. Erdem then apparently adds to his pedagogical model the control
variable that Drs. George and Johnson include, ``controlling for the
number of subscribers.'' When Dr. Erdem does so (using lagged and
unlagged subscriber numbers, respectively in his modeling), he finds
that his ``correlation between total minutes and royalty fees is now
positive.'' Erdem WRT ] 62 & fig.6 (emphasis added). He emphasizes that
what he terms the ``fixed price'' for the retransmissions in his
modeling is ``based primarily on the type and number of signals and
revenues for the subscriber group,'' despite the fact that ``[r]evenues
are largely based on the number of subscribers.'' Erdem WRT ] 62.
What still remains uncontrolled, Dr. Erdem, notes, is the ``impact
. . . from the number of distant signals.'' Erdem
[[Page 54213]]
WRT ] 62. He notes the perhaps self-evident point that ``[t]he more
signals there are, the more minutes there are, so I would expect a
positive relationship after controlling for subscribers.'' Erdem WRT ]
62.
F. Erdem's Rebuttal Model 6
Dr. Erdem then breaks the retransmitted minutes into their
respective programming categories, and proceeds to test whether the
positive correlation between total minutes and royalties (which the
regression experts understood to exist) continues to hold on a per-
category basis. Erdem WRT ] 63. He finds that this positive
relationship between minutes and royalties--on a program category
basis--remains positive and is statistically significant for four of
the six category participants--PTV, Program Suppliers, JSC, and the
SDC. However, his modeling resulted in mainly positive but
statistically insignificant results for CTV and CCG, and, for a
minority of CCG observations, a negative relation. (Dr. Erdem's
modeling also showed negative correlations for ``network programming''
(not a category at issue). Erdem WRT ]] 63-64 & fig.7. Dr. Erdem
interpreted these results to mean that ``the control for the number of
subscribers lifted the coefficients for program categories into
positive territory by removing the influence of the number of
subscribers, but not enough to give all categories a positive and
statistically significant coefficient.'' Erdem WRT ] 64.
Dr. Erdem asserts that these results ``pose a problem for any
analyst hoping to interpret the model as a hedonic regression.'' Erdem
WRT ] 65. More particularly, continuing from the binary perspective of
whether the fee-based regressions are hedonic or not, he unambiguously
opines that these regressions are invalid because they are not hedonic,
in that ``[t]he price is not actually varying based on the valuation of
minutes,'' but rather varying based on ``other factors such as the type
of signal or the revenue-per-subscriber for the subscriber group or
system.'' Erdem WRT ]] 65-66.
Dr. Erdem then states that the regression analyst who nonetheless
``wishes'' to describe his or her regression as hedonic must manipulate
the negative coefficients into positive coefficients, so that they
``appear'' plausible as proxies for prices. Erdem WRT ] 67.
It is in this context that Dr. Erdem accuses the regression experts
of ``leveraging'' the ``negative coefficients for network programming''
(which are ineligible for an allocation of the royalties to be divided
in this proceeding). Erdem WRT ] 68. To generate this leverage, Dr.
Erdem asserts that the fee regression analysts engage in two
manipulations (1) they add another control variable for ``the number of
distant signals, which correlates directly with the total number of
minutes'' and (2) they exclude the variable for ``the number of distant
minutes of network programming,'' ``render[ing] all category
coefficients `relative' to the negative coefficient for network
programming.'' Erdem WRT ] 68. Dr. Erdem emphasizes the elementary
point that ``[b]ecause any number is positive in relation to the
largest negative number, the exclusion of the variable for network
programming has the effect of lifting the variables for all category
minutes comfortably into positive territory, creating an apparent
positive and statistically significant correlation where there
previously was none in some categories.'' Erdem WRT ] 68.
G. Erdem's Rebuttal Model 7
To the adjustments included through Models 1-6, Dr. Erdem now
injects a control for ``the number of distant stations on royalty
fees.'' Also, his Model 7 ``drops network distant minutes in order to
get relative numbers'' in the manner undertaken by the fee regression
experts. Erdem WRT ] 69.
Although (as noted supra) Dr. Erdem concedes that the prior
``inclusion of a variable for subscribers . . . could be justified as a
volume-based control,'' he finds ``no econometric justification for
seeking to value category minutes relative to the negative coefficient
value of network programming.'' Erdem WRT ] 69. He states that as a
general matter, ``even if one believed that the coefficients were
related to value, there could be no justification for trying to measure
value relative to an arbitrarily chosen category with a negative
value.'' Erdem WRT ] 69 (emphasis added).
Dr. Erdem also characterizes the negative coefficient for network
programming as ``an artifact of the operation of the copyright royalty
system, not a measure of how much anyone values programming, and
certainly not a measure of how programming would be valued in the free
market.'' Erdem WRT ] 70. Alternately stated, he declares that [t]here
is no intuitive reason why network programming would be expected to
have negative market value when retransmitted on a distant basis.''
Erdem WRT ] 70.
Dr. Erdem does acknowledge that, through what he calls this
excluded network minute ``manipulation,'' all the coefficients in the
categories of interest (for the distant retransmission that is
permitted by law) now become positive. Erdem WRT ] 70 (``This is
exactly how Professor Crawford's model--and, by extension, Dr. George's
model and Dr. Johnson's model--works.'').\126\
---------------------------------------------------------------------------
\126\ To be clear, Dr. Erdem does not lodge this criticism at
Dr. Tyler's model.
---------------------------------------------------------------------------
From this point forward, Dr. Erdem maintains that the fee-based
regression experts ``are free from the constraints of econometric
reasoning.'' More particularly, he asserts they can, without
appropriate justifications use various (1) control variables, (2) fixed
effects, (3) transformations and functional forms, and (3) unspecified
miscellaneous fine-tuning, all in the service of ``generat[ing]
whatever coefficients [they] desire or expect.'' Erdem WRT ] 71.
H. Erdem's Rebuttal Model 8
The final model, Model 8, is actually not a ``model'' at all, but
rather Dr. Erdem's more particular catalog of ``manipulations'' in
which a fee-based regression expert could engage, with a model built up
through Dr. Erdem's Models 1-7. Without linking any of the following
``manipulations'' specifically to any of the experts in this
proceeding, Dr. Erdem states in this ``Model 8'' that the following
``manipulations'' are possible:
1. ``bringing in variations in the number of subscribers to
increase or decrease the effect on the dependent variable. For
example, we can try the lagged number of subscribers;''
2. ``add[ing] interactions with the number of subscribers'' (as
he states Dr. Crawford did in his model); and
3. ``add[ing] fixed effects, which controls for any variation
due to inherent characteristics of a subscriber group.''
Dr. Erdem does not assert that such additions would be ad hoc, but
rather that, consistent with the fundamental defect he finds in the
fee-based regressions, they would ``merely leverage the features of the
copyright royalty system.'' Erdem WRT ] 72.
I. Dr. George's and CCG's Rejoinder to Erdem's Modeling Exercise
127
---------------------------------------------------------------------------
\127\ CCG and Dr. George, among the other regression experts and
parties, were the ones who responded to Dr. Erdem's testimony,
apparently because Dr. Erdem's pedagogical modeling was based on
``Dr. George's methodology and production.'' Erdem WRT ] 51 n.23.
---------------------------------------------------------------------------
At a high level,\128\ CCG takes issue with the SDC's emphasis on
the
[[Page 54214]]
assertion that fee-based regressions are predominantly rooted in
correlations with (a) the geographic location of CSOs and their
constituent subscriber groups and (b) statutory features of the
copyright royalty system. In this regard, CCG essentially attacks this
assertion as much ado about nothing, because the reason why CSOs and
their subscriber groups retransmit signals as they do does not bear on
the fundamental point of the regressions, i.e., to identify what the
CSOs actually retransmit in order to appropriately compensate copyright
owners. Dr. George emphasizes that whether or not subscriber group
configurations are geographic artifacts, they nonetheless reflect the
strategic profit-maximizing decisions of CSOs as to where they will
transmit distant signals. It is this profit maximizing retransmission
decision that is the kernel of information that provides insight into
``what would determine relative market value absent regulation.'' See
George WDT at 15-17, 27-28; The Canadian Claimant Groups' Reply to
Proposed Findings of Fact and Conclusions of Law (CCG RPFF) ]] 21-22.
---------------------------------------------------------------------------
\128\ This high-level ``General Criticism'' also responds
specifically to Dr. Erdem's Model 4 discussed supra, regarding
``geographic'' effects, which are ``key'' elements of Dr. Erdem's
general critique of fee-based regressions. See 4/6/23 Tr. 3643-44
(Rubinfeld) (identifying ``changes in the number or size of
subscriber groups'' as a ``key issue.'').
---------------------------------------------------------------------------
More broadly, CCG characterizes Dr. Erdem's eight-model analysis as
incomplete and economically flawed. In this regard, Dr. George
criticizes Dr. Erdem's rebuttal pedagogical modeling because therein he
analyzes relationships in the data across CSOs, whereas the George
Model emphasizes variation within CSOs to identify coefficients. Thus,
CCG and Dr. George essentially attack Dr. Erdem's modeling as a straw
man exercise. CCG RPFF ] 22; George WDT at 27-28.
At the conceptual economic level,\129\ Dr. George takes note of the
point (identified by the Judges supra) that Dr. Erdem has
contextualized his analysis in the wrong economic and legal standard:
---------------------------------------------------------------------------
\129\ All the economic experts in this proceeding agree that the
initial step in building a regression model is to identify ``a
theory that describes the variables to be included in the study.''
American Bar Association, Econometrics, Legal, Practical and
Technical Issues 8 (1st ed. 2005) (``ABA Econometrics''). See also
Stock & Watson, supra note 92, at 282 (``First, a core or base set
of regressors should be chosen,'' which includes the ``variables of
primary interest'' and the ``control variables'' suggested by, inter
alia, ``economic theory.'') (emphasis added); Kennedy, supra, at 391
(identifying as ``Rule 1'' of applied econometrics: ``Use common
sense and economic theory.'') (emphasis added).'' Perhaps even more
pertinent here is Professor Kennedy's ``Rule 2,'' which states that
an econometrician must avoid attempting to ``produce[ ] the right
answer to the wrong question.'' Id. at 391.
SDC's false criticism that regressions are not driven ``by any
plausible measure of fair market value'' suggests that measuring
fair market value was a goal of regression. . . . No pro-regression
expert claims that correlations are driven by ``fair market value.''
As the Judges wrote in the prior proceeding: ``In this proceeding,
the Judges distinguish between `relative values' (to describe the
allocation shares), and absolute `fair market values.' Because the
royalties at issue in this proceeding are regulated and not derived
from any actual market transactions, they do not correspond with
absolute dollar royalties that would be generated in a market and
---------------------------------------------------------------------------
thus would not reflect absolute `fair market value.' ''
CCG RPFF ] 12 (quoting 2010-13 Determination at 3555 n.17) (emphasis
added).
More granularly, CCG asserts that the negative correlations in Dr.
Erdem's modeling between royalties (the dependent variable) and,
respectively, (a) total distant minutes (Model 1), (b) claimant distant
minutes (Model 2), and (c) subscriber group size (Model 3), do not, as
Dr. Erdem claims, reveal a modeling ``hurdle'' or ``problem'' that
bedevils the fee-based regressions. Rather, it is claimed that Dr.
Erdem's first three pedagogical rebuttal models fail to consider that
CSOs configure their subscriber groups strategically to maximize
profits and therefore will only retransmit distant signals to groups of
subscribers when the anticipated benefit (essentially, more new or
retained subscriptions) exceeds the anticipated costs (royalties). CCG
RPFF ] 24 (citing, from the 2010-13 proceeding, Crawford CWDT ]] 66-68;
Israel WDT ]] 12-14.).
CCG also takes note of the finding in Dr. Erdem's Model 3 \130\ of
``a positive relationship between the number of distant signals and
subscriber group royalties,'' suggestive of the regression experts'
hypothesis that cable systems place a high positive value on the number
of subscribers in a subscriber group.'' CCG RPFF ] 24. Unsurprisingly,
CCG and Dr. George do not disagree with his finding.\131\
---------------------------------------------------------------------------
\130\ CCG misidentifies this point as within Dr. Erdem's Model
4. CCG RPFF ] 24.
\131\ As noted supra regarding CCG's and Dr. George's ``General
Criticisms'' of Dr. Erdem's pedagogical modeling, they dispute his
assertion in Model 4 that fee-based regressions do not reflect the
category-by-category preferences of CSOs as revealed by the minutes
of program categories retransmitted.
---------------------------------------------------------------------------
CCG and Dr. George then address Dr. Erdem's next point regarding:
(1) the purportedly problematic ``negative correlations'' in Models 4
and 6 ``between the number of subscribers in a subscriber group and the
number of distant minutes the subscriber group receives'' (Erdem WRT ]
59); and (2) the attempt to control for the number of subscribers
considered in Model 5 (Erdem WRT ] 62). In defending the use of a
control for the ``number of subscribers'' as an important feature for a
fee-based regression, CCG states:
The negative correlations documented in Dr. Erdem's models are
not ``problems.'' The negative correlation with subscriber group
size results from the strategic choices of cable systems to minimize
the cost associated with distant signal carriage. The negative
coefficient for one category of minutes reflects the fact that
programming minutes per station sum to a total of 24 hours per day.
The goal of the regression is to evaluate how royalty expenditure
correlates with claimant programming on distant signals
retransmitted, all else equal. A control variable for the number of
subscribers in a subscriber group creates these all-else-equal
conditions.
CCG RPFF ] 25 (citing George WDT at 52-54; George WRT at 60) (emphasis
added).
Turning to Dr. Erdem's pedagogical rebuttal Model 7, Dr. George and
CCG assert that Dr. Erdem has changed the fee-based regression modeling
in two ways by (1) ``excluding the variable for network minutes'' and
(2) ``including a variable for the number of distant signals.'' CCG
RPFF ] 26. Regarding the alleged error in Dr. Erdem's exclusion of the
network minutes variable, CCG avers:
Since all stations broadcast approximately 24 hours per day, and
subscriber groups must have whole numbers of distant signals,
programming minutes sum to a constant equal to the number of distant
signals times 24 hours per day for 6 months. Dr. Erdem has . . .
effectively forc[ed] one of the program categories to produce a
negative coefficient. [Dr.] Crawford and [Dr.] George address th[is]
. . . by specifying a model with a control for . . . a reference
category of ``big-3'' network minutes. Network minutes are a
convenient reference choice because they are non-compensable and no
coefficient for this category need be estimated.
CCG RPFF ] 26 (citing George WRT at 31-32, 57-58, 63-64) (emphasis
added).\132\
---------------------------------------------------------------------------
\132\ Moreover, Dr. George pointed out that, at first, Dr. Tyler
made the same mistake as Dr. Erdem, neglecting to include or address
this reference category when critiquing the Crawford Model. When he
realized his error, Dr. Tyler withdrew his attempted replication of
the Crawford Model. See George WRT at 31-32; see also Bennett WRT ]]
127-134.
---------------------------------------------------------------------------
Turning to her objection to Dr. Erdem's second alteration
identified in the immediately preceding paragraph, viz., removing of
the control for the number of distant signals, Dr. George responded as
follows:
[R]emoving the control for distant stations changes the
interpretation of program coefficients so that they no longer show
the effect of an additional program minute taking away a minute of
network or off-air
[[Page 54215]]
programming. . . . removing the control for distant signals [thus]
alters the ``all else equal'' framework of the model so that program
coefficients no longer isolate the effect of additional program
minutes, but instead also capture the (omitted) incremental value of
additional distant signals.
George WRT at 57-58 (emphasis omitted); see also id. at 63-64.\133\
---------------------------------------------------------------------------
\133\ Dr. George had the opportunity to express this criticism
in her WRT because Dr. Erdem had made this particular criticism in
his amended direct testimony (which he later incorporated it into
his eight-model exercise.)
---------------------------------------------------------------------------
Finally, in responding to Dr. Erdem's conclusory Model 8, CCG
concludes by describing Dr. Erdem's pedagogical exercise as merely his
recapitulation and criticism of ``his own incomplete models,'' rather
than ``a criticism of the well-specified Crawford [M]odel or those
presented in this proceeding.'' CCG RPFF ] 21. See also George WRT at
53 ``(just as there is the potential for experts to `cherry-pick'
results, there is the potential for adversaries to `cherry-pick' their
critiques.'').
J. The Judges' Analysis and Conclusions
The Judges find that Dr. Erdem's pedagogical eight-model approach
does not support an abandonment of the Judges' long-standing reliance
on fee-based regressions as evidence of relative market value in these
section 111 allocation proceedings. The Judges make this finding based
on the following:
The Judges agree with SDC's counsel that Dr. Erdem's eight-model
analysis is not substantively any different than what he presented
in the 2010-13 proceeding. As such, it does not raise new factual
arguments.
1. Dr. Erdem acknowledges at the outset that his critique is
intended to show that the fee-based regressions fail to generate
``fair market value.'' This is a consequential error on his part,
because (a) the Judges' long-existing standard is ``relative
marketplace value,'' (b) the Judges expressly distinguished their
standard from ``fair market value'' in the 2010-13 Determination,
and (c) Dr. Erdem did not attempt to explain his switch in
standards. Accordingly, it appears to the Judges that Dr. Erdem
expressly characterized his eight-step modeling approach in a manner
that attempted to answer ``the wrong question,'' in violation of
Professor Kennedy's econometric ``Rule #2'' discussed supra.
2. Dr. Erdem's approach is to build up from models which lack
control variables, and then to posit that the relationships he finds
are inconsistent with the hypothesis behind the fee-based
regressions. But that approach leaves out all the control variables
that the fee-based regression experts have included in their models,
essentially causing Dr. Erdem's simple models to be burdened by
omitted variables, which cause regressions to suffer from the
eponymously named ``omitted variable bias.'' Moreover, in Models 1
and 2, Dr. Erdem is thus not even engaged in ``multiple regression''
analysis, because he is analyzing only the effect of a single
independent variable.
3. Related to the immediately preceding criticism, Dr. Erdem's
rebuttal modeling approach thus reflects his own modeling choices
and approach, not one utilized by the fee-based regression experts.
Thus, his approach is in the nature of a straw man argument.
Moreover, his approach does not appear to be so much pedagogical in
nature, but rather more of an attempt to utilize his rebuttal
testimony to set forth the rudiments of an alternative modeling
exercise--after SDC had declined to proffer any such modeling
approach in its original or amended written direct statement (when
it was fully aware of the points it subsequently raised on rebuttal
through Dr. Erdem's eight-model approach).
4. Dr. Erdem does not clearly explain how he estimated the
number of subscribers in a subscriber group. If he did so by the
same estimation approach as Drs. George, Johnson, and Marx (via Dr.
Crawford) then his criticism is as questionable as their analyses in
this regard. Moreover, the deficiency of this criticism underscores
the relative strength of the Tyler Model, which did not require a
control for the number of subscribers, given its use of SGRP as the
dependent variable.
5. The Judges cannot credit Dr. Erdem's criticism of the
relationship between the negative coefficients he discussed and the
use of a ``reference category'' of ``Big-3'' network minutes in the
fee-based regressions. The Judges are struck by the fact that Dr.
Erdem ignored the rationale given by Dr. George (and other
regression experts), viz., that a ``reference category'' serves as a
measure of value generated by the regression but not a value at
issue under the statutory scheme, and thus the six categories of
value can be measured against that ``reference category.'' (Other
experts have characterized such a ``reference category'' approach as
an ``index'' or ``numeraire.'' \134\). Any sufficient criticism of
this approach would need to address the ``reference category''
purpose head-on, rather than ignore it.
---------------------------------------------------------------------------
\134\ See, e.g., 4/11/23 Tr. 4141-42 (Marx) (referring to ``the
Big 3 network programming''--which is already available on local
affiliates in the CSO system and therefore has the lowest
coefficient--as the ``numeraire'' that allows for the six category
values coefficient values to be positive in relationship to those
``numeraire''/''reference category'' minutes.)
---------------------------------------------------------------------------
6. Further, with regard to the reference category issue, the
Judges agree with Dr. George that Dr. Erdem's rejection of a
referenced category/numeraire effectively forced program categories
at issue in this proceeding to produce a negative coefficient,
because in a 24-hour day, absent this control, any increase in one
royalty-generating category's minutes would necessarily reflect a
decrease in another category's minutes.
Separate and apart from the Judges' evaluation of Dr. Erdem's
testimony, as discussed above, the Judges note an aspect of Dr. Erdem's
testimony that called into question its reliability. By way of brief
background, Dr. Erdem testified in the 2010-13 proceeding as well as
the present proceeding, and his testimony was consistently reliable and
thought-provoking, regardless of whether the Judges ultimately agreed
with his opinions. But he also inexplicably endorsed in his testimony
the present Bortz Survey as ``very useful.'' 4/5/23 Tr. 3465 (Erdem).
Dr. Erdem's testimony in this regard was inexplicable--and jarring--
because SDC did not seek to have Dr. Erdem qualified as a survey
expert, he was not received as such by the Judges, and, perhaps even
more unsettling, he pronounced his endorsement of the Bortz Survey
``sight unseen,'' that is, he endorsed it without reading it. 4/5/23
Tr. 3466 (Erdem) ([Q]: ``[I]n your initial testimony that was submitted
in this proceeding, you expressed your support for the Bortz Survey
sight unseen, correct? [Dr. Erdem] That's correct.'') (emphasis
added)). Nonetheless, Dr. Erdem continued to attempt to justify this
testimony in colloquy with Judge Strickler:
Q: Dr. Erdem, but you are not qualified as a survey expert. How
can you weigh the value of a survey . . . . I understand [you] to
say while there may be no perfect way to estimate relative market
value, you say I'll tell you one way that isn't, and that's these
fee-based regressions. I understand your testimony. But why would we
credit your testimony about the survey being appropriate when it
comes to that issue? You're just a lay witness.
Dr. Erdem: You are correct, Your Honor, I am not a survey expert
as an economist.
4/5/23 Tr. 3476 (colloquy) (emphasis added). Dr. Erdem could have
chosen to stop there, but he elected to keep digging, seeking to
justify his Bortz Survey endorsement:
Dr. Erdem: I am involved in projects and analyses that rely on
survey methodologies and survey data. I have a team that supports me
in those.
* * * * *
Judge Strickler: Before you gave your testimony in this case
about the Bortz Survey being an appropriate tool to measure relative
market value, did you consult with that survey team?
Dr. Erdem: I did, Your Honor. You may recall the name Hilary
Johnson, who is my director. She is a statistician by training. And
I also have a Ph.D. statistician who supported me in the 2010-'13
proceeding. He reviewed the materials. . . . I had conversations
with him about methodology. So I had a team that supported me in my
reports.
Judge Strickler: Well, I don't remember you saying anything in
your testimony that you relied on your survey team in any way.
Hilary Johnson's name I recall, [but] [s]he
[[Page 54216]]
didn't testify in her written testimony . . . about the survey at
all, did she?
* * * * *
Dr. Erdem: Correct.
Judge Strickler: Why didn't she give testimony that the Bortz
Survey was a good and proper way to estimate value if she's an
expert in this field and you're not?
Dr. Erdem: That's a good question.
Judge Strickler: That's why I asked it.
Dr. Erdem: [W]e didn't specifically focus on the methodology
aspects of Bortz Survey, you are correct in that.
Judge Strickler: Thank you, Doctor.
4/5/23 Tr. 3476-79 (colloquy) (emphasis added).
The foregoing rather remarkable testimony damaged Dr. Erdem's
credibility, suggesting he would be willing to testify regarding
matters as to which he lacked both expertise and knowledge. Moreover,
it is ironic that he would attempt to salvage his Bortz Survey opinion
by reference to his ``team'' of other professionals with the necessary
background to offer such an opinion, only to admit in short order under
questioning from the bench that they did not ``specifically focus on
the methodology aspects of the Bortz Survey.'' His testimony in this
regard is rich with irony because Dr. Erdem is the witness who has most
forcefully attacked Dr. (John) Johnson of PTV for delegating work to
his team of professionals without personal involvement or knowledge of
the work of the team.
Thus, separate and apart from the enumerated points set forth above
that lead to the Judges' finding that Dr. Erdem's eight-model analysis
is insufficient to invalidate the use of fee-based regressions, his
foregoing survey-related testimony casts doubt as to his credibility.
In sum, the Judges find that Dr. Erdem's eight-model pedagogical
exercise is insufficient to discredit fee-based regressions as a form
of evidence on which the Judges may rely.
X. Sub-Category Values
JSC, through its statistical expert, Mr. Harvey, ran what he
described as ``validity tests'' that decomposed certain program
categories to isolate the coefficients attributable to the decomposed
elements. Specifically, he concentrated on (1) paid programming
(including ``infomercials'') within the Program Suppliers category and
(2) the rare NFL football games that appeared on distantly
retransmitted local stations (as opposed to being broadcast on network
or cable stations, which are noncompensable in these section 111
proceedings). Harvey WRT ]] 71-90.
With regard to paid programming, Mr. Harvey separated the paid
programming out of the Program Suppliers category and created a new
category for paid programming. Joint Sports Claimants' Post-Hearing
Brief in Support of Proposed Royalty Allocations at 32-33 (and
citations therein) (JSC PHB). Performing this task on the Johnson
Model, Mr. Harvey calculated that the coefficient for paid programming
is larger than the coefficients for the other Program Suppliers
content, PTV content, SDC content, and CCG content, and that, on
average, the Johnson regression would assign paid programming a share
of about 6.8% of the royalty pool per year. JSC PFF ] 176. For further
perspective, Mr. Harvey computed that this paid programming share is
greater than the share of royalties that the Johnson Model assigned to
the approximately 2,000 annual JSC games, and approximately three times
greater than all the 2015-2017 royalties for all JSC content. Id.
In response, Program Suppliers argues that Mr. Harvey failed to
properly place his findings within the context of the regression
approaches in these proceedings. Specifically, PTV's expert, Dr.
Johnson, testified that it was incorrect to decompose the entire
category of Program Suppliers' programming and focus on any one sub-
category, because the regressions offer ``average relative valuations''
for entire categories. More granularly, Program Suppliers take note of
the following testimony on this issue by PTV's expert, Dr. Johnson:
[I]t is an average relative valuation, so I don't think that's
an appropriate use of the model. But his theory is that paid-
programming has no value at all, but he didn't remove them from the
model. If he had simply removed the minutes that he thinks are
problematic, he would have found that the estimates really don't
change very much at all. So I just don't think that's a valid
critique.
3/21/23 Tr. 605 (Johnson).
As a second response, Program Suppliers assert that Mr. Harvey's
paid programming argument is ``cherry-picked,'' because he admitted to
running other ``validity tests whose subject matters and results he and
JSC did not produce in these proceedings.'' PS PFF ] 346 (and record
citations therein).
CCG, relying on the testimony of its economic expert, Dr. George,
also levied Program Suppliers' first criticism above, asserting that
Mr. Harvey's validity test on paid programming ignores the very purpose
of the fee-based regressions: to estimate the average relative values
of the six programming categories at issue. CCG PFF ] 148 (and record
citations therein). CCG adds, in this regard, that none of the economic
expert witnesses who proffered fee-based regressions in this proceeding
has maintained that it was the purpose or capacity of their models to
precisely estimate the relative value of sub-groups of programs. Id.
At the hearing, Dr. George provided further detail with regard to
this criticism:
So the paid programming is fixed hours at night. There's just
not independent variation with other Program Supplier category. So .
. . when [Mr. Harvey] breaks this up, he effectively forces one of
the coefficients to be negative because . . . you can't really
independently increase paid programming without decreasing the other
Program Suppliers' programming.
* * * * *
[T]he coefficients for claimant programming . . . reflect an
average. So right now the values per minute are telling us the
average of the different--like the diversity of this kind of
programming. So, Program Supplier programming has different sorts of
things. And so the value per minute is an average [a]nd we're
applying it to quantities. And so if I were to design a regression
that really wanted to get at the value of paid versus non-paid
programming, I could do that, but it would be a pretty different
model.
4/18/23 Tr. 5163, 5166-67 (George).
In their post-hearing filings, JSC responds by emphasizing more
narrowly that this ``validity'' test reveals the pitfall of the
regression models' use of retransmission decisions by minimum fee-
paying CSOs:
The failure of the regressions to accurately capture revealed
preferences from Minimum Fee CSOs is clearly demonstrated by Mr.
Harvey's validity tests, which reveal that the regressions would
attribute substantial value to programming with no value (i.e.,
infomercials) . . . .
JSC PHRB at 16-17 (and citations therein) (emphasis added).
With regard to the rare NFL game that appeared on a distantly
retransmitted station (as opposed to a broadcast or cable network), Mr.
Harvey performed an additional ``validity'' test. Specifically, he
separated NFL games from other JSC content, in order to ascertain
whether the regression models had the capacity to realistically
estimate the relative value of NFL programming. JSC PFF ] 180. Mr.
Harvey found that across the Johnson, George, and Tyler Models, the NFL
retransmissions had lower coefficients than other JSC programming (and
sometimes negative coefficients). JSC PFF ]] 181-85 (and record
citations therein). Based on these results, Mr. Harvey opined that
these regression models were unable to identify realistic values
because the high value of NFL games on television is common knowledge
and undisputed,
[[Page 54217]]
and should have been confirmed by this validity test. JSC PFF ] 180.
In response, Program Suppliers and Dr. Tyler first reiterate the
same points they made with regard to Mr. Harvey's ``validity test''
pertaining to paid programming, i.e., (1) that the regressions offer
average relative values across a category, (2) the program category is
too small to generate meaningful results, and (3) the test was
``cherry-picked'' out of a number of validity tests that Mr. Harvey
elected not to disclose. But Program Suppliers specifically hones in on
the second criticism above, that the program category is simply too
small. In this regard, Program Suppliers maintain:
During the 2014-17 time period, WNBC (one of the handful of
distant signals that Mr. Harvey chose to highlight) carried just one
compensable regular season NFL game, meaning that compensable
regular season NFL content accounted for less than one one-hundredth
of one percent of the content on that station.
PS PHB at 3 & 25 (citing to PS PFF ] 174 (and record citations
therein)). See also 3/29/23 Tr. 2062-64 (Harvey) (admitting to this
percentage calculation).
Regarding this NFL ``validity test,'' CCG made the same argument it
made in criticism of Mr. Harvey's ``validity test'' relating to paid
programming, described supra. In her oral testimony, Dr. George
elaborated more broadly regarding the attempt to decompose JSC
programming into the rarely retransmitted NFL games, stating that Dr.
Harvey failed to appreciate that because ``there's a fixed number of
regular season and post-season games in the NFL . . . we don't have
independent variation there [and] our 24 model isn't capable of [that]
separation . . . and it doesn't need to. 4/18/23 Tr. 5162 (George).
In his oral testimony, Dr. Johnson had a response to Mr. Harvey's
NFL de-composition of JSC programming that was consonant with the
former's response regarding the paid programming issue. Dr. Johnson
testified:
Mr. Harvey argues that he can change the model and try to
separate out NFL or playoffs. He says: Look, I get nonsensical
results. I get negative values for these things. The problem is . .
. he is trying to parse the regression so finely that he has got
less than .01 and .04 of the total minutes that are used in the
entire estimation. . . . The model wasn't intended to only estimate
isolated values for NFL and playoffs. It's an average relative
valuation for the claimants. It can do that well. And that's the
purpose of the model.
3/21/23 Tr. 605-06 (Johnson).\135\
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\135\ The Judges find no merit in the allegation that Mr. Harvey
may have ``cherry-picked'' which ``validity tests'' to produce. The
issue here is the importance, vel non, of his validity tests. In
that regard, the Judges find that the tests he discussed in his WRT,
including but not limited to the ones highlighted here, all suffer
from the problems inherent in de-composing the regression results.
Moreover, because Mr. Harvey is a JSC witness, it was incumbent upon
JSC to bear the burdens of production and persuasion regarding the
impact of these de-composed sub-categories on the regression
results, burdens which they have not satisfied.
---------------------------------------------------------------------------
The Judges find that Mr. Harvey's ``validity tests'' do not serve
to invalidate the usefulness and relevance of the regressions proffered
in this proceeding. There are several reasons for this finding.
First, the Judges agree with the criticisms that Mr. Harvey's
``validity tests'' fail to appreciate the fact that the regressions are
estimated average valuations. When an average is de-composed, looking
at any one element in the average fails to consider the average itself
and, depending on the question at hand, may offer an interpretation
that is off-point.\136\
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\136\ For example, consider the grade point average (GPA) of a
college student for a semester, where the student received 3 As in
English Literature, World History, and Economics, and one C in
biology. Assuming an A = 4.0 points and a C = 2.0 points, the
student has a GPA of 3.5. This is the relevant data point if one
wants to know generally whether the student is performing well. But
if the question is whether the student is showing an aptitude to
perform well in medical school, the de-composition is more
appropriate, because the 2.0 in biology is the more relevant data
point. Here, there is no reason why the paid programming or the NFL
data points should be separated out, when the purpose of the
regression is to obtain the average.
---------------------------------------------------------------------------
Second, if it in fact is the case that paid programming, by some
other metric, or by the use of common sense, can clearly be found to
have far less value than other program types, the fact that the
regression provides paid programming with value via the averaging
function of the regression does not mean that the Program Suppliers
category (where paid programming is situated) received an inflated
coefficient. In this regard, the Judges note Dr. Johnson's testimony,
cited above, in which he notes that Mr. Harvey did not even attempt to
show how, if at all, the coefficients in the regression would have
changed if he had simply removed the paid programming minutes from the
regression.\137\
---------------------------------------------------------------------------
\137\ It appears that there would be no change. A simple thought
experiment is instructive. Assume the Program Suppliers category
consists of two types of programs: (1) situation comedies and (2)
paid programming. For simplicity, assume equal subscriber minutes
for both categories and that each situation comedy has the same
value to a CSO as any other situation comedy, and each Paid
Programming segment has the same value as another such segment to a
CSO. Also assume a reality, such as Mr. Harvey has not unreasonably
posited, that all paid programming has zero value to a CSO.
Because the regression is constructed to correlate royalties
with minutes of programming, none of the minutes attributable to
paid programming would correlate with royalties because it is
assumed CSOs do not value paid programming. So, all the royalties
attributable to Program Suppliers would have been generated by the
situation comedies. However, the total subscriber minutes would
include both situation comedy and paid programming minutes, reducing
the per minute coefficient value (and diluting (by 50%) the value
generated by the situation comedies).
Consider some hypothetical numbers: Situation comedies and paid
programming each accounted for 262,800 minutes (50% of the 525,600
minutes in a year). The regression, de-composed, gives situation
comedies, hypothetically, a .0005 coefficient. But paid programming
gets a zero coefficient. The average coefficient across both
categories is .00025 which, when multiplied by the number of annual
programming minutes (as the regressions do) of 525,600, yields
131.4, and that is the figure that would be compared to the figure
similarly computed for the other claimant categories.
What if we excluded paid programming from the regression? There
would be 262,800 minutes of situation comedy programming, with a
coefficient value of .0005, as assumed. What would be the figure to
be used for allocation purposes? It would be 262,800 x .0005, which
also equals 131.4. Thus, there is no reason to assume zero-value
paid programming is inflating the value of the category in which it
is situated if the validity/reality assumption of zero value is
correct. (Economists will recognize this result as analogous to the
point made by Nobel laureate George Stigler in his explanation of
block-booking of movies by a studio to a theatre. See G. Stigler,
United States v. Loew's Inc.: A Note on Block-Booking, 1963 Sup. Ct.
Rev. 152 (1963)).
---------------------------------------------------------------------------
Third, Mr. Harvey indicates that the paid programming issue is a
factor (or perhaps more of a factor) as it pertains to minimum-fee-only
CSOs, as noted supra. But because the Judges are relying on the results
from the cohort of above-minimum-fee-only CSOs, Mr. Harvey's point in
this regard is of less importance.
Further, the program categories were configured by the parties.
Although the parties have raised the issue of whether the definitions
of the program categories should be changed, the categorizations in
this proceeding are the same as the parties have long utilized. The
Judges understand these program categories to have been designed to
reduce transaction costs, so that each sub-category, or each program,
does not make its own claim for royalties, rendering the process
prohibitively costly. (The bifurcation of the process into allocation
(formerly Phase I) and distribution (formerly Phase II) proceedings is
in furtherance of the reduction in transaction costs.) \138\
---------------------------------------------------------------------------
\138\ If paid programming indeed contributes little or nothing
in royalties, the Program Suppliers' representative may address that
in the distribution (Phase II) process, but that is of no moment in
this proceeding.
---------------------------------------------------------------------------
[[Page 54218]]
However, these tests do underscore the importance of integrating
the Bortz Survey as an approach to ascertaining relative marketplace
value. It may be the case that a small number of games has value,
outside of what is measured by the regression, in retaining
subscribers, a measure of value which might be captured by the Bortz
Survey, but not by the regressions.
More broadly, the question of the value of different sub-categories
of programming takes on salience when the issue is whether certain
types of programming have a relative marketplace value independent of
the number of minutes they contribute to the category in which they are
situated. And an entire category may have value not reflected in the
minutes of programming associated with that category and its
programming. That is, because these various categories and sub-
categories are bundled together in the local stations that are
distantly retransmitted, minutes alone may well not reflect the
relative values of key drivers of the decision of a CSO to retransmit a
station with a bundle of programming category content. For this reason,
the Judges are also utilizing the results of the Bortz Survey, which
reflect (albeit imperfectly) how CSOs value different types of
programming.
XI. Regression Decision
A. Regression Analyses
In the 2010-13 Determination, the Judges placed ``primary
reliance'' on a regression analysis \139\ to allocate royalty shares
among the six program categories. 2010-13 Determination at 3610. In
particular, they found a regression model presented by CTV's
econometric expert, Dr. Gregory Crawford, ``on balance . . . to be
highly useful in estimating relative values in this proceeding.'' Id.
at 3569. Accordingly, the Judges gave greater weight to regression
analysis than they had in prior proceedings, both in absolute terms and
relative to other evidence and approaches, such as surveys and
descriptive industry witness testimony. An important reason for the
Judges' increased reliance on regression analysis was that this
methodology approached the relative marketplace value from the
perspective of what CSOs actually had done in terms of deciding which
distant signals to retransmit on their systems.'' Id. at 3610 (emphasis
in original).
---------------------------------------------------------------------------
\139\ For an overview of the general concept of regressions, see
2010-13 Determination at 3556.
---------------------------------------------------------------------------
The general form of this regression model is identified,
alternatively, as a ``fee-based'' regression, a ``Waldfogel-style''
regression, and, subsequent to the 2010-13 proceeding, a ``Crawford-
style'' regression.\140\ At a high level, a fee-based regression is
characterized by the following elements:
---------------------------------------------------------------------------
\140\ The Judges use these monikers interchangeably in this
determination.
1. It attempts to correlate variation in the program category
composition of distant signal bundles with the royalties paid by
CSOs to estimate the relative marketplace value of programming;
2. It regresses observed royalty payments for the bundle on the
numbers of minutes in each programming category; and
3. It may employ econometric controls in the form of ``control
variables'' and ``fixed effects'' in order to isolate the
correlation between the dependent variable (some measure of
royalties) and the independent (explanatory) variable of interest
(the number of programming minutes) from the controlled other
drivers of CSO payments.
See 2010-13 Determination at 3557 (record citations omitted).
In proceedings prior to the 2010-13 Determination, the Judges (and
their predecessors) relied on fee-based regressions but did not place a
primary weight on this approach. In the allocation proceeding for 1998-
99 royalties, a Copyright Arbitration Royalty Panel (CARP) relied on
such a regression model put forth by an economist, Dr. Gregory Rosston,
not as a primary allocation measure, but rather as corroboration of the
allocation shares generated by the Bortz survey. See 1998-99 CARP
Report at 46. Subsequently, in the allocation proceeding for 2004-05
royalties, the Judges relied on the fee-based regression model advanced
by Dr. Joel Waldfogel (the now eponymous ``Waldfogel-regression'') as
``generally reasonable'' and thus ``helpful to some degree'' because it
``more fully delineat[es] all of the boundaries of reasonableness with
respect to the relative value of distant signal programming'' and
``provid[es] some additional useful, independent information about how
cable operators may view the value of adding distant signals based on
the programming mix on such signals.'' 2004-05 Distribution Order at
57063, 57068. Accordingly, the Judges found, as did their predecessors
in the 2004-05 proceeding, that the fee-based regression approach
served to ``corroborate'' some aspects of the Bortz survey and that it
also served ``to provide an independent reasoned basis'' for departing
in one respect from the Bortz methodology. Id. at 57069.
Chronologically, the 2010-13 Determination was the next allocation
decision to consider the evidentiary weight to be given to a fee-based
regression. In that case, the Judges elevated the regression
methodology, namely the model proffered by Dr. Gregory Crawford (the
Crawford Model), to a primary body of evidence in terms of explanatory
power. The Judges noted that the Crawford Model, like the Rosston and
Waldfogel regressions that preceded it, contained a useful
differentiating feature: In contrast with the survey approach,
regression modeling ``analyzed value from the perspective of what CSOs
actually had done in terms of deciding which distant signals to
retransmit on their systems.'' 2010-13 Determination at 3610.\141\ But
why did the Judges elevate the fee-based regression approach from the
junior status of corroborative tool to a position of evidentiary
primacy?
---------------------------------------------------------------------------
\141\ By contrast, the survey approach, as in the Bortz Survey
proffered in this proceeding, asked each CSO-employed survey
respondent, for a given year: ``What percentage, if any, of [a]
fixed dollar amount would your system have spent for each category
or programming?'' Bortz Survey, app. B, attached to Trautman WDT
(emphasis added).
---------------------------------------------------------------------------
The answer mainly lies in the improved way in which the Crawford
Model was constructed. Explaining this answer requires the Judges to
present a brief tutorial on regressions, based upon the testimony of
the econometricians in this proceeding, the textbooks they cited, and
the background information set forth in the 2010-13 Determination.
Regression analysis is a ``method of determining the relationship
between two or more variables, and it can be a valuable tool for
resolving factual disputes.'' 2010-13 Determination at 3556 (citation
omitted). When a regression attempts to identify the correlation
between a ``dependent variable'' \142\ and more than one ``independent
variable,'' \143\ the approach is known as a ``multiple regression
analysis.'' \144\ This is the technique that was employed by Dr.
Crawford (and Dr. George) in the 2010-13 proceeding and in the present
proceeding by Drs. George, Johnson and Tyler.\145\ Multiple regression
``is the technique used in most econometric
[[Page 54219]]
studies, because it is well-suited to the analysis of diverse data
necessary to evaluate competing theories about the relationships that
may exist among a number of explanatory facts.'' 2010-13 Determination
at 3556 (citing ABA Econometrics, supra note 127, at 4). The basic
notation for a multiple regression would be, for example:
---------------------------------------------------------------------------
\142\ Typically, the dependent variable has been a functional
form of royalties, see 2010-13 Determination at 3557 n.27, but in
this proceeding, Dr. Tyler specifies a different dependent variable,
the SGRP.
\143\ An ``independent variable'' serves to explain the
dependent variable and is therefore also described as an
``explanatory'' variable. 2010-13 Determination at 3567.
\144\ Multiple regression analysis ``is the technique used in
most econometric studies, because it is well suited to the analysis
of diverse data necessary to evaluate competing theories about the
relationships that may exist among a number of explanatory facts.''
2010-13 Determination at 3556 (citing ABA Econometrics, supra note
127, at 4).
\145\ Dr. Marx utilized a Bayesian regression (described in
detail infra) for 2014 that builds upon the multiple regression work
done by Dr. Crawford for 2013.
---------------------------------------------------------------------------
Y = a + bX + cZ + u
where
Y is the dependent variable
X is an independent (explanatory) variable
Z is a different independent (explanatory) variable
a is the intercept with the vertical axis (on a graphed regression)
b is the coefficient (value) of X
c is the coefficient (value) of Z
u is the error term, a/k/a the ``regression residual'' (reflecting
unobserved factors that determine Y)
See 2010-13 Determination at 3556 n.23; Stock & Watson, supra note 92,
at 158-59. If econometricians are specifically interested in the impact
of, say, independent (explanatory) variable X on dependent variable Y,
they will hold constant the effect of any other independent
(explanatory) variable, such as Z in the above example, which
reclassifies Z as a ``control variable.'' \146\
---------------------------------------------------------------------------
\146\ For the definition of a ``control variable'' see 2010-13
Determination at 3558 n.33.
---------------------------------------------------------------------------
Because of changes in generated data as a result of statutory
changes that occurred subsequent to the determination covering the
2004-05 royalty years, Dr. Crawford was able to construct a fee-based
regression with more granular detail. The Judges explained this change
in data generation in their 2010-13 Determination:
Between the time of the last adjudicated cable royalty
allocation proceeding and the present [2010-13] proceeding, Congress
passed the Satellite Television and Localism Act of 2010 (STELA).
Before STELA, cable operators were required to pay for the carriage
of distant signals on a system-wide basis, even though each signal
was not made available to every subscriber in the cable system. . .
. STELA . . . amend[ed] section 111(d)(1) of the Copyright Act,
which details the method by which cable operators can calculate
royalties on a community-by-community or subscriber-group basis. Id.
From the 2010/1 accounting period and all periods thereafter, cable
operators have been required to pay royalties based upon where a
distant broadcast signal is offered rather than on a system-wide
basis.
2010-13 Determination at 3554 (emphasis added).
This statutory change permitted the participants in these section
111 allocation proceedings to analyze relative value at the subscriber-
group level. 2010-13 Determination at 3554 (citing Corrected Written
Direct Testimony of Gregory Crawford, Ex. 2004 (Crawford CWDT) ] 66).
More particularly, Dr. Crawford's regression ``looked for a correlation
in a subscriber group between changes in the number of minutes of
programming the subscribers watched by categories and changes in the
percentage of royalties the subscriber group paid while holding
constant other potential explanatory variables (called control
variables).'' 2010-13 Determination at 3558. As Dr. George succinctly
explained in her testimony in the present proceeding, ``[w]ith [Dr.]
Crawford's specification, coefficients are identified using only
variation within systems in each accounting period.'' George WDT at 9
(emphasis added).
Dr. Crawford's approach thus required the existence of at least two
subscriber groups in a cable system in order for the retransmission
(and thus the programming) decisions of a cable systems operator (CSO)
to be used in the regression. The purpose of so limiting the regression
was to focus on the relationship at interest in the regression, which
is the association between the minutes of per-category programming
retransmitted and the CSO's royalties calculated at the subscriber
group level. However, by so doing, the Crawford Model reduced the
number of observations that it could utilize. In the 2010-13
proceeding, the Crawford model was criticized by the SDC and one of its
experts, who argued that his regression approach was ``compromised'' by
this limitation, which `` `effectively discarded' approximately 15% of
his observations by disregarding observations from systems with a
single subscriber group . . . `approximately half of all systems in his
data set' . . . .'' 2010-13 Determination at 3566 (citations omitted).
But what the SDC saw as vice, Dr. Crawford (and ultimately, the
Judges) understood as virtue. That is, Dr. Crawford included this
combined control limiting the observations to intra-cable system
subscriber group variations in a particular six-month accounting period
in his regression to avoid introducing (i.e., to control for) effects
on royalties of different business strategies among CSOs (``system''
effects) and different economic conditions over time (``accounting
period'' effects). In a regression, these two joint interactive
controls are examples of a particular form of control known as a
``fixed effect.'' \147\
---------------------------------------------------------------------------
\147\ For the definition of ``fixed effects,'' see 2010-13
Determination at 3563 n.52. Graphically, the inclusion of ``fixed
effects'' generates different intercepts, such that ``a'' in the
example supra would have a different value for each ``fixed
effect.'' (Econometricians sometimes describe ``fixed effects'' as a
type of ``control variable,'' but they are more often specifically
characterized as ``indicator'' or ``dummy'' variables. See 2010-13
Determination at 3562 n.45.
---------------------------------------------------------------------------
Additionally, while his regression was a work in process, Dr.
Crawford added another fixed effect for the ``top-six'' MSOs \148\ for
similar reasons, i.e., to control for their variable ``average receipts
. . . signal carriage strategies, pricing, and other relevant
dimensions.'' 2010-13 Determination at 3567 (record citations omitted).
---------------------------------------------------------------------------
\148\ ``MSO'' is an acronym for a ``multi-system operator,'' for
example Verizon, 3/21/23 Tr. 347 (Johnson), and refers to ``an
operator of multiple cable or direct-broadcast satellite television
systems [and is] usually reserved for companies that own multiple
cable systems, such as Altice USA, Charter Communications, Comcast
and Cox Communications . . . .'' List of Multiple-System Operators,
Wikipedia, https://en.wikipedia.org/wiki/List_of_multiple-system
operators (last visited Aug. 10, 2023).
---------------------------------------------------------------------------
More broadly, Dr. Crawford explained that his fee-based regression
was intended to explain the association between program category
minutes and royalties paid. To that end, it was necessary to control
for other factors, specifically including ``the numbers of local and
distant stations, the number of activated cable channels, and the size
of the CSO.'' 2010-13 Determination at 3558 (record citations omitted).
These were in addition to other independent variables that Dr.
Waldfogel identified as ``control variables'', including ``the number
of subscribers, local median income, and the number of local
channels.'' 2010-13 Determination at 3557.
In the present proceeding, Dr. George has well stated the role of
control variables in multiple regressions relied upon by Dr. Crawford
and by experts in the present proceeding:
The purpose of control variables is to account for factors other
than coefficients of interest that might affect the dependent
variable. In the case at hand, control variables are chosen to
account for market factors other than distant signal programming
minutes that might affect royalty payments. Of particular concern
are factors that affect demand for cable services, which in turn can
affect the number of subscribers, system revenue, and royalty
payments. Failing to control for factors that shift demand and are
correlated with programming minutes can lead to bias in the . . .
coefficients that are of primary interest. Income, the number of
local stations and (lagged) number of activated channels are all
factors that might affect the number of subscribers or revenue so
are included as controls.
George WDT at 52. Indeed, as the Judges explained in the 2010-13
[[Page 54220]]
Determination, Dr. Crawford's approach was designed so as to accept
some loss of precision (i.e., a greater variance and larger standard
errors) in exchange for less bias (by excluding other independent
variables). This tradeoff is an inevitable problem for an
econometrician, and how an econometrician balances these impacts is
just as much an art as it is a science. 2010-13 Determination at 3565 &
n.59. The Judges noted though, that the tradeoff was moderated because
Dr. Crawford ``used the universe of all programming on all distant
signals, rather than a sampling'' which created a ``rich data set''
that served to ``mitigate'' the impact of his fixed effects ``so that
his parameters remained relatively precise.'' 2010-13 Determination at
3569.
Accordingly, in the 2010-13 Determination, the Judges essentially
agreed with Dr. Crawford's modeling decision to include his fixed
effects, because he threaded the needle, minimizing bias while
maintaining a sufficiently precise relationship between per-category
programming minutes and royalties generated. Indeed, a key reason the
Judges elevated the Crawford Model to primary evidentiary status was
that ``his use of a fixed effects approach avoided the criticism that
he had omitted key variables.'' 2010-13 Determination at 3569 (citing
Crawford CWDT ] 107; 2/28/18 Tr. 1398 (Crawford)) (emphasis added).
According to all the experts utilizing fee-based regressions, in
whole or in part, this econometric virtue extended through 2014. But in
2015, a commercial earthquake struck the retransmission market: WGNA,
by far the most distantly retransmitted channel, converted from a
broadcast station into a cable channel. See, e.g., Majure WDT ] 75 (JSC
expert witness noting that ``[t]he removal of the widely carried WGNA
materially changed the manner in which CSOs used the section 111
license.''). This metamorphosis had several dramatic effects, one of
which was the diminished evidentiary value of Dr. Crawford's new
approach of limiting the observations to subscriber group variations
within a cable system (accomplished by imposing his systems-accounting
period fixed effects.) \149\
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\149\ The WGNA conversion also (1) substantially reduced the
number of CSOs paying the base fee (and concomitantly increased the
converse, the number of CSOs paying only the minimum fee) and (2)
drastically reduced the number of JSC subscriber-minutes distantly
retransmitted.
---------------------------------------------------------------------------
After the WGNA conversion, commencing in 2015, the number of cable
systems with more than one subscriber group declined significantly.
Moreover, what had been a robust source of data for analysis of
variation of distantly retransmitted program categories among the local
channels distantly retransmitted by CSOs had shrunk. To address the
loss of this robust set of data, the fee-based regression experts in
the present proceeding each constructed a model that, although premised
on the Crawford Model, sought a work-around for this significant
change.
Dr. Johnson addressed the problem by eliminating all fixed effects
from his preferred model, i.e., the ``baseline'' model presented in his
WDT. In doing so, the Johnson Model was able to generate observable
data points that showed programming variations not just among
subscriber groups within a cable system in a specific accounting period
(as the Crawford Model had done), but also program variations among
subscriber groups across systems and across (not within) the six-month
accounting periods in the SOAs.
Curiously, Dr. Johnson's justification for this change was that it
allowed for an increase in the number of observations for his
regression, thus addressing what he understood to be a key concern of
the Judges in the 2010-13 Determination. Compare Johnson WDT ] 59
(``Professor Crawford's model was criticized because it `effectively
discarded' approximately 15% of his observations . . . which totaled
approximately half of all systems in his data set'') with id. at ] 62
(touting his model for containing ``18,000 subscriber group-level
observations'').
The Judges in that proceeding did not find the level of number of
Dr. Crawford's observations to be a debilitating problem, declining to
find that the Crawford Model was overfit. Rather, the Judges instead
found that Dr. Crawford's balancing of a minimization of explanatory
bias with an acceptable loss of measurement precision was appropriate
to the task the regression was seeking to measure, i.e., the
correlation between program category minutes and the log of royalties
paid. In so finding, the Judges had acknowledged the value of the fixed
effects (and the control variables) in his model in allowing for the
isolation of the correlation. 2010-13 Determination at 3569.
Accordingly, Dr. Johnson's claimed justification for eliminating
all of these important fixed effects rings hollow. Moreover, their
absence from his model increased the bias in his measurements, which
meant that the correlation was subject to mismeasurement. More
particularly, the bias in question is what econometricians and
statisticians in general refer to as ``omitted variable bias.'' Here,
the ``omitted variables'' are the ones that the Crawford Model had
accounted for with its fixed effects, but which Dr. Johnson injects
into his model by eliminating the fixed effects. Accordingly, by this
change, the Johnson Model became less probative of the claimed
correlation between program category minutes and royalties, and for
that reason alone the Judges place less weight on the Johnson Model in
this proceeding than they did on the Crawford Model in the 2010-13
Determination.
Dr. George, unlike Dr. Johnson, did not eliminate all fixed
effects. Rather, as discussed supra, she eliminated some, retained and/
or modified others, and included new fixed effects. Most importantly,
the George Model modified Dr. Crawford's ``systems-accounting period
fixed effects.'' Whereas the Crawford Model limited the observed data
points to differences among subscriber groups within a cable system
during an accounting period, Dr. George relaxed that fixed effect.
Specifically, she only limited the number of observed data points by
separately fixing the effect at the ``systems'' level and at the
``accounting period'' levels. So, for example, if there were two
subscriber groups in the Verizon Buffalo cable system, the Crawford
Model would only observe the variations between them in a given (six-
month) accounting period. By contrast, the George Model would: (1)
observe variations between those two subscriber groups in the given
(six-month) accounting period; and also (2) beyond the (six month)
accounting period. Thus, Dr. George maintained a fixed effect that
still controlled for the difference in CSO business practices and a
fixed effect control for changes over time (the ``accounting period''
control), but, unlike Dr. Crawford, she did not combine the two fixed
effects.
Alternately stated, Dr. George sought to address the loss of
observable data points caused by the 2015 WGNA conversion by making a
different tradeoff in the inevitable bias/variance dilemma faced by the
econometrician in this context. She opted for somewhat more bias,
accepting somewhat less precision, in order to generate what she
understood to be a useful number of observations for her regression to
analyze.
Although Dr. George makes a less draconian change from the Crawford
Model than the Johnson Model does in this regard, she nonetheless
introduces ``omitted variable bias'' into her regression. That is, by
allowing variations over time (within a cable system) to impact the
correlation, the
[[Page 54221]]
George Model treats temporal changes as reflective of a correlation
between program category choices and royalties.\150\ In sum, the George
Model introduces omitted variable bias that was absent from the
Crawford Model, but to a lesser degree than the Johnson Model.
Accordingly, ceteris paribus, the Judges give more evidentiary weight
to the George Model than to the Johnson Model.
---------------------------------------------------------------------------
\150\ This bias is particularly pertinent vis-[agrave]-vis the
cleave between 2014 and the 2015-2017 period, given the WGNA
conversion that shook the distantly retransmitted sector. Moreover,
Dr. George (like Dr. Johnson) ``pooled'' her data and applied it to
generate one set of coefficients spanning the entire four-year
(2014-17) period. By relaxing the fixed effects to obscure the
impact of changes over time, the George Model failed to
appropriately address the WGNA-conversion effect.
---------------------------------------------------------------------------
By contrast, Dr. Tyler's approach circumvents this fixed effects
dilemma. As explained supra, the Tyler Model does not use royalties
(linear or log form) as the dependent variable. Rather, the Tyler Model
uses the SGRP as the dependent variable. Recall that the SGRP is a
fraction: the dollar amount of base fee royalties calculated by a
subscriber group divided by the SG's gross receipts. The Tyler Model
then looks at the variability in this SGRP across all cable systems.
So, what happens to the effects arising from different CSOs (the
``systems'' effects) and the changes over time (the ``accounting
period'' effect) for which Drs. Crawford and George (but not Dr.
Johnson) sought to control with ``fixed effects''? As Dr. Tyler
explains, the system and temporal (``accounting period''), indeed,
essentially all fixed effects, are rendered inapplicable when the
dependent variable is the SGRP, rather than a form of royalties:
The Crawford Model used fixed effects. The inclusion of fixed
effects would make sense if the SGRPs varied across CSOs due to
unobserved factors in the marketplace (other than and apart from
choices related to stations, and the minutes in those stations). If
that were the case, the use of . . . fixed effects would focus the
model on the economic decision-making by a CSO for an accounting
period across subscriber groups, having controlled for these
unobserved factors.
However, my model . . . instead . . . us[es] SGRP for the
dependent variable. The SGRPs for each subscriber group are
specified by statute (following the carriage decisions made by
CSOs)--an industry characteristic that greatly reduces (and possibly
eliminates) concerns over unobserved factors that might impact
SGRPs.
Tyler ACWDT ] 87 n.71. Program Suppliers added an equivalent
explanation of this point in their post-hearing briefing:
Substantial irrelevant variability exists across the royalty
amounts calculated for each subscriber group. For example, greater
royalty amounts might be determined for a subscriber group for no
other reason than one subscriber group has more subscribers or
higher prices, or both, than another subscriber group. PFF ]] 290,
351. And those prices may vary based on factors like cable networks
carried, customer service, bundling with internet and phone, or
other factors unrelated to distant signal carriage. PFF ] 290. A
regression model using royalty amounts calculated as the dependent
variable must control for these sources of variability in an attempt
to isolate the incremental value of minutes by category type. PFF ]
290. Unlike royalty dollar amounts, SGRP does not vary across CSOs
due to unobserved factors in the marketplace--other than from
choices related to distant signals. Thus, because the Tyler Model
uses the more targeted SGRP, and not royalties, the Tyler Model can
more precisely measure the incremental value of various types of
minutes within each year. PFF ]] 291-92. With less irrelevant
variability to explain in the dependent variable, the Tyler Model
can focus on the relationships at issue in a way that other models,
which use royalties as the dependent variable, cannot. PFF ]] 291-
92. Furthermore, because SGRP does not vary for reasons unrelated to
distant signal carriage, fixed effects (meant to control for
unobserved sources of irrelevant variability) are not necessary. PFF
] 292.
PS PHB at 38.
Thus, the Judges understand that other demand effects (such as the
impact on demand from differences in, e.g., service quality, pricing,
etc.) impact the gross receipts, not the royalty decisions.\151\ The
Judges further note that--although other parties and their experts
criticize the Tyler Model for not including fixed effects and note how
shares would change in fixed effects were added--none of the partis or
experts addresses Dr. Tyler's point, discussed supra, that when the
dependent variable is the SGRP rather than a form of royalties, fixed
effects are unnecessary because there is no variable omitted that will
impact the dependent variable.
---------------------------------------------------------------------------
\151\ Critics of the Tyler Model maintain that by avoiding the
fixed effects problem in this manner, the Tyler Model throws out the
baby with the bathwater, in that it fails to correlate the royalties
paid with the discrete categories of program minutes, which is the
entire point of the exercise. That is, the Tyler Model allegedly
fails to uncover the variation in royalties associated with
different categories of programming minutes. (And, as some
econometric critics of the Tyler Model have testified, it merely
``reproduces the statutory formula.''). As explained infra, the
Tyler Model, like the other regression approaches, multiplies its
derived coefficients by the number of program minutes associated
with each of the six program categories, generating allocation
shares on a per-program category basis.
---------------------------------------------------------------------------
Another way to understand the evidentiary problem caused by
eliminating or relaxing the fixed effects (as in the Johnson and George
Models (but not the Tyler Model)) is to consider a crucial point made
in the 2010-13 Determination and again in this proceeding--the
difference between an ``explanatory'' regression and a ``prediction''
regression. In this regard, the Judges stated in the 2010-13
Determination:
The Waldfogel-type regression is an example of modeling utilized
to explain the effects of different program categories on the
relative payment of royalties--rather than an attempt to predict the
level of royalties. Thus, . . . the choice of variables can
reasonably be based on the ``underlying theoretical model.'' [G.
Shmueli, To Explain or to Predict?, 25 Statistical Science 289, 290-
91, 297 (2010)]; see also F.M. Fisher, Econometricians and Adversary
Proceedings, 81 J. Am. Stat. Ass'n 277, 279 (1986) (``There is a
natural view that models are supposed to do nothing other than
predict . . .'' resulting in the ``danger'' of ignoring ``better
models that do not fit or predict quite so well but are in fact
informative about the phenomena being investigated.'') (emphasis
added).
2010-13 Determination at 3564. As in that prior proceeding, the purpose
of the fee-based regressions is to ``explain'' the posited correlation
between distantly retransmitted program minutes and royalties. It is
unsurprising that other variables may be more useful as ``predictors''
of royalties, but that is quite another matter. In this regard, in the
2010 Determination the Judges approvingly cited the following testimony
by Dr. Crawford:
Dr. Erdem misunderstands the purpose of an econometric analysis
in this proceeding . . . . For the goal of prediction, the focus is
on finding the explanatory variables that best predict the outcome
of interest . . . . [I]f the goal is to predict stock prices[,] and
the price of tea in China helps, then . . . include it in the model
(and don't worry about the economic interpretation of its
coefficient).
That is not the purpose in this proceeding, however. In this
proceeding, experts are using econometric analyses to help the
Judges determine . . . relative marketplace value . . . . The
dependent variable in these regressions, the royalties cable
operators pay for the carriage of the distant signals, are
informative of this relationship . . . . The key explanatory
variables in this relationship, the minutes of programming of the
various types carried on distant signals, are informative as the
impact they have on royalties reveals the relative market value of
each programming type. Other explanatory variables are included in
the model to control for other possible determinants of cable
operator royalties. This helps improve the statistical fit of the
regression (to ``reduce its noise''), providing more precise
estimates of the impact of programming minutes that are the focus of
the analysis. . .
The goal here is to find the econometric model that can best
reveal relative
[[Page 54222]]
marketplace value. Doing so means crafting the econometric model to
reflect the institutional and economic features of the environment
that is generating the data being used . . . . Crawford WRT ]] 91-94
(footnotes omitted) (emphasis added).
2010-13 Determination at 3564. No critic of the regression approach has
persuasively addressed this finding in the 2010-13 Determination that
relies on the distinction between a regression designed for
``prediction'' and a regression designed to measure the ``effect'' of a
variable of interest, has persuasively addressed this finding in the
2010-13 Determination that relies on the distinction between a
regression designed for ``prediction'' and a regression designed to
measure the ``effect'' of a variable of interest,
Consistent with this testimony, the Judges held that it is not
their ``statutory task . . . to identify and rank all the causes of a
change in total royalties.'' Rather, the Judges' ``legal, regulatory,
and economic task . . . is to determine the relative market value of
different categories of programming,'' and thus correlations between
royalties and other independent variables, for example, between
royalties and the number of subscribers, ``is not in furtherance of
that objective.'' 2010-13 Determination at 3564.
The WGNA conversion not only reduced the number of subscriber
groups, as discussed supra, but also significantly reduced the number
of CSOs that actually paid the base fee, as opposed to the minimum fee.
A number of experts captured this undisputed effect, and Dr. Marx's
testimony below in this regard is clear and illustrative:
For necessary context, it is instructive at the outset of this
section to consider how the minimum fee issue was addressed in the
2010-13 Determination. There, the Judges found as follows:
1. ``[A] CSO's decision to distantly retransmit any particular
station, when that CSO is otherwise obligated to pay the minimum
royalty fee, does not indicate a direct correlation between the
decision to retransmit and the decision to incur a royalty
obligation.'' 2010-13 Determination at 3568.
2. ``[D]uring the 2010-2013 period, on average 527 out of the
1,004 Form 3 CSOs analyzed (52.5%) chose to retransmit the exact or
fewer number of signals than the regulated fees permitted [and] 83
paid the minimum fee yet elected not to retransmit any local
stations. . . . Those decisions reveal that the CSO has concluded
(whether by analysis or resort to a heuristic) that any of the
marginal costs (physical or opportunity) associated with
retransmission likely exceed the value to the CSO of such
retransmission, even accounting for minimum royalties, which the CSO
must pay in any event.'' 2010-13 Determination at 3568.
3. ``Although there is no marginal royalty cost associated with
th[e] decision [to retransmit stations when . . . obligated to pay
only the minimum royalty], the CSO's decision as to which stations
to retransmit remains a function of choice, preference, and ranking.
Thus, the CSO in this context would still have the incentive to
select distant local stations for retransmission that are more
likely to maximize CSO profits, through either an increase in
subscribership or, as Ms. Hamilton emphasized, by avoiding the loss
of subscribers through the preservation of `legacy carriage' through
the non-analytical heuristic of maintaining the status quo.'' 2010-
13 Determination at 3569.
4. ``There are substantial economic bases for this finding.
Because the `tax' of the minimum fee is paid regardless of whether
distant retransmission occurs, that `tax' is also in the nature of a
sunk cost. Fundamental economic analysis provides that a seller
should ignore sunk costs when making marginal decisions (although
they should try to recoup these costs if the buyers' willingness-to-
pay allows it). Nonetheless, a CSO that decides to distantly
retransmit a station when the marginal royalty cost is zero has
revealed that the particular station contains programming that would
increase marginal value to that CSO, over and above the next best
alternative `retransmittable' local station and above any other
marginal costs (e.g., physical retransmission costs or the
opportunity cost of foregoing a different type of cable channel in
the CSO's channel lineup).'' 2010-13 Determination at 3569.
5. ``CSOs that pay only the minimum royalty fee and elect to
distantly retransmit one station might have elected to pay a
positive fee in the absence of the minimum fee. For example,
assuming Program Suppliers' programs were more valuable to a CSO
than the minimum fee and disproportionately more valuable than any
other program category, that CSO would have retransmitted a station
that disproportionately included Program Supplier content and
willingly paid the minimum fee (or more).'' 2010-13 Determination at
3659.
6. ''[A]n analysis of the CSOs paying only the minimum fee might
provide some useful information. However, . . . the record does not
provide an adequate basis to incorporate any ``relative value''
differences based on a distinction between CSOs that do and do not
pay only the minimum fee.'' 2010-13 Determination at 3582. See also
id. at 3575 (``[T]he Judges find no basis in the record by which
they could or should make a reasonable `relative value' adjustment
based on whether a CSO did or did not pay only the minimum fee.'').
7. ``[T]he data regarding the carriage decisions of CSOs who pay
only the minimum fee should not be disregarded [because] even when a
CSO is obligated to pay the minimum royalty fee, it still has the
incentive to select stations for distant retransmission that it
believes will maximize the benefits (or, in economic terms, utility)
to the CSO. However, because carriage decisions are not tied even
indirectly to a contemporaneous discretionary decision to pay
royalties (beyond the mandatory minimum 1.064% for the first DSE),
they strike the Judges as potentially less informative than
discretionary decisions by CSOs to incur an additional royalty
expense in order to distantly retransmit particular stations.''
2010-13 Determination at 3575.
The Judges consider these minimum-fee-related points in the context
of the present factual record, which reveals a dramatically different
retransmittal landscape for the final three years of the period at
issue, 2015 through 2017.\152\
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\152\ The Judges discuss the minimum fee issues separately and
in depth elsewhere in this determination.
---------------------------------------------------------------------------
There is a sub-group within the minimum-fee-only CSOs that decided
not to distantly retransmit any local signals despite their duty to pay
the minimum fee. Exactly what this decision indicates as to their
revealed preferences is unclear from the record. One industry witness
suggests that some or all of these CSOs had alternative uses for their
bandwidth, for, e.g., other cable programming or internet traffic.
Written Rebuttal Testimony of Lynne Costantini, Trial Ex. 7304, at 4-5
(Costantini WRT); 3/27/23 Tr. 1597-1605 (Costantini). But several other
witnesses testified that bandwidth concerns no longer existed in the
2014-2017 period, because cable television had converted from analog to
digital signals. Written Direct Testimony of Allan Singer, Trial Ex.
7108, ] 15 n.1 (Singer WDT); Written Rebuttal Testimony of Allan
Singer, Trial Ex. 7109, ] 8 n.1; (Singer WRT); 4/3/23 Tr. 2764-65
(Singer); Written Rebuttal Testimony of Melinda Witmer, Trial Ex. 7115,
] 13 n.3 (Witmer WRT); 4/10/23 Tr. 4069-70 (Witmer).
Other evidence indicated that CSOs that previously retransmitted
WGNA until its conversion to a cable channel simply found no other
value in alternative out-of-market local channel programming
sufficiently attractive to existing or potential new subscribers that
was worth retransmitting. Of course, this argument raises its own
questions, because, given that the marginal royalty cost is zero, the
presumption of economic rationality strongly suggests that, ceteris
paribus, these CSOs would have distantly retransmitted some out-of-
market local channels' programming.\153\ But the reasonable presumption
of economic rationality requires the presumption that these CSOs were
incentivized not to distantly retransmit additional stations.
[[Page 54223]]
One logical reason would be that they saw no value at all in
retransmitting those stations and programming, such that any
organizational effort in that regard would be a soft cost sufficient to
preclude such transmissions. In this regard, the Judges again take note
of Ms. Hamilton's designated testimony, in which she emphasized the de
minimis nature of the revenues at issue with regard to these potential
retransmissions.\154\
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\153\ This point also applies to CSOs that distantly
retransmitted some local stations, but had excess capacity, i.e.,
the capacity to distantly retransmit more of these stations and
still not pay more than the minimum fee.
\154\ Ms. Hamilton's point would tend to explain more than why
some CSOs do not retransmit any signals. It may explain, for
example, why Bortz Survey respondents have a myriad of job titles,
and why the respondents are not consistently the same from year-to-
year (i.e., that no one is really dedicated to this function). Her
point would also seem to explain why the CSO decisions from 2010-13
and from 2014 were so consistent: because concomitant with Ms.
Hamilton's de minimis argument is her point that the CSOs focused on
preserving existing subscribers whose subscription decisions might
turn on the continued presence of niche programming from distantly
retransmitted stations. Indeed, Ms. Hamilton seems to have been
prescient: After 2014, the abandonment of all distant
retransmissions by CSOs that had only distantly retransmitted WGNA
is consistent with her emphasis on legacy carriage. (That is,
viewers who had valued WGNA enough to subscribe to a CSO on that
basis were no longer legacy viewers who could be retained once WGNA
converted.)
The Judges are also struck by the absence of evidence that would
be compelling, to wit, the absence of evidence that any CSO has
marketed its service to any subscribers who might be induced to
remain or become subscribers based on the program offerings by out-
of-market stations they distantly retransmit. The Judges decline to
take administrative notice that CSOs (or their subscribers) actually
contemplate these offerings when considering subscription decisions;
in fact, the Judges' own ``reality filter'' would suggest that the
opposite presumption would be more realistic.
---------------------------------------------------------------------------
But the foregoing points hardly end this analysis. When CSOs have
``excess-capacity'' to retransmit signals/programming at zero marginal
royalty cost, or when a CSO has declined to exercise its section 111
``privilege'' to retransmit any signals or programming, they have
differentiated themselves from above-minimum-fee-paying CSOs in a
manner that is of both significant economic and of evidentiary
importance. The minimum-fee-paying CSOs have revealed a marginal
willingness-to-pay of zero for the distant retransmittal of local
broadcast stations. The several parties and their economic experts
opposing the regression approach in this proceeding make a reasonable
objection that it is improper to treat the calculated-but-unpaid base
fees of these CSOs as any evidence of the revealed preferences and
willingness-to-pay of a minimum-fee-only CSO. But, assuming, arguendo,
that this reasonable objection is entirely correct,\155\ what is the
appropriate way to consider the decisions of CSOs who do not reveal a
positive value for such distant retransmittals?
---------------------------------------------------------------------------
\155\ It is not entirely correct. As noted by Dr. Tyler,
discussed infra, the calculated-but-unpaid base fees of CSOs that
ultimately pay the minimum fee would have some probative weight as
those base fees approach the minimum fee, given the uncertainty, ex
ante royalty payment, as to whether the base fee or the minimum fee
would ultimately bind. However, the record does not provide the
Judges with disaggregated data sufficient to analyze the minimum-
fee-paying CSOs on this basis.
---------------------------------------------------------------------------
The Judges find that these CSO decisions can be construed in two
ways. First, they can be considered to reveal a zero value for these
retransmittals, given that the marginal royalty cost of retransmittal
is zero through a retransmittal of 1.0 DSE. And second, they could be
construed as simply not providing any useful data regarding the value
the CSOs assign to these retransmittals, because that value, although
perhaps positive, is still less than the (non-royalty) cost of
retransmitting.\156\ But in either construal, the relevant takeaway is
that these CSO decisions do not provide the Judges with any useful
information \157\ regarding the relative value of the retransmittal of
the various programming categories, the determination of which is the
statutory task assigned to the Judges under section 111.
---------------------------------------------------------------------------
\156\ These non-royalty costs include, but are not necessarily
limited to, (1) the physical cost of retransmittal and (2) the
transaction costs and opportunity costs associated with expending
effort making retransmittal choices regarding distant local stations
that had de minimis value (the choices, if not the stations and
programming themselves) relative to the other decision-making
undertaken by CSOs.
\157\ That is, a zero value for all retransmitted programming is
invariant and thus uninformative of relative value, and an absence
of a revealed value fails to provide absolute value as well as
relative value.
---------------------------------------------------------------------------
So understood, why should the decisions of these minimum-fee-only
CSOs serve to diminish the economic and evidentiary usefulness of the
decisions of the other CSOs who pay base fees above the minimum fee.
That is, it is misleading, to say the least, to categorize the base-
fee-paying CSOs as merely a small cohort of the larger population of
CSOs, when they are differentiated by the key marker for section 111
purposes: whether they assign a relative value to the retransmittals
and thus relative values to the retransmitted programs. The Judges find
it more accurate and appropriate to consider the base-fee-paying CSOs
essentially as a separate cohort of CSOs whose decision-making is
pertinent to a regression analysis in this statutory context.
Indeed, this is precisely how the Judges perceived the issue in the
2010-13 Determination. There, only a minority of CSOs, 47.5% paid above
the minimum fee, but their decisions were extrapolated to the entire
market. 2010-13 Determination at 3568 (``during the 2010-2013 period,
on average 527 out of the 1,004 Form 3 CSOs analyzed (52.5%) chose to
retransmit the exact or fewer number of signals than the regulated fees
permitted [and] 83 paid the minimum fee yet elected not to retransmit
any local stations''--meaning that less than half of CSOs ``voluntarily
paid a royalty greater than the minimum fee.''). Nonetheless, the
Judges deemed that minority of CSOs sufficient to justify using the
entirety of the base fee calculations (whether paid or unpaid) to
establish relative marketplace value.
But that extrapolation was hardly precise in the context of the
slight majority presence of minimum-fee-only CSOs, a context which
could have suggested a need for a proportionate weighting of the
decisions of the base-fee-paying CSOs.\158\ But, when the base-fee-only
CSOs are considered as the separate and only cohort actually revealing
their relative programming valuations, rather than a mere subsample of
the entire population of CSOs, then their revealed preferences are seen
to reflect 100% of the information regarding relative value generated
from CSO decision-making. Implicitly, that is what the Judges did in
the 2010-13 Determination.
---------------------------------------------------------------------------
\158\ Dr. Marx noted that the 52.5% of CSOs not covered in the
Crawford Model included many that had only one subscriber group and
would have been excluded from Dr. Crawford's regression anyway, so
80% of all the CSOs eligible for inclusion in the Crawford Model
(and their programming and royalty data) were in the regression.
There are two problems with this point. First, because only 80-85%
of the CSOs were covered, even then the evidentiary weight of the
decision-making of those CSOs should have been discounted
proportionately, if proportionality is relevant. Indeed, in this
proceeding, Dr. Marx testified that, in her opinion, whether to
consider the revealed preferences of some CSOs should be a matter of
``degree,'' which is distinct from treating some proportion as a
tipping point sufficient to be used en toto. Second, the reason why
``only'' 47.5% of the CSOs were included in the Crawford Model is
not really relevant to the question of why this minority cohort
should generate the entirety of revealed preference value for
regression purposes.
---------------------------------------------------------------------------
Further, the Judges are mindful of the testimony by Dr. Marx
(herself no fan of the application of the fee-based regression for the
2015-2017 period) that ``the most informative observations in a
Crawford-style regression are ones in which a CSO elects to pay more
than the minimum fee in royalties in order to carry additional distant
signals . . . .'' Marx WRT ] 64 (emphasis added).\159\
---------------------------------------------------------------------------
\159\ Dr. Marx also equates a CSO paying above the minimum fee
with a CSO that ``pays the minimum fee with no capacity for carrying
additional signals.'' Marx WRT ] 64. The Judges disagree. Such a
minimum-fee-paying CSO is not revealing a preference in the same
manner as a CSO paying above the minimum fee, but rather is taking
full advantage of the zero-marginal-royalty cost feature of the
minimum fee obligation. The Judges find it more appropriate to treat
such minimum-fee/no-excess-capacity CSOs in the same manner as an
excess-capacity CSO because the actual marginal cost of their
respective retransmittal preferences is zero.
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[[Page 54224]]
Colloquially, the issue may be characterized as whether the Judges
should let the perfect be the enemy of the good. Here, the ``perfect''
fact pattern would be where all or most of the data is generated by
CSOs paying above the minimum fee. That is not the factual context
here. But there is ``good'' evidence from the CSOs who did retransmit
enough programming to trigger the base fees of their subscriber groups,
and that the Judges do not ignore that data.\160\
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\160\ Even information from data that includes CSOs paying only
the minimum fee has an evidentiary purpose, as noted infra regarding
an adjustment to the allocations based on the Tyler Model.
---------------------------------------------------------------------------
Accordingly, the Judges will give due weight to the minority of
CSOs that, in the 2015-2017 period, paid above the minimum fee and thus
revealed their preferences by paying an additional royalty in order to
retransmit one or more additional stations. To be clear, in their
weighing of this evidence, the Judges perceive the above-minimum-fee
CSOs as providing evidence from three perspectives: (1) reflecting 100%
of all the CSOs who did reveal their preferences in a cardinal manner,
which supports the assignment of due weight to their station and
programming choices; and (2) reflecting only a minority of the revealed
preferences of the CSOs that found the value in distant retransmissions
of local broadcast stations sufficient to add such stations to their
lineup--a lower percentage which therefore would support a lower
evidentiary weight; and (3) reflecting the revealed preference of an
even smaller slice of CSOs and their programming, thus supporting the
lowest level of evidentiary weight among these three perspectives.\161\
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\161\ As noted supra, the Judges will discuss infra the
evidentiary weights they apply, in combination with the evidentiary
weights they give to all of the probative evidence.
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B. A Separate Criticism: The Tyler Model as a ``Fee Generation'' Model
Two parties, SDC and PTV, ask the Judges to reject the Tyler Model
by characterizing it as ``similar'' to a ``fee generation'' approach to
the section 111 royalty allocation issue, asserting that this approach
is improper and has been rejected previously by the Judges and their
predecessors. SDC and JSC are incorrect, and this criticism deserves
its own separate section.
The fee generation approach has been defined as ``a valuation
method that attempts to measure the amount of royalties actually
generated by a particular claimant group.'' Report of the Copyright
Arbitration Royalty Panel to the Librarian of Congress, Docket No.
2001-8 (CARP CD 98-99) at 60. In its attempt to characterize the Tyler
Model as a fee generation approach, SDC maintains as follows:
[Dr. Tyler's] approach could be viewed as similar in notion to
the ``fee generation'' approaches that the Judges and their
predecessors rejected in days long past (see, e.g., 2004-05
Distribution Order, 75 FR at 57071-73 (``[F]ee generation is not
persuasive as the best method for determining relative marketplace
value because of the Canadian Claimants' failure to firmly link the
relationship between section 111 royalties to that value'')).
SDC PFF ] 138. See also 6/12/23 Tr. 6007 (SDC counsel's closing
argument) (describing the Tyler Model as ``a fee-generation
methodology.'').
Similarly, PTV argues:
Dr. Tyler's regression resembles the fee generation methodology,
which attempts to assess relative value based on statutory royalties
generated by cable retransmissions. [The] [j]udges have repeatedly
considered and rejected the fee generation methodology because the
statutory royalties do not relate to the relative value of the
distantly retransmitted programming.
PTV PFF ] 159.
Of course, to assert, as SDC and PTV do, that the Tyler Model may
merely ``resemble,'' or be ``similar to'' a fee generation model, is
also to say that the Tyler Model is not a fee generation model.
Moreover, the Judges disagree with these fee-generation-based arguments
for two further reasons. First, the assertion that the Judges have
rejected the fee generation methodology is simply wrong. Second, the
argument (that the Tyler Model's passing resemblance to a fee-
generation approach invalidates its use) fails to address the
particular merit of this approach given the evidentiary record.
With regard to the prior rulings regarding fee-generation
approaches, Program Suppliers accurately and compellingly demonstrate
the incorrectness of the claim that these rulings have rejected a fee-
generation approach and precluded its use (or the use of any similar
model) in these allocation proceedings. Specifically, Program Suppliers
emphasize the Judges' most recent ruling on this issue, in the 2010-13
proceeding:
[T]he Judges ruled that fees-based regression analyses are
distinguishable from analyses of fees-generated. In their post-
Initial Determination Order Denying Rehearing [in the 2010-13
proceeding] . . . the Judges specifically rejected the claim that
fee-based regressions are the same as ``fee generation'' approaches.
They held that fee-based regressions ``identif[y] a positive
statistical relationship between (a) royalties paid by CSOs; and (b)
program categories on distant local stations that had been
retransmitted to subscribers by CSOs. Clearly, any `fee generation'
approach that did not make use of this regression approach is
distinguishable.'' See Order Denying Rehearing at 5 (emphasis
added).
Even if the Tyler Model could be likened to a fee generation
approach, SDC and PTV are wrong to suggest that such approaches have
been categorically rejected by the Judges and their predecessors.
Again, the Judges considered and rejected the identical argument in
their Order Denying Rehearing:
[N]either the Judges nor their predecessors have categorically
rejected use of the broad category of fee generation approaches to
ascertain relative value in section 111 allocation proceedings. As
the Librarian concluded when accepting in full the CARP Report for
the 1998-99 distribution years: ``[W]hile it is true that fees
generated do not measure the absolute value of programming, it does
not mean that they are not capable of measuring the relative value
of programming between the claimant groups.'' Librarian's Order, 69
FR at 3618 (emphasis added). In that Order, the Librarian expressly
noted that `there does exist precedent,' in the 1990-1992 CARP
Report, for using the ``fee generation'' approach to determine
relative market value. Id. When the Judges succeeded to the CARP's
jurisdiction, they likewise stated that ``we are not persuaded that
we are precluded from ever considering fee generation as a
distribution methodology. . . .'' 2000-03 Determination, 75 FR at
26805. In fact, in the [Initial 2010-13] Determination, the Judges
acknowledged the ongoing use of a fee generation approach in
particular instances, notwithstanding that it had been ``generally
discounted'' in some prior cases. See Determination at 48 n.45; 78
n.145.
Program Suppliers' Reply to Proposed Findings of Fact and Conclusions
of Law (PS RPFF) ] 88 (and record citations therein). See also id. ]
96. Program Suppliers have also properly relied on the earlier rulings
of the Judges and their predecessors in this regard. See 2000-03
Distribution Order at 26805 (after detailing the ``origins'' and the
``history'' of the fee generation approach, the Judges stated this
approach never had been ``flatly rejected . . . as a methodology,'' and
the Judges thus held that they were ``not persuaded that we are
precluded from ever considering fee generation as a distribution
methodology. . . .''); 1998-99 Librarian Order at 3606, 3618
[[Page 54225]]
(the CARP panel rejecting opposition to ``the fee generation method''
because ``there does exist precedent'' for using this methodology).
More broadly, the Judges' predecessors have long understood the
appropriateness of incorporating fee-generation models in the precise
process in which the present Judges are now engaged--analyzing,
weighing, and combining multiple approaches to the allocation of
royalties--when, as now, the Judges cannot identify only ``a single
formula or rationale adequate to reach our determination and
allocations in [the] proceeding.'' 1979 Cable Royalty Distribution
Determination, 47 FR 9879, 9892 (Mar. 8, 1982) (considering a fee
generation approach together with eight other allocation methods)
(emphasis added).
As to the second point, assuming arguendo the Tyler Model bears a
passing resemblance to a fee-generation approach, the Judges find, on
this evidentiary record, such affinity constitutes virtue rather than
vice. A key criticism of the Tyler model's fee-generation resemblance
is premised on the fact that both appear to ``ignore[ ] variation
relevant to revealing CSO preferences'' among program categories. CTV
PFF ] 354 (and record citations therein); accord CCG PFF ] 186 (and
record citations therein) (``Dividing the royalty payment by gross
receipts removes the variation different signals contribute to
revenue.''). However, that argument misapprehends Dr. Tyler's approach.
It is decidedly not merely a ``measure [of] the amount of royalties
actually generated by a particular claimant group,'' which is the
definition of a fee-generation model, as set forth supra. Rather, the
Tyler Model calculates coefficients that ``represent the incremental
impact on the SGRP for each type of compensable minute.'' Tyler ACWDT ]
90. Further, the Tyler Model then weights these coefficient values by
total receipts, Tyler ACWDT ] 88, and then multiplies these weighted
coefficients by the number of minutes of each claimant's program
category. Tyler ACWDT ] 144. That is quite different from the basic
fee-generation approach.
But the proponents of the other fee-based regressions are onto
something in their observation that the Tyler Model generates less
variation than would otherwise be captured when the dependent variable
is royalty-specified rather than specified as the SGRP. However, the
Judges see this distinguishing feature of the Tyler Model as an
improvement over the other fee-based regressions proffered in the
present case.
From the perspective of the parties proffering fee-based
regressions, the only way to estimate the appropriate variations among
program categories is by utilizing a royalty-based parameter (the log
of royalties to be precise) as the dependent variable. That is, these
more traditional forms of fee-based regressions posit that there is an
ascertainable and measurable correlation between program category
minutes and the log of royalties, detectable once sufficient fixed
effects and control variables are specified. So, there is a black-and-
white debate: Which is the preferrable dependent variable for the fee-
based regressions in the present case, a royalty based variable or Dr.
Tyler's SGRP?
Recall that the first step in any regression modeling is to
identify an economic theory which will guide the selection of model
specifications. What is that economic theory? Perhaps the more salient
phrasing of this question is: What economic theory is most consonant
with the record evidence of the industry details? Let's take stock:
1. The royalties paid by CSOs for 1.0 DSE is a minimum of 1.064%
of gross receipts, with two marginally lower brackets of percentage
rates for additional DSEs, flattening out at 0.330% at 5.0 DSE. A
CSO needs to decide how many, if any, local broadcast stations to
distantly retransmit.
To answer this question, all the economist witnesses attempt to
zero-in on what, in their respective opinions, would constitute
economically rational decision-making. However, in identifying what
is rational, they implicitly assume a CSO would be able to determine
if it is retransmitting a profit-maximizing or a sub-optimal bundle
of distant programming, but there is no record evidence as to how a
CSO would know this.
More particularly, there is no evidence of a measure of
estimated subscribers retained, obtained, or lost, or of a change in
subscription rates, caused by distant retransmission decisions. Are
such changes even occurring because of the configuration of
distantly retransmitted stations? On this, the record is
barren.\162\
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\162\ The Judges also find it telling that there is no evidence
in this proceeding, nor apparently in any other allocation
proceeding, that any CSO has solicited subscriptions by touting its
distantly retransmitted lineup. That this dog has not barked speaks
loudly as to the de minimis impact of the distant retransmission
market. Also absent from the record is any evidence that there is a
derived-demand effect at play. That is, there is no evidence that
consumers make subscription decisions based on the programming
content of distant retransmissions. In this regard, a corollary to
the need for identifying an economic theory from the record evidence
to guide this Determination is the concomitant need for a ``reality
filter,'' by which the Judges can address the reality that the
market in question is relatively miniscule (although substantial
royalty dollars are most certainly at stake!).
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2. But, as all the witnesses acknowledge, over the last three
years of the relevant period, 2015-2017, the overwhelming percentage
of CSOs pay only the minimum fee, and the vast majority of section
111 royalties are generated by those minimum-fee-paying CSOs. That
is, most CSOs do not even retransmit enough distant signals to
trigger a base fee obligation. Moreover, a large minority of those
CSOs elect not to retransmit any signals, demonstrating, as Dr.
George notes, that they have a zero willingness-to-pay for
programming that is royalty costless. Why have these changes
occurred?
3. The answer is to be found in the evidentiary record. An
industry expert witness, Sue Ann R. Hamilton (whose 2010-13
testimony was properly designated as evidence in this proceeding by
Program Suppliers), stated (as summarized in the 2010-13
Determination) that:
[A] CSOs' selection of stations for distant retransmission is
marked by inertia, not by an affirmative analysis and weighing of
alternative stations, [because: (1)] distant retransmission costs
represent a non-material expenditure for CSOs compared with their
other more expensive programming and carriage decisions [and (2)]
CSOs are more concerned with losing existing subscriber [`legacy
distant carriage'] if they drop certain stations and the associated
programs than they are with whether or not any new retransmitted
station and its associated programs might entice new subscribers[,
or with] adjusting the roster of distantly retransmitted stations.
2010-13 Determination at 3567 (emphasis added).
4. Ms. Hamilton's testimony regarding the CSO's primary concern
over retaining legacy subscribers proved prescient when CSOs did not
meaningfully substitute for the lost sports programming on WGNA, but
rather just retransmitted fewer stations and programs, and thus
defaulted to a binding minimum fee rather than a calculated base
fee. That is, the phenomena that Ms. Hamilton described has been
validated by the impact of the WGNA conversion. JSC professional and
college team sports that were retransmitted on WGNA clearly were
valuable, both in terms of the regressions (with the highest
coefficients) and in terms of the survey results. But when WGNA
converted to a cable station, despite the high value of JSC
programming (its coefficient fell but remained higher than other
category coefficients), JSC programming value vis-[agrave]-vis the
retransmission sector, as measured by the regression methodologies,
dropped precipitously, because the number of subscribers to whom JSC
sports were transmitted dropped by over 90%. Although at first blush
it may seem odd given the high value of JSC programming that CSOs
did not ``backfill'' that loss, Ms. Hamilton's ``inertia'' and
``legacy'' arguments explain the absence of such a ``backfill.''
\163\ Such inertia, and the
[[Page 54226]]
loss of WGNA as a legacy channel, apparently made it not worth the
effort for CSOs to search for and retransmit a sufficient number of
replacement channels and programs.
---------------------------------------------------------------------------
\163\ The loss of WGNA should be contrasted with the loss years
earlier of TBS, another sports-based superstation that had been
distantly retransmitted. That loss did not eliminate all such
sports-based-superstation retransmittals, because WGNA remained
available. But after WGNA transformed itself into a cable station,
there was no other sports-based superstation to substitute in order
to satisfy legacy viewers of such programming. (Also, recall that
the JSC is simply a representative of the major professional sports
leagues and the NCAA, and the record does not reflect that they
suffered any economic loss because of the reduction of subscriber
minutes distantly retransmitted. Indeed, the Judges take
administrative notice that their games have been aired on ESPN and
other cable stations, national networks, and regional sports
networks. The Judges decline to assume that these leagues and
associations voluntarily abandoned local broadcasting and thereby
deprived themselves of profits, but rather they assume these sports
leagues and associations moved to these more lucrative distribution
methods.)
---------------------------------------------------------------------------
5. In the context of this backdrop, Dr. Erdem's drumbeat that
CSOs' priority is to minimize their costs takes on a bit more
significance. CSOs appeared to be relatively less concerned with the
``demand side'' for distantly retransmitted channels and
programming, and thus, relatively more concerned with the ``supply
side,'' particularly with the royalty costs.
6. In this more cost-centric context, Dr. Tyler's regression
appears to the Judges to better reflect the realities of the market
than the other fee-based regressions. The Tyler Model does not put
the cart before the horse; that is, it does not place priority on
program category (``demand side'') decisions. Rather, it prioritizes
the ``budget constraint'' (``supply side'') decisions of CSOs, by
which they calculate the percentage of their subscriber group's
gross receipts they will pay in royalties.
7. However, for those CSOs transmitting above 1.0 DSE, they have
economic decisions to make regarding the mix of programming they
will transmit via their signal decisions. Given the economics and
reality of this retransmission market, as described above, only then
will the relative value of program categories be of material
economic importance. It is at this stage that the Tyler Model
generates information as to relative value, through the Tyler
model's coefficients.
8. To return to the issue at hand, as its critics assert: Does
the Tyler Model identify fewer variations across program categories
compared to the other regression models? Apparently, the answer is
yes. But those other regressions, although not without evidentiary
value, do not appear to be as consonant with the evidentiary record
as the Tyler Model.
C. The Economics of the Tyler Model
The foregoing points help to focus on the underlying economics of
the Tyler Model. By using the SGRP as the dependent variable, the Tyler
Model reflects economic principles relating to the value of a ``public
good,'' which is a good ``for which the marginal costs of providing it
to an additional person are strictly zero and for which it is
impossible to exclude people from receiving the good.'' Joseph E.
Stiglitz & Jay L. Rosengard, Economics of the Public Sector 107 (4th
ed. 2015). But when the good is excludable, but still bears a marginal
cost of zero (non-rivalrous in ``econo-speak''), it is considered an
``impure'' (or ``quasi-'') public good. See also 3/27/23 Tr. 1496
(Boyle) (a PTV expert witness with a Ph.D. in applied economics
agreeing that there are ``characteristics'' and ``elements'' of a
``quasi-public good'' in these distantly retransmitted channels and
programs.).
Unlike ``private goods'' (rivalrous and excludable), the demand
curve for public goods, impure or otherwise, ``can be thought of as a
`marginal willingness-to-pay' curve [which], at each level of output of
the public good, . . . says how much the individual would be willing to
pay for an extra unit of the public good.'' Stiglitz & Rosengard,
supra, at 107. This is consistent with the economic logic of the Tyler
Model. See Tyler ACWDT ] 67 (``Even though the amount of the royalty is
determined by statute--and so constitutes a measure of minimum
willingness to pay as opposed to the outcome of a negotiation--the
estimated incremental royalties for the different program types
relative to one another provide insight into how the CSOs would
actually value these program categories in an unregulated market.'')
(emphasis added). Also, the Tyler Model's SGRP is in the nature of an
economist's ``budget line'' (a/k/a ``budget constraint''), limiting the
combinations of goods that a buyer can purchase. See Robert S. Pindyck
& Daniel L. Rubinfeld, Microeconomics 82 (8th ed. 2013).\164\ The Tyler
Model's SGRP identifies the percentage of total costs (including
profits, which reflect opportunity costs) incurred by CSOs across their
subscriber groups in the form of section 111 royalties. With that
percentage/budget line established, the Tyler Model then allocates the
portions of the weighted category minutes attributable to that SGRP
calculation.
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\164\ The Judges examined two of the expert witnesses at the
hearing regarding the concept of the ``budget line'' as it relates
to the estimation of section 111 royalties. See 3/23/23 Tr. 1080-86
(PTV's Johnson); 4/3/23 Tr. 2671-73 (JSC's Majure). Dr. Johnson
found the concept applicable to the regressions at issue, but Dr.
Majure disagreed.
---------------------------------------------------------------------------
In sum, there is a real economic and market-based foundation for
the Tyler Model in the context of the present record relating to the
2014-2017 retransmission market. Moreover, the Tyler Model is
essentially a fee-based regression, with characteristics of the fee-
generation approach, constructed in a manner that reflects both Ms.
Hamilton's persuasive testimony and the reduction in distant
retransmissions following the WGNA conversion.
XII. Canada Zone
CTV maintains that Dr. George's calculation of the CCG share is
incorrect for two related reasons: (1) the George Model as specified
implies that CCG had compensable programming outside the Canada Zone;
and (2) the George Model overrepresents the Canada Zone. CTV PFF ] 330.
This problem arises because the George Model assumes that CCG
programming would be available and valuable throughout the United
States (i.e., outside of the Canadian Zone) if one assumes the
inapplicability of this geographic limitation in the section 111
license for purposes of estimating relative marketplace value for CCG
programming. Dr. George explains why this assumption is adopted in the
George Model:
It is in most circumstances right to infer that programming on
distant signals re-transmitted has higher value than other
programming not transmitted. The primary exception is when cable
systems are prohibited from carrying particular signals, such as the
case with Canadian signals outside of the Canadian re-transmission
zone.
. . .
Failing to control for the fact that transmission of Canadian
stations is prohibited outside of the Canadian re-transmission zone
introduces downward bias in the value of Canadian Claimant
programming since the absence of carriage is equated with zero
value.
. . .
It is worth repeating that the underlying economic framework is what
governs model specification. The prohibition on distant signal
carriage on its face imposes a restriction on cable system choices
so must be reflected in the model. No further ``evidence'' is
needed, or, in fact, possible, since we cannot observe prohibited
carriage.
George WRT at 16, 25-26 (emphasis added).
Program Suppliers, through Dr. Tyler, makes the same argument as
CTV, and responds to Dr. George's point above as follows:
Within the Canada zone, CSOs can choose among all of the content
categories. But outside the Canada zone, CSOs do not have the option
of choosing CCG content. There is a difference between having
something available and not chosen versus not having something
available at all. Estimating the relationships separately when the
Canadian minutes are available or not recognizes this, and this
approach makes more economic sense.
[[Page 54227]]
PS PFF ] 297 (and record citations therein).
Dr. Bennett, on behalf of CTV, calculated and tabulated the impact
on allocation shares of the difference between the approaches of Drs.
George and Tyler as summarized above: \165\
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\165\ Dr. Bennett also accounted for the fact that the George
Model ``assigns too much weight to the minutes within the Canada
Zone . . . because [the George Model] bases [its] weights on the
minutes within [its] non-representative regression sample (which is
over-representative of the Canada Zone) instead of on the
contribution that each zone makes to the aggregate royalty pool.''
Bennett WRT ] 54. See also id. ] 50 & fig.17.
[GRAPHIC] [TIFF OMITTED] TN28JN24.012
Based on the foregoing, the Judges find that the George Model of
Canadian programming's relative marketplace value is not adequately
proven by her assumptions regarding the value of such signals if
Canadian signals had been made available outside the Canada Zone.
Rather, such values are speculative, and no extrapolations can be
credibly made from the royalty data. To be clear, the Judges are not
saying that programming on Canadian signals would not have value
outside of the Canada Zone. But, like the programming retransmitted by
minimum-fee-only CSOs, the value of retransmitted programming is not
subject to accurate measurement via a revealed preference approach that
is the economic concept behind these regressions. Indeed, because this
point applies even with regard to minimum-fee-only CSOs who actually
retransmitted distant programming, a fortiori it applies to the
hypothetical retransmission of programming outside of the Canada Zone.
Further, not only is the value of any hypothetical retransmission
outside the Canada Zone speculative, there is also no showing that, as
a technical matter, such transmissions further away from the Canada
Zone would be feasible. See SDC PFF ] 219 (``[W]hile the statutory
limitation restricting carriage of Canadian television stations to
within 150 miles of the U.S.-Canada border or north of the forty-second
parallel (the ``Canadian Zone'') is set forth in section 111(c)(4) and
could therefore be rendered inapplicable in a hypothetical market
without the section 111 compulsory license, the laws of physics would
still operate as a practical physical limitation on Canadian station
broadcast signals, absent an alternative (and more costly) delivery
method such as fiber or satellite feeds.'') (emphasis added).\166\
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\166\ The Judges note CCG's argument that in prior proceedings,
including one applying the fee-generation approach, the Judges and
their predecessors did not make this geographic distinction. See CCG
PFF ] 567-568 (and cases cited therein). But those cases either did
not involve regression analysis or did not rely on the regression
approach (Dr. Rosston's model) as anything other than corroboration.
In the regression context, the Judges find it too speculative to
assign value by correlating royalties to distant minutes that were
never retransmitted. Moreover, although the Tyler Model, on which
the Judges place the most evidentiary weight among the regression
models, resembles a fee-generation approach, it is not a fee-
generation approach, as discussed supra. As the Judges have also
noted supra, a benefit of the Tyler Model is that it better looks at
the actual nature of the market and uses the evidence available over
the years in question. To allow for value to be estimated by
consideration of hypothetical programming retransmission outside of
the Canada Zone would be inconsistent with this ``real-world''
rationale for crediting the Tyler Model. Additionally, because the
regression approach, unlike the constant sum survey approach, is
based on what CSOs actually retransmitted, in order to identify
their market-based revealed preferences from those actual decisions,
a grafting of the hypothetical retransmission of Canadian signals
onto that approach appears inconsistent to the Judges. However, the
Judges emphasize that these critiques apply only to the regression
models of relative marketplace value, and are not intended to
address any other adjustments that have been proffered in connection
with the Bortz Survey, or with any other evidence, in this
proceeding.
---------------------------------------------------------------------------
XIII. The Judges' Allocation of Shares Pursuant to the Regression
Approach
The Judges have considered all of the regression models proffered
by the parties in this proceeding. None of the models were excluded
from consideration. Based on the Judges' analysis and conclusions
regarding each model, as set forth supra, and comparing each of them,
the Judges find the Tyler Model to be the most appropriate regression
model in this record.\167\ To recapitulate the principal reasons:
---------------------------------------------------------------------------
\167\ The Judges also considered variations proffered by Drs.
Johnson and George on their preferred models in their direct and
rebuttal testimonies. Although some of those iterations mitigated
certain problems in their models, none of them was sufficient to
overcome the Judges' preference for the Tyler Model.
1. On the present factual record, the Tyler Model's SGRP is
preferable to the log of royalties, or royalties themselves, as the
dependent variable in a fee-based regression.
2. The Tyler Model avoids the conundrum of the variance/bias
dilemma that is of particular concern in this case for other
proffered regression models. By contrast, Drs. George and Johnson
found themselves on the horns of this dilemma. They require fixed
effects to avoid bias by isolating the effect of program category
minutes on royalties. But given the post-WGNA conversion, the use of
fixed effects, as in the model applied in the prior proceeding,
would not generate enough observations. And yet relaxing or
eliminating fixed effects to obtain more observations weakens the
isolation of the effect of interest, the impact of program minutes
on royalties, and creates bias.
3. Among the control variables which the Tyler Model does not
require is the control for the number of subscribers in a subscriber
group, which is required in the other fee-based regressions, but
cannot be estimated without measurement error.
4. The Tyler Model utilizes as a useful analogy to price a price
proxy in the form of a budget constraint, i.e., the SGRP.
[[Page 54228]]
5. Although the Tyler Model is not based on a hedonic
regression,\168\ it can reasonably be described as a ``hedonic-
inspired'' regression.\169\
---------------------------------------------------------------------------
\168\ Dr. Tyler at times appears to describe his approach as a
``hedonic'' regression, see Tyler ACWDT ]] 10(e), 85, perhaps on the
mistaken belief that such a label was necessary to enhance his
approach.
\169\ Cf. Final rule and order, Determination of Royalty Rates
and Terms for Making and Distributing Phonorecords (Phonorecords
III), 84 FR 1918, 1947-48, 1950 (Feb. 5, 2019) (the Judges relied in
part upon an economic model that was admittedly not an established
model (the Shapley Model), but rather was a Shapley-``inspired''
model), vacated and remanded on other grounds sub nom. Johnson v.
Copyright Royalty Board, 969 F.3d 363 (D.C. Cir. 2020).
---------------------------------------------------------------------------
6. The Tyler Model's use of weighting by each CSO's gross
receipts is appropriate.
7. The Tyler Model calculates coefficients for each year, rather
than ``pooling'' the data to generate a single coefficient for each
program category across all four years.
8. The Tyler Model provides sufficient variation among the CSOs'
decisions.
9. There is no credible evidence (or even a credible allegation)
that Dr. Tyler engaged in anything that could be construed as
specification searching. In fact, the SDC and JSC experts--who
criticize the other regression models (including Dr. Marx's) for
ignoring the impact of potential specification searching--
acknowledge that the Tyler Model alone is free from this infirmity.
The Judges agree, because the absence of specification searching in
connection with the Tyler Model allows it to be transparent and,
specifically, free from the consumption of ``phantom degrees of
freedom.''
10. The alleged superficial resemblance of the Tyler Model to a
fee-generation model is not only factually off-the-mark and legally
irrelevant, the shared characteristics of the two models in fact
better reflect the real-world decision-making of CSOs, as described
in Ms. Hamilton's testimony.
However, as also discussed supra, the Judges cannot simply adopt
(for all circumstances) the Tyler Model to the extent it includes the
base fees of CSOs who only paid the minimum fee from 2015-2017. Rather,
for those years, the Judges, for the most part, rely on Dr. Tyler's
calculation of allocation shares as derived from the coefficients he
calculated for the CSOs paying more than the minimum fee.
In applying Dr. Tyler's approach, the Judges first note that, for
2014, the allocation of shares can be identified by reference to all
the CSOs, including those who paid the minimum fee, as explained, for
example by Dr. Marx. See Marx ACWDT ] 34 (``data on programming minutes
and royalties based on the carriage of distant signals for 2014 are a
close match to comparable data from the 2010-2013 proceeding.'') The
allocation shares for 2014 in the Tyler Model, using the data for all
CSOs in the regression, are the following:
Allocation Shares for 2014 in the Tyler Model
--------------------------------------------------------------------------------------------------------------------------------------------------------
Program
Year suppliers (%) JSC (%) CTV (%) PTV (%) SDC (%) CCG (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014.............................................. 26.6 37.2 11.3 14.0 4.3 6.5
(3.8) (7.5) (2.6) (1.7) (0.9) (0.9)
--------------------------------------------------------------------------------------------------------------------------------------------------------
(standard errors in parentheses).
See Tyler ACWDT fig.3.2.
However, for the years 2015-2017, the Judges principally rely on
Dr. Tyler's allocation share calculations pertaining only to the CSOs
who paid more than the minimum fee, i.e., those whose preferences were
revealed by their retransmission decisions. These allocation shares as
calculated by Dr. Tyler are the following:
[GRAPHIC] [TIFF OMITTED] TN28JN24.013
Dr. Tyler noted that these 2015-2017 share allocations were not
``strikingly'' different from the share allocations he recommended by
reliance on his regression results for all CSOs, even if they paid only
the minimum fee. Tyler ACWDT ] 103. Moreover, as a theoretical economic
matter, Dr. Tyler opined that he was not aware of ``any logic, a
priori,'' that there would be any difference in ``relative marketplace
values'' as between ``Above Minimum Fee CSOs'' and ``Positive Carriage
Minimum Fee CSOs'' (i.e., including excess capacity CSOs). Id. In this
regard, compare Tyler ACWDT fig.6.3 (above) with Tyler ACWDT fig.3.2
(below):
[[Page 54229]]
[GRAPHIC] [TIFF OMITTED] TN28JN24.014
However, Figure 6.3 reports an anomalous increase in the share
allocated to the CCG claimants. This anomaly is explainable.
CCG programming is unique among the program categories in this
proceeding because it is limited in geographic scope to CSOs located
within a 150-mile belt below the U.S./Canadian border. See CCG PFF ] 59
(``Under the section 111 compulsory license, it is prohibited for a
cable company to distantly retransmit a Canadian broadcast signal to
communities located more than 150 miles from the United States-Canada
border and also south of the 42nd parallel.'') (citing 17 U.S.C.
111(c)(4)(A)).
As such, the data reported in Tyler ACWDT fig.6.3--limited to CSOs
paying above the minimum fee--would reflect the unique value of
Canadian programming in that region. More particularly, CCG programming
is uniquely valuable in the Canada Zone in good measure because of the
retransmittal of French language programming, a niche sub-category. See
CCG PFF ] 20 (``The programming on Canadian French-language stations
plays an important role for Americans living in the northeast United
States and either speak French or have French ancestry. . . . An
example . . . is in the successful grassroots campaign of Sanford,
Maine residents who lobbied the Metrocast cable company and their local
government to restore carriage of the CBC's French-language station
CKSH.''); see generally id. ] 19 (noting the distinct nature of French
language programming in demand by CSOs to serve residents of ``New
York, Vermont, Maine, New Hampshire, and Massachusetts--that have a
sizeable proportion of residents with connections to the French
language through a current spoken language or ancestry.''); see also
Written Direct Testimony of Beverley Kirshenblatt, Trial Ex. 7400, p. 6
(Kirshenblatt WDT) (the CBC programming on Canadian stations
retransmitted into the Canada Zone is provided ``in English, French,
and eight Indigenous languages . . . broadcast . . . from around the
world [as] a pan-Canadian service reflect[ing] Canada and Canadians in
both official languages . . . and is a significant contributor to the
cultural fabric of Canada through the promotion and creation of a
variety of programming.'').
Thus, in addition to the demand for the usual complement of
distantly retransmitted programming that exists throughout the wider
United States, in the Canada Zone there exists this additional demand.
Such greater demand means that CSOs would choose to pay more than the
minimum fee by adding CCG stations, and thus Canadian claimant
programming, to their channel lineup. Accordingly, CSOs in the Canada
Zone would very likely be overrepresented in the cohort of above-
minimum-fee-paying CSOs in Tyler ACWDT fig.6.3.
The problem this creates, for present purposes, is that the Judges
are allocating a royalty pool for which, over the period 2015-2017,
more than 90% of the funding came from minimum-fee-only CSOs. Thus,
while the data from above-minimum-fee-paying CSOs (i.e., in Tyler ACWDT
fig.6.3) provides useful economic evidence of CSOs' revealed
preferences for other claimant categories, with regard to CCG content
and value, this data is distortionary as applied to the Judges' task of
allocating all U.S. royalties.
Confirmatory of this distinction is the fact that CCG itself has
not proposed that it receive the anomalously high allocations suggested
by the data in Tyler ACWDT fig.6.3 (23.2% in 2015, 31.1% in 2016, and
34.6% in 2017). Rather, CCG has proposed that it receive 14.8% for
2015, 13.7% for 2016, and 13.6% for 2017. CCG PFF ] 617 fig.53.
Further, CCG filed its Proposed Findings of Fact on June 15, 2023, and
it was aware of the higher CCG shares in Tyler ACWDT fig.6.3 since that
document was filed on September 2, 2022. And yet at no time did CCG
ever seek to adopt the higher CCG share set forth in Tyler ACWDT
fig.6.3.
Accordingly, in their allocations based on the Tyler Model
regression, for 2015-2017, the Judges utilize the CCG shares reported
at Tyler ACWDT, Fig.3.2. The difference in shares, compared to the CCG
share in Tyler ACWDT 6.3, is allocated proportionately among the other
five categories, as set forth in the table for Adjustment A below:
Adjustment A Table
--------------------------------------------------------------------------------------------------------------------------------------------------------
Program
Year suppliers (%) JSC (%) CTV (%) PTV (%) SDC (%) CCG (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014.................................................... 26.6 37.2 11.3 14.0 4.3 6.5
2015.................................................... 46.29 2.37 12.76 14.34 10.95 13.3
2016.................................................... 39.25 1.63 16.68 18.43 10.41 13.6
[[Page 54230]]
2017.................................................... 42.79 0.65 12.84 18.41 10.11 15.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
The Judges recalculated the shares of the other five claimant categories by: (1) calculating the percentage each category represents of all the
categories' shares except CCG; (2) multiplying each percentage by the reduction in the CCG share generated by replacing the CCG column of Tyler ACWDT
fig.6.3 with Tyler ACWDT fig.3.2; and (3) adding that product to the shares of each claimant category.
A further adjustment is still required. As noted supra regarding
the PTV share, the Judges are adopting the downward adjustments made by
Dr. Bennett to reflect the presence of Must Carry PTV stations. See
Bennett WRT fig.52. The Judges apply those adjustments, and recalculate
the shares of the other parties as set forth in the table for
Adjustment B below:
Adjustment B Table
--------------------------------------------------------------------------------------------------------------------------------------------------------
Program
Year suppliers (%) JSC (%) CTV (%) PTV (%) SDC (%) CCG (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014.................................................... 26.80 37.48 11.38 13.36 4.33 6.55
2015.................................................... 47.67 2.44 13.14 11.78 11.28 13.70
2016.................................................... 40.75 1.69 17.32 15.32 10.81 14.12
2017.................................................... 44.07 0.67 13.23 15.96 10.41 15.66
--------------------------------------------------------------------------------------------------------------------------------------------------------
The Must Carry adjustment in Bennett WRT fig.52 was based on the PTV shares of all CSO royalties, whereas the Judges are applying this adjustment to the
shares of CSO royalties attributable to shares generated by CSOs paying above the minimum fee (subject to the prior adjustment for CCG, discussed
supra). So, for 2014, the percentage point adjustment to the PTV share is the percentage point adjustment in Bennett WRT fig.52. For 2015-2017, the
percentage point adjustment to the PTV share is calculated for each year by (1) finding the percentage of PTV shares reflected by the PTV shares from
Tyler WRT fig.6.3 / PTV's shares from Tyler WRT fig.3.2, (2) multiplying that percentage by the percentage point adjustment in Bennett WRT fig.52, and
(3) subtracting that product from the PTV share from the table above.
The shares of the other claimants are adjusted upward by: (1) calculating the percentage each category represents of all the categories' shares except
PTV, (2) multiplying each percentage by the Bennett Must Carry adjustment (reduced as set forth above), and (3) adding that product to the shares of
each claimant category.
There remains a final adjustment. The Judges note that PTV argued
that a significant number of its stations were retransmitted by CSOs
together with WGNA prior to the WGNA conversion, thereby generating a
base fee royalty and an expressly revealed preference and willingness-
to-pay. PTV further notes that post the WGNA conversion, many of these
CSOs continued to retransmit the same PTV station, but this did not
trigger the base fee because the minimum fee applied (with WGNA gone).
PTV maintains that the pre-WGNA conversion carriage is probative of the
fact that the post-WGNA conversion evidences economic value as if it
were generating base fee royalties. PTV PFF ] 60 (and record citations
therein). The Judges agree.
On this issue, there is evidence in the form of Mr. Harvey's
analysis done on behalf of JSC. Specifically, Mr. Harvey reported:
The number of PTV Only systems increased after the WGNA
conversion from 44 at the end of 2014 to 173 by the end of 2017. PTV
Only Systems that had carried WGNA and PTV in 2014 account for
three-fifths of that increase.
Harvey WDT ] 106. The Judges find that Mr. Harvey's reporting
demonstrates that 44% of the PTV stations that were identified as
retransmitted by minimum-fee-paying CSOs after the WGNA conversion had
been transmitted pre-conversion and generated base fee royalties. That
is persuasive evidence of ongoing marketplace value. Accordingly, the
Judges use that factual finding to increase by 44% the PTV share
modification, as set forth in the table for Adjustment C below:
Adjustment C Table--Applying The PTV Adjustment To Reflect WTP of CSOs That Maintained PTV Carriage After WGNA Conversion
--------------------------------------------------------------------------------------------------------------------------------------------------------
Program
Year suppliers (%) JSC (%) CTV (%) PTV (%) SDC (%) CCG (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2015.................................................... 44.87 2.30 12.37 16.96 10.62 12.90
2016.................................................... 37.51 1.56 15.94 22.06 9.95 13.00
2017.................................................... 40.39 0.61 12.12 22.98 9.54 14.35
--------------------------------------------------------------------------------------------------------------------------------------------------------
The Judges recalculated the shares of the other five claimant categories by: (1) calculating the percentage each category represents of all the
categories' shares except PTV, (2) multiplying each percentage by the increase in the PTV share generated by adjusting to reflect WTP of CSOs that
maintained PTV carriage after WGNA conversion, and (3) subtracting that product from the shares of each claimant category.
Returning to Tyler ACWDT fig.6.3, upon which the Judges principally
rely, the Judges' decision to utilize and adjust the share allocations
therein is strengthened by consideration of the confidence intervals at
various levels of statistical significance, relating to those share
allocations. That is, those confidence intervals serve to confirm the
reasonableness of their share allocation approach. In that regard, as
set forth in the table below, only one claimant category, JSC, has a
negative low range bound in its confidence interval at the 90%, 95%,
and 99% confidence intervals. Moreover, the negative value diminishes,
as the confidence interval widens. The Judges
[[Page 54231]]
do not find that this one lower bound issue is sufficient to call into
question the usefulness of the share allocations on which they rely.
Additionally, at the 55% confidence interval, this lower bound in
fact turns positive, as also noted in the table below.
55%/90%/95%/99% Confidence Intervals for Claimant Shares From Tyler Only CSOs Paying More Than Minimum Fee Model
----------------------------------------------------------------------------------------------------------------
55% Confidence 90% Confidence 95% Confidence 99% Confidence
Claimant Share interval interval interval interval
----------------------------------------------------------------------------------------------------------------
2015
----------------------------------------------------------------------------------------------------------------
Program Suppliers............ 41.0% 39.19% to 42.81% 37.05% to 44.95% 36.3% to 45.7%.. 34.82% to 47.18%
(2.4%)
JSC.......................... 2.1% 0.97% to 3.23%.. -0.37% to 4.57%. -0.84% to 5.04%. -1.76% to 5.96%
(1.5%)
CTV.......................... 11.3% 9.64% to 12.96%. 7.68% to 14.92%. 6.99% to 15.61%. 5.63% to 16.97%
(2.2%)
PTV.......................... 12.7% 12.10% to 13.30% 11.38% to 14.02% 11.13% to 14.27% 10.64% to 14.76%
(0.8%)
SDC.......................... 9.7% 8.79% to 10.61%. 7.73% to 11.67%. 7.35% to 12.05%. 6.61% to 12.79%
(1.2%)
CCG.......................... 23.2% 22.52% to 23.88% 21.72% to 24.68% 21.44% to 24.96% 20.88% to 25.52%
(0.9%)
----------------------------------------------------------------------------------------------------------------
2016
----------------------------------------------------------------------------------------------------------------
Program Suppliers............ 31.3% 29.04% to 33.57% 26.37% to 36.24% 25.42% to 37.18% 23.57% to 39.03%
(3.0%)
JSC.......................... 1.3% -0.13% to 2.735% -1.83% to 4.43%. -2.42% to 5.02%. -3.59% to 6.19%
(1.9%)
CTV.......................... 13.3% 10.73% to 15.87% 7.71% to 18.89%. 6.64% to 19.96%. 4.54% to 22.06%
(3.4%)
PTV.......................... 14.7% 14.10% to 15.30% 13.38% to 16.02% 13.13% to 16.27% 12.64% to 16.76%
(0.8%)
SDC.......................... 8.3% 7.55% to 9.06%.. 6.66% to 9.95%.. 6.34% to 10.26%. 5.72% to 10.88%
(1.0%)
CCG.......................... 31.3% 30.04% to 32.16% 28.80% to 33.40% 28.36% to 33.84% 27.49% to 34.71%
(1.4%)
----------------------------------------------------------------------------------------------------------------
2017
----------------------------------------------------------------------------------------------------------------
Program Supplier............. 33.0% 31.34% to 34.66% 29.38% to 36.62% 28.69% to 37.31% 27.33% to 38.67%
(2.2%)
JSC.......................... 0.5% -0.26% to 1.26%. -1.15% to 2.15%. -1.46% to 2.46%. -2.08% to 3.08%
(1.0%)
CTV.......................... 9.9% 8.39% to 11.41%. 6.61% to 13.19%. 5.98% to 13.82%. 4.75% to 15.05%
(2.0%)
PTV.......................... 14.2% 13.60% to 14.80% 12.88% to 15.52% 12.63% to 15.77% 12.14% to 16.26%
(0.8%)
SDC.......................... 7.8% 7.05% to 8.56%.. 6.16% to 9.45%.. 5.84% to 9.76%.. 5.22% to 10.38%
(1.0%)
CCG.......................... 34.6% 33.01% to 36.19% 31.15% to 38.05% 30.48% to 38.72% 29.19% to 40.01%
(2.1%)
----------------------------------------------------------------------------------------------------------------
Source: Derived from data in Tyler ACWDT fig.6.3.
Note: standard errors in parentheses.
The Judges take note of the 55% confidence level because, as they
stated in the 2010-13 Determination, there is nothing sacrosanct about
the three confidence levels of 90%, 95%, and 99% when a court is
considering econometric analyses. In this regard, the Judges take note
of the position of the United States Supreme Court regarding the
limited evidentiary value of confidence intervals/statistical
significance. See Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27,
40 (2011) (``the premise that statistical significance is the only
reliable indication of causation . . . is flawed.'').
In this regard, the Judges stated in the 2010-13 Determination:
A statistical significance level of .01, .05 and .1 . . . is
``often referred to inversely as the . . . confidence level,''
equivalent to 99%, 95% and 90%, respectively. [ABA Econometrics at
18]. Although ``[s]ignificance levels of five percent and one
percent are generally used by statisticians in testing hypotheses .
. . this does not mean that only results significant at the five
percent level should be presented or considered [because] [l]ess
significant results may be suggestive, even if not probative, and
suggestive evidence is certainly worth something.'' [F. M. Fisher,
Multiple Regression in Legal Proceedings, 80 Colum. L. Rev. 717-718
(1980)]. Thus, ``[in] multiple regressions, one should never
eliminate a variable that there is a firm foundation for including,
just because its estimated coefficient happens not to be significant
in a particular sample.'' Id. However, care must be taken not to
confuse the ``significance level'' with the ``preponderance of the
evidence'' standard, because ``the significance level tells us only
the probability of obtaining the measured coefficient if the true
value is zero,'' so one cannot ``subtract[ ] the significance level
from one hundred percent'' to determine whether a hypothesis is more
or less likely to be correct. Id. See also D. Rubinfeld,
Econometrics in the Courtroom, 85 Col. L. Rev. 1048, 1050 (1985)
(``[I]f significance levels are to be used, it is inappropriate to
set a fixed statistical standard irrespective of the substantive
nature of the litigation.''); D. McCloskey & S. Ziliak, The Standard
Error of Regressions, 34 J. Econ. Lit. 97, 98, 101 (1996)
(``statistically significant'' means neither ``economically
significant'' nor ``significant [in] everyday usage [where]
`significant' means `of practical importance' . . . .'').
[[Page 54232]]
2010-13 Determination at 3571 n.78. The Judges apply the foregoing
principles here. To be clear, the Judges are not substituting the
significance levels/confidence levels for the preponderance of evidence
(marginally greater than 50%) standard. Rather, the Judges are looking
to various levels of statistical significance/confidence intervals to
determine the probability of obtaining Dr. Tyler's measured coefficient
if the true value was in fact zero. And, the Judges are not wedded to
the convention of the 90%, 95% and 99% confidence levels, because they
agree with Dr. Rubinfeld, whose treatise is cited above, for the
proposition that ``if significance levels are to be used, it is
inappropriate to set a fixed statistical standard irrespective of the
substantive nature of the litigation.''
The nature of this litigation, as the D.C. Circuit has held
(discussed elsewhere in this determination) is an intensely practical
endeavor, one in which mathematical precision is not possible, and
where ``rough justice'' is the norm. In this regard, the Judges also
follow--in addition to the Supreme Court holding in Matrixx--the
guidance of two scholars (also quoted above in the 2010-13
Determination) who have written extensively to caution, as a matter of
economic ethics, against a fixation on statistical significance:
Statistical significance is not equivalent to economic
significance nor to . . . legal . . . significance. . . . The core
problem is that statistical significance is neither necessary nor
sufficient for testing . . . material fact in a court of law. . . .
Stephen T. Ziliak & Deirdre McCloskey, Lady Justice Versus Cult of
Statistical Significance, in George F. DeMartino & Deirdre McCloskey,
The Oxford Handbook of Professional Economic Ethics 352-53 (2016). The
need to avoid overreliance on low levels of statistical significance
(i.e., large confidence intervals) has been emphasized by Dr. Kennedy,
in his textbook cited by the parties and the Judges in this proceeding.
See Kennedy, supra, at 366 (listing as one of his ``Ten Commandments of
Applied Econometrics'': ``Do not confuse statistical significance with
meaningful magnitude.'').
Accordingly, the Judges note specifically that the table above
shows, with regard to the confidence intervals for Dr. Tyler's shares,
only positive numbers for all claimant categories in 2015 at the 55%
level. Further, the table also shows only positive numbers for all
claimant categories for all confidence levels in all years except for
JSC, with a lower bound value for JSC of only -0.13 in 2016 and -0.26
in 2017.\170\
---------------------------------------------------------------------------
\170\ The negative JSC number at the higher confidence intervals
may be the consequence of the lower number of minutes in the
regression after the full WGNA conversion. As noted supra with
regard to small sub-categories of programming, when there are very
few minutes in the regression, the estimates can be inaccurate.
---------------------------------------------------------------------------
Although the Judges find these data to be persuasive in
demonstrating that Dr. Tyler's shares are reasonable, they are
concerned that the intervals remain somewhat wide, and they do not
simply dismiss out-of-hand the one negative lower bound at the higher
confidence intervals. Relatively wide ranges in regression results have
been a previous concern in these proceedings, as noted with regard to
the Waldfogel Model applied to the 2004-05 proceeding:
[W]hile the Waldfogel regression analysis provides useful
information, we also find that there are limits to that usefulness
in corroborating the Bortz survey, largely stemming from the wide
confidence intervals for the Waldfogel coefficients. Thus, the
implied share of royalties calculated by Dr. Waldfogel would change
substantially if the true value of the variable was at one end of
the confidence interval rather than at the point estimate value used
by Dr. Waldfogel in his calculations. . . . Nevertheless, while one
may question the precision of the results on this basis, it only
cautions against assigning too much weight to its corroborative
value.
2004-05 Distribution Order at 57063, 57068.
The reconciliation is different here than in the 2004-05
proceeding, because here the Judges are considering the regression
evidence and the Bortz Survey evidence as essentially equally weighted
and useful (but not flawless) evidence, rather than treating the
regression evidence as merely corroborative of the survey evidence.
Likewise, the reconciliation will be different than in the 2010-13
proceeding, because the Judges are not giving any primacy to the
regression evidence in this proceeding, given how the changes in the
retransmission sector after the WGNA conversion have affected the
available data. But the overall point remains: As in prior proceedings,
the Judges take note of the wide confidence intervals (and the negative
JSC coefficient at the lower bound), as one reason to balance the
shares implied by the Tyler Model, as adjusted above, against the
results of the Bortz Survey, also as adjusted.
XIV. 3.75% Fund
In the 2010-13 Determination, the Judges made no distinction within
the regression approaches themselves between allocation shares
attributable to the Basic Fund and to the 3.75% Fund. Rather, as here,
the Judges first made their overall allocation share decision after
applying all the useful evidence, including evidence from the surveys
and regressions. Only then did the Judges consider how to allocate the
claimants' royalty shares as between the Basic Fund and the 3.75% Fund.
Specifically, the Judges in the 2010-13 Determination engaged in
the following approach in reconciling the 3.75% Fund with the Basic
Fund: (1) The Basic Fund percentage allocations were made without
disaggregating royalties attributable to the 3.75% Fund and (2) the
3.75% Fund percentage allocations were made by ``reallocat[ing] the PTV
share from [the Basic Fund] proportionally among the categories that
participate in that fund.'' 2010-13 Determination at 3611. In reaching
this ruling, the Judges ``considered and rejected PTV's arguments that
the allocations of Basic Fund royalties must be adjusted to account for
PTV's non-participation in the 3.75% Fund.'' Id. (It is undisputed that
PTV cannot receive any share from the 3.75% Fund.)
In the present case, all the parties, except PTV, made arguments
and presented testimony proposing that the Judges make the 3.75% Fund
allocations in the same manner as in the 2010-13 Determination.\171\
PTV, however, through the Johnson Model, has departed from the prior
approach and calculated, via regression analysis, separate allocations
for the Basic Fund and for the 3.75% Fund. According to PTV, this is
warranted because, even though it was not the method used previously,
the Judges have acknowledged the ``need to allocate the Basic Fund and
the 3.75% Fund separately.'' PTV PHRB at 36-37. But PTV elides the fact
that Dr. Johnson's separate modeling of the two rates is not how the
separate allocations were accomplished in the 2010-13 Determination, as
noted supra.
---------------------------------------------------------------------------
\171\ CTV, through its counsel, proposed an alternative method
for allocating the 3.75% Fund in its RPHB at 64-65. However, this
proposed alternative was not linked to any portion of the record,
directly or indirectly. Factual assertions cannot be made after the
close of evidence and, in any event, cannot be made by counsel. The
Judges therefore do not consider CTV's alternative 3.75% Fund
proposal. See Johnson v. Copyright Royalty Board, 969 F.3d 363, 383
(D.C. Cir. 2020) (rejecting the Judges' reliance on a party's
proposal made ``for the very first time after the evidentiary record
was closed.'').
---------------------------------------------------------------------------
As other parties note, the approach sought by PTV and Dr. Johnson
is not only inconsistent with the Judges' prior approach, but also
inconsistent with the facts and with economic theory. As Dr. George
comprehensively explained:
[[Page 54233]]
Dr. Johnson's model produces biased results because it excludes
3.75% fees. Dr. Johnson's model relates base rate royalties rather
than total royalties to claimant programming minutes. . . .
[T{time} his approach does not align with the economic theory that
supports regression estimates in these proceedings. Specifically,
profit maximization dictates that systems add distant signals if the
full incremental value exceeds the full incremental cost. By
excluding royalties associated with 3.75% fees, coefficient
estimates do not reflect the full cost of distant signal carriage
and hence do not reflect the full value of claimant programming.
Stated another way, a cable system's choice to carry a signal
subject to 3.75% fees reveals the system's willingness to pay for
signals to be higher than the royalty expenditure Dr. Johnson
includes in his regression. Omitting 3.75% fees from the dependent
variable will produce regression coefficients that systematically
overstate the value of public television programming not subject to
3.75% fees and systematically understate the value of other
programming.
Dr. Johnson separately estimates his regression model using only
fees paid to the 3.75% fund. This model suffers from the same
problem as considering base rate royalties alone: the dependent
variable does not reflect the full incremental costs of carriage, so
the model produces biased estimates of program values. These
estimates also cannot be used to estimate the relative market value
of programming because they do not reflect the economic choices of
systems in the cable marketplace.
George WRT at 23-24 (emphasis added). See also Commercial Television
Claimants' Post-Hearing Brief in Support of Proposed Royalty
Allocations at 48 (CTV PHB) (``Dr. Johnson's isolation of the base and
3.75% fees is inconsistent both with basic economic intuition and
statistical evidence of a correlation between those carriage decisions
and thus does not account for the link between these retransmission
decisions.''); PS PHB at 55 (``There is no rational economic reason to
exclude decisions relating to the carriage of non-permitted stations in
assessing CSO preferences.'').
The Judges agree that it makes no economic sense to separate out
the two royalty fund payments when the CSOs would economically make no
distinction between the two funds when identifying their royalty costs
and benefits. (That is, money is fungible, and the CSOs would be
indifferent as to how their royalty payments were divided between the
two funds.) Further, the Judges are struck by the fact that PTV and Dr.
Johnson did not take note of this point when proposing their novel
approach, and that PTV's novel approach just so happened to
significantly increase PTV's allocation share in the Basic Fund. See
CTV PHB at 48 (and record citations therein) (``[I]f Dr. Johnson had
estimated his regression using both the base fee and 3.75% fee, the
implied shares for PTV would have dropped by more than 5% . . . from
2015 to 2017.''). See also Johnson WRT tbl.4 (acknowledging a five-
percentage point increase in PTV's Basic Fund over the 2014-2017
period, from 43.5% to 48.5% (an 11.5% increase in PTV's share), by
separating out the allocations for the two funds).
Accordingly, nothing was persuasively presented in the regression
analyses to support a deviation by the Judges from establishing the
3.75% fund allocations as they adopted in the 2010-13 Determination.
XV. Industry Experts
A. Assumptions Regarding CSO Behavior
PTV offered industry expert testimony Lynne Costantini who
testified that cable companies evaluate whether to add, delete or
maintain channels on their lineups by analyzing the overall value a
particular channel adds to their content offerings and the ability of
the programs on the channel to attract and retain pay TV subscribers,
within the context of the programming mix on the then-current lineup,
as well as technological and economic constraints.\172\ Written Direct
Testimony of Lynne Costantini, Trial Ex. 7301, at 5 (Costantini WDT);
3/27/23 Tr. 1591-92 (Costantini). She then offered her opinion that,
based on the aforementioned programming goals of CSOs, the relative
value to cable companies of programs included in PTV Distant Broadcast
Stations had increased. Costantini WDT at 8-10. Several other industry
experts attested to the value of programming that attracts and retains
subscribers. See, e.g., Written Direct Testimony of Kate Alany, Trial
Ex. 7302, at 2 (Alany WDT); Singer WDT at 7-8; Written Direct Testimony
of Daniel Hartman, Trial Ex. 7110, at 7-9 (Hartman WDT); Witmer WRT at
7; Written Direct Testimony of Alex Paen, Trial Ex. 7603, at 13.
---------------------------------------------------------------------------
\172\ This testimony is consistent with the Judges' findings in
prior distribution proceedings 2010-13 Determination at 3590 (``CSO
executives' valuations reflect their conclusions regarding the
extent to which the category of programming contributes to the
return on that investment; i.e., helps the cable system attract and
retain subscribers.'').
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Sue Ann Hamilton, an industry expert whose testimony on behalf of
Program Suppliers in the 2010-13 Cable Proceeding has been submitted as
designated testimony in this proceeding, testified that a CSO's
selection of stations for distant retransmission is marked by inertia,
not by an affirmative analysis and weighing of alternative stations.
Written Direct Testimony of Sue Ann Hamilton (2010-2013), Trial Ex.
7061, at 7 (Hamilton WDT (2010-13)). She identified two reasons for CSO
inertia. First, distant retransmission costs represent a non-material
expenditure for CSOs compared with their other more expensive
programming and carriage decisions. Id. at 9. Second, she testified
that CSOs are more concerned with losing existing subscribers if they
drop certain stations and the associated programs than they are with
whether or not any new retransmitted station and its associated
programs might entice new subscribers. Id. In industry jargon, CSOs are
more concerned with legacy distant signal carriage than with adjusting
the roster of distantly retransmitted stations. Id. at 15. Thus, Ms.
Hamilton implied, any correlation between program categories and
royalties is spurious, because it is ``inconsistent with [her]
understanding of how CSOs actually make distant signal carriage
decisions.'' Id.
The Judges again find that Ms. Hamilton was a knowledgeable and
credible witness, particularly with regard to the de minimis impact of
distantly retransmitted stations on CSOs and the importance of ``legacy
carriage.'' Moreover, the Judges take note that CSO time and effort are
themselves finite resources (opportunity costs), and, as Ms. Hamilton
implied, it would behoove a rational CSO to expend more of those
resources making carriage and programming decisions with a greater
financial impact.\173\
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\173\ Given the low value of retransmitted stations, a CSO might
rationally emphasize the value of ``legacy carriage'' as a heuristic
(without further analytical effort), assuming as Ms. Hamilton
implies, that eliminating a distantly retransmitted legacy station
and its programs is more likely to cause a loss in subscribers than
a change in station lineup is likely (without further and costly
analytical effort) to increase the number of subscribers.
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Based on the entirety of the record, the Judges do not find that
the relative unimportance of distantly retransmitted stations to a CSO
has deprived the regressions in evidence of value in this proceeding.
Even if CSOs emphasize legacy carriage over potential increases in
value from adding or substituting different local stations for distant
retransmission, otherwise well-constructed regressions remain a
reliable approach to capture the relative values of those legacy-based
decisions. The Judges are mindful that regression analyses provide
benefit because they look for a correlation between economic actors'
choices (the independent explanatory variables) and the dependent
variables as potential circumstantial evidence of a causal
[[Page 54234]]
relationship, but they do not purport to explain what lies behind such
a potential causal relation.
B. Value
1. Volume of Programming Minutes
Several industry expert witnesses testified that, from a
distributor's perspective, the value and volume of certain categories
of programming are not correlated. See, e.g. Witmer WRT at 11; 4/10/
2023 Tr. 4050:11-4051:8 (Witmer); 4066:1-3, Singer WDT at 19; Singer
WRT at 8; Hartman WDT at 23; Written Rebuttal Testimony of Daniel
Hartman, Trial Ex. 7111, at 9 (Hartman WRT); Written Direct Testimony
of John S. Sanders, Trial Ex. 7500, at 25 (Sanders WDT).\174\ Such
testimony was generally offered to challenge the regression analyses
that look to the relationship between the total royalties paid by cable
operators for carriage of distant signals and the quantity of
programming minutes by programming category a reliable methods to
assign relative market value. A similar indication, that value and
volume of certain categories of programming are not necessarily
correlated, was also expressed by industry experts who testified on
behalf of proponents of regression analyses using minutes of
programming. For instance, Lynne Costantini, industry expert offered by
PTV, testified that ``you don't sell programming or buy programming
based upon the number of minutes.'' 3/28/23 Tr. 1735-36 (Costantini).
However, industry experts also cautioned against simply looking at the
price of programming and not weighing the volume of licensed content
available to consumers when assessing relative marketplace value. 4/19/
23 Tr. 5406-07 (Homonoff).
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\174\ At the same time, several of the same JSC experts conceded
that there is a relationship between price, or willingness to pay,
and quantity of live team and professional sports games. 4/3/23 Tr.
at 2798-99 (Singer); 4/05/23 Tr. at 3317, 3318 (Warren); 4/10/23 Tr.
at 4072-73 (Witmer).
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Based on the entirety of the record, the Judges are not persuaded
by industry expert testimony that the value and volume of programming
are not correlated. The industry expert evidence is set against the
more well-established sound economic reasoning underlying the
regression analyses in this proceeding. The explanation for the Judges
finding logical economic bases to rely on allocations based on
programming minutes by programming category from the regression
analyses is addressed supra.
That is not to say that regressions correlating program category
minutes and a measure of royalties is necessarily the only way to
determine value. As discussed elsewhere in this determination, and as
confirmed by some of the industry testimony, the Judges recognize that
certain categories of programming, particularly JSC programming,
bundled together with programming from other claimant categories, can
have a value (in terms of retaining or adding subscribers) necessarily
that is not well-correlated with overall program minutes. To the extent
that this bundling of programming with varying values is not smoothed
out by the averaging undertaken by the regressions, survey analysis
would be an appropriate tool to identify such value to a CSO within a
station bundle.
2. Unique Niche Content
CCG, JSC, and SDC assert that the regression analyses fail to
adequately capture the value of ``niche'' programming or to
appropriately reflect the testimony of industry expert fact witnesses
concerning the salient market conditions in the cable industry during
the years at issue in this proceeding. CCG PFF at 178-79 and record
citations therein; SDC PFF at 64 and record citations therein; JSC PFF
at 58-59 and record citations therein.\175\ The Judges were urged to
test the validity of regression analyses against other evidence of
value, as a ``reality filter.'' \176\
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\175\ JSC also asserted that regression analysis was unreliable
as it overvalued certain content types in relation to JSC content,
pointing to valuations of paid programming, devotional content, and
public television content. JSC PFF at 60-65 and record citations
therein
\176\ Asker WRT at 45 (``It is standard practice in econometric
research to test the external validity of findings whenever
alternative methods are available to answer the same question.'');
Harvey WRT at 38-41; 3/28/23 Tr. 1910:3-1911:3 (Harvey) (agreeing
with Judge Strickler that ``validity test'' is synonymous with
``reality filter''); 4/18/23 Tr. at 5168:8-5169:8 (George) (urging
that the reality filter should reflect the relevant marketplace
being considered/measured), See also, CCG PPFCOL at 31 and record
citations therein.
---------------------------------------------------------------------------
JSC's industry expert witnesses testified that JSC content is
unique as ``perishable'' content. 4/3/23 Tr. 2750 (Singer). That is,
each live game is a singular, real-time event. Mr. Singer asserted that
JSC content is largely unique in the marketplace as among the last
regularly scheduled ``tune-in'' programs. He added that live sports
competitions are mostly only important while they are taking place, do
not lend themselves to recording, and are not compelling on replay. He
further stated that sports are popular with a passionate segment of
customers of the type that television distributors focus on retaining.
Singer WRT at 4-5.\177\ Such sentiments, offered as an indication of
the unreliability of regression analyses and their results, were
reiterated by additional JSC industry expert witnesses. 4/5/23 Tr.
3349-50 (Hartman); Witmer WRT at 9; 4/10/23 Tr. 4061-62 (Witmer);
Hartman WDT at 10; JSC PFF at 134-41 and record citations therein.
---------------------------------------------------------------------------
\177\ Mr. Singer asserted that games are particularly valuable
cases of retransmission to geographic areas with deep affinity to
specific teams. Singer WDT at 17-18. Several examples of such
transmissions were cited to by JSC. JSC PFF at 28-30 and record
citations therein. This assertion was disputed by Program Suppliers
as merely anecdotal. PS PFF at 43-44 and record citations therein.
---------------------------------------------------------------------------
SDC points to similar assertions from industry experts regarding
the value of its niche content. Written Direct Testimony of Toby
Berlin, Trial Ex. 7508, at 7-10; Written Rebuttal Testimony of John S.
Sanders, Trial Ex. 7501, at 27 (Sanders WRT); SDC PFF at 76-79 and
record citations therein. Program Suppliers noted that niche
programming is not limited to devotional content, and that non-JSC
``Other Sports'' programming is valued as niche programming. PS PFF at
18-19, citing 4/10/23 Tr. at 3824-25 (Berlin), and other record
citations therein. Similarly, CCG observed that its programming,
including French content, qualifies as unique and valuable niche
programming that attracts and retains subscribers. CCG PFF at 178-79,
citing Kirshenblatt WDT at 10-18.
The Judges find Mr. Singer and Mr. Berlin to be particularly
credible witnesses in relation to their testimony regarding the unique
value of JSC content and SDC content in relation to the other content
categories during the relevant time period. Based on the entirety of
the record, the Judges are persuaded that evidence of the unique value
of CCG, JSC, and SDC content serves as a limitation on the
applicability of certain proposed regression analyses and their
resulting proposed allocation results. These validity test or reality
filter findings do not negate valid application of regression analyses
as a basis for allocation. However, these factors are taken into
account within the Judges' weighting of the allocation methodologies,
including application of the Bortz survey, as addressed infra.
3. Streaming and Availability on Other Platforms
JSC testified that the value of programming is diminished when that
same type of content is available elsewhere, especially for cheaper or
no cost. 4/3/23 Tr. 2749 (Singer); 4/5/23 Tr.
[[Page 54235]]
3357 (Hartman); Hartman WDT at 18-19. The JSC industry expert witnesses
testified that there is a lower risk of losing any subscribers when
such content is not carried. Witmer WRT at 14; 4/5/23 Tr. 3378:12-24
(Hartman); Hartman WDT at 18-19. These sentiments were echoed by PTV's
industry expert Lynne Costantini. Costantini WDT at 7; 3/28/23 Tr.
1718-19 (Costantini).
SDC pointed to testimony of a similar dilutive effect from
streaming, regarding Program Suppliers' programming. SDC noted that
syndicated series and movies, represented in Program Suppliers content,
historically had often exclusively run on broadcast stations, but were
increasingly becoming available on streaming platforms, which grew in
popularity during the relevant period. SDC PFF at 108, citing
Costantini WDT at 7; Hartman WRT at 10-11. SDC also argued that its
content did not suffer from a dilutive effect from streaming, as
streaming services were not designed to cater to devotional audiences,
thus preserving the retentive value of SDC content to CSOs. SDC PFF at
109-10 and record citations therein.
Program Suppliers asserted that while syndicated shows and movies
are available on streaming platforms, that does not necessarily detract
from the value of such programs on distant signals. It noted that that
as streaming rose, the volume of Program Supplier content carried on
distant signals rose as well. 4/19/23 Tr. at 5408 (Homonoff).
CCG testified that while significant CCG content was offered
through streaming, it was generally only after exclusive premier via
broadcast. Kirshenblatt WDT at 11-13; see also Written Direct Testimony
of Tom Cox, Trial Ex. 7401, at 1-2. PTV offered testimony that during
the relevant years significant portions of PBS programming were offered
and viewed free through various digital streaming options. PTV also
testified that PBS sold streaming devices related to such free
streaming content. 3/27/23 Tr. 1545-50 (Alany).
CTV offered that during the relevant period, the dilutive effects
of streaming were not present for original live and local CTV
programming or for JSC programming, which was largely unavailable on
streaming platforms. Written Rebuttal Testimony of Robert Papper, Trial
Ex. 7206, at 45 (Papper WRT); Written Rebuttal Testimony of Mike
Vaughn, Trial Ex. 7205, at 4. CTV PFF at 11-15, and record citations
therein. CTV's industry experts, as well as Professor Marx, were
especially convincing in distinguishing the effects that streaming had
on CTV content versus other types of programming. See, e.g., 4/11/23
Tr. 4240:22-4241:12; Tr. 4234:6-10 (Marx).
The Judges find credible evidence that Program Suppliers' content
was more predominantly available through streaming channels during the
relevant period. Therefore, based on the entirety of the record, the
Judges find evidence of dilutive effects to be persuasive as an
indicator of decreased relative value of Program Suppliers content.
Additionally, the Judges find that CTV content, especially original
live local news content, was generally not diluted by streaming and
that this is a persuasive indicator of relative increased value of CTV
content. The Judges apply these factors into their weighting of
allocation methodologies. Duplication
Industry executives testified that duplicative content does not add
value as it does not further CSOs' goals of subscriber retention.
Singer WRT at 15-16; Hartman WRT at 12; Witmer WRT at.15. JSC asserted
that a significant proportion of the programming on distant PBS signals
was duplicative of what was already available from CSOs to subscribers,
and reiterated that such duplication did not provide value. Harvey CWDT
at 51; Witmer WRT at 14; 4/10/23 Tr. 4064:18-4065:4 (Witmer).\178\ JSC
pointed to a study that found rates of duplication for these programs
to be as high as 98.9%. Harvey CWDT at 55 tbl.28. Mr. Papper also
asserted that programming on PTV stations is mostly duplicative and
much of it at the exact same time. Papper WRT at 15. Mr. Papper
provides specific examples to demonstrate duplicative airing of
programming, all demonstrating higher duplication than the overall
result average. Id at 16-41. Mr. Papper notes that the duplication was
a bit lower in 2016 and 2017, but there still is significant
duplication of programming. Id. at 41. In contrast, duplication with
CTV signals was perceived as minimal. Id. at 42. Mr. Papper argues the
large amount of duplicative programming rarely provides a good reason
to import a distant PTV signal unless there really is not a local one.
He argues this is supported by the data in which during the 2014-2017
period, only slightly more than a third of the systems and slightly
over a quarter of the subscriber groups had both a distant and local
PTV signal. Id.
---------------------------------------------------------------------------
\178\ SDC offered a similar view of PTV content. See SDC PPFCOL
at 112, record citations therein.
---------------------------------------------------------------------------
The assertions against finding value of duplicative programming
were criticized for treating programs as duplicative even if they did
not air at the same time on both the distant and the local signal or
even if the distant and local signals aired different episodes of the
same program. Johnson WRT Ex. 7303 at 40-44.\179\ Dr. Johnson argued
that different episodes of the same program are distinct programming,
and a single episode of a program can create incremental value if shown
at a different time. Dr. Johnson conducted an analysis of duplication
and found that only approximately 20 percent of PTV programs were
retransmitted to subscriber groups at the same time as a local
broadcast. Id. at 41. JSC addressed the former point by the minimal
value of time-shifted programming does not accrue to retaining cable
subscribers. 4/3/23 Tr. 2764:13-19 (Singer).
---------------------------------------------------------------------------
\179\ PTV's witness Ms. Alany acknowledged duplication as an
issue, suggesting that local public television stations may adjust
programming schedules in order to avoid or minimize duplication, but
did not offer any evidence of such adjustments having taken place.
Alany WDT at 21; 3/27/23 Tr. 1557:20-25 (Alany).
---------------------------------------------------------------------------
Based on the entirety of the records, the Judges find that
significant duplicative content does not, in general, have the same
value as non-duplicative programming. The industry experts presented
reliable testimony that simultaneous or near simultaneous programming
does not enhance the ability to attract and retain customers. However,
the Judges also find that time shifted programming does have some value
to customers, affording them greater flexibility in their viewing, and
therefore provides customer retention value to CSOs. The Judges address
this factor in making adjustments to regression methodologies (the
Bennett adjustment) and in the Judges' weighting of the allocation
methodologies.
4. Bandwidth
Ms. Costantini testified that CSOs' programming decisions should
reflect the highest and best use of scarce bandwidth, and that all
decisions to carry programming are thus necessarily indicative of
value. Regarding bandwidth issues, Ms. Costantini challenged the
testimony of other industry experts (addressed below) by asserting that
bandwidth considerations were a significant factor in the programming
decision-making of cable companies during the relevant time period.
Costantini WRT at 3-6. She testified that during the relevant period,
many cable companies provided three distinct products: pay TV,
broadband internet (important to support internet video products) and
IP phone, each of which competed within the CSO that was seeking the
most profit able uses of
[[Page 54236]]
appropriate amounts of bandwidth. Ms. Costantini testified that CSOs
placed more value on broadband internet than CSO television
programming. Costantini WRT at 4; 3/27/23 Tr. 1597-1605 (Costantini).
In support of this view, she pointed to her professional experience
while seeking cable distribution during the period 2012-2016, including
negotiations with CSOs that oftentimes cited bandwidth allocation as a
reason not to carry a new channel. Costantini WRT at 5-6. However, Ms.
Costantini also testified to an inability to determine whether ``most
or many or the majority'' of CSOs even provided internet service
(bandwidth) during the relevant time period. 3/27/23 Tr. 1613
(Costantini).
Ms. Witmer testified that during the relevant period, advances in
digital technology meant that bandwidth was no longer a significant
driver of carriage decisions. Witmer WRT at 7 n.3. Ms. Witmer asserted
that deployment of switched digital technology, headend consolidations,
and reclamation of analog bandwidth cable channels opened up
considerable digital bandwidth on systems that enabled the launch of
more channels and other consumer products such as telephone and
broadband services. Several other industry experts also testified that
bandwidth was no longer a constraint during the relevant period. Singer
WDT at 7; Singer WRT at 5; 3/30/23 Tr. 2595:13-2597:24 (Majure); 4/3/23
Tr. 2764:20-2765:14 (Singer).
Based on the entirety of the record, the Judges are not persuaded
that bandwidth remained a significant concern for most CSOs who the
record established employed more advanced technology than in previous
periods. Bandwidth allocation may have been a legitimate but un-
specific concern for smaller CSOs that had not employed improved
digital technologies in the early years of the relevant time period.
However, on the current record, the Judges are not able to perceive any
reliable scope of bandwidth being a significant concern for CSOs in
relation to programming decisions. Therefore, the issue does not impact
the Judges consideration of the methodologies or resulting allocations
offered this proceeding.
5. Other Factors: Cost, Acclaim, Trust
Ms. Alany's offered testimony to indicate relative market value of
PTV content is demonstrated by production cost and quality/acclaim of
content as well as the level of trust that PBS enjoys in the public
eye. See, e.g., Alany WDT at 6-12, citing PBS Trust Brochures 2014-
2018; 3/27/23 Tr. 1535:16-1537:1 (Alany). Other industry experts also
offered similar testimony regarding production cost matters and
quality/acclaim. 4/13/23 Tr. at 4918-21 (Paen).
In response, other expert witnesses argued that such
characteristics do not equate to the ability to attract and retain
subscribers and economic value. Singer WRT at 17-18; Hartman WRT at 13-
15; Witmer WRT at 16. Ms. Witmer, on behalf of JSC, added that the
notion that costs of such programming should be considered in royalty
share allocation is contrary to the standard for determining the share
allocation, namely what would a cable system pay for the content absent
the section 111 license. Witmer WRT at 15.
Based on the entirety of this record, the Judges are not persuaded
that issues of production cost, quality/acclaim of content or the level
of trust that a producer enjoys in the public eye are meaningful toward
the Judges' determination of relative market value. The Judges
understand that, at some level, programming cost and acclaim may impact
value. However, the present record does not equip the Judges to
evaluate these factors on a comparative level. Sufficiently established
studies of comparative public trust in a producer's content especially,
news content, might be properly presented as a valid indication of
relative market value. However, the present record, including PBS-
commissioned trust survey, does not provide a reliable basis for
determining the ability to attract and retain subscribers or for
adjusting the Judges' determination of relative market value. In this
regard the Judges note that PTV did not adequately correlate levels of
public trust with what CSO might be willing to pay for programming.
Therefore, these factors do not impact the Judges' weighting of the
main methodologies or resulting allocations offered this proceeding.
C. Industry Experts Regarding Bortz Survey Respondents' Identity and
Capacity
In her rebuttal and hearing testimony, for PTV, Ms. Costantini
challenged the Bortz survey by asserting that the survey likely did not
reach the correct executive that is most responsible for carriage
programming decision-making in more than 75 percent of the surveyed
cable systems across the four years for the following reasons.
Costantini WRT at 6-10, 18-47; 3/27/23 Tr. 1621-25, 1595-96
(Costantini). She maintained that the survey likely did not interview
the individuals most responsible for programming carriage decisions for
these cable systems. Id. She appeared to accept that Bortz Media used
the Television & Cable Factbook (Factbook) to identify contacts for
each respective system, particularly telephone numbers, and that Bortz
Media usually selected the senior-most executive from that cable system
to list as the initial point of contact or the survey questionnaire.
Costantini WRT at 6-7. However, she indicated the approach was faulty
because the Factbook does not specifically identify programming
carriage decision-makers. She stated that in her experience job
position titles at cable companies are insufficient without other data
points to assess whether the individual is likely to be most
responsible for programming decisions. She testified that in the
majority of instances, the description of Bortz respondents' positions
do not indicate programming decision-making responsibilities.
Costantini WRT at 8.
Ms. Costantini also noted that while some respondents are unlikely
to be most responsible for programming carriage decisions, especially
for larger cable companies, in some instances, they may provide
valuable input regarding programming carriage to the ultimate decision-
makers. She added that the persons holding regional management
positions are not necessarily more likely to be most responsible for
making programming decisions and that at larger cable companies persons
holding regional management positions would not be the persons most
responsible for making programming decisions. 3/27/23 Tr. 1621-22
(Costantini). She also found that it would be highly unlikely for the
title or position of the person most responsible for making programming
decisions at a cable system to change year to year, as was alleged to
be the case in the Bortz survey. Costantini WRT at 9. These factors led
Ms. Costantini to opine that Bortz likely did not interview the persons
most responsible for programming carriage decisions for more than 75%
of the surveyed cable systems across the four survey years. A summary
of these issues was included as Table 1 to her rebuttal testimony.
Costantini WRT at 18-47.
Ms. Costantini added that the Factbook data are potentially
unreliable as a foundation from which Bortz could ascertain the persons
most responsible for making programming decisions at the surveyed CSOs.
Costantini WRT at 6-7. She also found fault with the Bortz survey's
failure to attempt to independently validate the respondents' roles and
responsibilities utilizing publicly available sources such as LinkedIn
or cable companies' websites, or by asking other questions to confirm
they were speaking to the appropriate person. Costantini WRT at 6-7.
[[Page 54237]]
Ms. Costantini testified that the questions asking respondents to
assign importance, cost, and value to programming on distant broadcast
stations are inconsistent with how programming carriage decisions are
made by cable companies. Costantini WRT at 10. She maintained that
station carriage decisions are not made based upon inclusion or
exclusion of a category or genre of programming, but rather on the
entire bundle of the distant broadcast station's programming schedule.
Costantini WRT at 9.
Ms. Costantini opined that the Bortz survey questions lacked the
qualitative and quantitative specificity needed for respondents to
accurately answer questions and that respondents would not necessarily
understand the terminology used in the questions, and that the
questions do not sufficiently address the interplay and overlap across
some categories. Costantini WRT at 12-13. A similar concern was also
asserted by Sue Ann Hamilton who testified in the 2010-13 Cable
Proceeding that the programming categories adopted in royalty
distribution proceedings are unique and ``quite different from the
industry understanding of what programming typically falls in a
particular programing genre.'' Hamilton WDT (2010-13) at 10. Oral
Testimony of Sue Ann Hamilton (2010-13), Trial Ex. 7063, at 4309, 4312;
Written Rebuttal Testimony of Sue Ann Hamilton (2010-13), Trial Ex.
7062, at 17-18 (Hamilton WRT (2010-13)). For example, she testified
that ``most cable operators'' would not recognize that pre- and post-
game interviews and highlight compilation telecasts would fall into the
Program Suppliers category, or that locally produced high school team
sports would fall into the Commercial Television category. Id. at 11.
Ms. Hamilton further opined that cable operators were not likely to
differentiate between network and non-network sports telecasts and that
migration of live team sports programming to regional cable networks
further complicates the equation. See Hamilton WRT (2010-13) at 17-18.
Ms. Costantini criticizes the Bortz Survey for not providing enough
information and time for the respondents to answer the questions
accurately. Ms. Costantini expressed doubt that any respondent could
accurately answer the survey questions in the course of the telephone
interview. She also testified that it is highly doubtful that the
respondent would need access to extensive information that would not be
readily available to most respondents. Costantini WRT at 10-13.
Mr. Singer and Ms. Witmer, testifying on behalf of JSC, disagreed
with Ms. Costantini regarding inappropriate respondents in the Bortz
survey. They testified that, while ultimate responsibility for carriage
decisions may be at the corporate level, the individuals with the
knowledge of why specific distant signals were carried, and why they
were valuable to the system in a specific area, would be at the local
or regional level. 4/3/23 Tr. 2769-73 (Singer); 4/10/23 Tr. 4054-55,
4061 (Witmer). Mr. Trautman also agreed with this assessment, adding
that there is no one-size-fits-all standard for what position or level
within a cable system is going to be associated with the person most
responsible for programming decisions. 4/3/23 Tr. 2845-46; 2849
(Trautman).\180\ Mr. Singer noted that the relevant titles at cable
systems for individuals responsible for programming were ``all over the
place'' and that there was not necessarily just one person responsible
for programming carriage decisions at CSOs. 3/20/23 Tr. 2770-71
(Singer). Ms. Witmer also testified that the titles of relevant
executives were a legacy of the history of lots of small systems that
rolled up into bigger consolidated systems, and often had various
titles, and they were not necessarily consistent from one system to the
next. 4/10/23 Tr. 4060-61 (Witmer).
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\180\ JSC also noted that in a prior proceeding the Judges noted
that it is not unreasonable to think that CSOs have maintained an
institutional memory of the requirements of these proceedings. JSC
RPFF at 32 and citations therein.
---------------------------------------------------------------------------
Mr. Trautman testified that use of the Factbook as an initial point
of contact or the survey questionnaire is a feature, not a flaw, of the
Bortz survey that is an effective tool for assuring survey respondents
are qualified. 4/3/23 Tr. 2848-49 (Trautman). He added that while the
initial target is often not the survey respondent because ultimately,
the survey's goal is to speak with the person most responsible for
carriage decisions. Id.
Regarding the alleged difficult of accurately answer the survey
questions or understand the categories at issue, Ms. Witmer testified
that the respondents would have been able to answer the questions. She
further testified that the categories of programming listed in the
questionnaire make sense to her as a cable executive. She explained
that it is common in the cable industry for channels to have different
kinds of content on them, but that people working the cable industry
and the programming area would be more than capable of understanding
the categories of content separate and apart from particular linear
channels. 4/10/23 Tr. 4052-55 (Witmer).
Regarding the alleged complexity of addressing the complexity of
the Bortz questions, JSC pointed to designated testimony from the 2010-
13 proceeding from Mr. Hartman who explained that ``when you look at
the type of linear channels that we negotiate for, they really do fall
into categories.'' Mr. Hartman also testified that ``it's our day-to-
day job to kind of know . . . that type of programming.'' 2010-13
Hartman Oral Testimony Tr., Trial Ex. 7056, at 74-75.
While Ms. Costantini raises some reasonable concerns about the
Bortz survey, including concerns that the titles of some respondents
may not be indicative of those most responsible for programming
carriage decisions, the Judges observe that her criticisms were
routinely accompanied by significant caveats, such as being generally
applicable, and focused on larger cable companies. Furthermore, the
Judges note her acknowledging that ``there are lots of corner cases''
regarding appropriate titles of respondents.\181\ 3/27/23 Tr. at 1621-
22 (Costantini). Based on the entirety of the record, the Judges are
not persuaded that the issue of the respondents' titles is reason to
disregard reliance on the Bortz survey. Furthermore, the Judges find
that use of the Factbook as a starting point in pursuing the
appropriate respondents is not unreasonable. The Judges do not discount
the reasonable concerns that were established regarding titles, which
is a factor the Judges take into account within the Judges' weighting
of the Judges' reliance on the various allocation methodologies.
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\181\ The reference to lots of ``corner cases'' represents the
use of an engineering term indicating a situation that occurs
outside normal operating parameters. See Corner Case, Wikipedia,
https://en.wikipedia.org/wiki/Corner_case (last visited Aug. 28,
2023).
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Additionally, the Judges find some aspects of Ms. Costantini's
criticism of the Bortz survey questions are undermined by her
testimony, which depicted a high level of competency as a cable
industry executive who possessed a detailed understanding of nuances
underlying the questions in the Bortz survey. The Judges note Ms.
Costantini's testimony of her own prior roles in which she held
significant responsibility for programming carriage decisions for the
Time Warner cable system and was [REDACTED] 3/27/23 Tr. at 1642-43
(Costantini). Ms. Costantini's written and oral testimony indicated
that she would be capable of providing meaningful responses to the sort
of questions posed in the Bortz
[[Page 54238]]
survey, including while in roles that she was not the person most
responsible for programming carriage decisions.
With regard to the categories in the Bortz survey questions and the
categories in this proceeding, the Judges observe that they have not
changed for decades, giving CSOs time to acquaint themselves fully with
the programming comprising each agreed category. In the Judges view, it
is not unreasonable to conclude that, even with changes in personnel,
the CSOs have maintained an institutional awareness of the subjects and
categories at issue in the survey and in this proceeding, and therefore
that the Bortz respondents had adequate ability to understand the
relevant terminology in the Bortz questions.
Based on the entirety of the record, the Judges find that the
industry experts that responded to the Bortz survey were sufficiently
equipped to offer reliable evidence indicative of relative marketplace
value. The Judges do not find that the respondents' capacity to
accurately answer the survey questions or understand the categories at
issue serves as a reason to disregard the Bortz survey. Furthermore,
the Judges do not find that respondents' capacity serves as a
significant negative factor in the weighting of the various allocation
methodologies at issue in this proceeding.
In sum, the Judges agree that the Bortz surveys are far from a
perfect measure of relative market value, as discussed infra. However,
based on the entirety of the record, the Judges find that despite the
offered criticisms, the surveyed cable system executives were
sufficiently identified, competent and familiar with the subject matter
to provide reasonably reliable responses.\182\
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\182\ Regarding faulting the survey for excluding PTV-only CSOs
from the 2014 through 2017 surveys received in this proceeding, the
Judges address and account for the issue infra/supra (addressing
application of adjustment).
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XVI. Changed Circumstances
The Judges may vary from prior decisions when there are (1) changed
circumstances from a prior proceeding or (2) evidence on the record
before the Judges that requires prior conclusions to be modified
regardless of whether there are changed circumstances.\183\
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\183\ 2010-13 Determination at 3557 citing 1998-99 Librarian
Order at 3613-14.
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In the 2014-2017 period, several widely agreed upon changed
circumstances have taken place including (1) WGNA's conversion to a
cable network,\184\ (2) the reclassification of PTV signals from exempt
to non-exempt,\185\ and (3) the rise in streaming on alternative
platforms.\186\ Additionally, the Judges observe that the record
regarding the conduct and development of the survey and regression
methodologies has become more detailed than in prior proceedings. Based
on the agreed upon record and Judges' findings here and throughout the
determination, the Judges find that significant changed circumstances
occurred across the relevant period.
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\184\ See, e.g., Harvey CWDT ] 7. (Distant signal carriage
patterns in 2014 closely resembled those from the 2010-2013 period.
By contrast, starting in 2015, following the conversion of WGNA from
a superstation to a cable network at the end of 2014, CSOs
significantly decreased their use of the section 111 license, with
the vast majority of systems electing to carry far fewer distant
signals.); See also, Marx WRT ]] 6, 60; Marx ACWDT at 16, 20-26, ]
43; Bennett ACWDT at 11.
\185\ See, e.g., Marx ACWDT ]] 76-77, pp.28-29.
\186\ See, e.g., Witmer WRT ] 33, p.14; Costantini WDT ] 20,
p.7; Alany WDT at 12.
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XVII. Survey Evidence and Expert Testimony Relying On Surveys
A. Background
Three of the six parties in this proceeding rely on survey evidence
to support their arguments concerning the allocation of shares of the
subject royalty funds. For more than 40 years, a survey approach has
been offered in royalty distribution proceedings before the CRB and its
predecessor bodies (the CRT and CARP), more recently in Distribution of
the 2004 and 2005 Cable Royalty Funds \187\ and Distribution of Cable
Royalty Funds, Docket No. CONSOLIDATED 14-CRB-0010-CD (2010-2013).\188\
In the latter proceeding, data from three separate surveys administered
to cable system operators (CSOs) were offered during the hearing, and
then analyzed by the Judges in connection with their final allocation
distribution. See 2010-13 Determination at 3582; 4/3/2023 Tr. 2825
(Trautman). In this proceeding, only one survey was conducted for use
in possible litigation in connection with royalty distribution pursuant
to section 111 of the Copyright Act, produced during discovery in
accordance with applicable regulations,189 190 and then
offered by a party during the hearing. In particular, JSC, as supported
by fact and expert testimony, argues that a constant sum survey (in
which survey respondents allocate a fixed sum across different
categories, at least in this case, adding up to 100 percent) is well-
suited to revealing relative market values of distant signal
programming to CSOs. Specifically, JSC argues that the Bortz
Surveys,\191\ which it commissioned and offered for the years 2014
through 2017, reliably reveal market value relevant to this
proceeding.\192\ See, e.g., JSC PHB at 43-71; 4/3/2023 Tr. 2822-23
(Trautman). CTV and SDC also make arguments that rely on the Bortz
Surveys, as did some of their experts who testified during the hearing.
See, e.g., CTV PHB at 1-3, 42-79; Settling Devotional Claimants' Post-
Hearing Brief at 64-85 (SDC PHB). Yet, CCG, Program Suppliers and PTV,
supported by testimony of their experts, oppose reliance on the Bortz
Surveys. See, e.g., Post-Hearing Brief of The Canadian Claimants Group
at 50-77 (CCG PHB); PS PHB at 9-10, 57-77; PTV PHB at 38-71, 81-82.
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\187\ See 2004-05 Distribution Order.
\188\ See 2010-13 Determination at 3552, 3582.
\189\ See, e.g., Order 27 Granting in Part and Denying in Part
PTV Motion to Compel JSC to Produce Documents (Feb. 15, 2023); Order
30 On Public Television's Order to Enforce Order 27 (Mar. 31, 2023);
Order 31 Further to Order 30 on Public Television's Motion to
Enforce Order 27 (Apr. 12, 2023).
\190\ The Judges entered a Protective Order on February 17,
2022, pursuant to a Joint Motion filed by all participants. Order
No. 27 created a subset of further restricted information consisting
of the identities or other personally identifiable information (PII)
of Bortz Survey respondents for the years 2014-2017. See Order 27 at
5 n.6, 57.
\191\ JSC presented the Bortz Survey in documentary form in a
report, entitled ``Cable Operator Valuation of Distant Signal Non-
Network Programming: 2014-17'' (Bortz Report). During the hearing,
the Bortz Report was received into evidence as Trial Ex. 7101. 3/20/
2023 Tr. 305, 316.
\192\ JSC offered the first Bortz Survey to the CRT in 1983. 4/
3/2023 Tr. 2824-25 (Trautman); Bortz Rep. app. A; 2010-13
Determination at 3582.
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In addition, CTV called as an expert witness, Prof. Robert A.
Papper,\193\ who testified as to trends in the local television news
industry, and particularly his opinion as to the impact of those trends
on the relative value of CTV programming during the period 2014-2017.
His opinion relied in large part on the results of an annual survey
that he has directed for many years, which is called the Radio
Television Digital News Association Annual Survey (RTDNA Survey),\194\
especially articles and studies (mainly authored or co-authored by
Prof. Papper) that concern the results of the RTDNA Surveys for the
period 2014-2017. RTDNA Survey information, and the articles and
studies on which Prof. Papper relied, are appended to his written
direct testimony. See, e.g., 4/11/23 Tr. 4361-63 (Papper); Written
Direct
[[Page 54239]]
Testimony of Robert Papper, Trial Ex. 7201 (Papper WDT); Papper WRT.
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\193\ Prof. Papper was qualified as an expert in broadcast and
digital journalism. 4/11/23 Tr. 4370 (Papper). He was retained by
the National Association of Broadcasters on behalf of CTV (i.e., the
CTV claimants in this proceeding). Papper WDT at 1.
\194\ The RTDNA survey was conducted for at least two decades
before Prof. Papper began to administer it in 1994. 4/11/23 Tr. 4367
(Papper).
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An issue was raised as to whether or not large portions of Prof.
Papper's testimony should be viewed as the introduction of a survey or
surveys, governed by 37 CFR 351.10(e) and, if so, whether CTV has
complied with the production requirements set forth therein. Indeed,
before the hearing, Program Suppliers filed their Motion in Limine to
Exclude Portions of the Testimony of Professor Robert A. Papper (MIL)
(eCRB no. 27485). In denying the MIL, the Judges determined, inter
alia, that the written direct and rebuttal testimonies, including the
portions subject to the MIL, ``express detailed opinions based in large
part on certain RTDNA Surveys, allowing Professor Papper to be examined
on his opinions,'' but that ``would not necessarily mean that the
surveys were offered or received into evidence.'' Order 29 at 8.
Application of section 351.10(e) was not required at that time. Id.
Program Suppliers made similar objections to portions of the Papper
testimonies during the hearing. See 4/11/23 Tr. 4354-55, 4366 (Papper);
4/12/23 Tr. 4445-52 (Papper). Subsequently, Program Suppliers filed
their Motion to Strike Portions of the Written and Oral Testimony of
Robert A. Papper (eCRB no. 28213). As discussed in Order 39 denying the
motion to strike, the RTDNA Surveys were not conducted for the purpose
of litigation or offered independently during the hearing as evidence.
Rather, the RTDNA Surveys were relied on by Prof. Papper in forming and
presenting his expert opinions, and the weight to be accorded data from
the RTDNA Surveys shall be determined within the context of evaluating
Prof. Papper's expert opinions.
B. The Bortz Surveys
1. Conduct of the Bortz Surveys for 2014 Through 2017
During the hearing, JSC called James M. Trautman, Managing Director
of Bortz Media & Sports Group, Inc. (aka Bortz Media), to sponsor the
Bortz Surveys, and their report (Bortz Report) which formed part of Mr.
Trautman's written direct testimony. Indeed, the Bortz Surveys,
including their report, were prepared under Mr. Trautman's direct
supervision at the request of Major League Baseball, the National
Football League, National Basketball Association, Women's National
Basketball Association, National Hockey League and the National
Collegiate Athletic Association (i.e., JSC in this proceeding). Written
Direct Testimony of James M. Trautman, Trial Ex. 7100, at 1 (Trautman
WDT); 4/3/2023 Tr. 2816-20 (Trautman). For nearly forty years, Mr.
Trautman has supervised market research addressing a wide range of
issues, for a variety of clients, affecting the cable and satellite
television industries, including issues related to the valuation of
television programming. Mr. Trautman has had primary responsibility for
management of previous CSO studies conducted by Bortz Media for JSC and
has testified concerning these studies in several proceedings before
the Judges of the CRB and their predecessors. In the 2010-13 cable
royalty distribution proceeding, he was qualified as an expert; and in
this proceeding, he was qualified as an expert in market research,
including survey research, applied market analysis and valuation in the
cable and broadcast television industries. 4/3/2023 Tr. 2821
(Trautman).
As explained by Mr. Trautman, the Bortz Survey is a telephone
survey. He further testified that each Bortz Survey offered in this
proceeding is a survey of local CSOs and was designed to address the
relative value that distant signal programming has to cable operators,
or would have in a free market. See 4/3/2023 Tr. 2821-22 (Trautman). As
explained by Dr. Mathiowetz,\195\ the Bortz Survey may be termed an
establishment survey because respondents answered questions of behalf
of a business or other entity rather than themselves. 4/10/2023 Tr.
3835 (Mathiowetz).
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\195\ Dr. Nancy Mathiowetz was called by JSC as an expert
witness at the hearing, and was qualified as an expert in survey
research methodology, questionnaire design and statistics. Dr.
Mathiowetz has testified before on behalf of JSC. 4/10/2023 Tr.
3828, 3835 (Mathiowetz); Mathiowetz CWDT; 2010-13 Determination at
3587.
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After a Bortz Survey was first offered in a royalty proceeding in
1983, changes have been made to the design of the survey, sometimes in
consultation with experts outside Bortz Media or its predecessor
company. Changes were made for the Bortz Surveys offered in this
proceeding, as compared to those offered in prior royalty proceedings,
including the most recent proceedings for distribution of 2010-2013
royalties. See 4/3/2023 Tr. 2824 (Trautman); 4/4/2023 Tr. 3013
(Trautman); 2010-13 Determination at 3582. For example, in 2015-2017,
the number of cable systems eligible for inclusion in the Bortz survey
had decreased, falling from 788 (in 2014) to 328-361 (for 2015-2017).
Bortz Media responded by shifting from sampling eligible systems for
2014 (as it had also done in earlier surveys) to attempting what it
refers to as a census of all eligible systems for the surveys conducted
for 2015, 2016 and 2017.\196\ Thus, for 2015-2017, Bortz Media states
that all eligible systems had an opportunity to respond to the surveys.
See Bortz Rep. at 21. Furthermore, in response to additional changes in
the cable industry, Bortz Media modified its questionnaire in 2015-2017
to account for WGNA's conversion to a cable network, which has already
been discussed with respect to the regression evidence received in this
proceeding.\197\
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\196\ Dr. Mathiowetz testified that she treated each of the
Bortz Surveys for 2015 through 2017 as a sample rather than a
census. She testified that while the Bortz Survey goal was to
include each eligible CSO, there is a different expectation with
respect to those Bortz Surveys and the data collection effort
compared to, for example, that of the decennial census in the United
States in which the goal is to measure absolutely every single
person in the country. 4/10/2023 Tr. 3842-47 (Mathiowetz). Thus,
when Dr. Mathiowetz made computations of standard errors for the
Bortz Survey for 2015 through 2017, she treated each survey as a
sample. 4/10/2023 Tr. 3844 (Mathiowetz).
\197\ Specifically, Bortz Media used two survey instruments for
the 2014 cable operator survey. There was one form for survey
respondents whose cable systems carried distant signals in addition
to, or other than, WGNA. Appendix B (entitled ``Survey
Instruments'') to the Bortz Report contains the additional distant
signals (ADS) questionnaire that was used with those survey
respondents. There was a second form for respondents whose cable
systems carried WGNA as their only distant signal (also included in
the Bortz Report, app. B). When using the second form, respondents
were provided with specific information about (and asked to value
only) the compensable programming on WGNA. For the years 2015
through 2017, only the ADS questionnaire was used because WGNA was
no longer a distant signal. Bortz Rep. at 24-25. Similarly, changes
were made to the Bortz weighting and projection approach for 2015-
2017 to account for the changes to the distant signal landscape in
that time period. See id. at 21 (citing Bortz Rep., Section II).
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As in earlier surveys, for the 2014-2017 period at issue in this
proceeding, Bortz Media surveyed so-called ``Form 3'' cable systems.
Form 3 systems are those that had at least $527,600 in semiannual gross
receipts from retransmitting broadcast signals to their
subscribers.\198\ According to the Cable
[[Page 54240]]
Data Corporation (CDC), which compiles data from the statements of
account (SOAs) that cable systems file with the Copyright Office, Form
3 systems accounted for more than 95 percent of total royalty payments
made by cable operators from 2014-2017. Furthermore, Form 3 systems,
unlike the smaller Form 1 and 2 systems, are well-suited for Bortz
surveys because they identify in their SOAs the distant signals that
they retransmitted. Bortz Rep. at 20. Nevertheless, inasmuch as some
Form 3 cable systems carry either no distant signals, or carry only
distant signals representing a single programming category (i.e., only
PTV signals or only Canadian signals), Bortz Media determined that it
would not be possible to obtain a comparative value judgment from
survey respondents regarding their distant signal programming.
Therefore, as it has done in connection with surveys offered in
previous proceedings, Bortz Media did not interview, or attempt to
interview, those systems in connection with the 2014-2017 Bortz
Surveys. Id.
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\198\ As indicated by Dr. Mathiowetz in her written direct
testimony, pursuant to section 111 of the Copyright Act, cable
systems are classified into three tiers based on the level of gross
receipts that they receive from their subscribers for the
retransmission of over-the-air broadcast signals. Small-sized and
medium-sized systems pay a flat royalty fee. With respect to large
cable systems (that use ``Form 3'' when filing their SOAs at the
United States Copyright Office), royalties are calculated as a
percentage of their gross receipts based on the distant signals they
retransmit. Yet, without regard to what (if any) distant signals a
system retransmits, all Form 3 systems must pay at least a minimum
royalty fee. See Mathiowetz CWDT at 6-7 (citing 2010-13
Determination at 3553 and 17 U.S.C. 111(d)(1)(B)-(C)). See also
United States Copyright Office, Statement of Account, SA3 (Long
Form), https://www.copyright.gov/forms/sa3.pdf (current) (for use
when a system's ``semiannual gross receipts for secondary
transmissions (the figure you give in space K of the form) is
$527,600 or more. . . .''); United States Copyright Office, Old
Cable Statement of Account Forms, https://www.copyright.gov/licensing/saold.html.
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The level of copyright royalty payments played an additional role
with respect to the 2014 Bortz Survey. As discussed above, for the 2014
survey, Bortz Media attempted to contact what it terms ``a stratified
random sampling of Form 3 cable systems,'' with the stratification
based on copyright royalty payments. Bortz Rep. at 20. JSC's expert
witness, Dr. Mathiowetz testified that as in the proceeding for 2010-
2013 royalties, her opinion is that ``the use of a stratified sample
results in an efficient sample that assures the resulting sample
mirrors the population of interest.'' Corrected Written Direct
Testimony of Nancy Mathiowetz, Ph.D., Trial Ex. 7107, at 7 (Mathiowetz
CWDT). In this case, Bortz Media obtained data from records compiled by
CDC, indicating the royalty amounts paid by all Form 3 systems, based
on SOAs filed by cable systems for the first accounting period of each
survey year. Bortz Media then constructed a sampling plan so that
proportionately more systems with large royalty payments were sampled
relative to systems with small royalty payments. Specifically, the
stratified sample included 361 Form 3 cable systems that collectively
paid approximately 86 percent of the total Form 3 royalties. Bortz
Media reasoned that cable systems that carried distant signals in 2014
were overwhelmingly paying copyright royalties that were derived
directly from the distant signals they actually chose to carry, and
further, while systems paying the largest royalties were typically
larger systems (as measured by subscribers served), they also reported
carrying more distant signals on average. Thus, Bortz Media concluded
that, in general, systems paying more royalties were making more use of
the section 111 license. Bortz Rep. at 20-21.
Once the CSOs for inclusion in the surveys were identified, Bortz
Media used the Television & Cable Factbook (Factbook), as it has in the
past, to identify contacts for each respective system, particularly
telephone numbers. The Factbook usually lists approximately three to
six managers or executives for each system. Bortz Media usually selects
the senior-most executive from that cable system to list as the initial
point of contact or the survey questionnaire. 4/3/2023 Tr. 2844-55
(Trautman); Bortz Rep. at A-17 n.57.
Bortz Media retained Sandra Grossman (then, of THA Research) to
conduct telephone interviewing for the 2014-2017 cable operator
surveys. Ms. Grossman specializes in conducting executive interviews,
particularly in the cable industry. Indeed, she has provided market
research to cable television industry clients for more than two
decades, during which she and her company have been retained by Bortz
Media or its predecessor for 17 cable operator surveys, starting with
the 2001 survey and continuing through the 2017 survey received in this
proceeding. Ms. Grossman personally conducted approximately 65 percent
of the interviews for the 2014-2017 surveys. It is unclear whether Ms.
Grossman relied solely on the information compiled by Bortz Media from
the Factbook to contact potential respondents, or whether she also
performed internet searches to obtain contact information. Three or
four additional interviewers were supervised by Ms. Grossman, and each
specialized in surveying professional and managerial personnel, with at
least five years of such experience. Interviewers were instructed to
call back each cable system as often as necessary to obtain a completed
interview or refusal. For almost every completed interview, no more
than three direct contacts with the eventual respondent were required.
Tr. 2841-45, 3258 (Trautman); Bortz Rep. at A15-17.
Interviewers were instructed that once they had made contact with a
cable system, they should ask first for the system executive identified
in advance as most likely to have responsibility for programming
decisions, and to confirm that he individual was the person ``most
responsible for programming carriage decisions made'' by the system.
The interviewers were instructed that if the identified executive did
not fit the description, the interviewer was to ask for the person who
was most responsible for programming carriage decisions. Calls were
placed to the cable system until the individual on the telephone
indicated that he or she was the individual most responsible for
programming carriage decisions. In all cases, the eventual survey
respondents were required to confirm that they were most responsible
for programming carriage decisions made by their systems. Bortz Rep. at
A-17.
Indeed, the ADS questionnaire which, as discussed above, was used
for many respondents for 2014, and all respondents for 2015-2017,
comprised four questions for the respondent.\199\ Question 1 asked the
respondent, ``Are you the person most responsible for programming
carriage decisions made by your system during [the year in question] or
not?'' Bortz Rep. app. B. If the response was no, the questionnaire
(e.g., for 2014) instructs the interviewer, ``ASK TO SPEAK WITH PERSON
MOST RESPONSIBLE FOR THE SYSTEM'S PROGRAMMING CARRIAGE DECISIONS IN
2014. REPEAT INTRODUCTION AND Q.1.'' Id.
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\199\ The WGNA questionnaire used for 2014 had differences in
wording specific to carriage of WGNA. See Bortz Rep. at 83-86.
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After the survey respondents were qualified, the interviewers
proceeded to the next questions. Questions 2 and 3 in the cable
operator survey are designed by Bortz Media as preliminary questions
intended to focus respondents on the particular distant signals carried
by the system in the survey year, the types of programming on those
signals, and certain factors (importance and cost) \200\ that
contribute to the key allocation (which Bortz Media sometimes calls a
``budget'' question) that will be required in the fourth and final
survey question.
[[Page 54241]]
Bortz Rep. at 27, 30. In Question 2, the interviewer identified the
particular distant signals (including call letters) for a specific
respondent's cable system (Question 2a). Bortz Media obtained the
distant signals for each system by reviewing each system's SOA at for
the year in question that was filed at the Copyright Office.\201\ The
interviewer then asked the respondent to rank up to seven\202\ non-
network programming categories on those distant signals in order of how
important it was for the system to offer each category.\203\ Id. at 24-
27; 4/3/2023; Tr. 2861-64 (Trautman). Indeed, for Questions 2, 3 and 4,
the number of programming categories provided to each respondent
depended on whether the distant signals listed on the respondent's SOA
included public television, Canadian, or live professional and college
team sports programming, with the corresponding categories excluded
when the respondent CSO did not carry the relevant programming on a
distant basis. Bortz Rep. at 26 n.36.
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\200\ The Bortz Report notes that in the 2010-13 Determination,
the Judges stated that the reference to expense in Question 3
``muddled the concepts of cost and value'' and that ``[t]his may
have injected some confusion into the respondent's estimation of
relative value.'' Bortz Rep. at 27 n.38 (quoting 2010-13
Determination at 3590); 4/3/2023 Tr. 2895 (Trautman); 4/5/2023 Tr.
3466 (Trautman). Mr. Trautman, on behalf of Bortz Media stated in
the report that he respectfully disagrees with this criticism, and
did not find any evidence of confusion in the 2010-13 Bortz surveys,
or in the 2014-2017 Bortz surveys. In any event, the 2010-13
Determination was not available until October 2018, when the 2014-
2016 surveys had already been completed, and the 2017 questionnaires
were in the field. Thus, there was no opportunity for Bortz Media to
evaluate potential changes to this survey question. Id.
\201\ For each of questions 2, 3 and 4, respondents that
reported carrying more than eight distant signals were only asked
about their eight most widely carried distant signals. This approach
was also followed in the 2010-2013 surveys. Bortz Rep. at 25 n.35;
2010-13 Determination at 3587 (``In the Bortz Survey, interviewers
asked respondents about a maximum of eight distant signals even if
their systems carried more.'').
\202\ The seven categories, which could be tailored for each
respondent, were: (1) Movies; (2) Live, Professional and College
Team Sports; (3) Syndicated Shows, Series and Specials; (4) News and
Other Station-Produced Programs; (5) PBS and All Other Programming
Broadcast by Noncommercial Station(s) ____; (6) Devotional Programs;
and (7) All Programming Broadcast by Canadian Station(s) ____. Bortz
Rep. at 32 & app. B at 79. These categories were intended by Bortz
Media to correspond with the program category definitions adopted by
the Judges. Id. at 26, app. C (``Program Category Definitions'').
\203\ For example, for 2014, Question 2b of the survey
instrument reads: ``Now, I'd like to ask you how important it was
for your system to offer certain categories of programming that are
carried by these stations. When you consider this, please exclude
from consideration any national network programming from ABC, CBS
and NBC. I've grouped the non-network programming on these broadcast
stations into seven categories. I will read these seven categories
to you to give you a chance to think about their relative importance
(READ EACH CATEGORY BELOW, STARTING WITH THE CATEGORY MARKED BY THE
NUMBER ``1''). Considering only the non-network programming on these
broadcast stations, please rank these seven categories in order of
their importance to your system in 2014, with one being the most
important category and seven being the least important category.
What is your ranking of importance for the 2014 (READ FIRST
CATEGORY, AS MARKED BY THE NUMBER ``1'') programming on the
broadcast stations I listed. (REPEAT FOR ALL SEVEN CATEGORIES, IN
ORDER LISTED BELOW. ENTER NUMERICAL RANK ON TABLE BELOW.)''
Bortz Rep. app.B at 79.
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When asking Question 3, the interviewer asked the respondent to
rank the same categories of non-network programming broadcast by the
same stations in order of how expensive it would have been to acquire
that programming if the system had been required to purchase it
directly in the marketplace. Id. at 26-27, app. B (Ex. 7101 at 80).
The final question, again for the ADS questionnaire only, was
Question 4, the constant sum question. In this question, the
interviewer asked the respondent to value the various types of non-
network programming on the distant signals that the respondent's system
carried during the relevant year. This required the respondent to
allocate a percentage of a finite dollar amount to each of the program
categories on the distant signals that the system retransmitted. Id. at
27-29. For example, Question 4a in the survey instrument that
incorporated the year 2014 in the text was, as follows:
4a. Now, I would like you to estimate the relative value to your
cable system of each category of programming actually broadcast by
the stations I mentioned during 2014, excluding any national network
programming from ABC, CBS and NBC. Just as a reminder, we are only
interested in U.S. commercial station(s)______, U.S. non-commercial
station(s) ____, and Canadian station(s) ____.
I'll read each of the seven programming categories we've been
discussing again to give you a chance to think about them; please
write the categories down as I am reading them. (READ PROGRAM
CATEGORIES IN ORDER, STARTING WITH CATEGORY MARKED BY THE NUMBER
``1''.)\204\ Assume your system spent a fixed dollar amount in 2014
to acquire all the non-network programming actually broadcast during
2014 by the stations I listed. What percentage, if any, of the fixed
dollar amount would your system have spent for each category of
programming? Please write down your estimates, and make sure they
add to 100 percent. What percentage, if any, of the fixed dollar
amount would your system have spent on (READ PROGRAM CATEGORY MARKED
BY THE NUMBER ``1'')?\205\ And what percentage, if any, would your
system have spent on (READ NEXT PROGRAM CATEGORY)? (COMPLETE LIST IN
THIS MANNER.)
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\204\ To prevent ordering bias, for each questionnaire, the
interviewer was provided with a preset, computer-generated random
order in which to read the program types, in order to prevent
ordering bias. Bortz Rep. at 29.
\205\ For Question 4, the categories, among other things,
incorporated the survey year, and other slight variations to the
categories listed for Questions 2 and 3. The possible seven
categories, to be identified by the interviewer, were: (1) Movies
broadcast during (survey year) by the U.S. commercial stations I
listed; (2) Live professional and college team sports broadcast
during (survey year) by the U.S. commercial stations I listed; (3)
Syndicated shows, series and specials distributed to more than one
television station and broadcast during (survey year) by the U.S.
commercial stations I listed; (4) News and public affairs programs
produced by or for any of the U.S. commercial stations I listed, for
broadcast during (survey year) only by that station; (5) PBS and all
other programming broadcast during (survey year) by U.S.
noncommercial station(s) ____; (6) Devotional and religious
programming broadcast during (survey year) by the U.S. commercial
stations I listed; and (7) All programming broadcast during (survey
year) by Canadian station(s) ____. Bortz Rep. at 28, app. B (7101 at
81) (2014 survey instrument). These categories were intended to
correspond with the program category definitions adopted by the
Judges. Id. at 28, app. C (``Program Category Definitions'').
---------------------------------------------------------------------------
Id., app. B (Ex. 7101 at 81).
The survey instrument instructed the interviewer to prompt the
respondent if the percentages did not add up to 100 percent. Id., app.
B (Ex. 7101 at 81). As Question 4b, the interviewer read back the
categories and estimates, and then asked whether each respondent wanted
to make any changes. Question 4b concludes the survey; and the Question
ends the interviewers thanking the respondents were for their time and
cooperation. Id., app B (Ex. 7101 at 82).
The interviews were conducted after the calendar year in
question.\206\ Interviews were completed with between approximately 54
and 58 percent of eligible cable systems.\207\ Upon completion of the
survey, THA Research returned the completed questionnaires to Bortz
Media for proofing and data entry. Bortz Rep. at A-16.
---------------------------------------------------------------------------
\206\ For the 2014, the survey period was 8/11/15-4/7/16; for
2015, the survey period was 8/11/16-4/23/17; for 2016, the survey
period was 10/06/17-4/26/18; and for 2017, the survey period was 7/
01/18-6/26/19. Bortz Rep. at A-16.
\207\ For 2014, the response rate was 53.8% (170 surveys
completed); for 2015, the response rate was 54.3% (197 surveys
completed); for 2016, the response rate was 57.7% (199 surveys
completed); and for 2017, the response rate was 54.6% (179 surveys
completed). Bortz Rep. at A-16.
---------------------------------------------------------------------------
2. Results Reported From the Bortz Surveys
As in prior distribution proceedings, in order to address the
issues relevant to this proceeding, the responses provided by the Bortz
Surveys, particularly the constant sum rankings obtained through
Question 4, must be expressed in terms of percentage allocations of the
cable royalty funds to be distributed for the years surveyed, which in
this case are 2014 through 2017. The procedures used by Bortz Media to
perform obtain such results are in the Bortz Report. See, e.g., Bortz
Rep. at A-18 through A-26.\208\
---------------------------------------------------------------------------
\208\ Bortz weighted survey results for 2014 based on the
royalties paid by responding systems in the first half of 2014, and
applied those results to the universe of Form 3 system royalties
(consistent with the weighting approach used in all prior Bortz
surveys). For the 2015 through 2017 surveys, inasmuch as most
systems carrying distant signals had become Minimum Fee Systems, the
methodology was changed to weight the results based on the Base-
plus-3.75 fees attributable to the actual signal carriage of the
Form 3 systems, and to apply the results using signal carriage-based
fee calculations rather than actual royalties paid. Bortz Rep. at
21-24, A-18.
---------------------------------------------------------------------------
[[Page 54242]]
Table I-1. Bortz Survey Relative Value Allocation by Year, 2014-17
from the Bortz Report shows the following compiled results:
Table I--1 Bortz Survey Relative Value Allocation by Year, 2014-17
----------------------------------------------------------------------------------------------------------------
Year
-------------------------------------------------------------------------------
2014 (n=170) 2015 (n=197) 2016 (n=199) 2017 (n=179) Average: 2014-
(%) (%) (%) (%) 17 (%)
----------------------------------------------------------------------------------------------------------------
Live Professional and College 40.4 28.5 28.5 31.5 32.2
Team Sports....................
News and Public Affairs Programs 26.0 29.7 30.0 30.6 29.1
Syndicated Shows, Series and 10.4 12.7 14.8 14.9 13.2
Specials.......................
Movies.......................... 11.4 13.8 13.1 9.0 11.8
PBS and All Other Programming on 5.9 7.9 6.8 7.8 7.1
Noncommercial Distant Signals..
Devotional and Religious 5.6 6.5 6.0 5.4 5.9
Programming....................
All Programming on Canadian 0.3 1.0 0.8 0.6 0.7
Signals........................
-------------------------------------------------------------------------------
Total....................... 100.0 100.0 100.0 100.0 100.0
----------------------------------------------------------------------------------------------------------------
Bortz Rep. at 2; see CTV PHB at 81 (summary of results for 2014 through
2017, with acronyms of claimant groups substituted for program
categories).
Nevertheless, as discussed below, no party unequivocally proposes
that the initial results, or allocations, of the 2014 through 2017
Bortz Surveys, reflected in Table I-1 of the Bortz Report, be used
directly to allocate shares of the royalty funds that are the subject
of this proceeding.\209\
---------------------------------------------------------------------------
\209\ See JSC WDS at 12-13 (``Claim of JSC''); but see JSC PHB
at 82 (``the evidence demonstrates that the adjusted Bortz survey
results are the most accurate and reliable basis for allocating the
2014-17 cable royalty funds''), 84.
---------------------------------------------------------------------------
3. Issues Raised With Respect to the Bortz Surveys
a. The Exclusion of PTV-Only and Canadian-Only Systems
As already detailed, Bortz Media chose not to survey Form 3 cable
systems that carried no distant signal, or that carried only distant
signals representing a single programming category. Thus, as it has for
surveys used in connection with prior proceedings, Bortz Media excluded
all PTV-only CSOs and Canadian-only CSOs from the 2014 through 2017
surveys received in this proceeding. See Bortz Rep. at 20; 2010-13
Determination at 3583; 2004-05 Distribution Order at 57067. Bortz
Media's stated rationale for this decision is that if PTV-only and
Canadian-only CSO were survey respondents, they would not be able to
provide comparative value judgments regarding their distant signal
programming. Id. While PTV-only and Canadian-only CSOs may be limited
in their ability to respond to provide a response to the Bortz Survey
value question as formulated, in prior proceedings, the Judges have
found that, while one must not ``overstate the impact of this
problem,'' the exclusion of such cable systems ``clearly biases the
Bortz estimates downward for PTV and Canadian programming;'' and
further, it has been observed that ``the Bortz survey may well be
improved in this regard, either through the reformulation of the
questions asked in the survey and/or by revisiting the underlying
survey sample plan.'' Id. In any event, the Bortz Media surveys at
issue in this proceeding exclude PTV-only and Canadian-only CSO, and
even the parties that rely on the Bortz Surveys, cognizant of
adjustments made in prior proceedings, offer certain adjustments to the
initial results of the Bortz Surveys. See, e.g., JSC PHB at 83-84; SDC
PHB at 82-85; CTV PHB at 79-84.
The adjustments were offered largely with the so-called
``McLaughlin Adjustment'' in mind, which has a long history in
connection with the Bortz Survey. For example, in the 2004 and 2005
proceeding, Linda McLaughlin, an economist, set forth calculations to
the Bortz Survey results to make, what the Judges deemed to be, an
``appropriate adjustment to the PTV share,'' although her efforts did
not fully mitigate deficiencies in the Bortz results with respect to
others, such Canadian claimants. 2004-05 Distribution Order at 57064,
57070, 57073 (her ``efforts to correct for cable systems excluded from
the survey because they only carry a distant Canadian signal do
somewhat ameliorate the under-representation of Canadian signals in the
overall survey results''). In the 2010-13 proceeding, Ms. McLaughlin
and another witness, David Blackburn, set forth methodologies for
augmented PTV and CCG shares, referred to as the ``McLaughlin/Blackburn
adjustments,'' which assume, for example, that the PTV-only systems
would assign a relative value to PTV of 100%.\210\
---------------------------------------------------------------------------
\210\ In her testimony during the 2010-2013 proceeding, Ms.
McLaughlin explained the adjustment, as follows: Q. In order to do
your augmentation of the Bortz survey, what were your initial
assumptions? A. I assumed that the systems that I was adding back in
would have to answer the survey in the same way it was asked for the
other people, and that is they were only allowed to respond to the
category they are carrying and they are supposed to split up their
value among the categories they are carrying. So they would have to
say 100 percent for PTV, if that's all they carried. And if all they
carried was Canadian signal, they'd have to say 100 percent for
Canadian. And if they carried both, they'd have to say something
between, you know, zero for one and 100 to the other or 100 for one
and zero to the other. Q. How about with regard to response rate?
Did you make any assumptions about that? A. Oh, when I added them
in, I--I followed the same response rate. If you look at the--some
of the highlighted numbers, so in the final eligible sample for the
year that we're looking at, 2010, in all the strata together, there
were 288 cable systems but only 163 of them completed the surveys.
So the response rate, 163 over 288, or, you know, maybe that's, you
know, 60 percent, say, 50, 60 percent. So I used that same response
rate and I did it actually by strata and applied that to the omitted
signal. So I didn't assume that all 16 were included. I only
assumed, you know, approximately half of the 16 were included.
Oral Testimony of L. McLaughlin (2010-2013), Trial Ex. 7017, at
27-29.
---------------------------------------------------------------------------
[[Page 54243]]
2010-13 Determination at 3583-85, 3602. In that proceeding, three
surveys were received, the Bortz Survey, the Horowitz Survey (which
``did not exclude from its sample systems that distantly carried only
PTV and/or Canadian signals'') and the Ringold Survey (which ``focused
on Canadian signals'').\211\ Id. at 3582, 3591. Despite the
availability of McLaughlin/Blackburn adjustments ``to augment'' the
Bortz Survey results, the Judges placed more weight on the Horowitz
results, for several reasons but ``particularly the acknowledged
systematic bias against PTV and CCG programming,'' and thus ``the
Judges accord relatively less weight to the `Augmented' Bortz Survey.'
'' Id. at 3591. The weighting of the Bortz Survey evidence below that
of the Horowitz survey did not, however, mean that the Bortz Survey
evidence had no weight or played no role in the Judges final
allocations. To the contrary, before setting forth the Judges' final
Basic Fund allocation, the Judges defined ``ranges of reasonable
allocations for each program category, and in doing so relied on
``[t]he Bortz and Horowitz Surveys, together with the McLaughlin
`Augmented Bortz' results and the Crawford and George regressions,
taking into account the confidence intervals (when available)
surrounding the point estimates . . . .'' Id. at 3610.
---------------------------------------------------------------------------
\211\ Professor Ringold has previously testified, or otherwise
given evidence, in proceedings before the CARP, and the CRB. See CCG
PFF 601; 2010-13 Determination at 3585. In this proceeding, Prof.
Ringold was called to testify by CCG, and was qualified as an expert
in survey research methodology. 4/17/2023 Tr. 4950-51 (Ringold).
---------------------------------------------------------------------------
In this proceeding, only the Bortz Surveys were offered (i.e., no
survey such as Horowitz was offered by any party), and the surveys
continue to exclude the PTV-only and Canadian-only distant signal cable
systems. Although Bortz Media and Mr. Trautman are highly critical of
the McLaughlin Adjustment, nevertheless, Bortz Media includes two
approaches for adjusting its initial results, both of which bear some
relationship to the McLaughlin Adjustment. Bortz Media's ``Adjustment
One'' \212\ accepts (while not agreeing with) the McLaughlin assumption
of attributing 100 percent of value to the PTV (or Canadian category)
when that is the only category the system carries distantly, but does
not do so for PTV-only systems in 2015 through 2017 that previously
carried WGNA. As to the latter group of systems, Bortz Media instead
attempts to predict the average valuation from all systems that carried
only PTV and WGNA in 2014. The stated rationale is there is no reason
to assume that a CSO changed its valuation of PTV content simply
because of the WGNA conversion, and indeed, CSOs surveyed in 2015-2017
did not increase their relative valuation of PTV with regard to systems
that carried signals containing both PTV and other claimant categories.
As for Bortz-eligible systems that were surveyed, Bortz Media weighted
the results based on Base-plus-3.75 fees attributable to the distant
signals actually carried by the PTV-only systems.\213\ See id. at 42-
43, app. D (``Potential Bortz Adjustments''). Bortz Media obtained the
following, applying its Adjustment One:
---------------------------------------------------------------------------
\212\ Bortz Media's Adjustment One is referenced in some of the
parties' post-hearing filings as Adjustment 1. See, e.g., SDC PHB at
85; CTV PFF 434.
\213\ In Adjustment One, systems that carried both PTV and
Canadian distant signals (but no U.S. commercial distant signals)
are weighted in the same manner, but with the fees allocated equally
among the PTV and Canadian categories. Bortz Rep. at 43 n.45.
Potential Allocation of Royalties Among Claimant Groups, 2014-17 (Adjustment One)
----------------------------------------------------------------------------------------------------------------
Year Average
-------------------------------------------------------------------------------
2014 (%) 2015 (%) 2016 (%) 2017 (%) 2014-17 (%)
----------------------------------------------------------------------------------------------------------------
JSC............................. 39.1 25.6 24.3 26.0 28.8
CTV............................. 25.2 26.6 25.6 25.3 25.7
PS.............................. 21.0 23.7 23.7 19.8 22.1
PTV............................. 8.2 14.0 16.6 19.5 14.6
Devotional...................... 5.5 5.8 5.1 4.5 5.2
Canadian........................ 1.0 4.4 4.8 4.9 3.8
-------------------------------------------------------------------------------
Total....................... 100.0 100.0 100.0 100.0 100.0
----------------------------------------------------------------------------------------------------------------
Id. at 43 (Table IV-1).\214\
---------------------------------------------------------------------------
\214\ The Adjustment One results for 2014 are nearly identical
with Mr. Trautman's calculation of the 2014 Bortz results when
subjected to the McLaughlin Adjustment. See JSC Production
Materials, Trial Ex. 3049 (discussed in detail later in the main
text).
---------------------------------------------------------------------------
Bortz Media's ``Adjustment Two'' also attributes 100 percent of
value to either the PTV or Canadian category when that is the only
category the system carries distantly, even for systems that became
PTV-only by default as result of the WGNA conversion. However, PTV-only
systems that only carried distant PTV signals within those signals'
originating DMAs are excluded. The stated rationale is that those
systems have not demonstrated any preference for distant PTV
programming based on their actual carriage patterns. Again, consistent
with the treatment of Bortz-eligible systems that were surveyed, Bortz
performed weighting based on the Base-plus-3.75 fees attributable to
the distant signals actually carried by the PTV-only systems. See id.
at 43, app. D (``Potential Bortz Adjustments''). Bortz Media obtained
the following application, applying its Adjustment Two:
Potential Allocation of Royalties Among Claimant Groups, 2014-17 (Adjustment Two)
----------------------------------------------------------------------------------------------------------------
Year Average
-------------------------------------------------------------------------------
2014 (%) 2015 (%) 2016 (%) 2017 (%) 2014-17 (%)
----------------------------------------------------------------------------------------------------------------
JSC............................. 39.8 25.2 23.5 24.8 28.3
CTV............................. 25.7 26.2 24.8 24.1 25.2
[[Page 54244]]
PS.............................. 21.4 23.3 23.0 18.9 21.6
PTV............................. 6.5 15.3 19.2 23.4 16.1
Devotional...................... 5.6 5.7 4.9 4.3 5.1
Canadian........................ 1.0 4.3 4.6 4.6 3.6
-------------------------------------------------------------------------------
Total....................... 100.0 100.0 100.0 100.0 100.0
----------------------------------------------------------------------------------------------------------------
Id. at 43-44 (Table IV-2).
JSC endorses the adjustments calculated by Bortz Media, rather than
the McLaughlin Adjustment.\215\ JSC does so first by raising a number
of supposed faults in the McLaughlin Adjustment. It is argued that PTV-
only systems were almost all well below the minimum fee, and by 2016
and 2017, an average of over 93% of PTV-only systems could have carried
at least one additional PTV signal to all of their subscribers without
having to pay more than the minimum fee, and the calculated Base + 3.75
royalty fee attributable to the signals actually carried on PTV-only
systems amounted to only 14 percent of the minimum fee royalties
ultimately paid by these systems. Yet, JSC observes, the McLaughlin
Adjustment would assume that these systems have an extreme preference
for distant PTV programming based on their carriage decisions, even
though there was almost never an incremental royalty payment associated
with those carriage decisions. Furthermore, JSC argues, over 30 percent
of the distant signals carried by PTV-only systems in 2014-17 were
carried pursuant to the Must Carry rules or the related multicast
agreement. The McLaughlin Adjustment nonetheless would assume that
these systems valued their distant PTV signals more than any other
categories of programming, even though the systems were required to
carry the signals, and PTV was prohibited from charging for the
content. JSC argues that inasmuch as the price of these signals would
be $0 in the hypothetical market, it makes no sense to assign them 100%
of the relative value. JSC PHB at 65-67.
---------------------------------------------------------------------------
\215\ Mr. Trautman did calculate a McLaughlin Adjustment, which
he does not recommend. The table he prepared in that regard is set
forth infra.
---------------------------------------------------------------------------
Additionally, JSC argues that while more than half of the PTV-only
systems during 2016-17 had carried both WGNA and PTV prior to the WGNA
conversion, back in 2014, systems that carried WGNA and one or more PTV
distant signals valued PTV in Bortz surveys at just 8.8%. JSC argues
that the McLaughlin Adjustment would assume a sudden and major shift in
valuation. Id. at 67 (quoting 3/30/2023 Tr. 2621 (Majure)).\216\
Finally, with regard to the McLaughlin Adjustment, JSC argues that the
majority of PTV-only systems only carried PTV signals within the
signals' originating DMA. Yet, because only the PTV signal is deemed
distant, the McLaughlin Adjustment would assume that these systems only
care about the PTV content in that bundle of programming, thereby
improperly inferring a set of preferences based on distinct regulatory
treatment rather than the actual behavior of the cable systems. It is
argued that there is no reason to assume that these systems value
distant PTV programming more highly than any other category of content,
much less at a 100% relative valuation. Id. at 67-68.
---------------------------------------------------------------------------
\216\ Dr. Majure was qualified as an expert in economics and
industrial organization, including their application to the cable
industry. 3/30/2023 Tr. 2551 (Majure).
---------------------------------------------------------------------------
In contrast, JSC argues, the alternatives calculated by Bortz
Media, Adjustment One and Adjustment Two, is supported by evidence and
economic theory, and yields similar valuations among the program
categories. Id. at 68-69 (citing, inter alia, JSC PFF 414 (citing
Majure)). Indeed, JSC expert witness, Dr. Majure, testified that the
Bortz Adjustments ``avoid these gross misinterpretations that the
McLaughlin adjustment would otherwise be adding into the calculations.
I don't know that they completely resolve the fundamental issue of the
McLaughlin adjustment, however. There's still no reason to think, for
any particular PTV system, they have this very strongly different set
of preferences, that the only thing they like is Public Television
content.'' 3/30/23 Tr. 2624 (Majure).
JSC's allocation request is based only on the Bortz survey,
specifically Bortz Media's Adjustment One, whose results are reproduced
above. JSC states that it prefers Adjustment One because it accounts
for the fact that CSOs did not change their valuation of PTV simply
because WGNA was no longer available as a distant signal. JSC PHB at
83-84. JSC claims no share of the Syndex royalties. With respect to the
3.75% royalty fund, JSC argues that the Judges should reallocate the
shares attributable to PTV proportionally among the other parties, as
PTV is not entitled to a share of the 3.75% royalty funds, as follows:
JSC's Proposed Reallocation of Shares of the 3.75% Royalty Funds
----------------------------------------------------------------------------------------------------------------
Year
---------------------------------------------------------------
2014 (%) 2015 (%) 2016 (%) 2017 (%)
----------------------------------------------------------------------------------------------------------------
JSC............................................. 42.6 29.8 29.1 32.3
CTV............................................. 27.5 30.9 30.7 31.4
PS.............................................. 22.9 27.6 28.4 24.6
PTV............................................. 0.0 0.0 0.0 0.0
Devotional...................................... 6.0 6.7 6.1 5.6
Canadian........................................ 1.1 5.1 5.8 6.1
----------------------------------------------------------------------------------------------------------------
[[Page 54245]]
Id. at 83-84.
Similarly, SDC supports reliance on the Bortz Surveys for 2014
through 2017 in this proceeding, and supports the application of Bortz
Media's Adjustment One. SDC PHB at 81. SDC argues that the McLaughlin
Adjustment has always been economically unsound, and in this
proceeding, there is new evidence that militates against an application
of a McLaughlin Adjustment that assigns a 100% value to PTV and CCG-
only stations. Id. at 82.
SDC argues that unlike past proceedings, the record here shows that
a majority of PTV-only systems' distant carriage occurred exclusively
within the DMAs in which the PTV signals originate, and were treated as
distant only as a result of a regulatory reporting. Indeed, it is
argued, PTV signals are the only category of distant content that CSOs
can be required to report as ``distant'' under section 111 when such a
signal is actually carried locally to subscribers within the signal's
DMA, and all other similarly situated, but commercial, signals would be
reported as local signals that are ineligible for section 111
royalties; and accordingly, a CSO's choice to carry a PTV signal within
its originating DMA cannot be compared to a CSO's choice to carry other
signals and programming, and there is no economic basis to assume that
a majority of the PTV-only CSOs had a relatively greater preference for
PTV programming than other categories of programming, much less valued
at a 100% relative valuation (as past adjustments have considered). Id.
at 83 (citing, inter alia, Harvey WRT ]] 126-131;\217\ Bortz Rep. at
17-18 (``throughout 2016-17 approximately 77% percent of the aggregate
subscribers served by the PTV Only Systems did not receive any distant
signals.''); Majure WDT ]] 150-51).
---------------------------------------------------------------------------
\217\ Mr. R. Garrison Harvey was called to testify by JSC, and
was qualified as an expert in statistics and applied mathematics. 3/
28/2023 Tr. 1772, 1777-78 (Harvey).
---------------------------------------------------------------------------
Additionally, SDC argues that adjusting the Bortz survey results to
account for PTV-only systems that were excluded from the Bortz sample
would inappropriately assign a 100% value to PTV content on the
significant number of systems that were compelled to carry PTV
programming and reimbursed for such carriage pursuant to the Must Carry
rule. See Id. at 83-84 (citing Bortz Rep. at 46; Majure WDT ]] 144;
Harvey CWDT ] 119 (``[a]pproximately 36 percent of the time that a PTV
Only system distantly retransmitted a primary PTV call sign, it was
pursuant to the Must Carry rule''). It is argued that there is no
reason to expect that PTV-only systems value PTV content that they were
compelled to carry at all, let alone at 100%. See Majure WDT ]] 144-45.
Thus, it is argued, there is also no economic basis to apply a
McLaughlin Adjustment to the significant number PTV-only stations
carried under the primary channel or multicast subchannel Must Carry
rules. Id. at 84 (citing Tr. 2566 (Asker)).\218\
---------------------------------------------------------------------------
\218\ Professor Asker was called to testify by JSC, and was
qualified as an expert in economics, industrial organization, and
econometrics. 3/30/2023 Tr. 2390-91 (Asker).
---------------------------------------------------------------------------
Nevertheless, SDC argues, SDC's and JSC's valuation experts have
acknowledged that some adjustment to the PTV and CCG shares is
appropriate, and the only potential Bortz adjustments presented in this
proceeding were set forth by JSC and in the Bortz Report. It is argued
that as its evaluation expert John Sanders testified,\219\ Bortz
Adjustment One in the Bortz Report is preferable to the historic
McLaughlin Adjustment and to Bortz Adjustment Two because Adjustment
One is substantially ``grounded in the survey data that was collected''
and yields reasonable relative value allocations for each of the
participating claimant groups. Id. at 84 (citing, inter alia, Sanders
WRT ]] 43-44).
---------------------------------------------------------------------------
\219\ Mr. John Sanders was called to testify by SDC and was
qualified as expert in the valuation of media assets, including
television programs. 4/6/2013 Tr. 3694 (Sanders).
---------------------------------------------------------------------------
SDC argues that the Judges should conclude that the Bortz survey is
the methodology that best reveals relative market value in this
proceeding, but that there is no economic basis for applying the
conventional McLaughlin Adjustment in this proceeding. Rather, it is
argued, the Judges should find that some modest adjustment for PTV and
CCG may be appropriate, and the Judges should additionally find that
the Bortz survey's point estimates should be adjusted under Bortz
Adjustment One. SDC argues that thus the following relative value
allocations are appropriate shares for the Devotional claimants with
respect to the Basic Fund: 5.5% for 2014; 5.8% for 2015; 5.1% for 2016;
4.5% for 2017; with 5.2% as the average. Id. at 85 (citing Bortz Rep.
at 48, SDC PFF 246). SDC further argues that to arrive at the
Devotional allocation for the 3.75% Fund, the Judges should, consistent
with their decision in the 2010-13 proceeding, reallocate the PTV share
of royalties proportionally among the categories that participate in
that fund, and make the following allocation of the 3.75% Fund to the
Devotional claimants: 6.0% for 2014; 6.7% for 2015; 6.1% for 2016; 5.6%
for 2017; with 6.1% as the average. Id. at 85; SDC PFF 247 (citing
2010-13 Determination at 3611).
CTV argues that the fee-based regression estimates for 2014 that
were made by Prof. Marx,\220\ and the Bortz survey results for 2014-
2017 provide the most appropriate starting point to determine the
relative value of claimant shares in this proceeding. It is argued that
the cumulative evidence of record in this proceeding shows that the
fee-based regressions overestimate the value of PTV programming, while
the Bortz survey underestimates the value of PTV and CCG programming.
CTV proposes an adjustment to the Bortz initial results, but not the
McLaughlin Adjustment, or Adjustment One or Adjustment Two calculated
by Bortz Media. Rather, CTV proposes a share adjustment approach that
relies on the estimates from the Marx model and the Bortz Surveys in an
attempt to what it terms ``the primary challenge of both
methodologies,'' which is how to obtain a reasonable and more reliable
estimate of the value of PTV programming during the 2014-17 period. See
CTV PHB at 79-80.
---------------------------------------------------------------------------
\220\ Professor Marx was called by CTV and was qualified as an
expert economist and econometrician with experience in statistical
methods and measurements. 4/11/2023 Tr. 4109 (Marx).
---------------------------------------------------------------------------
CTV argues that the Bortz Survey's underestimation of PTV and CCG
programming due to the purposeful exclusion of PTV-only and CCG-only
systems from the survey, affects results in each year, but not the
year-to-year trends obtained from the survey. Thus, CTV proposes a
share adjustment approach that combines the Marx non-duplicated minute
estimates for 2014 with the Bortz results for 2014 to establish a
starting point for allocating shares, and then applies the year-to-year
net change in each category derived from the Bortz survey results for
each year in 2015, 2016 and 2017. CTV argues, in its view, this
provides a the only reliable basis to use regression estimates offered
in this proceeding to assist in the determination of relative value of
the shares. Id. at 81-82. To establish the starting point for shares in
2014, CTV proposes taking the average of the Marx 2014 Bayesian
regression and Bortz survey estimates in 2014 for PS, JSC, CTV and PTV,
and the maximum amount under either method in 2014, inexplicably for
SDC,\221\ and
[[Page 54246]]
also for CCG, as illustrated in the following table. Id. at 81-82.
---------------------------------------------------------------------------
\221\ Cf. Commercial Television Claimants' Post-Hearing Reply
Brief in Support of Proposed Royalty Allocations at 63-64 (CTV RPHB)
(referring to the adjustments proposed by Bortz Media).
CTV's Proposed Starting Point for Shares in 2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
Valuation Method & Steps PS (%) JSC (%) CTV (%) PTV (%) SDC (%) CCG (%) Total (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Marx 2014--excluding duplicates.............................. 19.7 43.9 15.6 16.4 0.5 3.9 100.0
Bortz 2014................................................... 21.8 40.4 26.0 5.9 5.6 0.3 100.0
Step 1: average of Bortz and Marx............................ 20.8 42.1 20.8 11.2 ........... ........... ...........
Step 2: maximum of Bortz and Marx............................ ........... ........... ........... ........... 5.6 3.9 ...........
Step 1 + 2................................................... 20.8 42.1 20.8 11.2 5.6 3.9 104.4
Normalizing 1 + 2 (to add up to 100%)........................ 19.9 40.4 19.9 10.7 5.4 3.8 100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Id. at 81-82. Applying the net change from the Bortz survey results in
2015, 2016, and 2017 to the starting points established for 2014,
provides the proposed shares reflected in the following table, which
are presented along with the shares awarded in the 10-13 Final
Determination for reference.
CTV's Proposed Shares
--------------------------------------------------------------------------------------------------------------------------------------------------------
Year PS (%) JSC (%) CTV (%) PTV (%) SDC (%) CCG (%) Total (%) Source
--------------------------------------------------------------------------------------------------------------------------------------------------------
2010............................. 26.5 32.9 16.8 14.8 4.0 5.0 100.0 2010-13 Final
determination.
2011............................. 23.9 30.2 16.8 18.6 5.5 5.0 100.0 2010-13 Final
determination.
2012............................. 21.5 33.9 16.2 17.9 5.5 5.0 100.0 2010-13 Final
determination.
2013............................. 19.3 36.1 15.3 19.5 4.3 5.5 100.0 2010-13 Final
determination.
2014............................. 19.9 40.4 19.9 10.7 5.4 3.8 100.0 Combined 2014 Bortz and
Marx shares.
2015............................. 24.6 28.5 23.6 12.7 6.3 4.5 100.1 2014 proposed shares +
2015 Bortz net change.
2016............................. 26.0 28.5 23.9 11.6 5.8 4.3 100.0 2015 proposed shares +
2016 Bortz net change.
2017............................. 22.0 31.5 24.5 12.6 5.2 4.1 99.8 2016 proposed shares +
2017 Bortz net change.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Id. at 82. CTV argues that no individual valuation method or share
adjustment approach is perfect, but its proposed share adjustment
approach helps address several evidentiary trends established in this
proceeding, including: (1) correcting the over-estimation of PTV
programming value under the fee-based regressions and aligning PTV
shares more closely with the overwhelming evidence in the record that
CSOs would not be willing to pay much, if anything, for the right to
retransmit distant PTV stations absent the compulsory license; (2)
aligning the value of shares during the 4-year period in a manner that
reflects the impact of streaming on the value of programming to CSOs,
which supports an increase in CTV and JSC programming relative to
Program Suppliers and PTV programming; (3) providing a consistent
allocation of shares for PS, JSC, CTV, SDC and CCG since 2010 which
more reasonably and realistically reflects how CSOs would assess
relative value over time; and (4) provides a reliable and reasonable
basis for adjusting shares during the 2015-2017 time period when the
estimates from the fee-based regressions are meaningless and
uninformative and should not be given any weight in determining shares
in this case. Id. at 83.
PTV argues that the Bortz Surveys for 2014 through 2017 should be
rejected in their entirety due to numerous deficiencies in the way that
that they were conducted, including their overwhelming bias against
Public Television. Nevertheless, PTV acknowledges that the Judges and
their predecessors have accepted the Bortz survey results but only
after applying the conventional McLaughlin Adjustment to account for
the bias against Public Television, and even then, only as a relative
value floor for Public Television's allocation award. PTV PHB at 81-82
(citing PTV PCL ] 41; PTV PFF ] 204 (citing Distribution of 1998 and
1999 Cable Royalty Funds, Dkt. No. 2001-8 CARP CD 98-99, Determination
at 24; Report of the Copyright Arbitration Royalty Panel, Dkt. No. 94-
3-CARP-CD-90-92, at 123-24; 1998 Cable Royalty Distribution Proceeding,
Dkt. No. CRT-91-2-89CD, 57 FR 15286, 15299-300 (Apr. 27, 1992); 1983
Cable Royalty Distribution Proceeding, Dkt. No. CRT-84-1 83CD, 51 FR
12792, 12811 (Apr. 15, 1986); 2004-05 Distribution Order at 57070-71
n.20; 2010-13 Determination at 3610; 4/4/2023 Tr. 3139-41 (Trautman)).
PTV argues that at the hearing, Mr. Trautman conceded that he
calculated a McLaughlin Adjustment for this proceeding two years before
filing his written direct testimony, which showed Public Television's
annual shares for 2014-17 as 8.4%, 43.6%, 48.4%, and 48.2%,
respectively, with average shares of 37.1%. PTV argues that, although
Mr. Trautman then embarked on a multi-year quest ``to conjure up''
additional adjustments that would reduce Public Television's shares,
neither of Mr. Trautman's alternative proposed adjustments has any
reliable basis. Indeed, it is argued, the Bortz Survey results, and Mr.
Trautman's two proposed adjustments, give Public Television a lower
share of royalties than the Judges awarded in 2013, despite significant
changed circumstances such as the elimination of WGN as a distant
signal and the substantial changes in the quantity and quality of
compensable JSC and Public Television programming--all of which are
realities that would warrant substantially increasing Public
Television's relative share from 2013 levels. PTV PHB at 42 (citing,
inter alia, 4/4/2023 Tr. 3142-43 (Trautman) (concerning table in Trial
Ex. 3049)).
[[Page 54247]]
PTV argues that if the Judges were to use the Bortz survey to guide
allocations in this proceeding, which PTV believes would be
inappropriate, given their unreliability, several adjustments, at a
minimum, would be needed to correct for clear methodological biases and
flaws. It is argued that the adjustments offered by JSC (Bortz Media's
Adjustment One and Adjustment Two), which result in shares for Public
Television that are less than Public Television's 2013 share, are not
credible. PTV argues that only the conventional McLaughlin Adjustment
adopted in prior proceedings yields shares that approximate relative
valuations for Public Television in 2014-17. Id. at 82. Mr. Trautman
testified during direct and cross-examination that he calculated the
conventional McLaughlin Adjustment to the 2014 through 2017 Bortz
surveys. A table prepared by him, and upon which PTV relies is, as
follows:
Weighted Bortz Survey Results by Year, 2014-17 (After Conventional McLaughlin Adjustment)
----------------------------------------------------------------------------------------------------------------
Year
---------------------------------------------------------------- Average: 2014-
2014 (n=171) 2015 (n=199) 2016 (n=199) 2017 (n=179) 17 (%)
(%) (%) (%) (%)
----------------------------------------------------------------------------------------------------------------
PBS............................. 8.4 43.6 48.4 48.2 37.1
Sports.......................... 39.0 12.7 12.2 14.8 19.7
News............................ 25.2 19.2 15.3 17.2 19.2
Syndicated...................... 10.0 9.3 9.8 9.8 9.7
Movies.......................... 11.0 9.1 8.0 5.0 8.3
Devotional...................... 5.4 4.4 5.0 3.9 4.7
Canadian........................ 1.0 1.8 1.3 1.2 1.3
-------------------------------------------------------------------------------
Total....................... 100.0 100.0 100.0 100.0 100.0
----------------------------------------------------------------------------------------------------------------
PTV PHB at 82; PTV PFF 208; Trial Ex. 3049 (from calculations prepared
by Mr. Trautman); 4/4/2023 Tr. 2881-82, 3142-43 (Trautman).
PS argues that there are fundamental issues with the Bortz Survey
that cannot be remedied by after-the-fact adjustments, such that
putting ex-post fixes on the Bortz Survey is like putting a Band-Aid on
a bad wound. Indeed, the requests for royalty allocation shares made by
Program Suppliers are based on Dr. Tyler's regression model,\222\ and
do not reference the Bortz Surveys. PS PHB at 80-82 (citing PS PFF ]
502 (3/27/2023 Tr. 1490-91 \223\ (Boyle))); see PS PRFF ]] 59-62.
---------------------------------------------------------------------------
\222\ Dr. Tyler was called by PS, and was qualified as an expert
in the fields of economics, data analysis, and econometrics. 4/19/
2023 Tr. 5423, 5428 (Tyler).
\223\ Professor Boyle was called by PTV and was qualified as an
expert in the field of survey research and design. 3/27/2023 Tr.
1400, 1410-11 (Boyle).
---------------------------------------------------------------------------
CCG argues that it is time for the Judges to abandon reliance on
the Bortz Survey, and does not propose any adjustment to the Bortz
initial results. CCG PHB at 66-71, 77. In its reply briefing, CCG again
argues that the Bortz results should not be used for any party, and
further argues that Bortz results have never been used, and should
never be used, for the CCG, with or without these adjustments. CCG
argues that the proposed adjustments do not correct the Bortz Survey's
fundamental failure to measure relative market value, and do not remedy
their utter inapplicability to the CCG. Reply Post-Hearing Brief of The
Canadian Claimants Group at 56 (CCG RPHB). Indeed, CCG specifically
criticizes the adjustment to Bortz offered by CTV, which is based on
Prof. Marx's regression analysis, arguing, ``CTV offered no evidence
that would support that conclusion that even though the relative
quantity of their programming declined by 60% their relative unit price
went up by 370%. The CTV hybrid model represents the worst of both
worlds, an incomplete regression model that relies on data from the
wrong period combined with the faulty Bortz Survey results.'' CCG RPHB
at 56-57.
With respect to the issue of which, if any, adjustment should be
made to the Bortz initial results for 2014-2017, it is remarkable that
no party had its expert calculate the McLaughlin Adjustment for those
results, at least not for presentation at the hearing. While no party
argues that royalty fund allocations in this proceeding should be made
strictly according to the Bortz initial results subject to the
McLaughlin Adjustment, all parties knew that the Judges applied the
McLaughlin Adjustment to the Bortz Survey initial results in the 2004
and 2005 proceeding, as well as in the more recent 2010-13 proceeding.
Moreover, several parties knew that they would raise the McLaughlin
Adjustment at the hearing and in their posthearing filings. As
summarized above, some parties specifically criticized the McLaughlin
Adjustment and some, despite their criticisms or the criticisms of
others, argued for application of the McLaughlin Adjustment in the
alternative, or for a calculation that is based upon or otherwise
relates to the McLaughlin Adjustment. To see the figures obtained when
the McLaughlin Adjustment is applied to the Bortz Survey initial
results at issue in this proceeding, the Judges are referred to a chart
taken from a spreadsheet prepared by Mr. Trautman, originally for Bortz
Media's internal use (Trial Ex. 3049, duplicated above). Fortunately,
no party has challenged the figures contained therein as accurately
reflecting application of the McLaughlin Adjustment to the Bortz Survey
initial results; and as previously noted, the figures on the chart
resemble those presented in connection with Bortz Media's Adjustment
One to the extent that one would expect similar figures.
The application of the McLaughlin Adjustment to the initial Bortz
results for the years now at issue, 2014 through 2017, is relevant, and
the adjusted results (or ``augmented'' results, as they were termed in
the 2010-13 proceeding) should be given varied weight, depending on
whether one is considering the adjusted results for 2014, or for 2015
through 2017. With respect to 2014, the Bortz Survey for that year
covers the year immediately following the last year at issue in the
2010-13 proceeding. For the 2014 survey, Bortz Media used a similar
sampling method, and asked similar questions. While other factors, such
as the Horowitz survey results and regression evidence, weighed more
heavily in the Judges' decision, the 2013 Bortz results with the
McLaughlin
[[Page 54248]]
Adjustment were taken into consideration by the Judges, even when
making their final allocations. See 2010-13 Determination at 3591,
3610-11. Thus, the 2014 adjusted results may be used for comparison
with earlier results, and would be expected to provide useful insight
into relative marketplace value of distant broadcast signal programming
retransmitted by cable systems during that year.
Nevertheless, when weighing all the evidence presented in this
proceeding, including regression evidence, a concern is presented by
the fact that the McLaughlin Adjustment assigns value to PTV content on
cable systems that were compelled to carry PTV programming and
reimbursed for such carriage pursuant to the Must Carry rule; and
further, the value it assigns to PTV, even in such circumstances, is
100 percent. As discussed above, the evidence shows that more than 30
percent of PTV-only systems were subject to the Must Carry rule. See,
e.g., Majure WDT ]] 144; Harvey CWDT ] 119 (``[a]pproximately 36
percent of the time that a PTV Only system distantly retransmitted a
primary PTV call sign, it was pursuant to the Must Carry rule'')). That
certain PTV signals are subject to the Must Carry rule is not a new
circumstance, and neither is the fact that the McLaughlin Adjustment
brings PTV-only systems into the Bortz results with an assigned value
of 100% for PTV. Inasmuch as PTV-only systems are still not surveyed by
Bortz Media, and there is no empirical evidence to show how PTV-only
systems value PTV distant signals, there is no cause now to discard the
McLaughlin Adjustment due to the Must Carry rule, especially for the
2014 results which pertain to circumstances similar to 2013. The
McLaughlin Adjustment has always been presented as a 100-percent or
nothing approach, and the Judges can take that characteristic of the
adjustment into consideration. To the extent that one would
specifically exclude Must Carry signals, such as in a regression
analysis, the fact that the McLaughlin Adjustment is applied to Must
Carry signals diminishes the value of such adjusted Bortz results when
making a comparison to such other evidence that devalues Must Carry
signals.
It has also been shown that PTV signals comprise the only category
of content that CSOs can be required to report as ``distant'' under
section 111 when such signals are actually carried to subscribers
within the signals' DMA, and further that a majority of the PTV-only
systems reported such distant signals during the years at issue. As
discussed above, it has been argued that similarly situated commercial
signals would be reported as local, and thus would be ineligible for
section 111 royalties. Bortz Rep. at 17-18 (``throughout 2016-17
approximately 77% percent of the aggregate subscribers served by the
PTV Only Systems did not receive any distant signals.''); Majure WDT ]]
150-51. Yet, the designation as ``distant'' is rooted in statutory
definitions and requirements, and thus it is not established that such
signals have no place in the hypothetical marketplace considered in
this proceeding.
Furthermore, with respect to distant signals carried within their
DMAs, again certain parties argue that there is no basis to assume that
a majority of the PTV-only CSOs had a relatively greater preference for
PTV programming over other categories of programming, much less at 100%
of relative value. Yet, it has always been the nature of the McLaughlin
Adjustment to augment the Bortz results with PTV-only signals, and to
impute a 100-percent valuation. Accordingly, the McLaughlin Adjustment
is recognized as an adjustment that helps to remedy a bias in the Bortz
methodology but may do so on an imprecise basis.
For 2015 through 2017, the Bortz results, when subjected to the
McLaughlin Adjustment, show a dramatic increase in the PTV results,
i.e., an increase to 8.4% in 2014 to 43.6% in 2015, then to 48.4% in
2016, and by 2017, the results are 48.2%. A significant change is also
seen for JSC, whose result is 39% in 2014 but only 12.7% for 2015,
declining to 12.2% in 2016, with the JSC result at declining to only
14.8%. See Trial Ex. 3049. The unadjusted, initial Bortz results show
increases for PTV, and decreases for JSC, but they are not nearly as
precipitous between 2014 and 2015, and not nearly as steep overall. See
Bortz Rep. at 2. Considering the relative value question that the Bortz
Surveys set out to have answered, and the adjusted Bortz results, it is
hard to see why within only about one year many CSOs went from
ascribing relatively small value to PTV to considering it the most
valuable. See 3/30/2023 Tr. 2621 (Majure) (``just coincidentally at the
point where WGNA converted, the system suddenly went from having a
small value for the Public Television content to that being the only
thing they like.''). Thus, an issue is raised as to whether the Bortz
Surveys, particularly after application of the McLaughlin Adjustment,
are best suited for the years 2015 through 2017.
With the loss of WGNA as a distant signal, many CSOs that had
retransmitted only PTV and WGNA as distant signals became PTV-only
systems, which meant that they were no longer eligible for
participation in the Bortz Survey. They also became subject to the
McLaughlin Adjustment; and according to the adjustment, the value
assigned to PTV was, as always, 100 percent.\224\ It was also during
this time that the universe of Bortz-eligible CSOs declined.\225\ That
change in the number of eligible CSOs during 2015-2017 was so great
that, as already discussed, Bortz Media went from the use of a sampling
technique in 2014, which was similar to that employed for many
preceding years, to a new and different technique in 2015 and
thereafter, which Bortz Media and Mr. Trautman described as an attempt
as a census.
---------------------------------------------------------------------------
\224\ The number of PTV-only systems grew substantially in 2015-
2017. In the second accounting period of 2014, there were 44 PTV-
only systems, but that number increased to 173 in the second half of
2017. This increase occurred in large part because systems that
previously carried both PTV and WGNA became PTV-only systems when
WGNA converted to a cable network at the end of 2014. Indeed,
between 50 and 55 percent of the PTV-only systems in 2016-2017 had
carried WGNA in 2014. Bortz Rep. at 10-11; Harvey CWDT tbl.32.
\225\ This decline in Form 3 CSOs carrying distant signals was
largely the result of systems that had previously carried only WGNA
electing not to carry any distant signals. Out of the 275 systems
that carried WGNA as their lone distant signal in 2014, only 15
(5.5%) of these systems carried a non-WGNA distant signal from 2015-
2017. Bortz Rep. at 8.
---------------------------------------------------------------------------
Although the bias caused by exclusion of PTV-only systems from the
Bortz Survey became more profound in 2015-2017, as many systems that
carried only PTV and WGNA as distant signals became PTV-only systems
after the WGNA conversion, as illustrated above, there is little
evidence to indicate that the application of the McLaughlin Adjustment
rectifies the situation. Indeed, no party, not even PTV, argues that
the Bortz Survey with the McLaughlin Adjustment is the best methodology
of record for arriving at an allocation for 2015-2017.
Adjustment One, proposed by Bortz Media and Mr. Trautman, and
supported by JSC and SDC, is offered as a response to the situation in
which CSOs once carrying only PTV and WGNA as distant signals suddenly
became PTV-only systems. Adjustment One also addresses Canadian-only
systems, although it is opposed by CCG; and it has not been shown that
Adjustment One calculations would be useful on allocation CCG's share
of the subject royalty funds.
As described more fully above, Adjustment One uses the McLaughlin
assumption of attributing 100 percent of value to the PTV (or Canadian
category)
[[Page 54249]]
when that is the only category the system carries distantly, but does
not do so for PTV-only systems in 2015 through 2017 that previously
carried WGNA. As to those systems, Adjustment One attempts to predict
the average valuation from all systems that carried only PTV and WGNA
in 2014 because it is not assumed that a CSO changed its valuation of
PTV content simply because of the WGNA conversion. Furthermore, systems
that carried both PTV and Canadian distant signals (but no U.S.
commercial distant signals) are weighted in the same manner, but with
the fees allocated equally among the PTV and Canadian categories. See
Bortz Rep. at 42-43.
The results seen from the application of Adjustment One tend to
confirm the fact that the conversion of WGNA had a profound effect on
the way that the McLaughlin Adjustment affected the Bortz results for
2015-2017. The application of Adjustment One prevents the steep swings
seen in the McLaughlin-adjusted results. Yet, as pointed out by PTV, it
does so at a cost. Adjustment One keeps the new PTV-only CSOs from
bringing 100-percent PTV value into the calculation because they may
have once valued another signal that no longer exists. It treats the
class of new PTV-only CSOs differently from other PTV-only CSOs, even
though they clearly have not replaced WGNA with other distant signals.
Moreover, due to the fact that Adjustment One calculates shares for
2015 through 2017 based on the average valuation from all systems that
carried only PTV and WGNA in 2014, the application of Adjustment One,
for the purpose of allocating royalties, would in effect attribute a
portion of section 111 royalties according to the former existence of
WGNA, even though WGNA no longer existed as a distant signal in 2015-
2017. Consequently, while Adjustment One is worth considering in the
context of gauging the impact of the WGNA conversion on the Bortz
results, it does not provide figures that can be used to calculate the
allocation of shares of the subject royalty funds.\226\
---------------------------------------------------------------------------
\226\ Additionally, Bortz Media's Adjustment Two addresses the
question of whether PTV signals transmitted within their DMA should
be treated differently. It also attempts to address the exclusion of
Canadian-only systems. As already described in the main text,
Adjustment Two accepts (while not agreeing with) the McLaughlin
assumption of attributing 100 percent of value to either the PTV or
Canadian category when that is the only category the system carries
distantly, even for systems that became PTV-only by default as
result of the WGNA conversion. However, PTV-only systems that only
carried distant PTV signals within those signals' originating DMAs
are excluded. Bortz Rep. at 43. Adjustment Two, therefore, does not
accept the definition of a distant signal imposed by statute, and
may also create a gap in compensation for copyrighted programming
within a DMA. Furthermore, no party presents its requested
allocation based on implementation of Adjustment Two, or made an
adequate record concerning this potential adjustment.
---------------------------------------------------------------------------
CTV's proposed adjustment is not a proposed adjustment to the
survey evidence available in this proceeding, i.e., the Bortz Survey
for 2014 through 2017. Rather CTV proposes that data connected to the
survey for 2014 (without adjustment for the exclusion of PTV-only CSOs)
be used to expand the application of regression evidence from its
expert, Dr. Marx. As detailed above, CTV proposes a share allocation
approach that combines the Marx non-duplicated minute estimates for
2014 with the Bortz results for 2014 to establish a starting point for
allocating shares, and then applies the year-to-year net change in each
category derived from the Bortz survey results for each year in 2015,
2016 and 2017. There is a dearth of expert testimony concerning CTV's
proposal. CTV's proposal is supported by no other party. CTV's proposal
hinges on acceptance of Dr. Marx's fee-based regression estimates for
2014, which as discussed above has not been accorded the greatest
weight.
Accordingly, the McLaughlin Adjustment, provided one understands
its aforementioned limitations, is most helpful among the proposed
adjustments in understanding the Bortz results. The following table
shows the McLaughlin Adjustment allocations when organized according to
the claimant groups in this proceeding.
McLaughlin-Adjusted Royalty Allocations
----------------------------------------------------------------------------------------------------------------
Basic Fund 2014 (%) 2015 (%) 2016 (%) 2017 (%)
----------------------------------------------------------------------------------------------------------------
Canadian Claimants.............................. 1.0 1.8 1.3 1.2
Commercial TV................................... 25.2 19.2 15.3 17.2
Devotional Programs............................. 5.4 4.4 5.0 3.9
Program Suppliers............................... 21.0 18.4 17.8 14.8
Public TV....................................... 8.4 43.6 48.4 48.2
JSC............................................. 39.0 12.7 12.2 14.8
----------------------------------------------------------------------------------------------------------------
b. The Constant Sum Methodology
In the 2010-13 proceeding, some criticisms of Bortz and other
survey evidence went to the way constant sum questions were worded or
executed, but some criticisms went to use of the methodology per se.
Dr. Mathiowetz provided an opinion in support of the particular
methodology used in the Bortz Surveys received in that proceeding. See
2010-13 Determination at 3587. Ultimately, the Judges found certain
regression analyses to be more persuasive than the survey results. Yet,
far from rejecting the survey results, the Judges concluded, after
considering all of the evidence presented in that proceeding, ``the
constant sum survey methodology, with adjustments, provides relevant
information relating to the relative value for each of the six
categories remaining at issue.'' Id. at 3591 (emphasis added).
Many criticisms have been leveled against the Bortz Surveys now at
issue. Yet, even among parties that do not support use of the Bortz
Survey in this proceeding, for the most part there has been an
acknowledgement that constant sum surveys, if properly designed and
executed, might yield useful data, even if the Bortz Surveys presented
in this proceeding fall short.\227\ In this proceeding, Dr. Mathiowetz
testified that a constant sum methodology was used as early as the
1980s in royalty allocation proceedings before the CRB predecessors.
Her testimony in this proceeding is that a constant sum question offers
a perfect solution to the relevant research question. Mathiowetz CWDT
at 4-6; 4/10/2023 Tr. 3849-54 (Mathiowetz). The Judges must allocate
100% of the royalty funds at issue across several different categories,
and an increased allocation for one category will necessarily require a
decrease elsewhere so as to allocate 100 percent. Consequently, survey
evidence that
[[Page 54250]]
employs constant sum methodology, such as the Bortz Survey, could again
provide relevant evidence.
---------------------------------------------------------------------------
\227\ See, e.g., CCG PHB at 50-51; CCG RPFF at 40-41, 47-48.
---------------------------------------------------------------------------
PTV has a one-paragraph subsection in its main brief devoted to an
argument, which it claims is unrebutted, that the key constant sum
question in the Bortz Surveys (Question 4) is incapable of producing
valid and reliable results because it is not ``incentive compatible.''
It is argued that PTV's expert witness Dr. Boyle is one of the foremost
experts on stated preference surveys, of which Bortz's constant-sum
question is an example, and further that his written and oral testimony
is that the literature has developed on stated preference surveys, and
it is now settled that stated preference surveys must be ``incentive
compatible.'' His opinion is that the Bortz Survey constant sum
question fails multiple requirements for incentive compatibility. PTV
PHB at 68 (citing PTV PFF ]] 355-57 (essentially tracking PTV's brief,
or vice versa)); see Written Rebuttal Testimony of Kevin J. Boyle,
Trial Ex. 7306, at 15, 32-36, 42-43 (Boyle WRT).
A review of the parties' briefs and proposed findings of fact shows
that, contrary to PTV's claim, PTV's incentive compatibility argument
was not in any sense unrebutted.\228\ JSC addressed the issue of
incentive compatibility at least as much as PTV did in its briefs.\229\
See JSC PHB 45-46; JSC RPFF 40; JSC PFF ]] 247, 248-51; JSC PRFF ] 67.
Furthermore, during the hearing, PTV conducted a substantive direct
examination concerning incentive compatibility; and then JSC conducted
a vigorous cross-examination of Prof. Boyle on his opinion regarding
incentive compatibility. Prof. Boyle also answered questions from the
bench on this topic.\230\
---------------------------------------------------------------------------
\228\ A review of the parties' filings shows that incentive
compatibility was addressed primarily, if not entirely, only by PTV
and JSC.
\229\ PTV's reply brief and reply proposed findings provided
more substance to its argument than PTV provided in its initial
briefing. See PTV RPHB at 39-40, 44-45; PTV PRFF ]] 252-63.
\230\ See 3/27/2023 Tr. 1419-21, 1453-54, 1492-512 (Boyle).
---------------------------------------------------------------------------
There is some discussion in PTV's reply as to whether, in response
to Prof. Boyle's opinion about incentive compatibility, JSC was wrong
to set out to show that constant sum surveys are reasonable or widely
used. See Public Television's Post-Hearing Reply Brief at 45 (PTV
RPHB). Yet, Prof. Boyle's written testimony linked the reliability of
constant sum methodology to incentive incompatibility, at least for
purposes of PTV's case. Furthermore, the presentation of his incentive
compatibility opinion appears as an alternative to evidence concerning
the validity and reliability of constant sum questions. In particular,
under the heading ``Validity and Reliability of Constant-Sum
Questions,'' Prof. Boyle testified in writing, ``There is limited peer-
reviewed research on the validity and reliability of constant sum
questions. In the absence of evidence on the credibility of constant-
sum questions for eliciting preferences to support decision making, I
turn to the well-known concept in economics and political science of
incentive compatibility (Groves and Ledyard, 1987; Ledyard, 1989) to
consider the validity of the Bortz survey constant-sum question.''
Boyle WRT at 32-33 (footnote omitted, which shows Prof. Boyle's
reliance on a Google Scholar search, with his search terms, to show
limited peer-reviewed research). Far from leaving that statement
unrebutted, at the hearing, JSC questioned Dr. Mathiowetz, and she
responded, as follows:
Q. * * * Professor Mathiowetz, did you see the assertion by Dr.
Boyle that there is a ``absence of evidence on the credibility of
constant sum questions for eliciting preferences to support
decision-making''?
A. I did see that by Dr. Boyle. And I disagree with that
assertion. First of all, we still see constant sum being used and
appearing in the peer-reviewed journal literature. Whether it is
being used as an end in and of itself for a substantive topic or
sometimes you see the constant sum question being used as a
benchmark to compare other relative value methodologies.
Second, in light of Dr. Boyle's comment, I thought it would be
useful to go and look at recent marketing research text, because
constant sum is often taught in MBA programs dealing with marketing
research. And I found textbooks published as recently as 2017, I
think was the most recent one, I found, that are still teaching
constant sum methodology.
4/10/2023 Tr. 3852-53 (Mathiowetz). Accordingly, in view of that
testimony, the use of constant sum evidence in prior proceedings, and
other record evidence concerning constant sum methodology, the Judges
do not adopt an opinion that there is an absence of evidence on the
credibility of constant sum questions, or in the absence of such
evidence one must turn to incentive compatibility (notwithstanding the
importance that incentive compatibility may otherwise have).
PTV's reply brief, and the proposed reply findings cited therein,
provide a summary of Dr. Boyle's testimony on incentive compatibility
to the effect ``that (1) a stated-preference question must be incentive
compatible for it to produce valid and reliable results; (2) there are
four requirements for a stated-preference question to be incentive
compatible; and (3) Bortz's constant-sum question is fatally flawed
because it fails multiple requirements for incentive compatibility.''
Yet, the requirements for a stated-preference question are not
explained in detail. See PTV RPHB at 44 (citing PTV PHB at 68; PTV RPFF
]] 254-63). Turning to Prof. Boyle's hearing testimony, he explained,
as follows:
A. So the constant sum, as I said before, is one example of
stated preference surveys. And the literature for that has been
developing for a long time.
And as it has developed in a variety of different areas of
economics, in terms of stated preference questions, it's developed
standards that a question needs to be incentive-compatible. And that
started, really, evolving in the early 1990s and codified, really,
in the 2000s.
But there are kind of four basic axioms of it; that it needs to
be consequential, it needs to be truthful, it needs to be a binary
choice, and payment needs to be coursed.
And so if you fail one of them, then you're in problems for
incentive compatibility. If you fail more than one, you're even more
in trouble in terms of incentive compatibility. And, you know, I
have--three of them are listed here on the slide, but probably the
two most important ones are the truthful and binary because they
apply directly to the way the constant sum question is framed.
3/27/2023 Tr. 1419-20 (Boyle); cf. Boyle WRT at 34 (quoting Carson and
Groves, Incentive and Informational Properties of Preference Questions,
37 Environmental and Resource Econ., 181-210 (2007), and a different
formulation of the axioms).
Prof. Boyle also testified as to why, in his opinion, the Bortz
Survey, particularly Question 4, is not incentive compatible, as
follows:
Q. And why isn't the constant sum question incentive-compatible?
A. It's not incentive-compatible because it's not a binary
question and a single application. And so when I was talking about
what we did with the Deepwater Horizon, that was a specific dollar
amount for a specific valuation that you answered yes or no.
There's no incentive for somebody to answer wrong on that. You
have got to answer yes or no. And if you answer wrong, you get an
undesirable outcome for yourself. With the Bortz Survey, when you
have the different categories that you can allocate percentages to,
there's a potential there for somebody to misallocate across
categories when you have what's called an open-ended response that
you can fill in.
You know, in the Bortz Survey, there was an enumerator, so they
were giving the information to the enumerator to fill in.
But, you know, I think one of the examples I used in my report
was that if someone had a devotional affinity, they could explicitly
or
[[Page 54251]]
implicitly allocate more to devotional or less to others. If they
are an atheist, it could be the opposite one.
So there's an opportunity, by how you allocate the percentages,
that you could either explicitly, implicitly, or accidentally
misconstrue what the true value is that is estimated from the
questions.
3/27/2023 Tr. 1420-21 (Boyle).
PTV's argument concerning incentive compatibility is not
persuasive. As pointed out by JSC, Prof. Boyle held up as a positive
example an incentive compatible public resource survey in which
respondents may in fact have had a financial interest in the outcome of
the survey. JSC PFF ] 249; 3/27/2023 Tr. 1406-07, 1420 (Boyle) (``And
if you answer wrong, you get an undesirable outcome for yourself'').
Additionally, whether a Bortz survey respondent's personal beliefs,
such as religious beliefs (or the absence thereof), might cause a
respondent to ``misconstrue'' true value in the Bortz Surveys remains
highly speculative.
Moreover, with respect to the Bortz Surveys, Dr. Mathiowetz
explained that Prof. Boyle's argument is wrong because ``[c]able system
operators are paying [the] royalty fee regardless of how they
allocate'' value to program categories in the surveys. See 4/10/2023
Tr. 3854 (Mathiowetz). Indeed, it was not shown that Prof. Boyle had
any knowledge of whether or how respondents' answers to Bortz Survey
questions might actually affect respondents or their CSOs, and what
respondents' perceptions might be on the subject. Further, JSC's
suspicion that Prof. Boyle lacked knowledge in this area was confirmed
on cross-examination, when Prof. Boyle could not provide clear answers
to simple questions on this topic. He was, for example, specifically
asked, ``whether you have an understanding as to whether cable system
operators have a financial interest in the outcome of these
proceedings,'' and he testified, ``I am not testifying as an expert on
cable systems. I'm testifying as an expert on survey design. And that's
how I am answering you.'' Furthermore, when forming his opinions, Prof.
Boyle did not consult with anyone who had worked at a cable system. 3/
27/2023 Tr. 1502-05, 1513-15 (Boyle).
c. Value Measurement
On behalf of Program Suppliers, Dr. Stec,\231\ testified that at
best the Bortz Survey results represent an estimate of the cable system
operators' relative willingness to pay for the different program
categories they were asked to consider, but willingness to pay is not
the same as a market price or market value.\232\ Furthermore, it is his
opinion that the Bortz Survey does not account for the supply side of
the transactions, which was noted as early as the CARP 1990-1992 cable
royalty proceeding. He opined that although Mr. Trautman indicates that
the survey respondents are familiar with the rates charged for
programming, as CSOs they do not purchase the individual programming
categories as identified in the survey and instead purchase entire
broadcast signals that include multiple categories of programming. He
opined that survey respondents are unfamiliar with the actual prices
charged in the marketplace for the specific programming categories when
they are retransmitted on distant signals. Written Rebuttal Testimony
of Jeffrey Stec, Trial Ex. 7608, at 21-22 (Stec WRT); 4/19/2023 Tr.
5655 (Stec); PS Brief at 67-71; PS PFF ]] 513-29.
---------------------------------------------------------------------------
\231\ Dr. Stec was called to testify by PS, and was qualified as
an expert witness in economics and survey research. 4/19/2023 Tr.
5641 (Stec).
\232\ Dr. Stec, citing to an article on willingness to pay at
the point of purchase, opines ``research studies show that, when
controlling for question formats, the hypothetical bias in consumer-
intent type measures, like willingness-to-pay, can be substantial
with the hypothetical willingness to pay exceeding the real
willingness to pay. Even in the absence of any other flaws, by not
accounting for this hypothetical bias, the Bortz Survey likely
measured willingness to pay, in the form of budget percentages,
inaccurately.'' Stec WRT at 26 (footnote omitted); PS PHB at 70-71;
PS PFF ]] 527, 529. The relevancy of this consumer-intent, point of
purchase opinion to the Bortz Survey remains unclear, especially in
view of a dearth of testimony on the subject.
---------------------------------------------------------------------------
Measurement of sheer willingness to pay may not be identical with a
determination of market value. Yet, as discussed throughout this
determination, including with respect to regression evidence presented
by another Program Supplier expert witness, Dr. Tyler, evidence
concerning CSOs' willingness to pay is an important indicator when
examining the hypothetical market examined by the Judges in this and
prior proceedings.
Furthermore, as pointed out by JSC, Dr. Stec expressed some of the
same negative opinions about the Bortz Survey in the 2010-13
proceedings, and although considered by the Judges, the opinions did
not prevent the Bortz Survey results from being used by the Judges in
making their allocations. See JSC PHB at 46; JSC PFF ] 253. Indeed, the
Judges recognized that the CARP had determined that in the relevant
hypothetical market, the supply of programming would be fixed and value
would be determined only by the CSOs' demand as reflected in their
willingness to pay. Additionally, in the 2010-13 proceeding, the Judges
``agree[d] with the pronouncement in prior determinations that the
royalties that would be paid in the hypothetical market would
essentially be a function only of the CSOs' demand and the copyright
owners' costs, and their supply curves (if any) would not be important
determinants of the market-based royalty.'' See 2010-13 Determination
at 3583, 3555 n.18 (citing, as an example, 1998-99 Librarian Order at
3606, 3608).\233\ In any event, the wording of Question 4 of each Bortz
Survey for a particular year does not seek a response about actual
prices charged in the marketplace, referenced by Dr. Stec. Rather, it
seeks a CSO response about percentages of a fixed dollar amount the
system ``would have spent'' and specific categories of programming that
the system carried as distant signals in the subject year.
---------------------------------------------------------------------------
\233\ As Dr. Majure testified, Question 4 is essentially a
budget-setting exercise, and as such it is his opinion that
importance and expected cost are relevant to the value of distant
signal programming, as they are to forming a budget. 3/30/2023 Tr.
2616 (Majure).
---------------------------------------------------------------------------
The parties have made further arguments to the effect that Bortz
Survey, and its results, are unable to shed light on market value
relevant to this proceeding. For example, Program Suppliers argue that
the Bortz results are not credible because they are inconsistent with
market changes, noting that with the conversion of WGNA to a cable
system, the share of compensable minutes for JSC and CTV content
significantly declined; and further, while in 2014, over 90% of the
sports programming was JSC content, by 2015 that share dropped to
approximately 65%, with the balance of 35% being Program Suppliers or
CTV content, yet changes to programming shares observed in the
marketplace are not reflected in the Bortz Survey results. It is
argued, among other things, that despite the 94% decline in JSC
content, the Bortz Survey suggests that JSC's volume fell by only 22%
and remained the most valuable category in 2017. See PS PHB at 77.
Similarly, CCG argues that according to the Bortz Survey results, JSC
content retains a constant relative value, and is ranked the most
expensive and most valuable according to Bortz Survey results, but that
is unrealistic after 2014 when WGNA converted to a cable station. Such
consistency, it is argued, does not comport with reality, inasmuch as
WGNA carried 94.2% of compensable distant JSC programming minutes in
2014, and with WGNA's conversion, compensable distant programming
minutes of JSC content dropped precipitously. CCG argues that the year-
to-year consistency in average JSC relative values from Question 4
despite
[[Page 54252]]
a loss of over more than 90% of retransmitted content after 2014 can
only be explained through heuristics, question order bias, and the
possible knowledge of the survey's purpose. See CCG PHB at 60.
JSC argues that while CCG and Program Suppliers take the position
that the Bortz Survey responses are not sensitive enough (by some
unspecified degree) to the change in volume of subscriber-weighted
minutes resulting from the WGNA conversion, the Bortz results show a
strength of the Bortz survey that the Judges' predecessors have
highlighted. JSC points out that in the 1998-1999 proceeding, following
the conversion of WTBS from a superstation to a cable network, the
Bortz survey results showed only a modest decrease in JSC's relative
value allocation, despite a similar drop in volume as the one at issue
in this proceeding. Indeed, JSC argues, it is wrong to expect that
changes in value will track with changes in the volume of programming,
as might be the case in other industries where value is driven by per-
unit sales. Further, it is argued, it is entirely reasonable that, as
the Bortz Surveys show, CSOs continue to value highly the other JSC
programming they carry after a superstation conversion, and perhaps
value it even more. JSC points to the CARP's assessment that the
``Bortz respondents take account of changes in volume, viewing, and all
other material factors;'' and argues that as a result, the Bortz
surveys, unlike other methodologies, would not lead the factfinders
astray by confusing volume with value. Rather, it is argued, as the
CARP found in its determination, affirmed by the Circuit Court, the
surveys would ``best inform [the CARP] as to whether any changes in
sheer programming volume, viewing minutes, subscriber instances, or any
other volume metric, truly translate into changes in value.'' Joint
Sports Claimants' Post-Hearing Reply Brief at 54-55 (JSC RPHB); JSC PFF
at 167 ]] 17, 18 (quoting 1998-99 CARP Rep. at 30-31 and Program
Suppliers v. Libr. of Cong., 409 F.3d 395, 401-02 (D.C. Cir. 2005)).
JSC correctly argues that value, particularly as ascertained for
the purpose of royalty allocation, is not merely reflective of
compensable minutes or of the volume of programming. Furthermore, as
recognized by the CARP, when determining the value of programming,
CSOs, such as Bortz respondents, have the ability to take account of
changes in volume, viewing, and all other material factors when
assigning value. Therefore, to some extent, the Bortz results may show
that the CSOs contacted for the Bortz Surveys, as argued by JSC, always
valued JSC programming highly, and taking many factors into
consideration may have continued to do so, or may have done so to an
even greater extent, after the loss of WGNA as a distant signal. Thus,
to retain usefulness in allocations proceedings, the Bortz Survey
results need not track precisely the availability of WGNA. Furthermore,
as JSC suggests, it is unclear exactly how closely the Bortz results
would have to track such a market change for its detractors to be
satisfied.
Nevertheless, the magnitude of the changes caused by the conversion
of WGNA is so great that one could expect some appreciable reflection
of that event in the Bortz results, particularly if there had not been
significant changes in the Bortz methodology as changes in the market
occurred. Indeed, the Bortz results do show diminished percentages for
JSC after 2014. Yet, as already detailed, it was at the time of the
conversion that, citing various factors, Bortz Media made a radical
change in its methodology such that it abandoned its prior sampling
methodology in favor of an attempt to contact all CSOs it deemed
eligible to participate in a Bortz Survey, while still excluding CSOs
that carried only PTV or Canadian programming as distant signals. Bortz
Media also calculated alternative adjustments to be used when
interpreting the Bortz initial results after the WGNA conversion to
replace the McLaughlin Adjustment used previously by the Judges. Thus,
it is not simply a question of whether the Bortz Surveys were sensitive
to changes that occurred from 2014 through 2017. There should be a
realization that after 2014, one is looking at Bortz results that in
certain respects are based on a different methodology, and that
different adjustments have been proposed. Consequently, one must
exercise caution when comparing results from 2014 (or before) with
results for 2015-2017.
As explained by Dr. Stec, for 2014, Bortz Media sought to interview
a random sample of Bortz-eligible CSOs, but for 2015 through 2017 Bortz
Media attempted something like a census while failing to interview
anything near all eligible CSOs. In fact, about 46% of eligible CSOs
did not participate in those surveys. Dr. Stec testified that
participation or non-participation in the surveys was ``self-
selected,'' which maybe an accurate appellation; but in any case, the
sampling that Bortz Media obtained was not a random sample. Thus, in
Dr. Stec's opinion, one cannot ignore whatever differences might exist
between respondents and non-respondents and, relying on the statistical
properties of randomness, impute the results obtained from the
respondents to the non-respondents, and thus for the entire target
population. To do so, he opines, could introduce bias or inaccuracies
into the results. See 4/19/2023 Tr. 5671-74 (Stec); CCG PFF ] 354.\234\
---------------------------------------------------------------------------
\234\ Even after the WGNA conversion in 2014, small numbers of
cable systems continued to report carriage of the signal. The
reasons for doing so may be varied on the part of the cable systems,
but in any event remain unclear. See Trautman WRT at 2-3; Bortz Rep.
at 7 n.6. As discussed, supra note 27, there may have been some
residual WGNA carriage as WGNA transitioned from a broadcast channel
to a cable station.
---------------------------------------------------------------------------
Somewhat similarly, PTV argues there is no dispute that the massive
number of Public Television and/or Canadian-Only Systems excluded from
the 2014 through 2017 Bortz surveys would have responded differently
than the CSOs Bortz actually surveyed, and further, Bortz's exclusion
also creates a clear non-response bias in the years that Bortz
attempted to conduct the surveys as a ``census.'' It is argued that
Bortz defined its target population, in part, based on the amount of
the section 111 royalties they represent, but by 2017, the scope of
Bortz's exclusion of PTV- and/or Canadian-only systems exceeded the
scope of CSOs that were actually surveyed as part of the attempted
census, including in terms of the numbers of systems (37% of systems
were excluded while 34% of systems were surveyed), the section 111
royalties they paid (45% of royalties were paid by excluded systems
while 28% of royalties were paid by surveyed systems), and the number
of subscribers they represented (41% of subscribers were subscribed to
excluded systems while 30% of subscribers were subscribed to surveyed
systems). PTV PHB at 40 (citing PTV PFF ]] 199-200 (relying in part on
Boyle WRT at 38-39)).
JSC argues that the Bortz opponents fail to rebut Dr. Mathiowetz's
finding that there was no evidence of non-response bias impacting the
Bortz estimates in any year. It is argued that, as Dr. Mathiowetz
explained, the ``risk and type of non-response bias'' is the same under
either the sampling or the ``census'' approach, with no assumed
statistical difference or indeterminacy in one compared to the other.
JSC argues that there is an established method to test for non-response
bias, which Dr. Mathiowetz applied, and found no bias. JSC RPHB at 48;
JSC PFF 381. Indeed, during the hearing, Dr. Mathiowetz
[[Page 54253]]
provided a succinct explanation of her assessment, as follows:
Q. * * * Just in the interest of time, if you could give us at a
high level what you did to assess whether there was a problem of
non-response bias here and what you concluded?
A. So as we have already established, right, there are
respondents and there are non-respondents. And you worry about non-
response bias to the extent that those who don't respond differ from
those who do respond to the survey.
In order to make that assessment, you have to take two steps.
First of all, you have to take and look at characteristics or
variables that you have for both respondents and non-respondents.
So we have a lot of information about these cable systems. We
know their total royalty payments. We know the region of the
country. We know the distant signal equivalents. We know the
programming mix being offered by those cable systems.
So the first step is to say: Are there any of these
characteristics related to non-response? And as Dr. Boyle asserts,
there is--we see that there is a relationship between size of
royalty and non-response.
But you have to take the second step and you have to say: Now,
among the respondents, is the characteristic that I saw related to
non-response related to valuations? And when you look at that, total
royalty payments is not related to average program valuations.
So while we see a difference in non-response rates, there is no
indication of non-response bias in any of the years of the Bortz
Survey.
4/10/2023 Tr. 3906-08 (Mathiowetz). Dr. Mathiowetz's opinion expressed
at the hearing is supported by her written testimony.\235\ See
Mathiowetz CWDT at 18-19.
---------------------------------------------------------------------------
\235\ In his written rebuttal to Dr. Mathiowetz's written direct
testimony, Prof. Boyle questions Dr. Mathiowetz's use of Census
regions when reviewing cable system responses, opining that her
investigation might have been appropriate if one were doing a survey
of the population but not for a survey to provide input to cable
royalty revenue allocations. Boyle WRT at 43-44.
---------------------------------------------------------------------------
Dr. Mathiowetz's analysis does not answer the theoretical question
of whether or not the samples obtained through the Bortz's census-type
approach in 2015 through 2017 can be treated the same way as random
samples. Nevertheless, with respect to the target population of the
Bortz Surveys, Dr. Mathiowetz's analysis provides actual evidence of
the absence of non-response bias in the Bortz Surveys for 2014 through
2017, which the Judges take into consideration when determining the
extent to which the Bortz results indicate value.
Yet, Dr. Mathiowetz's analysis does not speak to a different bias,
which is the bias in the design of the Bortz Survey caused by the
complete exclusion of PTV-only and Canadian-only CSOs. The hypothetical
allocation by those CSO's under Question 4 would presumably have to
have been 100% for the only distant signal that they carried. See 3/23/
2023 Simonson Tr. 1228;\236\ 4/4/2023 Tr. 3131-34 (Trautman). The
changes in the Bortz results that occur when PTV-only or Canadian-only
CSO are taken into account, especially after the conversion of WGNA,
are significant and have already been discussed.
---------------------------------------------------------------------------
\236\ Dr. Simonson was called by PTV, and qualified as an expert
in an expert in the fields of survey methodology, marketing, and
managerial decision-making. 3/23/2023 Tr. 1170-71 (Simonson).
---------------------------------------------------------------------------
d. The Identification and Qualification Process of Survey Respondents
Questions have been raised concerning the identification and
qualification of the respondents that Bortz Media contacted for
participation in its surveys. An inaccuracy found among the criticisms
of the Bortz surveys is that the executives identified as initial
contacts for the interviewers (whose identities and phone numbers were
obtained primarily through the Factbook) were the targets, or target
populations of the surveys, or the targets for the interviewers.\237\
Yet, the target for the interviewers, and for the surveys, was always
the person most responsible for programming carriage decisions. While
the initial contacts may in fact serve as the survey respondents, in
most cases, the interviewer was referred to a subsequent contact within
the CSO. Notwithstanding some arguments to the contrary, the method of
making an initial contact, and then pursuing a referral when needed, is
not a new method for the 2014-2017 surveys. See 2010-2013 Trautman Oral
Testimony, Trial Ex. 7043, at 103-05. Furthermore, despite suggestions
to the contrary, Mr. Trautman's hearing testimony on this topic is
consistent with the Bortz Report, and with the interviewer instructions
of the survey instrument.\238\
---------------------------------------------------------------------------
\237\ See, e.g., PS PHB at 63 (``Since Mr. Trautman only reached
between 5.9% and 9.0% of his intended target population, there
should have been a process for qualifying respondents who were not
the intended targets.'').
\238\ The survey instrument instructs interviewers, when
introducing themselves, to ask to speak with the listed respondent,
and if unavailable to confirm he/she is the person most responsible
for programming carriage decisions for the system and to arrange for
a call back; and if not, then to ask to speak with the person most
responsible for programming carriage decisions for the system. In
addition, Question 1 on the survey instrument is: ``Are you the
person most responsible for programming carriage decisions made by
your system during [year] or not?'' If the response is negative, the
interviewer is instructed by the survey instrument to ask to speak
with the person most responsible for the system's programming
carriage decisions for the subject year, and then to repeat the
introduction and Question 1. See Bortz Rep. app. B; 4/5/2023 Tr.
3220-21 (Trautman).
---------------------------------------------------------------------------
The Bortz Survey has also been criticized as failing to reach the
person most responsible for programming carriage decisions because
decision-making authority within the systems might be at the national
or corporate level, or because the survey respondents worked in the
marketing or video product departments. While one cannot say with
certainty that in all cases the Bortz interviewers reached the right
respondents, the evidence shows that during the time period in
question, individuals with the knowledge of why specific distant
signals were carried often worked at the local or regional level, and
furthermore could work in departments with titles such as marketing or
video rather than programming. See 4/3/2023 Tr. 2769-73 (Singer);\239\
4/10/2023 Tr. 4054-55, 4060-61 (Witmer);\240\ 3/28/2023 Tr. 1714-16
(Costantini); \241\ 4/17/2023 Tr. 5066-67 (Ringold).
---------------------------------------------------------------------------
\239\ Mr. Singer was called by JSC, and qualified as an expert
in the operation of cable systems and cable networks, including the
valuation of television programming in the cable industry. 4/3/2023
Tr. 2738, 2745 (Singer).
\240\ Ms. Witmer was called by JSC, and qualified as an expert
in the operation of cable systems, including the valuation of cable
and broadcast television programming. 4/10/2023 Tr. 4035 (Witmer).
\241\ Ms. Costantini was called by PTV, and qualified as an
expert in the cable television industry and valuation of television
programming. 3/27/2023 Tr. 1583, 1588 (Costantini).
---------------------------------------------------------------------------
e. Whether There Was Interviewer Error, Interviewer Bias, or a Lack of
Training
Opponents of the Bortz Survey argue that they have found ``error''
by the interviewers in as many as 90% of the survey responses, although
none seems to involve recording the survey responses. The alleged
error, it is argued, occurred in recording information such as the
recording of ``partial names'' or ``multiple positions'' for the same
respondent. There are even criticisms based on respondents' LinkedIn
profiles (which assumes, without record evidence, that LinkedIn
accounts would be accurate, and up-to-date for the survey periods in
question). See, e.g., PS PHB at 64-65; PTV PHB at 52-53; CCG PHB at 54;
Tr. 1278-79 (Simonson). Yet, as explained by Mr. Trautman, respondents
in these telephone surveys often hesitate to provide detailed
information about themselves such as full names, or happen to provide
abbreviated titles.\242\
[[Page 54254]]
4/4/2023 Tr. 2992, 3004-05 (Trautman). Furthermore, it is not uncommon
for regional personnel to oversee activities at individual systems,
depending on the size and individual system characteristics and
responsibilities. Nor is it uncommon to find individuals who are
responsible for more than one function within a company. See 3/27/2023
Tr. 1622 (Costantini).
---------------------------------------------------------------------------
\242\ There is an email in which Mr. Trautman asks his
contractor running the interview process to make sure interviewers
do not record titles short-hand form. While Mr. Trautman was doing
the due diligence of quality control, there is no proof of actual
error. See 4/10/2023 Tr. 3967-68 (Mathiowetz).
---------------------------------------------------------------------------
Bortz opponents argue that Ms. Grossman's long experience working
on the Bortz surveys, and the large number of interviews she conducted,
could have resulted in bias in the surveys she performed. That
criticism is somewhat speculative. Furthermore, Dr. Mathiowetz tested
for that question, and found no such bias. Specifically, it was found
that on average, responses to the surveys Ms. Grossman performed did
not differ from those of obtained from other interviewers. 4/10/2023
Tr. 3893-94 (Mathiowetz). On the other hand, despite the long history
Bortz Media has with Ms. Grossman, there are criticisms about a
supposed lack of training materials, although the record shows that it
is standard to use the survey instrument, or the questionnaire, as the
training material when there is a small team of interviewers as in the
case of the Bortz Surveys.\243\ 4/10/2023 Tr. 3895-96 (Mathiowetz).
Moreover, Bortz Media conferred with Ms. Grossman and her team with
respect to the 2014-2017 interviews before starting each survey. 4/3/
2023 Tr. 2841 (Trautman); 4/4/2023 Tr. 3006 (Trautman). Subsequently,
Bortz Media monitored approximately 20 percent of the interviews ``to
ensure accurate interviewing techniques and to observe any issues
related to the respondent's comprehension or ability to respond to the
constant sum valuation question.'' Bortz Rep. at A-15.
---------------------------------------------------------------------------
\243\ Bortz only used a separate, one-page training document for
these surveys in the late 1980s to early 1990s, when it worked with
a large contractor whose interviewers were not as clearly
experienced in executive interviewing. 4/4/2023 Tr. 3168-69
(Trautman).
---------------------------------------------------------------------------
f. Whether the Bortz Survey Questions Are Overly Complex or Caused
Confusion or Recall Bias
When examining the actual Bortz Survey constant sum question,
industry experts explained that cable system executives are more than
capable of understanding the categories of content separate and apart
from particular linear channels, that they know these types of
programming as part of their day-to-day job. The survey respondents
also have experience running businesses and expenses. Thus, the
constant sum question is the type of question one would ask them. See
4/10/2023 Tr. 4052-55 (Witmer); 4/3/2023 Tr. 2769 (Singer).
With respect to the terms used during the Bortz Survey interviews,
there is argument and testimony that in some cases the terms used to
describe the program categories are undefined or vague. See, e.g., PS
PHB at 72. The terms used to describe the program categories are by
necessity generalizations. Yet, there is no showing of widespread
confusion among survey respondents. On the contrary, there is evidence
that the categories are generally understood, in particular a term such
as ``live professional and college team sports.'' See 2010-2013 Hartman
Oral Testimony, Trial Ex. 7056, at 73-77; 3/28/2023 Tr. 1722-23
(Costantini).
With respect to the general complexity of the Bortz Survey, and
especially Question 4, Dr. Mathiowetz, who has studied and conducted
establishment surveys, testified that the Bortz constant sum question
was similar in complexity to other establishment survey questions, and
underscored that the executives contacted for the survey have a
sophisticated level of knowledge about the concepts in the survey. 4/
10/2023 Tr. 3854-55 (Mathiowetz). Indeed, Dr. Ringold has conducted
surveys of CSO employees, and has asked respondents a constant sum
question that required respondents to allocate 100 points among seven
different claimant categories. See 4/17/2023 Tr. 5014-16 (Ringold).
Furthermore, one well-known indication of respondents who were
overwhelmed or confused could be what is termed ``satisficing,'' in
which a respondent may take a cognitive short cut to stay in the role
of a respondent albeit at a minimum.\244\ See 4/10/2023 Tr. 3855-56
(Mathiowetz). Yet, Dr. Mathiowetz found no pattern of respondent
confusion or satisficing behavior in the Bortz survey data. There was,
for example, a case cited by PTV of a Bortz respondent who gave the
same rankings and value allocations for two different systems. Dr.
Mathiowetz testified, however, ``[w]hat you want to see when you're
looking for evidence that there are problems with the question is that
you see that pattern [of satisficing] overall across most
respondents,'' not just ``one or two.'' 4/10/2023 Tr. 4015-26
(Mathiowetz).\245\
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\244\ With respect to satisficing, during the hearing, Dr.
Mathiowetz quoted from the Encyclopedia of Survey Research Methods,
as follows: ``Satisficing has been posited to at least partly
explain several response effects, including acquiescence effects,
non-response order effects, no opinion option effects, and non-
differentiation in answering batteries of rating scales.'' 4/10/2023
Tr. 3856 (Mathiowetz).
\245\ Even before the production of more detailed information,
as originally produced, the redacted Bortz data contained anonymized
respondent identifications showing every time the same individual
responded on behalf of multiple systems in a given survey year. 4/
10/2023 Tr. 2922-24 (Mathiowetz). It appears, therefore, that early
in this proceeding any party could have used such information to
track potential satisficing.
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A question has been raised as to whether the timing of the Bortz
surveys led to recall error or bias. Mr. Trautman testified that as a
matter of best survey practices, in general it is better to perform the
Bortz Survey closer to the end of the survey year, rather than farther
from it. As discussed above, the Bortz Surveys did not begin until
several months after the end of the preceding calendar year.
Nonetheless, Mr. Trautman did not conclude that there was recall bias
in this the surveys now at issue. 4/4/2023 Trautman Tr. 3012, 3029-34.
Yet, as Dr. Simonson observed, ``the Bortz Survey mistakenly asked a
few respondents about programming categories that they did not actually
carry.'' \246\ 3/23/2023 Simonson Tr. 1223. In all such cases, the
respondents should have realized that their systems had not carried
distant signal programming in those categories, and allocated zero
value to such programming. Yet, Dr. Simonson testified, for 2017, for
example, over 11 percent of respondents allocated values of up to 50
percent to categories they did not carry. Id. Dr. Mathiowetz was candid
about the fact that there are some errors in the Bortz Survey. She
testified, ``I think there are cases in any data collection effort
where there is misinformation, respondent error, respondent recall.
That's the nature of the beast when you go and interview humans. And
the best you can do is understand how that can impact the data.'' It
was her opinion, which appears reasonable, that incorrect answers in
those cases, i.e., answers other than zero for a programming category
that was not carried, could be the result of recall error. She
explained that ``a respondent is under the impression that the
interviewer is giving them--most respondents work under the impression
that the information being conveyed by an interviewer is accurate. And
so we may have cases of recall error as opposed to just not
[[Page 54255]]
understanding.'' 4/10/2023 Mathiowetz Tr. 4030-31.
---------------------------------------------------------------------------
\246\ Such occurrences are indeed few in number, but not to be
ignored. Specifically, for 2014 through 2017, 90 respondents
overall, four in 2014, 33 in 2015, 24 in 2016, and 29 in 2017,
provided relative value allocation to compensable programming that
they did not carry. See PS PFF 541 (citing Stec WRT at 41).
---------------------------------------------------------------------------
Despite a relationship between importance and cost, already
discussed, there is a concern that because ``warm-up'' Question 3 asks
about cost, it might have influenced responses to Question 4, which
asks about value. See, e.g., 2010-13 Determination at 3590 (``This may
have injected some confusion into the respondent's estimation of
relative value.''); 3/27/2023 Boyle Tr. 1422 (``But if I was doing it,
I probably would not have had Question 3 before Question 4, if it was
something that was important. I would have had Question 3 after
Question 4, after the primary source of information that I was looking
to get.'').\247\
---------------------------------------------------------------------------
\247\ Dr. Conrad was called by CCG, and qualified as an expert
in survey methodology with specialization in questionnaire design
and data collection. 4/13/2023 Tr. 4796-97, 4806 (Conrad). He
expressed concern over Question 3, and its order in the survey. See
Written Rebuttal Testimony of Frederick Conrad, Ph.D., Trial Ex.
7405, at 4 (``The cost question (Q3) was intended as a warm-up but
the information respondents used to answer it was almost certainly
salient and particularly accessible in their working (short-term)
memory when they answered the value question (Q4) immediately
afterward, allowing the cost information to dominate the valuation
process; if the order of these two questions had been reversed,
i.e., if Q4 had been asked before Q3, cost information would less
likely be the central consideration in the valuation process. This
pattern, if observed, would be what survey researchers call a
question order effect--considered a type of measurement error'')
(emphasis added).
---------------------------------------------------------------------------
In this proceeding, there is no strong evidence offered either way
to show whether Question 3 unduly influenced responses to Question 4.
The best evidence was, however, found in the opinion of Dr. Mathiowetz
who testified, ``when you look at the relationship between importance
and relative value, you see a stronger relationship in the [Bortz] data
between importance and relative value than you do between expense and
relative value.'' When asked whether Question 3 biases response to
Question 4, she answered, that ``My analysis suggests that it is not
biasing, that there is a very logical relationship, but it is one that
also includes understanding how respondents answered the importance
question.'' 4/10/2023 Tr. 3878 (Mathiowetz); see Mathiowetz CWDT at 11
(``One means by which questionnaire designers can signal the
distinction among related concepts is by employing different question
forms, thereby presenting the respondent with a different task. In the
case of the Bortz surveys, the warm-up questions require the respondent
to rank order among the program categories, from 1 to k, whereas the
key question of interest related to relative valuations is a constant
sum task'').
g. Whether Pre-Testing and Post-Testing Verification Procedures Were
Needed
PTV and CCG criticize the Bortz survey for not performing
``qualitative pre-testing'' or ``post-survey verifications.'' For
example, CCG argues that pretesting is a best practice even for
longitudinal surveys that are fielded with the same instrument over a
long period of time, according to the American Association for Public
Opinion Research (AAPOR),\248\ so that changes or adjustments can be
made to the questions asked. CCG PHB at 51-52. PTV argues in favor of
pre-testing, and also that Bortz failed to conduct any post-survey
verification to confirm validity and reliability, such as test/retest
reliability or recontacting respondents to confirm ``that they actually
exist, the survey actually happened, or that the respondents were
qualified, and to learn how the respondent understood and answered.''
PTV PHB at 58.
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\248\ The AAPOR is a leading organization on survey research
standards, and its past presidents include JSC's expert witness Dr.
Mathiowetz. In 2015, she was awarded the AAPOR Award for Exceptional
Distinguished Achievement. See Mathiowetz CWDT at 1-2; 4/10/2023 Tr.
3943-44 (Mathiowetz).
---------------------------------------------------------------------------
JSC argues that it is inaccurate to suggest that pre-testing is the
only way to assess whether the surveys produce valid and reliable
results. JSC argues that there are many ways to test for, for example,
internal consistency in responses, evidence of satisficing, and bias;
and Dr. Mathiowetz tested for all of those things, even if other
experts did not do so. JSC RPHB at 52.
While neither JSC nor Dr. Mathiowetz disputes the value of pre-
testing in general, Dr. Mathiowetz testified that pretesting of the
2014-2017 Bortz surveys was not necessary because the survey has been
fielded for many years and has been established in prior proceedings as
a valid approach to looking at relative market value. She explained
that the need for pre-testing is different than if one were undertaking
brand new questionnaire development. Furthermore, Dr. Mathiowetz
testified that there is also a significant downside to pre-testing a
survey such as the Bortz Survey because there is a small population,
and Bortz Media goes back to them in the next year. Also, any cases
used for pre-testing usually would not be used in the main study. Tr.
3863-64, 3958-60 (Mathiowetz).
With respect to post-survey verification, Dr. Mathiowetz explained
that due to the small population, and recurring nature of the survey,
``you don't want to burn bridges'' by recontacting CSOs that Bortz
Media knows it will want to survey again, just to verify their prior
identification of the respondent. Indeed, Dr. Mathiowetz had never seen
such a verification process for an establishment survey in the
literature, nor had she done it herself. 4/10/2023 Tr. 3897-98
(Mathiowetz). Similarly, Mr. Trautman's reason for not contacting
survey respondents after each survey is a concern about ``placing an
additional burden on respondents or potential respondents,'' who are
``busy executives,'' and the resulting ``risk of not being able to
continue to interview respondents in the future.'' 4/4/2023 Tr. 3106-07
(Trautman).
h. Whether Bortz Media Used Undisclosed Quotas, Financial Incentives,
and Pressure To Produce ``Extraordinary'' Results That Biased the Data
PTV argues in one paragraph of its brief that JSC has trumpeted
high response rates achieved for the Bortz surveys, but never disclosed
any response rate quotas it imposed, as revealed in compelled discovery
showing that Bortz imposed substantial quotas on Ms. Grossman and her
team, and pressured them to produce ``extraordinary'' results; \249\
and despite persistent and increasing difficulty, specifically
pressured them to ``keep the response rate as high as possible because
it has been a big selling point for the Bortz survey in these
proceedings . . . based on past emphasis by the Judges.'' It is further
argued that Mr. Trautman admitted, and documents confirmed, that Ms.
Grossman and her team had a financial interest in meeting these quotas
in order to keep the surveys going, and did ``everything possible to
reach those numbers that [Mr. Trautman] needed,'' including placing
many calls, pleading, calling neighboring systems, disregarding
institutional policies against participating in surveys, and staying in
the field for a longer time. See PTV PHB at 50 (citing PTV PFF ]] 266-
73).
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\249\ Dr. Simonson testified that he never heard the term
``establishment survey'' before testifying, and had never heard of a
business or organization survey obtaining a response rate of 50%
without offering compensation (and did know of any compensation for
respondents in connection with the Bortz Surveys). 3/23/2023 Tr.
1248-51 (Simonson).
---------------------------------------------------------------------------
JSC argues that Bortz Media appropriately sought to obtain high
response rates, and to do so through its contractor, and at higher
expense, spent more time in the field and made more
[[Page 54256]]
efforts to reach respondents than one might otherwise do. It is argued
that no expert testified to the existence of ``quotas'' or resulting
bias in the Bortz results. It is argued that to the contrary, Dr.
Mathiowetz testified that there is ``absolutely not'' anything
problematic about telling a survey organization to work hard to obtain
good response rates, even if that requires interviewers to make more
frequent calls or leads to cost overruns. Furthermore, it is argued,
Mr. Trautman testified unequivocally that interviewers were never paid
for completing an individual interview or completing a specific number
of interviews. JSC RPHB at 4, 55.
JSC argues that PTV is simply misreading the AAPOR disclosure
standard, which it never submitted into evidence and never showed to
any of the numerous testifying survey expert, including former AAPOR
President, Dr. Mathiowetz. Furthermore, JSC argues that the AAPOR
standards require disclosure of quotas used as part of the ``methods of
sampling'' for the survey, sometimes referred to as ``quota sampling.''
Quota sampling is used to ``achieve a pre-specified distribution on
some set of variables'' (such as gender or Census region) within a
survey sample, and there is no suggestion that Bortz used quota
sampling or anything like it, and thus nothing that Bortz improperly
failed to disclose. See id. at 55-56.
Indeed, there was a lack of development of any accusation that
Bortz Media, or any party associated with the Bortz Surveys at issue
used undisclosed sampling quotas, let alone to obtain extraordinary
results. Furthermore, it has not been established that interviewers or
anyone else associated with Bortz Media or its contractors received
undisclosed financial incentives to obtain results,\250\ or the Bortz
Media or anyone else associated with the Bortz Surveys engaged in
``quota sampling,'' as it has been explained in the meager record on
the topic.
---------------------------------------------------------------------------
\250\ PTV's Proposed Finding of Fact 270 contains the statement:
``Ms. Grossman and her team were financially incentivized to meet
Mr. Trautman's quotas because their compensation was a product of
keeping the study going, and the time and effort needed to do so.
Ms. Grossman and her team required, inter alia, more money,
resources, longer time in the field.'' PTV PFF at 96 (footnotes
omitted) (emphasis added). An examination of the evidence cited in
supporting footnotes (i.e., 4/4/2023 Tr. 3195-202 (Trautman))
confirms that the financial incentives involved were, as indicated
in PTV's proposed finding, only in the nature of compensation for
the time, effort and resources needed to keep the study going and to
exceed expectations.
---------------------------------------------------------------------------
C. The Testimony of Professor Papper
CTV argues that the testimony its expert witness Prof. Papper,
referenced above, is based on empirical analysis and his decades-long
expert assessment of trends in the local television news industry
generally and their impact on the relative value of CTV programming
during the 2014-2017 period. In particular, Prof. Papper opines that
there has been a steady rise in the production and airing of local
news.\251\ Thus, CTV argues that it is entitled to an increased share
of royalties. See CTV PHB at 4-6. In its reply, CTV argues that despite
criticisms of RTDNA surveys, Program Suppliers provide no evidence,
empirical or otherwise, to rebut or refute what Prof. Papper
consistently presents throughout his testimony, which is that that
local television stations across the country, including those that were
distantly retransmitted, were producing and airing increasingly more
local news programming over the course of 2014-2017.\252\ Further, CTV
argues that as Prof. Marx testified, CSOs' inability to offer as much
CTV content in 2015-2017 was divorced from any actual choice made by
the CSOs, and was due to the reduction of available CTV programming as
a result of the WGNA conversion. CTV Reply at 52-53.
---------------------------------------------------------------------------
\251\ CTV, based on the written testimony of Prof. Papper,
argues that there has been a steady increase on the amount of news
broadcasts by station, including an increase in the amount of local
news from 5.3 hours in 2014 to 5.7 hours in 2017; and the amount of
local news also went up on the weekend, from an average of 2 hours
per Saturday in 2014 to 2.1 hours in 2017, while the amount of local
news on Sunday rose from 1.9 hours in 2014 to 2.1 hours in 2017.
Further, it is argued, the number of stations running local news
rose from 1026 in 2014 to 1062 in 2017, and as television stations
continued to increase their local news budgets during the four-year
period, they added more local newscasts to their lineups in the 4
p.m. to 7 p.m. time slots, and the 5 a.m. to 7 a.m. time slots. See
CTV PHB at 5; CTV PFF ]] 10-11.
\252\ CTV argues that in support of the value of their own
content, Program Suppliers continue to rely on reports that are like
those they find objectionable from Prof. Papper, and the articles
Prof. Papper writes that in part rely on the RTDNA Survey.
Specifically, CTV argues that Program Suppliers relies on the
content of the Nielsen Year in Sports Media Report, U.S. 2017. It is
argued that this Nielsen Report, which includes and relies on a
variety of sports media data, studies and survey results, is no
different from Prof. Papper's articles and opinions that are
informed, in part, by results from the RTDNA Survey. CTV RPHB at 53
n.267 (citing PS PHB at 13).
---------------------------------------------------------------------------
Program Suppliers argue that the RTDNA Surveys should be given no
weight for several reasons, including the fact that Prof. Papper failed
to provide the information necessary to evaluate his target population,
sample design, the data he collected (and did not collect) from the
RTDNA Surveys, the quality of that data, or the accuracy of the data
collection and recording of that data. Moreover, Program Suppliers
argue that Mr. Papper's hearing testimony revealed that the reliability
issues are more severe, pervasive, and disqualifying than originally
thought. Indeed, it is argued, the RTDNA Surveys are not surveys at
all, but are instead part of what CTV terms a ``fact-gathering
exercise,'' presumably because Prof. Papper admitted that he is not a
survey expert and lacks the expertise necessary to sponsor the RTDNA
Surveys as evidence in this proceeding. CTV PHB 4. In addition, Program
Suppliers argue that while CTV takes the position, based solely on Mr.
Papper's RTDNA Survey, that there was an increase in the amount of CTV
programming appearing on distant signals, this summary conclusion is
directly contrary to the quantitative study conducted by the other CTV
experts, Dr. Bennett \253\ and Dr. Marx, which shows the dramatic
decline in CTV distant carriage over time. Program Suppliers' Post
Hearing Reply Brief at 22 (PS RPHB).
---------------------------------------------------------------------------
\253\ Dr. Bennett was called by CTV, and qualified as an expert
in statistical methods and measurement. 4/12/2023 Tr. 4497, 4504-05
(Bennett).
---------------------------------------------------------------------------
The RTDNA Surveys were not offered or received as survey evidence,
but rather as information, along with articles, that Prof. Papper
relied upon in forming his expert opinions. As such, the RTDNA Surveys
were not scrutinized as, for example, the Bortz Surveys were
scrutinized in this proceeding. Based on the totality of Prof. Papper's
opinions and the sources upon which he relies, including his
involvement in the broadcast journalism industry, it is found that
there was a trend toward increased production and airing of local news
during the 2014-2017 time period, although the extent of that trend is
difficult to gauge from Prof. Papper's testimony. Furthermore, that
trend does not in and of itself translate to a greater allocation of
section 111 royalties for CTV, and the opinions of Dr. Bennett, Dr.
Marx and others who testified on the subject of CTV programming are
addressed elsewhere.
For the foregoing reasons, the Judges accord evidentiary weight to
the Bortz Survey, with the McLaughlin Adjustment--relatively equivalent
with the weight given to the regression analysis as discussed supra. A
reconciliation of these two useful (albeit imperfect) approaches,
augmented by the testimony of industry witnesses, is set forth below.
[[Page 54257]]
XVIII. Conclusion And Award
Regression evidence was presented through Drs. Johnson, Tyler,
George and Marx, with the Johnson, Tyler and George regression models
generating proposed royalty fund shares for each of the claimant groups
in each of the years 2014 through 2017. Furthermore, survey evidence
was presented only in the form of the Bortz Survey, which was conducted
for each of the years at issue, along with adjustments that could be
made to the initial results to account for certain factors (most
notably the exclusion of CSOs from the surveys because they carried
only PTV or only Canadian programming as distant signals). In addition,
the Judges received evidence from industry experts who testified from
their unique perspectives about the regressions and annual surveys
presented at the hearing, as well as the valuation of programming
relative to several of the claimant groups.
For the reasons detailed in this determination, the Judges have
found that no form of evidence, be it a regression, the Bortz Survey or
the testimony of industry experts, provided data that translates
directly into the allocation of royalty fund shares needed for this
determination.\254\ The results of all regression models in evidence
have been considered, but the Judges find that the Tyler Model is the
most appropriate regression model in this record, and have accorded it
the most weight. The Bortz Surveys provide relevant illustrations of
the values placed on distant signal programming during the relevant
time period. For 2014-2017, the Bortz Surveys had limitations that
other Judges and tribunals have long recognized. In some cases, a more
comprehensive assessment of values can be made by applying adjustments
proposed by various parties, especially the McLaughlin Adjustment,
which has been used at least since the 2004 and 2005 proceeding. The
Judges have also taken into consideration the fact that Bortz Survey
methodology, like the regression models, faced challenges over the
period following 2014, especially due to the conversion of WGNA.
---------------------------------------------------------------------------
\254\ To the extent that any criticism of, or deficiency in, the
record evidence was not discussed, it is because said criticism or
deficiency does not change the outcome of this determination.
---------------------------------------------------------------------------
In view of the totality of the evidence presented in this
proceeding, the Judges find that a synthesis of regression and survey
results is necessary to arrive at the required allocations. In
particular, with respect to JSC, the Judges weighted heavily evidence
from the Bortz Surveys. While the record shows that minute volume is
not as applicable to sports programming (which is more dependent, for
example, on games carried), JSC's allocation must be limited by the
fact that significantly less sports was transmitted after the WGNA
conversion. Yet, with respect to PTV, the regression evidence was
accorded greater weight for 2014, and dispositive weight for 2015-2017.
As already described, the regression evidence accounted for the
reduction of shares due to the Must Carry signals, as well as increases
due to the implicit willingness to pay as shown by cable systems that
continued to carry PTV even when WGNA was no longer available as a
distant signal. By contrast, the Bortz Surveys did not examine such
circumstances, and there is no rationale for augmenting the survey
results with the McLaughlin Adjustment for all the PTV-only systems
that came into existence after 2014.
For CTV, the Bortz Surveys weighed heavily in making the
allocation, which is not inconsistent with evidence presented by
industry experts Mr. Vaughn and Prof. Papper, as well as the industry
analysis provided by Dr. Marx. Relatively speaking, the value of CTV
should have increased since 2013, with the rise of streaming and over
the top programming, more than one sees when simply looking at the
regression results. Much of the CTV programming was not available on
streaming, and would increase its relative value in what was
technically distant signal programming because it was retransmitted to
a contiguous area.
With respect to the allocation for the Program Suppliers, the Bortz
Survey evidence weighed more heavily than the regression evidence.
Expert testimony showed that streaming services could substitute for
retransmitted signals. This factor was not reflected in the regression
evidence, but the Bortz Survey respondents, as cable industry
executives, would have understood the factors affecting the value of
Program Suppliers programming in much the same way as the testifying
industry experts.
There is ample evidence in the record that SDC provides niche
programming whose value is not so much determined by minutes, and might
not show up well in regressions. Yet, the niche value of SDC has been
reflected well in the Bortz Surveys received in this proceeding, and
previously, and is reflected in relatively consistent numbers. Inasmuch
as the allocations for SDC, by any parties' estimation, resulted in low
numbers, one sees share allocations with relatively steep jumps or
declines between years, but when compared to the overall allocations to
be made, the variations are not great in absolute terms.
With respect to CCG, in general, the regressions examined the value
of Canadian programming in detail, and were relied upon in making
allocations. Yet, even the regression evidence was weighed carefully
because although CCG had strength as a niche offering, it also
overwhelmed some regressions, including the above-minimum-fee
programming model. The Bortz Surveys were considered, but accorded no
weight when arriving at the Basic Fund allocations because much
Canadian programming is not taken into consideration, and the Bortz
results were clearly off the mark.
Accordingly, the allocations are, as follows:
Table 2--Basic Fund Royalty Allocations
----------------------------------------------------------------------------------------------------------------
Basic Fund 2014 2015 2016 2017
----------------------------------------------------------------------------------------------------------------
CCG............................................. 6.19 14.59 14.60 15.77
CTV............................................. 20.55 19.78 17.36 17.50
JSC............................................. 36.13 11.42 10.72 12.36
Program Suppliers............................... 21.21 28.29 25.53 23.29
PTV............................................. 11.07 19.18 24.78 25.25
SDC............................................. 4.85 6.74 7.01 5.83
----------------------------------------------------------------------------------------------------------------
[[Page 54258]]
With respect to the 3.75% fund, it is recognized that PTV is a
nonparticipant. To arrive at the allocations for the 3.75% fund set
forth in Table 1, the Judges have reallocated the PTV shares
proportionally among the claimant categories that participated in that
fund.
The Register of Copyrights may review the Judges' Final
Determination for legal error in resolving a material issue of
substantive copyright law. The Librarian shall cause the Judges' Final
Determination, and any correction thereto by the Register, to be
published in the Federal Register no later than the conclusion of the
60-day review period.
Dated: April 17, 2024
David R. Strickler,
Copyright Royalty Judge.
Steve Ruwe,
Copyright Royalty Judge.
David P. Shaw,
Chief Copyright Royalty Judge.
The Register of Copyrights closed her review of this Determination
on June 13, 2024, with no finding of legal error.
Dated: June 13, 2024.
David P. Shaw,
Chief Copyright Royalty Judge.
Approved by:
Carla B. Hayden,
Librarian of Congress.
ADDENDUM A
Before the Copyright Royalty Judges
The Library of Congress
In re Distribution of Cable Royalty Funds
Docket No. 16-CRB-0009 CD (2014-17)
Public
Order 46 Granting in Part and Denying in Part PTV's Motion for
Rehearing and Denying JSC's Motion for Rehearing
I. Procedural Background and Legal Standard
a. Procedural Background
On September 6, 2023, the Copyright Royalty Judges (``Judges'')
issued their Initial Determination of Royalty Allocation (``Initial
Determination'' or ``ID'') in the captioned proceeding (eCRB no.
28762).
On September 21, 2023, the Public Television Claimants (``PTV'')
and the Joint Sports Claimants (``JSC'') filed motions for rehearing
(eCRB nos. 30637 and 30638, respectively).
On September 25, 2023, the Judges issued Order 43, permitting
written responses to the motions for rehearing by October 5, 2023.
On October 5, 2023, the Canadian Claimants Group (``CCG''), Program
Suppliers (``PS'' or ``Program Suppliers'') and Settling Devotional
Claimants (``SDC'') filed a Joint Response in Opposition to the Motions
for Rehearing (eCRB no. 32670) (``Joint Response'').
On October 5, 2023, JSC and the Commercial Television Claimants
(``CTV'') filed responses in opposition to PTV's Motion for Rehearing
(eCRB nos. 32671 and 40001, respectively).
On October 5, 2023, PTV filed a Response in Opposition to JSC's
Motion for Rehearing (eCRB no. 32673).
On October 10, 2023, the Judges issued Order 44, granting movants
leave to file replies by October 19, 2023.
On October 19, 2023, JSC filed a reply in support of its motion for
rehearing (eCRB no. 33842) and PTV filed a reply in support of its
motion for rehearing (eCRB no. 33843).
b. Legal Standard
Pursuant to the Copyright Act, the Judges may grant a motion for
rehearing in exceptional cases. 17 U.S.C. 803(c)(2). Applying this
statutory ``exceptional case'' requirement, the Judges' regulations
state that the movant must show that an aspect of the determination is
``erroneous.'' i.e., ``without evidentiary support in the record or
contrary to legal requirements.'' 37 CFR 353.1-.2.
In applying these statutory and regulatory standards, the Judges
grant rehearing only ``when (1) there has been an intervening change in
controlling law; (2) new evidence is available; or (3) there is a need
to correct a clear error or prevent manifest injustice.'' See Order
Granting in Part and Denying in Part Motions for Rehearing at 2 n.3,
Determination of Royalty Rates and Terms for Making and Distributing
Phonorecords (Phonorecords III), Docket No. 16-CRB-0003-PR (2018-2022)
(Oct. 29, 2018) (citing Order Denying Motion for Reh'g at 1,
Determination of Rates and Terms for Preexisting Subscription Services
and Satellite Digital Audio Radio Services (SDARS I), Docket No. 2006-1
CRB DSTRA (Jan. 8, 2008) (applying federal district court standard
under Fed. R. Civ. P. 59(e))). See also Order Granting in Part and
Denying in Part Sirius XM's Motion for Rehearing and Denying Music
Choice's Motion for Rehearing at 1-2, Determination of Royalty Rates
and Terms for Transmission of Sound Recordings by Satellite Radio and
``Preexisting'' Subscription Services (SDARS III), Docket No. 16-CRB-
0001 SR/PSSR (2018-2022) (Apr. 18, 2018) (``SDARS III Order'') (same).
Moreover, in the SDARS III Order, the Judges made clear what would not
be sufficient to warrant rehearing: ``A rehearing motion does not
provide a vehicle `to re-litigate old matters, or to raise arguments or
present evidence that could have been raised prior to the entry of
judgment.' '' \255\ Id. at 2 (quoting Exxon Shipping Co. v. Baker, 554
U.S. 471, 485 n.5 (2008) (quoting C. Wright & A. Miller, Federal
Practice and Procedure Sec. 2810.1 (2d ed. 1995))).\256\
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\255\ An attempt to re-litigate old matters, or to raise
arguments or present evidence that could have been raised prior to
the entry of judgment, is colloquially referred to as an improper
attempt at ``a second bite at the apple.''
\256\ In determining whether to grant motions for rehearing, the
Judges have also previously relied on Fresh Kist Produce, LLC v.
Choi Corp., 251 F. Supp. 2d 138, 140 (D.D.C. 2003), which involved a
Rule 59(e) motion in a case relating to economic rights. See, e.g.,
SDARS III Order at 2, 7. In view of the facts in Fresh Kist, the
district court held that ``[a]lthough the court disapproves of
parties raising arguments that they could have advanced earlier, the
court recognizes that the interests of justice and fairness support
reviewing the plaintiff's motion.'' Fresh Kist, 251 F. Supp. 2d at
141. Accordingly, the Judges recognize a tension between the
proscription against using a rehearing motion to obtain a ``second
bite at the apple'' and the need to prevent an unfairness that
constitutes a ``manifest injustice,'' which can be addressed on a
case-by-case basis.
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II. JSC'S Motion For Rehearing
Pursuant to 17 U.S.C. 803(c)(2) and 37 CFR 353.1, JSC requests
rehearing, arguing that the Judges' allocations must conform to the
record evidence and the law by: ``(1) correcting the Initial
Determination's reliance on an outdated and unreliable version of the
`McLaughlin adjustment' calculation; (2) adjusting JSC's 2014 share to
align with the record evidence and the reasoning of the Initial
Determination; and (3) eliminating reliance on a regression model for
the 2015-17 time period that no witness endorsed and is at odds with
the record evidence.'' JSC Motion at 1.
a. JSC's Motion Is Deficient Because It Does Not State a Standard Under
Which It Can Seek Rehearing
The JSC Motion fails to explicitly set forth a governing rehearing
standard for the Judges to apply that would support the substantive
arguments on which JSC seeks rehearing. As the Judges noted supra, a
party may seek rehearing if (1) it demonstrates the existence of an
``exceptional'' case under the applicable statutory section, which, (2)
by regulation, means that a party must show that the aspects of the
determination identified by the movant were ``erroneous,'' pursuant to
(3) specific grounds, such as, e.g., ``clear error'' or ``manifest
injustice.'' \257\ JSC
[[Page 54259]]
does not express and apply these specific standards, let alone maintain
that its arguments meet these standards.
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\257\ As also noted supra, a ``negative'' requirement for a
proper rehearing motion is that the motion cannot simply attempt to
relitigate matters that were addressed at the hearing (the so-called
``no second bite at the apple'' requirement) or to raise issues that
the movant could have presented at the hearing but did not.
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The Judges should not have to guess at the standard on which a
movant relies for seeking rehearing. Accordingly, the standardless
nature of the JSC Motion renders it deficient on this basis alone.\258\
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\258\ JSC does cite 17 U.S.C. 803(c)(2) and 37 CFR 353.1, which
provide parties with the right to seek rehearing, but those mere
citations are not enough. The Motion must attempt to tie the
movants' substantive arguments regarding the challenged aspects of
the determination to specific rehearing standards.
The Judges also note that JSC does attempt to tie its arguments
to actual standards in its Reply. However, the Judges are highly
reluctant to permit new arguments to be made for the first time in a
Reply, because such delinquent assertions sandbag the adverse
parties, who had already filed their permitted Responses and are
unable to address the delinquent arguments in the Reply.
In any event, the Judges' discussion infra rejecting JSC's
arguments makes it clear that, even had JSC made a timely attempt to
identify allegedly applicable specified standards for rehearing and
attempted to connect its factual arguments to those standards, the
JSC Motion would nonetheless be denied (in part). (In this regard,
the Judges note that, in its Reply, JSC cites the Judges' order in
the 2010-13 allocation proceeding which noted the rehearing standard
in 37 CFR 353.2, requiring a movant to state why it believes the
determination is ``without evidentiary support in the record or
contrary to legal requirements.'' JSC Reply at 2. JSC makes no
allegation of legal error and, as discussed infra, there is abundant
evidentiary support for the factual findings with which JSC takes
issue.)
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Further, the Judges note that JSC sets forth an incorrect standard
for consideration of requests for rehearing, by repeating three times
that the Judges' adjustments were ``arbitrary''. Motion at 8-10.
However, that standard is an appellate standard, not a standard for
rehearing. See, e.g., Hammond v. Reynolds Metals Co. Pension Plan for
Hourly Emps., 2006 WL 8436765, at *2 (N.D. Ala. May 25, 2006) (holding
that the ``arbitrary and capricious'' appellate standard of review is
inapplicable to the court's ``stringent standard'' for consideration of
a Rule 59(e) motion and ``the judicial interest in finality of
decisions . . . .''); Perrin v. Hartford Life Ins. Co., 2008 WL
11472191, at *2 (E.D. Ky. Mar. 24, 2008) (``the court finds that the
defendant cannot attain arbitrary and capricious review of its
decision. The court concludes that the defendant has failed to
demonstrate appropriate grounds for relief under Rule 59(e)).\259\
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\259\ The paucity of cases in which a party even attempted to
rely on the appellate issue of whether a decision was ``arbitrary
and capricious'' is indicative of the inapplicability of that issue
in the context of a Rule 59(e) type of motion. But see Arias v.
DynCorp, 752 F.3d 1011, 1016 (D.C. Cir. 2014) (``We have squarely
held that a party must preserve an issue for appeal even if the only
opportunity was a post-judgment motion.''); see also Jones v. Horne,
634 F.3d 588, 603 (D.C. Cir. 2011) (same). The Judges perceive JSC's
``arbitrary and capricious'' arguments as potentially prophylactic
measures intended to preserve this issue on appeal, rather than a
proper basis for rehearing pursuant to statute, regulation, and the
Judges' prior rulings regarding rehearing, which are expressly
patterned on Fed. R. Civ. P. 59(e).
Further, JSC relies on a case which does not involve a Rule
59(e) motion, but rather addresses the standard by which the D.C.
Circuit reviews a district court's entry of summary judgment. See N.
Cent. Airlines, Inc. v. Cont'l Oil Co., 574 F.2d 582, 587 n.14 (D.C.
Cir. 1978) (cited in Reply at 2). But in the same breath, JSC
acknowledges the narrower Rule 59(e) standard. Reply at 2 (citing
School for Arts in Learning Public Charter School v. Barrie, 810 F.
Supp. 2d 52, 55 (D.D.C. 2011) for the narrow standard, as
``routinely'' held by courts (and CRB Judges), that Rule 59(e)
motions are not vehicles for (1) rearguing facts and theories upon
which a court has already ruled or (2) for raising new issues that
could have been raised previously, and that such motions are
disfavored and granted only upon a showing of ``extraordinary
circumstances''). Additionally, JSC relies on another case, Dyson v.
Winfield, 129 F. Supp. 2d 22 (D.D.C. 2001), in which the district
court found an error regarding a question of law, rendering that
decision inapposite. But again, the broader defect is that JSC
afforded Respondents no opportunity to address the JSC Reply's
application of these prior decisions.
Accordingly, the Judges understand JSC's Reply as setting forth
the same standards that the courts in the D.C. Circuit routinely
apply to Rule 59(e) motions and, as stated in the prior footnote,
consider the JSC Motion on that basis.
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Despite the legal deficiency of JSC's ``arbitrariness'' argument as
a basis for rehearing, in the interest of completeness, the Judges
explain infra why JSC's substantive assertion that the adjustments were
arbitrary is factually deficient.
b. Whether the Judges' Initial Determination Relies on an Incorrect
Version of the McLaughlin Adjustment
As JSC states in its pending motion, in the Initial Determination,
the Judges relied in part on the Bortz Survey with the McLaughlin
Adjustment, as the adjustment is found in Exhibit 3049. JSC Motion at
1-2 (citing ID at 177-78, 181, 197-98). JSC argues, however, that
Exhibit 3049 is an ``inaccurate version of the McLaughlin adjustment,''
and reliance upon Exhibit 3049 reflects two separate errors. Id. at 1.
According to JSC, the first error is that Exhibit 3049 was an
early, preliminary calculation of the ``conventional McLaughlin
adjustment,'' as proposed in prior proceedings, that was subsequently
updated in Exhibit 3105, and ``[t]hus, as between Exhibit 3049 and
3105, Exhibit 3105 is the more accurate calculation of the McLaughlin
adjustment.'' Id. at 1-2. The second error, according to JSC, is that
``Exhibit 3049, as well as Exhibit 3105, rely on royalty-based
weighting that is economically inappropriate after the conversion of
WGNA and the enormous increase in minimum fee systems.'' Id. at 2. JSC
argues that
Bortz subsequently implemented a revised weighting system
(referred to as ``base plus 3.75'') that takes account of the
proliferation of minimum fee systems in 2015-17 by weighting based
on what the CSO would have paid according to the system's distant
signal usage absent the minimum fee. Use of royalty-based weighting
for 2015-17 conflicts with the Judges' findings regarding minimum
fee systems.
Id. JSC further argues, ``[i]f the Judges are relying on Bortz with the
McLaughlin adjustment, they should use the version set forth in
Exhibits 4001-4003, which applies base plus 3.75 weighting.'' Id. Each
of these two alleged errors (i.e., (1) using Exhibit 3049 rather than
Exhibit 3105, and (2) not using a ``base plus 3.75'' adjustment
supposedly set for in Exhibits 4001-4003) are further detailed
separately in JSC's motion, and are addressed separately, as follows.
i. Whether Exhibit 3049 Is Outdated, and Should Not Be Used To
Determine Shares
1. Summary of the Parties' Arguments
a. The JSC Motion
In addition to the JSC arguments recounted above, specifically with
respect to the use of Exhibit 3049, JSC argues:
Mr. Trautman prepared Exhibit 3049 in July 2020, roughly two
years before he submitted testimony in this proceeding. See Tr. at
3142:22-3143:8, 3145:2-3146:11 (Trautman); Ex. 7100 (Trautman
Corrected WDT). As Mr. Trautman testified, it takes an extensive
period of time--well beyond when the surveys are fielded--for Bortz
to obtain and evaluate the voluminous programming data presented in
this proceeding. See Tr. at 2886:21-2887:9 (Trautman). That
programming data is used in the Bortz results to project allocations
to non-respondents according to programming carriage patterns. See
Ex. 7101 (Corrected Bortz Report), at 29 (``Bortz projected non-
respondent values based on signal carriage characteristics,''
including ``the carriage (or lack thereof) of JSC programming'').
Thus, while the survey responses are not changed over time, the
weighted results of the survey can be expected to become more
accurate over time, as Bortz evaluates more comprehensive
programming information.
Mr. Trautman performed, and JSC produced, ``UPDATED''
calculations of the weighted Bortz Survey results and ``conventional
McLaughlin adjustment'' dated ``1-21-21'' which are different in
small but significant respects from the July 2020 calculations.
These ``UPDATED'' calculations are in the record at Exhibit 3105 and
a copy is attached as Exhibit 1 hereto. See Tr. at 3099:12-21
(admitting Exhibit 3105).
There is no reasoned basis or record support for relying on the
outdated, incorrect version of the ``conventional McLaughlin
adjustment'' calculation in Exhibit 3049 given that an updated
version is in the record
[[Page 54260]]
at Exhibit 3105 and was cited to the Judges. Indeed, the proposed
findings of fact of Public Television Claimants (``PTV'') cite to
Exhibit 3105 (not Exhibit 3049) in presenting the ``Proposed
Shares'' of PTV and JSC ``Determined by Various Analyses of Relative
Marketplace Value in 2014-17.'' PTV Corrected PFF ] 12, Table 3 & ]
43, Table 5. At a minimum, if the Judges are to rely on Mr.
Trautman's calculation of the ``conventional McLaughlin
adjustment,'' they should rely on the ``UPDATED'' calculation in
Exhibit 3105.
The existing record supports the use of Exhibit 3105 rather than
Exhibit 3049. However, if the Judges believe that additional
information on this issue would be helpful, JSC respectfully
requests that rehearing be granted to present additional evidence.
Throughout the course of this proceeding, ``[n]o party argue[d] that
royalty fund allocations . . . should be made strictly according to
the Bortz initial results subject to the McLaughlin adjustment,''
and ``no party had its expert calculate the McLaughlin adjustment .
. . for presentation at the hearing.'' Initial Determination at 178.
As a result--while JSC vigorously argued that the McLaughlin
adjustment should not be used in the abstract, see, e.g., JSC Post-
Hearing Br. at 65-68--JSC has not had an opportunity to present
evidence on which specific version of that calculation is most
accurate and reliable.
JSC Motion at 2-4.
b. The CCG, PS, and SDC Joint Response
In their joint response, CCG, the Program Suppliers, and SDC oppose
JSC's motion with respect to the McLaughlin Adjustment, arguing that
merely because Exhibit 3049 was an ``early'' calculation that Mr.
Trautman subsequently ``updated'' with a recalculation ``does not by
itself render the original version outdated or incorrect.'' Joint
Response at 4-5. Furthermore, they argue,
JSC has only itself to blame for failing to explain away the
earlier results or to advocate more forcefully for reliance on the
later results, particularly considering that Mr. Trautman was
specifically asked about Exhibit 3049 and his preparation of `other
documents regarding potential adjustments and weights that would
alter those shares' on cross-examination.
Id. at 5 (citing 4/4/2023 Tr. 3142-3145 (Trautman)). Indeed, they argue
that, contrary to JSC's assertion, nothing precluded JSC from
``present[ing] evidence on which specific version of that calculation
is most accurate and reliable.'' Id. at 5 (quoting JSC Motion at 3-4).
They argue, ``[a]s the Initial Determination observes, `all parties
knew that the Judges applied the McLaughlin [A]djustment to the Bortz
Survey initial results in the 2004 and 2005 proceeding, as well as in
the more recent 2010-2013 proceeding.' '' Id. (quoting ID at 178).
According to CCG, the Program Suppliers, and SDC, ``JSC was on notice
and cannot use rehearing as a vehicle to present arguments or evidence
that it could have raised prior to issuance of the Initial
Determination. Exxon Shipping Co., 554 U.S. at 485 n.5.'' Id.
c. The PTV Response
PTV argues that JSC and the other parties devoted considerable time
and pages during the hearing and in post-hearing briefing to the
question of the appropriate weighting for the Bortz Survey responses,
and the Judges, having evaluated those arguments, reached a conclusion
based on the evidence and the arguments. PTV argues that JSC's motion
for rehearing ``merely attempts to relitigate these issues, and now
inappropriately advocates for yet another of its panoply of preferred
weighting methodologies (another version of a `base plus 3.75'
weighting scheme), among dozens of options that JSC's experts mined to
identify shares that increased JSC's allocation.'' PTV Response at 3
(citing Ex. 3039). PTV argues that JSC, apparently aware that its
attempt to advance yet another weighting methodology does not meet the
standard for rehearing,
argues alternatively (indeed, primarily) in favor of a more modest
adjustment--that the Judges should use Exhibit 3105 rather than
Exhibit 3049 as the most accurate calculation of the conventional
McLaughlin-adjusted Bortz Survey results. While the differences
between these two exhibits appear relatively small, the record lacks
evidence supporting JSC's argument, and JSC had more than ample
opportunity to introduce evidence during the hearing on this point
but chose not to do so.
Id. Accordingly, PTV argues, rehearing is inappropriate under the well-
established requirements for a motion for rehearing. Id.
Specifically with respect to Exhibit 3015, PTV argues that
``[k]nowing that its broad arguments for re-weighting pursuant to a new
methodology exceed what has typically been allowed on rehearing, JSC's
more modest lead argument is that the Judges should rely on a
purportedly `updated' calculation of the conventional McLaughlin
[A]djustment. JSC's argument should be rejected because JSC failed to
argue the point . . . .'' Id. at 3. It is further asserted that
JSC failed to . . . introduce evidence supporting its argument
prior to its motion for rehearing, despite ample opportunity to
respond to Public Television's questioning at the hearing and
arguments in its post-hearing briefing. JSC's request does not meet
the rehearing standard because it seeks ``to raise arguments or
present evidence that could have been raised prior to the entry of
judgment.''
Id. at 3-4 (citing Order Denying Program Suppliers' Motion for
Rehearing and Correcting 2012-13 Allocations for Certain Parties,
Docket No. 14-CRB-0010-CD, at 1 (Dec. 13, 2018) (``2018 Rehearing
Order'')). Indeed, PTV argues that during the hearing, Mr. Trautman was
questioned extensively about Exhibit 3049, and Exhibit 3049 was the
basis for Public Television's request, in the alternative, that the
Judges use the McLaughlin-adjusted Bortz Survey results as the
``royalty floor.'' See id. at 4 (citing PTV PFFCL ] 208 & n.327; PTV
Post-Hearing Br. at 42-43 (citing PTV PFFCL ] 208 (depicting Ex.
3049))). PTV argues, ``Despite these arguments, JSC chose not to
introduce evidence regarding the relative accuracy of Exhibits 3105 and
3049, and chose not to challenge the figures in Exhibit 3049 until its
rehearing motion.'' See id. PTV observes,
[a]ccordingly, in the Initial Determination, the Judges noted that
they were ``referred to a chart taken from a spreadsheet prepared by
Mr. Trautman, originally for Bortz Media's internal use (Ex. 3049 .
. .),'' and correctly observed that, ``[f]ortunately, no party has
challenged the figures contained therein as accurately reflecting
application of the McLaughlin adjustment to the Bortz Survey initial
results.'' Initial Determination at 178.
Id. at 4.
PTV argues that JSC belatedly asserts that Exhibit 3049 is an
``outdated, incorrect version of the `conventional McLaughlin
adjustment''' and that Exhibit 3105 is ``an updated version.'' Id.
(quoting JSC Motion at 3). Yet, PTV argues, ``There is no support in
the record for this assertion. Nor is there support (or even any
citation) for JSC's assertion that `the weighted results of the survey
can be expected to become more accurate over time.' '' Id. Rather, it
is argued, ``there was substantial evidence that over time, Mr.
Trautman attempted to develop a number of creative weighting schemes
with the purpose of seeking to increase JSC's share, not to achieve
more `accurate' results.'' Id. at 4-5.
Finally, PTV argues that JSC is incorrect to argue that JSC lacked
the opportunity to present evidence on which specific version of the
conventional McLaughlin Adjustment is most accurate and reliable. Id.
at 5. PTV argues that JSC ``had ample opportunity to present evidence
and argument on this issue, including during the extensive examination
of Mr. Trautman regarding Exhibit 3049, or in response to Public
Television's post-hearing submissions.'' Id. It is argued that while
JSC asserts that PTV cited to Exhibit
[[Page 54261]]
3105 (not Exhibit 3049), such citation ``was only in two illustrative
comparison tables collecting various calculations by various witnesses,
in order to show that all allocation methodologies showed an increase
in Public Television's share, and a decline in JSC's shares.'' Id.
(citing PTV PFFCL ]] 12, 13 & tbls. 3, 5; PTV Post-Hearing Br. at 41-
42). PTV argues that it ``proposed that Exhibit 3049 could be used in
the alternative as a `royalty floor.' See PTV PFFCL ] 208 & n.327; PTV
Post-Hearing Br. at 42-43. Public Television did not advocate for the
adoption of Exhibit 3105 as a basis for share allocation.'' Id.
(footnote omitted).\260\
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\260\ In the footnote, PTV argues, ``That said, the differences
between Exhibit 3049 and Exhibit 3105 appear relatively small,
although the record evidence does not explain the basis for those
differences.'' PTV Response at 5 n.1.
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d. The JSC Reply
In its reply, JSC reiterates that one reason Exhibit 3049 is
incorrect is because it is an early, preliminary calculation that was
updated in Exhibit 3105. JSC Reply at 5-6 (citing JSC Motion at 1-4).
JSC argues that ``[n]o party disputes that Exhibit 3105 is a more
recent, `UPDATED' version of the calculation in Exhibit 3049'', or that
``over time, Bortz incorporates more comprehensive programming
information into its calculations.'' Id. at 5. JSC argues the
``Responding Parties' speculative attempts to justify reliance on
Exhibit 3049 instead of Exhibit 3105 are contrary to the record.'' Id.
JSC argues that while the
Joint Respondents posit that a ``later'' calculation ``does not by
itself render the original version outdated or incorrect'' . . .
Exhibit 3105 is not simply a ``later'' calculation; the record
supports the conclusion that Exhibit 3105 is more accurate because
it incorporates more comprehensive programming data to project
allocations to non-respondents.
Id. (citing, inter alia, JSC Motion at 2-3). JSC further argues
that while PTV speculates that Mr. Trautman may have applied some
creative weighting scheme with the purpose of seeking to increase JSC's
share in Exhibit 3105, there is no evidence of that. Id. (citing PTV
Resp. at 4-5). Rather, JSC argues, ``Exhibit 3105 was created for
Bortz's internal use, not to present a proposed share allocation in
these proceedings.'' Id. (citing 4/3/2023 Tr. 2881-2882 (Trautman)).
2. Discussion
As addressed in the Initial Determination, the parties knew going
into the hearing that the McLaughlin Adjustment, having been applied to
Bortz surveys in the 2004 and 2005 allocation proceeding, and in the
2010-2013 allocation proceeding, would be relevant to the issues
addressed during the allocation hearing for 2014-2017. See ID at 178.
Indeed, during its opening argument, JSC expressed its disagreement
with use of the McLaughlin Adjustment to allocate shares, particularly
with respect to 2015 through 2017. See 3/20/23 Tr. 69. JSC also knew
that it had produced calculations found in Exhibits 3049 and 3105,\261\
which showed that Mr. Trautman, JSC's witness from Bortz Media who
sponsored the Bortz 2014-2017 surveys, had calculated the McLaughlin
Adjustment for the 2014-2017 time period. See, e.g., JSC Motion at 2-3;
ID at 161. During Mr. Trautman's direct examination at the hearing, JSC
asked Mr. Trautman questions about the McLaughlin Adjustment, including
questions concerning the fact that he had performed the McLaughlin
Adjustment, as follows:
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\261\ Exhibits 3049 and 3105 were received into evidence with no
objection and no argument. See 4/4/23 Tr. 3099.
Q. * * * In the course of doing your work for 2014 to `17, did
you ever run the McLaughlin adjustment?
A. Early on, I did, yes.
Q. Why did you do that?
A. Well, I was aware that some form of the McLaughlin adjustment
had been applied in past proceedings, including in 2010 to `13, and
so I was interested to see what the outcome would be if that were
applied for 2014 to 2017.
Q. And if someone were to say: Well, the fact that Mr. Trautman
ran the McLaughlin adjustment shows that it was his view that
McLaughlin adjustment was appropriate, what would your response be?
A. That that's not the case at all. I was simply performing a
calculation in order to see what the outcome would be.
4/3/2023 Tr. 2881-2882 (Trautman). Thus, Mr. Trautman testified that
``[e]arly on'' he performed ``a calculation.''
Subsequently, during the cross-examination of Mr. Trautman, PTV
raised the fact that he calculated the McLaughlin Adjustment, as
follows:
Q. * * * Mr. Trautman, you did attempt to calculate the
McLaughlin adjustment for the 2014 to `17 Bortz Survey results
before you filed your written direct testimony in this proceeding,
correct?
A. Yes. Early on in my review of 2014 to `17, I did prepare
spreadsheets that calculated what the outcome of the McLaughlin
adjustment would be or could be.
Q. So let's take a look at Exhibit 3049, which was produced as
JSC 00081249. Mr. Trautman, you recognize Exhibit 3049 as one of
your documents, correct?
A. Yes.
Q. And I'll represent to you that the last modified date on this
document, as it was produced to us, is July 27th, 2020, nearly two
years before written direct testimony was due in this case. Is that
consistent with your recollection?
A. It is, yes.
Q. And there are two tables in Exhibit 3049, correct?
A. Correct.
Q. And the bottom table is titled ``Weighted Bortz Survey
Results By Year, 2014-`17 (After Conventional McLaughlin
Adjustment).'' Correct?
A. Correct.
Q. And the bottom--and in this table, PBS is identified in the
first column at the top--well, in the first row at the top of the
table, row 25, correct?
A. Correct.
Q. And there are columns labeled, from left to right, 2014,
2015, 2016, 2017, and average 2014 to `17, correct?
A. Correct.
Q. And in this table, you calculated PBS's share as 8.4 percent
in 2014, 43.6 percent in 2015, 48.4 percent in 2016, and 48.2
percent in 2017, with a 37.1 percent average from 2014 to 2017,
correct?
A. That's correct.
Q. And then let's go down to the next row the Sports share. The
Sports share is listed as 39 percent in 2014, 12.7 percent in 2015,
12.2 percent in 2016 and 14.8 percent in 2017, with an average 2014-
to-`17 share of 19.7 percent; is that correct?
A. Yes, it is.
Q. Now, after Bortz prepared this document that we just looked
at--and we can take that down. And let me, I guess, rephrase that. I
mean, I don't know whether you used the term ``Bortz'' or you
interchangeably. I'm happy--do you have a preference in that, Mr.
Trautman?
A. I really don't.
Q. Okay. Well, after you prepared the document we just looked
at, you prepared other documents regarding potential adjustments and
weights that would alter those shares, correct?
A. I recall that I did, yes. I don't recall a specific sequence
or, you know, exactly which took place when in the sequence, but I
did look at other ways of examining the issue.
4/4/2023 Tr. 3142-3145 (Trautman).
As seen from the preceding transcript portion, the witness's
attention, and the attention of the Judges, was directed exclusively to
Exhibit 3049. On redirect, JSC did not conduct any examination to show
that there was any error in Exhibit 3049 as a calculation of the
McLaughlin Adjustment, or that it had been in any way updated or
superseded, for example, by Exhibit 3015 or the calculations contained
therein. In neither JSC's pending motion nor its reply is there any
such citation to the hearing record.
Given the hearing testimony concerning Exhibit 3049 and the
McLaughlin Adjustment, it was not
[[Page 54262]]
surprising that PTV relied on pertinent portions of Exhibit 3049 in its
Proposed Finding of Fact (PTV PFF ] 208), The Judges expressly relied
on this proposed factual finding in the Initial Determination. See ID
at 177 (citing PTV PFF ] 208); see also PTV Post-Hearing Br. at 82. In
its pending motion and reply, JSC has cited to no initial or reply
filing in which it pointed out any particular error in Exhibit
3049.\262\
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\262\ In the Initial Determination, the Judges stated, ``To see
the figures obtained when the McLaughlin adjustment is applied to
the Bortz Survey initial results at issue in this proceeding, the
Judges are referred to a chart taken from a spreadsheet prepared by
Mr. Trautman, originally for Bortz Media's internal use (Ex. 3049,
duplicated above). Fortunately, no party has challenged the figures
contained therein as accurately reflecting application of the
McLaughlin adjustment to the Bortz Survey initial results . . . .''
ID at 178.
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Not even in the pending motion and reply has JSC shown that any
data point contained in Exhibit 3049 is erroneous. Although Exhibit
3015 is labeled ``UPDATED'' and the data were calculated after the
tables in Exhibit 3049, it cannot be presumed that Exhibit 3049
contains error.
The closest JSC has come to explaining why Exhibit 3105 should be
considered ``updated'' appears only in its pending motion, in which JSC
argues,
it takes an extensive period of time--well beyond when the surveys
are fielded--for Bortz to obtain and evaluate the voluminous
programming data presented in this proceeding. See Tr. at 2886:21-
2887:9 (Trautman). That programming data is used in the Bortz
results to project allocations to non-respondents according to
programming carriage patterns. See Ex. 7101 (Corrected Bortz Report)
at 29 (``Bortz projected non-respondent values based on signal
carriage characteristics,'' including ``the carriage (or lack
thereof) of JSC programming''). Thus, while the survey responses are
not changed over time, the weighted results of the survey can be
expected to become more accurate over time, as Bortz evaluates more
comprehensive programming information.
JSC Motion at 2-3.
Consequently, only now after the hearing, JSC argues that Exhibit
3105 can be considered ``updated'' because when the tables in Exhibit
3105 were calculated, Bortz Media projected allocations for non-
respondents differently than it had at the time that the tables in
Exhibit 3049 were calculated. JSC refers to such differences as ``small
but significant.'' Id. at 3. Yet, inasmuch as JSC's citation to a
documentary exhibit is general in nature and does not reference Exhibit
3105 and the calculation contained herein, and further JSC did not
examine Mr. Trautman about his McLaughlin Adjustment calculations at
the hearing (even after the relevant cross-examination by PTV), there
is no way to determine whether JSC's belated characterization of
Exhibit 3105 is accurate, and that the data contained therein is
accurate.
In its pending motion, JSC argues, ``the proposed findings of fact
of Public Television Claimants (`PTV') cite to Exhibit 3105 (not
Exhibit 3049) in presenting the `Proposed Shares' of PTV and JSC
`Determined by Various Analyses of Relative Marketplace Value in 2014-
17.' PTV Corrected PFF ] 12, Table 3 & ] 43, Table 5.'' JSC Motion at
3; see JSC Reply at 8. That argument does not portray the full picture.
PTV cited expressly to Exhibit 3105 in its Proposed Finding of Fact ]
12, in a string cite showing support for a table it created to
illustrate proposed share allocations resulting from seven proposed
methodologies. See PTV PFF ] 12; see also PTV PFF ] 43 (table with
citation to Ex. 3105). Yet, as already discussed, PTV cited, and
reproduced a table from, Exhibit 3049 in its Proposed Finding of Fact.
See PTV PFF ] 208. Furthermore, PTV cited to Exhibit 3049 (rather than
Exhibit 3105) in a table found in the PTV initial post-hearing brief,
and again cited to Exhibit 3049 (via PTV PFF ] 208) when making its
substantive argument concerning a ``relative value floor'' for PTV. See
PTV Post-Hearing Br. at 15, 42-43. None of the citations made by PTV in
its post-hearing brief and proposed findings clarify or contextualize
the content of Exhibit 3105, or, more importantly, diminish the weight
the Judges were able to accord to Exhibit 3049.\263\
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\263\ The Judges also remain concerned by the fact that Mr.
Trautman twice stated in his testimony in this proceeding that he
initially generated a version of the original McLaughlin Adjustment
``to see what the outcome would be.'' 4/3/2023 Tr. 2881-2882
(Trautman). But an expert generating his prior preferred approach in
order ``to see what the outcome would be'' (here, what the
allocations would be) undermines his role as an objective expert,
who should first identify the elements of his or her methodology and
then disclose--for better or worse--the results of that action.
Here, Mr. Trautman acknowledged that he ran his prior McLaughlin
Adjustment ``to see what the outcome would be'' and then abandoned
it in favor of making other adjustments (increasing the JSC share),
which, as PTV stated, indicates that ``Mr. Trautman . . . embarked
on a multi-year quest `to conjure up' additional adjustments.''
Initial Determination at 176. Indeed, Mr. Trautman's sequential
modeling of the McLaughlin Adjustment resembles the revisionary work
of other experts, which the Judges criticized as evidencing improper
``searches'' for an allocation model that would increase the
allocations of the parties by whom they were engaged. See Initial
Determination at 39 & n.45 (``Also troubling was the fact that, over
a prolonged period, successive testing by [the expert] was highly
correlated with a steady rise in PTV's allocation shares'' . . .
``[T]he Judges are concerned with whether the evidence suggests that
experts may have engaged in any inappropriate or questionable acts
in the course of attempting to maximize the return to the party on
whose behalf they give testimony.'').
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ii. Whether Use of the McLaughlin Adjustment Requires Base Plus 3.75
Weighting Rather Than Royalty-Based Weighting
1. Summary of the Parties' Arguments
a. The JSC Motion
In addition to the JSC arguments recounted above, specifically with
respect to the use of base plus 3.75 weighting, JSC argues:
There is a second, independent issue concerning the Judges'
application of the McLaughlin adjustment. Both Exhibit 3049 (the
outdated version) and Exhibit 3105 (the updated version) use
royalty-based weighting. However, after creating these exhibits, Mr.
Trautman determined that royalty-based weighting is not appropriate
for 2015-17 due to the overwhelming number of minimum fees systems.
Mr. Trautman subsequently ran the Bortz results with the McLaughlin
adjustment using the revised base plus 3.75 weighting, as set forth
at Exhibits 4001-4003. If the Judges are relying on the Bortz Survey
with the McLaughlin adjustment, they should use this version that
applies base plus 3.75 weighting rather than royalty-based
weighting.
As Mr. Trautman and Dr. Majure testified, use of royalty-based
weighting improperly skews the survey calculations by giving
inordinate weight to minimum fee systems that typically did not even
use their full minimum fee budget. See JSC PFOF ] 302. The Judges
similarly concluded that decisions by minimum fee systems during the
2015-17 period are not probative of relative market value. See
Initial Determination at 129 & n.155 (``[T]hese [minimum-fee-paying]
CSO decisions do not provide the Judges with any useful information
regarding the relative value of the retransmittal of the various
programming categories . . . .'').
The Initial Determination explains that in ``2015-2017, the
overwhelming percentage of CSOs pay only the minimum fee, and the
vast majority of section 111 royalties are generated by those
minimum-fee-paying CSOs.'' Id. at 134. The Initial Determination
likewise discusses how both the regression and survey methodologies
changed (or should have changed) to account for the ``dramatic
increase in the number of minimum-fee only'' systems in these years.
See, e.g., id. at 21-22, 167 n.206. As relevant here, the Bortz
Survey methodology ``changed to weight the results based on the
Base-plus-3.75 fees attributable to the actual signal carriage of
the Form 3 systems, and to apply the results using signal carriage-
based fee calculations rather than actual royalties paid.'' Id. at
167 n.206. This change in the weighting was necessary to avoid ``
`introduc[ing] a distortion, by giving excessive weight to systems
with large Minimum Fee payments even when they have chosen to carry
very little distant signal programming.' '' JSC Post-Hearing Br. at
56
[[Page 54263]]
(quoting testimony of Dr. Majure). No party disputed the propriety
of Bortz's new weighting approach, nor is it questioned in the
Initial Determination.
Bortz developed its revised base plus 3.75 weighting approach
over time, after recognizing that there were many more CSOs paying
the minimum fee in 2015-17. See Tr. at 3149:11-3151:11 (Trautman).
The first calculation in the record using an early version of the
revised weighting approach (initially only applied to PTV-only
systems) was performed in June 2021. See Ex. 3048; Tr. at 3147:19-
3149:5 (Trautman). The ``conventional McLaughlin adjustment''
calculations in Exhibits 3105 and 3049 predate that change, see
supra at pp. 2-3, instead applying the historical, royalty-based
weighting that undisputedly distorts the results, making them
unreliable for 2015-17.
The record contains more recent calculations of the McLaughlin
adjustment for the years 2015-17 applying the corrected, base plus
3.75 weighting. These calculations are part of the Bortz Survey data
that JSC produced in connection with Mr. Trautman's written direct
testimony. See Ex. 4001, ``2015 Data File'' at Rows 588-590, Columns
W-AD (showing ``Adjusted Royalties'' after ``PTV/Canadian
Adjustment'' for 2015); Ex. 4002, ``2016 Data File'' at Rows 573-
575, Columns W-AD (same for 2016); Ex. 4003, ``2017 Data File'' at
Rows 571-573, Columns W-AD (same for 2017); see also Tr. at 4792:7-
4793:20 (Carbert) (identifying and admitting Exhibits 4000-4003).
These calculations are the most accurate and reliable version of the
McLaughlin adjustment in the record, on which the Judges should rely
to the extent they give weight to the adjustment. A table setting
forth the relevant results from Exhibits 4001-4003 is attached as
Exhibit 2 hereto.
If the Judges conclude that identifying the correctly weighted
McLaughlin adjustment calculation requires further information, JSC
respectfully requests that the Judges grant rehearing to present
additional evidence on the issue. In the post-hearing briefing, JSC
raised the problem of royalty-based weighting in the ``conventional
McLaughlin adjustment'' calculation in response to PTV's citation to
Exhibits 3049 and 3105. See JSC Post-Hearing Reply Br. at 62
(``[B]lindly applying the McLaughlin adjustment as it was proposed
in prior proceedings, PTV argues that it should be attributed . . .
100% of all of those royalties, massively inflating its share . . .
. PTV overlooks that almost all PTV Only CSOs were paying the
Minimum Fee in 2015-17, so their substantial royalty payments have
nothing to do with their distant signal usage.''). However, because
PTV first embraced this calculation in its post-trial briefing,
without having previously offered any witness who endorsed it, JSC
did not have an opportunity to directly address the reliability of
the calculation through its own witnesses.
JSC Motion at 4-6 (footnote omitted).264
---------------------------------------------------------------------------
\264\ JSC argues, ``With proper weighting, the Bortz Survey
results with the McLaughlin adjustment estimate shares for PTV that
are within 4 percentage points of the Judges' final award to PTV in
each year 2015-17.'' JSC Motion at 6 n.1.
---------------------------------------------------------------------------
b. The CCG, PS, and SDC Joint Response
As discussed above, CCG, Program Suppliers, and SDC argue that
``coming up with a different calculation or weighting system later does
not by itself render the original version outdated or incorrect.''
Joint Response at 4-5. Furthermore, they argue, JSC was on notice that
the McLaughlin Adjustment was relevant to the hearing, ``and cannot use
rehearing as a vehicle to present arguments or evidence that it could
have raised prior to issuance of the Initial Determination.'' Id.
c. The PTV Response
PTV argues:
In a transparent overreach that is plainly improper on a motion
for rehearing, JSC now argues for yet another alternative weighting
methodology for the Bortz Survey that purportedly uses a ``base plus
3.75'' weighting scheme. JSC never presented this calculation on its
own as a potential allocation methodology during the proceeding. The
two Bortz adjustments that JSC actually did choose to advocate in
the hearing were fully vetted in written testimony, at the hearing,
and in post-hearing submissions, and the Judges ultimately rejected
them. JSC had every opportunity to also present this calculation of
the McLaughlin adjustment with ``base plus 3.75'' weighting, and
chose not to do so. JSC's request accordingly must be denied. See
2018 Rehearing Order at 7.
PTV Resp. at 5-6.
PTV argues that while JSC acknowledges that Mr. Trautman originally
focused on the conventional McLaughlin-adjusted Bortz Survey results,
he
argues that he later preferred alternative weighting methods,
including various versions of a ``base plus 3.75 weighting'' for
which JSC now belatedly advocates. JSC Motion for Reh'g at 4. In
fact, Mr. Trautman testified that, after initially calculating the
conventional McLaughlin adjustment, he spent years testing multiple
adjustments and weights, including those that specifically singled
out Public Television, to reduce Public Television's shares from
those that result from the conventional McLaughlin Adjustment.
Id. at 6 (citing PTV PFF ] 209; Tr. 3142-3154 (Trautman); Exs. 3048,
3049) (footnote omitted).\265\ PTV argues that, ``[c]ontrary to JSC's
suggestion, there is no reason to believe that Mr. Trautman's weighting
innovations became more reliable over time, as they appear to have been
focused instead on achieving his results-oriented purpose of reducing
Public Television's shares as generated by the conventional McLaughlin
adjustment.'' Id. (citing PTV PFF ]] 208-13).
---------------------------------------------------------------------------
\265\ In the omitted footnote, PTV's response directs the reader
to representative portions of the hearing transcript. See PTV
Response at 6 n.2 (``Tr. 3150:15-20 (Q. `[T]he analysis there would
have applied the McLaughlin adjustment but then would have weighted
systems that carried only Public Television distant signals
differently from all the other systems? Is that Right?' A. `My
recollection is that's correct.'); Tr. 3153:4-14 (Q. `So you then
considered other adjustments that could be combined with the new
weighting approach, correct?' A. `Broadly, I think that's correct.'
Q. `Those included assigning various values of less than 100 percent
to Public Television for systems that carried only Public Television
distant signals, right?' A. `Well, certainly my two adjustments do
employ that approach based on the particular characteristics of some
of the PTV-only systems.')'').
---------------------------------------------------------------------------
Moreover, PTV argues,
[t]he ``base plus 3.75'' weighting is inconsistent with the
weighting principles that undergirded the McLaughlin-adjusted Bortz
Survey in prior proceedings. The Bortz Surveys ask respondents to
value only the signals that their CSOs actually distantly carried,
and instruct that the sum of the values must equal 100%. As a
result, the conventional McLaughlin Adjustment reflects the only
possible response when a CSO distantly carried only Public
Television signals: 100% to Public Television.
Id. at 6-7. Further, specifically with regard to the weighting of the
McLaughlin-adjusted Bortz Survey results, it is argued,
Mr. Trautman testified unequivocally in the 2010-13 proceeding
that weighting by total royalties was the correct approach--even as
to PTV-only systems, which by definition were almost always
``minimum-fee systems.'' When asked, ``But in your view . . . , the
McLaughlin-Blackburn augmentation of the Bortz survey assures that
an appropriate weight is applied to the PTV-only systems;
correct[?],'' Mr. Trautman said, ``Yes, it considers the systems in
the context of royalties, the total royalties that they pay.''
Id. at 7 (citing Ex. 7043 at 551 (2010-13 Trautman Oral Testimony)).
Accordingly, PTV observes,
the Initial Determination rejected JSC's proposed adjustment that
would have assigned less than 100% of the value to Public
Television. Initial Determination at 180; see also id. at 178-79
(``Inasmuch as PTV-only systems are still not surveyed by Bortz
Media, and there is no empirical evidence to show how PTV-only
systems value PTV distant signals, there is no cause now to discard
the McLaughlin adjustment . . . . The McLaughlin adjustment has
always been presented as a 100-percent or nothing approach, and the
Judges can take that characteristic into consideration.'').
Id. at 7.
d. The JSC Reply
In its reply, JSC argues against using Exhibit 3049 or Exhibit 3105
``because they use incorrect, royalty-based weighting.'' JSC Reply at
6. JSC further argues that its ``witnesses explained at the hearing
that royalty-based weighting
[[Page 54264]]
would improperly skew the survey calculations in the 2015-17 period due
to the overwhelming number of minimum fee systems.'' Id. (citing JSC
Motion at 4). JSC also seeks to analogize to the Judges' analysis of
the regression evidence, arguing that,
in the context of the regression analyses, the Judges similarly
recognized that the increase in minimum fee systems during the 2015-
17 period required methodological changes. Initial Determination at
21-22. Accordingly, Bortz revised its methodology to use base plus
3.75 weighting. JSC Mot. at 4. Calculations of the McLaughlin
adjustment for the years 2015-17 applying the corrected, base plus
3.75 weighting are in the record at Exhibits 4001-4003. Id. at 5-6.
Id.
JSC argues,
None of the Responding Parties opposed Bortz's change to base
plus 3.75 weighting during the proceeding (indeed, SDC and PTV
affirmatively bolstered it), and none of them can explain why the
reliance on royalty-based weighting in Exhibit 3049 is anything but
clear error. The Joint Respondents do not address the issue at all.
Id. (footnote omitted).
JSC argues that PTV,
lacking any evidence from the 2014-17 proceeding, attempts to rely
on testimony from the 2010-13 proceeding supporting royalty-based
weighting. See PTV Resp. at 6-7. But the difference between this
proceeding and the last one is critical: royalty-based weighting
became a problem in 2015-17 when, as the Judges found, there was a
`dramatic increase in the number of minimum-fee only' systems.
Initial Determination at 21. Testimony that royalty-based weighting
was appropriate in 2010-13 does not support its use in the changed
landscape of 2015-17.
Id. at 6-7.
In addition, JSC argues in its reply that it was diligent, and
promptly objected to PTV's belated embrace of the McLaughlin
adjustment with royalty-based weighting when it first arose in post-
hearing briefing. See JSC Post-Hearing Reply Br. at 62. Nothing in
the rehearing standard, or common sense, justifies requiring a party
to spend its limited hearing time and briefing space clarifying the
most accurate version of each un-endorsed calculation that comes up,
particularly where, as here, the alternative calculations presented
for even a single base regression numbered in the hundreds.
Id. at 7.
JSC argues, with respect to the cross-examination of Mr. Trautman,
that ``pointing a witness to his own alternative calculation is a
common form of criticizing a methodology, not an affirmative
endorsement of the alternative,'' and with respect to PTV's citations,
JSC argues, inter alia, ``JSC had no reason to argue for the use of
Exhibit 3105 over Exhibit 3049 because PTV's average share does not
meaningfully differ between the two exhibits (only the shares of the
other parties do).'' Id. at 7-8.
JSC argues,
The implausible degree of foresight that the Joint Respondents
and PTV would demand of any party seeking rehearing is well beyond
anything necessary to deter parties from ``re-litigat[ing] old
matters'' or raising new arguments out of time. PTV Response at 2 &
Joint Response at 2. Rather, denying rehearing on this record would
incentivize parties to disguise their intent to rely on a specific
calculation as long as possible, so as to immunize that calculation
from the full adversarial vetting process.
Id. at 8-9.
2. Discussion
As an initial matter, the proposed adjustment contained in JSC's
Motion Exhibit 2 (derived from Exs. 4001-4003) would, as indicated in
the pending motion, apply only to the Bortz survey results for 2015
through 2017. Thus, the adoption of JSC's Motion Exhibit 2 would leave
unanswered any questions pertaining to the McLaughlin Adjustment for
2014. In any event, the underlying problem that gives rise to the
McLaughlin Adjustment, and all other adjustments advanced by the
parties, is in the way that the Bortz surveys exclude certain PTV and
Canadian signals. While the problem should not be overstated, the Bortz
surveys contain downward biases with respect to relevant PTV and
Canadian programming. See ID at 168. The McLaughlin Adjustment has been
recognized as an adjustment, or augmentation, that helps to remedy bias
in the Bortz methodology but may do so on an imprecise basis. Id. at
168, 179. There is no indication that any adjustment exists that
compensates completely for weakness in the design of the Bortz surveys.
With respect to JSC's newly advanced adjustment, there is no
indication in JSC's pending motion and reply that the adjustment
derived from Exhibits 4001-4003 was the subject of hearing testimony.
Indeed, the available details surrounding the calculations made
therein, and condensed in JSC's Motion Exhibit 2, remain scant. JSC
argues, ``because PTV first embraced this [McLaughlin] calculation in
its post-trial briefing, without having previously offered any witness
who endorsed it, JSC did not have an opportunity to directly address
the reliability of the calculation through its own witnesses.'' JSC
Motion at 6. Yet, this argument is unavailing for several reasons. As
discussed above, all parties knew that the McLaughlin Adjustment would
be at issue in the hearing. JSC even addressed the McLaughlin
Adjustment in its opening argument, and later during the direct
examination of its witness Mr. Trautman. As JSC expected, PTV cross-
examined Mr. Trautman on the McLaughlin Adjustment, yet without
corresponding redirect by JSC.
Moreover, JSC did not need to wait, nor did it wait, to find out
what PTV would say in its post-hearing filings in order to set forth
JSC arguments and evidence concerning adjustments to the Bortz survey
results, including its own proposed adjustments. Indeed, during the
hearing, JSC presented evidence with respect to its proposed
``Adjustment One'' and ``Adjustment Two,'' which were discussed at
length in the Initial Determination.\266\ See, e.g., ID at 170-180. One
feature of the adjustments proposed by JSC was that Bortz Media
weighted the results based on base-plus-3.75 fees attributable to the
distant signals actually carried by the PTV-only systems. See id. at
170, 171. Aside from the substantive deficiencies in this alternative
adjustment, it is not appropriate for JSC to use the rehearing process
to advance this argument, when it could have (and should have) been
articulated during the hearing.
---------------------------------------------------------------------------
\266\ In view of the hearing that JSC has already received, PTV
argues that ``the Judges should deny JSC's motion for rehearing, to
the extent that the prospective rehearing would rehash which
weighting methodology should be applied to the Bortz Surveys . . .
.'' PTV Response at 10.
---------------------------------------------------------------------------
In addition, JSC's motion fails to adequately address the fact that
in the Initial Determination, the Judges already recognized strengths
and weaknesses of the Bortz surveys, particularly after application of
the conventional McLaughlin Adjustment. See, e.g., id. at 178 (``The
application of the McLaughlin adjustment to the initial Bortz results
for the years now at issue, 2014 through 2017, is relevant, and the
adjusted results . . . should be given varied weight, depending on
whether one is considering the adjusted results for 2014, or for 2015
through 2017.''); id. at 179 (``To the extent that one would
specifically exclude Must Carry signals, such as in a regression
analysis, the fact that the McLaughlin adjustment is applied to Must
Carry signals diminishes the value of such adjusted Bortz results when
making a comparison to such other evidence that devalues Must Carry
signals.''); id. at 180 (``no party, not even PTV, argues that the
Bortz Survey with the McLaughlin adjustment is the best methodology of
record for arriving at an allocation for 2015-2017''). Having reviewed
all adjustments proposed by the parties during the hearing, the
[[Page 54265]]
Judges determined, ``the McLaughlin adjustment, provided one
understands its aforementioned limitations, is most helpful among the
proposed adjustments in understanding the Bortz results.'' Id. at 181.
Consequently, in allocating shares, the Judges made judicious use of
the Bortz surveys (with the McLaughlin Adjustment), in some instances
according the Bortz survey evidence no weight at all. Id. at 197-98.
iii. Conclusion Concerning the McLaughlin Adjustment and the Request
for Rehearing \267\
---------------------------------------------------------------------------
\267\ JSC's argument, noted supra, seeking to justify rehearing
by analogy to the Judges' analysis of the impact of the Minimum Fee
CSOs on the regression methodology, is discussed separately, infra.
---------------------------------------------------------------------------
For the reasons detailed above, the Judges find that it has not
been shown that an exceptional case exists, and that an aspect of the
Initial Determination is erroneous due to its reliance on Exhibit 3049
and data contained therein. The movant for rehearing, JSC, has not
demonstrated that aspects of the determination relating to the
McLaughlin Adjustment and Exhibit 3049 are without evidentiary support
in the record or are contrary to legal requirements. In that regard, it
has not been shown that there is a need to correct a clear error or to
prevent manifest injustice with respect to the Initial Determination's
cautious use of the Bortz surveys with the McLaughlin Adjustment.
Rather, a review of the parties' filings and relevant portions of the
hearing record shows that evidence concerning Exhibit 3049 went
unrebutted during the hearing, and there is no reason to disturb the
hearing record or the findings of the Initial Determination in favor of
another exhibit or exhibits (and other calculations contained therein)
as to which there is less evidentiary support, whether that be Exhibit
3015 or JSC's newly advanced adjustment as summarized in JSC's Motion
Exhibit 2. Furthermore, other approaches to adjustment or augmentation
of the Bortz Survey results were presented by JSC during the hearing.
It has not been shown that it is necessary or appropriate to rehear any
portion of the case with respect to yet another proposed adjustment. As
the Judges noted supra, the rehearing process cannot be utilized to
obtain a ``second bite at the apple,'' i.e., to re-litigate old matters
or to raise arguments or present evidence that could have been raised
prior to the entry of judgment.
Consequently, JSC's motion for rehearing with respect to reliance
on the McLaughlin Adjustment is denied.
c. Whether JSC's Share for 2014 Is Inconsistent With the Record
Evidence and the Reasoning of the Initial Determination
i. Introduction
As explained above, it is clear that in the Initial Determination
the Judges appropriately and sufficiently considered--and rejected--
JSC's proffered alternative adjustments to the Bortz Survey. JSC's
request for rehearing as to this issue is properly dismissed, as
indicated supra, as an attempt to relitigate the issue, i.e., a
violation of the ``second bite at the-apple'' proscription.
However, JSC also argues something else--that rehearing is required
because, according to JSC, the Judges erred in the Initial
Determination by applying the Minimum Fee issue differently to the
survey methodology than they did to the regression methodology.\268\
---------------------------------------------------------------------------
\268\ This specific argument cannot be rejected under the
``second bite at the apple'' proscription because JSC's claim of
inconsistency is based on a comparison of two aspects of the Initial
Determination. However, as explained infra, this argument fails to
support JSC's request for rehearing for other reasons.
---------------------------------------------------------------------------
ii. The Parties' Positions
1. The JSC Motion
To put JSC's ``inconsistency'' argument in context, it is helpful
to begin by taking note of the basic argument in JSC's Motion regarding
the alleged effect of Minimum Fee royalty payments on the Bortz Survey
results. In this regard, JSC maintains the following:
[R]oyalty-based weighting is not appropriate for 2015-17 due to
the overwhelming number of minimum fees systems. . . . [U]se of
royalty-based weighting improperly skews the survey calculations by
giving inordinate weight to minimum fee systems that typically did
not even use their full minimum fee budget. . . . As relevant here,
the Bortz Survey methodology changed to weight the results based on
the Base-plus-3.75 fees attributable to the actual \269\ signal
carriage of the Form 3 systems, and to apply the results using
signal carriage-based fee calculations rather than actual royalties
paid.
---------------------------------------------------------------------------
\269\ JSC's use of the word ``actual'' here is misleading, in
the manner previously described by the Judges. See Initial
Determination at 69 n.79 (``The word ``actual'' in this context is
rather Orwellian. For the 2015-2017 period, a substantial majority
of the CSOs in which the subscriber groups are situated ``actually''
paid the minimum fee. A Base Fee was ``actually'' calculated, as
required by the regulations, but not ``actually'' paid, because the
Minimum Fee bound. . . . [M]isleading semantic use of the adjective
``actual'' does not assist the Judges in deciding whether any or all
of the Base Fee calculations have objective evidentiary weight. . .
.'').
---------------------------------------------------------------------------
. . .
This change in the weighting was necessary to avoid ``
`introduc[ing] a distortion, by giving excessive weight to systems
with large Minimum Fee payments. . . .' ''
JSC Motion at 4-5 (citations omitted).
But, as noted supra, the JSC Motion also maintains something more
than an error occurred in the Judges' adopting of this weighting. JSC
asserts as well that the Judges acted inconsistently, because their ``[
]use of royalty-based weighting for 2015-17 conflicts with the Judges'
findings regarding minimum fee systems.'' JSC Motion at 2.\270\
---------------------------------------------------------------------------
\270\ The Judges discuss infra at footnote 28 JSC's problematic
use of the word ``weighting'' to characterize its application of the
Bortz Survey allocations. For clarity, the Judges defer that
discussion until after they have explained the error in JSC's
argument that the Judges should have treated the Bortz Survey
results and the regression analyses in the same manner vis-[agrave]-
vis the Minimum Fee royalties.
---------------------------------------------------------------------------
2. The PTV Response \271\
---------------------------------------------------------------------------
\271\ The Joint Respondents did not address this issue and, as
noted supra, CTV did not file a response to the JSC Motion.
---------------------------------------------------------------------------
Relating to this issue, PTV responded that it is JSC that is
inconsistent as to this issue:
[T]he ``base plus 3.75'' weighting is inconsistent with the
weighting principles that undergirded the McLaughlin-adjusted Bortz
Survey in prior proceedings. . . . Specifically . . . Mr. Trautman
testified unequivocally in the 2010-13 proceeding that weighting by
total royalties was the correct approach--even as to PTV-only
systems, which by definition were almost always ``minimum-fee
systems.'' When asked, ``But in your view . . ., the McLaughlin-
Blackburn augmentation of the Bortz survey assures that an
appropriate weight is applied to the PTV-only systems; correct[?],''
Mr. Trautman said, ``Yes, it considers the systems in the context of
royalties, the total royalties that they pay.'' Ex. 7043 at 551:9-15
(2010-13 Trautman Oral Testimony).
PTV Response at 6-7.
3. The JSC Reply \272\
---------------------------------------------------------------------------
\272\ As noted supra, JSC described the Judges' finding as to
this (and all other) rehearing issues as ``clear error'' for the
first time in the JSC Reply.
---------------------------------------------------------------------------
In Reply, JSC explained why the PTV Response fails to rebut JSC's
argument as to this issue. Specifically with regard to the issue of
inconsistency vis-[agrave]-vis the treatment of the Minimum Fee in the
regression analyses, JSC argued:
1. The evidentiary weight the Judges gave to Minimum Fee royalty
payments in the Bortz Survey model was inconsistent with the lesser
evidentiary weight the Judges gave to Minimum Fee royalty payments
in the regression models.
2. The Judges found that--with regard to the regression models--
Minimum Fee royalty payments, standing alone, for the most part did
not provide useful information regarding the ``relative value'' of
the retransmitted
[[Page 54266]]
programming, therefore requiring ``methodological changes'' to the
regression approach.
3. Bortz revised its methodology used in prior allocation
proceedings, substituting instead its new ``base plus 3.75
weighting,'' to account for Minimum Fee royalty payments as applied
to the Bortz Survey model.
4. The adverse parties fail to rebut the argument that the
Judges wrongly employed a royalty-based weighting approach which
gives undue weight to Minimum Fee royalty payments during the 2015-
17 period. Specifically, all the responding parties except PTV
ignored the issue. And, as for PTV, it cites no evidence from the
present proceeding, and instead relies on testimony from the 2010-13
proceeding supporting royalty-based weighting--ignoring the JSC's
assertion that royalty-based weighting only became a problem in
2015-17, with the significant increase in the number of Minimum Fee-
only CSOs.
JSC Reply at 1-2, 6-7.
iii. The Judges' Analysis
JSC Wrongly Maintains That the Judges Erred by Inconsistently Applying
the Bortz Survey Results to the Royalties Actually Paid Inclusive of
Minimum Fee Payments, While Declining To Similarly Rely on Minimum Fee
Payments When Considering the Regression Results
The Judges categorically reject JSC's argument that they acted
inconsistently, and thus committed ``clear error,'' by giving less
evidentiary weight to Minimum Fee royalty payments in the regression
models compared to the weight they gave to Minimum Fee royalties in the
Bortz Survey model. Indeed, as explained infra, by comparing JSC's
rehearing argument with the hearing testimony of its economic experts'
and its post-hearing filings, it is clear that it is the JSC analysis
(incorrectly advanced in support of its motion for rehearing) that is
inconsistent.\273\
---------------------------------------------------------------------------
\273\ To be clear, the Judges' analysis and findings as to this
issue do not rely on PTV's argument, noted supra, that the testimony
of the Bortz Survey witness, Mr. Trautman, in the prior 2010-13
proceeding, precluded or diminished JSC's ability to assert its
``inconsistency'' argument.
---------------------------------------------------------------------------
Specifically, JSC argues on rehearing that the Judges clearly erred
because their ``use of royalty-based weighting improperly skews the
survey calculations by giving inordinate weight to minimum fee
systems'' which, JSC maintains, is inconsistent with the Judges'
conclusion that in the regression models ``decisions by minimum fee
systems during the 2015-17 period are not probative of relative market
value.'' JSC Motion at 4 (citing Initial Determination at 129 n.155,
134). Moreover, in this regard JSC claims that ``[t]he Initial
Determination likewise discusses how both the regression and survey
methodologies changed (or should have changed) to account for the
`dramatic increase in the number of minimum-fee only' systems in these
years.'' JSC Motion at 4-5 (emphasis added) (citing Initial
Determination at 21-22, 167 n.206).
Before proceeding to discuss the substance of this argument, the
Judges take note that JSC has misleadingly utilized the Initial
Determination in the quote above from the JSC Motion. In the Initial
Determination, the Judges explained how they apply the Minimum Fee
problem only in the context of a regression model. See Initial
Determination at 21-22, 129 n.155, 134. By contrast, when referring to
the Bortz Survey, the Judges simply recited how Bortz, not the Judges,
sought to insinuate the Minimum Fee issue into the survey approach. See
Initial Determination at 167 n.206. In this regard, the Judges note
that the emphasized parenthetical quote from the JSC Motion in the
paragraph immediately above wrongly intimates that the Initial
Determination expressly discusses how ``both the regression and survey
methodologies . . . should have changed'' to address the Minimum Fee
issue. JSC Motion at 4-5 (emphasis added). The Judges in fact made no
such finding in the Initial Determination regarding how the Bortz
Survey methodology should have changed.
Accordingly, the overt inconsistency that JSC suggests is set forth
in the Initial Determination simply does not exist (and as explained
infra, for good reason). With the foregoing misconstrual of the Initial
Determination corrected, the Judges proceed infra to explain the
substantive error and inconsistency in JSC's argument that the Judges'
erred in their consideration of the effect of the Minimum Fee on the
regression approach compared to its non- effect on the Bortz Survey
approach.
To make clear the fundamental error in JSC's argument, it is
instructive to begin with certain first principles. The statutory
scheme supplants marketplace pricing of distantly retransmitted local
programming by CSOs. Thus, the parties proffer economic models that
they claim to be sufficient to represent relative marketplace
value.\274\ Here, and as in prior proceedings, the Judges were
presented with two starkly different types of models--the regression
model and the survey model.\275\ In the difference between how these
two models approach the concept of relative marketplace lies the
explanation why the Minimum Fee issue is a concern in the regression
context, but not in the survey context.\276\
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\274\ The models may be supported by the testimony of industry
witnesses and industry documents. Parties who eschew formal modeling
may elect to rely solely on industry-based evidence and testimony
(as did CTV through the ``directional analysis'' undertaken by its
expert witness, Dr. Leslie Marx, for the 2015-17 period. See Marx
ACWDT ] 83).
\275\ The existence of competing models in economic litigation
is hardly uncommon. As the Judges have previously explained:
``Benchmarks, Shapley and Nash models, surveys and experiments are
all models, in that a model is a representation of something beyond
itself being used as a representative of that something, and in
prompting questions of resemblance between the model . . . and their
target systems.'' Initial Ruling after Remand at 87 n.125, in Final
Determination after Remand at App. A, Phonorecords III (June 22,
2023).
\276\ As the Judges noted in the Initial Determination, the D.C.
Circuit has approvingly noted that there is no reason to require
that assumptions or findings applicable to one type of economic
model addressing an issue necessarily apply to a different type of
economic model attempting to address the same issue. See Initial
Determination at 48 (citing NRBNLMC v. CRB, 77 F.4th 949, 971 (D.C.
Cir. 2023) (affirming the Judges' finding in their Web V
Determination declining to apply the ``opportunity cost'' value in
one economic model (a Shapley Value model) to an economic model (a
benchmarking model) with different assumptions)). Of course, the
assumptions in each economic model must be internally consistent.
See J. Schlefer, The Assumptions Economists Make at 29 (2012) (an
economic model ``provides a check on thinking: it restricts us to at
least consistent economic worlds . . . .'') (emphasis added).
---------------------------------------------------------------------------
Broadly stated, the regression approach seeks to identify value
from the expressions of the willingness-to-pay of CSOs, by analyzing
their actual decisions (i.e., their ``revealed preferences'') as to
which local stations, and thus which program categories on those
stations, they decide to retransmit. See, e.g., Initial Determination
at 78 (``the regressions identify market-based behavior among CSOs, in
the form of revealed preferences for different program categories, and
such behavior is relevant evidence useful for estimating relative
marketplace value.''). The ``value'' element of this willingness-to-pay
(the CSO's ``revealed preference'') is the royalty-based value of a
minute of retransmittal of programming within the program categories.
However, the presence (indeed, the prevalence) of Minimum Fee-only CSOs
complicates this form of value analysis because such CSOs did not incur
any royalty cost associated with their specific choices. Accordingly,
the Judges needed to take into account this Minimum Fee factor in order
to reasonably apply the regression approach. ID at 21 (``The Judges
find that the dramatic increase in the number of minimum fee-only CSOs
. . . renders regression analyses that include those
[[Page 54267]]
CSOs less reliable and thus can be accorded only very limited economic
evidentiary weight.'').
By contrast, a constant-sum survey, such as the Bortz Survey, does
not seek to estimate relative value by examining actual decision-
making, in a regression or otherwise. Rather, the Bortz Survey seeks to
estimate relative value by examining hypothetical decision-making by
presumably informed CSO employees, who are asked to allocate a fixed
but unspecified monetary budget by percentages across identified
program categories, totaling 100%. See JSC PFF ] 296 (and record
citations therein). But at no point in the survey are the respondents
asked to consider whether the relative values are affected by the CSO's
payment of the Minimum Fee for any programming.\277\ Rather, the Bortz
Survey is an attitudinal survey, asking respondents to state the
relative values they would hypothetically assign to some program
categories (but not to PTV-only and CCG-only categories as discussed
elsewhere in this order and in the Initial Determination), whereas the
regressions seek to reveal relative value based on how much CSOs in
fact paid in royalties to retransmit programs within all the program
categories.
---------------------------------------------------------------------------
\277\ Also, there is no record evidence that survey respondents
took into account--or even knew--whether their CSO employer had paid
the Minimum Fee or the Base Fee for such programming.
---------------------------------------------------------------------------
Indeed, the JSC's own expert economic witnesses dismissed the very
idea that any royalty-based valuation could be probative,
characterizing all statutory royalty amounts as ``uninformative'' and
as mere ``artifacts'' of the statutory system. Dr. Asker, on behalf of
JSC, testified in this regard:
[F]ollowing the WGNA conversion, the experts' price proxies,
which are based on base rate (plus 3.75%) royalty fees and therefore
ignore the minimum fee, were uninformative measures of the
incremental cost cable system operators paid for distant signal
content. . . . As a result, these price proxies became biased. . . .
. . .
[V]ariation introduced solely due to this feature of the base
rate (plus 3.75%) royalty fee calculation is an artifact of the
computation of the fee. . . .''
Asker WRT ]] 58, 98 (emphasis added).
In like manner, another JSC economic expert witness, Dr. Majure,
testified that all the regression models merely reflect ``the statutory
relationship [between DSEs, revenues, and royalties owed] parrot[ing]
back the relative values of distant signals set by Congress.'' Majure
WRT ] 8.\278\
---------------------------------------------------------------------------
\278\ Dr. Majure offered the same opinion with regard to the
3.75% Fund as he did regarding the Basic Fund, testifying that ``the
3.75 royalty fee . . . after 2014 . . . explains only the
Congressionally-mandated framework . . . .'' Majure WRT ] 80.
---------------------------------------------------------------------------
Importantly for the issue at hand, Dr. Majure explicitly opined
that the Bortz Survey did not have share this defect:
By contrast with the regression models . . ., the Bortz [S]urvey
method does not have the same problem of a disconnect between the
data and the conceptual model that is necessary to interpret the
data within a regression. . . . [T]he survey does not rely on the
notion that a minute of each type of content has a specific
incremental value. The Bortz survey only requires that respondents
have some experience with different types of content available on
distant signals, so that they will have formed preferences for these
types of content. . . . The Bortz survey thus connects directly to
actual market value.
Majure WRT ]] 59, 61 (emphasis added).
The economic import of this point was emphasized in further
testimony by Dr. Majure, explaining this distinction between the
regression model and the survey model:
[T]he scarcity of valid observations for the regression method
due to the increase, post-WGNA conversion, in CSOs carrying fewer
signals than they could without exceeding the minimum royalty fee .
. . results in a significant gap between a CSO's distant carriage
decisions and how much that system paid in royalties. This creates
an issue peculiar to the regression method [which] depends on
statistical inferences that are more powerful and reliable when
applied to more independent observations that are derived from the
same underlying model of economic choices. Unlike the regression,
which depends critically on the relationship between these measures
to identify the relative values of content, the survey does not . .
. because the survey does not rely on the incremental cost of the
content to identify value. Whether a survey respondent carried
enough distant signals to be above or below the minimum royalty,
their response can address equally well how that CSO would apportion
a fixed sum between the content types that it did carry.
A survey can reveal CSO preferences reliably because the survey
does not rely upon inference but instead directly poses the relative
value question to the buyers in the hypothetical market.
* * *
In summary, the survey method has the advantage of not suffering
from any of the problems that make the regression method unreliable
in the wake of WGNA's conversion.
Majure WDT ]] 129-130, 133 (emphases added).
This expert testimony distinguishing the regression and survey
approaches was foundational to JSC's economic theory of the case. See
JSC PFF ] 236 (quoting Majure WDT ] 130 to distinguish the survey model
from the regression model because the former model ``reveal[s] CSO
preferences reliably because the survey does not rely upon inference
but instead directly poses the relative value question to the buyers in
the hypothetical market.''); JSC Post-Hearing Brief at 3 (``Unlike the
Bortz Survey, the fee-based regressions are entirely incapable of
estimating relative value in the post-WGNA world predominated by
minimum fee systems.'') (emphasis added).
Likewise, in its Post-Hearing Reply Brief (responding to Program
Suppliers argument), JSC expounded upon this fundamental difference
between the regression approach and the survey approach to the Minimum
Fee issue:
Program Suppliers mistakenly conflate the manner in which the
Bortz Surveys and the fee-based regressions treat Minimum Fee CSOs,
arguing that ``like the regressions offered in this case, the Bortz
Survey considers the stated preferences of survey respondents whose
systems pay only the Minimum Fee--in this way, the Bortz Survey
considers Minimum Fee systems the same way as the regressions do.''
Program Suppliers misunderstand a fundamental difference between the
Bortz Surveys and the regressions.
The fee-based regressions attempt to estimate relative
marketplace value by associating minutes of programming with
calculated royalty fees. For Minimum Fee CSOs, this presents an
insurmountable issue, because Minimum Fee CSOs do not pay their
calculated royalty fees but instead face an incremental royalty cost
of $0 for the distant signals they choose to retransmit. In
contrast, the Bortz Surveys do not rely upon a nominal royalty fee
calculation to draw inferences about CSO preferences. Instead, the
Bortz Surveys avoid the problem . . . by directly asking
knowledgeable CSO executives to assign relative values to the
distant signal programming they carry.
JSC Post-Hearing Reply Brief at 26 (footnotes omitted) (emphases
added).
And yet, having repeatedly claimed that the Bortz Survey avoided
the alleged analytical vice of associating the statutory nature of the
royalties with relative marketplace value, JSC nonetheless now seeks to
convert that vice into virtue, by seeking to justify its use of a
different survey-weighting approach because of the problem of the
Minimum Fee. Not only is that argument self-contradictory, as explained
supra, it is also lacking in substantive merit regarding the analysis
of economic models, as discussed infra.\279\ In more general economic
terms, the regression approach and the survey approach each considers
relative
[[Page 54268]]
marketplace value from different modeling perspectives. The Bortz
Survey approach does not seek to define value a priori--rather it
surveys industry employees who, in response to Question 4 of the Bortz
Survey, assign their relative value to the several program categories
identified by the Bortz interviewer. That is, the respondent may, for
example, be focused on demand-side concepts regarding subscriber growth
or retention, or supply-side issues such as the hypothetical cost of
acquiring the signals necessary to obtain the retransmitted
programming, or both. But the reasons why survey respondents assign
particular values are neither sought nor known by Bortz. In particular,
the Bortz Survey respondents are not asked to address any potential
impact on value arising from the statutory nature of the royalties
actually paid, whether via the Minimum Fee, the Base Fee, the 3.75%
fee, or otherwise.
---------------------------------------------------------------------------
\279\ PTV also argues that JSC's experts ``mined'' this and
other ``weighting scheme[s]'' to ``increase[] JSC's allocation.''
PTV Response at 3. In rejecting this rehearing argument, the Judges
need not and do not inquire into the motives of JSC's experts.
---------------------------------------------------------------------------
Thus, for the Judges to make any adjustments to the Bortz Survey
results based on how the respondents may or may not have incorporated
concepts relating to the statutory royalty framework would be
untenable, because the underlying economic reasons lurking in the minds
of the respondents are not in the record.
Moreover, the thought processes of the survey respondents are
irrelevant to what constitutes the probative value according to JSC and
the Bortz Survey. That is, it is the status of the survey respondents
as knowledgeable industry participants that makes the Bortz Survey
responses probative and allows the Judges to give it an appropriate
evidentiary weight. In this regard, the survey approach shares a
characteristic of the benchmarking approach used by the Judges in their
ratemaking cases, in which the underlying economic considerations of
market participants are deemed to have been ``baked-in'' to the
decisions of licensors and licensees, and their subjective reasons for
establishing value are not relevant. See Web IV Determination, 86 FR
26316, 26326 (May 2, 2016) (``The Judges hold in this determination, as
they have held consistently in the past, that the use of benchmarks
``bakes-in'' the contracting parties' expectations . . . .''), aff'd
SoundExchange, Inc. v. Copyright Royalty Bd., 904 F.3d 41 (2018). So
understood, any connection between the Bortz Survey results and the
statutory fees is both unknowable and irrelevant.
By contrast, as noted supra, the regression approach is based on an
a priori assumption as to what constitutes value in this proceeding,
positing that a CSO's relative valuation of the various program
categories can be derived from their actual decision-making, i.e.,
their revealed preferences, based upon the royalties associated with a
minute of programming in each category. Thus, for the regression
approach, the Judges found (rejecting the arguments of the regression
proponents) that the existence of the Minimum Fee royalties was a
matter to be addressed, because the evidentiary strength of this a
priori assumption is compromised by the presence of the royalties paid
by Minimum Fee-only CSOs, which are not associated with the cost of any
programming (absent particular circumstances necessitating adjustments
(such as discussed in the Initial Determination regarding PTV and CCG
programming)).
iv. Conclusion
Simply put, whereas the value proposition in the regression model
lies in the actual retransmission decisions by CSOs, the value
proposition in the Bortz Survey approach lies in the responses to the
survey instrument. Properly understood, the evidentiary weight of the
Bortz Survey approach, compared to the regression modeling, lies in the
fact that the survey model circumvents what JSC and its expert
witnesses characterize as the economic irrelevancy of the Minimum Fee
and other elements of the statutory royalty formula set forth in 17
U.S.C. 111. That is, rather than rely on what they claim to be economic
``artifacts,'' JSC and Bortz rely instead on the survey responses of
CSO representatives as a practical way to value and allocate royalties
that are paid according to statutory fiat rather than by revealed
preference. However, by attempting to inject concerns regarding the
Minimum Fee that apply to regression analyses--through its misconceived
plea for consistency--JSC actually reveals its inconsistent
understanding of its own survey model,\280\ converting it into a tool
that, so to speak, is neither fish nor fowl. The Judges appropriately
declined to make this analytical error.
---------------------------------------------------------------------------
\280\ As noted supra, an economic model's assumptions need to be
internally consistent. See Schlefer, supra.
---------------------------------------------------------------------------
For the foregoing reasons, the Judges find that there is no
inconsistency between the Judges' decision to address the Minimum Fee
issue in connection with the regression model, but not with regard to
the Bortz Survey model. Indeed, as explained supra, the inconsistency
revealed by JSC's rehearing argument lies in JSC's own willingness to
abandon its experts' testimonies regarding the fundamental economic
modeling differences between the regression and survey approaches, and
to pollute the survey approach with irrelevant aspects of the statutory
fee.\281\
---------------------------------------------------------------------------
\281\ One might question why the Judges criticize JSC for making
an inconsistent argument, when the Judges used Dr. Tyler's above-
Minimum Fee data but found two instances in which it was necessary
and appropriate to utilize his full set of calculated Base Fee
royalty data. But the Judges did not engage in an inconsistent
analysis. Rather, there were unique fact-based reasons, as described
in this Order and in the Initial Determination, which made the
above-Minimum Fee data an incomplete measure of regression-based
value, to an extent, for PTV and CCG. The needed adjustments that
followed did not demonstrate inconsistency, but rather a careful
parsing of the record evidence. By contrast, JSC's position is
inconsistent at the conceptual level--it first argues (as explained
supra) that the statutory royalty fee structure does not provide
evidence of value and that the survey method is the appropriate
valuation tool--only to then alter course and adjust the royalty
shares by relying on that very statutory fee structure it discredits
as a value metric.
Alternately stated, it would be contrary to the evidence for the
Judges to ignore the divergent marketplace impact of the WGNA
conversion on Minimum Fee royalty payments. In this regard, the
Judges are mindful of the aphorism that a ``foolish consistency is
the hobgoblin of little minds.'' See generally R.W. Emerson, Self-
Reliance and Other Essays 24 (Dover unabridged ed. 1993) (emphasis
added).
Further, even if JSC's approach somehow could be construed, like
the Judges' approach, as not internally inconsistent, it was hardly
error, let alone ``clear error,'' for the Judges to exercise their
fact-finding duty and their discretion by adopting the approach they
found reflects the record evidence and the relative marketplace
value standard--and reject one (JSC's approach) they found to be
logically questionable and insufficiently probative of marketplace
value. (That is, even if the general ``logic'' of JSC's argument
were correct, the Judges were under no duty to adopt it.)
---------------------------------------------------------------------------
Accordingly, the Judges' decisions in these regards do not
constitute error--let alone ``clear error,'' or otherwise serve as a
basis for granting rehearing.\282\
---------------------------------------------------------------------------
\282\ As stated in footnote 16, supra, the Judges' foregoing
analysis indicates why JSC's use of the word ``weighting'' can be
misleading in the context of its shift away from its former
weighting method. One common meaning of ``weighting'' is an
``allowance or adjustment made in order to . . . compensate for a
distorting factor.'' https://en.bab.la/dictionary/english/weighting.
(For example, weighting is often used to correct for perceived
inaccuracies in ``unweighted'' values--as when an election survey
has failed to poll a representative sample of voters from a
political party or other sub-set of the population of voters.) Here,
JSC/Bortz are not changing the weighting of the survey results to
correct for a factor that, in their own experts' opinions, is not
only non-distorting, but wholly irrelevant (as discussed in detail,
supra). That is, JSC and its expert economic witnesses acknowledge
that the Bortz Survey methodology, unlike the regression modeling,
is not distorted by the nature of the statutory formula for royalty
fees.
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[[Page 54269]]
d. Whether the Judges Adopted a Version of the Tyler Model That No
Witness Endorsed for the 2015-2017 Time Period, and Whether It Is at
Odds With the Record Evidence
i. The Parties' Filings
1. The JSC Motion
In its Motion for Rehearing regarding the Judges' adoption of the
Tyler Model and the adjustments thereto, JSC argues the following
points:
1. The Initial Determination adopts a version of the Tyler Model
that no witness endorsed for the 2015-17 time period. JSC Motion at
8-9.
2. The other experts opined that the Tyler Model merely
``parroted'' the statutory formula. JSC Motion at 9.
3. The Initial Determination makes ``arbitrary'' adjustments to
the Judges' adopted Tyler Model contrary to record evidence. JSC
Motion at 9-10.
4. The Initial Determination allocates shares to PTV and CCG
that are beyond ``reasonable limits'' because for PTV they are
greater than the unadjusted levels, and, for CCG, they are greater
than levels from prior years. JSC Motion at 10.
5. The Initial Determination fails to credit allegedly
unrebutted testimony of industry fact witnesses inconsistent with
the allocations made by the Judges to PTV and CCG. JSC Motion at 10.
2. The Adverse Parties' Responses \283\
---------------------------------------------------------------------------
\283\ CTV did not file a response to the JSC Motion for
Rehearing or otherwise oppose it in any other filing.
---------------------------------------------------------------------------
a. The Joint Response
In their Joint Response, CCG, Program Suppliers, and SDC respond as
follows:
1. JSC does not satisfy any standard for rehearing because it is
merely raising points as to which it did not meet its burden of
persuasion. Joint Response at 3-4.
2. JSC's attempt to litigate issues already considered or which
it failed to consider constitutes an improper attempt to obtain the
so-called ``second bite at the apple'' that the Judges' reject as a
proper basis for rehearing. Joint Response at 4.
3. The Judges adoption of and adjustment to a version of the
Tyler Model based on record evidence is consistent with the D.C.
Circuit's prior ruling that the Judges are ``not strictly limited to
choosing from among proposals set forth by the parties,'' but, like
agencies in general, ``have authority to modify proposals set forth
by the parties, or to suggest models of their own.'' Joint Response
at 4 n.2; see also id. at 6.
4. JSC fails to note that the higher shares for PTV and CCG were
consistent with the regression evidence on which the Judges relied,
and, by contrast, JSC asks the Judges instead to rely fully on the
Bortz Survey evidence, an argument which the Judges expressly
considered and rejected. Joint Response at 6.
The PTV Response
In its Response, PTV argues as follows:
1. JSC correctly asserts that the record contains no evidence to
support the Judges' reliance on the Tyler above-Minimum Fee Model.
2. The record contains ``minimal'' yet ``disputed'' evidence--
i.e., the ``conventional McLaughlin-adjusted Survey'' and the Tyler
Model inclusive of Minimum Fee-paying CSOs--to support a higher PTV
share than determined by the Judges.
3. JSC incorrectly maintains that there is no record evidence to
support what JSC characterizes as the ``large shares'' awarded to
PTV in the Initial Determination for the 2015-17 period.
PTV Response at 1-2, 9-10.
JSC's Reply contains the following points:
1. JSC identifies the ``clear error'' standard as its specific
standard for seeking rehearing. JSC Reply at 2.
2. JSC's arguments in its Motion regarding alleged
methodological errors cannot be construed as a mere ``rehashing'' of
arguments previously considered at the hearing and in the Initial
Determination (a/k/a seeking a ``second bite at the apple'') because
the above-Minimum Fee version of the Tyler Model was not
``endorsed'' by any witness. JSC Reply at 2, 9.
3. JSC minimizes the importance of its own motion argument that
cited industry executive testimony supporting their request for
rehearing. Rather, JSC states in their Reply that this is not the
``heart'' of their argument, but rather only reveals that the
differences between the regression results and the cited industry
witness testimonies ``are so at odds'' as to indicate problems with
the regression evidence on which the Judges relied. JSC Reply at 9.
ii. The Judges' Analysis and Conclusion
1. The Judges' Adoption of a Version of the Tyler Model in the Record
Does Not Warrant Rehearing
a. The Judges Did Not Err by Adopting the Above-Minimum Fee Tyler
Model, Let Alone Commit ``Clear Error''
JSC maintains that the Judges wrongly adopted the above-Minimum Fee
analysis undertaken by Program Supplier's expert economic witness, Dr.
Tyler. As recounted in detail below, the Judges explained in the
Initial Determination why regression modeling for 2015-17 that relied
only on above-Minimum Fee CSOs was more useful and why, by contrast,
modeling that relied on the Base Fees calculated by the subscriber
groups of CSOs who actually paid only the Minimum Fee was of limited
usefulness (as when used to adjust for economic value from the
regressions uncaptured by the above-Minimum Fee modeling). See Initial
Determination at 21 (``The Judges find that the dramatic increase in
the number of minimum fee-only CSOs . . . renders regression analyses
that include those CSOs less reliable and thus can be accorded only
very limited economic evidentiary weight [and] the Judges accord
significantly more evidentiary weight to regression modeling that
focuses only on the CSOs that actually revealed their preferences by
willingly paying above the minimum fee, i.e., at the base fee
level.''); id. at 142-144 (noting particular regression adjustments
\284\ to economic value necessitated by the evidence).
---------------------------------------------------------------------------
\284\ These are the three adjustments (Adjustments A through C)
in the Initial Determination.
---------------------------------------------------------------------------
The Judges further recognized that, despite the evidentiary
usefulness of the royalties paid by the above-Minimum Fee cohort in
this proceeding, that group generated a smaller portion of the CSO
market than in the prior (2010-13) allocation proceeding. Accordingly,
the Judges did not accord this regression approach primary weight vis-
[agrave]-vis the results of the Bortz Survey, as they had in that prior
proceeding. See Initial Determination at 147 (``[T]he Judges are not
giving any primacy to the regression evidence in this proceeding, given
how the changes in the retransmission sector after the WGNA conversion
have affected the available data.''); id. at 197 (``[T]he Judges accord
evidentiary weight to the Bortz Survey, with the McLaughlin
Adjustment--relatively equivalent with the weight given to the
regression analysis . . . . [T]he Judges find that a synthesis of
regression and survey results is necessary to arrive at the required
allocations.'').
Turning to a more granular review, the record is replete with
evidence, argument, and judicial colloquy regarding the use of above-
Minimum Fee evidence as a building block for the ascertainment of
relative value. See Initial Determination at 12-13. There, the Judges
relied on the testimony of Dr. Tyler, who expressly found ``merit'' in
a ``version of the model that includes only CSOs paying above the
minimum fee [which] presents with the ``highest degree of confidence''
the CSO tradeoffs between different stations and categories of
minutes.'' Id. at 12-13 (quoting Tyler ACWDT ] 155) (emphasis added).
As a general matter, when the Judges have decided to rely, as here, on
the specific opinion testimony of an expert whom they have credited and
who himself has the ``highest degree of confidence'' in that specific
opinion, under no standard could the Judges' ruling in that regard be
subject to rehearing.
[[Page 54270]]
Moreover, further support exists in the record for the Judges'
adoption of this above-Minimum Fee modeling. See id. at 15 (``for these
CSOs which CTV accurately describes as `above-capacity' . . . paying
above the minimum fee, the base fee royalties reported by their
subscriber groups are their actual royalty payments, revealing the
CSO's perceived value of the distantly retransmitted stations and their
constituent programs.'' (citing Bennett WRT ] 15 (a CTV economic
expert)); CTV PFF ] 158 (For above capacity CSOs, ``the reported
[Subscriber Group] royalties reflected the amount of royalties actually
paid . . . [by CSOs] [that] decided to incur an increased marginal
royalty cost[,] . . . revealing the CSO's perceived value of the
distantly retransmitted stations.'').
Additionally, the Judges were persuaded by the following supportive
argument of the SDC (no fan of the regression approach, to say the
least) regarding the Tyler Model as applied to above-Minimum Fee-paying
CSOs:
Dr. Tyler, whose rate-based methodology is the most explicitly
based on a ``minimum willingness to pay'' theory . . . offers a
sensitivity test [the above-Minimum Fee modeling] of this issue.
Tyler [ACWDT] ] 156. . . . Dr. Tyler's sensitivity test might
provide some rough guidance as to the potential direction and
magnitude of bias introduced by the presence of minimum fees. SDC
PFF ] 156. See also 4/19/23 Tr. 5473 (SDC's counsel's statement to
Dr. Tyler on cross-examination) (``I do want to point out to your
credit that your first sensitivity test tries to address this
issue.''). This argument is generally consistent with Dr. Tyler's
response to SDC counsel on this point, agreeing that it was
important to be ``cognizant'' of this minimum fee issue and that it
be ``considered and addressed'' because there is ``reasonable
disagreement about how to handle the issue.'' Id. at 5473-74. . . .
[T]he Judges find . . . . the variant of the Tyler Model in Figure
6.3 of the Tyler ACWDT offers the Judges' ``rough guidance'' in the
allocation of shares.
Initial Determination at 21-22 (quoting SDC and its counsel) (emphasis
added).
Additionally, the Judges carefully considered this issue at the
hearing, questioning witnesses from the bench. See 4/13/23 Tr. 4719
(Bennett) (CTV economic expert responding to Judge Strickler that ``the
idea that you're relating carriage with the cost or willingness to pay
for that carriage, I think, is an entirely reasonable modeling approach
where the data exists to link the carriage to . . . those payments. And
that is certainly true where you have above-minimum-fee-paying systems
for which the incremental cost is apparent . . .'') (emphasis added);
4/18/23 Tr. 5125 (George) (CCG expert Dr. Lisa George responding to
Judge Ruwe that ``the royalty payments are not exact measures of
incremental cost. They are more so when we're above minimum fees.'')
(emphasis added); see also 4/19 Tr. 5503 (Tyler) (agreeing on cross-
examination that ``CSOs paying above the minimum fee [is]where you have
economic decision-making because the costs that they're paying for each
of those distant signals are actual binding costs . . . .'').
The Judges further noted at length multiple perspectives in which
an above-Minimum Fee cohort of CSOs can be viewed:
This cohort of CSOs can properly be viewed as essentially the
only CSOs who provide revealed preference information as to the
variation in relative values among the program categories (in
contrast with CSOs who did not retransmit any distant local stations
or those with ``excess capacity''), which in that sense is a cohort
unto itself, rather than a sub-sample. On the other hand, this
cohort can also reasonably be viewed as but a small sample of all
the CSOs, which reduces the evidentiary weight of their preferences.
Both perspectives on the revealed preferences of these above-minimum
fee paying CSOs are properly considered in weighting the various
strands of useful evidence in order to allocate royalty shares in
this proceeding.
. . .
[I]t is misleading, to say the least, to categorize the base-
fee-paying CSOs as merely a small cohort of the larger population of
CSOs, when they are differentiated by the key marker for section 111
purposes: whether they assign a relative value to the retransmittals
and thus relative values to the retransmitted programs. The Judges
find it more accurate and appropriate to consider the base-fee-
paying CSOs essentially as a separate cohort of CSOs whose decision-
making is pertinent to a regression analysis in this statutory
context.
. . .
Colloquially, the issue may be characterized as whether the
Judges should let the perfect be the enemy of the good. Here, the
``perfect'' fact pattern would be where all or most of the data is
generated by CSOs paying above the Minimum Fee. That is not the
factual context here. But there is ``good'' evidence from the CSOs
who did retransmit enough programming to trigger the base fees of
their subscriber groups, and that the Judges do not ignore that
data.
Accordingly, the Judges will give due weight to the minority of
CSOs that, in the 2015-2017 period, paid above the minimum fee and
thus revealed their preferences by paying an additional royalty in
order to retransmit one or more additional stations.
Initial Determination at 100, 130-131 (emphasis added).
The Judges made it clear that they found important economic
evidence in the above-Minimum Fee version of the Tyler Model:
[F]or those CSOs transmitting above 1.0 DSE, they have economic
decisions to make regarding the mix of programming they will
transmit via their signal decisions. Given the economics and reality
of this retransmission market, as described above, only then will
the relative value of program categories be of material economic
importance. It is at this stage that the Tyler Model generates
information as to relative value, through the Tyler model's
coefficients.
Initial Determination at 136.
Relying on this abundant record, the Judges held as follows:
[T]he Judges rely on the Tyler Model, as Dr. Tyler applied his
model to the CSOs paying above the minimum fee. . . . [A]bove-
minimum fee paying CSOs['] channel selections/programming
preferences are . . . probative and useful, even if less so than in
the 2010-2013 Determination because of the reduction in the number
of such CSOs and in the percentage of royalties they represent.''
Initial Determination at 21, 66.
But, as indicated supra, the Judges did not ignore the fact that
the above-Minimum Fee CSO cohort was substantially smaller than
identified in the 2010-13 Determination. Specifically, the Judges
stated:
[H]ere the Judges are considering the regression evidence and
the Bortz Survey evidence as essentially equally weighted and useful
(but not flawless) evidence . . . . [T]he reconciliation will be
different than in the 2010-13 proceeding, because the Judges are not
giving any primacy to the regression evidence in this proceeding,
given how the changes in the retransmission sector after the WGNA
conversion have affected the available data.
Initial Determination at 147.
To be sure, in its Motion, JSC disagrees with the Judges' adoption
of the above-Minimum Fee modeling undertaken by Dr. Tyler. But JSC made
its disagreements known at the hearing stage of this proceeding, and
supported those disagreements with expert testimony. See Initial
Determination at 19-20.
In particular, one criticism, as described by the Judges, was
levied by one of JSC's expert economic witnesses, Dr. Asker, who
maintained that it was improper to ``use . . . the base fee as a price
proxy even for CSOs paying above the minimum fee.'' Id. at 19.\285\ The
Judges declined to adopt Dr. Asker's analysis because: (1) it amounted
to
[[Page 54271]]
mere ``blackboard economics,'' \286\ in that there was ``no evidence''
that any CSO actually engages in the ``tunnel-vision sort of
hyperrationality'' described by Dr. Asker; and (2) it was at odds with
the testimony of a cable industry expert witness, Sue Ann Hamilton, who
stated, in testimony credited by the Judges, that ``CSOs do not devote
much attention to issues regarding distant retransmittals.'' Id. at 22
& n.29.
---------------------------------------------------------------------------
\285\ More specifically, Dr. Asker opined that a rational CSO
would calculate the actual ``price'' of an above-Minimum Fee
retransmission of a local station as the difference between: ``(1)
the total fees that would bind, which may have been the minimum fee,
without retransmitting that local station, and (2) the total base
fees that would bind (the minimum fee having been exceeded) if that
local station was distantly retransmitted.'' Initial Determination
at 20.
\286\ See id. at 22 n.29 for the Judges' application of the
economic criticism of unrealistic ``blackboard economics.''
---------------------------------------------------------------------------
As a second criticism regarding this issue, JSC also relied--at the
hearing stage of the proceeding--on what its statistical expert, Mr.
Harvey opined was the lack of ``statistical significance'' in Dr.
Tyler's above-Minimum Fee modeling. See JSC RPFF ]] 29-30; Harvey WRT
]] 45-46 & tbl.10 \287\ (More specifically, JSC and Mr. Harvey
maintained that Dr. Tyler's above-Minimum Fee modeling ``failed to
obtain statistically significant results for JSC minutes in 2015, 2016
and 2017 . . . .''); see also JSC Post-Hearing Brief at 27; Harvey WRT
]] 45-46.
---------------------------------------------------------------------------
\287\ JSC premises its argument on the fact that far fewer CSOs
paid royalties at above-Minimum Fee levels in the years 2015-17 than
in the pre-WGNA conversion period of 2010-2014 (which straddles this
and the prior allocation proceeding). See Initial Determination at
18-20. As explained in the Initial Determination, and recounted
elsewhere in this Order, the Judges did not dispute this point, and
therefore accorded Dr. Tyler's above-Minimum Fee results less
evidentiary weight than when more CSOs paid above-Minimum Fee
royalties, but they declined to adopt JSC's argument that the Judges
therefore should give zero weight to the evidence of CSO decision-
making by CSOs that did pay above-Minimum Fee royalties. Id. at 131
(``there is `good' evidence from the CSOs who did retransmit enough
programming to trigger the base fees of their subscriber groups, and
the Judges do not ignore that data.
Accordingly, the Judges will give due weight to the minority of
CSOs that, in the 2015-2017 period, paid above the Minimum Fee and
thus revealed their preferences by paying an additional royalty in
order to retransmit one or more additional stations.'').
---------------------------------------------------------------------------
In the Initial Determination, the Judges explained in detail why
they disagreed, finding that the above-Minimum Fee Tyler Model was
statistically sufficient to carry the level of evidentiary weight the
Judges accorded to that model. See Initial Determination at 144-148.
Accordingly, although JSC may disagree with the Judges' reasoning as to
this issue (even though JSC does not in fact address the Judges'
reasoning in their Motion seeking rehearing), their disagreement does
not remotely suggest that rehearing is warranted as to this issue.
In their present Motion seeking rehearing, JSC makes a further
criticism of the Judges' reliance on the above-Minimum Fee Tyler Model.
Specifically, JSC relies on Dr. Tyler's recommendation at the hearing
that the Judges rely on his preferred model in which he applies all the
Base Fees calculated by the Subscriber Groups within CSOs, including
those for whom the Minimum Fee would bind. But JSC's present post-
hearing reliance on Dr. Tyler's preference is seriously misleading.
Although Dr. Tyler preferred one of his models over another, his
preference does not dictate which of his analyses the Judges may
credit. Here, the Judges declined to defer to his preference because
regression models that included the royalty payments of CSOs paying
only the Minimum Fee were less useful in reflecting economic decision-
making (an argument advanced by JSC and other parties). Instead, the
Judges relied heavily on the Tyler Model based on only above-Minimum
Fee paying CSOs, for the reasons explained supra, as supported by
abundant aspects of the record evidence. Initial Determination at 21
(``The Judges find that the dramatic increase in the number of minimum
fee-only CSOs (i.e., those with no distant retransmittals and those
with some distant retransmittals but with `excess capacity') renders
regression analyses that include those CSOs less reliable and thus can
be accorded only very limited economic evidentiary weight. Moreover,
the Judges accord significantly more evidentiary weight to regression
modeling that focuses only on the CSOs that actually revealed their
preferences by willingly paying above the minimum fee, i.e., at the
base fee level.'').
JSC also overplays its hand. Dr. Tyler did not maintain that his
above-Minimum Fee modeling lacked probative value. Quite the contrary,
he testified (as noted supra) that his above-Minimum Fee modeling
showed, with the ``highest degree of confidence,'' actual economic
tradeoffs made by CSOs, even though he preferred his model inclusive of
the Minimum Fee-paying CSOs. Initial Determination at 13 (quoting Tyler
ACWDT ] 155).
Moreover, as a general matter, there is no doubt that the Judges
may give greater weight to evidence that the proffering witnesses
recommend should have less weight. Indeed, such an expert's
disagreement in this regard ultimately is of little value, as it
intrudes upon the Judges' exercise of their core judicial function to
weigh evidence, and, for present purposes, cannot support a claim for
rehearing under any of the available standards.
In a related criticism, JSC maintains that the Judges wrongly
adopted the above-Minimum Fee Tyler Model because other experts
supported their own models and approaches over the adoption of any
version of Dr. Tyler's modeling. Motion at 9.\288\ But again, because
one of the Judges' core duties is to weigh competing testimony,
including expert testimony, their decision to adopt an opinion
proffered by one expert which clashes with opinions of others, is
certainly not ipso facto erroneous.
---------------------------------------------------------------------------
\288\ Imagine that--the other experts preferred their own models
over another expert's opinion: Quelle surprise.
---------------------------------------------------------------------------
More broadly, the Judges are not locked into the recommendations of
the parties and the experts. This statutory process is not like ``final
offer'' arbitration. As noted by the Joint Respondents, the D.C.
Circuit has held that the Judges are ``not strictly limited to choosing
from among proposals set forth by the parties,'' but, like agencies in
general, ``have authority to modify proposals set forth by the parties,
or to suggest models of their own.'' Joint Response at 4 n.2; see also
id. at 6; see also Johnson v. Copyright Royalty Bd., 969 F.3d 363, 381-
82 (D.C. Cir. 2020) (citing SoundExchange, Inc. v. Copyright Royalty
Bd., 904 F.3d 41, 50-51, 57 (D.C. Cir. 2018); Association of American
Publishers, Inc. v. Governors of USPS, 485 F.2d 768, 773 (D.C. Cir.
1973)).
b. JSC Is Improperly Seeking a ``Second Bite at the Apple'' by Asking
To Submit Additional Evidence Regarding Dr. Tyler's Above-Minimum Fee
Model
As discussed supra, JSC submitted testimony from two expert
witnesses, Dr. Asker, an economist, and Mr. Harvey, a statistician, in
unsuccessful attempts to undermine Dr. Tyler's above-Minimum Fee
modeling. Thus, this issue has already been considered and, as Joint
Respondents assert, JSC cannot obtain rehearing to introduce further
evidence that JSC ``could have submitted at the hearing, but did not,''
and as to which JSC ``did not meet their burden of persuasion.'' Joint
Response at 3-4.
Alternately stated, the JSC Motion fails to satisfy the
``negative'' standard for rehearing noted earlier in this order--a
demonstration that the movant is not seeking the ``second bite at the
apple'' that the Judges have ruled is insufficient to support a request
for rehearing.
[[Page 54272]]
2. The Judges' Adjustments to the Version of the Tyler Model They
Adopted Do Not Support JSC's Motion for Rehearing
a. Introduction
JSC also argues that rehearing is warranted because the Judges made
two ``adjustments'' via the Initial Determination that were
improper.\289\ JSC's argument is deficient for several reasons. At a
high level, JSC simply ignores the Judges' explanations in the Initial
Determination for why the above-Minimum Fee version of the Tyler
Model--albeit a highly useful lens for broadly identifying relative
value--generated certain results that required the Judges to make
relative value adjustments for CCG and PTV programming. It is quite
simple, but also simply wrong, for JSC to argue that the Judges erred
in their reasoning, by omitting any reference to the Judges' actual
reasoning.
---------------------------------------------------------------------------
\289\ JSC's ``adjustment'' argument comes in two varieties.
First, JSC objects to ``Adjustment C'' in the Initial Determination
which increased PTV shares. Second, JSC objects to the adjustment of
the shares allocated by the Initial Determination to CCG and PTV for
2015-17, in comparison to their share percentages in the prior years
of 2010-13 (in the prior allocation proceeding) and 2014 (in this
proceeding.) JSC does not object to ``Adjustment A'' in this
proceeding that lowered CCG's allocation share, or to ``Adjustment
B'' in this proceeding that lowered PTV's share. Alternately stated,
JSC claims error by the Judges in the adjustments that reduced their
royalty allocation, but assert no error in adjustments that
increased JSC's royalty allocation. (JSC's argument pertaining to
Adjustment B does identify a computational error in the Initial
Determination that the Judges acknowledge and correct infra.)
---------------------------------------------------------------------------
To highlight the importance of these omissions, the Judges
recapitulate the reasoning in the Initial Determination which JSC
ignores.
b. The CCG Share Adjustment (Adjustment A) \290\
---------------------------------------------------------------------------
\290\ Although JSC does not seek rehearing on Adjustment A
regarding CCG, that adjustment is relevant to this discussion
because it is part and parcel of the Judges' derivation of the CCG
share that JSC claims to be too high relative to prior years. The
deficiency in JSC's argument in that regard is best understood by
including in the text following this footnote a summary of the
reasoning for Adjustment A.
---------------------------------------------------------------------------
First, with regard to the CCG share (Adjustment A) the Judges
reasoned as follows in the Initial Determination:
1. The above-Minimum Fee Tyler Model generates ``an anomalous
increase'' in the share allocated to the CCG claimants.
2. This anomaly arose because ``CCG programming is unique among
the program categories in this proceeding [in that] it is limited in
geographic scope to CSOs located within a 150-mile belt below the
U.S./Canadian border'' (known as the ``Canada Zone'').
3. Thus, the above-Minimum Fee Tyler Model ``reflect[s] the
unique value of Canadian programming in the Canada Zone, including
the uniquely valuable . . . French language programming, a niche
sub-category.''
4. Accordingly, in addition to the demand for the usual
complement of distantly retransmitted programming that exists
throughout the wider United States, in the Canada Zone there exists
this additional demand. Such greater demand means that CSOs would
choose to pay more than the Minimum Fee by adding CCG stations, and
thus Canadian claimant programming, to their channel lineup.
5. Therefore, CSOs in the Canada Zone would very likely be
overrepresented in the above-Minimum Fee Tyler Model.
6. This phenomenon creates a problem because the Judges are
allocating a royalty pool for which, over the period 2015-2017, more
than 90% of the funding came from Minimum Fee-only CSOs.
Accordingly, although the data from the above-Minimum Fee Tyler
Model provides useful economic evidence of CSOs' revealed
preferences for other claimant categories, with regard to CCG
content and value, this data is distortionary.
7. Confirming this anomaly, CCG itself did not propose receiving
the high allocations suggested by the above-Minimum Fee Tyler Model
(23.2% in 2015; 31.1% in 2016; and 34.6% in 2017). Rather, CCG
proposed that it receive 14.8% for 2015, 13.7% for 2016, and 13.6%
for 2017.\291\
---------------------------------------------------------------------------
\291\ It is also noteworthy that CCG has not sought rehearing to
challenge this significant downward adjustment in its 2015-17 share
of the royalty pool nor to criticize the wider application of the
above-Minimum Fee Tyler Model.
---------------------------------------------------------------------------
8. Accordingly, in their 2015-2017 allocations, the Judges
utilize the lower CCG shares reported by Dr. Tyler for all CSOs,
rather than only the above-Minimum Fee Tyler Model.
Initial Determination at 142-143.
As noted supra, JSC studiously ignores this substantial downward
adjustment of CCG's 2015-17 share, which benefited JSC and the other
claimants by raising their share allocations, ceteris paribus. Rather,
as noted supra, JSC focuses on a comparison of the CCG shares for 2015-
17 with the CCG shares for 2010 through 2014 and claims error
sufficient to warrant rehearing based on the increase in CCG shares in
this proceeding. Simply put, JSC does not object to the Judges'
adoption of adjustments to its above-Minimum Fee approach, but rather
only to those adjustments that reduce its inter-year allocations. That
argument, now in proper context, is addressed in the subsection below.
1. JSC Misapprehends the Process for Ascertaining Relative Value in
Allocation Proceedings
JSC argues that the sheer increase in the size of the Judges'
allocation for PTV and CCG are ``arbitrary.'' Motion at 8. More
particularly, JSC calculates that ``after the Judges made multiple
adjustments to the results, PTV's share in the adjusted regression
increased by 51% in 2015, by 69% in 2016, and by 105% in 2017. JSC
Motion at 9. With regard to CCG, JSC makes an inter-period argument,
asserting that CCG's shares more than doubled in the 2015-17 period
compared to the pre-WGNA conversion years of 2010-13 (in the prior
allocation proceeding) and 2014 (in the present proceeding). JSC Motion
at 10. As explained infra, JSC's argument in these regards
fundamentally misapprehends the statutory process by which relative
values and shares are determined.\292\
---------------------------------------------------------------------------
\292\ In addition to the specific points discussed infra
regarding the CCG and PTV adjustments, it is important to remain
mindful that the Judges are ascertaining relative values, not
absolute values. That is, the WGNA conversion significantly
scrambled CSOs' retransmission decisions, which the record reflects
changed the relative value of program categories. This does not
necessarily indicate that, in an absolute sense, any one program
category became more or less valuable.
---------------------------------------------------------------------------
Addressing first the CCG inter-period share increase, the Judges
note that they do not begin with some pre-determined allocation of
shares and then make certain that they can ``back into'' that ``pre-
determination'' by conjuring up a comporting analysis. That would not
only, to put it colloquially, ``place the cart-before-the horse,'' but
would also be antithetical to the Judges' fact-finding duty. In this
regard, as the Judges proceed through their analysis, as here, by
applying the probative facts--they do not decide ex ante that their
factual findings cannot exceed (or fall below) some arbitrary level
(whether an interim pre-adjusted level or a level from a prior
proceeding). Indeed, that too would be an improper exercise by the
Judges of their duty to weigh the facts. Alternately stated, when the
Judges weight the evidence, they are agnostic as to the share
percentages that would ultimately result.
Nonetheless, as noted supra, JSC complains that CCG's shares are
higher than the shares CCG received in the 2010-13 Final Allocation
Determination and in 2014 in the present proceeding. But JSC cites no
authority to suggest that allocations should equal or approximate
allocations in prior years or from prior proceedings. Indeed, there is
no authority in that regard because in each allocation proceeding the
Judges consider the allocation issues de novo, based on the record
developed in that proceeding. To be sure, a party can argue that the
underlying facts in the latter proceeding mirror those of the prior
proceeding, suggesting it would be correct for the Judges not to
deviate from the allocations in the prior
[[Page 54273]]
proceeding. And because factual patterns may remain relatively stable
across years within a given proceeding, a party may argue that the
annual years at issue should all reflect similar allocations.
Of course, the converse is true as well: If the facts reveal
substantial differences between the years in different proceedings, or
across years within a proceeding, the allocations made by the Judges
should reflect those facts. Indeed, the Judges have described their
consideration of this issue as a ``Changed Circumstances'' analysis.
In the present case, the Judges addressed this very issue in
section XVI of the Initial Determination:
XVI. Changed Circumstances
The Judges may vary from prior decisions when there are (1)
changed circumstances from a prior proceeding; or (2) evidence on
the record before the Judges that requires prior conclusions to be
modified regardless of whether there are changed circumstances.
In the 2014-2017 period, several widely agreed upon changed
circumstances have taken place including 1) WGNA's conversion to a
cable network, the reclassification of PTV signals from exempt to
non-exempt, and 3) the rise in streaming on alternative platforms. .
. . Based on the agreed upon record and Judges' findings here and
throughout the determination, the Judges find that significant
changed circumstances occurred across the relevant period.
Initial Determination at 159-160 (citing the testimonial consensus
regarding these changed circumstances.).
Thus, not only was it permissible for the Judges to deviate from
allocation shares in prior years and/or proceedings, the facts of the
case required the Judges to adjust the share allocations. Quite
clearly, therefore, the Judges did not make any findings that--under
any standard--would support rehearing based on changes in the Judges'
share adjustments.
Second, with regard to the upward adjustment for PTV's relative
value (Adjustment C), the Judges reasoned as follows in the Initial
Determination:
1. PTV argued that, when WGNA was a local station retransmitted
by CSOs pursuant to section 111, a significant number of PTV's
stations were retransmitted by CSOs together with WGNA.
2. Thus, prior to the WGNA conversion, a CSO's decision to
retransmit PTV and WGNA jointly generated a Base Fee royalty and
revealed that CSO's revealed preference and willingness-to-pay.
3. PTV further noted that post the WGNA conversion, many of
these CSOs continued to retransmit the same PTV station, but this
did not trigger the Base Fee because the Minimum Fee applied (with
WGNA gone).
4. PTV maintained that the pre-WGNA conversion carriage is
probative of the fact that the PTV carriage post-WGNA conversion
demonstrates economic value.
The Judges agreed with this analysis, increasing PTV's 2015-17
share of royalties as calculated in Adjustment C.\293\
---------------------------------------------------------------------------
\293\ As explained in the section of this order denying PTV's
request for rehearing, to adjust for this increase in PTV's relative
value, the Judges found probative the analysis and testimony by a
JSC expert statistical witness, Mr. Harvey. His analysis and
testimony indicated that 44% of the PTV stations that were
identified as being retransmitted by Minimum Fee-paying CSOs after
the WGNA conversion had also been transmitted pre-conversion jointly
with WGNA and thus generated Base Fee (above-Minimum Fee) royalties.
The Judges adopted this testimony via Adjustment C, increasing PTV's
share of the royalties.
---------------------------------------------------------------------------
But JSC objects to this Adjustment C on the same general basis that
it objects to the CCG increase--it is simply too large an increase. As
to this issue, JSC compares the Judges' interim work-in-progress (i.e.,
pre-adjustment) PTV shares with the Judges' final post-adjustment
analysis. But its argument hinges on the same mistaken assumption made
by JSC regarding the CCG share increase across the relevant years--that
the Judges are somehow precluded from increasing a party's shares by
too great a percentage, regardless of where the Judges' factual
findings lead.
3. JSC's Proposal That the Judges Disregard the Regression Evidence on
Which They Relied--and Instead ``Fully Rely'' on JSC's Industry
Witnesses by Adopting the Bortz Survey--Is a Blatantly Impermissible
Request for a ``Second Bite at the Apple''
Further, JSC's proposed alternative to the Judges' approach
underscores the paucity of its argument. JSC argues that the Judges
should ``fully rely'' on their version of the Bortz Survey approach,
which the Judges rejected in the Initial Determination. JSC Motion at
8.
But this argument, like other JSC arguments discussed supra,
constitutes a request for the proverbial ``second bite at the apple''
that is an insufficient basis for granting rehearing. The Judges agree
with the Joint Respondents that because ``JSC forcefully advocated for
reliance on the Bortz Survey before, during and after the 5-week
hearing,'' this argument is ```nothing more than a recapitulation of
arguments that the Judges fully considered in fashioning their [Initial
Determination] and therefore do[es] not present the type of exceptional
case that would warrant a rehearing or reconsideration.''' Joint
Response at 6. See also PTV Response at 2. More particularly as
explained below, in the Initial Determination, the Judges credited
industry witness testimony from JSC witnesses by significantly
increasing the JSC shares above the small shares arising from the
above-Minimum Fee Tyler Model (and all other regression modeling).
To place JSC's present argument--and the Judges' rejection of
same--in appropriate context, it is necessary to begin with the Judges'
factual finding that, in the 2015-17 period, ``[t]he WGNA conversion .
. . drastically reduced the number of JSC subscriber-minutes distantly
retransmitted.'' Initial Determination at 122 n.147. There was no
dispute as to this fact. See generally JSC PFF ] 101 (stating, without
denying, that ``[a]ccording to multiple non-JSC witnesses [citing Dr.
Tyler and multiple other expert and fact witnesses], the absolute and
relative volume of JSC programming declined significantly following the
WGNA conversion when measured in subscriber-weighted minutes.''); id.
at ] 111 (citing JSC's own expert witness, Dr. Majure, who did not deny
the drastic reduction in the number of JSC subscriber-minutes, but
instead argued ``that it would be wrong to infer a drop in JSC value
from a drop in subscriber-weighted minutes . . . .''). In like manner,
JSC relied on the testimony of three industry witnesses who, while not
denying the drastic reduction in JSC subscriber-weighted minutes,
testified that, from a CSO's perspective, ``the value and volume of
different categories of programming are not correlated.'' JSC PFF ]
112. See also Program Suppliers RPFF ] 26 (``JSC's witnesses did not
dispute that JSC's relative subscriber-weighted volume share declined
by 91 to 92 percent between 2014 and 2015, and [] JSC's relative volume
share fell from approximately 7% in 2014 to 0.6% in 2015, and by 2017,
it had fallen to 0.4%, representing a 94% decline.'').
This background is pertinent to JSC's present argument because the
Judges (1) in fact did credit the testimony by JSC industry witnesses
that subscriber-weighted minutes alone were insufficient to determine
relative value for JSC programming; and (2) therefore substantially
increased the relative value of JSC shares above the levels generated
by the above-Minimum Fee Tyler Model and other regression modeling.
However, the Judges declined to ignore the significant impact on
relative value of the substantial reduction in the volume of
subscriber-weighted JSC minutes distantly retransmitted. See Initial
Determination at 122 n.147.
The following portions of the Initial Determination make this point
in detail:
[[Page 54274]]
Based on the entirety of the record, the Judges are not
persuaded by industry expert testimony that the value and volume of
programming are not correlated. The industry expert evidence is set
against the more well-established sound economic reasoning
underlying the regression analyses in this proceeding.
. . .
That is not to say that regressions correlating program category
minutes and a measure of royalties is necessarily the only way to
determine value. . . . [A]s confirmed by some of the industry
testimony, the Judges recognize that . . . JSC programming, bundled
together with programming from other claimant categories, can have a
value (in terms of retaining or adding subscribers) . . . that is
not well-correlated with overall program minutes.
. . .
The Judges find [JSC witnesses] to be particularly credible . .
. regarding the unique value of JSC content . . . . Based on the
entirety of the record, the Judges are persuaded that evidence of
the unique value of . . . JSC content . . . serves as a limitation
on the applicability of certain proposed regression analyses and
their proposed allocation results. These [findings] do not negate
valid application of regression analyses as a basis for allocation.
However, these factors are taken into account within the Judges'
weighting of the allocation methodologies, including application of
the Bortz survey . . . .
Initial Determination at 151-152 (emphasis added).
Consequently, the Judges set the 2015-17 post-WGNA conversion
allocation shares for JSC substantially above the shares proposed by
the above-Minimum Fee Tyler Model, as can be seen in the comparison of
the two tables below:
Shares Awarded to JSC in Initial Determination
------------------------------------------------------------------------
2015 2016 2017
------------------------------------------------------------------------
11.44% 10.76% 11.91%
------------------------------------------------------------------------
Initial Determination at 2 tbl.1.\294\
---------------------------------------------------------------------------
\294\ These final totals are changed marginally via the
correction of a mathematical error in the Initial Determination, as
discussed infra.
Shares Allocated to JSC by Above-Minimum Fee Tyler Model
------------------------------------------------------------------------
2015 2016 2017
------------------------------------------------------------------------
2.1% 1.3% 0.5%
------------------------------------------------------------------------
Initial Determination at 13.
As a comparison of these two tables shows, by departing from the
above-Minimum Fee Tyler Model, and giving due weight to the Bortz
Survey, as suggested by JSC's industry witnesses, the Judges increased
JSC's shares by 445% for 2015, 728% for 2016, and by 2,282% for 2017.
To be sure, these higher shares are still well below what the Bortz
Survey proposed, and what JSC sought, both at the hearing and again via
rehearing. But, as noted above, the JSC share of subscriber-weighted
minutes declined by over 90% during this period, which is reflected in
the effect of the regression analysis in the above-Minimum Fee Tyler
Model, and which the Judges found highly relevant.
Thus, JSC's claim of purported error regarding this issue is not
premised on any failure by the Judges to ignore its expert witnesses or
the Bortz Survey. Rather, JSC's complaint is that the Judges did not
give zero weight to the regression model and 100% weight to the Bortz
Survey (based on the survey itself and the industry witnesses JSC
proffered). Of course, as noted supra, a party's disagreement as to the
Judges' weighing of record evidence, including expert testimony, does
not satisfy any grounds for granting a motion for rehearing.\295\
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\295\ Implicit in JSC's argument is that JSC should not suffer
such a loss in royalty revenues compared to past years. But no
implied assumptions regarding a JSC loss in royalty revenues arising
from these lower shares is warranted by the record. Rather, the
record indicates that ``JSC sports content has been migrating from
broadcast stations to other platforms, including cable networks like
TNT, TBS, and ESPN, regional sports networks, and pay-TV
platforms.'' See Program Suppliers PFF ] 237 (citing witness
testimony, including the testimony of JSC expert Allan Singer).
Further, the record reflects that such migration ``has increased
significantly for the past several years, resulting in corresponding
decreases of distantly retransmitted JSC programming volume''
[indicating that] [t]he significantly low 2014 through 2017 JSC
programming volumes are consistent with a continuing migratory
pattern. Id. ]] 239-40.
Thus, as the Judges explained in their Initial Determination,
there is no reason to assume that the reduction in JSC shares caused
JSC to lose revenue realized from the transmission of JSC content
formerly on WGNA. That is, there is no record evidence to support an
assumption that JSC had irrationally sought out less profitable
distribution outlets than distantly retransmitted local stations
after the conversion of WGNA to cable station status. See Initial
Determination at 135 n.161 (``[T]he JSC is simply a representative
of the major professional sports leagues and the NCAA, and the
record does not reflect that they suffered any economic loss because
of the reduction of subscriber minutes distantly retransmitted.'')
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4. JSC's Argument--That Rehearing Is Necessary Because the Tyler
Modeling Simply ``Parrots'' the Statutory Formula--Cannot Be Grounds
for Rehearing Because This Argument Was Made at the Hearing, and
Because JSC Fails to Note in Its Motion the Judges' Detailed
Explanation for Rejecting that Argument
JSC argues that the Tyler modeling (in its several varieties)
should have been rejected because it simply ``parrots'' the statutory
formula. JSC Motion at 9. Ironically, this basis for rehearing must be
denied because it ``parrots'' the argument made by JSC and other
parties at the hearing. See Initial Determination at 74 (``Dr. Majure
maintains that the Tyler Model . . . essentially estimates only `the
equation given by the statutory formula . . . .' ''); id. at 75 (noting
that CCG's expert economic witness, Dr. Lisa George, likewise
criticized the Tyler modeling because it ``effectively replicates the
regulatory formula . . . .'' and noting that PTV's expert, Dr. John
Johnson, likewise maintained that the Tyler modeling ``essentially
replicates the statutory formula . . . .'').
However, the Judges comprehensively analyzed and then rejected this
argument, in all its iterations. See id. Section XIB at 131-136.
Nonetheless, JSC simply ignores the Judges' detailed explanation why
this ``statutory formula''/``fee generation'' criticism lacks merit.
In sum, JSC once again asks for that improper ``second bite at the
apple'' by seeking to reargue an issue. Moreover, JSC does not even
claim that the Judges' extended discussion and findings as to this
issue were incorrect. Accordingly, this JSC point is insufficient to
justify rehearing.
5. Conclusion
Accordingly, JSC's Motion for Rehearing as to these issues is
denied.\296\
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\296\ The Judges also do not credit PTV's invitation for the
Judges to ``amend[] the Initial Determination to award [PTV] shares
for the 2015-2017 royalty years based on or adjusted upward from
either the conventional McLaughlin-adjusted Bortz Surveys or Dr.
Tyler's primary regression model . . . .'' PTV Response at 10. PTV's
representation that it would be amenable to this alternative is
little more than the statement by a party that it supports an
approach that increases its allocation. Obviously, such argument
based on naked self-interest does not support a rehearing or
amendment of the Initial Determination.
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III. PTV'S Motion for Rehearing
a. Whether ``Adjustment B'' in the Judges' Initial Determination Is
Premised on Clear Error That Must Be Corrected
The PTV Motion seeks rehearing with regard to the Judges'
application of ``Adjustment B'' in the Initial Determination, which is
a downward adjustment of the PTV shares derived from the Tyler Model
for above-Minimum Fee CSOs. This adjustment was made by the Judges to
reflect the presence of must-carry PTV signals, whose value had not
been adequately demonstrated to be included as part of the relative
marketplace value generated by regression approaches. However,
[[Page 54275]]
PTV maintains that the adjustment is incompatible with the record
evidence and amounts to an erroneous double-counting of the Judges'
intended adjustment. PTV Motion at 1.
PTV alleges that it is clearly erroneous for the Judges to derive
its shares from the Tyler above-Minimum Fee Model for the 2015-17
period and also apply a downward adjustment based on Bennett Figure 52.
PTV notes that the Tyler above-Minimum Fee Model excludes CSOs that
paid the Minimum Fee, whereas Dr. Bennett (Figure 52) carried out the
analysis applied by the Judges only based on CSOs that paid the Minimum
Fee. PTV Motion at 3.
In their Joint Response, CCG, Program Suppliers, and SDC clarify
that the Judges explained Adjustment B as weighting Dr. Bennett's
Figure 52 analysis in order to avoid the double counting that is
alleged in PTV's motion. Joint Response at 7, citing ID at 143 (note to
Adjustment B Table). The Joint Response adds that the applied
adjustment is likely a conservative one, understating the bias from
must-carry PTV signals, because must-carry signals were also
retransmitted by above-Minimum Fee cable systems. Joint Response at 7,
citing ID at 45.
Similarly, JSC's response to PTV's proposed elimination of
Adjustment B notes the Judges' recognition of the need to lower the
Tyler Model's estimates for PTV to correct the issue of fee-based
regressions falsely associating must-carry signals with additional
royalties. JSC Response at 2. JSC challenges PTV's view that excluding
Minimum Fee systems from the Tyler Model somehow accounts for must-
carry carriage within the Tyler regression. JSC argues that the Judges
were correct to conclude that all must-carry signals are being falsely
interpreted by the regressions. Furthermore, JSC observes that reliance
on the Tyler above-Minimum Fee Model without adopting Adjustment B,
would incorporate the false inferences from must-carry signals, because
the regression would ``see'' systems carrying those stations and making
royalty payments, but would not ``see'' indemnification payments made
by the PTV stations back to the CSO. Id.
CTV asserts that PTV's motion regarding Adjustment B reflects a
fundamental misunderstanding of the evidence. CTV notes that the Tyler
Model does not exclude any PTV stations that were retransmitted
pursuant to must-carry requirements. CTV Response at 3, citing Ex. 7207
(Bennett WRT) at 63-64 and 4/12/23 Tr. 4608 (Bennett); Ex. 7600 (Tyler
ACWDT) at 37, 64. And, for that reason, Dr. Bennett developed a must-
carry sensitivity analysis to measure the impact of must-carry signals
on share allocations, which is reflected in Figure 52. Id. CTV also
notes that the Judges' weighting methodology effectively decreases the
downward adjustment to PTV's share determination based on the ratio of
the PTV shares reflected in Dr. Tyler's baseline regression model,
Figure 3.2 (including all CSO royalties), and the PTV shares reflected
in Dr. Tyler's Figure 6.3 (including only above-Minimum Fee-paying CSO
royalties), as explained by the Judges note accompanying Adjustment
Table B on page 143 of the Initial Determination. Id.
PTV's Reply reiterates its initial arguments regarding Adjustment B
and argues that any weighting contained within the adjustment is also
unsupported. PTV asserts that in order for the applied weighting to be
appropriate, the proportion of Public Television value derived from
must-carry signals estimated by Dr. Bennett must have been the same
within the above-Minimum Fee CSOs as within the Minimum Fee-paying
CSOs. PTV Reply at 1-2.
PTV asserts that Dr. Bennett's analysis only examined the value of
must-carry signals carried by Minimum-Fee-paying CSOs. PTV maintains
that the values estimated by Dr. Bennett are not proportionally
distributed among Minimum Fee and above Minimum Fee CSOs. PTV argues
that that such estimates do not reflect carriage among above-Minimum
Fee CSOs, and that there is no basis for using the numbers calculated
by Dr. Bennett to attempt to estimate that value. Id. at 3.
PTV asserts that the CSOs paying more than the Minimum Fee could
have chosen to decline to carry any distant PTV signals. PTV argues
that, under the relevant must-carry regulations, for the above-Minimum
Fee CSOs, distant retransmission of a must-carry signal necessarily
incurs an incremental royalty cost. PTV notes that under those
regulations above-Minimum Fee CSOs thus have the right to demand
indemnification from the originating station for that incremental
royalty burden. If a station refuses indemnification, then the CSO is
not obligated to carry the signal under the must-carry rules.
Therefore, PTV argues, a CSO's decision to carry the signal without
indemnification necessarily demonstrates value of the programs on that
signal. PTV adds that the record indicates that no indemnification
payments were made. Id. at 4.
i. The Judges' Analysis and Conclusion Regarding PTV's Adjustment B
Rehearing Motion Arguments
The Initial Determination clearly explains the finding that must-
carry signals are problematic when fee-based regressions are used to
establish relative value, and thus require an adjustment. More
particularly, this need for adjustment exists for Dr. Tyler's
allocation share calculations pertaining only to the CSOs who paid more
than the Minimum Fee. The Tyler Model does not exclude any PTV stations
that were retransmitted pursuant to must-carry requirements. PTV
proposes to ignore the effect of must-carry signals on the Tyler Model.
PTV takes the position that the must-carry issue is addressed because
the adopted Tyler Model excluded Minimum Fee systems. But excluding
Minimum Fee systems from the Tyler Model does not account for PTV must-
carry signals that are carried by above-Minimum Fee CSOs. Therefore,
the Judges' determination on this proceeding record makes clear that
the absence of an adjustment, rather than the adjustment itself, would
more likely impose a clear error and manifest injustice.
PTV asserts that the Judges cannot apply an adjustment based on Dr.
Bennett's analysis because Dr. Bennett examined only the value of must-
carry signals carried by Minimum Fee paying CSOs. This argument does
not undermine the need for an adjustment. It simply attacks the applied
Adjustment B as supposedly having inadequate precision or basis in the
record. There is a reason that the record evidence does not provide for
greater precision, and that is the noted evidentiary failure of PTV
regarding which stations were subject to the must-carry provisions and
which were not. See ID at 47. However, the application of Adjustment B
is reasonable, and is clearly based on evidence in the record and the
Judges' assessment of the entirety of the record.\297\
---------------------------------------------------------------------------
\297\ Dr. Bennett's adjustments are based upon Mr. Harvey's
identification of stations likely carried pursuant to the must-carry
provision. See Bennett WRT at 57. Furthermore, as the Judges
observed, ``Mr. Harvey engaged in a reasonable attempt to estimate
this number, which PTV could have set forth in its submissions, but
did not.'' ID at 47.
---------------------------------------------------------------------------
Further, Adjustment B, which is properly weighted, does not amount
to an erroneous double-counting of the intended adjustment. While
employing the best evidence available to determine a necessary
adjustment, the Judges weighted the Bennett analysis, for 2015-2017,
prior to applying it to the Tyler regression allocations. This is a
reasonable approach, with sufficient
[[Page 54276]]
evidentiary support, consistent with the relevant legal requirements.
As explained in the Initial Determination:
The Must Carry adjustment in Bennett WRT fig. 52 was based on
the PTV shares of all CSO royalties, whereas the Judges are applying
this adjustment to the shares of CSO royalties attributable to
shares generated by CSOs paying above the minimum fee (subject to
the prior adjustment for CCG, discussed supra). So, for [2014], the
percentage point adjustment to the PTV share is the percentage point
adjustment in Bennett WRT Fig 52. For 2015-2017, the percentage
point adjustment to the PTV share is calculated for each year by:
(1) finding the percentage of PTV shares reflected by the PTV shares
from Tyler/WRT fig. 6.3 / PTV's shares from Tyler WRT fig. 3.2; (2)
multiplying that percentage by the percentage point adjustment in
Bennett WRT fig 52; and (3) subtracting that product from the PTV
share from the table above.
ID at 143 (note to Adjustment B Table).
The weighting described above, for 2015-2017, serves to discount
the Bennett downward adjustment by ratios derived from PTV allocations
of above-Minimum Fee CSOs divided by the PTV allocations of all CSOs.
As the Joint Response notes, these ratios and the resulting downward
adjustments are conservative in that they may tend to understate the
bias introduced by Dr. Tyler's inclusion of must-carry PTV signals,
precisely because they do not exclude must-carry signals retransmitted
by above-Minimum Fee systems. At the same time, the approach remains
based in record evidence and is a reflection of reasonable and
conservative judgments derived from the entirety of the record. The
Judges appropriately employed the thusly discounted Bennett adjustments
(derived for Minimum Fee-paying systems) when applied to the Tyler
model allocations for above-Minimum Fee CSOs.
For the reasons explained herein, and based on the entirety of the
record, PTV has not shown that an exceptional case exists, or that the
Initial Determination is erroneous in relation to Adjustment B.
Further, PTV has not demonstrated that aspects of the determination
relating to Adjustment B are without evidentiary support in the record
or are contrary to legal requirements. In that latter regard, PTV has
not shown that, with respect to the Initial Determination's application
of Adjustment B, there exists either clear error or manifest injustice
that would support granting of PTV's request for rehearing.\298\
---------------------------------------------------------------------------
\298\ PTV's Reply raises concerns regarding indemnification, in
relation to value of must-carry signals. The Judges point to section
VII.A.5. of the Initial Determination ``The Judges' Analysis &
Conclusions regarding the `Must-Carry' Issue'' and the Judges'
undisturbed and valid analysis and conclusions as to why must-carry
signals lack objective and measurable value. See Initial
Determination at 47-49.
---------------------------------------------------------------------------
b. Whether ``Adjustment C'' in the Judges' Initial Determination
Reflects a Clear Error That Must Be Corrected
The PTV Motion also seeks rehearing with regard to the Judges'
application of what the Judges identified as ``Adjustment C'' in the
Initial Determination. By this Adjustment, the Judges substantially
increased the value of certain PTV stations, and thus PTV's share of
royalties. However, PTV maintains now that the Judges should have used
``Adjustment C'' to increase its share even more. PTV Motion at 1-2.
By way of background, the Judges found in the Initial Determination
that ``the dramatic increase in the number of minimum fee-only CSOs
(i.e., those with no distant retransmittals and those with some distant
retransmittals but with `excess capacity') renders regression analyses
that include those CSOs less reliable and thus can be accorded only
very limited economic evidentiary weight.'' Initial Determination at
21. In so holding, the Judges rejected PTV's argument (proffered
through the testimony of its economic expert, Dr. John Johnson) that
the Judges should find predominant ``economic significance in the
choices of a CSO `to retransmit a distant signal to particular
subscriber groups' despite the fact that the CSO pays the minimum fee .
. . .'' Initial Determination at 13 (emphasis added) (explicitly
rejecting the argument in PTV PFF ] 58 that ``[t]he decision of a CSO
paying the minimum fee to retransmit a distant signal to particular
subscriber groups shows the CSO's preference for distantly
retransmitted programming without the effect of the statutory royalty,
which is an economic context that more closely resembles the
hypothetical marketplace.'' (citing, inter alios, at n.83 therein, Dr.
Johnson's hearing testimony)).\299\
---------------------------------------------------------------------------
\299\ The Judges also declined to rely on Dr. Johnson's analysis
(including his broad Minimum Fee and above-Minimum Fee arguments)
and PTV's case, because of certain decisions regarding
methodological approaches and decisions which the Judges found
troubling, as discussed infra.
---------------------------------------------------------------------------
In contrast with the Judges' misgivings as to Dr. Johnson's
regression testimony, they agreed with his argument that, ceteris
paribus, the record contained sufficient evidence to increase PTV's
allocation. In this regard, the Judges found that--although certain PTV
stations were only retransmitted by Minimum Fee-paying CSOs--these CSOs
had previously retransmitted PTV stations when such retransmissions had
been combined with retransmissions of WGNA, the most retransmitted
local station, thereby triggering a CSO royalty obligation above the
Minimum Fee. As Dr. Johnson testified, there was evidence that CSOs'
immediately prior retransmissions of PTV stations that triggered an
incremental royalty cost revealed an incremental value in those
retransmissions and that it was reasonable to conclude that the PTV
stations continued to have incremental value when they were uncoupled
from WGNA (and thus generated only the Minimum Fee). PTV made this
specific argument in its post-hearing PFF and post-hearing brief. See
PTV PFF ] 60 (and record citations therein); PTV Post-Hearing Brief at
27-28. The Judges were persuaded that this WGNA-related evidence
reflected ``ongoing marketplace value,'' notwithstanding the general
principle that Minimum Fee royalty payments did not otherwise disclose
actual economic decision making or reveal the preferences of CSOs.
Initial Determination at 143-144.
To calculate PTV's upward adjustment based on this point, the
Judges identified evidence and testimony proffered by a JSC statistical
expert, Mr. R. Garrison Harvey. Mr. Harvey testified as follows:
``[T]he number of PTV Only systems increased after the WGNA conversion
from 44 at the end of 2014 to 173 by the end of 2017. PTV Only Systems
that had carried WGNA and PTV in 2014 account for three-fifths of that
increase.'' Harvey WDT ] 106.
The Judges found that that Mr. Harvey demonstrated that 44% of the
PTV stations that were identified as retransmitted by Minimum Fee-
paying CSOs after the WGNA conversion had been transmitted pre-
conversion and generated Base Fee royalties. That is sufficient
evidence of ongoing marketplace value. Moreover, Mr. Harvey supported
this testimony with reference to specific data, citing to his
underlying workpapers, which were not called into question or
contradicted at the hearing. Harvey WDT ] 106 n.86. Accordingly, the
Judges used that factual finding to increase by 44% the PTV share
modification, as set forth in the table for Adjustment C. Initial
Determination at 144.
This adjustment substantially increased PTV's allocation of the
royalties. Compare Adjustment B Table with Adjustment C Table, Initial
Determination at 143-144. The PTV Motion does not challenge the
accuracy
[[Page 54277]]
or the credibility of this evidence or Mr. Harvey's testimony in this
regard.
But PTV maintains that other testimony indicates that this
increased adjustment was insufficient. In this regard, PTV avers that
the Judges erred by limiting their adjustment to evidence concerning
the specific combination of Public Television signals with WGNA. That
is, PTV claims that testimony it had proffered showed that PTV's upward
adjustment should have been 55% rather than 44%. PTV Motion at 5.
In support of this argument, PTV points to a single one-paragraph
statement in Dr. Johnson's Written Rebuttal Testimony, wherein he
claimed, without identifying any underlying workpapers or other
evidence:
There were 1,115 CSO-Public Television distant signal
combinations in the 2015-2017 period where the CSO paid a minimum
fee during those years. For 609 (or 55 percent) of these
combinations, the same CSO also carried the same Public Television
distant signal, at a different point in time, when it paid section
111 royalties greater than the minimum fee. In those instances, the
CSOs elected to pay incremental royalties for these signals (because
they generated more than one DSE). Put differently, the CSOs'
carriage decisions indicate that these Public Television signals did
have value.
PTV Motion at 6 (quoting Ex. 7303 ] 79 (Johnson WRT)) (emphasis
added).\300\
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\300\ In their Motion, PTV also cites to Johnson WRT ]] 76-78 as
attribution for this quote. PTV Motion at 6. However, no portion of
the quote is contained in those paragraphs, and none of those
paragraphs support this rehearing argument. Moreover, paragraph 78
sets forth as an example a PTV station that had been retransmitted
by an Arizona CSO together with WGNA and continued to be
retransmitted after WGNA was no longer a broadcast station that
could be distantly retransmitted. This example supports the Judges'
increase in PTV's share for the reason set forth in Adjustment C in
the Initial Determination, and in no way supports PTV's rehearing
argument for a more lucrative adjustment.
---------------------------------------------------------------------------
PTV also maintains that Mr. Harvey's testimony, quoted above,
refers to the number of CSOs (systems) that continued to retransmit PTV
stations after WGNA was unavailable, rather than the number of PTV
stations retransmitted after the WGNA conversion. PTV Motion at 5 n.4.
On these bases, PTV invokes two aspects of the standard for
rehearing. Specifically, PTV contends that ``the Judges' `Adjustment C'
reflects a clear error that must be corrected to prevent manifest
injustice.'' PTV Motion at 5 (emphasis added).
In their Joint Response, CCG, Program Suppliers, and SDC assert
that PTV's argument regarding this rehearing issue, like the others,
fails to satisfy the requisites for granting a rehearing, particularly
the assertions of ``clear error'' and ``manifest injustice'' levied by
PTV with regard to ``Adjustment C.'' Joint Response at 1-3. More
particularly, these parties assert that:
1. The WGNA conversion was a ``supply-side phenomenon''
inapplicable to PTV + non-WGNA commercial station combinations.
2. Record evidence suggests that CSOs retransmitting PTV
stations may have been indemnified by the latter for any royalties
paid above the Minimum Fee.
3. PTV acknowledges that it presented these very facts and
arguments at the hearing (citing PTV Motion at 6), and PTV's failure
to persuade the Judges to apply these facts and adopt this argument
at the hearing preclude PTV from using the rehearing process to get
a ``second bite at the apple.'' (citing 2010-2013 Rehearing Order at
2.).
Joint Response at 4, 7-8.
In its Reply to the Joint Response, PTV argues:
1. The Joint Response wrongly concludes, without explanation,
that the issues relating to, inter alia, Adjustment C, ``could have
been `address[ed] . . . during the hearing' '', despite the fact
that ``it was impossible to anticipate that the Judges would apply
[inter alia] their Adjustment[ ] C to Dr. Tyler's sensitivity
limited to Above Minimum Fee CSOs.'' Thus, PTV maintains, the
rehearing process constituted the first occasion for it to litigate
this issue, and the rehearing motion thus is not an impermissible
attempt to ``re-litigate'' a matter considered at the hearing. PTV
Reply at 1-2.
2. The Joint Response wrongly maintains that the Judges acted
``well within their discretion by limiting Adjustment C to ``PTV +
WGNA'' combinations, because the Judges did not account for their
differentiation of ``PTV + non-WGNA combinations that also generated
a base fee royalty . . . .'' PTV Reply at 10-11 (quoting 17 U.S.C.
803(c)(3) (``A determination of the Copyright Royalty Judges shall
be supported by the written record and shall set forth the findings
of fact relied on by the Copyright Royalty Judges.''). PTV Reply at
10.
In its separate response, JSC argues that PTV's request for
rehearing regarding ``Adjustment C'' should be denied because:
1. Any initial royalty obligation for the CSO above the Minimum
Fee is subject to offset via indemnification; \301\
---------------------------------------------------------------------------
\301\ This argument echoes the argument made in the Joint
Response, as noted supra.
---------------------------------------------------------------------------
2. Adjustment C ``fails to account for the must-carry issue,''
an issue which uncouples continuing carriage of PTV signals after
2014 from any finding of ``CSO's revealed willingness to pay for
those signals;''
3. More broadly, Adjustment C wrongly relies on data from
Minimum Fee-only CSOs; and
4. Adjustment C treats similarly situated parties differently
because some Minimum Fee-only CSOs in 2017 also carried commercial
signals that ``generated base fee royalties'' in 2014.
JSC Response at 4-7.
In its Reply to the JSC Response, PTV argues:
1. JSC's criticism of Adjustment C as arbitrary is wrong,
because this adjustment is ``necessary to mitigate the unreasonably
low estimates of [PTV's] shares'' as set forth in the Tyler Model's
analysis of only ``Above Minimum Fee CSOs.'' PTV Reply at 6.
2. JSC's criticism of Adjustment C for supposedly treating
different parties differently is an incorrect criticism because the
Judges explained that the ``Above Minimum Fee-Only'' version of the
Tyler Model disproportionately ignored circumstantial evidence
demonstrating post-2014 PTV value through the continuation of PTV
retransmittals in that period after the retransmittal of a
combination of ``WGNA + PTV'' signals became moot (with the WGNA
conversion to a cable system). By contrast, no other program
category suffered from a similar loss of share value because of the
WGNA conversion. PTV Reply at 9-10.
In its separate response to the PTV Motion, CTV maintains that
there is no basis to find that the Judges' adoption of Adjustment C was
incorrect or incomplete--let alone ``clearly erroneous'' or that it
caused PTV ``manifest injustice''. CTV Response at 5-6. In support, CTV
argues the following points:
1. PTV wrongly asserts that the Judges committed clear error in
the way they applied Adjustment C to the share allocations, because
the Judges articulated in the Initial Determination a proper
rationale for applying Adjustment C; and
2. The Judges were within their authority to adopt Mr. Harvey's
record testimony and evidence, rather than Dr. Johnson's record
testimony, to calculate Adjustment C, particularly because
Adjustment C focused on PTV's specific argument ``regarding
demonstrated willingness to pay'' by CSOs for a PTV signal after the
WGNA conversion.
CTV Response at 2, 5-6.
In Reply to the CTV Response, PTV maintains:
1. Instead of offering a substantive argument, CTV incorrectly
argues that, as a matter of law, the Judges may adopt whichever
percentage (Mr. Harvey's or Dr. Johnson's) they deem ``most
appropriate''; and
2. The Judges do not have such discretion; rather, their
findings ``may not be arbitrary[,] must be supported by substantial
evidence'' and shall be the product of a ``reasoned decision.''
PTV Reply at 10.
[[Page 54278]]
i. The Judges' Analysis and Conclusion Regarding PTV's Adjustment C
Rehearing Motion Arguments
1. Application of the Rehearing Bases on Which PTV Relies for
Adjustment C: ``Manifest Injustice'' and ``Clear Error''
a. PTV Has Not Satisfied the ``Manifest Injustice'' Standard
As an initial matter, the Judges find that--for several reasons--
PTV's basis for a requested rehearing regarding the Adjustment C issue
fails to satisfy the ``manifest injustice'' standard. First, the Judges
agree with the Joint Respondents that the concept of ``manifest
injustice'' is ``exceptionally narrow,'' requiring a showing of not
only ``clear and certain prejudice'' to the movant, but also a harm to
the movant that is ``fundamentally unfair.'' Joint Response at 3
(citing Leidos, Inc. v. Hellenic Republic, 881 F.3d 213, 217 (D.C. Cir.
2018); Mohammadi v. Islamic Republic of Iran, 947 F.Supp.2d 48, 78
(D.D.C. 2013). Here, PTV maintains that even though the Judges
recognized that their primary regression model (the Tyler Model for
above-Minimum Fee CSOs) failed to adequately reflect a revealed
preference for PTV signals--and accordingly increased PTV's share
substantially--other evidence indicated that the PTV share should have
been increased even more. The Judges detect neither ``fundamental
unfairness'' nor ``prejudice'' (let alone ``clear and certain
prejudice'') arising from the fact that PTV's increase was not as great
under the evidence relied upon by the Judges (44%, pursuant to Mr.
Harvey's calculations) as it would have been had the Judges instead
relied on PTV's witness, Dr. Johnson.
In applying the above D.C. Circuit test for ``manifest injustice,''
a district court noted that ``a dollar-and-cents comparison'' serves to
``undercut[ ] the significance of the ``manifest injustice standard.''
Fraenkel v. Islamic Republic of Iran, 326 FRD. 341, 345 (D.D.C. 2018),
rev'd on other grounds 892 F.3d 348 (D.C. Cir.). (abuse of discretion
in applying a statute).\302\ The Judges agree, especially where, as
here, the movant is complaining of ``manifest injustice'' because a
substantial upward adjustment in its favor should have been even
greater.\303\
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\302\ The D.C. Circuit reversed because the district court
misconstrued a statute by finding that relatives of a person with
American citizenship murdered by terrorists should be lower if the
murder victim had dual Israeli citizenship and was targeted for
death because of his latter citizenship. Fraenkel, 892 F.3d 348
(D.C. Cir. 2018). That holding is clearly not analogous to the
present issue of ``manifest injustice.''
\303\ PTV's reliance on the Judges' order on rehearing in SDARS
III is misplaced. There, the Judges found that ``it would be
manifestly unjust to maintain a royalty rate . . . not based on the
. . . calculation that prevailed at the time the record was
closed,'' and the alternative methodology could change the royalty
obligation by $150 million. SDARS III Order at 7-8. The Judges'
reference to the potential royalty dollars at issue, standing alone,
was not the dispositive basis for finding potential manifest
injustice; rather manifest injustice would be the consequence of the
use of a calculation methodology not prevailing according to the
extant record. The reference to the $150 million disparity
underscored the importance of the manifest injustice of using an
improper methodology. By contrast, in the present case, the
differing methodologies for calculating PTV's upward adjustment (Mr.
Harvey's or Dr. Johnson's) both are in the record, and they are
discussed infra.
---------------------------------------------------------------------------
With regard to a specific point made by JSC, the Judges reject
JSC's argument for eliminating Adjustment C en toto on the basis that
this adjustment is itself erroneous because it purportedly treats
similarly situated parties differently. JSC Response at 6-7. Although
the Judges address this argument, and the opposition thereto, in the
section of this order denying JSC's Motion seeking to eliminate
Adjustment C en toto, the Judges here take specific note of an
important concession by JSC in its Response. Although JSC claims that
categories of programming other than PTV might have benefitted from the
same pre- and post-WGNA conversion analysis of CSO retransmissions, JSC
concedes, in a footnote, that, no witness, including its witness, Mr.
Harvey, ``analyze[d] whether these CSOs were carrying the same non-WGNA
signals in 2017 as they were in 2014.'' JSC Response at 7 n.2. So, not
only did no party other than PTV make the argument that this analysis
might favor its particular programming, the evidence cited does not
permit an allocation among other program categories based on this
argument.
b. PTV Has Not Satisfied the ``Clear Error'' Standard
Pursuant to the Judges' rules, the statutory ``exceptional case''
requirement for rehearing--based on an allegedly ``erroneous'' factual
aspect of a determination--is satisfied only if that factual finding is
``without evidentiary support in the record.'' 17 U.S.C. 803(c)(2); 37
CFR 353.1-.2; see also Order Denying Motion for Rehearing at 1, In re
Distribution of 2000-03 Cable Royalty Funds, Docket No. 2008-02 CRB CD
2000-2003 (Phase II), (Aug. 7, 2013). Further, pursuant to D.C. Circuit
precedent, when the movant's asserted factual predicate for the
assertion of ``clear error'' relies on the uncredited testimony of its
expert, a Rule 59(e) motion \304\ must be denied if the expert's
testimony does not provide sufficient ``factual . . . reasons for [the
expert's] conclusion.'' Martin v. Omni Hotels Mgmt. Corp., 321 FRD. 35,
40 (D.D.C. 2017) (citing New York State Ophthalmological Soc. v. Bowen,
854 F.2d 1379, 1391 (D.C. Cir. 1988)), aff'd, 409 F. A'ppx 362 (D.C.
Cir. 2011).
---------------------------------------------------------------------------
\304\ As noted supra, the Judges pattern their rehearing
analysis pursuant to the standards applicable to motions under Fed.
R. Civ. P. 59(e).
---------------------------------------------------------------------------
Moreover, a request for rehearing based on a judge's reliance on a
``specific factual determination[ ]'' does not satisfy the ``clear
error'' test if (1) the evidence which the motion challenges is
``sufficiently reliable to credit'' or (2) if the evidence on which the
movant relies is inconsistent with ``the entire evidence,'' and thus
the court is ``left with the definite and firm conviction that a
mistake has been committed.'' Obaydullah v. Obama, 688 F.3d 784, 792
(D.C. Cir. 2012) (emphasis added).
Applying these standards, PTV's motion for rehearing with regard to
Adjustment C must be denied. First, the Judges' Adjustment C is based
on evidence in the record, i.e., the testimony of JSC's statistical
expert witness, Mr. Harvey, and the documentation on which he relied.
Moreover, this testimony and evidence was not challenged, either at the
hearing or on rehearing. On this basis alone PTV's motion for rehearing
fails to demonstrate any error, let alone clear error.
Second, PTV relies upon the testimony of its own economic expert,
Dr. Johnson, which PTV maintains is superior to the testimony of Mr.
Harvey on this issue. However, this argument fails the second ``clear
error'' standard cited above, because Dr. Johnson's testimony, on which
PTV relies to seek, via rehearing, a 55% Adjustment C increase in its
royalty share (instead of the 44% Adjustment C increase provided by the
Judges) does not provide sufficient factual reasons for his conclusion.
Specifically, Dr. Johnson's opinion regarding the 55% increase sought
by PTV is not supported by any record evidence cited by PTV. See PTV
Rehearing Motion at 6; Johnson WRT ] 79.\305\
---------------------------------------------------------------------------
\305\ Although PTV also cites to Johnson WRT ]] 76-78, which are
irrelevant as to the Adjustment C rehearing issue, the Judges note
that those paragraphs likewise do not cite to or provide any
documentary support for Dr. Johnson's opinion. (By contrast, Mr.
Harvey's testimony, on which the Judges relied, was supported by
documentary evidence, in the form of Mr. Harvey's cited workpapers.
Harvey WDT ] 106 n.86. Moreover, Mr. Harvey's testimony was not
subject to challenges that the Judges found sufficient to call into
question his testimony, unlike the case with Dr. Johnson's
testimony, as discussed in the text immediately following this
footnote.)
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[[Page 54279]]
Additionally, PTV does not maintain that Mr. Harvey's analysis that
led to the Judges' 44% upward adjustment in favor of PTV was erroneous;
rather PTV argues that it is Dr. Johnson's opinion which would favor a
55% adjustment which ``best comports'' with the Initial Determination.
PTV Motion at 10. However, the Judges' exercise of their discretion in
deciding which of two (or more) alternative factual approaches to
follow cannot constitute ``clear error'' (or any error at all) when the
party seeking rehearing itself simply maintains merely that its
preference is better. Moreover, for the reasons articulated below, the
Judges had good cause to rely on Mr. Harvey's testimony over that of
Dr. Johnson.
2. PTV's Claims of ``Manifest Injustice'' and ``Clear Error'' Also Fail
Because PTV Is Seeking To Relitigate an Issue Raised and Determined in
the Initial Determination
As the Judges have noted previously, a motion seeking rehearing
based on, inter alia, assertions of ``manifest injustice'' or ``clear
error,'' shall be rejected if the movant has ``merely restate[d] . . .
evidence that was presented during the proceeding.'' Order Denying
Motions for Rehearing at 2, In re Digital Performance Right in Sound
Recordings and Ephemeral Recordings, Docket No. 2005-1 CRB DTRA
(Webcasting II) (Apr. 16, 2007). It is in such context that the movant
seeks rehearing--over an issue that was raised and determined in the
Initial Determination. This principle has been aptly described by the
Judges, and other tribunals, as an improper attempt to seek ``a second
bite at the apple'':
[When] the Judges consider whether there exists . . . a need to
correct a clear error or prevent manifest injustice[ ] . . . the
Judges must subject the rehearing arguments to a strict standard, in
order ``to dissuade repetitive arguments on issues that have already
been fully considered . . . .'' Order Denying Motions for Reh'g,
Docket No. 2005-1 CRB DTRA, at 1-2 (Apr. 16, 2007). Under this
strict standard, a rehearing motion does not provide a litigant with
a ``second bite at the apple,'' allowing it ``to re-litigate old
matters, or to raise arguments or present evidence that could have
been raised prior to the entry of judgment.'' Exxon Shipping Co. v.
Baker, 554 U.S. 471, 485 n.5 (2008) (quoting C. Wright & A. Miller,
Federal Practice and Procedure Sec. 2810.1 (2d ed. 1995)).
Order Denying Program Suppliers' Motion for Rehearing . . . at 1,
Distribution of Cable Royalty Funds, Consolidated Proceeding Docket No.
14-CRB-0010-CD (2010-13) (Dec. 13, 2018).
Here, PTV is seeking the metaphorical ``second bite at the apple.''
In this regard, it has not escaped the Judges' notice that PTV does not
meaningfully attempt to counter the ``second bite'' problem--but rather
simply avoids it. Perhaps that is because the Judges explicitly did
take note in the Initial Determination that Dr. Johnson had made this
precise claim. See Initial Determination at 13-14 (citing and quoting
Johnson WRT ] 79). Clearly, PTV's rehearing argument regarding
Adjustment C is--to say the least--complicated by the fact that the
Judges were fully aware of Dr. Johnson's relevant testimony--yet did
not adopt that testimony in the Initial Determination.\306\
---------------------------------------------------------------------------
\306\ The Judges recalled Dr. Johnson's testimony in this
regard, even though it was not set forth expressly in PTV's Proposed
Findings of Fact or Conclusions of Law (or PTV's replies to other
parties' post-hearing submissions). In fact, in both of its post-
hearing filings regarding proposed factual findings, PTV only
expressly referenced this issue in connection with CSOs
retransmitting PTV + WGNA, and failed to argue for the wider
application it now seeks via rehearing. See PTV PFF ]] 60, 126; PTV
RPFF 136 & n.188. That failure on PTV's part alone would have
sufficed for the Judges to have disregarded PTV's argument. See 37
CFR 351.14 (``A party waives any objection to a provision in the
determination unless the provision conflicts with a proposed finding
of fact or conclusion of law filed by the party.''). Although PTV
claims that ``it was impossible to anticipate that the Judges would
apply their Adjustment[ ] . . . C to Dr. Tyler's sensitivity limited
to Above Minimum Fee CSOs,'' PTV Reply at 1, a crucial theme of Dr.
Johnson's testimony was that the Minimum Fee data should have been
used en toto to establish value. Thus, it was incumbent upon PTV to
make this point by including it explicitly in its post-hearing
submission.
But nonetheless the Judges, sua sponte, recalled, referenced,
and quoted testimony as to this issue, rather than deem PTV's upward
adjustment argument to have been waived. However, the Judges did
decline to credit Dr. Johnson's testimony (as discussed in the
following text), adopting instead the substantial 44% upward
adjustment indicated by the testimony of JSC's statistical expert,
Mr. Harvey. PTV's argument strikes the Judges as a fine example of
chutzpah, or as Joint Respondents' put it, ``looking a gift horse in
the mouth,'' by characterizing only a 44% upward adjustment as
``manifest injustice'' and ``clear error.'' See Joint Response at 7.
In this vein, PTV also takes issue (when assuming arguendo the
correctness of Mr. Harvey's analysis) with the Judges setting of
PTV's Adjustment C share percentage increase by 44%, rather than
setting the adjustment at 44.5%. PTV Motion at 5 n.4. The Judges
disagree with PTV's argument as to this issue. An agency has the
discretion to truncate a value expressed in decimal form. See North
Carolina v. E.P.A., 531 F.3d 896, 915-916 (D.C. Cir. 2008 (``[W]e
cannot say that EPA's decision to truncate rather than round . . .
was arbitrary. . . . Without a rule mandating any particular method,
EPA is free to round or truncate the numbers it is comparing . . .
as long as its choice is reasonable.''). Here, there was no
regulation guiding the Judges. Moreover, given the uncertainties
generated by PTV's failures, as discussed elsewhere in this order,
to proffer sufficiently credible evidence and to meet its
evidentiary burdens regarding which PTV signals among the CSO
systems were must-carry, multicast or subject to royalty
indemnification--truncating the percentage to 44% continues to
strike the Judges as a reasonable decision, and certainly not one
that generated ``manifest injustice'' or ``clear error,'' as those
standards are described in this order. (It should be noted that PTV
has not argued on rehearing that the Judges should have rounded the
percentage increase to 45%, rather than truncate the increase to
44%, nor did PTV argue that the Judges are bound by a mathematical
convention to do so.)
---------------------------------------------------------------------------
As made clear in the Initial Determination, the Judges had
substantial problems with regard to Dr. Johnson's testimony and
analyses, which should have made obvious their unwillingness to credit
his testimony on which PTV relies for its objection that the Judges'
44% Adjustment C in favor of PTV is too low. To make this point
explicit, the Judges recount their difficulties in connection with Dr.
Johnson's hearing testimony, as expressed in the Initial Determination.
First, the Judges were troubled by Dr. Johnson's reliance on the
modeling of a witness in a prior proceeding because the testimony and
modeling of that witness had been called into serious question. Initial
Determination at 36.\307\ Second, and relatedly, the Judges were
stunned when Dr. Johnson claimed at the hearing that he had ``never
received'' the satellite case documents calling into question the
modeling and testimony on which Dr. Johnson had relied, which SDC's
counsel had produced (as voluntary discovery) to PTV's counsel (and to
all counsel).\308\ Third, and also relatedly, PTV's counsel never
volunteered whether it had in fact transmitted that important discovery
to Dr. Johnson, or whether PTV's counsel had (intentionally or
otherwise) not transmitted that material. Initial Determination at 36
n.39. Thus, the Judges were unable to determine whether the failure to
consider and address this important evidence was the fault of Dr.
Johnson, PTV's counsel, or
[[Page 54280]]
both. For these three related reasons, the Judges gave ``diminished
weight'' to Dr. Johnson's testimony. Id. at 38.
---------------------------------------------------------------------------
\307\ To recount, these materials revealed ``compelling''
evidence of ``potential specification searching and [of]
dissembling'' by the expert econometric witness on whose testimony
the Judges had relied in the 2010-13 cable allocation proceeding
(before serious questions were raised in the companion satellite
proceeding). Initial Determination at 33. That prior testimony and
modeling served as a starting point for Dr. Johnson's econometric
work in the present proceeding. Id. at 27. The Judges thus found in
this proceeding that, inter alios, Dr. Johnson--in order to support
his testimony--was ``obligated,'' yet failed, ``to adequately
address the impact of Dr. Crawford's workpapers, as well as the
assertion that they demonstrated he lied in his testimony in the
prior proceeding.''); Id. at 36.
\308\ Id. (``[S]tartlingly, Dr. Johnson testified that he never
received the satellite case documents that SDC's counsel produced to
PTV's counsel . . . or the [relevant] testimony . . . [from] the
satellite proceeding that was designated as evidence [in the present
proceeding . . . .'']).
---------------------------------------------------------------------------
Fourth, as explained in the Initial Determination, the Judges were
also ``troubled'' that PTV appeared to have created two different
``teams'' within Dr. Johnson's firm, Edgeworth Economics
(``Edgeworth''), in order to allow Edgeworth to use a so-called
``consulting team'' which excluded Dr. Johnson, in order for PTV to
provide him with deniability about specification searching and to
withhold discovery of such dubious activity.\309\ More particularly,
the Judges explained that, ``when the `consulting team' is created
within[ ] the same firm of economists who are also preparing testimony
and actually testifying, there is the risk that work by the
`consulting' team will be utilized as a screening device for work that
should have been undertaken by the `testifying' team . . . [and] the
use of a `consulting' team can allow a party to also cloak from
discovery expert work by claiming the protection of the work-product
rule.'' Id. In this regard, the Judges took particular note that
---------------------------------------------------------------------------
\309\ A bona fide ```consulting team' of experts can be utilized
by a party's law firm, to allow for work product confidentiality in
connection with the law firm's evaluation of the facts.'' Initial
Determination at 38.
an email that was withheld from Dr. Johnson as ``consulting'' team
material contained a link to CDC distant signals with the caveat:
``these data files are being shared for consulting purposes only and
should not be shared with John''). It is difficult to fathom why raw
data regarding distant signals would be withheld from the testifying
---------------------------------------------------------------------------
expert.
Initial Determination at 39 n.43.
Additional detailed facts only further undermined the credibility
of PTV and Dr. Johnson:
Moreover, the soundness of the ``wall'' between the
``consulting'' team and the ``testifying'' team was questionable,
given that the ``consulting'' team was led by Drs. Michael Kheyfets
and David Colino, but they also were the senior members of the
``testifying'' team that reported to Dr. Johnson, along with dual
team members Dr. Stephanie Cheng and Esther Yan. . . . . .
Additionally, when PTV first produced documents to SDC, it did not
also provide a privilege log describing the Edgeworth documents
otherwise withheld because of an assertion of a privilege relating
to a consulting team. (After SDC'[s] motion to compel, PTV provided
a privilege log, but, after [ordered to produce the documents,] PTV
produced virtually all of the previously withheld material.)
Initial Determination at 39. The Judges thus determined that not only
was there evidence that PTV attempted to avoid discovery of its alleged
specification searching, but that this attempted concealment ``serves
to diminish the Judges' reliance on the Johnson Model . . . .'' Id.
Fifth, when evaluating the substance of the work undertaken by Dr.
Johnson, the Judges were further concerned by the absence of ``any
sufficient basis in the record to explain [the] correlation between
sequential regression runs and the growth of PTV's allocation share,''
and PTV's failure to present a ``sufficient basis to rebut SDC's charge
that data changes should not consistently be correlated with the growth
of PTV's share allocation, as opposed to a randomized effect on share
percentages.'' Id. Thus, the Judges agreed with SDC's economic expert,
Dr. Daniel Rubinfeld, finding that Dr. Johnson's work demonstrated ``an
appearance . . . of practices that ran counter to sound empirical
research practice . . . .'' Initial Determination at 39-40. For these
reasons alone, the Judges decided to ``give reduced weight'' to the
work undertaken by Dr. Johnson on behalf of PTV. Initial Determination
at 40.
Sixth, the Judges were frustrated by PTV's failure to produce
important evidence with regard to another issue. Although PTV claimed
royalties for multicast programming and must-carry stations, PTV failed
to produce sufficient proof in that regard.\310\ As the Initial
Determination explains:
---------------------------------------------------------------------------
\310\ ``Must Carry'' stations were those PTV stations which CSOs
were legally obligated to transmit, potentially belying any
assertion that the value of such stations was demonstrated by their
carriage. See Initial Determination at 47-49; see also id. at 40,
42-43.
[T]here was evidence available to be produced by PTV, namely the
PBS-NCTA agreement as well as the number of entities it represents
that would provide significant marketplace evidence . . . . But . .
. PTV did not produce either this agreement or the number of
entities bound by it as evidence, although its own expert witness
testified as to some of the agreement's contents.
Thus, the Judges were deprived of full knowledge of the terms of
the agreement, the parties' fulsome testimony as to the meaning of
its provisions and the number of entities signing on to the
agreement. Moreover, PTV opposed the admission of that agreement
into evidence. . . . Accordingly, the Judges . . . find that PTV
bore, but failed to discharge, the burdens of production and
persuasion with regard to the details of the agreement and the
extent of its coverage.
Initial Determination at 53.
Regarding the ``Must Carry'' issue, PTV's failure to carry its
burdens of production and persuasion are especially instructive,
because they are juxtaposed against the testimony of Mr. Harvey, as in
the rehearing issue pertaining to Adjustment C. Mr. Harvey identified
15.5% of PTV distant signals as having been retransmitted in compliance
with these must-carry rules. Initial Determination at 40. But, as the
Judges noted, ``PTV takes issue with the entirety of Mr. Harvey's
approach to designating `must-carry' stations.'' Id. The Judges
rejected PTV's argument, chastising PTV for failing to satisfy its
burden of proof to provide affirmative evidence and for instead
attempting to cast doubt on Mr. Harvey's otherwise credible testimony
and analysis. As the Initial Determination states:
The Judges agree with JSC and CTV, based on the case law cited
by JSC, that PTV, whose clients include the public television
stations that are in fact subject to must-carry requirements, bore
the twin burdens of proof--the burden of producing evidence and the
burden of persuasion--regarding which stations were subject to the
must-carry provisions and which were not. Further, because PTV is
seeking a determination including must-carry station data in the
regression, those burdens are apportioned to PTV as a matter of
statute. See 5 U.S.C. 556(d).
But rather than produce such evidence or prove its significance,
PTV elected to attack Mr. Harvey's attempt to estimate the number of
must-carry stations. Those attacks are insufficient. . . . Mr.
Harvey engaged in a reasonable attempt to estimate this number,
which PTV could have set forth in its submissions, but did not.
Initial Determination at 47 (emphases in original).\311\
---------------------------------------------------------------------------
\311\ PTV also questions the use of Mr. Harvey's analysis
because it identifies the number of ``systems'' (i.e., CSOs) that
continued to retransmit a PTV signal after the WGNA conversion,
rather than the total number of PTV stations retransmitted by these
CSOs. PTV Motion at 5 n.4. The Judges do not agree with this
criticism. Recall the problems (discussed supra) related to PTV's
failure to meet its evidentiary burdens related to ``must carry''
and multicast signals, as well as to indemnified transmissions. The
Judges find it prudent to rely on Mr. Harvey's ``system''
calculation, which is equivalent to establishing one PTV signal per
CSO as retaining in the 2015-2017 post-WGNA era its pre-2014 value,
as evidenced by its above-Minimum Fee carriage in that year.
Utilizing PTV's per station approach would require the Judges to
assume that the retransmission of all PTV stations in 2015-2017 were
generating royalties, regardless of whether they were ``must carry''
or multicast signals, or whether they were subject to
indemnification of any royalties due. As noted supra, the Judges
declined to adopt PTV's arguments regarding the number or percent of
``must carry'' stations (for which no net royalty obligation
exists), because of PTV's failure to meet its evidentiary burdens in
those regards (a point unaddressed in the PTV Motion). As the D.C.
Circuit has noted, the daunting factual nature of the statutory task
of allocating royalties necessitates a measure of ``rough justice,''
which the Judges find to be well-administered as to this issue by
making allocation decisions dependent in part on whether a party had
met its evidentiary burden. See Initial Determination at 9 (and
citations therein).
---------------------------------------------------------------------------
Seventh, and finally, as noted at the outset of this discussion of
PTV's rehearing request vis-[agrave]-vis Adjustment C, Dr. Johnson's
rebuttal testimony on
[[Page 54281]]
which PTV relies does not include a reference to documentation on which
he relied to support that testimony. The Judges are hesitant (to say
the least) to grant rehearing based upon an expert's testimony when the
party relying on that testimony fails to cite to any underlying
documentation of factual analysis or support for that opinion.
Moreover, when the Judges consider the absence of such documentation in
the cumulative context of the assorted problems with PTV's failures to
meet its evidentiary burdens and Dr. Johnson's lack of knowledge of
critical facts and evidence (as cataloged supra), their reluctance to
grant the ``exceptional'' section 803 relief of rehearing is
reinforced.
The foregoing analysis makes it clear that the Judges had--and
continue to have--serious questions regarding the credibility,
reliability, and sufficiency of the evidence and testimony put forth by
PTV and Dr. Johnson. Each of the Judges' findings and conclusions in
these multiple areas is sufficient grounds for the Judges' election to
rely on the testimony and evidence provided by JSC's expert
statistician, Mr. Harvey, rather than PTV's Dr. Johnson, regarding the
basis for, and size of, Adjustment C. Moreover, when the foregoing
seven points calling into question the testimony of Dr. Johnson and
PTV's position are considered as a whole, the Judges' decision to rely
on Mr. Harvey's testimony instead of that of Dr. Johnson, most
certainly did not constitute an error, let alone clear error that could
serve as a basis for rehearing.
For these reasons, the Judges agree with the Joint Respondents that
the Judges acted within their discretion in making Adjustment C as set
forth in the Initial Determination.\312\ \313\
---------------------------------------------------------------------------
\312\ PTV appears to implicitly argue that the ``second bite at
the apple'' argument is not applicable because it did not know that
the Judges would apply Dr. Johnson's opinion in favor of applying
the Minimum Fee royalty data as an adjustment (Adjustment C). PTV
Motion at 1 (arguing it was ``impossible to anticipate that the
Judges would apply their Adjustment[ ] C to Dr. Tyler's sensitivity
limited to Above Minimum Fee CSOs.''). This argument is meritless.
PTV argued emphatically for the Judges to utilize Minimum Fee
royalty data to establish program values and allocation shares in
this proceeding. The Judges did use Minimum Fee evidence in making
Adjustment C in PTV's favor--just not the Minimum Fee evidence that
PTV prefers, nor as extensively as PTV had sought. As noted supra,
the D.C. Circuit has held, the Judges are ``not . . . strictly
limited to choosing from among the proposals set forth by the
parties'' and, like all agencies, ``have the authority to modify
proposals set forth by the parties, or to suggest models of their
own.'' Johnson v. Copyright Royalty Bd., 969 F.3d 363, 381-82 (D.C.
Cir. 2020). See also SoundExchange, Inc. v. Copyright Royalty Bd.,
904 F.3d 41, 50-51, 57 (D.C. Cir. 2018) (upholding the Judges'
decision to modify a party's proposed rates in light of the Judges'
application of the relevant statute); Ass'n of American Publishers,
Inc. v. Governors of USPS, 485 F.2d 768, 773 (D.C. Cir. 1973) (when
a rate-setting agency partially disregards two experts in connection
with ``suggested adjustments . . . [the] rate-making body may
fashion its own adjustments within reasonable limits.'').
\313\ The Joint Respondents' argument that the PTV Motion as it
relates to Adjustment C should be denied because the analysis of
WGNA + PTV transmissions is a ``supply-side'' scenario and thus
differentiated from PTV pairing with other signals is moot in light
of this order.
---------------------------------------------------------------------------
IV. Correction of Typographical and Arithmetic Errors
The PTV Motion noted errors in the Adjustment B Table for 2014,
observing that ``typographical errors result in total 2014 shares that
do not equal 100%.'' PTV Motion at 4 n.2. PTV argued that, in order to
correct the 2014 shares, ``Program Suppliers' share should be changed
from 28.8% to 26.8%, JSC's share should be changed from 37.5% to
37.48%, and CTV's share should be changed from 11.39% to 11.38%.''
Id.\314\
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\314\ When computing the allocation shares in the adjustment
tables, the Judges necessarily rounded figures. When such rounding
was applied it was done consistently across parties and years. Due
to rounding, the sum of allocation shares may not equal exactly 100%
for a given year.
---------------------------------------------------------------------------
The Judges have reviewed the Adjustment B calculations questioned
by PTV and agree that they are erroneous as a consequence of a
typographical error. PTV's proposed correct shares adjust for this
error. The Judges grant the motion for rehearing regarding the
identified typographical errors, finding that there is a need to
correct a clear error or prevent manifest injustice. Having found the
Motions for rehearing and related filings a sufficient rehearing record
from the participants, the Judges correct the typographical errors for
2014.
Further, the Judges correct mathematical errors, not only in 2014
but in all years, that affected the shares reported in the Adjustment B
Table. PTV, JSC, and CTV note that PTV's share of 19.09% reported in
the Adjustment B table for 2017 is in error.\315\ PTV Motion at 4 n.3;
JSC Motion at 9 n.4; CTV Response to PTV Motion at 6. The Judges grant
the motion for rehearing regarding these arithmetic errors, finding
that there is a need to correct a clear error or prevent manifest
injustice. Having found the Motions for rehearing and related filings a
sufficient rehearing record from the participants, the Judges correct
the arithmetic errors.\316\
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\315\ PTV and CTV describe the error as an arithmetic error.
\316\ The first arithmetic error corrected was in the
calculation of the proportional increase to other claimants' shares
relating to the reduction in the PTV share due to the presence of
``must-carry'' stations. The second arithmetic error corrected was
in the calculation of the PTV share for 2017 to account for this
``must-carry'' issue.
---------------------------------------------------------------------------
All of these corrections are applied in Adjustment B Table below:
\317\
---------------------------------------------------------------------------
\317\ To the extent that corrections set forth in this Order
might be construed to reach beyond those identified in the Motions
for rehearing or the rehearing authority in 17 U.S.C. 803(c)(2), the
Judges also make such corrections under their authority to correct
technical or clerical errors in 17 U.S.C. 803(c)(4). For this
reason, the Judges set forth the analysis herein also as a written
addendum to the Initial Determination, which is distributed to the
participants of the proceeding via this Order and will be published
as part of the Final Determination, pursuant to 17 U.S.C. 803(c)(4).
Adjustment B Table
--------------------------------------------------------------------------------------------------------------------------------------------------------
Program
Year suppliers (%) JSC (%) CTV (%) PTV (%) SDC (%) CCG (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014.................................................... 26.80 37.48 11.38 13.36 4.33 6.55
2015.................................................... 47.67 2.44 13.14 11.78 11.28 13.70
2016.................................................... 40.75 1.69 17.32 15.32 10.81 14.12
2017.................................................... 44.07 0.67 13.23 15.96 10.41 15.66
--------------------------------------------------------------------------------------------------------------------------------------------------------
The Must Carry adjustment in Bennett WRT fig. 52 was based on the PTV shares of all CSO royalties, whereas the Judges are applying this adjustment to
the shares of CSO royalties attributable to shares generated by CSOs paying above the Minimum Fee (subject to the prior adjustment for CCG, discussed
supra). So, for 2014, the percentage point adjustment to the PTV share is the percentage point adjustment in Bennett WRT Fig 52. For 2015-2017, the
percentage point adjustment to the PTV share is calculated for each year by: (1) finding the percentage of PTV shares reflected by the PTV shares from
Tyler/WRT fig. 6.3 / PTV's shares from Tyler WRT fig. 3.2; (2) multiplying that percentage by the percentage point adjustment in Bennett WRT fig 52;
and (3) subtracting that product from the PTV share from the table above.
[[Page 54282]]
The shares of the other claimants are adjusted upward by: (1) calculating the percentage each category represents of all the categories' shares except
PTV; (2) multiplying each percentage by the Bennett Must Carry adjustment (reduced as set forth above); and (3) adding that product to the shares of
each claimant category.
The Judges recalculate the Adjustment C Table to reflect the
corrections to the Adjustment B Table:
Adjustment C Table
--------------------------------------------------------------------------------------------------------------------------------------------------------
Program
Year suppliers (%) JSC (%) CTV (%) PTV (%) SDC (%) CCG (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2015.................................................... 44.87 2.30 12.37 16.96 10.62 12.90
2016.................................................... 37.51 1.56 15.94 22.06 9.95 13.00
2017.................................................... 40.39 0.61 12.12 22.98 9.54 14.35
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The Judges recalculated the shares of the other five claimant categories by: (1) calculating the percentage each category represents of all the
categories' shares except PTV; (2) multiplying each percentage by the increase in the PTV share generated by adjusting to reflect WTP of CSOs that
maintained PTV carriage after WGNA conversion; and (3) subtracting that product from the shares of each claimant category.
As discussed in the Initial Determination, the Judges allocated
shares of the Basic Fund to each party based on their review and
weighting of the record evidence. ID at 197-198. The corrected Basic
Fund and 3.75% Fund allocations incorporate the corrections discussed
above.
For each year, the aggregate sum of the share allocations did not
sum to 100% for the Basic Fund. In 2014, the allocations summed to
marginally greater than 100 percent and, in 2015-2017, marginally less
than 100 percent. The Judges therefore adjusted the allocated shares
proportionally to achieve an aggregate allocation of 100%; in 2014
shares this process required a modest downward adjustment and, in 2015-
2017, this process required a modest upward adjustment in shares. The
resulting corrected Basic Fund and 3.75% Fund \318\ allocations are as
follows:
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\318\ For years 2015 and 2017, the calculated allocation shares
did not equal 100%. In the case of 2015, the total calculated shares
were just below 100%. To achieve the full 100%, the Judges reviewed
the results and provided an increase to the claimant whose share was
the closest to being rounded up at the second decimal place. In
2017, the total calculated shares were just above 100% and the
Judges did not round up the claimant whose share was the closest to
not being rounded up at the second decimal place to achieve a 100%
allocation.
Basic Fund Royalty Allocations
----------------------------------------------------------------------------------------------------------------
2014 (%) 2015 (%) 2016 (%) 2017 (%)
----------------------------------------------------------------------------------------------------------------
CCG............................................. 6.19 14.59 14.60 15.77
CTV............................................. 20.55 19.78 17.36 17.50
JSC............................................. 36.13 11.42 10.72 12.36
Program Suppliers............................... 21.21 28.29 25.53 23.29
PTV............................................. 11.07 19.18 24.78 25.25
SDC............................................. 4.85 6.74 7.01 5.83
----------------------------------------------------------------------------------------------------------------
3.75% Fund Royalty Allocations
----------------------------------------------------------------------------------------------------------------
2014 (%) 2015 (%) 2016 (%) 2017 (%)
----------------------------------------------------------------------------------------------------------------
CCG............................................. 6.96 18.05 19.41 21.10
CTV............................................. 23.11 24.48 23.08 23.41
JSC............................................. 40.63 14.13 14.25 16.53
Program Suppliers............................... 23.85 35.00 33.94 31.16
SDC............................................. 5.45 8.34 9.32 7.80
----------------------------------------------------------------------------------------------------------------
V. Ruling and Order
For the foregoing reasons, PTV's motion for rehearing is granted in
part and denied in part and JSC's motion for rehearing is denied.
The affected parties shall file a joint proposed redacted public
version of this Order for public viewing within ten days.
So ordered.
Dated: March 21, 2024.
David P. Shaw,
Chief Copyright Royalty Judge.
[FR Doc. 2024-13597 Filed 6-27-24; 8:45 am]
BILLING CODE 1410-72-P
