Copyright Office Begins Inquiry to Reexamine Cable and Satellite Statutory Licenses – and Asks if Statutory Licenses are Appropriate for Internet Video

Last week, the Copyright Office released a wide-ranging Notice of Inquiry, asking many questions about the statutory licenses that allow cable and satellite companies to retransmit broadcast television signals without getting the specific approval of all copyright holders who provide programming to those stations. The Notice was released so that the Copyright Office can prepare a report to Congress, due June of 2008, presenting its views as to whether the various statutory licenses still perform necessary functions, and whether any reforms are necessary. To complete its report, the Notice asks many questions about how these licenses currently work, whether they function efficiently, and if they should be retained, modified or abolished in favor of marketplace negotiations. The Notice even asks whether the existing statutory licenses should be expanded to take into account the different ways video programming is now delivered to the consumer, including various Internet and mobile delivery systems. Thus, virtually anyone involved in the video programming world may want to be part of this proceeding. Comments are due July 2, with reply comments due September 13.

Cable and satellite statutory licenses were adopted by Congress to allow multi-channel video systems to retransmit broadcast signals. Without these licenses, individual owners of copyrighted material—including syndicated, network, sports, and music programming—would have to be consulted to secure necessary copyright approval. As multi-channel video providers would, in many cases, not know who held all these rights and from whom they could secure all these rights, they instead pay a statutory license which is collected, pooled, and then distributed to the various copyrights holders in proportions agreed to by those holders or, in the absence of agreement, set by the Copyright Royalty Board.

As the Notice sets out, the statutory rights held by cable and by satellite are different in many ways. Cable systems pay certain minimum fees which vary depending on the revenue of the cable system, and increase when a system carries a “distant signal,” i.e., a television signal from outside its market area. However, the definitions of a distant signal for purposes of these rules is based on byzantine FCC rules from 1977-- long ago eliminated except for purposes of these copyright calculations. Satellite carriers also pay fees to the Copyright Office, but these fees are based on a per-subscriber fee, and the importation of distant signals by satellite carriers remains heavily regulated. At the same time, while cable operators pay a “minimum fee” to carry any broadcast signals, satellite carriers are able to carry local broadcast signals at no cost.

Comments, reply comments and hearing to address many questions.

The Notice requests comment on whether these different licensing schemes, and the various royalties entailed, continue to make sense. Should systems be modified to provide greater parity between the platforms? Do the statutory royalties paid now approximate the royalties that would be received by copyright holders if there were negotiations for the rights in an open market, unfettered by the statutory license? Should these licenses even continue to exist or should parties simply negotiate for the rights to the programs they retransmit (perhaps by shifting the burden to broadcasters to obtain the underlying rights, which the broadcaster would then grant as part of the retransmission consent negotiation process)? Obviously, these are fundamental questions about the manner in which the statutory license operates—and recommendations from the Copyright Office could have an impact on virtually every aspect of the video marketplace—from the course of retransmission consent negotiations between broadcasters and multichannel video providers, to the prices and terms that burden those providers under their statutory license, to the competition that broadcasters face in their marketplace (if, for instance, the higher rates for cable importation of distant signals were reduced, or if the limits on such importation by satellite carriers were relaxed, more competition to the local broadcaster could result).

Finally, in its discussion of the future of statutory licenses, the Copyright Office asks if the existing statutory licenses should be modified or new licenses adopted, to facilitate the emergence of new video technologies. For instance, the Notice asks if such licenses would hasten the inclusion of local television programs on video mobile phones. The Copyright Office also asks whether new IPTV systems using Internet technologies to retransmit broadcast programs are covered by the existing cable statutory license, or whether a new license should be adopted to cover some or all of these systems. The Copyright Office simultaneously asks whether the on-demand availability of much broadcast programming through the Internet, by the programming networks and by services like You Tube, undercut the need for the statutory licenses. As the statutory license was designed to foster the distribution of programming by making it easier to obtain the necessary copyright rights, if that programming is already available on-line, has the underlying purpose of the license been met?

The Notice also specifically mentions several discrete issues affecting the existing cable statutory license. For example, it specifically asks how the ongoing digital transition should impact cable royalty calculations. The Copyright Office also appears prepared to address how a “network” should be defined for purposes of the cable royalty calculations, as FOX broadcast affiliates historically received different treatment than ABC, CBS, and NBC broadcast affiliates. The Notice also raises long-standing concerns regarding system consolidation and the relationship between subscriber groups, the signals they receive, and the resulting royalty calculation. The Copyright Office suggests that a reform to the statutory license might remove the troubling “phantom signal” issue, under which cable systems pay royalties for signals not actually delivered to certain subscriber groups.

In addition to comments and reply comments, the Copyright Office plans a hearing on these important issues. It is clear that this proceeding should be closely monitored by video industry participants.

The full text of the Notice of Inquiry can be found on the Copyright office’s website: http://www.copyright.gov/. For further information on this important proceeding, please contact the firm.