Congress Extends and Amends Compulsory Copyright License for Satellite Delivered Superstations and Distant Network Stations

After months of delays, amendments, and last-minute disputes, the byzantine, 107-page “Satellite Home Viewer Extension and Reauthorization Act of 2004” (“SHVERA”) was signed into law on Dec. 8, 2004.¹ SHVERA extends until 2010 the compulsory copyright license (17 U.S.C. § 119) allowing Direct-To-Home (“DTH”) satellite carriers—including DirecTV and EchoStar (Dish TV)—to deliver superstations and distant network broadcast stations to satellite dish owners. SHVERA also amends the compulsory copyright license allowing DTH carriers to deliver local signals into local markets (17 U.S.C. § 122), as well as provisions in the Communications Act pertaining to must-carry, retransmission consent, signal carriage, and broadcasting.

Summary

In its many provisions amending the Copyright and Communications Acts, SHVERA:

• Amends and extends for an additional five years the original compulsory copyright license for satellite delivered distant broadcast signals;
• Authorizes satellite delivery of distant analog network signals, as well as significantly viewed distant network and superstation signals, into local markets under defined circumstances;
• Authorizes satellite delivery of distant digital network signals into the top 100 markets in May 2006 and the remaining markets in July 2007 if there is no local digital signal available and the distant digital network signal is not from an earlier time zone, with defined exceptions and grandfathering after local digital network signals become available;
• Establishes new rules for retransmitting network and non-network signals into Alaska and Hawaii, plus new broadcasting rules for Alaska;
• Allows in-state distant network signals to be delivered in certain counties in New Hampshire, Vermont, Oregon, and Mississippi, but prohibits delivery of signals from Los Angeles to unserved households in the Palm Springs, Calif., market;
• Phases out in eighteen months any requirement that DTH subscribers use two dishes to receive a complete local signal package;
• Revises certain copyright royalty rates and establishes a new process for adjusting cable and satellite compulsory license royalty rates (combined with the Copyright Royalty and Distribution Reform Act of 2004 enacted Nov. 30, 2004);
• Establishes new requirements for reporting signal carriage and subscribers’ locations to the networks;
  Imposes cable-like privacy protections for DTH subscribers’ personally identifiable information;
• Revises retransmission consent requirements and elections, and requires all MVPDs to negotiate in good faith;
• Requires four new studies, two by the FCC on signal carriage rules and signal strength testing parameters, and two by the Copyright Office on the impact of the compulsory license on program owners (to make recommendations on the operation, necessity, and possible revision of the cable and satellite compulsory licenses).

Background

Microwave retransmission of superstation signals, or distant non-network signals, began as a passive carrier business supplying cable operators with signals for retransmission to subscribers. The cable compulsory license (17 U.S.C. § 111) was enacted in 1976 as part of a comprehensive agreement between cable operators, broadcasters and content owners. The agreement was brokered to resolve an impasse after the Supreme Court held that cable operators’ delivery of local and distant signals to subscribers did not violate the copyright laws, and the FCC severely limited cable operators’ distant signal carriage. As the carriers began using satellite facilities to reach headends, and the price of satellite dishes and receivers became affordable, individuals bought and installed steerable C-band dishes to receive broadcast and cable network programming from multiple low-power satellites in the same manner that cable operators received satellite delivered programming at their head-ends. Because of the relative large size of these early dishes and neighborhood aesthetic demands, individual C-band subscribers tended to be located in rural areas, often where there was no cable operator present and off-air reception was inadequate.

The satellite carriers, following the lead of HBO, scrambled their retransmissions and then, under compulsion from Congress, set up a centralized facility (run by General Instrument) to allow for individual authorizations of programming services from the satellite. Satellites usually had 24 transponders, each devoted to a particular program service, and the facility allowed individual subscribers to receive packages of programming by pointing the dish at the different satellites and tuning to the different transponders.

At its peak, there were some 2.4 million authorized C-band subscribers to satellite-delivered program packages. The most popular packages at the time included superstations (WTBS, WGN, KTLA, WPIX, KTVT, WOR, and WSBK), because most rural subscribers could not receive viewable broadcast signals off air. Network signals were also of interest to subscribers, and some distributors of programming to the C-band market included network broadcast signals in their program packages. While superstations were more than happy to have their signals retransmitted by satellite, broadcasters were considerably more concerned with satellite retransmission of distant network signals, claiming that it threatened their local affiliate business model where individual network broadcast stations were exclusive sources of network programs in specific markets. If a distant network signal delivered by satellite could be watched by households in that market instead of the local affiliate’s off-air signal, local broadcasters would lose viewers and ad revenues.

The individual networks sued, claiming that DTH retransmissions of these network signals constituted copyright infringement, because the cable compulsory license did not apply. While the litigation was still pending, Congress passed the first satellite compulsory copyright law in 1988 (Satellite Home Viewer Act or “SHVA”), authorizing until the end of 1994 the DTH retransmission of superstations to all subscribers and distant network stations to “unserved households,” or households where a sufficient-strength signal of a local network affiliate could not be received off-air. DTH carriers expanded their offerings to include more cable networks and premium channels in addition to broadcast signals, and retransmitted program packages similar to the basic and expanded basic packages delivered by cable operators.

In 1994 the satellite license was extended until 1999. In that timeframe the DTH business was changing. DirecTV (1994) and EchoStar (1996) began a new Direct Broadcast Satellite (“DBS”) service retransmitting programming from higher power satellites that had compressed digital capacity and thus could deliver hundreds of individual programming services to relatively small, stationary 12-inch dishes. These dishes were more widely accepted, and the satellite dish market expanded significantly. The DTH carriers were also beginning to serve more subscribers in urban areas and in the top television markets. Delivery of distant network stations, though, was somewhat constrained by the fact that DTH carriers could not legally deliver a distant or local broadcast network signal to any subscriber located in areas “served” by a local affiliate, i.e., where the local affiliate’s signal could be received off-air, or where the local affiliate was predicted to produce a sufficient strength off-air signal. “Served” status was first determined based on predicted Grade B contours, and later, based on more specific signal strength measurements. Because the DTH carriers were seeking to compete more effectively with cable in urban as well as rural areas, the DTH carriers often retransmitted distant network signals to “served” households and set off another round of litigation with the broadcasters, which resulted in suits for copyright infringement, injunctions and claims for potentially devastating damage awards. For a short time it looked like the broadcasters might even completely shut down distant network signal delivery.

Reacting in part to the litigation, in 1999, Congress extended the soon-to-expire distant signal satellite license until 2004, and also enacted a permanent local signal copyright license allowing DTH carriers to retransmit local network and non-network signals to all served and unserved households in all markets. Congress also “grandfathered” many subscribers who were receiving distant network signals illegally or had lost distant network signals because of litigation, thus allowing them to sign back up for the distant networks. The newly authorized local signal retransmission service helped contribute to the overall success of DTH and “local-into-local” service now reaches subscribers in more than 150 television markets nationwide. To placate the broadcasters and ensure parity with cable, “local-into-local” service was also subject to a myriad of FCC rulemakings to establish cable-like must carry, retransmission consent, network nonduplication, syndex, and sports blackout rules.

Impact

Because not all markets are served with “local-into-local” service and other DTH subscribers are still “unserved” by network signals, the DTH carriers have been granted continued rights to provide distant network signals to subscribers to offer comprehensive program packages. This latest extension of the distant signal license extends through 2009 the authorization for retransmitting distant network signals to “unserved” households, and superstations to all households, without retransmission consent but with royalty payments required. But, this latest extension also impacts the way local signals are retransmitted, authorizes the retransmission in local markets of distant “significantly viewed” signals, allows for retransmission of distant digital network signals in certain local markets under a specific timetable, and sets a new scheme (with the Copyright Reform Act) for adjusting royalties.

SHVERA does much to make the DTH carriers more competitive with cable by expanding the options for delivering broadcast signals in local markets. In addition to certain special market concessions, distant digital signals will be allowed to be retransmitted along with significantly viewed distant signals. Moreover, all distributors will have to negotiate retransmission consent in good faith (previously the requirement only applied to the broadcast station). SHVERA also changes the copyright royalty rate-setting process, and the studies to be conducted will clearly draw comments from copyright owners claiming that the compulsory license has outlived its usefulness and should be replaced by free market negotiations now that the major players are Fortune 100 corporations. The Copyright Office has many times expressed its distaste for compulsory licensing, so it may recommend that the compulsory license be repealed.

Specifics

Retransmission of Distant Analog Network Signals

Distant analog network signals may be delivered to DTH subscribers in the following circumstances:

• Provision of Distant Analog Network Signals by Satellite to Unserved Areas. For subscribers in areas where there is no off-air reception, DTH carriers may (1) continue delivering distant network signals to subscribers who are legally receiving them as of Jan. 1, 2005, even if a local package of network signals was, is or becomes available; or (2) begin delivery of distant network signals to subscribers after Jan. 1, 2005, as long as no local package of network signals is available by satellite; or (3) deliver a distant network signal if the local affiliate waives its right to prohibit importation of a distant network signal. The DTH carrier may not deliver distant network signals to new (post-SHVERA) subscribers if, at the time, a local network signal is available by satellite (no waiver allowed).
• Provision of Distant Analog Network Signals to Served Areas (Grandfathered). As a result of litigation, an exemption was added in the 1999 extension for certain subscribers receiving distant network signals by satellite “illegally” (i.e., they could receive a local network off-air), allowing them to continue receiving them. SHVERA extends that status for grandfathered subscribers who are receiving distant analog signals as of Jan. 1, 2005, unless the subscriber either (1) was not actually receiving a distant analog signal from the DTH carrier on Oct. 1, 2004; or (2) elects to receive the corresponding local analog network signal from the DTH carrier. To further that election, DTH carriers must notify these grandfathered distant signal subscribers within 60 days of when local substitute network signals are available (if available now, then in 60 days from enactment), and offer to substitute the local signals. The subscriber may then switch to the locals or, if the subscriber fails to respond, the DTH carrier must terminate delivery of the distant network signal.
• Provision of Significantly Viewed Signals to Served Areas. There are separate provisions for delivering distant “Significantly Viewed” digital and analog signals (described below). SHVERA purposefully prohibits the delivery of any Los Angeles significantly viewed signals to served households in the Palm Springs market.
• Special Markets in Certain States. SHVERA also authorizes in-state distant network signals to be delivered in certain counties in defined markets in New Hampshire, Vermont, Oregon, and Mississippi (described below) and requires in-state signals to be delivered in and outside of all markets in Alaska and Hawaii under certain circumstances (also described below).

Retransmission of distant digital network signals

Under SHVERA, DTH carriers may deliver distant digital network signals into certain markets where the local affiliates are not broadcasting in digital. These areas, known as “digital white areas,” were the subject of considerable controversy and lobbying by both the NAB and the DTH carriers. A very complicated compromise allows for delivery of distant digital signals under the following conditions:

• No Off-Air Reception and Local Analog or Digital DTH Package Unavailable. If the subscriber is not predicted to receive or does not receive a sufficient strength analog signal of a local broadcast network affiliate off-air (current law with respect to distant analog signals), the subscriber is eligible to receive distant digital network signals from a DTH carrier. In addition, if the subscriber received a distant digital signal pre-SHVERA under this provision, he or she may continue to receive it, even if a local digital package becomes available.
• No Off-Air Reception and Local Analog DTH Package Available. If the subscriber otherwise eligible as above is in an area where the DTH carrier makes local analog broadcast signals available, then (except for Alaska and Hawaii which are dealt with separately) the DTH carrier may deliver a same or later time-zone distant digital network signal after April 30, 2006 (for the top 100 markets) or after July 15, 2007 (all other markets), if the subscriber also takes the local affiliate’s analog (or later digital signal) from the DTH carrier. The subscriber would have to drop the distant digital signal when the local affiliate goes digital and the local digital signal can be received by the subscriber off-air (see also Local Digital Package Available, below). If the subscriber is predicted to receive the local digital signal, but doesn’t under the testing rules, the subscriber may keep the distant digital signal in addition to the local digital signal by satellite. This is also subject to the local affiliate seeking waivers to delay such distant signal delivery by way of testing signal strength for 6 months (which may be extended). The grounds for waivers are limited to defined exigent circumstances if no local digital signal is available off-air.
• Off-Air Reception of Analog But Not Digital. If the subscriber is predicted to receive or can receive a local analog signal off-air but, under new testing rules, does not receive an adequate strength digital signal off-air, the subscriber may receive a distant digital network signal.
• No Off-Air Reception of Digital But Local Digital Package Available. If the DTH carrier offers local digital network signals by satellite, no distant digital signals can be provided unless the subscriber cannot receive the satellite transmission of the local digital network signal or the subscriber had a distant digital network signal before local digital network service was offered and, if delivery of the distant digital network signal commenced post-SHVERA, the subscriber also subscribes to the local digital network signal when it becomes available in that market (unless that local digital network signal cannot be received by the subscriber from the satellite). After the local digital network signal becomes available by satellite, no new subscriber may get a distant signal of that same network. However, if an existing subscriber lawfully received a distant digital network signal pre-SHVERA, the subscriber may continue to receive that distant network signal, regardless of the availability of local digital network signals.
• Off-Air Reception of Digital. If a subscriber can receive an off-air digital signal of a local affiliate, then a distant digital signal may not be delivered except under circumstances described above.
• Significantly Viewed Signals. There are separate provisions for receiving distant “Significantly Viewed” digital and analog network signals (described below). SHVERA purposefully prohibits the delivery of any Los Angeles significantly viewed signals to served households in the Palm Springs market.
• Special Markets in Certain States. SHVERA also authorizes in-state distant network signals to be delivered in certain counties in defined markets in New Hampshire, Vermont, Oregon and Mississippi (described below) and requires in-state signals to be delivered in and outside of all markets in Alaska and Hawaii under certain circumstances (also described below).

Copyright Royalty Rates

The rate for a satellite-delivered superstation is currently 18.9¢ per signal, per subscriber, per month and payable semi-annually. The rate for a distant analog network station is 14.85¢ per signal, per subscriber, per month and payable semi-annually. SHVERA has now set a rate for distant digital network signals at 20.9¢. SHVERA also establishes a four-month period commencing January 2005 within which satellite carriers, distributors and copyright owners may voluntarily negotiate new royalty fees for analog superstation and distant network station signals. Absent agreement (which reportedly has been reached), the Copyright Office will initiate arbitration proceedings no later than May 1, 2005, to set rates for superstation and distant analog network stations based on “fair market value” (as defined in SHVERA) by a Copyright Arbitration Royalty Panel (“CARP”) that was in effect before the Copyright Royalty and Distribution Reform Act of 2004 (signed into law Nov. 30, 2004) replaced three-member occasional CARPs with three full-time Copyright Royalty Judges (“CRJ”). The rate proceeding for satellite retransmitted distant digital network signals would commence at the end of 2005 before a CRJ, and rate adjustments to match the consumer price index (“CPI”) would be implemented every year beginning Jan. 1, 2007. IMPORTANT NOTE: A provision concerning adjustments to the cable compulsory license royalty was included and would have delayed a fifth-year cable royalty adjustment proceeding from 2005 until 2006, but the provision was amended before passage to become unclear.

Significantly viewed superstation and network signals

DTH carriers may now deliver distant “significantly viewed” superstation and network signals to subscribers, just as cable operators do (i.e., royalty free and with retransmission consent except in the Palm Springs, Calif., market). The DTH carriers must first give notice to the local market stations. In addition, to be eligible to receive the significantly viewed station, the DTH subscriber must also receive local network signals from the DTH carrier. If the significantly viewed distant network signal is digital, then the subscriber must also receive the same network locally in digital format. Neither of these restrictions applies if (1) there is no local affiliate of the same network in the local market, or (2) a waiver is obtained from the local affiliate. The FCC will publish lists of significantly viewed stations and eligible communities and allow for adding stations to the list and imposing nonduplication and syndex rules. The FCC is directed to conduct a rulemaking to implement these provisions.

Commercial service

DTH carriers may now deliver superstations (but not distant network stations) to commercial establishments. Under prior versions of the license, DTH carriers could only serve residences under the “private home viewing” language that was deleted by SHVERA with respect to superstations.

Low power television

DTH carriers may deliver signals of LPTV stations (but not signals of repeaters, translators or an LPTV that retransmits more than two hours of another station’s programming) in the station’s DMA and royalty free to subscribers within a 20- or 35-mile zone (depending on size of the market), comparable to that in which cable operators deliver LPTV signals as “local” and royalty free.

Single dish for all local broadcast signals

Reacting to EchoStar’s practice of requiring more than one dish to receive all local broadcast signals in a market, SHVERA requires within 18 months that any DTH carrier providing local market broadcast signals must provide all local market analog signals on one dish. A DTH carrier may still require a second dish if all local stations are available on one of the two dishes. Digital local broadcast signals must also be provided on one dish, but that dish may be separate from that used to receive analog local broadcast signals. DTH carriers currently using more than one dish for locals must inform subscribers within 15 months about broadcast signal dish reallocations.

DOJ review of joint local signal deals

SHVERA provides for expedited antitrust review of the implications of any proposal by two or more DTH carriers to provide local signals jointly in a previously unserved market.

Rules for distant signals in specific counties in New Hampshire, Vermont, Oregon, Mississippi, and California

DTH carriers may deliver certain in-state distant network stations to subscribers in certain counties in defined markets in New Hampshire, Vermont, Oregon, and Mississippi. Cable operators benefit from the exceptions for the specifically defined Oregon counties. SHVERA prohibits, however, DTH carriage of in-state distant signals to an adjacent local market that is comprised of part of a county (even if significantly viewed). This was intended to exclude Los Angeles signals from the Palm Springs, Calif., market.

Special rules for Alaska and Hawaii

The larger DTH carriers (more than 5 million subscribers) must retransmit all local analog broadcast signals to “substantially all” subscribers in each station’s local market in Alaska and Hawaii within one year, and retransmit all local digital signals there within 2½ years. In addition, one set of local market stations that are retransmitted in each state shall be made available (for a cost no more than other local signal packages) to “substantially all” of the carrier’s subscribers that are outside of the DMAs in that state. The FCC must promulgate rules on must carry and retransmission consent elections for these signals within one year. Any U.S. broadcaster may also broadcast in any area of Alaska where no broadcast signals can be received, and may continue broadcasting even after another entity starts broadcasting in the same area. A DTH carrier may not retransmit distant network signals from outside Alaska to any subscriber in Alaska if any in-state signal is available from the DTH carrier as a local market signal. Out-of-state digital network signals are permitted until there is an in-state digital affiliate of the same network.

FCC signal testing rules

Consistent with the delayed delivery of a digital network signal where the receipt of a local affiliate’s analog signal is predicted, subscribers can seek signal test measurements on the same time schedule for the allowed delivery of distant digital signals (April 30, 2006, for top 100 markets and July 15, 2007, for other markets). Testing can be delayed by local affiliates under limited circumstances. Tests can be requested by the satellite carrier or the subscriber and the DTH carrier will be able to avoid verifying signal strength for purposes of allowing distant signals if local signals are available by satellite under new FCC rule.

FCC and Copyright Office studies

• FCC Study of Digital Signal Strength Testing. The FCC is directed to conduct and complete an inquiry within one year on revising SHVERA or the FCC’s rules on testing procedures and the digital signal strength standard for determining if a subscriber is served off-air by an adequate digital signal based on viewable picture quality (not just signal strength). The FCC is directed to consider such items as the different types of antennas that are available, differences in analog and digital signals, variations in quality of TV receiving sets, and external factors affecting off-air signal reception.
• FCC Study of the Impact of Certain Signal Carriage Rules on MVPD Competition. Within nine months, the FCC must complete an inquiry and report to the House Energy and Commerce Committee and the Senate Committee on Commerce, Science and Transportation, regarding how the FCC’s retransmission consent, network nondupe, syndex, and sports blackout rules impact MVPD competition, including the impact on the ability of rural cable operators to compete with DTH carriers in providing digital broadcast signals.
• Copyright Office Compulsory License Study – Impact on Owners. The Copyright Office must report to the House and Senate Judiciary Committees by Dec. 31, 2005, its findings and recommendations on whether the local and distant signal satellite compulsory licenses harm or benefit copyright owners, whether the limitations on delivering signals to “unserved households” protects program owners, and whether there are any amendments needed with respect to DTH delivery of digital broadcast signals.
• Copyright Office Compulsory License Study – Need for Compulsory Licensing. The Copyright Office must also report to the House and Senate Judiciary Committees by June 30, 2008, its findings and recommendations on the operation and revision of the cable and satellite compulsory licenses (17 U.S.C. §§ 111, 119 and 122), by comparing rates, terms, conditions, competitive disadvantages, correlations between royalties and subscriber fees, and the relative impact on digital signal delivery, as well as determining whether the respective licenses are still “justified.”

Reporting and notices

SHVERA revises the process for DTH carriers to report to the networks names and addresses of subscribers receiving distant and local network signals and to give notice when commencing local-into-local service (subject to rulemaking).

Retransmission consent and elections

Consistent with the extension of the distant signal compulsory copyright license, SHVERA extends until 2010 the provisions in the Communications Act: (1) exempting the DTH delivery of signals out-of-market to “unserved households” from retransmission consent requirements; (2) requiring that broadcasters not discriminate with respect to retransmission consent; and (3) banning exclusive retransmission consent arrangements (with the added requirement that all MVPDs must negotiate in good faith). SHVERA also modifies the DMA-wide must-carry/retransmission consent election requirement to allow local broadcast stations to make county-by-county elections, if the DTH carrier is delivering significantly viewed distant signals into that station’s local market.

Privacy

SHVERA incorporates substantially identical language governing privacy that is applicable to cable operators under 47 U.S.C. § 551. Some inconsistencies between cable privacy law, ECPA (governing Internet and other providers), and certain disclosures to governmental entities that were not resolved by the Patriot Act in 2001, remain.

There will be rulemakings and likely challenges as these complex provisions are interpreted and applied. We understand that there will be no conference report or other legislative history that can be used to reliably guide interpretations.

If you would like a copy of SHVERA or have any further questions about copyright, signal carriage or privacy, please call.

Footnotes:

1 SHVERA was included as Title IX of the 2005 omnibus spending package which was passed in a joint session over the weekend before Thanksgiving. However, a dispute over a provision added to the spending bill that would have allowed the chairmen of the House and Senate Appropriations committees, or their staff, to view taxpayers’ individual tax returns without penalty for disclosing the confidential data, caused a furor. The Senate voted 65-30 to clear the omnibus spending package but the legislation was held up until the House resolved a parliamentary dispute and then struck the offending tax-return provision on Dec. 6. President Bush signed the legislation on Dce. 8.