Broadcasters, Cable, Satellite Providers Rekindle Arguments Over Licensing Schemes

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By Tamlin H. Bason  

 

Sept. 10 --A broadcasting retransmission deal between CBS Corp. and Time Warner Cable Inc. ended a blackout of CBS channels in the Los Angeles market shortly before the start of the National Football League season, but it did nothing to settle the long-simmering dispute between networks and satellite and cable television providers.

Indeed, the recent dispute served as a backdrop for--and a point of contention during--a Sept. 10 hearing before the House Subcommittee on Courts, Intellectual Property and the Internet that was ostensibly held to discuss the compulsory licenses between broadcast networks and cable and satellite providers.

The discussion, however, frequently veered away from statutory compulsory licenses and focused instead on the thorny issue of broadcast retransmission negotiations. Even the chairman of the committee, Rep. Howard Coble (R-N.C.), after noting that a patchwork of “exceedingly complicated” laws govern compulsory licenses, swiftly changed gears to tell his colleagues that their constituents are often the ones left in the lurch when retransmission deals break down.

“Our top priority has to be to protect consumers,” Coble said. “When there is a dispute and a resulting blackout, consumers are left with no recourse,” he said.

STELA Expiration

The hearing was called to consider Section 302 of the Satellite Television Extension and Localism Act of 2010, which is set to expire at the end of 2014. STELA, signed into law by President Barack Obama in 2010, extended the statutory licenses allowing satellite TV service providers to retransmit broadcast TV programming to subscribers located within a broadcast station's local market area.

There are three relevant compulsory license provisions in the Copyright Act, two of which concern satellite providers and one of which applies to cable providers.

The relevant compulsory licenses for satellite services are set forth at 17 U.S.C. §§119 and 122. The Section 119 license was first enacted in 1988. It permits a satellite carrier to retransmit distant superstation and network television station signals to subscribers for private home viewing and to commercial establishments on a flat-fee basis.

The Section 122 license, instituted in 1999, permits satellite carriers to retransmit local television station signals into the station's local market on a royalty-free basis. First enacted in 1976, Section 111 permits cable operators to retransmit both local and distant television and radio signals to its subscribers, provided the operators pay royalties according to a statutory formula.

Sections 111 and 122 are permanent whereas Section 119 is set to expire at the end of 2014.

Arguments raised during the Sept. 10 hearing for the most part mirrored arguments raised in 2010 prior to the enactment of STELA, and those arguments, in turn, were largely repetitive of talking points raised five years previously when the licenses were set to expire at the end of 2004, and Congress enacted the Satellite Home Viewer Extension and Reauthorization Act of 2004.

Renewal Push

Satellite providers' interests were represented at the hearing through the testimony of R. Stanton Dodge, executive vice president and general counsel for Dish Network LLC. Dodge urged Congress to renew Section 119 because absent compulsory licenses “satellite carriers would have to negotiate separately with, and procure licenses from, each individual owner of a copyright in a broadcast,” Dodge said in his written testimony. Without compulsory licenses, market inefficiencies and transaction costs would prevent some signals from being carried, Dodge said. Dodge thus advocated for a renewal of Section 119.

However, Dodge and another witness, James Campbell of CenturyLink, said that Congress could take a few steps that would virtually eliminate the types of blackouts that result when service providers are unable to agree to retransmission terms with content providers.

Broadcasters have far too much leverage during current retransmission negotiations, Dodge and Campbell said. If a cable or satellite provider does not agree to a broadcasters demands--an increasingly frequent occurrence--then the broadcaster can simply pull its signals, causing a blackout. Such a blackout can be devastating for a satellite or cable provider because a consumer, annoyed at losing access to a favorite network television program, can simply move to a competitor. Thus, Dodge said, blackouts are designed to be more harmful to cable and satellite providers than they are to broadcasters; while a broadcaster may lose a portion of its audience for the duration of a blackout, the providers risk losing subscribers for life.

“Congress can restore balance to the negotiating table by temporarily allowing cable and satellite carriers to substitute a distant signal from a non-local market during an impasse in retransmission consent negotiations with a local market affiliate of the same network,” Dodge said in his written testimony.

Campbell also supported allowing carriers to supplement local broadcast feeds with alternative market feeds when negotiations break down. “Consumers should not be punished as a result of provider negotiations,” he said in his written statement.

Collusion Warning

A third witness, Earle A. MacKenzie, said that blackouts were also harming consumers in the cable industry. MacKenzie, executive vice president of Shenandoah Telecommunications Company, noted that unlike in the satellite context, where Congress has reviewed compulsory licenses every few years, there have been no revisions to cable licensing laws in over 20 years. MacKenzie, however, said that for the most part Section 111 has worked and should not be repealed.

Like his fellow panelists, however, MacKenzie too wished to steer the discussion toward retransmission agreement negotiations. Not only are consumers harmed during blackouts, but “this committee should be aware that there are dozens of instances where separately owned big four broadcasters in the same market are colluding against the cable operator in their negotiations of retransmission consent,” MacKenzie said. He urged Congress to look into the matter, and, if lawmakers shared his concerns, he requested that they get the Department of Justice involved.

Usefulness Challenged

“It could be argued that [Section 119] served its intended purpose when it was first enacted in 1998,” Gerard J. Waldron of Covington & Burling, LLP, testifying on behalf of the National Association of Broadcasters, said. But even if useful in 1988, when the satellite television industry was in its infancy, “To great extent Section 119 has outlived its usefulness,” Waldron said.

Waldron noted that Section 119 was always intended to be a “temporary” provision, and he urged Congress to allow the provision to lapse at the end of 2014.

However, though Waldron found Section 119 outdated, he said Section 122, which he said serves the concept of localism, remains “beneficial to stations, to carriers, and, most importantly, to consumers.”

Blackout Responsibility

Waldron noted that the retransmission negotiations were not the focus of the hearing, but since the issue was raised by his fellow panelists, he said that it was important to note that the vast majority of retransmission agreements are completed without a service disruption. Waldron said that three companies, Dish, DirectTV, and Time Warner have been involved in nearly 90 percent of the negotiations that resulted in service disruptions. He said that these companies are in fact causing the service disruptions, and the resulting media coverage, to press for statutory changes.

Dodge responded by noting that in his experience, NAB's members--that is, the four networks--have been responsible for 100 percent of the blackouts.

Copyright Office's View

Preston Padden, who formerly served as president of ABC Television Network, used his testimony to highlight the fact that the “expert agency” on this issue has on two occasions weighed-in against the extension of compulsory licenses.

After the 2004 extension, Padden noted, Congress asked the Copyright Office to prepare a report on whether any of the three compulsory licenses should be retained. In 2008, the Copyright Office issued a report recommending that Congress scrap Sections 111 and 119.

Congress nonetheless passes STELA in 2010, but it once again sought the Copyright Office's input. This time, Congress asked the Copyright Office to provide recommendations for alternative solutions in the event that it allows STELA to expire.

Copyright Register Maria Pallante in the 2011 report that followed urged Congress to allow for some of the statutory licenses governing the retransmission of traditional broadcast television signals by cable and satellite TV service providers to be phased out and replaced by market-based licensing mechanism. The report labeled statutory licensing an “artificial construct created in an earlier era,” and encouraged Congress to begin setting deadlines for phasing out the statutory licenses, starting with the licenses that allow cable and satellite services to import “distant signals” and retransmit them to subscribers.

Padden urged Congress to listen to the Copyright Office.

“Do not just kick the can down the road again,” he said. “It is beyond time to let STELA expire.”

To contact the reporter on this story: Tamlin Bason in Washington at tbason@bna.com

To contact the editor responsible for this story: Naresh Sritharan at nsritharan@bna.com


Visit http://judiciary.house.gov/hearings/113th/hear_091013.html on the House Judiciary Committee's website.