Testimony
of Fritz Attaway
Executive Vice
President
and
Motion Picture Association of
Before the
Subcommittee on
Courts, The Internet,
and Intellectual
Property
Committee on the
Judiciary
US House of
Representatives
"Reauthorization
of the Satellite Home Viewer Improvement Act"
Chairman
Smith, ranking minority member Berman, members of the Subcommittee, thank you
for giving me this opportunity to present the views of owners of television programming,
and representatives of authors whose works appear in that programming, on
extension of the Satellite Home Viewer Act.
Although I speak only for the member companies of the Motion Picture
Association of America, I am authorized to tell you that the following
organizations endorse the views set forth in this statement: the Office of the
Commissioner of Baseball, the National Football League, the National Basketball
Association, the National Hockey League, the National Collegiate Athletic
Association,
and Broadcast Music,
Inc.
BACKGROUND
The Satellite Home Viewer Act (SHVA)
of 1988 created in Section 119 of the Copyright Act, for a five-year period, a
“compulsory license” that allows satellite program distributors (such as
EchoStar and DirecTV) to retransmit broadcast television programming from
distant markets without the permission of the copyright owners of that
programming. This satellite compulsory
license forces copyright owners to make their copyrighted programs available
without their consent and without any ability to negotiate with the satellite
companies for, among other things, marketplace compensation.
The SHVA was extended for five-year
periods in 1994 and 1999. The 1994
renewal provided for a royalty rate adjustment procedure aimed at providing
copyright owners with market value compensation for the use of their
programming by satellite companies. This
procedure was in fact exercised, which resulted in the assessment of
market-based royalty rates in 1998 by a panel of independent arbitrators
appointed by the Copyright Office.
Although satellite companies pay
market based license fees for scores of program services that they sell to
their subscribers, they strongly objected to paying market based royalty rates
for the retransmitted broadcast programming they sell to their subscribers, and
successfully petitioned Congress to impose a substantial discount on the market
based rates. These discounts – 30
percent for "superstation" programming and 45 percent for network and
PBS programming – went into effect in July of 1999.
Since
the reduction of royalty rates in 1999, there have been no further
adjustments to the compulsory license rates.
If the SHVA were simply extended for another five years, at the end of
that period the satellite royalty rates will have been frozen for a period of ten
years. In the five years since the
last extension of the satellite compulsory license, the cost of programming
that satellite companies license in the free market for resale to their
subscribers has increased substantially, as have the fees charged by satellite
companies to their subscribers. The only
fiscal measure that has not increased is the compensation provided owners of
retransmitted broadcast programming.
COPYRIGHT OWNERS’ POSITION
1. Compulsory
licenses are a serious derogation of the rights of copyright owners. They substitute the heavy hand of government
for the efficient operation of the marketplace and arbitrarily transfer wealth
from copyright owners to privileged users.
Compulsory licenses should be imposed only as a last resort when
marketplace forces clearly are incapable of operating in the public
interest. It has been 14 years since the
satellite compulsory license was first imposed.
Congress should demand from proponents of the satellite compulsory
license clear and convincing evidence that an extension of the license is
necessary to serve the public interest.
2. If
Congress reauthorizes the satellite compulsory license, the royalty rates for
the year 2004 should be increased to reflect increases that satellite companies
have paid in the marketplace for comparable programming.
3. Starting
in 2005, the royalty rates should be adjusted annually to keep pace with the
license fees paid by satellite companies in the free market for comparable
programming services.
4. Copyright
owners should have the right to audit satellite companies to ensure that they
are accurately reporting and paying their royalties.
BASES FOR COPYRIGHT OWNERS’
POSITION
There is no equitable
justification for freezing the satellite compulsory license royalty rates for a
period of ten years.
Ø
The rate freeze that has been
in effect since 1999 is unique among the compulsory licenses. All of the other compulsory licenses in the
Copyright Act have procedures for increasing the royalty rates, either
automatically or through rate adjustment proceedings. Satellite companies have unjustifiably
received special treatment by not having their royalty rates subject to periodic
adjustments.
Ø
Satellite companies themselves
have raised the prices that consumers pay to receive distant broadcast signals. For example, according to the web site
"Echostar Knowledge Base," which states that it is not affiliated
with Echostar Communications, the EchoStar satellite service raised the monthly
price of its package of distant "superstation" signals from $4.99 per
subscriber in 1998 to $5.99 in 2002 – despite the fact that the royalty cost of
distant signal programming was reduced by Congress in 1999. In other words, since 1998 this satellite
service has increased its charges for distant broadcast programming by
20 percent, while its copyright royalty payment for that programming has been reduced
by 30 percent!! Copyright owners of
retransmitted broadcast programming should not be forced to accept freezes in
the satellite compulsory license royalty rates when all other costs to
satellite carriers are increasing and the fees charged by satellite carriers to
their subscribers are increasing as well.
Ø
The fees that satellite companies
pay for comparable programming not subject to compulsory licensing have
steadily increased. For example, in 1998, a panel of independent
arbitrators determined that broadcast programming transmitted pursuant to the
satellite compulsory license was most comparable to the programming on the 12
most widely carried cable networks, such as TNT, CNN,
Ø
There is well-established
precedent for allowing copyright owners some royalty rate increases over the
years. When
Congress first extended the satellite compulsory license in 1994, it adopted
rates that represented an increase over the rates in the original satellite
compulsory license, and provided a mechanism for adjusting those rates in the
future to reflect the market value of programming. In the 1999 extension legislation, Congress
again adopted rates that represented an increase over those put in place in
1994, even though those rates were less than those that were set by an
independent arbitration panel.
Annual adjustments
should be built into the royalty rates so that those rates reflect increases in
payments for programming made by satellite companies in the free market.
Ø
A provision to allow annual
royalty rate adjustments will eliminate the unfairness of discriminatory rate
freezes for long periods of time. Building in annual rate adjustments tied to
an objective marketplace benchmark will ensure some measure of fair
compensation to copyright owners over the life of the compulsory license.
Ø
Periodic royalty fee
adjustments will simplify the royalty rate process. With a built-in annual adjustment based on a
known benchmark, there will be less potential for dramatic rate changes
necessary to make up for long periods without adjustments and greater certainty
for copyright owners and satellite companies as well.
Ø
Other compulsory licenses
have provisions for periodic royalty rate increases. Section 119 is alone among the royalty-based
compulsory licenses in not providing a mechanism for royalty rate increases on
a periodic basis.
Copyright owners
should have a reasonable opportunity to ensure that satellite companies are
properly reporting and calculating the royalties due under the satellite
compulsory license.
Ø
Under the current law,
copyright owners have no means of verifying royalty payments short of
initiating copyright infringement lawsuits. Copyright owners have no ability under the
compulsory license to resolve unexplained discrepancies between satellite
companies’ public statements concerning subscribership and their compulsory
license royalty payments. The only
current avenue available to copyright owners is to institute wasteful and
expensive copyright infringement litigation over what may be honest or simple
errors in reporting and calculating royalties.
Ø
Other compulsory licenses
have provisions for verifying royalty payments. Other compulsory licenses in the Copyright
Act, including Sections 112 and 114, allow copyright owners to inspect the
records of the compulsory licensees to ensure compliance with the compulsory
license.
Ø
Licensing agreements that
satellite companies enter into for other programming routinely contain audit
provisions.
Inclusion of an audit provision in the satellite compulsory license
would not add any new burden on satellite companies, and is a provision that
they have been willing to accept in the marketplace.
Again, I thank you for this opportunity to
present the views of television program copyright owners, and I look forward to
responding to your questions.