Thank you Chairman Smith, Representative Berman, and members of the Subcommittee

Reauthorization of the Satellite Home Viewer Improvement Act provides Congress with an excellent opportunity to further improve the environment for providing true competition in the multichannel video programming distribution (MVPD) market.

Reauthorization of the Satellite Home Viewer Improvement Act (SHVIA)

· Section 119 of the Copyright Act, which expires on December 31, 2004, allows DBS providers to make network programming available to viewers unable to receive the signal of their local network affiliates. Without distant network signals, many subscribers would be left with NO alternative for network programming.

· Additionally, section 119 permits DBS providers to retransmit non-network broadcast stations, or “superstations,” to satellite subscribers. This compulsory license ensures that DBS providers have the same legal authority as cable to make this popular programming available to DBS subscribers.

· Cable operators enjoy a permanent compulsory license, while satellite carriers must revisit Congress every five years to receive a reauthorization.

· SBCA also strongly supports extension of the distant network “Grade B grandfather” clause, which allows certain eligible households to continue receiving distant network signals if they subscribed to these signals prior to October 31, 1999.

Recommendation: Congress should amend Section 119 of the Copyright Act to give satellite carriers a permanent compulsory license for distant network signals and superstations, as well as extend the Grade B grandfather.

Disproportionate Licensing Fees

· The statutory licensing fees that cable pays for its permanent compulsory license are calculated differently than the fees paid by satellite carriers. The result is that cable pays far lower per-subscriber royalty fees for distant network stations and superstations than do satellite providers for the exact same programming.

Recommendation: Congress should adjust the royalty rates that satellite carriers pay downward so as to equal cable’s rates.

Cable Has an Advantage Over DBS in Carriage of Broadcast Signals

· The inability of DBS providers to offer subscribers the full complement of local broadcast signals, which cable operators can do under the “significantly-viewed” rules, leaves DBS at a serious disadvantage vis-à-vis cable in competing for customers and is inconsistent with the FCC’s policy objective of ensuring that consumers have access to all network programming.

Recommendation: Congress should extend to satellite carriers a provision analogous to cable’s statutory “significantly-viewed” exception.

By amending SHVIA, Congress can advance the digital transition

· At this point, more than 1,000 broadcasters have not met their obligations to broadcast their programming in DTV.

· Congress should broaden the existing copyright license to permit DBS providers to offer network digital service in unserved areas, which would allow households that cannot receive their local network affiliate’s digital signals to receive network DTV signals from their satellite TV provider.

· The availability of distant digital signals would have no real impact on the roll out of analog local-into-local service to additional markets by DBS operators while affording consumers nationwide the availability of new digital services.

and this Committee in particular, in fostering satellite as an effective competitor in the multichannel video programming marketplace.

On behalf of the SBCA member companies, I urge the Committee to reauthorize the Satellite Home Viewer Improvement Act (SHVIA) and extend the satellite distant network signal and superstation compulsory license permanently. I would also like to recommend a handful of modifications to the SHVA that will ensure satellite television providers can continue to meet consumer expectations and compete effectively with other multichannel video programming distributors.

Overview

The satellite operators that SBCA represents provide the most advanced television choices in the multichannel video market, including high-definition television, personal video recorders and interactive services. The benefit of satellite-delivered technology like DBS is that it can reach consumers across the country without discriminating between rural and urban, sparsely or densely populated areas. Currently, nearly 22 million U.S. households receive television programming via satellite, from both direct broadcast satellite (DBS) and C-Band operators. To illustrate the tremendous growth of satellite television and DBS in particular, the last time this Subcommittee met to discuss the reauthorization of the SHVA, in 1999, there were 13 million satellite subscribers, over 10 million of whom subscribed to DBS. In five years, that number has more than doubled. Despite the emergence and continuing growth of DBS in the multichannel video marketplace, cable operators still serve 75% of multichannel video subscribers. Many factors have contributed to the growth of DBS in the multichannel video market, including the superior customer service, competitive pricing and the wide range of programming offered by DBS operators.

Local- into-Local

The growth that DBS has experienced, and the resulting benefit to consumers, is due in large part to the support the industry has received from Congress. Throughout the 16-year SHVA reauthorization process, Congress has recognized satellite’s potential and the need to amend the Act to accommodate our technological innovations and new marketplace realities. The 1999 Satellite Home Viewer Improvement Act (SHVIA) was no exception. The provision allowing DBS providers for the first time to retransmit local broadcast stations was certainly a catalyst for the industry’s recent growth.

Congress’ decision to allow DBS providers to offer local-into-local service, and the subsequent roll out of that service by DBS providers, continues to be a principal reason that customers subscribe to DBS. This permanent statutory provision has given DBS providers the ability to compete with cable head-to-head, on a level playing field, in many markets.

Currently, consumers in 112 designated market areas (DMAs), reaching 87 percent of U.S. television households, are able to receive local broadcast stations via satellite from one or both of the DBS operators. In 2000, the first year that DBS providers were allowed to retransmit local broadcast stations into local markets, only 19 percent of DBS subscribers had local signals available to them via DBS. Satellite television providers have invested significant capital to improve the technology used to offer local-into-local service and to expand their satellite fleets, which has resulted in the ability to offer local broadcast stations to an increasing portion of the country, thereby creating a more competitive multichannel video programming distribution (MVPD) market.

Reauthorization of SHVIA

Reauthorization of the Satellite Home Viewer Improvement Act provides Congress with an excellent opportunity to further improve the environment for providing advanced services and true competition in the MVPD market, in addition to continuing many of the established and proven provisions of the Act. In many critical respects, satellite carriers are saddled with regulatory provisions that are not imposed upon their competitors, and that makes satellite a less attractive option for many potential subscribers. One of the SBCA’s principle objectives is to ensure that the satellite industry is able to compete more effectively with other MVPD providers.

Section 119 of the Copyright Act, which expires on December 31, 2004, allows satellite carriers to make network programming available to viewers unable to receive the over-the-air signals of their local network affiliates. Although this important provision does not affect many households in urban and suburban areas, the service is critical to consumers in rural areas. It is imperative that satellite providers be able to make network programming available to all of its subscribers when they are unable to receive their local broadcast channels over-the-air. Without distant network signals, many subscribers would be left with no alternative for network programming.

Additionally, section 119 permits satellite carriers to retransmit non-network broadcast stations to satellite subscribers. These so-called “superstations,” such as WGN, have been a staple of cable system lineups since cable first began making its service available to consumers in the 1970’s, and helped drive the growth of the satellite television industry. They continue to be among the most popular program offerings. The compulsory license ensures that satellite carriers have the same legal authority as cable to make this popular programming available to satellite subscribers.

Section 119 also allows certain eligible households to continue receiving distant network signals if they subscribed to these signals prior to October 31, 1999. The SBCA strongly supports extension of the distant network “grandfather” clause. This group of satisfied, long-term customers has come to rely upon this service for at least the last five years, and much longer in some cases. It makes no sense from a public policy standpoint to tell consumers that they can no longer receive this programming.

In order for both DBS and C-Band consumers to continue receiving this programming, the satellite compulsory license must be extended beyond its current expiration date of December 31, 2004. Our industry is still dependent upon the compulsory license to legally retransmit distant network signals and superstations. There is no private sector mechanism for the licensing of copyrighted programming carried on a distant network signal or superstation, and there have been no efforts that SBCA is aware of to establish such a rights clearing organization for either satellite or cable providers. The Subcommittee has aptly recognized in the past that clearing the rights to the hundreds of programs that make up a retransmitted broadcast signal would be administratively and economically burdensome. The compulsory license – while not perfect – makes clearing these rights possible. Moreover, as long as the satellite industry’s chief competitor – cable – continues to enjoy a permanent, statutorily-granted compulsory license, both equity and the Congressional desire to promote competition in the MVPD marketplace dictate that satellite carriers be permitted to avail themselves of a compulsory license under the same terms as cable.

Regulatory Parity

One of the SBCA’s principle objectives in the legislative process this year is to ensure that all MVPD providers can compete on a level playing field, which means establishing some degree of regulatory parity with cable when it comes to regulations governing carriage of broadcast channels. As I noted earlier, the SHVIA saddles the satellite industry with a number of affirmative obligations and prohibitions that make it difficult for DBS providers to offer programming comparable to that offered by cable. For example, while the cable industry enjoys virtually unlimited ability to provide broadcast signals – both network and non-network, and distant or local – to its subscribers, satellite providers face strict restrictions on the broadcast signals they can provide to subscribers.

Royalty Rates

Another area of concern for satellite providers is the lack of parity between royalty rates paid under the satellite compulsory license and the cable compulsory license. In addition to enjoying a permanent license that never expires, the statutory licensing fees that cable pays are calculated differently. The result is that cable pays far lower per-subscriber royalty fees for distant network stations and superstations than do satellite providers for the exact same programming. Cable royalty rates are calculated using a formula based on the size in both subscribers and revenue of the cable system. Satellite royalty rates were last calculated by a Copyright Arbitration Royalty Panel (CARP) based on a set of factors designed to arrive at royalty rates that was as close to “fair market value” as possible. The rate that the CARP arrived at was so far in excess of the royalty rates paid by other MVPDs that Congress overturned the CARP decision and established its own statutory rates. And, as this Subcommittee knows, the whole CARP process has now been abandoned for an alternative approach. The disproportion between royalty rates paid by competing MVPDs remains a major issue for the satellite industry. In reauthorizing the SHVIA, Congress should take care to ensure that the rates are equivalent for both satellite and cable so that neither service provider enjoys an advantage over the other. In other words, the royalty rates for DBS should be adjusted downward so as to equal cable’s rates.

Carriage of Broadcast Signals

The first issue of carriage of broadcast signals that I would like to address involves DBS providers’ ability to offer a full complement of broadcast station programming. As DBS providers continue to offer more and more local-into-local services farther down the list of the 210 DMAs, there are at least 50 markets that do not have a full complement of local affiliates of the major networks. Current law does not allow DBS providers to make available to subscribers a broadcast station from a neighboring DMA to ensure that they get the whole complement of broadcast stations. This is because the local-into-local license contained in Section 122 of the Copyright Act only allows DBS operators to retransmit local stations back into the DMA to which they are assigned. Cable, on the other hand, can fill in holes in local station affiliate offerings with neighboring stations and routinely adds network affiliates and other broadcast stations so that its subscribers have the full line up of major network and other popular stations. The inability of DBS providers to offer subscribers a full complement of broadcast signals leaves them at a serious disadvantage vis-à-vis cable in competing for customers and is inconsistent with the FCC’s policy objective of ensuring that consumers have access to all network programming.

Similarly, DBS operators are not permitted to tailor their local channel offerings to respond to local community needs or interests. Cable, on the other hand, is permitted to include broadcast channels that do not originate in their local markets if those signals are “significantly viewed” by the community. There is no such provision for DBS. As a result, DBS providers must adhere to DMA market designations that do not conform to a local community’s viewing habits. For example, Comcast in New Haven, Connecticut, which is in the Hartford-New Haven DMA, offers CBS, NBC and FOX affiliates from both Hartford and New York City and ABC affiliates from both New Haven and New York City. DBS providers in New Haven cannot offer the New York City stations at all, and are thus at a serious competitive disadvantage.

Transition to Digital Television

There is a new matter that I ask you to consider relating to the Section119 compulsory copyright license for distant network signals offered by DBS. As you are aware, the transition to digital television (DTV) is mired by many technical and legal complexities. At this point, more than 1,000 broadcasters have not met their obligations to broadcast their programming in DTV. Of these stations, 252 TV stations are not broadcasting HDTV service and 749 are broadcasting at low power.[1] They continue to hoard this analog spectrum worth hundreds of billions of dollars that could be auctioned by the FCC to wireless companies eager to offer new advanced services. The DBS industry is uniquely positioned to make good on Congress’ goal that digital television become available to all Americans. By amending SHVIA, Congress can advance the digital transition.

Our proposal is simple. Allow households that cannot receive their local affiliates’ digital signals to receive network DTV signals from their satellite TV provider. This can be done by broadening the existing compulsory license to permit DBS providers to offer network digital service in unserved areas. The expanded license would limit DBS service to only those households that cannot receive an over-the-air digital network signal. The availability of distant digital signals would have no real impact on the roll out of analog local-into-local service to additional markets by DBS operators. It would simply afford consumers nationwide new digital services currently unavailable.

Waiver and Signal Strength Testing Process

Although waivers represent a small portion of the issues DBS providers must deal with, we believe the current waiver and signal strength testing process for the receipt of distant network signals by those who are predicted to receive a Grade B over-the-air signal but who nonetheless do not receive a clear picture, as spelled out in SHVIA, needs to be revisited. The waiver process is not functioning as Congress envisioned when the law was enacted. After five years of experience working with the waiver process, we can testify that the current process often leads to a bad customer experience. In some cases the law is unclear; in other cases consumers have unrealistic expectations; still in other cases DBS providers and their customers are subject to the whims of broadcasters. We recommend only permitting consumers receiving a weak Grade B signal to request a signal strength test and prohibiting broadcasters from revoking waivers once given as long as the subscriber receives continuous service from their DBS provider. Further, the rules should be clarified to eliminate consumer confusion when a subscriber lives in an area that borders on another DMA by limiting the Grade B contour to a broadcaster’s DMA for the purposes of securing waivers for a DBS subscriber to receive distant network signals. This will eliminate the need for customers to get multiple waivers from affiliates of the same network.

Conclusion

Mr. Chairman, in closing I’d like to reiterate that the SBCA and the satellite industry appreciate the efforts of Congress to ensure that DBS is a true competitor in the MVPD marketplace. With few exceptions, our experience under the SHVIA has been a positive one. While the DBS industry is growing, it is still necessary for Congress to reauthorize the extension of the satellite compulsory license and to ensure that the DBS industry is able to compete on a level playing field. To that end, this Committee should pay special attention to the royalty rates paid by satellite carriers and should endeavor to eliminate any competitive regulatory disadvantages faced by the DBS industry as it considers legislation to reauthorize the SHVIA.

[1] FCC, “Summary of DTV Applications Filed and DTV Build Out Status, January 28, 2004.