[Federal Register: December 26, 2001 (Volume 66, Number 247)]
[Notices]
[Page 66433-66455]
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LIBRARY OF CONGRESS
Copyright Office
[Docket No. 2000-2 CARP CD 93-97]
Distribution of 1993, 1994, 1995, 1996 and 1997 Cable Royalty
Funds
AGENCY: Copyright Office, Library of Congress.
ACTION: Order.
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SUMMARY: The Librarian of Congress, upon the recommendation of the
Register of Copyrights, announces his rejection of the initial and
revised reports of the Copyright Arbitration Royalty Panel (``CARP'')
in the Phase II proceeding in the syndicated programming category for
distribution of the 1997 cable royalty funds, and remands the case for
a new proceeding before a new CARP.
EFFECTIVE DATE: December 26, 2001.
ADDRESSES: The full text of the CARP's initial report and revised
report to the Librarian of Congress are available for inspection and
copying during normal business hours in the Office of the Copyright
General Counsel, James Madison Memorial Building, Room LM-403, First
and Independence Avenue, SE, Washington, DC 20559-6000.
FOR FURTHER INFORMATION CONTACT: David O. Carson, General Counsel, or
William J. Roberts, Jr., Senior Attorney for Compulsory Licenses,
Copyright Arbitration Royalty Panel (``CARP''), P.O. Box 70977,
Southwest Station, Washington, DC 20024-0400. Telephone (202) 707-8380.
Telefax: (202) 252-3423.
[[Page 66434]]
SUPPLEMENTARY INFORMATION:
Background
Each year, cable systems in the United States submit royalties to
the Copyright Office under a statutory license which allows cable
systems to retransmit over-the-air television and radio broadcast
signals to their subscribers. 17 U.S.C. 111. These royalties are, in
turn, distributed in one of two ways to copyright owners whose works
were included in the cable retransmissions of over-the-air television
and radio broadcast signals and who timely filed a claim for royalties
with the Copyright Office. The copyright owners may either negotiate a
settlement agreement amongst themselves as to the distribution of the
royalty fees or, if they cannot agree, the Librarian of Congress may
convene one or more Copyright Arbitration Royalty Panels (``CARPs'') to
determine the distribution of the royalty fees which remain in
controversy. See 17 U.S.C. chapter 8.
Cable royalty distribution proceedings are conducted by the
Librarian under the CARP system in two phases. In a Phase I proceeding,
the total cable royalty pool for a given year or years is divided among
different categories of copyrighted programming that typically appear
on broadcast programming. These categories are movies and syndicated
programming, sports programming, devotional or religious programming,
musical programming, commercial and noncommercial broadcast
programming, and Canadian programming. Once the royalty pool is divided
into these categories, the Librarian conducts one or more proceedings
at Phase II to resolve disputes within a particular category as to the
division of the royalties. Today's royalty distribution determination
is a Phase II proceeding in the movie and syndicated programming
category (often referred to collectively as the ``program supplier''
category).
The litigants in this Phase II proceeding in the program supplier
category are the Motion Picture Association of America, Inc.
(``MPAA''), which represents the majority of copyright owners who filed
claims for a distribution of 1997 cable royalties, and the Independent
Producers Group (``IPG''), which represents the remaining copyright
owners who filed claims for a cable royalty distribution. The Librarian
was required to convene a CARP to resolve this Phase II proceeding
because MPAA and IPG could not agree as to the division of royalties in
the program supplier category.
After a protracted discovery period, the Librarian convened the
CARP in this proceeding on October 17, 2000. As provided by section
802(e) of title 17, United States Code, the CARP had six months to hear
the evidentiary presentations and arguments of MPAA and IPG and to
render a decision. The CARP delivered its initial report to the
Librarian on April 16, 2001, awarding IPG 0.5% of the royalty pool and
the remainder to MPAA. After review, the Librarian returned the case to
the CARP. By Order dated June 5, 2001, the Librarian dismissed all of
the claimants comprising IPG's case except for Litton Syndications,
Inc. and directed the CARP to adjust its award to IPG and MPAA to
account for the dismissal. In addition, the Librarian directed the CARP
to articulate the methodology it was using to assign the new
distribution percentages and to detail the application of the
methodology to the facts before it. See Order in Docket No. 2000-2 CARP
CD 93-97 (June 5, 2001). The Librarian fully explains his reasoning for
rejecting the initial determination of the CARP in this Order.
On June 20, 2001, the CARP returned a new determination. It awarded
IPG 0.212% of the royalty funds, with the remaining 99.788% to MPAA.
The Librarian permitted IPG and MPAA an additional round of petitions
to modify the CARP's determination and replies. The Register now makes
her recommendation to the Librarian following her review of the CARP's
determination.
Part One--Decisions of the CARP
The Initial CARP Report
The 108-page initial report of the CARP has three essential parts.
The first part deals with the validity of the royalty claim filed with
the Copyright Office in July 1998 under 17 U.S.C. 111(d)(4) that forms
the basis for IPG's participation in this proceeding. The second part
addresses and ascribes the proper representation of specific television
programs as between MPAA and IPG. The third part of the report resolves
the division of the royalties in the program supplier category between
MPAA and IPG. The Panel awarded MPAA 99.50% of the royalties and 0.50%
to IPG.
1. IPG's Claim
The validity of IPG's claim was hotly contested in this proceeding.
The first challenge was raised in the precontroversy discovery period
when MPAA moved to dismiss IPG's Phase II case on the grounds that
IPG's claim (marked as No. 176 by the Copyright Office) did not comply
with the Office's rules and regulations. MPAA asserted that none of the
entities listed in exhibit D of IPG's written direct case, which forms
the basis of IPG's claim for royalties, appeared on claim No. 176 as
required by Sec. 252.2 of the rules. 37 CFR 252.2. According to MPAA,
IPG entered into representation agreements with the exhibit D parties
after July 31, 1998 (the closing date for filing cable royalty claims
with the Office for calendar year 1997), thereby circumventing the
requirement of Sec. 252.2 that all claimants to a joint claim be
identified on the claim as filed with the Office.
IPG's compliance with Sec. 252.2 was questionable. Stylized as a
``joint claim,'' IPG identified only one claimant--Artists Collection
Group (``ACG''). After the Copyright Office questioned the claim in
July of 1998, IPG amended the claim to include ACG and Worldwide
Subsidy Group (``WSG''). This amendment appeared, on its face, to
satisfy the requirements of Sec. 252.2, and the Office did not pursue
the matter further. However, when IPG filed a written direct case
identifying 16 other parties as claimants, the Library considered
MPAA's motion for possible violation of the rule.
In an Order dated June 22, 2000, the Library determined that the
prudent course of action was to designate the matter of MPAA's motion
to the CARP for further factual findings and final resolution. The
Library did this after consideration of IPG's objections to MPAA's
motion to dismiss, the language of Sec. 252.2, and the provisions of
the Copyright Act related to filing cable royalty claims. The Library
rejected IPG's argument that it was acceptable for ACG to file a single
claim on behalf of 16 other parties and chastised IPG for not listing
the 16 in its joint claim as provided in Sec. 252.2 . However, the
Library declined to dismiss IPG's case and designated the MPAA motion
to the CARP because:
[T]he Library cannot say with certainty that all previous claims
filed in cable royalty proceedings have listed all joint claimants.
It is sometimes the case that the Copyright Office will receive a
single claim filed by a production company that does not identify
any joint claimants. Whether this production company owns all or
some of the copyrights represented by the claim, or is just a
representative of unidentified copyright owners, is unknown to the
Office. To the Library's knowledge, these claims have not been
challenged in the past, and this is a case of first impression.
Consequently, the Library is not inclined without prior warning to
strictly enforce the requirement that all owners and distributors be
identified in a joint claim. However, what is clear, and what the
law requires, is a factual determination as to which of the owners
and distributors identified by IPG in exhibit D of its written
[[Page 66435]]
direct case were in fact represented by Worldwide Subsidy Group \1\
at the close of the filing period for 1997 cable claims. Any party
listed in exhibit D (with the exception of Lacey Entertainment,
which filed its own claim) that was not represented by Worldwide
Subsidy Group before August 1998 cannot be said to have filed a
timely claim, and therefore testimony contained in IPG's written
direct case regarding such party must be stricken.
\1\ IPG by this time had informed the Library that ACG had
withdrawn its claim and that WSG was the sole claimant remaining for
claim No. 176
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Order in Docket No. 2000-2 CARP CD 93-97 at 7 (June 22, 2000). The
Library directed the CARP to make factual determinations as to whether
there existed written agreements between WSG and each of the exhibit D
claimants dated on or before July 31, 1998, the close of the cable
royalty claim filing period. IPG submitted, as directed by the Library,
copies of the representation agreements between WSG and the exhibit D
claimants, along with additional corroborating documents to prove the
existence of a representation arrangement on or before July 31,
1998.\2\
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\2\ The Library amended its regulations after the June 22, 2000
Order to prevent future confusion as to the filing of single and
joint claims. See 66 FR 29700 (June 1, 2001).
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Upon its convocation, the CARP turned to the task of examining the
representation agreements and supporting documents to determine which,
if any, of IPG's exhibit D claimants would be allowed to remain in the
proceeding. The representation agreements are standard form contracts
for representation by WSG in collecting (among other things) cable
compulsory license royalties. The contract is effective upon the date
identified in the lead paragraph of the contract, which provides that
``as of (date),'' WSG and the identified party have entered into the
agreement. With only two exceptions, none of the signature pages in the
representation agreements bore a date indicating when the agreement was
signed and executed. Some of the additional documents provided by IPG
(copies of letters and faxes) provided context to some of the
representation agreements to indicate the time period in which they
were signed and executed.
In its report, the CARP examined the documents for each of the
exhibit D claimants and decided which claimants had a signed agreement
with WSG on or before July 31, 1998, and which did not. The CARP
determined that a valid representation agreement existed for the
following: Abrams/Gentile Entertainment; Raycom Sports; Flying Tomato
Films; Funimation Productions; Golden Films Finance Corporation IV and
American Film Investment Corporation II; Litton Syndications, Inc.;
Sandra Carter Productions; and The Tide Group d/b/a Psychic Readers
Network. The CARP found that while there may have existed a valid
representation agreement between WSG and Mendelson/PAWS, WSG's claim of
representation was trumped by General Mills, a claimant ascribed to
MPAA's claim. The CARP dismissed the United Negro College Fund from
IPG's case because it determined that a representation agreement did
not exist until sometime in November of 1998, well after the July 31,
1998, deadline.
2. IPG's Programs
As provided in the section 111 cable license, copyrighted works
that are retransmitted by cable systems on a distant basis are entitled
to royalties collected from cable systems. In the program supplier
category, which is the subject of this proceeding, these works are
movies and syndicated television programs.
After resolving the matter of which IPG claimants remained in the
proceeding, the CARP turned to the task of determining which of the
programs claimed by IPG claimants were entitled to a royalty
distribution.\3\ Some programs were claimed by both IPG and MPAA. The
following is a summary of the programs that the CARP credited to IPG's
claimants.
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\3\ Because all remaining monies in the 1997 program supplier
category automatically belonged to MPAA's claimants once IPG's claim
was determined, the CARP focused its attention only on IPG's
programs.
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a. Abrams/Gentile Entertainment. The CARP awarded all five programs
claimed by IPG--Dragon Flyz; Happy Ness, Secret of the Loch; Jelly Bean
Jungle; Sky Dancers; and Van Pires--to IPG. MPAA asserted that Jelly
Bean Jungle belonged to Audio Visual Copyright Society d/b/a
Screenrights, rather than Abrams/Gentile, but the CARP determined that
``Audio Visual Copyright Society's own 1997 [program] Certification
[did] not list such program in its claim.'' CARP Report at 53.
b. Raycom Sports. The CARP awarded all four programs claimed by
IPG--Elvis, His Life and Times; Journey of the African American
Athlete; More Than a Game; Our Holiday Memories--to IPG, finding that
the MPAA did not contest any of these titles. CARP Report at 53-54.
c. Flying Tomato Films. The CARP did not credit the one program,
Just Imagine, to Flying Tomato Films, because it determined that Litton
Syndications held the syndication rights to the program. CARP Report at
54-55.
d. Funimation Productions. The CARP identified only one program
belonging to Funimation Productions: Dragon Ball Z. The CARP determined
that Fox Family Worldwide, not Funimation Productions, was the proper
syndicator for Dragon Ball Z, and therefore IPG was not entitled to a
distribution for this program. CARP Report at 55-56.
e. Golden Films Finance Corporation IV and American Film Investment
Corporation II. Two programs were claimed by IPG for these companies:
Enchanted Tales and Thumbelina. The CARP determined that Enchanted
Tales is a series of videos, one of which is Thumbelina, and that the
syndication rights to these programs belong to Eyemark Entertainment
and Summit Media, not Golden Films and American Films. CARP Report at
58. Further, the CARP determined that both Enchanted Tales and
Thumbelina were not retransmitted by cable systems during 1997. Id.
Consequently, the CARP did not give credit to IPG for these programs.
f. Litton Syndications, Inc. IPG identified thirteen programs
belonging to Litton in its written direct case: Algo's Factory; Jack
Hanna's Animal Adventures; Dramatic Moments in Black Sports History;
Dream Big; Harvey Penick's Golf Lessons; Shaka Zulu; Story of a People;
Mom USA; Nprint; Critter Gitters; Sophisticated Gents; The Sports Bar;
and Bloopy's Buddies. The CARP eliminated Shaka Zulu and Story of a
People from IPG's claim, finding that syndication rights to Shaka Zulu
were properly held by Harmony Gold USA, not Litton, and that the proper
syndicator for Story of a People was unknown. CARP Report at 60-61. The
CARP also eliminated Dream Big, determining that Warner Brothers, not
Litton, was the syndicator of that program. Id. at 62. Although both
IPG and MPAA claimed Dramatic Moments in Black Sports History, the CARP
determined that Litton was indeed the syndicator and credited IPG's
claim with this program. Id. The remaining programs were credited to
IPG.
g. Mendelson/PAWS. The single program claimed by Mendelson/PAWS,
Garfield and Friends, was claimed by both MPAA and IPG. MPAA supplied
documentary evidence from General Mills indicating that it was the
syndicator of Garfield and Friends, even though Mendelson/PAWS produced
the program. The CARP did not credit IPG with Garfield and Friends,
determining that Mendelson/ PAWS resolved the
[[Page 66436]]
dispute by removing its claim. CARP Report at 64-65.
h. Sandra Carter Productions. IPG identified five programs
belonging to Sandra Carter: Bottom Line; By River, By Rail; Flex;
Parenting in the 90's; Til Earth and Heaven Ring. MPAA asserted that
Parenting in the 90s belonged to Audio Visual Copyright Society d/b/a/
Screenrights, but the CARP determined that Screenrights did not list
that program in their certification to MPAA and credited it to IPG.
CARP Report at 66. The CARP determined that Bottom Line; By River, By
Rail; and Til Earth and Heaven Ring appeared on television station
WBAL-TV, Baltimore, Maryland, and was not subject to a distant
retransmission by a cable system. These programs were removed from
IPG's claim. Id. at 66-67. Finally, the CARP credited Flex to IPG.
i. The Tide Group d/b/a Psychic Readers Network. IPG claimed
several programs for the Tide Group that had multiple titles. The CARP
credited IPG with Alcatraz as one program, Kenny Kingston as one
program, and Psychic Readers (with its alternate title Psychic Readers
Network) as one program. CARP Report at 68.
j. United Negro College Fund. IPG claimed one program for the
United Negro College Fund: Lou Rawls Parade of Stars. However, the CARP
determined that the United Negro College Fund did not have a valid
representation agreement with WSG by July 31, 1998. Consequently, IPG
did not receive credit for Lou Rawls Parade of Stars. CARP Report at
69-70.
k. Lacey Entertainment. Both MPAA and IPG claimed credit for Lacey
Entertainment's two programs: America's Dumbest Criminals and Mega Man.
The CARP found that Lacey confirmed that MPAA was its representative
for section 111 royalties for Mega Man and that Lacey was not the U.S.
distributor for America's Dumbest Criminals. Consequently, the CARP did
not credit IPG with these programs. CARP Report at 71-72.
3. The Distribution Percentages
The third part of the CARP's report, which awards IPG 0.5% of the
royalties and MPAA 99.5%, is the most troubling portion. After leveling
a number of criticisms at both MPAA's and IPG's proposed distribution
methodologies, the CARP failed to articulate the method it settled upon
in assigning the 0.5% and 99.5% awards.
Both MPAA and IPG proposed detailed methodologies for determining
the royalty awards in this proceeding. MPAA's methodology is based upon
viewership analysis of movies and syndicated television programs
retransmitted by cable systems in 1997 on a distant signal basis. The
underlying premise of the MPAA formula is that actual viewing of movies
and syndicated television programs by cable subscribers is the best way
to determine the marketplace value of the programming. The source
elements for determining actual viewership are: (1) TVData station
logs, which show the programs broadcast by the stations and the date
and time of their broadcast, for the 82 television stations used by
MPAA in its sample survey; (2) a special study of the same 82 stations
for the sweeps period conducted by Nielsen Media Research; (3) program
ownership data (i.e. which claimants to the 1997 cable royalties own
which programs) as contained in the Cable Data Corporation (``CDC'')
database; and (4) the weighting factors used by CDC to interpolate
viewing for non-sweeps months when data from Nielsen is not available.
CARP Report at 81.
The CARP described the details of MPAA's distribution methodology
as follows:
MPAA selects 82 of the most heavily carried stations
retransmitted as a distant signal by Form 3 system operators. Form 3
systems subscribers comprise the largest group of cable
subscribers--89% and their gross receipts represent the largest
portion--96.5%--of the 1997 cable royalty fund.
The program schedules of these stations are acquired from
TVData. The program information is matched to viewing data provided
by Nielsen Media Research (``Nielsen''). In particular, Nielsen
provides the number of quarter hour segments (QH) each program aired
on the station and the average number of cable subscribers who
viewed each program on that station on a distant basis.
For each station in the MPAA sample, Nielsen goes into the diary
database of approximately 150,000 homes for each sweep, eliminates
diaries in local area of the station (as supplied by MPAA), sums the
weights by quarter hour for each diary and generates estimated
projections on quarter-hour-by-quarter-hour basis.
MPAA then calculates the household viewing hours (HHVH) for each
series and motion picture in the study. Household viewing hours for
every program (claimed and unclaimed) is [sic] calculated for each
program using the Nielsen data and interpolated audience data for
non-sweeps periods.
After reconciling programs with broadcast times, MPAA then
calculates the household viewing hours (HHVH) for each series and
motion picture in the study using the Nielsen data and interpolated
audience data.
The HHVH formula is: (QH/4) x DCHH = HHVH. The formula
may be stated as follows: Add the total number of QH segments a
program is broadcast in a particular time slot on a particular
station. The sum is divided by four to get an hourly measure. The
result is multiplied by the average number of distant cable
households (DCHH) that actually watched the program on that station
during the time period.
CARP Report at 81-82 (footnotes omitted). Applying MPAA's formula to
the 1997 data yields, according to MPAA, a determination that
programming represented by MPAA received 99.9292% of the total distant
viewing--3,474,810,364 viewing hours out of 3,477,272,694 total viewing
hours. MPAA therefore asked for 99.9292% of the 1997 cable royalties.
MPAA Findings of Fact at 20, para. 55.
IPG proposed a different distribution methodology which yields a
greater distribution percentage to IPG. Instead of focusing on
viewership as the main valuation method, IPG's methodology operates
from the premise that it is best to look at the availability of
programming offered to subscribers and the benefits received by the
cable operators who retransmit that programming. IPG submits that while
the decision of a television station to transmit a particular program
is driven by a desire for viewership ratings, cable systems are not
concerned with viewership of a particular program, but rather are
concerned with attracting and holding the greatest number of
subscribers by offering multiple programming choices. IPG attempts to
place a value on each and every broadcast using the following data: (1)
The number of distant cable subscribers capable of receiving the
program broadcast during 1997; (2) the distant retransmission royalties
generated during 1997 that are attributable to stations broadcasting a
particular program; (3) the time placement of the broadcast; and (4)
the length of the particular broadcast. CARP Report at 95.
The CARP described IPG's distribution methodology as follows:
IPG expanded MPAA's station sample to 99 television stations,
including only those with a combined percentage of distant cable
subscribers and ``fees gen.'' (fees generated) significantly greater
than the original selection. The added stations were heavily
retransmitted according to distant subscribership data for Form 1,
Form 2, and Form 3 cable systems.
IPG secured data from TVData reflecting all programs broadcast
on the 99 Sample Stations, 24 hours a day, for the entire year of
1997 and segregated programming compensable in the syndicated
programming category.
IPG accorded a ``Station Weight Factor'' to each and every
compensable broadcast blending of (i) the average percentage of
distant cable subscribers capable of viewing the station of
broadcast and (ii) the average percentage of ``fees gen.''
attributable to the station of broadcast, as compared to the other
99 Sample Stations.
[[Page 66437]]
IPG then accorded a ``Time Period Weight Factor'' based on the
time period or daypart of the program broadcast, weighted according
to data derived from the ``1998 Report on Television'' published by
Nielsen Media Research, and factored in the length of each such
broadcast.
CARP Report at 96 (footnotes omitted; parenthetical not in original).
Applying IPG's methodology to its data yields, according to IPG, a
determination that 0.881% of the aggregate Sum Weighted Value of all
programs claimed in this proceeding belongs to IPG. IPG Findings of
Fact at 16-17, para. 51.
Both MPAA and IPG leveled criticisms at each other's methodologies,
and the CARP details those criticisms. See CARP Report at 82-94 (IPG);
97-102 (MPAA). The CARP accepted the following criticisms of MPAA's
approach:
--MPAA's direct testimony did not sufficiently lay the foundation for
the survey or explain its results.
--The Panel was forced to call its own witnesses, Mr. Lindstrom from
Nielsen, and Mr. Larson from Cable Data Corporation to explain their
methods of data acquisition and reporting.
--The number of sampled stations [in MPAA's station survey] has
declined without adequate explanation.
--Station selection criteria was excluded Form 1 and Form 2 cable
systems.
--The number of ``zero'' viewing hours shows the flaw in attempting to
use the Nielsen data as a proxy for the retransmission market
especially since Nielsen had 24 hour sampling capability in 1997.
--There are unanswered technical questions regarding relative error
rates and mixing diary and meter data.
--The method of interpolation of non-sweep month estimated viewing
needs statistical validation.
--There is an overvaluation of WTBS and under-valuation of the other
Superstations in the survey.
Id. at 102-103.
The CARP found the following criticisms of IPG's methodology:
--A mathematically sound basis for the creation and application of the
station weight factor and time period weight factor should have been
presented by a statistician.
--Daypart data was misapplied thus overstating ``all other'' viewing.
--It doesn't directly address the marketplace value of the works
transmitted, a primary criteria.
Id. at 103.
After stating that it was ``recogniz[ing] the strengths and
weaknesses'' of MPAA's and IPG's approaches, the Panel proceeded to
summarily award IPG 0.5% of the 1997 cable fund and the remaining 99.5%
to MPAA. The CARP did observe that ``certain ``claimants'' had not
satisfied the criteria for asserting their claims and certain programs
were not qualified. The Panel did not award any royalty allocation for
such unqualified ``claimants'' nor did it award any royalty allocation
for unqualified programs.'' Id. at 106.
Standard of Review
Section 802(f) of the Copyright Act directs that, upon the
recommendation of the Register of Copyrights, the Librarian shall adopt
the report of the CARP ``unless the Librarian finds that the
determination is arbitrary or contrary to the applicable provisions of
this title.'' The narrow scope of review has been discussed in great
detail in prior decisions which have concluded that the use of the term
``arbitrary'' in this provision is no different than the ``arbitrary''
standard described in the Administrative Procedure Act, 5 U.S.C.
706(2)(A). See 63 FR 49823 (September 18, 1998); 63 FR 25394 (May 8,
1998); 62 FR 55742 (October 28, 1997); 62 FR 6558 (February 12, 1997);
61 FR 55653 (October 28, 1996). Thus, the standard of review adopted by
the Librarian is narrow and provides that the Librarian will not reject
the determination of a CARP unless its decision falls outside the
``zone of reasonableness'' that had been used by the courts to review
decisions of the Copyright Royalty Tribunal (``CRT''). See National
Cable Television Ass'n. v. Copyright Royalty Tribunal, 724 F.2d 176,
182 (D.C. Cir. 1983). Moreover, based on a determination by the
Register and the Librarian that the Panel's decision is neither
arbitrary nor contrary to law, the Librarian will adopt the CARP's
determination even if the Register and the Librarian would have reached
conclusions different from the conclusions reached by the CARP.
The U.S. Court of Appeals for the District of Columbia Circuit has
stated, however, that the Librarian would act arbitrarily if ``without
explanation or adjustment, he adopted an award proposed by the Panel
that was not supported by any evidence or that was based on evidence
which could not reasonably be interpreted to support the award.'' See
National Ass'n of Broadcasters v. Librarian of Congress, 146 F.3d 907,
923 (D.C. Cir. 1998).
For this reason, the Panel must provide a detailed rational
analysis of its decision, setting forth specific findings of fact and
conclusions of law. See National Cable Television Ass'n. v. Copyright
Royalty Tribunal, 689 F.2d 1077, 1091 (D.C. Cir. 1992) (requiring CRT
to weigh all relevant considerations and set out its conclusions in a
form that permits the court to determine whether it has exercised its
responsibilities lawfully).
It is then the task of the Register of Copyrights to review the
Panel's report and make her recommendation to the Librarian as to
whether it is arbitrary or contrary to the provisions of the Copyright
Act and, if so, whether and in what manner the Librarian should
substitute his own determination.
Remand to the CARP
After receiving the CARP's initial determination, the Register of
Copyrights recommended, and the Librarian accepted, that the Report be
rejected and remanded to the CARP for further consideration. It was
apparent from reviewing the Report that the CARP had acted arbitrarily
in three instances: (1) The CARP misapprehended the intent of the June
22, 2000, Order designating consideration of the circumstances of IPG's
representation agreements with its exhibit D claimants; (2) the CARP
awarded programs to an IPG claimant when there was no introduction of
evidence as to the value of the program and assigned another program to
IPG without adequate explanation of its decision; and (3) the CARP
failed to articulate the reasoning it used in arriving at a
distribution percentage of 0.5% for IPG and 99.5% for MPAA. See Order,
Docket No. 2000-2 CARP CD 93-97 (June 5, 2001).
1. Dismissal of Additional IPG Claimants
As discussed above, the status of IPG's claim No. 176 has been a
focal point of this proceeding. MPAA has moved to dismiss IPG's entire
claim no less than three times, claiming that claim No. 176 flouts the
Copyright Office's rules and the statute, and is a fraud on the
Library. The CARP appears to agree with MPAA's contentions, but stops
short of dismissing most if not all of IPG's exhibit D claimants,
noting that it ``is attempting to accommodate the Copyright Office's
previously created, one-time exception to the strict enforcement of the
Copyright Office's claim filing rules, while aspiring to achieve
fairness for all affected claimants.'' CARP Report at 42.
The Register concludes that the CARP did not follow the direction
and intent of the June 22, 2000, Order directing it to consider the
status of IPG's representation of the exhibit D
[[Page 66438]]
claimants. The rule and intent of that Order are as follows.
Section 111(d)(3) of the Copyright Act states that royalties
collected from cable systems under the cable statutory license may only
be distributed to copyright owners ``who claim that their works were
the subject of secondary transmissions by cable systems during the
relevant semiannual period.'' 17 U.S.C. 111(d)(3). This means that it
is copyright owners--individuals or entities that own one or more of
the exclusive rights granted by section 106 of the Copyright Act--that
are entitled to royalty fees, not those who represent them in CARP
proceedings. The statute also provides that royalty fees may only be
distributed to ``claimants'' that file a claim with the Copyright
Office during the month of July for royalties collected in the previous
calendar year. 17 U.S.C. 111(d)(4)(A). Further, the statute states that
claims filed with the Copyright Office shall be submitted ``in
accordance with requirements that the Librarian of Congress shall
prescribe by regulation.'' Id.
The Librarian adopted such regulations, which are found at part 252
of 37 CFR. Section 252.3 of the rules prescribes the content of a cable
claim, distinguishing between ``individual claims'' and ``joint
claims.'' An ``individual claim'' involves royalties that are being
sought by a single ``claimant,'' whereas a ``joint claim'' involves two
or more ``claimants.'' The requirements for an ``individual claim'' are
``a general statement of the nature of the claimant's copyrighted works
and identification of at least one secondary transmission by a cable
system of such works establishing a basis for the claim.'' 37 CFR
252.3(a)(4). ``Joint claims'' have an additional requirement. If the
claim is a ``joint claim,'' there must be ``a concise statement of the
authorization for the filing of the joint claim, and the name of each
claimant to the joint claim.'' 37 CFR 252.3(a)(3). Additionally, the
``joint claim'' must have ``a general statement of the nature of the
joint claimants'' copyrighted works and identification of at least one
secondary transmission of one of the joint claimants' copyrighted works
by a cable system establishing a basis for the joint claim.'' 37 CFR
252.3(a)(4).\4\
---------------------------------------------------------------------------
\4\ See footnote 2, supra.
---------------------------------------------------------------------------
The June 22, 2000, Order recounts the history of Sec. 252.3, and it
will not be repeated here. See June 22 Order at 2-5. The importance
about Sec. 252.3 in the context of this proceeding is that it uses the
word ``claimant'' in the text, as opposed to the terms ``copyright
owner'' or ``holder of one or more of the exclusive rights granted by
section 106 of the Copyright Act.'' IPG argued to the Library in
response to MPAA's initial motion to dismiss its claim that it was
acceptable for Artists Collection Group (``ACG'') to file an individual
claim, even though it represented several copyright owners, because it
was the only ``claimant'' submitting a claim. June 22 Order at 5. If
Sec. 252.3 had used the term ``copyright owner'' instead of
``claimant,'' then this clearly would not be a permissible
interpretation of the rule. The Library disagreed with IPG's
interpretation of Sec. 252.3, concluding instead that what ACG had
filed was in reality a joint claim, because it was representing only a
group of copyright owners who would ultimately be entitled, under 17
U.S.C. 111(d)(3), to the royalties. Id. at 6. However, ACG did not list
the exhibit D claimants it represented on the claim, as required by
Sec. 252.3(a)(3) for joint claims, other than to list Worldwide Subsidy
Group (``WSG'') which, as was revealed in the proceedings before the
CARP, was nothing more than an unregistered, fictitious business name
for ACG. CARP Report at 35. The Library did not take the harsh step of
dismissing IPG's claim for ACG's failure to list the exhibit D
claimants on claim No. 176. Instead, the Library made a one-time
exception to the requirement by affording IPG the opportunity to prove
that ACG/WSG had entered into valid written representation agreements
with each of the exhibit D claimants on or before July 31, 1998, the
last day for filing claims to 1997 cable royalties. The Library did
this because it could not
say with certainty that all previous claims filed in cable royalty
proceedings have listed all joint claimants. It is sometimes the
case that the Copyright Office will receive a single claim filed by
a production company that does not identify any joint claimants.
Whether this production company owns all or some of the copyrights
represented by the claim, or is just a representative of
unidentified copyright owners, is unknown to the Office. To the
Library's knowledge, these claims have not been challenged in the
past, and this is a case of first impression. Consequently, the
Library is not inclined without prior warning to strictly enforce
the requirement that all owners and distributors be identified in a
joint claim.
June 22 Order at 7.
In designating to the CARP for factual determination the status of
ACG/WSG as representatives of the exhibit D claimants, the Library
offered some decisional guidelines:
First, because Worldwide Subsidy Group did not list any joint
claimants, IPG has the burden of proving that it represented each of
the exhibit D parties for distribution of 1997 cable royalties on or
before July 31, 1998. Second, IPG must submit written proof of
representation for each exhibit D party. Written proof is required
because claim No. 176 does not identify any of the exhibit D
parties, and because testimonial evidence alone will not preserve
the integrity of the law and the regulations which prohibit adding
parties to a joint claim after the fact. Proof must be in the form
of written agreements of representation between IPG and each of the
exhibit D parties executed on or before July 31, 1998. Finally, if
the CARP determines that one or more of the exhibit D parties were
not validly represented by Worldwide Subsidy Group for distribution
of 1997 cable royalties on or before July 31, 1998, the CARP must
strike that portion of IPG's written direct case related to that
party or parties.
June 22 Order at 7
After issuance of the June 22 Order, IPG petitioned the Library for
reconsideration, asserting that it had written material in addition to
the standard form contract entered into between WSG and the exhibit D
claimants that clarified that a representational arrangement existed on
or before July 31, 1998. The Library clarified that the ``June 22
Order's requirement that proof of representation ``must be in the form
of written agreements'' does not mean that IPG's standard
representational agreement form is the only acceptable document that
proves timely representation.'' Order in Docket No. 2002-2 CARP CD 93-
97 at 4 (September 22, 2000). The Library allowed IPG to submit
additional documentation, but did not permit the introduction of
testimonial evidence. IPG submitted the additional documents, which
consisted of letters and faxes discussing the representational
contracts submitted earlier by IPG, on October 10, 2000 (these
documents are hereinafter referred to as the ``October 10 documents'').
The Library has reviewed the representational contracts and the
October 10 documents for all sixteen of the exhibit D claimants.
Several things are evident from this examination. First, with the
exception of two of the contracts, they do not contain any dates of
execution of the signature page.\5\ Rather, the contract bears a
provision, in the lead paragraph, that it is effective ``as of'' a
certain date. In all instances this date is on or before July 31, 1998.
Second, it is apparent from the October 10 documents that the ``as of''
date in the contract is not the date of execution
[[Page 66439]]
of the contract. Rather, it was the practice of WSG to send a copy of
its contract to a potential client during negotiations for
representation and type in the ``as of'' date at that time. The
contract may not have been signed and executed for weeks, or even
months, after the ``as of'' date. Third, there are not October 10
documents for all of the exhibit D parties. For some, the only document
evidencing representation is the contract itself bearing the ``as of''
date.
---------------------------------------------------------------------------
\5\ The contract with Jay Ward Productions was dated ``11/02/
99.'' IPG, however, voluntarily withdrew Jay Ward Productions from
its case. Likewise, Mainframe Entertainment's contract was dated
October 8, 1998, and IPG also withdrew Mainframe from its case.
---------------------------------------------------------------------------
In each instance, with the exception of the United Negro College
Fund, the CARP accepted the ``as of'' date on the representational
contracts as evidence that a representational agreement existed on that
date. The Register determines that that decision is arbitrary because
it runs contrary to the evidence presented to the CARP. The Register
also determines that the Panel's decision on this point countervails
the June 22 Order. Pursuant to the terms of that Order, the burden was
squarely on IPG to demonstrate through documentary evidence that a
valid representational arrangement existed on or before July 31, 1998.
The ``as of'' date is not evidence of such an arrangement, because it
is clear from the October 10 documents that the contracts were signed
sometime after the ``as of'' date. In those circumstances where there
is documentary evidence that the contract was signed on or before July
31, 1998, IPG has met its burden of proving a representational
arrangement.
For Raycom Sports, Abrams/Gentile Entertainment, Funimation
Productions, and Sandra Carter Productions, the only documents supplied
by IPG are the representational contracts. Because the ``as of'' dates
on these contracts do not prove the dates of their execution, it cannot
be determined whether they were signed, and a valid representational
arrangement existed, on or before July 31, 1998. Consequently, these
parties are dismissed from this proceeding.
There are October 10 documents for The Tide Group d/b/a Psychic
Readers Network, but they do not prove that the representational
contract had been signed or that a valid representational arrangement
had been reached on or before July 31, 1998. Consequently, this party
is dismissed.
The CARP dismissed the United Negro College Fund because the
October 10 documents suggested that the representational contract was
not signed on or before July 31, 1998. The contract bears no date on
the signature page, and an ``as of'' date of July 30, 1998, is
handwritten in the first paragraph. There are October 10 documents
discussing entering into a representational agreement in November of
1998, which led the CARP to conclude that a representational
arrangement did not exist as of July 30, 1998. IPG has not met its
burden of demonstrating that a representational arrangement existed on
or before July 31, 1998. Consequently, the Register accepts the CARP's
determination to dismiss the United Negro College Fund.
The only exhibit D party for which IPG has met its burden is Litton
Syndications.\6\ While there is no date of execution on the Litton/WSG
contract, there is a June 16, 1998, letter from Peter Sniderman of
Litton to Raul Galaz of WSG stating that ``enclosed are four copies of
the executed Litton Syndications, Inc.--Worldwide Subsidy Group
agreement.'' In addition, there is a June 18, 1998, letter from Galaz
to Sniderman stating that ``enclosed herein please find two (2) fully
executed originals of the above-referenced agreement.'' It is clear
from these documents that a valid representational arrangement existed
between Litton and WSG prior to July 31, 1998. IPG has therefore met
its burden as provided in the June 22 Order.
---------------------------------------------------------------------------
\6\ The remainder of the exhibit D parties have been either
withdrawn from the preceeding, or their programs have been credited
to another. The programs of Beacon Communications Corp., Cosgrove-
Meurer Productions, Jay Ward Productions, Mainframe Entertainment,
and Scholastic Entertainment were withdrawn by IPG. Flying Tomato
Films' program was credited to Litton. CARP Report at 55. Mendelson/
PAWS, Inc.'s programs were credited to MPAA. Id. at 64. The CARP
determined that Golden Films Finance Corporation IV and American
Film Corporation II were not entitled to a distribution because
their programs were not retransmitted by a cable system on a distant
basis. Id. at 58. Lacey Entertainment's programs were credited to
MPAA. Id. at 71-72.
---------------------------------------------------------------------------
2. The Status of ACG, WSG and IPG
After the extended discussion and analysis of claim No. 176 in the
June 22 Order and above, one might believe that the validity of claim
No. 176 is definitively resolved. This is not so, because of issues
surrounding the names--ACG and WSG--that appeared on the claim. The
Library must therefore resolve whether claim No. 176 was a deliberately
perpetrated fraud on the Copyright Office and the section 111 filing
system.
The CARP Report devotes a considerable amount of discussion to the
identity and status of ACG, WSG, and IPG. It is a complicated
discussion. When claim No. 176 was originally filed with the Copyright
Office on July 11, 1998, it listed ACG as the sole claimant. ACG was
incorporated in May of 1998 in the state of California by Raul Galaz,
its principal, for the apparent purpose of representing claimants
before the Library for cable and satellite television royalties.
Although ACG was the only claimant on claim No. 176, the claim stated
that it was a joint claim being filed on behalf of ACG and ``on behalf
of others.'' Claim No. 176. Mr. Galaz signed the claim. When Mr. Galaz
was informed by the Copyright Office that in order for claim No. 176 to
be a joint claim it must identify at least one other claimant, he
amended claim No. 176 to include WSG. At that time, WSG was nothing
more than an unregistered, fictitious business name for ACG. The
following year, Mr. Galaz moved from California to Texas, whereupon he
filed articles of incorporation for WSG in Texas. Before leaving
California, Mr. Galaz also registered the name WSG in California as a
fictitious business name for WSG.
Once in Texas, Mr. Galaz took steps in 2000 to dissolve ACG by
filing articles of dissolution in California for ACG. This left WSG as
a Texas corporation. Mr. Galaz then adopted an unregistered, fictitious
business name for WSG in Texas: IPG. When MPAA moved to dismiss claim
No. 176 in June of 2000, IPG informed the Library in a footnote of its
opposition to the motion that ACG had voluntarily withdrawn its claim
from the proceeding, leaving WSG Texas/IPG as the sole claimant in this
proceeding.
The first question is whether these various changes in identity
were an attempt to perpetrate a fraud on the Copyright Office by hiding
from the Office the real claimants in this proceeding. In other words,
did IPG deliberately refrain from listing its exhibit D claimants in
claim No. 176 (Litton, Flying Tomato Films, et al.) because it was
hiding something from the Office? Assuming that listing only ACG and
WSG (California) on claim No. 176 was not an honest mistake, as IPG
vigorously claims that it was, the only reason the Library can divine
for not listing the exhibit D claimants was that ACG/WSG did not then
represent some or all of those claimants or, in the alternative, ACG/
WSG did not want to preclude the possibility of signing up additional
claimants after the July 31, 1998, deadline.
Whether or not this was ACG/WSG's true motivation is unknown,
although the CARP at least suggests a sinister element in Mr. Galaz's
actions. CARP Report at 42. In any event, the Register believes that
the Library has satisfactorily dealt with the status of IPG's
representation of the exhibit D claimants in the June 22, 2000, Order
and the above discussion. It is apparent that WSG--i.e., Mr. Galaz--had
a valid
[[Page 66440]]
representation arrangement with Litton Syndications in July of 1998
before the close of the cable claim filing period. The Library need not
make any determination as to whether Litton's agreement was with ACG/
WSG California, WSG Texas, or IPG. Any attempt to do so would
necessarily involve questions of state law with respect to the effect
of incorporation of a company and use of fictitious business names.
Such determinations are beyond the jurisdiction of the Library and are
unnecessary in this proceeding. Mr. Galaz/WSG had a valid
representation agreement with Litton in July of 1998, and Litton
affirms this relationship by allowing IPG to represent it in this
proceeding. Because the Library has agreed--this one time \7\--that it
was acceptable that Litton did not appear on claim No. 176, supra,
Litton has a valid claim in this proceeding.
---------------------------------------------------------------------------
\7\ See footnote 2, supra.
---------------------------------------------------------------------------
The second question surrounds ACG's voluntary withdrawal from this
proceeding. MPAA contends that when ACG withdrew its claim that left
only WSG California on claim No. 176, and WSG California was nothing
more than a fictitious business name for ACG. MPAA Petition to Modify
CARP Report at 33. Litton's representation agreement is with WSG Texas,
which is not a claimant in this proceeding, and therefore claim No. 176
must be dismissed. IPG responds that it was counsel's mistake to inform
the Library that ACG had withdrawn its claim and that such mistake
should be discounted because it appeared in a footnote to an opposition
to MPAA's motion to dismiss. IPG Reply to MPAA Petition to Modify CARP
Report at 27-29.
Once again, the legal status of ACG, WSG California, WSG Texas, and
IPG involve questions of state law beyond the jurisdiction of the
Library. While it is true that IPG did state that the claims of ACG
were withdrawn, it is illogical to assume that IPG was effectively
ending its case by rendering claim No. 176 void. Rather, it is apparent
that IPG believed that it held all rights of ACG when it sought to
dissolve ACG in California, particularly since Mr. Galaz was the
principal for both organizations. It would work a serious injustice to
deny Litton royalties based upon a determination that Mr. Galaz made a
technical error in assuming that all rights of ACG were held by IPG
before ACG withdrew from the proceeding. Indeed, while IPG stated that
it was withdrawing ACG's claim, the Library did not enter any order to
that effect, leaving the status of ACG in this proceeding unresolved.
Certainly, the actions of Mr. Galaz are not to be condoned and should
serve as a warning to future claimants to make sure that proper
transfers of rights between corporations are effected prior to seeking
dismissal or dissolution of a claimant. However, the Library has
determined that a valid representation arrangement existed for Litton
and that, in this instance, it is appropriate that Litton's claim be
allowed to go forward.
Finally, there is the question of the programs listed on claim No.
176. Section 252.3(d)(4) requires that for joint claims there must be
an ``identification of at least one secondary transmission of one of
the joint claimants' copyrighted works by a cable system establishing a
basis for the joint claim.'' 37 CFR 252.3(a)(4). ACG listed two
programs on claim No. 176, Unsolved Mysteries and Garfield and Friends,
neither of which was ultimately credited to IPG. Unsolved Mysteries was
dropped from IPG's case because it was determined that it was a network
program not eligible for section 111 cable royalties. Both IPG and MPAA
claimed Garfield and Friends, and the CARP ultimately determined that
it was properly credited to MPAA. This means that ACG did not identify
a secondary transmission on claim No. 176 that belonged to one or more
of its joint claimants.
The purpose of requiring identification of at least one secondary
transmission by a cable system is to permit the Copyright Office to
determine if the claim is facially valid. In other words, if a claimant
lists a network program, or a program that was not retransmitted in the
calendar year for which royalties are sought, the Office can take
immediate action either to request further information, or to dismiss
the claim. The Office has contemplated amending its rules to require
claimants to identify all the programs that comprise their claim, but
is aware that there is considerable opposition among copyright
claimants to adopting such a requirement. If the program listed on a
claim appears facially valid, the Office does not attempt to resolve
its ownership status and the claim is allowed to go forward. In this
case, it is apparent that IPG had a colorable claim to Garfield and
Friends, believing that it had a valid representation agreement with
Mendelson/PAWS, the producer of the Garfield programs. The CARP
determined, however, that MPAA had a stronger claim, ruling that
General Mills held the syndication rights to the programs.
Consequently, this is not a case where IPG had no realistic claim to
Garfield and Friends.\8\
---------------------------------------------------------------------------
\8\ The same cannot be said for Unsolved Mysteries. Unsolved
Mysteries is a network program which can never be eligible for
section 111 royalties. See 17 U.S.C. 111(d)(3)(A) (only nonnetwork
programs are eligible for distributions). ACG should have known that
Unsolved Mysteries failed to satisfy the requirements of 37 CFR
252.3(a)(4). If this had been the only program that ACG listed in
claim No. 176, there would be solid grounds for dismissal of the
claim.
---------------------------------------------------------------------------
Given the dispute over ownership rights of Garfield and Friends,
the Register determines that it would be unjust to invalidate all of
the claims covered by claim No. 176 because it was ultimately
determined that MPAA held the superior claim to the program. Were we to
rule the other way, it would make Sec. 252.3(a)(4) a trap for unwary
joint claimants. Since the rule requires identification of only one
secondary transmission, hundreds of joint claims could potentially be
invalidated if a single program is identified that, after litigation
before a CARP, is determined to have a superior claimant. There is also
the question of what might happen if the joint claimant with the single
identified program withdraws its claim or changes representation in the
proceeding. Such gamesmanship could potentially wipe out many otherwise
valid claims from the proceeding. Because IPG had a colorable claim to
Garfield and Friends at the start of this proceeding, it would be
unjust to invalidate claim No. 176 because the program was ultimately
awarded to MPAA.
In sum, the Register concludes that claim No. 176 is sufficiently
valid to allow the claim of Litton, as described below, to go forward
in this proceeding and receive a distribution of royalties.
3. Programs Credited to Litton
During proceedings before the CARP, IPG claimed thirteen programs
for Litton: Algo's Factory; Jack Hanna's Animal Adventures; Dramatic
Moments in Black Sports History; Dream Big; Harvey Penick's Private
Golf Lessons; MomUSA; Nprint; Critter Gitters; Shaka Zulu;
Sophisticated Gents; The Sports Bar, Bloopy's Buddies and Story of a
People. The CARP did not credit IPG with Shaka Zulu, finding that the
program properly belonged to Harmony Gold USA, and determined that
Story of a People was an unclaimed program. The CARP also did not
credit IPG with Dream Big, determining that it was properly claimed by
Warner Bros. as the syndicator of the program. The remaining programs
were credited to IPG.
In its petition to modify the initial decision of the CARP, MPAA
challenges
[[Page 66441]]
the CARP's determination to credit Litton with Dramatic Moments in
Black Sports History, Critter Gitters, and Bloopy's Buddies. The CARP
credited Critter Gitters and Bloopy's Buddies to Litton because these
programs appeared on Litton's representation agreement with WSG. CARP
Report at 59. Both MPAA and IPG claimed Dramatic Moments in Black
Sports History. After allowing evidentiary supplements to IPG's and
MPAA's claim on this program, the CARP stated that ``[i]n view of the
entire supplemented record, therefore, the CARP finds that Dramatic
Moments in Black Sports History is represented under the IPG rather
than the MPAA claim.'' Id. at 61-62.
With respect to Critter Gitters and Bloopy's Buddies, MPAA asserts
that ``IPG made no claim for either program'' and ``presented no
evidence of their value.'' MPAA Petition to Modify CARP Report at 44.
Further, MPAA asserts that the CARP ``cites no evidence that either
program was broadcast in the United States.'' Id. With respect to
Dramatic Moments in Black Sports History, MPAA argues that:
The program is listed in MPAA's list of claimed programs. The
claimant--New Line Cinema Corporation--appears on MPAA's list of
claimants. It appears on the alpha list as owned by New Line Cinema.
New Line has certified its entitlement to royalties for Dramatic
Moments in Black Sports History. The record, therefore, only will
support a conclusion that MPAA represents New Line.
Id. at 43-44 (footnotes omitted).
In response to MPAA's challenge of Critter Gitters and Bloopy's
Buddies, IPG acknowledges that it made no claim in these programs and
did not present any evidence of their value ``because both programs
appear to have been broadcast exclusively on non-commercial television
stations.'' IPG Reply to MPAA Petition to Modify CARP Report at 34. IPG
``does not challenge modification of the Panel Report to reflect that
such programs were not claimed by IPG.'' Id. IPG does assert, however,
that there was evidence supporting its claim to Dramatic Moments in
Black Sports History, stating that the program is ``expressly
identified in the contract between Litton and WSG'' and was therefore
properly credited to IPG. Id.
It is apparent that the CARP acted arbitrarily in crediting IPG
with Critter Gitters and Bloopy's Buddies, and the Register recommends
rejecting this determination and removing the programs from Litton's
list. With respect to Dramatic Moments in Black Sports History, the
CARP offered no reasons or explanation as to why it was awarding the
program to IPG rather than MPAA, other than to state that such result
was obtained ``[i]n view of the entire supplemented record.'' CARP
Report at 61-62. Unexplained decisionmaking is the hallmark of
arbitrary action. The Register therefore recommends rejection of the
CARP's award of Dramatic Moments in Black Sports History to IPG. The
June 5, 2001, Order directed the CARP to explain its reasoning for
awarding Dramatic Moments in Black Sports History to IPG.
In sum, the June 5, 2001, Order directed the Panel to credit the
following programs to Litton: Algo's Factory; Jack Hanna's Animal
Adventures; Harvey Penick's Private Golf Lessons; Mom USA; Nprint;
Sophisticated Gents; The Sports Bar; and Just Imagine.\9\ The Order
also directed the CARP to explain its reasons for crediting Dramatic
Moments in Black Sports History to IPG and, if it continued to believe
that it made the correct determination, to credit IPG with that
program.
---------------------------------------------------------------------------
\9\ The CARP determined that Just Imagine was properly credited
to Litton, and not to Flying Tomato Films. Both of these parties are
represented by IPG. No challenge to the CARP's determination on this
matter was made.
---------------------------------------------------------------------------
4. The Royalty Awards
The CARP awarded IPG 0.5% of the program supplier category funds,
and the remaining 99.5% to MPAA. The CARP, however, failed to explain
its reasoning or its methodology for bestowing these awards. Because
unexplained decisionmaking by a CARP is arbitrary, the CARP's awards
must be rejected. The June 5, 2001, Order remanded the matter to the
CARP to determine new awards for IPG and MPAA, in light of the decision
announced in that Order to dismiss additional IPG claimants and
programs, and to explain the reasoning for the new awards.
The CARP's failure to articulate any reasons for the 0.5% and 99.5%
awards, and the methodology it used to produce these numbers, is
puzzling. The CARP began its analysis in an appropriate fashion, fully
detailing in its report the distribution methodologies proposed by IPG
and MPAA. As discussed above, IPG's and MPAA's methodologies were
premised on fundamentally different principles. MPAA addressed the
marketplace value of the programs it represented by attempting to
evaluate the amount of viewership they received, while IPG examined the
value of the programs to cable operators who retransmitted them. IPG's
methodology accorded the programs it represented a higher award--
0.881%--than if the MPAA's methodology were applied to the same
programs--0.0708%. The CARP then analyzed each side's criticisms of the
other's methodology and concluded that a number of the criticisms were
valid. It found the following shortcomings for MPAA's methodology:
--MPAA's direct testimony did not sufficiently lay the foundation for
the survey or explain its results.
--The Panel was forced to call its own witnesses, Mr. Lindstrom from
Nielsen, and Mr. Larson from Cable Data Corporation to explain their
methods of data acquisition and reporting.
--The number of sampled stations [in MPAA's station survey] has
declined without adequate explanation.
--Station selection criteria excluded Form 1 and Form 2 cable systems.
--The number of ``zero'' viewing hours shows the flaw in attempting to
use the Nielsen data as a proxy for the retransmission market
especially since Nielsen had 24 hour sampling capability in 1997.
--The method of interpolation of non-sweep month estimated viewing
needs statistical validation.
--There is an overvaluation of WTBS and under-valuation of the other
Superstations in the survey.
CARP Report at 102-103. For IPG, the CARP found the following
criticisms:
--A mathematically sound basis for the creation and application of the
station weight factor and time period weight factor should have been
presented by a statistician.
--Daypart data was misapplied thus overstating ``all other'' viewing.
--It doesn't directly address the marketplace value of the works
transmitted, a primary criteria.
Id. at 103. The Register has reviewed the record evidence in this
proceeding and finds that there is ample support for these criticisms.
They are not arbitrary. What is arbitrary, however, is what the CARP
did next. Rather than address these criticisms in the context of its
decision making process, the CARP immediately awarded the 0.5 and 99.5
percentages without any explanation as to how they arrived at these
numbers. Since no reasoning was provided for these numbers, they must
be rejected. National Ass'n of Broadcasters v. Librarian of Congress,
146 F.3d 907, 923 (D.C. Cir. 1998)(royalty distribution award arbitrary
if rendered without explanation). The June 5, 2001, Order directed the
CARP to provide a full explanation of the approach it was using in
adopting new distribution awards.\10\
---------------------------------------------------------------------------
\10\ In explaining their final numbers, CARPs have flexibility
in the methodologies or approaches they use. The courts have
recognized that there is a considerable ``zone of reasonableness''
when awarding a particular distribution percentage. See, e.g.
National Cable Television Ass'n v. Copyright Royalty Tribunal, 724
F.2d 176, 182 (D.C. Cir. 1983). In other words, there are no magical
formulas that produce precise results. In this proceeding, the CARP
could have chosen either IPG's or MPAA's formulas, adjusted the
chosen formula to account for the CARP's criticisms of it, and used
that process to yield the final numbers. Or, the CARP could have
chosen a combination of both formulas, taking into account the
criticisms of both, to arrive at the final numbers. Or, the CARP
could have adopted its own distribution methodology or formula,
using the data in the record of the proceeding to achieve the final
results. Each of these approaches is acceptable provided that the
CARP articulates the reasons for its choice, explains how it applied
its choice to produce its final determination, and the determination
itself is reasonable.
---------------------------------------------------------------------------
[[Page 66442]]
The Revised CARP Report
On June 20, 2001, the CARP delivered its revised report. The
revised report assigns new distribution percentages to IPG and MPAA and
explains the CARP's reasoning for both its initial awards and the
revised awards.
As directed by the June 5, 2001 Order, the CARP only credited IPG
with programs belonging to Litton Syndications. The programs are:
Algo's Factory, Jack Hanna's Animal Adventures, Harvey Pennick's
Private Golf Lessons, MomUSA, Nprint, Sophisticated Gents, The Sports
Bar and Just Imagine. The CARP did not credit IPG with Dramatic Moments
in Black Sports History, reversing its earlier determination that
Litton was the syndicator of the program. See Initial report at 62;
Revised report at 2. The CARP determined that ``[a]lthough both parties
claim this program, New Line Cinema's program certification with MPAA
indicates that it claims the program as syndicator.'' Revised report at
2.
With respect to awards, the CARP modified its initial determination
by reducing IPG's award from 0.5% to 0.212% , and increasing MPAA's
award from 99.5% to 99.788%. The CARP then explained how it determined
the initial 0.5% and 99.5% awards, and then modified them in light of
the June 5, 2001, Order to produce the new percentages.
Although the CARP was presented with disparate methodologies for
calculating the royalty awards-MPAA's methodology based on Nielsen
household viewing hours and IPG's methodology based on value of the
programming to cable operators--the CARP did find two elements of these
competing methodologies in common. MPAA based its methodology upon a
database obtained from CDC that contained 82 commercial television
broadcast stations that were retransmitted by large (Form 3) cable
systems on a distant basis during 1997. IPG based its methodology upon
a CDC database that contained 99 commercial television broadcast
stations (which included the same 82 stations used by MPAA) that were
retransmitted by small, medium, and large (Form 1, 2, and 3) cable
systems on a distant basis during 1997. Both of these databases have
two overlapping categories: ``Rebroadcasts,'' the number of times a
particular program was retransmitted; and ``Airtime,'' the length of
the program multiplied by the number of times it was rebroadcast. The
CARP stated that the purpose of examining the two databases was two-
fold: ``First to verify the accuracy of the numbers presented in the
testimony and exhibits; and secondly to give the CARP a sense of the
relative positions of MPAA and IPG represented claimants in the 1997
marketplace by comparing the only two categories included in both
databases, Rebroadcasts and Airtime.'' Revised report at 18.
Appendix A of the revised CARP report compares the Rebroadcasts of
the eight programs credited to Litton (as directed by the June 5, 2001
Order) for both the IPG and MPAA databases. For the IPG database, these
programs accounted for 0.4394782365% of the total number of program
titles Rebroadcast in 1997. For the MPAA database, the eight programs
account for 0.2811997603% of the total number of program titles
Rebroadcast in 1997.
Appendix B of the revised CARP report compares the Airtime of the
eight programs credited to Litton for both the IPG and MPAA databases.
For the IPG database, these programs accounted for 0.3494840195% of
total Airtime of all programs retransmitted in 1997. For the MPAA
database, the programs accounted for 0.2171099164% of the total Airtime
of all programs retransmitted in 1997.
The numbers described in Appendices A and B provide a range of
comparison as to the amount of time that Litton's eight programs were
available on distant broadcast signals retransmitted by cable systems.
But this range did not account for how much these programs were
watched, or the value ascribed to these programs by cable operators. To
account for this, the CARP turned to MPAA's and IPG's methodologies and
applied its criticisms of the evidence presented for each methodology,
assessing penalties (percentage deductions from the total award yielded
by the methodology) for each criticism depending upon the severity of
the criticism. The eight criticisms of MPAA's methodology and the three
criticisms of IPG's methodology, and their accompanying deductions, are
described in Appendix D of the CARP's revised report. As a result of
the eight criticisms, MPAA suffered a 0.450% reduction in the awards
yielded by its methodology, and IPG suffered a 0.375% reduction in the
awards yielded by its methodology.
As with its comparison of IPG and MPAA databases, the revised IPG
and MPAA methodologies (i.e. after the penalty reductions) yielded yet
another range of numbers. For IPG, the revised MPAA methodology gave it
an award of 0.462% of the 1997 royalty funds, while revision of its own
methodology yielded an award of 0.731%. See Appendix D. According to
the CARP, it is this range of numbers that yielded the 0.5% award to
IPG in the initial report. Revised report at 18.
Because the June 5, 2001, Order eliminated programs credited to IPG
under both MPAA's and IPG's methodologies, the CARP needed a way to
adjust downward IPG's award, and increase MPAA's award, to reflect the
eliminated programs. It did this by examining the reduction in the
percentages of Rebroadcasts and Airtime credited to IPG for its
original claim and derived a median change of minus 57.673%. Appendix
C. The minus 57.673% figure represents the median change from the
original amount of Rebroadcasts and Airtime credited to IPG. According
to the CARP, ``[e]liminating all claimants except Litton, means that on
average, IPG now represents only 42.322% of the Rebroadcasts and
Airtime that they did before.'' Revised report at 20. This meant that
``IPG is entitled to 42.322% of the Original Award'' of 0.5%. Id.
Consequently, the CARP awarded IPG 0.212% of the 1997 royalty funds in
the syndicated program category, and the remaining 99.788% to MPAA.
Petitions to Modify the CARP's Revised Report
Both MPAA and IPG level a number of criticisms at the conclusions
reached by the CARP in the revised report, all of which they charge
rise to the level of arbitrary action as a matter of law. MPAA submits
that the CARP's award of 0.212 of one percent of the royalty funds to
IPG is excessive and must be reduced. IPG counters that the methodology
used by the CARP is fundamentally flawed and that its award must be
increased.
MPAA charges that the CARP made mathematical, methodological, and
evidentiary errors in both the initial and revised reports. The
principal mathematical error, according to MPAA,
[[Page 66443]]
concerns the CARP's use of IPG's requested royalty distribution
percentage of 0.881. In appendix D to the revised report, the CARP used
the 0.881% distribution percentage offered by IPG and adjusted it
downward by 0.375% to reflect its three criticisms of IPG's evidentiary
presentation. MPAA states that 0.881% is the wrong starting percentage
because it reflects all the programs originally claimed by IPG and does
not take into account the programs that the CARP eliminated from IPG's
claim. Using IPG's valuations for each of its claimed programs, MPAA
asserts that the CARP should have adjusted the 0.881% claim of IPG
downward to 0.332%, since only 37.68% of the programs originally
claimed by IPG were credited by the CARP in its initial report. MPAA
Petition to Modify Revised Report at 5. Deducting 0.375% for the three
criticisms of IPG's evidentiary presentation from 0.332% yields a
negative distribution percentage for IPG.
MPAA challenges the methodology employed by the CARP; in particular
the use of Rebroadcasts and Airtime for IPG's and MPAA's represented
programming. MPAA asserts that this approach unduly relies upon time
considerations (i.e. time on the air) and ignores the marketplace value
of the programming in contravention of prior CARP precedent. CARP
Report in Docket No. 94-3 CARP CD 90-92 at 19-20 (June 3, 1996). These
considerations aside, MPAA also questions the usefulness of comparing
Rebroadcasts and Airtime from both MPAA's and IPG's sample surveys,
since MPAA's 82 station sample survey contains more rebroadcasts and
more hours of airtime than IPG's 99 station survey. The inherent
illogic of this result should have, according to MPAA, indicated to the
CARP that reliance solely on these numbers is flawed.\11\
---------------------------------------------------------------------------
\11\ IPG counters this argument by noting that MPAA's 82 station
data includes all broadcasts, irrespective of whether the program
falls in the syndicated programming category or another category
(such as sports, local programming, etc.) and irrespective of
whether the program is claimed by IPG, MPAA or no party. IPG's 99
station data makes these distinctions, resulting in fewer measured
broadcasts and broadcast hours.
---------------------------------------------------------------------------
MPAA also makes numerous challenges to the CARP's treatment of the
evidence presented in this proceeding. In particular, MPAA asserts that
the CARP's five criticisms of various aspects of MPAA's evidentiary
presentation, that resulted in a 0.450% upward adjustment to IPG's
share of the royalties as identified by MPAA, are baseless. First, MPAA
argues that the 82 station sample survey it put forth was statistically
sound since it ``very nearly reflects the entire universe of distant
signal carriage, accounting for 92.5 per cent of aggregate subscribers
instances. Therefore, the possibility of a margin for error that is in
any way significant is nil.'' MPAA Petition to Modify Revised Report at
12.
Second, MPAA argues that there is no record evidence that
demonstrates that exclusion of Form 1 and Form 2 cable systems from the
total instances of distant cable carriage of syndicated programming
negatively impacts the results of its 82 station sample survey, since
the Form 3 cable systems used in the survey account for 89% of all
cable subscribers to distant broadcast stations. Third, MPAA argues
that the CARP had no grounds to criticize the number of zero viewing
instances reported in the Nielsen household viewing hours used in the
MPAA survey, especially since Paul Lindstrom, the only qualified expert
in economics and statistics testifying in the proceeding, asserted that
they did not have a significant bearing on the statistical validity of
the survey.
Fourth, MPAA charges that it was inappropriate and unfair for the
CARP to criticize MPAA for not presenting relative error figures with
respect to its methodology components and for mixing Nielsen diary data
with Nielsen meter data. Finally, MPAA charges that it was groundless
for the CARP to penalize MPAA 0.10% for its interpolation of data for
time periods not measured by Nielsen (i.e. non sweeps periods) and only
accord IPG a 0.075% penalty for a similar criticism.
IPG also asserts that the CARP made a series of errors in
fashioning both the original awards and the revised awards. IPG asserts
that the CARP erroneously assigned two programs--Dream Big and Dramatic
Moments in Black Sports History--to MPAA. Dream Big was credited to
MPAA in the CARP's original report because it identified Warner Bros.
as the syndicator of the program. With respect to Dramatic Moments in
Black Sports History, the CARP originally assigned it to IPG (as
claimed by Litton) but was directed by the Librarian's June 5, 2001,
Order to provide an explanation for this decision. In the revised
report, the CARP changed its mind and assigned Dramatic Moments in
Black Sports History to MPAA because it concluded that New Line Cinema
was the syndicator of the program, not Litton. IPG submits that if the
Librarian does not restore these two programs to Litton's claim, then
he should ``place the funds for the[se] program[s] * * * in escrow
until the proper recipient is determined.'' IPG Petition to Modify
Revised Report at 4.
Like MPAA, IPG criticizes the CARP's reliance upon the number of
Rebroadcasts and Airtime in fashioning its awards, noting that undue
reliance on time considerations is contrary to precedent of the CRT and
is not reflective of the value of the programming. IPG states that it
provided the CARP with the unit value for each of its claimed programs
(utilizing IPG's methodology), thereby giving the CARP the opportunity
to derive an award based on the programs it credited to IPG. The eight
programs credited to Litton amount to 79.074% of the original award to
IPG of 0.5%, meaning that the CARP should have adjusted the original
0.5% award downward to 0.3958%. Such an award would, according to IPG,
reflect the true value of the Litton programs.
With respect to the CARP's criticisms of MPAA's methodology, IPG
argues that the CARP did not go far enough. IPG asserts that the CARP
never verified the number of household viewing hours attributed to MPAA
in its study, noting that MPAA received credit for appreciable numbers
of programs not claimed by MPAA or certified by its members. Further,
IPG asserts that the CARP should have penalized MPAA for having to call
Paul Lindstrom and Thomas Larson as witnesses to provide additional
support for MPAA's methodology. And IPG submits that the CARP should
have penalized MPAA more than it did for reducing the number of
stations in its station sample survey and for the large amount of zero
viewing instances of programming contained in the Nielsen data
presented by MPAA.
Finally, IPG asserts that certain of the CARP's criticisms of IPG's
methodology are not valid. With respect to the CARP's critique that IPG
misapplied its daypart data thereby overstating its weighted viewing
factor, IPG asserts that no evidence was presented to demonstrate that
such misapplication provided any benefit to IPG. And, with respect to
the CARP's criticism that IPG's methodology attempted to demonstrate
the overall appeal of broadcast stations to cable operators, as opposed
to the overall appeal of the programming to cable operators, IPG argues
that the CARP simply mischaracterized its summary reference of
``overall station appeal'' by ignoring the elements that comprised this
aspect of IPG's methodology.
Rejection of the Revised Report
The Register makes her recommendation as to whether the
[[Page 66444]]
revised royalty awards to IPG and MPAA should be adopted by the
Librarian of Congress, or whether they are arbitrary or contrary to the
provisions of the Copyright Act, title 17, United States Code. In
making this recommendation, the Register has reviewed both the initial
report of the CARP and the revised report, including the petitions to
modify both reports filed by the parties. For the reasons stated below,
the Register concludes that both the initial report and the revised
report are arbitrary and must be rejected.
Review of the initial report and the revised report reveals a
number of arbitrary actions by the CARP. These include: (1) Failure to
adequately explain the evidence supporting the CARP's reversal of its
award of Dramatic Moments in Black Sports History from IPG to MPAA; (2)
failure of the CARP in its initial report to adjust downward IPG's
requested distribution percentage after the CARP eliminated a number of
IPG's claimed programs; (3) failure of the CARP in its initial report
to adjust upward MPAA's requested distribution for IPG given the number
of programs which the CARP credited IPG; (4) failure of the CARP in the
revised report to adjust both IPG's and MPAA's requested distributions
in light of the final programs credited to IPG; (5) failure of the CARP
to base any of its downward deductions to both IPG's and MPAA's
methodologies (based on the CARP's criticisms) on record evidence; and
(6) adoption by the CARP of a distribution methodology that arguably
has little relationship to the marketplace value of the programs. In
recommending rejection of the CARP's determination, the Register
focuses her discussion on the second failure described above-the lack
of downward adjustment to IPG's requested distribution in light of the
programs credited-because it created a fundamental flaw in the CARP's
approach that invalidates the distribution awards granted IPG in both
the initial and the revised reports.
The CARP's distribution methodology, articulated only in the
revised report, is fully discussed above. Briefly recapped, it is the
product of two ``ranges.'' First, the CARP utilized the Rebroadcast and
Airtime data-the only data categories common to both methodologies-to
give the CARP ``a sense of the relative positions of MPAA and IPG
represented claimants in the 1997 marketplace.'' Revised Report at 18.
This produced the first range for locating the CARP's final awards.
Then, the CARP utilized ``the parties competing requests for
allocations and the formulas presented advocating their averred
distribution percentages,'' adjusting them by applying deductions
reflective of the CARP's criticisms of the respective methodologies.
This produced the second range for locating the CARP's final awards.
The second range appears to be the one actually used by the CARP to
settle upon its original award of 0.5% to IPG. Id.
A critical flaw occurs with the inputs for the second prong of the
CARP's methodology. The CARP started with IPG's requested distribution
percentage of 0.881%, drawn from IPG's proposed findings of fact and
conclusions of law. The 0.881% is an inflated percentage, however,
because it was based upon inclusion of all programs originally claimed
by IPG. Earlier in the CARP's initial report, it spent considerable
time discussing the validity of IPG's claimed programs and found a
number of the claims invalid. See, Initial Report at 72-74 (royalty
allocation for Dragon Ball Z to MPAA; no royalty allocation for
Enchanted Tales and Thumbelina; royalty allocation for Dream Big to
MPAA; no royalty allocation for Bottom Line, By River By Rail, Til
Earth and Heaven Ring; no royalty allocation for Lou Rawls Parade of
Stars; no royalty allocation for Psychic Friends, Psychic Friends
Network, Psychic Revival Network, Psychic Solution, Psychic Talk,
Psychic Talk 2, Psychic Talk USA, Psychic Talk Thirty). These programs
were included in IPG's 0.881% request. It was therefore arbitrary for
the CARP to accept the 0.881% figure as a starting point because it had
eliminated many of the programs that produced this number.
Likewise, the CARP made the same error when it looked at the
distribution percentage for IPG yielded by MPAA's methodology. MPAA's
distribution percentage of 0.012% was based on only seven programs
credited to IPG. However, in its initial award, the CARP credited IPG
with far more than just seven programs. It was therefore arbitrary for
the CARP to use the 0.012% figure as a starting point for its
application of MPAA's methodology.
In sum, the faulty inputs to the second prong of the CARP's
methodology make the range generated by that prong wholly inaccurate,
thereby rendering the initial award erroneous. The revised report,
since it merely takes the original award to IPG and makes a median
change to it based upon the reduction in programs credited to IPG, is
likewise erroneous. Although there are other serious flaws in the
CARP's approach, as described above, the Register need go no further.
The CARP's determination must be rejected, and the Librarian must
substitute his own determination.
Part Two--Recommendation of the Register
This is not the first time that the Register of Copyrights has
recommended, and the Librarian of Congress has accepted, a rejection of
a decision of a CARP. In most of those cases, the Register has
recommended that only portions of a CARP's decision be rejected, see,
e.g., 61 FR 55653 (October 28, 1996)(cable distribution); 62 FR 55742
(October 28, 1997)(satellite rate adjustment). In one case, the
Register recommended that the Librarian reject the royalty rate
established by the CARP, and substitute his own determination. 63 FR
25394 (May 8, 1998)(digital performance right in sound recording rate
adjustment).
Section 802(f) of the Copyright Act provides that ``[i]f the
Librarian rejects the determination of the arbitration panel, the
Librarian shall * * * after full examination of the record created in
the arbitration proceeding, issue an order setting the royalty fee or
distribution of fees, as the case may be.'' 17 U.S.C. 802(f). As
discussed above, the distribution methodology applied by the CARP in
this proceeding is so flawed that any distribution percentages
generated by it are inherently arbitrary. As a consequence, there must
be an independent review of the record to resolve this proceeding.
Distribution Criteria
Section 111 does not prescribe the standards or guidelines for
distributing royalties collected from cable operators under the
statutory license. Instead, Congress decided to let the Copyright
Royalty Tribunal ``consider all pertinent data and considerations
presented by the claimants'' in determining how to divide the
royalties. H.R. Rep. No. 1476, at 97 (1976). In the first cable
distribution proceedings, the Tribunal fashioned five distribution
criteria: three primary criteria and two secondary criteria. The three
primary criteria were: (1) The harm caused to copyright owners by
secondary transmissions of their copyrighted works by cable systems;
(2) the benefit derived by cable systems for secondary transmissions of
the copyrighted works; and (3) the marketplace value of the works. The
secondary criteria were: (1) the quality of the copyrighted program and
(2) time-related considerations. National Ass'n of Broadcasters v.
Librarian of Congress, 146 F.3d 907 (D.C. Cir. 1998). In 1989, the
Tribunal eliminated the secondary criterion of program quality from its
consideration. 57 FR 15286, 15303
[[Page 66445]]
(April 27, 1992). In 1998, the Librarian determined that a CARP did not
act arbitrarily by eliminating the primary criterion of harm to the
copyright owner. NAB, 146 F.3d 907 (D.C. Cir. 1998).
In considering the value of programming in a Phase II cable
distribution proceeding, we must simulate the marketplace for that
programming. Under the statutory license regime of section 111,
programs are not bought and sold in the open marketplace-the statutory
license substitutes for the marketplace. Cable operators pay an
established fee for the privilege of retransmitting all the programs
contained on a particular broadcast signal, rather than license the
programs individually. However, just because cable systems pay a single
fee for all the programs does not mean all the programs are of equal
value. The established distribution criteria, as modified, must be
applied in an effort to simulate a marketplace for these programs where
one does not exist because of section 111. We now turn to a
consideration of the evidence presented by MPAA and IPG as to the value
of their programs.
The Programs
Before considering the appropriate methodology for distributing the
1997 cable royalties in the syndicated programming category, the
programs to be credited to MPAA's and IPG's royalty distribution claims
must be determined.\12\ In the Librarian's June 5, 2001 Order, IPG's
program claim in this proceeding was pared down to the following eight
programs: Algo's Factory; Jack Hanna's Animal Adventures; Harvey
Pennick's Golf Lessons; Mom USA; Sophisticated Gents; Nprint; Just
Imagine and The Sports Bar. Order in Docket No. 2000-2 CARP CD 93-97 at
1 (June 5, 2001). Each of these programs is claimed by Litton
Syndications. IPG claims an additional two programs on behalf of
Litton: Dream Big and Dramatic Moments in Black Sports History.
---------------------------------------------------------------------------
\12\ As a practical matter, the focus will be on the programs
represented by IPG. The reason for such focus is obvious. There are
only two claimants in this proceeding; one that represents most of
the programs eligible for distribution (MPAA), and one that
represents only a few (IPG). Once it is determined which IPG-
represented programs are eligible for a distribution of the 1997
royalty funds, the value of those programs can be ascertained and
IPG's distribution share can be established. Assuming that
ineligible and unclaimed programs are excluded from consideration,
there is no need to focus on the eligibility of MPAA programs
(except as they affect IPG's claim to the same program), since the
remainder of the 1997 fund will go to MPAA once IPG's share is
deducted. But see discussion of MPAA's methodology, infra.
---------------------------------------------------------------------------
A. Dream Big
Dream Big is listed in exhibit D of IPG's written direct case as
belonging to Litton. Litton's representation agreement with IPG lists
Dream Big as a program claimed by Litton, and the representation
agreement contains the following boilerplate language:
Principal (i.e. Litton) warrants that to the best of Principal's
knowledge Principal has the right to collect the Distribution
Proceeds to Programs, and has not previously conveyed the right to
collect the Distribution Proceeds to any third party.
Representation agreement at 2, clause 7. At hearing, on cross-
examination of IPG's witness Raul Galaz, the following exchange took
place:
Q: The program Dream Big, Mr. Galaz, do you know who the copyright
owner of that program is?
A: No.
Q: And, again, do you know who the syndicator of that program is?
A: My understanding is that Litton Syndications is the syndicator.
Q: And do you know, again, the nature of the particular right or
interest owned by Litton with respect to their entitlement to Section
111 royalties?
A: No, I don't know whether they are, additionally, an owner.
Q: I didn't hear you. I'm sorry.
A: I don't know whether they are, additionally, an owner or not.
Tr. 1063-64. No additional testimony regarding Dream Big took place.
In its petition to modify the initial decision of the CARP, IPG
requests that the Librarian reopen the record to admit a copy of an
agreement between Warner Vision Entertainment and Litton which,
according to IPG, conclusively proves that Litton holds the syndication
rights to Dream Big. The agreement states that Warner Vision ``hereby
grants to Litton, and Litton hereby accepts, the right to syndicate a
children's audio-visual series tentatively entitled `Real Kids.'' ' IPG
Petition to Modify CARP Report at appendix 2. IPG asserts that Warner
Vision is a subsidiary of Warner Bros., and that ``Real Kids'' is the
initial name for Dream Big.
MPAA claims Dream Big in exhibit D of its written direct case.
Dream Big is identified on MPAA's Alpha List (a listing of all programs
broadcast in 1997 and including both MPAA-represented and IPG-
represented programs) as belonging to Warner Bros. MPAA also obtained a
program certification form from Warner Bros. that lists Dream Big as a
Warner Bros. program. The certification form, signed by Michael
Troxler, Vice President of Finance, contains MPAA's boilerplate
language stating that Warner Bros. is entitled to receive 1997 cable
royalties for Dream Big by virtue of being ``An officer (if a
corporation) or a partner (if a partnership) of the legal entity
identified as the owner or the authorized agent of the owner of the
programs on the printout.'' IPG Exhibit 7XR at 389. Other than the
cross-examination of Mr. Galaz identified above, MPAA did not put forth
any further information at hearing regarding Dream Big.
In reaction to IPG's request to reopen the record and have the
Librarian consider the Warner Vision/Litton agreement, MPAA submits an
April 11, 2000, letter of Michael Troxler of Warner Bros. stating:
WarnerVision is the rightful copyright holder to the series
Dream Big. This was subdistributed on behalf of WarnerVision by
Litton for a clearance fee based upon U.S. coverage. Since Litton
was paid a clearance fee, they are not entitled to any of the Cable
Copyright Royalties.
MPAA Reply to IPG Petition to Modify CARP Report at appendix 2.
In National Broadcasting Co., Inc. v. Copyright Royalty Tribunal,
848 F.2d 1289 (D.C. Cir. 1988), the Court reviewed the Copyright
Royalty Tribunal's attempt to resolve competing claims for the program
Little House on the Prairie. NBC created and produced the program and
granted to Worldvision, Inc. exclusive rights to distribute the program
for a period of 35 years. The Tribunal determined that Worldvision, as
the exclusive syndicator of the program, was the party entitled to
section 111 royalties. The Court upheld this conclusion, stating:
The CRT determined that the directly affected party [from the
harm caused by retransmission of the program by cable systems] will
typically be the exclusive syndicator, and that the CRT will
therefore as a general rule always distribute royalties initially to
the syndicator. This presumption by the CRT, in the face of
congressional silence, is a permissible interpretation of the
statute, to which we defer.
848 F.2d at 1296.
Examining the record evidence, the Register cannot ascertain who is
currently the exclusive syndicator of Dream Big. The non-record
evidence, even if admitted, still does not resolve the issue. And
section 802(f) of the Copyright Act states that the Librarian shall
base his decision only upon the record evidence.
Given the dearth of record evidence, it would be arbitrary for the
Register to recommend that Dream Big be awarded to either MPAA or IPG.
Consequently,
[[Page 66446]]
the Register recommends that the only acceptable course of action is to
seek further evidence from the parties to determine the proper status
of the program when the proceeding is remanded to a new CARP.
B. Dramatic Moments in Black Sports History
Dramatic Moments in Black Sports History (``Dramatic Moments'') is
also claimed by both MPAA and IPG. The record for Dramatic Moments is
as follows.
IPG identifies Dramatic Moments in exhibit D of its written direct
case as belonging to Litton. The program is identified in Litton's
representation agreement with IPG and contains the same contract
warranty provision that applies to Dream Big. At hearing, the following
exchange took place on cross-examination of Mr. Galaz, IPG's sole
witness.
Q: Okay. The program Dramatic Moments in Black Sports History, do
you know who the copyright owner of that program [is], Mr. Galaz?
A: No.
Q: Do you know the syndicator?
A: My understanding is that Litton Syndications is the syndicator.
Q: And do you know the particular right or interest owned by Litton
relative to their entitlement to Section 111 royalties?
A: Whether it's as the owner or syndicator, I don't know.
Q: But if it is the owner or syndicator, do you know who they--when
they acquired and how they acquired the right? If they are a
syndicator, not if they're an owner?
A: Restate your question.
Q: If they're a syndicator, if indeed they are the syndicator, do
you know how that right was acquired?
A: Well, they can be both the owner and the syndicator.
Q: Right.
A: So your question was asking whether or not
Q: Right. If they--
A:--the nature of the right, and the nature of the right could be
as both the owner or the syndicator. I don't know which.
Q: You don't know whether they're the owner as well as the
syndicator?
A: My understanding is that they're the syndicator. I do not know
whether they are, additionally, the owner.
Tr. 1062-63. No further record evidence was presented by IPG regarding
the program.
In exhibit 3 of its written direct case, MPAA identifies Dramatic
Moments as part of its claim. The program appears on the revised Alpha
List of MPAA programming, identifying New Line Cinema as the claimant.
MPAA presented a program certification form for New Line Cinema, which
states that New Line is an officer or partner of the ``legal entity
identified as the owner or the authorized agent of the owner of the
programs on the printout.'' IPG ex. 7XR at 188. The certification is
signed by Frank A. Buquicchio, who identified himself as the Senior
Vice president of Television and Ancillary Accounting for New Line.
Other than the cross-examination of Mr. Galaz, MPAA presented no other
evidence as to the ownership of Dramatic Moments.
In its petition to modify the further report of the CARP, IPG
argues that the burden should be on MPAA to prove its claim to Dramatic
Moments. IPG asserts that MPAA did not produce the program
certification forms until one day before the start of the hearings,
thereby precluding IPG's ability to prepare an effective cross-
examination on program ownership. IPG further asserts that if the
Librarian cannot resolve the proper ownership of the royalties
attributable to Dramatic Moments, the money should be placed in escrow
to permit resolution between Litton and New Line Cinema.
As with the case of Dream Big, neither IPG nor MPAA have presented
sufficient evidence to permit a determination as to who should receive
credit for Dramatic Moments. Consequently, the Register recommends that
further evidence must be adduced on remand to resolve the status of
this program.
The Evidentiary Presentations
As discussed above, IPG and MPAA presented competing statistical
methodologies to support their claims to the 1997 syndicated
programming royalty pool. MPAA's presentation operates from the
assumption that viewership of programs retransmitted by cable operators
in 1997 is the way to measure the value of those programs, and provides
a sample survey purporting to gauge viewing. IPG's presentation
operates from the assumption that every program retransmitted in 1997
has value and should be compensated from the royalty pool, and provides
a sample survey that attempts to value each program based upon the
royalty fees generated by television stations broadcasting the
programming.
A. MPAA's Presentation
1. Description of the methodology. MPAA's written direct case
consists of the testimony of Marsha Kessler, Vice President of
Retransmission Royalty Distribution at MPAA, and the nine exhibits that
she sponsors. In addition, MPAA designated the direct testimony and
exhibits of Paul Lindstrom, Leonard Kalcheim, and James Von Schilling
from Docket No. 97-1 CARP SD 92-95 (1992-1995 satellite royalty
distribution) and the direct and rebuttal testimony and exhibits of
Marsha Kessler, Allen Cooper and Paul Lindstrom from Docket No. CRT 91-
2-89CD (1989 cable royalty distribution). During the course of the
proceeding, at the behest of the CARP, MPAA presented two additional
witnesses: Paul Lindstrom of Nielsen Media Research and Thomas Larson
of Cable Data Corporation.\13\
---------------------------------------------------------------------------
\13\ MPAA also presented testimony from David E. Farbman
regarding activities of IPG's principal, Raul Galaz. His testimony
is not relevant to the calculation of royalty shares.
---------------------------------------------------------------------------
MPAA attempts to demonstrate the marketplace value of movies and
syndicated programs retransmitted by cable systems in 1997. As it has
done in previous royalty distribution proceedings before the Copyright
Royalty Tribunal and the CARPs, MPAA submits that the best way to
determine the marketplace value of a television series or movie is to
examine how many people watched the program in the given distribution
year. The greater the number of people who watched the program, the
more valuable the program is. MPAA notes that in cable and broadcast
markets where programs are bought and sold without the constraint of a
compulsory license, broadcasters purchase the rights to broadcast a
particular program based upon the number of viewers they believe the
program will attract. The same is true for cable programmers. Kessler
Direct at 12-13. And advertisers are willing to pay broadcasters and
cable programmers higher fees to have their ads aired during programs
that attract many viewers. Id. Thus, from MPAA's perspective, viewer
avidity for a particular program is the best determinative of the
program's marketplace value.
MPAA constructs a study--a sampling of the cable retransmission
universe in 1997--that attempts to demonstrate the amount of viewing
that the programs claimed by MPAA and IPG garnered on broadcast
stations that were retransmitted on a distant basis.\14\ It is not a
study that reveals how many people in the United States actually
watched a given program; the cost of such an undertaking would be too
high.
[[Page 66447]]
Rather, the MPAA study generates estimates of viewing, described as
total household viewing hours (HHVH) for each program claimed by MPAA
and IPG.
---------------------------------------------------------------------------
\14\ The study only attempts to estimate viewership for
programming retransmitted by cable systems on a distant basis, since
local retransmissions of the same program are not compensable under
the cable license. See 17 U.S.C. 111(d)(3)(A).
---------------------------------------------------------------------------
MPAA's study utilizes data from three sources--Cable Data
Corporation (``CDC''), TV Data and Nielsen Media Research
(``Nielsen''). MPAA Proposed Findings at 20, para. 55. First, MPAA
determines the number of television stations that it wishes to include
in its survey. For the 1997 study, MPAA selected 82 TV broadcast
stations. These stations were retransmitted by Form 3 cable systems
(MPAA excluded Form 1 and Form 2 systems) and account for 92.5% of
aggregated subscriber instances. Id. ``Aggregated subscriber
instances,'' means that subscribers receiving broadcast programming
were viewing it on a distant signal basis only, since section 111 of
the Copyright Act does not allow compensation for programming that is
retransmitted on a local basis. Thus, the 82 stations used in MPAA's
study account for 92.5% of distant signal viewing of MPAA and IPG
programs. This data was supplied by CDC.
Next, MPAA consults the TV Data television log books to determine
what programs were broadcast at what times. For 1997, MPAA examined the
log books for the 82 stations it included in its survey. Exhibit 3 of
MPAA's written direct case identifies the programs which MPAA claims
that it represents in this proceeding, along with the number of
broadcasts of each program on the 82 stations surveyed. Of the over
3,700 titles, over 500 of these are television series (sitcoms, dramas,
etc.) while the remaining titles are movies. MPAA Proposed Findings at
14, para. 42. MPAA makes great effort to demonstrate that its claim
includes most of the top-rated syndicated television series and movies.
Kessler Direct at 6-7.
Finally, MPAA takes the programming data from these two sources and
matches it to viewing data supplied by Nielsen. Nielsen provides the
names of the programs that were broadcast for each station in the
study, the number of 15-minute segments (referred to as quarter hours
(QH)) each program aired on that station, and what MPAA describes as
the average number of cable subscribers who viewed each program on that
station on a distant basis. Kessler Direct at 8. Using this
information, MPAA then calculated the household viewing hours for each
program appearing in the study. The formula that MPAA utilized to make
this calculation is as follows:
(QH/4) x average DCHH = HHVH
Id. Marsha Kessler stated the formula thus:
Add together the total number of 15 minute (QH) segments a
program is broadcast in a particular time slot on a particular
station. Divide that number by 4 to get an hourly measure. Multiply
the result by the average number of distant cable households (DCHH)
that actually watched [the] program on that station during that time
period.
Id.
It is important to note that the data supplied by Nielsen does not
attempt to measure viewing 365 days a year. Rather, Nielsen conducts
``sweeps'--0limited periods of time in which actual viewing to
programming is measured. Nielsen can only provide viewing data for four
or six sweeps periods, meaning that substantial portions of the year
are not measured. To counteract this problem, MPAA devised a method for
interpolating viewing for those periods when Nielsen data is not
available. Using data supplied by Nielsen, MPAA assigns an estimated
number of viewers for a given broadcast station for a given quarter
hour in a given day. For example, there are no Nielsen sweeps in June.
To determine viewership for a program broadcast on a specific station
during a specific time period in June, MPAA averages the viewing for
the same time slot in May (a sweeps month) and July (also a sweeps
month) to estimate what viewership would be for the corresponding time
slot in June. The process is described as straight line interpolation.
Tr. 1615-16.
Once armed with household viewing data for all programs broadcast
by the 82 stations in its survey, MPAA determined the household viewing
hours for all of its programs and IPG's programs. MPAA determined that
the total household viewing hours for MPAA and IPG programming was
3,476,625,750. MPAA Proposed Findings at 73, para. 291. MPAA's
programming received 3,476,218,917 household viewing hours, while IPG's
programming received 406,833. Id. This calculation was based on MPAA's
assignment of household viewing hours to the following IPG programs:
Algo's Factory--11,707 viewing hours.
Harvey Pennick's Private Golf Lessons--5,193 viewing hours.
Jack Hanna's Animal Adventures--372,488 viewing hours.
Mom USA--0 viewing hours.
Nprint--1645 viewing hours.
Sophisticated Gents--7010 viewing hours.
The Sports Bar--8790 viewing hours.
Id. at 72, Paras. 285-291. Missing from this calculation is Just
Imagine, which the Librarian has credited to IPG's claim. See June 5,
2001 Order at 2.
Based on its household viewing hour calculations, MPAA claims that
it is entitled to 99.9871% of the 1997 cable royalties, while IPG is
entitled to 0.0117% of the royalties (for the seven Litton programs).
MPAA Proposed Findings at 73, para. 291.
2. Validity of the methodology. Throughout the course of this
proceeding, IPG has attempted to sully both the construct and the
application of the MPAA methodology. Many of these criticisms were
accepted by the CARP. See, generally, Initial report at 102-103;
Revised report at 5-12. We now consider these criticisms as part of our
evaluation of the evidentiary presentation of MPAA.
At the outset, we affirm what the Copyright Royalty Tribunal long
ago stated: that actual measured viewing of a broadcast program is
significant to determining the marketplace value of that program. 51 FR
12792, 12808 (April 15, 1986). In a perfect world, we would know all
viewing to all programs that were retransmitted on a distant basis by
all cable systems in 1997. We recognize that the cost of attempting to
present such evidence would be prohibitive. Even if we had access to
such information, the inquiry would not end there because there are
other factors besides viewing that can have a bearing on the
marketplace value of a program. Because we are charged with the task of
simulating the marketplace for a broadcast program in an effort to
determine the value of the program, the Register must consider those
factors, where relevant, in the equation as well.
Given the recognition that viewing of programs has probative value,
we turn to a consideration of MPAA's presentation. The construct of
MPAA's methodology is generally similar to that presented in previous
cable distribution proceedings before the Tribunal and the CARPs. There
are, however, some notable differences. In prior proceedings,
particularly at Phase I, experts from Nielsen participated in the
construct and presentation of the study, as well as supplying the
viewing data. Nielsen's participation in MPAA's study in this
proceeding is limited to providing select data for use by others.
Lindstrom Tr. 1387-88; 1407; 1421; 1439-42. Consequently, we have
refrained from describing the 82 sample station survey as the
``Nielsen'' survey. In addition, MPAA has derived a considerable volume
of viewing hours from a process described as ``interpolation,'' which
it is has not presented extensively in prior
[[Page 66448]]
proceedings. ``Interpolation'' is discussed infra.
When the MPAA presented its viewing study to the Copyright Royalty
Tribunal in Phase I proceedings, the Tribunal described the study as a
good ``starting off point.'' 57 FR 15286, 15288(April 27, 1992) (1989
cable Phase I distribution). Is the MPAA's 82 station sample survey a
``good starting off point'' for this proceeding?\15\
---------------------------------------------------------------------------
\15\ Although the Tribunal never described the Nielsen study as
a ``good starting off point'' for Phase II proceedings, it readily
accepted Nielsen results that were presented by MPAA in Phase II
proceedings. See, e.g. 53 FR 7132, 7136 (March 4, 1988)(1985 cable
Phase II)(``[W]e give great reliance on the Nielsen data'')
---------------------------------------------------------------------------
The CARP concluded that MPAA's 82 station sample survey was
``stretched to cover more ground and answer more questions than it was
originally designed to do.'' It listed eight specific criticisms of the
MPAA approach:
--MPAA's direct testimony did not sufficiently lay the foundation for
the survey or explain its results.
--The Panel was forced to call its own witnesses, Mr. Lindstrom from
Nielsen, and Mr. Larson from Cable Data Corporation to explain their
methods of data acquisition and reporting.
--The number of sampled stations has declined without adequate
explanation.
--Station criteria excluded Form 1 and Form 2 cable systems.
--The number of ``zero'' viewing hours shows the flaw in attempting to
use the Nielsen data as a proxy for the retransmission market
especially since Nielsen had 24 hour sampling capability in 1997.
--There are unanswered technical questions regarding relative error
rates and mixing diary and meter data.
--The method of interpolation of non-sweep month estimated viewing
needs statistical validation.
--There is an overvaluation of WTBS and under-valuation of the other
Superstations in the survey.
Initial report at 102-03. There is a theme underlying this critique of
MPAA's case that can be summarized as follows: the broad brush that is
used to paint the big picture is a poor tool for crafting the details.
MPAA's viewer study can paint a statistically useful picture of how
much sports programming, for example, the viewing public watches
relative to the amount of syndicated programming it watches. But when
the same study is used in an effort to determine how much the viewing
public watches an individual television program, the accuracy of the
results comes into question. Accord 51 FR 12792, 12817 (April 15,
1986)(1983 cable Phase II distribution)(``[O]verall reliability [of the
Nielsen study] may be somewhat less when the focus is on individual
programs.'').
How much confidence can we place in the results yielded by MPAA's
82 station sample survey? MPAA does not provide an answer. Section
251.48(f)(4) requires parties submitting studies involving statistical
methodology to provide confidence levels for the methodology.
Specifically, the rule requires calculation of the standard error for
each component of the methodology. 37 CFR 251.48(f)(4)(ii). MPAA
acknowledges that it did not comply with the rule, but offers that
``the absence of relative error figures has raised no bar to
significant reliance on the Nielsen study in [prior] Phase II
proceedings.'' MPAA Reply Findings at 38.
Regardless of what may have sufficed in prior proceedings before
the Copyright Royalty Tribunal, there is reason to believe there is
considerable relative error in MPAA's results in this proceeding. On
cross-examination, Paul Lindstrom stated the following:
Q: In past CRT proceedings, it's my understanding that Nielsen
reports have been entered into the record, is that correct?
A: That is correct.
Q: And when Nielsen reports have been entered into the record, they
have come with qualifications or characterizations to assist the
parties and the Panel understand the data and the relative errors,
standard error factors and the like, is that correct?
A: It is correct that we have produced the relative error figures
for the category data.
Q: And did you produce relative error figures for the 1997 data?
A: The relative error figures were not produced by us because the
final data would not be produced by us. We're basically developing a
database which is being passed on to Mr. Larson who then takes it and
produces the aggregated report. The standard errors are really relevant
on the aggregated data and so we're kind of a mid-product in the
process.
Q: Is there any--in Mr. Larson's work would you consult with him so
that he makes proper assessment of the data?
A: We have had opportunities at times where we have needed to work
together in order to work out issues or to make clear on definitions or
categorizations, but on a day to day basis, he's not directing us on
how to produce our portion of it and we're not directing him on how to
produce his.
Q: But again, in terms of the portion you produced, you basically
are asked to produce from your database of data, information regarding
quarter hours of viewing to particular stations within a subset of
counties that would qualify as distant for purposes of cable copyright
rules?
A: That is correct.
Q: And in past proceedings you've aggregated the information into
program categories and provided relative errors for that. In this
proceeding you have not done that, is that correct?
A: That is correct.
Q: And in past proceedings you have not been asked to address,
except in incidental situations specific programs, you have only
addressed program categories, is that correct?
A: To the best of my knowledge, yes.
Q: Do you see any difference in Nielsen, just focusing on
independent Mr. Larson's responsibilities in terms of the way Nielsen
data for purposes of this proceeding, should be viewed--should it be
viewed the same or differently from prior data presented where you do
not have program categories, but the data is solely addressed to
quarter hours of particular stations?
A: If I'm understanding correctly, I'll repeat what I think I hear
you say, is that is there a difference in--I imagine you're talking
about the accuracy or use [sic] that word, for aggregated category data
versus individual program information and if that's the question, then
that is absolutely correct. Once the data is beginning to get
aggregated, the sampling errors go down and go down substantially.
Q: But conversely, if it's not aggregated, the sampling errors
would increase?
A: The sampling errors for any--again, any given program on any
given station on any given day so that we're talking about an
individual week, individual program, individual station will be subject
to huge relative errors.
Tr. 1406-10.
Mr. Lindstrom's testimony underscores the pitfalls of using MPAA's
82 station sample survey to measure household viewing hours for
individual programs. When large amounts of programming and household
viewing hours are measured, such as in a Phase I proceeding, the
aggregation of the measuring data is substantial and the relative error
is low. This is what makes the MPAA's sample survey ``a good starting
off point.'' However, when the number of programs and household viewing
hours are small, the aggregation of the data is minimal and, in the
words
[[Page 66449]]
of Mr. Lindstrom, ``subject to huge relative errors.'' Tr. 1409-10. Of
the thousands of programs and billions of viewing hours represented in
MPAA's sample survey, IPG's claim only accounts for eight programs and
less than 500,000 viewing hours. Although we do not know how large the
error factor is for this calculation since MPAA failed to present such
information, it is reasonable to presume that it is quite large given
that it is drawn from such a small piece of the data. This leads us to
the conclusion that, as a methodological approach, it cannot be said
that the MPAA sample survey is a ``good'' starting off point; at best,
it is simply ``a'' starting point.
Having considered MPAA's sample survey conceptually, we now turn to
the specifics of its application. As discussed above, the CARP
concluded that there were a number of flaws in certain aspects of the
sample survey. Although we do not necessarily agree with the number and
severity of the CARP's criticisms, there is no need to discuss them
here. What matters are what the Register, and ultimately the Librarian,
conclude are the flaws in the sample survey, and what impact those
flaws have on the usefulness of the MPAA approach.
(i). Program ownership. Program ownership is an important and
highly contested issue in this proceeding. The issue, however, has
centered on the claim of IPG and the programs it has purported to
represent in this proceeding. Little attention was given to MPAA's
ownership of programs. The CARP requested that MPAA submit program
certifications obtained from its member companies, apparently in an
effort to resolve issues surrounding certain programs claimed by both
MPAA and IPG. MPAA provided these certifications to the CARP as a
``courtesy,'' carefully noting that it was not ``legally'' required to
do so. Tr. 2571-73. MPAA's position is that it is not required to prove
its program ownership because it will receive all remaining funds in
the 1997 syndicated program royalty pool once IPG's claim is
established. While it is true that MPAA will receive all funds less
IPG's share, program ownership is nonetheless essential to the
application of MPAA's methodology.
As discussed above, MPAA's 82 station sample survey is
straightforward in its approach. Calculate the universe of programs in
this proceeding, determine the total number of viewing hours for these
programs, and then calculate the percentage of the total of viewing
hours for IPG programs, yielding IPG's royalty distribution percentage.
The so-called ``alpha list'' submitted by MPAA supposedly contains the
household viewing hours for all IPG and all MPAA programs. Id. at 28,
para. 79. The number of IPG programs on this list is known; it is the
eight programs of Litton Syndications which the Library has determined
are properly attributable to IPG. How do we know that all the remaining
programs are properly attributable to MPAA? The answer is that we do
not know. MPAA created the alpha list, but it did not provide any
testimony to verify the accuracy of the list. It may be that the alpha
list contains programs which are not properly represented by MPAA. IPG
raises concerns about the status of several program certifications
submitted by MPAA, including a number of MPAA claimants for which no
certifications were submitted. IPG Proposed Findings at 44-48, Paras.
153-169. The CARP allowed the record of this proceeding to remain open
after argument had ended to allow submission of additional
certifications from MPAA. We cannot determine the sufficiency of these
additional filings because there is no testimony to review.
The import of these omissions to the confidence to be placed in
MPAA's sample survey is considerable. If MPAA's program ownership
cannot be verified, then the total number of household viewing hours
for programs in this proceeding cannot be verified. What is even more
troubling is that if the alpha list does contain programs which are not
properly a part of this proceeding, the benefit of those inclusions
inures directly to MPAA because the MPAA's methodology measures IPG's
claim as a percentage of the total number of household viewing hours.
In other words, the more programs--and consequently the more household
viewing hours--that are included in the total, the smaller is IPG's
percentage share of that total and consequently the smaller is its
royalty share under MPAA's formula.
MPAA points out there is no regulation that requires that it put
into evidence program certifications. This is correct. However, MPAA is
requesting us to accept its methodology as the means of determining the
division of royalties in this proceeding. Unless MPAA can prove that it
properly represents all the programs it claims on the alpha list, we
cannot verify that MPAA's methodology is being correctly applied. We
cannot assume that the copyright owners of all the programs claimed by
MPAA are actually represented by MPAA simply because it says so.
(ii). Zero viewing hours. The amount of zero viewing hours in
MPAA's 82 station sample survey--instances where Nielsen recorded no
viewing for a particular program--was especially troubling to the CARP,
and the CARP penalized MPAA the most for this anomaly. The CARP made
the following finding:
The record reveals that 68% of the quarter hours measured by
Nielsen were attributed with ``zero'' viewing. Factoring in
broadcasts occurring between 2:00-6:00 a.m. for which the MPAA
methodology automatically attributes a ``zero'' value, a total of
73% of the quarter-hour broadcasts occurring on such stations during
such measurement period were attributed with ``zero'' viewing. With
one exception, each station in MPAA's study has a significant
percentage of measured quarter-hour broadcasts accorded ``zero''
viewing, ranging from 26% to 96%. Of the 82 stations in the MPAA
study, 64 measured by Nielsen recorded no viewing in excess of 50%
of their broadcasts, a figure that increases to 74 of the television
stations when ``zero'' viewing for the 2:00-6:00 a.m. daypart is
factored in. Eight stations including the New York affiliate of CBS,
WCBS-TV, were credited with ``zero'' viewing during more than 90% of
their measured broadcasts.
The only exception to the significant percentages of ``zero''
viewing are programs broadcast on Superstation WTBS. The Nielsen
study credited WTBS, the most retransmitted station during 1997,
with only .5% of ``zero'' viewing. Inexplicably, the Nielsen
``special study'' credited other superstations with significant
distant cable subscribers with large percentages of ``zero''
viewing. Of note for example, is WGN-TV, the second most
retransmitted station with an average of 28 million distant cable
subscribers during 1997. Despite its substantial distant
subscribership, WGN-TV was credited with ``zero'' viewing in 52% of
its measured broadcasts. Three other ``Superstations'' were credited
with ``zero'' viewing ranging between 26% and 62% of their measured
broadcasts.
We conclude that of the eight deficiencies we have noted in
MPAA's distribution royalties,\16\ this ``zero'' viewing hours
deficiency is, by far, the most egregious. The evidence offered by
MPAA to explain this perceived deficiency in its methodology was
less than enlightening. Mr. Lindstrom, who is not a statistician,
clarified that attribution of ``zero'' viewing does not mean that no
persons were watching, only that no diaries recorded viewing, and
that any suggestion to the Panel that no viewing occurred would
reflect a misunderstanding of the data. But then he stated that the
``zero'' viewing hour information consists of pieces of data that
are imprecise; that they are among a series of estimates that may be
either high or low; that such individual quarter hour entries have
little usefulness; but that they aggregate up to an accurate result,
and ``the more imprecise
[[Page 66450]]
bricks you throw in the pile, the more accurate the overall number
is going to be.''
---------------------------------------------------------------------------
\16\ The word ``royalties'' should probably read
``methodology.''
---------------------------------------------------------------------------
Accepting this and other testimony of Mr. Lindstrom at face
value, we find that it does not even begin to explain the enormous
discrepancies described above regarding the crediting of ``zero''
viewing hours. There is little if any evidence in this record that
these high credits of ``zero'' viewing hours were offset in 1997 by
credits of excessively high units of viewing hours. Thus, we are
left with a record that more than merely suggests that the MPAA
methodology is significantly defective in the manner in which it
credits ``zero'' viewing hours.
Revised report at 8-10 (citations omitted).
MPAA describes the CARP's rationale as follows: ``Wow. That many
zeros must mean something. We haven't a clue what it is, but there are
just too many of them to ignore.'' MPAA Reply to IPG Petition to Modify
Revised Report at 7. MPAA then summarily concludes that ``[t]he zeros
mean nothing.'' Id. Contrary to MPAA's assertions, we believe that the
zeros mean something. They cannot mean ``nothing.''
MPAA continues to insist that Mr. Lindstrom has adequately
explained the high number of zero viewing hours, assuring that the
aggregation of the viewing data makes up for the zeros; ``the more of
these, sort of, imprecise bricks you throw in the pile, the more
accurate the overall number is going to be.'' Tr. 1432. We make a
layperson's observation that when you aggregate lots of zeros, the
result is still zero. As the CARP noted, almost three-quarters of the
quarter hour viewing measured by Nielsen for the stations in MPAA's 82
station sample survey received a zero, despite the fact that Mr.
Lindstrom stated that a zero viewing rating did not mean that no
viewing was actually taking place, only that it was not measured. Tr.
1424. To us the extraordinarily high level of zero viewing does not
mean that the overall results of MPAA's sample survey are more
accurate; rather, it means that the sample survey actually measures
much less viewing than MPAA suggests.
WTBS is the one station with a modest level of zero viewing; 0.5%
according to the CARP. This is not surprising, given the large number
(52 million) of distant cable subscribers to WTBS. What is surprising
is the number of zero viewing instances for WGN which had an average of
28 million distant cable subscribers during 1997. Over half of the
measured WGN broadcasts resulted in zero viewing. Revised report at 9.
Even further, three other superstations had zero viewing ranging
between 26% and 62% of their measured broadcasts. Id. How is it
possible that some of the most distributed broadcast stations in the
cable industry have such little viewing?
MPAA offers a couple of possible explanations for such
discrepancies. For WGN, MPAA suggests that the number of zero viewing
instances ``could be accounted for by the fact that WGN because WGN
(sic) satellite feed to distant cable systems includes programs not
part of the station's local broadcast program schedule. These programs
are not credited to WGN's distant viewing by Nielsen.'' MPAA Petition
to Modify Revised Report at 17-18. This is a post hoc speculation,
because there is nothing in the record of this proceeding that
demonstrates or even suggests that there are substantial differences
between the programs contained on the WGN satellite feed distributed to
cable operators and the over-the-air feed of the station. MPAA
presented no evidence to support this argument. Furthermore, if MPAA's
assertion is true, it demonstrates that certain programming contained
on WGN is greatly undervalued because Nielsen is not measuring its
viewing.
MPAA also points to Mr. Lindstrom's testimony where he states that
there could be ``loads of reasons'' why there are so many instances of
zero viewing. Tr. 1424. Unfortunately, Mr. Lindstrom does not describe
the ``loads of reasons,'' other than to suggest that the FCC's network
nonduplication rules may have resulted in a considerable number of
distant programs being blacked out in local markets, and consequently
not measured in the sample survey. Once again, there is no record
evidence to support Mr. Lindstrom's suggestion. Ms. Kessler's testimony
that she was unconcerned about the number of zero viewing instances is
not helpful. Even if one assumes that Mr. Lindstrom's observation is
correct, the network nonduplication rules only apply to network
stations and do not explain the vast amounts of zero viewing on
superstations which are considered to be independent stations under the
section 111 license.
The considerable sums of zero viewing, and MPAA's failure to
explain it, further undermines the value of the 82 station sample
survey. The practical effect of zero viewing is to overvalue those few
stations in the survey that received more measured viewing, and thereby
overvalue the programs broadcast on those stations. Meanwhile, programs
that even MPAA admits are seen by some viewers are given no value
whatsoever. In the future, if MPAA continues to present a Nielsen-based
viewer methodology, it needs to present convincing evidence, backed by
testimony of a statistical expert, that demonstrates the causes for the
large amounts of zero viewing and explains in detail the effect of the
zero viewing on the reliability of the results of the survey. In
addition, MPAA needs to take steps to improve the measurement of
broadcasts in the survey to reduce the number of zero viewing hours,
thereby increasing the reliability of its study.
(iii) The 82 station sample. According to Ms. Kessler, the 82
stations used in MPAA's sample survey were selected because they each
had 90,000 or more Form 3\17\ distant cable subscribers as identified
by Cable Data Corporation. Tr. 242. MPAA chose the 90,000 subscribers
as its minimum in selecting its sample of broadcast stations because
such criteria ``hit virtually all subscribers and accounted for
generally all of the money that was paid into the fund during that
time.'' Tr. 243.
---------------------------------------------------------------------------
\17\ ``Form 3'' refers to the statement of account form used by
the Copyright Office in collecting royalty fees under the section
111 cable license. ``Form 3'' cable systems are the largest systems
filing with the Office, having in excess of $292,000 in gross
receipts from subscribers for the retransmission of over-the-air
broadcast signals.
---------------------------------------------------------------------------
During the proceeding, IPG presented testimony that demonstrated
that MPAA did not apply the 90,000 subscriber criteria as it claimed.
Several broadcast stations with more than 90,000 subscribers were
excluded from the survey, and several with less than 90,000 subscribers
were included in the survey. IPG written rebuttal at 30-31. In one
extreme circumstance, station KDVR was included in the sample survey
despite the fact that it had less than 3,000 distant subscribers in
1997. Id. at 31. MPAA did not refute this testimony, nor did it explain
why certain stations that satisfied the criteria were excluded, while
others that did not were included in the sample survey.
We cannot determine what effect, if any, MPAA's selection of
stations had on the results generated by its sample survey. Likewise,
we cannot determine from the record whether MPAA's failure to apply its
90,000 subscriber criteria was deliberate, or the result of oversight.
What is clear is that MPAA's failure to apply its chosen selection
criteria consistently further undermines our confidence in the accuracy
of the results generated by its sample survey. In the future, when
presenting a methodological survey, MPAA needs to rigorously adhere to
its announced standards and parameters for the survey.
(iv). Interpolation. As mentioned above, the MPAA sample survey
submitted in this Phase II proceeding is similar to the one it has
submitted in
[[Page 66451]]
past Phase I proceedings with one exception. The exception is the use
of ``straight line,'' ``forward,'' and ``backward'' interpolation. The
reason for and operation of interpolation is as follows. Nielsen
measures viewing of all broadcast stations in the 82 station sample
survey for only four months of the year. These measured viewing periods
are referred to as the ``sweeps.'' Nielsen also conducts two partial
sweep periods, in which some of the 82 stations' broadcasts are
measured, but not others.\18\ This leaves six full months of unmeasured
viewing, plus an additional two months for stations not covered by the
partial sweeps periods. If MPAA relied only upon the sweeps and partial
sweeps periods to measure viewing of programs, many programs belonging
to MPAA members (as well as to IPG) would receive zero household
viewing hours because they were broadcast on stations not covered by
the sweeps. To compensate for this considerable omission, MPAA
developed an interpolation method that allegedly estimates what the
viewing might be for these programs had they been included in the
sweeps periods.
---------------------------------------------------------------------------
\18\ The partial sweeps periods are confined, for the most part,
to broadcast stations in the top television markets in the country.
---------------------------------------------------------------------------
Briefly described, MPAA's interpolation method makes three
measurements in an effort to estimate viewing for programs outside the
sweeps period. The first measurement is ``straight line''
interpolation. In ``straight line'' interpolation, MPAA ascertained the
number of household viewing hours for a specific time period from the
two closest sweeps periods, and then took the average of those hours.
For example, May and July are sweeps periods, but there is no measured
viewing for the month of June. MPAA looked at the May sweeps results
and the July sweeps results and applied the average of those results to
each corresponding time period in the month of June. Thus, the
``straight line'' interpolated viewing result for the quarter hour of
10 a.m. to 10:15 a.m. on June 7, 1997, is the average of the measured
household viewing hours for that time period for a particular station
on May 7, 1997, and July 7, 1997. Tr. 1614-17.
Both ``forward'' and ``backward'' interpolation use data obtained
from Nielsen meter rankings, as opposed to the data obtained from
viewing diaries during the sweeps periods. Meter rankings are different
from the diary method in that meter rankings do not capture specific
viewing, but rather merely record when a television is on in a given
Nielsen household (whether or not anyone is actually watching it) and
what station the television is tuned to. Tr.1273-74; 1347-50.
``Forward'' interpolation uses the sweeps household viewing measurement
obtained from the viewing diaries for the period preceding the time
frame to be measured and multiplies that by the ratio of Nielsen meter
rankings for the preceding period and the period to be measured. In the
above example, ``forward'' interpolation takes the corresponding
daypart measurement from the May sweeps period and multiplies that by
the Nielsen meter ranking for the same daypart in June divided by the
May meter ranking for that daypart. Tr. 1616.
``Backward'' interpolation utilizes the same approach as
``forward'' interpolation, except that it uses the sweep data for the
period following the one to be measured, as well as the meter ranking
from that period. Again, in the above example, the household viewing
hours from the July sweeps period would be multiplied by the June meter
ranking for the corresponding daypart divided by the July meter
ranking. Tr. 1617. After the three interpolated results have been
obtained through ``straight line,'' ``forward,'' and ``backward''
interpolation, they are divided by three to obtain an average number of
household viewing hours for the daypart being examined. Id. The
purported purpose of ``straight line,'' ``forward,'' and ``backward''
interpolation is to provide more accuracy to the Nielsen meter rankings
through the process of averaging. Tr. 1602-03, 1614-17.
We recognize the purpose of interpolation and appreciate that MPAA
is forced to estimate viewing for programs broadcast during non-sweeps
periods. Our problem with interpolation is the manner in which MPAA
presented it in this proceeding. First, MPAA laid no foundation for a
statistical methodology that it was presenting for the first time in a
cable distribution proceeding. Marsha Kessler is not a statistician who
could testify as to the statistical validity of the interpolation
approach; and moreover, she did not compile or review the interpolation
data presented by MPAA and, apparently, did not participate in the
creation of the methodology or its application. Tr. 1603. The
interpolated data was created by Tom Larson of Cable Data Corporation
who only presented testimony on the interpolated data when called as a
witness by the CARP. In the future if MPAA uses viewing studies to
present data on household viewing hours obtained through interpolation,
MPAA should present expert testimony as to the statistical validity of
the approach, including the confidence intervals for the data.
Second, the testimony establishes that Mr. Larson made the
interpolated data calculations, applying ``straight line,''
``forward,'' and ``backward'' interpolation ``millions of times'' in
order to generate viewing data for programs broadcast during the 6-8
months of 1997 for which Nielsen did not measure viewing. Tr. 1603.
MPAA apparently asks us to trust that Mr. Larson performed these
interpolations accurately, because there is nothing in the record that
permits verification. This is especially troubling given that more than
half of the viewing data presented in MPAA's sample survey is obtained
from interpolated results. MPAA should in the future present evidence
that permits some verification of the results of interpolated viewing,
rather than just total household viewing hours for all programs.
Finally, we note the Copyright Royalty Tribunal's admonition that
data that is not specific to programs is unreliable in determining
actual viewing of specific programs. 57 FR 15286, 15299 (April 27,
1992) (1989 cable distribution). MPAA's interpolation methodology
assigns viewing hours to time slots, not to programs. Tr. 1688-89. It
is likely that the viewing assigned these time slots was in many cases
derived from programs of a completely different type, perhaps not the
same programming category, than the programs measured during the
Nielsen sweeps periods. And it is certain that many of the individual
programs accounted for by interpolation were not actually transmitted
during the period of interpolation. This is particularly troubling
given the large amount of total viewing hour data presented by MPAA
which was obtained from interpolation.
3. Relevance of the methodology. While we agree that viewing of
programs is probative in assessing their value in a Phase II
proceeding, the results generated by MPAA's sample survey are so
unreliable that they cannot support an assessment of IPG's and MPAA's
claims in this proceeding. All that can be garnered from the MPAA
presentation is that MPAA's claim is large and IPG's is quite small,
something that is readily ascertainable from that fact that IPG only
represents eight programs in this proceeding. Precisely how small IPG's
claim is, which is the task at hand, cannot be ascertained using MPAA's
results. Further, MPAA's results cannot be used to establish a zone of
reasonableness within which to
[[Page 66452]]
place IPG's award because of the high probability of error in MPAA's
results. Consequently, we cannot accept MPAA's presentation as
providing any basis for the determination of the distribution of
royalties in this proceeding.
B. IPG's Presentation
1. Description of the Methodology
IPG's written direct case presents the testimony of Raul Galaz,
IPG's president and principal, and the exhibits that he sponsors. As a
first-time participant in a cable distribution, IPG did not designate
any prior testimony, nor did the CARP request IPG to call additional
witnesses.
IPG takes a different approach in attempting to demonstrate the
value of programming in this proceeding. Rather than rely on the
estimated viewing of a particular program, IPG attempts to determine
the value of a program based upon the carriage of the program by cable
operators. IPG Proposed Findings at 14, para. 42. According to IPG, a
cable operator is not interested in the viewer ratings generated by a
particular broadcast program it retransmits; rather, it is the overall
appeal of all the programs on the broadcast signal that is of value to
the operator. Galaz Direct at 6-7. ``Overall appeal'' is important to
the cable operator because the operator attempts to attract as many
subscribers as possible to its system. When deciding which stations to
retransmit, the operator will attempt to appeal to as wide a subscriber
base as possible by providing multiple program opportunities, so-called
``niche'' programs that appeal to particular tastes.
In some instances it will be the desire of the cable system operator
to exhibit certain sports programming, in other instances it may be
the desire to have news programming from a market that is of
interest to the cable system operator's market, the desire to
increase the amount of children's programming offered to the cable
system's subscribers, or the desire to carry more game shows.
Id. at 7. According to IPG, in a compulsory license marketplace it
is the overall appeal of a broadcast station to the cable operator that
determines the value of the programming on that station.
Since overall appeal of a station is equated with value, the
greater the number of subscribers to a station, the greater the value
of that station and, consequently, the programming on that station. Id.
at 8. The relative value of the programs contained on the station is
determined, according to IPG, by the time placement of the program and
the frequency of its telecast. Thus, a program that is retransmitted in
prime-time once a week is of greater value than a program broadcast
once a month at 2 o'clock in the morning.
In sum, IPG focuses on four elements to determine program value:
(1) The number of distant cable subscribers capable of receiving the
program broadcast during 1997; (2) the cable license royalties
generated during 1997 that are attributable to stations broadcasting
the program; (3) the time placement of the broadcast; and (4) the
length of the broadcast. IPG Proposed Findings at 14, para. 43.
In order to measure these elements, IPG, like MPAA, surveyed a
number of broadcast stations that were retransmitted by cable systems
on a distant basis in 1997. IPG sampled 99 stations that were carried
on Form 1, 2, and 3 cable systems, and examined all the programs that
were broadcast by these stations during 1997. Id. at 15, Paras. 46-47.
Such data comprised approximately 1.1 million logged broadcasts. Id. at
15, para. 47. IPG then segregated all programming not within the
syndicated programming category, leaving only movies and syndicated
series.
Because of the parallel between the number of cable subscribers
receiving a station and the amount of royalty fees generated by that
station, IPG created a factor to weigh the relative significance of any
given station and the broadcast of any program on that station. Dubbed
the ``Station Weight Factor,'' it was ``derived from the concept that
the relative significance of any given station should be affected by
both (i) the number of distant cable subscribers that could potentially
view such station, and (ii) the amount of distant cable retransmission
fees generated by such station.'' Galaz Direct at 11. The Station
Weight Factor was created as follows. For each of the 99 sampled
stations, IPG summed the figure representing the percentage of
subscribers in the survey that received the given station with the
figure representing the percentage of total cable royalty fees
generated by the 99 sampled stations. This figure was then divided in
half. Id. The figure generated by this equation equals, according to
IPG, the relative significance of each of the 99 sampled stations.
Having determined the relative value of each station--and the
corresponding programming on that station--IPG then attempted to
determine the relative value of each program on each station by
examining the number of broadcasts of the program and its time
placement within the broadcast day. In order to do this, IPG created a
factor that uses data on anticipated viewership of all persons during
time periods of the day (referred to as ``dayparts'') in order to weigh
the relative significance of any given broadcast. Dubbed the ``Time
Period Weight Factor,'' it was determined as follows:
The Time Period Weight Factor was derived from data published by
Nielsen Media Research (``Weekly Viewing Daypart'' table within the
``1998 Report on Television''), reflecting the weekly viewing habits
of all persons in 1997. Weekly viewing is stated in terms of the
number of television hours viewed during the week, specifies the
amount of viewing attributable to specific time periods, allowing
allocation amongst such time periods. IPG then determined the
``Average Minutes Viewed Per Hour in Viewing Period'' (i.e. the
``Time Period Weight Factor'') in order to apply such Time Period
Weight Factor against each and every logged broadcast on the ``99
Sample Stations,'' and according to the period during which such
logged broadcast appeared.
Id. at 13.
After ascribing the Station Weight Factor and the Time Period
Weight Factor to each broadcast, IPG applied the figures for each
broadcast against the length of such broadcast, in order to ascribe a
final value to each compensable broadcast. IPG Proposed Findings at 16,
para. 50.
As a final step to the process, IPG summed the resulting value for
its programs and all other programs in its survey and accorded a ``Sum
Weighted Value'' to both these categories of programs. Id. at 16, para.
51.
In its written direct case, IPG applied its methodology for 43
programs that it believed that it represented in this proceeding. Galaz
Direct at 5-6. It determined that IPG-represented programs produced a
Sum Weighted Value of 2,3791.7968, as compared to the Sum Weighted
Value of 1,369,901.837 for all syndicated broadcasts within the 99
sample station survey. Id. at 14. This yielded a percentage of
1.7367519% for IPG programs. Because IPG did not have access to the
programs claimed by MPAA, it could not apply its methodology to
determine the Sum Weighted Value of MPAA's programs. Consequently, IPG
argued that ``[t]o the extent that MPAA represents less than 100% of
the non-IPG programming appearing on the `99 Sample Stations,' IPG's
respective percentage must be adjusted upward.'' Id. at 14-15.
Once proceedings began before the CARP, MPAA produced the program
certifications for some, but not all, of its
[[Page 66453]]
claimants.\19\ Also, during proceedings before the CARP, a number of
IPG-claimed programs were eliminated from consideration, either through
voluntary dismissal by IPG or as a result of the CARP's rejection of
IPG's representation agreements with Jay Ward Productions, Mainframe
Entertainment, and Scholastic Productions. IPG Proposed Findings at 53,
para. 2. IPG then recalculated its own share, and that of MPAA's, and
determined that its programs accounted for 0.881% of the aggregated Sum
Weighted Value of all programs claimed in this proceeding.
---------------------------------------------------------------------------
\19\ MPAA submitted additional certifications to the CARP prior
to closing arguments in the case. Tr. 2576.
---------------------------------------------------------------------------
Although IPG's methodology yielded 0.881% for its claimed programs,
it argued that it was nonetheless entitled to 2% of the royalty pool.
IPG justified the 2% figure based upon certain alleged failures,
abuses, and shortcomings on MPAA's part, including: (1) Failure to
produce program certifications for 33 of MPAA's claimants, and
production of 6 certifications that were not properly authorized; (2)
failure to establish entitlement to 1,100 programs that were not,
according to a 1986 Advisory Opinion of the Copyright Royalty Tribunal,
eligible for compensation in the syndicated programming category; (3)
abuse of the discovery process by failing to produce documents
underlying its methodology in contravention to Library and CARP
discovery orders; and (4) serious shortcomings in the application of
MPAA's distribution methodology. Id. at pp. 52-55.
2. Validity of the Methodology
This marks the first time that IPG has appeared in a cable royalty
distribution proceeding, and the first time its distribution
methodology has been presented. As such, we do not have the benefit of
prior consideration or acceptance of the IPG methodology by either the
Copyright Royalty Tribunal or a CARP, other than the CARP's opinion in
this proceeding. We must consider IPG's methodology from a theoretical
point of view, as well as examine its particular application to this
Phase II proceeding.
At the outset, we note that IPG's methodology attempts to blend two
approaches that have been presented to the Tribunal and the CARPs. The
first part of the methodology, the Station Weight Factor, is a fee
generation approach in that it considers the royalty fees paid by cable
systems during 1997 for the 99 broadcast stations used in the IPG
survey. Each of the stations in the 99 station sample survey is ranked
from highest to lowest depending upon the amount of fees the station
generated for the 1997 royalty pool. IPG submits that the Station
Weight Factor is relevant to the marketplace value of broadcast
programs because cable systems' decisions to retransmit a particular
broadcast station are ``based on the ``overall appeal'' of the
retransmitted station and its ability to generate additional cable
system subscribers, not the ratings of a particular program appearing
on the retransmitted station.'' IPG Proposed Findings at 14-15, para.
45.
IPG's focus on the value of distant signals to cable operators
recalls the Bortz survey that has been presented for many years at
Phase I in cable royalty distribution proceedings. The Bortz survey
attempts to measure the value of different categories of programming
appearing on retransmitted broadcast signals by presenting to persons
from cable companies a hypothetical programming budget for a given
year, and then asking how much value they place on different kinds of
programming (sports, movies, syndicated series, etc.) in compiling
their program schedule. 57 FR 15286, 15292 (April 27, 1992). The more
value placed on a program category, the more cable Phase I royalties it
should receive, according to proponents of the Bortz survey.
The focus on value to the cable operator has been endorsed by both
the Tribunal and the CARPs as one of the ways to assess marketplace
value, and the results of the Bortz survey have received credit in
Phase I proceedings. See, e.g. 57 FR 15286, 15301 (April 27, 1992)(1989
cable Phase I) IPG's Station Weight Factor attempts to ride the
coattails of the Bortz survey's acceptance by ranking the ``overall
appeal'' of stations as an expression of the value of the programming
broadcast on those stations. While it must be true that a station such
as WTBS, for example, has a significant ``overall appeal'' to cable
operators by virtue of the number of cable systems that retransmit it,
the ``overall appeal'' does not translate well to a Phase II proceeding
dealing with one program category. It is quite possible, and perhaps
likely, that the ``overall appeal'' of stations in the 99 station
sample survey is based upon programming that is not in issue in this
proceeding. Thus, the reason that so many cable operators carry WTBS
may have more to do with Atlanta Braves baseball and Atlanta Hawks
basketball than it does with syndicated series and movies. IPG failed
to present any evidence that established a clear nexus between the
syndicated programming category and the ``overall appeal'' of the 99
broadcast stations subjected to the Station Weight Factor.
This is a significant omission which raises serious concerns
regarding the validity of IPG's methodology. The Copyright Royalty
Tribunal has rejected estimating techniques that are not tied to
programming categories because of their inherent unreliability. 57 FR
at 15299 (1989 Phase I cable distribution). In the absence of
convincing evidence that demonstrates that the ranking of the 99
stations is based upon the syndicated programming category, and not
some other, the validity of the Station Weight Factor is not
established.
The second element of IPG's methodology is the Time Period Weight
Factor. The Time Period Weight Factor uses data from the 1998 Report on
Television published by Nielsen. Galaz Direct at 13. The Report on
Television provides viewing estimates for early morning (M-F 7-10
a.m.), daytime (M-F 10 a.m.-4 p.m.), prime time (M=--at 8-11 p.m. and
Sun. 7-11 p.m.), and late night (11:30 p.m.-1 a.m.) dayparts. For all
other dayparts, weekly viewing was extrapolated from the data in the
above categories and lumped into the ``All Other'' category. IPG
Exhibit H. These viewing estimates enable IPG to rank the dayparts.
Like the ranking of the 99 stations in IPG's sample survey, the ranking
of dayparts is not tied to programming. The Nielsen viewing estimates
for these dayparts are drawn from viewing of all program categories. In
fact, the estimates apparently also include viewing of local stations
over-the-air and on cable, cable networks, and VCR recording of
programming, which are completely outside the scope of the section 111
license. Tr. 1369. As with the Station Weight Factor, the Time Period
Weight Factor is not tied to programming. IPG did not present any
testimony establishing a link between syndicated programming and the
ranking accorded to dayparts by Nielsen. Unless such link is
established, the relevance of the Time Period Weight Factor is in
question.
This is our evaluation of the theory of IPG's methodology. In
addition, there are specific concerns about its application in this
proceeding with respect to the use of daypart data obtained from
Nielsen. While we acknowledge that obtaining specific daypart data from
Nielsen is costly, the dayparts culled by IPG from the 1998 Report on
Television are far too broad because they ignore variations in viewing
within dayparts. For example, IPG's methodology assigns the same value
to any program broadcast within the 1 a.m. to 7 a.m. daypart. MPAA
[[Page 66454]]
points out that Nielsen estimates that household viewing falls from
18.9% to 8.2% at 4:30 a.m. and then begins to rise back to 19.7% in the
6:30 a.m. to 7 a.m. half hour. MPAA Proposed Findings at 60, para. 261.
Thus, a program broadcast at 4:30 a.m. gets the same value under IPG's
methodology as a program broadcast at 6:30 a.m., even though it has
less than half the viewers. Even within IPG's own construct, which
attempts to assign value based on relative viewing, this result is
illogical. Dayparts must be broken down into smaller increments before
the Time Period Weight Factor could be given any credence.
In addition, IPG's extrapolated daypart data, the ``All Other''
category, is plainly overweighted. For example, IPG applies the weight
applicable to the ``All Other'' category to the 1 a.m. to 7 a.m.
daypart. This is the same weight factor that is applied to programming
broadcast between 4 p.m. and 8 p.m., where viewing, according to
Nielsen, is considerably higher than in the 1 a.m. to 7 a.m. time
frame. The result is that a program broadcast at 3 a.m. is of equal
value under IPG's methodology as a program broadcast at 7:30 p.m.\20\
Further, the 1998 Report on Television contains viewing estimates for
the Saturday 7 a.m. to 1 p.m. daypart and the Sunday 1 p.m. to 7 p.m.
daypart, neither of which IPG used in its methodology. Instead, IPG
applied the ``All Other'' category to these time periods. As the CARP
correctly observed, the value of the ``All Other Category'' is
overstated, thereby inflating the value of IPG's claim. Revised Report
at 14.
---------------------------------------------------------------------------
\20\ There is record evidence that shows that as much as 30% of
IPG's originally claimed programs were broadcast between 1 a.m. and
7 a.m. Tr. 1035-37.
---------------------------------------------------------------------------
3. Relevance of the methodology. As with MPAA's presentation, we
conclude that the results of IPG's presentation are so unreliable that
they cannot be used as a basis for determining the distribution of
royalties in this proceeding. The theory of IPG's case lacks
statistical foundation, and places value on programs unconnected to
their actual viewership. The evidence demonstrates that IPG's
methodology overstates the value of its claim, although by how much
cannot be determined. Given the lack of reliability of the results,
IPG's presentation cannot be used as a basis for the distribution of
royalties in this proceeding.
Determination
1. Remand. Having determined that the results presented by MPAA and
IPG are wholly unreliable, we examined the record to determine if there
is any evidence sufficient to base a distribution of royalties. As part
of its distribution methodology, the CARP examined the number of
rebroadcasts of programs and the airtime of programs contained in both
the 82 sample stations presented by MPAA and the 99 stations presented
by IPG. The CARP examined this data because it was the only data common
to both MPAA's and IPG's presentations. Revised report at 17. This gave
an indication of the relative size of MPAA's and IPG's claims; i.e.
that MPAA's was large and IPG's small. Id. at 18. The CARP then turned
to the methodologies presented by the parties and used them as a means
of creating final distribution percentages.
We determine that the number of rebroadcasts and airtime of
programs contained in the 82 station and 99 station sample surveys
cannot form the basis of a distribution. All that data demonstrates is
that MPAA's programming dominated the broadcast marketplace, something
that is already known. The number of times a program is broadcast and
the amount of time it is on the air is no indication of the marketplace
value of the program. While the number of times a program is broadcast
might intuitively suggest that it is of more value, the opposite is
often true. Programs which garner low syndication fees are often
broadcast by television stations many times because the rights are
cheap. And other programs, such as motion pictures, may be broadcast
relatively few times because the rights are expensive, but they are
nonetheless of greater marketplace value. Number of broadcasts and
airtime are therefore not the answer.
What then is the answer? We determine that the record of this
proceeding is insufficient on which to base a distribution
determination. The record does not permit us to assess what is the zone
of reasonableness for the distribution awards, let alone determine the
awards themselves. Given the lack of reliability of MPAA's and IPG's
presentations, crafting awards from the current record would constitute
arbitrary action.
We conclude that a distribution of royalties cannot be made based
on the current record. Consequently, this case must be remanded to a
new CARP for a new proceeding under chapter 8 of the Copyright Act.
2. New proceeding. In the new proceeding, the parties will be
required to submit new written direct cases and present evidence that
takes into account the concerns expressed in this Order, with the new
CARP rendering its determination based upon the new record. All
procedural and substantive requirements for a CARP proceeding will
apply to the new proceeding.
Although the parties will able to present new cases and new
evidence in the new proceeding, there are two matters that have been
decided. As discussed above, the Librarian has ruled that IPG
represents Litton Syndications for distribution of 1997 cable
royalties, and no other claimant. Consequently, in the new proceeding,
IPG is barred from relitigating whether it represents other claimants.
The Librarian also determined that Litton's claim consists of at least
8 programs, and listed them in the June 5, 2001 Order. This part of
Litton's claim is decided and may not be relitigated. Whether there are
additional programs that should be credited to Litton's claim (such as
Dream Big and Dramatic Moments in Black Sports History) may be
addressed in the new proceeding. Likewise, all other matters as to
program ownership, and the proper division of the royalties, are open
to consideration in the new proceeding.
The Library will issue a scheduling order for the new proceeding
once the arrangements have been made.
Order of the Librarian
Having duly considered the recommendation of the Register of
Copyrights regarding the initial report and the revised report of the
CARP in the above-captioned proceeding, the Librarian determines the
following. First, the Librarian has accepted the recommendation of the
Register to reject the initial report of the CARP and remand the
proceeding to the CARP with instructions for further action. This was
done in the June 5, 2001, Order in this proceeding, and the Librarian
incorporates that Order as a part of his final determination. See
Appendix A.
Second, the Librarian accepts the recommendation of the Register to
reject the revised report of the CARP. Third, the Librarian accepts the
recommendation of the Register to remand this proceeding to a new CARP
for a new proceeding to determine the proper distribution of 1997 cable
royalties between MPAA and IPG. The Library will issue a scheduling
order for the new CARP proceeding once arrangements have been made.
[[Page 66455]]
Dated: December 14, 2001.
Marybeth Peters,
Register of Copyrights.
APPENDIX A--LIBRARIAN'S REMAND ORDER DATED JUNE 5, 2001
[Docket No. 2002-2 CARP CD 93-97]
In the Matter of Distribution of 1993, 1994, 1995, 1996 and 1997
Cable Royalty Funds
Order
On April 16, 2001, the Librarian of Congress received the report
of the Copyright Arbitration Royalty Panel (CARP) in the above-
captioned proceeding. Both the Motion Picture Association of America
(MPAA) and the Independent Producers Group (IPG), the two litigants
in this proceeding, have filed their petitions to modify and/or set
aside the determination of the CARP, and their replies to those
petitions.
After a review of the report and examination of the record in
this proceeding, the Register recommends that the Librarian reject
the decision of the CARP, and remand the case to the CARP for
modification of the decision. The Register concludes that the CARP
acted arbitrarily in three ways. First, the CARP did not follow the
decisional guidelines and intent of the June 22, 2000, Order issued
in this proceeding which directed the CARP to dismiss any claimants
listed in exhibit D of IPG's written direct case that did not have a
written representation agreement with Worldwide Subsidy Group on or
before July 31, 1998.
Second, the CARP arbitrarily included two programs--Critter
Gitters and Bloopy's Buddies--in the claim of Litton Syndications,
Inc. (represented by IPG) when IPG did not introduce any evidence as
to the value of those programs. In addition, the CARP arbitrarily
assigned the program Dramatic Moments in Black Sports History to IPG
without adequate explanation of its decision.
Third, the CARP acted arbitrarily in awarding 0.5% of the 1997
cable royalties to IPG, and the remaining 99.5% of the royalties to
MPAA, because it did not provide any explanation of the methodology
or analysis it used to arrive at these numbers.
A full discussion of the Register's reasons for these
conclusions shall appear in the final order in this proceeding
published in the Federal Register.
Wherefore, the Register recommends that the Librarian reject the
CARP's report and remand to the CARP to take the following actions
in modifying its report:
1. That the CARP award royalties to IPG only on the claims of
Litton Syndications and not award any royalties to IPG based upon
the other claimants in exhibit D of IPG's written direct case;
2. That the CARP credit Litton with only the following programs:
Algo's Factory; Jack Hanna's Animal Adventures; Harvey Penick's Golf
Lesson; Mom USA; Nprint; Sophisticated Gents; Just Imagine and The
Sports Bar;
3. That the CARP explain its reasons for crediting Dramatic
Moments in Black Sports History to Litton's claim; and, if it
concludes that its initial decision was correct, add the program to
the list contained in #2;
4. That the CARP enter a new distribution percentage for IPG,
based only on the claim of Litton and the programs listed in #2 and,
if appropriate, #3, and allocate the remainder of the royalties to
MPAA; and
5. That the CARP fully explain its reasons and methodology for
the distribution percentages it assigns to IPG and MPAA.
The Register further recommends that the CARP be given until
June 20, 2001, to report its modified decision to the Librarian and
that section 251.55 of the rules, 37 C.F.R., apply to the CARP's
modified report, except that the periods for petitions and replies
be shortened from 14 days to 7 days for petitions, and from 14 days
to 5 days for replies, due to the proximity of the time period for
issuance of the Librarian's final order in this proceeding.
So recommended.
Dated: June 5, 2001.
Marybeth Peters,
Register of Copyrights.
So Ordered.
James H. Billington,
The Librarian of Congress.
[FR Doc. 01-31607 Filed 12-21-01; 8:45 am]
BILLING CODE 1410-33-P