[Federal Register: January 26, 2004 (Volume 69, Number 16)]
[Notices]
[Page 3606-3620]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26ja04-78]
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LIBRARY OF CONGRESS
Copyright Office
[Docket No. 2001-8 CARP CD 98-99]
Distribution of 1998 and 1999 Cable Royalty Funds
AGENCY: Copyright Office, Library of Congress.
ACTION: Final order.
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SUMMARY: The Librarian of Congress, upon the recommendation of Register
of Copyrights, is accepting in full the determination of the Copyright
Arbitration Royalty Panel and is announcing the final Phase I
distribution of cable royalties for 1998 and 1999.
EFFECTIVE DATE: January 26, 2004.
ADDRESSES: The full text of the CARP's report to the Librarian of
Congress is available for inspection and copying during normal business
hours in the Office of the 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, P.O. Box 70977, Southwest
Station, Washington, DC 20024. Telephone: (202) 707-8380. Telefax:
(202) 252-3423.
SUPPLEMENTARY INFORMATION:
Background
In 1976, Congress adopted a statutory license for cable television
operators to enable them to clear the copyrights to over-the-air
television and radio broadcast programming which they retransmit to
their subscribers. Codified at 17 U.S.C. 111, the section 111 license
allows cable operators to submit semiannual royalty payments, along
with accompanying statements of account, to the Copyright Office for
subsequent distribution to copyright owners of broadcast programming
retransmitted by those cable operators. In order to determine how the
collected royalties are to be distributed amongst the many copyright
owners filing claims
[[Page 3607]]
for them, the Copyright Office, under the auspices of the Librarian of
Congress, conducts a distribution proceeding under chapter 8 of the
Copyright Act. Distribution of cable license royalties are conducted in
two phases. In Phase I, the royalties are divided among eight
categories or groups of copyright owners that represent all of the
kinds of copyrighted broadcast programming carried by cable systems:
movies and syndicated television programs; \1\ sports programming; \2\
commercial broadcast programming; \3\ religious broadcast programming;
\4\ public television broadcast programming; \5\ Canadian broadcast
programming; \6\ public radio broadcast programming; \7\ and music.\8\
In Phase II the money allotted each category is subdivided among the
various copyright owners within that category. Today's proceeding is a
Phase I proceeding for royalties collected from cable operators for the
years 1998 and 1999.
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\1\ This category is known as ``Program Suppliers'' and is
represented by the Motion Picture Association of America, Inc.
\2\ This category comprises sports programming belonging to the
National Football League, the National Hockey League, the National
Basketball Association, Major League Baseball and the National
Collegiate Athletic Association. The category is referred to as
``Joint Sports Claimants'' or ``JSC.''
\3\ Commercial broadcast programming consists of copyright
owners of commercial radio and television programming that are
represented in this proceeding by the National Association of
Broadcasters, Inc. The category is referred to as ``NAB'' in this
document.
\4\ Religious broadcast programming consists of various
copyright owners of religious programming, and the category is
referred to as ``Devotional Claimants'' in this document.
\5\ Public television broadcast programming consists of various
copyright owners of television programs broadcast by the Public
Broadcasting Service. The category is referred to as ``PBS'' in this
document.
\6\ Canadian broadcast programming consists of various Canadian
copyright owners whose programs are retransmitted by cable systems
located near the U.S./Canada border. The category is referred to as
``Canadian Claimants'' in this document.
\7\ Public radio broadcast programming consists of various
copyright owners of radio programs transmitted by National Public
Radio. The category is referred to as ``NPR'' in this document.
\8\ Music is the copyrighted programming belonging to
songwriters and music publishers and are represented by the American
Society of Composers, Authors and Publishers (``ASCAP''),
Broadcaster Music, Inc. (``BMI'') and SESAC, Inc. This category is
referred to as ``Music Claimants'' in this proceeding.
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The royalty payment scheme of the cable statutory license is
technical, complex and, many would say, antiquated. The license places
cable systems into three categories based upon the amount of money they
receive from their subscribers for over-the-air broadcast stations.
Small and medium-sized systems pay a flat fee. Large cable systems--
whose royalty payments comprise the lion's share of the royalties to be
distributed in this proceeding--pay a percentage of the gross receipts
they receive from their subscribers for each distant over-the-air
broadcast station they retransmit.\9\ How much they pay for each
broadcast station depends upon how the carriage of that station would
have been regulated by the Federal Communications Commission (``FCC'')
in 1976, the year the current Copyright Act was enacted. The royalty
scheme for large cable systems employs the statutory device known as
the distant signal equivalent (``DSE''). Distant signals are determined
in accordance with two sets of FCC regulations: the ``must carry''
rules for broadcast stations in effect on April 15, 1976, and a
station's television market as currently defined by the FCC. 17 U.S.C.
111(f). A signal is distant for a particular cable system when that
system would not have been required to carry the station under the
FCC's 1976 ``must carry'' rules and the system is not located within
the station's local market.
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\9\ The cable license is premised upon the Congressional
judgment that cable systems should only pay royalties for the
distant broadcast stations they bring to their subscribers and not
for the local broadcast stations they provide. However, cable
systems which carry only local stations and no distant ones (a
rarity) are still required to submit a statement of account and pay
a basic minimum fee.
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Large cable systems pay for carriage of distant signals based upon
the number of DSE's they carry. The statute defines a DSE as ``the
value assigned to the secondary transmission of any nonnetwork
television programming carried by a cable system in whole or in part
beyond the local service area of the primary transmitter of such
programming.'' 17 U.S.C. 111(f). A DSE is computed by assigning a value
of one to a distant independent broadcast station, and a value of one-
quarter to distant noncommercial educational and network stations,
which do have a certain amount of nonnetwork programming during a
typical broadcast day. Large cable systems pay royalties based upon a
sliding scale of percentages of their gross receipts depending upon the
number of DSE's they incur. The greater the number of DSEs, the greater
the total percentage of gross receipts and, consequently, the larger
the total royalty payment. The monies collected under this payment
scheme are received by the Copyright Office and identified as the Basic
Fund.
The complexity of the royalty payment mechanism does not, however,
end with the Basic Fund. As noted above, the operation of the cable
license is intricately linked with how the FCC regulated the cable
industry in 1976. The Commission restricted the number of distant
signals that cable systems could carry in 1976 (the distant signal
carriage rules), and required them to black-out programming contained
on a distant signal where the local broadcaster had purchased the
exclusive right to that programming (the syndicated exclusivity rules).
However, in 1980, the Commission took a decidedly deregulatory stance
towards the cable industry and eliminated the distant signal carriage
rules and the syndicated exclusivity (``syndex'') rules. Malrite T.V.
v. FCC, 652 F.2d 1140 (2d Cir. 1981), cert. denied sub. nom., National
Football League, Inc. v. FCC, 454 U.S. 1143 (1982). Cable systems were
now free to import as many distant signals as they desired without
worry of restrictions.
Pursuant to its statutory authority and in reaction to the FCC's
action, the Copyright Royalty Tribunal (``CRT'') initiated a rate
adjustment proceeding for the cable license to compensate copyright
owners for the loss of the distant signal carriage rules and the syndex
rules. This rate adjustment proceeding produced two new rates
applicable to large cable systems making section 111 royalty payments.
47 FR 52146 (November 19, 1982). The first, to compensate for the
elimination of the distant signal carriage rules, was the adoption of a
royalty rate of 3.75% of a cable system's gross receipts for carriage
of each distant signal that would not have been previously permitted
under the former distant signal carriage rules. Distant signal
royalties which are paid at the 3.75%--known as the ``penalty fee'' in
cable circles--are identified by the Copyright Office as the ``3.75%
Fund'' and are separate from royalties placed in the Basic Fund.
The second rate adopted by the CRT, to compensate for the
elimination of the syndex rules, is known as the syndex surcharge.
Large cable operators must pay this additional fee when the programming
appearing on a distant signal imported by a cable system would have
been subject to black-out protection under the FCC's former syndex
rules.\10\ Royalties comprising the syndex surcharge are identified by
the Copyright Office as the ``Syndex Fund''
[[Page 3608]]
and are separate from royalties placed in the Basic Fund and the 3.75%
Fund.
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\10\ Royalties collected from the syndex surcharge have
decreased from previous levels because the FCC has reimposed
syndicated exclusivity protection in certain circumstances.
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The royalties in these three funds--Basic, 3.75% and Syndex--are
the royalties that are eligible for distribution to copyright owners of
nonnetwork broadcast programming in a section 111 cable license
distribution proceeding.
This Proceeding
On November 20, 2001, the Library of Congress opened Docket No.
2001-8 CARP CD98-99, a consolidated Phase I distribution proceeding for
cable license royalties collected from cable operators for the years
1998 and 1999. Of the eight Phase I categories or ``parties'' \11\
filing Notices of Intent to Participate in this distribution
proceeding, two parties--Devotional Claimants and NPR--settled with the
others as to the amount of their distribution and voluntarily withdrew
their claims. The Library turned to the task of scheduling a Copyright
Arbitration Royalty Panel (``CARP'') proceeding for the remaining six
parties and, after several requests for postponement from these
parties, a final schedule was issued on October 28, 2002. Order in
Docket No. 2001-8 CARP CD 98-99 (October 28, 2002). The six parties
filed their written direct cases on December 2, 2002, and the Library
conducted discovery and motions practice throughout the winter. On
April 24, 2003, the Library convened the three-person CARP who
conducted hearings on the written direct cases, received rebuttal
testimony and considered each party's written proposed findings of fact
and conclusions of law. The Panel reviewed and analyzed nearly 20,000
pages of testimony and issued a 94-page determination, complete with an
appendix of the mathematical calculations performed by the CARP to
arrive at the distribution percentages for each of the six parties for
1998 and 1999, and another appendix identifying all exhibits submitted
during the proceeding and whether or not they were admitted into
evidence. The CARP report represents six months of intensive work.
Following is a summary.
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\11\ These categories are referred to as ``parties'' hereafter
because the copyright owners within each category agree, for Phase I
purposes, to hire counsel to represent them collectively as a
category throughout this distribution proceeding.
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The CARP Report
The six parties who litigated division of the 1998 and 1999 cable
royalties have a long history in the distribution of section 111
royalties. When Congress created the cable license and the distribution
process in the 1976 Copyright Act, it did not provide any criteria or
guidelines for how the royalties should be divided amongst the various
copyright owners. Consequently, in the first cable distribution
proceeding for cable royalties collected in 1978, the Copyright Royalty
Tribunal \12\ identified five factors that would guide its distribution
decisions. The primary factors were: (1) The harm caused to copyright
owners by distant retransmissions; (2) the benefit derived by cable
systems from distant retransmissions; and (3) the marketplace value of
the works retransmitted. 45 FR 63026, 63035 (September 23, 1980). The
Tribunal also identified two secondary factors for consideration: (1)
The quality of the retransmitted programs; and (2) time-related
considerations. Id.
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\12\ The Copyright Royalty Tribunal (``CRT''), abolished in
1993, was the predecessor administrative body to the CARP system.
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As the years passed and subsequent distribution years were
litigated, the Tribunal refined these criteria. Time-related
considerations were given little weight in dividing the royalty pool
and in the 1989 distribution determination, the Tribunal announced that
program quality would no longer be considered. 57 FR 15287, 153303
(April 27, 1992) (``[Q]uality will no longer be a criterion in the
Tribunal's distribution because it conflicts with the First
Amendment''). When the Tribunal was replaced by the CARP system, the
first, and until this proceeding only, CARP to conduct a Phase I cable
distribution chose to focus solely on the marketplace value criterion
and exclude all the others. The current CARP has chosen to embrace
relative marketplace value of the programming retransmitted as the sole
criterion governing distribution of the 1998 and 1999 royalties because
the previous CARP's decision on this point was upheld by the Librarian
and on appeal, and all six parties in this proceeding accepted that
relative marketplace value is the sole relevant criterion.
Having decided that the relative marketplace value of broadcast
programming retransmitted by cable systems during 1998 and 1999 will
govern how the royalties will be divided among the six parties, the
CARP considered how to evaluate it. Given that the cable license
substitutes for marketplace negotiations in the buying and selling of
broadcast programming, there is no real marketplace for those broadcast
programs retransmitted by cable systems. Thus, the CARP determined that
it must `` `simulate [relative] market valuation' as if no compulsory
license existed.'' CARP Report at 10. Forecasting a hypothetical
marketplace absent the existence of the cable license is a difficult
task. The Panel concluded, after considering several options, that
marketplace negotiations for broadcast programming would most likely
occur between individual cable operators (or perhaps multiple system
operators or a collective that they might form) and individual
broadcast stations that would act as intermediaries for copyright
owners and that would license all the copyrighted programming broadcast
by each station. As a result of this conclusion, the Panel observed
that cable system operators (or multiple system operators or a
collective) would face a fixed quantity of distant broadcast station
programming in the hypothetical marketplace. The supply curve for each
type of programming (movies, sports, music, etc.) would remain
vertical, meaning that the supply of programming would remain the same
irrespective of the price. Because of this, the Panel determined that
in ``the hypothetical marketplace structure that we envisage [it is]
the `demand side' that will determine relative values of each type of
programming.'' Id. at 13 (footnote and citations omitted). This is an
important conclusion of the CARP because it governs how the Panel
evaluated each of the six parties' evidentiary submissions.
As with previous cable distribution proceedings, the two principal
evidentiary offerings of the parties that attempt to determine the
value of the six program categories are the Bortz survey and the
Nielsen study. The Bortz survey, offered by the Joint Sports Claimants,
is a statistical survey of a selected group of cable operators that
asks those with programming responsibilities at the chosen cable
systems what value they place on the six categories of programming
involved in this proceeding. The responses to the inquiries posed by
the survey are then distilled in an effort to attach the relative
marketplace value to each program category. The Nielsen study, offered
by Program Suppliers, takes a decidedly different approach by utilizing
the data supplied by Nielsen Media Research measuring television
viewing during 1998 and 1999. The purpose of the Nielsen study is to
show the amount of viewing of distant signal programming by households
and persons that are in the Nielsen People Meter sample. Both the Bortz
survey and the Nielsen study have been used by the CRT and the prior
cable distribution CARP in determining the
[[Page 3609]]
division of cable royalties, although both have received criticisms as
to methodology and application. See, e.g. 57 FR 15287 (April 27, 1992)
(1989 cable distribution); 61 FR 55653 (October 28, 1996) (1990-92
cable distribution).
After considering both the Bortz survey and the Nielsen study and
examining their results, the CARP arrived at a significant conclusion.
Unlike the CRT and the CARP in prior proceedings, the Panel determined
that the Bortz survey best projected the value of broadcast programming
in the hypothetical marketplace whereas the Nielsen study ``does not
afford an independent basis for determining relative value.'' CARP
Report at 44. The Panel arrived at this conclusion because it
determined that the Nielsen study did ``not directly address the
criterion of relevance to the Panel,'' to wit: ``[t]he value of distant
signals to [cable system operators] * * * in attracting and retaining
subscribers.'' Id. at 38. ``The Nielsen study reveals what viewers
actually watched but nothing about whether those programs motivated
them to subscribe or remain subscribed to cable.'' Id. The Panel did
not discard the Nielsen study completely, however, and found that it
could be a useful tool in those circumstances when the Bortz survey
could not be used.\13\
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\13\ While finding that the Nielsen study could be useful for
determining royalty shares where the Bortz survey did not yield
complete or any results, the Panel expressly rejected the prior
practice of the CRT and the 1990-1992 cable CARP of combining Bortz
results with Nielsen results. See, id. 52-53 listing eight reasons
why the practice is inappropriate.
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Having chosen the Bortz survey as the most ``robust'' and reliably
predictive model for determining value, the Panel considered its
application to each of the six Phase I parties. With respect to Joint
Sports Claimants, Program Suppliers and NAB, the Panel determined that
``the Bortz survey is more reliable than any other methodology
presented in this proceeding for determining the relative marketplace
value of these three claimant groups'' for the Basic Fund and the 3.75%
Fund. Id. at 31. Consequently, these three parties received the royalty
shares of the Basic Fund and the 3.75% Fund as determined by the Bortz
survey,\14\ adjusted for the settlement distribution percentages of NPR
and the Devotional Claimants.\15\
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\14\ The shares of these parties yielded by the Bortz survey are
adjusted slightly downward to account for allocation of the Music
Claimants' award, since music is used in all programming categories.
\15\ The Panel's approach for determining net royalty
distribution percentages for all eight Phase I parties is as
follows. Beginning with 100% of the royalty pools for 1998 and 1999
(all three funds for both years combined), the Panel removed NPR's
settled distribution percentage-which is the subject of a privately
negotiated deal between NPR and the seven other parties--off the
top'' of these monies. The Devotional Claimants' distribution
percentage is stipulated for the Basic Fund and the 3.75% Fund for
each year of the funds remaining after the NPR deduction. Next, the
Panel determined net distribution percentages for PBS and Music (no
Bortz results). Finally, the Panel adjusted the Bortz results for
JSC, Program Suppliers, and NAB to reflect 100% of the royalties
remaining after deduction of the NPR award.
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The Bortz survey was not so ``robust'' with respect to PBS,
Canadian Claimants and the Music Claimants. The Panel found that the
Bortz survey undervalued PBS programming because it removed from its
sample cable systems who carried a PBS station as their only distant
signal and assigned a value of zero to PBS for those cable systems that
carried commercial stations on a distant basis but not a PBS station.
The ``result is an exclusion of the category of cable operators that
would be expected to give the highest relative value to a [PBS] distant
signal,'' and the ``exclusion of the [PBS]-only systems artificially
depresses the [PBS] Bortz score. A consistent application of the Bortz
methodology would arguably mean that if a CSO carries a [PBS] signal as
its only distant signal, all other categories should automatically be
assigned zeroes.'' Id. at 23. Despite these flaws, the Panel concluded
that PBS's Bortz share of 3.2% for both 1998 and 1999 established a
minimum or ``floor'' from which to determine PBS's net distribution
percentages. The Panel then turned to PBS's principal evidentiary
presentation as to its marketplace value--a study sponsored by Dr.
Leland Johnson designed to show the number of subscribers receiving
distant PBS signals during 1998 and 1999--and rejected it because it
``attempt[s] to equate relative programming volume with relative
programming value.'' Id. at 56 (emphasis in original). Instead, the
Panel accorded weight to a fee generation approach (considering the
royalties paid by cable systems into the 1998 and 1999 Basic Funds for
carriage of PBS distant signals) along with the Bortz results because
unlike other program categories such as sports or movies, PBS signals
are retransmitted by cable systems as discrete, intact distant signals
containing only PBS programming. The Panel also examined PBS's claims
of ``changed circumstances'' \16\ and found ``no persuasive evidence
that [PBS's] relative value has significantly either increased or
decreased since 1990-92.'' Id. at 69. As a result, the Panel awarded
PBS the same distribution percentage for the 1998 and 1999 Basic Funds
that it received in the 1990-92 cable distribution proceeding. PBS did
not receive a percentage of the 3.75% Fund or the Syndex Fund because
it does not participate in those funds.
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\16\ The doctrine of ``changed circumstances'' was created by
the CRT as a way of determining a royalty distribution for a party
by examining how that party's circumstances had changed from the
last litigated proceeding. Nat'l Ass'n of Broadcasters v. Copyright
Royalty Tribunal, 772 F.2d 922, 932 (D.C. Cir. 1985).
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The Bortz survey is not designed to include Canadian Claimants and
Music Claimants. With respect to Canadian Claimants, the Panel adopted
a combination of the fee generation approach and changed circumstances.
The Panel mostly, though not completely, accepted Canadian Claimants'
proposed fee generation approach and determined that there were no
significant changed circumstances that would significantly impact their
award. As a result, Canadian Claimants received the distribution
percentages yielded by the fee generation approach for the Basic Fund
and the 3.75% Fund, adjusted to yield for net awards. Canadian
Claimants do not share in the Syndex Fund.
Finally, with respect to the Music Claimants, the Bortz survey was
not relevant because it does not measure music as a category of
programming, and the fee generation approach is not applicable. The
Panel rejected Music Claimants' arguments for using the 4.5% settled
distribution percentage from the 1990-1992 cable proceeding as the base
measurement of the relative value because the settlement by its terms
had no precedential value and does not reflect how cable system
operators would value music. Instead, the Panel accepted the testimony
of Joint Sports Claimants' witness Dr. George Schink, who estimated a
range for Music Claimants' award by comparing the amounts that Music
Claimants receive in licensing fees from broadcasters and cable
networks with the total programming expenses of those broadcasters and
cable networks, as establishing the minimum of an award (2.3%), and
used the 4.5% settled award from the 1990-1992 proceeding as the
maximum. The Panel selected an award of 4.0% as falling within this
``zone of reasonableness'' as applied to the Basic Fund, 3.75% Fund,
and the Syndex Fund for both 1998 and 1999. The remaining 96% of the
Syndex Fund was awarded to Program Suppliers, consistent with prior
rulings of the CRT.
The final distribution percentages are as follows:
[[Page 3610]]
1998
------------------------------------------------------------------------
Basic 3.75% Syndex
Claimant fund fund fund
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Devotional Claimants...................... 1.19375 0.90725 0
Program Suppliers......................... 37.80114 41.18124 96.00000
Joint Sports Claimants.................... 35.78076 38.42541 0
NAB....................................... 13.96836 15.34209 0
PBS....................................... 5.49125 0 0
Music Claimants........................... 4.00000 4.00000 4.00000
Canadian Claimants........................ 1.76476 0.14401 0
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1999
------------------------------------------------------------------------
Basic 3.75% Syndex
Category fund fund fund
------------------------------------------------------------------------
Devotional Claimants...................... 1.19375 0.90725 0
Program Suppliers......................... 36.00037 39.13977 96.00000
Joint Sports Claimants.................... 37.62758 40.47418 0
NAB....................................... 13.77736 15.12731 0
PBS....................................... 5.49125 0 0
Music Claimants........................... 4.00000 4.00000 4.00000
Canadian Claimants........................ 1.90971 0.35151 0
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Petitions to Modify
As provided by the CARP rules, the parties to the proceeding were
given 14 days to submit their petitions to modify the CARP report and
an additional 14 days for a reply. Petitions to modify were received
from Program Suppliers, PBS, Music Claimants and Canadian
Claimants.\17\ Replies were submitted by all parties.\18\ Following is
a synopsis of these petitions.
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\17\ NAB submitted a petition to modify but later voluntarily
withdrew it.
\18\ Joint Sports Claimants requested an additional two days to
submit their reply. No other party objected. That request is
granted.
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1. Program Suppliers
Program Suppliers received the largest reduction in their royalty
award from the percentages set in the 1990-1992 distribution proceeding
and, not surprisingly, therefore strongly contest the CARP's
determination in this proceeding. Program Suppliers' arguments are made
along three principal lines. First, they contend that the Panel
improperly abandoned precedent by rejecting the Nielsen study and
favoring the Bortz survey. Second, they charge that the Panel
completely ignored compelling evidence presented by Program Suppliers
regarding the relevance of viewing in determining program value. And
third, Program Suppliers argue that rationales accepted by the Panel
for setting the awards for PBS, Canadian Claimants and Music underscore
the Panel's arbitrary decision making.
Program Suppliers submit that the CARP abandoned the precedent
established by the CRT and the 1990-1992 cable distribution CARP which
accorded value to the Nielsen study. Citing 17 U.S.C. 802(c), which
provides that a CARP ``shall act on the basis of a fully documented
written record, prior decisions of the Copyright Royalty Tribunal,
prior copyright arbitration royalty panel determinations, and rulings
by the Librarian of Congress * * *,'' and Nat'l Ass'n of Broadcasters
v. Copyright Royalty Tribunal, 772 F.2d 922, 932 (D.C. Cir. 1985),
Program Suppliers argue that the CARP in this proceeding was required
to begin with the distribution percentages from the 1990-1992
proceeding. Given that those numbers must be the starting point, the
Panel could then ``only depart from the existing allocation methodology
where it either finds `changed circumstances' or that the earlier
methodology was wrong. It cannot, therefore, adopt `one or more
methodologies that provide reliable estimates of current * * * relative
valuations.'' Program Suppliers' Petition to Modify at 9 (citing CARP
Report at 14). Program Suppliers argue that the CARP has failed to find
that changed circumstances warranted departure from the Nielsen study.
To the contrary, the CRT as well as the 1990-1992 cable distribution
CARP recognized the value of the Nielsen study. Program Suppliers admit
that there have been criticisms of the Nielsen study in the past, but
there have been criticisms of the Bortz survey as well. Program
Suppliers assert that improvements were made in this proceeding to the
Nielsen study and the Bortz survey, yet ``the Panel recognizes, and
even praises, the methodological improvements made to the Bortz Study,
but maintains virtual silence regarding those made to the Nielsen
Studies.'' Id. at 11. Nevertheless, criticisms of the Bortz survey
remain, which the Panel acknowledged, thereby precluding the Panel from
accepting the survey wholesale. Precedent has long established that
actual viewing to programming is relevant to programming value, and it
is arbitrary for the Panel to conclude otherwise.
Program Suppliers charge that the CARP ignored the compelling
evidence that it submitted relevant to marketplace value. Contrary to
the CARP's conclusion that cable operators only care about signing up
and keeping subscribers and not about what they watch, Program
Suppliers state that they presented considerable evidence demonstrating
that cable operators do care about what their subscribers watch and
will pay more for programming that receives high Nielsen viewing
numbers.\19\ Program Suppliers argue that evidence from the cable
network marketplace demonstrates that viewing plays a critical role in
determining the licensing fees paid by cable systems for these
networks, yet the CARP completely ignored this evidence. They contend
that the witness testimony they
[[Page 3611]]
presented demonstrating the importance of viewing to establishing
licensing fees is not even discussed by the Panel, underscoring the
arbitrary nature of their decision making.
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\19\ Program Suppliers also note that the 1990-1992 CARP
rejected the notion that viewing was immaterial to cable operators:
``It is disingenuous to say that the cable system is interested in
only attracting subscribers but is totally unconcerned with whether
or not the subscriber, in fact, watches the programming.'' Program
Suppliers' Petition to Modify at 15, citing CARP Report in Docket
No. 94-3 CARP CD 90-92 at 44 (emphasis omitted).
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Program Suppliers also charge that inconsistent treatment of
similarly situated parties highlights the arbitrary nature of the
Panel's approach. For example, the Panel relied on a fee generation
approach in determining Canadian Claimants' award, but did not use it
for similarly situated PBS. With respect to NAB, whose award nearly
doubled from the 1990-1992 proceeding despite the fact that its Bortz
numbers did not change substantially from that proceeding to the
present one, ``the Panel relied on the Nielsen viewing data to justify
increasing NAB's share but ignored viewing when making other parties'
allocations.'' Id. at 49. Likewise, the Panel announced that Dr.
Gregory Rosston's regression analysis was useful in corroborating the
results of the Bortz survey but did not analyze whether that same
regression analysis corroborated the results of the Nielsen study.
Finally, Program Suppliers allege that Music Claimants'
distribution percentages for 1998 and 1999 are arbitrary and should be
no more than 2.3%--the floor to the zone of reasonableness taken from
the study done by Dr. George Schink. ``[T]he Panel articulated no
reasoning or determinations of fact in its findings regarding Dr.
Schink's license fee analysis that indicated a lack of reliability in
the results.'' Id. at 53. Furthermore, the Panel never articulated a
precise reason as to why it chose the distribution figure (4%) that it
did.
2. PBS
Although PBS has asked for an award of 12% of the Basic Fund for
1998 and 1999, the CARP gave it the same award it received in the 1990-
1992 cable distribution proceeding. PBS offers two principal arguments
as to why the Panel's determination with respect to PBS is arbitrary
and must be set aside. First, PBS submits that the Panel's logic is
internally inconsistent. Second, the Panel acted arbitrarily by nearly
doubling NAB's award from the 1990-1992 distribution proceeding while
holding PBS's award constant. PBS then offers an evidentiary basis for
the Librarian to increase its award.
PBS submits that the Panel's logic is internally inconsistent in
two fundamental ways. First, after examining the Bortz survey and
determining that it was inherently biased in its results against PBS
(and therefore could only be used to establish the minimum award for
PBS), the Panel then relied on those biased results to dismiss other
methodologies for determining PBS's award. The Panel dismissed the
quadrupling in PBS's Nielsen viewing share and the near doubling in
PBS's subscriber instances share \20\ from 1992 to 1998 by pointing to
the lack of increase in PBS's Bortz share during that same period.
``The biases in the Bortz results that made them unusable in
determining [PBS's] share also make them unusable as a measure of
changed circumstances * * *.'' PBS Petition to Modify at 6.
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\20\ ``A `subscriber instance' is defined as one subscriber
having access to one distant signal.'' PBS Petition to Modify at 6
n.4.
---------------------------------------------------------------------------
Second, PBS asserts that the Panel stated that it would rely on the
Nielsen viewing data to assess PBS's changed circumstances since the
1990-1992 distribution proceeding, but then failed to do so.
[T]he Panel did not do what it said it would do. Contrary to its
own express statement, the Panel did not ``rel[y] upon the Nielsen
study'' to assess changed circumstances as to [PBS]. The Panel did
not adhere to its own statement that ``Nielsen studies can serve as
a tool for assessing changed circumstances whenever the Bortz survey
cannot be used.'' To the contrary, the Panel completely disregarded
and did not rely on the Nielsen viewing study as to [PBS] despite
its own express ruling that the Bortz survey could not be used as to
[PBS]. . . . The Panel's reasoning thus failed to adhere to the
logical framework that it had established in the opinion.
Id. at 9 (emphasis in original; citations omitted).
PBS also charges that the Panel used NAB's increase in viewing
share from the 1990-1992 distribution proceeding as corroboration that
its award should nearly double from the prior proceeding, but then
refused to use PBS's quadrupled viewing share as grounds to increase
PBS's award from the prior proceeding. PBS contends that the Panel's
refusal to credit its increased viewing share because its Bortz survey
numbers had not significantly increased from 1992 to 1998 is wholly
illogical when the Panel had already determined the Bortz survey was
inherently biased against PBS.\21\ If such ``major bias'' in the Bortz
survey numbers for PBS was not present in the 1990-1992 proceeding but
is present in this proceeding, then PBS's award from the prior
proceeding relative to its Bortz share at the time must go up in this
proceeding given the increase in its Bortz share in this proceeding.
``In short, both [PBS] and NAB experienced sizeable increases in their
``true'' Bortz shares and Nielsen viewing shares between 1990-92 and
1998-99, yet the Panel decided to nearly double NAB's award while
holding [PBS's] award constant.'' Id. at 12.
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\21\ The 1990-1992 CARP, unlike the present CARP, did not find
the Bortz survey to be inherently biased against PBS. That CARP did,
however, give PBS an award in excess of its Bortz numbers.
---------------------------------------------------------------------------
3. Canadian Claimants
The Canadian Claimants submit that the CARP made a mathematical
miscalculation in Appendix B of its report that creates a computational
side effect and results in a loss of its Basic Fund award.
Specifically, Canadian Claimants argue that they should receive the
share yielded by the fee generation approach adopted by the Panel
reduced only for net awards to Music, the Devotional Claimants, and
NPR, and not the net share awarded to PBS.
The CARP's award to Canadian Claimants is part of a four-step
process. First, the Panel adopted the Bortz shares of Program
Suppliers, Joint Sports Claimants and NAB and adjusted them to equal
100%. Next, the Panel focused on Canadian Claimants using the fee
generation approach \22\ and determined the amount of the Basic Fund
for 1998 and 1999 that was generated by cable systems paying for
distant Canadian signals. Within the percentage for each year, the
Panel identified the amount of fees attributable to Canadian Claimants'
programming, Program Suppliers' programming and Joint Sports Claimants'
programming based upon a survey presented by Dr. Debra Ringold. Since
Dr. Ringold did not analyze the fees generated by the other parties in
this proceeding, the Panel excluded them and adjusted her numbers to
equal 100%. Third, the Panel took the adjusted Canadian numbers and
added them to the Bortz-generated numbers for Program Suppliers, JSC
and NAB, and adjusted those to 100%. Finally, the Panel combined the
numbers for these four parties with the net awards determined for PBS,
Devotional Claimants and NPR and adjusted them so all final
distribution percentages would equal 100%.
---------------------------------------------------------------------------
\22\ Once again, the ``fee generation'' approach examines the
royalty fees actually paid by cable systems for Canadian programming
carried on distant broadcast signals.
---------------------------------------------------------------------------
The Panel's approach, according to Canadian Claimants, is flawed in
several respects. First, Canadian Claimants charge that the combination
process in step four should not have included PBS since, unlike the
other categories, PBS programming does not appear on Canadian signals.
Including PBS programming is inconsistent with the
[[Page 3612]]
fee generation approach that the Panel said it was using. Second, by
combining Canadian Claimants' fee generated numbers in step three with
the Bortz numbers of Program Suppliers, JSC and NAB, the effect of the
adjustment in step four is not the same for Canadian Claimants as it is
for Program Suppliers, JSC and NAB. In step one, the Panel adjusted the
Bortz numbers for Program Suppliers, JSC and NAB to equal 100% which
meant they received a ``bump up'' in their actual numbers. Canadian
Claimants received no such increase, meaning that when the Music,
Devotional and PBS awards are deducted in step four, Canadians bear a
higher pro rata loss to their Basic Fund award than do Program
Suppliers, JSC, and NAB. ``The effect of the Panel's approach is that
the [Canadian Claimants] give[ ] up more of [their] initial award
towards the `net' claimants than does (sic) NAB, PS, or JSC, even
though based on the rational (sic) behind the fee gen approach--the
[Canadian Claimants] should give up none of its award to [PBS].''
Canadian Claimants' Petition to Modify at 8. What the Panel should have
done, according to Canadian Claimants, was to combine the Program
Suppliers', JSC's, NAB's, Canadian Claimants' and PBS's awards before
deducting the net awards to Music and Devotional Claimants.
4. Music Claimants
In determining the award to the Music Claimants, the CARP placed
enough evidentiary weight on a study conducted by Sports Claimants'
witness Dr. George Schink to use his distribution percentage as a
``floor'' in establishing the zone of reasonableness for Music
Claimants' distribution percentage. Music Claimants argue that the CARP
should have disregarded his testimony altogether. Additionally, Music
Claimants charge that the Panel failed to give proper weight to the
study it presented concerning music use from 1991/1992 to 1998/1999 and
the witnesses it presented regarding increases in the use of music on
broadcast programming from 1983 through 1999.
Music Claimants' main bone of contention with Dr. Schink's study is
that he did not tailor it to the ``unique characteristics of the
distant signal market.'' Music Claimants' Petition to Modify at 6.
Instead, he used data concerning music licensing fees in the broadcast
television industry that included television networks and local
stations, both of which are not relevant under the section 111 license.
According to Music Claimants, the network music licensing data
dramatically and unfairly lowers their distribution percentages for
1998 and 1999. Moreover, Dr. Schink's study also varies considerably
from the approach adopted by the Copyright Royalty Tribunal in the 1978
and 1979 distribution proceedings--comparing music licensing fees to
broadcast television expenditures--which did exclude network licensing
data. The CARP failed to ``explain adequately why, after some twenty
years, it has become appropriate to use Network data to determine
Music's share in a market in which Network programming is not
compensable.'' Id. at 10.
Music Claimants also charge that the CARP acted arbitrarily by
failing to recognize that music licensing fees are often paid on an
interim basis while litigation in a rate court is pending and therefore
do not reflect marketplace value. Dr. Schink should have used the fees
that result from rate court proceedings, which he did not. The CARP did
not determine this aspect of Dr. Schink's testimony to be defective
because interim fees ``might well exceed final fees.'' Id. at 11,
citing CARP Report at 87 n.58 (emphasis in original). Music Claimants
submit that this conclusion is erroneous and not supported by the
record. Further, Dr. Schink's study did not present any 1999 data. In
sum, his entire study should have been disregarded.\23\
---------------------------------------------------------------------------
\23\ Music Claimants also assert that Dr. Schink's study was
improperly presented during the rebuttal phase of this proceeding
and Music Claimants could not present rebuttal testimony to his
assertions.
---------------------------------------------------------------------------
Music Claimants also assert that the CARP failed to accord any
weight to the testimony it presented regarding increased music use
which is contrary to precedent from the 1983 distribution proceeding,
the last litigated music award. ``[T]he value of music is, at least in
significant part, determined by the density of use [and] is consistent
with the uncontradicted evidence before the CARP in this proceeding of
how music license fees are set in the marketplace.'' Id. at 15.
Scope of the Librarian's Review
Section 802(f) of the Copyright Act directs the Librarian of
Congress, on the recommendation of the Register of Copyrights, to
either accept the determination of a CARP or, if he rejects it, to
substitute his own determination after a full examination of the record
created in the proceeding. 17 U.S.C. 802(f). The Librarian can only
reject a CARP's determination if he finds that it is arbitrary or
contrary to one or more provisions of the Copyright Act. Id.
The standard of review of a CARP determination by the Librarian has
been thoroughly discussed in prior proceedings for both royalty
distributions and rate adjustments and will not be repeated here. See
Distribution of 1990-92 Cable Royalty Funds, 61 FR 55653 (October 28,
1996); Rate Adjustment for the Satellite Carrier Compulsory License, 62
FR 55742 (October 28, 1997); Distribution of 1993-97 Cable Royalty
Funds, 66 FR 66433 (December 26, 2001); Determination of Rates and
Terms for the Digital Performance Right in Sound Recordings and
Ephemeral Recordings, 67 FR 45240 (July 8, 2002). Suffice to say, the
scope of review is limited and is highly deferential to the panel
members who serve as factfinders in a proceeding and are in the best
position to judge the credibility of testimony and weigh the evidence.
The Librarian will ``not second guess a CARP's balance and
consideration of the evidence, unless its decision runs completely
counter to the evidence presented to it.'' 62 FR 55742, 55757 (October
28, 1997), citing 61 FR 55653 (October 28, 1996) (1990-92 Cable Royalty
Fund Distribution Proceeding). Even if the Register and the Librarian
would have reached different conclusions, the determination of the CARP
will stand if it is not arbitrary or contrary to the Copyright Act. 63
FR 49823, 49828 (September 18, 1998) (Noncommercial Broadcasting Rate
Adjustment Proceeding). In sum, if a CARP's determination falls within
a ``zone of reasonableness'' the Librarian will not disturb it.
National Cable Television Ass'n v. Copyright Royalty Tribunal, 734 F.2d
176, 182 (D.C. Cir. 1983).
The Program Suppliers' Award
1. The CARP's Approach
For almost 25 years, the distant signal viewing study (the Nielsen
study) presented by the Program Suppliers has been credited by the CRT
and the CARPs in determining royalty distributions in cable
proceedings. In the early cable proceedings, the Nielsen study was the
premier piece of evidence used to determine distributions. The CARP in
this proceeding, however, noted an historical trend that has
significantly decreased the preeminence of the Nielsen study. CARP
Report at 33 (``Over the years, however, the CRT placed less reliance
on the Nielsen study''). Indeed, it remarked that in the 1990-92 cable
distribution ``[f]or the first time, the Bortz survey was given greater
weight than the Nielsen study.'' Id. As a result of this observation,
its construct of the hypothetical
[[Page 3613]]
marketplace and its thorough examination of the Nielsen study and Bortz
survey, ``the Panel conclude[d] that the Nielsen study provides
relevant viewing information but, as tacitly conceded by the [Program
Suppliers] for the first time, without a means of translating viewing
shares to value, the study does not afford an independent basis for
determining relative value.'' Id. at 44.
The devaluation of the Nielsen study is a result of the Panel's
consideration of the hypothetical marketplace. In deciding how to
determine the relative marketplace value, the only relevant criterion,
of the six programming categories in this proceeding, the Panel
hypothesized how the distant signal marketplace for cable operators
would function in the absence of the section 111 license. The Panel
concluded that in the traditional supply and demand paradigm, the
supply side facing cable operators (i.e., the amount of distant
broadcast programming available) is fixed, meaning that the supply of
programming remains the same irrespective of the price. As a result of
this, it is the demand side (i.e., cable operators) that will determine
the relative value of programming. Consequently, evidence that
demonstrated how cable operators valued each program category was, in
the Panel's view, the best evidence of marketplace value.
After considering both the Bortz survey and the Nielsen study, the
Panel concluded that the Bortz survey best measured the value of
programming. The Nielsen study was not useful because it measured the
wrong thing.
[T]he Nielsen study does not directly address the criterion of
relevance to the Panel. The value of distant signals to [cable
system operators] is in attracting and retaining subscribers, and
not contributing to supplemental advertising revenue. Because the
Nielsen study ``fails to measure the value of the retransmitted
programming in terms of its ability to attract and retain
subscribers,'' it cannot be used to measure directly relative value
to [cable system operators]. The Nielsen study reveals what viewers
actually watched but nothing about whether those programs motivated
them to subscribe or remain subscribed to cable.
Id. at 38 (citations omitted). The Panel observed that apparently
Program Suppliers themselves did not believe that raw Nielsen viewing
data \24\ was determinative of marketplace value since they offered the
testimony of Dr. Arthur Gruen who performed an ``avidity'' adjustment
in an effort to show how a sample demographic of 18 to 49 year olds
favored certain types of programs over others. The Panel analyzed Dr.
Gruen's avidity adjustments and concluded that, due to conceptual and
methodological flaws, it failed to provide the needed conversion from
raw Nielsen viewing numbers to relative value.
---------------------------------------------------------------------------
\24\ ``Raw'' Nielsen viewing data are the numbers of quarter-
hour of programming viewed by cable system subscribers on distant
broadcast stations as measured by the so-called ``People Meters''
that Nielsen places in the homes of those who participate in its
surveys.
---------------------------------------------------------------------------
However, unlike the Nielsen study, the Panel found the Bortz survey
to be ``an extremely robust (powerful and reliably predictive) model
for determining [the] relative value'' of Program Suppliers, Joint
Sports Claimants and NAB for both the Basic Funds and the 3.75% Funds.
Id. at 31. First, the survey addressed the correct question in the
Panel's view: What is the relative value of different programming
categories to cable operators? Second, the Panel considered and
rejected the three conceptual limitations of the Bortz survey expressed
by the 1990-92 CARP Panel. The Panel determined that the relative
brevity of the interviews conducted by Bortz Media with cable system
programmers did not seriously jeopardize the results or skew them in
favor of one or more parties. The concern that the Bortz survey only
measures the attitudes of cable system programmers rather than the
actual behavior of cable systems was alleviated by the regression
analyses conducted by Dr. Gregory Rosston \25\ which corroborated the
Bortz survey results. And the concern that the Bortz survey did not
take into account the supply side of programming in the supply and
demand equation was not problematic because the Panel determined that
the demand side of the equation dictated marketplace value. Finally,
the Panel rejected the contention that the removal of broadcast
superstation WTBS from the Bortz survey \26\ should have resulted in a
considerable change in Bortz numbers from the 1990-92 proceeding
thereby undermining the validity of the survey.
---------------------------------------------------------------------------
\25\ Dr. Rosston, an NAB witness, analyzes the relationship
between royalties paid by cable operators for the carriage of
distant signals in 1998 and 1999 and the quantity of programming
minutes by programming category on those distant signals.
\26\ Superstation WTBS accounted for a considerable amount of
royalties paid by cable operators under section 111 during previous
cable proceedings. However, in 1998 WTBS converted from a
superstation to a cable network, meaning that cable systems no
longer license the programming on WTBS under the section 111
license.
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2. Program Suppliers' Arguments
Program Suppliers offer a host of arguments in opposition to the
CARP's report, criticizing the Panel's awards to all parties with the
exception of the Canadian Claimants. The heart of Program Suppliers'
Petition to Modify is a fierce attack on the Panel's decision to accept
the Bortz survey as a better determinative of marketplace value than
the Nielsen study. Program Suppliers offer several reasons why the
Panel's decision is arbitrary.
First, Program Suppliers charge that the Panel improperly abandoned
long-established precedent that recognizes the Nielsen study to be
indicative of the marketplace value of programming. According to
Program Suppliers, the Panel only could deviate from precedent if it
found changed circumstances or new evidence in this proceeding and
neither of those conditions existed. Second, Program Suppliers argue
that the Panel's determination to consider the marketplace value of
distant broadcast signal programming from cable systems' perspective is
contrary to precedent and the legislative intent of section 111.
Third, Program Suppliers submit that the Panel was wholly precluded
from relying on the Bortz survey because of the short duration of the
interviews conducted by Bortz Media, the attitudinal nature of the
survey, the lack of the supply side perspective and the
miscategorization of programs. Finally, Program Suppliers charge that
the Panel simply ignored much of the testimony presented by its
witnesses and improperly discredited Dr. Gruen's adjustments to the raw
Nielsen data.
3. Recommendation of the Register
a. The role of Precedent With Respect to the Nielsen Study
Section 802(c) of the Copyright Act states that CARPs ``shall act
on the basis of * * * prior decisions of the Copyright Royalty
Tribunal, prior copyright arbitration panel determinations, and rulings
by the Librarian * * *'' 17 U.S.C. 802(c). The concept of ``precedent''
therefore plays an important role in CARP proceedings. The CARP in this
proceeding recognized that, devoting a lengthy discussion to it, and
acknowledged that it ``must accord precedential value to prior
awards.'' CARP Report at 13. Nonetheless, the Panel observed that prior
decisions are not cast in stone and can be varied from when there are
(1) changed circumstances from a prior proceeding or; (2) evidence on
the record before it that requires prior conclusions to be
[[Page 3614]]
modified regardless of whether there are changed circumstances. Id. at
14.
The Register agrees with the Panel's analysis of the role of
precedent. As we stated in the 1990-92 cable distribution proceeding,
while a Panel must take account of precedent it ``may deviate from it
if the Panel provides a reasoned explanation of its decision to vary
from precedent.* * * It would make little sense to require the CARPs to
apply Tribunal [and CARP] precedent in all circumstances, and allow no
deviation, especially in the area of determining the relevant factors
for distributing royalties.'' 61 FR 55653, 55659 (October 28, 1996).
The Register disagrees with Program Suppliers' assertion that the
CARP abandoned wholesale the role of the Nielsen study without adequate
explanation. To the contrary, the Panel plainly articulated that the
Copyright Royalty Tribunal placed less and less reliance on the
importance of the Nielsen study over time and correctly observed that
the CARP in the 1990-92 proceeding could not quantify the Nielsen data
as evidence of market value. See 1990-92 Cable Royalty Distribution
Proceeding, CARP Report at 44. It is the view of the Register that
Program Suppliers overstate the precedential value of the Nielsen
study. An examination of prior Phase I cable royalty distributions
reveals that it is difficult, if not impossible, to determine precisely
what evidentiary weight was given the Nielsen studies. It is clear,
however, that the role of the Nielsen study, almost preeminent in the
beginning, has eroded considerably through the years. See 47 FR 9879,
9892 (March 8, 1982) (1979 royalty distribution); 48 FR 9552, 9564
(March 7, 1983) (1980 royalty distribution); 51 FR 12792, 12808 (April
15, 1986) (1983 royalty distribution); 57 FR 15286, 15300 (April 27,
1992) (1989 royalty distribution). The Panel in this proceeding did
nothing more than continue this trend and did so with a full
explanation of its reasons.
Furthermore, the Panel did not completely disregard the Nielsen
study. The Panel observed that ``the Nielsen study provides relevant
viewing information,'' and held that it can ``serve as a tool for
assessing changed circumstances whenever the Bortz survey cannot be
used.'' CARP Report at 44 (footnote omitted). The Panel also noted that
while raw Nielsen data is not indicative of marketplace value,\27\ it
might be converted into such evidence through proper adjustments. That
Dr. Gruen's adjustments failed to make that conversion does not rule
out the possibility that it could be made appropriately in the future.
Clearly, the rejection of the Gruen testimony does not amount to
wholesale abandonment of the Nielsen study.
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\27\ A point which Program Suppliers apparently now agree with,
since they supplied Dr. Gruen's avidity adjustment approach to
convert the raw Nielsen data into evidence of marketplace value.
Program Suppliers did not make such adjustments in prior cable
distribution proceedings and relied instead on raw Nielsen data as
evidence of marketplace value.
---------------------------------------------------------------------------
Finally, the Nielsen study in the record in this proceeding is not
like the Nielsen study in prior proceedings. Contrary to Program
Suppliers' assertion, there are changed circumstances from prior
proceedings and this Nielsen study as adjusted by Dr. Gruen is arguably
new evidence. The Panel thoroughly examined it and more than adequately
explained its reasons why it did not find this Nielsen study to be
persuasive evidence of marketplace value. Consequently, it is the
Register's view that the Panel was not arbitrary in its application of
precedent in this proceeding.
b. The hypothetical marketplace
To assist in determining the relative marketplace value of
programming in this proceeding, the CARP posited a hypothetical
marketplace in which no statutory license exists and examined the
factors that would likely control the valuation of programming.
Applying traditional supply and demand analysis to the hypothetical
marketplace, the Panel determined, based on record testimony, that the
supply side of distant broadcast programming would remain fixed.
Written Rebuttal Testimony of Dr. Andrew Joskow at 8. Because the
supply of programming in such a market would remain fixed, value would
be determined by the buyer side, i.e., cable operators purchasing
distant broadcast signals. According to the Panel, programming is
significant to cable operators for its ability to attract and retain
subscribers. In the Program Suppliers' view, this description of the
hypothetical marketplace is fundamentally flawed, produces absurd
results, and must be rejected. The Register does not agree.
While this is the first cable distribution CARP to describe in
detail its construct for determining marketplace value, it is not the
first time the economic factors comprising the discussion of the
hypothetical marketplace have been addressed. The Bortz survey, a
longtime mainstay of cable distribution proceedings, has always
attempted to quantify how cable operators would buy programming in a
marketplace in which the cable license did not exist. By deeming the
Bortz survey as relevant to the value of distant signal programming,
the 1990-92 cable distribution CARP and the CRT were necessarily
accepting the assumptions of its construct. Neither the prior CARP nor
the Tribunal ever concluded that the Bortz survey operated from false
assumptions or asked the wrong questions. It therefore cannot be said
that the CARP in this proceeding manufactured an economic theory out of
thin air. While Program Suppliers may disagree with the Panel's
consideration of the hypothetical marketplace and in particular its
conclusion that it is the perspective of cable operators that best
determines how much different categories of programming would be worth,
the Panel's actions are based on prior decisions.
The Register also recommends rejection of Program Suppliers'
contention that determining marketplace value from cable operators'
perspective runs counter to the legislative intent of the cable
license. While it is accurate to observe that the section 111 license
is intended to compensate copyright owners for the use of their works,
Program Suppliers erroneously assert that the use of copyrighted works
must be determined by their viewing. Other methods may, and have, been
appropriately employed. As the CRT has stated ``viewing per se [does]
not necessarily correspond to marketplace value.'' 57 FR 15286, 15301
(April 27, 1992). The Panel's decision to give greater weight to
methodologies that quantify marketplace value other than from the
perspective of viewing is not contrary to legislative intent.
c. Consideration of the Bortz Survey
Program Suppliers contend that the Bortz survey should have been
rejected outright by the Panel because of four fundamental flaws: the
interviews Bortz Media conducted with cable operator programmers were
too short; the Bortz survey measures attitudes about programming and
not actual behavior in the buying of programming; the survey fails to
consider the supply side of distant broadcast programming; and the
survey contains numerous program miscategorizations that render its
results useless. For the reasons described below, none of these
arguments preclude the Panel from accepting the results of the Bortz
survey.
1. Short duration of interviews. The CARP in this proceeding
addressed the criticism of the Bortz survey leveled by the 1990-92
cable distribution CARP that the interviews conducted by Bortz
[[Page 3615]]
Media with cable system programmers were too short to be accurate and
concluded that ``[t]hough the interviews are relatively brief, the
Panel does not believe the execution of the survey seriously
jeopardizes the integrity of the Bortz survey results.'' CARP Report at
20. This conclusion is specifically grounded by the Panel in record
evidence. See, id. (testimony of witnesses Egan, Crandall, Fuller and
Allen).\28\ When a CARP's determination with respect to a particular
point is grounded in record evidence, the Register will not second
guess it. 67 FR 45239, 45253 (July 8, 2002) (``Where such
determinations are based on testimony and evidence found in the record,
the Register and the Librarian must accept the Panel's weighing of the
evidence and its determination * * * '').
---------------------------------------------------------------------------
\28\ These witnesses testified that the recipients of the Bortz
survey are typically experienced cable system programmers, aware of
the kinds of programming that will increase subscriptions and can
fully and accurately respond to the Bortz survey questions without
advance preparation. Written Direct Testimony of Michael Egan at 4
n.1; Written Direct Testimony of Richard Crandall at 8-9; 1990-92
Cable Distribution Tr. at 5209 (John Fuller); Written Direct
Testimony of Judith Allen at 4.
---------------------------------------------------------------------------
2. Attitudes v. behavior. Another criticism of the Bortz survey by
the 1990-92 cable distribution CARP was that the Bortz survey measured
the attitudes of cable system programmers as opposed to their actual
behavior in purchasing distant broadcast signals. The Panel in this
proceeding, however, concluded that such a criticism was not valid,
stating that ``uncontroverted testimony and years of research indicate
rather conclusively that constant sum methodology, as utilized in the
Bortz survey, is highly predictive of actual marketplace behavior.''
Id. at 21. This statement is based on the testimony of Dr. Debra
Ringold, a Canadian Claimants' witness who testified on the use of
constant sum methodologies. In addition, the regression analysis
conducted by Dr. Rosston, which did measure actual behavior,
corroborated the results of the Bortz survey. Because the CARP's
determination is record based, there are no grounds to disturb it.
3. The supply side perspective. Regarding the 1990-92 CARP's
criticism of the lack of a supply side perspective, the CARP in this
proceeding acknowledged that while the Bortz survey does not take into
consideration the supply side of the supply and demand paradigm, the
supply side perspective was not important because the Panel determined
that in the hypothetical marketplace it was considering, the supply of
distant broadcast programming is fixed and therefore does not determine
the value of the programming (programming is determined from the demand
side, i.e., the cable system side). As discussed above, the Panel's
discussion of the hypothetical marketplace is not arbitrary. Further,
its conclusion that the supply side of distant broadcast programming
remains fixed is based on record testimony. See Written Rebuttal
Testimony of Dr. Andrew Joskow at 8.
4. Program miscategorization. Unlike its first three criticisms of
the Bortz survey, program miscategorization was not identified by the
1990-92 cable distribution CARP as a potential limitation to the
accuracy or usefulness of the Bortz survey. Program miscategorization,
according to Program Suppliers, is the failure by cable system
programmers to accurately identify the correct program categories
(syndicated series and movies, sports, devotional programming, etc.)
for individual programs when completing their Bortz Media surveys.
Program Suppliers point to the testimony of JSC witness Michael Egan
who, though he could not remember having completed a Bortz Media survey
in the past, was questioned by Arbitrator Michael Young as to how he
would categorize certain types of programs. Egan Tr. at 1334. Program
Suppliers categorize two of his responses as incorrect thereby
conclusively demonstrating, in Program Suppliers' view, that
miscategorization of programs by respondents to Bortz Media surveys is
considerable and invalidates the results.
The Panel did not specifically address the matter of
miscategorization of specific programs, apparently determining that it
was not an impairment to the results yielded by the Bortz survey. This
is not surprising for two reasons. First, the Panel was not presented
with evidence that demonstrated sufficiently widespread
miscategorization of programs by Bortz Media respondents that would
likely affect the survey results. Mr. Egan's responses to Arbitrator
Young reflect only how he might respond and were offered by someone who
could not recall if he had ever completed a Bortz Media survey. Second,
and more importantly, the Bortz Media surveys do not question cable
operators as to individual programs, but rather question them as to the
value they attach to categories of programs. See Trautman Tr. at 324-25
(Respondent are ``not thinking about each and every program that is
aired on that signal. They are thinking about the general categories of
program.''). If Program Suppliers pointed to evidence that demonstrated
that Bortz Media respondents misapprehended entire categories of
programs when assigning them value, then the Panel might have been
required to address such contentions. That is not the case here, and
consequently the Panel did not act arbitrarily in considering the
evidence presented regarding program miscategorization.
d. Consideration of the Nielsen Study
Program Suppliers contend that the CARP improperly ignored the
weight to be given the Nielsen study contrary to precedent, unfairly
criticized Dr. Gruen's adjustments to the raw Nielsen viewing data, and
ignored most of the evidence that Program Suppliers put forth regarding
the marketplace value of distant broadcast signal programming. None of
these contentions require rejection of the CARP Report.
The role of precedent in CARP proceedings is discussed above. There
is no requirement that automatic weight must be assigned to the Nielsen
study. The Panel is required to examine the evidence on the record
before it and may deviate from what the CRT or prior CARPs have done
provided that it provides a reasoned explanation. This CARP did provide
a reasoned and detailed explanation as to why the Bortz survey was more
persuasive evidence of marketplace value than the Nielsen study. The
Panel did not ``abandon'' the Nielsen study but instead continued a
trend from prior decisions that placed less and less reliance on the
weight to be accorded the Nielsen study. That Nielsen is less
persuasive than Bortz is undoubtedly upsetting to Program Suppliers,
but that result is supported by the evidence. Whether the Register or
the Librarian might have attached greater evidentiary weight to the
Nielsen study is irrelevant where the Panel's weighing of the evidence
is supported by the record.
The Nielsen study presented in this proceeding is also not the same
as in prior proceedings. This Nielsen study contains the adjustments
performed by Dr. Gruen in an effort to convert raw viewing data into
direct evidence of marketplace value. In performing his adjustments,
Dr. Gruen focused on the viewing data for the 18-49 age demographic
because he believed that this age group of cable subscribers was the
most likely to buy the new ancillary and digital services offered by
cable systems. Gruen Written Direct Testimony at 16-22. The Panel
disagreed with Dr. Gruen's testimony on this point, agreeing instead
with the testimony presented by several other witnesses that additional
demographic categories are relevant. Once again, the CARP is in the
best position to weigh the testimony of witnesses, and neither
[[Page 3616]]
the Register nor the Librarian should second guess it. 62 FR 55742,
55757 (October 28, 1997). The Panel also disagreed with the mechanics
of Dr. Gruen's avidity adjustment which attempted to show the loyalty
of viewers to particular types of programs as an indication of their
marketplace value. The Panel found the avidity adjustment to be flawed
``both conceptually and methodologically'' and rejected it based on its
own analysis and the testimony of other witnesses. CARP Report at 42.
There is nothing arbitrary about the Panel's approach or its
conclusions.
Finally, Program Suppliers argue that the Panel ignored altogether
the evidence they presented in this proceeding on marketplace value and
evaded its responsibility to evaluate the testimony of each of their
witnesses in the Report. Program Suppliers point to the following
statement of the CARP as evidence of arbitrary decision making:
[I]n this Report the Panel attempts to articulate only the
principal grounds upon which our determinations are based. Of
course, at arriving at these determinations, the Panel has carefully
reviewed and considered all of the parties' evidence and arguments.
To the extent this Report comports with a particular contention of a
party, we accept that contention. To the extent that it does not, we
reject that contention.
CARP Report at 7. The Register rejects Program Suppliers' contention
that a CARP must articulate its consideration of every piece of
evidence presented to it. To the contrary, the Copyright Act requires
that the Panel set forth the facts it found relevant to its
determination, not all the facts that were presented to it. 17 U.S.C.
802(e). Indeed, the cases cited by Program Suppliers in its Petition to
Modify, Permian Basin Area Rate Cases, 390 U.S. 747 (1968), City of New
York v. FCC, 814 F.2d 720 (D.C. Cir. 1987), and Motor Vehicle Mfrs.
Ass'n et al. v. State Farm Mutual, 463 U.S. (1983), require that a
decision-making body must consider the pertinent factors and the
important aspects of the problem it is facing, not that it consider and
resolve (much less articulate) all the evidence presented to it.\29\
The CARP in this proceeding fulfilled its obligation by carefully and
precisely describing its rationale for preferring the Bortz survey over
the Nielsen study and did not arbitrarily disregard relevant evidence.
---------------------------------------------------------------------------
\29\ If a CARP were required to consider and articulate its
resolution of every piece of evidence presented to it, then in a
large proceeding such as this, the CARP Report might be, as this
Panel observed, ``thousands of pages.'' CARP Report at 7. We agree
with the CARP's observation that such a requirement would be
undesirable and not in line with the six-month time limitation
placed by the Copyright Act on the length of proceedings before a
CARP.
---------------------------------------------------------------------------
The PBS's Award
1. The CARP's Approach
PBS requested a distribution of 12% of the Basic Fund for the 1998
and the 1999 cable royalties. PBS Proposed Findings of Fact and
Conclusions of Law at 138-139. In support of its claim, PBS attempted
to demonstrate to the CARP that circumstances had changed considerably
in its favor from the 1990-1992 CARP proceeding wherein it received
5.5% of the Basic Funds for those three years.\30\ PBS presented a
study conducted by Dr. Leland Johnson which attempted to show a
relationship between the relative number of ``distant subscriber
instances'' \31\ to PBS signals and the relative marketplace value of
the programming carried on those signals. Dr. Johnson's original study
sought to compare the number of distant subscriber instances of PBS
programming in 1989 with those in 1999 but later adjusted his study to
focus on observations for 1998 and 1999 without reliance on changes
from earlier periods. Dr. Johnson concluded that if it is assumed that
cable operators valued all distant subscriber instances equally, PBS
would be entitled to an award of royalties equal to its share of
distant subscriber instances. Id. at 4; Tr. 9196 (Johnson).
---------------------------------------------------------------------------
\30\ For 1990, PBS received 5.5049750% of the Basic Fund, and
for 1991 and 1992 it received 5.4912500% of those Basic Funds. 61 FR
55653, 55669 (October 28, 1996).
\31\ A ``distant subscriber instance'' is a cable television
subscriber receiving a distant PBS station. Written Direct testimony
of Leland Johnson at 12.
---------------------------------------------------------------------------
The CARP rejected Dr. Johnson's studies:
Both subscriber instances studies offered by Dr. Johnson suffer
from the same fundamental infirmity-they attempt to equate relative
programming volume with relative programming value. Furthermore, Dr.
Johnson's fundamental premise that [PBS] signals are at a level of
``parity'' with other signals is contradicted by substantial record
evidence, including the Rosston regression analyses. * * *
We view Dr. Johnson's change in subscriber instances theory as
relatively unuseful because it is based on a measure of time, not
value.
CARP Report at 56-57 (emphasis in original). Instead, the CARP looked
to alternative methods to establish PBS's distribution awards. It
considered the Bortz survey numbers for PBS but, unlike for Program
Suppliers, JSC and NAB, found some methodological flaws that
disadvantaged PBS. Specifically, it found that PBS programming was
undervalued in the Bortz survey because cable systems that carried PBS
as their only distant signal were removed from the survey and because
cable systems that did not carry any PBS stations on a distant basis
automatically assigned a zero value for PBS programming. Id. at 22-23.
The CARP therefore determined that PBS's Bortz number of 3.2% for 1998
and 1999 established the ``floor'' to a PBS award and that the value of
PBS programming ``is somewhere above 3.2%.'' Id. at 26. The CARP then
examined the royalty fees actually paid by cable operators in 1998 and
1999 for distant PBS signals--the fee generation approach--and
attributed ``some weight [to it], along with the Bortz floor and
changed circumstances,'' in determining PBS's award. Id. at 64. The
Panel then considered the evidence regarding changed circumstances from
the 1990-92 CARP proceeding and concluded that ``there is no persuasive
evidence that [PBS's] relative value has significantly either increased
or decreased since 1990-92.'' Id. at 69. Consequently, the Panel
awarded PBS the same distribution percentage it received for 1991 and
1992 from the 1990-92 proceeding for both 1998 and 1999.\32\
---------------------------------------------------------------------------
\32\ Again, that number is 5.4912500%. 61 FR at 55669.
---------------------------------------------------------------------------
2. PBS's Arguments
PBS finds three fundamental errors with the CARP report: it uses
discredited evidence to refute Dr. Johnson's studies; it treats PBS
differently from NAB; and it violates precedent by placing ``some
weight'' on the fee generation method.
PBS's discredited evidence argument is centered on the Panel's
analysis and use of the Bortz survey with respect to PBS. The Panel
correctly determined, in PBS's view, that the Bortz survey results were
inherently biased against PBS and understated the value of PBS
programming. However, ``in flat contradiction of its own ruling that
the Bortz results were ``inherently biased'' and could not be used to
value [PBS], the Panel then relied on those very same Bortz results to
dismiss the relevance of the dramatic four-fold increase in [PBS's]
viewing share.'' PBS Petition to Modify at 3. Specifically, PBS points
to the Panel's consideration of changed circumstances for PBS from
1990-92 to this proceeding wherein the Panel observed that while PBS's
distant subscriber instances share had gone up, its Bortz survey share
remained the same, in contrast to NAB whose distant subscriber
instances share and Bortz survey share had both gone up. CARP
[[Page 3617]]
Report at 66. PBS charges that it was illogical and inconsistent for
the Panel to make this observation, particularly where the Panel had
previously concluded that the Bortz survey was more biased against PBS
during the 1998-99 period than it was during the 1990-92 period. Id. at
22-23. PBS also submits that the Panel failed to consider PBS's Nielsen
viewing data at all despite the fact that it had ruled that the
``Nielsen studies can serve as a tool for assessing changed
circumstances whenever the Bortz survey can not be used.'' Id. at 44.
PBS argues that the Panel treated PBS disparately relative to NAB.
Specifically, the Panel found that the increase of NAB's viewing share
from 8 percent to 14.7 percent between the 1990-92 and 1998-99
proceedings ``was apparently perceived as increased value by [cable
operators] as confirmed by their responses to the Bortz study,'' which
also reflected significant increases. However, ``[i]n sharp contrast to
its treatment of NAB, the Panel found that the quadrupling of [PBS's]
viewing share did not establish any increase in [PBS's] relative
value.'' PBS Petition to Modify at 11. ``Such ``disparate treatment of
similarly situated parties'' is a classic example of arbitrary action
that demands a remedy.'' Id. at 12.
Finally, PBS submits that the Panel's decision to afford ``some
weight'' to the fee generation approach is ``contrary to 20 years of
precedent, logic, and the record in this case-all of which established
that ``fees generated'' are not a proper measure of market value.'' Id.
at 13.
3. Recommendation of the Register
Unlike the awards to Program Suppliers, Joint Sports Claimants,
NAB, and Canadian Claimants which where determined by use of a
particular distribution methodology, the award to PBS was accomplished
through consideration of a number of factors: the Bortz survey alone to
establish a floor of 3.2%; ``some weight'' attributed to the fee
generation approach which implied an award of 3.9%; and an examination
of PBS's changed circumstances from the 1990-92 proceeding (wherein it
received 5.49125%) to 1998-99. PBS asserts in its first argument,
described above, that once the Panel used the Bortz survey to establish
the floor value of PBS's award, it was precluded from considering any
aspects of the survey in evaluating the changed circumstances from the
1990-92 to 1998-99 proceedings. The Register disagrees with this
argument and concludes that it does not render the CARP decision
arbitrary.
Contrary to PBS's assertion that the Panel did not consider PBS's
Nielsen viewing shares after stating earlier in its report that it
would do so, the Panel plainly observed that PBS's and NAB's Nielsen
viewing shares (and their share of distant subscriber instances) had
``dramatically'' increased from 1990-92 to 1998-99. CARP Report at 66.
The Panel then attempted to determine why this might have happened. It
resolved that these increases were due to the elimination of
superstations WTBS and WWOR from the cable royalty funds which
accounted for a large portion of the viewing shares attributable to
Program Suppliers. Id. at 66. The windfall to NAB and PBS in viewing
shares did not, of course, automatically mean that the value of PBS's
and NAB's programs went up as well since the Panel expressly concluded
that viewing shares (and distant subscriber instances) do not measure
program value. The Panel then noted that while both NAB's and PBS's
viewing numbers (and distant subscriber instances) went up, only NAB
showed a concomitant increase in its Bortz share between 1992 and 1998,
while PTV did not: NAB's Bortz share increased 19% from 1992 to 1998
while PBS's went down from 3.0% in 1992 to 2.9% in 1998 and 1999. Id.
Had the Panel stopped here and concluded that the value of NAB had gone
up while the value of PBS programming remained the same, then PBS's
argument that the Panel improperly used the Bortz survey might be
persuasive. But the Panel did not stop there and undertook an
examination of why PBS's Bortz numbers did not track the same type of
path as NAB's given the increased viewing shares and distant subscriber
instances to both. The Panel considered the two flaws in the Bortz
survey for PBS-elimination of cable systems carrying only a distant PBS
station and zero value to PBS programming for cable systems not
carrying a distant PBS station--and determined that they did not by
themselves explain the lack of a PBS Bortz survey increase. Id.
(``While lack of increase in [PBS's] Bortz share might be explained
partially by the elimination of [PBS]--only systems from the survey
(which had a real impact for the first time in 1998), that factor
certainly can not explain it fully''); id. at 66 n.36 (``The other
anti-[PBS] bias (assignment of automatic zeroes) should not
differentially affect the studies for either period.''). The Panel then
went on to consider other factors that might explain PBS's lack of an
increase in Bortz share from 1992 to 1998 such as fierce competition
from cable ``look-alike'' networks and increased carriage of distant
PBS signals due to FCC-mandated must-carry rules as opposed to an
increase in value of distant PBS stations to cable operators. These
considerations led the Panel to conclude that ``despite th[e] relative
growth of [PBS] [in Nielsen viewing share and distant subscriber
instances share], constancy in the raw Bortz shares from 1992 to 1998
likely reflects the net marketplace impact of all these
circumstances.'' Id. at 68 (footnote omitted). This conclusion is
grounded in record evidence, and the Register will not recommend that
it be disturbed. See, 62 FR 55742, 55749 (October 28, 1997)(``Because
this conclusion is grounded in the record, it is not arbitrary.'')
The Register also recommends that PBS's argument that it is being
treated disparately vis-a-vis NAB is not persuasive. PBS creates the
misperception that the Panel used NAB's doubling in Nielsen viewing
share from 1990-92 to 1998-99 as the justification for increasing NAB's
award. This is incorrect. NAB received its award based solely on the
shares it received in the Bortz survey, as corroborated by the Rosston
regression analysis. See CARP Report at 50-51. It was only after the
Panel firmly concluded that the Bortz survey was the methodology to
determine NAB's share that it made the statement that NAB's doubling in
Nielsen viewing share ``was apparently perceived as increased value by
[cable system operators] as confirmed by their responses in the Bortz
study.'' Id. at 51. This anecdotal observation merely confirmed what
the Panel already determined: NAB would receive its Bortz survey
shares. PBS's Nielsen viewing share was considered by the Panel but it,
like the Bortz survey, did not play a decisive role in determining
PBS's award. PBS and NAB are not similarly situated parties;
consequently, the Panel did not treat them disparately.
Finally, the Register concludes the Panel's affording ``some
weight'' to PBS's fee generation numbers does not fly in the face of 20
years of precedent, logic and the record. The Panel duly noted that the
CRT previously took a dim view of using the fee generation method, but
did use it to exclude PBS from sharing in the 3.75% fund and used it in
the 1989 cable royalty distribution proceeding to reduce PBS's award.
Further, the 1990-92 CARP expressly used the fee generation approach in
determining the Canadian Claimants' award, a point which PBS
[[Page 3618]]
reluctantly admits.\33\ While PBS adamantly opposes using the fee
generation method for itself and others, there does exist precedent for
using it. Furthermore, the Panel addressed and rejected PBS's testimony
as to why the fee generation method was not appropriate, determining
that while it is true that fees generated do not measure the absolute
value of programming, it does not mean that they are not capable of
measuring the relative value of programming between the claimant
groups. Id. at 63-64. Nevertheless, the Panel elected not to accord
full weight to the fee generation approach with respect to PBS; this
clearly was within its discretion. See, Nat'l Ass'n of Broadcasters v.
Librarian of Congress, 146 F.3d 907, 923 n.13 (The CARP is in the best
position to weigh evidence and gauge credibility).
---------------------------------------------------------------------------
\33\ PBS attempts to distinguish the 1990-92 CARP's action by
arguing that that Panel was essentially trapped into using the fee
generation method because there was no other evidence presented by
the parties from which to compute the Canadian Claimants' share. The
same could potentially be said of this proceeding. As this CARP
noted, all parties except PBS and Music (which is silent on the
issue) support use of the fee generation approach in determining the
Canadian Claimants' award.
---------------------------------------------------------------------------
In sum, the Panel's treatment of PBS comports with its stated
approach for determining a party's award that cannot be derived through
application of a particular distribution methodology: examine that
party's changed circumstances from its 1990-92 distribution award by
examining the available record evidence. CARP Report at 16. There is
nothing arbitrary to the approach or its application to PBS in this
proceeding.
The Canadian Claimants' Award
1. The CARP's Approach
The Canadian Claimants requested the following distribution
percentages: for 1998, 2.25479% of the Basic Fund and 0.17332% of the
3.75% Fund; for 1999, 2.48141% of the Basic Fund and 0.43023% of the
3.75% Fund. The Canadian Claimants principally rely on a ``fee
generation'' approach--the section 111 royalties paid by cable
operators for distant retransmission of Canadian signals--although they
cite changed circumstances to corroborate the substantial increase
requested from their 1990-92 distribution percentages.\34\ Through an
analysis of the volume of Canadian programming contained on Canadian
broadcast signals and application of a constant sum survey, similar to
the Bortz study, the Canadian Claimants' requested distribution
percentages are based on their conclusion that approximately 70% of all
programming contained on Canadian broadcast signals belongs to them;
thus, they request 70% of the fees generated by Canadian signals.
---------------------------------------------------------------------------
\34\ The Canadian Claimants' award for 1991 and 1992 was
0.955000% of the Basic Fund and 0.1871800% of the 3.75% Fund. 61 FR
at 55669 (October 28, 1996).
---------------------------------------------------------------------------
The CARP generally accepted the Canadian Claimants' fee generation
approach with some exceptions. Since there are no Bortz survey results
for Canadian programming, the CARP used the award adopted in the 1990-
92 proceeding as a reference point since it, too, was based on the fee
generation approach. The Panel did not find any changed circumstances
that merited an increase in the Canadian Claimants' award, other than
the fact that Canadian signals generated substantially more revenues in
1998-99 than they did in 1990-92. As a result, Canadian Claimants
received their fee generated award.
2. The Canadian Claimants' Arguments
The Canadian Claimants do not dispute the fee generation approach
utilized by the CARP. Rather, they dispute the way in which their award
was incorporated into the CARP's mathematical approach for establishing
final distribution percentages. As discussed earlier in this Order, the
CARP was cognizant that each party's distribution award could not be
determined in a vacuum. Since different distribution methodologies were
being employed to determine awards, adjustments must be made so that
all awards when aggregated would equal the total royalty pools
available. The CARP's mathematical approach to make all awards equal
100% of the funds is detailed in Appendix A of its report. Canadian
Claimants' objection comes with respect to how its award was adjusted
to account for the ``net'' award to PBS, the Music Claimants and the
Devotional Claimants.
The gravamen of the Canadian Claimants' petition to modify is this:
its award should have been combined with Program Suppliers, JSC, NAB
and PBS before adjusting for the ``net'' awards to Music Claimants and
Devotional Claimants. The Canadian Claimants submit that such result is
fair for the following reasons. First, since the Panel adopted a fee
generation approach for Canadian Claimants, they should receive
precisely the percentages due them under that approach. The Panel's
approach robs them of their full fee generation share and is contrary
to the methodology the Panel stated that it was employing. Second, the
fact that PBS received a ``net'' award from the Panel is unfair to
Canadian Claimants particularly where there is no PBS programming on
Canadian broadcast signals. Third, the Panel's mathematical approach
described in Appendix A of its report took the Bortz survey results of
Program Suppliers, JSC and NAB and adjusted them up to 100% before
applying a pro rata reduction to those awards to account for the
``net'' awards to PBS, Music Claimants and Devotional Claimants.
Canadian Claimants are forced to share in the pro rata reduction to
account for the ``net'' awards, but did not share in the upward
adjustment enjoyed by Program Suppliers, JSC and NAB.
3. Recommendation of the Register
In the 1990-92 cable distribution proceeding, the Librarian was
called upon to make a ``mathematical adjustment'' to the distribution
percentages of the Canadian Claimants for the 1991 and 1992 3.75%
Funds. In that proceeding, the CARP intended to award Canadian
Claimants its fee generation percentage of the 3.75% Funds, just as
this CARP has intended to do. However, in the 1990-92 proceeding, the
CARP failed to account for the fact that there are other program
categories represented in the 3.75% royalties generated by distant
Canadian broadcast stations. This omission, which the Panel later
admitted was an error, necessitated a mathematical adjustment to the
Canadian Claimants' 3.75% awards for 1991 and 1992 to account for the
two other program categories (Program Suppliers and JSC) represented on
Canadian signals. As a result, Canadian Claimants' distribution
percentages for the two funds decreased slightly. See 61 FR at 55663.
In this proceeding, another ``mathematical adjustment'' is
requested--this time in Canadian Claimants' favor. Unlike the previous
proceeding, however, no adjustment is required here. The Register
concludes that the Panel did not act arbitrarily in choosing the method
that it did to reconcile all awards to equal 100% of the royalty pools.
Some method of reconciliation was necessary because the Panel did not
employ the same distribution methodology for all parties. Three of the
parties--PBS, Music Claimants and Devotional Claimants--received
``net'' distribution awards because the Panel was unable to adopt a
specific distribution methodology to calculate their awards.\35\ CARP
Report at 69 n. 42. The remaining parties' shares
[[Page 3619]]
were derived by use of particular methodologies and their shares were
reduced pro rata to account for the net awards. While the methodology-
based parties do surrender a portion of their award to account for the
others, it was not impermissible for the Panel to do this. It is true
that the Panel could have chosen not to give a ``net'' award to either
PBS or Music Claimants (or both) and made a pro rata reduction in those
awards as well when it accounted for the entire distribution. Canadian
Claimants submit that such an approach is particularly applicable to
PBS since there is no public television programming contained on
Canadian broadcast signals.\36\ But while the Panel could have adopted
this approach, it was not compelled to do so. A decisionmaker's choices
between a number of reasonable alternatives cannot be considered
arbitrary. Georgia Indus. Group v. FERC, 137 F. 3d 1358, 1364 (D.C.
Cir. 1998). ``The Register will not consider what the Panel could have
done or what a party asserts it should have done, even if, had she
heard th[e] proceeding in the first instance, she would have chosen
another methodology.'' 63 FR 49823, 49829 (September 18, 1998).
---------------------------------------------------------------------------
\35\ Devotional Claimants were a ``net'' award because they
settled out of this proceeding for an agreed-upon percentage.
\36\ It is interesting to note that NAB's programming is
likewise not a part of the fee generation approach employed by the
Panel. Only the programming of Program Suppliers, Joint Sports
Claimants and Canadian Claimants are considered in the fee
generation approach. See CARP Report at 73. NAB does not petition
the Librarian for a similar increase in its award.
---------------------------------------------------------------------------
The Music Claimants' Award
1. The CARP's Approach
Of all the awards made in this proceeding, it appears that the
Panel was most troubled in establishing an award for the Music
Claimants because of a lack of reliable evidence upon which to base the
distribution. The Music Claimants did not participate in the 1990-92
distribution proceeding, instead settling for 4.5% of all three Funds.
In this proceeding, they requested an award of 5.0% of each of the
Basic Fund, the 3.75% Fund and the Syndex Fund. The Music Claimants'
request for an increase is premised upon a music use study that
purports to show an 11% increase in the use of music on distant signals
between 1991-92 and 1998-99.
The CARP found the music use study to be unpersuasive and of no
value. Instead, the CARP considered the study presented by Joint Sports
Claimants' witness Dr. George Schink who compared the amounts of
licensing fees that Music Claimants receive from broadcasters and cable
networks outside of the statutory licensing scheme with the total
programming expenses of those broadcasters and cable networks. Based on
his study of broadcasters and cable networks, Dr. Schink concluded that
the Music Claimants' 1998-99 share should be no higher than 2.33%. The
Panel used this figure to establish the floor to the zone of
reasonableness to fixing the Music Claimants' award (similar to the way
in which the Panel used PBS's Bortz survey share to establish the floor
for its award) but did not accept it fully because the study included
fees paid by television networks who are not compensated under the
section 111 licensing scheme. The Panel then looked to the last
litigated net award for Music Claimants from the 1983 distribution
proceeding--4.5%--and used that figure to establish the ceiling to the
zone of reasonableness for the Music Claimants' award. The Panel then
concluded that 4.0% of each of the three Funds was the appropriate
distribution percentage.
2. The Music Claimants' Arguments
The Music Claimants argue that the CARP failed to properly consider
the evidence they presented in this proceeding and should have wholly
discarded the testimony of Dr. Schink. With respect to the music use
study they presented, Music Claimants argue that ``[t]he CARP gave
insufficient weight to the testimony of ASCAP's Chief Economist, Dr.
Peter Boyle, and BMI's witness, Frank Krupit, concerning the value of
the [music use] study.'' Music Claimants Petition to Modify at 5. Music
Claimants also charge that the CARP improperly gave no weight to the
testimony of three of their witnesses who testified that the use of
music in broadcast programming had dramatically increased from 1983
through 1999. Music Claimants also charge that the CARP ignored
established precedent that music use is the way to determine the
marketplace value of music.
With respect to Dr. Schink's study, Music Claimants charge that it
is fatally flawed for three reasons. First, his inclusion of non-
compensable network programming artificially depressed Music Claimants'
distribution percentage. Second, his calculation was based in part on
interim music licensing fees that do not reliably reflect the market
value of music in the relevant years; and third, he presented no data
for 1999. As a result of these flaws, and coupled with the fact that
Dr. Schink's testimony was not presented until the rebuttal phase of
this proceeding, Music Claimants submit that his testimony should have
been completely disregarded.
3. Recommendation of the Register
Music Claimants' arguments in their Petition to Modify all suffer
from the same flaw: they ask the Librarian to re-weigh the evidence. As
we have made clear in this proceeding and others, the Librarian will
not second guess a CARP and recast the evidence. ``[T]he Librarian's
scope of review is very narrow. This limited scope certainly does not
extend to reconsideration of the relative weight to be accorded
particular evidence, and the Librarian will not second guess a CARP's
balance and consideration of the evidence, unless its decision runs
completely counter to the evidence presented to it.'' 61 FR at 55663
(October 28, 1996). The CARP, not the Register or the Librarian, ``is
in the best position to weigh evidence and gauge credibility.'' NAB v.
Librarian of Congress, 146 F.3d at 923 n.13 (D.C. Cir. 1998). Only if a
CARP acts in complete contravention of the evidence and with no
rational basis is the Librarian forced to reconsider the evidence. That
is not the case here.
If the CARP in this proceeding had fully credited Dr. Schink's
study and used it as the basis for determining Music Claimants' award,
then Music Claimants' protestations might require intervention by the
Librarian. But the Panel did not fully credit Dr. Schink's study, as
Music Claimants reluctantly admit, and acknowledged the very flaws in
the study that Music Claimants discuss in their Petition to Modify. See
CARP Report at 84-87. Although the Panel explained its reservations
about the Schink analysis, it found the study to be useful enough in
establishing the minimum to Music Claimants' award. The Panel was well
within its discretion to use the Schink study in this fashion.
Likewise, the CARP was well within its discretion to discount the
testimony of three of Music Claimants' witnesses: ASCAP's Seth
Saltzman, television and film critic Jeffrey Lyons and music composer
W.G. ``Snuffy'' Walden. The testimony of these witnesses centered on
their personal observations regarding a perceived increase in the use
of music, particularly theme music, on broadcast television programming
in recent years. Music Claimants submit that because the testimony of
these witnesses was (in their opinion) unrebutted by other testimony,
the CARP was compelled to accord it weight. This is not correct. The
CARP is vested with discretion to gauge the credibility of witnesses,
NAB v. Librarian of Congress, 146 F.3d at 923 n.13, regardless of
whether other parties put forward other witnesses to
[[Page 3620]]
specifically rebut it. The Panel stated that the testimony of these
witnesses was ``anecdotal and subjective opinion,'' and that ``[a]bsent
quantitative corroboration, the Panel is unable to credit significantly
this evidence.'' CARP Report at 75 n.46. This determination is within
the discretion of the Panel and is not arbitrary. See, also 62 FR
55742, 55751 (October 28, 1997) (satellite royalty rate adjustment).
Finally, the Register does not agree with Music Claimants'
contention that music use is the only way to determine the market value
of music, and that ``[t]he CARP ruled, contrary to all applicable music
licensing precedent and without adequate explanation, that changes in
music use were not relevant to the establishment of Music's award for
1998-99.'' Music Claimants' Petition to Modify at 5. This is not what
the Panel said. Rather, the Panel found that Music Claimants' music use
study failed to accurately demonstrate an increase in the use of music
from the relevant starting point of 1983 (the time of the last
litigated Music award) to 1998-99 because the data relied upon by Music
Claimants ``is too incomplete to provide reliable estimates.'' CARP
Report at 82. The Panel did not say that music use was irrelevant; it
accepted Dr. Schink's criticisms of the Music Claimants' study. That
the CARP did not use data that focused on music use is not a rejection
of music use per se; rather it was a rejection of the evidence of music
use presented by Music Claimants.
Order of the Librarian of Congress
Having duly considered the recommendation of the Register of
Copyrights regarding the report of the Copyright Arbitration Royalty
Panel in the Phase I distribution of the 1998 and 1999 cable royalty
funds, the Librarian of Congress adopts her recommendation to accept in
full the Panel's determination. For the reasons stated in the
Register's recommendation, the Librarian is exercising his authority
under 17 U.S.C. 802(f) and is issuing this order setting forth the
distribution of royalties. After deducting National Public Radio's
0.18% share for each year per its agreement with the other parties to
this proceeding, it is ordered that the 1998 and 1999 cable royalties
shall be distributed according to the following percentages:
1998 Distribution
------------------------------------------------------------------------
Basic 3.75% Syndex
Claimant fund fund fund
------------------------------------------------------------------------
Devotional Claimants...................... 1.19375 0.90725 0
Program Suppliers......................... 37.80114 41.18124 96.00000
Joint Sports Claimants.................... 35.78076 38.42541 0
NAB....................................... 13.96836 15.34209 0
PBS....................................... 5.49125 0 0
Music Claimants........................... 4.00000 4.00000 4.00000
Canadian Claimants........................ 1.76476 0.14401 0
------------------------------------------------------------------------
1999 Distribution
------------------------------------------------------------------------
Basic 3.75% Syndex
Claimant fund fund fund
------------------------------------------------------------------------
Devotional Claimants...................... 1.19375 0.90725 0
Program Suppliers......................... 36.00037 39.13977 96.00000
Joint Sports Claimants.................... 37.62758 40.47418 0
NAB....................................... 13.77736 15.12731 0
PBS....................................... 5.49125 0 0
Music Claimants........................... 4.00000 4.00000 4.00000
Canadian Claimants........................ 1.90971 0.35151 0
------------------------------------------------------------------------
Dated: January 20, 2004.
So Recommended.
Marybeth Peters,
Register of Copyrights.
So Ordered.
James H. Billington,
Librarian of Congress.
[FR Doc. 04-1567 Filed 1-23-04; 8:45 am]
BILLING CODE 1410-33-P