US Copyright Office: disney-testimony

8/14/2019 US Copyright Office: disney-testimony

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Testimony of Preston R. PaddenExecutive Vice President, Worldwide Government Relations

The Walt Disney CompanyBefore the U.S. Copyright Office

Sec. 109 Hearings on the Opera tion of, and Continued N ecessity for, the Cable andSatellite Statutory LicensesThank you for the opportunity to appear before you today to offer the views of The W altDisney Co mpan y regarding the statutory licenses for retransmission of broadcast signalsby cable and satellite operators. As you know, The Walt Disney Company is broadlyaffected by these statutory licenses and their adm inistration, as a copyright ow ner andprovider of som e of the most sought-after television content, as the operator of the ABCTelevision Network, and as the owner and operator of 10 local ABC affiliated stations. Ihope you will consider what I have to say today a useful perspective in your evaluation ofthe questions that are the subject of this Section 109 review.Congress, and the C opyright Office in this proceeding, are right to ask the questionwhether continued existence of the current licenses is justified. As the Copyright Officeand the C ongress have rep eatedly stated, statutory licenses are disfavored exce ptions tothe rules of exclusivity embodied in the Copyright Act. They are properly disfavoredbecause they are m arket distorting and act in derogation of the Constitutionally-basedprinciple that the public's interest in access to expressive works is best served by themarket-based incen tives that result from clearly-defined and m eaningful exclusiverights. While such licenses may be seen as a means of lowering transactions costs incases of inefficient or failed markets, governm ent rate-setting and adm inistration aretraditionally inefficient, involve higher transactions costs, and are far less flexible thanprivate-sector negotiations in functioning markets. S ee Robert P. Merges, CompulsoryLicensing vs. the Three "Golden Oldies: Property Rights, Contracts, and Markets" (CatoPolicy Analysis No. 508, 2004). As a result, the Copyright office should regularly reviewthe question whether the policy justifications that formed the ba sis for enactment of cablecompu lsory licenses continue to exist today. I am not he re today either to call for theabolition of those licenses, or to ask that they be continued into the foreseea ble future. Ido ask that the question be seriously examined.I, like some here today, am old enough to have be en a young lawyer in the room w henthe cable compulsory license was adopted. At that time, the acknowledged mark etdistortive effects were deem ed acceptable on the strength of the assum ption "that itwould be imprac tical and unduly burdensom e to require every cable system to negotiatewith every copyright owner whose work was retransmitted by a cable system." H.R.Rep. No. 1476, 94 t h Congress., 2d Sess., at 89 (1976). The question that now warrantsasking is whether that assum ption has withstood the test of time. Th is is particularly sogiven that over 80 percent of households are passed by cable systems with 36 or more


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channels, all but a small handful of them licensed in arms-length transactions entirelyoutside the statutory licensing scheme. See Annual Assessment of the Status ofCompetition in the Market for the Delivery of Video Programming, Twelfth AnnualReport of the FCC, FCC 06-11, MB Docket No. 05-255 (2006) (hereinafter TwelfthAnnual FCC Video Competition Report))The section 119 satellite com pulsory license was enacted in 1988 on a sim ilar premise,comb ined with a desire to spur the growth of a nascen t satellite industry as an effectivecompetitor to cable. See S. Rep. No. 42, 106 t h Congress, 1 st Sess., at 5 (1999) ("The 198 8Act was designed as a transitional measure to facilitate competition and the marketplace'sability to meet the needs and demands of home satellite dish owners."). But Congresswas clear that it intended the satellite license to be a tem porary stop-gap m easure,enabling "the home satellite market [to] grow and develop so that marke tplace forces willsatisfy the program ming needs and dem ands of home satellite antenna owners in theyears to come, eliminating any further need for government intervention." H.R. Rep. No.887, 100 t h Cong., 2d Sess., pt. 2, at 15 (1988). Today, satellite services account for morethan one quarter of all MVPD sub scribers and demonstrate a consistent annual subscribergrowth rate above 10 percent. See Twelfth Annual FCC Video Competition Report.Considering this, as well as the fact that satellite services, like cable systems, license thevast majority of their program ming directly in the m arketplace, it is again fair to askwhether the goa l articulated by Con gress in enacting the license have been achieved.The cable and satellite licenses provide a number of examples of the market-distortingeffects of statutory licensing schemes. There is no market based reason why broadcasterscould not nego tiate with right holders licenses that would cover cable distribution. Thishappens every day with cable networks. When ABC Family licenses programming for itscable network, for ex ample, it secures, through regular m arketplace negotiations, all therights necessary to license the ABC Family signal to individual cable systems, includingthe right to license perform ances of those program s through to the viewer. Indeed, in theabsence of statutory licenses, broadcasters, like all program providers, have everyincentive to negotiate agreements for distribution of their products in as many marketsand on as many platforms as possible. The only reason such rights would not be soughtfor cable an d satellite distribution is that cable and satellite licenses take away theincentive to do so. In effect, such licenses take the right to determine the terms ofdistribution out of the hands of m arket participants and places them squarely into thehands of the government. One might ask whether the fact that broadcast signals continueto be licensed through governm ent-manda ted statutory licensing, rather than in themarke t, reflects a market failure, or whether w hatever mark et failure may exist is in factthe outgrowth o f the compu lsory license itself.In another example of market distortion, as argued by the Motion Picture Association ofAm erica (MPA A) and the Joint Sports C laimants in their testimony, cable and satelliterates determined through the g overnm ent-run rate-setting process are consistently belowthose that would have been negotiated in the market. See also Merges, supra (noting the

The FCC re ports that in 2005 there were m ore than 500 non-broadca st networks, none of which arelicensed through the cable or satellite licenses.


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problem that compulsory licenses "can easily become outdated and unreflective of supplyand demand" and that "[i]n practice, ... compulsory licensing has led to pricestagnation."). Even those below-market rates have been known to be further reduced byCongress, as occurred in 1999 after the Librarian of Congress implemented new satelliterates set by a Copyright Arbitration Royalty Panel for the first time according to a "fairmarket value" standard. In that case Congress reacted by cutting those rates for networkstations by 45 percent and for superstations by 30 percent. See Satellite Home ViewerImprovement Act of 1999, Pub. L. No. 106-113, 113 Stat. 1501 (1999). The end result isa government-mandated and sizeable subsidy for cable and satellite providers paid for bycopyright owners. Significantly, there is no evidence that any of this subsidy is passed onto subscribers.Even w here Cong ress attempts to reflect the market in statutory licensing schemes, thelicenses tend to make assumptions that may or may not be reflected in fact. For example,the section 119 license assumes territorial exclusivity in contracts between networks andaffiliates as the basis for its "white area" and "no distant if local" limitations, whether ornot such exclusivity actually exists. This reflects a common defect of the 119 license ascurrently drafted, which is that the license increasingly involves the government indeciding the terms of carriage for television networks and affiliates without anopportunity for the people who invest billions of dollars in the provision of those signalsto negotiate over where and how those signals are used by others. Whether it is Congressdeciding that "significantly viewed" stations should be freely carried in adjacent markets,provisions crafted to ensure carriage of stations from one side of the state in marketsviewed by those on the other, or even the persistent refusal to allow the sameretransmission consent rights to go into effect w ith respect to carriage of broadc astsignals by satellite providers as e xist with respect to carriage by cable providers, thesatellite license continues to expand its reach in supplanting the rights of copyrightowners, television networks and affiliates in controlling how their products used by othercomm ercial entities.All that said, we recognize that in assessing whether the statutory licenses shouldcontinue to exist consideration must be given to the impact elimination of the statutorylicenses would have on the licensing practices and expectations formed o ver the past 30years. Disruption in the market for licensing of programming by cable and satellitesystems would be inconsistent with Congressional intent in instituting those licenses. Itis for that reason I am not here to adv ocate repeal of the ca ble and satellite licenses, butrather to urge the Copyright Office give careful consideration to these questions in lightof past experience and the market as we know it today. To the extent that the CopyrightOffice believes there is justification for a continuation of the statutory licensing schem es,whether over the sho rt or long term, it should include specific recomm endations designedto limit the various market-distorting aspects of those licenses, including but not limitedto those I have raised in my testimony.But w e do believe that there is one bright line that can be draw n now. B ecause of themarket distorting effects of statutory licensing schemes, and b ecause there are n o settledexpectations with respect to new technologies (other than that any retransmission of


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someone else's work requires a license), the Copyright Office should also make a strongand clear recomm endation that the existing licenses NOT b e expanded further to newservices and new platforms. Just as the market has worked over the last 30 years toproduce a robu st market for the aggregation of rights by cable and satellite networks, themarket shou ld be allowed to work to facilitate the licensing of broadcast signals throughthe use of nascent technologies. These new technologies and new platforms for deliveryof digital broadcast signals are growing rapidly. They include things such as Internet-based transmissions, digital delivery of television programming to mobile devices, and ahost of other services that are very often difficult to predict. They are seen by many ascritically important to the future of the television industry, and therefore provide thenecessary incentives for broadcasters to clear rights necessary to e nable not just thoseservices, but others as well. Thus, allowing the market to develop in this area has thepotential salutary effect of countering the m arket disincentives created by the section 111and 119 licenses.In talking about new technology, it is important to note the qu estion raised in the Noticeof Inquiry regarding the status of Internet Protocol television (IPTV) services. I will letothers speak more spe cifically to that question, except to say that there may be animportant distinction between the use of Internet Protocol based technology to d eliver asignal from a cen tral facility over a truly closed netw ork in a defined an d limitedgeographic area as cable systems do and the use of the public Internet to retransmitbroadcast signals to Internet users. While the 111 license might be construed toencom pass the former, it would not, and certainly should not, be construed to encom passthe latter. It is important to point out, however, that with respect to closed-system IPTVservices, any fair reading of the 111 license to cover those services wo uld alsoincorporate the obligations imposed on cable systems under the Co mm unications Act thatare related to co pyright, including retransmission consent, syndicated exc lusivity,network no n-duplication, sports blackouts, and mu st carry obligations.If, on the other hand, the existing statutory licenses were construed to encom pass abroader class of Internet-based services, you might imagine the compulsory licenseapplying to a foreign web site operator (like TVU N etworks) that allows peer-to-peerredistribution of bro adcast signals from sources w orldwide to Internet users it determ ines,somehow, are located in a defined geographic location. Similarly, a local broadcastermight decide to stream its signal over the Internet to c ompu ters located within its localviewing area, without a license from the copy right owners in the content beingretransmitted or the network with which it is affiliated. Whether or not those models aregood business mo dels, and putting aside the conversation about the impact they wou ldhave on various interested parties, such services are far beyond the scope of the kind ofservice Congress had in mind when it adopted the 111 and 119 licenses.The Cop yright Office has been right in the past to construe the statutory licensesnarrowly, in light of the licenses as a whole rather than w ith reference to more narro wdefinitional terms, and w ith an eye toward the kinds of services Con gress envisionedlicensing when it enacted the statutory provisions. To bring these new Internetretransmission services w ithin the existing licenses wou ld require substantial legislative


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change. Such a change would not only be ill-advised, it would also likely run afoul ofour international obligations in various bilateral and m ultilateral trade agreem entsprohibiting compulsory licensing of television signals over the Internet. See, e.g., U.S.-Australia Free Trade Agreem ent, Art. 17.4(10)(b) (2004) (providing that "neither Partymay permit the retransmission of television signals (whether terrestrial, cable, or satellite)on the Internet w ithout the authorisation of the right holder or right holders, if any, of thecontent of the signal and of the signal."). The right approach is the one to which theCopyright Office has been traditionally inclined, which is to let the market work. Givenrecent past experience, we should have every confidence that it will.Thank you again for the opportunity to appear before you today.

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US Copyright Office: disney-testimony