[Federal Register Volume 78, Number 210 (Wednesday, October 30, 2013)]
[Notices]
[Pages 64984-65006]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-25453]
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LIBRARY OF CONGRESS
Copyright Royalty Board
[Docket No. 2008-2 CRB CD 2000-2003 (Phase II)]
Distribution of the 2000, 2001, 2002 and 2003 Cable Royalty Funds
AGENCY: Copyright Royalty Board, Library of Congress.
ACTION: Final distribution order.
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SUMMARY: The Copyright Royalty Judges announce the final Phase II
distribution of cable royalty funds for the years 2000, 2001, 2002 and
2003 for the Program Suppliers and Devotional programming categories.
DATES: Effective October 30, 2013.
ADDRESSES: The final determination also is posted on the Copyright
Royalty Board Web site at http://www.loc.gov/crb.
FOR FURTHER INFORMATION CONTACT: Richard Strasser, Senior Attorney, or
Gina Giuffreda, Attorney Advisor. Telephone: (202) 707-7658; Email:
[email protected].
SUPPLEMENTARY INFORMATION: On February 10, 2011, the Copyright Royalty
Judges (Judges) published a notice of initiation of Phase II
distribution proceedings relating to cable retransmission royalties for
royalty years 2000 through 2003. 76 FR 7590 (Feb. 10, 2011).
Participants in the proceeding included the Motion Picture Association
of America as representative of program suppliers (MPAA), the Settling
Devotional Claimants (SDC),\1\ and Worldwide Subsidy Group LLC d/b/a
Independent Producers Group (IPG).\2\ IPG-represented claimants include
copyright owners whose works fall within either the Program Suppliers
category or the Devotional Programming category.\3\
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\1\ Amazing Facts, American Religious Town Hall, Inc., Catholic
Communications Corporation, The Christian Broadcasting Network,
Inc., Coral Ridge Ministries Media, Inc., Cottonwood Christian
Center, Crenshaw Christian Center, Crystal Cathedral Ministries,
Inc., Evangelical Lutheran Church in America, Faith For Today, Inc.,
Family Worship Center Church, Inc. (d/b/a Jimmy Swaggart
Ministries), In Touch Ministries, Inc., It Is Written, Liberty
Broadcasting Network, Inc., Rhema Bible Church a/k/a Kenneth Hagin
Ministries, Joyce Meyer Ministries, Inc. f/k/a Life in the Word,
Inc., Oral Roberts Evangelistic Association, Inc., RBC Ministries,
Reginald B. Cherry Ministries, Ron Phillips Ministries, Speak the
Word Church International, The Potter's House of Dallas, Inc. d/b/a
T.D. Jakes Ministries, and Zola Levitt Ministries comprise the SDC.
\2\ The National Association of Broadcasters as representative
of program suppliers (NAB), and Joint Sports Claimants (JSC) also
filed Petitions to Participate in Phase II of this proceeding.
Issues relating to claims represented by NAB were resolved prior to
the Phase II hearing by agreement. See Joint Notice of Settlement
(of the Motion Picture Association of America and NAB) (Jan. 26,
2012). Based on preliminary motions, the Judges resolved all issues
relating to claimants in the Sports Programming category. See
Memorandum Opinion and Order, Docket No. 2008-2 CRB CD 2000-2003
(Phase II) (Mar. 21, 2013); Order on Motion by Joint Sports
Claimants for Section 801(c) Ruling, or in the Alternative, A Paper
Proceeding in the Phase I Sports Category, Docket No. 2008-2 CRB CD
2000-2003 (Phase II) (May 17, 2013); and Order on Motion for
Distribution, Docket No. 2008-2 CRB CD 2000-2003 (Phase II) (May 23,
2013).
\3\ IPG initially asserted that certain of its represented
copyright owners' works also fell within the Sports category. The
Judges subsequently rejected IPG's claim to any of the Phase II
Sports category royalties. See supra, note 2.
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Based on the considerations and analysis set forth in this Final
Determination, the Judges conclude that the distributions at issue in
this proceeding shall be:
Allocation in the Program Suppliers Category
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2000 (percent) 2001 (percent) 2002 (percent) 2003 (percent)
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MPAA............................................ 98.84 99.69 99.64 99.77
IPG............................................. 1.16 0.31 0.36 0.23
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[[Page 64985]]
Allocation in the Devotional Category
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2000 (percent) 2001 (percent) 2002 (percent) 2003 (percent)
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SDC............................................. 62.86 60.92 58.98 60.92
IPG............................................. 37.14 39.08 41.02 39.08
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The following findings of fact and conclusions of law are based
upon the evidence introduced at the hearing, the accepted written and
live testimony of the witnesses, the direct and rebuttal statements of
the parties, the precedential guidance discussed in this Final
Determination, and consideration of the economic analyses offered by
the parties.
I. Background
Beginning June 3, 2013, the Judges considered testimony of nine
witnesses \4\ and concluded with argument of counsel on June 6, 2013.
During the course of the proceeding, the Judges reviewed written
statements, direct and rebuttal testimony, and ruled on pre-hearing
motions regarding discovery and other issues raised by the parties. The
parties submitted proposed findings of fact and conclusions of law on
June 14.
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\4\ Although Mr. Alan Whitt began his testimony, the Judges
ultimately did not admit it into evidence. See 6/6/13 Tr. at 1358-
62. By stipulation of the parties, the Judges accepted the written
testimony of Mr. Michael Little (but not all exhibits). See
Stipulation Regarding Testimony of Michael D. Little (May 31, 2013).
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On July 10, 2013, the Judges issued to the parties their Initial
Determination. Pursuant to 17 U.S.C. 803(c)(2) and 37 CFR Part 353, SDC
filed a motion for rehearing. After reviewing the motion, the Judges
denied the motion for rehearing. Order Denying Motion for Rehearing,
Docket No. 2008-2 CRB CD 2000-2003 (Phase II) (Aug. 7, 2013). As
explained in the August 7, 2013 Order, the Judges determined that none
of the grounds set forth in the motion constituted the type of
exceptional case--namely, (1) an intervening change in controlling law,
(2) the availability of new evidence, or (3) a need to correct a clear
error or prevent manifest injustice--warranting a rehearing. Id.
A. Statutory and Regulatory Premises
Section 111 of the Copyright Act (Act) creates a statutory license
that permits cable system operators (CSOs) to retransmit copyrighted
works included in broadcast television signals without obtaining the
authorization of the owners of those works. When a CSO retransmits non-
exempt broadcast programming outside the program's original, local
broadcast area the CSO must deposit royalties based on their gross
receipts with the Copyright Office semiannually. 17 U.S.C. 111(d)(1).
In July of each year, copyright owners, whose works the CSOs
retransmit, file claims to the royalties deposited for the previous
calendar year. 17 U.S.C. 111(d)(4)(A). Claimants may file individual
claims or joint claims directly, or through an authorized agent.
The Judges are charged with allocation and distribution of the
statutory license royalties deposited with the Copyright Office. 17
U.S.C. 111(d)(4). By statute and regulation, the Judges must render a
decision and issue a determination regarding distribution of the
collected funds within 11 months of conclusion of a statutorily
mandated settlement conference. 17 U.S.C. 803(c)(1); 37 CFR 352.2. The
settlement conference in this proceeding took place on August 10, 2012.
See Order Adopting Protective Order and Amending Discovery Schedule,
Docket No. 2008-2 CRB CD 2000-2003 (Phase II), at 3 (July 10, 2012).
Historically, individual and joint claimants have utilized a common
representative to pursue on their behalf collection and distribution of
the deposited royalties. Each representative pursues claims within a
program category. Distribution proceedings, by convention, have
progressed in two phases. In Phase I of the proceeding, claimants
contest the allocation of royalties among the program categories.\5\ If
representatives of the categories agree, the Judges may authorize
distribution to the categories in the agreed percentages. If the
representatives do not agree, the Judges initiate what has come to be
known as a Phase I distribution proceeding. The Judges may authorize
partial distributions pending resolution of the controversies, provided
that sufficient funds remain to cover the amounts in controversy. See
17 U.S.C. 801(b)(3).
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\5\ In Phase I of the current proceeding, the claimants
organized themselves into the following claimant categories:
devotional programs, sports programs, Canadian programs, commercial
programs, noncommercial television programs, noncommercial radio
broadcast programs, music on all broadcast programs, and program
suppliers. See Distribution of the 2000-2003 Cable Royalty Funds,
Distribution order, in Docket No. 2008-2 CRB CD 2000-2003, 75 FR
26798 (May 12, 2010). IPG challenged the category definitions; the
Judges rejected IPG's challenge, finding that IPG was ``collaterally
estopped from contesting the definitions established by the final
Phase I determination'' since IPG did not file a Petition to
Participate in Phase I of the proceeding. See Order on Motion by
Joint Sports Claimants for Section 801(c) Ruling, or in the
Alternative, a Paper Proceeding in the Phase I Sports Category,
Docket No. 2008-2 CRB CD 2000-2003 (Phase II), at 2 (May 17, 2013).
The claims categories adopted by the Phase I parties were developed
over a number of years through a series of settlements by
participants in successive royalty distribution proceedings.
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The allocation of funds among individual claimants within a
particular category occurs in what has been termed Phase II of the
distribution proceeding. Similar to Phase I, if the claimants agree,
the representatives may distribute funds in accordance with the content
of the claims and any representation agreement they may have with the
claimants. If the validity or amount of a claim, or the claimant's
proportional share of the funds within a category, is in controversy,
the Judges commence a Phase II proceeding to resolve the controversies.
B. Guiding Precedent
Section 111(d)(4) of the Act provides that, in the event of a
controversy concerning the distribution of royalties, ``the Copyright
Royalty Judges shall, pursuant to Chapter 8 of [title 17], conduct a
proceeding to determine the distribution of royalty fees.'' Unlike
sections of the Act that apply to the determination of rates, Section
111(d)(4), which deals with distributions, does not set forth an
economic standard that the Judges shall apply in order to determine how
to distribute the royalties.
As the Librarian of Congress (Librarian) \6\ has stated:
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\6\ The Librarian was responsible for administering the
Copyright Arbitration Royalty Panel (CARP) process for distributing
cable royalties from 1993, when the Copyright Royalty Tribunal
(CRT), a predecessor adjudicative body, was abolished, until 2005,
when the Copyright Royalty Judges program was established. The
Librarian had the obligation of reviewing CARP decisions and, on
recommendation of the Register of Copyrights, adopting, modifying or
rejecting them.
Section 111 does not prescribe the standards or guidelines for
distributing
[[Page 64986]]
royalties collected from cable operators under the statutory
license. Instead, Congress decided to let the Copyright Royalty
Tribunal ``consider all pertinent data and considerations presented
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by the claimants'' in determining how to divide the royalties.
Distribution of 1993, 1994, 1995, 1996 and 1997 Cable Royalty Funds,
Order, in Docket No. 2000-2 CARP CD 93-97, 66 FR 66433, 66444 (Dec. 26,
2001) (quoting H.R. Rep. No. 1476, at 97 (1976)) (1993-1997 Librarian
Order).\7\
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\7\ The 1993-1997 Librarian Order was vacated as moot after the
parties settled their appeals. Distribution of 1993, 1994, 1995,
1996 and 1997 Cable Royalty Funds, Notice of termination of
proceeding, Docket No. 2000-01 CARP CD 93-97, 69 FR 23821 (Apr. 30,
2004). The settlement and vacatur of the 1993-1997 Librarian Order
did not disturb the reasoning articulated therein. Id. at 23822.
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There is not, however, a wholesale absence of statutory guidance.
Section 111 directs the Judges to act pursuant to Chapter 8 of the Act.
The Judges are guided by the general directives contained in Chapter 8.
In particular, Section 801 of the Act provides, in pertinent part:
``The Copyright Royalty Judges shall act * * * on the basis of * * *
prior determinations and interpretations of the Copyright Royalty
Tribunal, Librarian of Congress, the Register of Copyrights, copyright
arbitration royalty panels * * * and the Copyright Royalty Judges, * *
* and decisions of the court of appeals under this chapter.'' 17 U.S.C.
803(a)(1).
Accordingly, the Judges have reviewed the 12 prior determinations
of Phase II proceedings under Section 111 of the Act--ten by the
CRT,\8\ and two by the Librarian under the CARP system \9\--as well as
the relevant Federal court cases. The Judges have identified several
basic principles from these earlier proceedings that have particular
relevance to the present proceeding.
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\8\ 1979 Cable Royalty Distribution Determination, Notice of
final determination, in Docket No. CRT 80-4, 47 FR 9879 (Mar. 8,
1982) (1979 Determination); 1980 Cable Royalty Distribution
Determination, Notice of final determination, in Docket No. CRT 81-
1, 48 FR 9552 (Mar. 7, 1983) (1980 Determination); 1981 Cable
Royalty Distribution Determination, Notice of final determination,
in Docket No. CRT 82-1, 49 FR 7845 (Mar 2, 1984) (1981
Determination); 1982 Cable Royalty Distribution Determination,
Notice of final determination, in Docket No. CRT 83-1, 49 FR 37653
(Sept. 25, 1984) (1982 Determination); 1983 Cable Royalty
Distribution Proceeding, Notice of final determination, in Docket
No. CRT 84-1 83CD, 51 FR 12792 (Apr. 15, 1986) (1983 Determination);
1984 Cable Royalty Distribution Proceeding, Notice of final
determination in Docket No. CRT 85-4-84CD, 52 FR 8408 (Mar. 17,
1987) (1984 Determination); 1985 Cable Royalty Distribution
Proceeding, Notice of final determination, in Docket No. CRT 87-2-
85CD, 53 FR 7132 (Mar. 4, 1988) (1985 Determination); 1986 Cable
Royalty Distribution Proceeding, Notice of final determination, in
Docket No. CRT 88-2-86CD, 54 FR 16148 (Apr. 21, 1989) (1986
Determination); 1987 Cable Royalty Distribution Proceeding, Notice
of final determination of Devotional Claimants controversy, in
Docket No. CRT 89-2-87CD, 55 FR 5647 (Feb. 16, 1990) (1987
Devotional Determination); 1987 Cable Royalty Distribution
Proceeding, Notice of final determination of music controversy, in
Docket No. 89-2-87CD, 55 FR 11988 (Mar. 30, 1990) (1987 Music
Determination).
\9\ Determination of the Distribution of the 1991 Cable
Royalties in the Music Category, Docket No. 94-3 CARP CD 90-92, 63
FR 20428 (Apr. 24, 1998) (1990-1992 Determination); 1993-1997
Librarian Order, 66 FR 66433.
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Relative marketplace value is the preeminent consideration for
allocating shares of royalties to programs or groups of programs.
Program Suppliers v. Librarian of Congress, 409 F.3d 395, 401 (D.C.
Cir. 2005); 1993-1997 Librarian Order, 66 FR at 66445. Although early
CRT decisions considered other factors, such as the degree of harm to
copyright owners by virtue of the statutory license, the benefits
derived by the CSO, program quality and program length, 1986
Determination, 54 FR at 16153, these factors have been deemphasized in
later decisions of the CRT, the CARPs and the Librarian.
In order to assess relative marketplace value the Judges must look
to hypothetical, simulated, or analogous markets, since there is no
free market for cable retransmission of broadcast television programs.
See, e.g., 1993-1997 Librarian Order, 66 FR at 66445; 1987 Music
Determination, 55 FR at 11993. While there is no single formula or
source for allocating royalties, see, e.g., 1993-1997 Librarian Order,
66 FR at 66447, actual measured viewing is significant to determining
relative marketplace value, id., and viewing data compiled by The
Nielsen Company (Nielsen) are a useful starting point for determining
actual viewership. See, e.g., 1986 Determination, 54 FR at 16153.
Nevertheless, viewing measurements are not perfect and the Judges must
be prepared to make appropriate adjustments when claimants are able to
demonstrate that their programs have not been measured or are
significantly undermeasured. See, e.g., 1987 Devotional Determination,
55 FR at 5650; 1986 Determination, 54 FR at 16153-54.
In making distributions under Section 111, mathematical precision
is not required. Rather, the Judges' rulings must lie with a ``zone of
reasonableness.'' See National Ass'n of Broadcasters v. Librarian of
Congress, 146 F.3d 907, 929 (D.C. Cir. 1998); see also Asociacion de
Compositores y Editores de Musica Latino Americana v. Copyright Royalty
Tribunal, 854 F.2d 10, 12 (2d Cir. 1988) (recognizing ``zone of
reasonableness'' standard in Phase II proceedings); Christian
Broadcasting Network, Inc. v. Copyright Royalty Tribunal, 720 F.2d
1295, 1304 (D.C. Cir. 1983) (same).
With the foregoing principles clearly in mind, the Judges apply the
appropriate economic analysis to the evidence adduced at the hearing.
II. Statement of the Case
A. Phase I Proceeding
In the Phase I proceeding for the present case the parties limited
by stipulation the issues to be considered by the Judges. Distribution
of the 2000-2003 Cable Royalty Funds, Distribution Order, Docket No.
2008-2 CRB CD 2000-2003, 75 FR 26798, 26799 (May 12, 2010) (Phase I
Order). Specifically, the parties stipulated that the Judges would
determine the Phase I share of the Canadian Claimants only, with the
remaining balance to be awarded to the Settling Parties.\10\ Id. The
stipulation made clear that the parties were not seeking the individual
Phase I shares of the claimant groups comprising the Settling Parties.
Id. Consequently, on May 12, 2010, the Judges announced the final Phase
I shares of the Canadian Claimants to the cable royalties for the years
at issue in this Phase II proceeding and awarded the remaining balance
of the 2000-2003 cable royalties to the Settling Parties. Id. at 26807.
To date the Judges have authorized partial distributions ranging from
$121.7 million in 2000 to nearly $131 million in 2003. On February 3,
2011, the Judges ordered final distribution of all cable royalties for
2000, 2001, 2002, and 2003 that were no longer in dispute. Order
Granting Phase I Claimants' Motion for Further Distribution of 2000,
2001, 2002, and 2003 Cable Royalty Funds, Docket No. 2008-2 CRB CD
2000-2003 (Feb. 3, 2011). On January 17, 2012, the Judges denied IPG's
motion for a partial distribution of $3 million of the remaining
royalties for 2000-2003, noting that IPG is ``not an established
claimant to cable royalties'' and ``[the Judges] simply do not know at
this stage of the proceeding if IPG is entitled to a royalty
distribution, let alone the amount.'' Order Denying Independent
Producers Group's Motion for Partial Distribution, Docket No. 2008-2
CRB CD 2000-2003 (Phase II) (Jan. 17, 2012).
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\10\ Devotional Claimants, JSC, National Association of
Broadcasters for U.S. Commercial Television Broadcaster Claimants,
Music Claimants, MPAA, and Public Television Claimants comprised the
``Settling Parties.''
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B. Commencement of Phase II
On February 10, 2011, on request of program suppliers represented
by MPAA, SDC, and JSC, the Judges
[[Page 64987]]
announced initiation of a Phase II proceeding and requested Petitions
to Participate. See 76 FR 7590 (Feb. 10, 2011). In response to the
notice, the Judges received petitions from: the MPAA; SDC; JSC; NAB;
Devotional Claimants; HSN, LP, AST LLC, Home Shopping En Espangol [sic]
GP, USA Broadcasting Productions, USA Broadcasting Stations, Studios
USA, and InterActive Corp., jointly (Joint Petitioners); and IPG.\11\
By May 2012, the only remaining Phase II controversies were those
asserted by IPG in the Devotional, Sports and Program Suppliers
categories.
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\11\ Subsequently, MPAA settled its Phase II controversies with
NAB and the Joint Petitioners, see Joint Notices of Settlement
(January 26, 2012), and later with SDC, see Joint Notice of
Settlement (May 26, 2012).
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C. Preliminary Hearing
In August 2012, the remaining participants filed motions or
objections relating to the claims asserted by other participants. The
participants made far-ranging objections and submitted papers and
arguments to support their objections in a form that the Judges could
not accept as evidence. As a result, the Judges denied all the motions
and objections without prejudice and set the matter for an evidentiary
hearing on claims objections. The Judges commenced the evidentiary
hearing on November 13, 2012, with a continuance after two days of
testimony to December 5, 2012, to complete the participants'
presentations of evidence and argument.
On March 21, 2013, the Judges entered an order resolving most of
the claims challenges. Memorandum Opinion and Order, Docket No. 2008-2
CRB CD 2000-2003 (Phase II) (March 21, 2013) (March 21 Order).\12\
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\12\ The March 21 Order resolved all outstanding challenges to
the validity of claims, except the Judges ordered IPG to obtain
written clarification of representation from the Billy Graham
Evangelistic Association and sought further briefing relating to
``Claim 308 from 2000,'' involving RBC Ministries in the Devotional
category. The Judges validated Claim 308 from 2000 by order dated
April 10, 2013. The Billy Graham organization acknowledged IPG's
representative authority for 2002 and 2003, thereby resolving that
controversy in favor of IPG for those royalty years. See Letter from
Justin T. Arnot to Copyright Royalty Board (Apr. 19, 2013).
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Subsequent to the Preliminary Hearing, the Judges determined that
IPG had no remaining valid claims to royalties in the Sports
Programming category. Order on Motion by Joint Sports Claimants for
Section 801(c) Ruling or, in the Alternative, a Paper Proceeding in the
Phase I Sports Category, Docket No. 2008-2 CRB CD 2000-2003 (Phase II)
(May 17, 2013). As a result, the only remaining Phase I categories in
dispute were the Program Suppliers category and the Devotional
category. The Judges' role in this matter, therefore, is to determine
the relative percentage allocations of royalties for 2000, 2001, 2002,
and 2003 between MPAA-represented claimants and IPG-represented
claimants in the Program Suppliers category and between SDC-represented
claimants and IPG-represented claimants in the Devotional category.
III. Preliminary Rulings \13\
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\13\ During the course of the proceeding, in correspondence
(particularly email correspondence); pleadings; written testimony;
live testimony; and argument of counsel, certain of the parties
raised questions and implied, if not spoken, requests for action by
the Judges. Except to address the MPAA representation issue raised
by IPG, see section III.B.1.a and note 18, infra, the Judges decline
to take action on issues, substantive or procedural, when those
issues are presented informally. The Judges, in this instance,
afforded IPG the benefit of the doubt inasmuch as IPG included the
issue in a responsive pleading, albeit without a specific
affirmative request. Affirmative action by the Judges without a
request for action is unwarranted and could be contrary to
principles of due process. The Judges considered other informal
requests of IPG and the other participants and rejected them on both
procedural and substantive grounds.
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A. Admissibility of Exhibit
The SDC, with agreement of IPG, offered into evidence Exhibit 177,
the Written Direct Testimony of Mr. Michael. D. Little, President and
Chief Operating Officer of The Christian Broadcasting Network, Inc. At
the hearing, IPG objected to the admissibility of Exhibit 3 to Mr.
Little's testimony, which consists of approximately 600 pages of
printouts of Internet Web sites. IPG objected that (1) the veracity of
this document, derived from the Internet, is questionable, (2) Mr.
Little, by his own admission, obtained the printouts from an
undisclosed third party, raising further questions as to the veracity
and authenticity of the Exhibit, and (3) the documents themselves are
``just a bunch of random stuff without any analysis attached to it.''
6/6/13 Tr. at 1341-42. The Judges admitted Exhibit 177 and took under
advisement admission of the attendant Exhibit 3. Id. at 1344.
IPG's objections are well-taken.\14\ The SDC did not lay an
adequate foundation for Exhibit 3. Even if SDC had done so, the exhibit
is, from a practical standpoint, unusable. While some of the more than
600 pages contain program information, a great many do not. In the
format that this document was delivered to the Judges it is not
searchable, and, in many cases is nearly illegible. The SDC did not
provide a summary or analysis of the specific relevant facts to be
gleaned from this stack of paper. By offering evidence in this form,
the SDC places an unreasonable burden on the Judges and the other
parties. The Judges reject Exhibit 3 to Exhibit 177. The remainder of
Exhibit 177 is thus admitted by stipulation, with that redaction.
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\14\ These objections, which were properly interposed by IPG's
counsel, stand in contrast with the views that Mr. Galaz offered on
the admissibility in his written rebuttal testimony. The views of a
witness on the admissibility of evidence are improper and the Judges
do not consider them.
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B. Challenges to Claims Subsequent to the Preliminary Hearing
To distribute royalties to a copyright owner under Section 111 of
the Copyright Act, the Judges must first determine whether the
copyright owner is eligible to receive such royalties. Universal City
Studios LLLP v. Peters, 402 F.3d 1238, 1244 (D.C. Cir. 2005); see Order
Denying Motions to Strike Claims, Docket No. 2008-2 CRB CD 2000-2003
(Phase II) at 2 (Sept. 14, 2012). Under the law and regulations in
effect through July 31, 2004, in order to be eligible to receive
Section 111 royalties, a copyright owner (or its duly authorized
representative) was required to file a claim for royalties with the
Copyright Office during the month of July in the year following the
year for which the copyright owner seeks such royalties. 17 U.S.C.
111(d)(4)(A) (amended 2004); 37 CFR 252.2 (repealed 2005). Similarly,
the copyright owner or its duly authorized agent must file a Petition
to Participate in any cable royalty distribution proceedings within
thirty days after the publication in the Federal Register of a notice
of commencement of a proceeding. 37 CFR 351.1(b)(3).
The Preliminary Hearing in this proceeding led to a resolution of
almost all claims challenges asserted by the parties up to that
point.\15\ After the Preliminary Hearing, some claimants contacted the
Judges asserting an alliance to one representative or the other. By
Order issued on May 20, 2013 (Order to Show Cause), the Judges directed
the parties to show cause why several of the affected claims should not
be dismissed in light of the copyright owners' statements, since it
appeared that either no authorized entity had filed a claim, or, a
timely claim having been filed, no authorized entity had included the
claimant as part of its Petition to Participate in this proceeding. The
Judges received additional evidence from the parties at the beginning
of the Determination hearing in order to resolve remaining
representation issues and ruled on the
[[Page 64988]]
claims from the bench. 6/3/13 Tr. at 53-58.\16\
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\15\ See supra note 12.
\16\ See Appendix A.
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1. Program Suppliers Claims
a. MPAA's Representation of Joint Claimants
In his written rebuttal testimony, Mr. Raul Galaz of IPG asserts,
for the first time in this proceeding, that 615 claims represented by
MPAA and identified in Exhibit R-15 to his testimony should be
dismissed because MPAA has failed to produce adequate documentation of
its authority to represent the ultimate claimants, i.e., the copyright
owners. Galaz WRT at 35-38 and Ex. R-15.
Each of the 615 claimants is claimed indirectly by MPAA. MPAA
represents a number of entities that have filed joint claims on behalf
of other copyright owners. MPAA has no contractual privity with those
copyright owners. Its representation of them is by virtue of its
representation agreements with joint claimants who filed on their
behalf. This, in itself, is no impediment to MPAA's representation.
The Judges conclude that IPG's challenge to MPAA's representation
of these 615 claimants is not properly before the Judges.\17\ IPG's
counsel made no motion to strike these claims at any time during these
proceedings. Moreover, IPG was in a position to raise these challenges
during the preliminary hearing and failed to do so in other than an
incidental way.\18\
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\17\ Unlike the claims the Judges addressed in their Order to
Show Cause, the Judges received no new information following the
preliminary hearing that would cast doubt on the validity of the
MPAA claims that IPG challenges.
\18\ Rather than lodging a formal pleading, IPG embedded its
dissatisfaction with certain MPAA claims. Mention of a concern
defensively rather than in the form of a motion or cross-motion does
not present the issue for full consideration by the Judges.
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Even assuming that IPG's challenges were properly before the
Judges, the Judges would have rejected them. The sole ground that IPG
asserts for invalidating the claims on Exhibit R-15 is that MPAA has
not produced contracts between third parties--i.e., the MPAA-
represented program suppliers and the individual claimants that the
MPAA-represented program suppliers represent in turn. From this lack of
documentation IPG concludes, and asks the Judges to conclude, that MPAA
has failed to establish that it is a duly authorized representative of
those individual claimants.
Neither the Act, nor any of the regulations adopted under it,
address what evidence is needed to establish one's authority to
represent claimants in the filing of claims or in distribution
proceedings before the Judges. Nevertheless, the Judges have stated
that ``the parties must manifest in some unambiguous manner that they
intended for a principal/agent relationship to exist between them.''
March 21 Order, at 12. Ultimately the question of authority is a
question of fact requiring a weighing of the evidence.
In this proceeding MPAA has produced fully-executed Representation
Agreements with each of the MPAA-represented program suppliers. Ex.
500.\19\ Each Representation Agreement includes a provision stating
that if the ``Claimant'' (MPAA's counterparty) has filed a joint claim,
MPAA is authorized to represent all joint claimants to that joint
claim. See, e.g., Ex. 500 at Bates no. MPAA-RP-05219, ] 16. Each
Representation Agreement also includes a provision stating that the
Claimant is the duly authorized representative of all joint claims
submitted by the Claimant, and that the Claimant is authorized by all
joint claimants to execute the Representation Agreement on their
behalf. See, e.g., id. at Bates no. MPAA-RP-05219, ] 17. See also, 6/3/
13 Tr. at 146-150 (Kessler). By their terms, the Representation
Agreements are perpetual--i.e., they remain effective until terminated
by one of the parties. Ex. 500 at Bates no. MPAA-RP-05219, ] 18; 6/3/13
Tr. at 157 (Kessler).
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\19\ Exhibit 500 is a restricted exhibit. See 6/3/13 Tr. at 141.
Consequently, access to this exhibit is limited to only the parties
who have executed Non-Disclosure Certificates in accordance with the
Protective Order entered in this proceeding.
---------------------------------------------------------------------------
The Judges find this evidence sufficient to establish that MPAA is
duly authorized to represent the joint claimants covered by these
Representation Agreements. Further evidence of representation, such as
the contracts between the MPAA-represented program suppliers and the
underlying claimants, is unnecessary in the absence of any evidence
calling into question the authority of MPAA or the joint claimants that
it represents--e.g., a disavowal of representation by an underlying
claimant or evidence that the claimant is represented by another party.
IPG has offered no such evidence with respect to the 615 claims that it
seeks to challenge. Therefore, the challenge, even if IPG had raised it
properly, would have been rejected.
b. Overlapping Claims
Both IPG and MPAA have identified different sets of overlapping
claims--i.e., claimants that both parties claim to represent. Galaz WRT
at 32 n.32 and Ex. R-11; Kessler WRT at 5.
In some instances, claimants assert that they terminated their
relationship with IPG either during the years covered by this
proceeding or thereafter.\20\ These claimants stated that they do not
want IPG to continue to represent their interests. In other instances,
there are simply conflicting claims of representation, with no further
communication from the claimants.\21\
---------------------------------------------------------------------------
\20\ The following claims fall in this category: DreamWorks LLC,
Litton Syndications, Inc., Marty Stouffer Productions, Ltd., Martha
Stewart Living Omnimedia, Reel Funds International, Remodeling Today
d/b/a Today's Homeowner, The Television Syndication Company, United
States Olympic Committee, and Urban Latino TV LLC. In addition,
Fintage, as a representative for Venevision International, has
asserted that MPAA should represent Venevision in these proceedings.
In the Show Cause hearing several of these claims were dismissed for
certain years. See supra note 16.
\21\ The claims falling in this category are: Carol Reynolds
Productions, Inc., Cinemavault Releasing, Eagle Rock Entertainment,
Fitness Quest, Inc., Integrity Global Marketing, Inc., Pacific
Family Entertainment and Ward Productions.
---------------------------------------------------------------------------
As to both groups, IPG asserts that the terms of their agreements
specify a termination procedure that requires at least six months'
notice and authorizes and obligates IPG to continue pursuit of
royalties payable through the termination date. As to the first group
of claims, MPAA asserts that the Judges should honor the claimants'
wishes to be represented by MPAA rather than IPG. MPAA has not
addressed the second group directly.
IPG has invited the Judges to engage in an interpretation of the
representation agreements that it has entered into with these claimants
to determine whether a claimant's purported termination satisfies the
requirements of the contract. This sort of contractual interpretation
is beyond the Judges' authority. See Nat'l Broad. Co. v. Copyright
Royalty Tribunal, 848 F.2d 1289, 1296 (D.C. Cir. 1988) (Tribunal's
obligation is to set forth the rule of distribution, not resolve
substantive rights of the parties). Where a claimant has unambiguously
manifested that it no longer wants a particular entity to represent its
interests in these proceedings, the Judges will honor that request. To
the extent that the claimant's action may affect the rights and
obligations under a contract between the claimant and the entity that
purports to represent it, those issues must be resolved by a court of
competent jurisdiction. See Id.
Applying this rule, the Judges resolve the representation of the
overlapping claims as follows.
[[Page 64989]]
[GRAPHIC] [TIFF OMITTED] TN30OC13.002
As to the overlapping claims where there has been no instruction
from the claimant concerning representation, the Judges will take the
later-in-time agreement between a claimant (or its representative) and
a party as the most persuasive evidence concerning representation.
Admitted written agreements are deemed more persuasive than oral
testimony about the existence of an agreement.
Applying this rule, the Judges resolve the representation of the
overlapping claims as follows.
[[Page 64990]]
Disposition of Overlapping Claims--No Communication From Claimant
--------------------------------------------------------------------------------------------------------------------------------------------------------
Claim year
Claimant -------------------------------------------------------------------------------------------- Rationale
2000 2001 2002 2003
--------------------------------------------------------------------------------------------------------------------------------------------------------
Carol Reynolds Productions Inc... MPAA................. MPAA................. MPAA................. MPAA................. 2000-2001: Claimant
covered by MPAA
Representation Agreement
with CBC dated 9/25/02;
no record evidence of
IPG agreement with
claimant; IPG concedes
MPAA agreement is later
in time.
Cinemavault Releasing............ MPAA................. MPAA................. MPAA................. MPAA................. Claimant covered by MPAA
Representation Agreement
with AFMA dated 9/24/02;
no record evidence of
IPG agreement with
claimant; IPG concedes
MPAA agreement is later
in time.
Eagle Rock Entertainment......... MPAA................. MPAA................. MPAA................. MPAA................. Claimant covered by MPAA
Representation Agreement
with Audio-Visual
Copyright Society dated
9/25/02; no record
evidence of IPG
agreement with claimant;
IPG concedes MPAA
agreement is later in
time.
Fitness Quest Inc................ MPAA................. MPAA................. MPAA................. MPAA................. Claimant covered by MPAA
Representation Agreement
with The Goodman Group
dated 7/8/04; no record
evidence of IPG
agreement with claimant;
IPG concedes MPAA
agreement is later in
time.
Integrity Global Marketing Inc... MPAA................. MPAA................. MPAA................. MPAA................. Claimant covered by MPAA
Representation Agreement
with The Goodman Group
dated 7/8/04; no record
evidence of IPG
agreement with claimant;
IPG concedes MPAA
agreement is later in
time.
Pacific Family Entertainment..... Dismissed............ MPAA................. MPAA................. MPAA................. Claimant covered by MPAA
Representation Agreement
with ComPact Collections
dated 7/8/02; no record
evidence of IPG
agreement with claimant;
IPG concedes MPAA
agreement is later in
time. Claimant not
covered by MPAA petition
for 2000.
Ward Productions................. MPAA................. MPAA................. MPAA................. MPAA................. Claimant entered into
Representation Agreement
with MPAA dated 9/27/02;
no record evidence of
IPG agreement with
claimant; IPG concedes
MPAA agreement is later
in time.
--------------------------------------------------------------------------------------------------------------------------------------------------------
c. Claim(s) for BBC Worldwide Americas, Inc.
An additional claimant--BBC--falls into its own category. Both MPAA
and IPG have included BBC Worldwide (BBC-W) in their respective
Petitions to Participate. Fintage Publishing and Collections BV
(Fintage) advised the Judges that it had the exclusive right to
administer and collect royalties on behalf of its client, EGEDA, and
EGEDA, in turn, had such rights with respect to BBC-W. Notice Regarding
Representation of BBC Worldwide, Venevision International, and Reel
Funds International, Docket No. 2008-2 CRB CD 2000-2003 (Phase II) (May
9, 2013). Fintage advised the Judges that it wished to have MPAA
represent this claimant's interests in the proceedings. Id. at 1, 3.
Subsequently, the General Counsel of BBC Worldwide Americas, Inc. (BBC-
WA) advised the Judges that it is represented by IPG. Notice Regarding
Representation of BBC Worldwide Americas, Docket No. 2008-2 CRB 2000-
2003 (Phase II) (May 21, 2013) (BBC Notice).
IPG filed claims on behalf of BBC-W for 2000, and on behalf of BBC-
WA for 2001-2003. Fintage filed a claim on behalf of BBC-W for 2002.
BBC-WA filed its own claims for 2000 and 2001. No claims were filed on
behalf of BBC-W for 2001 or 2003.
This appears to be a case of mistaken identity on IPG's part. BBC-
WA's General Counsel has clarified that BBC-W (or, to be precise, BBC
Worldwide Limited) is a separate entity from BBC-WA. BBC Notice, at 2.
IPG's relationship is with BBC-WA, not BBC-W. Fintage's relationship is
with BBC-W (through EGEDA), not with BBC-WA. These are separate
claimants with separate claims. There is no overlap.
IPG, however, mistakenly identified its client as BBC-W, rather
than BBC-WA, in its Petition to Participate. Any claimant in a
distribution proceeding must file a Petition to Participate. 37 CFR
351.1 (a). Section 354.1(b)(2) requires parties to a proceeding to file
a Petition to Participate within 30 days of commencement of the
proceeding, providing detail concerning the participant or claimants
the participant is representing in a joint petition. The Judges may
accept late petitions up to a date that is no less than 90 days before
the date set for filing written direct statements. 37 CFR 351.1(d).
That date is long past. It is now too late to rectify IPG's error by
adding a new claimant to these proceedings. BBC-WA is not a represented
claimant in this proceeding, and IPG's mistaken claim for BBC-W is
dismissed.\22\
---------------------------------------------------------------------------
\22\ The Judges note that this ruling is contrary to the ruling
from the bench regarding BBC-WA that was made during the Show Cause
hearing. See 6/3/13 Tr. at 57. Upon further reflection and
examination of the record the Judges conclude that their earlier
determination was incorrect.
---------------------------------------------------------------------------
[[Page 64991]]
As to MPAA's representation of BBC-W, the only year for which both
predicates for representation in this proceeding--filing of a valid
claim and inclusion in a Petition to Participate--have been met is
2002. No claims were filed for BBC-W in 2001 and 2003. The only year in
which MPAA included BBC-W in its petition is 2002 (through its
inclusion of Fintage which, in turn, listed BBC-W in its joint claim).
In summary:
Disposition of Claims Involving BBC Entities
----------------------------------------------------------------------------------------------------------------
Claim year
Claimant --------------------------------------------------------------------------------
2000 2001 2002 2003
----------------------------------------------------------------------------------------------------------------
BBC Worldwide.................. Dismissed.......... Dismissed......... MPAA.............. Dismissed.
BBC Worldwide Americas......... Dismissed.......... Dismissed......... Dismissed......... Dismissed.
----------------------------------------------------------------------------------------------------------------
Nearly all of the disputed claims are thus resolved in MPAA's favor
(apart from Reel Funds and Venevision, which have an insignificant
effect on the relative shares \23\). The Judges conclude that the
dismissal of BBC-W (one MPAA-represented claimant out of approximately
1400) for three claim years does not have a material effect on the
relative shares.\24\ Similarly, the dismissal of two of IPG's claimants
(BBC-WA for all claim years and Venevision for 2000) out of more than
150 does not have a material effect on the relative shares. As for the
allocation of the disputed claims to MPAA, MPAA's expert witness on
economics and econometrics, Dr. Jeffrey Gray, credited all of them to
MPAA in his computation of relative shares, 6/4/12 Tr. at 513 (Gray),
so there is no need to make any adjustment to reflect that resolution.
In sum, the Judges conclude that no adjustment to the relative royalty
shares of IPG and MPAA is needed as a result of the foregoing
determination of claims.
---------------------------------------------------------------------------
\23\ Dr. Gray recalculated the royalty shares with Reel Funds
and Venevision allocated to IPG. The shares did not change to the
second decimal place. 6/4/13 Tr. at 490 (Gray).
\24\ The remaining MPAA claims that were dismissed were not
included in MPAA's petition or Dr. Gray's calculations.
---------------------------------------------------------------------------
2. Devotional Programming Claims
IPG challenged 42 of the SDC's claims \25\ for the first time in
Mr. Galaz's rebuttal testimony. As with IPG's challenge to 615 of
MPAA's claims, these challenges are not properly before the Judges.
IPG's counsel made no motion to strike these claims at any time during
this proceeding, and IPG was in a position to raise these challenges
during the Preliminary Hearing (when IPG challenged eighteen of the
SDC's claims) and failed to do so.
---------------------------------------------------------------------------
\25\ Mr. Galaz claims to challenge 44 claims that appear in
Exhibit R-2 to his written testimony. Only 43 claims appear in that
exhibit, one of which IPG challenged unsuccessfully in the
Preliminary Hearing.
---------------------------------------------------------------------------
Moreover, IPG does not (and cannot) allege that the SDC's claims
are for programs that were not retransmitted on a distant basis during
the claim years they challenge. 6/5/13 Tr. at 905 (Galaz). Rather, IPG
argues that the claims should be dismissed because the specific example
of a broadcast the Devotional claimants cited in their claims did not
take place as described on the claim form. The Judges rejected that
argument as a basis for challenging the validity of claims in the March
21 Order, and would do so now as well if IPG's challenge were timely.
IV. Analysis
A. Economic Issues
1. Relative Market Value Standard
Despite the absence of a defined statutory standard, as noted above
the Judges do not write on a clean slate. More particularly, prior
Phase II determinations in cable retransmission proceedings have
referred to a ``relative market value'' standard, although ``relative
market value'' has not been defined explicitly. In order to make
explicit the Judges' application of the relative market value standard
in the present Determination, the Judges begin by expressly defining
relative market value.
2. Definition of ``Relative Market Value''
At the outset, it is necessary to appreciate the reason for the
statutory license and the concomitant distribution proceedings.
Statutory licenses substitute for free market negotiations because of a
perceived intractable ``market failure'' inherent in the licensing of
copyrights--particularly the assumed prohibitively high ``transaction
costs'' of negotiating a multitude of bilateral contracts between
potential sellers and buyers.\26\ See, e.g., R. Picker, Copyright as
Entry Policy: The Case of Digital Distribution, 47 Antitrust Bull. 423,
464 (2002) (``The modern structure of * * * validating or conferring
rights in copyright holders yet coupling those rights with statutory
licenses has the virtue of mitigating the exercise of monopoly power
and minimizing the transaction costs of negotiations.''); S. Willard, A
New Method of Calculating Copyright Liability for Cable Rebroadcasting
of Distant Television Signals, 94 Yale L.J. 1512, 1519 (1985) (``One
important reason for compulsory licensing * * * was to avoid the
`prohibitive' transaction costs of negotiating rebroadcast consent.'');
S. Beser, W. Manning & B. Mitchell, Copyright Liability for Cable
Television: Compulsory Licensing and the Coase Theorem, 21 J.L. & Econ.
67, 87 (1978) (``Compulsory licensing * * * has lower negotiating costs
than a system based on full copyright liability * * *.''). The
statutory license avoids this feared breakdown in the contracting
process by allowing copyright use to be undertaken ex ante payment--
thereby permitting consumers to obtain the enjoyment (``utility,'' in
economic terminology) of viewing the copyrighted work--with the price
to be paid to the individual copyright owner ex post viewing.
---------------------------------------------------------------------------
\26\ Notwithstanding the compulsory nature of statutory licenses
under the Copyright Act, in most contexts, the Act requires the
Judges to consider the evidentiary value of directly negotiated
licenses in setting rates and terms for royalty fees and in
determining distributions of those fees.
---------------------------------------------------------------------------
The Judges begin parsing the phrase ``relative market value'' by
considering the word ``relative.'' The fact that the Phase II
categories are finite (the allocation among categories having been
finalized in Phase I), indicates that the word ``relative'' is intended
to denote that the value of any retransmitted program is to be
determined in relation to the value of all other programs in the
respective Phase I categories.
The next two words in the phrase--``market value''--are typically
construed together. Further, ``market value'' is traditionally stated
in decisional and administrative law more fully as ``fair market
value.'' The Supreme Court has defined ``fair market value'' as ``the
price at which the property would change hands between a willing buyer
and a willing seller, neither being under any compulsion to buy or sell
and both having reasonable knowledge of
[[Page 64992]]
relevant facts.'' U.S. v. Cartwright, 411 U.S. 546, 551 (1973).
Dr. Gray defined relative market value in his Written Direct
Testimony as ``the price at which the right to transmit a program
carried on a distant broadcast signal would change hands between a
willing buyer (a CSO) and a willing seller (a copyright owner), neither
being under any compulsion to buy or sell.'' Gray WDT at 7-8; see also
6/4/13 Tr. at 445-46 (Gray).\27\
---------------------------------------------------------------------------
\27\ Although the Judges generally agree with Dr. Gray's
application of the definition of ``fair market value'' to the
definition of ``relative market value,'' the Judges note that Dr.
Gray omitted from the latter the requirement that the parties have
``reasonable knowledge of relevant facts.'' This condition is
important because issues regarding the hypothetical parties'
knowledge of such facts as viewership levels and CSO program
bundling strategies are relevant to this Determination, as discussed
in the analysis of the IPG Methodology, infra.
---------------------------------------------------------------------------
The Judges note that application of these definitions to the
present dispute is neither simple nor obvious. More particularly, it is
necessary to further define the various terms that comprise the
foregoing definition of relative market value, which the Judges
undertake below.
a. The Hypothetical Willing Seller (the Copyright Owner)
The copyright owner seeks to maximize profit from the licensing of
the program to the CSO. Since the copyright owner's marginal costs are
low and approaching zero (most of the costs incurred in creating the
work are sunk, fixed costs), this means simply that the copyright owner
wants to maximize the revenue it receives from the CSO as a result of
the retransmission of its program over the distant broadcast signal by
that CSO. Given the minimal marginal costs and the ``public good''
aspect of a copyrighted work, the copyright owner, as the hypothetical
willing seller, will always have an incentive to sell at some positive
price, but will likely engage in bargaining whereby the copyright owner
threatens to refuse to grant the license unless its (undisclosed)
reservation price is offered. See Beser, et al, supra, at 81 (When the
CSO fails to offer a price which the hypothetical seller requires,
``the program supplier * * * will simply refuse to allow the cable
system to carry the program'').
b. The Hypothetical Willing Buyer (the CSO) \28\
---------------------------------------------------------------------------
\28\ Dismayingly, none of the parties proffered admissible
testimony (written or oral) of a witness with knowledge of CSO
programming. Both Mr. Galaz and Dr. Robinson, on behalf of IPG, and
Dr. Gray, on behalf of MPAA, noted their lack of pertinent
experience in connection with the negotiation of copyright licenses,
6/5/13 Tr. at 928-29 (Galaz); 6/6/18 Tr. at 1218-20 (Robinson); 6/4/
13 Tr. at 439 (Gray), and none of those witnesses offered any
competent evidence as to how a CSO actually makes programming
decisions. IPG attempted to introduce only the written testimony of
a producer of a syndicated children's show, Mr. Thomas Moyer, who
claimed to have knowledge of the relative unimportance of
viewership/ratings to CSOs. (The parties were unable to arrange for
a de bene esse deposition of Mr. Moyer to perpetuate his testimony.
He was subpoenaed by MPAA to testify in person at the hearing, but
he did not appear. Accordingly, the Judges did not admit Mr. Moyer's
Written Rebuttal Testimony. 6/6/13 Tr. at 1288-98; 1302-04. We note,
though, that Mr. Moyer's written testimony indicated that he lacked
the experience necessary to provide the Judges with competent
testimony regarding the programming decision-making process of a
CSO.).
---------------------------------------------------------------------------
For the CSO, the economics are less straightforward. The revenue
that the CSO earns from retransmitted broadcasts is a consequence of
the impact of the retransmissions on the sale of subscriptions to its
cable bundles (packages or tiers). This is in contrast to the
terrestrial commercial television station whose signal is being
retransmitted, and whose revenues are received from advertisers.\29\
---------------------------------------------------------------------------
\29\ Since CSOs must retransmit a station's signal in its
entirety (including advertisements) without alteration, it cannot
sell advertising on retransmitted broadcast channels. 17 U.S.C.
111(c)(3).
---------------------------------------------------------------------------
To the CSO, the program offered by the Copyright Owner is an
input--a factor of production--utilized to create the product that the
CSO sells to its customers, viz., the various subscription bundles of
cable channels. In a hypothetical program market, a CSO would buy a
program license for retransmission, as it would purchase any factor of
production, up to the level at which that ``factor price'' equals the
``Marginal Revenue Product'' (MRP) of that program. In simple terms,
this means that a CSO in a competitive factor market would only pay a
price for a program if the revenue that the CSO can earn on the next
(marginal) sale of the final product is at least equal to that price.
In practical terms, why would a CSO pay $50,000 to retransmit a program
that the CSO estimates would add only $40,000 to the CSO's subscriber
revenue? See Beser, et al., supra, at 80 (``To the cable system the
value of carrying the signal is equal to the revenue from the extra
subscribers that the programming will attract and any higher subscriber
fees it can charge less the additional costs of importing the
program.'').\30\
---------------------------------------------------------------------------
\30\ If the CSO, as a program purchaser, had some degree of
monopsony power in the factor market, it could pay less than a price
equal to MRP, but still would buy programs in a quantity at which
MRP would equal the Marginal Cost of an additional program.
---------------------------------------------------------------------------
c. ``Neither Being Under Any Compulsion To Buy or Sell''
The ``compulsion'' limitation within the definition of ``fair
market value'' is often treated as a truism and thus not subject to
analysis. Here, in the actual (i.e., non-hypothetical) market, any
program available for purchase by the CSO already has been pre-bundled
by the terrestrial broadcast station into that station's signal. The
CSO cannot selectively purchase for retransmission some programs
broadcast on the retransmitted station and decline to purchase others;
rather, the signal is purchased in toto. 17 U.S.C. 111(c)(3).
Is this required bundling a form of ``compulsion'' upon the CSO? It
is compelled to take every program pre-bundled on the retransmitted
distant station, despite the fact that the various pre-bundled programs
would each add different monetary value (or zero value) in the form of
new subscriber volume, subscriber retention, or higher subscription
fees. Indeed, some programs on the retransmitted station may have so
few viewers that the CSO--if it had the right--would decide not to
purchase such low viewership programs.
Further, certain programs may have more substantial viewership, but
that viewership might merely duplicate viewership of another program
that generates the same sub-set of subscribers. For example,
hypothetically, the viewers of reruns of the situation comedy
``Bewitched'' may all be the same as the viewers of reruns of ``I Dream
of Jeannie,'' a similar supernatural-themed situation comedy. However,
``Bewitched'' may have fewer viewers than ``I Dream of Jeannie.'' The
hypothetical, rational profit-maximizing CSO that had already paid for
a license to retransmit ``I Dream of Jeannie'' would not also pay for
``Bewitched'' in this hypothetical marketplace, because it fails to add
marginal subscriber revenue for the CSO.\31\ Rather, the rational CSO
would seek to license and retransmit a show that marginally increased
subscriber revenue (or volume, if market share was more important than
profit maximization), even if that program had lower total viewership
than ``Bewitched.''
---------------------------------------------------------------------------
\31\ Indeed, this notion is akin to the ``displacement''
argument advanced in the present proceeding by IPG. Galaz WRT at 14.
---------------------------------------------------------------------------
If the Judges were to measure ``relative market value'' in these
instances solely by viewership of the programs actually retransmitted,
then the valuation process would arguably fail the ``non-compulsion''
requirement of the ``fair market value'' standard
[[Page 64993]]
identified by Dr. Gray. Why should a CSO (hypothetically) be compelled
to pay for a program based on its higher viewership, but which adds
less value than another show with lower viewership? By extension, why
should the Judges, in this distribution proceeding, establish program
value solely as if such compulsion were present?
Simply put, the hypothetical, rational profit-maximizing CSO would
not pay copyright owners based solely on levels of viewership. Rather,
the hypothetical CSO would (i) utilize viewership principally as a
heuristic to estimate how the addition of any given program might
change the CSO's subscriber revenue, (ii) attempt to factor in the
economics of various bundles; and (iii) pay for a program license (or
eschew purchasing that license) based on that analysis.
On the other side of the coin, is the seller, i.e., the copyright
owner, under any ``compulsion'' to sell? In the actual market, one in
which the terrestrial station signal is acquired in a single specific
bundle by the CSO, the answer appears to be yes, there is
``compulsion.'' The copyright owner cannot carve out its program and
seek to maximize its value independent of the pre-packaged station
bundle in which it exists.
Of course, in the ``hypothetical market'' that the Judges are
charged with constructing, it would be inappropriate not to consider
the inherent bundling that would occur. That is, the bundling decision
is a ``feature'' rather than a ``bug'' in even a hypothetical market in
which the statutory license framework does not exist. Thus, while the
copyright owner could offer to supply its program at a given price, the
equilibrium market price at which supply and demand would intersect
would reflect the CSO's demand schedule, which is based in part upon
the fact that the buyer, i.e., the CSO, would pay only a price that is
equal to (or less than) the MRP of that program in a bundle to be
purchased by subscribers.\32\
---------------------------------------------------------------------------
\32\ As discussed below, IPG suggests the need for such a
bundling-based analysis. However, as also discussed below, the IPG
Methodology itself fails to address the economics of bundling and
thus serves only as a weak counter-argument to MPAA's viewer-centric
analysis.
---------------------------------------------------------------------------
To summarize, the hypothetical market the Judges will apply in this
Determination contains the following participants and elements: (1) The
hypothetical seller is the owner of the copyrighted program; (2) the
hypothetical buyer is the CSO that acquires the program as part of its
hypothetical bundle of programs; and (3) the absence of compulsion
requires that the terrestrial stations' initial bundling of programs
does not affect the marginal profit-maximizing decisions of the
hypothetical buyers and sellers.\33\
---------------------------------------------------------------------------
\33\ A focus on marginal costs and benefits is not only
efficient for the hypothetical buyers and sellers, but also for the
consuming public: ``Optimal program diversity will result if cable
operators and the public they serve pay to copyright owners the
marginal value derived from viewing syndicated programming.''
Willard, supra, at 1518.
---------------------------------------------------------------------------
B. Analysis of Parties' Proposals
1. Program Suppliers Category
a. Description of the MPAA Methodology and Proposed Allocation
As in past distribution proceedings, MPAA's calculation of relative
market value is based almost exclusively upon estimated levels of
viewership of the distantly retransmitted programs, as based on data
received from Nielsen.\34\ MPAA contends that program viewership
provides a direct and reasonable measure of program market value,
especially because the allocation of MPAA Program Suppliers' royalties
in this Phase II proceeding involves examination of relatively
homogeneous programming. Gray WDT at 3.\35\
---------------------------------------------------------------------------
\34\ Nielsen ratings are a statistical estimate of the number of
homes tuned to a program based upon a sample of television
households selected from all television households. The findings
within the sample are ``projected'' to national totals. A rating
measures what percentage of the universe of television households
are tuned in to a program. Lindstrom WDT at 3.
\35\ Dr. Gray tested this conclusion through a three-step
estimation approach. First, Dr. Gray calculated the relative volume
of MPAA programming and IPG programming. Second, Dr. Gray calculated
the relative viewership of MPAA programming and IPG programming (as
described infra). Third, Dr. Gray examined statistically whether,
given the same level of viewership, MPAA and IPG programming affect
subscriber growth differently. Dr. Gray hypothesized that, in the
absence of a meaningful difference in how the two sets of programs
affect subscriber growth, viewership is the most economically sound
measure of relative market value. Gray WDT at 14-15.
---------------------------------------------------------------------------
The initial steps of MPAA's proposed relative market value
calculation entail selection of a sample of television stations whose
programming would be the basis for the remuneration of royalties to
MPAA-represented claimants (Kessler Sample). Ms. Marsha Kessler, a
former executive of MPAA, testified that she obtained from Cable Data
Corporation (CDC) \36\ a listing of broadcast stations that were
retransmitted as distant signals by cable systems from 2000 through
2003. Ms. Kessler, believing they were not compensable in the Program
Suppliers category, then excluded Canadian, Mexican, and public
television stations.\37\ Ms. Kessler ranked stations according to the
number of distant subscribers and then selected her sample stations
based on a combination of fees generated and distant subscribers.
Finally, because the Nielsen ratings do not differentiate between
distant and local viewing, Ms. Kessler performed a local county
analysis for each sample station to identify local county viewing data
for each station so that it could be filtered out by Nielsen. 6/3/13
Tr. at 114-27 (Kessler); Kessler WDT at 11-13 and Appendices D, E, and
F. The Kessler Sample was not (and was not intended to be) a random
sample. 6/3/13 Tr. at 122-25 (Kessler).
---------------------------------------------------------------------------
\36\ CDC collects and analyzes information on Statements of
Account (SOAs) that cable systems file with the Licensing Division
of the Copyright Office. CDC makes the collected information
available to users by purchase, either on an as-needed basis or by
subscription. CDC is the only company providing such a service.
Martin WDT at 1-2.
\37\ Some programs broadcast on Canadian and Mexican stations
are, in fact, compensable in the Program Suppliers category. This
issue is discussed infra.
---------------------------------------------------------------------------
Ms. Kessler forwarded the Kessler Sample stations to Nielsen,
instructing Nielsen to measure viewing only in the counties identified
by MPAA as outside the originating station's local county viewing
area.\38\ Ms. Kessler further instructed Nielsen to place the
programming in one of the eight Phase I categories. 6/3/13 Tr. at 114-
27 (Kessler); Kessler WDT at 13-14.
---------------------------------------------------------------------------
\38\ Nielsen data are recorded on a county-by-county basis. MPAA
provided Nielsen with its list of distant viewing counties to enable
Nielsen to produce estimates of distant cable viewing to the Kessler
Sample stations. Nielsen conducted this custom analysis for MPAA.
Lindstrom WDT at 5; 6/3/13 Tr. at 288 (Lindstrom).
---------------------------------------------------------------------------
Mr. Paul Lindstrom, Senior Vice President at Nielsen, testified
that Nielsen provided MPAA with so-called ``diary data'' for each of
the Kessler Sample stations measuring viewing in non-local counties
during sweeps periods.\39\
---------------------------------------------------------------------------
\39\ During 2000-2003, Nielsen utilized two basic data
collection instruments in its syndicated services: Meters and
diaries. Lindstrom WDT at 4. A set meter is an electronic device
attached to a television set in a particular household that detects
the channel to which the television is tuned. The data from these
set meters are converted into household ratings. Nielsen collected
household meter data year-round in a random sample of households in
selected geographic markets across the United States, i.e.,
Nielsen's metered markets, during 2000-2003. Lindstrom WDT at 4;
Gray WDT at 15-16, 18-19.
Diaries are paper booklets in which each person in the household
records viewing information. In 2000-2003, diary data were collected
in Nielsen's diary markets during the months of November, February,
May, July, and in some cases October and March, which are also known
as the ``sweeps'' ratings periods (Nielsen Diary Data). Nielsen
mailed seven-day diaries to homes randomly selected by Nielsen to
keep a tally of when each television in the household was on, what
it was tuned to, and who in the household was watching. Over the
course of a four-week sweeps period, Nielsen mailed diaries to a new
panel of randomly selected homes each week. At the end of each
sweeps period, all of the viewing data from the individual weeks
were aggregated into Nielsen's database. Each sweeps period yielded
a sample of approximately 100,000, aggregating to 400,000 households
over the course of a year. Lindstrom WDT at 4; Gray WDT at 15-16; 6/
3/13 Tr. at 290, 296-98, 312 (Lindstrom).
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[[Page 64994]]
MPAA also retained the services of the Reznick Group P.C. (now
known as CohnReznick LLP) (Reznick) to match title information provided
by MPAA to compensable retransmissions of television broadcasts. Mr.
Kelvin Patterson of Reznick testified that he and his team at Reznick
conducted two analyses for MPAA--one based on Tribune Media Services
(Tribune) data and the other based on MPAA title information provided
to Reznick by MPAA. The first required Reznick to examine broadcast
television station logs provided by Tribune for the Kessler Sample
stations and a separate set of sample stations provided by MPAA's
economics expert, Dr. Jeffrey Gray (Gray Sample), for each of the years
2000, 2001, 2002 and 2003, and exclude those program titles that are
not compensable for purposes of this proceeding in the Program
Suppliers category: (1) Programs identified in the Tribune Data as
broadcast type ABC, CBS and NBC (i.e., network programming); \40\ (2)
programs airing on WGN's local feed (WGN-local) that were not
simultaneously broadcast on WGN's national feed (WGN-A); and (3)
programs not identified by Tribune as a series, special, movie,
documentary or ``other.'' Patterson WDT at 2-3.
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\40\ In fact, Reznick failed to exclude the network programming
and this task was performed by Dr. Gray. 6/3/13 Tr. at 246-48
(Patterson); 6/4/13 Tr. at 488-89 (Gray).
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The second analysis conducted by Reznick involved using a computer
to electronically compare a list of program titles claimed by MPAA-
represented claimants, prepared and provided by MPAA,\41\ with the
refined Tribune data to identify every distant retransmission of each
MPAA title on the Kessler Sample stations and the Gray Sample stations.
Patterson WDT at 3; 6/3/13 Tr. at 250-51 (Patterson).\42\ Thus, Reznick
was able to identify the potentially compensable broadcasts of MPAA
titles that aired on the Kessler Sample and Gray Sample stations.
Patterson WDT at 5.
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\41\ The MPAA list of titles was compiled initially through
program title information that was submitted by the claimants it
represents and from its own research. MPAA then prepared a
certification report listing the titles that it believed were
attributable to the claimant, and supplied a certification form for
the claimant to sign verifying that it has the right to claim
retransmission royalties for the works listed. Each claimant was
instructed to strike through any titles for which it was not
entitled to claim retransmission royalties. Kessler WDT at 9-10.
\42\ To the extent the comparison analysis conducted by Reznick
left programs that did not match, Reznick conducted a manual
matching exercise. As part of this manual matching exercise,
whenever Reznick found titles that appeared to be a match, it would
check for other examples of the same or similar program titles
manually inspecting each to determine if the programs were in fact a
match. For non-English programs, Reznick employed a native Spanish
speaker to assist in the manual matching exercise. 6/3/13 Tr. at
273-74 (Patterson).
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MPAA retained Dr. Gray to design an allocation methodology and
compute the results of that methodology (the MPAA Methodology). 6/4/13
Tr. at 440 (Gray). Dr. Gray testified that his analysis seeks to
determine the ``relative market value'' of copyrighted programs based
on an econometric model of estimating viewership that takes into
account program characteristics and popularity that affect the
program's predicted relative viewership. His approach analyzes program
volume, program viewing and the number of subscribers for the Gray
Sample--a stratified random sample of 120 stations generated by Dr.
Gray from CDC data for each year from 2000 to 2003. Gray WDT at 3, 9;
Gray WRT at 25, 30.
Dr. Gray relied upon five data sources in creating and applying the
MPAA Methodology: (1) CDC data for all cable system operators in the
United States who distantly retransmitted broadcast signals, which
included information about the signals they distantly retransmitted as
well as the total number of distant subscribers to those signals; (2) a
custom analysis of Nielsen Diary Data, prepared by Mr. Lindstrom, which
shows the viewing of distant retransmissions of the Kessler Sample
stations during Nielsen's ``sweeps'' periods; (3) information from
Nielsen's local ratings, derived from individual television electronic
meters, provided on a quarter-hour basis, for 24 hours a day, seven
days a week, and 12 months a year (Local Ratings Data), for the Gray
Sample stations; (4) Tribune Data, including the program title, time of
broadcast, information on the station, whether or not the station was a
network affiliate, the type of programming, the actors and directors
and other information about the program, for every broadcast in the
Kessler Sample stations and Gray Sample stations; and (5) the Reznick
data analyses, in the form of a list of MPAA compensable programming,
based upon start time, date and station, and a separate list of IPG
compensable programming, based upon start time, date and station. 6/4/
13 Tr. at 447-50 (Gray).
Dr. Gray analyzed the relationship between distant viewing and
local ratings, holding constant the number of distant subscribers,
which, Dr. Gray posited, is equivalent to examining distant ratings and
local ratings. Dr. Gray testified that he found a positive and strong
statistically significant relationship between distant viewing and
local ratings. After establishing this correlation, Dr. Gray built his
full econometric model combining all of the five data sets he
identified in his written testimony.\43\ Dr. Gray then utilized a
multiple regression analysis to predict distant viewing for every
single quarter hour, for every single program, 24 hours a day, seven
days a week, 12 months a year, for all four years.\44\ 6/4/13 Tr. at
465-67 (Gray).
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\43\ These data sets provided Dr. Gray with information on
distant viewing, local ratings, the number of distant subscribers,
the quarter hour of the day the broadcast took place, station
affiliation, and which programs were compensable in these
proceedings.
\44\ All of Dr. Gray's calculations of program viewing were
based on the Gray Sample. The Kessler Sample was merely used to make
projections of distant viewing from the Local Ratings Data. 6/4/13
Tr. at 452-54 (Gray).
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Based on his analysis, Dr. Gray calculated the viewership (and
distribution) shares of MPAA and IPG programming as follows.\45\
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\45\ The lower and upper bounds of the 95% confidence intervals
for the estimates of MPAA's viewership shares for each year are: For
the year 2000, 98.84% to 99.03%; for the year 2001, 99.69% to
99.75%; for the year 2002, 99.64% to 99.74% and for the year 2003,
99.77% to 99.83%. Gray WRT at 26 n.25. 6/5/13 Tr. at 754-58 (Gray).
MPAA Proposed Viewership and Distribution Shares
----------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 (percent)
----------------------------------------------------------------------------------------------------------------
MPAA............................................ 98.93 99.72 99.69 99.80
IPG............................................. 1.07 0.28 0.31 0.20
----------------------------------------------------------------------------------------------------------------
[[Page 64995]]
Gray WRT at 26.
(1) Evaluation of the MPAA Methodology
IPG opposes a relative market value assessment based solely on
Nielson viewership data. One broad attack by IPG on the use of Nielsen
viewership data is that the data do not exist until after the distantly
retransmitted programs are broadcast. Thus, IPG argues, the
hypothetical willing buyer and willing seller could not utilize this
viewership data ex ante to negotiate a license. Galaz WDT at 13.
Although this criticism is literally correct, it does not preclude the
use of such viewership data to estimate the value of the hypothetical
licenses. Ideally, it might be preferable to utilize anticipated
viewership as the viewership-centric measure of value.
However, such a measure would be quite difficult to assemble in a
Section 111 proceeding. Each type of program would be subject to its
own yardstick: For example, reruns could be valued based on their prior
ratings, newly syndicated programs could be valued based on the past
ratings of comparable programs; and first-run televised movies could be
valued based on their box-office value in theaters. The gathering and
presentation of such evidence likely would be prohibitively expensive,
and the evidence in the record before the Judges does not permit such
an analysis.
Another attack by IPG on the use of Nielsen Data concerns the so-
called ``zero viewing'' problem. The quarter-hour sampling points
within the Nielsen Data relied upon by MPAA contain, annually, between
76% and 82% ``zero viewing'' sampling points. Robinson WRT at ] 31. In
previous Phase II proceedings the existence of these ``zero viewing''
sampling points had not been adequately explained by MPAA's witnesses,
which diminished the value of its methodology. See, e.g., 1993-1997
Librarian Order, 66 FR at 66449-50. However, in this proceeding, MPAA
has provided adequate evidence to demonstrate, to the satisfaction of
the Judges, that the incidence of so-called ``zero viewing'' does not
preclude the Judges' reliance in part upon the Nielsen data, subject to
adjustments in the allocations to acknowledge some imprecision arising
out of the ``zero viewing'' sample points.
First, to be precise, the percentages of ``zero viewing sampling
points'' represent--on a station-by-station basis--the percent of total
sampling points at which no sample households with Nielsen diaries
recorded that they were viewing that station. These percentage figures
do not represent that ``zero households'' had viewed a particular
program over the entirety of the sampling period, i.e., the sweeps
period at issue. Although both Mr. Galaz and IPG's economist, Dr. Laura
Robinson, were critical of the high incidence of ``zero viewing''
sampling points, Dr. Robinson proffered no evidence, 6/6/13 Tr. at
1195-97 (Robinson), and Mr. Galaz proffered no admissible or credible
evidence, 6/5/13 Tr. at 844 (Galaz),\46\ that the Nielsen data had
revealed particular programs with ``zero viewing'' throughout the
Nielsen diary sampling periods. This distinction is critical, because,
under the hypothetical market construct, royalties would accrue on a
program-by-program basis to individual copyright owners, not to the
distantly retransmitted stations.
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\46\ Mr. Galaz claimed in his live testimony that he prepared a
document which set forth his calculation of the percent of programs
that Nielsen reported to have had zero viewing. Under questioning
from the Judges, however, Mr. Galaz acknowledged that he had never
provided such a document to MPAA, 6/5/13 Tr. at 846-47, and IPG did
not seek to have that document admitted into evidence. 6/5/13 Tr. at
888-89.
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Second, the Judges agree with Mr. Lindstrom that these ``zero
viewing'' sampling points can be considered important elements of
information, rather than defects in the process. As Mr. Lindstrom
testified, when doing sampling of counts within a population, it is not
unusual for a large number of zeros to be recorded, 6/4/13 Tr. at 391-
93, 410 (Lindstrom), and those ``zero viewing'' sample points must be
aggregated with the non-zero viewing points. 6/3/13 Tr. at 323
(Lindstrom).
Third, as Dr. Gray testified, when those zeros are included with
non-zero data from the sample in a regression that correlates local and
distant viewing, the zeros are placed in an appropriate statistical
context. 6/14/13 Tr. at 614-15 (Gray).\47\
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\47\ To adapt an analogy used by Dr. Gray, if one were
attempting to estimate the number of left-handed individuals in the
United States, by sampling ten people in New York City and
Washington, DC, respectively, it would not be implausible to find
zero left-handed people in the sample. However, when the sampling
expanded to ten people each in Boston, Los Angeles, and San
Francisco, one might find two, three, and perhaps even seven left-
handed individuals, respectively, in those cities. While only about
10% of the population in the United States may be left-handed, it
would make no more sense to eliminate (as supposedly
unrepresentative) the zero counts in New York and Washington than it
would to exclude the (unusually high) count of seven left-handed
individuals in San Francisco. See 6/4/13 Tr. at 606-08 (Gray).
---------------------------------------------------------------------------
Fourth, as Mr. Lindstrom testified, distantly retransmitted
stations typically have very small levels of viewership in a television
market fragmented (even in the 2000-2003 period) among a plethora of
available stations. 6/4/13 Tr. at 393 (Lindstrom). Thus, it would be
expected, not anomalous, for Nielsen to record some zero viewing for
any given quarter-hour period within the diary sampling (sweeps)
period.
Despite these reasonable and credible explanations of the ``zero
viewing'' sampling points, the Nielsen data are not without problems.
The sample size is not sufficient to estimate low levels of viewership
as accurately as a larger sample. Mr. Lindstrom acknowledged that
``[t]he relative error on any given quarter-hour for any given station
* * * would be very high,'' 6/3/13 Tr. at 303 (Lindstrom)--an
acknowledgment echoed by Dr. Gray. 6/4/13 Tr. at 518-19 (Gray)
(agreeing that, with samples of 10,000 households, there is a high
relative error rate for each quarter-hour ``point estimate'').
Furthermore, Mr. Lindstrom acknowledged that he had not produced
the margins of error or the levels of confidence associated with the
Nielsen viewership data, despite the fact that such information could
be produced. 6/3/13 Tr. at 391-93, 410 (Lindstrom). Without this
information, the reliability of any statistical sample cannot be
assessed. (By way of comparison, Dr. Gray provided with his conclusions
the margin of error and the level of confidence associated with his
findings. Gray WRT at 26 n.25.). The Judges infer that, had such
information underscored the reliability of the Nielsen data, it would
have been produced by MPAA.
Thus, the Judges conclude that viewership as measured after the
airing of the retransmitted programs is a reasonable, though imperfect
proxy for the viewership-based value of those programs.\48\
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\48\ Since it is a hypothetical market we are constructing, it
also would not be unreasonable to hypothesize that the CSO and the
Copyright Owner might negotiate a license that would contain a
provision adjusting the value of the license, post-viewing, to
reflect actual viewership. See 6/4/13 Tr. at 562-63 (Gray). In that
regard, the Judges refer to one of the pre-conditions for relative
market value--the one omitted by Dr. Gray--``reasonable knowledge of
relevant facts.'' Actual viewership would be a ``relevant fact''
that could be applied if post-viewing adjustments to the license
fees were hypothetically utilized by the bargaining parties. While
the parties might find the ``transaction costs'' of such post-
viewership negotiations and adjustments to be prohibitive in
practice, it is the function of the Judges, as noted supra, to
construct a hypothetical market in which such transaction costs are
avoided. See O. Williamson, The Economic Institutions of Capitalism
45 (1985) (one aspect of the ``transaction cost problem'' is the
inability of the negotiating parties to obtain ``perfect
information.'').
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(2) Dr. Gray's Economic Analysis
The Judges credit the economic analysis undertaken by Dr. Gray, as
set forth in his Written Direct Testimony
[[Page 64996]]
and in his oral testimony at the hearing, see, e.g., Gray WDT at 3; 6/
4/13 Tr. at 446 (Gray), but not without some reservations. First, the
Judges agree with Dr. Gray that viewership can be a reasonable and
directly measurable metric for calculating relative market value in
cable distribution proceedings. Indeed, the Judges conclude that
viewership is the initial and predominant heuristic that a hypothetical
CSO would consider in determining whether to acquire a bundle of
programs for distant retransmission, subject to marginal adjustments
needed to maximize subscribership. Nevertheless, the Judges are
reluctant to rely solely on viewership data merely because the marginal
bundling adjustments are not readily measurable. The Judges must also
consider subscriber fees and subscribership levels, even if the
evidence relating to subscribership creates only a crude proxy for
addressing the economic bundling issue.
The Judges agree with Dr. Gray that the programs within the Program
Suppliers category are more homogeneous inter se than they are in
comparison with programs in either the Sports Programming or the
Devotional Programming claimant categories. 6/4/13 Tr. at 446, 455-57
(Gray). This relative homogeneity suggests that a rational CSO would
not be as concerned with whether different programs would attract
different audience segments (compared with more heterogeneous
programming) and therefore such a CSO would rely to a greater extent on
absolute viewership levels. The Judges note, however, that Dr. Gray's
position appears to conflict with Ms. Kessler's testimony which
described the mix of MPAA programs as quite varied (i.e.,
heterogeneous), Kessler WDT at 4-6. Taken at face value, Ms. Kessler's
observation suggests that the hypothetical CSO would consider whether
there was a fragmentation of viewership among MPAA-represented programs
that would reduce its reliance on absolute viewership and increase its
use of a bundling analysis to exploit such heterogeneity. This
disparity confirms the Judges' conclusion that viewership data alone
cannot form the basis for measuring relative market value.
Notwithstanding Ms. Kessler's testimony to the contrary, the Judges
accept Dr. Gray's analysis of the lack of an impact of changes in
programming upon subscribership. Dr. Gray's analysis suggests that,
even if program heterogeneity could affect value via the CSO's bundling
choices, there is no evidence in the current record to suggest that the
programs of the claimants whom IPG represents have created a
programming mix that would increase the value of those programs vis
[agrave] vis programs of non-IPG claimants. 6/4/13 Tr. 554-55 (Gray);
Gray WDT (Amended) at App. C.
Moreover, the Judges rely upon Dr. Gray's use of a random sample of
approximately 120 stations annually from 2000 through 2003 to construct
his viewership estimates. Indeed, Dr. Gray's sample is the only random
sample of stations presented to the Judges in this proceeding, and must
be contrasted with the admittedly non-random sampling of stations
undertaken by Mr. Galaz and Ms. Kessler.\49\
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\49\ Statistically valid unbiased inferences regarding an entire
population cannot be projected from a non-random sample. The Judges,
therefore, remain troubled by the fact that Dr. Gray did not insist
on scrapping Ms. Kessler's non-random sample and require (as a
condition to his engagement as MPAA's expert) the use of a random
sample. Instead, Dr. Gray attempted to mitigate the non-randomness
of Ms. Kessler's sample by shrinking his 120-station random sample
to the 70-station sample which constituted the overlap between the
Kessler Sample stations and the Gray Sample stations. However, a
non-randomly selected sub-set of an otherwise random sample is not a
random sub-set. The 70 stations were then used to derive a
mathematical relationship between local and distant viewing. That
relationship was then used in Dr. Gray's regression analysis to
project distant viewing from the local viewing data for all 120
sample stations, and, ultimately, to make a prediction with regard
to the distant viewing of the entire population of MPAA and IPG
programs that were distantly retransmitted by every CSO.
The Judges credit Dr. Gray's testimony that MPAA refused to
abandon the Kessler Sample and that, without it, Dr. Gray would not
have had access to distant signal viewing data with which to perform
his regression. The Judges likewise credit Dr. Gray's testimony as
to the fact that scrapping Ms. Kessler's non-random sample likely
would have caused additional expense for MPAA, as MPAA would have
been required to rely on Dr. Gray's truly random sample and develop
a new set of distant signal viewing data through additional work by
CDC, Nielsen and Reznick. 6/4/13 Tr. at 583-587 (Gray). Although the
Judges understand why MPAA might have chosen to avoid this
additional cost and rely, at least in part, on a compromised sample
of stations, that cost-saving decision compromises the Judges'
ability to give more weight to Dr. Gray's analysis than they have
done in this Determination.
Dr. Gray attempted to demonstrate that the use of the flawed
Kessler Sample did not damage the accuracy of his analysis. The
Kessler Sample suffered from Ms. Kessler's intentional selection of
the largest stations in terms of subscribers, and her ``intuitive''
decision to cut off her sampling at a particular level. 6/3/13 Tr.
at 122 (Kessler). This bias toward larger stations could have
prejudiced IPG, if the programs of the IPG-represented claimants
were relatively more concentrated on smaller stations than were the
MPAA-represented programs. To test that possibility, Dr. Gray ran
his regression including only the bottom quartile of the Kessler
Sample stations and found no change in viewership estimates. 6/4/13
Tr. at 469-70, 500, 570 (Gray). Of course, that fact only indicates
that, within the Kessler Sample, changes in broadcast station size
did not affect IPG negatively, and at best only suggests that
inclusion of even smaller stations (excluded from the Kessler Sample
or within Dr. Gray's 120-station sample but excluded from the 70-
station Kessler/Gray overlapping sample) would not have increased
viewership estimates for IPG.
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The Judges view favorably Dr. Gray's decision to increase his data
base by supplementing it with Nielsen meter data--the Local Ratings
Data--in order to determine, in his regression analysis, the
relationship between local viewing and distant viewing of the
retransmitted stations. 6/4/13 Tr. at 448. The use of this additional
data allowed Dr. Gray to observe approximately 1.6 million quarter-
hours of local viewing data (6/4/13 Tr. at 465, 467) strengthening his
results, and further mitigating any potential problems with the zero
viewing sampling points contained in the Nielsen Diary Data.
Nevertheless, the Judges find that Dr. Gray's decision not to
summarize the results of his regression as it related to other
independent variables, especially the impact of time of day upon the
level of distant viewing of the transmitted stations, is a shortcoming
in his analysis. Dr. Gray conceded that there was a strong positive
relationship between time of day and the level of distant viewing, 6/4/
13 Tr. at 639-41 (Gray), which could support IPG's use of a Time Period
Weight Factor as a basis for allocating royalties. 6/4/13 Tr. at 639-43
(Gray).
In addition, the Judges recognize the criticism, leveled by IPG's
expert witness, Dr. Laura Robinson, that Dr. Gray wrongly replaced
Nielsen Diary Data regarding distant viewing for the six months of
sweeps, with his projected data, derived from Nielsen Local Viewing
Data. Dr. Robinson also noted that, if Dr. Gray had retained his
Nielsen Diary Data, with its approximate 80% of zero viewing sampling
points, he should have had at least a level of approximately 40% zero
viewing points in his final analysis. 6/6/13 Tr. at 1202-03.
In response to Dr. Robinson's criticism, Dr. Gray ran the distant
viewership numbers in the manner suggested by Dr. Robinson. To use Dr.
Gray's terminology, using these ``supplant'' values would have resulted
in an even greater allocation to MPAA at the expense of IPG. 6/6/13 Tr.
at 1328-30 (Gray). IPG objected that it had not been afforded the
details of this analysis previously, but the Judges discount that
objection, given that Dr. Robinson had not presented her critique of
this aspect of Dr. Gray's analysis until her live testimony at the
hearing.\50\
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\50\ The Judges note that Dr. Robinson was engaged by IPG only
two months prior to the June 2013 hearing, and one month prior to
the May 2013 deadline for the filing of rebuttal testimony. 6/6/13
Tr. at 122 (Robinson). IPG's delay in that regard may have
compromised its expert's ability to construct a more comprehensive
critique of Dr. Gray's analysis. As Dr. Robinson was engaged after
the Preliminary Hearing in this matter, IPG, by its own delay in
retaining Dr. Robinson, was unable to seek additional discovery
based upon her purported need for additional information.
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[[Page 64997]]
The Judges also acknowledge Dr. Robinson's criticism that, given
the level of zero viewing in the raw Nielsen diary data, Dr. Gray
should have used a different regression model than his selected Poisson
regression. Dr. Gray defended his use of the Poisson regression model,
however, as a basis to perform a regression with such a large number of
zeros in the data. Although Dr. Robinson suggested the use of another
form of regression to account for the relatively high number of zeros,
(such as a negative binomial regression), she did not provide any
alternative analysis to indicate how such a different form of
regression would have changed the results, and Dr. Robinson
acknowledged that she therefore was unable to state that Dr. Gray's
conclusions were wrong. 6/6/13 Tr. at 1279-81 (Robinson). Moreover, to
the extent the zeros in the raw data reflect non-viewing of television
at the moment of sampling, or to the extent they reflect poor sampling
of small numbers of viewers, a separate regression to account for the
zero viewing may have been appropriate. As noted, supra, Mr. Lindstrom
and Dr. Gray both pointed out, however, small numbers of viewers,
indeed zero viewers, is a meaningful sample point, given the small
number of viewers of distantly retransmitted broadcast stations, so
those zeros should not be isolated and treated differently.
Another of IPG's criticisms of the MPAA Methodology concerns the
treatment of Canadian and Mexican stations. See, e.g., Galaz WRT at 40-
41. MPAA and Dr. Gray did, in fact, exclude Canadian and Mexican
television stations from the Kessler and Gray Samples. 6/3/13 Tr. at
116 (Kessler); 6/5/13 Tr. at 753-54 (Gray). This appears to have
resulted from the belief that programs carried on those stations were
either not compensable, or not included in the Program Suppliers
category. 6/3/13 Tr. 116-17 (Kessler); 6/5/13 Tr. at 754 (Gray). This
exclusion was an error.
Section 111(c)(1) unambiguously grants cable system operators a
statutory license to retransmit Canadian and Mexican broadcast
stations.\51\ Section 111(d)(3)(A) likewise directs that royalties
deposited by cable system operators under the statutory license be
distributed to any copyright owner whose work was included in a
secondary transmission made by a cable system of a non-network (i.e.,
not ABC, CBS or NBC) television program on a distant signal basis. The
statute provides no exception for works carried in retransmissions of
primary signals that originate in Canada or Mexico. MPAA's conclusion
that programs carried on Canadian and Mexican broadcast stations are
noncompensable was erroneous.
---------------------------------------------------------------------------
\51\ Section 111(c)(4) places certain geographic restrictions on
such retransmissions.
---------------------------------------------------------------------------
As to the categorization of programs carried on Canadian and
Mexican Stations, the parties in the Phase I proceeding in this matter
stipulated to definitions of the following program categories: Program
Suppliers; Joint Sports Claimants; Commercial Television; Public
Broadcasting; Devotional Claimants; Canadian Claimants; National Public
Radio; and Music Claimants. The definitions are mutually exclusive and,
in the aggregate, comprehensive. See Stipulation of the Parties on the
Issues of Program Categorization and Scope of Claims, Docket No. 94-3,
CARP CD 90-92 (Feb. 23, 1996), at 3 (stating that Phase I categories
identical to those used in this proceedings were ``intended to cover
all non-network television programs on all stations retransmitted as
distant signals by U.S. cable systems * * * on a mutually exclusive
basis''). In other words, every compensable program must fall within
one and only one program category.
The ``Canadian Claimants'' category is defined as:
All programs broadcast on Canadian television stations, except
(1) live telecasts of Major League Baseball, National Hockey League,
and U.S. college team sports, and (2) other programs owned by U.S.
copyright owners.
Kessler WRT at Addendum B.
The first exception describes programs that fall within the Sports
Programming category.\52\ The second exception includes all programs
owned by U.S. copyright owners. Although programs falling within the
second exception could, potentially, fall into any of the other
categories, in reality they are all within the Program Suppliers \53\
category. Phase I Order, 75 FR at 26800 n.5; see also Written Direct
Testimony of Janice de Freitas, Ex. CDN-1, Docket No. 2008-2 CRB CD
2000-2003 (Phase I) at 2.
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\52\ The ``Joint Sports Claimants'' category is defined as:
Live telecasts of professional and college team sports broadcast
by U.S. and Canadian television stations, except for programs coming
within the Canadian Claimants category * * *.
Kessler WRT at Addendum B.
\53\ The ``Program Supplier'' category is defined as:
Syndicated series, specials and movies, other than Devotional
Claimants programs as defined [in the stipulation]. Syndicated
Series and specials are defined as including (1) programs licensed
to and broadcast by at least one U.S. commercial television station
during the calendar year in question, (2) programs produced by or
for a broadcast station that are broadcast by two or more U.S.
television stations during the calendar year in question, and (3)
programs produced by or for a U.S. Commercial television station
that are comprised predominantly of syndicated elements, such as
music video shows, cartoon shows, ``PM Magazine,'' and locally
hosted movie shows.
Id.
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There is no ``Mexican Claimants'' category, so any compensable
programming carried on distantly retransmitted Mexican broadcast
stations must fall into one of the other agreed categories (other than
Canadian Claimants), including the Program Suppliers. It is simply
incorrect to conclude that all compensable programming on distantly
retransmitted Canadian and Mexican broadcast stations falls outside the
Program Suppliers category. MPAA erred by excluding Canadian and
Mexican stations from its analysis.
The Judges do not have before them sufficient evidence to determine
the precise degree to which MPAA's exclusion of Canadian and Mexican
stations has affected their proposed distribution. The Judges can,
however, construct a rough estimate based on IPG's sample stations,
which were selected because they were the most widely retransmitted
television stations based on fees generated. 6/5/13 Tr. at 762 (Galaz).
Of the 223 stations that IPG included in its sample for royalty
year 2000, 12 stations (5.38% of the total) were Canadian. Those
stations represented 4.46% of the overall number of distant subscribers
covered in the IPG sample. Only two Mexican stations (0.90% of the
total) were included in the IPG sample, representing 0.02% of distant
subscribers covered in the IPG sample. The Judges conclude that the
effect on MPAA's proposed distribution shares of excluding Mexican
stations from their regression analysis was negligible. On its face,
however, the impact of excluding the Canadian stations may not be
negligible.
Evidence from the Phase I proceeding suggests that a relatively
small amount of the programming on Canadian broadcast stations is
allocable to the Program Suppliers category. Written Direct Testimony
of Janice de Freitas, Ex. CDN-1, Docket No. 2008-2 CRB CD 2000-2003
(Phase I) at 6 and Ex. CDN-1-I. Assuming, for purposes of this rough
estimate, that there are half as
[[Page 64998]]
many programs on Canadian stations that fall in the Program Suppliers
category than there are on U.S. stations, Canadian stations carried
roughly 2.7% of retransmitted programs in the Program Suppliers
category. It thus appears that a small, but not negligible, number of
programs in this category are carried on Canadian stations.
For the exclusion of the relatively small percentage of programs
broadcast on Canadian stations to have a material impact on the
relative shares computed by MPAA, the proportion of MPAA-represented
programs to IPG-represented programs on Canadian stations would have to
differ fairly significantly from that on U.S. stations. There is no
evidence to suggest that it does.\54\ The Judges conclude that, while
the exclusion of the Canadian stations was an error, it did not have a
significant effect on the relative shares computed by MPAA.
---------------------------------------------------------------------------
\54\ In his analysis of the IPG Methodology, Dr. Gray evaluated
the effect of IPG's inclusion in its methodology of non-U.S.
programs carried on Canadian stations and concluded that it resulted
in an overstatement of the value of IPG's claims (perhaps reflecting
a higher proportion of non-U.S. programming among IPG-represented
programs than among MPAA-represented programs). Gray WDT at 15-17.
Unfortunately that analysis sheds no light on the effect of MPAA's
exclusion of U.S. programs on Canadian stations on its calculation
of relative shares of royalties.
---------------------------------------------------------------------------
b. Description of the IPG Methodology and Proposed Allocation
IPG's distribution methodology (the IPG Methodology) was created by
Mr. Raul Galaz, an employee and former principal of IPG. Mr. Galaz
testified that the IPG Methodology was formed in response to a
perceived bias in the distribution methodology historically utilized by
MPAA. Galaz WDT at 7-8. IPG espouses that each and every program that
is broadcast by a terrestrial station, and is thereafter retransmitted
by a CSO pursuant to the Section 111 statutory license, is entitled
some portion of the fees deposited with the U.S. Copyright Office. Id.
at 14.
Upon the commencement of this Phase II proceeding, IPG obtained
updated data from CDC of all Form 3 retransmitted stations from 2000-
2003, which data included the number of households to which any
particular terrestrial signal was retransmitted, as well as the fees
generated from the retransmission of any particular terrestrial signal.
IPG ranked such stations on a year-by-year basis, according to the
cable retransmission fees generated by such stations. Id., at 16; 6/5/
13 Tr. at 762 (Galaz).
IPG thereafter acquired from Tribune Media the programming data for
the 200 broadcast stations (IPG Sample) generating the largest amount
of cable retransmission fees, and supplemented such information with
broadcast data already acquired by IPG for calendar years 2000 and
2001.\55\ Galaz WDT at 16; see Galaz WDT at Ex. IPG-4; 6/5/13 Tr. at
762, 790 (Galaz).\56\ The IPG Sample was not (and was not intended to
be) a random sample. 6/5/13 Tr. at 765-66, 808-09 (Galaz). From this
programming data IPG identified 11,213,962 individual broadcasts that
took place on the IPG Sample stations which, after omitting non-
compensable programming (e.g., network feed programming), yielded
8,515,052 compensable broadcasts representing 39,969 discrete titles.
Galaz WDT at 17.
---------------------------------------------------------------------------
\55\ IPG's samples consisted of 223 stations for 2000; 231
stations for 2001; 200 stations for 2002; and 200 stations for 2003.
Galaz WDT at 16; see Galaz WDT at Ex. IPG-4; 6/5/13 Tr. at 762, 790
(Galaz).
\56\ The stations surveyed as part of the IPG Sample accounted
for 89-93% of the aggregate number of Form 3 subscribers receiving
retransmitted commercial signals in any given year during 2000-2003,
and 94-96% of the distant cable retransmission fees generated by
commercial stations in any given year during 2000-2003. Galaz WDT at
17; see Galaz WDT at Ex. IPG-5; 6/5/13 Tr. at 765, 788 (Galaz).
---------------------------------------------------------------------------
According to Mr. Galaz, IPG then undertook to confirm with all of
the claimants that it represents exactly which titles and broadcasts
were owned or controlled by them. IPG submitted to each claimant the
list of compensable titles, and requested that the claimant respond to
IPG with a list of any titles on the list that correspond to titles
owned or controlled by the claimant. In some circumstances IPG
determined which titles and broadcasts were owned or controlled based
on information within the IPG contracting documents, or information
previously provided to IPG in the course of IPG's representation. Galaz
WDT at 18; 6/5/13 Tr. at 791-93 (Galaz). Based on that vetting process,
IPG determined that 1,297 compensable programs were owned or controlled
by IPG-represented claimants, reflected within 541,586 compensable
broadcasts. Galaz WDT at 10; see Galaz WDT at Exs. IPG-2, 3.
The weight that IPG accorded to any given compensable broadcast was
the product of (x) a ``Station Weight Factor,'' (y) a ``Time Period
Weight Factor,'' and (z) the duration of the broadcast. Galaz WDT at
18-23.
IPG took two alternative approaches to creating a Station Weight
Factor. One assigned a value to a station based on the number of
distant cable subscribers that received retransmissions of that
station's broadcasts. The other assigned a value to a station based on
the amount of distant cable retransmission fees generated by the
station, as disclosed in CDC data. IPG presented three alternative
computations based on each of the Station Weight Factors and an average
of the two. Galaz WDT at 18; see Galaz WDT at Ex. IPG-4; Galaz WRT at
Exs. R-19 and R-20; 6/5/13 Tr. at 769, 768, 779-81 (Galaz).
The Time Period Weight Factor reflects the fact that average
television viewership varies by time of day. IPG based the Time Period
Weight Factor on Nielsen Media Research's assessment of distant
viewership of all persons during 48 half-hour dayparts that was, in
turn, based on Nielsen viewing data from 1997.\57\
---------------------------------------------------------------------------
\57\ IPG contended that it was reasonable to use 1997 data for
this purpose because Nielsen Media Research publications indicate
that there have been only trace changes in U.S. daypart viewing,
even over the span of decades. Galaz WDT at 21-22; 6/5/13 Tr. at
775-77 (Galaz). IPG's calculations originally were based on six
dayparts, rather than 48. When this issue was brought to IPG's
attention, IPG produced revised calculations based on the 48
dayparts described in Mr. Galaz' written testimony. See Galaz WRT at
Exs. R-19 (revised) and R-20 (revised). In live testimony, Mr. Galaz
stated that the error was inadvertent. 6/5/13 Tr. at 774 (Galaz).
---------------------------------------------------------------------------
Mr. Galaz testified that the IPG Methodology seeks to replicate the
decisions actually made by CSOs by looking at data representative of
such decisions, and data reflecting the aggregate of information that a
CSO could have had at the time of its decision to retransmit a
broadcast station. 6/5/13 Tr. at 761, 763, 768 (Galaz). He explained
that it was for this reason that IPG used its Time Period Weight Factor
in preference to projections of actual viewership. IPG avers that
actual viewership can only be known after a broadcast has taken place;
prior to a CSO's decision to retransmit a particular broadcast, the CSO
may only reasonably predict on a day-by-day basis the relative
viewership of a program based on the timing of its placement on a
station's lineup. Galaz WDT at 20-22; 6/5/13 Tr. at 770-75 (Galaz).
As a final step, the broadcast length of all compensable broadcasts
appearing in the IPG analysis was applied against the ``Station Weight
Factor(s)'' and the ``Time Period Weight Factor'' to create a weighted
value for each of the broadcasts. After segregating the compensable
broadcasts into their respective Phase I categories, including the
Program Suppliers category, IPG summed the resulting weighted values
for (i) all IPG-claimed broadcasts, and (ii) all MPAA-claimed
broadcasts. Galaz WDT at 24; Galaz WRT at Exs. R-19 (revised) and R-20
(revised); 6/5/13 Tr. at 778 (Galaz). By comparing these
[[Page 64999]]
``Sum Weighted Values'' for IPG and MPAA, IPG calculated its proposed
relative distribution shares.
Using a Station Weight Factor based on numbers of distant
subscribers, IPG computed the following proposed relative distribution
shares.
IPG Proposed Distribution Shares
[SWF--Subs]
----------------------------------------------------------------------------------------------------------------
2001 2002 2003
2000 (percent) (percent) (percent) (percent)
----------------------------------------------------------------------------------------------------------------
MPAA............................................ 90.52 92.77 94.54 94.95
IPG............................................. 9.48 7.23 5.46 5.05
----------------------------------------------------------------------------------------------------------------
Galaz WRT, Ex. R-19, at 1 (revised).
Using a Station Weight Factor based on fees generated, IPG computed
the following proposed relative distribution shares.
IPG Proposed Distribution Shares
[SWF--Fees]
----------------------------------------------------------------------------------------------------------------
2001 2002 2003
2000 (percent) (percent) (percent) (percent)
----------------------------------------------------------------------------------------------------------------
MPAA............................................ 90.60 92.57 94.56 94.86
IPG............................................. 9.40 7.43 5.44 5.14
----------------------------------------------------------------------------------------------------------------
Id.
Using an average of the shares produced by the previous two
methods, IPG computed the following proposed relative distribution
shares.
IPG Proposed Distribution Shares
[SWF--Subs and fees]
----------------------------------------------------------------------------------------------------------------
2001 2002 2003
2000 (percent) (percent) (percent) (percent)
----------------------------------------------------------------------------------------------------------------
MPAA............................................ 90.56 92.67 94.55 94.91
IPG............................................. 9.44 7.33 5.45 5.09
----------------------------------------------------------------------------------------------------------------
Id.
(1) Evaluation of the IPG Methodology
IPG, through the written testimony of its sole direct witness, Mr.
Galaz, did not definitively state that its methodology was an
application of ``relative market value.'' Galaz WDT at 11. At the
hearing, on cross-examination, Mr. Galaz initially declined to state
that the IPG Methodology was consonant with any ``economic principle.''
Under further cross-examination, Mr. Galaz testified that he thought
that the IPG Methodology fits under the ``relative market value''
standard. 6/5/13 Tr. at 942-47.
The IPG Methodology for distributing royalties in this Phase II
proceeding eschews explicit reliance upon viewership levels. Rather,
IPG asserts that ``certain obvious factors that would otherwise affect
a negotiated license between a producer and an exhibitor are not
present in the compulsory licensing scheme * * * .'' Galaz WDT at 12.
The Judges understand IPG's position in this regard to be premised on
the assertion that the hypothetical CSO is interested in maximizing
subscriber fees (i.e., profits, assuming constant costs) or subscriber
levels (i.e., market share), rather than viewership.
IPG is not incorrect in its assertion of the different ``factors''
(i.e., incentives) that apply to a CSO, as opposed to an ``exhibitor''
(i.e., a broadcast station) in this retransmission context. The Judges
conclude, however, that the substance of IPG's direct case suffers from
three major defects:
First, the maximization of subscriber revenues or levels is not
divorced from viewership levels. Rather, a CSO would attract
subscribers on a distantly retransmitted station only to the extent
that the programs it offered were demanded by consumers who intended to
view the programs. Indeed, even IPG's expert witness, Dr. Robinson,
acknowledged that, in her professional experience, viewership was a
factor in determining the value of a retransmitted television program.
6/6/13 Tr. at 1219-21 (Robinson).
Second, it is true, as IPG asserts, that since a CSO is concerned
about which programs the marginal subscriber might prefer, a CSO may
prefer a program with a smaller level of viewership if that viewership
represents new subscribers, instead of a show with a large audience
that consists only of existing subscribers. IPG has not, however,
proffered any evidence applying such a marginal analysis in the present
proceeding. Dr. Robinson testified that such an analysis would require
a ``more sophisticated model,'' incorporating perhaps ``game
theoretic'' principles to demonstrate how a CSO would maximize
subscribership through such a marginal viewer analysis. 6/6/13 Tr. at
1230 (Robinson). Likewise, Dr. Gray testified that such an approach
would require a ``more sophisticated'' analysis than the parties'
evidence permitted in this proceeding. 6/4/13 Tr. at 547 (Gray).
[[Page 65000]]
Third, the IPG Methodology does not follow from the foregoing
critique. Rather, the IPG Methodology uses factors that tend to treat
as similar programs that are distantly retransmitted at the same time
of day, run for the same number of minutes per program or that appear
on the same station. Thus, the IPG Methodology considers neither the
initial necessity of considering absolute viewership nor the subsequent
necessity of considering the iterative process (``perhaps a ``game
theoretic'' approach, as Dr. Robinson testified). Simply put, aside
from any other defects in the IPG Methodology, it is not true to its
own critique of a viewership-based analysis.
(2) The Testimony of Mr. Galaz
IPG's direct case also suffers from the fact that it was presented
by a particular single witness, Mr. Galaz. For the following reasons,
Mr. Galaz, to say the least, was an imperfect messenger to convey the
IPG Methodology.
First, the Judges note that Mr. Galaz was previously convicted and
incarcerated for fraud in the context of copyright royalty
proceedings--a fraud that caused financial injury to MPAA. 6/5/13 Tr.
at 932 (Galaz). In connection with that fraud, Mr. Galaz also
admittedly lied in a cable distribution proceeding much like the
instant proceeding. Id. Mr. Galaz's fraud conviction and prior false
testimony compromises his credibility, especially in this proceeding.
Second, Mr. Galaz, the founder and previously an owner of IPG, is
now an employee of IPG. Galaz WDT at 7. IPG is currently owned by his
mother and sister. 6/5/13 Tr. at 1079 (Galaz). Thus, he clearly has a
self-interest which renders the IPG Methodology--of which he is the
architect--less credible than a methodology created by an outside
expert.\58\
---------------------------------------------------------------------------
\58\ It is noteworthy that IPG engaged Dr. Robinson to critique
the MPAA methodology and Dr. Gray's analysis, but, as Dr. Robinson
testified, she was not asked to defend the IPG Methodology created
by Mr. Galaz. 6/6/13 Tr. at 1226 (Robinson).
---------------------------------------------------------------------------
Third, Mr. Galaz acknowledged that he is not an economist,
statistician, or econometrician, and that he had no particular
expertise that would permit him to opine as an expert on the
construction of a methodology to establish ``relative market value'' in
this distribution proceeding. 6/5/13 Tr. at 928-30. The Judges gave
serious consideration to granting the motion in limine filed by MPAA
and the SDC at the start of the hearing to bar Mr. Galaz's testimony on
the basis that he was offering expert opinion but was not qualified as
an expert witness. For the reasons stated on the record, however, the
Judges denied the in limine motion and decided to permit Mr. Galaz to
testify and accord his testimony whatever weight it warranted. 6/3/13
Tr. at 58-64. Nothing in Mr. Galaz's testimony indicates that the
Judges should give his testimony any weight, except to the limited
extent certain general principles he utilized in his IPG Methodology
provide a basis to modify marginally the distribution allocations
arising from the MPAA Methodology.
Fourth, Mr. Galaz did not indicate that he had any experience
working for or on behalf of a CSO, and he admitted that he had not
discussed the IPG Methodology with any CSO. 6/5/13 Tr. at 970-72. Thus,
his suppositions as to how a CSO might construe viewership lack
foundational support. Moreover, since Mr. Galaz is not an economist, he
cannot apply microeconomic theory in order to opine upon the economic
incentives to which a hypothetical CSO might respond when acquiring a
bundle of licenses from owners of program rights.
(3) Additional Problems With the IPG Methodology
In addition to the foregoing overarching and substantial defects in
IPG's direct case, particular elements of the IPG Methodology are also
deficient.
First, IPG contends that the purpose of the IPG Methodology is to
compensate every claimant, even if there is no evidence that there was
any viewership of the claimant's program.\59\ The Judges find such a
methodology unacceptable. Even if viewership as a metric for
determining royalties may be subject to some adjustment in light of the
economic incentives facing a CSO, there is certainly no basis to allow
for compensation in the absence of any evidence of viewership. See 6/5/
13 Tr. at 950 (Galaz).
---------------------------------------------------------------------------
\59\ Mr. Galaz asserted that compensating each and every
copyright owner affected by the Section 111 statutory license was a
constitutional imperative. Galaz WDT at 14; IPG PFF at 12. Counsel
for IPG echoed this ``takings'' argument in his closing statement.
6/6/13 Tr. at 1454-55. IPG did not brief or argue this issue, so it
is not before the Judges for decision. Nevertheless, the Judges note
that, on its face, this argument proves too much. In addition to
statutory licenses, the Copyright Act includes a number of outright
exceptions (e.g., fair use under Section 107) where a copyright
owner's exclusive rights are limited without any compensation
whatsoever. IPG's Fifth Amendment takings argument would, absurdly,
render these exceptions unconstitutional.
---------------------------------------------------------------------------
Second, IPG's ``sample'' of stations was not selected in a
statistically random manner. Id. at 957 (Galaz). Thus, it suffers from
the same infirmity as the Kessler Sample relied upon in part by MPAA.
However, unlike MPAA, IPG made no effort to mitigate the problems with
its non-random sample. Indeed, at the hearing, Mr. Galaz attempted to
disavow that his list of stations was a sample, and instead re-defined
his station selections as a ``survey.'' Id. at 959 (Galaz).
Third, the IPG Methodology, with its reliance on the so-called
``Station Weight Factor,'' grossly ignores viewership, resulting in a
much higher relative market value for relatively low-rated programs.
The following two pairs of examples from Dr. Gray's Written Rebuttal
Testimony, unrebutted by Mr. Galaz at the hearing, show how the IPG
Methodology calculates the relative value of two programs as identical,
merely because they aired at the same time of day, even though the
MPAA-claimant programs (``Judge Joe Brown'' and ``Pok[eacute]mon'') had
substantially higher viewership levels than the IPG-claimant programs
(``Animal Adventures'' and ``Dragon Ball Z'') which aired in the same
time period:
Table 2--Examples Showing That Factors Other Than Station, Time of Day, and Program Type Impact Distant Viewing of a Program *
--------------------------------------------------------------------------------------------------------------------------------------------------------
IPG
Nielsen Gray estimated
Date/time Station Program Program type Entity claiming viewing viewing relative
households households value
--------------------------------------------------------------------------------------------------------------------------------------------------------
7/8/2000:
16:30........................ KRON............. Animal Adventures.. FIRST-RUN IPG.............. 740 952 2,358,915
SYNDICATION.
5/21/2000:
[[Page 65001]]
16:30........................ KRON............. Judge Joe Brown.... FIRST-RUN MPAA............. 1,840 1,635 2,358,915
SYNDICATION.
7/30/2001:
16:30........................ WPIX............. Dragon Ball Z...... CARTOON............ IPG.............. 2,898 5,586 63,748,728
2/5/2001:
16:30........................ WPIX............. Pok[eacute]mon..... CARTOON............ MPAA............. 10,888 8,228 63,748,728
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: ``Gray Viewing Households'' refers to predicted household distant viewing based on the econometric estimation procedure described in my Direct
Testimony. IPG Estimated Relative Value is based on Mr. Galaz's SWF Subs measure. Programs in the two sets of examples also have identical IPG
Estimated Relative Value based on Mr. Galaz's SWF Fees measure. Nielsen Viewing Households represents the number of households viewing the program
distantly as reported in the Nielsen Diary Data and averaged over the quarter hour increments that constitute the full program time.
Gray WRT at 8.
Fourth, the IPG Methodology, with its additional reliance on the
so-called ``Time Period Weight Factor,'' ascribes equal relative value
to MPAA-claimed programs and IPG-claimed programs that aired on the
same station and for the same duration, despite substantially different
levels of viewership. The following comparison of programs that aired
on WGN in 2001 demonstrates this outcome.
Table 4--Example of My [Dr. Gray's] and Mr. Galaz's Estimated Relative Viewing of Retransmitted WGN Broadcasts
--------------------------------------------------------------------------------------------------------------------------------------------------------
Nielsen Gray
Date/time Program Entity claiming viewing viewing lPG's TPWF IPG relative
households households value
--------------------------------------------------------------------------------------------------------------------------------------------------------
5/12/2001:
17:00................................ Andromeda.................. MPAA..................... 117,501 102,065 0.612244 1,220,182,908
2/3/2001:
10:00................................ Video Computer Store....... IPG...................... 6,754 12,325 0.612244 1,220,182,908
5/6/2001:
17:00................................ Coach...................... MPAA..................... 117,088 143,757 0.612244 610,091,454
7/14/2001:
9:30................................. As Seen on TV PC........... IPG...................... 10,282 14,322 0.612244 610,091,454
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: ``Gray Viewing Households'' refers to predicted household distant viewing based on the econometric estimation procedure described in my Direct
Testimony. IPG Estimated Relative Value is based on Mr. Galaz's SWF Subs measure. Programs in the two sets of examples also have identical IPG
Estimated Relative Value based on Mr. Galaz's SWF Fees measure. Nielsen Viewing Households represents the number of households distant viewing the
program as reported in the Nielsen Diary Data and averaged over the quarter hour increments that constitute the full program time.
Id. at 22.
Fifth, compounding the problems with the IPG Methodology, Mr. Galaz
utilized 1997 data to estimate the level of viewing throughout the
broadcast day, rather than data that was contemporaneous with the 2000
through 2003 royalty distribution period at issue in this
proceeding.\60\ 6/5/13 Tr. at 973 (Galaz).
---------------------------------------------------------------------------
\60\ Mr. Galaz asserted that information published by Nielsen
supported his use of 1997 data. See supra note 57. Mr. Galaz lacks
the requisite expertise on which to base that conclusion, however.
---------------------------------------------------------------------------
Sixth, Mr. Galaz claimed originally to have utilized half-hour
viewing segments to create his Time Period Weight Factor. However, as
Dr. Gray explained in his Written Rebuttal Testimony, Mr. Galaz in fact
did not utilize half-hour viewing segments in his analysis, but rather
utilized the six ``daypart'' categories upon which IPG had relied in
the 1993-1997 Phase II proceeding, which reliance was criticized by the
CARP convened for that prior proceeding. Gray WRT at 20-21. Mr. Galaz
acknowledged this problem, described it as a good faith error, and
changed his calculations by substituting the half-hour viewing segments
for his ``daypart'' categories in his application of the Time Period
Weight Factor. Compare Galaz WRT at Exs. R-19 and R-20 (original) with
Galaz WRT at Exs. R-19 and R-20 (revised).
What is particularly noteworthy about this issue is the extent to
which the use by Mr. Galaz of the ``daypart'' categories, as compared
to his claimed use of the half-hour segments, inured to IPG's benefit.
As Mr. Galaz testified, 6/6/13 Tr. at 1155-56 (Galaz), his use of the
``daypart'' categories significantly inflated IPG's claimed percentage
of the Program Suppliers category in each of the years at issue as
follows.
For 2000, IPG's claimed percentage was inflated by 23%, i.e.,
from 9.47% if Mr. Galaz had correctly used half-hour segments, to
11.62% when he instead utilized ``daypart'' categories.
For 2001, IPG's claimed percentage was inflated by 32%, i.e.,
from 7.33% if Mr. Galaz had correctly used half-hour segments, to
9.71% when he instead utilized ``daypart'' categories.
For 2002, IPG's claimed percentage was inflated by 27%, i.e.,
from 5.45% if Mr. Galaz had correctly utilized half-hour segments,
to 6.9% when he instead utilized ``daypart'' categories.
For 2003, IPG's claimed percentage was inflated by 21%, i.e.,
from 5.09% if Mr. Galaz had correctly utilized half-hour segments,
to 6.33% when he instead utilized ``daypart'' categories.
Id.
Given the serious issues of credibility regarding Mr. Galaz's
testimony, as discussed supra, the Judges cannot state
[[Page 65002]]
with any confidence that these rather significant errors--all of which
would have substantially inflated IPG's allocation and were left
uncorrected until they were disclosed in Dr. Gray's Written Rebuttal
Testimony--were not the product of design rather than inadvertence.
Seventh, the IPG Methodology, although intended to eschew
viewership as a primary measure, nonetheless is based implicitly upon
viewership, as it considers the duration of a program as an indicia of
value (a program of relatively longer duration would be more valuable
because of its viewership over a longer period), as well as the time of
day a program is aired (there are more viewers at some times of day
than others).
(4) Limited Applicability of the IPG Methodology
Although the Judges reject the wholesale application of the IPG
Methodology in this Determination, they do note that the IPG
Methodology attempts to address certain issues of value which are
worthy of consideration when the Judges determine the extent, if any,
to adjust an allocation based upon the MPAA viewership-based
methodology.
First, Dr. Gray acknowledged that the IPG Methodology was an
``approximation'' of Dr. Gray's own methodology, albeit a ``crude
approximation.'' Gray WRT at 4 (emphasis added).
Second, as noted supra, Dr. Gray acknowledged that even his own
regression analysis showed a strong correlation between the time of day
when a program aired and the level of viewership of the distantly
retransmitted programs. This correlation generally affirms that IPG's
Time Period Weight Factor is not irrational, even though IPG's emphasis
on that factor, and its failure to acknowledge the much greater
importance of per-program viewership, is unreasonable.
Third, IPG's argument that lower-rated shows might enhance
subscriber fees or levels more than higher-rated shows is a logical
economic concept. In that regard, the Judges understand IPG's theory to
be an application of the bundling problem in economics, an application
that can be summarized as follows.
--A CSO does not make decisions based upon maximizing viewership, but
rather upon maximizing subscriber revenues (assuming costs are
constant) or by maximizing subscriber volume (if maximizing market
share is more important than maximizing profits at any given point in
time).
--A CSO maximizes subscriber revenue or volume by creating a mix of
program types (even within a given Phase I category).
--The CSO's maximizing mix of program types is not (merely) a function
of total viewership.
--Rather, the CSO will bundle different programs in order to obtain
additional new (i.e., marginal) subscribers.
--These new subscribers may be attracted to programs at viewership
levels that are lower than the viewership levels of other shows
available for licensing, but the latter shows may simply have more of
the same viewers who have already subscribed based upon the other shows
in the CSO lineup.\61\
---------------------------------------------------------------------------
\61\ At the hearing, the Judges offered the fanciful example
that an instructional show with low viewership might be more
valuable to a CSO, on the margin, than reruns of ``Bewitched'' with
higher viewership, if the ``Bewitched'' viewers were merely
redundant of, or displacing, viewers of another similar show, e.g.,
``I Dream of Jeannie,'' which was already part of that CSO's
offering. 6/4/13 Tr. at 551-53.
---------------------------------------------------------------------------
--Therefore, assessing the relative market value of retransmitted
programs on the basis of relative viewership alone is an imperfect
measurement because viewership does not explicitly account for the
CSO's incentive to bundle programs in a manner designed to maximize
subscriber fees (profits) or levels (market share).
When bundling is considered, the economic analysis shifts from the
relatively straightforward profit maximization analysis advanced by
MPAA (using viewership as a measure of value) to a more nuanced
valuation assessment. In essence, the hypothetical CSO whose buying
decisions we must consider would create an ersatz station by bundling
programs in a combination that would maximize its expected revenues or
volumes (with all other costs assumed constant). As previously
explained, an attempt to maximize profits would result in the purchase
of program licenses at a fee (the marginal cost of the program input)
up to the anticipated MRP from that program in a competitive market.
So stated, IPG's argument is rational in theory. However, as both
Dr. Gray and Dr. Robinson testified, such a concept would require a
much more detailed economic and game theoretic model of CSO programming
than was presented by IPG in this proceeding.\62\ Further, such an
argument would require evidence and testimony from someone with actual
knowledge of CSO programming decisions and strategies pertaining to the
bundling of programs. See supra note 28. In these two regards, (an
undeveloped theory and the absence of factual support) the Judges
cannot adopt the IPG Methodology.
---------------------------------------------------------------------------
\62\ There is a wealth of economic literature analyzing the
economics of bundling, i.e., the impact of the offering for joint
sale or purchase two or more products or services. See generally B.
Kobayashi, Does Economics Provide a Reliable Guide to Regulating
Commodity Bundling by Firms? A Survey on the Economic Literature on
Bundling, 1 J. of Competition L. & Econ. 707 (Dec. 2005). For
example, bundling is utilized by sellers who possess market power as
a means of ``price discrimination,'' by tying two products with
different elasticities of demand together in order to convert the
``consumer surplus'' which would exist in the absence of a tying or
bundling, into higher profits for the seller. See G. Stigler, U.S.
v. Loew's Inc.: A Note on Block Booking, 1963 Sup. Ct. Rev. 152
(1964). Thus, a rational bundling CSO with market power would not
simply seek to acquire a copyright license to a program that, in
isolation, would add more subscriber fees, but rather would
determine which combination of programs extracted the most profits,
based upon the relative inelasticity of demand for popular shows. To
cite another issue created by bundling, the program owner (with
monopolistic power over its own relatively more valuable program)
might hold out for a license royalty that appropriated for itself
the profits from bundling, thus frustrating the CSO's attempt to
price discriminate by assembling a roster of shows which would
create the profit-maximizing bundle. This is a variant of the
classic and indeterminate problem of price-setting between a
monopolist and a monopsonist, as to which the game theoretic
principles referred to by Dr. Robinson would be applicable. These
are the types of issues which the IPG Methodology simply does not
address.
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(5) Conclusion Regarding the IPG Methodology
For the foregoing reasons, the Judges conclude that the IPG
Methodology cannot be applied to establish the basis for an allocation
of the royalties in the Program Suppliers category. However, given the
few generally correct principles, noted above, within the IPG
Methodology, and given certain imperfections in the MPAA Methodology,
the Judges conclude that the allocations otherwise established by a
strict application of the MPAA Methodology should be adjusted downward
marginally.
c. Allocations Within the Program Suppliers Category
The Judges conclude that the MPAA Methodology should be accorded
substantial weight in establishing the zone of reasonableness for the
allocations in the Program Suppliers category. By contrast, in light of
the Judges' conclusion that the IPG Methodology is seriously deficient,
the IPG methodology cannot be used in establishing the parameters of
the zone of reasonableness for the allocation of royalties in the
Program Suppliers category.
[[Page 65003]]
The Judges conclude that the ``zone of reasonableness'' in the
Program Suppliers category in this proceeding corresponds with the
range established by the 95% confidence interval that Dr. Gray computed
for MPAA's proposed distribution allocation. See supra note 45; Gray
WRT at 26 n.25. In light of the noted defects in the MPAA Methodology,
and given the few generally correct principles identified by IPG as
noted above, the Judges conclude that the distribution levels should be
set at the lower bound (``lower'' in terms of percent of distributions
awarded to MPAA) of Dr. Gray's confidence interval (and, therefore, the
lower bound of the ``zone of reasonableness'').
Accordingly, the Judges establish the following annual distribution
levels, finding them to be within the zone of reasonableness:
Allocation in the Program Suppliers Category
----------------------------------------------------------------------------------------------------------------
2000 (percent) 2001 (percent) 2002 (percent) 2003 (percent)
----------------------------------------------------------------------------------------------------------------
MPAA............................................ 98.84 99.69 99.64 99.77
IPG............................................. 1.16 0.31 0.36 0.23
----------------------------------------------------------------------------------------------------------------
2. Devotional Category
a. The IPG Methodology
IPG proposes the identical formula for the Devotional allocations
as it proposed for the Program Suppliers category. Specifically, IPG
applies a methodology that considers: (1) The station(s) on which a
devotional program appeared, thereby providing the number of
subscribers receiving the distantly retransmitted station and the fees
paid by those subscribers (the Station Weight Factor); (2) the time of
day during which each devotional program was broadcast (the Time Period
Weight Factor); and (3) the length of each devotional program. These
factors are then multiplied and aggregated for IPG and MPAA programs.
IPG then uses those aggregate program values to determine the relative
value as between the IPG-claimed Devotional Programs and the SDC-
claimed Devotional Programs.\63\
---------------------------------------------------------------------------
\63\ As in the Program Suppliers category, IPG computes three
alternative Station Weight Factors: A pure subscriber-level factor,
a pure fee-based factor and an average of the two.
---------------------------------------------------------------------------
IPG's formula produced absurd results in the Devotional category,
as it did in the Program Suppliers category. The Judges note Dr.
Brown's Amended Written Rebuttal Testimony, in which he explained how,
for example, in the Devotional category, application of the IPG
Methodology bizarrely: (1) Would cause a program with 167% of a
competing program's national rating to receive less than 30% of the
value assigned to that competing program; and (2) would allow programs
comprising 0.119% of the entire Devotional category to receive more
than 18% of all Devotional category revenue simply because that 0.119%
of the programs were broadcast on WGNA, which was retransmitted to a
disproportionately high number of subscribers. Brown WRT (Amended) at
10-13.
More generally, in the discussion regarding the Program Suppliers
distributions, the Judges have explained in detail the deficiencies in
the IPG Methodology, and the few positive attributes arising from--to
use Dr. Gray's language--the ``crude approximation'' of relative market
value created by the IPG Methodology. The Judges adopt in this
Devotional category analysis those prior statements regarding the
attributes of the IPG Methodology.\64\
---------------------------------------------------------------------------
\64\ IPG also asks the Judges to order the SDC to reimburse IPG
for costs it incurred to develop data also relied upon by the SDC.
IPG PFF (Devotional) at 22. However, IPG did not file a motion
seeking such reimbursement, and the Judges are not aware of any
statutory or regulatory authority pursuant to which such costs can
be shifted in this proceeding.
---------------------------------------------------------------------------
b. The (Proffered) SDC Methodology
The SDC explicitly requests that, in the Devotional category, the
Judges adopt the MPAA Methodology to establish relative market value.
Indeed, the SDC claims to have relied upon, inter alia, the non-random
Kessler Sample of stations, as well as the Nielsen Diary Data
originally provided to MPAA and about which Mr. Lindstrom testified. As
discussed below, the Judges have declined to rely on the results of the
application of the SDC Methodology because the SDC offered evidence of
the application of its methodology in an untimely manner, in
contravention of the Judges' procedural rules. Therefore, the Judges
cannot use the SDC Methodology to determine the allocation of the Phase
II share of royalties in the Devotional category.
The SDC's direct case consisted of the written and oral testimony
of Dr. William Brown and the written testimony of Mr. Michael Little,
which was admitted pursuant to stipulation of the SDC and IPG.
Stipulation Regarding Testimony of Michael D. Little (May 31,
2013).\65\ Mr. Little's testimony describes the diversity of the SDC
programming. Little WDT at 1-4. He identifies 23 SDC-represented
claimants and their respective programs during the years 2000-2003. See
Little WDT at Ex. 2.
---------------------------------------------------------------------------
\65\ The Judges excluded Exhibit 3 to Mr. Little's testimony for
reasons discussed supra. See text accompanying note 14.
---------------------------------------------------------------------------
The heart of the SDC's case rests on Dr. Brown's testimony. Dr.
Brown, a Professor and Research Fellow at the School of Communication
and the Arts at Regent University in Virginia Beach, Virginia, served
as the SDC's expert witness in the field of communication theory and
research. See 6/6/13 Tr. at 1371 (Brown). In his direct testimony, Dr.
Brown asserted that ratings are a ``valuable tool'' in determining
Phase II allocations. Brown WDT at 4. He described how
Nielsen compiled data on an overnight basis using a scientific
sample of several thousand households electronically metered to
monitor TV viewing, and during sweeps periods (pre-selected, 4-week
cycles) using tens of thousands of diaries of households that keep
records of TV viewing activities.
Id. Consequently, Dr. Brown opined, that ``[t]he most useful
quantifiable data is Nielsen viewing data, projected to distant
households.'' \66\ Id. at 5.
---------------------------------------------------------------------------
\66\ Dr. Brown also proposed that the Nielsen data be
``supplemented, where applicable, with Bortz [Survey] study data.''
Brown WDT at 5. However, in his Amended Written Rebuttal Testimony,
Dr. Brown testified: ``I conclude that the Bortz survey data cannot
be used to supplement the MPAA/Nielsen viewing data to determine the
comparative value of programs within the single genre of devotional
programming.'' Brown WRT (Amended) at 16.
---------------------------------------------------------------------------
At no time during the direct phase of its case did the SDC offer
any testimony, written or oral, specifically setting forth the
application of the MPAA methodology to Devotional Programming. Rather,
the SDC attempted to introduce such evidence during the rebuttal phase
of its case by proffering the written and oral testimony of Mr. Alan G.
Whitt, the
[[Page 65004]]
founder and principal of IT Processing, Inc. The purpose of Mr. Whitt's
testimony was to provide the underlying data upon which Dr. Brown would
rely to form his opinion as to the proper distribution of royalties for
the Devotional category for the years 2000 through 2003. Specifically,
Mr. Whitt gathered: (1) The Kessler non-random sample of stations; (2)
the Nielsen data prepared on behalf of MPAA; (3) the Tribune Media
Services database of programs that aired during the relevant calendar
years; and (4) the MPAA ``Reports of Household Viewing Hours for the
MPAA Copyright Royalty Databases'' for 2000-2003. He then identified
programs as ``Devotional'' or, synonymously, ``Religious.'' Whitt WRT
at 3-8. In his rebuttal testimony, Dr. Brown explained how he used Mr.
---------------------------------------------------------------------------
Whitt's work to arrive at the SDC's proper distribution:
Nielsen's quarter hour results were * * * transmitted to Mr.
Whitt * * *. Mr. Whitt received the data and, utilizing
sophisticated software programming and the data from Tribune Media
Services (TV DATA) of programs telecast in 2000-2003, [Mr. Whitt]
determined the programs to which the viewing information was
attributed. * * * Mr. Whitt organized programming data for entities
he identified as religious or devotional.
Brown WRT (Amended) at 14-15 (emphasis added).
The Judges excluded Mr. Whitt's testimony on the basis that the SDC
was required by the Judges' regulations to provide Mr. Whitt's
testimony in its direct case. See 37 CFR 351.4(b)(1), (c)(contents of
and amendment of Written Direct Statements) and Sec.
351.10(e)(introduction of studies and analyses); 6/6/13 Tr. at 1352-53,
1361-62 (to the extent Whitt's testimony provided foundation for Dr.
Brown's testimony, it ``needed to be included in the direct case of
SDC.'').
By failing to provide Mr. Whitt's testimony until its rebuttal
case, a mere three weeks before the hearing, the SDC prejudiced IPG
and, in essence, engaged in trial by ambush, in violation of the letter
and spirit of the Judges' procedural rules. More specifically, by not
including Mr. Whitt's testimony in its direct case, the SDC deprived
IPG of the opportunity to review the work undertaken by Mr. Whitt.
Although Dr. Brown, in his Written Direct Testimony, indicated that the
SDC intended to utilize the MPAA Methodology,\67\ the SDC's application
of that methodology by Mr. Whitt was not properly disclosed in the
SDC's direct case. Consequently, the Judges cannot consider the
application of the SDC Methodology in their determination of the Phase
II distribution to the Devotional category.
---------------------------------------------------------------------------
\67\ One important difference, though, was that the MPAA did not
rely on the non-random Kessler Sample of stations and took steps to
mitigate its impact; the SDC simply utilized the Kessler Sample.
---------------------------------------------------------------------------
c. Allocations in the Devotional Category
In light of the foregoing, the Judges are faced with a Hobson's
Choice. The SDC has failed to introduce evidence of its distribution
methodology in a timely manner. IPG has set forth a methodology that
suffers from a number of flaws and which has validity only in certain
limited respects, as explained above. The Judges are, nevertheless,
obligated to reach a determination based on the existing record. Given
the evidentiary constraints, and in order to allocate the royalties in
the Devotional category in a manner within the ``zone of
reasonableness,'' the Judges hereby conclude as follows.
IPG's proposed allocations, and the SDC's proffered allocations
(unsubstantiated in the SDC's direct case) are as follows.
Proposed Allocations in the Devotional Category
----------------------------------------------------------------------------------------------------------------
SDC proposed
allocation IPG proposed
Year Party range allocation
(percent) (percent)
----------------------------------------------------------------------------------------------------------------
2000......................................... SDC.............................. 60.8-74.5 62.86
IPG.............................. 25.5-39.1 37.14
2001......................................... SDC.............................. 72.7-77.0 54.88
IPG.............................. 23.0-27.3 45.12
2002......................................... SDC.............................. 61.9-67.5 58.98
IPG.............................. 32.5-38.1 41.02
2003......................................... SDC.............................. 67.5-70.5 53.32
IPG.............................. 29.5-32.5 46.68
----------------------------------------------------------------------------------------------------------------
For the year 2000, the Judges note that the IPG proposal falls
within the range the SDC had proposed. There is, therefore, some degree
of agreement between the parties as to the appropriate allocation.
Accordingly, the Judges find it well within the ``zone of
reasonableness'' to allocate 62.86% of the royalties in the Devotional
category to SDC and the remaining 37.14% to IPG.
For the year 2002 (the years 2001 and 2003 will be considered
below), a very similar (but not identical) situation exists. The IPG
proposal is almost equal to the lower bound of the results of the SDC's
proffered distribution range. Given this near equality, the Judges find
that for the year 2002, again there is some degree of agreement between
the parties as to the allocation of royalties. It is well within the
``zone of reasonableness'' to allocate the royalties in the Devotional
category for the year 2002 as follows: 58.98% to SDC and 41.02% to IPG.
For the years 2001 and 2003, there is a marked difference between
the percentage allocations proposed by IPG and the percentage
allocations set forth in the SDC's proffered allocations
(unsubstantiated in the SDC's direct case), and, therefore, little
agreement between the parties. Given the wide divergence between the
competing methodologies, the Judges cannot reconcile the competing
proposals in the same manner as undertaken for the years 2000 and 2002.
Given that the SDC's application of its methodology was not
supported in the SDC's Direct Case, and that the SDC's attempt to
provide such support in Mr. Whitt's rebuttal testimony was not timely
presented and, therefore, rejected, that methodology cannot serve as
any guide-post for the Judges to apply (except, as noted above, to the
extent that the allocations proposed by the SDC demonstrate some degree
of agreement between the parties). Moreover, since the SDC Methodology
cannot be credited, there is no record evidence explaining why the
percentage
[[Page 65005]]
allocations for 2001 and 2003 should be so markedly different in those
years compared to 2000 and 2002.
The IPG Methodology, while in evidence, is so flawed that the
Judges cannot credit the percentage allocations as proposed. Indeed, in
prior determinations, the CRT did not hesitate to make a ``downward
adjustment'' to a participant's proposal to reflect ``perceived
deficiencies in the methodology.'' See, e.g., 1979 Determination, 47 FR
at 9892.
Accordingly, the Judges conclude that the percentage allocations
for the years 2001 and 2003 should be set at the average of the
allocations for the years 2000 and 2002. Therefore, the allocations for
each of the years 2001 and 2003 shall be 60.92% to SDC and 39.08% to
IPG. To summarize, the royalty allocations in the Devotional category
for the years 2000 through 2003 shall be:
Allocation in the Devotional Category
----------------------------------------------------------------------------------------------------------------
2000 (percent) 2001 (percent) 2002 (percent) 2003 (percent)
----------------------------------------------------------------------------------------------------------------
SDC............................................. 62.86 60.92 58.98 60.92
IPG............................................. 37.14 39.08 41.02 39.08
----------------------------------------------------------------------------------------------------------------
V. Conclusion
This Final Determination determines the allocation of cable royalty
funds for the years 2000, 2001, 2002, and 2003 in the Program Suppliers
and Devotional categories, respectively. The Register of Copyrights may
review the Judges' final determination for legal error in resolving a
material issue of substantive copyright law. The Librarian shall cause
the Judges' final determination, and any correction thereto by the
Register, to be published in the Federal Register no later than the
conclusion of the 60-day review period.
So ordered.
Dated: August 13, 2013.
Suzanne M. Barnett,
Chief Copyright Royalty Judge.
Jesse M. Feder,
Copyright Royalty Judge.
David R. Strickler,
Copyright Royalty Judge.
Dated: August 13, 2013.
Suzanne M. Barnett,
Chief Copyright Royalty Judge.
Approved by:
James H. Billington,
Librarian of Congress.
Appendix A
The Judges ruled as follows.
Claims Dismissed at Show Cause Hearing
--------------------------------------------------------------------------------------------------------------------------------------------------------
Claim Year
Claimant ---------------------------------------------------------------------------------------------- Rationale
2000 2001 2002 2003
--------------------------------------------------------------------------------------------------------------------------------------------------------
Dreamworks LLC..................... Dismissed............. ...................... ..................... ..................... Claimant terminated
IPG's authority
effective 12/31/02.
Claimant identified
in IPG's petition
that was filed after
claimant terminated
IPG's authority.
MPAA did not include
claimant in its
petition for 2000.
Litton Syndications................ Dismissed............. ...................... ..................... ..................... Claimant terminated
IPG's authority no
later that 5/18/12.
Claimant identified
in IPG's petition
that was filed after
claimaint terminated
IPG's authority.
MPAA did not include
claimant in its
petition for 2000.
Marty Stouffer Productions......... Dismissed............. ...................... ..................... ..................... Claimant alleges
termination of IPG
authority in july
2002. IPG's petition
that includes
claimant was filed
after alleged
termination.
Claimant is not
included in MPAA's
petition for 2000.
[[Page 65006]]
Remodeling Today, Inc. DBA Today's ...................... ...................... Dismissed............ ..................... Claimant terminated
Homeowner. IPG's authority on 3/
1/04. Claimant
identified in IPG's
petition that was
filed after
claimaint terminated
IPG's authority.
MPAA did not include
claimant in its
petition for 2002.
The Television Syndication Company. ...................... ...................... ..................... Dismissed............ Claimant terminated
IPG's authority on 4/
29/04. Claim for
2003 filed after
claimant terminated
IPG's authority; no
valid claim filed.
Urban Latino TV.................... ...................... Dismissed............. ..................... ..................... No claim was filed
for 2000. Claimant
terminated IPG's
authority on 5/28/
03. Claimant
identified in IPG's
petition that was
filed after
claimaint terminated
IPG's authority.
MPAA did not include
claimant in its
petition for 2001.
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[FR Doc. 2013-25453 Filed 10-29-13; 8:45 am]
BILLING CODE 1410-72-P