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Before theCOPYRIGHT OFFICELIBRARY OF CONGRESSWashington, D.C.

In reSection 109 Report to CongressN otice of Inquiry Docket No. 2007-01

REPLY COM MENTS OF DIRECTV, INC.

DIRECTV, Inc. ("DIRECTV") appreciates this opportunity to reply to the initialcomm ents and oral testimony offered in this proceeding.1 O f the many proposals offeredby copyright holders and broadcasters, those seeking to make the Section 119 statutorylicense operate "more like the marketplace" are perhaps the most pernicious. TheCopyright Office has been told that syndicated exclusivity and network nonduplicationshould apply to satellite, royalty rates should go up , and copyright holders shou ld getaudit rights all because these are allegedly "marketplace" terms and conditions.

But they are not marketplace terms and conditions. They are terms and conditionsthat one side might seek in (hypothetical) marketplace negotiations. DIRECTV wouldnot agree to such terms without significant concessions from copyright holders andbroadcasters. And it would object to exclusivity rules in particular bo th because they

would place a do uble burden (exc lusivity rules and "unserved household" restrictions) onsatellite that does not apply to cable, and because D IRECTV cannot implement them on areasonable economic basis.

Sec tion 109 Report to Congress: N otice of Inquiry, 72 Fed. Reg. 19039 (Apr. 16, 2007) ("NOT').


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Imposing these new terms by regulatory fiat would undermine the balance struckby Co ngress in enacting the statutory license for satellite operators. W hen criticizing acable industry proposal to modify its statutory license, the Mo tion Picture Association putit this way:

That's just the way the compulsory license is. It is a package, and it's apackage that is very favorable for [cable] and very unfavorable for us. Ifthey don't like the package, let's get rid of it, the whole thing. But [it] isvery disingenuous for [cable] to com e in and say, pick out one little part ofthat package, and say they're paying too much. It's absurd. 2The broader point holds true for the satellite license. One side's "wish list" cannot be the

basis for disturbing the political compromise embodied in Section 119.

DIR ECTV has consistently argued that the statutory license for satellite deliveryof signals from out-of-m arket broadc ast television stations does not need the legislativeequivalent of major surgery (muc h less euthanasia). 3 Rather, as we put it in ourtestimony, "one o r two aspirin will suffice." 4 That is, Congress should allow satellitecarriers to more easily serve two c lasses of subscribers that may nev er be reache d bylocal signals those outside of the satellite beam on which such signals are provided andthose in smaller markets without a full complement of network broadcast affiliates andwhose re ceipt of distant signals is consistent with the intent of Section 119. But Co ngressshould otherwise leave the distant signal license alone.

2 Hearing: Section 109 of the Satellite Home Viewer Extension and Reauthorization Act of 2004,Testimony of Fritz Attaw ay, Exec. Vice President and Special Policy Advisor, MPA A, Tr. at 358("Hearing").

3 Comments of DIRECTV, Inc. ("DIRECTV Comments"). Unless indicated otherwise, all commentsreferenced in these Reply Comm ents were filed on July 2, 2007.4 Hearing, Testimony of M ichael Nilsson, Partner, Harris, Wiltshire & Grannis LL P on behalf ofDIREC TV, Inc., Tr. at 110.

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Copyright holders and broadcasters, however, have other ideas. The most radicalof these is to eliminate the distant signal license altogether. 5 DIRECTV believes theme rits of this idea, such as they are, have been fully addressed in our earlier com men tsand those of many others. 6 There is no serious prospect that private negotiations couldreplace the distant signal license in any reasonable timeframe . 7 As DIRECTV and manyothers have pointed out, unless Congress is prepared to rob thousands upon thousands ofsatellite subscribers of their only source of netwo rk program ming, elimination of thedistant signal license is an idea that no po licy-maker should take seriously.

Perhaps sensing this, copyright holders also offer another set of p roposals basedon the assum ption that Congre ss will renew the distant signal license. If the statutory

5 See, e.g., NAB Comments at 54-55.6 See, e.g., NPS Co mments at 2; EchoStar Com ments at 6; Devotional Claimants Comments at 2; PublicTelevision Coalition Comm ents at 2.

S ee DIRE CTV C omm ents at 6-7 n.16 (arguing that eliminating the statutory license would result in adistant signal market cha racterized by a number of transaction costs and m arket failures, includingmisaligned incentives of copyright owners affiliated with broadcasters, market ho ldouts, coordinationproblems in establishing bargaining collectives, inability of MVPD s to know in advan ce whichcopyrighted wo rks will be displayed on broadca st signals, and substantial social costs resulting fromshutdowns attributable to failures to reach agreements with copyright owners). One copyright holderhas suggested that network -station affiliation agreements already provide copyright clearance for cableand satellite retransmission. See Hearing, Testimony of Preston Padden, Exec. Vice President,Worldwide Government Relations, The Walt Disney Co., Tr. at 354-55 ("I think what is referred to inthe business as the better view is that the contracts w e have to exhibit a program on the ABC televisionnetwork include the right through to the cable or satellite viewer.") DIRECTV has always understoodthis not to be so in the vast majority of cases. See U.S. Copyright Office, Register of Copyrights, 1965Supplem entary R eport of the Register of Copy rights at 42-43, quoted in U.S. Copyright Office,Register of Copyrights, T he Cable and Satellite Carrier Com pulsory L icenses: An O verv iew andA nalysis at 8 (Ma rch 1992) ("A particularly strong point [against finding copyright liability for cableoperators' broadc ast retransmissions] is the obvious difficulty, under present arrangements, ofobtaining advance clearanc e for all of the copyrighted material contained in a broadcast. Thisrepresents a real problem that cannot be brushed under the rug, and it behooves the copyright ownersto com e forward w ith practical suggestions for solving it."); U.S. Copyright Office, Register ofCopyrights, A Rev iew of the Copyright Licensing Regimes Cov ering Retransm ission of BroadcastSignals at 16-17 (Aug. 1997), available at www.copyright.gov/reports (discussing transaction costs ofclearing co pyright).

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license cannot be eliminated, they argue, it should be made to op erate more like amarketplace negotiation. 8 Thus, according to copyright holders and broadcasters:

The syndicated ex clusivity and netwo rk nondu plication rules should apply tosatellite because they "wo rk[] well in the marketplace." 9

Royalty rates should go up, because satellite carriers (the story goes) already paymore for certain affiliation agreements.10 Copyright holders should get audit rights because [a]udit rights are a standardcomponent of free m arketplace license agreements."1

These are not, how ever, really proposals to make the statutory license function like amark etplace nego tiation. They are instead calls for the government to grant copyrightholders and broadcasters terms and conditions that they might seek in a marketplacenegotiation. Satellite carriers, just like c opyright holders and broadcasters, have theirown ideas for m ore favorable term s and conditions that could be included in the statutorylicense. But this alone cannot serve as a basis for disturbing the compromise that isSection 119.

There should be no doubt that the copyright holders' and broadcasters' proposals application of exclusivity rules, higher royalty fees, and audit rights represent drasticchanges to the status quo. If (against all reasonable expectation) there were a truemarketplace negotiation for satellite carriage of network and syndicated programming toout-of-market subscribers, copyright holders and broadcasters would never be able to

8See, e.g., Written Testimony of Preston R. Padden, Exec. Vice President, Worldwide GovernmentRelations, The Walt Disney Co., at 2.9 NAB Comments at 27.1 0 Joint Sports Claimants Comments at 5-9 n.4.11Id t 10.

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obtain any of the terms and co nditions they seek in this procee ding without substantialcompromises of their own. 12

Copyright holders and broadcasters might, for exam ple, seek to apply thesyndicated exclusivity and network nonduplication rules to satellite. But DIRECTVwould objec t to such terms for two reaso ns. First, any such proposal would disadvantageDIRECTV against its cable competitors. Today, cable operators are subject to syndicatedexclusivity and netwo rk nond uplication restrictions, while satellite operato rs generallyare not. But satellite operators are subject to the "unse rved hou sehold" restriction, while

cable opera tors are not. This state of affairs results in a rough parity betwe en satellite andcable (although DIRECTV suspects cable operators can deliver distant signals to moresubscribers than can satellite). Broadcasters and cop yright holders, howeve r, wantDIRECTV to be subject to both the unserved household restriction and the exclusivityrules. Cable would remain subject only to the latter. As a matter of principle andpracticality, DIRECTV would not welcome such a proposal in a marketplace negotiation.

Second, compliance with syndicated exclusivity and network nonduplicationwould represent an extraordinary hardship for DIRECTV from a practical standpoint. Atypical cable operator carries only a dozen or so broadcast stations perhaps two or threeof which are distant signals to which the exclusivity rules might apply. In such

12In a true marketplace negotiation, for example, DIRECTV would seek terms with respect to exclusivitythat would look ve ry different from the regime sough t by broadcasters and co pyright holders. It might,for example, seek rights from the networks to provide netw ork feeds directly to the smallest markets,rather than retransm itting dozens of duplicative, sparsely-viewed local broadca st stations. It is possiblethat such an arrangement would be more valuable to DIRECTV than exclusive territorial carriagerights are to small-market broadcasters. However, there is no way to know how such a negotiationwould turn out and no basis to award one side its desired outcome without comp ensating the otherside in a commensurate manner. Likewise, a true marketplace negotiation might not produce termsequivalent to today's must-carry rules. Certainly, DIRECTV would seek compensation for the burdenof carrying the lowest-rated stations.

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circumstances, it is relatively easy to determine which programming must be blackedout. 13

Not so for D IRECTV, which carries around 1200 local stations (each of whichcan reque st blackouts) and nearly 30 distant stations (each of wh ich would have to beblacked out). DIRECTV would thus have to continuously monitor thousands ofdistant/local combinations, reviewing thousands of program guide entries for each day foreach market and adjusting blackouts accordingly. DIRECTV has no systems in place tohandle such a task, and does not know whether the process could be automated (nor, if it

can, how much it would cost to do so). Nor does it know whether it would be possible toadjust blackouts among tho usands of stations to account for change s to a station'sschedule (preemptions, emergencies, long sports events, etc.). For DIREC TV, attemptingto comply with the syndicated exclusivity and network nonduplication rules throughoutthe country would be a nightmare a task far more co mplicated than, for example, thenormal operations of DIRECTV's conditional access system cited by the broadcasters. 14

In a (hypothetical) marketplace negotiation, copyright holders and broadcastersmight also ask for higher royalty rates than are paid today, and might argue that they getsuch rates in some affiliation agreements. DIRECTV would respond that it often payslower rates in similar agreements. 15 More importantly, DIRECTV would point out that,

1 3 Since, by definition, the cable operator already offers the subscriber the programming in question fromthe local station, the consequences to the subscriber of such blacko uts are not very severe. Blacked -outdistant signal programming is, essentially, replacemen t programm ing for cable operato rs. This is notthe case for DIRECTV subscribers in markets where DIRECTV does not yet offer local signals. Suchsubscribers would lose all satellite access to blacked-out program ming.14 S ee NAB Com ments at 29.15 See Hearing, Testimony of E ric Sahl, Senior Vice President of Programming, Echo Star, Tr. at 172. ("Ican tell you [Section 119 roya lty] rates are very much higher than the fair market value rate, if youdefine fair market value as me tak ing the hundreds of retransmission [consent] agreem ents I havetoday and what we pay.").

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in those other agreements, it receives distribution rights "in the clear" that is, it candistribute the programm ing in question to all U.S. subscribers or, in the case of loc albroadcast retransm issions, to all subscribers within a particular local marke t. DIREC TVwould never pay the same p rice for rights to distribute programm ing to only a limitednumber of subscribers e ach of whom must undergo a com plicated and expensivequalification process.

Likewise for audit rights. In a true "marketplace" negotiation, DIRECTV mightaccede to audit rights, but only if it got something in return. Perhap s it might seek

eligibility determinations based on zip code s, rather than outdated predictive mode ls andcomplicated tests. Or it might seek expanded rights to provide high-definitionprogramming in markets where it does not yet offer local digital signals. Or it could askfor rights to provide service to boats along the lines of RV service today. But it wouldnot agree to audit rights merely because copyright holders and broadcasters asked forthem.

*DIRECTV is no t asking the Copyright Office to recom mend implementation ofits wish list with respect to eligibility, testing, high de finition signals and the like. By thesame token, copyright holders and broadcasters should not ask the Copyright Office torecommend imposing burdensome and unfair exclusivity rules, raising rates, and addingaudit rights. The Section 1 19 distant signal license is a political comprom ise one thathas by and large worked well for both sides. Congress should not modify thatcomp romise for the benefit of one side only.

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Respectfully submitted,

Susan Eidilliam M. WiltshireSenior Vice President, Government Affairs Michael NilssonStacy R. FullerARRIS, WILTSHIRE & GRANNIS LLPVice President, Regulatory A ffairs200 Eighteenth Street, NWDIRECTV, INC.ashington, DC 20036444 N orth Capitol Street, NW, Suite 728202) 730-1300Washington, DC 20001(202) 715-2330ounsel for DIRECT V , Inc.October 1, 2007

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