Hearing of the House Judiciary Committee - Copyright Licensing in a Digital Age

HEARING OF THE HOUSE JUDICIARY COMMITTEE

SUBJECT: COPYRIGHT LICENSING IN A DIGITAL AGE

CHAIRED BY: REP. JOHN CONYERS (D-MI)

WITNESSES: MARYBETH PETERS, REGISTER OF COPYRIGHT, U.S. COPYRIGHT OFFICE; FRITZ ATTAWAY, EXECUTIVE VICE PRESIDENT, MPAA; BOB GABRIELLI, SENIOR VICE PRESIDENT, DIRECTV; CHRIS MURRAY, INTERNET AND TELECOMMUNICATIONS COUNSEL, CONSUMERS UNION; KYLE MCSLARROW, PRESIDENT AND CEO, NCTA; DAVID PEHR, PRESIDENT AND CEO, NAB

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REP. CONYERS: Good morning. The committee will come to order.

The purpose of our hearing today is to assess the Satellite Extension and Reauthorization Act and to consider what direction we're going in.

We're delighted to have the chairman of a subcommittee -- chairman of the Energy and Commerce Committee -- who is on Judiciary Committee as well, Rick Boucher, who had hearings on this same subject yesterday. And I'm going to ask him, after Howard -- or after Lamar Smith makes some comments, to review with us and make any additional statements that he might.

We're indebted to Stacey Dansky and David Whitney who for the first time put out a single document describing the issues and challenges that are involved in this satellite extension provision. And we are reminded that David Whitney was the person when Chairman Coble was the head of the committee on this same subject had done so much work on it, and we're -- we're delighted that our staffs are working together so -- so well.

I merely want to indicate that we're all sensitive to the importance of this particular form of communication in our society -- primary source of information for the government, local events, weather, political considerations, emergencies -- and so we're trying to determine how we sort out from a group of -- of laws on copyright that have been inactive over a period of time where some of them didn't anticipate the other, some are obsolete, some are overlapping, some are something else, and -- and what I'm suggesting, members of the committee, is that this is a quite long-range proposition that's going to be before us.

True enough we're talking about the -- the satellite extension, but it's -- it's hard not to involve some of the other issues that are before us. As you know, the Title 17 contains the Copyright Act. Section 122 licenses satellite, Section 111, bless its heart, cable, and -- boy -- and then, of course, we come to the one that's expiring, 119. And so I -- I am so happy that we have the six people that are with us.

And it seems to me that what we're doing and thinking here is strikingly different from 1976, when the cable license was enacted, and 1988, the first satellite license. Competition has grown between cable and satellite providers, there are a greater range of options for consumers. And so some of the same rationale that we likely agreed on 30 years ago are not as relevant now. And it's in that spirit that I've been talking to Lamar Smith and Jim Sensenbrenner and Rick Boucher about strategies that we may employ that would get everybody deeper into the real challenges that -- that are before us.

So we're -- we're looking and listening today for some of the varying ideas which are already all over the map to -- for us to begin to turn around and pull together. So it -- it's in that spirit that we open this discussion, and I'm going to put the rest of my statement in the record and recognize the ranking member, the gentleman from Texas, Lamar Smith.

REP. LAMAR SMITH (R-TX): Thank you, Mr. Chairman, and I certainly agree with you on the need to study this issue.

Fortunately, the license doesn't expire until the end of the year, and as you and I discussed a few minutes ago, that gives us ample time to educate ourselves a little bit more and make sure that we have a -- study all the issues that you've mentioned and -- and come to a good conclusion in plenty of time before the end of the year. So the informal task force that you're -- you have proposed, I think, is a good idea, and I thank you for suggesting that.

Mr. Chairman, one thing we can all agree on, for better or for worse, is that Americans care passionately about their TV. Today, consumers want to have more, rather than fewer, options for determining how, when, and what programs to watch. A recent example of this was reported just last week in Joplin, Missouri, where Walter Hoover decided to shoot his TV set after he lost his cable and was unable to get his new digital television converter to work. After a brief standoff with police, Mr. Hoover was apprehended, placed under arrest, and charged with unlawfully discharging a firearm. After his arrest, I suspect Mr. Hoover found his TV choices were even more limited than before. (Laughter.)

Mr. Chairman, I hope when we complete the process of evaluating the compulsory copyright licenses that no one will feel compelled to shoot their TV set -- or anything else, for that matter.

Absent congressional action, several provisions of the distant satellite license in Section 119 of the Copyright Act will expire at the end of 2009. First enacted in 1988, this license was extended for five years when last reauthorized in 2004. This license is one of three that permits cable and satellite providers to retransmit copyrighted broadcast programming to subscribers without negotiating and reaching separate agreements with each affected copyright owner.

Unlike the Section 119 license, the other two licenses, which regulate the retransmission of local broadcast programming via satellite in both local and distant broadcast programming over cable, are permanent. It is due in part to this permanency that these licenses have not undergone a serious review by the committee. Today's hearing presents an excellent opportunity to begin a comprehensive examination of the policies embodied in these licenses and the challenges of adapting these laws to the emergence of new technologies and new competition.

The starting point for our analysis is the Copyright Office's Section 119 report which stated, quote, "The current versions of Section 111 and Section 119 are arcane, antiquated, complicated and dysfunctional." The office recommended Congress adopt a new forward- looking unified statutory license with a view towards encouraging the development of free market alternatives to compulsory licensing. This hearing is an important first step to educate ourselves on what steps Congress ought to contemplate addressing this year and what steps, though desirable, may take a little longer to achieve.

Mr. Chairman, thank you for having this hearing, and I'll yield back the balance of my time.

REP. CONYERS: Rick Boucher's been working on this subject and related ones from a very unique vantage point by being on Energy and Commerce and now being subcommittee chairman of the -- that part of the committee that -- that is involved with us in these considerations. We consider it a privilege to -- to have him working with us now, and I'd yield him as much time as he needs.

REP. RICK BOUCHER (D-VA): Well, Mr. Chairman, thank you very much for recognizing me this morning, and I also want to commend you for organizing what I think is a very timely hearing on the reauthorization of the Satellite Home Viewer Act.

The legislation expires at the end of this year, and if it is not reauthorized within the course of this year by a new statute passing, then the Section 119 license, which enables the importation of distant network signals into households that cannot get local television signals out over the air from a local TV station, would also expire. And that expiration would operate to the disadvantage of hundreds of thousands of viewers across the country, mostly in rural areas, who would be adversely affected by it. So I appreciate your very timely scheduling of the hearing this morning.

As you've indicated, the jurisdiction over this matter is shared between the House Judiciary Committee and the House Committee on Energy and Commerce, and we began our process yesterday by having our first hearing on the reauthorization of the act. And some of the same witnesses who are with us this morning and many of the same organizations were represented at our hearing yesterday. And I'm sure many of the issues we explore today will be somewhat similar to the conversation we had in the Commerce Committee yesterday.

It is my hope, Mr. Chairman, that working with you and Mr. Smith and our excellent staff here on the House Judiciary Committee, Stacey Dansky and David Whitney -- and we're very fortunate to have their expertise -- that we can agree through our conversations and our work together on a coordinated text. And then a common text perhaps at the proper time could be introduced by both of us, and then we could proceed very quickly to process that agreed upon legislation through both of our committees. I hope that process can work, and -- and from our vantage point on the Commerce Committee, we would be fully committed to doing that. And I want to say thank you to you and Mr. Smith and your very excellent staffs for the outstanding cooperation you've provided so far to me and to my staff as we have undertaken our preliminary conversations.

I thought I would take just a moment this morning to highlight a couple of the key issues that surfaced during the course of our hearing yesterday. These are matters that members of our committee had expressed particular interest in, and I know this -- these issues will be the focus of our ongoing considerations. Our focus necessarily is more on the communications aspect of the law, and the focus here will be somewhat more directed toward the copyright aspects of the legislation, and I'll just indicate two key areas of conversation that we had yesterday suggesting that our principal debate is likely to be on these subjects.

The first of these is a measure that has been separately introduced by our colleague, Mr. Stupak from Michigan, that would require that local-into-local television service be delivered in all of the 210 television markets across the United States. Today, there are about 30 of those markets that do not have local-into-local service delivered through the Section 119 copyright license.

That license is now 10 years old. Technology has improved. Spot beams are now in much more common usage, and that allows for a far more efficient use of the satellite spectrum. And so many are saying, including those who represent these 30 rural markets, that the time has come for the satellite carriers to offer those markets through the local-into-local service also.

Many of those are very rural, they're mountainous, and the viewers in that area cannot get a local television signal over the air because it's blocked by the mountains or because of distance from the station, and that means that in the absence of local-into-local service delivered by satellite that those viewers simply do not have access to local television service at all and the kind of emergency information about natural disasters that typically comes from the local TV station. And so many are saying the time has come to add that feature to the law and make sure that service is available in all of the 210 television markets.

The other key concern that was raised is the circumstances, if any, under which there should be a permission for residents in a given television market to be able to access the local television stations in an adjacent market within that same state. And two circumstances have been highlighted.

The first of these is where the market in which that individual resides does not have a full complement of local affiliates for the major networks. So, for example, a market in which a person resides might have an NBC affiliate, it might have an ABC affiliate, but it might not have the CBS and FOX affiliates. And the argument is that in that kind of situation, rather than have a distant network signal imported from the East Coast or the West Coast in order to complement the network affiliates that are already there and fill in the gap, it might be better to allow the local TV station from the adjacent market in the same state to be accessible by that individual as a gap filler so that the full complement of local network affiliates is made available, the thought being that that provides more relevant information because it's in state news and programming and weather that might be relevant, certainly more so than a distant network signal imported into that market. So we call these short markets, and so the situation would be in short markets to allow the adjacent network signals -- the adjacent local stations to be uplinked to fill the gap.

The other situation that was raised is markets that straddle state lines, and in many of these instances, you have viewers in one state receiving television service that originates in another state, and under the existing law, they're therefore restricted in terms of local-into-local delivery to out-of-state television programming, and that means the local news is more oriented to a state other than the one they live in. And the argument has been raised that in that narrow circumstance, it might also make sense to allow the adjacent market in that person's state of residence and the local signals in that market to be available to that resident so that his local service carries in-state news.

We had a number of more technical issues that were addressed, and I know some of those are on our list for conversation here today, but those two matters are the primary things that -- that we focused on during our hearing yesterday, and I would predict that those would be two matters that would be subject to our debate as -- as this consideration progresses.

Well, Mr. Chairman, you're very kind to recognize me this morning. I do appreciate the promptness with which the House Judiciary Committee is beginning to examine this subject, and I look forward to close cooperation with you, Mr. Smith, and-- and your staffs as we undertake this exercise with the hope that we can agree on a uniform text that you and I at the proper time can then process together.

Thank you, Mr. Chairman. I yield back.

REP. CONYERS: Thank you, Rick Boucher, subcommittee chair. And we will be depending on your long work in this area.

Bob Goodlatte has asked to express an opinion. I recognize him at this point.

REP. BOB GOODLATTE (R-VA): Thank you, Mr. Chairman. I very much appreciate your holding this hearing, and I look forward to working with you and Ranking Member Smith on this very important legislation.

I, too, was very involved, along with Mr. Boucher, in the creation of the original license that allows satellite providers to retransmit local broadcast stations via satellite back into their local DMAs, and I continue to have a keen interest in ensuring that consumers have access to their local stations and, thus, local news and emergency information. I applaud the effort so far by the satellite providers to get local-into-local service deployed to the vast majority of areas, but I, along with Congressman Boucher, have a keen interest in the rural areas and areas with geographical obstacles to clear broadcast signal transmission.

One topic I am particularly interested in is examining why significantly viewed stations are not more frequently offered by satellite companies, especially in areas where there is not a full complement of local stations. Another important topic we need to address is how the mandatory transition to digital television broadcasting will affect the statutory licenses for retransmitting television signals.

The transition is an exciting time, but, as we have seen, all too often, it is very challenging to enact static laws in the area of technology because of its dynamic and ever-evolving nature. We need to make sure that we are taking the necessary steps to anticipate and address any necessary challenges that the digital transition will bring.

I look forward to hearing from our expert witnesses today on these topics and to hear their ideas for how we can continue to ensure that creators have the incentive to continue producing quality television programming, and that consumers continue to have ready access to that programming.

Thank you, Mr. Chairman.

REP. CONYERS: Thank you very much, Bob.

I'd like to recognize the former chairman of the Intellectual Property Committee, Howard Coble, for any comments he might have before we call our witnesses.

REP. HOWARD COBLE (R-NC): Thank you, Mr. Chairman. I'll be very brief.

I want to thank you and Mr. Smith for having arranged this very significant hearing. And it's real good to see old friends back at the title table.

Thank you, Mr. Chairman.

REP. CONYERS: Oh. You're welcome.

We welcome Mr. Rehr, Mr. McSlarrow, Mr. Murray, Mr. Gabrielli, Mr. Attaway, and I introduce, of course, our continual leadoff witness who's been before us more than anybody else I can remember, Marybeth Peters, the register of copyrights for many years and, before that, the policy planning adviser to the register for over a decade.

Served as acting general counsel to the Copyright Office, and is the author of "The General Guide to the Copyright Act of 1976."

So start us off again on this -- this path we're going to be taking between now and December 31, 2009. Welcome, again, Ms. Peters.

MS. MS. PETERS: Thank you, Mr. Chairman.

Mr. Chairman, Ranking Member Smith, distinguished members of the committee, I appreciate the opportunity to appear before you to testify on our recent comprehensive report to Congress on the cable and satellite statutory licenses found in Sections 111, 119 and 122. Our report and this hearing today are part of an important debate on the continuing viability of these statutory licensing regimes and their relevancy in today's ever-evolving digital marketplace.

Sections 111, 119 and 122, as you've already mentioned, were enacted in 1976, 1988 and 1999, respectively, and they govern the retransmission of distant and local broadcast signals by cable operators and satellite carriers. These provisions cover the public performance of copyrighted works transmitted by broadcast stations licensed by the Federal Communications Commission.

Cable operators under Section 111, satellite carriers under Section 119 pay distant signal royalties to the Copyright Office as a condition of the licenses. Section 122, which permits the retransmission of all those signals by satellite carriers, is a royalty-free license. Sections 111 and 122 are permanent. Section 119, however, is limited to five years, and it expires on December 31 of this year unless you reauthorize it.

We are required to examine the licenses and recommend legislative changes. That was the charge that we got by Congress. We were instructed by you to analyze the differences among the three licenses and consider whether they should be eliminated, changed or maintained with the goal of harmonizing their operation. We released our report to Congress as required on June 30 of 2008.

The main factious findings in our report, which are provided -- which provided the basis for all of our recommendations, are as follows.

One, the distant signal licenses whose foundations were built upon analog broadcast technology cannot readily accommodate digital television; two, changes in the structure, size, program offerings of the cable and satellite industries cast doubt on the continuing need for the distant signal licenses; three, new video distribution systems, such as AT&T's U-verse, test the scope of the Section 111 statutory license; four, the economic rationales for the distant signal licenses are less justifiable in light of the success of marketplace models for video program distribution over the Internet; and, five, statutory royalties for the retransmission of distant broadcast signals are lower than the license fees paid to comparable non-broadcast networks, such as USA and TNT.

We also examined the historical technical and regulatory disparities between Sections 111 and 119. We noted that while communications technology and media marketplaces have evolved and converged, the statutory licenses remained separate and unequal. For example, under Section 119, satellite carriers pay a flat royalty fee on a per-subscriber basis, while under Section 111, cable operators pay royalties based on a complex gross-receipt system tied to the cable system side and based on FCC rules that were repealed 30 years ago.

Satellite carriers are only permitted to market and sell distant signal networks to unserved households, while cable operators are not so restricted and can serve every household with distant signals as long as they pay the required royalties. These and other significant differences affect competition between the cable and satellite industries and the provision of video services, especially in the distant broadcasting context. In fact, the current statutory licensees not only pay copyright owners below market rate, they also create distortions in the delivery of distant broadcast signals.

Our principal recommendation to you is that you should move towards abolishing the Section 111 and 119 licenses. The cable and satellite industries are no longer considered nascent entities in need of government subsidies through statutory licenses. They have a substantial market presence, they're able to negotiate private distant signal programming agreements, as they now do for basic cable networks. Moreover, the Internet video marketplace is robust and is functioning well without a statutory license. We do believer, however, that a royalty-free, local-into-local license should be retained.

We believe, however, that a transition period is necessary, and we suggest that the transition period should be from January 1, 2010, through December 31, 2014, and we suggest that, for that period, you create a unified statutory license covering the retransmission by cable operators and satellite carriers of local and distant broadcast signals. This license should incorporate the best elements of the existing statutory licenses while at the same time address the unique characteristics of digital television signals. Such a license would establish parity between cable operators and satellite carriers as they both would operate under the same terms and conditions.

However, if Congress decides that the existing separate statutory licenses should be maintained, we believe a number of changes should be made to those licenses, and our recommendations are set forth in our report.

This is the beginning of your process. You will receive many other recommendations for changes, and you no doubt will need to consider and address the issues presented to you. And we would be pleased to assist you in any way that you deem appropriate.

One final note. As you move forward in this debate, you, of course, should be cognizant of and address the challenging economic conditions confronting each of the industries represented on this panel. However, this should not be a bar from examining what works, what doesn't work and what needs to be fixed.

Thank you.

REP. CONYERS: Well, I'm glad you got your recommendations in first, as usual -- (scattered laughter) -- and we're happy to have you here as we have this, I think, initial discussion which will be very interesting.

The Motion Picture Association is normally represented by Dan Glickman, but the vice president is here today, Fritz Attaway. Dan was a member of the Committee on Judiciary, so we hope we will be seeing him before too long. But Attorney Attaway was the adviser in the cable television bureau of FCC. He's a current member of the Advisory Committee on International Communications and Information Policy in the State Department, and he's vice president of the Motion Picture Association.

Thank you for being here.

MR. MR. ATTAWAY: Thank you, Mr. Chairman. And I want to thank you in particular for not mentioning how long ago it was that I was at the Federal Communications Commission.

As you mentioned, Dan Glickman is -- has a -- had a longstanding commitment with Diversity Kansas in Wichita and could not be here, and thank you for accepting me as, I'm sure, a poor substitute.

I'd also like to express particular appreciation for old friends being here who have heard this presentation many times before in the last 20 years. And, Mr. Coble, Mr. Goodlatte, Mr. Smith, Mr. Boucher, I'm really pleased to see you once again here.

Chairman Conyers, Ranking Member Smith, members of the committee, I want to thank you for allowing me this opportunity to present the views of creators and distributors of prerecorded entertainment programming that constitute the largest category of television programming retransmitted by satellite carriers and cable operators under the statutory compulsory licenses in Sections 111, 119 and 122 of the Copyright Act.

MPAA represents its six member companies and some 200 other producers and syndicators of programming in proceedings relating to the distribution of cable and satellite compulsory license royalties. To stay in business, these program creators and distributors, big and small, along with the tens of thousands of people they employ, rely on revenues from exhibition of their creative works, including the retransmission of those works by cable and satellite companies.

Mr. Chairman, as you examine the cable and satellite compulsory licenses, I urge you to focus on programming and the people who create it because that programming is why consumers subscribe to cable and satellite systems. Consumers do not pay monthly fees because they love headends or satellites or fiber-optic cables. They want access to creative, entertaining programming. The actions you take today or you will take as a result of this hearing should be designed to promote the overarching public interest in maintaining a steady supply of quality programming to consumers.

The cable and satellite compulsory licenses, as Ms. Peters mentioned, were enacted a long time ago under very different marketplace circumstances. They were fashioned to meet the needs of then emerging industries. But today, cable and satellite are well entrenched mature industries that can and do acquire programming without government assistance.

In today's cable and satellite market environment, the compulsory licenses are historic anachronisms, no longer needed or justified.

The government-imposed subsidies that they confer on cable and satellite industries, which are borne by program creators and distributors, should be eliminated in favor of negotiated marketplace licenses similar to those governing the vast majority of programming now provided by cable and satellite companies.

If the compulsory licenses are nevertheless retained, their statutorily imposed subsidized royalty fees should be replaced by marketplace compensation to program owners. By any objective standard, the current compulsory license fees do not fairly compensate program owners. Yet, despite widespread recognition of the inadequacy of the current royalties, there will be calls to lower compulsory license royalty payments further and also to broaden the scope of the licenses.

The end result of such actions should be obvious -- even more meager compensation to program creators and further lessening of their ability to obtain market fees from new and existing delivery systems, and, of course, reduced incentives to create the programming that viewers find most attractive and on which the cable and satellite industries are built.

Mr. Chairman, whatever you do, please do not further hinder the ability of program creators to produce the programming that consumers want to see. The drive to harmonize the compulsory -- the cable and satellite rates is nothing more than tinkering around the edges of the existing compensation schemes. To be sure, harmonization will create some short-term winners and losers among those who pay, but, more important, it will do nothing to encourage the creation of abundant and affordable television programmers that consumers want to watch.

Current compulsory license royalties constitute a minuscule portion of the cable and satellite operational costs, roughly 0.1 percent of their revenues. Based on past experience, increases or decreases in the royalty fees have a negligible impact on the monthly subscriber fees paid by consumers. On the other hand, many program suppliers, particularly the smaller ones, depend on these compulsory license royalty fees to sustain their business.

Finally, program owners should be able to verify that whatever royalty payments are due them under the compulsory licenses are, in fact, paid. The current licenses provide no verification mechanism. Program owners should be afforded the right to audit cable and satellite records to ensure compliance with the compulsory licenses. In addition, marketplace licensing alternatives to the statutory plan should be encouraged.

Thank you, once again, for the opportunity to be here today, and I look forward to responding to your questions.

REP. CONYERS: Thank you so much.

From DIRECTV satellite, Mr. Gabrielli -- Bob Gabrielli, senior vice president, who's now leading the biggest satellite organization in the country.

We welcome you here to discuss that portion of the copyright law that we're beginning to tackle and try to unravel, along with our friends on the Energy and Commerce Committee. Welcome to our hearing.

MR. MR. GABRIELLI: Thank you, Chairman Conyers, Ranking Member Smith, and members of the subcommittee. Thank you for the opportunity to testify here today. My name is Bob Gabrielli. I'm the senior vice president for programming operations and distribution at DIRECTV. And on behalf of our more than 17 million customers, I offer the following suggestions for updating SHVERA.

First, Congress should retain and modernize the existing satellite distant signal statutory license; second, Congress should improve consumer access to local stations; third, Congress should not require satellite subscribers to bear the burden of nationwide mandatory carriage; and, fourth, the retransmission consent system should be modernized to protect consumers from high prices and withheld signals.

To begin, I'd like to discuss the digital signal license. Today, the vast majority of subscribers get network programming from local, not distant, stations. Only about 2 percent of satellite subscribers receive distant signals, but those rely on distant signals to receive network programming and many will continue to do so in the future.

Congress should thus renew the distant signal license. It should also modernize the license to make it simpler and to protect consumer access to network programming. In particular, it should ensure that consumers in markets missing one or more local affiliates have access to network programming through distant signals.

The Copyright Office has proposed harmonizing the satellite and cable licenses. While this is a laudable goal, we recommend repealing the separate licenses as they reflect fundamental technological differences between the two platforms. For example, the harmonization proposal will replace the unserved household test that satellite uses with the cable exclusivity rules. This would be completely unworkable for DIRECTV because we cannot block out thousands of programs from across the country 24 hours a day.

Next, let me discuss DMAs. Millions are unable to receive truly local news, sports, and entertainment because they live in one state, while their DMA is mostly in another state. For example, viewers in Fulton County, Pennsylvania, are assigned to the Washington, D.C., DMA. As a result, they do not receive any Pennsylvania-based local programming. Five years ago, SHVERA addressed a handful of these situations by creating special rules. The time is right for a more general approach.

Congressman Ross has proposed allowing delivery of neighborhood stations to households in these orphan counties, like Fulton County, and DIRECTV endorses this effort. Time and again, consumers tell us what local channels best meet their needs and, where possible, we should be able to meet those demands.

I'd like now to discuss local carriage. Satellite is an excellent medium for distributing national programming to even the most remote locations, but it is far more difficult to deliver thousands of local network stations from a handful of satellites in space. Congress recognized the difficulty of this task when it created the carry-one-carry-all rules.

We have nonetheless made extraordinary progress in offering local programming. Our track record speaks for itself. We have spent billions of dollars to provide local service and now offer local television stations by satellite to 95 percent of households. And we intend to add six more markets by the end of this year.

Using the FCC calculations, over 80 percent of our satellite capacity is now devoted to this local service, nearly triple the amount cable operators are required by law to carry. For the remaining 5 percent of the households, we now offer a local seamless solution. We'll install a rooftop antenna, a tuner that integrates broadcast signals into the set-top box. To our subscribers off-air signals will now appear and function exactly as any other channel. It will be on the guide function, in the DVR, et cetera.

If the broadcasters made their signals available throughout the DMA, every DIRECTV subscriber could receive local channels in this fashion. This would be a simple investment in repeaters and translators by broadcasters. It would be the fastest and most efficient way to reach all markets.

Last, I'd like to discuss the retransmission consent. Congress created the must-carry retransmission consent regime before we ever offered local channels. The regime functioned until recently, in part because of the equilibrium that existed between monopoly broadcasters and monopoly cable operators. But as satellite emerged, broadcasters found their relative bargaining power increased.

Today, with satellite and telephone companies in the mix, broadcasters now routinely demand fees three times those previously paid, and it does not appear that this additional money is being used to provide more or better local programming. In fact, the opposite appears to be true. Many broadcasters are producing less and less local news, while others have replaced local programming with national infomercials.

DIRECTV willingly pays for high-quality content. We think programmers deserve fair and reasonable compensation for the products they create. But it does not serve the American public if broadcasters have the unfettered ability to raise rates without any obligation to provide local content. We would like to work with you to establish a new retransmission consent policy that compensates the broadcaster fairly for its investment in high-quality content, yet protects consumers from withheld service.

In closing, millions of your constituents throughout America, whether they subscribe to satellite or not, are better off because of the legislation this committee has championed over the years. I ask you to keep those consumers in mind as you consider SHVERA reauthorization this year.

Thank you.

REP. CONYERS: Thank you. We'll keep those recommendations in mind.

We'll turn to Chris Murray, Consumers Union, publisher of the magazine, and has been before the committee repeatedly. And we -- we welcome you today to share with us your concerns about satellite TV and the licensing issue that's before us and any other related matters.

Welcome to the committee.

MR. MURRAY: Chairman Conyers and Ranking Member Smith and -- as well as the distinguished members of the committee, I do appreciate the opportunity to appear before you once again.

Today's question is whether or not we should extend the license that allows satellite services to be a robust competitor for paid television services. We submit that the answer is an easy and emphatic yes. It's -- since we've deregulated the paid television market in 1996, we've seen consumer prices for television service go up and up at nearly twice the rate of inflation. And while I don't believe that competition from satellite is a perfect solution to counterbalance the problem of market power for paid TV services, it's probably the best partial solution we've got by a mile.

I've heard a little bit about challenging economic circumstances that are facing some industries here today, but I'd also like to submit that the challenging economic circumstances facing consumers are quite severe.

So the question is what can we be -- what can be done to ensure that satellite and paid TV services is -- rather that satellite and other competitors for paid TV services can be as robust a competitor as possible? And I'll submit three quick suggestions.

The first, as we've heard not only from Mr. Gabrielli, but also I think we heard from a number of witnesses at yesterday's Commerce hearing, we need to reform the distant signal qualification process. We think that there's no good reason to prevent consumers from having greater choice in local broadcast content, and we applaud efforts to move towards a greater number of DMAs that are served by satellite.

I think some study is also warranted as to what percentage of capacity do they have to put up in order to get those distant signals -- or rather -- excuse me -- to get those local-into-local signals in all 210 markets. I think we would find that it's a significant percentage of capacity and that we would be loathe to require other services at the -- at the table, such as cable television, to dedicate as much of their capacity as we're asking of the satellite guys. But I do believe that that's something that needs to be looked at.

The second important thing is how do video competitors get video programming and what do they pay for it, and perhaps as importantly, what happens when the process of negotiation for those channels breaks down. What do we do? We've all seen an instance, if we have satellite TV or -- or another service, where because a negotiation is not going well, consumers actually lose a television signal for a while, and we see consumers being used as a bargaining lever in order to get a higher price for programming.

We think that fresh scrutiny is warranted to -- to look at how can we fix program negotiation processes, how can we close things like the terrestrial loophole, and how can we ensure that exclusive programming arrangements are not being used with those who have a vertical arrangement where they own both the content and the distribution for that to shut out competition. We think that if we have decided as -- if Congress has decided that competition is going to be the way that we're going to keep consumer prices down, we have to be sure that we are making competition function as fully as possible.

My final suggestion is regarding rate transparency. We see a lot of finger-pointing at the table and a lot of name-calling for why consumer rates continue to go up, and I can't tell you exactly what the reason is that they do continue to go up, but what I can tell you is that we need more transparency in the rates that cable programming providers are -- are paying for content, that satellite providers are paying for content. We need to see the whole input process to understand where is it that consumers are being price gouged and where is it perhaps that they're being undercompensated.

I'm frankly astonished at the suggestion that we should not extend this compulsory license and -- because if you want to see the marketplace break down almost instantaneously and you want to see consumer prices go through the roof almost instantaneously, then let's consider just allowing, you know, market-by-market, copyright-by- copyright negotiation. It's -- it's almost an unthinkable mechanism.

But we look forward to any questions that the committee may have, and thank you for -- again for the opportunity to appear before you.

REP. CONYERS: Thank you for your testimony.

The president and CAO -- CEO of National Cable and Telecommunications is Kyle McSlarrow, and he's here. We're -- we're delighted. He's been on the committee -- the Advisory Committee and has been the deputy secretary of the U.S. Department of Energy, chief of staff of -- for Senator Paul Coverdell, vice president of political and government affairs for grassroots.com, an assistant to the general counsel of the Army.

We welcome you here today, sir, and look forward to your suggestions.

MR. MR. MCSLARROW: Thank you, Mr. Chairman, Ranking Member Smith, and distinguished members of the committee.

Let me just say at the outset I understand that this committee and the Energy and Commerce Committee have several different options in terms of the path you want to go down with reauthorization of SHVERA, and whatever path you choose, you have my commitment that our industry will work constructively with you as with other stakeholders represented at the table.

I should also say, as odd as it may sound, we support the reauthorization of SHVERA. We support continuing what has been a success story in a rough, competitively neutral balance among us and our competitors, principally the satellite industry and now the telephone industry. It's very clear that competition -- and it's very intense competition now -- among cable, satellite, and telephone providers and video has produced great benefits for consumers.

I guess there are three things that I would -- I would break it down -- ask you to consider.

First, the notion of the compulsory license itself. I have to admit, as I prepared for this hearing and started examining the cable compulsory license, it's horrifyingly complex, and the quite natural reaction, as was mine, is to say, "Let's clean it up. Let's make it simpler. Let's harmonize it." And that's just the natural reaction. But I would ask you to consider two things that make that very tough.

The first is, even though on average, there may only be two distant signals that an average cable subscriber gets, there are something like 25 million households that have two or more distant signals available to them and another 25 million that have one distant signal. There were really settled expectations. So we have to be very careful as we go through this process. And all of us are living through the digital transition that's taking place right now and understand the great lengths that all the stakeholders and Congress have gone to ease that transition.

The second point I would make about it is that, as complex as it is, the compulsory license for us and for satellite has basically worked. It is actually a great public policy success story. So, even though it may look arcane, if you step back and you ask the question "Is the consumer being served?" -- yes, because we're disseminating content that the consumer wants as widely as possible; "Are the distributors being helped?" -- yes, because we're at a rough competitive balance in terms of how we're treated; "Are the copyright holders being compensated fairly?" -- our answer would be yes.

So, on the one hand, one direction this committee can go would be -- and we would urge you to consider this -- would be a straightforward reauthorization with some modest reforms.

One reform that we would ask the committee to consider is -- is reforming what we call the phantom signal policy where you actually have an interpretation of the statute where consumers who don't receive a distant signal actually have to pay for other consumers receiving a distant signal.

Nonetheless, the Copyright Office, as Congress asked it to do, has come forward with a report and has made a number of fairly far- reaching reform proposals. And harmonization or suggestions of a flat fee at first blush are very appealing, but one has to understand that you cannot solve those issues in the context of just the Copyright Act itself. You have to open up the Communications Act in significant ways, particularly on the carriage side.

And I would identify just one provision which I think illustrates this, and that is that the cable industry has an obligation that every broadcaster we carry must be shown to every consumer before they can go on to buy any other service -- any other cable network, any other premium channel. The satellite industry doesn't have a similar obligation. For them, the choice of carrying the broadcast here is an optional one. So if you move to a flat fee, which sounds appealing at first blush, by definition, because we have a must-buy requirement, every one of our consumers is paying for the signals, whereas, for a satellite customer, they would have a choice.

It's not a question of right or wrong. It's just different and it has a huge significant impact.

The other point that I would make is that if you're looking at the Copyright and Communications Act in tandem, to some extent, we would be focusing on the wrong issue.

A couple of folks have already mentioned that if you're looking at carriage obligations and how we compensate copyright holders, it's -- it would be odd not to think about taking a hard look at retransmission consent, which is a Communications Act provision, but I would submit is at odds with the theory behind the compulsory licenses.

Compulsory licenses work because they provide an efficient and seamless way to get programming out while fairly compensating copyright holders, and it does so with a minimum of disruption, whereas the retransmission consent provision, by definition and increasingly, poses a threat of disruption where broadcasters can threaten to withhold or actually do withhold signals from consumers in order to extract more compensation in some form or another.

Again, those two are in conflict with one another. So if the committee does choose to examine both these statutes and the carriage obligations in their entirety, we would urge that you examine retransmission consent as well.

Thank you, Mr. Chairman.

REP. CONYERS: Thank you very much.

We've got a vote -- three short votes, but we'll save the biggest for last, maybe the one in the most trouble.

Mr. Rehr, we'll be looking forward to your testimony when you get back.

We'll stand in recess now.

(Recess.)

REP. CONYERS: Mr. David Rehr is the president and CEO of the National Association of Broadcasters, NAB, and has led in this field of expertise for nearly 25 years on Capitol Hill. He's worked with us across the years. We're delighted to have him today and -- and be our last witness, and we're going immediately into the questions.

Welcome, sir.

MR. MR. REHR: Thank you, Mr. Chairman. Chairman Conyers and Congressman Gonzalez, thank you very much for having me here today. My name is David Rehr, and I serve as the president and CEO of the National Association of Broadcasters.

The NAB proudly represents over 8,300 diverse television radio stations across the United States, employing nearly 250,000 hardworking Americans. Our member companies keep their communities informed and connected. We work every day to embody the spirit of localism, which Congress has embraced and affirmed time and time again as a vital public policy goal.

We do not charge our viewers to watch our programming. We rely on payments from advertisers to deliver a free service to your constituents. Without free over-the-air television, pay TV models would be unrestrained their ability to attempt to maximize their profitability.

Broadcast television stations remain the primary source of the most diverse and popular entertainment, news, weather, and sports programming in the country. In fact, according to data from Nielsen Media Research, in the 2007-2008 television season, 488 of the top -- that is most watched programs -- 500 primetime television programs were broadcast over the air. While these stations represent a relatively small number of channels on pay systems, broadcasters offer a highly demanded and desired unique and valuable service to local markets and to your viewers.

I would like to make two points. Number one, localism must remain central to any policy deliberations with respect to satellite and/or cable compulsory licenses. Two, the Copyright Office recommendations must be evaluated individually for both intended and unintended consequences.

Starting with my first point. One, localism must remain central to any policy deliberations with respect to satellite and/or cable compulsory licenses -- unlike other countries that only offer national television channels, the United States has succeeded in creating a rich and varied mix of local television service providers so more than 200 communities, including towns as small as Glendive, Montana, which has fewer than 4,000 television households, can have their own voices. This is the genius of the American system and should be celebrated.

The pillars of this system are the availability of signals to viewers throughout the market and the ability to offer exclusive programming in that market, often through a network affiliation relationship. We urge this committee to view any changes through the prism of localism and the core principles of localism.

Two, the Copyright Office recommendations must be evaluated individually for both intended and unintended consequences. Broadcasters and cable have been working under the cable compulsory license for over 30 years and, by and large, this system has worked well. The experience under the satellite compulsory licenses has been more challenging. Here are a few reactions to some of the report's recommendations. We agree with the office on the retention of a local-into-local compulsory license. We agree with the office on the call for phasing out the distant signal license for satellite providers. Beyond that, in fact, broadcasters believe that the license should be replaced with a requirement for local-into-local carriage in all television markets.

There are 31 of the 210 television markets in small and rural areas that satellite companies do not serve. The satellite companies have said that this is a capacity issue, yet it is more likely a simple business decision.

Broadcasters, including those in the 31 smallest markets, have invested well over a billion dollars in making the transition to digital television, and I think we've done a pretty good job educating America. So far, there is very little economic return on that investment. Nevertheless, those investments were made and are in the public interest. The satellite industry investment in providing local-into-local to all Americans is also in the public interest. I'm certain that if Congress does not step in, local service will never be provided.

We disagree with the Copyright Office on the recommendations to harmonize cable and satellite licenses. They are very different business models, different technologies, and have different evolutions. We are unsure of all the unintended consequences of that harmonization, particularly in this difficult economic period.

We share the concerns of the Copyright Office as expressed in their report regarding compulsory licenses to permit retransmission of broadcaster signals on the Internet as well as the requirements they would impose. As you know and as you've -- as you've heard here today, the reauthorization is complicated, yet extremely important to American television viewers.

The underlying principle or focus, which I encourage this committee to use as its guide in its deliberations, is localism. Localism continues to provide Americans a connection to their communities.

Thank you for giving me the opportunity to testify, and I welcome any questions you might have.

REP. CONYERS: Thank you, Mr. Rehr.

I'm going to ask Judge Charles Gonzalez of Texas to begin the questioning.

REP. CHARLES GONZALEZ (D-TX): Thank you very much, Mr. Chairman.

Mr. Rehr, I -- in its -- and I -- and I love the fact that you start off with a dilemma that I face -- and I'm sure Mr. Boucher and others that serve on Energy and Commerce and we're on Judiciary and we talk about retransmission, and I thought I understood retransmission -- but this is a totally different and distinct issue. It's really kind of difficult. So if I ask an Energy and Commerce question, forgive me, Mr. Chairman. I really didn't mean to do that.

The delivery system appears to determine policy many times, and the new kid on the block's going to be Internet delivery system and such and what that means. But, Ms. Peters, you said something -- or you may not have actually covered it, I'm not real sure -- but on page 7 of your testimony, "On a related subject, it must be noted that the Copyright Office is not in favor of a statutory license for retransmission of broadcast signals over the Internet." The last sentence is interesting. "An Internet statutory license, in fact, would likely remove incentives for individuals and companies to develop innovative business models."

Now why wouldn't that same reasoning apply to what we have in -- in not the newcomer, but the existing technologies and delivery systems of cable and satellite?

MS. MS. PETERS: Actually, the point I was actually trying to make was that because there is no statutory license and because Internet deals are being made every day, it actually proves the point that you don't need the statutory licenses for cable and satellite.

So I was actually trying to say you don't need to go there, and I think that if, in fact, we took away the cable and satellite, they'd be able to do the same kind of things, kind of deals that they're doing today with regard to the Internet and mobile phones and all kinds of mobile devices, as well as service to your computer at home.

So -- I don't know. I mean, I -- I just really believe that the Internet is where more and more people are going, more and more of these mobile devices are what people have and the way they're getting things, and the licensing seems to be working in that area.

REP. GONZALEZ: Yeah. And you're probably right that we're not going to do anything that we don't have to do at this point, and then harmonization is probably between cable and satellite. And I'll be -- most of our attention, I think, would be directed in that manner.

Mr. Murray, I think you indicated that with -- a position that I think would be contrary to Mr. Attaway, and that is if you don't have statutory licenses and you don't have some uniformity -- and that's the concept and that's the model, and then if you break it down and you don't have it and what -- that would open the door, obviously, to a lot of individual and separate transactions, negotiations and so on. What is wrong with that? And, in fact, is it -- is it the model that is defective or is it just that component of trying to establish adequate compensation?

MR. MURRAY: It's certainly not a problem of establishing adequate compensation. I think if you ask consumers who have had, let's say, a satellite channel withheld from a programmer, what's the problem with the situation that you're -- that you're in -- so what I'm talking about here is the situation where satellite -- satellite companies try to negotiate with a program provider, and because they can't -- the program provider can't get exactly the terms that they do, they use the lever of withholding that content from consumers. So consumers, you know, have American Idol go dark or something like that. Now if you take that model and extend it to a point where now what you've basically set up is a marketplace where market-by-market, broadcaster-by broadcaster -- because this isn't just a national broadcaster negotiation, this is a local broadcaster-by-local broadcaster negotiation -- you have a market destined for gridlock, destined for higher prices for consumers. And I don't think that's the result that Congress wants here.

I think that this -- the compulsory license here has served as a very positive model. It's the only force that has kept cable television prices in check, and I cannot see any rationale for undoing that system.

REP. GONZALEZ: Mr. Attaway?

MR. MR. ATTAWAY: Well, as you indicated, we -- we certainly do have a difference of opinion. I'm just astonished that Mr. Murray thinks that eliminating the compulsory licenses would be unthinkable when if you look at the program schedule for a cable or satellite provider -- I happen to have DIRECTV's right here -- you go down the list of offering, and the vast majority of channels that are being offered, the -- all of the programming is negotiated for in the marketplace, channel-by-channel, and it works quite well to serve the interests of the -- of consumers as well as the satellite and cable companies and as well as program producers.

There is no reason to think that the marketplace can't work. Maybe in 1976, there were problems. Those problems don't exist today, and if you look at the Internet, that's a perfect example of how the marketplace is working to serve the needs of consumers. Almost every program -- television program available today on broadcast television is also being made available on the Internet. The marketplace works.

REP. GONZALEZ: Thank you very much. I yield back, Mr. Chairman.

MR. MURRAY: I was just going to say and yet we see proposals right now to make broadcast programming available exclusively over -- so if we're talking Internet here, I'm talking about -- and this is a very recent thing that's just come up this week where there is a proposal out there to take cable programming, put it on the Internet, and then the only place it could be available is to subscribers of that particular pay cable television service.

So we see this marketplace closing. We've seen instances of folks blocking content because it might be a competitor, and we -- you know, clearly, if I'm the content industry, I would love to have the maximum lever over consumers and over other vendors in the marketplace, but does that serve consumers? I submit that it doesn't. I think it's going to result in higher prices and an absolute gridlock of copyright clearance.

REP. CONYERS: Mrs. Peters, you okay on that?

MS. MS. PETERS: No, I -- I actually disagree. I think the marketplace is the best place to resolve these issues. Nobody produces a program not to sell it. They really want to make it available. It may be that the terms and conditions, you know, are at issue, but you don't not license your program, and any business that isn't meeting the expectations of its consumers is not going to last very long. So I happen to be a very strong advocate of the marketplace and consumer choice.

MR. MURRAY: And I'm an advocate of the marketplace, but isn't our counterfactual here that -- many instances of programming exclusives because this cuts exactly against what you're saying, that, of course, you produce content, you want to sell it to the maximum amount of people, maybe, unless what you can do is really price gouge some folks with exclusives. And that is what we see this marketplace trending towards, you know. And so I think the existence of exclusives is the proof that we have these problems and that it's going to get worse if we allow the content industry to have greater leverage over consumers.

MS. MS. PETERS: I would argue that with the Internet, it's becoming less exclusive, that you see content in many different forums throughout the world on many different devices. The exclusivity of only giving it to one person, I think, is exactly the opposite of the trend today.

REP. CONYERS: Help us, Lamar Smith.

REP. SMITH: Thank you, Mr. Chairman.

Ms. Peters, on the way to larger issues, I wanted to ask you about a specific provision. You mentioned in your written testimony that you felt that the unserved household requirement had basically outlived its usefulness. Real quickly would you explain why?

MS. MS. PETERS: The whole purpose of the unserved household piece was that if you can't get the full complement and you prove yourself to be unserved, then you can bring a distant signal in. With more and more local signals being made available, I think the need is -- is less.

So I think that -- and I -- I'm a strong advocate of serving consumers their local programming. That seems to be where the push is. Now I heard people testify and say people still get two distant signals and they still get one. I still think that that could be licensed content if that's what they really want. But I don't think you need a compulsory license for it.

REP. SMITH: Okay. Thank you.

Mr. Attaway -- oh, did you want to respond, Mr. Gabrielli, really quickly?

MR. MR. GABRIELLI: I would and -- for DIRECTV, because we have spent the billions of dollars and do cover 95 percent of the country with local channels, our number of distant subscribers has gone down by more than half in the last four years. But there are -- still are a couple of cases where customers need distant signals. They need them where we don't cover the market yet and the broadcaster doesn't cover that. This is --

REP. SMITH: Is that the 5 percent you're talking about?

MR. MR. GABRIELLI: That's the 5 percent.

REP. SMITH: And, Ms. Peters, what about the 5 percent? I'm sure that's millions of people, but anyway --

MS. MS. PETERS: Well, I'm not sure. I -- I still don't get who isn't served and why that couldn't be licensed content from some provider.

REP. SMITH: Okay.

Mr. Gabrielli --

MR. MR. GABRIELLI: I -- well, again, the satellite is a secondary transmission of a primary broadcast. If the broadcaster covered the entire market, there would be no need for distant signals.

REP. SMITH: Right.

MR. GABRIELLI: So we only get the license where they don't cover. We've done a great job of covering 95 percent of those with local channels. There's still 5 percent. There are markets that are missing networks. We have to bring in a network from another market. That is a distant signal. They would -- otherwise, you'd have some markets that have one or two stations. That's all we could provide if we did. You still have RVs, long-haul trucks, airplanes, and ships that aren't in any market that we use a distant signal license for, and there's always the public safety officials given in any country that, you know, or county that need these...

REP. SMITH: Okay. All right. Thank you. Two sides on that issue.

Mr. Attaway, I wanted to ask you -- you mentioned in your oral testimony -- or was it in your written testimony which you sourced -- that royalty payments are only 0.1 percent of revenues. I'm going to ask some of the witnesses to your left what they think about that. What do you think is the significance of the fact that, as you claim, only -- the royalties are only 0.1 percent?

MR. ATTAWAY: Well, I think that goes to illustrate that the -- the royalties that are paid by cable and satellite providers are de minimis. There's certainly no consumer issue here because, in terms of their overall cost structure, they're -- they're de minimis. If you're really concerned about prices being passed on to consumers, you ought to be looking at postage rates because the cost of sending out monthly invoices is almost four times what cable and satellite systems may --

(Cross talk.)

REP. SMITH: Let me ask the other witnesses if they agree with your one-tenth of 1 percent and the significance that you just mentioned.

MR. GABRIELLI: I'm assuming he's strictly talking about the royalty payments, and I actually don't know about percentages. But, overall, we pay 50 percent of our net revenue -- or gross revenue goes for programmer payments to the broadcast stations, to the cable networks. So we're at a 50 percent number from our opinion.

REP. SMITH: From your point. Okay, anyone else on the panel want to comment? Mr. McSlarrow?

MR. MCSLARROW: Well, the situation for cable operators is the same as Mr. Gabrielli just described. The only additional point I would make is that under this regime, we're essentially paying for distant signals. On average, a cable system has hundreds of channels and only on average two of them are distant signals. So the fact that our two industries together plus the telephone companies are paying a quarter of a billion dollars a year in copyright royalties suggests to me that content owners are probably not underpaid here.

REP. SMITH: Okay. Mr. McSlarrow, I'm going to have time for one more question, which I'm going to direct to you. You mentioned in your testimony a few minutes ago that you favor a straight reauthorization with modest reforms, compulsory licenses work, and so forth. I wonder if you might explain part of the reasoning for your stand as being that there is a technological difference between satellite and cable and if you want to explain what those technological differences might be that would support your position.

MR. MCSLARROW: Part of it is a technological difference, and -- and I think the technology differences play out in carriage obligations. So, for example, I made the point in my oral testimony that we have an obligation to carry every broadcaster on the must-buy a tier. That's something the satellite industry doesn't have. We also have a difference with must-carry obligations where we have to carry every must-carry station. The rule for DVS is carry one, carry all.

So I think over time, interestingly enough, the technological differences have actually diminished, but they're still present. But I would also say that I think it's actually the regulatory differences today that are probably the larger issue.

REP. SMITH: Okay. Thank you.

Thank you, Mr. Chairman.

REP. CONYERS: Thank you.

Rick Boucher?

REP. BOUCHER: Well, thanks very much, Mr. Chairman.

I'm going to be directing questions to Ms. Peters.

And, Ms. Peters, welcome again. We're delighted to have you here today. Before I ask you some questions about areas in which we might consider amending the statute, let me just briefly comment on your proposal to phase out the Section 119 license, and I really don't want to spend my five minutes on this. So I'm not going to ask you to respond. I -- I've heard carefully what you've had to say and others have had to say.

The purpose of this license was never to subsidize satellite service. It was always to serve people who could not get a distant network signal any other way. They couldn't get it from the local station. In the days when we originated this license back in 1988, there was no local-into-local service.

Today, we have local-into-local service, but it only serves -- well, it doesn't serve 30 markets. I can't do the math in my head. There are 210 and 30 are not served. So what's that, 180 -- 280 are served, and -- 180 are served and 30 are not, and within those 30 markets not served by local -into-local, you have, I'm sure, more than a million people who cannot get that distant -- that network signal by any means other than the import under Section 119.

And my sense is that negotiating the clearance rights in the absence of the 119 license might be somewhat more difficult than some of the conversation here has suggested. I suspect it's not as simple a matter as dealing directly with the networks themselves. There are probably syndicated programs and other things contained within that network signal that would require a multiplicity of negotiations with a variety of parties. And that might be quite complex.

So that's my comment. We need to keep this 119 license, and it would be my goal strongly to defend it.

The questions I have for you are these. Under the existing Section 111 license, the cable compulsory license, is there any doubt in your mind about whether the telephone companies that are now seeking to offer multichannel video using an IP-based platform to do that would be entitled to use the Section 111 compulsory license? And if you think the statute is unclear in that regard, should we amend it to clarify it?

MS. PETERS: (Off mike) -- talking about AT&T and Verizon, or are you talking about --

REP. BOUCHER: Yes.

MS. PETERS: -- cable --

REP. BOUCHER: Yes. No. I'm talking -- I'm talking about specifically AT&T --

MS. PETERS: Right.

REP. BOUCHER: -- and perhaps also Verizon is in that category, but I know AT&T intends to use an Internet technology solution, an IP solution, to offer its multichannel video service. Do you believe that the statute clearly makes them eligible for the 111 license, or should we clarify it to ensure that?

MS. PETERS: My recollection, what was in the study, was that -- was that the definition of cable system in 111 would cover AT&T in general, but the definition of cable system in other contexts may not fit exactly. I know that our recommendation is that one of the things is the issue of whether or not they comply with FCC regulations. And so, in our study, we recommend that if they are going to take advantage of the 111 license, they should also be required to comply with FCC regulations.

REP. BOUCHER: Okay. Does your report answer this question, or do you address the subject in your report?

MS. PETERS: Yes, we do.

REP. BOUCHER: I'll turn to the report then -- for the answer then. Thank you.

The second question I have is this. The Section 119 license allows the import of distant signals to households that cannot receive an analog over-the-air television signal from the local station, and with the DTV transition, obviously, the analog signals are going to be turned off. The natural consequence of that with the statute unamended is that the entire nation will be a white area, and distant network signals could be imported into every home once the DTV transition is complete. I assume you would agree we should amend the statute to replace analog with the digital.

MS. PETERS: Yes --

REP. BOUCHER: Okay.

MS. PETERS: -- I do agree.

REP. BOUCHER: Next question. Should we, in your opinion, move the significantly viewed provisions from the current Section 119 license to the Section 122 local-into-local license?

MS. PETERS: Yes, we do.

REP. BOUCHER: Thank you.

And then the fourth question.

The Section 119 license says that if local signals are offered in a given market, then distant network signals cannot be imported into that market, say, for some special grandfathering situations.

But there are markets in some rural areas, largely out in the West, where the markets are extremely large and where the new spot beam technologies that the satellite carriers are using don't cover the entire market. So you will have homes within these very large DMAs served with spot beans where local-into-local is offered on the spot beam, but it doesn't reach all the homes.

Now, in those instances, should those homes that are not served with the local-into-local service be permitted to import a distant signal, and should we amend the statute to permit that?

MS. PETERS: I'm not sure what -- what we said in the study, so, at the moment, I'm not sure. So I can get back to you. I think the answer is yes, but let me get back to you.

REP. BOUCHER: Okay. I'll look forward to your response to that.

And then finally, do you have any comment on whether or not we should amend the statute to permit adjacent local signals to be brought into DMA in instances where that DMA is short from a network affiliate so that the gap is filled, in essence not by an imported network signal, but by a local signal imported from the adjacent market for that missing affiliate? And then, secondly, for markets that straddle state lines where the television coverage originates out of state and is serving people who live in another state in that DMA, should they -- the people who live in the state where the TV stations are not located be able to get local signals imported from an adjacent market in the state where they live?

MS. PETERS: I -- I think -- I think the premise that we believe in is that everybody should be able to get their local signals, and I think we do cover that situation in our report. Yes.

REP. BOUCHER: So -- so just to take these one by one, with regard to the short markets, today under the law you could bring in a distant network signal. Do you think it would be better to let a local television signal from an adjacent market to be brought in to fill the gap in that instance?

MS. PETERS: Mr. Boucher, I'm going to be honest and basically say that I am not a -- an expert in communications policy and those kind of issues. We do have those people on my staff. --

REP. BOUCHER: Okay.

MS. PETERS: -- so we would be happy to respond to your question...

REP. BOUCHER: Thank you. I realize the question...

MS. PETERS: -- in an accurate way.

REP. BOUCHER: -- is a little bit beyond the purview of copyright.

Thank you very much. I appreciate your answers.

MS. PETERS: Okay. Thank you.

REP. BOUCHER: Thank you, Mr. Chairman.

REP. CONYERS: You're welcome.

Before we go to vote, because Mr. Rehr, David, has been so cooperative, I want to ask him has there been any reconsideration of whether broadcasts should pay artists for performance of their copyrighted works since you want everybody else to get it? Thinking about it?

MR. REHR: Yeah. No. Thank you, Mr. Chairman. I -- I expected to get the question today.

The -- the performance fee which our member stations consider by many to be a fee, a royalty, a tax really, isn't part of this SHVERA discussion. The suggestion that NAB's opposition to performance rights in sound recordings is inconsistent with its support for the compulsory license in SHVERA notwithstanding.

Cable and satellite systems, unauthorized third-party Internet retransmitters, and others seeking to exploit broadcasters' signals are competitors to broadcasters for programming, advertising, and for our viewers. In some instances, these unauthorized retransmissions from distant markets result in broadcasters having to compete against their own programming.

By contrast, it's a different matter with radio. Radio stations do not compete with record companies. Rather, radio stations use the records, promotes their sale, a fact reflected in industry practice, in some instances, of radio stations being provided complimentary copies of records. Unlike the recording industry, which provides its product for sale to consumers, television programming has no retail market enhanced by earlier broadcast play.

So, in essence, I think that there's a difference between radio broadcasters and television broadcasters on this issue. I know we're hoping to more fully explore this with you in the upcoming weeks, and I look forward to it.

REP. CONYERS: I couldn't have you come before me without tossing that out. You know that.

MR. REHR: I know that.

REP. CONYERS: All right.

We're going to have a vote on the rule, one vote. And we'll be right back.

All right. Sheila Jackson-Lee?

REP. SHEILA JACKSON-LEE (D-TX): It will not be a question, Mr. Chairman. I want to thank you for holding this -- this hearing. And I'm conflicted because I'm in between Homeland Security, but this is very important to me.

What I would just leave on the table for a question to be answered in writing is the importance of consistent modernization in our reauthorization -- why wouldn't that be the right approach, that we reauthorize all of the facets together. And then, secondly, how much of an expanded outreach would come about through the modernization and putting the different facets together?

So I hope that I can get an answer, and I will look forward to working with you, Mr. Chairman, on the question you previously asked.

Thank you. I yield back.

REP. CONYERS: Thank you.

Lady and gentlemen, because of the scheduling, we're going to ask -- if you're in agreement, we'll submit the remainder of the questions to you and free you up. I -- I feel badly keeping all of you here for a few more. So just count this as the first opening salvo of a discussion that's probably going to go a little bit longer into the spring. And I thank you all for your attendance.

The committee stands adjourned.

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