[Federal Register Volume 75, Number 180 (Friday, September 17, 2010)]
[Notices]
[Pages 57063-57079]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-23266]
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LIBRARY OF CONGRESS
Copyright Royalty Board
[Docket No. 2007-3 CRB CD 2004-2005]
Distribution of the 2004 and 2005 Cable Royalty Funds
AGENCY: Copyright Royalty Board, Library of Congress.
ACTION: Distribution order.
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SUMMARY: The Copyright Royalty Judges are announcing the final Phase I
distribution of cable royalty funds for the years 2004 and 2005.
DATES: Effective September 17, 2010.
ADDRESSES: The final distribution order also is posted on the Copyright
Royalty Board Web site at http://www.loc.gov/crb/proceedings/2007-3/final-distribution-order.pdf.
FOR FURTHER INFORMATION CONTACT: Richard Strasser, Senior Attorney, or
Gina Giuffreda, Attorney Advisor, by telephone at (202) 707-7658 or by
e-mail at [email protected].
SUPPLEMENTARY INFORMATION:
I. Background
On July 15, 2008, the Copyright Royalty Judges published in the
Federal Register a notice announcing the commencement of a proceeding
to determine the Phase I distribution of royalties collected from cable
systems under the section 111 statutory license for the period 2004 and
2005.\1\ 73 FR 40623. The notice also requested interested parties to
submit their Petitions to Participate in the proceeding no later than
August 18, 2008. Petitions to Participate, all of which were joint
petitions, were received from the following claimants: Public
Broadcasting Service for Public TV Claimants (``PTV''); National Public
Radio (``NPR''); Joint Sports Claimants (``JSC''); Canadian Claimants
Group (``Canadian Claimants''); Devotional Claimants; the Motion
Picture Association of America, Inc. (``MPAA'') for certain Program
Supplier Claimants (``Program Suppliers''); Music Claimants;\2\ and the
National Association of Broadcasters for all U.S. commercial television
broadcast stations retransmitted by cable operators as distant signals
during 2004 and 2005 (``CTV''). The Judges accepted these petitions.
Order Announcing Negotiation Period, Docket No. 2007-3 CRB CD 2004-2005
(October 31, 2008).
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\1\ For a discussion of the operation of the section 111 license
and the establishment of the funds for distribution, see,
Distribution of 2000-2003 Cable Royalty Funds, Distribution order,
in Docket No. 2008-2 CRB CD 2000-2003 (``2000-03 Distribution
Order''), 75 FR 26798 (May 12, 2010).
\2\ Music Claimants are comprised of the performing rights
organizations (``PROs'')--the American Society of Composers, Authors
and Publishers (``ASCAP''), Broadcast Music, Inc. (``BMI''), and
SESAC.
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After the expiration of the mandatory negotiation period, the
parties were directed to submit their written direct statements on or
before June 1, 2009.3 4
[[Page 57064]]
The Judges received written direct statements from Canadian Claimants;
Program Suppliers; Devotional Claimants; and JSC, CTV, PTV, and Music
Claimants (collectively, the ``Settling Parties''). Discovery in the
direct phase of the proceeding was conducted throughout June and July,
and the hearings were conducted from October 6-20, 2009. The Settling
Parties presented the following witnesses: James M. Trautman, Managing
Director of Bortz Media & Sports Media, Inc.; Dr. Robert W. Crandall,
Senior Fellow in Economic Studies at the Brookings Institution; Judith
Meyka, independent consultant with clients in the cable and satellite
television industry; Linda McLaughlin, Special Consultant to National
Economic Research Associates, Inc.; Dr. Richard V. Ducey, Chief
Strategy Officer, BIA Advisory Services; Dr. Joel Waldfogel, Ehrenkranz
Family Professor of Business and Public Policy at the Wharton School of
the University of Pennsylvania; Jerald N. Fritz, Senior Vice President
for Legal and Strategic Affairs, Allbritton Communications Company;
Seth Saltzman, Senior Vice President of Member Management in the
Performing Rights Group, ASCAP; Michael O'Neill, Senior Vice President,
Licensing, BMI; and William P. Zarakas, Principal, The Brattle
Group.\5\
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\3\ Prior to this deadline, the participants filed a stipulation
of settlement as to NPR's claim to the 2004 and 2005 cable royalty
funds and their agreement that NPR no longer needed to participate
further in this Phase I proceeding. Upon notification to the Judges
that all Phase II claims had been resolved, NPR moved for final
distribution of their share to the 2004 and 2005 funds. The Judges
granted the motion. See Order Granting Motion for Final
Distribution, Docket No. 2007-3 CRB CD 2004-2005 (April 16, 2009).
It is the funds remaining after this Order that are the subject of
this determination.
\4\ Hereinafter, references to the written direct testimony
shall be cited as ``WDT'' preceded by the last name of the witness
and followed by the exhibit number and the page or paragraph number.
Similarly, references to the written rebuttal testimony shall be
cited as ``WRT'' preceded by the last name of the witness and
followed by the exhibit number and the page or paragraph number.
References to the transcript shall be cited as ``Tr.'' followed by
the page number and the name of the witness. References to the
proposed findings of fact and conclusions of law shall be cited as
``PFF'' or ``PCL,'' respectively, preceded by the name of the party
that submitted same (i.e., Settling Parties (``SP''), Program
Suppliers (``PS''), Canadian Claimants (``CCG'') or Devotionals
(``D'')) and followed by the paragraph number.
\5\ The Judges also admitted the testimony of the following
witnesses for the Settling Parties without live testimony pursuant
to the stipulation of all parties: Dr. Gregory M. Duncan, Professor,
the University of California, Berkley, and Managing Director, Huron
Consulting Group, Tr. at 36-37; John F. Wilson, Senior Vice
President & Chief TV Programming Executive, Public Broadcasting
Service, id. at 397-98; Jonda K. Martin, President of Cable Data
Corporation (``CDC''), id. at 528-29; and Alexandra Patsavas, Owner,
Chop Shop Music Supervision, id. at 1009.
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The Canadian Claimants presented Dr. Debra J. Ringold, Dean,
Atkinson Graduate School of Management, Willamette University.\6\
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\6\ The Judges also admitted the testimony of the following
witnesses for the Canadian Claimants without live testimony pursuant
to the stipulation of all parties: Janice de Freitas, Manager of the
Rights Management Unit, Canadian Broadcasting Corporation/Radio-
Canada, Tr. at 1270-72; Alison Smith, correspondent for the Canadian
Broadcasting Corporation, id. at 1272; and Joan Fisher, Legal
Counsel, Decode Entertainment, Inc., id. at 1273.
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The Devotional Claimants presented Dr. William Brown, Professor and
Research Fellow, School of Communications and the Arts, Regent
University.\7\
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\7\ The Judges also admitted the testimony of the following
witnesses for the Devotional Claimants without live testimony
pursuant to the stipulation of all parties: Dr. Charles F. Stanley,
Senior Pastor, First Baptist Church, Atlanta, Georgia, and
President, In Touch Ministries, Tr. at 1393-94; and Bruce Johansen,
former President and CEO, the National Association of Television
Program Executives, id. at 1394-95.
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The Program Suppliers presented the following witnesses: Marsha E.
Kessler, Vice President of Retransmission Royalty Distribution, the
MPAA; John Mansell, Jr., President/Chief Executive Officer, John
Mansell Associates, Inc.; Howard B. Homonoff, Director in the
Entertainment, Media and Communications advisory practice,
PricewaterhouseCoopers LLP; Dr. Arthur C. Gruen, Partner/Co-Founder,
Wilkofsky Gruen Associates; Paul Lindstrom, Senior Vice President, The
Nielsen Company (``Nielsen''); Bruce Hoynoski, Senior Vice President
and Chief Research Officer, Global Media for Nielsen; and Dr. George S.
Ford, President, Applied Economics Studies, and Chief Economist, the
Phoenix Center for Advanced Legal & Economic Policy Studies.\8\
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\8\ The Judges also admitted the testimony of the following
witnesses for the Program Suppliers without live testimony pursuant
to the stipulation of all parties: Alex Paen, President, Telco
Productions, Inc., Tr. at 1529; Jonda K. Martin, id. at 1529-30; Dr.
Martin R. Frankel, Professor of Statistics and Computer Information
Systems, Baruch College, City University of New York, id. at 1530-
31; and Dr. Alan M. Rubin, Professor Emeritus and Director Emeritus,
School of Communication Studies, Kent State University, id. at 1531-
32.
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A rebuttal phase to the proceeding was requested by the parties,
and written rebuttal statements were submitted by December 11, 2009. As
a result of discovery on the written rebuttal statements, the Settling
Parties and Program Suppliers filed a motion for adoption of a joint
stipulation \9\ regarding certain programming on Station WGN-TV
(Chicago, Illinois) during the years 1998-99 and 2004-05, the adoption
of which would obviate the need for the testimony of two witnesses for
the Settling Parties: Dan Derian, Vice President of Research and
Strategic Planning for Major League Baseball, and Marc Schader, former
Senior Vice President of Programming for Tribune Broadcasting. The
Judges granted the motion, and the Settling Parties withdrew the
testimony of Messrs. Derian and Schader. See Order on Witnesses and
Joint Stipulations, Docket No. 2007-3 CRB CD 2004-2005 (January 27,
2010); see also Tr. at 2335-36.
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\9\ Neither the Canadian Claimants nor the Devotional Claimants
objected to the adoption of the stipulation.
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Rebuttal hearings were conducted February 1-5, 2010. The Settling
Parties presented the rebuttal testimony of: Dr. Gregory S. Crawford,
Professor of Economics, University of Warwick, United Kingdom; Jeffrey
S. Berman, Senior Partner & Executive Vice President, C&R Research; Dr.
Duncan; Edward S. Desser, President/Founder, Desser Sports Media, Inc.;
and Mr. Trautman.\10\
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\10\ The Judges also admitted the rebuttal testimony of two
witnesses for the Settling Parties without live testimony pursuant
to the stipulation of all the parties: Michael D. Topper, Vice
President & Head of the Antitrust & Competition Practice,
Cornerstone Research, Tr. at 2334-35; and Greg Stone, Owner/Chief
Executive Officer, Greg Stone Media Consulting, id. at 2335.
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The Devotional Claimants presented the rebuttal testimony of Dr.
Michael Salinger, Professor of Economics, Boston University School of
Management and Managing Director of LECG.
The Canadian Claimants presented the rebuttal testimony of: Ms.
Martin; Dr. Gary T. Ford, Emeritus Professor of Marketing, the Kogod
School of Business, American University; Dr. John E. Calfee, Resident
Scholar, American Enterprise Institute; and Dr. Brian T. Ratchford,
Charles and Nancy Davidson Professor of Marketing, University of Texas
at Dallas.
Program Suppliers presented the rebuttal testimony of: Ms. Kessler;
Dr. John R. Woodbury, Vice President, Charles River Associates; and Mr.
Mansell.\11\
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\11\ The Judges also admitted the rebuttal testimony of two
witnesses of the Program Suppliers without live testimony pursuant
to the stipulation of all the parties: Dr. Gruen, Tr. at 3238-39;
and Dr. George Ford, id. at 3384-86.
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Proposed Findings of Fact and Conclusions of Law were submitted by
the parties by March 17, 2010, and disputed findings were submitted by
April 9, 2010. The parties also submitted Joint Agreed Findings of Fact
and Conclusions of Law on April 19, 2010. Closing arguments were held
on May 10, 2010, and the record to the proceeding was closed.\12\
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\12\ There remains an outstanding motion filed jointly by the
parties requesting that the Judges adopt specific descriptions of
the program categories at issue in this proceeding. However, at
closing argument, the parties deemed the motion as no longer
necessary. See, e.g., 5/10/10 Tr. at 33, 94 (Closing Argument).
Consequently, the motion is denied.
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[[Page 57065]]
The Distribution Order was issued to the parties on June 29, 2010.
Motions for Rehearing were filed by Program Suppliers and Canadian
Claimant Group. On July 19, 2010, the Judges DENIED the Motions for
Rehearing.
II. The Governing Distribution Standard
Section 803(a)(1) of the Copyright Act Provides:
The Copyright Royalty Judges shall act in accordance with this
title, and to the extent not inconsistent with this title, in
accordance with subchapter II of chapter 5 of title 5, in carrying
out the purposes set forth in section 801. The Copyright Royalty
Judges shall act in accordance with regulations issued by the
Copyright Royalty Judges and the Librarian of Congress, and on the
basis of a written record, prior determinations and interpretations
of the Copyright Royalty Tribunal, Librarian of Congress, the
Register of Copyrights, copyright arbitration royalty panels (to the
extent those determinations are not inconsistent with a decision of
the Librarian of Congress or the Register of Copyrights), and the
Copyright Royalty Judges (to the extent those determinations are not
inconsistent with a decision of the Register of Copyrights that was
timely delivered to the Copyright Royalty Judges pursuant to section
802(f)(1)(A) or (B), or with a decision of the Register of
Copyrights pursuant to section 802(f)(1)(D)), under this chapter,
and decisions of the court of appeals under this chapter before, on,
or after the effective date of the Copyright Royalty and
Distribution Reform Act of 2004.
17 U.S.C. 803(a)(1).
All parties acknowledge that Congress did not set forth a statutory
standard for cable royalty allocations. See, e.g., SP PCL at ] 6.
Beginning with the Copyright Royalty Tribunal, standards were created
to assist the distribution process, which changed through the years
under the Tribunal and later under the Copyright Arbitration Royalty
Panel (``CARP'') system administered by the Librarian of Congress.\13\
However, for purposes of this proceeding, the parties are all in
agreement that the sole governing standard is the relative marketplace
value of the distant broadcast signal programming retransmitted by
cable systems during 2004 and 2005. See CCG PCL at ] 9; DPCL at ] 2; SP
PCL at ] 6; PS PCL at ] 9.
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\13\ For a more complete discussion of how the standards for
distribution have changed throughout the course of the section 111
license, see 2000-03 Distribution Order, 75 FR at 26801-02 (May 12,
2010).
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In applying the relative marketplace value standard to this
proceeding, we are cognizant of the requirements of section 803(a)(1)
described above. We have considered all of the evidence and the
arguments presented by the parties. To the extent that they are
incorporated into our determination as to the proper distribution of
the cable funds, they are accepted. To the extent they are not, they
are rejected.
III. JSC, CTV, PTV and Program Suppliers Claimants' Awards
Having carefully reviewed and considered all of the evidence in the
record, the Judges find that the values of the program categories at
issue among these contending claimants are most reasonably delineated
by a range bounded by certain results indicated primarily by the Bortz
constant sum survey, to a lesser extent by the Waldfogel regression
analysis and, to a slight extent, by the Gruen constant sum survey. For
the reasons discussed below, the Judges find that no single
methodological approach, even when ostensibly adjusted to account for
acknowledged shortcomings, persuasively obviates the need for relying,
at least to some small extent, on other reasonable valuation approaches
that offer additional perspective from a different methodological
vantage point.
The market value of the non-network programming that appears on
distant signal stations that are retransmitted by cable systems is not
directly measurable. That is because the price charged to the cable
system for the right to retransmit such programming is not determined
in a free market, but rather is determined statutorily. Therefore, the
evidence adduced in this proceeding aims to show how the programming in
question would be valued in a hypothetical free market that would exist
but for the regulatory regime currently in place.
However, such a hypothetical free market value for non-network
distant signal programming is also not directly observable, because
cable operators purchase a bundle of programming when they purchase a
distant signal's entire output. [``Q. And why didn't you ask them about
actual expenditures by that cable system for programming? A. Well,
that's not something that's really possible to do, because cable
operators buy whole signals. They don't buy the individual-when they're
buying distant signals, they buy entire signals that include, in--in
most instances--instances, multiple types of programming or multiple
categories of programming. And, therefore, they're not, in the distant
signal purchase decisions, making expenditures for the--these
particular categories of programming.'' Tr. at 78 (Trautman).] Ergo,
various alternative explanations about what induces cable system
operators (the buyers) in a hypothetical distant signal market to
exhibit preferences for one type of programming relative to the other
types of programming that form part of the bundle on a distant signal
station are the focus in this proceeding. The inducement to buy distant
signals in the cable market stems from the derived demand for such
distant signals as inputs in the various cable systems' channel
lineups. In other words, any cable operator's demand for the
programming input reflected in distant signals is only valuable to the
extent that the demand for the total output of any cable system (i.e.,
bundles of service options) can be related to that particular input.
Analysis of the Settling Parties' Evidence
One approach to valuation, favored by the Settling Parties,
explains the demand for distant signals by cable operators in terms of
the strength of the cable system operators' expressed preferences for
the types of programming that they identify with the distant signal.
This is grounded in the notion that a cable operator's association of
certain kinds of ``signature programming'' with a particular distant
signal station tends to be the starting point for driving value. Tr. at
86 (Trautman). Thus, the Bortz survey is predicated on the notion that
the cable operator respondents are focusing on ``signature
programming'' that drives the value of the distant signal station to
the cable operator. [``And I think what you're expressing there in that
example is exactly what I'm talking about in terms of the dominant
impression of value and the notion of signature programming. I think,
on any of these distant signals, although it may--what constitutes
signature programming could differ from one respondent to the next,
they are, in fact, in answering this question, thinking exactly along
the lines that you expressed.'' Tr. at 91 (Trautman).] Following this
line of analysis, the Settling Parties offer the Bortz constant sum
survey of cable operators' relative preferences among certain
categories of programming identifiably present on distant signal
stations as determinative of the relative value of most of the
categories of programming represented by the claimants in this
proceeding.
Yet, it is not clear from the preferences expressed by the cable
system operators who answer the Bortz survey questions where the key
relative value question is limited to defining worth only ``in terms of
attracting and
[[Page 57066]]
retaining subscribers,'' whether the preferences so expressed would
reflect actual demand in a more realistic view of a hypothetical free
market. That is, the purchase of one type of channel by cable operators
(such as distant signal stations) and the programming it reflects would
not occur in a vacuum to the exclusion of consideration of the
remaining content to bundle with that distant signal channel in the
product ultimately offered to subscribers. Underlying subscriber demand
for the programming that appears on a particular distant signal station
is only one part of a more complex decision facing cable operators as
to whether the input in question is more attractive than a cable
network alternative in terms of the net revenue or profit maximization
goals of the buyers. This is not a trivial concern inasmuch as the
buyers in this case (cable operators) are not participants in perfectly
competitive input markets or in perfectly competitive output markets
for their services. In the input market for cable channel programming
as well as in the output market for providing consumer subscribers with
cable television services, cable system operators exercise varying
degrees of market power. Therefore, it is less than realistic to assume
that cable operators' programming purchases are driven only by meeting
their underlying subscriber programming preferences when a myriad of
other net revenue considerations may be involved in any programming
decision.\14\
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\14\ In markets characterized by some degree of monopoly power,
consumer preferences are not honored in the same manner as in
perfectly competitive markets, resulting in higher prices being
charged to consumers and lesser quantities of goods/services being
sold at the market price. Firms in such markets are, to varying
degrees, price-makers rather than price-takers as compared to firms
operating in perfectly competitive markets. So while a perfectly
competitive firm is motivated to sell as much as it can produce up
to the point where its marginal costs equate with the market price
established by the market demand curve, a firm with some monopoly
power is only motivated to sell up to the point where its marginal
costs equate with the marginal revenues associated with the higher
price it influences or dictates as reflected in the firm's downward
sloping demand curve.
Testimony such as that offered by Judith Meyka describing the
cable marketplace as competitive and declaring that the value of any
particular programming to a cable operator is derived from the
perceived value to the subscriber (see Meyka WDT (SP Ex. 4) at 4) is
simply not credible in the face of well-documented studies showing
the exercise of pricing power based on single cable operator
dominance in the cable markets serving most Americans and in light
of the fact that cable operators restrict their channel offerings to
subscribers to bundles of channels, not just to the channels
subscribers typically view. See, for example, U.S. General
Accounting Office (GAO), Issues Related to Competition and
Subscriber Rates in the Cable Television Industry, October, 2003
(``October 2003 GAO Report'') at 30-31.
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One reason that more than just pure subscriber interests play a
role in shaping the underlying demand for a cable operator's output is
that the distant signal channels highlighted in this proceeding are not
the subject of a direct choice by cable subscribers. Rather distant
signal offerings are bundled together with non-distant signal broadcast
channels, cable network channels and pay-per-view channels. Further,
they are bundled into varying combinations of channels that are offered
as different tiers of service for different prices. The bundles are
packaged by the cable operator who selects the channel offerings,
including any distant signal offerings. The rationale for the cable
operator's decision concerning which channels to group in any tier
offering and at what price, may depend not only on the impact on direct
subscriber revenues, but also on such factors as advertising revenues
associated with cable network channels, the relative license fee costs
of various cable network channels, physical capacity constraints on the
number of channels that can be transmitted over a particular cable
system and even the direct ownership interests of the cable system in
programming content on a given cable network.\15\ In short, the
preferences expressed by the cable system operators who answer the
Bortz survey, where the key relative value question is limited to
defining worth only ``in terms of attracting and retaining
subscribers,'' either may implicitly reflect more than an actual
underlying subscriber demand for the programming that appears on a
particular distant signal station or, alternatively, unrealistically
minimize factors such as whether the input in question is more
attractive than a cable network alternative in terms of the net revenue
or profit maximization goals of the buyers.
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\15\ See, for example, October 2003 GAO Report at 30-31. [``Most
cable operators with whom we spoke provide subscribers with similar
tiers of networks, typically the basic and expanded-basic tiers,
which provide subscribers with little choice regarding the specific
networks they purchase * * *. The manner in which cable networks are
currently packaged has raised concern among policy makers and
consumer advocates about the lack of consumer choice in selecting
the programming they receive. Under the current approach, it is
likely that many subscribers are receiving cable networks that they
do not watch. In fact, a 2000 Nielsen Media Research Report
indicated that households receiving more than 70 networks only
watch, on average, about 17 of these networks. The current approach
has sparked calls for more flexibility in the manner that
subscribers receive cable service, including the option of [agrave]
la carte service, in which subscribers receive only the networks
that they choose and for which they are willing to pay.''] See also,
U.S. Government Accountability Office, Media Programming: Factors
Influencing the Availability of Independent Programming in
Television and Programming Decisions in Radio, March, 2010 at 1-24.
See also the testimony by Dr. Crawford for the Settling Parties and
Dr. George Ford for the Program Suppliers concerning some of the
economic effects of bundling as summarized in SP PFF at ]] 447-49,
534.
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This is not to say that the Bortz constant sum cable operator
preference survey is substantially flawed, but rather that, given the
interplay of all of the other factors described above that may color a
cable operator's decision concerning the purchase of a distant signal
input in a hypothetical cable market where the reality of bundling is
taken into account, the Bortz survey's resulting point estimates are
not a precise measure of all of those factors that may shape cable
operator demand for the programming on distant signal stations. And,
the Bortz study is certainly not a fully equilibrating model of supply
and demand in the relevant hypothetical market, but rather a market
research survey of buyer (i.e., cable operator) preferences in that
market, characterized by a less than fully comprehensive explanation of
what shapes those preferences. Therefore, for reasons discussed below,
while the Judges find the Bortz study to be the most persuasive piece
of evidence provided on relative value in this proceeding, the Bortz
confidence intervals around each point estimate inspire more confidence
than a strict adherence to the point estimates, particularly in
relation to the larger claimants.
This is not to say that the Bortz survey should ignore the role of
the subscriber growth factor in the demand for programming content or
that subscriber growth is not a consideration facing cable operators in
planning their programming decisions. To the contrary, as noted above,
subscriber growth is one consideration facing cable operators in making
programming decisions; and, underlying subscriber demand was explicitly
and properly a factor which the survey respondents were asked to
consider. Moreover, that there are factors other than subscriber growth
considerations which may also be at work in influencing the demand for
distant signal stations, does not change our finding that the Bortz
survey focuses on the appropriate buyer in the hypothetical market--
i.e., the cable operator.
Beyond the issue of the relevant contours of the hypothetical
market, any study that purports to provide useful information on the
relative value of the disparate categories of distant signal
programming at issue in this proceeding must be reasonably well-founded
methodologically. We find that the Bortz study is founded on a method--
[[Page 57067]]
the constant sum survey--that has been long regarded as a recognized
approach to market research. Tr. at 50 (Trautman), 1299 (Ringold), and
3007 (Gary Ford). Nevertheless, there are at least three aspects
related to the execution of the Bortz survey methodology that we find
additionally caution against regarding the Bortz point estimates as
precise indicators of the relative value of the programming addressed
in the record of this proceeding.
First, there may be bias introduced into the survey resulting from
the respondents' potential misunderstanding of the exact parameters of
the categories of programming they are being asked to compare in the
key question (i.e., question 4) addressing valuation in the survey.
[``There are--there certainly is the potential that in--in some
instances, on--I would say on the--on the fringes of these categories
that a respondent might be thinking that one particular thing that is
of value to them is in one category, when, in fact, for purposes of
these proceedings, it should fit in another.'' Tr. at 83 (Trautman);
and ``Well, I think--first, I think that it's minor. I think that the
program--there might be one or two exemptions, but the programs that
are subject to miscategorization tend to be at the fringes and--and
tend not to be things that drive substantial value in our service--in
our survey. And, therefore, I think that the potential for spillover or
for a change in result is--is limited.'' Tr. at 107-08 (Trautman).]
However, although such bias may well be reflected in the Bortz survey
point estimates, no one in the proceeding has precisely quantified the
amount or direction of such bias. Therefore, we cannot say to what
degree such bias may skew the Bortz point estimates. Moreover, we find
no basis for concluding that such bias takes the true relative value
numbers outside of range of the confidence intervals for the valuation
estimates produced by the Bortz survey. [``Q. And have you considered
whether your results are reliable in light of the possibility that
there might be miscategorization in the response? A. I have considered
that, and--and while I indicated that there's certainly some potential
for spillover or miscategorization of certain types of programming, I
think I have confidence that--that within the bounds of the estimation
parameters that we set forth in the survey, that our results provide an
accurate indication of relative value.'' Tr. at 107 (Trautman).]
Second, an acknowledged shortcoming of the Bortz survey valuations
revolves around its handling of PTV and Canadian programming estimates.
Because the Bortz methodology calls for surveying cable systems that
contain at least one U.S. independent or network signal, cable systems
which carry PTV-only or Canadian-only distant signals are excluded from
the survey sample. The exclusion of such cable systems clearly biases
the Bortz estimates downward for PTV and Canadian programming. The
Bortz study seeks to excuse this bias on grounds that it is not
possible to obtain an estimate of relative value where the cable system
carries only one type of distant signal programming. But this
explanation fails to adequately consider the view that: (1) A cable
system that chooses only PTV or Canadian programming may be implicitly
making a choice in favor of a 100% relative value score for such
programming; (2) an explicit 100% relative value score for the Movies
category (and concomitant 0% score for the remaining programming
categories) is regarded as acceptable by the Bortz methodology in the
case of a U.S. commercial station; and, (3) the latter occurrence--a
100% relative value score for the Movies category--would be recorded by
Bortz even in the absence of PTV or Canadian distant signals from the
responding cable operator's system. While the Bortz report acknowledges
this bias (Bortz Report (SP Ex. 2) at 8-9) and the Settling Parties
offer additional adjustments to purportedly remedy the problem (see
infra at Section IV (Analysis of the Evidence)), the proffered remedies
are not wholly satisfactory and, more importantly, obscure the basic
difficulty that stems from asking cable operators to compare five
different categories of programming with two types of distant signals.
CCG PFF at ]] 112,120. The Bortz survey may well be improved in this
regard, either through the reformulation of the questions asked in the
survey and/or by revisiting the underlying survey sample plan. Tr. at
2996-98 (Gary Ford); CCG PFF at ]] 154-55. Yet, while this bias is
troubling and proposed post-survey remedies based on the current record
are discussed infra at Section IV (Conclusion and Award), it would be
inappropriate to overstate the impact of this problem. No one in this
proceeding maintains that it substantially affects more than a small
portion of the total royalty pool (i.e., the combined PTV-Canadian
portion) under any of the competing theories of royalty distributions
advanced in this proceeding. Nor has it been shown that the Bortz
survey's remaining non-PTV-Canadian estimates were thrown outside the
parameters of their respective confidence intervals solely because of
this problem. That is, the PTV-Canadian problem does not substantially
affect any of the remaining categories in some disproportionate
way.\16\
---------------------------------------------------------------------------
\16\ Indeed, even PTV does not object to the share accorded it
under the Settling Parties' proposed shares which are based on the
Bortz study as augmented by further adjustments.
---------------------------------------------------------------------------
Third, another acknowledged problem with the Bortz study flows from
its handling of compensable as compared to non-compensable programming.
[``* * * respondents to our survey are not informed that substantial
portions of the movies and syndicated programming on Superstation WGN
(the most widely carried distant signal) are not compensable in this
proceeding because these programs are not broadcast by WGN on its over-
the-air Chicago signal; thus the values that respondents to our survey
attribute to these categories likely represent a `ceiling' in that
respondents are considering all programming on WGN rather than just the
compensable programming on WGN.'' Bortz Report (SP Ex. 2) at 8.] The
same issue affects the Devotional Claimants because of the presence of
devotional programming on WGN that is also non-compensable. SP PFF at ]
686. (See also infra at Section V (Conclusion and Award)).
The Settling Parties offer some additional adjustments to the Bortz
point estimates to address this problem. See SP PFF at ]] 347-48.
However, the Settling Parties do not incorporate their proposed
adjustments explicitly into their proposed awards. Rather, the Settling
Parties simply note their view that with respect to the Program
Suppliers, their proposed award should only be regarded as a
``ceiling'' from which the Program Suppliers share should be reduced by
some amount to reflect the disproportionate effect of the non-
compensable programming issue. The Settling Parties clearly cannot
precisely quantify an adjustment to the Bortz numbers for Program
Suppliers because they recognize that
The specific amount of an appropriate reduction in the Program
Suppliers' share would depend on how much of the value attributed by
Bortz survey respondents to Program Suppliers programming categories
was attributable to non-compensable programming on WGN, as to which
there is no direct evidence, but it would be reasonable to expect
that some portion of that value was attributed to non-compensable
Program Suppliers programming.
SP PFF ] 348, n.802 (emphasis added). Further, with respect to the
Devotional Claimants' share, the Settling Parties do
[[Page 57068]]
not incorporate an explicit adjustment for this factor in their
proposed award, being merely content to argue its relevance to adopting
a prior lower award in place of its Bortz indicated share. See SP PFF
at ]] 686-87. Moreover, the method suggested by the Settling Parties
for adjusting the Program Suppliers' share would produce no change in
the Devotional Claimants' share--that is Dr. Waldfogel's comparison of
implied royalty shares that resulted when all programming minutes on
WGN were used in share calculations rather than just compensable
programs showed no difference for the Devotional Claimants (a zero
share in both cases). See SP PFF at ] 176 at Table 5. Thus, while we
agree that some adjustment for this problem is reasonable, we find no
reliably quantified adjustment on the record before us. However,
because we focus on the confidence intervals for the Bortz estimates,
rather than the Bortz point estimates themselves, we do not find that
this issue alone so substantially affects the relative values of the
programming so as to require us to discard those intervals as the best
indicators in the record of the actual relative values of the
programming of the larger claimants in this proceeding.
A number of other criticisms have been raised with respect to the
Bortz survey by various claimants in this proceeding that suggest other
shortcomings in terms of economic theory, statistical analysis or
survey methodology. Yet, whether taken individually or viewed as a
group, we do not find these other criticisms to undermine the general
usefulness of the Bortz survey for the purpose offered. Certainly, none
of the criticisms raised by the contending parties persuade us to
``throw out the baby with the bathwater,'' particularly when viewing
the Bortz survey results in terms of the confidence intervals around
the point estimates rather than strictly limited to the point estimates
themselves. Instead, particularly in the case of the larger claimants
such as JSC, CTV and Program Suppliers, we find the confidence
intervals provided by the Bortz study the best starting point for
evaluating an award, although we also recognize the need to give due
consideration to the reasonability of adjustments to deal with
acknowledged problems such as the undervaluation of PTV and Canadian
programming. The Bortz intervals certainly mark the most strongly
anchored range of relative programming values produced by the evidence
in this proceeding. Still, other evidence produced in the record also
helps to more fully delineate all of the boundaries of reasonableness
with respect to the relative value of distant signal programming.
Another piece of evidence helpful to some degree in this regard is
the Waldfogel regression analysis. Dr. Waldfogel's multiple regression
analysis attempts to analyze the relationship between the total
royalties paid by cable operators for the carriage of distant signals
in 2004-05 and the quantity of programming minutes by programming
category on those distant signals. In addition to considering the
impact on the dependent variable (total royalties) of independent
variables representing minutes of programming for eight category types,
Dr. Waldfogel considered the following additional independent variables
in his analysis: the number of subscribers to the cable system in the
prior period, the number of activated channels (i.e., utilized
capacity) for the cable system, average household income in the market
in which the cable system was located, the number of channels
originating locally, and dummy variables to indicate the presence of
certain payment conditions (such whether a system pays any 3.75% fees
or whether a system carries partially distant signals or whether a
system imported only one DSE or whether a system imported less than one
full DSE). See SP PFF at ] 156. Dr. Waldfogel's specification was
similar in its choice of independent variables to a regression model
utilized by Dr. Gregory Rosston to corroborate the Bortz survey results
in the 1998-99 CARP proceeding. See Report of the Copyright Arbitration
Royalty Panel to the Librarian of Congress, in Docket No. 2001-8 CARP
CD 98-99 (``1998-99 CARP Report'') at 46 (October 21, 2003). Dr.
Waldfogel offered a total minutes (i.e., compensable as well as non-
compensable) version of his regression analysis as corroborative of the
adjusted Bortz survey estimates. Tr. at 854 (Waldfogel).
Conceptually, the Waldfogel regression, with its focus on bundles
of distant signals and inclusion of variables to capture both system
capacity and the impact on the appetite for distant signals associated
with the number of channels originating locally, may provide a richer
look than the Bortz survey into factors that impact the purchasing
decision of cable operators. Yet, unlike the Bortz survey, it does not
purport to analyze data free from the strictures of the regulated
market because the payment pools analyzed ultimately are impacted by
the fee structure set in the regulated market. This raises the question
of whether the Waldfogel analysis provides useful information on the
key behavioral question or, alternatively, whether it merely mirrors
the impact of the regulated market in its valuation. We agree with Dr.
Waldfogel that the way to think about the bundle of programming that is
being considered by the cable operator is to focus on its incremental
value. Tr. at 890, 921, 926, and 940-41 (Waldfogel). Under that theory,
Dr. Waldfogel has conceptually sought to separate the market impact of
incremental signal purchasing decisions from the minimum fee issue and
some other regulated fee considerations through the use of the dummy
variables specified in the regression. We find, that as a result of the
manner in which he has conceptualized his model, Dr. Waldfogel's
regression coefficients do provide some additional useful, independent
information about how cable operators may view the value of adding
distant signals based on the programming mix on such signals. Although
the determinants of distant signal prices in a hypothetical free market
are not necessarily identified as such, some indication of what the
cable operator finds valuable may be obtained by observing the way
cable operators' total spending relates to the content of the bundle of
distant signals purchased. That is because the cable operators are free
to decide how many distant signals to purchase and, therefore, whether
the addition of the content of an incremental distant signal will
contribute to the net revenues of the system.
At the same time, while the Waldfogel regression analysis provides
useful information, we also find that there are limits to that
usefulness in corroborating the Bortz survey, largely stemming from the
wide confidence intervals for the Waldfogel coefficients. Thus, the
implied share of royalties calculated by Dr. Waldfogel would change
substantially if the true value of the variable was at one end of the
confidence interval rather than at the point estimate value used by Dr.
Waldfogel in his calculations. Given the size of the standard errors
around his estimates, Dr. Waldfogel concedes this imprecision. SP PFF
at ] 184. Nevertheless, while one may question the precision of the
results on this basis, it only cautions against assigning too much
weight to its corroborative value.
As to the methodology employed, we find that Dr. Waldfogel employed
generally reasonable methods to assure that the model's results were
consistent in the face of changes in the model and that the parameter
estimates did not vary in a statistically significant way
[[Page 57069]]
across years. SP PFF at ]]167-68. The strident criticisms raised by Dr.
Salinger and Dr. George Ford concerning the ``instability'' of the
Waldfogel estimates over time are excessive. For example, there is no a
priori reason why the two individual years examined by Dr. Salinger (by
breaking the Waldfogel entire sample in two) should have exactly
matching minutes coefficients. Lack of precision can result merely from
the fact that all items in a population were not observed. The smaller
the sample size, the fewer are the number of observations and, hence,
the less precision. Then too, it is not unusual to observe the
coefficients of independent variables in a model varying between two
samples because all possible combinations of forces at work that result
in these coefficients can seldom be fully encompassed in an efficient
specification of a model. Finally, the ``instability'' suggested by Dr.
Salinger does not extend to the signs of the coefficients--all of the
minutes variables examined by Dr. Salinger continue to carry the same
positive or negative sign in 2004 as they carried in 2005. Thus, any
instability does not extend to the direction of the expected
explanation--it is the same in both years. Dr. Salinger also raises the
spectre of omitted variables with respect to the Waldfogel analysis.
Tr. at 2873-74 (Salinger). But there is no evidence that the inclusion
of any particular additional independent variable would improve the
explanatory power of the Waldfogel regression. Nor is there any
evidence in the record that the independent variables in the Waldfogel
regression are correlated within an important omitted variable thereby
leading to an unreliable estimate of the regression coefficients for
the included variables. Without such evidence, this criticism should
not be overstated because an omitted variable criticism may always be
raised, since there are an almost limitless number of potential
variables that may be considered for inclusion in any model of some
complexity. SP PFF at ]186.
Having carefully considered the Waldfogel analysis and various
criticisms of that analysis raised by the contending parties, we find
the results of this regression analysis useful in two ways--(1) to, at
least in some rough way, corroborate the augmented Bortz survey results
and (2) to provide an independent reasoned basis for considering
movement away from the augmented Bortz point estimate for the
Devotional category toward, or even beyond, either boundary of the
Bortz confidence interval for that category. First, we find that, when
applied to all program minutes to match the scope of the programming
covered by the Bortz surveys, and when the resulting shares are
compared to Bortz survey results that have been augmented to match the
scope of the systems covered by the regression analysis, Dr.
Waldfogel's regression analysis coefficients produce comparable share
numbers for all categories except Devotional. Second, to the extent
that there is imprecision in the augmented Bortz estimates, the
Waldfogel regression analysis may help to identify the most imprecise
point estimates and suggest a direction in which they may be adjusted
further to bring them in line with what is occurring where actual
decisions have been implemented. In this case, the Waldfogel analysis
suggests the augmented Bortz point estimates for the Devotional
category cannot be corroborated and, further, the value of the
Devotional coefficient points toward a lower share for this category
(consistent with our further consideration of this category, infra at
Section V (Conclusion and Award)). Tr. at 922, 924 (Waldfogel).
Analysis of the Program Suppliers' Evidence
Although much less useful than the Waldfogel regression for the
reasons delineated below, the Gruen survey results advocated by the
Program Suppliers cannot be totally disregarded. As we have previously
noted, there are factors, other than subscriber growth considerations,
which may also be at work in influencing the demand for distant signal
stations and that the cable operator may be best positioned to address
these other considerations in a hypothetical market setting dealing
with bundles of signals encompassing different programming mixes. That
is why we have found that, whatever its shortcomings, the Bortz survey
focuses on the appropriate buyer in the hypothetical market--i.e., the
cable operator. Nevertheless, we recognize that one consideration
facing cable operators, even in the subscription markets in which their
cable systems may be exercising some degree of monopoly power,\17\ is
the impact of programming on subscription revenues. To that extent, the
preferences of subscribers as to distant signals that appear as part of
the bundle of cable stations they receive may provide some relevant
information, particularly if a nexus may be established between
subscriber demand for such distant signals and the programming on those
distant signals that drives the demand. The Gruen survey attempts to
shed some light on this limited issue. Unfortunately, although not
persuading us to reject the survey altogether, the various inadequacies
of the Gruen approach cause us to place little weight on its findings
beyond the very general notion that the highest valued categories of
programming identified by the Bortz survey as a group remain the
highest valued categories of programming identified by the Gruen survey
and the lowest valued categories of programming identified by the Bortz
survey as a group remain the lowest valued categories of programming
identified by the Gruen survey.
---------------------------------------------------------------------------
\17\ Just for purposes of clarity, when we say that a firm is
exercising some degree of monopoly power, we mean that the firm has
some influence over prices--that is, the market in which it
participates is characterized by something less than perfect
competition. In short, the firm may exercise market power that falls
short of being a perfect monopoly, but does exercise sufficient
market power to determine that it does not participate in a
perfectly competitive market.
---------------------------------------------------------------------------
Among the design and execution problems afflicting the Gruen survey
were the lack of analysis to determine whether there was a
representative sampling of demographic groups, the absence of any
gender analysis, the application of valuations to the entire household
rather than the survey respondent, the lack of assurance that the
distant signals in question were actually viewed, and, like the Bortz
survey, the failure to make an adjustment for non-compensable
programming on WGN America (``WGN-A''). DPFF at ] 185; Tr. at 3167-68
(Ratchford); Tr. at 1915 (Gruen). Though not rendering it totally
useless, the narrow focus of the study (subscriber preferences) and the
difficulties largely related to the design and execution of the survey,
referenced hereinabove, detract from the utility of the Gruen results,
except in some very general way that confirms the broad outlines of the
Bortz findings. It should be noted that many of the difficulties
identified with the survey are capable of repair in the future, so
that, if properly executed, it may provide some better insight into
subscriber tastes to the extent such tastes play some role in cable
operators' demand for distant signals as part of their offerings. For
example, one issue on which the Gruen survey attempted to acquire some
better information was on the definition of ``live team sports''--an
issue that clearly was of concern to the Judges in the context of the
Bortz study. See, for example, Tr. at 81-84, 100-101 (Trautman). Still,
as derived for this proceeding, we find the Gruen survey results of
only slight, very general usefulness.
[[Page 57070]]
In addition to the Gruen survey, the Program Suppliers provided
another quantitative study by Dr. George Ford on the question of
relative value. Dr. Ford, in search of a market that would correspond
to a hypothetical free market for the purchase and sale of the bundles
of programming on distant signals, proposes a proxy for the direct
observation of such a market. That proxy programming market was one
that focused on local broadcast stations' purchases of exclusive
broadcast rights in their own local markets.
We find that Dr. George Ford's advertising based model so far
attenuated from the relevant hypothetical market as to offer no basis
for reasonable estimates of the relative value of programming on
distant signal stations. Moreover, questionable underlying assumptions
and the methodological flaws plague the advertising based model.
Finally, because we find no merit in this advertising market approach
and only a slight, very general usefulness to the Gruen survey results,
we reject Dr. George Ford's further suggestion of the marriage of the
two approaches into a hybrid solution. See Ford WDT (PS Ex. 11) at 49-
50.
Dr. George Ford's approach wholly ignores the value that may be
ascribed to distant signal programming by cable operators (the buyers
in the relevant hypothetical market) or even by cable subscribers
(through their derived impact on demand). SP PFF at ]] 423-24.
Therefore, on that basis, a number of the professional economists who
testified in this proceeding on the issue found the George Ford
advertising based approach wanting in terms of providing any useful
information. See, for example, Tr. at 229-30, 254-56 (Crandall); Tr. at
2344-46 (Crawford); Tr. at 2787-88 (Salinger); Tr. at 3060-61 (Calfee).
Furthermore, the George Ford advertising approach suffers from
questionable assumptions underlying the basic tenants of his analysis
or inaccurate assumptions leading to flawed adjustments of the results
for particular categories of programming that do not admit of direct
analysis in his approach. For example, Dr. George Ford assumes that the
broadcast stations he analyzed would buy precisely the programming that
was actually carried by cable systems on distant signals in 2004 and
2005. Tr. at 2199 (George Ford). But he offers no evidence to support
his assertion that this is a ``reasonable'' assumption. Similarly,
there are assumptions with respect to his determination of ``prices''
paid for programming on an advertising spot sales price on a ``cost per
thousand'' or ``CPM'' basis that are not reasonable. As an example, he
applied the CPM analysis to the Canadian programming category, even
though none of the advertising data were for Canadian markets. SP PFF
at ] 432. On the other hand, he assigns the average CPM to devotional
programming even though the Devotional Claimants sell no advertising in
their programs. Ford WDT (PS Ex. 11) at 35, 39 Table 6 and Johansen WDT
(Devo. Ex. 2) at 7. Dr. George Ford further assumes that CTV
programming did not air during prime time, resulting in no credit for
Prime Time CPMs for such programming--an erroneous assumption based on
the most persuasive evidence received in this proceeding. SP PFF at ]]
460-61.
In short, we find that the George Ford advertising approach offers
no helpful insight into the relevant hypothetical market or into the
behavior of the relevant buyer in that hypothetical market--i.e., the
cable operator.
In addition, even the proponent of this approach admits that, at
bottom, changes in relative market values calculated between 2004 and
2005 are driven principally by the changes in viewership shares that
were reported in the underlying MPAA special study. Tr. at 2286-88
(George Ford). Yet, where cable systems do not sell advertising in
connection with distantly retransmitted content, a valuation dependent
on ad sales tied to viewing data is untenable. Clearly, this study
fails to offer a reliable means of translating viewership shares to
relative value if that is its aim.
Conclusion and Award
For all of the above reasons, the Judges conclude that the Bortz
intervals set the appropriate parameters for evaluating their award
with respect to the JSC, CTV, and the Program Suppliers.\18\ Moreover,
we do not find the Bortz estimates, either before or after various
adjustments, to be so precise as to produce awards extending beyond a
single decimal place. We deal with music separately as described infra
at Section VI, and, therefore, divide the remainder among the JSC, CTV,
Program Suppliers, Devotional Claimants, PTV and Canadian Claimants,
using as our starting point the augmented Bortz survey shares as
calculated by Ms. McLaughlin\19\ which includes appropriate adjustments
to the PTV share at SP PFF at ] 317; and then, we proceed to adjust
these values further to reflect the differential impact of the
alternative approach we take to valuing the Canadian Claimants' and
Devotional Claimants' shares. See infra at Sections IV and V. Although
we provide somewhat more to the Canadian Claimants than the Bortz
interval suggests for the reasons discussed infra at Section IV
(Conclusion and Award), the negative effect on the remaining categories
is miniscule. At the same time we provide less to the Devotional
Claimants than the Bortz interval would indicate, based on the impact
of the Waldfogel regression and other considerations, including the
suggested direction (though difficult to quantify magnitude) of the
impact of the non-compensable programming issue, as discussed supra at
Section III (Analysis of the Settling Parties' Evidence) and infra at
Section V (Conclusion and Award). The lower Devotional Claimants' share
is divided proportionately among JSC, CTV, and PTV. However, no portion
of the reduced Devotional Claimants' share is awarded to the Program
Suppliers, because the latter group's Bortz share, just like that of
the Devotional Claimants, includes non-compensable programming.
Therefore, we decline to extend the potentially small gain from the
downward adjustment of the Devotional Claimants' share to the Program
Suppliers so as to recognize the differential standing of the Program
Suppliers as compared to JSC, CTV and PTV with respect to non-
compensable programming. The effect of this approach is to recognize
and make the equivalent of a directional adjustment in the Program
Suppliers' share relative to those remaining categories of programming
which are largely compensable.\20\ However, the resulting
[[Page 57071]]
positive effect on the remaining categories is small and does not place
either the JSC shares or CTV shares or the share of the Program
Suppliers substantially outside of its respective Bortz interval. Thus,
with respect to JSC, CTV and the Program Suppliers, our award is
consistent with the Bortz intervals--the strongest piece of evidence on
these relative values submitted in this proceeding for our
consideration--giving due consideration to the reasonability of
adjustments to deal with acknowledged problems such as the
undervaluation of PTV and Canadian programming.
---------------------------------------------------------------------------
\18\ Various arguments are made by some parties concerning
whether or not the Judges must consider or require proof of changed
circumstances, separate and apart from the estimates of relative
value presented by the parties. We find, as did the 1998-99 CARP,
that changed circumstances are embedded within the methodologies
that provide reliable estimates of relative valuations and,
therefore, have already been accounted for and are subsumed within
the calculus of results. See 1998-99 CARP Report at 16, 31-2.
\19\ Because Ms. McLaughlin's figures sum to slightly more than
exactly 100%, we will adjust across the board to preserve the same
relationships and to produce a final distribution of no more than
exactly 100%.
\20\ We recognize that this adjustment may not be precise.
However, we agree with the Settling Parties that it would be
reasonable to expect that some portion of the value assigned by
Bortz survey respondents to Program Suppliers' programming was
attributed to some non-compensable programming, even though there is
no direct evidence in the record that delineates with specificity
how much of the value attributed by Bortz survey respondents to
Program Suppliers' programming categories was in fact attributable
to non-compensable programming on WGN-A. See supra at 16-17 and SP
PFF at ] 348, n.802. Furthermore, inasmuch as the Program Suppliers'
programming likely involves non-compensable programming as does that
of the Devotional Claimants, fairness demands that both these
parties' shares should be impacted relative to the shares of the
Settling Parties whose programming is largely compensable. Despite
our lack of precision in our adjustment, the direction of the
adjustment is correct and the magnitude of the impact on the
Settling Parties' shares, though positive, is relatively small.
---------------------------------------------------------------------------
Prior to adjusting downward for the Music Claimants' share, but
after accounting for the respective shares of the Canadian Claimants
and the Devotional Claimants, the shares of the Basic Fund for PTV,
JSC, CTV and Program Suppliers as determined by the Judges are as
follows:
------------------------------------------------------------------------
2004 2005
(percent) (percent)
------------------------------------------------------------------------
PTV............................................. 7.7 7.4
JSC............................................. 33.7 36.8
CTV............................................. 18.6 14.7
Program Suppliers............................... 34.5 35.7
------------------------------------------------------------------------
Because PTV does not participate in the 3.75% Fund, shares need
only be calculated for the remaining participating claimants by
adjusting the JSC, CTV, Program Suppliers, Canadian Claimants and
Devotional Claimants Basic Fund shares upward to reflect PTV's non-
participation. Prior to adjusting downward for the Music Claimants'
share, but after accounting for the respective shares of the Canadian
Claimants and the Devotional Claimants, the shares of the 3.75% Fund
for PTV, JSC, CTV and Program Suppliers as determined by the Judges are
as follows:
------------------------------------------------------------------------
2004 2005
(percent) (percent)
------------------------------------------------------------------------
JSC............................................. 36.7 40.0
CTV............................................. 20.3 16.0
Program Suppliers............................... 37.6 38.9
------------------------------------------------------------------------
IV. Canadian Claimants' Award
Unlike the other claimant groups, this is not the Canadian
Claimants' first attempt to demonstrate to the Judges the relative
marketplace value of their programming in a Phase I distribution
proceeding. The Canadian Claimants litigated their distribution share
vis-a-vis all the other claimants in Docket No. 2008-2 CRB CD 2000-
2003, covering the royalty years 2000 through 2003. That proceeding,
however, was unlike any other cable Phase I determination in the 32-
plus year history of the section 111 statutory license. Instead of
presenting us with competing methodologies and evidence as to the
proper award for Canadian Claimants, and letting us determine relative
marketplace value, the litigants restricted us, through two joint
stipulations, to select one of two options: either the average of the
1998 and 1999 awards given the Canadian Claimants in the 1998-99 CARP
decision, or the CARP's fee generated results--with slight
modification--using 2000-03 data obtained from CDC. As described in our
decision, 75 FR 26798 (May 12, 2010), we chose the latter option.
The details of the decision need not be repeated here, but there is
one aspect that is worthy of reemphasis. We did not determine that the
fee generation methodology used by the 1998-99 CARP, nor the modified
version proposed by the Canadian Claimants, was the method to determine
relative marketplace value of Canadian programming. 75 FR at 26802
(``It very well may be that there are other methods or other evidence
that best represent the relative marketplace value of Canadian
Claimants' programming as well as the programming of other claimant
groups. Such is not the case in this proceeding, where the parties have
presented us with only two choices. The Judges, therefore, do not opine
as to what may be the best means of determining the relative
marketplace value of Canadian Claimants' programming, or other claimant
groups' programming, in future proceedings.'') (emphasis in original).
No alternative methodology to determine relative marketplace value was
presented. The Canadian Claimants, however, argue in this proceeding
that our 2000-03 decision was an ``affirmation'' of the fee generation
methodology to determine their award and that the decision, coupled
with the 1990-92 and 1998-99 CARPs' use of fee generation for Canadian
Claimants' awards, ``solidifies the deference owed and the high
standard that must be overcome to challenge fee generation as a viable
indication of relative market value.'' CCG PCL at ] 30. This argument
is plainly wrong. We sided with the Canadian Claimants' presentation in
the 2000-03 proceeding because we were given only two choices and the
other claimant groups failed to demonstrate that ``the fee generation
approach is so arbitrary, so meritless that it is without probative
value with respect to determining the Canadian Claimants' royalty
share.'' 75 FR at 26804. Fee generation, as used in the 2000-03, 1998-
99, or 1990-92 proceedings is not given overarching weight in this
proceeding. In order for it to be adopted in this proceeding, the
Canadian Claimants must demonstrate that it is the best means of
determining Canadian programming's relative marketplace value.
Analysis of the Evidence
As they have done in prior proceedings, the Canadian Claimants urge
us to determine their award on the basis of a fee generation
methodology they have developed. We discussed in detail in the 2000-03
proceeding the origin and operation of fee generation, and how it was
applied by the 1998-99 CARP. See 75 FR at 26800-03. Using full-year
data obtained from CDC, the Canadian Claimants demonstrated that
distant Canadian broadcast signals generated 4.15% of the total Basic
Fund royalty fees paid by U.S. cable systems in 2004 and 4.36% of the
fees paid for 2005. For the 3.75% Fund, Canadian distant signals
generated 3.50% of the 2004 royalties and 3.23% of the 2005 royalties.
In years past, the Canadian Claimants' fee generation approach
would stop at this juncture. However, beginning with the 2000-03
proceeding, the Canadian Claimants performed additional computations to
address two ``problem'' facets of the section 111 royalty payment
scheme. The first difficulty occurs in analyzing royalties paid by
cable operators in the Basic Fund. Under the statutory scheme,
royalties are paid on a sliding scale of percentages of gross receipts
obtained by cable systems for the privilege of retransmitting broadcast
stations. Coupled with an additional factor that cable systems that
carry no distant signals pay the same amount as if they had carried one
distant signal (the so-called ``minimum fee''), it is not possible to
determine precisely at what royalty rate the cable system paid for the
Canadian signal (or any other distant signal, for that matter). To
attempt to address this, Jonda Martin, president of CDC, performed what
she described as a ``Min/Max'' analysis, whereby she calculated
royalties from cable systems as if they had paid for the Canadian
distant signal at the first DSE value, and as if they had paid for it
at the last DSE
[[Page 57072]]
value. Martin WRT (CCG Ex. CDN-R-1) at 4. The purpose of this analysis
was an attempt to demonstrate that the Canadian Claimants' selection of
the mid-point of these royalties as actual royalties paid was a
reasonable exercise. Calfee WRT (CCG Ex. CDN-R-3) Appendix B at 8.
A similar exercise was performed for the 3.75% Fund. Under the
section 111 scheme, one cannot determine which signals are paid for at
the 3.75% ``nonpermitted'' rate when more than one carried distant
signal could have been identified as a Basic Fund ``permitted'' signal.
Ms. Martin calculated cable system royalties as if cable systems paid
for Canadian distant signals at the 3.75% ``nonpermitted'' rate, and at
the basic ``permitted'' rate, once again in an effort to demonstrate
that the selection of the mid-point for 3.75% Fund royalties paid was
reasonable. Martin WRT (CCG CDN-R-1) at 5, Table 3.
Armed with Basic and 3.75% Fund fee generated royalties for 2004
and 2005, the Canadian Claimants next sought to provide the division of
royalties among the program categories contained on Canadian distant
signals. This was done, as it had been in the prior proceeding, by Drs.
Gary Ford and Debra Ringold, who conducted a constant sum survey of
large cable systems carrying distant Canadian signals in an effort to
determine what value they attached to the Canadian programming (as
opposed to JSC and Program Supplier programming, the only other two
types of programming appearing on Canadian distant signals) contained
on the Canadian distant signals. The results, presented by Dr. Ringold,
showed a purported value of 59.94% for 2004 and 60.37% for 2005. Thus,
of the fees generated by Canadian signals for 2004 and 2005, 59.94% and
60.37%, respectively, were attributable to Canadian programming.
The Canadian Claimants' calculations do not, however, end there.
This is because the Canadian Claimants urge us to follow the
distribution methodology adopted by the 1998-99 CARP for parties whose
royalties were determined by means other than using their Bortz survey
results. This 16-step process results in a requested award to Canadian
Claimants of 2.365% of the Basic Fund and 1.586% of the 3.75% Fund for
2004,\21\ and 2.499% of the Basic Fund and 1.308% of the 3.75% Fund for
2005. CCG PFF & PCL Appendix A at 14. In the event that the Judges do
not follow the 1998-99 CARP's distribution methodology, Canadian
Claimants urge awards of 2.515% of the Basic Fund and 1.656% of the
3.75% Fund for 2004, and 2.665% of the Basic Fund and 1.365% of the
3.75% Fund for 2005. Id. at Appendix B, 3-4.
---------------------------------------------------------------------------
\21\ The Canadian Claimants do not have a claim to Syndex Fund
royalties.
---------------------------------------------------------------------------
The Settling Parties contend that they have made significant
improvements from prior proceedings to the results yielded by the Bortz
survey and urge adoption of particular ``augmented'' point estimates
for Canadian Claimants. First, they submit that the survey itself has
been improved by increasing the number of large cable systems carrying
a Canadian signal to 11 (18% of the total) in the 2004 Bortz survey and
13 (25.5% of the total) in the 2005 survey. SP PFF at ] 326. Second, to
account for the exclusion from the survey of cable systems that carried
only Canadian and/or PTV distant signals,\22\ they offer the testimony
of economist Linda McLaughlin, who purports to mathematically compute
the values the 2004 and 2005 Bortz surveys would likely have found had
they not excluded these systems. These ``augmented'' Bortz results
produce a Canadian Claimants' royalty share of 0.5% for 2004 and a
range of 1.5% to 1.8% for 2005. McLaughlin WDT (SP Ex. 6) at 11, Chart
4. Third, the Settling Parties accept the observation of Dr. Gary Ford,
a Canadian Claimants witness, that one large cable system which carried
a distant Canadian signal, Comcast of Washington IV, was improperly
excluded from the 2004 Bortz results due to a clerical error. SP PFF at
]] 330-31. Finally, the Settling Parties accept the results of the
Ford/Ringold constant sum surveys, whereby Dr. Ringold testified that
59.94% of 2004 Canadian signals and 60.37% for 2005 were attributable
to Canadian programming.\23\
---------------------------------------------------------------------------
\22\ As previously noted, the Bortz survey excludes the
responses of cable systems carrying only Canadian and/or PTV signals
because they presumably can respond by only giving 100% value to
Canadian and/or PTV programming, to the exclusion of all other
program categories. SP PFF at ] 313.
\23\ The Settling Parties accept 60% for both years. SP PFF at ]
336.
---------------------------------------------------------------------------
The Settling Parties conclude that the Canadian Claimants' award
should be determined by multiplying their augmented Bortz survey
results for 2004 and 2005 by the Ford/Ringold constant sum survey
results for Canadian programming. This yields a distribution of 1.2%
for both the 2004 Basic and 3.75% Funds, and 1.0% of the Basic Fund and
1.1% of the 3.75% Fund for 2005.
The Waldfogel regression analysis, discussed supra, yielded an
estimated royalty share of 2.92% for Canadian Claimants. SP PFF at ]
179. Not surprisingly, the Settling Parties do not advocate use of the
Waldfogel number as the Canadian Claimants' award. Nevertheless, in Dr.
Waldfogel's view, his regression share compares favorably to the
Settling Parties' augmented Bortz shares for Canadian Claimants, more
so when the Dr. Gary Ford adjustment to the augmented results is
included. SP PFF at ]] 180-81.
The Gruen subscriber survey yielded 0.8% for 2004 and 1.8% for
2005, respectively. Gruen WDT (PS Ex. 8) at 23, Table 3. The survey did
not distinguish between the Basic Fund or the 3.75% Fund. Program
Suppliers dispute use of the Ford/Ringold constant sum survey as the
means for determining the division of royalties among the categories of
programming contained on Canadian distant broadcast signals, but do not
offer an independent basis for making such distinctions. See, PS
Disputed CCG PFF & CCL at ]] 82-83.
Conclusion and Award
Unburdened by the attendant limitations of the last proceeding, the
Judges are free to determine distribution awards for 2004 and 2005 that
best reflect the relative marketplace value of Canadian broadcast
programming retransmitted by cable systems. We do not rely solely upon
fee generation in general nor the specific fee generation methodology
offered by the Canadian Claimants.
Our declination from use of fee generation to determine relative
marketplace value stems from the Canadian Claimants' inability to
demonstrate that the relationship between royalties generated by the
section 111 license for Canadian signals and the overall hypothetical
marketplace value of programming in this proceeding is, in the words of
the Canadian Claimants' own witness, Dr. Calfee, more than ``rough,''
``far from perfect,'' and ``crude.'' \24\ The wobbly relationship
between the two does not mean, as the other parties in this proceeding
would have it, that we are precluded from utilizing the evidence of fee
generation in shaping our award. 75 FR 26798, 26805 (May 12, 2010).
What it does mean, and what we were unable to consider in the prior
proceeding, is that other evidence of relative marketplace value
presented by the parties should be considered. See, id. at
[[Page 57073]]
26820-03 (Judges' discussion of the checkered history of acceptance of
fee generation in section 111 distribution proceedings).
---------------------------------------------------------------------------
\24\ Indeed, on the most important relative marketplace value
question, the Canadian Claimants did not supply any additional
testimony or support beyond the assertions of Dr. Calfee from the
prior proceeding.
---------------------------------------------------------------------------
The augmented Bortz data presented by the Settling Parties attempts
to correct for prior primary criticisms; in sum, that it is does not
sufficiently measure the particular circumstances of smaller claimants
such as Canadian Claimants. Ms. McLaughlin's efforts to correct for
cable systems excluded from the survey because they only carry a
distant Canadian signal do somewhat ameliorate the under-representation
of Canadian signals in the overall survey results.\25\ But, consistent
with our earlier expressed concerns about the Bortz survey, there are
still not enough cable systems carrying distant Canadian signals among
the respondents. As a result, small adjustments to the data result in
proportionately enormous increases in distribution shares. For example,
when the omitted Seattle, Washington, cable system data is included in
the augmented 2004 results, it produces more than a three-fold increase
in the distribution share. Whether the survey sample needs to be
tripled in size to be accurate, as Dr. Gary Ford suggests, is
debatable, but improved response rates are necessary before the survey
can be considered the best marker of relative marketplace value.
---------------------------------------------------------------------------
\25\ The 2004 inclusion of the Seattle, Washington, signal
discussed by Dr. Gary Ford does as well.
---------------------------------------------------------------------------
We conclude that the augmented Bortz results, with the Dr. Gary
Ford 2004 adjustment and the application of the Ford/Ringold survey,
understate the value of Canadian programming and, therefore, represent
the floor for establishing the Canadian Claimants' award. Our
determination on this point is bolstered by the results of the
Waldfogel regression analysis, which values Canadian programming at a
higher level for both years and, to a lesser extent, the Gruen survey
which yields an appreciably higher result for 2005.
Having determined the floor of the award, we turn to the weight
that should be accorded the fee generation approach offered by the
Canadian Claimants. We focus our attention on a ``straight'' fee
generation approach, described in Appendix B of the Canadian Claimants'
proposed findings, and not the fee generation methodology employed by
the 1998-99 CARP. The CARP's approach applied to an evidentiary record,
and a relationship of the parties, considerably different from this
proceeding, and therefore is neither controlling nor useful here.
The Canadian Claimants' fee generation numbers for the Basic Fund
are 2.515% for 2004 and 2.665% for 2005, and for the 3.75% Fund are
1.656% for 2004 and 1.365% for 2005. CCG PFF & PCL at Appendix B. We
discussed above that fee generation is not persuasive as the best
method for determining relative marketplace value because of the
Canadian Claimants' failure to firmly link the relationship between
section 111 royalties to that value. The question is whether fee
generation tends to overstate or understate the value. We believe the
answer is the former. The Canadian Claimants applied their fee
generation methodology to royalties collected from all large cable
systems in the United States, even though many, if not most, of those
systems are not permitted by the section 111 license to retransmit
Canadian broadcast stations. The inclusion of all royalties, rather
than just those from cable operators in the ``Canadian zone,'' inflates
Canadian Claimants' numbers. Therefore, the Judges determine that the
Canadian Claimants' fee generation numbers represent the ceiling for
their award.\26\
---------------------------------------------------------------------------
\26\ The Settling Parties renew their argument, made in the
2000-03 proceeding, that it would be an error of law for us to adopt
the Canadian Claimants' fee generation methodology as applied to the
royalties collected from all large cable systems in the U.S., as
opposed to only those in the Canadian zone. SP PCL at ] 30. We were
not persuaded by the argument, particularly given the fact that fee
generation had been applied to all large cable systems in the 1998-
99 proceeding and had been found acceptable by the Register of
Copyrights, Librarian of Congress and the United States Court of
Appeals for the District of Columbia Circuit. 75 FR 26798, 26805
(May 12, 2010). In any event, we need not reconsider the argument
here because we are not adopting the Canadian Claimants' fee
generation approach as the method for determining their award.
---------------------------------------------------------------------------
Having determined a floor and a ceiling for the Canadian Claimants'
award, the ``zone of reasonableness'' is framed. National Ass'n of
Broadcasters v. Librarian of Congress, 146 F.3d 907, 918-19 (DC
Cir.1998) (citing National Ass'n of Broadcasters v. Copyright Royalty
Tribunal, 772 F.2d 922, 926 (DC Cir. 1985)). The Canadian Claimants'
final awards are as follows (prior to accounting for the Music
Claimants' share):
----------------------------------------------------------------------------------------------------------------
3.75% fund Syndex fund
Year Basic fund (percent) (percent)
----------------------------------------------------------------------------------------------------------------
2004............................................................ 2.0 1.5 0
2005............................................................ 2.0 1.2 0
----------------------------------------------------------------------------------------------------------------
V. Devotional Claimants' Award
The Devotional Claimants have not participated in a Phase I
distribution proceeding since the 1990-92 CARP proceeding. DPCL at ]
102. The Devotional Claimants reached a settlement with the other Phase
I parties regarding their share to the 1998-99 cable royalties and
therefore did not participate in the 1998-99 CARP proceeding. See Tr.
at 1368 (Opening Statement); SP PFF at p. 29 (Introduction and
Summary).
Analysis of the Evidence
Devotional Claimants have consistently supported the JSC's cable
operator valuations of the program categories throughout the history of
their participation in these distribution proceedings. Id. Their
position in this proceeding is no different: In their view, the Bortz
survey continues to represent the best evidence of the relative
marketplace value of the various program categories. 5/10/10 Tr. at 35
(Closing Argument). Accordingly, they argue that they are entitled to
the shares afforded them by the 2004 and 2005 Bortz surveys and thus
are seeking an award of 7% of the Basic Fund for each of 2004 and 2005
and 7.3% of the 3.75% Fund for each year.\27\ DPCL at ]] 106-107.
---------------------------------------------------------------------------
\27\ Devotional Claimants assert that after taking into account
the Music Claimants' award, their Bortz shares fall into a
reasonable range of 5.8%-8.5% and that the 7% and 7.3% they request
fall within that range. DPCL at ]] 106-107. The requested 3.75% Fund
share is adjusted only to reflect the fact that PTV does not have
any claim to the 3.75% Fund. DPFF & PCL at p. 7 (Introduction and
Summary). Devotional Claimants do not seek a share of the Syndex
Fund. Id. at ] 107.
---------------------------------------------------------------------------
Devotional Claimants argue that such an increase is warranted for
several reasons. First, they note that previous awards were based
primarily on the Nielsen data, not the Bortz survey. 5/10/10 Tr. at 43
(Closing Argument). If the Judges find the Bortz survey acceptable in
this proceeding, then their shares
[[Page 57074]]
should increase. Second, since the 1990-92 proceeding, their average
shares under the Bortz surveys have nearly doubled from an average of
3.9 in the 1990-92 surveys to an average of 7.2 in 2004-2005. DPCL at ]
104. According to Devotional Claimants, such an increase constitutes
``changed circumstances'' thus requiring ``a significant
repositioning'' of the Devotional Claimants' relative shares of the
2004-2005 cable royalty funds. DPFF at ] 17; see also DPCL at ] 103.
Third, the Devotional Claimants assert that their 2004-2005 Bortz
Survey results have been corroborated by Dr. Gruen's cable subscriber
survey, which was introduced for the first time in this proceeding, and
attributed a share to the Devotional Claimants of 7.3% in 2004 and
8.19% in 2005. DPFF at ] 190; see also Tr. at 2787 (Salinger).
Fourth, Devotional Claimants attribute the dramatic increase in
their Bortz shares since the 1990-92 proceeding in part to an evolution
in devotional programming over time, 5/10/10 Tr. at 44-45 (Closing
Argument), and an increase in viewer avidity and loyalty. Brown WDT
(Devo. Ex. 3) at 8. The evolution of programming consists of new
additions in children's programming, e.g., cartoons, animated
programming, and a greater emphasis on counseling, healing, and
interpersonal relationships. DPFF at ] 146.
The increase in loyalty and avidity for devotional programming is
premised on the testimony of Dr. William Brown. Brown WDT (Devo. Ex. 3)
at 8-18; Tr. at 1405-1411 (Brown) (Dr. Brown identified eight factors
that, in his view, demonstrated increased value to devotional
programming: (1) Desire to avoid increased sex and violence on
television; (2) increased desire for more moral and spiritual content
on television; (3) hostility of intellectual elite toward religious
faith, i.e., ``culture wars''--more progressive views that man can
answer all problems versus a more traditional value of looking to God
for answers; (4) distrust of the news media; (5) desire for political
awareness; (6) technology growth and competition; (7) threat of radical
Islam and the wars in Afghanistan and Iraq; and (8) important
demographic changes resulting in greater ethnic diversity).
The Settling Parties argue that Devotional Claimants are not
entitled to receive their Bortz shares and should instead receive the
same awards they received in the 1990-92 proceeding, namely, 1.19% of
the Basic Fund and 0.91% of the 3.75% Fund for each of the 1990-92
cable royalties. SP PFF at ] 673. They contend that as in the 1990-92
proceeding, Devotional Claimants have not provided evidence of any
price at which Devotional Claimants sold their programming nor did they
provide evidence constituting a change in circumstances since the 1990-
92 proceeding. Id. In other words, according to the Settling Parties,
Devotional Claimants have not met their burden by failing to ``provide
any evidence in this proceeding about what their share of distant
signal programming should be.'' 5/10/10 Tr. at 109, 111 (Closing
Argument).
The Settling Parties also point to the large amount of non-
compensable devotional programming contained on WGN-A, which they view
as inappropriately increasing the Bortz survey responses. In their
view, these inflated results were confirmed by the results of the
Waldfogel regression analysis, see supra at Section III (Analysis of
the Settling Parties' Evidence), which produced a zero value for
devotional programming, thereby further justifying Devotional
Claimants' receipt of the same award as received in the 1990-92
proceeding.
The Canadian Claimants propose a method for addressing the non-
compensable programming issue:
2004: 7.8% (Bortz) x 60% (WGN carried) x 10.1% (WGN compensable) +
7.8% (Bortz) x 40% (non-WGN) x 100% (non-WGN compensable) = 3.593%
2005: 6.6% (Bortz) x 60% (WGN carried) x 9.8% (WGN compensable) +
6.6% (Bortz) x 40% (non-WGN) x 100% = 3.028%.
CCG PCL at ] 128.
Although Canadian Claimants argue that 3.593% and 3.028% most
likely should be the upper boundary of Devotional Claimants' awards,
they concede that Devotional Claimants ``may be entitled to more in
this proceeding than as prior proceedings based on their higher results
on the Bortz survey compared to 1998 and 1999.'' Id. at ] 130.
Conclusion and Award
The Devotional Claimants seek 7% of the Basic Fund and 7.3% of the
3.75% Fund for 2004 and 2005. For the reasons stated below, we decline
to give the Devotional Claimants their Bortz point estimate results and
award them 3.5% of the Basic Fund and 3.8% of the 3.75% Fund for the
period.
As discussed previously, we direct our consideration to the Bortz
survey confidence intervals, rather than the point estimates offered by
the Devotional Claimants. This results in a range of 7.1% to 8.5% for
2004 and a range of 5.8% to 7.4% for 2005. See SP PFF at ] 132.
However, there are two factors that warrant a downward adjustment in
the relative value of devotional programming: the matter of the amount
and significance of non-compensable devotional programming contained on
WGN-A during the period, and the results of the Waldfogel regression
analysis.
WGN-A was the most widely carried distant signal by cable systems
during 2004 and 2005, SP PFF at ] 343, and a full 90% of the devotional
programming contained on the WGN-A signal was non-compensable under the
section 111 license. Ducey WDT at 6; Tr. at 565 (Ducey). A decided
shortcoming of the Bortz survey was its handling of compensable
programming versus non-compensable programming since the survey
respondents were not made aware of the issue and therefore could not
confine their responses to only compensable programming. Although none
of the witnesses were able to quantify the likely impact of non-
compensable programming on the Bortz results, Mr. Trautman and Ms.
McLaughlin each recognized that an adjustment was necessary. Tr. at 195
(Trautman); see also, Tr. at 170 (Trautman) (cable operators ``don't
make any such adjustment [for non-compensable programming] in the
responses * * * and that some adjustment needs to be made in these
proceedings to account for that fact''); Tr. at 474-76 (McLaughlin)
(non-compensable programming resulted in ``extra value'' to Devotional
Claimants that ``you would want to take out''). The Judges determine
that, given the widespread carriage of WGN-A among the cable systems
measured by Bortz, and the predominant volume of non-compensable
devotional programming contained on that signal,\28\ the Bortz results
likely significantly overstate the relative value of devotional
programming during the 2004-05 period.
---------------------------------------------------------------------------
\28\ Nearly 50% of Form 3 cable systems carried WGN-A as their
only distant signal and approximately 70% of Form 3 systems carried
WGN-A as one of their distant signals. See SP PFF at ] 343.
---------------------------------------------------------------------------
The likelihood of overstatement is confirmed by the results of the
Waldfogel regression analysis. As noted previously, Dr. Waldfogel's
regression coefficients do provide some additional useful, independent
information about how cable operators may view the value of adding
distant signals based on the programming mix on such signals. In the
case of devotional programming, his results trend in the extreme,
suggesting a zero value. See supra at Section III (Analysis of the
Settling Parties' Evidence). While this is certainly not the case, at a
minimum, his results
[[Page 57075]]
suggest that the Bortz results are too high and therefore require a
downward adjustment.
None of the testimony offered by Devotional Claimants supports
sustaining the Bortz survey point estimates, nor counsels against a
downward adjustment. The testimony offered regarding growth of
devotional programming and avidity and loyalty of devotional viewers
was anecdotal in nature and comprised largely of unsupported opinion.
See, Digital Performance Right in Sound Recordings and Ephemeral
Recordings, Final rule and order, in Docket No. 2005-1 CRB DTRA
(``Webcasting II''), 72 FR 24084, 24095 n.30 (May 1, 2007) (anecdotal
testimony not persuasive). Devotional Claimants did not offer any
survey results or data supporting these contentions, and we do not have
sufficient evidence upon which to base any conclusions or adjustments.
After taking into account the adjustments just discussed, we
determine that Devotional Claimants are entitled to the following
awards (prior to accounting for the Music Claimants' share):
------------------------------------------------------------------------
Year Basic Fund 3.75%
------------------------------------------------------------------------
2004.......................................... 3.5 3.8
2005.......................................... 3.5 3.8
------------------------------------------------------------------------
VI. Music Claimants' Award
We now turn to Music Claimants. Music is not a stand-alone category
but rather permeates all other program categories. During closing
arguments the Judges posed the question whether the Music Claimants'
share should be taken off of the top and the Claimants appear in
general agreement that it should. 5/10/10 Tr. at 5-6, 31, 91, and 145-
46 (Closing Argument).
Analysis of the Settling Parties' Evidence
To develop a benchmark for assessing the relative value of music in
the distant signal marketplace for 2004 and 2005, the Settling Parties
presented William P. Zarakas, an economist.\29\ Mr. Zarakas developed a
music ratio conceptually similar to the ratio proffered by JSC witness
Dr. George Schink in the 1998-99 CARP proceeding.\30\ Under the Schink
ratio, music license fees were divided by the sum of music license fees
and broadcast rights payments (i.e., total payments made by the
stations and networks in the over-the-air broadcast market for the
rights to broadcast the programs aired on such stations). SP PFF at ]]
350 and 374. The Schink ratio was not designed specifically to measure
music's value in the distant signal market, the relevant market in this
proceeding, but rather was based on industry-wide television broadcast
licensing fees and rights payments in the over-the-air broadcast
market. Id. at ] 375. Indeed, the Schink ratio included music license
fees and broadcast rights payments by the ``Big 3'' networks (ABC, CBS
and NBC), even though that programming is not compensable under section
111 of the Copyright Act. Moreover, no weighting was applied to the
Schink ratio in the 1998-99 CARP proceeding to account for the
difference between the mix of station types retransmitted on distant
signals and the stations that generally make up the entire broadcast
television market. Id.
---------------------------------------------------------------------------
\29\ In addition to Mr. Zarakas, the Settling Parties also
presented the testimony of certain other witnesses who testified
about the value of music in programming generally. Based on
testimony from these witnesses the Settling Parties contend that
``[t]here is substantial qualitative evidence * * * that music's
contribution to the overall television entertainment experience has
increased over the past ten years.'' SP PFF at p. 35 (Introduction
and Summary). Absent quantitative corroboration, we are unable to
credit significantly anecdotal and subjective opinion evidence. See
Webcasting II, 72 FR at 24095 n.30 (May 1, 2007).
\30\ Dr. Schink derived his data from a U.S. Census Bureau
Report. 1998-99 CARP Report at 84.
---------------------------------------------------------------------------
Although Mr. Zarakas determined that the Schink ratio was a
reasonable method to assess the relative value of music, he concluded
that the ratio inputs would need to be changed to enable the ratio to
provide a more useful benchmark for assessing the relative market value
of music in this proceeding. Id. at ]] 375-376. In particular, Mr.
Zarakas excluded from his ratio music license fees and broadcast rights
payments for Big 3 network programming, which are not compensable under
section 111 of the Copyright Act. Moreover, he concluded that ``the
market for retransmitted distant signals by cable system operators
differs from the local broadcast television market in terms of the mix
of programming transmitted.'' SP PFF at ] 391. Therefore, he weighted
the music ratio that he developed using distant signal subscriber
instances for each different category of television stations in an
effort to reflect the relative importance of the various stations
actually carried by cable system operators and received by subscribers
as distant signals during 2004 and 2005. Id. at ] 376.
To form the numerator of his ratio, Mr. Zarakas used television
``blanket license'' fee data that the PROs provided.\31\ These fees
were agreed to by each PRO and the Television Music License Committee
(``TMLC'') (an industry committee of local television broadcasters) for
all local stations in the broadcast market for their local (i.e., non-
Big 3 network) programming.\32\ SP PFF at ] 369 and 377. The Settling
Parties contend that the blanket license fees are the most
comprehensive, accurate data in the record and are the only data that
values all music use in local broadcast markets. Id. at ] 377. The
Settling Parties further contend that, in the absence of the compulsory
license, cable systems would most likely acquire blanket licenses from
the PROs for the music that they represent in the open market, as the
TMLC and the Univision network do currently. Id. at ] 381. Mr. Zarakas
included local broadcast station blanket PRO license fees of $195.5
million in 2004 and $186 million in 2005. To those totals he added the
blanket license fees that Univision paid, which include license fees
for local and nonlocal programming,\33\ to sum $200.8 million for 2004
and $191.7 million for 2005. These sums constituted the numerator in
the music ratio and one component of the denominator. Id. at ] 383.
---------------------------------------------------------------------------
\31\ Mr. Zarakas identified two data sources that provide
information concerning music license fees for 2004 and 2005: (1)
Music blanket local television license fee data provided by the
PROs; and (2) actual music license fee expenditures made by the
broadcast stations. Zarakas WDT (SP Ex. 27) at ] 31. After 1998,
individual data points for music license and broadcast rights
payments were no longer available from the U.S. Census Bureau. Id.
at n.17. Mr. Zarakas chose to use the blanket license fee data
available from the PROs because he concluded that such negotiated
fees provide strong evidence of the market value of the music
licenses to the local broadcast stations and are the only available
measures of total market-based prices. Id. at ]] 32-33.
\32\ For a negotiated annual fee, a blanket license grants the
licensee unlimited use of all music in the PRO's repertoire. SP PFF
at ] 366. The local television industry includes, among others,
stations that are affiliated with the Big-3 networks with respect to
non-network programming. The Big 3 networks pay separate music
license fees to license music they use in their respective network
programming. Zarakas WDT (SP Ex. 27) at ] 34 and n.19. Television
stations that are affiliated with the non-Big 3 networks, with one
exception, pay music license fees for stations and network
programming. The Univision network pays a blanket license fee that
covers all the programming for the stations that Univision owns. Id.
at n.21.
\33\ The fees that Univision paid totaled $5.31 million in 2004
and $5.72 million in 2005. Zarakas WDT (SP Ex. 27) at n.21. Mr.
Zarakas includes the Univision blanket license fees in a category of
the numerator called ``other,'' which totals $14.51 million in 2004
and $15.16 million in 2005. In that category he also includes
blanket license fees for off-air and small stations. Id. at ] 34,
Table 2. It is unclear what portion of the fees in the ``other''
category is attributable to those off-air and small stations. It is
noteworthy, however, that Mr. Zarakas excludes small and
``unlicensable'' stations in calculating an important component of
the denominator regarding broadcast rights payments. See Zarakas WDT
(SP Ex. 27) at ] 36.
---------------------------------------------------------------------------
As discussed above, Mr. Zarakas used blanket license fees
negotiated between
[[Page 57076]]
the PROs and the TMLC as the numerator for his music ratio. We agree
with the Settling Parties that the blanket license fees provide a
useful starting point in determining the relative marketplace value of
music in the over-the-air market. See also infra at Section VI
(Analysis of the Program Suppliers' Evidence). As such, we find that
the use of blanket license fees both in the numerator of the music
ratio and as the first component of the denominator is not misplaced.
The other components of the denominator, discussed below, are more
problematic.\34\
---------------------------------------------------------------------------
\34\ Given the lack of evidence in the record to the contrary,
for purposes of our analysis of Mr. Zarakas' music ratio denominator
we assume that the four components he has proposed to include in the
denominator represent the total of programming expenditures in the
over-the-air market.
---------------------------------------------------------------------------
The second component of the Zarakas denominator seeks to estimate
broadcast rights payments. Mr. Zarakas divides these payments into
three categories: (1) Payments local television stations make for non-
network programming; (2) payments made for non-Big 3 network
programming; and (3) payments to local stations for programs they
produce themselves. Id. at ] 385.
Mr. Zarakas extrapolated payments local television stations make
for non-network programming from the Television Financial Report, which
NAB and Broadcast Cable Financial Management Association \35\ publish
annually (known as the ``NAB Survey'').\36\ The NAB Survey provides an
annual average of television station expenditures for broadcast rights.
Zarakas WDT (SP Ex. 27) at ] 36. Mr. Zarakas then calculated the total
number of stations that were operating in the U.S. in 2004 (1,372) and
2005 (1,371). He then excluded ``several'' of these stations for 2004
and 2005 because he determined that those stations were unlikely to
have been included in the NAB Survey, largely because they were too
small. He then multiplied the remaining number of stations (1,187 for
2004 and 1,192 for 2005) by the average annual expenditures from the
NAB Survey to estimate the total broadcast rights expense for this
component for 2004 and 2005 ($2.015 billion and $2.029 respectively).
Zarakas WDT (SP Ex. 27) at ]] 36-37.
---------------------------------------------------------------------------
\35\ The Broadcast Cable Financial Management Association Web
site indicates that its name has since been changed to Media
Financial Management Association (http://www.bcfm.com/index.aspx?PageID=338).
\36\ The NAB reports music license fees paid to PROs based on a
survey of television stations. Zarakas WDT (SP Ex. 27) at n.18. By
2004, the U.S. Census Bureau no longer reported actual expenditures
on music license fees by the television broadcasters as it did in
the 1998 Annual Survey of Communication Services. Id.
---------------------------------------------------------------------------
However, the Settling Parties provided no evidence that would
bolster the accuracy of the NAB Survey numbers (e.g., what was the
sample size of the respondent group and what methodology was used in
the survey to ensure that it accurately represented the respondents'
expenditures). Moreover, Mr. Zarakas' methodology for narrowing the
number of stations to which the average expenditure number was applied
appears on less firm footing. These weaknesses, which could have been
easily remedied, diminish the weight we ascribe to Mr. Zarakas' ratio.
Although network programming on the Big 3 networks is not
compensable under section 111 of the Copyright Act, network programming
on FOX, WB, UPN and other non-Big 3 networks is compensable. The NAB
Survey referenced above, however, does not estimate such programming
expenditures. As a proxy, Mr. Zarakas used total programming expenses
data from SNL Kagan, which the Settling Parties represent is a
``recognized source of economic information for the television
broadcast industry.'' SP PFF at ] 388.\37\ SNL Kagan data did not
separate broadcast rights payments from other categories of program
expenses, and Mr. Zarakas did not believe he had a principled basis for
determining the percentage of the programming expenses that were
attributable to broadcast rights expenses. Therefore, he included the
entire amount of program expenses in this component of the denominator.
Zarakas WDT (SP Ex. 27) at ] 40. The totals were $3.254 billion for
2004 and $3.550 billion for 2005. Id. at ] 39, Table 4.
---------------------------------------------------------------------------
\37\ According to SNL Kagan's Web site, SNL Kagan integrates
online research, data and projections in real time for the media and
communications industry. http://www.snl.com/Sectors/Media-Communications/.
---------------------------------------------------------------------------
While Mr. Zarakas' decision to include all program expenses in this
component of the denominator may have been a conservative approach on
his part, this limitation diminishes the precision of the measurement.
Another drawback of the SNL Kagan data: It is derived from a different
source than the one that conducted the NAB Survey. Using multiple data
sources in the same denominator creates a potential risk of
methodological inconsistency, a weakness that was made worse by the
fact that the Settling Parties did not present witnesses from either
SNL Kagan or those that conducted the NAB Survey, which would have
allowed an on-the-record examination of their respective methodologies
so that the claimants could probe their comparability.
Mr. Zarakas was unable to use market transactions to value locally
produced programming, such as local news and locally produced public
affairs shows. According to Mr. Zarakas, such stations do not typically
sell the broadcast rights or otherwise measure the equivalent value of
such rights. Zarakas WDT (SP Ex. 27) at ] 41. Therefore, he estimated
the number by relying on the CARP's determination of the various
claimants' shares of the Basic Fund in the 1998-99 cable royalty
distribution proceeding. Zarakas WDT (SP Ex. 27) at ] 42. In
particular, he calculated the relative value that the CARP assigned to
locally produced programming (using CTV's share in 1998 and 1999 as a
proxy) compared to the combined local commercial television station
non-network programming and non-Big 3 network programming (using the
combined JSC, Program Suppliers, and Devotional Claimants' shares in
1998 and 1999 as a proxy). He then took this relative value from the
1998-99 proceeding and applied it to the relative value in this
proceeding of broadcast rights in locally produced programming compared
to broadcast rights payments in these other types of programming. Id.
This multiplier (0.185, Zarakas WDT (SP Ex. 27) at ] 43) was used to
derive an average factor (1.185, Zarakas WDT (SP Ex. 27) at ] 46 and
Table 6), which Mr. Zarakas then used to develop an estimated value of
broadcast rights for locally produced programming in this proceeding
(approximately $975 million for 2004 and $1.03 billion for 2005). Id.
at ] 46 and Table 7.\38\
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\38\ Mr. Zarakas multiplied the factor by the broadcast rights
payments for local commercial television station non-network
programming and non-Big 3 network programming, calculated in the
previous two components of the denominator, ``to form a complete
estimate of broadcast rights payments applicable to the Music
Ratio.'' Zarakas WDT (SP Ex. 27) at ] 47.
---------------------------------------------------------------------------
Use of the various claimants' shares from the 1998-99 proceeding
seems to be a haphazard attempt to guesstimate a material component of
the denominator of the music ratio. Such ad hoc extrapolation
diminishes our confidence in the Zarakas ratio.
When all components of the denominator were combined, Mr. Zarakas
determined that the estimated value of broadcast rights payments were
approximately $6.2 billion in 2004 and $6.6 billion in 2005. Zarakas
WDT (SP Ex. 27) at ] 47. He then added the blanket music license fees
to each of these totals to derive a grand total denominator of $6,445.4
billion for 2004 and $6,803.6 billion for 2005. Id. at ] 49
[[Page 57077]]
and Table 8. Dividing the numerator by the denominator yields a
relative market value of music of 3.1% for 2004 and 2.8% for 2005.
Zarakas WDT (SP Ex. 27) at ] 60.
The unadjusted Zarakas percentages attempt to estimate the relative
value of music in the over-the-air market. Mr. Zarakas states, however,
that the unadjusted percentages are ``misleading in the distant signal
market because the composition of signals is different in the distant
signal market compared to the over-the-air market.'' Tr. at 1158
(Zarakas). Mr. Zarakas contends that ``the relative value of music in
the distant signal market should take into account differences in the
programming mix between the local and distant signal markets.'' Zarakas
WDT (SP Ex. 27) at ] 51.\39\ As a result, Mr. Zarakas adjusts his over-
the-air percentages in an effort to make them more comparable to the
target distant signal market by accounting for the relative number of
distant subscribers associated with three categories of television
stations (i.e., Big 3 networks, non-Big 3 networks, and independent
stations). Zarakas WDT (SP Ex. 27) at ] 54-57 and Tables 9-12.\40\
Applying this adjustment, Mr. Zarakas concludes that the relative value
of music was 5.2% (from the unadjusted 3.1%) in 2004 and 4.6% (from the
unadjusted 2.8%) in 2005. Zarakas WDT (SP Ex. 27) at ] 61. See also SP
PFF at ] 392 and Table 12. In other words, the adjusted percentages
represent increases of approximately 67.7% and 64.3% over the
respective unadjusted percentages. Under either the adjusted or the
unadjusted numbers, Mr. Zarakas concluded that the relative market
share of music declined from 2004 to 2005 (a decline of approximately
9.7% for the unadjusted percentages compared to a decline of
approximately 11.5% for the adjusted percentages).
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\39\ Mr. Zarakas reasons that although ``[t]he local over-the-
air market is broadcast to anyone with a television set within range
of transmission * * * the market for distant signals on a cable
system is dependent upon both the portfolio of signals a cable
system operator elects to retransmit and upon the subscription
choices made by the cable system operator's customers.'' Zarakas WDT
(SP Ex. 27) at ] 50.
\40\ Mr. Zarakas' adjustment requires a multiple-step process:
(1) Determine the relative numbers of distant subscribers by
television station category (Zarakas WDT (SP Ex. 27) at ] 54 and
Table 9); (2) convert those relative subscriber numbers into weights
for each television station category by excluding educational, non-
U.S. and low-power television stations from the distant subscriber
totals (Zarakas WDT (SP Ex. 27) at ]] 56-57 and Table 10); (3)
determine the percentage of blanket license fees attributed to each
television station category (Zarakas WDT (SP Ex. 27) at ] 59 and
Table 11); and (4) apply the weights in step 2 to the percentages in
step 3 to derive weighted percentages. Zarakas WDT (SP Ex. 27) at ]
60 and Table 12.
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The over-the-air market and the distant signal market may well
differ in ways that could impact the relative values of music across
those markets. On the record before us, however, it is not clear why
those differences, if any, would translate into a variation in the
market value of music of the order that Mr. Zarakas contends. In other
words, given that music permeates all other programming categories,
what factors make the use of music over 60% more valuable relative to
other programming categories in the distant signal market than it is in
the over-the-air market? The Settling Parties offer little
justification for Mr. Zarakas' comparability adjustment, noting only
that ``the market for retransmitted distant signals by cable system
operators differs from the local broadcast television market in terms
of the mix of programming transmitted.'' SP PFF at ] 391, quoting
Zarakas WDT (SP Ex. 27) at 25.\41\ We do not mean to suggest that a
comparability adjustment is unnecessary. Nor do we suggest that an
adjustment that uses subscriber instances should be dismissed out of
hand. We find, however, that the Settling Parties did not fully
establish the differences in valuation that the comparability
adjustment is meant to address or the efficacy of the specific
adjustment that Mr. Zarakas proposes. Therefore, we cannot place full
weight on Mr. Zarakas' comparability adjustment.
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\41\ See also Tr. at 1158 (Zarakas) (``[C]opyrighted content
that's paid for by the local stations or the equivalent value of
local programming, would be 3.1 percent * * *. But the 3.1 [percent]
is somewhat misleading in the distant signal market because the
composition of signals is different in the distant signal market
compared to the over-the-air market.'').
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Analysis of the Program Suppliers' Evidence
Program Suppliers retained John R. Woodbury, PhD, a consultant, as
an expert to rebut Mr. Zarakas' presentation. Dr. Woodbury questioned
Mr. Zarakas' use of blanket license fees as a means for estimating the
relative share of music, stating that ``there is no reason to believe
that the use of blanket license fees is in fact a more accurate and
reliable measure of the actual music rights payments made by broadcast
stations than the payments actually recorded by the PROs.'' Woodbury
WRT (PS Ex. 14) at ] 12. He noted that ``to the extent that stations
opt for a direct license rather than the blanket license, the payments
made by the broadcast stations in the aggregate to the PROs will be
less than the negotiated fee amounts used by Mr. Zarakas.'' Id. at ]
14. Dr. Woodbury opined that ``[a]t best, those blanket license fees
are an upper bound on the actual payments made by broadcast stations *
* *'' Id. at ] 13. However, while the blanket fee data does not include
fees that a copyright owner receives when it enters into a direct
license with a broadcaster, the Settling Parties' evidence suggests
that the difference between the negotiated blanket fee and the actual
license fees paid, including direct license fees, is not significant.
SP PFF at ] 382.
Dr. Woodbury also questioned the Zarakas comparability adjustment
discussed above. He contended that Mr. Zarakas offered no justification
for using subscriber instances to weigh station types. Tr. at 3298
(Woodbury) and Woodbury WRT (PS Ex. 14) at ] 25. He surmised that Mr.
Zarakas did so because he assumed that the number of music performances
on a distant signal is related to the number of subscribers that have
access to that signal. Dr. Woodbury stated that there is no reason to
believe that this is the case. Id. Dr. Woodbury noted that
it seems reasonable to think that subscriber viewership [a method
that the TMLC uses to allocate blanket license fees across stations]
might be related to the number of music performances of a particular
show on a distant signal, but that has no relationship--no obvious
relationship to the fraction of subscriber instances accounted for
by a particular distant signal on a particular cable system * * *.
The viewership of any distant signal on a cable system can differ
for lots of reasons, even if the two systems have the same number of
subscribers.
Tr. at 3299 (Woodbury).\42\
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\42\ Dr. Woodbury also questioned Mr. Zarakas' treatment of WGN
as an independent station rather than a WB affiliate for purposes of
assigning a percentage music royalty due to the carriage of WGN. The
Settling Parties represent that the distant signal market is
dominated by WGN America, an independent station that does not
retransmit any network programming and accounts for approximately
half of the distant signal subscriber instances. SP PFF at ] 391.
Dr. Woodbury contends that the ``effect of this reclassification
appears to have dramatically increased the weight on the percentage
music rate of independent stations because WGN is apparently one of
the most widely--if not the most widely--carried distant
signal[s].'' Woodbury WRT (PS Ex. 14) at ] 29 (footnote omitted).
---------------------------------------------------------------------------
Dr. Woodbury contended that a better approach would have been to
use the actual music rights payments that ASCAP and BMI received from
broadcast stations and networks (i.e., over-the-air market
participants) for 2004 and 2005 and divide those numbers by the total
rights payments, which the Bureau of Census reported for 2004 ($11,710
million) and 2005
[[Page 57078]]
($12,036).\43\ Dr. Woodbury stated that for 2004 the total music rights
payments received by the PROs were approximately $239 million for 2004
and $234 million for 2005. Dividing these numbers by the Census data
yields 2.04% for 2004 and 1.94% for 2005. Woodbury WRT (PS Ex. 14) at ]
22. Dr. Woodbury conceded that ``[t]he approach that I have adopted * *
* may to some extent understate the actual overall percentage, but my
approach is tied to the underlying reality of what stations actually
pay for music rights.'' Id. at ] 23. Indeed, Dr. Woodbury conceded that
he excluded direct license fees from his numerator but not from his
denominator, which had the effect of understating his music rights
ratios. Tr. at 3335 (Woodbury). Moreover, Dr. Woodbury conceded that
the Census data he used to compile his ratios were outdated in a way
that resulted in his ratios being understated compared to their value
when using the revised Census data. Id. at 3327-28. He also conceded
that his numerator included payments by commercial stations but that
his denominator included payments by both commercial and non-commercial
stations, which could have lowered his ratios. Id. at 3344-45.
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\43\ Dr. Woodbury did not include per-program license fees for
SESAC because, he represents, SESAC did not offer a per-program
license to local stations in 2004 and 2005. Woodbury WRT (PS Ex. 14)
at ] 20.
---------------------------------------------------------------------------
Dr. Woodbury acknowledged that there are differences between the
over-the-air market and the distant signal market, but he made no
effort to adjust for those differences. Id. at 3347-48. Given the
acknowledged flaws in Dr. Woodbury's approach, we place substantially
less weight on his proposed estimates of the Music Claimants' shares
compared to the weight ascribed to the Zarakas methodology. However,
even the latter cannot be fully adopted by the Judges as offered.
Conclusion and Award
Despite the caveats discussed hereinabove, we find that the Zarakas
ratio is useful in identifying the ceiling for a zone of reasonableness
for determining the relative market value of music in the distant
signal market for 2004 and 2005. This ceiling must lie below Zarakas'
5.2% adjusted ratio for 2004 and his 4.6% adjusted ratio for 2005, due
to the previously noted weaknesses with respect to his ratios and his
comparability adjustment. We are persuaded that the Zarakas adjusted
ratios may more likely somewhat overstate rather than understate the
relative value of music. On the other hand, the floor for the zone of
reasonableness clearly must exceed by some substantial margin the 2.04%
that Dr. Woodbury offered for 2004 and the 1.94% he calculated for
2005, in recognition of the flaws in the methodology and data on which
he relied and his own admission that his ratios likely understated the
relative value of music.
Within this zone of reasonableness as established by the record, we
are persuaded by the greater weight we accord the Zarakas adjusted
ratios as compared to the Woodbury alternative ratios, that the
relative value of music lies closer to the former than the latter. That
is, a value close to the upper boundary is more strongly supported than
one close to the lower boundary. We find that value is 4% for 2004. We
are comforted as to the reasonableness of this value in light of its
congruence with the share received by the Music Claimants in their last
litigated award.\44\
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\44\ In the 1998-99 proceeding, the CARP awarded the Music
Claimants 4.0% for the Basic Fund, the 3.75% Fund and the Syndex
Fund. The Librarian adopted the CARP's determination. Distribution
of 1998 and 1999 Cable Royalty Funds, Final order, in Docket No.
2001-8 CARP CD 98-99, 69 FR 3606, 3620 (January 26, 2004).
---------------------------------------------------------------------------
We further find that the relative value of music for 2005 is 3.6%.
That is because the zone of reasonableness has been shifted somewhat
below the 2004 range by the evidence as discussed hereinabove. The
major contending parties recognize this shift in their alternative
proposals. For example, the Settling Parties' proposed shares for 2005
concede that the relative market value of music decreased from 2004 to
2005. This movement is evident both in the unadjusted and the adjusted
Zarakas percentages between 2004 and 2005. Zarakas WDT (SP Ex. 27) at
31, Table 12. After rounding to the nearest single decimal place,\45\
the 2004 award is found to decline in 2005 by 0.4--a decline on the
order of 10%.\46\ That is, an award of 4% in 2004 must necessarily
correspond to an award of 3.6% in 2005. Both awards remain within the
respective ranges which we have previously identified as setting the
parameters of a zone of reasonableness for each award year.
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\45\ We do not find the ratio evidence presented either before
or after adjustments to be so precise as to warrant awards beyond a
single decimal place.
\46\ With respect to the Zarakas ratios, the decline from 2004
to 2005 is larger for the adjusted ratio than for the unadjusted
ratio. Having found hereinabove that the upper boundary of the zone
of reasonableness for the music award lies below the Zarakas
adjusted ratio, a slightly less than proportionate adjustment from
4% (i.e., less than that indicated by the decline in the adjusted
Zarakas ratio of 11.5%) is appropriate because the amount of
variance between the adjusted and unadjusted ratios shrinks as the
amount of adjustment decreases toward the limit of an unadjusted
ratio. We further note, that even applying the calculated change in
the Zarakas unadjusted ratio from 2004 to 2005 to the 4% 2004 award
(i.e., a decline in the unadjusted Zarakas ratio of 9.7%), after
rounding to the nearest single decimal, the resulting 2005 award
(3.6%) would be the same as if we had applied a changed value as
high as 11.2%.
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The 4.0% award for 2004 and the 3.6% award for 2005 apply to the
Basic Fund as well as the 3.75% Fund and the Syndex Fund for each of
the respective award years. We take this approach because all the
proposals provide a uniform award for these funds and no evidence was
presented in opposition.\47\ The awards for the other claimant groups
will be calculated net of the Music Claimants' awards.
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\47\ As the CARP noted in the 1998-99 proceeding, ``[i]n past
proceedings, Music has always received the same net award for each
fund.'' 1998-99 CARP Report at n.60. In that proceeding, no evidence
was adduced in the proceeding to award a difference between the
three funds.
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The Music Claimants' final awards are as follows:
------------------------------------------------------------------------
Basic fund 3.75% fund
Syndex fund (percent) Year (percent) (percent)
------------------------------------------------------------------------
2004............................ 4.0 4.0 4.0
2005............................ 3.6 3.6 3.6
------------------------------------------------------------------------
VII. Final Awards
After adjusting downward for the Music Claimants' share (the
equivalent of taking the Music Claimants' share ``off the top''), the
respective shares of the Basic Fund determined by the Judges are as
follows:
------------------------------------------------------------------------
2004 2005
(percent) (percent)
------------------------------------------------------------------------
Music Claimants............................... 4.0 3.6
[[Page 57079]]
Canadian Claimants............................ 1.9 1.9
Devotional Claimants.......................... 3.4 3.4
PTV........................................... 7.4 7.1
JSC........................................... 32.3 35.4
CTV........................................... 17.9 14.2
Program Suppliers............................. 33.1 34.4
------------------------------------------------------------------------
Similarly, adjusting downward to account for the Music Claimants'
share, the respective shares of the 3.75% Fund determined by the Judges
are as follows:
------------------------------------------------------------------------
2004 2005
(percent) (percent)
------------------------------------------------------------------------
Music Claimants............................... 4.0 3.6
Canadian Claimants............................ 1.4 1.2
Devotional Claimants.......................... 3.7 3.7
JSC........................................... 35.3 38.6
CTV........................................... 19.5 15.4
Program Suppliers............................. 36.1 37.5
------------------------------------------------------------------------
We agree with the Settling Parties that because only Music
Claimants and Program Suppliers participate in the Syndex Fund and for
the reasons provided supra at Section VI (Conclusion and Award), Music
Claimants should receive 4.0% of the Syndex Fund for 2004 and 3.6% of
the Syndex Fund for 2005. As a result, the respective shares of the
Syndex Fund determined by the Judges are as follows:
------------------------------------------------------------------------
2004 2005
(percent) (percent)
------------------------------------------------------------------------
Music Claimants............................... 4.0 3.6
Program Suppliers............................. 96.0 96.4
------------------------------------------------------------------------
VIII. Order of the Copyright Royalty Judges
Having fully considered the record and for the reasons set forth
herein, the Copyright Royalty Judges order that the 2004 and 2005 cable
royalties shall be distributed according to the following percentages:
2004 Distribution
------------------------------------------------------------------------
Basic fund 3.75% fund Syndex fund
Claimant group (percent) (percent) (percent)
------------------------------------------------------------------------
Music Claimants................. 4.0 4.0 4.0
Canadian Claimants.............. 1.9 1.4 0
Devotional Claimants............ 3.4 3.7 0
PTV............................. 7.4 0 0
JSC............................. 32.3 35.3 0
CTV............................. 17.9 19.5 0
Program Suppliers............... 33.1 36.1 96.0
------------------------------------------------------------------------
2005 Distribution
------------------------------------------------------------------------
Basic fund 3.75% fund Syndex fund
Claimant group (percent) (percent) (percent)
------------------------------------------------------------------------
Music Claimants................. 3.6 3.6 3.6
Canadian Claimants.............. 1.9 1.2 0
Devotional Claimants............ 3.4 3.7 0
PTV............................. 7.1 0 0
JSC............................. 35.4 38.6 0
CTV............................. 14.2 15.4 0
Program Suppliers............... 34.4 37.5 96.4
------------------------------------------------------------------------
So ordered.
Dated: July 21, 2010.
James Scott Sledge,
Chief Copyright Royalty Judge.
William J. Roberts, Jr.,
Copyright Royalty Judge.
Stanley C. Wisniewski,
Copyright Royalty Judge.
Dated: July 21, 2010.
James Scott Sledge,
Chief, U.S. Copyright Royalty Judge.
Approved by:
James H. Billington,
Librarian of Congress.
[FR Doc. 2010-23266 Filed 9-16-10; 8:45 am]
BILLING CODE 1410-72-P