President & General Manager

Mr. Robert G. Lee
President & General Manager
WDBJ-TV
2807 Hershberger Road NW
Roanoke, VA, 24017

Ever since this Committee helped to craft the original Satellite Home Viewer Act of 1988 (“SHVA”), Congress has worked to ensure both (1) that free, over-the-air network broadcast television programming will be widely available to American television households, and (2) that satellite retransmission of television broadcast stations will not jeopardize the strong public interest in maintaining free, over-the-air local television broadcasting. Those two goals remain paramount today.

There can be no doubt that delivery of local stations by satellite is the best way to meet these twin objectives. The first two times Congress considered the topic -- in 1988 and 1994 -- delivery of local stations by satellite seemed far-fetched. Congress therefore resorted to a considerably less desirable solution: permitting importation of distant television stations, although only to households that could not receive their local network stations over the air.

When Congress revisited this area in 1999, the world had changed: local-to-local satellite transmission had gone from pipe dream to technological reality. And in response, in the 1999 Satellite Home Viewer Improvement Act (“SHVIA”), Congress took an historic step, creating a new “local-to-local” compulsory license to encourage satellite carriers to deliver local television stations by satellite to their viewers. At the same time, Congress knew that allowing satellite carriers to use the new license to “cherry-pick” only certain stations would be very harmful to free, over-the-air broadcasting and to competition within local television markets. Congress therefore made the new “local-to-local” license available only to satellite carriers that deliver all qualified local stations.

Congress’ decision to create a carefully-designed local-to-local compulsory license has proven to be a smashing success. Despite gloomy predictions by satellite carriers before enactment of SHVIA that the “carry-one-carry-all” principle would sharply limit their ability to offer local-to-local service, the nation’s two major DBS companies, DirecTV and EchoStar, today deliver local stations by satellite to the overwhelming majority of American television households.

Thanks to the wise decision by the FCC and the Department of Justice to block the proposed horizontal merger of DirecTV and EchoStar, the two DBS firms continue to compete vigorously against one another in expanding their delivery of local stations. While EchoStar predicted when it sought to acquire DirecTV that it would never be able to serve more than 70 markets without the merger, EchoStar now serves 107 Designated Local Markets (“DMA’s”) that collectively cover more than 83% of all U.S. TV households. Nor is there any sign that EchoStar’s expansion of local-to-local service has stopped.

The story with DirecTV is even more dramatic. With the launch of a new satellite this spring, DirecTV expects to serve 100 DMAs covering 85% of all U.S. TV households. By the end of 2004, DirecTV has committed to providing local-to-local in an additional 30 markets, for a total of at least 130 DMAs covering 92% of all TV households. And as early as 2006 and no later than 2008, “DirecTV will offer a seamless, integrated local channel package in all 210 DMAs.” In Re General Motors Corporation and Hughes Electronics Corporation, Transferors and The News Corporation Limited, Transferee, for Authority to Transfer Control, ¶ 332, MB Docket No. 03-124 (released Jan. 14, 2004) (emphasis added).

The local-to-local compulsory license is the right way -- and the distant-signal compulsory license is the wrong way -- to address delivery of over-the-air television stations to satellite subscribers. If Congress wishes to do anything other than briefly extend the expiration date of Section 119, it should – as a matter of simple logic -- limit the distant-signal compulsory license to markets in which the satellite carrier does not offer local-to-local service. It makes no sense, for example, to treat a satellite subscriber as “unserved” by its local CBS station when the subscriber’s DBS firm offers that station as part of its satellite-delivered package, with what the satellite industry describes as “a 100 percent, crystal-clear digital audio and video signal.”

Although the rapid rollout of DBS local-to-local service has vindicated the actions that Congress took in SHVIA in 1999, there is one major blemish on the success story: an outrageous form of discrimination that EchoStar has inflicted on some local stations. EchoStar’s method of discrimination is simple, but devastating. While placing what it considers the most “popular” stations in a market on its main satellites, EchoStar relegates certain stations (particularly Hispanic and foreign-language stations) to a form of satellite Siberia -- placing them on remote “wing satellites” far over the Atlantic or Pacific, which can be seen only if one obtains a second satellite dish. Very few subscribers actually do acquire a second dish, thereby rendering many local stations invisible to their own local viewers. As even DirecTV has acknowledged, this practice violates the “carry one, carry all” principle of the SHVIA. The FCC has thus far tolerated this grossly improper practice, imposing only minor restrictions on this form of discrimination. If the Commission fails to take prompt and decisive steps to halt this misconduct, Congress will need to step in to do so.

While the local-to-local compulsory license has (with the exception of EchoStar’s two-dish abuse) generally worked well, the history of the distant-signal compulsory license (codified in Section 119 of the Copyright Act) has been just the opposite. For the first ten years after this law was enacted, satellite carriers systematically ignored the clear, objective definition of “unserved household” and instead delivered distant signals to anyone willing to say that they did not like their over-the-air picture quality. Only through costly litigation -- culminating in a 1998 ruling against PrimeTime 24 and a 1999 ruling against DirecTV -- were broadcasters able to bring a halt to most of this lawlessness. Even after those rulings, however, EchoStar has continued to serve hundreds of thousands of illegal subscribers, forcing broadcasters to spend years chasing it through the courts to obtain relief. Last June, a United States District Court found (after a ten-day trial) that EchoStar willfully or repeatedly violated the distant-signal provisions of the Copyright Act ‑‑ and, in the process, broke a sworn promise to the court to turn off large numbers of illegal subscribers. This finding was only the latest in what has been a long string of instances in which courts and the FCC have found EchoStar to have violated statutes and rules -- and abused legal processes -- for its own private benefit.

Startlingly, EchoStar, having engaged in this widespread pattern of misconduct, and having been content to violate the distant-signal license until ordered by a court to stop breaking the law, now urges Congress to radically expand the distant-signal compulsory license. In particular, the satellite industry now asks to be allowed to import ABC, CBS, Fox, and NBC programming from New York and Los Angeles stations to millions of households that can receive the same programming from their local stations over the air – and in most cases, can also get their local stations in superb quality, by satellite, from EchoStar and DirecTV as part of their local-to-local package. Although these homes are unquestionably “served” by their local stations, the DBS industry proposes to be allowed to deliver the same programming from New York or Los Angeles if the household is – in their view -- “digitally unserved.”

The DBS industry proposal – by an industry with a long track record of lawlessness -- is a recipe for mischief. As this Committee has repeatedly recognized, the distant-signal compulsory license is a departure from marketplace principles that is appropriate only as a “lifeline” for households that otherwise cannot view network programming. It would make no sense to override normal copyright principles for households that can readily view their own local stations. It would give the DBS firms a government-provided crutch that would set back for years what would otherwise be a market-driven race between DirecTV and EchoStar – further spurred by competition with cable -- to deliver digital signals on a local-to-local basis. And when local stations later sought to reclaim their own local viewers from the distant digital transmissions, there would be a consumer firestorm much like what occurred when two major satellite carriers were required to turn off (illegally-delivered) distant analog signals to millions of households in 1999.

Finally, given the rapid pace of technological and economic change, Congress should again specify that Section 119 will sunset after a limited, five-year period, so that Congress can decide then if there is any reason to continue this government intervention in the free market for copyrighted television programming.

I. THE PRINCIPLES OF LOCALISM AND OF RESPECT FOR LOCAL STATION EXCLUSIVITY ARE FUNDAMENTAL TO AMERICA’S EXTRAORDINARILY SUCCESSFUL TELEVISION DELIVERY SYSTEM

As this Committee has consistently stressed -- going back to 1988, when it played a leading role in crafting the rules governing satellite importation of distant broadcast stations -- the principles of localism and of local station exclusivity have been pivotal to the success of American television.

A. The Principle of Localism is Critical To America’s Extraordinary Television Broadcast System

Unlike many other countries that offer only national television channels, the United States has succeeded in creating a rich and varied mix of local television outlets through which more than 200 communities -- including towns as small as Glendive, Montana, which has fewer than 4,000 television households -- can have their own local voices. But over-the-air local TV stations -- particularly those in smaller markets such as Glendive -- can survive only if they can generate advertising revenue based on local viewership. If satellite carriers can override the copyright interests of local stations by offering the same programs on stations imported from other markets, the viability of local TV stations -- and their ability to serve their communities with the highest-quality programming -- is put at risk.

The “unserved household” limitation is simply the latest way in which the Congress and the FCC have implemented the fundamental policy of localism, which has been embedded in federal law since the Radio Act of 1927.[1]/ In particular, the “unserved household” limitation in the SHVA implements a longstanding communications policy of ensuring that local network affiliates -- which provide free television and local news to virtually all Americans – do not face importation of duplicative network programming.

The objective of localism in the broadcast industry is “to afford each community of appreciable size an over-the-air source of information and an outlet for exchange on matters of local concern.” Turner Broadcasting Sys. v. FCC, 512 U.S. 622, 663 (1994) (Turner I); see United States v. Southwestern Cable Co., 392 U.S. 157, 174 & n.39 (1968) (same). That policy has provided crucial public interest benefits. Just a few years ago, the Supreme Court declared that

Broadcast television is an important source of information to many Americans. Though it is but one of many means for communication, by tradition and use for decades now it has been an essential part of the national discourse on subjects across the whole broad spectrum of speech, thought, and expression.

Thanks to the vigilance of Congress and the Commission over the past 50 years in protecting the rights of local stations, over-the-air television stations today serve more than 200 local markets across the United States, including markets as small as Presque Isle, Maine (with only 28,000 television households), North Platte, Nebraska (with fewer than 15,000 television households), and Glendive, Montana (with fewer than 5,000 television households).

This success is largely the result of the partnership between broadcast networks and affiliated television stations in markets across the country. The programming offered by network-affiliated stations is, of course, available over-the-air for free to local viewers, unlike cable or satellite services, which require substantial payments by the viewer. See Turner I, 512 U.S. 622, 663; Satellite Broadcasting & Communications Ass’n v. FCC, 275 F.3d 337, 350 (4th Cir. 2001) (“SHVIA . . . was designed to preserve a rich mix of broadcast outlets for consumers who do not (or cannot) pay for subscription television services.”); Communications Act of 1934, § 307(b), 48 Stat. 1083, 47 U.S.C. § 307(b). Although cable, satellite, and other technologies offer alternative ways to obtain television programming, tens of millions of Americans still rely on broadcast stations as their exclusive source of television programming, Turner I, 512 U.S. at 663, and broadcast stations continue to offer most of the top-rated programming on television.

The network/affiliate system provides a service that is very different from nonbroadcast networks. Each network affiliated station offers a unique mix of national programming provided by its network, local programming produced by the station itself, and syndicated programs acquired by the station from third parties. As this Committee recognized in reporting out the original SHVA in 1988, “historically and currently the network-affiliate partnership serves the broad public interest.” H.R. Rep. 100-887, pt. 2, at 19-20 (1988). Unlike nonbroadcast networks such as Nickelodeon or USA Network, which telecast the same material to all viewers nationally, each network affiliate provides a customized blend of programming suited to its community -- in the Supreme Court’s words, a “local voice.”

The local voices of America’s local television broadcast stations make an enormous contribution to their communities. In Appendix A, we list just a few examples of television broadcasters’ commitment to localism in the form of help to local citizens -- and local charities -- in need. It is through local broadcasters that local citizens and charities raise awareness and educate members of the community.

Community service programming -- along with day-to-day local news, weather, and public affairs programs -- is made possible, in substantial part, by the sale of local advertising time during and adjacent to network programs. These programs (such as “Alias,” “CSI,” “American Idol,” and “Friends”) often command large audiences, and the sale of local advertising slots during and adjacent to these programs is therefore a crucial revenue source for local stations.

A variety of technologies have been developed or planned -- including cable, satellite, open video systems, and the Internet -- that, as a technological matter, enable third parties to retransmit distant network stations into the homes of local viewers. Whenever those technologies posed a risk to the network/affiliate system, Congress or the Commission (or both) have acted to ensure that the retransmission system does not import duplicative network programming from distant markets. A recent example is the threat of unauthorized Internet retransmissions of television stations, which was quickly halted by the courts (applying the Copyright Act) and condemned by Congress as outside the scope of any existing compulsory license.[2]/

In the case of cable television, for example, the FCC has since the mid-1960’s imposed “network nonduplication” rules on cable systems. 47 C.F.R. §§ 76.92-76.97 (1996). As the Commission explained when it strengthened the network nonduplication rules in 1988:

[I]mportation of duplicating network signals can have severe adverse effects on a station’s audience. In 1982, network non-duplication protection was temporarily withdrawn from station KMIR-TV, Palm Springs. The local cable system imported another network signal from a larger market, with the result that KMIR-TV lost about one-half of its sign-on to sign-off audience. Loss of audience by affiliates undermines the value of network programming both to the affiliate and to the network. Thus, an effective non-duplication rule continues to be necessary.[3]/

2. Protecting the Rights of Copyright Owners to License Their Works in the Marketplace is Another Principle Supporting a Highly Circumscribed Distant-Signal Compulsory License

By definition, the Copyright Act is designed to limit unauthorized marketing of works as to which the owners enjoy exclusive rights. See U.S. Constitution, art. I, § 8, cl. 8 (“The Congress shall have Power . . . To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”); Mazer v. Stein, 347 U.S. 201, 219 (1954) (“The economic philosophy behind the clause empowering Congress to grant patents and copyrights is the conviction that encouragement of individual effort by personal gain is the best way to advance public welfare through the talents of authors and inventors in ‘Science and useful Arts.”).

While Congress has determined that compulsory licenses are needed in certain circumstances, the courts have emphasized that such licenses must be construed narrowly, “lest the exception destroy, rather than prove, the rule.” Fame Publ’g Co. v. Alabama Custom Tape, Inc., 507 F.2d 667, 670 (5th Cir. 1975); see also Cable Compulsory License; Definition of Cable Systems, 56 Fed. Reg. 31,580, 31,590 (1991) (same). The principle of narrow application and construction of compulsory licenses is particularly important as applied to the distant-signal compulsory license, because that license not only interferes with free market copyright transactions but also threatens localism.

3.In Enacting the SHVA and the SHVIA, Congress Reaffirmed the Central Role of Localism and of Local Program Exclusivity

When Congress crafted the original Satellite Home Viewer Act in 1988, it emphasized that the legislation “respects the network/affiliate relationship and promotes localism.” H.R. Rep. No. 100-887, pt. 1, at 20 (1988). And when Congress temporarily extended the distant-signal compulsory license in 1999, it reaffirmed the importance of localism as fundamental to the American television system. For example, the 1999 SHVIA Conference Report, which was signed by every House member of the Conference Committee (including every member of this Committee that served on the Conference) and all but one Senate member, says this:

“[T]he Conference Committee reasserts the importance of protecting and fostering the system of television networks as they relate to the concept of localism. . . . [T]elevision broadcast stations provide valuable programming tailored to local needs, such as news, weather, special announcements and information related to local activities. To that end, the Committee has structured the copyright licensing regime for satellite to encourage and promote retransmissions by satellite of local television broadcast stations to subscribers who reside in the local markets of those stations.”

SHVIA Conference Report, 145 Cong. Rec. H11792 (daily ed. Nov. 9, 1999) (emphasis added).

The SHVIA Conferees also stressed the need to interfere only minimally with marketplace arrangements -- premised on protection of copyrights -- in the distribution of television programming:

“[T]he Conference Committee is aware that in creating compulsory licenses . . . [it] needs to act as narrowly as possible to minimize the effects of the government’s intrusion on the broader market in which the affected property rights and industries operate. . . . [A]llowing the importation of distant or out-of-market network stations in derogation of the local stations’ exclusive right--bought and paid for in market-negotiated arrangements--to show the works in question undermines those market arrangements.”

Id. The Conference Report also emphasized that “the specific goal of the 119 license, which is to allow for a life-line network television service to those homes beyond the reach of their local television stations, must be met by only allowing distant network service to those homes which cannot receive the local network television stations. Hence, the ‘unserved household’ limitation that has been in the license since its inception.” Id. (emphasis added).

Finally, the SHVIA Conferees highlighted “the continued need to monitor the effects of distant signal importation by satellite,” and made clear that Congress would need to re-evaluate after five years whether there is any “continuing need” for the distant signal license. Id. That time, of course, is now.

II.PROPERLY IMPLEMENTED, THE LOCAL-TO-LOCAL COMPULSORY LICENSE IS A WIN-WIN-WIN FOR CONSUMERS, BROADCASTERS, AND SATELLITE COMPANIES

Unlike the importation of distant network stations, which can do grave damage to the network/affiliate relationship, delivery of local stations to the stations’ own local viewers -- e.g., San Antonio stations to viewers in the San Antonio area -- is a win-win-win for consumers, local broadcasters, and DBS firms alike. As Congress explained in 1999 when it created a new local-to-local compulsory license in Section 122 of the Copyright Act, the new Act “structures the copyright licensing regime for satellite to encourage and promote retransmissions by satellite of local television broadcast stations to subscribers who reside in the local markets of those stations.” 145 Cong. Rec. H11792 (daily ed. Nov. 9, 1999) (emphasis added).

A.Satellite Firms Have Enjoyed Extraordinary Growth, Thanks In Major Part To the Local-to-Local Compulsory License

As the FCC recognized in its January 2004 Annual Assessment of the Status of Competition in Markets for the Delivery of Video Programming, the Direct Broadcast Satellite (“DBS”) industry is thriving -- and offering potent competition to cable. The DBS industry, which signed up its first customer only decade ago, grew to more than 20 million subscribers as of June 2003. Annual Assessment, MB Dkt. No. 03-172, ¶ 8 (released Jan. 28, 2004). The growth rate for DBS “exceeded the growth of cable by double digits” in every year between 1994 and 2002, and in 2003 exceeded the cable growth rate by 9.2%. Id. Just in the 12 months between June 2002 and June 2003, the DBS industry added 2.2 million net new subscribers, surging from 18.2 million to 20.4 million households. Id.

DirecTV is currently the second-largest multichannel video programming distributor (“MVPD”), behind only Comcast, while EchoStar is the fourth-largest MVPD. Id., ¶ 67. The DBS firms take many subscribers away from cable: “according to [DirecTV] internal data, approximately 70% of its customers were cable subscribers at the time that they first subscribed to DirecTV.” Id., ¶ 65.

The growth of the DBS industry has far outstripped even optimistic predictions made just a few years ago. In its January 2000 Annual Assessment, for example, the FCC quoted bullish industry analysts who predicted that “DBS will have nearly 21 million subscribers by 2007.” 2000 Annual Assessment, 15 FCC Rcd. 978, ¶ 70. As the statistics quoted above show, DBS reached that level not in 2007, but in 2003 -- four years earlier than predicted.

As the FCC has repeatedly pointed out, delivery of local stations by satellite has been a major spur to this explosive growth. E.g., 2004 Annual Assessment, ¶ 8. In June 1999, just before the enactment of the new local-to-local compulsory license in the SHVIA, the DBS industry had 10.1 million subscribers. 2000 Annual Assessment, ¶ 8. Only four years later, the industry had more than doubled that figure to 20.4 million subscribers. 2004 Annual Assessment, ¶ 8. That this growth has been spurred by the availability of local-to-local is beyond doubt: the DBS industry’s own trade association, the Satellite Broadcasting & Communications Association, stressed just a few months ago that “[t]he expansion of local-into-local service by DBS providers continues to be a principal reason that customers subscribe to DBS.” SBCA Comments at 4, Dkt. No. 03-172 (filed Sept. 11, 2003) (emphasis added).

B.Contrary to the DBS Industry’s Pessimistic Predictions, Satellite Local-to-Local Service is Now Available to the Overwhelming Majority of American Television Households

Over the past few years, EchoStar and DirecTV have repeatedly claimed that capacity constraints will severely limit their ability to offer local-to-local service to more than a small number of markets. The DBS firms used that argument -- unsuccessfully -- in 1999 in attempting to persuade Congress that it should permit DBS companies to use a new compulsory license to “cherry-pick” only the most heavily-watched stations in each market. They used it again in arguing -- again unsuccessfully -- in 2000 and 2001 that the courts should strike down SHVIA’s “carry one, carry all” principle as somehow unconstitutional. And they trotted out the same claims as a justification for the proposed horizontal merger of the nation’s only two major DBS firms, DirecTV and EchoStar. As recently as 2002, for example, the two DBS firms claimed that unless they were permitted to merge, neither firm could offer local-to-local in more than about 50 to 70 markets. EchoStar, DirecTV CEOs Testify On Benefits of Pending Merger Before U.S. Senate Antitrust Subcommittee, www.spacedaily.com/news/satellite-biz-02p.html (“Without the merger, the most markets that each company would serve with local channels as a standalone provider, both for technical and economic reasons, would be about 50 to 70.”) (quoting DirecTV executive).

Contrary to these pessimistic predictions, the two DBS firms already offer local-to-local programming to the overwhelming majority of U.S. television households. Although the DBS firms claimed they would never be able to serve more than 70 markets unless they merged, EchoStar already serves 107 Designated Local Markets (“DMA’s”), which collectively cover more than 83% of all U.S. TV households.[4] Nor is there any sign that EchoStar’s expansion of local-to-local service has stopped.

DirecTV’s plans are still more ambitious. As of November 2003, DirecTV offered local-to-local to 64 markets covering more than 72% of all U.S. television households. With the launch of a new satellite in the next few months, DirecTV expects to serve 100 DMAs covering 85% of all U.S. TV households. By the end of 2004, DirecTV has committed to providing local-to-local in an additional 30 markets, for a total of at least 130 DMAs that collectively include 92% of all U.S. TV households.[5] And as early as 2006 and no later than 2008, “DirecTV will offer a seamless, integrated local channel package in all 210 DMAs.”[6] In other words, DirecTV alone will soon offer local-to-local service to virtually all American television households -- even though DirecTV told Congress and the FCC just two years ago that this result was unthinkable unless it merged with EchoStar.

C.EchoStar And DirecTV Boast About The Excellent Technical Quality Of Their Current Local-To-Local Service -- Which Retransmits “Digitized” Analog Signals

As discussed below, the satellite industry now demands that Congress expand the distant-signal compulsory license -- which EchoStar has systematically abused over the past eight years -- by creating a new category of households that are “digitally unserved.” But any suggestion that EchoStar and DirecTV have difficulty attracting customers under the current law is belied by the following facts.

First, both DirecTV and EchoStar can now -- or will within a few months -- each be able to deliver local television stations by satellite to nearly 90% of U.S. television households. Second, both DBS firms obtain excellent-quality analog signals from the stations, often working with the stations themselves to obtain a direct feed from the station’s studios. Third, after receiving a high-quality analog signal, the DBS firms then “digitize” the signals and retransmit them in digital format to their customers. See www.dishnetwork.com/content/programming/ index.shtml (“DISH Network now has your digital local channels.”) <visited Feb. 16, 2004> (emphasis added). While these signals do not equal the quality of a signal originating from a digital broadcast, or particularly of a high-definition broadcast, the result, according to the DBS industry’s trade association, is that DBS “always delivers a 100 percent, crystal-clear digital audio and video signal,” even if the original source is an analog broadcast. SBCA Web site, www.sbca.com/mediaguide/faq.htm <visited Feb. 19, 2004> (emphasis added).

In other words, consumers who receive an excellent-quality “digitized” analog signal from a local station from a DBS firm -- as opposed to an imported digital station -- are scarcely in a “hardship” position. Of course, it has never been the case that “obtaining the best-quality signal” would justify abandoning the principles of localism and free market competition. The principle behind the long-standing “Grade B intensity” standard for determining which households are “unserved” is that Grade B intensity is an objective proxy for an acceptable signal, not for the optimal signal. If localism could be so easily sacrificed, Congress would not have adopted -- and twice reaffirmed -- the Grade B intensity standard.[7]/

Finally, these local channel offerings have made DBS so attractive to consumers that it is gaining millions of new subscribers every year while the number of cable subscribers is actually shrinking. 2004 Annual Assessment, ¶ 8 (“In the last several years . . . cable subscribership has declined such that as of June 2003, there were approximately the same number of cable subscribers as there were at year-end 1999.”) While delivery of local digital signals by DirecTV and EchoStar would be a highly desirable development, there is no basis for suggesting that DirecTV and EchoStar need to import distant digital signals to serve their customers.

D. DirecTV and EchoStar Have Many Options For Continuing To Expand Their Ability To Deliver Local Signals, Including Local Digital Signals

As discussed above, DirecTV and EchoStar have brilliant engineers who constantly find ways to deliver more programming in the same spectrum. Nevertheless, in policy debates in Washington, the two firms regularly assure Congress (and the FCC) that no further technological improvement can be achieved. To mention one other example: even as DirecTV was doubling its “compression ratio” between 1998 and 2001 – enabling it to carry twice as many channels in the same amount of spectrum – it repeatedly told the FCC that it had hit a brick wall as far as any further progress in compression technology:

· July 31, 1998: “DIRECTV has substantially reached current limits on digital compression with respect to the capacity on its existing satellites. Therefore, the addition of more channels will necessitate expanding to additional satellites ….”

· Aug. 6, 1999: “DIRECTV has substantially reached current limits on digital compression with respect to the capacity on its existing satellites.”

· Sept. 8, 2000: “DIRECTV has substantially reached current technological limits on digital compression with respect to capacity on its existing satellites. Although there are potentially very small gains still possible through the use of advanced algorithms, such technological developments can neither be predicted nor relied upon as a means of increasing system channel capacity.”

· Aug. 3, 2001: “DIRECTV has offered digitally compressed signals from its inception, and has substantially reached current technological limits on digital compression with respect to capacity on its existing satellites. Although there are potentially very small gains still possible through the use of advanced algorithms, such technological developments can neither be predicted nor relied upon as a means of increasing system channel capacity.” [8]

This year, the Committee can expect to hear from the DBS firms yet again that they have no hope of significantly expanding their capacity. For example, we can expect to hear from DirecTV and EchoStar that they will never be able to carry the digital signals of local television stations, and that they should instead be given a crutch by Congress to help them compete with cable. In fact, the satellite firms have available to them a wide range of potential new techniques for massively expanding their capacity, including:

If Congress allows the power of American technical ingenuity to continue to move forward, we can expect to see DirecTV and EchoStar continue to make tremendous progress in doing more with the same resources. Just as today’s desktop computers are unimaginably more powerful than those available just a few years ago, we can expect similar quantum improvements from America’s satellite engineers – if Congress leaves the free market to do its magic, and leaves necessity to continue to be the mother of invention.

E.If The FCC Does Not Act, Congress Will Need To Step In To Correct A Major Abuse Of Local-To-Local By Echostar

In crafting the SHVIA, Congress was well aware that if a DBS firm were permitting to select only some -- but not all -- local stations for retransmission, the stations left off the service would have little chance of reaching viewers who obtain their TV service from the satellite company. In the same spirit as the requirement in the 1992 Cable Act that cable systems carry all qualified local stations in each market in which they operate, the SHVIA specifies that if a satellite carrier chooses to use the local-to-local license to carry signals in a particular market, it must carry all qualified local stations. 47 U.S.C. § 338(a)(1). That requirement has been upheld against constitutional attack by EchoStar, DirecTV, and their trade association. Satellite Broadcasting and Communications Ass’n v. FCC, 275 F.3d 337 (4th Cir. 2001). The purpose of the “carry one, carry all” principle is, of course, to ensure the continued availability of a wide variety of different over-the-air channels, and to prevent the local-to-local compulsory license from interfering with existing vigorous competition among all of the broadcast stations in each local market.

Since late 2001, EchoStar has egregiously violated the requirement that it carry all stations in a nondiscriminatory manner: in many markets, EchoStar forces consumers to acquire a second satellite dish to receive some -- but not all -- local stations. Here in the Washington, D.C. area, for example, EchoStar enables its customers to see the ABC, CBS, Fox, and NBC stations (and a handful of other local stations) with a single satellite dish, pointed at EchoStar’s main satellites. See EchoStar web site, www.dishnetwork.com/content/programming/ locals/index.shtml. On the other hand, viewers wishing to see Channel 14 (Univision), Channel 32 (WHUT -- PBS), Channel 53 (WNVT -- International), Channel 56 (WNVC -- International), or WJAL (Channel 68 --Independent) are forced to obtain a second satellite dish aimed at a satellite far over the Atlantic. Id. (In this and other markets, EchoStar targets public television, Hispanic, and other foreign-language stations for this discrimination.) Because few viewers will go to the time and trouble of obtaining a second dish -- e.g., a long wait at home for an installer ‑‑ the net result is that only a tiny percentage of EchoStar subscribers can actually view all of their local stations. To date, the FCC has taken only ineffective steps to address this egregious form of discrimination,[10]even though EchoStar’s fellow DBS company, DirecTV, has told the FCC that EchoStar’s two-dish ploy “is inconsistent with the language of the Satellite Home Viewer Improvement Act. ” See Letter from Merrill S. Spiegel to Marlene H. Dortch, Dkt. No. 00-196 (Jan. 16, 2003).

The Commission has recently indicated that it plans to take action soon to address EchoStar’s two-dish practices,.[11]but it remains uncertain when it will act on pending petitions for review. Should the Commission fail to take prompt action, Congress should step in to ensure that EchoStar can no longer thumb its nose at Congress’ unmistakable directive that DBS firms that local-to-local means carriage of all local stations, without relegating many of the stations to an inaccessible electronic ghetto.

III. THE DISTANT-SIGNAL COMPULSORY LICENSE HAS BEEN EGREGIOUSLY ABUSED BY SATELLITE CARRIERS, AND THE NEED FOR IT IS RAPIDLY DIMINISHING WITH THE GROWTH OF LOCAL-TO-LOCAL

America’s free, over-the-air television system is based on local stations providing programming to local viewers. When satellite carriers began delivering television programming in the 1980’s, however, retransmission of local television stations by satellite was not yet technologically feasible. In 1988, Congress therefore fashioned a stopgap remedy: a compulsory license that allows satellite carriers to retransmit distant network stations, but only to “unserved households.” 17 U.S.C. § 119. The heart of the definition of “unserved household” is whether the residence can receive an over-the-air signal of a certain objective strength, called “Grade B intensity,” from an affiliate of the relevant network. Id., § 119(d)(10) (definition of “unserved household”). In 1994, Congress extended the distant-signal license for another five years, although it expressly placed on satellite carriers the burden of proving that each of their customers is “unserved.” 17 U.S.C. § 119(a)(5)(D).

In 1999, Congress again extended the distant-signal license as part of the SHVIA, and statutorily mandated use of the FCC-endorsed computer model (called the “Individual Location Longley-Rice” model, or “ILLR”) for predicting which households are able to receive signals of Grade B intensity from local network stations. 17 U.S.C. § 119(a)(2)(B)(ii). In the SHVIA, Congress also classified certain very limited new categories of viewers as “unserved,” including (1) certain subscribers who had been illegally served by satellite carriers but whom Congress elected to “grandfather” temporarily, see 17 U.S.C. § 119(e), and (2) qualified owners of recreational vehicles and commercial trucks, see id., § 119(a)(11).

By its terms, grandfathering will expire at the end of 2004. 17 U.S.C. § 119(e). Unlike in 1999, when Congress saw grandfathering as a way to reduce consumer complaints by allowing certain ineligible subscribers to continue receiving distant signals, the end of grandfathering will have little impact in the marketplace. This special exception should therefore be allowed to expire routinely.[12]/

A.Delivery Of Distant Signals Is A Poor Substitute For Delivery Of Local Television Stations

From a policy perspective, there is no benefit -- and many drawbacks -- to satellite delivery of distant, as opposed to local, network stations. Unlike local stations, distant stations do not provide viewers with their own local news, weather, emergency, and public service programming. Nor does viewership of distant stations provide any financial benefit to local stations to help fund their free, over-the-air service. To the contrary, distant signals, when

delivered to any household that can receive local over-the-air stations, simply siphon off audiences and diminish the revenues that would otherwise go to support free, over-the-air programming.

Members of Congress and other candidates for election are uniquely injured by distant signals: a viewer in Phoenix, for example, will never see political advertisements running on local Phoenix stations if he or she is watching New York or Los Angeles stations from EchoStar or DirecTV instead. Such viewers become virtually unreachable by political advertising, unless (for example) a candidate in Phoenix wishes to purchase advertising on stations in the costliest media markets in the United States – New York and Los Angeles.

B.Satellite Carriers Have Grievously Abused the Distant-Signal Compulsory License

Satellite carriers -- most egregiously EchoStar -- have systematically abused the distant-signal compulsory license since its creation. To the extent that satellite carriers have complied with the limitations placed by Congress on the distant-signal license, it is solely as a result of litigation that broadcasters were forced to undertake to halt satellite carrier lawbreaking.

From 1988 until 1998, satellite carriers simply ignored the objective “Grade B intensity” standard and instead signed up anyone willing to say that they were dissatisfied with their over-the-air picture. Starting in the mid-1990s, when the large “C-band” dishes began to be replaced by the hot-selling 18-inch dishes offered by DirecTV and EchoStar, the carriers’ distant-signal lawbreaking quickly became a crisis.

When DirecTV went into business in 1994, and when EchoStar did so in 1996, they immediately began abusing the narrow distant-signal compulsory license to illegally deliver distant ABC, CBS, Fox, and NBC stations to ineligible subscribers. In essence, the DBS companies pretended that a narrow license that could legally be used only with remote rural viewers was in fact a blanket license to deliver distant network stations to viewers in cities and suburbs.[13]/

As a result of EchoStar’s and DirecTV’s lawbreaking, viewers in markets such as Meridian, Mississippi, Lafayette, Louisiana, Traverse City, Michigan, Santa Barbara, California, Springfield, Massachusetts, Peoria, Illinois, and Lima, Ohio were watching their favorite network shows not from their local stations but from stations in distant cities such as New York. Since local viewers are the lifeblood of local stations, EchoStar’s and DirecTV’s copyright infringements were a direct assault on free, over-the-air local television.

When broadcasters complained about this flagrant lawbreaking, the satellite industry effectively said: if you want me to obey the law, you’re going to have to sue me. Broadcasters were finally forced to do just that, starting in 1996, when they sued the distributor (PrimeTime 24) that both DirecTV and EchoStar used as their supplier of distant signals. But even a lawsuit for copyright infringement was not enough to get the DBS firms to obey the law: both EchoStar and DirecTV decided that they would continue delivering distant stations illegally until the moment a court ordered them to stop.

The courts recognized — and condemned — the satellite industry’s lawbreaking. See, e.g., CBS Broadcasting Inc. v. PrimeTime 24, 9 F. Supp. 2d 1333 (S.D. Fla. 1998) (entering preliminary injunction against DirecTV’s and EchoStar’s distributor, PrimeTime 24); CBS Broadcasting Inc. v. PrimeTime 24 Joint Venture, 48 F. Supp. 2d 1342 (S.D. Fla. 1998) (permanent injunction); CBS Broadcasting Inc. v. DIRECTV, Inc., No. 99-0565-CIV-NESBITT (S.D. Fla. Sept. 17, 1999) (permanent injunction after entry of contested preliminary injunction); ABC, Inc. v. PrimeTime 24, 184 F.3d 348 (4th Cir. 1999) (affirming issuance of permanent injunction).

By the time the courts began putting a halt to this lawlessness, however, satellite carriers were delivering distant ABC, CBS, Fox, and NBC stations to millions and millions of subscribers, the vast majority of whom were ineligible urban and suburban households. See CBS Broadcasting, 9 F. Supp. 2d 1333.

By getting so many subscribers accustomed to an illegal service, DirecTV and EchoStar put both the courts and Congress in a terrible box: putting a complete stop to the DBS firms’ lawbreaking meant irritating millions of consumers. Any member of Congress who was around in 1999 will remember the storm of protest that DirecTV and EchoStar stirred up from the subscribers they had illegally signed up for distant network stations.

Even when the courts ordered EchoStar and DirecTV to stop their massive violations of the Copyright Act, they took further evasive action to enable them to continue their lawbreaking. In particular, when their vendor (PrimeTime 24) was ordered to stop breaking the law, both DBS firms fired their supplier in an effort to continue their lawbreaking.

When DirecTV tried this in February 1999, a United States District Judge found that DirecTV’s claims were “a little disingenuous” and promptly squelched its scheme. CBS Broadcasting Inc. et al v. DirecTV, No. 99-565-CIV-Nesbitt (S.D. Fla. Feb. 25, 1999); see id. (S.D. Fla. Sept. 17, 1999) (stipulated permanent injunction).

EchoStar has played the game of “catch me if you can” with greater success, thanks to a series of stalling tactics in court. But in 2003, a United States District Court judge for the Southern District of Florida held a 10-day trial in a copyright infringement case brought by broadcast television networks, and trade associations representing local network affiliates, originally filed against EchoStar in 1998.[14] In June 2003, the District Court issued a meticulously-documented 32-page final judgment, holding EchoStar liable for nationwide, willful or repeated copyright infringement by violating the distant-signal compulsory license. CBS Broad., Inc. v. EchoStar Communications Corp., 276 F. Supp. 2d 1237 (S.D. Fla. 2003).

EchoStar had the burden of proving that each of its subscribers receiving distant ABC, CBS, Fox, and NBC stations is an “unserved household.” 17 U.S.C. § 119(a)(5)(D). Yet the District Court found that EchoStar had failed to prove that any of its 1.2 million distant-signal subscribers is in fact “unserved.” That is, EchoStar did not prove that any of its subscribers is unable to receive a Grade B signal, is grandfathered, or is eligible on any other basis. Id., ¶ 82.

Worst of all, the District Court found that EchoStar had deliberately sought to mislead the court about what it did with the vast pool of illegal subscribers it accumulated between 1996 and 1999. Most important, EchoStar made -- and then deliberately broke -- a sworn pledge (in a declaration by its CEO, Charles Ergen) to turn off the many ineligible subscribers it signed up using the unlawful do-you-like-your-picture method. Id., ¶ 46. Far from turning off its accumulated illegal subscribers, EchoStar knowingly continued delivering distant signals to many hundreds of thousands of customers that it knew -- from a study EchoStar itself ordered ‑‑ to be ineligible. Id, ¶¶ 38-47.

EchoStar’s decision to continue its highly profitable lawbreaking was the height of cynicism: as the District Court found, “EchoStar executives, including Ergen and [General Counsel] David Moskowitz, when confronted with the prospect of cutting off network programming to hundreds of thousands of subscribers, elected instead to break Mr. Ergen’s promise to the Court.” Id., ¶ 46 (emphasis added).

Nor is EchoStar’s abuse of the distant-signal compulsory license the only example of its flouting of laws and regulations and misuse of legal processes. Appendix B is a list of other violations by EchoStar of substantive legal rules, and of instances in which EchoStar has abused judicial and administrative procedures.[15] This is, of course, the same EchoStar that now asks Congress to expand the distant-signal compulsory license -- and to do so in ways that would allow EchoStar to offer highly profitable programming packages to millions of subscribers, at virtually no cost to EchoStar, but at great cost to broadcasters, program suppliers, and the principle of localism.

C.With The Widespread Availability Of Local-To-Local Service, The Number Of Truly “Unserved” Households Is Minimal

Unlike the local-to-local compulsory license, the distant-signal compulsory license threatens localism and interferes with the free market copyright system. As a result, the only defensible justification for that compulsory license is as a “hardship” exception -- to make network programming available to the small number of households that otherwise have no access to it. The 1999 SHVIA Conference Report states that principle eloquently: “the specific goal of the 119 license . . . is to allow for a life-line network television service to those homes beyond the reach of their local television stations.” 145 Cong. Rec. at H11792-793. (emphasis added).[16]/

Today, more than 80% of all U.S. television viewers have the option of viewing their local network affiliates by satellite -- and that number is growing all the time. Even satellite dish owners in local-to-local markets who cannot receive Grade B intensity signals over-the-air (e.g., a household in a remote part of the Washington, D.C. DMA) are obviously not “unserved” by their local stations: they can receive them, with excellent technical quality, directly from their satellite carrier, just by picking up the phone. And they can do so without any need to obtain a waiver, and without regard to what the ILLR model predicts about the over-the-air signal strength at their home.

The widespread availability of local-to-local network affiliate retransmissions means that, as a real-world matter, there are no unserved viewers in areas in which local-to-local satellite transmissions of the relevant network are available, because it is no more difficult for viewers to obtain their local stations from their satellite carriers than to obtain distant stations. There is therefore no policy justification for treating satellite subscribers in local-to-local markets as “unserved” and therefore eligible to receive distant network stations.

The distant-signal compulsory license is not designed to permit satellite carriers to sabotage the network/affiliate relationship by delivering to viewers in served households -- who can already watch their own local ABC, CBS, Fox, and NBC stations -- network programming from another source. Yet satellite carriers have aggressively advertised the benefits to served households of obtaining distant signal programming, including most notably:

Ø time-shifting (e.g., Mountain and Pacific Time Zone viewers watching network programming two or three hours earlier from East Coast stations)

Ø out-of-town sports: because TV networks often show different sports events (such as NFL games) in different cities, a subscription to an out-of-town network station enables viewers to see sports events that are not televised locally.

These abuses of the compulsory license damage both the network/affiliate system and the free market copyright regime. Consider, for example, a network affiliate in Sacramento, California, a DMA in which there are today no DBS subscribers who are genuinely “unserved” because both DIRECTV and EchoStar offer the local Sacramento ABC, CBS, Fox, and NBC stations by satellite. Nevertheless, for any Sacramento-area viewer who is technically “unserved” under the Grade B intensity standard, DIRECTV and EchoStar can scoop the Sacramento stations with the stations’ own programming by offering distant signals from East Coast stations. The Sacramento station -- and every other station in the Mountain and Pacific Time Zones that has local-to-local service -- therefore loses badly needed local viewers, even though the viewers have zero need to obtain a distant signal to watch network programming. Similarly, the ability of satellite carriers to offer distant stations that carry attractive sports events is a needless infringement of the rights of copyright owners, who offer the same product -- out-of-town games -- on a free market basis. For example, the NFL has for years offered satellite dish owners (at marketplace rates) a package called “NFL Sunday Ticket,” which includes all of the regular season games played in the NFL. The distant-signal compulsory license creates a needless “end-around” this free-market arrangement by permitting satellite carriers to retransmit distant network stations for a pittance through the compulsory license.

D.For the Small Number of Markets in Which The DBS Firms Do Not Now Offer Local-to-Local, The FCC Has Repeatedly and Recently Reaffirmed that the Grade B Standard and the ILLR Model Are the Best Tools for Determining Which Households are “Unserved”

For the ever-shrinking number of markets in which the DBS firms do not offer local-to-local (which will encompass no more than 8% of U.S. television households by the end of 2004 for DirecTV), the Grade B intensity standard, implemented via the FCC-endorsed Individual Location Longley-Rice (“ILLR”) model, continues to be the logical method for predicting which households are unable to receive local stations over the air.

For years, the satellite industry simply ignored the objective signal intensity standard that Congress established in 1988, and instead used a meaningless subjective standard (“are you satisfied with your picture quality?”) that was effectively no standard at all. As discussed above, in 1998, the courts found that the satellite industry had broken the law by signing up millions of subscribers using this illegal method. Rather than coming into compliance, the satellite industry raced to the FCC to demand that the Commission alter (in the satellite industry’s favor) what the DBS firms characterized as an “antiquated,” “1950’s-era” Grade B standard.

The FCC carefully considered the engineering data and other evidence presented by the satellite industry, but concluded that, in fact, there was no basis for changing the Grade B standard. In Re Satellite Delivery of Network Signals to Unserved Households for Purposes of the Satellite Home Viewer Act, ¶¶ 32-43, Dkt. No. 98-201 (released Feb. 2, 1999). Although the Grade B standard was originally established in the 1950’s, the Commission pointed out that it had repeatedly re-evaluated the standard during the intervening decades and found it to be still sound. Id., ¶ 42. As the Commission observed, many of the changes that have occurred since the 1950’s have made it easier to obtain a picture of acceptable quality with the same strength signal: for example, the “low cost noisy tubes and . . . components” of the 1950s have been replaced by “modern solid state components that produce lower set noise.” Id., ¶ 41. Overall, the FCC found that the “environmental and technical changes that have taken place” since the Grade B standard was first established have moved “in opposite directions and tend to cancel each other out.” Id., ¶ 42.

Despite this exhaustive review by the Commission in 1998 and 1999, when Congress approved the SHVIA, it directed the Commission to conduct yet another proceeding to evaluate whether Grade B intensity is an appropriate standard. After carefully evaluating the submissions by all interested parties, including engineering data submitted by the satellite industry, the Commission recommended that the Grade B standard remain unchanged in virtually all respects. In Re Technical Standards for Determining Eligibility For Satellite-Delivered Network Signals Pursuant To the Satellite Home Viewer Improvement Act, ET Dkt. No. 00-90 (released Nov. 29, 2000).

Similarly, the FCC’s ILLR predictive model, first announced in 1999, grew out of years of Commission experience with the Longley-Rice model in other contexts. In Re Satellite Delivery of Network Signals to Unserved Households for Purposes of the Satellite Home Viewer Act, at ¶¶ 61-88. In response to Congress’ directive in the SHVIA, and after reviewing all of the satellite industry’s submissions, the Commission made further refinements to the ILLR model in May 2000 and reaffirmed that ILLR is an accurate and reliable model. In Re Establishment of an Improved Model for Predicting the Broadcast Television Field Strength Received at Individual Locations, ET Docket No. 00-11 (released May 26, 2000). In doing so, the Commission considered how ILLR predictions fared when compared to actual signal intensity measurements at the same location, and found that in many cases ILLR actually underpredicts the actual signal strength available at particular households -- precisely the opposite of the satellite industry’s claims. Id.

IV. THE DBS INDUSTRY’S PROPOSAL TO EXPAND THE DISTANT-SIGNAL COMPULSORY LICENSE DEFIES LOGIC AND WOULD SET BACK LOCAL-TO-LOCAL CARRIAGE OF DIGITAL SIGNALS FOR YEARS

Having elected to deliberately violate the limits that Congress imposed on the existing compulsory license unless and until ordered by a federal court to obey them, EchoStar and DirecTV now demand that Congress radically expand the distant-signal license they have abused. The Committee should reject this irresponsible proposal out of hand.

In essence, the DBS firms ask the Committee to create a brand-new compulsory license to permit them to deliver the digital broadcasts of the New York and Los Angeles ABC, CBS, Fox, and NBC stations to millions of households nationwide, even though (a) the households can receive the same programming over the air from their local station’s analog signal and (b) in the overwhelming majority of cases, EchoStar and DirecTV already deliver the same programming via what SBCA describes as “a 100 percent, crystal-clear digital audio and video signal” retransmitted from the local station’s analog broadcasts.

The simple greed behind this DBS industry proposal is clear, and the tactic is familiar. In the 1990s, the DBS industry sought to offer network broadcast programming “on the cheap” by delivering the analog broadcasts of New York and Los Angeles stations nationwide -- completely bypassing the network/affiliate system that Congress and the FCC have worked so hard to foster. (Indeed, in the 1990’s satellite companies urged Congress to eliminate the “unserved household” restriction entirely and to permit universal distribution of New York and Los Angeles stations in return for payment of a “surcharge.”) This Committee, and Congress as a whole, blocked those maneuvers, instead insisting on localism and on marketplace solutions. By standing its ground against the “quick fix” urged by the DBS industry, Congress has fostered the win/win/win result described above: DirecTV and EchoStar (and their contractors) dug deep to find technical solutions to enable them to offer local-to-local broadcast programming to the overwhelming majority of U.S. television households -- and soon to all of them. (They found these solutions, of course, only after repeatedly telling Congress and the FCC that the technical problems were unsolvable.)

The DBS industry’s current proposal is equally self-serving. EchoStar and DirecTV would enjoy a tremendous financial benefit from being able -- again “on the cheap” -- to deliver the digital broadcasts of New York and Los Angeles ABC, CBS, Fox, and NBC stations to many millions of viewers nationwide. Instead of investing in delivering local digital broadcasts, as cable systems are gradually beginning to do, DirecTV and EchoStar could use a single, inexpensive national feed (e.g., of WCBS in New York) to deliver digital programming of a particular network around the country. Although this gambit would cost the DBS firms virtually nothing, they would gain enormously, both in additional customers (at $40, $50 or more per month) and in selling additional network packages (at $6 per month) to both old and new customers.

While the “distant digital” proposal would be a tremendous windfall for DirecTV and EchoStar, it would be a disaster for Congress, the public, and broadcasters. As discussed in detail below, the supposed “factual” basis for this proposal -- that the broadcast television industry has not been diligent in pushing the digital transition -- is palpable nonsense. And as also described below, this gift to the DBS industry would come at a crippling cost in terms of Congress’ public policy objectives.

A. The Broadcast Industry Has Spent Enormous Sums and Dedicated Extraordinary Efforts to Implementing the Transition to Digital Broadcasting -- With Tremendous Success in Rolling Out Digital to the Vast Majority of American TV Households

Contrary to the satellite industry’s ill-informed accusations, broadcasters have worked tirelessly to implement the transition to digital broadcasting. Thanks to the expenditure of billions of dollars and millions of person-hours, broadcasters have built – and are on-air with -- digital television (“DTV”) facilities in 203 markets that serve 99.42% of all U.S. TV households.[17] Midway through the transition, almost three-quarters -- 73.7% -- of U.S. television households have access to at least six free, over-the-air digital television signals.[18] Nationwide, 1380 television stations in 203 markets are delivering free, over-the-air digital signals today.[19] More than 70 million households receive six or more DTV signals; 49 million households receive nine or more DTV signals; and a full 30 million households receive 12 or more DTV signals. More digital stations are resolving their obstacles and going on the air almost daily. The digital transition is working and moving ahead quickly, and the claims of the satellite industry to the contrary are empty rhetoric, not fact.

In the top ten markets, covering 30% of U.S. households, all top four network affiliates are on-air – 38 with licensed full-power digital facilities and two New York city stations with Special Temporary Authority (“STA”) currently covering a significant chunk of their service areas and with plans to expand even more. In markets 11-30 (representing another 24% of U.S. households), 77 of 79 top four affiliated stations are on-air – 72 with full-power licensed digital facilities and five with STAs. Two other stations in that group have been stymied in their roll-out, but are reporting regularly to the Commission about their progress in overcoming the obstacles. Thus, virtually all ABC/CBS/Fox/NBC affiliates in the top 30 markets, representing 53.5% of all U.S. households, are on-air with DTV -- 110 stations with full power licensed digital facilities and seven with STAs.[20]

Even as to smaller stations in these markets and stations in smaller markets – which have far fewer resources but equally high costs -- 1263 of 1569 stations are on air with digital,[21]having overcome enormous challenges and in many cases mortgaging their stations to do so, despite having no immediate prospect of revenues to offset these huge investments.

Those who do not understand the digital transition sometimes claim that DTV stations operating with STAs broadcast with very low power. That is simply wrong. Many stations, particularly those outside the largest stations in the largest markets, are “DTV maximizers,” i.e., are maximizing their power to greatly exceed their analog coverage. Many maximizers need only a fourth or less of their maximum (licensed) power to cover their entire analog service area. Maximizers operating at even much reduced power are still covering 70% or more of their analog service areas. Almost 19% of current DTV stations operating pursuant to STAs currently serve more than 100% of their analog service area with a digital signal.[22] This number will expand exponentially as the transition continues. This high percentage is particularly striking given that there are still no FCC rules for digital translators or booster stations, which will further expand digital signals in rural areas (at still further cost to local broadcasters). Free, over-the-air broadcasters take seriously the potential for expanding their service area and diminishing the very small number of households nationwide that cannot receive local signals, and the digital transition will provide an opportunity to increase nationwide broadcast service.

An authoritative study from last fall shows that on-air DTV facilities are serving 92.7% of the population served by the corresponding analog stations.[23] The small percentage of viewers who do not yet receive a fully replicated digital signal of their local television stations is shrinking by the day as broadcasters work hard, at great expense, to expand the coverage of their digital stations.

On the programming side, broadcasters, both networks and local stations, are providing an extraordinary amount of high-quality DTV and high-definition television (“HDTV”) programming to entice viewers to join the digital television transition and purchase DTV sets to display the glory of dazzling HDTV programs and the multiple offerings of the growing DTV multicasts. Three networks offer virtually all their prime time programming in HDTV, as well as high-profile specials and sporting events, such as

PBS is launching its HD Channel, in addition to its multicast channels of educational fare. WB is doubling its amount of HD programming this fall to account for more than half of its program schedule. PAX is multicasting on its digital channels, including prime time fare. And now many special effects, like the first-down marker and graphics, are also going high definition, to enhance the viewer experience and move the transition along faster and faster.

While it is local stations that bring these national HDTV programs to the vast majority of viewers, these local stations also are doing more and more on the local level to supplement the network HDTV and multicast fare. Examples abound of local HDTV and multicast broadcasts (at an enormous cost for full local HD production facilities):

This ever-increasing variety of DTV and HDTV programming, being broadcast to the vast proportion of American households, will attract consumers to purchase DTV sets. Another major driver of the transition is the FCC’s August 2002 Tuner Order, which requires all new television sets, on a phased-in basis and starting this summer with the half of the largest sets, to have a DTV tuner. As a result, DTV tuners will be available in an ever-increasing number of households, thereby further hastening the transition.

In short, the suggestion that broadcasters have somehow failed America in the transition to digital broadcasting is demonstrably false. Indeed, EchoStar’s General Counsel, David Moskowitz, admitted as much in testimony before the Judiciary Committee in February: “I agree with you completely [that broadcasters can’t be blamed for decisions by consumers not to invest in digital sets]. I’m not saying the NAB or the broadcasters are at fault.” [24]/

Moreover, the notion that new compulsory license for “digital white areas” would improve matters is sheer fantasy. In fact, allowing satellite carriers to deliver distant digital (or HD) signals to so-called “digital white areas” would set the stage for a consumer nightmare almost identical to what occurred in 1999, when hundreds of thousands of households had to switch from (illegally-delivered) distant signals to over-the-air reception of local stations.

The reason is simple: as Congress painfully experienced from mountains of letters, emails, and phone messages in 1999, viewers who are accustomed to receiving all of their TV programming (including network stations) by satellite are often enraged when told that they must switch to a hybrid system in which they combine satellite reception with an off-air antenna or cable service. The import of the “distant digital” proposal is therefore clear: after the DBS firms had “grabbed” customers with a distant digital signal, the costs to local broadcast stations of reclaiming those viewers would go sky-high, since stations would face not only the same financial costs they do now but also the high costs of confronting thousands of angry local viewers with the need to change their reception setup. The DBS firms know all of this, and they fully understand the implication: the “distant digital” plan would not encourage a smooth digital transition, and would not encourage stations to invest in the digital rollout, but would simply make it easy for EchoStar and DirecTV to hook customers on (distant) satellite-delivered digital signals and keep them forever.[25]/

If there were any doubt about the DBS firms’ tenacity in retaining distant-signal customers once they begin serving them – regardless of the legality of doing so -- EchoStar’s behavior with regard to analog distant signals would eliminate it. As a District Court found last year after a 10-day trial, EchoStar was so determined to retain its illegal distant-signal customers that, “when confronted with the prospect of cutting off network programming to hundreds of thousands of subscribers,” the key “EchoStar executives, including [CEO Charles] Ergen and [General Counsel] David Moskowitz,” choose instead “to break Mr. Ergen’s promise to the Court” that it would turn them off. CBS Broad., Inc. v. EchoStar Communications Corp., 276 F. Supp. 2d at 1246, ¶ 46.

B.The Radical New Compulsory License Demanded by EchoStar and DirecTV Is Unnecessary and Would Do Lasting Damage to Localism

At all times since 1988, the purpose of the distant-signal license has been to make over-the-air broadcast programming available by satellite solely as a “lifeline” to satellite subscribers that had no other options for viewing network programming.[26] The EchoStar/DirecTV proposal would do exactly the opposite: Congress would override normal copyright principles to permit DBS companies to transmit distant network stations to many millions of additional households, even though (1) the households get a strong signal from their local stations over the air and (2) in most cases, the DBS firm already offers the local analog broadcasts of the same programming, in crisp, digitized form, as part of a local-to-local package. The suggestion that Congress needs to step in to offer a “lifeline” under these circumstances is baffling.[27]/

The consequences of this radical proposal, if adopted, would be likely to be grave. According to EchoStar and DirecTV, for example, if a station (through no fault of its own, e.g., because of a local zoning obstacle) has been unable to go on-air with a digital signal , every household in that station’s market would be considered “unserved” -- and therefore eligible to receive a retransmitted signal from the New York or Los Angeles ABC, CBS, Fox, and NBC affiliates’ digital broadcasts. In these markets, EchoStar and DirecTV would take us back to the dark days of the mid-1990s, when, before courts began to intervene, the DBS firms used national feeds to deliver ABC, CBS, Fox, and NBC network programming to any subscriber who asked for it.[28] And they would do so even though, in most cases, the DBS firms are themselves already delivering the same programming by satellite from the local stations. With DBS penetration already at more than 20 million households nationwide, and with the highest levels of DBS penetration in smaller markets, the impact on the viability of local broadcasters could be devastating. [29] Worse yet, based on the misconduct of EchoStar in their retransmission of distant analog signals, once EchoStar has begun delivering distant digital stations, it will take enormous efforts (and years of struggle) to get them to ever stop doing so, even if they have “promised” to do so, and even if the law squarely requires them to do so.

Granting this enormous government subsidy to the DBS industry, at the expense of local broadcasters (and ultimately at the expense of local over-the-air audiences), would also have profoundly negative long-term consequences for the continued progress of the satellite industry. Over-the-air broadcasting is a local phenomenon, and the right way to deliver local stations is on a local-to-local basis. In their drive to compete with cable, and with each other, DirecTV and EchoStar are likely to devise ingenious technical solutions to enable them to carry digital broadcasts on a local-to-local basis, just as they have -- despite their gloomy predictions -- found a way to do so for analog broadcasts. But rewriting the laws to give EchoStar and DirecTV a cheap, short-term, government-mandated “fix” will take away much of the incentive that would otherwise exist to continue to find creative technological solutions. Congress wisely refused to abandon the bedrock principles of localism and free market competition in the 1990s, when the satellite industry made similar proposals, and Congress should do the same now.[30]/

The DBS proposal would also sabotage another key objective of the SHVIA, namely minimizing unnecessary regulatory differences between cable and satellite. If DirecTV and EchoStar could deliver an out-of-town digital broadcast to anyone who does not receive a digital broadcast over the air, they would have a huge (and wholly unjustifiable) leg up on their cable competitors, which are virtually always barred by the FCC’s network non-duplication rules from any such conduct. See 47 C.F.R. §§ 76.92-76.97 (1996).

Finally, it would be particularly inappropriate to grant EchoStar and DirecTV a vastly expanded compulsory license when they have shown no respect for the rules of the road that Congress placed on the existing license. If Congress were to adopt this ill-conceived proposal, it can expect more years of controversy, litigation, and -- ultimately -- millions of angry consumers complaining to Congress when their “distant digital” service is eventually terminated. This Committee should rebuff the invitation to participate in such a reckless folly.

As the Committee is aware, the local-to-local compulsory license is permanent, but Congress has wisely extended the distant-signal license (in Section 119 of the Copyright Act) only for five-year increments. Given the short legislative calendar and the press of other urgent business, Congress may wish simply to extend Section 119, as now in force, for another five years.

If Congress wishes to do anything other than a simple extension of the existing distant-signal compulsory license, NAB urges:

The Committee not take seriously the DBS firms’ predictable claims that they lack the technological capacity over time to offer local digital signals, since -- as discussed above -- EchoStar and DirecTV are notorious for “underpredicting” their ability to solve technological challenges. Moreover, it would be wholly inappropriate to reward companies such as EchoStar, which have knowingly violated the existing law and broken sworn promises to courts about compliance, by broadening the compulsory license they have abused.

With the perspective available after 16 years of experience with the Act, Congress should adhere to the same principles it has consistently applied: that localism and free-market competition are the bedrocks of sound policy concerning any proposal to limit the copyright protection enjoyed by free, over-the-air local broadcast stations.

If Congress makes any change to the existing distant-signal license, it should amend the Act to specify that a household that can receive its own local stations by satellite from the satellite carrier is not “unserved.” The Committee should flatly reject reckless bids by companies like EchoStar – which have scoffed at the law for years – to expand the distant-signal license.

[1]First Report and Order, 14 FCC Rcd 2654, ¶ 11 (1999); see SHVA Notice of Proposed Rule Making, ¶ 3 (“The network station compulsory licenses created by the Satellite Home Viewer Act are limited because Congress recognized the importance that the network-affiliate relationship plays in delivering free, over-the-air broadcasts to American families, and because of the value of localism in broadcasting. Localism, a principle underlying the broadcast service since the Radio Act of 1927, serves the public interest by making available to local citizens information of interest to the local community (e.g., local news, information on local weather, and information on community events). Congress was concerned that without copyright protection, the economic viability of local stations, specifically those affiliated with national broadcast network[s], might be jeopardized, thus undermining one important source of local information.”)

[2] See National Football League v. TVRadioNow Corp. (d/b/a iCraveTV), 53 U.S.P.Q.2d (BNA) 1831 (W.D. Pa. 2000); 145 Cong. Rec. S14990 (Nov. 19, 1999) (statements by Senators Leahy and Hatch that no compulsory license permits Internet retransmission of TV broadcast programming).

[3] Report and Order, In Re Amendment of Parts 73 and 76 of the Commission’s Rules Relating to Program Exclusivity in the Cable and Broadcast Industries, 3 FCC Rcd 5299, 5319 (1988), aff’d, 890 F.2d 1173 (D.C. Cir. 1989); see also Southwestern Cable Co., 392 U.S. at 165; Wheeling Antenna Co. v. WTRF-TV, Inc., 391 F.2d 179, 183 (4th Cir. 1968).

[4]EchoStar Press Release, www.dishnetwork.com, DISH Network Satellite Television Brings Local TV Channels to Tri-Cities, Tenn. - Va. (Feb. 19, 2004) (EchoStar now serving 107 DMAs); EchoStar Press Release, www.newstream.com/us/story_pub.shtml?story_id=11738 &user_ip=208.197.234.126, DISH Network Celebrates Availability of Local Channels in 100 Markets (Dec. 2003) (EchoStar serving more than 83% of U.S. television households through service to 100 markets).

[5] Press Release, DIRECTV Names 18 New Local Channel Markets to Launch in 2004 (Jan. 8, 2004), www.directv.com/DTVAPP/aboutus/headline.dsp?id=01_08_2004B.

[6] In the Matter of General Motors Corporation and Hughes Electronics Corporation, Transferors and The News Corporation Limited, Transferee, for Authority to Transfer Control, ¶ 332, MB Docket No. 03-124 (released Jan. 14, 2004) (emphasis added).

[7] In the SHVIA, Congress directed the FCC to prepare a report about whether Grade B intensity -- or instead some other standard -- should be used for determining whether households are “unserved” by their local stations. In its report, the FCC recommended retaining the Grade B intensity standard. See In Re Technical Standards for Determining Eligibility For Satellite-Delivered Network Signals Pursuant To the Satellite Home Viewer Improvement Act, ET Docket No. 00-90 (released Nov. 29, 2000).

[8] See, e.g., Comments of DIRECTV, Inc., [1998] Annual Assessment of the Status of Competition in the Markets for the Delivery of Video Programming, CS Docket No. 98-102, at 5 (filed July 31, 1998); Comments of DIRECTV, Inc., [1999] Annual Assessment of the Status of Competition in the Markets for the Delivery of Video Programming, CS Docket No. 99-230, at 9 (filed Aug. 6, 1999); Comments of DIRECTV, Inc. [2000] Annual Assessment of the Status of Competition in the Markets for the Delivery of Video Programming, CS Docket No. 00-132, at 16 (filed Sept. 8, 2000); Comments of DIRECTV, Inc. [2001] Annual Assessment of the Status of Competition in the Markets for the Delivery of Video Programming, CS Docket No. 01-129, at 16 (filed Aug. 3, 2001) (emphasis added in all cases).

[9] The SHVIA permits a satellite carrier to offer all local stations via a second dish, but not to split local channels into a “favored” group (available with one dish) and a “disfavored” group (available only with a second dish).

[10]Declaratory Ruling & Order, In re National Association of Broadcasters and Association of Local Television Stations Request for Modification or Clarification of Broadcast Carriage Rules for Satellite Carriers, Dkt. No. CSR-5865-Z (Media Bureau Apr. 4, 2002). The Commission has to date required only that EchoStar fully disclose its discriminatory treatment and that it pay for the installation of the second dish. Not surprisingly, these requirements have not solved the fundamental problem that acquiring a second dish requires a major expenditure of time and effort on the part of the subscriber, with the result that -- just as EchoStar hopes -- few viewers ever actually acquire a second dish. And, as discussed in Appendix B, EchoStar has grossly violated even the minimal restrictions currently imposed by the Commission.

[11] See Separate Statement of Chairman Michael K. Powell, at 2 n.3, In Re General Motors Corporation and Hughes Electronics Corporation, Transferors and The News Corporation Limited, Transferee, for Authority to Transfer Control, MB Docket No. 03-124 (released Jan. 14, 2004).

[12] First, by the end of the year, DirecTV will offer local-to-local in no fewer than 130 DMAs, which collectively cover more than 90% of U.S. television households. EchoStar already offers local-to-local in 107 DMAs, and that figure is constantly growing. All of the subscribers in these markets (including subscribers claimed to be grandfathered) will be able to receive their local channels by satellite, making the availability of distant signals irrelevant. Second, a federal judge found in 2003 that EchoStar forfeited the right to rely on grandfathering by defaulting at trial in proving that any of its subscribers actually satisfy the requirements for grandfathering. Third, because of ordinary subscriber churn and relocation, many grandfathered subscribers are no longer DBS customers or are no longer grandfathered. Fourth, for the small number of subscribers in non-local-to-local markets that they might claim are currently grandfathered, DirecTV and EchoStar are free to seek (and may already have obtained) waivers from the affected stations. Finally, any grandfathered subscriber is (by definition) predicted to receive at least Grade B intensity signals over the air from their local network stations, and thus to be able to view their own stations even if they obtain no network stations by satellite.

[13] For the first few years, DirecTV and EchoStar hid behind a small, foreign-owned company called PrimeTime 24. See CBS Broadcasting Inc. v. PrimeTime 24, 48 F. Supp. 2d 1342, 1348 (S.D. Fla. 1998) (“PrimeTime 24 sells its service through distributors, such as DIRECTV and EchoStar . . . [M]ost of PrimeTime’s growth is through customer sales to owners of small dishes who purchase programming from packagers such as DirecTV or EchoStar.”). Starting in 1998 (for EchoStar) and 1999 (for DirecTV), the two companies fired PrimeTime 24 in an effort to dodge court orders to obey the Copyright Act.

[14] The trial was conducted by the Hon. William Dimitrouleas, who took over the case after the original District Court judge, the Hon. Lenore Nesbitt, passed away in 2002. While Judge Nesbitt also ruled that EchoStar was committing massive copyright infringements, EchoStar was able -- by making false claims about its supposed compliance efforts -- to obtain a delay in enforcement of that ruling.

EchoStar’s appeal of this decision is set to be argued before the 11th Circuit in late February 2004.

[15] In concluding that the proposed takeover of DirecTV by EchoStar was not in the public interest, the FCC stated: “EchoStar’s record with respect to compliance with SHVIA’s must-carry provisions and our rules suggests a resistance to taking steps to serve the public interest that do not also serve the company’s view of its own private economic interest.” In Re Application of EchoStar Communications Corporation, CS Docket No. 01-348 (released Oct. 18, 2002).

[16] See, e.g., Copyright Office Report at 104 (“The legislative history of the 1988 Satellite Home Viewer Act is replete with Congressional endorsements of the network-affiliate relationship and the need for nonduplication protection.”) (emphasis added); Satellite Home Viewer[] Act of 1988, H.R. Rep. No. 100-887, pt. 2 at 20 (1988) (“The Committee intends [by Section 119] to . . . bring[] network programming to unserved areas while preserving the exclusivity that is an integral part of today’s network-affiliate relationship”) (emphasis added); id. at 26 (“The Committee is concerned that changes in technology, and accompanying changes in law and regulation, do not undermine the base of free local television service upon which the American people continue to rely”) (emphasis added); H.R. Rep. No. 100-887, pt. 1, at 20 (1988) (“Moreover, the bill respects the network/affiliate relationship and promotes localism.”) (emphasis added).

[17] National Association of Broadcasters, DTV Stations in Operation, http://www.nab.org/Newsroom/issues/digitaltv/DTVStations.asp (last checked Feb. 19, 2004).

[18] See Mark R. Fratrik, Ph.D, Reaching the Audience: An Analysis of Digital Broadcast Power and Coverage (BIA Financial Network, Oct. 17, 2003) (prepared for the Association for Maximum Service Television, Inc.) (“MSTV Study”).

[19] See www.fcc.gov/mb/video/dtvstatus.html (“FCC statistics”).

[22] See MSTV Study, supra, at 16.

[23] MSTV Study, supra, at i.

[24]Testimony of David Moskowitz before the Subcommittee on Courts, the Internet, And Intellectual Property of the House Judiciary Committee (Feb. 24, 2004).

[25] In his oral testimony in February before a subcommittee of the House Judiciary Committee, SBCA spokesman (and EchoStar General Counsel) David Moskowitz said that once DBS firms begin delivering a distant digital signal to a household, they should never have to turn off that signal. Far from encouraging stations to expand their digital service areas, this naked “land grab” would have the opposite effect: no matter what they did, stations would have forever lost many of their local customers to a distant signal.

[26] E.g., SHVIA Conference Report, 145 Cong. Rec. H11792 (“the specific goal of the 119 license, which is to allow for a life-line network television service to those homes beyond the reach of their local television stations, must be met by only allowing distant network service to those homes which cannot receive the local network television stations. Hence, the ‘unserved household’ limitation that has been in the license since its inception.” Id. (emphasis added).

[27] The Committee should be aware that, in the guise of a letter seeking advice about how to fill out a Copyright Office form, EchoStar sought last year to obtain from the Copyright Office a statement that the Copyright Act as now in force already recognizes the “distant digital” concept. See Letter from David Goodfriend, EchoStar Communications Corp. to David O. Carson, General Counsel, Copyright Office (June 18, 2003). The Office swiftly, and properly, rebuffed that back-door effort. Letter from William J. Roberts to David Goodfriend (Aug. 19, 2003).

[28] In other markets, while stations have gone on-air with their digital signals, their coverage area is temporarily reduced for reasons entirely beyond their control -- such as the destruction by terrorists of the World Trade Center and its broadcasting facilities.

[29] Of course, the tiny number of genuinely unserved households (e.g., those unable to receive Grade B intensity analog signals over the air) can receive either an analog or a digital signal from a distant affiliate of the same network. See Letter from William J. Roberts, U.S. Copyright Office, to David Goodfriend (Aug. 19, 2003).

[30] When analog broadcasting ceases several years from now, there may – but may not – be a need for a distant-signal compulsory license. If the DBS firms are then providing local-to-local broadcasts of local TV stations in a digital (or HD) format, for example, there may be no need for a distant-signal license at all, or a need only for an extremely limited license.

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