```

[Federal Register Volume 78, Number 210 (Wednesday, October 30, 2013)]
[Notices]
[Pages 64984-65006]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-25453]

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LIBRARY OF CONGRESS

Copyright Royalty Board

[Docket No. 2008-2 CRB CD 2000-2003 (Phase II)]

Distribution of the 2000, 2001, 2002 and 2003 Cable Royalty Funds

AGENCY: Copyright Royalty Board, Library of Congress.

ACTION: Final distribution order.

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SUMMARY: The Copyright Royalty Judges announce the final Phase II 
distribution of cable royalty funds for the years 2000, 2001, 2002 and 
2003 for the Program Suppliers and Devotional programming categories.

DATES: Effective October 30, 2013.

ADDRESSES: The final determination also is posted on the Copyright 
Royalty Board Web site at http://www.loc.gov/crb.

FOR FURTHER INFORMATION CONTACT: Richard Strasser, Senior Attorney, or 
Gina Giuffreda, Attorney Advisor. Telephone: (202) 707-7658; Email: 
crb@loc.gov.

SUPPLEMENTARY INFORMATION: On February 10, 2011, the Copyright Royalty 
Judges (Judges) published a notice of initiation of Phase II 
distribution proceedings relating to cable retransmission royalties for 
royalty years 2000 through 2003. 76 FR 7590 (Feb. 10, 2011). 
Participants in the proceeding included the Motion Picture Association 
of America as representative of program suppliers (MPAA), the Settling 
Devotional Claimants (SDC),\1\ and Worldwide Subsidy Group LLC d/b/a 
Independent Producers Group (IPG).\2\ IPG-represented claimants include 
copyright owners whose works fall within either the Program Suppliers 
category or the Devotional Programming category.\3\
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    \1\ Amazing Facts, American Religious Town Hall, Inc., Catholic 
Communications Corporation, The Christian Broadcasting Network, 
Inc., Coral Ridge Ministries Media, Inc., Cottonwood Christian 
Center, Crenshaw Christian Center, Crystal Cathedral Ministries, 
Inc., Evangelical Lutheran Church in America, Faith For Today, Inc., 
Family Worship Center Church, Inc. (d/b/a Jimmy Swaggart 
Ministries), In Touch Ministries, Inc., It Is Written, Liberty 
Broadcasting Network, Inc., Rhema Bible Church a/k/a Kenneth Hagin 
Ministries, Joyce Meyer Ministries, Inc. f/k/a Life in the Word, 
Inc., Oral Roberts Evangelistic Association, Inc., RBC Ministries, 
Reginald B. Cherry Ministries, Ron Phillips Ministries, Speak the 
Word Church International, The Potter's House of Dallas, Inc. d/b/a 
T.D. Jakes Ministries, and Zola Levitt Ministries comprise the SDC.
    \2\ The National Association of Broadcasters as representative 
of program suppliers (NAB), and Joint Sports Claimants (JSC) also 
filed Petitions to Participate in Phase II of this proceeding. 
Issues relating to claims represented by NAB were resolved prior to 
the Phase II hearing by agreement. See Joint Notice of Settlement 
(of the Motion Picture Association of America and NAB) (Jan. 26, 
2012). Based on preliminary motions, the Judges resolved all issues 
relating to claimants in the Sports Programming category. See 
Memorandum Opinion and Order, Docket No. 2008-2 CRB CD 2000-2003 
(Phase II) (Mar. 21, 2013); Order on Motion by Joint Sports 
Claimants for Section 801(c) Ruling, or in the Alternative, A Paper 
Proceeding in the Phase I Sports Category, Docket No. 2008-2 CRB CD 
2000-2003 (Phase II) (May 17, 2013); and Order on Motion for 
Distribution, Docket No. 2008-2 CRB CD 2000-2003 (Phase II) (May 23, 
2013).
    \3\ IPG initially asserted that certain of its represented 
copyright owners' works also fell within the Sports category. The 
Judges subsequently rejected IPG's claim to any of the Phase II 
Sports category royalties. See supra, note 2.
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    Based on the considerations and analysis set forth in this Final 
Determination, the Judges conclude that the distributions at issue in 
this proceeding shall be:

                                  Allocation in the Program Suppliers Category
----------------------------------------------------------------------------------------------------------------
                                                  2000 (percent)  2001 (percent)  2002 (percent)  2003 (percent)
----------------------------------------------------------------------------------------------------------------
MPAA............................................           98.84           99.69           99.64           99.77
IPG.............................................            1.16            0.31            0.36            0.23
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[[Page 64985]]

                                      Allocation in the Devotional Category
----------------------------------------------------------------------------------------------------------------
                                                  2000 (percent)  2001 (percent)  2002 (percent)  2003 (percent)
----------------------------------------------------------------------------------------------------------------
SDC.............................................           62.86           60.92           58.98           60.92
IPG.............................................           37.14           39.08           41.02           39.08
----------------------------------------------------------------------------------------------------------------

    The following findings of fact and conclusions of law are based 
upon the evidence introduced at the hearing, the accepted written and 
live testimony of the witnesses, the direct and rebuttal statements of 
the parties, the precedential guidance discussed in this Final 
Determination, and consideration of the economic analyses offered by 
the parties.

I. Background

    Beginning June 3, 2013, the Judges considered testimony of nine 
witnesses \4\ and concluded with argument of counsel on June 6, 2013. 
During the course of the proceeding, the Judges reviewed written 
statements, direct and rebuttal testimony, and ruled on pre-hearing 
motions regarding discovery and other issues raised by the parties. The 
parties submitted proposed findings of fact and conclusions of law on 
June 14.
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    \4\ Although Mr. Alan Whitt began his testimony, the Judges 
ultimately did not admit it into evidence. See 6/6/13 Tr. at 1358-
62. By stipulation of the parties, the Judges accepted the written 
testimony of Mr. Michael Little (but not all exhibits). See 
Stipulation Regarding Testimony of Michael D. Little (May 31, 2013).
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    On July 10, 2013, the Judges issued to the parties their Initial 
Determination. Pursuant to 17 U.S.C. 803(c)(2) and 37 CFR Part 353, SDC 
filed a motion for rehearing. After reviewing the motion, the Judges 
denied the motion for rehearing. Order Denying Motion for Rehearing, 
Docket No. 2008-2 CRB CD 2000-2003 (Phase II) (Aug. 7, 2013). As 
explained in the August 7, 2013 Order, the Judges determined that none 
of the grounds set forth in the motion constituted the type of 
exceptional case--namely, (1) an intervening change in controlling law, 
(2) the availability of new evidence, or (3) a need to correct a clear 
error or prevent manifest injustice--warranting a rehearing. Id.

A. Statutory and Regulatory Premises

    Section 111 of the Copyright Act (Act) creates a statutory license 
that permits cable system operators (CSOs) to retransmit copyrighted 
works included in broadcast television signals without obtaining the 
authorization of the owners of those works. When a CSO retransmits non-
exempt broadcast programming outside the program's original, local 
broadcast area the CSO must deposit royalties based on their gross 
receipts with the Copyright Office semiannually. 17 U.S.C. 111(d)(1). 
In July of each year, copyright owners, whose works the CSOs 
retransmit, file claims to the royalties deposited for the previous 
calendar year. 17 U.S.C. 111(d)(4)(A). Claimants may file individual 
claims or joint claims directly, or through an authorized agent.
    The Judges are charged with allocation and distribution of the 
statutory license royalties deposited with the Copyright Office. 17 
U.S.C. 111(d)(4). By statute and regulation, the Judges must render a 
decision and issue a determination regarding distribution of the 
collected funds within 11 months of conclusion of a statutorily 
mandated settlement conference. 17 U.S.C. 803(c)(1); 37 CFR 352.2. The 
settlement conference in this proceeding took place on August 10, 2012. 
See Order Adopting Protective Order and Amending Discovery Schedule, 
Docket No. 2008-2 CRB CD 2000-2003 (Phase II), at 3 (July 10, 2012).
    Historically, individual and joint claimants have utilized a common 
representative to pursue on their behalf collection and distribution of 
the deposited royalties. Each representative pursues claims within a 
program category. Distribution proceedings, by convention, have 
progressed in two phases. In Phase I of the proceeding, claimants 
contest the allocation of royalties among the program categories.\5\ If 
representatives of the categories agree, the Judges may authorize 
distribution to the categories in the agreed percentages. If the 
representatives do not agree, the Judges initiate what has come to be 
known as a Phase I distribution proceeding. The Judges may authorize 
partial distributions pending resolution of the controversies, provided 
that sufficient funds remain to cover the amounts in controversy. See 
17 U.S.C. 801(b)(3).
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    \5\ In Phase I of the current proceeding, the claimants 
organized themselves into the following claimant categories: 
devotional programs, sports programs, Canadian programs, commercial 
programs, noncommercial television programs, noncommercial radio 
broadcast programs, music on all broadcast programs, and program 
suppliers. See Distribution of the 2000-2003 Cable Royalty Funds, 
Distribution order, in Docket No. 2008-2 CRB CD 2000-2003, 75 FR 
26798 (May 12, 2010). IPG challenged the category definitions; the 
Judges rejected IPG's challenge, finding that IPG was ``collaterally 
estopped from contesting the definitions established by the final 
Phase I determination'' since IPG did not file a Petition to 
Participate in Phase I of the proceeding. See Order on Motion by 
Joint Sports Claimants for Section 801(c) Ruling, or in the 
Alternative, a Paper Proceeding in the Phase I Sports Category, 
Docket No. 2008-2 CRB CD 2000-2003 (Phase II), at 2 (May 17, 2013). 
The claims categories adopted by the Phase I parties were developed 
over a number of years through a series of settlements by 
participants in successive royalty distribution proceedings.
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    The allocation of funds among individual claimants within a 
particular category occurs in what has been termed Phase II of the 
distribution proceeding. Similar to Phase I, if the claimants agree, 
the representatives may distribute funds in accordance with the content 
of the claims and any representation agreement they may have with the 
claimants. If the validity or amount of a claim, or the claimant's 
proportional share of the funds within a category, is in controversy, 
the Judges commence a Phase II proceeding to resolve the controversies.

B. Guiding Precedent

    Section 111(d)(4) of the Act provides that, in the event of a 
controversy concerning the distribution of royalties, ``the Copyright 
Royalty Judges shall, pursuant to Chapter 8 of [title 17], conduct a 
proceeding to determine the distribution of royalty fees.'' Unlike 
sections of the Act that apply to the determination of rates, Section 
111(d)(4), which deals with distributions, does not set forth an 
economic standard that the Judges shall apply in order to determine how 
to distribute the royalties.
    As the Librarian of Congress (Librarian) \6\ has stated:
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    \6\ The Librarian was responsible for administering the 
Copyright Arbitration Royalty Panel (CARP) process for distributing 
cable royalties from 1993, when the Copyright Royalty Tribunal 
(CRT), a predecessor adjudicative body, was abolished, until 2005, 
when the Copyright Royalty Judges program was established. The 
Librarian had the obligation of reviewing CARP decisions and, on 
recommendation of the Register of Copyrights, adopting, modifying or 
rejecting them.

    Section 111 does not prescribe the standards or guidelines for 
distributing

[[Page 64986]]

royalties collected from cable operators under the statutory 
license. Instead, Congress decided to let the Copyright Royalty 
Tribunal ``consider all pertinent data and considerations presented 
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by the claimants'' in determining how to divide the royalties.

Distribution of 1993, 1994, 1995, 1996 and 1997 Cable Royalty Funds, 
Order, in Docket No. 2000-2 CARP CD 93-97, 66 FR 66433, 66444 (Dec. 26, 
2001) (quoting H.R. Rep. No. 1476, at 97 (1976)) (1993-1997 Librarian 
Order).\7\
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    \7\ The 1993-1997 Librarian Order was vacated as moot after the 
parties settled their appeals. Distribution of 1993, 1994, 1995, 
1996 and 1997 Cable Royalty Funds, Notice of termination of 
proceeding, Docket No. 2000-01 CARP CD 93-97, 69 FR 23821 (Apr. 30, 
2004). The settlement and vacatur of the 1993-1997 Librarian Order 
did not disturb the reasoning articulated therein. Id. at 23822.
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    There is not, however, a wholesale absence of statutory guidance. 
Section 111 directs the Judges to act pursuant to Chapter 8 of the Act. 
The Judges are guided by the general directives contained in Chapter 8. 
In particular, Section 801 of the Act provides, in pertinent part: 
``The Copyright Royalty Judges shall act * * * on the basis of * * * 
prior determinations and interpretations of the Copyright Royalty 
Tribunal, Librarian of Congress, the Register of Copyrights, copyright 
arbitration royalty panels * * * and the Copyright Royalty Judges, * * 
* and decisions of the court of appeals under this chapter.'' 17 U.S.C. 
803(a)(1).
    Accordingly, the Judges have reviewed the 12 prior determinations 
of Phase II proceedings under Section 111 of the Act--ten by the 
CRT,\8\ and two by the Librarian under the CARP system \9\--as well as 
the relevant Federal court cases. The Judges have identified several 
basic principles from these earlier proceedings that have particular 
relevance to the present proceeding.
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    \8\ 1979 Cable Royalty Distribution Determination, Notice of 
final determination, in Docket No. CRT 80-4, 47 FR 9879 (Mar. 8, 
1982) (1979 Determination); 1980 Cable Royalty Distribution 
Determination, Notice of final determination, in Docket No. CRT 81-
1, 48 FR 9552 (Mar. 7, 1983) (1980 Determination); 1981 Cable 
Royalty Distribution Determination, Notice of final determination, 
in Docket No. CRT 82-1, 49 FR 7845 (Mar 2, 1984) (1981 
Determination); 1982 Cable Royalty Distribution Determination, 
Notice of final determination, in Docket No. CRT 83-1, 49 FR 37653 
(Sept. 25, 1984) (1982 Determination); 1983 Cable Royalty 
Distribution Proceeding, Notice of final determination, in Docket 
No. CRT 84-1 83CD, 51 FR 12792 (Apr. 15, 1986) (1983 Determination); 
1984 Cable Royalty Distribution Proceeding, Notice of final 
determination in Docket No. CRT 85-4-84CD, 52 FR 8408 (Mar. 17, 
1987) (1984 Determination); 1985 Cable Royalty Distribution 
Proceeding, Notice of final determination, in Docket No. CRT 87-2-
85CD, 53 FR 7132 (Mar. 4, 1988) (1985 Determination); 1986 Cable 
Royalty Distribution Proceeding, Notice of final determination, in 
Docket No. CRT 88-2-86CD, 54 FR 16148 (Apr. 21, 1989) (1986 
Determination); 1987 Cable Royalty Distribution Proceeding, Notice 
of final determination of Devotional Claimants controversy, in 
Docket No. CRT 89-2-87CD, 55 FR 5647 (Feb. 16, 1990) (1987 
Devotional Determination); 1987 Cable Royalty Distribution 
Proceeding, Notice of final determination of music controversy, in 
Docket No. 89-2-87CD, 55 FR 11988 (Mar. 30, 1990) (1987 Music 
Determination).
    \9\ Determination of the Distribution of the 1991 Cable 
Royalties in the Music Category, Docket No. 94-3 CARP CD 90-92, 63 
FR 20428 (Apr. 24, 1998) (1990-1992 Determination); 1993-1997 
Librarian Order, 66 FR 66433.
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    Relative marketplace value is the preeminent consideration for 
allocating shares of royalties to programs or groups of programs. 
Program Suppliers v. Librarian of Congress, 409 F.3d 395, 401 (D.C. 
Cir. 2005); 1993-1997 Librarian Order, 66 FR at 66445. Although early 
CRT decisions considered other factors, such as the degree of harm to 
copyright owners by virtue of the statutory license, the benefits 
derived by the CSO, program quality and program length, 1986 
Determination, 54 FR at 16153, these factors have been deemphasized in 
later decisions of the CRT, the CARPs and the Librarian.
    In order to assess relative marketplace value the Judges must look 
to hypothetical, simulated, or analogous markets, since there is no 
free market for cable retransmission of broadcast television programs. 
See, e.g., 1993-1997 Librarian Order, 66 FR at 66445; 1987 Music 
Determination, 55 FR at 11993. While there is no single formula or 
source for allocating royalties, see, e.g., 1993-1997 Librarian Order, 
66 FR at 66447, actual measured viewing is significant to determining 
relative marketplace value, id., and viewing data compiled by The 
Nielsen Company (Nielsen) are a useful starting point for determining 
actual viewership. See, e.g., 1986 Determination, 54 FR at 16153. 
Nevertheless, viewing measurements are not perfect and the Judges must 
be prepared to make appropriate adjustments when claimants are able to 
demonstrate that their programs have not been measured or are 
significantly undermeasured. See, e.g., 1987 Devotional Determination, 
55 FR at 5650; 1986 Determination, 54 FR at 16153-54.
    In making distributions under Section 111, mathematical precision 
is not required. Rather, the Judges' rulings must lie with a ``zone of 
reasonableness.'' See National Ass'n of Broadcasters v. Librarian of 
Congress, 146 F.3d 907, 929 (D.C. Cir. 1998); see also Asociacion de 
Compositores y Editores de Musica Latino Americana v. Copyright Royalty 
Tribunal, 854 F.2d 10, 12 (2d Cir. 1988) (recognizing ``zone of 
reasonableness'' standard in Phase II proceedings); Christian 
Broadcasting Network, Inc. v. Copyright Royalty Tribunal, 720 F.2d 
1295, 1304 (D.C. Cir. 1983) (same).
    With the foregoing principles clearly in mind, the Judges apply the 
appropriate economic analysis to the evidence adduced at the hearing.

II. Statement of the Case

A. Phase I Proceeding

    In the Phase I proceeding for the present case the parties limited 
by stipulation the issues to be considered by the Judges. Distribution 
of the 2000-2003 Cable Royalty Funds, Distribution Order, Docket No. 
2008-2 CRB CD 2000-2003, 75 FR 26798, 26799 (May 12, 2010) (Phase I 
Order). Specifically, the parties stipulated that the Judges would 
determine the Phase I share of the Canadian Claimants only, with the 
remaining balance to be awarded to the Settling Parties.\10\ Id. The 
stipulation made clear that the parties were not seeking the individual 
Phase I shares of the claimant groups comprising the Settling Parties. 
Id. Consequently, on May 12, 2010, the Judges announced the final Phase 
I shares of the Canadian Claimants to the cable royalties for the years 
at issue in this Phase II proceeding and awarded the remaining balance 
of the 2000-2003 cable royalties to the Settling Parties. Id. at 26807. 
To date the Judges have authorized partial distributions ranging from 
$121.7 million in 2000 to nearly $131 million in 2003. On February 3, 
2011, the Judges ordered final distribution of all cable royalties for 
2000, 2001, 2002, and 2003 that were no longer in dispute. Order 
Granting Phase I Claimants' Motion for Further Distribution of 2000, 
2001, 2002, and 2003 Cable Royalty Funds, Docket No. 2008-2 CRB CD 
2000-2003 (Feb. 3, 2011). On January 17, 2012, the Judges denied IPG's 
motion for a partial distribution of $3 million of the remaining 
royalties for 2000-2003, noting that IPG is ``not an established 
claimant to cable royalties'' and ``[the Judges] simply do not know at 
this stage of the proceeding if IPG is entitled to a royalty 
distribution, let alone the amount.'' Order Denying Independent 
Producers Group's Motion for Partial Distribution, Docket No. 2008-2 
CRB CD 2000-2003 (Phase II) (Jan. 17, 2012).

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    \10\ Devotional Claimants, JSC, National Association of 
Broadcasters for U.S. Commercial Television Broadcaster Claimants, 
Music Claimants, MPAA, and Public Television Claimants comprised the 
``Settling Parties.''
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B. Commencement of Phase II

    On February 10, 2011, on request of program suppliers represented 
by MPAA, SDC, and JSC, the Judges

[[Page 64987]]

announced initiation of a Phase II proceeding and requested Petitions 
to Participate. See 76 FR 7590 (Feb. 10, 2011). In response to the 
notice, the Judges received petitions from: the MPAA; SDC; JSC; NAB; 
Devotional Claimants; HSN, LP, AST LLC, Home Shopping En Espangol [sic] 
GP, USA Broadcasting Productions, USA Broadcasting Stations, Studios 
USA, and InterActive Corp., jointly (Joint Petitioners); and IPG.\11\ 
By May 2012, the only remaining Phase II controversies were those 
asserted by IPG in the Devotional, Sports and Program Suppliers 
categories.
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    \11\ Subsequently, MPAA settled its Phase II controversies with 
NAB and the Joint Petitioners, see Joint Notices of Settlement 
(January 26, 2012), and later with SDC, see Joint Notice of 
Settlement (May 26, 2012).
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C. Preliminary Hearing

    In August 2012, the remaining participants filed motions or 
objections relating to the claims asserted by other participants. The 
participants made far-ranging objections and submitted papers and 
arguments to support their objections in a form that the Judges could 
not accept as evidence. As a result, the Judges denied all the motions 
and objections without prejudice and set the matter for an evidentiary 
hearing on claims objections. The Judges commenced the evidentiary 
hearing on November 13, 2012, with a continuance after two days of 
testimony to December 5, 2012, to complete the participants' 
presentations of evidence and argument.
    On March 21, 2013, the Judges entered an order resolving most of 
the claims challenges. Memorandum Opinion and Order, Docket No. 2008-2 
CRB CD 2000-2003 (Phase II) (March 21, 2013) (March 21 Order).\12\
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    \12\ The March 21 Order resolved all outstanding challenges to 
the validity of claims, except the Judges ordered IPG to obtain 
written clarification of representation from the Billy Graham 
Evangelistic Association and sought further briefing relating to 
``Claim 308 from 2000,'' involving RBC Ministries in the Devotional 
category. The Judges validated Claim 308 from 2000 by order dated 
April 10, 2013. The Billy Graham organization acknowledged IPG's 
representative authority for 2002 and 2003, thereby resolving that 
controversy in favor of IPG for those royalty years. See Letter from 
Justin T. Arnot to Copyright Royalty Board (Apr. 19, 2013).
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    Subsequent to the Preliminary Hearing, the Judges determined that 
IPG had no remaining valid claims to royalties in the Sports 
Programming category. Order on Motion by Joint Sports Claimants for 
Section 801(c) Ruling or, in the Alternative, a Paper Proceeding in the 
Phase I Sports Category, Docket No. 2008-2 CRB CD 2000-2003 (Phase II) 
(May 17, 2013). As a result, the only remaining Phase I categories in 
dispute were the Program Suppliers category and the Devotional 
category. The Judges' role in this matter, therefore, is to determine 
the relative percentage allocations of royalties for 2000, 2001, 2002, 
and 2003 between MPAA-represented claimants and IPG-represented 
claimants in the Program Suppliers category and between SDC-represented 
claimants and IPG-represented claimants in the Devotional category.

III. Preliminary Rulings \13\
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    \13\ During the course of the proceeding, in correspondence 
(particularly email correspondence); pleadings; written testimony; 
live testimony; and argument of counsel, certain of the parties 
raised questions and implied, if not spoken, requests for action by 
the Judges. Except to address the MPAA representation issue raised 
by IPG, see section III.B.1.a and note 18, infra, the Judges decline 
to take action on issues, substantive or procedural, when those 
issues are presented informally. The Judges, in this instance, 
afforded IPG the benefit of the doubt inasmuch as IPG included the 
issue in a responsive pleading, albeit without a specific 
affirmative request. Affirmative action by the Judges without a 
request for action is unwarranted and could be contrary to 
principles of due process. The Judges considered other informal 
requests of IPG and the other participants and rejected them on both 
procedural and substantive grounds.
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A. Admissibility of Exhibit

    The SDC, with agreement of IPG, offered into evidence Exhibit 177, 
the Written Direct Testimony of Mr. Michael. D. Little, President and 
Chief Operating Officer of The Christian Broadcasting Network, Inc. At 
the hearing, IPG objected to the admissibility of Exhibit 3 to Mr. 
Little's testimony, which consists of approximately 600 pages of 
printouts of Internet Web sites. IPG objected that (1) the veracity of 
this document, derived from the Internet, is questionable, (2) Mr. 
Little, by his own admission, obtained the printouts from an 
undisclosed third party, raising further questions as to the veracity 
and authenticity of the Exhibit, and (3) the documents themselves are 
``just a bunch of random stuff without any analysis attached to it.'' 
6/6/13 Tr. at 1341-42. The Judges admitted Exhibit 177 and took under 
advisement admission of the attendant Exhibit 3. Id. at 1344.
    IPG's objections are well-taken.\14\ The SDC did not lay an 
adequate foundation for Exhibit 3. Even if SDC had done so, the exhibit 
is, from a practical standpoint, unusable. While some of the more than 
600 pages contain program information, a great many do not. In the 
format that this document was delivered to the Judges it is not 
searchable, and, in many cases is nearly illegible. The SDC did not 
provide a summary or analysis of the specific relevant facts to be 
gleaned from this stack of paper. By offering evidence in this form, 
the SDC places an unreasonable burden on the Judges and the other 
parties. The Judges reject Exhibit 3 to Exhibit 177. The remainder of 
Exhibit 177 is thus admitted by stipulation, with that redaction.
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    \14\ These objections, which were properly interposed by IPG's 
counsel, stand in contrast with the views that Mr. Galaz offered on 
the admissibility in his written rebuttal testimony. The views of a 
witness on the admissibility of evidence are improper and the Judges 
do not consider them.
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B. Challenges to Claims Subsequent to the Preliminary Hearing

    To distribute royalties to a copyright owner under Section 111 of 
the Copyright Act, the Judges must first determine whether the 
copyright owner is eligible to receive such royalties. Universal City 
Studios LLLP v. Peters, 402 F.3d 1238, 1244 (D.C. Cir. 2005); see Order 
Denying Motions to Strike Claims, Docket No. 2008-2 CRB CD 2000-2003 
(Phase II) at 2 (Sept. 14, 2012). Under the law and regulations in 
effect through July 31, 2004, in order to be eligible to receive 
Section 111 royalties, a copyright owner (or its duly authorized 
representative) was required to file a claim for royalties with the 
Copyright Office during the month of July in the year following the 
year for which the copyright owner seeks such royalties. 17 U.S.C. 
111(d)(4)(A) (amended 2004); 37 CFR 252.2 (repealed 2005). Similarly, 
the copyright owner or its duly authorized agent must file a Petition 
to Participate in any cable royalty distribution proceedings within 
thirty days after the publication in the Federal Register of a notice 
of commencement of a proceeding. 37 CFR 351.1(b)(3).
    The Preliminary Hearing in this proceeding led to a resolution of 
almost all claims challenges asserted by the parties up to that 
point.\15\ After the Preliminary Hearing, some claimants contacted the 
Judges asserting an alliance to one representative or the other. By 
Order issued on May 20, 2013 (Order to Show Cause), the Judges directed 
the parties to show cause why several of the affected claims should not 
be dismissed in light of the copyright owners' statements, since it 
appeared that either no authorized entity had filed a claim, or, a 
timely claim having been filed, no authorized entity had included the 
claimant as part of its Petition to Participate in this proceeding. The 
Judges received additional evidence from the parties at the beginning 
of the Determination hearing in order to resolve remaining 
representation issues and ruled on the

[[Page 64988]]

claims from the bench. 6/3/13 Tr. at 53-58.\16\
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    \15\ See supra note 12.
    \16\ See Appendix A.
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1. Program Suppliers Claims
a. MPAA's Representation of Joint Claimants
    In his written rebuttal testimony, Mr. Raul Galaz of IPG asserts, 
for the first time in this proceeding, that 615 claims represented by 
MPAA and identified in Exhibit R-15 to his testimony should be 
dismissed because MPAA has failed to produce adequate documentation of 
its authority to represent the ultimate claimants, i.e., the copyright 
owners. Galaz WRT at 35-38 and Ex. R-15.
    Each of the 615 claimants is claimed indirectly by MPAA. MPAA 
represents a number of entities that have filed joint claims on behalf 
of other copyright owners. MPAA has no contractual privity with those 
copyright owners. Its representation of them is by virtue of its 
representation agreements with joint claimants who filed on their 
behalf. This, in itself, is no impediment to MPAA's representation.
    The Judges conclude that IPG's challenge to MPAA's representation 
of these 615 claimants is not properly before the Judges.\17\ IPG's 
counsel made no motion to strike these claims at any time during these 
proceedings. Moreover, IPG was in a position to raise these challenges 
during the preliminary hearing and failed to do so in other than an 
incidental way.\18\
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    \17\ Unlike the claims the Judges addressed in their Order to 
Show Cause, the Judges received no new information following the 
preliminary hearing that would cast doubt on the validity of the 
MPAA claims that IPG challenges.
    \18\ Rather than lodging a formal pleading, IPG embedded its 
dissatisfaction with certain MPAA claims. Mention of a concern 
defensively rather than in the form of a motion or cross-motion does 
not present the issue for full consideration by the Judges.
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    Even assuming that IPG's challenges were properly before the 
Judges, the Judges would have rejected them. The sole ground that IPG 
asserts for invalidating the claims on Exhibit R-15 is that MPAA has 
not produced contracts between third parties--i.e., the MPAA-
represented program suppliers and the individual claimants that the 
MPAA-represented program suppliers represent in turn. From this lack of 
documentation IPG concludes, and asks the Judges to conclude, that MPAA 
has failed to establish that it is a duly authorized representative of 
those individual claimants.
    Neither the Act, nor any of the regulations adopted under it, 
address what evidence is needed to establish one's authority to 
represent claimants in the filing of claims or in distribution 
proceedings before the Judges. Nevertheless, the Judges have stated 
that ``the parties must manifest in some unambiguous manner that they 
intended for a principal/agent relationship to exist between them.'' 
March 21 Order, at 12. Ultimately the question of authority is a 
question of fact requiring a weighing of the evidence.
    In this proceeding MPAA has produced fully-executed Representation 
Agreements with each of the MPAA-represented program suppliers. Ex. 
500.\19\ Each Representation Agreement includes a provision stating 
that if the ``Claimant'' (MPAA's counterparty) has filed a joint claim, 
MPAA is authorized to represent all joint claimants to that joint 
claim. See, e.g., Ex. 500 at Bates no. MPAA-RP-05219, ] 16. Each 
Representation Agreement also includes a provision stating that the 
Claimant is the duly authorized representative of all joint claims 
submitted by the Claimant, and that the Claimant is authorized by all 
joint claimants to execute the Representation Agreement on their 
behalf. See, e.g., id. at Bates no. MPAA-RP-05219, ] 17. See also, 6/3/
13 Tr. at 146-150 (Kessler). By their terms, the Representation 
Agreements are perpetual--i.e., they remain effective until terminated 
by one of the parties. Ex. 500 at Bates no. MPAA-RP-05219, ] 18; 6/3/13 
Tr. at 157 (Kessler).
---------------------------------------------------------------------------

    \19\ Exhibit 500 is a restricted exhibit. See 6/3/13 Tr. at 141. 
Consequently, access to this exhibit is limited to only the parties 
who have executed Non-Disclosure Certificates in accordance with the 
Protective Order entered in this proceeding.
---------------------------------------------------------------------------

    The Judges find this evidence sufficient to establish that MPAA is 
duly authorized to represent the joint claimants covered by these 
Representation Agreements. Further evidence of representation, such as 
the contracts between the MPAA-represented program suppliers and the 
underlying claimants, is unnecessary in the absence of any evidence 
calling into question the authority of MPAA or the joint claimants that 
it represents--e.g., a disavowal of representation by an underlying 
claimant or evidence that the claimant is represented by another party. 
IPG has offered no such evidence with respect to the 615 claims that it 
seeks to challenge. Therefore, the challenge, even if IPG had raised it 
properly, would have been rejected.
b. Overlapping Claims
    Both IPG and MPAA have identified different sets of overlapping 
claims--i.e., claimants that both parties claim to represent. Galaz WRT 
at 32 n.32 and Ex. R-11; Kessler WRT at 5.
    In some instances, claimants assert that they terminated their 
relationship with IPG either during the years covered by this 
proceeding or thereafter.\20\ These claimants stated that they do not 
want IPG to continue to represent their interests. In other instances, 
there are simply conflicting claims of representation, with no further 
communication from the claimants.\21\
---------------------------------------------------------------------------

    \20\ The following claims fall in this category: DreamWorks LLC, 
Litton Syndications, Inc., Marty Stouffer Productions, Ltd., Martha 
Stewart Living Omnimedia, Reel Funds International, Remodeling Today 
d/b/a Today's Homeowner, The Television Syndication Company, United 
States Olympic Committee, and Urban Latino TV LLC. In addition, 
Fintage, as a representative for Venevision International, has 
asserted that MPAA should represent Venevision in these proceedings. 
In the Show Cause hearing several of these claims were dismissed for 
certain years. See supra note 16.
    \21\ The claims falling in this category are: Carol Reynolds 
Productions, Inc., Cinemavault Releasing, Eagle Rock Entertainment, 
Fitness Quest, Inc., Integrity Global Marketing, Inc., Pacific 
Family Entertainment and Ward Productions.
---------------------------------------------------------------------------

    As to both groups, IPG asserts that the terms of their agreements 
specify a termination procedure that requires at least six months' 
notice and authorizes and obligates IPG to continue pursuit of 
royalties payable through the termination date. As to the first group 
of claims, MPAA asserts that the Judges should honor the claimants' 
wishes to be represented by MPAA rather than IPG. MPAA has not 
addressed the second group directly.
    IPG has invited the Judges to engage in an interpretation of the 
representation agreements that it has entered into with these claimants 
to determine whether a claimant's purported termination satisfies the 
requirements of the contract. This sort of contractual interpretation 
is beyond the Judges' authority. See Nat'l Broad. Co. v. Copyright 
Royalty Tribunal, 848 F.2d 1289, 1296 (D.C. Cir. 1988) (Tribunal's 
obligation is to set forth the rule of distribution, not resolve 
substantive rights of the parties). Where a claimant has unambiguously 
manifested that it no longer wants a particular entity to represent its 
interests in these proceedings, the Judges will honor that request. To 
the extent that the claimant's action may affect the rights and 
obligations under a contract between the claimant and the entity that 
purports to represent it, those issues must be resolved by a court of 
competent jurisdiction. See Id.
    Applying this rule, the Judges resolve the representation of the 
overlapping claims as follows.

[[Page 64989]]

[GRAPHIC] [TIFF OMITTED] TN30OC13.002

    As to the overlapping claims where there has been no instruction 
from the claimant concerning representation, the Judges will take the 
later-in-time agreement between a claimant (or its representative) and 
a party as the most persuasive evidence concerning representation. 
Admitted written agreements are deemed more persuasive than oral 
testimony about the existence of an agreement.
    Applying this rule, the Judges resolve the representation of the 
overlapping claims as follows.

[[Page 64990]]

                                            Disposition of Overlapping Claims--No Communication From Claimant
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Claim year
             Claimant             --------------------------------------------------------------------------------------------         Rationale
                                            2000                   2001                   2002                   2003
--------------------------------------------------------------------------------------------------------------------------------------------------------
Carol Reynolds Productions Inc...  MPAA.................  MPAA.................  MPAA.................  MPAA.................  2000-2001: Claimant
                                                                                                                                covered by MPAA
                                                                                                                                Representation Agreement
                                                                                                                                with CBC dated 9/25/02;
                                                                                                                                no record evidence of
                                                                                                                                IPG agreement with
                                                                                                                                claimant; IPG concedes
                                                                                                                                MPAA agreement is later
                                                                                                                                in time.
Cinemavault Releasing............  MPAA.................  MPAA.................  MPAA.................  MPAA.................  Claimant covered by MPAA
                                                                                                                                Representation Agreement
                                                                                                                                with AFMA dated 9/24/02;
                                                                                                                                no record evidence of
                                                                                                                                IPG agreement with
                                                                                                                                claimant; IPG concedes
                                                                                                                                MPAA agreement is later
                                                                                                                                in time.
Eagle Rock Entertainment.........  MPAA.................  MPAA.................  MPAA.................  MPAA.................  Claimant covered by MPAA
                                                                                                                                Representation Agreement
                                                                                                                                with Audio-Visual
                                                                                                                                Copyright Society dated
                                                                                                                                9/25/02; no record
                                                                                                                                evidence of IPG
                                                                                                                                agreement with claimant;
                                                                                                                                IPG concedes MPAA
                                                                                                                                agreement is later in
                                                                                                                                time.
Fitness Quest Inc................  MPAA.................  MPAA.................  MPAA.................  MPAA.................  Claimant covered by MPAA
                                                                                                                                Representation Agreement
                                                                                                                                with The Goodman Group
                                                                                                                                dated 7/8/04; no record
                                                                                                                                evidence of IPG
                                                                                                                                agreement with claimant;
                                                                                                                                IPG concedes MPAA
                                                                                                                                agreement is later in
                                                                                                                                time.
Integrity Global Marketing Inc...  MPAA.................  MPAA.................  MPAA.................  MPAA.................  Claimant covered by MPAA
                                                                                                                                Representation Agreement
                                                                                                                                with The Goodman Group
                                                                                                                                dated 7/8/04; no record
                                                                                                                                evidence of IPG
                                                                                                                                agreement with claimant;
                                                                                                                                IPG concedes MPAA
                                                                                                                                agreement is later in
                                                                                                                                time.
Pacific Family Entertainment.....  Dismissed............  MPAA.................  MPAA.................  MPAA.................  Claimant covered by MPAA
                                                                                                                                Representation Agreement
                                                                                                                                with ComPact Collections
                                                                                                                                dated 7/8/02; no record
                                                                                                                                evidence of IPG
                                                                                                                                agreement with claimant;
                                                                                                                                IPG concedes MPAA
                                                                                                                                agreement is later in
                                                                                                                                time. Claimant not
                                                                                                                                covered by MPAA petition
                                                                                                                                for 2000.
Ward Productions.................  MPAA.................  MPAA.................  MPAA.................  MPAA.................  Claimant entered into
                                                                                                                                Representation Agreement
                                                                                                                                with MPAA dated 9/27/02;
                                                                                                                                no record evidence of
                                                                                                                                IPG agreement with
                                                                                                                                claimant; IPG concedes
                                                                                                                                MPAA agreement is later
                                                                                                                                in time.
--------------------------------------------------------------------------------------------------------------------------------------------------------

c. Claim(s) for BBC Worldwide Americas, Inc.
    An additional claimant--BBC--falls into its own category. Both MPAA 
and IPG have included BBC Worldwide (BBC-W) in their respective 
Petitions to Participate. Fintage Publishing and Collections BV 
(Fintage) advised the Judges that it had the exclusive right to 
administer and collect royalties on behalf of its client, EGEDA, and 
EGEDA, in turn, had such rights with respect to BBC-W. Notice Regarding 
Representation of BBC Worldwide, Venevision International, and Reel 
Funds International, Docket No. 2008-2 CRB CD 2000-2003 (Phase II) (May 
9, 2013). Fintage advised the Judges that it wished to have MPAA 
represent this claimant's interests in the proceedings. Id. at 1, 3. 
Subsequently, the General Counsel of BBC Worldwide Americas, Inc. (BBC-
WA) advised the Judges that it is represented by IPG. Notice Regarding 
Representation of BBC Worldwide Americas, Docket No. 2008-2 CRB 2000-
2003 (Phase II) (May 21, 2013) (BBC Notice).
    IPG filed claims on behalf of BBC-W for 2000, and on behalf of BBC-
WA for 2001-2003. Fintage filed a claim on behalf of BBC-W for 2002. 
BBC-WA filed its own claims for 2000 and 2001. No claims were filed on 
behalf of BBC-W for 2001 or 2003.
    This appears to be a case of mistaken identity on IPG's part. BBC-
WA's General Counsel has clarified that BBC-W (or, to be precise, BBC 
Worldwide Limited) is a separate entity from BBC-WA. BBC Notice, at 2. 
IPG's relationship is with BBC-WA, not BBC-W. Fintage's relationship is 
with BBC-W (through EGEDA), not with BBC-WA. These are separate 
claimants with separate claims. There is no overlap.
    IPG, however, mistakenly identified its client as BBC-W, rather 
than BBC-WA, in its Petition to Participate. Any claimant in a 
distribution proceeding must file a Petition to Participate. 37 CFR 
351.1 (a). Section 354.1(b)(2) requires parties to a proceeding to file 
a Petition to Participate within 30 days of commencement of the 
proceeding, providing detail concerning the participant or claimants 
the participant is representing in a joint petition. The Judges may 
accept late petitions up to a date that is no less than 90 days before 
the date set for filing written direct statements. 37 CFR 351.1(d). 
That date is long past. It is now too late to rectify IPG's error by 
adding a new claimant to these proceedings. BBC-WA is not a represented 
claimant in this proceeding, and IPG's mistaken claim for BBC-W is 
dismissed.\22\
---------------------------------------------------------------------------

    \22\ The Judges note that this ruling is contrary to the ruling 
from the bench regarding BBC-WA that was made during the Show Cause 
hearing. See 6/3/13 Tr. at 57. Upon further reflection and 
examination of the record the Judges conclude that their earlier 
determination was incorrect.

---------------------------------------------------------------------------

[[Page 64991]]

    As to MPAA's representation of BBC-W, the only year for which both 
predicates for representation in this proceeding--filing of a valid 
claim and inclusion in a Petition to Participate--have been met is 
2002. No claims were filed for BBC-W in 2001 and 2003. The only year in 
which MPAA included BBC-W in its petition is 2002 (through its 
inclusion of Fintage which, in turn, listed BBC-W in its joint claim). 
In summary:

                                  Disposition of Claims Involving BBC Entities
----------------------------------------------------------------------------------------------------------------
                                                                    Claim year
            Claimant            --------------------------------------------------------------------------------
                                         2000                2001                2002                2003
----------------------------------------------------------------------------------------------------------------
BBC Worldwide..................  Dismissed..........  Dismissed.........  MPAA..............  Dismissed.
BBC Worldwide Americas.........  Dismissed..........  Dismissed.........  Dismissed.........  Dismissed.
----------------------------------------------------------------------------------------------------------------

    Nearly all of the disputed claims are thus resolved in MPAA's favor 
(apart from Reel Funds and Venevision, which have an insignificant 
effect on the relative shares \23\). The Judges conclude that the 
dismissal of BBC-W (one MPAA-represented claimant out of approximately 
1400) for three claim years does not have a material effect on the 
relative shares.\24\ Similarly, the dismissal of two of IPG's claimants 
(BBC-WA for all claim years and Venevision for 2000) out of more than 
150 does not have a material effect on the relative shares. As for the 
allocation of the disputed claims to MPAA, MPAA's expert witness on 
economics and econometrics, Dr. Jeffrey Gray, credited all of them to 
MPAA in his computation of relative shares, 6/4/12 Tr. at 513 (Gray), 
so there is no need to make any adjustment to reflect that resolution. 
In sum, the Judges conclude that no adjustment to the relative royalty 
shares of IPG and MPAA is needed as a result of the foregoing 
determination of claims.
---------------------------------------------------------------------------

    \23\ Dr. Gray recalculated the royalty shares with Reel Funds 
and Venevision allocated to IPG. The shares did not change to the 
second decimal place. 6/4/13 Tr. at 490 (Gray).
    \24\ The remaining MPAA claims that were dismissed were not 
included in MPAA's petition or Dr. Gray's calculations.
---------------------------------------------------------------------------

2. Devotional Programming Claims
    IPG challenged 42 of the SDC's claims \25\ for the first time in 
Mr. Galaz's rebuttal testimony. As with IPG's challenge to 615 of 
MPAA's claims, these challenges are not properly before the Judges. 
IPG's counsel made no motion to strike these claims at any time during 
this proceeding, and IPG was in a position to raise these challenges 
during the Preliminary Hearing (when IPG challenged eighteen of the 
SDC's claims) and failed to do so.
---------------------------------------------------------------------------

    \25\ Mr. Galaz claims to challenge 44 claims that appear in 
Exhibit R-2 to his written testimony. Only 43 claims appear in that 
exhibit, one of which IPG challenged unsuccessfully in the 
Preliminary Hearing.
---------------------------------------------------------------------------

    Moreover, IPG does not (and cannot) allege that the SDC's claims 
are for programs that were not retransmitted on a distant basis during 
the claim years they challenge. 6/5/13 Tr. at 905 (Galaz). Rather, IPG 
argues that the claims should be dismissed because the specific example 
of a broadcast the Devotional claimants cited in their claims did not 
take place as described on the claim form. The Judges rejected that 
argument as a basis for challenging the validity of claims in the March 
21 Order, and would do so now as well if IPG's challenge were timely.

IV. Analysis

A. Economic Issues

1. Relative Market Value Standard
    Despite the absence of a defined statutory standard, as noted above 
the Judges do not write on a clean slate. More particularly, prior 
Phase II determinations in cable retransmission proceedings have 
referred to a ``relative market value'' standard, although ``relative 
market value'' has not been defined explicitly. In order to make 
explicit the Judges' application of the relative market value standard 
in the present Determination, the Judges begin by expressly defining 
relative market value.
2. Definition of ``Relative Market Value''
    At the outset, it is necessary to appreciate the reason for the 
statutory license and the concomitant distribution proceedings. 
Statutory licenses substitute for free market negotiations because of a 
perceived intractable ``market failure'' inherent in the licensing of 
copyrights--particularly the assumed prohibitively high ``transaction 
costs'' of negotiating a multitude of bilateral contracts between 
potential sellers and buyers.\26\ See, e.g., R. Picker, Copyright as 
Entry Policy: The Case of Digital Distribution, 47 Antitrust Bull. 423, 
464 (2002) (``The modern structure of * * * validating or conferring 
rights in copyright holders yet coupling those rights with statutory 
licenses has the virtue of mitigating the exercise of monopoly power 
and minimizing the transaction costs of negotiations.''); S. Willard, A 
New Method of Calculating Copyright Liability for Cable Rebroadcasting 
of Distant Television Signals, 94 Yale L.J. 1512, 1519 (1985) (``One 
important reason for compulsory licensing * * * was to avoid the 
`prohibitive' transaction costs of negotiating rebroadcast consent.''); 
S. Beser, W. Manning & B. Mitchell, Copyright Liability for Cable 
Television: Compulsory Licensing and the Coase Theorem, 21 J.L. & Econ. 
67, 87 (1978) (``Compulsory licensing * * * has lower negotiating costs 
than a system based on full copyright liability * * *.''). The 
statutory license avoids this feared breakdown in the contracting 
process by allowing copyright use to be undertaken ex ante payment--
thereby permitting consumers to obtain the enjoyment (``utility,'' in 
economic terminology) of viewing the copyrighted work--with the price 
to be paid to the individual copyright owner ex post viewing.
---------------------------------------------------------------------------

    \26\ Notwithstanding the compulsory nature of statutory licenses 
under the Copyright Act, in most contexts, the Act requires the 
Judges to consider the evidentiary value of directly negotiated 
licenses in setting rates and terms for royalty fees and in 
determining distributions of those fees.
---------------------------------------------------------------------------

    The Judges begin parsing the phrase ``relative market value'' by 
considering the word ``relative.'' The fact that the Phase II 
categories are finite (the allocation among categories having been 
finalized in Phase I), indicates that the word ``relative'' is intended 
to denote that the value of any retransmitted program is to be 
determined in relation to the value of all other programs in the 
respective Phase I categories.
    The next two words in the phrase--``market value''--are typically 
construed together. Further, ``market value'' is traditionally stated 
in decisional and administrative law more fully as ``fair market 
value.'' The Supreme Court has defined ``fair market value'' as ``the 
price at which the property would change hands between a willing buyer 
and a willing seller, neither being under any compulsion to buy or sell 
and both having reasonable knowledge of

[[Page 64992]]

relevant facts.'' U.S. v. Cartwright, 411 U.S. 546, 551 (1973).
    Dr. Gray defined relative market value in his Written Direct 
Testimony as ``the price at which the right to transmit a program 
carried on a distant broadcast signal would change hands between a 
willing buyer (a CSO) and a willing seller (a copyright owner), neither 
being under any compulsion to buy or sell.'' Gray WDT at 7-8; see also 
6/4/13 Tr. at 445-46 (Gray).\27\
---------------------------------------------------------------------------

    \27\ Although the Judges generally agree with Dr. Gray's 
application of the definition of ``fair market value'' to the 
definition of ``relative market value,'' the Judges note that Dr. 
Gray omitted from the latter the requirement that the parties have 
``reasonable knowledge of relevant facts.'' This condition is 
important because issues regarding the hypothetical parties' 
knowledge of such facts as viewership levels and CSO program 
bundling strategies are relevant to this Determination, as discussed 
in the analysis of the IPG Methodology, infra.
---------------------------------------------------------------------------

    The Judges note that application of these definitions to the 
present dispute is neither simple nor obvious. More particularly, it is 
necessary to further define the various terms that comprise the 
foregoing definition of relative market value, which the Judges 
undertake below.
a. The Hypothetical Willing Seller (the Copyright Owner)
    The copyright owner seeks to maximize profit from the licensing of 
the program to the CSO. Since the copyright owner's marginal costs are 
low and approaching zero (most of the costs incurred in creating the 
work are sunk, fixed costs), this means simply that the copyright owner 
wants to maximize the revenue it receives from the CSO as a result of 
the retransmission of its program over the distant broadcast signal by 
that CSO. Given the minimal marginal costs and the ``public good'' 
aspect of a copyrighted work, the copyright owner, as the hypothetical 
willing seller, will always have an incentive to sell at some positive 
price, but will likely engage in bargaining whereby the copyright owner 
threatens to refuse to grant the license unless its (undisclosed) 
reservation price is offered. See Beser, et al, supra, at 81 (When the 
CSO fails to offer a price which the hypothetical seller requires, 
``the program supplier * * * will simply refuse to allow the cable 
system to carry the program'').
b. The Hypothetical Willing Buyer (the CSO) \28\
---------------------------------------------------------------------------

    \28\ Dismayingly, none of the parties proffered admissible 
testimony (written or oral) of a witness with knowledge of CSO 
programming. Both Mr. Galaz and Dr. Robinson, on behalf of IPG, and 
Dr. Gray, on behalf of MPAA, noted their lack of pertinent 
experience in connection with the negotiation of copyright licenses, 
6/5/13 Tr. at 928-29 (Galaz); 6/6/18 Tr. at 1218-20 (Robinson); 6/4/
13 Tr. at 439 (Gray), and none of those witnesses offered any 
competent evidence as to how a CSO actually makes programming 
decisions. IPG attempted to introduce only the written testimony of 
a producer of a syndicated children's show, Mr. Thomas Moyer, who 
claimed to have knowledge of the relative unimportance of 
viewership/ratings to CSOs. (The parties were unable to arrange for 
a de bene esse deposition of Mr. Moyer to perpetuate his testimony. 
He was subpoenaed by MPAA to testify in person at the hearing, but 
he did not appear. Accordingly, the Judges did not admit Mr. Moyer's 
Written Rebuttal Testimony. 6/6/13 Tr. at 1288-98; 1302-04. We note, 
though, that Mr. Moyer's written testimony indicated that he lacked 
the experience necessary to provide the Judges with competent 
testimony regarding the programming decision-making process of a 
CSO.).
---------------------------------------------------------------------------

    For the CSO, the economics are less straightforward. The revenue 
that the CSO earns from retransmitted broadcasts is a consequence of 
the impact of the retransmissions on the sale of subscriptions to its 
cable bundles (packages or tiers). This is in contrast to the 
terrestrial commercial television station whose signal is being 
retransmitted, and whose revenues are received from advertisers.\29\
---------------------------------------------------------------------------

    \29\ Since CSOs must retransmit a station's signal in its 
entirety (including advertisements) without alteration, it cannot 
sell advertising on retransmitted broadcast channels. 17 U.S.C. 
111(c)(3).
---------------------------------------------------------------------------

    To the CSO, the program offered by the Copyright Owner is an 
input--a factor of production--utilized to create the product that the 
CSO sells to its customers, viz., the various subscription bundles of 
cable channels. In a hypothetical program market, a CSO would buy a 
program license for retransmission, as it would purchase any factor of 
production, up to the level at which that ``factor price'' equals the 
``Marginal Revenue Product'' (MRP) of that program. In simple terms, 
this means that a CSO in a competitive factor market would only pay a 
price for a program if the revenue that the CSO can earn on the next 
(marginal) sale of the final product is at least equal to that price. 
In practical terms, why would a CSO pay $50,000 to retransmit a program 
that the CSO estimates would add only $40,000 to the CSO's subscriber 
revenue? See Beser, et al., supra, at 80 (``To the cable system the 
value of carrying the signal is equal to the revenue from the extra 
subscribers that the programming will attract and any higher subscriber 
fees it can charge less the additional costs of importing the 
program.'').\30\
---------------------------------------------------------------------------

    \30\ If the CSO, as a program purchaser, had some degree of 
monopsony power in the factor market, it could pay less than a price 
equal to MRP, but still would buy programs in a quantity at which 
MRP would equal the Marginal Cost of an additional program.
---------------------------------------------------------------------------

c. ``Neither Being Under Any Compulsion To Buy or Sell''
    The ``compulsion'' limitation within the definition of ``fair 
market value'' is often treated as a truism and thus not subject to 
analysis. Here, in the actual (i.e., non-hypothetical) market, any 
program available for purchase by the CSO already has been pre-bundled 
by the terrestrial broadcast station into that station's signal. The 
CSO cannot selectively purchase for retransmission some programs 
broadcast on the retransmitted station and decline to purchase others; 
rather, the signal is purchased in toto. 17 U.S.C. 111(c)(3).
    Is this required bundling a form of ``compulsion'' upon the CSO? It 
is compelled to take every program pre-bundled on the retransmitted 
distant station, despite the fact that the various pre-bundled programs 
would each add different monetary value (or zero value) in the form of 
new subscriber volume, subscriber retention, or higher subscription 
fees. Indeed, some programs on the retransmitted station may have so 
few viewers that the CSO--if it had the right--would decide not to 
purchase such low viewership programs.
    Further, certain programs may have more substantial viewership, but 
that viewership might merely duplicate viewership of another program 
that generates the same sub-set of subscribers. For example, 
hypothetically, the viewers of reruns of the situation comedy 
``Bewitched'' may all be the same as the viewers of reruns of ``I Dream 
of Jeannie,'' a similar supernatural-themed situation comedy. However, 
``Bewitched'' may have fewer viewers than ``I Dream of Jeannie.'' The 
hypothetical, rational profit-maximizing CSO that had already paid for 
a license to retransmit ``I Dream of Jeannie'' would not also pay for 
``Bewitched'' in this hypothetical marketplace, because it fails to add 
marginal subscriber revenue for the CSO.\31\ Rather, the rational CSO 
would seek to license and retransmit a show that marginally increased 
subscriber revenue (or volume, if market share was more important than 
profit maximization), even if that program had lower total viewership 
than ``Bewitched.''
---------------------------------------------------------------------------

    \31\ Indeed, this notion is akin to the ``displacement'' 
argument advanced in the present proceeding by IPG. Galaz WRT at 14.
---------------------------------------------------------------------------

    If the Judges were to measure ``relative market value'' in these 
instances solely by viewership of the programs actually retransmitted, 
then the valuation process would arguably fail the ``non-compulsion'' 
requirement of the ``fair market value'' standard

[[Page 64993]]

identified by Dr. Gray. Why should a CSO (hypothetically) be compelled 
to pay for a program based on its higher viewership, but which adds 
less value than another show with lower viewership? By extension, why 
should the Judges, in this distribution proceeding, establish program 
value solely as if such compulsion were present?
    Simply put, the hypothetical, rational profit-maximizing CSO would 
not pay copyright owners based solely on levels of viewership. Rather, 
the hypothetical CSO would (i) utilize viewership principally as a 
heuristic to estimate how the addition of any given program might 
change the CSO's subscriber revenue, (ii) attempt to factor in the 
economics of various bundles; and (iii) pay for a program license (or 
eschew purchasing that license) based on that analysis.
    On the other side of the coin, is the seller, i.e., the copyright 
owner, under any ``compulsion'' to sell? In the actual market, one in 
which the terrestrial station signal is acquired in a single specific 
bundle by the CSO, the answer appears to be yes, there is 
``compulsion.'' The copyright owner cannot carve out its program and 
seek to maximize its value independent of the pre-packaged station 
bundle in which it exists.
    Of course, in the ``hypothetical market'' that the Judges are 
charged with constructing, it would be inappropriate not to consider 
the inherent bundling that would occur. That is, the bundling decision 
is a ``feature'' rather than a ``bug'' in even a hypothetical market in 
which the statutory license framework does not exist. Thus, while the 
copyright owner could offer to supply its program at a given price, the 
equilibrium market price at which supply and demand would intersect 
would reflect the CSO's demand schedule, which is based in part upon 
the fact that the buyer, i.e., the CSO, would pay only a price that is 
equal to (or less than) the MRP of that program in a bundle to be 
purchased by subscribers.\32\
---------------------------------------------------------------------------

    \32\ As discussed below, IPG suggests the need for such a 
bundling-based analysis. However, as also discussed below, the IPG 
Methodology itself fails to address the economics of bundling and 
thus serves only as a weak counter-argument to MPAA's viewer-centric 
analysis.
---------------------------------------------------------------------------

    To summarize, the hypothetical market the Judges will apply in this 
Determination contains the following participants and elements: (1) The 
hypothetical seller is the owner of the copyrighted program; (2) the 
hypothetical buyer is the CSO that acquires the program as part of its 
hypothetical bundle of programs; and (3) the absence of compulsion 
requires that the terrestrial stations' initial bundling of programs 
does not affect the marginal profit-maximizing decisions of the 
hypothetical buyers and sellers.\33\
---------------------------------------------------------------------------

    \33\ A focus on marginal costs and benefits is not only 
efficient for the hypothetical buyers and sellers, but also for the 
consuming public: ``Optimal program diversity will result if cable 
operators and the public they serve pay to copyright owners the 
marginal value derived from viewing syndicated programming.'' 
Willard, supra, at 1518.
---------------------------------------------------------------------------

B. Analysis of Parties' Proposals

1. Program Suppliers Category
a. Description of the MPAA Methodology and Proposed Allocation
    As in past distribution proceedings, MPAA's calculation of relative 
market value is based almost exclusively upon estimated levels of 
viewership of the distantly retransmitted programs, as based on data 
received from Nielsen.\34\ MPAA contends that program viewership 
provides a direct and reasonable measure of program market value, 
especially because the allocation of MPAA Program Suppliers' royalties 
in this Phase II proceeding involves examination of relatively 
homogeneous programming. Gray WDT at 3.\35\
---------------------------------------------------------------------------

    \34\ Nielsen ratings are a statistical estimate of the number of 
homes tuned to a program based upon a sample of television 
households selected from all television households. The findings 
within the sample are ``projected'' to national totals. A rating 
measures what percentage of the universe of television households 
are tuned in to a program. Lindstrom WDT at 3.
    \35\ Dr. Gray tested this conclusion through a three-step 
estimation approach. First, Dr. Gray calculated the relative volume 
of MPAA programming and IPG programming. Second, Dr. Gray calculated 
the relative viewership of MPAA programming and IPG programming (as 
described infra). Third, Dr. Gray examined statistically whether, 
given the same level of viewership, MPAA and IPG programming affect 
subscriber growth differently. Dr. Gray hypothesized that, in the 
absence of a meaningful difference in how the two sets of programs 
affect subscriber growth, viewership is the most economically sound 
measure of relative market value. Gray WDT at 14-15.
---------------------------------------------------------------------------

    The initial steps of MPAA's proposed relative market value 
calculation entail selection of a sample of television stations whose 
programming would be the basis for the remuneration of royalties to 
MPAA-represented claimants (Kessler Sample). Ms. Marsha Kessler, a 
former executive of MPAA, testified that she obtained from Cable Data 
Corporation (CDC) \36\ a listing of broadcast stations that were 
retransmitted as distant signals by cable systems from 2000 through 
2003. Ms. Kessler, believing they were not compensable in the Program 
Suppliers category, then excluded Canadian, Mexican, and public 
television stations.\37\ Ms. Kessler ranked stations according to the 
number of distant subscribers and then selected her sample stations 
based on a combination of fees generated and distant subscribers. 
Finally, because the Nielsen ratings do not differentiate between 
distant and local viewing, Ms. Kessler performed a local county 
analysis for each sample station to identify local county viewing data 
for each station so that it could be filtered out by Nielsen. 6/3/13 
Tr. at 114-27 (Kessler); Kessler WDT at 11-13 and Appendices D, E, and 
F. The Kessler Sample was not (and was not intended to be) a random 
sample. 6/3/13 Tr. at 122-25 (Kessler).
---------------------------------------------------------------------------

    \36\ CDC collects and analyzes information on Statements of 
Account (SOAs) that cable systems file with the Licensing Division 
of the Copyright Office. CDC makes the collected information 
available to users by purchase, either on an as-needed basis or by 
subscription. CDC is the only company providing such a service. 
Martin WDT at 1-2.
    \37\ Some programs broadcast on Canadian and Mexican stations 
are, in fact, compensable in the Program Suppliers category. This 
issue is discussed infra.
---------------------------------------------------------------------------

    Ms. Kessler forwarded the Kessler Sample stations to Nielsen, 
instructing Nielsen to measure viewing only in the counties identified 
by MPAA as outside the originating station's local county viewing 
area.\38\ Ms. Kessler further instructed Nielsen to place the 
programming in one of the eight Phase I categories. 6/3/13 Tr. at 114-
27 (Kessler); Kessler WDT at 13-14.
---------------------------------------------------------------------------

    \38\ Nielsen data are recorded on a county-by-county basis. MPAA 
provided Nielsen with its list of distant viewing counties to enable 
Nielsen to produce estimates of distant cable viewing to the Kessler 
Sample stations. Nielsen conducted this custom analysis for MPAA. 
Lindstrom WDT at 5; 6/3/13 Tr. at 288 (Lindstrom).
---------------------------------------------------------------------------

    Mr. Paul Lindstrom, Senior Vice President at Nielsen, testified 
that Nielsen provided MPAA with so-called ``diary data'' for each of 
the Kessler Sample stations measuring viewing in non-local counties 
during sweeps periods.\39\
---------------------------------------------------------------------------

    \39\ During 2000-2003, Nielsen utilized two basic data 
collection instruments in its syndicated services: Meters and 
diaries. Lindstrom WDT at 4. A set meter is an electronic device 
attached to a television set in a particular household that detects 
the channel to which the television is tuned. The data from these 
set meters are converted into household ratings. Nielsen collected 
household meter data year-round in a random sample of households in 
selected geographic markets across the United States, i.e., 
Nielsen's metered markets, during 2000-2003. Lindstrom WDT at 4; 
Gray WDT at 15-16, 18-19.
    Diaries are paper booklets in which each person in the household 
records viewing information. In 2000-2003, diary data were collected 
in Nielsen's diary markets during the months of November, February, 
May, July, and in some cases October and March, which are also known 
as the ``sweeps'' ratings periods (Nielsen Diary Data). Nielsen 
mailed seven-day diaries to homes randomly selected by Nielsen to 
keep a tally of when each television in the household was on, what 
it was tuned to, and who in the household was watching. Over the 
course of a four-week sweeps period, Nielsen mailed diaries to a new 
panel of randomly selected homes each week. At the end of each 
sweeps period, all of the viewing data from the individual weeks 
were aggregated into Nielsen's database. Each sweeps period yielded 
a sample of approximately 100,000, aggregating to 400,000 households 
over the course of a year. Lindstrom WDT at 4; Gray WDT at 15-16; 6/
3/13 Tr. at 290, 296-98, 312 (Lindstrom).

---------------------------------------------------------------------------

[[Page 64994]]

    MPAA also retained the services of the Reznick Group P.C. (now 
known as CohnReznick LLP) (Reznick) to match title information provided 
by MPAA to compensable retransmissions of television broadcasts. Mr. 
Kelvin Patterson of Reznick testified that he and his team at Reznick 
conducted two analyses for MPAA--one based on Tribune Media Services 
(Tribune) data and the other based on MPAA title information provided 
to Reznick by MPAA. The first required Reznick to examine broadcast 
television station logs provided by Tribune for the Kessler Sample 
stations and a separate set of sample stations provided by MPAA's 
economics expert, Dr. Jeffrey Gray (Gray Sample), for each of the years 
2000, 2001, 2002 and 2003, and exclude those program titles that are 
not compensable for purposes of this proceeding in the Program 
Suppliers category: (1) Programs identified in the Tribune Data as 
broadcast type ABC, CBS and NBC (i.e., network programming); \40\ (2) 
programs airing on WGN's local feed (WGN-local) that were not 
simultaneously broadcast on WGN's national feed (WGN-A); and (3) 
programs not identified by Tribune as a series, special, movie, 
documentary or ``other.'' Patterson WDT at 2-3.
---------------------------------------------------------------------------

    \40\ In fact, Reznick failed to exclude the network programming 
and this task was performed by Dr. Gray. 6/3/13 Tr. at 246-48 
(Patterson); 6/4/13 Tr. at 488-89 (Gray).
---------------------------------------------------------------------------

    The second analysis conducted by Reznick involved using a computer 
to electronically compare a list of program titles claimed by MPAA-
represented claimants, prepared and provided by MPAA,\41\ with the 
refined Tribune data to identify every distant retransmission of each 
MPAA title on the Kessler Sample stations and the Gray Sample stations. 
Patterson WDT at 3; 6/3/13 Tr. at 250-51 (Patterson).\42\ Thus, Reznick 
was able to identify the potentially compensable broadcasts of MPAA 
titles that aired on the Kessler Sample and Gray Sample stations. 
Patterson WDT at 5.
---------------------------------------------------------------------------

    \41\ The MPAA list of titles was compiled initially through 
program title information that was submitted by the claimants it 
represents and from its own research. MPAA then prepared a 
certification report listing the titles that it believed were 
attributable to the claimant, and supplied a certification form for 
the claimant to sign verifying that it has the right to claim 
retransmission royalties for the works listed. Each claimant was 
instructed to strike through any titles for which it was not 
entitled to claim retransmission royalties. Kessler WDT at 9-10.
    \42\ To the extent the comparison analysis conducted by Reznick 
left programs that did not match, Reznick conducted a manual 
matching exercise. As part of this manual matching exercise, 
whenever Reznick found titles that appeared to be a match, it would 
check for other examples of the same or similar program titles 
manually inspecting each to determine if the programs were in fact a 
match. For non-English programs, Reznick employed a native Spanish 
speaker to assist in the manual matching exercise. 6/3/13 Tr. at 
273-74 (Patterson).
---------------------------------------------------------------------------

    MPAA retained Dr. Gray to design an allocation methodology and 
compute the results of that methodology (the MPAA Methodology). 6/4/13 
Tr. at 440 (Gray). Dr. Gray testified that his analysis seeks to 
determine the ``relative market value'' of copyrighted programs based 
on an econometric model of estimating viewership that takes into 
account program characteristics and popularity that affect the 
program's predicted relative viewership. His approach analyzes program 
volume, program viewing and the number of subscribers for the Gray 
Sample--a stratified random sample of 120 stations generated by Dr. 
Gray from CDC data for each year from 2000 to 2003. Gray WDT at 3, 9; 
Gray WRT at 25, 30.
    Dr. Gray relied upon five data sources in creating and applying the 
MPAA Methodology: (1) CDC data for all cable system operators in the 
United States who distantly retransmitted broadcast signals, which 
included information about the signals they distantly retransmitted as 
well as the total number of distant subscribers to those signals; (2) a 
custom analysis of Nielsen Diary Data, prepared by Mr. Lindstrom, which 
shows the viewing of distant retransmissions of the Kessler Sample 
stations during Nielsen's ``sweeps'' periods; (3) information from 
Nielsen's local ratings, derived from individual television electronic 
meters, provided on a quarter-hour basis, for 24 hours a day, seven 
days a week, and 12 months a year (Local Ratings Data), for the Gray 
Sample stations; (4) Tribune Data, including the program title, time of 
broadcast, information on the station, whether or not the station was a 
network affiliate, the type of programming, the actors and directors 
and other information about the program, for every broadcast in the 
Kessler Sample stations and Gray Sample stations; and (5) the Reznick 
data analyses, in the form of a list of MPAA compensable programming, 
based upon start time, date and station, and a separate list of IPG 
compensable programming, based upon start time, date and station. 6/4/
13 Tr. at 447-50 (Gray).
    Dr. Gray analyzed the relationship between distant viewing and 
local ratings, holding constant the number of distant subscribers, 
which, Dr. Gray posited, is equivalent to examining distant ratings and 
local ratings. Dr. Gray testified that he found a positive and strong 
statistically significant relationship between distant viewing and 
local ratings. After establishing this correlation, Dr. Gray built his 
full econometric model combining all of the five data sets he 
identified in his written testimony.\43\ Dr. Gray then utilized a 
multiple regression analysis to predict distant viewing for every 
single quarter hour, for every single program, 24 hours a day, seven 
days a week, 12 months a year, for all four years.\44\ 6/4/13 Tr. at 
465-67 (Gray).
---------------------------------------------------------------------------

    \43\ These data sets provided Dr. Gray with information on 
distant viewing, local ratings, the number of distant subscribers, 
the quarter hour of the day the broadcast took place, station 
affiliation, and which programs were compensable in these 
proceedings.
    \44\ All of Dr. Gray's calculations of program viewing were 
based on the Gray Sample. The Kessler Sample was merely used to make 
projections of distant viewing from the Local Ratings Data. 6/4/13 
Tr. at 452-54 (Gray).
---------------------------------------------------------------------------

    Based on his analysis, Dr. Gray calculated the viewership (and 
distribution) shares of MPAA and IPG programming as follows.\45\
---------------------------------------------------------------------------

    \45\ The lower and upper bounds of the 95% confidence intervals 
for the estimates of MPAA's viewership shares for each year are: For 
the year 2000, 98.84% to 99.03%; for the year 2001, 99.69% to 
99.75%; for the year 2002, 99.64% to 99.74% and for the year 2003, 
99.77% to 99.83%. Gray WRT at 26 n.25. 6/5/13 Tr. at 754-58 (Gray).

                                MPAA Proposed Viewership and Distribution Shares
----------------------------------------------------------------------------------------------------------------
                                                       2000            2001            2002       2003 (percent)
----------------------------------------------------------------------------------------------------------------
MPAA............................................           98.93           99.72           99.69           99.80
IPG.............................................            1.07            0.28            0.31            0.20
----------------------------------------------------------------------------------------------------------------

[[Page 64995]]

Gray WRT at 26.
(1) Evaluation of the MPAA Methodology
    IPG opposes a relative market value assessment based solely on 
Nielson viewership data. One broad attack by IPG on the use of Nielsen 
viewership data is that the data do not exist until after the distantly 
retransmitted programs are broadcast. Thus, IPG argues, the 
hypothetical willing buyer and willing seller could not utilize this 
viewership data ex ante to negotiate a license. Galaz WDT at 13. 
Although this criticism is literally correct, it does not preclude the 
use of such viewership data to estimate the value of the hypothetical 
licenses. Ideally, it might be preferable to utilize anticipated 
viewership as the viewership-centric measure of value.
    However, such a measure would be quite difficult to assemble in a 
Section 111 proceeding. Each type of program would be subject to its 
own yardstick: For example, reruns could be valued based on their prior 
ratings, newly syndicated programs could be valued based on the past 
ratings of comparable programs; and first-run televised movies could be 
valued based on their box-office value in theaters. The gathering and 
presentation of such evidence likely would be prohibitively expensive, 
and the evidence in the record before the Judges does not permit such 
an analysis.
    Another attack by IPG on the use of Nielsen Data concerns the so-
called ``zero viewing'' problem. The quarter-hour sampling points 
within the Nielsen Data relied upon by MPAA contain, annually, between 
76% and 82% ``zero viewing'' sampling points. Robinson WRT at ] 31. In 
previous Phase II proceedings the existence of these ``zero viewing'' 
sampling points had not been adequately explained by MPAA's witnesses, 
which diminished the value of its methodology. See, e.g., 1993-1997 
Librarian Order, 66 FR at 66449-50. However, in this proceeding, MPAA 
has provided adequate evidence to demonstrate, to the satisfaction of 
the Judges, that the incidence of so-called ``zero viewing'' does not 
preclude the Judges' reliance in part upon the Nielsen data, subject to 
adjustments in the allocations to acknowledge some imprecision arising 
out of the ``zero viewing'' sample points.
    First, to be precise, the percentages of ``zero viewing sampling 
points'' represent--on a station-by-station basis--the percent of total 
sampling points at which no sample households with Nielsen diaries 
recorded that they were viewing that station. These percentage figures 
do not represent that ``zero households'' had viewed a particular 
program over the entirety of the sampling period, i.e., the sweeps 
period at issue. Although both Mr. Galaz and IPG's economist, Dr. Laura 
Robinson, were critical of the high incidence of ``zero viewing'' 
sampling points, Dr. Robinson proffered no evidence, 6/6/13 Tr. at 
1195-97 (Robinson), and Mr. Galaz proffered no admissible or credible 
evidence, 6/5/13 Tr. at 844 (Galaz),\46\ that the Nielsen data had 
revealed particular programs with ``zero viewing'' throughout the 
Nielsen diary sampling periods. This distinction is critical, because, 
under the hypothetical market construct, royalties would accrue on a 
program-by-program basis to individual copyright owners, not to the 
distantly retransmitted stations.
---------------------------------------------------------------------------

    \46\ Mr. Galaz claimed in his live testimony that he prepared a 
document which set forth his calculation of the percent of programs 
that Nielsen reported to have had zero viewing. Under questioning 
from the Judges, however, Mr. Galaz acknowledged that he had never 
provided such a document to MPAA, 6/5/13 Tr. at 846-47, and IPG did 
not seek to have that document admitted into evidence. 6/5/13 Tr. at 
888-89.
---------------------------------------------------------------------------

    Second, the Judges agree with Mr. Lindstrom that these ``zero 
viewing'' sampling points can be considered important elements of 
information, rather than defects in the process. As Mr. Lindstrom 
testified, when doing sampling of counts within a population, it is not 
unusual for a large number of zeros to be recorded, 6/4/13 Tr. at 391-
93, 410 (Lindstrom), and those ``zero viewing'' sample points must be 
aggregated with the non-zero viewing points. 6/3/13 Tr. at 323 
(Lindstrom).
    Third, as Dr. Gray testified, when those zeros are included with 
non-zero data from the sample in a regression that correlates local and 
distant viewing, the zeros are placed in an appropriate statistical 
context. 6/14/13 Tr. at 614-15 (Gray).\47\
---------------------------------------------------------------------------

    \47\ To adapt an analogy used by Dr. Gray, if one were 
attempting to estimate the number of left-handed individuals in the 
United States, by sampling ten people in New York City and 
Washington, DC, respectively, it would not be implausible to find 
zero left-handed people in the sample. However, when the sampling 
expanded to ten people each in Boston, Los Angeles, and San 
Francisco, one might find two, three, and perhaps even seven left-
handed individuals, respectively, in those cities. While only about 
10% of the population in the United States may be left-handed, it 
would make no more sense to eliminate (as supposedly 
unrepresentative) the zero counts in New York and Washington than it 
would to exclude the (unusually high) count of seven left-handed 
individuals in San Francisco. See 6/4/13 Tr. at 606-08 (Gray).
---------------------------------------------------------------------------

    Fourth, as Mr. Lindstrom testified, distantly retransmitted 
stations typically have very small levels of viewership in a television 
market fragmented (even in the 2000-2003 period) among a plethora of 
available stations. 6/4/13 Tr. at 393 (Lindstrom). Thus, it would be 
expected, not anomalous, for Nielsen to record some zero viewing for 
any given quarter-hour period within the diary sampling (sweeps) 
period.
    Despite these reasonable and credible explanations of the ``zero 
viewing'' sampling points, the Nielsen data are not without problems. 
The sample size is not sufficient to estimate low levels of viewership 
as accurately as a larger sample. Mr. Lindstrom acknowledged that 
``[t]he relative error on any given quarter-hour for any given station 
* * * would be very high,'' 6/3/13 Tr. at 303 (Lindstrom)--an 
acknowledgment echoed by Dr. Gray. 6/4/13 Tr. at 518-19 (Gray) 
(agreeing that, with samples of 10,000 households, there is a high 
relative error rate for each quarter-hour ``point estimate'').
    Furthermore, Mr. Lindstrom acknowledged that he had not produced 
the margins of error or the levels of confidence associated with the 
Nielsen viewership data, despite the fact that such information could 
be produced. 6/3/13 Tr. at 391-93, 410 (Lindstrom). Without this 
information, the reliability of any statistical sample cannot be 
assessed. (By way of comparison, Dr. Gray provided with his conclusions 
the margin of error and the level of confidence associated with his 
findings. Gray WRT at 26 n.25.). The Judges infer that, had such 
information underscored the reliability of the Nielsen data, it would 
have been produced by MPAA.
    Thus, the Judges conclude that viewership as measured after the 
airing of the retransmitted programs is a reasonable, though imperfect 
proxy for the viewership-based value of those programs.\48\
---------------------------------------------------------------------------

    \48\ Since it is a hypothetical market we are constructing, it 
also would not be unreasonable to hypothesize that the CSO and the 
Copyright Owner might negotiate a license that would contain a 
provision adjusting the value of the license, post-viewing, to 
reflect actual viewership. See 6/4/13 Tr. at 562-63 (Gray). In that 
regard, the Judges refer to one of the pre-conditions for relative 
market value--the one omitted by Dr. Gray--``reasonable knowledge of 
relevant facts.'' Actual viewership would be a ``relevant fact'' 
that could be applied if post-viewing adjustments to the license 
fees were hypothetically utilized by the bargaining parties. While 
the parties might find the ``transaction costs'' of such post-
viewership negotiations and adjustments to be prohibitive in 
practice, it is the function of the Judges, as noted supra, to 
construct a hypothetical market in which such transaction costs are 
avoided. See O. Williamson, The Economic Institutions of Capitalism 
45 (1985) (one aspect of the ``transaction cost problem'' is the 
inability of the negotiating parties to obtain ``perfect 
information.'').
---------------------------------------------------------------------------

    (2) Dr. Gray's Economic Analysis
    The Judges credit the economic analysis undertaken by Dr. Gray, as 
set forth in his Written Direct Testimony

[[Page 64996]]

and in his oral testimony at the hearing, see, e.g., Gray WDT at 3; 6/
4/13 Tr. at 446 (Gray), but not without some reservations. First, the 
Judges agree with Dr. Gray that viewership can be a reasonable and 
directly measurable metric for calculating relative market value in 
cable distribution proceedings. Indeed, the Judges conclude that 
viewership is the initial and predominant heuristic that a hypothetical 
CSO would consider in determining whether to acquire a bundle of 
programs for distant retransmission, subject to marginal adjustments 
needed to maximize subscribership. Nevertheless, the Judges are 
reluctant to rely solely on viewership data merely because the marginal 
bundling adjustments are not readily measurable. The Judges must also 
consider subscriber fees and subscribership levels, even if the 
evidence relating to subscribership creates only a crude proxy for 
addressing the economic bundling issue.
    The Judges agree with Dr. Gray that the programs within the Program 
Suppliers category are more homogeneous inter se than they are in 
comparison with programs in either the Sports Programming or the 
Devotional Programming claimant categories. 6/4/13 Tr. at 446, 455-57 
(Gray). This relative homogeneity suggests that a rational CSO would 
not be as concerned with whether different programs would attract 
different audience segments (compared with more heterogeneous 
programming) and therefore such a CSO would rely to a greater extent on 
absolute viewership levels. The Judges note, however, that Dr. Gray's 
position appears to conflict with Ms. Kessler's testimony which 
described the mix of MPAA programs as quite varied (i.e., 
heterogeneous), Kessler WDT at 4-6. Taken at face value, Ms. Kessler's 
observation suggests that the hypothetical CSO would consider whether 
there was a fragmentation of viewership among MPAA-represented programs 
that would reduce its reliance on absolute viewership and increase its 
use of a bundling analysis to exploit such heterogeneity. This 
disparity confirms the Judges' conclusion that viewership data alone 
cannot form the basis for measuring relative market value. 
Notwithstanding Ms. Kessler's testimony to the contrary, the Judges 
accept Dr. Gray's analysis of the lack of an impact of changes in 
programming upon subscribership. Dr. Gray's analysis suggests that, 
even if program heterogeneity could affect value via the CSO's bundling 
choices, there is no evidence in the current record to suggest that the 
programs of the claimants whom IPG represents have created a 
programming mix that would increase the value of those programs vis 
[agrave] vis programs of non-IPG claimants. 6/4/13 Tr. 554-55 (Gray); 
Gray WDT (Amended) at App. C.
    Moreover, the Judges rely upon Dr. Gray's use of a random sample of 
approximately 120 stations annually from 2000 through 2003 to construct 
his viewership estimates. Indeed, Dr. Gray's sample is the only random 
sample of stations presented to the Judges in this proceeding, and must 
be contrasted with the admittedly non-random sampling of stations 
undertaken by Mr. Galaz and Ms. Kessler.\49\
---------------------------------------------------------------------------

    \49\ Statistically valid unbiased inferences regarding an entire 
population cannot be projected from a non-random sample. The Judges, 
therefore, remain troubled by the fact that Dr. Gray did not insist 
on scrapping Ms. Kessler's non-random sample and require (as a 
condition to his engagement as MPAA's expert) the use of a random 
sample. Instead, Dr. Gray attempted to mitigate the non-randomness 
of Ms. Kessler's sample by shrinking his 120-station random sample 
to the 70-station sample which constituted the overlap between the 
Kessler Sample stations and the Gray Sample stations. However, a 
non-randomly selected sub-set of an otherwise random sample is not a 
random sub-set. The 70 stations were then used to derive a 
mathematical relationship between local and distant viewing. That 
relationship was then used in Dr. Gray's regression analysis to 
project distant viewing from the local viewing data for all 120 
sample stations, and, ultimately, to make a prediction with regard 
to the distant viewing of the entire population of MPAA and IPG 
programs that were distantly retransmitted by every CSO.
    The Judges credit Dr. Gray's testimony that MPAA refused to 
abandon the Kessler Sample and that, without it, Dr. Gray would not 
have had access to distant signal viewing data with which to perform 
his regression. The Judges likewise credit Dr. Gray's testimony as 
to the fact that scrapping Ms. Kessler's non-random sample likely 
would have caused additional expense for MPAA, as MPAA would have 
been required to rely on Dr. Gray's truly random sample and develop 
a new set of distant signal viewing data through additional work by 
CDC, Nielsen and Reznick. 6/4/13 Tr. at 583-587 (Gray). Although the 
Judges understand why MPAA might have chosen to avoid this 
additional cost and rely, at least in part, on a compromised sample 
of stations, that cost-saving decision compromises the Judges' 
ability to give more weight to Dr. Gray's analysis than they have 
done in this Determination.
    Dr. Gray attempted to demonstrate that the use of the flawed 
Kessler Sample did not damage the accuracy of his analysis. The 
Kessler Sample suffered from Ms. Kessler's intentional selection of 
the largest stations in terms of subscribers, and her ``intuitive'' 
decision to cut off her sampling at a particular level. 6/3/13 Tr. 
at 122 (Kessler). This bias toward larger stations could have 
prejudiced IPG, if the programs of the IPG-represented claimants 
were relatively more concentrated on smaller stations than were the 
MPAA-represented programs. To test that possibility, Dr. Gray ran 
his regression including only the bottom quartile of the Kessler 
Sample stations and found no change in viewership estimates. 6/4/13 
Tr. at 469-70, 500, 570 (Gray). Of course, that fact only indicates 
that, within the Kessler Sample, changes in broadcast station size 
did not affect IPG negatively, and at best only suggests that 
inclusion of even smaller stations (excluded from the Kessler Sample 
or within Dr. Gray's 120-station sample but excluded from the 70-
station Kessler/Gray overlapping sample) would not have increased 
viewership estimates for IPG.
---------------------------------------------------------------------------

    The Judges view favorably Dr. Gray's decision to increase his data 
base by supplementing it with Nielsen meter data--the Local Ratings 
Data--in order to determine, in his regression analysis, the 
relationship between local viewing and distant viewing of the 
retransmitted stations. 6/4/13 Tr. at 448. The use of this additional 
data allowed Dr. Gray to observe approximately 1.6 million quarter-
hours of local viewing data (6/4/13 Tr. at 465, 467) strengthening his 
results, and further mitigating any potential problems with the zero 
viewing sampling points contained in the Nielsen Diary Data.
    Nevertheless, the Judges find that Dr. Gray's decision not to 
summarize the results of his regression as it related to other 
independent variables, especially the impact of time of day upon the 
level of distant viewing of the transmitted stations, is a shortcoming 
in his analysis. Dr. Gray conceded that there was a strong positive 
relationship between time of day and the level of distant viewing, 6/4/
13 Tr. at 639-41 (Gray), which could support IPG's use of a Time Period 
Weight Factor as a basis for allocating royalties. 6/4/13 Tr. at 639-43 
(Gray).
    In addition, the Judges recognize the criticism, leveled by IPG's 
expert witness, Dr. Laura Robinson, that Dr. Gray wrongly replaced 
Nielsen Diary Data regarding distant viewing for the six months of 
sweeps, with his projected data, derived from Nielsen Local Viewing 
Data. Dr. Robinson also noted that, if Dr. Gray had retained his 
Nielsen Diary Data, with its approximate 80% of zero viewing sampling 
points, he should have had at least a level of approximately 40% zero 
viewing points in his final analysis. 6/6/13 Tr. at 1202-03.
    In response to Dr. Robinson's criticism, Dr. Gray ran the distant 
viewership numbers in the manner suggested by Dr. Robinson. To use Dr. 
Gray's terminology, using these ``supplant'' values would have resulted 
in an even greater allocation to MPAA at the expense of IPG. 6/6/13 Tr. 
at 1328-30 (Gray). IPG objected that it had not been afforded the 
details of this analysis previously, but the Judges discount that 
objection, given that Dr. Robinson had not presented her critique of 
this aspect of Dr. Gray's analysis until her live testimony at the 
hearing.\50\
---------------------------------------------------------------------------

    \50\ The Judges note that Dr. Robinson was engaged by IPG only 
two months prior to the June 2013 hearing, and one month prior to 
the May 2013 deadline for the filing of rebuttal testimony. 6/6/13 
Tr. at 122 (Robinson). IPG's delay in that regard may have 
compromised its expert's ability to construct a more comprehensive 
critique of Dr. Gray's analysis. As Dr. Robinson was engaged after 
the Preliminary Hearing in this matter, IPG, by its own delay in 
retaining Dr. Robinson, was unable to seek additional discovery 
based upon her purported need for additional information.

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[[Page 64997]]

    The Judges also acknowledge Dr. Robinson's criticism that, given 
the level of zero viewing in the raw Nielsen diary data, Dr. Gray 
should have used a different regression model than his selected Poisson 
regression. Dr. Gray defended his use of the Poisson regression model, 
however, as a basis to perform a regression with such a large number of 
zeros in the data. Although Dr. Robinson suggested the use of another 
form of regression to account for the relatively high number of zeros, 
(such as a negative binomial regression), she did not provide any 
alternative analysis to indicate how such a different form of 
regression would have changed the results, and Dr. Robinson 
acknowledged that she therefore was unable to state that Dr. Gray's 
conclusions were wrong. 6/6/13 Tr. at 1279-81 (Robinson). Moreover, to 
the extent the zeros in the raw data reflect non-viewing of television 
at the moment of sampling, or to the extent they reflect poor sampling 
of small numbers of viewers, a separate regression to account for the 
zero viewing may have been appropriate. As noted, supra, Mr. Lindstrom 
and Dr. Gray both pointed out, however, small numbers of viewers, 
indeed zero viewers, is a meaningful sample point, given the small 
number of viewers of distantly retransmitted broadcast stations, so 
those zeros should not be isolated and treated differently.
    Another of IPG's criticisms of the MPAA Methodology concerns the 
treatment of Canadian and Mexican stations. See, e.g., Galaz WRT at 40-
41. MPAA and Dr. Gray did, in fact, exclude Canadian and Mexican 
television stations from the Kessler and Gray Samples. 6/3/13 Tr. at 
116 (Kessler); 6/5/13 Tr. at 753-54 (Gray). This appears to have 
resulted from the belief that programs carried on those stations were 
either not compensable, or not included in the Program Suppliers 
category. 6/3/13 Tr. 116-17 (Kessler); 6/5/13 Tr. at 754 (Gray). This 
exclusion was an error.
    Section 111(c)(1) unambiguously grants cable system operators a 
statutory license to retransmit Canadian and Mexican broadcast 
stations.\51\ Section 111(d)(3)(A) likewise directs that royalties 
deposited by cable system operators under the statutory license be 
distributed to any copyright owner whose work was included in a 
secondary transmission made by a cable system of a non-network (i.e., 
not ABC, CBS or NBC) television program on a distant signal basis. The 
statute provides no exception for works carried in retransmissions of 
primary signals that originate in Canada or Mexico. MPAA's conclusion 
that programs carried on Canadian and Mexican broadcast stations are 
noncompensable was erroneous.
---------------------------------------------------------------------------

    \51\ Section 111(c)(4) places certain geographic restrictions on 
such retransmissions.
---------------------------------------------------------------------------

    As to the categorization of programs carried on Canadian and 
Mexican Stations, the parties in the Phase I proceeding in this matter 
stipulated to definitions of the following program categories: Program 
Suppliers; Joint Sports Claimants; Commercial Television; Public 
Broadcasting; Devotional Claimants; Canadian Claimants; National Public 
Radio; and Music Claimants. The definitions are mutually exclusive and, 
in the aggregate, comprehensive. See Stipulation of the Parties on the 
Issues of Program Categorization and Scope of Claims, Docket No. 94-3, 
CARP CD 90-92 (Feb. 23, 1996), at 3 (stating that Phase I categories 
identical to those used in this proceedings were ``intended to cover 
all non-network television programs on all stations retransmitted as 
distant signals by U.S. cable systems * * * on a mutually exclusive 
basis''). In other words, every compensable program must fall within 
one and only one program category.
    The ``Canadian Claimants'' category is defined as:

    All programs broadcast on Canadian television stations, except 
(1) live telecasts of Major League Baseball, National Hockey League, 
and U.S. college team sports, and (2) other programs owned by U.S. 
copyright owners.

Kessler WRT at Addendum B.
    The first exception describes programs that fall within the Sports 
Programming category.\52\ The second exception includes all programs 
owned by U.S. copyright owners. Although programs falling within the 
second exception could, potentially, fall into any of the other 
categories, in reality they are all within the Program Suppliers \53\ 
category. Phase I Order, 75 FR at 26800 n.5; see also Written Direct 
Testimony of Janice de Freitas, Ex. CDN-1, Docket No. 2008-2 CRB CD 
2000-2003 (Phase I) at 2.
---------------------------------------------------------------------------

    \52\ The ``Joint Sports Claimants'' category is defined as:
    Live telecasts of professional and college team sports broadcast 
by U.S. and Canadian television stations, except for programs coming 
within the Canadian Claimants category * * *.
    Kessler WRT at Addendum B.
    \53\ The ``Program Supplier'' category is defined as:
    Syndicated series, specials and movies, other than Devotional 
Claimants programs as defined [in the stipulation]. Syndicated 
Series and specials are defined as including (1) programs licensed 
to and broadcast by at least one U.S. commercial television station 
during the calendar year in question, (2) programs produced by or 
for a broadcast station that are broadcast by two or more U.S. 
television stations during the calendar year in question, and (3) 
programs produced by or for a U.S. Commercial television station 
that are comprised predominantly of syndicated elements, such as 
music video shows, cartoon shows, ``PM Magazine,'' and locally 
hosted movie shows.
    Id.
---------------------------------------------------------------------------

    There is no ``Mexican Claimants'' category, so any compensable 
programming carried on distantly retransmitted Mexican broadcast 
stations must fall into one of the other agreed categories (other than 
Canadian Claimants), including the Program Suppliers. It is simply 
incorrect to conclude that all compensable programming on distantly 
retransmitted Canadian and Mexican broadcast stations falls outside the 
Program Suppliers category. MPAA erred by excluding Canadian and 
Mexican stations from its analysis.
    The Judges do not have before them sufficient evidence to determine 
the precise degree to which MPAA's exclusion of Canadian and Mexican 
stations has affected their proposed distribution. The Judges can, 
however, construct a rough estimate based on IPG's sample stations, 
which were selected because they were the most widely retransmitted 
television stations based on fees generated. 6/5/13 Tr. at 762 (Galaz).
    Of the 223 stations that IPG included in its sample for royalty 
year 2000, 12 stations (5.38% of the total) were Canadian. Those 
stations represented 4.46% of the overall number of distant subscribers 
covered in the IPG sample. Only two Mexican stations (0.90% of the 
total) were included in the IPG sample, representing 0.02% of distant 
subscribers covered in the IPG sample. The Judges conclude that the 
effect on MPAA's proposed distribution shares of excluding Mexican 
stations from their regression analysis was negligible. On its face, 
however, the impact of excluding the Canadian stations may not be 
negligible.
    Evidence from the Phase I proceeding suggests that a relatively 
small amount of the programming on Canadian broadcast stations is 
allocable to the Program Suppliers category. Written Direct Testimony 
of Janice de Freitas, Ex. CDN-1, Docket No. 2008-2 CRB CD 2000-2003 
(Phase I) at 6 and Ex. CDN-1-I. Assuming, for purposes of this rough 
estimate, that there are half as

[[Page 64998]]

many programs on Canadian stations that fall in the Program Suppliers 
category than there are on U.S. stations, Canadian stations carried 
roughly 2.7% of retransmitted programs in the Program Suppliers 
category. It thus appears that a small, but not negligible, number of 
programs in this category are carried on Canadian stations.
    For the exclusion of the relatively small percentage of programs 
broadcast on Canadian stations to have a material impact on the 
relative shares computed by MPAA, the proportion of MPAA-represented 
programs to IPG-represented programs on Canadian stations would have to 
differ fairly significantly from that on U.S. stations. There is no 
evidence to suggest that it does.\54\ The Judges conclude that, while 
the exclusion of the Canadian stations was an error, it did not have a 
significant effect on the relative shares computed by MPAA.
---------------------------------------------------------------------------

    \54\ In his analysis of the IPG Methodology, Dr. Gray evaluated 
the effect of IPG's inclusion in its methodology of non-U.S. 
programs carried on Canadian stations and concluded that it resulted 
in an overstatement of the value of IPG's claims (perhaps reflecting 
a higher proportion of non-U.S. programming among IPG-represented 
programs than among MPAA-represented programs). Gray WDT at 15-17. 
Unfortunately that analysis sheds no light on the effect of MPAA's 
exclusion of U.S. programs on Canadian stations on its calculation 
of relative shares of royalties.
---------------------------------------------------------------------------

b. Description of the IPG Methodology and Proposed Allocation
    IPG's distribution methodology (the IPG Methodology) was created by 
Mr. Raul Galaz, an employee and former principal of IPG. Mr. Galaz 
testified that the IPG Methodology was formed in response to a 
perceived bias in the distribution methodology historically utilized by 
MPAA. Galaz WDT at 7-8. IPG espouses that each and every program that 
is broadcast by a terrestrial station, and is thereafter retransmitted 
by a CSO pursuant to the Section 111 statutory license, is entitled 
some portion of the fees deposited with the U.S. Copyright Office. Id. 
at 14.
    Upon the commencement of this Phase II proceeding, IPG obtained 
updated data from CDC of all Form 3 retransmitted stations from 2000-
2003, which data included the number of households to which any 
particular terrestrial signal was retransmitted, as well as the fees 
generated from the retransmission of any particular terrestrial signal. 
IPG ranked such stations on a year-by-year basis, according to the 
cable retransmission fees generated by such stations. Id., at 16; 6/5/
13 Tr. at 762 (Galaz).
    IPG thereafter acquired from Tribune Media the programming data for 
the 200 broadcast stations (IPG Sample) generating the largest amount 
of cable retransmission fees, and supplemented such information with 
broadcast data already acquired by IPG for calendar years 2000 and 
2001.\55\ Galaz WDT at 16; see Galaz WDT at Ex. IPG-4; 6/5/13 Tr. at 
762, 790 (Galaz).\56\ The IPG Sample was not (and was not intended to 
be) a random sample. 6/5/13 Tr. at 765-66, 808-09 (Galaz). From this 
programming data IPG identified 11,213,962 individual broadcasts that 
took place on the IPG Sample stations which, after omitting non-
compensable programming (e.g., network feed programming), yielded 
8,515,052 compensable broadcasts representing 39,969 discrete titles. 
Galaz WDT at 17.
---------------------------------------------------------------------------

    \55\ IPG's samples consisted of 223 stations for 2000; 231 
stations for 2001; 200 stations for 2002; and 200 stations for 2003. 
Galaz WDT at 16; see Galaz WDT at Ex. IPG-4; 6/5/13 Tr. at 762, 790 
(Galaz).
    \56\ The stations surveyed as part of the IPG Sample accounted 
for 89-93% of the aggregate number of Form 3 subscribers receiving 
retransmitted commercial signals in any given year during 2000-2003, 
and 94-96% of the distant cable retransmission fees generated by 
commercial stations in any given year during 2000-2003. Galaz WDT at 
17; see Galaz WDT at Ex. IPG-5; 6/5/13 Tr. at 765, 788 (Galaz).
---------------------------------------------------------------------------

    According to Mr. Galaz, IPG then undertook to confirm with all of 
the claimants that it represents exactly which titles and broadcasts 
were owned or controlled by them. IPG submitted to each claimant the 
list of compensable titles, and requested that the claimant respond to 
IPG with a list of any titles on the list that correspond to titles 
owned or controlled by the claimant. In some circumstances IPG 
determined which titles and broadcasts were owned or controlled based 
on information within the IPG contracting documents, or information 
previously provided to IPG in the course of IPG's representation. Galaz 
WDT at 18; 6/5/13 Tr. at 791-93 (Galaz). Based on that vetting process, 
IPG determined that 1,297 compensable programs were owned or controlled 
by IPG-represented claimants, reflected within 541,586 compensable 
broadcasts. Galaz WDT at 10; see Galaz WDT at Exs. IPG-2, 3.
    The weight that IPG accorded to any given compensable broadcast was 
the product of (x) a ``Station Weight Factor,'' (y) a ``Time Period 
Weight Factor,'' and (z) the duration of the broadcast. Galaz WDT at 
18-23.
    IPG took two alternative approaches to creating a Station Weight 
Factor. One assigned a value to a station based on the number of 
distant cable subscribers that received retransmissions of that 
station's broadcasts. The other assigned a value to a station based on 
the amount of distant cable retransmission fees generated by the 
station, as disclosed in CDC data. IPG presented three alternative 
computations based on each of the Station Weight Factors and an average 
of the two. Galaz WDT at 18; see Galaz WDT at Ex. IPG-4; Galaz WRT at 
Exs. R-19 and R-20; 6/5/13 Tr. at 769, 768, 779-81 (Galaz).
    The Time Period Weight Factor reflects the fact that average 
television viewership varies by time of day. IPG based the Time Period 
Weight Factor on Nielsen Media Research's assessment of distant 
viewership of all persons during 48 half-hour dayparts that was, in 
turn, based on Nielsen viewing data from 1997.\57\
---------------------------------------------------------------------------

    \57\ IPG contended that it was reasonable to use 1997 data for 
this purpose because Nielsen Media Research publications indicate 
that there have been only trace changes in U.S. daypart viewing, 
even over the span of decades. Galaz WDT at 21-22; 6/5/13 Tr. at 
775-77 (Galaz). IPG's calculations originally were based on six 
dayparts, rather than 48. When this issue was brought to IPG's 
attention, IPG produced revised calculations based on the 48 
dayparts described in Mr. Galaz' written testimony. See Galaz WRT at 
Exs. R-19 (revised) and R-20 (revised). In live testimony, Mr. Galaz 
stated that the error was inadvertent. 6/5/13 Tr. at 774 (Galaz).
---------------------------------------------------------------------------

    Mr. Galaz testified that the IPG Methodology seeks to replicate the 
decisions actually made by CSOs by looking at data representative of 
such decisions, and data reflecting the aggregate of information that a 
CSO could have had at the time of its decision to retransmit a 
broadcast station. 6/5/13 Tr. at 761, 763, 768 (Galaz). He explained 
that it was for this reason that IPG used its Time Period Weight Factor 
in preference to projections of actual viewership. IPG avers that 
actual viewership can only be known after a broadcast has taken place; 
prior to a CSO's decision to retransmit a particular broadcast, the CSO 
may only reasonably predict on a day-by-day basis the relative 
viewership of a program based on the timing of its placement on a 
station's lineup. Galaz WDT at 20-22; 6/5/13 Tr. at 770-75 (Galaz).
    As a final step, the broadcast length of all compensable broadcasts 
appearing in the IPG analysis was applied against the ``Station Weight 
Factor(s)'' and the ``Time Period Weight Factor'' to create a weighted 
value for each of the broadcasts. After segregating the compensable 
broadcasts into their respective Phase I categories, including the 
Program Suppliers category, IPG summed the resulting weighted values 
for (i) all IPG-claimed broadcasts, and (ii) all MPAA-claimed 
broadcasts. Galaz WDT at 24; Galaz WRT at Exs. R-19 (revised) and R-20 
(revised); 6/5/13 Tr. at 778 (Galaz). By comparing these

[[Page 64999]]

``Sum Weighted Values'' for IPG and MPAA, IPG calculated its proposed 
relative distribution shares.
    Using a Station Weight Factor based on numbers of distant 
subscribers, IPG computed the following proposed relative distribution 
shares.

                                        IPG Proposed Distribution Shares
                                                   [SWF--Subs]
----------------------------------------------------------------------------------------------------------------
                                                                       2001            2002            2003
                                                  2000 (percent)     (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
MPAA............................................           90.52           92.77           94.54           94.95
IPG.............................................            9.48            7.23            5.46            5.05
----------------------------------------------------------------------------------------------------------------

Galaz WRT, Ex. R-19, at 1 (revised).
    Using a Station Weight Factor based on fees generated, IPG computed 
the following proposed relative distribution shares.

                                        IPG Proposed Distribution Shares
                                                   [SWF--Fees]
----------------------------------------------------------------------------------------------------------------
                                                                       2001            2002            2003
                                                  2000 (percent)     (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
MPAA............................................           90.60           92.57           94.56           94.86
IPG.............................................            9.40            7.43            5.44            5.14
----------------------------------------------------------------------------------------------------------------

Id.
    Using an average of the shares produced by the previous two 
methods, IPG computed the following proposed relative distribution 
shares.

                                        IPG Proposed Distribution Shares
                                              [SWF--Subs and fees]
----------------------------------------------------------------------------------------------------------------
                                                                       2001            2002            2003
                                                  2000 (percent)     (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
MPAA............................................           90.56           92.67           94.55           94.91
IPG.............................................            9.44            7.33            5.45            5.09
----------------------------------------------------------------------------------------------------------------

Id.
(1) Evaluation of the IPG Methodology
    IPG, through the written testimony of its sole direct witness, Mr. 
Galaz, did not definitively state that its methodology was an 
application of ``relative market value.'' Galaz WDT at 11. At the 
hearing, on cross-examination, Mr. Galaz initially declined to state 
that the IPG Methodology was consonant with any ``economic principle.'' 
Under further cross-examination, Mr. Galaz testified that he thought 
that the IPG Methodology fits under the ``relative market value'' 
standard. 6/5/13 Tr. at 942-47.
    The IPG Methodology for distributing royalties in this Phase II 
proceeding eschews explicit reliance upon viewership levels. Rather, 
IPG asserts that ``certain obvious factors that would otherwise affect 
a negotiated license between a producer and an exhibitor are not 
present in the compulsory licensing scheme * * * .'' Galaz WDT at 12. 
The Judges understand IPG's position in this regard to be premised on 
the assertion that the hypothetical CSO is interested in maximizing 
subscriber fees (i.e., profits, assuming constant costs) or subscriber 
levels (i.e., market share), rather than viewership.
    IPG is not incorrect in its assertion of the different ``factors'' 
(i.e., incentives) that apply to a CSO, as opposed to an ``exhibitor'' 
(i.e., a broadcast station) in this retransmission context. The Judges 
conclude, however, that the substance of IPG's direct case suffers from 
three major defects:
    First, the maximization of subscriber revenues or levels is not 
divorced from viewership levels. Rather, a CSO would attract 
subscribers on a distantly retransmitted station only to the extent 
that the programs it offered were demanded by consumers who intended to 
view the programs. Indeed, even IPG's expert witness, Dr. Robinson, 
acknowledged that, in her professional experience, viewership was a 
factor in determining the value of a retransmitted television program. 
6/6/13 Tr. at 1219-21 (Robinson).
    Second, it is true, as IPG asserts, that since a CSO is concerned 
about which programs the marginal subscriber might prefer, a CSO may 
prefer a program with a smaller level of viewership if that viewership 
represents new subscribers, instead of a show with a large audience 
that consists only of existing subscribers. IPG has not, however, 
proffered any evidence applying such a marginal analysis in the present 
proceeding. Dr. Robinson testified that such an analysis would require 
a ``more sophisticated model,'' incorporating perhaps ``game 
theoretic'' principles to demonstrate how a CSO would maximize 
subscribership through such a marginal viewer analysis. 6/6/13 Tr. at 
1230 (Robinson). Likewise, Dr. Gray testified that such an approach 
would require a ``more sophisticated'' analysis than the parties' 
evidence permitted in this proceeding. 6/4/13 Tr. at 547 (Gray).

[[Page 65000]]

    Third, the IPG Methodology does not follow from the foregoing 
critique. Rather, the IPG Methodology uses factors that tend to treat 
as similar programs that are distantly retransmitted at the same time 
of day, run for the same number of minutes per program or that appear 
on the same station. Thus, the IPG Methodology considers neither the 
initial necessity of considering absolute viewership nor the subsequent 
necessity of considering the iterative process (``perhaps a ``game 
theoretic'' approach, as Dr. Robinson testified). Simply put, aside 
from any other defects in the IPG Methodology, it is not true to its 
own critique of a viewership-based analysis.
(2) The Testimony of Mr. Galaz
    IPG's direct case also suffers from the fact that it was presented 
by a particular single witness, Mr. Galaz. For the following reasons, 
Mr. Galaz, to say the least, was an imperfect messenger to convey the 
IPG Methodology.
    First, the Judges note that Mr. Galaz was previously convicted and 
incarcerated for fraud in the context of copyright royalty 
proceedings--a fraud that caused financial injury to MPAA. 6/5/13 Tr. 
at 932 (Galaz). In connection with that fraud, Mr. Galaz also 
admittedly lied in a cable distribution proceeding much like the 
instant proceeding. Id. Mr. Galaz's fraud conviction and prior false 
testimony compromises his credibility, especially in this proceeding.
    Second, Mr. Galaz, the founder and previously an owner of IPG, is 
now an employee of IPG. Galaz WDT at 7. IPG is currently owned by his 
mother and sister. 6/5/13 Tr. at 1079 (Galaz). Thus, he clearly has a 
self-interest which renders the IPG Methodology--of which he is the 
architect--less credible than a methodology created by an outside 
expert.\58\
---------------------------------------------------------------------------

    \58\ It is noteworthy that IPG engaged Dr. Robinson to critique 
the MPAA methodology and Dr. Gray's analysis, but, as Dr. Robinson 
testified, she was not asked to defend the IPG Methodology created 
by Mr. Galaz. 6/6/13 Tr. at 1226 (Robinson).
---------------------------------------------------------------------------

    Third, Mr. Galaz acknowledged that he is not an economist, 
statistician, or econometrician, and that he had no particular 
expertise that would permit him to opine as an expert on the 
construction of a methodology to establish ``relative market value'' in 
this distribution proceeding. 6/5/13 Tr. at 928-30. The Judges gave 
serious consideration to granting the motion in limine filed by MPAA 
and the SDC at the start of the hearing to bar Mr. Galaz's testimony on 
the basis that he was offering expert opinion but was not qualified as 
an expert witness. For the reasons stated on the record, however, the 
Judges denied the in limine motion and decided to permit Mr. Galaz to 
testify and accord his testimony whatever weight it warranted. 6/3/13 
Tr. at 58-64. Nothing in Mr. Galaz's testimony indicates that the 
Judges should give his testimony any weight, except to the limited 
extent certain general principles he utilized in his IPG Methodology 
provide a basis to modify marginally the distribution allocations 
arising from the MPAA Methodology.
    Fourth, Mr. Galaz did not indicate that he had any experience 
working for or on behalf of a CSO, and he admitted that he had not 
discussed the IPG Methodology with any CSO. 6/5/13 Tr. at 970-72. Thus, 
his suppositions as to how a CSO might construe viewership lack 
foundational support. Moreover, since Mr. Galaz is not an economist, he 
cannot apply microeconomic theory in order to opine upon the economic 
incentives to which a hypothetical CSO might respond when acquiring a 
bundle of licenses from owners of program rights.
(3) Additional Problems With the IPG Methodology
    In addition to the foregoing overarching and substantial defects in 
IPG's direct case, particular elements of the IPG Methodology are also 
deficient.
    First, IPG contends that the purpose of the IPG Methodology is to 
compensate every claimant, even if there is no evidence that there was 
any viewership of the claimant's program.\59\ The Judges find such a 
methodology unacceptable. Even if viewership as a metric for 
determining royalties may be subject to some adjustment in light of the 
economic incentives facing a CSO, there is certainly no basis to allow 
for compensation in the absence of any evidence of viewership. See 6/5/
13 Tr. at 950 (Galaz).
---------------------------------------------------------------------------

    \59\ Mr. Galaz asserted that compensating each and every 
copyright owner affected by the Section 111 statutory license was a 
constitutional imperative. Galaz WDT at 14; IPG PFF at 12. Counsel 
for IPG echoed this ``takings'' argument in his closing statement. 
6/6/13 Tr. at 1454-55. IPG did not brief or argue this issue, so it 
is not before the Judges for decision. Nevertheless, the Judges note 
that, on its face, this argument proves too much. In addition to 
statutory licenses, the Copyright Act includes a number of outright 
exceptions (e.g., fair use under Section 107) where a copyright 
owner's exclusive rights are limited without any compensation 
whatsoever. IPG's Fifth Amendment takings argument would, absurdly, 
render these exceptions unconstitutional.
---------------------------------------------------------------------------

    Second, IPG's ``sample'' of stations was not selected in a 
statistically random manner. Id. at 957 (Galaz). Thus, it suffers from 
the same infirmity as the Kessler Sample relied upon in part by MPAA. 
However, unlike MPAA, IPG made no effort to mitigate the problems with 
its non-random sample. Indeed, at the hearing, Mr. Galaz attempted to 
disavow that his list of stations was a sample, and instead re-defined 
his station selections as a ``survey.'' Id. at 959 (Galaz).
    Third, the IPG Methodology, with its reliance on the so-called 
``Station Weight Factor,'' grossly ignores viewership, resulting in a 
much higher relative market value for relatively low-rated programs. 
The following two pairs of examples from Dr. Gray's Written Rebuttal 
Testimony, unrebutted by Mr. Galaz at the hearing, show how the IPG 
Methodology calculates the relative value of two programs as identical, 
merely because they aired at the same time of day, even though the 
MPAA-claimant programs (``Judge Joe Brown'' and ``Pok[eacute]mon'') had 
substantially higher viewership levels than the IPG-claimant programs 
(``Animal Adventures'' and ``Dragon Ball Z'') which aired in the same 
time period:

             Table 2--Examples Showing That Factors Other Than Station, Time of Day, and Program Type Impact Distant Viewing of a Program *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                 IPG
                                                                                                                     Nielsen        Gray      estimated
            Date/time                   Station             Program            Program type      Entity claiming     viewing      viewing      relative
                                                                                                                    households   households     value
--------------------------------------------------------------------------------------------------------------------------------------------------------
7/8/2000:
    16:30........................  KRON.............  Animal Adventures..  FIRST-RUN            IPG..............          740          952    2,358,915
                                                                            SYNDICATION.
5/21/2000:

[[Page 65001]]

 
    16:30........................  KRON.............  Judge Joe Brown....  FIRST-RUN            MPAA.............        1,840        1,635    2,358,915
                                                                            SYNDICATION.
7/30/2001:
    16:30........................  WPIX.............  Dragon Ball Z......  CARTOON............  IPG..............        2,898        5,586   63,748,728
2/5/2001:
    16:30........................  WPIX.............  Pok[eacute]mon.....  CARTOON............  MPAA.............       10,888        8,228   63,748,728
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: ``Gray Viewing Households'' refers to predicted household distant viewing based on the econometric estimation procedure described in my Direct
  Testimony. IPG Estimated Relative Value is based on Mr. Galaz's SWF Subs measure. Programs in the two sets of examples also have identical IPG
  Estimated Relative Value based on Mr. Galaz's SWF Fees measure. Nielsen Viewing Households represents the number of households viewing the program
  distantly as reported in the Nielsen Diary Data and averaged over the quarter hour increments that constitute the full program time.

Gray WRT at 8.
    Fourth, the IPG Methodology, with its additional reliance on the 
so-called ``Time Period Weight Factor,'' ascribes equal relative value 
to MPAA-claimed programs and IPG-claimed programs that aired on the 
same station and for the same duration, despite substantially different 
levels of viewership. The following comparison of programs that aired 
on WGN in 2001 demonstrates this outcome.

                     Table 4--Example of My [Dr. Gray's] and Mr. Galaz's Estimated Relative Viewing of Retransmitted WGN Broadcasts
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Nielsen        Gray
                Date/time                            Program                 Entity claiming         viewing      viewing     lPG's TPWF   IPG relative
                                                                                                    households   households                    value
--------------------------------------------------------------------------------------------------------------------------------------------------------
5/12/2001:
    17:00................................  Andromeda..................  MPAA.....................      117,501      102,065     0.612244   1,220,182,908
2/3/2001:
    10:00................................  Video Computer Store.......  IPG......................        6,754       12,325     0.612244   1,220,182,908
5/6/2001:
    17:00................................  Coach......................  MPAA.....................      117,088      143,757     0.612244     610,091,454
7/14/2001:
    9:30.................................  As Seen on TV PC...........  IPG......................       10,282       14,322     0.612244     610,091,454
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: ``Gray Viewing Households'' refers to predicted household distant viewing based on the econometric estimation procedure described in my Direct
  Testimony. IPG Estimated Relative Value is based on Mr. Galaz's SWF Subs measure. Programs in the two sets of examples also have identical IPG
  Estimated Relative Value based on Mr. Galaz's SWF Fees measure. Nielsen Viewing Households represents the number of households distant viewing the
  program as reported in the Nielsen Diary Data and averaged over the quarter hour increments that constitute the full program time.

Id. at 22.
    Fifth, compounding the problems with the IPG Methodology, Mr. Galaz 
utilized 1997 data to estimate the level of viewing throughout the 
broadcast day, rather than data that was contemporaneous with the 2000 
through 2003 royalty distribution period at issue in this 
proceeding.\60\ 6/5/13 Tr. at 973 (Galaz).
---------------------------------------------------------------------------

    \60\ Mr. Galaz asserted that information published by Nielsen 
supported his use of 1997 data. See supra note 57. Mr. Galaz lacks 
the requisite expertise on which to base that conclusion, however.
---------------------------------------------------------------------------

    Sixth, Mr. Galaz claimed originally to have utilized half-hour 
viewing segments to create his Time Period Weight Factor. However, as 
Dr. Gray explained in his Written Rebuttal Testimony, Mr. Galaz in fact 
did not utilize half-hour viewing segments in his analysis, but rather 
utilized the six ``daypart'' categories upon which IPG had relied in 
the 1993-1997 Phase II proceeding, which reliance was criticized by the 
CARP convened for that prior proceeding. Gray WRT at 20-21. Mr. Galaz 
acknowledged this problem, described it as a good faith error, and 
changed his calculations by substituting the half-hour viewing segments 
for his ``daypart'' categories in his application of the Time Period 
Weight Factor. Compare Galaz WRT at Exs. R-19 and R-20 (original) with 
Galaz WRT at Exs. R-19 and R-20 (revised).
    What is particularly noteworthy about this issue is the extent to 
which the use by Mr. Galaz of the ``daypart'' categories, as compared 
to his claimed use of the half-hour segments, inured to IPG's benefit. 
As Mr. Galaz testified, 6/6/13 Tr. at 1155-56 (Galaz), his use of the 
``daypart'' categories significantly inflated IPG's claimed percentage 
of the Program Suppliers category in each of the years at issue as 
follows.

    For 2000, IPG's claimed percentage was inflated by 23%, i.e., 
from 9.47% if Mr. Galaz had correctly used half-hour segments, to 
11.62% when he instead utilized ``daypart'' categories.
    For 2001, IPG's claimed percentage was inflated by 32%, i.e., 
from 7.33% if Mr. Galaz had correctly used half-hour segments, to 
9.71% when he instead utilized ``daypart'' categories.
    For 2002, IPG's claimed percentage was inflated by 27%, i.e., 
from 5.45% if Mr. Galaz had correctly utilized half-hour segments, 
to 6.9% when he instead utilized ``daypart'' categories.
    For 2003, IPG's claimed percentage was inflated by 21%, i.e., 
from 5.09% if Mr. Galaz had correctly utilized half-hour segments, 
to 6.33% when he instead utilized ``daypart'' categories.

Id.
    Given the serious issues of credibility regarding Mr. Galaz's 
testimony, as discussed supra, the Judges cannot state

[[Page 65002]]

with any confidence that these rather significant errors--all of which 
would have substantially inflated IPG's allocation and were left 
uncorrected until they were disclosed in Dr. Gray's Written Rebuttal 
Testimony--were not the product of design rather than inadvertence.
    Seventh, the IPG Methodology, although intended to eschew 
viewership as a primary measure, nonetheless is based implicitly upon 
viewership, as it considers the duration of a program as an indicia of 
value (a program of relatively longer duration would be more valuable 
because of its viewership over a longer period), as well as the time of 
day a program is aired (there are more viewers at some times of day 
than others).
(4) Limited Applicability of the IPG Methodology
    Although the Judges reject the wholesale application of the IPG 
Methodology in this Determination, they do note that the IPG 
Methodology attempts to address certain issues of value which are 
worthy of consideration when the Judges determine the extent, if any, 
to adjust an allocation based upon the MPAA viewership-based 
methodology.
    First, Dr. Gray acknowledged that the IPG Methodology was an 
``approximation'' of Dr. Gray's own methodology, albeit a ``crude 
approximation.'' Gray WRT at 4 (emphasis added).
    Second, as noted supra, Dr. Gray acknowledged that even his own 
regression analysis showed a strong correlation between the time of day 
when a program aired and the level of viewership of the distantly 
retransmitted programs. This correlation generally affirms that IPG's 
Time Period Weight Factor is not irrational, even though IPG's emphasis 
on that factor, and its failure to acknowledge the much greater 
importance of per-program viewership, is unreasonable.
    Third, IPG's argument that lower-rated shows might enhance 
subscriber fees or levels more than higher-rated shows is a logical 
economic concept. In that regard, the Judges understand IPG's theory to 
be an application of the bundling problem in economics, an application 
that can be summarized as follows.

--A CSO does not make decisions based upon maximizing viewership, but 
rather upon maximizing subscriber revenues (assuming costs are 
constant) or by maximizing subscriber volume (if maximizing market 
share is more important than maximizing profits at any given point in 
time).
--A CSO maximizes subscriber revenue or volume by creating a mix of 
program types (even within a given Phase I category).
--The CSO's maximizing mix of program types is not (merely) a function 
of total viewership.
--Rather, the CSO will bundle different programs in order to obtain 
additional new (i.e., marginal) subscribers.
--These new subscribers may be attracted to programs at viewership 
levels that are lower than the viewership levels of other shows 
available for licensing, but the latter shows may simply have more of 
the same viewers who have already subscribed based upon the other shows 
in the CSO lineup.\61\
---------------------------------------------------------------------------

    \61\ At the hearing, the Judges offered the fanciful example 
that an instructional show with low viewership might be more 
valuable to a CSO, on the margin, than reruns of ``Bewitched'' with 
higher viewership, if the ``Bewitched'' viewers were merely 
redundant of, or displacing, viewers of another similar show, e.g., 
``I Dream of Jeannie,'' which was already part of that CSO's 
offering. 6/4/13 Tr. at 551-53.
---------------------------------------------------------------------------

--Therefore, assessing the relative market value of retransmitted 
programs on the basis of relative viewership alone is an imperfect 
measurement because viewership does not explicitly account for the 
CSO's incentive to bundle programs in a manner designed to maximize 
subscriber fees (profits) or levels (market share).

    When bundling is considered, the economic analysis shifts from the 
relatively straightforward profit maximization analysis advanced by 
MPAA (using viewership as a measure of value) to a more nuanced 
valuation assessment. In essence, the hypothetical CSO whose buying 
decisions we must consider would create an ersatz station by bundling 
programs in a combination that would maximize its expected revenues or 
volumes (with all other costs assumed constant). As previously 
explained, an attempt to maximize profits would result in the purchase 
of program licenses at a fee (the marginal cost of the program input) 
up to the anticipated MRP from that program in a competitive market.
    So stated, IPG's argument is rational in theory. However, as both 
Dr. Gray and Dr. Robinson testified, such a concept would require a 
much more detailed economic and game theoretic model of CSO programming 
than was presented by IPG in this proceeding.\62\ Further, such an 
argument would require evidence and testimony from someone with actual 
knowledge of CSO programming decisions and strategies pertaining to the 
bundling of programs. See supra note 28. In these two regards, (an 
undeveloped theory and the absence of factual support) the Judges 
cannot adopt the IPG Methodology.
---------------------------------------------------------------------------

    \62\ There is a wealth of economic literature analyzing the 
economics of bundling, i.e., the impact of the offering for joint 
sale or purchase two or more products or services. See generally B. 
Kobayashi, Does Economics Provide a Reliable Guide to Regulating 
Commodity Bundling by Firms? A Survey on the Economic Literature on 
Bundling, 1 J. of Competition L. & Econ. 707 (Dec. 2005). For 
example, bundling is utilized by sellers who possess market power as 
a means of ``price discrimination,'' by tying two products with 
different elasticities of demand together in order to convert the 
``consumer surplus'' which would exist in the absence of a tying or 
bundling, into higher profits for the seller. See G. Stigler, U.S. 
v. Loew's Inc.: A Note on Block Booking, 1963 Sup. Ct. Rev. 152 
(1964). Thus, a rational bundling CSO with market power would not 
simply seek to acquire a copyright license to a program that, in 
isolation, would add more subscriber fees, but rather would 
determine which combination of programs extracted the most profits, 
based upon the relative inelasticity of demand for popular shows. To 
cite another issue created by bundling, the program owner (with 
monopolistic power over its own relatively more valuable program) 
might hold out for a license royalty that appropriated for itself 
the profits from bundling, thus frustrating the CSO's attempt to 
price discriminate by assembling a roster of shows which would 
create the profit-maximizing bundle. This is a variant of the 
classic and indeterminate problem of price-setting between a 
monopolist and a monopsonist, as to which the game theoretic 
principles referred to by Dr. Robinson would be applicable. These 
are the types of issues which the IPG Methodology simply does not 
address.
---------------------------------------------------------------------------

(5) Conclusion Regarding the IPG Methodology
    For the foregoing reasons, the Judges conclude that the IPG 
Methodology cannot be applied to establish the basis for an allocation 
of the royalties in the Program Suppliers category. However, given the 
few generally correct principles, noted above, within the IPG 
Methodology, and given certain imperfections in the MPAA Methodology, 
the Judges conclude that the allocations otherwise established by a 
strict application of the MPAA Methodology should be adjusted downward 
marginally.
c. Allocations Within the Program Suppliers Category
    The Judges conclude that the MPAA Methodology should be accorded 
substantial weight in establishing the zone of reasonableness for the 
allocations in the Program Suppliers category. By contrast, in light of 
the Judges' conclusion that the IPG Methodology is seriously deficient, 
the IPG methodology cannot be used in establishing the parameters of 
the zone of reasonableness for the allocation of royalties in the 
Program Suppliers category.

[[Page 65003]]

    The Judges conclude that the ``zone of reasonableness'' in the 
Program Suppliers category in this proceeding corresponds with the 
range established by the 95% confidence interval that Dr. Gray computed 
for MPAA's proposed distribution allocation. See supra note 45; Gray 
WRT at 26 n.25. In light of the noted defects in the MPAA Methodology, 
and given the few generally correct principles identified by IPG as 
noted above, the Judges conclude that the distribution levels should be 
set at the lower bound (``lower'' in terms of percent of distributions 
awarded to MPAA) of Dr. Gray's confidence interval (and, therefore, the 
lower bound of the ``zone of reasonableness'').
    Accordingly, the Judges establish the following annual distribution 
levels, finding them to be within the zone of reasonableness:

                                  Allocation in the Program Suppliers Category
----------------------------------------------------------------------------------------------------------------
                                                  2000 (percent)  2001 (percent)  2002 (percent)  2003 (percent)
----------------------------------------------------------------------------------------------------------------
MPAA............................................           98.84           99.69           99.64           99.77
IPG.............................................            1.16            0.31            0.36            0.23
----------------------------------------------------------------------------------------------------------------

2. Devotional Category
a. The IPG Methodology
    IPG proposes the identical formula for the Devotional allocations 
as it proposed for the Program Suppliers category. Specifically, IPG 
applies a methodology that considers: (1) The station(s) on which a 
devotional program appeared, thereby providing the number of 
subscribers receiving the distantly retransmitted station and the fees 
paid by those subscribers (the Station Weight Factor); (2) the time of 
day during which each devotional program was broadcast (the Time Period 
Weight Factor); and (3) the length of each devotional program. These 
factors are then multiplied and aggregated for IPG and MPAA programs. 
IPG then uses those aggregate program values to determine the relative 
value as between the IPG-claimed Devotional Programs and the SDC-
claimed Devotional Programs.\63\
---------------------------------------------------------------------------

    \63\ As in the Program Suppliers category, IPG computes three 
alternative Station Weight Factors: A pure subscriber-level factor, 
a pure fee-based factor and an average of the two.
---------------------------------------------------------------------------

    IPG's formula produced absurd results in the Devotional category, 
as it did in the Program Suppliers category. The Judges note Dr. 
Brown's Amended Written Rebuttal Testimony, in which he explained how, 
for example, in the Devotional category, application of the IPG 
Methodology bizarrely: (1) Would cause a program with 167% of a 
competing program's national rating to receive less than 30% of the 
value assigned to that competing program; and (2) would allow programs 
comprising 0.119% of the entire Devotional category to receive more 
than 18% of all Devotional category revenue simply because that 0.119% 
of the programs were broadcast on WGNA, which was retransmitted to a 
disproportionately high number of subscribers. Brown WRT (Amended) at 
10-13.
    More generally, in the discussion regarding the Program Suppliers 
distributions, the Judges have explained in detail the deficiencies in 
the IPG Methodology, and the few positive attributes arising from--to 
use Dr. Gray's language--the ``crude approximation'' of relative market 
value created by the IPG Methodology. The Judges adopt in this 
Devotional category analysis those prior statements regarding the 
attributes of the IPG Methodology.\64\
---------------------------------------------------------------------------

    \64\ IPG also asks the Judges to order the SDC to reimburse IPG 
for costs it incurred to develop data also relied upon by the SDC. 
IPG PFF (Devotional) at 22. However, IPG did not file a motion 
seeking such reimbursement, and the Judges are not aware of any 
statutory or regulatory authority pursuant to which such costs can 
be shifted in this proceeding.
---------------------------------------------------------------------------

b. The (Proffered) SDC Methodology
    The SDC explicitly requests that, in the Devotional category, the 
Judges adopt the MPAA Methodology to establish relative market value. 
Indeed, the SDC claims to have relied upon, inter alia, the non-random 
Kessler Sample of stations, as well as the Nielsen Diary Data 
originally provided to MPAA and about which Mr. Lindstrom testified. As 
discussed below, the Judges have declined to rely on the results of the 
application of the SDC Methodology because the SDC offered evidence of 
the application of its methodology in an untimely manner, in 
contravention of the Judges' procedural rules. Therefore, the Judges 
cannot use the SDC Methodology to determine the allocation of the Phase 
II share of royalties in the Devotional category.
    The SDC's direct case consisted of the written and oral testimony 
of Dr. William Brown and the written testimony of Mr. Michael Little, 
which was admitted pursuant to stipulation of the SDC and IPG. 
Stipulation Regarding Testimony of Michael D. Little (May 31, 
2013).\65\ Mr. Little's testimony describes the diversity of the SDC 
programming. Little WDT at 1-4. He identifies 23 SDC-represented 
claimants and their respective programs during the years 2000-2003. See 
Little WDT at Ex. 2.
---------------------------------------------------------------------------

    \65\ The Judges excluded Exhibit 3 to Mr. Little's testimony for 
reasons discussed supra. See text accompanying note 14.
---------------------------------------------------------------------------

    The heart of the SDC's case rests on Dr. Brown's testimony. Dr. 
Brown, a Professor and Research Fellow at the School of Communication 
and the Arts at Regent University in Virginia Beach, Virginia, served 
as the SDC's expert witness in the field of communication theory and 
research. See 6/6/13 Tr. at 1371 (Brown). In his direct testimony, Dr. 
Brown asserted that ratings are a ``valuable tool'' in determining 
Phase II allocations. Brown WDT at 4. He described how

    Nielsen compiled data on an overnight basis using a scientific 
sample of several thousand households electronically metered to 
monitor TV viewing, and during sweeps periods (pre-selected, 4-week 
cycles) using tens of thousands of diaries of households that keep 
records of TV viewing activities.

Id. Consequently, Dr. Brown opined, that ``[t]he most useful 
quantifiable data is Nielsen viewing data, projected to distant 
households.'' \66\ Id. at 5.
---------------------------------------------------------------------------

    \66\ Dr. Brown also proposed that the Nielsen data be 
``supplemented, where applicable, with Bortz [Survey] study data.'' 
Brown WDT at 5. However, in his Amended Written Rebuttal Testimony, 
Dr. Brown testified: ``I conclude that the Bortz survey data cannot 
be used to supplement the MPAA/Nielsen viewing data to determine the 
comparative value of programs within the single genre of devotional 
programming.'' Brown WRT (Amended) at 16.
---------------------------------------------------------------------------

    At no time during the direct phase of its case did the SDC offer 
any testimony, written or oral, specifically setting forth the 
application of the MPAA methodology to Devotional Programming. Rather, 
the SDC attempted to introduce such evidence during the rebuttal phase 
of its case by proffering the written and oral testimony of Mr. Alan G. 
Whitt, the

[[Page 65004]]

founder and principal of IT Processing, Inc. The purpose of Mr. Whitt's 
testimony was to provide the underlying data upon which Dr. Brown would 
rely to form his opinion as to the proper distribution of royalties for 
the Devotional category for the years 2000 through 2003. Specifically, 
Mr. Whitt gathered: (1) The Kessler non-random sample of stations; (2) 
the Nielsen data prepared on behalf of MPAA; (3) the Tribune Media 
Services database of programs that aired during the relevant calendar 
years; and (4) the MPAA ``Reports of Household Viewing Hours for the 
MPAA Copyright Royalty Databases'' for 2000-2003. He then identified 
programs as ``Devotional'' or, synonymously, ``Religious.'' Whitt WRT 
at 3-8. In his rebuttal testimony, Dr. Brown explained how he used Mr. 
---------------------------------------------------------------------------
Whitt's work to arrive at the SDC's proper distribution:

    Nielsen's quarter hour results were * * * transmitted to Mr. 
Whitt * * *. Mr. Whitt received the data and, utilizing 
sophisticated software programming and the data from Tribune Media 
Services (TV DATA) of programs telecast in 2000-2003, [Mr. Whitt] 
determined the programs to which the viewing information was 
attributed. * * * Mr. Whitt organized programming data for entities 
he identified as religious or devotional.

Brown WRT (Amended) at 14-15 (emphasis added).
    The Judges excluded Mr. Whitt's testimony on the basis that the SDC 
was required by the Judges' regulations to provide Mr. Whitt's 
testimony in its direct case. See 37 CFR 351.4(b)(1), (c)(contents of 
and amendment of Written Direct Statements) and Sec.  
351.10(e)(introduction of studies and analyses); 6/6/13 Tr. at 1352-53, 
1361-62 (to the extent Whitt's testimony provided foundation for Dr. 
Brown's testimony, it ``needed to be included in the direct case of 
SDC.'').
    By failing to provide Mr. Whitt's testimony until its rebuttal 
case, a mere three weeks before the hearing, the SDC prejudiced IPG 
and, in essence, engaged in trial by ambush, in violation of the letter 
and spirit of the Judges' procedural rules. More specifically, by not 
including Mr. Whitt's testimony in its direct case, the SDC deprived 
IPG of the opportunity to review the work undertaken by Mr. Whitt. 
Although Dr. Brown, in his Written Direct Testimony, indicated that the 
SDC intended to utilize the MPAA Methodology,\67\ the SDC's application 
of that methodology by Mr. Whitt was not properly disclosed in the 
SDC's direct case. Consequently, the Judges cannot consider the 
application of the SDC Methodology in their determination of the Phase 
II distribution to the Devotional category.
---------------------------------------------------------------------------

    \67\ One important difference, though, was that the MPAA did not 
rely on the non-random Kessler Sample of stations and took steps to 
mitigate its impact; the SDC simply utilized the Kessler Sample.
---------------------------------------------------------------------------

c. Allocations in the Devotional Category
    In light of the foregoing, the Judges are faced with a Hobson's 
Choice. The SDC has failed to introduce evidence of its distribution 
methodology in a timely manner. IPG has set forth a methodology that 
suffers from a number of flaws and which has validity only in certain 
limited respects, as explained above. The Judges are, nevertheless, 
obligated to reach a determination based on the existing record. Given 
the evidentiary constraints, and in order to allocate the royalties in 
the Devotional category in a manner within the ``zone of 
reasonableness,'' the Judges hereby conclude as follows.
    IPG's proposed allocations, and the SDC's proffered allocations 
(unsubstantiated in the SDC's direct case) are as follows.

                                 Proposed Allocations in the Devotional Category
----------------------------------------------------------------------------------------------------------------
                                                                                   SDC proposed
                                                                                    allocation     IPG proposed
                     Year                                    Party                     range        allocation
                                                                                     (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
2000.........................................  SDC..............................       60.8-74.5           62.86
                                               IPG..............................       25.5-39.1           37.14
2001.........................................  SDC..............................       72.7-77.0           54.88
                                               IPG..............................       23.0-27.3           45.12
2002.........................................  SDC..............................       61.9-67.5           58.98
                                               IPG..............................       32.5-38.1           41.02
2003.........................................  SDC..............................       67.5-70.5           53.32
                                               IPG..............................       29.5-32.5           46.68
----------------------------------------------------------------------------------------------------------------

    For the year 2000, the Judges note that the IPG proposal falls 
within the range the SDC had proposed. There is, therefore, some degree 
of agreement between the parties as to the appropriate allocation. 
Accordingly, the Judges find it well within the ``zone of 
reasonableness'' to allocate 62.86% of the royalties in the Devotional 
category to SDC and the remaining 37.14% to IPG.
    For the year 2002 (the years 2001 and 2003 will be considered 
below), a very similar (but not identical) situation exists. The IPG 
proposal is almost equal to the lower bound of the results of the SDC's 
proffered distribution range. Given this near equality, the Judges find 
that for the year 2002, again there is some degree of agreement between 
the parties as to the allocation of royalties. It is well within the 
``zone of reasonableness'' to allocate the royalties in the Devotional 
category for the year 2002 as follows: 58.98% to SDC and 41.02% to IPG.
    For the years 2001 and 2003, there is a marked difference between 
the percentage allocations proposed by IPG and the percentage 
allocations set forth in the SDC's proffered allocations 
(unsubstantiated in the SDC's direct case), and, therefore, little 
agreement between the parties. Given the wide divergence between the 
competing methodologies, the Judges cannot reconcile the competing 
proposals in the same manner as undertaken for the years 2000 and 2002.
    Given that the SDC's application of its methodology was not 
supported in the SDC's Direct Case, and that the SDC's attempt to 
provide such support in Mr. Whitt's rebuttal testimony was not timely 
presented and, therefore, rejected, that methodology cannot serve as 
any guide-post for the Judges to apply (except, as noted above, to the 
extent that the allocations proposed by the SDC demonstrate some degree 
of agreement between the parties). Moreover, since the SDC Methodology 
cannot be credited, there is no record evidence explaining why the 
percentage

[[Page 65005]]

allocations for 2001 and 2003 should be so markedly different in those 
years compared to 2000 and 2002.
    The IPG Methodology, while in evidence, is so flawed that the 
Judges cannot credit the percentage allocations as proposed. Indeed, in 
prior determinations, the CRT did not hesitate to make a ``downward 
adjustment'' to a participant's proposal to reflect ``perceived 
deficiencies in the methodology.'' See, e.g., 1979 Determination, 47 FR 
at 9892.
    Accordingly, the Judges conclude that the percentage allocations 
for the years 2001 and 2003 should be set at the average of the 
allocations for the years 2000 and 2002. Therefore, the allocations for 
each of the years 2001 and 2003 shall be 60.92% to SDC and 39.08% to 
IPG. To summarize, the royalty allocations in the Devotional category 
for the years 2000 through 2003 shall be:

                                      Allocation in the Devotional Category
----------------------------------------------------------------------------------------------------------------
                                                  2000 (percent)  2001 (percent)  2002 (percent)  2003 (percent)
----------------------------------------------------------------------------------------------------------------
SDC.............................................           62.86           60.92           58.98           60.92
IPG.............................................           37.14           39.08           41.02           39.08
----------------------------------------------------------------------------------------------------------------

V. Conclusion

    This Final Determination determines the allocation of cable royalty 
funds for the years 2000, 2001, 2002, and 2003 in the Program Suppliers 
and Devotional categories, respectively. The Register of Copyrights may 
review the Judges' final determination for legal error in resolving a 
material issue of substantive copyright law. The Librarian shall cause 
the Judges' final determination, and any correction thereto by the 
Register, to be published in the Federal Register no later than the 
conclusion of the 60-day review period.
    So ordered.

Dated: August 13, 2013.

Suzanne M. Barnett,

Chief Copyright Royalty Judge.

Jesse M. Feder,

Copyright Royalty Judge.

David R. Strickler,

Copyright Royalty Judge.

    Dated: August 13, 2013.
Suzanne M. Barnett,
Chief Copyright Royalty Judge.

Approved by:

James H. Billington,
Librarian of Congress.

Appendix A

    The Judges ruled as follows.

                                                         Claims Dismissed at Show Cause Hearing
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Claim Year
              Claimant              ----------------------------------------------------------------------------------------------       Rationale
                                              2000                    2001                    2002                   2003
--------------------------------------------------------------------------------------------------------------------------------------------------------
Dreamworks LLC.....................  Dismissed.............  ......................  .....................  .....................  Claimant terminated
                                                                                                                                    IPG's authority
                                                                                                                                    effective 12/31/02.
                                                                                                                                    Claimant identified
                                                                                                                                    in IPG's petition
                                                                                                                                    that was filed after
                                                                                                                                    claimant terminated
                                                                                                                                    IPG's authority.
                                                                                                                                    MPAA did not include
                                                                                                                                    claimant in its
                                                                                                                                    petition for 2000.
Litton Syndications................  Dismissed.............  ......................  .....................  .....................  Claimant terminated
                                                                                                                                    IPG's authority no
                                                                                                                                    later that 5/18/12.
                                                                                                                                    Claimant identified
                                                                                                                                    in IPG's petition
                                                                                                                                    that was filed after
                                                                                                                                    claimaint terminated
                                                                                                                                    IPG's authority.
                                                                                                                                    MPAA did not include
                                                                                                                                    claimant in its
                                                                                                                                    petition for 2000.
Marty Stouffer Productions.........  Dismissed.............  ......................  .....................  .....................  Claimant alleges
                                                                                                                                    termination of IPG
                                                                                                                                    authority in july
                                                                                                                                    2002. IPG's petition
                                                                                                                                    that includes
                                                                                                                                    claimant was filed
                                                                                                                                    after alleged
                                                                                                                                    termination.
                                                                                                                                    Claimant is not
                                                                                                                                    included in MPAA's
                                                                                                                                    petition for 2000.

[[Page 65006]]

 
Remodeling Today, Inc. DBA Today's   ......................  ......................  Dismissed............  .....................  Claimant terminated
 Homeowner.                                                                                                                         IPG's authority on 3/
                                                                                                                                    1/04. Claimant
                                                                                                                                    identified in IPG's
                                                                                                                                    petition that was
                                                                                                                                    filed after
                                                                                                                                    claimaint terminated
                                                                                                                                    IPG's authority.
                                                                                                                                    MPAA did not include
                                                                                                                                    claimant in its
                                                                                                                                    petition for 2002.
The Television Syndication Company.  ......................  ......................  .....................  Dismissed............  Claimant terminated
                                                                                                                                    IPG's authority on 4/
                                                                                                                                    29/04. Claim for
                                                                                                                                    2003 filed after
                                                                                                                                    claimant terminated
                                                                                                                                    IPG's authority; no
                                                                                                                                    valid claim filed.
Urban Latino TV....................  ......................  Dismissed.............  .....................  .....................  No claim was filed
                                                                                                                                    for 2000. Claimant
                                                                                                                                    terminated IPG's
                                                                                                                                    authority on 5/28/
                                                                                                                                    03. Claimant
                                                                                                                                    identified in IPG's
                                                                                                                                    petition that was
                                                                                                                                    filed after
                                                                                                                                    claimaint terminated
                                                                                                                                    IPG's authority.
                                                                                                                                    MPAA did not include
                                                                                                                                    claimant in its
                                                                                                                                    petition for 2001.
--------------------------------------------------------------------------------------------------------------------------------------------------------

[FR Doc. 2013-25453 Filed 10-29-13; 8:45 am]
BILLING CODE 1410-72-P
```