Statutory Copyright Licenses: Stakeholders' Views on a Phaseout of Licenses for Broadcast Programming
Published: 2016-05-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Most U.S. households rely on cable or satellite operators to watch television broadcast programming. These operators are able to provide their subscribers with broadcast programming—including local news—by retransmitting local broadcast television stations' over-the-air signals. Three statutory licenses permit operators to offer copyrighted broadcast programming in return for paying a government-set royalty fee. For 2014, these fees totaled about $320 million. Congress created statutory licenses as a cost-effective way for operators to air broadcast programming without obtaining permission to do so from those that own the copyrights for this programming. However, changes in the video marketplace have led some industry stakeholders to question the need for the licenses.
The Satellite Television Extension and Localism Reauthorization Act of 2014 included a provision for GAO to review possible effects of phasing out the statutory licenses. This report addresses (1) what is known about the feasibility of phasing out the statutory licenses and (2) views of selected stakeholders on the implications of such a phaseout. GAO analyzed FCC's cable price data from 2010 to 2014 and the U.S. Copyright Office's royalty data from 2014, the most recently available; reviewed relevant laws and reports; and interviewed 42 industry stakeholders, selected for their role in the video marketplace and expertise on the issue.
section_title: What GAO Found
paragraphs: A phaseout of the statutory licenses for broadcast programming may be feasible for most participants in the video marketplace, although there may be statutory implications for the “carriage requirements” governing which local broadcast television stations are carried by cable and satellite operators. These licenses allow cable and satellite operators to carry copyrighted content, such as television shows and movies, embedded in local broadcast stations' signals to their subscribers' television sets without negotiating with individual copyright owners. At the same time, these cable and satellite operators also engage in market-based negotiations to make some or all of this content available in other contexts, such as online. Of the 42 selected stakeholders GAO interviewed, 21 either use the statutory licenses or have their content provided through the statutory licenses. 20 of these 21 stakeholders—including content producers, broadcast networks, and cable and satellite operators—also engage in market-based negotiations to license broadcast content for video-on-demand or online viewing. Therefore, for stakeholders representing these business interests, a market-based approach to licensing secondary transmission rights may be feasible. However, some participants in the video marketplace—most notably, public television and small cable operators—may face logistical challenges and financial constraints in the event of a phaseout of the statutory licenses.
Phasing out the statutory licenses could have implications for the “must-carry” and “carry-one, carry-all requirements,” which require cable and satellite operators, respectively, to carry the signals of local broadcast television stations upon request. As GAO has previously reported, the must-carry requirement could become impractical if Congress phased out the statutory license that applies to cable operators, as these operators could find themselves in the paradoxical position of being required to transmit the copyrighted content on a local broadcast television station's signal for which they may not have the legal right to air. In addition, according to Federal Communications Commission (FCC) and the U.S. Copyright Office, the carry-one, carry-all requirement would no longer apply to satellite operators if the applicable statutory license were phased out because the requirement is premised on the use of the license.
The 42 selected stakeholders GAO interviewed varied in their support for a phaseout of the statutory licenses and many stakeholders were uncertain about the potential effects on the marketplace and consumers. For example:
15 supported a full or partial phaseout; 13 did not have a position; and 14 did not support a phaseout, because most believe the current system works,
About half were uncertain how a phaseout would affect the video marketplace. This uncertainty stems from uncertainty over how the carriage requirements may change and the video marketplace would respond; 10 thought a phaseout would affect competition in the market, but differed on whether this would increase or decrease programming costs.
6 thought consumers' access to programming would be negatively affected, 7 thought diversity of programs offered would decrease, and 13 thought consumer prices would rise.

section_title: Letter
paragraphs: Local broadcast television stations provide their programming free over- the-air to the public. However, almost 84 percent of U.S. households’  receive local broadcast television stations through a paid subscription to a  cable or satellite operator, such as Comcast, Verizon Fios, or DISH  Network. When a local broadcast television station airs its programming  over-the-air, this is referred to as the primary transmission of its  programming. When a cable or satellite operator provides its subscribers  with access to a local broadcast television station’s programming through  its infrastructure, it is providing a secondary transmission of the station’s  signal. Because programming contained on a local broadcast television  station’s signal is typically protected by copyright, a license is required to  secure the public performance rights for the secondary transmission of  these works. Under existing law, three statutory licenses enable cable  and satellite operators to retransmit copyrighted material without seeking  permission from copyright owners (such as Sony Pictures Entertainment  or the National Football League) of this programming, allowing these  operators to offer secondary transmissions of radio and television  broadcast programming. To take advantage of the statutory licenses,  cable and satellite operators must comply with the terms of the statutory  licenses, including depositing with the U.S. Copyright Office a  government-set royalty, which is later distributed to copyright owners.  Using these licenses, cable and satellite operators transmit a variety of  copyright-protected works, including network and syndicated  programming, movies, sports programming, local news broadcasts,  public television, religious material, and music of all types. For 2014, the  U.S. Copyright Office collected about $320 million in copyright royalty  fees from cable and satellite operators under the statutory licenses.
The cable industry was still developing when, in 1976, Congress  amended U.S. copyright law, and with the enactment of the Section 111  statutory license, granted cable operators the ability to retransmit  broadcast programs to their subscribers without obtaining the permission  of the copyright owners of the programs being retransmitted. At the  time, the statutory license was seen as a cost-effective way to reduce the  transaction costs of licensing all the rights necessary to retransmit  broadcast programs. Likewise, as the satellite television industry  expanded, Congress established additional statutory licenses (Section  119 in 1988 and Section 122 in 1999) to provide a cost-effective  mechanism for satellite operators to retransmit out-of-local market  (“distant-into-local”) and local market (“local-into-local”) broadcast station  signals without obtaining the permission of the embedded programming’s  copyright owners. However, changes in the video marketplace have led  some industry stakeholders to question the premise that high transaction  costs make a market-based approach to licensing these rights  infeasible. Congress, in the Satellite Television Extension and Localism  Reauthorization Act of 2014, included a provision for us to study and  evaluate possible effects of phasing out statutory licensing of secondary  transmission of television broadcast programming. This report  addresses the following questions:  1.  What is known about the potential feasibility of a phaseout of the  statutory licenses?  2.  What are selected stakeholders’ views on the implications of a  phaseout of the statutory licenses?
To address these questions, we reviewed relevant statutes and  regulations; reports on related subjects by the U.S. Copyright Office,  Congressional Research Service, and GAO; and related documentation  on how the statutory licenses work. We analyzed Federal  Communications Commission’s (FCC) 2010 to 2014 cable price survey  data, U.S. Copyright Office Statement of Account data on satellite  subscribers’ use of distant signals for calendar year 2014, and computer- processed data from Bloomberg Analytics on nationwide use of cable and  satellite video services and trends in cable and satellite subscription rates  between 2010 and 2014, the most recent available data. Our data  analysis provided context on how the video marketplace operates, such  as the number of local broadcast stations carried by cable operators, and  the potential impacts on consumers in the event of a phaseout. We  assessed the reliability of the data used in this report by reviewing  existing information about the data and the systems that produced them.  For FCC and U.S. Copyright Office data, we also interviewed officials  from FCC and the U.S. Copyright Office about measures taken to ensure  the reliability of the data. We determined the data were sufficiently reliable  for our purposes. We reviewed FCC, U.S. Copyright Office,  Congressional Research Service, GAO, and industry reports on changes  in the video marketplace to understand the factors influencing changes in  the consumption and distribution of video content. Finally, we interviewed  42 selected stakeholders—including experts, industry associations, and  industry participants (broadcast networks and station owners, cable and  satellite operators, online video distributors, and content  producers/copyright owners)—to understand how the video marketplace  has changed in the last 5 years, the potential feasibility of a phaseout of  the statutory licenses, and potential implications of a phaseout for the  requirements governing the carriage of local broadcast television stations  (“carriage requirements”) and consumer access to programming and  prices paid for cable and satellite services. We selected these  stakeholders to include those with expertise on this topic as well as those  representing a range of key roles in the video marketplace. We selected  these individuals and organizations based on published literature,  including U.S. Copyright Office filings and reports, our previous work, and  stakeholders’ recognition and affiliation with a segment of the video  marketplace, and recommendations from other stakeholders we  interviewed. See appendix I for more details on our scope and  methodology, including a list of industry stakeholders interviewed.
We conducted this performance audit from June 2015 to May 2016 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Statutory Licenses
paragraphs: A statutory license, also called a compulsory license, permits the use of  copyright-protected material without the express permission of the  copyright owner under specific circumstances and provided the licensee  meets certain requirements. Three statutory licenses pertaining to the  retransmission of broadcast programming are codified in U.S. copyright  law. These statutory licenses refer to cable operators, in the Section 111  license, and satellite carriers, in the Sections 119 and 122 licenses.  These licenses, as described in figure 1 below, allow cable or satellite  operators to retransmit broadcast programming without obtaining  permission from the copyright owners of that material.
Certain telecommunication companies, such as Verizon and AT&T— which in the past provided telephone service but now offer video services  as well—were determined by the U.S. Copyright Office to function as  cable operators and allowed to use the statutory licenses. Given this  report’s focus on the statutory licenses, we use the term “cable and  satellite operators” to refer to all those entities that use the statutory  licenses. This term includes telecommunications companies, such as  Verizon and AT&T.
According to the U.S. Copyright Office, the statutory licenses supported  the growth of the cable and satellite industries and facilitated the delivery  of local broadcast television stations’ programming on these platforms.  The section 111 license was enacted, in part, to reduce the transaction  costs that a then nascent cable industry would have faced if cable  operators were required to negotiate with every copyright owner whose  work was embedded in a local broadcast television station’s signal. The  section 119 and 122 licenses were extended to satellite operators to  reduce transaction costs and provide the same general efficiencies  offered to cable operators under the Section 111 license. Transaction  costs are a concern because each television program may contain  material from multiple copyright owners. Since a typical day of  programming on a local broadcast television station would likely include  20 or more programs, hundreds of copyright owners may have royalty  claims on a single day’s worth of programming.
Under the statutory licenses, the U.S. Copyright Office collects copyright  royalty fees and invests them in government securities until fees are  allocated and distributed to copyright owners. Under the Copyright Act,  the Copyright Royalty Judges are responsible for determining the  distribution of royalties and adjudicating royalty claim disputes. In June  2015, the Copyright Royalty Judges granted a partial distribution of the  2013 cable and satellite royalty funds to the claimant groups listed in table  1.
Copyright owners have historically submitted copyright claims through the  claimant groups shown in table 1. These groups then allocate their share  of the distribution to their group members.
section_title: Intersection between Copyright Law and Communications Law
paragraphs: Each cable operator’s obligation to carry all stations within its designated market area is  dependent upon its total capacity; however, the capacity of most modern cable systems  has rendered these distinctions largely meaningless.
Except for costs associated with delivering a good quality signal for transmission and  increased costs relating to distant signal copyright indemnification. See 47 C.F.R. §76.60. exist. This property right is distinct from the right to perform  copyright-protected material embedded in the broadcast signal.  Retransmission consent applies only to commercial local broadcast  television stations and allows them to grant permission to cable and  satellite operators to retransmit their signals, usually in return for a  negotiated payment. By opting for retransmission consent,  commercial local broadcast television stations give up the guarantee  of carriage in exchange for the right to negotiate compensation for  carriage of their signal. SNL Kagan, a media research firm, estimates  these fees at $6.3 billion in 2015 and projects that they may reach  $10.3 billion by 2021.
Broadcast Exclusivity Rules: The broadcast exclusivity rules—the  syndicated exclusivity rule and the network non-duplication rule—are  an administrative mechanism for local broadcast television stations to  enforce their exclusive rights obtained through contracts with  broadcast networks and syndicators. The syndicated exclusivity rule  protects a local broadcast television station’s right to be the exclusive  provider of syndicated programming in its market. Similarly, the  network non-duplication rule protects a local broadcast television  station’s right to be the exclusive provider of network programming in  its market. The exclusivity rules—when invoked by local broadcast  television stations—require cable and satellite operators to block, in  some manner, duplicative content carried by a local broadcast  television station in another market (a distant signal) imported into a  station’s local market. For example, these rules allow WJZ, the CBS- affiliated local broadcast station in Baltimore, to prohibit cable  operators from showing duplicative network content on a CBS- affiliated station from another market (e.g., WUSA, the CBS-affiliated  local broadcast station in Washington, D.C.) in the event WUSA was  imported into Baltimore. Similarly, the rules would allow WJZ to  prohibit cable operators from showing any duplicated syndicated  content from any other market’s station that is imported into Baltimore.
section_title: Video Content: from Production to Viewer
paragraphs: Video programming, or video content, is the television programs watched  by viewers including primetime shows, news, and movies. The flow of  this content from development to distribution involves many entities,  including those that create the video content, those that aggregate the  content into a schedule, and those that distribute the content to viewers  (see fig. 2).
A single entity in the video marketplace may produce content, aggregate  it, and distribute the content. For example, CBS is primarily known as a  broadcast network; however, CBS also produces its own video content,  through CBS Television Studios. It owns several CBS-affiliated local  broadcast television stations. CBS also functions as an online video  distributor, such as through its offering of a subscription online streaming  service, CBS All Access—which offers live streams of local CBS-affiliated  broadcast television stations as well as video content on an on-demand  basis.
Before video content can be watched by viewers, financial and  contractual arrangements between those that produce, aggregate, and  distribute video content must be made—through market-based  negotiations or under certain circumstances, through the statutory  licenses. Market-based negotiations involve private negotiations between  copyright owners or licensees and those that want to use their  copyrighted content. These negotiations can include a variety of  contracted terms covering such items as when the content will be aired,  how the content will be promoted, and the price that will be paid for the  right to license that content. The price ultimately agreed to for the public  performance rights of video content in market-based negotiations  depends on a variety of factors, including, the expected ratings and  associated advertising revenues for the content.
subsections: section_title: Content Producers
paragraphs: Content producers, such as Paramount Studios and the National Football  League, create the video content viewers ultimately will watch. Content  producers may license their public performance rights over a variety of  distribution platforms that include:
Online distribution—video content is streamed online to any Internet- connected device. Requires the licensing of online rights.
Primary transmission—the over-the-air broadcast of content by a local  broadcast television station. Requires the licensing of primary rights  and only applies to content shown by local broadcast television  stations.
Through-to-viewer distribution—the content on a cable network is  distributed by a cable or satellite operator to their subscribers’  television sets. Requires the licensing of through-to-viewer rights.
Video-on-demand distribution—cable and satellite operators offer  individual programs to their subscribers for free or for a nominal fee to  watch at a time of the viewer’s choosing. Requires the licensing of  video-on-demand rights.
Content producers do not explicitly license secondary transmission  rights for broadcast content that is retransmitted by cable and satellite  operators to viewers’ television sets. As discussed above, the statutory  licenses allow these operators to carry copyrighted programming without  licensing those rights from the individual copyright owners of that content.
As reported by the U.S. Copyright Office, most types of public  performance rights are licensed by private parties through market-based  negotiations.
Content producers are paid for the public performance rights of their  content in several ways. They receive licensing fees from broadcast  networks and other “content aggregators” or “content distributors” like  online video distributors that license the right to use their content on  online platforms. Content producers can also receive licensing fees for  selling syndicated programming to local broadcast television stations.  Additionally, content producers may receive royalty fees paid by cable  and satellite operators to the U.S. Copyright Office through the statutory  licenses.
section_title: Content Aggregators
paragraphs: Content aggregators—typically broadcast networks, local broadcast  television stations, and cable networks, as described in more detail  below—are those that purchase the rights to a variety of copyrighted  content which they arrange into a schedule for viewers. Content  aggregators license the public performance rights for content by paying a  fee to the producers of the content.
Broadcast networks range from major commercial networks, such as  ABC, CBS, FOX, and NBC, to other commercial networks, such as  ION Television and Univision. Broadcast networks purchase the rights  for programs, arrange programs into a schedule, and then through  network-affiliate agreements convey these rights to their affiliates.  Broadcast networks receive payments through affiliate fees, as  discussed below, and advertising revenues.
Commercial local broadcast television stations, network-affiliated and  independent stations (e.g., WJLA—an ABC affiliate in Washington,  DC, and KUBE—an independent station in Houston, TX) may own the  rights to transmit local content (e.g., local news) or license from  content producers the rights to transmit syndicated content (e.g.,  Seinfeld reruns) in their local markets. They receive revenue from  selling advertising spots and from cable and satellite operators via  retransmission consent fees, if elected. Network-affiliated local  broadcast television stations pay affiliate fees to broadcast networks  in exchange for the right to air broadcast network content.
Cable networks (e.g., ESPN and HBO), similar to broadcast networks,  can obtain video content for their networks from content producers  through market-based negotiations. However, instead of licensing  their network content to an affiliate, cable networks license their signal  to a cable or satellite operator for transmission. They receive money  through license fees, advertising revenues, and in some cases,  subscription fees directly from viewers.
section_title: Content Distributors
paragraphs: Content distributors are those entities that distribute video content to  households. Local broadcast television stations, cable and satellite  operators, and online video distributors all distribute video content.
Commercial local broadcast television stations—like KDFW, the FOX  affiliate in Dallas, TX—transmit their signals over-the-air for free and  are accessible by most households via antenna. Stations are not  paid by viewers for the broadcast of their signals over-the-air. As  discussed above, however, commercial local broadcast television  stations can receive retransmission consent fees from cable and  satellite operators for the secondary transmission of their signals as  well as advertising revenue.
Cable and satellite operators, such as Time Warner Cable and DISH  Network, distribute video content, including the signals of local  broadcast television stations and cable networks, to viewers for a  subscription fee. Cable and satellite operators obtain the right to  retransmit local broadcast television station’s signals either through a  local station’s assertion of must-carry or carry-one, carry-all or through  retransmission consent negotiations. As discussed above, cable and  satellite operators that rely on the statutory licenses do not have to  obtain the rights to retransmit the content embedded in a local  broadcast television station’s signal. An estimated average of 14 local  broadcast television stations are carried in cable operators’ channel  lineups with an estimated average of around 10 local broadcast  television stations carried under the must-carry requirement.  Cable and satellite operators receive revenue through subscription  fees. They also receive revenue for advertising spots.
Online video distributors (OVDs) provide video content to consumers  through several business models, including on a subscription (e.g.,  Netflix) or an advertising-supported basis (e.g., Go90) through internet  connections that can be provided by cable and satellite operators.  The video content includes programs available on-demand and, in  some cases, as a live stream of a local broadcast television station or  cable network with the same schedule of shows and aired at the same  time as is offered over-the-air or through a cable or satellite operator.  They receive payments through subscription fees or advertising  revenue—depending on their business model.
Consumers have several options through which to access video content.  Consumers may watch local broadcast television stations on their  television set using an antenna or they may watch local broadcast  television stations and cable networks on their television set through a  cable or satellite service subscription. Using an internet connection,  consumers can watch video content on, for example, tablets,  smartphones, and other mobile devices, through an existing subscription  with a cable or satellite operator or using an OVD service.
section_title: Noncommercial Educational Broadcast Television Stations
paragraphs: The video marketplace also includes noncommercial educational  broadcast television stations, such as public television stations. Similar  to commercial local broadcast television stations, these stations are  available to viewers over-the-air and through secondary transmission by  cable and satellite operators. As discussed earlier, unlike commercial  local broadcast television stations, these stations typically cannot request  a fee from cable and satellite operators for the retransmission of their  signal; instead they request carriage by cable and satellite providers  through the must-carry or carry-one, carry-all requirements. In addition,  noncommercial educational stations are prohibited from accepting on-air  advertisements.
section_title: As the Video Marketplace Changes, a Phaseout of the Licenses May Be Feasible for Most Market Participants, but Could Have Implications for Carriage Requirements
subsections: section_title: In the Video Marketplace, Video Content is Increasingly Distributed and Accessed On- Demand and Online
paragraphs: How viewers access and consume video content is changing.
Over-the-air: According to FCC, the percentage of television  households relying on over-the-air reception to watch local broadcast  television stations has remained relatively steady. While the number  of households that use over-the-air service increased from 11.2  million households in 2013 to 11.4 million households in 2014,  reliance on over-the-air service by all U.S. television households  remained the same at 9.8 percent.
Cable and satellite video services: The percentage of U.S. television  households that receive video content through cable and satellite  services has declined even as the number of subscribers to these  services has increased. Our analysis of industry data indicates that  from 2010 to 2014, the total number of U.S. video service subscribers  to cable, satellite, and telecommunication companies increased from  99.2 million to 99.6 million. Over that same period of time, cable  operators lost subscribers, satellite operators maintained about the  same number of subscribers, and telecommunication companies  increased their number of subscribers. However, the percentage of  U.S. television households that use cable and satellite subscriptions  to receive video services declined from 85.4 percent to 83.9 percent  over the 5 year period.
Online video services: As of 2013, more than 53 million U.S.  households watched video content online with at least one Internet- connected device. Thirty-nine of the 42 industry stakeholders we  interviewed identified the growth of OVDs and increasing usage of  online video services as a trend in the video marketplace over the last  5 years. SNL Kagan estimates that 4.9 percent of occupied U.S.  households watched television programs or movies through OVDs  without receiving cable and satellite service in 2013, compared to 3.9  percent in 2012.
Our analysis of FCC reports, industry reports, and stakeholder opinions  identified several factors influencing the changes in the video marketplace  and the consumption of video content, including:
Programming costs: The rising cost of video content impacts how  much each entity—from content aggregators (e.g., CBS and ABC) to  content distributors (e.g., Time Warner Cable and Netflix) to viewers— involved in the flow of video content must pay to obtain the rights to  distribute or view video content. SNL Kagan data show that cable and  satellite operators’ programming expenses are increasing at a greater  rate than their revenues. For example, cable and satellite operators’  programming expenses as a percent of video service revenue  increased from 34.6 percent in 2006 to 44.6 percent in 2013. Twenty- one out of the 42 stakeholders we interviewed identified rising  programming costs as a trend in the video marketplace over the last 5  years.
Affordability and flexibility: Industry reports we reviewed suggest that  the emergence of low-cost alternatives to cable and satellite video  services could accelerate viewers’ use of online services. Factors  influencing this trend include pressures on disposable income for low  income cohorts of all ages, the desire to only pay for the content  consumers want to watch, and viewers’ preference to watch content  when they want, where they want, and on the device of their  choosing. According to FCC and consistent with our analysis, the  average monthly per-subscriber cost for an expanded basic service  cable subscription increased from $54.44 in 2010 to $66.61 in 2014.  This suggests that emerging options may provide consumers with  greater flexibility to choose a service that more closely meets their  desired price and content preferences.
Generational viewing habits: According to several industry reports,  younger consumers are more likely to be “cord-nevers” or “cord- cutters” than those in other age groups. Subscriptions to cable and  satellite services are lowest among households headed by younger  adult consumers (e.g., 18 to 29 years old). However, it is unclear  whether younger consumers who currently do not subscribe to cable  and satellite video services will eventually do so.
As reported by FCC, cable and satellite operators have developed a  variety of competitive strategies to adapt to the changing marketplace.  In response to the video marketplace changes mentioned above— changes in distribution platforms and viewing habits—cable and satellite  operators, broadcast networks, and cable networks are increasingly  offering video content online, including:
TV Everywhere: Video services that allow subscribers to cable and  satellite video services to access both linear and video-on-demand  content on a variety of in-home and mobile Internet-connected  devices. While not yet widespread, according to industry reports the  availability and use of TV Everywhere appears to be growing. For  example, Comcast’s Xfinity TV Go allows viewers to access video  content online, live and on-demand, through their existing cable  subscription.
Online linear programming: Some cable and satellite operators are  also offering subscription-based online video services that allow  subscribers to stream television channels over the Internet in real- time. For example, DISH’s SlingTV is a subscription service that  allows viewers to access certain television channels live or watch  video-on-demand content via the Internet.
Broadcast and cable network online video services: Broadcast  networks are increasingly offering their content online, with video-on- demand offerings and streaming of their affiliated local broadcast  television stations, through network websites and applications that are  accessible via Internet-connected devices (i.e., computers, tablets,  and smartphones). For example, the CBS network offers CBS All  Access, an online video service that provides access to live linear  streams of local CBS affiliate broadcast programming over the  Internet and video-on-demand content to consumers for a monthly  subscription fee. Cable networks also offer similar online services. For  example, HBO offers a standalone subscription service, HBO Now,  which allows viewers to watch episodes of shows in real time as well  as on-demand.
section_title: Market-Based Negotiations for the Licensing of Online, On- Demand and Other Video Content Rights Illustrate a Phaseout May be Feasible for Most Industry Participants
paragraphs: Our analysis of recent changes in the video marketplace, as discussed  above, indicates that the types of rights licensed have increased as online  and video-on-demand distribution platforms have multiplied. Much of this  video content—including content aired by local broadcast television  stations—is licensed through private market-based negotiations. Figure 3,  below, diagrams the parties and types of rights that can be licensed for  different distribution platforms (e.g., over-the-air, video-on-demand, and  online) for commercial video content.
As shown in figure 3, it may be feasible to license the rights for the  secondary transmission of broadcast content in a manner similar to the  market-based negotiations used for other distribution platforms. The only  rights in the video marketplace not licensed through market-based  negotiations are the secondary transmission rights for broadcast content,  as shown in the first panel of figure 3. All other rights depicted in figure 3  are licensed through market-based negotiations. The growth in online and  video-on-demand content provides evidence that suggests the video  marketplace can develop a market-based approach to license secondary  transmission rights for broadcast content in the absence of the statutory  licenses. Of the 42 stakeholders we interviewed, 21 play a role in  licensing rights for the over-the-air (primary) transmission of broadcast  content or secondary transmission of broadcast signals (e.g., negotiations  with content producers for primary transmission rights, network-affiliate  agreements, and retransmission consent negotiations). Twenty of these  21 stakeholders told us they also participate in the licensing of online and  video-on-demand rights for broadcast content. This suggests that the  same parties (e.g., broadcast networks, local broadcast television  stations, and cable and satellite operators) that currently rely on the  statutory licenses to facilitate the retransmission of broadcast content by  cable and satellite operators already use market-based negotiations to  license other public performance rights for broadcast content. In addition,  11 out of the 14 of these stakeholders that participate in negotiations for  primary transmission rights thought it was feasible to license secondary  transmission rights when primary transmission rights are licensed.
The emergence of live linear online video services that allow viewers to  stream, via Internet-connected devices, the live signal of their local  broadcast television station, also illustrates the potential feasibility of  licensing all public performance rights related to broadcast content using  market-based negotiations. For example, CBS offers a direct-to- consumer online video service, CBS All-Access. In another example,  Sony’s PlayStation Vue allows viewers to stream live television channels,  including local broadcast television station affiliates of ABC, CBS, FOX,  and NBC in select cities. Online video distributors (e.g., Sony Playstation  Vue or CBS All Access) must license the online rights for all the content  on the local broadcast television station’s signal—including the broadcast  network’s content (e.g., primetime dramas and comedies) and the local  broadcast television station’s content (e.g., local news programs). The  method by which these online rights are licensed varies by broadcast  network and by online video distributor; however, the content they must  license—without the benefit of the statutory licenses—is similar to the  content covered by the statutory licenses. Therefore, it seems feasible  that just as broadcast content is licensed for online viewing using market- based negotiations; it can also be licensed for viewing through cable and  satellite operators using market-based negotiation and without the  statutory licenses.
Moreover, over the past 25 years, FCC and the U.S. Copyright Office  have reported that the transaction costs that statutory licenses were  created to address may have become more manageable and that  licensing secondary transmission rights in the absence of the statutory  licenses could be feasible. Specifically, in its 1989 statutory licensing  study, FCC reported that in the absence of the section 111 license,  television stations would be able to acquire cable retransmission rights to  “packages” of the programming they broadcast. Cable operators could  then negotiate with a single entity—the broadcast station—for carriage  rights to each package (e.g., sublicensing). Thus, cable and satellite  operators would not have to license the rights to transmit each program  with each copyright owner, minimizing the number of negotiations and  subsequently the transaction costs. FCC reported that the existence of  cable networks provided “convincing” evidence that the transaction costs  associated with full copyright liability are manageable and concluded that  the “networking mechanism” appeared well-suited to the acquisition of  cable retransmission rights for broadcast signals as well. Moreover, the  U.S. Copyright Office reported in 2008 and 2011 that sublicensing is a  reasonable alternative to statutory licenses. Cable and satellite  operators could negotiate for the secondary retransmission rights for  broadcast content at the same time and potentially with the same entities  they negotiate retransmission consent for the entire broadcast signal.
Although feasible for most, some video marketplace participants may face  negative effects and may have difficulty licensing secondary transmission  rights to ensure distribution of their video content in the event of a  phaseout. Specifically:
Small Cable Operators: Based on our analysis of stakeholder  interviews and the U.S. Copyright Office’s 2011 report, cable  operators with small customer bases may face financial and logistical  challenges in the event of a phaseout of the Section 111 license. As  the U.S. Copyright Office has reported, small cable operators are  particularly vulnerable to increases in the costs of doing business.  Similarly, some stakeholders told us they believe that small cable  operators do not have the financial and legal resources to adapt to a  change in the statutory licenses. These stakeholders were concerned  that any increase in transaction costs (due to additional negotiations)  or an increase in the actual cost of content may make it difficult for  small cable operators to stay in business.
Public Television: Public television, in particular, may be negatively  affected by a phaseout of the statutory licenses. Public television  stations and program suppliers, such as the Public Broadcasting  Service (PBS), tend to license a smaller bundle of rights at a  relatively low cost. In addition, producers of public television content  rely on the distribution of statutory license copyright royalty fees to  supplement the payments received from public television. According  to public television stakeholders, given the terms by which content is  currently licensed for public television, neither direct licensing or  sublicenses—marketplace alternatives to the statutory licenses— would work. These licensing mechanisms would likely result in cable  and satellite operators or public television stations and program  suppliers facing significant transaction costs to obtain the necessary  secondary transmission rights. As we, along with the U.S. Copyright  Office reported in 2011, there are also concerns that some local  public television stations may not have the financial resources to deal  with the transaction costs associated with obtaining these rights for all  of their content.
section_title: A Phaseout of the Statutory Licenses Could Impact Some Carriage Requirements
paragraphs: A phaseout of the statutory licenses could have implications for the must- carry and carry-one, carry-all requirements, as currently implemented.
Must-carry: As we have previously reported, if Congress phases out  the Section 111 statutory license, cable operators may have difficulty  complying with the must-carry requirement. Eliminating this statutory  license would remove the current mechanism used by cable operators  to license broadcast programming and, unless the must-carry  provision was at least revised, would leave cable operators in a  seemingly paradoxical situation. Cable operators would be required to  transmit without modification local broadcast station signals containing  copyrighted content for which they might not be able to license the  needed public performance rights, or only be able to do so at a  potentially significant burden and cost.
Carry-one, carry-all: If Congress phases out the Section 122 statutory  license, according to FCC and the U.S. Copyright Office, the carry- one, carry-all provision would no longer apply to satellite operators.  According to the U.S. Copyright Office, a repeal of the Section 122  license would render carry-one, carry-all effectively “null and void,”  which could have a detrimental effect on television stations that do not  or cannot elect retransmission consent due to a poor bargaining  position. Local broadcast television stations that currently gain  carriage by satellite operators through the carry-one, carry-all  provision, may no longer be carried in the event of a phaseout of the  Section 122 license. In this scenario, cable operators would have a  mandatory obligation to carry any local broadcast television station  that requested carriage, while satellite operators would face no such  obligation.
As we have reported in the past, a phaseout of the statutory licenses  would not necessarily require modification to the other carriage  requirements, specifically retransmission consent and the broadcast  exclusivity rules, as discussed below.
Retransmission consent: Commercial local broadcast television  stations can pursue this option, discussed earlier, when they do not  invoke must-carry or carry-one, carry-all. A phaseout of the statutory  licenses would not necessarily change how cable and satellite  operators negotiate for the rights to transmit commercial local  broadcast stations’ signals. However, without the statutory licenses,  cable and satellite operators would be required to obtain the rights to  retransmit the content embedded on a broadcast station’s signal— the potential mechanisms for obtaining these rights (direct licensing,  sublicensing, and collective licensing) are discussed further below.
Broadcast exclusivity rules: These include the network non-duplication  and syndicated exclusivity rules that, as mentioned earlier, were  designed to protect local broadcast stations from competition with  local broadcast stations imported by cable or satellite carriers from  outside the local market being served. A phaseout of the statutory  licenses would not, on its face, require a change to the exclusivity  rules. We previously reported that eliminating the exclusivity rules  may have varying effects, but these would depend on other federal  actions and industry response.
section_title: Stakeholders Vary in Their Support for a Potential Phaseout and Are Uncertain about its Potential Effects on the Video Marketplace and Consumers
subsections: section_title: Stakeholder Positions on a Phaseout of the Statutory Licenses Vary
paragraphs: Stakeholder support for a phaseout of the statutory licenses varied. Of the  42 selected stakeholders we interviewed, all of whom provided a  response to our questions asking their position on a phaseout, 15  supported either a full or partial phaseout of the statutory licenses, and in  some cases cited contingent factors:
Six of the 42 stakeholders supported a full phaseout of all three  statutory licenses. Reasons given for supporting a full phaseout  included that direct negotiations and sublicensing to license the rights  to distribute broadcast content on online and on-demand platforms  are already taking place in the video marketplace. In addition, cable  networks aggregate all rights needed for cable and satellite operators  to transmit their content to viewers. According to some of these  stakeholders, they see no reason the same system could not be  employed to address the retransmission of broadcast content by cable  and satellite operators.
Five of the 42 stakeholders said their support of a full phaseout was  contingent on other factors, such as the phaseout or reform of some  or all of the carriage requirements. Four of these would support a  phaseout of the licenses but only if all carriage requirements were  eliminated. One stakeholder overall supported a phaseout of the  statutory licenses, but thought the licenses could be retained to help  smaller copyright holders. One reason given for wanting either the  elimination or amendment of the carriage requirements at the same  time as a phaseout was concern that if the requirements remain in  effect they could undermine any benefits of a system without the  statutory licenses. For example, if a sublicensing system was the  primary replacement for the current statutory licenses and cable and  satellite operators paid for the right to license the underlying  broadcast content rights in addition to current fees for retransmission  consent; there were concerns that programming costs would increase  significantly.
Four of the 42 stakeholders said they supported a partial phaseout of  the statutory licenses, and all four specified that the licenses related to  distant signal transmission—section 119 and the relevant portions of  section 111—as those that should be phased out. These  stakeholders said the statutory licenses were functioning as intended,  however, they thought the distant signal portions of the licenses had a  negative impact on the marketplace.
In contrast, 14 of the 42 selected stakeholders said they did not support a  phaseout. Five of the 14 specified that they did not support a phaseout  of the statutory licenses for stations that elect must-carry or carry-one,  carry-all, but did not take a position on what should happen to the  statutory licenses for commercial local broadcast television stations that  participate in retransmission consent negotiations. This position is in part  due to the issues discussed above, such as financial concerns if  noncommercial participants had to license a larger bundle of rights  through market-based negotiations. Half of these stakeholders (7 of 14  stakeholders) said that the current system is operating as intended.  These stakeholders were concerned that changes to the system might  unfairly benefit one industry segment over another as well as possibly  have unintended consequences that could damage the video  marketplace. For example, stakeholders had concerns that sublicensing  or direct licensing could add transaction costs and reduce efficiencies  gained though the statutory license system, and hurt the video  marketplace.
Thirteen of the 42 selected stakeholders told us they had no position on a  possible phaseout. One of these stakeholders told us he or she did not  have a position on a phaseout because this stakeholder has other higher  priority regulatory and legislative concerns requiring their attention.  Additionally, the five stakeholders representing OVDs are not a part of the  statutory licensing system so this issue was not relevant to their role in  the video marketplace.
section_title: Selected Stakeholders Were Uncertain about Potential Impacts of a Phaseout on the Video Marketplace
paragraphs: Selected stakeholder views on how a phaseout might affect the video  marketplace were varied and appeared to be influenced by uncertainty  related to the carriage requirements, marketplace alternatives, and  competition. Given this uncertainty, generally only about half or fewer of  the 42 selected stakeholders interviewed had a position on these issues.
Carriage Requirements: Of the 42 selected stakeholders we interviewed,  on any given requirement, only about half (a range of 19-22  stakeholders) had a position on what should happen with the carriage  requirements if the statutory licenses were phased out. Those without a  position who offered a reason, cited not wanting to speculate on the  issue, in some cases due to uncertainty about what, if any, federal actions  would be taken and what the impacts of those actions on the video  marketplace may be. As discussed above, if the statutory licenses are  fully or partially phased out, it may be necessary to adjust the must-carry  requirement. For example, several stakeholders representing cable  operators told us that the must-carry requirement would put cable  operators in a difficult position if the statutory licenses were phased out.  Specifically, must-carry would require carriage of a station, but cable  operators would have no guarantee that the rights for the content on a  station’s signal were licensed for secondary transmission. Similarly, public  television stakeholders told us that without the statutory licenses, the  party responsible for obtaining the secondary transmission rights—either  public television stations or program suppliers—would face difficulties due  to high transaction costs. Some selected stakeholders also raised  concerns about how, if the licenses were phased out, retransmission  consent negotiations for the commercial local broadcast television station  signal would co-exist with market-based negotiations to license the rights  for the broadcast station’s content.
Marketplace Alternatives: Similarly, of the 30 selected stakeholders  asked, about half (16 out of 30) had no position on which marketplace  alternative could replace the current statutory licensing system. Among  these stakeholders, some cited uncertainty about if or when a phaseout  would occur, as well as not wanting to comment because they do not  support a phaseout. The U.S. Copyright Office outlined in 2011 three  possible marketplace alternatives—sublicensing, direct licensing, or  collective licensing—that could replace the current system of statutory  licenses. Additionally, the office outlined three approaches—statutory  sunset, distant signal first, and station-by-station—for conducting a  phaseout. The marketplace alternative used to license the secondary  transmission rights for broadcast content after a phaseout would affect  video marketplace negotiations and associated transaction costs. Of the  30 selected stakeholders we asked, about half had a position on a  preferred marketplace alternative or how a phaseout of statutory licenses  should be conducted. Some stakeholders (5) noted that sublicensing,  collective licensing, and direct licensing already occur in the current video  marketplace to license video content on cable channels and on most  distribution platforms (e.g., over-the-air transmission, online, and on- demand). As discussed above, with market-based negotiations already  occurring, a phaseout of the licenses may be feasible. However, the  approach used to conduct a phaseout and the timeliness of  implementation, could also impact the marketplace. Of the stakeholders  with a position, 9 out of 10 said a statutory sunset option may be the best  option as it would allow the video marketplace participants time to  renegotiate any existing contracts for broadcast programming and signal  carriage contracts. For example, one broadcast network noted that  contracts related to broadcasting of live events, such as professional  sports, often cover a multi-year period, and a statutory sunset might help  avoid a disruption in carriage.
Competition: Of the 30 selected stakeholders asked, about half (16) had a  position on the potential effects of a phaseout on competition in the video  marketplace. Of those, only one thought there would be no impact on  competition. Five of these stakeholders found it difficult to comment on  how competition would change. This was in part due to not knowing how,  if at all carriage requirements might change and the marketplace  alternatives that might take the place of the statutory licenses. Of the 10  that indicated a possible effect on competition, 5 stakeholders cited a  potential increase in competition in the marketplace as a possible result of  phasing out the statutory licenses. According to one selected stakeholder,  an increase in competition could mean a decrease in programming costs,  as new market entrants might spur the creation of more original content.  However another stakeholder said that an increase in competition as  more participants enter the marketplace could result in higher  programming costs. Essentially, more entities would be competing over  the same content.
section_title: Stakeholders Were Uncertain about the Potential Effects of a Phaseout of the Statutory Licenses on Consumers
paragraphs: Given the uncertainty about the implications of a phaseout on the carriage  requirements and the video marketplace discussed above, most  stakeholders did not have a position regarding the effect of a phaseout on  consumer access to programming and prices paid for cable and satellite  television. Of the 42 selected stakeholders we interviewed, about half or  less provided responses on a range of possible impacts on consumers’  access and prices.
subsections: section_title: Consumer Access
paragraphs: As we have previously reported, a phaseout of the statutory licenses has  the potential to result in disruptions of local broadcast television stations’  signals being aired by cable and satellite providers. However, the overall  impact on the nature of content available and consumer access is  unclear. Consumers might see their access to local broadcast television  stations disrupted due to disagreements over the price and terms to  retransmit broadcast station’s content, and it is unclear what impact a  phaseout might have on the nature and availability of this content.
Blackouts: Programming disruptions, often termed blackouts, occur when  a cable or satellite operator and a local broadcast television station owner  are unable to reach agreement on the carriage of the station’s signal,  usually during retransmission consent negotiations. This disagreement  results in a broadcast station’s signal not being retransmitted to viewers  via the cable or satellite operator, disrupting their access to the content on  a local broadcast television station’s signal. Blackouts have increased in  recent years, as shown in figure 4.
Of the 37 selected stakeholders asked, 17 provided responses to our  questions about blackouts. These stakeholders were unsure if blackouts  in a post-phaseout marketplace would change because of uncertainty  around the status of the carriage requirements or other marketplace  changes. Six out of 17 stakeholders thought blackouts would definitely  increase in the event of a phaseout of the statutory licenses. These  stakeholders said this would occur because of the potential for additional  negotiations, both in number and the number of parties involved, which  could create more opportunity for holdouts and lack of agreement. The  remaining 11 stakeholders were split between either no change (6) or  those (5) who thought the impacts on blackouts would vary depending on  the marketplace alternative selected and the video marketplace response  to it, and therefore was difficult to predict. None of the selected  stakeholders thought blackouts would decrease if the statutory licenses  were phased out.
Programming Diversity: Of the 42 selected stakeholders interviewed, 17  commented on how the diversity of programming, such as the nature and  availability of content, might be affected if the statutory licenses were  phased out. One of these stakeholders thought there could be an  increase in the diversity of programming, as the phaseout of the licenses  could spur the development of new content into the marketplace. Three  selected stakeholders thought there would be no change to the  availability and diversity of programming. Another five stakeholders were  unsure of what impact might occur because there were unknown factors  related to a phaseout that could affect either the availability or diversity of  programming. For example, depending on the marketplace alternative  selected to replace the statutory licenses, or if any changes were made to  the relevant carriage requirements discussed above, diversity of  programming could be affected or stay the same.
Seven of the 17 responding stakeholders thought the availability and  diversity of content would decrease. Of those that provided additional  explanation on their position (6), concerns about less diverse content  being available stemmed, in part, from uncertainty over how potential  changes to carriage requirements may affect niche programming. For  example, if a system has greater transaction costs, availability of  programming could decrease. Representatives from one selected  industry stakeholder organization said that smaller content producers with  less popular programming would have limited leverage in a direct  licensing system, in part due to increased transaction costs. Additionally,  as discussed above, if in addition to the statutory licenses being phased  out, the must-carry requirements were also eliminated, public television  and other stations that currently elect must carry could have difficulty  licensing the secondary transmission rights and thus might have to alter  or diminish their programming.
In our interviews with satellite operators, some cable operators, and  public television stakeholders, these stakeholders also raised concerns  that consumers might face decreased access to programs in the event of  a phaseout of the distant signal licenses (portions of Section 111 license  and the Section 119 license), although it is not clear the extent of the  effect on consumers due to changes in the marketplace.
Satellite operators and one cable operator raised the concern that  without the distant signal licenses, no marketplace alternative for  distant signals would develop. One satellite provider we spoke with  said that without the distant signal licenses, no marketplace  alternative to provide distant signals may emerge as commercial  broadcast networks do not have any financial incentive to allow their  affiliates’ signals to be transmitted outside of the intended local  market. These stakeholders noted how in some local television  markets, known as “short markets”, there is no local broadcast affiliate  station for at least one of the major broadcast networks. Without  distant signal importation, these markets may not have access to one  or more local broadcast television stations affiliated with a major  network. However, according to U.S. Copyright Office data, the most  widely viewed distant signal by satellite service subscribers in the  United States is that of WGN, a superstation. The effects of a partial  phaseout of the statutory licenses on the viewers of distant signals  may be mitigated by the recent conversion of WGN into a cable  network. In Statement of Account filings with the U.S. Copyright  Office, the two satellite service providers no longer reported carrying  WGN as a superstation during the latter part of the 2015 accounting  period and subsequently saw a decrease in the number of their  subscribers receiving distant signals.
Public television stakeholders raised the concern that a phaseout of  the distant signal licenses may actually lead to some local markets not  being served by a public television station. These stakeholders noted  that in the event a local public television station can no longer provide  service in a community, it may be necessary to import a public  television station from another market as a distant signal. However,  without the distant signal licenses, these public television  stakeholders said it would be very difficult to license the needed public  performance rights for all the content embedded in the signal of a  distant public television station.
section_title: Consumer Prices
paragraphs: Of the 37 selected stakeholders asked, 29 responded to our questions  about the impacts of a phaseout on consumer prices. Among these  stakeholders, there was a general recognition that uncertainty about how  the video marketplace would react to a phaseout of the statutory licenses  and about what, if any, changes would be made in the regulatory  environment made it difficult to speculate on the effects on consumer  prices. Thirteen of the 29 who commented on this issue thought  consumer prices would increase, in part due to anticipated increases in  transactions costs under a new licensing system. In general, an increase  in costs to providers of a service may lead to higher consumer prices for  the service. If, in the event of a phaseout, the marketplace alternative  selected to replace the current statutory license structure entails greater  transaction costs, then it is possible that some or all of those costs would  be passed onto the consumer. Similarly, if there were no change to  stakeholder transaction costs, then there should be no change to  consumer prices. This outcome is consistent with our prior work, the  effect of a phaseout on consumer prices for cable and satellite television  is unclear. Even so, another 15 selected stakeholders were unsure of  the effects or thought there would be no change in consumer prices. Only  one cable and satellite provider thought changes to the system would  create a downward pricing pressure to lower consumer prices.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the FCC and the U.S. Copyright  Office for review and comment. FCC provided technical comments, which  we incorporated as appropriate. The U.S. Copyright Office stated that it  agreed with our finding that a phaseout of the statutory licenses may be  feasible for most market participants.
We are sending copies of this report to the appropriate congressional  committees, the Chairman of the FCC, and the Register of Copyrights. In  addition, the report is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-2834 or goldsteinm@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix II.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The Satellite Television Extension and Localism Act Reauthorization Act  of 2014 included a provision for us to study and evaluate the possible  effects of phasing out statutory licensing of the secondary transmission of  television broadcast programming. This report examines (1) what is  known about the potential feasibility of a phaseout of the statutory  licenses and (2) what are selected stakeholder views on the implications  of a phaseout of the statutory licenses.
To address both objectives, we reviewed relevant statutes and  regulations of sections 111, 119, and 122 of the United States Code, U.S.  Copyright Office, GAO, Congressional Research Service, and Federal  Communications Commission (FCC) reports to among other things,  determine how the licenses work, identify alternatives to statutory  licenses, as well as how the marketplace might function if the statutory  licenses were phased out. We conducted semi-structured interviews with  or obtained written comments from 42 stakeholders—including experts,  industry associations, and industry participants (broadcast networks,  broadcast station owners, cable and satellite operators, online video  distributors, and content producers/copyright owners). We selected these  individuals and organizations based on published literature, including U.S.  Copyright Office filings and reports, our previous work, and stakeholders’  recognition and affiliation with a segment of the video marketplace, and  recommendations from other stakeholders. We conducted a content  analysis based on these interviews to determine how the video  marketplace has changed in the last 5 years, the potential feasibility of a  phaseout of the statutory licenses based on the types of rights licensed in  the video marketplace and negotiations stakeholders participate in, and  the potential implications of a phaseout of carriage requirements, for the  video marketplace, and for consumers’ access to programming and the  prices consumers pay for cable and satellite services. We spoke with six  experts, including analysts with Pivotal Research, Huber Research,  MoffettNathanson, and BTIG. We also spoke with Preston Padden, a  telecommunications expert, and Gregory Crawford, former Chief  Economist at FCC. We also spoke with eight industry associations and  one public interest group:
American Cable Association (ACA)
Association of Public Television Stations (APTS)
Digital Media Association (DiMA)
Independent Film and Television Alliance (IFTA)
Motion Picture Association of America (MPAA)
National Association of Broadcasters (NAB)
National Cable and Telecommunications Association (NCTA)
NTCA – The Rural Broadband Association  We also interviewed 27 entities that participate in the video  marketplace—either producing content (or holding the copyrights to  content), aggregating content, or distributing content. Table 2 contains  those industry participants we interviewed along with their role(s) in the  marketplace.
To understand how the video marketplace is changing and the factors  influencing changes in the consumption and distribution of video content,  we reviewed FCC, U.S. Copyright Office, Congressional Research  Service, GAO, and industry reports. In addition, to understand the  potential feasibility of a phaseout of the statutory licenses, we analyzed  FCC’s Cable Service Price survey data from 2010 through 2014, and  computer-processed data from Bloomberg Analytics on nationwide use of  cable and satellite video services and trends in cable and satellite  subscription rates from 2010 through 2014, the most recent available  data. Our data analysis provided context on how the video marketplace  operates, such as the number of local broadcast television stations  carried by cable operators, and how changes in the video marketplace  make a phaseout of the statutory licenses appear feasible. FCC’s cable  price survey was based on a stratified random sample design with  selection probabilities proportional to the size of the community and a  response rate of around 97 percent. Following FCC’s survey  methodology, we analyzed FCC’s 2010 through 2014 cable price survey  data using complex survey software accounting for the sample design  and weights to produce generalizable estimates to the population of  communities, on a per-subscriber basis. Because FCC’s cable price  survey followed a probability procedure based on random selections, the  selected sample is only one of a large number of samples that might have  drawn. Since each sample could have provided different estimates, we  express our confidence in the precision of the particular sample’s results  as a 95 percent confidence interval (e.g., plus or minus 5 percent). This is  the interval that would contain the actual population value for 95 percent  of the samples we could have drawn. Within this report, all numerical  estimates based on FCC data have margins of error of plus or minus 3.2  percent or less of the value of those numerical estimates.
To determine how a phaseout of the statutory licenses could impact  consumer access to cable and satellite television service and television  programming, we used U.S. Copyright Office calendar year 2014  Statement of Account data to understand the number of satellite  subscribers receiving distant signals. Statement of Account filings  covering 2014 were the most recent full year of data available. To  understand how consumer access might be affected by a phase out,  GAO reviewed a summary of SNL Kagan LC data, provided by FCC, on  local broadcast television station signal blackouts from 2011 through  2015.
We assessed the reliability of the data used in this report by reviewing  existing information about the data and the systems that produced them  and interviewing officials from FCC and the U.S. Copyright Office about  measures taken to ensure the reliability of the data. We determined the  data were sufficiently reliable for our purposes.
We conducted this performance audit from June 2015 to May 2016 in  accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Derrick Collins (Assistant  Director), Amy Abramowitz, Sarah Arnett, Michael Clements, Juan  Garcia, Samuel Hinojosa, David Hooper, Sara Ann Moessbauer, Malika  Rice, Amy Rosewarne, Jerome Sandau, Sonya Vartivarian, and Betsey  Ward-Jenks made key contributions to this report.