A subsidy by any other name: First Amendment implications of the Satellite Home Viewer Improvement Act of 1999.

• Author: Cotlar, Andrew D.

1. INTRODUCTION

   The Satellite Home Viewer Improvement Act ("SHVIA")(1) changed the face of the market for television video services by authorizing direct broadcast satellite ("DBS") carriers to carry local television stations within their own local markets. Prior to the passage of this law, households could subscribe to satellite-delivered network programming only if they could demonstrate that they could not receive good over-the-air signals from their local network affiliates. Since the passage of SHVIA on November 29, 1999, DBS carriers have become powerful players in the marketplace for video distribution--a market currently dominated by rapidly consolidating cable companies. To encourage this new competitor with cable, SHVIA granted DBS carriers a royalty-free statutory copyright license to carry local broadcast stations in their own markets.(2) In exchange, to ensure the availability of all local channels over satellite, the local carriage provisions of SHVIA (codified at section 338 of the Communications Act) establish that, by 2002, if a DBS system carries a local broadcast station pursuant to this statutory copyright license, the satellite carrier must carry all of the local broadcast stations in that market.(3) On September 20, 2000, this carry-one/carry-all provision was challenged in federal court on the grounds that it violated the First Amendment rights of satellite carriers.(4)

   In Part II, this Article examines how the "local-into-local" portion of SHVIA works to equalize the treatment of DBS and cable in the market for the distribution of video services. Part III discusses the constitutional challenge to the law and examines the constitutional geography of SHVIA within the context of current broadcast jurisprudence. Part IV then applies these principles, arguing: (a) DBS has been, and should be, considered a broadcast technology for constitutional purposes; (b) [sections] 338 imposes content-neutral restrictions on speech; (c) [sections] 338 therefore survives under rational basis scrutiny; and (d) alternatively, [sections] 338 survives under intermediate scrutiny as well.

2. THE SATELLITE HOME VIEWER IMPROVEMENT ACT OF 1999: LOCAL CARRIAGE PROVISIONS

   DBS services (alternatively known as "Direct-to-Home" or "DTH" services) provide video programming directly to a consumer's home via satellite transmission to a small receiving dish at the home.(5) The two largest DBS service providers are DirecTV(6) and EchoStar's Dish Network.(7) DBS had its origins in the large direct-to-home satellite dishes introduced in the 1970s for the reception of video programming transmitted via satellite over the low-power C-band frequencies.(8) Although the C band is still used in some circumstances, DBS service providers currently operate mostly in the Ku band(9) and plan to operate in portions of the Ka band(10) in the near future.(11) Since 1982, DBS service has been governed on an "interim" basis by Part 100 of the rules of the Federal Communications Commission ("FCC" or "Commission"),(12) and until 1999, consisted mostly of the delivery of national network feeds, nonlocal network stations, and nonbroadcast proprietary programming.

   In 1988, the Satellite Home Viewer Act ("SHVA") became law and restricted the reception of satellite-delivered television signals to those "unserved households" that could not receive acceptable over-the-air signals from their local network affiliates with stationary roof-top antennae.(13) SHVA did this through the mechanism of a statutory copyright license. Ordinarily, broadcast television stations possess the exclusive right to create copies of their signals through the retransmission of those signals over other services, because the broadcast signals are considered a copyrighted "compilation" of audiovisual works.(14) In accordance with this right, and with limited exceptions, anyone who seeks to retransmit the signal of an over-the-air broadcast station must first seek permission from the broadcast station prior to doing so. This results in a negotiated copyright "license" to make a copy of the signal for that purpose. By way of contrast, a non-negotiated, "statutory" license (also called a "compulsory license," because the copyright owner is "compelled" to provide the license) allows the licensee to retransmit the signals of broadcast television stations without having to negotiate for copyright permission with each television station it carries.(15)

   After passage of SHVA, disputes regarding the eligibility of subscribers to receive distant television signals soon swept the nation. In 1998, several federal courts found that the satellite industry had systematically violated the terms of its statutory copyright license by signing up ineligible subscribers.(16) As a result, injunctions were ordered that would have terminated subscriber access to satellite signals if the subscribers did not qualify under the "unserved household" definition.(17)

   In 1999, SHVIA addressed these concerns by extending the statutory copyright license for distant signals for another five years(18) and by amending the license in several respects. One notable way SHVIA amended the license was to "grandfather" those subscribers who would have had their eligibility for DBS signals terminated as a result of court injunctions. Other modifications included deleting waiting periods for eligibility and specifying signal measurement methodologies and complaint procedures.(19) SHVIA retained the restriction, however, that a DBS service provider may only deliver a distant "network" station to an "unserved" household that could not otherwise receive this signal over the air.(20) In addition, SHVIA retained the definition of "unserved household" as a household that cannot receive a Grade-B signal from a local network affiliate by use of a conventional, stationary, outdoor rooftop antenna.(21)

   Responding to the nationwide litigation, while at the same time providing a way to indirectly regulate increasing cable rates, SHVIA also created an incentive for the DBS service to evolve from its role of merely delivering distant network signals to unserved households to its current status of potentially competing with cable in the delivery of both multichannel programming and local broadcast programming.(22) To accomplish this end, SHVIA amended both the Copyright Act of 1976 ("Copyright Act")(23) and the Communications Act of 1934 ("Communications Act").(24)

   For the first time, SHVIA granted to DBS carriers the permanent right to retransmit the signals of local stations into their own local designated market areas ("DMAs")(25) without seeking the permission of the local stations in advance and without being required to pay royalties in the usual manner associated with a statutory copyright license.(26) In exchange for this "local-into-local," royalty-free, statutory copyright license, Congress required that, by January 1, 2002, if a satellite carrier carries at least one local signal in a market pursuant to the license, it must upon request carry all local broadcast stations' analog signals in that market. Section 338 as amended by SHVIA, states:

   [E]ach satellite carrier providing, under section 122 of title 17, United States Code, secondary transmissions to subscribers located within the local market of a television broadcast station of a primary transmission made by that station shall carry upon request the signals of all television broadcast stations located within that local market, subject to section 325(b).(27) Thus, as Congress has clarified, the statutory copyright license is conditioned upon satisfying certain carriage obligations.(28)

   Under copyright law, however, satellite carriers are not required to use the new statutory copyright license. Use of the license is strictly voluntary, because in lieu of using the statutory copyright license (or prior to January 1, 2002, when the statutory license becomes effective), a satellite carrier may obtain copyright clearances from each local commercial broadcast station before retransmitting the signals of those stations on its DBS system. As Congress explained:

   Satellite carriers remain free to carry any programming for which they are able to acquire the property rights. The provisions of this Act allow carriers an easier and more inexpensive way to obtain the right to use the property of copyright holders when they retransmit signals from all of a market's broadcast stations to subscribers in that market. The choice whether to retransmit those signals is made by carriers, not by the Congress.(29) In a separate but related provision, the Communications Act also requires a satellite carrier wishing to retransmit the signal of a broadcast television station to obtain the "consent of retransmission" of that station.(30) The FCC, therefore, requires all commercial stations to elect either retransmission consent or mandatory carriage for the period beginning on January 1, 2002.(31) Underscoring the close relationship between the right of retransmission consent under the Communications Act and the right to negotiate copyright clearances under copyright law, however, the FCC has significantly restricted the ability of satellite carriers to avoid local carriage obligations by simply relying on privately negotiated copyright agreements.(32) The FCC has required that retransmission agreements with commercial stations contain comprehensive copyright clearances from the copyright holders (or assignees) of each of the programs, advertisements, and music aired by the station.(33) If retransmission agreements do not contain such comprehensive terms, then the satellite carrier involved is still subject to must-carry requirements.(34) Nevertheless, the choice still rests with satellite carriers as to the preferred method of carriage. They may select either must-carry, with its basic obligation to carry all local stations in that market, or they may choose to negotiate with each...