Articles

Copyright Compulsory License Sports Surcharge

Articles / June 20, 2017

By Gary Lutzker

The United States Copyright Royalty Board (“CRB”) recently published a Notice of Settlement and Proposed Rule regarding the proposed adjustment in cable television copyright royalty fees to account for the FCC’s 2014 repeal of its sports blackout rules (the “Sports Blackout Rules”). The proposed revisions to the regulations implementing Section 111 of the Copyright Act, if adopted, will require large cable systems to pay a separate per-telecast royalty fee (the “Sports Surcharge”) for certain live non-network (i.e., non-ABC, CBS, and NBC) broadcast television (i.e., not cable services) sports programming (an “Eligible Sports Event”) controlled by MLB, NFL, NBA, WNBA, NHL, or NCAA (collectively, the Sports Leagues”). If approved, the new regulations are expected to be effective with the first accounting period of 2018 and the initial Sports Surcharge royalty fees will be due in late August 2018.

Although we do not expect the Sports Surcharge to result in significant additional payments, the recordkeeping required by the new rule likely will be burdensome, and the U.S. Copyright Office will need to revise its Statement of Account SA 3 long form to incorporate the calculation for the Sports Surcharge. Each cable system that may be subject to the Sports Surcharge will need to diligently monitor the Surcharge notices it receives each accounting period and be able to document its subject “gross receipts” as the basis for any calculation and payment of the Sports Surcharge.

Cable Systems Subject to the Sports Surcharge

The proposed Sports Surcharge would apply only:

  • to cable systems that file their semi-annual copyright statements of account on the Copyright Office’s SA3 (Long Form) (i.e., currently any system with semi-annual “gross receipts” greater than $527,000) (a “Long Form System”);
  • to Long Form Systems retransmitting the broadcast signals of distant (non-local) non-network television stations that would have been subject to the blackout requirements of the former Sports Blackout Rules for Eligible Sports Events (collectively, the “Covered Cable Systems”).
  • when the holder of the broadcast rights to the Eligible Sports Event has given the cable system timely written notice consistent with the notice requirements of the Sports Blackout rules regarding the holder’s rights with respect to the retransmission of the Eligible Sports Event over the cable system.
Eligible Sports Events
  • Professional Sporting Events
    • Only games involving teams that are members of the MLB, NFL, NBA, WNBA, NHL. Other professional sporting events (such as horse and auto racing, golf and boxing) are not subject to the Sports Surcharge.
  • Collegiate Sporting Events
    • “a game involving a football or men’s basketball team that is a member of Division I of the [NCAA] on whose behalf the FCC Sports Blackout Rule . . . was invoked [for games] during the period from January 1, 2012 to November 23, 2014.”
      • The broadcast rights holder, at the time its notice is sent to the cable operator, must also attest to and provide documentary evidence that the collegiate team on whose behalf the Sports Surcharge notice is given meets the eligibility standards.
      • The number of events involving a specific collegiate team for which a cable system must pay the Sports Surcharge will be no greater than the largest number of events for which the FCC’s Sports Blackout rule was invoked in a particular geographic area by such team between January 1, 2012 and November 23, 2014.
Calculating the Sports Surcharge

The proposed Sports Surcharge would be 0.025% of the Covered Cable System’s “gross receipts” as described below for the retransmission of each Eligible Sports Event during a semi-annual accounting period, where the retransmission of the event by the Covered Cable System would have been subject to deletion under the Sports Blackout Rule.

The CRB’s notice and its definition of “gross receipts” subject to the Sports Surcharge are poorly drafted and somewhat inconsistent. Except for the exclusions noted below, however, a Covered Cable System’s gross receipts apparently will be calculated as follows:

  • Included in Gross Receipts
    • Broadcast Tier Revenues. Only revenues derived from cable service tiers that include the retransmission of one or more broadcast signals (typically only the entry level basic tier).
    • Thirty-Five Mile Zones. Only the gross receipts of subscribers in any “community unit” (see 47 C.F.R. § 76.5(dd)) that is located in whole or in part within the 35-mile zone of a television station licensed to the community in which the Eligible Sports Event is taking place, and where the former Sports Blackout Rule would have required a blackout of Eligible Sports Event (i.e., timely blackout notice and no local broadcast of the event on local stations).
  • Excluded From Gross Receipts. Gross receipts received from subscribers residing in the following service areas of a Covered Cable System will be excluded in calculating any Sports Surcharge:
    • Distant Station Service Area. The “local service area” of the distant television broadcast station whose sports programming would otherwise have been subject to deletion under the Sports Blackout Rules.
      • The “local service area” of [the distant] broadcast station includes (i) the area in which it could have demanded mandatory carriage under the FCC’s 1976 must-carry rules; (ii) the station’s television market under the FCC’s current signal carriage rules (i.e., DMA); and (iii) the area covered by its noise-limited contour as defined in the FCC’s regulations. 17 U.S.C. § 111(f)(4).
    • Less than 1,000 Subscribers. Any community unit served by the Covered Cable System that has fewer than 1,000 subscribers.
    • Wholly Outside 35-Mile Zone. Any community unit located wholly outside the specified 35-mile zone of the community unit’s local broadcast stations that are licensed to a community in which the Eligible Sports Event occurs; and
    • Grandfathered Distant Stations. Any community unit where the distant television broadcast station whose sports programming would otherwise have been subject to deletion under the Sports Blackout Rules was lawfully carried prior to March 31, 1972.

Please contact us if you have any questions about the proposed Sports Surcharge.

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