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. 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. Additionally, content producers may receive royalty fees paid by cable  and satellite operators to the U.S. 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. 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. 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. Copyright Office has reported, small cable operators are  particularly vulnerable to increases in the costs of doing business. A Phaseout of the Statutory Licenses Could Impact Some Carriage Requirements

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. 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. 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. In contrast, 14 of the 42 selected stakeholders said they did not support a  phaseout. 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. Stakeholders Were Uncertain about the Potential Effects of a Phaseout of the Statutory Licenses on Consumers

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. The U.S. Appendix I: Objectives, Scope, and Methodology

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. 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. Table 2 contains  those industry participants we interviewed along with their role(s) in the  marketplace. 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.
Why GAO Did This Study

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.

What GAO Found

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.