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Notice2024-13597

Distribution of Cable Royalty Funds

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Published

June 28, 2024

Effective

June 28, 2024

Issuing agencies

Library of CongressCopyright Royalty Board

Abstract

The Copyright Royalty Judges announce the allocation of shares of cable royalty funds for the years 2014, 2015, 2016, and 2017 among six claimant groups.

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<title>Federal Register, Volume 89 Issue 125 (Friday, June 28, 2024)</title>
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[Federal Register Volume 89, Number 125 (Friday, June 28, 2024)]
[Notices]
[Pages 54166-54282]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-13597]

[[Page 54165]]

Vol. 89

Friday,

No. 125

June 28, 2024

Part II

Library of Congress

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Distribution of Cable Royalty Funds; Notice

Federal Register / Vol. 89 , No. 125 / Friday, June 28, 2024 /
Notices

[[Page 54166]]

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LIBRARY OF CONGRESS

[Docket No. 16-CRB-0009-CD (2014-17)]

Distribution of Cable Royalty Funds

AGENCY: Copyright Royalty Board (CRB), Library of Congress.

ACTION: Final allocation determination.

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SUMMARY: The Copyright Royalty Judges announce the allocation of shares
of cable royalty funds for the years 2014, 2015, 2016, and 2017 among
six claimant groups.

DATES: This determination is effective June 28, 2024.

ADDRESSES: The final determination is posted in eCRB at <a href="https://app.crb.gov/">https://app.crb.gov/</a>. For access to the docket to read the final determination
and submitted background documents, go to eCRB and search for docket
number 16-CRB-0009-CD (2014-17).

FOR FURTHER INFORMATION CONTACT: Anita Brown, CRB Program Specialist,
(202) 707-7658, <a href="/cdn-cgi/l/email-protection#791a0b1b3915161a571e160f">[email&#160;protected]</a>.

SUPPLEMENTARY INFORMATION:

Final Determination of Royalty Allocation

The purpose of this proceeding is to determine the allocation of
shares of the 2014-2017 cable royalty funds among six claimant groups:
the Joint Sports Claimants, Commercial Television Claimants, Public
Television Claimants, Canadian Claimants Group, Settling Devotional
Claimants, and Program Suppliers.\1\ The parties have agreed to
settlements regarding the shares to be allocated to the Music Claimants
and National Public Radio (NPR). Joint Notice of Settlement Regarding
2014-2017 Royalty Claims of Music Claimants . . . at 1-2 (June 29,
2022); Joint Notice of Settlement and Motion for Final Distribution
Regarding Royalty Claims of National Public Radio at 1 (Jan. 7, 2022).
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\1\ The program categories at issue are as follows: ``Canadian
Claimants.'' All programs broadcast on Canadian television stations,
except: (1) live telecasts of Major League Baseball, National Hockey
League, and U.S. college team sports, and (2) programs owned by U.S.
copyright owners; ``Commercial Television Claimants.'' Programs
produced by or for a U.S. commercial television station and
broadcast only by that station during the calendar year in question,
except those listed in subpart (3) of the Program Suppliers
category; ``Devotional Claimants.'' Syndicated programs of a
primarily religious theme, but not limited to programs produced by
or for religious institutions; ``Joint Sports Claimants.'' Live
telecasts of professional and college team sports broadcast by U.S.
and Canadian television stations, except programs in the Canadian
Claimants category; ``Program Suppliers.'' Syndicated series,
specials, and movies, except those included in the Devotional
Claimants category. Syndicated series and specials are defined as
including (1) programs licensed to and broadcast by at least one
U.S. commercial television station during the calendar year in
question, (2) programs produced by or for a broadcast station that
are broadcast by two or more U.S. television stations during the
calendar year in question, and (3) programs produced by or for a
U.S. commercial television station that are comprised predominantly
of syndicated elements, such as music videos, cartoons, ``PM
Magazine,'' and locally-hosted movies; ``Public Television
Claimants.'' All programs broadcast on U.S. noncommercial
educational television stations. Order Lifting Stay and Adopting
Claimant Categories (Apr. 5, 2021). The categories are mutually
exclusive and, in aggregate, comprehensive.
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Between 2016 and 2022, the Judges ordered partial distributions of
the 2014-2017 cable funds to the ``Phase I'' participants (including
Music Claimants and NPR) according to allocation percentages agreed
upon by the participants. Order Granting Motion for Partial
Distribution (May 22, 2019); Order Granting Motion for Partial
Distribution, Docket No. 16-CRB-0009 CD (2014) (Aug. 15, 2016); Order
Granting Motion for Partial Distribution, Docket No. 16-CRB-0020 CD
(2015) (June 6, 2017); Order Granting Motion for Partial Distribution,
Docket No. 17-CRB-0017 CD (2016) (Jul. 30, 2018).
In 2022, the Judges ordered the final distribution of the settled
shares from the remaining funds to Music Claimants and National Public
Radio. Order Granting Motion for Final Distribution to National Public
Radio (Feb. 14, 2022), Order 23 Granting 2014-15 Cable Final
Distribution to Music Claimants . . . (Dec. 7, 2022).
When the Judges ultimately order the final distribution of the
remaining 2014-17 cable royalty funds, they will direct the Licensing
Division of the Copyright Office to adjust distributions to each
participant to account for partial distributions and to apply the
allocation percentages determined herein.
Based on the record in this proceeding, the Judges make the
following allocation of deposited royalties.

Table 1--Royalty Allocations
----------------------------------------------------------------------------------------------------------------
2014 2015 2016 2017
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Basic Fund:
CCG......................................... 6.19 14.59 14.60 15.77
CTV......................................... 20.55 19.78 17.36 17.50
JSC......................................... 36.13 11.42 10.72 12.36
Program Suppliers........................... 21.21 28.29 25.53 23.29
PTV......................................... 11.07 19.18 24.78 25.25
SDC......................................... 4.85 6.74 7.01 5.83
3.75% Fund:
CCG......................................... 6.96 18.05 19.41 21.10
CTV......................................... 23.11 24.48 23.08 23.41
JSC......................................... 40.63 14.13 14.25 16.53
Program Suppliers........................... 23.85 35.00 33.94 31.16
SDC......................................... 5.45 8.34 9.32 7.80
Syndex Fund:
Program Suppliers........................... 100 100 100 100
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PTV and JSC filed timely requests for rehearing on September 21,
2023 (Rehearing Requests). The Judges issued their ruling on the
Rehearing Requests on March 21, 2024 (Order on Rehearing), denying
rehearing on any basis asserted by JSC in its Rehearing Request and
granting rehearing on a basis asserted by PTV in its Rehearing Request
to correct arithmetic errors. This Final Determination includes the
corrections contained in the Initial Determination of Royalty
Allocation (Corrected and Redacted) filed on March 29, 2024, which
addressed technical and clerical errors.\2\ This Final Determination
also includes the corrections set forth in the March 29,

[[Page 54167]]

2024 Order on Rehearing, which is included herein, as ``Addendum A'',
to be published in the Federal Register.\3\
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\2\ See Initial Determination of Royalty Allocation (Corrected
and Redacted) at 1.
\3\ See Order on Rehearing at 83 n.63 (``To the extent that
corrections set forth in this Order might be construed to reach
beyond those identified in the Motions for rehearing or the
rehearing authority in 17 U.S.C. 803(c)(2), the Judges also make
such corrections under their authority to correct technical or
clerical errors in 17 U.S.C. 803(c)(4). For this reason, the Judges
set forth the analysis herein also as a written addendum to the
Initial Determination, which is distributed to the participants of
the proceeding via this Order and will be published as part of the
Final Determination, pursuant to 17 U.S.C. 803(c)(4).'')
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I. Background

A. Legal Context

In 1976, Congress granted cable television operators a statutory
license to enable them to clear the copyrights to over-the-air
television and radio broadcast programming which they retransmit to
their subscribers. The license requires cable operators to submit semi-
annual royalty payments, along with accompanying statements of account,
to the Copyright Office for subsequent distribution to copyright owners
of the broadcast programming that those cable operators retransmit. See
17 U.S.C. 111(d)(1). To determine how the collected royalties are to be
distributed among the copyright owners filing claims for them, the
Copyright Royalty Judges (Judges) conduct a proceeding in accordance
with chapter 8 of the Copyright Act. This determination is the
culmination of one of those proceedings.\4\ Proceedings for determining
the distribution of the cable license royalties historically were
conducted in two phases. In Phase I, the royalties were divided among
programming categories. The claimants to the royalties have previously
organized themselves into eight categories of programming retransmitted
by cable systems: movies and syndicated television programming; sports
programming; commercial broadcast programming; religious broadcast
programming; noncommercial television broadcast programming; Canadian
broadcast programming; noncommercial radio broadcast programming; and
music contained on all broadcast programming. In Phase II, the
royalties allotted to each category at Phase I were subdivided among
the various copyright holders within that category.\5\ In the most
recent proceeding, regarding cable royalties for the 2010-2013 period,
the Judges broke with past practice by combining Phase I and Phase II
into a single proceeding in which the functions of allocating funds
between program categories and distributing funds among claimants
within those categories proceeded in parallel.\6\ This determination
addresses the Allocation Phase for royalties collected from cable
operators for the years 2014, 2015, 2016 and 2017.
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\4\ Prior to enactment of the Copyright Royalty and Distribution
Reform Act of 2004, which established the Judges program, royalty
allocation determinations under the section 111 license were made by
two other bodies. The first was the Copyright Royalty Tribunal,
which made distributions beginning with the 1978 royalty year, the
first year in which cable royalties were collected under the 1976
Copyright Act. Congress abolished the Tribunal in 1993 and replaced
it with the Copyright Arbitration Royalty Panel (``CARP'') system.
Under this regime, the Librarian of Congress appointed a CARP,
consisting of three arbitrators, which recommended to the Librarian
how the royalties should be allocated. Final distribution authority,
however, rested with the Librarian. The CARP system ended in 2004.
See Copyright Royalty Distribution and Reform Act of 2004, Public
Law 108-419, 118 Stat. 2341 (Nov. 30, 2004).
\5\ The Judges last adjudicated an allocation (Phase I)
determination for royalty years 2010 to 2013. See Final Allocation
Determination, Distribution of the 2010 to 2013 Cable Royalty Funds,
84 FR 3552 (Feb. 12, 2019) (2010-13 Determination).
\6\ Second Reissued Order Granting in Part Allocation Phase
Parties' Motion to Dismiss Multigroup Claimants and Denying
Multigroup Claimants' Motion for Sanctions Against Allocation Phase
Parties, Docket No. 14-CRB-0010-CD (2010-13) (Apr. 25, 2018). The
Judges discontinued use of the terms Phase I and Phase II and use
the terms Allocation Phase and Distribution Phase instead. Id. n.4.
This determination addresses the Allocation Phase of the proceeding.
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The statutory cable license places cable systems into three classes
based upon the fees they receive from their subscribers for the
retransmission of over-the-air broadcast signals. Small- and medium-
sized systems pay a flat fee. See 17 U.S.C. 111(d)(1). Large cable
systems (``Form 3'' systems) \7\--whose royalty payments comprise the
lion's share of the royalties distributed in this proceeding--pay a
percentage of the gross receipts they receive from their subscribers
for each distant over-the-air broadcast station signal they
retransmit.\8\ The amount of royalties that a cable system must pay for
each broadcast station signal it retransmits depends upon how the
carriage of that signal would have been regulated by the Federal
Communications Commission (``FCC'') in 1976, the year in which the
current Copyright Act was enacted.
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\7\ ``Form 3'' cable systems, so named because they account to
the Copyright Office for retransmissions and royalties on ``Form
3.'' The Form 3 filing is required because they have semiannual
gross receipts in excess of $527,600. These systems must submit an
SA3 Long Form to the US Copyright Office. They are the only systems
required to identify which of the stations they carry are distant
signals. Royalty payments from Form 3 systems accounted for over 90%
of the total royalties that cable systems paid during 2014-2017.
Expert Report of Christopher J. Bennett, Ph.D., Amended Corrected,
Trial Ex. 7203, ] 11 n.2 (Bennett ACWDT).
\8\ The cable license is premised on the Congressional judgment
that large cable systems should only pay royalties for the distant
broadcast station signals that they retransmit to their subscribers
and not for the local broadcast station signals they provide.
However, cable systems that carry only local stations are still
required to submit a statement of account and pay a basic minimum
fee. See Distribution Order, Distribution of the 2000-2003 Cable
Royalty Funds, 75 FR 26798 n.2 (May 12, 2010) (2000-03 Distribution
Order).
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The royalty scheme for large cable systems employs a statutory
device known as the distant signal equivalent (DSE), which is defined
at 17 U.S.C. 111(f)(5). The cable systems, other than those paying the
minimum fee, pay royalties based upon the number of DSEs they
retransmit. The greater the number of DSEs a cable system retransmits
the larger its total royalty payment. The cable system pays these
royalties to the Copyright Office. These fees comprise the ``Basic
Fund.'' See 17 U.S.C. 111(d)(1)(B). In addition to the Basic Fund,
large cable systems also may be required to pay royalties into one of
two other funds that the Copyright Office maintains: the Syndex Fund
and the 3.75% Fund.
As noted above, the utilization of the cable license is linked with
how the FCC regulated the cable industry in 1976.\9\ FCC rules at the
time restricted the number of distant broadcast signals a cable system
was permitted to carry (``the distant signal carriage rules'').
National Cable Television Assoc., Inc. v. Copyright Royalty Tribunal,
724 F.2d 176, 180 (D.C. Cir. 1983). FCC rules also allowed local
broadcasters and copyright holders to require cable systems to delete
(or blackout) syndicated programming from imported signals if the local
station had purchased exclusive rights to the programming (``syndicated
exclusivity'' or ``syndex'' rules). Id. at 187. In 1980, the FCC
repealed both sets of rules. Id. at 181.
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\9\ FCC regulation of the cable industry was impacted by passage
of the 1976 Copyright Act that created the compulsory license for
cable retransmissions codified in section 111. See Report and Order,
Docket Nos. 20988 & 21284, 79 F.C.C. 663 (1980), aff'd sub nom.
Malrite T.V. v. FCC, 652 F.2d 1140, 1146 (2d Cir. 1981).
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The Copyright Royalty Tribunal (CRT) initiated a cable rate
adjustment proceeding to compensate copyright owners for royalties lost
as a result of the FCC's repeal of the rules. Final rule, Adjustment of
the Royalty Rate for Cable Systems; Federal Communications Commission's
Deregulation of the Cable Industry, Docket No. CRT 81-2, 47 FR 52146
(Nov. 19, 1982). The CRT adopted two new rates applicable to large
cable systems making section 111 royalty payments. The first, to
compensate for repeal of the distant signal carriage rules, was a 3.75%
surcharge of a large

[[Page 54168]]

cable system's gross receipts for each distant signal the carriage of
which would not have been permitted under the FCC's distant signal
carriage rules. Royalties paid at the 3.75% rate--sometimes referred to
by the cable industry as the ``penalty fee''--are accounted for by the
Copyright Office in the ``3.75% Fund,'' which is separate from
royalties kept in the Basic Fund. See id.; see also 17 U.S.C. 111(d);
37 CFR part 387.The second rate the CRT adopted, to compensate for the
FCC's repeal of its syndicated exclusivity rules, is known as the
``syndex surcharge.'' Large cable operators were required to pay this
additional fee for carrying signals that were or would have been
subject to the FCC's syndex rules. Syndex Fund fees are accounted for
separately from royalties paid into the Basic Fund.\10\
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\10\ In 1989, in response to changes in the cable television
industry and passage of the Satellite Home Viewer Act of 1988, the
FCC reinstated syndicated exclusivity rules. The reinstated rules
differed from the original syndex rules, giving rise to a petition
to the CRT for adjustment or elimination of the syndex surcharge.
See Final Rule, Adjustment of the Syndicated Exclusivity Surcharge,
Docket No. 89-5-CRA, 55 FR 33604 (Aug. 16, 1990). The CRT held that
``the syndicated exclusivity surcharge paid by Form 3 cable systems
in the top 100 television markets is eliminated, except for those
instances when a cable system is importing a distant commercial VHF
station which places a predicted Grade B contour, as defined by FCC
rules, over the cable system, and the station is not ``significantly
viewed'' or otherwise exempt from the syndicated exclusivity rules
in effect as of June 24, 1981. In such cases, the syndicated
exclusivity surcharge shall continue to be paid at the same level as
before.'' (Id. See Final Rule, Cable Television Services; Program
Exclusivity in the Cable and Broadcast Industry, 54 FR 12913 (Mar.
29, 1989), aff'd sub nom. United Video, Inc. v. FCC, 890 F.2d 1173
(D.C. Cir. 1989); 47 CFR 73.658(m)(2) (1989); 47 CFR 76.156 (1989).
The present proceeding deals only with allocation of those royalties
among copyright owners in the various program categories.)
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Royalties in the three funds--Basic, 3.75%, and Syndex--are the
royalties to be distributed to copyright owners of non-network
broadcast programming in a section 111 cable license distribution
proceeding. See 37 CFR part 387.\11\
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\11\ The CRB last adjusted cable Basic, 3.75%, and Syndex rates
in 2021, for the period January 1, 2020, through December 31, 2024.
See Final Determination, Adjustment of Cable Statutory License
Royalty Rates, Docket No. 20-CRB-0008-CA (2020-2024), 86 FR 72845
(Dec. 23, 2021). This adjustment was pursuant to a negotiated
agreement.
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Cable system operators are required to file Statements of Account
with the Copyright Office detailing subscription revenues and specific
television signals they retransmit distantly, and to deposit section
111 royalties calculated according to the reported figures. Testimony
of Gregory S. Crawford, Ph.D., Corrected (2010-2013), Trial Ex. 7031, ]
74 & n.37 (``Crawford 2010-2013 CWDT'').

B. Posture of the Current Proceeding

In February 2019, the Copyright Royalty Board (CRB) published
notice in the Federal Register announcing commencement of proceedings
and seeking Petitions to Participate to determine distribution of 2014,
2015, 2016, and 2017 royalties under the cable and satellite
licenses.\12\
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\12\ Notice . . ., Distribution of Cable Royalty Funds, Docket
No. 16-CRB-0009-CD (2014-17), 84 FR 2930 (Feb. 8, 2019); Notice . .
., Distribution of Satellite Royalty Funds, Docket No. 16-CRB-0010-
SD (2014-17), 84 FR 2931 (Feb. 8, 2019). The CRB received Petitions
to Participate from Broadcast Music, Inc. (``BMI''), the American
Society of Composers, Authors and Publishers (``ASCAP''), and SEASAC
Performing Rights (jointly, the ``Music Claimants''); Canadian
Claimants Group (``CCG''); Global Music Rights; Public Broadcasting
System (``PBS'') on behalf of Public Television Claimants (``PTV'');
Settling Devotional Claimants (``SDC''); Joint Sports Claimants
(``JSC''); Major League Soccer (``MLS''); Multigroup Claimants;
Commercial Television Claimants represented by the National
Association of Broadcasters (``CTV''), National Public Radio for NPR
Joint Claimants (``NPR''); David Powell; and the Motion Picture
Association of America for MPAA-represented Program Suppliers
(``Program Suppliers'' or ``PS''). Subsequently, MLS filed a notice
that it would not participate separately in the allocation phase,
eCRB no. 26935, and Mr. Powell was dismissed as a participant, eCRB.
no. 22314. Multigroup Claimants expressed an intention to
participate in the allocation phase, eCRB no. 25455, but did not
file a written direct statement and did not participate.
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On March 20, 2019, the Judges issued a Notice of Participants and
Order for Preliminary Action to Address Categories of Claims. On April
5, 2021, they issued an Order . . . Adopting Claimant Categories in
which they identified eight categories of claimants for the proceeding:
(1) Canadian Claimants, (2) Commercial Television Claimants; (3)
Devotional Claimants, (4) Joint Sports Claimants, (5) Music Claimants,
(6) National Public Radio, (7) Program Suppliers, and (8) Public
Television Claimants. National Public Radio and Music Claimants reached
settlements with the other claimant groups and received respective
final distributions. Order Granting Motion for Final Distribution to
National Public Radio (Feb. 14, 2022), Order 23 Granting 2014-15 Cable
Final Distribution to Music Claimants . . . (Dec. 7, 2022).
With the settlement of the Music Claimants' share, only the Program
Suppliers claimant group has an interest in the royalties in the Syndex
Fund. Program Suppliers' Post Hearing Brief ] 81 (PS PHB). Public TV
Claimants claim a share only of the Basic Fund. Public Television's
Post-Hearing Brief at 83 (PTV PHB).
The hearing in the present proceeding commenced on March 20, 2023,
and concluded on April 20, 2023. During that period, the Judges heard
live testimony from 33 witnesses and admitted written and designated
testimony from a number of additional witnesses. The Judges admitted
into the record more than 400 exhibits. Many motions related to the
hearing were filed and ruled on. Participants made closing arguments on
June 12, 2023, after which time the Judges closed the record.

C. Allocation Standard

Congress did not establish a statutory standard in section 111 for
the Judges (or their predecessors) to apply when allocating royalties
among copyright owners or categories of copyright owners. However,
through determinations by the Judges and their predecessors (the
Copyright Royalty Tribunal, the CARPs, and the Librarian of Congress),
the allocation standard has evolved, and the present standard is one of
``relative marketplace value.'' \13\ See Distribution Order,
Distribution of the 2004 and 2005 Cable Royalty Funds, 75 FR 57065
(Sept. 17, 2010) (2004-05 Distribution Order).
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\13\ In this proceeding, the Judges distinguish between
``relative values'' (to describe the allocation shares), and
absolute ``fair market values.'' Because the royalties at issue in
this proceeding are regulated and not derived from any actual market
transactions, they do not correspond with absolute dollar royalties
that would be generated in a market and thus would not reflect
absolute ``fair market value.''
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``Relative marketplace values'' in these proceedings have been
defined as valuations that ``simulate [relative] market valuations as
if no compulsory license existed.'' Final Rule, Distribution of 1998
and 1999 Cable Royalty Funds, 69 FR 3608 (Jan. 26, 2004) (1998-99
Librarian Order). Because such a market does not exist (having been
supplanted by the regulatory structure), the Judges are required to
construct a ``hypothetical market'' that generates the relative values
that approximate those that would arise in an unregulated market. 2004-
05 Distribution Order at 57065; see also Program Suppliers v. Librarian
of Congress, 409 F.3d 395, 401-02 (D.C. Cir. 2001) (``[I]t makes
perfect sense to compensate copyright owners by awarding them what they
would have gotten relative to other owners . . . .'').\14\
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\14\ The Judges discuss the relative marketplace value standard
in more detail, infra, as applied to the facts of this proceeding.
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II. Introduction To Regression Section

Four parties have proposed that the Judges utilize regression
analysis to estimate the relative marketplace value of each party's
programs distantly retransmitted by CSOs during the four-year period
2014-2017. Each party relies on testimony from economic

[[Page 54169]]

experts to support its position. CCG relies on the testimony of Dr.
Lisa George. CTV relies on the testimony of Dr. Leslie Marx and the
supportive testimony of Dr. Cristopher Bennett. Program Suppliers rely
on the testimony of Dr. Cleve Tyler and the supportive testimony of Dr.
Gray. Finally, PTV relies on the testimony of Dr. John Johnson.
Two parties oppose all of the regression approaches on which each
of the above parties relies. The SDC, through the testimony of
economists Drs. Erkan Erdem and Daniel Rubinfeld, oppose the regression
approach for many of the same reasons it (unsuccessfully) opposed the
regressions proffered in the 2010-13 allocation proceeding, which was
the most recent section 111 allocation proceeding. However, the SDC has
also presented arguments that are differentiated from those it made in
that prior proceeding. JSC, although it relied in part on a regression
approach in the prior proceeding, opposes the regression approaches
through the testimony of two economists, Dr. W. Robert Majure and Dr.
John Asker, and a statistician, Mr. R. Garrison Harvey.
Dr. Marx, identified above as an expert who relies on the
regression approach, does so only for the 2014 royalty year. For the
2015-2017 period, she opposes the use of the regression approach, based
on industry changes that she maintains (consistent with a criticism
from the other opposing experts listed above) diminished the quality of
the available economic data necessary to conduct an appropriate
regression.
The models of each of the four experts who proffered regression
analyses are discussed individually below, together with the rebuttals
levied by the opposing experts. However, in order to understand and
contextualize the regression-related evidence, it is helpful to address
several overarching issues that color the Judges' analysis and
conclusions. Accordingly, before jumping into the specific regression
models, the Judges first (1) consider in greater detail their
allocation standard of ``relative marketplace value'', (2) address the
changing impact of the ``minimum fee'' in the 2014-2017 period, (3)
evaluate assertions of inappropriate econometric practice
(``specification searching'') that may compromise the regression
approaches, and (4) analyze questions regarding whether certain types
of PTV programs are properly included within the regression analyses.
After clearing this analytical underbrush, the Judges proceed to a
discussion of the sequential presentation of the parties' regression
models, followed by the Judges' ``Analysis and Conclusions'' regarding
those models. Finally, the Judges consider several additional important
issues arising from the regressions that relate specifically to (1) the
CCG claims for Canadian programming issues and (2) the 3.75% Fund.

III. The Data Relied On By The Parties

All of the parties' experts who relied on data detailing royalty
reporting and programming information essentially utilized the same
data sources and processed the data in basically the same manner.
Specifically, the parties engaged in the following steps:
1. Establish a method to link the CSOs distant signal carriage to
the programs carried on each signal, by merging CSO and distant signal
carriage data to television programming and scheduling data (as
detailed below).
2. Obtain a dataset on distant signal carriage from Cable Data
Corporation (CDC), that covers each semiannual accounting period from
2014-1 through 2017-2 for the larger ``Form 3'' cable systems.\15\ CDC
compiles and digitizes this dataset data directly from the SA3
Statement of Account (SOA) forms that Form 3 cable systems are required
to file semiannually at the Licensing Section of the Copyright Office.
(The CDC data is set forth in the Written Direct Testimony of Jonda K.
Martin.)
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\15\ ``Form 3'' systems are cable systems with semiannual gross
receipts in excess of $527,600 that are required to submit an SA3
Long Form to the US Copyright Office. They are the only systems
required to identify which of the stations they carry are distant
signals, and they account for over 90% of the total royalties paid
by all cable systems during 2014-2017.
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3. Obtain through these SOAs, for each CSO, information about its
(a) ownership, rates, gross receipts, total number of subscribers, and
communities served, and (b) the identity of every broadcast television
station carried and a calculation of royalties owed for the
transmission of distant signals under section 111.
4. Obtain station, program, and scheduling data from Red Bee Media
(formerly FYI Television, Inc.) to merge with the foregoing carriage
and royalty data. (Red Bee Media is an international broadcasting and
media services company that publishes television airing data, using
programming data that it sources directly from stations in the form of
interactive program guides.)
5. Examine the Red Bee Media's database of U.S. and Canadian
broadcast and cable channels carried by U.S. CSOs, together with
network data and detailed program and scheduling data for the period
January 1, 2014, through December 31, 2017, to identify, per station,
(a) program titles, (b) program type/category, (c) originating station,
and (d) date and time of program airing.
6. Obtain Canadian television program log data from the Canadian
Radio-Television and Telecommunications Commission (CRTC), which
regulates and supervises broadcasting and telecommunications within
Canada.
7. Develop and apply an algorithm, using the aforementioned data,
that assigns program airings to their correct categories.
8. Review and confirm the results and make any modifications that
are appropriate.
Amended Corrected Written Direct Testimony of Christopher Bennett,
Ph.D., Trial Ex. 7203, ]] 10-27 (Bennett ACWDT) (describing the CTV
data process); Corrected Written Direct Testimony of R. Garrison
Harvey, Trial Ex. 7105, tech. app., pt. A (Harvey CWDT) (describing the
JSC data process); Written Direct Testimony of John H. Johnson, IV,
Trial Ex. 7300, ]] 46-51 & app. G (Johnson WDT) (describing the PTV
data process); Written Direct Testimony of Lisa M. George, Ph.D., Trial
Ex. 7403, at 47-50 & app. B (George WDT) (describing the CCG data
process, also supplemented with U.S. Census income information);
Amended Corrected Written Direct Testimony of Jeffrey S. Gray, Trial
Ex. 7605, ]] 16-18; 32-34, & 39 n.23 (describing the Program Suppliers'
data process).
Given the voluminous nature of the data relating to programming and
minutes, the data-related processes suffered from several hiccups
during assembly and analysis for the several experts. The record
reflects that most of the data-based problems were resolved before the
experts filed their direct testimonies, and there were some data-
related amendments and corrections set forth in subsequent testimonies.
To the extent any of the data problems were unresolved, material, and
need to be addressed in order for the Judges to properly allocate
shares, those data problems are discussed in this determination.

IV. The Role of Regression Analysis In The Statutory Context

Section 111 sets forth no standard for the Judges (or their
predecessors) to apply in allocating royalties arising from the
payments made by CSOs. This was no mere oversight. The legislative
history makes it clear that Congress

[[Page 54170]]

intentionally omitted a standard to guide the Judges:

[T]he bill does not include specific provisions to guide . . .
determining the appropriate division among competing copyright
owners of the royalty fees collected from cable systems under
section 111 [because] it would not be appropriate to specify
particular, limiting standards for distribution. Rather, the
Committee believes that the [adjudicator] should consider all
pertinent data and considerations presented by the claimants.

House Report No. 94-1476, Notes of Committee on the Judiciary. This
standardless delegation has led the parties, as well as the Judges and
their predecessors, to invoke an evolving set of five broad factors,
that have waxed and waned, to consider when allocating royalties among
program category claimants. As the Judges recounted in a prior
proceeding:

[T]he standards for determining distribution awards have changed
dramatically since the inception of the license. In the first Phase
I [allocation] proceeding, the Copyright Royalty Tribunal identified
three primary factors to guide its determinations: (1) The harm to
copyright owners caused by distant signal retransmissions; (2) the
benefit derived by cable systems from those retransmissions; and (3)
the marketplace value of the copyrighted works retransmitted. 45 FR
63026, 63035 (September 23, 1980). The Tribunal also identified two
secondary factors: (1) The quality of the retransmitted material;
and (2) time-related considerations. Id. By the time of the last
fully litigated Tribunal determination, the Tribunal dropped its
consideration of the two secondary factors. 57 FR 15286 (April 27,
1992). The first CARP to undertake a Phase I distribution, the 1990-
92 proceeding, discarded the ``harm'' criterion in its consideration
. . . . That action was upheld by the Librarian of Congress and,
subsequently, the Court of Appeals. Nat'l Ass'n of Broadcasters v.
Librarian of Congress, 146 F.3d 907 (D.C. Cir. 1998). The 1998-99
CARP refined the approach further still, noting that ``every party
to this proceeding appears to accept `relative marketplace value' as
the sole relevant criterion that should be applied by the Panel.''
CARP Report at 10 (emphasis in original). As a consequence, the CARP
announced that its ``primary objective is to `simulate [relative]
market valuation' as if no compulsory license existed.'' Id. The
Librarian upheld this conclusion as well, and the Court of Appeals
once again affirmed. Program Suppliers v. Librarian of Congress, 409
F.3d 395 (D.C. Cir. 2005).

Distribution Order, Distribution of the 2000-2003 Cable Royalty
Funds, 75 FR 26798, 26801-02 (May 12, 2010) (2000-03 Distribution
Order).\16\
---------------------------------------------------------------------------

\16\ ``Fee-generation,'' discussed elsewhere in this
determination, is a method proffered to identify relative
marketplace value. Id. at 26804 (the ``fee generation approach
should be accorded deference, not as the methodology to determine
the relative marketplace value but as a methodology to determine
that value.''). Other approaches proffered more recently have been
advanced in order to apply the present standard, ``relative
marketplace value.'' See 2010-13 Determination at 3556 (identifying
[r]egression analyses, CSO survey results, viewership measurements,
a changed circumstances analysis, and a cable content analysis'' as
approaches to estimate relative marketplace value).
---------------------------------------------------------------------------

The D.C. Circuit Court of Appeals has recognized that ``the process
that Congress ordained'' has placed the Judges and their predecessors
in a context where ``mathematical exactitude . . . appears well-nigh
impossible [and] rough justice in dividing up the royalty pie seems to
be . . . inevitable.'' Nat'l Ass'n of Broadcasters v. Copyright Royalty
Tribunal, 772 F.2d 922, 926 (D.C. Cir.1985) (emphasis added) (``NAB'').
Moreover, despite the shifts in the administrative standard for
allocating royalties, the D.C. Circuit has continued to note this
practical concern. See, e.g., Settling Devotional Claimants v.
Copyright Royalty Board, 797 F.3d 1106, 1121 (D.C. Cir. 2015).
It is in the context of this ``rough balancing of hotly competing
claims,'' NAB at 940, that the Judges find it appropriate to rely (in
part) on regression approaches in this proceeding. The counter-argument
that the regressions do not generate a proxy for price that meets the
exactitudes of econometric theorizing may be correct, but it appears to
be a precise answer to the wrong question, namely, what is the price
that would obtain in a marketplace ill-defined in the record in this
proceeding?
The Judges have experience in considering market proxies when
exercising their companion jurisdiction of setting royalty rates for
certain forms of music and sound recording distributions. In those
proceedings, the parties proffer, and the Judges consider, benchmark
evidence from analogous markets, market-based evidence from the
regulated market itself, economic models, economic experiments, and
survey evidence--all in an attempt to identify applicable market
factors. Often, more than one of these approaches are proffered in the
same proceeding, and the Judges consider whether to apply more than one
model in rendering a determination. Here, the parties have provided
evidence from the regulated market itself, in the form of regression
analyses, and survey evidence, in the form of the Bortz Survey.
Focusing here on the criticism of the regression evidence generated
from the regulated market itself,\17\ the Judges consider the emphasis
of the regression opponents upon the exactitude of the price proxies,
and find that fixation to be dubious. As the Judges have explained,
also in their rate determinations, intellectual property goods (whether
retransmitted television stations or streams of musical works or sound
recordings) are often licensed at various royalty rates because the
nature of these goods invites price discrimination. See, e.g., Final
rule and order, Determination of Royalty Rates and Terms for Making and
Distributing Phonorecords (Phonorecords III), 84 FR 1918, 1980 (Feb. 5,
2019) (dissent, Strickler, J.) (for intellectual property goods there
``exist many alternative rate structures with varying rates for various
segments of the market . . . forms of `price discrimination,' which, in
the broadest sense, means simply a departure from a single, per-unit
price.''). Thus, the very idea of a single econometrically correct
price for the royalties at issue in this proceeding is fanciful,
particularly in the absence of any evidence of such prices or even a
methodology to establish price.
---------------------------------------------------------------------------

\17\ The Judges focus on the Bortz Survey infra.
---------------------------------------------------------------------------

Additionally, in line with the D.C. Circuit's acknowledgment that
these allocation proceedings may afford the Judges only the ability to
dispense ``rough justice,'' the Judges note an economic corollary: It
is better to be ``roughly correct'' than ``precisely wrong.'' \18\
Similarly, in matters of econometrics, Professor Kennedy, cited infra
by parties on both sides of the regression divide in this proceeding,
has cautioned econometricians against making what he calls ``Type III
errors[,] . . . when a researcher produces the right answer to the
wrong question.'' Peter Kennedy, A Guide to Econometrics 391 (5th ed.
2003). Indeed, Professor Kennedy, then echoing the quote attributed to
Keynes, advises that in econometric practice ``a corollary of this rule
is that an appropriate answer to the right question is worth a great
deal more than a precise answer to the wrong question.'' Id.
---------------------------------------------------------------------------

\18\ Attributed to John Maynard Keynes. See, e.g.,<a href="https://graciousquotes.com/john-maynard-keynes/">https://graciousquotes.com/john-maynard-keynes/</a> (last accessed August 28,
2023).
---------------------------------------------------------------------------

In this proceeding, counsel for the SDC, a party vigorously
advancing the price-based criticism of the regressions, argues that
application of any regression analyses would indeed be ``rough'' but
acknowledges that, as for ``justice,'' only the Judges could say. 6/12/
23 Tr. 6007-08 (closing argument). Counsel is essentially correct on
both points. First, the use of regression analyses is not precise, but
rather ``rough,'' at least compared to the exactitude of a full-

[[Page 54171]]

fledged hedonic regression or a discrete choice approach noted by SDC's
economic witnesses as possible alternatives (but not proffered as
alternative models). And further, Congress most clearly left to the
Judges the decision as to the standard to be applied and the methods by
which the standards could be effectuated.\19\
---------------------------------------------------------------------------

\19\ SDC's counsel's argument was in line with the D.C.
Circuit's understanding that the Judges must by necessity engage in
``rough justice'' in these allocation proceedings, but he protested
that any rough variant of justice that relied on one or more of
these regressions would not constitute ``rough economic justice.''
Id. (emphasis added). The Judges disagree, as do their predecessors
who have relied on these models, and as do the economists/
econometricians who have proffered regression-based models in this
and prior proceedings. In this regard, the Judges were struck by a
warning given by SDC's counsel that, if the Judges ``adopt[ed] the
Tyler [M]odel on a theory of ``rough economic justice'' without
discarding the ``relative market value'' standard, [they] would
inhibit the parties' ability to present top-shelf economists . . .
'' SDC PHB at 64 (emphasis in original). The Judges agree with
Program Suppliers' counsel who rightly took umbrage at the ``not-so-
subtle condescending posture of this remark . . . '' Program
Suppliers PHRB at 41. The expert witnesses certainly do disagree
among each other, but the experience and education of the
economists/econometricians who have proffered their regression
approaches belie the ad hominem argument by SDC's counsel.
---------------------------------------------------------------------------

V. Minimum Fee Issue

A. CCG Position on the Minimum Fee Issue

CCG argues that ``[it] is incorrect to claim that regressions are
not useful . . . because of the minimum fee structure,'' or because of
``the presence of more minimum fee or `excess capacity' systems'' in
the 2015-2017 period compared to the prior four years. Proposed
Findings of Fact and Conclusions of Law of the Canadian Claimants Group
(CCG PFF) at 72-73. In support of this argument, CCG asserts that the
regressions proffered in this proceeding do not require accurate
measures when the royalty fees ``actually paid'' are the minimum fees,
even though they may be ``poor proxies for price.'' CCG PFF ] 197 (and
record citations therein) (emphasis added). Rather, CCG maintains that
the regression coefficients--which are calculated using unpaid
subscriber-group base fees--nonetheless provide useful information
regarding the correlation between ``carriage decisions and royalty
payments.'' CCG PFF ] 197 (and record citations therein). In further
support, CCG cites to a statement by the Judges in the prior
proceeding, citing Final Allocation Determination, Distribution of
Cable Royalty Funds, Docket No. CONSOLIDATED 14-CRB-0010-CD (2010-
2013), 84 FR 3552, 3555-56 n.17 (Feb. 12, 2019) (2010-13
Determination).\20\
---------------------------------------------------------------------------

\20\ In fact, footnote 17 cited by CCG does not address this
minimum fee issue.
---------------------------------------------------------------------------

CCG acknowledges though that reliance in these regressions on
minimum-fee-paying CSOs generates ``measurement error,'' but claims
that this is not a concern, because it is ``an ordinary part of
regression . . . reduc[ing] precision but . . . not bias[ing] claimant
shares.'' CCG PFF ] 198 (citing 4/18/23 Tr. 5125-26 (George)). In fact,
CCG maintains that the data pertaining to CSOs that pay only the
minimum fee reveals that, for them, the value of the distant signal is
essentially zero--information that could not have been ascertained from
data in an unregulated market.\21\ CCG ] 199 (citing 4/18/23 Tr. 5139-
41 (George); Written Rebuttal Testimony of Lisa George, Trial Ex. 7404,
at 15-16, 47 (George WRT)).
---------------------------------------------------------------------------

\21\ The minimum fee is a fixed (sunk) cost. A CSO that pays
only the minimum fee has a marginal royalty cost to retransmit a
signal equal to zero. Thus, a minimum-fee-paying CSO's decision not
to retransmit any signal indicates that the net value of
retransmittal is zero for that CSO (and may even be negative given
transmission and/or opportunity costs).
---------------------------------------------------------------------------

Focusing on the dramatic increase in the number of minimum-fee-only
CSOs, CCG dichotomizes this cohort. With regard to CSOs that ``do not
carry distant signals'' at all, CCG reasons that their voluntarily
refusal to retransmit means that they cannot be used to determine the
value of distant signals in a regression.\22\ CCG PFF ] 201 (citing
George WRT at 15; 4/18/23 Tr. 5141 (George). And, with regard to the
CSOs that do carry some distant signals, but still have ``excess
capacity'' and thus also pay only the minimum fee, CCG maintains that
``these are the same ones that would determine value absent the
compulsory license.'' CCG PFF ] 201 (citing George WRT at 15; 4/18/23
Tr. 5141 (George)).
---------------------------------------------------------------------------

\22\ CCG maintains that these non-transmitting CSOs also cannot
be utilized in the Bortz Survey.
---------------------------------------------------------------------------

B. Program Suppliers Position on the Minimum Fee Issue

According to Program Suppliers, notwithstanding the increase in the
number of minimum-fee-only CSOs, regression remains the most useful
technique for estimating relative marketplace value. Program Suppliers'
Proposed Findings of Fact and Conclusions of Law (PS PFF) at 78. They
note that, despite this increase, still ``20% of CSOs who carry distant
signals have a calculated royalty fee which is approximately the size
of the minimum fee.'' This ``cluster of CSOs at the threshold . . .
provides evidence that . . . certain CSOs that paid the minimum fee
nevertheless engaged in economic decision-making with regard to
distantly retransmitted signals carried.'' Amended and Corrected
Written Direct Testimony of Cleve B. Tyler, Ph.D., Trial Ex. 7600, ]]
151-52 (Tyler ACWDT). Further elucidating this point, Program Suppliers
rely on additional oral testimony by Dr. Tyler, explaining that his
regression model ``is based in part on the . . . likely uncertainty, at
the time that carriage decisions are made, as to whether the minimum
fee or the calculated rate [i.e., the base rate] would bind . . .
increas[ing] the economic content within the decision-making process,
even where the minimum fee ultimately binds.'' PS PFF ] 323 (citing 4/
19/23 Tr. at 5521-22 (Tyler)) (emphasis added).\23\ Further in this
regard, Program Suppliers aver that even CSOs with zero distant signal
carriage derive ``option value'' from the section 111 license, because
they are always permitted (``privileged'' in the language of section
111) to engage in such retransmission. Tyler ACWDT ] 102. According to
Dr. Tyler, the base fee calculation would tacitly reflect this option
value. Id.
---------------------------------------------------------------------------

\23\ In a following colloquy with Judge Strickler, Dr. Tyler
acknowledged that, by contrast, where the base fees calculated by
CSOs were well below the minimum fee ultimately paid, their base
fees provided ``less economic content.'' 4/19/23 Tr. 5525 (Tyler).
---------------------------------------------------------------------------

In any event, Dr. Tyler rejects as ``too extreme'' the alternative
of ``[d]ropping most of the observations'' by excluding the minimum-
fee-only CSOs, because that would implicitly incorporate the assumption
that ``there is essentially no value associated with any of the minutes
for the systems paying the minimum fee.'' 4/19/23 Tr. 5474 (Tyler). In
support of this point, Program Suppliers note that ``[n]o expert in
this proceeding took the approach of dropping minimum fee systems from
the analysis.'' PS PFF ] 327 (and record citations
therein).24 25
---------------------------------------------------------------------------

\24\ This argument is misleading. As described infra, the SDC,
JSC, and CTV, through their experts, all relied on the large number
of minimum-fee-only CSOs as a basis to throw out the regressions
entirely for the 2015-2017 period (and the SDC and JSC also reject
the minimum-fee-only data for 2014 as part and parcel of their
wholesale rejection of the regression approach).
\25\ Program Suppliers also note that the Bortz Survey likewise
considers the stated preferences of survey respondents whose systems
pay only the minimum fee. PS PFF ] 328.
---------------------------------------------------------------------------

Despite Program Suppliers' assertion that there is economic
evidence from the carriage decisions of minimum-fee-only CSOs, they
acknowledge that there is also merit to considering a version of the
model that includes only CSOs paying above the minimum fee. Tyler

[[Page 54172]]

ACWDT ]] 155-156. According to Dr. Tyler, this restricted data set
presents with the ``highest degree of confidence'' the CSO tradeoffs
between different stations and categories of minutes. Tyler ACWDT ]
155. To this end, Dr. Tyler undertook a ``sensitivity'' analysis that
considered only CSOs paying more than the minimum fee, and determined
the following estimated shares (and standard errors):
[GRAPHIC] [TIFF OMITTED] TN28JN24.000

According to Dr. Tyler, these shares are sufficiently close to the
shares he proposes through his analysis of all CSOs, i.e., including
those only paying the minimum fee. Compare Tyler ACWDT fig.3.2, with
Tyler ACWDT fig.6.3. According to Dr. Tyler, this ``sensitivity''
comparison of his recommended share allocation and the allocation
generated by above-minimum-fee-only CSOs reveals that his ``modeling
approach . . . is reasonably robust and . . . sufficiently reliable for
informing allocation of the 2014-2017 Cable Royalties among the
Allocation Phase claimant categories.'' Tyler ACWDT ] 105.

C. PTV Position on the Minimum Fee Issue

PTV, like CCG, finds economic significance in the choices of a CSO
``to retransmit a distant signal to particular subscriber groups''
despite the fact that the CSO pays the minimum fee, relying in part on
Dr. Marx's testimony that those choices reveal only ordinal preferences
as to distant programming types. Public Television's Proposed Findings
of Fact and Conclusions of Law (PTV PFF) ] 58 (citing, inter alia, 4/
11/23 Tr. 4165 (Marx)). Thus, PTV finds it appropriate to rely on what
it describes as the ``ample variation in the decision-making of CSOs
that pay the minimum fee . . . to . . . inform[ ] . . . relative
marketplace value. . . .'' PTV PFF ] 59.
As an alternative basis for finding relevance in the decision-
making of CSOs that paid only the minimum fee after the WGNA
conversion, PTV finds relevance in the fact that many CSOs had
distantly carried certain PTV signals pre-conversion together with
WGNA, paying above the minimum fee, and continued to transmit that
companion signal post-conversion, when only the minimum fee applied.
According to PTV, this continuity of PTV carriage is record evidence of
the value of the PTV carriage during the minimum-fee-only periods. PTV
PFF ] 60; Johnson WRT ] 78 (``The WGN conversion in 2015 does not mean
the value of KAET-DT [Public Television signal] declined or disappeared
altogether.''); see generally Johnson WRT ] 79 (As in the KAET example,
``there were 1,115 CSO-Public Television distant signal combinations in
the 2015-2017 period where the CSO paid a minimum fee during those
years [and] [f]or 55 percent of these combinations, the same CSO also
carried the same Public Television distant signal, at a different point
in time, when it paid section 111 royalties greater than the minimum
fee.''(emphasis added)).
As another alternative, Dr. Johnson, on behalf of PTV, and like Dr.
Tyler, undertook a ``sensitivity test'' that excluded the minimum-fee-
paying CSOs. According to PTV, the results of this sensitivity test
were sufficiently consonant with the coefficients in Dr. Johnson's
preferred ``baseline'' fee-based regression, which included the
minimum-fee-only CSOs, to suggest that decisions made by CSOs that paid
minimum fees are informative as to the question of relative value. PTV
PFF ] 84 (and record citations therein); compare Johnson WDT fig.11
(baseline model coefficient, with Johnson WDT fig.14 (``sensitivity
test'' coefficients excluding minimum-fee-paying CSOs). This consonance
was important, according to Dr. Johnson, because it justified his use
of the ``baseline'' model, which, because it included the minimum-fee-
paying CSOs, relied on 18,666 observations, and therefore was more
precise than his ``sensitivity test'' approach. Johnson WDT ] 84.
From yet another economic perspective, PTV maintain that for
minimum-fee-paying CSOs making some retransmissions, the value of the
retransmitted programming must have some marginal value, in excess of
``opportunity costs'' regarding alternative uses of bandwidth including
streaming alternatives. PTV PFF ]] 62-63. Taken together, PTV asserts
that the foregoing facts support the inclusion of the base-fee
decisions of minimum-fee-paying CSOs. PTV PFF ] 97.

[[Page 54173]]

D. CTV Position on the Minimum Fee Issue

CTV presents a nuanced argument regarding the relevancy of minimum-
fee-only CSOs, consistent with the opinions of their economic expert,
Dr. Leslie Marx. On the one hand, CTV and Dr. Marx maintain that the
retransmission decisions of minimum-fee-only CSOs were not so numerous
as to preclude the use of base fee data from minimum-fee-only CSOs in a
regression for the years 2010-2013 (addressed in the prior
determination) and for 2014 (the earliest year addressed in the present
proceeding). 4/11/23 Tr. 4157 (Marx) (testifying that ``the mere
presence of royalties from excess capacity CSOs'' does not make the
fee-based regressions invalid'' because ``it's a matter of degree . . .
.''). On the other hand, CTV and Dr. Marx maintain that the
retransmission decisions of the minimum-fee-only CSOs were so pervasive
during the years 2015-2017 as to preclude the use of fee-based
regressions for those three years. Id. at 4157-58. See generally
Commercial Television's Proposed Findings of Fact and Conclusions of
Law (CTV PFF) at 38 (describing CTV's and Dr, Marx's approach as
measured, because it ``utilize[ed] a fee-based regression only for
2014, [which was] the sole year at issue in this proceeding without
significant marketplace changes.'') \26\
---------------------------------------------------------------------------

\26\ This nuanced position is not an inconsistent economic
argument. Rather, it is an argument regarding data differentiation
and the concomitant weighing of evidence. CTV and Dr. Marx assert
that, as a matter of ``degree,'' too high a percentage of the number
of CSOs paying only the minimum fee (and/or too high a percentage of
all royalties paid by minimum-fee-only CSOs) will render the
incorporation of the retransmission decisions of those CSOs (and/or
the royalties they paid) fatal to a fee-based regression. However,
they assert that when those minimum-fee-only CSOs and their
royalties are only approximately half of the CSOs and royalties
paid, as in the 2010-2013 period, and when they principally apply to
CSOs with only one subscriber group (and thus are excluded anyway
from the Crawford-style regression), their inclusion is too small to
preclude use of a fee-based regression. See generally CTV PFF at 20
et seq. (``The lack of informative data renders any fee-based
regression inappropriate and unreliable for 2015, 2016 and 2017.'').
---------------------------------------------------------------------------

CTV continues its argument on this point by pointing out that when
a CSO elects to carry a set of distant signals resulting in a payment
higher than the minimum fee, that indicates the CSO sufficiently values
the programming minutes bundled into the carriage to make it willing to
pay marginal royalty payments above the minimum fee. Written Rebuttal
Testimony of Leslie M. Marx, Ph.D., Trial Ex. 7208, ] 21 (Marx WRT).
Alternatively stated, for these CSOs which CTV accurately describes as
``above-capacity'', i.e., retransmitting more than 1.0 DSE and thereby
paying above the minimum fee, the base fee royalties reported by their
subscriber groups are their actual royalty payments, revealing the
CSO's perceived value of the distantly retransmitted stations and their
constituent programs. Written Rebuttal Testimony of Christopher
Bennett, Ph.D., Trial Ex. 7035, ] 15 (Bennett WRT); CTV PFF ] 158.
To contrast from the ``above-capacity'' CSOs, CTV and its experts
examine the carriage decisions of CSOs that had carried WGNA in 2014,
either solely or with other signals, but could not, and thus did not,
carry WGNA after 2014. CTV asserts that because the WGNA conversion
generated the explosion of minimum-fee-only CSOs, the majority of the
royalties and CSOs do not reflect incremental costs associated with
incremental carriage. CTV PFF ]] 177, 186. This change is reflected in
a series of figures presented by Dr. Marx. First, she demonstrates the
share of royalty payments by CSOs carrying distant signals relative to
the minimum fee, across the relevant years:
[GRAPHIC] [TIFF OMITTED] TN28JN24.001

[[Page 54174]]

Next, Dr. Marx identifies the percentage of all CSOs carrying
distant signals that are paying the minimum fee over the relevant
years:
[GRAPHIC] [TIFF OMITTED] TN28JN24.002

These data present the contrast between how the actual royalty
obligations through 2014 were directly linked to base fees at the
subscriber-group level and the actual royalty obligations in the 2015-
2017 period where they were instead predominantly a function of the
minimum fee. CTV PFF ] 167 (citing Bennett WRT fig.5). Likewise, Dr.
Marx testified that there was no substantial dissimilarity in the 2010-
2014 period between: (1) the overall regression coefficients (not
allocation shares) for all CSOs and (2) the regression coefficients for
only CSOs carrying fewer distant signals than the minimum fee would
permit, which Dr. Marx aptly described as ``excess capacity'' CSOs.
Marx WRT ] 62. This substantially similarity was depicted as follows by
Dr. Marx:
[GRAPHIC] [TIFF OMITTED] TN28JN24.003

Moreover, according to Dr. Marx, many of the CSOs with ``excess
capacity'' also had less than the two subscriber groups necessary to be
observed by the Crawford regression, thus making their ``excess
capacity'' status inconsequential to the regression for this
independent reason. 4/11/23 Tr. 4157 (Marx).
The scenario for the 2015-2017 period was drastically different,
according to Dr. Marx. She also presents coefficients (not allocation
shares) for this latter three-year period, and shows how the
coefficients for all CSOs differed from those with no excess capacity:

[[Page 54175]]

[GRAPHIC] [TIFF OMITTED] TN28JN24.004

With regard to the necessity of at least two subscriber groups
within a system during an accounting period (required by Dr. Crawford's
system-accounting period fixed effect), Dr. Marx reported that,
beginning in 2015, fully 62% of CSOs, accounting for almost 35% of
total royalties, did not satisfy this requirement. Amended Corrected
Written Direct Testimony of Leslie M. Marx, Ph.D., Trial Ex. 7204, ] 58
(Marx ACWDT). By 2017, 93.8% of the royalties were paid via the minimum
fee, rather than the base fees. CTV ] 189 (citing Marx WRT, fig.14).
Although CTV and Dr. Marx do not consistently characterize the
evidentiary weight of the royalty data from ``excess-capacity'' CSOs as
wholly uninformative, they unambiguously report Dr. Marx's own opinion
that the 2015-2017 minimum fee royalty data is decidedly ``less
informative'' than the royalty data from CSOs that transmitted more
than 1.0 DSE. Marx WRT ] 22.
Further bolstering the point that minimum-fee-only-CSO royalty data
dominated the 2015-2017 landscape, CTV points to the following data:

CSO carriage of fewer distant signals after 2014 sharply
increased the percentage number of excess capacity CSOs, from less
than 20% of CSOs in 2014 to 73% of CSOs in 2016 onward. Marx WRT ]
64.
The percentage of CSOs paying more than the minimum fee
decreased from 48% in 2014 to only 19% by the end of 2017 (measured
by including CSOs with zero retransmittals).

CTV PFF ]] 209-210 (and record citations therein).

Based on the foregoing, CTV relies on Dr. Marx's conclusions
that:
The changed circumstances in the real-world market have infected
the quality of the data and reduced the quantity of the data
utilized by the proffered fee-based regressions making those
regressions in the 2015 to 2017 timeframe unreliable. 4/11/23 Tr.
4510-12 (Marx).
A regression requires reliable data that fits the underlying
assumptions, otherwise the model is putting ``garbage in'' and
getting ``garbage out.'' The data no longer represents carriage
decisions based off of royalty payments from the CSOs. 4/11/23 Tr.
4147; 4194 (Marx).

CTV PFF ]] 299-300. See also Marx WRT ] 82 (``[F]or a minimum fee-
paying CSO, the inclusion of a distant signal in the channel line-up to
a subscriber group . . . reflects the CSO's choice over other
alternative signals that also have no incremental cost. This can be
informative as to the value of the program minutes on whatever signal
the CSO elects to offer.'').

E. JSC Position on the Minimum Fee Issue

Like CTV, JSC contrasts the 2010-2014 period with the years 2015-
2017. In the former period, JSC notes, most CSOs calculated ``a Base
Fee + their 3.75% Fee that equaled or exceeded the Minimum Fee.'' More
particularly, JSC specifies that, ``in 2014, 71.8% of all CSOs
calculated a Base + 3.75% Fee that met or exceeded their minimum fee
obligation, and during the 2010-13 period, 73.0% of all CSOs did so . .
. account[ing]for 76.5% of total royalties paid in 2014 and 79.9% of
total royalty fees paid during the 2010-13 period.'' Proposed Findings
of Fact and Conclusions of Law of the Joint Sports Claimants (JSC PFF)
] 17 (citing 3/30/23 Tr. 2578 (Majure); Harvey CWDT ] 17 & tbl.3;
Corrected Bortz Report, Trial Ex. 7101, at 9 (Bortz Report).
Further, JSC maintains that even if an economic model could produce
reliable ordinal rankings, which none of the regressions in evidence
attempted, it is not possible to make the leap from such rankings to
cardinal relative values, i.e., allocation of specific royalty amounts
to each of the claimant categories in this proceeding. 3/30/23 Tr.
2512-13 (Asker).
JSC also maintains that the base fee calculations of any minimum-
fee-only CSO cannot reveal the programming preferences of such CSOs or
otherwise be useful in the estimation of relative marketplace value.
Specifically, JSC first maintains that ``[a]ny alleged uncertainty
about application of the Minimum Fee is speculative.'' Reply Proposed
Findings of Fact and Conclusions of Law of the Joint Sports Claimants
(JSC RPFF) at 11. Not only does JSC find this uncertainty to be
speculative, they further argue that it is ``highly unlikely that most
Minimum Fee CSOs would have been uncertain about whether a carriage
decision would affect their royalty payment.'' JSC RPFF ] 32. In
support of this point, JSC notes that, after 2014, among minimum-fee-
only CSOs that retransmitted at least one distant signal, approximately
86% calculated a base fee + 3.75% Fee that was 75% or less of the CSO's
minimum fee. JSC RPFF ] 32. Further to this point, JSC takes note of
Dr. Tyler's acknowledgement that ``the further you are away from the
minimum fee threshold, the less likely it would be that there would be
that risk of exceeding it.'' JSC RPFF ] 32.\27\
---------------------------------------------------------------------------

\27\ However, JSC also acknowledges that the Bortz Survey, on
which it relies, likewise ``decided to adopt Base [Fee] + 3.75% Fee
. . . weighting ``[o]nce Bortz realized that many . . . systems were
paying the Minimum Fee. . . .'' JSC RPFF ] 105.
---------------------------------------------------------------------------

In further criticism of the usefulness of regressions, particularly
for the two-year 2016-2017 period, JSC notes that only 55.2% of [CSOs
chose to carry] distant signals. Harvey CWDT ] 26. JSC further notes
that, out of this 55.2%,

[[Page 54176]]

approximately 74% paid only the minimum fee.
Additionally, JSC notes that during the two-year 2016-2017 period,
14% of all CSOs met or exceeded the minimum fee, accounting for but
6.8% of total royalty payments, which reflected a 91% decrease compared
to 2014. Harvey CWDT tbl.11.\28\
---------------------------------------------------------------------------

\28\ More particularly, in the years 2016-2017, only 3.2% of
CSOs calculated a base fee + 3.75% Fee that ``met'' (rather than
``exceeded) the minimum fee. JSC PFF ] 54 (citing Harvey CWDT
tbl.14).
---------------------------------------------------------------------------

With regard to 2015, JSC relies on Mr. Harvey's finding that, after
he removes reported WGNA carriage, 72% of CSOs carrying at least one
distant signal then paid only the minimum fee. JSC notes that Mr.
Harvey found that only 13.4% of CSOs calculated a minimum fee,
accounting for 85.2% of total royalty payments for that year. JSC PFF ]
46 (citing the Harvey CWDT).\29\ Considering these 2015 data from the
opposite perspective, JSC cites Mr. Harvey's calculation that only
13.4% of CSOs calculated a base fee + a 3.75% fee in excess of the
minimum fee, reflecting only 9.8% of the total royalties paid in that
year. JSC PFF ] 47 (further the Harvey CWDT).
---------------------------------------------------------------------------

\29\ It is hardly clear that Mr. Harvey was justified in
removing reported carriage of WGNA in 2015. The record reflects the
existence of SOAs filed for 2015 that reported such carriage, and
there is uncertainty as to whether those SOAs were erroneous or
whether there was residual WGNA carriage as WGNA transitioned from a
broadcast channel to a cable station. But see Kent Gibbons, WGN
America Converts to Cable in Five Markets, Broadcasting & Cable
(Dec. 14, 2014) (``Tribune Media Co. said its WGN America is
debuting on cable television systems in Chicago, Boston,
Philadelphia, Seattle and Washington, DC, starting Tuesday, as it
begins converting from a superstation to a cable network . . . on
Comcast systems [with] more launches and conversions . . . happening
on distributors this month and throughout 2015.'') (emphasis added).
---------------------------------------------------------------------------

JSC also relies on another of its expert witnesses, the economist
Dr. W. Robert Majure, who explained that, in the 2015-2017 period, most
CSOs that formerly carried WGNA under the section 111 license chose not
to replace it with an equivalent number of DSEs, and as a result ``made
far less use of the section 111 license.'' JSC PFF ] 49 (citing Written
Direct Testimony of W. Robert Majure, Ph.D., Trial Ex. 7103, ] 77
(Majure WDT)).
Based on these data related to the minimum fee, JSC maintains that
the fee-based regressions, as they relate to the 2015-2017, period
wrongly use base fees (with or without the 3.75% fee) as ``price
proxies,'' in that when the minimum fee binds, the marginal royalty
cost of carriage is zero. JSC PFF ]] 148-152 (and record citations
therein).
In econometric terms, Dr. Asker, on behalf of JSC, measured the
alleged errors that Drs. George, Johnson, and Tyler introduced into
their regressions by using the incorrect base-fee-related price
proxies. These alleged ``measurement errors,'' according to Dr. Asker,
were correlated with the variables measuring distant signal content
minutes in the entire 2014-2017 period and equal the difference between
the improper price proxies y and the zero price implied by the payment
of the minimum fee. Written Rebuttal Testimony of John Asker, Ph.D.,
Trial Ex. 7114, ] 79 (Asker WRT).
JSC further notes in this regard that Dr. George herself conceded
that the link between base rate royalties and actual CSO demand is
``not super tight,'' and adds the very sort of ``measurement error to
the dependent variable'' that Dr. Asker has calculated. JSC PFF ] 154
(citing Dr. George's hearing testimony).
Dr. Asker also takes issue with the regression experts' use of the
base fee as a price proxy even for CSOs paying above the minimum fee.
He explains that for a perfectly rational CSO calculating price, the
true marginal cost of distantly retransmitting a local station in this
context--the difference in cost to the CSO between retransmitting and
not retransmitting--is not the base fee, but rather the difference
between (1) the total fees that would bind, which may have been the
minimum fee, without retransmitting that local station, and (2) the
total base fees that would bind (the minimum fee having been exceeded)
if that local station was distantly retransmitted. See Asker WRT ]] 59-
77 (applying the definition of price, stated in ] 61, as ``the extra
expenditure required to have it, as compared to not having it.'').
Finally, JSC takes note of Dr. Asker's point that it is standard
practice among statisticians and econometricians to test the validity
of a regression against other available external evidence, as a sort of
``reality filter.'' JSC PFF ] 169 (citing Asker WRT ] 104); see also 3/
28/23 Tr. 1910-11 (Harvey) (agreeing with Judge Strickler that
``validity test'' is synonymous with ``reality filter''). Here, JSC
points out that the validity of the regressions is refuted by the fact
that, during the 2015-2017 period, CSOs did not behave in accordance
with the assumption behind the regressions. That is, despite the
assumption that the incremental benefits of distant carriage were
positive (according to the regression estimates) and the incremental
royalty cost was zero, most CSOs elected not to add additional distant
signals. Thus, the regressions purportedly were invalid, unrealistic,
and self-contradictory (``false within their own premise'' one might
say), according to JSC. Written Rebuttal Testimony of W. Robert Majure,
Ph.D., Trial Ex. 7104, ]] 15, 47-50 (Majure WRT); 3/30/23 Tr. 2594-95,
2598-99 (Majure).

F. SDC Position on the Minimum Fee Issue

At the outset, when framing the relevant minimum fee issue, the SDC
maintain that, ``while it may be true'' that CSOs' ordinal decision-
making shows their ranked preferences, ``no regression model in this
case has been specified for such a theory.'' SDC PFF ] 39. Rather,
these regressions consider the calculated (but not paid) base fees (and
the 3.75% Fee, depending on the regression at issue) of these minimum-
fee-only CSOs.
But the SDC maintain that the minimum fee ``confounds any
interpretation of a fee-based regression'' premised on the CSOs'
``willingness-to-pay.'' Settling Devotional Claimants' Proposed
Findings of Fact and Conclusions of Law (SDC PFF) at 27. In this
regard, the SDC point to the testimony of several experts who opine
that the minimum fee structure ``largely obviate[s] the purported
causal theory based on `willingness-to-pay,' '' because the minimum-
fee-only CSOs ``are required to pay a minimum fee equivalent to a 1.0
DSE . . . whether they are `willing' or not.'' SDC PFF ] 60 (citing
Asker WRT ]] 78-86; Marx WRT ] 22.). Stating the point in economic
terms, the SDC state that ``there is no marginal cost'' incurred by a
CSO unless and until ``the minimum fee is exceeded.'' SDC PFF ] 60.
The SDC do not limit their criticism of the minimum fee issue to
the regressions proffered in this proceeding. They also look back to
the 2010-13 proceeding, where ``approximately 50% of the CSOs paid only
the Minimum Fee,'' which, the SDC maintain now (as they did in the
2010-13 proceeding), constituted a ``serious problem'' for the Crawford
regression upon which the Judges relied in the prior proceeding. SDC
PFF ] 61.
But the SDC assert that their criticism in the 2010-13 proceeding
is even more relevant in the present proceeding, in that this minimum
fee problem is ``exacerbated after 2014, [because] the proportion of
fees paid by systems paying the Minimum Fee went up from 39.2% to
93.8%.'' SDC PFF ] 62 (citing Ex. 7204 at 29, Marx ACWDT ] 65). In this
environment, the SDC maintain, it is difficult to see how any
inferences could be drawn about ``willingness to pay.'' SDC PFF ] 62.

[[Page 54177]]

The SDC then evaluate the attempts by the regression experts to
address the minimum fee issue, as summarized below:

--The SDC acknowledge that Dr. Tyler's ``sensitivity test of this
issue,'' in which he dropped the minimum-fee-only CSOs, ``might
provide some rough guidance as to the potential direction and
magnitude of bias introduced by the presence of minimum fees.'' SDC
PFF ] 63 (emphasis added) (citing Tyler ACWDT ] 156). But the SDC
take note of what they characterize as ``the vast amount of data''
that Dr. Tyler had to discard to apply this sensitivity test,
leading the SDC to conclude that Dr. Tyler's attempt to drop all
minimum-fee-paying CSOs was ``probably too extreme.'' SDC PFF ] 63
(citing 4/19/23 Tr. 5473-74 (Tyler).
--Dr. Johnson's sensitivity test, in which he too applied his model
only to systems paying above the minimum fee, resulted in large
swings in the JSC coefficients, rendering them statistically
insignificant. SDC PFF ] 104.
--The SDC acknowledge that Dr. Marx ``makes good points about the
confounding effects of minimum fee-paying systems . . . in the 2015-
2017 timeframe,'' but find ``her position on the reliability of the
model before 2015 . . . too convenient to credit.'' Harkening back
to their criticism of the 2010-13 Determination's adoption of the
Crawford regression, the SDC maintain that Dr Marx's Bayesian
regression for 2014 is deficient with regard to this minimum fee
issue because `` `CSOs paying the minimum fees accounted for a large
proportion already before the conversion of WGNA,' '' and any 2014
modeling `` `should have been specified' '' to address this issue.
SDC PFF ] 130 (citing Written Rebuttal Testimony of Daniel L.
Rubinfeld, Trial Ex. 7505, ] 95 (Rubinfeld WRT) (``The fact that Dr.
Crawford's model does not hold up when applied to 2014-2017 data in
the current proceeding reveals that the regression specification put
forth by Dr. Crawford was not robust or informative.'').

G. The Judges' Analysis and Conclusions Regarding the Minimum Fee Issue

The Judges find that the dramatic increase in the number of
minimum-fee-only CSOs (i.e., those with no distant retransmittals and
those with some distant retransmittals but with ``excess capacity'')
renders regression analyses that include those CSOs less reliable and
thus can be accorded only very limited economic evidentiary weight.
Moreover, the Judges accord significantly more evidentiary weight to
regression modeling that focuses only on the CSOs that actually
revealed their preferences by willingly paying above the minimum fee,
i.e., at the base fee level.
In particular, as discussed infra, the Judges rely on the Tyler
Model, as Dr. Tyler applied his model to the CSOs paying above the
minimum fee. See Tyler ACWDT ] 156 & fig.6.3 (discussed infra).
Although there is hardly a consensus as to the adoption of this variant
of the Tyler Model, the Judges are struck by the supportive argument of
the SDC, set forth below, regarding the Tyler Model as applied to
above-minimum-fee-paying CSOs:

Dr. Tyler, whose rate-based methodology is the most explicitly
based on a ``minimum willingness to pay'' theory . . . offers a
sensitivity test of this issue. Tyler [ACWDT] ] 156. (It is a fairer
sensitivity test than Dr. Johnson's similar test, which was selected
retrospectively out of hundreds of tests that were tried and is
performed in the presence of the distortion of multiple
misspecifications). Dr. Tyler's sensitivity test might provide some
rough guidance as to the potential direction and magnitude of bias
introduced by the presence of minimum fees.

SDC PFF ] 156. See also 4/19/23 Tr. 5473 (SDC's counsel's statement to
Dr. Tyler on cross-examination) (``I do want to point out to your
credit that your first sensitivity test tries to address this
issue.''). This argument is generally consistent with Dr. Tyler's
response to SDC counsel on this point, agreeing that it was important
to be ``cognizant'' of this minimum fee issue and that it be
``considered and addressed'' because there is ``reasonable disagreement
about how to handle the issue.'' Id. at 5473-74.
The Judges do not see the disagreement as necessarily
``reasonable'' regarding whether to rely on the calculated base fee
data of all CSOs (including the CSOs paying only the minimum fee) or
only those who actually paid their calculated base fees. But, however
one couches this disagreement, the Judges find the latter approach
appropriate, and that--to borrow the SDC's phrase--the variant of the
Tyler Model in Figure 6.3 of the Tyler ACWDT offers the Judges' ``rough
guidance'' in the allocation of shares.\30\
---------------------------------------------------------------------------

\30\ Evidence that provides ``rough guidance'' is useful
evidence in these proceedings. As noted elsewhere in this
determination, the D.C. Circuit has acknowledged that the nature of
this statutorily-mandated, but statutorily standardless, allocation
process can require a measure of ``rough justice,'' in the face of
inevitable mathematical imprecision.
---------------------------------------------------------------------------

With regard to the issue of precision, mathematical or economic,
the Judges do not adopt Dr. Asker's analysis, discussed above, that the
appropriate method to calculate royalties for above-minimum-fee-paying
CSOs should be based on the difference between (1) the actual royalty
amount paid when a distant station is added; and (2) the amount that
the CSO would have paid pursuant to the minimum fee calculation if it
would bind in the absence of transmittal of that station. Although in
theory that would appear to be a rational approach, there is no
evidence that any CSO actually engages in such an activity. Further, as
the Judges note elsewhere in this determination, they credit the
designated testimony of Ms. Hamilton, a cable industry expert, who
stated that the amount of money at issue regarding section 111
royalties is essentially de minimis to the CSOs (although quite
significant to the parties in this proceeding), and that the CSOs do
not devote much attention to issues regarding distant retransmittals.
In this context, and in the absence of any evidence to the contrary,
the Judges cannot assume, let alone apply, a pricing rationale that
suggests a tunnel-vision sort of hyperrationality, when Ms. Hamilton's
testimony suggests a broader rationality, whereby CSOs rationally apply
their scarce time and attention to more economically consequential
matters.\31\
---------------------------------------------------------------------------

\31\ This finding is consistent with a broader point made by the
economist Ronald Coase, who won the Nobel Prize for his foundational
work on transaction costs, regarding an overemphasis on what he
coined ``blackboard economics.'' As Dr. Coase explained: ``[When]
[t]he policy under consideration is one which is implemented on the
blackboard [and] [a]ll the information needed is assumed to be
available and the teacher plays all the parts . . . there is no
counterpart to the teacher within the real economic system . . . no
one who is entrusted with the task that is performed on the
blackboard.'' R. Coase, The Firm, the Market, and the Law 19 (1990).
Substitute ``expert witness'' for ``teacher'' and ``in the
testimony'' for ``on the blackboard'' and Dr. Coase's point applies
here.
---------------------------------------------------------------------------

VI. The Allegations of ``Specification Searching'' 32
---------------------------------------------------------------------------

\32\ Specification searching (also known as ``data fishing.'')
is defined as ``the practice of searching numerous research
methodologies--including different models, design components,
analytical methods, and hypotheses--and selectively reporting only
those that produce significant or otherwise favorable results. H.
Bavli, Credibility in Empirical Legal Analysis, 87 Brook. L. Rev.
501, 509 (2022).
---------------------------------------------------------------------------

A. Allegations of Concealed Specification Searching by Dr. Crawford
Applicable to the Present Proceeding

In their determination in the 2010-13 cable proceeding, the Judges
relied predominantly, although not solely, on the fee-based regression
model presented by Dr. Crawford, who was then a witness on behalf of
CTV. In deciding to rely on Dr. Crawford's regression (the Crawford
Model), the Judges credited his testimony denying allegations by the
SDC that he had improperly attempted and rejected many alternative
regression models. 2010-13 Determination at 3566-3567; see also SDC PFF
] 68 (and record citations therein).

[[Page 54178]]

The SDC maintain that three of the four fee-based regression models
presented in this proceeding, PTV's, CCG's, and CTV's, are based upon
the Crawford Model. In order to understand the relationship of these
three models to the Crawford Model, the SDC argue (and the Judges
agree) that it is necessary to understand the characteristics and
history of the Crawford Model, comparing what was known at the time of
the 2010-13 cable proceeding with what was subsequently uncovered. SDC
PFF ] 69 (and record citations therein).
To begin its review of the Crawford Model, the SDC point to the
basic hypothesis undergirding the approach--attempting to ``relat[e] a
measure of royalty fees to numbers of [program] category minutes.'' SDC
PFF ] 70. The SDC state that, although the Crawford Model ``followed a
framework that somewhat resembled . . . the model offered by Dr.
Waldfogel [the Waldfogel Model] in the 2004-05 cable proceeding,'' Dr.
Crawford actually made ``multiple dramatic departures.'' SDC PFF ] 70
(citing 2010-13 Determination at 3557 for a description of Dr.
Waldfogel's model). Dr. Crawford departed from the Waldfogel Model,
according to the SDC, because after he ``tested Dr. Waldfogel's model
as a starting point using 2010-13 data (which he falsely denied doing),
the Waldfogel [M]odel yielded implausible results . . . demonstrating,
at a minimum, that [the Waldfogel Model] . . . performed poorly on out-
of-sample data.'' SDC PFF] 70 (and record citations therein). Moreover,
the SDC assert that Dr. Crawford undertook, but failed to disclose, his
sensitivity testing when he constructed the Crawford Model, which
showed that the results of the Waldfogel Model were extremely sensitive
to annual changes, suggesting that the Waldfogel Model may have been
``selected to fit the data in 2004-05.'' SDC PFF ] 70 (and record
citations therein).
Expanding on the foregoing, the SDC imply that specification
searching is widespread, noting that ``[a]t least 10 different expert
witnesses have presented at least 10 different fee-based regression
models in the last five allocation proceedings: Dr. Rosston (CTV, 1998-
99 cable), Dr. Waldfogel (CTV, 2004-05 cable), Dr. Crawford (CTV, 2010-
13 cable), Dr. Israel (JSC, 2010-13 cable), Dr. George (CCG, 2010-13
cable, 2014-17 cable), Dr. Heeb (CTV, 2010-13 satellite), Dr. Gray (PS,
2010-13 satellite), Dr. Johnson (PTV, 2014-17 cable), Dr. Tyler (PS,
2014-17 cable), and Dr. Marx (CTV, 2014-17 cable). Further, the SDC
emphasize that only Dr. George has appeared more than once, and that
her models in the 2010-13 proceeding and in this proceeding are ``very
different'' from each other. SDC PFF ] 73 (and record citations
therein).
Dr. Erdem, also, later discovered, based on CTV's compelled
production in the 2010-13 satellite case, that Dr. Crawford had
actually tested many different functional forms before deciding to use
the log-linear form. Only then did he perform the appropriate
statistical test (the ``Box-Cox'' test), which Dr. Erdem claims
``specifically rejected the log-linear form.'' Dr. Erdem further claims
that Dr. Crawford improperly failed to run the test on the independent
variables, limiting the test to the dependent variable (the royalty
measure). Amended Written Direct Testimony of Erkan Erdem, Ph.D., Trial
Ex 7502, ]] 41-42 (Erdem AWDT); see also Supplemental Written Rebuttal
Testimony of Erkan Erdem (2010-13 satellite proceeding), Trial Ex.
7054, ]] 16-18 & Ex. 3. See SDC PFF ] 76 (and record citations
therein).
According to Dr. Erdem, the failure of Dr. Crawford and CTV, in the
2010-13 cable proceeding to disclose, in Dr. Crawford's direct
testimony or in discovery, this testing and the results thereof served
to conceal the potential for ``distortion and bias'' in the Crawford
Model arising from the use of a ``linear form'' of a control variable
for the number of subscribers in the subscriber group during the prior
accounting period (the so-called ``lagged subscribers'') as affecting
the dependent variable (royalties) expressed not in level (i.e.,
linear) form, but rather in log form. See Erdem AWDT ]] 51, 71; see
also Asker WRT ]] 98-99; Written Rebuttal Testimony of R. Garrison
Harvey, Trial Ex. 7106, ]] 194, 197, 202 & Ex. H (Harvey WRT); see also
SDC PFF ] 77.
The SDC maintain that the foregoing exemplifies the ``poor economic
practice'' and econometric ``sin'' of specification searching broadly
undertaken by Dr. Crawford. SDC PFF ] 87 (citing Kennedy, supra, at
367).\33\ Moreover, the SDC assert that Dr. Crawford did not merely
commit the ``sin'' of specification searching; he also lied by
repeatedly denying his econometric misconduct. Erdem AWDT ] 36; Written
Rebuttal Testimony of Erkan Erdem, Ph.D., Trial Ex. 7503, ] 77 (Erdem
WRT). According to the SDC, Dr. Crawford instead ``acknowledged
performing only a single alternative analysis,'' and the Judges trusted
and relied on his testimony. SDC PFF ] 88 (citing 2010-13 Determination
at 3568 (finding that Dr. Crawford ``had not run such an alternative
regression by generating a regression and then discarding it . . .
.'')). In fact, according to the SDC, Dr. Crawford ``had performed and
rejected . . . undisclosed alternative models . . . with different
combinations of variables, interactions of variables, no fixed effects,
different forms of fixed effects, and a wide range of functional forms
. . . produc[ing] wide ranges of implied shares, including 0% shares
for every . . . category in . . . some models.'' SDC PFF ] 88 (and
record citations therein).
---------------------------------------------------------------------------

\33\ A pernicious aspect of covert specification searching is
that it masks from the reader (whether Judge, adversary party,
journal editor or academic referee) conduct that bears importantly
on the regression ultimately produced. The classic example of a
simple hidden specification search is the following: ``[Although]
the probability of flipping a coin and obtaining heads in ten
consecutive flips out of ten tries is almost zero. . . . if 15,000
individuals attempt this, it is virtually certain that one or more
will succeed.'' M. Klock, Finding Random Coincidences while
Searching for the Holy Writ of Truth: Specification Searches in Law
and Public Policy or Cum Hoc Ergo Propter Hoc, Wis. L. Rev. 1007,
1010 (2001). An experimenter who ``searches'' for, and reports only,
the 1 out of 15,000 times the experiment generates ten consecutive
heads, and who conceals the 14,999 times this result did not occur,
is misrepresenting his or her work and the usefulness of the result.
---------------------------------------------------------------------------

According to the SDC, a telltale sign that Dr. Crawford had engaged
in specification searching was the Crawford Model's inclusion of
``indicator variables that had no function . . . [given] his system-
accounting period fixed effects . . . [thereby] suggesting that he had
tested the regression with no fixed effects or at other levels of fixed
effects . . . . [But] Dr. Crawford repeatedly denied trying a
specification without fixed effects or at a different level of fixed
effects.'' SDC PFF ] 90 (and record citations therein). Moreover, the
SDC claim that, in response to a question from Judge Feder, Dr.
Crawford lied by claiming he did not test regressions without fixed
effects; his test results, later produced in the satellite proceeding,
showed that he ``ran most of his hundreds of models without fixed
effects and at different levels of fixed effects, searching for the
best results.'' SDC PFF ] 91 (and record citations therein) (emphasis
added).
Returning to the issue of whether to transform variables from
linear to log form, the SDC claim to have identified ``[p]erhaps the
clearest fingerprint'' of Dr. Crawford's specification search.
Specifically, although Dr. Crawford had testified that he did not
perform a sensitivity test on a log-log form of regression because he
``strongly fe[lt] that including log subscribers is not an appropriate
specification as an

[[Page 54179]]

explanatory variable'', this ``was a lie'' because the discovery in the
satellite proceeding showed that Dr. Crawford did test a log-log form
of regression, which resulted in ``an approximately 10-point drop in
CTV shares (about an $80 million value).'' SDC PFF ] 93 (and record
citations therein).
After reviewing the satellite discovery, which included
approximately 500 regression model runs, and weighing it against Dr.
Crawford's cable testimony, SDC expert Dr. Rubinfeld stated: ``I've
never seen anything on this scale . . . .'' 4/6/23 Tr. 3638
(Rubinfeld). The SDC characterize Dr. Crawford's purported
specification searching and related alleged untruths as ``[e]vidence of
fraud in a past proceeding'' that constitutes ``changed
circumstances,'' thus ``requir[ing] a reevaluation of those
characteristics of a Crawford-like regression that have infected the
regression models presented in this proceeding.'' SDC PFF ] 96
(emphasis added).
In this regard, the SDC take particular note that Dr. Marx
acknowledges that because her Bayesian model relies directly on Dr.
Crawford's results her results are unreliable if Dr. Crawford's results
are unreliable. SDC PFF ] 129 (citing 4/11/23 Tr. 4323-24 (Marx)).

B. CCG Response Regarding Alleged Specification Searching by Dr.
Crawford

CCG's ``primary response'' to the SDC's claim is that any
specification searching by Dr. Crawford is irrelevant because
``regression has the advantage of transparency and replicability.'' CCG
PFF ] 217 (and record citations therein). This occurred in the present
proceeding, CCG maintains, as the work of various experts presenting
testimony in this case showed, that every aspect of a regression such
as the Crawford Model could be and was examined and tested. 4/18/23 Tr.
5177-79 (George); George WRT at 53.
Further, CCG maintains it is appropriate for experts in the present
proceeding not to ``mov[e] away from an approach that the Judges have
found highly useful in determining relative market value'' unless there
were ``clear theoretical or empirical reasons'' to do so. CCG PFF ] 218
(and record citations therein). CCG analogizes to the ``academic
setting,'' in which ``differing views'' among econometricians can be
``addressed through the `referee' process . . . where the most
important criterion for evaluating a proposed alternative model is
whether the proposed change undermines the theoretical relationships in
some way . . . .'' George WRT at 52.
Applying the foregoing points, Dr. George was unconcerned that Dr.
Crawford's procedures appeared to include ``more than one model.'' She
analyzed the Crawford Model on its merits, concluding that it ``was
tightly linked to the economics of the cable marketplace and estimated
to minimize bias.'' It was on this basis, as well as the Judges'
endorsement of the model, that Dr. George used the Crawford Model as
the basis for her work in this proceeding. 4/18/23 Tr. 5131, 5176
(George); George WDT at 6; Ex. 7404; George WRT at 10-11, 13, 43-44;
see also CCG PFF ] 220.

C. CTV Response Regarding Alleged Specification Searching by Dr.
Crawford

When asked whether she believed Dr. Crawford had or had not engaged
in improper specification searching, Dr. Marx demurred stating that she
was ``not offering that opinion.'' 4/11/23 Tr. 4119 (Marx). When asked
specifically about the more detailed arguments made by the SDC
witnesses regarding Dr. Crawford's alleged specification searching
based on supplemental discovery Dr. Marx sought to make sure her ``no-
opinion'' testimony was unambiguous:

I want to be clear that I didn't reach an opinion about whether
or not [Dr.] Crawford had a fair underlying theoretical structure
behind the regressions that he ran. I didn't see anything in what I
reviewed that raised red flags that that was not the case, but what
I saw was consistent with or at least not inconsistent with proper
econometric practice.

4/11/23 Tr. 4121 (Marx) (emphasis added). See also 4/11/23 Tr. 4226
(Marx) (testifying similarly in response to questioning by Judge
Strickler); 4/11/23 Tr. 4257 (Marx) (same). On cross-examination, Dr.
Marx elaborated while reiterating her ``no opinion'' regarding the
characterization of Dr. Crawford's consideration of hundreds of
regression alternatives:

[Dr. Marx]

[I]n my direct testimony . . . I wanted to emphasize that I am
not opining that [Dr.] Crawford had an underlying theoretical
structure. I'm just saying that what I saw was consistent with that.
What I saw was not inconsistent with proper econometric practice,
but I'm not offering an opinion about what [Dr.] Crawford was
thinking in the process of running these tests. And I'm not trying
to speak for [Dr.] Crawford.

[SDC counsel Mr. MacLean]

So you would agree that . . . running hundreds of different
models and then selecting models based on preferred or expected
results or what you referred to as casting about, that would not be
a good research practice . . . ?

[Dr. Marx]

It is not a good research practice to cast about without
thinking and without an underlying theoretical structure . . .
without the underlying economics being kept in mind. The mere
observation of a large number of regressions being run, by itself,
in the context of the 2010 to 2013 proceeding, I don't find at all
surprising, and seeing that did not raise any concerns in my mind
about either the reliability of the work or my ability to use my
usual procedure and thinking to assess the reliability of the work.

4/11/23 Tr. 4325-27 (Marx).
However, after being confronted with Dr. Crawford's testimony that
he had ``perform[ed] only one alternative analysis, that he hadn't
provided'' in discovery, in contrast to what was uncovered in the
satellite discovery, Dr. Marx acknowledged that as to Dr. Crawford's
oral testimony ``there are statements that were made that seem in
retrospect not accurate.'' 4/11/23 Tr. 4332 (Marx). Dr. Marx then
nonetheless retreated to one of her stock statements, asserting that
``nothing that I saw raised any concerns in my mind that [Dr.]
Crawford's results were not reliable . . . .'' 4/11/23 Tr. 4334 (Marx).
Accordingly, rather than render her own judgment as to the
appropriateness of Dr. Crawford's conduct or adjust her application of
the Crawford Model in light of these issues, Dr. Marx testified that
she reviewed and assessed Dr. Crawford's 2010-13 regression model as
she would consider any such model, whether in her role as an economist
or as an academic journal referee (which is a function she performs).
On this basis, she determined that Dr. Crawford's model was reliable,
i.e., regardless of any of the specification searching and dissembling
that SDC claimed had been uncovered in the satellite proceeding
discovery. Marx WRT ]] 42-54; 4/11/23 Tr. 4112-20, 4325-4327, 4334
(Marx); CTV PFF ]] 366-69; Reply of the Commercial Television Claimants
to Proposed Findings of Fact and Conclusions of Law (CTV RPFF) ] 169.
A key reason why Dr. Marx declined to express an opinion as to Dr.
Crawford's alleged specification searching is the following: What the
SDC characterize as Dr. Crawford's wrongful experimentation with
alternative model specifications, Dr. Marx maintains it can also be
understood as a form of sensitivity analysis--not only a standard
activity, but actually a best practice in econometric analysis. Marx
WRT ] 10; 4/11/23 Tr. 4120-21 (Marx). More broadly, CTV asserts that
what Drs. Erdem and Rubinfeld criticize as evidence of the improper
practice of specification searches can all be understood as the
``standard practice of economists''--involving ``[r]obustness checks,
sensitivity analyses, and

[[Page 54180]]

differences across economists in regression specifications.'' CTV PFF ]
371 (citing Marx WRT ]] 31-36).

D. PTV Response Regarding Alleged Specification Searching by Dr.
Crawford

PTV's expert economic witness, Dr. Johnson, did not address the
soundness of Dr. Crawford's 2010-13 regression methodology, which, to
repeat, the SDC economic experts characterize as the wrongful
undertaking of a specification search.\34\ But PTV emphasizes that,
although Dr. Johnson acknowledges that his own regression analysis is
based on the economic theory and principles underlying Dr. Crawford's
regression analysis, Dr. Johnson modified and improved some aspects of
Dr. Crawford's regression model. PTV PFF ]] 113, 115 (citing Crawford
WDT ]] 32-36, 46.) Thus, PTV argues, even if Dr. Crawford engaged in
wrongful specification searching to construct his 2010-13 model, ``it
makes no sense for it to adversely affect the reliability of Dr.
Johnson's regression specification, which has a different set of
variables and has been tested on the 2014-17 data.'' PTV PFF ] 143.
---------------------------------------------------------------------------

\34\ Dr. Johnson testified he never received Dr. Crawford's
workpapers unearthed in discovery in the 2010-13 satellite
proceeding on which the SDC relies for its specification search
allegation (despite the production of those documents by the SDC to
all counsel, including PTV's counsel, in this proceeding.).
---------------------------------------------------------------------------

E. Allegations of Concealed Specification Searching by Dr. Johnson in
This Proceeding

Turning from the work of Dr. Crawford to the work of Dr. Johnson,
on behalf of PTV in the present proceeding, the SDC accuse PTV and Dr.
Johnson of similar misconduct as they allege was committed by Dr.
Crawford in the 2010-13 proceeding. SDC charge that Dr. Johnson
concealed numerous regression modeling tests in discovery, limiting
production to only a few sensitivity tests. SDC PFF ] 105. Despite this
modest discovery, based on the documentation that had been produced by
PTV, Dr. Erdem saw evidence suggestive of specification searching. 4/5/
23 Tr. 3429; 4/6/23 Tr. 3552-55 (Erdem). These suspicions gave rise to
the SDC's motion to compel SDC's production of all regression models
that Dr. Johnson had considered, and the Judges granted the motion. See
Order 24 Granting the SDC Motion to Compel PTV to Produce Documents
(Jan. 19, 2023).

F. SDC Assertions After Further Discovery

After PTV was compelled by the Judges to provide further discovery,
it produced documents revealing that Dr. Johnson's team had selected
the four models that he presented out of more than four hundred models.
He and his professional subordinates had actually engaged in over 400
runs of regression approaches over several different data sets
(resulting in numerous different results in terms of program category
coefficients implied allocation shares). Erdem WRT ] 82; Supplemental
Written Rebuttal Testimony of Erkan Erdem, Trial Ex. 7504, ] 3 n.3
(Erdem SWRT); 4/5/23 Tr. 3403 (Erdem); SDC PFF ] 106. Further, the SDC
cataloged the use by Dr. Johnson and his professional subordinates of
44 different dependent variables (including log transformations) and
wide ranges of shares (negative as well as positive) in all claimant
categories. Erdem WRT ] 82; Supplemental Written Rebuttal Testimony of
Daniel L. Rubinfeld, Trial Ex. 7506, ] 21, tab 2 (Rubinfeld SWRT).
Dr. Erdem analyzed these tests according to dates and sequence
numbers included in the documents produced by PTV and claimed to find
that the successive testing by Dr. Johnson and/or his team was
correlated with a steady rise in PTV's allocation share. Erdem SWRT Ex.
2.
The SDC dismissed as implausible Dr. Johnson's explanation of this
correlation. Specifically, the SDC rejects Dr. Johnson's claims that
the correlation was a ``coincidence'' or that it could be explained by
incomplete and erroneous data that needed to be corrected or updated.
SDC PFF ] 109 (citing 3/22/Tr. 737-39 (Johnson)).\35\
---------------------------------------------------------------------------

\35\ It is important to note here that the SDC is
mischaracterizing Dr. Johnson's specific testimony. He clearly did
not say the correlation was a mere coincidence or explainable as a
data issue. Rather he claimed in his testimony that the increase in
PTV shares was coincidental with and caused by the inputting of
additional and correct data, and that it was the data that generated
PTV's higher share. See 3/22/23 Tr. 738 (Johnson) (``I completely
refute . . . that it's a coincidence. The reason that this happened
is . . . tied to specific data issues . . . [and] the data is what
it is.'') (emphasis added).
---------------------------------------------------------------------------

In any event, Dr. Erdem testified that if Dr. Johnson and his team
were not engaged in specification searching, the allocation results
arising from the data updates or corrections should have been more
randomly distributed, and, further, that as a matter of regression
methodology it was inexplicable that data changes would serve to
generate hundreds of regressions with different combinations of
specifications. 4/6/23 Tr. 3565-67 (Erdem). Moreover, Dr. Erdem accused
Dr. Johnson and his professional subordinates of self-servingly
searching not only for the specifications that would increase PTV's
allocation share, but also of attempting to search for an optimal
combination of a specification set and a dataset for increasing PTV's
allocation share. 4/6/23 Tr. 3552-55 (Erdem). As purported proof, Dr.
Erdem points to his running of Dr. Johnson's preferred (``baseline'')
model, but with Dr. George's dataset, which caused PTV's allocation
share to decrease by 8 percentage points, with the share of every other
category increasing. Erdem WRT Ex. 8.
In addition to the more technical econometric evidence relied on by
the SDC, they also point to physical evidence. Specifically, the SDC
relies on notes left by a project manager on this assignment, Ms. Yan,
which showed the search criteria that Dr. Johnson's team applied: a
search for positive and statistically significant coefficients on all
content and a high allocation share for PTV, denoted in a document as
``PBS[uarr]'' (i.e., an ``increase value to shift w/lots of minutes'').
Erdem SWRT ]] 8-9 & app. E; SDC PFF ] 114. The SDC's other econometric
expert, Dr. Rubinfeld, using the essentially synonymous phrase ``p
hacking'' to describe the alleged specification searching conduct of
Dr. Johnson's professional subordinates, asserts that this behavior
``invalidates'' Dr. Johnson's statistical tests. Rubinfeld SWRT ] 23.
SDC's counsel characterizes this note from Ms. Yan as the proverbial
``smoking gun.'' SDC PFF ] 115.
The SDC further assert that when the hundreds of regression models
developed by Dr. Johnson and his team were culled to a sub-group of
those with ``positive and statistically significant coefficients for
all categories,'' only four had higher share allocations for PTV.
Moreover, Dr. Erdem opined that these other four had data and
statistical anomalies that would have made them difficult for Dr.
Johnson to defend in any event. 4/5/323 Tr. 3424-25 (Erdem). The SDC
thus concludes that Dr. Johnson and his team essentially chose the
model with the highest PTV share that they thought they could defend.
SDC PFF ] 116.
The SDC also maintain that there was an intentional separation
between Dr. Johnson and other professionals at his consulting firm,
Edgeworth Economics (``Edgeworth'') intended to shield Dr. Johnson from
regression specifications that would have generated lower shares for
PTV--a form of ``plausible deniability.'' In support of this assertion,
the SDC point to written communications within Edgeworth indicating
that certain documents

[[Page 54181]]

needed to be kept from Dr. Johnson or else PTV would be required to
turn them over in discovery. See, e.g., Erdem SWRT ] 8 (reproducing
notes of Edgeworth employee Eduardo Munoz-Alonso, dated 7/8/2021,
distinguishing between material for ``John's report (he'll see) [and]
other stuff (John won't)''; Erdem SWRT ]] 8-9 & app. E (5/26/22 note
written by Esther Yan, 5/26/2022 stating ``Anything we show John gets
turned over. . . .''); and Erdem SWRT ] 8 (an email containing a link
to CDC distant signals data sent to Dr. Johnson's team includes the
caveat: ``. . . these data files are being shared for consulting
purposes only and should not be shared with John'').
Looking at the entirety of the record regarding the procedures
undertaken by Dr. Johnson and others at Edgeworth, Dr. Rubinfeld, one
of the two SDC expert witnesses, opined:

Dr. Johnson's practices (or the practices of other experts or
their staff on behalf of PTV Claimants) are counter to sound
empirical research practices. Their analyses involve the misuse of
the regression methodology to obtain statistically significant
results that deliver coefficient values that generated relatively
high shares for PTV Claimants.

Rubinfeld SWRT ]] 28-30.\36\
---------------------------------------------------------------------------

\36\ A JSC expert statistical witness, Mr. Harvey, likewise
concluded that Dr. Johnson had engaged in a specification search.
However, the JSC did not emphasize this point, maintaining instead
that ``it is unnecessary to conclude that Dr. Johnson intentionally
searched for a specification favoring PTV in order to find his model
untrustworthy [because] the selection of data inputs and
specifications'' was improperly undertaken. JSC PFF ]] 195-196 (and
record citations therein).
Program Suppliers' expert economic witness, Dr, Tyler, also
concluded that the work by Dr. Johnson and/or his team ``provides
evidence that, rather than letting the facts of the industry guide
the modeling decision, [they] tested many different models, and then
sought to justify certain specifications with economic theory.'' PS
PFF ] 377 (and record citations therein). Further, Program Suppliers
maintain that ``[t]he evolution of Dr. Johnson's calculated shares
for PTV over time provides evidence that data mining [i.e.,
specification searching] and/or overfitting occurred.'' Id. Further,
Program Suppliers find it problematic that, in this context, ``[o]ut
of the many regression specifications that Dr. Johnson ran, he
selected for his baseline model one in which the PTV share is
substantially higher than the median results from the models
considered . . . .'' Id. at ]] 377-378 (and record citations
therein).
---------------------------------------------------------------------------

G. Rebuttals to the SDC's Assertions of Specification Searching

Dr. Johnson maintains that the SDC and other critics of his work
(including Dr. Tyler and Mr. Harvey) have misunderstood the nature of
the many regression specifications that were generated and run on
behalf of PTV. More particularly, he explains in detail that he and his
team ran many of the regression specifications for the purpose of
testing the data, a process that needed to be repeated to incorporate
corrections and updates to the data. 3/21/23 Tr. 416-23, 627-745
(Johnson) (explaining the regression log, the research process,
Edgeworth team structure and personnel, timing of data receipts and
updates from vendors and scope of discovery productions). See also PTV
PFF ]] 139, 145.
Dr. Johnson further maintains that assuming arguendo there was any
untoward activity in the nature of a specification search, it is
essentially a moot point because through discovery (including the
discovery PTV at first withheld and later produced only in response to
an order compelling production) every regression specification that he
and his team ran has now been produced. This production, according to
Dr. Johnson, eliminates any concern that the Johnson Model was
misspecified, whether intentionally or otherwise. 3/21/23 Tr. 641
(Johnson) (``Again, you actually have everything. . . . I followed . .
. what counsel instructed me to do in terms of what I was required to
turn over. And when we were required to turn over everything,
everything has been turned over that my team ever ran, so we have given
you everything.''). See also PTV PFF ] 146.
Additionally, many of the regression models generated and run by
Dr. Johnson and other professionals at Edgeworth Economics (Dr. Johnson
is the founder and CEO), according to Dr. Johnson, reflected their
efforts to understand the Crawford Model proffered in the 2010-13
proceeding and to determine whether the Crawford Model could be applied
to the 2014-17 data. 3/21/23 Tr. 367-68, 370-73 (Johnson). Those
purposes, PTV maintain, are inconsistent with a characterization of
their work as specification searching. Public Television's Reply
Proposed Findings of Fact and Conclusions of Law (PTV RPFF) ] 208.
Overall, given the full disclosure of all the work by Dr. Johnson
and his fellow professionals at PTV, PTV maintains that this
comprehensive body of evidence shows that the Johnson Model generated
regression results that are unbiased and best reflect the data
available to be input into the Johnson Model. PTV RPFF ] 210.

H. The Judges' Analysis and Conclusions

As an initial matter, the Judges reject SDC's argument that Dr.
Crawford's deviations from the prior regression models presented by
Drs. Joel Waldfogel and Gregory Rosston ipso facto demonstrate, or even
suggest, that Dr. Crawford engaged in the wrongful process of
specification searching. The record reflects no legal, economic or
econometric principle that an expert cannot alter, revise, add to or
subtract from a prior economic model. Indeed, the history of the
Judges' acceptance of fee-based regression models as evidence shows
quite the opposite. A brief examination of the evolution the regression
methodology, set forth immediately below, makes that clear.
In the allocation (Phase I) proceedings for the 1998-99 royalties,
the CARP described the first fee-based regression relies upon in such
proceedings:

Dr. Rosston's regression attempts to analyze the relationship
between royalties paid by cable operators for the carriage of
distant signals in 1998-1999 and the quantity of programming minutes
by programming category on those distant signals. . . . It compares
the relative volume of the various Phase I categories of programming
contained in the station signals actually purchased by CSOs in 1998
1999 with the total royalties each CSO actually paid for that
programming . . . identifying the amount of royalties as the
dependent variable . . . .

. . .

Dr. Rosston included more than royalties and programming minutes
in the dataset he used for his regression analysis. In order to
account for the non-programming factors that may affect the
royalties paid by a cable system, Dr. Rosston added the following
variables: (1) the number of subscribers to the cable system in the
prior period (the so-called ``lagged subscribers'' variable); (2)
the number of activated channels for the cable system; (3) the
average household income of the market in which the cable system was
located; (4) the total number of local channels carried; (5) a
variable to account for the payment of 3.75% royalties; and (6) a
variable to account for the carriage of partially distant signals.

Report of the Copyright Arbitration Royalty Panel to the Librarian of
Congress, in Docket No. 2001-8 CARP CD 98-99 (``1998-99 CARP Report'')
at 45-46 (Oct. 21, 2003). The CARP accepted Dr. Rosston's fee-based
regression, but only as corroborative of survey results also in
evidence. Id. at 50. The CARP declined to give more evidentiary weight
to the Rosston regression, relative to the Bortz Survey (which the CARP
found to be ``extremely robust,'' id. at 30).
In the allocation (Phase I) proceeding for the 2004-05 years, the
Judges received in evidence the Waldfogel fee-based regression. Dr.
George has described in her testimony in this proceeding the key
changes made by Dr. Waldfogel to the Rosston regressions:

(1) estimating the marginal value of additional programming
minutes (regression

[[Page 54182]]

coefficients) using pooled data for all years, improving the
precision of the estimates;
(2) calculating claimant shares using only compensable
programming; and
(3) estimating the regression model with a sample of programming
covering three full weeks per accounting period.

George WDT at 24 n.22. See also 2004-05 Distribution Order at 57068
(noting that the Waldfogel regression was ``similar'' to the Rosston
regression, not identical).
Similarly, in the 2010-13 proceeding, the Judges found that the
regression approach on which they relied--the Crawford Model--reflected
an improvement over the Waldfogel Model, because, inter alia, the
Crawford Model: (1) relied on more granular subscriber group data (made
available by statutory changes in CSO reporting requirements); and (2)
employed ``fixed effects'' to diminish the impact of potentially
``omitted variables.'' 2010-13 Determination at 3569. See also George
WDT at 24-26 (identifying the improvements made by Dr. Crawford).
This history clearly shows that the Judges have not found that the
mere presence of model modifications reveals any inherent defect in
fee-based regressions writ large or in any such model in particular.
Rather, a modification of a fee-based regression model may properly
reflect (1) improvements in the model; (2) improvements in the data;
(3) changes in the underlying industry; (4) changes in applicable
economic theory; and/or (4) wrongful specification searching. Without
further analysis, deviations from prior models is not itself
informative.
But the SDC maintain that Dr. Crawford's development of his model
was--to say the least--troubling, and not consistent with an attempt
simply to improve upon prior regression models or to generate a more
relevant model for this proceeding. As noted supra, SDC argue
essentially that Dr. Crawford engage in the improper process of
specification searching, and lied on the witness stand to cover-up that
improper conduct. To summarize, SDC contends that Dr. Crawford lied
under oath about the following:

--his testing of many different functional forms
--his development and rejection of many undisclosed alternative
models
--his inclusion of indicator variables with no apparent function
--his running of hundreds of models without Fixed Effects when he
actually ran these models at various levels of Fixed Effects.

See SDC PFF ]] 90-91, 99, 106.

As Chief Judge Shaw noted at the hearing, the Judges are not in a
position to find whether Dr. Crawford did or did not engage in improper
professional conduct, as alleged by SDC, because he is not appearing as
a witness in this proceeding. 3/22/23 Tr. 894-95 (Shaw, C.J.) Thus, the
Judges were loath to conduct a ``trial-within-a-trial'' as to Dr.
Crawford's work and procedures.
However, that is hardly the end of the matter. SDC has presented
compelling evidence of potential specification searching and
dissembling by Dr. Crawford. Moreover, SDC provided to the other
parties in this proceeding, as voluntary discovery disclosures, Dr.
Crawford's internal workpapers, which the Judges had ordered produced
in the 2010-13 satellite proceeding that followed on the heels of the
2010-13 cable proceeding--disclosed only after SDC's Motion to Compel
and the Judges' in camera review of those documents.
The fee-based regression experts view Dr. Crawford's potential
transgressions with less concern. Dr. George, CCG's expert witness,
maintains that Dr. Crawford's non-disclosures and untruths, as
cataloged and characterized by SDC, are of no consequence, because she,
and the other experts, were able to examine the Crawford Model as it
was presented, and evaluate it on its merits. George WRT at 53. In
essence, this response is in the nature of a ``no harm, no foul''
rationale for disregarding any of Dr. Crawford's alleged improprieties
as alleged by SDC. And, in that context, Dr. George examined the
Crawford Model and found no cause to reject it as a starting point for
her analysis (although she modified the Crawford Model to account for
marketplace changes, arising predominantly from the WGNA conversion,
that she found to necessitate modeling changes particularly with regard
to the use of fixed effects). George WRT at 50-54.
Dr. Marx's carefully repeated testimony is similar, but nuanced,
hedged and cast in the form of a double negative: ``[W]hat I saw was
consistent with or at least not inconsistent with proper econometric
practice.'' 4/11/23 Tr. 4121 (Marx). She does make a more specific
defense of Dr. Crawford, offering her opinion that, the ``mere
observation of a large number of regressions'' in Dr. Crawford's
workpapers is ``not surprising,'' and is what one would expect to see
as a ``sensitivity'' analysis, which is a ``best practice'' in
regression modeling. Marx WRT ] 10. As a final defense of Dr.
Crawford's modeling conduct, Dr. Marx analogizes his proffer of expert
testimony before the Judges to an academic economist's submission of a
proposed article to a professional journal, which would be reviewed by
an editor and referees, in a process that is within the ambit of Dr.
Marx's professional responsibilities. In that context, Dr. Marx would
not require that all the modeling decisions by the econometrician be
set forth in the proposed article, 4/11/23 Tr. 4328 (Marx) (``in my
work as a professional economist, as a referee, as an editor, I don't
expect to see the full list of every regression that was ever run.'')
and she notes that she was able to evaluate Dr. Crawford's submission
on its own merits, like a proposed article, without all the prior
regression runs. Id. at 4111-4115.\37\
---------------------------------------------------------------------------

\37\ The Judges also take note of Dr. Marx's awkward position as
to this issue. As SDC notes, she is a partner at Bates White, an
economic and econometric consulting firm (in addition to her
position as an economics professor at Duke University's Fuqua School
of Business). Dr. Crawford likewise is a partner at Bates White (as
is another CTV testifying expert in this proceeding and in the 2010-
13 proceeding, Dr. Bennett). Further, Dr. Crawford testified in the
prior proceeding on behalf of CTV, whereas Dr. Marx is the economic
expert now testifying on behalf of the same party, CTV.
---------------------------------------------------------------------------

The Judges find that the other experts in this proceeding--
particularly Drs. Johnson, George and Marx--who proffered fee-based
regression models--were obligated to adequately address the impact of
Dr. Crawford's workpapers, as well as the assertion that they
demonstrated he lied in his testimony in the prior proceeding. This
obligation existed because, as SDC witness Dr. Rubinfeld testified, in
his decades of experience, he has ``never seen anything on this scale''
where ``a researcher selected a model from hundreds that were tried.''
4/6/23 Tr. 3638 (Rubinfeld). The economists' careful analysis of Dr.
Crawford's work is necessary, because--as explained in more detail
infra--the discovery of his potential concealment and dissembling,
which was unearthed in discovery in the satellite proceeding, may have
been procedural in origin, but procedural matters can be outcome-
determinative, or at least impactful as to the outcome of a legal
proceeding.\38\ As explained below, Drs. George, Johnson and Marx all
failed in this regard.
---------------------------------------------------------------------------

\38\ Courts have long been concerned with whether what appears
facially to be procedural is in actuality outcome-determinative. See
Erie R. Co. v. Tompkins, 304 U.S. 64 (1938). The Judges in the
present case expected the same concern from the economic experts in
the context of their analysis.
---------------------------------------------------------------------------

The fundamental problem with the self-exculpations by these experts
is that they failed to address an issue that the Judges made explicit
in the 2010-13 Determination. Specifically, in response to the SDC's
speculation that Dr. Crawford had engaged in specification searching,
the Judges agreed that the problem inherent in such improper

[[Page 54183]]

behavior was that it would ``consum[e] . . . `phantom degrees of
freedom,' i.e., `variables that were tried and rejected--rather than
included in the regression model in evidence.' '' 2010-13 Determination
at 3566.\39\
---------------------------------------------------------------------------

\39\ As the Judges noted in that prior proceeding:
`Degrees of freedom' are defined ``[i]n multiple regression
analysis, [as] the number of observations minus the number of
estimated parameters.'' [citation omitted] Accordingly,
statisticians understand ``degrees of freedom' to be measures of how
much can be learned from a regression, with the quality of knowledge
improved by increasing the number of observations, reducing the
number of estimated parameters, or by some combination of both that
serves to widen the difference between the number of observations
and parameters. [citation omitted] . . . [A] `phantom degree of
freedom' can be generated when the modeler reduces the number of
parameters by his or her rejection of other models that would have
added a greater number of parameters--nothing more has really been
learned but the explicit number of degrees of freedom appears
larger, as an artifact (a ` ``phantom') arising from the
econometrician's rejection of models containing additional
parameters. [citation omitted].
2010-13 Determination at 3566 n.63.
---------------------------------------------------------------------------

In that prior proceeding, the Judges found that the record did not
reveal evidence of specification searching (recall that this finding
was made prior to the CTV's compelled production of Dr. Crawford's
workpapers in the companion satellite proceeding). However, in response
to an SDC Motion to Strike Dr. Crawford's testimony, which the Judges
denied given the absence of evidence of specification searching, they
did reserve the right to reduce the weight they accord to the
regression Dr.] Crawford presented. Id. n.64. Ultimately though, the
Judges declined to reduce the weight they accorded to Dr. Crawford's
regression analysis based on the claim of specification searching. Id.
Of course, between the two cable proceedings then and now, the
satellite proceeding intervened. In Order 24 in the present proceeding,
the Judges granted SDC's Motion to Compel another party, PTV, to
produce document that might reflect specification searching by its
expert Dr. Johnson (discussed infra). The Judges' discussion of
specification searching in Order 24 also bears on the Judges' present
consideration of how Dr. Crawford's modeling procedures impacted the
models proffered by Drs. George, Johnson and Marx in this proceeding,
all of which were based on the Crawford Model. In summary fashion,\40\
below is what the Judges stated regarding specification searching in
Order 24:
---------------------------------------------------------------------------

\40\ Although the following is a summary, with citations
omitted, the Judges adopt in full herein their reasoning in Order
24.

--the particular importance of discovery relating to econometric
evidence is underscored by the potential for models to be
manufactured in the service of a particular result, where findings
are presented with ``notoriously misleading accounts of how the
research itself was conducted.''
--it is important that econometricians explain fully their
specification search in order to judge how the results may have been
affected.
--econometricians should disclose ``all the regressions that were
run, not just the good ones . . . basically an `honesty is the best
policy approach.''
--these criticisms of special import here, where the applied
econometric work can affect the allocation of significant royalty
sums.
--specification searching is a concern here because the ``hired
gun'' role of the expert creates an environment in which
specification searching can cause ``far-reaching harm.''
--but what can be construed as improper ``specification searching''
can ``in fact constitute good econometric practice'' by using the
empirical evidence to rank models and let the data speak for itself;
--adding specifications to the modeling can assist in solving the
econometric problem at hand
--suppressing failed specifications and arbitrarily presenting one
successful specification is a ``spurious success,'' but it is not
necessarily dishonest.
--it would be fallacious to prefer not to search but simply to write
down a model and to conduct a one-shot test. . . .
--there are search methodologies that support, rather than distort
statistical hypothesis tests.
--specification searches are necessary, provided there is a ``full
accounting'' of all alternative models, specifications and datasets

Order 24 at 48-51 & n.65. (citations omitted).

In sum, as one authority cited by the Judges concluded: ``[T]here
are good and bad search procedures.'' Order 24 at 51 (emphasis added).
The foregoing summary makes clear that, on the surface, the methods
and practice of an econometrician may look either like improper
specification searching or like a proper searching for the appropriate
model specifications. In order to determine which characterization is
more accurate, further expert analysis is needed.
However, as to this, the parties that relied on the Crawford Model
punted. Most startingly, Dr. Johnson testified that he never received
the satellite case documents that SDC's counsel produced to PTV's
counsel (and to all counsel) or the testimony by Dr. Erdem in the
satellite proceeding that was designated as evidence (Ex. 7054) in this
proceeding by the SDC. 3/21/23 Tr. 340-41; 611, 616-17 (Johnson).\41\
---------------------------------------------------------------------------

\41\ The record does not reflect whether PTV's counsel ever
provided copies of these materials to Dr. Johnson.
---------------------------------------------------------------------------

For her part, Dr. Marx in essence simply restates the difficult
nature of the process, testifying that she was unable to distinguish
Dr. Crawford's process as either an improper specification search or a
useful sensitivity search. But Dr. Marx did not indicate that she
examined the documents produced by SDC in any detail approximating the
analysis engaged in by Dr. Erdem on behalf of SDC, before figuratively
throwing up her hands and declaring the characterization of Dr.
Crawford's position as unknowable. Moreover, although Dr. Marx was
troubled by Dr. Crawford's apparently false statements under oath, she
remained incurious as to whether his troubling testimony was indicative
of a covering-up of specification searching.\42\
---------------------------------------------------------------------------

\42\ The SDC also convincingly explained that whatever it was
that Dr. Crawford was doing, it did not qualify as a ``sensitivity''
test. Settling Devotional Claimants' Proposed Reply Findings of Fact
and Conclusions of Law ] 2. The Judges agree. A sensitivity test is
``[t]he process of checking whether the estimated effects and
statistical significance of key explanatory variables are sensitive
to inclusion of other explanatory variables, functional form,
dropping of potential out-lying observations, or different modes of
estimating.'' 2010-13 Determination at 3562 n.48 (citation omitted).
But the same authority quoted in note 34 situates the ``sensitivity
analysis'' as occurring after the econometrician has estimated his
or her original model, not during the specification process.
Wooldridge, Introductory Economics 687 (3d ed. 2006). To engage in
what would otherwise be a sensitivity analysis in order to search a
model places the cart before the horse, and may be a telltale sign
of ``data mining,'' i.e., specification searching. See Wooldridge,
supra, at 688 (The ``inclination . . . to try different models,
different estimation techniques, or perhaps different subsets of
data until the results correspond more closely to what was expected
[is] data mining[which] violates the assumptions we have made in our
econometric analysis.'').
---------------------------------------------------------------------------

Moreover, when the specification process has been shrouded, as
here, the position taken by Drs. Johnson and George becomes untenable.
Their analysis and replication of the Crawford Model is materially
incomplete, given that it has credibly been described as allegedly
constructed by a specification search that may have generated the
``phantom degrees of freedom'' discussed supra, or through a process
which is analogous to the equivalent of the spurious coin flip
experiment also discussed supra. The problem for the regression experts
who ignore the evidence of potential specification searching is that
they simply cannot appreciate the problems that may have been
generated, unless and until they have engaged in a reasonable forensic

[[Page 54184]]

analysis of the work (and workpapers) of the expert who constructed the
model at issue.
The failure of Drs. George, Johnson and Marx to thoroughly re-
examine the Crawford Model in light of the discovery obtained by SDC in
the 2010-13 satellite proceeding has consequences. Although, as noted
supra, the Judges are not in a position to engage in a ``trial within a
trial'' and render findings regarding the Crawford Model in this
proceeding (where Dr. Crawford is absent), these three expert witnesses
were not similarly constrained. They had a duty to review all materials
relevant to their assignments, in a sufficient manner, and the
satellite discovery pertaining to Dr. Crawford's work clearly falls
within that category of materials. For Dr. Johnson to have not even
received that material is inexplicable. For Dr. Marx to acknowledge the
problematic nature of Dr. Crawford's apparent dissembling under oath
without further analysis of his work is troubling. And for Dr. George
to dismiss the assertions of improper specification searching by
claiming that she could independently evaluate the Crawford Model is to
dismiss the very idea that specification searching may generate hidden
problems.
Indeed, among the witnesses proffering regressions, only Dr. Tyler
appeared to respond reasonably, relying (in part) on the troubling
facts uncovered in the satellite proceeding regarding Dr. Crawford's
processes to generate his own model that deviated in important ways
from the Crawford Model.
The impact of Dr. Crawford's troubling conduct is that it raises an
issue familiar to judges and lawyers in another context--how to handle
testimony and evidence that may be characterized as the ``fruit of the
poisonous tree.'' Although this evidentiary concept is typically
pertinent to the criminal law, it is instructive in other areas,
including intellectual property matters:

The animating principle of the fruit of the poisonous tree
doctrine is causation: If you had not violated the law, you wouldn't
have found the evidence, and you wouldn't have followed whatever
investigative path that was triggered by finding that evidence. The
newly discovered evidence-the fruit-is tainted by the poison of the
illegal search. Civil law also concerns itself with chains of
causation . . . [b]ut it does not typically apply the logic of the
fruit of the poisonous tree to chase down every consequence of a
wrong.

M. Lemley, The Fruit of the Poisonous Tree in IP Law, 103 Iowa L. Rev.
245, 246 (2017). As to the present issue, the ``fruit of the poisonous
tree'' logic--if the source of the evidence or evidence itself is
tainted, then anything gained from it is tainted as well--has
application because it would be inequitable for the Judges to adopt
regression evidence built on the Crawford Model, when the witnesses who
proffered that evidence inadequately addressed reasonable questions
regarding the appropriateness of the methods used to generate the
Crawford Model.
If the Crawford Model had been the first regression model utilized
in these allocation proceedings, the Judges might consider rejecting
the models proffered by Drs. George, Johnson and Marx for their failure
to address in more and sufficient detail how the factual bases for the
allegations of Dr. Crawford's specification searching impacted their
models. But, as described supra, the Crawford Model itself was built
upon, but differentiated from, the prior regressions produced by Drs.
Rosston and Waldfogel and relied upon by the Judges. Thus, the
regression models of Drs. George, Johnson and Marx are not the product
merely of the Crawford Model, but also of those models that preceded
it. Moreover, Drs. George and Johnson take pains to explain how their
models are different from Dr. Crawford's, particularly in the reduction
or elimination, respectively, of fixed effects, in order to generate
more observations (as discussed elsewhere in this determination).\43\
So, it is clear that these two experts engaged in independent economic
analysis separate and apart from what was undertaken by Dr. Crawford.
---------------------------------------------------------------------------

\43\ Whether those particular differentiations from the Crawford
Model were appropriate is likewise discussed elsewhere in this
determination.
---------------------------------------------------------------------------

The consideration of Dr. Marx's full adoption of the Crawford
Model, as it pertained to the year 2013, in order for her to generate
her Bayesian model for 2014, must be considered separately. Dr. Marx
explicitly relies on the Crawford Model, despite her inability to
explain or address his apparent prevarications and despite her
unwillingness to determine whether his methods constituted
specification searching, sensitivity analysis or something else.
However, Dr. Marx's qualitative and directional economic (not
econometric) testimony regarding the years 2015-2017 are not
compromised in this regard.
Accordingly, among the regression approaches proffered in this
proceeding, the experts' responses and non-responses to Dr. Crawford's
conduct lead the Judges, ceteris paribus, to give diminished weight to
the Johnson and George Models, and the least weight to the Marx Model
for 2014. The Judges do not diminish the weight they shall give to the
Tyler Model on this basis, given his deviation from the Crawford Model.

I. The Allegation That Dr. Johnson Engaged in Improper Specification
Searching

Unlike the specification searching issue regarding the Crawford
Model, there is no valid allegation that Dr. Johnson made any material
misrepresentations in his testimony. Although SDC correctly notes that
PTV did not provide full discovery of the work by Dr. Johnson and other
professionals at Edgeworth until compelled to do so pursuant to SDC's
motion and the Judges' Order 24, PTV appears to have withheld
production of documents regarding this regression work based on its
understanding that the Federal Rules of Civil Procedure do not require
production of documents which related to regressions that an expert had
rejected or had not otherwise seen or upon which he did not rely.\44\
---------------------------------------------------------------------------

\44\ In Order 24, the Judges noted that, although they look to
the Federal Rules of Civil Procedure for guidance, they are bound on
this issue by 37 CFR 351.10 (e), regarding the production of
documents relating to an expert witness's methodology, and that this
rule also applies to the production of documents in discovery
pertaining to expert methodology.
---------------------------------------------------------------------------

However, the Judges remain troubled, as they so expressed in Order
24, that PTV appeared to allow for the creation of two different
``teams'' within Dr. Johnson's firm--one identified as the ``consulting
team,'' and the other as the ``testifying'' team. As noted supra, the
regression-related documents generated by the ``consulting team'' were
not provided to Dr. Johnson. The Judges noted in Order 24 that a
``consulting team'' of experts can be utilized by a party's law firm,
to allow for work product confidentiality in connection with the law
firm's evaluation of the facts. However, as Order 24 further explained,
when the ``consulting team'' is created withing the same firm of
economists who are also preparing testimony and actually testifying,
there is the risk that work by the ``consulting'' team will be utilized
as a screening device for work that should have been undertaken by the
``testifying'' team. Thus, the use of a ``consulting'' team can allow a
party to also cloak from discovery expert work by claiming the
protection of the work-product rule.
This is essentially what SDC alleges, when it points to evidence,
as noted supra, that Edgeworth had shielded Dr.

[[Page 54185]]

Johnson from certain documents. Moreover, the soundness of the ``wall''
between the ``consulting'' team and the ``testifying'' team was
questionable, given that the ``consulting'' team was led by Drs.
Michael Kheyfets and David Colino, but they also were the senior
members of the ``testifying'' team that reported to Dr. Johnson, along
with dual team members Dr. Stephanie Cheng and Esther Yan. 3/21/23 Tr.
664-65 (Johnson). Additionally, when PTV first produced documents to
SDC, it did not also provide a privilege log describing the Edgeworth
documents otherwise withheld because of an assertion of a privilege
relating to a consulting team. (After SDC's motion to compel, PTV
provided a privilege log, but, after Order 24 issued, PTV produced
virtually all of the previously withheld material.) Thus, the Judges
find some evidence that PTV attempted to avoid discovery of the work
undertaken by the firm it engaged for expert work in this proceeding--
the work that has been characterized by SDC as evidence of
specification searching.\45\ This evidence serves to diminish the
Judges' reliance on the Johnson Model that was generated out of this
scenario, although the Judges stop well short of any finding that
Edgeworth, or any of its professionals, engaged in any misconduct.\46\
---------------------------------------------------------------------------

\45\ The Judges take particular note of the fact that an email
that was withheld from Dr. Johnson as ``consulting'' team material
contained ``a link to CDC distant signals [with] the caveat: `. . .
these data files are being shared for consulting purposes only and
should not be shared with John'.''. Rubinfeld SWRT at 6. It is
difficult to fathom why raw data regarding distant signals would be
withheld from the testifying expert.
\46\ Rather, the Judges perceive from the facts that PTV and its
experts took a very aggressive litigation posture, one that SDC
successfully challenged, leading to the issuance of Order 24.
---------------------------------------------------------------------------

Turning to the substance of the documents produced in response to
Order 24, the Judges are struck, as was SDC, with the sheer number of
regression runs undertaken by Edgeworth. In particular, the Judges
agree with SDC that the experimentation with 44 dependent variables is
specifically troubling, as it suggests that the model-building was not
well-grounded in economic theory.
Also troubling was the fact that, over a prolonged period,
successive testing by Dr. Johnson and other Edgeworth Economics
professionals was highly correlated with a steady rise in PTV's
allocation shares. Although the Judges disagree with SDC's distortion
of Dr. Johnson's testimony as to the ``coincidental'' nature of this
correlation, as noted supra, the Judges do not find any sufficient
basis in the record to explain this correlation between sequential
regression runs and the growth of PTV's allocation share. Although PTV
argues that this correlation subsided as data corrections were
completed, PTV presented no sufficient basis to rebut SDC's charge that
data changes should not consistently be correlated with the growth of
PTV's share allocation, as opposed to a randomized effect on share
percentages.\47\
---------------------------------------------------------------------------

\47\ The Judges are less concerned with SDC's assertion that
proof of PTV's specification searching is supported by evidence that
PTV's goal was to maximize PTV's share. The Judges are not
na[iuml]ve, and they recognize that experts will work to produce the
best results for the party on whose behalf they provide testimony.
Rather, the Judges are concerned with whether the evidence suggests
that experts may have engaged in any inappropriate or questionable
acts in the course of attempting to maximize the return to the party
on whose behalf they give testimony.
---------------------------------------------------------------------------

On balance, the Judges find that the regression analyses undertaken
on behalf of PTV at least demonstrate an appearance--in the words of
SDC's expert, Dr. Rubinfeld--of practices that ran ``counter to sound
empirical research practice,'' and that this work may well have been
undertaken with an overzealous attempt ``to obtain . . . results that .
. . generated relatively high shares for PTV Claimants.'' Rubinfeld
SWRT ] 28. For this reason--and for other reasons set forth elsewhere
in this determination--the Judges give reduced weight to the Johnson
Model.

VII. Issues Specific to PTV

A. How should ``must-carry'' PTV stations be analyzed in the regression
analyses?

1. PTV's Position on the ``Must-Carry'' Issue
PTV first emphasizes its legal argument. They begin by
acknowledging that under the Cable Television Consumer Protection and
Competition Act of 1992 (the ``Cable Act'') and the regulations of the
Federal Communications Commission (``FCC'') (the ``must-carry'' rules),
CSOs are required to retransmit certain broadcast signals. PTV PFF ] 70
(citing 47 U.S.C. 534-35). Nonetheless, PTV maintain that ``the Judges
and their predecessors . . . have never found that must-carry
requirements materially affect the value of distant retransmissions of
Public Television programming.'' PTV PFF ] 71 (emphasis added).
PTV follows this legal point with a factual issue, challenging the
testimony of JSC's witness, Mr. Harvey, who identifies 15.5 percent of
PTV distant signals as having been retransmitted in compliance with
these must-carry rules, using criteria that Mr. Harvey believed were
``generally indicative'' of must-carry carriage. PTV PFF ] 72.
Specifically, Mr. Harvey categorized distantly retransmitted signals as
``must-carry'' if they were:
(1) carried to all subscriber groups within the system,
(2) local to at least one subscriber group within the system, and
(3) were licensed to a community whose reference point was within
50 miles of the location where the CSO received signals for cable
distribution (the ``headend'').

PTV PFF ] 72 (and record citations therein). A primary assertion by PTV
is that, because of the third criterion above, these stations,
designated as ``must-carry'' while technically ``distant'' within the
meaning of section 111, ``were more likely to reflect the demands and
preferences of regional viewers'' and thus contained ``valuable
programming.'' PTV PFF ] 72 (and record citations therein).
But PTV takes issue with the entirety of Mr. Harvey's approach to
designating ``must-carry'' stations. First, PTV points out that ``even
. . . expert witnesses whose opinions rely on Mr. Harvey's must-carry
analysis'' acknowledge that his analysis ``did not definitively
identify must-carry signals.'' PTV PFF ] 73 (and record citations
therein) (emphasis added).
Second, PTV argues that ``Mr. Harvey failed to provide a reason for
adopting his first criterion that the must-carry rules should apply to
signals carried ``to all subscriber groups within the system.'' PTV PFF
] 74 (and record citations therein). PTV maintains that there
presumably would be no reason to use that as a criterion unless he
thought that the must-carry law required carriage ``to all subscriber
groups within the system.'' PTV PFF ] 74 (and record citations
therein). More particularly, PTV understands that a ``cable system,''
as defined in the must-carry rules, ``is a smaller unit than the `cable
system' as defined in section 111.'' PTV PFF ] 75 (and record citations
therein). Thus, PTV argues that ``carriage of such a signal to all of
the subscriber groups in a system may be evidence of that cable
system's choice to carry that signal more broadly than the must-carry
rules require.'' PTV PFF ] 75 (and record citations therein). PTV
concludes that Mr. Harvey's must-carry analysis ``likely results in
overstating the [number] of [PTV] signals subject to mandatory
carriage, perhaps dramatically so.'' PTV PFF ] 75 (emphasis added).
PTV further makes what can be characterized as a ``no changed
circumstance'' argument. Specifically,

[[Page 54186]]

PTV points out that Mr. Harvey fails to address the fact that mandatory
carriage of PTV distant signals has become more expansive since the
2010-2013 proceeding, and that no party argued in that proceeding that
the must-carry rules had any material impact on relative market value.
Further, PTV avers that ``the fraction of PTV signals that Mr. Harvey
identified as . . . must-carry declined substantially over the period
from 2014 to 2017,'' suggesting that, even under his analysis, ``the
share of PTV distant retransmissions that were subject to must-carry is
less than in prior proceedings.'' PTV PFF ] 76 (and record citations
therein).
Additionally, PTV asserts that Mr. Harvey incorrectly implied that
PTV's multicast streams \48\ are subject to the must-carry rules. PTV
PFF ] 77 (and record citations therein). To the contrary, PTV avers
that ``it is undisputed that the must-carry rules do not require CSOs
to retransmit those non-primary signals of a PTV broadcast station, and
all carriage of Public Television multicast streams was due to the
voluntary choice of the cable operators.'' PTV PFF ] 77 (and record
citations therein).
---------------------------------------------------------------------------

\48\ The Judges define and discuss ``multicast streams'' infra.
---------------------------------------------------------------------------

Beyond its legal and factual arguments, PTV adds an argument based
on economic analysis. Taking on a point made by another JSC witness,
Dr. Majure, PTV opines that ``there is no basis to assume that any
distant signal carried pursuant to the must-carry rules provide `$0' of
value to the CSO, as Dr. Majure argues.'' PTV PFF ] 78 (and record
citations therein). More particularly, PTV explains that ``[p]eople are
routinely required to purchase things, such as health insurance and
seat belts, which they may value highly.'' PTV PFF ] 78 (and record
citations therein). See also PTV PFF ] 81 (``Dr. Majure's theory of
`$0' value fails [to pass through a] `reality filter' [by] suggest[ing]
that all local [PTV] programming has [zero] value.'')
Changing tacks, PTV points out that, without dispute, ``many CSOs
chose to retransmit [PTV] distant signals when they could have carried
another distant signal instead.'' PTV PFF ] 79 (and record citations
therein) Additionally, PTV compares this CSO decision-making to the
CSOs' responses to the Bortz Survey, in which ``[s]everal CSOs that
carried the purportedly must-carry [PTV] distant signals attributed
significant value to those Public Television distant signals in their
[survey] responses . . . .'' PTV PFF ] 79 (and record citations
therein).
PTV further points to various ``sensitivity tests'' undertaken by
Drs. Johnson, Bennett and George, all of which ``found that those
purportedly must-carry Public Television distant signals do not have
relative marketplace value that is statistically significantly
different from the relative marketplace value of other Public
Television distant signals.'' PTV PFF ] 82 (and record citations
therein). Thus, PTV takes issue with any implicit assumption ``that any
distant signal carried pursuant to the must-carry rules are, on
average, less valuable to the CSOs.'' PTV PFF ] 82.
But PTV also acknowledges the presence of an indemnification
provision in the must-carry statute, whereby Congress exempted from
mandatory carriage any noncommercial educational signals that qualify
as distant signals, ``unless [the noncommercial educational broadcast
station] indemnifies the cable operator for any increased copyright
costs resulting from carriage of such signal.'' PTV PFF ] 84 (quoting
47 U.S.C. 535(i)(2)). Thus, a CSO ``was eligible for indemnification
only if and to the extent that its section 111 royalty fee increased
due to the carriage of a distant signal that was subject to must-carry;
and the station then had the choice of declining indemnification, in
which case the [CSO] was released from any must-carry obligation.'' PTV
PFF ] 84. Nonetheless, PTV criticizes any party seeking to exclude
must-carry stations from the regressions based on this statutory
provision, which cancels out any royalty payment, because PTV argues
(echoing its criticism of Mr. Harvey's analysis), that no party has
``reliably identified any distant signals that are subject to mandatory
carriage . . . for which the retransmitting cable operator received
indemnification.'' PTV PFF ] 85 (and record citations therein).
PTV also makes a more general argument that would apply to PTV
``must-carry'' stations, even assuming they had no value. Specifically,
PTV maintains that ``[a] fee-based regression model is designed to
estimate the average relative value of programming in a bundle, such
that bundling of programming of different values does not bias the
regression estimates of relative marketplace value.'' PTV PFF ] 91.
2. The Other Parties' Positions Regarding PTV ``Must-Carry'' Signals
As a matter of legal interpretation, JSC argues that it would not
be reasonable to remove from the hypothetical market any statutory
provisions that apply to the distant signal market, other than the
section 111 license. JSC PFF ] 2 (and record citations therein).
Applying this approach, JSC notes that, as a matter of statutory law,
the Must Carry statutory and regulatory provisions are not found within
the section 111 license provisions, but rather are statutorily set
forth at 47 U.S.C. 535, and therefore should remain in effect in the
hypothetical market the Judges must construct in this proceeding. And,
because the Must-Carry provisions preclude any finding of Willingness-
to-Pay and fail to reveal CSO's preferences, it is also economically
reasonable to maintain the impact of the Must Carry provisions on the
regression approach by excluding such stations from that valuation
methodology. JSC PFF ] 3 (and record citations therein).
JSC also points to the following 1992 legislative history of the
must-carry provisions as supporting, from both the legal and economic
perspectives, a finding that must-carry PTV stations do not generate
additional value that can be incorporated into the fee-based
regressions:

The [House Committee on Energy and Commerce] Committee believes
that absent statutory carriage requirements, there is a substantial
likelihood that local public television stations will be deleted,
will not be carried, or will be switched to undesirable channels on
cable systems. Because cable operators are for-profit enterprises,
they necessarily seek to provide customers with the package of
programming and services that will maximize the operators' profits.
As commercial enterprises, cable operators ordinarily lack strong
incentive to carry programming that does not attract sufficient
dollars or audiences. Traditionally, public television has provided
precisely the type of programming commercial broadcasters and cable
operators find economically unattractive. For this reason, the
Committee believes that, without `must carry' provisions, public
television service increasingly will become unavailable to cable
subscribers.

JSC PFF ] 475 (citing Trial Ex. 1003 (House of Representatives Report
102-628) at 62).
JSC points out that this was not only the Congressional viewpoint
at the time of enactment of the must-carry law, but also that PTV has
continued to agree with Congress's assessment of the economic
circumstances described in the above legislative history, insisting
that public television stations need must-carry status to guarantee
carriage. JSC PFF ]] 476-478, 488-489 (and record citations therein).
Last, but certainly not least, in apparent response to PTV's
criticism of Mr. Harvey's estimate of the number of must-carry
stations, JSC suggests that PTV knew or should have known how many of
the stations it represents in this

[[Page 54187]]

proceeding in fact were must-carry stations. JSC PCOL ] 13 (``When a
party is in a position to proffer testimony or evidence that would
elucidate a point, or rebut an adverse point, but declines to do so, a
finder of fact may determine that the testimony would not have been
supportive of that party's position.'') (citing Final Rule and Order,
Determination of Rates and Terms for Digital Performance of Sound
Recordings and Making of Ephemeral Copies to Facilitate Those
Performances (Web V), 86 FR 59452, 59476 (Oct. 27, 2021) (Web V Final
Determination), (citing in turn Huthnance v. District of Columbia, 722
F.3d 371 (D.C. Cir. 2013)), aff'd NRBNMLC v. CRB, 77 F.4th 949, 2023 WL
4831376 (July 28, 2023).
a. The SDC Position on the ``Must-Carry'' Issue
The SDC apply their broad criticism of minimum-fee-only CSOs to the
question of how to address the must-carry PTV stations: ``[N]o
inference can be drawn regarding `willingness to pay' or any other
potential theory on the basis of cable system decision-making in the
presence of mandatory carriage of certain PTV signals.'' Asker WRT ] 17
n.11; 4/11/23 Tr. 4319-21 (Marx); see also SDC PFF ] 64.
Like the JSC, the SDC maintain that, as a legal issue, the Judges'
consideration of economic market forces to determine relative market
value does not mean that the statutory must-carry rules should be
ignored:

The task in these royalty distribution proceedings is to
determine the relative value of the relevant program categories in a
hypothetical market that exists in the absence of the section 111
compulsory license. There is no basis for assuming away the
existence of other aspects of the regulated market, nor has any
party in this proceeding presented a rational framework by which one
could pick and choose which other aspects of the regulated market
would survive. At a minimum, the Retransmission Consent and Must-
Carry Requirements set forth in the Communications Act and Federal
Communications Commission's (``FCC'') rules would continue to
regulate the relationship between broadcast stations and CSOs. See
47 U.S.C. 325(b); 47 CFR 76.55, 76.64.

SDC PFF ] 218.
The SDC also emphasize a point central to their general criticism
of the fee-based regressions--the impact of geography on retransmission
decisions:

Unlike commercial stations, the must-carry zone for
noncommercial stations is determined by distance from the cable
system rather than by DMA [Designated Market Area]: a noncommercial
station is entitled to cable carriage under the FCC's must-carry
rules if its city of license is within 50 miles of the cable
system's principal headend. 47 CFR 76.55.

SDC PFF ] 222. Further, the SDC note the indemnification provision,
discussed supra, also compromises the attempt to derive marketplace
evidence of the value of must-carry stations:

[Although] [u]nder section 111, a noncommercial station is only
considered ``local'' within 35 miles of the cable system's headend .
. . [a] cable operator is not required to carry a noncommercial
station that would be considered distant for copyright purposes
unless the noncommercial station agrees to indemnify the CSO for any
increased copyright liability resulting from such carriage.
Presumably, this indemnification requirement would be moot in
the absence of section 111, because there would be no cost at all to
cable systems carrying noncommercial signals within the FCC's 50-
mile must-carry zone in the absence of section 111. There is no
basis to believe the inapplicability of the indemnification
requirement would affect the relative marketplace value of
noncommercial stations, as carriage of noncommercial stations would
still result from the federal must-carry mandate rather than any CSO
choice.

SDC PFF ] 222 (citing 17 U.S.C. 111(f)(4)).
b. The CTV Position on the ``Must-Carry'' Issue
CTV emphasizes the substantial importance of the must-carry issue,
noting first that ``[d]uring 2014-2017, no less than 33.9% PTV signals
were carried pursuant to must-carry rules.'' CTV PFF ] 249 (citing
Harvey CWDT ] 87; 3/28/23 Tr. 1836-37 (Harvey)). See also CTV PFF ]]
256-57 (42.6% of all PTV distant reported base fee royalties are from
PTV signals subject to the must-carry rule.)
CTV also expands upon the evidentiary point made by JSC, noted
supra, regarding PTV's failure to produce evidence as to the number of
must-carry stations:

PTV, the claimant with the most accurate information regarding
PTV distant stations carried by CSOs pursuant to the must-carry
rules, has provided no evidence or statistics to refute the
foregoing. At most, PTV economics witness Dr. Johnson contends that
Mr. Harvey's findings are speculative, but he neither contested nor
provided any alternative calculations to Mr. Harvey's conclusions.

CTV PFF ] 258. Echoing the criticism noted supra, CTV maintains that
carriage of a PTV signal under the must-carry rules does not reflect a
CSO's revealed preference through a weighing of incremental costs
versus incremental benefits, and thus does not reflect relative
marketplace value. CTV PFF ] 272 (and record citations therein).
Moreover, CTV also points out that even when CSOs retransmitting
must-carry stations pay more than the minimum fee, they nonetheless
cannot reveal a willingness to pay for that programming because of the
indemnification obligation, discussed supra, of PTV stations to pay
back CSOs for any additional royalty costs associated with the required
(i.e., must-carry) retransmission of its programming. CTV PFF ] 259.
CTV further notes the ``material'' effect of the must-carry issue
on PTV's regression and allocation shares, both individually and
jointly. CTV PFF ] 264. Pointing to a sensitivity analysis by one of
its expert witnesses, Dr. Bennett, CTV notes that eliminating the
royalty payments the Johnson Model has attributed to must-carry
stations substantially reduces the PTV values on either attribute, and
in combination. Bennett WRT ] 95. These adjustments are shown in the
figure below:

[[Page 54188]]

[GRAPHIC] [TIFF OMITTED] TN28JN24.005

Similarly, Dr. Bennett undertakes the same adjustment to Dr.
George's regression coefficient and allocation share regression results
for PTV:
[GRAPHIC] [TIFF OMITTED] TN28JN24.006

And in like fashion, Dr. Bennett makes the same must-carry adjustment
for PTV to Dr. Tyler's analysis:
[GRAPHIC] [TIFF OMITTED] TN28JN24.007

In conclusion, CTV underscores the existence of a consensus on this
must-carry issue, noting that Drs. Marx, Bennett, and Majure all agree
that including PTV must-carry stations in the regressions results in an
overestimation of the value of PTV content for all four years. CTV PFF
] 534 (and record citations therein).

[[Page 54189]]

c. The Program Suppliers Position on the ``Must-Carry'' Issue
Program Suppliers join with the other parties that maintain the
FCC's must-carry rules should still be deemed by the Judges to apply in
their modeling of the economic and marketplace environment necessary to
allocate the royalties at issue. That is, in the hypothetical
environment, even though the section 111 conditions are relaxed,
Program Suppliers argue that the parties must ``still continue to be
subject to the same must-carry rule and agreement obligations . . . .''
PS PFF ] 101 (and record citations therein).
However, Program Suppliers take issue with any assertion that
accounting for PTV's must-carry stations would have a significant
effect. Their expert, Dr. Tyler, noted that Dr. Bennett's
calculations--reproduced supra--showed that removing the must-carry
stations (that were identified by Mr. Harvey) from the Tyler Model
barely changed the PTV share allocation. 4/19/23 Tr. 5456 (Tyler).
Moreover, Dr. Tyler opines, consistent with the testimony by PTV's
expert Dr. Johnson that, ``even with must-carry, CSOs may still have
some value related to that carriage.'' 4/19/23 Tr. 5456 (Tyler).\49\
See also PS PFF ] 337.
---------------------------------------------------------------------------

\49\ But note Dr. Marx's point that must-carry stations that
were distantly retransmitted by CSOs paying only the minimum fee
would not generate a CSO royalty obligation, mooting the need for a
royalty indemnification payment. Marx WRT ] 79.
---------------------------------------------------------------------------

d. The CCG Position on the ``Must-Carry'' Issue
CCG is part of the chorus asserting that the Judges should include
the impact of the must-carry provisions in their economic analysis of
relative marketplace value. CCG PFF ] 62. However, CCG parts company
with those parties arguing that the compelled nature of such
retransmission decisively compromises the informational worth of that
carriage in estimating such value.
Specifically, Dr. George, CCG's expert, like Dr. Johnson,
analogizes public television programming to other ``real-world
examples'' of goods that have value, notwithstanding the fact they are
mandated by the government. In this regard, as examples, she points to
health insurance, which she says generates value, and to automobile
airbags and seatbelts which, although mandated, increase the value of
an automobile. Similarly, she points to the federal government
requirement that individuals carry health insurance to argue that the
mandate does not mean that the product does not have value to them. 4/
18/23 Tr. 5346. (George). Based on these analogies, CCG maintains that
the must-carry rules have a positive effect on the value of PTV
programming. CCG PFF at 81. See also CCG PFF ] 224.
Nonetheless, Dr. George recognizes the possibility of an
alternative finding--that any assertion of value in must-carry stations
would be rejected. Accordingly, she turns to Dr. Bennett's analysis
cited supra--at Bennett WRT fig. 21--which she recognizes as showing
the ``downward adjustments'' to her ``regression'' to account for a
finding of the absence of value in PTV's must-carry signals. CCG PFF ]
225 (and record citations therein).
3. The Judges' Analysis and Conclusions Regarding the ``Must-Carry''
Issue
The Judges agree with JSC and CTV, based on the caselaw cited by
JSC, that PTV, whose clients include the public television stations
that are in fact subject to must-carry requirements, bore the twin
burdens of proof--the burden of producing evidence and the burden of
persuasion--regarding which stations were subject to the must-carry
provisions and which were not. Further, because PTV is seeking a
determination including must-carry station data in the regression,
those burdens are apportioned to PTV as a matter of statute. See 5
U.S.C. 556(d).
But rather than produce such evidence or prove its significance,
PTV elected to attack Mr. Harvey's attempt to estimate the number of
must-carry stations. Those attacks are insufficient. The Judges first
take note that PTV argues only that Mr. Harvey ``perhaps'' or
``likely'' overstated the number of must-carry stations. But Mr. Harvey
engaged in a reasonable attempt to estimate this number, which PTV
could have set forth in its submissions, but did not.
Further, the Judges do not credit PTV's argument that the must-
carry status of some PTV stations can be deemed irrelevant because the
issue of must-carry stations was not raised in previous section 111
allocation proceedings. Each of these proceedings is de novo in nature,
and the determination is based on the evidentiary record in that
proceeding, as well as on the pertinent findings and conclusions in
prior proceedings. Although regurgitated factual argument from prior
findings may be summarily rejected by reference back to the findings in
prior determinations, and although renewed legal arguments are cabined
by the precedential effect of prior determinations, new arguments are
not similarly restricted. Moreover, the absence of an issue in a prior
proceeding, such as the impact of the must-carry status of PTV
stations, certainly does not preclude consideration of that issue in
this proceeding.
The Judges also reject the argument made by PTV and CCG that the
must-carry stations have value, notwithstanding that indemnification
provisions would offset any royalty payments. There are two reasons why
this argument is incorrect. First, the point is not that the programs
on must-carry stations, including those subject to royalty
indemnification payment back to the CSOs, lack value; rather, the point
is that they lack objective and measurable value. On the issue of
objective value, the experts for PTV and CCG mistakenly seek to
analogize must-carry PTV stations to two ``must-buy'' automobile
attributes, seat belts and air bags, and to ``must-carry'' health
insurance, which come at a cost. There are two problems with this
argument. First, although one can quite reasonably argue that these
coerced purchases are beneficial, from an economic point of view the
purchase does not reveal a buyer's preference because seatbelts, air
bags, and health insurance are coerced, not voluntary.\50\ Second, a
price proxy could likely be generated for seat belts and air bags by
comparing the retail price of cars immediately before and after their
inclusion was mandated for new cars, or by comparing the spread in
price between new cars (with such a safety device) and used cars
(lacking such safety devices). Regressions seeking to use such data
would be true, full-fledged hedonic regressions. But here, the task is
markedly different and more difficult, because no such historical or
comparative comparisons were possible. Thus, as noted elsewhere in this
determination, the regressions are ``inspired'' by, and in the nature
of, hedonic regressions, using the context of section 111 to identify
the market-related revealed preferences of CSOs, just as fee-based
regressions have been utilized in previous allocation proceedings. But
the attempted analogy to market-generated attributes included in
market-priced products misses the mark and continues the unfortunate
strained attempts by the experts supporting and criticizing fee-based

[[Page 54190]]

regressions to compare the fee-based regressions to hedonic
regressions.
---------------------------------------------------------------------------

\50\ It might be reasonable to assume that a consumer would
prefer an automobile with these safety features over an automobile
lacking them, or the protection of health insurance rather than the
risk associated with its absence, but without a structure for
monetizing such preferences, the measure is only ordinal in nature,
rather than cardinal. PTV alludes to this problem when, as noted
supra, it notes that these are items that purchasers ``may'' value.
But that implies that they may not value them in a context where
there is an associated out-of-pocket or opportunity cost.
---------------------------------------------------------------------------

As to the issue of measurable value, PTV and CCG fail to address
the fact that, if these stations do not generate net royalties, then
the regressions should not be attributing (correlating) their minutes
with royalties. The regressions will not ``see'' the indemnification
payments made by the PTV stations back to the CSOs who made royalty
payments. Thus, to the extent these royalty payments are recorded as
base fee payments on the SOA forms relating to subscriber groups, they
will falsely be ``seen'' by the regressions as indicating that the
minutes were associated (correlated) with additional royalties, when
that was not the case. As several witnesses have noted, the regressions
are ``dumb,'' and will calculate whatever it is they are programmed to
calculate. It is up to the econometrician who constructs and evaluates
the regression to ``think,'' and decide whether the regression has
reflected reality (legal, institutional, and economic) in a proper
manner. The Judges find that Mr. Harvey made a prima facie case
regarding the number of PTV stations that were must-carry.
The Judges also do not credit PTV's point that many CSOs chose to
retransmit PTV signals when they could have carried another distant
signal instead. Not only does that point ignore the problem of whether
a station was subject to indemnification, it also indicates merely an
ordinal preference.
The Judges also reject the argument that the regressions can
include the must-carry station data because CSOs responded to the Bortz
Survey by attributing value to such signals. This ``whataboutism''
argument holds no purchase--either the data belongs in the regressions,
or it does not. The Bortz Survey is a form of model seeking to address
relative marketplace value from a different perspective, and the
requisites or output of one model do not necessarily map onto another
model. Cf. NRBNLMC v. CRB, supra, slip op. at 41 (affirming the Judges'
Web V rate determination that a finding applicable to one economic
model (the issue of opportunity cost) did not automatically apply to
the same issue when addressed in a different type of model).
PTV's assertions regarding the value of any adjustment regarding
presence of must-carry stations with their attendant indemnification
requirements is merely an argument regarding the extent of the
adjustment, not regarding the need for one. As noted, the extent of the
adjustment varies, depending upon how it is applied and to which
regression model it is applied. The Judges consider that point in
making their adjustments, infra.
Finally, the Judges agree with the argument that the legislative
history relating to the must-carry provisions, and PTV's own prior
positions, reflect an understanding that public television stations
need must-carry status in order to obtain carriage. Such real-world
facts serve as ``reality filters'' that can and should override the
``dumb'' manner in which a regression ``sees'' the royalty and carriage
data.
For these reasons, the Judges find that PTV failed to discharge its
evidentiary burdens, failed to demonstrate that Mr. Harvey's estimation
should be rejected by the Judges, and failed to adequately demonstrate
the existence of value in must-carry stations sufficient to include
them as part of the relative marketplace value generated by the
regression approach.
In terms of the necessary adjustments, the Judges agree with Dr.
Bennett's approach, in which he eliminates the value attributed to the
must-carry stations in both the regressions and the allocations, as
there is no evidence or testimony sufficient to warrant only an
adjustment in one of these regards. Thus, the Judges agree with the
adjustments in column number 3 in Dr. Bennett's adjustment made in
figures 38, 21 and 52, respectively, set forth supra.

B. Are PTV's Multicast Stations Exempt From Royalty Payments? \51\
---------------------------------------------------------------------------

\51\ The definition of multicasting is not in dispute.
Basically, it refers to ``a type of national television service
designed to be broadcast terrestrially . . . on their digital
subchannels . . . by the conversion from analog to digital
television broadcasting, which le[aves] room for additional services
to be broadcast from an individual transmitter . . . .'' Digital
multicast television network, Wikipedia, <a href="https://en.wikipedia.org/wiki/Digital_multicast_television_network">https://en.wikipedia.org/wiki/Digital_multicast_television_network</a> (last visited Aug. 9,
2023). The exempt/non-exempt nomenclature is somewhat confusing;
``exempt'' means CSOs do not pay section 111 royalties, and ``non-
exempt'' means CSOs shall pay section 111 royalties (unless, by
agreement with the copyright owners, section 111 royalty payments
are waived).
---------------------------------------------------------------------------

The parties dispute whether multicast stations should be included
in the fee-based regressions. Before setting forth the parties'
respective positions, it is helpful to set forth a brief history of the
relevant statutory provisions and the industry reaction. In this
regard, the SDC's overview of the context is accurate and succinct:

Prior to the analog-to-digital television transition, a
broadcast station could transmit only a single stream of
programming. The transition to digital broadcasting, completed for
all full-power stations in 2009, enabled stations to broadcast
multiple streams of programming, i.e., a ``primary stream'' and one
or more ``multicast streams.''
Accordingly, the Satellite Television Extension and Localism Act
(``STELA'') of 2010 added a DSE for distant transmissions of
multicast streams. STELA, Public Law 111-175, 124 Stat. 1218, 1239
(2010).
Certain multicast streams were temporarily exempted from having
a DSE value assigned, including those that (a) had been carried by a
CSO prior to February 27, 2010, or (b) had an agreement in place
prior to June 30, 2009, for free carriage on a CSO. See STELA, 124
Stat. 1218, 1239; see also Marx ACWDT ] 70.
The Association of Public Television Stations (``APTS'') entered
into such an agreement with the National Cable and
Telecommunications Association (``NCTA'') in 2005, which was renewed
in 2016 . . . . [REDACTED]. . . .
The PBS-NCTA agreement governed carriage of PTV stations during
the 2014-2017 time period and required participating CSOs to carry
up to four programming streams per PTV station (i.e., the primary
stream and three multicast streams). The agreement thus served to
``exempt'' up to three multicast streams per station from generating
copyright liability until its expiration and renewal in 2016, at
which time the exempted multicast streams were reclassified for
royalty purposes as ``non-exempt'' streams with a DSE value of 0.25.

SDC PFF ]] 223-224 (and record citations therein). Accord PTV PFF ] 67
(and record citations therein).
The record in this proceeding also reflects the parties' and the
industry's awareness of the terms of the 2016 renewal of the 2005 PBS-
NCTA agreement referenced above. Accordingly, although the Judges
denied the post-hearing admission of the PBS-NCTA agreement into the
record,\52\ the Judges have relied upon the record evidence of the
parties' understanding of that agreement.
---------------------------------------------------------------------------

\52\ See Order 41 Denying as Moot Public Television's Motion for
Reconsideration of Order 33.
---------------------------------------------------------------------------

1. PTV's Position on Multicast Stations
PTV maintains that, for the years 2016 and 2017, multicast stations
should be treated like all other distantly retransmitted broadcast
stations for the purposes of establishing relative marketplace value
through the fee-based regression analysis, noting that, under section
111, they ``are assigned the same DSE value as that station's primary
stream.'' PTV PFF ] 66 (citing 17 U.S.C. 111(f)(5); PTV PFF ] 67 (and
record citations therein).
PTV distinguishes the multicast stations from the must-carry rules,
asserting ``it is undisputed that the must-carry rules do not require
CSOs to retransmit those non-primary signals of a [PTV] broadcast
station, and all carriage of PTV multicast streams was due to the
voluntary choice of the cable operators.'' PTV PFF ] 77 (and record

[[Page 54191]]

citations therein). PTV acknowledges that PTV primary and multicast
stations are functionally retransmitted distantly as a ``bundle,'' but
that fact is neither unique to distant carriage of PTV stations nor
consequential with regard to the inclusion of the multicast stations in
a fee-based regression model. As to the latter point, PTV asserts that,
because ``[a] fee-based regression model is designed to estimate the
average relative value of programming in a bundle, such . . . bundling
of programming of different values does not bias the regression
estimates of relative marketplace value.'' PTV PFF ] 91. More
particularly, PTV explains that the Waldfogel-style regressions of Drs.
Johnson and George rely on ``average relative valuations,'' and that
programming which does not correlate with higher royalties ``will be
factored into the regression.'' PTV PFF ] 91 n.140 (citing George WDT
at 51; 4/18/23 Tr. 5170-74 (George); 3/21/23 Tr. 350, 456-58:15, 595
(Johnson); Johnson WRT ] 65.
Because he understood that programming of multicast streams on
distantly retransmitted broadcast signals to be compensable under
section 111, Dr. Johnson applied his regression model to estimate the
average relative value of distantly retransmitted programming inclusive
of multicast streaming. And, as indicated supra, he understood that, to
the extent CSOs might value PBS primary and multicast streams
differently, these different values for ``multicast streams would be
averaged out by the subscriber-weighted distant minutes.'' PTV PFF ]]
133-34 (and record citations therein).
PTV also notes how relative values, as between JSC and PTV
programming, moved in opposite directions during the 2014-2017 period.
That is, in 2015, when WGNA converted from a broadcast station to a
national cable network, JSC could not claim section 111 royalties for
sports programming that was televised on WGNA. But for PTV, the
converse was the case: Compensable programming arguably increased when
in 2016 multicast stations transformed from being statutorily exempt
(no right to section 111 royalties) to non-exempt (royalty-generating).
PTV PFF ] 135.
2. CCG's Position on Multicast Stations
CCG argues that the minutes of programming on the PTV multicast
stations that were reclassified from exempt to non-exempt should be
included in the fee-based regressions because their continued
retransmission as royalty-generating stations is the consequence of
deliberate strategies by CSOs. CCG PFF at 25. Specifically, CCG relies
on the fact that the substantial portion of stations that had been
distantly retransmitted by Bright House (an MSO) while exempt (from
royalties) continued to be retransmitted in 2016 as non-exempt
(royalty-bearing) contemporaneously with the acquisition of Bright
House by a larger MSO, Charter Communications (formerly Time Warner
Cable). CCG PFF ] 79 (citing Marx ACWDT ] 78).
According to Dr. George, Charter Communications could have chosen
to cease distantly retransmitting these PTV multicast stations after
they became non-exempt (royalty-bearing), but for commercial purposes
they elected to maintain carriage, indicating that Charter
Communications perceived value in these multicast stations. George WRT
at 20. In this regard, Dr. George concluded that the fact that Charter
decided to include the PTV signals in its cable lineup and treat those
PTV signals as paid while deciding not to carry other distant signals
``reveals the relative value of the programming to the cable system.''
George WRT at 20. See also CCG PFF ] 547.\53\
---------------------------------------------------------------------------

\53\ Program Suppliers are essentially in agreement with CCG in
this regard. See PS PFF ] 387 (citing Tyler WRT ] 71 for the
assertion that ``non-exempt signals are part of the question studied
and properly included in the analysis.'').
---------------------------------------------------------------------------

3. CTV's Position on Multicast Stations
Like, CCG, CTV states that the reclassification of PTV multicast
signals from exempt to ``paid'' (i.e., non-exempt, or royalty-bearing)
had a ``significant impact in the industry.'' CTV PFF at 17. But quite
unlike CCG, CTV disagrees with the inclusion of the ``paid'' multicast
signal minutes in the fee-based regressions. After reciting the same
industry merger history recounted supra, CTV PFF ] 75, CTV notes that
the reclassification of these multicast PTV stations increased both (1)
PTV subscriber-weighted minutes and (2) the data inputted into the
regression (seeking to measure the correlation between category minutes
and royalties). CTV PFF ] 76.
More particularly, 231 PTV signals were reclassified from exempt to
paid from 2014 to 2017, ``with over 90% of the reclassification of PTV
minutes taking place in 2016 and 81% of those reclassifications
associated with Charter Communications' acquisitions of Time Warner and
Bright House.'' CTV PFF ] 77 (and record citations therein). CTV
further notes the combined industry concentration of Charter
Communications, Time Warner, and Bright House prior to the 2016 merger,
together accounting for 26.2% of total cable industry subscribers. CTV
PFF ] 78.
But CTV argues that the reclassification had no impact on whether
those PTV multicast minutes should have been inputted into the fee-
based regressions. Specifically, CTV asserts, ``The increase in PTV
paid minutes did not create any changes subscribers would notice; there
was no change in channel line-ups, viewer access to programming, or
content broadcast. Rather, PTV signals that had previously existed on
channel lineups became `nonexempt.' '' CTV PFF ] 79 (and record
citations therein). Thus, CTV concludes that the reclassification
merely ``created an illusion'' of an increase in the number of
distantly retransmitted PTV minutes.'' CTV PFF ] 237 (and record
citations therein).
4. SDC's Position on Multicast Stations
The SDC echoes Dr. Marx's position on behalf of CTV, that, although
reclassification from exempt to non-exempt ``changes the reporting of
PTV minutes in the data, [it] does not change the content or value that
CSOs offer to their subscribers.'' SDC PFF ] 241 (citing Marx ACWDT ]
71).
Further, Dr. Marx takes note, in her consideration of the Charter
acquisitions discussed supra, of the existence of the PBS-NCTA
agreement in place that maintained the exempt (no royalty) status of a
number of public television stations. 4/11/23 Tr. 4272 (Marx).
5. JSC's Position on Multicast Stations
JSC takes note that, although the number of primary PTV signals did
not increase significantly, ``CSOs . . . began carrying significantly
more PTV multicast channels, with the share of PTV volume comprised of
multicast channels nearly doubling between the beginning of 2014 and
the end of 2017.'' JSC PFF ] 74 (and record citations therein)
(emphasis added). More particularly, JSC acknowledges that some of this
increase in reported PTV multicast carriage is attributable to the
change in status of certain PTV multicasts from ``exempt'' to ``non-
exempt,'' as a result of Charter Communications' acquisitions of Time
Warner Cable and Bright House Networks in 2016. JSC PFF ] 75 (and
record citations therein).
But JSC rejects the notion that the increase in non-exempt
(royalty-bearing) multicast carriage reflects an increase in value for
which the PTV allocation should increase. In support of this argument,
one of JSC's economic experts, Dr. Majure opines that (1) mere
reclassification from exempt to non-exempt itself does not reflect an

[[Page 54192]]

increase in value and (2) CSOs chose to carry additional PTV multicasts
during 2015-2017 when doing so was typically cost-free, even if they
were non-exempt) because their carriage addition did not cause the CSO
to exceed the minimum fee. JSC PFF ]] 76-77 (and record citations
therein).
Moreover, JSC relies on the testimony of PTV's own witness, Dr.
Johnson, who acknowledged that the PBS-NCTA agreement provides for CSOs
who were NCTA members to carry up to three PTV multicasts in addition
to the carriage of the primary PTV signal, that PTV would not require
payment for the carriage of these multicasts, and that, should the CSO
incur financial liability under section 111 for such multicast
carriage, PTV would be obligated to either indemnify the CSO for the
royalty costs (as with must-carry primary signals), or waive the PTV
station's right to compel carriage. JSC PFF ] 7 (citing 3/22/23 Tr.
985-88 (Johnson)).
Based on the foregoing, JSC claims that, without the multicast
provisions in the PBS-NCTA agreement, which JSC characterizes as
``marketplace'' facts, CSOs would pay ``little or nothing'' for the
programming on the multicast stations. JSC PFF ] 9 (and record
citations therein). See also JSC PFF ]] 25, 395; Harvey CWDT tbls.37-
39.
6. The Judges' Analysis and Conclusions Regarding Multicast Stations
The Judges have the same type of problem with PTV's claim for
royalties for the multicast programming as they do for the must-carry
station programming discussed supra. That is, there was evidence
available to be produced by PTV, namely the PBS-NCTA agreement as well
as the number of entities it represents that would provide significant
marketplace evidence of how PTV stations and the licensor CSOs valued
multicast station programming. But, as noted supra, PTV did not produce
either this agreement or the number of entities bound by it as
evidence, although its own expert witness testified as to some of the
agreement's contents.
Thus, the Judges were deprived of full knowledge of the terms of
the agreement, the parties' fulsome testimony as to the meaning of its
provisions and the number of entities signing on to the agreement.
Moreover, PTV opposed the admission of that agreement into evidence.
See Order 41 Denying as Moot Public Television's Motion for
Reconsideration of Order 33. Accordingly, the Judges here, too, find
that PTV bore, but failed to discharge, the burdens of production and
persuasion with regard to the details of the agreement and the extent
of its coverage. See Web V Final Determination at 59452; Huthnance v.
District of Columbia, 722 F.3d 371 (D.C. Cir. 2013); see also 5 U.S.C.
556(d) (placing the burden of proof regarding facts on the party
seeking an order based on those facts).
Nonetheless, relevant terms of the PBS-NCTA agreement were well-
understood by the parties, without dispute. As noted supra, PTV's own
expert, Dr. Johnson, understood what the agreement provided with regard
to multicast stations and the absence of a royalty obligation attendant
to their carriage. This constitutes a market-based fact, which has two
implications. First, as a direct agreement among parties in the sector
at interest in this proceeding, it is an agreement that reflects actual
value, not hypothetical value. As such, it is more credible than
attempts to tease out market value via regression-derived price proxies
or a constant sum survey such as the Bortz Survey. Second, within the
context of a fee-based regression, the existence of such zero
valuations would certainly affect the regression as well as the number
of minutes by which the impacted PTV regression coefficient would be
multiplied. But without any information regarding the number of PTV
stations covered by the PBS-NCTA agreement, the Judges cannot simply
assume that no multicast stations that generated zero net royalties
were covered by this agreement.\54\
---------------------------------------------------------------------------

\54\ The fact that Charter changed some PTV multicast stations
from exempt (non-royalty-bearing) to non-exempt (royalty-bearing)
after acquiring certain CSOs is anecdotal evidence that suggests
these PTV multicast stations were generating royalties, but
anecdotes are not substitutes in this context for more comprehensive
data. (And some of these royalty-bearing PTV stations may also have
been retransmitted by CSOs with excess capacity, thereby not
actually generating any revealed preference information for the
retransmitting CSOs.)
---------------------------------------------------------------------------

If the Judges had full information regarding the PBS-NCTA agreement
from PTV, whose clients are signatories thereto, as well as information
from PTV regarding the number of its station clients and base fee
royalties impacted by the agreement, the Judges' analysis could have
been different. For example, the Judges are not convinced that the fact
that these signals had been exempt (not royalty-bearing) previously is
a dispositive point. The argument in favor of that position is that the
mere change in legal obligation has no impact on economic value. But a
simple thought experiment demonstrates the paucity of that reasoning:
What if these multicast signals had started off as non-exempt (royalty-
bearing) and then were changed to exempt (non-royalty-bearing)? It
would have been the same change, only in reverse. Would the original
classification remain in place in this juxtaposed scenario, such that
royalties would continue to be included in the regression?
Also, there was a contentious dispute regarding whether the
multicast PTV stations' programming was ``duplicative'' of the PTV
primary signal programming or of each other. Questions arose regarding
whether duplication should be narrowly tailored to mean the
retransmitting of the identical program at the identical time, at the
same proximate time or within a certain period of time, and whether
different episodes from the same series retransmitted at the same or
some proximate time or day were likewise duplicative. But without
information as to whether any multicast station that had retransmitted
such potentially duplicative programming was contractually unable to
generate royalties under the PBS-NCTA agreement in any event, these
issues of potential duplication appear to be indeterminate.\55\
---------------------------------------------------------------------------

\55\ As explained infra, among the regression approaches, the
Judges rely on the Tyler Model's allocation of shares based upon
CSOs that actually paid the base fee (not the minimum fee). But
although Dr. Bennett's testimony (Bennett WRT fig.52) provides
evidence for a downward adjustment of PTV's share to reflect the
Must Carry issue discussed supra, the Judges see no clear evidence
in the record to identify how much of a downward adjustment should
be made to the PTV share to reflect the Multicast and Duplicative
Programming issues. However, because the PBS-NCTA agreement
indicates that CSOs would carry up to three Multicast stations as
Must Carry stations, i.e., without a net royalty obligation, the
Judges find that their application of Dr. Bennett's downward
adjustment for Must Carry stations essentially embodies any
Multicast adjustment, including any duplicative programming within
those Multicast channels.
---------------------------------------------------------------------------

VIII. Parties' Positions Regarding Regression Models

A. Introduction

Four parties, CCG, CTV (for 2014 only), Program Suppliers and PTV,
through their expert witnesses, proffer regressions that they assert
a

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