Audio-Visual Copyright Society Ltd v Foxtel Management Pty Ltd [1999] FCA 1610 | Case summary

Audio-Visual Copyright Society Ltd v Foxtel Management Pty Ltd [1999] FCA 1610 | Case summary | Zoe

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Transmission of Pay TV channels by analogue cable [92] 1 Transmission of Pay TV channels by digital cable [98] 2 Transmission of Pay TV channels by Optus CI satellite 3 C.3 Retransmission of FTA channels by Pay TV providers Retransmission on FTA channels on the analogue cable platform Retransmission of FTA channels on the digital cable platform Retransmission by satellite Conditional access system Reception equipment Digital receivers and digital set top boxes Remote controls Reception quality D. RELEVANT PRINCIPLES [130] D.1 Previous Tribunal approaches [130] D.2 Social gain/notional bargain approaches [147] 'Social gain' [176] Are the FTA broadcasters parties to the hypothetical negotiation? The 'notional bargain' - general considerations Division of value of retransmission Generation of additional profits to copyright owners D.3 Summary of the approaches contended for THE SURVEY EVIDENCE [179] E. E.1 The various surveys that have been carried out Introduction The Screenrights survey - the pilot, Sweeney 1, Sweeney 2 [179] The Survey questionnaire [211] Responses to the Survey [225] The Retransmitters' Newspoll survey Criticisms of the Screenrights survey E.2 THE survey witnesses [229] Dr Henstridge Professor Carson Professor Borland [239] Professor Hausman [279] Dr Bock E.3 The alleged underlying flaws in the survey

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General 1 The applicant, Audio-Visual Copyright Society Limited, trading as 'Screenrights' ('Screenrights'), applies under s 135ZZM(1) of the Copyright Act 1968 (Cth) ('the Act' - unless otherwise stated, section references are references to sections of the Act) for a determination of the amount of equitable remuneration payable to it for the retransmission of free-to-air ('FTA') broadcasts under the 'statutory licence' created by Part VC of the Act. (We will also use 'FTA' as a noun to mean FTA television, channels, programs or stations, as the context will make clear.) 2 By notice published in the Gazette on 9 September 2001, the Attorney General, under s 135ZZT(1) of the Act, declared Screenrights to be the collecting society for all relevant copyright owners for the purposes of Part VC. A 'relevant copyright owner' is the owner of the copyright in a work, a sound recording or a cinematograph film (s 135ZZI), but not of the copyright in a television broadcast or sound broadcast (cf ss 87 and 91 of the Act). 3 Section 153M, within Pt VI of the Act, provides that the parties to an application of the present kind are the declared collecting society and the retransmitters. Foxtel Management Pty Limited ('Foxtel'), Optus Vision Media Pty Limited ('Optus') and Austar Entertainment Pty Limited ('Austar') (collectively 'the Retransmitters') retransmit FTA broadcasts. On 31 October 2002 the Tribunal ordered that they be joined as respondents. 4 The Retransmitters gave to Screenrights remuneration notices pursuant to s 135ZZL of the Act, undertaking to pay equitable remuneration to Screenrights for the retransmission of FTA broadcasts by them as follows: Foxtel Management Pty Limited (remuneration notice dated4 March 2001) Broadcaster Region Channel 7, Channel 9, Channel 10, Australian Broadcasting Commission (ABC), Special Broadcasting Service (SBS) Sydney, Brisbane, Melbourne, Adelaide, Perth, Gold Coast NRTV, NBN, PRIME Gold Coast

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The principal provisions of Part VC of the Act 6 The statutory licence is found in s 135ZZK(1) within Part VC of the Act. Subsections (1) and (2) of s 135ZZK are as follows: '(1) The copyright in a work, sound recording or cinematograph film included in a free-to-air broadcast is not infringed by the retransmission of the broadcast if: (a) a remuneration notice given by, or on behalf of, the retransmitter to the relevant collecting society is in force; and (b) the free‑to‑air broadcast was made by a broadcaster specified in the remuneration notice; and (c) the retransmitter complies with section 135ZZN. (2) The copyright in a work, sound recording or cinematograph film included in a free-to-air broadcast is not infringed by the making of a copy of the broadcast for the sole purpose of enabling a delayed retransmission of the broadcast to be made.' (emphasis added) 7 The expression 'retransmission' is defined in s 10 as follows: 'retransmission, in relation to a broadcast, means a retransmission of the broadcast, where: (a) the content of the broadcast is unaltered (even if the technique used to achieve retransmission is different to the technique used to achieve the original transmission); and (b) either: (i) in any case - the retransmission is simultaneous with the original transmission; or (ii) if the retransmission is in an area that has, wholly or partly, different local time to the area of the original transmission - the retransmission is delayed until no later than the equivalent local time.' Section 10 defines 'broadcast' to mean 'a communication to the public delivered by a broadcasting service within the meaning of the Broadcasting Services Act 1992'. The Broadcasting Services Act 1992 (Cth) ('the BS Act') defines 'broadcasting service' to mean, subject to certain exclusions not presently relevant: 'a service that delivers television programs or radio programs to persons having equipment appropriate for receiving that service, whether the delivery uses the radiofrequency spectrum, cable, optical fibre, satellite or any other means or a combination of those means ...' 8 The expression 'free-to-air broadcast' is defined in s 135ZZI of the Act to mean a broadcast delivered by a national broadcasting service, a commercial broadcasting service, or a community broadcasting service, within the meaning of the BS Act. 9 'Transmission' is not defined in s 135ZZI, but 'delayed retransmission', in relation to a FTA broadcast, is there defined to mean a retransmission of the broadcast in an area that has, wholly or partly, a different local time to the area of the original transmission, where the delay is until no later than the equivalent local time. The effect of sub ss 135ZZK(2), (3) and (4) is, in general terms, that if, by reason of s 135ZZK(1), a retransmission of a broadcast would not infringe the copyright in it, the making of a copy of the broadcast for the sole purpose of enabling it to be retransmitted later in an area that has a different local time will not do so either, provided the delay is no greater than the difference between the two local times, and further provided the copy is destroyed within seven days after it is made. Apart from this exception, the statutory licence operates only if retransmission occurs simultaneously with the original FTA transmission. 10 Section 135ZZL provides for the giving of remuneration notices by retransmitters to the declared collecting society, by which the retransmitter undertakes to pay equitable remuneration to the society for retransmission of FTA broadcasts by specified broadcasters. 11 A collecting society is declared under s 135ZZT 'for all relevant copyright owners or for such classes of relevant copyright owners as are specified in the notice.' As noted at [2], the expression 'relevant copyright owner' is defined in s 135ZZI to mean the owner of the copyright in a work, a sound recording or a cinematograph film. This definition is consistent with s 135ZZK(1), which provides that the copyright in 'a work, sound recording or cinematograph film' is not infringed where the conditions of the statutory licence are met. 12 A remuneration notice must specify that the amount is to be assessed on the basis of records to be kept by the retransmitter under s 135ZZN: s 135ZZL(2). Section 135ZZN requires a retransmitter which gives a remuneration notice to establish and maintain a system for recording the title of each program included in each retransmission. The record system to be established must be determined by agreement between the retransmitter and the declared collecting society, or, failing agreement, by the Tribunal on application to it made by either of them. We were informed that the parties have agreed upon a record keeping system. 13 It will be noted that, by reason of s 135ZZK(1)(c) (set out at [6]), compliance with s 135ZZN is one of the conditions of 'non-infringement'. Accordingly, a retransmitter which has given a remuneration notice, provided it complies with s 135ZZN (see [12]), will not infringe copyright, even though the amount of equitable remuneration payable by it is not yet agreed or determined. 14 Screenrights did not propound in its negotiations with the Retransmitters a particular amount but sought their agreement to a 'contingent valuation survey' to be conducted by the parties jointly. However, the Retransmitters did not agree to participate, and Screenrights conducted its own contingent valuation survey. A major issue in the case has related to the validity of that survey, and voluminous expert evidence was adduced relating to it. That evidence is addressed principally in Part E below. 15 The Tribunal is required by s 153M(2) to consider the application, and, after giving the parties an opportunity to present their cases, to make an order determining the amount which it considers to be equitable remuneration for the making of the retransmissions of FTA broadcasts. Subsection 153M(3) provides that, in making an order, the Tribunal may have regard to such matters (if any) as are prescribed. None have been prescribed. Subsection 153M(4) provides that the Tribunal's order may be expressed to have effect in relation to retransmissions made in reliance on s 135ZZK before the day on which the order is made. This provision therefore permits retrospectivity back to the dates of the giving of the respective remuneration notices by the Retransmitters. 16 Without the statutory licence, retransmission would involve an infringement of copyright by reason of its being a communication to the public of the works (s 31(1)(a)(iv)), of the sound recordings (s 85(1)(c)), and of the cinematograph films (s 86(c)) involved. 17 Section 87(c) provides that copyright in relation to a television broadcast or sound broadcast includes the exclusive right 'to re-broadcast it or communicate it to the public otherwise than by broadcasting it.' As will appear below, the Retransmitters communicate FTA television broadcasts to the public otherwise than by broadcasting them, when they retransmit them to their subscribers. They do not, however, infringe the broadcast copyright because of s 212(2) of the BS Act.

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A.2 LEGISLATIVE HISTORY AND BACKGROUND 18 Screenrights submits, and we accept, that a 'main pillar of international copyright law is minimum standards', and that without them, 'signatories to treaty obligations could fashion widely divergent national copyright standards, often to cater for parochial interests'. Since the Berne Convention for the Protection of Literary and Artistic Works of 1886 ('Berne'), copyright treaty obligations have existed in the form of minimum standards to which member states are required to give effect in their national laws. 19 At the 1948 Brussels Revision Conference, Berne was amended to provide for a retransmission right as a minimum copyright standard. Paragraph (ii) was inserted into Art 11bis(1): '(1) Authors of literary and artistic works shall have the exclusive right of authorizing: … (ii) any communication to the public, whether over wires or not, of the radio-diffusions of the work, when this communication is made by a body other than the original one.' … Screenrights submits that this right is correctly regarded as separate from the broadcasting right itself (expressed in Berne Art 11bis(1)(i)), and, in particular, that an exercise of the right is called for, irrespective of whether the retransmitter reaches a 'new public': all that matters is that the retransmitter is a party other than the holder of the broadcasting right itself. Accordingly, the retransmission right should be recognised irrespective of whether the recipients of a retransmission fall inside or outside the intended area of the primary broadcast. Part VC of the Act is consistent with this view: it provides for a remunerated exception to the copyright owner's rights without discrimination as between local area retransmission on the one hand, and retransmission which reaches a 'new public' on the other. 20 At the 1928 Rome Revision Conference, when the minimum standard for the broadcasting right itself was inserted into Berne as Art 11bis(1), the need for intervention on the part of public authorities in cultural and social interests was reconciled with the economic interests of authors by the making of the broadcasting right subject to Art 11bis(2): 'The national legislations of the countries of the Union may regulate the conditions under which the right mentioned in the preceding paragraph shall be exercised, but the effect of those conditions will be strictly limited to the countries which have put them in force. Such conditions shall not in any case prejudice the moral right (droit moral) of the author, nor the right which belongs to the author to obtain an equitable remunerationwhich shall be fixed, failing agreement, by the competent authority.' (emphasis added) 21 The retransmission right, added as para (ii) to Art 11bis(1) in 1948, was also made subject to Art 11bis(2), which was amended consequently. As amended in 1948, Art 11bis(2) took its present form, which is: 'It shall be a matter for legislation in the countries of the Union to determine the conditions under which the rights mentioned in the preceding paragraph may be exercised, but these conditions shall apply only in the countries where they have been prescribed. They shall not in any circumstances be prejudicial to the moral right of the author, nor to his right to obtain equitable remuneration which, in the absence of agreement, shall be fixed by competent authority.' Taken together, Arts 11bis(1)(ii) and 11bis(2) may be seen as constituting the 'Berne retransmission régime'. 22 The agreement on Trade-Related Aspects of Intellectual Property Rights dated 15 April 1994 ('TRIPS') which comprises Annex 1C of the Marrakesh Agreement establishing the World Trade Organisation (WTO) requires by Art 9(1) that contracting parties comply with Arts 1 to 21 of Berne, excluding only moral rights. Subject to that exclusion, the Berne retransmission régime is imported into TRIPS by reference, and may be seen to be the 'Berne‑in‑TRIPS retransmission régime.' Screenrights submits that a failure of Australian law to afford equitable remuneration for retransmission would give rise to a violation of this regime. 23 In 1988, ss 89DA to 89DE of the Broadcasting Act 1942 ('the Broadcasting Act') introduced a régime of 'retransmission permits': permits which authorised a person to retransmit FTA broadcasts. Section 122 of the Broadcasting Act provided that, unless the person was also a licensee or multichannel service permit holder, 'no action, suit or proceeding [lay] against a person who [was] a holder of a retransmission permit in respect of any matter transmitted by the person in accordance with the condition of the permit.' 24 At the same time, the Broadcasting (Retransmission Permits and Temporary Transmission Permits) Fees Act 1988 (Cth) was passed. Sections 4 and 5 of that Act provided for a tax by way of a fee payable upon the grant and renewal of a retransmission permit. The tax was to be determined by regulations, but regulations were not made. 25 The BS Act did not continue the permit/taxation approach to retransmission. Rather, s 212 of the BS Act provided: '(1) Subject to subsection (2), the regulatory regime established by this Act does not apply to a service that does no more than: (a) re-transmit programs that are transmitted by a national broadcasting service; or (b) re-transmit programs that are transmitted by a commercial broadcasting licensee or a community broadcasting licensee: (i) within the licence area of that licence; or (ii) outside the licence area of that licence in accordance with permission in writing given by the ABA [Australian Broadcasting Authority]. (2) No action, suit or proceeding lies against a person in respect of the re‑transmission by the person of programs as mentioned in sub‑section (1) unless, at the time of the re‑transmission, the person is also a licensee.' 26 At that time, s 199(4) of the Act provided that a person who, by the reception of an authorised television broadcast or sound broadcast, caused a literary, dramatic or musical work or an adaptation of such a work, or a cinematograph film, to be transmitted to subscribers to a diffusion service, was to be treated in any proceeding for infringement of copyright as if the person had so acted with the licence of the copyright owner. Subsection 26(1) of the Act defined the notion of transmission to subscribers to a diffusion service as transmission 'over wires, or over other paths provided by a material substance, to the premises of subscribers to the service'. The word 'broadcast' was defined by s 10(1) of the Act to mean 'transmit by wireless telegraphy to the public'. Transmission to subscribers to a diffusion service therefore stood in contrast to broadcasting. 27 Pay (or subscription) television ('Pay TV'), at that time only in the form of cable TV, was introduced in Australia in 1995, but not without opposition from the broadcasters of FTA programs. In Amalgamated Television Services Pty Limited v Foxtel Digital Cable Television Pty Ltd (1995) 60 FCR 483 ('Amalgamated Television'), the owners of FTA broadcasting television stations in Sydney and Melbourne sought an injunction restraining Foxtel Digital Cable Television Pty Ltd and Foxtel Management Pty Ltd from retransmitting programs of Channels 7, 9 and 10. Foxtel's Pay TV service was planned to commence on Monday 23 October 1995. Davies J heard the application for the injunction on 11 and 13 October 1995, and delivered judgment on 20 October 1995 (see [30]), three days before the planned commencement of retransmission by Foxtel (Optus had already commenced its Pay TV channels on 20 September 1995, but without the retransmission of FTA - see [61]). On the day on which his Honour delivered judgment, Optus began retransmitting the FTA programs to its subscribers, while, as planned, three days later, on 23 October 1995, Foxtel launched its own Pay TV service, including the retransmission of channels 7, 9 and 10. 28 The full text of s 199(4) of the Act, which Davies J had to consider, was as follows: 'A person who, by the reception of an authorized television broadcast or sound broadcast, causes a literary, dramatic or musical work or an adaptation of such a work, an artistic work or a cinematograph film to be transmitted to subscribers to a diffusion service shall be treated, in any proceedings for infringement of the copyright, if any, in the work or film, as if the person had been the holder of a licence granted by the owner of that copyright to cause the work, adaptation or film to be transmitted by the person to subscribers to that service by the reception of the broadcast.' (emphasis added) 29 The definition in s 26(1) of the Act of the expression 'transmission to subscribers to a diffusion service' was noted at [26]. Clearly, the statutory licence created in favour of retransmitters by s 199(4) had no capacity to apply to retransmission by satellite, then a thing of the future. The exclusive right to retransmit by satellite did not, however, form part of any form of copyright under the Act at that time. Although the copyright in a work or cinematograph film included the exclusive right to cause it to be transmitted to subscribers to a diffusion service (more precisely, in the case of an artistic work, 'to cause a television program that include[d] the work' to be so transmitted) (ss 31(1)(a)(v), (b)(iv), 86(d)), and therefore a licence in those cases was called for, copyright in sound recordings (s 85) and in television broadcasts and sound broadcasts (s 87) did not include that exclusive right. Accordingly, retransmission of a sound recording, television broadcast or sound broadcast to subscribers to a diffusion service was not an infringement of the copyright in those subject matters. 30 In Amalgamated Television, Davies J held that s 199(4) (set out at [28]) applied to the holders of the new licences to transmit to subscribers to a diffusion service. An appeal against his Honour's decision was dismissed: Amalgamated Television Services Pty Ltd v Foxtel Digital Cable Television Pty Ltd (1996) 66 FCR 75. Moreover, since copyright in relation to sound recordings, television broadcasts and sound broadcasts did not include the exclusive right to cause them to be transmitted to subscribers to a diffusion service, the copyright in them presented no problem for the retransmission of FTA broadcasts. 31 Section 87 of the Act provided that the copyright in relation to a broadcast included the exclusive right 'to re-broadcast' the broadcast. As already noted, 'broadcast' was defined in s 10(1) of the Act to mean 'transmit by wireless telegraphy to the public'. 'Wireless telegraphy' was defined in the same subsection to mean 'the emitting or receiving, otherwise than over a path that is provided by a material substance, of electronic energy.' 32 In Amalgamated Television, Davies J held that s 212(1) (set out at [25]) provided a defence to retransmitters in so far as the regulatory régime established by the BS Actwas concerned. Accordingly, retransmission of FTA did not infringe the copyright in the works referred to in the section. 33 Subsequently, there were various proposals for legislative change. Ultimately, as from its commencement on 4 March 2001, the Copyright Amendment (Digital Agenda) Act 2000 (Cth) ('the Digital Agenda Act') repealed s 199(4), replaced it with the régime laid down in Part VC of the Act, and amended s 212 of the BS Act to read as follows: '(1) Subject to this section, the regulatory regime established by this Act does not apply to a service that does no more than: (a) re-transmit programs that are transmitted by a national broadcasting service; or (b) re-transmit programs that are transmitted by a commercial broadcasting licensee or a community broadcasting licensee: (i) within the licence area of that licence; or (ii) outside the licence area of that licence in accordance with permission in writing given by the ABA. (2) No action, suit or proceeding lies against a person in respect of the re‑transmission by the person of programs as mentioned in subsection (1). (2A) However, the rule in subsection (2) does not prevent an action, suit or proceeding against a person under the Copyright Act 1968 for infringement of copyright subsisting in a work, a sound recording or a cinematograph film, where: (a) the infringement is in respect of the re-transmission by the person of programs as mentioned in subsection (1); and (b) the re-transmission is not provided by a self-help provider. (3) A reference in this section to a re-transmission does not include a reference to: (a) a re-transmission by a commercial broadcasting licensee of the programs transmitted by the licensee's commercial broadcasting service; or (b) a re-transmission by a community broadcasting licensee of the programs transmitted by the licensee's community broadcasting service; or (c) a re-transmission by the Australian Broadcasting Corporation of the programs transmitted by any of its national broadcasting services, being national broadcasting services covered by paragraph 13(1)(a); or (d) a re-transmission by the Special Broadcasting Service Corporation of the programs transmitted by any of its national broadcasting services. (4) In this section: cinematograph film has the same meaning as in the Copyright Act 1968. self-help provider has the meaning given by section 212A. sound recording has the same meaning as in the Copyright Act 1968. work has the same meaning as in the Copyright Act 1968.' The expression 'self help provider' can be generally described as referring to small arrangements for the improvement of reception. 34 Subsections (2) and (2A) of s 212 create a full and free exception in favour of the retransmission of programs from the broadcast signal copyright owned by broadcasters. 35 In the result, s 212(1) of the BS Act now overcame any problem which the BS Act itself might have posed for retransmitters, and ss 212(2) and (2A) of that Act overcame any copyright problem for them in relation to other species of copyright, notably the copyright in television broadcasts and sound broadcasts, but it did not overcome, generally speaking, the problem posed for them by copyright subsisting in a work, a sound recording or a cinematograph film. That problem for retransmission was left to be addressed in the new Pt VC of the Act described earlier. 36 The Digital Agenda Act did not preserve the previous distinction between 'diffusion', that is to say, transmission over wires or other material path, on the one hand, and broadcasting, that is to say, transmission not over wires or other material path, on the other hand. It replaced these concepts with that of 'communication'. An exclusive right to communicate to the public now forms part of the definition of copyright in works (s 31(1)(a)(iv), (b)(iii)), sound recordings (s 85(1)(c)), cinematograph films (s 86(c)), and television broadcasts and sound broadcasts (s 87(c)). Subsection 10(1) of the Act defines 'communicate' to mean: 'make available online or electronically transmit (whether over a path, or a combination of paths, provided by a material substance or otherwise) a work or other subject‑matter, including a performance or live performance within the meaning of this Act.' 37 In summary, to retransmit an FTA broadcast is a form of communication to the public. Communicating to the public poses no problem for the Retransmitters in relation to the copyright in television broadcasts and sound broadcasts by reason of s 212 of the BS Act, and the problem which it would otherwise pose for them in relation to the copyright in works, sound recordings and cinematograph films is overcome by Pt VC of the Act, subject to the liability to pay equitable remuneration previously discussed.

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B.1 Screenrights 38 Screenrights was incorporated as a company limited by guarantee on 8 January 1990. It was formed for the purpose of being a declared collecting society under Pts VA and VB of the Act, which were introduced by the Copyright Amendment Act 1989 (Cth), with effect from 1990. Screenrights has so operated since its incorporation. On 4 May 2000 it was declared as a collecting society under s 153F for some classes of government copying (see Pt VII Div 2 of the Act). As noted at [2], since 9 September 2001, Screenrights has been the declared collecting society, for the purposes of Pt VC of the Act, for all owners of copyright in the works, sound recordings and cinematograph films in FTA broadcasts that are retransmitted. 39 In its Pt VC role, Screenrights operates on a not-for-profit basis for the benefit of the holders of copyright in audio and audio-visual works, including producers, distributors, script writers, music publishers and composers, and visual artists. Members of Screenrights are the owners of copyright in audio-visual material (film, television and video programs) and in the works used in such material, and their exclusive licensees and agents. 40 According to Simon Thomas Lake, the Chief Executive Officer of Screenrights, 'Screenrights does not engage in licensing in respect of individual works in traditional markets; rather, it administers rights through a number of collective licensing services'. Apart from the appointment by its members of Screenrights as their agent to collect revenues in respect of retransmission or private copying in other countries, and a very small amount of voluntary licensing as non-exclusive agent for its members, Screenrights' role has been confined to that of a 'declared collecting society': see [38]. 41 Screenrights is on the Board of the Association of International Collective Management of Audio-visual Works ('AGICOA'). AGICOA was established in 1981. It is an international non-governmental organisation, which operates as a retransmission collecting society and represents other retransmission collecting societies: see [312]. Screenrights is not, however, involved in the day-to-day management of AGICOA. Screenrights is also an associate member of the European Federation of Joint Management Societies of Producers for Private Audio-visual Copying ('EUROCOPYA'), which represents private copying societies in Europe. 42 As at 30 June 2003, Screenrights had 1 788 members from more than 48 countries worldwide, and over 30 000 titles in its rightsholders' database. Screenrights' members include both corporate and individual members. Some artists choose to be members directly while others are members of other collecting societies, such as the Australasian Performing Right Association Ltd ('APRA') or Viscopy, which are themselves members of Screenrights. AGICOA is a member of Screenrights. An example was given in evidence of a film, the producer of which is treated as the 'rightsholder' for present purposes. The film title stands for numerous separate works, each of which may be linked to many countries, depending on the initial instructions given by the rightsholder. Rights owners can also appoint Screenrights as their non-exclusive agent to register their titles with other collecting societies. 43 Screenrights determines the total amount for distribution to its members after calculating collections (including interest) for the financial year and deducting expenses. 44 Up to 9 September 2001, when Screenrights was declared the collecting society for the purposes of Pt VC, it was not entitled to collect or distribute money under Pt VC. Prior to that time, Mr Lake negotiated with Deborah Shayne Richards, the Executive Director of the Australian Subscription Television and Radio Association ('ASTRA'), the industry body representing subscription television operators, including the Retransmitters, in relation to questions of record keeping. 45 On 19 September 2001, the Attorney-General formally notified Screenrights of the declaration, and on the following day Mr Lake informed ASTRA and each of the Retransmitters, as well as TransACT, of the declaration. From that time, the negotiations between Screenrights and ASTRA related to the amount of equitable remuneration payable and the carrying out of the contingent valuation survey proposed by Screenrights. Those negotiations occupied the parties up to 30 August 2002. 46 The Retransmitters submit that 'Screenrights approaches the task of valuation of the rights it administers under Pt VC in a distinctly uncommercial manner'. They suggest that this may be attributable to the fact that Screenrights, unlike other collecting societies, such as APRA, has had only very little experience in the negotiation and administration of voluntary licensing arrangements. We do not understand the Retransmitters to suggest that Screenrights' alleged lack of commercial experience in negotiating voluntary licensing arrangements should, in itself, somehow influence the amount of equitable remuneration to be determined. It should not and does not in our reasoning below. 47 The Retransmitters point to Mr Lake's estimate of the likely cost of administering the scheme for the distribution of the payments to be received for retransmission. Mr Lake stated that, taking into account the cost of developing the 'necessary broadcast register' (which he says AGICOA has estimated at approximately $560 000) and 'other costs associated with the allocation process', Screenrights' cost of the administration of retransmission payments is likely to be in the order of $1.1 to $1.2 million in the first year. He then stated: 'We envisage that this figure will be representative of subsequent years, subject to CPI and other external price increases'. We do not find this generalised evidence very persuasive. Evidence on the matter was not adduced from any officer of AGICOA. Mr Lake gave only the global figures mentioned. The cost of developing the broadcast register will not recur annually. On the basis of $1.1 to $1.2 million, a deduction of $560 000 for the development of software would apparently leave $540 000 to $640 000 as the recurrent cost. Evidence was not led as to how this figure was arrived at. 48 Cross-examination of Mr Lake suggested that the figures were subject to the possibility of substantial adjustment. Mr Lake said that Screenrights was trying to work out the best way to 'work in with AGICOA who have obviously a huge works register and a huge rights information register to work in with'. He said that Screenrights was in negotiation with AGICOA and that any system Screenrights might design must be 'AGICOA compliant'. He added that whatever system Screenrights ultimately adopted would be influenced by the outcome of this proceeding, and that Screenrights had received various quotes for the costs of getting 'the enhanced data to be able to be AGICOA compliant'. These quotes were not in evidence. Later, Mr Lake said that Screenrights had 'sought the quotes from three different suppliers as to the data that would be necessary to use the AGICOA system'. He said that Screenrights' requirements to enable distributions to be made were 'largely driven by the AGICOA requirements since AGICOA have that massive works register' (see [313]). 49 Mr Lake said that in order to 'trigger' the AGICOA system, information must be 100 percent compliant with AGICOA's requirements, and that he thought that AGICOA requires about 16 or 17 pieces of information. Later, however, Mr Lake said that whatever distribution scheme might come into existence would be 'in part driven by the revenue so to speak; so that we would hope to be as compliant as we could with AGICOA'. Mr Lake explained that Screenrights will be paying AGICOA both a fee for carrying out research for Screenrights and money representing AGICOA's entitlement, as a member of Screenrights, as rights holder or representative of rights holders. 50 In summary, the evidence concerning the cost of collection and distribution remains unclear. Apparently there is a range of costs and degrees of 'AGICOA compliance'. Perhaps the global figures mentioned earlier are for a 'Rolls Royce' system. Without more and detailed evidence, the Tribunal cannot be satisfied that any particular amount represents the minimum necessary to enable Screenrights to collect and distribute effectively. 51 The Tribunal appreciates that the present issue is a complex one. No doubt, a saving in AGICOA computer-related costs may signify an increase in costs of other kinds. The Tribunal will take into account as best it can Mr Lake's evidence in relation to the cost of collection and distribution.

[21]

Foxtel 55 Foxtel commenced transmission on 23 October 1995, just three days after Davies J's decision in Amalgamated Television (discussed at [27]-[30]). At that time, Foxtel provided a 'analogue cable' service, consisting of 20 channels. This included the retransmission of the five FTA channels. Foxtel used the hybrid fibre coaxial cable ('HFC') network rolled out by Telstra Media Pty Limited, a part owner of Foxtel. 56 In March 1999, Foxtel commenced transmitting its service via satellite using digital technology, although referring to it as its 'analogue satellite' service because the service was identical in content to that received by analogue cable subscribers, except in one important respect. Foxtel's analogue satellite service has never included the retransmission of any FTA channel: it has been used only for the transmission of Pay TV channels. The use of satellite meant that Foxtel's service was available to subscribers who lived in areas where cable had not been laid. Foxtel used Optus Networks Ltd's B3 satellite for this service until December 2003, when it switched to using Optus's more advanced C1 satellite. 57 As at January 2004, there were 46 channels, including the five FTAs, available on Foxtel's analogue cable and analogue satellite services. Whether a particular subscriber has access to a particular channel depends upon the 'package' subscribed to. All subscribers must purchase the 'basic package', or 'basic tier', of 26 channels. For analogue cable subscribers, this package includes the retransmission of all five FTA channels. Subscribers may choose to pay additional fees for the transmission of channels not included in the basic package. Some of these channels are available through the purchase of additional 'tiers' (suites of channels grouped together), such as 'Movie Essentials', 'Movie Channels' and 'Entertainment Plus'. Five other channels are available to be purchased individually by basic package subscribers. Subscribers can also purchase 'pay-per-view' events, such as sporting events or concerts. 58 On 14 March 2004, following a digital upgrade of Telstra's HFC cable, Foxtel launched its 'digital cable' service. Digital transmission enabled Foxtel to provide better sound and picture quality, more channels, and enhanced 'functionality'. From its beginning, the digital cable service has included the retransmission of all the FTA channels. 59 Foxtel also provides a digital satellite service. This is the same as Foxtel's digital cable service, except that the retransmission of FTA channels is more limited. Foxtel has retransmitted SBS and Channel 9 to its digital satellite subscribers since March 2004, and the ABC since February 2005, but not Channel 7 or Channel 10. 60 In total, the digital service comprises 109 channels, including 30 audio channels, 10 'time-shift' channels (where certain popular Pay TV channels are re-broadcast two hours later), and 31 channels that provide 'near video on demand' services. The digital service also allows for 'interactivity': viewers are able to access different camera angles (for example, on the 'Sports Active' channel), participate in surveys, and vote. As in the case of Foxtel's analogue service, subscribers must take a basic package, and may subscribe to additional tiers of channels or to specific channels individually, or purchase movies through the near video on demand services.

[23]

Austar 65 Austar's subscription television service is available to customers in rural and regional Australia. It covers the rural and regional areas of New South Wales, the Northern Territory, Queensland, South Australia, Victoria and Tasmania. It also services Darwin and Hobart. Austar's service is not available in the metropolitan areas of Brisbane, Sydney or Melbourne, or in any part of Western Australia. 66 Austar began transmitting to subscribers in August 1995. Its service was originally provided to people who had been subscribers to the Galaxy service, Galaxy having gone into external administration. 67 Originally, Austar's service was transmitted using 'cable wireless technology', which is also known as microwave delivery service or 'MDS'. Because of the limited capacity of this technology, the Austar service comprised only 14 or 19 channels, depending on the location of the subscriber. In 1997, Austar began using Optus's B3 satellite to deliver its service to subscribers. Existing Austar subscribers who were within the B3 satellite's footprint were 'migrated' to the new delivery technology. With the exception of its cable customers in Darwin, all of Austar's subscribers were transferred to satellite delivery after the launch of Optus's C1 satellite (in June 2003), which has a larger footprint. At present, Austar delivers its service by satellite only. Austar's satellite subscription television service has always been in digital format. 68 Austar provides two digital services. The 'Old Austar Digital service' was offered to persons subscribing in the period between early 2000 and March 2004. It offers more than 40 channels and includes interactive features made possible by digital technology. The 'New Austar Digital service', which has operated since March 2004, includes 22 additional channels and more packaging options. All new subscribers are required to take the New Austar Digital service, but the Old Austar Digital service is still provided to those who commenced subscribing before March 2004 and have not 'migrated' to the New Austar Digital service. 69 Subscribers to both the Old Austar Digital service and the New Austar Digital service must purchase a basic package of channels, and can choose to add on tiers of channels, purchase specific channels individually, and purchase particular pay-per-view events. 70 On 1 November 2001, Austar commenced retransmission of the ABC, and on 1 December 2002, SBS. It does not retransmit the other FTAs.

[29]

These witnesses testified that the Retransmitters' 'primary business' is to provide a product which is different from, and an alternative to, FTA television. The Retransmitters submit that this was demonstrated to the Tribunal on its visit to Foxtel's premises, where 'minimal equipment' was shown to be used for retransmission in contrast to the 'enormous resources, energy and creativity devoted to the production of subscription channels'. It was, indeed,clear to the Tribunal from that visit that almost all of Foxtel's resources were devoted to the production and transmission of Pay TV channels, and that almost no additional technology or resources were required for the retransmission of the FTA channels: it appeared that only a relatively small piece of unattended equipment was involved. 83 In response, Screenrights submits that, regardless of how the Retransmitters describe themselves, they dodistribute FTA channels by retransmission, and do so 'in a bundled fashion with their subscription services.' Screenrights submits that how the Retransmitters choose to label themselves for the purposes of this proceeding is beside the point. 84 Where services are bundled, Screenrights describes the Pay TV component of the bundle as a 'portal' to the bundle. It suggests that the availability of Pay TV is seen by each Retransmitter as the means of attracting persons to subscribe to the other services offered. 85 A subscriber to Pay TV will undoubtedly be informed of other services that the Retransmitter or a commercial associate makes available. Access to these other services may be on terms that are more favourable to Pay TV subscribers. However, subject to the exception referred to below, Pay TV does not provide the entry point to the bundle of services, and, it is not a condition of subscription to other services offered by or through Foxtel and Austar that a person subscribe to their Pay TV service. Optus said that initially it attempted to sell its services in this way but abandoned the attempt in the light of the poor subscription take up for its Pay TV. 86 The exception is TransACT. TransACT requires that a subscription be taken to the whole of its bundle of services, including Pay TV. 87 The Tribunal concludes that, in so far as it is necessary to characterise the Retransmitters, they are engaged in the business of distributing subscription television services, but that, as a very minor or incidental part of that business, they also retransmit FTA broadcasts.

[38]

Retransmission of FTA channels on the digital cable platform 100 The process for retransmission of FTA channels on Foxtel's digital cable platform is very similar to the process for the retransmission of the FTA analogue signal. Again, Foxtel receives the terrestrial signal off-air and the signal is 'multiplexed' and 'scrambled', and information relating to access and service is added. 101 With respect to Channel 9 in Sydney, Melbourne and Brisbane, and the ABC and SBS nationwide, Foxtel takes the broadcaster's terrestrial digital signal off air and retransmits it, using a technology that restricts reception to subscribers in the relevant licence area for that FTA broadcaster. The FTA broadcaster's service distribution is also limited to the geographic coverage of the HFC cable network within the relevant ABA licence area for that broadcaster. The Retransmitters claim that the quality of the signals for Channel 9 in Sydney, Melbourne and Brisbane, and the ABC and SBS nationwide, is identical, whether they are transmitted terrestrially or retransmitted via Foxtel's digital cable service, because Foxtel simply takes the terrestrial digital signal off-air. 102 With respect to Channels 7 and 10 nationwide, and Channel 9 in Adelaide and Perth, Foxtel takes the broadcaster's analogue terrestrial signal off-air and converts it into a digital signal. The Retransmitters claim that this results in the quality of the retransmitted signal being inferior to the terrestrial digital signal. 103 Screenrights sought to qualify the comments of the Retransmitters relating to comparative signal quality. It said that it is important to distinguish between the quality of the signal and the quality of the image on a subscriber's screen. While the signal quality may be the same as between the different modes of delivery, actual picture quality is dependent on other factors such as the nature and placement of the subscriber's aerial, the quality of the receiving equipment and the presence of external objects that may cause interference with reception. 104 Foxtel does not retransmit any FTA channels in HD format. All retransmitted programs are limited to SD format. However, there was evidence that it is possible that, in the future, SBS and Channel 9 programs will be retransmitted in HD format. 105 Optus does not at present retransmit programs in digital format. There is no evidence relating to Austar's retransmission of FTA channels on its Darwin cable service.

[46]

Remote controls 120 As Foxtel retransmits the programs broadcast by all five FTA broadcasters to all cable subscribers in Sydney, Melbourne, Brisbane, Perth and Adelaide, it is possible for its subscribers in those cities to switch between Foxtel Pay TV channels and the retransmitted FTA channels, using the single remote control unit which Foxtel provides to its subscribers. 121 However, to view Foxtel channels, a subscriber will usually still require at least two remote controls: one to switch on the television and to select between FTA and the channel to which the Foxtel STU is configured, and another to operate the Foxtel STU. (It is possible to avoid use of the first remote control by using the button on the set to turn on the television.) Generally, a third remote control is required to operate a video cassette recorder ('VCR') and a digital video disc ('DVD') player. 122 Since 1999, Foxtel satellite subscribers have been using two remote controls to view terrestrial (FTA) and satellite (Pay TV) services. 123 It is possible to purchase an intelligent or self-learning remote control which will operate most components (for example, television, VCR, DVD players, CD players, etc). The Tribunal was provided with examples of universal or programmable remote controls, including one pre-programmed to Australian cable TV. 124 In relation to the universal remote control, Mr Delany said: 'Subscribers to Foxtel Digital receive a remote control that is different from the remote control provided by Foxtel to analogue subscribers. The Foxtel Digital remote control has a universal and learning capability, which allows it to operate as a universal remote control. It can be programmed to perform the functions currently performed by subscribers' television, VCR, DVD and stereo remote controls, in addition to operating the Foxtel Digital STU'. That universal and learning capability exists in all Foxtel Digital remote controls (including those already issued to some subscribers), but not all subscribers are aware of this feature. The remote control's capability allows subscribers to use it to operate both their Foxtel STU and their television set. As a result, Foxtel Digital subscribers can switch between watching Foxtel and watching an FTA channel using a single remote control, even if they do not receive that FTA channel by retransmission through Pay TV. 125 Austar's remote control for its New Austar Digital subscribers does not have universal programming functionality. When Austar was designing its remote control, it was able to elect to have this functionality to allow switching between the retransmitted channels and its own programming. However, Austar considered that there was more value in enabling subscribers to switch between its television and radio channels, and, therefore, Austar's remote controls have this feature instead. The remote control did not permit both features to be incorporated. 126 TransACT's remote control is capable of being programmed to have a universal capacity. 127 Optus subscribers and Foxtel analogue subscribers need to purchase an intelligent or self-learning remote control if they wish to avoid using multiple remote controls. Reception quality 128 Screenrights stressed that the quality of picture and sound of retransmitted FTA programs is superior on Pay TV. It is generally accepted that there are certain places, including in the Sydney metropolitan area, where there is poor terrestrial television reception quality. This is particularly pronounced in what are known as 'black spots'. In 2000 the Commonwealth government commenced the 'Television Black Spots Program' with the objective of ameliorating the position. Funding is provided under the Program to local government authorities and incorporated community organisations for the establishment of new services and the replacement of obsolete equipment. 129 The Retransmitters maintain that this Program has assisted and continues to assist in overcoming reception problems for many FTA viewers. They also assert that reception of FTA programs via the terrestrial aerial can be improved without resorting to Pay TV, by installing better reception equipment and by changing to digital television where it is available.

[47]

D.1 Previous Tribunal approaches 130 The expression 'equitable remuneration' is used in many sections of the Act to describe amounts payable to copyright owners, often through their collecting societies, where the Act provides for 'statutory licences'. 131 In its previous considerations of the expression 'equitable remuneration', and the possible approaches to the determination of such an amount, the Tribunal has discussed various approaches. They can be analysed in different ways and some instances there is overlap between them: · 'market rate', that is, the rate actually being charged for the same licence in the same market in similar circumstances; · 'comparable bargains', that is, bargains not in the same market but sufficiently similar to the notional bargain next mentioned to provide guidance to the Tribunal; · 'notional bargain rate', that is, the rate on which the Tribunal considers the parties would agree in a hypothetical negotiation; · the rate which the Tribunal determines as a result of what, for want of a better term, has been called 'judicial estimation'. 132 There is no market (or 'normal' or 'going') rate in Australia for licence fees charged to Pay TV providers for a licence to retransmit FTA broadcasts, or, more precisely, to retransmit the works, sound recordings and cinematograph films comprised in such broadcasts (cf Copyright Agency Ltd v Department of Education of New South Wales (1985) 4 IPR 5 (Sheppard P) ('First Schools Case') at 15-16; Fair Fitness Music Association v Australasian Performing Right Association Ltd (1998) 43 IPR 67 ('Fair Fitness v APRA')). There is evidence of bargains made between collecting societies and retransmitters in overseas countries which is discussed in Part F below, but that is not an Australian market. 133 Nor is there in Australia any completely comparable bargain to the notional bargain between Screenrights and the Retransmitters with which we are concerned. We address two bargains in Australia which have been suggested to be comparable at [462]-[475]. In addition, there is before the Tribunal a substantial body of evidence of rates that have been negotiated between retransmitters and a collecting society overseas. We discuss this evidence in Part F below. 134 The 'notional' (or 'hypothetical') bargain between 'a willing, but not anxious, licensor and a willing, but not anxious, licensee' is an approach with which the Tribunal is familiar (First Schools Case at 15; and see WEA Records Pty Ltd v Stereo FM Pty Ltd (1983) 1 IPR 6 at 25-27). However, where the Tribunal has thought the notional bargain approach not entirely appropriate, it has resorted to 'judicial estimation' (see, for example, the First Schools Case at 15-16; University of Newcastle v Audio-Visual Copyright Society Ltd (1999) 43 IPR 505 at [30]). Perhaps the expression 'judicial estimation' appropriately describes the Tribunal's approach to its task in all cases, any comparable bargain, notional bargain and perhaps even any market rate being but particular useful tools of judicial estimation. 135 Report of the Inquiry by the Copyright Tribunal into the Royalty Payable in Respect of Records Generally, published on 24 December 1979, was the result of the first case decided by the Tribunal. It concerned the licence given by the then s 55, subject to the conditions set out in that section, to manufacture for retail sale a record of a musical work, once a recording of it had been made in, or imported into, Australia, or into any of the countries adhering to Berne or the Universal Copyright Convention. Under the provisions of the Act then in force, the Tribunal was required to make a report to the Attorney-General as to the amount of royalty that was 'equitable'. For present purposes, the expression 'equitable royalty' may be treated as having the same meaning as 'equitable remuneration'. 136 The Tribunal expressed the opinion (at 4.24 (p25)) that an 'equitable' royalty for the purposes of s 58 was one that represented fair and just remuneration to the copyright owner for the rights acquired by means of the compulsory licence. The Tribunal said (at 4.32, p26) that '[w]hile it may be relevant to have regard to the interest [of] the public generally or as consumers in particular, … the basic question is what rate of royalty would provide equitable remuneration to the copyright owner', and that it was 'not relevant to ask whether the rate is "equitable to the public"', although it was relevant to consider whether any price increase that might flow from a royalty increase 'could adversely affect the market because of consumer resistance'. It would not be equitable remuneration to the copyright owner if, as a result of consumer resistance to an excessively high rate, sales fell right away: in the absence of special circumstances, the amount that will provide equitable remuneration to the copyright owner will require that the consumer have access on reasonable terms and at a reasonable price. 137 The First Schools Case concerned 15 applications by Copyright Agency Ltd ('CAL') pursuant to the then s 53B and s 149A. The relevant licence was that conferred on educational institutions to make copies of material for their educational purposes. The amount payable by the institution to the copyright owner was identified as 'equitable remuneration'. (Part VB, Div 2 of the Act now contains the régime governing the statutory licence given to educational institutions to reproduce copyright works for their educational purposes, the amount payable by them being still identified as 'equitable remuneration').

[48]

138 Sheppard P paraphrased the expression 'equitable remuneration' as 'fair remuneration' (at 27). His Honour confessed to having found the exercise of determining an amount of equitable remuneration 'extremely difficult', and said (at 34) that what was involved was 'judicial estimation'. Sheppard P indicated, however, that 'judicial estimation' should be resorted to only where: · there was no normal actual rate being charged in comparable circumstances; and · the notional bargain approach was not available or was thought to be fallible in the circumstances of the case. 139 In Copyright Agency Ltd v University of Adelaide (1999) 42 IPR 529 ('Universities Case'), CAL sought a determination of the 'equitable remuneration' payable by the respondent universities in relation to their statutory licence to make copies of literary, dramatic, musical and artistic works, such as articles appearing in periodical publications, and literary and dramatic works appearing in anthologies. Burchett P agreed with Sheppard P's statement in the First Schools Case that 'judicial estimation' was required. 140 In Copyright Agency Ltd v Queensland Department of Education (2002) 54 IPR 19 ('Second Schools Case'), CAL applied under Pt VB of the Act for a determination of the amount of equitable remuneration payable by schools. CAL sought to have the rate that had been fixed in 1985 in the First Schools Case increased to the present day, and further increased in view of changes in teaching methods and other considerations, which, CAL contended, increased the value of the works. 141 Finkelstein DP said (at [14]-[16]): '[14] It is notorious that ascertaining equitable remuneration is a difficult task in almost all cases. The cases I have mentioned suggest various inquiries that can be undertaken, the result of which may be of assistance to the tribunal in carrying out its statutory task. One inquiry is to see whether there is a normal rate of royalty charged by the copyright owner in relatively similar circumstances. The theory is that where there is a market for goods or services, rational people will not sell or provide a thing for less than its worth to them, nor buy it for more than its worth. Obviously one would need to be careful before adopting a so-called "market rate". First, it would need to be shown that the market in which the rate was struck was a competitive market, and that there were sufficient transactions in that market to provide a reliable indicator of value. Second, it must be shown that the circumstances in which the market operates are the same as, or at least comparable with, those in which the equitable remuneration is to be fixed. If these conditions are satisfied, the market rate (if there is one) will provide the best guide to equitable remuneration. [15] Usually there will be no market rate, given the nature of the statutory licence. Another possible line of inquiry is to determine whether there is evidence which would enable the tribunal objectively to determine the notional remuneration that would be agreed in a hypothetical bargain. In many cases, and this case is no exception, there will be some evidence that will be of assistance in that regard. ... [S]trictly speaking, a notional bargain approach would require separate examination of the notional bargain that would be reached between CAL and each respondent, or perhaps between CAL and each educational institution that is administered by a respondent, because there will be differences between the institutions that may result in a different rate. It is not suggested, however, that there should be such a detailed examination of the respondents, and the schools they represent are content to have a uniform rate applied to them. In any event, the evidence does not descend to the required level of detail. [16] Sometimes there will be no market rate and no, or very few, signposts to guide the tribunal to the appropriate rate of remuneration. What does the tribunal then do? The answer is that the tribunal must do the best it can. The nature of the task may be such that the determination will really be a matter of guesswork ...' (emphasis added)

[49]

142 In its report, Jurisdiction and Procedures of the Copyright Tribunal (December 2000) at 115, the Copyright Law Review Committee summarised the factors that the Tribunal has taken into account in the process of 'judicial estimation', as follows (footnotes and citations to them omitted): ' ● previous agreements between parties; · negotiations between the parties preceding the application to the Tribunal; · comparison of determinations under similar legislative régimes in other jurisdictions; · comparison between royalties set by other licensors/collecting societies; · the capacity of the licensee to pay; · the value to the licensee of the use of the copyright material; · the general public interest and the interests of consumers; and · the administrative costs of a licensing body.' 143 The Tribunal has not adopted any single factor as being of universal application. 144 The Tribunal has been prepared to take into account overseas comparisons, as it has been invited to do here (see Part F below), but usually there is not a perfect match between the overseas circumstances and those in Australia. In the First Schools Case, Sheppard P considered evidence of overseas practices but concluded that there was no helpful overseas experience to be drawn upon (First Schools Case at 35-6). In Australasian Performing Right Association Ltd; re Australian Broadcasting Corporation (1985) 5 IPR 449, the Tribunal noted that the overseas material in evidence had been of assistance, despite differences between the Australian circumstances and those in the other countries (at 466). In Fair Fitness v APRA at 72, the Tribunal noted that, despite the variation in overseas rates, the rate payable under the licensing scheme considered in that case was broadly similar in effect to rates applying in comparable countries, such as the United States. In Australasian Performing Right Association Ltd v Federation of Australian Radio Broadcasters Ltd (1999) 46 IPR 20 ('APRA v FARB') the Tribunal considered overseas rates and noted that a broad comparison may provide guidance as to what rates are reasonable in Australia, particularly where the industry in question has international ramifications (at 28). 145 In the Universities Case, which concerned the Part VB licence, Burchett P noted (at [15]) that the value of comparisons with charges made to universities under the schemes in Great Britain and Canada was reduced by reason of the differences between those schemes and the régime established by Pt VB of the Act. Difficulties in overseas comparisons were also noted by the Tribunal in Reference by Australasian Performing Right Association under s 154 of the Copyright Act 1968 (1992) 25 IPR 257 at 268. 146 In the present case, the Retransmitters rely on what they characterise as the 'low' rates paid for retransmission of FTA broadcasts in overseas countries (see Part F below).

[50]

'Social gain' 147 Screenrights invited the Tribunal to take an approach that was, at least nominally, different from those described above. 148 Professor Borland (see [216]), an expert economist called by Screenrights, advanced a 'social gain' theory by reference to which, he contended, 'equitable remuneration' should be determined. The Retransmitters, on the other hand, supported the 'notional bargain' approach. They noted that Professor Borland's 'social gain' approach had not previously been used by the Tribunal, and submitted that there was no call for a departure from the Tribunal's previous course. 149 In October 2001, Professor Borland wrote for Screenrights a paper entitled 'Retransmission of free to air TV on pay-TV: Analysis of the value to society and payments to content providers' ('Value Analysis paper'). In that paper he defined 'social gain' as 'the difference in aggregate welfare in society between situations where retransmission occurs and where it does not' (emphasis added). He concluded that retransmission of FTA causes an increase in social value, stating: 'The existence of some positive social gain from retransmission seems a necessary condition for remuneration of rights holders. Only where retransmission raises aggregate welfare is it appropriate that compensation should be paid to rights holders.' (Value Analysis paper, p1) In its terms, at least, this passage seems to emphasise aggregate social gain rather than remuneration to the copyright owner. 150 Professor Borland thought that the value placed by consumers on retransmission was the measure of the social value, and provided the data required for a determination of 'equitable remuneration'. He set out the respective notional bargaining positions of the Retransmitters and the copyright owners in terms of the 'reserve price' they would respectively place on retransmission. The reserve price is the price above which (in the case of the Retransmitters) or below which (in the case of the copyright owners) the party would not be prepared to trade. The difference between the two reserve prices, the area within which negotiation is possible, is called by economists the 'surplus'. Professor Hausman (see [218]), an expert economist called by the Retransmitters, and Professor Carson (see [214]), an expert economist called by Screenrights, both agreed with this conventional economic model. 151 Novelty should not be equated with inappropriateness, or past practice with merit, but we do not derive particular assistance from Professor Borland's social gain theory (see, however, [157]). Professor Borland stated: 'The social gain approach is equivalent to the notional bargains approach in its implications for calculation of equitable remuneration'. Moreover, Screenrights submits that Professor Borland noted that the social gain approach and the notional bargain approach are 'essentially equivalent', because, whichever approach is used, the value of transmission to consumers must be ascertained. Professor Borland stated: 'At the core of both approaches is that retransmission will increase the value that pay-TV subscribers obtain by watching pay-TV. This is a necessary condition for pay-TV suppliers to have a reserve price above the reserve price of copyright owners, and is a necessary condition for social gain to exist.' In final submissions, counsel for Screenrights conceded that Professor Borland had said that 'he had moved from social gain or social value into the notional bargain lexicon'. 152 The Retransmitters commissioned Professor Philip Williams of 'Frontier Economics' to report on Professor Borland's model. His report dated 14 June 2002 was entitled 'Critique of Papers by Professor Jeff Borland on the Valuation of Retransmission Rights'. It analysed, not only the Value Analysis paper, but also a further paper which Professor Borland wrote for Screenrights, entitled 'Doing a contingent valuation survey - Issues in choosing a methodology'. This further paper supported the carrying out of a contingent valuation survey as a means of ascertaining the value that consumers place on retransmission. The Frontier Economics report argued that Professor Borland is wrong in suggesting that an estimated net social benefit would be 'a useful first step to the determination of equitable remuneration'. The report also concludes that, even if this should be wrong, Frontier Economics 'would be reluctant to agree that a contingent valuation survey was the best method to estimate net social benefit' (at 10-11). We address the Screenrights contingent valuation survey in Part E of these reasons. 153 We agree that it is beside the point to attempt to justify the use of a hypothetical bargaining process to quantify equitable remuneration by reference to some more fundamental social good, as Professor Borland appeared, at least initially, to do. The Act imposes the obligation to pay equitable remuneration as a quid pro quo for its excision of the exclusive right to retransmit from copyright, whether or not, we suggest, retransmission can be seen to yield a net social benefit. Subject to a comment we make at [157]-[159], it is difficult to imagine circumstances in which the Tribunal would be justified in modifying the result of the hypothetical bargain by reference to a general concept of 'social benefit'.

[51]

Are the FTA broadcasters parties to the hypothetical negotiation? 154 The Frontier Economics paper prepared for the Retransmitters proposed a three-party hypothetical negotiation, between Screenrights representing the underlying rights holders, the Retransmitters, and the FTA broadcasters. Screenrights' model, on the other hand, envisages a bargain between only Screenrights representing the underlying rights holders and the Retransmitters. Screenrights submits that the FTA broadcasters should be ignored because of s 212 of the BS Act. As noted at [34], that provision deprives the FTA broadcasters of any claim against the Retransmitters for infringement of the broadcast copyright arising from their retransmission of FTA programs. Screenrights submits that it follows that the FTA broadcasters are not entitled to a 'share' of the notional bargain (other than in any capacity they may have as owners of underlying copyrights). 155 We agree with Screenrights. The fact that the immunity from suit accorded to the Retransmitters in respect of what would otherwise be an infringement of the FTA broadcasters' broadcast copyright is found, not in the Act, but in s 212 of the BS Act, is irrelevant. Section 212 has been intimately connected with the treatment of retransmission in the Act, leading up to the enactment of Pt VC (see [18]-[37]). The amendment to s 212 which created the Retransmitters' present immunity from suit in relation to broadcast copyright commenced immediately after the commencement of the Digital Agenda Act, which introduced Pt VC into the Act: Broadcasting Services Amendment Act (No 1) 1999 (Cth) s 23 and Pt 2 of Sch 3. Section 212 of BS Act and Pt VC of the Act are complementary parts of a single regulatory régime. That régime maintains an unremunerated exception for broadcast copyright, while ensuring that retransmission which would otherwise infringe the copyright in the underlying works, sound recordings and cinematograph films, enlivens an obligation to pay equitable remuneration. 156 In constructing the circumstances in which the hypothetical bargain takes place, we are required to assume that the Pt VC licence in favour of the Retransmitters does not exist so that they must (successfully) bargain, in the world as it is, with Screenrights for a licence. 157 There may, however, be in the world as it is, a factor which would prevent the hypothetical bargaining process from yielding a price that could fairly be regarded as equitable. For example, if a party to the hypothetical bargain was misusing a substantial degree of power in a market and the result of the hypothetical bargain would be a price which would drive the other party from the market in which it competed, it seems that the Tribunal would be entitled to reconstruct the background to the hypothetical bargaining process, in order not to frustrate the legislative policy underlying s 46 of the Trade Practices Act 1976 (Cth). 158 In such a special case, the Tribunal would be taking into account a legislatively expressed policy relevant to the supposed market in which the hypothetical bargaining process took place. If this is to be described as some kind of 'social gain approach', so be it. 159 It has not been suggested that the present is such a case. We should accept the real world as the background to the hypothetical transaction, including the fact that, by reason of s 212 of the BS Act, the FTA broadcasters have nothing to sell to the Retransmitters.

[52]

The 'notional bargain' - general considerations 160 The notional bargain is one between Screenrights (representing copyright owners) and the Retransmitters, and assumes that the statutory licence does not exist. What is the amount of licence fee at which the parties would arrive? The amount will be commensurate with or at least closely related to,the amount arrived at as the result of another notional bargain - one between the Retransmitters and their subscribers or prospective subscribers. How much would subscribers be prepared to pay for the benefits of being able to view retransmitted FTA via the Pay TV STU? How much would the Retransmitters insist on being paid for doing that which they are not required by law to do, namely, to retransmit FTA to subscribers? 161 The structure of the notional bargain is unusual. The benefits of retransmission of FTA channels to Pay TV subscribers that have occupied attention in the case are those of a 'better reception' and the use of a 'single remote control' rather than multiple remote controls. These are benefits, not to the Retransmitters, but to their subscribers. The subscribers, however, are not parties to the notional bargain, although the notional bargain will result in the Retransmitters having something to sell to them. Unless the notional bargain succeeds, they cannot retransmit FTA because to do so would infringe the copyright in the works, sound recordings and cinematograph films in question. Since the cost to the Retransmitters of retransmitting FTA is virtually nil (see [82]), they will be prepared to pay for a licence an amount virtually equal to the value that subscribers place on having FTA retransmitted to them (there would have to be some discount for the broadcast copyright owned by the FTA stations). 162 Generally speaking, and for the purposes of the notional bargain between the Retransmitters and Screenrights, the value of retransmission to the Retransmitters is equal to its value to their customers, the subscribers, and the Retransmitters' reserve price is their reserve price.

[58]

Generation of additional profits to copyright owners 169 Another point of disagreement relates to the question of any benefit which retransmission gives to the copyright owners. Extra revenue to them might arise if retransmission increased the number of viewers of FTA programs, and therefore yielded an increase in advertising revenue to the FTA operators in which the copyright owners could reasonably expect to share. In his Value Analysis paper, Professor Borland estimated that such an effect, if it existed at all, was likely to be very small, as viewers' primary interest was the content of the FTA programs, not the quality of the signal or the convenience of a single remote control. He said that 'the extra amount of revenue earned by copyright owners due to retransmission is likely to be negligible'. 170 Professor Hausman said that Professor Borland was making a 'highly implausible' assumption not based on any real world evidence. He cited in support the 'premise' of the Screenrights survey, namely, an assumption that subscribers value retransmission. 171 Professor Borland made three points in reply. First, he challenged Professor Hausman's suggestion that the Retransmitters might subsidise the purchase of digital receivers by subscribers. He said that, in the light of the cost of digital receivers and of the fact that the subsidy would have to be offered to all Pay TV subscribers, 'it is difficult to know how such an offer could ever be preferred to making remuneration payments at the levels proposed [by Screenrights]'. 172 Secondly, Professor Borland cited an OzTAM report on audience share of Pay TV households for August 2003, which, he said, showed that in two related Pay TV markets where one group of subscribers was provided with a full suite of retransmission (Foxtel cable Pay TV), and another was provided with no retransmission (Foxtel analogue satellite Pay TV), the percentage of viewing of FTA was 52.53 percent and 51.75 percent respectively. He added that in terms of viewing hours per person, the amount of FTA viewing in the households with retransmission was actually less by 0.2 hours. 173 Thirdly, Professor Borland dealt with Professor Hausman's argument that the fact that Foxtel satellite does not provide all FTA channels proves that it is not necessary for Pay TV providers to retransmit all FTA channels in order to succeed. He pointed out that no data on the financial performance of Foxtel satellite was presented to support Professor Hausman's argument. 174 Screenrights submits that the evidence referred to confirms Professor Borland's position that retransmission is unlikely to contribute positively to the viewing of FTA, and that, accordingly, any indirect effect of retransmission in increasing the rewards to copyright owners through advertising revenue is non-existent or insubstantial, although it is theoretically relevant. 175 We think that the benefits of retransmission to the copyright owners are likely to be very small: the evidence does not establish that Pay TV, and the associated retransmission of FTA, increases significantly the viewing of FTA.

[59]

D.3 SUMMARY OF The approaches contended for 176 Screenrights relies heavily on its contingent valuation survey as showing the value that subscribers place on the retransmission of FTA. It submits that the Retransmitters made 'virtually no positive case based on economic theory' to support the amount of equitable remuneration they proposed should be determined. Rather, they based their case primarily on overseas rates (discussed in Part F) and the expired 'APRA/ASTRA agreement' (discussed in Part G). Screenrights submits that it and the Retransmitters would have equal bargaining power in the notional bargaining situation and would reach an agreement on an equal split of the surplus. Screenrights also submits that the indirect benefit to copyright holders from retransmission, in terms of an increase in the payments to them resulting from an increase in advertising revenue to the FTA operators, is relevant but not substantial, and we have already indicated our acceptance of this submission. 177 The Retransmitters urge the Tribunal not to rely at all on the contingent valuation survey. They submit that, in the notional bargaining process, they would have greater bargaining power than Screenrights because any benefit they would otherwise get from a licence to retransmit would be reduced by the availability of inexpensive alternatives which would enable them to achieve the same result at less cost. They could, for example, 'invent around' the improved quality of reception. They submit that, if they ceased to retransmit, nonetheless their business as Pay TV operators would remain and their business would not become a different business because, for them, retransmission is not a commercial necessity but an option. The Retransmitters submit that the Tribunal should apply a process of 'judicial estimation' based on 'near bargains or comparable bargains, international experience and common sense'. 178 As in so many cases that have come before the Tribunal, we do not find it conducive to arriving at an amount of equitable remuneration to commit ourselves to a single formula. In our view, we should take into account a notional bargaining process as between Screenrights representing the rights owners and the Retransmitters (as that process would operate in the real world) overseas rates (if the circumstances make it appropriate to be guided by them) and by our sense of whether an amount is not an affront to common sense. As will appear, we place no weight on Screenrights' contingent valuation survey.

[82]

200 In the Newspoll survey, respondents were not only randomly assigned one of the Screenrights survey's five price points of $1, $2.50, $5, $7.50 or $10: they were also randomly assigned one of three different 'versions of Q7'. These were: · Version 1 - 'Imagine that Channel 9, ABC and SBS continue to be transmitted through your cable TV with no extra monthly fee, but Channel 7 and Channel 10 are only transmitted if you pay an additional fee. If you had the choice of paying $[x] extra per month to continue receiving Channels 7 and 10 through your cable TV service, or paying what you do now and losing this part of the service, in which case you would have to receive Channels 7 and 10 through a TV aerial, would you pay an extra $[x] per month to continue receiving Channel 7 and Channel 10 through your cable TV …' · Version 2 - 'Imagine that Channel 7 and Channel 10 will not be transmitted through your cable TV service at all, and that you can only get Channel 9, ABC and SBS through your cable service if you pay an additional fee. If you had the choice of paying $[x] extra per month to continue receiving Channel 9, ABC and SBS through your cable TV service, or paying what you do now and losing all the regular channels from the service, in which case you would have to receive all the regular channels through a TV aerial, would you pay an extra $[x] per month to continue receiving Channel 9, ABC and SBS through your cable TV …' · Version 3 - 'Imagine that none of the regular TV channels are retransmitted through your cable TV. If you had the choice of paying $[x] extra per month to continue receiving the regular TV channels through your cable TV service or paying what you do now and losing this part of the service, in which case you would have to receive the regular channels through a TV aerial, would you pay an extra $[x] per month to continue receiving the regular channels through your cable TV …' For any particular price point, Version 3 was identical to Q7 in the Screenrights survey, whereas Versions 1 and 2 were variants of it, relating, as they did, to only three and two FTA channels respectively. Since there were three versions for each price point and there were five price points, there were 15 versions in all, but each respondent responded to only one of the fifteen.

[168]

F. overseas rates 284 The Retransmitters led evidence of the rates paid by retransmitters in the United States, Canada and the United Kingdom. Apparently in anticipation of a submission by the Retransmitters that this evidence showed that there was no payment for retransmission in these countries, Screenrights led evidence of rates payable in continental European countries. However, the Retransmitters rely on that evidence relating to continental Europe, as well as on the evidence they led. Screenrights, on the other hand, submits that none of the evidence relating to overseas countries is useful, and, in particular, that none of it discloses a comparable bargain, that is, a bargain comparable to the notional bargain between Screenrights and the Retransmitters with which we are concerned. 285 It will be recalled that in that notional bargain, Screenrights is not obliged to grant the Retransmitters a licence to retransmit the FTA channels, and the Retransmitters are not obliged to retransmit them. They Retransmitters submit (footnotes omitted): 'The Tribunal has almost invariably at least reviewed the overseas position. On occasion it has found that highly relevant and, to a significant degree, a determining factor in the task of rate setting. On other occasions, it must be accepted, it has found the overseas position less informative. In the present case the overseas position is very powerful. Retransmission is, in general terms, an activity conducted in much the same way all over the world.' 286 Screenrights, on the other hand, submits that: '…the legislative, cultural, geographic, linguistic and many other factors make it impossible for the Tribunal to draw any meaningful guidance - a fortiori any "comparable bargains" - from the Overseas rates.' and that: 'In summary, the overseas regimes are not comparable to the Australian regime and should not be relied upon for the purposes of determining equitable remuneration under Part VC of the Act.' 287 We referred to previous statements made by the Tribunal concerning overseas comparisons at [144]-[145]. APRA v FARB, on which the Retransmitters rely, concerned an application to the Tribunal under s 154 of the Act for confirmation of a licence scheme in respect of the licensing of commercial radio broadcast stations to broadcast copyright music. The Tribunal observed (at [18]): 'Despite the difficulty in comparing rates as between different countries, a broad comparison may provide a helpful pointer to what may be reasonable, particularly in an industry with international ramifications.' 288 The relevance of overseas rates in the circumstances of APRA v FARB is perhaps more obvious than it is in the present case. The rates that were considered in APRA v FARB were all negotiated rates (in the United States, Canada and the United Kingdom) in respect of the radio broadcast of music. In the present case, the rates are in respect of the retransmission of FTA. As will appear, however, the circumstances in which FTA is retransmitted over Pay TV in overseas countries, and the ways in which the amounts, if any, payable by the Pay TV providers are arrived at, vary greatly and differ from the position in Australia. 289 Screenrights submits that, if the Retransmitters had desired to rely on comparable overseas rates, they should have retained an expert or experts to make the comparisons. In our view the witnesses on whom the Retransmitters relied had the expertise required to give the limited evidence which they gave, relating, as it did, to the factual matters of the applicable legislation and other elements of the foreign régimes in question. There is an issue, however, whether their evidence went far enough. It is perhaps rather optimistic to think that one person would be able to provide evidence, in the required detail, as to the relevant practice in every European country, for example, and to be in a position to exclude the possibility of influence by every factor that may be suggested. 290 The evidence on overseas rates was voluminous and detailed. The Retransmitters provided the rates pspm (converted into Australian dollar terms) that are charged to retransmitters in the overseas countries. The rates were also converted to a five channel basis to enable comparison with a full suite of five FTA channels in Australia. The frequent reference to '5 channels' in the material below does not signify that five channels are in fact retransmitted in the country in question. The Retransmitters' submissions include, in an appendix, the detailed calculations which they made to arrive at the rates, accompanied by references to the supporting evidence, including extracts from the legislation in the overseas jurisdictions. 291 We have found the Retransmitters' summary useful, and will set out the relevant paragraphs of that summary. Screenrights submits, however, that the picture is far more complex than the Retransmitters' summary would suggest. 292 A feature which distinguishes overseas countries from that in Australia is the retransmission of distant signals as well as local ones. A 'local' signal is a signal that is also available FTA in the area where the television set is located. A reference to a 'distant' signal is a reference to an FTA signal, emanating elsewhere, which is not available FTA where the television set is located. In some countries, the distant signals that are retransmitted are foreign ones in foreign languages. 293 In Australia, there are only local FTA signals. That is to say, retransmission is always of an FTA signal which the subscriber is entitled to receive by the use of a standard television set in the subscriber's area, being the legal transmission area of the original transmitter. In overseas countries where distant (including foreign) FTA signals are retransmitted over Pay TV, that retransmission is the only means by which they can be received in the area local to the subscriber. 294 Another distinguishing feature is that in some countries retransmitters are required by law to retransmit local signals (a 'must-carry' régime), although they are never required to retransmit distant signals. Even in the absence of a must-carry régime, retransmitters in some countries do not pay to retransmit local signals; in other countries where they do pay to retransmit local signals, the rate is less than that which they pay to retransmit distant signals (exceptionally, in Norway the position is reversed). Retransmitters always pay to retransmit distant signals.

[169]

F.1 the United States of America 295 Affidavit evidence concerning the payments made for retransmission in the United States of America was given by Daniel Brenner, Senior Vice President of Law and Regulatory Policy at the National Cable & Telecommunications Association. Mr Brenner was not cross-examined. In their submissions, the Retransmitters summarised the effect of his evidence as follows (footnotes omitted): 'Cable 338. There is no requirement for cable operators to make copyright payments in respect of the retransmission of local signals. This stems from the fact that the 1976 US Copyright Act limits copyright payments to programming transmitted "beyond the local service area of" the primary transmitter. ie. non-local or distant signals. 339. The law does compensate underlying copyright holders when distant signals are retransmitted by cable systems. The level of remuneration is based on a complex formula that relies on the cable operator's gross receipts from the basic tier. Mr Brenner gives an example of how the formula works resulting (using the figures used in that example) in a figure of US$0.11 per subscriber per month. Satellite 340. The US Copyright Act provides that there is no requirement for satellite operators to make copyright payments in respect of the retransmission of local signals. 341. The law does compensate underlying copyright holders when distant signals are retransmitted by satellite systems. Those figures are set out in the instrument entitled Adjustment of Royalty Fee for Secondary Transmissions by Satellite Carriers.' 296 In the United States, exceptions to the copyright owner's rights and the rates payable are largely prescribed by law. Cable retransmission and satellite retransmission are treated discretely. The statutory licence for cable retransmission of FTA was first enacted in 1976, and that for satellite retransmission in 1988. 297 A long standing (since 1966) aspect of US communications law has been the requirement for cable television operators to retransmit local broadcast stations within those stations' local areas. Must-carry regulations were enforced throughout the period in which the cable retransmission statutory licence was formulated, and were in force when that licence was first enacted in 1976 as s 111 of the US Copyright Act. Must-carry regulatory compliance has been a condition of the s 111 statutory licence since its inception. 298 When the statutory licence for satellite retransmission was first enacted in 1988, it did not seem to be feasible to restrict the new form of retransmission to the local area of the primary station or network-affiliated station. Accordingly, royalty rates were not discounted in respect of local area retransmission. 299 The ability to limit satellite retransmission to a local area became possible by new technology referred to as 'spot beaming' which emerged in the late 1990s. In 1999 a free exception for local area retransmission was introduced in s 122 of the US Copyright Act, coupled with (for the first time) the imposition of must-carry obligations on satellite systems. Public policy justification offered for this policy included the competitive neutrality of the satellite retransmission licence with the cable retransmission licence, and the fostering of the policy of localism. 300 The cable retransmission royalty rate for distant signal retransmission is set under s 111 of the US Copyright Act. The compulsory licence 'substitutes an administratively-set fee for a market price, and there is no link between the value of any particular program to the cable operator and the amount of the compulsory licence fee' payable (Federal Communications Commission Report, in the Matter of Compulsory Copyright Licence for Cable Retransmission, 4 FCC Rcd 6711, [67] (1989)). The US Copyright Royalty Tribunal has described the statutory rates as 'arbitrary, and … intended to require only a minimum payment on the part of cable operators' (Copyright Royalty Tribunal determination, Adjustment of the Royalty Rate for Cable Systems: Federal Communications Commission's Deregulation of the Cable Industry, 47 FR 52146, 14 (1982)). 301 The quantum of each statutory royalty rate for satellite retransmission was based upon that for the cable retransmission statutory licence. When the satellite retransmission licence was first enacted in 1988, the rate was 12 cents per signal pspm for non‑network signals and 3 cents per signal pspm for network signals. In 1994, the rates were adjusted to achieve royalty fees 'that most clearly represent the fair market value' of retransmission. An arbitral rate adjustment by a 1997 Copyright Arbitration Royalty Tribunal (CART) under this criterion gave a rate of at least 27 cents pspm per channel for the twelve basic cable networks. Legislative reform in 1999 removed CART rate adjustment jurisdiction and substantially reduced the 27 cents rate. A reason given was the objective of competitive neutrality with the cable rates. 302 In his affidavit sworn 28 September 2004, Mr Brenner stated, concerning cable retransmission remuneration rates (for distant signals): '43. Section 111 of the US Copyright Act sets out how remuneration rates must be calculated. 44. Short form SA1-2 General Instructions, page vi and Long Form SA3 General Instructions, page vii provides guidance on how those semi-annual calculations should be made. 45. In summary, the position is as follows: (a) If semi-annual gross receipts are US$98,601 or less: remuneration is a flat fee of US$37 for the 6 months (ie, US$74 per year). Under section 256.2(b)(1) of the US Code of Federal Regulations, this amount applies irrespective of whether distant signals are retransmitted. (b) If semi-annual gross receipts are greater than US$98,601 but less than US$189,800: The formula (easier done than recited) requires subtracting the semi-annual gross receipts (GR) from US$189,800. This difference is then subtracted from GR and the difference is multiplied by 0.5%. This formula leads to a number higher than US$37 in every instance. Under section 256.2(b)(1) of the US Code of Federal Regulations, this amount applies irrespective of whether distant signals are retransmitted. (c) If semi-annual gross receipts are greater than US$189,800 but less than US$379,600: remuneration is: (i) 0.5% of gross receipts up to US$189,800; and (ii) 1% of gross receipts in excess of US$189,800 but less than US$379,600. Under section 256.2(b)(2) of the US Code of Federal Regulations, this amount applies irrespective of whether the distant signals are retransmitted. (d) If semi-annual gross receipts are greater than US$379,600: remuneration is: (i) 0.956% of semi-annual gross receipts; AND (ii) an additional percentage of semi-annual receipts for each distant signal equivalent in accordance with the percentages set out in section 256.2(a)(2)-(4) of the US Code of Federal Regulations: (a) for the first distant signal equivalent (DSE) - 0.956% of gross receipts; (b) for the second, third and fourth DSE - 9.630% of gross receipts; (c) for the firth and each additional DSE - 0.296% of gross receipts.'

[170]

F.2 Canada 303 Affidavit evidence of the payments made for retransmission in Canada was given by Gerald L Kerr-Wilson, a barrister and solicitor in Ontario, who has been employed since October 1999 by the Canadian Cable Television Association. His current title is Vice-President, Legal Affairs. Mr Kerr-Wilson was not cross-examined. The Retransmitters' submissions summarised the effect of his evidence as follows (footnotes omitted): '344. The Copyright Act (Can.) establishes a compulsory licence regime under which a retransmitter is granted a compulsory licence to retransmit copyright works carried in free-to-air local and distant television signals. Each cable provider must carry all free-to-air signals local to it as part of its basic service. 345. Under s. 31 of the Copyright Act (Can.), only distant signals attract an obligation to pay remuneration for retransmission. The number of distant signals retransmitted by the various pay TV carriers varies from 90 to fewer than 10. The same amount is payable regardless of the number of distant signals retransmitted (with an exception relating to a French language channel). The payment made for retransmission of all distant signals with respect to most cable subscribers and all satellite DTH subscribers is CAN$0.70 pspm.' (emphasis in original) 304 Under the Canadian Copyright Act, R.S. 1927, c 32, until its amendment in 1988 (and similarly to the position in the United States prior to 1976), cable retransmission had been held to fall outside the exclusive right of the copyright owner to communicate a work by 'radio communication'. The reason was that this exclusive right had been interpreted to be confined to communication by means of Herzian waves. The existence from 1976 of the elaborate US retransmission schemes described above led to concern in the United States over Canada's failure to treat retransmission similarly. Moreover, a decision in 1983 of the Canadian broadcasting regulatory body, the Canadian Radio‑television and Telecommunications Commission ('CRTC'), to permit a satellite company to retransmit major US television networks into Canada highlighted the inconsistency between the two countries' régimes. 305 The absence of royalty payments in Canada in respect of distant signals was in sharp contrast to the position under US law. The 1976 cable retransmission régime in the United States obliged cable retransmitters there to pay copyright royalties in relation to their retransmission in the United States of certain Canadian and Mexican signals. 306 The dissymmetry between the Canadian and US positions was resolved in the Canada-US Free Trade Agreement of 1988. Article 2006(1), which is inscribed into the North American Free Trade Agreement of 1992 by Annex 2106, provides: 'Each Party's copyright law shall provide a copyright holder of the other Party with a right of equitable and non‑discriminatory remuneration for any retransmission to the public of the copyright holder's program where the original transmission of the program is carried in distant signals intended for free, over-the-air reception by the general public. Each party may determine the conditions under which the right shall be exercised. For Canada, the date on which a remuneration system shall be in place, and from which remuneration shall accrue, shall be twelve months after the amendment of Canada's Copyright Act implementing Canada's obligations under this paragraph, and in any case no later than January 1, 1990.' (emphasis added) By this Article, the United States exported its retransmission model to Canada. The obligation placed on Canada mirrored US retransmission law. The obligation to remunerate was only in relation to 'distant signals'. Implicitly, the status quo in relation to local area retransmission could be maintained, now to be expressed as a free exception to copyright. 307 The 1988 Canadian legislative reform which implemented the obligation created by Article 2006 of the Canada-US Free Trade Agreement entailed the replacement in the Copyright Act R.S. 1985, c C-42, of the right 'to communicate the work to the public by radio communication', with the broader right 'to communicate the work to the public by telecommunication'. The broader right encompassed, inter alia, both cable and satellite retransmission. Contemporaneously, there was inserted into the Canadian Act, s 28.01 (now s 31) which created both the free exception for local signal retransmission and a remunerated exception for distant signal retransmission. 308 Screenrights submits that the copyright treatment of local area retransmission in Canada can be understood only in the historical context of a concern on the part of Canadian policy makers to preserve Canadian culture against a dominance by its neighbour to the south. This concern was expressed in the earliest regulation of cable television in Canada. En masse cable retransmission of US broadcast signals threatened to undermine the policy objective of the Canadian Broadcasting Act 1958, that there should be 'a varied and comprehensive broadcasting service of high standard that is basically Canadian in content and character': Broadcasting Act 1958, s 10. Must-carry licence conditions imposed on cable television services by the Department of Transport in the 1960s required that all local FTA stations be carried. In 1968, the CRTC was created to license and regulate the operators of broadcasting undertakings, including cable television systems: Broadcasting Act 1968, Part II. The CRTC pursued a policy objective that programming should use 'predominantly Canadian creative and other resources'. 309 In 1975 the CRTC promulgated its first Cable Television Regulations, CRC 1978, c 374 ('the 1975 Regulations'), which continued to reflect a policy of protecting Canadian broadcasting. Subsection 6(1) of these regulations required that each cable broadcasting licensee retransmit on its 'basic service' certain channels of local stations in order of priority. 310 In 1986 the CRTC promulgated a revised régime in the form of the Cable Television Regulations 1986. These were the regulations in place at the time of the negotiation of the Canada-US Free Trade Agreement and the introduction of the reforms, in particular Art 2006, required by that agreement. The regulations continued to require retransmission of essentially the same local Canadian stations as had been required by the 1975 Regulations.

[171]

F.3 EUROPE 311 Affidavit evidence in relation to the United Kingdom was given by Ian Crichton Starr, a partner in Ashurst, a London firm of solicitors, who specialises in United Kingdom and international intellectual property advice and litigation. He was not cross-examined. 312 The European material is otherwise drawn from Helmut Koszuzeck's evidence. Mr Koszuzeck is the Legal and Business Director of AGICOA (see [41]), and has been employed by AGICOA since 1991. He was cross-examined. According to Mr Koszuzeck, AGICOA is an international non-governmental, non-profit organisation that was established in 1981 'to preserve audiovisual producers' copyrights, chiefly in the area of cable television and similar retransmission means'. AGICOA's members are producers' associations from all over the world. 313 AGICOA maintains a database of the works it represents and the rights it controls. This is 'a unified international repertoire of audiovisual works belonging to more than 5 600 companies from 42 countries'. At the date of Mr Koszuzeck's affidavit (14 October 2004), the database comprised 552 828 audiovisual works, and AGICOA controlled 5 305 130 separate rights in relation to those audiovisual works. In order to monitor the use of the audiovisual works contained in its database, AGICOA monitors 47 television channels all over Europe. Mr Koszuzeck stated that, since television channels were retransmitted 'by cable or satellite bouquets in several countries', AGICOA was operating with respect to '119 channels in various countries of retransmission'. 314 The Retransmitters' submissions purported to summarise the position in overseas countries as follows (footnotes omitted): 'Germany 308. The pspm rate per channel payable for retransmission under the Agreement applicable in Germany between 1985 and December 2002 is AUD $0.0000834 (or $0.00042 pspm for 5 channels). 309. The pspm rate per channel payable for retransmission under the Agreement applicable in Germany since 1 January 2003 is AUD $0.0107 (or $0.0535 pspm for 5 channels). 310. These figures include payments for both local and distant signals as there is no separate treatment for local and distant signals. Netherlands 311. In the Netherlands, no remuneration is payable for local signals. 312. The pspm rate per channel payable for retransmission of distant signals is $AUD0.18385 […]. This amount is based on an agreement struck between the relevant parties. 313. Mr Koszuzeck's evidence was that on a "de jure" basis the broadcasters divide their share (of 45.5% […]) 90/10 between foreign and local broadcasters. Therefore, on a de jure basis, 10% of 45.5% of $AUD0.18385 is, in practice, paid in respect of retransmission of local signals. This amounts to 0.008372 pspm per originating broadcast (ie. 10 % x 45.5% x $AUD 0.18385) (or $0.0042 pspm for 5 originating broadcasts). Switzerland 314. The rate per originating broadcast payable for retransmission in Switzerland is $AUD0.055 (or $0.27 pspm for 5 originating broadcasts). This amount is based on an agreement struck between the relevant parties. 315. These figures include payments for both local and distant signals as there is no separate treatment for local and distant signals. Austria 316. In Austria, the rate per originating broadcast payable for retransmission is $AUD0.027 (or $0.136 pspm for 5 originating broadcasts). This amount is based on an agreement struck between the relevant parties. 317. These figures include payments for both local and distant signals as there is no separate treatment for local and distant signals. Sweden 318. The rate per originating broadcast payable for retransmission in Sweden is $AUD0.230 (or $1.15 pspm for 5 originating broadcasts). This amount is based on an agreement struck between the relevant parties. 319. These figures include payments for both local and distant signals as there is no separate treatment for local and distant signals. Norway 320. In Norway, the rate per originating broadcast payable for retransmission is $AUD0.098 (or $0.49 pspm for 5 originating broadcasts). This amount is based on an agreement struck between the relevant parties. 321. These figures include payments for both local and distant signals as there is no separate treatment for local and distant signals. Belgium 322. The rate per originating broadcast payable for retransmission in Belgium is $AUD0.0425 (or $0.22 pspm for 5 originating broadcasts). This amount is based on an agreement struck between the relevant parties. 323. These figures include payments for both local and distant signals as there is no separate treatment for local and distant signals. France 324. In France, the rate per originating broadcast payable for retransmission of local signals is $AUD0.03 (or $0.15 pspm for 5 originating broadcasts). This amount is based on an agreement struck between the relevant parties. 325. The rate per originating broadcast payable for retransmission of distant signals is $AUD0.0288 (or $0.144 pspm for 5 originating broadcasts). This amount is based on an agreement struck between the relevant parties. Eire 326. In Eire, there is no payment for local signals. 327. The rate per originating broadcast payable for retransmission of distant BBC originating broadcasts is $AUD0.172 (or $0.86 pspm for 5 originating broadcasts). 328. The rate per originating broadcast payable for retransmission of distant ITV/Channel 4 originating broadcasts is $AUD0.0.516 […] (or $2.58 pspm for 5 originating broadcasts). 329. These amounts are based on an agreement struck between the relevant parties. Spain 330. The rate per originating broadcast payable for retransmission in Spain is $AUD0.015 (or $0.07 pspm for 5 originating broadcasts). This amount is based on an agreement struck between the relevant parties. 331. These figures include payments for both local and distant signals as there is no separate treatment for local and distant signals. UK 332. ... Cable 333. Section 73(2) of the Copyright, Designs and Patents Act 1977 (UK) provides that copyright in any work included in a retransmitted broadcast is not infringed if the broadcast is made for reception in the area in which it is retransmitted by cable. 334. This means the broadcaster and underlying rights holders cannot withhold consent to a retransmission in the local area and there is no statutory entitlement to a payment to the underlying rights holders for the retransmission. 335. Retransmission of distant signals is subject to a payment of a royalty to the underlying rights holders. However, given that the broadcast area of the FTAs is basically UK-wide, this requirement is of no practical significance. Satellite 336. There [are] no provisions akin to s 73 of the UK Copyright, Designs and Patents Act regulating the retransmission by satellite of free-to-air broadcasts. However, there is currently no retransmission by satellite in the United Kingdom.' (emphasis in original)

[174]

As can be seen, Screenrights agrees with the Retransmitters' calculation only in the case of Sweden. Otherwise, there are large discrepancies between Screenrights' figures and those of the Retransmitters. 318 We have considered the parties' submissions supporting their respective calculations. We can see force in them but will not embark on the sizeable task of determining which calculation is the more likely to be correct. For one thing, there are evidentiary gaps (which could probably have been filled only by a person from the country concerned). Secondly, we have concluded, in any event, that the circumstances in the European countries are not sufficiently like those in Australia to make the exercise useful. 319 Screenrights distinguishes the circumstances in Europe on the following general bases. 320 First, in each of the European territories, except Norway, there is a 'must-carry' régime broadly similar to that in the USA and Canada. That is to say, retransmitters are required by law to retransmit certain or all local (national) FTA channels. In Australia, however, the Retransmitters choose to retransmit the FTA channels only if they perceive it to be in their own interests to do so. 321 Secondly, retransmission in Europe typically involves large numbers of foreign FTA channels, often in languages other than that principally spoken locally in the territory. Screenrights submits that such channels will be of little commercial value in comparison to channels in the local language, and are retransmitted as part of a large package of channels. 322 Thirdly, rights are treated very differently as between European countries and Australia. Screenrights elaborates as follows: 'For example, broadcaster shares are not in relation to the broadcast per se, in the sense of broadcast signal copyright that applies in Australia. Rather, broadcasters are remunerated as the owners of the underlying rights: (a) in the programs that they own as their producers; (b) in those cases where they have taken the rights as assignees; and (c) in the neighbouring rights of broadcasting organisations which is analogous to the Australian concept of broadcast signal copyright. Never has any attempt been made to define the weight or respective value of each aspect (a), (b) and (c) which taken together go to make up the broadcasters' share.' 323 Fourthly, the local area/distant signal dichotomy of the United States and Canada is not relevant to Europe. European agreements tend to distinguish between local and foreign broadcasters, such as between German (local) and non-German (foreign) broadcasters. This does not necessarily mean, however, that a foreign signal is not able to be locally received, particularly in cases of geographically proximate territories. 324 Screenrights points out that, in most European territories, local area and foreign FTA signals are not treated differently, and that the rate of remuneration for retransmission is the same for both. Local area FTA signals are treated separately only in France, the Netherlands, the United Kingdom and Eire. Screenrights submits that, in most European countries (Germany, Switzerland, Austria, Sweden, Norway, Belgium and Portugal), remuneration rates do not give any discount based on the origin of the signal. It submits that remuneration paid for the retransmission of local FTA channels is as high as, and in the case of Norway higher than, the remuneration paid for the retransmission of foreign FTA channels. 325 While not accepting that the Retransmitters' approach is in any sense valid, Screenrights addresses the positions in Europe, country by country. Its analysis is intended to demonstrate what it calls the 'more manifest errors' involved in reliance on the rates being paid in Europe. We will not summarise those country by country submissions, but will refer to four of them. 326 In the case of Sweden, as noted at [317], the parties agree that as a matter of calculation the rate is $1.15 pspm for five channels. Sweden has a must-carry régime of five local FTA channels for analogue retransmitters and three local FTA channels for digital retransmitters. The amount of $0.23 per channel represents an average arrived at on the basis of the five local channels and two foreign channels. Multiplying by seven, the amount for all seven channels is $1.61 pspm. Was this figure based exclusively on the two foreign FTAs? 327 The thrust of Screenrights' 'averaging' submission is that the averaging exercise performed by the Retransmitters fails to recognise the depreciating effect of the 'must-carry local FTAs' régime. Screenrights would apparently have us accept that, but for that régime, retransmission of the five local FTAs would give rise to a figure higher than $0.23 per local channel (higher than $1.15 for five). 328 An alternative view, however, is that the availability of local FTAs through the terrestrial aerial would lead to little value being ascribed to them in any negotiation, and that the Swedish retransmitters were, indeed, willing to pay virtually the entire $1.61 pspm for the two foreign FTAs. 329 We turn now to Norway. Screenrights submits that the Norwegian comparison is more relevant to the notional bargain with which the Tribunal is concerned than are the other European countries in one respect: Norway does not have a 'must-carry local FTAs' régime. We noted the discrepancy between the parties' calculations at [317]. The Retransmitters submit that since the question of the correct interpretation of the Norwegian formula is not something that the Tribunal can resolve, 'the Norwegian figures are not particularly useful'. It is noteworthy, however, that the Retransmitters' own figure is $0.49 pspm for five channels. 330 Spain has the lowest rate, according to the Retransmitters' figures: $0.07 pspm for five channels. Screenrights points out that Spain has a very extensive 'must-carry local FTAs' régime. According to Mr Koszuzeck, Spanish retransmitters must carry 'two public service channels of RTVE, three commercial channels, the public service channels of the autonomous regions and finally local television channels'. The evidence as to how many must-carry channels this signifies is unclear. Mr Koszuzeck adopted a figure of over 60 percent of all retransmitted channels. 331 The Retransmitters relied on Mr Koszuzeck's evidence that 40-60 channels were retransmitted, and selected the mid point of 50, on which they calculated that their average of a little over one cent per channel pspm (they acknowledged that music was not included). 332 Screenrights submits that the Retransmitters' approach is also invalidated by 'the averaging problem' - the assumption that all retransmitted FTA channels are of the same value, and, in particular, that the channels the subject of the 'must-carry local FTAs' régime have the same value as the other channels that were the subject of the negotiation. 333 In relation to France, firstly, there is a must-carry régime under which retransmitters must carry both public and commercial channels. Secondly, the local channel rate calculated by the retransmitters is based on an agreement negotiated with one public cable operator, the national French TV channel. It is a case of one publicly owned cable operator retransmitting a publicly owned channel. Thirdly, the rate covers only producers' rights. Fourthly, again, Screenrights attacks the Retransmitters' calculations, and the discrepancy between the figures arrived at by Screenrights and the Retransmitters appears in the table set out at [317] (Retransmitters $0.15, Screenrights $1.52). 334 In supplementary submissions, the Retransmitters state, after acknowledging the difficulties in arriving at a truly comparable figure: 'Accordingly, the local retransmission rate for France that emerges from the one contract, which the respondents accept is in the order of $0.3375 pspm for five channels (including an unidentified amount for the broadcast signal) is not an appropriate guide.' (emphasis in original) In sum, from submitting that a French local rate of $0.15 pspm should be treated by the Tribunal as representing a ceiling, the Retransmitters now submit that the rate is something less than $0.3375 pspm and should not be relied upon. 335 We turn now to certain more general considerations concerning Europe. Articles 8, 9 and 10 of the Council Directive 93/83/EEC of 27 September 1993 'on the coordination of certain rules concerning copyright and rights related to copyright applicable to satellite broadcasting and cable retransmission reflect' a policy of encouraging voluntary contractual arrangements in relation to retransmission in Europe. Except in the case of rights controlled by the broadcasters themselves, those Articles require European Member States to ensure that copyright arrangements for retransmission represent collective agreements between rightsholders and cable operators. 336 Accordingly, price differences between various European countries reflect differences in market and bargaining positions. The same circumstances also explain some differences in the way in which local area retransmission is treated vis-a-vis foreign retransmission. 337 In most European territories, no distinction is made between local and foreign retransmission in relation to the distribution of royalties received. Even in certain territories such as Eire and Austria, where exceptions are created in favour of certain local area retransmissions, the royalty distribution policy of AGICOA does not distinguish between local and foreign retransmission. 338 So far as the evidence before the Tribunal goes, the United Kingdom is a 'special case' because of the collection of licence fees from the owners of television sets. In the United Kingdom, payment-for-use was the basis upon which FTA broadcasting developed. From the inception of broadcasting there, the Wireless Telegraphy Act 1904 (UK) required owners of broadcast reception equipment to pay an annual fee for a 'wireless licence'. The fees were collected by the Postmaster-General and were first used to fund the private conglomerate, the British Broadcasting Company, which operated from 1922 to 1926, prior to its nationalisation in 1927. From 1927, the nationalised British Broadcasting Corporation (BBC) was (and still is) funded by the same licence fees, which are now levied annually upon television receiving sets. 339 While virtually all retransmission in the United Kingdom is local area retransmission under a free statutory exception to the exclusive rights of the copyright owner, that exception must be considered in the light of the television licence fee. (Mr Koszuzeck said that the only retransmission of a foreign channel in the United Kingdom was the retransmission of RTE (Eire) to about 100,000 households in Northern Ireland.)

[180]

(1) Improved reception of FTA programs 356 Screenrights contends that a major incentive for persons to subscribe to Pay TV is that the picture reproduction quality of FTA programs is greatly improved when received by means of the Retransmitters' cable and satellite services. 357 The expert witnesses for both Screenrights and the Retransmitters agreed that, in certain areas of Australia, including parts of the Sydney metropolitan area, the quality of television reception through terrestrial aerials is poor, primarily where the line of sight to the FTA broadcasters' aerials is blocked, or where there are adverse weather conditions. The problem has resulted in the Commonwealth Government's institution of a 'black spot' program intended to overcome or lessen the difficulty. 358 The Retransmitters did not dispute that viewers were willing to spend large sums of money on technical equipment directed to improving reception. 359 The Retransmitters' witnesses said that digital broadcasting produced an improvement in FTA viewing quality similar to that obtained through Pay TV. They contend that the cost of equipment capable of receiving digital broadcasts, a cost that is decreasing rapidly, should be seen as the value placed on the retransmission of FTA over Pay TV, by a person who has poor FTA reception by the terrestrial aerial. A person faced with the choice of improving FTA reception quality by upgrading equipment or subscribing to Pay TV would prefer to make the one-off outlay for a digital upgrade rather than an ongoing subscription to Pay TV, unless the person also wanted access to the Pay TV channels. Digital TV, however, is not available in all areas of Australia. 360 There was no evidence before us indicating that the take-up rate for Pay TV is higher in areas where reception of FTA through the terrestrial aerial is poor. Screenrights, however, pointed out that, in answer to Q10 of the Survey, 44 percent of all respondents (that is, across all price points) had said that achieving better reception/picture quality/sound quality was a 'main benefit' for them of receiving FTA channels through their cable TV. This figure rose to 77 percent when only those respondents who categorised their terrestrial aerial reception as being poor were considered. The Retransmitters attack the value of these responses on the basis that the answers were induced by the form of the questions and the manner in which they were posed. As noted in [265], we have found that the responses to Q10 were heavily influenced by Q7 and the scenario which preceded it. 361 Mr Peters referred to four confidential surveys carried out on behalf of some of the Retransmitters which indicated that improved viewing of FTA programs was a significant factor affecting the take-up or continuance of subscriptions. However, half of those surveys were conducted before the commencement of the Commonwealth Government's black spot program in 2000, and all but one were conducted before the advent of digital FTA transmission, which commenced on 1 January 2001. The Retransmitters also rejected their relevance to this issue on the basis that the questions asked did not refer to all options available to subscribers, and that the surveys were undertaken to test consumer interest in issues broadly relating to Pay TV. 362 Despite the lack of conclusive evidence, we accept that the prospect of improved reception of FTA may influence some people to subscribe to Pay TV. While regard may be had to that fact when we determine the value to the Retransmitters of the right to retransmit FTA programs, the problem is that we do not know what number or proportion of subscribers have been or are likely to be so influenced, or the degree of influence. We note that increasing digital terrestrial transmission means that the factor will be of decreasing importance in the future. (FTA broadcasters are required to match their analogue coverage area with digital coverage as soon as practicable.) 363 The Retransmitters submit that, if retransmission improves the reception of FTA for Pay TV subscribers, it necessarily follows that the number of viewers of FTA programs will be increased, their ratings will rise, and their value to the FTA providers in terms of advertising revenue will rise. There is some force in this argument. Again, however, quantification is a problem.

[181]

(2) Convenience of a single remote control 364 Screenrights also contends that persons are influenced to subscribe to Pay TV by the fact that they will need only one remote control to move between FTA and Pay TV channels. Of course, a person does not subscribe in order to be able to move between FTA and Pay TV viewing with a single remote rather than two. Perhaps the better way of expressing the position is to say that a person who already has or who wishes to have Pay TV channels may take into account that, because FTAs are retransmitted through the Pay TV STU, he or she does not or will not suffer the disadvantage of needing two remote controls, one for the FTA channels and the other for the Pay TV channels. 365 Screenrights points to the Survey results, according to which 52 percent of respondents perceived having a single remote control as a 'main benefit' of receiving FTA programs retransmitted over Pay TV. Nearly all respondents in one of the Retransmitters' confidential surveys described the prospect of not being able to use a single remote control as 'inconvenient' or 'very inconvenient'. The Retransmitters attacked the cogency of these results on the same grounds as those on which they attacked the responses relating to improved reception. 366 Screenrights led evidence showing that the Retransmitters themselves had sometimes referred to the 'seamless' movement between FTA and Pay channels as an advantage. 367 Screenrights also pointed to a further advantage that the single remote control offered the Retransmitters - its 'sticky' effect. A person watching a retransmitted FTA program is more likely to watch a Pay TV channel if he or she can do so without having to change remote controls. 368 The Retransmitters respond that a viewer must still use more than one remote control because the Pay TV remote control will not turn on the television set. They also say that, in any event, viewers are used to handling a number of remote controls, because, unless they have a universal remote control (see below), they must use separate controls when using VCR or DVD players. 369 The Retransmitters further submit that, if we were to accept that the single remote control is a valuable benefit, its value could not be greater than the cost of a universal remote control. The evidence is that such devices are on the market at a range of prices between $30 and over $100, depending on the features included. 370 We are not persuaded that a significant number of people would be influenced in their decision to subscribe or continue to subscribe to Pay TV by the fact that only a single remote control is needed to change between FTA and Pay TV programs. We accept that multiple remote controls are often used and that there will be increasing availability and use of universal remote controls. Once persons subscribe, the ability to access both FTA and Pay TV channels using the one remote control is undoubtedly a convenience to some extent, and to that extent adds to the attractiveness of Pay TV. There may also be some 'sticky effect' but this argument assumes that the viewer has subscribed to Pay TV primarily in order to watch the FTAs. It is our firm view that subscribers subscribe in order to watch the Pay TV channels.

[182]

G.2 Cost of retransmission 371 Mr McGarrity suggested that a method of measuring the value to the Retransmitters of the retransmission of FTA is to look at the cost in terms of the capital and running costs that they were prepared to pay in order to retransmit. The parties agreed that the value of the benefit of retransmission to the Retransmitters must be at least equal to the costs they have incurred or do incur in order to retransmit. However, there was no agreement as to how those costs should be identified and calculated. 372 Mr McGarrity asserted that the costs should be derived as a proportion of the full cost of a Retransmitter's operation, that is, its original establishment costs and the cost of maintaining its operations He referred to the costs so calculated as 'average' or 'fully distributed' costs. He said that a person seeking access to the supply of a limited service should be able to obtain it, not at the current or marginal cost, but at a cost which recognised the capital and other expenditure that those first in the field had spent to establish the service. 373 Mr McGarrity applied this method of calculation to the costs incurred by the Retransmitters, and arrived at very substantial figures as the cost of retransmitting FTA programs. 374 Mr McGarrity's approach was rejected by witnesses called by the Retransmitters, principally Moya Dodd. Ms Dodd is Vice-President of Charles River Associates (Asia Pacific) Pty Ltd ('CRA') and has been employed by that company or its subsidiary since 2003. She states that 'CRA is an economics, regulatory and business consulting firm', and that its services include 'economic and financial analysis, regulatory support, policy analysis and litigation support to clients particularly in telecommunications, energy, transport and related industries'. Ms Dodd is a solicitor and holds university degrees of LLB (Hons) and MBA. She has fifteen years' experience in the media and telecommunications industries. 375 Ms Dodds's view was that the cost of FTA retransmission should be measured only as marginal or opportunity cost, and that the question to be asked is what is the cost of retransmitting one additional FTA channel as against the marginal benefit of doing so. If marginal benefit does not exceed marginal cost, the Retransmitter will not retransmit the additional channel. A Retransmitter would pose this question to itself and ask to what other use its available facilities might be put. Ms Dodd was not asked to give monetary amounts. 376 Ms Dodd disagreed that her approach could not be applied to costs incurred at the commencement of the Retransmitters' businesses, because retransmission of FTA was part of their activities from the start and the cost of retransmission was a part of their establishment costs. Ms Dodd said that the correct method depended upon the purpose for which costs were being calculated - a decision about whether to include particular channels in a package would be made on the basis of marginal cost. 377 As indicated below, there is some evidence to suggest that at the commencement of Pay TV in Australia, the Pay TV operators saw retransmission as one inducement to subscribe. However, the fact that its value was limited is demonstrated by the fact that the delivery of Pay TV by Foxtel by satellite did not originally include the FTA programs because of the cost involved. Austar included retransmission of the ABC in November 2001 and SBS in December 2002, but Austar had special confidential arrangements with them as to costs. 378 Since additional satellite broadcasting capacity has become available, it has become practicable to retransmit FTA by satellite, but there have been complex costing arrangements between the Retransmitters and the FTA stations. We note, however, that the arrangements have been arrived at on a marginal cost basis. 379 We consider that we should take into account the fact that there was, at the commencement of Pay TV, some value to the Retransmitters in retransmitting FTA programs. This is shown by the fact that, at that time, they incurred capital costs to enable them to retransmit FTA. In relation to one Retransmitter, the start-up cost of cable Pay TV retransmission, amortised over the life of the equipment, would be represented by a sum in the very low cents pspm. 380 Ascertaining the set-up cost of retransmission is also complicated by the fact that there are complex confidential contractual arrangements involving cross-subsidies between some FTA providers and the Retransmitters. Foxtel's arrangement with Channel 9 is affected by the fact that Channel 9 is a part owner of Foxtel. It is not possible, on the evidence, for us to determine precisely what the establishment costs were. 381 The Retransmitters do not dispute that the decision to continue retransmitting FTA is based on an opportunity cost analysis. This was recognised by their indication that they would cease retransmission if they considered the level of equitable remuneration to be too high. If the Retransmitters thought that they would be better served by transmitting more Pay TV channels and allowing for any subscriber adverse reaction from the termination of the retransmission of the FTA channels, presumably they would follow that course. The marginal cost to them of the retransmission of FTA is therefore some guide to its value in a notional bargain. At least, that value must be greater than that cost. However, the Retransmitters claimed that that marginal cost was minimal, and it appears to us that it is. 382 Unfortunately, the evidence on costs was not very explicit. Foxtel's evidence was that the ongoing retransmission costs on cable were only 'nominal'. Ms O'Hara said that TransACT incurred 'modest headend costs in the retransmission of [FTA] signals when compared with subscription television and video on demand services'. The confidential figure she provided was less than half the similar confidential figure she provided in respect of the Pay TV channels. 383 The cost of retransmission by satellite is also probably very low if the amount paid for access to the satellite is treated as a capital cost. As to this, see the comments at [456] relating to the complex contractual arrangements between the Retransmitters and the FTA providers. Further, there are fixed charges for using the satellite, whether the whole of the capacity is used or not. 384 There was evidence, which we directed remain confidential, of the amounts of money relevant to the arrangements between the Retransmitters and the FTA providers. However, the various bargains between them are so complex that this information does not assist us greatly to determine the costs actually incurred by the Retransmitters in retransmitting FTA programs. The Retransmitters concede that the value of FTA retransmission to them is at least the marginal cost they incur in retransmitting the FTA signals, but contend that those marginal costs are 'minimal'. Mr McGarrity concluded from his analysis of various documents discovered by the Retransmitters that they had expended 'significant sums' on the retransmission of FTA channels. We do not find his analysis persuasive, however, because we do not accept his full cost approach; rather, we think the marginal cost appropriate. However, we do take into account the fact that there is such a marginal cost that the Retransmitters have chosen to incur in order to retransmit FTA.

[184]

Retransmission of FTA programs as a 'subscription driver'. 387 OzTAM manages and markets television ratings data covering all channels for the five city metropolitan areas (Hobart is omitted), and nationally for subscription television, and publishes the 'ratings' (that is, the percentage of viewers watching) in respect of all programs shown on Australian television. The ratings are further divided into categories, including time of viewing and gender and age of audience. The ratings have particular significance for the sale of advertising. 388 Mr Peters used standard OzTAM ratings to arrive at the percentage of viewing of FTA through the Pay TV STU. These statistics revealed that Pay TV householders divide their television viewing almost equally between FTA and Pay TV channels. Mr Peters deduced that they used their Pay TV STU for viewing FTA channels for half of their TV watching time. 389 Mr Peters conceded, however, that the OzTAM statistics did not differentiate between the viewing of FTA through the Pay TV STU and the viewing of FTA through the terrestrial aerial. The statistics related only to the amount of viewing of FTA programs in homes that had Pay TV: they did not distinguish between viewers of FTA through a Pay TV STU and viewers of it via the terrestrial aerial. Further qualifying the utility of the statistics is the fact that, where the Pay TV was received via satellite, the viewing of FTA must, until recently, have been via the terrestrial aerial, because it was only recently that FTA began to be retransmitted via satellite, and even then not all FTA channels have been so retransmitted. This distinction was not reflected in the global figure that Mr Peters derived from the OzTAM statistics. 390 The deficiencies in Mr Peters' analysis just mentioned were in the end not of great moment as the Retransmitters conceded that a substantial percentage of the persons viewing television through Pay TV STUs were viewing FTA channels. 391 Mr Peters referred to the four confidential surveys conducted on behalf of the Retransmitters between March 1998 and January 2003 (see [361]). They are all confidential to the companies to which they were provided. Mr Peters' expertise to comment on the merit of the methodology used in the preparation of one of the reports was questioned, and he accepted that there was substance in the challenge to his expertise in that particular respect. 392 Mr Peters pointed to one report which suggested that the inability to view FTA programs would result in a loss of some 7-8 percent of subscribers. A similar difference was recorded between the numbers of persons who indicated an interest in subscribing to Pay TV, according to whether FTA programs were or were not available. Another report observed that for many subscribers the access to retransmitted FTA was a fundamental pre-requisite for the uptake of Pay TV. 393 The Retransmitters' witnesses questioned the value that could be placed on these reports. They pointed out that the context in which the questions relating to the retention of access to FTA were asked, and the failure to point out to respondents that access to FTA programs would still be possible through the terrestrial aerial, cast doubt on the value of the responses. Mr Keely also commented that he would have expected the answers that were in fact given, as the question indicated removal of a service without any return by way of reduction in subscription price or the supply of an alternative service. 394 Dr Bock noted that one of the reports was directed to the value of the FTA programs themselves, not the value of the retransmission of them. 395 The conclusion is open to be drawn from Mr Peters' evidence and the reports to which he referred that the ability to watch FTA through the Pay TV box is a factor in the take up and maintenance of subscriptions. It is a different question how influential a factor it is. 396 Having determined that retransmission of FTA was a subscription driver as he defined it, Mr Peters then attempted to quantify its value to the Retransmitters. 397 He first endeavoured to do this 'by reference to the relative importance of free-to-air channels and pay channels as subscription drivers for pay television applied to the net cost of pay channel programming incurred by pay television operators'. He said that this relativity was to be assessed 'qualitatively or intuitively'. He conceded in cross-examination that his was a 'simplistic starting point' and 'a bit arbitrary'. 398 Mr Peters' attempt to ascribe a mathematical figure to this relativity in order to calculate the value to the Retransmitters of retransmission of FTA was unconvincing. In cross-examination, he said that the figures he had used were largely indicative of a method of calculation, as distinct from the placement of a value on the inducing effect of retransmission. There was no evidence that would have enabled us to derive the relativity in question, assuming that we considered this to be a legitimate way in which to evaluate the retransmission of FTAs. We do not find the method of valuation proposed by Mr Peters to be of assistance. 399 Mr Peters then examined the matter from what he termed a 'costs per rating share' analysis. Under this method, the cost to a Retransmitter of the programming of a particular Pay TV channel is ascertained. That figure is then related to the average viewing share of that channel in order to determine the channel's cost per rating share per subscriber. An average of the cost per rating share for a group of those Pay TV channels most nearly comparable to the FTAs is then derived. This figure is then applied to the ratings of each of the FTA channels in order to determine a comparable value for each of them. (All of the FTA channels except SBS have a much higher rating than any of the Pay TV channels.) The amount derived by Mr Peters was based on costs figures that are confidential to the Retransmitters concerned. However, it can be said that the amount lay between $50-100 million per annum for one of the Retransmitters. 400 This approach of Mr Peters is founded upon the premise that the ability of a Retransmitter to retransmit high quality FTA programs is as much an inducement to subscribe as is the availability of the Pay TV channels. This, he says, is reflected in the amount of viewer watching that is revealed by the ratings. 401 This approach may have a superficial attraction. If subscribers watch more FTA than Pay TV channels, the FTA programs must have substantial value to them and therefore also to the Retransmitters. There are, however, problems. First, the question of concern to us is not the value of FTA to subscribers (and therefore to the Retransmitters) but the value of retransmission of FTA to subscribers (and therefore to the Retransmitters), in circumstances in which FTA is already available via the terrestrial aerial. 402 Secondly, the Retransmitters do not wish to encourage the viewing of FTA programs by their subscribers. An increase in ratings for FTA programs as against Pay TV programs represents a loss for the Retransmitters. 403 A third problem flowing from the method of calculation referred to in [399] concerns the method of arriving at the cost per Pay TV channel. It was on the public record at the time of the hearing, that only one of the Retransmitters had made a profit and that it had done so only in the previous year. Moreover, the real cost per Pay TV channel would have to take into account the capital and other costs that have gone into establishing the Pay TV industry. These considerations suggest a much higher figure than Mr Peters allowed for. Conversely, if the cost per Pay TV channel were to fall, for example, as a result of a devaluation in the US dollar, the amount payable to the FTA providers would similarly fall. This casts doubt on the method suggested as representing the value of retransmitting the FTA programs to the Retransmitters. 404 The ratings approach may have significance to the issue of penetration which is discussed below. We do not, however, consider that it can be used as a method of calculating the value of retransmission of FTA, as Mr Peters seems to have suggested.

[185]

FTA as an aid to penetration of Pay TV in the marketplace 405 Mr McGarrity defined 'penetration' as 'the number of subscribers a pay television operator has at any one time as a proportion of the potential number of subscribers who could access that service'. He said: 'Pay television providers benefit directly from increasing the penetration level of their services. Generally, the higher the penetration, the greater the gross revenue and the quicker the passage to profitability for the pay television business'. Mr McGarrity concluded, after an examination of the subscription take up of the various Retransmitters and having regard to their different modes of delivery of Pay TV, that: '…the availability of a full suite of high quality picture and sound retransmitted local free to air services is a significant factor in the higher penetration for the pay television platforms carrying such services that I have examined vis a vis the penetration for pay television services I have examined which carry only a few or no such retransmitted services.' 406 The subscriber numbers are confidential. Mr McGarrity expressed the opinion that the penetration rate of cable Pay TV (on which FTA channels were retransmitted) is some 4-6% higher than satellite Pay TV (on which no or not all FTA channels were retransmitted). 407 If the retransmission of FTA programs was the only difference between cable and satellite Pay TV, the confidential figures referred to would support Mr McGarrity's argument. However, the Retransmitters challenged his assumption that a particular level of penetration could be attributed to one factor, the retransmission of FTA. 408 Mr McGarrity conceded that there were differences in the terms on which Pay TV was provided as between the various Retransmitters and also as between the kinds of service they provided. The differences related to subscription fees, installation fees (in relation to both of which satellite Pay TV was higher), methods of advertising, minimum length of contract for which a service could be subscribed for, and date of commencement of the service. Mr McGarrity indicated that he was aware of these matters, but explained: 'I did not consider them to be as significant as [the provision of a suite of FTA broadcasts]'. 409 In contrast, Professor Carson thought that the higher price charged by Foxtel for satellite Pay TV 'likely' accounted for its lesser penetration. 410 In support of his assessment of the significance of the retransmission of FTA, Mr McGarrity also referred to the penetration of TransACT. He characterised this as an example of the offering of retransmission of a full suite of FTA channels, with only a small number of Pay TV channels, but with significant penetration, which he attributed to the retransmission of the FTA channels. However, an alternative view is that subscribers were induced to subscribe by the Pay TV channels, although few in number, and the level of price charged. 411 Mr McGarrity indicated that he had taken into account the various other factors referred to at [408] that might have had an impact on penetration, but had made a value judgment based on his experience in the industry of the relative significance of the retransmission of FTA programs. We do not find this conclusion particularly persuasive, in the absence of some discussion of all the factors and the reason why, for example, price was not as significant as the retransmission of FTA. 412 Mr Delany of Foxtel rejected the suggestion that the retransmission of FTA was a 'subscription driver' and increased penetration of Pay TV. He defined 'subscription driver' as the thing that will motivate a person to sign up for Pay TV. In his view, the availability of retransmitted FTA programs did not meet this definition. He contrasted it with the offering by a Retransmitter of extra sports or movie channels which he did regard as subscription drivers. Mr Delany described the availability of FTA programs on Pay TV as a 'convenience' to subscribers. He emphasised that it would be self-defeating for Foxtel if its subscribers were to watch too many FTA programs, as it wants them to view its Pay TV channels 413 Mr Delany also pointed to two other significant factors in measuring the greater take up of Pay TV by cable than by satellite. First, in what are termed 'multiple dwelling units' (MDUs), that is, blocks of apartments and groups of townhouses, cabling is the preferred means of supply of Pay TV, and each apartment counts as one house for the purpose of measuring penetration. Secondly, Foxtel has a cable preference rule: if a house can be serviced by cable or satellite, cable is used. Both of these factors, he said, inflated the penetration of cable, but were independent of the retransmission of FTA programs. 414 Deanne Evelyn Weir, General Counsel and Company Secretary of the parent company of Austar, and a director of Austar, asserted that the ability to receive retransmitted FTA was not a significant subscription driver. She said that there was no evidence that the introduction of the retransmission of SBS and ABC broadcasts on Austar increased subscriptions. 415 Ms O'Hara referred to research undertaken for TransACT that indicated that retransmission of FTA was the least important consideration for a person contemplating whether to subscribe to Pay TV. Cross-examination revealed that this conclusion might be subject to some qualifications. However, it is at least apparent from the research that there were other considerations that assumed greater importance in the minds of prospective subscribers. 416 Both Mr Keely and Ms O'Hara referred to the fact that persons subscribe for a bundle of services from Optus and TransACT, respectively, as reducing the significance of television generally, and of FTA retransmission in particular, as a subscription driver. Mr Keely made the additional point that while the television side of Optus's offerings had initially been seen as a gateway or portal to the take up of other products, that approach had not produced the results expected and was no longer followed. 417 The evidence from these witnesses for the Retransmitters serves to qualify Mr McGarrity's analysis of the effect of retransmission of FTA programs as an aid to penetration. However, it should be acknowledged that Mr McGarrity did no more than assert that the retransmission of FTA channels is a significant factor in explaining levels of penetration. There is some evidence to support the correlation that he claims. However, where that correlation stands in the order of importance of factors affecting penetration is not possible for us to say on the evidence. No attempt was made to repeat the correlation process for the other variables referred to, such as the different services provided, differences in their cost, and the ways in which they are delivered. 418 We conclude that the inclusion of a suite of retransmitted FTA channels probably has some positive effect on penetration. Foxtel and Optus apparently thought so when they initially chose to include retransmission of FTA programs in their package. TransACT chose, when implementing its strategy of providing a complete range of communications services, to retransmit FTA programs. The marketing practices of all Retransmitters have recognised the fact that their prospective and existing subscribers now expect them to retransmit FTA. 419 These practices probably do not indicate that retransmission of FTA is a subscription driver in the sense used by Mr Delany, except in the case of persons who have poor reception of FTA through their terrestrial aerial. For these people, the chance of receiving a substantially better picture through the Pay TV STU would very likely be a motive for subscribing. The evidence does not establish the proportion of subscribers that fall into this category. There is also likely to be a shading of its influence as a subscription driver across a spectrum, from those who have very poor reception, to those whose picture is a little unclear or less than perfect. 420 If one takes Mr Peters' lesser test of a subscription driver, namely, a factor that increases the likelihood of persons subscribing, the availability of retransmitted FTA seems to fall within this description and hence to contribute to the penetration of Pay TV. However, as noted previously, the extent of that influence is probably impossible to identify. There are many other factors that influence comparative penetration rates, such as those relating to MDUs, the cable preference practice referred to above, and the comparative cost of the services. 421 Screenrights chose not to put into evidence Mr McGarrity's attempt to place a number on the increase in subscriptions that the adoption of his approach to penetration would reveal, and to assess how much that increase would be worth to the Retransmitters. Obviously, it would be a difficult figure to determine. The most that the Tribunal can do is to note Mr McGarrity's opinion that it is a 'significant' factor. 422 We conclude that, in assessing the value of retransmission of FTA programs to the Retransmitters, its effect in increasing penetration must be given some weight. However, the evidence does not support it as having the impact that Screenrights' witnesses suggest. On the evidence before us, we do not consider it a major subscription driver or aid to penetration, except where the quality of reception of the FTA signal through the terrestrial aerial is poor.

[186]

Churn 423 'Churn' is the generic name given to cessation of subscription. It is usually expressed as a percentage of the total number of subscribers at a given time. So a 20 percent churn means that 20 percent of subscribers have ceased being subscribers in the preceding 12 months. Churn occurs as a result of three circumstances that need to be considered separately: cancellation by a subscriber; non-renewal of subscription; and termination of access by the provider as a result of non-payment of subscription. 424 It is in the interests of Retransmitters to keep churn as low as possible. Information relating to the percentage of churn applicable to each Retransmitter is regarded as 'commercial-in-confidence', and we will not mention the actual churn for a Retransmitter, except for Austar which has publicly stated its churn rate. 425 Screenrights argued that the availability of retransmission of FTA programs reduces churn and is therefore of value to Retransmitters. This claim was said to be supported by statistical evidence for the period 2002-03 for Foxtel. The evidence was said to establish a connection between increases and decreases in churn and the times when retransmission of FTA was not or was available. It was asserted that churn in respect of cable Pay TV was lower than that for satellite Pay TV, and that the difference was attributable to the fact that the satellite service at that time did not retransmit FTA. This proposition was strongly challenged by the Retransmitters. 426 There are problems with making good the correlation. As noted above in relation to the penetration of Pay TV, there are other differences between the supply of Pay TV by cable and by satellite. These differences make it difficult to isolate any one reason for differences in subscriber behaviour. The range of programs able to be received may be one explanation for any difference in churn, but so also may the levels of subscription fees and the lengths of subscription contracts. 427 There is also a further factor that goes to both Mr McGarrity's analysis of churn and the explanation for differences in churn as between Foxtel's cable and satellite services. Persons may cease to be subscribers voluntarily or involuntarily. In the latter case their access will be terminated because they have not paid their subscription. It cannot be assumed in relation to this group of subscribers that they do not wish to continue receiving Pay TV. Rather, apparently, they can no longer afford it. The same may apply to some cases of non-renewal: while some non-renewers may not wish to receive Pay TV any more, others may simply not be able to afford it. 428 Mr McGarrity's assertion of a correlation between the absence of retransmitted FTA programs and churn was based on a comparison between the churn for Foxtel cable and satellite services in the period 2002-03. Total churn figures support his comparison. However, during this period, if regard is had only to voluntary discontinuance of subscriptions, the position is reversed: the rate of voluntary discontinuance of subscriptions was actually higher for the cable subscribers than for the satellite subscribers. 429 It seems to us that if churn is to be taken into account in assessing the impact of retransmission of FTA on subscriptions, it is only the rate of voluntary churn to which regard should be had. Involuntary churn cannot be taken into account in determining subscriber choice. Even voluntary churn will be affected by many factors, unavailability of FTA being only one of them. 430 Somewhat curiously, in the period from October 2003, that is to say, largely after the period on which Mr McGarrity relied, the position is as he described it, in that the churn based on cancellation of subscription, that is, voluntary churn, was higher for satellite subscribers than for cable subscribers. (The voluntary churn for the digital service, which commenced in March 2004, is close to the same for both cable and satellite services, but the rate of voluntary cancellation was higher for analogue services received by satellite than for analogue services received by cable.) 431 In the period prior to that relied upon by Mr McGarrity the comparative rates of churn between cable and satellite services were variable with a slight bias towards the higher rate relating to the cable service. 432 In short, if churn numbers are to be derived from those subscribers who voluntarily cancel their subscriptions, as, in our view they should be, the availability of FTA retransmission has no correlation with a lower churn. If anything, it correlates to a higher churn. 433 Mr Delany of Foxtel gave evidence relating to the churn as between cable and satellite service subscribers for a period of four months in 2004. The figures, which we directed remain confidential, indicate that the rate of voluntary discontinuance of subscription was about the same as between the two modes of delivery. However, involuntary discontinuance was some 60 percent higher for satellite subscribers. Mr Delany attributed this to differences in the economic circumstances of the different groups of subscribers. He derived this conclusion from the cable preference policy applied by Foxtel, and the fact that the cable was laid in the geographical areas that Foxtel considered were more likely to take up Pay TV. These were economically more affluent areas. Thus it was more likely that satellite subscribers would be found in economically 'disadvantaged' areas. However, no formal research was conducted to support Mr Delany's assertion. 434 Ms Weir of Austar, said that following concerns about an increase in churn, Austar adopted a program called 'Churnbreakers' in October 2002. It has been successful in reducing Austar's churn to less than 2 percent since April 2003. Ms Weir observed that the identification of the reasons for churn that emerged in the course of implementation of the Churnbreakers program did not include the unavailability on Austar of retransmitted commercial FTA channels. She said that, similarly, Austar's retransmission of the ABC and SBS was not seen as an inhibitor of churn. 435 Ms Weir conceded that the research undertaken in the Churnbreakers program did not specifically address the issue of the impact of retransmitted FTA on subscription take up or churn. However, she said that this was because it was not seen as an issue. She rejected the suggestion that an increase in the number of subscribers after the introduction of retransmission of SBS resulted from that introduction. Rather, she said that it resulted from better management processes adopted as a result of the Churnbreakers program. 436 TransACT and Optus provided no churn statistics. Ms O'Hara of TransACT indicated that the retransmission of FTA had no impact on TransACT's churn because its bundling of services provided a different basis on which subscribers view the value of their subscription. Mr Keely of Optus also referred to the impact of the bundling of products on the take up by, and retention of, subscribers. 437 In any consideration of the impact of retransmission of FTA on churn, it is again necessary to distinguish between those persons who have poor reception through the terrestrial aerial and those who do not. 438 For the first group, the availability of FTA through the Pay TV STU will be a major inducement to continue a subscription. For the second group, the availability of FTA will probably have some, but a much smaller, effect on reducing churn. FTA retransmission will be seen as part of the package offered by the Pay TV provider. It will be convenient for the subscriber to watch FTA programs through the Pay TV STU. In the overall assessment by a subscriber of whether it is worthwhile continuing his or her subscription, the availability of retransmitted FTA will presumably carry some weight. On the other hand, the person will know that discontinuance or non-renewal will not cause loss of access to the FTA programs, as they will remain available through the terrestrial aerial. The question they will really be asking themselves is whether the Pay TV channels themselves warrant the subscription. 439 The evidence does not persuade us that it is possible to spell out a direct correlation between the availability of retransmitted FTA and churn. The evidence is either neutral, or, if anything, points the other way. However, we recognise that, for persons who have poor reception of FTA channels through the terrestrial aerial, the ability to obtain a better picture by subscribing to Pay TV will inhibit churn to some extent. 440 Again, it is difficult to put a monetary value on any reduction in churn that results from the retransmission of FTA. As noted at [421], Mr McGarrity's attempt to do so was not put in evidence by Screenrights. As a subscriber knows that he or she is not giving up access to FTA by discontinuing or not renewing a subscription, we think that the effect on churn must be slight.

[187]

Submissions relating to the motivation of the Retransmitters 441 The Retransmitters refer to Amalgamated Television, where commercial FTA broadcasters unsuccessfully attempted to prevent retransmission. They concede that '[t]here was, plainly, some advantage to the subscription TV operators in establishing their rights to retransmit the FTAs by cable', and that the respondents in that case 'plainly … preferred to be able to retransmit (without payment and without permission) if possible'. However, the Retransmitters go on to submit: '…what is clear is that even if Foxtel had been unsuccessful in the 1995 litigation, it would still have gone ahead with its launch of its subscription channels, precisely as scheduled and precisely as advertised. To suggest otherwise is fanciful.' 442 The Retransmitters submit that Foxtel's decision not to retransmit FTAs via satellite is an indication of the low value it placed on doing so as a means of 'attracting and retaining subscribers'. In the context of the limited transponder capacity available for the transmission of Foxtel's service via satellite, they submit (footnotes omitted): 'Foxtel had other channels that it could have removed from its channel line-up in order to accommodate the national broadcasters and selected highly-rating metropolitan-based broadcasters. Had retransmission been delivering anything like the financial benefits claimed by Screenrights and its witnesses in these proceedings, it would clearly have been in Foxtel's interests to do so.' 443 Screenrights contends that the Retransmitters have 'significantly overplayed' the fact that Foxtel did not retransmit FTAs to its satellite subscribers until March 2004, pointing out that the 'plain fact' is that, prior to then, there was insufficient transponder capacity to retransmit the ABC, SBS and the various versions of the commercial FTAs. We note that it would also have been necessary for the Retransmitters to have obtained the agreement of the FTA providers, because, unlike the position with respect to cable retransmission, no statutory licence permitted retransmission of FTA by satellite. 444 The Retransmitters submit that there was no evidence that Foxtel's satellite subscribers, who would have been aware that cable subscribers received retransmission, 'pressured and pestered' Foxtel to retransmit FTAs via satellite. They also point to the 'steady uptake' of satellite subscriptions as evidence that the retransmission of FTAs is not the kind of subscription driver contended for by Screenrights. The Retransmitters point out that when transmitting via the smaller-capacity B3 satellite, Foxtel declined to remove poorly performing Pay TV channels in order to have room to retransmit FTAs, and that when Foxtel began utilising the larger-capacity C1 satellite, it declined to pay for additional transponder capacity in order to add the FTAs to its channel line-up. These decisions, the Retransmitters submit, 'confirm the low value that [Foxtel] places on the retransmission of FTAs'. 445 As to Austar's motivation for commencing retransmission of the ABC in 2001 and SBS in 2002, the Retransmitters submit: 'Plainly Austar's retransmission was influenced by the fact that its legal ability to do so on a satellite platform arose by reason of the 2001 amendments. Also Austar had formed the view that retransmission would attract either no, or only a nominal amount of equitable remuneration, at least to the extent for local retransmission (all Austar's retransmission has been the equivalent of "local" retransmission, as neither the ABC nor the SBS has a geographically limited licence area).' It can thus be seen that the Retransmitters reject the argument that they retransmit FTA in order to induce persons to subscribe to Pay TV (and to inhibit churn). However, they continue to retransmit FTA and in some cases advertise that they do so. This indicates that, despite their protests to the contrary, they see retransmission of FTA as being of some advantage to them. The position warrants examination under several headings.

[192]

Reasons for continuing retransmission 453 Mr Delany of Foxtel did not believe that the factors that justified the retransmission of FTA programs when Pay TV was first transmitted apply today. He said that the increase in the number of Pay TV channels and the greater familiarity of consumers with Pay TV (referred to as the 'maturity' of the market) meant that the FTA programs were now of less value to Pay TV providers. 454 Why, then, do they continue to retransmit FTA? The principal reason given by Mr Delany was that a service once provided to subscribers cannot readily be withdrawn. Withdrawal would be possible only if something were substituted and an explanation were provided to subscribers. (A similar view was expressed by Mr Keely of Optus.) 455 This explanation of the reason for continuing the retransmission of FTA programs does not fit comfortably with the fact that Foxtel is endeavouring to reach an agreement with Channels 7 and 10 to enable the retransmission of their programs on satellite Pay TV. Apparently Foxtel sees an advantage in this. Nor does the desire to add these channels to its menu fit comfortably with the suggestion referred to above that the previous absence of FTA programs from satellite transmission indicated that they were not significant to subscribers or to the Retransmitters. 456 There was evidence, which we ordered remain confidential, relating to the agreements between some Retransmitters and some FTA stations which indicated that there were complex cross funding arrangements relating to the bases on which the FTA channels would be retransmitted by satellite. Screenrights claimed that these arrangements indicated that retransmission was of value to the Retransmitters, in that they were prepared to subsidise some of the costs incurred by the FTA providers in using the satellite for transmission of their programs. A close examination of the arrangements show them to be very complex and to have been influenced by considerations other than a desire on the part of the Retransmitters to have the FTA programs available for retransmission. Little assistance in determining the remuneration to be paid can be derived from these contractual arrangements. 457 Mr Delany conceded that retransmission of FTA programs must be taken to have some value to subscribers. He also provided as additional reasons for continuing retransmission of FTA, the facts that a decision to cease retransmission would give rise to adverse publicity, and that it might attract political intervention and legislation introducing a 'must-carry' régime. He also said that it was desirable from Foxtel's marketing viewpoint for the cable and satellite subscription packages to achieve parity. He agreed that it would not have been possible for the FTA programs to have been retransmitted by satellite at the time when satellite broadcasting commenced, as there was not sufficient capacity on the satellite. 458 Ms O'Hara said that a key objective of TransACT was to deliver a wide range of content and services without duplication of infrastructure. She agreed that this included the delivery of FTA programs to subscribers and the capacity to use the Pay TV STU to receive those programs. TransACT saw the provision of video services, including retransmission of FTA, as part of its maximisation of the use of the cable network. She also described TransACT as a 'triple player' providing a 'triple pay service', by which she meant that TransACT supplied the full communication package of telephony, data and video services. Optus made like statements in regard to its services. 459 It would seem from Ms O'Hara's evidence that TransACT views the retransmission of FTA programs as an integral part of its service to subscribers. 460 We are satisfied that upon the establishment of the Pay TV industry, the availability of FTA as part of the subscription package was viewed as a significant part of the new service. The Retransmitters set up their equipment to enable retransmission as part of their package, even though they did not know until very nearly the day of first broadcast whether they would be entitled to retransmit the FTA programs at all. Since that time they have, to varying degrees, publicised the availability of the FTA programs as part of their offerings. 461 We accept that there could be circumstances in the future in which the Retransmitters might choose to discontinue retransmitting FTA. However, for present purposes we find that they see an advantage to themselves in continuing to do so, and, indeed, adding to the number of FTA channels retransmitted in the case of satellite transmission.

[193]

G.4 Comparable Bargains 462 As noted at [131]-[132], in fixing rates under the various licences provided for under the Act, the Tribunal has sought guidance from bargains that have been entered into by the parties or others. 463 The parties made submissions that there are two particular bargains to which we might have regard. 464 The first related to the amounts paid by Pay TV providers to the owners of the rights in the programs broadcast on their Pay channels. This was urged fairly weakly as a guide, and it does not seem to provide a useful comparison. The negotiation at arm's length with producers of programs for first viewing on Pay TV channels is very different from the negotiation that would take place in respect of the retransmission of programs that are already being shown simultaneously on available FTA channels. 465 The second bargain is perhaps more to the point. An agreement was made in 2000 between the Australasian Performing Rights Association (APRA) and ASTRA, representing all Pay TV providers ('the APRA/ASTRA agreement'). It replaced an earlier agreement made in 1996 (shortly after the introduction of Pay TV in Australia) between the same parties. APRA is the collecting society for music copyright owners in respect of, relevantly, their broadcasting right. 466 Brett Cottle, Chief Executive of APRA, negotiated the APRA/ASTRA agreement on APRA's behalf, and gave affidavit evidence. 467 The APRA/ASTRA agreement related to all music broadcast by Pay TV providers. It included music broadcast over audio channels. Mr Cottle said that at the time he gave no particular thought to the commercial value of the then proposed retransmission right. He said that the agreement 'provided for payment of blanket licence fees expressly calculated as a percentage of each station's gross advertising revenue'. He said that, 'rightly or wrongly', he considered that the advertising revenue derived by an FTA station would effectively include the value to an advertiser of an audience reached through retransmission by an ASTRA member. Mr Cottle said he felt that it would have been difficult to negotiate with ASTRA an additional commercial value to be attributed to the right of its members, the Pay TV providers, to retransmit the music in respect of which the FTA stations were already paying APRA. 468 In February 2002, APRA reached agreement with the Federation of Australian Commercial Television Stations on a new licence scheme covering the broadcasting of musical works by the FTA stations. 469 In December 2004, APRA gave notice of termination of the APRA/ASTRA agreement, with effect from 31 March 2005. APRA is negotiating a new licence agreement with ASTRA, but in view of Screenrights' status as the declared collecting society under Pt VC of the Act and the pendency of this proceeding before the Tribunal, the retransmission right will not be included in the new licence offered by APRA. It was not disputed by the parties that APRA would be entitled to 7.4 percent of the total amount of equitable remuneration paid by the Retransmitters to Screenrights pursuant to the determination to be made in this proceeding. 470 The Retransmitters submit that Mr Cottle's evidence in relation to the negotiation of the APRA/ASTRA agreement indicates that APRA placed no value on the broadcasting of music on the retransmitted FTA programs. 471 Mr Cottle said that 'the negotiations were complex and difficult', while counsel for Screenrights characterised the APRA/ASTRA Agreement as 'a bad deal', a fact borne out by confidential evidence as to the cost of making programs given by Steven Tomsic, Strategic Planning Manager of Foxtel. 472 The Retransmitters provided us with amounts derived from the APRA/ASTRA Agreement suggesting the value of the retransmission of the FTAs. Screenrights attacked the validity of these calculations. We do not find them to be of particular value as they were too speculative to provide a sound basis for reaching a conclusion on what the present parties might have agreed upon as the remuneration to be paid. 473 We are in no position to judge the merits of the APRA/ASTRA agreement bargain from APRA's viewpoint, but note that Mr Cottle is a very competent copyright lawyer and executive with long experience in bargaining the value of the product that APRA sells. The low value that he accorded to the broadcast of music on the retransmitted FTA channels can be seen as indicative of an assessment of its value by one of the bodies that will receive payment from the amount of equitable remuneration to be fixed by the Tribunal. 474 The APRA/ASTRA agreement was concerned with broader issues than those which are the subject of the notional bargain that we must postulate. The desirability of reaching an outcome across a range of matters may induce parties to agree to resolve a particular matter differently from the way in which they would do if that matter were the sole subject of the bargain. 475 APRA and ASTRA were bargaining over one type of use (public broadcasting) of one type of copyright work (music) with which the present application is concerned. The amount that can be said to be ascribable under the APRA/ASTRA agreement to the broadcasting of music on the FTA channels can only be based on estimation, as it was not addressed discretely in the agreement. It is drawing a long bow to extrapolate from the APRA/ASTRA agreement a figure that can be used in fixing the equitable remuneration across the range of works and uses for which Screenrights is entitled to receive equitable remuneration from the Retransmitters. We do not find the APRA/ASTRA agreement particularly useful as a comparable bargain.

[195]

Amount of equitable remuneration 476 Screenrights' primary submission is that an amount between $2.00 and $10.00 pspm should be accepted as the 'retail' value to consumers of retransmission of all five FTA channels (ABC, SBS, 7, 9 and 10). Screenrights relies on the results of the Survey and other evidence, including evidence of the inhibition on churn. Screenrights submits that the amount should be split equally between the copyright owners and the Retransmitters, so that the amount of equitable remuneration lies between $1.00 and $5.00 pspm, and Screenrights settles upon $2.50 pspm, which includes the multichannels, ABC 2 and SBS News. 477 Screenrights also refers to the approaches of Professors Borland and Carson supporting the inclusion of some element for indirect revenue generated to the Retransmitters because, according to the submission, retransmission of FTAs increases subscriptions to Pay TV. 478 Screenrights submits that the amount of $2.50 pspm is conservative because: · it does not allow for Screenrights' administrative costs; · it represents half the Retransmitters' 'profit maximising point' ($10.00) as revealed by the Survey; · it includes no special allowance for the FTA digital multichannels. 479 Screenrights submits that an amount of $1.00 pspm is equitable remuneration if the Tribunal considers that Screenrights is not entitled to credit for indirect revenues generated to the Retransmitters by retransmission. This amount of $1.00 represents 50% of the 'conservative lower bound of equitable remuneration' identified by Professor Borland, and the 'strictest definition of the revenue from retransmission' identified by Professor Carson, and the most conservative application of the Survey results, relying on data from Question 7 rather than Question 9 (because of the possibility of bias in Q9). 480 Screenrights submits that a reduction of 2 percent, which is in line with Screenrights' Distribution Policy, should be applied if the Tribunal should determine that a discount for the copyright in the broadcast signal is appropriate. Screenrights argues, however, that this would be unfairly prejudicial to the copyright owners, due to the 'extreme conservativeness' of the base amount. 481 If, however, the discount of 2 percent for the broadcast signal copyright is applied (and if a share of indirect revenue generated is not included in Screenrights' favour) the amount of $0.98 pspm would be the amount of equitable remuneration for the full suite of five channels.

[201]

I. conclusion 491 The hypothetical bargain approach requires us to assume the absence of the statutory licence and to inquire what amount Screenrights, representing the relevant copyright owners, and the Retransmitters would agree upon for the Retransmitters to have a licence to retransmit FTA programs simultaneously with the original FTA transmission of those programs. 492 In that hypothetical bargain, the Retransmitters are the only potential buyers of a licence to retransmit; there is no alternative buyer with whom Screenrights can deal or threaten to deal. Australia does not have a must-carry régime: the Retransmitters can cease retransmission and threaten to cease retransmission. 493 A licence to retransmit is, however, of some benefit to the Retransmitters. It gives them something to sell to subscribers. Without it, the copyright owners could compel them to end retransmission. The only source of the licence to retransmit is the copyright owners, represented by Screenrights. In the hypothetical bargain, the copyright owners may refuse, and threaten to refuse, to grant a licence to the Retransmitters. 494 The value to the Retransmitters of the licence to retransmit is generally commensurate with the value placed on retransmission by subscribers. The value of retransmission to subscribers, as the Retransmitters perceive that value to be, will govern the amount of licence fee the Retransmitters will be prepared to offer in their hypothetical negotiation with Screenrights. 495 Screenrights submits, however, that there are also some benefits to the Retransmitters themselves. First, they submit that there is a 'sticky' factor. The argument is that, once a subscriber views FTA via the Pay TV facility, he or she may be inclined to remain with the Pay TV channels and explore viewing them or some of them. In this way, so the argument goes, the Retransmitters acquire a viewing public for their Pay TV channels which they would not otherwise have. The argument assumes that the viewer is watching FTA programs via the STU in the first place, so that the change to Pay TV channels is adventitious. 496 We do not accept, however, that retransmission of FTA is today a significant subscription driver or that more people switch on their television sets in order to watch FTA through the STU than do so in order to watch Pay TV channels. There is arguably a neutralising 'sticky' factor operating in the opposite direction. There are people who switch on their television sets in order to watch a Pay TV channel or channels and who casually move to a retransmitted FTA channel and stay with it for the night. In this respect, retransmission may be seen to give the FTA stations viewers for the night that they might not otherwise have had. 497 The second benefit to the Retransmitters which Screenrights suggests is a more general version of the first: the contention is that people subscribe in order to be able to watch FTA programs via the STU, and so the Retransmitters get a viewing audience for their Pay TV channels that they would not otherwise have. We reject the argument. The benefit of a better reception of FTA programs may operate on the minds of some people who have poor FTA reception and take FTA to some additional viewers, but in the absence of persuasive evidence, we do not accept that anything more than a small number of people are involved. We proceed on the basis that people subscribe in order to access the Pay TV channels. 498 In the result, we put to one side both of the small unquantifiable benefits to the Retransmitters that Screenrights has suggested. 499 The only two benefits to subscribers that have featured in the proceeding are those of the single remote control and an improved reception of FTA. 500 When Pay TV was introduced, retransmission of FTA was promoted by the Pay TV providers as an attraction for viewers. For TransACT, the retransmitted FTA channels represent a significant proportion of the subscription package it sells (initially five in a basic package of twelve, and now five in a basic package of twenty). Although Foxtel claims that FTA is now an irrelevancy, it still publicises the availability of FTA via Pay TV, and refers to FTA in its program guides.

[209]

509 The evidence shows that Screenrights took great care in the design of the Survey, obtaining the assistance of several experts, taking account of such comments as were made by the Retransmitters, and conducting Sweeney 2 when problems arose with the execution of Sweeney 1. We are not convinced, however, that the Survey is reliable or accurate as a predictor of how much Pay TV subscribers are prepared to pay for the retransmission of FTAs. 510 There is an important difference between the use able to be made of stated preference surveys by courts and tribunals on the one hand, and the use that businesses and others may choose to make of them on the other hand. There are legal principles that constrain the decisionmaking of courts and tribunals. Courts and tribunals must proceed on the basis of probative evidence, not speculation. 511 In Reasons for Judgment (No 3) published in this proceeding (Audio-Visual Copyright Society Ltd v Foxtel Management Pty Ltd & Ors (No 3) (2005) 64 IPR 560), we discussed the relevance of the rules of evidence to the admission of evidence by the Tribunal. The present question goes to the weight, if any, to be given to the Survey evidence. We consider that we should apply a principle analogous to an evidential onus in relation to that evidence: it is Screenrights, not the Retransmitters that suffers if we are not persuaded that the Survey reliably predicts people's behaviour in the real world. Such an approach would not necessarily apply to the use that businesses and others may make of a stated preference survey. 512 We find applicable the following statement by Diplock LJ in R v Deputy Industrial Injuries Commissioner; Ex parte Moore [1965] 1 QB 456 at 488: 'The requirement that a person exercising quasi-judicial functions must base his decision on evidence means no more than it must be based upon material which tends logically to show the existence or non-existence of facts relevant to the issue to be determined, or to show the likelihood or unlikelihood of the occurrence of some future event the occurrence of which would be relevant. It means that he must not spin a coin or consult an astrologer, but he may take into account any material which, as a matter of reason, has some probative value in the sense mentioned above. If it is capable of having any probative value, the weight to be attached to it is a matter for the person to whom Parliament has entrusted the responsibility of deciding the issue.' We have such a level of doubt about the Survey that we attach no weight to it. 513 Our own appreciation of the benefits that retransmission of FTA offers to subscribers is that they are minor and would be viewed by subscribers and prospective subscribers as minor. 514 We addressed the overseas rates evidence in Section F and expressed some conclusions in that section at [349]-[349]. We put to one side the United States, Canadian and United Kingdom comparisons for the reasons given in Section F. 515 There are many difficulties in extrapolating from Europe to Australia. The following issues arise in addition to those that were raised by Screenrights and mentioned Section F: (1) The number and nature of the local channels being retransmitted (averaging to a per channel basis may not be reliable - in Australia, there is a full suite of five channels of which two are 'public' and three are 'commercial'); (2) The number and nature of the 'competing' Pay TV channels supplied; (3) The number of competing Pay TV providers/retransmitters; (4) The relative importance to the respective publics of television viewing (perhaps the colder climate of Europe makes television viewing generally, whether FTA or Pay TV, more highly valued than it is in Australia); (5) Whether the number and proportion of households in European countries that have poor quality terrestrial reception is different from that in Australia; (6) The size of the population of subscribers to Pay TV as between the various European countries and Australia. 516 The Retransmitters do not suggest that any overseas rate can dictate a figure. Counsel for the Retransmitters submits, however: 'What we did is explore the overseas rates to see what they tell us about benchmarks and goal posts.' 517 We have come to the conclusion that what we have said above in relation to the Survey applies also to the rates that are being paid in Europe: we simply do not have sufficient confidence in the comparability of the circumstances to regard those negotiated rates as providing truly comparable bargains. 518 There is no overseas country in which the relevant circumstances are on all fours with those in Australia. Nor do we think we can derive guidance by simply making an adjustment for one or two identifiable differences. 519 There is no firm evidence guiding us to a particular figure in any way remotely resembling a mathematical calculation. Taking into account all the evidence and recognising that a substantial degree of estimation is involved, and basing ourselves on our own appreciation of the likely value that subscribers, taken as a whole, would see in the benefits of better reception and the single remote control, we have reached the conclusion that the amount of equitable remuneration payable by the Retransmitters in respect of the retransmission of all five FTA channels (including the multichannels) is 22.5 cents pspm. 520 It will be obvious, from what we have already said, that, notwithstanding the apparent precision of this amount, it has not been arrived at by a process of mathematical calculation and remains the result of a careful estimation and evaluation. 521 In arriving at the amount mentioned, we have allowed for the contribution that the Retransmitters make to the value of retransmission to subscribers, and for the broadcast signal copyright. The figure is net to Screenrights. The figure takes into account the multichannels. We have also taken into account the submission that retransmission enlarges the FTA audience (and the submission that the viewing of retransmitted FTA leads on to the viewing of Pay TV channels), and there is no reduction (or addition) on this account.

Audio-Visual Copyright Society Ltd v Foxtel Management Pty Ltd

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Judgment (215 paragraphs)

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Cases Cited (16)

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