In the 1976 Copyright Act, Congress settled an emerging rights issue that threatened cable systems. In the world of broadcast television, the broadcasting station rarely owns the copyright for the programming it transmits, and back then, their rights to distribute were largely limited to their market. From the beginning, cable systems carried local broadcast station signals, often extending and improving signal strength. But they did so without seeking permission from the stations, or from the copyright holders of a station's programming. Generally, carriage was beneficial, so stations had little problem with being carried, and program producers and copyright owners had yet to consider the possible value of retransmission. But in the late 60s and early 70s, cable carriage of some stations outside their market areas began to raise questions about possible conflicts with copyright permissions. The FCC tried handling it by making rules about carrying out of market signals and duplicative programs, and the program rights holders started asking the few "Superstations" (local broadcast stations that marketed themselves to cable systems as a source of "independent" programming) to pay for national rights, and pulling programming the sought to market through "local exclusive" syndication.
The 1976 Copyright Act got into the issue by including a section that granted cable operators a compulsory license to cover its carriage of broadcast stations. The compulsory license meant that cable operators did not have to obtain separate licensing rights from every program copyright owner. Instead, they paid a percentage of their gross revenue to cover local stations, and additional amounts for carrying stations from outside their market. The fees went to the Copyright Royalty Tribunal, who split them among the various program copyright owners according to how much their content was used. The 1996 Telecommunications Act complicated things a bit by including the Must-Carry/ Retransmission Consent rule - stating that broadcasters had a choice - they could require local cable systems to carry their signals, or they could negotiate a deal that would allow cable systems to carry the station, in return for some form of compensation. Either choice has implications for who might be liable for retransmission rights fees. Already, networks are trying to claim a portion of the retransmission consent benefits designed to help local stations under the argument that it's their programming that makes the station signal valuable. Look for program copyright owners to start also asking both stations and networks for their share of this potential revenue stream.
The U.S. Copyright Office recently asked Congress to rescind the Compulsory License for cable and other multichannel TV delivery systems, calling the license an "artifact of a bygone era." If dropped, then any system seeking to carry a broadcast station would have to identify the copyright owner of every program aired by the station, and to seek to purchase the rights to retransmit the program over its system. If they couldn't identify or obtain the rights, the only real alternative would be to black out that program, or choose not to carry the station at all. It would be a logistical nightmare, and probably encourage systems to limit their carriage of local broadcast stations. (In fact, those were the primary rationales given for granting the compulsory license in the first place). Granted, with today's technology, tracking and obtaining rights, or blacking out programs, is not as problematic as it was in the 1970s - but it still imposes a hefty transaction cost that will depress demand.
To understand what's really behind this, you need to realize the perceived advantages and disadvantages of compulsory licenses (which are not that rare or unique an occurrence). A compulsory license promotes use of covered content more widely, as transaction costs are low, and the user doesn't have to worry about who has what rights, how long it will take to obtain rights, or whether it's even possible to do so. As for the generated rights fees, compulsory licenses distributes rights payments on a uniform basis to rights holders - as a consequence, copyright owners of the most highly valued content may receive less return than if they were able to hold out for higher rights fees through individual negotiation. Compulsory licenses are good for those using content, owners of less valuable copyrights, and society (as it offers access to a wider range of program options). They are not so good for those who seek to squeeze every last cent of value for allowing their content to be used. If you consider that most of this administration's political appointees in the Copyright Office used to be lawyers for the movie and record industries, you can guess which group they prefer getting the benefits of the policy.
Source - U.S. Copyright Office wants to drop compulsory license, FierceCable
edit - cleaned up some grammar and language- added cable & TV labels