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the Amulations efforts to work with Congress in arriving at fair and reason. a ****iatt .

Before addressing myself to sperite provisions in IR 23 I would like to Hitled 17 pral key factor which I fliese this stil ommittee and the Congress

* poflirt in arriving at fair (opsricht lexiulation for CATV.

The (onstitution provides for (uprikut protection to promote the program of the arts and witty** by giving authors and inventor e cluste rixht to the por let of their areativity for a limited prix of time. However, the courts have

**We that right protution luns a 10-fold fournit to ourage tatlity and to promote the disuelnination of knowledge to the public. It is narury to maintain a balance ***Men encouraging creativity through a limaItal Initi), and the paramount interest of the publie in unrestricted freedom to to the works of others after authors have harvested their rewards (onne. 419 'il prixht lexislation is not only for the benefit of the owner of a work. Bo i s

mortalist, for the left of the public It. This vtrit it is important to krp in mind that able television through its m a i ant distribution of telesin broadenit signals, promotes the dissemina

tot, v ktorer to the public Inderd, without this rulee, which is wellVll. udby a kuwan Interlake of the multiota, *Kifunt nummers of Amer. to the world te demand the fruits of creative inloor (ongress would be cognizant all th: Vital (ATV role lexislation which, for whater rein, retricts or oferta *** tre dimetilthatons of knowledge to the C ATI publie would not be cone fatit with the primary public interest concert of ups richt.

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tadtere have on kyun heard from (11) Mus riter when the suttil en felt that werul rulate or Inu thrrattund then with loss of program. ...* T

10h ant piirnt the funt of u risht liability will in lnorte by cable

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to the services the industry hopes to offer to the public. Let me explain. This Tribunal carries with it the potential for substantial escalation of copyright fees in a very short period of time. The Office of Telecommunications Policy has already pointed out the damaging effect this uncertainty and lack of stability (an have. You will hear further about the impact of uncertainty on cable's growth by a representative of the financial community following my presentation. I do not think I exaggerate when I say that virtually any significant copyright pa y. ment by this industry represents a financial burden. An unknown periodic review as mandated in this bill presents, in my opinion, not potential, but actual grave economic problems to a growing industry, one that is voraciously capital intensive in its formative stages. You are aware of the difficulties that all high risk businesses are now facing in obtaining short term financing. I do not wish to plead economic hardship to this subcommittee, but plead I must. We in this industry know too well the economic realities.

Further, Chapter 8 contains no criteria to guide Tribunal review of rates; it contains no provision for judicial review of the Tribunal's decision other than for fraud; and in our opinion it provides for no effective Congressional review. In short, we find this section of the bill fraught with uncertainty, an uncertainty that I submit this industry can ill afford.

I would like to suggest a more reasonable approach to the issue of insuring fair rates in the future. Such an approach is already contained in the bill.

Section 111(d) provides for the establishment of a compulsory license for secondary transmissions by cable systems. Royalty fees are computed on the basis of specified percentages of gross receipts from subscriber revenues from basic cable service. The applicable percentages increase according to the revenues or size of a cable system. We believe that a progressive fee schedule based on percentages represents an eminently logical and reasonable approach to increasing fees. It substitutes marketplace economics for arbitrary decisions. It has the logic of a graduated income tax without the loopholes. The revenues derived by copyright owners from cable will increase, as the cable system revenues increase. Such an approach takes both the industry's growth and inflation into account. If cable television is to grow and prosper, so will the owners of copyrighted product share in that growth and prosperity.

In summary then, we strongly urge this subcommittee to retain the approach of a progressive fee schedule based on a percentage of revenues, and discard the concept of periodic review. Such an approach avoids the need to establish yet another bureaucratic procedure and substitutes a logical and simple approach for an arbitrary and complicated one.

Section 501 of HR 2223 deals with infringement of copyright. Subsection (b) thereof entitles the copyright owner to initiate action for infringement of copy. right. We have no objection to that provision. However, subsection (a) grants a television broadcast station rights as legal or beneficial owner of a copyright for purposes of instituting action for infringement. We very strongly object to this provision.

As you know, the rights to most television programs are held, not by the broadcaster, but the copyright owner. In those cases, where the television station does hold the copyright he is fully protected for infringement under subsection (b). However subsection (c) would grant to hundreds of broadcasters across the country the right to institute harassing suits against cable operators for very minor or even inadvertent violations of FCC regulations. Such a provision is, we think, an aberration and one unprecedented in copyright law. It should be stricken from the bill. Adequate remedies for violations of FCC regulations are available under the Communications Act.

In any event we believe that this subcommittee's report should make clear that inadvertent violations of FCC rules do not constitute infringement of copyright.

Mr. Chairman, in earlier testimony before this subcommittee Deputy Assistant Attorney General Irwin Goldbloom of the Justice Department stated :

"We strongly urge, with respect to (b) (where the CATV system is, in whole or in part, within the local service area of the primary transmitter) that the secondary transmittal should be completely free of liability; hence, royalty free or no licensing would be in order. The secondary transmission in such a situation where the CATV system is, in whole or in part, within the local service area of the primary transmitter, finds the cable system only filling gaps or improving reception in the service area of the primary transmitter, supplementing the primary tranmission. Such transmission does not impair the primary transmitter'x mar.

Art: in fact, it enhances it. The copyright holder is helped and not hurt by such activity." (Emphasis added.)

In short the Justice Department has recommended that there be an area of *free use" with respect to CATV distribution of local broadcast signals. NOTA fully supports this line of thinking We note also that Thomas Koller, Acting General counsel of OTI', stated to the subcommittee last week that local signals should not be liable for copyright.

While Mr. Goldbloom aid not suggest to this subcommittee a method or mechanism for imposing liability only on signals outside that area of "free use", the logie of his recommendation is undeniably sound. NOTA has internally addressed this question in great detail. We have researched and studied a variety of possible approaches to the Justice Department's concept of an area of free use.

We have, however, determined that it is impossible to arrive at a free formula embodying this concept applied on a system-by-system basis, which does not discriminate unfairly against one portion of the cable television industry, and (1 quently against the public receiving service from such systems.

We believe that the concept advanced by the Justice Department can and should be embraced in the following manner. Copyright liability for CATV distribution of brondcast signals should be imposed without respect to earriage of signals. There appears to be no fair way to impose liability for carriage of certain signals and not others.

By retaining the present fee schedule in IR 2223 and exempting from liability the first $2,000 in gross quarterly subscriber receipts for all cable television is tems, copyright legislation cau fairly take into consideration that portion of cable service which fills gaps or improves reception in the service areas of broadenst atations.

We point ont that such an exemption involves a reasonably small dollar amount in relationship to the total copyright revenues to be derived from cable now and in the future. It also has the benefit of providing some degree of relief to the smaller traditional community antenna systems. The owners of copyrighted product themselves have frequently stated that they are not primarily concerned with this type of cable system. Indeed the 1971 ('onsensus Agreement envisioned a total exemption from liability for many cable systems serving fewer than 3300) subscribers. The blanket exemption we propose would have the practical effect of exempting nearly all stems with fewer than 1.300 subscribers,

The reduction in revenues derived from larger cable systems, particularly in the larger television markets which the copyright owners have targeted as the primary source of future revenues, would be quite small as a percentage and of course, new revennes generated by cable system growth would be fully asuessable.

We believe this kind of exemption to be an equitable and fair approach to the problem of copyright liability for local signals. We submit for your serious con. Niceration an amendment to achieve this.

Mr. Chairman, I will now turn to the third matter WTA would like to comment on in relationship to HR 2223. Several times in my testiniony I have alluded to the FCCN cable television regulations and to the close historiani interrelationship between copyright and regulation as applied to cable I would again urge the members of this subcommittee to read those regulations, For your convenience the most pertinent of those regulations are printed below.

SYNDICATED EXCLUSIVITY

$76.151 Syndicated program exclusivity; extent of protection.

( pon receiving notification pursuant to $76.13):

(a) No cable television system, operating in a community in whole or in part within one of the first fifty major television markets, shall carry a syndicated programı, pursuant to $70.61 (b). (c), (d), or (e), for a period of one year from the date that program is first licensed or sold as a syndicated program to a televixion station in the l'nited States for television broadcast exhibition:

(b) No cable television system, operating in a community in whole or in part within a major television market, whall carry a syndicate program, pursuant to $$70.61 (b), (c), (d), or (e), or 70.631 a ) (as it refers to $76.61 (b), (c), (d), or (e)), while a commercial television station licensed to a designated community in that market has exclusive broadcast exhibition rights (both over-the-air and by rable) to that program: Provided, however, That if a commercial station licensed to a designated community in one of the second fifty major television markets has such exclusive rights, a cable television system located in whole or in part

57-786 () - 76 - pt. i - 31

within the market of such station may carry such syndicated programs in the following circumstances :

(1) If the program is carried by the cable television system in prime time and will not also be broadcast by a commercial market station in prime time during the period for which there is exclusivity for the program;

(2) For off-network series programs :

(i) Prior to the first non-network broadcast in the market of an episode in the series;

(ii) After a non-network first-run of the series in the market or after one year from the date of the first non-network broadcast in the market of an episode in the series, whichever occurs first;

(3) For first-run series programs:
(i) Prior to the first broadcast in the market of an episode in the series :

(ii) After two (2) years from the first broadcast in the market of an episode in the series ;

(4) For first-run, non-series programs :

(i) Prior to the date the program is available for broadcast in the market under the provision of any contract or license of a television broadcast station in the market;

(ii) After two (2) years from the date of such first availability ; (5) For feature films;

(i) Prior to the date such film is available for non-network broadcast in the market under the provisions of any contract or license of a television broadcast station in the market;

(ii) Two (2) years after the date of such first availability;

(6) For other programs: one day after the first non-network broadcast in the market or one year from the date of purchase of the program for non-network broadcast in the market, whichever occurs first.

Note 1: For purposes of 8 76.151, a series will be treated as a unit, that is:

(i) No episode of a series (including an episode in a different package of programs in the same series) may be carried by a cable television system, pursuant to 88 76.61 (b), (c), (d), or (e) or 76.63 (a) (as it refers to $ 76.61 (b), (c), (d). or (e)) while any episodes of the series are subject to exclusivity protection.

(ii) In the second fifty major television markets, no exclusivity will be afforded a different package of programs in the same series after the initial exclusivity period has terminated

Note 2: As used in this section, the phrase "broadcast in the market" or "broadcast by a market station" refers to a broadcast by a television station licensed to a designated community in the market.

NETWORK EXCLUSIVITY

8 76.92 Stations entitled to network program nonduplication protection.

(a) Any cable television system which operates in a community located in whole or in part within the 3.-mile specified zone of any commercial television broadcast station or within the secondary zone which extends 20 miles beyond the specified zone of a smaller market television broadcast station (55 miles altogether), and which carries the signal of such station shall, except as provided in paragraphs (e) and (f) of this section, delete, upon request of the station li. censee or permittee, the duplicating network programming of lower priority sig. nals in the manner and to the extent specified in 88 76.94 and 76.35.

(b) For purposes of this section, the order of nonduplication priority of televi. sion signals carried by a cable television system is as follows:

(1) First, all television broadcast stations within whose specified zone the community of the system is located, in whole or in part :

(2) Second, all smaller market television broadcast stations within whose ser. ondary zone the community of the system is located, in whole or in part.

(c) For purposes of this section, all noncommercial educational television broadcast stations licensed to a community located in whole or in part within a major television market as specified in $ 76.51 shall be treated in the same manner as a major market commercial television broadcast station, and all noncommercial educational television broadcast stations not licensed to a communits located in whole or in part within a major television market shall be treated in the same manner as a small market television broadcast station.

(d) Any cable television system operating in a community to which a 100-watt or higher power translator station is licensed, which translator is located within

the predicted Grade B signal contour of the television broadcast station that the translator station retransmits, shall upon request of such translator station lietolinee or permittee, delete the duplicating network programming of any televi. sion broadcast station whose reference point (See $ 70.33) is more than 35 miles from the community of the system

(e) Any cable television system which operates in a community located in whole or in part within the secilied zone of any television broadcast station or within the secondary zone of a smaller market television broadcast station is not required to delete the duplicating network programming of any 100-watt or higher Irower television translator station which is licensed to the community of the

stein.

(f) Any cable television system which operates in a community located in whole or in part within the secondary zone of a smaller market television brond****tuation is not rquired to delete the duplicating network programming of any Inajor market television broadcast station whose reference point (See $70.53) is also within 55 miles of the community of the system.

It has been remarked, and I think not too facetiously, that while the Congress has been laboring to develop copyright provisions applicable to cable, the FCC has for some time now been guarding the copyright gate by promulgating copyright regulations of its own.

Earlier this year, in an address to the NCTA Convention, Barbara Ringer, Register of Copyrights, stated that the FCC rules "contained the most elaborate copyright provisions I have ever seen anywhere." She continued :

"I don't know much about communications law, but I know copyright law when I Nee it, and the exclusivity provisions of the FCC regulations are copyright regulations: in effect, the enactment of a copyright law through the regulatory process. And they are unquestionably the most complex and ditheult to understand of anything I've ever read in this field;"

Absent legislation, or spacific Congressional direction, and in spite of Supreme Court decisions, the Federal Communications Commission has consistently invoked copyright principles to protect broadcasting from competition. The pervasive nature of the ('ommission's fora ys in a variety of regulatory matters into exclusivity of all types is in and of itself a subject for broad independent investigation.

For the purposes of these hearings, however, one thing ought to be indisputably clear. While the FCC's 1972 rules have granted cable systems the right to carry a limited number of broadcast signals, that right- and the value and Inarketability of those signals for cable operators -- has in very large part been negated by the ('ommission's syndicated and network program exclusivity provisions, Stated in the simplest of terms, a cable operator has the right to carry signals, but the obligation to black out most of the programming on those signals. And this is achieved through the Commission's "copyright regulations."

For example, the cable system under construction in Wauwatosa, Wis. must under the FCC's syndicated exclusivity regulation black out 02 percent of the programming on one channel it imports, and 589C on the other channel. What, the operator can fairly ask, is the value of carrying the signal? Appendix (' contains a more detailed explanation of this problem.

It ought to be beyond any logical dispute that if cable systems are to incur linbility for the distribution of these signals, then they should have the right to show what has been paid for. Yet if copyright legislation with provisions for cable television were enacted today, that would not be the case. We believe it is imperative that the ('ongress address this matter. This should be done in this lexislation, and we are submitting language to accomplish this aim.

Before concluding. Mr. Chairman, I would like to draw the subcommittee's attention to several additional recommendations for perfecting changes in Nection 111 of the bill.

Section 111(b) of HR 2223 appears to make the secondary transmission of over-the-air par television (STV) signals an act of infringement and one subject to civil and criminal penalties. This subcommittee should be aware that Federal (communications ('ommission regulations require (ATV systems to carry the signals of all television broadcast stations in specified geographical areas regardless of whether those signals are originated by commercial broadcast stations or STV stations. Therefore, under Section 111(b) the cable system would be faced with either violating FCC rules and regulations or the copyright law. Consequently we urge that Section 111 (D) be amended so as not to apply to the required carriage of an STV signal.

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