program to reflect changes in the cable television technology. So, when we talk about the regulatory atmosphere within which cable television now must operate, there are essentially four different areas. First, there is the area regarding the delivery of signals which are received off the air. Then there is the delivery of the nonbroadcast signals. Then there are technical standards imposed upon the industry. And, lastly, there is an attempt to resolve the very difficult problem of the relationship between Federal, State, and Local regulatory jurisdictions. The number of television broadcast signals that cable TV systems are allowed to carry is determined by their geographic location. If they are in one of the 50 largest markets in the country, they are entitled to carry three full network stations, three independent stations and an unlimited number of "unobjected to" educational television stations as well as an unlimited number of non-English language broadcast stations. In small markets, there is no provision for the importation of two "wild-card" signals. This means that the cable television operator who faces entry into any locality must measure the available signals off-the-air, fit them to this complement, which the FCC allows him to carry, and then see if he can find an attractive combination which will allow him to market his service. As a limitation on what the CATV operator can do with those signals, the FCC has incorporated a copyright concept: the concept of program exclusivity. That means if a local television station is broadcasting "I Love Lucy" at 6:00 at night and a station which a CATV operator is importing from a distant market also broadcasts "I Love Lucy" at the same time period, then "I Love Lucy" on the distant, or imported, signal must be blacked out, so that the viewers cannot see “I Love Lucy" on the distant channel. Viewers are forced to turn to their local channel if they want to watch "I Love Lucy." That is the effect of nonduplication, or copyright exclusivity, written into federal regulations. There are two types of exclusivity which the FCC has imposed on cable television. One is for network programs. There the time period is simultaneous. This means that a network show, "Dean Martin," being broadcast at 9:00 locally and the more distant station also broadcasts "Dean Martin" at 9:00, then "Dean Martin" on the distant station must be blacked out. But the network exclusivity rules are much more complicated than this simple description. There are complicated mileage zones of protection of various sizes drawn around television markets. A 35-mile circle will be drawn around major markets (top 100) and a 55-mile circle around minor markets, with certain refinements. Examples: (1) 54 miles from two minors, no protection; (2) 54 miles from one minor and 34 miles from another minor, protect second minor; (3) 34 miles from a minor and a major, no protection; (4) 34 miles from a minor and 54 miles from a major, protect minor; (5) 54 miles from a minor and a major, no protection. In addition, there is a very complicated system of non-network exclusivity: What the Commission calls "syndicated exclusivity." In these 50 largest television markets the rules provide for one year protection (pre-clearance) from the date that a wholly newly created program is first sold or licensed anywhere in the country. During that year CATV systems may not import such programs into any of the top 50 television markets. Thereafter local stations will be protected for the run of their exclusive copyright contract. These contracts generally run from 4 7 years. CATV systems would not be permitted to carry films or series under contract irrespective of whether these programs are actually being shown on the local station. In television makets 51 100, the rules break down programs into essentially five categories—off-network series, first-run series, first-run nonseries, feature films, and "other programs" which are really off-network specials. When I say "off-network special" that means that a special has had exhibition on a television broadcast network sometime in the past. The time period is not “simultaneous” in these cases; it varies from one to two years. In some cases, CATV can carry a program broadcast on a distant station one day after it's broadcast on a local station, but exclusion lasts no longer than one year from the first market purchase or non-network broadcast in the local market. This system is a very complicated control of what the CATV operator has to do with respect to "blacking out" signals from distant stations, and are limitations on the use of programs on the distant signals. In addition, the FCC has moved into the new area of delivery on nonbroadcast signals--the cablecasting or narrow-casting of channels. New systems in a major television market must also have a certain minimum channel capacity. That channel capacity, as it breaks down into layman's lan guage is 20 channels-twenty 6 MH, channels (a 6 MH, channel is a television channel). It must also provide for equivalent bandwidth so that if it receives off-the-air at its head-end antenna and delivers 12 television siguals, it must have a system capacity of 24 channels. So, for each off-the-air television channel delivered the system must also have the capacity of providing one other channel for nonbroadcast purposes. The use of those channels is for the primary purpose of delivery of non-decoded, nonbroadcast signals; or, for the use of nonbroadcast decoded signals; that is, pay TV by wire. The new rules also provide that all new systems in the major markets must have two-way capacity for nonvoice return signals. The federal regulations also provide that all the new CATV systems have to provide room for access channels. Access channels are divided into essentially four categories. First, there is a public access channel, which must be available for anyone to come in off the street and say his piece. That channel must be nondiscriminatory, it must be non-commercial, it may not make any charges at all except for live production costs of over five minutes in the studio. In addition, the CATV system is required to have the minimal equipment and facilities necessary so that the public can use this channel. Second, federal regulations require provision of an educational television access channel, which must be provided by the CATV system free for the first five years after the completion of the system's trunk line cable. The purpose of the free five-year period, according to the FCC's reports, is to encourage the innovative use of educational television on cable systems. Third, there is a requirement that new systems must have a "government" channel which also must be free for five years after the completion of the trunk line. Fourth, there is the requirement that cable systems must have at least one “leased" channel available for any purpose at all, on either an hourly basis or on a total channel leased basis. There is one other feature of this access channel proposal: The delivery of nonbroadcast signals. That is the requirement imposed by the federal government for an expansion of that access channel capability, provided that on 80 percent of the weekdays (Monday through Friday) the channels are used for 80 percent of any three hour period in that time, for six weeks running. The CATV system has six months within which to provide an additional channel for these uses. If that access user can supply the product to fill that channel he can then spill over into these other channels until 80 percent of the time in any three-hour period for 80 percent of the weekdays is filled; then he is entitled to still another channel, and that will go on and on as the demand increases. There are operating rules which the FCC has provided for these channels. For example, on the educational channel, there can be no commercial advertising, there can be no lottery information, there can be no indecent or obscene material, and records of the use of these educational channels must be kept by the cable system operator for at least two years. The final area concerns franchise standards. These franchise standards were adopted by the FCC out of concern about the proper relationship between the local and the federal governments. Every new franchise must weigh, in a full public hearing, the applicants' qualifications, as to their legal competency, their character, financial capability, and technical capacity. The franchise must require that there be significant construction of a CATV system within one year, and the FCC says that they think about 20 percent per year is reasonable. There must be an equitable and reasonable extension of the trunk line in every succeeding year until every person in the community is capable of being served, and the CATV system must reach a substantial percentage of its franchise area. The FCC also provides that all new franchises must be of fifteen-year duration. There must be approval by the city fathers of an initial subscriber rate; and approval of requests for increases in that rate, including the installation rates and the subscriber rates. There also must be in every new franchise a procedure for the investigation and resolution of complaints and there must be maintenance of a local business office or agent by the CATV system in the community for that purpose. CATV systems operating as of March 31, 1972, are grandfathered, that is they do not have to comply with these regulations until March 31 of 1977, or until the end of their franchise period if it is earlier than that date. In addition, the regulations also contain the following rule, found at 47 C.F.R. § 76.7 (a): "On petition by a cable television system, a franchising authority, an applicant, permittee, or licensee, of a television broadcast, translator, or microwave relay station, or by any other interested person, the Commission may waive any provision of the rules relating to cable television systems, impose additional or different requirements, or issue a ruling on a complaint or disputed question." Emphasis added.) NATIONAL CABLE TELEVISION ASSOCIATION, PUBLIC AFFAIRS DEPARTMENT, Hon. ROBERT KASTEN MEIER, Chairman, Subcommittee on Courts, Civil Liberties, and the Administration of Justice, Rayburn Building, Washington, D.C. DEAR CONGRESSMAN KASTEN MEIER: NCTA is pleased to submit the enclosed supplemental statement in connection with the Subcommittee's current consideration of revision of the copyright law. The statement addresses a number of issues which arose during the June 11-12 hearings, and which we believe require amplification or clarification. We shall be happy to respond to any further requests for information or questions by the Subcommittee. Sincerely, Enclosure. REX A. BRADLEY, National Chairman. MEMORANDUM FROM THE NATIONAL CABLE TELEVISION ASSOCIATION During the copyright subcommittee hearings on H.R. 2223 June 11-12 a number of questions arose concerning aspects of NCTA's position on H.R. 2223. While many of these questions were resolved during the hearings, NCTA would like to take this opportunity to offer the following supplementary statement on matters discussed during the hearings. These matters include NCTA's views with respect to the Copyright Royalty Tribunal and projections regarding the amount of copyright revenues to be paid by the cable industry under NCTA's proposed amendments to H.R. 2223, information concerning the sale of commercial programming to the television networks and syndication of programming to local television stations, and the provision of H.R. 2223 granting rights to broadcast stations as legal or beneficial owners of a copyright for purposes of instituting infringement actions. THE COPYRIGHT TRIBUNAL In its formal statement before the subcommittee, NCTA strongly objected to the establishment of a copyright tribunal as specified in H.R. 2223 with the uncertainty and vagueness inherent in the tribunal's power. NCTA believes that the threshold question which Congress must address in this regard is the very concept of the tribunal itself and not merely the infirmities present in Chapter 8 of the bill.1 There are three basic and interrelated arguments advanced in favor of establishing a copyright tribunal with broad powers: (1) the Congress does not have the capability to make informed decisions in this area (2) since Congress is "fixing" copyright fees in legislation a periodic review is essential and (3) it is necessary to have an impartial and unbiased authority to examine facts and weigh data in order to fairly adjust future royalty rates for CATV. While at first glance these arguments appear to be reasonable, they do not stand up to logical analysis. There is no basis for assuming that an inexpert appointed body will be capable of making informed decisions about copyright royalty rates. Specifically what data and which facts are to be utilized by the tribunal in adjusting rates? None are specified. Is it to be a cable system's gross revenues, its net, its margin of profit or loss? Is it related to the number of broadcast channels a system carries, the number of programs it carries, or only the number of programs a system distributes which do not have to be blacked out because of FCC regulations? Will it relate to the rates charged by a cable system? The same questions can be asked on the copyright side. It should be obvious that no one of these factors represent data and facts from which a fair fee schedule can be derived. Absent any criteria or methodology in the legislation for adjusting rates, an inexpert authority is, at best, being asked to render a Solomon-like decision 1 As previously pointed out by NCTA. those infirmities include inadequate Congressional and judicial review procedures, the power of the tribunal to change the "revenue base", and the lack of criteria and standards governing operation of the tribunal. without the benefit of either practical guidance or divine inspiration. It is quite likely that the evidence presented to this review body will tend to be inconclusive or at least widely disparate. (We note for example, that the copyright owners have argued that a fair level of copyright payments for CATV would be in the range of 16-20% of gross revenues.) The point is that because of the unique nature of the cable/copyright matter any decision about CATV royalty rates will tend to be an arbitrary one. Comparisons with other approaches to compulsory licensing of copyrighted material are not necessarily valid. The cable copyright issue proceeds outside most marketplace considerations, and has a unique relationship to regulatory factors. Congress, with its responsibility for oversight and review of the FCC and the regulatory process, is the only body which can fully evaluate and weigh these factors. For the same reasons, there is little logic to the argument that Congress does not have the capability to deal with the copyright rate matter. On an issue which will have a direct impact on the public, Congress is the most appropriate body to attempt to achieve a fair resolution. It is Congress which is charged by the Constitution with the responsibility and authority for national copyright policy. The Congress should not shirk its responsibilities in this area. Its goal ought to be to arrive at an equitable solution keeping uppermost in mind the rights and desires of the public. NCTA respectfully submits that this public interest standard will not be met by avoiding the issue and setting in motion a new and unnecessary bureaucratic process with the attendant forms and procedures which too often plague small businesses and ultimately, the consumer. Hardly will the new law (with a Congressionally established progressive fee schedule) have been in effect when a tribunal will be required to reexamine the Congress' work. And even assuming that criteria to guide a tribunal could be developed and were set in the bill, it is highly unlikely that any substantive data would emerge in such a short period of time to warrant a review of rates or to justify any adjustment of those rates. Finally, copyright interests have attempted to plant the impression that tribunal review is necessary because Congress is proposing to fix the CATV fee schedule in legislation. This "fixed fee" argument is a spurious one. Royalty fees are to be computed on the basis of escalating percentages of gross receipts from subscriber revenues, not fixed fees. In essence, what the copyright interests are seeking is not one, but two methods to guarantee that future copyright revenues will rise sharply. They seek a progressive fee schedule and a mandated periodic review. The progressive fee schedule represents a logical marketplace approach. Stated simply, as a CATV system's revenues increase so do copyright revenues. Conversely, under the approach currently contained in the bill a cable system could find itself in the anomalous position of losing money and having both its gross revenues and net revenues decreasing while its copyright payments are increas ing. There is no equity and logic in freezing in legislation such a marketplace aberration. Additionally, it should be understood that while the initial impact of copyright liability on an industry-wide basis does not appear to be excessive, the capacity of individual cable systems to absorb the added burden of copyright payments varies widely. For many systems the addition of copyright payments on top of pole attachment rentals, franchise levies, and annual FCC subscriber fees will significantly reduce the system's operating ratio. NCTA has previously pointed out that in many cases cable systems have been unable to secure rate increases from local rate reviewing authorities to offset increases in operating expenses. For example, cable systems in Charleston and Morgantown, W. Va. have been denied rate adjustments even though their last increase was in 1965; the Pottsville, Penn. system which last increased rates in 1963 has been denied a rate hike; the Santa Cruz, Calif. system has been denied an increase although it has not had one in 18 years. The point is that by tying the prospect of future royalty increases to the percentage mechanism currently contained in H.R. 2223, a closer marketplace determination of future copyright fees will result. NCTA believes that Congress must be fully cognizant of all the ramifications of the current tribunal approach. In dealing with the issue of future copyright royalties Congress should strive for a simple and clear methodology for assuring that all parties-including the CATV viewing public-are treated fairly. NCTA is convinced that a graduated royalty payment scale based on a percentage of each CATV system's gross subscriber revenues represents the best approach to adjusting future copyright payments. FUTURE COPYRIGHT PAYMENTS During the subcommittee's hearings copyright interests went to great lengths to emphasize that CATV's copyright liability would amount to only a small percentage of the industry's gross revenues and that the industry could easily afford to pay this amount. Based on this argument, the copyright owners then go on to claim that the fee schedule currently contained in the bill should be increased. Congress should not be fooled by this line of reasoning. It should be fully aware of the impact the future growth of the cable television industry (which now serves only 14 percent of the nation's television homes) will have on future copyright payments. If H.R. 2223 were law today and contained the NCTA proposal exempting from copyright liability the first $100,000 of each CATV system's annual basic service revenues, the cable television industry's 1975 copyright liability would be approximately $5 million. This $5 million liability represents 0.76 percent of the CATV industry's estimated 1975 basic service revenues of $660 million (based on 10,000,000 cable-subscribing households paying an average monthly rate of $5.50, or $66 per year). However, the extent of CATV copyright liability will increase sharply within the next 10 years, For example, two recent independent studies 2 of the CATV industry contain significant growth projections, One study projects 32 million subscribing households by 1984; the other projects 22 million CATV households by 1983. Current CATV growth patterns would indicate that the projected growth of 22 million households is a conservative estimate; the projected 32 million households is an optimistic estimate.” Nevertheless, the two projections give extremes of a range of growth that are helpful in assessing CATV's future copyright liabilities. Assuming that by 1983-84, the same basic monthly subscriber fee assessed today ($5.50) remained stable: (1) 22 million cable-subscriber households would produce annual revenues of $1.45 billion; and (2) 32 million households would provide revenues of $2.11 billion. Industry copyright liability, however, would not remain at 1975's 0.76 percent of annual revenues. Today, less than 200 cable systems serve 10,000 or more subscribers. Even so, they would account for 76 percent of the 1975 liability of $5 million, with their payments representing an average of 1.5 percent of annual revenues. CATV's growth will come from existing large systems as they expand their subscriber base, and from new major systems developed within the major metropolitan market areas. Because these larger systems will be paying copyright liability closer to the high end of the graduated fee schedule, the average payment will certainly be at least 1.5 percent of annual revenues if, indeed, not more. Based on an average assessment of 1.5 percent of revenues, the CATV industry at 22 million subscribers in 1983 would be paying $21.8 million in copyright liabil ity (more than 300 percent above today's $5 liability, with slightly more than a 100 percent increase in total subscribers). At 32 million subscribers in 1984, the industry would be paying $31.7 million in copyright liability (more than 500 percent above today's $5 million liability, with slightly more than a 200 percent increase in total subscribers). NOTA believes therefore, that Congress must in its consideration of copyright take full note of these CATV industry growth patterns and their impact on future liability. PROGRAMMING PRACTICES—NETWORK AND SYNDICATION During the hearings a number of questions were asked about the practices of networks in obtaining product from program producers and the leasing of programming to television stations on a city by city basis (syndication). Of particular concern were the methods for determining the value of a product during negotiations, the relationship of such factors as the product itself, the market and exclusivity arrangements in arriving at fair compensation, and of course, the effect CATV carriage has on the value of a particular product and how that effect "CATV Networks and Pay-TV: Feasibility and Prospects," Knowledge Industry Publications, Inc, New York, New York, 1975. CATV," Frost and Sullivan (Technological Market Research firm), New York, New York, 1975. |