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It is no answer to say that the cable television system makes—or at least tries to make—a profit out of providing its service, for clearly the antenna manufacturer-like the television set manufacturer and numerous other third parties in television-related businesses-also seeks to make a profit.
Before going on to the second example, let's pause for a moment to consider alternative 3, where the prospective viewer neither buys the tall antenna nor subscribes to the cable service but simply doesn't watch the programs broadcast by our hypothetical television station.
If this happens, what is the result? The station has a smaller audience and therefore its advertising spots are less attractive to potential advertisers. So, the station gets less money. And this means there is less money available to the station to pay the copyright owner. From this we can see that cable television, far from stealing from the copyright owner, by increasing the size of the broadcaster's audience actually increases the moneys paid to the copyright owner.
Now, consider a second situation. In this case, imagine a television station in New York City whose programs are imported via microwave bops—by a cable system and retransmitted over the cable to the cable television system's subscribers in Oswego, New York, who otherwise would not be able to receive the New York City station.
Is this situation really any different from our first example? Is the copyright owner somehow damaged by the action of the cable station? Is he, perhaps, deprived of the ability to exploit his creation in Oswego after it has been seen there on the cable?
The answer to all of these questions is, no. Because of the nature of broadcast economics, the copyright owner cannot be injured by the cable system's importing the New York City station into Oswego. And this is true even without consideration of the complicated FCC exclusivity rules which seek to give added protection to the copyright owner and which may require the cable system to delete programing so as to allegedly protect the copyright owner's markets.
As in the first example, by showing the imported programs in Oswego the cable system increases the audience of the New York City station. And this is not just a theoretical increase. The rating services Nielsen and ARB—spend large sums of money to keep track of cable subscribers with the result that every single cable subscriber is accounted for in their surveys and so finds his way into some television station's rate card. Thus, by simply checking in Nielsen we find, for example, that in San Luis Obispo County, Calif., 30 percent of the television homes view the Los Angeles independent and network stations on a regular basis; in Grant County, N. Mex., 51 percent of the television homes view El Paso on a regular basis; in Chemung County, N.Y., 19.5 percent of the television homes view the New York City independent stations on a regular basis; in Lane County, Oreg., 20 percent of the television homes view the Portland independent and network stations on a regular basis; and in Sweetwater County, Wyo., 81 percent of the television homes view the Salt Lake City network stations on a regular basis.
In these cases, and in countless others, such coverage would be impossible without cable television.
This fact has not been lost on the broadcasters. For example, the literature put out by the Association of Independent Television Stations, in text accompanying these illustrations in which the white areas-excuse me, Barry, would you point out, please
Mr. Simon. In New York, for example, it's right here.
Mr. Bresnax. The black line represents the perimeter of the local television market as defined by the Association of Independent Broadcasters. I would like to quote from the text that accompanies those drawings.
“The accompanying illustrations show how cable television can dramatically increase the physical coverage area of independent stations, expanding their influence far beyond the perimeters of the local television market.
“Advertisers on cable-connected independent stations share in this expanded TV coverage reaching a bonus audience of consumers as valuable to the national regional advertiser as those situated within the defined local market area."
As a further illustration of this point I have here a stack of brochures; these are promotional brochures put out by the television stations. Each one takes pains to point out that its audience includes cable subscribers in distant markets. So we find that:
KTLA, an independent station in Los Angeles, claims a greater potential audience than any other Los Angeles station, net work, or independent. The station credits its "significant penetration by way of CATV stations."
WGN, an independent station in Chicago claims substantial viewing far beyond the reach of its signal by virtue of CATV systems.
The rate card of KSL, a network affiliate in Salt Lake City, shows coverage by KSL of "Mountain America"? —even extending, thanks to enhle television, as far as northern Wyoming.
The list could go on and on. But rather than belabor the point, I will simply submit these brochures themselves to the committee.
What do these extra viewers that cable adds to the audience of these stations mean to the relationship between station and advertiser! It means that the station time is more valuable and so the advertiser pays more. Now listen to what Miss Da Costa, who is in charge of all media-related research at Ted Bates, the Nation's fifth largest advertising agency, says:
Viewing recurring on CATV systems has been included in surveys for quite some time in the total audience reported for individual stations. The industry has generally used these total audience figures to establish rates and corresponding cost efficiencies. This practice compensates stations for all viewing including that which takes place within CATV houses-both inside and outside the range of the station's off-air reception area.
To go back to our example, we see that the copyright owner whose creation is broadcast by the New York City station and imported, by cable, to viewers in Oswego has not been deprived of the chance to earn money by showing his production in Oswego. For the advertising revenues to be derived from showing the program to the cable subscribers in Oswego have already been derived by the New York City station. And, as a result, the New York City station will pay the copyright owner more than if the station were unable to reach the Oswego audience.
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To allow the copyright holder to be compensated again—this time directly by the Oswego cable system would be giving him the windfall of an undeserved second payment. This is a windfall that neither the cable television industry nor the 15 percent of the American households, which are cable television subscribers, can afford.
You make a consistent point that regular broadcasters benefit, as do advertisers, and potentially the copyright owner, by virtue of the additional audience that cable television provides. Do the broadcasters agree to that, or do they dispute that fact?
Mr. BRESNAN. I will be submitting to you the brochures from the broadcasters who claim all of these additional market areas. Those two charts are the work of the Association of Independent Television Broadcasters. Now, there may be times when they claim one thing and at times another, but when they construct the rate chart, they do claim these territories.
[The material referred to is in the files of the subcommittee.)
Mr. KASTEN MEIER. I am only asking for the purpose of ascertaining whether that is a point in dispute, or whether the broadcasters agree to that, that this includes your subscribers, in terms of their sold audience.
Mr. BRESNAN. I'm not sure I understand the question clearly. There is no dispute that broadcasters claim coverage of the CATV subscribers who are provided the signals by the CATV system.
I have been advised by Miss De Costa on my left
Mr. KASTEN MEIER. Yes, I thought perhaps Miss De Costa might know more precisely, as a matter of technical expertise, whether that is correct. It is a matter of fact rate cards are built on the basis of cable audiences, as well as normal audiences. Do the broadcasters dispute that?
Miss De Costa. No. As a matter of fact, they look towards this audience to increase the size of their delivery.
Mr. BRESNAN. Miss De Costa has advised me, Mr. Chairman that to her knowledge every single cable television customer finds his way into a broadcaster's rate base.
Mr. KASTENMEIER. Does the Teleprompter Corp. have a number of different types of systems? That is to say, does it have systems which retransmit only, and other systems which originate, use microwaves predominantly? What sort of systems do you have?
Mr. BRESNAN. Our company is a pretty good cross section of all types of cable systems, from coast to coast, from large to very small. We originate in some, and in others we do not. It is a good cross section of the industry.
Mr. KASTENMEIER. Were you a party to the consensus agreement, or were you present at that time; or on the basis of litigation, did you absent yourself?
Mr. BRESNAN. I am glad you asked that because that so-called consensus agreement came up quite a bit today, and I do have some pretty strong feelings about it.
The consensus agreement come about at a time shortly after the time that the company I had been with merged into Teleprompter and Teleprompter's then management pretty much carried the ball. Although I was on the NCTA board - I believe I was vice chairman-when that came about.
I would like to state that the consensus agreement, in my opinion, was really a legend. It was pushed down the throat of the cable television industry, in my opinion, by the White House. If you like, I can expand on that.
Mr. KASTEN MEIER. I'm sorry, did you say that you were present at the time!
Mr. BRESNAN. I was present at the NCTA board meeting.
Mr. Bressan. No: I was with Teleprompter. But Teleprompter's position was being determined by the then Teleprompter management. I had just joined the company shortly before then by virtue of the merger of my company into Teleprompter.
Mr. KASTENMEIER. And you said it was “shoved down the throat" of the cable people. How about the other parties, might they also have been somewhat unwilling, or unenthusiastic about the compromises they received ?
Mr. BRESSAN. I doubt that they had too little to be unenthusiastic about, sir. At the time that that happened, the cable television industry had been frozen for about 5142 to 6 years. And we were in a very deep freeze for about 3 years, from 1968 through 1971.
During the summer of 1971 the FCC studied proposed new rules which would lift the freeze on cable television, and things started to look pretty good for cable television after a long dry spell.
ind in August of 1971 the then Chairman of the FCC sent a letter of intent to Congress, explaining the rules that the Commission proposed to adopt. Shortly thereafter, representatives of the broadeasting, copyright, and cable television industries were invited to a White House meeting. The net result of that meeting was that the cable television industry balked at these changes. They were told in no uncertain terms by Peter Flanigan that if they didn't agree to this thing they would get nothing, the White House would see to that.
That story was delivered back to the National Cable Television Association board of directors. Some of the directors voted for it reluctantly, some voted against it; but it was a pretty sad day for cable TV.
Mr. KASTEN MEIER. Do I understand the context that was used, "you would get nothing," not only to potential copyright legislation that the administration might take a position on, but particularly the FCC rules then pending?
Mr. BRESNAN. Specifically it had to do with the FCC rules. The FCC had in a letter of intent stated that it believed it should handle the regulatory aspects of cable TV, and leave up to the ('ongress the handling of the copyright aspects.
Mr. KASTEN VEIER. Then I assume, if I follow this correctly-and I assure you, I do not know precisely what transpired--that as a result of your fellow cable operators coming to an agreement, the ('ommission subsequently issued rules recognizing that compromise.
In other words, reading het ween the lines of what you have said, the consensus agreement did produce some concessions for the cable industry, as well as the others, as a result of your coming to that agreement in terms of the consensus agreement; or at least others.
Mr. BEESWAX. Well, first of all
Mr. KASTEN MEIER. In other words, was there not a quid pro quo which the consensus agreement reflects?
Well, this committee is not party to such a bargain, but I suppose we might take note of it.
Mr. Bresnan. The rules that we were hoping to get out of the FCC we did not get. And I recall such powerful words I think they were attributed to Peter Flanigan—"There will be a blood bath for cable television."
Mr. KASTENMEIER. Well, that has not happened either, has it? Mr. BRESNAN. We seem to have gotten everything. Mr. KASTENMEIER. The Chair yields to the gentleman from Illinois, Mr. Railsback.
Mr. RAILSBACK. The blood bath was earlier, wasn't it? (Laughter.]
Do you think we could have a copy of your annual report that is referred to in your earlier testimony, would that be possible!
Mr. BRESNAN. Yes, sir. [The material referred to is in the files of the subcommittee.]
Mr. RAILSBACK. Do you recall the reason for what appears to be an extraordinary loss to your company in 1973?
Mr. BRESNAN. Yes. Teleprompter Corp. was expanding into several of the top markets. Teleprompter, I guess, was probably attempting to do more to prosecute the intention of the FCC rules than any other company. It was not getting subscribers as fast as it was building plant. It stopped construction in a number of systems, and slowed down construction in others. It changed its whole mode of operations, if you will, from that of a construction company to that of an operating company.
There were significant operating costs and losses, and there was some write down of assets due to this change.
Mr. RAILSBACK. So, it really was, or could be characterized as an extraordinary loss, or a nonrecurring loss.
Mr. Bresnan. Well, of part of it you could say that. However, in 1974 the industry also had a loss.
Mr. RAILSBACK. You went from $29 million down to about $7 million?
Mr. BRESNAN. Yes. And the interesting thing, Mr. Railsback, we picked up a bit of information this morning from a very well-respected cable analyst, and he tells us that of the 15 publicly held companies which represent 4.2 million of the 10 million cable subscribers; that those systems combined showed a net loss in 1974 of $31 million.
Now, we don't know how much profit or loss privately held companies would have because we don't have access to that information. But we estimate that the entire industry last year did not operate at a profit.
Mr. RAILSBACK. Let me just mention, the exhibit attached to your testimony reflects that the nine largest public CATV companies, there was a 1974 loss of $16.3 million; but 17.2 percent of that total figure was Telecommunications; and in the year 1973 there was a loss, a net income loss of $27.9. There is a figure that you had that year, and this is part of the total figure, that your company had a 29.7. Two companies have a rather severe impact on the total figure in both years, your Telecommunications and Teleprompter.
Mr. BRESNAN. No question about that, sir. However, the fact remains that in 1974, at which time Teleprompter did not have a real large loss, as we had in 1973, the top 15 publicly held companies I referred to just a moment ago, had a net result of a $31 million loss.