In our letter, we encouraged industry principals to agree upon a schedule of royalty fees in negotiations then in progress. The result of these negotiations was the so-called "consensus agreement" which suggested certain revisions to the proposal advanced in our letter of intent and pledged the parties to support separate cable copyright legislation. The legislation was to establish a system of copyright liability for cable carriage of broadcast signals with compulsory licensing of signals authorized by the Commission. A schedule of royalty fees or other payment mechanism was to be agreed upon by copyright proprietors and cable operators. In the absence of agreement, the parties agreed to submit to compulsory arbitration.

The Commission found the provisions of the consensus agreement to be reasonable. Consequently, those aspects of the agreement subject to our jurisdiction were implemented in our first comprehensive cable rules issued in 1972. [36 FCC 2d 143.] We took this action believing that it would open the door to cable development and that copyright legislation would be enacted shortly thereafter. Unfortunately, the negotiations concerning fee schedules proved inconclusive, and compulsory arbitration has not been forthcoming. Thus, legislative efforts in this area have been stymied.

The importance of a prompt resolution of the copyright problem was heightened by a second ruling of the Supreme Court on the cable copyright issue. In CBS v. Teleprompter, 415 U.S. 394 (1974), a Teleprompter cable system imported signals from as far as 600 miles from its service area, as opposed to Fortnightly's 82 miles. It had also engaged in advertising not confined to program origination channels and had interconnected with other systems for specialized programing. Despite the disparity of distance and the presence of services characteristic of broadcasting, the court held that Teleprompter retained its "viewer" status and had not "performed" under the Fortnightly rationale. Thus, it was not liable under the Copyright Act.

Seemingly announcing the end of its resilience to construe the act to accommodate changing conditions, the Court called upon Congress to enact remedial legislation. Speaking through Mr. Justice Stewart, it said:

These shifts in current business and commercial relationships * * * simply cannot be controlled by means of litigation based on copyright legislation enacted more than half a century ago, when neither broadcast television nor CATV was yet conceived. Detailed regulation of these relationships, and any ultimate resolution of the many sensitive and important problems in this field must be left to Congress. (415 U.S. at 414.)

In view of the preceding analysis, it is clear that if a solution to the cable copyright dilemma is to be reached, it will only be through congressional action. I will not rehash the details of the various attempts made in Congress to enact legislation, for I am confident that they are better known to your subcommittee, Mr. Chairman, than they are to the Commission. Suffice it to say that legislation has been considered by at least one house of Congress every year for the last 10. Furthermore, I do not wish to offer detailed comments with respect to the specifics of section 111 (c) and (d) of the legislation now before you. Enactment of substantive copyright law is an area in which the Commission has no jurisdiction and in which we defer to congressional judgment and expertise.

However, the Commission has expressed some general views on the subject which perhaps bear repeating in this forum. First of all, we wish to express the importance of prompt congressional action. Mr. Chairman, this controversy has troubled the communications industry for nearly a decade. It continues to be a source of great conflict between the industries we regulate. We believe that it is time that the Congress place the interests of these parties in balance and resolve their differences through legislation. In this connection, we believe that it is essential and altogether just that cable operators pay reasonable copyright royalties. However, we express no judgment as to what precise form this legislation should take.

In our comments on previous legislation, we have on several occasions called attention to matters which we believed could be more effectively handled through the flexible approach afforded by the administrative process. In those comments we suggested that these matters not be written into substantive law but left to agency discretion. We made those remarks in connection with provisions which would have codified distant signal, minimum signal carriage, exclusivity, and sports blackout policies.

We continue to feel strongly that matters of this nature are more appropriately left to the Commission where they can evolve as the cable industry matures. For these reasons we were pleased that the Senate deleted provisions of this nature from S. 1361 of the 93d Congress, and that the legislation now before your subcommittee either omits reference to such regulatory matters or expresses them in broad general terms within which we can exercise considerable discretion. We are hopeful that any legislation which you report out will conform to these guidelines.

Mr. Chairman, this concludes my remarks. I would be pleased to respond to questions.

Mr. KASTEN MEIER. Thank you, Mr. Hardy. I wish to compliment you on a very concise, coherent, and highly useful statement. We need to be aware of the history of what has transpired as seen through the eyes of the Commission.

Does the Commission, the Federal Communications Commission authorize-it does authorize or give licenses for cable television?

Mr. HARDY. Yes, sir. We issue certificates of compliance to cable television systems once they are initially franchised by a local franchising authority in the community in which the cable system is to operate.

Mr. KASTENMEIER. The first reference you make is to 1959. At that time did you authorize or license them in any sense?

Mr. HARDY. In 1959, no, sir. We did not at that time issue certificates of compliance.

Mr. KASTENMEIER. Did the Commission participate in any respect whatsoever in either the United Artists-Fortnightly case, or the CBS-Teleprompter case as amicus curiae or otherwise?

Mr. HARDY. No, sir, we did not participate in those proceedings before the courts.

Mr. KASTENMEIER. However, the Commission, I take it, it is the view of the Commission that it differs with those decisions insofar as they do not cause cable operators to pay reasonable copyright royalties?

Mr. HARDY. I do not believe we differ with the decision of the Court in that respect. I think that the Court pointed out that the 1909 legislation, the statute dating back to 1909, could not be construed to cover the industries which developed subsequent to that legislation. I am not sure that we agree with the Court's ruling, but we live with the Court's ruling. The Court has concluded that that statute was not adequate to cover the industry as it developed.

We do support at this time, as I have stated in our prepared remarks, some form of copyright legislation which would impose an obligation on the part of the cablecasters to pay some reasonable copyright royalties. The amount, the details of that legislation, we would leave to the expertise of Congress.

Mr. KASTENMEIER. Ten years ago when the matter came before us in the 1965 hearings the technique and the industry were commonly known as community antenna television, CATV. Now, it is known as cable television. From a service or technological standpoint, has the industry changed in 10 years sufficiently for us to take some special notice of that fact for purposes of copyrights?

Mr. HARDY. Well, Mr. Chairman, as you know, originally community antenna television systems, as it originated, was intended only to extend the signal which it could pick up over the air into the homes of viewers which could not pick up that signal over the air without a very large antenna. It was an antenna put in a location where it could pick up signals off of the air and transmit them over cable into those homes.

The industry has since that time-the technology since that time has developed which allows a cable operator to import from a distant community a signal via microwave facilities, and it now imports from very distant areas programing which would in effect fragment a local broadcast station audience. And I think it is for that reason, the technological developments, that it has become more obvious that copyright legislation is needed.

Mr. KASTENMEIER. Just two other questions. One, your advice to us, and I think it is very good advice, is not to be too specific, to stay away from, insofar as we can, such questions as distant signal limited importation, exclusivity, and sports blackout policies. And would you also include the question of origination? You know, we actually considered that 10 years ago. To what extent does the then CATV originate, and should this have something to do with its copyright policy?

Mr. HARDY. Well, I would also recommend I think on behalf of the Commission, and I am speaking for myself, of course, because the Commission has not taken any position in that sense, but the Midwest Video case was decided, and in the Midwest Video case it decided that the Commission did have jurisdiction and authority to require a cable system to originate programing. Since then, the Commission has had some rulemaking as to whether or not it would be appropriate to impose that obligation on a cable system at this time, because this industry is developing. I believe that would be better left with the Commission, with the administrative flexibility that is intended in the Administrative Procedures Act, rather than to carve it into the stone of a statute. I would recommend, on my own behalf anyway, that it would be my advice to the committee that it would be left better to the Commission's administrative flexibility.

Mr. KASTENMEIER. My last question is, you are aware, of course, of the provisions of H.R. 2223. That is to say, the form in which the Senate passed the bill early last fall. Is that bill acceptable in all respects to the Commission?

Mr. HARDY. Yes, sir. Insofar as it relates, as I began my testimony here today, there are many parts of that overall bill which do not apply to the areas regulated by the Commission, but insofar as that bill touches upon the copyright obligations in the cable industry, it is acceptable to the Commission; yes, sir.

Mr. KASTEN MEIER. Thank you. I yield to the gentleman from Illinois, Mr. Railsback.

Mr. RAILSBACK. Yes. I take it what you are saying is you generally favor the bill that is pending before us, and you especially appreciate the fact that in contrast to earlier bills it provides certain latitudes that those other bills did not provide?

Mr. HARDY. That is correct.

Mr. RAILSBACK. To your Commission?
Mr. HARDY. Yes; it does.

Mr. RAILSBACK. Would you favor the FCC or the Copyright Office itself administering the fee schedules, in making determinations there? Mr. HARDY. I think that should be left with the Copyright Office. Mr. RAILSBACK. The Copyright Office, right. Are you satisfied that the bill as drafted contains enough authority to permit you to deal with questions of embargoes or exclusivity and so forth?

Mr. HARDY. Well, I think that the jurisdiction that the Commission presently has under the Supreme Court decision in Southwestern Cable is adequate at present. However, I recognize that there are some bills that have been submitted to both Houses of Congress which would question the jurisdiction of the Commission in the cable area, and the Chairman, I believe, has testified on that. And I am not thoroughly familiar with his testimony in those areas, and I would prefer to defer to his judgment on what legislation would be needed in the field of jurisdiction for the Commission. I would prefer not to answer that.

Mr. RAILSBACK. The FCC had promulgated certain rules before. How does the bill jibe with those rules that you promulgated earlier after the first court decision?

Mr. HARDY. Well, I may not understand your question, Mr. Railsback. Which rules are you referring to?

Mr. RAILSBACK. Well, I think, for instance, that you saw fit to regulate certain transmissions depending upon the area, the distance, and am I right on that?

Mr. HARDY. Distant carriage?

Mr. RAILSBACK. Right.

Mr. HARDY. The number of signals allowed to be carried, things of that nature; yes, we have.

Mr. RAILSBACK. Do you, or did you then, and how do you now feel about differentiating between the fee schedules as relates to, say, the secondary transmissions within a local area carrying where the primary transmissions reach? Do you think there should be a different fee schedule depending upon the type or the distances involved?

Mr. HARDY. I think that we would defer to the judgment of your committee on that. We would leave that to the committee as to whether

or not a fee schedule should be made-the local signal as opposed to the distant signal?

Mr. RAILSBACK. Right. Exactly.

Mr. HARDY. I think the parties to the consensus agreement, who I understand will be called on to testify before you

Mr. RAILSBACK. Yes; they will.

Mr. HARDY. Will be better able to respond to that, and perhaps they could give you their suggestions. But insofar as the Commission is concerned, we would defer to the judgment of your committee on that.

Mr. RAILSBACK. Perhaps I am mistaken, but as I read the bill before us we do not differentiate in the fee schedule.

Mr. HARDY. That is correct. The same fee would apply to all carried signals, including distant.

Mr. RAILSBACK. Including, as I understand it, including aural transmissions under subsection (c) (1) (A)?

Mr. HARDY. That is correct.

Mr. RAILSBACK. Thank you.

Mr. KASTEN MEIER. The gentleman from California. Mr. Danielson. Mr. DANIELSON. Mr. Chairman, I pass and retain my right to interrogate if I may, please.

Mr. KASTEN MEIER. The gentleman from Massachusetts, Mr. Drinan. Mr. DRINAN. Thank you, Mr. Chairman. Perhaps we should not mention the Office of Telecommunications Policy to a representative of the FCC. But, I wonder if your recommendations are consistent with the recommendations of the Cabinet Committee report in January 1974 of the OTP?

Mr. HARDY. Father Drinan, I am not familiar with those, intimately familiar with those. I know of them, and I am not sure whether our testimony is consistent with them or not. I do not believe we studied our testimony to compare it with that report to determine whether it was consistent.

Mr. DRINAN. It confirms my suspicion that the FCC and the OTP were not talking very much to each other.

Would you point out anything in H.R. 2223 that either in your personal judgment or in discussions of the FCC that perhaps could be modified? In other words, we want as much help as we can get on the specifics, and I know that you do not want to get into them. You say we express no judgment as to what precise form this legislation should take. But, could you give us any helpful suggestions as to whatever conflicts might exist which could be resolved?

Mr. HARDY. Father Drinan, I think maybe the parties may have testimony that they will submit to you as they testify here before you, and I think in weighing both sides of the issue as presented by those parties you will be able to come up with whatever you believe a balancing of the equities between those parties.

The Commission, insofar as its comments on the bill that was submitted to us, would be that we are in agreement with the general principles, and we would leave the details to your committee.

Mr. DRINAN. All right. Thank you, sir. I have no more questions

at this time.

Mr. KASTENMEIER. The gentleman from New York, Mr. Pattison. Mr. HARDY. Father Drinan, if I might, I would not like to leave this record with the impression that there is no ongoing discussions between the FCC and the OTP.