undistributed royalty fund of over $100 million is not an unreasonable estimate for the near future, in James' view, "because of the existing appeals, and the possibility of future appeals on each and every distribution proceeding held by the

Even if Congress had set out clearer standards for CRT decisions, the agency would not be able to handle complex rate review and distribution matters. Several basic organizational flaws impede the CRT's ability to reach prompt, supportable **/ For example, although the CRT's decisions have

decisions.

a direct financial effect on groups affected by compulsory licenses, the CRT receives only such evidence as the parties before it choose to submit because it lacks subpoena power. In addition, the Tribunal has no general counsel, although its duties require it to deal with complex legal issues involving contracts law, the First Amendment, and the Administrative Procedure Act, as well as copyright law. Indeed, only two of the five original commissioners were lawyers, and only one had any significant familiarity with copyright law before his appointment. Similarly, although economic analysis is critical in determining appropriate royalty rates and distribution, the CRT retains no economic consultants. Due in part to its lack of expertise and its inability to compel the production of

*/ James at 57.

** */ Campbell at 94-102.

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relevant evidence, CRT proceedings have crept at a snail's

pace.*/

Under the current system, copyright owners "are effectively being denied their just rewards

the proceeds

In fact, copyright

from the royalty funds timely paid." holders are footing part of the bill for the CRT's inefficiencies, since the costs of the CRT's royalty distribution procedures

a total of over a half-million dollars in 1978

-

are deducted

The CRT has obviously failed to discharge its responsibilities for royalty determination and distribution under the existing compulsory license provisions. Giving the CRT new responsibilities for royalties for home video taping of copyrighted materials would only compound the present administrative nightmare. For example, there are no easy guidelines or CRT precedents to help it establish video royalty rates. In other proceedings the CRT has been able to look to broadcast logs, record sales, or jukebox revenues for some objective starting point for determining the use made of copyrighted works covered by compulsory licensing.There is no similar basis in

the VCR area for determining the extent of home video recording of copyrighted works.

The CRT would also have to grapple with the difficult question of how to reflect the use of VCRs for "time-shifting" purposes in its rate determinations. These decisions could

require the CRT to study VCR users' actual recording behavior, with the attendant expense and difficulty of conducting such studies and a danger of privacy intrusion from monitoring home viewing.

The obvious conclusion, given the complexity and character of the decisions that have to be made about compensation for video taping, is that the CRT is not the right place to make them. They are better left to the competitive marketplace of copyright owners and broadcasters which has the incentive, responsiveness, and sensitivity to set compensation levels that accurately reflect the value of video taping copyrighted material.

v. COMPENSATION FOR USE OF COPYRIGHTED MATERIALS

A.

Broadcast Licensing

Some holders of copyrights on programs and films broadcast on television claim that any copyright exemption for home video recording would "strip from authors and creators the

rights to their property without just compensation."*/ This argument completely ignores the highly competitive marketplace

*/ Hearings on S. 1758 Before the Senate Judiciary Committee, November 30, 1981 (testimony of Sid Sheinberg, President and Chief Operating Officer, MCA, Inc. at 2). MCA is the parent company of Universal City Studios, Inc., plaintiff in the Sony and RCA cases.

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in which television broadcasters and copyright holders who create programming negotiate broadcast license fees. There is no reason to create a cumbersome, intrusive, and inefficient government system for the same purpose, given the existence of this efficient and flourishing free market mechanism through which copyright holders can promptly and directly receive fair compensation. Even Jack Valenti, president of the Motion Picture Association of America, recognizes that the best way to determine the fair value of copyrighted properties is through direct negotiations between copyright holders and exhibitors, as evidenced by his challenge to cable operators covered by compulsory licenses to "go in and bargain like your competitors.

1. Audience measurement techniques

A barrage of contradictory claims has beclouded

the basically clear-cut question of the extent to which VCR use is and can be reflected by the Nielsen and Arbitron television audience rating services. Both systems of audience measurement currently in use, television meters (Nielsen) and diaries

(Nielsen and Arbitron), are clearly capable of obtaining
information on VCR usage.
The Nielsen stratified random

"Meet casts doubts on direct broadcast," Advertising Age, October 12, 1981.

See, e.g., Universal City Studios, Inc. v. Sony Corporation of America, 480 F. Supp. 429, 441 (C.D.Cal. 1979).

36

audience sample of 1200 metered homes, the basis of the principal Nielsen rating scores, "reflect[s] actual VCR usage.

The Nielsen system is clearly capable, therefore, of providing significant data on VCR use. VCR recording of a television program is reported by the meter as part of the audience for that program. If a metered set is playing one program while the VCR is recording a second program, the Nielsen rating will credit each program with one viewing.

Like the Nielsen meter ratings, the Arbitron diary system includes VCR time-shift viewing in the audience for the taped program, by recording both the taping and playback of every show.The Nielsen diary surveys already seek information on VCR ownership, and the company is "testing

** */

modified diaries to obtain information on VCR usage" in the
***/
future.

The ratings services are highly responsive to the demands of broadcasters, advertisers, and program producers

*/ Letter of William S. Hamill, Executive Vice-President, A.C. Nielsen Company Media Research Group, to Gary J. Shapiro, January 6, 1982 ("Hamill letter"). See also "Nielsen Co. Does Monitor VCR Usage, But. Consumer Electronics Daily (December 3, 1981) at 2.

**/ "VCR diary entries which indicate that the program is being taped on a Video Cassette Recorder are credited to the station identified in the entry. Entries indicating a playback of a program previously recorded during the same diary week will be moved to the day and time of initial recording. Playback entries of programs recorded other than during the same diary week will be deleted from the dairy." Arbitron, "Description of Methodology" (October 1980) at 18.

***/ Hamill Letter. See also Nielsen Home Video Index, Study of Video Cassette Recorders: Special Research Report ii (May 1980) ("Nielsen Study").