benefit to the VCR manufacturer. That is the second criterion that CRT could look at.

A third factor might be the harm to copyright owners-the demonstrable harm that comes from these little technological gadgets that expunge commercials, distasteful though some commercials may be. Commercials are the sinew, the blood, and the bone which fuels the whole television industry. Without them, everybody would be on pay television presumably, of course, they could afford it. I think it is an explosive political issue, Senator. By 1990, one-third of Americans will not be on cable, and two-thirds will not be on these machines. They are going to depend on free television for their home entertainment. So that is another criterion.

And finally, the marketplace value of these copyrighted works. What is the value? All four of those criteria, I think, can be examined effectively and with careful scrutiny, and I believe that it is possible for a Government agency, experienced in the copyright field and in reviewing this type of evidence, to look at what experts bring to them and be able to make some decisions which are reasonable. The Mathias amendment specifies "appropriate and reasonable royalty fees." Those are well-known legal terms. "Such fees shall be calculated to afford the copyright owners of motion pictures and other audiovisual works a fair compensation for the use of their creative works." Now, each one of us looks at those words-fair compensation-through a different prism. But essentially, they mean equity, justice, reasonableness, and fair-minded men and women, I think, can make those judgments.

Senator BAUCUs. Well, I do not want to take anymore of the committee's time. I think that you have made your case well. There is no doubt in my mind that this equipment would not be manufactured, sold, and consumers would not purchase it but for the creative work of artists. And consumers and producers are not paying for that today, and I think they should.

Second, beyond that, I think we should do what we can in our country to encourage artistic creativity more than we are; it would not only be better for the country economically but good for the Nation's soul.

I will not take anymore time with more questions, but I do suggest that we examine the possibility of including criteria in the bill that would assure that we do not permit the Tribunal to charge fees that are excessive.

Thank you, Mr. Chairman.

Senator MATHIAS. The Senator from Kansas.

Senator DOLE. I have no other questions, but I think in line with Senator Baucus, I had my own question about how the proceeds may be distributed if in fact this legislation should pass in some form. To repeat, if in fact there is a possibility of avoiding any government participation, if it can be somehow negotiated with the makers of the machines-I note that there may be one or two representing the Japanese in the room-maybe one or two are not representing the Japanese in the room-but in any event, we would be pleased to discuss that with anyone.

Senator MATHIAS. I would say I think that is a serious suggestion, because we never would have gotten the enactment of the copyright revisions of 1976, if it had not been that there was, in

fact, an industry reconciliation which was finally brought back to the Congress and which, in essence, we adopted. So it is an extremely important element of the whole legislative process.

Mr. VALENTI. Senator Mathias, I subscribe to all that Chairman Dole has said and you and Senator Baucus have said. I just want to issue one modest cautionary note. I do believe time is of the essence. If we are laggard in addressing this problem, we are going to watch the American entertainment industry be devastated by technological developments.

Senator MATHIAS. Absolutely. And I do not think this committee can wait, because you are dealing with a problem of a relatively limited number of machines in proportion to the population of the United States.

Mr. VALENTI. That is right.

Senator MATHIAS. But when this gets to represent 20 or 30 percent of the population, then you begin to get a political and economic problem.

Senator DOLE. It becomes like social security, then.

Mr. VALENTI. And, Mr. Chairman, I also want to mention the audio industry. I do not want to leave audio out. They will represent themselves to demonstrate how they have been terribly and visibly wounded by the home recording phenomenon. They need help now. We and they cannot wait. We are linked together in the immediacy of this moment.

Senator MATHIAS. And that, Mr. Valenti, is why we are here. But the immediacy of this moment is such that we had better get on with the next panel.

Thank you very much, gentlemen.

Mr. HESTON. I thank the committee.

Senator MATHIAS. Our next panel will be led by the Honorable Charles D. Ferris; Nina Cornell, Richard Anderson, Carol Tucker Foreman, and Eugene H. Kummel.

Mr. Ferris, who in a former incarnation, ran the whole Senate, should be able to help us see the light on this subject.

STATEMENT OF A PANEL, INCLUDING: CHARLES D. FERRIS, COUNSEL, HOME RECORDING RIGHTS COALITION; RICHARD ANDERSON, PRESIDENT, SEA COAST APPLIANCE DISTRIBUTORS, INC.; NINA W. CORNELL, PRESIDENT, CORNELL, PELCOVITS & BRENNER ECONOMISTS, INC.; EUGENE H. KUMMEL, CHAIRMAN OF THE BOARD, McCANN-ERICKSON WORLDWIDE; CAROL TUCKER FOREMAN, CONSULTANT, HOME RECORDING RIGHTS COALITION

Mr. FERRIS. Thank you, Mr. Chairman. I certainly hope to be helpful. Each member of the panel will introduce themselves, give their affiliations and background; Mr. Chairman and members of the committee, in the interest of saving time. I ask that my prepared statement be inserted in full in the record.

I am Charles Ferris, and I represent the Home Recording Rights Coalition, a group of American and U.S.-based international companies and American trade associations involved in the manufacture, distribution and sale of video cassette recorders and blank

tapes, and the sale and rental of prerecorded tapes and related equipment.

Our position, Mr. Chairman, and members of the committee, is to urge the swift adoption of S. 1758, the DeConcini bill, which would exempt from copyright infringement the private, noncommercial use of the video cassette recorder.

The royalty bills and the royalty amendments purport to exempt home taping from copyright infringement. In fact, however, they charge the consumer a hefty price for the exemption, making it no exemption at all. And since copyright holders are already fully compensated by the marketplace system now in place, the royalty tax is really nothing more than a means of paying twice at the expense of the American consumer.

The issue simply put is, will the public be permitted to view programs licensed and paid for and lawfully received for viewing in the privacy of their own homes when convenient to them, without additional payment.

We believe that the copyright holders, the motion picture producers, should be compensated fully for their creative works-indeed, we believe they are-and that the present methods used to compensate them will fully adjust to a changing marketplace now and in the future.

Let me explain how a movie producer presently receives a copyright fee. The movie producer and the purchaser of a viewing right, whether a theater owner, a pay cable operator or a pay TV broadcaster, or the dealer and seller of prerecorded video cassettes, determine the size of the royalty when they negotiate the sales price or license fee. And it works the same way for television, Mr. Chairman. The movie producer determines the royalty fee, when a price is negotiated with the broadcaster to permit the airing of that movie on the public airwaves. The choice to use the over-the-air, socalled "free" TV is entirely within the control of the movie producer. When that choice is made, the premises of that medium, the public airwaves, must be accepted-premises dictated by the Communications Act, which is driven by the principles of the first amendment that favor the widest dissemination of the information transmitted. That driving force of the first amendment is also consistent with the economic premises of the broadcaster and the advertiser to reach the widest possible audience.

Video cassette recorders enhance those underlying constitutional and economic premises, and let me explain how.

First, VCR's permit viewers to receive the programs intended for them, but to view them at their convenience. The rating services, Arbitron and Nielsen, both count video cassette recorders as viewers, even though the VCR is capturing a program while no one is watching it. And the number of viewers as determined by Arbitron and Nielsen is the basic information that ultimately determines the gross audience. That figure, gross audience, determines what advertisers are willing to pay to broadcasters and what broadcasters are willing to pay the copyright holders, the movie producers. I might say parenthetically, Mr. Chairman, at this point, that there is no evidence that VČR viewers watch fewer commercials than real-time viewers.

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Surveys clearly show that the video cassette recorder is now used primarily for time shifting-recording off TV a program to be viewed later. The VCR frees the viewer from the rigidity of the daily TV schedule and permits viewers to watch their favorite programs at their convenience. Unfortunately, that use, time shifting, is now illegal under the ninth circuit court of appeals ruling of last October.

S. 1758, the DeConcini bill, would remove that cloud of illegality and permit 10 to 12 million VCR users to come back within the law and at the same time assure the continued benefit this technology provides consumers and the entertainment industry alike.

A royalty is received for free TV by the movie industry-a royalty that is adjustable to marketplace forces as the size of that gross audience expands. The question is, do VCR's expand or contract the gross audience figures of TV? The only evidence available and the only conclusion that can be reached is the VCR's expand the gross audience. The lure of VCR's into the home, Mr. Chairman, is for time shifting, the convenience of viewing at one's own choosing. But once in the home, the VCR provides a valuable new market for Hollywood, the prerecorded video cassette.

The New York Times of January 20 reported, in its analysis of the economics of the movie industry, that the eight largest production studios in Hollywood will receive more revenue this year from this prerecorded video cassette market than from the licensing of their movie products to the three commercial networks.

Mr. Chairman, there is no harm to Hollywood. The court found no harm. The witnesses admit in this case that there is no present harm. They seek legislation based upon a faulty hunch of some future harm. The VCR is a friend of Hollywood, and as Mr. Heston testified today, the movie industry perceived of television as a threat in the fifties and tried to starve it. The movie industry perceived cable as a threat and tried to regulate it into submission. The VCR is the present threat as perceived by Hollywood. It is not a threat. It is going to expand and benefit, by expanding the gross audience, in time shifting and creating a new market for prerecorded video cassettes.

There is no justification for a surcharge on the American consumer, earmarked for the Hollywood producer. Mr. Chairman, any other proposal seeking additional copyright compensation mechanisms should be able to be justified on its own merit-not as a tag on legislation that would remove the cloud of illegality for millions of Americans who wish to use their VCR's to permit them to view programing when it is most convenient for them.

The marketplace works, Mr. Chairman. I submit to the committee that we should not gum the marketplace up with a Government agency.

We urge the swift passage of the exemption included in the DeConcini bill.

Senator MATHIAS. Thank you, Mr. Ferris.

[Prepared statement of Charles D. Ferris follows:]

PREPARED STATEMENT OF CHARLES D. FERRIS

MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.

Mr. Chairman, Members of the Subcommittee:

My name is Charles D. Ferris. I appear before you today as counsel to the Home Recording Rights Coalition.

I appreciate the opportunity to present our views to you. I appreciate as well the efforts of this Subcommittee to explore fully the range of issues that have been raised as a result of the Ninth Circuit's decision in the Betamax case.

The Coalition's position is that Congress should proceed speedily to enact an exemption to the copyright laws for the private, non-commercial video taping of television programs. hope that it will.

We

Mr. Chairman, the Coalition asks the Congress to take this action fully confident that our position is clearly in the interest both of American industry and, equally important, of the American public. VCRS have become a critical element in the revolution taking place in home communications.

This technology

will free people from the artificial confines of network scheduling, permit them to receive new and diverse sources of information and ultimately open up a vast and still largely unexplored frontier of additional uses for video recorders, such as home movies and many innovative business and educational

uses.

The current video marketplace has adequate mechanisms to compensate copyright holders fully for the use of their works, so that any additional tax or royalty would be a huge windfall for Hollywood producers by requiring consumers to pay twice for the same program. The very same mechanisms that underlie compensation for program producers in the commercial television system, the ratings services, already include VCRS in their audience survey data. Advertisers pay for these "extra viewers," so VCRS actually increase the audience for particular programs