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sensus agreement, the FCC would not “be able to limit the

scope

of exclusivity agreements as applied to such signals beyond the limits applicable to over-the-air showings.”

That is suggestion No. 1.

Suggestion 2 is a very important one, sir. We believe that the basis for the computation of fees should be spelled out. The statute should provide that in readjusting the fees, the tribunal should have broad powers to set and adjust the fees both with respect to the manner and method with which it is to be computed and the base on which the fees are to be assessed.

The third point, the language in the bill should be changed to provide that the arbitration tribunal shall make determinations concerning the adjustment of the copyright royalty fees as spelled out by section 111 so as to assure that such fees are just and reasonable. What this section says now is that such fees shall continue to be reasonable.

Well, if we're going to have S. 1361 as it is, then this must be that the fees must be adjusted reasonably, not to continue, because at this point we do not believe that they are reasonable.

No. 4, we need a clearer definition of what is a cable system; and 5, we need a reexamination of the overly broad governmental and nonprofit organization exemption.

Now, Mr. Chairman, I have taken about 16 minutes; and I would like to in the remaining 4 minutes that is on our allotted time, I would like to have speak to you briefly a gentleman who represents the Screen Actors Guild, Mr. Chet Migden, who is executive secretary of the Screen Actors Guild. He also represents the I.A., which is the craft unions; and we are speaking for them in California and throughout the continental United States, and unofficially representing the Writers and Actors Guild. In short he represents the labor and technician and craftsmen community in the film industry in the United States. And I would like to have Mr. Migden, Chet Migden of the Screen Actors Guild.

Senator MCCLELLAN. Very well. We will be glad to hear him, but I would ask you two or three questions.

Mr. VALENTI. Yes, sir.

Senator McCLELLAN. Have you submitted in your document here a schedule of fees that you think proper?

Mr. VALENTI. No, sir. We have not.

Senator McCLELLAN. Do you wish to submit to the committee a schedule of fees that you think proper?

Mr. VALENTI. Mr. Chairman, to be

Senator McCLELLAN. Somebody is going to have to look at some proposals, whether we do it or arbitrators or somebody else.

Mr. VALENTI. Mr. Chairman, may I tell you very honestly the reason why we did not. This has been examined, and I must say I looked on it with some favor; but to be perfectly honest, we determined not to submit a specific fee schedule because of the result of our negotiations with Cable Systems. That schedule that we would submit to you then would become the floor or the ceiling, whichever one you choose to call it, from which new negotiations would begin.

We would be willing to submit a schedule of fees if Cable Systems would also submit their schedule of fees. They have not moved one jot off the 1.9 effective rate. We have made several attempts at compromise, and it has not gone forward.

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We are just afraid, to be honest and not try to beat around the bush, if we submitted a schedule that would become basis for new negotiation, and we would constantly be pushed down. And there is no other reason, sir, why we have not.

Senator MCCLELLAN. It looks to me like somewhere, sometime each side is going to have to submit a proposal, either here or at the arbitrators. I do not see any way to avoid it, do you?

Mr. VALENTI. Excuse me, sir.

Senator MCCLELLAN. Do you see any way ultimately to resolve it, unless the proposals of the conflicting parties of interest be submitted somewhere for evaluating.

Mr. VALENTI. Yes, sir. I think with an arbitration panel, we would be obligated to submit what we think is a fee we ought to have, or at least to bring before the arbitration tribunal all the evidence showing expected loss of our programs, fractionalization of our audience, and how the values of our programs have decreased. And by submitting this long dossier of facts and figures, we might come forward with a fee schedule.

Senator McCLELLAN. I agree with you that this is a very complicated thing. I do not know all the answers. I do not know anyone who does know immediately; but this has been a pending matter for quite a long time, and I assume, or am certain that the parties of interest would be able to give us some suggestions from their standpoint, something concrete for us to look at.

Mr. VALENTI. Mr. Chairman, I could not agree with you more, but the realisms of the negotiating jungle tell us that we would be making a grave strategic error, because just as surely as night follows day, that fee schedule would become the basis for new negotiations; that would become the ceiling; and we would be pushed down and down and down.

And I feel like frankly, to be honest again, that we have made several attempts at compromising. I think that your staff and others have been aware of that each time we have not gotten anywhere, and indeed, it has ended our position without any attempt to gloss over it. As a matter of strategy, we felt like this would be wrong for us to do that.

Senator McCLELLAN. It seems to me if both sides take the position that they do not want to submit anything for our consideration, for us to evaluate, it seems to me that we are going to be left here, if we do undertake to fix fees, just take something out of the air that appeals to us.

And I do not think after we do that, if we are not given the assistance, cooperation from those who are suggesting relief they want, if they do not give us something concrete to base it on, I do not think you have much justification for complaint.

Mr. VALENTI. Mr. Chairman, responding to that, of course our contention has been that we have already submitted a proposal, and indeed, a proposal that was agreed upon at an earlier time by the cable systems; and that is, the insertion of the arbitration tribunal at the outset. That is really what the controversy has been about.

Senator McCLELLAN. Well, that is one issue, and I am not excluding that issue. I am going to point out though that if the committee does undertake-I am not saying they will—but if they should undertake to establish fees, or temporary fees until arbitrators or some board, proper tribunal, could make a thorough investigation about what you suggest—until then, it would be well if we had some suggestions and reasonable basis for us to evaluate it.

I am not at the moment I am not insisting that you do it. I am leaving it largely up to you.

Mr. VALENTI. All right, Mr. Chairman.
Senator McCLELLAN. All right. We will hear your next witness.
Mr. VALENTI. Mr. Migden-

Senator McCLELLAN. One other thing, Jack. Maybe you can be helpful on this.

Mr. VALENTI. Yes, sir.

Senator McCLELLAN. We have a problem in this connection, and I think maybe you should comment on it if you have not. I do not believe I heard you. You may have in your formal statement.

We have a request, only a request—it is kind of an urgent appeal, let's put it that way-from small cable TV systems that they be exempt, some of them. I had a wire this morning from Louisiana.

But they are requesting I suppose you know that—that systems with 3,500 subscribers, and anything less than 3,500 subscribers, be exempt.

We of the committee have not as yet looked with favor on that. Some of them make a pretty strong appeal from the standpoint they just cannot afford it. I would like for you to comment on that, if you will

. Mr. VALENTI. Yes. I would be pleased to, Mr. Chairman. A short historical background in the give and take of hammering out a consensus agreement, one of the concessions that the copyright owners were pleased to make in order to have an arbitration tribunal at the outset, in return for that, one of the returns for that, we were willing to exempt from all copyright liability, assuming the arbitration tribunal went in at the outset, copyright fees from markets, from cable systems independently owned with less than 3,500 subscribers; independently owned, what we call the mom-and-pop type station.

Senator MCCLELLAN. And so there would be no objection on your part, as I understand it.

Mr. VALENTI. Assuming that the arbitrational tribunal

Senator McCLELLAN. In other words, if you get your point on the other issues, you would waive that; otherwise, you do not.

Mr. VALENTI. Yes, sir. That is essentially correct, Mr. Chairman. That was part of the construction that was built into the consensus agreement.

Senator McCLELLAN. I know. I have been getting some wires and communications lately from the smaller systems, 3,500 and under; and I think you should speak to the point.

Mr. VALENT. Yes, sir. Did I respond to you all right, sir?

Senator McCLELLAN. Yes. But I thought you should be given the opportunity to comment on it. All right. Who is your next witness? Mr. VALENTI. This is Mr. Chet Migden again. Senator McCLELLAN. Mr. Midgen, all right, sir.

Mr. MIGDEN. Mr. Chairman, I wish to thank the committee for according me this opportunity, and I will try to be brief, to appear before you. And I would like to thank Mr. Valenti for giving me a portion of his time to do this.

As this committee is aware, the motion picture industry is an industry that directly employs thousands of people and indirectly provides the payrolls for tens of thousands more.

The skills of those responsible for the production of films range from those of the actors, writers, directors, composers, lyricists, producers to those of the technicians on the sets and in the studios, the costume and wardrobe designers and makers, carpenters, painters, electricians, and all sorts of crafts and skills that make the motion picture possible.

All of these men and women depend for their livelihood on the income derived by the industry from various uses of the films produced. Specifically, their compensation depends on the copyright fees paid for the use of these films in theaters and on television.

For many years, collective bargaining contracts with all of the major motion picture producing companies and independent motion picture producers have been in existence, which provide minimum compensation and working conditions for the creative and technical personnel associated with the production of motion picture films.

With respect to films made specially for television and to series programs such as dramatic shows and situation comedies, the ones we see so much of on television, the compensation which these groups receive is directly geared to the number of times the films is replaved.

A similar system also applies to theatrical films sold for television exhibition, but the compensation in this case is geared to the producer's gross receipts from such exhibition.

Many years of study and effort have been expended by the different unions in negotiations with the producers to establish this system of compensation, and they have proved to be the fairest and most equitable way of compensating the creative and technical elements which contribute to the final film product.

Any copyright royalties collected by the producers and distributors of television programs from the cable television industry would add to the funds out of which this compensation is paid. Thus, the question before the committee today-namely, a conyright royalty schedule for the cable television industry—is of direct interest to the organizations I represent.

I understand that the cable television industry concedes that it should pay copyright royalties and that the only issue before the committee is how much those royalties should be.

In considering the perimeters of a fair and equitable copyright fee, I believe it is important to consider the compensation presently derived from the exhibition and replay of television programs by the unions. For example, for the year 1972 the compensation paid to Screen Actors Guild members for the television exhibition of theatrical feature films totaled something in excess of $21 million. During the same period the compensation for residuals from the replay of features made for television and series programs totaled something in excess of $12.875,000. If we add the other unions, writers and directors alone, you could double those figures.

Turning to the copyright fee schedule contained in S. 1361, the effective rate provided approximates 1.93 percent of the gross revenues of the cable television industry or approximately $7.63 million based on figures for the year 1971.

one.

This fee, however, would not be payable to only the motion picture producers. It would have to be shared by motion picture producers, networks, broadcasters, performing rights societies and many others.

In short, the portion allocable to the motion picture companies and thereafter by a further percentage reduction to the organizations I represent would be so negligible as to be meaningless.

More importantly, it would not come close to approximating the losses in revenues that the copyright owners would sustain, and thereby the unions would sustain, because of reduced license fees attributable to the ability of cable systems to retransmit television signals as permitted by the FCC.

Based upon these considerations, it is our sincere view that the present fee schedule should be revised. Of course, one method of achieving such a result would be to replace the present schedule with a different

We share the view, however, of Mr. Valenti, that the fairest approach to determining a just and reasonable license fee schedule is to submit the matter to binding arbitration between the parties. This is the method of determining the license fees that the parties agreed to under the consensus agreement, and it would be the most impartial method of determining an equitable fee schedule.

I can attest that in the contracts which the unions negotiate with the motion picture companies, which contain compulsory arbitration, have proven to be a most effective instrument for the settlement of comparable problems.

Accordingly, on behalf of the Screen Actors Guild and the other unions for which I speak, I urge that the fee schedule presently contained in section 111 of S. 1361 be deleted and that provisions providing for compulsory arbitration be substituted to determine a just and reasonable copyright fee schedule for the cable television industry.

Senator MCCLELLAN. Thank you very much.
Do you have anything further?

Mr. VALENTI. Mr. Chairman, we have taken 2012 minutes, which is one-half minute more than you gave us; and we are grateful to you.

Senator McCLELLAN. We have extended the time here. I have been asking questions. I have been doing that on our time, trying to help bring out points that I thought were essential to this record.

I would like to make one comment about your testimony where you say that you understand that the cable television industry concedes that it should pay copyright royalties an the only issue is the amount.

I may say to vou that in the very beginning, even after the court decision that indicated maybe they were not liable for fees, as chairman of this committee and sponsor of this bill, I took the position that they should pay some fee.

The problem all the time has been the amount and originally the idea of placing these fees in there was to get something started. We have lost time, 2 years possibly, by not proceeding to get something established by law, and the machinery whereby it could be carried on.

From my viewpoint in the beginning that seemed fair, and it seemed like the right approach or the probable best approach since the parties were so far in disagreement, to bring this thing to a conclusion and get the problem resolved. Not to everybody's satisfaction, no. I do not

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