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Based on the foregoing calculations, our conclusions on the ability of cable systems to develop in major markets and to pay prospective copyright fees is much more sanguine than that offered by Mitchell. The difference derives largely from the unsupportable assumptions made by Mitchell in his analysis--assumptions wholly inconsistent with NCTA members' predictions and recent behavior in cable system sales. Once Mitchell's low penetration rates and conservative revenue estimates are replaced by more reasonable industry estimates, rates of return rise strikingly, even in the face of rather substantial copyright fee payments.
Despite our rather substantial revision of Mitchell's calculations, our estimates of prospective system profitability remain quite conservative for six major reasons.
First, we use Comanor-Mitchell's capital and operating cost data with very little alteration. These estimates have been criticized as considerably high and will probably prove to overestimate cable system costs in future years.
Second, we utilize Mitchell's arbitrary maturity path in our calculations. As cable is built in larger, denser markets, it may be easier for cable operators to enroll subscribers at a more rapid pace.
Third, we assume that no installation fees are collected by system owners despite obvious evidence to the contrary.
Fourth, we assume that every system invests in its own origination equipment. For smaller systems, this may well be a generous assumption if methods are devised to share origination facilities.
Finally, the large microwave costs are arbitrary at best. With the development of new competition in microwave common carriage, and the possibility of satellite distribution systems, it seems likely such costs for each system to build and maintain its own microwave equipment will decline substantially.
Our assumption of future mature penetration levels is more generous than that provided by existing statistical demand models, but these models are seriously deficient in their ability to predict even current demand. Since our projections of penetration derive from estimates offered by major cable companies, we believe that they are more soundly based than the relatively pessimistic values advanced by Mitchell.
The resulting estimates of cable profitability find medium to large size systems earning in excess of 20 percent on capital in nearly every situation in the absence of copyright payments. These returns are above th deemed necessary to attract investment capital to the lustry. Thus, we conclude that substantial copyright fees could be paid without inhibiting the growth of typical cable systems in the country's major markets as they are presently conceived.
Mr. BRENNAN. Mr. Chairman, the next witnesses appear on behalf of the National Association of Broadcasters and the Association of Maximum Service Telecasters.
This will be a joint presentation on behalf of both broadcasting associations.
Mr. Wasilewski, would you identify yourself and your associates, please?
STATEMENT OF VINCENT T. WASILEWSKI, PRESIDENT, NATIONAL
ASSOCIATION OF BROADCASTERS; ACCOMPANIED BY: JOHN B. SUMMERS, GENERAL COUNSEL, ERNEST W. JENNES, ASSOCIATION OF MAXIMUM SERVICE TELECASTERS, INC.
Mr. WASILEWSKI. Mr. Chairman, I appear here both in my capacity as president of the National Association of Broadcasters and also on behalf of the Association of Maximum Service Telecasters. With me today are John Summers, NAB's general counsel and Ernest Jennes, MST's general counsel.
NAB and MST are making a joint presentation because of the very limited amount of time allocated to broadcasters. There is no difference in the positions on CATV copyright.
Now, broadcasters have at least two different interests in CATV copyright. First, broadcasters themselves have ownership interests in some copyrighted material that CATV systems continue to take from broadcast stations without payment and sell to the public for a fee.
Second, CATV systems are in direct competition with broadcast stations for viewers, listeners, and advertising revenue. This competition is increasing and will continue to increase. Indeed, leading CÂTV spokesmen state repeatedly that they hope and intend that cable television will largely, if not entirely, replace free broadcast television.
A law that confers a compulsory copyright license on cable television inherently gives CATỶ an unfair competitive advantage over free broadcasters, who must bargain for copyrighted material they use. CATV would have this unfair advantage even if it had to pay as much as broadcasters for copyrighted material. In fact, it is clear that CATV would pay much less for the same material, not only under the low CATV fee levels proposed in S. 1361 but even under the levels supported by the copyright owners. For example, FCC figures show that the typical television station pays 34 percent of its total revenue for its nonnetwork program material.
Despite the inherent unfairness, NAB and MST have been willing to support limited compulsory licenses in accordance with the terms of the November 1971 consensus agreement, which was also accepted by NCTA and the copyright owners.
We believe that, as provided in that consensus, the fee levels for such compulsory licenses should be determined by an independent arbitration tribunal, and not by statutory fiat. Such a tribunal would have both the time and the expertise to sort out the conflicting claims of the interested parties and the complex and elaborate economic data advanced in support of those claims.
Traditionally, Congress delegates such complex questions to a body equipped to examine them in detail. If the claims of the CATV industry to a very minimal fee are valid, the industry should not be