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leave the determination of the fee to binding, dispassionate arbitration. One of its two competitors, the American Society of Composers, Authors and Publishers (ASCAP) arrives at the same result through fixation of fees by the Federal Court The other, Sesac, Inc., has similarly expressed willingness to arbitrate.
BMI speaks for no insubstantial interests. The music it licenses is a bandmaiden to almost all television programs and it constitutes the major focus of interest of much television programming. When it comes, however, to the performance of music by radio (apparently with no restrictions of any kind on the extent of retransmission of programs from radio stations) it must be kept in mind that the overwhelming bulk of radio programming consists of the performance of music. Music licensed by BMI occupies a major role in all musical programming. The music licensing organizations should justly be considered to be in the forefront of “copyright owners."
BMI is, moreover, crucially important in the furtherance of the basic national interest in encouraging and maintaining the flow of music. Payment from performing rights constitutes the bulk of the income of most composers, lyricists and music publishers. Almost 90% of this income is derived from broadcasting. The basic theory of the copyright law, founded on the Constitution itself, is that the function of copyright is to promote the progress of art by the establishment and protection of the rights of authors. This right has always been implemented by the payment to authors of a proportion of the amounts received by commercial enterprises which use copyrighted works in public performance. The fee is traditionally arrived at by arms-length bargaining. In the case of music licensing there is ultimate recourse to arbitration or (in the case of ASCAP) court fixation of fees, where voluntary bargaining fails.
We cannot empasize too strongly how satisfactorily this system of licensing the performance for profit of nondramatic musical compositions has worked. Broadcasters who have licenses from the three established United States licensing organizations have for decades been unharassed by any claim by others. They use music without hindrance to satisfy the varying tastes of American audiences. They have available to them not only the music of the United States but, through reciprocal agreements between U.S. performing rights licensors and performing rights organizations in other countries, all the music of the world. It should be noted that in other countries of the world CATV is presently included in this system of licensing and is treated in precisely the same way as broadcasting. A system that works with such simplicity and effectiveness should not be destroyed without preponderating necessity.
As we have indicated, the expressed fears of CATV operators have no existence in music licensing and including such licensing in a system designed to deal with the wholly different problems involved in the licensing of other programmatic material is without justification. We must also add that music is no less entitled to special treatment than sports events.
The compromise proposal put forward by Mr. Whitehead and accepted, with some reservations, by the National Cable Television Association (NCTA), the National Association of Broadcasters (NAB) and a group of motion picture producers states:
“Unless a schedule of fees covering the compulsory licenses or some other payment mechanism can be agreed upon between the copyright owners and the CATV owners in time for inclusion in the new copyright statute, the legislation would simply provide for compulsory arbitration, failing private agreement on copyright fees."
We accept this principle.
The first step in implementing such a proposal would obviously be negotiation. Unbelievable as it may seem, there has been no negotiation with the music licensors. BMI was not a party to the compromise agreement. It knows the terms of such agreement only from the trade papers. No one spoke for the music used so large in television and so predominantly in radio. Since the basic quid pro quo of the compromise relates to exclusivity, no part of that consideration extends to the writers and publishers of music. The music licensors are left out in the cold.
BMI has long sought to negotiate with the NCTA. We reiterate in the strongest terms our willingness and desire to negotiate in the utmost good faith with CATV owners. We are confident that, if good faith prevails, a satisfactory voluntary agreement will result. Such an agreement, clearing the decks for the unrestricted use of our musical repertory under a single license on reasonable terms, for all purposes, in all manners, and by all means of dissemination utilized by CATV is what the public interest to be served by the CATV industry requires no less desperately than do the writers and publishers of music.
The acceptability of arbitration has been widely supported. Moreover, both the 1970 Rand Memorandum and the recent Sloan Commission Report recognizes the availability of the blanket music licensing system of the music performing rights organizations as a means of solving some of the problems involved in copyright licensing.
We stand ready to make our repertory available to CATV systems in the same way as it is made available to every other class of music users, including broadcasters. We are willing that the CATV systems should have full rights to our repertory under a single license and on a non-discriminatory, non-exclusive basis for every type of use. We stand ready to negotiate and, failing negotiation, to have the fees determined by dispassionate arbitration. We are ready to offer such licenses for a reasonable term and on payment of a reasonable percentage of the gross receipts of the CATV system. We will not require individual clearance of specific works or performances of works.
If the CATV operators do not implement negotiation or arbitration on such a basis, we will accept legislation which provides for compulsory arbitration of all retransmissions. Such statutory compulsory arbitration could be made operative only with respect to performing rights organizations certified by the Register of Copyrights as being primarily engaged in the licensing of copyrights music substantially performed hy United States broadcasters, the primary transmitters.
The necessity for special treatment of music renders inapposite extended comment on the other two questions raised in Mr. Brennan's letter.
Clearly, however, we do not favor the exemption of CATV systems having fewer than a stated number of subscribers. The persons who utilize music publicly for profit should pay a reasonable fee. The accumulation of payments from a substantial number of small operators results in necessary and deserved compensation for the creators of musical works. Fixing compensation by a percentage of gross recipients prevents such payments from being burdensome to smaller commercial operators.
With respect to the question of "whether royalty rates should be determined by a single graduated formula of a percentage of the gross reecipts paid by subscribers for the basic service of providing secondary transmissions or whether the formula should provide a basic rate for carriage of local signals, with an additional charge related to the number of distant signals carried by a particular system,” we emphasize that the method of music licensing that we put forward requires payments of a percentage of the gross receipts of the CATV system from all sources covered by our license.
Even since section 111 was formulated, CATV systems have become more sophisticated in their origination of programs, choice of programs, carriage of distant signals over the air by a variety of technical means, number of channels available, carriage of advertising, interconnection of systems, pay TV, ultimate availability of satellites and in other respects. No one can foretell from what source any individual CATV system will derive important income. We feel that the music licensing organizations can achieve a reasonable rate of payment only by arms-length negotiation or, failing this, by arbitration or court fixation which permits the basing of fees on all applicable income.
Not only is the position we advance essential for the support of the writers and publishers of music, but it is in the best long-range interest of CATV, which should have the same unlimited access to the music of the world as is enjoyed by every other type of music user. The music performing rights licensing system which is operative all over the world functions with extraordinary efficiency in the public interest. It obviates every problem which the CATV operators have raised as a possible limitation on the growth of their industry. It exposes the CATV operators to no unreasonable fees, but only to such fees as, in the absence of agreement, are impartially determined. To discard such a system in the absence of any existing need or grievance would, indeed, be to throw the baby out with the bath water.
New York, N.Y., July 25, 1973. THOMAS C. BRENNAN, Chief Counsel, old Senate Office Building, Washington, D.O.
DEAR Tom; In addition to the joint statement of ASCAP, BMI and SESAC being presented on August 1st on the cable television matter, it was agreed that
our organization could submit an additional statement. I am therefore enclosing
STATEMENT OF SESAC INC. THROUGH ALBERT F. CIANCIMINO, COUNSEL, TO THE
UNITED STATES SENATE SUB-COMMITTEE ON PATENTS, TRADEMARKS AND Copy. RIGHTS
By letter dated December 15, 1971 Thomas C. Brennan, Chief Counsel to the Sub-Committee on Patents, Trademarks and Copyrights, invited SESAC to comment on the content of modified Section 111. More specifically, three issues were referred to us in Mr. Brennan's letter for comment. I would like to treat each of these items in the inverse order in which they were listed in Mr. Brennan's letter. 1. WHETHER ANY PARTICULAR TYPE OF PROGRAM MATERIAL SUCH AS MUSIC OR PRO
FESSIONAL AND COLLEGIATE SPORTS REQUIRE SEPARATE TREATMENT IN THE CABLE SECTION OF THE COPYRIGHT BILL
As the second oldest, but smallest of the three major performance licensing organizations in the United States, SESAC has, during its more than 40 years existence, successfully negotiated voluntary licensing agreements with virtually every radio and television station in the United States, with thousands of hotels, nightclubs, cabarets, as well as with other users of music such as professional football and baseball teams. We have, in each instance, made available to such music user a repertory of more than 120,000 copyrighted musical compositions for use on a non-exclusive, non-discriminatory basis in return for an annual license fee which has been accepted by virtually every music user as reasonable.
There has thus far been little need for resort to an individual tribunal to resolve disputes arising out of SESAC's rate schedules. However, SESAC has gone on record, both before the Whitehead Commission and this Senate Sub-Committee, as being willing to accept a system for compulsory arbitration in the event that cable television operators and SESAC cannot reach a private agreement.
Without belaboring a point which has often been made in the past, I believe it should be clear to all concerned that vis-a-vis the music copyright proprietor the cable television industry does not have any of the fundamental problems which have existed between the cable television industry and other types of copyright proprietors such as motion picture owners and broadcasters. We do not create difficulties with the cable television operator on such issues as exclusivity, availability and distribution of monies collected. I believe that the performing rights industry has also met any anxieties on the part of Congress concerning the possibility of unreasonable rates being demanded of the cable television industry by our willingness, in the case of SESAC and BMI, to submit to compulsory arbitration and, in the case of ASCAP, to resort to the Courts of the Southern District of New York in accordance with their consent decree.
It is for these reasons that SESAC strongly urges this Sub-Committee to provide for separate treatment in S. 644 for the licensing of cable operators to carry non-dramatic performances of copyrighted musical works on secondary transmissions. A compulsory license for the use of non-dramatic musical compositions is necessary only in the event that cable operators do not have available to them a determination by an impartial tribunal in the absence of a mutually agreed-upon rate.
II. EXEMPTION OF SMALL CABLE SYSTEMS The second issue on which our comment has been invited is whether or not there should be an exemption from copyright payments of independently-owned cable systems having fewer than 3,500 subscribers. SESAC can see no justification whatsoever for such an exemption. There seems to be no valid reason why a distinction should be made in the area of public performance of copyrighted music for profit between a small and a large cable system. The fact that smaller systems may not be making as much profit as larger systems will un
doubtedly be reflected by a smaller copyright payment to music copyright proprietors should some rate system based upon a percentage of income be adopted. It certainly appears to be self-evident that secondary transmissions by smaller systems are, in substance and form, identical to secondary transmissions by larger systems in context of the theory of licensing public performances for profit in both the Copyright Law of 1909 and, thus far, the proposed new Revision Bill S. 644.
III. FORMULA FOR A STATUTORY RATE
SESAC has been the only one of the three major licensing organizations not to charge radio and television stations on the basis of a percentage of their gross receipts. SESAC's rates in the area of television are based in the main on the television station's advertising rate and the population of the market area served by the station. In the area of radio licensing, SESAC's annual fees are based upon factors which reflect the radio station's profit potential. These factors are the station's location, the size of the community served, the hours of operation, the advertising rates and, most important of all, the power classification of the station. In order to promote uniformity in the area of licensing cable television, SESAC has advised representatives of the cable television industry that it will accept a formula based upon a percentage rate as opposed to a flat fee rate.
SESAC favors the principle of compulsory arbitration failing private agreement on copyright fees for music. SESAC does not favor the principle of compulsory licensing. SESAC is of the opinion that the availability of compulsory arbitration will insure the negotiation of a fair and reasonable rate for the use of music. Such a rate should be predicated upon a percentage of all revenue received by a cable system and not solely upon subscriber income.
The flexibility and acceptability of a voluntary schedule of fees rather than statutory rates, is I believe, quite apparent. However, should there be a statutory rate formula in S 644 applicable to non-music copyright proprietors, it is suggested that such a formula should provide for a percentage of the gross income of all revenues received by the cable system. As to the two alternatives set forth in Mr. Brennan's letter of December 15, 1971 it would appear that the first alternative of a percentage of a single graduated formula wins by default. I fail to see the justification of making additional charges for the number of distant signals carried by a particular system without regard to qualitative content of the signal or the profit potential caused by importing such signal. By taking a percentage of all revenues derived by the cable system, it would seem that all factors are considered, including the number of distant signals carried. Presumably a system carrying an abundance of distant signals would be more attractive to the consumer and therefore result in greater revenue to the system and thus a higher copyright fee.
In conclusion, SESAC feels that music should most certainly be treated separately from other types of program material. With the safeguard of compulsory arbitration, all that is truly necessary in S 644 would be a statutory provision for such compulsory arbitration in the absence of a voluntary negotiation of rate by and between the cable system and the music copyright proprietor. Payment of royalties for the use of music should be made directly to the licensor of the performing rights. Only in this manner, will the Senate allow for the economic, streamlined method of making available substantial repertories to the cable industry for any and all type of use, i.e., both secondary transmissions and the origination of programing by the cable system. A compulsory license in the statute dealing with secondary transmissions will not solve the issue of licensing primary transmissions on the part of the cable system. We submit that a completely voluntary negotiation between industries backed up by compulsory arbitration is the solution. Respectfully submitted.
ALBERT F. CIANCIMINO,
Counsel, SESAC Inc. Mr. BRENNAX. The National Cable Television Association has been allocated 40 minutes.
Would you identify yourself for the record ?
Mr. FOSTER. Mr. Chairman, my name is David Foster. I am president of the National Cable Television Association. On my immediate right here is Mr. Stuart Feldstein, who is general counsel of the association. On his right is Dr. Bridger Mitchell, an economist who will be presenting some testimony regarding the economic facts surrounding the livelihood of the cable television industry. And on my left is Mr. George Barco, who will give the third segment of our testimony. Mr. Barco is a cable system operator and a distinguished member of the Pennsylvania Bar. We felt that it was most important at this time to let you have the viewpoint of an actual cable television operator, someone who is facing the economic facts of our industry.
Senator McCLELLAN. Who is the gentleman immediately on your right.
Mr. FOSTER. Mr. Stuart Feldstein is NCTA's general counsel. He will not be making a presentation but will be available to answer questions.
Mr. Chairman, I have submitted a rather lengthy statement, which I would like to include in the record. I will not read this statement at this time, but rather will speak to some of the points that have been raised by the prior presentations.
Senator MCCLELLAN. You want all of these submitted? They are extensive statements.
Mr. FOSTER. Yes.
They may be received and made a part of the record. You have 40 minutes. If we have any questions, we will try to do that on our time. We want to give you the opportunity to make your presentation here, but we want to move along, to expedite it.
STATEMENT OF DAVID FOSTER, PRESIDENT, NATIONAL CABLE
TELEVISION ASSOCIATION; ACCOMPANIED BY DR. BRIDGER MITCHELL, ECONOMIST; GEORGE J. BARCO, COUNSEL, PENNSYLVANIA CABLE TELEVISION ASSOCIATION; AND STUART FELDSTEIN, GENERAL COUNSEL TO NCTA
Mr. FOSTER. I should also note, Mr. Chairman, that in the audience today are a very large number of cable system operators. I would say most of them are smaller operators, what we call our mom and pop operations. We say that with no lack of respect because many of these actually are mom and pop operations where the husband in the family is the technician for the system, and the wife keeps the books and answers the phone. These are people that are really concerned about the impact of copyright legislation.
Let me first answer the question that you asked Mr. Valenti about his views on copyright schedules and fee schedules that differ from the ones included in S. 1361. Let me say that although we are supporting S. 1361, on page 35 of my testimony I have indicated that the facts that we have been able to develop with the research that Dr. Mitchell has done and the input that we have had from our cable operators, indicate that a fee schedule of 50 percent lower than the fee schedule included in S. 1361 would be more appropriate.
As I have said, we are supporting the bill because we think it is a bill that can pass the Senate and thus, we can get on with this copyright issue. We have stated that we support the bill and we believe