ers during the sessions which I attended were such that all efforts to deal with them were vigorous exercises in futility.

The representatives of these copyright owners were completely uninformed as to the nature of CATV operations, their financial aspects and the specific current problems facing the industry; and they were evidently determined to maintain their ignorance on these matters. Furthermore, they displayed a callous disregard of the consequences of their exorbitant and totally unrealistic demands.

Thus, when they were informed that our industry simply could not pay the demanded 16 percent fees for movies alone, added to fees proposed for music and other copyright of over 12 percent, the response was a blatant "pass it on to the subscribers and tell them it is a cost of doing business."

When we attempted to cite the absolute and practical limitations to service charge increases by way of clearances through the municipalities on whose franchises the operations must depend and by way of business fact that subscribers either could not or would not-make such payments, the blunt rejoinder was "just pass it on to the subscribers anyway."

I must observe that the FCC, in insisting on copyright payment as one of the conditions to the easing of restrictions on CATV growth, placed a perhaps unforeseen, but nonetheless, tremendous pressure on the CATV representatives in the bargaining process. The copyright owners were under no similar burden, and, in fact, they maximized their advantage by insisting, in effect, that this condition amounted to a requirement that CATV settle on the terms of the copyright

owners.

In the end, it was painfully clear to even the most optimistic and the most tolerant of those representing NCTA that fair, realistic, and responsible dealing with the copyright owners had been and is an utter impossibility.

Gentlemen, I put aside completely my firm conviction that copyright payment for the reception of television signals received off the air is wrong in principle and discriminatory in effect. I address myself now to the consequences of the imposition of copyright payments which this industry simply cannot afford to pay on its growth, development, and yes, its survival. Let me capsulize the difficulties of cable television operations today.

Of course, like all other business, we are plagued with increased costs incident to the inflationary period in which we are living. Substantial basic costs like pole attachment fees currently are being increased from 40 to 70 percent across the Nation.

FCC technical standards will require great expenditures in system rebuilding in the next several years with correspondingly increased operating costs. Compulsory cablecasting is still a requirement for systems over 3.500 and operating costs for even a modest operation run into tens of thousands of dollars annually.

As against this spiraling of costs, there is a definite and absolute limit in the possibilities for service charge increases, either because approval cannot be secured from the muncipality or other franchising authority, or because the market conditions will not support the increases, or for both reasons. At the same time, there are converging interests by State and local governmental units seeking control, re

straints, and services, sometimes duplicative, sometimes inconsistent, all exacting upon the total resources of the cable industry.

Added to these problems of existing systems, new systems have the added burdens of the staggering costs and special difficulties of system construction and operation in the large and metropolitan city areas, and the feasibility and acceptance of CATV service in such areas are yet to be established.

The experiences to date in the New York City and Akron, Ohio, systems are instructive on the vicissitudes and hazards of such ventures.

Senator MCCLELLAN. We note that your time has expired.

Do you want to place the rest of your statement in the record?
Mr. BARCO. I would.

Senator MCCLELLAN. We probably ran over a little with the others, so I will give you 3 or 4 minutes, and then you can place the rest of it in the record.

Mr. BARCO. I would want to say, Senator, if I may, please, that there are several specific recommendations which we would like to make, and if will allow me.

you

Senator MCCLELLAN. What?

Mr. BARCO. There are several specific recommendations we would like to make, if you will permit me to do that. We will place the rest of my paper in the record.

Senator MCCLELLAN. All right. Let the rest of the paper be placed in the record.

We are going to run out of time pretty soon. I'll give you time to make the specific recommendations right quick.

Mr. BARCO. First of all, sir, I believe that compulsory license should extend to the reception service of all signals received off the air. In addition to the basic facts and principles which support this treatment, noted earlier, it should be observed that copyright owners utilize the great public resource of the radio and television spectrum without charge. If the copyright owners choose to make use of the tremendous capability of this resource for mass dissemination of their products, with corresponding increased coverage and return, it is wholly unreasonable and unjustifiable for them to insist on all the benefits of broadcasting and yet maintain the same control as if they had provided their own contained arena or exhibition hall.

I would also like to make one other point and then I think I will terminate. In all of these dealings, gentlemen, up to now, there has never been afforded to the viewing public an opportunity to be heard on this matter.

And I submit to you that with the growing concern that there is on the part of the Members of our Congress, and all governmental units, to protect the consumer's rights, this is a matter of real concern. That is why we believe this is a matter that must be decided by the Congress, rather than with the copyright owners, with whom we have not been able to reach any accommodation.

Senator MCCLELLAN. Let me ask you one or two questions with respect to the cable TV systems. Do they have to get a franchise to operate in a city or a given area?

Mr. BARCO. Yes, sir.

Senator MCCLELLAN. Does that franchise fix or limit the fees you can charge, the service fees?

Mr. BARCO. In most every case, it does, sir.

Senator MCCLELLAN. In other words, can you pass onto the subscriber, any increase, if you pay for a copyright? Or do you have to pass it on within that franchise limitation?

Mr. BARCO. It would be our hope, Senator McClellan, that the fees would not be more than 1 to 2 percent.

is?

Senator MCCLELLAN. I mean do you have to pass it on whatever it

Mr. BARCO. I'm coming to that point. It would be not more than 1 or 2 percent of the income realized for television reception service. payment. We believe that the industry can accommodate itself and absorb it.

But if it is more than that, we would necessarily be forced to pass it on. And by way of illustration of the problem that we get into, if we were to meet these demands that are made on us, let me tell you that there are 11 different municipalities in Pennsylvania that absolutely refused to allow any increase of rates in the past year, even though these companies showed they were operating at a loss.

This is the fact of life with which we have to live.

Senator MCCLELLAN. Do we have from anybody here the total number of subscribers to CATV systems in the Nation? Do we have that total number?

Mr. FOSTER. It is estimated at the present time between 7 and 71⁄2 million.

Senator MCCLELLAN. Between what?

Mr. FOSTER. Between 74 and 712 million subscribers across the country.

Senator MCCLELLAN. Now, what percentage of those are in the 100 percent markets, and what percentage are in the lesser markets; the 100 category and the lesser category?

Mr. FOSTER. I would estimate that of the 72 million, about a million are within the top 100 television markets today.

Senator MCCLELLAN. All right.

I want to ask one question of Mr. Mitchell. You pointed out in your statement you have, in addition, analyzed the probable effects of a fee schedule exactly one-half of that in S. 1361, and you point out what that would be.

Dr. MITCHELL. Yes, sir.

Senator MCCLELLAN. You have also testified concerning the 16.5 percent copyright figure. A copyright payment is the amount, I understand, that the copyright owners have suggested.

Dr. MITCHELL. I understand that was an early proposal on the negotiations, sir.

Senator MCCLELLAN. Is that a copyright owner suggestion?
Mr. MITCHELL. I don't know what it is now.

Well, let me ask you this-analyze it on the basis from 2 to 10 percent instead of 1 to 5. I would like to see what that will do. If you have it, you may do that and submit it for the record and anyone else may submit some figures on that line. I would like to see those.

The issue here is what can the industry stand and still operate at a profit and provide the services. Personally, I would like to see a fair compensation paid to the copyright owner, and I think that we need to take into account the fact that they have already gotten a copy

right fee from the broadcaster. And what the service does, it adds on to the value of what the broadcaster sells him.

But I still think, I still think there should be some consideration, some remuneration paid by CATV because they profit out of it, too. There is an equity here, a balance of equities that we should be able to find.

Very well, Senator Burdick?

Senator BURDICK. Thank you, Mr. Chairman.

Senator MCCLELLAN. I understand we are going to have a vote, that's why I was trying to hurry along.

Senator BURDICK. I will be very short. I only have two or three questions. But my first question will be to Mr. Foster.

Section 111(d) sub (2) attempts to establish a rate schedule to be paid copyright owners for the use of their copyrighted material by CATV. Assuming that's desirable, then we are confronted with a real question.

You have testified that you have used the best brains you could find. You used economists. You used a lot of talent, the parties did, trying to arrive at a fair figure.

And you concluded by saying, you are leaving it to the Senate's wisdom. Well, I have got to have more than wisdom. I have to have some basis for this. I am not divine.

Isn't there something the parties can do to give us some basis to publish that?

Mr. FOSTER. Well, we feel we have provided the testimony from Dr. Mitchell, who is here today. He indicates that the fee schedule that's in S. 1361 will provide marginal profitability for cable television systems. And even a schedule of half that much would encourage some probability, but not a great deal.

Senator BURDICK. Well, I think it is extremely important that we fix something that is reasonable to start with, for this reason. Under the act, we find described in the function of the tribunal, quoting the subdivision of this chapter, that the purpose of the tribunal shall be one to make determinations concerning the adjustment of the copyright royalty rates specified by sections 111, 114, 115, and 116; and to assure that such rates continue to be reasonable.

So, one of the duties of the tribunal is to see that reasonable rates stay reasonable, and I am just wondering if there isn't something more that the contending parties might give this committee to arrive at that reasonable rate now.

Mr. BARCO. Senator, may I offer a suggestion? The Canadian CATV Association made a study of over 1,000 systems that they have up there, and they have some very large systems-incidentally, larger than any that we have had in this country here. And their studies show that the net return for all of the systems is under 5 percent on the investment involved. The penetration, Senator, is much higher than it is in our country here.

Mr. FOSTER. Senator, let me answer that by saying if I felt that 2 weeks of testimony before this committee would produce factual data that would support one fee schedule against another any better than we have supported from Dr. Mitchell's testimony, I would be glad to provide that date. But I just don't believe that it is there.

And therefore, I think we have to accept some degree of arbitrariness with this initial fee schedule. We would like to get on with the task of paying these copyright fees. I know that it must sound a little bit ludicrous for somebody to want to hurry up and start paying fees, but as you know, we get called pirates and thieves and parasites in lots of different places. We would like to clear the air on this and get a fee schedule going and get some experience with it.

Senator BURDICK. I understand, Mr. Foster, that you are asking us to find a fair fee that private citizen A pays private citizen B without factual basis.

Mr. FOSTER. I feel that there is enough basis in the material that we have presented that indicates that there is support for a fee schedule of one-half the schedule that is in the bill. We have supported the fee schedule in the bill, because quite frankly we felt that that bill, in its present form, with some minor amendments, has a good chance of getting passed. We can then get beyond this copyright issue and move on to the other very vexing regulatory problems that we have.

Senator BURDICK. Well, let me try this one. Suppose this subcommittee decided after these hearings that we should rewrite section 111 to conform in all respects to the consensus agreement reached among the respective parties, including your association, in November 1971.

Would your association have any objection if we decided we would extend the compulsory license only to CATV retransmission of local TV stations and such distant TV stations as are permissible under the FCC 1972 rules, so that any cable retransmission going beyond the level of signals would be subject to normal copyright law liability.

Mr. FOSTER. Well, we feel that way that that problem is handled in the bill as it now stands is most appropriate. To answer the first part as to rewriting this bill in the light of the consensus agreement, I think I might be able to answer the question a little bit differently if we could adjust all of the rest of the regulatory world to also conform with the consensus agreement if, for example, the FCC would change its rules on nonduplication in the Rocky Mountain time zone, in which it has not conformed to the consensus agreement.

In other words, we regard the consensus agreement as a document that got the parties off center as far as getting some new rules in place. Already the new rules have been changed in some respects. There have been complications in the rules-and the FCC has indicated that they are going to have to correct them-and we have moved on from the consensus agreement.

But on the issue of copyright, we have always felt that the undergirding intent of the agreement was to get early passage of copyright legislation, and that is what we have been about. We have been working pretty hard to get S. 1361 going, because we feel that is our responsibility

Senator BURDICK. You were in agreement with the consensus agreement at that time?

Mr. FOSTER. Yes, indeed. We were a signatory to the agreement. Senator BURDICK. Suppose this committee also decided that since the parties have not reached an agreement on the amount of fees, the matter should be resolved by the arbitration tribunal, as contemplated by the consensus, and use the fees of the consensus in the meantime.