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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.

Senator McCLELLAN. I mean do you have to pass it on whatever it is?

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 712 million.

Senator MoCLELLAN. Between what?

Mr. FOSTER. Between 714 and 71,2 million subscribers across the country.

Senator MOCLELLAN. 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 712 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 copyright 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.

Mr. FOSTER. There are no fees provided in the consensus agreement. The only fee schedule that I know of is provided in S. 1361.

Senator BURDICK. The consensus provides arbitration ?

Mr. FOSTER. Yes; the consensus agreement mentions compulsory arbitration.

Senator BURDICK. Suppose we decide the question along those lines, what would be your view?

Mr. FOSTER. I believe that S. 1361 involves the concept of arbitration, except that it puts it at the time when I believe we'll have more meaningful evidence, after the passage of the bill. At that point in time, we will have arbitration.

Senator BURDICK. But you want us to decide right now, to deceide in the meantime what those fees should be.

Mr. FOSTER. We would like you to do that, yes, sir, because I feel that the parties have negotiated with very good intent and all sorts of expertise and they haven't come up with an agreeable fee schedule.

Senator BURDICK. Well, I am looking for wisdom that you asked us to use, to do our best.

Mr. FOSTER. Thank you, Senator. I'm sure you will.

Senator BURDICK. I've got two other questions. Would you describe the need for an exemption from copyright liability of CATV systems with 3,500 or less subscribers ?

Mr. FOSTER. Yes, sir. We feel that these small systems outside the major markets should be given an across-the-board exemption. They have many administrative problems. In those systems already they have endless forms to fill out and file with the FCC. Now, we're just going to put one more burden on them, not only an economic burden, but an administrative burden.

The small systems just do not have the economies of scale built into them that the large systems do. They still have to maintain an office and all of those kinds of things. We just feel that this is an unnecessary burden for a very, very small rate of return to the copyright owner.

And I should mention that not all of our member systems support that move for exemption. Mr. Barco among others does not believe that exemption appropriate.

Senator BURDICK. We have a vote, but I would like to ask this question. If we haven't time to answer it, would you supply the answer for me?

Mr. FOSTER. Yes, sir,

Senator BURDICK. We continue to speak in terms of percentage of gross revenue. Can you estimate under the section 111 fee schedule how much the San Diego, Calif., and the New York City CATV systems would presently pay; and when the systems mature, what would they expect to pay?

Ånd second, what is the gross revenues of these systems; would you supply that to the committee?

Mr. FOSTER. Yes, sir. I will supply that, and I would so supply that not only on the basis of the fee schedule that is in S. 1361 but also on some alternate fee schedules, so that we can see the relative impact on those large city systems.

Senator BURDICK. Sorry we have to vote.
Senator McCLELLAN. Thank you very much.

20-344 0.73 - 27

We will recess until 2 o'clock.

[Whereupon, at 12:08 p.m., the subcommittee recessed, to reconvene at 2 o'clock later the same day.]

[The prepared statements of Mr. Foster, Dr. Mitchell, and Mr. Barco follow:]

STATEMENT OF DAVID H. FOSTER, PRESIDENT NATIONAL CABLE TELEVISION

ASSOCIATION, INC. My name is David Foster. I am president of the National Cable Television Association, Inc., with offices at 918 16th Street, NW., Washington, D.C. 20006. The National Cable Television Association—known sometimes as NOTA-is a national trade association representing a majority of the cable television systems in the United States of America, and is vitally interested in matters affecting CATV.

Let me say at the outset that NCTA is in favor of omnibus statutory copyright revision which includes provision for the imposition of reasonable copyright responsibilities on CATV. NCTA is in favor of the passage of S. 1361. However, because of the evolving technology of CATV, and the business and regulatory atmosphere within which it must operate, we respectfully have several comments and suggestions for your consideration. We thank you for the opportunity to appear before this subcommittee and to assist you in your deliberations.

Perhaps, for the record, it would be well to explain just what a cable television, or community antenna television, or CATV, system is. The Federal Communications Commission (FCC), at 47 C.F.R. $ 76.5(a) defines a CATV system as:

Any facility that, in whole or in part, receives directly, or indirectly over the air, and amplifies or otherwise modifies the signals transmitting programs broadcast by one or more television or radio stations and distributes such signals by wire or cable to subscribing members of the public who pay for such service, but such term shall not include (1) any such facility that services fewer than 50 subscribers, or (2) any such facility that serves only the residents of one or more apartment dwellings under common ownership, control or management, and commercial establishments located on the

premises of such an apartment house. Generally, the CATV system is composed of "hardware" which includes a tower on which are placed receiving antennas strategically placed to receive broadcast television signals where their strength is greatest. Usually, at the base of the tower, a technical facility is constructed to feed the television signals into amplification equipment and the cable network; this facility is known as the "head-end". The cable network is composed of trunk lines, distribution or feeder lines, and the customer taps. These lines, constructed of coaxial cable, may be buried underground or attached to telephone and utility poles in accordance with pole-line or pole-attachment contracts. In order to maintain the strength of the signal at uniform levels throughout the cable network, repeater amplifiers are placed at intervals along the trunk and distribution line. Thus, the subscriber at the end of the line of the CATV system is able to receive as good a picture as the subscriber nearest to the head-end. The trunk line is the torso, the distribution lines the arms, and the customer taps are the fingers of the systems. It is at the viewer's television receiver that the CATV system has both its beginning and its ending, for the service provided by the CATV system comes into the home only when the viewer activates his receiver.

Over this hardware is distributed the "software" which is composed of broadcast television signals in all systems, of non-broadcast television signals in some systems, and of non-entertainment signals in a very few systems. The diversity of the software shows both the extent of the evolution of the CATV industry and its promise for the future if the evolution is not retarded. This is a traditional CATV system. It receives a signal from a central point and distributes it to multiple points.

At this stage of the Subcommittee's deliberations, it is also important that the Committee know that CATV and Pay-TV (or STV as the FCC calls it) are not the same. A nominal fee is paid for the reception and distribution system comprising the CATV system, but the subscriber is not paying for specific programs as he would under a Pay-TV basis. The distinction is made clearer when you consider that pay television is a system whereby the signal is broadcast in scrambled form to be decoded by some device at the receiver so that the signal becomes unscrambled and clear. But CATV does not use the broadcast spectrum.

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