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?

And 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 O - 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 NCTA-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.

It uses cable for the purpose of distributing the signal to the receivers. Pay-TV has separate encoded programs for which they make individual charges; CATV picks up free programs and redistributes those. The FCC and representatives of the broadcasting and CATV industries have recognized the fundamental differences between Pay-TV and CATV.

In United States v. Southwestern Cable Co., 392 U.S. 157 (1968), the United States Supreme Court established that CATV systems were interstate operations, properly to be regulated by the Federal Communications Commission. The Court stated, at pages 168-169:

Nor can we doubt that CATV systems are engaged in interstate communication, even where, as here, the intercepted signals emanate from stations located within the same State in which the CATV system operates. We may take notice that television broadcasting consists in very large part of programming devised for, and distributed to, national audiences; respondents thus are ordinarily employed in the simultaneous retransmission of communications that have very often originated in other States. The stream of communication is essentially uninterrupted and properly indivisible. To categorize respondents' activities as intra-state would disregard the character of the television industry, and serve merely to prevent the national regulation that "is not only appropriate but essential to the efficient use of radio facilities." (Citation and footnote omitted.)

Subsequently, detailed regulations of the FCC were upheld in Black Hills Video Corp v. States, 399 F.2d 65 (8 Cir., 1968).

CATV systems are governed by comprehensive regulations of the Federal Communications Commission (See, 47 C.F.R. 76.1 et seq.). The Commission's regulatory scheme varies, depending on the location of a community within which a CATV system operates, as that community is related to communities designated by the Commission as a "television market." The regulations further distinguish between "major" television markets (which are divided into "Top-50" and "Second-50" markets) and "smaller" television markets.

The major television markets in the country, definded by 35 mile circles around a central point in each market, contain about 85 percent of the population of the United States. This large area has only recently been opened to development by cable television.

Early federal regulations attempted to establish some kind of a formative direction for cable television as it existed then. In the more than seven years that have followed, the Federal Communications Commission has adjusted its regulatory program to reflect changes in the cable television technology. So, when we talk about the regulatory atmosphere within which cable television now must operate, there are essentially four different areas.

First, there is the area regarding the delivery of the signals which are received off the air. Then there is the delivery of the nonbroadcast signals. Then there are technical standards imposed upon the industry. And, lastly, there is an attempt to resolve the very difficult problem of the relationship between Federal, State, and Local regulatory jurisdictions.

I will not be able to cover the details of federal regulation, but with your permission, I will paint the picture with a rather broad brush. If you should have detailed questions, I will be glad to submit a supplementary statement. The number of television broadcast signals that cable TV systems are allowed to carry is determined by their geographic location. If they are in one of the 50 largest markets in the country, they are entitled to carry three full network stations, three independent stations and an unlimited number of "unobjected to" educational television stations as well as an unlimited number of non-English language broadcast stations. When I say "unobjected to" educational television stations, what I mean is that the local educational television station has the opportunity to object to the importation of distant educational television stations; if it does not object, then the cable television operator in a given community can import an unlimited number, provided he can get the microwave frequencies to do so.

In markets 51 to 100 the signal complement is three networks, two independents, again, an unlimited number of unobjected to ETV's, and an unlimited number of non-English language broadcast stations. In addition, in the 100 largest markets, the cable operator, under the new rules, is entitled to import two additional signals, from a distant market, usually independent television stations, which we call two "wild-card" signals. In the small markets, 101 down to about 228, the complement is one independent, three networks, unlimited “unobjected-to" educational television stations, and an unlimited number of

non-English language broadcast stations. In small markets, there is no provision for the importation of two "wild-card" signals.

This means that the cable television operator who faces entry into any locality must measure the available signals off-the-air, fit them to this complement, which the FCC allows him to carry, and then see if he can find an attractive combination which will allow him to market his service.

As a limitation on what the CATV operator can do with those signals, the FCC has incorporated a copyright concept: the concept of program exclusivity. That means if a local television station is broadcasting "I Love Lucy" at 6:00 at night and a station which a CATV operator is importing from a distant market also broadcasts "I Love Lucy" at the same time period, then "I Love Lucy" on the distant, or imported, signal must be blacked out, so that the viewers cannot see "I Love Lucy" on the distant channel. Viewers are forced to turn to their local channel if they want to watch "I Love Lucy". That is the effect of nonduplication, or copyright exclusivity, written into federal regulations.

There are two types of exclusivity which the FCC has imposed on cable television. One is for network programs. There the time period is simultaneous. This means that a network show, "Dean Martin", being broadcast at 9:00 locally and the distant station also broadcasts "Dean Martin" at 9:00, then "Dean Martin" on the distant station must be blacked out.

In addition, there is a very complicated system of non-network exclusivity: What the Commission calls "syndicated exclusivity". It breaks down programs into essentially five categories-off-network series, first-run series, first-run nonseries, feature films, and "other programs" which are really off-network specials. When I say "off-network special" that means that a special has had exhibition on a television broadcast network sometime in the past. The time period is not "simultaneous" in these cases; it varies from one to two years. In some cases, CATV can carry a program broadcast on a distant station one day after it's broadcast on a local station, but exclusion lasts no longer than one year from the first market purchase or non-network broadcast in the local market. This system is a very complicated control of what the CATV operator has to do with respect to "blacking out" signals from distant stations, and are limitations on the use of programs on the distant signals.

In addition, the FCC has moved into the new area of delivery on nonbroadcast signals-the cablecasting or narrow-casting of channels.

New systems in a major television market must also have a certain minimum channel capacity. That channel capacity, as it breaks down into layman's language is 20 channels-twenty 6 MHz channels (a 6 MHz channel is a television channel). It must also provide for equivalent bandwidth so that if it receives off-the-air at its head-end antenna and delivers 12 television signals, it must have a system capacity of 24 channels. So, for each off-the-air television channel delivered the system must also have the capacity of providing one other channel for nonbroadcast purposes. The use of those channels is for the primary purpose of delivery of non-decoded, nonbroadcast signals; or, for the use of nonbroadcast decoded signals; that is, pay TV by wire. The new rules also provide that all new systems in the major markets must have two-way capacity for nonvoice return signals.

The federal regulations also provide that all the new CATV systems have to provide room for access channels. Access channels are divided into essentially four categories. First, there is a public access channel, which must be available for anyone to come in off the street and say his piece. That channel must be nondiscriminatory, it must be noncommercial, it may not make any charges at all except for live production costs of over five minutes in the studio. In addition, the CATV system is required to have the minimal equipment and facilities necessary so that the public can use this channel. Second, federal regulations require provision of an educational television access channel, which must be provided by the CATV system free for the first five years after the completion of the system's trunk line cable. The purpose of the free five-year period, according to the FCC's reports, is to encourage the innovative use of educational television on cable systems. Third, there is a requirement that new systems must have a "government" channel which also must be free for five years after the completion of the trunk line. Fourth, there is the requirement that cable systems must have at least one "leased" channel available for any purpose at all, on either an hourly basis or on a total channel leased basis. There is one other feature of this access channel proposal: The delivery of nonbroadcast signals. That is the requirement imposed by the federal government for an expansion of that access channel capability, provided that on 80 percent of the weekdays (Monday

through Friday) the channels are used for 80 percent of any three hour period in that time, for six weeks running. The CATV system has six months within which to provide an additional channel for these uses. If that access user can supply the product to fill that channel he can then spill over into these other channels until 80 percent of the time in any three-hour period for 80 percent of the weekdays is filled; then he is entitled to still another channel, and that will go on and on as the demand increases.

There are operating rules which the FCC has provided for these channels. For example, on the ETV channel, there can be no commercial advertising, there can be no lottery information, there can be no indecent or obscene material, and records of the use of these educational channels must be kept by the cable system operator for at least two years.

There is one other area that I think might be of interest to you. There are franchise standards adopted by the FCC in their concern about the proper relationship between the local and the federal governments. Every new franchise must weigh, in a full public hearing, the applicants' qualifications, as to their legal competency, their character, financial capability, and technical capacity. The franchise must require that there be significant construction of a CATV system within one year, and the FCC says that they think about 20 percent per year is reasonable. There must be an equitable and reasonable extension of the trunk line in every succeeding year until every person in the community is capable of being served, and the CATV system must reach a substantial percentage of its franchise area. The FCC also provides that all new franchises must be of fifteenyear duration. There must be approval by the city fathers of an initial subscriber rate, and approval of requests for increases in that rate, including the installation rates and the subscriber rates. There also must be in every new franchise a procedure for the investigation and resolution of complaints and there must be maintenance of a local business office or agent by the CATV system in the community for that purpose.

CATV systems operating as of March 31, 1972, are grandfathered, that is they do not have to comply with these regulations until March 31 of 1977, or until the end of their franchise period if it is earlier than that date.

In addition, the regulations also contain the following rule, found at 47 C.F.R. 76.7(a):

On petition by a cable television system, a franchising authority, an applicant, permittee, or licensee, of a television broadcast, translator, or microwave relay station, or by any other interested person, the Commission may waive any provision of the rules relating to cable television systems, impose additional or different requirements, or issue a ruling on a complaint or disputed question. (Emphasis added.)

Thus, the extent of the FCC's regulatory power over CATV system operations appears virtually unlimited except by constitutional protections.

NCTA believes that many of these regulations are for the protection of television broadcasters and copyright proprietors and do not benefit CATV or the public interest. The CATV industry has learned to live with most of them, however, and they should be useful in your deliberations, as we will show later. Despite the regulatory restrictions on CATV, the industry has grown because it provides the additional time and program diversity that the public wants. There are approximately 2,900 cable systems in the United States. There are about 151 systems, having less than fifty subscribers, for which no subscriber data is available. But for 2,749 systems, we find informative the data on cable systems by numbers of subscribers served: 836 systems are in the 50-499 subscriber category; 524 systems are in the 500-999 subscriber category; 502 systems are in the 1000-1999 subscriber category; 404 systems are in the 2000-3499 subscriber category; 163 systems are in the 3500-4999 subscriber category; 215 systems are in the 5000-9999 subscriber category; 83 systems are in the 1000019999 subscriber category; and 22 systems have over 20,000 subscribers. We hasten to point out that these data are approximations, since even the Federal Communications Commission with over seven and one-half years of regulatory experience has had difficulty in assembling usable, accurate data. Incidently, this is one reason why NCTA favors the creation of a Copyright Royalty Tribunal, to assemble and weigh information gathered to assist in the periodic adjustment of statutory royalty fees for CATV.

As NCTA reviewed the prospects for changing the existing copyright statues in order to impose copyright liability on CATV systems, it was apparent to us that certain basic factors must be considered. Those factors can be summarized as follows. The basic CATV system merely provides its subscribers with a service