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diversity of broadcast television programs a cable system can provide, making it more difficult to attract subscribers in the percentages of acceptance enjoyed in the older cable communities.

Obviously, under these conditions—assuming the proposed fee schedule to be in effect-copyright fee payments as a percent of pre-tax income would, of course, become increasingly larger than the average of about 20 percent today, compounding annually the problem of borrowing for and building tomorrow's cable systems. Nothing could be more injurious to the expectations of the public, the cable system entrepreneur, or the copyright owner than to place upon the cable operator, at this particular moment of CATV's growth, an unreasonable demand upon his already strained financial resources.

Given the burden of high copyright fee payments, the cable operator would have no recourse but to pass the burden on to the subscribing public, which is already beset by rising prices for other goods and services. Higher subscriber services charges would serve no useful end for the cable operator or the copyright owner. Cancelled subscription and potential subscriber resistance to inflated subscriber fees would combine to stifle growth and reduce the revenue source from which the copyright owner anticipates his fee and from which the cable operator derives his livelihood.

The copyright owners-chief among which are the motion picture producerswould also have adversely affected their expectations for profit from pay television motion picture services. Reduced interest among potential subscribers to basic cable services reduces the base from which added-services income can be derived, while a slowdown in metropolitan cable construction delays the time at which these services can be introduced in the major markets.

The independent operator currently serving in excess of 3,500 subscribers and the independent owners of proposed systems of whatever size are as much financially threatened by the size of proposed copyright payments as is the multiple system operator. Thus it would seem prudent to reduce Section 111's initial fee schedule by perhaps 50% and permit the process of future abitration, as provided for in Chapter 8 of S. 1361, to exact greater fees should the facts so warrant.

Nevertheless, the CATV industry is willing to support the present schedule of copyright royalty fees, contained in Section 111 of s. 1361, if that is the fair judgment of the Congress.

We would, however, like to point out our best assessment of the distribution of 1971 gross income of $19.6 million from television station purchase of syndicated (not network) programs shows $49.9 to $53.9 million dollars profit to program owners or 25 to 30 percent profit margin. Since NCTA is not privy to broadcaster-program owner financial agreements, we base our assessment of $179.6 million on TV Station Annual Financial Reports for the year 1971 (FCC Form 325) as released by the Research Branch, Broadcast Bureau, Federal Communications Commission. The disbursement percentages of gross income are an accepted averaging of the typical disbursements of syndicated program income, as expressed by one of the nation's largest program producers/distributors of network and syndicated programs. Of this $179.6 million, $53.9 million to $71.8 million (30–40% of gross) went to the distributor and $18.0 million (10% of gross) went as direct costs of distributor as payment for such services as preparation of videotapes, promotional advertising, etc. : $89.8 million to $107.8 million (50-60% of gross) went to the owners of syndicated programs; of which an estimated 50% of the dollar amounts was disbured to talent (writers, directors, actors, etc.) in the form of residual fees: leaving $49.9 million to $53.9 million (25-30%) as profit to the program owners.

In addition to the income received by the owner of syndicated programming, each broadcast station televising the programs receives, through sale of commercial time, advertising income above the costs paid by the station for its syndicated programming-which provides additional profits (to the station) from the syndicated programming.

We now turn to other aspects of the Bill. Section 111(b) makes the secondary transmission of pay-television (STV) an act of infringement and fully subject to civil and criminal penalties. But the rules and regulations of the Federal Communications Commission require CATV systems to carry all television broadcast stations, if within a given geographical area set out before, regardless of whether the station is a commercial broadcaster or an STV station. Here again, the CATV system would be faced with violating the copyright law, or violating the rules of the Federal Communications Commission, paying whatever the program supplier or broadcaster asks to avoid litigation, or going out of business. Further, Section 111(b) has only regulatory overtones-not copyright. Prohibiting secondary transmissions of Pay-TV does not benefit the copyright owner nor the public, since the copyright owner would be paid by both the STV broadcaster and the CATV operator (under the statutory fee schedule) and the public could choose to watch that program if he chose to pay the STV operator for it. We suggest that this is a matter for regulation and not for the copyright law.

Section 111(a) (1) provides an exemption from copyright liability for master antenna systems. We submit that there is no rational distinction, in the eyes of the law, between MATV systems and CATV systems which receive only "local" signals. Each receives the same benefits from the copyrighted programs, and to be fair to copyright holders, each should pay royalties under the statutory fee schedule. Further, it would be unfair to subject CATV systems to payment of a copyright royalty if an apartment house owner in the same area was not required to pay. It seems more prudent public policy to leave these two reception and distribution facilities on an even competitive footing by striking Section 111(a) (1).

By the same token, Section 111(a) (4) exempts non-profit and government owned CATV systems from the requirement to pay fees. Here, again, it would seem more prudent public policy, in light of our national policy encouraging private enterprise, to leave these two reception and distribution facilities on an even competitive basis by striking Section 111(a) (4).

We are cognizant of, and completely agree with the Chairman of this Subcommittee when he stated on introduction of S. 1361, in remarks found at S5615 of the March 26, 1973, Congressional Record :

Section 111 of the legislation approved by the subcommittee contains a comprehensive resolution of the CATV question, including both regulatory and copyright matters. The subcommittee adopted such a comprehensive provision in response to the recommendations of the then Chairman of the Federal Communications Commission. When Mr. Dean Burch became Chairman of the FCC he consulted the subcommittee concerning the development of coordinated procedures by the Congress and the Commission to facilitate a resolution of the CATV issue, and to permit the orderly development of the cable industry. Under the effective leadership of Chairman Burch substantial progress has been achieved in creating a constructive cable televi. sion policy for this Nation. The regulations adopted by the Commission are generally consistent with the recommendations made by the subcommittee in section 111 of the copyright bill. It is therefore anticipated that when the subcommittee processes the revision bill, it will eliminate those provisions of a regulatory nature that were the subject of the recent FCC rule-making proceedings.

The subcommittee determined that the public interest justified, and practical realities required, the granting in certain circumstances of a compulsory license to perform copyrighted works. The subcommittee approved such licenses as part of the cable television, mechanical royalty, jukebox royalty, and performance royalty sections of the revision bill. With respect to each of those issues, the subcommittee decided that the Congress would determine the initial royalty rate, and that a Copyright Royalty Tribunal would be established for the purpose of making periodic review and adjustment of the rates.

It has been proposed that special treatment should be accorded the cable television royalty issue. The principal justification for this position is a private agreement developed by Dr. Clay T. Whitehead, Director of the Office of Telecommunications Policy. The Whitehead agreement has been generally interpretated as seeking to eliminate the Congress from any role in determining cable television royalty rates. Even though public law places copyright affairs exclusively in the legislative branch, neither the Copyright Office of the Library of Congress, nor the House or Senate subcommittees having jurisdiction in copyright matters, were represented at

Dr. Whitehead's meetings. We therefore urge that “provisions of a regulatory nature that were the subject of the recent FCC rulemaking proceedings ...” be eliminated in order that regulatory flexibility be maintained for now and in the future and in order to minimize the chance for conflict between requirements placed on CATV systems. If the Subcommittee so desires, we will be most pleased to supply recommended statutory langage ot accomplish that purpose.

We believe, however, that the Subcommittee has accomplished a well-research. ed, thorough, and fair resolution of strictly copyright matters. We do recommend that the provisions relating to a sports "blackout.” (Section 111(c)(4)(c)) containing both anti-trust and communications policies, should also be eliminated for reasons which others will detail later in these hearings. For now, we suggest only that such matters be left to the Federal Communications Commission or other appropriate bodies where the benefits of flexibility can be maintained.

Subject to our previous comments on the amount of copyright royalty fees, we favor the adoption of Section 111(d) as written. We believe that the language of that subsection leaves regulatory matters properly in the hands of the administrative agency charged with the responsibility of regulating communications, with all of the advantages of administrative flexbility inherent in that approach. We also believe that it fully complies with the FCC's position on legislation contained in Chairman Burch's March 11, 1970, letter to Senator Pastore. Most importantly, we believe it to fully serve the public interest. We do suggest, however, that in order to allay the burden of copyright payments on small, family owned, single cable systems, systems of 3,500 subscribers or less be exempt from the payment of copyright royalty fees, and that an appropriate amendment be made to accomplish that purpose.

We also support the provisions of Section 111(e) as written, save for clerical adjustments to reflect the elimination of the regulatory aspects previously mentioned. Here again, the public interest will be served by allowing the Federal Communications Commission the latitude and flexibility to regulate an emerging and rapidly changing communications technology, yet giving all parties a forum to pursue whatever relief is deemed appropriate.

With respect to the definitions contained in Section 111(f) (1), we suggest changes in the definitions, deleting the present language and substituting therefor the following:

"(A) A "primary transmission” is an audio, video, or audio/video broadcast of a work subject to enforcement of the remedies provided by this Act, made to the public by a facility the signals of which are being received or further distributed by a cable system, regardless of where or when the performance or display was first transmitted.

(B) A "secondary transmission" is the further distribution of a "primary transmission" by a cable system simultaneously with the primary transmission.

(C) A "cable system” is any facility providing a cable service which in whole or in part receives signals transmitted by one or more broadcast stations licensed by the Federal Communications Commission and simultaneously distributes them by wire or cable or radio to subscribing members of the public within a political subdivision within which the facility operates."

With respect to the other definitions contained in Section 111(f) we believe them to be sufficiently precise, and in any event subject to review and change by the Federal Communications Commission.

In order to be fully consistent throughout the Act, we suggest that Section 110(5) be amended by adding:

"Or (C) The transmission is made consistent with the purposes of Section 111 of this Title." We believe that this slight addition will clarify the relationship of secondary transmissions to the dissemination of educational television programs to the public in the event they wish to substitute the CATV reception and distribution service for an individual receiving antenna.

Finally, we submit that no limitation should be placed on the reception of programs by way of CATV which are not copyrighted or subject to copyright.

In conclusion, I wish to thank the members of this Subcommittee and its staff for providing the public with a Bill so well drafted that it requires, in our judgment, very little change from what has already been noted in the introductory remarks of the Chairman which I have previously quoted.

I believe this Bill, if enacted, will not be easy for the CATV industry to live with—but NCTA believes that it well protects the public's interest-and it is that interest which we must all strive to serve.

Thank you for your courtesy and consideration. If we may be of further service in providing additional information or suggested statutory language, we shall be most pleased to do so.

CABLE TELEVISION

UNDER THE 1972 FCC RULES AND THE IMPACT OF ALTERNATIVE COPYRIGHT FEE PROPOSALS

AN ECONOMIC ANALYSIS

by

BRIDGER M. MITCHELL

in Association With

ROBERT H. SMILEY

September 20, 1972

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