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like pole attachment fees currently are being increased from 40% to 70% 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 municipality 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, restraints 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.

The Committee is being furnished with specific data on the overall financial capacity of the industry. It is my sincere and firm opinion that even without copyright payment, the industry is entering into a tight squeeze situation in which it will have real difficulties to "hold its own," let alone to develop and grow. Against these present day industry conditions, it is left for this Commission to deal with copyright in terms of the consequences, something the copyright owners refuse to do.

I respectfully submit that a proper concern for the interests of the subscriber as a consumer demand that no copyright payment should be imposed which cannot be absorbed by the industry, without passing the copyright charges to the charges to the subscriber.

Aside from the fact that for reasons indicated it may not be possible for these charges to be passed on, it is unthinkable that the copyright owners should, in effect, come into the very homes of the subscribers to secure additional payment just because reception is being provided through a wired system. Furthermore, the disturbing fact is that in all of the deliberations within NCTA, in all of the negotiations with the copyright owners, in all of the hearings and discussions with the FCC, the subscriber has never been independently represented ; and he has never had an opportunity to be heard. I am confident that this Committee will act with due regard to the subscriber's interest, in keeping with the enlightened present-day concerns for the consumer who in the end supports the entire enterprise.

Further, I respectfully submit that a proper concern for the future growth and development of cable television and the services it can provide to the public, demands that any copyright payment should be such that payment does not restrain, impede or burden the industry's growth and development.

Nothing could more surely restrain cable's growth than the prospect to investors that the possibilities for recovery of capital and a reasonable profit incident to the risks would always be subject to the vagaries and inordinate demand of the copyright owners, who are, of course, not subject to any direct governmental regulation.

And this industry must have the resources to do the research, the experimentation and development which are necessary to transform the great expectations for it into realization. I am pleased to report that up to this time there has been positive progress toward that realization.

Let me cite two examples. In Pennsylvania alone, following substantial expenditures in time, money and effort for development and experimentation—which time today does not permit me to detail—there are now some 53 systems conducting regular cablecasting operations with a system for interchange of tapes by bicycling. In this project, state government reports and political campaigning for United States senatorial, gubernatorial and other statewide offices have been provided for over one-half million homes. Arrangements have just been completed for the production of a regular report program for the United States senators and representatives at Washington on the three-fourths inch format which will be available for timely distribution throughout the systems.

The other example is a further development from this bicycling effort and is in the serious planning stage. The project will take advantage of our beautiful Pennsylvania hills where it all started by using them as a resource for sites to provide a statewide microwave network which would link all of the cable television systems (and school district educational centers where there are no CATV systems) for three channels of educational programming for all of the people in Pennsylvania under the direction of the Department of Public Education. The prospect is an exciting and attainable one, but we know that the cable participants as a group will have to provide a substantial portion of the capital costs for the execution of the project.

Withi particular relation to the CATV copyright legislation presently under consideration, I am most appreciative of the efforts and concerns of which it is a product. At the same time, I believe in view of the changing circumstances since the legislation was first proposed, it would not be inappropriate for me to express to the Committee certain basic matters which I believe should receive further specific consideration.

(1) The compulsory license should extend to 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 the 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.

(2) The copyright fee for reception service of signals received “off the air" should be maximum of 1% to 2% and should be fixed statutorily.

For reasons indicated, there is really no justification for any copyright payment for signals received “off-the-air," and this payment should be kept at a minimum in view of the financial circumstances of the industry and the plain fact that to the extent of any such payment, there must be a corresponding reduction in the capability of the industry for research, development and growth. At all events, this rate of payment should be fixed by statute, so that at least with regard to this basic television reception service, the industry may have financial stability for the long growth requirements ahead.

(3) The copyright fee for reception service provided of distant signals transported by microwave should be established initially at one-tenth of 1% per channel, this fee being subject to adjustment after an initial three year period by a negotiation procedure between the parties, or in the event of disagreement, by arbitration.

(4) In our view, arbitration is a wholly inappropriate and unsatisfactory procedure for establishing copyright fees for basic television reception service of signals received "off-the-air.”

For such a determination, arbitration is an inexact and uncertain process with no established guidelines or criterion upon which a sound decision can be made. The continued survival and well-being of the industry should not be left to the chance and power plays which are the only certain operating factors in the process under the circumstances. The public interest in the premises, and particularly in the growth of cable television, demands a degree of direct accountability in the legislative process which establishes the copyright in the first place, particularly since copyright owners have no commitment to the industry or its future.

On the other hand, providing reception of distant signals transported by microwave or otherwise, being a matter of choice and a calculated risk for the CATV companies that choose to do so, is properly subject to a bargaining process or for the ultimate arbitration arrangement. The market considerations for both the copyright owners and the CATV industry in these "extra services" should make the industry negotiations a more balanced and effective process.

(5) There should be no exemption of copyright fees for any system on the basis of size.

I know of no justification either in terms of costs or otherwise for different treatment between systems based on size or among subscribers based on the size of the system from which they are served. Any exemption, instead of being based on size, should be based upon an exemption for all systems in terms of gross receipts, as, for example, an exemption for the first $200,000.00 of gross receipts from an integrated system operation, or some other appropriate operational unit. Further, gross receipts should be very specifically and clearly defined to include only receipts for reception service provided of broadcasted signals and should not include receipts attributed to local origination, direct program services, auxiliary services, and the like.

(6) There should be no exemption of copyright fees for any system based on the ownership and operating entity being a governmental body or non-profit organization, or because the system is a part of a hotel, motel, apartment or like operation.

(7) An exemption or credit should be provided by way of an incentive to the development of cablecasting and local program originations.

One possibility is an exemption from gross receipts in the maximum amount of $50,000.00 for direct personnel and material costs incurred in such program productions. Another is a credit against the copyright fees based on a percentage of direct personnel and material costs incurred in such program productions.

Senator McClellan, and Members of this Committee: Everyone believes that the cable industry has a great potential for many new services for the people of our nation. No one is more certain of this than those of us who have nurtured the industry to its present status.

To fulfill the many promises of cable, we of the cable industry are willing to make a fair and reasonable accommodation on copyright for even off-the-air reception! In my opinion, the copyright owners have been, and apparently still are, unable to be properly concerned with the financial problems of our industry; we, therefore, earnestly request that your committee carefully study all of the relevant circumstances, in order that your final determination will make it possible for our industry to have the financial stability to properly develop our capabilities for service for the people of our country.

[Afternoon session, 2:05 o'clock, Wednesday, August 1, 1973.] Senator McCLELLAN. The committee will come to order. Counsel, you may call the first witness for the afternoon session.

Mr. BRENNAN. Mr. Chairman, the first issue for the afternoon session is the proposed religious broadcasting exemption, which appears in section 112(c) of the bill. To facilitate the reading of the record, I request that the text of 112(c) be printed at this point in the record.

Senator McCLELLAN. Very well.
That may be done.
[The material referred to follows:]

S. 1361

$ 112. Limitations on exclusive rights: Ephemeral recordings

(c) Notwithstanding the provisions of section 106, it is not an infringement of copyright for a governmental body or other nonprofit organization to make for distribution no more than one copy or phonorecord for each transmitting organization specified in clause (2) of this subsection of a particular transmission program embodying a performance of a nondramatic musical work of a religious nature, or of a sound recording, if

(1) there is no direct or indirect charge for making or distributing any such copies or phonorecords; and

(2) none of such copies or phonorecords is used for any performance other than a single transmission to the public by a transmitting organization entitled to transmit to the public a performance of the work under a license or transfer of the copyright; and

(3) except for one copy or phonorecord that may be preserved exclusively for archival purposes, the copies or phonorecords are all destroyed within one year from the date the transmission program was first transmitted to the public.

Mr. BRENNAN. To testify in opposition to this provision, we have the counsel of SESAC, Mr. Albert F. Ciancimino.

STATEMENT OF ALBERT F. CIANCIMINO, COUNSEL, SESAC, INC.

Mr. CIANCIMINO. Thank you, Mr. Brennan.

Mr. Chairman, in the relatively short time allotted, I shall try to summarize the reasons supporting our position that section 112(c) of S. 1361 should be totally deleted.

With regard to the legislative history of 112(c), it first appears on the scene as late as February 8, 1971, with the introduction of S. 644 by the chairman of this subcommittee. It was not included in any prior legislation nor was it the subject of any study by the Copyright Office nor any other governmental or nongovernmental body, nor to my knowledge was such a provision ever contemplated by any legislative or administrative body until shortly before February 8, 1971.

Just about every significant section of S. 1361 has been the subject of intense study and analysis; not so with 112(c). Lo and behold, in 1971 without any prior notice or knowledge on the part of those representing the interests of copyright proprietors of music, it sprang into existence and became part of the copyright revision bill.

Prior to today, there has never been any testimony at any prior hearings concerning the merits or pitfalls of this subsection. I therefore urge this subcommittee to weigh carefully the following reasons why 112(c) should not be enacted into law.

Section 112(c) would exempt from infringement the making by a nonprofit organization of no more than one copy or phonorecord of broadcast programs containing nondramatic musical works of a religious nature for use in a single broadcast by a licensed broadcaster. In short, it places a limitation upon the copyright proprietor's right to mechanically reproduce the work, which to my knowledge, does not appear in prior case law or statute. There is no precedent for limiting the creator's rights in the area of mechanical reproduction of his work just because of the type of work he creates.

The current copyright law in section 1(e) clearly grants to the copyright proprietor the exclusive right to make “any form of record in which the thought of an author may be recorded and from which it may be read or reproduced.”

Several things are immediately clear from this language. First, there was no intention on the part of Congress at the time section 1(e) was enacted to in any way limit the copyright proprietor's right in the form of recording because of the type of work which the copyright proprietor creates, for example, a religious work.

Second, there was no intention on the part of Congress to limit the author's right to certain kinds of recording, since the statute states "any form of recording" and these are not words of limitation but rather words of all inclusiveness. It would clearly refer to not only phonorecord, but also any type of magnetic tape or other reproduction of the musical composition.

20-344 0.73 - 32

To the extent therefore that the National Religious Broadcasters Association has circulated a nonlegal position which states in part that “The Copyright Law of 1909 on which SESAC's claims are based, does not refer at all to magnetic tapes since these did not come into existence until much later," we submit that such a nonlegal position is both misleading and inaccurate.

Proponents of 112(c) have also asserted that they are paying twice for the same copyrighted music. We heard about the two tickets to the one performance this morning. They claim this since the copyright proprietor receives performance fees as well as mechanical reproduction fees.

It is clearly stated in copyright law that the right to mechanically reproduce is a distinctly separate right from the other rights granted copyright owners. The issuance of a performance right license does not therefore, in and of itself, grant to the licensee the right to mechanically reproduce. Conversely, a license to mechanically reproduce does not carry with

it the right to perform the work. Now, Mr. Chairman, I have submitted citations in my prepared statement to support those statements.

Senator MOCLELLAN. Very well.

Mr. CIANCIMINO. Further, the mechanical reproduction license is issued to and the fee paid by the program producer. The performance of the program comes within the scope of the broadcaster's performance license agreement and is paid for by the broadcasters--so that you have two completely independent rights being paid for by two completely independent people: one for the right for mechanical reproduction and the other for the right to perform.

It is therefore somewhat misleading for the proponents of 112(c) to allege that they are paying twice for the same music.

With regard to the structure of 112(c) itself, we submit that it is unclear, ambiguous, and will, if enacted, be the cause of extended litigation. Section 112(c) exempts a work of a religious nature. The term “work of a religious nature” is of extraordinary breadth. There is no definition in the statute of such a term and indeed it may very well be impossible to come up with a meaningful definition.

Must a song refer to God or a supernatural being to be of a religious nature? Can a composition extolling the virtues of nature be considered a religious composition? A theme which simply fosters the concept of clean living and moral value, can this be a work of a religious nature ?

It would seem that whether a musical work is of a religious nature in many instances will be, not in the eyes of the beholder, but most certainly, in the ears of the listener.

Further, subsection (c) refers to a “musical work of a religious nature or of a sound recording.” It would therefore appear to apply to any sound recording which meets the subsequent conditions of the section regardless of whether or not the musical work is of a religious nature. Again, the lack of prior study and analysis is evident.

I am rather certain that this subcommittee does not intend to apply 112(c) to all musical compositions regardless of nature. This I have gathered from the announcement of the copyright office and introductory remarks of the chairman when S. 644 was introduced in 1971, and which referred to works of a religious nature.

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