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Senator McCLELLAN. You're talking about the consensus agreement? Mr. HOSTETTER. I'm talking about the consensus agreement, yes, sir.

Senator McCLELLAN. What did you say just now? You were given two alternatives?

Mr. HOSTETTER. We were given two simple choices: One was to accept the terms as they were proposed without change.

Senator McCLELLAN. Proposed by whom?

Mr. HOSTETTER. Proposed by the proponents of the compromise po sition, which were those whose name has been ascribed to it, by the OTP. But there were many other forces at play in that compromise, and I think it would require a considerable

record, to lay before this committee all of the elements of pressure that were brought to bear at that time.

Our choices were quite simply framed as accept the proposal as it is made to you; or run the risk that the FCC rules to allow the cable industry to grow and expand would be denied us, that the freeze would be continued and that passage of a copyright bill might be obstructed. I think given that "Hobson's choice," we made the only possible decision.

I would point out to you that it was under extreme pressure, the kind of pressure which nearly fractured the industry and the association into unreconcilable parts.

The second point that I would-
Senator MCCLELLAN. Do you want to identify that pressure ?

Mr. HOSTETTER. I do not feel this is the appropriate forum to identify individuals. I just want the record to be clear that

Senator MCCLELLAN. Well, it's not very clear if that's all you're saying All

right. Proceed. Mr. HOSTETTER. Well, the offices of the administration involved with communications affairs, most specifically Dr. Whitehead's office, felt that this was a reasonable reconciliation of cable interests and broadcast interests. And it was delivered to us as the terms on which cable would be allowed to proceed with construction of new markets.

And in that framework, we felt we had no choice but to accept those terms.

The second point that I thought was
Senator MCCLELLAN. Well, we may want further explanation of this.

Mr. HOSTETTER. The second point that was raised this morning related to why compulsory arbitration is not, in our judgment, at this time, a satisfactory resolution. Quite simply stated, there are four reasons that I would offer for that position.

One, the period of extensive negotiation which has gone on with the motion picture owners has indicated that there is very little factual basis on which to make a determination of fees. I believe that the record put before you this morning, particularly the record of Mr. Mitchell, gives you all of the information that any arbitrator could have before him in making this determination.

So I do not believe there could be any expansion of knowledge by submitting the issue to what would be a time consuming and expensive process of arbitration.

Second, it is essential that CATV systems pay royalties; and as was pointed out this morning, that may seem a very surprising position for NCTA, as a trade association, to take. However we have been badgered and beaten with the specter of being parasites on the existing communication system. We have had it quite simply laid out for us by the FCC, that if we are to have an environment in which we can grow and expand, one of the absolute essential conditions is the payment for copyrights.

So we at this point are eager to find a fee schedule on which we can move forward and avoid the delay, which I think has been previously testified to, which would be associated with extended arbitration.

Third, a proposition has been posed—that we might concede liability, let a tribunal go forward with the arbitration, and accept their fee schedule retroactively—as a way to go over the second problem of delay that I raised.

To me, it's absolutely unthinkable in light of the financial requirements of this industry. It surprises me that anyone with any financial sophistication would suggest that approach. Clearly the bankers, and the investment banks who we look to for our funding are not going to provide money to this industry when we have conceded liability, but do not know the amount of that liability.

Fourth, it seems to me that at this point in time if an industry which had previously not been liable is to accept liability, we ought to have the certitude of a fixed time in which it will begin, and a fixed fee for some period, until the conditions which might result from arbitration would apply.

I think this is the only appropriate way for an industry previously not subject to liability to make a transition into what is at best an unknown business condition.

Senator McCLELLAN. Let me make an observation and a comment on that. Some of the opposition to the fees proposed in the pending bill contend that by setting a fee here, even an interim fee of 1 to 5 percent, pending the royalty board making its final decision, that such a fixed fee, interim fee by the Congress in this bill would carry with it the implication or be persuasive to the arbitration or to the royalty board that Congress thought this fee was a reasonable and proper fee; and thus, would place the other side at a disadvantage.

Now, do you want to comment on that?

I think it is fair to ask you that. It is a part of the concern or the expressed concern of the other side.

Mr. HOSTETTER. I think it is certainly the record in this legislation will show, given the diversity of points of view between the par. ties at interest here, that there were no hard facts developed and presented on which the committee could make definitive answers. And I think it will be very easy, in this record, to establish that this fee schedule has no precedental value.

Senator McCLELLAN. I think this record should reflect that I don't think anyone here may have a better idea. One may have a better guess than the other.

But at the moment, it seems to me it is rather speculative as to what is the correct, proper, equitable fee that should be established.

Mr. HOSTETTER. Absolutely agreed.

Senator McCLELLAN. I think the record should reflect that it is to some extent, arbitrary, if we pick this amount, these fees of 1 to 5 percent; yes, it is somewhat arbitrary, because as the record reflects over and over no one seems to have the correct answer on what should be the permanent answer to it as of this time.

And so, whatever we do—if we should pass the bill in its present form or in any form fixing a fee pending the final resolution of the issue by some tribunal, that we may establish by arbitration—that this fee should be regarded as what it is, an interim fee, a stopgap measure, something that will establish the principle of law; that there is a proprietor's right that reaches to the cable operators and one that they will have to honor, acknowledge and make compensation for.

To whatever that compensation should be, if we pass the bill in the present form, it establishes that principle as a principle and a matter of law, but it does leave open, and that is the intent of it, to leave open the amount of the charge of the fee to be fixed subject to decision of a proper tribunal that would be established and subject to facts and information that would support the decision of that tribunal.

All right. You may proceed.

Mr. HOSTETTER. We agree with you on that point. We have no objection to the statement you have just made.

In fact

Senator McCLELLAN. I make it because that is the way I feel about it as a member of the committee, so as to put this record in its proper perspective. It is not the purpose of this committee, and I am sure I speak for them, to impose a condition or pressure on the arbitrators, whoever they are, or whatever a tribunal finds in establishing the fee.

Mr. HOSTETTER. If you will excuse that digression, I think we should now go back to the association's comments on the sports blackout.

Senator McCLELLAN. All right. You may proceed.
I will take into consideration I have used some of your time.

Mr. HOSTETTER. I wish to address my comments to subsection 111(c) (4)(C) of S. 1361, which is the cable sports blackout provision of the proposed revisions of the Federal copyright statute.

At the outset, I want to emphasize the total uniqueness of the sports blackout provision. The section 111 of the bill establishes a scheme of copyright liability for secondary transmission by cable television systems. Under this scheme, some secondary transmissions would be exempt from copyright liability; others would be subject to compulsory licensing; and some would become actionable as acts of infringement absent voluntary licensing by the copyright holder.

With the exception of the sports blackout provision, the liability of various secondary transmissions depends solely upon such factors as the classification of the primary broadcast station, the location of the cable television stations, the types of broadcast signals available in the market, the existence of exclusivity agreements, and certain notices and payment provisions required by cable systems.

What makes the sports blackout provision unique is that it is the only provision in section 111 which makes a distinction based upon the program content of the secondary transmission. Except for sports programing, all types of commercially broadcast programs are treated in the same manner in determining whether their secondary transmission will be subject to a compulsory license. Only sports programing receives special treatment.

I wish to make clear that, as others have already testified, the cable industry supports the concept of compulsory licensing for secondary transmission with payment of a reasonable fee for such licenses. I submit, however, that it would be unreasonable and a disservice of the public interest for the Congress to treat sports programing differently in section 111 from other programing, and to deny cable systems compulsory licenses for carriage of such programing where they would otherwise exist.

As subsection 111(c)(4) (C) (iii) is now written, the sports blackout provision would prevent the carriage by a cable system of a live professional team sports event-which otherwise would be carried-if an authorization to broadcast that event has not been granted to any of the broadcast stations within whose local service area the system is located.

What is the purpose of that provision? The cable sports blackout provision in this bill appears unrelated to the rationale and purpose of the exemption from antitrust laws granted by Public Law 87–331.

Both the House and Senate Committees on the Judiciary clearly stated that the purposes of that legislation were: (1) To enable the member clubs of a professional football, baseball, basketball or hockey league to pool their separate rights without violating the antitrust laws;

and (2) To prevent such package contracts from being used to impair college football receipts; notable for its absence is reference to protecting home gate of professional teams.

Šubsection 111(c)(4)(C), as now written, concerns neither pooling arrangements to help weaker clubs in a league, nor protection of college football receipts.

If the proposed subsection is intended to protect the gate receipts for home games of professional sports teams, it would mark a new affirmative congressional policy. While section 2 of Public Law 87– 331 permits limited blackout provisions in pooling arrangement contracts exempted from the antitrust law, Congress has not thereby attempted to protect home gate receipts. Rather its intent was to limit blackout agreements.

In explaining the meaning of section 2 of Public Law 87–311, Representative Celler stated:

Mr. Speaker, Section 2 of the bill contains the first of two significant limitations on the antitrust exemption provided by the bill. Section 2 states that the antitrust exemption shall not apply to any joint agreement transferring television rights which prohibit the televising of any game in any area, except in the home territory of a member club on a day when that club is playing a game at home. The effect of Section 2 is to allow only so much of a blackout as was recognized as reasonable by the judge in the particular case.

Mr. Speaker, the Department of Justice, although opposed to the enactment of legislation of this character, has stated, that if the committee believes that a bill along these lines is in the public interest, it should include a limiting provision of the nature of section 2.

Similarly the House report states : This section is designated to deny the antitrust exemption with respect to joint agreements transferring league television rights which prescribe a blackout of any territory, except in the situation in which Judge Grim recognized such blackout as reasonable, namely, in the home territory of a member club on a day when that club is playing a game at home.

Congress was thus not attempting to protect the home gate by including section 2. Rather, Congress created an antitrust exemption in section 1 in order to protect the weaker teams in the league who were unable to sell television rights individually. Section 2 was then inserted solely for the purpose of limiting the scope of that exemption by stating that the exemption would not be available if restraints were placed on the television broadcast of professional games; unless the restraint were consistent with the ones recognized as reasonable by Judge Grim in United States v. National Football League. It is therefore my opinion, that as written, the blackout rights provided in this bill go beyond any previously established congressional intent.

If the proposed cable sports blackout provision represents a new policy to protect home gate receipts, I would suggest that this committee give careful consideration to such a policy; at a time when most professional sports teams are playing to record attendance, I do not believe that the public interest is served by denying the public reasonable access to sporting events through secondary transmissions via cable systems.

I would further suggest that any benefits which such a blackout provision might provide the weaker teams would be more than offset by the detrimental impact such a provision would have on the growth of cable television and the availability of programing to the general public. I submit that a blanket policy of protecting home gate receipts for all professional team sports, without regard to the existing financial health of particular sports, is unwarranted and unnecessarily restrictive.

If this committee, however, believes that it is a necessary national policy to protect the home gate receipts of professional sports teams, then I believe due care should be addressed to the existing overbreadth of subsection 111(c) (4) (C). Congress in the past chose to explicitly limit blackouts to what a court said was reasonably necessary to protect gate receipts. Surely nothing more is required here.

The following are some of the aspects of the subsection's overbreadth. First, it is not limited to days on which a team in the market is playing at home. Indeed, it is not even limited to markets which have a local team in the league, or even the sports, to which the blackout would apply.

Second, it applies even where none of the local stations is interested in broadcasting the event in question.

Third, it is not limited to the geographic are critical to home gate receipts. When the limitation on the antitrust exemption was debated, cable television with its unique ability to pinpoint audiences, was not considered.

Cable differs significantly from television broadcasting which transmits to the public for up to a radius of 60 miles. Since once broadcast, the signals of a television station are not selectively blocked, the only practical solution to protecting home-draw available to the courts and the Congress, at that time, was to permit the blackout of broadcasts by local stations in the team's market when the team was at home.

The incidental but necessary effect of this approach was to black out an area much larger than was necessary to protect the home territory. Since the reach of a cable television system is limited to its own community, blackout provisions applicable to cable television can and should be limited to the geographic area reasonably necessary to protect the homegate.

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