see that my business depends on a large part on inexpensive and readily available rental movies.

I would like to think of this as the Gillette theory of economics. Unless there is a steady supply of inexpensive razor blades, Gillette simply would not be able to sell razors. If you pass this bill, the price of rental cassettes will have to go up, and I simply will not sell as many VCR's.

I know that Hollywood has told you that the price of rentals will not increase. I also know, as a small businessman who makes dayto-day pricing decisions, that this just doesn't make sense. The rental business is already so competitive that video dealers have exceedingly low margins. Hollywood clearly wants this legislation so it can get a larger cut from each rental and control the market. If Hollywood is going to stand by the cash register at each transaction, dealers are going to have a choice: Either they can rent cassettes at a loss; or they can pass the increased cost of doing business on to consumers. I don't know of any dealer who is in business to lose money, so I must conclude that Hollywood's share will be paid by consumers.

If this happens, as I think it must, dealers will buy fewer tapes and rent them at higher prices, and I will sell fewer VCR's. The price of blades will have climbed and sales of razors will have to fall.

It is clear to me that Hollywood wants to make more money. It is also clear that a time-honored way to do this is through Congress. But before Congress passes a law that would raise prices to consumers and have a serious adverse impact on wholesalers like myself, it ought to make sure that the cries for legislative relief are justified.

From what I read in the press, and the information I have gathered in over 4 years in the business, it seems to me that Hollywood is trying to get something for nothing. Video cassettes have been a bonanza for the movie industry.

The studio sold a billion dollars worth of cassettes last year. Box office receipts set an all time record and production money is flooding in. It is raining dollar bills, yet Hollywood still wants Congress to seed the clouds.

In conclusion, I think that the bill you are considering today is unwise and has the potential to cause irreparable harm. Not only can't Hollywood show that they deserve this law; the law itself would raise prices to consumers and thereby hurt an untold number of small business people like myself.

We in America enjoy many freedoms. As business people, we have the freedom to succeed and we also have the freedom to fail. What we don't need is for Congress to enhance our chances to fail. Competition is tough enough as it is.

I hope that I have been able to convey to you why I oppose this legislation. I am not here as a lawyer or as a lobbyist. I like to think I am here as a representative of America's small business community, individuals who would be severely harmed if you pass this legislation.

I would like to thank you, Mr. Chairman, and members of the subcommittee, particularly Congressman Glickman, for giving me this opportunity, and I hope you will vote against H.R. 1029.

Thank you, sir.

Mr. KASTENMEIER. Thank you, Mr. Gorrell, for that brief, to-thepoint statement.

I must say, even though this is a late hour in terms of legislative proposals, I can't offer you very much encouragement. Of the other 13 members of this subcommittee, I can't name a single individual who is opposed to video first-sale reform.

Let me ask you, how do you regard the audio first-sale bill?

Mr. GORRELL. I think audio is completely different, sir, because you are talking about something that has been readily available; something that is already available.

We, through our market of VCR's, have created a whole new industry. We have helped Hollywood to create a new industry by having VCR's and tapes. I can't say I have seen anybody wanting to own a lot of movies. I, myself, even though I am in the electronics business, have a lot of contacts with dealers, other wholesalers or the factories direct. I do not own a single movie cassette and probably never will own a single movie casssette, but I do go from time to time and rent these movie cassettes for my family entertainment.

Mr. KASTENMEIER. Of course, my question was on the audio firstsale doctrine. Do you recognize a distinction between the rental of records for home use or tapes for audio purposes only as being a different problem than the rental of video cassettes?

Mr. GORRELL. I have never rented a record or radio cassette. I have never in my life, so I can't really speak on that.

All I can talk about is my familiarity with my industry and also what little that I have done and been involved with VCR movie tapes.

Mr. KASTENMEIER. Is your business exclusively VCR's?

Mr. GORRELL. No, sir.

Mr. KASTENMEIER. Do you not have audio taping equipment which you sell?

Mr. GORRELL. The audio part of my business is a very minute part of my business. It is down toward the bottom part of my business spectrum. The majority of my sales come from the sale of color TV's, and the second is VCR's.

Mr. KASTENMEIER. As you perhaps know, it is very likely the video first-sale bill will be modified, although in what particulars I cannot say. But in any event your opposition to the bill is apparently based on the premise that the price of video cassette rentals will go up.

But advocates of the bill state that this is not the case. The film industry witnesses have testified they will only lower the sales prices of cassettes and leave the prices of the cassettes intended for rental at more or less the current level.

So they argue that it, in fact, will stimulate the sales market and will do little or nothing to the rental market in practice. If they live up to that promise, would you still oppose the bill?

Mr. GORRELL. Yes, sir, because I disagree with their findings, sir. Even though I am not directly in the VCR rental business, I am a wholesale distributor of equipment, so I can maybe relate my experience as a businessman to how it would affect me if such a legislation would become a part of my industry.

First of all, you would have to have a dual inventory. Any time that you have a dual inventory, you have added costs of doing business. Second, you would have to have more capital put into the business. Third, if you are successful and get your local hometown banker to help finance your enterprise, you have just compounded my difficulty of being able to get the money fairly easy. The reason you have hurt my chances is that you have widget A over here at a certain price. You have widget B over here-may have the same title which is basically the same thing at a different price.

Now, most bankers-or at least my banker that I deal with back home-has my inventory, my receivables and everything tied up as part of my collateral for my loan for my business. Now, with an inventory that has different valuations placed upon it, my banker then would have a hard time loaning me the money, or if he did loan me the money, he would loan it to me less money that I would really need because he would say, "Well, this is valued less, therefore, they have to all be valued at that," because the banker would have to look at one of the other freedoms, and that is, to fail. Therefore, they have to protect their interests.

Mr. KASTENMEIER. Well, of course, inventory is always a problem. Now you have a problem with different formats. You have VHS and Beta. You have to maintain those separate inventories. Those who sell tapes have the 120's and the 750's on hand and they have had to, in a sense, duplicate their inventories.

But nonetheless, the retailers and wholesalers do that and survive. So really, what else is new?

Mr. GORRELL. First of all, when you talk about a Beta or you talk about a VHS format, you are not talking about the same product because you have a different cost to that particular product. You cannot use a Beta format with one of my machines, which happens to be a VHS system, nor can you use a VHS tape in a Beta system, but because of this increased inventory of the same-whether it is VHS; whether it is Beta-I have increased my cost of operation. I have increased my inventory. Therefore, trying to make a small profit, or trying to support my family and the other families that work for me, I would have no choice if I was in that particular business but to try to recoup my costs. The only way you can do that is raising the price to the consumer.

Mr. KASTENMEIER. Another question arises about inventories, and maybe the next panel will be able to respond more directly. As a practical matter, most video dealers have to keep, in a sense, two inventories of the same cassette. That is to say, one or two or three that they rent over and over again and then fresh copies that they have for the sale market.

They maintain their own divided inventories, do they not?

Mr. GORRELL. I am not in the retail business, but I can speak again with reference to my business, where you are talking about an inventory, and that is, sir, that I wish I had a good crystal ball; that I could always buy my product or titles, whatever it is, right and in the right number. But sometimes, unfortunately, I am not able to do this.

With your piece of legislation, you would have taken away one of my ways to at least try to recoup my expense, my tied-up invento

ry. That is, I could not rent this piece of equipment—and this is how it took place.

When I was in the retail business, I was called on by my predecessor to handle the movies. We did not participate in that because I just could not see, at those prices, the consumer buying-at least in my community-that many movies.

When I had the opportunity to buy this business, one of the greatest concerns I had was that I agreed to buy the assets of the business, the inventory, in other words. I was scared to death that I would end up with a whole closet full of these movies that my predecessor had tried to sell me as a dealer.

But fortunately for me, the sales manager at that time, knowing the situation, knowing that there was really no value in it, dumped all the movies at a loss to my predecessor. Since this time, a creative retailer-and we only have creativeness in America, found another way to pass on or to recoup his loss, and that is through the rental business.

That is where I feel that you are taking away, as an opportunity for them, that if they made a bad decision; if they got too many Bonzo movies, at least they can rent them out and try to recoup their expenses that way.

Mr. KASTENMEIER. Well, I would think "Bedtime for Bonzo" would at least be a collector's item. [Laughter.]

Thank you, Mr. Gorrell.

I yield to the gentleman from Michigan, Mr. Sawyer.
Mr. SAWYER. Thank you, Mr. Chairman.

I want to just make an observation that I am not cast in concrete in any direction on this, but I would say I might be tilting toward keeping the first-sale for video and getting rid of it for audio, because I think there is a very distinct difference between the two.

I hope when and if we come to a markup, we will have a chance to look at some variants of these proposals with audio-the big problem, as I visualize it, based on the hearings, has been the tendency to rent an album at a very small price and copy it. I can understand the incentive to copy audio albums because people like to listen to the same music for long periods of time and repetitively, whereas I don't think that that is true with movies. I would think that there is a little of the copying problem with regard to movies at this point in time.

So I just think they are two distinct problems and if I am leaning either way, it would be toward keeping a first sale on video and either repealing it or modifying it on audio.

I have enjoyed the testimony and I think we have heard enough testimony on various aspects of the issue to appreciate your problem. I sympathize with a number of the retailers who have developed rental markets over a period of time and obviously promoted, at least indirectly, the sale of the video tapes through their development of such a market. I can understand their sort of outrage at the idea that now that they have developed this rental market, they are going to have to share it with the producers if the firstsale doctrine is changed.

I think I understand the problem but I just wanted to correct any impression that all of us were at least unanimous in opposing the first-sale doctrine. I am not in that category.

Thank you. I yield back, Mr. Chairman.

Mr. KASTENMEIER. I think what I said was that among the 13 other members of the subcommittee, not one is an opponent of the first-sale doctrine, as far as I know. If they are, they can please raise their hand or stand up.

Mr. SAWYER. Just so I am clear. I thought what you said was a little ambiguous and I wasn't sure what you had said. [Laughter.] Mr. KASTENMEIER. Yes, I said that-

Mr. SAWYER. Were you-not opposed to the first-sale doctrine, in other words, not supporting a repeal of the first-sale doctrine? Is that correct, or is it the opposite?

Mr. KASTENMEIER. Yes; I am talking about the bill, the repeal of the first-sale doctrine as a concept. I am not aware of any other member of the subcommittee who is opposed to the bill. As Mr. Sawyer states, he is not committed on the question, but he is not an opponent, per se, of the legislation. That is the statement I made.

The gentleman from Kansas.

Mr. GLICKMAN. Mr. Chairman, I would kind of like to join Mr. Sawyer. I am a sponsor of both the video and audio bills but I also want to make it clear that I am not set in concrete, either, on the video issue, until I get some subissues resolved. I think that the issue of economic harm is much more clearly demonstrated in audio where records and tapes are priced low and they are clearly being rented for the purposes of copying. I am not opposed to the concept, but my own position is one of fluidity in this issue.

To some extent, that fluidity has been pushed along by several thousand fluid letters from my district. [Laughter.]

And one in this business always has to be cognizant of constituent interest. But let me ask you this question, Mr. Gorrell. I wonder if this bill could at all be modified to deal with some of your concerns?

For example, the proponents indicate that rental tapes will not go up in price as a result of this bill, that, in fact, sales prices will go down. I wonder if you would have any comments about that, particularly since there are some proposed revisions that would put a sunset on this bill in 3 to 5 years so that the proponents would know that if they, in fact, jacked rentals up, that Congress would not reinstate or continue this program after 5 years.

Mr. GORRELL. Well, sir, first of all, on the sunset, I feel that by then, whenever it is, 2 years, 3 years, whatever, by then many of the small retail businessmen won't be around to enjoy having it back the way it used to be.

As far as the argument on the effect of reducing the price of the sale of the movies, I-as I stated earlier-personally do not own a single movie. I can only go and watch a movie so many times. Now, maybe my kids can go to a movie and maybe see "Star Wars" or something like that four, five, six times and enjoy it, but there comes a saturation point where an individual will no longer look at a movie.

I don't think, sir, that this would increase the numbers of people going out and buying movies.

Mr. GLICKMAN. Well, Hollywood argues, though, that one of the reasons that the price of the tapes is high is because there is such