markets from cable importation of syndicated programming. 1/ H.R. 3560 would impose syndicated program exclusivity provisions that are broader than the FCC's former rules. It would allow broadcast stations to protect their exclusive exhibition rights to syndicated programming by giving notice of the programs to cable systems in their markets. Moreover, all broadcast stations could require cable systems to delete all series programs. 2/ Independent stations could each require deletion of 300 motion pictures, and network stations could require deletion of 100 motion pictures per quarter from cable programming. Title I, Section 1(d). 3/

Implementation of these rules would be delayed for six months for cable systems in the top 50 television markets; one year for systems in markets 51-100, and two years for all other

1/ Syndication is the licensing of non-network; non-live Programming to television broadcasters in more than one market. 47 C.F.R. § 76.5(p). The FCC's rules gave broadcasters in the top 50 television markets the right to prevent cable importation of syndicated programming, whether or not that programming was actually carried by a broadcaster in these markets. In markets 51-100 protection was given only to programs actually carried in the market. No protection was given outside of the top 100 markets. See 47 C.F.R.

Cable

76.151-.161 (1979) (repealed 1980). The Commission eliminated its syndicated exclusivity rules in 1980. Television Syndicated Program Exclusivity Rules; Report and Order, 79 F.C.C.2d 663 (1980), aff'd, Malrite T.V. of New York v. FCC, 652 F.2d 1140 (2d Cir. 1981), cert. denied, 50 U.S.L.W. 3535 (Jan. 12, 1982).

2/ A "series" is a group of two or more works involving the same individual or with substantially the same cast of principal characters or a continuous theme or plot. 47 C.F.R. 76.51q). Systems unable to receive broadcast television; or with fewer than 3,000 subscribers, would be exempted from these requirements.

3/ No station could claim exclusive rights to a single motion picture. in more than two quarters per year.

FCC rules presently require that cable systems delete, from imported distant network signals, programming that duplicates the programming of a local broadcast network affiliate. 5/ H.R. 3560 would codify these rules, with a minor modification to make clear that cable systems may not import network programs from one time zone into another and show them before air times scheduled by local affiliates. Title II; Section 1(b).

C. Sports Programming

FCC rules presently prohibit cable systems located within 35 miles of a sports team's community from importing distant signal broadcasts of that team's games. The rules do not cover cable systems with fewer than 1,000 subscribers, games broadcast locally, or signals that systems imported before March, 1972 when the rules first went into effect. 47 C.F.R. $76.67. H.R. 3560 would codify the FCC rules governing retransmission of sports broadcasts by cable systems.

Moreover, H. R. 3560 would add a provision stating that cable systems would be unable, without specific copyright approval, to exhibit non-network broadcasts of intercollegiate football games between September 1 and the second Saturday in December. Title IV. 6/

4/ Systems unable to receive broadcast television; or with Fewer than 3,000 subscribers, would be exempted from these requirements. Signals that were grandfathered under the FCC's 1972 syndicated exclusivity rules or had already been granted waivers under the FCC's syndicated exclusivity rules would also be exempted. The FCC's rules grandfathered all signals that were carried at the time the rule was adopted. Cable Television Report and Order, 36 F.C.C.2d 143, 185 (1972). In addition, the FCC could grant exemptions to the rules in cases where the distant signal was already available in the market of the broadcaster seeking exclusivity.

5/ There are exceptions for stations in the Mountain Time Zone where affiliates carry network programming at widely varying times. 47 C.F.R. 76.92-.99.

6/ However, if the cable system is less than 120 miles from a VHF station, or less than 45 miles from a UHF station, it can exhibit the game pursuant to the compulsory licensing scheme of Section 111.

viewed" in the county where the cable system is located. 47 C.F.R. 76.59. 7/ H.R. 3560 would codify these rules; but with several modifications. Under H.R. 3560 cable systems with 36 or fewer channels in use could choose not to carry any television signal with an audience of less than a 1% share of non-cable viewing or less than a 2% share of all television viewing in the system's market. No cable system would be required to carry subscription television signals or signals of any station going on the air after November 1, 1981. Systems would be required, however, to carry signals of up to two noncommercial educational stations within whose Grade B contour they were located, unless the stations simultaneously duplicated 100 percent of their instructional programming and 40 percent of their other programming. Title II, Section 1(a). 8/

E. Satellite Carriers

Satellite carriers presently operate as common carriers and lease satellite transponders for the purpose of transmitting television broadcast signals to cable systems that provide the signals to their subscribers. In light of the syndicated exclusivity provisions of H.R. 3560, the bill would permit satellite carriers to black out certain satellite-delivered programming subject to those provisions; 9/ and to substitute programming without obtaining consent of the signal originator. Title I, Section 1(a). Moreover, the syndicated

1/ FCC regulations define "significantly viewed" stations as those receiving a minimum of 3% of total viewing time spread over 25% of all non-cable households. 47 C.F.R. §§ 76.5(k); 76.54; Cable Television Report and Order, 36 F.C.C.2d 143; 170-76 (1972).

8/ Systems required to carry noncommercial stations under this provision could choose not to carry an equivalent number of network stations that substantially duplicate signals already carried by the system.

9/ To fall within this provision, a program would have to be subject to blackout requirements under syndicated exclusivity by over 50% of the cable systems receiving the satellite-distributed signal.

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exclusivity rules would not apply to signals delivered to cable systems via satellite transmission when the broadcaster

acquired contract rights before enactment of H.R. 3560 and the broadcaster has given the system written notice that it may carry the program. Title I, Section 4(b).

H. R. 3560 creates a complicated regulatory framework as a substitute for market allocation of copyrighted programs. As we demonstrate below, the Department of Justice believes that this complex regulatory approach is unnecessary, and is likely to have the effect of substantially reducing the efficiency and productivity of the cable television industry and other entertainment media.

A. Rationale for the Current Scheme

The goal of copyright laws is to give authors control over use of their products, thereby providing financial incentives to produce new works. Without such protection against unauthorized use, the author may be unable to capture sufficient value of creative products to make their creation worthwhile. Thus, the result may be a reduction in the supply of creative works. The fundamental shortcoming of H.R. 3560 is that it fails to allow television program suppliers to capture the full market value of their programs. Instead, it retains the present compulsory licensing scheme that requires a government agency -- the Copyright Royalty Tribunal ("CRT") to fix prices for secondary broadcast transmissions by cable systems.

The Copyright Act of 1976 requires cable systems to pay a percentage of their gross revenues, based on the number of signals imported, into a fund that is distributed to copyright holders by the CRT. If a controversy arises over distribution claims, the CR7 is empowered to adjudicate the dispute and distribute the fund. 17 U.S.C. 801(b)(3). The CRT is also charged with adjusting fee schedules. 17 U.S.C. § 801(b)(2). The Copyright Act prevents cable systems, broadcasters, and program suppliers from negotiating directly for rights to carry signals at market prices. Cable systems currently have the right to import whatever signals they want, regardless of the wishes of copyright holders. As a result, the give and take of · the marketplace that could set efficient prices for

retransmission rights is preempted. Since there is no evidence suggesting that a market in retransmission rights would fail to perform efficiently, we believe this government pricing scheme

is unwarranted.

Two principal arguments are advanced in support of the present compulsory licensing arrangement. The Department believes these arguments do not support retention of the present compulsory licensing scheme.

First, several witnesses before the Subcommittee argued that without compulsory licensing, copyright holders would "boycott" cable systems and refuse to license any programming to them. 10/ We have seen no evidence, however, that the market for television programming is anything but competitive. To the contrary, several studies have found that the market for syndicated programming -- the largest category of programming covered by the compulsory license -- is highly

competitive. 11/ Copyright owners have no economic incentive to withhold their product from any entity willing to pay a competitive market price. For example, networks such as Home Box Office, Showtime, and The Movie Channel that provide programming to cable systems have been quite successful in obtaining rights to major films in advance of any showings on television networks. There is no reason that other cable programming distributors would be unable to do the same for a great range of products. 12/

Second, it has been argued that the costs of requiring cable systems to negotiate for every program or every signal carried might prohibit markets from operating efficiently. This argument formed an essential part of the rationale advanced for adoption of present Section 111. 13/ If;

10/ See, e.g., testimony of Barbara Ringer; former Register of Copyrights (June 25, 1981), at 9; testimony of Thomas Wheeler, President, National Cable Television Association (May 22, 1981), at 8.

11/ See FCC Network Inquiry Special Staff, Analysis of Television Program Production, Acquisition and Distribution, June 1980, at 237-40, and sources cited therein.

12/ Furthermore, assuming a competitive market for television programming, no inefficiency would likely result if some programming is priced so high that cable programming distributors cannot purchase it.

13/ The House Report on the 1976 Copyright Act stated that "it would be impractical and unduly burdensone to require every cable system to negotiate with every copyright owner whose work was retransmitted for cable systems. See H. Rep. No. 94-1476, 94th Cong., 24 Sess. 89 (1976).