reliance on competitive market forces to protect the public, encourage economic efficiency, and allocate goods and services. Indeed, I strongly urge that the Subcommittee inquire as to whether the marketplace for copyrights can function efficiently without governmental interference and whether appropriate market institutions can develop to make a full copyright liability system work. If you should nevertheless determine that transition to a full copyright liability system for cable television is impossible, I urge that you reconsider the specific - provisions of the bill that would take away the Commission's flexibility to implement a marketplace or otherwise less intrinsic regulatory approach to resolving issues that primarily involve matters of communications, and not copyright, policy. STATEMENT OF BERNARD WUNDER Mr. WUNDER. I have a prepared statement which I would like to have included in the record. Mr. SWIFT. Without objection. Mr. WUNDER. I would like to have come here today and to have been in a position to say that we could support this legislation because, quite frankly, the administration believes that the copyright issue ought to be reviewed in the aftermath of repeal of the syndicated exclusivity and distant signal rules. If this is what we have to take, this legislation, I am sorry. We are strongly opposed to this legislation. It is costly, over-regulatory, and flies in the face of the deregulatory efforts of the most recent past and present FCC chairmen, Chairman Ferris and Chairman Fowler. The regulation for most intents and purposes is not necessary. I can see some instances, especially in rural areas, served by small cable systems, where the compulsory license is still needed. I think there can be exemptions for those situations. But it is not necessary for Time-Life, Westinghouse, American Express, Warner Brothers, New York Times, Hart-Hanks, General Tire and General Electric. Those are big boys. They can negotiate with MCA. Look at the concentration occurring in the cable industry. Right now the top 25 MSO's in this country have 64 percent of the cable subscribers. The top ten have 40 percent. So, we are not looking at the same industry that we looked at in 1976 when the compulsory license was developed. So, we have to keep compulsory license. We are reimposing exclusivity, codifying the signal carriage rules, and I agree entirely with Chairman Fowler that if you are going to do that, you ought Statement of Bernard J. Wunder, Jr. Assistant Secretary for Communications and Information U. S. Department of Commerce Thank you for giving me this opportunity to express the Administration's views concerning H.R. 5949, the cable television copyright legislation that the Subcommittee is now considering. The Administration does not support enactment of this complicated and regulatory legislation. H.R. 5949, as it is now drafted, is almost a textbook example of how complex and compromise-laden legislation can become when regulatory rather than marketplace forces are relied upon. If enacted, the bill would reinstitute the Federal Communications Commission's "syndicated exclusivity" regulations for some cable television systems, but not for others; it would exempt some cable systems, but not all, from the minimum royalty payment provisions of the 1976 Act; it would endeavor to regulate the exclusivity that broadcast television stations could advance against local cable television exhibition of feature films; one of the present cablesatellite networks would be grandfathered; it would change the FCC's present "must carry" rules concerning educational television, translator, and other broadcast operations; and so forth. Given the complexity of the present cable television copyright regulations to begin with, and the complexity of this proposed amendatory legislation. The Administration, Mr. Chairman, is fundamentally opposed to this sort of legislation when, in our view, there is a workable alternative, marketplace solution available. In testimony before Chairman Kastenmeier's Subcommittee and elsewhere, the Administration has consistently argued that the cable television industry has reached a level of maturity where extraordinary exemptions and statutory concessions from the copyright laws are no longer justified, even assuming that they were ever justified to begin with. */ Many "mom and pop" cable systems have long since sold-out to American Express, Westinghouse, Time, Inc., and the other major corporations that presently provide the majority of cable services to the American public. There is no compelling public policy justification, in the Administration's view, for continuing or, as H.R. 5949 proposes, rendering even more complicated a special copyright arrangement that has as its fundamental thesis an assumed inability on the part of major corporations to deal efficiently in the marketplace. - Last December, NTIA released an extensive study of the feasibility and desirability of a marketplace approach to cable copyright liability. **/ Our analysis essentially shows that while such an approach undoubtedly would increase the amount that cable systems currently pay for the privilege of retransmitting broadcast signals, there is no good reason for believing that either the mechanics or the transaction costs of such marketplace approach would prove excessive. I appreciate that the Subcommittee's jurisdiction with respect to H.R. 5949 is technically limited to the communications policy issues that the bill addresses. Let me thus discuss three of those issues and our views on them briefly. */ See Testimony of Assistant Secretary Bernard J. Wunder, Jr., before the House Subcommittee on Courts, Civil Liberties, and the Administration of Justice, on cable copyright, June 24, 1981; Testimony of Deputy Assistant Secretary Dale N. Hatfield before the Senate Judiciary Committee, May 29, 1981; Letter from Assistant Attorney General Robert A. McConnell to House Judiciary Chairman Peter Rodino, concerning H.R. 3560 (cable copyright legislation), dated March 22, 1982. **/ See NTIA Staff Report, Cable Copyright Liability: Alternatives to the Compulsory License (December, 1981). Satellite Carriers n Section 101 (a) of H.R. 5949 would amend the present common carrier" exemption from copyright liability contained in the 1976 Act (17 U.S.C. Sec. 111(a) (3)). The carrier exemption now depends on the carrier (a) having no content control and (b) having no signal selection control. The Federal courts in the United Video and Eastern Microwave cases, of course, have split over whether certain cable television relay service operations fall within or outside the present carrier exemption. We generally agree that the carrier exemption in the 1976 Act should be clarified, but we disagree with the approach that H.R. 5949 takes. Under the bill, cable relay operations could evidently still qualify for the exemption even if they exercise the equivalent of editorial judgment in deciding which broadcast signals to relay and when, so long as the content of the signal itself were not changed. One can get into the kind of metaphysical distinctions here that the FCC wrestled with in conjunction with its Second Computer Inquiry. We would not favor expanding the present carrier exemption from copyright liability, however, to include situations where the carrier does in fact exercise discretion and choose which signals will be retransmitted. We would agree, in other words, with the thrust of the Eastern Microwave ruling and not broaden the carrier exemption. Syndicated Programming Section 101 (d) of H.R. 5949 would essentially reimpose the cable television syndicated programming rules that the FCC eliminated in 1980, subject to certain provisions. See generally Malrite Telev. of New York, Inc. v. FCC, 652 F.2d 1140 (2d Cir. 1981). Among these provisions, of course, would be limitations on the number of feature films for to which network-affiliated and independent stations could assert territorial exclusivity. |