The question of judicial review is also important in this context, and I think there is a growing feeling that judicial review, for the ratemaking adjustments, is highly desirable. In a memorandum which you received from Mr. Valenti, of the Motion Picture Producers Association, a suggestion is thrown out, which is based on the Postal Service's ratemaking activities and which may be quite applicable to this situation. Basically, instead of authorizing either House of Congress to veto the rate adjustment or otherwise consider it, you would permit the rate ruling to go directly to the courts, whose review would not be de novo, but rather would be on the basis of the record that had been made in the Royalty Tribunal. These would be safeguards that, I think, would probably satisfy the complaints that were made. This is very sketchy, Mr. Chairman, but I hope this is sufficient to conclude the hearings. Mr. KASTENMEIER. Thank you. Are there any questions? If not, there is a vote pending, and we will consider these hearings to be closed, save a review of what we have had. Should such review indicate we require further enlightenment we can make arrangements to have another hearing day, but you have at least gone over all the material and it has been extremely valuable. I am only sorry that we could not have had all of our membership here for these meetings. Should this be the last hearing date, I would think we would need no more official proceedings of this subcommittee in connection with the subject of copyright this year, but obviously early next year we will again return to the subject. And we thank you, Ms. Ringre. Ms. RINGER. I want to thank you, Mr. Chairman, and the subcommittee for your courtesy and patience. Thank you very much. Mr. KASTENMEIER. The committee stands adjourned. [Whereupon, at 11:45 a.m., the subcommittee adjourned, subject to the call of the Chair.] APPENDIXES APPENDIX 1 During October, 1975, the Teleprompter Corporation, which had contributed testimony on the cable television issue in June, submitted a memorandum, an explanation of proposed amendments to Sections 111(d) and 111(e) of H.R. 2223, and a Memorandum Considering the Constitutionality of Proposed Copyright Legislation (H.R. 2223). This submission, plus a number of responsive submissions by other interested parties and an amplification of the proposal of Teleprompter, were received in November, 1975. In alphabetical order, the submissions responsive to Teleprompter are as follows: Ad Hoc Committee of Concerned Cable Television Operators for a Fair Copyright Law (Frederick W. Ford). George J. Barco (Pennsylvania Cable Television Association). CBS (Robert V. Evans). Motion Picture Association of America, Inc. (Jack Valenti). In 1976 the subcommittee received a further proposal from the National Association of Broadcasters, a letter from ABC Television Affiliates Association, and a memorandum of April 13, 1976 designated "Agreement between NCTA and MPAA as to terms of copyright legislation." These various proposals, submissions, and documents constitute Appendix 1 to the hearing record. MEMORANDUM OF TELEPROMPTER CORPORATION EXPLANATION OF PROPOSED AMENDMENTS TO SECTIONS 111(d) AND 111 (e) OF H.R. 2223 Attached hereto is a redraft of the royalty provisions (and related definitions) -contained in Section 111 of the proposed Copyright Bill. This redraft, in Teleprompter's opinion, is a more equitable and rational approach to the problem of copyright liability than that currently found in the bill. Also attached is a memorandum of law prepared by Professor Ernest Gellhorn of the University of Virginia Law School. This memorandum argues that the provisions relating to the establishment of the Royalty Tribunal, as now set forth in H.R. 2223, are seriously vulnerable to constitutional attack. Before describing in detail what we have attempted to do in our proposed redraft, a few words of background may be useful. Teleprompter's basic position is that there should be no copyright liability of any sort for cable television retransmission of broadcast signals. Everyone seems to agree that, as a matter of pure logic, there is no justification for imposing copyright liability on cable's retransmission of local signals. The real question of copyright liability has always concerned cable television's importation and retransmission of "distant broadcast signals." However, retransmission of distant broadcast signals actually is a benefit to the originating station which is able to gain additional advertising revenues by virtue of its reaching distant markets via cable. These additional advertising revenues enable the originating station to pay copyright owners more than it otherwise would be able to. Therefore, allowing the copyright owner to collect copyright payments when the cable system in the distant market retransmits the copyrighted program would enable the copyright owner to extract a windfall double payment. This is the position that Teleprompter has urged in its testimony before the Subcommittee on Courts, Civil Liberties and the Administration of Justice and in various meetings with individual members of the Subcommittee. We believe this position is logically sound and deserves support. However, we fear that, for whatever reason, our position may not be adopted by the Subcommittee. We therefore are submitting a compromise proposal which we believe corrects the most glaring deficiencies of H.R. 2223, Basically, what we have done is to build on the distinction between local and distant signals referred to above. As many others have done before us, we have proposed elemination of copyright liability for the retransmission of local signals. We have gone somewhat further, however, in also proposing that there be no copyright liability for the retransmission of network programming. The reason for this is that the entire nation is really "local" to the network. That is, a copyright owner who sells his product to a network anticipates that it will be viewed throughout the entire country and is compensated accordingly. Thus, there is no need for the cable system to pay the copyright owner a second fee when it enables his programming to reach certain isolated communities which, because of terrain problems or gaps in the placing of affiliated stations, would not otherwise have received such programming.1 Having decided that, if there should be any copyright liability at all, such liability should be only with respect to the non-network programming of distant stations, we then confronted the following two questions: 1. What percentage of total cable revenues should be available for copyright payments? 2. How much is each distant signal worth for copyright purposes? As to the first question-how much of the cable industry's revenue should be available for copyright payments-we propose, in the interest of compromise, to use the same percentage as applies to television stations. In other words, if in a given year all television stations paid 28% of their total revenues for programming costs then, under our proposal, 28% of each cable television system's total revenues would also be potentially subject to copyright liability. In passing, we wish to state that adopting the same percentage for programming costs as is applicable to the broadcasting stations seems to us extremely generous for two reasons. First, capital costs of the cable industry are much greater than those of the broadcasters who, at no cost to them, are able to utilize immensely valuable and scarce spectrum space. Therefore, the cable industry has less money available than do the broadcasters to pay for programming. Second, using the same percentage as the broadcasters completely ignores the benefit to the originating station (and thus to the copyright owner) of cable's carriage of distant signals.' However, in order to come up with a formula which both sides can agree upon we have decided to adopt without change the model of the broadcasters. We now turn to the second question—namely, how much is a distant signal worth for copyright purposes. In our opinion, earlier attempts to answer this question have been hindered by the assumption that all imported signals are of the same value to the cable system. Clearly this is not true and once we recognize that it is not true the solution to the problem becomes much simpler. What we suggest, therefore, is that copyright payments be made for the non-network programming on each imported signal on the basis of the popularity of that programming in the market in which the cable system is located." Thus, under our formula, the non-network programming on each signal which is distant to a particular cable system would be entitled to receive a percentage of that cable system's revenues in accordance with the following computation: Cable system's revenues for retransmission of broadcasting signals times a percentage which is equal to the percentage of total broadcasting station revenues 1 In the vast majority of cases, the FCC's non-duplication rules require that the network programming of imported network channels be "blacked out" when the signal is retransmitted by the cable system. In these cases, therefore, the question of copyright pay ment for the network programming of imported network affiliates does not even arise. 2 The percentage of total revenues which the broadcasters pay for programming is easily ascertainable by the FCC on a yearly basis. Even though copyright owners contend that the benefit to them of distant signal carriage is outweighed by the detriment, they cannot claim that this carriage is without any benefit to them. Most of this information is even now being collected by the two national rating serv ices and the balance of the information can be easily obtained. Thus, there is no difficulty in getting the data needed for application of our formula. which are spent on programming costs times the popularity of the non-network programming of the distant signal in the county in which the cable system is located, expressed as a market share percentage. The working of this formula is illustrated by the following example. Imagine a cable system with quarterly revenues for the basic service of retransmitting broadcast signals of $500,000 which imports two distant non-network affiliated signals (stations A and B). If station A has a 5% share of the market in which the cable system is located and station B has a 3% share, and if the most recent available information indicates that all broadcast stations pay 28% of their revenues for programming costs, then the quarterly copyright liability of the cable system with respect to the programming on each of stations A and B would be determined as follows: This works out to a $7,000 quarterly fee for the programming on Station A and a $4,200 quarterly fee for the programming on Station B. Overall the quarterly fee is $11,200 or 2.24% of the cable system's basic subscriber revenues. We believe that this proposal is far more equitable than the one now contained in H.R. 2223 because it is directed at what is conceded by all concerned to be the crux of the problem-namely cable's importation of distant signals. An additional, but by no means incidental, virtue of our approach is that, since it is entirely based on actual relationships in the real world, it is automatically self-adjusting. There is thus no need to resort to the ill-conceived Copyright Royalty Tribunal to make periodic adjustments which, because they are unrelated to any clearly expressed Congressional purpose or to any known set of criteria, are bound to be arbitrary. In this connection, it is worth considering carefully Professor Gellhorn's memorandum concerning the dubious constitutionality of the proposed statutory provisions establishing the Tribunal. TELEPROMPTER CORPORATION. [October 1975]. (d) COMPULSORY LICENSE FOR SECONDARY TRANSMISSIONS BY CABLE SYSTEMS.(1) For any secondary transmission to be subject to compulsory licensing under subsection (c), the cable system shall at least one month before the date of the secondary transmission or within 30 days after the enactment of this Act, whichever date is later, record in the Copyright Office, a notice including a statement of the identity and address of the person who owns or operates the secondary transmission service or has power to exercise primary control over it together with the name and location of the primary transmitter, or primary transmitters and thereafter, from time to time, such further information as the Register of Copyrights shall prescribe by regulation to carry out the purposes of this clause. (2) A cable system whose secondary transmissions have been subject to compulsory licensing under subsection (c) shall, during the months of January, April, July, and October, deposit with the Register of Copyrights, in accordance with requirements that the Register shall prescribe by regulation (A) A statement of account, covering the three months next preceding, specifying the number of channels on which the cable system made secondary transmissions to its subscribers, the names and locations of all primary transmitters whose transmissions were further transmitted by the cable system, the total number of subscribers to the cable system, and the gross amounts paid to the cable system [irrespective of source and separate statements of the gross revenues paid to the cable system for advertising leased channels, and cable casting for which a per program or per channel charge is made and by subscribers] for the basic service of providing secondary transmissions of primary broadcast transmitters; and |