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Imposition of copyright places a burden of such magnitude that cable construction in these areas would be unlikely under the present H.R. 2223 proposal. In this regard, it is instructive to turn to the consensus agreement, not to rely on it, but to see how we arrived here. The FCC adoption of the Cable Television Report and Order, 36 FCC 2d 143 (1972), pursuant to the consensus agreement, was supposed to be the lifting of the FCC imposed freeze on CATV growth. It did not work. CATA research reveals that 525 new systems have been activated since the “lifting" of the freeze. Unfortunately, 1972 was not an ice-breaking year at all: one finds significantly greater new CATV construction during the freeze (841 new systems started in the period 1968–1972). In further sampling, CATA found that internal growth patterns of CATV systems in the last year were as follows:
Subscriber growth Average cable plant past 12 mo (percent) growth, 12 mo (miles)
50 to 250.
0.1 2.5 2. 96 3. 38 4.97
CATA's study further indicates that new systems begun in the twelve month period, August 1974 through August 1975, amounted to 68 systems with only 2% new systems with growth in the most recent twelve month period.
This sampling enabled CATA to prepare a study of the number of new CATA plant miles added nationwide, by all systems, during the most recent year. We find them to be approximately as follows:
National total System size:
new plant-Miles 50 to 250_.
59 251 to 1,000
3, 217 1,001 to 3,500.
2, 540 3,501 to 10,000.
1, 227 10,001 and up-
984 Thus, just under 8,000 miles of new plant was generated by the industry in the most recent year (not inclusive of the new miles added to the industry by 68 new system starts). Extrapolating to a national total of 130,100 miles of CATV plant (inclusive of new starts in 1974–1975), we find that the internal growth amounted to no more than 6.1%. CATV is a significantly depressed industry. We believe that in the small, unbuilt rural communities that budget versus income structure of the small CATV system constructed to serve a small town is so tight that the administrative costs for meeting the reporting and recordkeeping functions effectively double the copyright taxation to be extracted. To set up with competent legal and accounting help, to just file the quarterly report, etc., would make the difference between profit and loss when added to the copyright tax, thus foreclosing new construction in rural areas. Previously, CATA conducted a study concerning small system operation for consideration by Senator McClellan to which we referred to in our testimony, and which reveals the low profit status of rural CATV and that the claim made here is without exaggeration. That study is attached hereto as Exhibit A.
While the MPAA would have you believe that communications policy and Copyright policy have always been separate and apart, such is not the case.
CATA, as the trade association interface with that part of the CATV industry that is presently represented largely by independent operations, many of them located in rural areas, believe that the following suggestions, if incorporated into the bill would remove the communications/copyright interplay of H.R. 2223.
There are several solutions, for example:
(1) The Pennsylvania position—no copyright payments for signals received off the air or necessary to make up an available complement of three networks, three independents and one educational station.
(2) A complete exemption for CATV systems located beyond the television markets as defined by the FCC (35-mile zones). This is, in effect, a shrinking
of the “natural” Grade B market to a zone of 35 miles, the FCC having determined in its 1972 rules that there is no adverse impact to television broadcasting (or to copyright holders) outside of the 35-mile zone.
(3) An exemption from copyright for classes or systems of a certain size (or as proposed by the NCTA a dollar exemption of $100,000). The latter is a spinoff from the consensus agreement, which excluded from copyright liability, carriage of signals by independently owned CATV systems in existence at the time of the consensus agreement that had fewer than 3500 subscribers.
CATA believes that some modification and combination of all of these ideas is in the spirit of compromise.
CATA proposes that over and above the TPT plan, systems located outside 35-mile zones of television stations also be exempt from copyright for any signals that are picked off the air. This overcomes theoretical questions of whether these are deemed local or distant by changing FCC rules. (The local/distant distinction really plays no part in areas outside of 35-mile zones because the FCC has determined that such areas are in effect a programming free-for-all, i.e., cable systems may carry whatever signals they choose because the carriage does not influence broadcast revenues). What we are striving for is a true concept of localism that does away with arbitrary definitions. If an independent signal (or non-network programs) was imported by microwave, copyright liability would attach. CATA recognizes this as a cutback from the Pennsylvania position in that, in many cases, signals receivable off the air would not provide the full compliment of signals that the Pennsylvania Association believes should be free from copyright; but combined with a small system exemption, it would be a fair treatment of the issue.
CATA endorses the NCTA $100,000 exemption, i.e., a system with less than $100,000 in gross revenues from subscriber fees would be excluded from copyright liability. This exemption would clear the way for small system construction, irrespective of the location of the system. Most importantly, it would alleviate the disproportionate burden that the TPT proposal would otherwise place on rural and small CATVs, as demonstrated in the studies conducted by the MPAA.
EASE OF APPLICATION
One of the benefits of the TPT proposal is that it is easy to apply and would eliminate the need for a royalty tribunal-a tribunal whose existence portends continued litigation for small systems to say nothing of the constitutional infirmities involved. Rating services currently conduct county-wide viewing studies which are available to and have been employed by the FCC in its various research departments. The spectre painted by MPAA of FCC involvement at great burden to the public is simply nonsense.
TERMS OF ART—"LOCAL" "DISTANT" "REQUIRED CARRIAGE" It does not appear that MPAA either fully understands the TPT plan or is deliberately attempting to obfuscate it with respect to the FCC's signal carriage rules. The modifications suggested above by CATA in the TPT proposal would work as follows:
(1) CATVs beyond the Service Areas (Grade B contours) of all television stations are exempt.
(2) CATV's beyond the 35-mile zones (FCC market definition) of all television stations are exempt with respect to any signals picked off the air or which the FCC requires the CATV to carry. It should be noted that the FCC requires carriage of local signals only upon request of the broadcaster. Mandatory carriage is, therefore, protection for the local broadcaster (and his program suppliers) insuring that all CATV homes in the local market will have the ability to view the program/product.
(3) CATVs within 35-mile zones of television stations pay copyright for any signals not required to be carried by the FCC, i.e., truly distant signals irrespective of whether such signals are obtained by microwave or not.
(4) There is an exemption for systems, no matter where located, for the first $100,000 of revenues.
THE SPIRIT OF COMPROMISE The premise in which CATA submits these comments is not in any belief that CATV owes copyright. Neither does Teleprompter. Nor do we believe that
any but a very few CATV operators really believe that they owe copyright. Whatever support is left for H.R. 2223 is grounded in the 1972 consensus agreement. We do intend to rehash, here, the low regard that the consensus agreement deserves. We did not participate in it and are not bound by it. As such, we find it difficult, if not impossible, to compromise our “no copyright" position.
We find it particularly difficult to do so when the MPAA has proved our case. MPAA submits page after page of "testimony” proving that CATV carriage plays no part in the bargaining process between program suppliers and television broadcasters. Why then should CATV pay copyright ? Even giving the most favorable light to MPAA's "testimony", it is evident that the program supply business is one of the few pure marketplaces left in this country:
(1) The primary factor in syndication pricing is supply and demand. When there are more stations in the market, there will be more bidders for the program, and accordingly, the price will be higher.-Erwin Ezzes, Chairman, United Artists TV.
(2) ... since many programs compete for sale to such limited outlets and there is always more product than time available for syndicated programs, there exists a perpetual and structural "buyers" market that is not and cannot be affected by increases in coverage due to CATV-Frank Reel,
President, Metromedia Producers Corporation. On the one hand, MPAA experts tell us that the number of bidders (TV stations) bidding for limited amounts of product determines price; i.e., simple supply and demand. They also tell us that there is so much product for sale, that CATV coverage does not enter the picture. What can be concluded : that price is the only consideration in the bargaining process. Discussion of price, "horse-trading", if you will, is an all inclusive factor. Everything must be taken into consideration, sub silentio, when buying the product. Example :
The horse trader brings a horse that he paid $500.00 for to a horse auction. In setting his price, he determines, the number of horses being sold, the quality of horses being sold, the "horse-trading" ability of the other owners, the delivery charges, whether it would be better to sell the horse at a different sale where there is less product available, etc. He puts up a sign : "Good Horse $600.00 " A buyer sees several similar horses from $500.00 to $570.00.
While several factors played a part in both the buyer's and seller's decision, the only matter discussed was price. That is why the Supreme Court has thrice held that the program supplier has it within his power, in the bargaining process, to include the benefits of distant signal carriage. Whether he does so cannot be ascertained from pure price negotiations. Because the broadcaster seeks to have his signal carried in distant markets, includes additional CATV coverage in his promotional efforts (as demonstrated by TPT's previous testimony), we must assume this is done for a purpose-to obtain additional dollars from advertisers. Neither advertisers nor program suppliers will publicly admit to paying for CATV coverage simply because they will not discuss the matter, simply because it is against their financial interests to do so. The Supreme Court's sophistication in dealing with this concept is evidenced in Fortnightly, Teleprompter and Aiken. For those reasons, CATA cannot deviate from a "no copyright" commitment. We do recommend to the Congress the TPT plan, as modified herein, as a sound piece of alternative legislation.
Most respectfully submitted,
COMMUNITY ANTENNA TELEVISION ASSOCIATION,
RICHARD L. BROWN, General Counsel.
EXHIBIT A-STUDY OF OPERATING COMMUNITY ANTENNA TELEVISION SYSTEMS
The COMMUNITY ANTENNA TELEVISION ASSOCIATION (1) was requested by the Honorable Senator John L. McClellan, Chairman, U.S. Senate
Committee on the Judiciary, Subcommittee on Patents, Trade-Marks and Copyrights to prepare a survey and study of the actual operating expenses and net income of the nation's CATV systems.
This study was begun in mid-November. It was conducted in the following manner.
(1) 1,000 Community Antenna Television Systems selected: From the files of CATA, 1,000 operating CATV systems were chosen to receive a questionnaire/ survey form. These systems were chosen in the following manner:
(A) Only systems NOT owned by any of the top 25 MSO (multiple system operators) groups were selected. This resulted in a maximum direction of the survey forms to small and medium sized, independent CATV systems.
(B) Systems were spread geographically so that a fair representation of survey forms went to systems within every state in the Union.
(2) What was asked of CATV operators : Operators receiving the forms were asked to go into their own accounting records and complete the detailed survey form breaking down the actual expenses and receipts for the last complete fiscal (calendar) year. Operators were promised that the highly confidential material they were disclosing would not be divulged or utilized outside of the CATA office and the Senate Subcommittee on Patents, Trade-Marks and Copyrights.
(3) Who responded : By the December 1 cut-off-date, 191 survey forms were returned to CATA; representing 19.1 percent of those survey forms mailed out. These initial 191 survey forms were utilized in this study. The original survey forms are being turned in to Senator McClellan with this study. Additionally ; approximately 60 late-arriving forms not included in this tabulation are also being turned in.
(4) How the survey forms were tabulated : Listed in the survey forms were 21 categories of expenses which the typical Community Antenna Television System accumulates in normal operation. From the 191 survey forms turned in by December 10, 1973, CATA tabulated the dollar total within each category. CATA also tabulated the number of subscribers represented by the expenditures within each category, and divided the dollar total by the subscriber total to arrive at the average expenditure per subscriber within each category.
When all 21 categories had been so tabulated, the total of the 21 individual expense categories was computed to arrive at the average overall expenditure per subscriber for the year 1972.
This resulted in a known expense average for each subscriber in each system in the study. The 191 systems had a total of 162,336 subscribers.
The survey forms also provided the gross receipts per system. These gross receipts for all 191 systems were added together and divided by the total subscribers represented by these systems; to arrive at the average gross receipts per subscriber for all systems studied.
(5) Refinements of the basic tabulations : Within the master study of 191 systems reporting, several sub-studies were completed. These included:
(A) A separate study of expenses and gross receipts and net profits for 42 microwave-served CATV systems;
(B) Separate studies for systems in the following size categories ; 40–500 subscribers ; 501-1,000 subscribers; 1,001-1,500 subscribers; 1,501-2,000 subscribers, and, 2,001-5,800 subscribers.
This group of sub-studies concentrated on the impact of the flat 1% (proposed) copyright fee for systems in these size groupings; to determine the ability of systems of various sizes to absorb the proposed copyright fee schedule.
(6) Substantiation of survey summaries: All of the survey-study forms received back from Community Antenna Operators, by CATV, are being turned in with this master synopsis, to Senator John L. McClellan. CATA is also turning in its original work sheets which it utilized to tabulate the totals from these study and survey sheets. Verification of any of the synopsis tabulations is therefore possible by simply checking the CATĂ work sheets against the individual survey sheets, and re-adding/re-subtracting of the appropriate number columns.
CATA-COMMUNITY ANTENNA TELEVISION ASSOCIATION
MC CLELLAN COPYRIGHT STUDY WORK FORM
of systems Expense category reporting 1. Microwave.
42.0 2. System manager
179.0 3. System technician
117.0 4. System technician/ installer
93.0 5. Secretary.
150.0 6. Office rent.
168.0 7. Head end rent.
148.0 8. Electricity.
186.0 9. Insurance/taxes.
185.0 A. Franchise fees.
124.0 B. Pole rental.
168.0 C. Vehicle operations expenses
176.0 D. Subscriptions and dues 160.0 E. Legal/accounting..
174.0 F. System repairs.
185.0 G. Teleco/telegram..
154.0 H. Travel expenses.
139.0 1. Office supplies.
172.0 J. Billing/collections.
131.0 K. Advertising
142.0 L. Miscellaneous.
Less microwave. 2 All systems total. 3 Per subscriber. * Before retirement of debt principal, interest, and capital expenditures.
MODEL SYSTEM—No. 1 (A SYSTEM WITH MICROWAVE SERVICE FOR ONE OR MORE
CHANNELS) (A) Total systems studied in report, 191. (B) Total systems with microwave, 42 (21.98%).
(C) Total system customers with microwave, 49,149 (30.27% of total customers studied).
(D) Model microwave system has 1,170 subscribers and is typically 7 to 8 Fears old. (E) Expense category :
$8. 16 11. 38 8. 09 7.60 4. 39 1. 32 0. 69 1.51 3. 92 1. 46 2. 69 2. 53 0.42 1. 73 4. 11 0.69 0.63 0.79 1. 12 0. 74 1.00
Total expenses per subscriber...