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+ 30.0% + 36.1% + 22.0%
(Source: Record Industry Association of America. Excise tax payments, estimales from other data.)
224 + 2.8%
+ 7.3% + 1.6% + 8.6%
Mr. KASTENMEIER. This concludes this morning's hearing on copyrights. The subcommittee, upon adjournment, will meet on Wednesday next for a continuation of our hearings on copyrights. Until such time, we stand adjourned.
[Whereupon, at 12:25 p.m., the hearing was recessed to reconvene T. on Wednesday, June 11, 1975, at 10 a.m.]
COPYRIGHT LAW REVISION
WEDNESDAY, JUNE 11, 1975
HOUSE OF REPRESENTATIVES,
AND THE ADMINISTRATION OF JUSTICE
Washington, D.C. The subcommittee met, pursuant to notice, at 10:10 a.m., in room 2226, Rayburn House Office Building, Hon. Robert W. Kastenmeier [chairman of the subcommittee) presiding.
Present: Representatives Kastenmeier, Danielson, Drinan, Badillo, Pattison, Railsback, and Wiggins.
Also present: Herbert Fuchs, counsel; and Thomas E. Mooney, associate counsel.
Mr. KASTENMEIER. The committee will come to order. We are convened this morning for another hearing in the series of hearings on the proposed revision of the Copyright Law. This morning will be completely devoted to witnesses representing cable television, in one respect or another. We have six witnesses representing varying viewpoints on the question of how this proposal will affect cable television in this country.
The House will be in session earlier than normal. We will try to move as quickly as we can, but with due respect to the witnesses, we will try to complete our business, so we will be able to attend the regular session.
I am very pleased this morning to greet as our first witness the chairman of the National Cable Television Association, Rex A. Bradley. Mr. Bradley, will you come forward, please?
You might also like to identify your colleagues. The Chair observes that you have a rather substantial statement and addendum of material submitted to the committee, which, will, without objection, be accepted for the record. You may proceed, sir.
TESTIMONY OF REX A. BRADLEY, CHAIRMAN, NATIONAL CABLE
Mr. BRADLEY. Mr. Chairman, I have a shorter version of my testimony, from which, in the interest of time, I will be speaking. If members of the committee would like to have copies, we have them available.
With me at the table on my right is Mr. Bruce Lovett, who is the immediate past chairman of NCTA; I relieved him a couple of months ago. He is also vice president for industry affairs of ATC, one of the Nation's larger cable companies.
( 483 )
To my left is Mr. Stuart Feldstein, who is the vice president for legal and government relations for NCTA. And at the end of the table is Mr. Don Andersson, who is the vice president for statistical services of NCTA.
As you have indicated, my name is Rex Bradley, and I am chairman of the National Cable Television Association, and I am also president of TeleCable Corp. of Norfolk, Virginia, which is the owner and operator of 15 cable systems serving 130,000 subscribers in 10 States. Today I am speaking in my capacity as chairman of NCTA.
The National Cable Television Association is the major trade association representing the cable television industry. Our membership includes both multiple system operators and independent cable television operators. NCTA's 1,320 member systems currently serve 5.8 million subscribers, or 58 percent of the Nation's 10 million cable television households. We recognize that copyright was conceived in the public's interest, to assure that creative minds would be encouraged by compensation to produce and distribute the fruits of that creativity. Later in my statement I will discuss further our view of copyright and comment specifically on H.R. 2223.
Since time is limited, I will summarize my longer statement. The longer statement, submitted for the record, contains a comprehensive review of cable's early development, the FCC's gradual assumption of jurisdiction over cable, and the early pattern of broadcaster opposition to cable growth.
Additionally, it takes note of the important legal decisions on copyright, resulting in two Supreme Court decisions holding cable not liable for copyright under the 1909 law, attempts of various parties to negotiate a settlement, and the very close relationship between FCC regulatory actions and the copyright question.
I believe it is important for the Congress to understand this background to current copyright consideration. It demonstrates the complexity of the cable/copyright problem, the intense pressures and uncertainties created for the cable industry and the almost inextricable interrelationship between copyright and cable regulation.
During these hearings, I am sure you will hear charges principally from broadcasting and motion picture representatives—to the effect that the cable television industry has not lived up to its copyright responsibilities, that cable is an unfair competitor, and that the industry has attempted to delay resolution of the copyright issue.
I can only assure you that throughout this frustrating period NCTA has attempted in every way possible to live up to its fundamental commitment to work for fair copyright legislation.
As a member of this committee you are no doubt aware that there are divisions within the cable industry over the issue of copyright payments. There are those who feel that there should be no copyright liability at all. Others believe that there should be no liability for signals received off-the-air, while others suggest no liability for a complement of signals that can reasonably be defined as adequate service. I believe, however, that the majority of the members of NCTA support the association's efforts to work with Congress in arriving at fair and reasonable legislation.
Before addressing myself to specific provisions in H.R. 2223, I would like to emphasize several key factors which I believe this committee and the Congress must consider in arriving at fair copyright legislation.
The Constitution and the courts have recognized that copyright protection has a twofold purpose, to encourage creativity and equally as important, to promote the dissemination of knowledge to the public.
Cable television, through its reception and distribution of television broadcast signals, promotes the dissemination of knowledge to the public. Indeed, without this service, significant numbers of Americans would be denied the fruits of creative labor. Congress should be cognizant of this vital CATV role. Legislation which, for whatever reason, restricts or decreases the dissemination of knowledge to the cable television public would not be consonant with the primary public interest concern of copyright.
Second, the Congress should be aware that imposition of copyright liability will have an impact on the CATV subscribing public. To a significant extent, the cost of copyright liability will be borne by cable subscribers.
Let me make several further observations on the current financial state of the industry. It has taken several years, but an awareness is growing that CATV is not the pot of gold it was once thought to be. Last year, for example, nine of the top publicly held companiescompanies who will bear a very sizeable percentage of the copyright burden-suffered a combined net loss of nearly $17 million on total revenues of $267 million.
CATV is a capital intensive business. It is also a business whose expenses, for the most part, are fixed, subject to very little influence of the CATV manager. Cable systems experience a number of substantial expenses, whose levels are established arbitrarily by some authority, not subject to the moderation of competitive pressures. Some of these expenses are subject to change, with little opportunity of the CATV operator to influence the level. Examples of these are pole rents, microwave charges, interest, franchise taxes, property taxes, and FCC fees.
Because most cable expenses are fixed, the only opportunity for cable operators to obtain and maintain a favorable profit margin is through additional subscribers, or by increasing subscriber ratesoften difficult because city councils' approval must be obtained.
The uncertainties related to these uncontrollable expenses make financial planning and borrowing difficult and expensive.
Let me now turn to the specific provisions of H.R. 2223. Chapter 8 of the bill would create for the first time a Copyright Royalty Tribunal in the Library of Congress. This tribunal would be composed of three persons and would be empowered by statute to adjust copyright royalty rates, the revenue base, and in certain circumstances, the distribution of royalty fees. The tribunal is directed to undertake a review of royalty rates within 6 months of the date of enactment of the law, and that review is to be completed within 18 months. Thenceforth, the tribunal would conduct a review every 5 years ad infinitum.
Mr. Chairman, we are opposed to the establishment of a tribunal with the uncertainty which is inherent in the tribunal's power, and we further believe that chapter 8 of this bill is laced with infirmities that represent a very serious threat to the future viability of the cable television industry. This tribunal carries with it the potential for substantial escalation of copyright fees in a very short period of time. The Office of Telecommunications Policy has already pointed out the damaging effect this uncertainty and lack of stability can have. You will hear further about the impact of uncertainty on cable's growth by a representative of the financial community following my presentation.
I do not think that I exaggerate when I say that virtually any sig. nificant copyright payment by this industry represents a financial burden. An unknown periodic review as mandated in this bill presents, in my opinion, not potential, but actual grave economic problems to a growing industry. You are aware of the difficulties that all high-risk businesses are now facing in obtaining short-term financing. I do not wish to plead economic hardship to this subcommittee, but plead I must. We in the industry know too well the economic realities and the potential grave effects of further uncertainty on the capital market.
Further, chapter 8 contains no criteria to guide tribunal review of rates; it contains no provision for judicial review of the tribunal's decision other than for fraud, and in our opinion, it provides for no effective congressional review. In short, we find this section of the bill fraught with uncertainty, an uncertainty that this industry can ill afford.
I would like to suggest a more reasonable approach to the issue of insuring fair rates in the future. Such an approach is already contained in the bill. Section 111(d) provides for the establishment of a compulsory license for secondary transmissions by cable systems. Royalty fees are computed on the basis of escalating percentages of gross receipts from subscriber revenues. We believe that this progressive fee schedule, based on percentages, represents an eminently logical and reasonable approach. It substitutes marketplace economics for arbitrary decisions. It has the logic of a graduated income tax without the loopholes. It provides for the interests of the copyright owners, since their revenues from cable will increase as the cable system revenues increase. Such an approach takes both the industry's growth and inflation into account. If cable television is to grow and prosper, so will the owners of copyrighted product share in that growth and prosperity.
In summary, then, we strongly urge this subcommittee to retain the approach of the bill's progressive fee schedule based on a percentage of revenues, and discard the uncertainty that is inherent in the power of the tribunal to change these percentages. Such an approach avoids the need to establish yet another bureaucratic procedure and substitutes a logical and simple approach for an arbitrary and complicated one.
Section 501 of H.R. 2223 deals with infringement of copyright. Subsection (b) thereof entitles the copyright owner to initiate action for infringement. We have no objection to that provision. However, subsection (c) grants a television broadcast station rights as legal or beneficial owner of a copyright for purposes of instituting action for infringement. We very strongly object to this provision.
As you know, the rights to most television programs are held, not by the broadcaster, but by the copyright owner. In those cases, where the television station does hold the copyright, he is fully protected against infringement under subsection (b). However, subsection (c) would grant to hundreds of broadcasters the right to institute harass