cable television service, or about 15 percent of the nation's television households. Franchises have been granted in another 2,600 communities, but are not yet operating. Applications are pending in approximately 1,000 additional communities. Subscriber fees for CATV service range from $4 to $11 monthly and average about $5.50 nationally.

The cable industry employs an estimated 25,000 men and women in management, construction, engineering, programming, finance and marketing capacities.

In that necessarily broad sketch of cable's development I have purposely omitted reference to copyright. Let me briefly retrace my steps focusing on the role the copyright question has played in cable's development.

As cable growth continued, alarmed broadcasters charged that cable television systems were engaged in "unfair competition" when they carried programs without permission or payment. Those claims of unfair competition were judicially tested and rejected in 1964 by the U.S. Court of Appeals in the 9th Circuit.2

During this same period the first copyright suit was brought against two CATV systems by United Artists Corp. Later a second suit in which the issue went beyond liability for simple reception was brought by CBS. Primarily due to adverse rulings by the lower courts in the United Artists case, NCTA publicly committed itself to work for a legislative solution to the copyright problem and also undertook negotiations with representatives of the broadcasting and motion picture industries. Words cannot really reflect the atmosphere in the cable television industry following those adverse lower court rulings. The prospect was simply one of total bankruptcy-turning the CATV industry lock, stock and barrel over to the motion picture industry.

In 1968 the Supreme Court, reversing the lower courts, held in the United Artists' case that CATV was not liable for copyright in receiving off-the-air signals. Five months later the FCC proposed and adopted as interim procedures "retransmission consent" rules which required CATV to obtain permission of broadcast stations and program owners to carry broadcast programs-the very thing which the Supreme Court had just ruled CATV did not need to do. Needless to say, in the ensuing four years virtually no such consent was granted.

Negotiations between the cable and motion picture industries continued on the amount of copyright fees to be paid to copyright holders. Then in 1971, in an effort to break the regulatory impasse over cable, the Office of Telecommunications Policy and the FCC fashioned the so called "Consensus Agreement" under which the parties-broadcasters, copyright owners, and cable-affirmed support for copyright legislation and approved the outline for new FCC cable regulations. Of course, the Congress was not a party to this agreement.

Subsequently the Supreme Court in 1974 ruled in CBS v. TelePrompTer that cable television systems were not liable for copyright for carriage of any broadcast signals under the meaning of the 1909 law. Following that decision the focus shifted to Congress and renewed efforts to revise the 1909 law with, among many other things, provisions for cable television.

I have reviewed these highlights in an effort to demonstrate the complexity of the cable/copyright problem, the intense pressures created for the cable industry by it, 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.

We intend not to engage in "Who struck John" rhetoric in these hearings. I can only say 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. Legislation fair to all parties concerned, fair to a young, developing industry and fair to the present and future CATV subscribing public who most assuredly will be affected by imposition of copyright liability on cable. As members of this subcommittee may be aware, there are divisions within the CATV industry over the issue of copyright payments. Positions range from no copyright liability at all, to no liability for signals received off-the-air, and 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

2 Cablevision, Inc. v. KUTV, Inc., 335 F. 2d 348 (9 Cir., 1964).

3 Fortnightly Corp. v. United Artists Television Corp., 392 U.S. 390 (1968). Columbia Broadcasting System v. TelePrompTer Corp., 476 F. 2d 338 (2 Cir., 1974).

the Association's efforts to work with Congress in arriving at fair and reasonable legislation.

Before addressing myself to specific provisions in HR 2223 I would like to emphasize several key factors which I believe this subcommittee and the Congress must consider in arriving at fair copyright legislation for CATV.

The Constitution provides for copyright protection to promote the progress of the arts and sciences by giving authors and inventors exclusive right to the product of their creativity for a limited period of time. However, the courts have recognized that copyright protection has a two-fold purpose; to encourage creativity and to promote the dissemination of knowledge to the public. It is necessary to maintain a balance between encouraging creativity through a limited monopoly, and the paramount interest of the public in unrestricted freedom to use the works of others after authors have harvested their rewards. Consequently, copyright legislation is not only for the benefit of the owner of a work, but equally as important, for the benefit of the public.

In this context it is important to keep in mind that cable television through its reception and distribution of television broadcast signals, promotes the dissemination of knowledge to the public. Indeed, without this service, which is wellvalued by a growing percentage of the population, 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 CATV public would not be consonant with the primary public interest concern of copyright.

Secondly, the Congress should be aware that imposition of copyright liability will have an impact on the CATV subscribing public. As mentioned, those subscribers value highly their CATV service. I am sure that members of this subcommittee have on occasion heard from CATV subscribers when those subscribers felt that Federal regulations or law threatened them with loss of programming. 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 companies-companies 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 and subject to very little influence of the CATV manager. Many expenses are subject to the same inflationary pressures experienced generally throughout the country, with the normal competitive influences between suppliers tending to moderate the rate of increase. However, in addition, 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 rates (often difficult because city council approval must be obtained).

The uncertainties related to these uncontrollable expenses make financial planning and borrowing difficult and expensive. Appendix B contains further detailed information on the financial impact of copyright liability for cable.

Let me now turn to the specific provisions of HR 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 six months of the date of enactof the law, and that review is to be completed within 18 months. Thenceforth, the Tribunal would conduct a review every five years ad infinitum.

Mr. Chairman, we are opposed to the establishment of this Tribunal, and we further believe that Section 8 of the bill is laced with infirmities that represent a very serious threat to the future viability of the cable television industry and

Fox Film Corp. v. Doyal, 286 U.S. 123, 127 (1932).

to the services the industry hopes to offer to the public. Let me explain. 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 I exaggerate when I say that virtually any significant 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, one that is voraciously capital intensive in its formative stages. 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 this industry know too well the economic realities.

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 I submit 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 specified percentages of gross receipts from subscriber revenues from basic cable service. The applicable percentages increase according to the revenues or size of a cable system. We believe that a progressive fee schedule based on percentages represents an eminently logical and reasonable approach to increasing fees. It substitutes marketplace economics for arbitrary decisions. It has the logic of a graduated income tax without the loopholes. The revenues derived by copyright owners 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 a progressive fee schedule based on a percentage of revenues, and discard the concept of periodic review. 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 HR 2223 deals with infringement of copyright. Subsection (b) thereof entitles the copyright owner to initiate action for infringement of copyright. We have no objection to that provision. However, subsection (a) 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 the copyright owner. In those cases, where the television station does hold the copyright he is fully protected for infringement under subsection (b). However subsection (c) would grant to hundreds of broadcasters across the country the right to institute harassing suits against cable operators for very minor or even inadvertent violations of FCC regulations. Such a provision is, we think, an aberration and one unprecedented in copyright law. It should be stricken from the bill. Adequate remedies for violations of FCC regulations are available under the Communications Act.

In any event we believe that this subcommittee's report should make clear that inadvertent violations of FCC rules do not constitute infringement of copyright.

Mr. Chairman, in earlier testimony before this subcommittee Deputy Assistant Attorney General Irwin Goldbloom of the Justice Department stated: "We strongly urge, with respect to (b) [where the CATV system is, in whole or in part, within the local service area of the primary transmitter] that the secondary transmittal should be completely free of liability; hence, royalty free or no licensing would be in order. The secondary transmission in such a situation where the CATV system is, in whole or in part, within the local service area of the primary transmitter, finds the cable system only filling gaps or improving reception in the service area of the primary transmitter, supplementing the primary tranmission. Such transmission does not impair the primary transmitter's mar

ket; in fact, it enhances it. The copyright holder is helped and not hurt by such activity." [Emphasis added.]

In short the Justice Department has recommended that there be an area of "free use" with respect to CATV distribution of local broadcast signals. NCTA fully supports this line of thinking We note also that Thomas Keller, Acting General Counsel of OTP, stated to the subcommittee last week that local signals should not be liable for copyright.

While Mr. Goldbloom did not suggest to this subcommittee a method or mechanism for imposing liability only on signals outside that area of "free use", the logic of his recommendation is undeniably sound. NCTA has internally addressed this question in great detail. We have researched and studied a variety of possible approaches to the Justice Department's concept of an area of free use.

We have, however, determined that it is impossible to arrive at a free formula embodying this concept applied on a system-by-system basis, which does not discriminate unfairly against one portion of the cable television industry, and consequently against the public receiving service from such systems.

We believe that the concept advanced by the Justice Department can and should be embraced in the following manner. Copyright liability for CATV distribution of broadcast signals should be imposed without respect to carriage of signals. There appears to be no fair way to impose liability for carriage of certain signals and not others.

By retaining the present fee schedule in HR 2223 and exempting from liability the first $25,000 in gross quarterly subscriber receipts for all cable television systems, copyright legislation can fairly take into consideration that portion of cable service which fills gaps or improves reception in the service areas of broadcast stations.

We point out that such an exemption involves a reasonably small dollar amount in relationship to the total copyright revenues to be derived from cable now and in the future. It also has the benefit of providing some degree of relief to the smaller traditional community antenna systems. The owners of copyrighted product themselves have frequently stated that they are not primarily concerned with this type of cable system. Indeed the 1971 Consensus Agreement envisioned a total exemption from liability for many cable systems serving fewer than 3500 subscribers. The blanket exemption we propose would have the practical effect of exempting nearly all systems with fewer than 1500 subscribers. The reduction in revenues derived from larger cable systems, particularly in the larger television markets which the copyright owners have targeted as the primary source of future revenues, would be quite small as a percentage and of course, new revenues generated by cable system growth would be fully assessable. We believe this kind of exemption to be an equitable and fair approach to the problem of copyright liability for local signals. We submit for your serious consideration an amendment to achieve this.

Mr. Chairman, I will now turn to the third matter NCTA would like to comment on in relationship to HR 2223. Several times in my testimony I have alluded to the FCC's cable television regulations and to the close historical interrelationship between copyright and regulation as applied to cable. I would again urge the members of this subcommittee to read those regulations. For your convenience the most pertinent of those regulations are printed below.

SYNDICATED EXCLUSIVITY

$76.151 Syndicated program exclusivity; extent of protection.

Upon receiving notification pursuant to § 76.155:

(a) No cable television system, operating in a community in whole or in part within one of the first fifty major television markets, shall carry a syndicated program, pursuant to § 76.61 (b), (c), (d), or (e), for a period of one year from the date that program is first licensed or sold as a syndicated program to a television station in the United States for television broadcast exhibition;

(b) No cable television system, operating in a community in whole or in part within a major television market, shall carry a syndicated program, pursuant to §§ 76.61 (b), (c), (d), or (e), or 76.63 (a) (as it refers to § 76.61 (b), (c), (d), or (e)), while a commercial television station licensed to a designated community in that market has exclusive broadcast exhibition rights (both over-the-air and by cable) to that program: Provided, however, That if a commercial station licensed to a designated community in one of the second fifty major television markets has such exclusive rights, a cable television system located in whole or in part

within the market of such station may carry such syndicated programs in the following circumstances:

(1) If the program is carried by the cable television system in prime time and will not also be broadcast by a commercial market station in prime time during the period for which there is exclusivity for the program;

(2) For off-network series programs:

(i) Prior to the first non-network broadcast in the market of an episode in the series;

(ii) After a non-network first-run of the series in the market or after one year from the date of the first non-network broadcast in the market of an episode in the series, whichever occurs first;

(3) For first-run series programs:

(i) Prior to the first broadcast in the market of an episode in the series;

(ii) After two (2) years from the first broadcast in the market of an episode in the series;

(4) For first-run, non-series programs:

(i) Prior to the date the program is available for broadcast in the market under the provision of any contract or license of a television broadcast station in the market;

(ii) After two (2) years from the date of such first availability;

(5) For feature films:

(i) Prior to the date such film is available for non-network broadcast in the market under the provisions of any contract or license of a television broadcast station in the market;

(ii) Two (2) years after the date of such first availability;

(6) For other programs: one day after the first non-network broadcast in the market or one year from the date of purchase of the program for non-network broadcast in the market, whichever occurs first.

Note 1: For purposes of § 76.151, a series will be treated as a unit, that is:

(i) No episode of a series (including an episode in a different package of programs in the same series) may be carried by a cable television system, pursuant to §§ 76.61 (b), (c), (d), or (e) or 76.63 (a) (as it refers to § 76.61 (b), (c), (d), or (e)) while any episodes of the series are subject to exclusivity protection.

(ii) In the second fifty major television markets, no exclusivity will be afforded a different package of programs in the same series after the initial exclusivity period has terminated

Note 2: As used in this section, the phrase "broadcast in the market" or "broadcast by a market station" refers to a broadcast by a television station licensed to a designated community in the market.

NETWORK EXCLUSIVITY

§ 76.92 Stations entitled to network program nonduplication protection.

(a) Any cable television system which operates in a community located in whole or in part within the 35-mile specified zone of any commercial television broadcast station or within the secondary zone which extends 20 miles beyond the specified zone of a smaller market television broadcast station (55 miles altogether), and which carries the signal of such station shall, except as provided in paragraphs (e) and (f) of this section, delete, upon request of the station li censee or permittee, the duplicating network programming of lower priority sig. nals in the manner and to the extent specified in §§ 76.94 and 76.95.

(b) For purposes of this section, the order of nonduplication priority of television signals carried by a cable television system is as follows:

(1) First, all television broadcast stations within whose specified zone the community of the system is located, in whole or in part;

(2) Second, all smaller market television broadcast stations within whose secondary zone the community of the system is located, in whole or in part.

(c) For purposes of this section, all noncommercial educational television broadcast stations licensed to a community located in whole or in part within a major television market as specified in § 76.51 shall be treated in the same manner as a major market commercial television broadcast station, and all noncommercial educational television broadcast stations not licensed to a community located in whole or in part within a major television market shall be treated in the same manner as a small market television broadcast station.

(d) Any cable television system operating in a community to which a 100-watt or higher power translator station is licensed, which translator is located within