without the benefit of either practical guidance or divine inspiration. It is quite likely that the evidence presented to this review body will tend to be inconclusive or at least widely disparate. (We note for example, that the copyright owners have argued that a fair level of copyright payments for CATV would be in the range of 16-20% of gross revenues.)

The point is that because of the unique nature of the cable/copyright matter any decision about CATV royalty rates will tend to be an arbitrary one. Comparisons with other approaches to compulsory licensing of copyrighted material are not necessarily valid. The cable copyright issue proceeds outside most marketplace considerations, and has a unique relationship to regulatory factors. Congress, with its responsibility for oversight and review of the FCC and the regulatory process, is the only body which can fully evaluate and weigh these factors.

For the same reasons, there is little logic to the argument that Congress does not have the capability to deal with the copyright rate matter. On an issue which will have a direct impact on the public, Congress is the most appropriate body to attempt to achieve a fair resolution. It is Congress which is charged by the Constitution with the responsibility and authority for national copyright policy. The Congress should not shirk its responsibilities in this area. Its goal ought to be to arrive at an equitable solution keeping uppermost in mind the rights and desires of the public. NCTA respectfully submits that this public interest standard will not be met by avoiding the issue and setting in motion a new and unnecessary bureaucratic process with the attendant forms and procedures which too often plague small businesses and ultimately, the consumer.

Hardly will the new law (with a Congressionally established progressive fee schedule) have been in effect when a tribunal will be required to reexamine the Congress' work. And even assuming that criteria to guide a tribunal could be developed and were set in the bill, it is highly unlikely that any substantive data would emerge in such a short period of time to warrant a review of rates or to justify any adjustment of those rates.

Finally, copyright interests have attempted to plant the impression that tribunal review is necessary because Congress is proposing to fix the CATV fee schedule in legislation. This "fixed fee" argument is a spurious one. Royalty fees are to be computed on the basis of escalating percentages of gross receipts from subscriber revenues, not fixed fees. In essence, what the copyright interests are seeking is not one, but two methods to guarantee that future copyright revenues will rise sharply. They seek a progressive fee schedule and a mandated periodic review.

The progressive fee schedule represents a logical marketplace approach. Stated simply, as a CATV system's revenues increase so do copyright revenues. Conversely, under the approach currently contained in the bill a cable system could find itself in the anomalous position of losing money and having both its gross revenues and net revenues decreasing while its copyright payments are increasing. There is no equity and logic in freezing in legislation such a marketplace aberration.

Additionally, it should be understood that while the initial impact of copyright liability on an industry-wide basis does not appear to be excessive, the capacity of individual cable systems to absorb the added burden of copyright payments varies widely. For many systems the addition of copyright payments on top of pole attachment rentals, franchise levies, and annual FCC subscriber fees will significantly reduce the system's operating ratio. NCTA has previously pointed out that in many cases cable systems have been unable to secure rate increases from local rate reviewing authorities to offset increases in operating expenses. For example, cable systems in Charleston and Morgantown, W. Va. have been denied rate adjustments even though their last increase was in 1965; the Pottsville, Penn. system which last increased rates in 1963 has been denied a rate hike; the Santa Cruz, Calif. system has been denied an increase although it has not had one in 18 years.

The point is that by tying the prospect of future royalty increases to the percentage mechanism currently contained in H.R. 2223, a closer marketplace determination of future copyright fees will result.

NCTA believes that Congress must be fully cognizant of all the ramifications of the current tribunal approach. In dealing with the issue of future copyright royalties Congress should strive for a simple and clear methodology for assuring that all parties-including the CATV viewing public-are treated fairly.

NCTA is convinced that a graduated royalty payment scale based on a percentage of each CATV system's gross subscriber revenues represents the best approach to adjusting future copyright payments.

FUTURE COPYRIGHT PAYMENTS

During the subcommittee's hearings copyright interests went to great lengths to emphasize that CATV's copyright liability would amount to only a small percentage of the industry's gross revenues and that the industry could easily afford to pay this amount.

Based on this argument, the copyright owners then go on to claim that the fee schedule currently contained in the bill should be increased.

Congress should not be fooled by this line of reasoning. It should be fully aware of the impact the future growth of the cable television industry (which now serves only 14 percent of the nation's television homes) will have on future copyright payments.

If H.R. 2223 were law today and contained the NCTA proposal exempting from copyright liability the first $100,000 of each CATV system's annual basic service revenues, the cable television industry's 1975 copyright liability would be approximately $5 million.

This $5 million liability represents 0.76 percent of the CATV industry's estimated 1975 basic service revenues of $660 million (based on 10,000,000 cable-subscribing households paying an average monthly rate of $5.50, or $66 per year). However, the extent of CATV copyright liability will increase sharply within the next 10 years.

For example, two recent independent studies 2 of the CATV industry contain significant growth projections.

One study projects 32 million subscribing households by 1984; the other projects 22 million CATV households by 1983.

Current CATV growth patterns would indicate that the projected growth of 22 million households is a conservative estimate; the projected 32 million households is an optimistic estimate.

3

Nevertheless, the two projections give extremes of a range of growth that are helpful in assessing CATV's future copyright liabilities.

Assuming that by 1983-84, the same basic monthly subscriber fee assessed today ($5.50) remained stable: (1) 22 million cable-subscriber households would produce annual revenues of $1.45 billion; and (2) 32 million households would provide revenues of $2.11 billion.

Industry copyright liability, however, would not remain at 1975's 0.76 percent of annual revenues.

Today, less than 200 cable systems serve 10,000 or more subscribers. Even so, they would account for 76 percent of the 1975 liability of $5 million, with their payments representing an average of 1.5 percent of annual revenues.

CATV's growth will come from existing large systems as they expand their subscriber base, and from new major systems developed within the major metropoli. tan market areas.

Because these larger systems will be paying copyright liability closer to the high end of the graduated fee schedule, the average payment will certainly be at least 1.5 percent of annual revenues if, indeed, not more.

Based on an average assessment of 1.5 percent of revenues, the CATV industry at 22 million subscribers in 1983 would be paying $21.8 million in copyright liabil ity (more than 300 percent above today's $5 liability, with slightly more than a 100 percent increase in total subscribers).

At 32 million subscribers in 1984, the industry would be paying $31.7 million in copyright liability (more than 500 percent above today's $5 million liability, with slightly more than a 200 percent increase in total subscribers).

NCTA believes therefore, that Congress must in its consideration of copyright take full note of these CATV industry growth patterns and their impact on future liability.

PROGRAMMING PRACTICES-NETWORK AND SYNDICATION

During the hearings a number of questions were asked about the practices of networks in obtaining product from program producers and the leasing of programming to television stations on a city by city basis (syndication). Of particular concern were the methods for determining the value of a product during negotiations, the relationship of such factors as the product itself, the market and exclusivity arrangements in arriving at fair compensation, and of course, the effect CATV carriage has on the value of a particular product and how that effect

2 "CATV Networks and Pay-TV: Feasibility and Prospects," Knowledge Industry Publications, Inc., New York, New York, 1975.

a "CATV," Frost and Sullivan (Technological Market Research firm), New York, New York, 1975.

enters into marketplace detemination of the value of the product and the sale of advertising. The following material provided by a major syndicator and supplier of network programming, contains pertinent information about those matters.

(1) Definition

Network Programming (Commercial)

Network programming is television programming broadcast on one of the three commercial U.S. television networks on a national inter-connected basis. Most contracts between program suppliers and the three networks carry an exclusivity clause granting the network the exclusive right to broadcast the programming for a stated period of time. This exclusivity commonly prohibits the supplier from licensing the programs to the other television networks or to any television stations or CATV systems in the exclusivity area, which is usually the U.S., its territories and possessions, and English-language Puerto Rico. There are occasional minor variations among the networks as to the exclusivity area (e.g., to include Bermuda or Tijuana, Mexico).

(2) Types of Programming

(A) Prime Time-(7:00 p.m. to 11:00 p.m., except Central and Mountain time zones: 6:00 p.m. to 10:00 p.m.)

In prime time the most common types of programming are half-hour and onehour series. In addition, the networks program theatrical feature films, made-fortelevision feature films, entertainment specials, news and some public affairs documentaries and specials and some sports events in prime time.

(B) Day-time Monday-Friday Programming.-The great majority of programming in this time period on the networks consist of game shows, quiz shows, talk shows and soap operas.

(C) Saturday Morning Programming.—Most programming on Saturday morning on the networks is children's programming, a considerable portion of which is in animation.

(D) Late Evening.-Each of the three networks takes a different approach to late evening programming (post-prime time). One network programs talk shows, another programs feature films and the third programs a mixture of various types of programming ranging from variety specials to dramatic shows produced especially for that time period.

Most of the programming referred to in (A) through (D) above (except for sports, news and public affairs) is supplied to the networks by outside producers and suppliers. In addition, the networks themselves produce and broadcast news and public affairs programming and additional sports programming at various times during the week, with special emphasis on news and public events and sports on Saturday and Sunday afternoon as well as early evening news shows during each weekday.

(3) The program suppliers

As indicated above, most of the entertainment programming broadcast by the three national commercial networks are supplied by entities unaffiliated with the networks. These are primarily the major motion picture companies and independent producers. The networks in whole or in part finance the development of this programming by financing the cost of stories, outlines, scripts, pilot films and the like. In exchange for financing the various steps of development, the network receives an exclusive option to license the financed program or programs at agreed-upon license fees. In the case of television series, the network options can continue for from five to seven years of product.

(4) Compensation

As indicated above, the program suppliers are compensated by the networks for the programming they supply. The networks also compensate the individual stations across the country which carry the network programming in accordance with affiliation agreements which exist between each network and its affiliate stations. In addition, the stations sell local advertisers commercial time adjacent to network programming, which, because of the larger audiences generated by network programming, commands higher prices than other local time. The networks receive their compensation from national advertisers who purchase advertising time on the networks.

(1) Definition

Syndication

Television syndication is the leasing of programming to individual stations on a city by city basis. Most contracts carry an exclusivity clause covering 35 miles

from the city of license prohibiting other television stations or CATV systems from using the same material. The product is composed mainly of the following: 1. Specials.-Usually first-run entertainment or documentary material with two telecasts over a year's term.

2. First-Run Series.-Primarily half-hours with 26 to 39 originals and sufficient repeats to fill out a 52-week telecast schedule on a once-a-week basis (i.e., 26 & 26 as in Ozzie's Girls, or 39 & 13 as in Price Is Right). Some strip programming is offered (What's My Line, Truth Or Consequences) running five a week with 195 new shows and 65 repeats being typical. Another major form is the talk/variety shows such as Mike Douglas, Merv Griffin and Dinah Shore. Because of the nature of the program content, very few repeats are produced. First-run contracts are usually for a one-year period of time.

3. Off-Network.-Those series which achieve network success and build up at least four years of production are valuable to the syndicated market. They are usually half-hour (Hogan's Heroes, I Love Lucy, Adam-12) or hour (Perry Mason, Ironside, Marcus Welby) in length. Contracts run anywhere from two runs to unlimited runs with six typical. Usual contract terms cover five to seven years.

4. Catalog Product.-This is older series product, mostly off-network, that is sold for a short duration (Honeymooners, Have Gun Will Travel). Usually one or two runs with contract term of one to two years in selective markets.

5. Feature Films.-Common trend is to sell the networks first and syndicate post network. Most popular packages carry 20 to 30 pictures and terms are five to seven years with five to ten runs of each feature. Older features recycled are replaced with the better titles continuing television exposure and the poorer titles going on the shelf.

(B) Station scheduling of syndicated product

1. Affiliates. Most affiliate stations (ABC, CBS, NBC) in the eastern time zone have the following local time periods to fill:

9:00 am to 10:00 am.

1:00 pm to 1:30 pm.

4:30 pm to 8:00 pm. (with the exception of network news).

11:00 pm to 11:30 pm.

1:00 am to signoff.

Local and network news usually fill the 6:00-7:30 pm time period and the 11:00-11:30 pm time period. Features are used afternoon and late night weekends, preemptions in prime time and as five-a-week early shows which are on a decline.

The most valuable part of the day for the syndicator is 7:30-8:00 p.m. for firstrun once-a-week programming. The second most valuable part is 4:30-6:00 p.m. with talk/variety shows, off-network syndication and feature films taking time in that order.

2. Independent Stations.-Independents have a poorer circulation in the daytime and do not pay much for this area. It's primarily used for the multiple run feature films and live local shows. Since most affiliates attract an older audience with their talk/variety and news programming in late afternoon and evening (4:00-8:00pm), indies basically target their counterprogramming to the kidult audience. This material is primarily off-network series (I Love Lucy, Star Trek, Wild Wild West, Andy Griffith, Flintstones, Gilligan's Island). The 8:00-11:00 pm time period is comprised of ninety minute talk/variety shows, feature films, sports and off-network series. Most all Monday to Friday programming is "stripped" (same series each day in time period).

(C) Price Negotiations

Most rate cards are set on the philosophy that the biggest markets with the most circulation pay the biggest prices (New York) and the smaller markets pay a much smaller price proportionately (Zanesville, Ohio). This is tempered by historical price patterns and artistic merit of new program offerings (Mary Tyler Moore would be more desirable than the Doris Day series and thus sell for much higher dollars). Supply and demand, plus the skill of the negotiator, play a large part in arriving at a final price in each market. (D) Station Income

The United States advertising-supported stations' basic goal is to attract a huge audience through the proper selection of programming. This audience is subsequently "priced" and resold to advertisers primarily through their advertising agencies. Value would be shown through the use of rating research material.

To illustrate, each rating point represents 1% of the total market households. Therefore, in a million household market, a one rating would mean 10,000 homes. Ten rating points would thus achieve an audience size of 100,000 homes. Hypothetically, a ten rating would be worth $250 per 30 second spot. If the station could change its programming and increase the rating from a ten to a fifteen, it would automatically increase its price per spot by 50% making it worth $375. It obviously leads to the conclusion that successful programming is worth more money in net profits even though its cost might be higher than less effective programming.

CATV is measured by the rating services in any county where there are over 10% cable homes. Since this viewing is listed in the research books, the station is getting credit and charges his rates accordingly. There is no separate breakout of CATV systems in the books.

INFRINGEMENT OF COPYRIGHT

Section 501 deals with infringement of copyright. Subsection (b) thereof entitles the copyright holder to initiate action for any infringement of his copyright. That is as it should be. However, subsection (c) grants a television broadcast station rights as a legal or beneficial owner of copyright in the programs it transmits for purposes of instituting action for infringement against cable television systems. The rights to most television programs are held not by an individual broadcaster, but by a syndicator or other program owner. They are fully protected by subsection (b). In those cases where a television station does hold the copyright, it has every right to sue for infringement under subsection (b), too. Subsection (c) would grant to hundreds of broadcasters the ability to institute harassing suits against cable operators for minor or even inadvertent violations of FCC rules. This creation of private attorneys-general is unprecedented in copyright law and should be stricken from the bill. Infringement of copyright is fully actionable under Section 501 (b), and adequate remedies for violations of FCC regulations are available to broadcasters under the Communications Act.

More specifically, under the FCC's rules cable television systems are permitted to carry both "local" and "distant" television signals. Under certain circumstances the rules also require these systems to delete or black out certain programs from the distant signal. These exclusivity rules are based on unfair competition and copyright related concepts. Because the rules are quite complex, a cable system even in good faith sometimes fails to delete a program which should have been deleted. Causes for this include inadequate program schedule notices, last minute schedule changes by either the distant or local station, equipment malfunctions, power outages and program overruns. Furthermore, given the small size of most cable television operations and the vast number of programs involved (the average CATV system carries over 9 television broadcast stations), unintentional errors can and do occur. It can thus be seen that there will be many instances where under the terms of Section 111, the cable system would be guilty of prima facie copyright infringement. The FCC has remedies for the willful and repeated violations of these rules by cable system operators. These remedies include cease and desist orders and revocation of operating authority. In addition, the FCC has asked Congress to include cable systems in the section of the Communications Act dealing with forfeitures. Thus adequate remedies are available without resorting to copyright in ringment suits in the courts. Section 501 (c) should therefore be deleted.