Why should any user get rich at our expense?

All of us prate about our free enterprise system. Cable television is a privately owned free enterprise business. It does not give anything away free. It charges its subscribers a fee for the programs it sends to their homes. That fee ranges from as low as $4.50 a month to more than $20 a month. The national accepted average is about $6 a month. What does the projected copyright fee add to that cost?

Well, it is simple enough to compute the effect of the fee schedule in the pending bill, the so-called Gurney schedule. Assuming the average $6 a month cost to each cable subscriber, that copyright fee amounts to an average of 3 cents a month per subscriber-or 36 cents a year. That is what we are talking about.

Yet some cable system owners have the effrontery to suggest that this fee would put them out of business or would be a serious burden to their subscribers. That, I suggest, Mr. Chairman, is poppycock. It should be nailed as blatant propaganda and I want to nail it. The fact is that the cable business is, in the main, an exceptionally lucrative business. Rates of return of small to medium sized systems range as high as 50 percent or even more on the investment. Yet these are the people who cry wolf.

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Indeed, even the original copyright fee schedule, first promulgated by Senator McClellan, was wholly inadequate compared to the right fee paid for the same material by television station users. Now this copyright fee schedule is before us, sliced in half. If the Congress persists in enacting any fee schedule, it is imperative that the Royalty Tribunal be established and authorized to move ahead promptly with detailed studies to determine a fair and reasonable copyright fee for the cable business.

Frankly, we find it hard to understand why the Congress should get into the copyright ratemaking arena. We much prefer Chairman Kastenmeier's original proposal 8 years ago that left it to the marketplace-free negotiation between seller and buyer. It has worked fine for theaters and television. Why, all of a sudden, should Congress prescribe copyright fees in one special area.

I am afraid, Mr. Chairman, that I am taking a bit too much time. But I cannot overemphasize the importance of this matter to our members. I repeat, it is a bread-and-butter issue. We urge you strongly to make sure that a fair and reasonable return is derived from cable's use of the product we make in Hollywood and New York.

I thank you for your courtesy and patience.

Mr. KASTENMEIER. Thank you, Mr. Howard.

As a matter of fact, you were very, very brief and concise in your statement.

I take it none of your membership directly participates in copyright or copyright payment, but possibly some of Mr. Migden's people would-although, for the most part, their work is work for hire in terms of creative work, in terms of ownership of a copyright and the work of the film of itself; is that not correct?

Mr. HOWARD. This is partially true, except we do have a clause in many of the contracts that is called a supplemental market clause, by which certain payments for the reuse or the special use of a film would be paid into the workers' health and welfare pension fund. So, in effect, there is something in copyright that would help the people.

Mr. KASTENMEIER. In a nut shell, you are saying that the health of your industry very much reflects on the extent the employment and welfare, generally, of the 60,000 people employed in the industry that you represent; is that not correct?

Mr. HOWARD. Yes; and the added product is bound to help us.

Mr. KASTENMEIER. Do any of your membership work for any television industry or the cable television?

Mr. HOWARD. A number of our members work in the television industry, as such, for the networks and independent stations.

None of our guild or craft members are involved in the cable industry; possibly some technicians in other unions may be in parts. production.

Mr. KASTENMEIER. Would they agree with you as well?

Mr. HOWARD. I feel they would, sir.

Mr. KASTENMEIER. I yield to the gentleman from Massachusetts. Mr. DRINAN. Thank you very much, Mr. Chairman.

And Mr. Howard, pardon my ignorance, but would you explain to me the reference to the so-called Gurney schedule, on page 4.

Mr. HOWARD. Mr. Drinan, that information was furnished to me by the attorney for the Hollywood Film Council, and I believe Mr. Valenti could explain that much better than I could.

Mr. DRINAN. All right.

Now, you say that in general-I guess completely, you are behind what Mr. Valenti says. Then on page 5, you say, "We much prefer Chairman Kastenmeier's original proposal, rather than having the Royalty Tribunal." But Mr. Valenti, on page 32, seems to say that the Royalty Tribunal is almost necessary in view of the situation.

And when you say, "we much prefer," does that include Mr. Valenti and the industry in general?

Mr. HOWARD. Basically-I cannot speak for Mr. Valenti, but as far as the Film Council, yes, it does.

Mr. DRINAN. In other words, you would much prefer to have the law of the marketplace and not have a Royalty Tribunal to set fees for cable.

Mr. HOWARD. Primarily, we would not want to see cable go scotfree without some sort of set copyright fee on it. Which one would be the best, I am not sure.

Mr. DRINAN. Thank you very much.

Mr. KASTENMEIER. The chairman observes that the so-called Gurney schedule refers to the schedule, page 16, 111 (c), subsection 2(b), presently in the bill; that half, as you point out, of the original schedule, appears to be the amendment of Senator Gurney.

The gentleman from Illinois, Mr. Railsback.

Mr. RAILSBACK. Let me ask you a question that, I believe, was raised yesterday.

How do you respond to the argument that the network news or the television broadcasters take into account in their advertising expanded markets by reason of cable?

Mr. HOWARD. It is pretty hard for me to explain; in fact, I am not sure I understand the question completely.% <t

We are in the field of cable television, primarily, are we not?

Mr. RAILSBACK. Primarily.

Let me just elaborate a little.

We were told yesterday, that in soliciting for advertising television stations would include reference to the cable television market. This enabled them to get more money from an advertiser by pointing out that the advertiser was not only reaching the local market, but was getting into an expanded market by reason of CATV.

Mr. HOWARD. Generally, the pure cable market, when you pay for a program or something like that, basically there is no advertising involved in that special program. You are referring to cable television that picks up a network and then puts it on cable for the individual? Mr. RAILSBACK. No; I must not be making myself clear. What I am talking about is this: A copyright owner negotiates this sale, say, to a particular television station. That copyright owner, according to testimony that we heard yesterday, is in a position to actually negotiate for a higher price by reason of his knowledge that that television station, in selling that program, is going to be able to reach an expanded market by reason of cable. And they actually brought in yesterday some of their advertising material, which apparently did refer to this kind of an expanded market.

Mr. HOWARD. Mr. Railsback, I am afraid I am not qualified to an swer that. I can answer anything about labor in Hollywood and unemployment, things like that; but

Mr. RAILSBACK. That is fair enough.

Mr. KASTENMEIER. The gentleman from New York.
Mr. BADILLO. No questions.

Mr. KASTENMEIER. The gentleman from California.
Mr. WIGGINS. No questions.

Mr. KASTENMEIER. The gentleman from New York.
Mr. PATTISON. No questions.

Mr. KASTEN MEIER. Thank you, Mr. Howard.

The Chair would like to call, on behalf of the motion picture industry, the president of the Motion Picture Association of America, Inc., and the Association of Motion Picture and Television Producers,. Inc., Mr. Jack Valenti.

Mr. VALENTI. Thank you, Mr. Chairman.

Mr. KASTEN MEIER. You have quite an extensive statement.

Mr. VALENTI. I will not impose on you, Mr. Chairman; I am going to extract from that statement, and extemporize a bit, and, hopefully, try to answer, in my extemporaneous remarks, some of the questions that were asked yesterday. And I will answer any questions you might have after that, if I have not fully explored the earlier questions.

Mr. KASTEN MEIER. Without objection, your 61-page statement, including its addendum, will be accepted and made part of the record.. Mr. VALENTI. I would like to have that in the record, yes, sir. [The prepared statement of Jack Valenti follows:]

STATEMENT OF JACK VALENTI, PRESIDENT OF THE MOTION PICTURE ASSOCIATION OF AMERICA, INC., AND THE ASSOCIATION OF MOTION PICTURE AND TELEVISION PRODUCERS. INC.

This is what we believe:

SUMMARY

1. Cable television should be liable for copyright.

It is a basic principle of United States copyright law that payment should be made for commercial use of a copyrighted work. Every profit-making business that uses copyrighted material in the United States ought to be liable for copyright.

2. Cable television should have no exemptions from copyright payments, measured by a portion of its subscribers, by a portion of its revenues, or in any other

manner.

If the excuse is that it is an infant industry that requires nourishment, radio and television were once infant industries and Congress granted them no exemption from copyright.

3. Cable television should pay reasonable fees for the use of copyrighted program materials as provided by the original McClellan rate schedule.

(a) Smaller systems would pay modest royalties. A 500-subscriber system would pay $30 per month on annual revenues of $36,000; a 1,000-subscriber system would pay $60 a month on annual revenues of $72,000.

(b) Larger systems should not be subsidized at copyright owners' expense. Teleprompter, for example, has income running at an annual rate of some $90 million, and under one of the proposed exemptions, could avoid copyright payments on from $4 million to $7 million of its revenues.

4. Creation of a Royalty Tribunal is an essential part of a copyright bill. Because the initial rate schedule in the bill was conceived without economic or fiscal facts or any experience, an impartial body should determine promptly and at periodic intervals thereafter what are fair and equitable payment rates for both the cable system and the copyright owner.

5. "Double payments" is a spurious contention.

It is a basic premise that separate payments should be made for multiple, commercial uses of copyrighted materials.

6. The Supreme Court has not exempted cable television from copyright liability.

The Court had to take the 1909 Act as it found it. It said that Congress had the responsibility of updating the law to deal with the communications changes that were not even conceived sixty years before, i.e., the Court left it to Congress to determine whether cable television should pay copyright.

7. Copyright royalty income directly affects the livelihood of those who work in the creative fields.

Unemployment, particularly in the film producing industry, is extremely high. Additional copyright income spurs production, offering increased employment to tens of thousands in the guilds and craft unions. The creative talents benefit directly from copyright income through "residuals."

8. That part of the definition of "secondary transmission" relating to nonsimultaneous transmissions (the Stevens Amendment) is unnecessary, unwarranted, and legally imprudent. It should be deleted.

The amendment would permit cable television systems in certain areas outside the continental United States to tape television programs for later showings on cable to the harm of the local television stations in those areas, and to the detriment of the owner of the copyrighted program so used.

9. The criminal penalties for piracy and false labeling should be increased in the copyright law to make such crimes felonies.

The Department of Justice has pointed out that pirating of copyrighted works has become a serious and major problem. Our own industry has suffered tremendous losses and has created a special policing department. Privacy should be made a felony for the first offense as in other "economic" crimes such as violation of the antitrust laws.

I. INTRODUCTION

My name is Jack Valenti. I am President of, and representing here today, the Motion Picture Association of America, whose headquarters are in Washington, and the Association of Motion Picture and Television Producers, Inc., located in Hollywood. MPAA is a trade association, whose membership includes the largest American producers and distributors of copyrighted motion pictures. AMPTP is a California membership corporation composed of 72 companies that produce copyrighted motion pictures for theatrical exhibition and for television viewing, and series programs for telecasting. Additionally, I speak also for a third organization, the Committee of Copyright Owners, or CCO. This group is an ad hoc committee of independent producers and distributors of filmed and taped copyrighted television programs, formed to coordinate their efforts in resolving the copyright-cable television issue and the various regulatory issues that arise from time to time over the importation of television signals by cable. A list of the membership of each of the three organizations I speak for is included as part VII of this statement.

Also I am pleased to note that the motion picture industry does not stand here alone. Broadcast licensees, both radio and television as represented by the NAB, music and book publishers, authors and many other organizations and individuals are all making the same case, enactment of a fair copyright law.

I appreciate the opportunity to appear before this Subcommittee. Primarily, my remarks today are directed to the issue of copyright liability of cable television systems and the provisions of H.R. 2223 which affect this liability. These include the royalty rate schedule, the Copyright Tribunal, and other provisions relating to the copyright liability of cable. Several other issues also are of substantial importance to our member companies, and I will discuss them briefly later in my statement.

The members of this subcommittee are generally aware, I am sure, of the historical background of copyright liability of cable television under the present 1909 Copyright Act and the many efforts over the last ten or more years to resolve the issue. Cable television is not now liable for copyright. That is the basic problem. Cable television operates in an environment where every other user of copyrighted programs bargains and pays for its use. Television stations, theaters, phonographic record, video cassette and sound tape manufacturers, all must pay license fees which have become a normal item of their cost of doing business.

The involved parties themselves sought to resolve the issue of cable's liability in an undertaking known as the Consensus Agreement, which had the blessing of the Federal Communications Commission and with the White House Office of Telecommunications Policy. The Congress too has had a hand in dealing with the problem by passing a Copyright Bill in this House some years ago and last year in the Senate. Cable walked away from this agreement and subsequent understandings.

A more detailed discussion of the background and the efforts to resolve this issue is included as part V of this statement. I see no reason to take your valuable time now to recite this past. Rather, I think it more beneficial to discuss the issues, and the position and the reasons for the position taken by copyright proprietors.

The organizations I represent here today strongly believe in and urge you to approve a copyright bill that will require cable television to pay copyright royalties. We ask only for royalties that are reasonable and just-fair for cable as well as for copyright owners. In making this point, we do so not as an opponent of cable. On the contrary, despite cable's repudiation of its agreements and our disappointments in dealing with cable operators, we look upon cable television as an ultimately significant additional user of our product. That is why we have supported cable television, especially "Family Choice Cable" (i.e., pay cable), so strongly before the Federal Communications Commission. But our support of cable television does not mean we believe it should get a free ride at our expense over the conventional television industry, an industry which has paid copyright royalties from its very beginning.

II. CABLE TELEVISION, AS A PRIVATE, PROFITMAKING BUSINESS, SHOULD PAY COPYRIGHT FEES AS DO OTHER MEDIA WITH WHICH IT COMPETES

A. Why Cable Television Should Pay Copyright

Under article I, section 8, of the Constitution, the sanctity of copyright is affirmatively recognized. It is a means of promoting the American arts and sciences. As the Register of Copyrights so well explained in a letter to Senator John McClellan last year:

The Constitution directs Congress to legislate to secure to authors exclusive rights in their writings. Reward to the author and his legal successors is essential to stimulate creativity. We are all enriched by this creativity. It is surely not too much to expect that some payment to copyright proprietors will be made for commercial uses of copyrighted works.

Or as the Supreme Court has formulated the reason for copyright:

The economic philosophy behind the (constitutional) clause empowering Congress to grant patents and copyrights is the conviction that encourage'ment of individual effort by personal gain is the best way to advance public welfare through the talents of authors and inventors in "Science and useful Arts." Sacrificial days devoted to such creative activities deserve rewards, commensurate with the services rendered. (Mazer v. Stein, 347 U.S. 201, 219, 1954 Sui di 01 is