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The right of copyright should not be sacrificed to every other right-nor should it ever be sacrificed to economic or technological expediency. To quote again the Register of Copyrights: "The basic human rights of individual authors throughout the world are being sacrificed more and more on the altar of . . . the technological revolution."

In short, the right of copyright and the protection of copyright has been declared by our Constitution to be in the public interest. Conversely special interest groups seeking to take a free ride on the creativity and investments of others have been never so recognized by the Constitution.

No justifiable reason exists for violating this policy, except that the archaic and obsolete 1909 law did not foresee the technology of the new medium. Other private enterprises in this country that use copyrighted material pay for it, including all the other communications media. For example, in April, 1975, there were 8,821 radio and television stations, and each time one of those stations used a copyrighted work, it was required to pay a copyright royalty. May I remind you that the radio and television industries were "infant" industries once. But they had no compulsory licenses when they were growing into the giants they are today. The payment of a reasonable copyright fee did not hinder their growth or their prosperity.

Even non-profit organizations such as educational television stations bargain and pay for copyright licenses when they use copyrighted entertainment programs. An amateur actors' group or a high school class which engages in the public performance of a copyrighted play, or which has a public screening of a film, pays a royalty.

The cable television industry is a private business run for private profit. Yet it pays no copyright. To exempt cable television from copyright liability would create an anomaly without reason. Such an exemption would be contrary to the policy of our copyright laws; it would confer a special privilege. It would confer this privilege by allowing a privately-owned, for-profit industry to use the one essential element of its operation-program material-free of any cost. Moreover, in so doing, the Congress would be taking private property from its owners and giving it to others. Clearly, there can be no public interest justification for exempting cable from copyright payment.

Cable television competes with television for viewers. To do this, cable uses sophisticated equipment and facilities to provide improved signals to its cable viewers. In the early days of cable television, a cable system might have been fairly considered just an enlarged antenna system. A major antenna was placed on a hill top and wires were strung from the antenna to homes to receive the augmented television signals. But cable has not been an antenna system for some years now.

Cable television does far more than receive signals. It imports many distant signals by means of expensive and highly technical microwave installations; it amplifies all signals; changes their channel, distributes them, and makes a charge for them. This dissemination of signals requires the use of highly sophisticated equipment and machinery, skilled personnel, and buildings and grounds. Moreover, cable systems not only distribute television signals, but perform other services. By using television programs as building blocks, the cable systems can and do provide pay cable or family choice cable. As suppliers of program material, we welcome this proliferation of cable service; we ask only that we be paid for what they use.

The function of cable today was probably never stated better or more clearly than by an officer of the cable trade association. Mr. Edward Allen, a director of the National Cable Television Association (NCTA) and President of Western Communications, Inc., a cable network of 63,000 subscribers, declared this past

April:

We do receive those (television) broadcast signals at our headends. However, nobody watches our signals at our headends. After we receive these broadcast signals we process them, we amplify them, we distribute them, and then we make a charge for them, and anybody who has ever been through a power outage or through a station outage knows that even the most sophisticated headend receiving equipment and distribution system are absolutely worthless unless we have those signals running through our cables. What we do to these signals after we receive them, to my mind, does in fact constitute a performance for profit.

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Cable television does something else to attract viewers away from local television stations. It imports signals-programs-from distant television stations to its cable subscribers in its own local market. Thus, cable television is not only using local signals free of any cost, but by importing distant signals free of charge it fragments the market of the local television station with which it is competing for audience. In so doing, it not only competes unfairly with the television station that must pay for its programming, but it destroys, or at the very least impairs the copyright owner's ability to sell his product to the television station in that market. In short, if cable television is not subject to copyright liability, the Congress would not only be giving cable a free ride, but it would, in effect, be subsidizing cable at our expense and to our subsequent economic disadvantage. In so doing the Congress would legitimatize unfair competition against television-an unsubsidized free market enterprise.

Finally, cable television copyright liability has been recognized by many organizations. The official body of cable, NCTA, in testimony before the Senate Subcommittee on Copyright, on August 1, 1973, and again in a public statement this May, confirmed its commitment to copyright liability.

The present Chairman of the FCC and the acting director of the Office of Telecommunications Policy have publicly voiced their support in favor of copyright liability. The 1974 Report to the President by the Cabinet Committee on Cable Communications recommended that cable television pay copyright. That report said, "Both equity and the incentives necessary for the free and competitive supply of programs require a system in which program retailers using cable channels negotiate and pay for the right to use programs and other copyrighted information." A more recent report by a special committee of the Committee for Economic Development called for copyright payments by cable television.

Finally, it should be noted that since the 1940's, international law under the Berne Convention has imposed copyright liability on the retransmission of radio programs by wire. The great concern uniformly expressed for the protection of copyright as a property right throughout Europe suggests that court decisions will hold that cable television is liable for copyright. Indeed, when Japan enacted a new copyright law, it believed that copyright liability on cable was necessary to conform to the terms of the Convention. We believe that in keeping with the probability of United States accession to the Convention following enactment of this bill, copyright liabiltiy for cable should be imposed.

In summary, Mr. Chairman, constitutional recognition, legislative policy, business practices under the free enterprise system, and plain logic demand that cable television should pay copyright royalty.

B. Copyright Royalties Increase Employment and Income in the Motion Picture Industry

I want to touch only briefly on this point. Mr. William K. Howard, President of the Hollywood Film Council representing the labor unions and guilds of the United States film industry, will deal more fully with the importance of copyright income to the men and women in the craft unions and guilds in California and New York who make motion pictures and television films.

The diversion of audiences from television to cable results in reducing the income of the film industry. It affects not only the producers and distributors of motion pictures who hold copyrights in the films, but also the tens of thousands of persons throughout the industry who contribute to the creation of motion pictures. Their rights depend on the right of copyright owners to be paid for the commercial use of copyrighted films by cable. The compensation of many of the creative talents such as the screen writers, directors, composers and actors, depends to a large extent, on their income from "residuals", i.e., on payments under collective bargaining agreements for each showing ("run") of the film subsequent to its original telecast. To the extent that any such showing on a television station which would pay a license fee to the copyright owner is replaced by an importation of the same program by cable, which does not pay a license fee, the talents of the creative segment of the industry will go unrewarded.

Royalty payments by cable television would help in recouping the cost of films and spur greater investment in the production of motion pictures. Additional copyright income means more jobs in an area of gravely high unemployment. C. Copyright Royalty Fees Paid by Cable Television Should Be Reasonable and Just

The question then is, not whether cable should pay copyright royalties, but rather: "How much should cable pay and how do you determine what is fair payment?" I repeat again: We ask only that we be treated fairly, and that cable be required to pay just and reasonable fees.

What is just and reasonable? Differences of opinion exist on that issue. We have no marketplace experience for what is fair for us and reasonable for cable. There is, however, considerable experience in other areas.

Let us look briefly at what television pays for copyrighted program material. We have obtained official figures from the Federal Communications Commission on copyright costs for networks, and for affiliated stations, for independent television stations, and average costs for all television stations.

In 1973, the latest data available, the television industry paid out slightly more than 25 percent of its entire gross revenue of almost $4 billion for copyrighted material. Compare this with the 5 percent highest rate specified in the original McClellan rate schedule for cable systems. Compare this with the average cost, under that same schedule, for 70 percent of all cable systems of the equivalent of 6e a subscriber each month or 1 percent of subscriber revenues. Even more striking is a comparison under the schedule contained in H.R. 2223, which would require 70 percent of the systems to pay only 3¢ a month per subscriber or 1⁄2 of one percent of system revenues.

Furthermore, it should be kept in mind that the top rate does not apply to all revenues of a cable system but only to its revenues in the top bracket, i.e., revenues in excess of $160,000 a quarter or $640,000 annually. Therefore, the actual effective rate that any system would pay would be much lower than its applicable percentage rate specified in the fee schedule.

I cite these figures not as direct measuring sticks for what cable should pay for copyright, nor as an invidious comparison with the royalty rate schedule proposed in the bill. Rather, they serve to emphasize that copyrighted programming material is a major and expensive factor in television operation. What is significant here, I believe, is how modest, how low is the proposed cost of this copyrighted material to cable systems in the United States.

The rate schedule in H.R. 2223 would impose on each cable system an average cost of 6¢ per month for each of its subscribers. The original McClellan rate schedule provided for copyright royalties ranging from 1 percent to 5 percent of gross subscriber revenues. That rate would bring the average cost each month to each cable system to about 12¢ per subscriber. Either figure-6¢ or 12¢ per month-is hardly inflationary, unjust, or unreasonable to a cable system. Indeed, it needs to be emphasized that a cable system pays more in mailing the subscriber his monthly bill than it would pay for copyright under either H.R. 2223 or the original McClellan fee schedule.

It is a fact that the original McClellan rate schedule was not premised on either statistical or economic data. But it is also a fact, an undeniable fact, that this fee schedule rooted neither in economics nor marketplace data, was arbitrarily cut in half during final Senate committee consideration. This is the schedule now contained in H.R. 2223. Based on what others pay for copyright, notably television, and the small cost to cable systems, copyright owners believed-and still believe that the original McClellan rates were low and the rates in the bill now pending are absurdly low. In retrospect, calculated on the cost per subscriber to the cable system-an average of 12¢ a month or $1.44 a year-it is hard to understand how the original McClellan royalty rate is unjust or unreasonable to the cable system owner. This Subcommittee should therefore amend the bill and adopt the McClellan schedule providing for rates ranging from 1 percent to 5 percent of subscriber revenues.

The controversy over the two rate schedules emphasizes the importance of how rates are to be adjusted after an initial rate schedule is enacted into law. One alternative proposed by NCTA and others is to freeze this initial rate schedule and provide for adjustment only by further act of Congress. As a practical matter. this means there will be no change in rates. We have only had four copyright laws in the almost 200 year history of our country, and, as the Members of this Subcommittee are well aware, the present law is 66 years old. With this as a precedent, program suppliers of copyrighted materials and the operators of cable systems would be saddled for years with a rate schedule arbitrarily determined without any economic data or facts to give it substance. Such an approach does not allow for changing economic conditions in a dynamic industry and is manifestly unjust to both parties.

The second alternative is the one included in H.R. 2223: the establishment of a Royalty Tribunal that would adjust the royalty rate schedule periodically based on expertise and factual economic and market information. This is acceptable to us, if H.R. 2223 also provides that the Tribunal is required:

(1) To meet initially as soon as practicable on a day certain and issue a decision on whether the rate schedule should be revised, and if so, what the new rates should be; and

(2) To meet and consider fee revisions at least once every 5 years.

Periodic review is obviously necessary since that is the purpose of the Tribunal. An initial decision of the Tribunal at an early date is essential since the statutory rate schedule will be an arbitrary one, and none of the parties affected by it should have to live with those arbitrary rates longer than is absolutely required. This alternative is consistent with the recommendations of the previously mentioned study of the special committee of the Committee for Economic Development which stated:

Determining just compensation for a creative product distributed by cable has been extremely difficult. More precise economic studies are required in order to fix reasonable fee scales. In the absence of such information, however, the parties concerned should jointly establish a schedule of royalty payments, and Congress could provide for compulsory arbitration if agreement between the parties cannot be reached.

III. TRUTHS ABOUT COPYRIGHT WHICH REFUTE FALSE CABLE ARGUMENTS

A. The Supreme Court Has Not Exempted Cable Television From Copyright Liability

I would like to deal briefly with a shibboleth that has been given wide currency. It is that the Supreme Court has exempted cable systems from all copyright liability. That claim is not correct. The Supreme Court held only that cable systems were not liable for copyright infringement under the 1909 Copyright Act. This is a law, now 66 years old, enacted when communications as we know it today did not exist. (See Fortnightly Corp. v. United Artists Television, 392 U.S. 390, 1968, and Teleprompter Corp. v. Columbia Broadcasting System, 415 U.S. 394, 1974).

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The Court pointed out in the Fortnightly decision that it was faced with the duty of interpreting a statute, “in the light of drastic technological change, .. (at p. 396). The Court specifically rejected an invitation of the Solicitor General to render a compromise decision that would accommodate various interests, since it said that this "job is for Congress." The Court had to take the 1909 Act as it found it (p. 401). Later in its Teleprompter decision, the Court reaffirmed its position that updating the copyright laws was a matter for Congress to deal with. It said:

These shifts in current business and commercial relationships, while of significance with respect to the organization and growth of the communications industry, simply cannot be controlled by means of litigation based on copyright legislation enacted more than half a century ago, when neither broadcast television nor CATV was yet conceived. Detailed regulation of these relationships, and any ultimate resolution of the many sensitive and important problems in this field, must be left to Congress. (Teleprompter, at p. 414. Footnote omitted. Emphasis added.)

In short, the Court left it to Congress to construct a new copyright law which would take into account new and dazzling technological innovations.

B. Copyright Owners Would Not Receive "Double Payment" if Cable Television Pays Royalties

Cable television operators frequently contend that television stations already have paid copyright royalties for cable viewers. Television broadcasters, they assert, and through them, program suppliers such as our motion picture producers and distributors, have been paid by advertisers who recognize the added coverage of cable viewers. The contention is that by seeking copyright payment from cable, we are seeking to be paid twice.

Let's assume, for the sake of argument, that television advertisers do pay for cable subscribers, an assumption which is not valid. The payment of copyright is a constitutionally recognized right. Copyright law fosters this right so that commercial users of copyrighted materials pay for that use. The potential and incentive to create artistic works is enhanced and each user bears part of the cost of promoting the arts.

The plain fact is that the compensation of the creator of a copyrighted work is frequently derived from more than one source and payment of separate license fees for separate commercial uses of the same copyrighted work is fully consistent with copyright policy. Thus, the writer of a novel may be collecting royalties from the publisher of the hard cover edition of his book, the publisher of the soft cover edition, the periodical which serializes it, the producer which stages it in a legitimate theater, the motion picture company which produces a motion

picture based on the novel, another motion picture company which acquires the remake right for another motion picture and from sundry other users of all or part of the work.

Multiple uses of copyrighted works have traditionally led to the payment of separate royalties for each profit-making use. Thus, as Dr. Leland Johnson explains in The Future of Cable Television (1970), an in-depth economic study prepared in 1970 by the Rand Corporation:

the fact that a movie is produced primarily for the theatre market and supported by paid admissions does not suggest that television stations supported by advertising revenues should have free access to those movies. Nor does the production of programming primarily for the advertisersupported broadcast market suggest that cable systems supported by subscribers should have free access to that programming. (p. 27)

It is clear that the contention that double payment takes place because one user (television in this case) has already paid copyright is a spurious and irrelevant argument which violates the very basis for the constitutional right.

It is an argument which I am sure will find no haven with those trained in the law. Television stations and networks are not exempt from paying copyright nor do they claim to be exempt, because theater owners have already paid to show feature films. For that matter, no such claim is made by Family Choice Cable (i.e., pay cable) operators. There is no legal reason to treat cable television, using off-the-air signals, any differently.

How accurate, in any event, is the claim of double payment? I submit it has no validity at all.

Suppose a CBS television station affiliate carries a program which it licenses from a copyright owner for telecasting. And suppose that the NBC affiliate in the same city decides that this would be a good program to build up its own audience and snatches that program from the air and retransmits it over its own facilities. This NBC station could argue, by the same reasoning as some cable advocates do, that because it would simply retransmit a local signal for which the copyright owner was paid, it should have the right to do this without a license or payment of separate royalties. Thus, just as the copyright bill requires: a television station to acquire a license for a network television retransmission, so it should require payment of a royalty under the compulsory license even where local signals are transmitted by cable to its subscribers, especially because the cable system, unlike a television station, collects fees from its subscribers.

Rating services for advertisers carefully measure markets where advertising is expected to have maximum impact. Advertisers are not willing to pay duplicatę coverage within a market or for audiences outside such markets.

Another and more important problem concerns distant signals. Operators of cable systems import distant signals. When the programs retransmitted by the cable system are imported from distant stations, the copyright owner's opportunity to sell the same program to a local station in the invaded market is severely impaired. To make this point clear, I want to outline briefly the way the television market works:

Because of certain electrical and physical limitations and regulatory restrictions imposed on a television station's power and antenna height, effective reception of the station's signals is limited to a determinable geographic area. As the result of such reception conditions, this area becomes the "market” which is serviced by the station's programs and commercials, and for which the telecasting of programs is licensed by the copyright owners.

Each time a program is exhibited in a market, the audience potential for the next showing of the program in that market is diminished.

Few television viewers in an area would tune in again to see a motion picture which has already been imported into that area by a cable system, perhaps only a few days prior to the showing by the local television station.

When a cable system imports a program from a distant station, it scoops up part of the potential audience for that program in the market where the cable system operates. The result is that the local station will pay only a reduced license fee, if it is willing to take a license at all, for a program which has already been shown in its market.

Nor would the station whose signals are carried by cable television into distant markets pay the copyright owner additional monies for the enlarged audience. A station's revenues, hence the price which it is able to pay to the copyright, owner for a license to broadcast a copyrighted work, depends on the size of the audience within the station's market but not on any audience outside of that station's market.

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