Let me give you an analogy.

Would you not agree with me if I said that most of the telephone poles that are put up by A.T. & T. around the country are paid for, are amortized; they have already paid for them. Yet cable systems are not exempted by the Congress from paying the telephone company when they hook up their cable to the telephone pole. They do not say, wait a minute, that pole is paid for; to pay for its use is a double ticket, boys; we are paying you twice. You have already had it paid for by your own subscribers, now you want us to pay you again for the use of those poles. That is essentially the cable argument about copyright.

I have not heard anybody quarrel with the telephone company's contention that they want payment for pole rental. The same concept holds, separate payment for multiple use.

Furthermore, let us remember this, the compulsory license covers local signals, so that is part of the deal. Instead of having a free negotiation in the marketplace, you avoid that negotiation in the marketplace which cable wants to avoid like the plague. So, the local signal is covered by the compulsory license; all signals. The concept of separate payment for multiple use holds there. And I might add, I think Congress ought not be defining local signals or distant signals. Technology is advancing with avalanching revision. What is a distant signal today, may be a local signal tomorrow or vice versa.

To have cable television fragmenting local television station audiences, causing copyright owners to lose revenue by the importation of their programs from one city to another, competing unfairly against TV stations, paying no copyright fees, using its profits to increase its subscribers to further fragment the local TV audience-all this is wrong.

If the Congress exempts television-cable television-from copyright, in my judgment the Congress will not only be magnifying and sanctifying a terrible injustice, but it will have created a huge parasite in the marketplace, feeding and fattening itself off of local television stations and copyright owners of copyrighted material. We do not like it because we think it wrong and unfair.

There is no more to be said by me on the subject of copyright exemption. I am going to leave it to this committee to make a thorough examination of the truth and the fairness of what I have said. You will make your own judgments.

And now to the second aim of the cable television industry: To destroy the Royalty Tribunal as an effective referee in ratesetting and to freeze forever the fees. That is what they want.

All we, as copyright owners, have asked the Congress is to be treated fairly, to have a right to receive what is a fair copyright fee. Honest difference of opinion exists on what is fair; we know that and you know that. We have no marketplace experience of any substance to guide us as to what is fair for cable and what is fair for copyright owners. But I think there is a corollary to be examined, because we have considerable experience with the television industry, and that experience tells us that the fee schedule in H.R. 2223 is very, very low. That is why we strongly believe that at a very minimum, this committee ought to return to the original McClellan fee schedule, which ranged from 1 to 5 percent on subscriber revenues.

Let me go back briefly to television's experience with copyright because I think it goes to the heart of something you said yesterday, Mr. Congressman.

Networks and individual television stations depend on copyrighted material for their sustenance, just as cable does. Copyrighted programing is the one indispensable product that the television industry must have to service viewers, just as cable does.

Now, in 1973, from figures that we got from the Federal Communications Commission, the average cost of copyrighted programing for the three networks, for all the affiliated stations and all the independent stations in the country, amounted to 25 percent-plus of their total

revenues.

Mr. DRINAN. At this point, let me ask, granted that the 25 percent went to the programing, but how much went precisely and exclusively for copyrights?

Mr. VALENTI. I am saying this is for copyrighted programing.

Mr. DRINAN. Yes, but how much actually went to the copyright? That if a local cable originated something, he would pay at least 25 percent to it. So, this does not tell me very much, Mr. Valenti; that 25 percent went to copyrighted programing. But how much went to the copyright?

Mr. VALENTI. You mean how much money, absolute money? I do not have that figure right in front of me.

Mr. DRINAN. That is the critical one, in my judgment.

Excuse me for interrupting, but I just wanted to

Mr. VALENTI. I will be very happy to give it to you; I just do not have it in my memory or in my papers.

[The information referred to follows:]

The FCC's data shows that gross revenues of all network, all affiliated stations, and all independent stations totaled $3,970,059,000 in 1973. Expenses in that year for what are assumed to be copyrighted materials, defined in the case of networks as "amortization expenses on programs obtained from others," and as "rental and amortization of films and tapes" in the case of stations, plus "music license fees" and "records and transcriptions" come to $893,964,000, according to the FCC. Obviously only a portion of this sum went as payment to film producers for their copyrighted material.

Mr. VALENTI [continuing]. I was trying to establish some comparison of what television is paying for copyrighted programing, however pertinent that fact may be.

I go on to say that I do not cite this, Father Drinan, as being a measuring stick for cable; not at all. But it points up one crucial factor this committee ought to be aware of; that copyrighted program material costs a lot of money to the television industry, which must compete with cable television.

I think what is relevant about this 25-percent figure for television copyright costs is that it shows how modest, how almost nonexistent are the fees under H.R. 2223, and even under the McClellan rate. schedule. Let me give you some arithmetic.

The rate schedule in H.R. 2223 imposes on 70 percent-7 out of 10 of all cable systems in this Nation-the equivalent of 3 cents per subscriber per month.

The original McClellan rate schedule would bring that to 6 cents a month per subscriber for 70 percent of the systems. The very largest system would pay less than 12 cents a month per subscriber; it would be about 12 cents because the effective rate of the McClellan schedule. for all systems figures out at 1.9 percent overall. The effective rate of the Gurney amendment, which is in the bill before you, is 0.9 percent

for all systems. By whatever gage you choose to employ, no cable system can find the equivalent of 3 cents or 6 cents or even 12 cents a month per subscriber as being excessively high or inflationary to justify a system to raise its rates to the subscriber.

I think you can be sure of one thing; if cable systems start raising rates, as I will point out they have, it has not been because of imposition of a copyright fee of 3 cents a month or 6 cents a month. But rate increases are the bogeymen which cable interests are parading before you. Some cable interests insist they have got to raise their rates if copyright fees come in; they just cannot exist, they are going into bankruptcy if they have to pay an extra 3 cents per subscriber per month.

With the implicit alternative that if there are no copyright fees, of course, there would be no need to raise rates. Now, the truth, gentlemen, is somewhat different. I would like you to remember the following quotation. It is from Russell Karp, the president of Teleprompter Corp., the largest cable conglomerate in this Nation, with more than 1 million subscribers-more than any other cable interest. This is what Mr. Karp said 1 month ago, May 13, 1975, to a group of security analysts in New York: "Our," meaning Teleprompter, "our average monthly rate per subscriber went from $5.37 in 1973 to our current monthly subscriber rate of $6.68, a 24-percent increase." Now, virtually all of this improvement falls to the bottom line. I am sure I do not have to explain that to you gentlemen.

Now, here, Mr. Karp again in the same speech-this is a critical sentence I am going to read you. Mr. Karp says: "At the NCTA convention, a group of multiple systems owners at a panel I headed had no difficulty in predicting a $10 a month rate by 1979."

Thus, Teleprompter reveals to security analysts that the rates are going up, right now, and they are mighty proud about these increases. Incidentally, I have before me a document that Congressman Railsback mentioned the other day he would like to have. It is Teleprompter's 1974 Annual Report-I am assuming full disclosure and accurate information. Here are some items:

Revenues from continuing operations increased $13,900,000 from $72,900,000 to $86,800,000. Operating profits increased $18,100,000 and we have renegotiated our bank credit agreements so as to provide the company with an up to an additional $20 million.

They were fortunate enough to find one lender who was not worried. about whether the price increases were going to include a copyright fee because they got $20 million out of a very brave lender.

Now, that is the Teleprompter story. What should the rate schedule be? As I have just said until all the data is brought forward, until there is some kind of organized search for facts, no one can really say. That is why we believe that if the Congress wants a fee schedule in the bill, that is your judgment to make.

It ought to go back to the original McClellan fee schedule. The McClellan rate schedule, as you pointed out, Mr. Chairman, was cut in half in the Senate Judiciary Committee. Why? I do not know. For no other reason, I suspect, that is what cable wanted and that is what they got. It was cut in half. The Gurney amendment passed by just one vote in the committee. How did it pass-without any hearings, without any data being weighed, without any new facts being inserted? It was just cut in half, period.

Therefore, in the absence of common sense or logic of factual data or arithmetic or whatever else, your bill ought to reinstate the original McClellan fee schedule. Then after the bill is passed a dispassionate and impartial and unbiased royalty tribunal can examine facts and weigh them and look at data and ask questions and open up the books and see what people are paying and what they are receiving, and then periodically make decisions on a fee schedule. That is why I think it is necessary to create a royalty tribunal for this purpose, as the bill proposes.

Congress, again as Mr. Badillo pointed out, does not have the time or the facilities to set copyright rates; is it not fair to have a Royalty Tribunal? Is it not a reasonable suggestion because neither cable interests nor broadcasters nor copyright owners have any advantage?

But, cable interests want to bleed and destroy this Royalty Tribunal before it even gets created. This is all kind of painful and absurd, at least it is to me, and so unfair that we ougth not waste our time discussing such foolish suggestions.

Yet, even after getting their Gurney amendment, cable interests still are not satisfied. Now, they want more. What do they want? They importuned this committee to exempt the first $100,000 of revenue and, get this gentlemen, exempt $100,000 from all systems. I do not know whether that was made clear yesterday; this $100,000 exemption is not for that little mom and pop system, it covers every system in the land, large and small.

What is the rationale for this exemption demand? Is it to help small systems? Is that what the Congress thinks a small system needs? Under the bill you are considering, a 500 subscriber system would pay how much? Fifteen dollars a month for the total system for its copyright fees. The 1000 subscriber system would pay how much? Thirty dollars a month in total for the copyright fee.

Now, is that so massive, so inflationary, that it is going to bankrupt small systems? Remember, the 1000 subscriber system is going to pay $30 a month or $360 a year and that system has revenues of $72,000 a year. Maybe the rationale is that Congress wants to help an "infant industry." Radio and television were infant industries once, you did not exempt them. Are you exempting any other small industries in this country that are trying to grow because they are infants? Maybe it is because the big systems need help, is that why cable interests want to do it? Remember they would get the exemption too.

Let us go back to Teleprompter-they have revenues running this year at an annual rate of some $90 million. And analysts predict and Paul Kagan's newsletter confirms that analysts predict that in 5 years Teleprompter is going to produce revenues of $200 million a year. Teleprompter, you must understand, has over 130 systems, at last count 136. Many of these individual systems are going to get that $100,000 exemption. Thus, Teleprompter, like other large systems, would get a rich bonanza for a big system conglomerate like Teleprompter would not be exempted from $100,000 but from $4 to $7 million in revenues. That exemption is a windfall for the large systems. That is why the $100,000 exemption has no base, no rationale, no logic, no meaning. I hope this committee will listen but will not oblige cable interests when they want to substitute inequity for fair play. I believe that the Royalty Tribunal is the only sensible method to cut

through fantasy arguments and counter-arguments. Let some expert body of dispassionate and impartial people consider the evidence and hand down decisions.

This is a fast moving communications world we live in, Mr. Chairman. That is why I think every 5 years there ought to be an examination of the fee schedule. Things are moving so fast and no seer and no man of whatever experience can predict accurately where the future is going to take us, particularly in communications.

Gentlemen, I thank you very much for your patience and your time and attention. I would have liked to have treated with several other amendments dealt with in some detail in my formal statement which do not basically change the shape and form of the bill but I think will strengthen it. But, you have the texts and justifications in my statement filed for the record. I just hope you will be wary of amendments that have as their aim to gut this bill, to reduce or freeze the fee schedule, to install baseless exemptions, to erode the power of the tribunal, to redefine cable systems so that the large systems very cleverly can pay the same rate as the smaller system.

I have taken more of your time than I wanted to but this is very important, it is the only opportunity we have with you. Thank you very much.

Mr. KASTENMEIER. Thank you, Mr. Valenti.

Actually, in response to Mr. Drinan's question, the difficulty is that the television industry pays the motion industry or the industry that produces programs for a total production rather than for something called a royalty I suppose in and of itself. Is it difficult for you to compare royalty versus royalty?

Mr. VALENTI. Let me tell you something about how the industry operates.

Mr. KASTENMEIER. That might be useful.

Mr. VALENTI. We sell television series to the networks and right now our industry has terrible problems because the prices we are getting for our television series do not meet their costs.

We have certain option agreements with the networks which do not allow us to recoup costs. Only if the series is a success, and it stays on the air for 4 or 5 years does it accumulate enough program episodes to go into syndication.

So, for most companies making television programs today it is a loss proposition unless the producer is lucky enough to have a long running series.

And, secondly, the sale of feature films-we sell our films on a flat rate-not on a percentage basis. The average price paid for a feature film today by the networks is about $800,000. The average cost, negative cost of a film today, is some $3 million. Seven out of ten films do not recoup their negative cost, advertising and print cost. Seven out of ten are losers.

The producer hopes he will have an Exorcist or a Sting or some other large grosser and he is happy about that, but overall in this business 7 out of 10 movies lose money.

The networks are sold on a flat basis and thereafter we go to the local station for what is called the syndication market. Here again, we sell the right to exhibit for whatever the traffic will bear; you