might sell a film for $200, you might sell it for $100, you might sell it for $1,000, depending on the size of the market, the demand, and so forth. It is a marketplace negotiation. The syndication market is very valuable to us because oftentimes it is the last resort for our producers to recoup at least a paper profit on the film. And so we count these sales to individual stations very important.

Mr. KASTEN MEIER. Is the sale figure-do you consider the sale figure, whatever it is, as a royalty?

Mr. VALENTI. Legally it is royalty. We get money for the films we license. Mind you, we would like to do that with cable, the same kind of negotiation in the marketplace. The only reason why we have a royalty rate schedule is because it is in the bill that came from the Senate. We would like to go back into free marketplace negotiation, just as we do with everybody else. We could license a film to cable for $100 or $50 or $8,000, or whatever the appropriate rental would be.

Mr. KASTENMEIER. What rights in the program series, what rights does a network customarily have in that program-that is to say, each of the programs? Does it have an exclusive? Does it have a right to sue others for infringement?

Mr. VALENTI. Absolutely. Yes, sir, it has rights under its license agreement.

Mr. KASTENMEIER. What is the nature?

Mr. VALENTI. One of our companies holds the copyright, and it licenses the film for a contractual use of that particular series. The licensee may have it under various options of successive year use with possible incremental increases in the rental fee, or whatever. But it is a contractual right, just as I contract with you to rent my house. You have a contract, a lease arrangement.

But, the ownership of the copyright rests with the copyright owner, not with the network, except where the network owns the program itself.

Mr. KASTENMEIER. In this case, the copyright owner would be probably a Hollywood production company.

Mr. VALENTI. It could be Paramount, MGM, Universal, any one producer or distributor who may have acquired the copyright.

Mr. KASTENMEIER. So, it licenses the network for certain uses; maybe it is probably exclusive for periods of time; but the network would not customarily be able to license others to use that program. Mr. VALENTI. Mr. Chairman, now you are getting into a level, where the lawyers move with dazzling speed. I am not sure of my footing here. I do know the following: It is a license arrangement; exclusivity may be appended to that contract. There are option agreements, and after a specified length of time, when the contract runs out, the copyright owner retrieves that series and then puts it into syndication. You will see a number of series programs on channel 5 or channel 20. Those are syndicated programs that are no longer on the networks and are now being syndicated to local stations.

Mr. KASTEN MEIER. Mr. Valenti, were the Motion Picture Association of America and the Association of Motion Picture and Television Producers parties to the consensus agreement?

Mr. VALENTI. Yes, sir.

We had what is known, Mr. Chairman, as a committee of copyright owners. It was an amalgam of members of AMPTP, Association of Motion Picture and Television Producers, the MPAA and some other

companies with similar interests. It was a special ad hoc group to represent those entities. But, essentially, the answer is yes.

Mr. KASTENMEIER. Do these two associations feel bound by that agreement?

Mr. VALENTI. Of course we did and do.

Mr. KASTENMEIER. You heard a description yesterday of how the agreement was entered into. Do you know of your own knowledge whether that was an accurate description?

Mr. VALENTI. The consensus agreement was signed because the cable interest wanted it signed. You must understand that the consensus agreement gave the cable interest the big casino, the big prize, the thing that glistened out of their reach for so many years since 1966. It unfroze the cable marketplace. It allowed cable to import distant signals, a fantastically worthwhile asset.

I want to tell you how worthwhile that asset was. Within hours after the signing of the consensus agreement and the FCC implementing it and allowing distant signals to be brought in by cable, Teleprompter's stock soared to 117. Shortly thereafter it split 4 for 1, and rose to over 40. That is what the investing community thought about the worth of that asset which was gathered in by cable through the consensus agreement. So, you bet your boots they wanted to sign it, because it gave them the one major thing they wanted.

You might ask what did you people get out of it. We got something, but mostly a hope and a promise. We got varying degrees of exciusivity. That is not what we really wanted. Since then, I think, it is fair to say, and some of my professional colleagues here could elaborate on this, that exclusivity, which was our principal issue with the FCC, proved to be of marginal value, and has been honored more in the breach than in the acceptance.

As I said, the impetus for the consensus agreement signing came from the cable people. The Federal Communications Commission imposed a freeze in 1968. Why? Mainly because they thought the failure of cable to pay copyright was, if I may use the word, another kind of piracy. This failure allowed cable television to compete unfairly in the marketplace, said the FCC, hence the freeze. So, I think the cable people were prepared to do anything to get that freeze lifted. They got what they wanted out of the consensus agreement.

I must tell you that while I am passionately concerned about copyright, we are all so very much in favor of cable. In behalf of the copyright owners I testified before the FCC and before Senator Hart's Antitrust Committee urging the expansion of pay cable, or as we call it family choice cable, because we think cable represents in the future. a supplemental market for our products. But we believe the consensus was in the public interest and in our own self-interest. We indulged in a kind of shuttle diplomacy between New York and Washington trying to get it done.

The consensus agreement was signed. It is an official document. It was published by the FCC in "The Federal Register." Chairman Burch sent a copy of it to Senator McClellan. I have a copy of the exchange. of correspondence. Senator McClellan wrote back to Dean Burch and said, and I quote, "I commend the parties for the efforts they have made, and believe that the agreement that has been reached is in the public interest. It reflects a reasonable compromise of the various positions."

I have perhaps told you more than you want to know about the consensus agreement.

Mr. KASTENMEIER. You perhaps heard, it was stated that Peter Flanigan, perhaps to some extent the FCC and the Office of Telecommunications Policy, to some extent bludgeoned the parties into acquiescing, to agreeing to this. As representing a couple of parties to this agreement, do you feel that, were you aware of any of these extraordinary efforts on the part of those?

Mr. VALENTI. No. I do not know about that. But, Mr. Chairman, we can go back again to bedrock common sense. The environment in which that consensus agreement was created, the ambience of the moment, a freeze on cable television, no distant signals could be imported. Cable television stunted, atrophied.

If you were in that situation, what would you do? You would want to do all you could to unfreeze, to thaw the freeze, as it were. If cable was bludgeoned, it is because they wanted the quid without the quo. They wanted to unfreeze, but without giving up something. Consensus was a compromise. The networks and broadcast licensees were not satisfied with the consensus agreement. We were not wholly satisfied with the consensus agreement. Cable says they were not satisfied, but they did a very marvelous thing. It was a kind of interesting way to handle it. They took what they liked, and walked away from what they did not like. That is what happened.

We thought the copyright bill was so important that we were willing to sacrifice some things we did not like on the consensus to get a copyright bill enacted. That is the play of the marketplace. It happens in family life and political life. It happened in the negotiation. So, I do not know about anybody being bludgeoned. All I know is that cable got a vast asset, and the stock market quickly reflected that, and we did not get a copyright bill.

Mr. KASTENMEIER. One thing, of course, you have to concede the cable industry had, was at that time, perhaps, one, and later a second. Supreme Court decision in its favor, which, I suppose, was a factor.

Mr. VALENTI. Mr. Chairman, obviously it was a factor. Of course it was a factor. It was one of the factors that was weighed in the consensus agreement. You are absolutely correct, sir.

Mr. KASTEN MEIER. Let me ask you, Mr. Valenti, to what extent does the Senate passed bill, last year, embodied in H.R. 2223, express the consensus agreement? I will put it a different way-to what extent does this digress from the consensus agreement?

Mr. VALENTI. I think basically the consensus agreement, among other things, said that if the three parties could not privately agree on a negotiated fee schedule, that a royalty tribunal would be put into legislative construction and a royalty tribunal would decide what those fees would be. That is one thing that is not in the bill. Obviously, in the bill, there are no provisions dealing with regulatory functions, distant signals, exclusivity, which I am given to understand may be beyond the purview of this committee. But that is something for you gentlemen to decide, and not me. To the extent that the consensus agreement did not have a fee schedule and would start out with an arbitration tribunal to set initial rates, this H.R. 2223 does differ in more than casual form from the consensus agreement.

You have a legitimate reason to ask why did you go along with the Senate bill. We struggled. We did not think the McClellan fee

schedule was the right thing for us. We thought it was painfully low. We made known our distaste to Senator McClellan on a number of occasions. Then we were horrified that at 1 minute to midnight, as it were, in the last hours of the markup, we learned that the McClellan fee schedule was cut in half. By that time it was just too late to do anything. While I made clear to Senator McClellan my distaste for it, I got out of the way of the avalanche, and the bill passed the Senate, and you have it here now.

As far as we are concerned, we were willing to accept the bill, if we could get the McClellan fee schedule reinserted because we think even a bad copyright bill is better than no copyright bill. It will bring some sort of order to a chaotic marketplace.

Mr. KASTENMEIER. In terms of the question relating to section 111, the only change you recommend in the bill is to return to the original McClellan fee schedule.

Mr. VALENTI. No. We have some amendments, Mr. Chairman, that are of particular concern. One, the so-called Stevens amendment, which has to do with nonsimultaneous transmission off-shore, the taping of programs for use in Alaska and Guam. There are a number of others of a more technical nature.

We are very much opposed to the Stevens amendment. It was put forward as a result of unusual geographic and environmental conditions in Alaska where many villages literally cannot get television of any kind. They are isolated. So, Alaska cable systems taped programs illegally in the States and then ran those taped programs. I urged my companies, and they were eager to follow my urging, that it was in the public interest to make a special agreement for Alaska. This we have done, and we have given permission to Alaska cable systems under control and monitoring to tape programs, because taping is piracy if it is unauthorized. That is now operating and the Alaska cable system owners are perfectly satisfied.

We are willing to make the same deal with Guam, so that they will have permission to tape our programs under a license agreement. But, there is no need of taping by cable systems in Hawaii and Puerto Rico because the number of television stations is as large or larger than on a similar area within the continental United States.

That is one of the principal deletions that we would urge in this bill, Mr. Chairman.

Mr. KASTENMEIER. Is that a change to section 111?

Mr. VALENTI. Yes.

Mr. KASTENMEIER. The gentleman from Illinois.

Mr. RAILSBACK. Mr. Valenti, yesterday we heard testimony that I am going to ask you to respond to, if you will.

It deals not with legal liability, but rather with the practical effects of having an expanded market and how that allegedly benefits a copyright holder.

Let me give you an example.

Then the television networks, or an independent nonnetwork station which has access to cable, or where cable is carrying its programfor example, WGN in Chicago, which is carried by many, many cables, sells its programing to a buyer, it can say, look, you are not just getting a limited market. You are getting access to this very expanded market carried by cable. Presumably, so the story goes, they can charge more, naturally, to that potential buyer. The advertiser, then, in addi

tion, a copyright holder like some of your firms, would take that into account in selling that particular program to the network or to the nonnetwork station. The witnesses yesterday showed us advertisements that listed the networks or the stations actually referring to this expanded market because of cable.

So, from the standpoint of the copyright holder, it would appear to me that they make a pretty good case, that they ought to be partaking in those additional benefits.

How do you respond to that?

Mr. VALENTI. Mr. Railsback, I am reminded of what Thomas Carlyle once said about one of his contemporaries. This man has spent his entire life plastering together the truth and the false, and therefrom manufacturing the plausible. That is what this is all about.

One has to approach this issue at two levels, Mr. Congressman. The first level is the relationship between the advertiser and the network or the independent station.

The next relationship is between the copyright owner and the station licensee with whom he deals.

Let us take the first relationship.

The broadcasters are here, and they will speak to the relationship between advertiser and broadcaster, because that is a bargaining process we do not get into. But I must say, when you ask a station if it is getting paid for this extra cable coverage, the answer is uniformly-no. It defies credibility to me that a used car dealer in Baltimore would pay the Baltimore station extra money because the program on which he advertises is carried in Richmond, Virginia. It boggles my mind that any advertiser is that naive. Insofar as the copyright owner is concerned, I can tell you

Mr. RAILSBACK. Let me ask you this, if I may. I agree with you, but what about a regional advertiser that would be willing to pay?

Mr. VALENTI. I used to be in the advertising business quite some years ago. You bought advertising to cover a market; and if you wanted to buy Richmond, you would not depend on the cable situation in Baltimore to cover Richmond. You would buy Richmond directly also. If the advertiser is getting some extra coverage though, it really is not that important to him. If he wants the other market, he does not get it by the reach of a cable system. You want to buy an entire market, not what the cable system might add. But as I say, that is a relationship, Mr. Railsback.

Mr. RAILSBACK. But you would concede there are some benefits obviously derived from expanding your market through cable?

Mr. VALENTI. It could be, sir. I think it is possible, but I think with respect to the arena with which I have more than casual familiarity, the copyright problem, I can tell you flatly that insofar as we are concerned, the additional cable coverage is not a factor in the price that we get. It is just not an asset value that yields a higher license from the station.

Mr. RAILSBACK. Why not?

Mr. VALENTI. I will tell you why. If we even get a marginal increase, we would lose more under the following case. Suppose we sold a film, say "The Sting," to Baltimore. We got $700 for "The Sting" there. We also sold it to Richmond for $600. Now, "The Sting" plays in Baltimore first. It is lifted out of Baltimore and brought in on the Richmond cable system, and the Richmond station says hey, wait a minute,