boys; I paid you $600 for that program, and now cable's showing it a month before I am supposed to show it. I am either not going to buy it, or only give you $150 for it. Therefore, we have lost revenue on "The Sting." If we add it up, we could get far more money if it played in Baltimore and played in Richmond on separate sales to the two television stations and did not have the importation of distant signals. The same problem exists in series programs syndication. Our business is hurt because the audience has been fragmented. Insofar as we are concerned, it is a detriment, not a help, to us.

Mr. RAILSBACK. You are very experienced in your business; and you would certainly know, what you were selling and what market you were selling to. If you were the copyright holder selling to Boston, you would know of the cable market and how that cable market there would expand your coverage. I would think that would be part of your negotiation.

Mr. VALENTI. Well, Mr. Railsback, what seems plausible at this council table is not the situation in negotiation. The local audience is really the key as far as the station in Baltimore is concerned. They are not going to pay any more money for a program because it is being imported by cable into Richmond. They might get some more money out of an advertiser if he wants those cable homes but they sure as the devil do not pay us more money for the program because of that. If they do, it is marginal.

Mr. WIGGINS. I have been fidgeting here, Mr. Valenti, because I do not believe what you have said. I am going to give you an opportunity to correct my impression. You have told us, a few moments ago, that when you sell a movie to a net, you get perhaps as much as $800,000. And yet, when you sell a movie to a local station, you may get $100 or $200, even up to $1,000. There is a big difference between $800,000 and $1,000; and I suggest that the principal reason for that difference is the difference in market.

Mr. VALENTI. I am sorry, Mr. Wiggins. I did not mean to-I was talking about station syndication. You are talking about network sales. Mr. WIGGINS. I am trying to make the point that your copyright owners get more money for a sale to a large market than they do to a small market.

Mr. VALENTI. Absolutely.

Mr. WIGGINS. Having conceded that point, you then address yourself to the narrow point of the sale to a local market. Do you extract a higher fee because that local market is expanded by a cable system?

Mr. VALENTI. I have examined all of our companies on that very point, and they tell me the answer is no.

Mr. WIGGINS. I think that information is of some critical importance to the committee, and if there is some way that it can be documented so that the facts can be laid to rest with respect to this assertion that the copyright owner, in fact, is paid more by reason of the expanded cable market, it would be most helpful.

Mr. RAILSBACK. I think it is a very relevant question, as far as when we decide how we want to provide incentives to an author or to a producer or to a production firm, to take into account what kind of benefits he derives by reason of that expanded market.

Mr. VALENTI. I think we have to insert another piece of fact into this equation. You are talking about a market. Mr. Wiggins is correct; let us take Houston, Tex., my home town. That is about the thirteenth

largest market in the country as a market. In Houston, Tex., there are three network affiliates and two UHF's. There are five stations in Houston, Tex. If they have a cable system there, it would be importing additional signals. They would have three, three and one-a total of seven signals.

Now, when cable brings in two more stations into Houston, what happens? You fragment the audience of any single Houston station. The obvious is that some station is going to lose audience-probably all of them-because the TV homes have alternative sources of viewing. So the importation of distant signals really hurts an advertiser, because it allows foreign stations to come into that market and fragment what he has bought. That is point No. 1.

Point number two, unlike network, which is nonduplicated, you know you have exclusivity. When "Godfather I" is shown on CBS or NBC, you know that it is not being sold to any other station. We sell first to networks, so they have exclusivity. But I am talking now about our other valuable market called syndication. We will take a picture or a package of film, and we will sell it to 300 television stations in this country. Mr. Railsback, in that case our people are getting varying amounts of money, depending upon the size of each television station market-not cable market, but the size of the individual market. So, if you sold the film or the package say, 300 times around the country, 300 different stations, you do not know when they are going to telecast it. You do not have a specific schedule. They may have bought a total of 20 pictures from you. They are going to space their showing out over a period of, say, a year. You have sold it to Dallas, you have sold it to San Antonio, you have sold it to Bryan. All of a sudden, this picture is picked up by cable systems and goes into these other markets from Houston. We have thus lost a tremendous amount of revenue, because the TV stations are not going to pay you when their audience has already seen the picture, for which they paid the full value has already seen it 1 week or 1 month before.

That is the disfiguring aspect of the signal importation. I do not care what the advertiser pays for the program. It is what we get for it on a syndicated basis. It has nothing to do with networks, because we sell them for an average of $800,000, but based on their total nationwide market, Mr. Wiggins, and on the popularity of the film. You get more for "Gone With the Wind," because it is a popular film.

Mr. WIGGINS. You do not deny the fact that when a popular film is going nationwide it becomes a factor which enters into the price?

Mr. VALENTI. Absolutely. That is what the price is all about. Now, the average price that we get for films, if you took all the films we sold to the networks, the average price is $800,000. That is the point I am making; a popular film commands more money.

Mr. RAILSBACK. Just one more question, Mr. Valenti. Yesterday, it was pointed out that the fee schedule set involves gross revenues which presumably, again, would take into account any substantial inflation etc. Why is there a need to have a tribunal review, inasmuch as that rate is determined on gross rather than nets? I want you to give us your views, if you will.

Mr. VALENTI. Gross?

Mr. RAILSBACK. I am talking about gross revenues.

Mr. VALENTI. We support-we believe, if I am responding, to your question, it should be gross subscriber revenues; we think that is fair.

Mr. RAILSBACK. The people who testified yesterday argued that there should be no need for a reviewing tribunal for this reason. If the rate fee is fixed in the bill on gross revenues, a rate which is initially fair-which you may quarrel with, presumably and as the industry grows, the cable industry would grow, and so presumably would your revenues.

Mr. VALENTI. Mr. Chairman, we both know that the rate of growth is not the same. We are never going to get, under this bill, more than 1.9 percent as the effective rate. I am saying to you, I would like to know if that rate is a fair one, and does it remain fair as new technological developments come into being? In 10 years cable may preempt free television. I do not know.

I am merely asking you, what is wrong with having an unbiased royalty tribunal do something that Congress does not have time to do? We are starting out with a rate, Mr. Railsback, whose origins and source, in fact, is obscured. We do not know its basis. I am saying, we believe that a royalty tribunal ought to re-examine every 5 years, not only for rate structure but for the radical revision of the shape and form of the communications business itself. I cannot look into the future and tell you. I am assuming that the Royalty Tribunal will consist of honest men, fair men, expert men. I am willing to put my trust in them. If they lower rates, and decide that cable is paying too much-I have no basis to say they will not do that, but at least I want somebody that is expert, that is weighing evidence, from time to time to look at the marketplace, because the bill now takes away from me my right to privately negotiate.

Mr. RAILSBACK. I simply wanted to give you a chance to present your side of the case.

Mr. KASTENMEIER. The gentleman from California, Mr. Danielson. Mr. DANIELSON. Thank you, Mr. Chairman. Thank you, Mr. Valenti. At the outset, I want to point out the obvious; in the past several weeks, you and your colleagues' representatives, have been in my office to see me. The same is true of representatives of other industries which are affected by this copyright bill. So all of this is a final presentation. We are going into greater depth than we had before. Ñone of us are strangers to each other; none of us are strangers to the interests we represent. I hope I can-I usually talk more than I should, but I will try to discipline myself.

I have a few points, rather narrow. I missed the first part of your statement, but you have told me outside of this chamber in other meetings that you and your association are opposed to the proposed basic exemption of $100,000 in gross receipts. Am I right so far? Mr. VALENTI. Yes, sir.

Mr. DANIELSON. Let me ask you this. Would you comment on the proposal that was made, suggestion that was made to me, that perhaps one way to resolve that threshold royalty fee would be to have a minimum royalty imposed on all cable systems-let us just say for discussion those that come up to $100,000 in gross receipts. Would you

comment on that?

Mr. VALENTI. You mean to have a minimum fee imposed on the small systems?

Mr. DANIELSON. Yes; and maybe this is not realistic; just so we have got something to talk about. Let us just say you had $100 a year

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for a system up to $100,000 a year in gross receipts. I do not advocate those as being figures of any significant content, but so we can talk about something.

Mr. VALENTI. Mr. Congressman, if this Committee deems that it wanted, as a matter of public policy, to pay special attention to small systems say those with under $100,000 a year in revenue--and there would be no, copyright exemptions of any kind for any cable system, I will tell you quite frankly we would be willing to sit down and try to work out a minimum basic fee for those systems with annual revenues under $100,000; that we would lock in such a fee in perpetuity, if you wanted it that way, so long as nobody got any exemption. If a cable system were under $100,000, it would pay the minimum fee, but if it went up to $150,000 or $200,000 or $2 million, it would have no exemption of any kind, and it would pay under the rate schedule. Yes, Mr. Congressman, we would look at that.

Mr. DANIELSON. I think that is a significant point. Whether or not it is practical, I cannot tell you. But it is significant, at least in view of the fact that when you get down to a certain minimum level of gross receipts, it could be that the cost of administering some of these things becomes ridiculous. You might have a point where we can come to some kind of equitable and practical solution to these problems.

Mr. VALENTI. May I add, sir, may I put a footnote on my response, a caveat; so long as the system with under $100,000 in revenue was an independently owned system, and was not a part of a cable conglomerate.

Mr. DANIELSON. We are only talking about a philosophy here. When obviously, nobody is bound. I am not even bound by the figures I suggested.

Mr. VALENTI. You would find us very flexible on that, sir.

Mr. DANIELSON. I would like to know; we had some fairly pointed testimony yesterday-if you were not here, I am sure your representatives were on the circumstances under which the so-called consensus agreement was evolved and executed. In fact, I am following up my chairman's question to some extent. Were you, Jack Valenti, personally, physically present at the time that the agreement was presented by somebody within the White House; at the key agreement in which this was presented to them, and they were told that this is it, you take it or leave it?

Mr. VALENTI. First, sir, I was not present at any White House meetings on the consensus agreement. Nobody from the White House called me. I was present at most of the discussions that took place among the three contending groups.

Mr. DANIELSON. That would have been before the agreement was reduced to writing?

Mr. VALENTI. Yes, sir. The principal agent, who was sort of the catalyst for bringing us together, was Mr. Scalia, who was Mr. Whitehead's counsel in the Office of Telecommunications Policy. We met with him several times. But I must, in all candor, tell you that he was courteous, he was helpful, he was not at all coercive.

Mr. DANIELSON. Do you know who from your organization was present, if anyone?

Mr. VALENTI. Nobody, sir, to my knowledge, if you mean the White House. David Horowitz, who has now gone on to other assignments,

was our group chairman at the time. But to my knowledge, there was no White House meeting of any kind that I am aware of. If they took place, I can almost say without any fear of contradiction that none of our people met at the White House. Now, as to what happened with the cable people, I cannot say.

Mr. DANIELSON. Where did you first see the written agreement?

Mr. VALENTI. The written agreement floated like a paper glider between us, between the three parties. Mr. Scalia was presenting various drafts.

Mr. DANIELSON. I mean, after it was reduced-not necessarily set in type, but reduced to its final form?

Mr. VALENTI. We played with innumerable drafts, Mr. Danielson, before it was finally set and signed. I guess we played with dozens of drafts.

Mr. DANIELSON. You do not recall then, when you first saw it in its final form, the form that was signed?

Mr. VALENTI. I am sorry, sir. I do not recall.

Mr. DANIELSON. We did have, as I say, some pointed testimony; and I would like to find some other person or persons who would at least have been exposed to the same circumstances, and test their recollection on it.

Mr. VALENTI. My recollection is that there was not any kind of summit meeting, with trumpets blaring and flags waving. We got a piece of paper that was brought to us, and finally we said-and I cannot tell you the exact date-OK, we will go with this piece of paper.

Mr. DANIELSON. I am going to change points here. In previous testimony before this committee, and referring particularly to yesterday, when a lady in the advertising business was present, she was not the only witness to bring up this general subject. I am talking about the custom in the trade under which copyrighted material is licensed or sold to a radio station, TV station, for example, for use. Let us call that a licensing negotiation for the purpose of this question. The property is licensed to somebody to be used. The advertising lady indicated that this was usually done by people to whom she referred as being syndicators. I gather that these were people who performed a function of a sales representative or license representative. The lady pointed out that for many properties, this was done by syndicators. I think you told us that the motion picture industry does this themselves.

Mr. VALENTI. Yes, sir.

Mr. DANIELSON. Do you do that sort of work?

Mr. VALENTI. No, not I personally, sir.

Mr. DANIELSON. Is there an independent contractor whom you employ for that kind of work?

Mr. VALENTI. No, sir.

Mr. DANIELSON. What I am really asking is, how is it done?

Mr. VALENTI. There are many independent producers of copyrighted material, and because they are small with small organizations, I have no doubt that they contract out to agents who sell their product. Such agents may take maybe 20 independents and sell their products to the local stations. Now remember, syndication sales to local stations, that is what this is; it is not to the networks. You do