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issue. NCTA now repudiates the Consensus Agreement and argues that the fees should not be submitted to compulsory arbitration but that Congress should set the initial rates and that future adjustments should be made only when Congress considers it appropriate.

H.R. 2223 establishes the initial schedule of cable copyright fees and provides that periodic adjustments will be made in the future by an impartial Copyright Royalty Tribunal. The legislation departs from the Consensus Agreement in that the initial fee schedule is established by Congress rather than by compulsory arbitration.

We believe, however, that by retaining the principle of compulsory arbitration for future periodic review of the rates, the scheme of the legislation constitutes a workable solution to the rate schedule controversy. We have acceded to the legislative scheme solely on this basis. Therefore, we would strongly oppose any proposal to eliminate the Copyright Royalty Tribunal from the bill since this would undermine the important and salutary principle of definite and periodic compulsory arbitration to redetermine the reasonableness of the fee schedule.

NCTA asserts that no criteria or methodology is written into the bill to guide the Tribunal in setting rates. The reason, of course, is obvious: Congress does not have the time or expertise to make determinations that involve economic and fiscal research. H.R. 2223, therefore gives the Tribunal the authority to determine the factors to be considered in adjusting rates. The bill contains guidelines for the Tribunal in establishing royalty fees. These guidelines are as precise as can be devised without usurping the function of the Tribunal. They are also analogous to the standards used in other regulatory statutes, such as the "public interest" standard for the Federal Communications Commission or the "reasonable and equitable and fair" criteria used in setting postal fees.

For years, the Congress has avoided enacting laws that would involve the legislative body in the determination of rates between private buyers and sellers in commercial transactions. In a situation where the conflicting claims of the private parties are greatly at variance, it becomes essential that an expert body that can carry out the necessary research and weigh the economic and fiscal facts, be employed to settle the controversy. The Congress has consistently laid such responsibility on governmental agencies. Obvious examples that come to mind are the rate-setting authorities of the Interstate Commerce Commission and the Civil Aeronautics Board.

Common sense and precedents lead to one conclusion: NCTA is wrong in urging elimination of the Copyright Royalty Tribunal from H.R. 2223. Indeed, the Tribunal is essential in the rate-making process.

Wholly apart from the necessity of retaining the Copyright Royalty Tribunal as an integral part of the legislative scheme, we submit that the Tribunal's rate adjustment decisions should be made subject to judicial review. The bill now provides that Congress shall review the Tribunal's rate adjustment decisions. Within ninety days of a final decision by the Tribunal, either House of Congress may adopt a resolution disapproving the Tribunal's decision. In such an event, the recommended royalty adjustment does not become effective.

In our view, this provision of the bill has the distinct disadvantage of involving Congress, and particularly this Subcommittee, in the burdensome and continual task of reviewing the reasonableness of rates determined by an independent and impartial group of arbitrators. The extraordinary amount of time and energy expended by this Subcommittee in considering H.R. 2223, and its legislative predecessors, suggests that the Subcommittee would become inexorably involved in the minutiae of rate regulation if the congressional review provision is retained.

Moreover, Congress has consistently avoided intruding itself into direct review of regulatory rate matters. To the extent review powers over rates have been granted, they have been placed in the federal courts under careful and controlled guidelines. For these reasons, we urge the Subcommittee to adopt the judicial review section here proposed. The language is taken substantially from section 3628 of title 39. United States Code, that provides for judicial review of postal rate decisions. The amendment we propose provides for direct review of Tribunal decisions to the United States Court of Appeals, based on the record before the Tribunal. The text of the amendment is attached.

II. COPYRIGHT OWNERS DO NOT RECEIVE "DOUBLE PAYMENT"

The contention of cable interests that the copyright owner is paid more for his program material by reason of increased television advertising revenue resulting from additional cable coverage is demonstrably wrong. Data hereto

fore supplied to the Subcommittee in the nature of affidavits and letters from television stations and program suppliers establish that, except in limited and isolated cases, cable subscriber coverage is not an economic or monetary factor for the television station. More importantly, such coverage never constitutes a basis for increased compensation to the supplier of copyrighted program material. No national advertiser using a network, or partial network, considers cable coverage; and no network mentions to such an advertiser cable coverage by those of its affiliated television stations whose signal may be picked up and retransmitted by a cable system. Regional and local advertisers are primarily concerned with the basic audience coverage of the television station from whom they buy time. Information previously furnished by television stations to the Subcommittee shows that advertisers have no interest in paying for cable subscribers outside their market since the advertiser reaps no benefit.

Studies have disclosed that the percentage of additional homes covered by a cable system that do not already receive the primary television signal is of so little consequence as not to yield additional advertising revenue to the television station whose signal is being imported.

Further, these studies establish that while the carriage of the distant station's signal is of little or no value to that station in terms of increased advertising revenues, the diminution and fragmentation of the audience in the market into which the signal is imported reduces the value of the local station in that market to the advertiser with a consequent reduction of the local station's revenues. In any event, it is an incontrovertible fact that copyright owners have not in the past and do not now obtain additional revenues for their program material from television stations due solely to cable subscriber audiences. On the contrary, as cable expands, copyright owners are losing revenue from television station buyers of their programs. The more a cable system imports distant programs and the more the cable subscribers watch the distant programs in preference to the local television programs, the more the television-viewing audience of the local station is reduced. The result is that television stations buy less and less program material and pay less and less for the material they do buy.

Thus, the fractionalization of television audiences brought about by cable system importation of distant signals directly impinges on the ability of copyright owners to sell their product. At the same time, local television stations, suffering from reduced audiences, have little or no basis to secure added advertising

revenue.

It may be useful to point out the basis on which copyright holders and television stations arrive at the amount of royalty that should be paid for the use of program material. Indeed, the negotiations between television stations and their advertisers on advertising rates, coverage, and the use of the rate card, bears no relationship to the bargaining process for programs. Program suppliers and the television stations that buy their product weigh four major factors in negotiating the sale of their product to television stations: (1) the supply of program material and the demand for programs based on the competition among the number of station buyers in a television market; (2) the national rating of the market as to size, i.e., is it first, or tenth, or one hundredth; (3) the viewer value, i.e., the attractiveness of the program; and (4) the amount to be paid for the program or group of programs based on the cost of the program to the copyright owner, including marketing costs.

These are the controlling factors that decide the price of a copyright program sold to a television station. They do not involve cable subscriber coverage, and they never have. Thus, the claim that copyright owners would receive “double payment" by the imposition of cable copyright fees is demonstrably false and unrelated to the realities of the marketplace.

PROPOSED AMENDMENTS TO H.R. 2223

On page 60, beginning with line 38, strike out through line 25 on page 61 and insert in lieu thereof the following:

"§ 806. Publication of royalty adjustment decisions

"The Tribunal, immediately upon making a final decision in any proceeding for adjustment of a statutory royalty, shall transmit such decision, together with the reasons therefor, to the Office of the Federal Register. Each such decision and its reasons shall be published immediately in the Federal Register. "§ 807. Judicial review of royalty adjustment decisions

"(a) A final decision of the Tribunal adjusting a royalty may be appealed to any court of appeals of the United States, within fifteen days after its publication in the Federal Register, by an aggrieved party who appeared in the proceeding of the Tribunal resulting in such final decision.

"(b) The court shall review the decision, in accordance with section 706 of title 5, and chapter 158 and section 2112 of title 28, except as otherwise provided in this section, on the basis of the record before the Tribunal. The court may affirm the decision or order that the entire matter be returned for further consideration, but the court may not modify the decision. The court shall make the matter a preferred cause and shall expedite judgement in every way. The court may not suspend the effectiveness of any royalty adjustment, or otherwise prevent it from taking effect until final disposition of the suit by the court. No court shall have jurisdiction to review a final decision of the Tribunal adjusting a royalty except as provided in this section."

On page 61, strike out line 36 and insert in lieu thereof the following: "§ 809. Judicial review of royalty distribution determinations"

On page 85, between lines 27 and 28, in the chapter analysis, strike out items 806-809 and insert in lieu thereof the following:

"806. Publication of royalty adjustment decisions.

"807. Judicial review of royalty adjustment decisions.

"808. Effective date of royalty distribution.

"809. Judicial review of royalty distribution determinations."

Mr. VALENTI. Thank you.

Mr. KASTENMEIER. I want to go off the record. [Discussion off the record.]

Mr. KASTENMEIER. I will call the next witness.

Representing the first representative of the broadcasting industry, Mr. Robert Evans, the vice president of Columbia Broadcasting System.

We have heard from Mr. Evans before on a different question. Now, we will hear Mr. Evans on section 111.

[The prepared statement of Robert V. Evans follows:]

STATEMENT OF ROBERT V. EVANS, VICE PRESIDENT AND GENERAL COUNSEL, CBS INC.

My name is Robert Evans. I am Vice President and General Counsel of CBS. I appear today to give qualified support to the compulsory license provisions for cable television in section 111-not because we agree with everything in section 111-but because we believe it is critical that a principle be established, the principle of statutory copyright liability for cable system carriage of copyrighted programs contained in broadcast signals. Support has been given for such liability by the present Register of Copyrights and her two immediate predecessors, by the present Chairman of the Federal Communications Commission and his immediate predecessor, and by the present Acting Director of the Office of Telecommunications Policy and his immediate predecessor. But today, as you know, cable television is completely exempt.

Unless the principle of copyright liability is written into the law, the strains in the copyright structure caused by not having a major, growing industry subject to copyright may very well cause the whole system to collapse under the pressure of demands for a similar exemption from other industries. These other industries will also want a free ride. They may even need a free ride to survive the unfair competition from the cable television industry. Economically marginal broadcasters in small markets might logically be first in line for such an exemption.

The cable industry now serves approximately 10 million American homes and its growth has been phenomenal. A recent study predicts that there will be 22 million cable television subscribers by 1983. Some cable television systems originate programs of their own, and as to these originated programs there cannot be any dispute cable television is subject to the normal operation of the copyright law. Despite this lack of dispute, I understand on excellent authority that no cable television system to this day pays performing rights royalties for the use of the music contained in its originated programs. The only explanation I can give for this fact is that the law of copyright is so distorted in the broadcast signal carriage area that the effects of the distortion

have even carried over into the origination area. This is but one of the strains caused by the anomaly of having cable television live outside of the law.

What is so peculiar about the law in the broadcast signal carriage area? First, I remind you that conventional televison is subject to the normal operation of the copyright law. Conventional television's product is a picture delivered on television screens in American homes. To make delivery of that picture, a conventional television station must go into the marketplace for every copyrighted program it includes in its broadcast signal, and negotiate with the copyright owners and pay them for licenses. The product that a cable television system sells to its subscribers is the very same signal containing the very same copyrighted programs. The subscribers may be in the normal broadcast area of the broadcast station or they may be outside of the normal broadcast area. Indeed, the subscribers may be hundreds and hundreds of miles outside of the normal broadcast area of the station. It does not matter-under the present copyright law the cable system sells to its subscribers the same picture on their television screens that conventional broadcasters must pay for, and the cable system does not have to get permission from the copyright owner or to pay him a dime. The scope of this free ride is striking. Listen to what David Foster, President of the National Cable Television Association told the Senate Subcommittee on Antitrust and Monopoly on May 21, 1975: "Today the cable television industry is almost completely reliant upon the broadcasting industry for its product. About 85 percent of what cable television provides to its viewers is what we receive from the broadcasting industries."

Forget for a moment the obvious injustice to the copyright owner. Imagine yourself a conventional television broadcaster, in competition for audience, which is your lifeblood, against a cable system in your market which carries two or three or four imported distant broadcast signals without paying anything for the programs in them; which may originate programs of its own on several channels; which may sell advertising on those channels, competing with you for the local advertiser's dollar; and which, perhaps, has a pay cable channel as well; and you will readily understand why broadcasters believe the copyright law is distorted in the cable television area. And this massive, involuntary subsidy of the free use of broadcast signals not only affects broadcasters adversely; it also affects all others who are subject to the normal operation of copyright law, such as motion picture theater owners who see this involuntary subsidy making it possible for cable to exhibit feature films on its pay channels in competition-I say unfair competition-with them.

It seems to us that cable television should be compelled to bargain in the marketplace for the programs in broadcast signals, just as broadcasting, which is completely subject to the operation of the copyright law, must bargain.

However, we have reluctantly concluded that there is just no possibility that the Congress will pass legislation subjecting cable television to the full operation of the law. Consequently, CBS supports a compromise under which the original fee schedule suggested by the McClellan Subcommittee--one percent to five percent-would be reincorporated in subsection (d) (2) (B) of section 111 and section 801(b) would remain unchanged so that the Copyright Royalty Tribunal will be available to assure the possibility that future royalty rates will be reasonable.

The Copyright Royalty Tribunal's power to adjust rates is vital not only to prevent the obvious injustice of a permanently inflexible compulsory license royalty fee, but also to get the job done. The Congress will never be finished with the cable television fee schedule if it puts itself into the position where only it can provide relief from royalty fee injustice.

TESTIMONY OF ROBERT V. EVANS, VICE PRESIDENT AND

GENERAL COUNSEL, CBS INC.

Mr. EVANS. My name is Robert Evans. I am vice president and general counsel of CBS. I appear today to give qualified support to the compulsory license provisions for cable television in section 111, not because we agree with everything in section 111, but because we believe it is important and critical that a principle be established, the principle of statutory copyright liability for cable television carriage of copyrighted programs contained in broadcast signals.

Support has been given for such liability by the present Register of Copyrights and her two immediate predecessors, by the present Chairman of the Federal Communications Commission and his immediate predecessor, and by the present Acting Director of the Office of Telecommunications Policy and his immediate predecessor. But today, as you know, cable television is completely exempt.

Unless the principle of copyright liability is written into the law, the strains in the copyright structure caused by not having a major, growing industry subject to copyright may very well cause the whole system to collapse under the pressures of demands for a similar exemption from other industries.

These other industries will also want a free ride. They may even need a free ride to survive the unfair competition from the cable television industry. Economically marginal broadcasters in small markets might logically be first in line for such an exemption.

The cable industry now serves approximately 10 million American homes and its growth has been truly phenomenal. A recent study predicts that there will be 22 million cable television subscribers by 1983. Some cable television systems originate programs of their own, and as to these originated programs there cannot be any dispute-cable television is subject to the normal operation of the copyright law. Despite this lack of dispute, I understand on very good authority that no cable television system to this day pays performing rights royalties for the use of the music contained in its originated programs. The only explanation I can give for this fact is that the law of copyright is so distorted in the broadcast signal carriage area that the effects of the distortion have even spilled over into the origination area. This is but one of the strains caused by the anomaly of having cable television live outside the law.

What is so peculiar about the law in the broadcast signal carriage area? First, I remind you that conventional television is subject to the normal operation of the copyright law. Conventional television's product is a picture delivered on the television screens in American homes. To make delivery of that picture, a conventional television station must go into the marketplace for every copyrighted program it includes in its broadcast signal, and negotiate with the copyright owners and pay them for licenses.

The product that a cable television system sells to its subscribers is the very same signal containing the very same copyrighted programs. The subscribers may be in the normal broadcast area of the station or they may be outside of the normal broadcast area. Indeed, the subscribers may be hundreds and hundreds of miles outside of the normal broadcast area of the station.

It does not matter-under the present copyright law, the cable system sells to its subscribers the same picture on their television screens that conventional broadcasters must pay for, and the cable system does not have to get permission from the copyright owner or to pay him a dime. The scope of this free ride is striking.

Listen to what David Foster, past president, I believe, of the National Cable Television Association told the Senate Subcommittee on Antitrust and Monopoly on May 21, 1975, "Today the cable television industry is almost completely reliant upon the broadcasting industry for its product. About 85 percent of what cable television pro

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