the fact that cables should pay a regular license fee for copyrightable material on programs they originate themselves. I have not heard anybody contend to the contrary from any segment of the discussion.

We have got a little different situation when you are in a prime viewing area where, as Mr. Drinan pointed out, really all the cable man is doing is picking something off of the air with a better antenna than you have on your own rooftop and distributing it into the houses. It is sort of in the category of a slave antenna, you might say. It is no new origination. It is just making it possible to receive the signal that you would get yourself if you had a good antenna. Obviously, we have got real problems when you get into overlap or long-line distance programs. I am just giving you that as a recap. That is the way it looks to me on June 12.

You mentioned the music-paying 3 percent of your gross. I suppose-do you not include that factor as one of the cost factors when you sell your advertising?

Mr. EVANS. I am sure we do, absolutely.

Mr. DANIELSON. Which gets us right back to where we have been hung up for a long time. What is really included in your advertising rates? What does the advertiser buy? Is he buying just the primary viewing area or is he buying the entire area served, either directly or through cable? I hope that through Mr. Valenti's help we are going to be able to come to some rational disposition of that. But you gave us a little help, in your colloquy with somebody. You talked about a town in Illinois called Rockford that a regional advertiser from a Chicago station might, in his negotiations say, well, I will pay you something for those 1,000 viewers over in Rockford, not a heck of a lot. You will pay a little bit for that 1,000. Implicit in that statement is the fact that, in buying that time, he did consider that 1,000 people. Implicit in that statement is the fact that you must have charged him something for that 1,000 people.

Mr. EVANS. I am not denying that possibility.

Mr. DANIELSON. So you have got some copyright license fee involved there. How much, I am not able to tell you, but it feels to me like there is something in there.

Mr. EVANS. There may be something at the local station level. I can tell you from the network viewpoint I have talked to our sales and business people in the recent past and asked them this. When a national advertiser comes to you and wants to buy the Walter Cronkite news, do you factor in coverage that you get because of cable television? They said, Absolutely not. When you are dealing with the network, there is no extra charge because of cable. Now, I suspect that is because they feel that the extra network coverage, when you think of the whole country, is not that significant. It is not worth saying, well, we want another $2,000 or $10,000 for that.

Mr. DANIELSON. I do not want to labor the point, but I fully respect what you have told us here. It is just that I think it is something we ought to learn a little bit about. We may find that it comes to nothing, that it is not significant. However, along with that, one of the corollaries is this: Mr. Valenti said awhile ago that when a program is sold to film-I am sure he will be talking about it-to be broadcast from Baltimore and they pick it up in Richmond, he said, well, the advertiser is not interested in just the cable market in Richmond. If

he is going to buy the market in Richmond, he wants the whole Richmond market, not just the cable market. That permits more than one inference. Maybe he feels the cable market in Richmond is not significant, and so, therefore, it is something you should not worry about. A reciprocal is, nearly everybody watches television through the traditional channels and very few through cable. In that event, is cable really hurting the traditional very much? You cannot have it both ways. Either the cable is significant or it is not significant. If it is not significant, maybe we are not talking about anything here; on the other hand, if it is significant, then maybe it is cranked into these advertising factors. These really are not questions; I am just letting you know what some of the problems are bubbling around in my mind. And I do hope that somebody will help me resolve them before too long.

You can comment if you like, but I do not know how to ask the question.

Mr. EVANS. That was the point I was trying to make in making up a hypothetical about Rockford, suggesting that to the extent there were families there that you could reach through cable, to the extent that was recognized and to the extent somebody was willing to pay for that, then to have a movie go in there from Chicago-to that extent you have severely damaged the chance of a local Rockford station to sell, at its full rate, that movie when it became available to him. That was the only point I was trying to make.

Mr. DANIELSON. You said you have severely damaged it. If there are 1,000 and the figures you use, I know you are pulling them out of the air here if there are 1,000 cable outlets in Rockford, I do not know what the potential market there is. Does that cover the whole city, 1,000?

Mr. RAILSBACK. It is a big, metropolitan area. One thousand was just a hypothetical

Mr. DANIELSON. I do not know if 1,000 is significant. Maybe you cannot severely damage it with 1,000. Could I be severely damaged with a sliver here?

Mr. EVANS. I understand your point. If there are a million viewers there and you have added 1,000, it does not matter very much. If there are 5,000 viewers and you have added 1,000, in my hypothetical you have done something significant.

Mr. DANIELSON. I will stipulate I do not know any of these answers, but I think they are problems we are going to have to explore further. Does any of you other gentlemen have another

Mr. DRINAN. Just one last question-maybe CBS should buy up the cable companies and radiate your product out more and more. I am surprised that the big networks have not cut cable, and radiate your fine product from Chicago to Rockford.

Mr. EVANS. At one time, Mr. Drinan, CBS was perhaps the major cable operator in the United States. But the FCC wisely decided that no one should be in the network business and the cable business at the same time, and we immediately disposed of our cable interests.

Mr. DRINAN. Maybe that was a mistake-I mean the FCC ruling. If we go back and relitigate that and you people win, the problem is

over.

Mr. DANIELSON. I want to thank you, Mr. Evans, and in fact, thanks to all of the witnesses for your forbearance and patience and for giving us all of this valuable information.

We are going to recess at this time until 2 p.m., at which time the first witness will be Mr. John Summers, general counsel of the NAB-I guess that means National Association of Broadcasters. And then we will have Mr. Bowie Kuhn, Commissioner of Baseball; Donald Ruck, Vice President of the National Hockey League; and Captain John Coppedge, Chairman of the Subcommittee on Cable Television of the NCAA Television Committee.

And without further, we recess.

[Whereupon, at 12:50 p.m., the subcommittee recessed to reconvene at 2 p.m. the same day.]

AFTERNOON SESSION

Mr. KASTENMEIER. The committee will come to order.

When we recessed we concluded hearings from Mr. Robert Evans, Vice President and general counsel of Columbia Broadcasting.

This afternoon, to start out, we will hear from the general counsel of the National Association of Broadcasters, Mr. John Summers. Mr. Summers, would you come forward?

You may proceed as you wish.

[The prepared statement of John Summers follows:]

STATEMENT BY JOHN B. SUMMERS, GENERAL COUNSEL, NATIONAL ASSOCIATION OF

BROADCASTERS

Mr. Chairman, my name is John Summers. I am General Counsel of the National Association of Broadcasters, which is located at 1771 N Street, N.W., Washington, D.C. The NAB is a non-profit trade association, which has a membership of 4,093 AM and FM radio stations, 539 television stations and all national radio and television networks.

Mr. Chairman, we appear here this morning in favor of reasonable copyright legislation covering all secondary transmissions of cable television systems. As broadcasters, we stand in two sets of shoes this morning-we are copyright owners and we are users of copyrighted material-but our position on the basic tenets of this legislation is the same in regard to both those roles.

In the limited time available to me this morning, I'd like to address myself to two areas of the proposed bill and to a small piece of historical analysis which we believe should be accorded substantial weight by this committee. First, the history.

In 1971, in response to longstanding urgings of the Congress, copyright owners, cable operators and broadcasters compromised their differences on the question of a regulatory and copyright framework for cable television. This so-called Consensus Agreement, the negotiation of which was conducted under the joint aegis of the FCC and the OTP, was accepted by representatives of the three interested parties in November, 1971.

In essence, the Consensus Agreement called first for new FCC rules favorable to CATV-these rules were adopted by the FCC in February 1972—and second for copyright legislation which would:

(1) provide for compulsory arbitration of the fee question in the event the copyright owners and cable owners could not agree on a schedule of fees in time for inclusion in the new copyright statute.

(2) give the cable owners preferential compulsory licensing treatment but limit the scope of that license to the television signals authorized under the FCC rules adopted in February 1972.

(3) exempt from copyright liability all independently owned CATV systems with fewer than 3,500 subscribers.

(4) give to broadcasters, as well as copyright owners, the right to enforce exclusivity rules through court actions for injunctions and relief.

It is extremely important to recognize that the cable rules adopted pursuant to the Consensus Agreement presupposed the enactment of copyright legislation

along the lines of the Consensus copyright provisions I have just outlined. Thus, at the present time, the equities are imbalanced in favor of CATV. Only by the enactment of reasonable copyright legislation will those equities achieve the balance envisioned by the FCC when it adopted the terms of the Consensus. Indeed, the FCC made clear it would have to reconsider those aspects of the rules favorable to CATV if copyright legislation did not materialize: "The rule will, of course, be put into effect promptly. Without Congressional validation, however, we would have to re-examine some aspects of the program. 36 FCC 2d 27.”

Mr. Chairman, there has been no such reexamination of that program. But there has been a great deal of controversy, name calling, reinterpretation, and plain misstatement about the Consensus Agreement. And one thing about our acceptance is clear-the broadcasting industry reluctantly agreed to the Consensus Agreement. In response to the charge that the agreement was fostered by broadcasters, then FCC Chairman Dean Burch said, "If I were to assess the varying degrees with which the principals have decided to accept the agreement-and all of them have reservations-I would put the copyright owners first, cable second, and broadcasters a very distant third.”

Mr. Chairman, however reluctant the NAB's acceptance of this agreement, however intense the opposition of our industry, one thing about our industry's response to life under that consensus is equally clear-we have rigidly and steadfastly adhered to its provisions.

We agreed to the broadening of allowable distant signal importation.

We supported the preferential treatment for CATV inherent in the notion of a compulsory license.

We have uniformly supported efforts to pass a reasonable copyright bill. Today, some four years after the adoption of the Consensus Agreement, the bill H.R. 2223 is before you and we seek only that the spirit of the Consensus be recognized by the parties and the Congress.

The cable television industry agreed that it ought to pay some royalty for its use, for profit, of copyrighted material. If any element of the Consensus can be termed basic, it is the acceptance, by the parties, of the principle that copyright royalties are legitimately owed to the proprietors of copyrighted material. Creative endeavors, whether the product of motion picture producers or of local and national broadcasters, should not go unrewarded due to the failure to provide for their protection in a copyright law fashioned before the advent of broadcasting and cable television. The delay in the modernization of the copyright law has engendered the legitimization of conversion in the field of telecommunication. As the court of last resort, this Congress ought to render that ill-advised legitimization a nullity. As Justice Potter Stewart, speaking for the Supreme Court, said in CBS v. Teleprompter: "These shifts in current business and commercial relationships *** 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." (415 U.S. at 414).

Beyond the principle of copyright liability lies the manner in which the amount of liability is to be determined.

A law that confers a compulsory copyright license on cable television inherently gives CATV an unfair competitive advantage over free broadcasters, who must bargain for copyrighted material they use. It is clear that CATV would pay much less for the same material, not only under the low CATV fee levels proposed in H.R. 2223 but even under the levels supported by the copyright owners. For example, FCC figures show that the typical television station pays 33 percent of its total revenue for its non-network program material.

Despite this inherent unfairness, NAB has been willing to support limited compulsory licenses in accordance with the terms of the November 1971 Consensus Agreement. We believe that, as provided in that Consensus, the fee levels for such compulsory licenses should be determined by an independent arbitration tribunal, and not by statutory fiat. Such a tribunal would have both the time and the expertise to sort out the conflicting claims of the interested parties and the complex and elaborate economic data advanced in support of those claims. Traditionally, Congress delegates such complex questions to a body equipped to examine them in detail. If the claims of the CATV industry to a very minimal fee are valid, that industry should not be afraid to submit them to an arbitration tribunal. Moreover, NCTA specifically agreed that failing agreement between the parties, the fees would be fixed by arbitration as part of the Consensus Agreement. As a result of that Consensus, the cable industry has been enjoying the

benefit of permissive new FCC rules on the importation of distant broadcast stations for over three years. It ill behooves the cable industry to continue its retreat from the Consensus.

While the amount of initial liability is of obvious import to the proprietors of copyrighted material, the existence of a tribunal to readjust those fees is of equal concern. The experience of attempting to find justice, in copyright, within the rigid four corners of a 65 year old statute provides compelling evidence for the wisdom of a copyright royalty tribunal. Changing technology, both in terms of its sophistication and breadth, makes readily apparent the need for future consideration of rates established in the present. Though a legislative revisiting of the modernized copyright law may be mandated by the rapidity of technological change, there is no reason to accelerate that revisiting by deleting from H.R. 2223 procedures for the fair adjustment of rates.

There are two specific points we would like to make in reference to this legislation. Our first concern is the scope of the compulsory license which would be established by this bill. The NAB reluctantly accepted the Consensus and agreed to support a limited compulsory license for CATV only because of our belief that the Consensus limitation on the scope of the compulsory license would be implemented. Provided that those limitations are implemented, we continue to support the Consensus. We submit that compulsory licenses for CATV systems should cover only CATV retransmission of local broadcast stations and such programs from distant stations as are contemplated under the FCC's 1972 CATV rules. An open-ended compulsory license one for example that covered all CATV retransmission of distant stations which the FCC may hereafter authorize-would be a sweeping delegation to four or fewer members of the FCC to change and even radically revise the copyright law at any time in the future.

This is a delegation the Commission itself sought to avoid. Speaking in its 1972 Cable Television Report and Order, the Commission emphasized the notion that the limitation on signals under the compulsory license was an integral part of the Consensus which had to be included in copyright legislation. "The legislation that we believe must follow will limit the number of distant signals to which compulsory copyright licenses apply to those specified in Sections 76.59, 76.61, and 76.63 of the Rules."

Moreover, we reject any suggestion that local signals should be exempted from copyright payment. A compulsory license is an extraordinary remedy which relieves its recipient of the many burdens of normal copyright negotiations. Were cable operators willing to negotiate, as broadcasters do, for the rights to import individual distant signals, there would, perhaps, be some logic in the arguments regarding local signals. But there is no such willingness, in large part because the compulsory license itself provides sufficient incentives to make it desirable. Beyond the difficulties of application and definition inherent in a local signal exemption, further reductions in the scope of liability would not be consonant with the underlying notion of the compulsory license and ought to be rejected. The second area of particular interest to the broadcasting community is retention of that section of H.R. 2223 which provides the broadcaster a copyright infringement remedy for the impermissible use of broadcast signals. Broadcasters are fully willing to support any language which will protect cable operators from harassment under this provision. But the NAB feels strongly that willful violations of the signal allotments and rules for which the compulsory license is given ought to be the subject of copyright infringement actions. Experience with the FCC has demonstrated that, even in the case of repeated violations, the Administrative process is incapable of providing efficient and effective relief from the unauthorized use of signals.

Mr. Chairman, the need for a revision of the copyright law is virtually defined by the issue of cable television. It is a technology which springs into being on the uncompensated use of another's creative product. To the author, who is the subject of the Constitution's concern, the copyright law becomes his only hope for the protection of the integrity of his work.

This is a copyright law which, in all likelihood, will stand for many years to come. It must be flexible, for the future holds in store even newer technologies. But it must also look to the past-to the Constitution-to insure that those who profit without paying compensation, of any sort, do so in violation of the intent of the Constitution's framers. To the extent that the copyright law nourishes that evasion, it violates the spirit of the Constitution. It is a violation of that spirit which must be corrected.