among all of the competing elements. It would be unrealistic and unwise to establish now a fee structure that can never be changed or which would not reflect future developments. The creation of a specialized tribunal which can monitor these changes and make necessary adjustments as new developments occur and different relationships are created is thus a far wiser course for the Congress to follow than alternatives which are based on a status quo which is not likely to stay the same.

H.R. 7059

H.R. 7059 creates a separate performance fee for the use of sound recordings. As a major user of records, we oppose the imposition of additional charges for the right to play records on the air.

Some have argued that such a performance fee is necessary to create a new revenue base for lesser-known musicians and talent who participate in the creation of a sound recording. However, the current bill does not appear to give those musicians and artists any substantial benefit. Under the bill, 50% of the revenues to be generated by the fees go immediately to the record companies. Of the remaining 50%, only those musicians and artists whose records are played on the air are entitled to compensation. Since most radio stations with popularmusic formats generally play the records of the most popular performers--most of whom are already well paid by their record companies-it is unrealistic to think that lesser-known musicians or artists will receive anything of significance. Both record companies and performers have always recognized that there was an advantage in having their records used by radio stations. That is the reason most records are supplied without charge. We see no reason why Congress should now create a new revenue base for manufacturers. H.R. 7059 will force broadcasters to pay record companies for the "privilege" of increasing their record sales. That is not the purpose of the Constitutional guarantee of copyright protection.

Similarly, it strikes us as being unwise for Congress to involve itself in creating a new revenue base for performers. The compensation that performers receive should remain a function of private negotiation, not national legislative policy.

At present, broadcasters must pay performing rights societies (ASCAP and BMI) for the right to use copyrighted musical works. If they also must pay record companies for the right to play records of the same copyrighted musical work, the expense may double. There will also be added administrative costs. We thus oppose H.R. 7059 as an unwise extension of what is validly needed "to promote the useful arts and sciences."

We appreciate the opportunity to present our views to this Subcommittee.

STATEMENT OF AMERICAN BROADCASTING COMPANIES, INC.

American Broadcasting Companies, Inc. (“ABC”) operates one of the three national television networks and five television stations. It respectfully requests that the following statement and appendices be made part of the record of the hearings on H.R. 2223.

I.

ABC has long been concerned with the potential impact of developing cable television services on the continued economic health and viability of the country's present nationwide system of free television service, available to all the people at no direct charge. One of the aspects of cable television which led the Federal Communications Commission, in 1965 and 1966, to undertake regulation of that industry, is the essentially unfair nature of the service from the standpoint of competition. The cable television industry builds its profits on the work product and investments of others.

While ABC has recognized the value of traditional cable television, providing needed supplemental service where over-the-air reception is marginal, it has been many years since the industry moved well beyond that original role. The industry is now clearly bent upon providing its services to the major urban centers of our nation through the importation of multiple television signals from distant cities, the origination of programming and the development of pay cable services. very likely, in the near future, on an interconnected, network basis. It is unrealistic to consider the problems of cable television as if it were still an infant industry undertaking to provide supplemental service to small communities and

marginally-served areas. It is, today, a competitive factor in national telecommunications and all reliable predictions suggest that its growth and impact, in the next decade, will be extremely significant.

For these reasons, ABC urges that the industry be subjected to normal and traditional copyright obligations. We still believe that the most prudent and the fairest way to deal with cable television, at least in the big cities and where origination and pay cable services are being, or will be, offered, would be to require the operator to go into the marketplace and bargain and pay for all of its program product just as radio and television stations do. Any contrary courseeither of exemption from copyright liability or according the extraordinary privilege of compulsory licensing-interferes dangerously with normal marketplace considerations and threatens a situation where the effectively subsidized cable industry may destroy or seriously impair the services of the television industry which is still required to compete for program product in the traditional

manner.

In 1971, as many witnesses have described, a so-called "Consensus Agreement" was reached by the National Cable Television Association, National Association of Broadcasters, Maximum Service Telecasters and a committee of the major program suppliers under the auspices of the Office of Telecommunications Policy. While ABC was not a formal party to the agreement, it did indicate its reluctant acceptance of its principles. ABC did so out of a spirit of compromise, recognizing that issues arising from cable development were highly complex and controversial and that the interests of the public suggested the wisdom of an early definitive resolution of those issues. That compromise was appended to, and provided a substantial basis for, the Commission's 1972 Report and Order adopting definitive cable regulation.1

Almost immediately following adoption of the Report, the FCC, based upon continuous importunings from the cable industry based on claims of alleged financial distress, began relaxing those major elements of obligation and restraint accepted by the cable industry in the Compromise, and which were the quid pro quo for broadcaster acceptance of privileges accorded to cable operations.

The Congress should consider the following record of abandonment by the FCC of public service obligations which were to be created in return for the privileged carriage of broadcast signals.

a. In 1972, the Commission envisioned "a future for cable in which the principal services, channel uses and principal sources of income, will be from other than over-the-air signals." As a result, the Commission required the provision in larger markets of 20-channel service and channels dedicated to public access, governmental and educational use. Yet, the Commission, today, is proposing that these requirements either be abandoned altogether or compliance postponed indefinitely (See Docket Nos. 20363 and 20508).

b. Equally, in 1972, the Commission justified its departure from the norms of competition because subsidized carriage of broadcast signals would give:' “... cable impetus to develop in the larger markets without creating an unacceptable risk of adverse impact on local television broadcast service. At the same time, these limits should serve to create an incentive for the development of those nonbroadcast services that represent the long-term promise of cable television and are critical to the public interest judgment we have made."

At this time, however, the public services called "critical to the public interest judgment we have made" are in the process of being repudiated by the cable industry and abandoned by the Commission.

The Congress should also consider other actions taken by the Commission which have abandoned those undertakings designed to avoid "an unacceptable risk of adverse impact on local television broadcast service" or which have relieved the cable industry of any public service obligations.

a. In 1972, the Commission required systems with more than 3,500 subscribers to originate significant programming locally. That requirement has been eliminated (Docket No. 19988).

b. In 1972, in order to preserve the balance between free television and cable television, the Commission had reasonably adequate requirements for protecting local stations from duplication of their network programming. That re

1 CATV. 36 FCC 2d 143 (1972).

2 Cable Television Report and Order, supra at 190. Cable Television Report and Order, supra at 165.

quirement, at the urging of the cable industry, has now been significantly eroded (Docket No. 19995).

c. In 1972, the Commission had reasonably adequate rules to prevent program siphoning by pay cable systems. Those rules, again at the urging of the cable industry, have been relaxed so that cable can carry massive amounts of films, series and sports programming-not public service programming (Docket No. 19554).

d. In 1972, the Commission promised the television industry that it would undertake "expeditiously" to place necessary limitations on the carriage of sports events by cable through distant signals. Limitations, energetically resisted by the cable industry, have not yet been adopted, more than three years after proceedings were instituted (Docket No. 19417).

e. And, in 1972, the Commission explicitly promised to review its cable program if copyright legislation, critical to the balancing of public interest concerns, was not forthcoming:‘

"Finally, we reach ABC's contention that the Commission will have to take action if copyright legislation is not forthcoming within a reasonable period of time. We agree with this position, and have so stated in Paragraph 65 of the Report. It would be premature to speculate now what action would be necessary in that event. We hope never to reach that point since it is our expectation that the parties will expeditiously reach an accord and that copyright legislation will be enacted once these rules become effective. [Footnote omitted]. We have decided after much study and debate to take the first step. We will revisit the matter if our estimate proves wrong that adoption of our program will facilitate copyright legislation."

The interim, despite continued absence of legislation, has brought nothing but the most energetic processing and grant of certificates of compliance--both for new and the pre-March 31, 1972 systems.

III.

ABC believes strongly that the Commission has been most ill-advised in accepting, uncritically, the cable television industry's claims of financial distress and thus abandoning both its balancing decisions and public interest requirements. We believe the Congress would be equally ill-advised should it proceed on the same assumption.

We are attaching hereto, as Appendices A & B, newspaper and trade press references evidencing the most optimistic predictions for cable growth; the marked increase in the value of cable stocks; substantial stock acquisitions by "insiders"; and, particularly, the very bullish predictions for rapid expansion of pay cable services.

The Congress should not be deluded into believing that the legislation before it is a relief measure for the traditional "Mom and Pop" CATV operation. It is dealing with a major, rapidly growing, force in national telecommunications which has been effective in hiding behind the shield of the small operator.

IV.

While ABC, for these reasons, would still prefer full copyright liability for cable services (with possible exemptions for smaller systems in underserved areas), we realize that the principle of compulsory licensing may have advanced too far now to be abandoned. ABC does believe, strongly, however, that the Congress should not contribute further to destruction of the careful balancing of private and public interest considerations embodied in the Consensus Agreement. The Consensus Agreement contemplated copyright legislation essentially as follows:

(1) Compulsory arbitration of the question of fees to be paid in the event copyright owners and cable owners could not agree on a schedule.

(2) A limitation on the applicability of the extraordinary compulsory license privilege to those television signals originally authorized for carriage by the FCC in 1972.

(3) An exemption for independently owned systems with fewer than 3,500 subscribers.

supplied.)

Reconsideration of Cable Television Report and Order, 36 FCC 2d at 197. (Emphasis The Cable Television Bureau advises ABC that, since 1972 through February 1, 1975, 4,690 application for certificates have been filed; 3,561 granted; 838 remain pending; and 291 were either denied or dismissed.

(4) The right, in broadcasters and copyright owners, to enforce exclusivity rules through court action for injunction and other appropriate relief.

It will be recognized that these provisions represent a radical departure from those marketplace considerations which, traditionally, have governed the relationship of those who create original work and those who use it for profit.

The principle of compulsory licensing, even if limited to those signals authorized in 1972, is a significant reduction in the rights of program producers, in a free and competitive market, to bargain for fair payment, based upon the relative worth and value of particular works. But if this remarkable principle is to be adopted, a fair schedule of payment is essential. It is clear that the interested parties have not even come close to agreement on such a schedule. We, therefore, strongly believe that rather than placing in the statute an arbitrary schedule of fees, compulsory arbitration, as contemplated by the Consensus Agreement should be provided for as the traditional and fair way to settle disputed issues. In addition, a Copyright Tribunal should be provided for. A means of adjusting whatever original schedule is decided upon is essential to preserve any measure of equity in the years to come. The Congress, as a practical matter, is not in a position to re-visit and re-adjust these fees in light of future developments. Provision for an administrative body for that purpose is necessary.

Plainly, any compulsory licensing decided upon should be limited to those signals authorized in 1972. Otherwise, the Congress would be granting an open-ended license for a free-wheeling carriage of an unlimited amount of programing belonging to others. With all respect to the Federal Communications Commission, as we have documented above, it has not shown a capacity to resist the pleadings of the cable industry for more and more privileges. We do not believe that it will be more successful in resisting requests for additional signals under the umbrella of a fixed compulsory license.

Total exemption from copyright liability of particular systems, based upon number of subscribers or upon gross, is an even more radical departure from tradition than is the compulsory license. We find no precedent for a significant exemption from copyright law. The Congress should consider the thousands of small businesses (smaller than those cable systems with, for example, 3,500 subscribers) which must, nonetheless, pay music licensing fees or other trademark and copyright fees. ABC has difficulty understanding why the cable industry should be singled out, from among all of the small business activity in this country, for wholesale relief from payment while profiting from the work of others. Since an exemption was a part of the original Consensus Agreement, ABC did, reluctantly, accept the principle. Only, however, if all the other provisions of the Consensus Agreement were embodied in legislation should the Congress consider retaining this virtually unprecedented aspect.

Finally, enforcement of the exclusivity rules through the courts is a necessary and traditional remedy to insure that the substance of legislation and regulation decided upon is, in fact, effective. The administrative process, distracted by its many responsibilities, has already shown itself incapable of providing fair and effective relief, promptly, against multiple regulatory violations.

V.

There is no adequate reason for the Congress to step away from the principles which were agreed upon in the Consensus Agreement. That agreement, itself, represents a substantial compromise of those traditional copyright principles which one would have normally expected would govern a growing and rapidly expanding industry which depends for its profit upon the work of others and, at least at the moment, pays nothing for that work. ABC urges the adoption of legislation reflecting, at a minimum, the principles, described above, and derived from the Consensus Agreement.

APPENDIX A

a. The N.Y. Times for March 13, 1975 (p. 56, 62), in an article by Vartanig G. Vartan reporting on recent advances in the stock market, states that "Cable television took honors as the best-acting group, displaying an advance of 90.1 percent." The article also adds:

"Dennis Leibowitz, an analyst with Coleman & Co., also noted that declining interest rates benefited CATV companies with heavy capital expenditures. Another favorable factor cited was the prospect of liberalized regulations by the Federal Communications Commission, particularly with reference to pay TV."

b. Kagan's Cablecast of March 3, 1973 reports on five MSO's revenue increases for 1974 over 1973: ATC up 30 percent; Cox up 27 percent; CPI up 16 percent; UA-Col. up 35 percent; and United up 16 percent. Kagan concludes: "All in all, they're the kind of figures that would lead one to wonder what all the flap was about in the market for cable stocks . . . ATC, for example, traded at only 1.5 x trailing cash flow when its stock dropped to $6 . . ." (p. 3).

c. The same issue of Kagan's Cablecast (p. 4) also states:

"David Wicks of Warburg, Paribas Becker, Inc., surveying cable lenders vis-a-vis FCC 1977 rebuild rules, found none willing to make loans for what they call 'government compliance'. . . monies are available only for generation of profits. . . ."

and

"Burnup & Sims, bearing up under strain of reduced telephone and cable construction, is one way to play increase coming in investment tax credit. President Tom Pledger recently told Florida investment group that ‘a relatively small part of our revenues are derived from CATV (but) surprisingly, we see more positive signs of new work appearing in this area than in any other segments of our operations'."

d. More from the same issue of Cablecast (p. 1):

"Irving Kahn for NCTA President! He's as good a p.r. man as the cable industry has ever known.

*

"Based on his reunion speech in Dallas at the Texas Convention last week (2/27), Irving's year-and-a-half in government service sharpened both his perception and his tongue. Here's his financial commentary:

'Wall St. discovered cable about a year or two too late, took the cable stocks up perhaps several points too high and then, hand in hand, we and they fell into an abysmal chasm.

'We as an industry contributed to this fall by offering sometimes-less-thanterrific management, some rather poor information, and anything but a greater return.

'We were victimized, I suppose, by our own dynamic growth; it was a case of too much too soon.

'But the point of all this is not to fix blame. The fact of the matter is, from Wall Street's point of view we should-and can-still be considered one of the best investments going at the moment.

'In spite of ourselves and our negativism, we remain a business whose opportunities are greater than they've ever been, with cash-generating possibilities beyond the comprehension, apparently, of many of our colleagues.'

"Cable today offers as great an opportunity for financing as it ever has. If we can convince our industry's own management class to believe it, then we can convince Wall Street to believe it.

'But if we play dead, we are dead.'"

e. Mr. Hagan adds:

"We know more than one cable executive who knows darn well his subscribers are worth a lot more than $150 each. But when you're buying them up at 50 cents on the dollar your p.r. man doesn't get many assignments. "In our view, at least, the ultimate test of management's faith in its future is its willingness to put its own money on the line when all about are in a state of panic.

"Thus it was with more than passing interest that we noted these astute purchases of cable stock by insiders, as listed in the latest SEC records:

"In the next issue of CABLECAST: a report on the economy-why we think it's in better shape than it looks on the surface; how stimulation in