II. Nevertheless, Pursuant to Its Past Commitment To Do So, MST Would Support Copyright Legislation That Contained a Limited Compulsory License

In November, 1971 MST, the National Association of Broadcasters (NAB), the National Cable Television Association (NCTA) and a committee of the major program suppliers were urged by the Office of Telecommunications Policy (OTP) and the FCC to compromise their differences over certain CATV copyright and regulatory issues by accepting a proposed "consensus agreement." Each of these parties agreed to do so, although only with great reluctance in the case of MST. On copyright, the consensus calls for a compulsory license for CATV which is limited to retransmission of (1) "local" broadcast signals (as defined by the FCC's rules), (2) "grandfathered" signals (i.e., those that systems already in existence at that time were carrying) and (3) such distant signal programing as was contemplated by and would be consistent with the regulations proposed at that time relating to CATV retransmission of distant signals. The consensus further calls for normal copyright liability for any CATV retransmission of broadcast signals not falling within these categories.

In its present form, Section 111's compulsory license is completely open-ended. It provides for a compulsory license for any broadcast signals which CATV systems are now authorized or may be hereafter authorized for carriage by the FCC. Thus, Section 111 would delegate the authority to create or destroy property rights to a bare majority (four or even fewer members) of the FCC. MST does not believe that such an open-ended authority over the copyright law and hence over property rights should be delegated to the Federal Communications Commission and that in any even, such an open-ended compulsory license is inconsistent with the legislation which the FCC, the OTP, and the principal representatives of the most immediately affected industries all committed themselves to accept by way of the consensus agreement.

III. The Fees for the Compulsory License Ought To Be Established in Accordance With the Provisions of the Consensus Agreement

The consensus agreement calls for the amount of the fees to be paid for the compulsory license to be established through compulsory arbitration if the parties are unable to agree upon an appropriate fee schedule. The parties have not been successful in negotiating a fee schedule and accordingly compulsory arbitration appears to be an appropriate solution. The consensus also calls for an exemption from the fee requirement for independently owned CATV systems with fewer than 3,500 subscribers, and MST would support legislation containing such an exemption from the fee requirement.

The consensus does not call for but some have argued that CATV systems should be exempt from any payment pursuant to the compulsory license for the retransmitting of “local” broadcast signals. The claim is made that since the broadcaster has paid for the right to distribute the program locally, a CATV should not have to pay again, especially since CATV is only enhancing the broad caster's ability to attract an audience in the broadcaster's local market. This is a highly theoretical argument. For one thing, few if any CATV systems exploit only those broadcast signals which are readily available off the air. For another, this contention assumes that broadcasters and their program suppliers need and want the "benefit" that CATV is supposedly providing. The only appropriate way to test these theoretical contentions would be to impose normal copyright liability on all retransmission of broadcast signals by CATV systems. If indeed a CATV system was able to persuade a local broadcaster and its program suppliers that it was simply going to "help" the station by carrying its signals, the CATV might receive a copyright permission just as translator or "repeater" stations can and do receive authorizations to use programs without the payment of any fee even though the translator is subject to normal copyright liability.

However, CATV interests have not expressed any desire or inclination to accept a marketplace resolution of their claims regarding "local" signals. Rather, they desire a compulsory license for both local and at least some distant stations in order to protect and insulate them from the bargaining process

1 These regulatory proposals were adopted by the FCC in early 1972. They permit unlimIted carriage of distant broadcast signals in communities more than 35 miles from the center city or cities of a television market. Generally at least two distant independent stations and in some cases more distant signals are permitted within the 35-mile circles subject to some exclusivity requirements.

A system with 3.500 subscribers charging $6.50 per month (a fairly typical rate at the present time) would have gross annual revenues of $273,000.

which is dictated by normal copyright liability. MST believes that CATV cannot have it both ways. If CATV is unwilling to take its chances in the marketplace with normal copyright liability, it cannot complain that it might have been able to strike a somewhat better bargain for local signals if it had been willing to accept the risks of normal copyright liability.

IV. Copyright Liability for CATV Will Not Justify Eliminating or Reducing FCC Regulation of CATV Carriage of Broadcast Signals

In 1966 the FCC cited two independent concerns in support of its assertion of jurisdiction over CATV carriage of broadcast signals.

First, the FCC noted that by importing the signals of broadcast stations not readily available off the air, CATV systems were likely to cause substantial audience losses for local stations. This in turn would reduce the revenues of local stations, forcing them to reduce the quality of their service to the public and even forcing many local stations off the air or at least making it impossible for new local stations to commence operations. Such a development would be contrary to the public interest. Many persons, particularly the economically disadvantaged who cannot afford CATV and those living in areas with a population density too low to support CATV operations, would end up with reduced television service or no television service at all. Even CATV subscribers would suffer a diminution in locally oriented news and public affairs from local stations while the distant stations imported by CATV could not be expected to provide locally oriented service for the CATV community. This has sometimes been called the "economic impact” basis for FCC regulation of CATV carriage of broadcast signals.

Second, the FCC noted that due to the anomalous copyright situation, CATV, unlike any other development which might adversely affect the quality or quantity of local free television broadcast service, enjoyed the unique and unfair competitive advantage over broadcasting of not having to bargain or pay for the programs it was using. This is the so-called "unfair competition" basis for FCC regulation.

Even if CATV was subject to full or normal copyright liability, it would not in any way obviate the need for regulation designed to insure that CATV would not impair or destroy local free broadcast television on which large segments of the population are dependent for television service. Congress long ago decided that the nation would be better served by many local television broadcast stations rather than simply a few "super stations"-that, for example, Madison, Wisconsin should have its own local stations rather than simply being served by Chicago or New York stations that would not serve local needs or interests in Madison. Thus, allowing CATV to impair local broadcast service by importing a relative handful of stations from the very largest cities-by importing Chicago and New York signals into Madison, for example-would not be in the public interest even if this was done with the consent of the Chicago and New, York stations and their program suppliers.

In any event, a compulsory copyright license for CATV, even one which applies only to a limited number of distant stations, does not detract from the unfair competition basis for FCC regulation of broadcast signal carriage. Even though it may mean some monetary compensation for program suppliers, a compulsory license insulates CATV from the bargaining process and thereby assures CATV of a competitive advantage over the broadcaster who must participate in that bargaining process.

For these reasons, MST believes that any suggestion for the addition of a regulatory provision to H.R. 2223 or "legislative history" which would direct or encourage the FCC to weaken or eliminate its regulation of CATV carriage of broadcast signals should be rejected out of hand.

V. The FCC's CATV Exclusivity Regulations Should Not Be Eliminated Or Weakened If CATV Is Given A Compulsory Copyright License

In addition, for the reasons given above, there is a further reason for rejecting any suggestions that the FCC's exclusivity regulations should be eliminated or weakened with the adoption of H.R. 2223 or any other copyright bill containing a compulsory license for CATV.

The value of a program to a broadcaster, and thus the broadcaster's willingness and ability to pay for the right to use the program, depend very heavily on the broadcaster's ability to acquire exclusive television rights in his local market during the term of his use of the program. Without exclusivity, the promotion which is essential to attract and build audiences for most programs can be ren

dered useless or even counter-productive. Also, without exclusivity it becomes difficult if not impossible to predict in advance how large an audience is likely to watch a particular program since other television exposure of the program which will reduce the audience is highly unpredictable. The inability to predict expected audiences is a most serious matter since advertising is sold and offered for sale well in advance of the local station's broadcast, and if there is no reasonable basis for expecting an audience of a particular size, adequate advertising support will be difficult if not impossible to obtain.

In recognition of the vital importance of exclusivity, prior copyright bills, with the execption of S. 1361 as passed by the Senate last year, have contained exceptions to the compulsory license for CATV that expressly contemplated broadcaster exclusivity in certain circumstances. These exceptions to the compulsory license, which have sometimes been inaccurately referred to as "regulatory" provisions, were omitted from S. 1361 because, and only because, the FCC had adopted expanded exclusivity regulations pursuant to the consensus agreement and pursuant to the consensus it was deemed desirable to leave the scope of appropriate exclusivity to FCC regulation rather than incorporate such requirements in the copyright bill. There is nothing in the Senate's action or in the consensus agreement, however, which could possibly justify a pre-emption of FCC authority to adopt and enforce exclusivity requirements. Throughout the long period in which copyright legislation has been pending before the Congress, there has never been a serious proposal that a compulsory license for CATV should override and preclude all opportunities for broadcasters to acquire reasonable exclusivity with respect to CATV retransmission of non-local signals. MST believes that any legislation which would preclude such reasonable exclusivity would seriously jeopardize the very survival of free television in many areas of the country and should be rejected.

STATEMENT OF WILLIAM J. BRESNAN, PRESIDENT, CABLE DIVISION, TELEPROMPTER CORP.

Mr. Chairman, on June 11, 1975, I was privileged to appear before your Subcommittee on Courts, Civil Liberties and the Administration of Justice to present Teleprompter Corporation's views on certain provisions of H.R. 2223. With your permission I should like to supplement my original testimony for the record by means of this letter.

As you know, it is Teleprompter's position that no copyright royalties should be payable by cable television systems because of their reception and retransmission of broadcast signals of copyrighted material. In carrying such material cable systems are not "performers" but merely providers of reception services to subscribers. These services result in enlarging the broadcaster's audience and the advertiser's market.

A broadcaster with an enlarged market is able to charge his advertisers more, and so is able to pay more than he otherwise would to the copyright owners of the material retransmitted. This has long been recognized in the case of a cable system which transmits local broadcast signals and it is similarly true in the case of a cable system which retransmits distant broadcast signals. Each of the cable system's subscribers is included in the rate base of the distant originating broadcast station and so the advertising rate charged by that station-and the amounts potentially payable by that station to the suppliers of copyrighted material-are increased accordingly.

Broadcasters are very aware of the expanded coverage given them by cable television stations and emphasize this fact when soliciting potential advertisers.1 It is our position, therefore, that copyright owners are properly and adequately compensated by the broadcaster when the copyrighted material is retransmitted by the cable system.

Shortly after my appearance before the Subcommittee this position was recognized and confirmed by the United States Supreme Court. In Twentieth Century Music Corporation v. Aiken, 43 U.S.L.W. 4799 (June 13, 1975), involving the question of whether copyright liability should attach to a person who, by the use of multiple speakers, made radio programming available throughout a fastfood shop, the Court stated:

1 That this expanded coverage benefits the broadcaster is graphically illustrated by an agreement in principle which Teleprompter has recently reached with an independent television station. Under this agreement in principle the independent station is to contribute $35.000 as partial reimbursement of the costs incurred by Teleprompter in connecting the broadcaster to Teleprompter's cable systems in distant markets. We expect that the final documentation for this agreement will be completed in the next week or two.

"The petitioners have not demonstrated that they cannot receive from a broadcaster adequate royalties based upon the total size of the broadcaster's audience. On the contrary, respondent points out that generally copyright holders can and do receive royalties in proportion to advertising revenues reflecting the total number of the listeners, including those who listen to the broadcast in public building establishments." "

Two Supreme Court decisions have declared cable systems free from copyright liability in retransmissions. The Court held cable systems were not broadcasting or performing the copyrighted works and so were not subject to copyright liability. The reception and rechanneling of distant as well as local signals was held to be a viewer function. This was so irrespective of the distance between the broadcasting station and the ultimate viewer.

Neither public policy nor the economic facts warrants a change in the law. The purposes and goals of national copyright policy-to encourage and reward creativity-cannot be properly served by any method of royalty payments for retransmissions which are assessed ultimately and discriminatorily against the subscribers of cable systems.

We further believe that copyright owners are not injured by cable system retransmissions-of local or distant-signals. Copyright owners have never claimed that cable's retransmission of local signals injures them at all. They have contended, however, that when cable imports a copyrighted program into a distant market the ability of the copyright owner to sell his program in that market is impaired. But the copyright owners have never to our knowledge produced any evidence to support this proposition, even though such evidence, if it existed, would be readily available to them. Moreover, sugh evidence as we have supports an opposite conclusion.

In order to assess the impact of distant signal importation, Teleprompter conducted a detailed study of all signals imported by our 135 cable systems.* This study shows that distant signals imported by cable television generally have such a minimal penetration in the imported market that they could not possibly have a significant negative impact on the copyright owner.

Teleprompter's cable system at December 31, 1973, carried a total of 1,286 television signals. Of these 1,085 signals were required to be carried by the FCC's rules-primarily either because the particular cable system's head end is within 35 miles of the television station or because the station is "significantly viewed" in the county where the cable system operates.

Thus only 201 signals (15.6% of all signals carried by Teleprompter systems) qualify as imported distant signals.

Teleprompter has analyzed the market share of these 201 imported distant signals and the results are striking. These results are summarized below:

1 The term "Viewing homes" refers to those homes which view the station in question during an average quarter hour.

See also Teleprompter Corporation v. Columbia Broadcasting System, 415 U.S. 394 (1974), where the Court stated:

"From the point of view of the copyright holders. such market changes [i.e., those brought about by the cable televisión industry] will mean that the compensation broadcasters will be willing to pay for use of a copyrighted product will be based on the size of the direct market augmented by the size of the CATV market." Fortnightly Corp. v. United Artists Television, Inc., 392 U.S. 390 (1968); Teleprompter Corporation v. Columbia Broadcasting System, op. cit.

Teleprompter's systems range from the very small to the very large and are located in all sorts of markets. We believe that our systems are typical of the industry as a whole.

5 For purposes of this computation a signal is counted each time it is imported into a different county. Thus if the same signal is imported into two different counties, it is counted twice.

As can be seen, 78% of the imported signals have less than a 5% market share in the counties into which they are imported and 91% have less than a 10% market share in such counties. A less than 5% penetration is clearly de minimis and a less than 10% market share is probably so.

Only 18% imported signals (9% of all imported signals) had a market share of more than 10% in the counties into which they were imported. The total number of viewing homes in the distant markets represented by these signals is 9,123-or less than 1% of Teleprompter's total subscribers.

Even the 1% figure overstates the copyright owners' case. Of the 18 imported signals which have a more than 10% share of the market, 15 are network affiliates. Copyright owners who sell to networks expect that their programs will be shown simultaneously throughout the country and do not desire to deny the programs to selected small markets. It is therefore improper to include those viewers who watch imported network affiliates in our analysis of the impact of cable importation of distant signals. Rather we should look at only the number of viewing homes attributable to independent imported stations which receive a more than 10% share of the market. This number is only 1,076-or only 1/10 of 1% of Teleprompter's total subscribers.

Yet, because of a possibility that 1/10 of 1%-or even 1%-of Teleprompter's total subscribers may previously have seen a particular program, H.R. 2223 would impose copyright fees of approximately $1,500,000 based on Teleprompter's 1975 revenues. Had such a fee been applicable in the first half of 1975, Teleprompter's loss would have been increased by 25%. (In the future, the comparison could be even more shocking because the royalty tribunal contemplated by H.R. 2223 could increase the amount of the copyright fee.")

The above analysis demonstrates that importation of distant signals by cable systems cannot have a negative impact on the copyright holder. The analysis does not show that such importation is irrelevant to the copyright owner, however. As I stated in my initial remarks to the Subcommittee, cable importation of distant signals often has a substantial positive impact on the copyright owner. The paradox is explained in the following example.

Imagine a television signal which is imported into 13 different markets of equal size in each of which it gets a 4% share of the market. This 4% share will have no effect at all on the copyright owner's ability to sell his product in any one of these markets. Yet the cumulative impact on the importation into all 13 markets is to give the originating station a bonus of a very significant number of additional viewing homes." The positive effect of this on the originating station (and indirectly on the copyright owner) will thus be substantial.10

Actually one should exclude only the network programming of network affiliates and not the affiliates themselves. However, the number of viewing homes attributable to the non-network programming of network affiliates is so small that it may be properly disregarded.

7 Moreover in many cases the FCC syndicated program exclusivity rules already give the copyright owners the ability to prevent this from occurring. These rules are designed to insulate television markets from signals imported by cable systems in order to better preserve these markets for the copyright owner. Under these rules. if a proper request for exclusivity is received by the cable system, systems in the top 50 markets are required to delete programs on imported signals if such programs were first licensed as a syndicated program less than one year before and systems in the top 100 markets are generally required to delete programming on an imported signal ff the same programming is being broadcast contemporaneously locally.

The Copyright Royalty Tribunal would be set up to function as the regulatory body to fix the royalty rates to be paid by cable systems. Wholly aside from whether this body, which would be established in the Copyright Office in the Library of Congress, is the proper regulatory one, the legislation establishes no procedures for its operation, no standards to use in fixing rates, and no judicial review except for fraud. corruption or misconduct. The constitutionality of such a sweeping delegation of authority without standards, is open to serious question.

Thus, if there were 250.000 homes in each of the distant markets the total additional audience available to the originating station as a result of cable coverage would be 130,000 homes (250.000 homes X.04 X 13).

10 Teleprompter does not contend that viewers in distant markets are always as valuable to the originating station as local viewers, only (as indicated by the television stations' own promotional material) that viewers in distant markets are always of significant value to the originating station. It is not necessary to attempt to calibrate the value to the originating station (and therefore. to the copyright owner) of a viewer in a distant market with exact precision, however. This is because, as shown in the analysis above, it is clear that there can be no significant negative effect on copyright owners from the importation by cable of distant broadcast signals. Thus, whatever benefit the copyright owner gets from expanded coverage in distant markets is a net benefit because there is no offsetting detriment.

57-786-76—pt. 2—12