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means more gross revenues, which compounded by the sliding scale for copyright fees, means ever increasing royalty incomes.
To illustrate, the CATV industry now serves approximately 11 million subscribers at an investment of some $800 million. It is conceivable-given access to capital-that by 1983 the number could grow to 22 million.1 Under the royalty schedule suggested here, currently copyright holders would receive about $5.8 to $6.5 million from CATV, Given the opportunity for growth just described (and providing for at least some modest rate increase within an 8-year period) the holders' total receipts could increase to $25–30 million. This is not inconsequential. Further, such payments represent pure income to program producers (since distribution to CATV involves no additional expense). For the copyright holder, we believe that taking a long view offers a better "deal" than insisting now on higher copyright percentages that could choke cable growth.
We also believe that the copyright burden should be borne by all CATV operators, without distinction between "local" and "distant" signals. If everyone participates, then the financial impact on each system can be moderated while still producing a meaningful “pot” for program owners. Conversely, the "distant signal only" approach would thrust the financial burden of satisfying copyright holders on rural CATV-and the burden could become heavy. In truth, too, there are urban CATV systems serving "classic" parts of cities (where signal improvement is a necessity) that derive just as much benefit from broadcast signals as do outlying or remote systems. Times Mirror Communications is one example. The signals of the Los Angeles stations are just as economically important in serving the Palos Verdes Peninsula (which is within the Los Angeles Metropolitan Area) as they are when we "import" them to San Diego County-100 miles away. And finally, the "distant signal" approach would seem to us to involve some very difficult and complex definitions in a subject matter where complexity already abounds.
Establishment of a Review Mechanism
Conditions change and a royalty schedule that is equitable and realistic at one point in time might not be at another. Some review mechanism is needed if CATV copyright fees are enacted.
Our own strong preference is that Congress itself be the reviewing body. The reasons for this are stated later, but in brief, and to be frank, we think Congressional review would afford CATV the fullest assurance of a fair hearing. However, if Congress chooses to assign review responsibility to a "Copyright Tribunal," there are three points in H.R. 2223 that are likely to be highly detrimental to CATV (or put in the reverse, seem structured in favor of copyright and broadcast interests). They are: (1) the short initial review period of just 18 months; (2) the absence of any stated criteria to guide rate making; and (3) the practical absence of any appeal from the Tribunal's findings.2
1. 18 Months Too Short. While acknowledging that conditions and cable economics may change, they certainly won't change this fast. That fact is obvious. Congress, along with participants from broadcasting, production, CATV, and other affected areas, will have expended material effort in working out a fee schedule. The presumption is that fair and reasonable rates will result. We do not see the sense in re-opening the whole matter just 18 months later. From Cable's standpoint, we will not be doing less for copyright holders than we are now by enlarging their audiences, and certainly there will be no substantial improvements in our economics and in our genuine ability to pay fees.
While this may be a false fear, it appears that the 18-month provision was designated for the benefit of those who would exact "more" from CATV. But there will be no "more" to exact.
We believe the initial fee schedule should have force for 7 years, and should be subject to review at 7 to 5-year intervals thereafter.
Aside from avoiding a near-term "rehash," there are good financial reasons for reasonable longevity in any initial fee schedule. The possibility of a fast (and probably adverse) change in cable-exacted royalties would add to the climate of uncertainty already surrounding CATV. We have presented mathematics showing how sensitive cable net income is to royalty percentages. Given the specter of a change in fees just 18 months ahead, capital sources will be
1 Frost & Sullivan Report of June 1975.
2 It also seems unusual that a Copyright Bill would be used to grant broadcasters the right to sue CATV operators for what are essentially FCC infractions. This provision (Section 501) of H.R. 2223 smacks of a nuisance clause ripe for misuse and harassment, and in our view should be struck. Broadcasters have ample remedy through the FCC.
increasingly reluctant to invest. Certainly our own corporation would view cable royalties as a particularly risky unknown, and would adjust its capital spending accordingly.
Further, we believe that at least seven years are needed to obtain a sound understanding of cable's worth, which is lacking now. No one presently knows, for instance, whether urban penetration will ever be practical, or whether attractive investment returns can eventually be achieved, or if pay-TV will be a meaningful success, or if the so-called "extra services" (such as special interest programming or merchandising) will become practical realities. Only against a much more stable understanding of what cable is going to amount to can royalty fees be equitably adjusted-up or down.
2. Absence of Criteria.-H.R. 2223 states only that the Tribunal shall act "to assure that such royalty rates are reasonable. . . ." It does not set forth any criteria on the factors to be considered, and consequently there is no guidance on the basis for determining reasonableness. We believe there should be, and we obviously feel that CATV's genuine ability to pay-without impairment of its capacity to grow-should be one of the governing elements.
Similarly, we believe that any copyright liability should be limited to basic cable revenues, and should exclude revenues from auxiliary income-especially pay-TV where copyright fees have already been paid. H.R. 2223 appears to create an "open door" for an ever-enlarging royalty base.
3. Absence of An Appeal Opportunity.-H.R. 2223 further provides that the Tribunal's findings are final unless modified by a House of Congress within 90 days. As a practical matter, it appears impossible that the House or the Senate could act on such a matter (whose priority will not be high) in such a limited time. There is, in short, no real appeal from Tribunal conclusions.
4. The Tribunal As A Staff Body.-At the minimum, we believe the period for Congressional review of Tribunal actions should be increased to nine months. Beyond that, however, it is our earnest hope that the Tribunal's role will be recast.
We believe the Tribunal should recommend royalty rates to Congress, and that the ultimate decision should be Congress'. Frankly, our experience has been that CATV, as the newcomer in communications, is disadvantaged in proceedings against established broadcast and entertainment interests. CATV is much more likely to get objective treatment should Congress take Tribunal findings into consideration and then set royalty rates itself. Further, if the frequency of rate review is modified to the realistic intervals suggested earlier, the burden on Congress in making these determinations should not be onerous.
COPYRIGHT LAW REVISION
THURSDAY, JULY 10, 1975
HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON COURTS, CIVIL LIBERTIES,
The subcommittee met, pursuant to call, at 10:10 a.m., in room 2226, Rayburn House Office Building, Hon. Robert W. Kastenmeier [chairman of the subcommittee] presiding.
Present: Representatives Kastenmeier, Danielson, Drinan, Badillo, Pattison, Railsback, and Wiggins.
Also present: Herbert Fuchs, counsel.
Mr. KASTENMEIER. The committee will come to order. The hearing this morning will be on the revision of the Copyright Law, H.R. 2223 relating principally to public broadcasting. The House is set to go into session at 11 o'clock this morning.
We will proceed as well as we can. In the event of a vote, we may have to recess temporarily. With that in mind, the Chair will advise witnesses and members that the time allocation will be rigidly adhered to including colloquies in terms of questions and answers.
We will try to limit testimony to 5 minutes; if there is a compelling need to extend that period of time, we will turn to members for a continuation of examination.
We are meeting this morning principally to receive testimony on two amendments that were offered to the Subcommittee bill, were introduced in the Senate but were not adopted. Amendment No. 1815 was offered by Senator Mathias and would subject public broadcast of certain works to compulsory licenses to be determined by a copyright Royalty Tribunal. No. 1831 offered by Senator Bayh eliminates all qualifications and limits on the distribution of so-called ephemeral copies by government and nonprofit organizations.
Inasmuch as these provisions were not adopted they were not included in the Senate bill. However, the package before the members does include the text of both amendments. Both amendments are favored by public broadcasting interests and both are opposed by copyright owners.
[A copy of S. 1361 amendments follow:]
[S. 1361, 93d Cong., 2d sess.]
Intended to be proposed by Mr. MATHIAS to S. 1361, a bill for the general revision of the copyright law, title 17 of the United States Code, and for other purposes, viz:
On page 86, line 3, insert the following new section in the table of contents to read as follows:
"118. Limitations on exclusive rights: Public broadcast of nondramatic literary and musical works, sound recordings, and pictorial, graphic, and sculptural works.".
On page 115, following line 14, insert the following new section to read as follows:
"§ 118. Limitations on exclusive rights: Public broadcast of nondramatic literary and musical works, sound recordings, and pictorial, graphic, and sculptural works
"(a) Public broadcast of nondramatic literary and musical works, sound recordings, and pictorial, graphic, and sculptural works shall be subject to compulsory licensing as follows:
"(1) Any public broadcasting organization or institution wishing to obtain a compulsory license under this section shall fulfill the following requirements:
"(A) At least one month before initial broadcast and thereafter at intervals and in accordance with requirements prescribed by the Register of Copyrights, record in the Copyright Office a notice stating its identity, address, and intention to obtain a copyright license under this section.
"(B) Deposit with the Register of Copyrights, at intervals and in accordance with requirements prescribed by the Register, a statement of account and the total royalty fees for the period covered by the statement based on the royalty rates provided for in clause (2).
"(2) The royalty rates under this section shall be determined by the Copyright Royalty Tribunal as reasonable royalty fees for the inclusion of nondramatic works in public television and radio broadcasts. Such royalty rates may be calculated on a per-use, per-program, pro rated or annual basis as the Copyright Royalty Tribunal finds most appropriate with respect to the type of the copyrighted work and the nature of broadcast use, and may be changed or supplemented from time to time as deemed appropriate by the Copyright Royalty Tribunal. In particular circumstances, royalty rates negotiated between one or more public broadcasting organizations or institutions and one or more copyright owners or agencies may be substituted for the applicable rates determined by the Copyright Royalty Tribunal.
"(3) The royalty fees deposited with the Register of Copyrights under this section shall be distributed in accordance with the following procedures:
"(A) During the month of July of each year, every person claiming to be entitled to compulsory license fees for public broadcast during the preceding twelve-month period shall file a claim with the Register of Copyrights in accordance with the requirements prescribed by the Register. Notwithstanding any provision of the antitrust laws (as designated in section 1 of the Act of October 15, 1914, 38 Stat. 730; 15 U.S.C. 12, and any amendments of such laws), for purposes of this clause any claimants may agree among themselves as to the proportionate division of compulsory license fees among them, may lump their claims together, and may designate a common agent to receive payments on their behalf.
"(B) On the first day of August of each year, the Register of Copyrights shall determine whether there exists a controversy regarding the statement of account or distribution of royalty fees. If the Register determines that no such controversy exists, the Register shall, after deducting reasonable administrative costs under this section, distribute such fees to the copyright owners entitled, or to their designated agents. If the Register finds the existence of a controversy, the Register shall certify to such effect and proceed to constitute a panel of the Copyright Royalty Tribunal in accordance with section 803. In such cases the reasonable administrative costs of the Register under this section shall be deducted prior to distribution of the royalty fees by the Tribunal.
"(C) During the pendency of any proceeding under this subsection the Register of Copyrights or the Copyright Royalty Tribunal shall withhold from distribution an amount sufficient to satisfy all claims with respect to which a controversy exists, but shall have discretion to proceed to distribute any amounts that are not in controversy.
"(b) For the purposes of this section, 'public broadcast' shall mean production, duplication, interconnection, distribution, and transmission of ‘educational television or radio programs' by or for 'noncommercial education or radio programs' by or for 'noncommercial educational broadcast stations,' as those terms
are defined in title III, part IV of the Federal Communications Act of 1934, except as may be otherwise exempted under sections 110(2), 111(a) (2) and (4), 112(b), and 114(d).".
[S. 1361, 93d Cong., 2d sess.]
Intended to be proposed by Mr. BAYн to S. 1361, a bill for the general revision of the copyright law, title 17 of the United States Code, and for other purposes, viz: On page 102, line 23, strike lines 23 to 35 and insert in lieu the following: (b) Notwithstanding the provisions of section 106, it is not an infringement of copyright for a governmental body or other nonprofit organization entitled to transmit a performance or display of a work under section 110(2) or 114(a) to make copies of a particular transmission program embodying the performance and display, and to distribute such copies for transmission by or through other governmental bodies or nonprofit organizations.
The subcommittee will hear the arguments for both sides. It will examine the proponents and then the opponents in turn. At this hearing, it is the Chair's hope that the witnesses will confine themselves to these amendments and the subject matter of the amendments.
I understand that the parties here this morning have other issues which will perhaps need to be the subject of future hearings.
The Chair does not object if you wish to allude to those subjects but I would hope that you would not go into any depth or debate those questions this morning.
At this time, the Chair is very pleased to greet the witnesses already at the table, some of whom testified 10 years ago including representing Public Broadcasting System, Mr. Eugene N. Aleinikoff, counsel, Public Broadcasting Agency for Instructional Television and Mr. Donald Quayle, senior vice president for broadcasting, Corporation for Public Broadcasting.
Eric Smith, associate general counsel. Public Broadcasting Service, and the Association of Public Radio Stations is represented by Mr. William Giorda, manager, KUT-FM, member of the board of APRS. The Agency for Instructional Television is represented by Edwin Cohen, and the Florida Department of Education is represented by J. Warren Binns.
Gentlemen, you may proceed.
TESTIMONY OF A PANEL COMPOSED OF WITNESSES FAVORING THE LEGISLATION: EUGENE N. ALEINIKOFF, COUNSEL TO PUBLIC BROADCASTING SERVICE AND AGENCY FOR INSTRUCTIONAL TELEVISION; DONALD QUAYLE, SENIOR VICE PRESIDENT FOR BROADCASTING, CORPORATION FOR PUBLIC BROADCASTING; ERIC SMITH, ASSOCIATE GENERAL COUNSEL, PUBLIC BROADCASTING SERVICE; WILLIAM GIORDA, MANAGER, KUT-FM, MEMBER OF BOARD OF APRS, ASSOCIATION OF PUBLIC RADIO STATIONS; EDWIN B. COHEN, EXECUTIVE DIRECTOR, AGENCY FOR INSTRUCTIONAL TELEVISION; J. WARREN BINNS, ADMINISTRATOR, EDUCATIONAL RADIO AND TELEVISION, STATE OF FLORIDA, FLORIDA DEPARTMENT OF EDUCATION, TALLAHASSEE, FLA.
Mr. ALEINIKOFF. We here at this table represent principal organizations in public and educational broadcasting as those terms are com