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CATA-COMMUNITY ANTENNA TELEVISION ASSOCIATION

MC CLELLAN COPYRIGHT STUDY WORK FORM

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Number

of systems Expense category reporting 1. Microwave

42.0 2. System ma

179.0 3. System technician.

117.0 4. System technician/ installer

93.0 5. Secretary.

150.0 6. Office rent.

168.0 7. Head and rent.

148.0 8. Electricity.

186.0 9. Insurance/taxes.

185.0 A. Franchise fees.

124.0 B. Pole rental.

168.0 C. Vehicle operations expenses.

176.0 D. Subscriptions and dues. 160.0 E. Legal/accounting.

174.0 F. System repairs.

185.0 G. Teleco/telegram.

154.0 H. Travel expenses

139.0 1. Office supplies..

172.0 J. Billing/collections.

131.0 K. Advertising..

142.0 L. Miscellaneous.

151.0
Average.

1 155. 1
Gross revenues
Expenses, total
Average net in-

come.
Percent of gross

revenues.

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75,600 97, 251
16, 212 142, 503
6,600 156, 007
3,060 136, 206
5, 438 158, 904
26,395 160, 379
10, 945 121, 763
15,925 145, 899

7,682 156,510
2, 826 147, 637
27, 906 158, 349
37, 724 160, 398
4,200 145, 409
6,313 139, 740
5,534 150,915
7,844 117, 656
13, 164 141, 303

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2 162, 336

10, 414, 877.00
9, 166, 052.00

3 7.34

4 11. 44

* Less microwave.
2 All systems total.
3 Per subscriber.
* Before retirement of debt principal, interest, and capital expenditures.

MODEL SYSTEM—No. 1 (A SYSTEM WITH MICROWAVE SERVICE FOR ONE OR MORE

CHANNELS)

(A) Total systems studied in report, 191.
(B) Total systems with microwave, 42 (21.98%).

(C) Total system customers with microwave, 49,149 (30.27% of total customers studied).

(D) Model microwave system has 1,170 subscribers and is typically 7 to 8 years old. (E) Expense category :

Dollars spent

per sub.

(1) Microwave
(2) System manager.
(3) System technician(s)
(4) System installer(s)
(5) Secretary (ies)
(6) Office rent.--
(7) Head end rent-
(8) Electricity
(9) Insurance and taxes_-
(10) Franchise fee payment(s)
(11) Pole rental.---
(12) Vehicle operating expense(s)
(13) Subscriptions and dues.
(14) Legal and accounting-
(15) Repairs to system.
(16) Telephone service..
(17) Travel expenses--
(18) Office supplies----
(19) Billing and collections..
(20) Advertising
(21) Miscellaneous

per year

$8. 16 11. 38 8. 09 7. 60 4. 39 1. 32 0. 69 1. 51 3. 92 1. 46 2. 69 2.53 0.42 1. 73 4. 11 0.69 0.63 0. 79 1. 12 0.74 1. 00

Total expenses per subscriber--

64.97

Average subscriber gross, $72.70 per year. (1) for 1,170 subscribers in model system.(2) per subscriber net after operating expenses for year 1972(3) for 1,170 subscribers, net in model system.--(4) less 1% copyright fee proposed on gross receipts-

$85, 059.00

-7. 73 9, 044. 10 -850. 59

New gross after copyright--(5) Equivalent 1% off gross as percentage of net income (percent)-

8, 193. 51

9. 40

MODEL SYSTEM—No. 2 (A SYSTEM WITH OR WITHOUT MICROWAVE SERVICE)

(A) Total systems studied in report, 191.
(B) Total sytems studied for this model system, 191 (100%).
(C) Model system has 850 subscribers and is typically 6–7 years olds.
(D) Expenses category :

Dollars spent per subscriber per year
(1) System manager--
(2) System technician (s)
(3) System installer (s)-
(4) Secretary (ies)
(5) Office rent---
(6) Head end rent.
(7) Electricity
(8) Insurance and taxes..
(9) Franchise fee payments.
(10) Pole rental.-
(11) Vehicle operating expenses.
(12) Subscriptions and dues..
(13) Legal and accounting-
(14) Repairs to system.-
(15) Telephone service.-
(16) Travel expenses.-
(17) Office supplies.--
(18) Billing and collections_-
(19) Advertising
(20) Miscellaneous

$11. 38

8. 09 7. 60 4. 39 1. 32 0. 69 1.51 3. 92 1. 46 2. 69 2. 53 0.42 1. 73 4. 11 0. 69 0. 63 0. 79 1. 12 0.74 1. 00

Total expenses per subscriber--

$56. 81 Average Subscriber Gross, $64.15 per year. (1) for 850 Subscribers in model system -

$54, 527. 50 (2) per subscriber net after operating expenses for year 1972..

-7. 34 (3) for 850 subscribers, net in model system.

6, 239, 00 (4) less 1% copyright fee proposed on gross receipts.

545. 27 New gross after copyrights---

5, 593. 73 (5) Equivalent 1% off gross as percentage of net income (percent)-- -8.97

SAMPLE SYSTEMS STUDY To determine what changes, if any, occur in the net-profit category, as a function of system size (i.e, number of subscribers and gross revenues), a sampling of the total of 191 systems was performed.

Systems were broken down into several easy-to-handle categories, and a representative sample within each sub-group category taken. Gross proceeds within the category, net expenses, net profit (1) and net profit-per-subscriber were measured. They follow :

Number of

systems sampled

System size

Gross receipts

Net expenses !

Profit/
(loss)

Net per sub

40 to 500 subs
501 to 1,000 subs
1,001 to 1,500 subs.
1,501 to 2,000 subs.
2,000 to 5,800 subs.

18 (9.4)
18 (9.4)
13 (6.8)
11 (5.7)
10 (5.2)

$298, 470

839, 619 1,003, 707 1,098, 344 1,559, 034

$336, 697

755, 934 931, 658

942, 138
1, 222, 460

($38, 227)
83,685
72, 049
156, 206
320, 984

($7.62)

5.97 4. 36 8. 54 12.32

I Net expenses: Includes direct operating expenses and does not include (A) principal (debt) retirement; payment of interest on any outstanding principal debt; (C) capital expenditures for new expansion, additions.

It is readily apparent from the above that system size has a very direct bearing on cash flow generated by the system. It should also be noted that the Net Per Sub (scriber) column (far right) does not represent profit; that out of this remaining cash flow after expenses the system must retire its debt (both principal and interesi) and make capital expansions to increase the system's reach in an ever growing community. Copyright 1% fee-How It Changes Sample Systems Profit or (loss)

The previous page detailed a study of sample systems by system size. The far right hand column showed the net profit (or loss) per subscriber within each system-size category as income was reported for the calendar year 1972.

We will now compare these figures with the added burden of a 1% copyright fee.

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In each case, the 1% of gross revenues copyright fee proposed has a much larger impact on the NET income (after operating expenses but before debt retirement and capital expansions) than the 1% would imply. This impact, as measured in this study, is as follows:

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1 Increase in net loss. 2 Reduction.

Note: Systems of over 2,000 subscribers in our study had an average return of $12.92 per subscriber before copyright and $12.32 per subscriber after copyright; a 4.7 percent reduction in net revenues because of the 1 percent copyright liability. The largest system so studied had 5,800 subscribers.

SYNOPSIS

CATA was requested to prepare this study so that the subcommittee on Patents, Trade-Marks and Copyrights might have factual, current data on the true financial picture of the small, independent Community Antenna System Operator.

To the best of our knowledge, this type of hard, factual data has never before been gathered into one concise study by the CATV industry. To a very large measure, the results of this study have depended almost entirely upon the open willingness of the small, independent operator to provide this "raw data." In effect, CATA asked 1,000 system operators to divulge their own, confidential financial information. And to divulge it not only to CATA, but to a group that was proposing to "tax" part of their gross receipts !

CATA is providing not only this synopsis study of this survey, but the raw survey forms as completed and turned in by the Community Antenna System operators. CATA believes its synopsis tabulations to be correct, but invites retabulation by the Subcommittee.

The study clearly shows that small CATV systems are performing a service far greater than had previously been imagined. The synopsis shows that the typical system with fewer than 500 subscribers is actually losing money ($7.62) in its annual operations each year. We don't suggest that (A) the study is incorrect, or, that (B) this is not true. We do know, however, that when a man builds a very small system to serve typically fewer homes than 500 cable homes, he takes upon his own shoulders those responsibilities of the system manager, the system technician, the system installer and often the system secretary ... all rolled into one person. This reduces the out of pocket expenditure but makes for very-very long days for the typical small operator.

57-786 0 - 76 - pt.3 - 36

And if there is a case to be made for relief from the proposed copyright fee schedule for the so-called independent, small operator, it should be with the understanding that the small operator does not hire the vast majority of his work done for him; he does it himself. And that as a full time resident of his community, he is "Mr. Television" to his community; a man devoted to the bringing of quality television signals to his isolated community he lives in and serves.

And that if .. and that is a big if ... he is able to make any rate of return on his investment, it is solely because he is providing, has provided, and will continue to provide a fair service for a fair rate. And because he is not afraid, or unwilling, to perform that service 18 hours per day, 365 per year.

The study completed here indicates that there is ample reason for an exemption for Community Antenna Television System operators with fewer than 3,500 subscribers. The net rate of return per subscriber, as detailed herein, and before any repayment of indebtedness principal, interest or additional capital expansions, is such that systems with fewer than 3,500 subscribers are typically just treading water.

And directly contrary to the off-repeated view that "small CATV systems are goldmines" (a few undoubtedly are ... but the average one is not, as this study plainly shows), the small, independent CATV systems need all of the relief that they can get.

CATA respectfully urges the Subcommittee on Patents, Trade-Marks and Copyrights to carefully consider this study in making any final determination for copyright liabilities for CATV systems; and suggests that if systems with fewer than 3,500 subscribers could be re-classified as Community Antenna Systems and be therefore exempted from a copyright fee schedule, that such be done.

CBS, INC.,

New York, N.Y., November 19, 1975. Hon. ROBERT W. KASTENMEIER, Chairman, Subcommittee on Courts, Civil Liberties and the Administration of

Justice, Congress of the United States, Committee on the Judiciary, House

of Representatives, Washington, D.C. Dear Mr. KASTENMEIER: In your letter of November 4 you invite me to give the Subcommittee my views on the proposal by Teleprompter Corporation to amend Section 111 of H.R. 2223.

At the outset let me note that this action by Teleprompter appears designed either to forestall copyright law revision entirely-thus preserving in the cable television field the present state of copyright anarchy from which only cable television benefits--or to eliminate entirely the possibility that under the revised law copyright payments by cable television for its compulsory license would ever reach a reasonable level. To appreciate the thrust of Teleprompter's proposal, it is necessary to understand the basic unfairness-vis-a-vis broadcastingwhich lies at the heart of cable television's operation. That unfairness works in the following way.

In any given community the local cable system and the local television broadcast station are natural competitors against one another for audience. But under the present copyright law the only competition between them is unfair competition. To attract audience both offer the program schedule of the television station. The television station is subject to the normal operation of the copyright law and must secure permission to use the programs. The cable system neither secures permission nor does it pay.

The cable television system also attracts paying subscribers with the programs contained in the signals of any other local broadcast television stations; the cable system pays nothing for them.

It imports distant broadcast signals; it pays nothing for the programs contained in them.

The cable television system also attracts paying subscribers with the programs more frequently making a special charge (generally on a per-channel basis) to its subscribers for those programs. When it originates, it also has a unique advantage-even though under the present copyright structure the cable system has to secure permission and make a negotiated payment. The unique advantage derives from the fact that if it is successful under the present copyright structure in negotiating against the local station for a program, it alone acquires the right to utilize that program. The local station does not get a free ride. On the other hand, if the local station is successful in the competition to acquire the program, the cable system which lost in the competition can carry the program as it is contained in the broadcast signal. The cable system gets a free ride.

It is in the economic interest of the cable system to enhance the attractiveness to its subscribers, and to its potential subscribers, of what it uniquely carries compared to what is available to those subscribers over the air from local television stations. The more attractive the cable television system can make its unique services, i.e., its own cable program originations and the imported distant signals, the more subscribers the system will get and the smaller will be the audience of the local television station. The smaller the audience the local television stations has, the weaker the service it is able to render. The weaker the local television service, the stronger the position of the cable system. The weaker the local television station, if it is a network affiliate, the weaker the television network.

This one-way unfair competition of cable television with broadcasting is the inevitable result of the absence of copyright protection against cable television use for the programs contained in broadcast signals.

CBS' POSITION

CBS' position is that cable television systems should be required to bargain in the marketplace for the copyrighted programs contained in both local and distant broadcast signals, just as broadcast stations do. Subjecting cable television systems to the normal operation of the television marketplace would not involve the Congress or any governmental agency in setting rates for the cable television's use of programs. Those rates would be set in the marketplace by give-and-take bargaining between the copyright owner and the user. That would eliminate the unfair competition I have referred to.

Nevertheless, in my testimony on Jun 12 before the Subcommittee, I gave qualified support to the compulsory license provisions for cable television in Section 111. The reason, as I stated then, is that CBS has "reluctantly concluded that there is just no possibility that the Congress will pass legislation subjecting cable television to the full operation of the law." Because CBS believes it critical that the principle of statutory copyright liability for cable system carriage of copyrighted programs contained in broadcast signals be established, CBS supported the compromise on the condition that the Copyright Royalty Tribunal would be available as provided by Section 801 (b) to assure the possibility that future royalty rates might be reasonable.

TELEPROMPTER'S PROPOSAL Section 111 now includes and has long included provisions which, taken together with other sections of the bill, would subject cable television to copyright liability for the carriage of the programs contained in broadcast signals but which would give cable television the inestimable advantage of having a compulsory license to carry those signals at rates which cannot be regarded as more than nominal. Nevertheless, at the eleventh-hour, Teleprompter now makes an ill-concealed attempt to reduce its liabilitv drastically without reducing cable television's ability to carry both local and distant broadcast signals.

Teleprompter proposes to make a distinction between local and distant signals (for purposes of payment but not of permitted use). It proposes that cable pay nothing for the programs contained in local signals. It attempts to justify this exemption by saying on p. 1 of its Memorandum that "everyone seems to agree that, as a matter of pure logic, there is no justification for imposing copyright liability on cable's retransmission of local signals." This is not an argument. It is no more than an observation. And it is false. Copyright proprietors certainly do not agree that there is no justification for copyright payments by cable systems that sell their subscribers retransmitted copyrighted programs contained in local broadcasts. Broadcasters certainly do not agree. Building on this false foundation, Teleprompter then indicates on n. 2 of its Memorandum that "the entire nation is really “local' to the network." Teleprompter concludes from this in the next sentence that "a copyright owner who sells his product to a network anticipates that the product will

be viewed throughout the entire country and is compensated accordingly." What Teleprompter unblushingly

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