Hon. CHARLES E. WIGGINS, JUNE 27, 1975. Subcommittee on Courts, Civil Liberties and the Administration of Justice, U.S. House of Representatives, Washington, D.C. DEAR CONGRESSMAN WIGGINS: Mr. John Mercer of your office has contacted me for additional details concerning out-of-market homes reached by television stations via CATV. He was particularly interested in the relationship of advertising rates to film program costs because of the out-of-market coverage. As previously stated advertisers will not pay for these out-of-market homes. Local advertisers have no interest in people located far from their retail area. National advertiser's buying concept is based on those homes located in the home market of the station (ADI). Additionally there is no accurate way to credit a station the viewing it may receive on a cable system. For example, last year KTVT carried the World Football League Games. Our signal was blacked out by the cable system in Monahans, Texas, because the local station was also carrying the telecasts. This may have happened on other cable systems of which we are not aware. Because of this local station protection, we cannot be sure which of our programs are being carried on cable. This uncertainty further precludes advertisers from paying additional money for cable coverage. Therefore, our advertising rates have not increased because of cable coverage. And, in fact, if cable coverage were eliminated the rates would remain the same since this coverage in no way affects our pricing which is based on the home market viewing audience (ADI). Nor does cable figure in the price we pay for film program costs. Film distributors base the price they charge for their product on the market rank. The market price for film in Dallas-Ft. Worth, the eleventh television market, will be less than the price in Washington, D.C. . . . the 9th market, but greater than the price in Houston, the 14th market. I hope this additional information will be of help in your deliberations. JAMES R. TERRELL, Vice President/General Manager. Hon. ROBERT W. KASTEN MEIER, INDEPENDENT TELEVISION STATIONS, INC., Chairman, Subcommittee on Courts, Civil Liberties and the Administration of Justice, U.S. House of Representatives, Washington, D.C. DEAR CHAIRMAN KASTEN MEIER: It is my understanding that during last week's hearings on CATV copyright before your Subcommittee, witnesses representing the cable television industry presented testimony concerning the sales value of out-of-market homes reached by television stations via CATV. Hopefully, the following information will be of assistance to you in your deliberations. It is true that the Association of Independent Television Stations (INTV) has sought to interest advertisers in purchasing those out-of-market cable subscribers reached by independent television stations. As depicted in this week's issue of Broadcasting magazine, the cable industry actually displayed copies of the coverage maps which INTV uses in its sales presentation. However, it is significant that advertisers will not pay for these out-of-market homes. First, local advertisers have no interest in buying homes at such a distance. Second, national and regional advertisers are interested only in those homes located within the market (this area is known as the Area of Dominant Influence (ADI)). Homes outside the station's ADI simply do not figure in the price of the advertising. It may be that in certain cases an advertiser may select an independent station over a competing network affiliated station owing to the extension of the independent's signal via CATV. But this factor does not affect the price which the advertiser pays for the station's time, be it an affiliated or independent station, and it does not affect the price the station pays for its programming. The foregoing information was confirmed in discussions with several other members of our association, located in both large and small markets. If I can be of further assistance, please do not hesitate to call on me or the President of our Association, Mr. Herman Land, at the above address. Very truly yours, JIM TERRELL, Association of Independent Television Stations. JUNE 30, 1975. Hon. ROBERT W. KASTENMEIER, Chairman, Subcommittee on Courts, Civil Liberties and the Administration of Justice, U.S. House of Representatives, Washington, D.C. DEAR CHAIRMAN KASTEN MEIER: As reported in the trade press, it appears that cable television witnesses who testified before your Subcommittee on June 11th may have generated some erroneous impressions relative to the value which a station derives from extension of its signal to cable subscribers residing beyond the station's normal over-the-air coverage area. I hope this letter will serve to correct these impressions. To the best of our knowledge, WGN-TV is currently carried on 170 cable television systems whose subscribers total 576,000. Approximately 142 of these systems, with a total of 490,700 subscribers, are located beyond the Chicago Area of Dominant Influence. This area, known as the ADI, represents those counties wherein the Chicago television stations have a preponderance of television viewing. Without going into detail regarding the methods used in the buying and selling of television commercials, I would like to advise you that the price of advertising purchased on our station reflects only the homes we reach within the Chicago ADI. We do not receive extra consideration by virtue of those homes beyond the ADI which are reached via cable television. I will be pleased to discuss this further with any members of the Subcommittee or their staffs. Sincerely, SHELDON COOPER. WASHINGTON, D.C., November 14, 1975. Hon. ROBERT W. KASTEN MEIER, DEAR MR. CHAIRMAN: Although NBC did not testify directly on the issue raised by the recent Teleprompter proposal, it is, as you know, a matter of great interest within the broadcasting industry. We have examined the proposal and find it defective in several important aspects. I have enclosed a copy of our analysis in the belief that it may be of assistance to you in your deliberations. Best wishes, BOB HYNES. STATEMENT OF NATIONAL BROADCASTING CO., INC., ON PROPOSAL OF TELEPROMPTER CORP. PROPOSING AMENDMENTS TO SECTIONS 111(d) (e) of H.R. 2223 National Broadcasting Company, Inc. ("NBC") respectfully requests that these comments relating to the amendments to the Copyright Revision Bill (H.R. 2223) recently proposed by Teleprompter Corporation be made part of the record of this Subcommittee's hearings. The Teleprompter proposal would substantially alter Section 111 of the pending bill. That Section has, of course, been the subject of extensive debate and controversy for many years and for this reason NBC seriously questions whether it would be productive at this stage to introduce still another new element into this dispute. NBC, which has long believed that cable should be subjected to the same copyright liability as any other user of creative property, must also question why, as a matter of policy, the Congress of the United States should be asked to make a distinction for cable that is inconsistent with the overall objectives of copyright. The Teleprompter proposal would, if adopted, impair to an even greater degree the concept that copyright owners are entitled to remuneration for the use of their property and for that reason alone, NBC opposes it. In addition, when the proposal is subjected to close scrutiny, it becomes apparent that it discriminates against certain types of cable systems and also against certain classes of copyright owners. In addition, the proposal would create serious administrative problems since there is not now in existence any reliable way to obtain the data on which the Teleprompter formula is based. In short, the proposal seeks to give certain cable systems a complete windfall at the expense of copyright owners, smaller cable systems and local broadcast stations, without serving any compelling public policy. Specifically, NBC has three fundamental objections to the Teleprompter proposal. First, it would impose the duty to pay copyright royalties only on those cable systems that import a limited kind of distant signals and leave other systems with virtually no liability to copyright owners. Second, the Teleprompter proposal would consider as relevant to the payment of copyright royalties only the share of total programming costs expended by local broadcasters, thus excluding the most substantial television program costs, namely, the prices paid by networks to their program suppliers.1 Third, the Teleprompter formula is inequitable and poses serious problems of administration. THE TELEPROMPTER PROPOSAL IS UNFAIR TO CERTAIN CABLE OPERATORS The Teleprompter proposal discriminates against certain types of cable systems, particularly those which carry broadcast signals to remote and inaccessible areas. The copyright royalties paid by such systems would increase dramatically. For example, under the royalty schedule embodied in Section 111 of H.R. 2223, NBC estimates that the system serving Carlsbad, New Mexico would pay approximately $1,000 quarterly. Under the Teleprompter proposal, the same system would be paying approximately $5,000 quarterly. It is obvious that under the proposed H.R. 2223 royalty fee schedule, urban systems such as Teleprompter Manhattan would pay large compulsory licensing royalties since the fee would be based on gross revenues from subscribers. Interestingly enough, under the Teleprompter proposal, a system like Teleprompter Manhattan would not pay a penny in copyright royalties unless it decided to import a distant nonnetwork signal into its service area which-given the substantial number of broadcast signals already available in that market-is unlikely. The proposed amendment thus discriminates against classes of cable operators and the discrimination bears absolutely no relationship to the amount of use of copyrighted material by the cable operator. THE TELEPROMPTER PROPOSAL IS UNFAIR TO COPYRIGHT OWNERS NBC strongly opposes Teleprompter's position that cable systems should pay copyright royalties only for imported distant signals. Teleprompter is really asking that the Subcommittee return to ground zero and reverse itself on two subjects that have been extensively debated-first, whether a cable system may carry network programs without paying any royalties, and second, whether a cable system may carry local programs without paying any royalties. NBC supports the approach which is currently embodied in Section 111 of H.R. 2223. Any fee formula or fee schedule that Congress adopts should provide for license payments to all owners of all copyrighted works that are carried under the compulsory license. It is ironic that Teleprompter still seeks a compulsory license permitting a cable system to retransmit simultaneously all network and local programs carried by stations in the cable system's local service area. Yet, it takes the position that the owners of copyrights in those works should not be paid royalties. The Teleprompter proposal thus discriminates among classes of copyright owners. Indeed, it would permit only a very limited number of copyright owners to receive royalties. License fees would be paid only to owners of copyrighted works performed on programs originated by broadcasting stations and even this class would not receive any fees unless a distant cable system imported the program. We suggest that adopting the Teleprompter proposal would raise a serious Constitutional question with respect to the compulsory licensing provisions. All owners who are compelled to license their copyrighted property should be entitled to share in the compulsory license fees. 1 Since the bulk of network programming is licensed by the networks from outside program suppliers, it is these suppliers and the creative people they deal with who would suffer the greatest harm under the latest Teleprompter proposal. THE TELEPROMPTER FORMULA IS INEQUITABLE AND EXPENSIVE NBC opposes the formula that Teleprompter has devised because the formula is inequitable and would be expensive and burdensome to administer. NBC criticizes the elements of the formula proposed by Teleprompter because those elements do not reflect the economic value to the cable system of the programs carried under the compulsory license. The second element of Teleprompter's formula, for example, provides that gross revenues from subscribers would be multiplied by the percentage of broadcasting revenues spent on programming by broadcasters, but not by the percentage spent by networks. Networks expend a much higher percentage of gross revenues on programming and such costs should be included in any formula. NBC strongly objects to the third element in the Teleprompter formula which Teleprompter terms an index of "popularity". In order to analyze the third element of the Teleprompter formula, it is important to recall that Teleprompter proposes to pay copyright royalties only for imported distant signals, based on a ratio of county-wide viewing rather than merely viewing to the CATV system. One need only consider the following example to determine the type of inequitable result which would result under the proposed formula. Take the case of a system having 1,000 subscribers located in a county with 10,000 television homes which imports a distant signal which in turn is viewed by 10% of the cable subscribers. Applying the formula proposed by Teleprompter to determine the “market share" of the distant signal, would produce a market share of 1 percent not 10 percent. since the 90 percent of noncable homes obviously cannot watch the distant signal. The Teleprompter formula would dilute the "popularity" in cable homes of the imported signal because of the existence in the county of 9,000 television homes, not one of which could view the distant signal. NBC agrees that "popularity" may be a significant factor, but the popularity that is relevant is the popularity of the broadcasting signals carried by the cable operator in relation to all other material carried by the cable operator. Where the cable system does nothing other than transmit network and independent television programming to subscribers, the value of the compulsory license must be extremely high. Absent such license, the cable operator simply has nothing to sell to subscribers. In contrast, where a cable system sells for its basic monthly charge not only boosted broadcast signals, but also alternative programming, the value of the compulsory license should be adjusted to reflect the relative popularity to cable subscribers of the broadcast signal and the alternative programming. A formula in which such popularity could be reflected would provide copyright royalties more directly related to the value to the cable operator of carrying copyrighted works. It should also be noted that the information required for the third element of the Teleprompter proposal is not presently compiled by the Federal Communications Commission or by any independent rating or survey service. Although Arbitron publishes at irregular intervals out-of-date information on certain county viewing, these reports do not contain information about viewing of individual programs. The Teleprompter formula requires such information. Gathering the necessary data to compute the third element in the Teleprompter formula would be extremely expensive and may well pose significant administrative problems to the Federal Communications Commission, which Teleprompter charges with the responsibility. OTHER COMMENTS ON SECTION 111 NBC recognizes that the Subcommittee might decide to retain a fee schedule in Section 111 (d). The royalty fees provided for the initial period under Section 111(d) are in the opinion of NBC inordinately low. These royalty fees were established at a time when the majority of cable operators were independent cable systems with low annual gross revenues. That is not the case today. NBC believes that cable systems with large gross revenues related primarily to the carriage of copyrighted material should not have the benefit of a statutory freeze on royalties at a rate of 21⁄2 percent. The Subcommittee may find that there is some merit in adopting a combination of a statutory fee schedule and a formula. Under such an approach, the initial fee schedule could remain unchanged for cable systems with gross revenues of up to $160,000 and a formula could be specified for computing the royalties pay able by cable systems having gross revenues in excess of $160,000. NBC would favor a formula that was certain in application and inexpensive. For example, the licensing fees payable by the larger cable systems could be computed by multiplying gross receipts from subscribers by the percentage of total network and broadcasting revenues spent on network and local station programming costs. For the reasons set forth above, we oppose the proposals of Teleprompter and urge that the compulsory licensing fees be revised to reflect the economic value of the works licensed to cable operators. We appreciate this opportunity to present our views to the Subcommittee. THE NATIONAL COLLEGIATE ATHLETIC ASSOCIATION, Congressman ROBERT KASTEN MEIER, Mission, Kans., November 14, 1975. U.S. House of Representatives, Rayburn House Office Building, Washington, D.C. DEAR CONGRESSMAN KASTEN MEIER: I have your letter of November 4, 1975, inviting me to comment on behalf of the National Collegiate Athletic Association on amendments proposed by Teleprompter Corporation to the royalty provisions of Sections 111 (d) and (e) of H.R. 2223. The injury to college and high school athletic programs and the limitations on the access of intercollegiate sports to broadcast television which results from widespread cable retransmission of distant signals of intercollegiate sports events, and of professional football telecasts described by Section 3 of Public Law 87-331, cannot be mitigated or adequately compensated for by any royalty system. The solution to the problems which I discussed in my testimony before the Subcommittee on Courts, Civil Liberties and the Administration of Justice must lie in specific limitations on cable carriage of such sports events. The necessary limitations may be imposed either directly by H.R. 2223, or by the Federal Communications Commission pursuant to an express authorization in the bill. Any such authorization should direct the Commission to take account of (1) the impact of cable carriage on attendance at concurrent school/college events, and (2) public policy expressed by Congress in Section 3 of Public Law 87-331-considerations which the Commission has apparently once again refused to recognize in its November 4 action denying petitions for reconsideration of its recent rulemaking regarding cable carriage of sports event broadcasts. The NCAA, and individual NCAA member institutions in collegiate conferences do, however, have a potential interest in the royalty provisions of the bill, and although that interest pales in comparison with the NCAA's principal concern regarding cable retransmissions of sports events, it is sufficient to impel me to accept your invitation to comment on the merits of the Teleprompter Corporation's proposal. That proposal is faulty in several respects, including the following: 1. Contrary to Teleprompter Corporation's assertions, it is neither logical nor equitable to exclude cable system's retransmissions of so-called local signals (the definition of which Teleprompter would make completely open-ended) from the royalty payment requirements. Cable system appropriate such signals and sell them at a profit to subscribers just as they do in the case of so-called "distant" signals, and they should be required to pay a reasonable royalty to the copyright owners of the programming concerned. 2. The proposed exclusion of copyrighted "networks" programming is merely a device for minimizing the royalty payment obligation-no rational basis for such an exclusion is advanced, and it would be inequitable and discriminatory as to those program suppliers who are successful in "networking" their property. The proposal is also obscure at a number of important points and does not even mention any reason for the proposed deletion of several elements of the Bill's definition of cable system gross revenues. For these reasons, although it might deserve further consideration if it were to include in the royalty base retransmission of all broadcast signals and to contemplate payment for all copyrighted programming retransmitted, I am compelled to conclude that, as presented by Teleprompter Corporation, this "compromise" is no compromise at all, but merely an ingenious device for absolving |