on the total number of households using cable, as against the total number of households being served without cable?

Ms. RINGER. I am not sure it was ever really broken down in that way, Mr. Gudger.

Čertainly there were a lot of statistics being discussed at the time these final provisions were written into law, and part of the $7 million target figure that emerged was based on a house-byhouse basis.

But I honestly believe that the hope was, certainly on the part of the motion picture industry, it was that cable would grow and that it would continue to increase its percentage of viewing homes and that in fact the motion picture industry would benefit from this because there would be added subscriber revenue and the larger cable grew the larger the pot would grow.

Mr. GUDGER. One final question.

Have you observed as to whether or not the cable TV companies have been able to comply with the reporting requirements and have, in fact, obviously complied in payment of all schedules and fees that are exacted; otherwise we would not see this overage. Would you comment on that, as to whether or not the method of getting reports is simple and effective and whether or not it is relatively effective and whether or not you think that there has been a compliance? There has been a suggestion earlier that in juke boxes we certainly don't see compliance.

Ms. RINGER. The statutory requirements for reporting in the cable area are so much more complicated than those for juke boxes that there is no comparison. But, we did get out some forms that seem to be working well and with your permission I would like to make them a part of the record. They might be of some interest to you.

Mr. GUDGER. I would personally like to see a copy of those forms just for my own enlightenment.

Mr. KASTENMEIER. Without obejction, the forms will be received by the committee and we will evaluate them and if they should be part of the record, we will include them.

[See app. 1B at p. 452.]

Mr. GUDGER. I will yield back the balance of my time.

Mr. KASTENMEIER. In fact, it is well into the noon hour. I think we will terminate the proceedings, but we would like to, on behalf of the subcommittee, thank you for your presentation and informative discussion of the problems confronting us and we will be back to you, no doubt before the next couple of months are out, on this question.

Ms. RINGER. Thank you very much.

Mr. KASTENMEIER. This concludes today's hearings on copyright matters. I also wish to announce that we will have another hearing on November 26 with a long series of witnesses principally on the same two issues regarding cable and performance rights.

Until November 26, the committee stands adjourned.

[Whereupon, at 12:15 p.m., the subcommittee was adjourned.]

COPYRIGHT ISSUES: CABLE TELEVISION AND

THE COMPULSORY LICENSE

MONDAY, NOVEMBER 26, 1979

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COURTS, CIVIL LIBERTIES,

AND THE ADMINISTRATION OF JUSTICE,

OF THE COMMITTEE ON THE JUDICIARY,

Washington, D.C.

The subcommittee met, pursuant to notice, at 10 a.m., in room 2226, Rayburn House Office Building, Hon. Robert W. Kastenmeier (chairman of the subcommittee) presiding.

Present: Representatives Kastenmeier, Danielson, Gudger, Railsback, Moorhead, and Sawyer.

Also present: Bruce H. Lehman, chief counsel; Thomas E. Mooney, associate counsel; and Audrey Marcus, clerk.

Mr. KASTENMEIER. The committee will come to order this morning for the second day of hearings on copyright legislation and copyright issues. The two most prominent issues that appear to remain as a result of the 1976 copyright law are: The effective operation of the existing compulsory list concerning the statutory provisions for cable television, and whether or not the performer's royalty ought to be created.

Today we will address the first question. We are very pleased to have a distinguished panel of people who have firsthand experience with the operation of the cable television provisions in the new law. I would like to greet them and have them come forward as a panel. Incidentally, we will be joined shortly by a couple of our other colleagues.

They are Mr. Jack Valenti, president, Motion Picture Association of America; Mr. Vince Wasilewski, president, National Association of Broadcasters; Mr. Herman Land, president, Independent Television Association; and Mr. Bowie Kuhn, who is the commissioner of baseball, representing all major professional sports in connection with this hearing this morning.

Gentlemen, I greet you on behalf of the committee, and ask you to come forward, please.

With the exception of Mr. Land, I think the witnesses have been before the committee before, so we greet you Mr. Land. We are very happy to have you here.

I think I will call on Mr. Valenti, if that is agreeable, to start off the proceedings this morning and testify first. Mr. Valenti.

(41)

TESTIMONY OF JACK VALENTI, PRESIDENT, MOTION PICTURE ASSOCIATION OF AMERICA; VINCENT WASILEWSKI, PRESIDENT, NATIONAL ASSOCIATION OF BROADCASTERS; HERMAN LAND, PRESIDENT, INDEPENDENT TELEVISION ASSOCIATION (IN-TV); AND BOWIE KUHN, COMMISSIONER OF BASEBALL— REPRESENTING ALL MAJOR SPORTS LEAGUES

Mr. VALENTI. Mr. Chairman, I have presented this committee with a formal statement. What I am going to say this morning, I will be extracting from that, points that I think should be made so I tell you I am not speaking from that formal statement.

Mr. KASTENMEIER. Your statement will be received and made a part of the record.

Mr. VALENTI. Thank you, Mr. Chairman, thank you very much. That is an absolutely propitiously timed entrance, Mr. Gudger. I am just about to start with some modest eloquence, I hope.

The theme of what I really want to talk about briefly today is very simple. It has nothing to do with the battle between the socalled broadcasters and cable. It has to do with program suppliers, the people who create TV programs in America who want to be treated fairly. That is all we are asking. We do not want any special privileges. We do not want to have anything not shared by others in a competitive marketplace. We ask of this committee and this Congress one simple thing, we want to be paid fairly for what we create and what we sell, and we want to be able to compete fairly in the marketplace. Nothing more, nothing less.

Now, I would like to begin with an essential fact. Whenever a cable system brings in a distant signal, not local signal, but distant signal, that cable signal is competing with local television stations in the community for the eyes and ears of the audience. One person can only watch one channel at a time. Therefore, when anybody brings in a distant signal, that system then becomes a direct competitor of the TV station in the market. I make that clear, because that forms a competitive marketplace.

But cable has been given an unfair advantage by Congress in this marketplace. By law, cable is bringing in distant signals and is paying on the average rate of 1 percent of its gross revenues for all the programing it uses from those distant signals. The value and the worth of each individual program has absolutely no bearing on what they pay. The compulsory list completely disregards what we call marketplace value.

Now on the other hand, TV stations directly competitive with those distant-signal cables are paying 25 to 40 percent of their gross revenues for programing.

Consider another point, basic cable produces nothing, creates nothing original, makes no investment in creative programing. They simply take off the air what they choose, what they want, they duplicate what already exists, they live and exist on what other people have invested in, what other people have created, and what other people have paid for.

But I think the thing that is really racking and malignant to us is the artificial pricing of a product in the competitive marketplace. In the future, I am convinced this will have the most injurious effect on program suppliers to be able to continue to operate in that marketplace. Ultimately, gentlemen, it will claim its final

victim, that is, the families in your districts who watch free TV. As surely as the law of economics exists, the program suppliers will in time do whatever puts a spike in the heart by artificially setting prices for a product which prices have no relationship to the worth and value and cost of that product.

What will happen, the businessman will vacate the marketplace. Now why is that so? You have to understand that the several hundred or so independent TV programers do not, I repeat, Mr. Chairman, do not make money on prime-time network shows. They hope and pray that their prime-time network shows will exist long enough on prime time, 3 to 4 years, to accumulate enough segments so that they can go into what we call syndication, that is, taking their program off network, or a new program that has never been on the network, and take it literally, can under your arm, one station at a time, to sell it individually to those stations. That is called syndication.

Annually that market is anywhere from $450 million to $500 million. It is from that reservoir of sales that each independent TV programer hopes to extract the cost and investment in his program and maybe make profit.

However, there have occurred two events which are catastrophic to the future program suppliers and to the future of a free competitive marketplace as we engage in that marketplace. First, the Congress passed the Copyright Act, and by jingoes I know a lot about that, Mr. Chairman, you know better than anybody about that Copyright Act. What it did was give basic cable an extraordinary privilege not granted to others in the competitive marketplace. They got an artificial low price for that which they sell to their subscribers, a price for programing far below the true worth of that product.

Let me tell you why I say that. On the average and throughout this country, cable systems receive about $8 a month from their suppliers. A few minutes later I will tell you about some who charge more. This cable system is receiving some $96 a year per subscriber in revenues. But almost half the cable systems in this country are paying 6 cents per year per subscriber for programing. You heard me correctly, 6 cents per subscriber for programing. A third of the cable systems in this country are paying up to 72 cents per year per subscriber, while they are receiving $96 per year per subscriber. Is it any wonder that the giant corporations in this country, grandly profitable, are moving into the cable area and buying up everything they can get their hands on? The Los Angeles Times, American Express, Teleprompter, they are all getting into it.

I brought with me a recent headline, "Canadian Cable TV Enters U.S." They quote a number of those companies and they say it is explosive. (See app. 1H at p. 676.)

I talked the other day to a Canadian cable executive and I said, "Why are you coming down here?”

He said, "The guys in cable have a license to steal, and I want to get into it."

That is why they are coming in big numbers and buying in great numbers. This so-called license to steal-not my words-has warped the marketplace.

Suppose a Government agency determined the Oscar Mayer Co. had to sell half its product at one twenty-fifth the amount it sells to other customers? Mr. Danielson, suppose the aerospace companies in your area were forced to sell half their products at one twenty-fifth the amount it sells to others? Suppose, Mr. Gudger, the American Enka Co. had to sell half its product at one twentyfifth the amount it sells to other customers. I think you would say it is an unwarranted and unfair situation.

I sit on the board of an airline. Were the CAB to deregulate TWA by requiring it to offer its product at one twenty-fifth the amount all other airlines are selling their product for, that would not be a fair situation.

What we have is a marketplace which is out of kilter.

The second event that promises catastrophe is a recent preliminary decision by the FCC to repeal the so-called exclusivity rule, whereby an independent programer can license his program to an independent television station who has exclusive use of that program in his marketplace for a limited amount of time. That rule has been in effect over 7 years. How on earth that rule has harmed cable is simply beyond my comprehension. The program supplier, on the other hand, depends for his very life on that syndication market. Without it, he is going to die.

Suppose there is no syndicated exclusivity rule, Mr. Lear wants to sell "All in the Family" to a station in Los Angeles, Nashville, and Madison, but the cable system in that area can pick up "All in the Family" from Ted Turner's satellite. So the TV station in Madison, Nashville, or Los Angeles says to Norman Lear:

I think your price of $1,000 a segment is fair, but I am not going to buy the program. This guy is going to bring it in on cable, the number of viewers goes down, the same program I am showing, so I am sorry, I do not want the program. Or he might say, "It is not worth $1,000, but I will give you $150, but because you are fractionalizing my audience, that is about all I think it is worth."

I bring that up because that is the real world, Mr. Chairman, Norman Lear, Grant Tinker will come out here and spell in bloody detail what that spells out for them, because of the artificial low pricing of a product which has no relationship to its worth and second, the FCC avowed intent to ban an exclusivity rule.

What will be the reaction? The same as that of Oscar Mayer, the aerospace industry, or the Enka Co. when they have lost the control over how they market their product. When the risks of investment far outweigh their promise of reward, they will do what every prudent businessman in America will do, they will get out of the market or find some new way to market their product. In the case of TV programers they will probably go to the pay route, to pay TV, videocasettes, et cetera, and all this technology will multiply. In a few years, I promise you, and I do not feel I am a Cassandra-but I am giving you what the Lears and Tinkers expect when cable is extended to more than half the homes in America. The political crime in this independent TV field, you can be sure that a majority of your constituents will inevitably have to pay for what they are now getting to see free. It is a marketplace reaction brought about solely because the law of economics is far more powerful than any rule of a parliament. Businessmen will not long