Consider the situation if we do not turn to this type of open marketplace. If the FCC distant signal and syndicated exclusivity rules are abolished, as it has proposed, and if no retransmission consent requirement or copyright liability amendment accompanies this action, a number of real and serious anomalies will occur. As illustrations, we cite the following examples:

A sports entrepreneur of a Madison Square Garden price fight determines to televise the fight throughout the nation, with the exception of New York City. Clearly, the promoter, who is risking much, has the right to make such a business judgment, and to protect gate receipts. Yet the promoter could find that decision frustrated by cable's importation of a distant signal carrying the fight, in the absence of Section 76.67 of the Commissions rules (which the Commission is proposing to retain). The result may be a decision to put the fight into theaters, thus depriving the viewing audience outside of New York City. Note that the only way to prevent this (absent a retransmission consent requirement or copyright liability amendment) is by Commission rule-by intrusive government intervention.'

UHF Station 20 in Washington, DC., might buy the exclusive right to a film package for Washington. It can obtain such an exclusive rights against the other stations under both the Communications Act and antitrust laws (assuming the terms of acquisition are reasonable both in duration and geographical extent). But even if it were willing to pay any sum, it could not prevent the film from being seen on the Washington area TV sets via cable carrying distant signals, if the Commission eliminates its non-network exclusivity rules. Such a government policy, we submit, makes little sense. Note also that in light of the Commission's proposed retention of Section 76.67, the Commission will have intervened to repair a market deficiency as to the Madison Square Garden sports entrepreneur but not as to the UHF independent-film syndicator. Why this difference?

Sports entrepreneurs are concerned over telecasts that affect the home territories of their own team or other teams in the league, since the overall health of the league is crucial and can be affected by the indiscriminate carriage of the currently "strong" teams. As a result of either league agreements, permitted by Congressional policy (see 15 U.S.C. 1291), or individual decisions motivated by the same policy, these entreprenuers specify what games may be presented in particular regions. This means that a commercial or an STV broadcaster would not be given the right to present, say, a Los Angeles Dodgers-Atlanta Braves games in a particular city because it comes within the TV territory of the Oakland and San Francisco teams; nevertheless, the game could be presented in that same city on a cable system carrying the signal of WTBS, the Atlanta superstation. What sense is there in a policy facilitating cable presentation of a sporting event that the marketplace (and government policy) denies to STV or commercial broadcasting?

Some copyright owners refuse to sell a product to stations like WTBS, because it is a "superstation" distributed by satellite to cable.2 The owners do not believe that they are receiving fair compensation through the compulsory license scheme, and they fear that if they sell and the Commission abandons its non-network exclusivity rules, as it has proposed, they will be left without protection. The result of government policy is that the copyright owner does not make a sale, an area like Atlanta may not receive the program, and cable viewers may not get the program.

An independent station in Chicago (WGN-TV) seeks to obtain the rights to air the NCAA basketball finals. Although the station offers the NCAA a fair sum of money (indeed, the highest among the Chicago stations) for these rights, the sale is refused since that station is picked up by satellite and is distributed nationwide to cable systems. Thus, a sale in Chicago becomes, in effect, a national sale, and the copyright owner's bargaining position is undermined. Since the station has no control over its signal, it also is impaired in arranging a deal. The bargain is not controlled by the market; rather, it is governed by the extraneous factor of cable reception that is beyond the control of the bargaining parties.

In seeking to preserve the exclusivity bargains for exhibition rights for nonnetwork programs in the major markets through copyright protection or retransmission consent, we recognize the contention that non-network exclusivity is not economically needed. In our view, if urban cable grows very substantially, common

The Commission's rule, section 76.67, permits the cable importation of a local sporting event only if it were available on a local TV station. This means that if the Philadelphia Flyers sell an exclusive package of home games to a Philadelphia station, a Philadelphia cable system could important the same game (with different announcers, commercials, etc.) being carried on an Atlanta station, when the Flyers are playing the Atlanta team, thus violating the reasonable exclusivity that has been bargained for. We recognize that the Commission might take action to repair such "glitches." Our point is that the marketplace, not government patches, should govern.

2 Television/Radio Age, Jan. 1, 1979, at 78.

sense compels the conclusion that it is bound to affect the viewing of television stations in these urban areas, exemplified by the Canadian experience, and thus payments to copyright owners. However, our request for copyright protection of the major market non-network exclusivity bargains does not turn on potential impact. Rather it turns on a reasonable accommodation of the public interest in a properly functioning, economically efficient television programming marketplace.

Broadcasters and program suppliers have operated under exclusivity bargains for a half a century, and these exclusive exhibition rights are the bedrock of the orderly market process for program distributions. A UHF station like Channel 20 in Washington will bargain and obtain exclusive rights to a film package that it hopes will assist it in the competition with its VHF rivals. It may heavily promote the film package, on the basis of its bargained-for exclusivity. Commission policy and the antitrust laws permit such exclusivity as a reasonable operation of the market

process.

A broadcast station that has bargained and paid for exclusivity is thus entitled to have that bargain respected, not only by the program supplier and other broadcast stations but also by cable. For it makes no sense to say that Channel 20 can pay and obtain exclusivity against Channels 4, 5, 7 and 9 but not against cable's importation of WPIX-TV. Full copyright liability for secondary transmission of distant nonnetwork signals in major markets would reasonably require cable to compete for distribution rights and honor the exclusivity bargains of the broadcasters and copyright owners.

It is argued by some that the solution is to remove Commission restrictions and leave matters of copyright to the Copyright Royalty Tribunal, a government agency that manages the legislated fee schedule set forth in section III of the 1976 Copyright Act. The CRT can adjust the fee payments upward to help compensate the copyright owner whose product is being carried on cable via a "superstation." But the CRT does not represent a solution that relies on private contracting. It is only another government agency adjusting a government-ordained schedule. And, most importantly, no CRT action could solve the anomalies that would be created by the lifting of the existing rules without the imposition of a retransmission consent requirement or full copyright liability for secondary transmission of distant nonnetwork programs in urban areas.

We believe, as in other important areas, that it would be most desirable for Congress to lay down the basic policy in this area. With the imposition of full copyright liability for secondary transmission of non-network programs in major TV markets, the anomalies would end. There would be no need for any direct government intrusion. The marketplace with full copyright liability for commercial broadcasting and cable could work its will, just as effectively as in pay cable. Bringing cable into this competitive syndicated market would, in turn, help preserve the flow of syndicated programs to the public. The continued healthy supply of programming by the copyright owner is an objective of both copyright and communications policy. We have taken the legal position before the FCC that failure to bring cable under a retransmission consent requirement in the present circumstances would be arbitrary and unlawful under the Communications Act. A Congressional amendment on copyright liability could obviate the need for lengthy litigation and establish a certain and secure basis for the future growth of all these industries-copyright, cable, broadcast.

In conclusion, Mr. Chairman, I commend the Subcommittee for opening this public dialogue on the cable copyright problem. NTIA is pleased to provide whatever assistance is desired.

Mr. GELLER. I will go on briefly and state the essence of my views and then be available to answer your questions.

As the committee knows from your statement, Mr. Chairman, this has been a long controversy. It was settled with compulsory licensing, the statutory fee and the establishment of the Copyright Royalty Tribunal. As I understand it, the Communications Act policy aspects were left to the Commerce Committees and to the FCC.

Cable, as you know, is now on the move. It is in one of five TV households. It is predicted that by the late eighties or early nineties it will be in one of two television households in the United States. The administration strongly supports that. We believe in diversity. We believe in a marketplace of ideas and entertainment.

However, it does raise the issue, that you focused on, and that is what the appropriate policy is in those circumstances. I would like to stress at the beginning that what we are talking about is the future growth of cable, and its growth in these large markets to equal what has been accomplished so far in the smaller markets where it is in 19 percent and 14 million homes. We think that these older systems should be grandfathered under the present system. We think it would be unrealistic to disrupt them. They have grown up over decades in that fashion, and won two court

cases.

The entire compromise, as we understand it to have been worked out, was to take into account where it was, how it has developed, and where it was under FCC. We think it is not realistic to disrupt that at this point. It may change over time, but it ought to change voluntarily. Therefore, what we are saying to you is to apply the present compulsory license Copyright Royalty Tribunal system to the existing cable system.

As you grow and try to take over the major markets, where 80 percent of the population is, the questions what the governing policy should be? And on that, we think there is a very easy answer. It gets quite controversial, but nevertheless, we think the answer is plainly the marketplace. These are very large industries dealing with one another. The broadcast industry represents billions of dollars. The cable industry, we are very pleased to say, is now also close to $1 billion in revenue.

As I say, they are very large industries. The cable industry, with its $1 billion in revenue, has very large entrants, such as Cox Cable, ATC, owned by Time-Life and Teleprompter. Copyright is also a very large industry represented by companies such as MCA. What we say is, why skew the competition among these large industries? We think there is a model to be followed, and the model we suggest is to note what has happened in pay cable. That industry was left entirely to the marketplace and it has worked out. Here is an example that sounds silly, but it does point up the problem: Suppose the cable industry had come before you and had said, we can't deal in paid services unless you give us some assistance. There are too many people out there to deal with-too many film people, too many sports entrepreneurs, the transmission costs. are too large and we are dealing with a bunch of set monopolies and we need your assistance. What we propose to do is pick up and show the TV signal over the air, pay signal, in Los Angeles, decode it, and carry it to all of our cable homes. That will bring diversity, and don't worry, we will pay for it through compulsory license.

Now, as I say, that sounds silly. It wasn't done that way. The middlemen came in, like HBO and Showtime, and pay cable is now flourishing. It reaches close to 4 million homes and is a very healthy development, again bringing diversity.

It is that model that we think you ought to follow. When you talk about cable in these major markets you are dealing with, large enterprises, you are dealing with the same films, the same sports, the same ability of people to bargain in the marketplace.

The situation has changed markedly since this was tried as an experiment in the late sixties, having broadcasters who would like to be originating stations for cable systems. The cable industry

itself can put its own station on the air and serve as a bargaining point. You have cable systems that are very interested. They might even support it by paying. They now pay between 2 cents a subscriber a month to as high as 15 cents a subscriber a month for services to come to them.

You have middlemen. If you don't want the broadcaster to do it for you, then just as HBO came into the pay area, you now have Southern Satellite and others coming forward to be the middlemen. You also have the satellite, which is a change, and it is available for distribution.

So we don't see any reason why it can't be worked out. We don't know how it will be worked out; we are not market people. The Federal Government and the Congress should not deal with the marketing-just leave it to the marketplace.

But suppose it doesn't work out? Suppose you can't get advertiser-based programing onto cable systems in major markets for some reason we are unaware of in the market. Well, then, this market would have indicated that cable growth in these major areas depends upon other services, upon pay services, such as the Qube services in Columbus or the 20 satellite services that are being offered. We think that is the answer.

The Government shouldn't step in and say, "If the marketplace gave a wrong answer, we had better skew the marketplace." If you do not proceed in expanding the marketplace, we see nothing but greater and greater Government involvement. As an example of that, take channel 20 here in Washington, D.C. Channel 20 is an independent station. It now buys and gets exclusive rights to programs, film programs, and that is considered fine. It gets them against all the other stations in town. That is permissible under the Communications Act policy and antitrust policy.

If the FCC wipes out all its syndicate exclusivity rules, this would mean that even if channel 20 paid $1 billion, or any amount of money, it could not get an exclusive against a cable system bringing that film in from New York or Philadephia or somewhere else. It could get an exclusive against the TV stations here, but not against the cable systems. I don't think that makes any sense at all.

Furthermore, it makes no sense because you are going against the established method of distribution. You would then have a Government even more involved. Previously, this copyright owner could sell that exclusivity and receive money for it in the marketplace. But now, he could no longer do that, so your Copyright Royalty Tribunal would have to step in to figure out how they will compensate the copyright owner for the lost exclusivity, and of course, the Copyright Royalty Tribunal is just another Government agency.

We don't want the FCC doing it and we don't think the CRT should do it. We don't think the Government should do it at all. We think the marketplace is a much better way of doing this than the Government and, therefore, when the Commission speaks about deregulation-and you are right in using that term, Mr. Chairman, the winds of deregulation are now blowing and we favor that, we are working for it very hard in the Communications Act rewrite.

When you talk about deregulation, we don't regard that as deregulation at all. At least before there was such a thing as exclusivity, the broadcaster got it in the marketplace. If he didn't get it, then the copyright owner might give it to a cable system, but it had to be fought for and obtained in the marketplace.

When you wipe out the rules from deregulation you are involving the Government more and putting the copyright tribunal in the system to a greater extent, so we claim it is kind of Orwellian to say this is deregulation.

There are more of the same problems. I gave you an example in film; the same problems would exist in the sports area, perhaps even greater, and we have given in our testimony a number of examples of how the marketplace gets skewed when you proceed in this fashion.

In the materials we have given you, we have also shown why we think it is within the FCC authority to act. I won't go into that here, although I will be glad to answer questions.

In any event, since this is a hearing before you, we think this is not a matter of FCC authority, but is a matter of what is proper policy. We couldn't agree more, that policy in this important area should be set by the Congress, not by an administrative agency. It is for that reason, therefore, that we welcome these hearings.

We think that the sound policy for cable future growth, not for its past but for its future, is either retransmission consent as part of Communciations Act policy, or full copyright liability, if it is a matter to be considered by this committee.

We believe that any other way of proceeding is not deregulation; it skews the marketplace and makes the Government become involved in decisions in which it has no business being.

That, very succinctly, is the position of NTIA. I would be glad to amplify on that or to answer your questions.

Mr. KASTENMEIER. Thank you, Mr. Geller.

Your main recommendation appears to be that we should subject all future growth of cable to full copyright liability or the equivalent thereof while grandfathering existing service?

Mr. GELLER. Yes, sir. The only qualification I put on that is if the cable system just began in a major market, such as Pittsburgh, and had very few subscribers, I would not grandfather that service. I would require a cable system beginning in a major market to come. within the new policy. But with respect to existing systems-and they have largely developed outside the top 100 markets-I think it ought to be grandfathered if they added new signals. That would be a new matter.

I should point out also that what we are talking about here is nonnetwork programing. We are not talking about cable carrying local signals. There is no question there as to the copyright owner having been fully compensated. When he sells a program to a local station he expects every local viewer to get it, therefore, there is no issue as to copyright owner and cable ought to be able to carry the local signal.

The same thing is true with regard to network programing. Network programing is sold for dissemination to the entire Nation. Once again, therefore, we are not talking about payment for carriage of network signals but we are saying that when you do deal