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REPORT TO EDUCATIONAL TELEVISION STATIONS, A DIVISION OF THE NATIONAL ASSOCIATION OF EDUCATIONAL BROADCASTERS THE ECONOMIC IMPACT OF THE PROPOSED COPYRIGHT LAW UPON EDUCATIONAL TELEVISION BROADCASTERS

The proposed copyright law will have a far-reaching effect upon the organization and character of educational broadcasting. This effect will flow from the costs of copyright clearance and the effect which these costs will have upon the sources and content of educational programs.

COSTS COMPONENTS

The costs of acquiring copyright clearance fall into two major categories which should be distinguished for analytical purposes. One cost is the compensation paid to the copyright owner for the use of his property. The other cost is that incurred in the securing of the copyright clearance, i.e., its administrative costs. The cash payout for copyrighted items among educational broadcasters now varies from zero to thousands of dollars. Fee schedules are geared to the type and amount of exposure given to the item. A year's national exposure carries a different price tag than a single exposure in a small market. On the other hand, a copyright owner might not charge a station for "fair use", a term which may be defined as the incidental appearance of an item as part of a larger work.

The administrative cost, on the other hand, includes the direct cost of research staff to identify and locate the copyright owner, the business and legal staff to negotiate the contract for the clearance, plus secretarial costs, and the cost of materials, telephone, space, and overhead. In addition, there is the indirect cost of program production time attributable to considering alternatives imposed by copyright clearance problems.

ADMINISTRATIVE COSTS

NET is the organization whose programming operations most closely resemble those of the individual educational broadcaster. Like the average ETV stations, NET produces approximately five hours of programming a week which it offers without charge to ETV stations paying a $100 a year subscription fee. While the copyright fees it pays for recording rights are higher than for the individual station due to the larger size of the audience to which NET programs are exposed, the internal clearing operations should not differ substantially from those which an ETV station will be required to undertake. Where NET differs from the average ETV station is its heavy use of recording rights. Operating as a type of network it requires clearance of recording rights on all its productions. The individual broadcaster, on the other hand, clears only those programs that he will circulate. ETV program exchanges account for about 9% of ETV programs and represent the circulation of about one-third of the programs produced by the ETV stations (Table 1).

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Source: "One Week of Educational Television," p. 69.

1 The ETS Service was started in March 1966. Its share of program time increased to 1.8 percent of programing or about 90 hours a week, in 1967. A truer measure of the exchange of programs among ETV stations should combine regional networks with the ETV and ETS exchanges. These represent a combined total of about 9 percent of total programing.

Currently, NET's legal staff is heavily engaged in negotiating copyright clearances. In this activity the chief counsel is assisted by two attorneys and one music specialist, plus additional research assistants from the production staff. These four full time persons are assisted by three secretaries. There is also office space, telephone and overhead expenses.

Judging from the size of the NET staff which handles as many hours of program production as the average ETV station it seems reasonable to assume that the direct administrative cost of copyright clearance for each educational broadcaster would fall for, at the very least, the equivalent of the services of one house counsel, a full time research assistant and a secretary.

On this assumption, Table 2 shows an estimate of $33,000 a year for the administrative costs of a copyright clearance department for each ETV station seeking to continue to produce some of its own programming.

TABLE 2.-Copyright clearance estimated administrative costs per ETV station (annual)

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The impact of this cost upon the average ETV station is shown in Table 3. The average cost of operating an ETV station will increase by at least 13% and the average programming expenses of an ETV station will increase by more than one-third. These increased expenses result only from the clearing process, the cost of the copyright fees are additional.

TABLE 3.-Estimated cost impact of a copyright clearance department [Per ETV Station]

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2 Based on an estimate of $33,000 a year for administering copyright clearance (see table 2).

3 Ibid., p. 244.

THE PROCESS OF COPYRIGHT CLEARANCE

The task of obtaining permission to use copyrighted materials is facilitated by the degree of centralization of clearance facilities established by the owners of these rights. Clearance facilities range from the highly organized ASCAP and BMI operations to the diffuse and fractionated clearance system represented by the publishing industry.

Music Clearance: Performance rights for music are granted mainly by the two larger associations in the field, ASCAP and BMI. They generally issue a license to perform music and lyrics owned by their members. In the instance of educational television only dramatic performance rights are paid for and these are negotiated on an item by item basis. Non-dramatic use of musical and literary material is presently exempt from clearance.

When it comes to obtaining recording rights, which means the right of putting music and lyrics on tape or film for repeat broadcasts, perhaps 75% to 80% of the music publishers are represented by the Harry Fox organization. However, this does not exhaust the clearance process when reproduction for broadcasting involves an existing performance of a musical work, such as would typically be the case with a phonograph record.

To illustrate the extreme case, a broadcaster who wants to use only two minutes of a well-known recording must obtain the following clearances: 1. Radio Corporation of America;

2. The conductor, Mr. Charles Munch;

3. The pianist, Mr. Rubenstein;

4. The management of the Boston Symphony Orchestra;

5. The publishers of the work;
6. The Musicians Union.

Frequently, attempts at clearance are frustrated, as when one of the key performers happens to be out of the country and cannot be reached. Another type of problem arises when uncertainty exists whether a given piece of music is still covered by copyright or whether it has passed into the public domain. For a definitive answer, the counsel retained by the broadcasters generally uses the services of a specialized law firm in Washington, D.C.

Even when a station purchases a property, such as a film, or a taped program, it is not free of the responsibility of securing copyright clearance. The current practice is to obtain a warranty of copyright clearance for the material involved, a hedge which does not always stand the test of fact. Foreign sellers often issue only limited guarantees, thereby putting the burden of copyright clearance on the buyer. At any rate, enough well-founded insecurity exists to cause most TV stations to purchase broadcasters' liability insurance which covers them against any clearance errors made in good faith.

Literary Materials: In the area of literary properties and pictures, the clearing process is considerably more complex since it is completely decentralized. Here the user must search for the copyright owner of every item he wants to use in a program.

Thus, clearance of program materials other than music requires first, identifying the copyright owner, locating him, making the inquiry regarding his fee, waiting for his response and then deciding whether the fee is within the budgeting constraints of the producer. All the while valuable (and expensive) time is spent in negotiating a copyright release that, in the final analysis, may have to be rejected. Among commercial broadcasters there is a widespread policy of rejecting for use all materials not readily clearable. This would result in a serious impairment in the quality of educational programs and leave the copyright owners still without fees. Perhaps most important for the copyright owners is that they would lose the stimulation of consumer demand which ETV provides for their books, records and drama.

COPYRIGHT FEES

Currently the ETV broadcasters are exempt from paying for the performing rights on non-dramatic music. Under the proposed law they will become liable for this fee.

Commercial television networks and commercial television broadcasters now operate under a blanket license from ASCAP and BMI which costs about 1% to 2% of gross revenue. Despite this license, one commercial network maintains a special department for music clearance which it reported to cost $200,000 a year in operating expenses. This same network reports paying music fees totaling three times the license fee.

If a 2% fee were applied to an ETV station's budget its cost impact would be that 2%. This would cost educational broadcasters as a group over half a million dollars a year for music performance rights alone or about 5% of the program budget of ETV stations (Carnegie Commission Report, pp. 241, 244). A more conservative estimate of the cost of performance rights might be 2% of program expenditures for ASCAP and BMI (about $2,000 per station).

Estimates of the potential cost of ETV stations of other changes in the copyright law can be made from the experience of NET. As noted earlier, the average ETV station and NET both produce an average of 5 hours of programming a week. The comparability between the two is limited, however, in the extent to which they record their programs for distribution.

Although about 9% of the educational programming shown on TV screens are exchanges, it is not known whether this represents fully 9% of the programs produced or merely multiple showings of a smaller proportion of the programs produced. Judging from the less than 5% of the programs reported as actually exchanged it may be assumed that a smaller proportion of ETV programs are now recorded for exchange purposes. This, it is believed, is attributable in part to the problems of copyright clearance of recording rights.

NET, however, records all of its programs. Since it produces about the same volume of programs per week as the average ETV station its expenditure for recording ("synchronization") rights can be employed as a basis for estimating

this cost for ETV stations were they to take increasing advantage of the recently established ETS Service of the NAEB (see footnote, Table 1).

Thus, were an ETV station to record all of its programs for distribution, it would incur a total fee for recording rights of non-dramatic music of $30,000. the amount reported by NET for the year 1965. (See Table 4 for average fee schedule.)

TABLE 4.-National educational television average fee range for synchronization rights for nondramatic music, 1966

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An addition to total expenditures for recording rights to non-dramatic music of about one-third of this sum, or $10.000, seems to be a reasonable estimate of the future cost resulting from the growth of ETV program exchanges and the absence of a copyright exemption. This is in addition to the $2,000 fee estimated for performance rights incurred as a result of the loss of that exemp tion. Thus, copyright fees for performance and recording rights of non-dramatic music would, under the proposed law, add about $12,000 to a station's operating costs.

The impact of the fees just for music is substantial since it is equal to an increase of 12% of a station's programming expenditures. The proposed copyright law thus may not benefit copyright owners by making broadcasters liable for recording rights since much of these works would simply not be recorded and fees would therefore not be earned. Consequently, a major source of low cost educational programming-ETV exchanges, would be lost to ETV. The public would lose by the elimination of much of the program diversity now available to ETV and the copyright owners would lose the effect of ETV in the development of the market for their music.

Another component to be considered in analyzing copyright fees is non-musical items; literature, plays, poetry, films, photographs and maps. Here there is no centralized source with whom to negotiate. It is a chaotic market. Even the staff of the commercial television network that cooperated in this study was unable to properly identify its operating costs or the fees paid in this area.

Table 5 lists examples of the fees paid by NET for different non-musical items. A special survey undertaken by NET reported that the average ETV station uses 60 photographs per day. At an average price of $5, the potential fees total $300 a day. Since the average ETV broadcaster produces about one-third of his own programming, it may be estimated that he incurs a potential fee payment of about $100 a day or $36,500 a year for photographs alone, as compared to the average station's total program expenditures of $100,000.

TABLE 5.—National educational television payment for non-music rights, 1966

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Faced with this magnitude of increased cost, the ETV station will probably restrict its usage severely. This cost will consequently never really be incurred, ETV programs will suffer a quality deterioration, and the copyright owner will be no better off than now.

A conservative estimate of non-music cost based on discussions with people in the industry would be a budgeting for fees of about $150 a week for non-music items. This would total $7,800 a year which is an increase in the average program budget of 7.8% a year.

SUMMARY OF COSTS

Table 6, summarizes the cost impact of the proposed copyright law upon the average ETV station. It appears from conservative estimates, that the loss of existing exemptions would increase the cost of ETV station operations by about 21% and the cost of ETV programming by about 53%.

An important factor to be noted in Table 6, is that the cost to the station of administering the clearance of the copyright ($33,000) exceeds the estimated total payments of copyright fees ($19,800) by 40%.

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2 Assuming 2 percent of program budget for BMI and ASCAP combined.

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Based on NET experience. Assumes an additional of station's program production will be recorded for purposes of exchange with other ETV stations.

Assumes $150 a week for plays, literature, films, and photos. This is a gross underestimate.

5 Average ETV station's operating expenditures is $256,000. Carnegie Commission Report, p. 241. Average ETV station's program expenditures is $100,000. Ibid., p. 244.

STRUCTURAL IMPACT OF PROPOSED LAW

In view of the financial limitations under which ETV broadcasters now operate the more likely reaction to the economic burden of the proposed copyright law will be retrenchment. The stations will withdraw from local program production and educational television programming will gravitate toward a centralized source similar to commercial television. Only in this manner can the high cost of copyright clearance be spread over a large number of stations and multiple showings. The proposed law will, in effect, set in motion economic forces of a centralizing nature.

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