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the way Mr. Lange has been cited a lot this morning here, the fact of the matter is that you are the one who proposed bringing Mr. Lange in and structuring hearings that would address those questions, and to the extent that copyright policy can be prospective instead of retrospective, which we always tend to be putting things back together rather than trying to solve things, trying to keep things from happening. We, I think, are very grateful to you and the kind of leadership that you have been providing in that area trying to figure out how to accomplish that kind of policy.

Mr. KASTENMEIER. Thank you. The committee is flattered by those comments.

In any event, we also desire to recognize the excellent testimony that all four of you have given this morning. Thank you very much.

The committee stands adjourned.

[Whereupon, at 12:50 p.m., the subcommittee was adjourned.]

COPYRIGHT ROYALTY FEES FOR CABLE

SYSTEMS

WEDNESDAY, FEBRUARY 22, 1984

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COURTS, CIVIL LIBERTIES,

AND THE ADMINISTRATION OF JUSTICE

OF THE COMMITTEE ON THE JUDICIARY,
Washington, DC.

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

Present: Representatives Kastenmeier, Brooks, Mazzoli, Synar, Schroeder, Berman, Moorhead, Hyde, DeWine, Kindness, and Sawyer.

Staff present: Michael J. Remington, chief counsel; Deborah Leavy, counsel; Thomas Mooney, associate counsel; and Audrey Marcus, clerk.

Mr. KASTENMEIER. The committee will come to order.

This morning we are holding a second day of hearings on the issue of copyright royalty fees for cable television.

At our initial hearing held on October 19, 1983, we heard testimony from the proposed legislation's sponsors, the gentleman from Oklahoma, Mr. Synar, who spoke in support of H.R. 2902, and our other colleague on the full Committee on the Judiciary, the gentleman from Texas, Mr. Hall, who testified regarding H.R. 3419.

We also heard testimony in support of these two pieces of legislation, or variations thereof, from cable television interests.

Since that hearing, the Court of Appeals for the District of Columbia upheld the decision of the Copyright Royalty Tribunal, thereby affirming the rather dramatic increase in fees paid by cable television systems for retransmission of certain distant television signals. Insofar as it does affect our consideration of these legislative proposals and it contains a comprehensive discussion of the matter, I would ask unanimous consent, without objection, to insert a copy of DC circuit's lengthy opinion in the hearing record. [See appendix 3, at 672.]

Mr. KASTENMEIER. Now, my understanding is that no petition for review will be filed with the Supreme Court, and no other litigation is contemplated on the subject at this time. Therefore, the policy issues are squarely set before the Congress.

We here are not sitting as a court of review. It is the subcommittee's role to determine what policy goals are most meritorious and

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how those goals might thus be censored by other entities, such as the Copyright Royalty Tribunal and others.

Our first witness this morning is a familiar face. I am pleased to welcome Jack Valenti, president of the Motion Picture Association of America, and chairman of the Alliance of Motion Picture and Television Producers, Inc.

Mr. Valenti has appeared before the subcommittee on numerous occasions. It is always helpful to hear his wisdom and his knowledge. He makes a very intelligent presentation.

So we are pleased to greet Mr. Valenti, and I would ask him to come forward.

Now, I must note that anyone reading the Washington Post financial pages this morning will find a headline that says "Hollywood Lobby Blitzes Hill". This seems to be the main feature in the "Business and Finance" section this morning. The article pays tribute to Mr. Valenti and his many achievements in terms of legislatively advancing his cause in Washington, particularly recently.

Mr. VALENTI. I have had no achievements in this committee. [Laughter.]

TESTIMONY OF JACK VALENTI, PRESIDENT, MOTION PICTURE ASSOCIATION OF AMERICA, AND CHAIRMAN, ALLIANCE OF MOTION PICTURE AND TELEVISION PRODUCERS, INC.

Mr. VALENTI. I am going to stand because I have some cards to make a presentation.

I am glad to be before you, Mr. Chairman, Mr. Sawyer, Mr. Mazzoli, Mr. Berman, Mr. Synar.

I do have a sense of deja-vu. I never knew what that meant until several years ago, my French not being that good, but

Mr. KASTENMEIER. What does it mean, incidentally? [Laughter.] Mr. VALENTI. It means that we keep coming back and replaying the same scene over and over again.

I don't know why we come back, Mr. Sawyer, to the Judiciary Subcommittee time and time again to hear cable television ask for more and more and more. I don't know when they get enough.

It is as if there was a biblical injunction that said, yea, verily, it is written that cable television is the shepherd of the flock and we must give unto cable television because it is divinely inspired.

Elmer Gantry might have said that, but we are not buying his stuff anymore.

We are here testifying on two bills, 2902 and 3419. With due respect to the drafters of these bills, I think they can be described charitably as welfare bills whose sole purpose it is to give more to those who have. I am unable to discern any other reason for these bills.

No one denies that the cable royalty rates under the Copyright Act of 1976 and the compulsory license were set artificially low. These rates have no connection with economic data or analysis or marketplace value. No one denies that.

In 1982, some 750 commercial television stations spent about 30 percent of their gross revenues on programming; whereas, 5,820 cable systems transmitting the same programs paid last year $39 million, or less than 1.5 percent of their gross basic service receipts.

Today, you may not be aware of it, but just 20 corporations control 61 percent of all the cable subscribers in this country. They include poverty-stricken corporations like General Electric, Westinghouse, Time, Warner/Amex. The list is endless.

I think it is a taunting parody of our time, Mr. Sawyer, that copyright owners are subsidizing some of the largest and most profitable corporations in this country.

Now, I want to show you some charts, which I think will point this out.

Here are current copyright royalty rates. I think you ought to see this because sometimes you have so many things that you deal with, so many complex problems it is very difficult for a congressman to get equally involved into the nooks and crannies of this labyrinth.

3.

There are three kinds of cable systems-form 1, form 2, and form

If you have up to semiannual revenues of $55,000, $110,000 a year, you are form 1, and you pay what? Forty dollars per year, total, for all the programming you receive.

If you are a form 2 system, which means you have semiannual revenues of $55,000 to $213,000, you pay an average of $618 semiannually. An average of $618.

If you are a form 3 system, which means you have semiannual revenues of $214,000, the biggest systems in the United States, your average semiannual payment is $14,000. That is approximately

what it is.

I think it is a cause for amazement that so many cable systems get so much for so little.

The cable industry sunk into a vale of tears over this 3.75 percent rate that was affixed when the FCC summarily discarded distant signal rules. Under the Copyright Act of 1976 the CRT was given broad power to make adjustments when the FCC changed its rules.

And so cable systems have a rate of 3.75 percent of basic revenues for each additional independent station signal they carry over and above what they were permitted to carry before the FCC discarded the rules.

Let me show you another chart, which I think, to me, is astounding. This has a lot to do, Congressman Synar, with some of the things that you are rightly concerned about.

Over 80 percent of all the cable systems in America today are totally exempt from the CRT's adjustment rate. I don't know how many people know that. In that 80 percent are 4,642 systems. A good many of them in Oklahoma, sir, are exempt from the 3.75percent rate adjustment.

This chart is plain. It is simple. No cable system can deny the devastating truth of this chart. The only ones who aren't exempt from this are the big cable systems who can afford to pay and who have been getting programs on the cheap.

Let me show you another chart. This is taken directly from FCC financial data for 1981. This is an average profit and loss statement for the total industry for 1981.

Notice that the total operating revenue in 1981 was $3.1 billion. Today there are over $6 billion in revenues. It has doubled in 3 years.

These are, all the expenses-service expenses, payment to pay cable program supplies, et cetera. Notice all of these numbers, and guess which one is the lowest. The one product, without which a cable system cannot be in business, is right down here. Guess what, it is the tiniest expense portion of the expense budget.

I find it interesting that no other supplier to the cable system, no matter who he is, is asked to give his product to cable systems at less than fair market value.

Programming cost, as you will painfully note, is the tiniest.

H.R. 2902 is an example of a bill whose request for help has already been answered. The systems that this bill rightfully and justly wants to help are the smaller systems, the rurally located systems.

I would like to inform this committee that these systems, virtually all of them at this very moment, can carry as many distant signals as they please at the low statutory rates. Keep in mind I said "low," not "fair." Low statutory rates are, in many instances, a flat rate of $40 a year.

H.R. 2902 would allow every big system in the top 100 TV markets to carry an additional distant independent signal and would increase from one to three the number of distant independent signals that the smaller-below 100-TV markets could carry. Only a few cable systems in these smaller markets are not exempt.

I think this is ridiculous. It bears as much resemblance to equity as Soviet revisions of history do to truth.

The bill's objectives have already been achieved. I don't want to debate a measure whose objectives are now in place.

Let me go to H.R. 3419, a bill which is a grant of monopoly to Turner Broadcasting Co. I yield to no man in my affection and my respect for Ted Turner. I think that his innovation is an exemplar of a soaring imagination. He has been extraordinarily successful. I pay him just tribute.

But I am not really sure that giving a monopoly to Turner Broadcasting would aid the cause of freedom and equity in this country. I just don't think that is a natural result.

This bill gives special status to superstations who meet special criteria? Guess which superstation just happens to meet that criteria?

Perhaps, in my affection for Mr. Turner, I would be willing to place upon his brow the laurel wreath of monopoly. Alas, this bill would also allow in the future other superstations to achieve this special status, each of them allowing their signal to be carried at the low statutory rate, in addition to what stations are already carrying.

This would savage local television stations. You are going to hear from local television stations. It would savage them by allowing cable systems to load up on independent distant signals to bring them in, paying the low statutory rates. It would fractionalize local audiences to the point where the local stations would be bloodily wounded. It would deal a big blow to the syndication market in this country.

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