190

CONCLUSION

The 1976 Copyright Act contemplates a rate adjustment proceeding when the FCC changes its rules regulating cable, but provides virtually no instruction as to the factors that bear on the reasonableness of the adjusted rates. Our prior decisions consistently hold that both the Tribunal's rate adjustments and its royalty allocations are subject only to "zone of reasonableness" review. Here, the Tribunal has heard and reviewed reams of evidence, explained why much of that evidence was of only limited utility, and used its expert judgment to devise what it considered fair and reasonable royalty rates to reflect the FCC's rule changes. This is all we can reasonably demand from the Tribunal in view of the mission Congress entrusted to it. If the Tribunal turns out to have misjudged the impact its higher royalty rates will have on the cable industry or on copyright owners, it can reconsider and modify the changes it has ordered in 1985 when its next rate adjustment proceeding will almost certainly occur. See, e.g., National Association of Greeting Card Publishers v. United States Postal Service, 607 F.2d 392, 411 (D.C.Cir. 1979) ("In the initial implementation of a new ratemaking approach, some leeway for approximation and estimation must remain. The courts often uphold regulatory actions on the premise that the approximations will be subject to refinement.") (footnote omitted), cert. denied, 444 U.S. 1025, 100 S.Ct. 688, 62 L.Ed.2d 659 (1980); American Public Gas Association v. FPC, 567 F.2d 1016, 1031 (D.C.Cir.1977) ("When regulation features novelty, in subject, technique, or both, ... the court tempers its review to take into account the 'unusual difficulties' of the first proceeding ... [T]he force of this

restraint lessens as the Commission has time and opportunity to gain experience and make adjustments.") (citations omitted), cert. denied, 435 U.S. 907, 98 S.Ct. 1456, 55 L.Ed.2d 499 (1978).

24. Section 804(b) of the 1976 Act states explicitly that "[a]ny change in royalty rates made by the Tribunal" in the event of FCC alteration of its distant signal and syndicated program ex

For the foregoing reasons, the CRT's decision is

Affirmed.

ORMER SENATOR WARREN MAGNUSON once observed: "All that each industry seeks

ing better illustrates that point-or the politicians' difficulty in withdrawing advantages they have bestowed-than the current controversy over cable TV and its statutory license to carry TV broadcast programs.

Competition is coming strongly and swiftly to television markets long the sole preserve of the VHF broadcaster: UHF broadcasting, including subscription TV, is thriving. New lowpower operations are being planned by the thousands. Multipoint distribution systems are carrying pay-TV programs into homes. Cassettes and discs are becoming an alternative means of delivering film fare. The Federal Communications Commission (FCC) has just cleared the way for the possible entry into the television market of direct broadcast satellites by the mid-1980s. Most significant of all, cable television is expanding rapidly in the major markets. Now in about 23 percent of the nation's TV households, it is expected to reach 50 percent by the end of the decade. These new cable systems-which can carry 100 or more channels of TV programming, compared to 12 for traditional cable-represent a true television of abundance.

But all these technologies are no more than delivery systems. What is important to the Henry Geller, director of Duke University's Wash ington Center for Public Policy Research, formerly headed the National Telecommunications and Information Administration (1978–80).

viewer-and central to my subject here—is the programming they deliver and the method for ply that programming.

One would have thought that all television delivery systems would purchase their programming fairly in the marketplace, with the government showing no favor to any of the competitors. That is indeed so, except in onecase. The government favor is not for one of the new struggling services, like low-power TV or videodiscs. It is, instead, for the fastest growing service of all, cable-a multi-billion dollar industry that includes corporate giants like Westinghouse-Teleprompter, Time-Life, WarnerAmerican Express, and Times-Mirror. Under the Copyright Act of 1976, cable enjoys a government-provided license to carry any TV broadcast signal it desires (subject to FCC rules) and to do so at government-set rates. This gives cable an important financial advantage and some advantages of other sorts as well. For example, while TV broadcasterscommercial or subscription-can be denied the right to a sporting event because of valid league regulations, cable can bring in the same event from distant stations because of the compulsory license. (Unless-as sometimes happensbroadcasters are refused carriage of an event because the sports entrepreneur does not want cable to pick it up "off the air" for relay to other areas.)

Why is it that government intervenes so massively in the TV programming market in favor of cable? To answer the question, we

REGULATION, MAY/JUNE 1981 35

MAKING CABLE TV PAY?

must first know some background on the industry and the 1976 act.

The Copyright Act of 1976

Cable systems carry over their wires not merely the programming of local TV broadcast stations, but often the programming of distant stations, taken "off the air" and transmitted across the country by microwave or satellite. Of course local broadcasters do not mind when a cable system carries their signals; in fact, they would like it to be compelled to do so (and the FCC has obliged by imposing such a require ment) since that increases their audiences and thus the rates that advertisers are willing to pay. However, signals from stations in another market (so-called distant signals) are a different matter; they fragment audiences and ultimately reduce the advertising revenues the broadcasters' air-time can fetch.

Up to a point, the interests of the copyright owners coincide with those of the broadcasters. One of the benefits that a copyright confers is the ability to grant reasonable exclusive performance rights in a particular area. And programs whose exclusivity is guaranteed naturally bring a higher price to the copyright owner, since the purchasing station can promote the program secure in the knowledge that it alone will derive the benefit of its promotion. But of course the copyright owner cannot guarantee exclusivity if a performance of the same program in a distant market can be "piped in" by cable. As far as the copyright law was concerned, that was the situation prior to 1976. The Supreme Court had held in Fortnightly Corp. v. United Artists Television, Inc. (1968) and Teleprompter v. Columbia Broadcasting System, Inc. (1974) that the retransmission of broadcast signals taken "off the air" did not constitute a performance under the 1909 Copyright Act, and thus could not be prevented by the copyright holder. This put the rapidly growing cable industry in the happy position of being able to use programming produced and financed by somebody else without having to pay for it.

The inequity of this arrangement was apparent, and Congress responded in 1976 by amending the copyright law. The amendment did three things: First, it declared retransmission to be a performance and thus, if unli

36 AEI JOURNAL ON GOVERNMENT AND SOCIETY

censed, a violation of the copyright. But then it granted cable systems an automatic "compulsory license" with respect to all locally broadcast signals and with respect to those distant signals that the cable systems were permitted to carry by the FCC. Finally, it established that the fees payable to copyright owners for this license would be based on a percentage of each cable system's gross revenues from TV distant signal carriage and would be adjusted periodically by the Copyright Royalty Tribunal (CRT), an agency created by the 1976 law. (Not surprisingly, the CRT process-which involves not only determining the periodic adjustment, but also dividing up the total "pot" among the various copyright claimants-has been most difficult, enriching squabbling lawyers but often not their clients.) The fee specified in the act was, of course, less a reflection of "real value" (if that term has any content apart from a free market) than of the political strength and negotiating position of the interests involved. As to political strength, the broadcasters and copyright owners were a fairly even match for cable. However, by reason of the Supreme Court's holdings that no copyright protection currently existed, their negotiating position was disastrous-since there would not be any royalties unless legislation was passed. It being easier to stop legislation than to pass it, the cable interests had the whip hand. In short, the fee was laughably low.2

Copyright owners did, however, have some protection in that the compulsory license was granted only for programming that the FCC permitted cable to carry. And at the time, the FCC's rules contained two significant restrictions: the first limited the number of distant signals that a cable system could import, and the second guaranteed "syndicated exclusivity"

meaning that if a local TV broadcaster had paid a copyright owner for the exclusive right to show a program in the area, the cable system had to "black out" that program when it ap1 The programs referred to here are not the ABC, CBS, or NBC programs (for such fare is distributed for simultaneous nationwide viewing), but are, rather, the non-network films and series, often called syndicated programming.

In 1979, for carriage of non-network distant signal programming, copyright owners received $15 million from cable via the CRT-about 1 percent of the industry's basic revenues-compared to $1,343 billion from TV broadcasters-equal to 30 percent of gross broadcast revenues (excluding network sales).