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now include two sports networks and five networks offering more gencral programming, with several more in the offing. All of these provide signals to the cable systems via satellite, without charge (and one of them even pays cable to carry its programs). The industry also includes "hybrid" networks which supplement advertising revenues by charging cable systems a monthly subscriber fee. And finally, there are free information networks, free religious networks, and special children's services. In short, the industry has grown enormously in diversitv, sophistication, and financial power.

Thus the Copyright Act, seriously flawed policy even at its inception, is wholly bankrup: today. Yet until 1980, at least the FCC's rules on distant signals and syndicated exclu sivity somewhat alleviated the inequity to copyright owners. But in a 4-3 decision last September, the FCC eliminated those protections and proclaimed, with a burst of deregulat y enthusiasm, that it was freeing cable to operate in the marketplace.

That assertion calls to mind George Or well's admonition on looking behind the shib boleths for the substance. What the FCC has done is deregulatory only in the limited and parochial sense that the agency has lifted its own major rules governing cable. In doing so, however, it has not thrown the industry into the free market but placed it more fully than before in the hands of another regulatory system, the copyright tribunal.

If the FCC's decision is sustained, there will no longer be any effective way for a broadcaster to purchase a temporary exclusive right to desirable programs. Thus it will not be possible for copyright owners to carn larger revenues on programs in high demand-new films, for example--by offering full exclusivity in a number of different markets. Instead, their first sale of a new fiim to a broadcaster can be, in effect, a nationwide sale (because of satellite carriage to the cable universe), and the fees due from cable will be determined administratively at the CRT. In short, all program ing on the air-not just some of it, as in the past---will be subject to cable's compulsory license. And presumably, in an effort to maintain control of their product, sports entrepreneurs in particular will increasingly tend to sell only to cable. Finally, the CRT's fee-setting operation will be larger and more complex than before.

38 AEI JOURNAL ON GOVERNMENT AND SOCIETY

It is not surprising that the FCC's action has aroused a storm. In essence, the agency has eliminated what many had understood to be an essential part of the government-prescribed payment formula. As former Register of Copytights Barbara Ringer told the Senate Judiciary Committee on April 29, it was assumed when the Copyright Act was passed "that the FCC might tinker with its rules but that it would not completely abandon the protection it of fered copyright owners." With that assumption now gone, the cable copyright matter is before Congress once again.

The Congressional Debate

Simply put, there are essentially three alternatives for Congress to consider --(1) leave the situation where it stands, (2) reestablish by law the rules eliminated by the FCC, or (3) build on the FCC's action by dismantling the remai: ing (and most offensive) part of the regula ory structure governing cable copyright. In each case, the cable TV industry is pitted against the copyright owners, the sports leagues, and the other commercial delivery system-broadcast

TV.

Accept the Status Quo. This alternative is of course the one the cable systems prefer. They, along with former FCC Chairman Charles Ferris, insist that copyright owners will be justly compensated under the new system. In defending this position, they rely on an FCC economic analysis "proving" that the rescission of syndicated exclusivity will not adversely affect the revenues the copyright owners receive from sales to television broadcasters-while adding that, in the unlikely event it should do so, this could always be offset by an increase in the CRI's royalty fees.

The argument is protectionist, brazenly bureaucratic, and utterly beside the point. To begin with, such a fee increase would be a ham-handed approach to compensating copy right owners. By what intricate formula could the CRT hope to divide the pot fairly? But the main point is that there is a long-established market in copyrighted program sales, that this market functions well, and that cable TV, like all other TV distribution systems, should have to operate in that market. Can anyone doubt how Congress would react if the National Tele

communications and Information Administration recommended, based on a study, that RCA and other disc entrepreneurs be granted a compulsory license to use films as they saw fit? Economic studies, however valuable they are in other contexts, are wholly irrelevant here. If cable carriage of non-network programs from distant stations does not have an adverse effect on copyright owners, the market will reflect that over time, and a superstation (whose operation is designed for nationwide cable distribution via satellite) will be able to obtain the programs they require at no extra charge. If on the other hand, as I suspect, it does have an adverse effect (particularly as cable pene trates more deeply into the major markets), the market will reflect that also. Either way, pricing decisions on copyrighted material are not the government's business.

Cable also asserts that, as the broadcast stations receive higher advertising rates because of the increased viewership they gain through cable, the copyright owners will be able to demand higher fees. This might not happen in the case of "unwilling superstations" (for example, WGN or WOR) since they use local advertising in substantial part, and the merchants in New York obviously will not pay for ads shown in Ohio. But a "willing superstation" (for example, WTBS-Atlanta) could avoid local advertising and therefore probably might adjust its advertising rates (and copyright payments) to reflect its increased viewership. But, here again, this simply establishes that the market will work and that there is no need for the government to intervene.

Not surprisingly, the Copyright Royalty Tribunal also likes the new arrangement. On April 29 the CRT-but not its then chairmantold the Senate Judiciary Committee that it was not "aware of any changes in copyright clearance procedures that provide justification for altering the judgment of the Congress that a cable compulsory license is necessary." CRT is making the old argument that if a cable system in Ohio wants to carry a distant signal like WGN-Chicago or WOR-New York, there is still no practical way for it to do so under full copyright liability: how can the Ohio system bar This approach differs from Rep. Frank's in one small respect: 1 suggest a market-size cutoff in preference to a subscriber cutoff, so as to avoid the difficulty of a cable system's coming within full copyright liability Just because it has added one more subscriber.

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gain for the right to carry every one of the hundreds of programs on WGN or WOR? The CRT's argument is entirely correct and entirely irrelevant. With a plethora of programming available to cable via the many satellite serv ices, why should Congress make WGN's or WOR's programming available to cable by compulsory license, with government-prescribed fees? Why should it skew the market process?

Reverse the FCC. On May 13, Rep. Robert Kastenmeier (Democrat, Wisconsin), chairman of the House Copyright Subcommittee, introduced a bill (H.R. 3560) to limit cable's compulsory license to signals allowed to be transmitted under the FCC's former distant signal and syndicated exclusivity rules (with systems having fewer than 5,000 subscribers exempted from copyright liability). Essentially, the bill aims to quiet the controversy by reestablishing in law the protections originally underlying the 1976 act. The difficulty with this approach is twofold: as the cable industry grows, so does the impropriety of the privilege government has bestowed upon it; and the longer the privilege exists, the more difficult it is to withdraw.

The Sensible Solution. Clearly, the Copyright Act was and is bad policy. There is no need for the distant signal rule or the syndicated exclusivity rule or the compulsory license or the CRT. There is need for only one provision-full copyright liability for all cable systems operating in the major markets. At the outset of the congressional debate, few seemed prepared to go that far. By now, however, full copyright liability has strong support-from the Department of Commerce, Register of Copyrights David Ladd, and former CRT Chairman Clarence James, among others. And on May 12, Rep. Barney Frank (Democrat, Massachusetts) introduced a bill (H.R. 3528) that would establish such liability effective January 1, 1983, with an exemption for systems serving fewer than 2,500 subscribers. A slightly different way of achieving the same objective would be to require that new systems or new signals in the large markets-say, the 100 largest-come under full copyright liability immediately and that existing systems in those markets do so after one year, while providing an exemption for all systems in the remaining smaller markets.' Either

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Making Cable TV Pay? (Continued from page 39)

approach would eliminate the cumbersome and impractical CRT process, leaving the pricing of copyrighted programs to the marketplace.

Admittedly, this solution is imperfect. However, in light of the entrenched position of the traditional cable system and the claims of their viewers, some compromise with free market principles is probably unavoidable. The compromise outlined here is the fairest possible, for both cable and for the copyright owners. The latter would have full copyright protection in those markets (the 100 largest) from which they draw 90 percent of their revenues. And the great majority of the 4,200-odd cable systems would be better off because, as systems in the smaller markets, they would have no copyright payments. The larger cable systems in the top 100 markets can well afford to pay for the programming they use and, in any event, will depend for their success on pay-TV and the new services. For them to seek to retain the relatively small advantage of a compulsory copyright for distant signal carriage is piggishness-an assault on the rules of fair play.

IT IS DIFFICULT to sympathize with the broadcast industry. Indeed, there is something almost deliciously ironic in the problems it now confronts because of cable. For it was VHF broadcaster pressures that led to the present inadequate spectrum allocations system that, in turn, fostered the growth of cable (see Stanley M. Besen and Thomas G. Krattenmaker, page 27). And it was the broadcasters that held back the development of over-the-air pay-TV for decades, so that when enterprising cable systems turned to satellite-distributed pay-TV as a device for penetrating the major markets, the move was not precluded by a long-established subscription TV service. Like Rubashov in Darkness at Noon, they are being devoured by a force of their own making (although it should be noted that about one-third of the cable systems are owned by VHF broadcasters).

The copyright owners, however, have done nothing to deserve the inequities of compulsory license. Enough violence has been done to the marketplace in the last two decades. It is time-indeed, long past time-to bring true deregulation to the cable copyright field.