ern Appliance located directly across the street from the parent store.

Western Rents, as its name implies, is a rental store only, and rents prerecorded video tapes to consumers for use with the video cassette recorders.

Sales of video cassette recorders represents about 10 percent of my total sales volume, which is expected to reach over $20 million in fiscal year 1983.

Rentals of prerecorded video tapes through Western Rents are also at a record high, currently running in excess of $1,500.

Our sales of video cassette recorders, blank tapes, cameras, and other video products have grown at a dramatic rate in the last several years. All indications are that such growth is certain to continue, and that our experience is typical of other retailers. Consumer demand for video cassette recorders and other video equipment has continued to grow so rapidly, in fact, that we have decided to expand the video portion of our business. We are opening a new store next week in Los Gatos, Calif., which will sell video cassette recorders and video equipment almost exclusively, with the exception of a small stereo department.

In my prepared testimony here, I go through this ninth circuit decision which we have gone through, and I just want to state that I really consider it to be an unfair and needless intrusion into the private lives of the American citizen, and I would like as it's read here, to be read into the record.

Mr. KASTENMEIER. Without objection, your statement in its entirety will appear in the record and that of the other witnesses. Mr. NIEDERAUER. Thank you.

[Statement of Mr. Niederauer follows:]

Statement of David NiedERAUER

Mr. Chairman, I am David Niederauer, President of Niederauer, Inc. of San Jose, California. I am also a member of the National Association of Retail Dealers of America (NARDA), an organization of approximately 3,600 members who operate more than 10,000 retail outlets nationwide. NARDA members sell a variety of merchandise, from home entertainment products to refrigerators to small home appli

ances.

As President of Niederauer, Inc., I own and operate Western Appliance and television, a large retail store selling a variety of what are termed in the retail sector "white" and "brown" goods, including televisions, refrigerators, small appliances, and video products. I also own and operate Western Rents, a subsidiary of Western Appliance and Television, located directly across the street from the parent store. Western Rents, as the name implies, is a rental store only, and rents pre-recorded video tapes to consumers for use with video cassette recorders.

Sales of video cassette recorders represent about 10 percent of Western Appliance and Television's total sales volume, which is expected to reach over $20 million in fiscal year 1983.

Rentals of prerecorded video tapes through Western Rents are also at a record high, currently running in excess of $1,500 per week.

Our sales of video cassette recorders, cameras, blank tapes and other video products have grown at a dramatic rate in the last several years. All indications are that such growth is certain to continue and that our experience is typical of other retailers. Consumer demand for video cassette recorders and other video equipment has continued to grow so rapidly, in fact, that we have decided to expand the video portion of our business. We are opening a new store next week in Los Gatos which will sell video cassette recorders and video equipment almost exclusively, with the exception of a small stereo department.

As a business owner who depends on the sale of video cassette recorders and video products as a major portion of my business and who has now devoted an entire store

to the growing video market, I am extremely concerned about the recent Ninth Circuit Court of Appeals decision regarding off-the-air recording of telecasts of copyrighted programs by owners of video cassette recorders. I thus appreciate the opportunity to testify before the Subcommittee from the perspective of the video retailer who is in constant contact with the consumers who purchase the video cassette recorder.

As a business owner who sells the video cassette recorder at the retail level and as a private citizen who uses the video cassette recorder to tape telecasts of copyrighted works for viewing in the privacy of my own home, I consider the Ninth Circuit decision an unfair and needless intrusion into the private lives of American citizens. The Ninth Circuit Court decision threatens the private citizen with penalties for his personal use of the video cassette recorder to "time shift" his favorite programs for viewing at a more convenient time.

The video cassette recorder has brought a new freedom to the individual, allowing him to make his own schedule and to view programs when he wants to view them rather than at some arbitrary time dictated by television networks who cannot respond to the needs of millions of different viewers. The Ninth Circuit proposes to take away that freedom. The Ninth Circuit also threatens the retailer with penalties for contributory copyright infringement for his sale of the video cassette recorder to the private citizen performing an allegedly infringing act.

That the Ninth Circuit would hold both the retailer and the private citizen liable as copyright infringers solely for the individual's recording of copyrighted programs to be viewed at a more convenient time, seems to me to be completely illogical. Yet this is what the Ninth Circuit decision proposes to do.

It is argued that there are other uses of the video cassette recorder in addition to "time shifting" which pose a danger to the copyright holder and to the television and movie industries. There are supposedly those who build libraries of tapes for use time and time again, thereby denying the copyright holder the advantages to be had from the repeated broadcasts of his work.

I have found, however, in my constant contact with customers at the retail level, that approximately one-half of my customers use their video cassette recorders nearly exclusively for viewing pre-recorded movies. As I understand it, television and film writers have already been paid royalties for the marketing of such prerecorded tapes. I have also learned that there are few, if any, of my customers who build libraries of pre-recorded copyrighted programs. It seems to me that the problem of unfair use and inadequate compensation for copyright holders has been blown out of proportion, if a problem exists at all. Yet the Ninth Circuit decision would impose a penalty on the widespread legitimate use of a machine which gives untold enjoyment and personal freedom to millions of consumers, by allowing them to view television programs on their own schedules.

As the Congress considers the video cassette recorder controversy, I think it is also important to take into account the tremendous stimulus that the video tape recorder has provided for our economy. While numerous small businesses are struggling for survival and unemployment is at a record high, video cassette recorder sales have continued to grow, employing thousands of American workers in sales, distribution, manufacturing, service and in the manufacture of blank tapes. Upon opening my new store in Los Gatos, in fact, we will employ an entire staff of formerly unemployed salespeople. The recent Court decision, if not superseded by Congressional action, could cause irreversible damage to the development of an important product which benefits both consumers and the thousands involved in the process of producing and marketing the video tape recorder.

Many in Congress have agreed that the holding of the Ninth Circuit Court is unfair and that the decision is an inadequate solution to the video cassette recorder controversy. As a solution to the problem, some Members have proposed that a royalty be placed on the sale of blank tapes or machines in order to compensate the copyright holder for the recording of his work. While those who advocate the imposition of a royalty attempt to remedy an unfair situation, their solution provides no just remedy. The royalty solution ignores two very basic facts. First, copyright holders have been paid for their work prior to the point at which their program is taped by the owner of a video cassette recorder, and two, that the vast majority of video cassette recorder owners use their machines only to view pre-recorded tapes or to time shift their favorite programs for viewing at a more convenient time.

Before the Congress considers the copyright issue and proposes to resolve the controversy through the imposition of a royalty tax on machines or on blank tapes, it should consider who exactly is being penalized by such a royalty, which businesses will suffer the consequences of a royalty tax, and what effects such a measure would have on the employment of hundreds of thousands of Americans in the burgeoning

video cassette recorder industry. Clearly, the video cassette recorder is a product which the public needs and wants and which benefits many segments of our economy.

Your prompt action leading to the enactment of legislation to supersede the Ninth Circuit decision would be appreciated.

Mr. NIEDERAUER. The video cassette recorder has brought a new freedom to the individual allowing him to make his own schedule and to view programs when he wants to view them rather than at some arbitrary time dictated by television networks who cannot respond to the needs of millions of different viewers.

The ninth circuit court proposes to take away that freedom. It also threatens the retailer with penalties for contributory copyright infringement for the sale of the video cassette recorder to the private citizen performing an allegedly infringing act.

It is argued that there are other uses of the video cassette recorder in addition to this time shifting which poses a danger to the copyright holder and to the television movie industries. There are supposedly those who build libraries of tapes for use time and time again, thereby denying the copyright holder the advantages to be had from the repeated broadcast of his work.

I have found, however, that in my constant contact with customers at the retail level, that approximately half of my customers use their video cassette recorders nearly exclusively for viewing prerecorded movies. As I understand it, television and film writers have already been paid royalties for the marketing of these prerecorded tapes.

I also learned that there are few, if any, of my customers who build libraries of prerecorded copyrighted programs. It seems to me that the problem of unfair use and inadequate compensation for copyright holders has been blown completely out of proportion if the problem exists at all.

Yet the ninth circuit court decision would impose a penalty on the widespread legitimate use of the machine which gives untold enjoyment and personal freedom to millions of consumers by allowing them to view television programs on their own schedule.

Now, I want to address separately here, too, the definition of libraries. I think that people may record a television program to time shift it to another period of time. Now, they are going to record that. They are going to take it out. They're going to put it on the shelf. They are going to pull it off the shelf sometime in the next couple of weeks. They're going to then play it back. Then they will have viewed it, commercials and all. They will then put it back on the shelf, and they are theoretically saving it.

However, something else comes up, and they pull that-just because it's there, that doesn't mean they're going to watch it again. They will then pull it off the shelf and rerecord over it at a later date when they find something else that they feel is worth taping or time shifting.

As Congress considers the video cassette recorder controversy, I think it is also important to take into account the tremendous stimulus that the video tape recorder has provided for our American economy. While numerous small businesses are struggling for survival and unemployment is at a record high, video cassette recorder sales have continued to grow, employing thousands of

American workers in sales, distribution, manufacturing, service and in the manufacture of blank tapes.

Upon opening my new store in Los Gatos, in fact, we will employ an entire staff of formerly unemployed sales people. The recent court decision, if not superseded by congressional action, could cause irreversible damage to the development of an important product which benefits both consumers and the thousands involved in the process of producing and marketing the video tape recorder here in the United States.

Many in Congress have agreed that the holding of the ninth circuit court is unfair and the decision is an inadequate solution to the video cassette recorder controversy. As a solution to the problem, some members have proposed that the royalty be placed on the sale of blank tapes or machines in order to compensate the copyright holder.

While those who advocate the imposition of a royalty attempt to remedy an unfair situation, their solution provides no just remedy. The royalty solution ignores two very basic facts: first, copyright holders have been paid for their work prior to the point at which their program enters their home, the private home, and is taped by the owner of a video cassette recorder, and two, that a vast majority of video cassette recorder owners use their machines only to view prerecorded tapes or to time shift their favorite programs for viewing at a more convenient time.

Now, in my testimony here, I have not even begun to speak to the vast number of people who are buying video cameras today and who are going to be using the video cameras in place of their super-8 cameras where it's basically where if somebody were to buy a video tape and blank tape, and he were going to use it to make movies of his children, it just seems ludicrous to me that he should pay a royalty to someone in Hollywood for him to have to take pictures of his children.

Before the Congress considers the copyright issues and proposes to resolve the controversy through the imposition of a royalty on machines or on blank tapes, that you consider who exactly is being penalized by such royalty. Which businesses will suffer the consequences of the royalty and what effects such a measure would have on the employment of hundreds of thousands of Americans in this burgeoning video cassette recorder industry.

Now, yesterday I heard some testimony that just plain and simply made me angry. I sat in the back of the room and there were just a couple of points that I want to make that I believe the people said yesterday were entirely wrong, entirely wrong.

No. 1 is video cassette recorders-I'm retail. I see them every day. We're selling close to 1,000 units a month. They don't sell for $1,000; 70 to 80 percent-I don't have the exact figures with me. I didn't bring them. But I believe that 80 percent of the video cassette recorders sell for less than $800, and half of those-half of that 80 percent sell for under $600. Just recently, we have a new machine that we have been marketing now for 3 weeks that retails for $500, that we sell for $500. So the machines are becoming less and less priced.

This $500 machine which, if you put-if the tax or royalty were $50 and by the time it got to retail, it would probably be more than

$50, but that would be 10 percent of the purchase price; an increase at least of 10 percent of purchase price to the ultimate consumer. Now, they talked about them-you know, I don't know if Mr. Valenti thinks that as an appliance dealer or a television video dealer that I make a lot of money or a lot of margin that I could absorb that. He stated that in New York, you could buy a Sony, the same model, for between $999 to $666. Well, I would say to you that the guy who is selling it for $999 maybe sells one or two whereas the guy who is selling it for $666 sells probably 1 to 2,000 of the same machine. And the guy who is selling it for $666 probably isn't making $50 on his sale.

I can speak directly to the blank tape case. I buy blank tapes-a 6-hour tape for $11. I sell that tape for $11.99. I am going to have a hard time absorbing a dollar royalty in my profit of 99 cents. The royalty is more than my profit.

And it is not necessarily, you know, the dollar, too-I might sell just as many tapes at $12.99 as I do at $11.99, but what I've got to look at is that that number of tapes, the figure, you know, how many millions of dollars per tape this is going to come down to as this industry grows. And I just see the consumer paying that dollar and that $50 as being-it is not going to be absorbed by either the retailer and I don't think by the manufacturer.

Now, there was one other thing, and that was this little black box, this commercial killer that we talked about.

Mr. KASTENMEIER. Are you summarizing your testimony or adding to it.

Mr. NIEDERAUER. I'm adding to this.

Mr. KASTENMEIER. Please be brief.

Mr. NIEDERAUER. OK. I want you to know that this black box, I have never seen one. As a retailer, I have never been offered one to sell, No. 1; No. 2, I looked for it at the consumer electronic show, and it was not there. If it worked, it sounded like a good thing.

I found out how it worked. What is does is that it will only edit out commercials that are in color if you are viewing a black and white movie. It will not edit out commercials if you are trying to record a color movie. Also, if you were viewing a black and white movie, and you edited out the commercials with this black box, this killer, what it would do is it would leave a 30-second or a 60-second or a 3-minute length of nothing on the tape so that as you were watching the movie, the commercial would theoretically come on and you would have 3 minutes of nothing on the tape.

You would have to sit through that. This product, as I know it, is just plain and simply not being marketed. It is not a viable product of the retail industry, and the only way that a product might be able to be made that would work would be if the television networks were to put some sort of an electronic bleep or something at the beginning of the commercials and an electronic bleep at the end of the commercials that would do this, and I don't think they are about to do that.

Mr. KASTENMEIER. Does that conclude your testimony?

Mr. NIEDERAUER. Yes, sir, thank you.

Mr. KASTENMEIER. Any questions, Mr. Railsback?

Mr. RAILSBACK. No, I'd just like to say that I think all of the witnesses have given us a great deal to think about, and I think they