Mr. Eastwood might want to talk about the cost of his current film. Eight out of ten films-now, listen. These two statistics I am going to give you are really the nerve center of the statistical summary that you will have. Eight out of ten films do not retrieve their investment from theatrical exhibition.

Mr. RAILSBACK. Is there any water over there?

Mr. VALENTI. Six out of ten films-Mr. Railsback, I am going to tell you, when people think about that, they don't ask for water, they ask for brandy.

Mr. RAILSBACK. That is what we really have in there.

Mr. VALENTI. And 6 out of 10 films do not retrieve their total investment period. Now, what are you going to do right on top of that? There is going to be a VCR avalanche. Exports of VCR's from Japan totaled 2.57 million units in 1981. No. 2, the United States is the biggest market. No. 3, February 1982, which is the latest data, shows the imports to the United States are up 57 percent over 1981. This is more than a tidal wave. It is more than an avalanche. It is here.

Now, that is where the problem is. You take the high risk, which means we must go by the aftermarkets to recoup our investments. If those aftermarkets are decimated, shrunken, collapsed because of what I am going to be explaining to you in a minute, because of the fact that the VCR is stripping those things clean, those markets clean of our profit potential, you are going to have devastation in this marketplace.

Now, is this all? Is it going to get any bigger? Well, I assure you it is. Here is the weekly Variety, Wednesday, March 10. Headline, "Sony Sees $400 Billion Global Electronics Business by the Decade's End," $400 billion by the decade's end. In 1981, Mr. Chairman, this United States had a $5.3 billion trade deficit with Japan on electronic equipment alone. We are going to bleed and bleed and hemorrhage, unless this Congress at least protects one industry that is able to retrieve a surplus balance of trade and whose total future depends on its protection from the savagery and the ravages of this machine.

Now, the question comes, well, all right, what is wrong with the VCR. One of the Japanese lobbyists, Mr. Ferris, has said that the VCR-well, if I am saying something wrong, forgive me. I don't know. He certainly is not MGM's lobbyist. That is for sure. He has said that the VCR is the greatest friend that the American film producer ever had.

I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone.

The VCR avalanche, I told you about that. Now, what about the VCR owners. Now, from here on out, Mr. Chairman, I am going to be speaking about a survey done by the Media Statistics Inc., which is a prestigious firm out of Silver Spring, Md. We, meaning the MPAA, did not commission this survey. We bought it after it was done when we heard about it. So, this was not a case-we have commissioned a lot of things, but this is not one of them.

Now, I want to tell you about it because I think it is absolutely fascinating. This survey was taken in October 1981. It is the newest and freshest data available. Here is what it says. Median income of

a VCR owner is between $35,000 and $50,000 a year. Not a lot of what we call today the truly needy are buying these machines. One-third of all the owners have incomes of more than $50,000. Now, here is the next one: 87 percent, 86.8 percent of all these owners erase or skip commercials. I have here, Mr. Chairman, if you are not aware of how this works-this is Panasonic. This is a little remote control device that you use on machines. It has on here channel, rewind, stop, fast forward, pause, fast advance, slow, up, down, and visual search, either going left or right.

Now, let me tell you what Sony says about this thing. These are not my words. They are right straight from McCann Erickson, whom you will hear from tomorrow, who is the advertising agency for Sony and here is what they say. They advertise a variable beta scan feature that lets you adjust the speed at which you can view the tape from 5 times up to 20 times the normal speed.

Now, what does that mean, Mr. Chairman? It means that when you are playing back a recording, which you made 2 days or whenever-you are playing it back. You are sitting in your home in your easy chair and here comes the commercial and it is right in the middle of a Clint Eastwood film and you don't want to be interrupted. So, what do you do? You pop this beta scan and a 1-minute commercial disappears in 2 seconds.

Mr. RAILSBACK. Is that all bad?

Mr. VALENTI. If you are watching a Clint Eastwood film, it is the most cheerful thing you can do. However, if you are an advertiser who has paid $280,000 a minute to advertise, he feels a very large pain in his stomach as well as in his checkbook because it destroys the reason for free television, the erasure, the blotting out, the fast forwarding, the visual searching, the variable beta scans. The technology is there and I am one who has a belief that before the next few years the Japanese will have built into their machines an automatic situation that kills the commercial.

Being advertised today in all the video magazines, and if any of you take video magazines, here is a marvelous little device called the Killer. It eliminates those black and white commercials. You put the Killer onto your Sony and it automatically takes out the commercial. You don't like the Killer, try the editor. The editor will do the same thing. It will wipe out commercials.

The technology is there in my judgment, in the next several years, where an integral part of the machine will be automatic Killer. But you don't need that now as long as you have this. Indeed, when my son is taping for his permanent collection, he sits there and pauses his machine and when he is finished with it, he has a marvelous Clint Eastwood movie and there is no sign of a commercial. It is a brand new movie and he can put three of those on one 6-hour tape.

Now, the average——

Mr. KASTENMEIER. May I interrupt, Jack, on that point?
Mr. VALENTI. Yes.

Mr. KASTENMEIER. And it is a point that just occurs to me. Actually, the advertiser doesn't pay for a taped replay of any program of that sort. He pays only for a live telecast, where his commercial appears and no matter how it is deferred, he doesn't pay for the

deferral because that person wasn't there watching it the first time, presumably it is missed for commercial-

Mr. VALENTI. Mr. Chairman, I am going to defer that question because I have at this table Mr. Eliasberg, for 34 years a practitioner and a student of research in what Nielson and Arbitron present to networks and advisers, what they pay for and what they don't pay for. And rather than me, race over, take time, may I defer the question to Mr. Eliasberg.

Mr. KASTENMEIER. We will defer that question.

Mr. VALENTI. And he will be able to handle that for you even much better than I will.

But at any rate, that is a very relevant point that you make and it will bring it out, what the problem is and you will see that as you get into the future, this becomes a devastating problem for both advertisers and producers, who will get less for their programs on the air and that is what I am talking about. When less revenues are available to the networks and less revenues are available then to the producer-Mr. Ferris and his people will tell you, oh, the marketplace will adjust, as if some tooth fairy hovers over the place and says whenever you lose here, we will be glad to pay for it. Nobody pays for value they don't receive and that is an axiom of the business marketplace.

The average number of cassettes per household—this is fascinating-Mrs. Schroeder, was 27.7, 28 cassettes. Now, if you are just time shifting, all you are doing is you are away from home and you are taping something and you come back and you watch the commercial, then you time shift, you don't need 28 cassettes. You need one cassette or at the most two. Why do you have 28? Why? Because of the next line. Seventy-five percent have a permanent collection. My own home, we do it in our on home. I know about that. Anybody that has a VCR, talk to them, and I ask you to use your own commonsense, Mr. Chairman, Mrs. Schroeder, Mr. Railsback, just think of you as human beings. If you had the power to sit on a playback of a recording and you could wipe out the commercials or not wipe out the commercials, what would you do? You would do exactly what you said, sir. That is terrific. Of course. We all do it. But when you do it, you strip away the reason for free television. Now, let me

Mr. KASTENMEIER. Jack, let me ask you. Do you consider yourself and your family infringers when you engage in that practice?

Mr. VALENTI. I consider myself and my family believing what the plaintiffs in this lawsuit said and they said publicly, they have said it to the press, they have said it to the lawyers, they have said it to the courts. They do not intend to file any actions against homeowners now or in the future. I mean, that is obvious and they have said that publicly, Mr. Chairman, so I believe them. As far as I am concerned, I am going to continue taping because the plaintiffs have said they aren't going to do anything to me. I am not committing any crime. They know that.

Mr. KASTENMEIER. That wasn't my question.

Mr. VALENTI. Do I consider myself an infringer?

Mr. KASTENMEIER. When you engage in such practice.

Mr. VALENTI. Yes, sir, I do. I am taking somebody else's copyrighted material without their consent and I know damn well I am

infringing. But as far as court action or anything else, I am safe. First, it is not a criminal act. Again, the opposition would tell you video, police, and criminals. They show an astonishing lack of the copyright law. They know good and well that that is not a criminal infringement unless you do it for profit. But on the other hand the plaintiffs have said they are moving against anybody in the homes. There is no problem, but I know and everybody else knows they are infringing.

Mr. RAILSBACK. Could I ask a couple of questions? Your figures are very different from the district court in the Betamax case. I am wondering if the 27.7 is that acquired over a period of time. That is not a yearly acquisition?

Mr. VALENTI. What was the date of the court case? 1978. That is 4 years ago. They were using data that was gleaned in 1977.

In those days, first, there was only about an hour's recording time on a cassette. Nobody could really collect cassettes because you couldn't record long enough. Soon, they got up to 2 hours, 3 hours. Now, they are up to 6 hours. They are going to be up to 24 hours. Pretty soon, they will have a cassette that will record all year long, I suppose. But it is because of the time gap between the court case and today.

Mr. RAILSBACK. I know, but I was really asking about the average cassettes for a household. Is that acquired over a period of time?

Mr. VALENTI. Yes, sir, it is. It is acquired over a period of time because you are making collections. You are making recordings that you are keeping. Otherwise, you wouldn't need but one or two cassettes. It is because of permanent collections or you are holding them.

Now, I do want to go over an interesting study by-and Mr. Eliasberg is going to talk a little about this-because, for example, Mediastat also found out the following: They did additional work in diaries and found out that of the total number of recordings in minutes 49.7 percent of all the minutes recorded were not played back within 6 days. And all the movies recorded, 100 percent, 59.3 percent of all the movies were not played back within 6 days. That is a very vital point, Mr. Chairman. Mr. Eliasberg is going to touch on this because there is one thing you cannot measure. You cannot measure playback. This will also be part of the record that we will present.

But I want to tell you what Mediastat is saying here because, I think, it is relevant to what we are talking about. The Mediastat's analyst says that 67 percent of the VCR owners own no prerecorded cassettes and 72 percent plan to buy one in the coming year and 48 percent have never rented a prerecorded cassette. The major source of programing material is home recording, which thus preempts prerecorded tapes and their revenue. Consider that for a moment, which this survey is bringing out.

As one VCR owner wrote in his diary, why buy prerecorded movies? You can record the same thing from a premium pay channel, home box office movie channel show time, much cheaper. There is also less need for VCR pay TV people, Mr. Orear of the Theater Owners Association, to go out to the movies. Hence, in economic terms, people are deriving value, benefit, utility from the

ownership of a home taped copy of a video film production while there is currently no equivalent benefit payment for the producers in the economic exchange.

Movies are the single most recorded program type accounting for approximately 30 percent of all the recorded minutes.

Now, what I am about to read you now boggles my mind and it is going to boggle the mind of everybody in the movie and television business in this city. If 56 of the 93 movies recordings made by the 250 households during the first 3 days of a diary week-just 56 of those movies are saved for the shelf and for additional playback— then the number of movies collected in a year by the Nation's 2.4 million VCR households, only 2.4 million, the number of movies collected would be 6,537,216. At a prerecorded purchase of $50, they would have a retail value of $3.2 billion.

Mr. Chairman, things like that could make a grown men cry. Now, let me say a word about the portion of the Edwards amendment that does away with the first-sale doctrine. Just devote a little time to that.

What happens today, Mr. Chairman, is a very unstabilized marketplace because under the first-sale doctrine, if a producer sells a cassette for $30 to a video retail store, that store can either sell it or rent it. He can rent it 100, 200, 300 times and never pay the producer a dime. And the producer says, "Hey, we would like some of that money, too. That is our product." "No," he said, "under the first-sale doctrine I can do whatever I want to with it."

So, now, what do producers do? They have to be one of two things. They either withhold that prerecorded cassette from the sale market and say, OK, all we are doing is renting alone. That means the customer is denied a choice of whether he wants to buy or rent. He has no choice. Or the producer can add a surcharge to the cassette. If you are going to sell it for $30, you add another $25 surcharge and you say that takes care of the rental income. So, now, you are charging the consumer more money for his product. Also, if you don't do that and you are renting only, the inventory is lessened. The advantage is wholly with the public here. The public has two great advantages. One, it is able now to buy video cassettes at a much lower price and, two, he has an option. The customer now has an option of whether he wants to buy or rent, but it is his option.

Now, because of the distorted, unstabilized marketplace, that option doesn't exist. The fair marketing amendment will stabilize the marketplace, Mr. Chairman.

Now, that is what the public interest is all about. I know when I was in Government the first question that the President would ask any of his aides when we came up with some bright idea, he would say, well, what is the public interest? How does the public benefit from what it is you guys want to do? And I think that the Edwards bill serves the public interest.

Now, look at these numbers because they are totally relevant. By 1990, the Japanese estimate that 30 to 35 million U.S. homes will be equipped with VCR's. VCR owners will buy about 225 million or 300 million blank tapes. But, and here is an explosive political fact, Mr. Chairman, two-thirds of U.S. households will not own VCR's, Mr. Chairman. One-third of VCR households will not be on cable or