We ask the subcommittee to consider the dilemma this legislation would impose on the community antenna owner when he attempts to negotiate with a copyright owner for the "right" to receive programs that he must receive for his subscribers as a matter of law. We assume that he either must pay whatever a copyright owner demands, or refuse to receive the signals of stations he is required by law to receive thus violating the law-or simply go out of business to the detriment of the viewing public.

It will be readily apparent that the legislation supported by copyright owners, which would impose a copyright liability on CATV, may very well frustrate the efforts of the Federal Communications Commission and the House Interstate and Foreign Commerce Committee to integrate community antenna systems into the national television policy in the public interest. And the Commission has stated that it will proceed with its regulations if Congress fails to act in this session.

As Mr. Cary has very well pointed out, the real focus of the committee's inquiry as to this legislation must be "how the public interest can best be served." (Prepared statement of Mr. Cary on May 26, 1965, p. 5.) Another committee of Congress and the agency designated to administer the Communications Act are formulating policies on community antenna systems which they believe will promote the same public interest, which concerns this committee.

We believe that the public interest in free and unrestricted dissemination of television to the public, including the millions of viewers connected to community and other master antenna systems, and the national television policy compel a conclusion that these systems should be free from copyright clearance requirements.

II. THE FUNCTION OF A COMMUNITY ANTENNA SYSTEM

In his prepared statement to this subcommittee, Mr. Cary described the function of a CATV system as follows:

(a) CATV system consists basically of a central antenna which receives and amplifies television signals and a network of cables through which the signals are then transmitted to the receiving sets of individual subscribers, who thereby get better reception and more channels to choose from. Transcript, May 26, 1965, p. 19)

As I indicated a moment ago, a CATV system does nothing more than provide its subscribers with a service for improving their television reception. p. 20.).

(Id.,

We believe that the Deputy Register of Copyrights' definition of the function of CATV systems, amounts to a rejection of the copyright owners' argument, as described by Mr. Cary, that a CATV system is "an extremely complex transmission system which does essentially what a broadcaster does; namely, it transmits television programs to the public." (Id., pp. 21-22.)

In short, a community or apartment house master antenna system is nothing more than a master antenna, the use of which is rented to the system's subscribers and a working connection from the antenna to the subscribers' sets.

In favorably situated locations, the antenna may consist of a "rabbit-ear" device. In other areas a rooftop antenna may be adequate. In cities where apartment buildings are common, the landlord may

install for use by his tenants a master antenna system, both to insure adequate reception and avoid proliferation of unsightly individual antennas. Other individuals in large apartment building complexes or in housing developments or communities may utilize either a cooperative antenna system or a community antenna for reception. No matter what method is used, the function of operation of the antenna and the connection to the receiving set is identical. The antenna is struck by a small portion of energy broadcast by a neighboring television station. Connecting equipment, either a wire or cable, delivers this energy into a receiving set which decodes the electronic message to produce a viewable picture. Since the delivery process always involves loss of signal energy, amplifiers are used in individual sets as well as in apartment house master and community antenna systems solely to maintain the strength of the signal received. Many individuals use amplifiers with their antenna system in addition to the amplification provided in the television receiving set.

Some master antennas are placed on apartment rooftops by landlords; other community antennas are built and maintained by cooperative neighbors, and still others are put up by private investors for communities or groups of homes. Regardless of the location, their purpose and operation remain the same as an individual antenna. The community and apartment house master antenna system merely makes available to its subscribers the use of its antennas and connecting equipment, so that the home owner and apartment tenant need not invest in his own equipment.

Although some community antenna systems utilize microwave relay to connect their antennas to cable lines in the communities served, the bulk of the systems do not. The microwave connection merely serves as a cable in the sky.

Unlike the operation of a jukebox or similar device, where the customer, in the words of a distinguished copyright lawyer, "rents the use of a record—to hear a song" (pt. 3, Copyright Law Revision, p. 131 (1964), Irwin Karp, Esq., Authors League of America), the subscriber does not rent the use of a broadcast or television signal, but rather pays a flat monthly charge for the connection of his own set to the master antenna to use with his own set as he wishes. For this purpose, any comparison of community antenna systems to pay television is completely inappropriate.

Herman Finkelstein, ASCAP's general counsel, testified before this subcommittee on May 27, 1965, and supported the exemption afforded to "boosters" by section 109 (5) or translators, whatever the term that you want to apply to the low-power repeater-of the bill on the theory that:

It is impossible to superimpose any new material or to alter the material originally transmitted. (Transcript, May 27, 1965, p. 216.)

Of course, a pure community antenna system, as we understand that term, does not superimpose any new material or alter the material originally transmitted. Therefore, even under ASCAP's reasoning, community and apartment house master antennas should be exempt.

Our proposed amendment to the bill, which recites this exemption, does not include any community or apartment house master antenna system which alters or adds to the content of the original transmission.

When Mr. St. Onge raised this question with Mr. Finkelstein (transcript, May 27, 1965, pp. 237-238), the subcommittee heard the latter testify that present-day community antennas utilize from "12 to 20 channels in the home set."

This answer is untrue. The Federal Communications Commission's independent consultant on CATV, Dr. Seiden, just a few months ago found that:

** The five-channel system is the most common-representing about 37 percent of the systems and 39 percent of the subscribers.. There are only 5 CATV's delivering 11 TV channels, their combined subscriber count is 4.265 (report to the Federal Communications Commission, p. 54, Dr. Martin H. Seiden, Feb. 12, 1965).

This subcommittee should be aware of the extensive and novel rights which would be granted the copyright proprietor if antenna systems were brought within his control. It would be a grant of monopoly control quite outside the sphere which Congress has historically considered to be properly within the copyright owner's control. It would also unduly impinge upon the public's enjoyment of the radio spectrum which is licensed for the use of broadcasters and indirectly the copyright owner, but at the same time to serve the public.

Once the copyright proprietor has authorized a dissemination of his work, Congress has recognized that the proprietor's control over that dissemination should cease and the public interest can best be served by giving the public access to the disseminated work free from further copyright restrictions.

For example, under present law, as under the proposed bill, a copyright owner who has sold a copy of his book cannot prevent further resale, or place restrictions on its sale. (17 U.S.C. § 27; H.R. 4347 § 108 (a).)

Similarly, we submit that after the copyright owner has authorized a broadcast of his work he should not be permitted to control the reception of that broadcast by individual homeowners.

In our proposed amendment we have not sought to change the copyright owner's control where the broadcast is altered or augmented. But, as Mr. Cary recognized, CATV systems do not alter or augment, but merely provide a service for improving television reception.

While we do not consider that such control is inevitable or even desirable, we believe it represents a fair accommodation of the claims of all parties. If the authorized broadcast is not altered or augmented, however, we believe that the public interest can best be served by permitting the public to receive it for simultaneous viewing by any device it chooses including antenna systems. This has been the historical policy of Congress toward works which have been disseminated with the proprietor's authorization, and we believe it a wise policy which should continue in order to promote the full dissemination of creative works.

III. THE BILL PROVIDES DOUBLE COMPENSATION TO COPYRIGHT PROPRIETORS

Community antenna systems perform a vital public function, giving viewers with limited or no television service or unclear reception the ability to use an antenna and thereby receive television broadcasts. The enthusiastic support of over a million homeowners who are sub

scribers to community antenna systems and countless apartment house owners and tenants attest to this.

In the end, it is these members of the public using master antenna systems who will be affected by this proposed bill.

These antenna systems also provide the copyright proprietor with the opportunity for a greater royalty than he would otherwise receive and thereby provide a greater "monetary incentive" for his creative work. The copyright owner bargains with the broadcast station for his fee for licensing the broadcast of his copyrighted work.

The station claims coverage and viewers which include those utilizing community and master antenna systems. The copyright owner negotiates and is compensated on the basis of the size of the estimated viewing or listening audience which will or can receive his work-the greater the audience the greater the television station's ability to sell commercials for the programs and to charge more for such commercials, and therefore the larger the compensation paid by the station to the copyright owner.

This is a common type of negotiation in which both parties have available information about the audience which the station does or can reach. The broadcast industry regularly publishes figures estimating the potential audience for each radio and television station in manuals like "Television Factbook" or "Television Magazine."

These estimates include community and apartment house master antenna subscribers. Community and apartment house master antenna systems add to the viewing audience, and consequently add to the station's advertising coverage; this, in turn, adds measurably to the opportunity of the copyright owner to secure greater compensation for the broadcast of his work. By providing over 1 million homes and countless apartments with an effective reception service, master antenna systems have assisted in the development of a large potential audience which the copyright owner can and does exploit. Copyright owners are well aware of the basic economics of the broadcasting industry.

They know that the greater the viewing audience, the larger the broadcasting station's advertising fees and the greater royalty they can demand. (See memorandum of Herman Finkelstein, general counsel, ASCAP, to Register of Copyrights, pt. 3, "Copyright Law Revision," at p. 367 (1964)):

I pointed out *** that very often an FM radio station pays only a nominal fee to copyright owners for its broadcasts of their compositions because the FM station has very little advertising income.

Section 109 (6) of the bill, which frees reception in hotels, motels, and other public establishments, accurately reflects the pattern of licensing that has developed in the broadcasting industry in the sense that this reception is included in a station's coverage in determining fees and rates.

But the absence of a similar exemption for community and master antennas discloses that the bill's draftsmen have operated under the entirely erroneous assumption that these systems provide their service at the expense of, and to the detriment of, the copyright owner.

It makes no difference to the copyright owner whether the television station's audience is composed either in part or in whole of subscribers, for he bases his royalty demand on the station's ability to

pay. The station's ability to pay depends upon the rate it can charge advertisers for its time, which is basically a function of its coverage. Thus, the advertiser looks at the total number of persons who will probably, or could be able to, watch the program, not the number of persons who will watch it using an individual antenna, and he will consider the station's rate for time in terms of the cost per thousand of people reached.

The competitive forces of the marketplace produce a higher advertising rate to stations with larger audiences and thus a higher royalty to the copyright owner from such stations.

This bill would force the antenna system subscriber to buy "two tickets" for the opportunity to view a program. Because community and master antenna systems charge a flat rental fee for the antenna service, imposing an additional cost on the systems through copyright liability will simply mean that the system will have to charge a higher monthly rate for its antenna service.

Thus, copyright royalties imposed on the system will eventually be borne by the individual subscriber. The costs of broadcasting including royalties to the copyright owner are already passed on to the public as a part of the price for the products advertised on the program broadcast by the television stations. Hence, the subscribers to community and apartment house master antenna systems will be forced to pay for his television programs, not only indirectly by paying for sponsors' products, like the rest of the public, but also directly by increased antenna service costs produced because of royalty payments to the copyright holder.

An example of the amount of the costs of advertising eventually borne by the public is the Television Bureau of Advertising's recent report that 381 submitting television stations had an aggregate sales volume from spot advertising alone of $249,603,000 for the first 3 months of 1965. ("Broadcasting Magazine," p. 36, May 31, 1965.)

Thus, approximately $1 billion of spot advertising revenues will be collected in 1965 by broadcasters based upon advertisers' desires to reach viewers, and these viewers include, as advertisers know, many who get their reception through master antenna systems.

No other group in the viewing public is saddled with this discriminatory double burden by this proposed bill, and no legitimate policy reason why the community antenna subscriber should be so penalized has been suggested. Moreover, this double compensation is not needed to provide adequate monetary incentive for creative works at the expense of the public's interest in the dissemination thereof free from undue copyright restrictions.

A prior attempt to impose such a discrimination on community antenna subscribers was rejected by the courts. Several years ago the Internal Revenue Service attempted to tax community antenna operators on the amounts paid by subscribers on the theory that these amounts were paid for "wire and equipment service" under section 3465 (a) (2) (B) of the Internal Revenue Code.

The U.S. Courts of Appeals for the Third and Fourth Circuits rejected these attempts, Lilly v. United States, 238 F. 2d 584 (4th cir. 1956); Pahoulis v. United States, 242 F. 2d 345 (3d cir. 1957). In holding the proposed levy discriminatory, the fourth circuit stated:

We think it clear that this community antenna service was a mere adjunct of the television receiving sets with which it was connected. * * *