satisfactory cooperative arrangement on CATV would furnish anything like the kind of service that the people expect and demand in any large volume at all. Mr. KASTEN MEIER. Thank you. Mr. ST. ONGE. No questions. Mr. TENZER. No questions. Mr. KASTEN MEIER. If there are no further questions, we want to thank you, Mr. Ford, Mr. Smith, and your colleagues for appearing today in behalf of community antenna television. Mr. FORD. Mr. Chairman, in view of the fact that some of the witnesses appearing on the affirmative will follow those of us who are on the negative, at the conclusion of their testimony if it is at all proper we would like perhaps to submit some written comments on the testimony that you receive. Mr. KASTEN MEIER. Yes. You are invited to submit written comments to the subcommittee and direct them to the subcommittee counsel, Mr. Fuchs. They will be taken up at a later time to see whether they are germane and ought to form part of the record. If they ought to, we will take care of them accordingly. Mr. FORD. That is all we can ask. Thank you, sir. af (Subsequently the National Community Television Association submitted the following supplemental comments, legal memorandum, fidavit, and statement of George J. Barco :) SUPPLEMENTAL COMMENTS OF THE NATIONAL COMMUNITY TELEVISION ASSOCIATION ON H.R. 4347 The purpose of these supplemental comments is to rebut some of the erroneous allegations made by opponents of a CATV exemption in the pending copyright bill, H.R. 4347. The requirements of space prevent a specific rebuttal to each and every erroneous allegation, and, therefore, only those of principal concern to this subcommittee will be discussed. The emotional attacks by Messrs. Nizer and Krim (transcript, pp. 1595, 1614, 1622) on CATV generally deserve no further comment.1 An impartial review of the facts presented during the hearings and in this memorandum reveals that NCTA's principal contentions are totally unrefuted: (1) The lack of a CATV exemption is inconsistent with the compulsory carriage requirements of the FCC's rules, and H.R. 7715 being considered by the Interstate and Foreign Commerce Committee; and (2) There is no practical way to obtain copyright clearance-a problem which "cannot be brushed under the rug" (Cary testimony, p. 6). Allegation by copyright interests.-The Federal Communications Commission's proposed and adopted rules and H.R. 7715 do not conflict with imposing copyright liability upon CATV systems. Fact.-The FCC's proposed and adopted rules and the bill under consideration by the Interstate and Foreign Commerce Committee (H.R. 7715) are inconsistent with imposing copyright liability upon CATV systems. During recent hearings held by the Interstate and Foreign Commerce Committee, the NCTA supported in substance H.R. 7715, introduced by Chairman Harris, which would confer authority on the Federal Communications Commission to regulate community antenna systems. Even if H.R. 7715 is not 1 The chairman of this subcommittee quite properly recognized the tenor and impropriety of those emotional attacks (transcript, pp. 1622-1623). 2 The rules are currently applicable to CATV systems using microwave service and are proposed to be applicable to nonmicrowave systems. enacted, the FCC proposes to regulate CATV systems without specific legislative authority. A basic principle of the proposed FCC regulations is that all CATV systems must receive the signals of all television stations covering the communities in which the CATV operates with a grade B or higher signal. In its first report and order (FCC 65-335, Apr. 23, 1965, par. 55), the Commission stated that nothing therein was intended to affect the question of copyright liability; i.e., the Commission was concerned only in compulsory carriage regardless of the copyright consequences. Either the opponents of a CATV exemption fail to recognize that CATV systems will be required to receive the signals of certain stations, or having recognized this fact seek to take advantage of the noncompetitive position they will enjoy if H.R. 4347 is enacted. Since the Commission's rules or the legislation will require reception of the signals of certain stations, the CATV operator has four alternatives: (1) Violate the copyright law by receiving the station's signals without copyright clearance; (2) Violate the FCC's rules by failing to receive the station's signals; (3) Pay the copyright proprietor a fee subject as to amount solely to his discretion (under compulsion of law); (4) Go out of business. In connection with the third alternative we are assuming (perhaps naively) that copyright proprietors will not arbitrarily withhold clearances though nothing in H.R. 4347 requires that clearances be granted. As will be explained below, there is ample justification for believing that copyright proprietors will simply refuse to grant clearances in order to obtain "exclusivity" or other economic goals unrelated to compensating creative artists. But even if clearances are granted, no witness testifying on behalf of copyright proprietors gave this subcommittee any real assurance that exorbitant fees would not be charged for such clearances. It would be inconsistent with this subcommittee's announced intention to balance the interests of the public and copyright proprietors to place the latter in a position where the terms of clearances would be absolutely dictated by them. The Deputy Register of Copyrights, Mr. Cary, after 3 years of soliciting comments from interested parties, stated to this committee that it was incumbent upon those opposing a CATV exemption to present this subcommittee with a clearance provision (Cary statement, p. 23, transcript p. 27). He thus recognized the inherent conflict between H.R. 4347 and the first report and order's compulsory carriage requirements and the proposed rules. Perhaps Mr. Cary's warning that the problem could not be "brushed under the rug" was prompted by the FCC's action which postdated the introduction of H.R. 4347. Copyright owners' allegation that there is no conflict between the FCC's rules and H.R. 4347 of necessity involves ignorance of the facts or a willful and devious disregard of the clearance problem." Allegation by copyright interests.—The clearance problem will be easily solved by the competitive forces of the marketplace. Fact.-Clearance is a difficult problem which cannot be solved under the existing economic structure of the broadcasting industry. As NCTA's witnesses have already pointed out, a CATV system is a mere reception device, like a rooftop antenna, that receives all television signals freely released through the airwaves. Most CATV systems cannot, as a practical matter, black out uncleared signals." Some 1,600 community antennas would have to clear in advance with perhaps a dozen major program owners and several hundred additional owners of a very large number of less wellknown programs before the reception. Television Factbook (1965 edition) a standard trade reference book, lists in excess of 750 television program suppliers. Knowledge of what will be broadcast on all channels received or receivable will be essential, and sufficiently in advance of broadcast time to permit a determination of what programs would be selected for reception and to permit negotiation for a license. Last minute changes in programing by 3 Mr. Krim, in his testimony before the subcommittee, acknowledged that the FCC's rules would require CATV systems to receive the signals of local stations (transcript, p. 1596). In a pleading filed by Mr. Nizer's firm with the FCC in connection with the proposed Commission rules it is clearly recognized that a potential conflict between the compulsory carriage provisions and copyright liability exists. FCC docket No. 15971. 5 CATV systems are completely automatic and most systems would have to have specialized equipment installed, or employ additional personnel, to effect selective blackouts. broadcast stations would present an insoluble problem for the CATV operator since a change from a licensed program to an unlicensed one without adequate notice could subject him to the liabilities imposed by the statute. It is a commonly accepted fact that television broadcast stations continually change their schedules right up to the last moment. It is no answer, as has been suggested, to black out programs changed at the last moment. The public interest requires that the public-regardless of what type of antennas are used-enjoy the full benefit of the American system of broadcasting. It must also be apparent to this subcommittee that the average community antenna system is so small and so remote from entertainment centers that it is wholly impractical for them to undertake individual program clearance even if it were feasible to give adequate notice of each program to be broadcast on each channel received. The responsibility of a television station in obtaining copyright licenses for the hundreds of programs it broadcasts must be complicated. But the clearance problems of a CATV system in obtaining licenses for programs received from 3 or 5 or as many as 12 television stations would be impossible to solve. Even if CATV systems were technically and practically capable of receiving only cleared signals, subscribing members of the public getting their television reception through community antennas would suffer substantial losses of program viewing. To license all copyrighted programs received would be a practical and economic impossibility. As noted elsewhere there is no obligation on the part of the copyright owners for their individual programs or program series. Moreover, the costs of negotiating clearances would be such that only preferred programs could be afforded or, in the alternative, quite possibly only the less attractive and popular programs could be afforded without substantial increases in CATV charges, or development of a method of charging only for the program delivered as in pay TV. Copyright owners recognize well the monopolistic position they will enjoy if H.R. 4347 is passed without a CATV exemption in its present form. In fact, Messrs. Nizer and Krim's argument that CATV systems should merely "pay something" (transcript p. 1616) is but a transparent veil for the real goal they are seeking in opposing a CATV exemption in H.R. 4347-control of home reception of freely released broadcasts of copyrighted television programs including motion picture films for which one copyright fee has already been paid. Nowhere is this interest in control better revealed than in the testimony of Messrs. Foss, Rozelle, and Porter, representing organized football and baseball. These gentlemen argue that CATV systems may, in the future, bring live football and baseball program signals into communities where television signals will be blacked out, and thus may endanger box office receipts of football and baseball clubs. As Mr. Foss said, "We are not interested in royalties, but would like it made clear that such antenna facilities cannot be used to carry back into a 'blacked-out' city any live professional sports telecast" (statement, p. 4). Mr. Porter used the word "control" (transcript 2305) to describe his real object. If protection of this sort is desirable for sporting events as apparently thought by Congress and the courts (Public Law 87-331; 15 U.S.C. 1291–1292, Blaich v. National Football League, 212 F. Supp. 319 (S.D. N.Y. 1962)), some protection, other than copyright protection, could be woven into the provisions of the Communications Act. But specifically because Congress has treated professional team sports differently-by granting "exclusivity" and permitting black-out to foster attendance this subcommittee should not extend that principle to the remainder of television programing. This monopolistic impulse-control of television markets-is really what underlies the vociferous opposition of other witnesses, unconnected with professional sports, to a CATV exemption in H.R. 4347. Examples of this predatory behavior can be found in the "exclusivity" arguments of Messrs. Jennes and Nizer. The underlying economic reason behind the copyright owners' failure to present this subcommittee with a viable clearance scheme is their desire to have unfettered control over the royalties to be paid by CATV systems or in the alternative to deprive CATV systems of the opportunity to receive television programs. If this subcommittee enacts H.R. 4347 without a clearance provision, it should recognize that copyright owners cannot be expected to negotiate with CATV 6 See the testimony of Mr. Krim (transcript, p. 1596) and specifically his statement that the FCC's compulsory carriage requirements force CATV systems into "taking somebody else's property and not paying for it." systems for the release of programs-they would rather "protect" their network and station markets by "blacking-out" CATV systems. When the House and Senate Judiciary Committees sanctioned "black-outs" for sports in Public Law 87-331, they did so only to encourage the growth of an industry dependent upon spectator attendance. By narrowly defining the limits of the "black-out" privilege, Congress has already recognized that the viewing public should not be deprived of other television programs. H.R. 4347, in its present form, will enable predatory program owners to "black-out" the CATV subscribing public. Allegation by copyright interests.-There must be market exclusivity for programs licensed to broadcasters in order to preserve the broadcast industry. Fact.-Broadcasters make huge profits and should obtain no greater exclusivity from CATV systems than they would obtain if everyone installed adequate private antennas. Because CATV systems are functionally identical to rooftop antennas on private homes, broadcasters deserve no greater exclusivity than they would obtain if everyone chose to install a private rooftop antenna adequate to receive the available signals. The practical absurdity of the copyright proprietors' exclusivity argument becomes apparent when it is applied to the many community antenna systems that have been installed in new tract housing developments (to eliminate unsightly rooftop antennas). Because they charge a monthly fee, the housing tract system would not be exempt from the copyright royalties included in H.R. 4347. For example, under the proposed law a tract housing antenna system located at Bowie, Md., might be refused clearance of the three Baltimore network stations in order to protect the exclusivity of the three Washington network stations while adjacent private homes and apartments using rooftop antennas would be free to receive these signals from the Baltimore stations. The paradox presented by this and many comparable situations in other communities where CATV subscribers and families with rooftop antennas live next door to one another explodes the exclusivity argument. Of course, the fact that copyright proprietors make the exclusivity argument only for programs for which they have already been compensated by one royalty gives the entire argument a hollow ring. Opposing witnesses would have this subcommittee believe that copyright liability for CATV systems is necessary to sustain the economic health of the broadcasting industry. They allege CATV systems can well afford royalty payments because of their allegedly "huge" profits. For example, Mr. Krim cited Dr. Seiden's study of 28 CATV systems' profits which showed an average profit margin of 57 percent with a net return rate of 30 percent per annum (transcript p. 1607). What Mr. Krim failed to mention was that Dr. Seiden specifically stated that the 28 CATV systems studied were not necessarily representative of all CATV systems in operation (Seiden report, p. 27). The average system of the 28 studied by Dr. Seiden had 3,110 subscribers, whereas the average system in the United States has only 1,245 subscribers. Of these 28 systems, the smallest had 700 subscribers, while the percentage of systems in the United States with fewer than 700 subscribers is over 50 percent, according to Columbia Broadcasting System. The average community antenna system and the large majority of them do not make "huge profits." Conversely, without "exclusivity" through control of CATV reception, broadcasters had a net income in 1964 of $415,600,000 before Federal taxes on gross revenues $1,800 million (up 21.1 percent from $343,200,000 in 1953). More than 100 stations showed a profit in excess of $1 million each. The original cost of tangible property for TV broadcasters totals $780,781,000, which now has a depreciated value of $393,057,000. Therefore according to FCC statistics, broadcasters reap a 50.3-percent annual return on their original investment and 105.7 percent on depreciated investment. If profit is the criterion for determining the morality of a possible activity, as suggested by Mr. Nizer (transcript p. 1623), then broadcasting by Mr. Nizer's standards must be tantamount to crime. In any event, broadcasters' percentage of return on investment is larger than the return obtained by even those 28 unrepresentative CATV systems cited by The Oakmont project at Santa Rosa, Calif., proposes to charge $6 per month per dwelling, allocable to the maintenance of its antenna system, out of a compulsory recreation fund to which the 4,000 individual homeowners will contribute. 8"Economic Analysis of CATV Growth and Impact," submitted by CBS to the FCC on July 22, 1965, in docket 15971. TV Broadcast Financial Data-1964, released Aug. 6, 1965, on all 560 television stations and 3 networks. Mr. Krim. Of course, broadcasters earn much more than the average CATV system. With these profit figures, it is difficult to understand how the broadcast industry can be threatened economically or in any other way by CATV systems. Allegation by copyright interests.-CATV systems' payment of copyright royalties is required to compensate adequately creative artists. Fact.-Any copyright royalties which CATV systems may be required to pay will not benefit creators of copyrighted material. Under the proposed legislation, film distributing companies and broadcasters which hold the copyright in creative works would receive all royalty payments. At best, it is doubtful that the creator of the work would eventually share in payments which would be received from community antenna operations. The chairman of this subcommittee raised this issue with Mr. Krim, and the answer of the latter was quite revealing : "Now I understand the question and my answer that I gave before applies to films. That is a question of the trade. There are many deals we have made with authors who can, through their record, command retention of rights and others who do not" (transcript p. 132). [Emphasis supplied.] It is interesting that Mr. Krim could give only a vague and confusing answer to this question rather than simply admitting that by and large, artists do not retain such rights. If the negotiating power of broadcasters and film companies is considered as a factor in "a question of the trade," it seems plain that few artists or authors are in a position to demand increased royalties when they are required to relinquish their rights to these corporate giants. If H.R. 4347 is enacted in its present form, film companies and broadcasters will undoubtedly refuse to increase royalty payments to creative artists on the ground that the latter did not contemplate a separate and duplicitous fee from CATV systems. Allegation by copyright interests.-CATV systems destroy markets for program suppliers by driving UHF broadcast stations out of business or by foreclosing the development of potential UHF markets. Fact.-CATV systems have aided and will continue to assist UHF broadcast stations in reaching greater audience potentials. Past failures of UHF broadcast stations are attributable more to the opposition of television networks rather than to the operation of CATV systems. Chairman Henry of the Federal Communications Commission stated recently before the House Interstate and Foreign Commerce Committee that no television stations have gone off the air because of community antenna television operations.10 The Seiden report found no evidence indicating that stations have been injured by CATV." Apparently as his best evidence of the alleged destruction of potential markets, Mr. Krim read into the record a letter received by United Artists in February 1965, from Mr. Joe L. Smith, Beckley, W. Va., which Mr. Krim depicted as evidence that a UHF station in Charleston, W. Va., had suffered a loss in customers (transcript p. 1603). Actually, the letter stated that the writer was "afraid that we shall decide our market is too small to finance competitive programing against outside nonaffiliated stations" if the "CATV problem" is not resolved. In essence, Mr. Smith could not give a "more definite timetable" as to its plans for purchasing United Artists' films. It is obvious that the writer's pessimism was without foundation since in 1963 the Charleston market supported four television broadcast stations at a total net profit of $1,190,000.12 Moreover, in a recent proceeding before the Commission (docket 15889) this same writer, through counsel, filed a pleading postdating (Apr. 30, 1965) his letter to United Artists which contained the following statement: "5. Outlook for a Successful UHF Operation in Charleston. 10 "Regulation of Community Antenna Television," House Interstate and Foreign Commerce Committee hearings on H.R. 7715, May 28, 1965, p. 79. Its 11 Seiden report, p. 80. Presumably, this includes WRLP-TV, represented in these hearings by Mr. Marlowe. The FCC's records are replete with evidence that this station was intended as a satellite operation and has continued as such since its first broadcast. problem has been recognized even by the FCC as basically a failure actually to provide signals even within its predicted grade A contour. (See, for example, Northco Microwave, Inc., FCC 65-627 (1965) and Millers River Translators, Inc., FCC 63-375 and FCC 63-504 (1963).) 13 See note 1, p. 11, supra. |