Senator DECONCINI. The larger the community of interest or whatever you call it, the more ability you have to have your product viewed thereby benefiting your artists.

Mr. VALENTI. May I respond to that?

Senator DECONCINI. Certainly.

Mr. VALENTI. First, about patents and royalties; the manufacturers of these machines now hold patents on some of these machines. When they license them to Americans, they collect royalties on the use of them. When they sell that machine to Americans, they have a royalty.

Senator DECONCINI. There is a royalty, correct.

Mr. VALENTI. They are collecting a royalty. On another point, it is interesting that there are more copies of borrowed and rented prerecorded cassettes in American homes today than those that are being sold to American consumers.

We are being denuded of license fees and a sales market simply because people rent and then they are copying. Our study shows that there are more copies of rented and borrowed video prerecorded cassettes in American homes than are sold as prerecorded cassettes.

Senator DECONCINI. But, Mr. Valenti, let me interrupt you a minute. Your argument seems to me to be a very good argument not to put a royalty tax on your item, just like we ought not to put a royalty tax on the people who are already paying a royalty for licensing in this country to the manufacturer. I do not think we ought to do that, but it seems to me that same argument could apply. Maybe you should pay them for having distributing these machines that are doing all this and promoting your industry.

Mr. VALENTI. Sir, we would be paying the undertaker to put us in the ground.

Senator DECONCINI. Well, I am not suggesting that you do that. [Laughter.]

Mr. VALENTI. What we are trying to demonstrate here is that this machine is going to destroy the visual creative arena in this country in time. That is what we are trying to show. You cannot have 50 million tapers out there, Senator, taping hundreds of millions of copies a year.

Senator DECONCINI. Why can you not collect your fee from the people that you license your product to, the same as the manufacturers of these machines do? If they are satisfied and are not asking for a royalty, why can you not be satisfied? If there has to be an increase to pay for the creative capacity of your people—and I think you are entitled to it-I think it is a matter of where we collect it. That is where I have a difference with you.

It seems to me that we ought to collect it from where you are collecting it now, at a greater charge, perhaps, rather than invading the individual consumer's home who is only using it to satisfy and adjust their way of life. It just does not seem proper. Why cannot we look at increasing the royalties when you sell the product to the TV stations or to the cable TV so that you are satisfied you are getting an adequate remuneration?

Mr. VALENTI. Senator, that is a contradiction in terms because the television station is going to be hurt by this too. Commercial exclusion can destroy the very base of advertiser supported pro

graming. Why should a television station pay more for diminishing audiences?

Senator DECONCINI. He has to show it one time or another or the person cannot tape it. So there has to be a presentation to get it. Mr. VALENTI. The advertiser pays on what is known as share of audience. There is a certain number of people watching a program who have a chance to see a commercial.

Senator DECONCINI. You have it on when you are taping it, do you not? Are you not part of that audience?

Mr. VALENTI. But you are not there, Senator. It is on playback and you zap the commercial. Then you have destroyed the advertiser's recall. The advertiser today thinks he is getting a 30 share, but he is only getting a 25 or a 22 share because the rest of the audience is taping and zaps the commercial.

So why should the advertiser pay more? Coca-Cola, Frito Lay, TWA, Gillette have all said that if you get 10 or 12 million of these VCR machines in the marketplace, we are going to negotiate for lower advertising prices.

Senator DECONCINI. Yes, but, you know, what is the difference? When you watch television, do you not get up and go get a beer during the commercials or make a phone call or go to the restroom or something? [Laughter.]

Mr. VALENTI. No.

Senator DECONCINI. Thank you, Mr. Chairman.

Senator MATHIAS. I think we need to get on to the next panel, but it does seem to me there is one fallacy here in this dialog. You cannot really compare the compensation of the intellectual property owner with the compensation of the manufacturer of the equipment because he recovers his full cost when he sells the equipment. That is a completed transaction.

Mr. VALENTI. I wish I had thought of that, sir.
Senator MATHIAS. That is over.

Senator DECONCINI. The chairman always gets the last word. I understand that. [Laughter.]

Senator MATHIAS. Ms. Peters, you wanted to say one short word? Ms. PETERS. I just thought maybe if I gave you an example, which would be a little bit out of context with what we are talking about, but perhaps will help you understand the theory behind it. If you look at a Broadway show where you have an audience coming in and paying a certain amount to see one performance, and if somebody comes in with a video camera at the same time, and records the show. The creative artist who performs on that stage is not going to be paid adequately. No performer is going to be paid any additional amount. The only payment will be the small ticket price that the audience pays to see that night's performance. You then take this tape, show it to everybody over and over and over and over again saying that they should have gotten all of their money upfront. It does not work because the people coming in cannot pay enough initially to cover the costs of production.

Senator DECONCINI. That is quite different than doing it in your own home.

Ms. PETERS. It is different, but the theory is the same. An artist does not get enough money upfront. We get a session fee of approximately $300 in commercials, approximately $600 if we are

doing other kinds of work—it depends on what media we are going to be working in.

Our upfront money is not that great. We depend on residual payments.

Senator DECONCINI. Our bill, S. 175, precludes that. You could not do that. You could not show it to other people. You could tape only for your own use, and of course you cannot go into any theater and tape the movie being shown.

Senator MATHIAS. Are you going to have a policeman standing at the door saying your guests cannot come in while it is on?

Senator DECONCINI. No, because the fact of the matter is it is different when you go into a theater. You buy a ticket. That is your license or your permission to come in there. And they can place whatever reasonable restrictions they want. They can make you wear nice clothes if they want to, or they can make you not bring cameras, and that is part of the contract of selling the ticket price. That is a completely different situation than when you buy the machine and are subject to the advertising that is coming over the public airwaves and you decide to record. So I see a big distinction. Ms. PETERS. I was addressing your idea that we owe them something for distributing our product. Just distributing the product is not the only thing that has to occur. There has to be some payment, too, so that more product can be made.

Senator DECONCINI. Thank you, Mr. Chairman.

Mr. GOLODNER. Mr. Chairman, if I may, I think I understand what Senator DeConcini is driving at, but it really disturbs me that what you would have then is, as I understand it, the cost to the presenter of a product produced by these artists. It will become tremendously expensive, and in turn, we the consumer through pay TV, through cable, whatever, and the advertiser, will be paying greatly increased costs.

Furthermore, if we wanted to go in the store and rent or buy a prerecorded tape, that cost is going to go up astronomically because, as you are saying, the producer should get it up front and not spread it throughout the community among the users.

Senator DECONCINI. You are making my argument.

Mr. GOLODNER. We feel it is much fairer in our society-and this is the way the arts not only in our society but in most modern societies have thrived. But by projecting the risk forward to those who are going to use it-in other words, what Kay is saying is the artists when they negotiate their contracts, they do not say, look, I am going to make this movie for you or I am going to make this tape for you and that is the last I am ever going to see any reward for this. I am going to hit it to you real hard because I have to live and I do not know where the next movie is going to come from for me or where the next recording is going to come from for me.

And this is the only crack I have at the barrel. They do not do that, though. What they are saying is, if we can spread the cost through to the user, then we are sharing in this. You do not make it, Mr. Producer, we do not make it. People do not buy my tape, people do not copy my tape, I am dead. I am dead. I do not make any money.

But if people are going to copy my tape because it is a good one and they really want it and they are not willing to go down to the

graming. Why should a television s audiences?

Senator DECONCINI. He has to person cannot tape it. So there Mr. VALENTI. The advertise audience. There is a certain

who have a chance to see a Senator DECONCINI. Yo you not? Are you not par

Mr. VALENTI. But yo and you zap the comr tiser's recall. The ad but he is only getti audience is taping So why should TWA, Gillette h VCR machines lower advertis

ke copies, as I ju
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that rental, the

to pay for a product t

pay television is going to go pecome a luxury item, and the lowe the people in this country will not have a Senator Dh bootlegged, copied tapes.

DECONCINI. I have always been in opposition to piracy,

or somet support whatever needs to be done, including more enforceprevent that. That is really not the issue here. I was only make a comparison. I am not suggesting that we have a for the manufacturers and the sellers of these tape mabut but I think your argument points out that that is one way www.could go ahead and try to recover the cost.

And that is why I think what is being proposed in the Senator om Maryland's bill is just unfair to the consumer. When an indidual is only going to use a recording in his or her own home, Creative capacity of your clients and the artists. That is where we your industry has other ways to collect those fees to promote the

differ.

Thank you, Mr. Chairman.

Senator MATHIAS. Thank you very much.

Our final panel this morning is Charles Ferris, Dr. Nina Cornell, Carol Tucker Foreman, Edward J. Foster, and David Richardson. The subcommittee will come to order.

Mr. Ferris, are you going to begin this panel?

Mr. FERRIS. I shall, Mr. Chairman, if that is your wish.

Senator MATHIAS. If that is your desire, it is my wish.

Mr. FERRIS. I think our remarks will be in the order in which we appear at the table, if that suits the chairman.

Senator MATHIAS. Fine.

STATEMENTS OF CHARLES D. FERRIS, OF MINTZ, LEVIN, COHN, FERRIS, GLOVSKY & POPEO, P.C., WASHINGTON, D.C.; DR. NINA W. CORNELL, OF CORNELL, PELCOVITS & BRENNER, WASHINGTON, D.C.; CAROL TUCKER FOREMAN, OF FOREMAN & CO., WASHINGTON, D.C.; EDWARD J. FOSTER, PRESIDENT, DIVERSIFIED SCIENCE LABORATORIES, WEST READING, CONN.; AND DAVID RICHARDSON, VICE PRESIDENT, YANKELOVICH, SKELLY & WHITE, INC., NEW YORK, N.Y.

Mr. FERRIS. Mr. Chairman, I thank you for the opportunity to appear here today on behalf of the Home Recording Rights Coalition and the Audio Recording Rights Coalition. I am accompanied

I am today going to attempt to presentation for the record a few sence of our case against these

proposals.

f the Subcommittee, my

1 attorney in Washing

? opportunity of ap

I that while my discussion will point out co.. both the audio and video royalty schemes, you w.. in mind that these are two distinct industries w

ation in either medium.

ne Recording Rights

Coalition.

e group of com

d distribu

distribution and compensation mechanisms. A we pelling case can be made for allowing home taping. Having said this, let me highlight the main points . pared testimony, which covers both the video and ax issues and points out common problems with some of the ame

legislative remedies.

lank video

1 RCA,

& Co.,

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ons,

Mr. FERRIS. One: Copyright owners of audiovisual work. compensated and the copyright compensation mechanisms signed to adapt to these new technologies being discussed and are doing so. A new royalty tax on video taping would be a double payment by consumers. Copyright owners can and do ne tiate with program distributors for payment that fully reflects the economic benefit of home taping to them. They benefit because timeshifting makes the product available to more people.

forced to pay twice for the same product.

markets, such as that of the prerecorded cassette.

›ri

S

If the proposed royalty scheme is enacted, consumers would be Two: VCR's have created lucrative new programing and distribution markets for Hollywood. VCR's have richly compensated copyright owners by creating new video programing and distribution Revenues from sales of prerecorded cassettes approached a half a billion dollars this past year, Mr. Chairman, and sales will be even greater this coming year. I repeat what I said 18 months ago: VCR's are the best friend of the motion picture industry. Senator DeConcini's questions earlier this morning about the VCR and its contribution to the motion picture industry highlighted this point. The VCR was first purchased by consumers to provide a mecha nism to permit timeshifting for the convenience of the viewer, but now it provides the mechanism in the home to display the prerecorded tapes that now yield this half a billion dollar new revenue

stream to the copyright holders.