Finally, section 118(d) establishes limited off-air videotaping privileges for governmental bodies and nonprofit institutions with respect to nondramatic musical works and pictorial, graphic, and sculptural works contained in public (noncommercial) broadcast programs. This provision, however, does not extend to other works in the transmission program, or to motion pictures and other audiovisual works, or to the entire transmission program.

3. Fair use provision

Despite the absence of an explicit exemption for home videotaping, proponents of unrestricted videotaping have often cited the fair use provision of section 107 in support of their views. However, the terms of that provision and its legislative history do not support such a sweeping interpretation.1

15

Not one of the purposes articulated as illustrations in the above provision fits home videotaping. Clearly a copy of an audiovisual work taped for personal enjoyment and convenience does not qualify as "criticism, comment, news reporting, teaching, scholarship, or research."

Likewise, the four factors listed in section 107 would not excuse unrestricted videotaping. The first factor, concerning the character of the use, contrasts commercial uses with nonprofit educational purposes. Its impact on home videotaping is inconclusive: such a use would be neither a commercial use, nor an educational use. The second factor, relating to the nature of the work, establishes a somewhat higher degree of insulation from the fair use exemption for highly creative works, as distinguished from informational works. On this score, motion pictures number among the most complex and creative of works protected by copyright. The third factor concerns the amount which is reproduced. Videotaping generally reproduces the whole work, and fair use is seldom justified in such cases. The final factor invokes the effect of the use upon the potential market of the work. On this matter, it appears clear that the marketing of motion pictures, either in the form of authorized copies or the licensing of repeat performances, may be adversely affected by home videotaping.

Within the context of educational uses, both the Senate Judiciary Committee and the House Judiciary Committee in 1976 considered the application of fair use to offair videotaping. Although both Committees felt in certain limited circumstances that the fair use doctrine could be invoked, neither Committee endorsed the general copying characteristic of home videotaping. In discussing the application of fair use, the Senate Judiciary Committee stated, in part:

"The committee's attention has been directed to the special problems involved in the reception of instructional television programs in remote areas of the country. The committee believes that the making by a school located in such a remote area of an off-the-air recording of an instructional television transmission for the purpose of a delayed viewing of the program by students for the same school constitutes a 'fair use.' The committee does not intend to suggest, however, that offthe-air recording for convenience would under any circumstances, be considered 'fair

use.

The House Judiciary Committee concluded that fair use might have "some limited application in this area" but noted further study was needed to resolve "the needs and problems of different interests affected." 17

4. Conclusion concerning legislative history

The 1976 Copyright Act purposefully establishes a high level of protection in order to provide the needed incentive for the production of intellectual property.

15 § 107 Limitations on exclusive rights: Fair use

Notwithstanding the provisions of section 106, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include

(1) The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) The nature of the copyrighted work;

(3) The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) The effect of the use upon the potential market for or value of the copyrighted work. 16 S. Rep. No. 94-473, 94th Cong., 1st Sess. (1975) at 65-66. (Emphasis added.)

17 1976 House Report, at 71-72. Guidelines for off-air taping of copyrighted works for educational use have now been developed. The text appears in 127 CONG. REC. E4750–51 (October 14,

1981).

Under the scheme adopted by the statute, exploitation of copyrighted material by new technologies will generally be subject to copyright liability, in the absence of a specific exemption.

At the time of passage of the 1976 Copyright Act, videotaping was a known technology, yet no specific exemption was included in the legislation to exempt the practice in the home.

Motion pictures and other audiovisual works are highly vulnerable to copying 18-that is, a small amount of unauthorized copying injures the incentive to create such works. This is so because the capital investment is high, the risk of loss on any given work is large, and unauthorized copies tend to satisfy fully the demand for the lawful copy. For these reasons, the 1976 Copyright Act at many points treats audiovisual works more favorably than other classes of works.

B. Economic Impact of Home Videotaping

The home video market continues to expand. Technological advances and innovations-cable, subscription television, and satellites, for example-have expanded delivery systems for programs. New products, like home computers, videogames, video disc recorders, and video cassette recorders provide additional forms of home entertainment. A recent study estimates that by the end of the year there will be forty million VCR's in homes throughout the world. 19

It is still too soon to assess precisely the economic effect of these innovations on traditional video entertainment industries-the motion picture industry and television broadcasting. The Copyright Office has conducted no independent study, but is familiar with the major economic research on this issue. On the basis of data presented in these studies, increased sales of home taping hardware and software, and news accounts of what has been happening coincidentally in traditional entertainment industries as these sales increase, we do believe there is sufficient evidence to demonstrate that copyright owners will be affected by uncontrolled home taping. 1. Video studies evaluating economic impact of home taping

A number of studies have examined the impact of off-air video recording on the motion picture and television production industries. It is clear from these studies that the average VCR owner continues to buy blank video tape. Although annual information regarding blank tapes sales is not complete for the early years, it is estimated that in 1979 between 11-12,000,000 blank video tapes were sold. Actual blank tape sales in 1980 totaled 19,034,000. The International Tape/Disk Association (ITA) reported that 28.4 million blank videocassettes were sold in 1982. During this same period about six million prerecorded blank videocassettes were sold.20 One reason for the significant increase in sales can be attributed to the lower prices on blank videocassettes. 21 Prices on blank cassettes continue to decrease, and the Electronics Industries Association (EIA) estimates that seventy million blank cassette units will be sold in 1984.2 22

Imports of VCR's increased dramatically in the past decade from 24,000 units in 1970 to 940,000 units in 1980.23 The Electronics Industry Association (EIA) reported sales of approximately 475,396 VCR's in 1979 and approximately 804,663 in 1980.24 In recent years sales of VCR's have increased even more dramatically. Over two million VCR's were sold in the United States in 1982.25 EIA now predicts that 3,500,000 VCR's will be sold in 1983 and 4,300,000 in 1984.26

2. Dependence on subsidiary markets

As production costs continue to mount, producers of motion pictures and television programs have become even more dependent on subsidiary markets to recover

18 See, for example, the discussion regarding the reasons for excluding motion pictures from the ephemeral recording exemption in H.R. Rep. No. 83, 90th Cong., 1st Sess. (1967) at 61. 19 Pitman, "Worldwide VCR Total is Nearing 40,000,000 Mark," Daily Variety, Sept. 15, 1983,

at 1, 16.

20 "Blank Tape Sales Up in '82," Billboard, July 9, 1983, at 34.

21 The suggested retail price of a two hour VHS tape is $22.22 (VHS) $23.15 (Beta). But tapes actually sell for less than this. A recent ad promoted sales of VHS T.120 for $8.90 each, $8.79 if the consumer bought ten or more. Washington Post, October 15, 1983, at A-20.

22 "EIA Sees Strong Video Sales Pace This Year and Next," Variety, June 8, 1983, at 28.

23 Dahlin, Consumer as Creator, Publishers Weekly Special Report 8 (Reprinted for March 20, 27, 1981 Publishers Weekly).

24 These are sales to dealers. EIA believes that they are the most accurate assessment of total sales to consumers. See 1981 Consumer Electronics Annual Review at 16.

25 Videonews, June 24, 1983, at 4.

26 "EIA Sees Strong Video Sales Pace This Year and Next," Variety, June 8, 1983, at 28.

these costs.27 This marketing structure is discussed in more detail in our earlier statement.28 The conclusion was and still is inescapable, that motion pictures must recapture a large part of their expenses and realize any possible profits in subsidiary markets threatened by home taping.

Most recently, the sale and rental of prerecorded videodiscs and cassettes have taken their place in this complex system.

3. Effects of home video recording on the television and motion picture marketplace a. Time-shifting and advertisement avoidance: impairing marketability.-Presently commercial advertising is a major revenue source for television programming.29 Although there are insufficient data to indicate whether or not the practice of deleting advertisements in off-air video recording will reduce advertising revenues, surveys reveal that consumers often do in fact omit commericals when videotaping a program, or use the "fast-forward" feature to skip commercials when viewing a video-taped program. Evidence was introduced in the last hearing that at least one advertiser was not willing to pay the same rates when he knew a large portion of the audience would be using VCR's.30

It can be argued that audience measurement services, such as Neilsen and Arbitron, can include recorded programs in their ratings. However, the impact of timeshift viewing on the ability of program suppliers to continue sequential marketing techniques may still be impaired or even disrupted. The commercial value of a television program is linked directly to the ratings the show receives and the time that the show is aired. Use of the VCR allows the home taper to shift the time at which the program is viewed and to delete the commercial advertising on which the value of the program is based.

b. Librarying: the uncompensated preemption of subsidiary markets. The injury to the copyright owner is clearest when the home video recording is retained permanently, or for an extended period of time—commonly referred to as "librarying.” Most of the user surveys discussed in the last statement indicate that "librarying" accounts for at least 25 percent and perhaps as high as 75 percent of home VCR

Early surveys indicated that the average owner purchased three blank tapes when he bought his VCR. A recent survey of 4,000,000 VCR households found the mean number of all videocassettes in the surveyed households to be 22.11; only 3.0 of these cassettes are prerecorded. 32 The dramatic increase in the number of blank video cassettes sold each year points to extensive librarying. Since the cost of video cassettes has drastically declined, it can be expected that in the future even more blank tapes will be bought by the average owner. 33

Now that consumers are able economically to develop extensive, personal, video libraries, the economic consequences to copyright proprietors will be inescapable. We can already see these effects in the United Kingdom, where home video viewing is more popular than movie going or even pub crawling. 34

4. Keying compensation to specific harm

The interested parties disagree as to how much taping is done for each purpose. But all economic studies show that a significant amount is done for librarying.

In the final analysis, it is not necessary to resolve the issue of how much taping is done for what purpose. Under S. 31 the parties will negotiate to determine the royalty to be placed on the hardware and software. In these negotiations they can consider uses of the tape which might be exempt. The price passed on to the consumer will be a one-time payment for the machine and a nominal royalty on time shift with only a few tapes.

27 See, e.g., Variety, Dec. 30, 1981, at 1, 24.

28 1982 Sen. Hearings on S. 1758 at 390-393.

29 This is not only true of network television but also increasingly true of cable, see Variety, Oct. 5, 1981, at 1, Sept. 25, 1981 at 14; and in the future even public television.

30 1982 Sen. Hearings on S. 1758 at 458-9 (Letter from John M. Cranor, Vice President of Marketing, Frito-Lay, to Jack Valenti, President of Motion Picture Association). See also "Oh, Shut Up!" Variety, Sept. 14, 1983 at 45.

31 1982 Sen. Hearings on § 1758, App. IV at 438.

32 Study conducted by NPD Electronic Tracking Service for MPAA, February/March 1983. 33 According to the NPD Survey, the average price of a blank video cassette is $17.11. However, they can be bought for as little as $8-9.

34 "UK Survey: Tape Viewing on the Rise," Billboard, Mar. 5, 1983, at 30.

5. Summation of economic impact

The first video recorders were expensive; 35 one can now get an inexpensive beta format for $288. An earlier estimate of 20,000,000 VCR's in U.S. homes by 1990 is clearly in sight. Even before then, VCR's will have a significant economic effect on traditional markets.

Both the television and the motion picture production industries are in turbulent waters already. Necessarily they have been increasingly relying on subsidiary markets to survive, and that trend will continue. Home taping threatens a new, but nevertheless major, and growingly important, subsidiary market.

III. AUDIO HOME TAPING

A. Legislative History Concerning Audio Taping

The legality of home audio taping, either off-air from broadcasts or directly from phonograph records or prerecorded tapes, was not at issue in the Betamax case. Indeed, the question has never been adjudicated. Nonetheless, in press coverage of the case, academic commentaries and within professional and industrial circles, it has been argued that private audio recording of copyrighted musical works and sound recordings is exempt from infringement under the 1976 Copyright Act. Copyright owners challenge that assumption.

This debate has led into a bewildering maze: (1) what did Congress intend with respect to home taping when the Sound Recording Act was passed in 1971? (2) if an intention can be discerned, was it rejected or carried forward into the 1976 Copyright Act; (3) what is the respective weight to be given to statements of witnesses at hearings, floor managers during debate and passage of legislation, questions by Members of Congress?; and (4) how can one rationalize the silence of one house of Congress on the question with ambiguous discussions in the other body?

But, in the final analysis, consideration of the home taping issue was so scanty in the course of enacting the Sound Recording Act, so secondary to the purpose of the 1971 amendment, that our debate would add little certainty to what we already know. After an extensive trial and much thought, the District Court in Betamax found this history to be instructive and relevant to the issue of videotaping, but the Court of Appeals found the same history unenlightening and irrelevant.

This issue is indeed a maze; and it is a maze which the Copyright Office urges the Congress to resist entering. Áll the statements which have fueled this debate were made in the context of granting new protection to sound recordings against tape piracy; home taping was not the focus of the legislation.

Reduced to essentials, the record shows three Congressmen and the then-Assistant Register of Copyrights (later Register) saw no reasonable means of enforcing proprietors' rights against home taping at the time. And the Assistant Register observed: "My own opinion, whether this is philosophical dogma or not, is that sooner or later there is going to be a crunch here. But that is not what this legislation is addressed to, and I do not see the crunch coming in the immediate future.

"Other countries have felt it more directly than we, partly because record prices are lower here than, say, in Germany. In that situation there is a range of legal devices for trying to keep the practice under reasonable control. But I do not see anybody going into anyone's home and preventing this sort of thing, or forcing legislation that would engineer a piece of equipment not to allow home taping." 36

Over ten years have passed since those hearings were held and we show three things: that no one wants to go into anyone's home to enforce copyright; that it is unthinkable to deny the public access to home recording technology; and that the "crunch" is here.

B. Economic Impact on Home Audio Taping

Although audio taping has been possible for some time, the equipment did not lend itself to efficient, easy home taping until the 1960's. And only recently have drastic price reductions in home audio taping equipment made the practice commonplace. 37

A number of audio taping studies were examined in preparation for the statement last year. These studies reveal that home audio taping is already quite extensive,

35 See 1982 Senate Hearings on S. 1758 at 365, note 2.

36 Hearings on S. 646 before Subcommittee No. 3 of the House Judiciary Committee, 92d Congress, 1st session 22-23, (1971).

37 A 1980 study estimates that 48 percent of the population now has access to audio tape recorders. The continued expansion of the home audio recording market is reflected in the growth of imports from 1970-1980. See note 51 infra.

and continuing to increase. Most of the taping is done by young professionals and most of the music taped is taped in relation to its popularity. 38

In February of 1982, Forbes estimated that there were 98,000,000 tape recorders in the United States. 39 That number has grown significantly in the last year and a half. Approxiamately 20,201,000 audio recorder/players were imported into the United States in 1982 alone.40

The American recording industry has witnessed some dramatic changes during the last ten years. As the sales of LP's have declined, the sales of prerecorded tapes and cassettes have increased. The eight-track has been virtually replaced by the cassette, and the popularity of the cassette recorder has had startling consequences for the recording industry. The ease with which anyone can operate a cassette recorder means that virtually everyone from the eight-year-old to the eighty-eight-year-old is able to make his or her own recording.

The increasing popularity of home taping becomes apparent when comparing unit sales of prerecorded tapes and blank tapes. Sales of blank audio tapes soared dramatically between 1971 and 1981,41 while sales of all prerecorded audio products dropped.42 The International Tape/Disc Association (ITA) reports that approximately 189,585,000 blank audio cassettes were sold in 1980.43 Another report estimates that 275,000,000 blank 90-minute tapes (each capble of containing two complete LP's) were sold in the United States in 1980.44 In 1982 alone, unit sales of blank audio cassettes totaled 223,730,000.45 Although sales of prerecorded audio cassettes in 1982 were more than sales in 1981, they were still only 183,000,000 units46 which is considerably less than the sales of blank cassettes.

The world-wide condition of the recording industry continues to be a bleak one.47 There is increasing unemployment in the U.S. industry: in 1979, over 2,000 people from both the manufactureing and recording levels of the industry lost their jobs. Home duplication was considered by an industry source to be a major reason for those dismissals.48 During the same period, wages paid U.S. musicians dropped by 12 percent for the second successive year after a long history of annual increases.49 In 1980, Warner's, a major producer of entertainment properties, including recordings, laid off 10 percent of its staff at all levels.50 A recent report issued by the U.S. International Trade Commission noted that the number of U.S. workers engaged in the manufacturing of phonograph records fell from a high of 19,200 workers in 1978 to about 15,000 in 1981.51

As Senator Mathias noted earlier this year, surveys show that the public is consuming as much music as ever, but that they are just not paying for much of it.52 Unit sales of prerecorded music have either remained at the same level or declined within the last few years. At the same time, sales of audio recorders and blank tapes have continued to increase. Since both the quality and price of selections taped at home are competitive with those prerecorded, it is reasonable to assume that consumers will increasingly use copyrighted prerecorded material to produce

38 1983 Senate Hearings on S. 1758 at 401.

39 Forbes, Feb. 15, 1982, at 126.

40 Consumer Electronics Annual Review 28 (1983 ed.).

41 In 1971 approximately 125,00,000 blank audio cassettes were shipped; by 1981 that number had risen to more than 228,000,000. Based on figures reported in Billboard "Blank Tape Spotlight," Aug. 26, 1972, at 44, 48 and Merchandising Statistical Issue, March 1982 at 24.

42 "RIAA Readjusts Shipment Totals of 79-81 Period," Daily Variety, Monday, June 20, 1983, at 1, 18.

43 Record World, Oct. 3, 1981, at 6.

** Daily Variety, Thursday, Jan. 14, 1982, at 58.

45 This is a decline from the 1981 figure which was 238.8 million units. "Blank Tapes Sales Up in '82," Billboard, July 9, 1983, at 34.

46 "Prerecorded Music Shipments, Value Drop Again in '82," Cash Box, Apr. 16, 1983.

47 See e.g., Robertshaw, "Bleak Picture for Trade Painted by British Report," Billboard, May 14, 1983 at 9; Spahr, "1982 German Sales Register Drop of 5 percent," Billboard, Apr. 30, 1983, at 9; Hoos, "Polygram Holland Plans Layoff," Billboard, July 2, 1983 at 9, 55.

48 Billboard, Apr. 12, 1980, at 1.

49 Billboard, May 30, 1981, at 1.

50 Record World, Dec. 5, 1981, at 4. The experience abroad parallels that in the U.S. market. In 1978, 33 million blank cassettes and only 19.6 million prerecorded cassettes were sold in the United Kingdom. It is expected that sales of blank tapes will reach 48,000,000 in 1983. The French recording industry cut back employees on all levels 15 percent in early 1979. Home taping is given as one reason for these cuts.

31 This decrease is not offset by an increase of about 2,000 workers in the production of magnetic recording media. See "Blank Cassette Imports on Rise as Record and Tape Sales Fall," Variety, Nov. 10, 1982, at 97.

52 Senator Charles McC. Mathias, "Preserving Creative Incentive," commentary in Billboard, May 14, 1983, at 10.