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As this committee is aware, the motion picture industry is an industry that directly employs thousands of people and indirectly provides the payrolls for tens of thousands more.

The skills of those responsible for the production of films range from those of the actors, writers, directors, composers, lyricists, producers to those of the technicians on the sets and in the studios, the costume and wardrobe designers and makers, carpenters, painters, electricians, and all sorts of crafts and skills that make the motion picture possible.

All of these men and women depend for their livelihood on the income derived by the industry from various uses of the films produced. Specifically, their compensation depends on the copyright fees paid for the use of these films in theaters and on television.

For many years, collective bargaining contracts with all of the major motion picture producing companies and independent motion picture producers have been in existence, which provide minimum compensation and working conditions for the creative and technical personnel associated with the production of motion picture films.

With respect to films made specially for television and to series programs such as dramatic shows and situation comedies, the ones we see so much of on television, the compensation which these grouns receive is directly geared to the number of times the films is replayed.

A similar system also applies to theatrical films sold for television exhibition, but the compensation in this case is geared to the producer's gross receipts from such exhibition.

Many years of study and effort have been expended by the different unions in negotiations with the producers to establish this system of compensation, and they have proved to be the fairest and most equitable way of compensating the creative and technical elements which contribute to the final film product.

Any copyright royalties collected by the producers and distributors of television programs from the cable television industry would add to the funds out of which this compensation is paid. Thus, the question before the committee today-namely, a conyright royalty schedule for the cable television industry—is of direct interest to the organizations I represent.

I understand that the cable television industry concedes that it should pay copyright royalties and that the only issue before the committee is how much those rovalties should be.

In considering the perimeters of a fair and equitable copyright fee, I believe it is important to consider the compensation presently derived from the exhibition and replay of television programs by the unions. For example, for the vear 1972 the compensation paid to Screen Actors Guild members for the television exhibition of theatrical feature films totaled something in excess of $21 million. During the same period the compensation for residuals from the replay of features made for television and series programs totaled something in excess of $12.875,000. If we add the other unions, writers and directors alone, you could double those figures.

Turning to the copyright fee schedule contained in S. 1361, the effective rate provided approximates 1.93 percent of the gross revenues of the cable television industry or approximately $7.63 million based on figures for the year 1971.

This fee, however, would not be payable to only the motion picture producers. It would have to be shared by motion picture producers, networks, broadcasters, performing rights societies and many others.

In short, the portion allocable to the motion picture companies and thereafter by a further percentage reduction to the organizations I represent would be so negligible as to be meaningless.

More importantly, it would not come close to approximating the losses in revenues that the copyright owners would sustain, and thereby the unions would sustain, because of reduced license fees attributable to the ability of cable systems to retransmit television signals as permitted by the FCC.

Based upon these considerations, it is our sincere view that the present fee schedule should be revised. Of course, one method of achieving such a result would be to replace the present schedule with a different one.

We share the view, however, of Mr. Valenti, that the fairest approach to determining a just and reasonable license fee schedule is to submit the matter to binding arbitration between the parties. This is the method of determining the license fees that the parties agreed to under the consensus agreement, and it would be the most impartial method of determining an equitable fee schedule.

I can attest that in the contracts which the unions negotiate with the motion picture companies, which contain compulsory arbitration, have proven to be a most effective instrument for the settlement of comparable problems.

Accordingly, on behalf of the Screen Actors Guild and the other unions for which I speak, I urge that the fee schedule presently contained in section 111 of S. 1361 be deleted and that provisions providing for compulsory arbitration be substituted to determine a just and reasonable copyright fee schedule for the cable television industry.

Senator MCCLELLAN. Thank you very much.
Do you have anything further?

Mr. VALENTI. Mr. Chairman, we have taken 2012 minutes, which is one-half minute more than you gave us; and we are grateful to you.

Senator MCCLELLAN. We have extended the time here. I have been asking questions. I have been doing that on our time, trying to help bring ont points that I thought were essential to this record.

I would like to make one comment about your testimony where you say that you understand that the cable television industry concedes that it should pay copyright royalties an the only issue is the amount.

I may say to you that in the very beginning, even after the court decision that indicated maybe they were not liable for fees, as chairman of this committee and sponsor of this bill, I took the position that they should pay some fee.

The problem all the time has been the amount and originally the idea of placing these fees in there was to get something started. We have lost time, 2 years possibly, by not proceeding to get something established by law, and the machinery whereby it could be carried on.

From my viewpoint in the beginning that seemed fair, and it seemed like the right approach or the probable best approach since the parties were so far in disagreement, to bring this thing to a conclusion and get the problem resolved. Not to everybody's satisfaction, no. I do not

to you.

anticipate that, nor will the arbitrators probably accomplish that miraculous feat.

But it was trying to make progress and move the thing, and once you get the system established under this bill—as it is now, you would have a constant review of adjustments being made. Maybe this is not the way you folks want to do it. This is not the way that anybody concerned wants to do it. But this approach was made with the sincere objective of trying to find the solution and put a solution in motion. That was our objective.

And my position from the beginning has been, and it is now, that they should pay some fees. Apparently, no one knows what is right. Some have different viewpoints about it, and somehow we are going to try to resolve that.

Mr. MIGDEN. I appreciate that, Mr. Chairman.
Senator McCLELLAN. Mr. Valenti, this time I am using is not charged
Mr. VALENTI. Thank you, Mr. Chairman.

Of course, you really got to the gristle of the problem, Mr. Chairman, on which we have diverged from the cable system, the NCTA, on the fact that these fees are nominal going in in order to get it started.

It has been our contention though that any fee, whether it is temporary or not, does have an enduring life of its own; and no matter what language you put in the bill saying it would not create precedent, and it is not intended to influence anybody, the facts of life, sir, is that it does.

And we believe that artificial fees, artificially set without factfinding, without any rostrum of research or arithmetic, is bound to impair fees that we think are just and reasonable.

And that is why we have strenuously objected to it. That is why we believe that the arbitration tribunal at the outset is the fairest method of doing it. And to this hour we have not heard from those who oppose the arbitration tribunal as to what are its liabilities.

Surely, an arbitration tribunal is fair and has more substance than artificial fees, and I say in all respect, sir, that is really the problem that I think you illuminated right there.

Senator MOCLELLAN. What about this royalty tribunal that we undertake to set up and establish in the bill?

Do you oppose that!

Mr. VALENTI. Oh no, sir. I am using royalty tribunal and arbitration tribunal interchangeably. Our objection to it, sir, is that it is 3 years too late; that it should have started at the very beginning because it must come in and begin adjusting artificial fees.

Now, let's suppose, Mr. Chairman, that the fee of 1.9 percent and the royalty tribunal thought it ought to be 5.7 percent; that would be a 300 percent increase.

Now, you can imagine the cries of anguish that would be set up all over this country saying you cannot increase my fees 300 percent, for God's sakes. So no matter what fee you put in, if it is artificially constructed, it throws a tarnish over the whole system of fee schedule.

Senator McCLELLAN. I do not think it would if we had a little more help from the parties of interest as to what the right fee is. We do not have that.

Mr. VALENTI. Yes, sir. I have to agree with you on that, but even so, what we think is the right fee may not be what the NCTA thinks is a right fee. As I said, there is bias on both sides; and I admit that very plainly, sir. And I would not expect my views to be taken as infallible by the NCTA or vice versa.

That is why it seems so plain to us that the arbitration tribunal has been shorn of all these liabilities. It is objective. It has no bias. It is not devoted to either side. And therefore, we believe it is fair.

Senator McCLELLAN. Well, as you point out, how long do you think it would take a tribunal, either a board of arbitrators or the tribunal that we have undertaken to establish in this bill, how long do you think it is going to take them to evaluate and come to a decision?

Mr. VALENTI. I am giving you a guess, Mr. Chairman-maybe slightly educated, but not a graduated guess. I would say that 6 months to à year you would be able to, with a full-time scrutiny body of experts looking and lingering over this thing every day, I believe they could come forward with some conclusions, obviously, that we would all accept. And whatever conclusions that came up, even if we did not like them, we would have to admit that they were objectively and satisfactorily arrived at.

And as you know, Mr. Chairman, one of the compromises that we brought forward to the NCTA was a year's free period after the passage of this bill in which the arbitration tribunal would be making its decision making work for 1 year; and then the fees would be settled on, and then you would go forward as in section 111 which a 3-year adjustment and a 5-year adjustment.

But I have been unable to see why that is unfair. We think it is fair, sir.

Senator McCLELLAN. All right.
Senator Burdick.

Senator BURDICK. I am sorry that my multiplicity of duties around here prevented me from being here while you gave your testimony. I would like to say at this time that I will read it very carefully, and appreciate your being here. Mr. VALENTI. Thank you, sir. Senator McCLELLAN. Thank you, gentlemen.

Mr. BRENNAN. Just one question, Mr. Chairman, as you anticipated most of my questions.

Mr. Valenti, movie companies and program producers have an interest in other sections of the bill, in addition to section 111; and it might be constructive to compare the positions taken by movie companies and program producers on other sections of the bill with your testimony this morning. I am referring primarily to section 115 on the mechanical royalties and section 114 on the performance royalties. Is it not correct that motion picture companies have testified in support of the Congress establishing fee schedules for both of the sections?

Mr. VALENTI. That is very true. But there is a different reason for that, Mr. Brennan. There is a great difference between records and television movie programs; one is fungible and the other is not. Indeed, the more often you play a record, the more popular it becomes; the more often you play a television program, the less valuable it becomes.

So the difference between a set royalty fee on a record, performing of that kind is vastly different from a fee set on a television series or a motion picture; because the more you play that picture on television, the less valuable it becomes.

The converse is true with records, as any radio station or record company will readily testify.

Mr. BRENNAN. I thank you, Mr. Valenti.
Senator McCLELLAN. All right.

Senator BURDICK. Mr. Chairman, I have a question that I am going to ask several witnesses during the hearing today. I think I will give it to you,

too. Mr. VALENTI. All right, sir.

Senator BURDICK. I want something in the record. In four areas, S. 1361 statutorily sets the rate for use of copyrighted materials-sections 111, 114, 115, and 116. Why is it necessary to involve Congress in this process? The copyright grant is monopolistic in nature, but so is the patent grant.

Congress makes no effort for separate use of patent items, while the courts have done so in the case involving the use of patent grants.

What is the rationale for treating the copyright in this fashion?

Mr. VALENTI. What is the rationale of why Congress should set a fee? I will answer in the following way, Senator Burdick. I do not question the authority of the Congress to do whatever it chooses to do in the obligation it has to its duties.

We said that the Congress ought not set fees for two varying reasons. One is that the Congress does not have the expertise or the time to sit in judgment on the vast amount of evidence that must be presented. And that therefore, the Congress ought to turn this over, as it had done in many other areas, to an arbitration or royalty tribunal, or whatever you choose to call it; a body of experts working full time on the issue.

Now, do any of my colleagues have any additional comments to that? Gerald Meyer or Herbert Stern?

Mr. STERN. No.

Mr. VALENTI. That has been our contention from the outset, Senator Burdick, that the Congress ought not to do it.

Senator BURDICK. Well, I am just searching for information.

Mr. VALENTI. Because as I said earlier in my brief presentation to the subcommittee before you arrived, was that the detail, the mingling of facts and figures and the varying items-variables, I called themin going to the management of some kind of a fee schedule, the construction of it is so varied that you cannot do it in a 20-minute or even a 20-hour session. It takes a body of experts working full time to do this.

And this is a terribly complex thing, this cable system and fee schedule, as both the NCTA and copyright owners will testify. We have been working at it for 60 hours, and I do not know that we have really hit bottom on it yet.

Did you have something to add to that, Gerald Meyer, our counsel?

Mr. MEYER. Yes, if I may. It has always been the position of the copyright owners that the copyright question concerning cable systems could be treated in the same manner as that of other users of copyright works; that is, full copyright protection.

The cable interests have contended that this was not possible because of administrative difficulties. It was in order to break this dead

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