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being a finished “pilot" film. The pilot itself is merely a sample program requiring a significant speculative outlay by the producer, the return of which is by no means guaranteed. Approximately two-thirds of the pilot programs are not successful, and of those which are successful, 90 percent of the producers do not recoup their expenses in the first run.

In order to permit producers to amortize their investment and to at least break even, it would seem natural that CATV contribute a fair share out of the (able systems' income from their use of copyrighted films. The addition of license fees from cable systems as a new source of income will be an incentive to increase and improve the production of programs.

According to Dr. Johnson, as set forth in the aforecited study The Future of Cable Television, CATV has an important public task to perform and there are good policy reasons why CATV should pay copyright fees. He says (p. 26) :

“Even if advertiser erosion were not an issue, payment would constitute an additional revenue source to program producers that would likely stimulate production of additional programming in a socially desirable fashion.” (Emphasis supplied)

As Dr. Johnson further explains, the contribution by CATV to the payment of copyright fees will not only constitute additional revenue for program producers and lighten the burden of broadcasters, but it will also improve diversity of programming which cable systems will be able to retransmit to their subscribers :

"Payment for both commercial and non-commercial signals may hare bene. ficial effects on diversity in programming by reducing the programming costs to stations whose signals are carried on cable.

the nature of what cable operators obtain will likely not be independent of what they pay. One can reasonably expect that their payments, in addition to advertiser revenues within the broadcasting system, would bring forth programming that otherwise would not have been produced" (Id. at pp. 39-40).

And in his other aforementioned study for the Rand Corporation entitled Cable Television and the Question of Protecting Local Broadcasting (1970, at pp. 20–21), Dr. Johnson explains the desirability of cable systems paying substantial fees to the copyright owners:

“If cable operators pay substantially for programming, they will, in effect be sharing the cost of programming with broadcasters, to the benefit of both.

For the reasons discussed above, the higher the fees set, the greater the extent to which cable operators will share programming costs with broadcasters, and the less severe the problem of maintaining adequate over-the-air services in the face of cable growth." 4. The Growth of the Cable Industry will increase the losses of the copyright

ouners unless substantial royalties are paid by that industry

The huges revenues of CATV, produced by the diversion of audiences from TV to CATV, will reduce the income presently collected from advertisers by the many hundreds of stations to whom film producers now license their copyrighted motion pictures.

When television appeared on the entertainment scene in the early nineteen hundred anrl fifties and diverted revenues from theatres to television stations, full copyright coverage applicable to the telecasting of motion pictures replaced at least a part of the lost theatrical revenues. The same has unfortunately not been true so far for CATV because of the failure of cable systems to contribute to the cost of program production. If the fee schedule of $ 111 of S. 1361 should be adopted, the inadequate amount of such fees (see supra, Part III) would do little to remedy the situation.

As the number of viewers of television programs by means of CATV grows, the reward to the creative artists must shrink as broadcasters become fewer, and their audiences smaller. The end result must be that less and less talent will be attracted to the creation of television programs, that the standard of quality of such pograms will inevitably suffer, and that the number of programs in which it would appear fruitful to make an investment will decline, unless CATV is required to pay substantial copyright fees.

While the magnitude of the decline of the program production industry's income resulting from the spread of CATV is hard to express in terms of dollars and cents without the aid of economic fact-finding and expert evidence as outlined above, such decline will certainly be substantial. If uncompensated, this decline would threaten the continued viability of the industry and with it, the livelihood of the people who comprise it.

CONCLUSION

Throughout the long lasting debate on protection for copyrighted television programs against their uncompensated retransmission by cable systems, the copyright owners have encountered the myopic proposition that modern technology has made traditional principles of copyright protection too burdensome to “progress” and, hence, expendable. In my view, however, the Congress would commit a grave error if on such specious premise it were to erode the fundamentals of copyright protection which have stood since the beginning of the Republic.

To build cable systems, to multiply the number of distant signals carried by them and to increase the distances by the miracles of modern technology, does not result in bringing to the public more high quality programs. Television signals are nothing but electro-magnetic impulses. They may carry a message but contrary to McLuhan, they are not the message. T'he public's demand is not for signals or channels but for programs. To ignore this distinction is to fail totally to meet the real challenge of communications technology or to realize the potential of cable television.

Without the production of television programs, both broadcasting stations and cable systems would be unable to operate and the television receivers of the American public would stand dark and silent. To jeopardize or to minimize copyright protection for the creators of these programs is, inevitably, to collapse the structure upon which the television and cable industries stand. Copyright protection is a pillar of progress, not as some have come to represent it, a penalty on progress. If the price of the new technology of cable television is the discouragement or stagnation of creative endeavors, the American people will face the bleak future of living with a very sterile technology.

FULL TEXT-AGREEMENT AMONG PRINCIPAL INDUSTRY GROUPS Compromise Sponsored by Office of Telecommunications Policy With Representatives of Broadcasters, Copyright Owners and Cable Systems

APPENDIX D

CONSENUS AGREEMENT

Local Signals:

Local signals defined as proposed by the FCC, except that the significant viewing standards to be applied to "out-of-market" independent stations in overlapping market situations would be a viewing hour share of at least 2% and a net weekly circulation of at least 5%. Distant Signals:

No change from what the FCC has proposed. Exclusivity for Non-Network Programming (against distanct signals only):

A series shall be treated as a unit for all exclusivity purposes.

The burden will be upon the copyright owner or upon the broadcaster to notify cable systems of the right to protection in these circumstances. A. Markets 1-50

A 12-month pre-sale period running from the date when a program in syndication is first sold any place in the U.S., plus run-of-contract exclusivity where exclusivity is written into the contract between the station and the program supplier (existing contracts will be presumed to be exclusive). B. Markets 51-100.

For syndicated programming which has had no previous non-network broadcast showing in the market, the following contractual exclusivity will be allowed :

(1) For off-network series commencing with first showing until first run completed, but no longer than one year.

(2) For first-run syndicated series, commencing with first showing and for two years thereafter.

(3) For feature films and first-run, non-series sydicated programs, commencing with availability date and for two years thereafter.

(4) For other programming, commencing with purchase and until day after first run, but no longer than one year. Provided, however, that no exclusivity protection would be afforded against a program imported by a cable system during prime time unless the local station is running or will run that program during prime time.

Existing contracts will be presumed to be exclusive. No preclearance in these markets. C. Smaller Markets.

No change in the FCC proposals. Exclusivity for Network Programming:

The same-day exclusivity now provided for network programming would be reduced to stimultaneous exclusivity (with special relief for time-zone problems) to be provided in all markets. Leapfrogging:

A. For each of the first two signals imported, no restriction on point of origin, except that if it is taken from the top 25 markets it must be from one of the two closest such markets. Whenever a CATV system must black out programming from a distant top-25 market station whose signals it normally carries, it may substitute any distant signals without restriction.

B. For the third signal, the UHF priority, as set forth in the FCC's letter of August 5, 1971, p. 16 Copyright Legislation:

A. All parties would agree to support separate CATV copyright legislation as described below, and to seek its early passage.

B. Liability to copyright, including the obligation to respect valid exclusivity agreements, will be established for all CATV carriage of all radio and television broadcast signals except carriage by independently owned systems now in existence with fewer than 3500 subscribers. As against distant signals importable under the FCC's initial package, no greater exclusivity may be contracted for than the Commission may allow.

C. Compulsory licenses would be granted for all local signals as defined by the FCC, and additionally for those distant signals defined and authorized under the FCC's initial package and those signals grandfathered when the initial package goes into effect. The FCC would retain the power to authorize additional distant signals for CATV carriage; there would, however, be no compulsory license granted with respect to such signals, nor would the FCC be able to limit the scope of exclusivity agreements as applied to such signals beyond the limits applicable to over-the-air showings.

D. Unless a schedule of fees covering the compulsory licenses or some other payment mechanism can be agreed upon between the copyright owners and the CATV owners in time for inclusion in the new copyright statute, the legislation would simply provide for compulsory arbitration failing private agreement on copyright fees.

E. Broadcasters, as well as copyright owners, would have the right to enforce exclusivity rules through court actions for injunction and monetary relief. Radio Carriage:

When a CATV system carries a signal from an'AM or FM radio station licensed to a community beyond a 35-mile radius of the system, it must, on request, carry the signals of all local AM or FM stations, respectively. Grandfathering:

The new requirements as to signals which may be carried are applicable only to new systems. Existing CATV systems are "grandfathered.” They can thus freely expand currently offered service throughout their presently franchised areas with one exception: In the top 100 markets, if the system expands beyond discrete areas specified in FCC order (e.g., the San Diego situation), operations in the new portions must comply with the new requirements.

Grandfathering exempts from future obligation to respect copyright exclusivity agreements, but does not exempt from future liability for copyright payments.

APPENDIX E

FEDERAL COMMUNICATIONS COMMISSION

Washington, D.C. 20554

January 26, 1972
Hon. John L. MCCLELLAN,
Chairman, Subcommittee on Patents, Trademarks and Copyrights,
U.S. Senate,
Washington, D.O.

DEAR MR. CHAIRMAN: This letter is directed to an important policy aspect of our present deliberations on a new regulatory program to facilitate the evolution of cable television. That is the matter of copyright legislation, to bring cable into the competitive television programming market in a fair and orderly way-a matter with which you as Chairman of the Subcommittee on Patents, Trademarks and Copyrights have been so deeply concerned in this and the last Congress.

You will recall that we informed the Congress, in a letter of March 11, 1970 to Chairman Magnuson, of our view that a revised copyright law should establish the pertinent ,broad framework and leave detailed regulation of cable television signal carriage to this administrative forum. In line with that guiding principle and a statement in our August 5, 1971 Letter of Intent that we would consider altering existing rules to afford effective non-network program protection, we are now shaping a detailed program dealing with such matters as distant signal carriage, the definition of local signals, leapfrogging, and exclusivity (both network and non-network). That program is now approaching final action.

As of course you know, representatives of the three principal industries involved-cable, broadcasters, and copyright owners—have reached a consensus agreement that deals with most of the matters mentioned above. On the basis of experience and a massive record accumulated over the past several years, we regard the provisions of the agreement to be reasonable, although we doubtless would not, in its absence, opt in its precise terms for the changes it contemplates in our August 5 proposals. But the nature of consensus is that it must hold together in its entirety or not at all-and, in my own view, this agreement on balance strongly serves the public interest because of the promise it holds for resolving the basic issue at controversy.

This brings me directly to a key policy consideration where your counsel would be most valuable. That is the effect of the consensus agreement, if incorporated in our rules, on the passage of cable copyright legislation.

The Commission has long believed that the key to cable's future is the resolution of its status vis-a-vis the television programming distribution market. It has held to this view from the time of the First Report (1965) to the present. We remain convinced that cable will not be able to bring its full benefits to the American people unless and until this fundamental issue is fairly laid to rest. An industry with cable's potential simply cannot be built on so critical an area of uncertainty.

It has also been the Commission's view, particularly in light of legislative history, that the enactment of cable copyright legislation requires the consensus of the interested parties. I note that you have often stressed this very point and called for good faith bargaining to achieve such consensus.

Thus, a primary factor in our judgment as to the course of action that would best serve the public interest is the probability that Commission implementation of the consensus agreement will, in fact, facilitate the passage of cable copyright legislation. The parties themselves pledge to work for this result.

Your advice on this issue, Mr. Chairman, would be invaluable to us as we near the end of our deliberations. With warm personal regards. Sincerely,

DEAN BURCH, Chairman.

U.S. SENATE COMMITTEE ON THE JUDICIARY, SUBCOMMITTEE ON PATENTS,

TRADEMARKS, AND COPYRIGHTS

(Pursuant to Sec. 13, S. Res. 32, 92d Congress)

Washington, D.C. 20510

January 31, 1972
Hon. DEAN BURCH,
Chairman, Federal Communications Commission, Washington, D.C.

DEAR MR. CHAIRMAN: I have your letter of January 26, 1972, requesting my advice on the effect of the consensus agreement reached by the principal parties involved in the cable television controversy on the passage of legislation for general revision of the copyright law.

I concur in the judgment set forth in your letter that implementation of the agreement will markedly facilitate passage of such legislation. As I have stated in several reports to the Senate in recent years, the CATV question is the only significant obstacle to final action by the Congress on a copyright bill. I urged the parties to negotiate in good faith to determine if they could reach agreement on both the communications and copyright aspects of the CATV question. I commend the parties for the efforts they have made, and beiieve that the agreement that has been reached is in the public interest and reflects a reasonable compromise of the positions of the various parties.

The Chief Counsel of the Subcommittee on Patents, Trademarks and Copyrights in a letter of December 15, 1971 has notified all the parties that it is the intention of the Subcommittee to immediately resume active consideration of the copyright legislation upon the implementation of the Commission's new cable rules.

I hope that the foregoing is helpful to the Commission in its disposition of this important matter. With kindest regards, I am Sincerely,

JOHN L. MCCLELLAN, Chairman. NATIONAL CABLE TELEVISION ASSOCIATION, Inc.,

Robinson, III., February 14, 1972. Mr. David HOROWITZ, SCREEN GEMS New York City, N.Y.

DEAR MR. HOROWITZ: As you know, the FCC issued its long-awaited CATV Report and Order on February 3. The rules adopted in that document are largely based on the compromise agreement of November 5, 1971, to which NCTA, NAB, AMST and the ad hoc copyright owners' committee were signatories.

NCTA has analyzed the new rules, and, although we would have preferred to have many of the provisions enacted in a different inanner, we have decided not to cause further delay by our opposition.

The compromise obliged all of the agreeing parties to support implementation of its provisions. The FCC has now acted, and the new rules are scheduled to take effect on March 31. I trust that you will joint with us in opposing any reconsideration of the Report and Order, attempts to stay the effective date, or appeals from the rules. Support of the Commission at this time is called for by the compromise. Best personal regards, Sincerely,

JOHN GWIX.

PICTURE INDUSTRIES, INC.,

New York, N.Y., February 18, 1972.
Mr. JOHN GWIN,
Chairman of the Board, National Cable Television Association, Inc., Robinson,

III.
DEAR MR. GWIN: Thank you for your letter of February 14, 1972.

We are in full accord with your statement that "the compromise obliged all of the agreeing parties to support implementation of its provisions." I trust that we are also in agreement that such implementation pertains not only to the rules

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