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STATEMENT OF GEORGE J. BARCO. GENERAL COUNSEL, PENNSYLVANIA CABLE

TELEVISION ASSOCIATION Mr. Chairman, Members of the Subcommittee, I am George J. Barco. For the past 17 years, I have served as General Counsel of Pennsylvania Cable Television Association. Pennsylvania is the state in which the cable television industry started, and there are some 300 CATV systems operating in over 1,100 communities—more than in any other state in the nationserving over 2,000,000 television viewers. It has been my privilege to serve as National Chairman (then known as President) of National Cable Television Association, and I was a member of its Board of Directors for 15 years. For the past year, I have served as member of the NCTA Coypright Committee. Also, for the past 20 years, I have been, and still am, a part owner and the president of several cable television companies.

By way of further introduction, I believe I should state a disclaimer, for the benefit of NCTA, and for the information of the Committee, that while I have been an active participant in the affairs of NCTA over the years, the views I am about to express on the copyright issue are my own, and in many respects do not correspond with the officially adopted views of NCTA as an organization. At the same time, let me state that I believe my views reflect those of many, many cable operators all over the country. There is no single matter which has concerned the CATV industry for the past 7 to 8 years more than copyright. Over this period, I have talked on a person-to-person basis with literally hundreds of cable operators and virtually every industry leader on the subject.

Let me state finally by way of introduction that I view my task today as awesome and the situation for the cable industry as critical, if not desperate. In the circumstances, I can only state the situation as I see it fully and frankly to the Committee, without regard to certain existing predelictions, interests and objectives among the forces interacting on the copyright issue, within and without NCTA. I am very appreciative for this opportunity of doing so.

In October, 1968, the Board of Directors of the Pennsylvania Association, following a careful consideration of the copyright issue, adopted what has been termed as the "Pennsylvania Position" on copyright. Its underlying principle is simply that television signals received "off-the-air" should not be subject to the payment of copyright fees so long as similar payments do not apply to reception by conventional antennas. The Position recognizes that copyright fees should be payable for copyrighted programs received by microwaving or similar long distance transportation, and that such microwaving should be subject to regulation in view of its impact on television broadcasting, copyright property rights, and the interrelated market patterns of both."

While recognizing the legitimate interests of many who are interested in providing direct television program services, and a variety of other communication services in the metropolitan area by cable, the Pennsylvania Position urges that the television reception function for "off-the-air" signals by CATV should not be colored by the possible future developments of cable television, nor should the inherent rights in such reception be traded as a part of any compromise between the conflicting interests concerned in large city cable television development.

The Pennsylvania Position has received wide support in the industry throughout the nation for it was grounded on the basic concept and fact of CATV performing the community antenna reception function for signals received "off-theair". Further, it seemed incomprehensible that liability to copyright fees should depend on the accident of topography-or in the real life situation of the television viewer-whether he was living in the high area where a conventional antenna did the job, or whether he lived behind the hills or along the river where community antenna service was required or desirable to provide satisfactory television reception. How could there be any justification for requiring the subscribers to make an additional payment to the copyright owner who had already received payment in his contractual arrangements for the broadcasting, paid ultimately by the television viewers including CATV subscribers—in the advertising costs of purchased products? Besides, until recently the copyright owners made repeated public assurances that they were not interested in par. ments related to such television reception services, but were interested in only the large city markets where distant signals were to be imported.

1 Under the Pennsylvania Position, no copyright fees should be payable on reception provided of three stations, with the three major networks, and one independent station, whether the signal is received “off the air" or by microwave, in the interest of all members of the public receiving minimum television service.

And most important of all, the Supreme Court of the United States in the United Artists case made a determination, in June, 1968, recognizing and establishing in legal terms the concept always understood by cable men in practical terms by the very nature of their operations.

Yet, in the intervening years from 1968, the membership of National Cable Television Association was sharply divided on the copyright issue. One segment considered any payment of copyright fees for signals received “off-the-air" an infringement of very basic rights, for the reasons just mentioned. The other segment viewed payment of copyright "across the board" as the only realistic means for securing importation of distant signals thought to be necessary for the economic viability of cable television for the large cities if and when such system construction occurs.

To fully understand the circumstances of this division, it must be understood that the membership of NCTA is not a homogeneous group; and that while all members of NCTA are in the cable industry, a substantial number of them and particularly some large multiple system owners--also have other interests which are at variance with CATV interests as such, as, for example, television broadcasting and copyright interests. It is not surprising that the persuasions of the copyright payment segment within NCTA have been weighted and influenced by these interests and still are today.

As is well known, the event of decision came in November, 1971, in the context of the Office of Telecommunications Policy Compromise, which was approved by the NCTA Board of Directors because it appeared to represent the only available basis upon which there was any possibility for removing the Federal Communications Commission freeze on cable television development, particularly in the large markets.

Whatever differences there may have been within NCTA over philosophy as related to the regulatory scheme and the payment for copyright, I can state I believe that every possible effort was made by the NCTA Copyright Committee, and others of the CATV industry concerned with the implementation of this decision, to accommodate to the situation. I can state from my own personal knowledge that the attitude, demands and conduct of those representing the movie copyright owners during the sessions which I attended were such that all efforts to deal with them were vigorous exercises in futility.

The representatives of these copyright owners were completely uninformed as to the nature of CATV operations, their financial aspects and the specific current problems facing the industry; and they were evidently determined to maintain their ignorance on these matters. Furthermore, they displayed a callous disregard of the consequences of their exorbitant and totally unrealistic demands. Thus, when they were informed that our industry simply could not pay the demanded 16% fees for movies alone, added to fees proposed for music and other copyright of over 12%, the response was a blatant "pass it on to the subscribers and tell them it is a cost of doing business."

When we attempted to cite the absolute and practical limitations to service charge increases, by way of clearances through the municipalities on whose. franchises the operation must depend, and by way of the business fact that subscribers either could not-or would not-make such payments, the blunt rejoinder was “just pass it on to the subscribers anyway."

I must observe that the FCC, in insisting on copyright payment as one of the conditions to the easing of restrictions on CATV growth, placed a perhaps unforeseen, but nonetheless, tremendous pressure on the CATV representatives in the bargaining process. The copyright owners were under no concomitant burden, and, in fact, they maximized their advantage by insisting, in effect, that this condition amounted to a requirement that CATV settle on the terms of the copyright owners. In the end, it was painfully clear to even the most optimistic and the most tolerant of those representing NCTA that fair, realistic and responsible dealing with the copyright owners had been and is an utter impossibility.

Gentlemen, I put aside completely my firm conviction that copyright payment for the reception of television signals received "off-the-air" is wrong in principle and discriminatory in effect. I address myself now to the consequences of the imposition of copyright payments which this industry simply cannot afford to pay on its growth, development, and, yes, its survival. Let me capsulize the dif. ficulties of cable television operations today.

Of course, like all other business, we are plagued with increased costs incident to the inflationary period in which we are living. Substantial basic costs like pole attachment fees currently are being increased from 40% to 70% across the nation. FCC technical standards will require great expenditures in system rebuilding in the next several years with correspondingly increased operating costs. Compulsory cablecasting is still a requirement for systems over 3,500 and operating costs for even a modest operation run into tens of thousands of dollars annually.

As against this spiraling of costs, there is a definite and absolute limit in the possibilities for service charge increases, either because approval cannot be secured from the municipality or other franchising authority, or because the market conditions will not support the increases, or for both reasons. At the same time, there are converging interests by state and local governmental units seeking control, restraints and services—sometimes duplicative, sometimes inconsistent-all exacting upon the total resources of the cable industry.

Added to these problems of existing systems, new systems have the added burdens of the staggering costs and special difficulties of system construction and operation in the large and metropolitan city areas, and the feasibility and acceptance of CATV service in such areas are yet to be established. The experiences to date in the New York City and Akron, Ohio, systems are instructive on the vicissitudes and hazards of such ventures.

The Committee is being furnished with specific data on the overall financial capacity of the industry. It is my sincere and firm opinion that even without copyright payment, the industry is entering into a tight squeeze situation in which it will have real difficulties to "hold its own," let alone to develop and grow. Against these present day industry conditions, it is left for this Commission to deal with copyright in terms of the consequences, something the copyright owners refuse to do.

I respectfully submit that a proper concern for the interests of the subscriber as a consumer demand that no copyright payment should be imposed which cannot be absorbed by the industry, without passing the copyright charges to the charges to the subscriber.

Aside from the fact that for reasons indicated it may not be possible for these charges to be passed on, it is unthinkable that the copyright owners should, in effect, come into the very homes of the subscribers to secure additional payment just because reception is being provided through a wired system. Furthermore, the disturbing fact is that in all of the deliberations within NOTA, in all of the negotiations with the copyright owners, in all of the hearings and discussions with the FCC, the subscriber has never been independently represented ; and he has never had an opportunity to be heard. I am confident that this Committee will act with due regard to the subscriber's interest, in keeping with the enlightened present-day concerns for the consumer who in the end supports the entire enterprise.

Further, I respectfully submit that a proper concern for the future growth and development of cable television and the services it can provide to the public, demands that any copyright payment should be such that payment does not restrain, impede or burden the industry's growth and development.

Nothing could more surely restrain cable's growth than the prospect to investors that the possibilities for recovery of capital and a reasonable profit incident to the risks would always be subject to the vagaries and inordinate demand of the copyright owners, who are, of course, not subject to any direct governmental regulation.

And this industry must have the resources to do the research, the experimentation and development which are necessary to transform the great expectations for it into realization. I am pleased to report that up to this time there has been positive progress toward that realization.

Let me cite two examples. In Pennsylvania alone, following substantial expenditures in time, money and effort for development and experimentation-which time today does not permit me to detail-there are now some 53 systems conducting regular cablecasting operations with a system for interchange of tapes by bicycling. In this project, state government reports and political campaigning for United States senatorial, gubernatorial and other statewide offices have been provided for over one-half million homes. Arrangements have just been completed for the production of a regular report program for the United States senators and representatives at Washington on the three-fourths inch format which will be available for timely distribution throughout the systems.

The other example is a further development from this bicycling effort and is in the serious planning stage. The project will take advantage of our beautiful

Pennsylvania hills where it all started by using them as a resource for sites to provide a statewide microwave network which would link all of the cable television systems (and school district educational centers where there are no CATV systems) for three channels of educational programming for all of the people in Pennsylvania under the direction of the Department of Public Education. The prospect is an exciting and attainable one, but we know that the cable participants as a group will have to provide a substantial portion of the capital costs for the execution of the project.

Withi particular relation to the CATV copyright legislation presently under consideration, I am most appreciative of the efforts and concerns of which it is a product. At the same time, I believe in view of the changing circumstances since the legislation was first proposed, it would not be inappropriate for me to express to the Committee certain basic matters which I believe should receive further specific consideration.

(1) The compulsory license should extend to reception service of all signals received "off-the-air".

In addition to the basic facts and principles which support this treatment, noted earlier, it should be observed that the copyright owners utilize the great public resource of the radio and television spectrum without charge. If the copyright owners choose to make use of the tremendous capability of this resource for mass dissemination of their products, with corresponding increased coverage and return, it is wholly unreasonable and unjustifiable for them to insist on all the benefits of broadcasting and yet maintain the same control as if they had provided their own contained arena or exhibition hall.

(2) The copyright fee for reception service of signals received off the air” should be maximum of 1% to 2% and should be fixed statutorily.

For reasons indicated, there is really no justification for any copyright payment for signals received "off-the-air," and this payment should be kept at a minimum in view of the financial circumstances of the industry and the plain fact that to the extent of any such payment, there must be a corresponding reduction in the capability of the industry for research, development and growth. At all events, this rate of payment should be fixed by statute, so that at least with regard to this basic television reception service, the industry may have financial stability for the long growth requirements ahead.

(3) The copyright fee for reception service provided of distant signals transported by microwave should be established initially at one-tenth of 1% per channel, this fee being subject to adjustment after an initial three year period by a negotiation procedure between the parties, or in the event of disagreement, by arbitration.

(4) In our view, arbitration is a wholly inappropriate and unsatisfactory procedure for establishing copyright fees for basic television reception service of signals received "off-the-air."

For such a determination, arbitration is an inexact and uncertain process with no established guidelines or criterion upon which a sound decision can be made. The continued survival and well-being of the industry should not be left to the chance and power plays which are the only certain operating factors in the process under the circumstances. The public interest in the premises, and particularly in the growth of cable television, demands a degree of direct accountability in the legislative process which establishes the copyright in the first place, particularly since copyright owners have no commitment to the industry or its future.

On the other hand, providing reception of distant signals transported by microwave or otherwise, being a matter of choice and a calculated risk for the CATV companies that choose to do so, is properly subject to a bargaining process or for the ultimate arbitration arrangement. The market considerations for both the copyright owners and the CATV industry in these "extra services" should make the industry negotiations a more balanced and effective process.

(5) There should be no exemption of copyright fees for any system on the basis of size.

I know of no justification either in terms of costs or otherwise for different treatment between systems based on size or among subscribers based on the size of the system from which they are served. Any exemption, instead of being based on size, should be based upon an exemption for all systems in terms of gross receipts, as, for example, an exemption for the first $200,000.00 of gross receipts from an integrated system operation, or some other appropriate operational unit. Further, gross receipts should be very specifically and clearly defined to include only receipts for reception service provided of broadcasted signals and should not

include receipts attributed to local origination, direct program services, auxiliary services, and the like.

(6) There should be no exemption of copyright fees for any system based on the ownership and operating entity being a governmental body or non-profit organization, or because the system is a part of a hotel, motel, apartment or like operation.

(7) An exemption or credit should be provided by way of an incentive to the development of cablecasting and local program originations.

One possibility is an exemption from gross receipts in the maximum amount of $50,000.00 for direct personnel and material costs incurred in such program productions. Another is a credit against the copyright fees based on a percentage of direct personnel and material costs incurred in such program productions.

Senator McClellan, and Members of this Committee : Everyone believes that the cable industry has a great potential for many new services for the people of our nation. No one is more certain of this than those of us who have nurtured the industry to its present status.

To fulfill the many promises of cable, we of the cable industry are willing to make a fair and reasonable accommodation on copyright for even off-the-air reception ! In my opinion, the copyright owners have been, and apparently still are, unable to be properly concerned with the financial problems of our industry; we, therefore, earnestly request that your committee carefully study all of the relevant circumstances, in order that your final determination will make it possible for our industry to have the financial stability to properly develop our capabilities for service for the people of our country.

[Afternoon session, 2:05 o'clock, Wednesday, August 1, 1973.) Senator McCLELLAN. The committee will come to order. Counsel, you may call the first witness for the afternoon session.

Mr. BRENNAN. Mr. Chairman, the first issue for the afternoon session is the proposed religious broadcasting exemption, which appears in section 112(c) of the bill. To facilitate the reading of the record, I request that the text of 112(c) be printed at this point in the record.

Senator McCLELLAN. Very well.
That may be done.
[The material referred to follows:)

S. 1361

*

$ 112. Limitations on exclusive rights: Ephemeral recordings

* * (c) Notwithstanding the provisions of section 106, it is not an infringement of copyright for a governmental body or other nonprofit organization to make for distribution no more than one copy or phonorecord for each transmitting organization specified in clause (2) of this subsection of a particular transmission program embodying a performance of a nondramatic musical work of a religious nature, or of a sound recording, if

(1) there is no direct or indirect charge for making or distributing any such copies or phonorecords; and

(2) none of such copies or phonorecords is used for any performance other than a single transmission to the public by a transmitting organization entitled to transmit to the public a performance of the work under a license or transfer of the copyright;

(3) except for one copy or phonorecord that may be preserved exclusively for archival purposes, the copies or phonorecords are

and

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