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SUPPLEMENTARY JOINT STATEMENT ON S. 1361 OF THE NATIONAL ASSOCIATION OF

BROADCASTING AND THE ASSOCIATION OF MAXIMUM SERVICE TELECASTERS This Supplementary Statement is addressed to the modifications which the National Association of Broadcasters (NAB) and the Association of Maximum Service Telecasters (MST) believe should be made in the provisions of S. 1361 bearing upon cable television (CATV). It also considers some aspects of the oral and written statements made or submitted by representatives of cable interests before this Subcommittee on August 1, 1973. Finally, as indicated in the statement of NAB President Vincent T. Wasilewski at the August 1 hearing, it deals with the question of copyright liability for cable retransmission of sporting erents, as to which broadcasters were not requested to testify on August 1.

In introducing S. 1361 in March of this year, Senator McClellan noted that the CATV provisions would have to be revised in the light of events that have occurred since the bill was originally drafted in 1969. Those events include, most notably, two critical developments. The first was the November 1971 Consensus Agreement (Appendix A), which broke the impasse among broadcasters, cable interests, and copyright owners over CATV copyright and other matters relating to cable television. The second was the implementation of all of the Consensus except the copyright aspects in the form of new cable regulations adopted by the Federal Communications Commission in February, 1972, which terminated the freeze on CATV development and established the conditions for expansion of CATV throughout the country. This second development provided the CATV interests, but not the broadcasters or the copyright owners, with the principal benefits promised them by the Consensus.

Although the Consensus Agreement was generally more favorable to CATV than to broadcasters or copyright owners, all the parties who accepted it compromised deeply entrenched positions as to the extent and terms of the copyright liability of cable systems and as to the regulatory conditions under which such systems should be permitted to operate. The Consensus provided that the parties would support legislation implementing its provisions relating to copyright, and the Federal Communications Commission promptly implemented the regulatory provisions in the expectation that implementation of the copyright provisions would follow.

It is clear that the Commission adopted the Consensus specifically because of the copyright provisions. It promulgated its cable regulations conforming to the Consensus only after its Chairman had solicited and received the advice of Senator McClellan, as Chairman of this Subcommittee, that FCC implementation of the regulatory provisions of the Consensus would “markedly facilitate passage of copyright legislation," and that the entire Consensus was, in his view, "in the public interest and ... a reasonable compromise of the positions of the various parties." (Appendix B), On the strength of this assurance from Senator MeClellan, the Commission then concluded that its adoption of the Consensus would "markedly serve the public interest."

Having agreed to the Consensus, NAB and MST support enactment of the copyright legislation contemplated by that Agreement, although our support depends on the implementation of the entire compromise. Adhering to the spirit of the Consensus as well as to the letter, we have joined with the copyright owners in drafting revisions of Section 111 and certain other provisions of S. 1361 which would achieve this result. A copy of the Revised Text we propose is attached as Appendix C. Ever since the Consensus was agreed to, NAB and MST have tried repeatedly to induce the National Cable Television Association (NCTA), which formally accepted the Consensus on the same day as the NAB, to join them in this effort, but NCTA has consistently refused.

Our Revised Text does not afford either broadcasters or copyright owners the full protection to which we believe they are entitled. In particular, the grant of broad compulsory copyright licenses for CATV restransmission of the signals and programs of broadcasters gives cable systems an unfair competitive advantage over broadcasters and an unfair bargaining advantage in dealing with copyright owners; in effect, it also provides them with a subsidy out of the pockets of copyright owners and competing broadcasters in the form of lower fees than they would pay if they had to bargain for a license. The exemption from normal copyright liability conferred upon small cable systems, of course, is a straight subsidy payable to such systems out of the same pockets. In addition, under the compulsory license granted by the Consensus, copyright owners and broadcasters will enjoy substantially less exclusivity protection in markets below the top 50 than they could ordinarily expect vis-a-vis other broadcast stations. We are nonetheless supporting these and other unfavorable provisions of the Consensus Agreement because we solemnly undertook to do so, and because in so undertaking we were assured of comparable support from NCTA for the critical copy. right protections provided elsewhere in the Consensus.

We recognize that Congress is not bound by the copyright terms of the Consensus, any more than the FCC was bound to adopt its regulatory provisions. Nonetheless, prior to the Consensus the Chairman of this Subcommittee repeatedly urged the parties to seek a compromise over the intractable copyright issues which had long delayed enactment of copyright revision legislation. The Chairman and the FCC have emphasized that the compromise actually negotiated is reasonable and in the public interest. The FCC acted in reliance on the Consensus in issuing its 1972 cable regulations. In these circumstances, failure to implement the copyright provisions of the Consensus could only encourage abuse of the legislative and administrative processes by future participants, and implementation of the copyright provisions of the Consensus is the appropriate means to serve the public interest.

THE CONSENSUS COMPROMISES

The Consensus Agreement was to have ended years of conflict over a variety of issues relating to CATV copyright liability, including such basic questions as whether cable retransmission should be given the extraordinary privilege of a compulsory copyright license and what protections should be provided for broadcast stations, with which cable competes but on which it must also rely for the bulk of the programs it supplies.

As the Court of Appeals recently held in Columbia Broadcasting Systems, Inc. v. Teleprompter Corp.,

F.2d

(2d Cir., Docket No. 72-1800. March 8, 1973), cable systems are subject to copyright liability under present copyright laws when they retransmit distant signals which could not be taken off the air by a local antenna without the aid of microwave relays. Except in localities where there are peculiar difficulties in receiving local signals, the importation of such distant signals via microwave is the principal service provided by CATV to its subscribers. Nonetheless, although cable systems have been spreading rapidly, they have yet to pay copyright owners anything for the programs they retransmit.

Present law aside, cable systems have in the past argued that they should be exempt from copyright liability because copyright owners are fully reimbursed by broadcasters for the use of programs retransmitted by cable. Even if this were true, it is not clear why profit-making cable systems should be given a free ride at broadcasters' expense instead of paying their share of copyright costs. But the truth is that the importation of distant signals to compete with the signals of

local broadcasters does not leave intact the revenues of either broadcasters or copyright owners. The proliferation of distant signals in a local market fragments the local audience, thus reducing the advertising revenues of local broadcasters and in consequence the amount of the copyright fees they can pay. This revenue loss is not offset by increased revenues to the broadcasters whose signals are carried by cable to distant markets, because such fragmental increases in a broadcaster's audience in the form of distant viewers cannot ordinarily be sold to advertisers. Local advertisers obviously have no interest in paying to have their messages transmitted to distant markets, and national advertisers have consistently found it uneconomic to sell in a market through retransmission of distant signals. Clear channel radio stations, for example, which can be heard at night over all or most of the United States, cannot sell their distant audiences to advertisers to any significant degree, and the scattered pockets of distant audiences gained through cable are even less appealing."

Indeed, one of the two principal audience rating services, on which advertising rates are based, does not even attempt to report the size of distant audiences acquired through cable. Thus, it is clear that under an equitable copyright system designed to encourage program creativity, cable should pay its way like other users.

Cable interests have also earnestly contended that even if they must pay something, they should not have to bargain for copyrights as broadcasters must do. They have argued that a cable system cannot possibly identify and then negotiate with the copyright owners of each of the multitude of programs it carries. These difficulties, it is is fair to say, have been exaggerated out of all proportion to their actual substance. The necessary information as to copyright owners can be obtained from the networks and the stations whose signals are carried. And the number of copyright owners of television programs carried by a typical cable system is in fact relatively small. The stations that are carried, the networks, several major film producers, and a relatively small number of distributors account for the great bulk of copyright program material. Nothing prevents cable systems from negotiating schedules of rates for all available combinations of programs offered by each of these owners, with the aid of a common NCTA negotiating office if necessary, and then simply determining from the schedules the amount of the fees that are due on the basis of the programs actually retransmitted. The music publishers, through ASCAP, have worked out such a solution for dealing with the difficulties they confronted in negotiating copyright licenses for countless renditions of their innumerable musical compositions. The free market has a way of generating a solution to such problems in the absence of legislative intervention.

Another issue with respect to CATV retransmission copyright liability has been the extent of the exclusivity rights which broadcasters and copyright owners may enforce against cable systems. A critical term of any copyright license is the extent to which it protects a licensee from competing displays of the same performance or work. Broadcasters and owners commonly negotiate exclusivity rights protecting the licensee against the broadcast of a licensed program by another broadcast station in the same market within a specified time of the licensee's own broadcast. It has consistently been the position of broadcasters and owners that they should be entitled to the same freedom to negotiate exclusivity rights against competing transmissions by a cable system importing a distant signal as they have against competing transmissions by other local broadcast stations. Responsible cable spokesmen, including YCTA, have generally conceded that cable systems should be subject to some exclusivity, but they have contended that the permissible degree of exclusivity should be sharply circumscribed.

These and other issues were compromised in the Consensus Agreement. The principal terms of the compromise were these :

Large cable systems would be subject to copy-right liabiilty, but small systems, i.e., independently owned systems with fewer than 3500 subscribers, would be exempt from payment of copyright fees.

1 It is possible that at some time in the future the importation of distant signals will lead in a few cases to emergence of powerful independent stations in major markets such as New York and Los Angeles, which will be so widely carried on cable systems that, like national networks, they will he able to sell a portion of their distant audiences to

advertisers, and copyright owners will be able to share in their added revenues. If so, the loss of revenues to copyright owners on account of cable competition might be reduced to some extent, but there would still be a large net loss, and the consequences for most hroadcasters, for local broadcasting generally, and for the public would be highly injurious.

-All cable systems would receive a compulsory copyright license for signals and programs carried in compliance with the regulatory provisions of the Consensus, which were adopted in the form of the FCC's 1972 cable regulations, including those relating to such matters as number of signals, mileage zones, and leapfrogging. Bus cable systems would have to bargain like everyone else for copyright licenses to programs taken from any additional or nonconforming signals which the FCC migiht subsequently permit them to carry. And the fees to be paid under the compulsory license would be determined by arbitration in the absence of agreement among the parties.

—Broadcasters would enjoy exclusively rights for non-network programming only in the major television markets, and their rights would be limited even there in markets below the top 50. For network programs, broadcasters would receive a narrow nonduplication right. The copyright law would provide broadcasters with machinery to enforce their exclusivity rights in the courts.

THE PROPOSED REVISIONS IN S. 1361 The Revised Text of the cable provisions of S. 1361 attached as Appendix C faithfully adheres to the terms of the 1971 Consensus, including those that are unfavorable to broadcasters an copyright owners. The principal changes from the present text of S. 1361 are summarized below.

1. Compulsory License.—Section 111(c)(1)(C) of the Revised Text confers a compulsory copyright license on cable systems wherever the signals carried are contemplated by and consistent with the FCC Rules of February 12, 1972, implementing the Consensus. These Rules authorize a cable system to carry all local signals and all signals that are "significantly viewed" locally; a full complement of the television networks; a quota of distant independent station signals depending on the size of the television market in which the system is located, provided that under the so-called “leapfrogging" provisions signals imported from any of the top 25 markets must come from one of the two closest such markets; and all "grandfathered signals"—i.e., all signals not otherwise authorized which were lawfully carried by the system prior to March 31, 1972. The Rules also establish exclusively rights whereby local television stations may protect themselves against simultaneous carriage of their network programs on imported distant signals (with special relief for time-zone problems), and in some markets against repetition of their non-network programs on distant signals imported by cable within periods of time that vary according to the size of the television market. Under the Revised Text, the compulsory license would cover all signals authorized by the 1972 Rules if carried in compliance with the exclusively provisions.

2. Limitations on Scope of Compulsory License.-Conversely, Section 111(c) (2) (A) of the Revised Text provides that cable retransmissions are subject to full normal copyright liability whenever they are inconsistent with or in excess of those contemplated by the 1972 Rules. This provision ensures that the compulsory license conferred on cable systems does not delegate to the FCC the power in effect to revise the copyright law whenever a majority of the Commission concludes that its rules concerning CATV should be altered. The limitations thus imposed on the scope of the compulsory license are not regulatory in nature. They do not affect the Commission's freedom to regulate. To the contrary, they ensure that the exercise of the Commission's unfettered regulatory power will not have the incidental legislative effect of modifying the copyright treatment prescribed by Congress.

Thus, future FCC regulations might permit cable systems to carry station signals or programs as to which carriage is not permitted under the 1972 Cable Rules. In that event, cable systems would be free to carry the additional or different signals or programs, but they would have to obtain a copyright license like any other user. Whatever justification there may be for a compulsory license for the bulk of a system's programs in terms of the alleged burden of multiple negotiations, it is clear that negotiating copyright licenses for a signal or programs in addition to those now authorized would not impose a burden requiring the special privilege of a compulsory license. XCTA recognized as much when it accepted the Consensus limitations on the scope of the compulsory license.

Authorization for carriage of additional signals or programs could result from changes in a variety of different Commission Rules, including (a) those which

2 NAB and MST offered to reduce the scope of the exclusivity rights in the largest markets in exchange for some protection, or less restricted protection, in smaller markets, but the cable interests refused.

specify what signals may be carried by stations in various categories of television markets, and those which locate and categorize specific television markets (Subpart D of the 1972 Rules) ; (b) those defining the programs as to which broadvarious definitions of terms employed in the above-mentioned Rules (Section cast television stations may claim exclusivity rights (Subpart E); and (c) various definitions of terms employed in the above-mentioned Rules (Section 76.5 (a), (f), (g), (h), (i), and (o) through (u)). For example, the Commission might directly authorize the carriage of an additional distant signal by stations in a particular market category. Or it might authorize an additional signal by changing the category of a particular market or the definition of a market category, by expanding the 35 mile zone which determines what signals are subject to carriage as local signals, or by changing the definition of the signals that must be carried as “significantly viewed.” Or the Commission might change its “leapfrogging" rules so as to permit carriage of signals from markets not now authorized. Similarly, by changes in the CATV exclusivity rules or the definitions on which they depend, cable systems might be authorized to carry individual programs as to which a valid exclusivity claim might otherwise have been asserted. For all such signals or programs not authorized under the present rules, Section 111(c) (2) (A) simply provides that the compulsory copyright license will not apply.

3. Arbitration of Fee Disputes.-As contemplated by the Consensus, Section 111(d) (2) (B) of the Revised Text establishes a mechanism for the arbitration of disputes over the amount of fees to be paid pursuant to a compulsory license if the parties cannot agree. We believe that this provision would result in fee levels lower than those that would prevail under free market conditions, where the copyright owner has the option of simply refusing to sell at an unsatisfactory price. Nonetheless, it would mitigate the bargaining disadvantage imposed by the compulsory owners by enabling him to seek fees which a neutral expert body would regard as just and reasonable.

The arbitration provision replaces the schedule of fees between 1% and 5% of gross receipts that would be imposed by statute for the first three years under S. 1361 as written. As the NCTA representatives who testified before this bcommittee on August 1 expressly recognized, this fee schedule is necessarily arbitrary, since no Congressional hearings or studies have been conducted on the appropriate fee levels for cable systems and since the questions involved are both novel and complex.

NCTA asserts that it prefers an arbitrary statutory solution because too much time will be required for an arbitral tribunal to acquire and analyze the data necessary to a reasoned conclusion. The Revised Text meets this objection by simply relieving cable systems of fee obligations for as much as another year after enactment of the legislation, if it takes that long for the tribunal to render its decision, and by providing that, if the tribunal takes longer than a year, its decision will be applied retroactively beginning 12 months after the date of enactment. NCTA's lame contention that such a delay in determining the amount of the copyright liability would prevent cable systems from obtaining needed bank financing flies in the face of both common sense and cable experience. The experience is that a number of cable systems have received substantial bank commitments in the short time since the TelePrompter decision specifically established their liability under present copyright law; indeed, TelePrompTer itself has obtained a credit of $150 million from a group of banks headed by First National Bank of Boston. (Cable Neus, May 28, 1973.) The common sense is that, if banks would withhold funds because of uncertainties as to the amount of copyright liability, the problem will not be solved by fixing a schedule for only the first three years of copyright liability, since cable systems need and seek loans for much longer terms than three years and since cable representatives insist that the amount of the fees initially fixed by statute would not be taken as relevant in determining what fees are just and reasonable thereafter.

It is not surprising that cable interests prefer the extremely low fee levels proposed in S. 1361 to just and reasonable fees determined in the most objective possible way, but they agreed to forego this exceptionally favorable treatment in favor of arbitration. The appropriateness of arbitration in the event of the parties' failure to agree is hardly diminished, as the NCTA witnesses before this Subcommittee curiously implied, by the fact that the parties have indeed failed to agree on fee amounts.

4. Exemption for Small CATV Systems.-Section 111(d) (2) (C) provides an exemption from fee liability under the compulsory license for cable systems serv

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