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These terms and conditions are not regulatory but rather serve to define the interface between copyright policy and regulatory policy to the extent necessary to assure that copyright policy is not inconsistent with regulatory policy and that the FCC does not modify copyright law by modifying its rules. Section 111(e) together with the other provisions of Section 111 in the Revised Text would effectuate the Consensus and would achieve the proper balance in the copyright bill.

5. As noted in the text, NO A's repeated references to Section 111(c) (4) (C) as a sports “blackout” provision is simply inaccurate. For the reasons set forth in the text, this provision should be eliminated.

6. NCTA says that it favors the adoption of Section 111(d) as written, but suggests that systems of 3,500 subscribers or less be exempt from payment of copyright fees. Section 111(d) is to a large extent a procedural provision except that it also contains a statutory schedule of fees. Our position with respect to the statutory schedule of fees was set forth in Mr. Wasilewski's testimony before the Subcommittee on August 1 and also in the text of this supplementary statement. We support the 3,500 subscriber system exemption as contemplated by the Consensus, but only if the other portions of the Consensus are incorporated into the copyright bill. Moreover, the exemption should apply only to independently owned systems with 3,500 subscribers or less.

7. NCTA proposes to change the definitions of “primary transmission", "secondary transmission" and "cable system" in Section 111(f). To the extent that the changes in the definitions of “primary transmission” and “secondary transmission” would result in excluding translators from the coverage of Section 111 generally and imposing copyright liability on municipally owned and nonprofit privately owned translators, we oppose the changes in the definition. To the extent that NCTA's proposed changes in these three definitions would serve other purposes, it has not explained what the purposes or the consequences might be. The changes tinker with language the meaning of which is well understood and could therefore result in a confused and unsatisfactory legislative history. Accordingly, we oppose these changes until NCTA describes in detail their purpose and effect, and we reserve the right to comment further when and if this occurs.

8. NCTA proposes to amend Section 110(5) by adding the language “or (C) The transmission is made consistent with the purposes of Section 111 of this Title.” Again, NCTA's explanation for the change is not especially enlightening since, as we read Section 110(5), it does not deal with exemptions for educational purposes. Nor is the proposed language itself clear. Accordingly, our position is the same as with respect to the preceding point.

9. Finally, NCTA proposes that no limitation be placed on the reception of programs by way of CATV which are not copyrighted or subject to copyright. This proposal is so general that we cannot come to grips with it at this time and reserve the right to express further views when NCTA explains its purpose and effect. As worded, it seems to be purposeless. The provisions of the bill should stand by themselves, and if NCTA has any specific provisions in mind which it believes should be changed, we submit that it should identify them so that other parties have reasonable notice as to the changes it is trying to persuade Congress to make.

STATEMENT OF NATIONAL BROADCASTING COMPANY, INC.

AUGUST 10, 1973 This Subcommittee is presently considering a proposed statutory revision of the copyright laws (S. 1361). NBC has previously commented on various aspects of the proposed statute and requests this opportunity to do so again. While there is much that can be said about such a sweeping and comprehensive change in the law, we restrict ourselves to those provisions that are of special signifi. cance to us Section 111, dealing with cable television, and Section 114, dealing with the use and licensing of sound recordings.

We respectfully request that our statement be made a part of the record of the Subcommittee's hearings. A. Section 111

Seciton 111 will affect us as an owner of copyrighted material. In a larger sense, however, it will also determine the future of cable television and its relationship to free television. The industry practices it engenders will not be easily reversed. We urge that careful deliberation be given to each of its unique features.

Free television has developed by providing a variety of entertainment, news and information programming to the public at considerable cost and risk. Thus far, cable, when not engaged in merely providing a signal amplification service, has essentially used the services of free television, picking and choosing the best, casting off the unprofitable and bearing none of the programming risks.

We view cable as a potential force to supplement the services now provided by free television. We believe that cable should be encouraged to break new

ound and to develop new sources of programming that are not typically available to the public on free television. Section 111, as it is now drafted, will not further that objective. In our view, the concept of compulsory licensing that is embodied in the section will only encourage cable to continue to appropriate the services of free television.

At the outset, a crucial distinction must be made between the transmission by cable of "local" broadcast signals and "distant” signals. Cable systems that merely retransmit or amplify local signals do not necessarily affect the competitive position of local broadcasters (except, perhaps, in a few overlapping markets), television networks, or copyright owners. While benefiting cable operations, such activity expands the potential audience for a program by delivering signals which might otherwise be blocked within the originating station's broadcast area. The low rates for local transmissions that are presently proposed in Section 111 would not, therefore, be unreasonable with regard to such activity.

Cable systems that import distant signals, however, interfere unreasonably with local broadcasters, television networks and other exhibitors of copyrighted material by interjecting programming that dilutes their audience. While program diversity is desirable, cable systems engaged in this activity are not creating anything new; they are appropriating the property of others. They should, therefore, pay for the properties they use, just as broadcasters and networks must pay for them.*

"... when a CATV system imports distant signals, it is no longer within the ambit of the Fortnightly doctrine [392 U.S. 390 (1968)], and there is then no reason to treat it differently from any other person who, without license, displays a copyrighted work to an audience who would not otherwise receive it. For this reason, we conclude that the CATV system is a "performer" of whatever programs from these distant signals that it distributes to its subscribers” (emphasis added).

We thus urge that the proposed Section 111 take cognizance of this distinction by providing for the minimal fees for the transmission of local signals now proposed in the statute and higher fees for the importation of distant signals.

As we have previously pointed out to this Subcommittee (see our letter to Thomas C. Brennan, dated March 13, 1972), studies by independent research organizations have indicated that distant signal importation permits cable to substantially increase its revenues and profits. Cable should pay a reasonable price for these benefits. Requiring cable to pay its fair share will also create new sources of revenue for program producers and encourage them to develop more and different programing. The costs of programing will be spread more evenly among broadcasters and cable, thus permitting both to acquire more programing. The ultimate result will be greater programing diversity.

We believe that a fair rate for cable to pay for the programing it receives by importing distant signals would be a percentage of gross revenue which, unlike the proposed statutory schedule, takes into account the cost to television competitors for the same material and the incremental profits that are generated for cable systems from carrying such programing.

We estimate that most non-network owned stations may spend as much as 42% of their broadcast revenue for programing and that the major networks may spend as much as 80%. The MPAA estimates that approximately 54.1% of broadcast revenues must be used to acquire programing. The NAB put the average at 34%. No matter which estimate is correct, it is clear that, under the proposed statute, cable would be paying a very small fraction of the payments made by free television for programing.

In terms of the increased profits that cable can anticipate from distant signal importation, it is also apparent that the proposed fee schedule is inadequate. The studies referred to in our March 13 letter show that distant signal importation would raise total cable demand from approximately 10,400,000 homes to at least

*This position reflects what is currently the law. In CBS v. Teleprompter Corp., 476 F. 20 338 (2d Cir. 1973), the court ruled :

18,000,000 homes (using 1969 data as a base), or a total of at least 73%. In terms of profitability, increased subscriber revenues for a typical small system (3,800 subscribers) would, in the tenth year, increase pre-tax profits by 138%. It is interesting to note that since the FCC has permitted distant signal importation (March 1972), cable has been able to increase its total subscribers and the number of communities it serves by at least 20%.

We thus believe that the following schedule of fee payments is more realistic and equitable:

Percent of gro88 subscriber revenues Number of subscribers :

for distant signal importation Up to 3,500_

7.5 3,500–10,000

10.0 Over 10,000.

12.5 This proposed schedule is much fairer than the schedule contained in the bill. It recognizes the existence of the relationship between distant signal importation and increased profits. It affords copyright owners a greater revenue base for the exploitation of their material. It is scaled in such a way that smaller cable systems will not pay as much as more profitable systems. Finally, it brings into more reasonable proportion what free television must pay for desirable programming and what cable should pay for such programming.

We estimate that the proposed charges will be less than one-half of the incremental revenues attributable to importation and an even smaller percentage of the incremental profits that can be obtained from such activity. The proposed maximum fee of 12.5% is small compared with the average of 34 to 54% of revenues that the typical broadcaster must now pay for programming.

We recognize that any fee schedule that is proposed at this time will, of necessity, be speculative; there has not been sufficient time to gain useful operating experience. However, once a fee schedule is adopted, the pressure to retain it as a maximum will be overwhelming. Cable will argue that it relied on the statutory fees in planning its expenditures and charges. Any fee schedule thus runs the risk of becoming a permanent feature of the compulsory licensing scheme.* It is important, therefore, that the fee schedule that is adopted be realistic and equitable at the outset.

While the proposed statute does provide for periodic review of the adequacy of the statutory fees, subject to Congressional approval, we do not believe that these procedures will work. There are conflicting interests in this area. The adjustment process will be long and complex. Approval by the Copyright Tribunal and Congress will inevitably require de novo review. The process to obtain change will be complex, uncertain and time-consuming. A realistic and equitable schedule should be in the statute from the beginning.

In short, we believe that the establishment of a realistic fee schedule will encourage cable to develop new programming and programming services and not rely exclusively on its right to appropriate programming from free television at nominal costs. In this manner, the public will receive meaningful alternatives and have the best that both cable and free television can offer.

We also have the following comments and suggestions concerning the proposed Section 111.

First, if higher fees are not enacted now, then certain kinds of programming should be exempt from compulsory licensing and subject to normal rules of copyright exclusivity. Sports events, particularly local sports events, are the best examples. If a cable system can obtain such programming from free television at nominal costs, derive substantial revenues from such appropriation, and use the revenues it then obtains to outbid free television for these and other attractions in the future, the entire public will eventually be denied free access to such attractions and some of the public, in homes unserved by cable, will be denied all access.

In any event, we support the exclusion from compulsory licensing for sports events that are blacked out in local areas.

We are not seeking legislation that immunizes us from competition with cable television. We are merely saying that the law should not favor either industry. The proposed statute would give cable a substantial advantage by permitting it to obtain programming for nominal charges at the same time that

*It is most instructive that Section 801 of the proposed Statute empowers the Copy. presupposes that the proposed rates are reasonable now. We do not believe they are. right Tribunal to assure that the statutory rates "continue to be reasonable." This

free television must pay substantially more. Cable should not be the statutory beneficiary of such an advantage.

Second, in no event should Congress attempt to determine now what cable will pay in the future for additional distant signal importation beyond the present authorized limit. The fees for such additional importation should be left to the forces of the market and consumer interest and support. There is no way of knowing now whether the fees currently proposed for increased distant signal importation will be adequate, or, for that matter, excessive.

Third, since the compulsory licensing scheme is a broad exception to the rights that a copyright owner normally has, certain exclusivity rights should clearly be set forth in the copyright statute and not depend on any other agency, such as the FCC, for their continuation. The FCC has recently promulgated exclusivity rules (see FCC Rules, $ 76.91 et. seq.). We are especially anxious that, as a minimum, the FCC rule that guarantees us "simultaneous" exclusivity for network offered programs, i.e., a prohibition against importing a network program into a market at the same time it is offered by a network affiliate in that market, be incorporated in the copyright statute itself. B. Section 114

Section 114 provides for a separate performance fee for the use of sound recordings as well as creating a separate copyright in such material. We understand that the main purposes of the Section are to give record companies greater protection against record piracy and to enable such companies and performers to make more money. As a major user of records, we oppose the imposition of additional charges for the right to play records on the air that will merely benefit manufacturers and performers, as opposed to the creators of copyrighted works. We believe that protection from record piracy can be achieved by creating a separate copyright in sound recordings without creating a sepa rate performance right that will burden broadcasters. In short, we believe that Section 114 goes too far and is unnecessary.

In the past, record companies and performers have recognized that there wis an advantage in having their records used by radio stations. Most records were supplied without charge. We see no reason why Congress should now create a new revenue base for manufacturers. Section 114 will force broadcasters to pay record companies for the “privilege” of increasing their record sales. That is not the purpose of the Constitutional guarantee of copyright protection.

Similarly, it strikes us as being unwise for Congress to involve itself in creating a new revenue base for performers, many of whom are already wellpaid and successful. In all probability, lesser-known talent will not benefit that much. The compensation that performers receive should remain a function of private negotiation, not national legislative policy.

At present, we must pay performance rights societies (ASCAP and BMI) for the right to perform copyrighted musical works. If we also must pay record companies for the right to play records of the same copyrighted musical work, our fees may double. There will also be added administrative costs.

We thus oppose Section 114 as an unwise extension of what is validly needed “to promote the useful arts and sciences."

We appreciate the opportunity to present our views to this Subcommittee and stand ready to assist it in whatever way is useful.

NATIONAL CABLE TELEVISION ASSOCIATION, INC.,

August 1, 1973. Hon. JOHN MCCLELLAN, New Senate Office Building, Washington, D.C.

MY DEAR SENATOR MCCLELLAN : In the course of my testimony this morning concerning S 1361, I was asked on several occasions as to NCTA's attitude toward the so-called OTP Consensus Agreement. I indicated that NCTA is now and has always supported what we regard as the basic intent of the Agreement, namely that all parties work toward the early passage of copyright legislation. This, of course, we have done while others have sought to impede the legislative process on this subject. In any event, however, I did not choose to allude in my testimony to the extraordinary pressures which were placed upon NCTA and the cable industry by both the Office of Telecommunications Policy and by members of the administration to accept the terms of the Consensus Agreement. I feel it only fair to say that the cable industry was offered as an alternative only the indefinite extension of the FCC's "freeze" or the equally unattractive possibility of extensive and unproductive congressional hearings.

After reviewing my notes, I feel it imperative to offer the above comments at this time and ask that they be included in the record. Very respectfully yours,

DAVID H. FOSTER.

SUUPLEMENTAL COMMENTS OF NATIONAL CABLE TELEVISION ASSOCIATION, INC.

During testimony on S. 1361 on August 1, 1973, several questions were asked of NCTA witnesses which required some research to answer. Chairman McClellan directed NCTA to submit the answers to the Subcommittee in written form. We have attempted to do so herein. 1. The effect of the graduated fee scheduled in Section III on the nation's three

largest cable television systems (two in New York City and one in San

Diego); and the effect of doubling that fee schedule The three largest cable systems in the United States in terms of the number of subscribers served are Mission Cable TV, Inc., San Diego, California ; TelePrompTer Manhattan CATV Corp., New York City; and Sterling Manhattan Cable TV, New York City. At the outset, it should be noted that of the three CATV systems only the San Diego system is reported to be at all profitable.

NCTA has obtained from these companies the total revenues from subscriber service fees for the most recent quarter in the 1973 calendar year for which data were available. NCTA calculated the copyright fee payments that would be required were the fee schedule in Section III in effect at the time, and made a further calculation to determine the effect on revenues of a doubling of the proposed fee schedule :

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Assuming the quarterly revenues to be constant for the purpose of projecting a full year's payment of copyright fees-actually understating the true annual effect, inasmuch as subscriber revenues would increase each quarter from subscriber additions—the annual payments by the three systems, under the fee schedule in Section 111, would range from $166,380 to $192,000; under a doubling of the fee schedule, copyright payments would range from $332,760 to $384,000. Collectively these three systems would pay at least a half million dollars in copyright fees for the current calendar year under the schedule in Section 111, and more than a million dollars were the schedule doubled.

The imposition of high copyright fees on these cable systems and on those presently under construction or proposed to be built in the major markets will have an adverse impact on the earnings of those systems now or soon-to-be operational, and may well deter cable construction in undeveloped markets. 2. The effect of doubling the fee schedule in Section 111 on the rate of return on

total capital of projected major market CATV systems In his testimony of August 1, NCTA President David H. Foster cited a study by Dr. Bridger Mitchell on the impact of copyright fee proposals on major market CATV systems in which he found that the effect of the fee schedule in Section 111 would be to reduce the rate of return on total capital a full percentage point for profitable or near profitable systems. Responsive to the Subcommittee's desire that NCTA provide pertinent data on the effect of a doubling of the fee schedule in Section 111, Dr. Mitchell has calculated that, under a doubling of fee payments :

(A) Large systems on the edge of major markets which, without any copyright liability, will earn a 10-13% rate of return, would have that rate reduced to 7.5–11.0%-a reduction on total capital of two or more full percentage points.

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