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As NCTA pointed out in its earlier testimony, even a one point reduction in rate of return would be devastating to the cable television industry's investment environment since a 10% return is considered the minimum acceptable.
(B) Intermediate size systems on the edge of major markets, which Dr. Mitchell found would be only marginally profitable without any copyright liability at all, would thus be severely threatened by a doubling of the proposed fee schedule.
(C) Of course, since all systems in the center major markets are not projected as being profitable at the present time, any copyright fee would make profitability so remote as to preclude development. Dr. Mitchell's figures follow:
3. The effect of doubling the fee schedule in Section 111 on the pre-tax income
of the major cable television companies As NCTA pointed out in the testimony of David H. Foster on August 1, the effect of copyright payments on the earnings of the major cable television companies is crucial to the major market development of cable television, An increase in the statutory fee schedule could halt CATV's development.
NCTA's written testimony showed the effect of copyright payments, under the present fee schedule in Section 111, on the pre-tax income of eight of the largest cable television companies in the nation. Pre-tax income of those companies would be reduced by copyright fee payments, under the present Section 111, from 7.5% to 32% with an average of 19%.
If the fee schedule in Section 111 were doubled (to range from 2% to 10%), the pre-tax income of those companies would be reduced by copyright fee payments from 15% to 64% with an average of nearly 40%. Assuming the corporate tax rate, income, after taxes, could be reduced as much as 80%.
If the fee schedule were raised, a reduction of pre-tax income in this magnitude would threaten to completely shut off the already limited flow of investment funds to all but the very largest and financially strongest companies. 4. The amount of “copyright fees” paid by television stations for the broad
cast use of copyrighted materials Television stations include "copyright fees" paid to owners of syndicated programs in the total price when they buy the use of a product (a motion picture or a “package" of motion picture films, a single television program or a series of programs) under varying terms of usage. The total price may vary to reflect such matters as the number of times the product can be televised within certain periods of time, etc. Included in the purchase price, which is generally arrived at in bargaining between the station and the distributor (with the price varying by the size of the market, the bargaining ability of the station, the desire of the distributor's agent to make a quick sale, and any number of other reasons), are various costs associated with the distribution of the product and the profit to the program owner. The extent of the Profit depends a great deal upon the quality of the product (and its potential value in attracting audiences), and the ability of the distributor to extract high prices from the television stations.
NCTA's analysis shows that the owners of syndicated programs realized a gross income of $179.6 million in 1971 from sales to television stations (this is based on FCC figures). After subtracting the costs of distribution, advertising, talent, etc., approximately $50 million in profit remains. This represents a profit margin to the copyright oroner in excess of 25%.
The concept of cable television liability (imposition of a "copyright fee” based on a percentage of gross revenues from basic subscriber service fees) is a new and distinct way for the copyright owner to obtain a greater profit, above that received from television stations for the broadcast use of his product (which, in most instances is readily available to cable subscribers who, even without a cable connection, could receive the program directly from a home antenna). Because cable television improves signal quality and audience range, advertisers are charged higher rates by the broadcaster and the broadcasters can share his added income with the copyright owner. However, cable television operators receive no compensation from the broadcaster for expanding his coverage. 5. Profitability of the three national television networks and television stations
vs. cable television system revenues In May of 1973, the FCC released data on the 1972 revenues and profits of the three national television networks and their 15 owned and operated stations.
The FCC data shows that profits before federal income tax were $213.4 million (an increase of 47.2 percent over 1971).
Similar data on all other television stations for the year 1972 is not currently available from the FCC. However, 1971 data released by the Commission in August 1972, showed profits before federal income tax of $244.3 million for 673 television stations.
Because there is not available a central authoritative source of information on the profitiability of cable television systems, no comparisons can be drawn between network/television station profits and CATV profits.
However, in 1972, the estimated gross revenues (from subscriber fees, installation fees and other income) of the approximately 2,900 cable systems then in operation, was $438,100,000.
Thus, the combined pre-tax profits of the three television networks and their 15 owned and operated television stations in 1972 ($213.4 million) and the 1971 pre-tax profits of 673 television stations ($244.3 million) exceeded the total 1972 revenues of the 2,900 CATV systems by nearly $20 million.
It is ironic that the television industry and the copyright owners, whose combined profits dwarf the entire revenues of the cable television industry and which already reflect financial benefit derived from CATV through expanded audience coverage, should seek to extract an even greater profit from this emerging industry in the form of unreasonable payments for copyright liability.
NATIONAL CABLE TELEVISION ASSOCIATION, INC.,
Washington, D.C., August 29, 1973. Hon. JOHN L. MOCLELLAN, New Senate Office Building, Washington, D.O.
DEAR SENATOR MCCLELLAN: Enclosed are schedules of CATV industry copyright payments under the fee schedule proposed in S. 1361, as compared to the effect of doubling that schedule. Enclosed also is an addendum of selected data on the profitability of television program syndicators, the three national television networks and television stations. Although this information is similar to that prevously submitted, we believe that it points up the serious economic impact of copyright payments in the cable television industry as compared to the tremendous economic strength and profitability of the television broadcasting industry. For this reason we believe and respectfully request that this information be inserted in the record of the hearings on S. 1361.
You will note that the data in the addendum were based primarily on 1971 statistics published by the Federal Communications Commission. Since the preparation of the addendum, the FCC has published comparable figures for 1972, which show that total television broadcasting revenues were 3.18 billion dollars with pre-tax profits of 552 million dollars. These profits represented an increase of 42% over 1971 and were cited by the broadcasting industry as a return to "more normal levels.” Put in the simplest terms, these profits exceeded the total cable industry's revenues for 1972 by more than 110 million dollars. Needless to say, the broadcasting industry has never offered to reimburse the cable industry for that portion of its profits derived from the additional audiences made possible by CATV. With kindest personal regards, I am Very truly yours,
DAVID H. FOSTER. Enclosure.
COMPARISON OF CATV INDUSTRY-COPYRIGHT ROYALTY PAYMENTS A.-By the industry, based on 1972 data.
D.- Royalty fees cannot be passed on to CATV subscribers because regulators have denied rate increases and subscribers will not pay additional amounts. Therefore, a high copyright fee schedule will yield no more revenues to copyright owners than a low fee schedule.
ADDENDUM A.-CATV increases coverage area of TV stations and improves picture quality, but the CATV operator does not alter programs or commercials and gets no revenue from advertising on the TV signal. His sole revenue is from subscribers monthly fee (average $5.20 per month). 1. Copyright owners of syndicated TV programs had 1971 sales of.
$179, 600,000.00 Made profits of about...
$53, 900,000.00 Profit rate of (percent).
30 2. 3 TV networks had 1971 revenues of.
$1, 378, 900,000.00 Made before tax profits of
$144,900,000.00 Profit rate of about (percent)..
1042 3. TV stations had 1971 revenues of.
$1, 371, 400,000.00 Made before tax profits of
$244, 300,000.00 Profit rate of about (percent)...
18 B.- TV stations charge advertisers based on TV coverage. The rate cards of 3 New York City newtork stations are
C.-Copyright owner and television profits are larger than CATV gross revenue.
Note: Data in the addendum were obtained from the following sources: Item A-1, sales from syndicated programs, from "TV Broadcast Financial Data-1971," published by the Federal Communications Commission; data on the profitability of program syndication were obtained from surveys of several knowledgeable industry sources; Items A-2 and A-3 were developed from “TV Broadcast Financial Data—1971"; Item B data were obtaine i from the 1972-1973 edition of Television Factbook.
NATIONAL EDUCATION ASSOCIATION,
Washington, D.C., August 9, 1973. Hon. John L. MCCLELLAN, Chairman, Subcommittee on Patents, Trademarks, and Copyrights of the Sen
ate Judiciary Committee, Dirksen Senate Office Building, Washington, D.C. DEAR SENATOR MOCLELLAN: During the testimony of the Ad Hoc Committee on Copyright Law Revision at the copyright hearings on July 31, you made the following statement: “I think it is valid and important to ascertain what the impact of this educational exemption for educational purposes is" (the limited educational exemption which the Ad Hoc Committee is proposing). And you added a question, "What impact, if any, will this have on the ability of present sources to continue to make such materials available? If it is serious, it ought to be weighed ; if it is trivial, it ought to be ignored.”
In response to your question, you will recall that I read the opening paragraph of a news release issued by the Educational Media Producers Council on May 16, 1973, entitled "DEMAND FOR EDUCATIONAL AUDIO-VISUAL MATERIALS RISES 10.8% in 1973."
In order that the members of your Subcommittee might have access to the entire news release, I am attaching a copy hereto and respectfully request that you give permission to add it to the record of the hearings.
I believe this news release shows clearly the fact that the educational media producers are not suffering because of uses of their materials by the educational community. I think it important to stress here that the Ad Hoc Committee is not urging Congress to give teachers, librarians, educational broadcasters, etc., a broad exemption which far exceeds statutory "fair use." We are simply asking that Congress make legal the limited reproduction practices which teachers are now undertaking as part of their day-to-day teaching responsibilities. These practices have been delineated in our testimony. We are not asking for more privileges for copying but rather for protection for the rights we now exercise in fact. As you know from our testimony, we seek a limited educational exemption, or, in lieu of this, a broadly interpreted "fair use" clause with outright rejection of the Williams & Wilkins decision and with authorization for limited, multiple copying of short, whole works such as poems, articles, stories, and essays for classroom purposes and with "fair use" extended to include instructional technology as well as print materials. Publishers will fare no worse than they now fare under the existing law. As you will see from the attached news release, publishers are faring pretty well, and we would say the source of materials is by no means drying up.
Again, we should point out that we give visibility to the authors' works and, as a result, create markets for them. One could even make the point that publishers and authors should pay teachers for promoting their works in the classroom !
Thank you for the opportunity to testify before you and the members of your Subcommittee. Sincerely yours,
HAROLD E. WIGREN, Chairman, Ad Hoc Committee (of Educational Organizations and Insti
tutions) on Copyright Law Revision. Attachment.
EDUCATIONAL MEDIA PRODUCERS COUNCIL,
Fairfax, Va., May 16, 1973.
DEMAND FOR EDUCATIONAL AUDIO-VISUAL MATERIALS Rises 10.8% IN 1973
Fairfax, Va.-Greater use of audio-visual materials continued to characterize the classroom in 1972, according to a report to be released May 31 by the Educational Media Producers Council. The EMPC Annual Survey and Analysis of Educational Media Producers' Sales shows total sales of non-textbook instructional materials rose to $214.7 in 1972, an increase of 10.8% over 1971.
The survey, conducted by an independent market research firm under the auspices of the Educational Media Producers Council, presents a comprehensive picture of total industry software volume and a wide range of staiistical data and analysis of the education market. It includes information gathered from more than 217 audio-visual producers. Represented in the survey are small filmstrip houses as well as the largest educational publishers, stated EMPC Executive Director Daphne Philos.
The report shows building level materials sales—traditionally, those materials whose unit cost is modest enough to permit acquisition by, and storage within, individual school buildings_continued to widen their lead over the higherpriced 16mm films, commanding an impressive 74.8% share of the total educational media market. Building level materials sales increased 13.7%, while 16mm film sales rose a modest 3.3% in 1972. 16mm films continued to lead all audio-visual materials in dollar expenditures, however, with total sales of $54 million.
Sound filmstrips led all building level materials in volume increase, rising $6.2 million, but multi-media kits experienced the greatest rate of growth, spurting 23.1% to $27.2 million. Pre-recorded tapes were up 21.5% and 88mm silent film loojas increased 17.3%.
The impact of the audio cassette on educational media development and sales continues to be dramatic. Whereas in 1969 cassette volume was considered too insignificant to warrant a separate category in the EMPC Annual Survey and Analysis, cassettes accounted for 86.1% of all pre-recorded tape sales last year. In a parallel-though less pronounced-development, the cassette version of the sound filmstrip continued to gain ground on the record version, accounting for 41.9% of total sound filmstrip sales in 1972, up from 3343% the preceding year.
Since 1966, the first year the Educational Media Producers Council conducted its industry-wide survey, audio-visual materials sales to education have increased 81.9%, making strong inroads into the traditionally textbook-oriented education market. Sales of the textbook—which remains the dominant instructional medium-have increased by 22.7% during the same period.
Copies of the 20-page EMPO Annual Survey and Analysis are available for $37.50 from Educational Media Producers Council, 3150 Spring Street, Fairfax, Virginia 22030.
THE NEW ENGLAND JOURNAL OF MEDICINE,
Boston, Mass., August 6, 1973. Mr. STEPHEN G. HAASER, Senate Subcommittee on Patents, Tradesmarks, and Copyrights, Committee on
the Judiciary, Dirksen Building, Washington, D.C. DEAR MR. HAASER: I am Dr. Franz J. Ingelfinger, Editor, New England Journal of Medicine, 10 Shattuck Street, Boston, Massachusetts 02115. In the past I have been Chairman of the Editorial Board of the publication Gastroenterology, a two-term member of the Editorial Board of the Journal of Clinical Investigation, and for 14 years an editor of the Year Book of Medicine. I was for 14 years a member of various advisory boards to the NIH. I have also been a National Consultant to the Air Force, and a Consultant to the Veterans Administration and the Army. I currently serve as a Consultant to the FDA and the National Library of Medicine.
I appreciate this opportunity to present my views of the copyright bill, S. 1361, and request that this statement be made part of the official record.
Of the many criticisms made of the American health care system, one of the most serious and also one of the most accurate is its lack of efficient and appropriate communication at all levels. The practicing doctor is overwhelmed with "facts," but their mass is disorganized and unselective; thus the practicing physician is not effectively exposed to the best information available at academic centers. The trainee in medicine—the student and the house officer-is similarly discouraged by the abundance of information that is available somewhere, but which he cannot obtain because it is widely scattered and often inaccessible. Even research scientists face similar difficulties.
This otherwise dismal communication picture is alleviated in part by a number of indexing, abstracting, and duplicating services, and outstanding among these are the services of the National Library of Medicine which make it possible for physicians, scientists and students to discover titles and information pertinent to their needs. But the title, or even an abstract, is not enough; the entire article must be made available to the doctor if he is to use the new medicine correctly, or to the student if he is to understand a new process adequately. He needs a copy of the original publication.
The distribution of copies of original articles by the National Library of Medicine and by other medical libraries is thus a communiction system that must be sustained and nurtured rather than impeded. To place further financial constraints on the ready distribution of copies of medical articles is to interfere, ulti