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fact, an industry reconciliation which was finally brought back to the Congress and which, in essence, we adopted. So it is an extremely important element of the whole legislative process.

Mr. VALENTI. Senator Mathias, I subscribe to all that Chairman Dole has said and you and Senator Baucus have said. I just want to issue one modest cautionary note. I do believe time is of the essence. If we are laggard in addressing this problem, we are going to watch the American entertainment industry be devastated by technological developments.

Senator MATHIAS. Absolutely. And I do not think this committee can wait, because you are dealing with a problem of a relatively limited number of machines in proportion to the population of the United States.

Mr. VALENTI. That is right.

Senator MATHIAS. But when this gets to represent 20 or 30 percent of the population, then you begin to get a political and economic problem.

Senator DOLE. It becomes like social security, then.

Mr. VALENTI. And, Mr. Chairman, I also want to mention the audio industry. I do not want to leave audio out. They will represent themselves to demonstrate how they have been terribly and visibly wounded by the home recording phenomenon. They need help now. We and they cannot wait. We are linked together in the immediacy of this moment.

Senator MATHIAS. And that, Mr. Valenti, is why we are here. But the immediacy of this moment is such that we had better get on with the next panel.

Thank you very much, gentlemen.

Mr. HESTON. I thank the committee.

Senator MATHIAS. Our next panel will be led by the Honorable Charles D. Ferris; Nina Cornell, Richard Anderson, Carol Tucker Foreman, and Eugene H. Kummel.

Mr. Ferris, who in a former incarnation, ran the whole Senate, should be able to help us see the light on this subject.

STATEMENT OF A PANEL, INCLUDING: CHARLES D. FERRIS, COUNSEL, HOME RECORDING RIGHTS COALITION; RICHARD ANDERSON, PRESIDENT, SEA COAST APPLIANCE DISTRIBUTORS, INC.; NINA W. CORNELL, PRESIDENT, CORNELL, PELCOVITS & BRENNER ECONOMISTS, INC.; EUGENE H. KUMMEL, CHAIRMAN OF THE BOARD, MCCANN-ERICKSON WORLDWIDE; CAROL TUCKER FOREMAN, CONSULTANT, HOME RECORDING RIGHTS COALITION

Mr. FERRIS. Thank you, Mr. Chairman. I certainly hope to be helpful. Each member of the panel will introduce themselves, give their affiliations and background; Mr. Chairman and members of the committee, in the interest of saving time. I ask that my prepared statement be inserted in full in the record.

I am Charles Ferris, and I represent the Home Recording Rights Coalition, a group of American and U.S.-based international companies and American trade associations involved in the manufacture, distribution and sale of video cassette recorders and blank

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tapes, and the sale and rental of prerecorded tapes and related equipment.

Our position, Mr. Chairman, and members of the committee, is to urge the swift adoption of S. 1758, the DeConcini bill, which would exempt from copyright infringement the private, noncommercial use of the video cassette recorder.

The royalty bills and the royalty amendments purport to exempt home taping from copyright infringement. In fact, however, they charge the consumer a hefty price for the exemption, making it no exemption at all. And since copyright holders are already fully compensated by the marketplace system now in place, the royalty tax is really nothing more than a means of paying twice at the expense of the American consumer.

The issue simply put is, will the public be permitted to view programs licensed and paid for and lawfully received for viewing in the privacy of their own homes when convenient to them, without additional payment.

We believe that the copyright holders, the motion picture producers, should be compensated fully for their creative works-indeed, we believe they are-and that the present methods used to compensate them will fully adjust to a changing marketplace now and in the future.

Let me explain how a movie producer presently receives a copyright fee. The movie producer and the purchaser of a viewing right, whether a theater owner, a pay cable operator or a pay TV broadcaster, or the dealer and seller of prerecorded video cassettes, determine the size of the royalty when they negotiate the sales price or license fee. And it works the same way for television, Mr. Chairman. The movie producer determines the royalty fee, when a price is negotiated with the broadcaster to permit the airing of that movie on the public airwaves. The choice to use the over-the-air, socalled "free" TV is entirely within the control of the movie producer. When that choice is made, the premises of that medium, the public airwaves, must be accepted-premises dictated by the Communications Act, which is driven by the principles of the first amendment that favor the widest dissemination of the information transmitted. That driving force of the first amendment is also consistent with the economic premises of the broadcaster and the advertiser to reach the widest possible audience.

Video cassette recorders enhance those underlying constitutional and economic premises, and let me explain how.

First, VCR's permit viewers to receive the programs intended for them, but to view them at their convenience. The rating services, Arbitron and Nielsen, both count video cassette recorders as viewers, even though the VCR is capturing a program while no one is watching it. And the number of viewers as determined by Arbitron and Nielsen is the basic information that ultimately determines the gross audience. That figure, gross audience, determines what advertisers are willing to pay to broadcasters and what broadcasters are willing to pay the copyright holders, the movie producers. I might say parenthetically, Mr. Chairman, at this point, that there is no evidence that VČR viewers watch fewer commercials than real-time viewers.

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Surveys clearly show that the video cassette recorder is now used primarily for time shifting-recording off TV a program to be viewed later. The VCR frees the viewer from the rigidity of the daily TV schedule and permits viewers to watch their favorite programs at their convenience. Unfortunately, that use, time shifting, is now illegal under the ninth circuit court of appeals ruling of last October.

S. 1758, the DeConcini bill, would remove that cloud of illegality and permit 10 to 12 million VCR users to come back within the law and at the same time assure the continued benefit this technology provides consumers and the entertainment industry alike.

A royalty is received for free TV by the movie industry-a royalty that is adjustable to marketplace forces as the size of that gross audience expands. The question is, do VCR's expand or contract the gross audience figures of TV? The only evidence available and the only conclusion that can be reached is the VCR's expand the gross audience. The lure of VCR's into the home, Mr. Chairman, is for time shifting, the convenience of viewing at one's own choosing. But once in the home, the VCR provides a valuable new market for Hollywood, the prerecorded video cassette.

The New York Times of January 20 reported, in its analysis of the economics of the movie industry, that the eight largest production studios in Hollywood will receive more revenue this year from this prerecorded video cassette market than from the licensing of their movie products to the three commercial networks.

Mr. Chairman, there is no harm to Hollywood. The court found no harm. The witnesses admit in this case that there is no present harm. They seek legislation based upon a faulty hunch of some future harm. The VCR is a friend of Hollywood, and as Mr. Heston testified today, the movie industry perceived of television as a threat in the fifties and tried to starve it. The movie industry perceived cable as a threat and tried to regulate it into submission. The VCR is the present threat as perceived by Hollywood. It is not a threat. It is going to expand and benefit, by expanding the gross audience, in time shifting and creating a new market for prerecorded video cassettes.

There is no justification for a surcharge on the American consumer, earmarked for the Hollywood producer. Mr. Chairman, any other proposal seeking additional copyright compensation mechanisms should be able to be justified on its own merit-not as a tag on legislation that would remove the cloud of illegality for millions of Americans who wish to use their VCR's to permit them to view programing when it is most convenient for them.

The marketplace works, Mr. Chairman. I submit to the committee that we should not gum the marketplace up with a Government agency.

We urge the swift passage of the exemption included in the DeConcini bill.

Senator MATHIAS. Thank you, Mr. Ferris.

[Prepared statement of Charles D. Ferris follows:]

PREPARED STATEMENT OF CHARLES D. FERRIS

MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.

Mr. Chairman, Members of the Subcommittee:

My name is Charles D. Ferris. I appear before you today as counsel to the Home Recording Rights Coalition.

I appreciate the opportunity to present our views to you. I appreciate as well the efforts of this Subcommittee to explore fully the range of issues that have been raised as a result of the Ninth Circuit's decision in the Betamax case.

The Coalition's position is that Congress should proceed speedily to enact an exemption to the copyright laws for the private, non-commercial video taping of television programs. hope that it will.

We

Mr. Chairman, the Coalition asks the Congress to take this action fully confident that our position is clearly in the interest both of American industry and, equally important, of the American public. VCRS have become a critical element in the revolution taking place in home communications.

This technology

will free people from the artificial confines of network scheduling, permit them to receive new and diverse sources of information and ultimately open up a vast and still largely unexplored frontier of additional uses for video recorders, such as home movies and many innovative business and educational

uses.

The current video marketplace has adequate mechanisms to compensate copyright holders fully for the use of their works, so that any additional tax or royalty would be a huge windfall for Hollywood producers by requiring consumers to pay twice for the same program. The very same mechanisms that underlie compensation for program producers in the commercial television system, the ratings services, already include VCRS in their audience survey data. Advertisers pay for these "extra viewers," so VCRS actually increase the audience for particular programs

and, therefore, increase the actual compensation copyright holders receive.

In summary, Mr. Chairman, we believe that the tremendous service that VCRS provide the American people in the video marketplace is one important factor in determining whether their home use should be viewed as a "fair use" exemption to the copyright laws. The ultimate goal of the copyright law is to promote the First Amendment value of increased access to diverse speech. This same goal is furthered by the unfettered

availability and use of VCRS. Copyright holders are not harmed by such use, as was noted by the District Court. In light of their benefits and the absence of harm indeed, the substantial gains

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to copyright holders, we believe Congress should follow the reasoning of the Disrict Court in the Betamax case and grant an exemption to the copyright laws for the home use of VCR.

Mr. Chairman, I would also like to share with the

Subcommittee the Coalition's grave concern over the impact of the proposed royalty fee. Beyond the fact that it would be an enormous windfall, we believe it would be inefficient and inequitable. It would distort and inhibit the evolving communications marketplace by favoring other technologies and regulating only this one. Because royalty taxes would add significantly to the cost of recorders and tapes, they would also stunt the growth of this new retailing and manufacturing industry, threatening the very existence of the nearly 25,000 small businesses that are totally dependent upon its vitality and impeding new business opportunities for broadcasters and independent producers.

Coalition for Home Recording Rights

The Coalition is a diverse group of companies and associations involved in the manufacture, sale, and distribution of video cassette recorders, blank tape, and related equipment.

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