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Average subscriber gross, $72.70 per year. (1) for 1,170 subscribers in model system.---(2) per subscriber net after operating expenses for year 1972(3) for 1,170 subscribers, net in model system.--

(4) less 1%c copyright fee proposed on gross receipts -----

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New gross after copyright.. (5) Equivalent 1% off gross as percentage of pet income (percent)..

? airarent from the above that system size has a very direct bearo *rated by the system. It should also be noted that the Net Per .

(far right) does not represent profit; that out of this x a fter expenses the system must retire its debt (both prin1.**! and make capital expansions to increase the system's reach *****T* munity.

poin' --Hop It Changes Sample Systems Profit or (1088) to get best to for detailed a study of sample systems by system size. The far . ..shosted the net profit (or loss) per subscriber within each **temas de income was reported for the calendar year 1972.

: rekpare these figures with the added burden of a 1% copyright

MODEL SYSTEM -- No. 2 (A SYSTEM WITH OR WITHOUT MICROWAVE SNI

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(A) Total systems studied in report, 191. (B) Total sytems studied for this model sistem, 191 (1000). (C) Model system has 850 subscribers and is typically 6 7 year olde (D) Expenses category :

Dollars spent per subscriber por yrar (1) System manager.--(2) System technician is (3) System installeris). () Secretary (ies) (5) Office rent. (6) Head end rent... (7) Electricity ---(8) Insurance and taxes. (9) Franchise fee payme (10) Pole rental.-------(11) Vehicle operating pypenses (12) Subscriptions and dues-(13) Legal and accounting (14) Repairs to system.-(15) Telephone service..(16) Travel expenses ---(17) Office Supplies-(18) Billing and collections (19) Advertising -(20) Miscellaneous

278.55

778.40 1.270.15 1,661.91

($7.62)

5.97
4.36
8.54

.60

.60

($8.21

5.37 3.76 7.94

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*38.tbp 10, of gross revenues copyright fee proposed has a much In 'DE SET income (after operating expenses but before deb r! Bal expansions) than the 1% would imply. This impact, a "sady, is as follows:

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Total expenses per subscriber. Average Subscriber Grow, $64.15 per year. (1) for No Subscris in model wintem 12) perscriber net after operating p inup for year 1972-.... 13) for salona'riber, net in mowel system. -----------14) les 1' (pyright for projd on grus rexeipts ----

New prin after (Orighten 151 Eulalent 1 of grow as percentage of net indume ment)

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hat in our study had an average return of $12.92 per subscriber before copyrig

? Il percent reduction in net revenues because of the I percent copyright

AMPIE YSTEMS STUDY

To determine what changes if an otur in the net profit entours * tion of sistem sie die mumier of micriter and irin rrientes), a sa af he total of 191 **tems

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SYNOPSIS 108 Ded to prepare this study so that the subcommittee on Paten

253 leriphis might have factual, current data on the true fina
It'be whall, independent Community Antenna System Operator.

in ku wiedge, this type of hard, factual data has never bef
L e conrise study by the CATV industry. To a very la
ty's of this study have depended almost entirely upon the op

v stall, independent operator to provide this "raw data." bildird l 1) system operators to divulge their own, confident Sellist And to divulge it not only to CATA, but to a group ti ***',"al part of their gross receipts!

it not only this synopsis study of this survey, but the r Henjutted and turned in by the Community Antenna Syst ** PIR its synopsis tabulations to be correct, but invites

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Npr.tative sample within each wiiberat) Category taken in Pret the category, pet prenses, net front 1) and net profit freutati Inesurei They follow:

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mrs bow that small CATV systems are performing a ser AL hai protinusly been imagined. The synopsis shows that *\'L fewer than 300 subscribers is actually losing money ($7. p*11*18** each year. We don't suggest that (A) the study is

Bi this is not true. We do know, however, that when a r G., Apen to serve typically fewer homes than 500 cable hon We are shoulders those responsibilities of the system mana

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It is readily apparent from the above that system size has a very direct bear. ing on cash flow generated by the system. It should also be noted that the per Por Subscriber) column (far right) does not represent profit; that out of this remaining cash flow after expenses the system must retire its debt (both principal and interesi) and make capital expansions to increase the system's reach in an ever growing community, (opyright 1% fee-How It (hanges Sample Systems Profit or (1088)

The previous page detailed a study of sample systems by system size. The far right hand column showed the net profit (or loss) per subscriber within each system-size category as income was reported for the calendar year 1972.

We will now compare these figures with the added burden of a 16 copyright fee.

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in each case, the 1% of gross revenues copyright fee proposed has a much larger impact on the NET income (after operating expenses but before debt retirement and capital expansions) than the 1% would imply. This impact, as measured in this study, is as follows:

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Note: Systems of over 2,000 subscribers in our study had an average return of $12.92 per subscriber before copynght! and $12 32 per subscriber after copyright, a 4.7 percent reduction in net revenues because of the I percent copyright lia. buinty. The largest system so studied had 5,800 subscribers.

SYNOPSIS

(ATA was requested to prepare this study so that the subcommittee on Patents, Trade Marks and Copyrights might have factual, current data on the true financial picture of the small, independent (ommunity Antenna System Operator.

To the best of our knowledge, this type of hard, factual data has never before been gathered into one concise study by the CATV industry. To a very large measure, the results of this study have depended almost entirely upon the open willingness of the small, independent operator to provide this "raw data " in effect. CATA asked 1,000 system operators to divulge their own, contidential financial information. And to divulge it not only to CATA, but to a group that was proposing to "tax" part of their gross receipts!

(ATA is providing not only this synopsis study of this survey, but the raw survey forms as completed and turned in by the ('ommunity Antenna System operators. ('ATA believes its synopsis tabulations to be correct, but invites retabulation by the Subcommittee.

The study clearly shows that small CATV systems are performing a service far greater than had previously been imagined. The synopsis shows that the typical system with fewer than 500 subscribers is actually losing money ($7.62) in its annual operations each year. We don't suggest that (A) the study is incorrect, or, that (B) this is not true. We do know, however, that when a man builds a very small system to serve typically fewer homes than 300 cable homes, he takes upon his own shoulders those responsibilities of the system manager,

57-786 () - 76 - pt.3 - 36

1947

.!* sing against the local station for a program, it alone acquires

bet that program. The local station does not get a free ride. rund, if the local station is successful in the competition to acquire "622 be cable system which lost in the competition can carry the C a utailed in the broadcast signal. The cable system gets a free

the system technician, the system installer and often the system secretary all rolled into one person. This reduces the out of pocket expenditure but main for very very long days for the typical small operator.

And if there is a case to be made for relief from the proposed copyrigh: 're schedule for the so-called independent, small operator, it should be with Dove understanding that the small operator does not hire the vast majority of lie Watt done for him; he does it himself. And that as a full time resident of lus reporter munity, he is "Mr. Television" to his community: a man devoted to the bring of quality television signals to his isolated community he lives in and were

And that if... and that is a big if... he is able to make any rate a return on his investment, it is solely because he is providing has prosidel, a will continue to provide a fair service for a fair rate. And because he is Dorf afraid, or unwilling to perform that service 18 hours per day, 30k) pr Tear

The study completed here indicates that there is ample reason for an eles. De tion for Community Antenna Television System operators with fewer than 3.0 subscribers. The net rate of return per subscriler, as detailed herein, and before any repayment of indebtedness principal, interest or additional capital e113 sions, is such that systems with fewer than 3.500 subscribers are typically joe treading water.

And directly contrary to the off-repeated view that "small ('ATV system. ATP goldmines" (a few undoubtedly are... but the average one is not. &* t. study plainly shows), the small, independent CATV systems need all be relief that they can get.

CATA respectfully urges the Subcommittee on Patents, Trade Marks and love rights to carefully consider this study in making any final determination for copyright liabilities for (ATV systems, and suggests that if items with tonn than 3,500 subscribers could be re-classified as Community Antenna Sjurslas and be therefore exempted from a copyright fee schedule, that such be di

.. Gmc interest of the cable system to enhance the attractiveness

* and to its potential subscribers, of what it uniquely carries

' is available to those subscribers over the air from local tele. . Tbe more attractive the cable television system can make its

inle, its own cable program originations and the imported distant

" Deto subscribers the system will get and the smaller will be the .."," incai telerision station. The smaller the audience the local tele

91. Gilias the neaker the service it is able to render. The weaker the Bongo 51.14, the stronger the position of the cable system. The weaker 311 'richt station, if it is a network affiliate, the weaker the television

a trtas tfair competition of cable television with broadcasting is the *1 of the absence of copyright protection against cable television o protams contained in broadcast signals.

CBS' POSITION

yone is that cable television systems should be required to bargai kirjup for the copyrighted programs contained in both local an

341 gals, just as broadcast stations do. Subjecting cable tele Irrto the pormal operation of the television marketplace would no

ST.ETP** of any governmental agency in setting rates for the cab] **

poligrains. Those rates would be set in the marketplace b * * Rimu.ning between the copyright owner and the user. That woul * b atai petition I have referred to.

***a my testimony on June 12 before the Subcommittee, I gav *** to the compulsory license provisions for cable television i

The risin, as I stated then, is that CBS has "reluctantly cor

ome is just no possibility that the Congress will pass legislatio ***virinten to the full operation of the law." Because CBS believe

3* The principle of statutory copyright liability for cable syste

nekird programs contained in broadcast signals be establishe Wibe (net.promise on the condition that the Copyright Royal

ile arailable as prorided by Section 801 (b) to assure the poss P alty rates might be reasonable.

(BS, Inc.

Veie York, X. X., Warember 19, 1975. Hon. ROBERT W. KASTESMEIER, Chairman, Subcommittee on ('ourts. Ciril Liberties and the Administration of

Justice, ('ongress of the limited States. Committee on the Indiriary. . of Representatirea, Washington, D.C. Dear Mr. KASTENMEIER: In your letter of November 4 yon invite me pare the Subcommittee my views on the proposal by Teleprompter formiration to amend Section 111 of HR 2223.

At the outset let me note that this action or Teleprompter arean dran either to forestall copyright law rerikian entireltthus prperring in the c! television field the present state of copyright anarchs from which only as television benefits--or to eliminate entirels the possibits that under the trije Tak copyright paiments by cable television for its compulsors lleen Wutuld eter rrach a reasonable level. To appreciate the thrust of Teleprotipler's profesi It is necessary to understand the basic unfairness-vis a vis bruadris.116. which lies at the heart of cable television's operation. That unfairnes * * in the following way

in any given community the local cable system and the local triertel bried(ant station are natural competitors against one another for audieber Kut tin the present (pyright law the only competition between thema is unfair in tlon To attract andience both offer the program chetule of the frleries station. The television station is subject to the normal operation at the fun Ini and m et spriure mission to nse the programs. The cable system briin Nerups permisslon nor does it tar.

The enhle television sistem al attracts partng subscribers with the program

tained in the signals of an other local hriadcast teleris station for able systern pare nothing for them.

It immorts distant broadcast signale: it pars nothing for the program contained in the in

The puble telesinjon kietem alen nitracts na ing whether with the poeta more free entir making a walal chintergenerally on a per channel to its subsribers four thirp programs When it priuinatrit nion has a uller ndonninge even thotch Ander the present is right strije tore the catele au has t) Apr Ure m ission anıt make a niguiatriinment Tip unta dan derives from the fact that if it is stirrsful under the present **** riet "

TELEPROMPTER'S PROPOSAL
m 3* Includes and has long included provisions which, tak

ber sections of the bill, would subject cable television to cop
sy for the carriage of the programs contained in broadcast signa
y #24 give cable television the inestimable advantage of havi
**?.796 to carry those signals at rates which cannot be regard
** tresiaal Nevertheless, at the eleventh-hour. Teleprompter n

n attempt to reduce its liabilitr drastically without reduc
****** Mlity to carry both local and distant broadcast signals.
**** p ropu to make a distinction between local and distant sign

a ment but not of permitted use). It proposes that cable
Ho s cintained in local signals. It attempts to justify
*** ulag in p 1 of its Memorandum that "everyone seems to ag
"1****nt me logic, there is no justification for imposing copyri

potporansmission of local signals." This is not an argum
m'han an abservation. And it is false. Copyright proprietors

ar that there is no justification for copyright payments "" #7 well their onhecribers retransmitted copyrighted progr

m! bandeasts. Broadcasters certainly do not agree. Buil **41!. Teleprompter then indicates on n. 2 of its Memoran

CAD I Teally local' to the network." Teleprompter conclu

Delt sentence that "a copyright owner who sells his pro attimrates that the product will be viewed throughout the er ** 3 compensated accordingly." What Teleprompter unblushi

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ture in negotiating against the local station for a program, it alone acquires the right to utilize that program. The local station does not get a free ride. On the other hand, if the local station is successful in the competition to acquire the program, the cable system which lost in the competition can carry the program as it is contained in the broadcast signal. The cable system gets a free ride.

It is in the economic interest of the cable system to enhance the attractiveness to its subscribers, and to its potential subscribers, of what it uniquely carries compared to what is available to those subscribers over the air from local teleVision stations. The more attractive the cable television system can make its unique services, i.e., its own cable program originations and the imported distant signals, the more subscribers the system will get and the smaller will be the audience of the local television station. The smaller the audience the local tele. Vision stations has, the weaker the service it is able to render. The weaker the local television service, the stronger the position of the cable system. The weaker the local television station, if it is a network affiliate, the weaker the television network.

This one-way unfair competition of cable television with broadcasting is the inevitable result of the absence of copyright protection against cable television use for the programs contained in broadcast signals.

CBS' POSITION CBS' position is that cable television systems should be required to bargain in the marketplace for the copyrighted programs contained in both local and distant broadcast signals, just as broadcast stations do. Subjecting cable tele. vision systems to the normal operation of the television marketplace would not insolve the ('ongress or any governmental agency in setting rates for the cable television's use of programs. Those rates would be set in the marketplace by gire-and-take bargaining between the copyright owner and the user. That would eliminate the unfair competition I have referred to,

Verertheless, in my testimony on June 12 before the Subcommittee, I gave qualified support to the compulsory license provisions for cable television in Section 111. The reason, as I stated then, is that CBS has “reluctantly concluded that there is just no possibility that the Congress will pass legislation subjecting cable television to the full operation of the law." Because CBS believes it critical that the principle of statutory copyright liability for cable system carriage of copyrighted programs contained in broadcast signals be established, (BS supported the compromise on the condition that the ('opyright Royalty Tribunal would be available as provided by Section 801 (b) to assure the possibility that future royalty rates might be reasonable.

TELEPROMPTER'S PROPOSAL

Section 111 now includes and has long included provisions which, taken together with other sections of the bill, would subject cable television to cops. right liability for the carriage of the programs contained in broadcast signals but which would give cable television the inestimable advantage of having a compulsory license to carry those signals at rates which cannot be regarded as more than nominal. Vevertheless, at the eleventh-hour, Teleprompter now makes an ill-concealed attempt to reduce its liabilitr drastically without reducing cable television's ability to carry both local and distant broadcast signals.

Teleprompter proposes to make a distinction between local and distant signals (for purposes of payment but not of permitted use). It proposes that cable pay nothing for the programs contained in local signals. It attempts to justify this exemption by saying on p. 1 of its Memorandum that "everyone seems to agree that, as a matter of pure logic, there is no justification for imposing copyright liability on cable's retransmission of local signals." This is not an argument. It is no more than an observation. And it is false, ('opyright proprietors certainly do not agree that there is no justification for copyright payments by cable systems that sell their subscribers retransmitted copyrighted programs contained in local broadcasts. Broadcasters certainly do not agree. Building on this false foundation, Teleprompter then indicates on n. 2 of its Memorandum that "the entire nation is really local' to the network." Teleprompter concludes from this in the next sentence that "a copyright owner who sells his product to a network anticipates that the product will be viewed throughout the entire country and is compensated accordingly." What Teleprompter unblushingly

claims is that somebody else, like it or not, pays the bill for cable trlet..! free ride. As a matter of elemental fairness, cable television should jar 123 own ride. Under Teleprompter's scheme somebody else would continue ! ! for it.

The Teleprompter scheme would enable cable television to cont11.0r to local broadcast signals and network signals without any payment for the S order to build an audience and a revenue has to enable cable to imprip? """" broadcast signals and to originate its Owl programs with which ! direless the audience and the revenue base of local competing broadcast stallet

Having disposed to its oun satisfaction of the ne puy for jai turite local programming and for network programming. Teleprompter 119' s P. t of its Memorandum that in recommending its formula fur fullri distant signal. Teleprompter is "extremely generous" be alive it for tils pletely ignores the benefit to the originating station and thus to the 1971 owner) of (able's carriage of distant signals"

Because of the completely over implified and misleading nature of The prompter's cavalier claim that calle confers such a benefit, it is try37 * this point to include an analysis of a hypothetical, though al 4*3! program importation situation so as to make clear the effect of the items vision system's free ride not only on the cable carried distant stalliti fiz' . on the economic interests of the other parties affected by the instalih

. wire, the broadcast station must bear the risk that no ad 1 :16the program.

Herib bendraxt station whose signal is carried is sometimes 'I "sentant rabole system carriage. When the station is not injure

* bla to this paying the program supplier for the distant
»?!! mimpi may switch its business to a competitor of the broad

, adirties for the distant community. 1*n the Aduertiter in the Program Carried in the Distant Commu 30,**.? stl try to avoid paying for the cable television system's

**17" : be diutant market. Whether the advertiser will succeed • trung position vis-a-vis the station. That position wil

***** other advertising outlets are available to the advert ..

M dfria the broadcast station for payment for the distant 1 r it finds an advertiser for the program and manage " 23pxt broadcast station if there is one, perhaps whose sign:

3 hp dant community) to avoid paying for the distant ma **:*" the advertiser will have to pay for advertising cove 1, m.pat diues not want and which will do it no good, e.g., wher

got mer the advertised goods or services in the distant ma the adiprtiner is sometimes injured by the distant cable sy

advertiser is not injured it is because the advertiser is " bration for the distant community and/or because the a

-0." advertising in the distant community. 21*1 lb flent of the free ride by cable television on these pa

.: bargain in the marketplace, is: There is always an in :-1 to be program supplier. He tries to pass the burden to

l ines whose signal is carried in the distant cable

" in turn, tries to pass the burden to the advertiser who d!*"%! by the distant community carriage. The marketplace bar

120W Those who bargain in the marketplace must involunt ***** nisk for, sometimes are injured by, the deliberate * ****ilde entity which does not have to enter the market 199**pt bears no burden at all and remains immune fror her"?! its own vital operation--the importation and retran

AVALYSIS OF THE EFFEATS OF CABLE TELEVISION SYSTEM IMPORTATI

natalead in broadcast signals.

One purpose of our analysis is to discover in a general way who are the for the distant cable television system's free ride. Another pusat la foto? the distortion caused by the free ride to our general erumomie system as it aik* in this anomalous area. (i) Effect on the Program Supplier

Obviously, the carriage of a program by a rable utem spierely little possibilities of sale of that program to a telesisjon station in the farkı unless the program supplier is compensated for it, the supplier is alway! IN by the use of his program in any market or potential market and rirlit television system community is a market or potential market for the pitsuplier.' The program supplier must look to the television station , is carried in the distant market for any comensation the supplier mal ? the cable sistem use there. This is so benu under the structure the program supplier's only live negotiation for the 1st ( 1* pe gram is with that television station. The supplier (annot pietiek te for p where it should the supplier does not have any leg.il means to furah ment from the cable teletinjon system Whether the supplier ris*** getting the television station to us for the cable sistem Uup fill de furt:d strength of the supplier's bargaining ***!tion vis a vis the broadeial status Nome situations then olier will will in me the supplier will nevt.

(unrlu sitin. The prosram xu tulier is injured by the distant na ringranle the supplier is able to sewure sment from the loud. est stars the supplier liiponsps and whose signal is carried in tbe distant ( lului! (16) Effect on the Broadwet Station Whose Signal 1x l'arried By adr14

tion Syatem in the Distant community The broadcast station, in kontracting for the program, n111 in to aio ; the program supplier for the cable tries of sinetti Ise of ille prestali 18 * diinnt marke! Whether the station will Nikary) will deletid on its bitti

ition via is the program supplier Tu turn. I left the forestillin' de-ain with a potential advertiser it will try to grt a pusmrtit fruti, the a for the distant market wierage W ither the station will be red !.. 11 on Itu tarktining p tion vis a vis tue a rrintr Otat fett 1. . st.'.! in the training will be aber her the Adsentier dudan niin liited. thrhet for its puwts or servir for 1! litt sth outlet ils adir ** derive no benefit there from the inert ie et ex lire to the adietti

CONCLUSION **thole sittee should give short shrift to Teleprompter's ele

? to fufprall copyright law revision entirely-thus prese dirimirright anarchy in the cable television field from " leitor to eliminate entirely the possibility that und

The fayments by cable television for its compulsory | m'rendable level. ('BS supports the present compromis. W sofix fos cable television of Section 111, on the con * Portalty Tribunal would be arailable as provided by S

Plus pability that future royalty rates might be reaso

ROBERT V. Evans, Vice President and General Cou

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exe Retet E Kastenmeier. **. Prvident, The Motion Picture Association of Americ *l Akwariation of Motion Picture and Television Pro * * liv. proposal to the copyright bill, H.R. 2223.

* in Ponse to your letter on November 4, 1975, i

fuifwall submitted informally to the staff of your *** Ine, as a possible amendment to certain sections

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Bill, H R 2223

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pewa mp serres are not available in the distant marke
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1: 18. Be there the advertiser may have to conte

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