TESTIMONY OF MARSHA KESSLER

Good morning. My name is Marsha Kessler and I am Vice President, Copyright Royalty Distribution for Motion Picture Association of America. For 16 years, I have been the individual directly responsible for receiving the cable and satellite compulsory license fees and distributing them to our represented claimants - some 100 syndicators and producers of television entertainment programming.

Prior to working for MPAA, I served on the very first staff of the Copyright Office's Licensing Division - the Division responsible for processing compulsory license royalty payments. So you can see that my entire professional career has been devoted to seeing that Copyright Owners have been fairly compensated under the terms of the cable and satellite compulsory licenses.

I appear today on behalf of the Association to express MPAA's position regarding The Copyright Office Report on Compulsory Licensing of Broadcast signals and in particular to comment on the recent increase in the rates satellite carriers pay for the use of television broadcast programming.

At the outset, let me say that the Register and her staff must have had a difficult time of it, trying to find a reasonable plan that accommodates the interests of such divergent groups as copyright owners, satellite carriers and cable operators. The resulting Report is very thorough and comprehensive, and MPAA appreciates the time, energy and consideration that that went into its formulation.

As we have indicated in other fora, MPAA agrees with some of the Report's recommendations and disagrees with others.

Our primary point of disagreement is a significant one -- the continuation of the compulsory license scheme. The Report advocates continuing the compulsory licenses. MPAA's position is, and always has been, that the license should be terminated in favor of market place negotiations.

Movies and series are our members' stock in trade. That is what we do for a living. Unlike other product or service industries who put their product in a marketplace and haggle over the price, copyright owners do not have that right with respect to cable and satellite retransmission. Once a copyright owner licenses a movie or a series to a television station, he in effect loses control of what happens to his product. Cable systems and satellite carriers are allowed to pick up and deliver to their subscribers for an unregulated fee, all the programming broadcast by that television station. The owner cannot bar the system or carrier's use of that program. The owner cannot negotiate the fee for that programming. We are forced to take what the law gives us.

For all the 16 years I have been in this field, I have heard numerous justifications for continuing the compulsory license. One was to foster the fledgling cable industry. There was a perception that without some control on programming prices, the industry might fold. While that may have been true a quarter of a century ago, that was then and this is now. The cable industry is alive and thriving -- a multi-billion dollar industry. Cable television no longer needs (if it ever did) a government subsidy in the form of the compulsory license fee.

Another justification for continuing the compulsory license was the perceived difficulty in the buying and selling of television programming. We know that the buyers (cable systems and satellite carriers) and sellers of television programming can and do meet in the marketplace. This is how cable systems and satellite carriers secure programming from outlets such as HBO, Showtime, A&E, ESPN, CNN, etc.

Still another argument for continuing the compulsory license addresses the misconception that if cable systems drop signals, households in rural areas will have no access to television programming. While that may have been true 20 or 25 years ago, it is not true today. Most rural areas are served by large, resourceful, multi-system operators. Most rural areas have a wide range of local network and independent stations available to them. They do not need programming from distant signals to fill in "program gaps."

We understand that an abrupt cessation of the compulsory license would create difficulties for some parties. MPAA therefore advocates the gradual phasing out of the compulsory license.

MPAA supports the Copyright Office Report suggestion that the fee be simplified and set at marketplace rates. The current methodology for calculating cable royalty fees is impossibly complex. We advocate a fee structure based on a flat fee per subscriber per signal on a upwardly sliding scale that discourages the carriage of multiple broadcast signals. Rather than a government subsidized fee, we urge that this fee be one that provides marketplace level compensation to copyright owners for the use of our product.

Likewise, we support the Report's recommendation that the current, ridiculously low, $28 flat rate paid by smaller ("Form 1") cable systems, be significantly increased. Finally, because we believe every use of a copyright work should be compensated, we believe the use of both local and network programming should generate a royalty payment.

These concepts -- an increased fee for smaller cable systems, a flat fee rate commensurate with marketplace value, and compensation for the use of local and network programming are structures that can be incorporated into the compulsory licenses on an interim basis while the licenses themselves are being phased out.

I indicated at the opening that I wish to address the recently imposed increase in satellite carrier fees. We believe that the new rate reflects the marketplace value of retransmitted televisions programming.

The satellite industry has complained that this rate increase will harm consumers and impair the ability of satellite carriers to compete with the cable industry. The carriers want Congress to impose below-market prices for broadcast programs they sell to subscribers. This request might reduce the carriers' program costs, but would have no direct impact on consumers or competition among program delivery services.

The proposal is unfair, unjustified and unnecessary: Consider

-- whether nine satellite companies with multi-million dollar revenues should receive a statutory subsidy for a statutory compulsory license that permits them to resell television broadcast programs without owner permission.

-- whether consumers will see lower rates if Congress reduces the royalty fees. Subscriber rates are unregulated, which means any reduction in royalty fees by Congress will go into the pockets of satellite carriers, rather than be passed on to consumers.

-- a postage stamp costs 32 cents. A candy bar costs 50 cents. A cup of Senate bean soup costs $1.10. All cost more than the new monthly 27-cent rate that carriers now pay for 24-hours a day, 7 days a week worth of series, movies, sporting events, news, local and educational programming and music on a single station.

The new marketplace rate will amount to an increase of $12 per year per subscriber, on average, or $1 a month -- a tiny fraction of the $50 monthly average these companies charge their subscribers. No persuasive evidence has been shown that payment of marketplace royalty rates would harm carriers' ability to compete with cable operators.

We ask that Congress not change the recently-enacted 1994 law simply because the carriers do not like the result of the arbitration process. Cable system may pay higher, lower or about the same per subscriber rates as carriers, depending on the number and type of stations carried. Moreover, cable systems operate under a much different regulatory structure, including regulation of subscriber charges and limitations on carriage of programs from distant television stations.

I appreciate the opportunity to speak with you and welcome your questions.