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SUBSCRIPTION TELEVISION
HEARINGS
BEFORE THE
SUBCOMMITTEE ON COMMUNICATIONS
AND POWER
OF TEE
COMMITTEE ON
INTERSTATE AND FOREIGN COMMERCE
HOUSE OF REPRESENTATIVES
NINETIETH CONGRESS
FIRST SESSION
ON
H.R. 12435
A BILL TO AMEND THE COMMUNIOATIONS AOT OF 1964 SO AS
TO PROHIBIT THE GRANTING OF AUTHORITY TO BROADOAST
PAY TELEVISION PROGRAMS
OCTOBER 9, 10, 11, 12, 13, AND 16, 1967
Serial No. 90-15
Printed for the use of the
Committee on Interstate and Foreign Commerce
U~S. GOVERNMENT PRINTING OFFICE
86-3990 WASHINGTON: 1967
L\~Li I
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COMMflIMIiE ON INThflSPA9~ AND I3'OIU~iIGN OO1~?1MERCE
HARLEY 0. ST4GGERS, West Virginia; Chairman
SAMUEL N. FRIEDEL, Maryland WILLIAM L. SPRINGER, Illinois
TORBERT H MACDONALD Massachusetts SAMUEL L DEVINE Ohio
JOHN JARMAN, Oklahoma ANCHER NELSEN, Minnesota
JOHN E MOSS California HASTINGS KEITH Massachusetts
JOHN D. DINOELL, Michigan GLENN CUNNINGHAM, Nebraska
PAUL 0. ROGERS, Florida ~1AMES T. BROYHILL, North Carolina
HORACE R. KORNEGAY, North Carolina JAMES HARVEY, Michigan
LIONEL VAN DEERLIN California ALBERT W WATSON South Carolina
J. J. PICKLE, Texas TIM LEE CARTER,: Kentucliy
FRED B. ROONEY, Pennsylvania 0. ROBERT WATKINS, Pennsylvania
JOHN M. MURPHY, New York DONALD G. BROTZMAN, Colorado
DAVID B SATTERFIELD III Virginia CLARENCE J BROWN Ja Qbio
DANIEL J. RONAN, Illinois DAN KUYKENDALL, Tennessee
BROCK ADAMS, Washington JOE SKUBIPZ, Kansas
RICHARD L. OTTINGER, New York
RAY BLANTON, Tennessee
W. S. (BILL) STUCKEY, JR., Georgia
PETER N. KYROS, Maine
W. B. WILLIAMsoN, Clerk
KENNETH J. PAINTER, Assistant Clerk
Professional Staff
StrBooMMnvr~ ON OOMMTJNIOATIONS ANI~ Powna
TORBERT H. MACDONALD, Massachusetts, Chairman
HORACE R. KORNEGAY, North Carolina
LIONEL VAN DEERLIN, California
FRED B. ROONEY, Pennsylvania
RICHARD L. OTTINGER, New York
JAMES T. BROYHILL, North Carolina
JAMES HARVEY, Michigan
DONALD G. BROTZMAN, Colorado
CLARENCE J. BROWN, Ja., Ohio
ANDREW STEVENSON
JAMES M. MENOER, Jr.
WILLIAM J. DIXON
ROBERr W. LISHMAN
(II)
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CONTENTS
Hearings held on- Page
October 9, 1967 1
October 10, 1967 197
October 11, 1967 237
October 12, 1967 375
October 13, 1967 415
October 16, 1967 619
Text of H.R. 12435 -- 2
Excerpt from FCC Public Notice 5317, August 25, 1967, on TV broadcast
financial data-1966 387
Statement of-
Adams, David, senior executive vice president, National Broadcasting
Co 185
Anello, Douglas, counsel, National Association of Broadcasters 406
Banning, Thomas A., patent attorney, Chicago, Ill 646
Celler, Hon. Emanuel, a Representative in Congress from the State
of New York 375
Dingell, Hon. John D., a Representative in Congress from the State
of Michigan 197
Erlick, Everett H., vice president and general counsel, American
Broadcasting Cos., Inc 392
Firestone, Martin E., counsel, All-Channel Television Society 619
Flake, Keigler E., general manager, WHCT-TV, Hartford, Conn. - - - 237
Gaynes, Martin J., counsel, National Association of Theatre Owners,
and Joint Committee Against Toll TV 415
Goldberg, Henry, counsel, Association of Maximum Service Tele-
casters, Inc 564
Goodman, Julian, president, National Broadcasting Co 185
Hall, Robert, representing Skiatron Electronics & Television Corp~. 626
Hyde, Hon. Rosel H., Chairman, Federal Communications Commis-
sion 3
Lindow, Lester W., executive director, Association of Maximum
Service Telecasters, Inc 564
McKinsey, W. Robert, president, WJRJ-TV, Atlanta, Ga 654
Monderer, Howard, Washington counsel, National Broadcasting Co - 185
Pierson, W Theodore, counsel, Zenith Radio Corp - 237
Preminger, Otto, New York, N~Y 221
Sagall, Solomon, president, Teleglobe Pay-TV System, Inc 601
Van Beek, Pieter E., president, Teco 237
Wasilewski, Vincent T., president, National Association of Broad-
casters 407
Wright, Joseph S., president, Zenith Radio Corp 237
Additional material submitted for the record by-
American Civil Liberties Union:
Letter dated October 19, 1967, from Lawrence Speiser, director,
Washington office 716
Supplemental comments of the American Civil Liberties Union,
February 8, 1967, to FCC docket No. 11279 716
American Farm Bureau Federation, letter from John C. Lynn, legis-
lative director 720
Americans for Democratic Action, statement of Sidney W. Dean, Jr.,
chairman, Communications Committee 642
(UI)
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Iv~
Additional information submitted for the record by-Continued
Association of Maximum Service Telecasters, Inc.:
Further comments of the Association of Maximum Service Tele- Page
casters in FCC docket No. 11279, September 15, 1967 565
Letter dated October 20, 1967, from Lester W. Lindow, executive
director 682
Supplemental statement of Lester W. Lindow, executive director_ 683
Brown, Hon. Clarence J., Jr., UHF and VHF channels allocated, as of
March 1966; operating and authorized, as of September 30, 1967
(table) 559
Celler, Hon. Emanuel: Network (ABC, NBC, CBS) pretax television
profits, 1960-66 (table) 387
Colorado Translator Association:
Comments of Colorado Translator Association in FCC docket
No. 11279, September 27, 1967 718
Letter dated October 5, 1967, from A. K. Smith, president 718
Columbia Broadcasting System, Inc.:
Comments of CBS in FCC docket No. 11279, October 7, 196& - - 669
Letter dated October 23, 1967, from Leon R. Brooks, vice presi-
dent and general counsel 662
Statement (January 22, 1958) of Frank Stanton, president .1 664
Federal Communications Commission:
Fourth Report and Order, proposed by FCC Subscription Tele-
vision Committee 15-144
Letter dated October 26, 1967, updating FCC memorandum of
law re Commission authority to authorize subscription televi-
sion operations (with attachments) 149
Order setting oral argument and second further notice of proposed
rulemaking 169
Subscription Television Committee report to Commission 8-14
International Telemeter Corp.:
Comments of International Telemeter Corp. in FCC docket
No. 11279, October 10, 1966 685
Letter dated October 9, 1967 684
Joint Committee Against Toll TV:
Comments submitted by Joint Committee Against Toll TV,
October 10, 1966 (FCC docket No. 11279) 423
Further comments submitted by Joint Committee Against Toll
TV and National Association of Theatre Owners, September
15, 1967 (FCC docket No. 11279) 513
Letter dated October 18, 1967, responding to questions posed
during hearing 562
Kaiser Broadcasting Corp., statement 661
MacDougall, Allan, Jr., Los Angeles, Calif., letter, with attachment - 721
National Association of Theatre Owners:
Further comments submitted by Joint Committee Against Toll
TV and National Association of Theatre Owners, September
15, 1967 (FCC docket No. 11279) 513
Letter dated October 18, 1967, responding to questions posed
during hearing 562
National Grange, statement of Harry L. Graham, legislative repre-
sentative 600
Setta, Samuel J., Easton, Md., letter 723
Skiatron Electronics & Television Corp.: Letter dated July 28, 1965,
to FCC from Sylvester L. Weaver, Jr., president, Subscription
Television, Inc 631
Taft Broadcasting Co., statement of Lawrence H. Rogers II, president.. 661
WGN Continental Broadcasting Co., letter from Ward L. Quaal,
president 719
Zenith Radio Corp.:
Excerpts from statement of International Telemeter Corp. in
support of rulemaking petition for authorization of nationwide
subscription television, May 25, 1967 (FCC docket No. 11279)
setting forth facts concerning Etobicoke (Canada) experiment. 366
Joint comments of Zenith Radio Corp. and Teco, Inc., in support
of petition for nationwide authorization of subscription tele-
vision March 10, 1965 (FCC docket No. 11279) 241
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SUBSCRIPTION TELEVISION
MONDAY, OCTOBER 9, 1967
HousE o~' REPRESENTATIVES,
SUBC0MMIrrES ON COMMUNICATIONS AND POWER,
CoMi~mTFiE ON INTERSTATE AND FOREIGN COMMERCE,
TVa.~hington, D.C.
The subcommittee met at 10 a.m., pursuant to notice, in room 2123,
flayburn House Office Building, Hon. Torbert H. Macdonald (chair-
man of the subcommittee) presiding.
Mr. MACDONALD. Th~ hearing will come to order.
The hearing this morning is on H.R. 12435 dealing with subscrip-
tion television I thn~k that under the circumstances, because of some
of the misapprehensions that I have heard circulated, perhaps at the
outset I would like to briefly review the history of subscription tele-
vision and our interest as a committee in it.
As all of us know, the Federal Communications Commission first
authorized experimentation with over-the-air subscription television
in 1950. Early experiments were conducted in New York City, Chicago,
and Los Angeles.
Subsequently, a much broader experiment was undertaken beginning
in 1962 in Hartford, Conn. I also know, although it is not here on
the slip, that there was some experiment held in a suburb outside of
Toronto, Canada, I believe,
The experiment in Hartford has recently been concluded Since
the conclusion of the Hartford experiment the Federal Communica
tions Commission has proposed an order esta;blishing certain rules to
regulate the operation of subscription television throughout the
country.
These hearings today are not concerned with the content of that
proposed order and the regulations which the Commission now has
under study. That proceeding involves the substance of `the form that
subscription pay regulations should take We are not concerned with
those in these hearings but what we are concerned with are more
basic questions.
Namely, should Congress authorize subscription television? Should
Congress prohibit subscription television? Will subscription television
serve the public interest? These hearings, therefore, are held for two
basic purposes.
First, Congress has delegated to this committee the responsibility
to oversee the operations of certain independent regulatory agencies
and to make certain that each is acting within the scope of its statutory
authority.
As we on the committee so well know and most of you in the room
are well aware, those agencies were created by Congress and Congress
(1)
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2
delegated to them power within prescribed limits to regulate certain
industries.
When it created these agencies Congress established certain criteria
and standards which are to govern the activities of those agencies.
In addition, Congress has from time to time established policies
which are to be executed by those agencies.
This committee regularly reviews the activities of the Federal
Communications Commission to ascertain the manner in which this
agency is carrying out its delegated responsibilities and whether its
actions are within the scope of its statutory purview.
Second, these hearings are intended as an initial step to thoroughly
explore all the ramifications of subscription television. We want to
learn specifically what subscription television encompasses2 what pur-
poses it serves, what prdblems it can create, and whether it is indeed
necessary.
Then we must thoroughly explore the effects that the existence or
nonexistence of subscription television will have upon existing UHF
and VHF television.
How is subscription television affected by and how will it affect
community antenna television systems ~ As everyone in this room
knows, only 2 weeks ago the House after passage by this committee,
passed the Public Broadcasting Act of 1~6~ Therefore, we are now
committed to the expenditure of significant sums of money for the
promotion of high quality, locally oriented programs.
How will the educational broadcasting system be affected by sub
scription television Several of the witnesses I hope will be members
of the Federal `Communications Commission, I want to assure them
at the outset that this committee does not inte~id to interrogate them
respecting the particulars of the rulemaking proceeding which is
presently under consideration by the Commission
We want among other things to inform ourselves of the basic
reasons underlying the need, if any, for a subscription television
syst~m, and whether the statutory authority for Commission a~tion
in this field is adequate
We should like to ascertain in these hearings the extent to whith
authorization of subscription television on a nonexperimental basis
will diminish the amount of spectrum space now available for other
uses.
We should also like to find out if any such diminution is necessary
in the public in~tere~t.
Congressman Dingell, a distinguished member of our full commit
tee, has introduced a bill, H R 12435, to amend the Communications
Act by providing that nothing therein shall be held to empower the
Commission to authorize any person to engage in the broadcasting of
pay television programs.
(The bill, ILR. 12435, follows:)
(R.R. 12485, 90th Cong., first sess.]
A DILL To amend the Communications Act of 1984 so as to prohibit the granting of
authorIty to broadcast pay television programs
Be it enacted by the f~enate and Hou$e of Representatives of the United ~5tate~i
of America in Congress a~em~bied, That section 3 of the Communications Act of
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1934 (47 U.S.C. 153) Is amended by adding at the end thereof the following
new paragraph:
"(hh) `Pay television program' means any television program Intended to be
received by members of the public only upon the payment by such members of
a charge, fee, or other form of direct compensation."
Sno. 2. Section 303 of the Communications Act of 1934 (47 U.S.C. 303) is
amended by adding at the end thereof the f~liowing: "Nothing in this Act shall
be held to empower the Commission to authorize any person to engage In the
broadcasting of pay television programs."
Mr. MACDONALD. With that in mind we certainly welcome the Chair-
man of the Federal Communications Commission, our first witness of
the morning, Chairman Rosel H. Hyde.
Will you please come before us, Mr. Chairman ~ It is very nice to
see you again.
STATEMENT OP HON. ROSEL IL HYDE, CHAIRMAN, PFADERAL
COMMUNICATIONS COMMISSION
Mr. HYDE. Good morning. It is a pleasure to be here.
As Chairman of the Federal Communications Commission I appear
today in response to the committee's invitation to discuss the back~
ground and current status of the Commission's subscription televi-
sion proceeding, docket No. 11279.
Beginning in 1952, petitions were filed with the Commission request
ing authorization to initiate subscription television. In February 1955,
the Commission instituted a rulemaking proceeding inviting comments
on whether the Commission should authorize television stations to
transmit programs paid for directly on a subscription basis and re-
lated questions of law, fact, and p~iblic interest considerations asso-
ciated with such a proposal.
Copies of the notice instituting that proceeding and all other docu-
ments mentioned in my statement which reflect action taken by the
Commission are available for inclusion in the record at appropriate
points should you so desire. I will ask members of the staft' to show
the various documents to committee counsel.
Among those filing comments were the three television networks;
the National Association of Broadcasters; the Joint Committee on Toll
TV (a group of motion picture theater interests opposed to subscrip-
tion television); Jerrold Electronics Corp.; Zenith Radio Corp. and
Teco, Inc.; Skiatron Electronics & Television Corp. `and Skiatron TV,
Inc.; and International Telemeter Corp.
Comments were also filed by UHF and VHF stations, educational
institutions, and various organizations. Over 25,000 members of the
public submitted letters pro and con.
After reviewing the comments filed, the Commission issued a notice
of further proceedings in which it stated "that the Commission has
the statutory authority to authorize the use of television broadcast fre-
quencies for subscription television operations if it finds that it would
be in the public interest to do so."
The notice also pointed out that although the comments were use-
ful, they did not provide an adequate record upon which a decision
could be reached as to whether the proposal to authorize subscription
television should be either granted or denied.
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The Commission found that trial operations would be indispensable
in arriving at soundly based decisions and invited comments on a series
of 11 questions designed to aid it in deciding the conditions under
which trial operations should take place.
Appropriate congressional committees were kept fully apprised of
all these developments. Congressman Harris, then chairman of the
House Interstate and Foreign Commerce Committee, requested and
we supplied him with a memorandum of law with respect to the Com-
mission's jurisdiction to authorize subscription television operations.
In October 195'T, the Commission issued its first report announcing
the conditions under which it would consider applications for trial
subscription television authorizations.
Among the conditions to be imposed on any trial operations au-
thorized were:
(1) Any system could be tested in up to three markets.
(2) More than one system could be tried out in a single market.
(3) Trials were limited to stations in cities with at least four
commercial television services (including the applicant's station).
(4) Trial authorizations were to be for 3 years with the possi-
bility of renewal. -
The first report also stated that, when sufficient data was available
from the trials, the Commission would conduct a public hearing on
such data and on the `ether outstanding issues. It indicated that be-
cause of the need for careful review of all aspects of the applications
for trial operations, it would not be practicable to act on them before
March 1958.
In January 1958, the House Interstate and Foreign Commerce Com-
mittee conducted 6 days of hearings on the subject. On February 6,
1958, that committee adopted a resolution expressing the sense of the
committee that the FCC should not grant authorizations for subscrip-
tion television operations as contemplated in the first report unless
and until the Communications Act of 1934 is amended so as to specifi-
cally empower the Commission to grant such authorizations.
A number of bills were also introduced in both Houses of Congress
which would restrict or prohibit authorization by the Commission of
the broadcast of programs for which a direct charge is imposed on the
viewers.
In these circumstances, and in order to give the Congress oppor-
tunity to act, the Commission announced iii a second report of Febru-
ary 26, 1958, that action on applications for authorizations to conduct
trial subscription television operations would be deferred until at least
thirty days following the adjournment of the 85th Congress.
After further consultation with Chairman Harris, the Commission
deferred the processing of such applications until the adjournment of
the first session of the 86th Congress.
No congressional hearings were held on the bills `then pending or on
similar bills to prohibit subscription television which have been intro-
duced in each Congress since 1958.
In a third report of March 23, 1959, the Commission made three
changes in the conditions for trial operations:
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(1) Instead of permitting the trial of a particular subscription
television system in up to three markets, it permitted a system to
be tried in only one market.
(2) Only one system could be tried in a single market.
(3) Whereas the first report had left open the question of
whether any receiving equipment might be sold to participating
members of the public, the third report announced that the public
should not be called upon to buy equipment for trial operations
that was not needed for the reception of "free" broadcasts.
The House Interstate and Foreign Commerce Committee then
adopted another resolution, stating that its February 6, 1958,
resolution should not preclude subscription television trial opera-
tions as contemplated by the third report.
On March 26, 1959, on the floor of the House, Chairman Harris
summarized the reasons for the committee resolution. He stated that
it would be unwise to prevent trial operations of subscription tele-
vision as long as they were conducted so as to preclude the virtual
establishment of a new service, and as long as they did not involve
financial risk for subscribers.
He emphasized that promoters of subscription television were
on notice that the Congress reserved the right to determine whether
to enact legislation to amend the Communications Act to empower the
Commission to grant, and to prescribe the conditions' under wh'ich
the Commission would have the power to grant, authorization for ex-
tended or permanent operations. He further emphasized that:
Under no èircumstances could the action of the Federal Communications
Commission and the action of the Committee on Interstate and Foreign
Commerce be construed as placing a stamp of approval on subscription
television as a permanent service.
After 5 days of hearings `before the Commission, the first application
filed under he terms of the third report was granted It authorized
RKO General Phonevision Co (a subsidiary of RKO General, mc),
licensee of UHF station WHCT, Hartford, Conn, to engage in a 3
year `trial operation of subscription television over WHCT.
The Commission's grant of this authorization was challenged in the
U.S. Court of Appeals which upheld the Commission's jurisdiction
and authority to order such trial operations (Connecticut Coimmittee
Again&t Pay TV v. FCC, 301 F. 2d 835 (C.A.D.C., 1958), cert. denied,
371 U.S. 816 (1962)).
The Hartford `trial operation commenced on June 29, 1962. On
May 21, 1965, the authorization was extended for a period of 3 years
or until such earlier time as the Commission might terminate the
rulemaking proceeding.
Only two other applications for authorization were filed One was
denied because it did not meet the conditions of the third report. The
other `was granted bnt the operation never commenced, and the au-
thorization was relinquished on May 1, 1964.
In March 1965, Zenith and Teco, which supplied the equipment
used in the Hartford trial operation, filed a joint petition requesting
authorization of nationwide subscription television. The pleading
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contained exhaustive information concerning the first 2 years of the
Hartford trial.
In response to the Zeni'th-Teco petition, the Commission on
March 24, 1966, issued a further notice of proposed rulemaking and
notice of inquiry which included the following matters:
(1) A finding that the Commission has jurisdiction to authorize
subscription television on a permanent basis.
(2) A recogmtion of the interest of Congress in the subject and
provision of time for Congress to act if it so desired before the pro-
ceeding is terminated.
(3) A decision that subscription television is broadcasting.
(4) An expansion of its proceeding to include an inq~uiry into the
appropriate role, if any, of the Federal Government with regard to
the establishment and manner of operation of wire or cable subserip
tion television, and how that role should be effected.
(5) `Statements that "although we have reached no finalconclusion
thereon, it appears that it may well be. in the public interest to au-
thorize [subscription television] operations on a permanent nation-
wide basis" and "that subscription television on a nationwide scale
can be effectively integrated into a total TV system, with advantages
to the viewing audience, appears to be a reasonably sound conclusion
at this point."
(6) An indication that the concern of the Commission was with the
overall public interest, and that the competition between subscription
and conventional television for audience and program material might
result in improved and more varied fare for viewers of both services.
However, the Commission emphasized that it regarded the preserva
tion of conventional television service and the continued availability
of good program material to the free service as vital considerations.
(7) A statement that commercials would not be allowed on sub-
scription operations.
(8) An invitation to comment on the general issue of whether
subscription television should be authorized on a permanent basis, and
on 15 specific pertinent issues that would have to be decided if it is so
authorized, and on specific proposed rules to govern subscription teie
vision if it is authorized on a permanent `basis.
Comments were duly filed and, after a thorough study of the record,
the Subscription Television Committee, which the Commission had
established in 1963, submitted a written report on July 3, 1967, and a
draft of a fourth report and order which the Committee recommended
for adoption by the full Commission. These documents were made
public on July 14, 1967.
The committee recommended the establishment of an over-the-air
subscription service and the adoption of rules governing that service.
The committee's report and the proposed fourth report are being
submitted for the record. (See p. 8.)
Upon receipt of the fourth report, the full Commission determined
that its study and resolution of the matter would be aided by oral
argument, and that such argument would be most useful if addressed
to the report. Oral argument was just heard on October 2 and 3.
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In sum, this proceeding has been formally pending for more than 12
years. Each stage of it has been carefully considered and all actions
taken by the Commission in this area have been announced in normal
fashion and widely distributed and discussed within the communica-
tions industries.
The Commission, of course, welcomes any guidance the Congress
may want to give in this important area. We have reached the stage
where we apparently have before us sufficient data to make a determi-
nation, in the discharge of our statutory responsibilities, as to whether,
and under what conditions, authorizing subscription television is in
the public interest.
I want to stress that the Commission has reached no decision on
this question. In fact, Commissioner Wadsworth, the chairman of
our Subscription Television Committee, in signing the report to the
Commission, appended a statement as follows:
I agree that this matter should be brought to the attention of the full Commis-
sion at this time flowever I wish to make my position clear In agreeing to
submission of this document to the full Commission, I do not mean to imply that
I endorse adoption of it. Nonetheless, in view of the history of this proceeding,
I believe that the public and all parties to it are entitled to an early Commission
decision on the basic question presented.
In reaching its determination, the Commission will, of course, fully
consider the views presented in the docketed proceeding, and the oral
arguments presented to the Commission during the past week, as well
as the hearings now being held by this committee.
In conclusion, may I emphasize again that there has been no resolu-
tion of the issues which have just been argued so extensively before us.
Since the entire matter is still under study, we are not in a position
to express the Commission's conclusions on the substantive issues.
That concludes my written statement, Mr. Chairman.
(The Subscription Television Committee's report and proposed
Fourth Report and Order, referred to above, follow:)
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Before the FCC 67-819
FEDERAL COMMUNICATIONS COMMISSION 2819
Washington, D. C. 20554
In the Matter of )
Amendment of Part 73 of the )
Commission's Rules and Regulations ) Docket No. 11279
(Radio Broadcast Services) to
provide for Subscription Television )
Service )
ORDER
Adopted July 12, 1967 ; Released July 14, 1967
By the Commission: Commissiot~ers Bartley, Cox and Loevinger absent
The Commission has before it the report of its Subscription
Television Committee, dated July 3, 1967, transmitting a proposed
Fourth Report and Order and a Second Further Notice of Proposed
Rule Making. The Commission believes that its study and resolution
of this important matter would be aided by oral argument, and further
that such argument would be most useful, if addressed to the report.
Accordingly, it is releasing the report at this time, and will
specify by subsequent order a date for oral argument to be held in
early fall. Parties may also submit written comments or outlines
of their arguments, not to exceed 50 pages, on or before September 15,
1967. An original and 14 copies should be filed. (See Section 1.419
of the Commissionts rules.)
IT IS ORDERED, That, the interested parties may file written
comments or outlines of oral arguments, not to exceed 50 pages,
on or before September 15, 1967.
FEDERAL COMMUNICATIONS COMMISSION
Ben F. Waple
Secretary
Attachment
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9
FEDERAL COMMUNICATIONS COMMISSION
Washington, D. c.
REPORT TO TIlE FEDERAL COMMUNICATIONS COMMISSION
BY ITS
SUBSCRIPTION TELEVISION COMMITTEE
(July 3, 1967)
James J. Wadsworth, Chairman
Robert E. Lee
Kenneth A. Cox
1. The Subscription Television Committee of the Commission hereby reports
to the Commission that, having carefully studied the record in the
subscription television proceeding, Docket No. 11279, it has prepared two
documents--a Fourth Report and Order (Attachment A), and a Second Further
Notice of Proposed Rule Making (Attachment B)- - for the consideration of
the Commission.
2. The attached proposed Fourth Report and Order would establish an
over-the-air subscription television (STy) service and adopt rules govern-
ing that service. The principal topics with which it deals appear in the
table of contents. Using that table as a guide, this memorandum sketches
the contents of that document.
3. The introduction contains a very brief history of this proceeding from
the time of its inception in 1955 to the issuance of the Further Notice of
Proposed Rule Making and Notice of Inquiry in March 1966-- the last-issued
document in this proceeding, and the one that elicited comments on which
the Fourth Report and Order is largely based. (The Further Notice invited
comments on whether over-the-air STV should be authorized on a permanent
basis, on fifteen specific issues ~f it were so a~~thorized, and on specific
proposed rules.)
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-2-
6. As to preliminary matters (pp. 2-5), the document reasserts the Com-
mission's prior finding that it has jurisdiction to authorize an over-the-
air STV service, and that such STV is broadcasting. It states that Congress
has not acted on STV, that Congressional guidance in this area would be
welcome, but that the Commission has a present duty to establish an over-
*the-air STy service if it finds this to be in the public interest, and that
it so finds. Finally, it says that an oral hearing prior to establishing
such an STV service would serve no useful purpose.
5. On the question of whether over-the-air STV should be authorized on a
permanent basis, the document conclu~des that it should. It discusses in
detail the four broad areas mentioned on page 1 of the tabl~ and finds the
following:
a. STV could provide a beneficial supplement to conventional
TV programming. This might consist mostly of current
feature films, and of sports events not generally available
on conventional TV. (pp. 7-20)
b. Absolute proof of viability need not precede the establishment
of a new service, so that although there can presently only
be speculation about whether the public will accept and sup-
port STy, and although the projections about STV service based
on Hartford trial data are not without some uncertainties, there
is enough of a basis on which to found the new service (pp. 20-26)
c. As to the impact of STV on conventional TV, diversion of
audience (j~g, attracting those who would have been viewing
free TV at a particular time to view STV instead) can be
expected to be minimal. Pre-empting of time ~ broadcasting
STV programs over a station that would otherwise have been
broadcasting free TV programs) could occur to a degree contrary
to the public interest. For example, in a one-station market,
if the station commenced to broadcast STV programs during all
of its prime time, the community would receive no free pro-
grams from it during those hours. Some program siphoning
(Lm,, diversion of programs from free TV to STV) that would
be contrary to the public interest might occur. It is in the
public interest to establish STV with regulatory safeguards
directed at program siphoning and pre-empting of time. Although
the preservation of conventional TV service and the continued
availability of adequate quantities of free programs are
important considerations, competition between STV and free TV
could result in improved and more varied programming for both
aervices. The safeguarding rules do not competely prevent
siphoning, but strike a desirable balance between STV and free
TV. (pp. 26-40)
d. Pages 40-47, "other information," set forth material which is
discussed in connection with the fifteen regulatory issues listed
on page 2 of the table.
PAGENO="0015"
11
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6. The fifteen regulatory issues are discussed (pp. 47-99), and conclu-
sions are reached thereon which lead to the adoption of specific rules
(except for technical rules, discussed later herein) to govern the new service.
A brief paraphrase of the main points of each rule, as related to the fifteen
issues in the order in which they are listed on page 2 of the table, appears
below. For convenience, each paraphrase is followed by the pages discussing
it and by the section number of the pertinent rule which appears in Appendix
D to the Fourth Report and Order.
a. STV authorizations will be granted only for a station the
principal community of which is located within the Grade A
contours of five or more commercial TV stations (including
the station of the applicant). The five or more stations
need not be licensed to serve the community in which the
STY operation is proposed. At least four of the stations,
not counting the station of the applicant, must be in opera-
tion. (pp. 47-52; §73.642(a))
b. Stations engaging in STY operations must, in addition to STV
programs, broadcast at least the minimum hours of non-subscription
programming required by Section 73.651. There are no require-
ments about a minimum or maximum number of hours of STY pro-
gramming that a station may broadcast, or about the time of
day that it may broadcast STY programs. (pp. 53-56; §73.643(c))
c. STY is permitted over both UHF and VHF stations. (pp. 56-57;
§73.642(a))
d. Only one STV authorization will be granted in a community.
(This rule, coupled with the rule mentioned in "a" above, is
designed to protect against undue pre-empting of time from
free TV.) (pp. 57-58; §73.642(a))
a. Any technical, STV system (meeting general standards to be
adopted later) may be used, j,~,, STY will not be required to
use one particular system. (pp. 58-63; §73.644)
f. No STV authorization will be granted to a party having any
contract, arrangement, or understanding, express or implied,
which prevents or hinders it from rejecting any STY program
which it believes tO be unsuitable or contrary to the public
interest, or substituting an STY or conventional program which
it believes to be of greater local or national importance;
which delegates to another person the right to schedule hours
of broadcast of STY programs; which prevents or hinders it from
making a free choice of STY programs, whatever their source;
or which deprives it of the right of ultimate decision concerning
the maximum amount of any STY program charge or fee. In spite
of the foregoing, however, subject to Commission approval, STY
operators may enter into arrangements whereby they agree to
schedule a specific STY program at a specific time, or to schedule
PAGENO="0016"
12
-4-
a specific number of hours of STV programs during the broad-
cast day or week; and whereby they agree to obtain all, or a
specified part of, their STV programming from one or more
sources. (pp. 63-72; §73.642(e))
g. Charges, terms, and conditions of service must be applied
uniformly, but subscribers may be divided into reasonable
classifications approved by the Commission. For good cause
~ for poor credit risks) deposits to assure payment may
be required, and other steps may be taken. (Other than as
specified in the rule, the Commission will not regulate the
rates to be charged.) (pp. 73-76; §73.642(f)(2)
h. Unless a satisfactory signal is unavailable at the location
where service is desired, STV service must be provided to all
persons desiring it within the Grade A contour of the conven-
tional TV service of the stations engaging in STV operations.
For good cause, service may be terminated. (pp. 76-79;
§73.642fsas
i. STV decoders attached to sets of subscribers must be leased
and not sold to subscribers. (pp. 79-8].; §73.642(f)(3))
j. Concerning making STV available to all eligible stations, no
rule is adopted on this specific matter since other rules sub-
sume the issue. (pp. 81.82)
k. Feature films may not be broadcast which received first run
showing on a non-reserved seat basis anywhere in the United
States more than two years before proposed STV showing (pp. 86-
87). However, a limited number (as many as 12) of feature films
more than 10 years old may be shown each year (p. 87). Sports
events may not be broadcast on SW which were regularly tele-
vised in the community within the two years preceding proposed
SW broadcast (pp. 87-94). No series type of program with
interconnected plot or substantially the same cast shall be
broadcast over STV(p. 95). (The foregoing rules are designed
to prevent siphoning. Since, generally, free TV cannot obtain
current feature films, the films which STy shows will not be
siphoned from free TV. Since it is expected that about 85%
of the programming of STV will consist of current films, the
rule does not harm SW. The rule on sports will clearly prevent
siphoning, and the rule on series-type programs will prevent
siphoning of a type of programming which constitutes a large
part of free TV programming. Some siphoning, ~ of programs
that are not series, could occur.) Ir~ addition to the foregoing
limitations, no commercials will be permitted on STV (p. 95).
Also, not more than 90% of the programming of an STV station may
consist of feature films and sports events combined (p. 94).
(This is to assure that at least a minimum amount of cultural and
educational programming will be presented, such as oper4, ballet,
etc.) (pp. 82-96; §73.643(a) and (b))
PAGENO="0017"
13
-5.
1. Except as otherwise waived by the Commission in STV authori-
zations which it issues, the rules and policies applicable
to conventional TV stations are applicable to StV operations.
(pp. 96-99; ~73.643(d))
In addition to the foregoing, a few other rules appear in Appendix 0 of the
Fourth Report and Order. Among these is a rule that an STV authorization
may not be issued for a period longer than that of the regular license period
of the TV station.
7. The rules also contain a NOTE (to Section 73.642(b)) stating that no
applications for STV authorizations will be accepted for filing until rules
concerning equipment and system performance capability have been adopted.
Attached hereto is a Second Further Notice of Proposed Rule Making which
invites comment~on technical rules on this subject. It is quite brief
and is not summarized here.
8. Concerning applications for STV authorizations, financial requirements
~ a requirement to make a showing of capacity to sustain STV operations
for at least a year, similar to the requirement for applicants for CP's for
conventional TV stations), fees, and reports, see paragraphs 288-289 on page
100 of the Fourth Report and Order.
9. The rules adopted concern only commercial television stations. As to the~
relationship between STV and educational television stations, see paragraphs
290-294 on pages 101-102 o~ the document.
10. The end of the document (pp. 102-108) deals with the inquiry into wire
or cable STV which the Commission instituted in the Further Notice of Proposed
Rule Making and Notice of Inquiry. The inquiry invited comments on what the
role of the Federal Government should be, if any, with regard to this type of
STV. Such STV falls into three categories: (1) STV systems, like the now
defunct system that operated in Los Angeles and San Francisco, in which pro-
grams travel entirely by cable from studio to sets of subscribers.. (2) CATV
systems which, in addition to their traditional function of receiving and
retransmitting conventional TV signals, also originate STV programs that travel
by cable to sets of subscribers. (3) CATV systems which, in addition to
traditional functions, transmit over-the-air STV programs which they have
picked up either off the air or by microwave. To the best of our information,
there are presently no STV operations in the United States in any of the three
categories. The document says that with regard to the first two categories
the Commission makes no decisions because it wishes to study the matter further.
As to the third cacagory, it states that the CATV carriage and non-duplication
rules will apply to the conventional programming which the STV stations will
be required to carry CATVs will not be required to carry STV programming.
An STV station, may, however, subject to Commission approval, make arrangements
with C~TV systems within its Grade B contour for the CATV to carry its SW
programming. No such arrangements may be made with C~TVs outside the Grade B
56-399 0 - 67 - 2
PAGENO="0018"
14
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contour. The question of carriage of STY programs of an STV station by
~ATYs so situated is reserved for further study.
Li. For the reasons stated therein, it is recommended that the attached
Fourth Report and Order, and the Second Further Notice of Proposed Kule
Making be adopted.
Subscription Television Committee
,~7L~4 /91 ~ n~
(/iames J. ~Jadsworth, Chairman*
Robert H. Lee
Kenneth A. Cox
Attachments
agree that this matter should be brought to the attention of the full
Commission at this time. However, I wjsh to make my position clear:
In agreeing to submission of this document to the full Commission, I do
not mean to imply that I endorse adoption of it. Nonethele..s, in view
of the history of this proceeding, I belie~!=e that the public and all
parties to it ar~ entitled to an early Commission d~ciaion on the basic
question presented.
PAGENO="0019"
15
Attachment A
Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554
In the Matter of
Amendment of Part 73 of the )
Commission's Rules and Regulations ) Docket No. 11279
(Radio Broadcast Services) to
provide for Subscription Television
Service. )
FOURTH REPORT AND ORDER
TABLE OF CONTENTS
Page No.
Introduction ,. 1
OVER-THE.AIR SUBSCRIPTION TELEVISION
Preliminary Matters 2
Jurisdiction 2
Congressional Guidance 3
STV is Broadcasting 4
Oral Presentation 4
Parties Filing 5
Should STV be Authorized on a Permanent Basis' 5
Would STV Provide a Beneficial Supplement to Free TV? 7
Hartford Programming 7
Etobicoke Programming 9
Views of STV Opponents on Programming 10
Views of STV Proponents on Programming 12
Conclusions 16
Would STV Provide an Increased Financial Base for Broadcasting.
and Would it be Accepted an~ Supported by the PublLc?.,..,. 20
Business Projections Based on Bartford Trial 21
STV Penetration 21
Channel Allocations and Station Growth 22
Necessary Showing for Establishment of New Service 22
Conclusions 23
Impact of STV on Free TV, and Problem of Siphoning 26
Comments of STV Proponents 28
Comments of STV Opponents 31
Reply Comments of STV Proponents 34
Reply Comments of STV Opponents 35
Conclusions 35
Other Information: Modus Operandi; Technical 1'~rformance
of STV Systems; Methods to be Employed; Role of Station
Licensee; Possible Monopolistic Features of STV 40
Modus Operandi; Methods to be Employed; Licensee's Role..., 40
Technical Performance of STV Systems 42
Possible Monopolistic Features of ST~J 43
Conclusions 47
PAGENO="0020"
16
Fifteen Regulatory Issues. 47
Should STV be Permitted in all Communities?... 47
Conclusions 50
Requirements about STV and Free. TV Hours of Operation 53
Conclusions 55
Should STV be Permitted on Both VHF and UHF Stations? 56
Conclusions 57
Should STV be Permitted on More Than One Station in a
Community? 57
Conclusions 58
Single or Multiple Technical Systems? 58
Conclusions 62
Programming Activities of Various Parties 63
Licensee Control 63
Arrangements Among Parties 63
Conclusions 68
Technical Rules :72
Charges, Terms, and Conditions of STV Service 73
Conclusions 175
Must STV Station Serve All Persons in Area? 76
Conclusions 77
Protection Against Obsolescence of STV Equipment 79
Conclusions 80
Should STy be Available to All Eligible Stations? 81
Conclusions 81
Should the Type of Programming Broadcast Over STV Be Limited?. 82
Conclusions 84
Should Present 8roadcast Rules and Policies Apply to STV? 96
Conclusions 99
STV Rules Adopted Herein 99
Applications, Financial Requirements, Reports 109
Educational Television and STV 101
WIEE ORCABLE SUBSCRIPTION TELEVISION
Preliminary Statement 102
Jurisdiction 103
How CATV Systems Can Pick Up Scrambled STV Signals 104
Application of CATV Rules on Carriage of Local Stations 105
Will CATV Turn Into STV? 105
Conclusions 106
Carriage of Local STV Stations by CATVs 106
Program Origination by CATV Systems, arid cable SW Not
Related to CATV 108
OIU~ERS
Rules Adopted; Proceeding Kept Open 108
PAGENO="0021"
17
Before the
FEDERAL COMMUNIC~.TIONS COMMISSION
Washington, D.C. 20554
In the Matter of
Amendment of Part 73 of the ) Docket No. 11279
Commission's Rules and Regulations
(Radio Broadcast Services) to
provide for Subscription Television
Service.
FOURTH REPORT AND ORDER
Adopted: ; Released:
By the Commission:
1. The Commission has before it for consideration the Further
Notice of Proposed Rule Making and Notice of Inquiry released in this docket
on March 24, 1966, 1/ and comments, reply comments, and technical submis-
sions filed in response thereto.
2. Briefly, the course of events in this proceeding which led to
the issuance of that document is as follows: In 1955 the Commission adopted
a Notice of Proposed Rule Making ~/ inviting comments to help it decide
whether it would be in the public interest to adopt rules authorizing tele-
vision broadcast stations to transmit programs paid for on a subscription
basis. A Notice of Further Proceedings, ~/ released in 1957, announced that
although the comments responding to the 1955 Notice had been useful, they
did not provide a fully adequate basis for arriving at final decisions on
the matter, and that trial demonstrations would be necessary to mid in
arriving at conclusions thereon. Later in 1957, the First Report ~/ announced
the conditions under which applications for trial operations would be accepted.
The Second Report (1958) ~/ gave notice that any such applications filed
would not be processed until after the adjournment of the 85th Congress because
of the interest ~nd activity of that Congress with regard to subscription
television (hereinafter called STy), the delay being for the purpose of
affording the Congress an opportunity to consider public policy questions
which the subject raised. The Third Report (1959) ~/ made some amendments
to the First Report, otherwise readopted and affirmed it, and stated that the
Commission was ready to give consideration to applications for trial operations~
1/ FCC 66-268; 31 F.R. 5136, March 30, 1966, 7 Pike & Fischer, R.R. 2d 1501.
~/ FCC 55-165; 20 F.R. 988, February 16, 1955.
~/ FCC 57-530; 22 F.R. 3758, May 29, 1957.
4/ 23 F.C.C. 532, 16 Pike & Fischer, R.R. 1509.
5/ FCC 58-182, 16 Pike & Fischer,R.R. 1539.
6/ 26 F.C.C. 265, 16 Pike & Fischer, R.R. 154a.
PAGENO="0022"
18
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3. Three applications for trial authorizations were filed. One
was denied, one was granted but operation never commenced and the authori-
zation was later relinquished, and the cnird was mranted'and operation be-
gan in the summer of l96~ over UHF station WHCF, Hartford, Connecticut. 7/
The last-mentioned grant was affirmed by the U. S. Court of Appeals. ~/
The Hartford trial uses Phonevis ion equipment of which Zenith Radio Corpora-
tion is the manufacturer and patent holder. Teco, Inc. is the patent licen-
see of Zenith.
4. In 1965 Zenith and Teco jointly filed a petition for further
rule making to authorize nation-wide STV on a permanent basis. The petition
was based on data derived from the Hartford trial. The first part of the
Further Notice of Proposed Rule Making and Notice of Inquiry (hereinafter
called Further Notice) mentioned at the outset is responsive to the Zenith-
Teco petition. It contains a discussion of over-the-air STV ~/ and invites
comments on proposed rules for such a service. In the second part, the Com-
mission, on its own motion, instituted an inquiry into what the appropriate
Federal role, if any, should be with respect to the establishment and manner
of operation of wire or cable Sly. This type of STV was previously outside
the scope of this proceeding, and was made a matter of inquiry because of the
change of conditions since 1955 when the proceeding began. We shall first
consider the over-the-air rule making, and then turn our attention to the
inquiry.
OVER-Tag-AIR SUBSQUPTION TELEVISIQN
Preliminary Matters
5. The Commission is of the opinion that it is in the public
interest to authorize over-the-air STV on a nation-wide basis to the extent
described in the following discussion and crystallized in the rules adopted
today (Appendix D).
Jurisdiction
6. The Notice of Further Proceedings announced the Commission's
conclusion that it has statutory authority to authorize over-the-air STV opera-
tions. The First Report affirmed that conclusion and presented in detail (in
.2/30 F.C.C. 301, 20 Pike & Fischer, R.R. 754. The authorization was for a
period of three years and was subsequently extended for a period of three years
or (if it occurs sooner) until such time as the Commission terminates the pre-
sent proceeding and enters an order with respect to the authorization.
.~/ Connecticut Committee Aaainst Pav~TV v. ~Q, 301 F. 2d 835 (C.A.D.C., 1958),
23 Pike & Fischer, R.R. 2001, ~ denied, 371 U.S. .816.
.Q/ In over-the-air subscription television, usually both the audio and video
signals are transmitted over the air in `scrambled" form by television stations
and may be viewed intelligibly only by those having "unscrambling' devices
attached to their sets. Some systems scramble only the video an~ not the
audio.
PAGENO="0023"
19
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paras. 20-40) the reasons underlying it. The Third Report readopted and affirmed
those paragraphs of trie First Report. In the further Notice (para. 19) we
adverted to our views expressed in the First Report and also observed that
the Circuit Court, in affirming our grant of the Hartford authotization, sup-
ported our jurisdictional conclusion. Some parties opposing STV now raise
the jurisdictional issue once more. Since the arguments raised have pre-
viously been given thorough consideration, and since we are still of the opinion
that statutory authority exists for the action which we take, it would serve
no useful purpose to evaluate them here.
~pgressional Guid~ice
7. Various opponents of STV uz~ge that the Commission should not
act in this area without Congressional guidance. In support thereof, many
arguments are presented, some of which are: (1) STV is a basic modification
of the American system of broadcasting- -a modificatiOn which should originate
with Congress and not the Commission. (2) The jurisdiction or the Commission
to act is questionable, so guidance should be sought from Congress. (3) The
Commerce Committees of both houses of Congress have expressed their views
either questioning the jurisdiction Qf the Commission to license STV~ opera-
tions or stating that such operations should not be authorized by the Commis-
sion without specific authorization by law. jQ/ (4) If STV is established, its
rates should be regulated to protect the public, but, if it is broadcasting
as the Commission has found, there is no authority in the Act to regulate rates
*thereof and the Commission should go to Congress for guidance.
8. The question of seeking Congressional guidance was raised in
pleadings considered prior to issuance of the Further Notice. In that document,
after having expressed our belief that we possess adequate statutory authority
to authorize STV on a permanent basis, we said that we could not at that time
determine whether amendments to the Act were needed to serve as guidelines for.
STV service. We also said that if STV service were ultimately established we
would on the basis of information then before us in this proceeding decide
whether amendments were needed and, if so, what recommendatiohS should be made
to Congress. We allowed a lengthy period for filing comments in this complex
proceeding and announced in so doing that such a period would afford the
Congress time to act with regard to STV before this proceeding is terminated
if it so desired.
9. The Congress has not acted on the matter. We welcome any guid-
ance it may wish to give, but believe that it is our present duty to establish
an STV service if it is found to be in the public interest, for we have found
that we have jurisdiction to do so, and Section 303(g) of the Act requires
us "to encourage the larger and more effective use of radio in the public
interest." At the present time, we do not believe that any amendments to the
Act are necessary to serve as guidelines for the new service. In this connection,
j&/These views appear in the Second Report, ~ note 5.
PAGENO="0024"
20
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we note that whether the Commission has statutory authority to regulate
rates for the new service- -a broadcast service- - is open to question. Since
we do not believe that such regulation is necessary (see paras. 220-222) the
matter need not now be analyzed. ~1owever, we shall carefully observe all
aspects of the new service in operation, and if amendments are indiøated shall
make appropriate recommendations concerning rate regulation or other matters.
~ is Brpadcastir~g
10. In the. Further Notice we concluded that STV is broadcasting
within the meaning of Section 3(o) of the Act, and set forth in detail our
views on the subject (paras. 22-29). As stated there, we regard intent to
provide a radio or television program service without discrimination to as
many members of the general public as can be interested in the programs as
of primary importance in our determination. We further said that intent may
be inferred from the circumstances under which the programs are transmitted
and that the number of actual or potential viewers is not signiftcant.
11. In our discussion we cited the Functional Music case fl/ and
the ~ case )~I. Both involved the use of special equipment attached to
the receivers of subscribers in order to receive the service. ABC, urging
that STV cannot be classified as broadcasting, cites early decisions of the
Commission j~/ that certain activities over broadcast stations constituted
point-to-point communications rather than broadcasting and argues that the
interpretations in those decisions are worthy of more weight than the j~~j.ç
case. Motorola questions whether Functional Music is authority Lor the pro-
position that STV is broadcasting. We should note that. we cited Muzak,
as well as Functional Music, merely to illustrate that payment of a charge
by subscribers for a special type of service is not in itself determinative
of the question of intent that the programs be received by the public.
Oral. Presentation
12. In the Further Notice (para. 21) we said that after a study of
the written comments responsive thereto "we shall take whatever steps appear
appropriate at that time, including an oral presentation if it is indicated,
as may well be the case." Several parties suggest that if, in spite of their
arguments to the contrary, the Commission should now decide to establish a
permanent STV service, at the very least it should not do so without holding
an oral evidentiary hearing first.
~j1 functional Music.. Inc. v. ~ 274 F. 24 543 (C.A.D.C., 1958), ~ denied,
361 U.S. 813.
12/ Muzak CorporatiOn, 8 F.C.C. 581 (1941).
.U/ Scroagin & Co. Bank, 1 F.C.C. 194 (1935); Standard ~hifl ,co.~ Inc.,
1 F.C.C. 227 (1935); Bremer.Broadcastina ComDanv, 2 F.C.C. 79 (1935); Adelaide
Lillian Catreil, 7 F.C.C. 219 (1939).
PAGENO="0025"
21
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13. A voluminous record has been established in this proceedingand has
furnished information which we believe sufficient in arriving at a decision. How-
ever, as indicated below, it has failed to provide all that we could desire,
and there are thus certain aspects of STV about which we continue to be con-
cerned. Were there an oral presentation, it would be limited to those aspects.
Because we are adopting rules which provide safeguards in the areas of concern,
because we believe that STV operation under these rules will provide factual
information about those areas that will serve as a guide for future Commission
STV decisions, and because we believe that oral presentation at this time
could only supply arguments devoid of such factual aid- -elaborations of views
already expressed in the written comments- -we cannot find that an oral hearing
would serve any useful purpose.
Parties Filing
14. Parties filing comments, reply comments, and technical discrip-
lions of STV systems are listed in Appendix A. Those opposing permanent STV
are the three networks (ABC, CBS, NBC), the National Association of Broadcasters
(NAB), the Association of Maximum Service Telecasters, Inc. (AMST), the Joint
Committee Against Toll TV (Joint Committee), Motorola, Inc. (Motorola), and
the Colorado Translator Association. All other parties favor permanent STV
(some with qualifications). These parties include proponents of various STV
technical systems, licensees of television broadcast stations who contemplate
entering into STV operations i~ nation-wide over-the-air STV is authorized,
and other groups, such as the American Civil Liberties Union. All parties
mentioned in this document hereinafter are referred to by short designations.
Those of proponents, as well as those of opponents mentioned parenthetically
above, appear in parentheses ~iollowing the names of the parties in Appendix A.
Should STV be Authorized ~n a Permanent Basis?
15. Paragraph 45(a) of the Further Notice invited comments on
whether STV should be authorized on a permanent basis. Paragraph 45(b) re~
quested comments on fifteen specific matters of concern to the Commission in
regulating STV if it is so authorized. We shall first deal with the fundamental
problem of 45(a) and then treat the issues in 45(b).
16. In the First Report (paras. 47, 65, 56, 66) j~/ the Commission
mentioned what sort of information it hoped to obtain from trial operations to
help it make public interest determinations. This information included the
following:
j~/ These paragraphs were affirmed by the Third Report.
PAGENO="0026"
22
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a. Whether STy would provide a beneficial supplement 15/ to
the program choices now available to the public.
b. Whether STY would provide an increase in financial resources
which would facilitate significant increases in the numbers of ser-
vices available to the public under the present system.
c. The degree of acceptance and support which STY might be
able to obtain from members of the public in a position to make a
free choice.
d. Whether STY would seriously impair the capacity of the
present system to continue to provide advertiser-financed programming
of the present or foreseeable quantity and quality, free of direct
charge to the public. This is closely related to the question of
whether STY would result in significant audience diversion from con-
ventional television and siphoning of programs and talent away from
free television into STY service.
e. Other information, such as (1) modus operandi of the
service; (2) the technical performance of the systems; (3) the
nature of the programs offered; (4) the methods to be emp1oyed~
(5) the role of partLcipating broadcast station licensies; (6) pos-
sible monopolistic features of STY.
Comments on the question of whether STY should be authorized on a permanent
basis generally fall into categories a, b, c, d and e above.
15/ The term "beneficial supplement" merely means STY programming that is
not duplicative of the programming of free TY and that is desired or needed
by at least a portion of the viewing public. It has no connotation of lack
of impact upon free TY, whicl~ is a separate question.
PAGENO="0027"
23
-7-
Whether STV Would Provide a Beneficial Su~olement to the Program Choices
now Available to the Public.
17. Hartford Programmina. In joint comments filed March 10, 1965,
in support of their petition for further rule making (prior, to the issuance
*of the Further Notice) Zen.ith and Teco set forth in detail the STV programming
offered by WHCT during the first two years of the Har1~ford trial. Their
comments j~/ filed in response to the Further Notice supply no additional data
but incorporate by reference the March 10 material. As we pointed out in the
Further Notice (para. 12), that information showed `an average of about 1500
hours of STV programming, consisting of about 300 separate programs, .were
presented each year. JjI The programs were not available on free television
either in Hartford or elsewhere in the United States. The breakdown of the
programs is as follows:
Av. Number Percentage
Approx. Number Approx. Number of Showings of Total
Category of Programs of Showinas per Program Showings
Feature Films 216 768 3.55 86.57.
Sports 40 40 1.0 4.57.
Special Entertainment 18 49 2.7 5.57.
Educational ..A~..,
Totals 300 889 2.96 100.07.
Of the 216 feature films shown during each year, one was a first run U.S. film,
58 (277.) were first st~bsequent run U. S. films which were shown, several weeks
after the first theater run (which corresponds to the time when pictures are
released to neighborhood theaters), about 149 (697.) were U.S. films of over 6
months in theater release, and 9 (47.) were foreign language films with English
titles or dialogue dubbed in. The sports programs were live broadcasts of
events not carried on conventional television, such as championship 1~oxing, high
school, college, and professional basketball, college football, and professional
`hockey. The special entertainment included plays, oper4 and ballet, toncerts
and recitals, variety, and nightclub programs. Educational features included,
among other programs, three for doctors only.
)~/ To avoid needless repetition, RKO--which conducted the Hartford trial--
filed brief comments stating that it fully agreed with the recommendations
`and conclusions of Zenith and Teco.
12/ During the same period WBC1' averaged about 1812 hours of conventional
programming per year.
PAGENO="0028"
24
-8-
18, Zenith and Taco state that when the Hartford trial was auth.
orized various theater owner organizations tried to induce picture producers
and distributors not to supply films for the trial, but that a number of in.
dependent and most major producers nevertheless did supply films. However, we
are told, two major producers were unwilling to do so. In March 1964, RK0.~
filed an antitrust action against them which was settled out of court in
June 1964, and at the end of the second year of the trial those companies
were supplying both first subsequent run and older films for the trial.
19. Although producers and distributors have been unwilling to
supply films on a first run basis (only one such film has been broadcast
since the trial began), Zenith and Teco state that this is mainly because
the operation is on a trial basis. They express the opinion that if nation-
wide STV were authorized, first run films could be made available, if it were
considered important, on the date of their release to first run theaters.
20. Concerning sports programs, Zenith and Teco mention that
heavyweight championship boxing matches, which consisted of about 0.37. of
the total STV programming during the first two years of the trial, were the most
popular of all SW programs since, on the average, they had audience ratings
of about 63% of all subscribers. They observe that before the Hartford trial
there had been no such fights on television for more than ten years because
promoters of such events found it much more profitable to show them by way
of closed circuit theater outlets. They also point out the savings to the
public that can accrue from viewing such events on STy. As an example, they
cite the following figures for one of the Liston-Clay fights: An average of
nine persons per tuned.in subscribing set watched the fight at a Cost of
$3.00 for all of them as compared to a cost of $5.00 a head (or a total of
$45) at several local theaters which showed the fight on closed circuit.
21. As to college sports, they state that none of the football
games shown on STV could have been broadcast over free TV under the restric-
tions of the National Collegiate Athletic Association (NCAA), These restric-
tions, they point out, were designed to protect college football teams from
loss of gate receipts (similar rules prevail for college basketball)., They
limit the number of games that may be viewed in any part of the country to one
game per week. As a result, viewers in the Midwest, for example, may be de-
prived of viewing a conference title game between two Sig Ten teams because
the game of the week is between teams from another part of the country.
Zenith and Teco argue that SD.! would protect gate receipts and thereby make
it possible to show local and regional games in which there might. be great
interest so that viewers would not be limited to the NCAA "game of the week."
22. They also mention that in both the American and Natidnal Foot-
ball Leagues home games are blacked out and that home games of many major
league baseball teams are either blacked out or their number is restricted
in many cities. They state that the Chicago Sears and the Detroit Liot~s have
permitted closed circuit theater operators to carry home games because the
stadium seats are usually sold out. Zenith ar*~i Teco express the opinion that
PAGENO="0029"
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-9-
theater television of ho~e games of professional football teams will increase
in the next few years and say that STV could provide a beneficial supplement
to free TV by carrying such games to a larger audience than that of the theaters.
23. As to special entertainment, the programs shown during the two~
year period are discussed. They claim that the economic limitations of
the trial prohibited a steady supply of Broadway plays, but that with a
broader economic base that nation-wide STV would provide these difficulties
would not exist.
24. We are told that there were difficulties in obtaining programs
of box-office caliber in the educational and instructional category, and that
the audience ratings for such programs were low. It is stated that possibly
the primary use of STV operations in the future in this programming area
would be the use of commercial STV facilities by educational groups for the
broadcast of educational programs for a fee. Especial reference is made to
programs available only to doctors. Three such programs were shown in the two-
year period and since then more have been shown. The programs were designed
to aid doctors in keeping abreast of medical advances within the confines of
their busy schedule, were supervised by a noted physician, and had considerable
professional support.
25. Etobicoke Program~j~pg. Telemeter's comments incorporate by
reference all material in previous submissions (June 5, 1955, May 25, 1965,
and June 17, 1965) to the extent that it does not vary from its present comments.
We note that in its May 1965 filing, in setting forth information about
the five-year Etobicoke (a suburb of Toronto, Canada) cable STV experimental
operation, it stated that "the prime pillars of programming were motion pic-
tures and `blacked out' sports," which is consistent with the experience of
the over-the-air trial at Hartford. Special entertainment productions were
also shown. Telemeter's experience in obtaining feature films for its ex-
periment supplements the Hartford information. 18/ Telemeter states that "many--
but not all--major film distributors as well as other leading companies were
reasonably cooperative in supplying some of their current product fo.r subscrip-
tion TV use. However, except for three `road-show attractions', which were
exhibited on Telemeter during their general release to theatres, none of the
other so-called `road-shows' produced in the past five years or earlier were
made available and, since not all major distributors permitted current
feature pictures to be shown on the cable system, Telemeter subscribers had
no access in their homes to a large number of desirable pictures released to
theatres." (For meaning of "road-show" and"gen~eral reléase~," see note 45., ~
26. The sports programming at Etobicoke constituted only a small
portion of the total SW offerings, but was the most consistently favored.
Among other things, it included away-from-home games of the Toronto Maple
Leafs ice hockey team. Such games had not previously, been available to
L~/ The May 1965 fi1in~ was a "Statement of International Telemeter Corporation
in Support of /Zenith-Tec~/ Rule MakingPetition for Authorization of Nation-
Wide Subscription Television." Although the Etobicoke operation was a 3-char~el
ca~1e rather than an over-the-air operation and therefore dissimilar in many
respects to the Hartford trial, in terms of programming experience it can shed
light on SW operations generally.
PAGENO="0030"
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- 10-
Etobicoke. It also showed blacked-out home games of the Toronto Argonauts
professional football team, as well as some professional championship boxing.
bouts not carried on free TV in Canada or the United States.
27. çpnventional TV Programming. Opponents of STV devote many,
pages of their comments to the argument that the STV programming of the
Hartford station did not provide a beneficial supplement since it was of the
same general type as that shown on conventional television, j,~, motion pic-
tures, sporting events, special entertainment, and educational presentations.
Illustrative of the mass of data submitted to document the argument is the
material in the immediately following paragraphs.
28. Feature Films. Of the 73½ hours of network programming between
the hours of 7:30 and 11:00 p.m. each week over the three networks combined,
10 hours are feature films (CBS-2 films, NBC-2, ABC~l). Such films are avail-
able five nights per week. In addition, local stations also offer feature
films in prime time. Viewers in some cities, ~ Los Angeles, can see as
many as 35 films per week during prime time. No figures are given for the
number of films shown by free television stations in the Hartford market per
week during the first two years of the Hartford trial, but it is said that
the networks offered 160 HIms to their affiliates during that period. More-
over,* we are told that although it is true that when this proceeding began
motion picture producers were selling pictures of relatively minor caliber to
free television, the number of major feature films released to free TV increased
rapidly during the late 1950's and continues to increase today, so that pre-
sently there are over 1200 films available for conventional television. During
the 1966-67 season, 120 films of high caliber were scheduled by the networks
alone. Examples of such films include "The Bridge on the River Kwai" (1957)
which is said to have been viewed by more than 60,000,000 people, "Lilies of
the Field" (1963), and "Breakfast at Tiffany's" (1961).
29. As to recency of films shown on free TV, it is stated that the
bulk of those shown by the networks five nights a week are "relatively" current
and that not only have producers released more major pictures to free TV since
the proceeding commenced, but also they have been releasing more recent films.
Cited as evidence are purchases announced in September 1966 by ABC and CBS
whereby the two networks acquired the right to show, over a period of five
years, more than 112 feature films, including some that had enjoyed record
box-office grosses. Of the films acquired by CBS, at least 14, we are informed,
were films released to theaters in 1965 and 1966. It is stated that the trend
toward showing more recent films on free TV will continue because the heavy
demand is drying up the source of supply. Indeed, because of this, feature
films are now being produced specifically for conventional television.
30. It is pointed out by STV opponents that of the 432 films shown
during the first two years of the trial at Hartford, only 116 (2,U were first
subsequent run, and the remaining 297 were over six months old, the average
release date of those films having been 1960. We are told, moreover, that of
the films shown during that period in the Hartford trial, over 60~ have al-
ready been made availa1~]e to free TV, sOme as soon as five months after their
PAGENO="0031"
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-11-
showing on STy, the average being less than two years after STy showing. Of
the remaining ones, many have already been purchased or are under option.
31. SPQrtS. Opponents of STV state that there is virtually no
major sports attraction that is not presently being broadcast on free TV.
They list in overwhelming detail the kinds of sports and sports programs that
free TV carries, and we shall not here repeat them. They state that the
quantity and quality of sports programs exceeds all expectations of about ten
years ago when this proceeding began. They concede what cannot be. denied--
that STV at Hartford carried heavyweight championship boxing matches, a type
of program that in recent years has not generally been carried by free TV;
and they would appear to admit that other sports events carried by WHQ~ were
not otherwise available in the market.
32. ~eciaL Entertainment and Educ~p±on~l Prog~a~ms. As with sports,
opponents describe at length the great variety and quality of special
entertainment programming carried by free TV to show that it is of the same
type that STV offered at Hartford, and mention that since the issuance of the
First Report such programs have expanded in number and quality. Mention is
also made of the growth of educational television service in this country
which provides educational and cultural programming, the programming of National
Educational Television (NET), the fact that since this proceeding started the
number of educational television stations has increased from 23 to over 100, j~/
and the fact that recent developments suggest that there may be new financing
available in the near future for programming in the educational television
service which would further improve its already excellent offerings. In addi-
tion, the Oxtoby-Smith `Study of Consumer Response to Pay Television" is quoted
to the effect that "the ratings for educational and cultural programs and
~even for available stage plays have been low.. . ,The operation of a ready market
for `cultural' programming has not materialized," Along the same line, they
advert to the very limited viewing of such programming by Hartford subscribers
(average of only 22 subscribers viewing educational programs).
33. As mentioned above, STV opponents, in connection with the
foregoing data submitted by.them, make the argument that the Hartford trial
did not provide a beneficial supplement because programming of the same general
type appears on free TV. With regard to feature films, the only possible ad-
vantage of STV, we are told, is that of reducing the time lag between theater
release and TV viewings. At least one party says that STV will not allow
viewers to see films "at a significantly earlier time." Several admit that
it is possible that STV can provide films "somewhat earlier" or that STV "can
somewhat accelerate" their presentation to the public. However, it is argued,
because conventional television is getting more and more recent films of high
quality, the difference in time of presentation over STV and free TV would be
less and less important. This time differential, it is said, does not justify
the use of scarce channels for STV. Opponents say that representations were
j~/ Since the filing of the comments, the number has increased to 125.
PAGENO="0032"
28
-12..
originally made to the Commission that SW would show first run films, but that
such films have not been made available to STV nor is there anything to indi-
cate that if SW t~ere authorized on a nation-wide basis they would be. As a
matter of fact, they state, only first subsequent run films and films six
months or more old have been made available, and only 27Z of the Hartford films
were first subsequent run.
34. It is also contended as follows: The promise of SW
was that it would provide viewing for members of the public interested
in the fine arts, opera, educational and informative programming, and similar
programming, ~ programming for minority tastes and not for mass appeal, but
Hartford has not satisfied that promise: its programming was mostly of a
mass appeal type, directed at those who watch free W the most. Its own
research firm reported that it should be directed at that audience, which is
less demanding in it~ expectations than the minority who expect more from
STy. The Oxtoby-Sajeb study shows that there is no ready market for cultural
programming. Therefore, if STV became a national service, it would be un-
reasonable to assume that it would do other than show the mass appeal type of
programming as Hartford did, for that is where the profits would be. Thus,
Hartford (allegedly because of the limitations of a one-city trial) did not
provide the diversity of programming that SW promised, and national SW
would not either. Whatever the facts may have beet in 1955, the broadcasting
environment has since changed and today, conventional commercial television,
the all-channel bill, syndication,and the networks all provide a great diver-
sity and the trend is toward greater diversity so that SW would merely be
duplicative of free W.
35. Other ar~un,ents offered are Chat SW promised quality programs
and that most of the films shown at Hartford were run-of.the.mill films; that
SW would deter the formation of a fourth national W network; that the game
of the week and "black-out" restrictions imposed by college and professional
sports are a reasonable accommodation of conflicting economic and social
interests, and to the extent that SW would derogate from these policies it
would undermine amateur and professional sports; and that Zenith and Teco
should have given information about the more recent programming of the Hartford
trial in their comments since the information of the first two years of the
trial may be out of date.
36. In their reply comments, Zenith, Teco and Telemeter take issue
with the contentions of the opponents of STy. Zenith and Teco say that the
opponents have ~ompared the programming of a single SW experimental operation
with that of the combined networks with nearly 700 million dollars to spend
for programming and that it would be more realistic to have compared the pro-
gramming of the networks in l94S- - the second year of their operation when the
weekly schedule of all four networks during the hours of 7 to 11 p.m. consisted
of about 40% ünprogrammed hours and 23% boxing and wrestling, with only four one-
hour dramatic productions, and a feature film library of about 50 titles.
They aver that given twenty years, STV may also make strides. Telemeter offers
a similar argument, stating that during the formative years of TV broadcasting
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86-399 ~ - 67 - 3
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30
14..
40. Zenith and Teco, responding to the assertion that only 277.
of the films shown at Hartford in the first two years of the trial were first
subsequent run and that the remainder were 6 months old or more, advert to
RICO's previous programming difficulties (see para. 18), characterizing them
as water over the dam, and state that during the one-year period of October 1,
1965 to September 30 1966 707~ of the 174 feature films shown were first
subsequent run The other 3O7~ were shown within the first year of theater
release, with a few exceptions which included"Bambi" and "Mary Poppins"
which were roadshowed on a hard-ticket basis for over a year before they
were given general release in theaters
41. With respect to the argument that of the 432 films shown in
the first two years of the Bartfsrd trial 273 have since been released to
free TV, Zenith and Teco point out that they never represented that sueh
files would not some day reach that medium, but, rather, that they would be
shown at an earlier date on STy.
42. They further state that the feature films which the opponents
of STV seem to indicate are so important on network and local station programming
could not be made available to free TV without support from box-off ice receipts.
In the same vein, Telemeter says that current films..-which are available on
STV at the same time that they are being shown in local theaters--are not now
and, under the economics of motion picture production and commercial TV broad-
casting, never will be available on free TV while they are in current release
in theaters. The reason given is that the films must first recoup their
"negative cost" and at least some portion of their box-office potential prior
to being made available to free TV. Numerous examples are cited. Thus, "The
Bridge on the River Kwai," frequently referred to by the STV opponents as an
example of free TV film fare, cost ABC $2,000,000 eight years after its release
to theaters. Its negative cost was about $6,000,000 on top of which were
publicity, promotion, and distribution costs, so that the amount that ABC was
able to pay for the film under the economics of commerdial television would
not have paid a third of the total costs of the film, let alone absorb a part
of its potentialtheater box~.off ice gross of $17,000,000.
43. Telemeter goes on to say that, according to industry sources,
the average motion picture is seen by only 57. of the population. A major
picture is viewed by only 87. or, in rare cases, l0~i of the population. Many
who would like to see the current movie do not do so because of inconvenience
or cost. A Broadway show in a 1200-seat theater that runs a year with every
performance sold out is seen by 499,200 persons. Many of the nine and a half
million residents of Ne~ York or the millions of persons in the rest of the
country would like to see the show but cannot because of distance or cost.
STV, Telemeter states,would aid the box-office potential of a motion picture.
or a Broadway play by showing it to an additional audience at a price, whereas
free TV would impair the box-office potential. Thus,it is argued, STV may
well stimulate additional quantity and quality of films, Broadway plays,
operas, add the like. Additional programs so stimulated by STY would redound
PAGENO="0035"
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- 15-
to the ultimate benefit of free TV. 20/
44. Telemeter states that there are thus three levels of
viewing films: (1) the theater, (2) STy, and (3) free TV. The public, it
urges, should be entitled to choose at which level it wishes to view. It says
that, after having been viewed in theaters or over STy, there will still be
large audiences waiting to see them on free TV 3 to 5 years later and they
will no doubt make for sizeable ratings for sponsoring advertisers just as
they do now.
45, Telemeter, Zenith and Teco all make a further contention
that films shown on free TV are cut and edited to fit appropriate time segments,
and are often interrupted by commercials which, it is said, distort and destroy
the artistic continuity of the films. j~/ In STV, the full feature is shown
without cutting and without commercials, Moreover, another advantage of SW is
said to be that the films may be shown more than once so that viewers may see
them at their convenience.
46. Finally, concerning sports, special entertainment, and educa-
tional programming, Telemeter avers that SW will considerably expand the
sports events available--events that are not now and in the foreseeable future
will not appear on free TV. It is stated that although opponents belittle
the fact that an average of only 17 doctors viewed each of the three medical
programs at Hartford, it must be remembered that there were not more than 5,000
subscribers. If STV were nation-wide, Telemeter says, there would be millions
of subscribers. As an example, it assumes 10,000,000 subscribers which is
less than 20 percent of the totai TV homes Wjth such penetration, 17 viewing
doctors at Hartford would translate into 34,000 viewing doctors nationally.
This is, Telemeter says, 12 percent of all doctors in the United States, who
would be furnished a not inconsiderable and unique service by SW. Similarly,
with regard to cultural programs, Telemeter states that opponents play down
their import and play up the fact that these programs achieved very lpw
ratings. Thus, NAS points out that The Consul had an average rating of only
35% at Hartford. However, if SW had millions of subscribers, even with such
small ratings enough revenues would be generated to reward the producer of the
opera. On the other hand, it is argued, such programs are viewed as "deadly"
by commercial TV and get short shrift even in non-prime time, so that the
minority audiences that would be interested in seeing them do not have the
opportunity to do so.
20/ With regard to films, for example, Zenith and Teco mention that the in-
creased use of films by the networks is making such product more scarce, and,
citing figures, they say that except for second and third reruns free TV wilt not
be able to show the quantity of first-commercial-TV run film that it has in the
past. They state that if SW were to generate an increase in film production,
this would not only aid STV, but would aid free TV as well.
21/ Telemeter cites two instances in which producers of films brought legal
actions in efforts to prevent this sort of distortion on the part of free TV.
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47. Conclus~ona. One of the most important single issues in
this proceeding is whether STV would provide a beneficial supplement to
the offerings of free TV. ~2J If it would, even its opponents agree that
doubts about other public interest aspects of STV might possibly be re-
solved in its favor. However, if the programming of STV is merely dupli-
cative of types of programs now appearing on free TV in quantity, opponents
urge, and we would be inclined to agree, that it would not appear that
other public interest considerations could justify the authorization of
STV using broadcast channels. We believe, for the reasons given below,
that STV will provide a beneficial supplement to free TV.
48. Of course, the programming of a single over-the-air trial
operation at Hartford and an experimental cable operation at Etobicoke cannot
form the basis for completely certain predictions about the programming that
would be shown if nation-wide STV were authorized. However, programming
different from free TV programming ~g.g available for the STV trials, and no
arguments have been made that convince us that such programming would not
continue to be available for STV if it becomes a nation-wide service. If
anything, it seems that nation-wide activity would strengthen the position of
STV in obtaining such programming, or even better programming. Proponents
suggest that nation-wide STV would follow the pattern of the trials and that
the major portion of its programming would consist of feature films and sports
(91% of Hartford programming). This appears to be a reasonable forecast, and
the rules which we adopt herein take cognizance of it. Should STV programming
change as it develops, and should the change require amendments of our rules
in the public interest, we, of course, stand ready to make them.
49. It may be useful first to analyze STV programming on the basis
of the Hartford trial. We begth with sports. Opponents of STV urge that
because a cascade of sports events is shown on free TV, sporting events shown
on STV would be duplicative because they would be of the same type. This is
unrealistic. It is elementary that if a man wishes to view a heavyweight
championship fight he will not be satisfied with viewing a tennis match, a
football game, or a motorcycle race instead. Such fights have generally not
been carried on free TV in recent years. To let him see the fight on STV
is clearly to supplement present sport-events programming on free TV.
The same is true with respect to blacked -uut home games of amateur or
professional teams. If one wishes to view on TV the local teams in which
he has a strong interest, it is at best a poor substitute to let him view teams
in other parts of the country. It is a fact of life that just as heavyweight title
fights are noC now generallyshown on free TV, home~ games are blacked out. The
promoters and team owners do net permit them to be shown on free TV for fear of
a/The question of impact of STV on free TV, discussed hereinafter, is
also of great importance.
PAGENO="0037"
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harming box office revenues. Opponents speak of the present situation as "a
reasonable accommodation of conflicting economic and social interests. This
may be so, but it is not the only possible accommodation. If the teams which now
protect their box otf ice revenues by blacking out home games find that they
can permit the games to be shown locally on STV and still benefit financially,
perhaps a new balance of economic and social interests will be strucK.
It is argued that other factors than "protecting the gate" are involved.
Thus, we are told that the Commissioner of the National Football League has
said that he "does not want to follow the path of professional boxing- -with
teams playing in comparatively empty arenas with national television audiences."
If the league believes that this would happen, there is nothing to force it
to allow its football games to be shown on STy. They can only be shown if
the league consents. The record suggests that at least in some cities where
the pro football stadia are completely sold out and people cannot obtain
tickets, STV might provide a beneficialsupplement ~nd the arenas would not
be empty.
50. Another benefit to the public that should not be overlooked
is the fact that many viewers may see a sports event over a single STV sub-
scriber's set for a relatively modest per-capita cost. Thus, for example, a
Hartford survey showed that during one heavyweight title fight an average of
nine viewers was watching each STV set that was tuned in, and the cost for
all nine was $3.00. The same fight on closed circuit TV at theaters in
Hartford cost $5.00 per person.
51. Turning now~to feature films, we observe that generally speaking,
people like to see fresh, new films. That is one reason that theaters shcwing
first run films can charge more than those with later showings. The fact that
there are some exceptions to this observation, such as "blockbusters" that
are not recent films, does not destroy its general validity. Although the
opponents of STV attempt to minimize the importance of recency, at ~he
same time they attempt to show that current films are being presented
on free television. Just as a person wishing a heavyweight fight will not be
satisfied with a tennis match, the chances are that generally a person wishing
to ~ee a widely-advertised,, favorably-reviewed, new movie will not be satisfied
with four-year-old film on free TV. They are both entertainment of the same
type, j,g~, "films," but there j~ a difference. And we agree with the propo-
nents of STV who state that under the cost-per-thousand economics of conven-
tional television, current films, such as first subsequent run films, cannot
be shown on that service, because free TV cannot pay enough to cover produc-
tion costs and potential box-office revenues that would be lost because of
the free TV showing. On the other hand, Zenith and Teco report that after
difficulties in program procurement were ironed out, 70Z of the films exhibited
in the Hartford trial in a recent year were first subsequent run. It may
also be recalled that although only 277, of the films in the first two years
of the trial were first subsequent run, the rest were, on the average, shown
two years after theater release.
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18-
52. The opponents make an effort to show how recent the films
on free TV are, but there can be no doubt from the data they submit, or
from a perusal of TV program schedules, that the average age of the films
on free TV is far above the Hartford average. As an example, we refer to
the list of film~ to be shown by networks in prime time during the 1966-67
season which ABC compiled from the July 27, 1966, Variety. Except for two
films made expressly for original run on free TV, it consists of 26 films
that will, on the average, be shown 3l~ years after theater release. Moreover,
the complete Variety list `of films to be shown by networks during the `1966-67
season from which the ABC list was selected, reveals that 60Z.of the films
are from 4 to 15 years old. ~ ,
53. A final point should be mentioned with regard to feature films.
Opponents suggest that, in pleadings filed about twelve yearsago in this
proceeding, the Commission was led to believe that STV would supply first run
feature films, but that it has only furnished first subsequent run pictures.
Zenith and Teco state that although first run films have generally not been
made available for STV, if the service were authorized on a nation-wide basis
they could no doubt be obtained if desired. We would point out that, as in-
dicated in paragraphs 56-58 below, the Commission was of the opinion that
claims of both proponents and opponents might not be free of exaggeration
and the very purpose of trial operations was to aid in
ascertaining where reality lay. The Hartford trial has shown that, at the
least, first subsequen~ run films are available. Whether first run features
would be similarly at hand if STV is authorized on a national scale is not
controlling at this juncture, since we are convinced that even without their
availability, the films to be shown on STV constitute a beneficial supplement.
This supplement permits the public to have three methods of viewing motion
pictures: (1) first or later runs in theaters, (2) first subsequent or later
runs on STV, and (3) later runs on conventional television. - If first run
films should be made available to STV the same three methods of viewing would
still prevail with STV being even more of a beneficial supplement.
54. Several opponents have stated that the Hartford trial has shown
that STV has disproved the proponents' statements that STV would diversify
television, programming. They quote from paragraph 48 of the First Report to
the effect that proponents "allege that subscriber financed broadcasts could
and would provide a wider choice to members of the public interested in the
fine arts, operas, educational and informative material and other similar kinds
23/ What the situation on conventional TV will be in years to come is a matter
of conjecture, Both opponents and proponents agree that the source of supply
of films is drying up. ABC says that because of this, feature films are now
being produced specifically for conventional TV exhibition and that such films
may ultimately become a network staple. Others say that the viewing public is
not satisfied with such films and prefers films made for theater release.
Zenith and Teco question, in view of the diminishing supply, what free TV
will do in the future other than resort to showing more and more reruns. (See
note 20, .E2E~-~
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of programs.' Instead of diversity, it is argued, Hartford has shown that
most of the programming will be that which appeals to a mass audience- -
films and sports. Therefore, since it will not provide the diversity pro-
mised STV should not be authorized.
55. This argument overlooks the context in which the quoted
statement was made. Therefore we quote in full paragraphs 48, 49, and 51
of the First Report:
48. Insofar as a judgment can be made on the present
record the Commission believes that in some respects the
claims of proponents and opponents alike are not free from
exaggeration. Proponents, for example, have tended to
stress the capacity of subscriptjon television to bring
to the public new kinds of programming hitherto unavailable
or available on a very limited basis. In support of this
argument proponents refer to the incentive to the advertiser
to concentrate his support on programs of wide general interest.
They allege that subscriber financed broadcasts could and
would provide a wider choice to members of the public interested
in the fine arts, operas, educational and informative material
and other similar kinds of programs.
49. As against this picture of greatly enhanced variety
of programs, the opponents insist that the incentive to
of fer programs of the widest popular appeal would be if
anything greater in subscription television. Time avail-
abilities, it is claimed, which could yield substantially
greater returns for programs of wider popular appeal
would not be sacrificed to any appreciable extent for the
transmission of programs which may be expected to attract
such smaller audiences.
* * * *
51. It is not possible, however, without a demonstration
of the service in operation, to determine reliably where
the practical realities lie - - in the glowing prospects
pictured by proponents, with the alarms raised by the
opponents, or somewhere between these extremes.
Comments of proponents filed in 1955, and paragraph 50 of the First I~eport
not quoted here, make it clear that proponents not only stated that SW would
provide wider diversity, but that it might offer sports events not shown on
free TV,as well as movies.
56. In view of the foregoing, it may be seen that we expressed an
inability to determine where the realities of the matter lay without help from
trial operations. We now have the results of the Hartford trial, as well as
some information concerning Etobicoke. It would appear, at least at present,
that the reality is that the major Dart of the programming, as opponents had
PAGENO="0040"
36
-20-
argued, will be of a kind that would appeal to a mass audience. To say this,
however, is not to say that it would not be in the public interest to author-
ize STV for, as indicated above, we believe that such programming does provide
a beneficial supplement to present television faz~, albeit the diversity pro-
mised may not be fully achieved.
57. It is difficult at this stage to arrive at any definite con-
clusions about the cultural or educational type of programming that was to
make for diversification. Hartford did offer some, So did Etobicoke.
Audience response was not great, but there was a response. On a national
scale, total audiences would be greater. Zenith and Teco state that the
limitations of the trial prevented more such programming. Larger audiences
might permit it. The Joint Committee says that RICO promised the Commission
that it was prepared to lose up to $10,000,000 on the trial. It lost money,
but not that much. The Joint Committee argues that had it spent and lost
more, as it promised it was willing to do, it might have provided the Com-
mission with more information about such programming. This is obviously an
area where we know little. In any event, the rules we adopt today adjust to
the reality of the situation- -the expected predominance of films and sports--
but provide assurance of programming for other tastes as well by estab-
lishing a maximum percentage of STV hours on the air that may be devoted to
films and sports.
Whether STV Would Provide an Increase, in Financial ~sources Which Would
Facilitiate Significant Increases in the Numbers QfSerVices~AVaflpklet9
the Public Under the Present System
The Degree of Acceptance and Support Which STV Might be Ableto Obtain
FromMembers of the Public ma Position to Make a Free Choice
58. These two categories are discussed together because they are
so closely intertwined. Zenith and Teco give business'projections based on
the Hartford experience which indicate that an over-the-air STV operation would
break even with 20,000 subscribers. They then assume what they characterize
as a conservative estimate that 10% of the TV households in a community would
subscribe to STV. Under these assumptions, the top 91 markets would have
sufficient TV homes to support viable STV operations. From this they argue
that STV has a reasonable potential of supporting 91 more stations in addition
to those already in operation, and that, depending on the market place, it
might do even more than that. Thus STV would facilitiate increases in the
number of services to the public. Whether STV could provide an increase in
financial resources depends, of course, not only on the validtty of the
assumptions that went into the preparation of the business projections that
suggest a 20,000 subscriber break-even point, but also on whether public
support would be such as to produce more than 20,000 subscribers in various
communities. We turn first to the business projectiqns.
PAGENO="0041"
PAGENO="0042"
38
-22-
65. In addition, it is argued that the revenues of the projection
include not only program charges of $65 per year per subscriber, but weekly
decoder rental charges of 75C that come to $39 per year, for a total of about
$105 per year. According to the most recent Department of Labor statistics,
the average family spends only $27.67 per year on all spectator admissions,
yet Zenith and Teco expect them to quadruple that amount for box office admis-
sions and spend the entire amount on STV. There is no empirical basis in
fact, we are told, for expecting this to happen, and the trial results show
that only 0.757~ might do so, which is a far cry from IOZ. Thus the revenues
are overstated insofar as they purport to be based on the Hartford data.
66. Channel Allocations and Station Growth. Zenith and Teco pre-
sent their projections and penetration material against a background of
information concerning channel allocations and station growth in order to
show that STV would provide an increase in financial and program resources
for the nation's competitive television system. They briefly mention the
activity of the Commission in allocating television channels throughout the
cowtry on the basis of priorities designed to provide the setting for a national
competitive television system. But they emphasize that establishing stations
using the allocated channels is the province of private enterprise. Figures
are presented to show the number of television broadcast licensees and the
number of permittees as of January 1, 1964 (shortly before they filed their
joint petition for further rule mfking), and the number of idle channels. In
addition, informationis given about television stations that went off the
air and construction permits for TV stations that were surrendered or cancelled
between the lifting of the freeze in 1952 and January 1, 1964. Zenith and
Teco also point to the Commission's sponsorship of the all-channel law as
another example of what the Commission has done to develop the television system.
They then conclude that the Commission has perhaps done all it can to achieve a
nation-wide television system and foster UHF except for promoting economic
support and program sources through the authorization of STy.
67. Responsive to the foregoing, the Joint Committee points out
that the Zenith-Teco figures stop at January 1, 1964, but that between that
date and September 29, 1966, the number of commercial UHF stations increased
from 88 to 115 and the number of VHF stations, from 476 to 490. Also, during
that period, the number of UHF construction permits increased from 61 to 139.
This UHF growth, it is suggested, was brought about by the fact that the UHF
problem was caused by the lack of set conversion, a situation that was cor-
rected by the all-channel law without the aid of STV.
68. Necessary Showina for Establishment of New Service. In their
reply comments, Zenith and Teco place principal stress on the question of
what sort of showing is necessary in order for the Commission to establish
a new service. They say that opponents hold that the Hartford trial did not
supply enough information to permit valid projections of viability of STy,
and that without absolute proof the Commission cannot establish a new service
or otherwise encourage the larger and more effective use of radio because it
would result in waste o~ spectrum space. Nothing in the Act, they state, in-
dicates that establishment of a new service must be preceded by absolute proof
PAGENO="0043"
39
-23.
that it will be viable. Nor was such proof made when the Commission made
allocations for UHF in 1952, when it reserved channels for educational TV
in 1952, or in other situations. The Hartford trial, they state, provided
useful information on which to make projections. Citing American Airlines,
Inc. v. Civil Aeronautics Board, 192 F. 2d 417 (C.A.D.C. 1951), they argue
that the Commission, in encouraging and developing new broadcast service in
the public interest, should consider not only present facts but estimates
of the future. Along the same line, in response to the argument that the
10% penetration figure is too optimistic, Telemeter states in its reply
comments that one of the opponents of STV (NAB) misjudged the future of
commercial television when it was beginning, but that service grew from
8500 TV homes to 947. of all homes in the nation.
69. Conclusions. We agree with the views of Zenith and Teco ex-
pressed in the preceding paragraph. We observe that the results of a single
trial cannot be projected into the future to indicate with complete accuracy
the nature of a new service. However, a trial can, and the Hartford trial
did, supply us with information that does afford a projective basis with
some attachment to reality as opposed to m~rP conjecture that existed before.
We recognize that there are some weaknesses in the assumptions underlying the
hartford business projections, but do not consider tftem as overriding~ For
example, the estimated $65 figure~for program revenue per year
per subscriber is slightly higher than the Hartford experience. However, ~ii
making the projections Zenith and Teco stated that it only approximates the
average program expenditure of the Hartford subscriber. They also pointed out
that with nation-wide STV more, and in some respects better, program product
might be available and it is not unreasonable to expect that subscribers might
spend more on programs because of this. In any event, even if the $65 figure
were shaved by a few dollars to make it correspond exactly to the average
Hartford expenditure, it would only result in a relatively minor change in
the projections.
70. Nor, for example, do we gainsay the validity of the fact that
the projections assumed a revenue of about $105 per year per subscriber for
STV alone, whereas the average family spends only $27.67 per year on all
spectator admissions. However, the fact remains that the average subscriber
at Hartford did spend close to $65 per year for programs and, with discounts,
did pay a weekly decoder rental fee. To say that the average family spends
$27.67 is not to say that no families spend more than that amount, for it is
the nature of an average that many lie above it and many below. Unfortunately,
we ha~e not been told what percentage of American families spend far above the
average. Nor do we have information about the possibility that expenditures
for STV might come out of a non-recreational part of the budget as has
apparently been the case with amounts paid for purchase of television sets.
71. Concerning the argument that the estimate of payments of
$300,000 to $400,000 per year for use of station time for broadcasting of
STV programs is too low, we would point out that even in the largest markets
some TV stations charge rates comparable to those of the larger radio stations
in the area. This indicates that the figure of $300,000 to $400,000 ii not
unreasonable.
PAGENO="0044"
40
24-
72. As to the argument that the high turnover rate shows public
dissatisfaction with SW and that the public will not support it, we con-
elude that not enough is now known about the causes of turnover to permit
drawing valid conclusions. We agree that, based on the experience of ide.
phone companies, Zenith and Teco assume too low a turnover rate. However,
we have no reason at this time to believe that with SW authorized on a
nation-wide basis this factor would be of such magnitude as to result in
insufficient support of SW. In any event, the rule we adopt today pro-
vides for lease rather than purchase of decoders by subscribers, and thus
provides protection to subscribers who may wish to withdraw.
73. As to the estimate that program costs would run about 357.
of program revenues, it is said that unless SW spends more than that for
quality product it will not achieve a better penetration than it did in
Hartford and it will fail; and that quality product sometimes costs more.
Yet we are not told how much quality product there is that costs more, or
how much more it costs other than that "it will bring as high as 907, for
first-run exhibition in New York or Los Angeles," or that it often obtains
as much as 50% or more for first subsequent run and that closed circuit
television in theaters can expect to pay 507,-607. of the gross. We believe
that the question of what programs STV can obtain and how attractive they
will be to how many people cannot be mnswered with any great degree of cer-
tainty. It is conceivable, for example, that a nation-wide SW system,
even if only moderately successful, could provide an audience sufficiently
large to make payments of 357, of program revenues very attractive to
suppliers of quality product. In fact, with larger audiences, suppliers
might be willing to charge lower percentages. Moreover, there is the possi-
bility that if more than 357. had to be paid to obtain quality programs, SW
operators could charge more for the better product. In any event, the
question of STV penetration and what it might take to obtain great penetra-
tion is one about which there can only be speculation at this stage. At
worst, using a 1% penetration, and accepting the other assumptions of the
projections, presumably STY could be viable in the top four markets (New
York, Los Angeles, Chicago, Philadelphia). At best, it would be successful
in many more. Having decided that SW can provide a beneficial supplement
to present TV programming, we are content to let this aspect work itself out
in actual operations under our new rules and under a requirement (as a matter
of policy) that applicants for SW authorizations make a showing that they
have the financial capacity to operate for at least a year.
74. Although not previously mentioned, we here note with
regard to the matter of potential penetration of STV that it has been argued
that STV would be something which only the very wealthy could afford. Zenith
and Teco provide the following table, based on the Hartford trial, contro-
verting this:
PAGENO="0045"
Income Lev
41
PAGENO="0046"
such stations to yield an expanding service envisioned by the all-channel
law. As with other aspects of this or any other new service, this cannot
be known until the actual operations commence. However, we note that our
new rules require that STV stations carry at least the minimum of conven~'
tional service specified by our present rules.
Whether STV Would Seriously Impair the capacity of the Present System to
Continue to Provide Advertiser-Financed ~Programming of the Present or
Foreseeable Quantity,, Free of Direct Charg~e to the Public~, The Close~
P~1.s~A ~ ~f Whether STV Would Result in Significant Audience
Diversion from `"~ ~ and Siphonir'~ of ~"
Talent Away from Free "~`~" Into STV Service.
42
-26-
"In our judgment, our consideration of subscription tele-
vision should proceed with due regard both for its poten-
tial benefits and disadvantages and for the inherent
strengths and advantages of the existing system. That
subscription television on a nation-wide scale can be
effectively integrated into a total TV system, with ad-
vantages to the viewing audience, appears to be a reason-
ably sound conclusion at this point. While.., there may
be some impact on free TV, we do not believe that this is
in itself necessarily bad or that it need occur to a
degree contrary to the public interest, particularly if
safeguards such as those previously mentioned are adopted.
Our concern, as it must be, is with the over-all public
interest and not with protection of any existing service
as such. It may well be that competition between conven-
tional and subscription TV for viewing audience and program
material may result in improved and more varied fare, both
for subscription viewers and those who continue to rely on
conventional television. But we also emphasize that we
regard the preservation of conventional television service
and the continued availability of good program material to
the free service as extremely important considerations...."
77, With regard to the matter of impact of SW on free TV and the
related subject of siphoning, we stated in the Further Notice (pars. 16):
78. We also stated in the Further Notice (paras. 13-14) that al-
though no final conclusions could be drawn from the Hartford trial about the
extent to which SW would divert audience from conventional TV, the trial
data suggest that such diversion would not be destructive of the latter ser-
vice. In connection with that statement we advetted to the fact that the
average Hartford SW audience at any particular time was. 3.~% of the sub-
scribers, and that the number of subscribers was less than 11~ of the net
weekly circulation of the market. We stated that even with 1OZ penetration
PAGENO="0047"
43
-27-
and 10% average subscription audience (as compared with the 5.5% of the trial),
the average STV audience in prime viewing time would only be 17. of all the TV
homes in the United States. This diversion and whatever effect on revenues
it might have we felt would not seriously impair the free TV service,
79. We went on to say that conceivably the aud.ience diversion
might be substantially greater if STV should result in "siphoning" ~/ of
programs and talent from free TV to STV. And, 4side from audience diversion,
should siphoning occur, we stated, it could make free TV a less rich and
varied medium for those continuing to view it. Because we found it difficult,
on the basis of the Hartford or any other information, to arrive at conclu-
sions about siphoning, we invited comments on the extent to which it might
be likely to occur and on what rules or policies, if any, should be adopted
to prevent it from occurring to a degree contrary to the public interest.
Paragraph 14 mentioned and invited comments on possible regulative approaches
to the problem-- the safeguards mentioned in the quotation in paragraph 75 above.~/
26/ A matter of key importance in this area is the possibility of diversion of
talent and programs from free TV to STV, a process often called "siphoning."
27/ The pertinent portion of paragraph 14 is as follows:
"It is difficult, on the basis of the Hartford trial or any other infor-
mation which we have, to arrive at well-founded conclusions concerning
siphoning of programs or talent. We invite comments on the extent to
which such developments are likely to occur, and what rules or policies,
if any, should be adopted to prevent them from occurring to a degree
contrary to the public interest. For example, such regulations might
include (1) rules preventing or limiting interconnection of pay TV
operations by microwave or otherwise, (2) rules prohibiting a system
manufacturer or franchise-holder (who might hold franchises in numerous
markets) from engaging in subscription program procurement and supply,
which could be made the responsibility of the individual licensee, or
(3) rules to assure that subscription television entrepreneurs do' not
unreasonably contract with performers in such a way as to prevent or
discourage their appearing on conventional television. Another pos-
sible approach to this question, urged by Zenith and Teco, is that
subscription television be limited to kinds of programs not presently
available in substantial amounts on conventional TV. This is discussed
in paragraphs 41-42 below. We anticipate that, if subscription TV opera-
tions are authorized, the licensees thereof will be expected to furnish
the Commission, on a continuing basis, with information as to number of
subscribers, per-subscriber expenditures, and programs presented so
that we may be periodically informed as to the factors bearing on their
potential for siphoning programs or talent from conventional television."
PAGENO="0048"
80. Comments of Proponents of STV. Comments received are sum-
marized in this and the succeeding paragraphs 28/ and are followed by our
conclusions. Zenith and Teco, incorporating by reference previously sub-
mitted material, state that audience siphoning would be minimal because the
average subscriber at Hartford had an SW viewing time of approximately 2
hours per week as compared to the average U.S. free TV viewing ~of about 38
hours per week. This is about 57. of the hours the public now views free TV.
If every home were to become an STV home, which is unlikely, there would
thus be a loss of 57, of viewing time to STy. But if 107. penetration of
STV were achieved, the loss would be ½ of 17.. Moreover, since even in prime
time between 35 and 50 percent of TV homes do not use their sets, some of
those viewing STV might be those whose sets would otherwise have been dark
so that their viewing would be additive rather than subtractive. They also
demonstrate the minimal audience siphoning effect by stating that the
average SW audience at any particular time was 5.57. of the subscribers.
Thus even if there were 1007. penetration by SW, only 5.57. of the subscribers
would be diverted at any given time, leaving 94.57. of TV homes available to
watch free TV.
81. Concerning pre-empting of time now used by free TV, it is
stated that WHCT at Hartford broadcasts an average of 30 hours per week of
subscription programming and that, because of the limitation on the number
of box-office programs and the size of the recreational budget of families,
that number is unlikely to vary in other STV operations. 29/ Since typical
TV stations broadcast about 115 or 120 hours per week, in a multiple-station
market of three or more stations.STV could not absorb more than 107. to 157.
of the total broadcast time available. Moreover, it is argued, because con-
ventional TV stations affiliated with networks probably would not wish to
desert profitable operations by giving up network programming for STV pro-
gramming, it is likely that SW will have to support the establishment of new
stations if it is to get off the ground. New stations would not siphon time
that would otherwise be available to free TV. They would add to the total
amount of time.
82. As to program siphàning, Zenith and Teco inform us that none
of the programs shown at Hartford were available on free TV. With regard to
talent siphoning, they remind us that stars, producers, directors, and writers
often work for more than one medium and there is no more reason to assume that
STV will siphon talent than there is to suppose that the motion picture indus-
try would do so, since for much of its programming SW merely would substitute
28/ Many of the arguments made in the comments have been previously made in
earlier stages of this proceeding.
29/ Zenith and Taco state that because of these limitations a total of
about 30 hours of SW programming is all that can be absorbed many
market regardless of the number of SW stations therein.
PAGENO="0049"
86-399 ~ - 67 - 4
PAGENO="0050"
46
-30..
For purposes of nation-wide projection, the Commission in its
Further Notice has estimated, on the basis of the Hartford trial,
that a 107. nation-wide penetration of television homes would be a
relagively optimistic figure in the foreseeable future. A 107.
nation-wide penetration would amount to approximately 5.5 million
subscribers. Five-and-a-half-million subscribers spending $65
each per year, of which $22.75 would be available for program pro-
curement, would make available $125,125,000 for subscription pro-
grams. This amount is dwarfed by current network expenditures for
programming. Thus, in 1965 (latest figures available), the net-
work and their 0&O's spent $686,752,000 and the total broadcast
industry spent $953,251,000 on conventional programming. In short,
with a 107. nation-wide penetration, subscription would have avail-
able for program procurement less than one-fourth of the amount spent
by the networks and their 0&O's and less than one-seventh of the amount
spent by the entire television industry for programming in 1964.
Stated otherwise, subscription would have to achieve approximately
a 70Z nation-wide penetration of television homes to have an
amount available for program procurement which would even approxi-
mate tIm amount already being spent by the television industry for
conventional programming. Thus, the fear that subscription could
win in a bidding contestwith conventiona) television is simply not
realistic."
83. To the often ead~ argument. thai STV would siphon from free TV
the programs that have high ratings and sake the public pay for them, Zenith
and Teco say that the Hartford experience shows that even for box office
programs the public is selective. Thus the cumulative audience rating for
first subsequent run files was about 27~i but for older films it was 187,.
Therefore, they argue, it is unreasonable to assume that the public would pay
to see the type of program now available on free TV, especially when programs
of that type could be seen on some other stCtion free. Even with the 40 top-
rated programs on free TV during the Fall season of 1964, according to the
Nielsen rating, an average of 767, of the viewers did not watch them.
84. To the contention that STy would siphon all ma.jor sports, they
state that even with an SW penetration of 20f in the top 175 markets, at an
average yearly subscriber program expenditure of $65, there would be $650
million in program revenues. Assuming that 357, of this amount would be avail-
able for program procurement, there would be $227,500,000 for all STV pro..
gramming. Citing figures for relative amounts of spending by the public for
movies, plays, sports, and other entertainment, assuming that these figures
will apply to STV spending, and allocating a proportionate amount for program
purchases accordingly, about $32,000,000 would be available for sports programs.
This figure they point out is about 60~ of the sum of approximately $50,000,000
that free TV spends for some, but not all, of the sports programs seen on convefl-
tional TV. This reflects the relative abilities of STV and free TV to acquire
sports programming. They state that with the money available, the major con-
tribution of STY to sports programming would be that of carrying heavyweight
championship fights and blacked-out games.
PAGENO="0051"
47
-31-
85. Finally, to the argument that SW would siphon all present
network conventional programming from free TV, they state that there are
just too many such programs to permit them to be absorbed by the public's
recreational budget at a rate higher than sponsors will pay for their
showing on free TV.
86. Other proponents of SW also present their positions in this
area. Telemeter says that SW will not siphon but will show programs not
now available to free TV. Teleglobe says that free TV is a giant and can't
be hurt, its revenues having increased from 324 million dollars in 1952 to
about 2 billion in 1965. With lO~ penetration, SW revenues would only be
about 500 million dollars a year. Jerrold says that phonograph records
and tape recordings have not driven radio out of business or decreased
quality of radio programming, nor have motion pictures become extinct be.
cause of TV. Actually, in Jerrold's view, pictures have improved because
of the competition of television. Competition, it is said, should be
assumed beneficial until a contrary showing is made and the government
should not inhibit competition for the sake of preferring one kind of com-
munications over another. Acorn says that if SW programming is good
enough it is conceivable that free TV would try to siphon it away--a siphon-
ing in reverse.
87. comments of Opponents of SW. Concerning the matter of
audience siphoning, the Joint Committee says that the trial gives no infor-
mation because with an average of 5.57. of subscribers watching SW at any
one time, only 267 persons (5,57. of 4,851) would be watching, and in a
market with a net weekly circulation of 800,000 there would be little
audience siphoning effect; and besides such an SW operation would not long
survive. However, they argue, proponents foresee a lO~i to a 507. penetra-
tion for STV. With such penetration in Hartford it would mean anywhere
from 80,000 to 400,000 subscrikers for that market. But if programming of
a quantity and quality were available to attract that many subscribers,
j~., to establish a successful SW operation, what would the average
viewing time be? Hartford provides no information about that. The Joint
Committee points out that the Liston-Clay fight attracted 82.67. of the sub-
scribers. With 80,000 to 400,000 subscribers, the~r state, this would have
had a disastrous iapact on free TV on the night of the fight. AMST says
that although Zenith and Teco allege that audience siphoning would amount
to only ½ of 17. of the audience available to free TV, by far the greatest
part of STV programming would be shown at peak viewin3 hours and it would
therefore have a critical impact at the very time that free TV generates its
largest advertising revenues which sustain programming `in less profitable
periods of the day. Free TV relies on low cost-per-listener economics and.
would be vulnerable to audience losses.' Moreover,-AMST urges, the success
of Sty depends on its ability to penetrate the largest markets, as well as
the smal1~r ones, and the destructive impact of SW through the larger mar-
kets would strike at the heart of free TV.
PAGENO="0052"
48'
-32-
88. Pre-empting by STV of time now used by free TV is a matter
toward which ABC, NAB and the Joint Committee direct remarks. The latter
party states that the allegation of Zenith-Teco that there would be 30-40
hours of STY programming per week in any market and that this would still
leave ample time for free TV overlooks the facts that the 30-40 hours are
in prime time and that Zenith-Teco do not propose to limit STY to multiple
station markets. The Joint Committee also questions the assumption of a
30-40 hour limitation of STY programming--a limitation based on the re-
stricted amount of box-office programming and limitations in the family
recreational budget. NAB points out that Zenith and Teco have said that
stations would be predominantly STY or free TV because of such factors
as prime time demands by both types of programming. If a station has STY
programs on the air, the time is taken away from non-subscribers. In most
markets, even the use of one station for STY would seriously restrict the
public choice among programs. The concern of ABC about time pre-empting
is expressed somewhat differently.. It states that the Commission, recog-
nizing the number of free TVhout~s would be reduced tc~ some degree by STY,
has proposed a limitation on the number of hours of STY broadcasting. In
spite of this, it is stated, hours of free TV will be lost. There are
relatively few markets with four or more stations where the loss would be
less noticeable. To the extent that existing network affiliates use prime
time for STV programs, network clearances could be severely compromised.
This could be especially serious for ABC, which has the fewest number of pri-
mary affiliates and therefore has a greater problem in obtaining clearances
for its programs. Failure of a significant number of stations to clear a
program could badly hurt ABC's position in satisfying advertiser requirements,
especially if the lack of clearances occurred in some of ABC's key markets.
It could spell the difference between the retention or dropping of a program.
Nor do delayed clearances help, because research has shown that programs
cleared on a delayedbasis frequently do not have sufficient audience to
make them economically viable. Finally, ABC argues, the demand for station
time of competing sources of entertainment which results in non-clearance
of network programs frequently leads stations to drop network public affairs
and other public service programs. Pre-empting of station time by STY pro-
gramming would do this.
89. Several opponents state that the Hartford trial failed to
give information about program siphoning. For example, ABC says this is
because it was such a small ooeration that there wasn't even a remote pos-
sibility that it could compete for the most popular programs of network
television that are sold nationally. CBS says that since the Hartford trial
was limited to 5,000 subscribers,rather than 50,000 it originally contem-
plated as a maximum, meaningful conclusions on program diversion cannot be
made. However, it is said, the trial established that STY and free TV rely
on the same program sources, and if the Hartford business projections are
correct, STY would have financial resources to siphor~ significant amounts
of quality programming from free TV. Owners of box-office programs now on
free TV would invite offers from both STY and free TV.
PAGENO="0053"
..33..
49
90. The tatter point..~that STV and free TV would compete for the
e programs-~is made by many opponents. It is variously argued that SW
id cater to the same general audience tastes as free TV since the trial
Hartford showed that most of the programming would consi t of mass circ
n entertainment (movies and sports), that S f most c
- r free TV pr - a dcv stating
ing of
asw
~
91. Both ABC and CBS discuss selective program siphoning. ABC
says that CBS is presently paying $19,000,000 for the right to show the NFL
~"~`-ball games and that it appears that this is near the limit of what free TV can
It states that although it is difficult to estimate what STV penetration
be nationally, if only 15,000,000 sets were tuned in to professional football
~ $1.00 for each game, over a l4..game season revenues of
1 be obtained~-an amOunt which dwarfs the $19,000,000 that
it is implied that STV could outbid free TV for such games.
92. Although questioning some of the reasoning of Zenith and Teco
underlying the assumption that about $32,000,000 would be available to SW
for procurement of sports events (if there were 207. penetration in the top
175markets), CBS says that even assuming that figure, the ZenithTeco state~
ment that free TV spends about $50,000,000 for selected sports events so that
STV could presumably not outbid free TV for them is not correct. CBS maintains
that SW could concentrate its programming dollars on the lion's share of the
major events and thereby siphon them from free TV.
93. Finally, ABC argues that there is no effective protection against
siphoning. It states that if STV is authorized on a nation-wide basis and siphoning
then develops, the immense capital investments and the establishment of viewing
patterns will make it difficult, if not impossible, for the Commission to
take effective regulatory action. ABC says that it was this sort of considera.
tion that led it to urge the Commission to assert jurisdiction over CATV. As
to taking action now to prevent siphoning by Commission rule, it is asserted
that the limitation of SW programming to box-office attractions is imprac-
tical, and in any event would raise Section 326 and First Amendment problems.
PAGENO="0054"
50
94. Reply Comments of Proponents. Zenith and Teco reply to
comments of STy opponents on siphoning as follows The Joint Committee
argues that even though talent might continue to work for free TV and STV,
it could not do so at the same time. This completely overlooks the fact
that programs may be taped or filmed so that the artist need not perform
the impossible task of being in two places at the same time. Recently,
(citing an example) the same artist appeared on CBS and on NBC
simultaneously. The argument that if talent appears on both STV and free
TV it might dilute its conventional TV audience by self-competition (j~.,
by siphoning part of its free TV audience to STV) is poppycock.
95. They advert to the example of ABC which stated that if
15,000,000 STV sets were tuned in to NFL football games at cost of $1.00
per television household, then over a season of 14 games $210,000,000 would
be generated so that STV could siphon the games from free TV because the
latter medium can only afford to pay $19,000,000 for them. To this they
reply: The ratings of AFL and NFL football games have averaged between 10 and 14.
Therefore, if STV could achieve the same rating by levying a charge as was obtained
when the programs were shown free, STV would need a penetratioil of 100 to 150
miliion subscribers in order to obtain revenues of $15,000,000 per week.
But there are only about 55 million sets in the country. It is more reason-
able to assume a 10% STV penetration which would result in about 5 ~ million
subscribers. At $1.00 per game and with a rating of 10, STV would obtain
$550,000 per week or $7,700,000 for the 14-week NFL season--an amount far
less than that which CBS pays for the games.
96. As to the Joint Committee's questioning of limitations in
the family budget that would serve as a brake on pre-empting of time, the
Joint Committee had stated that this limitation was incapable of measurement.
Zenith and Teco reply: It is measurable and. was. measured at Hartford.
Thus, during the first two years of the trial only 27% of the feature films
shown were first. subsequent run. Between October 1, 1965, and September 30,
1966, 70% were first subsequent run. However, the average weekly expenditure
of subscribers was about $1.20 in both situations. Therefore,
even with improved programming the amount remains fairly constant and this
is proof that there is a family budget limitation.
97. In response to arguments that the trial was too small to
give information about siphoning they state that the sample of 5,000 sub-
scribers at Hartford is about five times larger than the Nielsen sample for
the whole country on which free TV so heavily relies. It is averred that it
gave the data on which estimates of potential may reliably be drawn.
98. Zenith and Teco urge. that contrary to hurting free TV by pro-
gram siphoning, STV may well help free TV. because of helping to increase the
total box office returns (by adding to the theater returns) it will make for a
larger total box-office revenue and this in turn will make for the production
of more and better quality feature films. They state that this will help free
TV because although that service is apparently p]~cing more and more reliance
on feature films, the fact is that the source is drying up. The stimulus that
STV will give to motion picture production will, according to them, help to
alleviate the situation.
PAGENO="0055"
51
99. Finally, they observe that the Commission stated that if
nation-wide STV were authorized it would require SW licensees to furnish
it with continuing information so that it might take steps to control
siphoning if it should appear to be developing. ~ note 27.)
100. Telemeter also voices the argument that SW will stimulate
more and better motion pictures by increasing box office revenues. It
points to the fact that only a small percentage of the population sees any
particular film (see para. 43 above) in the theater, and home viewing of
current films would add to this number. In addition, it states, millions
will still wait for the film to be shown eventually on free TV. Hartford
and Etobicoke, Telemeter urges, show that STV and free TV can exist side by
side with the latter taking up the interest and attention of viewers 957.
of the time. SW will be a supplement to the more extensive free programming.
101. Reply Comments of~ponents. The reply comment: of opponents
generally do not direct then%selves to specific points concerning siphoning,
but generally reiterate previous arguments, The most emphatic voie~.
perhaps that of ABC which emphasizee that it is erroneouè to argue that the
public will not pay for what it can see freed Thei~e are teeny ~rograms--fllms,
World Series, professional football gaM --that would dommand a price if not
available on free TV. Thus,* ABC argues, if such piograms wEre siphoned to
STy, jt would be not a question of paying versus seei~mg the program free, *t would
be a question of paying or not seeing the *:program at all.
102. Conclusions. We have given careful consideration to the in-
formation supplied by commenting parties concerning the impact of STY on
free TV and the related problems of audience diversion, pre-empting of time,
and siphoning of programs and talent. As might have been expected, a con-
siderable amount of the information is speculative. But this is not to say
that it has not h~en heloful in illuminating various facets of the problems.
As far as actual facts are concerned, we are-left with those provided by the
Hartford trial~
103. About audience diversion, we know that at any particular time
the average subscription audience was 5.57. of the subscribers, although
some programs, such as a heavyweight championship fight, generated viewing
among 82.6% of the subscribers; that most of the programming was during
prime time; that the average subscriber viewed SW about two hours per week,
viewed one program per week, and spent $1.20 per week. In view of the fact
that the total number of subscribers was about 5,000 and in view of the
foregoing facts, audience diversion was minute.
PAGENO="0056"
5 or
104. About pre-
were about 30 hours of STV pr
average subscriber paid $1.20 per wee
the feature films shown on SW were f
related que - pre-
and talent siphoning. Opponents state that they a_
ful predictions. Proponents aver the contrary. We are of the opinion that
the Hartford experience, limited though it may have been, was sufficient to
supply information that cai~ serve as an adequate foundttion for reason-
able estimates about the future. Nevertheless, as with any new and untried
service, there are imponderables. 31/ Considering both the Hartford facts
and the i.mponderables, we believe it is in the public interest to establish
a nation-wide SW system with the regulatory safeguards which we adopt today--
safeguards directed at program siphoning and pre-empting of time. ~a'
30/Thirty hours of programmthg per week is the fact that we shall have to
use in our consideration of this topic with regard to authorization of nation-
wide STV. Whether there was actually pre-empting of 30 hours per week in
Hartford is open to question because at the hearing prior to the grant of
the Hartford authorization 111(0 informed the Commission that WHCT had been
operating at a loss and that if the grant were not made it would discontinue
operation of the station (30 F.C.C. 301, 307). Had the station gone off the
air, there would have been no free programming over it. Thus the trial not
only provided SW programming, but, since WHCT was required to broadcast at
least the minimal number of hours of free programming required by the rules
for television stations, it added to the amount of free programming in the
market instead of subtracting. The argument of SW proponents, of course, is
that nation-wide SW would aid marginal or new stations to do just that.
~J~/ One im~onderable,mentidned by the ibintCommittee, is the recent develop-
ment of CATV. That group urges that we should defer action on authorization
of STV until the impact of CATV on the present system is known. We find this
argument lacking in merit, especially in view of the actions which we have taken
by the adoption of-rules to govern integration of CATVinto the present tele-
vision structure of the nation,
32/ Topics such as whether interconnection of STV operations should be prevented
or limited, whether SW should be limited to carrying certain kinds of programs,
whether STV system manufacturers or franchise holders with franchises in more
than one market should be allowed to engage in SW program procurement or supply,
and similar problems relating to siphoning are discussed in the subsequent por-
tion of this document which treats of the issues mentioned in paragraph 45(b)
of the Further Notice (see para. 15 above).
PAGENO="0057"
PAGENO="0058"
54
-38-
in a one-station market turned to STV it could reduce the amount of free
programming by a fourth, and in prime time could replace free TV entirely.
In a two-station market, in prime time the free programming could be halved.
Of course, if STV were carried by new stations, any free programming (as well
as SW programming) would be additive unless one were to argue that without
STV the new station would have carried all free TV programming. On the other
hand, the argument could be made that without STV the new station might never
have gone on the air.
109. In connection with the last point, Zenith and Teco state that
the Hartford trial indicates that there is a likelihood that TV Stations will
be primarily SW or free TV in their programming because of the demands of
prime time of either service, the need of free TV stations to maintain net-
work clearances and continuity of audience, and because existing free TV
stations, especially network affiliates, may deem it imprudent to forsake
present substantial profits for the speculative profits of STy. For this
reason, it is observed that, to develop, SW will probably have to turn to
new statiohs. Such stations, they urge, will not pre-empt time but will add
new SW tirne plus conventional programming time to the total available to
the market.
110. Zenith and Teco say that the limited supply of box-office
*attractions and the limitations on the family recreational budget will serve
as brakes so that the numb~r of free TV hours presently available to the
public that could be absorbed by STV could flot be great. However, it is
clear (see para. 106 above) that although the number might not be great the
effect could be great in communities with a limited number of television sta-
tions. Moreover, Telemeter informs us that at Etobicoke, on its three-channel
cable system, it carried 54~s hours per week per channel for a total of l63~
hours per week for all channels, and that viewing averaged a little under 4
hours per week. Although this Canadian experience might not be typical, it
suggests the possibility that more than 30 hours of STV programming might
be avail~b1e to pre-empt free TV time, but not necessarily to divert audiences
from free TV. In view of these considerations, and in view of our desire to
assure an adequate number of hours of free TV service to the nation, the rule
we adopt today limits STV operations to markets within the Grade A contours
of five or more commercial television stations, and limits STV to only one
station in such markets. This, we believe, will assure that those communities
will continue to receive the full three network services plus that of an
independent station. In such markets, the percentage of time pre-empted from
free TV would be minimal, and the effect of loss of free television programming,
even if all STV programming were in prime time, would not be great. Moreover,
to the extent that a new fifth station broadcasting STV programs is built
in a four-station market, as a consequence of the anticipated revenues from
STV broadcasting, the effect would be to add new free TV programming that
would otherwise have been unavailable, since our new rules will require STV
stations to carry a minimum of conventional programming.
111. Program and talentsiphoning, as we have stated, did not occur
at Hartford. Whether it would occur if SDI were authorized on a natio~i-wide
PAGENO="0059"
55
-39-
scale and were not limited by Commission regulation is one of the most
hotly contested points in this proceeding. It is one of the imponderables
to which we referred. Of the various arguments raised by STV opponents, we
find that of so-called selective program siphoning most persuasive. It ~.s
at least conceivable that a successful nation-wide STV system, even though
possibly not having as much money as free TV to spend for program product,
could, by directing its purchases at select programs, ~g.,, the Wand Series
or professional football games, take them from free TV and require the huge
audiences of those programs to pay to see them or not seem them at all. We
would not consider this to be in the public interest. Zenith and Teco, in
discussing the charge that STV would siphon from free TV programs with high
ratings, say that it is tortured reasoning to assume that people will pay
to see siphoned programs on STV when there are programs of the same conven-
tional type which could be seen on free TV. We disagree. In a different
context, in refuting an argument of STV opponents, we said that a viewer
wishing to see a heavyweight boxing match will not be satisfied with a tennis
match. The same reasoning applies against the views of Zenith and Taco here.
If a viewer wishes to see a particular program and that program appears on
STV and not on free TV, he may not be satisfied by viewing Qther programs of
the same general type on free TV.
112. Most other arguments on the topic of program siphoning we
find too speculative to influence the action which we take here. The rule
wh~ch we adopt, and which is discussed more fully in paragraphs 250-276.
below, we believe will serve to prevent, or greatly limit, selective program
siphoning. First, that rule requires that feature films shown on STV shall not
have been given general release in theaters more than two years before STV showing.
In other words,'to the extent that STV shows feature films (and both Hartford and
Etobicoke suggest that they will constitute much of STV programming) they must be
current films. It appears that such motion pictures rarely find their way to free
TV, and it does not ajpear that, in the'~Iight of box-office ecnnon~ics of motion
picture production, they may do so in the foreseeable future. Thus the older films,
which are generally the ones shown on free TV, cannot be shown on STV and
there can be no competition between the two services with resulting siphoning
to STV of that kind of programming--a kind, incidentally, which opponents seem
to indicate is of growing importance to free TV. A single exception to the
requirement that films shown on STV must be current is that STV stations may,
under the rule, televise up to twelve feature films per year which had general
release over ten years before STV showing. STV stations may not choose to show
that many old films. In any event, even if they do, this could be expected to
constitute a very small percentage of all feature films shown per year by an
STV station (see para. 48).
113. The rule will also require that sports programs shown by STV
in a community shall not have been shown on free television in that community
on a regular basis within the last two years. Thus, for example, the
World Series, having been on free TV in October 1964 could not be shown on STV
PAGENO="0060"
56
-40-
in October 1965. This rule, we believe, will serve effectively to prevent
siphoning of key sporting events that might prove desirable to STV entre-
preneurs, and assure the continued free viewing of programs of that kind
now being seen free. It will, however, permit STV to show programs such as
"blacked out" games that presently do not appear on conventional television.
Details of this rule are discussed in pares. 253-270 below. Finally, the rule
will not permit STV to show programs common in free TV in which continuing
characters are presented from week to week in a series using a common setting
or central program concept. This type of programming constitutes a not incon-
siderable portion of free TV programming.
114. In view of the indications that STV programming will
mainly of feature films and sports events, we believe that the z~
will assure that, with regard to the major ~trt of STV programming,
will be no siphoning. The restriction on week-to-week series should further
prevent such effects. Admittedly, it is conceivable that this still leaves
some types of programs open to siphoning, ~ spectacular "one-shot" programs,
but we believe that these rules represent the extent to which we shoulci regu-
late at this time. As we have stated (see para. 77), although we consider
the preservation of conventional television service and the continued avail-
ability of free programs to be important, we also believe that the competition
between STV and free TV èould result in improved and more varied programming
for both services. We believe that the rules we adopt, in the light of the
information now before us, strike a desirable balance in this area. We shall,
of course, as stated in paragraph 107, continue to watch closely the develop-
ment of the infant STV industry to detect any trends with regard to siphoning.
Other Information, Such as (1) Modus Operandi of the Service; (2) the
Technical Perfor~nce~ of the Systems; (~) the~Nature of the Programs
Offered; (4) the Methods to be Employed; (5) the Role of Participa~pA
Broadcast Statign~ Licensees; (~) the Possi~le Monopolistic Features of STV.
115. (l)Modus Operandi of the service; (4) the methods to be
employed; (5) the role of participating broadca~t atahj~on Licensees ~/ Since
these three items are closely interrelated, they will be discussed together.
Zenith and Teco say that there are three functional organizations in the opera-
tion of STV service: (1) A local franchise organization to scramble programs
for stations; to provide for the installation, servicing and maintenance of
unscrambling devices attached to television sets of subscribers; to provide
information to subscribers so that they will know how to adjust the unscrambling
device to obtain desired programs; and to collect and disburse revenues obtained
from subscribers. (2) A TV station licensee over whose facilities the STV
programs are broadcast. (3) Program sources which supply programs directly
to broadcasters.
~4/ Additional information about these subjects appears in Appendix B
attached hereto.
PAGENO="0061"
statjon~ for
PAGENO="0062"
58
-42-
120. (2) The technical performance of the systems. The Hartford
trial, Zenith and Teen state, established that the system could meet the
technical requirements of the Third Report, namely: (a) The operation must
not cause interference, either within or without the frequency employed, to
any greater extent than is permissible under the present rules and standards
of the Commission. (b) The operation must not cause perceptible degradation
in the quality of video or audio signals on any receivers during either a
subscription program or a non-subscription program.
121. In addition, it is related that the trial established that
the Phonevision decoder (unscrambler) could be installed on all makes and
models of TV sets if the sets were in good operating condition; that the
system provides adequate protection against reception by non-subscribers;
that it functions to permit an accurate allocation of per-program charges
to the individual programs, the monthly billing reflecting not only the total
amount due for programs but the amount for individual programs; that a credit
system will work and is accepted by the public; and that Phonevision equipment
will function satisfactorily with a minimum of service calls, home service
calls having averaged 89C per subscriber per year.
122. Zenith and Teen mention that, as a result of the HarLiord experience,
a new model decoder is being production-engineered that will accommodate color as
well as monochrome, that can be connectedtothe~antenna terminals of the set in-
stead of to the inside wiring, that simplifies the billing function of the new
decoder so as to reduce cost and facilitate operations on the part of the sub-
scriber, and that has circuitry changes designed to reduce cost and further
improve reliability,
123. In connection with the foregoing statements, Motorola says
that it has studied the Zenith and Telemeter proposals (presumably the des-
criptions of those systems submitted in response to the Further Notice) and
that both vary widely from any system used in prior field tests. It is
averred that the Hartford field test "involved a totally different concept
and the field test results can have no meaningful bearing on the technical
aspects of the proposed systems." A similar statement is made with regard
to the system used by Telemeter in Canada (which was a cable system) and the
proposal (for an over-the-air system) submitted by Telemeter in this proceed-
ing. These statements are followed by a suggestion by Motorola that further
field testing is therefore needed before STY can be authorized.
124. To this Zenith and Taco reply that the decoder used at Hartford
operated in conjunction with certain parts of the subscribers's televisionset
to unscramble the signal, whereas the new proposal uses the same unscramb-
ling principle but does the unscrambling independently of the set, and sends
the unscrambled signal directly to the antenna terminals of the subscriber's set.
PAGENO="0063"
59
-43-
They further state
"(1) that the television broadcast signals and Zenith
scrambling apparatus used in Hartford during the past
four years were and are exactly the same as those to be
used with the new Zenith decoder described in our July
25, 1966 technical submission in this proceeding; (2)
that the decoding functions performed by the apparatus
under test in Hartford are the same as those accomplished
by the decoding apparatus described in Zenith's current
technical submission; and (3) that the Hartford test of
these signals and the effectiveness of Zenith's scrambling
and decoding processes involved several thousanbof hours
of everyday transmission spread over more than four years
in afield test operation involving thousands of homes.
Thus the Hartford operation provided a greater quantity
and quality of field testing of the proposed Zenith con-
cept in actual commercial use than any comparable type
of service has ever before had. Therefore, Motorola's
conclusions with respect to field testing of the Zenith
concepts are totally unfounded."
125. (3)The nature of the progrpms~offered. This has been fully
discussed in relation to the question of whether STV can offer a beneficial
supplement of free TV programming and will not be treated here.
126. (6) The possible monopolistic features of STV. Zenith and
Teco state that the Hartford trial has established that there are no inherent
monopolistic features arising from STV operations. They do not urge that the
Commission select Phonevision equipment as the only system to be used for
nation-wide STV. On the contrary, they suggest that the Commission adopt
general standards that will permit the use of multiple systems, and that will
result in competition. They do, however, admit that it is unlikely that, as
a practical matter, there will be more than one over-the-air STy system in
any single commtinity (were we to permit more than one such operation), although
there may be competition within a community between cable and over-tha-ait
STy. But within a community, Phonevision could be used with color or mono-
chrome sets, UHF or VHF, and could serve more than one station authorized by
the Commission to conduct STV operations. This, they point out, would be
under the regulatory control of the Commission.
127. As to programming, they aver the following: There are already in
existence numerous producers and distributors of programs of al'l kinds from which
STV may draw. During the Hartford trial, there was no centralized distribu-
tion control over the programs chosen for STV broadcast. RICO was free to
negotiate with any program supplier for whatever programs it desired on what-
ever terms it worked out. Ninety percent of the STV programs shown at the
trial were obi~ne d on the basis of ICs paying the program supplier a fixed
percentage of the program revenues obtained from subscribers. In a relatively
small number of cases, ~ a Broadway play, it was necessary to pay cash
PAGENO="0064"
-44-
60
acquisition costs. If requested by RKO, Teco usually pr~
to RKO in return for receiving a certain percentage of 1
~ved for the program. It is emphasized that this
A ~ ~ted for tt"~ program and requested Teco
128. It is claimed ~ thi
1955 alleged that Zenith and Teco would exercise control c
tion and selection of STV programs whereas such has not been the case. These
two parties state that because of legal and business reasons they could not
enter into any arrangement or tie-in with local franchise holders giving any
program supplier the exclusive use of Phonevision facilities. If nation-
wide STV is authorized, they say, Teco will serve two functions: (1) Granting local
franchises and promoting the use of Phonevision equipment. (2) Possibly
assisting in obtaining programs for STy, but such assistance will not tie
in with its arrangements with local franchise holders, or with the arrangements
that such franchise holders may have with station licensees, so as to give
Teco an exclusive position with regard to any other program supplier.
129. The comaents of Zenith and Teco on this subject end with a
statement that monopolistic conditions in any business result from either
the intent of parties involved or natural economic forces. These two parties
aver that they have no intent to gain monopolistic control over STV in the
United States. With regard to station owners, they say, there can be no
monopoly because of the Commission's multiple ownership rules. While the
natural economic forces that might make for monopoly are difficult to fore-
see, they state that under the operating proposals which they make there
does not appear to be "any immediate or reasonable prospect o~ monopolistic
evils which would require governmental regulatory action. If, after the full
play of the natural forces of competition, a condition now unforeseen should
arise at some time in the future which would indicate any trend toward mono-
poly detrimental to the public, the Commission can always exert its present
regulatory power to eliminate any anti-trust problems that may possibly arise."
130. Combining its comments on the ~ operan4i, methods to be
employed, and possible monopolistic features of STy, Telemeter takes issue with
some of the views expressed by Zenith and Teco. The position of Telemeter
follows, nearly all of it being best expressed in its own words.
131. There is only one STV operation in the United States today--
that at Hartford which numbers but a small minority 0f the community as
subscribers, and they only spend about 5~ of their time viewing STy.
PAGENO="0065"
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62
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on the basis of his knowledge of his market.
In the early days of motion pictures exhibitors would
not go to the expense of building theatres because there
was no entertainment available to be shown in them There
fore, in order to get the industry under way, a nucurai.
identity developed between producers, distributors,
and exhibitors. This identity was an absolute necessity
if the industry was to come into existence.
"At this stage in the development of subscription
television, no company (which is truly. independent) is
going to invest in decoders if it does not control broad
cast facilities, and if it is not able to assure itself
chat it will be able to make its own efforts to obtain
programming by every means physically available. . . The
problem of the infant subscription television industry is
chat even where entertainment is available, it has been
withheld, so that it is naive to assume that a subscription
television operator, at this stage, can sit in his office
and expect purveyors of entertainment of top quality to come
to him.
"Furthermore, in view of the obvious and manifest hostility
of existing media toward subscription television, . it is
equally naive to suppose that commercial broadcasters in
significant numbers will approach a detached subscription
television operator- -without his own broadcast facilities- -
for the privilege of showing an occasional subscription
television program. If subscription .televisjpn~is to develp~p~
it is Telemeter's considered iud~ment,that ~t..will have ~
started by those in full control of every ~asPect of the~sub
script~on television business with no.~ or exceedin~lv few.
limitations upon their abiltty to solve the multifarious ~prob
lems which experience has shown they cannot avoid." (F.~phasis
in original,)
132. The Joint Committee directs comments at another aspect of the
question of monopoly in its reply comments. It states that STV proponents hold
that the Commission cannot regulate STV rates to be charged subscribers. How-
ever, the Joint Committee says,it would be singular for the Congress to
have intended that broadcast frequencies could be used for STV without at the
same time having provided power to regulate rates to prevent rate gouging. It
is for this reason, it is stated, that the Commission has no authority to
authorize STV.
133. The Committee then goes on to say th~t if, as Zenith and
Teco state, it is unlikely that there will be more than one STV system in any
single market, then such an STV station would have a monopoly over STV in that
community, and it would be unconscionable for the Commission to permit such a
situation to exist without having the power to regulate charges. It ~ou1d be
an abdication of Commission responsibility, it is argued, to permit STy opera-
tors to use the frequencies and charge subscribers without clear Congressional
PAGENO="0067"
63
-47-
authority to regulate rates and without even considering or deciding whether
the Commission already possesses such authority. The Joint Committee also
refers to the comments of ADA, a group that favors STV, which indicate that
STV should be regulated as a common carrier.
134. Conclusions. In paragraphs 15-16 above, we indicated that
we would first consider comments concerning the question of.whether an STV
service should be established, and that we would then turn to consideration
of fifteen issues of importance in determining what the pattern of regula-
tion of such a service should be. We mentioned that comments concerning the
broad question of whether to establish the service fell into five categories.
The first four have been fully treated above. As to the fifth--concerning
modus operandi, monopoly and other matters--the immediately preceding para-
graphs contain pertinent information and views thereon supplied by the
parties. Since the topics in the fifth category are closely related to
some of the fifteen issues, in the interest of efficient presentation we
shall evaluate the information and views about them and state our conclusions
thereon in the course of treating the fifteen issues to which we now turn our
attention.
Fifteen Regulatory Issues
135. In the following paragraphs, the issues are stated verbatim
as they appeared in the Further Notice, and are followed by a discussion
thereof. Appendix C of the Further Notice contained the rules proposed by
the Commission on which comments were invited together with comments on the
fifteen issues. For the sake of convenient reference, that appendix is
also attached hereto as Appendix C.
(1) Whether subscription television should be limited to communities
receiving a minimum number of television signals, e.g., whether it should
be limited to stations the principal communities of which are within the
Grade A contours of at least four commercial television stations (ine~4jn
~~hgt~fparty proposing to broadcast. subscription pr~gramming),. or whether it
should not be so limited but should, in communities not lying within four
commercial Grade A contours~ be restricted to a more limited scope, espe
cially as to hours of operation, than those in four-s~rvice communities.
(See limitation proposed in Section 73.643(d) of Appendix C.)
136. This issue may be divided into two parts: (I) whether STY
should be limited to communities receiving a minimum number of TV signals,
and (2) whether, if there is no such limitation, there should be a limitation
as to hours of operation of STY stations. Our discussion here will be re-
stricted to the former. The latter may more properly be dealt with under
Issue (2) below which has to do with the general topic of hours of operation
of STY stations. Both parts of the issue, of course, ur~derscore our concern
over possible reduction of free TV hours and services available to the
public in communities where STY operates.
137. Some proponents of STY urge that the service be permitted to
operate in any community, regardless of the number o~ TY signals which it
receives. Telemeter, for example, states that STY has a potential for use~'
fulness under varying situations in different sizes and types of markets.
PAGENO="0068"
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-48-
Thus, in marginal communities it might form the financial basis
a station that would otherwise not be built. In large communit~
three network services it might provide the basis for the develc
viable UHF competitor. Kaiser makes a similar point, stating tF
is particularly true in markets such as Los Angeles, where the
competing stations is large enough to strain the advertiser-supç
system's ability to provide financial and programming support."
138. Zenith and Teco hold the view that Section 307(b) of
Act, which requires the Commission to make a fair, efficient and equ
distribution of broadcast service among the several "communities," d
the conclusion that STV should be made available to all communities
there is a demand for it. In this connection, they mention that if STV could
bring about the construction of a first TV station for a community, they
would find it difficult to think of any public interest considerations that
would justify not permitting the building of such a station, Along the same
lines, Teleglobe says that it believes that among the principal objectives
of STV is that of aiding UHF broadcasters in their struggle to survive, and
a limitation of STV to, for example, markets with two or more stations would
defeat that objective~ Zenith, Teco, Telemeter, and Trigg-Vaughn suggest
that questions of whether STV operations should be permitted in a particular
community would best be handled on an ad hoc basis.
139. ACLU urges that STV operations should be permitted in any
market. Its views are founded on its interest in advancing diversity of
expression (which it regards as an application of the First Amendment) by
way of over-the-air broadcasting. It believes that by providing new and different
programming STV can increase diversity. If it is not limited to particular markets,
there will be op~n competition that will also enhance diversity, ACLU states. ADA
also believes that STV should be permitted in all markets. ACLU and ADA have
additional views which are related to this belief, but they more properly
belong with a discussion of hours of operation discussed under Issue (2)
below and will be treated there.
140. ABC, as previously mentioned, opposes STy. However, in the
event that the Commission should decide to authorize such a service, it offers
its views on the various issues. It believes that this and the following
three issues are related to the question of what rules are necessary to pro-
t.ict the existing structure of conventional commercial television, It states
that
"/u/ntil the impact of pay-TV operations upon the free televi-
sion structure can be assessed, it would not appear meaningful
to adopt restrictive rules which, at this juncture, are neces-
sarily somewhat arbitrary. If the Commission elects to go for-
ward with authorization for pay-~LV, ABC urges that it adopt no
rules at this time with respect to Lthis matter]. . ,If, based
upon meaningful experience with pay-TV, it appears that rules
of some kind should be adopted, further rule making proceed-
ings are available to the Commission."
of
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-49..
ABC adds, however, that the Commission should make it clear that STV is not
intended to disrupt the existing structure of free TV, including network
service, and that it should place STV proponents on notice that the facç
that no restrictive rules are adopted does not mean that they might not
be at some future date if found to be necessary to preserve that structure.
141. As opposed to the aforementioned views that there be no limi.
tation in regard to the communities in which STV may operate, both proponents
and opponents suggest the contrary. Thus, Acorn, a proponent, believes that
STV should not deprive anyone of free TV that he now has, and therefgre thinks
it inadvisable to allow STV operations over existing stations in one-station
communities. The more stations in a community, the less the effect of STV
over one of them would be~, Acorn states. On the other hand, it sees no reason
arbitrarily to restrict STV only to the larger markets since in some cases it
would appear that STV would not undermine free TV service. Wherever possible,
Acorn deems it best to conduct SW operations over new stations, for this
could only add to the TV service of a community.
142. Munn and Chase, also proponents, are of the view that STV
should be limited to communities that have three Grade A commercial signals
in addition to that of the STV stations, so that there will be three network
services available. Of the same view is the Joint Committee which urges
that, if STV is to be permitted, it should be limited to communities within
the Grade A contours of at least four commercial TV stations, for this would
be consistent with the goal of the Commission to promote parity among the
networks. It was this policy which underlay the conditions of the Third
Report, it is said, and the Hartford trial provides no basis for changing
that policy. However, the Joint Committee would superimpose on such a rule
the additional requirement that, if a market is one of the top 100, there
be a hearing to determine whether it is in the public interest, and, speci-
fically, consistent with the establishment and healthy maintenance of free
TV service in the area, to permit STV therein--a requirement not unlike that
used in CATV proposals to extend the signals of TV stations beyond their
Grade B contours into one of the top 100 markets. The Joint Committee argues
that such a requirement exists for CATV in spite of the voluminous infotmation
available about CATV which was prepared by Drs. Seiden and Fisher, the National
Community Television Association, CBS, and AHST, so that a fortiori there
should be such a hearing requirement for STV about which much less is known.
143. AMST, in discussing this as well as other issues, says that
the very fact that the issues have been posed recognizes rather than cures the
incompatibility of STV and free TV. With regard to this issue it argues that
to restrict SW to the largest markets will not prevent the pre-empting of
free time from free TV and that in such markets more people would be deprived
of this time. McClendon expresses the view that STV should not be permitted
over VHF stations in multiple-station markets having at least one UHF or one
independent VHF station if those VHF stations broadcast one or more hours of
network programming during prime time. This, it is suggested, would correct
the economic imbalance between UHF and VHF stations,
PAGENO="0070"
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144, Conclusions. Because we believe that STV can furnish a bene-
ficial supplement to the programming of free TV and that it might well ?ro-
vide a wholesome stimulation that would improve free TV and the overall pro.
gramming available to the public, we believe that it should be authorized.
However, as indicated in previous portions of this document,, although the
Hartford trial did furnish information that has proved helpful in making
reasonable estimates of the future, its proscribed nature has left numerous
areas about which we are legitimately concerned. Until we know more about
how STV will develop on a nation-wide scale, we feel it best to proceed with
caution. For this reason, the rules which we adopt are designed to strike
a reasonable balance that will not hamstring the development of the new
service and yet will provide safeguards against the occurrence of events that
might be contrary to the public interest.
145. One area of concern is that of the pre-empting of time by STY
from free TV. The Third Report provided that STV trial operations might be
conducted only in communities lying within the Grade A contours of at least
four commercial TV stations including the station of the STV applIcant. It
mentioned that one of the primary reasons for this provision was to assure
the continued availability of substantial amounts of free TV programming to
the public, i.e., to prevent undue pre-empting of free TV time. We stated
in that report that it was our intent to suspend judgment on the question of
whether there should be such a market limitation if permanent STY were auth-
orized. The Further Notice, having referred to the foregoing in paragraphs
31 and 32, announced that, in the light of the Hartford information, we tenta-
tively agreed with the view of Zenith and Teco that STY should not be so re-
stricted. However, we specified this matter as Issue (1), the present issue,
and invited comments thereon.
146. We have carefully weighed the comments, including those sum-
marized in the immediately preceding paragraphs as well as those mentioned
in paragraphs 80, 81, 88, and 104 above, and believe on further consideration
that the tentative conclusion of the Further Notice should be rejected. Fc'r
reasons stated below, we are now of the view that, at least for the present,
STY should be restricted to communities lying within the Grade A contours of
at least five commercial TV stations including that of the STY operator, and
are adopting a rule to that effect. 36/ (It is thus more stringent than the
requirement of the Third Report.) This conclusion has been anticipated in
paragraphs 108-110. The following supplements those paragraphs.
36/ This rule appears in Section 73642(a) of Appendix 0. As may be noted,
it also contains other provisions designed to restrict pre-einpting of time.
One is that, not counting the station of the applicant, at least four of the
stations must be in operation. Another, discussed under Issue (4) below, pro-
vides that in the five-station markets where STV will be permitted, only one
station in the market may engage in STY operations. It may also be noted that
the rule requires that the entire community, not merely part of it, be located
within the five Grade A contours.
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147. Elsewhere (para. 77) we have indicated that we regard the con-
tinued availability of free programming as a most important consideration.
This is so because we think that the tremendous investment of the public in
television receivers based on the expectation of free service ought to be pro-
tected and the millions of viewers ~ho rely on that service for free enter-
tainment should be permitted to do so. Although we are aware of the merits
of the arguments that STV should be permitted in all communities--the arguments
maintaining that permitting SW in all communities might help marginal or new
stations in small communities, might aid UHF in such communities, might pro-
mote diversity of programming; arguments that Section 307(b) of the Act re-
quires that STV be allowed in all communities where a demand exists; arguments
that we should not regulate in this area until the impact of SW on the free
TV structure has been assessed--we are of the opinion that at this stage, where
uncertainty about the new service exists with regard to this subject, considera-
tions of protecting against pre'empting are overridin&. In smaller markets, pre-
empting could substantially reduce the amount of free programming available to
the public, as some parties have mentioned. Since it appears likely, from the
Hartford trial, that much of the SW programming might be in prime time, the
effect would be even more marked, for although the loss in terms of hours is
the same regardless of the time of day when the pre'empting occurs, the loss in
prime time would generally speaking be a loss of more popular programs.
148. The rule protects against such loss in smaller markets. In
the markets where it permits SW, it assures three network services and one
independent service. To the extent that existing stations in those markets
offer STy, there will be a relatively small amount of time pre-empted. To the
extent that STV operations occur on new stations, there will be no pre-empting
at all. It gives ample assurance against the dangers to networks, mentioned
by ABCand the Joint Committee, which could conceivably result in an untoward
waakening of the present broadcast structure, At the same time, the rule will
permit a not inconsiderable portion of the nation's population to have the
opportunity to use the new service if it so desires. 37/ Moreover, this will
afford an opportunity to observe what factors evolve in the operation of a
nation-wide STV service, such as, for example, the broadening of the base for
the purchase of programs which Zenith and Teco tell us was lacking in a s~ngle-
city trial, the possible development of an SW network, audience diversion,
pre-empting of time, program siphoning, or others, With this additional in-
formation we should be in a position to take further steps to guide the develop-
cent of this service in the public interest as seems appropriate.
149. At the present time there is no certain way of predicting what
SW penetration will be after the service has been authorized on a nation-wide
37/ The Commission has allocated 5 or more channels to 80 markets which include
807. of the nation's TV homes. STY is potentially available to all of those
markets. More immediately, of those markets, 63--including 78.87. of all TV
homes--presently have activity on 4 or more channels, j~., there are licenses,
permits, or pending applications for 4 or more stations.
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basis. If we were to hazard a guess, it would be that 107, to 207. would be
optimistic for the near future. If this is correct, it would appear likely
that the most interest in STV would be focused on the largest markets where
the potential for more subscribers lies. Our rule, therefore, should not
seriously impair the development of STV since it would permit it in those
markets.
150. We do not adopt the suggestion that the point at issue be
handled on an ~ jj~ basis. This would involve separate hearings, and the
results, in our opinion, would not be commensurate with the cost, time, and
effort expended thereon. A rule on this subject is clear and automatic in i
application. It appears to be the better way to handle the matter.
151. Finally, we note the suggestion of the Joint Committee chat
hearings be held on applications requesting authorization to engage in STV
operations in the top 100 markets. The Joint Committee maintains that the
important factor common to both STV and to CATV proposing to extend television
signals beyond the Grade B contours of stations to one of the top 100 markets
is that of the introduction of programming not otherwise available to free TV
in the market. The principal concern of the Commission in the CATV and the
STV proceedings, it states, has been over the impact on free TV. Since hearings
are required by rule in CATV for the top 100 markets, they should also be re-
quired when STV attempts to enter those markets. The point is lacking in merit.
152. In the Second Report and Order in Docket Nos, 14895, 15233, and
15971, we discussed in detail the reasons for the rule which requires hearings
for the top 100 markets, ~ and we shall not repeat that discussion here.
Suffice it to say that STV and CATV involve different considerations- -of which
we shall mention only a few- - that clearly indicate that the concern that led us
to the conclusion that CATV hearings should be held does not exist here. Thus,
(1) in the case of CATV systems entering the top 100 markets, we were concerned
with the fact that CATV stands outside the program distribution process through
which UHF stations have to obtain their programs. In the case of STy, there is
no such element of unfairness since the STV operator would be in a program pro-
curement position similar to that of the UHF free TV operator. (2) In the case
of CATV, audience diversion from the UHF station could be large. In the case
of STV, it would, as we have said, probably be small. In this connection, we
note that CATV systems have multiple channels and thus a single CATV system is
a source of multiple competition for local stations, whereas here we are per-
mitting only one STV operation in a market. (3) STy can broadcast over a UHF
station. If so, it is because the licensee thereof believes that it will help
his station, not harm it. In fact, one of the principal arguments of propo-
nents of STV is that it will aid UHF, not damage it. These few observations
should make clear the reasons why we reject the Joint Committee's proposal.
~/ 2 F.C.C. Zd 725, 769~784.
PAGENO="0073"
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i As with Issue I with making sure that
adequate amounts of free programming remain available to the public in markets
where STV operations exiSt. Requiring STV stations to broadcast a minimum
number of hours of free TV would be directed toward that end, as would the
establishing of limits on STV broadcasting both as to amount and time of day
of such broadcasting. in paragraph 33 of the Further Notice, we mentioned
that if free TV is to remain available, the amount of permissible STY broad-
casting by a station should depend on the amount of free TV available from
other stations in the market. As an example, we suggested that all STy be
required to broadcast the minimum number of hours of free TV required by
Section 73.651 of the Rules, and that the amount of STV broadcasting (assuming
only one STV station in a market) should vary with the number of TV stations
serving the community and with the time of day (prime time or non-prime time).
The proposed rule to that effect appears in Section 73,643(c) gnd (d) of
Appendix C. Comments were invited on the proposal, which assumes one STY
station per market, and on what the rule might be if communities were per-
mitted more than one STV station.
154. Many parties agree that STV stations should be required to carry
the minimum number of hours of free TV required by Section 73.651 of the
rules in the interest of helping to maintain a supply of free programming for
the market. However, this view is not without its opponents. Munn and Chase,
for example, say that the free programming of STY stations might be anun-
warranted burden on STV stations and could turn out to be prograaaing
designed to fill the required number of hours, but of low c~uality. This could
be especially true, they state, in major markets where STY stationS would be
competing with large, well-equipped and well-staffed stations. Moreover, in
large markets, the free programming of STY stations might be purely redundant.
For this reason, they urge that no such requirement be adopted, and that STY
be allowed to pursue the development of good STV programming without having
to present free programming.
155. Trigg-Vaughn also disagrees with the proposal to require a
minimum number of hours of free TV over STV stations, and for the same reasons
expressed by Munn and Chase. It states that the requirement could impose a
severe operating disadvantage on STV licensees who are attempting to pioneer
Sly, by requiring them to do far more than their competitors simply for the
right to engage in STV operations. It suggests that, since both STV andfree
PAGENO="0074"
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TV are broadcasting, the purpose of Section 73.
mitting STV licensees to fulfill the require-meii
or any combination of STV and free TV broadcast
156 It goes on to say that if at a later time it should appear
that such a rule is necessary, the Commission can take necessary action. In
the mean~imo, it is said, absence of such a rule at the outset will permit STV to
have greater `frea.dom in the programming erea and a better opportunity for develop-
ment.
157. As to liaiting STV to certain segments of the broadcast day,
or limiting the number of hours of STV, proponents generally oppose such
restrictions, stating that the record shows no need for them, that at this
stage they would hamper the development of STy, and that the amount of time
of broadcasting of STV programming should be determined in the market place.
158. On the other hand, one prOponent--Zenith-Teco- states that
because single-station markets present a unique problem, and because there
is no problem of time availability for free TV in markets within the Grade A
contours of five or more stations, the proposed rule with regard to such
markets should be adopted. They believe, however, that markets receiving
service from two to four ~rade A si~gnals, present different considerations.
As a practical matter, it is said, network affiliates in such markets are not
likely to gi~ie up assured profits to enter the speculative STV area, Moreover,
the Hartford trial has shown that STV will have greater demands for STy pro-
gramming in prime time than the proposed rule would permit. These two factors
could operate to confine STV to only a few markets where five Grade A signals
are received, and- where therefore there would be no limit or~ STV.broadcasting.
They therefore suggest that the Commission exempt UHF stations in two to four
station markets. This would, they urge, permit STV to have the same competi-
tive access to UHF that free TV has always bad, and would restrict the rule to
VHF where most of the free TV is.
159. They also suggest that any time limitations be applied on the
basis of an annual average and not a. daily or weekly average, as is permitted
with the AM-EM non-duplication rule (Section 73,242), so that programs will
not be arbitrarily restricted. Finally, since the meaning of "prime time" is
vague, they propose that the rule define the term as the hours between 6:00 p.m.
and 11:00 p.m., which is also the period used in the~programming portions of
the Commission's -application forms. Another clarifying suggestion is made
by ABC, which points out that ambiguity exists in the proposed rule as to
the meaning- of "community," which may be cured by language making it clear
that it is referring to the community to which the station is licensed.
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160. AMST does not.think that the proposed rules should be adopted
because, amcng other reasons, in a five'.station market it would be possible
in peak viewing time to have no free TV available, in a four-station market,
it would be possible that there would be no free programming available be-
tween 7:30 and 9:30 P.M., and so on with regard to markets of smaller sizes.
The Joint Committee suggests restrictions more stringent than those in the
proposed rule, Among others,, it suggests that no SDI station be permitted to
devote more than 607, of its broadcast day to SW programming. Thus, whereas
our proposal would have imposed no restrictions on SW stations operating in
five-station markets, the Joint Committee would impose the 6~f4 restriction
on them because the lack of information about the possible impact of STV on
free TV "does not warrant the risk of permitting any Pay-TV station to operate
on unlimited time in any market."
161. ACLU believes that STV should not be viewed as a beneficial
supplement to free TV, but as a different and independent system. Therefore,
that group argues, both services will have the greatest chance ~f developing
their potentials if stations are exclusively STV or free TV, and they accord..
ingly propose that there be two classes of TV broadcast stations. This, they
state, would best promote diversity (see pars. 139) because an exclusively
STV station would have the incentive to provide diversified programming for
all hours of the day and evening. (In addition to working against diversity,
they state that to permit SW and free TV over the same station could lead to
various problems which they set forth.) ADA has sim$,lar views, but they
contain additional ramifications which are discussed later in paragraphs
217-219.
162. Conclusions, In discussing Issue (1) we stated that we were
adopting. a rule limiting SW operations to markets within the Grade A contours
of five commercial TV stations because we believed that assuring adequate
amounts of free TV programming to the public was an overriding consideration.
We shall not repeat the discussion of the subject which we presented there,
but point out that the same considerations lead us to adopt a rule requiring
STV ~tations to broadcast at least the minimum number of free TV hours re-
quired by Section 73.651 of the Rules. We believe that, at least at this
point in the development of the new service, such a rule is a necessary safeguard.
163. We cannot agree with ACLU and ADA that there should be two
classes of stations and that SW stations should not only not broadcast the
minimum number of free TV hours, but should be prohibited from doing so. One
of the principal arguments made by proponents of STV is that it will promote
development of new or marginal stations and of UHF by supplying needed finan-
cial support. Clearly the development of which they speak is one that envisaged
both SW and free TV on the same station. We are of the opinion that SW and
free TV can exist side by side on the same station, each service supplementing
the other to the ultimate benefit of the public, and that free programming will
not be an undue burden on SW stations.
164. We are adopting a rule limiting SW to five (or more)-station
markets, permitting only one SW operation in a market (see Issue (4)), and
requiring that SW stations broadcast at least the minimum number of hours of
PAGENO="0076"
72
free programming, all in the interest of assuring adequate free programming
for the public. We now face the question of whether STV programming should
be limited as to segment of the broadcast day and to number of hours of pro-
gramming. The answer to us is a clear "no." We have made adequate provi-
sions to assure free programming. The new service cannot be completely
surrounded with restrictions lest it smother. Some flexibility in operation
is needed, and for various reasons we think that this is an area where that
flexibility should be preserved. For example, to limit the number of hours
of STV programming in prime time could, in the light of the Hartford trial,
quite possibly prevent the new service from becoming financially viable.
Prime time was the principal programming time at Hartford, and it would
appear that it will be in new operations. STV should be permitted to program
that or any other time with STV programming if it so wishes, with as many or
as few hours as it wishes.
165. With the limitations which we are adopting, the fears of
the Joint Committee about impact should be allayed~ and the AMST argument
that the proposed rule might allow all STV programming (and no free pro-
gramming) during prime time in five-station markets vanishes. In the light of
the position we take, it becomes unnecessary to discuss some of the other
points made in the comments. As with other parts of our rules, should experi-
ence indicate the need for modification thereof, such changes can always be made.
(3) Whether subscription television should be permitted over any television
station (subject to possible qualification as in pa'r. 45(b)(4) concerning
number of stations in the market), UHF stations only, or some other limitati~.
166. Comments on this issue present a mixture of views. Several
parties state that STV should be permitted over any station, for to adopt
limitations, such as limiting it to UHF stations, is inherently anticompetitive,
and no station should be precluded from rendering STV service if it wishes.
They argue that there is no apparent reason for any limitation of this nature,
and that if one were adopted it would foreclose VHF stations in some markets
from STV operations and some markets might be deprived of SW, contrary to
the public interest. Although Trigg-Vaughn is of the foregoing view, it states
that as an interim poli.~y the Commission might, in comparative hearings, favor
UHF applicants proposing SW operations. Kaiser, believing that it is too
early to decide whether to limit SW to particular types of stations, in effect
says that there should be no limitation at the present time. AMST, although
opposing STy, apparently would favor not limiting it to UHF stations because,
among other reasons, it is irrelevant whether free TV is impaired by STV over
UHF or over VHF stations, and because to limit it to UHF would do violence to
the principle of an integrated UHF and VHF national television system on which
the all-channel law is based. "In any event," AMST argues, "the Commission's
plans for UHF development are long-range and short-term expedients like this
would only divert UHF stations £roin providing ttie ~re~ television service
contemplated for them by the Congress."
PAGENO="0077"
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-57-
1 On the other hand, some parties would have us limit STV opera-
The usual reason for this view is that STV can supply needed
program sources for marginal and new UHF stations. The views
.ly: Skiatron, for example, would limit STV to UHF and marginal
Springfield says to limit to UHF but to waive the rule on an
"~i would limit STV to UHF stations at the outset. It
I is more likely to be a new station and that the
to pay for programs over that station than to
ich they have been receiving programs free. In addi-
n ob ~--e UHF stations are more likely to be new, there is
e of g of free TV time than there is if anestablished VHF
gins ation.
168. Conclusions. Although as a practical matter, STV may turn
out to be limited mostly to UHF stations, we do not think that it should be
so limited by rule. To do so could, as some parties argue, foreclose some
VHF stations that wish to engage in STV operations from doing so. With the
rules that we adopt today, sufficient restrictions are placed on STV to act
as safeguards in areas of concern. We do not find any of the reasons given for
restricting STV to UHF of sufficient weight to merit such a rule at this time.
(4) WI-tether more than one station in .4 community shou1~ be permitted to enaaae
jn~subscript~on~te1evi~ion operations. and.~if ço whether such statipns~shgu].d
be permitted to broadcast ~sub~ription programs simultaneously.
169. Telemeter states that this is a complex question which should
be decided on a case-by-case basis, at least until some pattern emerges. It
thus appears to oppose a rule restricting STV to a single station in a market.
Zenith and Taco mention that as a practical matter it is likely that there*
will only be one STV station in a community, but to impose such a limi-
tation by rule would apparently go contrary to the uomm~ss~on's policy of en-
couraging competition. They suggest deferring this kind of decision until
such time as a second station in a market applies for STV authorization, at
which time the Commission will have information concerning the operation of
the first station therein and could make a judgment on the basis of that
information and other local public interest conditions. The opinion of Kaiser
that it is too early to decide this issue is consistent with the foregoing.
170. Various parties, including ABC, Teleglobe, and ACLU take a
position that STV should not be restricted to a single station because this
is anticompetitive. Teleglobe adds that a limitation would also be unfair to
another station in the community wishing STy.
171. Munn and Chase say that STV should be limited to one station
per market because there is insufficient box-office programming for more than
one station, and that allowing more than one to engage in STV operations would
deteriorate the service. Trigg-Vaughn and AMST state that to limit STV to one
station in a community would give the single station a monopoly. Moreover,
according to AMST, "the combination of these market monopolies, deeply committed
to pay television, would be particularly effective and energetic in efforts to
`siphon' free television audiences and programming." AMST admits, however, that
such a restriction would reduce the pre-empting of free TV time by STy.
PAGENO="0078"
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-58-
172. conclusions. Our concern about pre-empting of time has been
previously discussed. It has led us to the adoption of a rule restricting
STV to certain markets, requiring STV stations to carry some free TV programming,
and, finally, to restricting STV to one station in a community. If more than
one station should broadcast STV progran~s in a single market more time could
be pre-empted than we consider to be in the public, interest at this juncture.
We foresee no serious problems of monopoly in this connection. In relation
thereto, it may be noted that there are numerous communities in the i~ation
which have but a single free TV station, but monopoly problems sufficient to
warrant action on our part have not arisen. In paragraph 133, we mentioned
the views of the Joint Committee to the effect that it would be unconscionable
for the Commission to permit such a monopoly without having clear-cut authority
to regulate rates. We do not find it so. In balancing the conflicting con-
siderations of dangers of pre-empting time against dangers of monopoly, the
scale tips in favor of protecting against the former. As to the matter of
rate regulation, it is discussed under Issue (9) below.
173. In view of the rule which we adopt it is unnecessary to con-
sider the question of simultaneous STV broadcasting in the same community.
(5~Whether more than one subscription television technical system should
be authorized~. and~ if so, whether more than one technical system shoyld
be authorized to operate in any one community (assumine that the answer to
para~ 45(b)(4) is such as to'permit more than one.~ta.tio~ in a.communtty to
engaae in subscription operation); and, if only a ~single technical system
is permitted. what system should it be?
174. This issue was referred to briefly in paragraphs 36-39 of the
Further Notice which mentioned that Zenith and Teco favor not limiting STV
operations to a single technical system because the underlying policy of the
Act encouraging competition points to the adoption of general technical stan-
dards within which more than one system might operate. We stated, however,
that there might be advantages to the adoption of a single technical system- -
advantages similar to those accruing to the basic broadcast services, color
TV, and FM stereo where we have required all broadcast stations in any band
to use a single system so that receiving equipment in the hands of the public
will be capable of using signals from any station.
175. Possible disadvantages in using multiple systems were mentioned
in those paragraphs as well as in Appendix B of the Further Notice, which con-.
sisted of a memorandum from the chief Engineer of the Commission for the in-
formation of commenting parties. These included the following: yiewers living
within the service areas of more than one STV station would be put to unnecessary
expense and inconvenience if they wished to see the programs of more than one
of them. Persons purchasing decoders and later moving to other communities
where other STV systems are used would be put to unnecessary expense and incon-
venience. Even if decoders were rented rather than bought, there might still
be inconvenience and expense in installing more than one kind of decoder in
the home. Having multiple systems might restrict competition because viewers
with one decoder attached to their sets could not, without additional inconvenience
PAGENO="0079"
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and expense, receive STV programs of other stations. Thus, different systems
in the same area might have different audiences. Competition between systems
in the market place might become a popularity contest between competing systems
which would be decided largely on the basis of promotional efforts rather than
on their respeclive merits. The competition should occur before the Commission
and be decided on the basis of technical meritg before the STV service is
regularized. With multiple systems, it will be necessary for the Commission
to decide on a city-by-city basis what system should be used. This would
necessitate detailed technical evaluation of the comparative merits of systems
competing for the same market. If different kinds of decoders are used, their
price would be greater than if only one kind were manufacturered in greater
quantity for a single system. In addition to the foregoing, the Chief Engineer's
memorandum contained considerable detail about patents, patent holders, and
the Commission's revised patent procedures adopted December 6, 1961, which
are designed to prevent the public benefits of systems which the Commission
specifies shall be used from being derogated by unreasonable exercise of patent
~rights. That information will not be repeated here.
176. The comments in favor of having a single technical system are
very brief. Thus, ABC states that it favors a single system because the public
interest would be served, but does not say how. ACL.U favors a single system
because multipl.e systems would ha.ve a deleterious effect on diversity of
expression for the reasons mentioned in paragraph 37 of the Further Notice.
Motorola gives somewhat more on the matter. It states that authorization of
multiple systems would be;
`. .a tragic regulatory mistake for which the public would
pay a.high price in years to come.
"A single technical system provides the basic tools for growth
of the service, as it has for television, both monochrome and
color and for FM-Stereo. A single technical system permits
better regulatory control by the commission. A single technical
system allows equipment rnanufactureres a better opportunity to
plan, to produce, to control inventory, to control national
distribution and service, all of which reflect in higher quality,
more reliable, lower priced units for the ultimate consumer."
Motorola urges thorough field testing of all systems before a single one is
selected. It states that both the Zenith and the Telemeter systems have not
been adequately tested (see paras. 123-124 above), and urges the Commission
to institute a formal program of technical investigation and to request the
industry to reconstitute the National Television Systems Committee as a vehicle
for obtaining the field performance results for the Commission to evaluate.
PAGENO="0080"
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0 de
posed connec
the TV set), and its centralized metering and billing
immediate knowledge at a central office that a program is being viewed and
which entails no coin or token insertion into the decoder or periodic sending
in of tapes, code cards or the like for billing purposes. There were three
STV systems in existence in 1957 when Teleglobe came on the scene, Had the
Commission in 1957 decided to adopt a single technical system for STy, tech-
nical developments would have been frozen, progress stultified, and Teleglobe's
novel concepts of external decoder connection and centralized metering and
billing would not have emerged. Moreover,
"[a]ll systems are workable. They are all ready for the market
place. But only the, actual operation of the individual systems--
over a period of years- -with tens of thousands of subscribers- -
in a number of markets- -will be able to establish conclusively
their comparative technical merits, efficiency of collection
methods, ease of operation in the subscribers' homes, degree of
servicing problems and general practicability. There is no other
evidence that will justify the Commission to choose now one system
in preference to the others. To make a choice of a single system
for nationwide use, merely on the strength of circuit diagrams
and written specifications is extremely unsound. . .A commitment
by the Commission to a single system- - in the present circumstances--
will be a deterrent to progress and inventiveness.
"A `hands off' policy on the part of the Commission may or say not
lead ultimately to the establishment of a single nationwide system.
The public will not be hurt, however, since it is our proposal that
television decoders should be installed by the Pay-TV operator and
not sOld to the subscriber."
In addition, not only would the adoption of a sinale system be unfair to the
entrepreneurs who have pioneered STV at considerable expense and in the face
of difficult opposition, but it wouto present a single company with a billion
dollar monopoly, with profits not only from decoder sales, but from yearly
royalties paid by franchise holders for use of the system. Finally, multiple
systems should comply with general standards of good engineering practice,
and should not be limited to one system per market since there is no technical
difficulty in attaching more than one decoder to a set.
178. Telemeter presents arguments like those of Teleglobe with regard
to stifling of invention and competition to improve systems if a single system
is adopted. In addition, Telemeter says that because having a single system
would eliminate competition, it would prematurely necessitate rate regulations,
patent license regulations, and other burdens which would tend to stifle an
industry which does not yet exist. It is premature, we are told, to fix upon
a single system because this is not merely a technical question; it goes to
the heart of the commercial organization of STV. In addition, as mentioned
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earlier, (see para. 131), Telemeter believes that broadcasters, decoder owners
and maintainers, and programmers will have to be one and the same in the early
phases of STy, and it wi~1 probably be necessary at the start to grant franthi~es
in order to induce investment in STy. Because of this, it is argued, having
multiple systems would be the only way to have competition.
179. Zenith and Taco make the following presentation: Multiple
systems are dictated by the underlying policy of the Act of encouraging com-
petition. The Commission should adopt general technical standards under which
the systems may operate. They could be as follows: (a) The system should be
compatible with existing TV ser~rice (both UHF and VHF and monochrome and color)
so that present TV sets can be used. (b) The STV system should not cause inter-
ference or have other undesirable effects within or without the assigned fre-
quency. (3) It should result in no perceptible degradation of the quality of
the video or audio signals received during either an STV program or a conven-
tional program. There is no disagreement with the policy of single systems
for basic broadcasting, color TV, and the like, but the same consideratiox~s do
not apply here. There is no apparent reason why one method of secrecy to pre-
clude non-subscribers from seeing STV programs need be used everywhere. Whether
one or multiple systems are used, they would all be compatible with existing
TV sets.
180. Like Teleglobe and Telemeter, Zenith and Teco are concerned
about stifling inventiveness. They believe that establishing a single system
would tend to make it impossible to incorporate future improvements- - improve-
ments which, among other things, could reduce ultimate costs to subscribers.
We are told that based on the Hartford trial experience Zenith has made many
new improvements in its equipment. The general technical standards that they
have proposed would permit this sort of thing, they state. Moreover, they urge,
decoder and encoder design involve other considerations than technical trans-
mission of signal, such as billing, for example; and the Commission need not concern
itself with what billing method is used as long as it is cogpatible with existing
transmitter and recéiver staddards.
181. Zenith-Taco also argue that to have a single system would be
contrary to the national policy against enlarging the monopoly of patent holders.
To adopt a single system which would be inherently anti-competitive, there must
be overriding social interests not presented here, they urges Other arguments given
are that there is an urgent needtoindrease the box-office support of feature
films which are now so important to the free TV industry~ that delay caused by the
selection of a single system could cause TV channels to lie idle and open the
door to reallocation of those channels to other serVices, as Motorola appatently
would desire; and that there is no need for extensive field testing of systems
as Motorola suggests.
182. Finally, they argue as follows: If multiple systems are used, it is
unlikely. bedause of economic reasons, that there will be more than a single
system in a community. This is so because an existing system in A community
could also serve other stations subsequently authorized by the Commission to
engage in STV operations therein. The later STV operators probably would not
bring in new systems because it would be more economical and expeditious to
use the existing system. Therefore, the inconveniende foreseen by the Chief
Engineer if there were more than one system in a community is not likely to
occur, and financial burden on the subscriber is minimized by renting of
Although there will probably be only a ~~:`
reason why there should be a rule requiring
86-399 0 - 67 - 6
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62-
183. As to the last-mentioned subject-- limitation of STV to a single
system in any one community--Acorn says that it favors STV broadcasting by
more than one station in a community and for that reason urges that only a
single technical system be permitted in one community so that all subscribers
may receive the programs of all STV stations there Munn and Chase on the
other hand, believe that STV should be limited to one station per market
(because of the limited number of box-off ice programs) and say that this view
carries with it the requirement of having only one system to a community, al-
though they see no reason for not having multiple systems nationally in non
overlapping markets. Trigg-Vaughn opposes limitation of one system to a com.'
munity simply for the sake of confining all STV operation in the market to a
single system, on the ground that this would be contrary to the public
interest. However, it would apparently favor the adoption of appropriate
limitations if having different kinds of SW service in a community would c
loss of the public's investment in receiving equipment or cause incompatibility
with such equipment.
184. Conclus~ons. We have carefully considered the comments of
filing parties and the views of the Chief Engineer of the Commission and here
decide that it is in the public interest that multiple technical systems of
SW be permitted. Many of the negative aspects of having multiple systems
that are mentioned by the Chief Engineer are nullified by the fact that we
are limiting SW to a single station within a community. Thus there is no
problem of inconvenience and expense to the public caused by having two
decoders attached to one receiving set for the purposes of receiving two SW
operations in the community. While there may be viewers within t~be range of
STV operations in more than one community, we do not believe these situations
will be so numerous that, in the overall, significant inconvenience will be
caused. Because of the foregoing, the argument that multiple systems might
ten.d to restrict competition by dividing STV audiences between two SW sta-
tions falls. Our rule requiring that decoders be leased rather than sold (see
issue 11 below) protects those subscribers who move from one community with
SW service to another SW community. To the argument that one system may be
better than another and that `with multiple systems use of one or another may
be based on the efforts of salesmanship rather than technical quality, we
reply that by establishing standards which multiple systems must meet, we
assure that they will be able to transmit satisfactory pictures and sound.
Moreover, as to the matter of decoders costing less with a single system as
compared to manufacturing fewer of each kind with multiple systems, we be-
lieve that caspetition between systems may well serve to stimulate better
methods of production that will tend toward lower costs. We agree that,
under the rules which we adopt, `if two or more applicants within a community
apply fot~ SW authorizations, a comparative consideration in a hearing may
be necessary to determine the relative merits of the technical systems, but
this fact does not deter us in view `of the advantages to the public of the
action which we here take. .
185. Many of the arguments made by those favoring multiple systems
we find to be of ~ makeshift nature and lacking in merit, Thus, for example,
while we can sympathize with the argument that many entrepreneurs who have
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invested time and money in STV systems will lose if a single system is
selected, private interests would have to yield to public interest con-
siderations, as they did in the case of color TV and Ft4 stereo, if the
public interest considerations in this case appeared to be in that direction.
On the other hand, we believe that there is merit to the position that adopt.
ion of a single system at this time might well stifle inventiveness and the
incentive to improve SW systems. At some future date, depending on the
factors then existing, it might be ~n the public interest to adopt a single
system, and STV operators are hereby put on notice to that effect, We be-
lieve that a broad trial of multiple systems over a period of years, pos-
sibly coupled with the reconstituting of the National Television Systems
Committee to aid the Commission, might form the basis for subsequent deci-
sions in this area. However, we do not believe that the testing should be
made in the abstract. Standards which we adopt can assure the reception
*of satisfactory signals on all multiple systems used. In view of this, we
see no reason why the market place should not be the proving ground. Finally,
we agree with the argument that there is a paramount public interest in
fostering competition and diversification of program sources as quickly as
possible. We have already found that STV could provide a beneficial supple.
ment to free TV. In view of this, in view of the paramount public interest
just mentioned, and in view of the foregoing observations, the time to begin
nation-wide STV--using multiple systems--is now.
(6) Whether a party manufacturing or sellin~eq~iipment, or a holder of a
subscription television franchise in more than one market should be permit~~4
to engage in the procurement and supply of programs to television stations
for subscription use.
(7) What requirements should be imposed upon station licensees engage4 ~
subscription television operations to assure licensee control, i.e., wheth~
the licensee should be reQutred to retain sole control of all decision~~
to program choice, charges to the public, etc., or whether the regui~emen~~
should merely concern such matters as the licensee's retention of~ the right
to reject programs, to make free choice of programs, to schedule the~ttme
of showing of programs, and to set the maximum price to be paid for a p~og~~
~y~subscribers (see Section 73.642(e) of Appendix C).
(12) What restrictions should be adopted concerning the nature of arrangemen~
among patent holders, patent licensees, franchise holders, and television sta
lion licensees, e.g., concerning such matters as whether,and under what~ergt~
and conditions, patents on any particular subscription television system will
be required to be made available to franchise holders and station licen~~es,
and whether stations engaged in subscription television operations should.~
permitted to enter into contracts that would give them exclusive rights to
use a system in a particular community.
186. These three issues are dealt with together because of their
close interrelation, bearing as they all do on questions relating to monopoly
and competition and on the licensee's responsibility for the programming which
is broadcast over his station. We have already set forth considerable infor-
mation about them in paragraphs 115-119 and 126-133 which presented material
PAGENO="0084"
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on the subjects of ~ operandi of the TV service, the methods to be
employed, the role of participating broadc~ast station licensees, and the
possible monopolistic features of STy. n paragraph 134 we stated that we
would evaluate that material in our discussion of the issues, a~d this will
be done in stating our conclusions below. Reference is also made to footnote
32 in which we indicated that such topics as whether interconnection of STV
operations should be prevented or limited, and whether STV system manufac-
turers or franchise holders with franchises in more than one market should
be allowed to engage in STV program procurement or supply, and similar
problems related to siphoning, would be discussed under the issues, (The
question of whether STV should be limited to carrying certain kinds of pro-
gramming, also mentioned in footnote 32, is treated under issue (14).)
187. Issue (6). In paragraph 59 of the First Report we stated:
"Opponents of subscription television have charged that the
conduct of subscription television operations on the lines
proposed in this proceeding would permit or foster monopolis-
tic control of the medium. It is pointed out, for example,
that a sole franchise holder in an individual community of a
system employed exclusively in the local community for the
encoding and decoding of subscription television programs
might become the sole medium for the channeling of subscrip-
*tion programs into the community. This, it is argued. would
enable the franchise holder, and through him the persons con-
trolling patents on the equipment, to control the program
availabilities, determine the terms of services to the sub-
scribers and otherwise control the operation without compe-
tion from any other persons performing similar services lo-
cally, It is also argued that any system which by virtue of
nation~wide standardization by the Commission, or otherwise,
established a nation-wide network of local outlets, may gain
monopolistic control over provision of subscription televi.
sion service for the public in all the communities where that
system was exclusively used for subscription television
operations.
We then went on to say the following in paragraph 61:
"It is superfluous to say that the Commission favors competi-
tion in the conduct of subscription television operations. The
conditions set out herein for trial operations have been care-
fully determined with that objective in view. A trial conduc-
ted under these conditions would, we believe, provide useful
indication of the extent to which it is possible to create and
maintain competition in all phases of subscription television
operations: among program producers and distributors, among
manufacturers and distributorsof equipment, and among stations,
to name several. Should a trial disclose that competition among
several systems is not feasible, or that the need for standard-
ization of equipment precludes it, there would be ample oppor-
tunity, after trial data are available, for deciding whether the
PAGENO="0085"
"In Our Opinion, a holder of a subscription television fran~
chise in either a single market or in several markets Should
not be prohibited from engaging in the procurement end Supply
of programs to television stations for subscription use, so
long as the subscription television station is free to use
the franchise holder's System, whether or not it Uses the
programs supplied by the franchise holder, Indeed, in many
cases the subscription teievis10~ station and the franchise
holder may be the same party. Thi5, ~s the Commission knows,
is true of RKO in Hartford. This may also occur in the case
of two Phonevision franchise options which have been granted
to Field Communications in Chicago and Kaiser Broadcasting in
Los Angeles.
PAGENO="0086"
82
`lie believe chat so long us any :oibscriptior television
franchisa holder stands willing to provide subscription
service to all stations authorized by the Commission to
carry subscription progress in a particular market, it
should not make any difference whether the franchise holder -
on some occasions obtains programs which are in turn sup-
plied to the stations. The stations will still have plenty
of other sources from which they may obtain programs.
"It should be emphasized that because of legal and busi-
ness considerations involved, Zenith and Taco would be
effectively precluded from entering into any aerangement
or tie-in with a local franchise holder giving any pro-
gram supplier exclusive use of Phonevision facilities.
Likewise, the same legal and business considerations
would preclude a local franchise holder from entering
into any tie-in arrangement which would require stations
to use only programs supplied by the franchise holder.
"We, of course, recognize that the television station
should have ultimate control over the final selection of
all subscription programs broadcast . . .
They then refer to the three methods for arranging for programs which involve
various degrees of cooperation between the licensee, the franchise holder,
and program producers which were mentioned in paragraph 118, and conclude
by saying:
"We do not bel~eve th~.tt any sound regulatory purpose will
be served at this point by putting unnecessary restric-
tions on a franchise holder's participation in program
procurement. Nor do we believe that any usef~~l purpose
would be served by putting a program distribution restric-
tion on any other group or classification. At the outset
at least, subscription stations will require all the col-
lateral help they can possibly obtain to acquire sufficient
box-office product to make subscription teleyision a success."
189. The views of Telemeter were set forth in detail in paragraph
131. On the basis of those views, Telemeter urges that, at least at the
outset, there be no limitations placed on the system proponent, such as
Telemeter, or on the franchLse holder with regard to their ability to produce,
acquire, obtain or supply STV programming. In one respect, Telemeter dis-
agrees with Zenith-Teco. The position of the latter parties, we are told,
would preclude exclusive franchise agreements between Telemeter and TV sta-
tion licensees. Telemeter believes that an exclusive franchise may be the
only method for commencing STy in the early days of the service.
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190. Without mentioning them by Oasis, weñote that other pro-
ponents have views similar to those sentioned in portions of the foregoing.
However, we specifically mention Kaiser because of its reference to network-
ing of STV programs. It states that the key to the success of STV lies in
its ability to obtain programming that will be supported by subscribers, and
that to prevent interconnection of STV operations in diffetent markets or to
prevent equipment manufacturers from engaging in program procurement or
supply would be to impose severe restrictions in this vital area with no
real evidence that they are necessary either to protect free TV or to pre-
vent ariti..competitive practices. One proponent, ACLU, holds he view that
there should be a complete divorce of programming from other facets of STY
operation because diversity is limited by monopolizing programming in the
hands of those who control distribution,and diversity is broadened by de..
veioping new entrepreneurs in. programming.
191. Among opponents of SW, ABC believes that the Commission
should not presently adopt rules limiting equipment manufacturers or sellers
or franchisees with regard to engaging in program procurement and supply for
SW. It observes, however, that
"/a/lthough these combined functions may raise questions
under the anti-trust laws, the questions are subtle and
do not lend themselves to answers in the abstract. The
sound course would be for the Commission to adopt no rule
at this time and to await development of the subscription
television industry."
AMST is of the view that although if such restrictions were adopted they would
preclude certain groups from siphnning programming from free TV, they would
not prevent siphoning itself. Finally, the Joint Committee, in order to mini-
mize the risk to free TV, opposes any form of networking of STV programs or
other types of multiple program purchase agreements.
192. Issue (7). Generally, comments favor tr8ditional concepts of
licensee responsibility, and most favor the requirements in proposed Section
73.642(e) for assuring licensee control. They are those required by the Third
Report for trial operations, and suggested by Zenith-Teco for final rules, and
it is stated that they would be adequate to insure licensee responsibility for
STV station operations. Kaiser, however, believes that it is too early to
decide on detailed restrictions because we do not yet know along what lines
the program procurement process will develop, It might be along the lines of
free TV with a network-station relationship, or it might be different and
therefore call for more complete control by the licensee over operational de-
tails. Munn and Chase state that having ruies on licensee control might pro-
tect licensees against outside pressures.
PAGENO="0088"
~93. Telemeter supports the proposal providing it is made clear
that axclusive franchise agreemants are permitted and that stations may enter
into contracts whereby the franchise holder undertakes to broadcast a minimum
of STV programs within specified time segments. ABC favors the proposal but
states that the Commission should recognize that in order to offer special
and unusual attractions some kind of network-type distribution structure may
be necessary. 8ecause of this, it stares,
`L~/he Commission should not foreclose subscription te.levi-
sion operators from contractual arrangements necessary to
provide a nationwide audience for programming. In the free
television and radio areas, a reasonable accommodation be-
tween the concepts of licensee responsibility with respect
to program selection and national program distribution has
been realised, and a comparable relationship would appear
appropriate for subscription television."
194. Issue (12). Comments on this issue vary. Teleglobe believes
that It would be premature to adopt rule.s on this subject at this early stage.
Telemeter, expressing the same thought, says that if multiple systems are per-
mitted, there may be some cross-licensing and pooling.of patents. Some
system proponents may manufacture and others not. Therefore, until the
pattern of the industry emerges, it would be impractical to attempt to be
specific about patent licensing terms and conditions. Trigg-Vaughn believes
that the proposed rule In Section 73,642(e) concerning licensee control is
sufficient to protect against abuses, should any develop, that might be im-
posed on licensees and ultimately the public by manufacturers of equipment.
Zenith and Teco are of a similar view. ABC, on the other hand, believes in
having appropriate restrictions to guard against anti-competitive practices.
If the Commission should adopt a single technical system and permit more than
one STV operation in a community, it then urges that rules be adopted that
would permit sharing of rights and that would limit exclusivity arrangements.
195. ~ We have carefully weighed the foregoing material
and have arrived at the conclusions in the following paragraphs, Because of the
limited scope of the Hartford trial, we lack information
about conceivable problems of monopoly with regard to STy. As we said in
paragraph 187, this may b~ partly the result of the more limited conditions
which the Third Report imposed for. trial operations. For example, had one
system been tried in three markets, as would have been permitted by the First
Report, we night now have trial information about interconnection of systems
and the purchase of programs from a broader financial base by a franchise
holder in more than one community. This lack of information, and other con-
siderations mentioned below, lead us to the conclusion that, at least until
such time as the infant STV industry grows to the point where patterns of
organization and problems are discernable, we shall not adopt rigid regulations
in respect to matters related to Issue (6) and (12), and the kindred matter of
interconnection of 511' operations, instead, we are adopting rules in respect
to Issue (7) which are of such breadth that each application may be treated
on the basis of its specific fact pattern as to topics therein relating to
Issues (6), (12), and interconnection.
I
84
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franchise holders with frinenices in more than one city, or by equipment .manu-
facturer~, when there ic no real evidence that such restrictions are essential
to protect free TV or to provide sifeguards against anti-competitive practices.
AMST states that even if we had such restrictions they would only prev~nt some
program siphoning but not aLl.. To which we can only reply that it is not our
intent to erect a complete fence about free TV. It may well benefit the public
to leave at least a small opening in the enclosure. Finally, to the A~LU
argument that diversity is best promoted by separating the functions of pro-
gramming from other parts of STy operations, we can only reply that we give
credence to the view that there may he a need for flexibility of approach to
program procurement and supply in the early stages without which ttte service
may not develop at all- -a rasuit that would make for even less diversity.
200. I~g~jfl 10 view of the foregoing discussion about Issue (6)
and the discussion of Issue (12) hereafter, we are of the view that proposed
Section 73.642(e) concerning licensee control should be adopted with amend-
ments befitting the situation as it appears to he. Before specifying what the
amendments are, we shall refer briefly to a related topic--our chain broadcasting
rules- - to illustrate what we consider to be. fundamental policy. That policy
underlies the chain broadcasting regulations end the amendments to Section
73.642(e) which we adopt today The chain broadcasting rules, adopted for
radio in 1941, were later carried over to television stations when TV came
into being, and the essentials of those rules are in effect today. The rules
were designed to protect against two types of situation that the Commission
deemed to be contrary to the public interest--so-celled exclusivity of affilia-
tion, and territorial exclusivity. The former consisted of an agreement between
a station and a networl; whereby the station agreed to accept programs only
from that network The latter uas the reciprocal undertaking on the pert of
the network whereby i.t agreed that it would not make its programs available
to any other station within a given radius. The former was economically advan-
tageous to the network heca~oe I.;: gave assurance of en outlet in the community.
The letter was of advsniage to the station because it had a definite source of
programs assured, and bee that rio other station in the area. could carry those
programs.
201. lo adop~inp~ the chain broadcasting rules, we found both types
of exclusivity to he n~rrry to the public interest. Exclusivity of affili-
ation was proscribed hcausa IL hindered affiliates in the choice of their
programs, since they couic aci broadcast those of another network even though
the other network night offer some programs that were highly desirable and
the broadcasting of which would be in the public interest. In addition, such
exclusivity arrangements limited the chances of other networks to have their
programs broadcast in that cassunity, since the station having an exclusive
affiliation ~ith One network could not broadcast programs of another. In
other words, network coapetitfon in tne community was restricted, contrary
to the public interest Similarly, territorial exclusivity also restricted
competition in that if an ~ffiiiate. did not carry a program of its network,
other stations in the rari~et were prevented from competing to obtain and
broadcast the progree.
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202. As explained above, and for the reasons mentioned, we are
adopting rules providing that only one station in a community may engage in
STy operations. In effect, then, we have, decided that under the conditions
of uncertainty about the future development of STy, and to protect the interest.
of the public in having sufficient amounts of free TV programs available,
there should at least at the present time be something akin to territorial
exclusivity for the STV operator in each community.
203. As to the n~tter which is analogous to the exclusivity of
affiliation which was struck down by the chain broadcasting rules, we have,
as the previously stated views of the parties indicate, a conflict of thought
between two of the principal proponents of STV- -Zenith-Teco, and Telemeter.
Zenith and Teco relate that for business and legal reasons they would be pre-
cluded from entering into arrangements with local franchise holders that ~
give any program supplier exclusive use of Phonevision facilities. They state
that the same considerations would prevent local franchise holders from arrange-
ments with STV stations that would require the stations to broadcast only
STV programs which the franchise holder supplied. On the other hand, if we
understand the position of Telemeter correctly, it is of the view that it is
essential that arrangements which limit Sn STV station to obtaining programs
from a single source b~ permitted or the new service will not be able to
develop in its early stages. It appears that Telemeter would agree that at
,a later stage of development such arrangements might conceivably not be in
the public interest.
204. As a general principle, we believe that the philosophy under-
lying the chain broadcasting rules should apply to STy, for it is in the
public interest to stimulate competition and diversity However, general
prindiples are subject to modification if the situation indicates a public
benefit may result. Such was the case with our decision to limit STV opera-
tions to one station per community. As to the present problem, in our judgment,
we do not know enough about STV at this time to adopt rules proscribing exclu-
sive programming arrangements- -which on their face would appear to be anti-
competitive. For it may be that under the circumstances that prevail IC the
early phases of STV such arrangements, as Telemeter argues, will be necessary
to nurture the new service into being- - thereby once again modifying the general
principle. Thus, on the one hand we believe, along with ABC, that there should
not now be specific regulation. But on the other, we would be remiss in our
duty, in setting up a new service, to write rules that are silent on a topic
of great concern. For this reason, we have chosen a middle course. We adopt
rules (see Section 73.642(e) of Appendix 0, which with modifications is the
proposed Section 73.642(e) of Appendix C) which provide that, generally speaking,
parties will not be granted STV authorizations i1~ they have entered into agree-
ments that prevent or hinder them from making a free choice of programs.
However, we provide that we shall examine each application on an ~ ~ basis,
and if it appears under the given fact situation that the rule should be waived,
we shall do so.
205. Similarly, Telemeter has urged what in effect is a rule per-
mitting optioning of a station's time for broadcasting a certain number of hours
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208. Although, as stated in paragraph 288, we do not now decide
what information will be required in applications for STV authorizations, we
believe that the subject just discussed is of such importance that information
on it will have to be contained in applications. For this reason, we are
adopting a rule stating what material on the subject must appear in STV appli-
cations (see Section 73.642(g) of Appendix 0).
209. Issue (12). As with Issue (6) we believe that we have insuf-
ficient information at present to know what, if any, regulations may be neces-
sary. Much, if not all, of the issue is mooted by the new rules which we
adopt. Thus, for example, restricting STV operations to one per community
moots the question of whether stations should be permitted to et~ter.into con-
tracts giving them exclusive rights to use a system in a particular community.
The adopting of rule permitting multiple systems greatly dilutes the other
question posed in the issue.
210. As with other aspects of the new service, we shall keep the
matters covered by this issue under surveillance and may from time to time
require the submission of reports and other information to keep us abreast of
developments, toward the end of having an informed basis on which to take any
further regulatory action that may be required in the public interest.
(8) The nature of the technical rules that should be adopted.
211. Appendix C of the Further Notice cont~ained a proposed Section
73.644 concerning equipment and technical operating requirements. That section
indicated that STV equipment must be approved in advance by the Commission's
established type approval and type acceptance procedures. It further stated
-72
of STV programs per day or segment theieof. We 1
option time for free TV because we fot
conduot of TV network operations,
For reasons stated in the precedin~
it might be in the public interest to p~
early stages of STV. Therefore, we have
73.642(e) provisions to the effect that v authorizations will not be granted
to parties who have entered into such arrangements unless the Commission has
approved them.
206. The rules which we adopt are broad enough to encompass not
only equipment manufacturers, franchise holders, or others who may be engaged
in program procurement and supply, but also any STV networks that may develop
or other types of STV interconnections between communities. We do not f ore-
close STV interconnections or networks, but if arrangements related thereto
restrict the freedom of choice of STV stations in procuring programs, the
Commission must approve them or no STV authorization will be granted.
207. In periodic reports which we shall require those holding STV
authorizations to submit, we shall obtain information in this area, and do not,
of course, foreclose further rule making with regard to it.
PAGENO="0093"
(as did paragraph 39 of the Further Notice) that additional rules concerning
equipment and technical operating requirements would be announced at a later
date. (This, of course, was contingent on the establishment of a nation-wide
STV service.)
212. No comments were received on whether to adopt the proposed
Section 73.644. After having considered that proposal, we are of the opinion
that the type approval portion thereof should be deleted~ Type acceptance is
generally used throughout the radio services in the absence of an urgent need
for type approval. No such urgent need appears evident here. Section 73.644
adopted herein is modified accordingly.
89
-73-
213. As stated previously, we have deCided that multiple technical
systems should be permitted (paras. 184-185). We are today, simultaneously
with the adoption of the instant document, adopting a further notice of pro-
posed rule making in this proceeding which invites commCnts on proposed rules
for STV equipment and system performance capability These proposed rules
would establish standards with which any STV system proposed to be used by
an STV applicant would have to comply. We do not presently foresee the need
for special technical operating requirements for STV, and in the absence of
such requirements the operating requirements for conventional television
operation will apply Should any parties believe that special rules on the
subject are necessary for STV, their suggestions and comments will be welcome.
~9) Whether~ and to what extent,. the Commlsgjpp should~ggula~ th~ charke5~
terms and conditions pursuant tq~~jch subscrip~pp~glevision service will be
offered to the public.
214. Zenith and Teco support proposed Section 73.643(b) of Appendix
C which would require that charges, terms, and conditions of STV service to
subscribers be applied uniformly, although providing that subscribers may be
divided into reasonable classifications, approved by the Commission, with
different sets of terms and conditions applied to subscribers in different
classifications. However, beyond that, they believe that the actual decoder
installation, decoder rental, or per-program charges should not be regulated
by the Commission. Trigg-Vaughn has a similar view. Among other reasons
that STy should have the same freedom in pricing as other box-office entre-
preneurs enjoy.
215. Acorn states that there should be no rate regulation initially
because the competition between free TV and STV should keep the STV charges
reasonable. Kaiser says that it is too early to decide whether to regulate
rates, and Teleglobe holds that it is premature to regulate charges, terms,
and conditions because there should be as little regulation of STV as possible
in the beginning. Trigg-Vaughn argues that no need for rate regulation has
been shown and that regulation would place an artificial restriction in that
area. If experience shows the existence of abuses, it is argued by Zenith-
Teco and others, the Commission may take appropriate action.
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- 74.
216. As to actual jurisdictin to regulate rates, Telemeter holds
that the Commission has no such author~ :y because STV is a broedcast service,
Section 3(h) of the Act states that bradcasting shall not be deemed common
carriage, and rate regulation has tra. ~cionally and legally been limited to
common carrier and public utility fieds. ABC expresses doubts that the Com-
mission can regulate rates because ST. has been determined to be broadcasting
so that it comes under Title III of the Act; thus it would not appear that
the Act would sanction STV rate regulation. It suggests that the Commission
seek Congressional guidance on the matter because STV is such a drastic step
which changes traditional concepts of American broadcasting. Others, too,
state that the Commission has no jurisdiction. For example, the views of
the Joint Committee have been expressed in paragraphs 132-133 above; and,
Trigg-Vaughn urges that the regulation of the economics of broadcasting is
beyond the powers of the Commission. Although AMST states that it takes no
position on the matter, it points out that rate and other regulation would be
vast and complex, and that because of the doubtful benefits and substantial
threats tø the public, STV should not be authorized.
217. It is appropriate here to mention the proposal of ADA which
forsees as a development of the future a system described by Dr. Joseph V.
Charyk, president of the Communications Satellite Corporation. The system is
based on the "telephone exchange" principle. It is briefly described as
follows:
- .The home or place of business would have a TV set and
speaker with an auxiliary tape recorder for both picture
and sound, connected to a central exchange by a single
coaxial cable through a selector switch like a telephone
dial or push-button.
"The cable would come from a central exchange, like a
telephone exchange, which would have literally thousands
of feeder connections from television and radio station
studios, film and tape libraries, newspaper offices,
educational classrooms and laboratories, retail stores,
banks and accounting services, movies and sports centers,
theaters and concert halls. Each service and individual
newspaper, lecture, film, game, etc. would be individually
dialed.
`Viewing and listening need not be `live.' The receiver
can be turned on and off to a specific channel by a clock-
switch, so the subscriber can receive and tape record
programs and services for later, more convenient viewing
or study; newspapers, for example, would be recorded in
the early morning hours for breakfast consumption - and
continually t~pdated around the clock."
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-75-
ADA states that such a system would provide a choice of all available
programs and services whether paid or sponsored. All programs would be
carried by the system. The producer of programs would be separate from the
television station and cable carriers, and would pay them on a cost-plus-
fair-return basis.
218. This is not a complet~ description of the views of ADA, but
it serves to give the central theme of their comments..-that although AbA
favors SW, the Commission should withdraw its proposed rules and propose
new rules under which free TV and SW stations would be separately licensed,
with the latter being regulated by common carrier principles under direct FCC
supervision of carrier rates and terms, It expresses the fear that to adopt
STV rules along the lines of those proposed in the Further Notice might thwart
the development of the foregoing type of system, contrary to the public interest.~2/
219. Conclusions. With regard to the ADA views, we admit that the
future may well bring with it the sort of development which they describe, but
it would appear to be years away. We do not believe that SW, which we think
is in the public interest, should be required to await such a great passage
of time, especially since there is nothing to lead to the conclt'sion that our
action taken today would, as ADA fears, thwart the future. We see no reason
to believe that STy, authorized as we propose, should impede the development
of a `telephone dial" system any more than would the fact that retailing,
banking, accounting, distribution of newspapers, and the like are presently
cast in a mold that is highly different from that which ADA foresees. SW
has already been postponed for a number of years and, with the information
now before us, we believe that it should at last be given its chance to pro-
vide what lies within its power to the public. Should the situation envisaged
by ADA occur, there will be time enough to switch to a common carrier type
of regulation if that is then indicated.
220. It is stated that the nature of STV, like that of common
carriers and public utilities, is such that rate regulation is necessary.
Coupled with this are two additional argumehts: That we must consider and
decide whether we have such rate-regulatory authority before permitting SW
operations; and that lacking clear-cut authority we should go to Congress
for legislation amending the Act to give clear authority.
221. We cannot agree with these views. For reasons stated in the
First Report, we have concluded that we have jurisdiction to authorize SW.
Although we do not here decide whether we possess authority to regulate SW
rates, we observe that the authority to authorize SW is not dependent on a
concomitant one permitting such regulation. It is stated that television
channels are in the public domain and that the STV operator will make a direct
charge to the public for use of the public's property. Such a situation, we
are told, requires rate regulation. The argument is without merit. Through-
out this document we have used the term "free W," However, "free TV' is not
really free. The advertising costs which support free TV are eventually passed
39/ We also note here the suggestion of WC of California, Inc. and Com-Sumers,
Inc. that space satellites be used for SW. The suggestion is couched in the
broadcast terms, contains no details, and is, in any event, outside the scope
of this proceeding
PAGENO="0096"
92
/6-
or to the pubi c ~nd a profit is ~ by the licensec or others from
of the public s ch~nne1s et we uo not regulate the rates charged by
station~. br time over their stal ions which results in their profits
has been said that we cannot. ~/
222. The public is free to subscribe or not to subscribe to STV
services. We believe that the market plaée will regulate the charges that
are paid and that if they are excessive the operations will not succeed.
There is nothing in the Hartford trial to indicate that rates will be exhotbi-
tant. The highest price for a feature film during the first two years of the
trial was $1.50. The lowest was 50~. The most costly sports event was $3.00;
the lowest, $1.00. The average prices for such programs during the second
year were $1.03 and $1.37, respectively. Prices for other programming were
comparably reasonable. We have already advertad to the fact that for a very
popular heavyweight fight nine persons were viewing at each tuned- in set for
a cost of $3.00 whereas the same fight was shown on closed circuit TV in local
theaters for a price of $5.00 per head. Moreover, the rules which we adopt
provide that the station licensee shell have ultimate control over the maximum
charges to be made for programs, and the licensee is responsible to the Com-
mission at renewal time for the stewardship of the station in the public interest
and is expected to govern his activities during the license term accordingly.
Regulation of charges, terms and conditions as prescribed in Section 73.642(f)(2)
(Appendix 0) which we adopt today is the extent of regulation that we deem
necessary at the present time in this area. Should abuses arise, we are not
barred from taking whatever steps appeer to be necessary to correct them.
(lO)Whtther a at~tionena~ged in subsr. tion~elevision opera n~j~ould
be recuired to furnish subscr~ io~~prviceto all persons within its s~rviçe
area who de~g~f.
223. Several parties are of the opinion that it would be premature
to adopt rules on this subject in this stage of development of STV. In this,
as in other areas, Kaiser believes that because of the uncertainty about how
the new service will develop, overly narrow and detailed restrictions might
both fail to achieve their desired ends and smother the infant industry.
Kaiser states:
.[lJt is far too early to conclude that there is a need to
impose full-blown public utility regulation upon subscription
operations, with an obligation to serve everyone within some
defined area and with detailed regulation of rates and
earnings."
Trigg-Vaughn thinks it too early to impose a regulation requiring that every-
one within the service area of a station be furnished STV service if he desires
it. The reason given is that there might be a limitation on the ability of
~.Q/ ~4~zer u~blishin ~. v. Fe4~J~Communn~ommisskon,
94 F. 2d 249, 251 (C.A.D.C., 1937).
PAGENO="0097"
93
astatjo~ to do
86-3990_677
PAGENO="0098"
94
227. It is suggested that ~e not nave rules on the subject, at
least until more is kown about the pettern of STV activities. However,
although for that reason we have beer eiliing to defer possible action in
some of the areas discussed in the issues mentioned above, we believe that
with regard to the instant issue the possIble problems are rather clearly
drawn, and that to defer action could lead to difficulties that by rule
cou].d be avoideci. We know, for exnr~p1e, that ~ithin the normal service
areas of television stations thoic say be poor reception at some places;
that a small percentage of people ace. poor credit risks, that they may
violate the terms of a centract with an STV operator, end that they may
damage decoders installed in th,,ir homes; and that when an STV service is
commencing operation~ in a community it may be sore efficient and expeditious
to install decoders on the basis of geogrmphi.c sections.
228. The rule which we adopt (Section 73.642(f), Appendix D) takes
such matters frito consideration. We believe that it will avoid problems that
might arise with regard to theni, that it. will not hinder STV operations, or,
on the other hand. do a disservice to the public by unjustly preventing them
from receiving STy programs which they desire to view. With regard to the
relatively tiny percentage of the public who might not pay their bills, for
example, we note that even inthe public utility field precautions are takea
on the matter, Thus, for example, it is common for a utility like a tele*
phone company to include in its tariff rules a provision that the company
may require potential customers to supply a surety bond or cash deposit
satisfactory to the company> to assure payment for service. Moreover, they
often provide that, the company may teroiriate service for non~payeent of bills.
The fact that the tariffs state that the compony "may" discontinue service,
~ leaving the matter to the discretion of the company, instead of stating
that the ser~ice "shall" be discontinued whun certain conditions of non~payment
prevail, raises certain questions about possible dissimilar treatment of
customers by the utility which have not. yet been solved, Be that as it may,
we mention the tariffs to indicate t±vt: even in the utility field, of which
the cornerstone is service to the public on demand, there are pr~vi8iOoS of
the type ref en-ed to, 41/ We do not find it unreasonable, therefore, to
have similar provisions for STY service, for we think that they would do no
more violence to the concept of broadca;ting serving all of the general public
than the telephone company pronisions do to the concept of a public utility,
229. However, since the service Is new, we do not kno~i under
exactly what circumstances precautions or other actions should be taken by
STV operators or what the precautions or actions should be. This is an area
as uncertain as the "may" vs. `shall" provision mentioned above. The rule
which we adopt is broad enough to permit an STY operator, as Telemeter re~
quests, to install a cash, rather than a credit decoder for poor credit risls,
and to permit requirement of a reasonable claposit in advance for poor credit
risks. However, we emphasize, thai; we do not expect such cases to arise fre~
quently, and that we regard as fundamental the. concept that STy, like other
broadcasting, iS for the general public. We view ections like those just
mentioned as reasonable under the circursaterices, and as not precluding the
~j./ In other words, utiijt~~s must serve the public on demancl.~for a charge.
They are not charities.
PAGENO="0099"
95
-79-
persons involved from becoming STV subscribers. We ilso regard it as reason-
able to permit termination of service for non-payment of bills, damage to
decoders, or the like. It is stressed that we expect STV operators to use
good judgment in this area of business operations. We shall observe carefully
the operation of STV under the leeway which we here provide, and shall take
appropriate action to correct any abuses that may occur or any other situatfons
which we deem contrary to the public interest. From time to time, as with
other aspects of STV operations, reports on the subject may be required of
STV operators.
230. As to geographic or other reasonable patterns of installation
f or new STV services, the rule is drafted to permit this. Such a provision
seems reasonable and likely to make for a more rapid and efficient development
of the new service in any community. 42/ Finally, our preliminary study of
the technical systems for STV leads us to recognize that the service area of
an STV operation may well be smaller than that of its free TV service that
our rules will require it to provide. The rule adopted today ~n relation to
the instant issue of whether STV service should be provided to all within the
service area of a station is designed to strike what seems a reasonable re-
quirement, namely, that STV service must be provided to all within the
Grade A contour of the free TV service of the station, with the exceptions
mentioned above concerning non-payment, poor reception pockets, and the like.
This rule is cohsistent with our use of the Grade A contour in limiting STV
to five-station markets. No doubt many subscribers will be obtained outside
that service area, but service there will not be mandatory.
(11) Whether requirements should beJ~psed to insure that the public wo~k~
not be adversely affected ~y obsolescence of subscription television equipm~
or cessation of service, e.g,, shoLild the Commission x~q~.ire that such equip
ment be leased rather than sold,
231. Kaiser states that because the industry is not yet developed,
it is too early to decide whether a rule requiring SD.' equipment to be rented
would protect subscribers from obsolescence or cessation of service, or
whether it would serve primarily to prevent thea from being able to obtain
equipment from the sources they might prefer. Others, like Telemeter, Tele-
globe, and Munn and Chase, believe that a requirement of renting would protect
the viewers, Telemeter believes that it would not only protect from obsoles-
cence and cessation of service, but that (assuming multiple systems were
authorized) it would protect those who changed from the service of one STV
company to another, Munn and Chase say that renting would help in the matter
of maintaining equipment in proper operating conditio~ They analogize de-
coders to postal meters, saying that "the basic unit is sold to the customer
but the meter, containing the postage printing element, is only leased, subject
42/ The rule also provides that STV service need not be furnished to those
residing in pockets of poor reception withinthe service area of an SD.' station.
PAGENO="0100"
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-80-
to regular service, with postage added o y by postal authorities.' ABC
states that whether equipment is sold or eased, regulations should be adopted
to protect agairst early obsolescence, 0: cessation of service. Trigg-Vaughn
believes that, at this point, to protect the public, it would be wise as an
interim measure to have a rule requiring that equipment be leased instead of
sold, but with provisions for waiver thereof,
232. Zenith and Teco believe that STV operators will rent rather
than sell decoders because of practical business considerations. This is
because the decoder contains the elements of secrecy of the system and the
billing apparatus which the operator would want to keep under his control.
They do not object to a rule requiring rental instead of sale, at least during
the early years of STy, to protect the public.
233. They also point out that in paragraph 17 of the Further Notice
the Commission, because of its doubts about the viability of STV, suggested
that if nation-wide STV service were authorized, it might require a showing
on the part of STV applicants~ that they have the capacity for sustained opera-
tion just as is the policy with applications for proposed free TV stations. ~
Zenith and Taco believe that such a requirement, a showing by the applicant
that it could continue operation for at least one year, would not be unreason-
able, They stress, however, that this showing should be limited to the sta-
tion applicant, and not extended to others such as the franchise holder, As
an analogy, it states that if a free TV applicant proposed to use General
Electric transmitting equipment it need not show the financial capabilities
of that company.. They admit, however, that if the franchise holder and the
applicant for the station STV authorization are the same party, it might be
appropriate to require a showing that the financial situation of the franchisee
is such that it will not impair the ability of the station to be constructed
and to operate for a specified period.
234. Conclusions. At this stage of development of STV service, it
appears that the best way to protect the public against obsolescence of equip-
ment or cessation of service is to adopt a rule requiring that equipment be
leased and not sold to subscribers. We recognize that at some later stage it
may better serve the public interest to permit sale or lease. Should STV
flourish and become a regular part of the television scene, a continued leas-
ing requirement could mean that subscribers would pay in continued rental fees
more than it would cost to buy the decoding equipment. However, for the present
it would appear that a rental requirement is more in the public interest. ~
43/ Ultravision Broadcasting Co., 1 F.C.C. 2d 544.
44/ In addition to protecting subscribers against obsolescence or cessation
of service, requiring lease of decoders could conceivably stimulate the
growth of SW since attempts to sell decoders might restrict the market
for it.
PAGENO="0101"
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-81-
235. In addition, although we do not adopt a rule on the subject,
we shall, as with applications for new free TV stations, follow the policy of
requiring STV applicants to demonstrate financial ability to continue operations
for a period of one year. This will apply not only to applicants for new
stalions wishing to provide STV service, but also to applicants for STV opera-
tions over existing stations. In addition to the usual reasons for requiring
such a financial showing in the case of applications for free TV stations, the
requirement will here have the added functiàn of protecting subscribers in
the following way: It appears from the Hartford trial that in addition to
weekly or monthly decoder rental fees, subscribers may be charged an installation
fee (in the case of Hartford, $10.00). By assuring against early cessation of
service, this investment of the subscriber is given some measure of protection.
This requirement, as suggested, will run to the station applicant and not
to franchise holders, although it may involve inquiry into financial status
of the latter if station applicant and franchise holder are commonly owned.
(13) Whether means sbou1dbe~p~ovid~d to ~
service will be available to aU~elig~ble stat~psQn8 non-disqi~~
basis.
* 236. Telemeter suggests that, assuming that the commission estab-
lishes a class of eligible stations, STV should be made available to all sta-
tions within that class, subject to the ability of the station to work out
satisfactory terms with appropriate parties, auch as the franchise holder.
It further states, assucing that STV is permitted over more than one station
in a community, that just as a network may make an exclusive affiliation
arrangeaent with a station in a market, an STV operator should be permitted
to negotiate with a station on an exclusive franchise basis if it wishes to
do so.
237. ABC believes that STV should be made available to all eligible
stations on a non-discriminatory basis., but thinks that at this time a policy
statement on the matter is all that is required. lf for any reason discrimi-
natory practices should occur in the future, the Commission could regulate
them. Zenith and Teco state that no problem could arise in this regard until
more than one station is authorized to carry on STV operations in a community.
Because they believe it unlikely that in the foreseeable future there would
be more than one station applying for STV authorization in the same community,
they think it the better course to defer action on the matter until an
occasion arises in which a second station applies for STV authorization in a
community. By that time, they say, there will be more experience with STV
and thus a better basis for dealing with the problem which will exist.
238. c~nclusLo~. We have already determined that all UHF and VHF
television broadcast stations are eligible to conduct STV operations. However,
since we today adopt rules limiting STV operations to one station in a com-
munity, possible discriminatory problems with regard to making technical
equipment available to all stations in a community are moot. Of course,
possible problems on a national scale are conceivable, For example, a party
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way ha a licensee in each of two five-station markets. He may be engaged
in STV operations in one of them using technical system X, and might have
an agreement that the supplier of that system will not make it available
to any station in the other market until such time as the viability of STy
in the former market has been determined. If viable in the former, then the
licensee might use the same equipment in the second market. If not viable,
and the licensee does not wish to engage in STV operations in the second
market, then the supplier of the system could make it available to another
station there. Although the example is conceivable, and such an arrangement
might hinder the development of STy, we believe that the fact that multiple
systems may be used for STV operations greatly reduces chances of adverse
effect on the public interest that might occur and tbe possibility that this
sort of arrangement might be made. Similarly, we foresee no difficulties
nationally with regard to other equipment arrangements. As to the Telemeter
suggestion that it be permitted to negotiate with a station on an exclusive
franchise basis, insofar as this pertains to programming arrangements and
not to the matter of technical equipment discussed above, it has been dis-
cussed in paragraphs 196-199.
(14) Whether a limitation should b~e laced on~e type of ~rpggammina wJiigj~
subscription te1evisior~ operations may bros~cast, andif so. wh&~bB4
liaitat~on slould be and wnether applicants for subscription authorizatio~~
should be required tomakea showing of~bow ther prograg~ing will ~iffer
from conventional program~sin~g~wou~ otherwise servethe nee4~ and inte~sts
of the community~to be served, and wha~~at showina should he [rr~nce~
p~ra. nos~ omitted). W ~in~aUmitat~pn~on type of subscriptiq~pro~am~
min~is within the scope of the Commission's ag~Qrity, taking into account
Sectior~s 303(b) and 326 of t~.g Commui~icatiQn~.,Ac~.
239. Briefly, the principal views of parties on this issue are
the following: There should be no program restrictions on STV because this
would be contrary to the First Amendment of the Constitution and Section 326
of the Act (ABC, AcLU, NBC, Telemeter). Only if there were an imperious need
to limit STV programming might the Commission have authority to restrict
(Kaiser). There is no such need because it is unlikely that there will be
siphoning from free TV and thus there is no imminent threat of STV to free
TV; and the very fact that there is no such threat raises serious questions
about the censorship problems (Zenith-Teco).
240. Moreover, it is difficult, if not impossible, to draft a
rule that would define the programs that STV could carry (ABC, Kaiser, NBC).
For example, the Commission recognised the difficulty of defining "box
office" in the Further Notice (ABC). Any attempted definition of a restric-
tive term appearing in a rule would lead to endless interpretations and
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reinterpretations of the rule by the Commission chat could have a paralyzing
effect on large areas of program procurement for STV without there being
any evidence that a need exists for such a restriction (Kaiser). In addition,
a restrictive rule might inhibit, channel, or otherwise bind creative
activity (Trigg-Vaughn) and prevent diversity of programming (AcLU). Even
if one succeeded in drafting a restrictive rule, it might not be adequate
to protect against siphoning. For example, if a rule were adopted like
the one suggested in the Further Notice which would prohibit STV from
carrying certain types of programs common to free TV such as those in which
continuing characters are presented from week to week in a series using a
common setting or central program concept, it would not protect against the
siphoning of all of the other types of programs which free TV carries (AMST,
NBC).
241. The Hartford trial and Etobicoke have demonstrated what
the programming of STV will probably be (Telemeter, Zenith-Teco). That
programming shows that serious siphoning of programs or talent from free
TV is unlikely (Telemeter, Zenith-Teco). Thus, there is no need to have
restrictive rules to protect against siphoning (Zenith-Taco). If there
were such a rule, it would probably have little influence on the actual
programming anyway (Telemeter).
242. However, and without conceding that the Commission has
the authority to regulate programming, it might be desirable to have a
broad regulation that could serve the purpose of casting STV into the
mold in which it is most likely to develop, if for no other reason than to
placate the alleged fears of the opponents of STV (Telemeter). This rule
or policy might provide that STV stations are expected not to duplicate
free TV programming, and are expected to provide programs of the type
shown at Hartford, ~ current movies, sports events not carried on free
TV, and the like, with the content thereof to be determined by the licensee
or STV entrepreneur (Telemeter).
243. A rule prohibiting commercials is acceptable (Teleglobe,
Trigg-Vaughn). Yet, since the impact of commercials on program diversity
of STV is unknown, any rule or policy used by the Commission should be
viewed as in the nature of an experiment to see how programming diversity
is affected (AcLU). ?ossibly., prohibiting commercials on STV would violate
principles of free competition (ACLU).
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244. As a yardstick for the future, a rule night be adopted
limiting STY to programs not presently being shown on free TV (Acorn). A
possible rule would be one prohibiting STV from showing `trade name" programs
for a period of three years, witn the Commission reviewing the matter at the
end of that time (Angel). A rule in proposed that STV not be permitted to
devote more than 507, of its STY broadcasting time to feature films in order,
among other things, to promote, during the remaining portion of STV broad~
casting time, a variety of programs over STy which proponents of STV have
always promised that STY would furnish (Joint Committee). Still another
rule is proposed that would prevent STV from carrying sports events which
have been regularly carried locally on free TV within the past Live years~-
for the purpose of restricting STY to the kind of sports programming which
has not been gva~lable on free TV (Joint Committee).
245. Finally, as to requiring applicants for STY authorizations
to make a showing that programming would be different from that of free TV,
no such showing should be required because the programming of STY statioOs
should be decided in the market place (Muon and Chase). Besides, since the
Hartford trial has shown what programming is likely to be presented over
STY, such a showing would be redundant (Zenith'.Teeo). Moreover, it would
be impossible to give meaningful definition to the showing that would have
to be made by STY applicants in order to distinguish their programming from
that of free TV because the programming of the latter service is of unlimited
variety (AMST).
246. Conclusions, We cannof agree with the arguments that the First
Amendment and Section 326 of the Act preclude the Commission from restricting
the programming on STY. Section 303(a) of the Act gives us the authority~
using the public convenience, interest, or necessity standard~~to classify
radio st~nions. Section 303(b) provides that.~using the same standard~-we
have the authority to Lp/rescribe the nature of the service to be rendered by
each class of licensed stations and each station within any class." We
regard it as settled law that under theme provisions we may decide what the
programming of STY, or other stations, say be. On this matter, the Supreme
Court of the United States, in affirming our chain broadcasting rules, has
said in National Eroadcastiag~~~pj v, U.S., 319 U.S. 190 (1943), at pages
215.216:
"The Act itself establishes that the Commission's powers are
not limited to the engineering and technical aspects of regu~
lation of radio communication, ~et we are asked to regard
the Coemission as a kind of traffic officer, policing the
wave lengths to prevent stations from interfering with each
other, But the Act does not restrict the Commission merely
to supervision of the traffic, It ruts upofl the Commission
the burden of determining the copposition of that traf~~
The facilities of radio are not large enough to accommodate
all who wish to use them, Methods must be devised for
choosing from among the many who apply. And since Congress
itself could not do this, it committed the task to the
Commission." (Emphasis supplied.)
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siphon from free TV, and that therefore no rule is necessary. The ultimate
path that STV will follow is not clearly known. Although it may be that
STV programming will follow the path of the Hartford and Etobicoke operations,
and we think it well may, we would be remiss in our duties if we did not take
regulatory steps to afford some assurance that free TVwill continue to be
available in ample quantity and quality.
250. The rules which we adopt will require that feature films
shown on STV must not have been given general release in a theater 45/ any~
where in the nation more than two years before they are shown on STV. The
purpose of this rule is to assure that the feature films shown on that ser~
vice are generally of such recency that they are unlikely to appear on free
TV Thus the siphoning threat ~s minimized for this type of program a type
which we are told is becoming increasingly important in the programming of
free TV. Since a major part of the STV programming apparently will be
feature films, the importance of this rule is especially great.
251. Under prevailing practices of the motion picture industry,
films are given general release for showing in some parts of the country
sooner than in others. The question thus arose as to whether the two~year
period should run from the date that the picture was first released anywhere
in the nation, or from the date that it was released in the community where
the STV station is located. We have chosen the former. This will give added
45/ As used herein, "general release" means the first run showing of a
feature film in a theater or theaters in an area, on a non.reserved seat basis,
with continuous perforiSances. If a first run film is given general release
atmore than one theater in an area, the opening will usually be on the same
date, "General release" is distinguished from "roadshowing" of a filn~ which
means the showing of a film on an exclusive first run basis by one theater
in an area, on a reserved seat basis, with non.continuous performances,
usually at prices greater than the theater's normal admission price. The
tickets sold for roadshow performances are colloquially called "hard tickets,"
to describe the rectangular tickets sold for such performances as distinguished
from the regular ticket torn from a roll for general release showings.
"General release," as is used 1~erein and in the rules which we adopt (Appendix
D, Sec. 73.643(b)(l)), does not include special situations such as the first
run showing of a picture at 1~adio City Music Hall in New York City on a non~
reserved seat basis. We consider the general release date of such a piàture
for the New York City area to be the date on which the picture, after closing
at Radio City9 is first shown at other theaters in the immediate area on a
non~reserved seat, continuous performance basis.
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protection to free TV from siphoning of pictures, for with that date it is
more likely that free TV would not be eligible to obtain the film. On the
other hand, if the latter date had been chosen, it would mean that when an
STV station might wish to negotiate for it, the file would be older and
thus more likely to be the subject of negotiation on the part of free TV.
Our decision, of course, could mean that in any particular community motion
pictures shown on SW will, with regard to that community, be more current
than in other communities, but we do not regard this as having any disad.'
vantages. Attention is directed to the fact that the rule speaks of "general
release." Some movies, of course, are "roadshowed" on a hard-ticket basis
for a considerable period of time before general release. Usually, however,
they are of the "blockbuster" variety, and although the two-year period for
such films will still be measured from the date of general release
rather than of roadshow release, we think that protection for free TV with
regard to them is still adequate because such films generally take longer
to exhaust their `box-office" possibilities before going to free TV than do
ordinary films.
252. Although the two-year restriction will assure that generally
feature films shown on SW will be of such recency as to protect against siphon-
ing from free TV, we are of the opinion that ii is in the public interest that
STV also be allowed to show a limited number of older films of great public
appeal that might or might not be available to free TV. rilms that would
fall into this category are, for example, "Gone With The Wind," and "All
Quiet On The Western Front~' Accordingly, the rule will permit STV stations
to present, during one week of each calendar month, one feature film the
general release of which occurred more than ten years previously.' The film may,
however, be shown more than one time during the week selected tor it. ~/
253. We also believe that a rule giving a measure of protection
against siphoning of sports events from free TV would be in the public
interest. The Joint Committee (as mentioned in pare. 244) suggests a rule
the core of which is as follows:
"No licensee shall broadcast any program involving sports
events for which a fee is charged which was regularly tele-
vised into the market via a free television station within
5 years from the last date on which the event appeared on-
free television."
46/ As the table in paragraph 17 indicates, each feature film at Hartford
was, on the average, shown 3.55 times. Sometimes all of the showings
occurred in one week; sometimes, in two widely-separated weeks. It may be
expected that SW operators will similarly have motethan one showing of
both current and older films. Older films can he expected to constitute
only a small percentage of all feature films shown by STV stations (see
paras. 48 and 112). We believe it generally to be in the public interest to
spread throughout the year the showing of older films; hence the provision that
only one such film may be shown during one week during each calendar month. How-
ever, if STV operators should desire to show more than one in a single month, ~
to show a "festival of classics" during all or pert of a month, we shall give con-
sideration to waiver of the rule.
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Its proposal also contains a requirement that STV stations notify other
television stations in the area of intent to broadcast a sports event, and
a provision under which such other stations could file with the Commission,
within a specified time, petitions to prohibit the showing of such programs.
We find the latter proposals cumbersome, unduly restrictive, and unnecessary.
However, we are of the opinion that the part of the proposal quoted above
contains a helpful concept for the prevention of siphoning of sports, and
the rule which we adopt is basically like it.
254. Our new rule. appears in Section 73.643(b)(2) of Appendix D.
Generally speaking it prohioit. the STV broadcast of sports events regularly
televised in the community via free TV dur ng the previous two years it
differs from the proposal of the Joint Committee in that it uses a period of
two years rather than five. The Joint Committee states that the five-year
period would act as a deterrent to siphoning, and would give free TV stations
an adequate time in which to adjust to the loss of sports programs. We ~
lieve a period of two years to be a more realistic and workable figure on which
to base a rule that will provide the desired deterrent effect. As to giving
stations an adequate time for adjusting, we regard thIs as a makeweight
argument, and, in any event, two years appears to be an adequate time for such
adjustment. In addition to the foregoing modification of the proposal of the
Joint Committee, other modifications, consistent with the discussion in the
following paragraphs, appear in our rule.
255. The Joint Committee, in discussing its proposal, states the
following:
"Such a rule, for example, in the Washington, D.C. area, would
proscribe from Pay-TV the World Series, the Kentucky Derby,
the National Football League and American Football League games
of the week, Weshingtor~ Senator baseball games, Washington
Redskins regular season `away' games, Atlantic Coast Conference
basketball games, National Association basketball games,
American League and National League baseball games of the week,
specific golf and tennis tournaments, specific professional
and college pre-season and post-season football games. Sports
events which could be carried would include Washington Redskins
`home' football games, games of any professional or college
team not formerly carried in Washington on a regular basis,
and boxing bouts including championship boxing bouts since
boxing has not been carried on a regular basis."
Although our views are essentially similar to those of the Joint Committee
expressed in the foregoing statement, we believe that some refinement and
elaboration is necessary as will become apparent below. Since to include in
the rule all of the points covered in the following paragraphs would make it
extremely cumbersome, we are, in NOTE 2 of Section 73.643(b)(2), calling
attention to the fact that when questions arise with regard to administering
the rule they will be resolved in the light of the following discussion--
the "legislative history" of the rule.
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256. The principal questions raised by the proposed rule quoted
in paragraph 253 have to do with the meaning of the term `sports events,"
and the phrase "regularly televised into the market via a free television
station." It is to these questions that we now direct our attention.
257. To begin with, some may raise the question of the meaning of
"sport." One dictionary defines it as a pastime or diversion involving
"activity requiring more or less vigorous bodily exertion and carried on
according to some traditional form or set of rules, whether outdoors, as
football, hunting, golf, racing, etc., or indoors, as basketball, bowling,
squash, etc." It is our belief that the term must include an element of
physical agility or skill-~the bodily exertion mentioned in the foregoing
definition. Thus, we would not view chess or bridge as sports. On the
other hand, there are activities, ballet for example. that require physical
agility and skill (and that are carried on according to some traditional
form or set of rules) that we would view as an art form rather than a sport.
Generally, we believe that there will be no difficulty in recognizing, for
purposes of the rule, what the term means.
258. As to the meaning of "events," there would appear to be two
types: (1) specific events, such as the baseball World Series, or the PGA
G31f Tournament, and (2) games, or other contests, which are part of a regular
series, such as football or baseball games played during a regular season
(but, as indicated below, the games need not be played during a regular season),
259. The following are examples of what would be regarded am
"specific events" within the meaning of the rule. The list is neither exhaus-
tive of such specific events within any sports category (~g,, major league
baseball, college football), nor does it include all sports categories in which
such specific events might occur:
Ma] or LeaAue Baseball
World Series *
All-Star Game
Professional Football
League Championship Game
Division Championship Game
Game Against College All Stars
College Footb~lI~
Rose Bowl, or other Bowl Game
East-West Game
North-South Game
Blue-Grey Game
Professional Basketball
NBA All-Star Game
NBA Championship Game
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Colleg~~,skethal I
Nationa Invitational Tournament (NIT)
N~AA Semi-Final Games After Regular Season
NCAA Final Games After Regular Season
Horse Raci,~g
Kentucky Derby
Preakoess
Belmont Stakes
Golf
U.S. Open
PGA
Masters
Thunderbird
USGA Amateur
Tennis
National Singles Championship
National Indoor Championships
Other
Le Mans Grand Prix Auto Race
Olympic Games
260; It may be noted that sorue of the specific events mentioned
above consist of more than one game or match Thus, there are at least four
games in the World Series, there are numerous games in the NIT,and matches
in golf or tennis tournaments, If a substantial number of games or matches
(or portiuns thereof) were shown by a free TV station, it would be considered
to have broadcast the specific event within the meaning of the rules. With
the World Series, there would likely be no problem, since stations usually
carry all of the. games and carry each game in its entirety. However, with a
golf tournament, or the National Singles Tennis Championship, not all of the
matches, and possibly not all of cry particular match, may be carried. How-
ever, if a tournament runs for three days, and a station broadcasts it one
to two hours per day for two or three days, it would be considered to have
covered the event, although it is likely in such a case that only portions of
play for all three days would have been broadcast, For etample, in the case
of a golf tournament, the broadcasts might have covered the last four holes of
various matches on several days, but not the complete matches, and not all of
the matches. Similarly, the broadcast of an auto race that takes twenty-four
hours, like the Grand Prix at Le Mans, need not occupy twenty-four hours to
be considered as having covered the event for protection within the rule. In
this connection, we might also point our that, conceivably, some specific
events might be regularly carried on television news programs. However, it is
likely that such programs would only show vary small portions of events, and
we would not consider such broadcasts to merit protection against siphoning.
Moreover, (as stated in paragraph 270) the rule will only provide protection for
events that are televised live, and not for those broadcast on a delayed basis,
and most news programs are broadcast en a delayed basis.
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261. In addition to "specific events," we believe that certain
other sports events should be protected against siphoning. We characterized
these in paragraph 258 as games or other contests which are part of a regular
series, such as football or baseball. For easy reference, we shall herein-
after refer to them as "non-specific events." For the purpose of the rule,
we shall afford protection to non-specific events falling into well-defined
categories, but shall not afford protection between categories. The follow-
ing will serve to explain our meaning and intent. For some sports there is
a regular season during which the sport is played, ~ football, baseball,
basketball. Games played during the regular season we view as non-specific
events. In these sports, the networks broadcast "games of the week."
Examples are the NCAA games of the week for college football, games of the
week in the National Football League and the American Football League, or
games of the week for the American League or National League in baseball.
Such broadcasts, for each sport, will be considered to constitute a category for pur-
poses of the rule so that if they have been regularly broadcast by free TV in a com-
munity for a period of two years immediately preceding proposed STV broadcast of
such programs, STy may not carry them. On the other hand, in addition to
network games of the week during a regular season, other games may be tele-
vised in a community. Thus, in the case of major league baseball or professional foot-
ball, games of the. week might be shown in a community, but "away" games of the home
team might also be televised, though the latter might not be network games of the
week. Such "away" games would be considered a separate category. This means
that if, for,a period of two years, baseball games of the week were regularly broad-
cast by free TV in a community during the regular. season, and "away" games were nOt,
STV could then show the latter but not the former. The same would be true for pro-
fessional football.
262. Another category of non-specific eventz is that consisting of
pre-season games which do not qualify as "specific events."
Before the start of the regular football season, a championship professional
team plays a game against college all-stars. This game we regard as a specific
event. However, professional football teams play other pre-season games among
themselves which we view as non-specific events. For purposes of the rule,
such pre-season games will constitute a category separate from regular season
games of the week or "away" games. Finally, some clarification should be given
with regard to "playoff" games. It is customary in NBA professional ba~ketbal1
and NHL professional ice hockey to have playoffs at the end of the regular
season. These games are a regular feature of the season and will'be viewed as
such -- i.e., as non-specific events, They may be broadcast either as games
of the week or as "away" games, and dealt with accordingly under the rule.
However, in professional football or major league baseball, occasionally two
teams will be tied for the division or league title at the end of the regular
season, and a playoff is necessary. Such playoffs are not regular features
of the season, usually generate great public interest, and will be viewed as
specific events rather than as non-specific events.
263. Having discussed the meaning of "sports" and "events," we now
deal with the phrase "regularly televised into the market via a free television
station." As stated elsewhere, the rules which we adopt permit STy operation
in communities which lie within the Grade A contours of five or more operating
PAGENO="0112"
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commercial TV stations, thcluding the contour of the STV station.
deciding whether sports events have been regularly televised in a
via free TV, we shall only consider commercial stations which ~
tour over the community. Moreover, stations placing such a contour
munity will be considered coliectively, so that if one broadcasts
league baseball games of the week, and another ea)or league
games, both categories will be considered as having been furnished the community~
264. As stated previously, we shall prohibit STV from broadcasting
sports events that have been regularly televised over free TV during the two
years preceding the proposed STV broadcast. With regard to the meaning of
"regularly televised," our standard will be somewhat different for specific
events, and for non..specific events. Our standard for specific events is
best illustrated by an example using the baseball World Series. If that
Series were televised in a community or free TV in October 1965 and October
1966, it could not be shown on STV in October 1967 by a station licensed to
the community. Ilowever, if the Series were on free TV in that community in
either October 1965 or 1966, but not in both years, it would be viewed as not
having been `regularly televised" there, and an STV station could show the
Series in October 1967. Moreover, tho Period of tmo years need not be exact.
Thus, if free TV showed the Series Inc community starting Wednesday, October 6,
1965, and did not show it during 1966, an STV station In the same community
could show it in 1967, even though (since it starts October 4) the full two-
year period had not elapsed. In other words, for the purposes of the rule,
if an event is held each year, the time between occurrences need not be
exactly a year.
265. The rule also provides that if the lest regular occurrence of
a specific event, ~ the Olympic (aees, was more than two years before the
proposed STV broadcast of the event, It may not be televised on STV in a
community if the lest occurrence was televised therein over free TV. Another
point should also be mentioned. It is conceivable that, for some reason, an
event normally occurring at regular intervals might not take place. ror
example, it sight usually occur yearly, but skip a particular year or years.
In such cases, we would prohibit the showing of such events by STV in a com-
munity if the event was carried there on free TV the last time that it occurred.
Finally, as previously stated, we shah view professional division playoffs
and major league baseball as specific events. Since such playoffs do not occur
on a regular basis, we shall proscribe their broadcast on STV if they were
televised in the community by free TV the last time that they occurred.
266. We have indicated in paragraph 260 that a specific event will.
be considered to have been broadcast by free TV even if the entire event is
not televised. Although with regard to non-specific events the whole contest
is usually televised, in those cases where this is not the case, the event
will be considered televised on free TV if a substantial portion thereof was
broadcast. As to the meaning of "regularly televising" non-specific events,
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we shall view any category of such events as having been carried on a regular
basis within the past two years before proposed STY broadcast if a substantial
nMmber of events in the category were televised over free TV in the community
within each of the two years preceding the proposed STV broadcasting thereqf.,
The standard will be applied on a category by category basi~ ~ maj,or league
baseball games of the week, major League baseball `away" ~ames, professional foot-
ball games of the week) as explained in paragraphs2~l,and 262. If duringone,
but not both, of the two years preceding proposed STV broadcast a substantial num-
ber of events in a category. were not televised in the community, the category will
be considered not to have been regularly televised therein, and STV rn~y show
the cont~sts in that category.
games would
~ists in CitiE
games of the WaE
:ies where. this sort of
~e games on STY only to the t ~. - ~
was previouE y shown, Thus, for example, if for a period of
STV proposed to show home games in Washington, D.C., five
such games, on the average, had been shown for each of the two previous
baseball seasons, STV could broadcast such games in that community, above
and beyond five for a season. This means that five would be shown on free
TV and any additional number could be shown on STY.
268. We would view a title boxing match.--heavyweight or otherwise--
as a "specific event." Other' boxing matches probably would not be so viewed.
As the Joint Committee suggests, it is likely that all boxing bouts including
championship fights, would be available for STY since they have not been
carried on a regular basis on free TV. Until recently, this would clearly
have been true of heavyweight title fights which for many years were carried
only on closed cfrcuit theater TV. However, a few recent heavyweight champion-
ship bouts have been broadcast over free TV, Should a pattern of broadcasting
all heavyweight title fights on free TV develop, and s
within a two-year ~ ~
c
m
spor
have been p ,~ ,,ere in each of two professi.
Association, and the National Professional Soc
vising such games has not yet clearly emerged.
86-399 0 - 61 -
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that, as mut~ers develop, soccer aught he shown on STy. Should special problem~
in this or other areas occur, we shall face them as they arise.
270. Finally, it is our belief that only sports events that are broad-
cast live should be afforded protection, and the rule reflects this view. It
appears unlikely that STV would wish, or he. able, to sell taped sports programs.
To the extent that they should do so, we believe that this sort of programming
should be open to competition between the two TV services. This means, then,
that the showing of such programs as ABC's Wide World of Sports, or the CBS
Sorts Spectacular which consist, generally, of taped sports events would not
prevent the showing of similar programs on STV.
271. In addition to the foregoing, we are adopting a rule prohibiting
STV stations from devoting more than 90% of their STV programming hours to
feature fiim~ and sports cosibined, the percentage, generally speaking, to be
applied on the basis of annual STV hours broadcast. Once again, this is similar
to the proposal of the Joint Coatnittea, That group suggests that not more than
50% of the STV time be devoted to films. This, coupled with sports events, they
aver, would be an equitable balance that would give STV sufficient programming
on which to operate, and yet require it to mine new program sources and give
the sort of diversity of programming that it; has promised. We believe that the
Joint Committee's concept is a good one, but that its proposed restriction is
of a harshness that could spell the death knell of STV before It even began.
Itwould appear from the Hartford and Erobicoke experiences that feature films
will be a staple part of the STV programming. To reduce the amount of this to
50% in an STV operation would he ta raise serious doubts about whether it could
be viable.
272. The figure of 90% which we select is, as with all lines of de-
marcation (voting age of 21, for example), arbitrary to some extent. However,
it is roughly based on the information in the t~hle of paragraph 17 above, and
appears to be a reasonable one in teruss d the Hart~rd operation. Using the
figures of t;ha~ table, it appears that the average length of a single program
was about 3.7 hours, and that films and sports events occupied about 91% of the
STV programming hours. 47/
273. This rule, of course. does not Itsit STV operators to showing for
only 10% of their STV broadcast hours programs 3.1km opera, ballet, theater, and
other programs of their choice exclu~tve of feature films and sports. They may
show more if they wish. Calculating percentages on an annual basis, as we do
with our AH.FM non-duplication rules, will, provide flexibility. However, we
wish to avoid the possibility that some STY operators might have an overload of
opera, ballet, theater and similar ptograms during, say, the summer months
when there might be lass STV viewing, in order that; they could devote more STV
broadcast hours to sass-appeal feature films during other months when there might
be more viewing. Therefore, in the absence of a shoving of good reason for not
doing so, we shall expect -STY stations to devote at least 5% of their STY broad-
cast hours in any calendar month to programming other than sports and feature films.
~/ The table supplies us with the number of programs per year in each cate~ory,
and the total number of showings for eenh category. Thus, in terms of number of
separate programs, films constituted 727. of the offerings and sports, 13%, for a
total of 85% for the combined categories. In terms of number of showings, films
occupied 86.5% and sports, 4.5% for a combined total of 91%.
PAGENO="0115"
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274. Still another rule adopted to prevent siphoning is that
which proscribes the showing on STV of a series type of program with inter-
connected plots or substantially the same cast of principal characters,
heretofore mentioned (para. 240). Since this sort of program is a staple of
free TV it would appear essential to afford protection in this area, consistent
with our desire to assure ample free programming to the viewing public.
275. Finally, we adopt a rule prohibiting commercial ahnouncements
of any kind during STV programming hours. However, it would permit promotional
announcements about STV operations, at the beginning or the end of each
separate program. Thus, for example, if the same feature film were shown
twice in the same evening, such announcements could be broadcast between the
two showings. We cannot agree with ACLU that principles of free competition
should weigh in favor of permitting commercials on SD.'. Such operations are
based on an entirely different economic concept from that of free TV--namely.
that of financial support from paying subscribers rather than from advertisers.
This fact works to permit the enhancement of the beneficial supplement which
STV can offer by additional advantages mentioned elsewhere, namely, no inter-
ference with artistic continuity of a program by commercials or by cutting
programs to make them fit a time schedule.
276. The advantage of the rule concerning feature films is that
it is clear, definite, and easy of application. In addition, although
some difficulties may occur in application of the rule on sports or on series-
type programs, we do not anticipate that they will be serious. None Qf the
rules is plagued with the indefiniteness mentioned by some commenting parties.
We believe that they will serve to fulfill thetr functions of preventing
undue siphoning, promoting program diversity, and preserving artistic con-
tinuity. Some may complain that in the areas of programming dealing with
other than movies, sports, and series programs ~ programs like those of
Andy Williams or Lawrence Walk) there is no siphoning protection. To this
we say, as we have said before, that some competition (between STV and free
TV in the programming area) may be beneficial to free TV and to STV as well,
ahd we leave this type of program to competing factors in the market place
and the performer's desire for exposure..
277. We believe the foregoing rules adequate to prevent siphoning
of programs. It does not appear to us that rules to prevent siphoning of
taLent are necessary to achieve the end of assuring adequate quantity and
quality of free TV to the public, at least at this time. However, we would
view with a jaundiced eye unreasonably restrictive contracts on the part of
either STV or free TV with talent that would prevent the latter from performtng
on or otherwise serving the other service, We shall watch this area closely.
and shall entertain petitions by aggrieved parties for corrective action that
may appear necessary in the public interest.
278. As to the subject of a required showing by STV applicants
that their proposed programming will differ from conventional programming
PAGENO="0116"
112
or would otherwise serve the reads ~nd interests of the cormnunity, we shall,
or course, require such a showing, contrary to what some parties suggest,
for without it we could not: sake a public interest finding that grant of
the authorization would be in the public interest:, We do not believe, as
AMST suggests, that such a showing will ne Japossible to m4ke. As to
feature films, a vital item will be the length of lisa ~ince general release.
Meeting the two-year test, a major hurdle s passed. Similarly with sPorts.
Other programming, which we expect to comprise by far the lesser portion of
programming should present no irt~ursounta~le problems. As with free TV, we
shall require that applictuts provide us with narrative statements about
what they have done to determine the needs oi rIte community with regard to
STV programming and the manner in which they propose to fulfill those needs.
279. Concerning the conventional programeing which STV stations
will be required to carry, we have already indicated our belief that such
programming will provide a valuable service to the community.. Applicants
for STV authorizations tsust, in auditaon to a showing with regard to sub-
scription programming, also sake a uhowing with regard to the conventional
programming,which they propose to broadcast in uon-STV hours. This will
have to be based on a survey of coasiunity needs with a showing of how the
proposed programaing is designed to meat: those needs, just as with any
application made by a non-STV television station. We shail tot consider
that the STV applicant has mat the standard with regard to conventional pro-
gramming if it carries entirely, or almost entirely~ industrial and other
available free film prograa'sing. We shall expect STV stations to develoo a
staff--for prograatsing, sales~, name, eaginmarinf, etc. --which will
perform the same functions as the staffs of ounventional TV stations.
Whesthe v rious sect~ions of ths Act end of~ 0p(~gigfkqfl. rul eS
~f Commiss ion poUcie~,_e ~ per~aiflinAtQ_
~ b odfied y~f~tc~. ~b~qTiP~
~
280. ~aragraph 30 of the ~u.rther Notice, referred to in the issue,
reads as follows:
"Since over-the-air subscription television is considered Co
be hroadcastrng, the question arises as to whether certain pro-
visions of the Communications Act and our rules pertaining to
broadcast stations shou'd apply to subscrfption television
operations in the satsu way they do to regular broadcasting. In
the Act, Section 303(i) gives the Cot~mission authority to make
special regulations applicable to stations engaged in chain
broadcasting; Section 307(d) Limits the term of broadcast sta-
tion licenses to three years, end of other stations to five
years; Section 315 provides for oqual use of hroedcastirtg
facilities by political candidatas~ Sectioa 317 provides that
announcement mast be made - -. [about mattersj for which money or
other consideration has beer. paid; Section 325 prohibits broadcast
stations from rebroadcasting programs of other stations without
PAGENO="0117"
113
.97..
permission; Section 605 prohibits the unauthorized publication
of communications, but expressly exempts `the contents of any
radio communication broadcast' from its application. Most of
the foregoing are the subject of Commission rules. We invite
comments on whether we should recommend Legislation to the
Congresa, and if appropriate, make changes in our rules, to
modify any of these sections insofar as they affect subscription
television, In addition, comments are invited on how the
`fairness doctrine', which does not appear in our rules, but
which is given recognition in Section 315(a) of the Act, should
apply to subscription television."
281. Some comments favor applying present sections of the Act and
of the broadcast rules and policies to STy, without amendments of any kind,
since STV has been determined to be broadcasting. Others state that at Je~"
some of the foregoing should not apply, or that STV experience should be
gained before deciding. Illustrative of these views are the following.
282. Telemeter states that it sees no reason for adopting new
rules. It believes that to the extent to which STV programming would bring
present rules and policies into play, they should apply, and mentions that
at Etobicoke (although i,t was a cable STV operation, and in Canada), candi-
dates for public off ice appeared over STV without charge to them or to the
subscribers in accordance with Section 315 and the fairness doctrine princi
pies Zenith and Teco say that WHCF at Hartford reported that it experienced
no dissimilarities i~ complying with the Commission's broedcasting rules when
operating conventionally as compared to operating with sTy. The station did
not find it necessary to request a waiver of any of the rules except to the
extent necessary to scramble its signals. These parties observe that should
any problems arise in STV operations, they could be handled on an ~
basis. Teleglobe says that the only amendments necessary are those proposed
in Appendix C of the Further Notice as modified by the comments in this
proceeding.
283. AMST, mentioning the paragraph 30 material, says that since
STV has been designated as broadcasting by the Commission, the fairness
doctrine and the sections of the Act and of the Commission's rules which
govern free TV should apply. As to Section 317 of the Act, it says that
it should apply if sponsorship is allowed on STV, which it should not be.
It stresses the fact that comments of proponents indicate that a system of
one or more national organizations similar to free TV networks is contemplated.
Therefore, the chain broadcasting rules (Section 73.658 of the Rules and
Section 303(i) of the Act) should apply to STy. These rules, it is said, are
intended to guard against dangers which the Commission assumes are inherent
in network systems, and would be especially important if only one STV network
were to emerge, in which case even more stringent prptective measures might
have to be adopted. Finally, it mentions that Section 315 and the fairness
doctrine should be kept within the different confines of STV and free TV
PAGENO="0118"
114
-98-
oper~ions over the same station so that a candidate appearing on STV may
not be balanced against one appearing on free TV.
284. ABC states that STy, which has been designated to be broad-
casting, should not be exempt from the rules and policies of the Commission
such as the fairness doctrine. Although admitting that it is possible that
some of these provisions may not have any real meaning with regard to the
public interest insofar as they are related to STy, it would recommend no
action on the matter at present. Specifically it says:
`At this juncture, however, ABC suggests that the Commission
should not attempt to carve out exceptions to its rules and
policies. If subscription television is to be authorized,
the burden should be upon the proponents and applicants to
show in each instance where exemption from the requirements
of a rule or policy is appropriate. At this juncture, the
Commission should presume that all of its rules are applicable
and reserve judgment on exemptions until particular matters
are raised and probably until some meaningful experience with
subscription television has been realized."
Trigg-Vaughn takes the following position:
`We think that the Commission should gain actual experience
with the day-to-day operations of pay television services
before carrying over to pay television wholesale the limita-
tions on program presentation which now apply to conventional
broadcasting. The absolute statutory equal time obligation
concerning political candidates would apply to pay television,
of course, but there is a problem of significance in connec-
tion with the treatment of contrGversial issues. Applicants
for pay `television shouLd be encouraged at the `outset to set
forth their plans for presenting in the course of pay tele-
vision programs full opportunity for the expression of varying
viewpoints on public issues. Whether the strict obligations of
the Fairness Doctrine should apply exactly as they do in tele-
vision broadcast operation is not clear at this potht. If
problems of significance are detected in the course of operation,
it might later be appropriate to extend the Fairness Doctrine
and similar regulations to pay television operations, but at
this stage we think a less restrictive policy should apply to
pay television than to television broadcasting as it presently
operates.
"We think that the distinguishing feature of pay television -
its usefulness only if the public wishes to pay for it - calls
PAGENO="0119"
115
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for more thought and observation before the many existing rules
on regulation of programs are extended to it."
285. Munn and Chase state that since STV offers primarily box-
off ice entertainment and does not involve problems of politics and personal
attack found in editorial and advertising programs over free TV, the subject
of "fairness" does not enter. AGLU, on the other hand, maintains that it
regards the fairness doctrine and Section 315 of the Act as essential to
assure that STV will operate in the public interest, because they "help to
promote the concept of balance and fairness which undergird diversity, and
we see no reason why they should not be vigorously enforced."
286. Oo~chi~1on~. The purpose of this issue was to elicit infor-
ration in recognition of the fact that STV might have different features from
those of conventional TV and that therefore changes in the Act or the
Commission's rules might be indicated. Those of the commenting parties whe
say that because STV has been judged to be broadcasting all broadcasting rules
should apply to it are, in effect, saying that there are no differences
between the two services. We are not sure that this is correct. However,
neither do we know for certain at this point what the differences are that
might require different regulation through the Act or our rules, We are of
the view, therefore, that, for the present, the better course of action is
to adopt Section 73.643(e) of Appendix C which proposed that, except as other-
wise waived by the Commission in issuing STV authorizations, the rules appli-
cable to free TV broadcast stations be applicable to STV operations. ~8~/ (In
addition, of course, all of the other STV ruies adopted today are new and in
addition to present TV broadcasting rules.) We have no evidence on this matter
other than that provided by Zenith and Taco (see para. 282). The path we
pursue is consistent with that evidence and with the recommendation oe those
parties, and is not fundamentally at variance with the views of all parties.
The rule will provide a necessary flexibility in a relatively unknown area.
At a later stage, should we find that additions, deletions, or other changes
are indicated, we shall act accordingly. S
287. The rules which we adopt appear in Appendix D. They are based
on careful consideration of all of the comments Lilac! in this proceeding.
Although parties did not comment on some portions of the rules which we
proposed in the Further Notice, we believe that they are reasonable and in
the public interest and adopt them. These include the requirement that holders
of STV authorizations shall complete construction of STV transmitting faciUties
within a period of eight months after issuance of the authorization, and that
~/ The rule which we adopt is modified to say "the ruaes and policies
applicable to" free TV stations so as to include the fairness doctrine for
which we have no rule.
PAGENO="0120"
116
100
STy authorizations will not be issued or renewed for a period longer than the
regu ar L cense period of the applicant s television broadcast station Al
thouah in some cases the adopted rules add to or otherwise modify the rules pro
posed in Appendix C in accordance with previous discussion in the document in
ocher cases the only modification is a change in paragraph number In a few cases
amendments not discrissed in the document have been made because they appear to be
reasonable and in the public interest (fg eompare proposed Section 73 642(c)
of Appendix C with the same section in Appendix D; and see new Section 73.642(g)
in Appendix 0).
Applications, Financial Requirements~ Repo~t~
288 As indicated in the NOTE to Section 73 642(b) of the rules
appearing in Appendix P no applications will be accepted for filing until
such time as we have adopted rules concerning equipment a~d system per-
formance capability. At or before that time we shall announce the manner in
which applications are to be filed and the content thereof with
regard to equipment, technical operation, and other matters. We contemplate
that applications wiil be required to contain, among other things, financial
information sufficient to permit us to make a judgment about capacity for
continued operation for a period of at least one year (see pares. 233, 235);
a program showing (see paras.278-279); information pertinent to Section 73.642(g)
of the new rules; and some, but not all, of the information which was required
of applicants for trial operations by paragraph 32 of the Third Report. In-
formation already on file with the Commission in formal application forms
or ownership reports may be incorporated by reference in these applications.
We also contemplate that, at least in the early stages of the service, we
shall not adopt an FCC Form to be used by those wishing to apply for STV
authorizations. Section 1.531 49/ of the Rules will be amended to indicate
that STV applications will be viewed as formal applications although no FCC
Form will be used for them. Public notice of the acceptance for filing of
such applications, or substantial amendments thereto, will be given by the
Commission, and no grants will be made earlier than thirty days following
the issuance of such public notice. We intend to charge filing fees for
STV applications equal to those charged for applications for authorizations
to operate TV stations. Thus, for example, if an applicant simultaneously
files applications for a construction permit for a new TV station and for
authorization to conduct STV operations over that station, the filing fee
would be $150 for the former, and $150 for the latter, for a total of $300.
Section 1.1111 of the Rules (Schedule of fees for Radio Broadcast Services)
will be appropriately amended, prior to the time that applications are
accepted, to reflect the filing fees for the new service.
* 289. We adopt no rule requiring applicants to make a showing as to
their capacity to sustain operations for at least a year. This is, rather, a
policy that will be followed. Similarly, although no specific rules are
adopted thereon, as mentioned in various portions of the document we shall
periodically require those possessing STV authorizations to submit reports and
information to us for the purpose of keeping us informed about various aspects
of STV operations.
~j Section 1.531 of the Rules states (in part) the following;
"`Formal application' means any request for authorization where an FCC
Form for such request is prescribed. `Informal application' means all other
requests for authorization."
PAGENO="0121"
292, Te1eg1o~~, in its comments, has the
PAGENO="0122"
118
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293. On the same subject, ACLU states:
"Although the FCC notice is silent on this question, ACLU
believes it to be in the public interest to permit educational,
municipal, and non-prof it stations to employ STV for portions
of their broadcasting schedules. STV programming by such stations
could be expected to add to the variety of services available to
the public, as well as contribute to their financial self-support."
294. Because, as stated before, we have no adequate record on which to
base decisions about STV operations by noncommercial educational stations and because
the whole matter of educational television is under broad study on many fronts, deci-
sions on the subject cannot and should not be made, 51/ However, if parties having
STV authorizations wish as part of their programming to broadcast educational or
cultural programs in conjuncation with non-profit educational organizations, such pro-
posals will be given consideration in connection with their other proposed programming.
In this regard, we point out that we are of the opinion that programming of an
educational and cultural nature is certainly in the public interest. This is the main
reason for our having adopted a rule requiring that at least ten percent of STV broad.
cast hours be devoted to other than feature films and sports.
WIRE OR CABLE SUBSCRIPTION TELEVIS~~
Preliminary Statement
295. As stated in paragraph 4 above, the scope of this proceeding was
enlarged by the Further botice to include not only over-the-air STV, its previous
subject matter, but an inquiry into what the role of the Federal Government should
be, if any, with regard to the establishment and manner of operation of wire or cable
SW, and how that role should be effected, This was done, as the Further Notice
mentioned, because of the change in conditions since this proceeding began in 1955.
An important change has been the rapid growth of CATV systems.
296W Because of the necessity to avoid frustration o~ our television assign-
ment plan and policies under Sections 1 and 307(b) of the Act by the existence and
growth'of CATV systems throughout the nation, on March 4, 1966, we asserted jurisdic'i
tion o~zer all such systeffis"-micrswave-served an~ off-the-air--and adopted rules
designed to uib~caur~s~stamat- thetotal't~levision system.52/ In connection
51/ In passing, we note that Section 73,621 of the Rules provides that educational
stations may not broadcast programs for which consideration is received. This rule, of
course, was adopted in a context devoid of STV possibilities. We also note that we
have in the past authorized noncommercial educational television stations, on an
experimental basis, to transmit "scrambled" signals which could be viewed "unscrambled"
on specially adapted equipment. An example is that of four such stations in California
which have been authorized to present, in that manner, programs designed to meet the
educational needs of the medical profession and not deemed suitable for the general
viewing public. The programs are broadcast to hospitals and educational institutions
for viewing by physicians, hospital staffs, and others. We shall continue to autho-
rize such operations on the same basis where application is made and it appears
appropriate to do so.
L2/ Second Report and Order, Docket Nos. 14895, 15233, 15971, 2 F.C.C. 2d.725.
PAGENO="0123"
119
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with the proceeding in which the CAW rules were adopted, some parties had
expressed the fear that CATV might become a vehicle for STV or combined CATV-
STV operations whichwould siphon programs from free TV and.possibly result
in a transition from free TV to STV. Because of this, we invited and received
comments therein on the question of whether it would be feasible or desirable
to have STV operations over CATV, whether any conditions might be necessary
to protect the interest of the public in free TV, and, if so, what condi-
tions might be appropriate.
297. The Further Notice herein stated that, in addition to com-
ments filed in the instant proceeding on the subject of wire or cable STy,
we would take notice of the above-mentioned comments (in Docket No. 15971)
on the matter of the CATV-STV relationship. In addition to comments on the
general topic of wire or cable STV, the Further Notice requested comments
on problems that might be encountered by parties proposing to bring over-
the-air STy to communities in which there were established CATV systems.
These included much questions as whether (if the subscribers do not have
antennas because their only reception is by Ce~.TV) it would be necessary
to have built-in antennas in decoders attached to sets of subscribers; whether
a single decoder attached to the antenna of the CATV system which delivered
an unscrambled signal along the cable would suffice, and, if so, how collec-
tion of charges could be made; and whether the C~TV rules on carriage of
signals of local stations would apply to carriage of STV stations. Having
considered all of the comments, we set forth below the princi~ml material
therein and then our conclusions.
Jurisdiction
298. As to the question of jurisdiction of the Commission over
wire or cable STV, several parties, without giving detailed legal arguments
on the subject, state their views. Thus, Telemeter says:
`Telemeter is aware, of course, of the Commission's assertion
of jurisdiction over non-microwave served CATV's and of the
pending legislatiàn in Congress to support that jurisdiction.
In the case of the closed-circuit subscription operation by
wire, however, which involves no use of frequency space what-
soever, and in the case of the GP~TV system, which, itself, ori-
ginates subscription television programs (as distinguished
from the off-the-air pick-up or microwave-fed subscription
programs), there should be no question that tiG federal regu-
latory authority exists."
299. CBS is of the opinion that the Commission does not have juris-
diction over cable STy. It states that although jurisdiction was asserted
over CATV, "an all important element was the fact that television stations'
signals were extended by CATV systems beyond the area or zone to be served
by the originating station, a factor not involved here." (It goes on to say
that even if the Commission had such jurisdiction it should not regulate
PAGENO="0124"
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cable STy because it does n~t involve scarce spectrum space.) On the
other hand, Taft asserts, simply, that there is no jurisdictional problem
with Commission action in this area because it has established such ,juris-
diction over all forms of CaTV.
300. ABC expresses the following view;
"ABC believes that the Commission should apply the same
standards to pay-TV by wire as it applies to pay televi-
sion by `broadcasting.' The logic of the Commission's
assertion of jurisdiction in CATV would support jurisdic-
tion over pay-TV by wire. Although the Commission would
appear to have no power to A horize pay television by wire,
it should, in ABC's view, apply whatever regulatory policies
it determines to be appropriate, to wire television to the
extent found necessary to protect the `public interest in
the larger and more effective use of radio."
Finally, Trigg-Vaughn states:
"We think it premature to consider the question of the Com-
mission's jurisdiction to regulate pay television systems
conducted by wire. We believe that it is too early to tell
how and in what way pay television by wire should be auth-
orized. Experiments with off-the-air systems of pay tele-
vision have been conductedand have produced meaningful
operating data- - the same cannot be said with respect to
the relatively limited wire pay television systems."
How CATV Systems Can sick Up Scraji~blecL STV Sianals
301. Concerning the speciftc questions raised in the Further Notice
about how CATV systems might pick up signals of STV stations, we are in-
formed by Zenith-Teco and Telemeter that it is technically feasible to attach
a decoder at the CaTV hea&-~nd that would unscramble signals of an STV station
and transmit them to sets of subscribers. However, Zenith-Taco states that
it is doubtful that any STV station would permit this since it would defeat
the purpose of having single subscribers pay charges on a per-program basis,
and Telemeter says that any flat rate arrangement with the CATV operator would
be commercially impractical since program suppliers for box-office product
prefer to participate in the gross receipts on the basis of percentage arrange-
ments. Moreover, Telemeter states, such an arrangement implies a flat fee
for CATV subscribers for STV service, and "the public has shown a reluctance
to pay a flat fee for blocks of entertainment."
302. Both of these parties also indicate that it is technically
possible to have CATV systems pick up scrambled signals, transmit them
along the cables, and have them unscrambled by decoders attached to sets of
STV subscribers just as if the signals had been picked up off the air.
No built-in antennas would be necessary in the decoders.
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121
* 105-
of. cATV Rules on~ Carriaae o~Local Stats
303. Telemeter states that since SW stations will probably be
required to broadcast conventional commercial programming part of the time,
it seems logical that the CATV rules on carriage of local stations should
apply. AcLU expresses the opinion that it would be consistent with the
present CATV carriagerules requiring carriage of local conventional tele-
vision stations to require CATV systems to carry STV programming of local
STV stations, for otherwise millions of families might be deprived of free
TV programming without having the right to subscribe to STV services that
replaced them. On the other hand, the Joint Committee argues that at least
until such time as the Commission is prepared to evaluate the significance
of CATV generally with regard to free TV, it should prohibit CATV systems
from carrying STV programs broadcast by STV stations; and it should also
prevent STV stations from entering into arrangements whereby SW stations would
use CAW systems as outlets for STV programming.
Will CATV Turn Into .STV?
304. The principal arguments in the instant proceeding as well as
in Docket No. 15971 on the matter of CATV-STV relationship revolve about the
question of whether CATV might develop into an STV or a combined CATV-STV
operation which would siphon programs from free TV. It is urged that revenues
obtained from large CATV operations, in major cities, for example, would
permit the CATV operators to outbid free TV for programs, and that a transi-
tion from free TV to STV might thereby occur. It is argued that this is
not only unfair because CATV operations would be using free TV, which makes
CATV possible, as a stepping stone to SW operations that will harm free TV,
but that such undermining of free TV is contrary to the public interest.
Various parties point to cases where there is already program origination by
CATV systems and imply that this shows the dir~sction that will be followed.
STV would thus enter by the back door, using the financial base created and
made possible by free TV. If it is to enter, it is said, i~ should enter by
the front door after appropriate proceedings. Some suggest that the approp-
riate proceedings should include trial STV operations over CATV systems
similar to the Hartford trial in order to develop information helpful to
arriving at decisions on the subject. It is also urged that if importation
of distant signals by CATVs is. prohibited, the systems may well have to turn
to program origination to survive. Still another argument is that if copy-
right law is modified to require CA~IVs to pay fees for programs, the strength
of the argument against program origination over CATV which derives its base
from free TV is lessened.
305. On the other hand we are told that there can be no objection
to program origination by CATV systems in areas where there is no television
station; that in the few cases where there is presently program origination
by CATVs it is programming of a public interest nature such as local news,
PAGENO="0126"
122
106-
local sports, and the like; and that C~TV alone or in combination with STV
may well pose an economic threat to the present system of broadcasting, but
that system i~ not central to the economic structure of this country, and
what is central is whether or not the public is being served in the best
possible way- -CATV with multiple channel capacity can provide a wider diver-
sity of programs to the public.
Conclusions
Carria&e of Local STV Stations by CATVs.
306. As to views on jurisdiction (see patas. 298-300), it may be
noted that Telemeter makes a three-fold distinction: (1) STV systems, like
the now defunct system that operated in Los Angeles and San Francisco, in
which the programs travel entirely by cable from studio to sets of subscribers,
(2) C~.TV systems which, in addition to their traditional function of receiving
and retransmitting conventional TV signals, also originate STV programs that
travel by cable to sets of subscribers, and (3) CATV systems which, in
addition to traditional functions, transmit over-the-air STV programs which
they have picked up either off the air or by microwave. ~/ It denies
jurisdiction in the first two categories and appears to concede it in the
third. Although it is not clear, it seems that CBS limits its statement to
the second category, but that it would, g ~ortigr~, deny jurisdiction in the
case of the first. Its position with regard to the third is not certain.
Taft appears to suggest that we possess jurisdiction with regard to the second
and third, and is silent on the first--a view similar to that of ABC.
307. We think ~it clear that we have jurisdiction in the third
category. Appendix C of the aforementioned decision on CATV systems (sj~I~
note .51) sets forth in detail the basis on which we asserted our jurisdiction
over such systems. We have concluded that STV is broadcasting and a bene-
ficial supplement to present free TV, and have taken measures to assure its
effective integration into the total TV system. If necessary to protect our
television assignment plan and policies, it is entitled to the sams protection
as conventional television, and for the same reasons stated in the aforementioned
Appendix C. However, since STy is different from ordinary broadcasting in
that it involves the scrambling and unscrambling of signals, and since we
anticipate that it generally will not broadcast programs normally available
on free TV, different considerations apply.
308. To the extent that, under our new rules, STV stations will
be required to broadcast at least the minimum number of hours of free TV
programs required by Section 73.651 of our rules, such stations are conven-
tional stations and, for their non-subscription programming, are entitled
to the pvotection of our CATV rules, including the carriage and non-duplication
provisions. As~to the STV programming, we are inforjued that a decoder attached
~/ To the best of the Commission's information, there are presently no
STV operations in the United States in any of these three categories. There
is, of course, some program origination by cATV systems, but as far as the
Commission knows these programs are available to CATV subscribers at no addi-
tional charge.
PAGENO="0127"
123
-107-
to the head-end of a CATV system could unscramble an STV signal and transmit
the decoded signal along the cable like any other TV signal. However, this
is said to be commercially impractical, and we dismiss it from further con-
side~ation. It is also said that existing CATV systems could carry scrambled
signals along a cable to decoders, attached to sets of subscribers, which
could unscramble them just as it they had been picked up off the air. However,
we shall not at this time require that CATV systems carry s~crambled signals
of local STV stations. The matter will be given consideration, if warranted,
at a later date.
309. Should an STV station and CATV systems within the Grade B
contour of the conventional service of that station wish privately to arrive
at agreements whereby the CATVs will carry STV programming of the station, the
public interest might be served (by having the STV signal of the station ex-
tended within its conventional TV service area). We shall therefore give
consideration to proposals of STV stations wishing to make such arrangements.
However, no party holding or applying for an STY authorization shall consummate
such an arrangements without Commission approval thereof.
310. It should be noted that we here speak of permitting such
carriage of STV signals by CATV systems within the Grade B contour of the STV
station. We do not now intend to permit it outside of that contour. This will
confine STV to the communities which we have selected for that service. Because
of this, we see little merit to the Joint Committee argument that STV-Ct~TV
arrmngements should be prohibited (see pare. 303). As to the argument of AcLU
that CATV systems should be required to carry STV signals so that those who have
lost free TV service may have the opportunity to vieV the STY service which pre-
empted the free TV time, we reply that the considerations that led to our
limiting STY to five-station communities, with one STV station to a community,
as a safeguard that would assure adequate free TV programming in such markets,
apply to all viewers in the community, whether they use CATV or pick their
signals off the air. The question of whether CATV systems outside the service
area of an STV station should be permitted to carry its STV programming is one
to which we shall devote further study.
311. A final matter should be mentioned which may require future
action. Of tap the CATV operator, in installing the cable connection, dis-
connects the TV set from the outdoor antenna. This can make it impossible
for the subscriber to receive a local TV station directly off the air. Under
the provisions of Section 73.1033(c) of the Rules, we have provided that if
a CATV system dc~es not carry the conventional signals of a local TV station
it must offer and maintain a switching device for each subscriber so that the
subscriber may choose between viewing the local station off the air or viewing
other stations on the cable. This need not be done if the subscriber indi-
cates in writing that he does not desire the device. With regard to STY, it
is possible that, if the CATV operator has disconnected the set from the
outdoor antenna, is not required to carry the scrambled signal of the local
STV station (see para. 308), and has not made arrangements with the local STY
station to carry its scrambled STV signals (see pare. 309), the CATV subscriber
might not be able to pick up the scrambled STV signals off the air, and thus
PAGENO="0128"
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-108-
might be precluded from becoming an STV subscriber. At a later date, we may
need to consider whether to adopt a rule for STV similar to Section 74.1033(c),
or to take other measures that would leave the TV set of the CAXV subscriber
accessible to STV service.
Proaram Origination by CATV systems. -. -
312. As to the other two types of cable STV mentioned by Telemeter
(see para. 306), we make no decision about the question of jurisdiction or
other matters at this time. There are problems in this area which we wish to
study further in the light of our decisions with regard to over-the-air STy,
possible changes in the copyright law with regard to C&TV, and kindred subjects.
313. Authority for the adoption of the rules herein is contained
in Sections 3(o), 4(i), 301, 303(a), (b), (d), (e), (f), (g), (r), and 307(b)
of the Communications Act of 1934, as amended.
314. Accordingly, IT IS ORDERED, That the rules contained in
the attached Appendix D ARE ADOPTED, effective , 1967.
315. IT IS FURTHER ORDERED, That, in view of our having adopted
today a Second Further Notice of Proposed Rule Making in this proceeding
proposing technical standards for over-the-air subscription television systems,
and in view of our intent to study further the subject of cable subscription
television, the proceeding is not terminated.
FEDERAL ~)NMUNI C~TIONS COMMISS ION
Ben F. Waple
Secretary
nn4 (~.h1~ STy Wt~ R~.1~-.A t~. CATV
Attachments
PAGENO="0129"
86-399 0 - 67 9
PAGENO="0130"
126
APP~NDI~
SUMMARY OF HARTFORD SUBSCRIPTION TV TRIAL
- AND ZENITH-TECO PROJECTIONS BASED, THEREON'
The information presented here except where otherwise
indicated, is based on material contained in the Zenith-Teco corn-
ments and the RKO General response to the Commission questionnaire It
is intended to provide a convenient summary of the facts and conclusions
as reported by the petitioners
Part I
Facts About the Hartforçl SubscriDtion Television (STV) Trial 3 Year F~cpeç1~en~ce
1. This service was introduced by RKO's station WHCT, Channel 18
in June 1962 in Hartford, Connecticut, which is part of the Hartford-
New Haven television market. This market is served by other stations
affiliated with all 3 networks. - The net weekly circulation of this.market.
is approximately 800,000 homes (ARE, 1965) which is the number of homes
estimated to be tuned in at least once a week to the largest station
WTIC, Channel 3. The net weekly circulation of WHGT Channel 18, prior
to. its STV experiment was 108,000 homes.
2. During the evening hours, and Saturday and Sunday afternoons,
station WHCT, Channel 18, transmitted a scrambled signal which could
be viewed intelligibly only by those having a decoder attached to their
set. The decoder was installed for a $10 installation fee and a rental
fee of $3.25~per,month. All service calls were made free of charge.
3. By means of a weekly program schedule (supplemented by
newspaper ads and listings), each subscriber was advised of the sub-
scription features to be shown, the time and the price, and was given
a code number for each feature. For example, the movie "What Ever
Happened to Baby Jane" was listed for a price of $1 and was shown
Monday, July 1, 1963 (Code Number ll5E), and Thursday, July 4 (Code
Number hiD), at 9 P.M. Subscribers wishing to see the movie simply
set the code numb~r in the decoder and the picture became unscrambled.
The code number o~ each feature viewed and the price of the feature
was automatically printed on a tape, which the subscriber removed each
month and mailed to RICO with his check for the total amount for the
programs viewed plus the monthly rental charge.
4. RICO intended to commence operations after 2,000 decoders
had been installed, and "looked toward installation of 10,000 decoders
by the end of the first year of trial. A maximum of 50,000 subscribers
is contemplated . . . ." J,/ Actual operations started with fewer than
j/ FCC R.~port and Decision, February 23, 1961; Par. 8.
PAGENO="0131"
127
200 decoders on June 29, 1962, and progres~e~ through three years
of operation, as follows:
Number of
Subscribers at
Ifl!~11ed ~onnec~ End of Year
First Year 3,183 422 2,761
Second Year ~ 1,386 4,769
Third Year ~Z~j_ .L~2Q.
Three Year Total 8,329 3,478 4,851
According to Zenith..Teco, "at the close of the second year of trial
operations, R1(0 decided to limit the number of subscribers to 5,000
f or the remaining third year of trial authorized because business
prudence and fairness to subscribers did not warrant further sub-.
stantial expansion Without some assurances that the Connuission would
authorize the trial beyond the third year." The 4,851 STY subscribers
at the end of the third year represented 0.67. of the net weekly cir..
culation in the TV market or 4.57. of WHCT'~ net weekly circulation
prior to its STY operation.
5. Zenith-.~~, disputes the contention that STY is a service
which only the wealthy can afford. The following table shows the
income level and program expenditures of the Hartford subecrjber8:
Hartford Subscribers By Family Income Level
Proportion Proportion Average
of Total U,~. of Total Weekly Program
~ome Levels __________ Subscribers
0 $3,999 29.17. 1.57. $0.99
$4,000 6,999 32.5 40.8 1.25
7,000 9,999 21.0 43.3 1.23
10,000 and Over
T0T~.Ls (rounded) 100.07. 100.07. $1.22 (avg.)
~/ Statistical Abstract of .the U.S. 1964, p. 338.
PAGENO="0132"
128
6. To interest new subscribers RICO, from time to time, did
extensive advertising, used door~to..door specialty salesmen, made
offers of free decoder rentals, gave program discounts and used
other promotions. During the first two years, RiCO was able to
obtain only a limited number of first subsequent run (neighborhood
release) motion pictures and practically no first run (downtown
release) movies. Most of the movies during this period were over
six months old. In the third year, subsequent first run movies were
available in greater number.
7. The turnover rate (the number of subscriber homes discon~
nected as a percent of the average number of subscriber homes) was
277. the first year, 367. the second year and 347. the third year.
Turnover results from such factors as subscribers moving from the
community, `insufficient use to justify expenditure for decoder,'
rental and credit delinquencies.
8. The following table summarizes the income and expense
statements of the Hartford tr~a1 operation:
.(~OO)
First Second Third Total 3
Yea~ Year , Year,~.
Net Income Totals ` 134 320 436 890
Installation 30 36 . 20 86
Decoder Rental 30 92 154 276
Program 74 192 262 528
Expenses Total ~1,487 1,687 l~254 4,428
Program Product 31 . 75 ` 110 216
Other Program expenses 17 68 66 151'
Time Charges paid to~
WHCT 3/ .698 799 482 1,979
Technical . 157 146 106 409
Sales, Advertising
and Promotion 74 112 60 246
Depreciation 4/ 375.~ 308 289 972
Other General and
Administrative 135 179 141 455
Operating Loss (1,353) (1,367) (818) (3,538)
3/Stat~on was paid $300 per hour Zenith Teco comments suggest that
payment of $400,000 per year would normally be made to station in
market of this size. If sueh $400,000 were paid in this case, 3 year
loss would be $2,759,000 instead of $3,538,000.
Decoders cost $125.00 each arid, for the test were comp3a tely depre'~
`ciated during the three-year period'. ` . `
~J For this year cost of decoders purchased was reported rather than
depreciation.
PAGENO="0133"
Program Income
Net Program Income 2/
Gross Decoder Rental
Inconie.8/
Net Decoder Rental
InCome 2/
~/ ~.mount actua],]~, charged fc
PAGENO="0134"
130
jØ* I.~ itS commentS, ZenithTe~0 has prepared business projecti0~~S itLus
trating the viabilitY of STV under various ~8sumptt0l'~S These statements
show that an STV franchise ~o~td brea%c even with 20,000 subscribers spendiflE
an average of $65 per year for programs and $39 for decoder rental' If the
number of subscribers is more, or the ~vetage program expendttUt~ is higher, the
business shoWs profits as indicated:
SummatY of Business ProjeCtiofl5 by ZenithTCCO
Number of Subscribers Cost of
and average Program Sales Equipment 7. of 7. of
~ Sates ~~j~met
$ 65/yr. 2,120 2,711 1 07. 0%
20,000 subscribers:
75/yr. 2,320 2,711 119 s , 4
65/yr. 4,240 5,393 619 14
40,000 subscribers:
75/yr. 4,640 5,393 855 ~ 16
65/yr. 7,950 10,087 1,780 22 18
75,000 subscribets
75/yr. 8,700 10,087 2,223 26 22
65/yr. 10,600 13,441 2,591 24 19
100,000 subsCrib~S
75/yr. 11,600 i3,4~1 3,181 27 24
PAGENO="0135"
RESTATEMENT ON A "PER SUBSt,i~.1BER" BASIS OF ZENITh-TECO'S
BREAK-EVEN PROJECTION*
EXPENSES:
Program Product
Sales and Commissions
Franchise Fee
Technical
Taxes (Other than Fed.)
Supplies, Truck, Bad
Debts, Other
Depreciation
$22.75
8.15
5.20 (57. of Program and
Rental Income)
7.93
2.22
3.10
27.09 (almost all for
decoders)
FIXED EXPENSES:
Station Time
Administrative Salaries
Program Staff
Lines and Facilities
ASCAP and BNI Fees
IBM Equipment Rental
Rent
Legal, Audit, Insurance,
Travel, Telephone, Util-
ities, Dues, Maintenance
Total Fixed Expenses
$300,000
94,000
23,000
32,000
18,000
88,000
15,000
20,000
$591,100
20,000 Subscribers
1.0/ Some of these expenses listed as "fixed," actually do increase slightly with increased income.
1.1/ Zenith-Teco assumes 207. turnover, or 4,000 per year. This gives a total of $40,000 installa-
tion income, or $2.00 per subscriber (20,000).
* Prepared by Commission staff,
VARIABLE DATA
INCOME:
Programs
Decoder Rental
Installation
Total Income
Per Subscriber
$65.00
39.00
2.00
$106.00
Break-Even Point
$591,100 4- $29.56
Total Variable Expense
Gross Margin Before Fixed Expense
C'
$76.44
$29.56
PAGENO="0136"
-.7-
~ipenditUreS and Income
once of $~2S plus $6.38 for freigh
PAGENO="0137"
?AI~T 3: Zenjtb.~Teco c
PAGENO="0138"
134
APPENDIX C
1. Ic is proposed that the following new sections be added to Part 73 of
Consnission Rules and Regulations;
OVER-THE-AIR SUBSCRIPTION TELEVISION OPERATIONS
§73 641 Definitions
(a) Subscription Television. A system whereby subscription television
broadcast programs are transmitted and received.
(b) Subscription televj~sion broadc~sç sam. A television broadcast
program intended to be received in intelligible form by members of the
public only for a fee or charge.
§73.642 Licensing Policies.
(a> Subscription television service may be provided only upon specific
authorization therefor by the Commission. Such authorization will be isaued
only to;
(1) The licensee of a television broadcast station;
(2) The holder of a construction permit for a new television broadcast
station; or
(3) An applicant for a construction permit for a new television broadcast
station,
(b) Application for such authorizations shall be made in the manner and
form prescribed by the Commission. If the Commission, upon consideration of
such application finds that the public interest, convenience and necessity
would be served by the granting thereof, it will grant sOch application.
In the event it is unable to make such a finding, the Commission will then
formally designate the application for subscription television authorization
for hearing and proceed pursuont to the provisions of Section 309(e) of the
Communications Act and the Commission's Rules and Regulations applicable
thereto. The Commission may impose such conditions upon the grant as may be
appropriate.
(c) Holders of subscription television authorizations shall complete
construction of subscription television transmitting facilities within a
period of eight months after issuance of the authorization unless other-
wise determined by the Commission upon proper showing in any particular ease.
(d) A subscription television authorization will not be issued or renewed
for a period longer than the regular license period of the applicant's tele-
vision broadcast authorization.
(~s) No subscription television authorization shall be granted to a tele-
vision broadcast station licensee or permittee, or to an applicant for a
construction permit for such a station, having any contract, arrangement or
understanding, express or implied, which:
PAGENO="0139"
135
-2-
(I) Prevents it from rejecting or refusing any subscription television
broadcast program which it reasonably believes to be unsatisfactory or
unsuitable or contrary to the public interest; or substituting a subscription
or conventional program which in its opinion is of greater local or natio~a].
importance; or
(2) Delegates to any other person the right to schedule the hours of
transmission of subscription programs: ~ however, that this rule
shall not prevent a licensee, permittee, or applicant from entering into
an agreement or arrangement whereby it agrees to schedule a specific sub-
scription television broadcast program at a specific time; or
(3) Prevents it from making a free choice of subscription programs,
whatever their source; or
(4) Deprives it of the right of ultimate decision concerning the maximum
amount of any subscription program charge or fee.
~73.643 General operating Requirements. *
(a) No commercial advertising announcements shall be carried during
subscription television operations except for promotion of subscription
television broadcast programs before and after such programs.
(b) Charges, terms and conditions of service to subscribers shall be
applied uniformly: j~rovided, however, that subscribers may be divided int
reasonable classifications approved by the Commission, and the imposition
of different sets of terms and conditions may be applied to subscribers in
different classifications.
(c) Any television broadcast station licensee or permittee authorized
to broadcast subscription programs shall broadcast, in addition to its sub-
scription broadcasts, at least the minimum hours of programs required by
Section 73.651 of the Rules.
(d) If a television broadcast station supplies the only Grade A signal
to a community, not more than 15% of its non-prime broadcast time (including
subscription and non-subscription broadcast time during that period), and
not more than 50% of its prime broadcasting time (including subscription
and aon-subscription broadcast time during that period) may be devoted to
subscription broadcasting; if it supplies the second or third Grade A signal,
not more than 25% of its non-prime broadcast time, and 60% of its prime
broadcast time; if it supplies the fourth Grade A signal, not more than
50% of its non-prime broadcast time, and 75% of its prime broadcast time;
and if it is one of five or more stations supplying a Grade A signal to the
community, there is no limitation on the amount of broadcast time that may
be devoted to subscription broadcasting. *
(a) Except as they may be otherwise waived by the Commission in author-
izations issued hereunder, the rules applicable to regular television
broadcast stations will be applicable to subscription television operations
PAGENO="0140"
136
-3..
§73.644 EquipUlent and Technical OperatinS Requirements.
(a) Subscript3.On televjSiofl equipment must be approved in advance by
the CommiSSiOU pursuant to the "type approval" and "type acceptance" prO
cedureS now established by l~'art 2, Subpart F__EqUiPm~t Type Approval and
Type AcCeptanc5~0~ the Commission'5 Rules and RegulationS.
Additional proposed rules concerning equipment and technical operating
requiret~nts will be announced at a later date.
PAGENO="0141"
§73.641 Definitions.
a construction permit for a new commercial television broad-
~; or
(3) An applicant for a construction permit for a new commercial television broad-
station: Provided, however, That such authorization will not be issued prior
_ssuance of the construction permit for the new station.
Moreover, such an authorization will be issued oi~ly for a station the principal com-
munity of which is located entirely within the Grade A contours of five or more
commercial television broadcast stations (including the station of the applicant),
whether the principal community each station is authorized to serve is the same as
that of the applicant, or is a nearby community. Only one such authorization will
be granted in any community. No such authorization will be granted unless, not
counting the station of the applicant, at least four of the stations which include
the community of the applicant within their Grade A contours are operatjng stations.
(b) Application for si~eh authorizations shall be made in the manner and
form prescribed by the . Commission. If the Commission, upon consideration of such
application finds that the public interest, convenience and necessity would be
served by the granting thereof, it will grant such application. In the event it is
unable to make such a finding, the Commission will, then formally designate the
application for subscription television a :horization for bs - -
pursuant to the provisions of S - - - - - - -
Commission's Rules and keg -
such conditions upon the ~
137
APPENDIX D
1. Part 73 of the Commission Rules and Regulations is amended by adding the
following new sections thereto:
OVER-T}IE-AIR SUBSCRIPTION TELEVISION OPERATIONS
(a) Subscription television. A system whereby subscription television broa4~
cast ptograms are transmitted and received.
(b) Subscription te4vjsion broadcast ~
intended to be received in intelligible form by members
fee or charge.
A television b
PAGENO="0142"
138.
NOTE: No applicationswill be accepted for filing until such
time as rules concerning equipment and system performance capability
have been adopted in Section 73.644. At that time, the manner of
filing such applications, the form, and the content thereof with
regard to equipment, technical, and all other matters will be announced.
(c) Holders of subscription television authorizations shall
complete construction of subscription television transmitting facilities
within a period of eight months after issuance of the authorization
unless otherwise determined by the Commission upon proper showing in
any particular case. During the process of construction of the subscrip-
tion television facilities, the holder of the authorization, after noti-
fying the Commission and the Engineer in Charge of the radio district in
which the station is located, may, without further authority of the Corn-
mission, conduct equipment tests for the purpose of such adjustments and
measurements as may be necessary to assure compliance with the terms of
the authorization the technical provisions of the application therefor
and the rules and regulations. The Commission may notify the holder of
the authorization not to conduct tests if such tests appear to be contrary
to the public interest, convenience, and necessity. Upon completion of
the construction, the holder of the authorization shall submit a detailed
showing that compliance with the terms of the authorization, the technical
provisions of the application theref or, and the rules and regulations
has been achieved. No subscription television operation shall commence
until requirements of this paragraph have been fulfilled and operation
has been specifically authorized by the Commission.
(d) A subscription television authorization will not be issUed
or renewed for a period longer than the regular license period of
the applicant's television broadcast authorization. Renewals of
such authorizations will usually beconsidered together with renewals~
of the regular station authorizations.
(a) No subscription television authorization or renewal thereof shall
be granted to a party having any contract, arrangement, or understanding,
express or implied, which:
(1) Prevents or hinders it from rejecting or refusing any subscription
television broadcast program which it reasonably believes to be unsatisfactory
or unsuitable or contrary to the public interest; or substituting a subscrip-
tion or conventional program which in ~ts opinion is of greater Local or
national importance; or
PAGENO="0143"
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(2) Delegates to any other person the right to schedule the hours
of transmission of subscription programs: Provided, however, That this
rule shall not, prevent `a licensee, permittee, or applicant f rum entering
into an agreement or arrangement whereby it agrees to schedule a specific
subscription television broadcast program at a specific time or to
schedule a specific number of hours of subscription programs during the
broadcast day (or segments thereof) or week subject to Commission
approval; or
(3) Prevents or hinders it from, or penalizes it for, making a free
choice of subscription programs, whatever their source: Provtded, however,
That upon making a satisfactory showing to the Commission that the public
interest would be served by permitting the licensee, permittee, or appli..
cant to enter into an agreement or arrangement whereby it agrees to obtain
all or a specified portion of its programming from one or more sources,
this rule may be waived; or
(4) Deprives it of the right of ultimate decision concerning the
maximum amount of any subscription program charge or fee.
(f) No subscription television authorization or renewal thereof
shall be granted to a party having any contract, arrangement, or understand-
ing, express or implied, with other parties `the provisions of which do not
comply with the following policies of the Commission:
(1) Unless a satisfactory signal is unavailable at the location where
service is desired, subscription television service shall be provided to
all persons desiring it within the Grade A contour of the non-subscription
television service provfded by the station broadcasting subscription
programs: Provided, however, That geographic or other reasonable patterns
of installation for new subscription services Shalt be permitted: ~
provided further, That, for good cause, service may be terminated.
(2) Charges, terms and conditions of service to subscribers shall be
applied uniformly: Provided, however, That subscribers may be divided
into reasonable classifications approved by the Commission, and the
imposition of different sets of terms and conditions may be applied to
subscribers in different classifications: And provided further, That with-
in such classifications deposits to assure payment may, for good cause, be
required of some subscribers and not of others; and, also for good cause,
if a subscription system generally uses a credit-type decoder cash operated
decoders may be installed for some subscribers.
(3) Subscription television decoders shall be leased, and not sold,
to subscribers.
PAGENO="0144"
r parties con
including sp
nted at a par
`~~y(ors
140
-4-
prevents or hinders si r party fr
sources. The applicant shall use due diligence to a
and nature of arrangements to which it is not a party.
§73.643. General operating requirements.
(a) No commercial advertising announcements shall be carried during
subscription television operations except for promotion of subscription
television bt~oadcast programs before and after such programs.
(b) Subscription television broadcast programs shall comply with the
following requirements;
(1) Feature films shall not be broadcast which have had general
release in theaters anywhere in the United States more than two years
prior to their subscription broadcast: Provide4, however, That during one
week of each calendar month one feature film the general release of which
occurred more than ten years previously may be broadcast, and more than a
single showing of such a film~may be made during that week.
NOTE: As used in this subparagraph, "general release" means the llirst
run showing of a feature film in a theater or theaters in an area, on a non-
reserved seat basis, with continuous performances. For first run showings
of feature films on a non-reserved seat basis which are not considered to
be "general release" for purposes of this subparagraph, see note 45 in
Fourth Report and Order in Docket No. 11279, 8 F.C.C. 2d ).
(2) Sports events shall not be broadcast which have been televised
live on a non-subscription, regular basis in the community during the two
years preceding their proposed subscription broadcast; Proyide4, however,
That if the last regular occurrence of a specific event (~g., summer
Olympic games) was more than two years before proposed showing on subscrip-
tion. television in a community, and the event was at that time televised
on conventional television in that community, it shall not be broadcast on
a subscription basis.
PAGENO="0145"
PAGENO="0146"
142
Attachment B
Before the B
FEDERAL C0MMUNIC~TIONS COMMISSION
Washington, D.C. 20554
in the Matter of
Amendment of Part 73 of the ) Docket No. 11279
Commission's Rules and Regulations
(Radio Broadcast Services) to
provide for Subscription Television
Service. )
SECOND FURTHER NOTICE~0F PROPOSED RULE MAKING
Adopted: ; Released:
By the Commission:
1. Further notice of rule making is hereby given in the above-
entitled matter.
2. The Commission on this date has adopted a Fourth Report and
Order in this proceeding which establishes a nation-wide, over-the-air
subscription television (STV) service and promulgates rules governing that
service (FCC 67- ). Those rules which the Coi~mission has adopted do not
include any that govern the performance capability of STV systems except
for Section 73.644, which states that STV systems must be type accepted in
advance by the Commission pursuant to the type acceptance procedures estab-
lished by Part 2, Subpart F,of the Commission's Rules--Equipment Type Approval
and Type Acceptance. The standards to be used in type accepting STV systems,
however, have not been established. instead, a NOTE to Section 73.644 states
that additional rules concerning system. performance capability will be
adopted after a furt~her rule making proceeding in this docket.
3. Accordingly, the Commission is adopting the instant document
inviting comments on proposed rules governing STV system performance capa-
bility. It is the hope of the Commission that such rules can be adopted
without undue delay since, as a NOTE to Section 73.642(b) of the Rules statis,
no applications for STV authorizations will be accepted for filing until
such time as they have been adopted. Having found that an over-the-air
STV service is in the public interest, it should be given a chance to pro-
vide benefits to the public as soon as possible.
4. In the Fourth Report and Order (pares. 174-185), the Commission
decided that it would not limit STV operations to the use of a single tech-
nical system. Instead,it chose to permit the use of any system so long as
it could meet the system performance capability standards established by the
Commission. The Commission has studied detailed sp~cifications of present
or proposed SW systems submitted by parties to this proceeding. This has
helped it in the formulation of the proposed rules contained in the Appendix
attached hereto, on which comments are invited. These rules would require
PAGENO="0147"
143
-2-
adequate performance of STY systems in serving their subscribers and in
avoiding any increase of interference to conventional TV services.
5. As stated in paragraph 213 of the Fourth Report and Order,
we do not presently foresee the need for special technical operating re-
quirements for STY, and in the absence of such requirements the operating
requirements for conventional television station operation will apply.
Should any parties believe that special rules on the subject are necessary
for STV, their .uggestions and comments would be welcome.
6. Pursuant to the procedures set forth in Section 1.415 of the
Commission's Rules and Regulations, interested parties may file comments on
or before 1967. and reply comments on or before
1967. All relevant and timely comments and reply comments will be considered
by the Commission before final action is taken in this proceeding. In reaching
its decision in this proceeding, the Commission may also take into account
other relevant informttion before it in addition to the specific comments
invited by this Notice.
7. Authority for the amendments proposed herein is contained in
Sections 4(i), 301 and 303 (a), (f), and (r) of the Communications Act of
1934, as amended.
* 8. In accordance with the provisions of Section 1.419 of the
Rules and Regulations, an original and 14 copies of all comments, replies,
pleadings, briefs, and other documents filed in the proceeding shall be
furnished the Commission.
F~D~RAL COMMUNICATIONS COMMISSiON
Ben F. Waple
Secretary
Attachment
PAGENO="0148"
144
APPENDIX
1. it is proposed that Section 73.644 of the Commission's Rules and
Regulations be amended by the addition thereto of a new paragraph (b)
as follows: S
§73.644 Equipment and system performance requirements.
* * * * ` *
(b) The criteria ~or type acceptance of subscription television
systems are as follows:
(1) The system shall be capable of operating by delivering a suitable
signal to the antenna input terminals of receivers designed for reception of
a signal meeting technical standards for color or monochrome television
transmission and accompanying aural signal as set forth in Subpart E of Part
73 of the Commission's Rules. For the purpose of this requirement, a `suit-
able signal' shall be one which, except for distortion or changes caused by
the transmitting antenna, receiving antenna or entering in the propagation
medium, complies with all technical standards for color or monochrome trans-
mission and accompanying aural signal set forth in Part 73 of the Commission's
Rules.
(2) Spectral energy in transmission shall not exceed limitations set
forth in §73.687(i).
(3) No increase in width of the television broadcast channel (6 Nc/a)
shall be required.
(4) Visual power (peak or average) and aural power shall not be neces-
sary in excess of that now authorized, to provide coverage equal to that
obtained by normal transmission standards.
(5) The encoded visual and aural programs shall be recoverable without
perceptible degradation as compared to the same programs transmitted in
accordance with Commission monochrome and color standards.
(6) Internal modifications to subscribers' receiv~rs shall not be required.
(7) Interference to conventional television and subscription television,
co-channel and adjacent channel, monochrome and color, shall not exceed that
occurring from conventional television broadcasting conducted in compliance
with the standards of Subpart E of Part 73 of the Commission's Rules.
(8) Susceptibility to interference of any kind shall not be greater
than with conventional television broadcasting conducted in compliance with
the standards of Subpart E of Part 73 of the Commiss~Lon's Rules.
PAGENO="0149"
145
Mr. MACDONALD. Thank you very much.
Actually you touched on what I think is a very basic feature of these
hearings, the concern of some members of the subcommittee and the
full committee, about the right of the FCC jurisdiction to put out
licenses for subscription TV. While doing homework during the week
on this matter, I couldn't find except one case in which the court
agreed with you that you did have jurisdiction. I know it will be very
helpf iii for the committee if you can outline why you believe you do
have jurisdiction because I think that is the bedrock of this entire
hearing.
Mr. HYDE. Mr. Chairman, I believe it might be well to bring up to
date the memorandum of law that was submitted by the General
Counsel. I think the only case in point would be the appeal from the
Commission's decision authorizing the trial in Hartford,
We recognize, of course, that this was-
Mr. MACDONALD. Yes, but I have the language here. I would be
interested. The court affirmed the Commission's decision but it noted
that "distinguishing characteristic of the Federal Communications
Commission authorization of subscriptioii TV in this case is the ex-
perimental or trial basis upon which it is to operate for the duration
of its 3-year authority."
This was page 873 of that decision. It would seem to me that al-
though you buttressed the fact that fundamentally you do have juris-
diction, I would think if I were a lawyer on the other side, and I am
not, that you could use that very case against the fact that the court
felt that you had jurisdiction for an experiment but not on a full-time
basis.
I wish that you would explain your position about this. This is not
going into the merits of the thing that is pending before you but it is
just the basic question that we are concerned with here.
Mr. HYDE. Mr. Chairman, you are quite right in pointing out that
the decision we have just now cited was an appeal from a grant for
experimental authorization and to sustain the Commission's power to
grant the authority for an experiment would not necessarily imply
that we had authority to grant authority for a regular service.
But we do not base our assertion of authority and responsibility on
this case alone.
I think I
PAGENO="0150"
146
But what is the new technology basically about this? It is just a
way of getting money, is it not?
Mr. HYDE. It is a combination of technology and service concepts.
This is characteristic of developments in communications. New con-
cepts are introduced from time to time in telephone message service
for one thing. The after 9 plan was an entirely new concept.
There are new categories of mobile services that have come on from
time to time. It will be remembered that we started first with use of
radio for safety of life at sea. Then we got into such obvious safety
services as police. Then we progressed to where we used radio for
dispatching of trucks.
We have a whole host of new services that were never thought of
at the time that the Communications Act ~as first framed. I think it
was very wise on the part of Congress that they did give the licensing
agency the flexibility necessary to provide for these new uses as they
were developed.
Mr. MACDONALD. We are operating under the 5-minute rule. I am
going to hold myself to it. I just have one other question which has
been bothering me and it is a very small question perhaps.
On page 4 of the report by your Subscription Television Com-
mittee-again I am not going into the merits of it, I just want your
observation on it-you talk about feature films and according to what
I read the main thing that went well in Hartford were old films and
sports.
I suppose that would be true on a nationwide basis as well.
Mr. HYDE. The Committee report-I am referring to the FCC's
Committee on Subscription Television-pointed out that perhaps the
staple and backbone of the Hartford experiment were feature films
which had not been made available to conventional TV.
Mr. MACDONALD. And also sports.
Mr. HYDE. And sports.
Mr. MACDONALD. I repeat, I am under the 5-minute rule and I want
to adhere to it.
Since I follow sports I could not quite figure out the attitude about
the sports feature in pay TV when it says sports events may not be
broadcast on STV which were regularly televised within the com-
munity within the 2 years preceding the proposed STV broadcast.
My question is this: Is that sort of like the option that professional
football players have, say the Redskins, although they have broadcast
on so-called commercial TV, not so-called commercial TV but coni-
mercial TV, if they wanted to they could play out their option and not
broadcast on commercial TV for 2 years and then be locked up com-
pletely by pay TV?
Mr. HYDE. I believe it was the Committee's thought that the rule
they have suggested here would prevent what is called in the trade
"siphoning" of spectacles now shown on free TV over to pay TV.
Mr. MACDONALD. Right.
Mr. HYDE. This 2-year period was a test to determine whether or
not the spectacle about to be shown was one that would have been free
except for subscription TV use.
Mr. MACDONALD. The answer to my question then is "Yes."
If the Redskins or the Forty-Niners or anybody, the Chicago Bears,
the Boston Patriots, don't want to go along with commercial TV for a
PAGENO="0151"
147
2-year period, then to all intents and purposes they can refuse to be
shown on commercial TV and can only be seen on pay TV.
Is that right?
Mr. HYDE. For 2 years that would seem to be the result, yes.
Mr. MACDONALD. No, the 2-year period is just the period they play
out their option.
Mr. HYDE. That is right.
Mr. MACDONALD. They penalize themselves for losing commercial
revenue for 2 years. But then they go completely pay TV, is that right?
Mr. HYDE. Yes.
Mr. MACDONALD. In other words, it is conceivable that if all the
major league teams and baseball and football decide to play out their
option, there would be no sports on TV commercial, so-called free TV,
at all after a period of 2 years.
Is that correct?
Mr. HYDE. May I say this point has been made in the discussion
before us and we will have to examine that.
I think we are getting into the issues of the hearing before us and
you will excuse me if I say that we have to study that.
Mr. MACDONALD. Thank you very much.
Mr. Kornegay.
Mr. KORNEGAY. Thank you, Mr. Chairman.
Mr. Chairman, it is nice to see you here this morning.
Pursuing the question of jurisdiction raised by the subcommittee
chairman, I want to build as much a record on this point as I can.
As I gather from what you said to the chairman, Mr. Chairman,
there is no question in your mind or the mind of the Commission about
the fact that the present law gives you the authority to authorize the
establishment of subscription television throughout the country?
Mr. HYDE. The Commission does take the position that it has the
authority and it has the responsibility to act upon the various peti-
tions that have been addressed to the Commission.
Mr. KORNEGAY. How do you reconcile that position with the legisla-
tive history or with the history of events relating to this matter that
are enumerated a~nd well set forth in this statement?
It was in 1958 when the House Committee on Interstate and Foreign
Commerce, February 6, adopted a resolution expressing the sense of
the committee that FCC should not grant authorizations for subscrip-
tion television operations contemplated in the first report unless and
until the Communications Act of 1934 is amended so as to specifically
empower the Commission to grant such authorization.
I was not here at that time but I gather from your statement that
this resolution passed by this committee expressing the sense of the
committee and was not in fact passed by the Congress.
Is that right?
Mr. HYDE. Congressman Kornegay, that would be correct.
I do not want to indicate by this any lack of respect for the views
of the committee at all. The committee did authorize the experiment.
Mr. KORNEGAY. I am not raising the point to put you on the spot. I
just want to get in the record as to where we are. I don't know.
Mr. HYDE. As a matter of law I would assert that the resolution of
the committee did not amend or modify the statutory responsibility
already vested in the Commission.
PAGENO="0152"
148
operation and that is
We would now welcome congressional guL~
Mr. KORNEGAY. Going back to 1959, prior to the adoption of the reso-
lution which you referred to on page 5 of your statement, did the Com-
mission request the committee to take action on this resolution?
Mr. HnE. I do not believe we did.
.1 think the idea originated with the committee. I think the committee
became concerned about the development. A number of bills, I am told,
had been introduced regarding the concept of pay TV. I am sure these
matters brought it to the attention of the committee.
Mr. KORNEGAY. Was that resolution of March 26, 1959, actually
passed by the House?
Mr. HYDE. To the best of my knowledge there has been no resolution
by the House.
Mr. KORNEGAY. I thought I would go into this because it was not
spelled out in your statement.
Mr. HYDE. We undertook to recite the entire legislative record
here. If I omitted anything it was an oversight.
Mr. KORNEGAY. ~ow you do have for the record copies of the fourth
report?
Mr. HYDE. Yes, we do. We will be pleased to supply them for the
record of this proceeding. (See p. 15.)
Mr. KORNEGAY. That is all, Mr. Chairman.
Mr. MACDONALD. Mr. Broyhill.
Mr. BR0YrnLL. Thank you, Mr. Chairman.
Mr. Chairman, it is good to see you here today.
It is true that throughout the years this committee has consistently,
as I view the record and my study, held to the position that the Fed-
eral Communications Commission did not have the full authority to
implement a nationwide STV system.
Would you agree with this conclusion?
Mr. HYDE. I would agree that the committee has tended to take the
view that the FCC. did not have the authority. This is the force of the
resolution that was adopted.
The new resolution only went so far as to consent to an experiment.
Mr. BROYHILL. That is the point I was getting to.
In the past you have abided by the apparent feeling of the chairman
of the committee on STV and when the committee in the late 1950's
adopted a resolution calling for experiments, the FCC abided by this
mandate.
Is that correct?
Mr. HYDE. I feel that we have cooperated fully with the committee,
that is right.
Mr. BROYHILL. Like the chairman, I have studied this situation
and all the information available to me, in recent weeks. In my mind I
question whether the Federal Communications Commission has full
authority.
PAGENO="0153"
~aking decisitn
~ions of the Communications Act and you are stating
that ~ J is broadcasting.
Mr. HYDE. We do state that STV is broadcasting.
Mr. BR0YrnLL. Yet, it seems that the Commission is recommend-
in~ rules under which the~ FCC would go far beyond w~
quire ti ~broa1 Lasters to C'
thet S
is unique, it is ~ t, it goes
~ that the Commission has provided in other cases.
- ~iri.. It is also not true that in the court case on your
experimental system in Hartford, Coun., the court case really went
to the question of whether or not you had the authority to authorize
a trial test, it did not go to the question of whether or not you had full
authority?
Mr. HYDE. The case litigated was for application for experimental
authority.
Actually, I am not personally familiar with the briefs and the
issues as they were raised before the court. I would prefer to have our
general counsel discuss that further. For t'
that if it would r~L L1~ ~1 P
PAGENO="0154"
150
the Communications Act of 1934 which the Commission believes constitute
authority for the authorization of subscription television service.
On February 6, 1958, the House Committee on Interstate and Foreign Corn-
inerce adopted a resolution expressing the sense of the Committee that the
Commission could not authorize subscription television absent amendment of
the Communications Act of 1934. A second resolution, of March 24, 1959, stated
the Committee's view that the earlier resolution should not preclude the grant
of an authorization for trial or experimental operations, under the terms of the
Commission's Third Report in Docket No. 11279, 26 F.C.C. 265 (1959).
On February 23, 1961 the Commission granted an application of Hartford
Phonevision Company for an authorization to conduct an experimental sub-
scription television " `~~` WHCT, Hartford, Connecticut. Hart-
ford Phonevision U' " ~ was made after hearing, and
upon the basis of t )rt in Docket No. 11279. Upon a~-~l to
`~e United S'~'~ t of Appeals for the District of Colum'~'- "~-~ the
mmisr'~'~ challenged both with respect to its jurisi
- on ser'~ of thi
+7. The Court it~.4f characterized the ~ntent~,~,
that the Commission lacked statutory power to authorize any
cast system which required the direct payment of fees by the public. Thus, it
stated (301 F.2d at 837) that the first issue was whether "the Commission lacks
statutory power to authorlze a television broadcast system which requires the
direct payment of fees to the public." On this issue, it stated (301 F.2d at 837)
"The Federal Communications Commission was established In 1984 under a
lypically broad grant of power by which the Commission was authorized by
Congress, subject to limitations not pertinent here, to issue a broadcasting station
license to any applicant `if public convenience, interest and necessity will be
served thereby.' 47 U.S.C.A. *307(a). Additionally, Congress specifically com-
manded the Commission by Sec. 303(g) of the Communications Act, to `study
new nses for radio, provide for eamperisn~enta,~ nses of frequencies, and generally
encourage the larger and more effective use of radio in the public interest.'
(Emphasis added.) The plain language of the statute thus makes clear that Con-
gress placed an affirmative duty on the Commission to experiment with and de-
velop the most desirable deployment and utilization of the nation's communica-
tions facilities. The Supreme Court has said that `where the language of an
enactment is clear, and construction according to its terms does not lead to absurd
or impractical consequences, the words employed are to be taken as the final
expression of the meaning intended.' United States v. Missouri Pac. R.R. Co.,
278 U.S. 269,278,49S. Ct. 133,136,73 L. Ed. 322 (1929)."
The opinion goes on to refer to "the distinguishing characteristic" of the
authorization as the experimental nature of the grant, in response to the
appellant's arguments that the grant was made with inadequate knowledge of
the programming plans of WHCT and that it had not been shown that these
plans would serve the public interest. And, noting its assumption that the Coin-
mission would `carefully scrutinize the operation and oversee the form which
programming would take under the' subscription system, the Court added:
"Surely its power to see that this area of the public domain is used in the public
interest is not less for `paid' television than for the existing system of so-called
`free' television." (301 F2d at 838.) At no point In its opinion does the Court
indicate that the authority found in the statute is limited to the grant of an
experimental license Thus the Commission s position Is I believe fully supported
by the opinion of the Court of Appeals.
Furthermore, when certiorari by the Supreme Court was sought by the ap-
pellant, the Solicitor General, on behalf of the Federal Communications Com-
mission, advised the Supreme Court that the Court of Appeals' decision was not
limited to the `question of authorization of an experimental operation, since basic
jurisdiction must be present whether the authorization be for a trial or permanent
opOratlon A copy of the opposition to certiorari is enclosed as attachment B. See
footnote 8 therein.
I
PAGENO="0155"
151
In sum, I believe that the Commissioti's power to authorize subscription tele-
vision operations under the broad provisions of the Communications Act of 1934
has been judicially confirmed. I hope that this letter satisfactorily explains the
position of the Commission.
Sincerely yours,
RosuL H. HynE, Chairman.
ATTACHMENT A-MEMORANDUM OF LAW CONCERNING AUTHORITY or THE FEDERAL
COMMUNICATIONS CoMMISsIoN To AUTHORIZE SunscRwrxoN TELEVISION OPERA-
TIONS
The several proposals for subscription television on which the Federal Com-
munications Commission is conducting a rule making proceeding (Docket No.
11279) raise the threshold question of whether the Commission has the authority
under the Communications Act of 1934, as amended, to authorize the use of radio
frequencies for a subscription television service.
For the purposes of this Memorandum of Law the term "subscription tele-
vision" is used to describe the broadcast or aural and visual portions of televsiion
programs in scrambled or encoded form which cannot be received in intelligible
form except by the use of decoding devices attached to the television receiver and
the payment of a charge for the decoding process.
THE STATUTE
The Communications Act of 1934, as amended, like the Federal Radio Act of
1927, contains neither express authorization nor express prohibition of the li-
censing of radio frequencies by the regulatory body for a subscription service.
The Commission's general powers to authorize the use of the radio spectrum
by broadcast station licensees are found principally in Sections 301, 303 and
307(a) of the Communications Act. The underscored portions of the following
excerpts appear to be relevant to the jurisdictional question under consideration
in this memorandum.
(italic is supplied).
Section 301 states in relevant part: "It is the purpose of this Act, among other
things, to maintain the control of the United States over all the channels of
interstate and foreign radio transmissions: and to provide for the use of sue/v
channels, but not the ownership thereof, by persons for limited periods of time,
under licenses granted by Federal authority".
Section 303, in relevant part, empowers and directs the Commission "as public
convenience, interest, or necessity requires" to:
(a) Classify radio stations;
(b) Prescribe the nature of the service to be rendered by each class of
licensed stations and each station within any class;
(c) Assign bands of frequencies to the various classes of stations, and
assign frequencies for each individual station and determine the poWer which
each station shall use and the time during which it may operate;
(d) Determine the location of classes of stations or Individual statiOns;
(e) Regulate the kind of apparatus to be used With respect to its external
effects and the purity and sharpness of the emissions from each station and
from the apparatus therein;
(f) Make such regulations not inconsistent with law as may deem neces-
sary to prevent interference between stations and to carry out the provisions
of this Act...
(g) Study new uses for radio, provide for experimental uses of frequen-
cies, a'nd generally encourage the larger and more effective use of radio in
the public interest.
Section 307(a) provides: The Commission, if public conivenience, interest, or
necessity will be served thereby subject to the limitations of this Act, shall grant
to any applicant therefor a station license provided for by this Act."
The broadcast licensing powers of the Commission deriving from the fore-
going excerpts from the Communications Act are qualified in certain respects by
specific limitations legislated in express provisions of the law. For example, Sec-
tion 310(a) provides, in substance, that station licenses shall not be granted to or
held by aliens, foreign governments, or corporations organized under the law of
any foreign government. Section 311 prohibits the grant of a station license to any
person whose license has been revoked by a Court under Section 303 relating
to application of anti-trust laws to Commission licensees. Section 315 lays down
PAGENO="0156"
152
radio comn -
The fore mal p
specific tex e iimitat impo
general power t license the ~i Ldio fre des. I
limitations as the foregoing, uo~ ~s has Ld down -
that as a condition to the issuance of licenses authorizing the use of r.
frequencies, the `C~mmission determine that the public Interest, convenience or
necessity would be served thereby. Thus, the authorization of subscription tele-
vision would be subject to the requirement of such a finding. There appears to be
no other language in the statute suggesting Congressional intent to limit further
or to prohibit authorization by the Commission of subscription radio or tele-
Vision operations.
The bare language of the statute must be read, however, in the context of the
history of broadcasting and the circumstances of the industry at the time the
relevant portions of the statute were enacted.
LRGISLATIVE HISTORY
There is little in the legislative history of the Communications Act of 1934,
or any of the amendments thereto which casts light on Congressional intent re-
inling to the powers of the Federal Communications Commission to authorize
the use of radio frequencies for subscription programming involving the en-
coding of broadcast signals and the payment of a charge Incidental to the re-
ception of subscription programs in intelligible form. Congressional debates and
actions relating to the predecessor Radio Act of 1927 do, however, make some di-
rect reference to the question, Since the relevant portions of the Communications
Act of 1934, constituted virtual re-enactment of provisions of the earlier law
it is appropriate to consider the legislative history of the earlier Act in this
respect, particularly since there had been no change between 1927 and 1934 in
the universal practice of transmitting broadcast programs in the clear and their
reception `by the radio audience without the payment of any fee or charge.
In these circumstances the legislative history of the Radio Act of 1927 may be
usefully studied with a view to determining whether Congress intended that the
established universal practice of the broadcast industry of relying on advertising
revenues and of broadcasting prograin~ which could be received free of charge
to the viewer, theretofore a voluntary practice, become mandatory under the
1927 statute.
It seems clear that so-called "free" broadcasting was not mandatory prior
to 1927. The limited powers of the Secretary of Commerce under prior laws
were inadequate even for the enforcement of the terms of licenses issued by him
designating the frequencies on which licensees were to operate. A careful `review
of the legislative history of the Radio Act of 1927, however inconclusive it may
be in some respects, gives little support to the theory, put forward `by some
parties to the Commission's subscription television proceeding, that Congress in-
tended to prohibit authorization by the Federal Radio Commission of sub-
scription radio. In light of the legislative history, which is briefly summarized in
this Memorandum, it appears unlikely that if such had been the intent of Con-
gress, it would have relied upon merely inferential limitations on the otherwise
broad powers conferred on the Commission. As will be seen, the question of sub-
scription radio was debated and was the subject of certain Congressional actions.
Yet, the legislation as finally enacted contained no language specifically prohib-
iting subscription radio, while express limitations were laid down in relation to
other matters, already mentioned in which Congress intended to limit the other-
wise broad licensing powers conferred on the Commission.
PAGENO="0157"
PAGENO="0158"
154
By the time the Federal Communications Act of 1934 was enacted, there
had been no change in the universal practice of financing broadcast operations
by selling time to advertisers, a fact which presumably explains the lack of
attention to the question of subscription broadcasting during the debates on
the new statute. Since 1934, a nun~ber of Bills have been introduced in Congress,
including H.R. 586, introduced during the current session by Represenative
Celler of New York, which would operate to prohibit authorization of broadcast
frequencies for subscription television. It is understood that none of these Bills
have been reported out of Committee. Their introduction appears to reflect an
assumption on the part of the sponsors that in `the absence of some such specific
prohibition, the Commission is not barred under the provisions of the present
statute from authorizing subscription television operations, provided of course
the basic requirement of a finding that subscription television service would be
in the public interest, is met.
CLASSIFICATION OF SURSOMPTION TELEVISION
The Radio Act of 1927, contained no definition of broadcasting. The present
Act, in Section 3(o) defines "Broadcasting" as "the dissemination of radio com-
munications intended to be received by the public, directly or by the intermediary
of relay stations." Section 3(h) of the Act defines "common carrier" or "carrier"
as "any person engaged as a common carrier for hire, in interstate or foreign
communication by wire or radio or interstate or foreign radio transmission of
energy, except where reference is made to common carriers not subject to this
Act; but a person engaged in radio broadcasting shah not, insofar as such person
is so engaged, be deemed a common carrier." (italics supplied) Thus, under the
statute, broadcasting and common carrier services are mutually exclusive
classifications.
A number of parties to the subscription television proceeding (Docket 11279)
have submitted contradictory views concerning the question of whether sub-
scription television is properly classifiable as a broadcast service, a common
carrier service or some other kind of service not specifically defined in the
Act. The various views on this question are not discussed in this Memorandum,
the scope of which is limited to the question of whether the Commission has
jurisdiction to authorize subscription television. It is ~vell established that
the Commission has time power to authorize the use of broadcast frequencies
for non-broadcast radio services. Thus, the question of whether subscription tele-
vision falls within or outside the scope of "broadcasting" as defined in Section
3(o) of the Act is not controlling on the question of Commission jurisdiction. An
example is furnished by the Commission's action authorizing FM stations under
stated conditions to render what is called a functional music service which is
primarily non~broadcast in nature and which is fum-nished to subscribers under
contracts with FM stations calling for the payment of a charge for the service.
The questioll of the possible classification of subscription television as "broad-
casting" shall be ~ "- y in the light of the defimtion in section
~\, but r1~ in r ~ations deriving from other sections of the
`~tion 315, 317, 325, 326 and 605. A
-~-~ `~ -` ~`-~ on of section
1~,..~~ -~ ..-~ 4
subscription telei
the meaning of - 3(o) of the ( omnmun )ns ~ y be
classifiable as some other types of services, in v tem-
plated in this Further Notice, it is necessary or ~ -~ that `r to
reach final conclusions at this stage concerning the proper classi on of sub-
scription television. While we recognize the importance of settling question,
e believe that it would be premature to attempt to decide it until we have ad-
tional information concerning the manner in w1~ich subscription television, if
ithorized, would operate in actual practice."
pted: July 3, 1957.
PAGENO="0159"
155
ATTACHMENT B
Uu~ ~ ~aurt 9Jf tke ~hUt1~L ~tatess
OCTOBER TERM, 1962
COMMIp~E AGAINST PAY TV, ~
PETITIONER
ON PETITION FOR 4 WRIT OF UERTIORAEI TO
STATES COURT OF APPE4L~ FOR THE DISTRICT ~
UIRCUIT
BRIEP FO1~
The opinion of
1-7) is reported at
Third Reports on Sul
eral OOmmufljcat ions
COfldjtj~~5
thorjze a
~VSjon h
ported uj
CONNECTICUT
No. 161
V.
FEDERAL COMMUNICATIONS COMMISSION
OPINIONS BELoW
rescribing
PAGENO="0160"
)fldUct
151 et seq., are
PAGENO="0161"
PAGENO="0162"
158
tion until 30 days after the adjournment of the 85th
Congress. This Report followed the introduction in
Congress of a number of bills which would have either
prohibited subscription television or restricted the
Commission's authority to authorize it,1 as well as
adoption of resolutions by the House and Senate In-
terstate Commerce Committees proposing that the
Commission withhold action until specifically author-
ized by Congress (id. at 1539-4540).
When none of these pending bills were acted upon
by Congress, the Commission on March 23, 1959,
adopted a Third Report in Docket No. 11279, 26
F.C.C. 265, in which it decided to process applica~
tions ified in conformity with revised requirements
~et forth therein. These requirements provided, inter
alia, that trials would be authorized only in cities with
four, or more commercial television services; that trial
authorizations would he limited to a three-year period,
not renewable as of right; and that the licensee would
be required to retain control of programs and sub~
scription rates and to furnish periodic and other
special reports to the Commission concerning all as-
pects of the subscription television operation, includ-
ing the fixing and collection of fees (26 F.C.C.
267-272). In order to insure against a premature
establishment of subscription service, the Commission
added further requirements (1) limiting the trial of
any one system to one city and permitting only one
trial c~peration in any particular community, and (2)
`See, e.g., H.R. 586, 85th Cong., 1st Sess.; S. 3201, 85th Cong.,
2d Sess.; H.R. 9629, 85th Cong., 2d Sess.; S. 2934, 85th Cong.,
2d Sess.
PAGENO="0163"
159
prolnbitmg the sale to the public of the special rec~i~
ing devices required for subscription television (Id. at
266).
At the same time the Commission reaffirmed (26
F~C.C. 266) its intention, announced in the First
Report, to hold full public hearings before reaching
a decision on the permanent authorization of sub-
scription television (23 F.C.C. 556):
The Commission will, when it finds that suffi-
cient, meaningful data are available from trial
subscription television operations, conduct a
public hearing at which all interested parties
* will have full opportunity to submit informa~
tion, data and views concerning the foregoing
* [specified public interest questions] an4 any
other questions which remain to be answered in
reaching a decision as to whether the authoriza-
tion of a subscription television service on some
extended or continuing basis would serve the
public* interest..
On March 26, 1959, the House Interstate Commerce
~Committeé adopted a resolution stating that it had
no objection to the authorization of trial subscrip~
tion television: operations as contemplated in the
Third Report (105 Cong. Rec. 5362-5363).
On June 22, 1960, Hartford Phonevision Company
(RKO) 2 ified an application for authority to conduct
trial subscription television operations over its tele-
vision station WHCT in Hartford, Connecticut, dur-
2 The name of the applicant was subsequently changed to
BKO Fhonevision C9mpany, and is now RICO General Phone-
yision company See niot~on of RICO Geneial Phonevision
Company for leave to be named a party i espom~lent~ in this
Court1.
PAGENO="0164"
160
by
ambles"
audio signals
a decoder, r'
which restores
and maintenance ser'
of from 25 cents to
advei
consist
gramming for which the I
an admission charge), I
system
standa
PAGENO="0165"
PAGENO="0166"
162
or modified at any time upon notice and heaiing (id
at 321-322).
The court of appeals affirmed the Commission's
decision on March 8, 1962 (Pet. App. 1-7). It did
not accept the contention of petitioners that the Comrn
mission lacks statutory power to authorize a system
which requires the direct payment of fees from the
public The court found that the Commission was
given a "broad grant of power" by Congress, subject
to limitations not peitment here, to issue a license to
any applicant if the public interest would be served
(47 U.S.C. 307(a)), and that Congress had specifically
commanded the Commission in Section 303(g) of the
Communications Act to "study new uses for radio,
provide for experimental uses of frequencies, and
generally encourage the largei and more effective use
of radio in the public interest"(Pet. App. 5-6). Th~
court held that the plain language of the statute: "thus
makes clear that Congress placed an affirmative duty
on the Commission to experiment with and develop the
most desirable deployment and utilization of the na~
tion's communications facilities" (Pet. App. 6).
Finding that the distmguishmg chaiacteustic of the
authorization in this case was its trial nature, the
court of appeals also rejected the contention that the
predicted dangers of a trial of subscription television
rendered such a trial contrary to the public interest
(Pet. App. 6-7). It noted that every license for fu~
tur~ operation necessarily involves some predictions
as to an uncertain future, and found reasonable the
Commission's determination that "the public benefits
anticipated by the Commission warrant the risks of
PAGENO="0167"
163
the experiment" (Pet. App. 6). The court also
pointed out, in this connection, the power retained by
the Commission to terminate the trial upon notice
and hearing at any time prior to the expiration of
the 3-year period, and the Commission's expressed
determination to oversee carefully the conduct of the
trial.
ARGUMENT
1. The only issue properly before the Court is
whether the Federal Communications Commission
is empowered to authorize on a trial basis a sub-
scription television system which requires the pay~
ment of direct fees by the public.5 The decision
below, upholding this power, was correct and no
further review by this Court is warranted.
Petitioners' contend (Pet. 17-20) that, bec~tuse o~
the novel nature of subscription television, the Corn,
mission is without power to license it, in the absence
of .a specific affirmative grant of such power in the
communications ~4~ct. This contention rests on a
misreading of the Act which, as found by the court
~ "The dangers inherent in a pay-TV operation" set forth
at pages 15-17 of the petition represent petitioner~ predic-
tions of the effects of permanent authorization of subscription
television and do not. provide a reason for the grant of cer-
tiorari in this case. It is for the precise purpose of providing
operational data which will enable the Commission to evaluate
the impact and benefits of subscription television before. de-
ciding whether to authorize it on an extended basis, that this
trial was authorized. A determination of the public interest
objections to permanent operation asserted here by petitioners
~ill~ l~e made ~!,t a ~further he4ring to be held by the Commission
at £hc condiis~on of the trial operation (2~ F C C 556)
PAGENO="0168"
164
of appeals, confers a "broad grant of power" upon
the Commission (Pet. App. 5). Thus, Section 307(a)
authorizes the Commission, subject to limitations not
pertinent here, to grant a station license to any app1i~
cant "if public convenience, interest, or necessity
will be served" (47 U.S.C. 307(a); Pet. 6). Sections
303(a) and (b), 47 u.s.c. 303 (a), (h), Pet. 4),
empower the Commission to classify stations and to
prescribe the nature of the service rendered by each
class of station and each station within any class.
Congress, in Section 303(g), also directed the Com~
mission, "Except as otherwise provided in this Act,"
to "Study new uses for radio, provide for experi~
mental uses of frequencies, and generally encourage
the larger and more effective use of radio in the
public interest" (47 U.S.C. 303(g); Pet. 5). Since
there is no provision in the Communications Act
either prohibiting a service requiring the direct pay~
ment of a fee by the public or limiting the use of
radio frequencies to those services which were com~
mon when the law was enacted, these provisions,
without more, afford ample basis for the Commis~
sion's action and a full answer to petitioner's attack
upon it.
The Communications Act does not itemize the types
of radio service which the Commission is authorized
to license and neither the statute nor the cases in~
terpreting it provide a ground for petitioners' asser~
tion that such specific authorization should be re~
qu.ired in the case of subscription television.6 For,
* The authorization of a subscription service is not without
precedent. See In the Matter of Musak Corporation, 8 F.C.C.
PAGENO="0169"
PAGENO="0170"
166
firmative duty. . . to experiment with and develo
the most desirable deployment and utilization of 1±
nation's communications facilities" (Pet. App. 6
The license challenged here falls squarely within ti
scope of that duty.8
2. Petitioners' contention (Pet. 22-25) that tli
Commission erred in authorizing a trial subscriptio
television operation without first determining whethc
it can or should regulate rates, is raised for the flr~
time in the petition and is therefore not properl
before the Court. This allegation of error was nc
included in the notice of appeal or in the stipulate
issues ified with the court of appeals (J.A. 1-4~
Contrary to petitioners' present contention (Pet. 2~
fn. 27), it was not presented to the court of appeal
in the briefs below.9
* Petitioners also urge (Pet. 20-21, 22) that, while the Con:
mission found it had statutory power to authorize subscriptio
television on a regular, permanent basis, the court of appeal
did not reach this question ftnd found such authority only t
authorize a trial test We do not believe this to be a correc
evaluation of the opinion below, so far as the issue of basi
authority raised by petitioners is concerned. Statutory suppor
for the Commission's jurisdiction to authorize a system requir
ing the payment of fees by the public is equally necessar
whether that authorization be for a trial or a permanent opera
tion. Neither the Commission nor the court below (nor, indeed
petitioners) made the alleged distinction As petitioners recog
nize (Pet. 21, fri. 23), the court below correctly stated petition
ers' contention as a broad attack on the Commission's statutor~
power to authorize any system requiring the direct payment o:
fees from the public.
~ their briefs before the court of appeals (copies of whici
are being lodged with this Court), petitioners assumed that th~
Commission had no power to regulate rates in arguing that ii
had no power to authorize subscription operations, but did nol
PAGENO="0171"
167
In any event, the contention is without merit. This
is a trial authorization. The information obtained
will assist the Commission in determining whether
rates should be regulated, and, if so, what kind of
regulation would be required and whether additional
legislation might be desirable (see First Report, 23
F.C.C. 531, 533). Petitioners' assertion, made for the
first time here, that the Commission was required to
answer these questions in advance of the trial authori~
zation would put the cart before the horse. More~
over, the absence of such a determination in no way
threatens the public interest. Should the rates
charged for the trial service prove objectionable at
any time, the Commission, which has required the
licensee to retain control over maximum charges (30
F.C.C. 311-312) and has itself retained the power to
revoke or modify the authorization upon notice and
hearing (Id. at 321-322), is amply prepared to act.
The short answer to petitioners' contention that the
Commission erred in failing to determine its power
to regulate the rates charged when and if permanent
operations are authorized, is that the trial authoriza~
tion being contested in this case nowhere presents
that question. It will be time enough to consider this
issue when the Information to be obtained by the trial
operation is available and when the question whether
to authorize a permanent operation is before the Com~
mission.
urge that the Commission had erred by failing to consider
whether it could or should regulate rates (Brief for Appel.
lants, pp 20-21, 22-23, Reply Brief for Appellants, pp 2-6)
PAGENO="0172"
MAX D. PAGLIN,
General Counsel,
DANTh~L R. ORLBALTh~,
Assistant General Counsel,
RijTIE V. R~L,
Attornell,
FecierO2 Comfl~fliC0~i0ns Commission
f~JLY 1962.~
PAGENO="0173"
169
Mr. BROYHILL. I have no other questions at this time, Mr. Chairman.
Mr. MACDONALD. Mr. Van Deerlin.
Mr. VAN DEERLIN. Good morning, Mr. Chairman.
In the event that the decision were to go forward with this sub-
scription television system, has the Commission given any thought,
Mr. Chairman, to the guidelines it would impose in awarding licenses?
I have visions, in every market area, of all current licensees apply-
ing to provide the subscription signal.
Mr. HYDE. Nothing beyond what has been suggested in the commit-
tee's recommendations, Congressman Van Deerlin. We have not, as a
matter of fact, had an opportunity to discuss the committee's report
since the oral argument. Attachment B to the committee's report, a sug-
gestion for further rulemaking going to technical standards, very
general ones, was released by the Commission for comments on
July 26.
(The document referred to follows:)
BEFORE THE FEDERAL COMMUNICATIONS COMMISSION, WASHINGTON, D.C.
FCC 67-891-3085
In the matter of Arn,endment of Part 73 of the Commission's Rules and Regula-
tions (Radio Broadcast Services) to provide for Subscription Television
Service
(Docket No. 11279)
ORDER SETTING ORAL ARGUMENT AND SECOND FURTHER NOTICE OF PROPOSED RULE
MAKING
(Adopted July 26, 1967; released July 31, 1967)
By the Commission: Commissioners Bartiey, Lee and Loevinger absent.
1. The Commission has before it for consideration its Order released in this
proceeding on July 14, 1967 (FCC 67-819; 32 P.R. 10606, July 19, 1967), and
the Attachment thereto which consisted of a Rer'~rt of the Comr~~n's
seription ~elevlsion Committee ~ T~17 3~ ~ 1~ ~ ,.l.~4- .~-
aid in ~ 1
which might
- and Order are made.
4. `] e reason for the decision to issue the Second Further Notice of Proposed
Rule Making at the present time is that this will permit the Commission to give
consideration to the technical matters concerning system performance capability
sooner so that if, after oral argument, it should be decided to establish an STV
PAGENO="0174"
170 ., ~ I
service and not limit it to the use of a single technical system, the technical
and other matters can he considered concurrently and the new service could get
under way with a minimum of delay. * ~
5. It is emphasized that the decision to issue the Second Fifrther Notice of
Proposed Ithie Making at this time is not to be construed as a prejudgment of
the basic Issue of whether a nation-wide STY service should be established, or
if the issue of whether, if authorized, STV should be restricted to the use of a
single technical system or permitted on any system which meets general system
performance capability standards established by the Commission. The decision,
it is repeated, is solely for the purpose of expediting an earlier commencement
of the service should it be decided that such a service is in the public interest
and that use of multiple systems should be permitted.
6. The Commission has studied detailed specifications of present or proposed
STY systems submitted by parties to this proceeding This has helped in the
formulation of the proposed rules contained in the Appendix attached hereto
which would permit the use of any STY technical system which meets the
standards set therein. These rules would require adequate performance of STY
systems in serving subscribers and in avoiding, any increase of interference to
conventional TV services.
7. The Commission does not presently foresee the need for special technical
operating requirements for STY, and in the absence of such requirements the
operating requirements for conventional television station, operation will apply.
Should . any parties believe that special rules on the subject are necessary for
STV, their suggestions and comments would be welcome.
8. Authority for the rule amendments proposed herein is contained in Sections
4(1), 301 and 303(e), (f), and (r) of the Communications Act of 1934, as
amended. *
9. Accordingly, it is ordered, That pursuant to the procedures set forth in
Section 1.415 of the Commission's Rules and Regulations, interested parties may,
in response to the Second Further Notice of Proposed Rule Making, file com-
ments on or before September 29, 1967, and reply comments on or before
October 20, 1967. All relevant and timely comments and reply comments will
be considered by the Commission before final action is taken in this profeeding.
In reaching its decision in this proceeding, the Commission may also take into
account other relevant information before it in addition to the specific comments
invited by this Notice.
10. It is further ordered, That, in accordance with the provisions of Section
1.419 of the Rules and Regulations of the Commission, an original and 14 copies
of all comments, replies, pleadings, briefs, and other documents filed in the
proceeding shall be furnished the Commission.
11. It is further `ordered, That oral argument will be held In this procebding
at the Commission's offices in Washington, D.C., on October 2, 1967.
12. It Is further ordered, That parties interested in participating in said oral
argument shall ndtify the Secretary of the Commission in writing on or before
September 15, 1967, briefly setting forth their intention to appear at the
argument, their position in this matter, and the approximate amount of time
they wish to use in argument: Provided, That Interested parties may, in addition
to the aforementioned brief submission submit (in a separate filing) written
comments or outlines `of their arguments, not to exceed 50 pages, on or before
September 15, 1967, pursuant to our Order released on July 14, 1967, in this
docket: And provided further, That the aforementioned brief submissions, com-
ments, and outlines of arguments shall not be addressed to that portion of the
report of the Subscription Television Committee dated July 3, 1967, which
consisted of the Second Further Notice of Proposed Rule Making pertaining to
system performance capability standards.
13. It is further ordered, That after the various requests filed pursuant hereto
are received, the amount of time allowed to variou~ parties will be Specified by
further Order, which `will also set forth the order of presentation.
FEDERAL CoMMUNICATIoNS CoMMIssIoN,
BEN F. WAPLE, secretary.
APPENDIX
1. It is proposed that Section 73.644 of the Commissions Rules and Regulations
be amended by the addition thereto of a new paragraph (b) as follows:
§ 73.644 l~Jquipment and system performance requirements.
* * * * * * *
PAGENO="0175"
171
(b) The criteria for type acceptable of subscription television syStems are as
follows:
(1). The system shall be capable of operating by delivering a suitable signal to
the antenna input terminals of receivers designed for reception of a signal meet-
ing technical standards for color or monochrome television transmission and
accompanying aural signal as set forth in Subpart E of Part 73 of the Commis-
sion a Rules For the purpose of this requirement a suitable signal shall be one
which, except for distortion or changes caused by the transmitting antenna, re-
ceiving antenna or entering inthe propagation medium, complies with all technical
standards for color or monochrome transmission and accompanying aural signal
set forth in Part 73 of the Commission's Rules.
(2) Spectral energy in transmission shall not exceed limitations set forth in
§73.687 (1).
(3) No increase in width of the television broadcast channel (6 Mc/s) shall be
required.
(4) VIsual power (peak or average) and aural power shall not be necessary
in excess of that now authorized, to provide coverage equal to that obtained by
normal transmission `standards.
(5) The encoded visual and aural programs shall be recoverable without per-
ceptable degradation as compared to the same programs transmitted in accord-
ance with Commission monochrome and color standards.
(6) Internal modifications to subscribers receivers shall not be required.
(7) Interference to conventional television and subscription television, co-
channel and adjacent channel, monochrome and color, shall not exceed that oc-
curring from conventional television broadcasting conducted in compliance with
the standards of Subpart E of Part 73 of the Commission's Rules.
(8) Susceptability to interference of any kind `shall not be greater than with
conventional television broadcasting conducted in compliance with the standards
as Subpart E of Part 73 of the Commissior~'s Rules.,
Mr. HYDL I would expect that if the Commission did move ahead
after due deliberation on the record we have, that there would have
to be some furthei~' consideration as to how we went about it.
Mr. VAN DEERLIN. What consideration has been given to the im-
pact of CATV?
Mr. HYDE. It is discussed to some extent in the committee's report
here. I may say the community antenna activity has all developed
since subscription TV was first suggested and has largely become a
factor in broadcasting while this case has been under consideration..
The committee notes it and indicates that in its judgment the~Com-
mission should not wait for the further development of community
antenna business.
Mr. VAN DEERLIN. From an engineering standpoint isn't the signal
on OATV an improvement over the airborne signal ~
Mr. HYDE. In many instances it is.
As a matter of fact, the interest in community antenna systems was
/ based in the first instance on the inability of consumers in certain situa-
tions to get an adequate signal. Of course, it has now been expanded
to become a service which brings new signals into an area through
microwave and various relays.
But the original justification for it was to provide a more adequate
signal.
Mr. VAN DEERLIN. Now, of course, the desire of CATV is to get into
program originations. This would make CATV a form of subscriptioni
television, would it not?
Mr. HYDE. It would be very hard to make a distinction between a
subscription service by cable and a subscription service over the air
when the only difference would be the manner in which it is delivered
to the house.
PAGENO="0176"
172
~.~.nsuch~
the people whow ould have need for ao
signals could get them under conditions that v.~d not jeopardize
free TV.
I may say it has been a most difficult challenge for us. We are watch-
in~ with considerable interest the development of copyright law in
this field,, hoping that it will help in the resolution of the problems
that have arisen.
Mr. VAN DEERLIN. Your mail has been somewhat augmented, has it
not, by `the dispute over C'ATV?
Mr. HYDE. It has. Mass communications has a way of generating
mail. A dispute or an issue as to a broadcast matter or a CAT'V matter
can become the subject of a lot of correspondence.
Mr. VAN DEERLIN. Thank you, Mr. Chairman.
Mr. MACDONALD. Mr. Harvey.
Mr. HARVEY. Mr. Chairman, you have been with the FCC for a
good many years.
Mr. HWE. Yes, sir.
Mr. HARVEY. I wonder if you can straighten out some of us on the
committee who have not been on the committee such a long time re-
garding the various resolutions.
In your statement on page 3 you refer to the 1958 House committee
resolution.
Was that adopted by the committee first and then by the House?
Mr. HYDE. Only by the committee.
Mr. HARVEY. The gist of that resolution was that it was a sense of
Congress resolution against subscription TV?
Mr. HYDE. That is correct.
Mr. HARVEY. Is that right?
Mr. HYDE. Yes, sir.
Mr. HARVEY. In other words, that reflected the sense of the
committee?
Mr. HYDE. That is right.
Mr. HARVEY. Now you refer then in your history here to another
resolution in 1959 which somewhat amended the earlier resolution.
Mr. HYDE. Yes.
The restrictions of the earlier one were ~ased so as not to preclude
a trial operation.
Mr. HARVEY. Was that a sense of the committee resolution?
Mr. HYDE. Yes.
PAGENO="0177"
86-399
PAGENO="0178"
174
granted always that Congress may, if it sees fit, modify the act which
we administer.
Unless they see fit to do that we must continue to administer the
act that we already are charged with administering.
Mr. HARVEY. I just have a couple other questions here.
Is the case presently before the FCC considered to be one within
its rulemaking authority?
Mr. HYDE. Yes, the Commission has so stated in its last notice on
this matter.
Mr. HARVEY. Is it presently in what we would call and adjudicatory
~. Yes, it is.
the adjudicatory posture in the
here you have various parties pi
ivir.r ~
Mr. EACDONALD. Just to clear ~. up-
back to the jurisdiction question-earlier you indicated to me that the
memorandum of law which was sent to Mr. Harris in 1957 indicated
that in the judgment of the Commission they did have jurisdiction.
Mr. HYDE. That is correct.
Mr. MACDONALD. Since you gave me that answer, Mr. Chairman-
I am not being forceful but I have just read it and it does not say
that at all.
If jou will pardon me I will read it to you and you can judge for
yourself what it says.
It says-
The question of the adequacy of the Commission's regulatory powers presents
different problems with respect to full-scale nationwide subscription television
operations. We cannot determine until after a reasonable trial period whether
the authorization of subscription TV on some general scale would be in the
public interest.
This is the important part I am coming to now.
"Nor can we determine at this time"-this is the letter by which you
s~r~ed jurisdiction-"nor can we determine at this time the condi-
tions which it may be necessary to impose ultimately on subscription
television `operations if their authorization on some general basis
should be found to be in the public interest. Thus it would be in our
view premature to attempt `to ascertain whether amendments to the
Communications Act would be required."
So, obviously he was saying that you did not have jurisdiction. If
that is the basis under which you are asserting jurisdiction it seems
~i~Ji~tle flimsy one to me.
Mr. HYDE. May I discuss the matter a little fully
Mr. MACDONALD. Of course.
Mr. HYDE. I believe the language you are referring to has some
reference to what the powers of the Commission might be to regulate
the fees. Under the committee's suggestion here there would be no effort
at regulations of that kind. I also would like to qualify my earlier
answer about the Commission's power.
PAGENO="0179"
175
The Commission's authority under the act to authorize this service
would be based upon a finding that the operation of such a service
would be in the public interest.
What I should have said is that we are confident of both our author-
ity and our responsibility in the matter conditioned on a finding that
the operation would serve the public interest, convenience, and neces-
sity.
Mr. MACDONALD. Then what you are talking to me about, this mem-
orandum of law-
Mr. HYDE. With your permission we will bring this memorandum of
law down to date. (See p. 149.)
Mr. MACDONALD. Fine. Thank you.
Mr. Brotzman.
Mr. BROTzMAN. I would like to recap, Mr. Hyde.
It seems to me that we can only talk to you at this particular point
relative to something we call a legal conclusion without going into
the substance of this particular matter.
What we are talking about now is jurisdiction.
I would understand and I understand clearly, aM I think the sub-
committee does, that you have arrived at a legal conclusion that you
do have jurisdiction over this partiqular matter predicated by a case
which I don't think is exactly in point, and I think you willadmit that,
because it relates to experimental TV, bolstered by the basic power in
the Federal Communications Act of 1934.
Now there is a conflict in conclusions, obviously, that although Con-
gress, according to your testimony, has not spokenin its entirety on the
question, yet the only expression you find of record comes from this
particular committee at the time Mr. Harris was chairman when they
said in essence they were reserving jurisdiction or that they withheld
jurisdiction.
As of this particular moment, I think the chairman of the subcom-
mittee stated correctly, that if we do not act, the law is quite clear that
we have by inaction assented to the legal proposition that you are
correct.
I think the law is rather clear in this regard, at least from what I
have read and from what I understand. These are just a few conclu-
sions I have drawn from listening to the testimony as of this moment.
Getting down to the last official pronouncement of the Commission
on March 24, 1966-that is the last pronouncement, is it not, that re-
lates to the Zenith-Teco petition?
Mr. HYDE. Right.
Mr. BROTZMAN. You restate your proposition there.
First of all that you do have jurisdiction. I understand that. Now
the second paragraph is one that kind of points up what I have been
talking about.
First of all, was this passed unanimously by the full Commission?
Mr. HYDE. Yes, it was.
Mr. BROTZMAN. You do recognize the interest of Congress in this
subject and in providing time for Congress to act if it so desires before
the proceeding is terminated ~
Mr Hmr That is correct
Mr BROTZMAN What do you mean by that ~ The words are clear
but I want to be sure I underst~nd
PAGENO="0180"
176
Mr. HYDE. We want to make it clear that we did not want to be
seemingly acting in disregard of Congress. We recogn~ 1 1
field of great interest and in the event Congress wishi
issues here or come before the Commission we think it C -
to provide time for that attention.
May I correct an answer I made previously.
You asked me if the last expression of the Commissiofl wa~
mous. It was as to the members pre~ ~ommissioner Loe
was not present at the meeting.
Mr. BROTZMAN. So what you are 1 mce a~
directing our attention to the.very ~iu~
that under the existing law and the
decision, you say it is your conclusion that you have j
However, recogni~ing the right of the Congress to act i
if we desire to assert our authority.
Is that a fair statement?
Mr. HYDE. Right.
Mr. BROTZMAN. I have just one more question and this relates to
paragraph 5 of your 1966 pronouncement.
In the last sentence you say that, "Subscription television on a na-
tionwide scale can be effectively int.egrated into a total TV system
with advantages to the viewing audience. That appears to be a reason-
ably sound conclusion at this point."
While I know that you have not finally determined, it would indi-
cate to me that you feel that there is merit in this particular use of the
medium.
Mr. HYDE. I would say that what you have read is the view of the
committee that made a rather intensive study of this. We will all be
looking at it again in the light of the hearing just concluded.
Mr. BROTZMAN. As of this particular moment all I am trying to
do is to nail down the FCC's position.
Mr. HYDE. That is the latest document on the subject.
Mr. BROTZMAN. Thank you.
Mr. MACDONALD. On that point, in the document they have indi-
cated that for the first time FCC would be going into the program
requirements.
Isn't that correct?
Mr. HYDE. Mr. Chairman, these rules suggested by the committee
are a new concept. It is the first time that this approach has been men-
tioned according to my recollection.
Mr. MACDONALD. I have been on the committee for quite a while
now and I have never heard it suggested by anybody, and I mean any-
body, that FCC should get in the business of programing and telling
the stations that they have to reserve 10 percent of their time for the
ballet and drama of substance, because frankly we just passed a bill
that is going to cost quite a good deal of money where we authorize
money to educational types of stations for just the things that you say
the pay TV people will have to use up to 10 percent of their time doing.
Mr. HYDE. Mr. Chairman, without involving myself in an expres-
sion of opinion about the substance of the provisions here, may I just
make this observation.
The committee is apparently in its recommendations to the full
Commission trying to devise regulations that. would permit the opera-
PAGENO="0181"
~o be ~ matter I guess
- a problem on the matter. The committee's report
says that section 315, fairness doctrine and other policies that have
been developed in the licensing regulation of broadcasting would
apply to subscription TV. It looks toward the application of the same
policies and principles 1' pay TV as apply in the conventional TV.
Mr. MACDONALD. It m -~ to it `~`~
theii
u u~ n~ ~ to regulate or to authorize the
i ion of pay TV and, ~ you have the right beyond that
to go beyond the regulations you have just been discussing with the
Chairman?
Mr. HYDE. That was challenged in the hearing before the Com-
mission. There was a good deal of argument about `the right of the
Commission to make the type of regulation which has `been suggested
by the committee. We will have to consider those arguments very
carefully.
`Mr. BROWN. If `the committee sits silent and therefore assents `to
the Commission's right to license pay TV, would our silence also be
considered as assent to the regulations of program ~4 other
PAGENO="0182"
178
serve as a guide as t.o what the sense of -Congress may be in ti
of pay TV?
Mr. HYDE. The resolutions certainly indicated an interest.. We
certainly have every respect for the interest of Congress.
Mr. BROWN. They represent an interest by the committee and not
a formal action `by the entire Congress.
Mr. HYDE. We are not disposed to treat the interests of the com-
mittee lightly at all, as you can tell by the procedures that we have
followed.
Mr. BROWN. May I ask if you- consider the expression of the com-
mittee as equivalent to an expression `by the Congress?
Mr. HYDE. No, I do not-. As a 1a~yer I could not. I do not- believe
you would expect me to. -
Mr. BROWN. What relationship do they have? They are a guide, but
not a legal proscription.
Mr. HYDE. That is right. They are an advice, let me put it- that way.
Mr. BROWN. Let me ask about a couple of resolutions. In the first
place, I note that there -has been a change in the language we are
using in broadcast legislation from the language used 8 or ~
ago in these resolutions, or at lea-st I presume t-hat is the case
of the use of the term "radio and wire transmission." But in
]anguage used I find -difficulty reading anything but ~-ATV as it is
now operating, to wire transmission of pay TV.
-Mr. HYDE. There is no doubt but what t-his development of cable
television has brought about this new interest in -the term "wire" -or
the broader look at the whole subject-.
Mr. BROWN. There has -been a specific limitation by the F-CC, how-
ever, to experimenting in subscription television and its use of the
spectrum but not much control of the commercial usage of CATV.
Mr. HYDE. This is true. Our regulations in the community antenna
field are just regulations. We have not asserted licensing authority. We
do consider petit-ions for waivers of regulations. It sort of looks like
granting a permit in some circumstances. But our overall posture there
is one of administering some rather broad regulations which have
nothing to do with original franchising, these are normally grant-ed
by the communities. What we have endeavored to do is bring a bit of
order into the distribution of broadcast programs, which absent Com-
mission regulation tended to disregard the rights of local statioiis.
Mr. BROWN. You say it has nothing to do with original franchising
but in certain instances original franchisers have gotten into the CA.TV
business. My question is, Why would you consider a resolution by t-he
committee which speaks to subscription TV by radio as a more serious
proscription than the use in that same resolution of subscript-ion TV
by wire and not have moved more quickly to control CAT-V develop-
ment by certain licensees versus the interest expressed n subscript-ion
pay TV?
Mr. HYDE. Congressman, I do not believe that we have made such
a distinction. Up to now there have been some program originations
but by amid large CATV handles programs originated by the networks
and statio-ns. Local origination is incidental to a larger interest- in
handling the programs originated by the networks and stations.
Mr. BROWN. I have another quest-ion but first I have to check some
language, Mr. Chairman.
PAGENO="0183"
179
Mr. MACDONALD. While Mr. Brown is checking this I would like to
ask you a question which I don't think is unfair and you don't have to
answer if you don't want to. -
I quite agree this thing has been kicking around for an awful long
time. You say you look for congressional guidance. Every time the
Congress has done anything about this s~ibjec.t, including under our
former chairman, Mr. Harris, they have just~ stood up on the floor,
this committee, and have been opposed to subscription TV. So my
question is a small one, but. would you not think that is a little bit of
guidance?
Mr. HYDE. Mr. Chairman, I would suggest that the last expression
from the committee was to acquiesce in the carrying on of an experi-
ment.. We are now looking at it in the light, of the information
developed in the experiment.
Mr. MACDONALD. Let me ask you this question: Does the Commission
contemplate taking any action before this committee or t.he Congress
has a chance to vote Mr. Dingell's bill up or down?
Mr. HYDE. We have not met to discuss this matter since our hearing
last week. But I will give you my personal view that I would not.
expect precipitate action.
Mr. MACDONALD. In other words, you would wait for the Congress
to a~ct on the bill before us om perhaps another resolution, if that is
the sense of the committee, such as Mr. Harris put out?
Mr. HYDE. I would assure you of this, that the Commission is cer-
tainly not going to take hasty action while the committee has this
matter under consideration.
Mr. MACDONALD. That is one of the reasons these hearings were
called, despite of what. you have read in the trade press and other places,
was actually merely to avert, a head-on collision between one of the
branches of Congress and the Congress. Certainly they were c.alled
for October 2 before it was realized that that. was a religious period
of time and it. was riot, to try to exercise any heat on the Commission.
I want all the Commissioners to understand that.
The Congress has felt, strongly about this. Several members of this
very committee have. Therefore, we felt it was necessary that we hold
hearings at a. time convenient to you, but close enough so that we would
not run into any difficulties between each other.
Mr. BROWN. Will the Chairman yield?
Mr. MAcDONALD. Surely.
Mr. BROWN. The language to which I referred is on page 2 of Com-
mnitt.ee Chairman Harris' House Resolution 130, January 20, 1959. I
want to be sure I understand what your view of this is. This language,
if I may impose on the Commission's time, reads: "Re$olved, That.
the Senate and House of Representatives in Congress assembled ex-
cept as provide in section 2, until new legislation has been enacted
setting forth the terms under which pay television programs may be
broadcast. or transmit.ted"-Congress gave a- clear indication by radio
or wire-" (1) the Federal Communications Commission may not
authorize any person to broadcast or to render a communication serv-
ice by radio or wire which would aid in the broadcast or transmission
of any pay television program; and (2)," and it goes on and I pre-
sume your feeling `is that the key word is "programing," pay tele-
vision programing, rather than pay to receive an improvement of
existing programing?
PAGENO="0184"
But as they have explain~a m LII.
to broaden the number of channels t [`be a v a
became distributors as well as improvers of the signal.
Mr. BROWN. Right now OATV does two things; does it not? It im-
proves the quality of the signal or it increases the selection of signals
that the viewer may receive?
Mr. HYDE. Right.
Mr. BROWN. And that is all.
Mr. H~mi~. They increase the number of broadcast signals that are
available `but to some extent they are beginning to do program origina-
tions. That is a new service.
Mr. BROWN. Are these FCC licensees?
Mr. Hmi~. They are not licensees, except to this extent. We have
issued permits for microwave systems to provide carriage in situations
where a signal could not be found over the air.
Mr. BROWN. Let us say a CATV operator has one of these scanning
devices which scans the weather report or the news headlines or what-
ever it may be that he originates in his operation and he is not an FCC
licensee but people are paying to receive the signal which he sends out
and this is the program which he originates in `his studio.
Now, that is not subscription or pay TV; that is CATV?
Mr. HYDE. By usage in the trade that is CATV. Is it not also the
same function that subscription TV porforms?
Mr. BROWN. I am asking you. The committee has to know what the
FCC's view of the distinctions may be.
Mr. HYDE. Subscription TV undertakes in the context of that term
as used in the committee's report to bring some programs to the public
that were available only through `box office arrangements. They pro-
pose to bring in new movies, sports attractions not available by conven
tional TV. But when you do have a program service of any kind
originated by someone, delivered to your house for a fee, how do you
distinguish it from subscription TV by function? They begin to look
very much alike, don't they?
Mr. BROWN. It seems to me if Mr. Macdonald wishes to use subscrip-
tion TV to go on the air and campaign and his constituents who sub-
scribe to his viewpoints want to pay money to hear him on subscription
TV, it may not be a lot different from his being interviewed in the
studio or having his presentation made on CATV where people also
pay to have that channel selection. I don't know whether Mr. Mac-
donald is box office or not.
Mr. HYDE. We may have solved this problem of the television ap-
pearances for candidates.
Mr. KORNEGAY. Will the gentleman yield for a question?
Mr. BROWN. I yield.
Mr. KORNEGAY. With reference to CATV, Mr. Chairman, to what
extent, if any, have any of the CATV systems gonc `beyond weather
and news in their program originations?
PAGENO="0185"
181
Mr. HYDE. I have been informed that in some instances they are
carrying local advertising. I do not have exact information as to other
programs beyond weather and news I am sorry, it has come to my
attention that in some conimunities they have presented the city coun-
cil, that there have been some efforts to put on what in broadcast field
is called public interest programing, local civic activities
Mr. KORNEGAY. In other words, beyond the scope of news and
weather?
Mr. HYDE. Yes.
Mr. KORNEGAY. Do you promulgate rules and regulations with refer-
ence to that situation?
Mr. HYDE. We have no rules on that.
Mr KORNEGAY You have no rules on program originations so far
as OATV is concerned?
Mr. HYDE. I believe we have an outstanding notice. You are asking
me do we have any present rules?
Mr. KORNEGAY. Right.
Mr. HYDE. I think not.
Mr BROWN If I may make a final observation, broadcasting the
city council was one of the things claimed as a good reason we should
not finance by the taxpayers and approve by the Congress the so-
called recent Public Broadcasting Act.
It seems to me that we have a very definite blurring of the lines,
perhaps the result of the technical developments, the state of the art,
between instructional television, educational television, cable television,
subscription television, and whatever that old form of television we
used to have was.
Mr. MACDONALD. Mr. Kornegay.
Mr. KORNEGAY. Your rules and regulations you have under con-
sideration in connection with subscription television, Mr. Chairman,
I rather run to the licensee and not to the promoter or sponsors of
the programs to be seen on STV; is that right?
Mr. HYDE. They would run to the licensee.
Mr. KORNEGAY. He is the only one you have any Jurisdiction over?
Mr. HYDE. That is right. This would be similar to the situation with
respect to the network regulations. We call them network regulations,
but they are (~ ii to stations.
Mr. K0RN: ou F'~ve no dir~
t is~' five stations which have grade A contours.
Mr.r
Mr. I ~AY. v many different communities in the country
would be eligible under that rule?
PAGENO="0186"
182
Mr. H~E. Eighty-three, I am told, is the number.
Mr. BROWN. Would the gentleman yield alt that point?
Mr. KORNEGAY. Yes.
Mr BROWN As I understand, the community under FCC considera
tion is a municipality wherein television or radio stations are located?
Mr. Hyi~. There must be what we call five grade A signals at the
location.
Mr. BROWN. That is what I wanted to clarify. At the location of
reception or at the location of origination?
Mr. HmE. Location of origination.
Mr. BROWN. You talk about municipality.
Mr H~D Well, a principal community A municipality has a
certain limited meaning. We are talking about a, principal community.
I think that word is used in census figures.
Mr. BROWN. If the gentleman from North Carolina will permit me
to ask another question to refine this, let us say there are two sizable
communities a distance apart wherein one community has two stations
and another community has two stations and in neither of these com-
munities can you receive a grade A signal of the other, but in between
there is an area of overlap where there are four signals received.
Mr. HroE. The committee did not seem to anticipate that exact
situation. It does talk about communities rather than places in. between
them. Under the suggested rule the principal community would have
to be entirely within the grade A signal.
Mr. BROWN. I am talking about an overlap situation where there
is no originator but four signals received. Let us suggest that those
two separate communities produce signals and that in each of the
two communities there are four signals received. How does that apply?.
Mr. HYDE. I suggest if there were five grade A signals over both
communities that there might be two eligible communities. I think it
would be a most unusual circumstance.
Mr. MACDONALD. Mr. Broyhill.
Mr. BROYHILL. I just want to pursue for a moment my qu~stion
of a few minutes ago. Could the Federal Communications Commission
require no commercials to be shown on free or commercial TV ~
Mr. HYDE. The committee report recommends that the Commission
should prohibit commercials on subscription TV. I think that that
indicates the feeling that the Commission has toward making such a
regulation.
Mr. BROYHILL. What is the statutory basis, then, for treating these
two forms of television broadcasting differently?
Mr. ~ Section 303(b) of the act which authorizes the Commis-
sion to make rules and regulations with respect to different classes
of stations.
Congressman, the Commission did have under consideration the
rule to prescribe limits on the number of commercials carried on
conventional, commercial broadcasting stations. It determined that it
would not be in the public interest to adopt such a rule, but did not
find it laCked power to do so.
Mr. BROYHILL. This committee frequ~ntly disagrees with you?
Mr. HYDE. Yes, the committee does. It disagreed with us on that,
too. Let me review that. No, I think the final action that the Com-
mission took was in agreement.~with the committee.
PAGENO="0187"
183
Mr. BROYHILL. That you did not have?
Mr. HYDE. No. I think the committee took the view that the Com-
mission should not adopt such a regulation The Conmussion, in fact,
did determine not to adopt such a regulation but it; did not do this on
a question of law.
Mr BROYHILL The same question, of course, comes up in the hmita
tion on programing. I see in the rules, for example, the proposed rule
would prohibit the series type of pi ograms, it; would also prohibit
showing movies over a certain age I am inquiring what is the statutory
basis for this `difference in treatment of program content, so-called
free TV on the one h~nd and STV on the other, when. you are using
the same language of the act to justify your actions. Conversely, you
could do the same with free TV. As in years past we will have.changes
in the Commission and whatnot..
Mr. HYDE. I think you must have observed that the committee was
concerping itself with ways and means of authorizing subscription TV
under conditions that would not lead to a conventional TV subscrip-
tion system. I suppose they would argue that the Commission has
authority to make regulations appropriate to this class of service.
Mr. BROYHILL. That brings up an interesting point, Mr. Chairman.
I read somewhere that one of the networks, I believe, `or some com-
pany-I have forgotten now which it was-was considering a cartridge
type of program where the individual could actually play his program
over his own television set. Would the FCC want to exercise jurisdic-
tion over this? Would this not be a siphoning off of audience?
Mr. HYDE. Neither this committee nor the FCC-well, so far as
the FCC is concerned it would seem not to worry about this. True,
this replay device would use your TV set but it. would be like playing
a program on your TV set in the same way you would play a record
on your high-fidelity set.
Mr. MAcDONALD. Mr. Harvey.
Mr. HARVEY. Mr. Chairman, I want to go back for a minute again
to what has motivated the FCC in going ahead with its hearings, and
getting back to the question that Chairman Macdonald asked you a
few minutes earlier.
In answer to Mr. Macdonald, did I gather that you thought that
because our committee of the House amended its earlier resolution to
permit the experiment in Hartford, that this was congressional intent
that the FCC go ahead and decide this question?
Mr. HYDE. No, I did not intend to say that. But I did intend to say
that this would seem to be an indication of interest onthe part of the
committee in taking an additional look in the light of what was
developed as a result of the experimental operation.
Mr. HARVEY. The i~eason I bring that up is that I think we would
both be in agreement that the remarks by Chairman Harris would
indicate clearly that the committee reserved its jurisdiction in this
particular area and they had no intent to turn over to the FCC juris-
diction in this new field. Isn't that correct?
Mr. HYDE. I think he made it very clear that they were giving ap-
proval only to an experimental operation.
Mr. HARVEY. So that the only guidance that the committee or the
Congress has given the FCC has clearly been that we reserve the deci-
PAGENO="0188"
184
sion whether to go ahead in this field or not and you do not have that
jurisdiction?
Mr. HYDE. Chairman Harris' statement indicated that he did not
wish to be understood as conceding anything in the matter of granting
a regular authorization, that the committee's action was only to acqui-
esce in the experiment and any views they had about regular operation
were reserved.
Mr. HARVEY. In your opinion, Mr. Chairman, what sort of addi-
tional congressional guidance would be necessary for Congress to as-
sert its jurisdiction in this particular field and to restrain the FCC
from proceeding further with the hearings that they have? Would
a sense of the committee resolution make clear the congressional intent
or would you insist on the matter going to the floor finally?
Mr. HYDE. May I give a lawyer's answer to the question? I think
that if Congress wished to preclude the Commission, from-or let
me put it this way-if the Congress wished to deny the Commission
authority to grant an authorization like this, they should do so by
amendment of the statute.
Mr. HARVEY. Otherwise the Commission is going to proceed on the
assumption that they have this authority?
Mr. HYDE. Otherwise the Commission will, consistent with the views
that we have heretofore expressed, feel that it does have authority
to grant such authorization, it appearing that if they do so it would
serve the public interest, convenience, and necessity.
Mr. HARVEY. Although contrary to previously stated congressional
views.
Mr. HYDE. I did not say that.
Mr. MACDONALD. One last question, Mr. Chairman. You have been
very patient. You would like to have the Congress amend the Com-
munications Act?
Mr. HYDE. What I had intended to say was that the Commission
must administer the act as it now stands absent some action by the
Congress to amend that act.
Mr. MACDONALD. Even though you can't prove that you have any
jurisdiction to do what you are doing? If you have I would like to
hear what the basis of the jurisdiction is. We have been going around
the mulberry bush all the time.
Mr. HYDE. Mr. Chairman, we will give a full discussion of this
ctuestion of jurisdiction in the Commission. I would want to say again
that any time that the Commission would act here it would have to
be based on a finding that the action it took would serve public interest,
convenience, and necessity and that decision, whether to deny or grant,
would be subject to judicial review.
Mr. MACDONALD. Thank you very much, Mr. Chairman.
You have been very cooperative and very helpful.
Mr. HYDE. Thank you.
Mr. MACDONALD. The next witness is Mr. Julian Goodman, presi-
dent of the National Broadcasting Co.
Mr. MONDERER. My name is Howard Monderer. I am Washington
attorney for NBC. Mr. Goodman, who is president of NBC, is sched-
uled to be the next witness. Unfortunately, the plane on which he was
due to arrive this morning had engine trouble. We do not expect him
PAGENO="0189"
PAGENO="0190"
186
were sharply differing views on this matter, the proponents arguing
that pay television "would provide a wider choice * * * in the fine
arts, operas, education, and informative material," while the opponents
claimed that it would "offer programs of the widest popular appeal."
To develop experience that would settle this question, the Commis-
sion authorized limited pay television test operations in its third re-
port of March 1959. The House Interstate and Foreign Commerce
Committee then adopted a resolution approving the concept of these
limited tests, with the specific understanding that Congress would
make the ultimate decision on whether pay television should be au-
thorized on a permanent basis.
Only one' organization took advantage of the test opportunity and
conducted a 3-year test in Hartford, Conn. When the test was con-
cluded, the records showed that 91 percent of the pay television pro-
graming consisted of feature films and sports. These are clearly mass
appeal programs types widely shown on free television.
Thus, the Hartford test completely failed to show that pay TV
would provide a distinctive program service that would broaden the
television base. If anything, it tended to demolish the proponents'
argument, since the pay TV operation offered a much smaller pro-
portion of cultural and informative programing than is provided by
free television.
Following the test, the FCC appointed a committee of Commis-
sioiiers to prepare an analysis whith was submitted in the form of a
proposed fourth report. It acknowledged that if pay television pro-
graming-
* * * is merely duplicative of types of programs now appearing on free TV
in quantity * * * it would not appear that other public interest considerations
could justify the authorization of STy using broadcast channels.
The report also found that-
* * * the major part of the programing, as opponents had argued, will be of
a kind that would appeal to a mass audience.
This should have settled the issue. But despite the acknowledged
evidence, the r ,~t concluded that pay television wi]1 provide a
"beneficial sw ,ment" because the "types" of programs it will pre-
sent I be ~ ;." The difference used to justify this broad con-
1 es would be ii miteci to those less than 2
and 1 :ye sports coT-~~ ~e would
st
ii. -
S.
t mer
nmnul:
no longer~, because ea~h year, LL wision I
recent movies and has broadened its sports coverage.
Apart from whether pay television would duplicate program types
already available, the FCC recognized another important question:
whether pay television would siphon away selected program attrac-
tions from free television. The report acknowledged that danger, stat-
ing that pay television "could, by directing its purchases at select
programs * * * take them from free TV and require the huge audi-
ences of those programs to pay to see them or not see them at all."
PAGENO="0191"
187
After recognizing this as a threat t.o the public interest, the report
pl0l)OSeCl a detailed regulation of pay television programs to prevent
"selective ~~1og~~m siphoning."
Basically, these pioiosed regulations would prohibit entertainment
"series prograimng on pay television and would control the kinds and
ainoimts of movies and sports piOg~~ni5 P~Y television could show.
rf his includes a stipulation that movies and sports may not exceed 90
percent of im~ television piogiaimng annually, or 95 peicent in any
month. Of course, this concedes that the concept of program diver-
sity-wliich was supposed to be pay televisions special contribution-
has been abandoned.
Instead, the dangerous principle of program regulation is adopted
to legislate a- far lower standard of diversity than is now typical on
free television.
\\Te believe that these detailed program controls raise the most
serious questions of constitutional validity and FCC authority. We op-
pose such regulatory control of programing whether it is directed to
pay or free television. We also feel the program regulations would be
ineftect.ive, because they could easily be manipulated to permit large-
scale diversion of programing from free to pay television.
Before discussing these points, we believe that some additional pub-
lic policy questions should be considered.
One of these centers on the claim that pay television should be given
the chance to rise or fall on the basis of public choice. This concept.
of public choice is a camouflage. To take a specific example, if the
world's series should move from free to pay television, the public's
only choice would be either paying or not- seeing the gaines.
It- is also claimed tIm at the market is broad enough to permit the
coexistence of free and pay television, since the pay service is likely
to attract only a minority of the public. This disregards the enormous
economic leverage p~ty television could exert, with relatively fefr sub-
scribers. For example, if pay television could achieve a 20-percent
penetration mate, as assumed in the fourth report, and operated under
the limitations outlined in that- report, it could accumulate annual
revenues approaching $1 billion, enabling it to outbid free television
foi key program attractions. As a result, by having to pay for pro-
grams, 20 percent of the public could foreclose free television from
mak1ng those programs available to all of the public.
tfhius, the advertiser-supported mednun would lose the economic
base for it-s own costly and less popular-but extremely important-
news and public affairs programing. There is nothing to indicate that
the loss or reduction of t.his type of programing would be made up by
pay television. Currently such programing represents approximately
25 percent- of the NBC television net-work schedule. By comparison,
the "educational and instructional" features offered during the first 2
years of the Hartford test. represented about 3.2 percent of the total.
The fourth report mistakenly assumes that free television cannot
grow beyond the types of movies ~and sports it offered in its earlier
years. When the Hartford test started, there were no movies on tele-
visioii that- had been released within 2 years. But during the last broad-
cast. season, over 10 percent of the network movies were less than 2
years o]cl, and we estimate that the proportion will more than double
during the current. seasons Similarly, free television now presents on
PAGENO="0192"
188
a nationwide basis many sports events formerly carried only in a few
markets or not at all.
It is naive to believe that the proposed regulations could prevent
pay TV siphoning of free television programs. If pay television is to
be assigned feature films under 2 years old, film suppliers would have
every reason to withhold such films from free television during the
2 years following their release-and after-to realize maximum reve-
nue from box office television. The owners of sports rights need only
keep the games from free television for 2 years-nationally or in any
given market-to qualify them for pay television; and in the case of
specific sports events like the world's series, the real effect of the com-
plicated regulations is to reduce the waiting period to 1 year.
If these movie and sports features are to be preemptible by pay
television, the free service would tend to be limited to older movies and
to sports already carried, and would be fenced off from natural de-
velopment in these fields.
Finally, the free television programs most vulnerable to siphon-
ing-like major entertainment specials and taped sports coverage-
would be wholly available to pay television, endangering the continua-
tion of free television in these distinctive fields.
Another public interest consideration relates to the portion of the
public that could not afford pay television-estimated in the fourth
report at 30 percent of the total population. These are the people
who have the fewest privileges and opportunities and are most in
need of the full entertainment and information services free television
can offer. The diversion of programs to a service from which they are
economically barred would be a denial of their justified expectations
All the considerations indicate that an issue of basic national corn
munications policy is presented on which the Commission should not
act without specific congressional authorization. This has been recog-
nized in resolutions previously adopted by this committee and by the
Senate Commerce Committee. And as I mentioned before, in 1959,
Chairman Harris emphasized this committee's understanding that pay
television would not be authorized on a permanent basis without
further action by the Congress. The fact that Congress has not acted
does not justify Commission authorization of pay television, especially
when there is no public demand for the service.
To summarize, the record of pay television's test operation demon-
strates that it will not provide a service distinctive from free televi-
sion service in any significant way. Accordingly, there is no affirmative
public interest reason that would justify diversion of broadcast fre-
quencies from free to pay television. On the contrary, there is a danger
that pay television could siphon popular attractions from the free
service and thus diminish the scope of service to the total public. The
fourth report recognizes this danger and seeks to guard against it by
a system of detailed program regulation that is bad in principle and
would not be effective in practice.
While the events of the past years demonstrate that there is no public
demand for broadcast pay television and it would not affirmatively
serve the public interest, free television has progressively broadened
its service, in programing; in the UHF expansion; and in the growth
of noncommercial broadcasting. These positive developments can be
impeded by broadcast pay television.
PAGENO="0193"
On the br'~~
189
don' . . . ~atistics on the
)n but I think the average program attracted
something like 200 home subscriptions.
Now, you would have assumed that there is a turning away from
advertiser supported programs because of the interruptions of com-
mercials and particularly in the movies. And taking into account
fact that the primary programin'~
tion ~ as racte
ome
t you think that 1
disturbing to the public?
Mr. ADAMS. I think it i
but it is not the networl
86-399 0-67-13
PAGENO="0194"
190
id you have said
)U more-could y
ou an
`~culation and as
~i audience in every corn-
11teamr
is a ~
the oner ~
for sports r -
provisions.
Mr. MACDONALD. The worst example I can think of did not affect
me directly, although I di4 get mail about it. When Mohammed Au
was fighting some guy from Arizona-Folley, I believe. They allowed
the programing every place except where it was being fought, which
I think was Madison Square Garden, in New York City. Then they
blacked it out in Phoenix, Ariz. Do you think this was a good practice?
Mr. ADAMS. I don't know the circumstances. On the basis you de-
scribe it does not sound to me like a good practice, but I do not know
the conditions that prompted it nor do I know under what conditions
the blackout was imposed.
Mr. MACDONALD. They blacked it out because Folley was from
Phoenix. I guess they had theater TV and therefore they did not
want it to go on free TV to knock out the hometown boys' theater
revenues in Phoenix. So they blacked it out in Phoenix and the people
in Phoenix who wanted to see him fight in this heavyweight match
had to go to a theater and pay money to see it.
Mr. MONDERER. I seem to recall, I believe it was the RKO people
who had the rights and they apparently chose to do it on that basis
in their hometowns.
Mr. MACDONALD. Don't you think that continuation of this type of
thing would make people willing to pay to see some programs?
Mr. ADAMS. I think the example you used of the fight, Mr. Chair-
Mr. MAcDONALD. I am talking about blackouts really.
Mr. ADAMS (continuing) Is the same sort of example we use when
we are concerned with pay television over the air. We think that also
would result in blacking out home screens for free viewing. We do
not like the blackout principle. Until we have the ability to negotiate
our way out of it we have to accede to demands on the part of the
rights holders for it. Their interest is an economic interest.
Mr. MACDONALD. Do you see any chance in the future that the black-
out question will stop?
Mr. ADAMS. I would hope so, but I don't see the basis on which
rights holders would agree to let us broadcast in the very places where
they are inviting an audience into a stadium.
Mr. MACDONALD. Mr. Kornegay.
Mr. KORNEGAY. Mr. Adams, would you have any basis for your
statement other than the fact that Hartford had 1 percent of the sub-
scribers, the statement that it was not interested in or, whatever it
was, there was no public interest in pay TV?
PAGENO="0195"
191
Mr ADAMS I think the Hartford experiment is a pretty good mdi
cation of that. Pay television has been tried in several other places.
It was tried in Palm Springs on a different basis. It was tried in a
suburb of Toronto. In each case the public reception was at a low
level. The context of my statement, I believe, is this: that if you give
the benefit of doubt to pay television, at best it is a dubious enterprise
as far as Commission authorization is concerned. It certainly is a
radical departure from past communication policy.
Our position at least is that to justify the exercise of authority in
a cloudy situation and to. depart basically, taking a new direction
in communication policy, there ought to be some very active, very
strong, very, articulate, and clearly visible public demand. There is
no evidence of any such public demand.
It seems to us that the burden of demonstrating that public demand
is on the proponents, not the opponents. After all, that was the reason
for the Hartford experiment. I think we should remember the context
where the Commission, after considering this issue for a number of
years and being faced with two, conflicting arguments, said let us
settle this on the basis of experience instead of listening to self-inter-
ested groups who argue on oppOsite sides of the fence. They laid down
certain criteria and objectives. The experiment was held and it seemed
to us to prove the opposite of what the claimants for pay television
were arguing, including public demand.
Mr. KORNEGAY. Is there any public demand for çATV ~ Frankly, in
my neck of the woods I don't understand why there is any need for
that, but apparently there is.
Mr. ADAMS. I think there is in those places where people can't get
good signals.
Mr. KORNEGAY. I understand that, but in a community where you
get three grade A signals and three networks, why should there be
demand for CATV ~ But everybody is fighting to get into the business
and spending millions of dollars to go into it, so there must be a
demand for it.
Mr. ADAMS. In the case you cite, I would not see where there would
be a demand. Let me make this distinction as ëompared to pay televi-
sion. Nobody has to subscribe to a CATV system if he does not want
to. If he does not subscribe there is no penalty; he will see whatever
is available over the air without paying a cent for it.
Mr. KORNEGAY. He does'.not have to subscribe to STV.
Mr. ADAMS. What if subscription TV buys away a major sports
event because it has a bigger box office potential and it iS removed from
free television, th~n he cannot see it on his set unless he pays for it.
That is one of the differences between CA'TV and pay TV.
Mr. KORNEGAY. Wasn't that same fear expressed by the opponents
toCATV~
Mr. AnAMS. I don't believe so, sir.
Mr. KORNEGAY. That is by bringing in distant stations.
Mr. ADAMS. I think there was concern over more competition than
the people in the marketplace, were accustomed to. I don't think an
argument has ever been made, nor do I see how it could be made, that
CATV would displace free television because you can still get what-
ever you can get on your set without becoming a CATV subscriber.
Also, I might add that has not been NBC's position.
PAGENO="0196"
192
Mr. KORNEGAY. Do you feel it would be possible for over-the-air
STV and free TV to exist side by side without either system causing
the economic ruin of the other?
Mr. ADAMS. We do not think so, sir. If over-the-air pay television
is authorized and fails then, of course, there is no issue.
Mr. KORNEGAY. That is what I was going to say. You may have
answered it. If there is no demand for it you should not be worried
about the competition.
Mr. ADAMS. That may well be true. But as has been said before, the
concern is what if it does not fail?
Mr. HARVEY. Will you yield at this point?
Mr. KORNEGAY. I will yield because I have to go on the floor.
Mr. HARVEY. The demand might possibly be created by the decision
of the artists themselves. If Elizabeth Taylor and Richard Burton
decide only to appear on subscription. TV they have the right to make
that decision and not the FCC; is that correct?
Mr. ADAMS. That is true. There is one other consideration I believe.
If 10 percent of the public or even 5 percent of the public felt that what
pay television promised was worth subscribing to, pay television could
on the basis of a rather small minority of the public build up a kitty
large enough to outbid advertiser supported television for the very
attractions that are on the air now. It is a case where a small number
of people can exercise a lot of leverage that affects the total service
to the total public. -
Mr. BROYIIILL. Is that the reason you say there is a danger that
pay television will siphon off these attractions from the free service?
Mr. ADAMS. Yes, sir. That is not true of any other types of com-
peting service, that I can think of anyway. It is a peculiarity of pay
television.
Mr. KORNEGAY. Where have you ever seen Elizabeth Taylor and
Richard Burton on free TV.
Mr. HARVEY. I did see them on free TV. It was not very good, as
a matter of fact.
Mr. MACDONALD. The House is in session. Are there any further
questions?
Mr. BROYHILL. I don't have any questions, Mr. Chairman. I appreci-
ate your coming here. I regret that Mr. Goodman was not able to be
here but I can understand that it was a matter beyond his control.
Mr. ADAMS. I think he is on a p~ane right now trying to get here.
Mr. BROWN., NBC appeared in favor of the establishment of public
television. Was there a great public demand for that?
Mr. ADAMS. No, I don't think there was a great public demand on
the part of the large masses of people, but for many, many years the
educational enterprises of this country and a good deal of the leader-
ship of the country have felt that public television, so-called public
television, noncommercial broadcasting, could supply a specialized
service that by its very structure and its function commercial television
cannot supply as extensively as some people would like.
Mr. BROWN. What is that service?
Mr. ADAMS. That service includes more detailed discussion of public
affairs and analysis than a mass audience can take and cultural pro-
grams of specialized interest.
Mr. BROWN. You mean as differentiated from the superficial news
coverage that we get on commercial TV?
PAGENO="0197"
193
Mr. ADAMS. That would not be my characterization, Mr. Con-
gressman.
Mr. BROWN. Between detailed and superficial is what we are dis-
cussing.
Mr. ADAMS. Well, superficial is a sort of vituperative epithet. Let
me give you an example.
Mr. BROWN. Limited?
Mr. ADAMS. More limited in quantity. What a commercial television
network does a minority of its time a noncommercial broadcasting en-
terprise can do all the time because it is not dependent on large audi-
ences.
Mr. BROWN. You are spending 25 percent of your time on public
affairs broadcastim»=1
see :, if the artist chose or the
movie owner or rights holder chose not to sell it on commercial TV
there is nothing on commercial TV, is there?
Mr. ADAMS. That is true, but the experience has been that com-
mercial television programing has broadened its program scope very
broadly over the past 5 years. Let us take movies as an example. Motion
picture films of fairly recent vintage, that is 2 or 3 years old, and
major productions are now regularly on commercial television.
Mr. BROWN~ Why?
Mr. ADAMS. Because there is a substantial audience for them when
shown on television.
Mr. BROWN. That is not the reason you put them on. You put them
on because somebody pays for them.
Mr. ADAMS. Somebody pays for them only because there is a sub-
stantial audience watching them.
Mr. BROWN. Should not that substantial audience have an oppor-
tunity to watch without commercial interruption?
Mr. ADAMS. That is a question for your judgment. T" 1
tial audience that now ~ £1~~es the'~
PAGENO="0198"
194
Mr. ADAMS. I think necessarily. Let us take the Commission's fourth
report-
Mr. BROWN. After they put "My Fair Lady" on pay TV, why can-
not NBC outbid them and put it on commercial TV or put it on public
TV for that matter?
Mr. ADAMS. It is a possibility but `I doubt whether the commercial
value to advertisers would be as great on that basis and whether the
payments we could make would therefore be as large as the program
suppliers are now getting.
I think pay television would tend to skim off the cream of popular
appeal and exhaust their appeal before free showing.
Mr. BROWN. Let us relate this to something that has been on present
commercial teliwision.
I see reruns all the time, the series of only a couple of years ago are
making the rounds again in the middle of the afternoon or in the
early morning, whenever it is.
Somebody has bought those things and put them on and got them
sponsored. Would there not be a commercial possibility of selling "My
Fair Lady" or the world series games again next week at night so
that I could see it so that I would not have to stop what I am doing
during the day to see it?
Mr. ADAMS. I think that is a possibility, sir, but at a much lower
economic level than the original broadcast. The example you use iftdi-
cates that. The network fare that you see in the middle of the after-
noon 2 or 3 years after it has gone off the network is in syndication.
The owner of the rights has licensed the material for television exhibi-
tion on a station-by-station basis at a small fraction of what the net-
works originally paid for a national network exhibition fee. I don't
think that small fraction as applied to a network rerun of what was
formerly a pay television attraction would be enough to sustain the
whole network program enterprise.
Mr. BROWN. One of the motives of the Public Broadcasting Act,
according to some of those people who testified before us, was to raise
the cultural level ~f Americans.
If somebody wants to put a cultural event on pay TV and has paid
heavily for it out of money that people put in the slot, or mail in, or
however they are going to do it, doesn't that broaden the cultural re-
ward, the financial reward, that people who undertake cultural activi-
ties get, and encourages the opportunity for expansion of culture?
Mr. ADAMS. If that happened I think what you said would be true.
One of the purposes of the Hartford experiment was to see whether it
would happen. As the figures in the statement indicated, it did not
happen at all. The "cultural" material-
Mr. BROWN. It will happen if we let the FCC say 10 percent of the
effort must be in the cultural line, or 20 percent or 30 or 50. I would
presume they can do this if they say that 90 percent of it is the limit
which can be in the sports and otherwise.
Mr. ADAMS. To begin with, we disagree very strongly that the
Commission has authority to lay down that sort of program regula-
tion and to quota the amount or types of programing that can be
shown on the air.
Mr. BROWN. if this committee does not speak, the Commission, I
would take from the testimony of Mr. Hyde this morning, will take
that authority unto itself.
PAGENO="0199"
195
Mr. ADAMS.. I guess that is a reason for the committee to speak.
Mr. BROWN. By the acquiescence of the committee we would permit
that tohappen if that is the s&j~uence of events.
Mr. ADAMS. Then I guess the only recourse the public interest would
have would be the courts.
Mr. BROWN. Thank you.
Mr. MACDONALD. Thank you very much, gentlemen..
The hearings will be adjourned until tomorrow morning in room
2322, at 10 o'clock.
(Whereupon, at 12:25 p.m., the subcommittee adjourned, to recon-
vene at 10 a.m., Tuesday, October 10, 1967.)
PAGENO="0200"
PAGENO="0201"
SUBSCRIPTION TELEVISION
TUESDAY, OCTOBER 10, 1967
HousE OF REPRESENTATIVES,
SUBCOMMITTEE ON COMMUNICATIONS AND POWER,
COMMIm~E ON INTERSTATE AND FOREIGN COMMERCE,
Was1th'i~gton, D.C.
The subcommittee met at 10 a.m., pursuant to notice, in room 2322,
Rayburn House Office Building, Hon. Torbert H. Macdonald (chair-
man of the subcommittee) presiding.
Mr. MACDONALD. The hearing will come to order.
This is a continuation of the hearing on subscription TV.
The first witness is our very distinguished colleague and member of
our committee, John Dingell of Michigan.
STATEMENT OP HON. JOHN 1). DINGELL, A REPRESENTATIVE IN
CONGRESS PROM TEE STATE OP MICHIGAN
Mr. DINGELL. Mr. Chairman, I thank the committee for the privilege
of being here this morning.
I am aware of the fact that the committee is busy with an abundance
of labors and that this fine subcommittee, so ably chaired by the gentle-
man from Massachusetts, has many witnesses to be 1
reason, Mr. Chairm~. J 1 ~ rea~
ion, I d
many imp
d~ ~erate consideration and action by the
that the Commission is the Federal agency
sibihty and equipped with the expertise nee~
(197)
PAGENO="0202"
iblic interest wh
198
communications industry. Instead'
amission y has
coni
iterest
The grei
lug itself are numerous
review a few of them.
THE SPEOTIWM
What has the Commission done to solve the problem of allocating the radio
spectrum? At the insistence and direction of an exasperated Congress, the Corn-
mission has failed to follow through. Since that time and with increasing fre-
quency, each day's mail to the Congress brings more complaints and pleas from
taxpayers and from police departments throughout the nation who urgently need
and require space on the radio spectrum. For years the Commission has had "un-
der consideration" a study and analysis of a proper allocation of radio frequencies
to commercial public safety users of land-mobile facilities. But instead of once
and for all establishing a workable, usable system, the Commission has stumbled
oii in patchwork fashion without usefully and equitably allocating the spectrum.
In addition to the 7,~O commercial and educational radio and television trans-
mnitters in the United States, there are five million transmitters that are not used
for such broadcasting. Not only police and fire departments, but the space pro-
grain, aviation, and business firms require additional space on the spectrum.
I have found shocking the many comments I have received from the Chiefs of
Police throughout the country describing impossible circumstances under which
their departments labor because adequate frequency space has not been allocated
to them.
According to the Commissioner of Public Safety for Mt. Vernon, New York:
"During our recent disturbances during July our one frequency was a specific
example of various instances where a shortage of radio space hampered our men
in the efficient performance of their duty and delayed or prevented prompt and
effective response to emergency . . ."
The Chief of Police of Cleveland, Ohio, has written that:
"This department . . . desperately needs more frequencies. . . because Texas
police departments are on the same band as the Cleveland Police Department, this
creates obvious confusion in our broadcasts. . . . During riots or national catas-
trophies the police and Ohio National Guard have no mutual radio frequency."
As recently as August 23, the Los Angeles Police Department stated:
"The Los Angeles Police Department still has not been able to activate its
planned city-wide emergency frequency because of a lack of a frequency which
can be assigned to that use. . . . The lack of radio frequencies for critical public
safety service has become acute."
The Chief of Police of Newark, New Jersey, has said:
"Even during normal operations, we are seriously handicapped because of a
lack of available frequencies. It was a serious problem during the recent disturb-
ance in our city and the solution to this problem is a reallocation of the fre-
quencies, particularly to those larger cities who have considerable mobile
equipment in the field."
On September 26 of this year, the Chief of Police of Sioux City, Iowa, wrote
of his growing concern about the channel crow-ding of the public safety radio
frequencies:
"We share our frequency with the cities of Pipestone, Minnesota; Laverne,
Minnesota; New Ulm, Minnesota; and Davenport, Iowa, and should a mass civil
disturbance occur in Sioux City. this outside traffic could easily disrupt our com-
munications network here and render it ineffective. This has occurred during
routine daily work, but I can foresee serious problems if we urgently needed to
utilize our radio and were unable to (10 so because of foreign interference. My
department relies omi the radio system and without it, I feel that law enforcement
deteriorates badly.'
Instead of devoting its energy to solving this important problemim, the Commis-
sion has ignored the seriousness of the situation. It proposes to allocate precious
spectrum space for yet another forum of commercial entertainment, completely
ignoring the present pressing necessity to study and reallocate the spectrum for
Public safety and other pnrposs.
impom
PAGENO="0203"
199
~ TECHNOLOGY
To what extent has the Commission endeavored to improve the technology of
radio or television broadcasting We all know the answer. It has done next to
nothing. It has made itself a servant of the Goliaths of the communications in-
dustry. If those Goliaths, for their own purposes, want to make modifications
and adjustments, they can generally count on the Commission to go along. If
technological innovation is not in their selfish interest, then there will be no in-
novation or improvement in the public interest because the Commission fails to
fulfill its role as the public's David.
Stations merchandise goods so that their owners can merchandise their sta-
tions. Does this utilization of the public airwaves serve the public interest? I be-
lieve most Americans agree that the public interest requires more than profits
alone. I requires public service as well.
To what extent has this Commission attempted to improve the content and the
form of programs? The modern miracle of broadcasting can give us so much.
It need not provide the same bland emptiness hour after hour, day after day,
week after week. But the Commission has not promoted the public interest by
requiring diversity of program content or by encouraging those persons who
profit from the use of this public property to invest a reasonable portion of their
resources lnto adequate diverse public service programming. As a matter of fact,
the Congress is soon expected to give its final approval to the Public Broadcast-
ing Act of 1967, to remedy the Commission's inaction.
Does the Commission honestly believe that promoting a new form of private
fee use of the public domain serves the public interest? I do not.
PROTECTING THE PUBLIC INTEREST
The most important responsibility that the Commission has to the American
public is, in the words of the Communications Act of 1934, to act "as public
convenience, interest or necessity requires." To what extent has this watchdog
of the public interest exercised Its responsibility `to protect the public?
`The `airwaves and the radio spectruni are public property-they are part of
the national doniain-they are a natural resource belonging to everyone in
America. The `Commission is charged with regulating this precious resource in
the public interest. The TOO regularly permits the purchase and sale and resale
of what is the public domain by entrepreneurs `whose only interest is to maxi-
mize profit Examples are legion All too often we see reports of another major
financial coup by broadcast-station-merchants acting with the implicit or explicit
approval of `the Commission. This is no different than if the `National Park
Service leased a public park to a private *businessman for a dollar a year and
permitted that businessman to sell and resell the right to exploit the park to
the `highest bidder. `Any government official would find it impossible to justify
such action. Yet this is exactly what `station owners do and the `Commission
has ta'ken no effective steps to discourage or terminate `this misuse of public
property.
Shouldn't the Commission spend more of its time and energy reviewing the
damaging impact such misuse has upon our national economy?
HOUSE'CLEANINQ
This year once `again the term or parte ha's been injected into an FCC pro-
ceeding. The Commission should have learned `by now that `Congress means what
it says when it forbids cc p'arte proceedings in adjudicatory `matters.
In short, `has this `agency acted guard to the public interest? Has it embarked
upon studies which would ena'ble it to recommend legislation `to insure that the
public gets an Seven `break from `the healthy `commercial exploitation of the
airwaves? Has it acted to `assist public safety by fair allocation of the airwaves?
Has it "acted t'o prevent the same bland `programming by every station on the air?
WHY SUBSORIPTION TV?
`The Commission has not resolved these problems, instead, it has spent untold
time and effort pasting `together a new communications horror-so~cal'led sub-
scription television. `Once again, unhealthy exploitation is taking precedence
over the people's interest in high quality non-fee programming. Fifteen years
have beefi devoted `to this pro~'ect with scarcely a thought given `to whether there
is a need for it. Instead of exercising its statutory responsibility to regulate the
PAGENO="0204"
200
present system of broadcasting, the Commission proposes to create a new
form of broadcasting. This act of the Commission is *an admission of its
own inadequacy. Rather than face up to the issues, once again in its character-
istic fashion it has avoided them. instead of improving free television it is
merely creating an alternative medium without any considered forethought,
without any direction, and s~ithout the faintest guarantee or assurance that this
new gimmick will serve the public interest. This is regulatory bankruptcy
What basis has the Commission estahlished for its latest panacea to right the
wrongs of commercial broadcasting? Wha:t thorough studies has it made during
all these years Which clearly point to the direction it now proposes to take? I
have reviewed the Cbmmission's recently proposed fourth order and report and
its accompanying proposed regulations for subscription TV, and can see no
logical or compelling reasons for the Commission's action. From the time it
asserted its dubious authority, the Commission's reasoning has been fraught with
contradictions, vagaries, and inaccuracies which cannot go unchallenged.
By what specific statutory authority does the Commission find that it has the
power to license non-experimental subscription television stations to use a portion
of the public 4omain? In my opinion and in the opinion of many legal authorities
in this field it has no such right. It is true that from time to time the Commis-
sion has written to Members of Gongress with regard to its statutory authority
to permit subscription television. It has not received that authority. In fact, reso-
lutions were adopted by the House Interstate and Foreign Commerce Committee
in 1958 and 1959 requesting the Commission not to authorize subscription TV
cu a permanent basis without appropriate legislative action. The Congress has
not amended the Federal Communications Act to permit subscription television.
Nevertheless, the Commission has att~mpted to invent a jurisdictional basis and
thereby to thwart the will of Congress.
The Commission hangs its hat on Sections 301 and 303 of the Communications
Act for authority. A careful examination of Section 301 reveals that it is merely
a general purposes provision. It does not give any authority whatsoever to the
Commission to act. That authority must be found in the appropriate provisions
of the Communications Act which specifically delegate to the Commission its
rights and its power.
These are enumerated in Section 303. If the Commission relies upon Section
303(g) which provides "for the experimental use of frequencies and generally
encourages the larger and more effective use of radio in the public interest,"
then it is clearly erroneous to build upon that provision by permitting `non-cuperi-
mental, permanent type licenses for pay TV. The rest of the jurisdictional argu-
ment which the Commission has proffered concerns itself, curiously enough, with
the express prohibitions relating to broadcast licensees, namely SectIons 315,
31T, 325 (a) and (b) and 32(1. Simply stated, the Commission cannot claim stat-
utory authority to grant these licenses on other than an experimental basis
because the statute does not give the Commission that authority.
Does the Commission now rely upon the decision in Connecticut Uo~nm4tte~
AgcAn8t Pay Teleeisioa v. Federal Uoeimunioations Commission as authority to
license a subscription television station on a non-experimental, permanent type
basis? Nothing in that decision grants the C*ommis~ion such authortiy. The deci-
sion is specifically based on the Obvious power of the Commission to grant an
experimental license.
Let us make for the moment the unjustified assumption that the Commission
does have the jurisdictional authority to grant a non-experimental subscription
television station a broadcast license. Has the Commission forgotten that all its
license grants must be "In the public interest"? How can the Hartford experiment
justify subscription television as an activity "in the public interest"?
If the Hartford experiment proved anything, it was that there is no extensive
public demand for subscription TV as presently conceived. To begin with, the
Commission decided that the best kind of an experiment for subscription TV
would be one taking place in many markets so that the findings would enable the
Commission to make valid projections based upon a broad sampling. In 1957 in
its first order and report on subscription television the Commission made 20
m!arket areas `available for the operation of experimental subscription television
stations. However, so little Interest was generated that the experiment was made
in only a single market area-an area, incidentally, which is not in the top 10
malor TV markets of the country.
The Hartford trial actually was supposed to begin operations after 2,000 sub-
scribers had been obtained Its propenents including the Commission looked for
ward to installation of some 10,000 decorders the first year and eventually 50,000
PAGENO="0205"
201
subscribers. What were the results? The trial began with 188 subscribers includ-
ing 48 who were test subscribers and 12 who were complimentary subscrlbers~ not
10,000. By the end of the second year there were only 4,782 subscribers, not 50,000.
It was at that juncture that the proponents recognized their failure and placed
a 5,000-subscriber "limit" to the experiment.
Moreover, the FCC documents reveal the shocking fact that throughout the
Hartford experiment, the average number of persons who viewed subscription
television at any one `time wan 151. This was one-fiftieth of one percent of the total
Hartford audience.
The proponents of subscription television originally told us that pay television
would provide programs of educational and cultural value not available from
commercial broadcasting. They would offer a wide choice of fine arts, educational,
informative, and similar programs to the public. The experiment conducted at
Hartford demonstrated that subscription TV would not provide these choices
Ninety-three percent of the programs shown were movies and sports events and
the small remaining percentage devoted to the type of programming that STV
proponents claimed were to be broadcast in abundance. Moreover, the proponents
of STV now admit in documents on file with `the FCC that they are not able to
obtain first-run films, outstanding sports events, and other "box-office"
attractions.
There is no good reason why the Commission has refused to explore the single
most important issue arising from the impact of pay TV; that is, how free TV
will be affected by the competitive aspects and the monopolistic tendencies of
subscription TV.
The Commission also has avoided the questions of the impact which STV might
have on OATV and noncommercial educational television. In customary FCC
fashion, the fourth order and report `relates that the Commission has decided to
defer analysis of `the real STV/CATV problem for another day. Unfortunately,
technologh~al `advan'cement cannot wait. It is entirely improper that the diverse
and complex ramifications of CATV would be omitted from any Important `study
of subscription television.
As to the impact of STV on iioncommerical educational broadcasting, the House
has recently passed the Public Broadcasting Act of 1967. This legislation ulti-
mately will call for outlay of substantial funds to finance an ambitious and neces-
sary project to provide innovative programs for the American people. Yet no-
where in the Commission's study of STV can we find even the slightest hint as to
what STV's impact might be on ETV.
Essential to any consideration of STV, of course, is cable TV. Despite the limit-
less possibilities cable communication offers to conserve valuable spectrum space,
It is `but another area of FCC neglect. How ironic that in view of the lack of
available radio spectrum' for the many necessary services which it must provide,
the FCC should fail to give us an expert analysis of the benefits which cable
transmission might offer. Why didn't the Commission include a study o'f cable
transmission in its study of subscription television?
On page 75 of the proposed order and report, there is a discussion of the fact
that although pay TV inherently requires a payment of fees by the public, there
is no necessity for the Commission to decide what these fees should be-in other
words, that the situation does not require rate regulation. After all, the document
blithely states, "The public is free to subscribe or not to subscribe to STV
services."
They then go on to say that the market place is the best regulator, and will
undoubtedly establish, over a time, what the proper fee structure would be. This
is just unbelievable-to give an individual firm a monopoly on one of America's
largest markets, and then to allow them to charge whatever they desire.
Perhaps we need to conduct a course in basic economics for the members of the
Commission. I would have hoped that, at this late date, these gentlemen would
realize the distinction between the granting of a monopoly and the competition
of the market place.
I find it frustrating and exasperating that the agency to which Congress
delegated the responsibility to protect and serve the public interest has avoided
the problems it was set up to resolve and embarked instead upon an ill-conceived
course.
On page three of the proposed order and report, there is a rather detailed
discussion as to the "lengthy period" during which the Congress might have
have provided "Congressional guidance" on this matter. It is stated that "The
Congress has not acted on the matter. We welcome any guidance it may wish to
give.
PAGENO="0206"
202
Mr. Chairman, it is true that the Congress has not acted on the matter.
It is true in the same sense that the Congress has not passed a resolution
requesting the National Park Service not to put a cork on Old Faithful Geyser
and sell steam to the nearest electric power producer.
In view of the rather abject record compiled during the test run of pay TV,
one would not have supposed that any "guidance" was necessary to prevent
the Commission from establishing subscription television on a permanent non-
experimental basis.
Gentlemen, the Commission has asked us for "guidance." I feel we would be
remiss if we do not provide it in an specific and clear a manner as possible.
In this regard, there is pending before this ~emmlttee H.R. 12435 which I
introduced with but one though in mind. It amends the Communications Act
to provide that "Nothing in this Act shall be held to empower the Commission
to authorize any person to engage in the broadcasting of pay television
programs."
I urge you to recommend to the Full Committee that this bill be favorably
reported and sent to the Floor for passage at the earliest possible date. Such
action would provide the Federal Communication Commission with the clear
intent of Congress and would prevent any recurrence of this seeming Inability
by the Commission to resolve the subscription problem.
Mr. DINGELL. I ask leave of the chairman that I may be permitted to
summarize briefly the comments that I would have given to this dis-
tinguished sutcommittee on this matter.
Mr. Chairman, for the record, my name is John D. Dingell. I am a
Member of Congress from the 16th Congressional District of Mich-
igan.
As you will recall, Mr. Chairman, I have long opposed the use of
the free broadcasting spectrum to provide substantial financial profits
to private individuals through the device of charges for receipt of
broadcasts.
I believe it is a shame that we have to waste the time of this very
busy committee to try to rectify an absolutely wrongheaded determi-
nation on the part of either the Federal Communications Commission
or certain members thereof to establish sithscription TV despite the
clear expression of Congress to the contrary, and despite the economic
failure, the visible lack of public acceptance, and outright public re-
jection. Despite the repudiation by Congress repeatedly and notwith-
standing expressions of outrage from Members of Congress and oppo-
sions from congressional committees, the Commission appears deter-
mined to go forward toward establishment of pay or subscription TV.
First of all, this proposal in the fourth order and report of the
Federal Communications Commission is on the most doubtful juris-
dictional grounds. The agency bottoms its so-called authority to go
forward on this under section 303(g) of the Federal Communications
Commission Act. A study of that particular section makes it very plain
that it authorizes the Commission to "study new uses of radio." The
section goes on to "provide for experimental use of frequencies" and
then it finally authorizes the Commission "generally to encourage the
larger and more effective use of radio in the public interest."
I see nothing in there that authorizes the erection of a tollgate at
the family's television set and I see nothing that authorizes the use of
subscription TV.
The history of the act is very clear. I can find nothing to indicate
that subscription TV was in contemplation of the original authors of
the Radio Act. I could find nothing in the amendments to the Federal
Communications Act or the act, itself, authorizing the use of tolls and
charges at the television set.
PAGENO="0207"
203
More importantly, the history of broadcasting in this country is
entirely against this concept and I would point out that there is no
showing whatsoever, even the most specious, that the use of pay or sub-
scription television would be "in the public interest," as required by
section 303(g).
So, I believe that jurisdictionally the Federal Communications Corn
mission has no authority whatsoever to proceed in this direction. Cer-
tainly when the words "public interest" are considered in their proper
context it becomes very plain that there is no authorization to the
agency either on jurisdictional grounds or on the solid grounds of
public policy to convert what is now a workable and working free
television network in this country to pay television
The Federal Communications Commission's own report indicates
on the basis of its experiments that 30 percent of the American people
will be unable, because of the economic cost of it, which will run some-
thing like $60 a month, to afford the cost of subscription or pay TV.
it is obvious to me that this then does not meet the test of public in-
terest upon which the Commission could base its powers and its judg-
ments in that matter.
Second of all, Mr. Chairman, the proposal simply resurrects a great
failure. The Hartford test was a total failure in two regards. One, it
never achieved the number of subscribers that it had proposed. They
had contemplated 50,000. They got less than 5,000, of whom a signifi-
cant number were either complimentary or experimental u~ers of the
test.
In addition to this, it provided no new programing, no higher
quality programing, and in programing it was a complete and total
loss.
Now, there are technical problems, Mr. Chairman, which should be
viewed very carefully by this committee. One of the things that this
committee should query the Commission on very carefully is why are
they diverting from free television a very valuable and a very broad
portion of the spectrum into toll or pay or subscription TV?
As this committee well knows, the spectrum is badly crowded. There
is a tremendous demand for business, for maritime, for educational,
and for public safety use of the television spectrum. Overcrowding of
these portions of the assigned spectrum has long since reached crisis
proportions.
`I am chairman of a subcommittee on the Small Business Committee
of the House of Representatives on which my good friend, Mr. Broy-
hill, also has the pleasure of serving, and we have been much troubled
in that subcommittee about the inadequacy of space for business, mari-
time, educational, and for public safety.
The recent riots of last summer tended to point up the fact that
there is at this particular moment a gross inadequacy of spectrum in
all of these areas but particularly in the area of public safety.
I have submitted a number of samples of communications from per-
sons and particularly police chiefs and administrators in the law
enforcement area pointing out the great shortage of spectrum and the
problems which they have in terms of providing for the public safety
in the event of riots because of spectrum shortage.
Mr. Chairman, this amount of spectrum could much better be used
to provide for the public safety, than to provide for a silk-stocking
PAGENO="0208"
204
experiment on the conversion of a free resource into a toll or
type of operation.
Now, Mr. Chairman, it is very clear that the proposal will not in-
crease television services. As a matter of fact, a careful reading of the
order and report of the Federal Communications Commission recently
presented to the committee indicates that the Commission expectation
is that the proposal will convert what is presently free television spec-
trum into pay or toll TV so that in effect a portion of the present spec-
trum will be siphoned out into television for hire rather than in afford-
ing new broadcasting opportunities.
So, what the fourth order and report will actually do will be to
close much of the spectrum which is presently available to persons of
the lowest income, and to deny them opportunity to the high quality
programing the Hartford test says will not be forthcoming. Now, this
fourth order and report, Mr. Chairman, is an extraordinary document.
It asks congressional guidance. And I believe this committee can feel
very free on that basis to scrutinize very clearly, and advise freely as to
its will. I believe this committee can feel very free to come forward
with appropriate legislative guidance to the Commission without con-
cern on the Pillsbury decision.
It is interesting, and I believe the committee should note this, that
that device is signed by only two of the seven Commissioners, and by
one, who, while signing it did not endorse either the document or its
contents.
Now, I believe another question of public policy that should arise is
that subscription television will interfere with the implementation of
public television. First of all, it will take Commission time. Second,
it will compete for writers, technicians, artists, engineers, and other
technical and engineering personnel now presently in short or in inade-
quate supply.
It will compete for public acceptance and viewers' time. It will also
compete for money and investment. It will involve the Commission in
matters of controversy which will preclude adequate fostering of pub-
lic TV and also an adequate approach to an abundance of other prob-
lems which urgently require attention of the Commission. These should
not remain swept under the rug while the Commission rambles so far
afield to tilt with windmills like subscription television.
Public television, I believe, offers a much better device to get new
quality programing and the type of programing which the Hartford
tests prove that the subscription television cannot, will not, and does
not give. I believe that the Commission and this committee should take
vigorous action to see to it that public television is fostered. We should
not allow the kind of outrage that we see being prepared for our people
in subscription TV.
There are many questions that the Federal Communications Com-
mission should better use its time with. Many are problems which have
long been before it which urgently require solution.
First of all, there is the ancient and hoary problem of clear channels,
one which has been around for as long as anyone can recall, and on
which very little progress has been demonstrated of late. There is the
problem of providing adequate service in the so-called white areas
and the problem of inadequate service in many of the other areas in
the radio AM band use.
PAGENO="0209"
205
There is the gross shortage of `business, educational, fire, police,
and public safety radio spectrum. There is the question of perfecting
Commission rules to more expeditiously finish the business before it.
I will point out that a careful scrutiny of the way the Commission
proceeds in most of its matters indicates that once a matter falls before
the Commission, absent some extraordinary happening, it can be ex-
pected to outlive any of the litigants.
Now, it is also fair to say that the Commission should devote itself
to a rigorous attention to the problem of price manipulation of sta-
tions and to the trafficking in stations. There is more careful attention
needed to devices which will stimulate new advances in programing.
It is also necessary that the Commission should devote itself to the
achievement, in the public interest, of control, of licensing, and of fair
regulation of CATV and CATV charges. CATV is growing like
Topsy, with the most minimal attention by the Federal Communica-
tions Commission, which has taken inadequate steps to control, regu-
late, and direct its growth.
I believe that if the `Commission is sincere in wanting to increase
the amount of programing which is available to the American people,
the Commission should be exploring wire alternatives to `STy rather
than to be engaged in the active use of trying to prostitute or to con-
vert a portion of the broadcast spectrum to toll or pay or subscrip-
tion TV.
I believe last week the Commission could well have dedicated itself
to the very broad authority they have, some of which they cite in con-
nection with their fourth order and report, to advance the science
of `broadcasting and the better use of the airw'ays.
Now, Mr. Chairman, I want to give a few more thoughts, if I may.
First of all, subscription television raises more questions than it
answers. How can we be assured that there will be no siphoning of
good programs, of spectaculars, outstanding sports events, programs,
and stars and persons of this kind who have achieved great acceptance
on commercial television? The Commission in its order and report
indicates that they cannot give this kind of guarantee and assurance.
The fourth order and report proposes to preven't sports from being
siphoned off by the 2-year limit which was discussed yesterday in this
committee by Chairman Hyde. Most of the membership of this com-
mittee who listened very attentively recall the difficulties that the
Chairman got into with this statement.
The fourth order and report very clearly indicates that the cost,
the opportunities, and the advantages of subscription television are
such that financial arrangements will be possible to overcome revenue
losses and other difficulties `that might be anticipated in the waiting
period of 2 years. In fact, the so-called waiting period of 2 y'ears is
really one season, let us say, of football and baseball, and not 2 years,
at all.
These are some of the problems that I believe have not been ade-
quately treated in the report.
In addition to this, Mr. Chairman, in other types of programing
the Federal Communications Commission proposes to instruct STV
operators as to program content and schedule content. I would point
out `that this again raises grave questions under the Federal Commum-
86-399 O-~6~-14
PAGENO="0210"
206
cations Act, since the act precludes direct instructions to and inter-
ference in programing by the Commission.
These are just some of the questions that are raised by the fourth
order and report.
Now, Mr. `Chairman, I want to make it very clear I do not oppose
subscription television entirely by wire `with no concommitant use of
frequencies. I feel if a person `wishes to provide that service it is en-
tirely appropriate that he should be allowed to do so. I believe that
service would not be using a badly clogged spectrum which properly
belongs to all the people of this country.
I feel very strongly that we should not convert the public airways
into a device that will favor 70 percent of the people and exclude 30
percent of the people, according to figures of the FCC.
H.R. 12435, which I have authored, is presently before this com-
mittee. It would bar STV. I must confess I drafted that bill in great
haste when I saw this fourth order and report. I did so in the secure
hope that I would get something before this committee and 1 want
to tell you, Mr. `Chairman and members of the committee, how pleased
I am to see your attention to this great problem.
I understand there `have been some efforts by the persons interested
in subscription television to place comments in public places and
newspapers and periodicals critical of this committee. I believe this
committee is carrying out a very valuable function, of oversight. This
it must do `to assure proper administration by the Federal Cominunica-
tions Commission.
I want you to know, Mr. Chairman, that I certainly applaud what
the committee is doing.
Lastly, referring again to H.R. 12435, 1 feel very strongly that sub-
scription television `is a bit like a viper. You have to squash it in the
egg and not let it get out to create mischief. I believe that vigorous
action by this' committee to destroy it before it is able to get into the
position where it is going to cause mischief in our society i's very much
in order. I hope this committee will devote itself very carefully to
the thought of getting out legislation, not necessarily H.R. 1243'S or
any other particular legislation, but just legislation which will stop
subscriptiontelevision for good and all. `This committee, the Congress,
and the Federal Communications Commission should devote them-
selves to matters of vastly more importance and not fiddle around with
something which won't work, which is mischievous and which converts
a portion of the public resources to private gain in a manner which
is thoroughly inconsistent with the history and practices of the `Con-
gress, of `the Federal Communications Act, and of the radio and tele-
vision industry.
Mr. MACDONALD. Thank you very much, Mr. Dingell. You have
made a fine presentation of your point of view.
There are two things that entered my mind when you were giving
your very fine presentation. I know you have always fought very
hard for the public interest as a member of this committee and as
chairman of the Small Business Committee. Two things entered my
mind.
I was not quite sure of the reasoning behind your endorsing pay TV
by wire. Does that `mean by cable?
PAGENO="0211"
207
Mr. DINGELL. I did not endorse it, Mr. Chairman. I simply said
I had no objection to it. If the Commission were to choose to authorize
TV by wire, I said I would not have any objection on the basis of the
knowledge that I have at this particular time.
We have, for example, CATV right now and under the orders of
the Commission CATV can originate programing. This, to all lntents
and purposes, is really pay TV by wire already. It should, however,
be most carefully controlled in this regard.
I would point out that neither the charges nor the practices in that
particular industry are being adequately scrutinized by the Federal
Communications Commission while they are tilting with this other
windmill.
Mr. MACDONALD. The other question I was going to ask, Mr. Dingell,
is this: Is it not true as I have heard and as has been sent to me in the
mail that the AFL-CIO has endorsed the proposition of pay TV and
the reason I ask this is because you used the phrase that this would
just benefit the silk-stocking people and the AFL-CIO is not known
for caring that much about the silk-stocking type of person, so-called.
Mr. DINGELL. I received a pronouncement from the AFL-CIO some
time back which would tend to indicate that they have changed their
position of opposition to subscription or pay TV. I must confess when
I saw this I was very busy and I did not read the particular pronounce-
ment with the care that I think it probably deserved.
I would just tell the committee my old dad was the founder of a
trade union. His name is on the charter. He was discharged for union
activity in 1914 and was sent west to die. So, I have a very strong pro
labor philosophy.
But I recognize that the AFL-CIO is entitled to be wrong just like
everybody else. I certainly would accord them that luxury. Although
I have great regard for them and high respect for them, I do not pro-
pose to let them lead me into error, too. So, I am still opposed to it.
I would have to say that I think even the AFL-CIO is entitled to
a mistake every once in a while.
Mr. MACDONALD. The last thing I think we ought to clear up for the
record.
I think in your statement you said just three Commission members
signed the report.
Mr. DINGELL. That is the way I read it.
Mr. MACDONALD. Actually, those three members were a panel set
up to report to the Commission.
Mr. DINGELL. That is right.
Mr. MACDONALD. It is my understanding that even though Mr.
Wadsworth's position on it is a little ambivalent, the three did sign it
and sent it to the Commission and then all members present, and I
think the Commissioner yesterday said there were six present and one
absent, did sign the final report.
Mr. DINGELL. That may be correct, Mr. Chairman.
I was most struck in reading the document that they submitted that
two signed it and one appeared to hold his nose and sign it, Mr. Chair-
man. I couldn't get any more out of it than that.
Mr. MACDONALD. Mr. Van Deerlin.
Mr. VAN DEERLIN. Thank you, Mr. Chairman.
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208
Mr. Dingell, is there any qu~stion in your mind as to whether
the FCC would have jurisdiction to regulate subscription television
if it were delivered by cable, rather than through the air?
Mr. DINGELL. Well, you run into this problem in connection with the
regulations. The FCC has control of rates for regulatory purposes in
interstate commerce. Now, there are certain exceptions that have been
made to this in areas where TV broadly affects intrastate commerce
and, of course, they have control over rates in international carriage.
So, the FCC would have the power of regulating rates for services of
this type if it were to be sent by wire.
The other regulation would be carried out by communities and
States under their appropriate State and local laws where the trans-
missions were entirely intrastate in nature.
Mr. VAN DEERLIN. Would it be your idea that if the Commission
did have jurisdiction that it should exercise some of the restraints over
programing, on subscription television, that it envisions doing on
over-the-air delivery?
Mr. DINGELL. Well, I am not altogether sure, first of all, that the
Commission has the authority under the law that it professes to con-
trol programing on subscription television over the airways. I would
not be altogether sure whether it would have the authority to regulate
its programing over the wires if it were to try to assert that.
I have not studied these points in any great depth, but the con-
sideration I have given to the matter indicates to me there is a grave
question whether the Commission would have this authority either
under the Federal Communications Act or under the Constitution.
Mr. VAN DEERLIN. You do not limit this to subscription television,
then?
Mr. DINGELL. No.
Mr. VAN DEERLIN. You would doubt that it has the authority over
programing in regular commercial television?
Mr. DINGELL. That is correct.
Mr. VAN DEERLIN. I notice you use an argument against subscrip-
tion television that was used against public television-that it would
compete for talent and, notably, that it would compete for talent with
public television.
Do you think this is a very strong argument?
Mr. DINGELL. I am not so troubled about public television compet-
ing with, let us say, the general area of commercial telecasting. Ap-
parently the networks and the stations were not particularly troubled
about this and generally tended to support the legislation establishing
public television that this great committee just recently guided
through the House.
But, public television is a rather difficult situation. It is new, young;
it hasn't got its financing in order yet. It has not gotten all its stations
on the air. The corporation has not yet been fully established and it
is not in a position where it can really stand additional competitive
pressures, in my opinion.
My feeling is that if we are interested, in good, high-quality pro-
graming in this country, good television, television that will offer the
things that the Commission said it would offer but the fact it did not,
that we should encourage this by public television, by encouraging
public television, by affording a climate in which it can grow and
PAGENO="0213"
209
prosper. I think the Commission is very broadly disregarding the
public interest when it ignores the real prospect and promise of public
television. I think it ought to be fostering public television, seeing to
it that it has the best possible climate to grow in rather than going
off and making specious arguments as to its jurisdiction to create
something that nobody really wants.
Mr. VAN DEEnLIN. Thank you, Mr. Chairman.
Mr. MAODONALD. Mr. Broyhill.
Mr. BROYHILL. Thank you, Mr. Chairman.
As usual, our colleague from Michigan has provided us with a great
deal of information on this subject as he does on other subjects
There has been discussion in this committee, and you have dis-
cussed it too, about the statements that the FCC has made concerning
the desirability of congressional guidance. You have been a member
of this committee for some time. As far as you know, has the Federal
Communications Commission made any formal recommendations to
the Congress or to this committee concerning STV?
Mr. DINGELL. First of all, I can recall no request by the Commission
for guidance from the Congress previous to the fourth order and
report. They have said from time to time if the Congress does not
give them guidance they will do so and so. But that is very, very
different than a request for guidance.
I don't view it to be the power of the Commission to dictate to the
Congress when we are going to tell them what they shouid do. They
are an arm of Congress, and subservient~to it. They have received a
number of expressions from this committee, from the Senate Com-
merce Committee, from members of this committee, from Members of
Congress generally, all of which without exception, to the `best of my
recollection, have been hostile `to subscrip'tion television and have been
opposed to the Commission t'aking any actionS without further d'irect
instructions from the Congress.
Mr. BROYHILL. You would agree with me that the FCC mistakenly
assumes that congressional `silence signifies some consent to the course
that the `Commission is presently taking?
Mr. DINGELL. I would say that in my opinion it almost marks arro-
gance. I don't think this is `the relationships that the Federal Commu-
nications Commission should have with the Congress. The Congress is
the dominant arm and has delegated certain authorities to the Federal
Communications Commission. The Commission not infrequently tends
to lose `sight `of this just as it tends `to lose sight of questions of public
policy laid down in the `act.
Mr. BROYHILL. I missed the first part of your verbal statement. I
don't know if you read it in that part but I was amused by your state-
ment, in your written statement `here, which says:
It is true that the Congress has not `acted on the matter. It is true in the same
sense that the Congress has not passed a i~esolution requesting the National
Park Service not to put a cork on Old Faithful Geyser and sell steam to the
nearest electric power producer.
Mr. DINGELL. I also had in my `s'tatement, but I took it out, that the
board of directors of a well-known automobile company had not fe'lt
it necessary to pass new resolutions against the issuance of unsuccess-
ful models of automobiles. There is a certain element `of commonsense
in this that I think has been lost on the Commission.
PAGENO="0214"
210
Mr. BROWN. That is no longer their prdblem.
Mr. BROYHILTJ. Thank you, Mr. Chairman.
Mr. MACDONALD. Mr. Rooney.
Mr. Roo~irv. Mr. Dingell, I want to thank you for your excellent
presentation this morning.
I have one question abOut the Hartford experiment. I understand
this has been going on for 5 years. If it is such a dismal failure, why
would they not have gotten out of business 5 years ago?
Mr. DINGEu4. I think this is a question that the Commission should
ask.
It is my understanding, if you read on page 7~ I summari2e very
generally the experience that has occurred with regard to the Hart-
ford "experiment." I point out how there has been a notorious failure
by subscribers to subscribe. There has been a notorious failure in terms
of production of new and special types of programing that they had
looked for. The fare has been entirely sports and movies which have
only been slightly newer and not at all different in kind than is avail-
able with regular free TV. Indeed, that programing was for the same
mass ~audience to which the networks play.
I believe that statistical information is available to show, and I
think the committee could well direct its attention to the fact that
programing and financial fiasco was kept alive only by generous sub-
sidies from the firms which conducted the so-called test.
Mr. ROONEY. Mr. Dingell, don't you feel that if this is going to have
any effect on the taxpaying public that it would be good in effect be-
cause it would provide the networks with a little competition, thereby
giving the~American public better programing?
Mr. DINOELL. I have been as critical as anyone of the networks and
I believe all of my colleagues on the Commerce Committee recall that
it has been a rare day when the networks and I have traveled the
same path. But I do feel very strongly that if subscription television
was going to offer anything new this committee probably should sup-
port it if it were going to meet the other tests of the public interest.
The problem here is that the Hartford test has already proven con-
clusively that subscription television does not offer new programing,
does not offer quality programing, does not put any appreciable num-
ber of ballets or operas or public-interest programs, debates and forums
on the air.
What STV will give is simply programing for the mass audience
because that is the most economically viewable and maximizes the
financial returns of the entrepreneur. In other words, he will get the
most money back from mass, audiences, and he will program to earn
the most money, not from the standpoint of the highest quality.
So, I think the matter has been tried and found wanting. I don't
think we will get quality programing from STV.
Mr ROONEY I will yield to the chairman
Mr. MACDONALD. Mr. Dingdll, I would like to point out that al-
though I think it is a mistake for the FCC to get into the business of
programing, in the order they pointed out that the pay TV would have
to put 10 per cent of their air time into so called ballet, public service
type of things.
Mr. DINGELL. I really question whether or not they have the author-
ity to do that. That is my problem. I don't see that under the Federal
PAGENO="0215"
211
Communications Act that they have authority to dictate programs or
program content.
Mr. MACDONALD. I say in the order that we have been discussing and
you have been discussing it does provide for 10 percent of the type of
programing that you say is not going to be made available.
Mr. DINGELL. If you were going to look at submissions to the Amer-
ican people by the networks you will find that they are turning out
about 10 percent of this kind of time. They might even, perhaps in
some instances, be doing better than this, depending, you know, on
the question of definition. So that, what you are really doing is convert-
ing what we are now getting for free to a subscription charge-type
Service. That is what you really are really doing with this subscription
Mr. BROWN. Would the gentleman yield to clarify a point here?
I understood NBC said they were spending 25 percent of their time
on public service broadcasting. I did not understand that to include
the general definition of cultural broadcasting. I thought the FCC
limitation was only 90 percent of the time could be used in pay TV on
sports and entertainment and left the other 10 percent open as to what
they would use it for, whether it was news or something else. Is that
right?
Mr. MACDONALD. That is my understanding.
Mr. ROONEY. I have no further questions.
* Mr. MACDONALD. Mr. Harvey.
Mr. HARVEY. I want to congratulate my colleague from Michigan on
a very fine statement.
As I understand his position, you are unmistakingly opposed to sub-
scription television?
Mr. DINGELL. Totally.
Mr. HARVEY. But looking at your bill and trying to interpret your
bill, if I place the right interpretation on it, let me say, your bill would
not necessarily prohibit subscription TV forever in `the future but
rather your bill says subscription TV shall not come into being until
Congress has held hearings and made the decision on it.
is that correct?
Mr. DINGELL. In effect that is what the bill does.
1 believe this is a congressional decision. I would point out, as I did
very briefly in my comments, that the bill was drafted in haste because
of the needs of the situation.
I believe on careful scrutiny the committee may find that there are
technical defects in the bill. But I believe the intent of the bill is sound
and would protect the public interest.
Certainly if one of the problems that might rise is that the bill
as drawn might absolutely preclude the, use of wire pay TV, this was
not my intent. I intended to limit it to the use of the broadcast spec-
trum. I have been advised that some people consider the wire to be
a part of the spectrum.
I certainly did not intend to include that.
Mr. HARVEY. What you are trying to do in your bill, what you are
trying to accomplish, let me say, is to transfer jurisdiction of this
whole subject from the FCC as they have claimed it right to this
committee where you feel it belongs.
PAGENO="0216"
212
Mr. DINGELL. I am not trying to transfer it. I am trying to make
clear where the authority lies, and it lies here, in this committee.
Mr. HARVEY. The effect of it would be a transfer and to relieve
the FCC of any jurisdiction, let us say, and. to put it in this committee.
Mr. DINGELL. To make it very clear that they have no jurisdiction. I
challenge the fact that they do. I support strongly the jurisdiction of
the committee and I think as a matter of public policy alone this
committee should make the decision and not the Federal Communica-
tions Oornmission.
Mr. HARVEY. I subscribe wholeheartedly to that view and I have
expressed it, myself, that I think it should be this committee and this
Congress that should decide whether we have subscription television
or not and not the Federal Communications Commission.
Mr. DINGELL. That is correct.
Mr. HARVEY. I have no further questions.
Mr. MAcDONALD. Mr. Qttinger.
Mr. O~rrINGER. Thank you, Mr. Chairman.
I am glad to hear from my good friend from Michigan for whom
I have the highest regard. Very few times in my career have we
disagreed on anything but I think this may be the first.
I foresee the day, and I think very near in the future, when there
will be available to the public the ability to select on their home
television sets a wide variety of programs retrieved from a TV library,
be it operas, symphonies, baseball games from the past, fights, what-
ever the viewer may desire. The television set will be hooked into a
computer and you will be able to have a range of opportunity through
your television set that is completely beyond your ability at the present
time.
We will need a system of pay television to accomodate this kind of
library-retrieval selection. The current experimentation will lay the
foundations for this.
Mr. DINGELL. You want to remember this is not an experimentation.
The "Fourth Order and Report" does not set out. experimentation.
There is no question but what under the act the Commission and
under the resolutions of this committee, has authority to experiment.
There is no experiment here. The FCC order looks to commercial STV.
Mr. OrrINGER~ I would think that going forward to authorize a
national pay TV system would be a very desirable development in
terms of offering a range of opportunity to the home viewer and that
it is something that should be considered.
I do not quite understand why the gentleman prefers that the public
pay for its television through advertising, and it does pay, it pays in
terms of additional prices that are charged for the goods advertised,
rather than having them pay directly? The end result is having the
TV screens of the Nation cluttered with advertising instead of offer-
ing a facility through which programs could be offered commercially
without interruption.
Mr. DINGELL. First of all, I would say to my good friend we don't
disagree very often and I have a very high regard for the gentleman
from New York and he is a very valuable member of this committee
and the Congress but, you know, since we are looking into the future
and nobody really on this committee gets a crystal ball with their
election certificate but I have tried to indicate the mischief that I
foresee in this.
PAGENO="0217"
213
First of all, I resent the idea of using a clogged radio spectrum
for subscription TV. We need it for business, we need it for radio, we
need it for public safety. We need it for public television.
Now if something is going to be done it can be done in the wire
end of the communications business. We can send these signals by wire
and I have indicated to my good friend I have no objection to this.
Mr. OTTINGER. If I may interrupt the gentleman, that imposes a
tremendous burden on the public, though. If we are going to have
available this retrievable library system about which one reads and
which I believe is in the very near future a possibility, why should one
limit it to the cable system where a person has to pay a substantial
charge per month to bring in the cable?
Why should not the public at large have available to it the ability to
select any movie that they want that has been shown in the past 20
years? Would you exclude that?
Mr. DINGELL. Public acceptance first of all of wire TV has already
been pretty well established in this country through the medium of
OATV. I do not view it as being a hardship. I would point out and
I think this committee should study the amount of spectrum that is
taken up by one single television broadcast band. This is a much poorer
use of a resource. Especially when many stand idle, or are to be
converted to something as monstrous as pay TV.
I think you will find that on that one single band you can set up a
tremendous number of bands for police, business, educational, mari-
time radio. These are important uses that are being grossly disregarded
by the Commission.
The Commission has been promising me informally now for about
2 years that they were going to do something about this. I have seen
no action.
Let me say to my good friend it may be that in the orderly course
of events we are going to come to the point in this country where we
can have some extra spectrum space after we have gone over and
reviewed very carefully the total spectrum resource that we have in
the Nation and after we have made appropriate allocations to space
and defense and to business and to Government and to firefighting
* and to police `and AM `broadcasting, FM broadcasting, short wave, mi-
crowave, UHF~-TV, VHF-TV, and to the public television, if at that
time it becomes appropriate that we should make a silk stocking
service available for persons of advanced means to retrieve old pro-
grams or to get brand new movie spectacles, spectaculars for hire on
subscription television, I believe the legislation I have introduced
authorizes this committee to take that matter under consideration and
to go forward. I believe, however, we have not yet arrived at that
time.
I think that is probably where we disagree.
I think if we were to authorize subscription television at this time
we would find, very shortly, that we would have a very peculiar
phenomenon.
First of all, if it took, and I am not sure it will but there is a possi-
bility that it will, we wind up with every television set in this country
having a coin box on the side, I don't think you can justify that to' your
constituents.
I know very well I could not, certainly to the 30 percent that the
FCC says will be denied it. Second of all, if this thing did take, I
PAGENO="0218"
214
would be well satisfied it would have the same advertising on it that
it has right now.
I do not like some of the advertising, but I find some of the adver-
tising is better than some of the programing I get.
Mr. OTTINGER. That is more a reflection on the poor quality of
programing than the excellence of advertising, I think.
I must say that I would be very much concerned if pay television
were permitted to carry advertising in addition to making a charge
for its programs.
I do think there is a tremendous opportunity for the future here.
If we adopted your philosophy, not necessarily your legislation, be-
cause I think Congress ought to make the decision, but if we adopted
your opposition to subscription TV, we would be denying something
which is very exciting to the general public.
I think it is a subject that deserves further exploration by the
Congress with an affirmative outlook.
Mr. DINGELL. I think the committee should demand a full account-.
ing from the Federal Communications Commission as to why this
abundance of problems are now strangling them, why they have not
evolved an expedited procedure to handle the matters, why they have
not made a better allocation of the spectrum, why they have not solved
the clear channel problem.
They are up to their ears in problems and yet they are creating
new mischief at a time when it is not desirable.
Mr. O~rnNGER. Well, now we are back on common ground. I agree.
with the gentleman completely.
Mr. MACDONALD. I am sorry the time of the gentleman has expired.
Mr. Brotzman.
Mr. BROTZMAN. Thank you, Mr. Chairman.
I am sure you have followed this subject over a period of years as
a member of this committee, is that not right, Mr. Dingell?
Mr. DINGEIL. That is correct.
Mr. BROTZMAN. To follow up on Jim's questioning here, there really
are two problems as I see it. One is jurisdictional and then there is the
substantive question of-is subscription TV good?
Actually most of your remarks go to the substantive matter., but
your bill, if I understand your remarks, is for the purpose of insur-
ing retention of jurisdiction in the Congress.
Is that correct?
Mr. DINGELL. That is correct.
Mr. BROTZMAN. Now turning to your statement just for a moment,
I understand the jurisdictional question, have you followed the Hart-
ford trial over a period of time?
Mr. DINGELL. I have made a study of the comments on the Hart-
ford trial as included in the Commission's fourth order and report.
Insofar as having scrutinizing it or observed how it worked I must
confess I did not.
Mr. BR0TZMAN. How was this set up? By that I mean what oppor-
tunities were afforded to different agencies and different competition to
participate in this particular trial?
Mr. DINGELL. I did not-
Mr. MACDONALD. Mr. Brotzman, if you will excuse me, the people who
ran the experiment will testify and I think they will probably have
all those answers.
PAGENO="0219"
215
Mr. BR0TZXAN. I am more interested in this, though.
There is a purpose in my question. This is a foundation question I
am asking you.
That is, I wondered if this committee was consulted as this thing
developed concerning some offer to different individuals to compete. I
wondered if you might know that.
Mr. DINGELI4. I recall no consultation with the committee during the
time I have been a member and that goes back to about 1956 as I recall.
My recollection is that they had a hard time to find someone to carry
the test out.
Mr. BROTZMAN. There was an editorial in this morning's paper.
Mr. DING~r.. The Washington Post?
Mr. BROTZMAN. Yes.
Mr. DINGELL. I am an avid reader of the Washington Post, but I find
I am reading them more and agreeing with them less.
Mr. BROTZMAN. Not to get down to their particular attitude here but
I note one thing. I had been under the impression that there was only
one test or one experiment that had been run in the Hartford area. I
find the editorial referring to the fact that there have been test runs in
several cities.
Mr. DINGELL. That is correct. There was one up in Canada, around
Toronto. There was a wire subscription TV service that was instituted
out in California-
Mr. MACDONALD. There have been about six.
Mr. DINGELL (continuing). Which wound up in a big fight, amend-
ment of the Constitution or referendum out there that held it to be
unlawful. Finally this was set aside by the court. While the court case
out there was successful the patient died.
For one reason or another the entrepreneur who was running that
particular test went broke.
Mr. BROTZMAN. Are we going to have testimony about these other
experiments or are we going to limit ourselves to just the Hartford
experiment?
Mr. MACDONALD. I am sure that the people who ran the test in
Hartford have the knowledge of what happened in the other tests
and I am sure they can be questioned about them.
Mr. BROTZMAN. Were they involved in these tests, too?
Mr. MACDONALD. I don't believe so but I am sure they must have
studied them before they invested an amount of money in the Hartford
test.
Mr. BROTZMAN. Turning to your testimony on page 7 regarding
the Hartford test, where did you find these figures? You said the
Hartford trial was supposed to begin operations after 2,000 sub-
scribers were obtained and so forth.
Mr. DINGELL. That comes out of two places. One is the report of
the Commission and the other is the comments that were made by
some of the individuals who have testified before the Commission
in connection with this subscription television proceeding. I believe
that this committee could well scrutinize the statements. I would
refer particularly to the statements made by the National Broad-
casting Co. which was a rather fine presentation and also some state-
ments made by Motorola in connection with that which I believe
were very useful.
Mr. BEOTZMAN. That was testimony before the FCC?
PAGENO="0220"
216
Mr. DINGELL. Before the Federal Communications Commission.
Mr. BROTZMAN. I just wondered where these figures came from be-
cause they are somewhat dramatic as to the public demand.
Mr. DINGELL. I believe the Commission could give you precisely
the same figures.
Mr. BROTZMAN. I thank the gentleman.
Mr. MACDONALD. Mr. Kornegay.
Mr. KORNEGAY. Thank you, Mr. Chairman.
Mr. Dingell, I am sorry I was not here to hear your statement.
I had another meeting I had to attend. But I will read it over and
study it with care after this meeting. A couple of questions do occur to
me based on some of the things you have said since I came into the
room.
No. 1, your concern for the radio spectrum, the utilization of that
spectrum. As you know I share your concern over the fact that there
is some question about whether it is being put to its best possible use
and whether or not the Commission is taking the necessary steps to
see that these rapidly increasing public services that are demanding
more and more space on the spectrum, whether or not that space is
being made available for them.
In that connection, though I raise this question. As I understand
it, most of these STV stations, if not all of them, will be U's- the ultra-
high-frequency stations-
Mr. DINGELL. We have no assurance they will be using UHF or
VHF bands. They have established no criterion for that.
Mr. KORNEGAY. I have heard from some source that they would
expect to use certainly primarily the UHF as opposed to the VHF.
As you and I both know, UHF's have gone begging for years. They
were there to be used but for economic reasons as I understand it there
just has been no big demand for them.
The V's are more powerful and, of course, are much better and up
to the time we provided for all channel sets there was the problem of
reception for the public to receive the U's.
I just wondered, pointing that out, if you have given any second
thoughts to the business of allocation of spectrum.
Mr. DINGELL. Not really.
Mr. KORNEGAY. These U's are already provided for. The space is
there. If additional measures are taken to make them more attractive
would it not increase the variety of television to the American public?
Mr. DINGELL. I believe the Hartfor4 test proves first of all that you
are not going to have any big rush into the marketplace by investors
to engage in subscription television.
But second, with regard to the spectrum problem, I have been try-
ing for years to get the Federal Communications Commission to use
some of the unused UHF bands for business, education, and public
safety radio.
Now the Commission, I understand, is coming forward with some
very, very halfhearted and rather inadequate measures to increase
the number of bands by shaving the bands in half that they now make
available-at least this is what I understand they contemplate-that
they now make available for business, educational, and public safety
broadcasting.
First of all, this is going to require changes in equipment which are
going to impose additional costs.
PAGENO="0221"
217
Second, it will not provide additional bands that are needed. We
can make many more by doubling the amount of bands we have. This
is particularly so where you are trying to provide small communities
a public safety band so that all of your small communities can inter-
communicate. Every major city now is surrounded by small commu-
nities, and there is great need to provide a means of intercommunicat-
ing for the small communities in the event of a riot or other public
disorder, or in the event of a calamity like hurricane, floods, or major
fire or something of that kind.
I think that the UHF spectrum is going to have to be-a portion of
it at least is going to have to be utilized for this. As a matter of fact,
the Federal Communications Commission may be compelled in the
not too distant future to restudy the entire allocation of bands in
the UHF-VHF, because it may be that each one of these UHF-VHF
bands is far too wide for the needs and far too wide when you con-
sider the total present and potential demands on the spectrum.
So I think before we go on into this spectrum we had better be sure
that we have arrived at an appropriate policy allocation considering
future needs of the entire spectrum which is something which I think
has been very much lacking on the part of the Federal Communica-
tions Commission.
Mr. KORNEGAY. Do you feel there is any demand or a substantial
demand for STV ~
Mr. DINGELL. I have seen none.
The Hartford test tends to indicate it, You see, we have two ways
you can deliver STy, one by wire and one through the public broad-
cast spectrum. S
I have asserted this morning no objection to the delivery of this
signal by wire. I have asserted a very strong objection to delivering
it through the airways.
If the FCC wants to do it, fine. And if it is a monopolistic service
of this kind where they say they are only going to have one per
community is delivered by wire, it can be regulated but it is extremely
doubtful under the law whether the communities concerned, the States
or the Federal Government, can regulate the charges of delivery
through the free public airways.
Mr. KORNEGAY. Of course, if it is delivered by wire it does not utilize
any of the spectrum but at the same time they must, as I understand
the proposed plans, utilize an existing station and that station has
received an allocation of the spectrum.
So, whether they use the spectrum or use the airways three-fourths
of the day, wire or subscription TV, that part is still reserved on
the spectrum so we are not accomplishing anything there to provide
additional services on the spectrum.
Mr. DINGELL. It really does not work out that way.
It would be possible conceivably that you could authorize the use of
an existing channel for a part of the day free by airways and a part
of the day to require delivery of the signal by wire for charge.
This would not work out this way. This would not be very good,
from a public policy standpoint. This is not to say you could not put
an adapter on the side and run a wire in there through your telephone
cable because it would probably come through A.T. & T. or the I.T. & T.
*or the local independent telephone company, and just have an addi-
PAGENO="0222"
218
tional channel on there that would not have to come out of the U or
the V or any of the 1 through 56 or Th, whatever channels are now
on the all-channel sets.
Mr. KORNEGAY. Thank you for coming to testify.
Mr. MAcDONALD. Mr. Brown.
Mr. BROWN. Mr. Dingell, your bill, IT.R. 12435, is not aimed at
OATV?
Mr. DINGELL. No; it is most emphatically not~ I recognize that
OATV is now a reality. Although I had some doubt, although I had
been critical of the Federal Communications Oommission for not hav-
ing adequately regulated it, it is not directed in that direction at all.
Mr BROWN I agree with you that Congress ought to speak on this
subject and I gather that is the main thrust of your bill that you want
it to speak negatively on the subject; of subscription TV.
Mr. DINGIfILL. This is correct;
Mr. BROWN. I cannot see any reason for deferring this decision by
the Congress or the FCC in anticipation of the FCC handling all its
other problems first because I think we will never get around to mak-
ingthat decision.
You don't mean that do you?
Mr. DINGELL. I fell it is so low a priority that it can well be deferred
to some time in the next century without any great loss to the public
interest.
Mr. BROWN. It seems to me as long as we have started this hearing
we might as well come to some resolution of the problem. I think it
would be a waSte of time to hear all this and then put it in limbo.
Mr. DINGELL. On that we arc both in agreement. I certainly hope
the committee will, in its wi~dom, report out legislation which will
prevent subscription television as contemplated in the fourth order
and report.
M~r. BROWN. I understand you have no objection to the use of micro-
wave and wire systems to have pay TV utilized through CATV
outlets?
* Mr. DINGELL. I really assert no objection to that at this time. But
I feel it should be approached on1y after hearings by the FCC to
explore all the, circumstances.
Mr. BROWN. I find myself a little bit at a loss to understand how there
would be siphoning off of talent and competition for writers, techni-
cians, and FCC time, and so forth, if this were on the wire and not on
the spectrum.
I don't understand that.
Mr. DINGELL. I think you have to come to the fundamental decision
as to whether or not the free public airways which are presently mis-
allocated-if you want to use the term-which are grossly overcrowded
in some areas and which are entirely unused in others, should be con-
verted to subscription television.
Mr. BROWN. I am talking about wire pay TV.
Mr. DINGELL. With regard to wire I have indicated I really have
no objection. If we were to go to wire television we probably would
have some siphoning off of those particular talents which I believe arc
in short supply in this country.
Mr. BROWN. Do you think wire TV would hurt; free TV in the same
way that it would hurt by ther-
Mr. DINGELL. Not entirely, because different factors come into play.
PAGENO="0223"
2l~
For example, you have the question of wire charges. You have the
question of regulation which you would have at least insofar as charges
for the service delivered by wire.
Mr. BROWN. I am talking about the siphoning off of writers and
technicians.
Mr. DINGELL. Conceivably there would be some of this siphoning
which would take place.
Mr. BROWN. This is also true of public broadcasting?
Mr. DINGELL. It would affect public broadcasting.
Mr. BROWN. And public broadcasting would affect free TV; is that
right?
Mr. DINGELL. Obviously when you have a marketplace and a new
factor comes in there is going to be some interaction take place.
Mr. BROWN. What percentage of the spectrum would be used for pay
TV under the present regulations or the proposed r~gulations that the
FCC has set up? What percentage of concern do we have here about
whether that spectrumis going to be usedor misused?
Mr. DINOELL. I can't give you a precise figure, but I can say that the
FCC says that approximately 83 communities will be involved. In
those 83 communities and in each one of those communities there will
be four or five stations, tTHF's and VHF's. One of these can be con-
verted to a subscription television station either in its entirety or in
part.
Mr. BROWN. You are talking about these UHF stations, that we tried
to encourage, that are not on the air yet?
Mr. DINGELL. Conceivably two things couldhappen.
One, you could convert an existing UHF or VHF channel which is
vacant, or, two, you could convert an existing channel, one whJch is
presently used for UHF or VHF, to subscription TV.
I could not prophesy without a very careful study what would hap-
pen in a particular place.
Mr. BROWN. My question is: How much absorption or sopping up of
unused spectrum or presently used spectrum is this really gOing to
create? This is one of the issues in your discussion.
If you are going to permit use by pay TV of existing VHF station
channels or UHF channels presently allocated but not operating, I
don't know how much concern I would have over the spectrum being
taken away from the needs of police departments and fire departments,
and so forth.
Mr. DINGELL. The answer is that I cannot sit here and make you a
fiat prediction as to what percentage is going to go. I cannot tell you
which of the 83 communities in which they are eligible for this "U"
will have a station set up which will have an unused UHF or VHF
channel and in which of them you will see an existing "U" or
pulled from the present licenses on the free spectrum into the sub-
scription spectrum.
Mr. BROWN. You have suggested this is a serious part of the problem
under this issue and I wondered how serious that problem is.
Mr. DINGELL. I think it will vary from community to community,
according to the market situation.
Frankly, I think either happening is a bad one at this particular
time.
Mr. BROWN. Do I understand you would concur or not concur in the
PAGENO="0224"
220
FCC's right to regulate program content if we have pay or subscrip-
tion TV?
Mr. DINOELL. As I understand the law, program content cannot be
regulated on a day-to-day basis by the Federal Communications
Commission.
Mr. BROWN, They were talking about percentages. I am talking
about their proposed regulation of pay-TV.
Mr. DINGEIL. I think this would raise questions which would have
to be reviewed by the courts before we would have a final answer as to
whether or not they do have authority. But more importantly, I think
that you have to look at the awful thicket that this regulation is going
to lead the FCC into. First of all, it will lead to a fight. Then they are
going to have to determine whether these people are carrying forward
their responsibility.
With a commission that appears to be as overworked as this Com-
mission appears to be, or at least one which is so clogged with minutiae,
it is doubtful that they will get down to this question.
Mr. BROWN. I would like to get your comments again because I did
not quite follow them when you were in your colloquy with Mr. Ot-
tinger about the desirability of network executives and advertisers in
free TV determining what programs shall be aired and the Public
Broadcasting Corp. board in the ETV bill that we just passed deciding
program content and the undesirability of people determining what
they are willing to pay to see.
I don't quite follow how it is desirable for this board of directors of
Public Broadcasting and the network executives and advertisers to
make that determination in those two areas but it is not desirable for
people to be able to put in their quarter or whatever it is to see what
they want to see.
Mr. DINOELL. You mean to pay the quarter at the box to decide
what they want to see?
Mr. BROWN. Yes.
Mr. DINGELL. First of all, we don't know whether they will do it
on a fiat charge basis or do it on a quarter in the slot basis for a
particular program.
The fourth.order and report is sufficiently far from final implemen-
tation that it could undergo many changes before we get at this.
First of all, the Public Television Corp. that we set up in the public
television bill is not going to dictate programing. We tried very hard
to insulate the people of this country from that.
Mr. BROWN. They will be making a determination about where the
Federal money will be scent for program development.
Mr. DINGELL. They will. They will make some determinations of this
kind and I hope they will be wise ones.
But I have to say that the marketplace enters into what happens on
free TV now. If a program is not watched the advertisers drop it. I
recognize that we have to afford management the wisdom to make the
judgments that are necessary as to when the public is going to accept
a particular program or like a particular kind of advertising.
I have no objection to that.
Mr. MAcDONALD. I am sorry, the time of the gentleman has expired.
Thank you very much, Mr. Dingell, for a very fine presentation.
Mr. DINGELL. Thank you, Mr. Chairman.
PAGENO="0225"
221
I thank my colleagues on the committee for the privilege of being
here this morning. You have been very gracious.
Mr. MACDONALD. The next witness listed is Mr. Otto Preminger.
We welcome you here, Mr. Preminger. Your reputation certainly has
preceded you and you are very welcome here this morning.
STATEMENT OP OTTO PREMINGER, NEW YORI~, N.Y.
Mr. PimMIwoEn. I was very happy when I received a telephone call
from an old friend, who strangely enough is a theater owner in Chi-
cago, who asked me what my position on pay television was and asked
me if I would be willing to come here and testify.
I told him "My position on pay television would probably not please
you because I am 100 percent for pay television."
As a matter of fact, I cannot understand how in our society of free
competition we have a system where three networks completely con-
trol what the people of the United States are permitted to see on the
so-called free airways.
We always hear these propaganda phrases, free airways and *free
television. If the teleivision were free then how could ABC afford to
pay me for a film that I made 12 years ago called "The Man With the
Golden Arm," for two showings only, $650,000 cash?
Where do they get this money? Are they really that concerned about
those 30 percent of the American people who otherwise would not be
able to have entertainment without those so-called free airways?
The highways of the country also are the property of the people
and free. Suppose I would come in here and suggest to you that I
with two other friends would start three networks of huge buses and
in these buses we would put advertisements, the captive people in the
bus would have to look at the ads that somebody said are better than
the programs, and I think they are most of the time, and I would then
ask you, however, to outlaw the automobile or private automobile be-
cause then all Americans could travel on these public highways for
free and it would all be paid by advertising.
In my opinion as a citizen and as a producer of entertainment on
the stage and in the films for the last 81 years since I came to this
country, it is completely unbelievable that we should fall for this
propaganda.
When I hear about this Hartford test, does anybody really believe
that if the Lincoln Center had opened in Hartford, Conn., it would
have been a success? Hartford cannot support any first-rate entertain-
ment. It is ridiculous to speak about tests like this.
Why should not our free enterprise people, who want to risk their
money, be able to compete with the three networks, and I must say
all the chairmen of the three networks are friends of mine.
The networks have been doing very well for the last 20 years on these
three things that they are giving away. Why should they not be able
to compete and see if there is demand?
Also a sneaking suspicion I have that some more money could be
made by free competition is proven by an announcement about 2 weeks
ago when CBS announced that a very talented young man, whom I
have known for many years, Mr. Goldmark has perfected a box which
we will be able to buy and put on our television set, connect with our
television set, and we will be able to have a whole library of home
86-399 O-67-1~
PAGENO="0226"
222
entertainment which will not cost 25 cents or cost $150, but will have
cartridges which would fit into this box and you could then play any
film that you wantto play on your television set instead of free enter-
tainment.
Why is this not against the public interest? I think the public
interest in a free country like ours is to select the entertainment. 1
think in a capitalistic country like ours it is only the box office that wifl
really prove what people want to see and not those free things which
I personally don't believe.
For instance, it is also very obvious that the qtiality of entertain-
ment will immediately become a thousandfold better. I would like
you gentlemen to consider the following:
If an advertiser pays for a show he pays with advertising dollars.
In other words, he can only take a very small portion of the money
that he has for this advertising because otherwise he has no money to
produce the goods, he has no profits from cigarettes or whisky or
aiitomthiles.
But if, for instance, a young producer would say, "I would like to
produce a terrific production of Shakespeare," he would get the great-
est actors from all over the world to do Hamlet, this would not cost
more than .about $150,000. Let us say with time charges and so forth, a
million dollars.
It would take only 4 million people to pay 25 cents to get this initial
investment back and then you could play it over and over. Don't you
believe that 4 million people in the United States, whatever the Hart-
ford test says, would like to see a really great production of Hamlet ~
If you today read the television columns you will see that any show
that doesn't have at least 12 million viewers is being canceled. Why?
Because the advertiser cannot give awa.y something to 4 million
people. He needs to g~t 20, 30, 40 million people. Otherwise he has to
throw out this show.
And you cannot find really high-class entertainment for that many
people because they are different interests. There are people in the
United States who want to see ballets. There will be more people if you
show them ballets, if it is not restricted to New York, Chicago, and San
Francisco.
There will be people who will want to see symphony orchestras and
listen to them. If we are so concerned about the poor people-I think
this is hyprocracy-4f people are concerned why don't they give away
food to hungry people instead of entertainment. It should come first.
Why don't the advertisers give away something to eat? Why do they
give away those terrible shows?
And the networks have proven in 20 years of network programing
that they cannot compete with old films that we made 20 years ago, 15
years ago. Our films are now, according to their own ratings, what
makes people turn on television and what makes the advertisers pay.
Otherwise they could not. The network shows all followed. So, where
is the proof that our culture has been improved during these 20 years
through television? The opposite is true.
Furthermore, I believe that the people will pay. They will be happy
to pay 25 cents for a show that otherwise, if they went to New York,
would cost $10 or $12 a seat. And the whole family could see it on
television.
PAGENO="0227"
223
I also believe that this is all propaganda, this word "free" that we
always hear. What is free about television? You have to buy a television
set. You have to maintain it. In most place you have to have an aerial.
Now it is very funny because. I must speak from the other point of
view, now the networks are going into the production of films and I
think they should because the more competition there is, the better,
particularly for the people who work. And I want to point out that
there is no shortage of technicians.
On the contrary, most unions are closed although it is against the
law, they closed because they want to protect their old members.
I was in Russia. I saw what happened there. We will soon,be obso-
lete in comparison to other countries because all our craftsmen are
getting old. Nobody speaks about it. If there is more competition the
unions will open up, they will have new members and new young
people.
You can come to any set, television set or movie set, and you will see
there is no cameraman under 65 in the United States. That is true. In
London, in Paris, in Russia, you see young people.
Now, when you speak about freedom and if I may give you this,
several years ago I read a book after reading in the paper about the
Shepherd murder case. The book was written by a Chicago journalist.
The book did not say that Mr. Shepherd, who in the meantime had
been freed, was innocent but the book `proved to me very conclusively,
so that I was really moved by it, that he did not have a fair trial.
I went to the head of the network, Mr. Paley, an old friend of mine.
We had lunch. I said, "I want at my own expense to produce a docu-
mentary, not a show, a 1~hour documentary according to this book."
I will not only not charge him anything, I will give him the whole
thing free because I think it is important to show that it is possible in
our society not to get a fair trial. It was after all the appeals had been
exhausted at that time and he was very enthusiastic about it.
Then 2 or 3 days later he called me back and said, "We would rather
pay you."
I offered it really for free, no advertising, nothing.
He said, "We must keep control over what is shown on the screen."
I said to him, "I will not make a film where people invest $10 mil-
lion and give them the control."
Is this free television in the other sense of freedom? It is not true.
It is all propaganda.
Speaking `of `censorship, there is a commercial censorship on tele-
vision which is unbelievable. If I made a film today which would show
a connection between smoking and cancer, I could show it in all
theaters in the United States and the theaters would charge between
$1.50 and $3, no network would pTay a film like this under any cir-
cumstances. They would use all kinds of excuses.
Otherwise if it is so free, why does the network employ `hundreds
of people in the so-called continuity acceptance department? The
embarrassment is already clear, of course, something that is a compli-
ca~ed name instead of simply saying censorship.
I just made a film called "Hurry Sundown." The film was condemned
by the Legion of Decency, by the Catholic Office, and that is their
right. They have the right to tell their members not to go see my film.
PAGENO="0228"
224
In spite of it it was played in all theaters. As a matter of fact, a
Catholic university in Omaha, Nebr., made this condemned film by
the Catholic Legion of Decency for the opening of their film festival,
in spite of it because they have autonomy and freedom:
Do you really believe that any network or any station would play
a condemned film? I have a condemned film that could be shown to
children now~called "The Moon Is Blue" which I made 15 years ago.
It is still condemned and no networks bought that film. They bought all
my other film.
Why should not these people have the right in our society to com-
pete for the public like in anything else, like in restaurants, like in
any other kind of entertainment? Why should we regulate it at all
except where there is obscenity? We have laws against obscenity.
This is just like in Russia. In Russia you cannot make a film for
theaters, television or anything unless it is approved by the committee.
When it is finished this committee says how many theaters should play
it because they are afraid some film should notbe seen by all the people.
But this is not our society. I think that the `three networks are, and
I think they all probably believe in it because they read all this propa-
ganda all the time, that it is free, but they are the worst monopoly
that I can imagine.
It is something that would be unthinkable.
I hear that people should only have the right to do pay television
by wire, now the three networks the last 20 years have amassed a
tremendous amount of money. Why don't they withdraw for 3 or 4
years-this would be a good test-or 1 year, much better than the
Hartford test, and do their television on wire which they could cer-
tainly afford and give the free producers a chance to compete.
And besides, it is the same history that the movies had. Until 1950
when the Government decreed that the big movie companies are not
permitted to also control the theaters, I could not have made independ-
ent pictures. I was under contract with 20th Century Fox.
There was one man, Mr. Zanuck, who told me what I can do and what
I cannot do. When I had a fight with him he threw me out and we made
up again. It was all on that basis, it was n~t free.
He did not say it was free. They invented this thing.. This is a Madi-
son Avenue invention, this freedom.
Today I can make any movie I want to if I find people who have
confidence in me and finance me. Some movies I make make money and
some lose money. This is the way it should be in my opinion.
That is about all I have generally to say. I was not prepared but I
can talk here for hours because I think it is the worst, most incredible
and oddest thing that the police must have bands. Therefore, they
can have their bands.
Suppose they would interrupt the-I don't know what the things are
called-the job for the defense or something like that and let the police
give their message if they want to, nobody would lose much.
Mr: MACDONALD. Thank you very much Mr. Preminger, for a
very interesting and informative and I must say entertaining recital
of your feeling about the pending status of subscription TV.
One question entered my mind. When you got this $650,000 for "The
Man With the Golden Arm" did you have to pay the-as I recall
Frank Sinatra played in it.
PAGENO="0229"
225
Mr. PREMINGER. Yes; Frank Sinatra had 10 percent. Like I pay him
on anything that comes in from the theaters, 10 percent. He gets 10
percent of that money.
Mr. MACDONALD. Did you have to pay residuals to all the actors and
actresses?
Mr. PREMINGER. Sure; and it should be like this.
Mr. MACDONALD. I have a personal interest in this. How far back
doesitgo?
Mr. PREMINGER. The picture was done 12 years ago. I cannot say, I
don't remember now-
Mr. MACDONALD. How far back does the obligation to pay residuals
go?
Mr. PREMINGER. That I really don't remember.
Mr. MACDONALD. You directed my wife in a couple of pictures. You
perhaps know her better by the name of Phyllis Brooks. She has not
been getting any residuals.
Mr. PREMINGER. I think we should look into it and whoever takes
care of your wife's finances, Mr. Chairman, is probably remiss. It is
not my fault. He should either call me or write to me if it is due to her.
Or if I still refuse, sue me.
Mr. MACDONALD. I know you are a very hard man to sue.
Mr. PREMINGER. No; I am easy to sue. I usually lose my lawsuits.
Mr. MACDONALD. Actually with reference to the Paramount decision
which divested the theater owners from production and vice versa you
were talking about. Do you think that it is freedom to have an associa-
tion such as the Motion Picture Association withhold their stamp of
approval or say what can or cannot go into a picture?
Mr. PREMINGER. I have released' two films, "The Man With the
Golden Arm" and "The Moon Is Blue" without their approval and
they gave me an approval later. This is a self-censoring administration.
I personally do not think it is bad because the majority wants to do it.
You can still have the freedom to release it against `their wish. Both
these pictures were big successes without the seal of approval. But I
doubt very much if I had made or if anybody produced a show for
ABC or CBS and they did not like it, you know, that I would have the
freedom to `then still insist on having it shown.
This is ruled by a committee, by executives who are not producers
and who, therefore, go by rules. In Russia it is political. Here it is
commercial censorship and also partly political because obviously the
reason that Mr. Paley changed his mind about the documentary on
the Shepherd case was that he was worried that perhaps the political
powers in Ohio, or wherever it was, would not `be happy if it were
shown, that there were, some political reasons for not granting the
appeal to Mr. Shepherd.
Then a lawyer came and got it, Mr. Bailey.
Mr. MACDONALD. In conclusion, I would just like to point out `that
when you were talking about the three network monopoly, this com-
mittee passed and we are now in ~the process of going to conference
with the Senate, who also passed a bill, provisions for a fourth net-
work, so-called cultural and educational network. I think perhaps that
will help ease the situation you have in mind.
Mr. PEEMINGER. It probably will b'ut anything that is under bureau-
cratic control has always proven in this country not to work.
PAGENO="0230"
226
I come from Austria, we had wonderful subsidized theaters.
The subsidized theater in the United States has never existed and
should not exist. It is not necessary. The people are interested enough
to pay for their entertainment and to determine themselves.what they
want, not to have it determined by any bureaucrats.
I think that the best test would be to permit people to invest their
money and to have pay television. Who can lose except the people who
invest their money? I am quite sure it would be most successfuL
The networks would not go out of business. They would also have
better programs.
Mr. MACDONALD. Mr. Preminger, could I ask this question?
What would be the safeguard against pay television having a mo-
nopoly because under the order that the Commission put out there is
just going to be one station in a metropolitan center that has already
in operation five stations.
There will just be one. I would guess there could only be one suc-
cessful pay TV network. What would be the protection there against
the very thing you say that the networks do?
Mr. PREMINGER. I don't know why there should be only one but this
pay television-
Mr. MACDONALD. Just economics I would think.
Mr. PREMINGER. We live in this kind of `society. For instance, I
understand that the networks have threatened us that they will not
play any old pictures because they will play them on pay television.
Fine. If pay television would pay me frankly $700,000 for "The
Man With the Golden Arm" I would sell it to them. I think it is my
right. This is the system with which we live. I think it is a very good
system.
There is freedom in this system I think. I think then ABC will pay
more or less. That is what they are afraid of, competition, because
between three people, although externally they fight each other and
they have competition the competition is not very, very strong, you
know.
I don't say, because I have no knowledge, that there are any secret
deals but it is not as strong as if there were 20. Like the competition
between seven big studios was it not as strong as it is now with hun-
dreds of independent producers doing pictures.
Today a man who write a successful book gets much more money
for the book because there are hundreds of people bidding for it, for
the film rights, than he got when there were oniy seven or eight.
Mr. MACDONALD. Thank you.
Mr. Kornegay.
Mr. KORNEGAY. What did you say the name of that most recent
production of yours was that was condemned?
Mr. PREMINGER. "Hurry Sundown."
Mr. KORNEGAY. Does that not sort of increase the popularity, such
as having a book banned in Boston?
Mr. PREMINGER. No.
Mr. KORNEGAY. It does not?
Mr. PREMINGER. No. It upsets it. Maybe some more people go to see
the movie because it is banned but also some people do not go. Other-
wise, I don't think that the Catholic Legion of Decency would do it
because they are very clever and very shrewd.
PAGENO="0231"
227
There are even some theaters, and it is legally questionable or
somebody could sue them, who do not book movies like this because
in Pennsylvania there is a bishop wh~ does not only see that the movies
are banned but if a theater plays one of the condemned movies, then
the theater is out of bounds for Catholics for, I think 5 years. I think
this would be a restraint if anybody wanted to sue the Catholic Church,
it would be some kind of restraint of trade.
But I am a knight of the Holy Order of Saint Sepulchre and there-
fore I could not sue the Catholic Church. I really am. It is the highest
order that the Catholic Church can give to a non-Catholic.
Mr. KORNEGAY. Let us move from religious condemnation of a pro-
duction to the failure of the Moving Picture Association of America
to approve it. If they were to not approve a particular production,
would that not sort of create a lot of interest in it on the part of the
public?
Mr. PREMINGER. No; not always, because there, too, you know,
many people wouldn't see it. Many people don't take ads if it does
not have the seal from the Moving Pictures Association.
It is true there are movies on 42d Street and movies made,
really salacious movies. Nobody gets rich with these movies. The
theaters are not crowded. Or magazines, when next to Life and Time
and Newsweek you see on the stands girlie magazines, dirty magazines,
nobody makes fortunes with these things. The people are not that
dumb.
I think the people know what they want and what entertain-
ment is. That is why I believe that pay television will work because
they will have good things to show and new things and it would be
a show window for new talent. It would give people an opportunity.
In every way it would be great.
Mr. KORNEGAY. As I gather from what you say, No. 1, or the most
important message you have for us today in advocating subscription
television is that it would afford more competition for the networks,
that there is insufficient competition at the present time.
Mr. PREMINGER. Yes, and more competition for talent. It would
afford people to direct shows to special segments of the population
because it would not be necessary to get that many people to see a
certain show.
For instance, "The Ed Sullivan Show." I don't know if it is a
very high rated show. It is probably seen by 30 million people every
Sunday and it is a very good show. I also look at it sometimes. Per-
sonally, at the same time on pay television if for 25 or 50 cents
I could see an opera, I would prefer it. But it would not hurt "The
Ed Sullivan Show." I still think 30 million people would like to
see it, or maybe now only 1 million, but 3 or 4 or 5 million people
in this vast land would like to see something better or something more
serious.
This kind of competition gives you the chance to really produce
and get the money for your production back and not be supported by
advertising money.
You see, this also somehow is a very undignified thing, that ad-
vertising money that dogfood pays for shows and lets you know
it every 15 minutes. I really think, for instance, that in countries that
want propaganda against us, if they took a film and would show it
PAGENO="0232"
228
like it is shown here, uninterrupted with dogfood where the people
say that there is so much protein in dogfood, I don't think it is a
very good advertising for our country. I think the people would feel
that this is not the way to give away, for free, art or some artistic
entertainment.
Mr. KORNEOAY. I take it you don't have a dog.
Mr. Piu~MINoER. No, but why I bring up the dog food is because I,
personally, am hurt by the fact that when some people are hungry
that they have not better taste than to advertise and to emphasize how
healthy it is, with protein and only meat, and wonderful meat, and
no horsemeat. Somehow, it is very tactless. You see, they can be.
You see, this is what I would censor. This is where I, if I had some-
thing to say and the FCC would say be more careful, don't do this,
it can hurt many people; it can also hurt us outside the country.
And maybe those 30 million people who get this free entertainment,
who could not afford 25 cents, also could not afford dog food and
don't like these ads.
I think there are terribly tactless things done in these commercials
which are produced very well and I agree much better than many
shows that you see on television. They also cost more. A minute of
television commercial; I heard the other day; I don't want to quote
a figure 1 am not sure of, but it cost about $25,000 or $30,000 to
produce.
Mr. KORNEGAY. I see my time is about up, Mr. Preminger, but I
wahted to ask you about one other thing we have not touched on so far.
TJ~iat is your estimation of the fact that there is a very little com-
petition between the three existing networks.
Mr. PREMINGER. Absolutely.
Mr. KORNEGAY. In other words, if you had, say, the "Man with
the Golden Arm" that you said you sold to one of them-
Mr. PREMINGER. I think if I had chosen to show it to another net-
work-I sold it to this network because this network was willing to
promise me that they would not cut one frame or one line and it
would not be interrupted more than seven times and that at every
interruption there would be no more than two commercials shown.
So, I got something out of it.
But I think I could have gotten the same price and not more and
also not less from any other network because they buy the same things.
Mr. KORNEGAY. If a nationwide system of subscription television
had been in existence at that time, you could have gotten more by
showing it on pay TV or subscription TV?
Mr. PREMINGER. Yes. I would have taken less because I would have
preferred that this film which was produced with no interruptions
in mind, that didn't have seven acts or eight acts, it was supposed to
be seen for 1 hour and 40 minutes without interruption, I would have
gladly taken $100,000 less or even more less if it had been shown as
Thriginally produced, which is also something that should be con-
sidered.
Mr. KORNEGAY. I want to thank you very much for coming here.
I have thoroughly enjoyed your presentation and found it very ben-
eficial. Thank you, sir.
Mr. PREMINGER. Thank you.
Mr. MACDONALD. Mr. Harvey.
PAGENO="0233"
229
Mr. HARVEY. Mr. Preminger, I can remember when you were a film
director.
Mr. PREMINGER. I still ath a film director.
Mr. HARVEY. You are also film producer?
Mr. PREMINGER. Yes.
Mr. HARVEY. You have your own independent film company?
Mr. Pj~sMINGER. Yes.
Mr. HARVEY. You produce films and you own films; is that correct?
Mr. Pi~MINGER. I direct them. I don't own them always alone. This
film, the "Man With the Golden Arm," reverted to me after 7 years.
The copyright is owned by me but for 7' years `a company like United
Artists in this case that financed it also had the right to distribution.
This is where they made their money.
Mr. HARVEY. At the present time, you produce films and you do own
some of them?
Mr PREMINGER Yes, when they come back For instance, I produce
films now for Paramount. They finance them. For a while, they have
the exclusive right to distribute them.
Mr. HARVEY. For how long?
Mr. PREMINGER. For 7 years. Then they revert to me if they have
made theirmoney back. If they have not made their money back, they
keep that right to distribute them until they get their money back.
Mr. HARVEY. Do you make any films at the present time that you own
outright, yourself?
Mr. PREMINGER. No. I don't have that much money.
Mr. HARVEY. This is not a case where you would expect to sell films
to subscription television, yourself?
Mr. PREMINGER. Yes.
Mr. HARVEY. Or is it a case where you expect to sell many films?
Mr. PREMINGER. I would say this: I think this selling of films to tele-
vision is something that will pass. It is only necessary today because the
networks are not capable of producing their own entertainment. I
would rather produce shows for pay television, special shows, not to
sell films. Even if I made less money, it would very much interest me to
do a show for pay television which would not be on film or on cominer-
cial television.
Mr. HARVEY. You keep assuming you would make less money selling
to subscription television, but I gather that this is not why the net-
works are opposed to subscription television. I gather they feel that
subscription television will be able to pay more money for films.. Is
thatnot correct?
Mr. PREMINGER. Perhaps if they feel that, then they bring forward
the most powerful argument for pay television; then it will be very
successful.
Mr. HARVEY. You made a very persuasive argument for free enter-
prise a moment ago. Let us be frank about this. There is definitely a
dollars-and-cents angle to this whole thing, is there not?
Mr. PREMINGER. it is possible that also films would bring more
money on pay television. It is possible. I don't know. I `hope so. I cer-
tainly would then choose to sell my film to pay television.
I am not charitable like the networks; I do not give anything away.
I do believe, besides, pay television would create opportunities and
jobs for people who have nothing to sell to now.
PAGENO="0234"
230
Mr. HARVEY. One of the arguments made against subscription tele-
vision is that there would be a siphoning of talent from commercial
television-I will not call it free, I will call it commercial television-
to subscription television.
Do you think there would be such a siphoning?
Mr. PREMINGER. There was a siphoning from the legitimate theater
to movies and people also predicted the legitimate theater* would die
when the talkie movies came in Then there was a siphoning from the
movies to television We all can exist There is enough talent and it will
bring forward new talent. I don't think that we should worry about it.
I think this is also free enterprise, that you compete for talent. It is
not siphoning; it is competing.
Mr. HARVEY. Don't you think that the talent would appear on the
network or on the medium, let us say, of subscription television,
whichever one would give it the most money?
Mr. PREMINGER. Probably. For instance, today Mr. Bob Hope is
making films and he appears on commercial television, or Mr. Sinatra
played the lead in my film; he is making a film now in New York
and at the same time a special is appearing on one of. the networks
and at the same time he i's doing a concert tour. He might also then
appear on pay television. There should be no monopoly.
Mr. HARVEY. Let us take Bob Hope and Mr. `Sinatra. Don't you think
that if their prices were doubled on subscription television they would
go to subscription television rather than to commercial television?
Mr. P1~miINGEIi. No. Sinatra gets so much today that I don't think
it can be doubled. lie gets for some commercials-they bought him a
house and an office and everything. There is no limit. That is the same
thing.
Just like the advertiser told ABC. We want a certain film, "River
Kwai." Henry Ford said, "For my new line, I want this film. It
doesn't matter what the cost." They paid for one showing, I. believe,
$2 million. The same way if the picture is very popular with the
public; pay television would pay for it. It never happened before.
Mr. HARVEY. Since I have only 5 minutes, under our committee
rule, let me ask one further question so that I don't impose on the
others' time.
One of the arguments made against subscription television is that
at certain times there would be a preemption of time; in other words,
that subscription television would be so popular that it would make,
say, in the nighttime hours an effort to advertise on the free networks
impossible.
Do you see that in the future?
Mr. PREMINGER. If that happens, that would be the greatest proof
that the whole system of the so-called free television, and I call it
commercial television like you, sir, was wrong; that television should
not be an advertising medium but it should be a free medium where
the public ~pays.
Mr. HARVEY. As I gather the gist of your testimony, you have such
strong faith in subscription television that you feel it could very likely
disrupt our present broadcasting system.
Mr. PREMINGER. No; I don't believe so. This is an extreme example of
the use now. I don't believe so because the present three companies
that dominate the present television are so rich and so strong. Also,
they will become more inventive. They will compete with pay televi-
PAGENO="0235"
231
sion. It is also pay television. The advertisers will still want to have
their shows.
Mr. HARVF~Y. Thank you. You are a good witness, Mr. Preminger.
Mr. P1mMINGEii. Thank you.
Mr. MACDONALD. Mr. Van Deerlin.
Mr. VAN D]~iuu~IN. Mr. Preminger, in forecasting the fine shows that
will be available on subscription TV, you have three or four times
used the figure 25 cents. Once you raised it to 50 cents.
I noticed in a catalog of films that was shown me the other day
for the subscription station at Hartford, the rockbottom evening price
I saw was one dollar and a quarter for a film, and for some first-run
films it was a dollar and a half. This was considerably less than it would
cost here to take your family to see the picture in downtown Washing-
ton, I will concede.
But I think that clearly the reluctance that exists among elected
officeholders in regard to subscription television stems from a fear
that, first, it is going to raise the cost of living in the average home by
anywhere from $12 to $20 a month and, second, that you are not going
to see any more world's series or Rose Bowl games or heavyweight
championship fights on free television. I think that this fear is going
to have to- be beaten down.
Mr. PREMINGER. First of all, why should not commercial television
buy the World Series and compete with free television? They cer-
tainly have a lot of money, too. In Hartford there were 2,000 sets con-
necteci with pay television. If you permit 60 or 80 million sets to be
connected, instead of $1.50 it will probably have to cost 10 cents or
maybe 25 cents.
The average homes also spend money to go to the theaters. The
theaters in the United States, the movie theaters, are doing tremendous
business; better than ever, in spite of the opportunity for families
to see moines on television.
As a matter of fact, the exhibitors at the beginning fought pay tele-
vision; they fought free television; and they fought the showing. They
wanted originally to boycott like in London. In London, England,
the exhibitors boycotted the showing of movies on television. They
said, "Any company that shows their old movies on television, we
won't play their movies."
Eventually they gave in. This is free competition. Nobody can
predict what happens in free competition, but that is the beauty of it,
the excitement of it, that people don't know. The cost of living-these
are propaganda things that are being spread-like, for instance, in
California. I live in New York but I happened to be in California
during the time when they voted pay television out of California.
The networks and the exhibitors must have spent an incredible amount
of money because you could hear on radio every minute, "If you don't
vote it out, if pay television is permitted, you won't see Ed Sullivan
any more; you won't hear Sinatra for free." That was all nonsense.
Mr. VAN DEERLIN. I thought that was a most unworthy campaign.
Mr. PREMINGER. And the courts also declared it unconstitutional.
I think if there were enough interest in pay television that pay tele-
vision could go to the Supreme Court, win the battle, that it must be
permitted just like restaurants must be permitted, or cabarets.
Suppose they opened another hotel here and the Sheraton Park said,
"If you open another hotel, we will be out of business."
PAGENO="0236"
232
Mr. VAN DE~ERLIN. The point I am trying to make, Mr. Preminger,
is that, regardless of the justification for the position that you are
enunciating, the people of California did, by a substantial majority,
vote against pay TV.
Mr. PREMINOER. To use a popular word, they were "brainwashed."
Mr. MA000NALD. That was in Michigan.
Mr. VAN, DEERLIN. These are the same brainwashed, as you call them,
to whom we must offer Our candidacies next year. I represent San
Diego, which is a coastal community; there are some children in my
district that were found by the Office of Economic Opportunity never
to have been to the beach. Now, they do have, I think, some pro.
.graming on television-
Mr. PREMINOER. Don't they have to buy their sets? Are the sets there
being given away by the networks?
Mr. VAN D1~RLIN. Somehow there are television sets in these homes.
I am just saying that there is a political problem here that I think the
industry and its protagonists are going to have to take cognizance of.
Mr. PREMINGER. I believe, however, for instance, in California, if
the other side had had the money or had insisted on equal time or what-
ever right they have, they would not have voted pay television out, if
somebody had told them the truth, that pay television does not mean
that they will not have what they have now; they will have more than
they have now because the competition will improve the programing
on the commercial television.
You don't believe really that NBC and ABC, two of the biggest
companies in the United States, will close down their shops because of
pay television ~ They will become stronger. They will work harder.
Mr. VAN DEERLIN. Thank you, Mr. Chairman.
Mr. MACDONALD. Mr. Brotzman.
Mr. BROTZMAN. Thank you, Mr. Chairman.
I wss sitting here, Mr. Preminger, thinking that if you ever got
tired of what you are doing, you have a brilliant future in the political
arena.
Mr. PREMINOER. I appear sometimes on television. I played the part
on Batman for my children, Mr.-Freeze.
Mr. BROTZMAN. Considering your fee for "The Man With the Golden
Arm," I can certainly understand why you don't want to change to
politics. . /
Mr.. PREMINGER. I am old enough also it will sound corny, to feel
I want to do something which I really believe or say something which
I really believe is in the public interest.
Because I am not in the political arena I can speak freely. I will not
be very popular with my friends at NBC and CBS when they hear
what I have said but I don't care. This is a luxury I can afford, my-
self. I feel it is also against all the things that this country stands for.
It is a restriction in one field which just grew out of some miscon-
ception. It should never have happened.
It should always have been free. If it were free could we not even
say to competitive pay television, "You must also serve one channel
free"-would that not be better-that would really be free without
the same programs, without advertising.
They would be shown, let us say, 6 months later. There would still
be many people who would want to see them now like the people who
PAGENO="0237"
233
go to the main theaters and people who will go to the neighborhood
theaters.
For people who cannot afford it on another channel, give it to them
free. I am sure now if the networks want to give it the time pay tele-
vision would be very happy to say, "Every 6 months we will turn over
this taped program, this opera, this ballet, let NBC and CBS show it
on prime time for really free without advertising."
Mr. BROTZMAN. I thank you for your answer to my question. I do
have another question. There has been a rather intense competition
between television and the motion picture industry. Would that be a
fair statement?
Mr. PREMINGER. In the beginning the motion picture industry that
always lacked leadership gave in. They thought they were ruined.
Then slowly by the fact that the others cou]d not do anything good,
you know, and they started to buy old pictures, `today movie companies
are being bought up by big speculators `because the old films are worth
so much. It was originally competition.
Now the movie companies help the networks by giving them their
films, by selling them their films, and the networks support the movie
companies by buying their old films for fortunes.
`That is also passing because they are already making the' mistake
that they now may produce bad pictures, play them quickly in theaters
and hope to sell them. They forget that people are not dumb, that
people will not turn on the television for the pictures even though they
are free.
Mr. BROTZMAN. There has been a sort of marriage between the
motion picture industry and television.
Mr. PREMINGER. Yes.
Mr. BROTZMAN. Would you say by virtue of the process you have
been discussing, buying the old movies, et cetera, that the motion pic-
ture industry is about back economically to the point it was prior to
the advent of television?
Mr. PREMINGER. Even better.
I don't know about the stock market but I a~n sure that motion
pictures shares sell for more now and motion picture companies are
considered by financial circles to be safer, more prosperous than ever
before.
Mr. BROTZMAN. I don't quite know what the prices are going to be.
I have heard figures too, as my colleagues from California said, of
what you would have to pay to see a movie in your own home but I
wondered what would this do.
Mr. PREMINGER. The answer is very simple. You play today a road
show in New York. There is a film like Cleopatra. You charge $3.50
or $4 for a seat for 3, 4, or 6 months, sometimes a year, for "Sound of
Music" 2 years. It sells out.
Then one day `they stop it and sell it to 20 theaters in the same `city
for half the money and the people want to see it. Then it stops and
they sell it to 400 theaters for one-third of the money and it still sells.
If the public wants to see something there are enough people who
first buy it `for higher money, like some people buy more expensive
clothes and some people buy less expensive clothes.
That is the beauty of the free enterprise I am discussing. It won't
hurt anybody. Eventually they will see it for 25 cents and it will be
additional income. It will not hurt anybody.
PAGENO="0238"
234
It is only the greed and the fear that makes people fight these things
because they are afraid they will be hurt. Like the movie industry
fought television when it arrived and like now our president, Mr.
Valenti, whom you probably know, arrived here, I read someplace,
2 days ago with their lawyer, Mr. Nizer, to protest to the Justice
Department that `the television people dare to finance and produce
movies. Why should they not? They are American citizens. If they
were foreigiiers they should be able to do it.
Both sides always try to find some legal reasons why the other
should not be free to compete.
Mr. MAcDONALD. I am sorry, Mr. Brotzman.
Mr. BROTZ1~tAN. Surely. We have gobbled up 5 minutes here.
Mr. MACDONALD. A long five.
Mr. PREMING~R. I talk too much.
Mr. BROTZMAN. I want to say to you that we on the committee do
appreciate the fact that you have taken the time to come down here.
It is very helpful to hear people who don't have a particular axe~ to
grind.
Thank you.
Mr. MACDONALD. Mr. Ottinger.
Mr. O~rrINoER. Mr. Chairman, I want to compliment Mr. Prem-
inger on what I consider the most splendid piece of testimony I have
ever heard. It was put forward lucidly, clearly, dramatically. I think
you made your points very well.
In support of your thesis there is one area that I don't think we have
brought out, and that is the poteiitial of pay TV for educational pur-
poses. Today, for instance, I would like to take Italian lessons, but the
time when the educational program station puts that on just does not
happen to be convenient for my hours in Congress; so that I can't take
advantage of the courses offered on today's TV.
With pay television, however, with a retrieval system, you could
select any kind of lesson you wanted at the hour and it would be a
tremendous-
Mr. PREMINGER. May I say that the interest in languages has gone up.
I took a crash course to refresh my French when I left for France.
Also my children speak better French than I and I wanted to keep up
mit.
I learned that Berlitz by having these new courses which are very
modern, they really brainwash you, they hammer it into you, and that
would also be possible on pay television because they could then vary
the times.
You see, I don't believe that the channels should be limited. I think
that in our age of technology you could have more channels. I don't
believe, however, that if, for instance, on the educational channel-you
see, this is my quarrel with any not free enterprise, I don't think that
they will have courses as effective as Berlitz has or as pay television
would have. I think that they are limited by the system of bureaucracy.
Mr. OTTINGER. I certainly agree with you. I think the people will
make a wise choice and that it should be the people who have the choice
of what they are going to hear rather than the networks or public tele-
vision network, at least as an alternative to these other possibilities.
I certainly endorse what you have had to say very wholeheartedly
and appreciate that you have said it so well.
Mr. PREMINGER. Thank you very much.
PAGENO="0239"
235
May I say one more thing.
I am at the moment preparing a film about young people. I have
made a lot of research about the drug situation. I haven't heard any-
thing on free television where young people are warned in a sensible
way about the dangers.
I do believe, however, that if there were pay television, that people,
you know, scientists, the same people who writebooks now, would also
be able to appear there and talk to the young people and I think this
would be very important.
Mr. OTTINGER. Thank you very much, Mr. Preminger.
Mr. MACDONALD. Mr. Brown.
Mr. BROWN. Mr. Preminger, I would like to compliment you on
what I think has been a most eloquent defense of the free enterprise
system that we have heard in a long time. We don't get too much
about that because most people who come down seem to want th~ Gov-
ernment to do something for them or against their competitors.
That may have something to do with the point of all this. However,
I am sorry to say that like the U.S. Cavalry, I think you may have
arrived just about 3 or 4 weeks too late because some of the Indians
have already scalped the taxpayers to the tune of $20 million on this
public broadcasting legislation which will really be free because we
put up $20 million so that there could be some programing and con-
struction of television stations which will elevate tbe cultural level of
the community, free to the extent that the advertisers are not putting
it up, the taxpayers are.
I have learned by the experience of my colleagues, I want to ask
just you two questions-
Mr. PREMINGER. I will make it short.
Mr. BROWN. I would like to ask you if you feel there would be
even with pay TV or subscription TV more and better programin
on commercial television if we had, say, 10 networks rather than three.
Mr. PREMINGER. Yes, definitely.
Mr. BROWN. That is all?
Mr. PEEMINGER. I have also learned to answer short.
Mr. BROWN. This is a little bit more fundamental question.
If we had pay TV wouldn't everybody wind up watching the
Yankees rather than the Kansas City Athletics or watching Frank
Sinatra rather than some new talent and eventually this thing would
again get down to the centralized problem?
Mr. PREMINGER. I don't believe so.
This is really something that nobody can prove. Like nobody can
predict any success of free enterprise. But I believe that the opposite
will happen. I believe that it will be more diversified. I really believe
it will raise the cultural level of the United States.
Mr. BROWN. You would not have advertising on pay TV?
Mr. PREMINGER. I am against advertising on pay TV or, if it is
necessary, advertising at the beginning or the end, not in the middle
of shows. But I don't think there should be advertiser$.
Mr. BROWN. In other words, it should be strictly box office?
Mr. PREMINGER. Yes. They don't advertise in movie houses any
more-they used to-and they exist very well.
Mr. BROWN. Thank you very much.
Mr. MACDONALD. Mr. Kornegay.
PAGENO="0240"
236
Mr. KORNEGAY. What is your feeling,. Mr. Preminger, with reference
to the FCC having any authority in the area of setting or determining
the prices that the subscriber pays for TV?.
Mr. PREMINGER. If there should be abuses I think it should be regu-
lated, the prices. I think there again competition will not make it
necessary. I don't think that the FCC should have any power to
regulate the content of the programs.
Mr. KORNE6AY. Let me interrupt here.
As I understand it, under the system that the FCC now envisions
under their fourth report and order there would be no competition in
the subscription TV?
Mr. PREMINGER. That is wrong, too.
Mr. VAN DE1~nLIN. Will the gentleman yield?
Mr. KORNEGAY. Yes.
Mr. VAN DEERLIN. What we are talking about is pay TV that uses
the public airwaves. There is a limit on those, you know.
Mr. PREMINGER. I don't think that there is much of a limit. This
could easily be enlarged. I would be grateful for one channel on pay
TV because there will still be competition between pay TV and com-
mercial TV, but I think if there were two channels it would be better.
I think that technically there is no limit.
Mr. BROWN. Will the gentleman yield? I don't understand that in
the FCC requirements. As I understand, the FCC have said they will
allow them on pay TV if there are four "A" signals, including pay TV
in the area.
Mr. MAcDONALD. Five.
Mr. BROWN. The point is that if there were five then that would not
preclude another TV channel, would it?
Mr. MACDONALD. Yes, it would. You would have to have 10.
Mr. KORNEGAY. You have to have 10 and where do you have 10?
Mr. BROWN. Is that clear in the statement?
Mr. MACDONALD. Yes.
Mr. PREMINGER. Even if it starts like this, if it works, if it is success-
ful, wouldn't it be changed, like many laws are being changed, many
rules, by necessity. If it just started then everything would be fine.
Mr. MACDONALD. Thank you very much Mr. Preminger.
I don't have to echo what I have said and what other members have
said about the brilliance of your presentation and our gratefulness for
your taking time to come here to be with us.
Mr. PREMINGER. Thank you.
Mr. MACDONALD. I apologize to the other witnesses who are to be
heard but inasmuch as the next witness was to be Zenith and they con-
ducted this experiment, I think in the very limited time we would have
it is only fair that you have a reasonable amount of time.
Ordinarily, we would come back at 2 o'clock if we could get per-
mission from the Speaker to do so but today there is a very important
bill on the floor, important to everyone in the country, a postal bill,
which obviously is important to all Congressmen.
There will be a number of rollcalls and amendments to the bill so we
can't meet this afternoon. So we will meet tomorrow in this room at 10
a.m.
The hearing is adjourned for today.
(Whereupon, at 12:15 p.m., the subcommittee adjourned, to recon-
vene at 10 a.m., Wednesday, October 11, 196'T.)
PAGENO="0241"
SUBSCRIPTION TELEVISION
WEDNESDAY, OCTOBER 11, 1967
HousE OF REPRESENTATIVES,
SUBOOMMITrEE ON COMMUNICATIONS AND POWER,
COMMITrEE ON INTERSTATE AND Foiu~IaN `COMMERCE,
Wa8hington, D.C.
The subcommittee met at 10 a.m., pursuant to notice, in room 2322,
Rayburn House `Office Building, Hon. Torbert H. Macdonald (chair-
man of the subcommittee) pre~iding.
Mr. MACDONALD. The hearing will come to order.
The first witness of the morning is Mr. Joseph Wright, president of
Zenith Corp.
I understand you have some other members of your company that
you would like to accompany you.
STATEMENT OP JOSEPH S. WRIGHT, PRESIDENT, ZENITH: RADIO
CORP.; ACCOMPANIED BY PIETEB. E. VAN BEEIC., PRESIDENT,
TECO; KEIGLER E. FLAKE, GENERAL MANAGER, WECT-T'V,
HARTFORD, CONN.; AND W. THEODORE PIERSON, COUNSEL
Mr. WRIGHT. Yes, sir, Mr. Chairman.
I have with me Mr. W. Theodore Pierson, of Pierson, Ball & Dowd.
Mr. Pierson has represented us in this matter of subscription
television before the FCC and generally for the past 15 years; Mr.
Pieter van Beek, who is president of Teco, which is an affiliated or-
ganization and wh~ has been assistant to the president on phonovision
matters for Zenith for many years; and also Mr. Keigler Flake, general
manager of channel 18 in Hartford, Conn., the station which has `been
operating the subscription television operation authorized `by the FCC.
Now, these gentlemen are here and available. If there are any ques-
tions that I cannot answer or any questions that anyone from the com-
mittee would like to address to them, we are happy to have them avail-
able to give you any information that we can.
We deeply appreciate this opportunity, Mr. Chairman, to appear
before this committee and tell you a little something about us and also
to tell you about this project that we have `been engaged in so long.
Mr. MACDONALD. Do you want them at the table with you?
Mr. WRIGHT. I don't think it will be necessary. We only have three
chairs here. They are right here available. If there is any matter that
we would like them to handle, we~ can certainly ask them to come
forward.
Mr. MACDONALD. All right.
Mr. WRIGHT. Let me tell you a little something about Zenith by way
of background.
(237)
86-399 O-67----16
PAGENO="0242"
238
There have been some pretty hard things said about us in connection
with the matter of subscription television that has been so conlxoversiai
over the years.
We started out 49 years ago with two young men who were making
radios on a kitchen table back on the Edgewater Beach in Chicago.
One of those men is still with us and a member of our board of.
directors.
We struggled along in this business before most people bad even
heard of the word "radio" or that there was such a gadget.
These two young men got out of the Navy and they had a license
under the old regenerative patents of Maj. Howard Armstrong, who
was the greater pioneer and inventor in our business. The company
struggled through the years along with thousa~nds of others who were
in this business.
There are many names of companies that were famous at one time
in this area that have fallen by the wayside. We have grown in this
business in which we are engaged, which is primarily the manufacture
of radio receivers, television receivers, and high fidelity instruments
and consumer electronics and hearing aids. This is really the scope
and extent of our business. We have tried to stick to the things that
we knew how to do.
In the course of that, we have grown from a kitchen table operation
to a company which, last year, did over $600 million in business. We
have more than 20,000 employeçs. We have more than 50,000 stock~
holders We are, we think, the largest company in the world in the
manufacture of consumer electronics.
Now, in achieving that position, the only way we could do it was
by developing products that we thought the public would want to buy
in competition with the products of our competitors when they got
on the retailer shelves,
The whole name of our game, the whole thrust of our businesS, is
to develop products and merchandise that we think will meet the
public's demands, that will be in the price categories, that will have
the features, the styling, that will make it sell in competition not only
with the dozen or more manufacturers that compete with us in the
United States but with all the foreign goods that come along.
Now, we are highly interested in television. Actually, television is
the heart of our business. When the new fall programs come on, when
the world's series comes on, when the football games come on and the
new programs and everyone is excited about them, our industry's sales
curve goes up like this. When the summer dog days, the days of the
reruns and so forth come along, our sales curve goes down like this.
This has been the pattern of our industry from the time that I know
anything about it.
Now, I tell you this so that you will understand that we have a bil~
lion dollar stake right now at Zenith in seeing television become a vital
vigorous force and in seeing that it does render the maximum service
to the public.
Any suggestion that we would want to do something here which
would limit television to a few people who might pay vast sums of
money to see it and we would have anything to do with a service which
would cut down free television and dry it up would certainly mean
that we would be throwing away and working against the main thrust
of our business now.
PAGENO="0243"
239
Actually, our interest is the other way. Our interest is in doing
everything we can to broaden this medium, to get more stations on, to
get a greater variety of programing, locally and nationally, because
it is only in this way that our business is really going to grow, if this
medium renders a great service to the public.
Now, many years ago, we came to the conclusion that television was
going to be an awful lot different than radio. Whereas in radio you
could have a great dramatic show by a few people in sweat shirts stand-
ing around the microphone reading from a script, when you got to
television this was going to be a very costly and difficult thing to
finance. We did not believe at that time that the advertiser could afford
to spend the kind of money that we felt was going to be necessary to
program this thing.
Now we think of advertising support of radio as being something
ingrained in this medium, that it was almost invented along with it.
The truth of the matter is that this was an accident, this development
of advertising in support of it.
In the early days of radio when we were starting, this was an
amateur thing for the most part. There was no real broadcasting as
we know it now. Great arguments went on among men in the industry
then as to how radio could be supported. Would manufacturers own a
radio station and use it to sell their own goods? Would the set manu-
facturers make a levy among themselves to pay for the broadcasting
of the stations?
The use of this as an advertising support came about, the way I have
heard the story, when one of the radio magazines, someone had printed
100,000 too many copies of them and they were stuck with them and
they could not sell them. This was in the early days of the National
Association of Broadcasters. As a matter of fact, Commander Mac-
Donald of Zenith, who was president of Zenith and the man who really
built the company, was the first president of NAB, and they got on
the radio and asked people to send in for these magazines for a quarter
and they sold them out. So far as I know, this was the first real use of
radio as a means of selling a product.
But the technology had never been developed for practically work-
ing out a way that the public could share in the cost of bringing things
that advertising could not support. So, we asked some of our cleverest
research people whether there was a way that this could be done tech-
nically. We have been working on the thing in terms of research now
for more than 30 years.
In the course of that, we have developed a whole variety of systems
which make it technically possible to scramble a signal at the trans-
mitter so that when it goes out over the air and is received on the TV
set, both the sound and the picture are virtually unusable. They are
hashed up so that if you look at them and listen to the sound, you do not
get the intelligence from them.
And, at the same time, to be a~ble economically and simply to recon-
stitute that picture at the subscriber's set in such a way that he does
get usable picture and sound and in such a way that his doing that
can be recorded so that he can pay for what he has seen.
Now, we started an experiment in the city of Chicago in 1951. We
had 300 homes that were involved in this. The only programing that we
PAGENO="0244"
240
could get for it were movies. Now, these were movies that were unavail-
able to television at the time.
They were out of theater release but most of them were from a year
to 2 years out of theater release. We put them on and charged a dollar
per family for seeing them. I think this ran for 6 or 8 weeks. After all,
we wanted to know is this the kind of thing that the public wants?
Do they really want someth~ing better than is available on TV now?
And are they willing to share in the cost of it? We had no doubt about
that after that Chicago experiment.
So, 15 years ago, we asked the Federal Communications Commission
to approve our going ahead and doing this on a commercial basis. I am
sure that I do not need to recount the long story that has gone on since
that time. After a very protracted controversy before the FCC, we
were granted permission to go ahead in Hartford in 1962 on an experi-
mental basis.
That Hartford operation has taught us a great deal about subscrip-
tion television. As a result of our studies there, we made all of this
information available to the FCC.
By the way, we have a very detailed report that we filed with the
FCC which I would certainly like to leave with this committee so that
you may have the benefit of a full disclosure of all of our information
on these operating results.
Mr. MAODONALD. I think, Mr. Wright, without objection, it will be
very valuable to have it inserted in the record at this point.
(The document referred to follows:)
PAGENO="0245"
BEFORE THE
Federal Communications Commission
WASHINGTON, P. 0. 20554
In the Matter of:
AMENDMENT OF PART 3 OF THE COMMISSION `S RULES AND.
REGULATIONS (RADIO BROADCAST SERvIcEs) To PROVIDE
FOR SUBSCRIPTION TELEVISION SERVICE
Docket No. 11279
JOINT COMMENTS OF ZENITH RADIO CORPORATION AND TECO,
INC. IN SUPPORT OF PETITION FOR NATION-WIDE
AUTHORIZATION OF SUBSCRIPTION TELEVISION
March 10, 1965
241
PAGENO="0246"
242
INDEX
Page
I. INTRODTJOTION 1
II. HISTORY OF THIS PROCEEDING 2
III. ISSUES PRESENTED 4
A. Jurisdictional Issue 4
B. Public Interest Issues 4
Jurisdictional Consideration
IV. THE COMMISSION HAS TIlE AUTHORITY UNDER
THE COMMUNICATIONS ACT OF 1934, AS AMENDED,
TO AUTHORIZE SUBSCRIPTION TELEVISION AS A
"BROADCAST" SERVICE 5
Public Interest Considerations
V. THE HARTFORD TRIAL HAS ESTABLISHED THAT
SUBSCRIPTION TELEVISION WILL PROVIDE A
BENEFICIAL SUPPLEMENT TO THE PROGRAM
CHOICES NOW AVAILABLE TO THE PUBLIC ON
CONVENTIONAL TELEVISION 10
A. Motion Picture Films 12
B. Sports Events 13
C. Special Entertainment Programs 15
D. Educational and Instructional Programs 16
E. Charges for Subscription Programs 18
VI. THE HARTFORD TRIAL HAS DEMONSTRATED
THAT SUBSCRIPTION TELEVISION PATRONAGE IS
NOT LIMITED TO HIGH-INCOME SUBSCRIBERS BUT
PRIMARILY ATTRACTS MIDDLE-INCOME SUB-
SCRIBERS 20
PAGENO="0247"
243
Index Continued
Page
VII. THE HARTFORD TRIAL ESTABLISHES THAT SUB-
SCRIPTION TELEVISION WOULD RESULT IN AN
INCREASE IN ECONOMIC AND PROGRAM RE-
SOURCES WHICH WOULD FACILITATE SIGNIFI-
CANT INCREASES IN THE NUMBER OF TEI2EVI-
SIGN SERVICES AVAILABLE TO THE PUBLIC
UNDER THE PRESENT SYSTEM 23
A. Business Projections Based on Hartford Trial Ex~
perience 25
B. Conclusions Which May Be Drawn From Business
Projections 35
VIII. THE HARTFORD TRIAL DEMONSTRATES THAT
SUBSCRIPTION TELEVISION WOULD NOT IMPAIR
THE CAPACITY OF THE PRESENT SYSTEM TO
CONTINUE TO PROVIDE ADVERTISING-FINANCED
PROGRAMMING 36
A. Audience Siphoning Would Be De JlThiimis 36
B. Subscription Television Would Not Pre-empt Any
Significant Amount of Time Now Utilized By Adver-
tising Sponsors 38
C. The Type of Box-Office Programming Shown During
the Hartford Trial Demonstrates That Subscription
Television Will Not Siphon Talent and Existing
Programs From Conventional Television 42
IX. THE HARTFORD TRIAL HAS DEMONSTRATED
THAT SUBSCRIPTION TELEVISION WILL RECEIVE
SUFFICIENT PATRONAGE FROM THE PUBLIC TO
MAKE IT AN ECONOMICALLY VIABLE BUSIN1~SS 48
X. MISCELLANEOUS ISSUES CLARIFIED BY THE
HARTFORD TRIAL 50
A. The Modus Operandi of Subscription Television
and Methods to be Employed 50
B. Technical Performance . 52
C. The Role of the Participating Broadcast Station
Licensee 54
D. The Hartford Trial Has Established That There
Are No Inherent Monopolistic *Features Arising
From Subscription Operations 55
XI. SUMMARY OF PUBLIC INTEREST CONSIDERA-
TIONS . 58
11
PAGENO="0248"
244
Index Continued
Page
XII. SCOPE OF RELIEF REQUESTED 6o
1. Whether Subscription Television Operations Should
Be Limited To A Single Technical System Or Whether
General Standards Should Be Provided Within
Which A Number Of Systems Might Operate 60
2. Whether Subscription Operations In An Individual
Community Should Be Confined To A Single Tech-
nical System 60
3 Whether Nation wide Subscription Television Should
Be Limited To Multi-Station Markets (Four or More
Stations) or Whether It Should Be Permitted In All
Markets, Including Single-Station Markets 61
4. Whether Subscription Television Should Be Con-
fined to a Single Station in Any Individual Com-
munity or Whether More Than One Station Should
Be Authorized to Carry Programs 61
5. Whether Stations Should Be Limited in the Amount
of Time That They Can Devote to Subscription Pro-
gramming 62
6. Whether Subscription Television Should Be Limited
to Only UHF Stations 63
7. Whether R.estrictions Should Be Placed Upon the
Broadcast of Commercials During Subscription
Programs
8 Whether Subscription Television Should Be Limited
to Broadcasting Programs of a Box-Office Nature
XIII. DESCRIPTION OF SUBSCRIPTION RULE PROPOSED
BY ZENITH AND TECO 65
Proposed Subscription Rule 66
CONCLUSIONS 69
EXHIBITS
1. List of 599 Subscription Programs Shown During First
Two Years of Hartford Trial by Program Category and
Audience Rating 73
2 Average Weekly Program Expenditures by Subscriber In
come Level .. 83
3. Average Monthly Program Viewing in Dollar Amounts ... 84
4. Top 100 Markets for 1964 Rated by Number of Television
Homes 85
5. Suggested Notice of Proposed Rule Making 87
iii
PAGENO="0249"
245
BEFORE THE
Federal Communications Commission
WASHINGTON, D. 0. 20554
In the Matter of:
AMENDMENT OF PART 3 OF THE COMMISSION `S RULES AND
REGULATIONS (RADIO BROADCAST SERVICES) TO PROVIDE
FOR SUBSCRIPTION TELEVISION SERVICE
Docket No. 11279
JOINT COMMENTS OF ZENITH RADIO CORPORATION AND TECO,
INC. IN SUPPORT OF PETITION FOR NATION.WIDE
AUTifORIZATION OF SUBSCRIPTION TELEVISION
I. XNTROIMJCTION
Zenith Radio Corporation and Teco, Inc. are filing these com-
ments in support of their petition, filed simultaneously herewith, re-
questing the Commission to adopt appropriate rules authorizing
subscription television service on an extended nation-wide basis.
In authorizing subscription television trial operations in its First
and Third Reports, the Commission provided that the above-entitled
proceeding would remain pending on the issue of whether subscription
television service should be authorized or extended on a continuing
basis until additional data were available from the trial subscription
operations so authorized. The Hartford subscription trial being con-
1
PAGENO="0250"
246
ducted by RKO General, Inc., and its subsidiary, RKO Phonevision
Company, in which Zenith and Teco are participating, is now in its
third year of operation under the three-year authorization granted
for that trial and has now reached a stage where meaningful data are
available for analysis.
In these comments, with the cooperation of RKO, we are making
public1 the empirical knowledge gained during the Hartford subscrip-
tion trial. Emphasis has been placed upon those factors which have
a relationship to the public interest considerations and issues upon
which the Commission reserved final decision in its First and Third
Reports on subscription television until more operational data and
demonstrable facts were available from appropriate trial operations.
II. HISTORY OF THIS PROCEEDING
The present rule making proceedings had their genesis in a petition
filed by Zenith on February 25, 1952, as revised by a joint petition
filed by Zenith and Teco, Inc. on November 29, 1954. Prior to this,
Zenith, pursuant to an FCC authorization, conducted a successful
three-month subscription television test with 300 subscribers in Chi-
cago during 1951.2
On February 10, 1955, the Commission issued a notice of proposed
rule making (Docket 11279, FCC 55-165) to elicit data and comments
on questions of fact, law and public interest raised by the Zenith-Teco
petition and subsequent petitions of other proponents of subscription
television. As a result, voluminous comments were submitted by mem-
bers of the television industry, motion picture interests and others,
and over 25,000 letters and comments were received by the Comniis-
sion from various organizations and individuals.
On May 23, 1957, the Commission issued a notice of further pro-
ceedings (FCC 57-530) in which it concluded that it has the requisite
statutory authority to authorize the use of broadcast frequencies for
subscription operations if it should find that it would be in the public
interest tq. do so. It announced, however, that in the absence of a
suitable trial demonstration of subscription television, it was unable
to determine whether or not an authorization of that kind of television
`Most of this information, of course, has been made available to the Corn-
mission from time to time during the course of the Hartford operation.
2 Full details of the 1951 test have been previously filed with the
Commission.
2
PAGENO="0251"
247
service would serve the public interest. It again formulated a series
of questions to elicit appropriate conditions under which such trial
demonstrations might be conducted and invited interested parties to
comment. Again, numerous and extensive written comments were
submitted.
On October 17, 1957, the Commission adopted its First Report
(16 BR 1509) in which it announced that it would accept applications
by television station licensees to conduct subscription television opera-
tions under certain prescribed conditions. On February 26, 1958, the
Commission issued a Second Report (16 RB 153.9) temporarily defer-
ring trial authorizations to afford Congress additional time to consider
the then-pending legislative proposals on the subject.
On March 23, 1959, the Commission issued its Third Report (16
RB 1540a) revising several conditions in the First Report. The Com-
mission therein stated that it was prepared to give consideration to
such applications for subscription television trials as migh~t be sub-
mitted by broadcast licensees in conformity with the revised require-
ments.
On June 22, 1960, RKO Phonevision Company (then known as
Hartford Phonevision Company) and RKO General, Inc., its parent
company, pursuant to the terms of the Third Report, applied for
authorization to conduct television subscription operations, using the
Zenith Phonevision system, Over UHF Television Station WHCT,
Hartford, Connecticut.
Hearings were held before the Commission en bane from October
24 through October 28, 1960, and the Commission reached its final
decision on February 23, 1961, in which it unanimously concluded that
the grant of RKO `s application would fulfill the objectives of the trial
subsciiption television operations established in the First and Third
Reports. Application of Hartford Phonevision Co., 20 RB 754 (1961).
Thereafter, the TJnited States Court of Appeals for the District of
Columbia Circuit affirmed the Commission authorization of the Hart-
ford trial. Connecticut Committee Against Pay TV v. FCC, 301 F.2d
835 (1962), cert. denied, 371 U.S. 816 (1962).
Actual subscription trial operations by WHCT, Hartford, were
commenced on June 29, 1962, with 188 subscribers, including 48 "test"
subscribers and 12 "complimentary" subscribers-i.e., veterans hos-
pitals, Newington Home for Crippled Children, local hospitals, etc.
3
PAGENO="0252"
248
In the first two years of operations, the number of subscriber homes
steadily increased as indicated below:
Date No. of Subscribers
End of 26th week 1,729
End of 52nd week 2,743
End of 78th week 3,622
End of 104th week 4,784
At the close of the second year of trial operations, RKO decided to
limit the number of subscribers to 5,000 for the remaining third year
of the trial authorized by the Commission because business prudence
and fairness to the subscribers did not warrant further substantial
expansion without some assurance that the Commission would author-
ize the trial beyond the third year.
Thus, after more than twelve years of Commission proceedings,
field tests and trials of subscription television, the time has come to
give subscription television the opportunity to go into the market place
on a nation-wide basis.
IlL ISSUES PRESENTED
The Commission, in its First and Third Reports, outlined the
central issues concerning whether subscription television should be
authorized on a nation-wide basis, upon which it was reserving decision
pending the trials as follows:
A. Jurisclictioual Issue ~
Whether subscription television should be classified as broad-
casting under Section 3(o) of the Communications Act or whether
it should be given some o~ther classification pending receipt of
additional information which would be produced by subscription
trials.
B. Public Interest Issues
1. Whether subscription television would provide a beneficial
supplement to the program choices now available to the public.
2. Whether subscription television would result in an in-
crease of resources which would facilitate significant increases
` The Commission has already concluded that it has the statutory authority
to authorize subscription television operations if it finds such operations to be
in the public interest.
4
PAGENO="0253"
249
in the number of services available to the public under the pres-
ent system.
3. Whether it would seriously impair the capacity of the pres-
ent system to continue to provide advertising-financed program-
ming of the present or foreseeable quantity and quality, free of
direct charge to the public, and the related question: Whether sub-
scription television would have a siphoning effect causing pro-
gram producers, sports promoters, talent, writers, directors and
stations to migrate to a disastrous degree away from the present
system to subscription television, which would in turn frustrate
any possible effort to continue to provide free television service
anywhere near the present quantity or quality.
4. The degree of acceptance and support which subscription
television might be able to obtain from members of the public
in a position to make a free choice.
5. Subsidiary issues which the Coin-mission anticipated would
be c~arified as a result of trial operations .authorized pursuant to
* the First and Third Reports were:. (a) the modus operandi of
* subscription service; (b) methods to be employed; (c) the nature
of the programs offered; (d) technical performance; (e) the role
of the participating broadcast station licensee; and (f) possible
monopolistic features of a subscription service.
We shall hereafter discuss. in detail each of these issues in light of
the empirical knowledge gained during the Hartford subscription
trial operation.
Jurisdictional Consideration
IV. THE COMMISSION HAS THE AUTHORITy UNDER THE COMMUNICATIONS
ACT OF 1934, AS AMENDED, TO AUTHORIZE SUBSCRIPTION TELEVISION
AS A "BROADCAST" SERVICE.
It cannot now be doubted that the Commission has statutory
authority to authorize subscription television. Both the Commission
and the Court of Appeals have so held.
The Commission, "after a painstaking review of the briefs sub-
mitted in this proceeding and additional research by the Commission
staff," first reached this conclusion in its 1957 notice of further
proceedings (FCC 57-530). In its First l~eport the Commission unani-
mously affirmed its prior holding. It discussed in detail the relevant
~ First Report, para. 20.
~ In the only dissent to the report as a whole, Commissioner Bartley sub
silentio conceded that the Commission had the power to authorize subscription
services, although apparently he would have held that such should be classified
as non-broadcast. 16 RR at 1533, 1538. It should be noted that Commissioner
Bartley concurred in the result of the Third Report. 16 RR 1540a.
5
PAGENO="0254"
250
sections of the Communications Act and pertinent legislative history,
and stated that:
"[lit is not reasonable to infer Congressional intent to prohibit
charges for the reception of programs transmitted by broadcast
stations, from language which makes no express reference to the
question, and which in our opinion could be so construed only
on a strained interpretation. Such a construction of the statute
seems to us especially unwarranted in view of the fact that in the
several respects, mentioned above,[6] in which Congress decided
to impose specific limitations on the broadly defined licensing
powers o.f the Commission, it did so in express, explicit language."
(para. 29.)
These sections of the First Report were "readopted and reaffirmed"
in the Third Report (para. 7). In the subsequent appeal from the
Commission's 1961 final decision authorizing the Hartford operation,
the appellant Connecticut Committee Against Pay TV argued, i'nter
cilia, that "the Commission lacks statutory power to authorize a tele-
vision broadcast system which requires the direct payment of fees
from the public . . . . "~ This contention was rejected by the Court in
its affirmance of the Commission's decision. These decisions have
since stood undisturbed by either the Supreme Court or Congress.
Thus, no useful purpose would be served by prolonging this dis-
cussion with detailed argument and citation, except to add that the
Hartford trial has not disclosed any fact that would in any way alter
these conclusions.
The only jurisdictional consideration remaining open, then, is
whether subscription television should be classified as "broadcasting"
or under some entirely new category In its First Report the Com-
mission, while rejecting any contention that the definition of "broad-
casting" contained in Section 3(o) of the Communications Act per se
bars the authorization of subscription broadcasting (para. 28) and,
conversely, observing that "there would appear to be little basis for
classifying the proposed kind of service as a common carrier service
within the meaning of Section 3(h)" (para. 43), reserved a deci-
sion upon its proper classification. We submit that the language of
6 Communications Act, as amended, Sections 311, 313, 315, 317, 325, 326.
See First Report, para. 25.
~ Connecticut Conimittee Against Pa4J TV v. FCC, 301 F. 2d 835, 837 (D.C.
Cir.), cert. denied, 371 U.S. 816 (1962).
6
PAGENO="0255"
251
the Act, in pertinent part and as a whole, the relevant legislative his-
tory and case law, plus the results of the Hartford trial, demonstrate
that subscription television should be classified as a broadcast serv-
ice within the definition of Section 3(o).
Section 3(o) defines broadcasting as "the dissemination of radio
communicatio~is intended to be received by the public or by the inter-
mediary of relay stations." It is clear from this statutory language
that the "intent" of the "broadcast licensee" and the inherent nature
of the signal he transmits are the criteria for the classification of
the service he renders. And as the Commission itself has stated, "The
primary touchstone of a broadcast service is the intent of the broad-
caster to provide radio or television program service withottt dis-
crimination to as many members of the public as can be interested
in the particular program as distinguished from a point-to-point
message service to specified individuals." 8
The Commission has also declared that under this definition sub-
scription services "should properly be classified as a type of broad-
cast service." ~ Subsequently, in its First Report (para. 28) the Com-
mission stated that "the evident intention of any station transmitting
subscription programs would be to make them available to all mem-
bers of the public within range of the station." This has been corn-
firmed by the Hartford trial.
Of course, it is not the stated intention of a broadcaster that is
of the utmost importance, but the intent that can reasonably be in-
ferred from all the external circumstances. Certainly, however, the
number of actual or potential viewers is not crucial. For instance, cer-
tain multiple-address private telegraph messages might be received
by more people than some broadcast programs, but this certainly
does not place the private telegraph message iii the category of broad-
cast, or the broadcast programs in the category of point-to~point. A
color broadcast by a television station or a broadcast by a new UHF
station in a VHF market or a broadcast by an "educational" televi-
sion station are not classified as point-to-point, although disseminated
with the knowledge that only a highly limited number of persons
8 Comments of the Federal Communications Commission on H.R. 6481, a
Bill to Amend the Communications Act with Respect to its Application in the
case of Subscription Radio and Television, FCC 54-601, May 6, 1954. (]~m.
phasis added.)
9Ib~d.
7
PAGENO="0256"
252
possessing special equipment will receive the broadcast. And, as the
Court of Appeals stated in Functional Music, liw. v. FCC, 274 F.2d
543, 548 (D.C. Cir.), cert. denied, 361 U.S. 813 (1958):
"Program specialization and/or control is not necessarily deter-
minative of this requisite intent, and therefore dispositive of
broadcasting status. . . . Broadcasting remains broadcasting even
though a segment of those capable of receiving the broadcast sig-
nal are equipped to delete a portion of that signal,"
and vice versa.
If the "functional music" services involved in this last case are
properly classifiable as "broadcasting" (as the Court of Appeals
held), surely subscription services are broadcasts. The potential func-
tional music audience is much smaller: than that of subscription tele-
vision. More importantly, functional music's audience is inherently
limited in type to "restaurants, stores, schools and comparable in-
stitutions." Id. at 544. In contrast, in the Hartford trial no limit
was plaeed upon the type or number of subscribers until the third
year when RKO limited the number to 5,000 for the reasons previously
explained. Otherwise, besides the geographic and atmospheric limi-
tations on range of reception, the only considerations preventing an
individual from participating in the subscription services were either
his own economic dictates or his own free choice to abstain. Each
one of these considerations is equally applicable to any other type
of "broadcasting."
It is likewise true that the inherent nature of the signal trans-
mitted by a subscription operation demonstrates that it is a "broad-
cast" service. This signal is practically identical with that of any
other broadcast station, the only difference being the specialized sig-
nal and equipment necessary to scramble and unscramble the trans-
mission. A similar signal and similar equipment were involved in
the Functional Music case.
Since most television broadcast stations derive their revenue from
advertising and not from subscription charges, th~ argument has been
made that Congress did not intend to authorize t~ubscription stations
to be classified under "broadcasting." This arg~iment finds no sup-
port either in the historical development of te1e'c~ision or in the leg-
islative history of the Communications Act. As the Commission rec-
ognized in its First Report:
"When Congress debated the legislation whi~b emerged as the
Radio Act of 1927, the practice of `free' broadcasting had become
8
PAGENO="0257"
253
established and was universally followed. This had not, however,
resulted from any legislative requirement. it was the way radio
broadcasting grew up. The Secretary of Oommerce_4he pre-
decessor licensing authority_-was not limited to issuing broad-
cast licenses only to licensees proposing free broadcasts. The
practice of free broadcasting resulted from what at that stage
was the voluntary choice of the industry." (para. 32.)
Furthermore, the Commission, in the Muzak Corporation case, 8 FCC
5811, 582 (1941), and the Court of Appeals, in `Functional Music, ex-
pressly decided that the procurement of station revenue by direct
charges to the public is within the definition of broadcasting.
The only remaining consideration, then, is whether a subscription
broadcaster can comply with all of the Communications Act require-
ments and Commission regulations and policies imposed upon other
broadcasters. The answer is definitely yes.1° The Hartford trial dem-
onstrated that a broadcast licensee supplying subscription television
programs will have no difficulty whatsoever in meeting all of his ob-
ligations if classified as a "broadcaster." indeed, the Hartford sta-
tion (WHOT) experienced no dissimilarities in complying with these
obligations during its hours of operation as a standard television
broadcast station and those of a subscription broadcaster.
We submit, therefore, that the broadcast licensee is clearly per-
forming a broadcasting function, whether his signal carries a spon-
sored, sustaining or subscription program. The fact that in the course
of performing this ultimate task he employs services that are not in
and of themselves broadcasting does not deprive his telecast of its
real broadcasting character. He now uses the services of national net-
works, regional networks, news services, film syndicates, telegraph
companies, transportation companies, the U.S. Mail, and telephone
companies to obtain entertainment and information that he intends
to release to the public, but this does not deprive his final act of trans-
mission of its basic character__broadcasting.
From the above, it is clear that subscription television is broad-
casting within the statutory definition. Any other conclusion would
do violence to history, the background of governmen~~~ regulation,
and the logical and reasonable meaning to be given to the plain words
of the statute. It should be noted, however, that even if the Commis-
10 Allowing, of course, for the requisite subscription scramblIng of trans-
mitted signals.
9
86-399 0 - 67 -17
PAGENO="0258"
254
sion should determine to place subscription television in a classifica-
tion other than "broadcasting," this would not preclude the authori-
zation of subscription television to licensed stations operating in the
broadcast band. See First Report, para. 28; see also Muzak Corpora-
tio~i, 8 FCC 581 (1941).
Public Interest Considerations
V. THE HARTFORD ,TRIAL HAS ESTABLISHED `THAT SUBSCRIPTION TELE-
VISION WILL PROVIDE A BENEFICIAL SUPPLEMENT TO THE PROGRAM
CHOICES NOW AVAILABLE TO THE PUBLIC ON CONVENTIONAL TELE
VISION.
During the first two years of the Hartford subscription trial,
WHCT broadcast 599 different subscription features which were "box-
office attractions "-i.e., programs which were not available on con-
ventional television and for which the public would ordinarily pay.
an admission charge at a theater, concert hall or sports arena. Since
most of these 599 programs, such as current motion pictures, were
given multiple showings, the time devoted to subscription program-
ming during the first two years was 3,139 hours for 1,776 separate
showings of these features. During this same two-year period, WHCT
broadcast 3,623 hours of regular commercial programming.
Attached hereto as Exhibit 1 is a tabulation showing the title of
each of the 599 subscription features broadcast, by general program
category, the number of showings and the number and percentage of
subscribers viewing each such feature and showing. Table 1 on the
opposite page is a summary of the detailed information set forth
in Exhibit 1.
The cost-per-listener advertising economics of conventional tele-
vision prevent many types of box-office programs from being tele-
cast because their cost is beyond the reach of the sponsor or the
broadcaster. Other box-office programs such as sports events are
often kept off the air because the broadcaster and the advertiser can-
not sustain the economic burden of making up for the loss of box-
office attendance.' Other events have become unavailable to the public
over conventional television because neither the sponsor nor the tele~
caster is in a position to bid competitively against closed-circuit thea-
ter television operators who charge a fee to the public. Each of the
599 subscription programs broadcast during the first two years of
the Hartford trial falls into one or `another of the above categories
of programs which are not available on conventional television.
10
PAGENO="0259"
TABLE I
No. of
Features PROGRAM CATEGORIES
FEATUPiE FILMS
1 First Run U. S. Films
116 First Subsequent Run U. S. Films (Shown
Several Weeks &fter First Theater Run)
297 Older U. S. Films (Over 6 Months in
- Theater Release)
414 Subtotal-All U. S. Films
18 Foreign Language Films (English Titles
- or Dialogue Dubbed In)
432 Subtotal-Al] Films
SPORTS
6 Championship Boxing
2 College Basketball
1 High School Basketball
21 Professional Basketball
5 College Football
44 Professional Hockey
79 Subtotal-All Live Sports
35 Special Entertainment Productions (Broadway
and Off-Broadway Plays, Opera and BaIl$, Con-
certs and Recitals, Variety, Nightclub and
Cabaret)
30 Educajjonal Features
3 Medical Programs limited to 100 Doctor-
- Subscribers
599 GRAND TOTALS*
Percentage of
Total Showings of Features Subscribers Viewing
Average Average Average
No. of Proportion No. Per ForAll Per
Showings of Total Feature Showings Showing
2 0.1% 2.0 10.7% 53%
516 29.1% 4.4 27.3% 6.1%
958 54.0% 3.2 18.0% 5.6%
1476 83.1% 3.6 20.7% 5.8%
61 3.4% 3.4 10.1% 3.0%
1537 86.5% 3.6 20.1% 5.6%
6 0.3% 1.0 63.3% 63.3%
2 01% 1.0 13.6% 13.6%
1 0.1% 1.0 10.7% 10.7%
21 1.2% 1.0 6.6% 6.6%
5 0.3% 1.0 6.2% 6.2%
44 2.5% 1.0 5.3% 5.3%
79 4.5% 1.0 9.8% 9.8%
97 5.5% 2.7 8.7% 3.1%
57 3.2% 1.1 0.8% 0.7%
6 0.3% 2.0 18.7% 9.3%
1776 100.0% 2.96 16.4% 5.5%
SUMMARY BY PROGRAM CATEGORIES OF ALL 599 FEATURES SHOWN DURING
FIRST TWO YEARS (104 WEEKS) OF HARTFORD PHONEVISION OPERATION
Cu
Cu
*T]ljs reflects a cumulative total of 4,998,033 separate and precisely measurable home exposures of 1776 separate showings.
PAGENO="0260"
256
A. Motion Picture 1~iimS
Feature films made up approximately 86% of the first two years
of Hartford subscription programming, which is in accord with previ-
ous estimates submitted to the Commission by RKO Phonevision and
Zenith that a dominant portion of the proposed subscription televi-
sion programming would consist of current motion picture feature
films. Of the various subscription television program categories, cur-
rent motion pictures produced the highest cumulative average audi-
ence rating, with the single exception of heavyweight championship
boxing. This, of course, is not surprising, since motion picture ad-
mission expenditures have in recent years constituted approximately
two-thirds of the public's expenditures for spectator amusements, in-
cluding legitimate theater, opera and spectator sports.11
It is relevant to note the cooperation which RKO received from
motion picture producers and distributors during the Hartford trial.
As the Commission knows, as soon as it authorized RKO to conduct
the Hartford trial, various theater owner organizations attempted
to induce motion picture producers and distributors to refrain from
supplying their feature film product for the Hartford trial. Despite
this theater opposition, all of the major 12 and a number of inde-
pendent producers and distributors have supplied motion picture
product for the Hartford trial. Except for one film, the producers
and distributors have refused to supply film on a "first run" basis.
However, they have supplied product on a "first subsequent run"
basis, i.e., several weeks after first theater run, which corresponds to
the time when pictures are released to neighborhood theaters. In our
opinion, any nation-wide subscription system could, if it were deemed
important, obtain "first run" pictures day-and-date with their show-
ing in first run theaters, since a principal cause of the lack of avail-
ability of first-run and certain outstanding film features was the fact
that the Hartford operation was on a trial basis. In the absence of any
assurance that the Commission would extend subscription television
11 Statistical Abstract of the United States, Table No. 283, p. 208 (1964).
12 In March of 1964 RKO General instituted an ant!trust suit against two
of the major motion picture producers (20th Century-Fox and Universal Pic-
tures) since neither company had been willing up to that time to provide any
films for the Ilartford trial. These suits were settled out of court in June of
1964; and as the second trial year ended, both companies were providing an
excellent selection of older and "first subsequent run" ifims at prices com-
parable to those of the other major distributors who had been cooperating with
the Hartford trial.
12
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257
to a nation-wide basis, some film producers and distributors did not
desire to release their best or newest product.
B. Spor±s Events
Champioiiship Boxii~ig. Six heavyweight championship fights, con-
sisting of approximately 0.3% of the first two years of Hartford's sub-
scription programming, were the most popular subscription programs
presented. These fight programs had an average audience rating
of approximately 63% of all subscribers.
Prior .to the commencement of the subscription trial in Hartford,
no heavyweight championship boxing matches had appeared on con-
ventional television for over ten years. The promoters of such fights
had found it much more profitable to distribute them to closed cir-
cuit theater outlets rather than to conventional television. Except in
Hartford, where these six fights were available on subscription tele-
vision, any other member of the public desiring to see these fights
either had to attend them at the arena or view them on closed circuit
theater television.
The economic benefits flowing to the public from the televising
of these fights may be highlighted by the following example. The
Liston-Clay championship fight held in Miami in February of 1964
was carried live by WHOT in Hartford. 3,637 subscribers (83% of
all subscribers) tuned in this program at a per-program cost of $3.00.
A survey conducted by RKO Phonevision revealed that there were
an average of nine viewers per tuned-in-subscriber home, The 3,637
tuned-in-subscriber homes represented a total viewing audience of
approximately 32,733. This same fight was available to the public via
closed circuit television at several local Hartford theaters at a charge
of $5.00 per person. Therefore, an average of nine subscription tele~
vision viewers were able to watch this fight over WHOT at a total
cost of $3.00, rather than a cost of $45.00 if they had attended the
theater. In terms of total viewers, 32,733 persons were able to see
this fight over WHCT at a total cost of $10,911, while, if this same
number of persons had viewed the fight at the theaters (assuming
the theaters had seats to accommodate them) it would have cost them
$163,665. Thus, the Hartford public viewing this fight over WHOP ac-
crued a net saving of $152,754 over what they would have been re-
quired to spend if they had seen it at the local Hartford theaters. This
difference serves to emphasize the economic benefits which can flow
to the public from the distribution of box-office events to homes via
13
PAGENO="0262"
258
over-the-air subscription, as contrasted to the more expensive closed-
circuit theater outlet.
It is also noteworthy that 8,297 persons attended the Liston-Clay
fight at the Miami Arena at admission prices scaled from $20.00 mini-
mum to $250.00 ringside. The limited HartfQrd trial produced almost
4 times as many viewers for this fight than were present at the Miami
arena.
College Sports. Five college football games and two college bas-
ketball games, making up approximately 0.4% of the first two years
of Hartford subscription programming, were broadcast. It should be
emphasized that under the restrictions placed upon the broadcast of
college football games by the National Collegiate Athletic Associa-
tion (NOAA), none of these games could have been broadcast by
conventional television stations. The NCAA during the 1964 season
gave the right to NBC to broadcast fourteen college games, including
three Bowl games on January 1. The games were limited to national
games on nine dates and four regional games on each of five dates.
The NOAA's restrictions which, in substance, limit the number
of games available to the public in any part of the country to one game
per week during the football season, were adopted to protect all col-
lege football teams from loss of gate receipts. Of necessity, these
NCAA restrictions work some hardship on the public. For example,
the public on the Atlantic seaboard may only have available to them
the college game of the week selected by NCAA, which may be between
two Pacific league teams, although the public in the East may have a
vital interest in an important conference game between two Eastern
teams. Or the public in the mid-West may be deprived of an impor-
tant conference title game between two Big Ten teams because the
game of `the week, which is oftentimes selected before the season
begins, is between a team from the Southwest conference and a team
from the Pacific Coast conference. Since subscription television would
protect the gate receipts, it would be possible for subscription tele-
vision stations to carry local and regional games in which `there is a
strong local interest without being restricted to the so-called "game
of the week" now permitted by NCAA. Similar rules have been
adopted by the NCAA restricting the broadcast of college basketball
games by conventional television.
Miscella~neous Sports. Twenty-one professional basketball games
and forty-four professional hockey games were broadcast, making up
3.7% of the Hartford subscription programs carried during the first
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PAGENO="0263"
259
two years. The professional basketball games had an average audience
rating of 6.6%, and the professional hockey games an average audi-
ence rating of 5.3%. None of these games were available on conven-
tional television.
As an experiment we also carried one high school basketball
game which had an audience rating of 10.7%.
There are no major league professional baseball or football teams
in Hartford. However, we believe that one of the major sports pro-
gram supplements which subscription television could provide in other
cities having major league professional baseball or football would be
the broadcast of home games. Professional football home games are
blacked out in both the American and National Football Leagues. The
broadcasting of major league baseball home games are blacked out
in many cities or their number restricted.
Several professional football teams, such as the Chicago Bears
and the Detroit Lions, have entered into agreements permitting clGsed
circuit theater operators to carry home games, since the seating capaci-
ties of the stadiums are generally sold out.13 There are indications
that the carrying of professional football home games by theater
television will increase in the next few years. Subscription televi-
sion, of course, can provide a much wider audience for home games
than can the theaters. Thus, since these home games are already
blacked out from conventional television, the public would receive a
beneficial supplement if these programs could be carried by over-the-
air subscription television as well as by theater television.
C. Special Entertainment Programs
During the first two years, 35 special entertainment programs,
making up 5.5% of the total programming, were broadcast. These
special entertainment programs had an average audience rating of
8.7%. They included the following:
Concerts 4
Opera and Ballet 4,
Drama (Broadway, British, and Off-Broadway Plays) 11
Variety 7
Night Club and Cabaret 6
During the first year RKO experienced some difficulty in securing
the cooperation of producers, writers and talent in connection with
13 Broadcasting, Vol. &7, No. 6, August 10, 1964, p. 28.
15
PAGENO="0264"
260
obtaining special entertainment productions primarily because of their
ignorance of the purpose of the Hartford trial. However, during the
second year, RKO was able to obtain better cooperation because of
the steadily increasing subscription audience, the greater knowledge
concerning subscription television brought about by the subscrip-
tion operation in Hartford, and the realization by producers and
talent that the type of subscription television programs produced for
the Hartford trial could be of great value in the future.
The economic limitations inherent in a single market test with a
limited number of subscribers precluded a continuous supply of plays
then showing on Broadway. The asking price, including the price of
putting such shows on videotape, plus certain uneconomic demands
of some local New York City unions, often made impractical the sub-
scription broadcast of such shows beyond a limited number for test
purposes. However, these economic problems, which flowed primarily
from the limitations inherent in the trial, would be eliminated if there
were a number of subscription stations bargaining from a broader
economic base for such Broadway plays.
The special subscription entertainment programs carried during
the Hartford trial were all of box-office nature; i.e., programs not
otherwise available unless the viewer went to the theater, night club,
concert hail, etc., and paid an admission charge.
D. Educational and Instructional Programs
Fifty educational and instructional features, approximately 3.2%
of the first two years of the Hartford subscription programming, were
broadcast. These educational and instructional programs had an aver-
age audience rating of 0.8%.
Although the educational institutions in the area fully cooperated
with RKO, one of the principal problems was to find sufficient product
of box-office caliber, since the limited operation did not justify the
production of much original educational programming.
In our opinion, subscription television's major contribution to edu-
cational programming will be the fact that a subscription system, once
installed in a community, may be utilized by noncommercial educational
television stations as well as commercial television stations. The basic
economic support for such a system in any community will undoubtedly
come from the commercial stations and from programs of a non-edu-
cational category. However, once the system is installed, the educa-
tional stations will be able to use the subscription facilities for the
purpose of obtaining support for their own programs. Thus, for
16
PAGENO="0265"
261
example, it will be possible for an educational station to give over-
the-air class lessons for college credits by making per-program charges
and limiting reception-as well as checking "class" attendance-of
such programs to persons who pay the per-program charge.
We do not mean to imply that commercial television stations will
not carry regular subscription programs of an educational or instruc-
tional type. However, it is likely that such programs will be in
the form of very special in-depth programs produced at considerable
cost, as contrasted to the much less expensive day-to-day type of class-
room program often carried by educational stations.
Of particular significance has been the introduction of program~
ming specially obtained for presentation to physicians in the Hartford
area. By restricting the use of decoding information to any given
group, the Zenith subscription television system makes it possible to
broadcast programs of medical information to which only physicians
can subscribe.
This type of programming was commenced in the early part of
1964 with a small number of physicians participating. Since that time,
approximately 15 such programs, each shown three times, were broad-
cast. The entire project was supervised by a noted physician who is
well known for his efforts in using the medium of television in con-
nection with the study and practice of medicine.
Some of the programs in this series were specially produced in
institutions such as the Mayo Olinic. As an auxiliary to this service,
a particular program on the subject of "Smoking and Health" was
produced which is scheduled to be presented, without charge, to all
subscribers.
It is felt that subscription television, in this unique application,
serves an important need. It allows physicians to learn of new ad-
vances in medicine in the privacy of their own homes or offices without
inconvenience, loss of time, or significant cost. The above mentioned
programs are offered to physicians at only a $1.50 charge each.
This medical project, as a part of the over-all subscription tele-
vision operation in Hartford, has enjoyed considerable professional
support from officials connected with such organizations as the Con-
necticut Academy of General Practice; the American Academy of Gen-
eral Practice; the Hampden District Medical Society, etc. Formal
accreditation of credits to doctor-subscribers who participate in sub-
scribing to this series of programs further attests to the importance
of this endeavor.
17
PAGENO="0266"
262
Although this project is presently limited to the medical pro-
fession, it is conceivable that similar series could be organized for
other professional groups. In doing so, subscription television can
perform, as it already does in Hartford, a very valuable and unique
public service.
Certainly, a nation-wide subscription system, although receiving
its primary economic support from other types of programs, would
offer a convenient and economical way of distributing educational
programs on the college level, including adult education seminars di-
rected to the various sciences and professions.
E. Charges for Subscription Programs
Set forth below are the highest and lowest per-program charges
for each category of programming carried during the first two years
of the Hartford trial.
Feature Films $1.50 $ .50
Sports Events $3.00 $1.00
Opera and Ballet $2.00 $1.25
Educational and Instructive $1.00 $ .25
Concerts and Recitals $1.50 $1.00
VarIety $2.00 $1.50
Night Club and Cabaret $1.50 $1.25
Drama $2.00 $ .50
Medical Programs for Doctors Only $1.50 $1.50
The average charge for each of these program categories during
the second year of operation was
Feature Films $1.03
Educational and Instructive $ .71
Sports Events $1.37
Opera and Ballet . $150
Concerts and Recitals $1.50.
Lectures $ .71
Variety $1.50
Night Club and Cabaret $1.44
Drama $1.62
Special Medical Programs $1.50
The average over-all charge per hour for all categories of subscrip-
tion program was 59 cents.
18
PAGENO="0267"
263
All subscribers, on the average, apportioned their program expendi-
tures among program categories as follows:
First Run U. S. Films .07%
First Subsequent Run U. S. Films 40.75%
(Shown Several Weeks After First rilijeater Run)
Older U. S. Films (Over 6 months in Theater Release) 40.52%
Foreign Language Films 2.57%
(English Titles or Dialogue Dubbed In)
Subtotal-All Films 83.91%
Championship Boxing 7.31%
College Basketball .17%
High School Basketball .03%
Professional Basketball 1.22%
College Football .30%
Professional Hockey 2.34%
Subtotal-All Live Sports 11.37%
Special Entertainment Productions 4.60%
(Broadway and Off-Broadway Plays, Opera and
Ballet, Concerts and Recitals, Variety, Nightclub
and Cabaret)
Educational Features .09%
Medical Programs Limited to 100 Doctor-Subscribers .03%
100.00%
In the final analysis, subscription programs must supplement,
rather than duplicate, the program choices now available to the public
on conventional television. It is the box-office program, which the pub-
lic would otherwise have to pay to see, which will induce the public
to pay a subscription fee.
Subscription television can show box-office attractions while con-
ventional television cannot. The reason is not that subscription tele-
vision will necessarily have more money available for program pro-
curement than conventional television. The reason lies primarily in
other economic factors.
A conventional television program has only one source of eco-
nomic support-the advertising sponsor. The extent of the sponsor's
19
PAGENO="0268"
264
support is controlled by the cost-per-thousand economics of adver-
tising. On the other hand, box-office attractions have several sources
of economic support, including revenues derived from theater release
as well as revenues derived from later use on conventional television.
Subscription television exhibition can be combined with simultaneous
theater release without significant loss of box-office revenue by pro-
gram producers and distributors. The combined amount of these
box-office revenues will ordinarily exceed what sponsors can pay for a
single conventional television release which largely exhausts all residual
value of the feature. Furthermore, subscription release will have little
effect on the residual value of motion picture film when ultimately
released to conventional television. In short, subscription television
and theater box-office release are compatible while conventional tele-
vision and theater box-office release are incompatible.
VI. THE HARTFORD TRIAL HAS DEMONSTRATED THAT SUBSCRIPTION TELE-
VISION PATRONAGE IS NOT LIMITED TO HIGH.INCOME SUBSCRIBERS
BUT PRIMARILY ATTRACTS MIDDLE-INCOME SUBSCRIBERS
It has always been difficult to understand how the competitive
sale of any product or service, including subscription television, could
be limited only to high-income homes in a nation where the vast ma-
jority of people have substantial amounts of discretionary income to
apportion where they please. In fact, the Hartford trial has demon-
strated that not only will subscription attract all people possessing
discretionary income, regardless of their income level, but it will be
predominantly utilized by people earning between $4,000 and $9,999.
The actual subscriber response to the programming discussed
in Point IV, supra, is tabulated on Exhibit 2. This detailed study of
subscriber groupings among income levels and expenditure levels was
initiated at the end of 92 weeks, when the operation had substanti-
ally attained its maximum planned size for purposes of the trial.
Therefore, Exhibit 2 is limited to the 4633 current subscribers at the
end of those 92 weeks and divides them into groups falling within
each 10 cent bracket of average weekly expenditures. As could be
expected, the ranges among income levels and program expenditures
of these 4633 individual subscribers are as varied as their collective
response to the 599 individual programs tabulated in Exhibit 1.
Analysis of this actual subscriber response demonstrates that
subscription television is not the rich man's toy, as so often charged.
The basis for this conclusion is demonstrated by the following tabu-
20
PAGENO="0269"
265
lar comparison of all U.S. families with these 4633 Hartford sub-
scribers:
TABLE 2
4633 HARTFORD SUBSCRIBERS
Proportion Proportion Average
of Total U.S. of Total Weekly Progran
Income Levels Families* Subscribers Expenditure
0- $3,999 29.1% 1.5% $0.99
$4,000-$6,999 32.5% 40.8% 1.25
$7,000 - $9,999 21.0% 43.3% 1.23
$10,000 and Over 17.7% 14.4% 1.18
Totals (rounded) 100.0% 100.0% (avg.) $1.22
* Statistical Abstract of the United States, 1964, Table No. 457, p. 338.
As shown by the above table, 85.6% of the Hartford subscribers
had incomes of less than $10,000 per year and 42.3% had annual in-
comes of less than $7,000. On the other hand, only 14.4% of the Hart-
ford subscribers had incomes of $10,000 or more. Certainly, this Hart-
ford concentration among middle-income groups in itself refutes the
argument that subscription television is a "Cadillac" television serv-
ice which only the wealthy can afford. This refutation is reinforced
by the fact that the average program expenditures for all income levels
above $4,000 are approximately the same.
2163 of these 4633 subscribers can be characterized as lower-than-
average viewers, in that their weekly program expenditures all aver-
aged less than the overall $1.22 per week. It is particularly signifi-
cant that the remaining 2470 above-average viewers were even more
concentrated In the middle-income levels. This is particularly notice-
able in the $4,000-$f~,999 level as shown by the following table:
TABLE 3
Average Program Expenditures Per Week
Annual Income Level Under $1.21 $1.21 to $2.50 Over $2.50
0- $3,999 1.9% 1.3% 0.5%
$4,000 - $6,999 37.2% 42.3% 52.1%
$7,000-$9,999 43.8% 43.5% 39.5%
$10,000 and Over 17.0% 12.9% 8.0%
Totals (rounded) 100.0% 100.0% 100.0%
Total Subscribers 2163 2042 428
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PAGENO="0270"
266
Although the middle-income groups constituted the great majority
of subscribers at all 3 expenditure levels, the above Table 3 again re-
flects the slightly higher average expenditures of subscribers in the
$4,000-$6,999 income level shown in the preceding Table 2.
Tables 2 and 3, which average the 92-week statistical period, do
not indicate trends. However, the same ~)2-week analysis further
established that, as the number of subscribers increased, by far the
greatest penetration was at the $4,000-$6,999 income level. This trend
is shown by the following table listing new subscribers added during
appropriate time segments of the 92-week period:
TABLE 4
Percentage of Subscribers
First 26 27th-52nd 53rd-75th 79th-92nd
Income Levels Weeks Weeks Weeks Weeks
0-$3,999 1.1% 1.0% 2.1% 2.1%
$4,000 - $6,999 27.5% 35.5% 45.0% 54.6%
$7,000 - $9,999 49.9% 46.8% 40.6% 38.8%
$10,000 and Over 21.4% 16.7% 12.2% 4.5%
Totals (rounded) 100.0% 100.0% 100.0% 100.0%
rlihe proportion of new subscribers in the $4,000-$7,000 income level
steadily increased from 27.5% during the first 26 weeks to 54.6%
during the last 14 weeks. On the other hand, the importance of the
$7,000-$10,000 income group steadily declined from 49.9% during the
first 26 weeks to 38.8% during the final 14 weeks of the period. The
$10,000 and over income group showed the greatest decline, from 21.4%
of the total subscribers in the first 26 weeks to 4.5% in the last
14 weeks.
The small percentages of subscribers with incomes of less than
$4,000 a year in Tables 2, 3 and. 4 are not surprising, since a $3,000
annual family budget has been described by President Johnson as
the boundary below which any family must be considered to live in
poverty and to which the nation's anti-poverty program is being
directed. This so-called poverty segment of our population unfor-
tunately does not provide a market for any goods and services
beyond minimal shelter, food, clothing, and medical care. Eco'nomic
Report of the President, transmitted to the Congress January 1964,
pp. 58-59. A considerable portion of those in this poverty classifica-
22
PAGENO="0271"
267
tion may also represent that 8% of TI. S. families who do not own
television receivers.
The demonstrable facts established by the Hartford trial, as
tabulated above, all strongly support Zenith's and Teco `s earlier theo-
retical arguments that the economic benefits of subscription television
are of equal or greater importance to the lower and middle income
groups which can least afford the greater per-family cost of viewing
box-office attractions outside the home. These demonstrated facts
also effectively refute the argument that subscription television will
appeal only to the 18% or less of American families who have incomes
in excess of $10,000 a year. Instead, the Hartford trial has now estab-
lished that subscription television appeals to families at all economic
levels except the 20% which, by governmental definition, are poverty
stricken. It follows' that subscription television has reasonably dem-
onstrated in Hartford its potential economic value for up to 80% of
U. S. television homes.
VII. THE HARTFORD TRIAL ESTABLISHES THAT SUBSCRIPTION TELEVISION
WOULD RESULT IN AN INCREASE IN ECONOMIC AND PROGRAM RE.
SOURCES WHICH WOULD FACILITATE SIGNIFICANT INCREASES IN THE
NUMBER OF TELEVISION SERVICES AVAILABLE TO THE PUBLIC UNDER
THE PRESENT SYSTEM.
As a preliminary matter, it is appropriate to review the need
for further expansion of the number of television services available
to the public if the Commission's public interest objectives and priori-
ties for a fully developed nation-wide television system are to be
achieved. The essential elements of a national competitive television
system are technical capacity, programs and revenue. The Commission
has provided technical capacity by its television allocation plan. How-
ever, the Commission does not have the responsibility for supplying
either programs or revenue to sustain such a plan. These essential ele-
ments of a successful national competitive television system must be
provided by private enterprise. While the Commission has the duty
of encouraging private enterprise to provide these essential elements,
it does not have the power itself to supply them or to require others
to supply them.'
The Commission, as of January 1, 1964, has allocated 1,942 dom-
mercial UHF and VHF television channels and 346 educational UHF
and VHF channels to 1,206 communities. As of January 1, 1964, there
were 564 commercial television stations in operation in 271 markets
(476 VHF and 88 UHF). As of this same date, there were 30 VHF
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PAGENO="0272"
268
and 61 UHF construction permits in the hands of permittees. There
were also 85 educational stations on the air and an additional 28 edu-
cation construction permits outstanding.
In the period between the lifting of the freeze (1952) and Janu-
ary 1, 1964, 15 VHF and 108 UHF stations went off the air. In the
same period, 71 VHF and 262 UHF construction permits were sur-
rendered or cancelled. During 1963 alone, one VHF station and two
UHF stations went dark.
The Commission `s release of final television broadcast financial
data for the year 1963 (the most recent available) reveals that 17%
of the VHF stations (77 stations) and 42% of the UHF stations (33
stations) reported losses. As related to the Commission's priorities
for the development of a nation-wide television system set forth in
its Sixth Report and Order on Television Allocations,14 approximately
45% of the present communities having television stations have only
one station, approximately 25% are two-station markets, approximately
20% are three-station markets, and slightly less than 10% have four
or more stations.
The Commission, as part of its program of fostering UHF devel-
opment, has proposed a revised allocation plan for UHF channels
which, among other things, has attempted to provide at least one com-
mercial channel to any community with a population of 10,000 or
more, with both UHF and VHF channels being utilized in reaching
that goal. The Commission also sponsored the all-channel television
receiver legislation, which will undoubtedly assist in the future devel-
opment of UHF. However, the Commission recognized that this leg-
islation was not the sole answer to the problem of UHF development.15
Additional economic support and program sources must be developed.
`IPhe Commission has at this point done perhaps all that its regu-
latory power permits to encourage the development of UHF and
to encourage the achievement of all goals established in its priorities
for a nation-wide competitive television service except to promote
more economic support and program product through the authoriza-
14 Para 63, released April 14, 1952 (FCC 52-294). -
~ See Statement of Newton N. 1V[inow, then Chairman of the Federal Com-
munications Commission, in Hearings on HR. 8031 and related bills, Before the
Committee on Interstate and Foreign Commerce, House of Representatives, 87th
Cong., 2d Sess., pp. 123, 151-194; see. also Statement of Commissioner Robert E.
Lee, id. at pp. 199-207. .
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PAGENO="0273"
269
tion of subscription television. It may be conceded that advertising-
sponsored television is making available a valuable type of television
service to a substantial portion of the American public. However,
numerous compromises are still being made with television `s full po-
tential. Box-office type television entertainment is simply not avail-
able to the public. While the Oommission has allocated sufficient
channels to provide for a competitive television system, such competi-
tion is often limited under present circumstances. The public has no
direct voice in selecting the programs which it may desire to see.
Television's need for additional revenue and programs must also be
viewed in the perspective of these relevant factors.
A. Business Projections Based on
Hartford Trial Experience
Neither Zenith nor RKO anticipated that it would be possible in
the limited three-year trial period to establish a profitable subscrip-
tion operation in Hartford. Indeed, RKO estimated in the subscrip-
tion hearing on its Hartford application that even under optimum trial
operating conditions the Hartford trial would lose in excess of one
million dollars during the three-year trial period, and RKO committed
to spend from two million dollars to ten million dollars during the
trial.16 The Hartford trial, however, has accomplished what it was
designed to do; namely, the gaining of empirical knowledge and the
obtaining of significant and reliable data which would serve as a basis
for appraising the potentials of subscription television in other types
of circumstances. The experience so gained and the demonstrable
facts so developed offer for the first time the parameters for reason-
able business projections of the potentials of subscription television
to provide additional economic and~ program resources which would
facilitate significant increases in the number of television services
available to the public.
Utilizing the facts established by actual Hartford operating ex-
perience, Zenith and Teco have prepared business projections for
various size subscription systems. Four such projections are set
forth in Tables 5 through 8 at the end of this section, covering sub-
scription operations at the level of 20,000, 40,000, 75,000 and 100,000
subscribers, respectively.
Each of these pro forma profit and loss analyses projects the
financial results which would occur at three different levels of annual
16 Application of Hartford Phonevision Co., 20 RR 754, 759 (1961).
25
86-399 0 - 67 - 18
PAGENO="0274"
270
program expenditure per subscriber: annual program expenditure per
subscriber at $65, $70, and $75. The $65 program expenditure figure
approximates the average program expenditure per subscriber dur-
ing the first two years of the Hartford trial.17 In our opinion, the $70
and $75 annual per-subscriber program expenditure columns are
equally realistic, since it is reasonable to assume that an expanded
subscription system operating in a number of markets would have
available a greater quantity and, in some respects, an improved qual-
ity of box-office attractions over that which it was possible to develop
during the short period of the hartford single-market subscription
trial. Thus, it is assumed that first run and hard ticket feature films,
more and better Broadway plays, etc. will become available.
While the assumptions which we have utilized in making these
projections are based primarily on actual Hartford operating experi-
ence, we have made several revisions to reflect policy changes and
operating improvements resulting from the experience gained during
the test. We have also incorporated cost factors resulting from sev-
eral recent technical improvements in decoder design developed as
a result of experience gained in Hartford. The more significant of
these revisions may be summarized as follows:
(1) For the purpose of generating a significant number of sub-
scribers at the outset of the Hartford trial, RKO adopted a policy
of offering the service free of the equipment rental fee during the first
three months and certain summer vacation months. While this policy
has been continued throughout the Hartford trial, it is the opinion
of both RKO and Zenith that further continuation of this policy will
serve no useful future business purpose if subscription television is
extended on a nation-wide basis. This change of policy is reflected
in the financial studies set forth in Table 5-8, inclusive.
(2) We have incorporated into our cost projections the assump-
tion that subscription television programs will be broadcast in color
and that the Phonevision subscription equipment will include all com-
ponents necessary to encode and decode subscription programs in both
color and black and white. The cost savings which will result from
17 The $65 program expenditure figure has been adjusted to eliminate certain
subscriber discounts allowed during Hartford Trial. Average annual program
expenditure per subscriber during the first two years of the Hartford trial wa~
$62.16. Exhibit 3 attached hereto sets forth the average dollar program expendi-
ture by month for the first two years of the Hartford trial and also shows the
total amount spent, on programs for each month during this period.
26
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other technical improvements are also reflected in our pro-
jections.18
The basis for the other estimates contained in these projections
is as follows: All projections set forth in Tables 5-8, assume a going
concern of 20,000, 40,000, 75,000 or 100,000 subscribers. The basis
for the projected annual program expenditure per subscriber has been
described above. In addition, it is assumed that each subscriber will
pay an annual decoder rental fee of $39, which is the rental fee which
subscribers are paying in Hartford.19 Decoder installation charges
are estimated at $10 per installation-the charge made during the
Hartford trial.
The price which subscription television operators will pay to pro-
gram producers and distributors for carrying their programs on sub-
scription television is estimated to be 35% of the total subscriber pro-
gram expenditures. This 35% figure is based upon the experience in
Hartford. It also conforms to the percentage which motion picture
producers and distributors, with a few exceptions, have traditionally
charged motion picture theaters. It also represents a reasonable busi-
ness allocation of total subscription income which will permit the tele-
vision station and the subscription system operator to make a fair
profit on the essential subscription functions which they will provide.
For the purpose of illustrating the economic viability of subscrip-
tion television, we have assumed an expense for station time utilized
for subscription programming of $300,000 a year for systems having
20,000 and 40,000 subscribers, and $400,000 a year for systems hav-
ing 75,000 and 100,000 subscribers. Naturally, these station time
charges will be subject to private negotiations and may vary upward
or downward depending upon the profitability of the business. The
particular time charges illustrated in the projections have been selected
primarily because they represent an amount which, in most cases,
18 A further discussion of the technical performance during the Hartford
trial and information concerning technical improvements which Zenith has de-
veloped as a result of experience gained during the trial is set forth ~nfra at
section X of these comments.
19 The Commission, in its Third Report and Order, supra, 16 RR 1540a,
1540b. required decoders to be rented rather than sold to the public during trial
operations in order to protect the public from obsolescence in the event the trial
was not extended beyond three years. We believe that if subscription television
is euthorized on a definitive nation-wide basis, practical business considerations
will lead to the continuation of the practice of renting decoders rather than sell-
ing them to the public. On the other hand, we do not believe that any regulatory
purpose is served by continuing this policy, and the Commission, therefore, might
consider permitting subscription operators the flexibility of either selling or rent-
ing decoders to the public as business requirements may dictate.
27
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272
would exceed the annual direct operating costs of a typical TJHF
station
Thus, assuming that a UHF station had no other source of in-
come, such as from conventional advertising-sponsored programs,
the time charges allocated to stations in our projections would cover
the direct operating costs of such stations. This estimate receives
support from the fact that the direct operating costs of WHOT in
Hartford for the twelve months July 1963-June 1964 (except for cer-
tain conventional film library amortization which was atypical rather
than representative) were $225,639. Further, an analysis of the UHF
construction permits outstanding or pending before the Commission
as of February 7, 1964, as listed in Television Factbook, 1964 Edition,
page 858b, et seq., discloses the following estimated operating expenses
for UHF stations being submitted by applicants for various size
markets:
Number of Average Operating
Market Size UHF CP `s Expense
100,000 or less 2 $146,500
100-200,000 3 115,000
200-300,000 3 186,000
300-400,000 1 140,000
400-500,000 7 254,000
500-600,000 4 404,000
600-700,000 3 207,000
700-800,000 1 410,000
800-900,000 3 431,000
900-1,000,000 4 380,000
1,000,000 and over 29 341,000
These estimates, which have been accepted by the Commission in de-
termining UHF applicants' financial ability, indicate that UHF sta-
tions in markets up to 500,000 may operate at an annual expense of
$300,000 or less and that in markets above 500,000 operating expenses
of $400,000 are adequate.2°
20 The above estimates of operating costs set forth in UHF applications pend-
ing with the Commission must be further weighed in light of the method of pro~
jection which we have utilized herein. The estimates of operating expenses set
forth in the UHF applications include the cost of obtaining program product.
In our breakdown, we have allowed a cost equal to 35%of gross program revenue
as the cost of program product, which would be in additio% to the payment for
station time. Thus, the time payments which we have allocated to stations re-
present an even more favorable spread than that reflected by simple comparison
of the allocated time charges a~d the estimated operating expenses contained in
UHF applications pending with the Commission.
28
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273
We have assumed that any subscription system operator will pay
a franchise or royalty fee of five percent of gross revenue to those
providing this system and the necessary technical and other services
in connection therewith. This amount is currently being paid by RKO
in connection with the Hartford operation.
The basis for estimating technical expenses, including maintenance
and repairs and installation and detachment costs, is predicated upon
the following factors: Service calls are estimated at .89 per subscriber
per year; decoder repair material has been estimated at $1.00 per
year per subscriber; home service calls can be made at the rate of 10
per repairman per day; the service shop repair rate will average 12
decoders per man per day.2'
Experience in Hartford, plus certain decoder improvements re-
cently developed by Zenith which will greatly simplify future installa-
tion of decoders, indicate that decoders may be installed in subscribers'
homes at the rate of 10 per man per day and may be detached at the
rate of 16 per man per day.
As the number of subscribers increased in Hartford, a cost factor
long experienced by telephone companies and similar businesses, which
provide service and rent equipment on a mass basis to the public,
became apparent; namely, that, in order to maintain any relatively
static number of subscribers, allowance must be made for a detach-
ment-attachment turnover. This turnover results from such factors
as subscribers moving from the community (the average American
family moves once every five years), discontinuing service during ex-
tended vacation periods, credit delinquencies and related economic
reasons, such as loss of employment, insufficient use by customer to
justify expense, etc. Based upon our experience in Hartford and anti-
cipated changes in operating methods and practices we have allowed
for an annual 20% attachment-detachment turnover in projecting our
21 In most instances during the Hartford trial, repair of the Phonevision
equipment was not performed on the premises of the subscrThers; rather~ the
defective unit was removed, replaced and repaired in the decoder service shop;
and the cost projections herein assume a continuation of this practice. On all
service calls where the trouble was in the television receiver itself, as contrasted
to the decoder, the subscriber was requested to contact his own TV serviceman for
receiver repairs or adjustments.
During the Hartford trial, a contractual relationship was entered into with
approximately 120 TV dealers and servicemen in the greater Hartford area and
they were paid a commission for each installation generated by them.
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274
costs for the four subscriber levels set forth in Tables 5 to 8, i~sfra.
We are also advised that this attachment-detachment turnover ratio is
comparable to the 15-20% "disconnect-connect" annual turnover
experienced by telephone companies in many markets.
In our cost projections we have estimated the cost of decoders at
~125 per unit, plus $2 per unit for freight and $4.38 use tax, for a
total of $131.38.
The equipment investment required for a subscription system, in-
cluding decoders (1% spares), repair shop spare parts inventory,
trucks, office furniture and fixtures, estimated for the four projected
subsc~ber levels is as follows:
20,000 subscribers $ 2,711,500
40,000 subscribers $ 5,393,400
75,000 subscribers $10,087,000
100,000 subscribers $13,441,000
Depreciation has been computed on a five-year straight-line basis.22
22 From 1942 to 1962 the Bureau of Internal Revenue, in Bulletin "F",
suggested four years for depreciation of television station equipment. In its
revised guidelines for depreciation adopted in 1962, it has suggested six years
as the proper basis for depreciation of television station equipment. (Revised
Procedure 62-21, 1962-20B427.) Thus, a five-year rate for depreciation of new
equipment, such as subscription television decoders, would appear appropriate
not only from a business viewpoint but also from a tax depreciation viewpoint.
30
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275
TABLE 5
BUSINESS PROJECTION OF SUBSCRIPTION TELEVISION OPERATION
AT 20,000 SUBSCRIBER LEVEL & THREE PROGRAM INCOME LEVELS
20,000 Subscribers
Prog. Inc.
$65.00/Yr.
Prog. Inc.
$70.00/Yr.
Prog. Inc.
$75.00/Yr.
Income
Gross program income
Rental fees
Decoder Installation
$ 1,300,000
780,000
40,000
$ 1,400,000
780,000
40,000
$ 1,500,000
780,000
40,000
Total
$ 2,120,000
$ 2,220,000
$ 2,320,000
Direct Costs
Station Time
Commissions
Program Product
Subscription Franchise
ASCAP and BMI Fees
Lines and Facilities
Fee
$ 300,000
16,000
455,000
104,000
18,000
32,400
$ 300,000
16,000
490,000
109,000
18,000
32,400
$ 300,000
16,000
525,000
114,000
18,000
32,400
Total
$ 925,400
$ 965,400
$ 1,005,400
Gross Profit
$ 1,194,600
$ 1,254,600
$ 1,314,600
Indirect Expense
Sales
Program
Technical
General and Aclmin.
$ 147,000
23,000
158,600
864,900
$ 147,000
23,000
158,600
865,900
$ 147,000
23,000
158,600
866,900
Total
$ 1,193,500
$ 1,194,500
$ 1,195,500
Profit before Tax
$ 1,100
$ 60,100
$ 119,100
Profit after 48% tax
Percent of income
Cost of Equipment
Depreciation
Cash flow from profits
and depreciation
Percent of equipment cost
$ 600
0%
$ 2,711,500
541,900
542,500
20.0%
$ 31,300
14%
$ 2,711,500
541,900
573,200
21.1%
$ 61,900
27%
$ 2,711,500
541,900
603,800
22.3%
31
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TABLE 6
BUSINESS PROJECTION OF SUBSCRIPTION TELEVISION OPERATION
AT 40,000 SUBSCRIBER LEVEL & THREE PROGRAM INCOME LEVELS
40,000 Subscribers
Prog. Inc. Prog. Inc. Prog. Inc.
$65.00/Yr. $7000/Yr. $75.00/Yr.
Income
Gross program income $ 2,600,000 $ 2,800,000 $ 3,000,000
Rental fees 1,560,000 1,560,000 1,560,000
Decoder Installation 80,000 80,000 80,000
Total $ 4,240,000 $ 4,440,000 $ 4,640,000
Direct Costs
Station Time $ 300,000 $ 300,000 $ 300,000
Commissions 32,000 32,000 32,000
Program Product 910,000 980,000 1,050,000
Subscription Franchise Fee 208,000 218,000 228,000
ASCAP and BMI Fees 18,000 18,000 18,000
Lines and Facilities 32,400 32,400 32,400
Total $ 1,500,400 $ 1,580,400 $ 1,660,400
Gross Profit $ 2,739,600 $ 2,859,600 $ 2,979,600
Indirect Expense
Sales $ 284,000 $ 284,000 $ 284,000
Program 23,000 23,000 23,000
Technical 277,000 277,000 277,000
General and Admin. 1,536,800 1,538,800 1,540,800
Total $ 2,120,800 $ 2,122,800 $ 2,124,800
Profit before tax $618,800 $736,800 $ 854,800
Profit after 48% tax $321,800 $ 383,100 $ 444,500
Percent of income 7.6% 8.6% 9A3%
Cost of Equipment $ 5,393,400 $ 5,393,400 $ 5,393,400
Depreciation 1,078,900 1,078,900 1,078,900
Cash flow from profits
and depreciation $ 1,400,700 $ 1,462,000 $ 1,523,400
Percent of equipment cost 26.0% 27.1% 28.2%
32
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277
TABLE 7
BUSINESS PROJEOTION OF SUBSCRIPTION TELEVISION OPERATION
AT 75,000 SUBSCRIBER LEVEL & THREE PROGRAM INCOME LEVELS
75,000 Subscribers
-
Prog. Inc.
$65.00/Yr.
Prog. Inc.
$70.00/Yr.
Prog. Inc.
$75.00/Yr.
Income
Gross program income
Rental fees
Decoder Installation
$ 4,875,000
2,925,000
150,000
$ 5,250,000
2,925,000
150,000
$ 5,625,000
2,925,000
150,000
Total
$ 7,950,000
$ 8,325,000
$ 8,700,000
Direct Costs
Station Time
Commissions
Program Product
Subscription Franchise
ASCAP and BMI Fees
Lines and Facilities
Fee
$ 400,000
60,000
1,706,300
390,000
18,000
32,400
$ 400,000
eo,ooo
1,837,500
408,800
18,000
32,400
$ 400,000
6o,ooo
1,968,800
427,500
18,000
32,400
Total
$ 2,606,700
$ 2,756,700
$ 2,906,700
Gross Profit
$ 5,343,300
$ 5,568,300
$ 5,793,300
Indirect Expense
Sales
Program
Technical
General and Admin.
$ 413,000
23,000
428,000
2,698,900
$ 413,000
23,000
428,000
2,702,600
$ 413,000
23,000
428,000
2,706,300
Total
$ 3,562,900
$ 3,566,600
$ 3,570,300
Profit before tax
Profit after 48% tax
Percent of income
Cost of Equipment
Depreciation
Cash flow from profits
and depreciation
Percent of equipment cost
$1,780,400
$ 925,800
11.6%
$10,087,000
2,018,800
2,944,600
29.2%
$ 2,001,700
$ 1,040,900
12.5%
$10,087,000
2,018,800
3,059,700
30.3%
$ 2,223,000
$1,156,000
13.3%
$10,087,000
2,018,800
3,174,800
31,5%
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278
TABLE 8
BUSINESS PROJECTION OF SUBSCRIPTION TELEVISION OPERATION
AT 100,000 SUBSCRIBER LEVEL & THREE PROGRAM INCOME LEVELS
100,000
Subscribers
Prog. Inc.
$65.00/Yr.
Prog. Inc.
$70.00/Yr.
Prog. Inc.
$75.00/Yr.
Income
Gross program income $ 6,500,000 $ 7,000,000 $ 7,500,000
Rental fees 3,900,000 3,900,000 3,900,000
Decoder Installation 200,000 200,000 200,000
Total $10,600,000 $11,100,000 $11,600,000
Direct Costs
Station Time $ 400,000 $ 400,000 $ 400,000
Commissions 80,000 80,000 80,000
Program Product 2,275,000 2,450,000 2,625,000
Subscription Franchise Fee 520,000 545,000 570,000
ASCAP and BMI Fees 18,000 18,000 18,000
Lines and Facilities 32,400 32,400 32,400
Total $ 3,325,400 $ 3,525,400 $ 3,725,400
L~ross Profit $ 7,274,600 $ 7,574,600 $ 7,874,600
Indirect Expense
Sales $ 542,000 $ 542,000 $ 542,000
Program 23,000 23,000 23,000
Technical 591,000 591,000 591,000
General and Admin. 3,527,600 3,532,600 3,537,600
Total $ 4,683,600 $ 4,688,600 $ 4,693,600
Profit before tax $ 2,591,000 $ 2,886,000 $ 3,181,000
Profit after 48% tax $ 1,347,300 $ 1,500,700 $ 1,654,100
Percent of income 12.7% 13.5% 14.3%
Cost of Equipment $13,441,000 $13,441,000 $13,441,000
Depreciation 2,690,900 2,690,900 2,690,900
Cash flow from profits
and depreciation 4,038,200 4,191,600 4,345,000
Percent of equipment cost 300% 31 2% 32 3%
34
PAGENO="0283"
279
B. Conclusions Which May Be Drawn From Business Projections
On the basis of the foregoing business projections a number of
conclusions may be reached concerning subscription television `s poten-
tial to increase the economic and program resources, thereby facilitat-
ing significant increases in the number of television services available
to the public.
First, as indicated by Table 5, supra, a 20,000 subscriber system
appears at this stage of the art to be the smallest subscription system
which would be economically feasible. Taking the conservative esti-
mate that subscription television could attain at least a 10% penetra-
tion of television homes, this would mean that subscription television
would be economically viable in any market having 200,000 or more
television homes.23 Thus, at 10% penetration subscription television
would be a prudent business venture in approximately the top 100
markets as ranked by Television Magazine in its "Telestatus" report
as of March 1964.24
If penetration in excess of 10% is achieved, the profitability in
markets at the 200,000 level would, of course, be increased from that
shown in Table 5*23 Further, if a penetration in excess of 10% is
realized, operations in markets with less than 200,000 subscribers would
become economically possible; e.g., a 20% penetration would permit
an economically viable operation in the approximate top 170 markets
having 100,000 or more television homes, and a 50% penetration would
make a subscription operation feasible in the approximate top 200
markets having 40,000 or more television homes.
It is reasonable to anticipate that various markets with approxi-
mate ranking will, for various social, economic and geographic reasons,
achieve different degrees of penetration. We submit, however, that
a minimum 10% penetration, which is certainly weighted on the side
~ Factors bearing on public acceptance are discussed at Sections VI and
IX, of these comments.
~ Television Magazine, Vol. XXI, No. 3, March 1964, p. 66. Under the
"Telestatus" ranking, 91 of the top 100 markets J1ave 200,000 or more television
homes. The 92nd through 100th markets range between 194,500 and 171,600
television homes and would, therefore, require an 11% or 12% penetration to
produce 20,000 subscribers. For convenience, the "Telestatus" ranking as of
March 1964 is attached hereto as Exhibit 4.
25 For example, if a 20% penetration was achieved in markets having
209,000 television homes, the profitability would be reflected by Table 6, supra,
which projects a subscription operation at the 40,000 subscriber leveL
35
PAGENO="0284"
280
of conservatism, serves to support a rational conclusion that subscrip-
tion television could provide the support for additional television sta-
tions in approximately the top 100 markets or preserve the service of
existing stations in such markets which have for a number of years
been, and are now, suffering substantial financial losses. Subscription
television thus has the reasonable potential of supporting 91 or more
stations, in addition to the 454 stations which operated profitably in
11963. This would increase the present system by at least 20%. Such
an increase would, indeed, make a valuable contribution to the devel-
opment of a nation-wide competitive television system and to the
achievement of the Commission's priorities.
Whether subscription television may make an even greater contri-
bution than indicated by the above projections can, of course, only be
determined in the market place. But in carrying out its duty and
responsibility to develop and encourage new broadcast service to the
public, the Commission's determination of what is in the public interest
must also take into account and give appropriate weight to broad
considerations of future welfare. Such an approach, of necessity,
must be predicated upon future estimates as well as present facts, since
it is keyed to future goals.26
VIII. THE HARTFORD TRIAL DEMONSTRATES THAT SUBSCRIPTION TELE-
VISION WOULD NOT IMPAIR THE CAPACITY OF THE PRESENT SYSTEM
TO CONTINUE TO PROVIDE ADVERTISING-FINANCED PROGRAMMING.
In comments filed with the Commission in this proceeding prior
to the Commission's Third Report and Order, supra, Zenith predicted
that two factors would preclude subscription television from siphon-
ing audience, television programs, and talent away from conventional
television. These are the limited number of available box-office pro-
grams, and the budget limitations on the amount of time and money
the public would spend on a recreational spectator activity such as
subscription television. The existence and the precise scope of these
parameters have been more definitively established during the
Hartford trial.
A. Audience Sipho~~ing Would Be De Minimis
During the first two years of the. Hartford trial, the average sub-
scriber purchased approximately t out of an average of 5.7 different
program features available weekly, and the a~rerage viewing time per
26 See Anu3ricon Airlines Inc. V. Civil Aeronautics Board, 192 F.2d 417
(D.C. Cir. 1951).
36
PAGENO="0285"
281
subscriber was approximately two hours per week. The average U. S.
television home now views approximately 38 hours of television per
week.27 Therefore, it is obvious that 2 hours of subscription viewing
will not satiate the public's appetite for the 38 hours of television
programming which it now views.
Indeed, two hours of subscription viewing a week represents only
slightly more than 5% of the 38 hours of programs the public now
views on television. In terms of a nationwide audience, even this 5%
loss of audience by conventional television could occur only in the
unlikely circumstance that every IL S. television home was a subscrip-
tion television subscriber-a 10% penetration by subscription tele-
vision would result in maximum "siphoning" of only 1/2 of 1% of the
audience available to conventional television.28 This minimal % of
1% weekly "siphoning" would necessarily be decreased to whatever
extent subscription viewing becomes additive rather than subtractive
of the time now devoted to viewing conventional television programs.
When one considers the fact that even during peak prime evening
viewing hours between 35 and 50 percent 29 of television homes do not
have sets in use, it is not unreasonable to assume that subscription
viewing will have some additive effect by bringing back a portion of
those set owners who often ignore conventional television programs.
The de minimis effect which subscription television would have
upon conventional television program viewing may be further demon-
strated by individual program ratings developed during the Hartford
trial. Thus, the 599 different program features carried during the first
two years of the Hartford trial involved 1,776 separate program broad-
casts, because about 95% of the subscription programs were broadcast
more than once. The average per-program-showing audience rating
was 5*5%,30 This means that an average of only 5.5% of all sub-
27 Average viewing per television home per day for 1964 is estimated at
5 hours 25 minutes. Broadcasting Magazine, Vol. 67, No. 20, Nov. 16, 1964,
p. 51.
28 The average network program has a rating (Nielsen) of 19 which means
it delivers approximately 10 million television homes. A siphoning effect of
0.5% natienally, therefore, would decrease the 10 million viewing homes by
only 50,000.
29 Television Magazine, Vol. XXI, No. 2, Feb. 1964, p. 43.
30 The only marked departures from this average were r~presented by the
phenomenally high audience rating achieved by championship boxing matches
(63.3% rating), on the one hand, and the very low rating of educational and
instructive programs (0.8% rating). See Table 1.
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PAGENO="0286"
282
scriber homes were watching a particular subscription program at any
given time during the entire first two years of the trial. This 5.5%
average audience rating again demonstrates the inherent limitation
upon the amount of subscription television viewing the public will
support.
Projected on a national basis, even if we assume that an average
of 5.5% of the viewing subscribers were "siphoned" from the com-
mercial television audience at any given time, such "siphoning" would
certainly have a minimal effect. It still would leave 94.5% of the
television homes available to watch conventional advertising-spon-
sored programs. Here again, however, the "siphoning" factor
would be limited solely to those television homes (a) which are sub-
scribers, and (b) which would have watched conventional television
had the subscription program not been available.
In the final analysis, as the Commission recognized in its decision
authorizing the Hartford trial, the nature of subscription programs
is such that the viewing thereof "is at least as likely to replace
theater-going as conventional television viewing." As further recog-
nized by the Commission, "Since commercial programs would not be
broadcast during subscription hours . . . we can reasonably assume that
there would be no adverse effect on existing area stations through
direct loss of advertising support." 32
B. Subscription Television Would Not Pre-Empt
Any Significant Amount of Time Now
Utilized By Advertising Sponsors
During the first two years of the Hartford trial, 599 different pro-
gram features were broadcast, embracing 1776 program showings and
requiring 3,139 hours of subscription station time. Thus, WHCT
devoted an average of 30 hours per week to subscription broadcasts.
Some increases in the quantity of subscription programs and hours
devoted to subscription broadcasting may be reasonably anticipated
if the business is permitted to expand. We believe, however, that the
Hartford experience is relatively typical of the amount of subscription
programming and the time which will be devoted to subscription broad-
casting which can be absorbed by any market, due to the limited
number of box-office attractions and the size of the recreational budget.
31 Conversely, if box office attractions are viewed at home rather than at
the theatre, there is no net loss of audience available to conventional television.
32 Application of IIa~rtford Plionevision Company, 20 RR 754, 770-71 (1961).
38
PAGENO="0287"
283
We further believe that the Hartford trial establishes that such over-
all limitations would apply whether one or several television stations
in the same market carry subscription programs. In short, several
stations carrying subscription programming would have to divide the
available box-office program product and share the public's subscrip-
tion recreational budget in a manner which would result in little more
subscription programming or time devoted to it than if only one station
carried subscription programming.
In terms of the total number of broadcast hours available, it is
quite clear that subscription television will not be in a position to
pre-empt any substantial percentage of the total number of conven-
tional broadcast hours now utilized by advertising sponsors for the
purposes of bringing conventional programs to the public. For exam-
ple, in Hartford, the total weekly hours of telecasting by the other
stations serving that market is approximately 570 hours. Added to
this are the hours of conventional television (30) broadcast by WHOP
itself. Certainly, if subscription television used 30 to 40 hours a
week for broadcasting its programs in the Hartford market, this would
leave adequate time available to advertising sponsors. Further, a
typical television station broadcasts from 115 to 120 hours of conven-
tional programming a week. Thus, in multiple-station markets having
three or more stations, subscription television at most could not absorb
more than 10% to 15% of the total broadcast time available. In other
words, the total nnmber of broadcast hours available in the vast major-
ity of television markets from all stations could not conceivably be
filled with subscription programming, not only because of the shortage
of box-office attractions but also because the public's recreational
budget will not allow it to absorb sufficient programming time to
deprive advertising-financed programming of its present broadcast
time.
The Hartford trial also indicates the probability that television
stations will be either dominantly subscription or dominantly conven-
tional in their programming because of such factors as the demands
on prime time by both types of programming, the necessity of con-
ventional television stations to maintain network clearances, continuity
of audience and, finally, because those stations now carrying conven-
tional programming, particularly if they are network affiliates, may
not find it advantageous or prudent to exchange their present substan-
tial profits for the more speculative profits of subscription television.33
~` Most network affiliates are VHF and profitable.
39
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284
This latter consideration may be illustrated by considering the
Washington, D. C. market. Washington is the tenth television market,
with 934,000 television homes and has five commercial stations. The
total broadcast revenues of these five stations for the year 1963 was
$15,346,304, and their combined profits before taxes were $3,707,900.~~
It is certaiiily unlikely that these five stations, or at least the three
network-affiliated stations, would abandon their multi-million dollar
business in order to devote any significant portion of their operations
to subscription television~ Washington, with a 10% subscription pene-
tration of television homes, would produce an approximate 100,000
member subscription system which, as reflected in the business projec-
tions set forth in Table 8 of Section VI, snpra, would not produce the
aggregate revenues or profits now enjoyed by the Washington stations.
In the absence of any indication that advertisers will not still desire
to use television to carry their advertising messages in the future,
it is inconceivable that more than one of these stations would devote
any substantial amount of its broadcast time to subscription television.
Because of the doubt that existing network affiliates would con-
sider deserting conventional television broadcasting for subscription
broadcasting in the foreseeable future and because of the strong prob-
ability that stations will either be dominantly subscription or domi-
nantly conventional, it is most likely that subscription television will
have to support the establishment of new television stations in the
vast majority of markets in which it will operate if it ever expects
to get off the ground. In light of the allocated channels available for
new stations in most markets, the creation of such new stations will,
of necessity, redonnd to the benefit of UHF development. Stations
thus supported by subscription television certainly cannot be accused
logically of siphoning time that would otherwise be available to con-
ventional television. Rather, such new stations will add to the total
amount of conventional programming now available ~o the public,
since they will carry conventional programming as well as subscrip-
tion programming.
The Limited Suppy of Box-Office Attractions. Throughout these
comments reference has been made to numerical limitations of box-
~ TV Broadcast Financial Data-1963, FCC Pub Not.-B, No. 54732, July
23, 1964. At an average programming expenditure of $65 per subscriber-
the Hartford average-a subscription system in Washington would have to
achieve in excess of 25% penetration of Washington TV homes to produce
the same dollar amount of subscription revenue as the broadcast revenues
($15,346,304) now obtained by 5 Washington stations.
40
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285
office attractions as being one of the more important factors which
must be considered in determining the possible effects that subscrip-
tion television might have upon conventional television. It may be
appropriate at this point to briefly review these numei~ieal limitations.
Current feature-length motion pictures will tend to be the dominant
box-office attractions which subscription television will offer to the
public. The total number of TI. S. and foreign motion pictures released
in the Tlnited States for the year 1963 was 420.
Other box-office attractions, such as Broadway plays, opera, heavy-
weight championship boxing matches, etc., are also relatively few in
number. For example, over the past few years the number of Broad-
way and off-Broadway productions have ranged between 75 and 100
per year. The Metropolitan Opera produces between 20 and 25 differ-
ent operas per year. There are perhaps no more than a dozen sym-
phony orchestras and ballet companies which have sufficient national
repute to be considered as box-office attractions, and the total seasonal
repertoire offered by these companies is highly limited. Concerts and
recitals by artists of national atid international repute would probably
not embrace more than 25 to 50 additional box-office attractions in
related entertainment fields.
There were only 6 heavyweight championship boxing matches dur-
ing the first two years of the Hartford trial. Subscription broadcasts
of sporting events not available to conventional television, such as
professional football home games, local and regional college football
and basketball games, provide a source of program supply which would
probably not exceed an additional 50 to 100 box-office attractions
per year.
The foregoing establishes the known boundaries of box-office pro-
grain supply. These box-office attractions represent the type of enter-
tainiñent which is not now available on conventional television and for
which the public pays by attending the theater, the concert ball and
the sports arena. While subscription television itself may provide the
economic support for a greater quantity of these types of box-office
attractions, the limitations of the family recreational budget will serve
to place very realistic limitations on the total supply of box-office
attractions which will be available to subscription television or to any
other medium. While the quantity of box-office attractions now gen-
erally available in this country is sufficient to support a subscription
system and would offer a valuable supplement to the program choices
now available to the public, it is readily apparent from the above that
41
86-399 0 - 67 - 19
PAGENO="0290"
286
the number of such box-office attractions is sufficiently limited in supply
that no significant percentage of the total number of conventional
broadcast hours now available to the public could be absorbed by
subscription television.
C. The Type of Box-Office Programming Shown During
the Hartford Trial Demonstrates That Subscription
Will Not Siphon Talent and Existing Programs
From Conventional Television
The same 599 different box-office attractions shown during the
Hartford trial could also have been shown nationwide. None of these
programs were available on conventional television. Thus, current
motion pictures shown in Hartford were not available to conventional
television anywhere in the country. Prior to the six heavyweight
championship boxing matches shown during the Hartford trial, such
championship bouts had not been seen on conventional television for
approximately 10 years. The college football games carried during
the Hartford trial would not have been available for conventional
television broadcasting under the restrictive college sports broadcast-
ing policies adopted by the NCAA. Current Broadway plays are not
shown on conventional television except on very rare occasions.35
Two-hour concerts and recitals by internationally known artists have
seldom, if ever, been shown on conventional television, since under the
cost-per-thousand economics of advertising, sponsors are unwilling to
sponsor this type of cultural program regularly on television.
Further, it is a well-known fact that stars, producers, directors,
and writers often work in more than one medium even though one
may pay more than the other. There is no reason to believe that sub-
scription television would siphon talent from conventional television
any more than there is reason to believe that the motion picture
industry siphons talent from conventional television at the present
time. Talent often works for both media. For example, top stars
appearing in many of the motion pictures shown on subscription tele-
vision in Hartford also appeared on conventional television during
the period of the trial. Since subscription television merely substi-
tutes the home television receiver for the motion picture theater for
the release of feature-length motion pictures, there is no reason to
believe that motion picture talent and writers wouki not still continue
~ Thus, Westinghouse announced plans several years a~go for carrying
certain Broadway plays On conventional television. These plans apparently fell
by the wayside. Broadcasting, VoL 63, No. 8 Aug. 20, 1962, p. 73.
42
PAGENO="0291"
287
to work for conventional television as they now do. The same would
be true of producers, talent, and writers working for other media such
as the Broadway theater. The more talented generally refuse to give
any one medium-the theater, motion pictures, and television-the
exclusive right to their services. Indeed, it is not unusual to find talent
appearing on conventional television programs during a period in
which they are starring in a Broadway play and simultaneously there-
with appearing in a motion picture in current release. The same
applies with reference to producers and writers.
The charge is sometimes made that subscription television would
siphon from conventional television those programs which now have
high ratings and are available to the public without charge and convert
them into subscription fare. This presumption that the public would
pay for entertainment features of the caliber that it currently receives
on television is clearly not borne out by the Hartford experience.
Indeed, offered only box-office attractions during the Hartford trial,
the subscribers viewed approximately one subscription program a week
out of the average five offered to them weekly. Thus, the Hartford
trial demonstrated that the public is selective even where the program
fare is limited to box-office attractions, e.g., first subsequent run feature
films had a cumulative audience rating of 27.3% compared to a rating
of 18% for older films 6 months in theater release. Under this circum-
stance, it takes tortured reasoning to reach a conclusion that the public,
with the alternative of purchasing box-office attractions on subscrip-
tion, would apply their subscription recreational budget for the pur-
pose of paying to see the type of program now seen on conventional
television-particularly when programs of the conventional type could
always be seen on some other station free, since such programs are
within the cost-per-thousand economics of advertising sponsors.
Further, the average rating (Nielsen) for the programs of the
three networks is 19. This means that on the average, 80% of the
more than 50 million television homes refused to watch the average
network conventional television program even though available with-
out charge. The average Nielsen rating for the 40 top-rated network
entertainment p~ograms during the Fall season is 24.86 Thus, even in
the case of the 40 top-rated network programs, an average of 76%
of the television viewing public refused to watch them even though
they were offered free of charge. One may well imagine what would
~` Nielsen Report for the two weeks ending November 22, 1964, Broadcasting
Magazine, Vol. 67, No. 24, December 14, 1964, p. 27.
43
PAGENO="0292"
288
happen to the rating of these programs if anyone attempted to charge
the public to see them.37 No one can expect the public to pay for what
someone else provides free.
Further, as the Commission recognized in authorizing the Hart-
ford trial, "a charge for a commercial program or a program being
seen elsewhere without charge might very well build in subscribers a
resentment of serious financial consequence" 38 to the subscription
operator. Certainly, the future operators of subscription television
iiiust be credited with some business acumen. It is pertinent in this
regard that the operators of closed circuit theater television have never
been naive enough to attempt to "siphon" away for their theater box-
office any of the 40 top-rated network television programs. They have
been content with box-office attractions not available on conventional
television such as heavyweight championship fights, home games of
professional football teams, etc.
The contention that subscription television could or would siphon
all major sports events now seen on conventional television incorpo-
rates an economic fallacy which ignores the limitations of the public's
recreational budget. For example, a nationwide subscription system
operating in the top 175 television markets and achieving a 20%
saturation of all TJ.S. television homes would have approximately ten
million subscribers. If each such subscriber would spend an average
of $65 per year on programs-the Hartferd average-such expendi-
ture would produce $650 million annually in subscription program
revenue.
Based upon Hartford trial experience and the historical business
patterns of program procurement costs in analogous fields, such as the
motion picture industry, 35% of this amount-$227,500,000-would be
available for nation-wide subscription program procurement. The
remaining 65% would be required to support the maintenance and
operation of the subscription technical systems and to pay for the
time of subscription television stations.
~ The presumption that current network programs would have a value
as subscription programs also ignores the high mortality rate of these programs.
Thus, the mortality rate for new prime time programs introduced in the 1963-
1964 season was as follows: CBS-TV (82%), ABC-TV (50%) and NBC-TV
(67%). Sponsor, Vol. 18, No. 22, June 1, 1964, p. 41.
38 Application of hartford Phonevision Company, 20 RR 754, 769 (1961).
44
PAGENO="0293"
280
The $227,500,000 thus available for subscription program procure-
ment would be allocated among the various types of program product
in a ratio corresponding to the quantity of each such type of program
product utilized and the public's expenditures on each type of pro-
gram. It is reasonable to estimate that the ratio of the public's
expenditures on various types of subscription program product, such
as iiiotion picture films, legitimate theater, opera and sporting events,
will show a close correlation to the ratio of expenditures now existing.
Table 9 set forth below, therefore, allocates the $227,500,000 available
for subscription program procurement among various types of pro-
gram events in accordance with the average percentage of total public
admission expenditures for the spectator events specified.
TABLE 9
Average Percentage of Dollar Allocation of
Total Public Admission Subscription Revenues
Expenditures to Specified Available for Purchase
Spectator Events* Of Program Product
Motion Pictures 67% $152,425,000
Legitimate Theaters and
Opera and Entertainments
Of Nonprofit Institutions
(F~xcept Athletics) 19% $ 43,225,000
Spectator Sports 14% $ 31,850,000
Total 100% $227,500,000
Averages for 5-year period 19584962 inclusive.
Statistical Abstract of the United States, 1964, No. 283, p. 208.
As is apparent from the above figures, by far the greatest per-
centage (86%) of the amount available for program procurement will
he spent on entertainmenb other than sports. The fact that the public
spends only 14% of its recreational dollar on spectator sports shows
some correlation to the Hartford trial experience where (a) 13% of
ftc box-office attractions during the first two years (79 out of 599)
were live sports events, and (b) the subscribers allocated 11,4% of
their expenditures to these sports events.
if we apply time percentage of the public's spectator event recrea-
tional dollar which is spent on sports (14%), this would allow a
national subscription television system, under the above assumptions,
$31,850,000 a year for acquiring sporting events. But this amount is
45
PAGENO="0294"
290
only 60% of the approximate fifty million dollars that conventional
television is now paying to the promoters and owners for the television
rights to the following top sporting events: (1) AFL professional foot-
ball gaines, including championship and all-star games; (2) NFL pro-
fessional football games, including title games; (3) baseball, including
local, regional, network, weekend, world series and all-star games; (4)
NCAA college football games, including Sun, Orange, Bose, Cotton,
Gator, Bluebonnet, East-West Shrine and Senior Bowls; (5) Kentucky
l)erby, Preakness and Belmont Stakes; and (6) Masters playoff, U.S.
Open arid PGA Championships. In addition are the amounts which
conventional television is now paying for specially staged golf tourna-
iiienfs, professional basketball, track and field events and numerous
other special sport attractions such as the U.S. Olympics.
Nor do the amounts which the networks and local television sta-
tions now pay for sporting events represent the limit of their financial
ability. Sporting events are now considered one of the best sponsor-
ship buys available to advertisers.39 Recent competition for sporting
events between the three networks, which has resulted in bidding up
the price of certain such events as professional football games tenfold,
reflects the financial ability of the networks to acquire this type of
sports programming arid the ability of sponsors to pay for it.
For example, during the 1963 season, ninety national advertisers
spent a total of more than $68 million for network time and programs
covering 65 sports events and shows.4° Thus, excluding the millions
spent by local and regibnal sponsors of sporting events, these ninety
national sponsors spent twice as much for these 65 spOrts events alone
as subscription would have available for its entire sports budget
under the above conditions.
To repeat, we believe that subscription television's major contri-
bution to sports fans will be the making available of those events such
as heavyweight championship boxing matches, home professional foot-
ball and baseball games and the vast number of college football games
which are now kept off conventional television by the owners thereof
because of fear of the drastic effect conventional television may have
upon box-office attendance. The public's recreational budget is simply
not large enough to make it possible for subscription television to
"TV Sports: How High the Boom?" Television Magazine, Vol XXI,
No. 4, April 1964, p. 65 et seq.
407d. at p.74.
46
PAGENO="0295"
291
acquire sporting events at prices higher than conventional television
can now pay, if we assume that the public will still desi:re to spend
some part of its subscription recreational budget on such box-office
attractions as current motion pictures, Broadway plays, operas, etc.
Since the public for some years has been spending approximately 86%
of its spectator event recreational dollar on current motion pictures,
Broadway plays, operas, etc. and only 14% on spectator sports, it is
reasonable to assume that sports will never dominate the program fare
of subscription either in terms of quantity of product or in terms
of revenue received.
The economic fallacy that subscription television could or would
convert all present network conventional entertainment programs into
subscription programs is even more pronounced. There are just too
many programs of the conventional entertainment type available to
permit economic absorption by the public's subscription recreational
budget at a rate higher than sponsors will pay.
In the final analysis, it would not only be contrary to our national
policy which encourages competition, but also impossible as a practical
matter for the Commission to erect a fence around conventional tele-
vision which would protect it from all competition for talent or for
audience. When people now go to the theater, concert hall or sports
arena to see events which are not available on conventional television,
they have been diverted from television viewing during the time that
they see these box-office events. The motion picture industry, the
theater industry, and the record business now compete with television
for talent. This competition will continue whether or not subscription
television exists. In addition, closed circuit theater television, in
competition with conventional television, has taken over many types
of programming, such as championship boxing matches, the Indian-
apolis Speedway races, and the home games of some of the teams in
the professional football leagues. Finally, despite wired subscription
television's misadventures in California, other such projects are re-
ported to be well beyond the planning stage.
The Commission is in no position to protect conventional television
from these sources of competition which, in the long run, may be far
more devastating in their competitive effect upon conventional tele-
vision than would broadcast subscription television, which can be inte-
grated into and made a part of our national television broadcast
system, and operated under the public interest standard of the Corn-
munications Act. Certainly, it is an exaggeration of advocacy for
47
PAGENO="0296"
292
anyone to contend that advertising-supported conventional television,
which currently represents an industry receiving approximately two
billion dollars a year in revenue, will be in serious jeopardy if it is
subjected to even minimal competition from subscription television.
The converse is far more likely true, since subscription television will
provide a new source of revenue which will supplement the advertising
revenue now received by the broadcast industry.
IX. THE HARTFORD TRIAL HAS DEMONSTRATEb THAT SUBSCRIPTION
TELEVISION WILL RECEIVE SUFFICIENT PATRONAGE FROM THE PUB-
LIC TO MAI~E IT AN ECONOMICALLY VIABLE BUSINESS.
The Hartford trial commenced on June 29, 1962 with 188 sub-
scribers. By the close of the second year of the trial there were
4,784 subscribers, and the number of subscribers has hovered between
there and 5,000 since that time because of the self-imposed test limita-
tion of 5,000 subscribers. At the close of the second year RKO decided
that it was not prudent business or fair to subscribers to increase the
number of subscribers during the third year without any assurance
that the trial would be extended beyond that time. RKO also con-
cluded that a 5,000-subscriber sample was sufficiently representative,
statistically, to provide meaningful information of the type that the
test was designed to elicit.41 Thus, no attempt was made during the
Hartford trial to obtain the maximum number of subscribers possible.
RKO `s policy was one of planned growth and experimentation con-
sistent with the best use of manpower and facilities.
As discussed more fully in Section V, supra, of these Comments,
subscriber acceptance of subscription programs was widespread, as
reflected by the average audience ratings for such box-office attrac-
tions as current motion pictures, championship prize fights, Broadway
and Off-Broadway plays, etc., individually tabulated on Exhibit 1. The
high and low range of such ratings by program categories is set forth
on Table 10 on the opposite page. None of these 599 subscription
features were shown on commercial television in Hartford or else-
where, and their ratings were obtained in full and open competition
with programs furnished without direct charge to Hartford viewers
by affiliates of all three networks and by independent stations.
41 The Hartford statistical sample for the first two years of the trial re-
flects a cumulative total of 4,998,033 separate and precisely measurable home
exposures of 1776 separate program showings. The 5,000 subscriber-homes
making up the sample. are approximately 5 times the sample Nielsen uses for its
National Television Index, H.R. Rep. No. 193, 87th Cong., 1st Sees., p. 127 (1961).
48
PAGENO="0297"
TABLE 10
RANGE OF VIEWING PERCENTAGES BY PROGRAM CATEGORIES OF ALL 599
FEATURES SHOWN DURING FIRST TWO YEARS (104 WEEKS)
OP HARTFORD PHONEVISION OPERATION
FEATURE FILMS
1 First Run U. S. Films
116 First Subsequent Run U. S. Films (Shown
Several Weeks After First Theater Run)
297 Older U. S. Films (Over 6 Months in
Theater Release) -
18 Foreign Language Films (English 61 33.1%
Titles or Dialogue Dubbed In)
SPORTS
6 Championship Boxing
2 College Basketball
1 High School Basketball
21 Professional Basketball
5 College Football
44 Professional Hockey
35 Special Entertainment Productions (Broadway and Off-
Broadway Plays, Opera and Ballet, Concerts and
Recitals, Varie1~y, Nightclub and Cabaret)
Educational Features
Medical Programs limited to 100 Doctor-Subscribers
50 57 8.0% 0.1% 4.5% 0.1%
3 6 32.0% 10.0% 16.0% 5.0%
599 GRAND TOTALS* 1776 82.9% 0.1% 82.9% 0d%
~ This reflects a cumulative total of 4,998,033 separate and precisely measurable home exposures of the 1776 separate program showings.
No. of
Features
Program Categories
Cumulative Percent Percent Viewing
For All Showings Any Separate Showing
Highest Lowest Highest Lowest
No. of For Any For Any For Any For Any
Showirgs Feature Feature Feature Feature
2 10.7%
516 81.1%
958 71.2%
10.7%
5.1%
3.7%
1.6%
27.1%
10.7%
3.7%
2.9%
2.2%
0.9%
5.3%
16.2%
19.8%
8.0%
82.9%
15.5%
10.7%
10.9%
12.7%
8.3%
29.3%
6 82.9%
2 15.5%
1 10.7%
21 10.9%
5 12.7%
44 8.3%
97 43.0%
5.3%
1.7%
1.1%
0.5%
27.1%
11.6%
10.7%
3.7%
2.9%
2.2%
0.8%
PAGENO="0298"
294
The high-low range in the ratings attracted by the 1776 showings
of 599 subscription features, of course, varied no less widely than
ratings attained by network affiliates and other commercial stations.
More importantly, Hartford subscribers selectively viewed an average
of approximately one such subscription showing per week and spent
an average of $1.20 per week on the subscription showings selected.
The average annual expenditure of subscribers, including program
expenditures ($62.16) and decoder rental ($39.00),42 was $101.16.
Subscribers in Hartford or elsewhere obviously would not regu-
larly and willingly pay these average amounts over a 2-year period
unless they found enough of these subscription programs to be suf-
ficiently more attractive than alternative no-charge television pro-
grams. Since the same network programs-and substantially the
same programming on independent commercial stations-were avail-
able throughout the U. S. during the same two-year period, there is no
apparent reason to believe that the competitive ratings. and revenues
attracted by Hartford subscription programs would have been sig-
nificantly different in other predominantly middle-income U.S. markets.
Thus, the public in Hartford, given a free choice, has viewed
sufficient programs and spent sufficient money to demonstrate that
subscription television in Hartford and other U. S. Television markets
can be an economically viable competitive business to the extent previ-
ously shown in Section VI of these Comments.
X. MISCELLANEOUS ISSUES CLARIFIED BY ThE HARTFORD TRIAL.
The Commission, in its First and Third Reports, anticipated that
a number of subsidiary issues would be clarified as a result of trial
operations, including the modus operandi of subscription service,
methods to be employed, technical performance, the role of the par-
ticipating broadcast station licensee, and possible monopolistic features
of a subscription service. These subsidiary issues will be discussed
hereafter.
A. The Modus Operandi of SubscriptLon Television and
Methods to be Employed.
From a commercial operating viewpoint, there are three functional
organizations necessary to supply subscription television services.
(1) A local franchise organization to scramble pictures for stations;
42 The $39.00 annual decoder rental fee does not include an allowance for
Iree rent allowed for the first 3 months of the trial and for certain vacations
`uring trial period.
50
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295
to provide for the installation, servicing and maintenance of subscriber
decoders; to provide programming decoding information to the public;
and to collect and disburse box-office revenue. (2) A television station
licensee over whose facilities the subscription programs are trans-
mitted. (3) Program sources which supply subscription programs
directly to broadcasters.
During the Hartford trial, RKO General, Inc. performed the
functions of a local franchise holder, and its subsidiary, RKO Phone-
vision Company, the licensee of WHOP, Hartford, performed the
functions of a television station over whose facilities the subscription
programs were transmitted. As the subscription franchise holder,
RKO could have provided the same services as it provided to WHOT
to other stations in Hartford if any had been authorized to carry
subscription programs. As a matter of business convenience, RKO
General, as franchise holder, paid its subsidiary, RKO Phonevision
Company, at card time rates for the time devoted by WHOT to sub-
scription programming. This, as shown below, is one of the various
business methods which might be followed in allocating revenues be-
tween the subscription franchise holder and television stations.
Subscription programs were obtained from a wide variety of
sources, including motion picture producers and distributors, sports
promoters, producers of Broadway plays, etc. In short, RKO went out
into the program market place and acquired box-office attractions by
private negotiations with the various owners of such attractions.
Subscription programs were obtained by WHOP in a manner com-
parable to the methods now followed by conventional television stations
in obtaining program product from the networks, program syndicators,
A. nation-wide subscription system could be operated within the
framework of the modus operandi followed in Hartford. The three
basic subscription functions decribed have universal application. One
possible qualification might be noted-in Hartford, RK:O and its
subsidiary, RKO Phonevision, served the dual role of franchise holder
and television station licensee. While there is no apparent business or
public interest policy reason why a television station should not par-
ticipate in ownership of a franchise subscription system, there un-
doiibtedly will be a number of markets where there will be little or no
ownership relationship between the subscription television station and
the franchise system. One apparent reason for this may be that the
capital investment required for the operation of a subscription fran-
51
PAGENO="0300"
296
chise system is so substantial that it could not be met alone by many
television stations. Thus, it is almost a certainty that sources of capital
for the construction and operation of a subscription franchise system
will have to be obtained from outside investors who may have no owner-
ship interests in television licensees. We believe that it is unnecessary
to speculate at this time on the precise make-up of subscription fran-
chise system ownership as it may evolve in different markets. So long
as any subscription franchise operator provides subscription service to
all stations authorized by the Commission to carry subscription pro-
grains in a particular market, it would not appear to make any dif-
ference whether one or more of the television stations in a market had
an ownership interest in the franchise operation or whether the
franchise system was owned completely by non-broadcasters.
Other aspects of the modus operandi and methods to be employed
have been explained throughout these comments.
B. Technical Performance.
The Hartford trial established that the Phonevision subscription
system can meet all of the technical requirements established by the
Comniission in its Third Report; namely, (1) the Phonevision opera-
tion in Hartford did not cause interference either within or without the
frequency employed to any greater extent than is permissible under
the present rules and standards of the Commission; and (2) the
Phonevision operation in Hartford did not cause perceptible degrada-
tion in the quality of the video or audio signals on any receivers
during either a subscription program or a non-subscription program.
In addition, the Hartford trial established the following technical
points: The Phonevision decoder may be installed on all makes and
models of television receivers now in the hands of the public, where
such receivers are otherwise in good operating condition.
Further, the Hartford trial established that the Phonevision
system provides adequate protection against reception by non-sub-
scribers. There have been no known instances of decoding of sub-
scription television signals in Hartford by unauthorized persons or
through the use of privately-built equipment not of Zenith Phone-
vision design.
During the Hartford trial, the Zenith Phonevision system at all
times permitted an accurate allocation of the per-program charges to
the individual programs viewed by subscribers as required by various
program distributors. Thus, the monthly billing not only reflected the
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PAGENO="0301"
297
total charges incurred by the subscriber, but broke down this total into
the specific individual program components making up such total
charges.
Contrary to speculative allegations advanced prior to the Hartford
trial that entertainment must be sold to the public on a cash rather
than on a credit basis, the Hartford trial established that a credit
system is not only well received by the public bift is also a sound
business approach. The bad debts written off for the first two years
were approximately 0.17% of total billing receipts, which is well
within the bad debt ratio absorbed by many other types of businesses.43
Further, periodic audits of the sealed magnetic billing tapes installed
in subscribers' decoders revealed no attempts by subscribers to cheat
with regard to billing.
The Hartford trial also established that the Phonevision equip-
ment will function satisfactorily with a minimum of service calls.
Upon the basis of recent improvements, it is estimated that home
service calls will average .89 per subscriber per year. Many service
calls did not involve defects in the subscription decoder. It was
discovered that many defects were in the television receiver itself
rather than in the decoder. In such cases the subscriber was required
to contact his own TV serviceman for repairs or service. Other false
service calls resulted from degradation of received UHF signal (inher-
ent with UHF reception) because of weather, terrain, poor built-in
antenna and the critical adjustments required for UHF-type tuners.
Such service calls, of course, cannot be charged againat subscription
television equipment.
As a result of technical experience gained in the Hartford test,
Zenith has re-evaluated the design of the subscriber instrument and
has determined that a number of changes and simplifications should
be introduced. Consequently, a new model decoder has been designed
and developed and is now being production-engineered at Zenith. In
comparison with the decoder presently employed in Hartford, the new
instrument will differ in the following respects:
1. It can accommodate color as well as monochrome signals.
2. It can be connected to the antenna terminals of a receiver, in-
stead of connected to inside wiring of the television set.
~u Bad debt ratios of some other businesses: Comnnmunieations (0.24%);
Electric and Gas Utilities (0.19%). Table 2, Income Statements by Major
Industrial Groups, p. 22, Statistics of Income, 1950-1957, Corporation Income
Tax Returns, Internal Revenue Service.
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298
3. The billing function of the new decoder is to be greatly simpli-
fied, to reduce cost and to facilitate operations on the part of the
subscriber. It will remain, however, a credit-type system.
In addition, a number of circuitry changes are being made in an
effort to reduce cost and further improve reliability.
C. The Role of the Participating Broadcast Station Licensee.
RKO, as the licensee of WHOP, had sole responsibility for operat-
ing that station during the Hartford trial. It had ultimate control over
the selection of all subscription programs broadcast during the trial,
the selection of the time such programs were broadcast and the selection
of the charges to be made for the programs. We believe that these
functions will always be the primary responsibility of the operating
television station not only as a matter of regulatory policy governing
licensee responsibility for programs, but also because practical busi-
ness considerations dictate that the broadcast station maintain such
ultimate control.
Based upon Hartford experience, it is reasonable to assume that
the participating broadcast station, either separately or jointly with
the franchise holder, will make arrangements with various program
distributors, such as motion picture companies, producers of Broad-
way plays, sporting events, etc., for the procurement of programs of
box-office quality. The broadcast station will share in the ultimate
program receipts with the program producer and the subscription
franchise holder upon a basis to be reached by private negotation.
Such divisions of income may take various forms, such as a mutually
agreed upon division of fixed percentages of gross among the franchise
holder, the program distributor and the television station. In other
cases, the franchise holder and the television station may join together
in a cooperative effort to obtain subscription program product from
program distributors, with the revenues over and above program costs
to be divided between the franchise holder and the station on a
mutually agreed basis. Finally, particularly at the outset of nation-
wide subscription operations where it may be necessary for a prospec-
tive franchise operator to induce parties to construct new television
stations to broadcast subscription television programs, the franchise
holder may agree to buy time from the television station at a so-called
subscription card rate and the station will broadcast programs sup-
plied by the franchise holder in a manner somewhat similar to the
methods now followed by networks and their television station affiliates.
54
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299
During the Hartford trial, it became apparent that, depending upon the
particular circumstance, any one of the above methods of allocating
program receipts among the television station, the program suppliers
and the subscription franchise operator might be effectively used as a
sound business basis for private negotiations. It is not unlikely, there-
fore, that all three of the above variations may be used in combination
in the future.
D. The Hartford Trial Has Established That There Are
No Inherent Monopolistic Features Arising From
Subscription Operations.
The degree of competition between television stations in a given
market in supplying subscription television service to the public will,
of course, be under the regulatory control of the Commission. From
a technical viewpoint, any Phonevision franchise system operating in
a community may be used by either UHF or VHF stations and is
completely compatible and can be used with the NTSC color system
as well as black and white. The Phonevision system can serve more
than one station. The subscriber will require only one Phonevision
decoder to receive VHF, UHF, color or monochrome programs from
one or more stations. Thus, any television broadcast licensee au-
thorized by the Commission to carry subscription programs can be
serviced by a franchise holder using Phonevision subscription equip-
ment.
Zenith is not herein requesting that the Commission adopt tech-
nical standards for subscription television which would limit subscrip-
tion operations, on a nation-wide basis, to the use of the Zenith Phone-
vision system. We believe that, under the policy of the Communica-
tions Act which encourages competition, the Commission should adopt
general technical standards for subscription television, such as those
adopted in its Third Report, and that any system which meets such
general standards should be permitted to operate. If there is more
than one system which can meet these standards, Zenith has no
objection to taking its chances in free and open competition with other
systems either nationwide or even in the same market. It is perhaps
unlikely, as a practical matter, that there will be any inclination or
desire on the part of more than one wireless subscription system to
operate in the same market. However, there is a probability that
wired and wireless systems might compete in in the same community.
There are, of course, already in existence many distributors and
producers of program product of all kinds and types which may be
55
PAGENO="0304"
300
appropriately used by subscription television. Thus, the 599 different
subscription programs shown during the first two years of the Hart-
ford trial were obtained from over 50 different program producers and
distributors of motion picture features, sports events, dramatic plays,
etc. Because of the legal and business considerations involved, Zenith
and Teco are effectively precluded from entering into any arrangement
or tie-in with a local franchise holder giving any program supplier
exclusive use of Phonevision facilities. Zenith itself, of course, does
not contemplate that it will engage in the distribution or production
of programs for release on subscription television.
During the Hartford trial, there was no centralized distribution
control over the programs selected by RKO for subscriptiin broad-
cast. RKO has been free to negotiate with any distributor of any kind
of program which is of box-office quality. Contrary to the wild and
speculative charges made in some 1955 comments filed in this proceed-
ing and during the Hartford Phonevision case, supra, neither Zenith
nor Teco, Inc.44 has exercised any control over the distribution or
selection of programs utilized during the Hartford trial. EKO as-
sumed and maintained sole responsibility during the trial for selecting
al] subscription program material, including responsibility for choosing
among program sources, rejecting programs, negotiating the terms
of acquisitioii, and determining the number of program showings and
the amount of program charges. Neither Teco nor Zenith had any
responsibility in the foregoing respects, although both assisted in
negotiating some of the arrangements with film distributors and other
program suppliers when such assistance was requested by RKO.
Most programs broadcast during the hartford trial (90%) were
obtained from program suppliers upon a basis whereby RKO agreed
to pay a fixed percentage of subscriber receipts from all viewers of
the particular program. A small percentage of subscription programs,
such as Broadway plays and special variety acts, required cash financ-
ing, which IRKO requested Teco to provide from time to time and
~ Teco, Inc. will serve a twofold function. First, it will be primarily
responsible for the promotion of the use of Phonevision equipment in various
communities and the granting of local franchises to interested and responsible
parties. Second, Teco may assist in obtaining appropriate high-quality pro-
gram product necessary for subscription operations. However, the program
activities of Teeo will not be tied in with its arrangement with the local
franchise holder or the latter's arrangements with local broadcasting sta-
tions in any manner which would give Teco an exclusive position against any
other owner or distributor of subscription television programs.
56
PAGENO="0305"
301
Teco generally accommodated such requests. No such financing, how-
ever, was committed by Teco unless and until RKO had previously
requested acquisition and use of the particular program and had
negotiated the terms of its acquisition. Each such program was gen-
erally acquired and paid for in the name of RKO, and Teco. was in no
way involved in determining the subscription fee to be charged by
RKO or the time or times when such a program was to be broadcast by
RKO. Thus,. Teco's role in connection with these special programs
was essentially limited (a) to reimbursing RKO for the cash acquisition
costs that Teco had previously agreed to pay and (b) to receiving
from RKO an agreed percentage of subscription fees ultimately col-
lected from viewers thereof.
Zenith's role in obtaining programs was limited primarily to
using the personal contacts of Zenith to facilitate RKO `s negotiations
with certain program suppliers with whom Zenith had long been
in contact. Such assistance was furnished only on the request of RKO.
Zenith also supplied limited financial assistance to Teco so that it
could acquire additional programming of the type described above.
Such program financial assistance as was extended by Zenith and Teco
to RKO was for the primary purpose of extending the scope of the
type of programming which could be offered to the public during the
Hartford trial. Zenith does not contemplate that it will continue ex-
tending such financial assistance if subscription is operating in a
number of markets on a continuing basis.
From the foregoing, it is clear that in the area of production and
distribution of subscription television programs and in their release
by broadcasting stations over local subscription television systems,
there will be full, fair and free competition. The business relation-
ships which will exist among program producers, subscription franchise
holders and television stations will logically flow from the business
circumstances under which it is anticipated subscription television will
operate, pursuant to limitations imposed by existing law. We
believe that the Hartford trial fairly represents the form and method
of any subscription television system-Phonevision or otherwise.
In the final analysis, monopolistic conditions in any business gen-
erally result either from the intent of the interests engaged therein
to establish such conditions or from the fact that the natural economic
forces affecting the business tend inevitably towards monopoly.
Zenith and Teco have no intent to acquire monopolistic control over the
subscription television broadcast business in the United States. Nor
57
86-399 0 - 67 - 20
PAGENO="0306"
302
can any broadcast' station owner obtain such a monopoly under the
multiple ownership policies of the Commission already in effect. While
it is difficult to forecast all of the natural economic forces which might
tend to mold the business forms of subscription television, it is im-
possible for us to conceive, under the operating proposals discussed
herein, any immediate or reasonable' prospect of monopolistic evils
which would require governmental regulatory action. If, after the
full play of the natural forces of competition, a condition now unfore-
seen should arise at some time in the future which would indicate any
trend towards monopoly detrimental to the public, the Commission
can always exert its present regulatory power to eliminate any anti-
trust problems that may possibly arise.
XL SUMMARY OF PUBLIC INTEREST CONSIDERATIONS.
As a result of the Hartford trial, the Commission now has before
it significant and reliable data which serve as a basis for appraising
the potentials of subscription television in other types of circum-
stances. The reasonable proj~ctiofls of subscription television `s
potential, as set forth herein, based upon the facts adduced during the
Hartford trial support a rational premise that subscription television
has the potential of making substantial contributions to our national
television system.
At the same time, the empirical knowledge gained during the
Hartford trial serves to refute many of the wild speculations ad-
vanced by uninformed and biased opponents of subscription television
during the previous stages of this proceeding-e.g., that it is technically
impossible, that the public will have no interest in it, that program
charges will be exorbitant, that subscription programs will not differ
from conventional television programming, that it will siphon away
present conventional programs which are now available to the public
without charge, that it will destroy free television and that, at best, it
will be little more than a plaything for the very wealthy. Thus, the
only remaining problems involving subscription television are pri-
manly business and marketing problems, as contrasted to regulatory
public interest problems. In the last analysis, our proposal is simply
to let the public itself evaluate subscription television in the market
place.
When the Commission acts under the statutory mandate to en-
courage new service, the new service contemplated by it~ regulatory
action is not to be frustrated by the fact that no one can prove beyond
the peradventtire of a doubt exactly how far the new and untried
58
PAGENO="0307"
303
service will develop. Thus, the Commission has the statutory obliga-
tion to authorize subscription television if it determines, upon the
basis of the rational premises supplied by the Hartford trial, that
subscription television holds a future potential of satisfying a public
need. The Commission, of course, has adequate regulatory power to
take care of any future unforeseen problems as they may arise.
It is noteworthy that, even if subscription television were au-
thorized on a nation-wide basis, its growth and expansion will most
likely develop gradually over a period of five or more years rather
than overnight. Each potential subscription market would require
franchise holders willing to make substantial capital investments in a
new business. In many markets persons will have to be induced to
apply for UHF channels so that these stations can be utilized as sub-
scription outlets, and further time will be required for such persons to
receive a grant from the Commission and to construct such stations.
Subscription equipment manufacturers will have to tool up for mass
production.
It is not unlikely that the expansion of subscription television will
parallel to some extent the gradual growth of television stations
during the pioneer period 1946-1950. Thus, our national system started
in 1946 with ten television stations. In 1947, the second year, there
were twelve stations operating in eight cities, and in 1948 there were
thirty stations on the air in seventeen cities. At the end of 1948, there
were only 460,000 television sets in circulation. By 1950, the fifth year,
there were 107 television stations operating in 63 cities and there were
approximately 12,500,000 receivers in the hands of the public. Ever
since 1950, our national television system has shown gradual rather
than overnight growth. While subscription television may have a
somewhat more rapid growth and development due, among other
things, to the fact that a vast majority of the American public already
have television receivers in their homes which could receive subscrip-
tion programs, its basic problems will be similar to those faced by
the infant television industry. Risk capital ventures cautiously into
new and untried businesses and momentum is gathered only after the
first 10 or 20 pioneers have forged the business feasibility of the new
business in the crucible of the market place. The gradnal growth
which may be reasonably anticipated will undoubtedly give the Com-
mission time to view subscription's nationwide growth in an orderly
manner, which will permit it to adapt the regulatory process as the
need niay arise, long before subscription television achieves any major
nationwide penetration.
59
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304
XII. SCOPE OF RELIEF REQUESTED.
A number of questions have been raised by the Commission in the
past concerning the possible composition of a nation-wide subscription
television system embracing such considerations as whether or not
subscription television should be limited to a single technical system,
~rhether or not it should be limited to multiple-station markets, whether
or not it should be limited to UHF, etc. Since varying answers to each
of these questions would substantially affect the type of authorization
the Commission might grant for a nation-wide extension of subscrip-
tirni television, we are setting forth hereafter our views in connection
therewith. In the interest of clarity we will follow a question and
answer form in the following discussion.
1. Whether Subscription Television Operations Should Be Limited to a
Single Technical System or Whether General Standards Should Be
Provided Within Which a Number of Systems Might Operate.
In our opinion, the underlying policy of the Communications Act
of encouraging competition dictates that the Commission adopt gen-
eral technical standards within which more than one system might
operate. These general standards could be limited to the following
requirements:
(a) The system should be compatible with existing television
service (both VHF and UHF and both monochrome and color) so that
the millions of receiving sets now in the hands of the public and the
transmitting equipment of existing broadcast stations can be used in
this service.
(b) The system should not cause interference or have other un-
desirable effects within or without the assigned frequency band.
(c) Subscription service should result in no perceptible degrada-
tion of the quality of the video and audio signals received during
either a subscription program or a non-subscription program.
2. Whether Subscription Operations in an Individual Community Should
Be Confined to a Single Technical System.
We believed that it is very unlikely, as a practical matter, that
more than one over-the-air subscription technical system would operate
in an indivi4ual community. We see no reason, however, why the
Commission should employ such a restriction by rule. From a regula-
tory viewpoint, the Commission's primary interest should be in the
relationships whici' exist between franchise subscription systems and
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PAGENO="0309"
305
television broadcast licensees, regardless of whether there is one
franchise system or several operating in the community. It must
also be recognized that there is a possibility that wired subscription
systems and over-the-air subscription systems may operate in the same
community.
3. Whether Nationwide Subscription Television Should Be Limited to
Multi-Station Markets (four or more stations) or Whether It Should
Be Permitted in All Markets, Including Single-Station Markets.
The underlying policy of Section 307(b) of the Communications
Act, which requires the Commission to make a fair, efficient and
equitable distribution of broadcast service among the several "com-
munities," would appear to dicate that subscription television be made
available in all markets. In short, if there is a demand for subscrip-
tion service, the public in all markets is entitled to its benefits if some-
one is willing to supply it.
Subscription television itself has the potential of generating the
construction of many new stations. To the extent that it achieves this,
it should not matter whether the new station is the first station in the
market or the second, third or fourth. As previously discussed in these
comments, there is a strong probability that present stations in two-or-
three-station markets would not carry any significant amount of sub~
scription television programs at the outset because this would conflict
with their present highly profitable network commitments. Thus,
subscription television will have to support the creation of new UHF
stations in such markets at the outset if it is to have adequate outlets.
In our opinion, issues involving whether subscription television
should be permitted in markets with varying numbers of stations can
best be handled on an ad hoc basis. For example, if subscription tele-
vision could lead to the construction of a first television station in a
community, it is difficult to conceive of any public interest considera-
tion which would justify a restraint on the creation of such a new
station.
4. Whether Subscription Television Should Be Confined to a Single Station
in anjr Individual Community or Whether More Than One Station
Should Be Authorized to Carry Programs. -
The policy of competition sponsored by the Communications Act
and the Commission's policy of encouraging competitive multiple tele-
vision service should, in logic, extend to subscription programs as well
61
PAGENO="0310"
306
as to conventional programs. It would be contrary to these policies to
limit subscription television programs to one station per community,
although this issue might be considered under appropriate circum-
stances on an ad hoc basis.
As we have previously discussed, however, it is unlikely in the
immediate foreseeable future that all stations in a community would
apply to carry subscription programs. To repeat, the Hartford trial
indicates a strong probability that stations will tend to be either
dominantly subscription or dominantly conventional in their pro-
gramming. It is also unlikely that network affiliates, the majority of
which are VHF stations, will carry subscription programs because of
the necessity of maintaining network clearances and continuity of
audience. Nor is there any present indication that it would be more
profitable for them to do so.
Another consideration is that there may be cases where it will be
essential to authorize more than one non-network station to carry sub-
scription programs, where more than one is available, in order to obtain
sufficient time clearance to justify the installation of a subscription
system.
5. Whether Stations Should Be Limited in the Amount of Time That They
Can Devote to Subscription Programming.
In our opinion, it would be unduly complicated to limit the amount
of time that any station can devote to subscription programming,
except for a requirement that it broadcast the minimum hours of con-
ventional programs required by Section 73.651 of the Commission's
Rules. In many instances, particularly at the outset, there may be no
more than one station carrying subscription programs. In such a case
the station must be permitted to carry sufficient subscription programs
to support the subscription system. Otherwise, no one will make the
substantial capital investment required to install a subscription system
in a community.
As previously discussed in detail, where more thaii one station in
a community is authorized to perform subscription operations, there
are practical considerations which will effectively restrict the total
amount of subscription programming which can be carried by such
stations; namely, (1) the limited quantity of box-office attractions
and (2) the limited nature of the public's subscription recreational
PAGENO="0311"
307
budget. These restrictions apply equally whether the programs are
carried by one or more than one station. Another practical limitation
on the time which can be devoted to subscription television in any com-
munity arises from the improbability that network affiliates will desert
their present and profitable network programming in order to carry
any appreciable amount of subscription programming.
6. Whether Subscription Television Should Be Limited To
Only UHF Stations.
While we have no doubt that UHF stations will be the greatest
beneficiaries of expanded subscription television operations, we believe
that subscription television should be made available to both UHF
and VHF without discrimination. There is a possibility that if this
is not done, some markets might be deprived of the benefits of sub-
scription television. There are only thirteen communities out of the
top 100 markets, as listed in Exhibit 4, which have more than three
VHF channels allocated and/or in operation.45 In the remaining 87
of the top 100 markets having three or less VHF channels available,
the stations operating therein are all affiliated with one of the three
networks. For reasons previously discussed, it is highly unlikely
that any of the existing VHF stations operating in these 87 markets
would be willing to surrender their profitable network affiliations in
order to carry any significant amount of subscription programming.
Indeed, many of the so-called non-network stations operating in the
above-mentioned thirteen markets. are presently operating profitably
and as a result may not desire to carry any significant amount of sub-
scription programming.
On .the other hand, 95 of the top 100 television markets have, in
the aggregate, 228 UHF frequencies available. This pool of 228 UHF
frequencies represents the principal source of possible future station
outlets for subscription television. It is also noteworthy that if any
VHF channel in a market with three or less VHF channels should
decide to give up its profitable network affiliation in order to carry
subscription programs, such profitable network affiliation would be-
come immediately available to some new UHF station, since, as . we
"~ New York City; Los Angeles, California; Chicago, Illinois; San Francisco-
Oakland, California; Washington, D.C.; St. Louis, Missouri; Minneapolis-St.
Paul, Minnesota; Indianapolis-Bloomington, Indiana; Miami, Florida; Seattle-
Tacoma, Washington; Lincoln-Kearney-Ilastings-North Platte, Nebraska; Port-
land, Oregon; Denver, Colorado.
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308
have already noted, it is most likely that stations will either be domi-
11 antly conventional or dominantly subscription in their programming
because of the demands of both types of programming on prime time
and the necessity of network affiliates to maintain time clearances
and continuity of audience.
7. Whether Restrictions Should Be Placed Upon the Broadcast of
Commercials During Subscription Programs.
While the Commission did not place any restrictions upon the
broadcast of commercials during subscription programs in its First
and Third Reports, RKO committed to carry no commercials on sub-
scription programs during the Hartford trial and has not done so.
In our opinion, the Commission should, in any nation-wide authori-
zation of subscription television, specifically restrict the broadcast
of commercials during subscription programs. While the major ap-
peal of subscription television programs may be that they are of box-
office quality, we believe that au additional appeal involves the absence
of commercials. To combine commercials with subscription programs
would merely serve to detract from the best that both subscription
television and conventional television offer to the public without offer-
ing any countervailing benefits. It is not inconceivable that if com-
mercials are prohibited on subscription programs, this will serve as
a quality yardstick for sponsors in selecting conventional program-
iiiing of a quality which could more effectively compete with subscrip-
tion programmmg.
8. Whether Subscription Television Should Be Limited to
broadcasting Programs of a Box-Of1i~e Nature.
We recognize that it is difficult to precisely define by rule what
is or what is not a box-office attraction for subscription purposes
with sufficient clarity to cover all situations. Generally defined, a box-
office attraction embraces any type of program which is not seen on a
regular or frequent basis on conventional television and for which
the public would ordinarily pay an admission charge. Since neither
of these criteria is necessarily static, it may be undesirable to attempt
to classify all types of programming into a rule. However, we re-
quest the Commission, in any decision authorizing subscription tele-
vision on a nation-wide basis, to make clear that it will expect sub-
scription programming to be of a box-office nature rather than dupli-
cative of conventional programming.
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PAGENO="0313"
309
XIII. IDESCRIPTION OF SUBSCRIPTIO~j RULE PROPOSED BY ZENITH
AND TEc~O.
For convenience, we are incorporating at the end of this section
a copy of the rule~ which we have, in our petition, proposed that the
Commission adopt for the purpose of permitting subscription tele-
vision operations~ on an extended nationwide basis. This proposed
rule incorporates the answers to the questions set forth immediately
above. A further description of the specific rule provisions proposed
is set forth hereafter.
Scope. The rule proposed by Zenith and Teco to permit sub-
scription operations on an extended nationwide basis, would not, with-
out more, automatically authorize all television stations to broadcast
subscription programs. Rather, under the Zenith-Teco proposal, any
television station desiring to broadcast subscription programs would
have to first file with the Commission an application for sub-
scription television authorization. The grant or denial of mdi-
vidual applications for subscription television authorization would
be decided on a case-to-case basis in light of the public interest con-
siderations which might be involved in the particular case. Zenith
and Teco submit that such a case-to-case approach under a subscrip-
tion television rule would provide flexibility which would better serve
the ultimate public interest than would an approach whereby the
Commission attempted by rule to restrict subscription operations to
a particular type of station or to particular markets.
A brief description of the other specific provisions in the rule
proposed is as follows:
(a) Section 73.641. This section contains definitions of the terms
used throughout the proposed rules.
(b) Section 73.642. This section rovers the filing of applications
for subscription television authorizations and the procedures which
will be followed by the Commission in determining whether such ap-
plications should be granted or denied.
(c) Section 73.643. This section sets forth certain licensing poli-
cies which will be applied by the Commission in granting subscription
television authorizations. These policies are designed primarily for
the purpose of making certain that the television station broadcasting
subscription programs will retain ultimate control over its operations
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310
in a manner which will at all times permit it to fulfill its duties and
responsibilities to broadcast in the public interest and to prevent
monopolistic growth of subscription television in the fields of station
operation and program distribution.
(d) Section 73.644. This section provides that no commercial
advertising announcements shall be carried during subscription broad-
casts. It also provides that charges, terms and conditions of service
to subscribers shall be applied uniformly: provided, however, that
subscribers may be divided into reasonable classifications and that
different conditions may be applied to subscribers in different classi-
fications. It further provides that television stations authorized to
broadcast subscription programs shall also broadcast conventional
programs. This section also establishes the procedures which may
be followed by the manufacturers of subscription television equipment
in obtaining advance type approval and type acceptance of their
equipment.
PROPOSED SUBSCRIPTION RULE
SUBSCRIPTION TELEVISION OPERATIONS
§ 73.641. DEFINITIONS.
(a) Television station. The term "television station" means any
UHF or VHF licensee or permittee or applicant for a UHF or VHF
construction permit.
(b) Approved subscription television system. The term "ap-
proved subscription television system" means any technical system
utilized in subscription television operations approved by the Com-
mission upon a finding that (1) the system will not cause interference
or have any undesirable effects within or without the assigned fre-
quency band; and (2) the system will not cause any perceptible deg~
radation in the quality of the video or audio signal received during
either a subscription program or a non-subscription program.
(c) Television market. The term "television market" means any
community which has or may have a UHF or VHF channel allocated
to it.
(d) Subscription program. The term "subscription program"
means any program broadcast over an approved subscription tele-
vision system in such a manner that the program cannot be viewed by
members of the public without incurring a charge or fee.
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311
(e) Subscription broadcast. The term "subscription broadcast"
means the period during which subscription programs are scheduled
and broadcast, which shall include all times during which a television
station is transmitting an approved subscription television signal.
(f) Commercial advertising announcement. The term "com-
mercial advertising announcement excludes station promotions of
future subscription programs at the beginning and ending of subscrip-
tion broadcasts.
§ 73.642. APPLiCATIONS AND AUTHORIZATIONS.
(a) Any television station located in a television market and de-
siring to engage in subscription television operations shall first file
with the Commission an application for subscription television au-
thorization in such manner and form as the Commission may here-
after prescribe.
(b) If the Commission, upon examination of such application and
upon consideration of such other matters as the Commission may
officially notice, finds that the public interest, convenience and neces-
sity would be served by the granting thereof, it will grant such appli-
cation. In the event it is unable to make such a finding, the Commis-
sion will then formally designate the application for subscription
television authorization for hearing and proceed pursuant to the pro-
visions of Section 309(e) of the Communications Act and the Com-
mission `s Rules and Regulations applicable thereto. The Commission
may impose such conditions upon the grant as may be appropriate,
based upon the circumstances prevailing in each television market.
(c) Applications for subscription television authorization shall
be accompanied by a statement signed by the patentee, licensee, man-
ufacturer or franchise holder of an approved subscription television
system that such party will commence installation of an approved
subscription television system in the applicant's television market
within one year after the grant of the television station's application
for subscription television authorization, unless such a system is al-
ready installed in applicant's television market.
(d) A subscription television authorization will ordinarily be
issued for a period which will be coterminous with the regular license
period of a television station.
§ 73.643. LICENSING POLICIES.
(a) No subscription television authorization shall be granted to
a television station having any contract, arrangement or understand-
ing, express or implied, with a patentee, licensee, manufacturer or
franchise holder of an approved subscription television system which
67
PAGENO="0316"
312
gives such station the exclusive right to use such approved subscrip-
tion television system in its television market, or which prevents the
use of such approve.d subscription television system by other tele-
vision stations which have been authorized by the Commission to
broadcast subscription programs in the same television market; nor
shall a subscription television authorization be granted to a television
station having any agreement or understanding which would prevent
it from using any other approved subscription television system which
may operate in its television market.
(b) ~NTo subscription television authorization shall be granted to
a television station having any contract, arrangement or understand-
ing, express or implied, which prevents the station from (1) reject-
ing or refusing any subscription program which the station reason-
ably believes to be unsatisfactory or unsuii~able or contrary to the
public interest; or (2) substituting a subscription or conventional
program which in the station `s opinion is of greater local or national
importance.
(c) No subscription television authorization shall be granted to
a television station having any contract, arrangement or understand-
ing, express or implied, which delegates to any other person the right
to schedule the hours of transmission of subscription programs; pro-
vided, however, that this rule shall not prevent a television station
from entering into an agreement or arrangement whereby it agrees
to schedule a specific subscription program at a specific time.
(d) No subscription television authorization shall be granted to
a television station having any contract, arrangement or understand-
ing, express or implied, which prevents the television station from
making a free choice of subscription programs, whatever their source.
(e) No subscription television authorization shall be granted to
a television station having any contract, arrangement or understand-
ing, express or implied, which deprives the television station of the
right of ultimate decision concerning the maximum amount of any
subscription program charge or fee.
§ 73.644. GENERAL OPERATING REQUIREMENTS.
(a) No commercial advertising announcements shall be carried
during subscription broadcasts.
(b) Charges, terms and conditions of service to subscribers shall
be applied uniformly: provided, however, that subscribers may be
divided into reasonable classifications, and the imposition of different
sets of terms and conditions may be applied to subscribers in dif-
ferent classifications.
(c) Any television station authorized to broadcast subscription
programs shall broadcast, in addition to its subscription broadcasts,
68
PAGENO="0317"
313
the minimum hours of programs required by Section 73.651 of the
Rules.
(d) Except as they may be otherwise waived by the Commission
in authorizations issued hereunder, the rules applicable to regular
television broadcast stations will be applicable to subscription tele-
vision operations; provided, however, that no television station pro-
posing to broadcast subscription television programs over an approved
subscription television system will be required to request or receive
any waiver of any technical rule of the Commission which might other-
wise prevent the transmission of the type of scrambled audio or video
signal which is essential to subscription operations.
(e) Advance approval of subscription television equipment will
be made by the Commission pursuant to the "type approval" and
"type acceptance" procedures now established by Part 2, Subpart
F-Equipment Type Approval and Type Acceptance-of the Commis-
sion's Rules and Regulations.
CONCLUSION
The only new facts developed concerning broadcast subscription
television since the Commission concluded in its First and Third Re-
ports that it would reserve its ultimate judgment until suitable trial
demonstrations of subscription television could be held are those
available from the Hartford subscription trial. These facts have
now been published in detail so that they may be examined by the
Commission and all other interested parties. The Commission held
in its rirst Report that when meaningful data were available from
trial subscription television operations, it would conduct further rule-
making proceedings in which all interested parties would have full
opportunity to submit information, data and views on the issues re-
maining to be answered in reaching a decision as to whether the au-
thorization of a subscription television service on some extended or
continuing basis would serve the public interest.
The three-year Hartford trial period is now drawing to a close.
The information which can be obtained from that trial is now avail-
able. The time has come, therefore, for this rule-making proceeding
to go forward in the manner contemplated by the Commission.
For illustrative purposes, we are attaching hereto as Exhibit 5
a suggested Notice of Further Proposed Rule Making in this proceed-
ing which the Commission might issue in order to place the remaining
issues concerning nationwide authorization of subscription television
in proper focus for an expeditious final determination.
69
PAGENO="0318"
314
On the basis of the foregoing premises and all the facts of record,
it is respectfully submitted that the Commission should find that the
public interest, convenience and necessity will be served by the grant-
ing of Zenith's petition for further rule making filed simultaneously
with these comments.
Respectfully submitted,
ZENrrE RAmo CoRPoII.&TI0N
By W. THEODORE PIERSON
VERNON 0. EOHLHAAS
WILLIAM S. GREEN
W. THEODORE PIERSON, JR.
PIERSON, BALL AND DowD
1000 Ring Bldg.
Washington, D. C.
TEoo INC.
By PHILLLE' G. LOUOKS
LoucKs AND IMLAY
1317 F Street N.W.
Washington, D. 0.
Of Counsel:
FOB ZENITH RADIO CORPORATION
GREGGAR P. SLETTELAND
For Teco, Inc.
GEORGE E. HOWELL
TENNEY, BENTLEY, GUTHRrE & HOWELL
Chicago, Illinois
March 10, 1965
70
PAGENO="0319"
315
EXHIBITS
1. List of 599 Subscription Programs Shown During First Two
Years of Hartford Trial by Program Category and Audience
Rating.
2. Average Weekly Program Expenditures by Subscriber Income
Level.
3. Average Monthly Program Viewing in Dollar Amounts.
4. Top 1QO Markets for 1964 Rated by Number of Television Homes.
5. Suggested Notice of Proposed Rule Making.
71
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324
TA2ULtTION OF 1.8 F000ION-LOOS0025 FILMS iSO 35 IFLCIAI.LY 50001)200 EOTIRTAI2000T
OF HARTFORD S0002012ION 002007105
PE4TOSOS 80o5Ot~0U8I0G TOE FIRST TWO YE5R~ WE01T~802 ALL~2OOWINOA)
1)00108 is oioo0 OF
E!~Li1~tl
Page 9
TITLE OF F001100-L000SAOE 11)014
(Sobbed in IugIIeUo Dinlogoe ox'
English sub-titles)
0001)0
SHOWN
AVORAGE
NO. OS'
OU2000I200
HOMES FOR AU.
OATHS 0200UL
~
IOTA) NO, OP
VIOLINS
SUOOCRIB002
FOR SIC.
DATES SHOWS
528C09DAOS
CUMULATIVE)!
1110)518(0
~ACL 800j53P09._
HO. OP
353303NMS
011011800
P0800811000
VOEWIOS
5589
Bncoangio 70
100
4725
15610
33.1%
5
6.6%
The Pour Dqe of Naples
The Bridge
60
610
3128
3307
7~
7
23.~
21.
3
3
8.0%
7.1%
SAndaye end CFbele
Acoy Number Con Win
SqOare nO Violence
Stoosanny in the 007
The Letter Toot Woe NeverHeat
61
9
71
73
01
~1~T
7 5
3373.
3 5
3689
817
01
427
~0
8
16.2%
12.7%
12.7%
11.0%
300%
3
3
3
5.4%
~.2%
8%
3.7%
3.3%
Cinderella
HoOd In the Trap
Ehe Cowoterfeitere nO Paris
Two Daughters
Sound of Troopete
The Ltttle Ruophanked Horse
Lady with the Dog
Marrtege nO Figure
The 14oe08 Room
Horning Star
73
07
65
83
85
`115
35
07
~
3410
4236
2~or
~
~52?
~
1&
3
3~
151
208
216
163
13~
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1
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2:9%
2.0
9%
3~
3
~
3
,.5
3.3%
2, A
~
1.3%
1.5%
0.~%
0. 6
0.6%
~
20103. (18 films)
.~&
TITLE OP SF001010! PRODUCED
EMTERTAI2MON7 P252285
The Ilingeton Trio
11 Mx 30
3ii412
535
43.0%
5
8.6w
Omeriexfl Pegeent of Arti
Beet of the Holahod.
22
5
3525
.32
`slid
140
2 .
1
1
2
Mute tIp Darling
Show OLrl
An Evening with 20411 Base
Eddie Fisher Out Las Vegas
Ice Chips
Tchto-Tch000
P. Part)!
The CollegIate MatInS
59 83
30
63 1. 06
588. 67
40
77 8. 99
20 8. 33
35 2. .40
~4W1
77~
35
3167
2068
4019
16700
2118
650
893
59.
509
300
553
223
200
18.9%
18.7%
16.9%
16.1%
14.6%
13.8%
13.7%
12.3%
5
3
.
.2%
2%
ç0~
2, %
~7%
MwCluOre SOeters
Riloegarde
Streets nO New Tnrk
Upstairs at the
A Country Soeodol.
Thu Roowom nO Ted Ch8ef
Spoon River
Evening wIth Canine Montopa
The Ltmeltters
Pieide a 0000000)!
The Consul
Cord Lawrence at the Plana
Boyenihaxu Phtlt5pina Dencers
The ltaoroue Plea
Hodda Onbbler
The Affair
Androolse end the LIeu
Old Old
Personal Appearsnaee - Kdsobrnugh
The Father
Piano Renital - Lateiner
Personal Appearanoe - RockweLl
Pereonol ARpearanoe - Mtddletoxt
Joan Sutherland
26 a 42
17 0. 34
78
~
92
82 14 54
28 14 66
68
37
32 8. 69
76
~
302
33
nO
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90
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52
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2592
2029
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4049
18200
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187
139
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23
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126
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220
183
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127
130
e3
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0
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52
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8.2%
8.2%
7.~%
~
7.3%
7.1%
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2%
5:2%
~h6%
`.4%
~
3.5%
2.0%
2.6%
2.3%
2.2%
1.6%
0 9%
~
ig
10
3
~
2
3
~
3
2
2
2
0~
3
2
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3
3
1
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3.1%
1.3%
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2:0%
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2.6%
0.5%
0.8%
~
1.6
0.9%
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TOTAL (35 features)
3.az~
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PAGENO="0330"
326
EXHIBIT 2
NUMBER OF CURRENT SUBSCRIBERS WITHIN EACH
BRACKET OF AVERAGE WEEKLY PROGRAM EXPENDI-
TURES FOR 1ST 92 WEEKS OF HARTFORD PHONEVISION
OPERATION
NUMBER OF SUBSCRIBERS
INCOME LEVELS
Program
Expenditure 0 $3,999 $4,000 - $6,999 $7,000 - $9,999 Over $10,000 TOTAL
0 10 94 43 8 155
$.01-$.10 4 3 7
.11- .20 1 15 14 7 37
.21- .30 2 23 28 9 62
.31- .40 4 40 41 22 107
.41- .50 4 58 63 27 152
.51- .60 2 62 80 29 173
.61 - .70 4 63 92 33 192
.71 - .80 2 73 112 50 237
.81- .90 4 105 97 40 246
.91-1.00 1 93 135 56 285
1.01-1.10 5 82 130 44 261
1.11 - 1.20 3 93 109 44 249
1.21-1.30 1 97 108 44 250
1.31-1.40 5 90 112 32 239
1.41-1.50 3 93 104 37 237
1.51-1.60 2 88 80 27 197
1.61 - 1.70 3 65 70 23 161
1.71 - 1.80 2 86 75 23 186
1.81-1.90 69 64 18 151
1.91-2.00 1 58 64 13 136
2.01-2.10 5 44 50 7 106
2.11-2.20 2 47 48 10 107
2.21-2.30 1 48 46 7 102
2.31 - 2.40 1 36 34 8 79
2.41-2.50 43 34 14 91
2.51 - 2.60 1 29 26 7 63
2.61-2.70 23 17 2 42
2.71 - 2.80 21 16 4 41
2.81-2.90 18 18 2 38
2.91 - 3.00 15 15 6 36
3.01-3.10 8 9 2 19
&11-3.20 8 10 2 20
3.211. - 3.30 20 8 2 30
3.31-3.40 10 3 13
3.41-3.50 1 15 6 1 23
3.51-3.60 6 3 9
3.61-3.70 8 5 3 16
3.71-3.80 3 2 1 6
3.81-3.90 1 4 5
.3.91-4.00 4 2 1 7
4.01 and over 34 25 1 60
TOTALS 70 1,892 2,005 666 4,633
83
PAGENO="0331"
327
EXHIBIT 3
AVERAGE PROGRAM VIEWINQ*
Average Program
Viewing Per
Average Total Subscriber
Number of Program
Subscribers Viewing Month Annual Bate
July 1962 304 $ 2,098.00 $6.90 $82.82
August 612 3,325.25 5.43 65.20
September .855 6,932.25 8.11 97.29
October 1,190 7,276.25 6.11 73.37
November 1,436 8,835.50 6.15 73.83
December 1,631 9,399.00 5.76 69.15
January 1963 1,799 10,255.00 5.70 68.40
February 1,900 9,435.50 4.97 59.59
March 2,039 11,434.75 5.61 67.30
April 2,110 7,904.25 3.75 44.95
May 2,217 10,624.25 4.79 57.51
June 2,516 10,538.00 4.19 50.26
July 2,920 17,342,00 5.94 71.27
August 3,125 14,299.75 ` 4.58 54.91
September 3,283 14,788.25 4.50 54.05
October 3,356 12,476.75 3.72 44.61
November 3,460 11,558.50 3.34 40.02
December 3,5,73 15,039.75 4.21 50.51
January 1964 . 3,784 18,303.25 4.84 58.04
February 4,209 33,622.00 7.99 95.86
March 4,566 21,653.25 4.74 56.91
April 4,738 22,264.00 4.70 56.39
May 4,734 21,098.50 4.46 53.48
June 4,775 18,255.25 3.82 45.88
Average Annual Rate 62.15
Average Weekly Rate 1.20
*Exclusive of certain discounts to be discontinued in future operations.
84
PAGENO="0332"
328
EXHIBIT 4
TOP 100 MARKETS FOR 1964
RATED BY NUMBER OF TELEVISION HOMES
TV TV
Homes Homes
1 New York 5,620,800 26 Buffalo 589,700
2 Los Angeles 2,829,600 27 JohnstowmAltoohla 582,200
28 Lancaster
3 Chicago 2,342,300 Harrisburg-
4 Philadelphia 2,125,800 York-Lebanon 577,500
5 Boston-Manchester 1,831,700 29 Grand Rapids-
6 Detroit 1,634,500 Kalamazoo 564,900
7 San Francisco- 30 Houston 530,800
Oakland 1,448,900 31 Dayton 513,600
8 Cleveland 1,324,200 32 Tampa-
St. Petersburg 506,300
9 Pittsburgh 1,257,600 33 Memphis 501,400
10 Washington 934,000 34 Columbus, Ohio 492,900
11 St. Louis 867,700 35 Portland, Ore. 481,600
12 Providence 867,300 36 Syracuse-Elmira 470,300
13 Baltimore 806,900 37 Steubenville, Ohio-
14 Dallas-Ft. Worth 783,600 Wheeling, W. Va. 453,200
38 Greenville-Spartan-
15 Cincinnati 765,900 burg-Asheville 451,600
16 Minneapolis- 39 Nashville 450,700
St. Paul 764,700 40 Birmingham 447,200
17 New Haven- 41 New Orleans 446,400
Hartford-New 42 Albany-SchenectadY-
Britain 740,400 Troy 430,200
18 Indianapolis- 43 Charleston-
Bloomington 701,000 Huntington 430,100
19 Miami 689,800 44 Louisville 427,000
20 Milwaukee 658,700 ~ Flint-Saginaw-
Bay City 402,000
21 Kansas City 621,500 46 Greensboro-
22 Charlotte, N. C. 618,700 Winston-Salem-
23 Sacramento- High Point 400,900
Stockton 616,000 47 Toledo 397,200
24 Atlanta 605,100 48 Denver 388,700
25 Seattle-Tacoma 604,700 49 Portland-
Poland Spring 378,600
85
PAGENO="0333"
329
TV TV
Homes Homes
50 Lansing-Onondaga 374,500 76 Phoenix 265,800
51 Durham-Raleigh 358,800 77 Mobile-Pensacola 264,900
52 Wichita-Hutchinson 356,500 78 Madison 252,600
79 Knoxville 249,500
53 Oklahoma City 353,000 80 Little Rock 240,000
54 San Diego 352,800 81 Cape Girardeau,
55 San Antonio 352,600 Mo.-Paducah, Ky.-
56 Orlando- Harrisburg, Iii. 239,600
Daytona Beach 343,800 82 Binghamton 237,700
57 San Jose-Salinas- 83 Columbus, Ga. 234,700
Monterey 337,000 84 Columbia, S. C. 230,700
58 Davenport- 85 Sioux Falls, S. D. 225,600
Rock Island-Moline 335,100 86 Greenville-Washing-
ton-New Bern, N. C. 222,900
59 Rochester 333,300 87 Evansville, md.-
60 Champaign-Spring- Henderson, Ky. 218,200
field-Decatur 330,500 88 Rockford, Ill. 214,200
61 Tulsa 330,400 89 Chattanooga 212,100
62 Roanoke-Lynchburg 329,600 90 Lincoln-Kearney-
63 Omaha 328,300 Hastings~
North Platte 209,300
64 Norfolk 315,900 91 Augusta, Ga. 203,500
65 Green Bay 314,600 92 Fresno 194,500
66 Richmond 311,400 93 Bristol, Va.-
67 Cedar Rapids- Johnson City-
Waterloo 308,900 Kingsport, Tenn. 191,800
68 Shreveport- 94 Tallahassee,Fla.-
Texarkana 300,900 Thomasville, Ga. 187,000
69 Baton Rouge 295,500 95 Terre Haute 184,400
70 Scranton- 96 Springfield-Holyoke 183,600
Wilkes-Barre 292,900 97 Austin
71 Des Moines-Ames 287,500 Rochester, Minn.-
72 Salt Lake City 282,600 Mason City, Iowa 183,300
73 Jackson, Miss. 276,100 98 Youngstown, Ohio 178,000
74 Jacksonville 275,500 99 Erie, Pa, 174,100
75 Spokane 267,800 100 Albuquerque 171,600
Source: Television Magazine, Vol. XXI,
No. 3, March 1964, p. 66.
86
PAGENO="0334"
330
EXHIBIT 5
Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D. C. 20554
Docket No. 11279
In the Matter of
Amendment of Part 3 of the Commission's Rules and Regulations
(Radio Broadcast Services) to Provide for Subscription
Television Service
Notice of Proposed Rule Making
1. Notice is hereby given of rule making in the above-captioned
matter. The text of the proposed rules is set forth as an Appendix
to this Notice.
General
2. The Commission originally issued a Notice of Proposed Rule
Making in this proceeding on February 10, 1955, in which it invited
comments on questions of fact, law and public interest concerning
the authorization of subscription television. Voluminous comments
were submitted by members of the television industry, motion picture
interests and others. As a result of these proceedings, the Commis-
sion concluded that it had the requisite statutory authority to au-
thorize the use of broadcast frequencies for subscription operations
if it should find that it wQuld be in the public interest to do so. It
reserved its ultimate judgment, however, as to whether the public
interest would be served by the definitive establishment of a nation-
wide subscription television service until suitable trial demonstrations
of subscription television could be held, in order to obtain more useful
information concerning what subscription television could offer, how
the public would respond to what is offered and how the service would
operate in practice. The Commission, in its First Report,1 as
amended by its Third Report,2 announced that it would accept appli-
cations for three-year trial subscription operations pursuant to cer-
tain conditions set forth in such Reports.
3. We provided that the present proceeding would remain pending
on the issue of whether subscription television service should be an-
- `lGRR 1509 (1957),
2 16 RR 1540a (1959).
87
PAGENO="0335"
331
thorized on an extended or continuing basis until additional data was
available from such trial subscription television operations as might
be authorized pursuant to the First and Third Reports. Recent de~
velopments, such as the growth of wire subscription television, CATV
systems and the fact that the RKO Phonevision subscription opera-
tion in Hartford, Connecticut, is now in its third year of its trial
operation, in our opinion, make it desirable to now give further con-
sideration to authorizing subscription television on an extended na-
tion-wide basis.
4. The IJartforcl Trial. On June 22, 1960, RKO Phonevision
Company (then known as hartford Phonevision Company) and RKO
General, Inc., its parent company, pursuant to the terms of the
Third Report, applied for authorization to conduct subscription tele-
vision operations over television station WHC'T, Hartford, Con-
necticut, using the Zenith Phonevision system. After hearings held
before the Commission, en bane, the Commission reached its final
decision on February 23, 1961, in which it unanimously concluded that
the grant of RKO `s application would fulfill the objectives of the
trial subscription television operations set forth in the First and
Third Reports. The United States Court of Appeals for the District
of Columbia thereafter affirmed the Commission's authorization of the
Hart ford trial.3 Actual subscription operations by WHCT, Hartford,
were commenced on June 29, 1962. Since that time the Commission
has been kept fully informed concerning the operation of the Hart-
ford trial and has had access to all pertinent operational data con-
cerning this trial.4
5. The Zenith-Teco Petition. Zenith Radio Corporation has been
one of the progenitors of subscription television proposals before the
Commission. The instant proceeding had its genesis in a petition filed
by Zenith on February 25, 1952, as revised by a joint petition filed
by Zenith and Teco, Inc., on November 29, 1954. Zenith Phonevision
equipment is being utilized by WHOP in the Hartford subscription
trial. in 1965., Zenith and Teco filed a further joint petition request-
ing the Commission to adopt appropriate rules authOrizing subscrip-
tion television service on an extended nation-wide basis. The peti-
tion states that after approximately two years of operation the Hart-
~ connecticut Committee Against Pay TV V. FCC, 301 F.2d 835 (D.C. Cir.),
cert. denied, 371 U.S. 816 (1962).
~ The only other subscription trial authorized by the Commission was
granted to Channel Two Corporation (KCTO, Denver) on October 3, 1962.
KCTO subsequently abandoned its plans for this trial.
88
PAGENO="0336"
332
ford trial has now reached a stage where it has supplied meaningful
data and information. It is alleged that the operational data and
information so far produced by the Hartford trial give the Commission
for the first time a factual basis for appraising the potentials of the
service in other types of circumstances.
6. Available data from the Hartford trial include the technical
performance of the Phonevision subscription equipment, the modus
operandi of subscriptiOn service, methods to be employed, the nature
of the programs offered and the role of the participating broadcast
station licensee, which were factors which the Commission indicated
in its Third Report it hoped would be demonstrated and clarified by
a trial operation. Zenith and Teco contend that the Hartford trial
has proven that subscription programs may be provided to the public
which supplement rather than duplicate conventional television pro-
gramming; that the public will respond to and support such subscrip-
tion programming; and that ~ubscription television offers a potential
source of revenue which would iticrease the nuuiber of broadcast serv-
ices now available to the public, in furtherance of the achievement of
the Commission's television service priorities as established in its Sixth
Report and Order. The petition further asserts that, in view of the
growth of unregulated wire television, the use of CATV for pay tele-
vision purposes, the Commission's continuing problem of TJHF de-
velopment and related problems of increasing the nmnber of stations
and the amount of program service available to the public, the time
has come for further consideration by the Commission. Without here
attempting to reach a final conclusion on all of the contentions ad-
vanced by Zenith and Teco in their petition, we have concluded that
changed circumstances and new facts now available since our Third
Report was issued in 1959 warrant a further appraisal of subscrip-
tion television.
7. Preliminary Legal Considerations. In our First Report, as
readopted and reaffirmed in the Third Report, we concluded that we
have the statutory authority to authorize subscription television oper-
ations if we find that such operations would be in the public interest.
Our conclusion in this respect is supported by the Court's affirmation
of our power to authorize the Hartford trial, wherein the Court ex-
plicitly rejected arguments " that the Commission lacks statutory
power to authorize a television broadcast system which requires the
direct payment of fees by the public."5
~ Connecticut Committee Against Pay TV v. FCC, 301 F.2d 835, 837 (D.C.
Cir.), cert. denied, 371 U.S. 816 (1962).
89
PAGENO="0337"
333
8. In our previous reports we also explicitly rejected arguments
that the definition of "broadcasting" in Section 3(o) of the Com-
munications Act, per Se, bars the authorization of subscription broad-
casting, stating: "The evident intention of any station transmitting
subscription programs would be to make them available to all mem-
bers of the public within the range of the station."6 (First Report,
para. 28.) However, we reserved the question of whether subscrip-
tion television should be classified as "broadcasting" or should be
classified under some entirely new service classification until trial
experience would furnish a better basis upon which we might de-
termine the answer to this question. (First Report, para. 43,) In-
formation available to us from the Hartford trial lends support to
our previous conclusion that subscription television should be classi-
fied as "broadcasting" within the meaning of Section 3(o) of the
Act. The Hartford trial has not only demonstrated that the subscrip-
tioii television station operator intends to make subscription programs
available to all members of the public desiring them, but it has further
demonstrated that a broadcast licensee carrying subscription pro-
grains will have no more difficulty in complying with all pertinent
requirements of the Communications Act and those provisions of the
Commission `s Rules and Regulations applicable to television broad-
casting than a station broadcasting non-subscription programs. Thus,
the proposed rule contemplates that subscription operations will be
generally classified as "broadcasting" within the meaning of Section
3(o) of the Act. Comments on the proposed rule may also be directed
to our proposal to so classify subscription television operations.
9~ Scope. It should be emphasized that the proposed rule which
would permit subscription operations on an extended nation-wide basis
(Toes iiot, without more, automatically authorize all television stations
to broadcast subscription programs. Rather, the proposed rule re-
imres any television station desiring to broadcast subscription pro-
grams to first file with the Commission arm application for subscrip-
tion television authorization. The grant or denial of individual appli-
catioiis for subscription television authorization will be decided on a
case-to-case basis in light of the public interest considerations which
may- be involved in the particular circumstances. We believe that
such a case-to-case approach under the rule will provide a flexibility
which will better serve the ultimate public interest than would an
6 We also (Olleluded that "there would appear to be little basis for classify-
iimg time proposed kind of service as a common carrier service within the meaning
of Section 3(h)." (First Report, para. 43.)
90
86-399 0 - 67 - 22
PAGENO="0338"
334
approach whereby we attempted by rule to restrict subscription opera-
tions to a particular type of station or to particular markets.
Discussion of Specific Provisions
10. Section 73.641. This section contains definitions of the terms
used throughout the proposed rules.
111. Section 73.642. This section covers the filing of applications
for subscription television authorizations and the procedures which
will be followed by the Commission in determining whether such ap-
plication should be granted or denied.
12. Section 73.643. This section sets forth certain licensing
policies which will be applied by the Commission in granting subscrip-
tion television authorizations. These policies are designed primarily
for the purpose of making certain that the television station broad-
casting subscription programs will retain ultimate control over its
operations hi a manner which will at all times permit it to fulfill its
duties and responsibilities to broadcast in the public interest and to
prevent monopolistic growth of subscription television in the fields
of station operation and program distribution.
13. Section 73.644. This section provides that no commercial ad-
vertising announcements shall be carried during subscription broad-
casts. It also provides that charges, terms and conditions of service
to subscribers shall be applied uniformly; provided, however, that
subscribers may be divided into reasonable classifications and that
different conditions may be applied to subscribers in different classi-
fications. It further provides that television stations authorized to
broadcast subscription progranis shall also broadcast conventional
programs. This section also establishes the procedures which may
be followed by the nianufacturers of subscription television equipment
in obtaining advance type approval and type acceptance of their
equipment.
14. Comments. Pursuant to the procedures set forth in Section
1.4.15 of the Rules and Regulations, interested parties may file cohi-
ments on or before , 1965, and reply comments on
or before , 1965. All relevant and timely comments
and reply comments will be considered by the Commission before
final action is taken in this proceeding. In reaching its decision in
this proceeding, the Commission may also take into account other
91
PAGENO="0339"
335
relevant information before it in addition to the specific comments
invited by this Notice.
15. As we noted in our First Report, previous comments filed in
this proceeding offered no fixed guideposts either in past experience
or in crystalized future plans, and previous debate therefore was
necessarily conducted more on the grounds of potential implications
of subscription service than on the ~basis of demonstrable facts. We
believe that since reaching that conclusion in 1957, there are a number
of demonstrable facts available, such as the development and growth
of wire subscription television service, CATV, and, of course, facts
developed during the Hartford trial. Thus, the Commission will ex-
pect parties filing comments to make use of such facts to the extent
possible. Naked assertions unsupported by facts are of little help
to the Commission in reaching a decision. We, of course, recognize
that any appraisal of subscription television must necessarily be predi-
cated in part upon future estimates and projections as well as present
facts, since it is keyed to future public interest goals. However, if
such projections are to be of help to the Commission, they should be
predicated upon methods of economic and market an~dysis which are
within the realm of rational deduction and inference.
16. Further, in our First and Third Reports we outlined what
we believed to be the central issues concerning whether subscription
television should be authorized on a nation-wide basis. In summary
these issues were (a) whether subscription television would provide
a beneficial supplement to the program choices now available to the
public; (b) whether subscription television would result in an in-
crease of resources which would facilitate significant increases in the
number of services available to the public under the present system;
and (c) whether subscription television would seriously impair the
capacity of th~ present system to continue to provide advertising-
financed programming of the present or foreseeable quantity or
quality, free of direct charge to the public. We are still of the opinion
that these are the central issues to which conunents should be directed.
17. Authority for the amendments proposed herein is contained
in Sections 3(o), 4(i), 301, 303(b), 303(e), 303(g), 307 and 309 of
the Communications Act of 1934, as amended.
18. In accordance with the provisions of Section 1.419 of the Rules
and Regulations, an original and 14 copies of all comments, replies,
pleadings, briefs or other documents filed in this proceeding shall be
furnished the Commission.
92
PAGENO="0340"
336
Mr. WRIGHT. Now, this is the box that we currently put on the sub-
scriber's set in Hartford. This is the program book that is sent to the
subscriber. Anyone within the range of channel 18, a UHF station in
Hartford, can subscribe. When he subscribes, this box is placed on his
set.
You will notice in examining this program booklet which I would
like to pass up to you, if you will turn to the back of the program book
you will notice that channel 18 broadcasts for anywhere from 3 to 5
hours of every day of normal ordinary television programs You will
notice from a list of them, the Merv Griffin Show; Notre Dame Foot-
ball Highlights; Afternoon News Report; Forecast with Chris Ryclel;
World with Ray Somers; and Willie Pep, and so forth.
If you will run down this, you will see the TV programing much re-
sembles the programing generally that you will find in any station in
the area.
In addition to the programs that are normal advertising supported
programs, there are subscription programs. You will notice that one
of the subscription programs in that particular week is "In the Heat of
the Night" As a matter of fact, it is on the cover This is the current
booklet. "In the Heat of the Night" is one of the greatest box office
attractions that is playing in the theaters right now. As a matter of
fact, it is playing here in Washington.
Here are some pictures taken outside of RKO Keith's Theater just
the othei~ day showing lines of people who are waiting to get into this
theater at $3 a seat to see this picture. In Hartford, this picture is
on subscription TV on channel 18 for a dollar and a half a family,
and you can have your friends in, too. There is no restriction about
that.
So, this is really what we are talking about. We are talking about a
new electronic development in the distribution of box office entertain-
ment that makes it technically possible to bring this kind of thing
that the networks can't buy and won't be able to buy for several years
to show on television, free television.
By the way, I wince every time I hear that statement "free televi-
sion." Mr. Preminger yesterday told this committee that "commercials"
were so good because they cost $25,000 to $30,000 to produce but he
didn't tell all the story. We are one of the big TV advertisers in this
country and we pay from $60,000 to $70,000 a minute to run one of
those $25,000 to $35,000 commercials, for just 60 seconds.
Furthermore, usually about April or May of every year, I am sit-
ting in my office and our advertising sales department comes in and
they say, "Our agency tells us that if we don't commit by tomorrow
morning at 9 o'clock for $10 million of commercials, four on `Saturday
at the Movies,' and two on the `Jerry Lewis Show' and two on some
new show we never heard of and four on something else, that we may
not be on television this fall."
Mr. VAN D~iu~IN. You are talking to men who advertise every 2
years and in addition to these disadvantages must put up cash in
advance.
Mr. WRIGHT. I am sure we have a lot of the same problems, Mr.
Van Deerlin.
You mentioned that you have to go to your voters next year. We
have to go to our voters who are our customers every day with our
PAGENO="0341"
337
products. We have a lot of people who are sitting around trying to
design a new radio or new television set and we have some new ideas,
maybe for a space command or remote control or for a new kind of
tape recorder or something.
We will go into an analysis of the problems that are involved in
getting in the market and what we will be faced with and how much
it will cost us and how long it will take us to do it and what it will
sell for and whether the public will buy it. Then we have a hard de-
cision as to whether we are willing to spend that money and take a
chance. When we do, we have to go out and have an election with that
new product. We have a new product usually every May and we have
a new product line every December.
We bring all our distributors in from Boston, San Diego, Denver, all
over the country, and we show them that new line, what we have been
working on for 2 or 8 years. They are usually enthusiastic. It is easy
to get them to be enthusiastic about something. Then they go out and
show it to the dealers. These dealers; of course, are also being worked
on by Motorola, Radio Corp., and General Electric and the Japanese
people and everybody else.
Some of those models that we make are a real smash and we have
done a great job and everybody is happy and some of them are dogs
and we have to spend a couple of years in disposing of them.
But you know this competitive system is a wonderful thing, really.
We wouldn't have it any other way. It keeps us on our toes. It keeps
us working hard. It has brought the price of our merchandise down
in a descending curve, and it is better merchandise, because we are
in one of the most highly competitive businesses that there is in this
country.
Really, this is what is so frustrating to us about subscription tele-
vision. We worked on something and made a substantial investment
in it because we thought we had a way of bringing a new product, a
new service, to the country, that would sell. It would be something that
they would want. Ordinarily with that sort of thing we would just
go ahead and spend our money and do it and that is what I wanted
to do on this. But our lawyers prevailed on me that ma~ybe we had bet-
ter not do that, that the Federal Communications Commission will be
very upset if you do that. So, let us go down and ask them for per-
mission to expand this service.
Well, it really hit the fan at that time. I had no idea that the three
networks would spend the amount of time and the amount of effort
in trying to kill this thing off that they have. We certainly expected
that the theaters would. This is a direct competition with them and
we knew they would fight it.
But the whole sum and substance of the opposition to our having
a chance to introduce this new service is that the networks say that
"If it is approved, it will be so popular, it will be so much better than
anything we have got, that it will give these people so much money
that they can go out and outbid us and take every good program we
have off the air, so we are going to have to close our doors."
Now, this is the basic question, really. This is the one thing that
stops people about subscription television. I am sure all of you are in
agreement that the congressional policy and the national policy ought
to be to encourage more and better programing on television and more
PAGENO="0342"
338
and better things that the public want. Right now, the commercial
television has a revenue of around $3 billion.
Walter Scott, chairman of NBC, predicted just the other day that
within 10 years that is going to increase to $~1/2 billion.
Now, incidentally~ more than 50 percent of that current $3 billion
is accounted for by the networks, themselves, in their 0. & 0. stations.
Now, we are starting out in Hartford and we have about 5,000 to
7,000 subscribers. Let us assume now that the Commission lets us go
ahead with this thing and issues an order tomorrow to say that we
can go ahead with it. It is going to take us at least 2 or 3 years to get
started in a major city in terms of having anything like 10 percent of
penetration.
There are only 29 cities under the Commission's present order that
we could Operate in, in the first place, which have five stations that
would make this possible. Before we would have the kind of money
that would make it possible for us to even talk about taking programs
like "Petticoat Junction" and "Ed, the Talking Horse," away from the
networks, we would be down the road 3 or 4 years.
Now, I want to assure this committee and I want to say this as loud
and as long as I can, we have no intention of trying to arrogate to our-
selves the existing programs of the networks. As long as we have any-
thing to do with it, we will have nothing to do with the world's, series;
we will have nothing to do with the Rose Bowl games. We will have
nothing to do with the "Ed Sullivan Show" or witTi "Bonanza" or with
"I Spy" or with "Peyton Place" or any of these other shows.
I assure you this is not the area in which we want to operate. This
is not the area where `people can build up a business by bringing to
the public things for which they will pay. These things are not box
office. These things are built in and ingrained into free television and
we don't want to touch them.
Now, they will probably tell you that these rules that the Commis-
sion has suggested are outrageous, that either they are unconstitutional
or that they won't be effective. I cannot say that I care too much for
those rules, either. But we are perfectly willing to acc~pt the proposi-
tion that this Congress and the FCC acting under the Communications
Act has a perfect right to take whatever regulatory steps are necessary
to make sure that what we say the service should be is the way it actu
ally is. And if these rules aren't effective in keeping this within bounds,
then you certainly have the power to suggest and make any other rules
that will.
Now, I cannot understand the networks' theory that we are going to
wreck the system because it presupposes, first of all, that we are a
bunch of crooks who want to go out and gouge the public and deceive
them. Believe me, General Tire Co., who started out the. same way as
Zenith did, as a small tireshop some 50 years ago, and Zenith have not
made their business this way. The whole key to our business is to
bring something to the public that enhances our image and that the
public is willing to pay for in competition with the other things that
are available.
Other companies that have affiliated with us, at least in preliminary
arrangements to go forward with this thing are Kaiser Aluminum on
the west coast and Field Enterprises in Chicago. It is unthinkable `that
we would be engaged in a gigantic conspiracy here to deprive the pub-
lic of free television.
PAGENO="0343"
339
The second thing that it presupposes is that their product is so bad
that people are going to watch subscription TV and not watch the net-
works at all to the point where they are powerless.
Now, I know David Sarnoff very well and I know William Paley
and I know Leonard Goldenson. We have had a lot of competitive go-
arounds with these people and I have the lumps to prove it, too. If you
think that they are going to sit around and let us take their audience
and take over this medium, this is the most ridiculous suggestion I have
ever heard.
I know what they are going to do. They are going to throw against
subscription the best programs that they can possibly get and if it
means losing money for the whole network for a year, if it could put
us out of business and keep up from getting going on this thing, I am
sure they would be very well tempted to do it.
Now, if we lose that kind of competitive battle, we certainly have
no quarrel at all, This is perfectly all right. This is the good old Ameri-
can way. If they can do such a good job with the network programing
that nobody is going to watch subscription TV and we can't get the
kind of programs that people pay for, enough to support the thing,
fine; we are wrong. We have been wrong before about products and
we probably will be in the future. That is perfectly all right. But then
it also presupposes that, in addition to these other things happening,
this committee and the FCC are just going to sit here and let it happen.
I think that is insulting. It insults this committee and it insults the
FCC. You obviously have the jurisdiction to see to it that these bad
things do not happen.
Now, there is one other matter tha I would like o emphasize, this
question of jurisdiction. You gentlemen have raised the point that
the FCC acted here without coming to Congress and that there was in
the past some committee resolution that requested them to hold up
action on a regular basis on this matter until Congress had a chance to
act on it.
In 1952 when this matter first came up, I was assistant general coun-
sel of Zenith and had occasion to go into the legal aspects of it. I am
no communications lawyer but we consulted three top law firms who
are real experts in this matter as to what was the Commission's juris-
dictional basis for handling this thing. Should we go to Congress and
ask for an amendment of the law or should we go to the Commission
and ask for authorization?
In every case, counsel advised us that while there were arguments
both ways, there was no question in their mind that the Commission
had authority under existing law to authorize this service, that under
the way we had proposed it, it was broadcasting and under their pow-
ers to encourage new use of radio and to classify different services and
to make whatever regulations they needed to make, that they had the
power to do this,
So, we proceeded on that basis. Now, it is possible that the lawyers
are wrong on that matter. If the FCC should issue such an order there
is no question but what it would be appealed in the court of appeals
and probably the issue would finally be determined in the Supreme
Court of the United States, whether under the existing act this is a
broadcast service that the Commission has the right to authorize.
May I say that should it happen that way, we will then be in a sit-
uation where~ if the Court should turn us down, then obviously we
PAGENO="0344"
340
would have to come back to this Coxigress for legislation on the matter.
If, on the other hand, the Court should say that the Commission did
have jurisdiction in this ~thing and this was a proper service, this
could only happen at the earliest, I would say, a year from now if the
Commission should act next week on this matter.
In the meantime, this service could hardly have gotten started, even
in one city. There would be every opportunity for this Congress and
for this committee, if they wanted to intervene, to take the matter up
and to either suggest amendments to the act that would provide a
proper regulation as to whatever proper regulation Congress thought
necessary or even prohibit it altogether if it should be determined in
actual use of the system that it was against the public interest.
But I do not see, really, how this can happen if we are talking about
the public interest. If this is not something that the public really wants,
it is going to fall on its face You gentlemen don't have to do a thing
about it nor does the FCC. This will be completely aborted unless the
public really wants it.
Now, if the public really wants it to any large extent, isn't that the
argument that the public should have it provided that it can be
regulated so that it keeps in its proper place in the spectrum of com-
munication?
I think it would be a tragedy if this service should be killed off be-
fore it really gets a chance because to do that you have to say, "Well,
we are satisfied with the service that the commercial television now
provides. We are not worried about all the unlighted UHF stations
and the other stations that are struggling for an audience, that are
struggling for revenue and who, many of them, are marginal stations."
This communications business was not built that way. This business
was built on innovation and change and growth. It would be a real
tragedy if now for the protection of one service we stop growth in
this area.
Let me say that the technology, the technological revolution that is
going on in the laboratories and in the background of this business
make me doubly positive that you should not adopt a restrictive atti-
tude in regulating it.
Our engineers and research people showed us a year ago a wall dis-
play using a laser. They had found a way of converting the signal
from an ordinary TV set coming in off the air through transducers to
sound waves which were then made to impinge on a laser beam as it
went through a tube. By some very complicated circuitry they were
able to interact the sound with the oolength light of the laser so here
was a beautiful picture-it happened to be a red and black picture
because it was a ruby laser that we were using. This portends we could
have the possibility of wall television projected with one or two lasers
that would give you a new dimension in this thing, that would stimu-
late the public's interest in having home entertainment of the kind
that they have never had before. This is just only one of the things
that is in the offing.
We are working with solid state devices that I am sure are going to
enable us to get away from the limitations of this monstrosity of a
cathode ray picture tube which means really what you have to do is
to put the picture on the inside of a light bu~ib. The limitations on the
size and structure and shape of that light bulb, of course, are very
serious.
PAGENO="0345"
341
By usc of lasers, by solid state array devices that I know are going
to be part of this spectrum in the next 5 to 10 years, this is going to
create more of a demand on the part of the public that the limitations
on what they can see in their own home will be removed,
I appreciate very much the time you have granted mc on this mat-
ter. I have not followed my prepared statement but I would like it to
be put in the record, if I may.
Mr. MACDONALD. Without objection, it is so ordered,
* (Mr. Wright's prepared statement follows:)
STATEMxNT or Josurir S. WiuGuT, PBESIDENT, Zzxmr RADIO CORP.
Mr. Chairman, I am Joseph S. Wright, president and chief executive officer of
Zenith Radio Corporation We are grateful for this opportunity to appear before
you today Our company pioneered in the development of broadcast subscription
television systems beginning in the 1930's, and has been the leading proponent
of this new box office programming distribution system during the past 15 years.
In this statement I will present briefly the principal reasons for our long inter
est and heavy investment in this new service, and comment on the proposal cur-
rently under consideration by the FCC. [Amendment of Part 73 of the Commis-
sion s Rules and Regulations (Radio Broadcast Services) to Provide for
Subscription Television Service-Docket No. 11279.1
I will be glad to try to answer any question that members of the Committee
may have. With me are three gentlemen who have been closely identified with
our subscription television activities. They are intimately acquainted with the
subscription operation in Hartford, Connecticut:
Mr W Theodore Pierson, senior partner of Pierson, Ball & Dowd is well
known, I am sure, to members of the Committee. He has been bliP counsel in
this matter for over 15 years.
Mr Pieter van Beek president of Teco licensee of Zenith Plionevision Sub
scription Television Systems and for many years assistant to the president of
Zenith in charge of subscription TV activities
Mr Keigler Flake is General Manager of UHF station WHCT Channel 18
Hartford Conn which is operated by RKO General a subsidiary of General
Tire & Rubber Co.
Mr. Flake, as manager of the station, which operates as both a commercial
TV station and a subscription outlet can answer questions about how this new
service actually works in Hartford; what it means to subscribers; and what Its
potential is for independent TV stations.
By way of background, may I just briefly tell you something of our company
and its interest in this whole subject of broadcasting Zenith was started out 49
years ago by two young men building radio receivers on a kitchen table. This was
several years before most people had even heard of this new gadget called radio.
The company has grown and prospered over this span of years, and enjoys a
leading position in the field of consumer electronics products. We have more
than 20000 employees more than 50 000 stockholders and many plants and
laboratories throughout the United States and in a number of foreign countries.
The growth of the company has come about through our ability to innovate
and produce and sell products and services which have won broad public accept-
ance in one of the most intensely competitive industries in the world.
Our main business is producing and selling radio and television receivers and
high fidelity instruments, so that it is natural for us to have a direct interest in
the widest possible development of broadcasting-to do everything we can to
encourage the best possible radio and television service to the American public
You would be amazed at the effect new and exciting TV or radio programming
has on the public's willingness to buy radio and TV receivers. When the new
fall programs premiere-\vhen there is a world series, top pro football games,
popular new shows-our industry's sales go up in a soaring curve. In the summer
re-run dog days they bottom out.
From this you can see that a producer of TV receivers will necessarily be hurt
by any development adversely affecting the quality and character of broadcasting
available to the general public. By the same token, our interests will be favorably
affected by any development which increases the public's interest in television
and which adds new dimensions to the medium.
PAGENO="0346"
342
We became concerned many years ago about the problem of how television
programming would receive the financial support required to reach its full po
tential as the most dynamic new communications medium in the world. We asked
our cleverest research people to work on ideas which would make it technically
possible for the viewer to share in the cost of programs, box office events which
might otherwise not be available because an advertiser could not afford to
sponsor them.
Over the years, we have developed a number of different systems which would
make this possible We actually experimented with such a system in field use
with a limited sample of 300 customers in Chicago for three months in 1951.
Based on the knowledge developed in the limited test, we asked the Federal
Communications Commission in 1952 to appeove a subscription TV system for
nationwide use, as a supplement to existing broadcasting.
You are undoubtedly familiar with the fact that the Commission authorized,
on an experimental basis, a commercial operation of the service in the City of
Hartford; Connecticut, wliich~got under way late in June, 1962.. This trial opera-
tion has been conducted by RKO General, a subsidiary of the General Tire
Company. On the basis of the results of that operation, REO General and
Zenith petitioned the Commission in March 1965 for a nationwide authorization.
I need not recount the most recent developments before the Commission, which
have been covered in previous testimony.
It is very difficult to say anything about subscription television which hasn't
already been said before-there have been more words written about it, one way
or the other, than anything which has been before. the Commission since its
creation.
The operation in Hartford Conn has produced the only new and significant
data which is based on actual day to-day operating experience A wide variety of
box-office-type programs have been made available to the subscribers in Hartford
over the years of its operation. A detailed analysis of our experiment in Hartford
was filed with the FCC in support of our petition for a permanent nationwide
authorization, and I have copies available here for the subcommittee's study.
In brief, `this document shows that, despite all of the limitations that were
naturally incident to such a small scale operation, the service was a popular
one. It provided first-run motion pictures and other box office entertainment in
the home, for the entire family, at a price no more, and usually less, than a
single ticket at the theatre, or hail, or stadium, where the same entertainment
was being offered at or nearly the same time.
I would like to stress that the Hartford operation shows the American public
to be highly selective in what it will pay money to see on Subscription TV. One
outstanding fact emerges from our experience-any attempt to charge for second,
third or fourth-rate old movies or for situation comedies, or the other thihgs that
unfortunately make up such a large part of current commercial television, would
be doomed to financial disaster The main problem that will be faced in large scale
operation of this new medium is how to encourage and develop the production
of new box office entertainment in sufficient volume to attract customers to spend
the dollar or two a week that is necessary to make it a commerc!ally feasible
proposition.
Our opponents have argued long and loud that if subscription television is
permitted on a wide scale the effect will be to siphon away programming and
talent from "free" TV and to attract away so many viewers that so-called "free
TV" would be seriously weakened. Incidentally, this argument principally origi-
nates with the groups of motion picture theatre owners who would be most
pleased if somehow or other all of television would dry up and blow away-
groups that have persistently fought and, indeed, have gone so far as to attempt
boycotts of motion picture producers and distributors who have made old movies
available to advertising-sponsored television
Regardless of their motives in making this argument, the Hartford experience
shows us that the average subscription customer spends approximately three
hours per week-~--or less than 10%-of his average viewing time watching sub-
scription programs. Above all, he is very discriminating and selective in what
he is willing to pay for. First-rate theatrical productions that are of timely and
current interest; high quality motion pictures that are achieving box office sue-
cess in the. theatres; and things like heavyweight championship fights which have
been black out on television achieve success at subscription TV's home box office.
Motion pictures and other box office entertainment that is of lesser quality per-
form just as badly for subscription TV as they do in the theatre.
PAGENO="0347"
343 S
In its proposed Fourth Order and Report `the Commission has laid down a great
any restrictions which are designed to meet the objections which the theatre
wners and the networks httve raised. The FCC is proposing them to Insure that
he service will not be authorized except under conditions where there will be at
all times a substantial number of free television facilities available to the pros-
pecti~e customer.
Under the rules of the game, as the Commission has laid them down, we must
find programs which are so attractive to our viewers that they will be willing to
pay cash money to see them in competition with four other stations in the market.
Subscription TV-Hartford has shown-starts off right away with a handi-
cap of having to sell a product in competition with what the three networks
"give" away. (Right here I would like to say parenthetically that I always wince
when I hear the present medium described as "free" television since we are asked
to pay $1,000 per second-as much as $70,000-for a one-minute commercial.)
Under the proposed rules, sporting events which have been on advertiser-
sponsored TV in the preceding two years are denied to subscription TV. We can-
not compete for the reruns of old movies that make up such a major part of
advertising sponsored TV programs-films that have been out of theatrical re-
lease for more than two years. (An exception is made for a limited number of
more than two-year-old features which are held out for later theatrical re-
release and not available to "free" TV.)
There are a number of other rules all designed to make sure that we do not
pre-empt the programming and talent sources that make up the' existing
system-even if this were economically sound or legally possible, which it Is
not. I have no doubt that If these rules are not wholly effective in accomplishing
this purpose, the FCC and the Congress will do whatever else may be necessary
to insure that subscription television operates in the' public interest as a
valuable supplement to conventIonal TV.
We recognize that the Commission and the Congress have duties and respon-
sibilities to see to it that television reaches its full potential in a sound way;
that no one company or group of private interests should be permitted to follow
a course of action that would deprive the public of the best possible service.
We accept the burden that subscription television must provide a popular
and useful service, as a supplement to our existing broadcasting. We are cer-
tainly anticipating that in the event the Commission issues its proposed order
and the service becomes a reality, there will be many occasions for scrutiny
by the FCC or the Congress of its practices, the service it renders the puhile,
and its impact on other areas of the medium.
We do not subscribe to the rather arrogant suggestion of the movie theatre
opponents of this service that the Congress and the FCC, with their broad powers
to regulate broadcasting, are going to sit idly by and watch subscription TV
develop in such a way that it will wreck the structure of the existing advertising-
sponsored system. Nor d'o we subscribe to the equally arrogant suggestion that
the public cannot be trusted to know what it wants; that somehow Americans
must be insulated against having anything to say about this new service, or
even to have a chance to see how it works on a national basis.
We cannot emphasize strongly enough that our interest in subscription
television' is in providing a snpplenm~ental service whIch will add to and not
detract from the existing system.
I am not one of those people in our industry who is constantly harping about
the bad job commercial TV is doing. I think television has done remarkably
well in bringing entertainment, news and other features to the home; but there
are certain obvious limitations to the existing economic support of advertiser-
sponsored television which frustrate the maximum potentla1 of the medium,
and particularly the development of a viable and vigorous UHF system. We
believe subscription TV can overcome- these limitation's, and can provide proW
grams and revenue sources for many marginal television stations which are
now struggling to stay on the air.
We are not asking for any protection or subsidy in this venture-all we are
really as'king for is the opportunity to compote against all three of the television
networks and all of the theatres and all other places that sell box office enter-
tainment-and to do this while bound by the most restrictive rules that have
ever been imposed on any new, legitimate business in the United States.
I wonder if those who express fears about subscription TV's impact on' the
present system really believe that General Sarnoff and William Paley and
Leonard Goidenson are going to sit by and let subscription television take away
PAGENO="0348"
344
a major part of their viewing audience. These gentlemen have not built thei
empires by encouraging competitive newcomers-an(j we have the lumps to prov
it. They will undoubtedly use all the talent and ingenuity at their comman
to make the network programming supported by advertising commercials s
attractive and so worthwhile that the number of people watching subcriptio
television will be kept to a minimum.
If our competition makes there better, how can the public lose? I suspect that
the real thrust of the network opposition is that this new service might make It
possible for independent stations to prosper without having to depend on a net-
work affiliation for survival.
Subscription television, even under the proposed rules, can put many now va-
cant TV channels on the air, lighting up new transmitter towers and adding
service to the public where now there are only dots on an allocation map. The
fact is that over 600 commercial TV channels are now unlighted, or about half
of those allocated.
Most of these Idle channels are in the ultra high frequency band where now
15 years after the allocations were made and more than 3 years after the all
channel law to require manufacturers to put UHF on sets as standard equipment,
only 130 commercIal UHF stations are operating about half of them at a loss
More than 100 UHF stations have gone off the air for lack of programs and
revenue. By utilizing only part of each day for box office programming, new sta-
tIons on unused channels made possible by 51W can provide local programming
during the rest of the broadcast day without charge-locally sponsored commer-
cial shows, public service features, news and discussion of local issues.
Despite the tough competition it will encounter from the networks, subscription
TV can help make our TV service more truly local by programming for local needs
and in the process encourage along with greater diversity in programming, greater
diversity of ownership and control of this dynamic medium.
In short, subscription TV has the potential ability to do two very worthwhile
and useful things: (1) It can add-as a 8upplement-a new dimension of current
box office programming which Is not otherwise available to television. (2) In
providing this new source of programs and revenue it can help accomplish the
objectives of our national policy formulated by Congress and `the FCC, by sup-
porting the widest number of local television stations. This can only be done if
we conduct ourselves within the letter and the spirit of the Commission's rules
and of the Communications Act; and, more importantly, only if we provide a dis-
tinctive new service which the public wants and is willing to support.
While the principal benefits to the public of a subscription system would be to
Increase the number and kind of TV serv1ce~box'office programs and additional
TV stations-this service has another other important benefit that is closely
related.
The Hartford experience has shown that subscription `TV brings the enjoyment
of top box office entertainment to middle and lower income families. This segment
of the population that earns less `than $10,000 annually, comprises about 70 per
cent of all U.S. families.
In Hartford 84 per cent of subscribing families have annual incomes of less
than $10,000, and nearly half earn $7,000 or less; only 14 per cent are in the
over $10 000 per year category which makes up about 30 per cent of all American
families.
But these statistical comparisons don t really tell the whole story because it
Is a family story. The real appeal to families can be best illustrated by the
experience of one of our subscribers in Hartford with an annual income falling
at the lower end of these statistics.
This family has 15 chIldren, varying in age from 2 to 17 years. The father and
mother work hard to provide a good home and a wholesome family life for their
children. But as all of us as parents want to do, they want to give their chilclrep
the things that others enjoy. And one of the things that kids love to do i~ to go to
the movies on Saturday afternoons with their friends.
~ A Saturday afternoon of fun at the movies transportation parking refresh
ments etc could run up a tab of up to $10 A family like this one couldn t afford
a movie treat but once in a blue moon.
But Channel 18's Saturday Matinees on subscription TV, at 50 cents to a
dollar for the whole family-and as many young friends as can crowd around the
set-makes this treat possible frequently-__at real savings. More than that, it
brings a kind of recreation and social life to the family that they could not have
if there were no subscription service.
PAGENO="0349"
345
I might add here that this subscriber doesn't have a bank account. She can't
afford it, so she comes in regularly and pays her bIll at Channel 18 in cash. Every
time, she tells the people at the station what this service means to her children
and to her husband and herself.
The Executive Council of the AFL-CIO recognized this potential last month
when it adopted a resolution supporting the proposed FCC order that would
permit development of subscription TV. The resolution generally expressed the
belief that the development of new programming resources would be in the inter-
est of the viewing public, as proposed by the Commission's Subscription TV Com-
mittee recommendation.
Offering economy to subscribers results from the basic nature of the service:
Subscription TV is a highly efficient method of distributing great box office events.
It brings the stage and the concert hail, the arena and the motion picture theatre
to the home rather than transporting the audience to the event. It was conceived
as a way of adding a new dimension to TV by making It possible for the sub-
scriber's home to become part of the theatre, just as the motion picture brought
the stage via the medium of film to thousands of local communities far from pro-
duction and cultural centers.
A good example of this economy is the Liston-Patterson heavyweight champion-
ship, blacked out to conventional TV and piped into movie theatres. In Hartford
over 80 per cent of all subscribers viewed it and there was an average of nine
viewers per set. The total cost for the nine viewers was $3. At a closed circuit
presentation in Hartford this group would have paid $45 at the box office for the
privilege of going from their homes to view It in a movie theatre. No wonder the
theatre owners are upset and want to "protect" the home viewers!
We at Zenith have felt very frustrated at times by the specious arguments
that the public needs to be protected from subscription TV. For nearly fifty
years we have struggled in our business to develop and build products for
sale to the public. We have literally hundreds of people In our marketing and
engineering and research departments who spend most of their waking hours
analyzing public tastes and preferences and designing new products to build
and sell.
Every day we ship an average of two million dollars worth of radios, phono-
graphs, TV receivers, hearing aids and the like to our distributors and dealers.
Every day these products stand alongside the goods of our competitors, and
thousands of people in the stores decide whether to buy a new TV set, instead
of some new furniture, or new clothes, or a new car. If they decide on a
TV set, they choose between ours and a dozen or more other brands. If our
product is styled right and priced right and has the features the customer
wants, and if he trusts our reputation for quality and Integrity, he buys our
product.
When we get an idea for a new product or service, we analyze it care-
fully in terms of cost, investment and-most important-whether It will be
one which the public will want and buy. When we do our homework well, ths
company grows and prospers only because we can make something the public
wants, and at a price it will pay. When we guess wrong about our prices or
styling or features, we find out right away, because the public is quick to let
you know where you stand. This Is the great strength of our American free
market system which accounts for our economic growth, and in great measure
for our personal liberty.
I deplore the attitude that the public can't be trusted to decide this Issue
for itself-in free and open competition with the networks and the theatres
and all the other leisure-time attractions for Its entertainment budget.
Zenith developed a subscription TV system because we believe the American
public, when given the opportunity, would pay a modest fee to see high quality
box office programs In their homes. We believe this servIce will make their TV
receivers more useful to them, by providing a service that conventional TV Is
unable to do.
The FCC has before it now a proposal for nationwide authorization, de-
veloped after many years of careful study and audience testing in Hartford.
We believe this plan will enable us to launch this new service, and allow It
to develop over a five year period Into a nationwide TV distribution system
for the finest box office programming. ~
This new service will be launched under the most severe competitive conditions
and strict limitations and restrictions ever to face a new business. It will require
the Investment of millions of dollars and hard, creative effort on the part of
hundreds oflndjviduals andorganlzations;
PAGENO="0350"
346
We can live within these limitations. We believe we can meet the competition
and get underway and put this new service to the test of the free market-as we
do with other new products every day of our business life-and risk acceptance
or rejection by the public we are trying to serve.
This has always been the ultimate test in our free market system. We believe
that the viewing public can be trusted to make this decision,
We have a deep faith that the public will find subscription television a valuable
service and, like the people of Hartford who have pioneered this concept in their
homes, will support it with their patronage.
In summary, Mr. Chairman, we believe that the American public should have
the opportunity to view motion pictuers and other box office entertainment on
subscription television, while they are new and fre8lv and witkont ootmst~ess eo~n-
merc~4Z snterrnptwns-and still have the choice of seeing these pictures two or
three years later on advertising sponsored television w~tIi~ commercials when
the features' theatrical potential has been exhausted.
The competition between the two types of television service would have a bene-
ficial effect on conventional television, since the competition for audience could
motivate advertising-sponsored television to cut-down on commercial clutter,
because of audience support of a subscription service without commercials.
It seems to me that the nub of the network's argument is a real fear that there
will be a great public demand for a box office television service without corn-
inercials.
This is reflected in the Inconsistency of their evaluation of the Hartford op-
eration. They charge on the one hand that Hartford has proved there is no sub-
stantial public demand for subscription televlsion-on the other they argue that
public demand will be so great that it will cripple the multi-billion dollar adver-
tising-sponsored television system.
It seems perfectly clear the networks and movie theater owners do not Want
the public to have this choice and will use any means to deny it to them.
Mr. WRIGHT. If there are any questions, I will be delighted to try
to answer.
Mr. MACDONALD. Thank you for a very fine statement on behalf of
subscription television.
I do have a few questions about your ad lib comments. One of them,
of course, relates to the experiment in Hartford.
We are told that most of the programing in Hartford that people
paid to see were either movies or sports. Am I correct in that as-
sumption?
Mr. WRIGHT. Yes; for the most part, that is absolutely correct.
Mr. MACDONALD. I am sure you have read the Commission's "Fourth
Report and Order" in detail.
Mr. WRIGHT. Yes.
Mr, MACDONALD. One of the regulations that they put forth bothered
me a great deal and that is the one relating to sports because sports
occupies a large part of the public's thinking. You know the world
series are in Boston today.
As I have read their report, it seems to me, and I asked Mr. Hyde
about this, as I read their regulation it said that if commercial TV-
and I think you have fallen into the trap of saying "free TV" because
I agree with Mr Preminger that it is not free-but if they are willing to
forego 2 years of commercial revenue that they receive now-I am talk-
ing about the major leagues, I am not talking about the world series;
that is a special event just like the Olympics which would be a separate
thing, of course, under the 2-year regulation-~but is it not very pos-
sible that if they were willing to forego commercial revenue for 2
years, thereafter pay TV would have all the sports that are now on
commercial TV locked up completely and if you wanted to see any
sports event, football, baseball, hockey, you name it, you would have
PAGENO="0351"
347.
to pay money into the box to get it under the regulation that they
suggested?
Mr. WRIGHT. Mr. Chairman, if you assume the hypothetical case
which you have, that regulation, there is never any change in that
regulation, that regulation says static and subscription TV, say, would
get started at the end of 1968 and that at some point there-now, I
don't know what the price is on baseball as far as television; I think
for pro football the networks give about $40 million a year. For a
2-year deal, that would be $80 million at these current prices for the
pro football games.
Of course, you cannot assume that these things are static, either.
This is $80 million in 1967 when the contract was made. It could be
$100 million or $120 million in 1969.
I suppose it is theoretically possible that if subscription got to the
point where it just absolutely mushroomed and where we got to where
we had from three to six and a half billion dollars of revenue, that
we could think in terms of, well, could we offer them a hundred million
dollars just to keep their games off television for 2 years and then
offer them more than that $100 million or whatever millions they were
going to have in years after. I don't think that is likely.
Mr. MACDONALD. Mr. Wright, you were just through saying they
were tough competitors, the networks, and that they would like to
put you out of business. Don't you think it would get to be a bidding
thing between pay TV, which would be a monopoly, in my judgment,
which is the second question I want to ask you. Is it not just economi-
cally feasible to have just one subscription network?
Mr. WRIGHT. We have always taken the position that we were not
urging anybody to just freeze on our system and say that this is the
preferred system like they have with the NTS signal and so forth.
We have said we are perfectly. willing to compete with anybody else
in this area. So that, whether there is room in any market now for
more than one system. in a single market, I don't know. Time would
have to tell that.
There is nothing certainly that I know of that would prevent that-
sort of competition except that I would think that if one operation or
service got fairly well established in a market, it would make the
second one think hard before he went in, not because there was any-
thing wrong about doing it, but we have also envisioned that there
would be this service with these boxes and with this coding thing and
it would be available without discrimination to any station in that
market who was authorized by the FCC to use it.
Now, they have said in this Fourth Report and Order that they are
only going to permit one station in the market to use it. So, under that
regulation there would be obviously one station in that market which
would be using it. I cannot believe that this rule has any great practical
effect because it is going to be very difficult to get enough of the kind
of things that people are willing to pay money for and that are real
box office things to keep more than one station active.
After all, Hollywood only produces 75 or 100 motion pictures that
are really worth much in the course of the year. That is only two a
week of new motion pictures. What do you have, a dozen Broadway
plays, new ones?
Mr. MAcDONALD. That is why I think it is a cliche that everyone
talks about the arts and ballet and that sort of thing.
PAGENO="0352"
348
As Mr. Brown yesterday pointed out several times, we have al-
ready put out quite a good deal of money from the taxpayers to do
that sort of thing. So, I would think from your experiment in Hart-
ford and others that I would judge that it would come down to movies
or sports events. As far as movies are concerned, and I am not taking
a side one way or the other, but a lot of times I turn off a movie
just because I get tired of the commercials.
As far as the sport thing, they don't interrupt that often and you
can always go out and have a beer or a sandwich or something
else.
But this talk that they use in the fourth report about siphoning
off programs, would that not go frequently to sports events?
Mr. WRIGHT. Mr. Chairman, you can dream up-I should not use
that expression-you can always conjecture about things here in this
sort of area with extreme possibilities. This is not an area where we
want to operate. We pledge that this is our position and we think
this-
Mr. MACDONALD. Are you pledging that you would not buy out the
rights for sports events just by paying people not to broadcast for
2 years?
Mr. WRIGHT. Obviously, that is what I am saying. We are not going
to take off the world's series and the Rose Bowl games. We are not
going to make any deals with baseball or with hockey or with any
of these other sports that say if you go off now for 2 years we wiB
make it worth your while.
Mr. MACDONALD. But you could make it worth their while.
Mr. WRIGHT. How could we?
Mr. MACDONALD. Because it is the single biggest attraction, I think,
that television offers.
Mr. WRIGHT. Mr. Chairman, where is our growth going to come
from and at what point in time would we be in a position to offer
professional football?
Mr. MACDONALD. Two years after they didn't commercially broad-
cast.
Mr. WRIGHT. A hundred million dollars to stay off the air for the
next 2 years?
Mr. MACDONALD. You have invested a good deal of money and I
am not going to press you about what you have already invested but
I would think that would be throwing good money after perhaps bad
money; I don't know.
Mr. WRIGHT. May I say, Mr. Chairman, that we have absolutely
no intentions of doing anything like this and I can pledge you that
this is the policy we are going to operate on.
I am saying to you that we will accept any kind of regulations
that the Commission or this Congress wants to make that will be
sure that we carry out this pledge.
Mr. MACDONALD. They do have the regulations or at least they
promulgated a regulation that said that after 2 years of noncom-
mercial, and I don't want to belabor the point, but they did make that
as a part of their order, that after 2 years of noncommercial dissemina-
tion of these sports events, then it could go to subscription TV.
Mr. WRIGHT. Mr. Chairman, if the baseball people announced that
they were going off television and they were going to take their product
away from television, they have to keep it off 2 years in order for us
PAGENO="0353"
349
to get it. If they were going to keep it off, didn't say anything more
about it, just take it off television, I know what would happen. The
baseball people would be down here in front of this committee and
the FCC and we would be down here and the question would come up,
what is going on? Why is this going off the air?.
I am sure that if that happened it would cause the greatest hue and
cry and be the greatest black eye that subscription television and/or
baseball could get. I can't imagine anybody wanting to be a part of
anything like that.
Mr. MACDONALD. Many industries take black eyes. You know, the
oil depletion allowance is a concrete example; it gets a black eye every
time Herbiock or somebody wants to portray a cartoon about taxes.
But they take the black eye and also take the 27.5 depletion allowance.
So, I can see where somebody who is commercially minded as ob-
viously anyone who is in a business has to be, could take the black eye
and then make trillions of dollars once you have locked up major league
baseball, football, and for my area, at least, hockey.
Mr. WRIGHT. Mr. Chairman, this assumes that this committee is
off some place and has no more interest in what is going on in this field
and that the FCC-
Mr. MACDONALD. That won't be the case.
Mr. WRIGHT. I agree it won't be the case.
If they took baseball and football and these major things off tele-
vision that have gotton on now this would cause the greatest outcry
and you gentlemen would have sacks of mail that I am sure would
overwhelm you and there would probably be a special session of the
House as a result of it. Anybody that was involved in that sort of deal
would, I am sure, rue the day. I know you can do something effectively
about it.
Mr. MACDONALD. I don't want to use more of my time than I should
have but the networks don't seem to have that same attitude. They
black out sports events in certain areas and the Congress has not
done anything about that yet although I hope we do.
Mr. WRIGHT. That is another question. I am no expert in sports.
I know that George Halas of the Chicago Bears is not about to let
those Bears games be telecast on free TV in Chicago.
Mr. MACDONALD. Why do you keep saying free TV? It is commer-
cial TV.
Mr. WRIGHT. I accept your correction, sir. I wish the stenographer
would amend it wherever I have said it and change it to commercial.
Sure, their park is full most of these Sundays when these teams are
hot. But there come years, you know, that get a little lean.
Mr. MACDONALD. Not in the NFL. They sell out those parks whether
lean years or fat years.
Mr. WRIGHT. I don't know how it is in Washington any more; I -
haven't lived here for years; but in Chicago the season tickets are
inherited. They go down the line from grandfather to grandson.
Mr. MACDONALD Even in Washington where the Redskins are not
the best team, tickets are hard to get.
Mr. WRIGHT. We have people who get special trains organized to go
from Milwaukee or some place and they spend $50 a head to see those
Bear games. What is wrong with putting those Bear games on at home
with pay TV for a dollar if they can't get them any other way?
86-899 0-67-23
PAGENO="0354"
350
Mr. MACDONALD. That is why it js in the back of my mind that you
would be willing to invest and pay them not to go on commercial TV
fpr 2 years so that you would hav~e the right to have people in Boston
watch the game on TV instead of in freezing weather, where it snows
a lot, as in Buffalo, watch it in the comfort of their homes with their
friends.
Mr. WRIGHT. Mr. Chairman, I am a great free enterprise man. I
really believe in the free enterprise system. I think if George Marshall
or whoever owns the Redskins doesn't want to sell the home games-
Mr. MACDONALD. My question is, You say you are not going to do
that; is that right?
Mr. WRIGHT. That is right.
Mr. MACDONALD. My second and last question is that yesterday we
heard a lot of talk about the charges, that you could put a quarter in
the slot and watch a movie and I guess it went up to 50 cents, but the
top thing about seeing a first-run movie was 50 cents. That was the
talk. I am just saying that was the testimony given to us. They said
put a quarter in the box, or 50 cents in the box.
I was interested if you have any idea, and you don't have to answer
it if you don't want to, but what are the charges contemplated for the
first-run movie or a good play? You know, you can only show "My
Fair Lady" onetime, if at all.
Mr. BROTZMAN. If we could have him explain how this is going to
work mechanically and how the billing is to be done, it would be help-
ful.
Mr. MACDONALD. There are three systems. He has only one.
Mr. BROTZMAN. He just touched on it. If we could have that, it would
help a lot, I think.
Mr. WRIGHT. The program book that we showed you has the price
of each of the programs that are listed in there. There is one motion
picture, Wednesday matinee, for 50 cents, and the evening showing is
$1.50. That is a first-run current motion picture. "In the Heat of the
Night" was $1.50. "Barefoot in the Pa~rk" is 50 cents for a matinee and
$1.50 for the evening show.
Now, it is my recollection that the charges that have been made in
Hartford for motion pictures have ranged from as little as 25 cents
up to $2 top.
The way the decoder works-
Mr. MACDONALD. There are three systems, as I understand it, Zenith's,
Skiatron, and `somebody else.
Mr. PIERSON. Four, Telemeter `and Telecon.
Mr. MACDONALD. Four systems?
Mr. WRmirr. Right. There is a program number in the booklet, Mr.
Brotzman. There is a dial here which is like an odometer. Using this
dial, the customer can dial the number for this `program at the proper
time. He is tuned in to channel 18. He has this switch over here turned
to PV, which is phonovision. He dials this number. When he finishes
dialing the number, `he shuts this cover which has in it a switch.
There is a correlation circuit involved `here which, in effect, checks
out everything to be sure; it has some memory `things in it and checks it
out. If everything is all right and working, then a red light goes on
on the front of the set. When that red light goes on, the picture clears
up and he gets a clear picture and sound.
PAGENO="0355"
351
This also makes a record on a billing tape which i~ inside the machine.
The billing tape prints, when he uses the program, the number of the
program and the price. So that, at the end of the period he can dial
a certain combination, open this little gate and pull out a paper tape.
The paper tape comes out and it has on it the numbers of the programs
and the price. The customer can simply add them up, send in his check,
or bring it in and square his account.
Now, there is an audit ta:pe, a billing tape, in that that can be used
in case there is dispute about whether anybody saw it. It can be
checked up.
Now, we have a new generation of these decoders ~rhich have been
under development for several years. We would propose in our first
commercial operation to go in with a new and improved version of
this decoder which has a number of advantages in terms of convenience
and better cost for the operator, reduce the cost of the system, and
customer convenience.
May I make one point that I forgot to make? This has been charged
as being something for the rich. The suggestion was even made before
the FCC that this would add to the riots in Detroit and Chicago be-
cause it would set apart the underprivileged and the poor people from
the rich people.
In Hartford, more that 50 percent of our subscribers make less
than $7,000 a year. Am I not correct in that, Mr. Flake?
Mr. FLAKE. That is correct.
Mr. WRIGHT. The biggest appeal for this service so far as we have
found in Hartford is for people who have a lot of children who can't
afford to send them Saturdays to movies. We have people with from
10 to 15 children who don't even have a bank account who come in
with their cash at the end of the month to pay for it and say:
Thank you. You know, we have 10 kids and we can all have them around here
and se~e what is showing at the neighborhood movie, and all their friends, for
50 cents, and it would cost us $10 if we sent them there.
This is not for people who buy Cadillacs or three-way color TV
combinations. This is for the people who can't afford to spe.nd that
kind of money at the box office.
Mr. MACDONALD. Thank you very much.
Mr. Kornegay.
Mr. KORNEGAY. Thank you, Mr. Chairman.
Mr. Wright, let me express my appreciation 1~o you for coming and
appearing here and giving us the benefit of your views on this matter.
I looked over your program, your STV magazine, for Sept~mber 30
through October 13.
You put one of these out every 2 weeks I take it?
Mr. WRIGHT. That is my understanding; yes, sir.
Mr. KORNEGAY. It is mailed directly to your subscribers.
Mr. FLAKE. That is correct.
Mr. WRIGHT. By mail, yes.
Mr. KORNEGAY. Is this a rather typical 2 weeks' scheduling of
programs?
Mr. WRIGHT. I believe it is.
It depends on the motion pictures and the other things that happen
to be available, that General Tire or RKO. General can secure for
programing in that week.
PAGENO="0356"
352
Mr. KORNEGAY. What I mean by that, the type of show is rather
typical?
Mr. WRIGHT. I believe we have had many other shows, the kind of
shows which are not shown in this 2 weeks.
We have had heavyweight championship fights. We have had some
ballet. We have had some cultural programs. We have had. some off
Broadway theatrical productions. We have never been able to afford
to put on a Broadway show because it has been too expensive for us.
Mr. KORNEGAY. I note here that this program for 2 weeks consists
of 10 what appear to be movies-I am not familiar with all of them.
I take it they are recent or first-run movies. Is that right?
Mr. WRIGHT. I think you will find most of those are running right
here in Washington at our principal theaters right now as well as in
Hartford.
Mr. KORNEGAY. It looks like every one of them is either for adults
or mature young people.
Mr. WRIGHT. Yes, sir; a great many of them are, there is no ques-
tion about that.
Mr. KORNEGAY. Take your book here starting with "Fathom," which
is the first one. That one is for adults and mature young people.
The next one is for adults and mature young people. Then "Georgy
Girl" is adult entertainment. "The Hired Killer" is adult entertain-
ment. The "St. Valentine's Day Massacre" is adult and mature young
people.
Mr. MACDONALD. And also a bomb. I have seen it.
Mr. KORNEGAY. And then the next one, "The Fortune Cookie," for
adults, mature young people. "Made in Italy," you have the same.
And then "Arrivederci, Baby", adult entertainment.
Of course, they start in the evening at 8 o'clock or 8:30. `What is
the problem that is created in the home of parents who do have some
concern over what their children watch when this is an hour when
the average child is still up, 8 or 8:30. I am talking now about the
ones under 12.
Have you had any repercussion from that kind of thing from your
subscribers?
Mr. WEIGHT. I would have to ask Mr. Flake as to whether he has
any but before I do that, Mr. Kornegay, I would like to say that in
subscription you know you can control this because if papa or mama
has control of this box, nobody is going to watch it until the head of
the house or whoever is running that approves it.
As it is now you have four or five TV sets `around the house and
when Melina Mercouri and shows that are on free TV now, that are
in the same category, are on `there is virtually no control.
Mr. Flake.
Mr. FLAKE. I have a copy of our STV magazines for the past year.
It has been difficult for us on some occasions to obtain childrens
programing that you would describe for children. However, I think
you will find that a considerable amount of the children's type pro.-
graming will be found in these magazines in that record for the past
year.
"Snow White and the Seven Dwarfs," "The Absent Minded Profes-
sor," this type of programing that specifically we attempt to obtain.
PAGENO="0357"
353
Since Walt Disney's death and the prthlem in this area of obtaining
specifically children's type of programing, we have had some difficulty
but we do obtain every item that is available in this area.
Mr. KORNEGAY. In other words, this then is not a typical week of
your programing?
Mr. FLAKE. It is typical of the availability of the programing for
that specific time. We normally attempt to obtain the license for a
movie 2 to 3 weeks ahead of time. That is what was available to us for
this~particular 2-week period.
Mr. KORNEGAY. Of course, this is more your business than mine in a
certain sense btit you know there is a crowd in this country that is now
putting up a tremendous fight to take cigarette smoking off television.
Certainly if they meet with much success in their endeavors, then the
antisaloon people are going to come in and say take liquor or drinking
off television. Then you are going to move from there to taking the
killing off television. Finally I guess you get down to taking sex out of
television.
Mr. WRIGHT. You will have nothing left but commercial television.
Mr. KORNEGAY. What do you have left?
My point is if there is any moral to the story at all that somebody
could make out a pretty good case for those who are certainly con-
cerned with what is being fed into the American home. I am inclined
to disagree with you somewhat over the fact that papa has complete
control of that box because with the smart children we have in the
homes today it would not take my boy long to work that and quicker
than I could.
An example of this is when they got direct dialing. I waked up one
morning to find I had an enormous telephone bill. I found out he had
been direct dialing his friends while he was up here in Washington. He
did not realize it cost anything. They won't realize this costs any-
thing. All they will do is go turn on the set and see all the shows that
are in here.
I just thought I would make a point of that for whatever it is worth.
I guess my time is up, Mr. Chairman. Let me ask him one other
question.
I am glad that you corrected the record on the question of how many
places in the United States would be eligible for your service because
the Commission apparently doesn't know. They gave me the answer of
83 on Monday when I asked the Chairman as to how many commu-
nities would qualify under their proposed Fourth Report and Order.
You say now it is 29.
Mr. Wiucn~. That is what I have been advised by counsel on it.
Where there are already four stations in existence-
Mr. KORNEGAY. Five.
Mr. WRIGHT. You would have to bring a fifth one on to do this.
Mr. PIERsoN. I think the difference in the figures, Mr. Kornegay,
arises from this fact. Of course there must be five allocations and at
the time subscription starts there must be five operating stations.
The Commission said there wete 29 communities in which there
were operating stations. The difference between 29 and 83 is addi-
tional communities in which "there is some activity," meaning an
application on file or construction permit outstanding.
PAGENO="0358"
354
But just taking the market today there are only 29 that would
qualify.
Mr. KORNEGAY. Thank you very much.
Thank you, Mr. Chairman.
Mr. MACDONALD. Mr. Broyhull.
Mr. BROYHILL. I have no questions, Mr. Chairman. I just wish to
welcome Mr. Wright before the committee.
Mr. MACDONALD. Mr. Van Deerlin.
Mr. VAN DEERLIN. The question of disconnections in the Hartford
experimental area occupied some space in the Commission's recent
fourth report and order. The disconnects seem to affect about 40
percent of the installing operations up there. I was wondering if this
had prompted any concern at Zenith and what the explanation was.
Mr. WRIGHT. It has been a matter of some concern.
Let me say that one of the problems that channel 18 has had in
Hartford is that when we started off with this service and designed
the equipment for it this was designed purely for black and white
and that is all that this station has had available. That is all its trans-
mittrng equipment is and that is all that these decoders are equipped to
handle.
Color has come along at such a tremendous pace that I think color
has affected some of the operation in Hartford. Now we have designed
and plan to produce in this next generation of decoders a box that
doesn't really know whether it is black and white or color, it can ac-
commodate either just as well.
Of course, if the service were to be continued on a regular basis
this is the kind of equipment that it would be. Frankly, we have had
a real battle, I must say, in programing Hartford.. After all, we are
dealing with a service where we only had equipment for 5,000 sub-
scribers.
When you go to a motion picture distributor who has a movie that
he has put $20 million in and you start bargaining with him on what
it is going to cost you and what you can put that on for a potential
audience of only 5,000 people, you are limited somewhat.
We found the same thing when we tried to deal with the theatrical
producers over Broadway shows. By the time we got through with 18
unions each of whom wanted a percentage of the gross and a lot of
guarantees and all, for a 5,000-subscriber thing it was just impractical
to program it.
We know if we had a million certainly we could get something like
"My Fair Lady," or "Sound of Music" while it was on Broadway.
Mr. VAN DEERLIN. Does this, in your opinion, account for the reluc-
tance of certain of your potential competitors to take part in the
experimental stage?
Mr. WRIGHT. Mr. Van Deerlin, I really don't know what was in the
mind of some of our competitors. You know, most of our competitors
have always thought of this in terms of a cable system. I don't really
know whether any of them have worked on and solved the problems of
an air system.
It is a tremendously complex thing technically to do this. No one
aside from Zenith has really put on a successful, technically, airborne
system that I know of. There have been cable systems.
PAGENO="0359"
355
Mr. VAN OBERLIN. Does your prepared statement include a break-
down of the audience by economic levels?
Mr. WRIGHT. Yes, in terms of 14 percent of that audience was over
the $10,000-a-year-income bracket. In this presentation to the FCC,
this blue book which we have handed you it has a very full breakdown
of the kind of audience.
Mr. VAN DEERLIN. And I gather from those statistics that the level
excluded by reason of money is only about 30 percent of the popu-
lation?
Mr. WRIGHT. On page 21 of the blue book it shows that we only had
1.5 percent of our subscribers in the zero to $3,999 class; 44.8 percent
were in the $4,000 to $7,000; 43.3 percent were $7,000 to $10,000, and
14.4 were in the $10,000 and over.
Mr. VAN DEERLIN. Do you agree with the Commission's ban on ad-
vertising?
Mr. WRIGHT. We suggested it.
Mr. VAN DEERLIN. Thank you, Mr. Chairman.
Mr. MACDONALD. Mr. Harvey.
Mr. HARVEY. Thank you, Mr. Chairman.
Mr. Wright, I am sorry that I missed the first part of your statement.
We have a very important Republican conference taking place at the
same hour that this hearing is taking place. That accounts for the fact
that we have been trying to alternate here.
I first of all want to associate myself with the remarks of my col-
league on the other side of the aisle, Mr. Kornegay, and say that I
share the words he expressed completely.
I would say after looking over your STV magazine for September30
to October 13 that you have almost unsold me with regard to any
feelings I had with regard to STY before that time because this is
the poorest bill of fare I think that I have seen and I would hate to
think that this is what STV is going to be in the future.
I would even go further than that, and say that I think what the
motion picture makers have been foisting on America is almost a
national disgrace. If this is going to be the lot of television viewers
as well, I think that this committee ought to consider very, very
seriously'what we are doing.
I would hate to see this magazine come into my household and I
would hate to see it passed around, among my chilth~en. I would share
the view that I do not control that television set, nor does my wife.
These children today know how it operates and operate it very well.
There is not only one TV set in the household but in the majority
of households there are two or three, even four in many households.
I just think that the STY industry certainly should give that great
concern which apparently it has not given to date.
There is another thing that bothers me and that is I notice you
mention in your statement there would be no siphoning of talent.
Let me ask you this: Aren't stars in the category of-I mentioned the
other day Richard Burton and Elizabeth Taylor, let us take Frank
Sinatra-aren't those stars themselves the ones who control whether
they appear on STY or whether they appear on commercial TV?
Mr. WRIGHT. Yes, sir; there is no question about that. That is the
way ~t always has been a~4 I assume it will always be timt way.
PAGENO="0360"
356
Mr. Harvey, most of these people appear in all three mediums, or
they appear only in one; but that is a matter of personal choice to them.
Mr. HARVEY. They are going to appear on the medium that offers
them the greatest monetary reward, isn't that correct?
Mr. WRIGHT. I would say the tendency would certainly be that
way. There might be an exception of a man who absolutely doesn't
like the stage or he doesn't want to be on the stage or he doesn't want
to be on a weekly television show. He may just like the movies.
Or another man does not like making films. He may want to be just
on weekly television shows. I would not know how to answer that.
Generally speaking, the big stars, the people who have been big names
on free television, have always been big names in the motion picture
business, they have been big names in other forms of entertainment.
Mr. HARVEY. Assume you would make a reasonable penetration
of the market, which I think you would, I don't think 20 percent is
unreasonable at all-I have heard that figure tossed around-it would
seem to me then that the big stars who already, like Frank Sinatra,
make $5 million a year, would find STV to be a bonanza for them
because they can hold out for even larger sums.
I can see the "Ed Sullivan Show" being depleted completely of any
possibility of getting stars on it in the future.
Mr. WRIGHT. Mr. Harvey, it is hard to project what might happen
in the future.
Mr. HARVEY. I know. That is the concern of this committee.
Mr. WRIGHT. The networks have an income of $3 billion in revenue
and they have not been able to make deals with these people that
would keep them, for instance, out of motion pictures or out of night-
clubs or out of theaters. I can't imagine any reason why they would.
We couldn't do it.
Mr. HARVEY. I have seen on televesion the "Frank Sinatra Hour"
andl have seen a couple of them that have been very, very good. I
can't imagine this man doing this on commercial TV in the future
when he can do it on subscription TV and realize a tremendously
greater sum for it.
Mr. WRIGHT. We have had top stars make special programs for us
in Hartford.
We have not been able to afford anybody quite like Frank Sinatra.
But we have had them make special programs. It has been difficult
because we had 6,000 subscribers.
Mr. HARVEY. I agree with Mr. Preminger yesterday that I don't
think your Hartford experience is worth a tinker's damn. I don't think
it is illustrative of anything that will happen in the Nation when this
particular program is adopted and permitted.
I think you will see totally different results than you have seen in
Hartford. I think you will see results just of the nature we are talk-
ing about here. I think you are going to see a shift of people going
where their service will bring the most. That is only human nature.
Mr. WRIGHT. Mr. Harvey, we have found that this program will
iiot~sell. People are glad to watch it on commercial TV but we have
found a very small penetration in terms of people being willing to
spend money for an evening with Joan Baez or someone like that.
Mr. HARVEY. If you take stars like Frank Sinatra or Dean Martin,
whose programs have the highest viewing audience on television,
PAGENO="0361"
357
where their name on the marquee of the theater is enough to fill it
up and where their name on the door of a nightclub is enough to bring
people in it, when you have those sorts of people appearing only on
STV it seems to me this is what you are going to find, that that is
where your audiences are going to go and this is where they are going
to go because it means the most to them.
I think it is a fact of life we ought to consider. I am not saying we
should be against STV for that reason but I am just saying it is a fact
of life that we must face.
Mr. WRIGHT. I can't say that it is not possible. The only thing is
that we have had several different kinds of entertainment media in the
past and we have them now and this has never happened.
These people make motion pictures, they are in Broadway plays.
They are on TV shows, Cyril Ritchard, Rex Harrison, they have been
in all these media. I just don't believe that anyone would ever suggest
to them or that if it were suggested to them, that they could ever sell
it, saying we tie them up exclusively so that their services are only on
I can't conceive of such a situation. May I say in connection with the
motion pictures, this is a 5,000 to 7,000 subscriber experiment, we have
to take what comes along in terms of the motion pictures that are
available.
We obviously don't have the bargaining power or the economic
strength to really have any influence on the kind of product that is
made for the motion picture theater and that is, of course, what these
things were made for.
Mr. HARVEY. If this is to be S'TV this is a disgrace. I would not be
proud of this in the least.
Mr. WRIGHT. There will be a lot of pressure exerted on the kind of
entertainment that is shown in the `home and there should be.
Mr. MACDONALD. I would just like to say that I think what Mr.
Kornegay and Mr. Harvey have said about movies have absolutely
no connection with STV. It is a condemnation of the movies that
people pay to see. I am sure that you are in the `business of trying to
make the most people use your services and' as Mr. Preminger said
yesterday, movies never had it so good.
If this is the type of movie that is being turned out I really don't
see any difference between having it in the home or letting the children,
who are the greatest moviegoers that I know of, go downtown to watch
the movie.
You know, I am. not trying to `be on the side of sin or bad movies
or anything `but I don't think it is your fault.
Mr. WRIGHT. We turned down two of the top 35 pictures of last
year because they were too blue. In other words, channel 18 decided,
in exercising their public responsibility as a `broadcaster, and they have
that responsibility, that even though these pictures were available and
the top 35 pictures were the ones that grossed more than $4 million,
we showed 28 of them in Hartford, two of them. we're turned down
as too blue; in other words, they were not the kind that channel 18
wanted to show at home.
Five of them we couldn't get bec~iuse they were hard ticket things
that were going around on a reserve seat basis `and we could not possibly
get them.
PAGENO="0362"
358
Mr. KORNEGAY. Mr. Chairman, let me comment on that briefly. I
was not being personally critical of Mr. Wright or his associates but
in connection with the movie business, that is right. It is a question of
fact that they `have no other choice. I am no expert in this business but
I think there are enough people in America to make a good high
class, high level, inspirational, clean movie to go over if it is done and
done well.
But you just don't get that choice.
Mr. BROWN. Walt Disney made a fortune out of that but not
everybody goes to see Walt Disney movies.
Mr. MACDONALD. If you will look at the STV magazine for the
week before you will see that they did show over STV "Snow White
and the Seven Dwarfs." You can't get that every week obviously.
Mr. VAN DEERLIN. I note they took "Virginia Woolf." I am curious
to know which of the two they rejected.
Mr. WRIGHT. Mr. Flake, can you answer that question?
Mr. FLAKE. One was ~"Beach Party Bingo" and another such type
of movie that had considerable nudity. Of the 35 movies that grossed
over $4 million last year, only seven were not shown in Hartford. The
two that we turned down specifically were because there was too much
nudity.
We had considerable thought with regard to "Virginia Woolf." On
the other hand we had considerable numbers of our subscribers who
asked specifically if we were going to have "Virginia Woolf."
Finally we decided that we would, when it came and was released
from Warner Brothers, show "Virginia Woolf." We showed it at a
time slot wherthy we had the greatest hope that no children would
see it, at a 10 or 10:30 time slot in the evening.
We do this for `the most part in every movie where this type of
thing does occur. In our business we cannot censor. We do not cut the
movie in `any way. We show it exactly as it is released to us by the
distributor. As a result we are on occasion given an opportunity to
show this type of movie. On the other hand, with the Walt Disney,
the productions of "The Absent Minded Professor," this type of thing
that we showed for children, we tried to show it as frequently as we
could.
During Christmas and Easter vacations we attempt to obtain every
possible children's product that we can for a matinee in the afternoon.
As a result, we were very successful and I think if you would take a
look at our book for the Christmas period-last year during Christ~
mas vacation-you will find that this matinee was one thing that we
did do for the children.
We subscribed to the theory that we should very carefully point out
to parents that these movies are for adults or for adults and mature
young people. When we say family entertainment, that is the only time
that they should allow the children to see these movies.
We are very careful in this respect.
Mr. MACDONALD. The time of the gentleman has expired.
I yield to the gentleman `from Pennsylvania.
Mr. R00NEY. I feel badly with all due respects to my colleagues,
Mr. Kornegay and Jim over there; I have seen most of those movies.
I thought they were quite clever.
Mr. HARVEY. How old are your children?
PAGENO="0363"
359'
Mr. RO0NEY. That is the one I worry about because he gets that dial
and calls Seattle or San Francisco and he is only 2 years old.
Mr. MACDONALD. Will you yield?
I mean this very much. I have never seen cruder, worse things in any
movie theater than I have seen, say, on the Ed Sullivan Show. I hope
the laws of libel cover committee hearings as well as on the floor. I
have seen some acts that he has put on his show that were just as crude
and rude as anything could be. I feel like telling my children to leave
the room.
Therefore, I don't see why STV is any worse than commercial TV
in this respect.
I yield back.
Mr. ROONEY. I just want to get to the mechanics again.
Do you lease this set to the home or is it like the Bell Telephone
System, you provide it and they pay as they use it or how is it done?
Mr. WRIGHT. We made these boxes and supplied them to RKO
Tele-Radio. They install them in the customer's set. The customer does
not buy them. They charge him an installation fee I believe for it.
Mr. R00NEY. How much?
Mr. WRIGHT. The installation `fee was $10. Now this is a fairly com-
plicated installation with this particular decoder. Our new decoder
is an antenna lead thing clipped on the back of the set. The installation
is no problem at all. You have a problem on this. You hate to tie up
an expensive piece of equipment with somebody who is not using it
at all. This is just ridiculous. There was a 75 cents a week rental charge
I believe. This is something `that RKO decided.
Now they varied that from time to time. This is an experimental
thing. They would give credits to a customer `for his rental if he
viewed a certain number of shows. I think this has varied from time
to time. I don't have in mind all the details. But if he just had it in his
home and didn't use it I believe the rental was 75 cents a week for the
most part.
Mr. ROONEY. What does the annual subscriber pay? Of the 5,000
subscribers in Hartford what is the average monthly billing approx-
imately? We often hear this is so exorbitant and the American family
cannot afford it.
Mr. WRIGHT. $8.50 per month is the average. This is right around
$100 a year altogether. That includes everything.
Mr. ROONEY. That is about 50 percent more than the CATV sub-
scribers would pay.
Mr. WRIGHT. Yes. I guess their `charges would run anywhere from
$3 to$5 or $6.
Mr. ROONEY. I yield to my colleague from Ohio. He wants to ask
a question.
Mr. BROWN. My comment referred to something said earlier.
Apparently strong language is stronger than the skin in Hartford.
Mr. VAN DEERLIN. It means it doesn't matter what you have to say
if you say it over a high neckline.
* Mr. MACDONALD. The time of the gentleman has expired.
Mr. Brown.
Mr. BROWN. I am surprised that somebody has not `suggested that
the children will have to have money to watch TV and, therefore, this
PAGENO="0364"
360
could encourage child labor because the children would want to have
more money to watch television.
Is it possible under the system that commercial television stations
that are on the air now in markets where it would be permitted could
have pay TV programs?
Mr. WRIGHT. Yes, sir.
In other words, it is technically possible, Mr. Brown, that if we had
this set in Chicago and CBS which owns "My Fair Lady" wanted to
put "My Fair Lady" on subscription TV we could process that signal
out of a CBS system.
Of course, under the Commission rules that they have laid down,
only one station can operate on a subscription service but it is tech-
nically possible-
Mr. BROWN. I don't know the name of the stations in New York but
WNBC is an NBC affiliate in New York. Could NBC buy this system
and use their present commercial station in New York to have pay TV
programs part of the time? Technically now.
Mr. WRIGHT. Technically it would be possible that everybody in
the New York market could be equipped with this kind of box on
their set. Technically now any station in the market could have its
signal processed so that it could then be decoded by this box and a
billing made for that program for that subscriber.
Mr. BROWN. From this program schedule regardless of the sexy
pictures in it, do I ~et the impression that a good part of the time you
broadcast free television?
Mr. WRIGHT. Commercial television, that is exactly right. Adver-
tiser-sponsored things that are just the same sort of thing you find
on the other stations in the Hartford market.
Mr. BROWN. At 8 o'clock at night in the so-called prime time is when
you go to a subscription television?
Mr. Wiaowr. Yes.
Mr. BROWN. And you are not selling commercial advertising?
Mr. WRIGHT. That is right, sir.
Mr. BROWN. With the financial resources available to the networks
and the large television stations, the large broadcasters in the country,
is there anything to prevent the networks or the large broadcasters
from jumping into this if it is permitted so that they are the ones that
go off the so-called commercial television into subscription television
and the newer stations that come on take up the commercial market
in those areas?
Mr. WRIGHT. Mr. Brown, I have heard witnesses from ABC and
from CBS and from NBC at various times in this controversy one
just as recently as last week, that was a representative from ABd, say
if this thing were approved it was going to take over all of free TV
and make people pay for what they were getting free and if the sys-
tem were approved that they, the networks, were going to get in it and
presumably operate it in that fashion.
We are not going, as far as Zenith is concerned, to license anybody
to use our system if we can possibly help it, that has any ambitions to
do this sort of thing. We are perfectly willing to accept a rule if the
networks are the ones that say that this is the way they could operate
it if they got in it, then that would bar them from this service.
Mr. BROWN. Bar the networks?
Mr. WRIGHT. Yes, sir.
PAGENO="0365"
361
Mr. BROWN. Let me ask you about the financial needs of this sys-
tem. What would it cost to convert a television station already on the
air in Dayton, Ohio, to an STV type system?
Mr. WRIGHT. We have some figures that have been given in the
data on Hartford. We think that a UHF station operating like chan-
nel 18 with part commercial television and the rest subscription, can
be a profitable, going venture with 20,000 subscribers in the market.
Mr. BROWN. The financial answer. How much does it take?
Mr. WRIGHT. Twenty thousand subscribers-we are talking here
about a possible investment of as much as $125 to $150 a subscriber,
20,000 subscribers, you are talking about $2 to $3 million.
Mr. BROWN. You get that back from your subscribers?
Mr. WRIGHT. Presumably over a period of years. One of the prin-
cipal costs of it is your equipment cost and depreciation.
Mr. BROWN. $2 to $3 million to get 20,000 subscribers, is it?
Mr. WRIGHT. $2,711,500 is the projection we made on page 30 of
this blue book. The cost of the decoders and the encoding equipment
is a large part of that capital cost, yes, sir.
Mr. BROWN. This is not going to be something that anybody goes
into unless they have a little money behind them? It will have to be a
fairly sizable investment, with a market survey and that sort of thing,
to see if it is going to work, is the right?
Mr. WRIGHT. And it is going to take time. If we got an authoriza-
tion tomorrow we could not have a system of 20,000 to 30,000, say, in
a city like Chicago in less than 2 or 21/3 years at the very earliest. This
is not something that someone presses a button and all of a sudden
some monster is full grown.
Mr. BROWN. If this committee would decide, for instance, either to
remain silent on this subject, which apparently would mean from the
testimony we have heard from FCC that the FCC would go ahead and
permit the expansion beyond Hartford of this system, or if the com-
mittee would consciously say we will let you go ahead and develop this
a little further and see what we think of it as it begins to move, what
are we talking about in terms of time before the top 25 markets in the
country have STV stations on the air if they found that there was a
demand for it, which is another debatable area apparently.
Mr. WRIGHT. I would say we would not be beyond the first five or
six markets within 5 years and that to be in 25 markets with a sub-
stantial subscriber penetration would take 10 years.
Mr. BROWN. So we are not exactly talking about destroying free
television over night if this thing is allowed to move?
Mr. WRIGHT. We are certainly not, sir. We are certainly not.
Mr. BROWN. Under the FCC regulation, you know, you read these
things and they are subject to interpretation and I was surprised when
the Chairman advised me it is five existing signals rather than four,
but do I understand then that the FCC is saying that they can only
have one STV station in a community?
Mr. WRIGHT. That is correct.
Mr. BROWN. Is it possible that if you were an STV subscriber and
you had two or three station sources from which to get competing
STV productions that you would be able to take a choice of those three
selections so that if you did not want to watch Raquel Welch but*
wanted to watch "Lassie" instead, that you could have that choice on
STy?
PAGENO="0366"
362
Mr. WIuGHT. Yes, you could certainly have that choice but I can't
imagine that choice becoming available to you for at least 10 years be-
cause that would mean that this service would have to become so well
established and so popular that the Commission would then grant ap-
plications by other stations than the first one they had permitted to
come in' and broadcast on this medium.
Mr. BROWN. It would not be available at all I gather under the
present FCC proposal.
Mr. WRIGHT. It would not be available at all. It would only be
available if the FCC, after looking at this thing and having all the
facts, would decide it was in the public interest to have a second sta-
tion also operating.
Mr. BROWN. You know, we are supposed to be trying to encourage
the development of UHF stations so as to give the viewers in the
country a wider number of opportunities to watch a choice of tele-
vision programs. I gather this is one of the things that has sort of
made cable television have some good points, that some people can get
television signals, a variety of television signals that they otherwise
might not be able to get or only one or two.
Is it your anticipation and could you back it up, depending on what
your view is, that if STV were permitted existing on-the-air station
that made a lot of money in the commercia' market would be the first
to go into it? Or, would UHF stations where, as Mr. Pierson says,
there is some activity but they are not on the air yet, be the ones that
would likely go into this?
In other words, are we going to actually encourage more stations on
the air or are we going to have commercial stations go into STV?
Mr. WRIGHT. The only possible stations that can be in STV in the
next 5 to 10 years, the w~y I see it, are either UHF-
Mr. BROWN. Economically?
Mr. WRIGHT. The way I see it economically and in the light of the
Commission's order, both-are UHF stations in the large markets
where those stations are either losing money or where they have maybe
a construction permit and they are sitting on the edge of the chair
wondering whether they should take the gamble and try to put this
station on the air, knowing that it was going to lose a lot of money.
Now you could not go to the fourth VHF station in the city of Chi-
cago, WGN, which is an independentr-WGN makes so much money
that for them to take on a subscription television service and to make
as much money out of it as they do out of commercial broadcasting,
we would have to have 500,000 subscribers in the city of Chicago.
Mr. BROWN. The reason for this, though, is the advertising rates
they are now charging on their stations.
Mr. WRIGHT. It is so profitable to them.
Mr. BROWN. They make more profit out of that than they would out
of subscribers.
Mr. WRIGHT. Right.
Mr. BROWN. I gather what you are saying is that the people who
would go into this business are UHF stations not now on the air be-
cause they are afraid they cannot make it in the market selling their
service for the advertising dollar?
Mr. WRIGHT. You are absolutely right. We have allocated 634 com-
mercial UHF stations and there are 122 of them on the air. A lot of
PAGENO="0367"
363
them are marginal and losing money. I doubt that if we don't have sub-
scription that many of those 122 will be able to survive.
Mr. BROWN. One other point.
I realize I am a little over my time but if there are four stations
now on the air and a fifth station comes on and is an STV station, to
what extent will he be competing for the advertising dollar in that
viewing area? He won't be competing in prime time apparently for
the advertising dollar.
Mr. WRIGHT. No. He has to have a minimum of 28 hours a week
that he puts on regular commercials and he will be competing then.
Our experience in Hartford indicates that the subscription audience
is a very small part of the total TV viewing time in that market and
that it does not really take away a large chunk of the viewing time
from the existing services.
Mr. BROWN. Thank you.
Mr. MACDONALD. Mr. Ottinger.
Mr. OTTINGER. Thank you, Mr. Chairman.
I am relatively sympathetic to the idea of permitting the pay TV
system to go ahead and I think it is something that is going to come
in the future and it has very exciting possibilities. However, I do
have some reservations and feel there must be some controls to prevent
abuses.
Along with our chairman I am a real sports enthusiast. I share
some of his concern about some of the practices that might take place
whereby subscription TV might preempt sporting events.
I don't buy for a minute your assertions of purity of heart with
respect to preempting sporting events. I thought they were pretty
shallow particularly in view of the fact of your association with
RKO that in point of fact has been buying up sports events, particu-
larly boxing championship fights, and excluding general television
coverage of those events and putting them in effect on what is the
existing pay TV system, in RKO-owned theaters. I understand,
however, that the fight promoters rather than RKO are primarily
responsible for the exclusivity of the arrangement.
On March 22, a specific event came to our attention very dramat-
ically where RKO, owning a proprietary interest in the Madison
Square Garden, bought the Clay-Foley fight and preempted tele-
vision of that fight in the towns of the origin of the two principal
contenders.
Why should we be at all sanguine that your associates, if not you
personally, are not going to `do the same kind of thing with sports
promoters on this pay TV medium?
Are you going to outbid others on the sporting events or buy them
up for 2 years as the chairman suggested and then exclude the public
who would want to view the events on commercial television access to
these events?
And indeed you could go beyond sporting events and do the same
kind of thing with other major large attraction event. Isn't this the'
kind of thing that should be protected against by regulation?
Mr. WRIGHT. There were several questions there and the answer to
the last question is Yes, I think that the FCC and this Congress both
have the power to control this medium and to see that it operates in
the public interest.
PAGENO="0368"
364
I think you certainly have the power to see to it that we don't do
these things that you state.
Mr. OTrINGER. But you haven't.
Mr. WRIGHT. I don't know about the specific matter to which you
refer on the Clay fight. Maybe Mr. Flake can enlighten us on that.
Mr. FIAKR. I will be glad to.
Mr. WRIGHT. Generally speaking, the only thing we have put on in
Hartford in the way of sports are things that would not have been
on otherwise on free television. I am aware of no instance where REO
has taken something away from free television that would otherwise
have been on it.
Mr. OTTINGER. You show on your programing here on page 19 of
this blue book that 7.31 percent of your programing in Hartford was
championship boxing. Were those fights that you broadcast up there
preempted from commercial television in that market?
Mr. WRIGHT. Yes. My understanding is that they were not on com-
mercial television anywhere because the promoters of the fights had
put them on theater television and were charging people $5 a seat to
go into a motion picture theater to see this on television.
Apparently they felt they could get more revenue from the theaters
this way than they could get from advertising television. So they
elected to put it on that way. We had nothing, however, to do with
that decision.
Mr. OTTINGER. I don't care whether you had anything to do with
it or not; if the end result is that the general public is excluded from
these events it is a bad thing.
You are saying you have nothing to do with it, your hands are clean.
That does not help very much if your associates' hands aren't.
Mr. WRIGHT. If you are suggesting really that the public has some
right to see anything on free television regardless of whether the
owner of that property wants to exclude it from television or not, you
are suggesting something that goes pretty far under the present
system.
Mr. MACDONALD. Will the gentleman yield?
Mr. OTTINGER. Yes.
Mr. MACDONALD. Obviously you are overlooking the fact that the
people who have the licenses to broadcast are only given these licenses
by the Government at a very nominal sum in the interest of the public.
Therefore, when you say the public does not have any right it is
the broadcasters who don't have any right actually because they are
operating under the regulations and the gift of the U.S. Government.
Mr. WRIGHT. I agree.
Mr. MACDONALD. Then your answer to Mr. Ottinger is absolutely
incorrect.
Mr. WRIGHT. What I am saying now is that your analogy about a
particular heavyweight fight-let us go on now and look at My Fair
Lady, which is a Broadway show. This is one of the greatest enter-
taimnent events ever.
CBS owned that show. Did it ever get on the CBS network? Of
course, it did not get on the CBS network. They sold the right to make
a motion picture out of it after a long Broadway and road show thing
to Warner Bros. for $4.5 million. It is a great motion picture.
That motion picture is not going to be on free television for 10
years: That is preempted from television. It is preempted by the eco-
nomics of it.
PAGENO="0369"
365
If you are suggesting that people who produce box office enter-
tainment should be required to supply it to the networks under any
circumstances, that just is-
Mr. OTTINGER. I think there are serious questions of public policy.
But there is no question in my mind when it comes to the airways,
having a concern about blocking out certain areas for commercial pur-
poses, it Seems to me that is an undesirable practice as was the case of
this Clay-Foley fight. I believe that any agreement which excludes
a public attraction from being shown on certain media or blocks out
certain geographical areas is in restraint of trade and should be
prohibited.
Mr. WRIGHT. Mr. Ottinger, the only uses I know of of the airways
that are purely public are perhaps educational television and Govern-
ment service. Every other use of the airways that I can think of is
purely commercial by people who are using `them to make a profit.
When we talk about so-called free television it is a very profitable
business.
Mr. OTTINGER. I have no dispute whatever that what you say is so.
I think Mr. Preminger made that point very dramatically yesterday.
Still, the public does have an overriding interest in the use of the
airways themselves. In the assertion of that public interest the Federal
Government does exercise regulation by the FCC over the use of the
airways, and I think it is a misuse of the airways to engage in the kind
of blacking out that has taken place with. respect to sporting events.
Mr. WRIGHT. Mr. Ottinger, I could not agree with you any more
that the public has a tremendous interest in seeing these things. This
is one of the purposes that we have had. Here is a way to bring these
things that they otherwise would not get.
Now they say, our opponents say, you can't let the public have it
this way because you can't control this thing. Once you set this thing
up it will become a monster that will eat everything up. I think that is
specious reasoning. I think this `Congress and this Commission can
stop it.
Mr. OTTINGER. I think it is specious, too. I think it is eçiually
specious for you to sit here piously and say under the regulation of
*the FCC with respect to sporting events that you are not going, if
you are capable financially, to preempt the market.
If you can put ABC and NBC out of business I think you will. I
think that is part of the system.
I do think there is an important public interest in seeing to it that
the commercial television will be able `to exist side by side with pay
television, to give the public a maximum of choice. Pay TV will have
to be regulated In my view, restrictive practices of the kind that
RKO and sports promoters have practiced should be prohibited.
This is particularly dramatic in the kind of case where the dis-
tributor also owns the ampitheater, or owns the sporting team, the
production of a play or wha'tever it may be, then you have a conflict
of interest which can operate very detrimentally to the public.
Mr. BROWN. I am not sure where this line is going but I don't
remember seeing the `Clay-Liston fight on free `TV and I think the
reason was brough't out by what Mr. Preminger or somebody said
yesterday, that is, that the `theaters outbid whoever sponsored it on
free television for the right to show it at the same time in those
theaters.
86-399 O-67----24
PAGENO="0370"
366
This is a commercial thing. This is the whole point of what Mr.
Preminger was talking about yesterday. If you can get $2 or $3 million
or several million dollars out of subscribers to pay TV to buy "My
Fair Lady" from CBS and outbid the movies, then CBS will sell it,
otherwise you might be able to find some sponsor that would buy "My
Fair Lady" for a substantial price, put it on free TV but that kills the
movie's interest in it, does it not?
Mr. OTnr~or~u. The situation I cited was somewhat different. It was
the Clay-Foley fight that was seen on so-called free TV all over the
country but it was blacked out in markets where it was felt more
money could be made by selling only to the audience.
Mr. BROWN. I gather it was seen on free TV because some sponsor
was willing to pay the price to give it free, to make it a vehicle for
their sponsored product, a price higher than anybody else was willing
to pay for it through the theaters, or withheld for some other purpose.
Mr. MACDONALD. To wrap this up, I think Mr. Brotzman yester-
day, and who couldn't be here for the reasons he expressed earlier,
because of the meeting of his party, asked about the success of other
experiments, not just your own.
I interrupted him at that time. He was asking Mr. Dingell who
was a member of our full committee. I though Mr. Dingell did not have
the information and I thought perhaps you would since your com-
pany has very adventurously put this amount of money into this par-
ticular experiment.
Do you have any knowledge of how the other experiments
succeeded?
Mr. WiuGHT. I really don't have any inside knowledge, anything
other than what I have read in the trade press and have heard about
these operations, at Bartlesville, in Etobicoke in Canada and, I be-
lieve, on the west coast.
Mr. Pierson tells me that Telemeter made a complete statement of
this on what Etobicoke thing showed and these other things which
were filed with the Commission. We will be glad to supply it to you
and it will give it to you in some detail.
(The document referred to follows:)
EXCERPTS FROM STATEMENT OF INTERNATIONAL TELEMETER CORP. IN SUPPORT OF
RULEMAKING PETITION FOR AUTHORIZATION OF NATIONWIDE SunsciurTIoN TELE-
VISION, FILED WITH THE FCC IN DOCKET No. 11279, MAy 25, 1965, SETTING
FORTH FACTS CONCERNING THE Th~OBIOOKE (OANADA) EXPERIMENT
* * * * * * *
By achieving the technical capability of simultaneously transmitting multiple-
programs through a single channel of the conventional television receiver
Telemeter was able to add a new dimension to the techniques of closed-circuit
transmission, thus opening unlimited opportunities for catering to the varied
tastes of subscribers to a THEATRE IN THE HOME service.
Furthermore developments in airlink transmission experiments had kept pace
with the closed-circuit research and a single-channel broadcast-type Telemeter
unit was achieved embodying patentable innovations for the security of uneoded
trausmieslon. These, too, conform with the standards of good engineering prac-
tice prescribed by the Commission.
As a result, Telemeter moved in both directions. To ascertain the validity of
successful laboratory experiments in its airlink system, Telemeter applied to
the Federal Comunications Commission for an experimental station first In the
VHF and later in the UHF band in order to test its broadcast system in Los
Angeles, California. These applications were granted in 1961 (KM2XMR, Chan-
nel 5) and 1962 (KM2XOG, Channel 83), respectively.
PAGENO="0371"
Telemeter's airlink system is the only one publicly demonstrated to date which
requires no modifications whatever to existing TV receivers-no Internal con-
nections. It also can receive color as well as monochrome signals. Its decoding
equipment attaches externally to the antepna terminals of the television set
No internal changes in the customer's set are necessary with Telemeter either
in the cable system or the over-theair system, and all connections are made-
at the antenna terminal of the sets.
2. Etobicoke Ewperiment
In May, 1959, Telemeter entered into a franchise arrangement with Famous
Players Canadian Corporation Ltd., owners and operators of a chain of motion
picture theatres in the Dominion of Canada.
A. municipality in Metropolitan Toronto, Ontario-the community of Etobi-
coke-was selected by Famous Players as the site for its initial installation of
Telemeter equipment. It contracted with the Canadian Bell Telephone Com-
pany, an affiliate of the American Telephone & Telegraph Company, for con-
struction of a cable system in that locality.
An operating company-Trans Canada Telemeter-was created by Famous
Players to build and operate the service. Since the franchise granted was the
first to utilize the techniques and equipment developed by Telemeter, a coopera-
tive relationship was established between Paramount Pictures Corporation and
Famous Players, through Telemeter and Trans Canada Telemeter, to jointly
participate in the first field test of the system.
Accordingly, Telemeter actively engaged in all phases of system planning,
system construction, development of programming concepts and in the estab-
lishment of certain criteria deemed essential to assay properly the results of
this pioneering effort into a new and untried form of visual communication
Of prime consideration were (1) the technical capability and efficacy of the
devices invented by Telemeter when subjected to rigid testing in the field; (2)
an appraisal of the economic feasibility of operating a cable system supported
solely through income of closed-circuit subscription television; and (3), of
transcedent importance, a determination of the public's willingness to accept
the principle of paying for entertainment in the home.
In selecting an area for experimentation with subscription television, it was
easily possible to make a choice where a majority of families are so interested
in paying for selective entertainment in the home as to vitiate any conclusions.
It was decided, instead, to choose an area where the odds against success were
higher than the average community. Etobico'ke fitted the concept because:
(a)~ Etobicoke is a residential community situated less than 10 miles from
the center of Metropolitan Toronto with a moderate density of homes.
(b) It is located In an area with a 9~% saturation of TV homes, but, unlike
most communities In the U.S. and Canada, has access to six commercial tele-
vision stations; three stations in Buffa'lo~ N.Y., offering programs of all three
U.S. networks, plus three TV stations in Toronto and Hamilton, Out., includ-
ing a key outlet on the network of the Canadian Broadcasting system This
represents a choice of channels as great as the principal markets of the
United States, New York and Los Angeles. It confronted the cable system
with a competitive factor possibly higher than 6 to 1, since in addition to all
the entertainment values arising from the programs of the three U.S. net-
works, there existed the attraction of the Canadian-oriented OBC network
and also Canadian independent commercial stations.
In planning the cable system, Trans Canada Telemeter blocked out a section
of 12,000 homes, embracing families in various Income levels, mostly of Scottish
lineage. This ethnically homogenous populace of conservative fiscal habits is
inward looking and less responsive to contemporary developments than the bulk
of the other urban dwellers. Later the system was expanded to include an addi-
tional 2,000 families in a contiguous area embodying some other ethnic groups.
Average density of homes in Etobicoke is about 140 to the cable mile.
Canadian Bell Telephone Company began construction of the cable system in
the summer of 1959 which was to cover the initial 12,000 dwellings. This required
93 miles of grid, erected at a cost to Famous Players of $2,250 per mile, Including
Installation of special high level amplifiers designed by the research laboratories
~f Telemeter especially for its cable systems.
Under the arrangements between Famous `Players and Canadian Bell, the roie
of the Telephone Company ceased with completion of the grid and installation
and testing of the amplifiers. Drop-offs from the cable distribution system to
PAGENO="0372"
368
homes of subscribers, installation of Telemeter units and maintenance of the
amplifiers remained in the hand of Trans Canada Telemeter.
Furthermore, Trans Canada Telemeter paid to Canadian Bell a monthly lease
charge for the cable. Initially, the T~lephone Company fixed a charge of $25 per
mile per month. However, within seven months `of completion of the cable system,
Canadian Bell reduced its least charge to $10.56 per mile per month.
The initial 93 miles of grid was completed by April 1960 Eighteen months
later an additional 15 miles of cable were strung t'o reach 2,000 homes in an area
immediately adjacent to Eto'bicoke. This brought the total number of homes
within the range of Telemeter programs to 14,000.
A studio site and operational quarters were selected at the center of Etobicoke's
business area. The corner of Bloor Street and Royal York Road, geographically
speaking, is also the direct center of Etobicoke's residential areas. A. one-story
structure housed facilities for a film studio, "live" studio, control room, tape
equipment, color tranamiter, sales department, collection department, servicing
department and offices.
On February 26, 1960, Trans `Canada Telemeter inaugurated its service to sub-
scribers. Experience gained in all facets of closed-circuit, multi-channel trans-
mission, over a period of five years o'f continuous, uninterrupted daily service,
provides a valid, ample and proved basis upon which to project the pattern for
the introduction and successful operation of Telemeter systems in the United
States, Canada and abroad. These projections will be summarized below.
As explained above, the Etobicoke market is unique in that extreme com-
petitive forces in operation would put a subscription TV system at the maximum
disadvantage. In fact, Telemeter altered its original sample after its' Initial
studies by inaugurating an installation and annual service fee in addition to the
per-program charge and by expanding into a less homogenous ethnic area. After
the years of experience in and about Etobicoke, Telemeter has been able to come
to certain meaningful conclusions concerning the technical efficacy of the system
and concerning subscriber interest. It was felt that Telemeter had gathered
practically all the significant data that the experiment could yield in light of
the self-imposed limitation's. Therefore, it was decided to discontinue the Etobi-
coke experiment as of April30, 1965.
`With the notice of termination of Telemeter service, subscribers were sent
a questionnaire asking for an expression of opinion on the types of programs they
had enjoyed most, any other comments they might care to make, and whether
they would like to see Telemeter return to the Toronto area. To date, over 20%
of the_subscribers have responded and 96.9% of them expressed regret at the
termination of service and urged Its early return. (See Appendix "A" for detail's.)'
Based on its conclusions that `Telemeter `has a marketable system whose com-
mercial operations on a regular basis would be feasible, Telemeter is now nego-
tiating with a potential franchise holder in Montreal, Canada, for the establish-
ment of a regular commercial cable subscription TV operation in that city.
Arrangements have been made for similar franchises in the United States in
Atlanta, Georgia; Miami, Florida; Dallas and Houston, Texas.
B. REPORT ON EPOBICOKB
1. Audience Acceptance antI support
(a) Pretinv(oiari, Publ~io Survey
To determine the degree `of acceptance and support which subscription television
is able to obtain `from `members `of the public in a position to make a free choice,
the groundwork for Telemeter's studies was initiated by a survey conducted by
Canadian Facts, `Ltd. in June, 1959. In that survey 400 Etobicoke families selected
at random were asked about:
1. ExIsting TV viewing habits
2. Types of TV programs preferred
3. Awareness of prices paid for various forms of entertainment available
in and around Toronto
4. Awareness of Telemeter and degree of interest in it
5. Willingness to pay for entertainment at `home and to what extent
This initial servey revealed the following:
(a) Nine of ten homes' were TV equipped
(b) Fifty-one percent of the males and 29 percent of the females inter-
viewed indicated an awareness of `Telemeter, although there had been little
concentrated promotion up to that time
PAGENO="0373"
369
(a) Forty-three percent of the respondents expressed interest in Telem-
eter service
(d) Seven of ten said they would pay $1.00 for current motion pictures
in their homes
(e) Two of three would pay $1.50 for a New York originated j~lay
(f) Seven of ten would pay $1.00 for a musical from the Royal Alexandria
Palace Theatre in Toronto
(5) Audience Acceptance
The actual field experiment which followed the survey passed through two
stages of audience development before it settled into a pattern of stability from
which meaningful results could be drawn.
Initially, a promotional approach was adopted In achieving mass circulation in
the shortest possible time. Service was offered to all corners at random at $5.00
per cable drop-off, including installation of the Telemeter unit and no service
charge thereafter. Novelty, curiosity and a degree of over-zealous salesmanship
brought a multitude of orders. About 5,500 subscribers were enrolled in lens
than a year.
When the novelty receded and curiosity gave way to casualness, it became
evident that mass circulation for the sake of numbers bred indifference among
a segment of subscribers who lacked genuine interest in this form of specialized
service. In sum they became "sometime spenders."
A second and more reasoned approach was initiated 18 months after the
cable system was launched, when cable service was extended to a contiguous
area-the community of Mimico-and 2,000 additional families were brought
within reach of the Telemeter grid.
An installation fee of $15 was requested of Mimico subscribers plus a com-
niitment to pay $15 per annum thereafter as a service charge.
Studies were launched to compare the response of the Mimico audience with
that of the Etobicoke group and evidence mounted after due allowance for an
extended period of novelty, that the new subscribers with a greater equity in
equipment installed in their homes-plus the obligation of an annual service
charge-were making more frequent use of Telemeter than those bound by no
financial obligation.
Thereupon, steps were `taken `to equalize both groups of subscribers. The $15
annual service charge was appended to contracts `of subscribers in Etobicoke-
with a 90-day notice of change. The expected `defections followed among sub-
scri'bers who had shown indifference to the `service.
Telemeter's 2,500 families in Etobic'oke and Mimico, linked to the cable
system, represen'ted a realistic audience of interested subscribers whose viewing
habits and progran~ desires were carefully screened and respected. Their fre-
quency of usage-selee~ive with programming offered-was far more `stable
than during Initial stages of the Etobicoke experiment, a portent of what might
be expected in terms of interest and average spending when subscription tele-
vision service is expanded to `encompass vast numbers of homes and subscribers.
In its five years of uninterrupted service, Telemeter luza establ48hecl, beyond
question, that there is a large audience willing to pay for entertainment in the
home on a continuing basis and, thus, has demonstrated that the TunArim Ix
Tiiz HOME performs a service to members of the public who are unable, or find
it inconvenient, to avail themselves of facilities away from home.
Prime pillars of programming were motion pictures and "blacked out" `sports.
The extent of subscriber interest in them was evident in a later `survey con-
ducted for Trans Canada Telemeter by `Oanadian Facts Ltd. In response to a
question among 400 subscribers' families as to the "best things about Telemeter,"
the poll showed:
Percent
(1) Good movies, current movies (64% men-70% women) 67
(2) Sports events (&~% men-27% women) 32
(3) No commercials (24% men-22% women) 28
(4) Being able `to see current movies at home; no baby sitters (9%
men-10% women)
(5) See good dramas; new plays (15% inen-13% women) 14
(6) Educational programs (8% men-13% women) -
PAGENO="0374"
370
Audience penetration studies, based on taped information recorded in Tele-
meter units confirm these findings. They show the following:
1. `ChoIce of film entertainment by Telemeter's Theatre In The Home
audience parallels that of the regular theatergoer. Feature films that develop
`box-o~ce resistance at conventional theatres or drive-ins invariably achieve
low penetrations among Telemeter subscribers despite the convenience of
being able to buy such attractions at home for a single family admission
charge.
2. "Blacked-out" sports events with high topical interest attain excep-
tional penetrations among home viewers. Conversely, sports attractions: with
contenders whose fortunes may lag temporarily, win fewer pay TV devotees
than teams, or contestants, with winning ways
A striking example of parallel attitudes among Home Theatre subscribers
and audiences patronizing theatres in their preference of identical entertain-
ment may be found In figures published in Variety, the theatrical weekly, In
January, 1962. At that time the trade publication estimated the anticipated total
film rentals of highest grossing motion pictures released in 1961.
The top five films shown on Variety's chart matched in exact categorical
order the highest audience penelrations achieved that year among Telemeter
subscribers:
Picture
Anticipated
rentals
estimated by
variety
Telemeter
audience
penetration
(percent)
Absent Minded Professor
The ParentTrap
Swiss Family Robinson
World of Suzie Wong
101 Dalmatians
$9, 300,000
9,100,000
7,900,000
7,300,000
6,400,000
42
35
32
28
22
`
Audience responsiveness to feature motion pictures `on Telemeter, It has been
found, Is not related to the price of admission. A 25% increase In price for mo-
tion pictures of high critical merit, has proved to be no deterrent. Most features
on Telemeter were shown at $1.00 per subscriber family. About 25 percent of
the total had been scaled at $1.25.
Herewith Is a comparison of audience penetrations for motion pictures scaled
at $1.25 and $1.00:
$1.25 Admission $1.00 Admission
Percent of Percent of
audience audience
penetration penetration
Gy 10 GIgi 52
Whatever Happened to Baby Jane- 20 Ten Commandments 42
The Great Escape 26 The Interns 23
Hud 16 Mr. Hobbs Takes a Vacation 16
Days of Wine and Roses. 15 Period of Adjustment 14
Bye Bye Birdie 15 Barabbas 14
Come Blow Your Horn 14 Son of Flubber 26
The VIP's 25 New Kind of Love 12
Love With a Proper Stranger 15 Fun in Acapulco 20
- Sword and The Stone 17
Misadventures of Merlin Jones---- 16
Over a period of nearly five years, the away-from-home games of the Toronto
Maple Leafs had achieved an astonishing average audience penetration of 27
percent-ranging from a high of 51% for one game to a minimum of not less
than 17%.
Here, again, fluctuations in price of admission bad no bearing `on the sub-
scriber audience's willingness to purchase the events. During the 1960-61 hockey
season, games were offered at $1.00 per subscriber home. Admission was increased
to $1.25 the following year and thence scaled to $1.50. Audience penetrations re-
mained uniformly the same.
The nine professional football games of the Toronto Argonauts televised to
subscribers In 1961 were scaled at $2.00 per home-and cumulatively averaged
PAGENO="0375"
371
about 23% penetration. "Blacked-out" sports, it is clear are destined to be a
bulwark in scheduling entertainment for the Home Theatre audience.
Special Telemeter productions, integrated with motion picture fare and sports,
achieved a high overall audience response. An example of this mixture of pro-
grams with a diversity of viewer interest was demonstrated the week of April
2 to 8, 1901 when the stage musical, "Show Girl" was "piped" live from New
York to Etobicoke and offered subscribers at $1.50 per home.
Playing concurrently on Telemeter's two other Home Theatre channels were
the then current motion pictures "Butterfield 8" starring Elizabeth Taylor and
a popular British film "Doctor in Love," each scaled at $1.00 per subscriber
home. The three presentations achieved a cumulative audience penetration of
7~%-30% for "Show Girl," 20% for "Butterfield 8" and 11% for "Doctor in
Love." It is estimated that had hockey been in season at the time, total audience
saturation undoubtedly would have been achieved.
(c) Au~e~.uye Support
As has been noted' above, audience responsiveness is in direct ratio to the
stellar nature and to the volume of attractions offered. For example, during a
specified test period, the amount of income generated in the Telemeter system
depended solely on the amount and type of programming provided. Average in-
come per week per customer fluctuated from about $2 weekly, with varied but
limited programing, to about 80 cents per week with only hockey and a part
of the motion pictures `then being currently released to the theatres in the area.
Mr. WRIGHT. So far as I know this is the only airborne type of
thing that was ever done. Most of the others were cable systems.
Mr. MACDONALD. Would you conclude that this experiment was a
success?
Mr. WRIGHT. This experiment was a success because it gave us the
information that we were looking for. I don't mean that an experi-
ment on this limited basis was a financial success or it made money but
it gave us the facts from which we could see that projecting this out it
would be an economically viable useful thing that would be the kind
of thing that could support a lot of UHF stations that otherwise are
either going to be off the air or are not going to go on the air.
Mr. MACDONALD. Do you feel that any further experimentation is
necessary?
Mr. WRIGHT, Mr. Chairman, I don't know what more experimenta-
tion you could really have except this.
Mr. MACDONALD. Mr. Preminger said that Hartford did not prove
anything because it only involved 3,000 or 4,000 or 5,000 sets, There-
fore what happened to the 5,000 or 6,000 sets is not really indicative
of what would be the end result if it were done all over the country.
Do you have any comment about that?
Mr. WRIGHT. I did not mean to indicate that Hartford gave us all
the answers. It by no means did. If the Commission would let us go
ahead we would be going ahead to move in one large city on a large-
scale basis, a much bigger basis than Hartford. We will learn an
awful lot more about that before it goes to any other cities.
It is entirely possible, we can't guarantee you that the competition
that we are going to face in connection with this is not going to make
TV tough for the thing to succeed. We can't guarantee that it is going
to succeed. We are not sure of that.
I will say this: that 8 years from now if the FCC lets us go ahead
you will then see in a major city a large-scale operation of this.
Before it is something that is spread over the entire country you
will have ample opportunity to determine whether or not these regula-
PAGENO="0376"
372
tions that the Commission has promulgated are proper regulations,
whether they are adequate, whether they are unduly restrictive, or
whether this thing is something that Congress should, by golly, pass
a law and outlaw.
Mr. MACDONALD. On that point, perhaps it is in this blue book, I
have not had a chance to go through it but who do you think has the~
basic jurisdiction, this committee or the FCC?
Mr. WRIGHT. The basic jurisdiction obviously is in the Congress
of the United States. They passed the communications law.
Mr. MACDONALD. Do you think the FCC had jurisdiction to do this
in the first place?
Mr. WRIGHT. Yes, sir; as I mentioned before, we got opinions of
counsel that told us this question. I don't mean to suggest by that that
this Congress cannot, at any time that it feels that the act needs amend-
ing, change the Commission's jurisdiction, in any respect it does not
have the full power and right to do it.
Mr. O1'rINa~r~. Mr. Chairman, could I ask one more question?
My feeling on the blackout situation is that any blackout is in
restraint of trade and should not be permitted. How would you folks
feel about a regulation prohibiting any kind of sale of exclusive
rights? That is to say, you could buy the rights and put it on pay
TV but you could not exclude the networks from competing and
putting on the same show.
Are you for that kind of competition?
Mr. WRIGHT. I can't see any objection to that kind of thing. I can't
imagine our making any kind of deal for a product that provided
it would not be shown on free TV for a period of time.
Mr. OTTINGER. Does that go for your associates in RKO, too?
Mr. FLAKE. Yes; it does.
Mr. BROWN. I want to ask another question on a completely different
angle.
If the amount that you are charging for having this little black
box on the television set to provide the pay TV program is uniform
for all receivers, how are you going to keep your friendly neighbor-
hood bar from having the things on there and then charging every-
body a quarter to walk in the front door or you have to come in and
buy a beer in order to watch it, or, you know, enterprising Members
of Congress might invite their friends over and charge them to watch
their pay TV set in the living room, a sort of extension of commercial
activity in this area?
Mr. WRIGHT. We have not really had a~iy. problems that way, Mr.
Brown, yet. We put it in the veterans' hospitals and things like that
free. There is absolutely no restriction on the home subscriber.
If he wants to have all his neighbors on the block in and he can
afford to buy the beer and peanuts for them-maybe the fellow next
door has a box, too, and they could take a turn with the box.
One family will see it at this house one day and the other family
will see it at the other house the next day. I would assume that if
this box got to the point where people were taking it and using it
commercially to charge admissions on any wide scale that we would
have problems with the people who owned the copyn~hts of the
things that we are showing because we are primarily showing this for
home television viewing and that would get them upset and we might
PAGENO="0377"
373
have a problem of trying to control that if it became a problem which
so far as I know it has not.
Mr. MACDONALD. Thank you very much, Mr. Wright, on behalf of
the committee for coming here and giving usa lucidand well-thought-
out presentation.
Mr. WRIGHT. I appreciate your courtesy and interest.
If there is any more information desired, we will be delighted to
supply it. We have been working on this a long time. We have worked
hard. We hope we will get a chance to let the public decide whether
it is a proper service.
Mr. MACDONALD. Thank you very much.
The hearing is adjourned until 10 a.m. in the morning in this room.
(Whereupon, at 12:15 p.m. the subcommittee adjourned, to recon-
vene at 10 a.m., Thursday, October 12, 1967.)
PAGENO="0378"
PAGENO="0379"
SUBSCRIPTION TELEVISION
TRURSDAY, OCTOBER 12, 1987
Hotsi~ o~ REPRESENTATIVES,
SUBC0MMITThE ON COMMUNICATIONS AND POWER,
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,
Washington, D.C.
The subcommittee met at 10 a.m., pursuant to notice, in room 2322,
Rayburn House Office Building, Hon. Torbert H. Macdonald (chair-
man of the subcommittee) presiding.
Mr. MACDONALD. The hearing will come to order.
We are honored this morning by having the dean of the Democratic
Party here in the house to testify before us, the chairman of the
Judiciary Committee, the Honorable Emanuel Celler of New York.
It is a great pleasure to see you here.
STATEMENT OF RON. EMANUEL CEILER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW YORK
Mr. CELLER. Thank you, Mr. Chairman. I thank the rest of the
members of the committee.
We usually say one man with courage is a majority. I can say two
men with courage is a majority now.
Gentlemen, I appreciate the opportunity of appearing before this
committee which throughout this week has been earnestly probing the
critical problems raised by H.R. 12435, a bill which would, by amend-
ment of the Communications Act, preclude the FCC from authorizing
the broadcast of pay television programs.
The proposed fourth order and report transmitted by the panel of
three FCC Commissioners constituting the Subscription Television
Committee, recommends that the Commission establish an over-the-air
subscription television-STV-service for the Nation and adopt cer-
tain rules governing that service.
This would entail authorizing the exaction of fees for program
reception which could affect a potential 80 percentr-I repeat 80 per-
cent-of the country's television set owners.
I appeared before the full Commission and urged that it reject this
departure from our traditional system of free, program reception, and
leave inviolate the spectrum devoted to public broadcast frequencies.
Just so, I appear here today and urge this subcommittee to approve
the principle of H.R. 12435 which would prevent the inauguration
and establishment of subscription TV.
In my view, the developments of the past 12 years, since the FCC
has been stewing over subscription television-including the experi-
mental pay television broadcast operations conducted in Hartford,
(375)
PAGENO="0380"
36
C&nn., as well as the operations by wire in suburban Etobicoke,
Toronto, Canada-fail to support, and in large measure contradict, the
basic conclusions and recommendations advanced by the Subscription
Television Committee.
I note that the chairman of the FCC committee filed a caveat stat-
ing that his agreement that the report be submitted to the full Com-
mission did not imply his endorsement.
Indeed, Commissioner Wadsworth, at the outset of the argument
before the FCC last week, made clear his concern about the validity
of some of the fourth report's basic premises.
A decade ago, our House Antitrust Subcommittee, of which I am
chairman, completed its extensive hearings and report on the major
problems of achieving a truly nationwide and competitive system of
television broadcasting, compatible with the avowed obj~ctives of the
Communications Act of 1934.
The vital issues before the subcommittee in these hearings have
been a matter of particular and continuing concern to me for an even
longer period.
In this context, I was impelled in 1957 and again in 1960, to con-
vey to the then Chairman of the Federal Communications Commis-
sion, my evaluation of the added burdens and dangers which the
introduction of experimental subscription television would create for
the traditionally free television system authorized by Congress.
In this connection also, I introduced legislation designed, as is the
bill now before the subcommittee, to prohibit toll television charges
for home receivers.
On Tuesday, October 10, 1967, my good friend Otto Preminger, the
movie maker, testified here in support of pay TV. According to the
newspapers, his appearance was both entertaining and informative.
I have long admired Otto Preminger, particularly his ability to
make and distribute successfuly the movies that have earned him
well-deserved fame.
Do not be misled, however, by his geniality and by his enthusiasm.
You know, and I know, why Otto Preminger appeared before this
committee. He was not here to advance the forces of free enterprise.
Otto Preminger was here because he wants to sell his movies. He has
his own ax to grind.
He is very successful in selling movies through movie theaters.
Now he wants to move the movie box office to the living rooms of the
United States.
Why does he want to do this ~ It is because he knows he can make
more money from his movies with the box office in 55 million living
rooms than he can, through negotiation with the networks.
Otto Preminger says that the television setup we now have is not
"free." It is "Madison Avenue propaganda," he says. That may very
well be but I ask you, gentlemen, did the people have to pay $2 to turn
on the television set in their living room to look at the World Series ~
Did the viewers of the ABC network pay $2 or more to turn on their
living room television set to see Otto Preminger's movie, "The Man
With the Golden Arm"?
ABC paid Otto Preminger $650,000 for "The Man With the Golden
Arm," This was after a successful showing in the theaters of the
United States. If 20 million people paid $2 each to see it in their living
PAGENO="0381"
377
rooms, that would have made $40 million revenue from that one
showing.
Obviously, Mr. Preminger thinks under pay TV he could get a
bigger slice than $650,000.
He told you that the networks would not close down, that they
would just work harder. I agree. They will work harder to get into
pay TV. What then would happen to free competition? Otto Prem-
inger would then cry with hindsight tears.
On reviewing the voluminous fourth report submitted by the FCC
Subscription Television Committee, I am convinced that today, more
than ever, the major pitfalls to which I directed attention still threaten
and would in no wise be eliminated by the restrictions or so-called
"safeguards" with which the FCC Committee would hedge pay-tele-
vision operations.
Measured by any objective standard, the experimental test carried
on at Hartford, Conn., over the past few years falls far short of pro-
viding the meaningful and "significant demonstration" of trial oper-
ations for subscription television, which the Commission deemed
prerequisite for further action.
To premise a full blown, untried, and highly complex pay-television
system upon deductions drawn heavily from the shallow Hartford
experience, is to erect a towering edifice upon a quicksand foundation.
While recognizing the manifold inadequacies of the single Hartford
trial as the "projected basis~" for a "new service" to be launched on a
nationwide basis, the FCC Subscription Television Committee never-
theless takes comfort in the view that it provides "some attachment to
reality as opposed to mere conjecture that existed before."
The phrase "some attachment" is rather flimsy as an argument.
Be that as it may, there can be no justification for a reckless gamble
on so tenuous a basis with a natural resource which belongs to and is
so widely utilized by the people at large. Such an approach would be
in derogation of "the overall public interest," which the Commission
has affirmed must be the touchstone for reaching its decision in this
matter.
Insofar as demonstrating any public wish for pay TV, the Hart-
ford test was completely negative. On a 3-year basis starting in 1962,
less than 1 percent of the potential of 675,000 homes in the station's
service area subscribed. In fact, fewer than 5,000 families, or less than
three-fourths of 1 percent of the potential audience subscribed at any
one time.
There were also a substantial number who dropped out. The average
~subscription audience to any one program (from among all those who
subscribed) was less than 6 percent.
I have failed to find in the pages of the fourth report, or in any
other quarter, any indication of an expressed public desire or pressing
need for the institution of a pay television system. I am, therefore, at
a loss to understand how an affirmative decision by the FCC on an
issue of such magnitude and so fraught with risk, can be justified at
this juncture.
Where is this public demand? From Zenith? From Preminger and
all those who have axes to grind? Tell me where the public demand is.
What organizations throughout the Nation, credible organizations,
have demanded, have come here and asked the Congress for pay
television?
PAGENO="0382"
378
We begin with the basic premise that today the programs of our
present television system are free to the viewer, and that the sponsor
pays the cost.
It is now proposed that we jump headlong in a radically different
direction. Let the viewer pay. In other words, it is advocated that a
tax, a nongraduated tax, if you please, be imposed on the one who
turns the knob. The television spectrum is (and this cannot be re-
peated too often) a national resource belonging to the people.
To put it bluntly, pay television is like unto wheat grown on my
land, harvest reaped by others, with a demand made upon me for the
payment of rent.
Pay TV will affect every viewer in the land since we know well that
the level of income has no bearing at all. upon ownership of a tele-
vision set. There are some 55 million television homes in the United
States. Over 90 percent of those in the $4,000-and-under income own
sets. Let us ignore them, shall we?
After all, what place do these viewers have in this argument? In-
deed, let them eat cake. In other words, "the hell with them."
Logically, then it follows our networks, as they have stated in the
past, will reach into this field. This intention was reaffirmed by net-
work spokesmen before the FCC last week.
Agam assuming the success of pay TV, we are very likely to see
a dismaying competition between sponsored television and pay TV for
major sporting events, movies, leading personalities, et cetera, if
indeed the networks have not by that time moved completely into that
area.
I say that to turn the cost-and I have said this before-of a tele-
vision set into a mere downpayment to be followed by a lifetime of
installment charges for the privilege of enjoying a public resource
would be an act of complete irresponsibility and an utter disregard of
the public interest.
Sponsored TV is surely capable of "good" programs-and that, of
course, is a value word-and that it has not done so is due certainly
in part to the laxity and ineptitude of the Federal Communications
Commission, partly to the apathy of the public, and partly to the short-
sightedness of the networks.
Instituting pay TV will unquestionably relax the responsibility
placed on the Commission and the present broadcasting systems.
Let us face the fact and face it squarely-that television for profit,
whether free or toll, whether paid for by the advertiser or the viewer
by a set fee, must remain a popular medium to succeed.
The viewer at all times has a privilege of selectivity. The viewer who
prefers the so-called cultural programs is by his very nature a highly
selective creature. Hence, pay TV will not change the nature of the
problem. The heart of the problem lies in the television industry itself,
and, as I have said before, both in the viewing public and the regulating
agency as well.
When it comes to programing, I believe that the television industry
is as much a victim of the rating practices as is the viewer, and whether
there is or is not pay TV the level of TV will remain what it is unless
the industry and the FCC assume the responsibilities with which they
are charged. If pay TV is to be profitable the very same problems which
beset the industry today will drown pay TV operations.
PAGENO="0383"
379
It is interesting to observe that the Fourth Report recommends
FCC regulation of programing of cash box TV. As Chairman Hyde
has confirmed2 this is a new and brave concept-interfering with the
nature and kind of telecasts, and ordering the stations to use this
proportion of feature films and that proportion of sports events.
Similarly, the FCC will say "no commercial ads."
We are dealing with a powerful industry. How long would the Com-
mission withstand the pressure of that industry to permit mercantile
ads on STy? How long could the Commission ward off the blows to
change the nature of the programs?
It is interesting to note that for fear of being guilty of "censorship"
and violation of section 326 of the Communications Act, the FCC in
the past studiously avoided touching programing-e~ven a minimal
of programing.
If it had taken the plunge long ago and had really regulated in the
public interest-had regulated and policed programs-we would have
a far healthier free TV industry today. But it failed and refused to
regiment or regulate programing and thus quality was sacrificed to
quantity-quality of telecast was deemphasized in order to permit
more programs with highest appeal to the lowest intelligence-with
the greater cash box return.
If we have pay TV I doubt that the Commission will remain fixed
in a determination to regulate by controlling programs and prohibiting
ads. I doubt that the Commission can succeed in this.
The odds against it may be too great. Just as water constantly
dripping on a stone can wear it down, so unremitting pressure of many
sorts will wear down the Commission.
The fact is that even now pay television enterpreneurs want the
grand prize free of any restrictions, At the very threshold, they want
no rules. They want to be utterly free to do everything and anything
they wish with a public resource.
We are told by the Subscription Television Committee that pay
television will provide a beneficial supplement to conventional tele-
vision programing; that the impact of subscription television on con-
ventional television will be minimal; and that while some preempting
of time and siphoning of programs from free television could occur
to a degree contrary to the public interest, specially tailored regulatory
safeguards will in the main be effective to protect free television (not-
withstanding that some program siphoning from free television will
occur in any event).
The FCC committee also looks forward to "competition" between
the two systems with beneficial programing results.
Let us first take heed of where this might lead in terms of the
tremendous built-in profit potential of pay television. An illuminating
and, I believe, realistic insight is provided by the statement by the
Association of Maximum Service Telecasters in the recent argument
before the FCC.
Once hegun, the potential revenues of STY are almost unlimited. The STY-
report has very conservatively estimated that subscription TV penetration would
be approximately 10 percent to 20 percent. On the STY report's figures, there Is
a potential for STY being authorized in markets constItuting 80 percent of the
nation's television homes or 45,100,000 television homes. At the 20-percent pene-
tration rate, this would give nationwide STY a conservative total potential of
approximately 9 million subscribers, or 16 percent of the total television homes.
PAGENO="0384"
380
Assuming only this level of penetration and the report's low projected revenue
of $105 a year for each subscribing home, this would give SPV at least potential
annual revenues of $945 million.
Or almost a billion dollars.
Now those figures may be high but those are the potential figures.
You can subtract from them if you wish but make as deep a cut as you
want, you can see what "gold there is in them thar hills," gentlemen.
As to programing, in years past, proponents of pay television pre-
sented a most alluring picture with a promise of supplemental and
superior programing to suit the divergent tastes of the discriminating
viewer.
This indeed was among their foremost arguments. It was claimed,
as stated in the FCC's first report on subscription television that "sub-
scriber financed broadcasts could and would provide a wider choice to
members of the public interested in the fine arts, operas, educational
and informative material and other similar kinds of programs."
This is a thesis I never accepted.
Some 3 years ago, I had occasion to write:
A careful study of pay television broadcasting persuades me that the assign-
ment of a segment of the television spectrum to a subscriptl~n service will
merely increase viewers' costs and broadcasters' profits without producing any
long-term improvement in programing. Merely because pay television would col-
lect new revenues it does not follow, as its proponents predict, that it would
produce programs of better quality. Actually, there is no dearth of programing
resources, whether financial, technical, or artistic. Present-day television is capa-
ble of presenting superlative programs, and sometimes does. All that is needed
is producer confidence in the validity of the public taste. But pay television cannot
be expected to devote itself exclusively or extensively to artistic or cultural pro-
grams. It may reasonably be expected that pay television, much like present day
commercial television, will be subject to the same pressures to cater to the mass
audience for maximum profit.
In precisely the same vein, the authors of the Fourth Report now
conclude that the present "reality is that the major part of the sub-
scription television programing, as opponents had argued will be of
the kind that will appeal to a mass audience." (Fourth Report, para.
56.)
I note that during the first 2 years of the Hartford trial, feature
films constituted 86.5 percent of all television programing; "special
entertainment such as operas, ballets, concerts and recitals constituted
5.5 percent; and educational features, viewed by only a handful of
subscribers constituted only 3.2 percent of the total."
Pay TV will again appeal to the lowest common denominator. If
adopted, I predict it would become as former Chairman Minow said,
a second "vast wasteland."
I applaud the application of free enterprise to free TV. Free TV
in nongovernmental hands is superior to any other system. There is no
suggestion anywhere, I hope, which says the TV chains or networks or
the separate stations must act as eleemosynary or philanthropic
enterprises,
Nor is there any edict anywhere that their profits must constantly
reach skyward without any restraints or limitations whatsoever. They
have a monopoly-limited in a sens&-yet a monopoly of the air
waves.
But as recommended in the FCC's fourth report there is to be no
limit on profits for pay TV. It is well to remeniber that even the
PAGENO="0385"
~81
Redwoods do not grow up to Heaven. Yet as to toll charges or toll TV,
the sky is the limit The only restraint is in what the traffic will bear
Diver~~fication in programing, insofar as the Hartford and Etobi-
coke operations show, must be sought elsewhere. Hope lies in the rapid
growth of free educational television service that has taken place such
as in National Educational Television providing educational and ciii-
tural programing.
I am encoura~ed by projects such as the projected nonprofit Corpo-
ration for Public Broadcasting, which would be financed by Govern-
ment `and private funds. The reform is approached in the bill recer~tiy
passed by the House, and referred to by Chairman Macdonald at the
outset of these hearings.
It has been stated that the corporation will probably concentrate on
promoting cultural and public affairs programs, including operas,
serious dramas, and documentaries. If we permit pay TV and pay
TV fails, we will not only have indulged in wasted motion, but used
that wasted motion to inhibit the progress of educational TV.
While feature films were a mainstay of the Hartford programing-
as they concededly would be in nationwide pay TV-it is well known
to any television viewer that in recent years they have likewise taken
an important place in conventional television programing.
Nor is there any reason to assume that free television is not moving
in the direction of more recent film showings since the, backlog of
older films is being rapidly consumed. If pay television programing is
to be justified on this basis, the case is weak indeed.
With respect to sports, the case i~ weaker still. The plethora of sports
events on free television over the past several years is a well-known
fact The fourth report nevertheless stresses the occasional champion-
ship boxing match or "blacked out" home games in football-re-
strictions which have been imposed on free television broadcasts.
This surely provides no "beneficial supplement" to the adequate
sports programing the American public now receives For example,
NBC on Sundays practically devotes all afternoon to football and
baseball.
Nor am I persuaded that the regulations against siphoning proposed
in the fourth report, would in any sense be effective. The Subscription
Television Committee concedes:
Of the various arguments raised by subscription TV opponents, we find that of
so-called selective program siphoning most persuasive It Is at least conceivable
that a successful nationwide subscription TV system even though possibly n~t
having as m~ich money as free television to spend for program product, could, by
directing its purchase at select programs, e g the world S series or professional
football gaIns, take them from free television and require the huge audience of
those programs to pay to see them or not see them at all (fourth report, para..
111.)
I believe it is inevitable, for example, that despite the initial re-
strictions conceived by the Subscription Television Committee, pro.
fessional sports would sooner or later find a pathway to toll television,
for the additional pot of gold at the end of the rainbow, which this
multimillion-dollar mstitution hardly needs.
I do not regard the regulations set forth in the fourth report as
effective to prevent destructive siphoning of programs from free
television.
86-899 0-67-25
PAGENO="0386"
382
In the event that pay television is successful on a nationwide basis,
there is no guarantee that even the present regulations will not be
eroded.
This is understatement in view of FCC Commissioner Loevinger's
observation at the recent oral argument to the effect that there is
"general agreement among proponents and opponents" of pay TV
that "the program supervision proposed" by the FCC Subscription
Television Committee, "is impractical, ill-advised, unwise, illegal, and
unconstitutional and a few other things."
That comes from a Commissioner himself. You judge for yourself
what that all means, gentlemen.
Permitting subscription television would divide the viewing public
along economic lines according to ability and willingness to pay. Ap-
parently STV would in the main serve an affluent minority wishing
to view at home relatively new movies or sports events not available
on free television.
The Subscription Television Committee, confronted with the con-
tention of subscription TV opponents, "that 30 percent of the Nation
would appear unable to afford STV" and therefore its authorization
would not be in the public interest stated, fourth report, paragraph
75:
We do not find their arguments convincing. Among other things, we did ob-
serve that under the rules which we adopted herein, all those in the lowest
income group who own television sets will be able to continue to see ample
amounts of free television programing, so that they will not be deprived of
anything while at the same time a substantial portion of the people will be given
the opportunity to view STY if it so desires.
At best, pay TV condones a discriminatory pattern thatruns contrary
* to our philosophy. Almost one-third of the population of a given com-
munity might be barred from programs utilizing public broadcast
channels to which they might otherwise have had access.
Worse yet, their free television service would be sub)ect to down
grading and depreciation in view of the inevitable siphoning of talent
by_pay television despite whatever restrictions are imposed.
These direful results should stay the Congress from further inaction.
We should promptly and effectively stamp out the false enthusiasm
now generated by a small but powerful group of pay TV tycoons.
By default we have allowed the investor's equity to control what is basically
a public service industry Broadcasting has been treated as though it was some
kind of 19th century mercantile enterprise in which property alone meant
ownership.
Thus spoke Fred W. Friendly in his book "Due to Circumstances
Beyond Our Control."
Well, TV is based primarily upon a Government franchise to use
public property as a monopoly. As such and in return the licensee must
render service in the public interest and welfare and the license is held
only on good behavior It is not a property right
The Government, the people have some interest Frankly in my
opinion it is unreasonable for a station which, when originally fran-
chised, was not expected to make much money, now makes $5 or $10
million a year.
Should a license received originally for little or no outlay become
a legacy with $20 or $30 million without the people who granted the
license retaining an equity in it ~ (Friendly, id., p. 292)
PAGENO="0387"
383
The Supreme Court, in construing the Communications Act, ruled
that the license involved no property right. Yet there is no license
holder who does not feel that he has a perpetual right in the license
even though he must renew it every 3 years. That opinion is bolstered
by the fact that no important station permit has ever gone unrenewed.
Yes, there have been some small stations whose permits were not
renewed but not a single important station. There have been derelicts
of an extreme sort in many of those cases.
Do not create, by refusing to pass the bill, another gargantuan mon-
ster in the form of "coin-in-the-slot" television with assurance of
stupendous profit.
Just as the FCC could not or would not really regulate sponsored
TV, they would not regulate properly pay TV. Thus the evils of
sponsored TV would be duplicated in pay TV.
Finally, as to the jurisdictional issue, I believe there is grave doubt
whether the present Communications Act and its grant of authority
contemplate or embrace the authorization of on-the-air pay television.
I say this despite the views of the Communications Cormnission.
This subcommittee has already explored the issue in depth in the
course of these hearings, and I shall not belabor the point.
Apparently the hand of the FCC will not be stayed even by the
resolution of your parent committee-as well as that of the Senate
Interstate Commerce Committee-that authorization of subscription
television should not be granted unless and until the Communications
Act of 1934 is appropriately amended.
Chairman Hyde, at the conclusion of his testimony last Monday,
testified that the Commission believes it is empowered to act on sub-
scription television in the absence of amendatory action by the Con-
gress. Favorable action on H.R. 12435 would clear the air once and
for all.
You have enough danger signals against pay TV. Heed them.
To summarize, careful study has convinced me that the conversion
of any segment of th~ television spectrum to the service of toll tele-
vision would increase viewers' costs and broadcasters' profits, and this
without any substantial hope of producing any long-range improve-
ment in programs.
Free television, as we know it, may be downgraded to a secondary
and economically untenable position. The best existing programs the
public is accustomed to receiving without charge may be drained off.
The trend, noted by the House Antitrust Subcommittee, toward the
monopolization of outstanding talent and program product will be
accelerated. The television audience will be divided along economic
lines. A method of broadcasting will be inaugurated that may drive
free network television as we know it from the air waves.
The foreseeable result is a television system in which we will all
be paying for much the same TV fare which now comes to us without
cost.
That is my statement, gentlemen.
Mr. MACDONALD. Thank you very much, Congressman Celler.
As you were talking I was thinking, and once again you do not
have to answer if you do not want to about this but I asked the ques-
tion of the witness the day before yesterday and I know you are a true
expert in this field.
PAGENO="0388"
384
One of the problems that I think perhaps drives people to being
receptive toward pay TV is the fact that in certain areas events are
blacked out.
The witness I asked said, and he represented on of the biggest net-
works, there might be antitrust action lie if the networks agreed not
to have blackouts in certain areas in which sports events are ocur-
ring. He said that competition was fierce, as I recall his words, and if
all three networks, the three largest networks, got together and agreed
that they wouldnot submit to blackouts in any given area even though
the participant in the sports event, a fight or football game or some-
thing like that, asked for it in their contract, and I know you are an
expert in this field and, of course, it will be a curbstone opinion and I
will not hold you to it, do you think that antitrust action could lie
when this is not a restraint of trade but rather a broadening of trade?
Mr. CELn~n. Technically and on principle it is a violation of the
antitrust laws for the networks to get together and to do just that but
I doubt very much whether the Department of justice would prose-
cute under those circumstances.
It would be a simple matter for the networks to make arrangements
with the Department of justice, the Antitrust Division, and get im-
munization for those particular acts because they are worthwhile and
they are really in the public interest.
That has often been done in other lines of endeavor. Thus, there
would be no danger at all, I am quite positive of that, of any prosecu-
tion of the antitrust laws under such circumstances.
Mr. MACDONALD. I am glad to have you say that because that is what
I thought, myself.
The second and last question is this. We had a bit of a run-in about
the copyright problems on the floor, if you recall, on CATV. I was
wondering if you could elucidate further about that.
Do you think that CATV has changed the acceptance of pay TV?
Mr. CELLER. When we had the copyright bill up we eliminated all
provisions concerning CATV, awaiting further developments in
CATV.
What I have said this morning has nothing to do with CATV.
CATV is quite essential in certain areas of the country which can't
get reception at all because of the geography and nature and topo~-
raphy of the country. This has nothing to do with CATV. That is
perfectly laudable.
Mr. MACDONALD. Thank you very much.
Mr. Kornegay.
Mr. KQRNEGAY. Thank you, Mr. Chairman.
Mr. Celler, my colleague and good friend, it is certainly nice to have
you before the committee. We appreciate your coming over and taking
your time to express your views on this matter which, as you can
understand, to the subcommittee is a very complicated and difficult
sort of thing.
I noted your statement and observation that pay TV would be for
the affluents, the wealthy of the country, to the disadvantage of lower
income families.
Some of the testimony on the part of the pay TV people yesterday
indicated that in the Hartford experiment 50 percent of the subscribers
PAGENO="0389"
385
were families with less than $7,000 a year income, the theory and the
reasoning behind it being is that these people could much better afford
subscription television than they couid to take their entire family,
particularly those with a large* number of children, to the movies or
to the place that were being shown. on subscription TV.
Mr. CELLER. The bulk of the Nation's families are not in that class.
There are so many, many, millions, around $4,000 income, and they
are the ones that would be hurt on this pay TV. You must remember,
also, that as I indicated, I don't know if you were present, there is no
limitation whatsoever on the cost that could be charged for pay TV.
It could be 25 cents for a movie or it could be 50 cents for a movie, it
could be $2 for a prizefight.
The only limitation is what the traffic will bear. Once they get a
foothold and they are able, as I indicated, to siphon off the best of
talent, and the best of sports events, if perchance they could get all
the World Series over pay TV and if they paid enough for it they
could get it, the people probably would be likely to pay $2.50 to $3,
maybe $5, to see the last game of the World Series.
They would pay $5 to see the game in their home, you would and I
would, too, without going to the ballpark to park the car, wait an hour
for the car to get it unparkeci, take an hour to get to the ballpark
and so forth.
Here for $5 you could see the whole game with utter ease and
comfort. Sure, you would pay $5 probably. Now that can't be paid by
most of the owners of television sets and that would be duplicated, that
kind of event, manifoldly.
Mr. KORNEGAY. I agree that that is one of the problems and the
question I have previously raised in the hearing is whether or not the
Commission would offset the prices.
Mr. CELLER. This would divide the Nation in two classes, those
economically able and those uneconomicafly able to pay the toll. That
is contrary to our American principle.
Mr. MACDONALD. Will you yield?
Mr. KORNEGAY. Yes.
Mr. MACDONALD. I just point out that in the order it is stated that
that can't happen with any program which has been broadcast pr&~
viously, and, therefore, the World Series would not come off.
Mr. CELLER. As I said before also, the rules are ephemeral. It is a
relatively simple matter to get the rules changed in the Federal Com-
munications Commission.
The Federal Communications Commission is of such a character,
and I do not mean to attack anybody in particular, I am speaking of
the institution generally and I would like this to be off the record-
Mr. MACDONALD. Off the record.
(Discussion off the record.)
Mr. MACDONALD~ Back on the record.
I yield back.
Mr. KORNEGAY. Mr. Chairman, this is a littl~ bit unrelated, really
not germane to our inquiry here, but I can hardly let the opportunity
that we seldom have to have your wisdom on these matters to let the
matter go by without asking you this. ~
PAGENO="0390"
386
We are presently scrutinizing in the Congress and in the country
and in the press the method of carrying out and financing elections
in the country. The Senate, you know, has a bill to provide for Federal
revenues to pay for the campaigns of the President and Senators.
The House has under consideration, I think the subcommittee of
your full committee, election reform laws: The cost of running cam-
paigns certainly is in the minds of those who run for pu~b1ic office. I
just want to ask you your thoughts and opinions on this approach.
You stated that television particularly was a highly profitable
adventure. What would be your view on some requirement or re~ula-
tion which required the television stations of the country to provide a
certain amount of free time, a reasonable amount of free time, to candi-
dates for public office?
Now one of the causes for the tremendous increase in the cost of
campaigning has been the cost of campaigning on television. If the
television stations of the country as a public service could provide a
reasonable amount of free time to the candidates for public office-
Mr. CELLER~ I tried to get, for example-and J say this as a pre-
liminary to answering your question-the profits achieved by the net-
works and the stations. I was unable to get a breakdown; they would
not give it to me. Maybe your committee could get it.
You will pardon me if I dwell a bit on it before I finally answer your
question.
Mr. KORNRGAY. Yes, sir.
Mr.. Or~u~. I asked for the television pretax profits. In 1960 the
wholly owned and operated stations of the three chains-ABC, NBC,
and CBS-had profits of $61.6 million. In 1966 it was $108.1 million.
This is before taxes.
In other words, it went from 33-the network profits were $33 mil-
lion in 1960 and the network profits were $78 million in 1966, the three
of them. I could not get a breakdown as to each one of the networks on
that.
Mr. BROrZMAN. What was that last figure?
Mr. C1~r.LEIt $78.7 million. If you add the network stations and the
network profits themselves it goes in 1966 to $187 million.
Now I want to preface that statement before I answer your ques-
tion. In view of those profits I do not think there would be much skin
off the back of these stations to allow Members of Congress or the
Senate or the candidates in presidential elections to have a reasonable
amount of time to show their wares, as it were, to express themselves
on the issues in the campaign.
Mr. BROWN. Will the gentleman yield?
I wonder if we could put in the record the percentage of profit that
that amounts to on the volume of business.
Mr. CEu~R. I will put those in the record if you wish.
Mr. BROWN. Does that include the percentage that is to the total
volume of business?
Mr. CELL~a~.. These are expressions not in percentages; they are
millions. I was wrong when I said percentage. `There are millions of
dollars.
PAGENO="0391"
387
(The following table was subsequently submitted by Mr. Celler:)
TELEVISION PRETAX PROFITS
tin milllonsi
Wholly owned and
operated stations
Network
1960
1961
$61.6
62.4
$33.6
24.7
1962
74.7
36,6
1963
1964
1965
1966
79.9
96.3
102.2
108.1
56.4
60.2
59.3
78,7
Mr. BROWN. I am interested in what percentage of total volume of
business the $33 million profit is or $78 million profit.
Mr. CELLER. I do not have that. You can get that I am sure. You
can get it easier than I can. You can get the splitup.
Mr. Chairman, I think you can get that without any trouble.
Mr. MACDONALD. We will certainly try.
(The following information was obtained by the committee:)
EXCERPT FROM FCO PUBLIC NoricE 5317, AUGUST 25, 1967
"TV BROADCAST FINANCIAL DATA, 1966"
The networks and their owned and operated stations reported revenues of
$1,166.3 million, expenses of $979.5 million, and pre-tax profits of $186.8 million.
The three networks reported pre-tax profits of $78.7 million on revenues of $908.9
million (8.7 percent); network owned stations, $108.1 million on $262.4 million
(41.2 percent) ; and the 593 other stations, $306.1 million on $1,036.7 million (20.6
percent).
Mr. CELLER. Of course, they won't give it to a Congressman unless
he keeps it for himself and he can't make it public. I did not want to
take it because I would have to say something about it. But I got it
from other sources.
I will give you another sidelight on that if I may.
Mr. BROWN. These are all public corporations are they not, Mr.
Chairman?
Mr. MAcDONALD. They are.
I don't really understand what this has to do with pay TV.
Mr. CELLER. Mr. Brown, I can give you some other idea of profits
if I may. This is from Friendly's book "Circumstances Beyond Our
Control" [reading]:
A case record of profits with which I am familiar in a television station is
Providence. In 1955 owners of the Cherry and Webb Department Store who
were the operations of the radio station WPRB, went on the air for original
investment financed by radio profits of a little more than $1 million. Channel 12
in Providence, a city of 200,000 people serves the State with a population of some
800,000 and part of nearby Massachusetts and Connecticut.
Still because the Boston stations also carry to Rhode Island and because
Providence has had difficulties with its economy, WPRO-TV comparably speaking
could be called a bonanza. Yet in 1959 the Cherry and Webb interests sold their
radio and television station to Capital Cities Broadcasting Corporation for $,-
500,000. Today its, president told me the franchise could not be purchased for
$12 million.
PAGENO="0392"
388
WPRO-TV's annual profit is something over $1,250,000, earns the 1959 pur-
chasers more than 19 percent a year on their equity. But WPRO-TV is below
average.
The medium revenue of profitable VHF stations in 1965 was $1,490,000.
That gives you some idea of the considerable profits here.
Mr. MACDONALD. You had better identify the source.
Mr. CELLER. This is page 267 of the volume "Due To Circumstances
Beyond Our Control" by Fred W. Friendly, published by Random
House.
I think under those circumstances arrangements might well be made
to allow free time or a modicum of cost to Members of the House and
the Senate and the President.
Mr. KORNEGAY. And the national ticket. I gather from what you
say, Mr. Chairman, that the cost of that to the television stations
would be so slight it would not have an appreciable impact on their
financial situation.
Mr. CELLER. None whatsoever.
Mr. KORNEGAY. And, of course it would be very helpful to the
candidate, particularly those of us who have limited resources with
which to run for public office..
Mr. CELLER. It would be in the public interest.
Mr. KORNEGAY. Thank you.
Thank you for coming.
Mr. MACDONALD. Mr. Van Deerlin.
Mr. VAN DEERLIN. I hope we would not have to put it to a public
vote whether they let 435 Congressmen and their opponents on every
2 years.
Mr. MACDONALD. I am not sure how high th~ rating would be.
Mr. VAN DEERLIN. I have a feeling I know.
Mr. Celler, I arrived a little late for your prepared testimony.
Do your objections to subscription television apply to subscription
television in any form rather than just over the air?
Mr. CELLER. Only over the air and into the homes.
Mr. VAN DEERLIN. What about into the homes by cable?
Mr. CELLER. By coaxial cable, no. My statement is not addressed
to that at all.
Mr. VAN DEERLIN. Is it not likely that many of the objections you
raise to subscription television would apply regardless of the tech-
nique of introducing the signal?
Mr. CELLER. They might but I don't think that is the issue here, is it?
Mr. VAN DEERLIN. Only insofar as you have raised it in your
testimony.
Mr. CELLER. I have not touched that at all. I personally do not think
that my statements would indicate or could be spread to indicate
opposition to coaxial cable television.
Mr. VAN DEERLIN. Except that if coaxial cable television brought
the World Series for $5 in the coin slot it would have the same effect
as if the signal came over the air. The only question might be whether
the FCC had the power to regulate.
Mr. CELLER. Depending on the circumstances, that may be deemed
purely intrastate. I question whether the FCC would have jurisdiction
in it. That is a grave question.
Mr. VAN DEERLIN. Thank you, Mr. Chairman.
PAGENO="0393"
389
Mr. MACDONALD. Mr. Brotzman.
Mr. BROTZMAN. Thank you, Mr. Chairman.
I have just one question and I think your greatest competency to
testify would be in this area, Mr. Chairman.
Did I understand that it is your legal opinion that the FCC does
not presently have jurisdiction over this particular matter?
Mr. CELLRR. I think that is correct.
Mr. BROTZMAN. You say that, having studied this proposition, is
that correct?
Mr. CELLER. What was that last?
Mr. BROTZMAN. You make this particular assertion, having studied
the legal propositions presented?
Mr. CELLER. Yes, sir, and I think it is incumbent upon the House
to act so as to remove all possibility of doubt. The FCC must have
had doubt because, as I said before, for 12 years they have been stew-
ing around with this question whether they should or should not.
If there were clear-cut decision, their counsel, and they have counsel,
would have told them to go ahead. But they have their doubts, too;
otherwise they would have gone ahead long ago.
I think all doubts should be removed by some affirmative action by
Congress. I don't think Congress can any longer pass the buck, to use
a word of common parlance.
I think it is the duty of the Congress to say something now. Other-
wise they are going to act. By your silence they will act. I don't think
they have a right to act but they are going to act.
Mr. BROTZMAN. I yield to the gentleman from Ohio.
Mr. BROWN. Mr. Chairman, in the same vein, do you feel that the
FCC has or has not the jurisdiction to regulate program content
should we permit pay TV to go on the air?
Mr. CELLER. I would not want to have the Congress determine that
the FCC shall go whole hog on regulation of programing. That might
be an undue interference but I think there should be some words
placed in the statute to give them some minimal authority over what
the traffic is.
As I understand the Supreme Court decision on this matter, when
the Supreme Court spoke of determining the composition of that
traffic there ought to be some words there giving the FCC some
authority. They have always shunned it. They have given the stations
and networks almost free rein to do almost anything they wish.
Mr. BROWN. Does this raise any questions with reference to the
first amendment so far as you are concerned?
Mr. CELLER. Yes, sir. I think we have to be very careful. You are
walking a tight rope.
Mr. BROWN. I would be interested in seeing language which would
permit us to give them some control but not whole hog control over
this delicate area of program content.
Mr. CELLER. When you say regulate I think you involve in the
word "regulation" some modicum of determination of what shall
go over the airways. There must be something like that otherwise
there is no regulation at all, they go hog wild on it, I mean hog wild
in the sense of doing nothing.
I think the time has passed for that.
PAGENO="0394"
390
I think it is essential for this committee to work something out. I
don't want to take on more burdens but we will be very glad to have
our staff worl~ with your staff, if you want it, on words.
Mr. MACDONALD. Mr. Rooney.
Mr. RooNEY. Mr. * Chairman, I want to thank you very much for
your very informative presentation here this morning and make one
personal observation and that is your testimony was both informa-
tive and entertaining.
It is too bad that two friends such as you and Mr. Preminger can't
get together and sort of compromise your views on this subject.
Mr. CELLER. Did you hear my statement? I commented on Mr.
Preminger's statement.
Mr. RooNE~r. I know you did. All the testimony I have heard dur-
ing the past few days have been either black or white, either for or
against. Do you possibly foresee any way in which this pay TV can
be compromised?
Mr. CELLER. I do not see how the issue can be. You are either for
or against pay TV.
Mr. ROONEY. I have heard some good points about pay TV and
you have pointed out the bad points. I just wondered whether or not
there was some way in which it could be compromised.
I have no further questions.
Mr. MACDONALD. Mr. Brown.
Mr. BROWN. Mr. Chairman, the reason I was interested in the
percentage of profits versus just `the flat number of dollars was that
while the dollars sound very impressive you do not have to go to $78
million to impress me, I am impressed with $33 million or even $1
million.
But I do think that the s~stem operates on the percentage of profit
the business makes and sometimes a large total number of dollars
sounds very impressive whereas the percentage might not be quite as
awesome.
Mr. CELLER. You are correct but I could not get that information.
Mr. BROWN. The other question I would like to ask you is this.
I have some figures which I have not been able to establish with
the FCC yet `simply because I have not had the opportunity, but I
am advised that there are 1,239 total commercial station allocations
made by the FCC~ 634 UHF, 605 VHF, and that there are now 616
of these 1,239 stations operating and another 163 which have re-
ceived construction permits but which are not on the air.
Presumably that leaves 460 or roughly a third of the allocated sta-
tions either not operating or utilizing their construction permits, not
on the air.
If that is the case, will we encourage more television presentations
on the available channels of everybody's television set by permitting
pay TV, or can we expect that these stations will all go on as commer-
cial stations drawing their support from the advertising dollar availa-
ble in a community and therefore having an effect on the existing sta-
tions on the air?
In other words, I would presume there are so `many advertising dol-
lars in every community, and if you add another station supported by
PAGENO="0395"
391
advertising dollars, wouldn't you lower the quality of programing as
you lower the potential for making a profit in a community?
Mr. CELLER. I do not quite understand fully the question but I can
probably answer it partially.
The television rates are rather high, they are the highest of all
advertising rates. I think they are too high. If they were in anywise
lowered or could be lowered, if there were more competition, more
stations, they probably would be lowered, it would give more oppor-
tunity for the smaller merchants to advertise their wares and in that
sense you might attract more advertising over the airways.
Mr. BROWN. This is the problem I am citing.
We have some 460 station licenses, allocations made, where the sta-
tions have yet to go on the air for one reason or another. Now, I can
imagine a lot of reasons. Perhaps they could not get the financing. But
if it is such an attractive business based on the advertising dollar, I
would think they would rush to get on the air, that bankers would be
happy to finance such a profitable venture and we would have a greater
opportunity to see more selections on free TV.
Mr. CELLER. Of course, the spectrum is limited and it may be to put.
too many stations on you blur the reception.
Mr. BROWN. No, sir; that is not the issue.
There are 12 available VHF channels on all the sets in my area and
two or three communities that serve my congressional district that are
communities of some size, half million, don't have more than two or
three VHF stations and one or two UHF stations and there is an un-
limited spectrum it seems.
Mr. CELLER. It may be so that the additional TV would not pay in
that area, I don't know. There may not be enough advertising. How
would pay TV help? Pay TV has to go into a very large market or ma-
jor market.
Mr. BROWN. What I am suggesting, sir, and this is where I want.
to get the response, is that if it is because they would not pay as com-
mercial stations with sponsored programs, because there are only so
many advertising dollars, it might be that we could get more stations
on the air if we could put them on as a subscription station.
Mr. CELLER. I don't think so. I think we would have the opposite
because the market is not sufficient to be tapped to get enough to sup-
port a pay TV operation It would not have an audience where there
would be a mass appeal, not enough population probably in that area.
Over-the-air pay TV, with its great initial investment, must appeal to
vast numbers, large numbers, otherwise I don't think it would pay.
Mr. BROWN. Thank you, sir.
Mr. CELLER. And presently, I am told by my aide here, the fran-
chises and potential applications for pay TV are in the leading major
markets, not in the small areas.
Mr. MACDONALD. Congressman, thank you very much for being here.
We appreciate hearing from you.
Mr. CELLER. Thank you, gentlemen.
Mr. MACDONALD. We now have the gentleman representing ABC.
PAGENO="0396"
392
STATEMENT OP EVERETT H. ERLICK, VICE PRESIDENT AND
GENERAL COUNSEL, AMERICAN BROADCASTING COS., INC.
Mr. ERLICK. Mr. Chairman and members of the subcommittee, my
name is Everett H. Erlick. I am vice president and general counsel of
the American Broadcasting Cos., Inc.
I appreciate the opportunity to appear before you today to express
ABC's views with regard to pay television.
The question of whether the public should be required to pay for
radio and television service is by no means a new one.
In the hearings which led to the Radio Act of 1927, industry leaders
joined Commerce Secretary Herbert Hoover and others in opposing
the establishment of the kind of systems in use in foreign countries
requiring the "payment of a fee."
Statutory provisions which might have been construed as authoriz-
ing broadcasters to charge listeners a fee were eliminated in joint con~
ferences by the House and Senate. With these deletions, the leaders of
the bills, which eventually became the Radio Act of 1927, were able
to assure their colleagues that the legislation gave no authority to im-
pose a fee and consequently there was no need to authorize the Com-
mission to regulate rates charged to listeners.
Ensuing developments-between the enactment of the Radio Act of
1927 and the incorporation of its principal provisions into the Com-
munications Act of 1934-confirmed the views shared by Congress and
industry that under the American system of broadcasting, the listener
or viewer should not be charged a "fee" for the program he receives.
This principle had become so well settled that in enacting the `Corn-
munications Act of 1934, the rate or fee question was not an issue.
Thus, by 1927, and even more convincingly by 1934, broadcasting
in the United States had taken on a definite pattern-the cost to be
borne by the sponsor and the broadcaster, with no charge to be levied on
the public. This pattern, fully known and accepted by Congress, was
a keystone of the regulatory concepts embodied in the basic 1927 and
1934 acts.
In our appearance before the House Committee on Interstate and
Foreign Commerce on January 22, 1958, ABC summarized its opposi-
tion to the authorization of pay television as follows:
1. Pay TV will supply little, if anything, that the public does not receive today
on free television-and with each succeeding season television expands its
already rounded program service.
2. If pay TV succeeds, the programs now seen on free TV will move to pay
TV. The public will be the loser, for it will be forced to pay for programs it now
sees free.
3. Those who will suffer most will be people in the lower and middle Income
groups, those who can least afford to pay. These are the ones to whom a tele-
vision set is a means through which they caii bring their families into contact
with everything which is most exciting in the whole field of entertainment, sports,
news and information and, public affairs-indeed, the whole gamut of our
activities as a nation.
4. The Federal Communications Commission was created by Congress to develop
and foster our American system of free radio `and free television-not to author-
ize or encourage another system which could lead to its destruction, without
first ascertaining the will of Congress.
~. Irrevocable changes should not be made in the system which the Commission
was established to aid and develop until the `Congress expresses its will.
PAGENO="0397"
393
6. Commission experience demonstrates the difficulty of "turning the clock
back" after interests become established, after the public has ~elied upon the
`Oommission's action, and after substantial expenditures have been made.
7. Congress should not be by-passed on matters of basic national policy.
In essence, the foregoing seven points are as relevant today as they
were when we advanced them in 1958.
These hearings come at a propitious time, a time when the Federal
Communications Commission is considering the report of its Subscrip-
tion Television Committee, which proposes the establishment of a
nationwide pay television service.
The Commission, in common with numerous other `administrative
agencies, is an arm of Congress. The purpose of these agencies is not
to make national policies but to implement policies Congress has
enacted,
No one can deny, in light of the record of the FCC proceeding, the
many congressional hearings, and legislator and public expressions on
this subject, that to impose a pay television service on the broadcast
frequencies, as has been proposed, has become a highly controversial
issue of national significance.
Whether pay television should be authorized in any form-in broad
scope as heretofore urged by its relatively few proponents or in re-
stricted, and intensely regulated form as suggested by the report of
the FCC's Subscription Television Ctmmittee, is precisely `the type
of question which should not be resolved by an administrative agency,
no matter how broad its general statutory powers. It is one which
Congress alone should determine.
It is common knowledge that the price which the free television
system can pay for exhibition rights is determined principally by the
value to advertisers of commercial messages associated with various
programs. Assuredly, there is a limit to the price advertisers can and
will pay for program sponsorship and, hence, a limit beyond which
free television cannot bid for exhibition rights.
However, the price which pay TV entrepreneurs would be willing
to pay for exhibition rights is limited' only by the aggregate price
which the viewing public is willing and able to pay to see the pro-
gram. It is a virtual certainty that pay TV could afford to pay more
for certain programing and could outbid free television for the most
popular attractions.
Consequently, it is clear that pay TV would have detrimental effects
on the present free system. Given the opportunity, it would inevitably
result in the "siphoning off" of attractions such as the world's series,
professional and collegiate football games, as well as some of the most
popular entertainment programs. While the siphoning might not occur
overnight, in time much of the most popular fare on free television
would be removed to pay TV.
* Additionally, unrestricted pay TV, using existing television chan-
nels, would deprive the public of significant numbers of hours of free
television service and could threaten the operation of the national
television networks. If all stations are permitted to engage in pay
TV operation, people who reside in areas which receive signals from
only one, two or three stations would suffer a substantial and real
loss of service.
PAGENO="0398"
394
Where stations which are network affiliates engage in pay TV
operation, particularly during prime evening hours, network clearance
of programing could be severely affected with serious effects upon the
economic viability of network television. This problem is particularly
sensitive for ABC, which has fewer primary affiliates, has the great-
est difficulty in obtaining clearances for its programs, and is most
likely to be hurt by any erosion of advertiser support.
The FCC Committee's report relies on the very limited Hartford
experiment and on the claims of prospective pay television entre-
preneurs as justification for the conclusion that a system of pay tele-
vision would serve the public interest.
As ~to the Hartford experiment, the one thing that it established
conclusively is that a pay television service cannot be developed on a
national scale unless it acquires exclusive broadcast rights to the very
programs now commanding the largest audiences on free television.
Only the hit attractions of established popular appeal-motion pic-
tures of unusual story and star value, sports of major importance, and
variety shows with big names-drew meaningful numbers of
subscribers.
We should also point out that the claims of prospective pay tele-
vision entrepreneurs have consistently proven wrong. When television
was in its infancy, they claimed it could not possibly become econom-
ically viable by relying exclusively upon advertiser support. When the
experience of the late 1940's and early 1950's proved this incorrect,
they shifted their ground. What is needed now, they claimed, is not a
system to supplant free television, but rather a system which would
supplement it. They then asked for an opportunity to experiment, and
to prove that they could provide a service not then available on free
television.
Although pay TV's supporters originally urged that program di-
versity, in the form of opera, ballet, symphony, and Shakespeare
would be the kind of fare pay TV could and would offer-and the
Commission in the past has considered such alleged diversity to be
among pay TV's principal assets- the Hartford experiment demon-
strated, and the Committee's report largely concedes, that such diver-
sity is unlikely from pay TV. There is a very understandable reason
for this. The public simply refuses to pay for such attractions on a
meaningful scale.
The FCC report now takes the tack that even if pay TV does not
offer significant amounts of programing of a different kind from thai
available on free television, it may still provide a beneficial supple-
ment. ABC believes it is significant that the case for pay TV has
fallen from the lofty heights of program diversity to the present level
of whether the supplemental service is of such value of significance as
to offset the anticipated adverse effects.
The issue is not whether the public is to be denied a nightly diet of
symphony and Shakespeare. The issue is simply whether access to a
few more current motion pictures and limited additional sports ex-
posure is of sufficient benefit to offset the tremendous destructive
potential of pay television.
The FCC's Subscription Television Committee report recognizes
that pay television, unless sharply restricted and regulated, would
drastically undermine free television. To avoid this pitfall, the report
PAGENO="0399"
395
proposes to fix the age of feature films and the extent to which sports
may be broadcast and to outlav~r for pay television use certain series
programs with on-going plots or continuing casts.
We are strongly of the belief that Congress has not given the Com-
mission supervisory control of programs nor has Congress intended
that it engage in excessive day-to-day supervision of broadcasters.
Moreover, we know of no meaningful way in which rules or regula-
tions could be devised which would afford free television effective pro-
tection against siphoning.
In an attempt to protect the public from loss of service and the free
television system from serious impairment, the Commission's Sub-
scription Television Committee also proposes to restrict pay TV to
communities within the grade A signal range of five or more com-
mercial television stations and to limit pay TV to one station in each
community. Thus, pay television would be made available principally
in the larger urban areas of the country. However well motivated, this
would be discriminatory and unfair to the less-populated parts of the
country.
In the interest of protecting free television from the impact of pay
TV, the FCC also proposes to limit the number of franchises in any
community to one; but in so doing, it would create monopolies. The
inequities are obvious. Having created monopolies, there is an obvious
need for regulation of rates; yet the `Commission does not propose to
regulate rates or to ask Congress for permission to do so.
These examples demonstrate that the moment an attempt is made
to reconcile the interests of pay TV with those of free television, one
is caught in a chain of consequences approaching a dilemma.
I should like to emphasize that we do not oppose pay TV because
we fear competition. The FCC's policy of fostering competition was
responsible for the creation of our company. The record will show that
we have consistently supported competition in those areas which we
believe are in the public interest.
We supported the all-channel. receiver legislation which had as its
purpose the long-range development of UHF stations, and expanded
competition among licensees and networks. The Congress is also aware
of our support for a public television corporation, which as an inde-
pendent broadcast service will compete with us for audience.
I am sure that all of us agree that constructive competition is the
driving force behind the great forward movement of American busi~
ness. But no rule of policy we know of favors the acceptance of
destructive competition contrary to the public interest.
It is safe to assume that the advent of pay TV would affect the prof-
itability of network operations. The ABC-TV network has been op-
erating at a loss for several years. It would be unrealistic to' assume
that a reduction in the profitability of network operations would not
be accompanied by a contraction of network endeavors in the news
and public affairs and other areas.
It is indeed ironic that the issue of pay television, which' has been
largely dormant in recent years as a result of the successes of free
television and the failures of the pay television trials, should be resur-
rected at a time when the American system of free television is on the
edge of exciting new breakthroughs:
The advent of the communications satellite had made international
* television a reality and the era of global television lies just ahead;
PAGENO="0400"
396
domestic satellites may soon be in use, enabling 24-hour network serv-
ice to affiliates; "public broadcasting" legislation is close to enact-
ment; the all-channel law has opened the way to many new stations
and an everwidening program choice. At no time in television's brief
history has there been less reason to turn back the clock and encourage
the creation of a system which is both destructive and antisocial in its
implications.
We urge this committee to initiate and recommend appropriate leg-
islation to prevent the establishment of pay television.
Thank you, Mr. Chairman, for allowing us the opportunity to ex-
press our views to this distinguished committee.
Mr. MACDONALD. Thank you, sir.
One question that has been going through my mind as I have lis-
tened to all the testimony which has been given is that it seems to me
the broadcasters are arguing on both sides.
On the one hand you say that pay TV experiments have been a fail-
ure and on the other hand you say what a bad effect it is going to have
on so-called commercial TV.
Now do you connect the two? If it is failure, then how can it possi-
bly harm you?
Mr. ERLICK. Mr. Chairman, I think what we are saying is that to
date these experiments have proved unsuccessful. But we may be
wrong and the next experiment may be very successful, in which case
pay TV would be a springboard and the consequences would flow that
I think we have outlined here.
Mr. MACDONALD. You have to make up your mind whether they
are a danger or not a danger.
Mr. ERLICK. We think they are. The fact that they have not suc-
ceeded to date does not mean-
Mr. MACDONALD. Then they have been successful?
Mr. ERLICK. No, sir; I don't believe they have but the fact they have
not been to date does not mean that they won't be in the future.
Mr. MACDONALD. You live on the public, not you, but the networks
live on the public by sponsors because sponsors won't keep shows that
they don't think influence buyers to purchase products; is that right?
Mr. ERLICK. Yes, sir.
Mr. MACDONALD. If they have been a nonsuccess, I am now talking
about pay TV, how do they bother you?
Mr. ERLICK. Mr. Chairman, I do not believe I can answer it in any
way ~ther than the way I have.
Mr. MACDONALD. It has not been a very successful answer.
Mr. BROTZMAN. Will you yield to me for one question along the
same line?
Mr. MACDONALD. Yes.
Mr. BROTZMAN. It seems to me in the first part of your statement,
Mr. Erlick, you are talking about how bad it is and back here you
state how the low-income people across the country are going to be
ilis~riminated against by not having it.
Do you understand the inconsistency? You say this is bad per se
and back over here you say under the rules of the Commission as they
are proposed a lot of small communities can't get it.
Mr. ERLICK. Yes, sir. I agree there are two points.
Mr. BROTZMAN. There is an inconsistency.
PAGENO="0401"
397
Mr. ERLICK. I don't think there is an inconsistency. One makes one
assumption and one makes the other. We have taken a position from
two different assumptions.
Mr. MACDONALD. I could not agree more with Mr. Brotzman who
just picked up what I said. I don't see how you can argue out of both
sides of your mouth.
Mr. ERLICK. Mr. Chairman, we are making two different assump-
tions. We are stating what we believe to be the consequences in both
cases.
Mr. MACDONALD. Assuming it fails, how does it possibly harm you?
Mr. ERLICK. It does not, if it fails.
Mr. MACDONALD. If it succeeds, you feel it will harm you?
Mr. EBLICK. Very definitely.
Mr. MACDONALD. I am not trying to paraphrase Mr. Preminger the
other day but isn't that the whole basis on which our system works,
that the people of America have the right to choose whether they want
to pay to see something or want to watch a movie with x number
of conimercjals in it?
Mr. ERLICK. I think that perhaps is the crux of the argument here.
Unless I misunderstand the issue, the choice the public would have
would be whether to pay to see the event or not to see it at all if the
event went to pay-TV. Now, that is not a very happy choice from
the public standpoint.
Mr. MACDONALD. I don't know about ABC and I am not picking on
your network, but I have seen movies oh TV that are 15 to 20 years old.
You can see John Wayne when he was an extra.
Mr. ERLICK. I suspect, Mr. Chairman, that some of those movies
were local rather than network and that they were perhaps late night
attractions that were not originated by the network but by the local
stations.
Mr. MACDONALD. Do the networks have an agreement about how
many commercials can be used during a movie that they purchase?
Mr. ERLICK. There is no agreement between the networks; no sir.
There is a code which the networks adhere to, the Code of the National
Association of Broadcasters, which does outline certain limits in the
number of commercials.
* Mr. MAcDONALD. It depends on the movie I see.
Mr. ERLICK. In a 2-hour movie, there are normally 14 minutes of
commercial time.
Mr. MACDONALD. Don't you think that is irritating to a lot of
people?
Mr. ERLICK. Perhaps it is, Mr. Chairman, but I would just point
out this in response. Were it not for those commercials, the program
services which the free networks provide for the American public
would be impossible.
To give you a rough idea of what we are talking about here and I
have no figures from the other networks and only a rough figure from
ours, but my guess is that the three program services of the three net-
works, including entertainment, sports, public affairs and news, runs
somewhere in the area of $450 millioii a year in cost.
Mr. MACDONALD. You lose on the news programs?
Mr. ERLICK. Yes; I was about to get to that if I might take 1 more
minute.
Mr. MACDONALD. Right.
86-399 0-67-26
PAGENO="0402"
398
Mr. ERLICK. That is the only way we can afford to present a pro-
gram such as "Africa" which some of you gentlemen might have seen
recently, a three and a half hour presentation which some individuals
have said was probably the greatest program endeavor ever under-
taken by the networks. We are also working with Jaques Cousteau on
an underwater exhibition from which we expect to get some special
programs on oceanography.
We are presenting a well-rounded news and public affairs program
over the course of the year which cost the network in essence $18 mil.-
lion a year out-of-pocket loss. We spent $30 million, we recovered $12
million. We are losing $18 million a year on that service. The only way
we can do that, Mr. Chairman, is to recover a sufficient amount from
the commercial side of our operation to enable us to continue these
efforts.
Mr. MACDONALD. You make it sound reasonable.
Mr. BROWN. Will the gentleman yield?
Mr. MACDONALD. I yield.
Mr. BROWN. Unless, of course, you go to subscription TV, which
would provide some funds from people who want to see a specific
item. Isn't this correct? Your only sourèe of revenue is your advertis-
ing dollar; that is what you are saying?
Mr. ERLICK. Yes, sir.
Mr. BROWN. If you had another source of revenue, then you would
be able to do something a little different because you would have a
larger amount of revenue. Is that right?
Mr. Em~IcK. I don't know that our source of revenue under those
circumstances would be greater than our source of revenue under the
present circumstances.
Mr BROWN This is a contradictory argument you are making here
You say, there is either too much or too little demand for pay-TV. We
are faced with trying to find out which of these views is true. That is
where the decision lies, `frankly.
Mr ERLICK Of course, this is precisely where your decision lies I
think, without attempting to evaluate it, myself, because that is the
job of you gentlemen, I think you have to evaluate the risks which are
Inherent and which so many have spelled out here in the establishment
of a pay-TV system and in the gaining of a foothold by that system.
Now, if those risks are of the magnitude which has been described,
and we believe they are, then this is too great a risk to take, in our
judgment, in terms of the destructive potential which obviously exists
and which almost everyone admits, as far as the free system is
concerned.
Mr. BROWN. If the gentleman will yield further, I would like to
pursue this business point a moment.
It seems to me that if you are not selling an adequate amount of
network time because you are a small network with fewer outlets than
CBS or NBC, you would look for some way to get additional revenue-
I find it difficult to phrase what I am thinking-well, you said you were
losing money.
Mr. ERLICK. On the network; yes.
Mr. BROWN. If you are losing money on the network, I would thrnk
you would `be coming in here and asking, "How about opening this
thing up so that we can get in on subscription television and have
PAGENO="0403"
399
another source of revenue besides advertising?" If you are the Avis of
the outfit, would you not like to find another source of revenue to be
able to expand your business and perhaps compete more viably with
the largest systems?
Mr. ERLICK. Not a source of revenue which would undermine the
other half of our business which we are now in; no, sir.
Mr. BROWN. I don't know that it would undermine because I am
not paying as an advertiser if I pay to watch something; I am paying
as a box office fan. I am using my money rather than-as Mr. Prem-
inger said, and I am being the devil's advocate for a minute here-
having to absorb the dog food commercials which I don't find as offen-
sive as he does because I like dogs. Rather than absorb that, I might
want to put down 50 cents or a dollar or a dollar and a half to watch
"My Fair Lady" which would go to ABC rather than going to CBS
or NBC because they could finance it with the dog food commercials.
Mr. ERLIOK. If I might answer it this way, I can make it clearer.
If there were an attraction on pay-TV on the market, say between
the hours of 8 and 10 at night, the prime time, of great magnitude,
then the audience is obviously going to be diverted to a substantial
extent from the stations offering a free television service.
Mr. BROWN. You have all those poor people who can't afford to
watch, according to what was said here.
Mr. ERLIOK. There are a number of those; that is true. But a sub-
stantial portion of the audience, if the attraction is great enough, is
going to be diverted. If today's game were on this afternoon, I don't
think anybody in this room has any doubt that a substantial portion
of the audience would be watching that game. If that is true, the
audience remaining on the free station has got to be decreased and the
price you would get from the advertiser is decreased. Consequently,
the amount of money we can spend on public affairs and news pro-
graming and other public service efforts is bound to be decreased so
that the service is bound to be harmed.
Mr. BROWN. That is only on one network, this game today.
Mr. Em4ICK. Yes, sir.
Mr. BROWN. So they got the advertiser to pay the top dollar to get
that game.
Mr. Eiu~IcK. Yes, sir.
Mr. BROWN. If I want to watch it without commercials, I can't
watch it, can I? If I can't watch it today, I may want to watch it
tomorrow night sometime. It seems to me that if you got into this
business, and I realize under the proposed FCC regulations you can't,
you might wind up being Hertz rather than Avis.
Mr. MACDONALD. How about National?
Mr. ERLIOK. We have said that, should pay TV be allowed to be
established and should it look to us as if it is going to become a goin
enterprise, we certainly would get into it. We have never said we woul.
not. We are saying now that we think it is in the public interest that
it not be established. But should Congress decide that it should be
authorized and the Commission so direct it, then I think we would
take a very good look at it with the results I think I have just outlined
in terms of the free service.
Mr. BROWN. Thank you, Mr. Chairman.
PAGENO="0404"
400
Mr. MAcDONALD. To continue and not to sound like Johnny One
Note, but ABC more or less controls Cassius Clay, don't they?
Mr. ERLICK. No, sir.
Mr. MACDONALD. Who is that sports announcer who has him on all
the time, the rather obnoxious one?
Mr. ERLICK. I am not sure I know whom you mean.
Mr. MACDONALD. If you work for ABC, you know very well whom
I mean.
Mr. ERLICK. Howard Cassell has interviewed Cassius Clay once
or twice.
Mr. MACDONALD. Have you carried Clay's fights all the times he
has fought over commercial TV?
Mr. ERLICK. We have, on a number of occasions.
Mr. MACDONALD. Are you the network that blacked out Phoenix'?
Mr. EIu~ICK. No, sir.
Mr. MACDONALD. Who did that?
Mr. ERLICK. I really could not say. We did not carry that fight.
That question I knew came up and I did get some notes on it. I believe
that fight originated in Madison Square Garden. I believe it was an
RKO-owned event.
Mr. MACDONALD. `They produced it but who carried it?
Mr. ERLICK. They bought the rights and I think they sold it to
theater television and probably to certain local stations. I really don't
know how it was disposed of. We did not carry it.
Mr. MACDONALD. No. 1,1 would like to compliment ABC for doing
the great job in sports it is doing; the Wide World of Sports is a
great program. I am sure you lose a lot of money on that; you go to
a lot of places and it costs a lot of money.
Mr. ERLICK. Fortunately, on Wide World, we do not; that is one
of the events on which we manage to make a small profit.
Mr. MACDONALD. What is your viewpoint on this blackout system?
Mr. ERLICK. We are opposed to it. We would like to see it elim-
inated. We have no brief for blackout.
Mr. MACDONALD. I haven't talked to anyone who is for it. All I
know, it happens.
Mr. ERLICK. It happens be~cause it is a condition which is a part of
the sale of the event. If you want the event, you must agree to that
condition. The only alternative is not to buy the event. That is not a
very happy choice.
Mr. MACDONALD. What if the three networks said they were not
going to go on with this blackout?
Mr. ERLICK. If the three networks got together and made such an
understanding, I think Mr. Ramsey Clark might have somethin~g to
say about it.
Mr. MAcDONALD. You just heard the chairman of the Judiciary
Committee say just the opposite, in his judgment it would not hap-
pen. That also happens to be my judgment.
Mr. ERLICK. I would like very much to have some assurances from
the Department of Justice that it would not happen.
Mr. MACDONALD. If it is a practice that the three networks don't
like, have you asked for an advisory opinion about it?
Mr. ERLICK. No, sir; we have not.
PAGENO="0405"
401
Mr. MACDONALD. Because it seems to me more in restraint of trade,
that being a word of art, I suppose, to black out an area for com-
mercial reasons and sell it for theater TV than just letting it be seen
on regular commercial TV.
Mr. ERLICK. Yes, sir.
Mr. MACDONALD. It is not my position to make any suggestions to
all the brains of the three networks, but I would think it would be a
simple matter to just ask the Attorney General for an advisory opin-
ion about it, if it is that irritating to the three networks. I somehow
have the feeling it is not that irritating.
Mr. ERLICK. Sir, t~s I say, it is something that we do not favor and
do not want. There is no reason in the world why a network should
want to black out any area of the country in terms of presenting any
particular event. A college football game, there is no reason why we
would want to black out the game in the hometown of the college
involved.
There is a very good reason why a college wants to do that because
it does not want to hurt its attendance on Saturday afternoon. That
is understandable to us.
Mr. MACDONALD. Supposedly they are amateurs and therefore, you
know, when they start talking dollars and cents and that sort of thing,
I lose a good deal of sympathy for them about it although I can und~r-
stand. But when something is sold out for months ahead of time-
I use the example of here in Washington or in New York, where the
stadium is sold out, fans support the team here; yet, you cannot see
the game here. You have to watch some game, two teams playing
whom you do not have any interest in. That does not seem to me to*
be a fair thing. Does it seem fair to you?
Mr. ERLICK. As I say, we would love not to have that condition.
Mr. VAN DEERLIN. Will the chairman yield?
Mr. MACDONALD. I yield.
Mr. VAN DEERLIN. Before my esteemed chairman digs too big a
hole here-
Mr. MACDONALD. For whom? Myself?
Mr. VAN DEERLIN. Possibly to fall into.
Didn't Congress pass, about the 89th Congress, a bill which exempted
from antitrust action any pro sport that did black out broadcasts?
Mr. MACDONALD. Yes; I think that is right.. We also in our blihd
day that day said that only the Redskins and no other team-AFL,
by law can't come in and use the Coliseum down here; believe it or not.
Mr. VAN DEERLIN. Thereby excluding the more glamorous circuit,
the American Football League.
Mr. MACDONALD. I was one who voted against it. I am not sure
that everyone who voted for it understood what was in the bill,
frankly.
I will conclude by saying this. In your judgment, in addition to
the inconsistencies that Mr. Brotzman and myself have pointed out,~
you know, your playing both sides of the fence, that pay-TV.is a threat
and yet it is a failure at the same time, also you are just absolutely
wrong about attractions which you say would be lost to the public
si~ich as the world's series, because they can't be.
Mr. ERLICK. I believe they can be, Mr. Chairman.
Mr. MACDONALD. How?
PAGENO="0406"
402
Mr. E-RLICK. Let me explain. Let us take the New York Giants,
NFL football club.
Mr. MACDONALD. Let us talk about the world's series. That is the
question I asked you about.
Mr. ERraCK. I have some specifics on that one; that is why I bring
that up. Then we will talk about the world's series.
The restriction is 2 years, the FCC proposal. The Giants get $1,-
750,000 a year now from free television rights. Twenty-eight million
dollars a year, roughly, is what the league has paid. It is divided among
the clubs equally, as I understand it, and the Giants would receive
$134 million from free television. If the Giants elected not to make
available their away schedule-
Mr. MACDONALD. Let us get back to the world's series.
Mr. ERLIc~K. I can show you economically how this is possible.
Mr. MACDONALD. Let us talk about the world's series because specifi-
cally in that fourth order and report, the world's series and that type
of specific event, to use the language they use, can't be lost to commer-
cial TV.
Mr. EIU4ICK. I believe it can. There is nothing which says it has to
remain on free television.
Mr. MACDONALD~ Specific events such as, and they name the world's
series.
Mr. ERLICK. Not the way we read it, Mr. Chairman.
Mr. MACDONALD. Well, read it again.
In conclusion, you said that rates should be regulated for pay-TV.
Mr. ERLICK. I didn't say they should be. I said under the proposal
there was nothing to prevent rate gouging.
Mr. MACDONALD. What would your position be if the FCC told ABC
what rates they can charge?
Mr. ERLICK. We are not charging the public, Mr. Chairman. There
is a difference.
Mr. MACDONALD. I know you aren't. You are charging the sponsors.
Mr. EULICK. That is correct.
Mr. MACDONALD. What if the FCC got into that act?
Mr. ERLICK. I think they would have to get specific authorization
from Congress to do so in either case.
Mr. MACDONALD. I yield at this point.
Mr. BROYHILL. Thank you, Mr. Chairman.
I really don't have a question but a comment and part question.
It seems to me we have here, among others, at least two basic issues.
One, of course, is the argument whether or not the Federal Communi-
cations Commission has authority over this. As I interpret it, this
committee has over the years felt the FCC didn't have any authority
over pay-TV. Of course, there are varying opinions about that.
Then we have another issue as to whether or not subscription TV is
in the public interest. You are maintaining it is not in the public inter-
est. At the same time, you are saying if it is approved you are going
to get into the business.
Mr. ERLICK. We may.
Mr. BROYHILLI This seems to be inconsistent. If it is not in the pub-
lic interest, why are you going to be running to get into it?
PAGENO="0407"
403
Mr. ERLICK. If the Congress and the Commission decide that this
is a service which they want the public to be able to buy if they want
to, then we are presented with a different set of facts than we are now
and we would certainly take a look at it to determine whether it was
in our interest to get into it or not. So far, that is not the case. The
opposite is the case.
The resolutions that I am familiar with in the Congress and the
bills which I believe have `been introduced in `the Congress would indi-
cate to me that Congress does not believe pay-TV is in the public
interest.
Mr. BROTHILL. In other words, it seems to me you are itiaintaining
that if it is a profitable interest, you may want to get a part of it.
Mr. ERLICK. Yes, sir. If Congress directs the Commission, if Con-
gress decides that pay-TV should be authorized in some form, because
that is where I think the authority has to come from, and the Commis-
sion decides to follow through and pay-TV is established as a service,
quite apart from how we might feel about it, what I am saying is that
at that point and under those circumstances ABC will take a look at it
as a business and decide whether we should be in it or not. I am not
advocating that you do that. Do I make myself clear?
Mr. BROYHILL. I have no other questions, Mr. Chairman.
Mr. MACDONALD. Mr. Van Deerlin.
Mr. VAN DEERLIN. I am indebted to Mr. Lishman for documentation
of that matter we were discussing a few moments ago. This occurred*
during the 87th Congress in which Mr. Brotzman, Mr. Broyhill and
I were not serving.
Mr. MACDONALD. And I voted against it.
Mr. VAN DEERLIN. It permits professional football, baseball, basket-
ball and hockey leagues to enter into package television arrangements
without fear of antitrust prosecution.
I presume, Mr. Erlick, frotn your testimony in regard to the loss of
prime sports entertainment or the fear of a loss, that you are not en-
tirely reassured by Mr. Wright's promises on behalf of the Zenith
Corp. yesterday that they had no interest whatever in getting the
Rose Bowl and the world's series.
Mr. ERLICK. Let me say this, Congressman Van Deerlin. I have
great respect for Mr. Wright and his company and I am sure he was
very sincere in what he said. I would iiot doubt that at all. But Mr.
Wright is not going to be president of Zenith forever and I do not
believe he can commit his future management or his future board.
Nor can he commit the hundreds of other pay TV entrepreneurs who
might be interested in acquiring rights across the country.
The mere fact that Mr. Wright stated what his present intention was
does not give us any great comfort as far as others are concerned or
even his own company in the future.
Mr. VAN DEERLIN. Do you have any offhand estimate as to what
would be required in the way of an investment to take one of those
prime attractions off the air for 2 years?
Mr. ERLICK. I was about to give a rough idea in the case of the
New York Giants, and this is my own crystal balling. I can't vouch
100 percent for these figures but I think they are reasonably accurate.
PAGENO="0408"
404
The NFL gets $28 million a year as a league from free television for
the exhibition rights This is divided, as I understand it, equally
among the 16 teams, which would mean that each team gets $1%
million per year for its television exhibition rights.
Now, if the New York Giants, for example, were to decide not to
make available its away schedule to free TV, it could say, "I will sell
my home schedule to pay TV, seven games." It could say that under
these rules as we read them.
Now, there are 5,049,000 television homes in the New York metro-
politan area. Let us assume that 10 percent of those homes subscribe to
this event. That is 500,000 homes. Let us assume a dollar per home per
game. That would be 500,000 times seven, or three and a half million
dollars.
Let us assume further that half of that money goes to the team and
half goes to the pay TV company. The Giants would receive then, net,
the exact same amount of money under those circumstances and under
the assumption I have just made that they would have received had
they sold their entire schedule to free television. Therefore, there would
be no loss to the Giants, moneywise, in keeping those games off free
TV for 2 years. After that, as we read the rules, they would then be
free to sell their entire schedule at the top price to the top pay TV
bidder.
In other words, under those assumptions, if they are reasonably ac-
curate, that is how a team could afford to stay off free TV for 2 years
while they were getting themselves free of the FCC's proposed
restrictions.
Mr. VAN DEE1u~IN. So that the restrictions that the FCC would im-
pose in its rules wourd not provide a real protection at all, in your
opinion?
Mr. ERLICK. Not in our judgment; no, sir.
Mr. VAN DEERLIN. Thank you, Mr. Chairman.
Mr MACDONALD I will recognize Mr Brotzman in )ust a moment
Are you sure you are right about that?
Mr. ERLIOK. This is the way we interpret it, Mr. Chairman.
Mr. MACDONALD. I don't have the language with me but the language
says events that were usually shown.
Mr. ERLICK. Within 2 years on free television.
Mr. MACDONALD. Usually sold on commercial TV.
Mr EiuiwK That is right All you have to do is stay off 2 years
Mr. MAcDONALD. That would take the whole schedule, would it not?
Mr. ERLICK. No, sir; just that event, as we read it.
Now, to answer your question, the home gaines are not usually
shown. So that, under both circumstances, they would be free of that
restriction.
Mr. MACDONALD. They are not shown in New York; yes, but you can
see them in Boston.
Mr. ERLICK. Right.
Mr. MACDONALD. If it is being shown-there are no geographical
boundaries in the regulation-if it is sold commercially and I can
watch it in Boston, then I would think any lawyer could easily argue
that it had been shown.
Mr. ERLICK. I think you cOuld argue that.
PAGENO="0409"
405
Mr. MACDONALD. Therefore, your argument about how it could be
financed is specious. I don't think it is right.
Mr. ERLICK. I don't believe so, Mr. Chairman. All I believe the
restriction provides is that the event must not have been shown.
Whether it was local or not, let us leave that aside for a moment.
Whether it was shown on television within a period of 2 years, free
television, that is the question.
Mr. MACDONALD. If it is being shown in Boston and other places-
Mr. ERLIcK. Under the circumstances I outlined to Congressman
Van Deerlin, these events would not be shown on free television.
Mr. MACDONALD. On commercial television.
Mr. ERLICK. That is correct.
Mr. MACDONALD. But they would have to cancel their entire program.
Mr. ERLICK. That is right. They just won't make it available.
Mr. MACDONALD. Yes, but what you were saying to Mr. Van Deerlin,
as I understand it, was that they just cut off their home games for 2
years.
Mr. ERLICK. I said assume they don't make their games available to
free te.Ievision at all, period, and they do sell their home games to pay
TV.
Mr. MACDONALD. After 2 years?
Mr. EIu~IcK. No; for 2 years, during that 2-year period, after which
time they would be free to sell their entire schedule to pay TV. The
question was, How can a team afford to stay out for 2 years?
Mr. VAN Di~RLIN. How can pay television make it worth their
while?
Mr. ERLIOK. Right. Another way would be if a man decides that
the world series, for example, is a big enough attraction and he has
a big enough pocketbook, he could say to the baseball leagues, "I will
give you x dollars for this year here and x dollars for year 2 and in
year 31 will guarantee you x dollars."
Mr. MACDONALD. Sir, I don't want to dispute you about that but
the regulation specifically, the fourth order and report regulation,
specifically excluded the world series.
Mr. ERLICK. That was not the way we read it.
Mr. MACDONALD. Check it out.
Mr. ERLICK. All right, sir.
Mr. MACDONALD. Mr. Brotzman.
Mr. BROTZMAN. I have one question which relates to one statement
you make here on page 5,. Mr. Erlick. You say, "It. is a virtual cer-
tainty that pay TV could afford to pay more for certain programing
and could outbid free television for the most popular attractions."
I have heard discussions here about figures and I don't know what
the percentage of profit is that you have, but we have talked about
some pretty astronomical sums. I guess when we get down to talking
about bidding for programs we get down to talking about dollars,
is that correct?
Mr. ERLICK. Yes, sir.
Mr. BROTZMAN. What do you mean by that statement?
Mr. ERLIOK. What I am saying is that for outstanding events such
as the ones we have been talking about the price which a pay-TV busi-
ness can pay for those events seems to us at least to be greater than the
PAGENO="0410"
406
price we can pay for those events. For the reasons stated in the pre-
ceeding sentence, that our ability to bid is limited by what we can
reasonably expect to get back from advertisers. Their ability to bid
is limited only by what the public can pay, what the traffic will bear as
Congressman Celler said.
We think that what the traffic will bear from the public is greater
than what we can get from this as an advertising medium. That is the
assumption which is inherent here.
Mr. BROTZMAN.'What you are really saying here is that there is a
tremendous public demand for this because this is where their money
would have to come from.
Mr. ERL1CK. For these particular events; yes, sir. There is a great
demand, no question about it, for these events.
Mr. BRYrZMAN. When you say "these events", what are you alluding
to?
Mr. ERLICK. Pro football, college football, world's series, outstand-
ing movies, outstanding talent such as Sinatra, Bob Hope, and other
people of this caliber. Yes; there is a great public demand for them.
Now the public is getting it from free TV and they are not paying for
it. The choice as I said a minute ago seems to be a rather illusory one
as f~r as the public is. concerned. The public would be faced with the
choice of paying for the world's series or not seeing it at all and I
don't think that is a very happy choice.
Mr. BROTZMAN. Thank you.
That is all I have, Mr. Chairman.
Mr. MACDONALD. Are there any further questions?
Thank you very much.
Mr. ERLICK. Thank you very much, Mr. Chairman and members of
the committee.
Mr. MACDONALD. The next witness is from the NatiOnal Association
of Broadcasters.
STATEMENT OP DOUGLAS ABELLO, COUNSEL, NATIONAL
ASSOCIATION OP BROADCASTERS
Mr. ANELLO. Mr. Chairman and members of the committee, my name
is Douglas Anello2 counsel of the National Association of Broadcasters.
Mr. Wasilewski, our president, had wanted to testify but, unfortu-
nately, he is out of the city today and could not make it.
Before I start with Mr. Wasilewski's statement, I would like to
clarify a point that was made between you and Mr. Erlick.
I refer to page 19 of the fourth report and order, paragraph 261.
If I may, I would like to read the last sentence and I don't believe it
is taken out of context:
"This means that if for a period of 2 years baseball games of the
week were regularly broadcast by free TV in a èommunity during
the regular season and away games were not, STV~could then show the
latter but not the former. The same would be true for professional
football."
If it is true that way, Mr. Chairman, I would say the reverse would
be equally true, that if the home games were not shown but the away
games were shown, then STV could bring the home games but not the
away games. That is from page 261.
PAGENO="0411"
407
Mr. BROTZMAN. Would you read that again rather slowly because
I am trying to follow this and I am getting a little confused frankly.
Mr. ANELLO. Paragraph 261 of the Commission's proposed fourth
Report and Order. It has two sentences, It is a long paragraph and I
don't believe the last two sentences are taken out of context.
"This means that if for a period of 2 years baseball games of the
week were regularly broadcast by free TV in a community during the
regular season and away games were not, STV could then show the
latter"-meaning the away games-"but not the former. The same
would be true for professional football."
I suggest that if it is true in that way, the reverse would be equally
true, that if the away games were telecast and not the home games,
then the home games would be available for subscription television.
STATEMENT OP VINCENT T. WASILEWSKX, PRESIDENT, NATIONAL
ASSOCIATION OP BROADCASTERS, READ BY DOUGLAS ANELLO,
COUNSEL
Mr. ANELLO (reading). Mr. Chairman, the National Association of
Broadcasters is a nonprofit organization of radio and television broad-
casters whose membership included as of October 4, 1967, 2,180 AM
stations, 1116 FM broadcast stations, 514 television stations, and all of
the national radio and television networks.
We very much appreciate your courtesy in inviting us here today
to present the views of the association on subscription television.
The NAB stands firm in its belief that the public interest would
not be served by permitting the use of the airwaves or exploitation
of free programs by wired systems to bring pay television programs
into the home. The American people receive free the best television in
the world. Our television stations and networks offer the Americaii
people more programs and a wider choice of programing than is avail-
able anywhere.
This has been accomplished in the traditional American pattern of
free and open competition. We have succeeded or failed, as in any
other free enterprise, but never either in success or failure has our
industry levied I cent on the American people to see or hear our broad-
cast performances. The only thing required of the American listener
or viewer is that he have a receiving set.
Pay television would now take this investment in receivers by the
people as its takeoff point. It would convert a free highway into a
toll road. It would require the public to pay for what they flow view
for free.
If pay television proposed the use of sets other than those existing
in the American home so that the public could truly have a freedom
of choice, it would be new but pay television proposes to use the result
of an investment by the public over the years of more than $30 bllhion~
Its proponents realize that the roadway is already there-the receiver
used for free reception by an audience created by free television. I
submit this is not progress; rather, the antithesis of progress.
The use of the airwaves for pay-TV purposes is diametrically
opposed in concept to the present system of broadcasting. Its basic
premise is that if you want to see, put a coin in the box. Its justifica-
tion is based on the fallacious promise that through the revenues
PAGENO="0412"
408
derived from this system the American public will receive a type of
programing superior to that which it now receives free.
An examination of the record makes it clear that the promise of
pay-TV is more myth than reality. Pay-TV systems do not provide
new and diverse types of program services. The Subscription TV
Committee of the FCC virtually admits this fact in its report and the
Hartford experiment certainly demonstrates the same fact.
In 1961, the FCC authorized the Zenith Radio Corp. to provide a
test of on-the-air pay television in Hartford. Zenith had stated that
the "sole purpose of subscription TV" is to provide "programs of box
office quality * * * which are not now available on free television."
Accordingly, the subscription programing provided by station
WHCT in Hartford as a result of the experiment should throw light
on the desirability of the whole idea of subscription television. Zenith
and Teco have provided a detailed listing of all programs made avail-
able to Hartford subscribers during the first 2 years of the experiment.
During that 2-year period, station WHCT broadcasts a total of 599
different subscription programs; most were repeated, so that the sta-
tion provided 1,7'T6 separate presentations or "showings" during the
2 years.
As was the case in previous pay-TV experiments in Bartlesville,
Okla., and Etobicoke, Canada, the Hartford service was essentially
a "movies-in-the-home" operation: 86.5 percent of the total number
of "showings" were motion picture films.
Sports broadcasts accounted for another 4.5 percent; educational
features for 3.5 percent; and "special entertainment productions,"
including the operas, ballets, and Broadway plays promised by all
of the major companies supporting pay television, for the remaining
5.5 percent of program offerings.
This hardly satisfied the criterion of "not being available on free
television." Television stations have made extensive use of theatrical
feature films almost since the beginning of commercial television in
this country.
In the past several years there has been a notable increase in the
programing of relatively recent films. The same is true in the increased
coverage of sports events. This trend may be expected to continue
unless these programs are siphoned away from free to pay.
That the FCC Committee is concerned with this possible siphoning
process is apparent from its statement that "It is at least conceivable
that a successful nationwide STV system * * * could, by directing
its purchases at select programs, take them from free TV and require
the huge audiences of those programs to pay to see them or not see
them at all. We would not consider this to be in the public interest."
To assure a "wide variety" of programs not currently available on
free TV the FCC Committee suggests "limiting" subscription TV to
movies less than 2 years old and to sports events which have not been
televised regularly in the community within the past 2 years.
To make certain that there would be at least a minimum amount
~-~of cultural and educational programing, movies and sports could not
exceed 90 percent of the whole. The futility of these suggested restric-
tions is patent.
If pay television is capable of even moderate penetration of free
television markets, sports teams and pay television promoters would'
PAGENO="0413"
409
be fully able to make the necessary adjustment for the required period
in order to capture the rewards of a "box office" return.
Professional football is an apt example. At present, the typical
pattern is to broadcast "away" games of local teams, and when the
local team is at home, to broadcast games of other teams. The rules
would permit the pay television broadcast of "home" games not car-
ried during the preceding 2 years.
It would be relatively simple for professional football teams imme-
diately to substitute the broadcast of "home" games on pay television
for the broadcast of "away" games on free television. This wOuld
provide professional football with substantial income during the in-
terim 2-year period while leaving no professional football on free
television.
Thereafter, pay television could carry all the games, both "home"
and "away" of the local team. Professional football would disappear
as a free broadcast service.
This could happen even though a small minority of the present
viewing public chose to subscribe to a pay-TV service. For example,
5 percent of the 60 million TV homes in America today could by the
simple expedient of paying $1 per game "outbid" the remaining 57
million.
This sport is but one example of the ultimate fate of virtually all
of the most popular kinds of programs now available on free tele-
vision. The argument that pay-TV would provide a beneficial supple-
ment" to free TV is a sham. All evidence available and the imperative
of logic leads to the conclusion that pay-TV would seek to appeal to
the greatest number of viewers to reap the maximum number of
subscriptions and this it could do largely with sports and motion
pictures.
That many pay-TV advocates have been willing to accept what
they consider to be very restrictive regulatory proposals should be
cause for deep concern. Oiice the camel's nose is under the tent pay-TV
would seek to circumvent, frustrate, or invalidate the restrictions.
Indeed, the suggested regulations over programing raise serious
questions under the first amendment. Furthermore, they are `so in-
tricate as to be unworkable and would force the Commission inth a
morass of administrative detail thereby compounding its already
substantial administrative burden.
In short, if the Commission cannot, consistent with the public
interest, authorize pay TV without such regulations, then it should
not authorize pay TV at all.
In this connection, the NAB respectfully suggests that the Federal
Communications~Commission lacks the jurisdiction to `authorize over-
the-air pay television on a permanent basis.
The only judicial consideration of the subject concerned itself with
experimental operations. The court never addressed itself to the ques-
tion currently under consideration by the Commission, that is, per-
manent authorization.
We suggest there is a much broader authority for the Commission
to permit experimental `operations than exists for actions that would
alter permanently the regulatory scheme.
I shall not attempt to go into the legislative history which led to
the present `Communications Act other than to stress the fact that
PAGENO="0414"
410
we firmly believe it quite clear that Congress founded our present
regulatory system in the clear context of free reception of programs
by American listeners and viewers.
We suggest that the proceeding now pending before the FCC en-
visa~es such a basic modification of the American system of broad-
casting that it should not be implemented withou the specific
guidance of the Congress. We would take this position even if the
act could be construed to grant general authority.
In its current proceeding, the Federal Communications Commission
is considering the use of the frequencies for pay TV purposes. Of
equal or even greater importance is the possible development of a
nationwide system of wired pay television through the interconnection
of CATV systems.
As you know, CATV picks up free broadcast signals and retrans-
mits them to subscribers via cable for a fee. *There are numerous
applications presently pending before the Commission to interconnect
many of these systems.
If there is a nationwide interconnected CATV network, it will be
a simple matter to turn this into a nationwide system of wired pay
TV. This is particularly true if there is no restriction upon program
origination by CATV systems.
In its traditional form the community antenna, as a community
antenna, can be beneficial to many people and should `be encouraged.
But if it is allowed to become a nationwide system of wire television,
as it surely will if unchecked by the Congress and the FCC, it will
be a `thorn `in the pocketbook of everybody.
Broadcasters are dedicated to service of the public-the whole pub-
lic-in their communities. Their programing, whether it be news,
entertainment, sports, or public service, and whether it be of local
or network origin, is supported by advertisers.
Advertising, as we all know, is an essential element in the growth and
health of our economy. It pays for itself many times over in the ex-
pansion of markets, the stimulation of employment, and the develop-
ment and improvement of new products and services.
During the course of present consideration of pay television much
has been said of the "public ~ Where does the interest of the
public lie? What is best for all of the people, rural and urban,
privileged and poor?
We believe the public interest lies in a system of diverse local broad-
casting outlets, free of charge and equally available to all, urban and
rural, rich `and poor alike.
Mr. MACDONALD. Thank you very much, sir.
You know, those are ringing words and all that and, frankly, when
I hear a witness testify for one side and then for the other it is a little
confusing because all the witnesses have been persuasive.
You say, where does the interest of the public lie? That is not a bad
question. That is what the Congress is here to look out for. What is
wrong, to take a concrete example-and I don't want to sound just
sportsminded, but it keeps coming to my mind-what is wrong if the
stadium in Boston today, which hold 35,000, is sold out and I want
to watch the game and I can't get a ticket-what is wrong with my
right to pay $2 or $3, and I agree with you that charges will be that,
not the 25 cents or 50 cents we have been hearing about, will be what
PAGENO="0415"
411
the market will bear, but what is wrong with my having the choice,
if I want to, to stay home and watch it on pay TV and maybe have
some friends in? What is wrong with my having the choice to pay $3
to watch it without getting pushed around by all the crowd?
Is there something inherently indecent about having a choice to
watch it at home if you want to?
Mr. ANELLO. It is not inherently indecent, Mr. Chairman. If broad-
casting had started out that way, there would be nothing wrong.
But baseball is a national pastime. What makes the world series? It
is the kid in San Francisco, in Tennessee, in Phoenix and in Chicago,
being able to listen and view this series on a set which the `only cost is
the price of the set.
Mr. MACDONALD. That is him. That is somebody in Phoenix. I
happen to come from Boston. I happen to dislike a lot of the com-
mercials that come on, even though somebody said they were better
than a lot of the programs. I don't happen to think so. some of them
are not dog food, either, but more `basic things that they advertise-
you know, it is fairly disgus'ting to have to listen to them and you
hear them all `the time. If I choose to pay $3 not to have to listen to
those advertisements, what is wrong with my having the choice to
do it?
Mr. ANELLO. Because you would be a minority then, imposing your
tastes and your preferences upon the majority.
Mr. MAODONALD. Yes; that is right.
Mr. ANELLO. That is where the public interest comes in.
Mr. MAcDONALD. What is wrong with that? Anytime I go to a
movie, I am a minority of one. I go to the box office, I pay for the
ticket, and I see it. Nobody makes me do it and they don't interrupt
the Program 42 times while you are watching the movie.
Mr. ANELLO. When you go to a movie, sir, you'choose to leave your
home to go downtown, pay your 50 cents or a dollar and everybody
else has the same choice. You are depriving nobody of anything.
Mr. MACDONALD. How do I deprive the people in Phoenix, unless
they have a blackout going in Phoenix, which we have been talking
about? How, if I choose this pay TV thing, whatever system maybe
is authorized, or whatever systems might be authorized, how do I
deprive anybody of anything?
Mr. ANELLO. Because you are siphoning off a program that is al-
ready on television.
Mr. MACDONALD. How do I siphon it off?
Mr. ANELLO. Because'once you pay for it you don't think somebody
is going to put it on for free, do you?
Mr. MACDONALD. A lot of times they sell stuff, Dodge automobiles,
the sponsor is trying to sell Dodge automobiles on this broadcast of
the World Series. I don't smoke. They keep interrupting, telling you
this cigarette is better and how long you make it, et cetera. You know,
they are not selling me anything. How do I, `by exercising my right,
willing to pay to see a game, how do I deprive anybody of anything?
Because this market does not go up; I am not going to buy a Dodge;
I am not going to buy a cigarette. So, they don't lose anything by losing
me.
Mr. ANELLO. Who doesn't, Mr. Chairman?
Mr. MACDONALD. The sponsors.
PAGENO="0416"
412
Mr. AN~Lo. Maybe the sponsor doesn't but you don't think that
game could be broadcast on pay television in Phoenix and for free in
Los Angeles. It would have to be one or the other across the board.
Now, if the Red Sox or if the pay television entrepreneurs want to
string a wire from Fenway Park into the local theater or into your
home or into New York, that would be a horse of a different color.
Even there you would still be siphoning off the game. But we are
talking here about the use of broadcast frequencies, frequencies that
are to be used by all the people to the greatest extent possible.
Mr. MACDONALD. That is right; in the public interest.
Mr. ANELLO. Precisely.
Mr. MACDONALD. And for free.
Mr. ANzLI~o. We feel that for free is in the public interest. That is
our position.
Mr. MACDONALD. If I want to pay a station in Boston that is using a
free airway, how much do you suppose it would cost me?
Mr. ANEIL0. Depending on which one, maybe $12 or $15.
Mr. MACDONALD. How come the people who have been given these
frequencies have the right to have that amount of money coming to
them when it is something that they are doing allegedly in the public
interest?
Mr. ANEu1o. I do not think that the public interest and eleeinos-
ynary institutions are necessarily synonymous. I think you can serve
the public interest by making money. The automobile manufacturers
make money They still serve the public in providing transportation
The telephone company makes money; it serves the public by provid-
ing telephone service.
Mr. MACDONALD. But they are regulated. They are a utility.
Mr. ANELLO. That is because they have a monopoly.
Mr. MAcDONALD. How many networks are there?
Mr. ANELLO. There are only three networks today but there may be
a fourth or there may be a fifth in the future as we get more UHF
stations on the air.
If any monopoly exists, it is not because of the lack of frequencies,
Mr. Chairman. There are plenty of frequencies there for an expansion
of free television service. In Washington, look how many we have now.
We have four VHF stations; we have three UHF stations. You can
also receive Baltimore in a good many portions of the city. Why you
get a high price for a station is a combination of circumstances:
One, many of these people were pioneers in the business. They
started when all was not gold and glory in television. Up until around
1951, Ithink 1951 and 1952 was the last year when the industry showed
a deficit, a lot of these people took it on the chin. Now, through their
business ingenuity, through their programing, through their network
affiliations, through their acceptance in the local community, they
have built up a good business.
Mr. MACDONALD.' Certainly I do not want to be argumentative with
you, but, say, when TV was starting, what if the radio broadcasters
created a great furor saying that if permitted, TV was going to ruin
radio. Isn't that somewhat synonymous?
Mr. AN1~Lo. I don't think so, Mr. Chairman. There is one very
substantial difference. When television came along the pike, there were
no telvision sets. People had to start from scratch with a television
PAGENO="0417"
41:3
station and a set. Today the sets are already there. The pay television
people are now coming and saying, "Despite the fact that you paid
$300 or $400 for this set in the expectation of getting free channels, we
now want to take a channel away from you."
Mr. MACDONALD. The whole point is that unless the public wanted
programs that pay TV say they are going to put on, and I don't believe
everything they say, either, but if the public doesn't want it, it is going
to be a terrific waste of the money on their part, isn't it?
Mr. ANELLO. This is true, Mr. Chairman.
Mr. MACDONALD. Therefore, there has to be some public demand for
it or else the companies that are involved will just go flat on their faces.
Mr. ANELL0. Mr. Chairman, I haven't the slightest doubt in the
world but there is some public demand for pay television, like there
is some public demand for anything that is not commonplace. But
our fear is that this small public demand, and as I indicated by my
figures, 5 percent of the public could then dictate what 95 percent of
the public hear and see because their pocketbooks could clearly outbid
all advertisers and all sponsors, and that is the fear. It is like the
chicken and the egg, Mr. Chairman. What comes first?
Mr. MACDONALD. You know, it is a moot point, as they used to say in
law school. It is a moot point that someone can outbid General Motors.
Mr. ANELLO. I don't say it is moot. I say we don't know the answer
because we are speculating. That is what we are doing. If you take 5
million sets at $1 apiece, that is $5 million. I don't know what they
paid for the world's series, Mr. Chairman, but I am sure it was not
$20 million. I am assuming a four-gam.e series. Thank God we had
seven.
Mr. MACDONALD. It starts in 25 minutes, too.
Mr. ANELLO. I am well aware of it, too. Being a New Englander. I
want to see your hometown win.
Mr. MACDONALD. I certainly appreciate that.
Mr. ANELLO. But it is this possibility, and I say we don't know for
sure; of course not. If we were sure, our lives would be easier. Your
task would be easier, so would mine, and so would all. But we believe
firmly and sincerely and honestly that a small minority can start bid-
ding for these programs. Once you get the program away from free,
it will never go back there, and once you get one, then you get two
and three and four and it is cumulative.
Mr. MACDONALD. Well, as a concrete examnie, and this is really a
statement, the gentleman representing the ABC referred to a program
called Africa. "Africa" was a fantastic program, I thought. Having
been there, I was very much interested in the subject, but my children
were not able to see it.
Now, I would personally pay to see a rerun of it just to have my
children see it. I don't see really what is so terribly wrong with that
concept. I am not saying whether I am for or against this thing. Actu-
ally, this is what the hearings are all about_to try to work out some
middle ground or to find out whether it is good or bad.
But everyone who is opposed to this thing sounds so patriotic and,
if you will forgive me, your ringing words sound so patriotic and if
anyone should vote for it, you know, you are sort of a Benedict Arnold,
taking from the underprivileged what they are entitled to.
I just don't happen to feel exactly that way.
86-399 0-67-27
PAGENO="0418"
414
Mr. Ai~i1LLo. You are a lawyer, Mr. Chairman. You must realize
that lawyers are advocates. I am certain that Zenith Radio is as patri-
otic as NBC, ABC, or CBS. That does not enter into it. Perhaps we wax
eloquently at times, but we are a little fearful of the possibility of
these things happening.
I agree with you. Why should you not be a~ble to pay for "Africa"?
But I am certain that ABC will rerun it. I would hope so and I am
confident they will. If you could limit it to that, it would be fine. In
our judgment, it could not be limited to just that.
Mr. MACDONALD. Why don't the networks take hints from the people
who are just sick to death of being subjected, in order to see a movie,
and I use the phrase which somebody presented, to 220 commercials?
Obviously that is not so, but it seems that way sometimes.
Mr. ANmJLO. I just came from a Code Board* meeting last week
where we took the first step, and that is to limit the number of in-
terruptions, two per half-hour. That does not mean that you can't have
a cluster.
Mr. MACDONALD. Mr. Preminger said the smartest thing, why don't
they do it at the beginning and at the end?
Mr. ANm~ro. I was going to say we are meeting again next month
to determine whether or not we cannot, not only in addition to putting
a limit On the number of interruptions, but also look at the possibility
of sequential announcements. That is not as easy as it might sound,
apart from any finances, because you have substantial legal problems
when you limit it to one interruption and two sequential announce-
ments.
But we are not here to discuss that at this time. Some people find
commercials quite amusing. Other people say it gives them the op-
portunity to do other things.
Thirdly, I guess the advertiser believes it sells his products, which
is very important again, forgive me if I sound patriotic, but to help
us to mor.e prosperity and progress. Selling products is a part of ad-
vertising and it is a part of America.
Mr. MACDO~ALD. I said the other one would be my last question, but
this is my last question.
It is funny that the Congress is now being asked to take down' all
billboards, to beautify America. I don't know how many millions of
dollars is going mto that. If billboards are abnoxious, how about bill-
boards on your TV screen? I don't happen to think billboards are that
obnoxious, but some highly placed people do. I suppose the program
will go through
You know, it does not seem consistent to me. Anyway, thank you
very much for your testimony.
Mr. ANELLO. Thank you, Mr. Chairman.
Mr. MACDONALD. The hearings are adjourned until tomorrow at
10 a.m., in this room.
(Whereupon, at 12:40 p.m. the hearing adjourned, to reconvene at
10 a.m., Friday, October 13, 1967.)
PAGENO="0419"
SUBSCRIPTION TV
FRIDAY, OCTOBER 13, 1967
HoUSE op REPRESENTATIVES,
SUBCOMMITTEE ON COMMUNICATIONS AND POWER,
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,
Wa8hington, D.C.
The subcommittee met at 10 a.m., pursuant to notice, in room 2123,
Rayburn House Office Building, Hon. Torbert H. Macdonald (chair-
man of the subcommittee) presiding.
Mr. MACDONALD. The hearing will be in order.
The first witness is Mr. Martin J. Gaynes, appearing on behalf of
the National Association of Treatre Owners and the Joint Committee
Against Toll TV.
STATEMENT OP MARTIN J. GAYNES, COUNSEL, NATIONAL ASSOCI-
ATION OP THEATRE OWNERS AND 1OINT COMMITTEE AGAINST
TOLL TV
Mr. GAYNES. Thank you, Mr. Chairman.
My name is Martin J. Gaynes, of the law offices of Marcus Cohn,
Washington, D.C., and I appear before you on behalf of the National
Association of Theatre Owners and `the Joint Committee Against
Toll TV.
The National Association of Theatre Owners is a nationwide trade
organization consisting of the owners of motion picture theaters
throughout the United States. The Joint Committee Against Toll TV
is a voluntary association which came together in 1955 for the purpose
of expressing its opposition to the institution of over-the-air pay tele-
vision, and which has participated in the proceedings before the Fed-
eral Commimicatjons Commission during the past 12 years concerning
p~y television.
I thank the committee for the opportunity of appearing before it.
I recognize that I come in at the end of a long and difficult week in
which many of the arguments for or against pay TV have been put
forth before the committee at great length.
I will not, therefore, read my prepared statement, but I beg leave
to include it in the record and have it reproduced as if it were read.
Mr. MACDONALD. Without objection, it is so ordered.
(Mr. Gaynes' prepared statement follows:)
STATEMENT OF MARTIN J. GAYNES, COuNSEL, NATIONAL ASSOCIATION OF THEATRE
OWNERS, AND THE JOINT COMMITTEE AGAINST Pou~ TV
My name is Martin J. Gaynes, of the Law Offices of Marcus Cohn, Washington,
D.C., and I appear before yc~u on behalf of the National Association of Theatre
Owners and the Joint Committee Against Poll TV. The National Association of
(415)
PAGENO="0420"
416
Theatre Owners is a nationwide trade organization consisting of the owners of
motion picture theatres throughout the United States. The Joint Committee
Against Toll TV is a voluntary association which came together in 195ö ~or the
purpose of expressing its opposition to the institution of ovcr4he-alr pay
television, and Which has participated in the proceedings before the Federal
Communications Commission during the past 12 years concerning pay television.
It is the position of the National Association and the Joint C~smnittee that
over-the-air pay television should not be adopted as a permanent medium and we
respectfully request that this Subcommittee take whatever action It deems neces-
sary to indicate to the Federal Communications Commission that: (a) the
Federal Communications Commission does not have the statutory authority to
inaugurate pay television as a nation-wide permanent medium and (b) that the
institution of permanent pay television would not be in the public interest.
We have filed extensive comments with the Federal Communications Com-
mission outlining in detail the detriments to the public interest which would
ensue if pay elevision were to be authorized. We will not repeat all of the
arguments made in these comments in the time which the Subcommittee has
graciously extended to us today, although we respectfully seek leave to place
these comments into the record of these proceedings so that they will be available
for Conunittee study. We wish today merely to point up the more pressing reasons
why we believe that the institution of over-the-air pay television as a permanent
medium Would be a disaster for the American public.
I. THE FEDERAL COMMUNICATIONS COMMISSION'S CONCLUSION THAT IT HAS THE
STATUTORY AUTHORITY UNDER THE PRESENT COMMUNICATIONS ACT TO AUPHORIZE
PAY TELEVISION IS ERRONEOUS
The Federal Communications Commission, in its First Report on pay television
in 1957 (16 R.R. 1509, 15-14 at Pars. 20-44) concluded that it possessed the
statutory power to authorize over-the-air pay television on a permanent basis.
Although urged to do so many times, the Commission has never reevaluated that
conclusion but has adhered to it in the Commission's March, 1959 Third Report,1
and again in the Commission's March, 1966 Further Notice of Proposed Rule
Making and Notice of Inquiry. $imiiariy, this conclusion was not reevaluated by
the Commission's Subscription Television Committee in its July, 1967 Report;
the Committee merely noted the conclusion and indicated the Committee's agree-
ment therein.2 We believe that the Commission's conclusion was erroneous.
It cannot be emphasized too strongly that a system which demands direct
payment of fees by the public in order to receive programs broadcast on publicly
controlled broadcast facilities represents a major and drastic change in the
nature of American broadcasting. Prior to the advent of pay television, com-
mercial broadcasting had been supported solely by advertisers. There was, and
is, no direct financial relationship between a listener and a broadcast licensee~
The absence of this relationship is more than just a matter of commercial choice.
It represents an important feature distinguishing broadcasting from public
utilities, and common carriers-a distinction which was explicitly recognized by
Congress when it drafted and adopted the Communications Act.3
This single fact also sharply distinguishes pay television from other changes
in broadcasting which have occurred over the years, such as color television,
FM broadcasting, simplexing, multiplexing and functional music operations.4
It also distinguishes pay television from CATV, since in CATV there is no direct
116 R.R. 154(a).
2The Subscription Television Committee consists of Commissioners Wadsworth, Lee and
Cox. On July 14, 1967, the Committee recommended to the full Commission that over-the-
air pay television be authorized on a permanent basis. Commissioner Wadsworth, the Com-
mittee Chairman, however, stated that, while he agreed that the issues involved should be
brought to the attention of the full Commission, nevertheless, this agreement should not~
be construed as an endorsement of the Committee's position, upon which question Commis-
sioner Wadsworth withheld judgment.
See, e.g., the remarks of Senator Broussard who, during the debates on the Communica-
tions Act of 1927, stated "radio makes no direct charges, whereas the others (telephone
and telegraph.) are in the business of serving the public for direct pay." 67 Cong. Roe. 12~O4.
See also PulitiZer Publishing Co. v. F.C.C., 68 U.S. App. D.C. 124, 12~, 94 F. 2d 24P, 251.
4 Although it i~ true that certain subscribers of functional music pay for the privilege of
receiving material broadcast over the air, it is also clear that the general listening audience
does not pay for this broadcasting. Stores, factoriesi and buildings which desire such
operations purchase them so as to provide the public In those stores and buildings with
background music as an additional service. The public is not simultaneously deprive4 of
the service.
PAGENO="0421"
417
financial relationship between a listener and a broadcast Ucen8ee. The relation-
ship is between a listener and the CATV operator, who charges the listener for
the use of wire lines which he has constructed so as to bring the programming
presented by the licensee to the public.6 But a licensed pa~ television system
permits the licensee to directly charge for the use of public facilities (the
airwaves) without any governmental regulation of those rates,6 while at the
same time depriving the public of the free service it previously enjoyed over the
air.
The Commission reasoned, in its First Report, that, although the Communica-
tions Act of 1934 makes no specific or direct delegation of power to authorize
such a major change in the concept of American broadcasting and the regulatory
scheme surrounding it, nevertheless, it found that power in the rather broad
language of the (lopimunications Act, particularly Sections 301 and 303 of the
Act, which gives it broad powers over the uses of radio frequencies. And it is
true, of course, that the Communications Act gives the Commission broad
regulatory powers over the broadcast field. It is also true, however, and the Courts
have so indicated, that these powers are not all encompassing and that matters
regarding the manner in which stations derive their revenues as well as other
internal business affairs were never conceived as being within the Commission's
regulatory powers. See F.C.C. v. f~landers Bros. Radio station, 309 U.S. 47~ There
is no provision in the Act which wOuld authorize the Commission to permanently
establish a system so radically different in nature from the present American
free broadcasting system, and with such a potentially destructive effect on that
system. Even the Commission, itself, has consistently recognized the destructive
potential which the institution of a permanent pay television system could have
for gutting the free system of its ability to fulfill its function of informing
an4 entertaining the American public.
The need for additional legislation if pay television is to be authorized is made
clear upon consideration of the regulatory scheme now included in the Communi-
cations Act. That scheme was established in the absence of a direct financial
relationship between the individual listener and the broadcast station. This
scheme is totally inadequate to cope with the introduction of a direct financial
relationship. Thus, if rates are to be charged the public for the privilege of using
public facilities (the airwaves), the question arises as to whether and how these
rates must be regulated. We are unaware of any instance where the government
has allowed a private entrepreneur to use public facilities, and make his profit by
charging members of the public for the right to use such public facility without
at the very least, regulating the rates to be charged. Yet the Commission would
follow this course with respect to the public airwaves without ever resolving the
question of whether the present Act provides it with the necessary rate regula-
tion authority to protect the public against gouging. And, of course, it should be
noted that the proponents of pay television have continually urged that the Coni
mission does not have the power to regulate rates. The pay TV proponents desire
a free and unregulated ride at public expense!
The need for additional legislation is made clear by the Report of the Commis-
sion's Subscription Television Committee. The Committee recognized that the
free system must be protected, if for no other reason than to keep faith with the
millions of the American public who have invested billions of dollars Into the
purchase of television sets on the implicit representation by the Commission
and by the Congress that thereafter they could receive the benefits of the public
airwaves on a free basis.
The Committee fully recognized in ita Report the most obvious destructive
effect which a pay television system would have upon the free service: that it
would siphon popular programs and talent from the free service to the pay
service, and render imch programs unavailable except for the payment of a
per program fee. In order to prevent this from happening, the Committee pro-
poses a series of restrictions upon the age, type and content of the programs
which the Commission will allow to be shown over the pay television service,
~ It should be noted, of course, that, as was pointed out above, the CATV operator may,
himself, originate programming, charging the public for It. Under these circumstances,
CAJTV becomes quite similar to pay television, it is significant, however, that the Com-
mission has specifically refused to hold that origination of programming by CATV systems
on a permanent basis is in the public interest and has sought guidance from Congress on
this matter. See ~eeond Report in Docket No. 148115 at Par. Lfi3(ii), 2 F.C.C. 2d at 787.
"The Supreme Court appears to have indicated in F.C.C. v. sanders Bros. Radio S~tation,
309 U.S. 470, 474, that rate regulation of broadcasting is not encompassed within the
present Act.
PAGENO="0422"
418
including such restrictions as forbidding (with limited exceptions) the presenta-
tion on pay television of movies more than two years old In general release,
forbidding the presentation of "series type" of programs with interconnected
plots, and forbidding the presentation of sports programs which have been on
television on a regular basis for two preceding years. These types of restric-
tions are unprece4ented in broadcast history, and there is a most serious ques-
tion as to whether they are legal under the present Section 326 of the Com-
munications Act which forbids the Commission to "censor" program material.
Indeed, such restrictions have already been attacked by numerous commentators
as Illegal. If these commentators are correct, then the Commission is powerless
to enforce the very conditions which it deems necessary to protect the free
service. Clearly, the present Act gives no guidelines on this point.
We believe that the conclusion reached by the Interstate and Foreign Com-
merce Committee in February 1958 is still valid and should be emphasized anew.
On February 6, the Committee adopted the following resolution:
"Resolved, that it is the sense of this Committee that the public interest
would not be served by the granting of authorizations for subscription tele-
vision operations `as contemplated by the Federal Communications Commis-
sion in its First Report, adopted October 17, 1957, In Docket Number 11279,
because-
"(1) it has not been established to the complete satisfaction of this
Committee that authority to license such operations comes within the
power of the Commission under the provisions of the Communications Act
of 1934 ; and
"(2) such operations might lead at least to a partial blacking-out of
the present system of television operations, with possible Injury to such
present system In particular communities, if not throughout the United
States.
"Sec. 2. For the reasons stated above, it is the sense of this Committee that
the Federal Communications Commission should not grant authorizations for
subscription television operations as contemplated in such First Report unless
and until the Communications Act of 1934 is amended so as to specifically em-
power the Commission to grant such authorizations."
At the same time, the Senate Commerce Committee reached a similar con-
clusion and voted to recommend the adoption by the full Senate of the following
resolution:
"Resolved, that it is the sense of the Senate that the Federal Communica-
tions Commission should not, without specific authorization by law, authorize
or permit any television licensee or agent thereof to Impose a toll, fee, sub-
scription, or other charge on the general public or any portion thereof, for
the privilege of viewing television programs received over television receivers
located in the home, with the exception of both community antenna systems
and those programs transmitted by cable or wire or both."
We believe that similar action should now be taken.
II. THERE IS NO DEMONSTRABLE PUBLIC DEMAND FOR THE SERVICE
The concerted drive by proponents of pay television for the institution of a
pay television system has now been continuing for over 12 years; the proceeding
before the Federal Communications Commission started in February 1955.
Yet, throughout this entire period, there has clearly been no demonstration of
public demand seeking the institution of pay television. On the contrary, the
only outcry has come from the entrepreneurs who seek to profit from the
medium.It can hardly be contended that the public has been besieging the
Commission with demands that a permanent pay television system be estab-
lished.
To the contrary, in California, as this Subcommittee Is undoubtedly aware,
the public voted down by a decisive margin the institution of a wired pay
television system in the only public referendum ever held on this question.. And
It is significant that only one test of a pay television system, pursuant to the
First and Third Reports, has been conducted. It is at least reasonable to assume
that if a real demand for such service were evident, it would be reflected in
requests by numerous prospective pay TV proponents for authority to conduct
experimental operatIons. No such public reaction has been evident.
Indeed, the Hartford and the Canadian Etobicoke experiments clearly negate
the existence of public demand. Although the Hartford pay TV proponents
artificially limited the Hartford test to 5,000 subscribers and alleged that there
PAGENO="0423"
419
Is a "back log" of demand, neither they nor any other proponents of pay tele-
vision have demonstrated the existence of public clamor for such a system. In
Hartford, less than 1% of the potential audience were subscribers and 42%
cancelled subscriptions. The average number at any time of persons watching
was 267, or only approximately 5% of the number of persons who subscribed.
The Etobicoke test showed the same pattern, for during the Etobicoke experience,
pay television subscribers actually declined more than 50% during the five-year
test from an initial high of 5,500 down to 2,500 even at a time the pay TV op-
erators were expanding their potential service area from 12,000 to 14,000.
In the face of such `experience, how can It be contended that there is a pressing
need or demand for the institution of pay television which as even its proponents
on the Commission recognize, has such a potentially catastrophic effect upon
the free service?
III. THE DETRIMENTS TO THE PUBLIC FROM A PERMANENT PAY TELEVISION SYSTEM
CLEARLY OUTWEIGH ANY MINIMAL BENEFITS WHICH MAY BE DERIVED
The record, of course, h~s made it abundantly clear that the promises and
siren songs of the pay television proponents have been demonstrably proven
false. Pay television was first portrayed to the American public as a means by
which television, programming fare would be diversified and improved through
the presentation of high quality minority-type programming which was allegedly
unavailable over the free system. The pay TV proponents promised that, as the
Commission noted In its First Report, "subscriber-financed broadcasts could
and would provide a wider choice to members of the public Interested in the
fine arts, operas, educational and informative material and other similar kinds
of programs."
It is now clear that pay television will not, in fact, yield the benefits which
were its original raison d'etre. The Commission's own Subscription Television
Committee recognized the validity of what opponents of pay television have
continually pointed out-that pay television will not, In any way, offer adcli-
tional cultural and high quality diversified minority-type programming, but
would program for the mass audience, and would create no long-term improve-
ment In either the quantity or the quality of television programming. The COrn-
mthtee itself has now recognized that whatever hopes might once have been
held out for such programming by pay television, they can no longer be realis-
tically entertained (see Report, Pars. 54-57).
Thus, programming which pay television will bring to the public will be mainly
motion picture films and sports events, and the only benefits involved are that
(1) the public may see some motion picture films somewhat more quickly than
these films would be shown on free TV, and (2) pay television can present certain
sports events as `heavyweight championship bouts and other sports programs
which are now, for one reason or another, "blacked out" on free TV.
With respect to films, however, it should be noted that pay television does' not
promise first-run features; the COmmission's Subscription Television Committee
held that even the presentation of film.s from 6 months to 2 years old would be a
sufficient justification to authorize a permanent pay television service. Yet the
Committee never attempted to explain what the difference might be between a
film, say, 18 months old and one 26 months old insofar as the public interest was
concerned, nor did it attempt to explain why whatever small difference may
exist was sufficient to authorize the permanent establishment of a system which
could potentially destroy free television, and the billion dollar investment which
the American `public has In it.
Movies, indeed, are desired by the American public. Yet this Committee well
knows that free television now presents a plethora of motion picture films, some
of which are less than 2 years old. Moreover, the average age of movies presented
on the free system has steadily been lowered during, the past 5 years, and each
year more current films are presented. There Is no reason to suspect that this
trend will not continue, although it certainly will not continue if pay television is
authorized on a permanent basis. The best way of `destroying any advance in
free television movies is to allow pay television to be authorized.
And with respect to sports, it is well known that sports events on free tele-
vision have `been proliferating at a rapid rate. Virtually every sports event
known has been presented on free television, and, indeed, many critics have
chided the networks for overemphasis on sports programing. To contend that the
a'iring of the occasional blacked-out heavyweight championship fight or other
PAGENO="0424"
420
sports programs is a `~beneficial supplement" sufficient to authorize the in-
stitution of a pay television system, is to deprive these words of any realistic
meaning.
The potentially destructive effect which pay television might have upon the
free system is obvious. It has been recognized by many opponents of the system
and even by the members of the Commission's Subscription Television Com-
mittee. The "benefits" to be derived from pay television are minimal at best, if
they exist at all. The Hartford and Etobicoke tests were far too limited in scope
to give any significant demonstration of the impact which pay television would
have upon the public. There has been no public demand or clamor for the serv-
ice. Under these circumstances, it cannot be seriously contended that the au-
thorization of permanent over-the-air pay television at this juncture is in the
public interest.
Iv. THE AUTHORIZATION or A PERMANENT PAY TELEVISION SYSTEM WOULD
IMPROPERLY DISCRIMINATE AGAINST THE POOR
One final point should be emphasized for, in many respects, it is the most start-
ling aspect of the institution of a permanent pay television system. The Hartford
test yielded meaningful data in one respect: it made clear that the authorization
of a pay television system would systematically deprive 30% of the nation (i e,
the persons in the income level $0-3999) of the free use of public frequencies,
which would instead be turned over to the pay television proponents to be used
for the benefit of wealthier citizens. In effect, pay television systematically dis-
criminates against the lower income level families and deprives them of the
ability to use what heretofore have been recognized as broadcast frequencies
available free to all parts of the population, regardless of income. Pay television
would, for the first time in American broadcasting history, divide the viewing
public along economic lines according to ability and willingness to pay.
The Commission's Subscription Television Committee attempted to cope with
this discriminatory pattern by contending that the lower income group "will be
able to continue to see ample amounts of free TV programming, so that they will
not be deprived of anything.. ." (Par. 75). Yet this reasoning is not impressive.
It first assumes that the Commission will be effective in preventing the siphoning
of free TV programming, a conclusion dubious, at best. But more importantly, it
appears to set up a double standard of programming, one for the wealthy and a
lesser standard for the poor. It urges, in effect, that the lowest income group has
"ample" amounts of free TV programming, while, at the same `time it is argued
that the free service is not "ample" enough for wealthier citizens so that pay
television must be authorized to fill the gap. Such a double standard is unprece-
dented in broadcast history. And it is strange indeed that the Committee is so
satisfied with the quantity of free TV programming that it can conclude, even
in cities with five or more stations allocated, that the loss of one station's poten-
tial programming is a desired or non-harmful result.
It needs no elaboration to demonstrate that television is perhaps the most suc-
cessful and effective mass media which the world has even known. It has al-
lowed the poorest citizen to obtain, in return for the mere purchase price of a
television set, entertainment, information, and news of a quality and quantity
unobtainable in the past by the richest prince or king. It is, in truth, the poor
man's theatre; the benefits which it has brought redound most strongly to those
persons and groups in the lowest income level. It is strange, indeed, that the
Committee can so easily ignore this group, and seek to deprive them of some of
the benefits of which television is capable.
It Is even stranger when it is recalled `that, at this point in our history, the
country as a whole is making the most determined efforts to bring to the lowest
economic levels of our nation the full benefits of the American society as they are
enjoyed by the more fortunate majority of our citizens. Federal and state gov-
ernments have instituted far-reaching programs in urban development, open
housing, work training, education, and a myriad of poverty programs so as to
enrich the lives of the poor. The country has recognized the disparity in income
which exists in our society, and has moved to correct it through massive Federal
and state aid. It is anomalous that the Committee would now have the Commis-
sion turn precisely in the opposite direction, and deprive the very portion of the
nation which needs it most of the fullest opportunity to take advantage of the
free service. The Committee, in essence, has created its own anti-poverty pro-
gram-its program is directed aga4nat the poor.
PAGENO="0425"
421
CONCLUSION
We wish to conclude by citing the statement of Oongressnian Celler before the
Federal O~mmunications Commission in the oral argument upon pay television
recently concluded by the Commission. Congressman Celier has summarized the
situation in prophetic words:
"To summarize, careful study has convinced me that the conversion of any
segment of the television spectrum to the service of tell television would increase
viewers' costs and broadcasters' profits, and this without any substantial hope of
producing any long-range improvement in programs. Free television, as we know
it, may be downgraded to a secondary and economically untenable position. The
best existing programs the public is accustomed to receiving without charge may
be siphoned off. The trend, noted by the Antitrust Subcommittee, toward the
monopolization of outstanding talent and program product will be accelerated.
The television authence will be divided along economic lines A method of broad
casting will be inaugurated that may drive, free network television as we know
it from the air-w'aves. The foreseeable result is a television system in which we
will all be paying for much the same TV fare which now conies to us without
cost."
We endoree Congressman Celler's statement and believe the points-made there-
in should be adopted by this Subcommittee.
Mr. GAYNES. I would like to speak very briefly about some of the
points made in the statement and first of all point out that we have
filed with the Federal Communications Commission a number of com-
ments on the pay TV rulemaking proceeding, two of them particularly
responsive to the blue booklet which Zenith filed about the Hartford
pay TV experiment.
Many of the arguments that we have made are contained within
these comments. They also analyze the Hartford tests and indicate
some of the weaknesses we find in it. I, therefore, beg leave to intro-
duce these into the record as well.
I have given to the clerk whatever extra copies I had and wish them
to be introduced in the record at this time.
Mr. MACDONALD. Without objection, it is so ordered.
(The documents referred to follow:)
PAGENO="0426"
PAGENO="0427"
4766
BEFORE THE
J~iIerat ~tuamuntcuttnnb
WASHINGTON 25, D. C,
In the Matter of:
Amendment of Part 3 of the Commission's ) Docket No 11279
Rules and Regulations (Radio Broadcast )
Services) to Provide for Subscription )
Television Service
COMMENTS SUBMITTED BY JOINT COMMITTEE
AGAINST TOLL TV
October 10, 1966
423
PAGENO="0428"
424
TABLE OF CONTENTS
Page
STATEMENT OF INTEREST ........ 2
II. BACKGROUND 2
A. Procedural History 2
B. The Instant Proceeding 4
III. THE HARTFORD TEST DID NOT PROVIDE THE
DATA THE COMMISSION MUST HAVE FOR A
PUBLIC INTEREST DETERMINATION IN CON-
NECTION WITH A NATIONWIDE PERMANENT
PAY-TV AUThORIZATION 6
A. Pay-TV Programming In Hartford Was Scarcely
Competitive with, Let Alone a Beneficial Sup-
plement to, the Program Choices Available to the
Public on Free TV 8
1. Movies 8
2. Sports 9
3. Other Programs 9
4. The Contrast With Free Television 9
5. The Proponents Recognize that the Programming
Left Much To Be Desired and Excuses Are the
Order of the Day 11
B. Market Penetration Was Virtually Non-Existent.
Pay-TV Did Not Attract Subscribers in Hartford. 15
1. The Statistics of Failure Are Not a Rational
Basis for Estimating the Audience of a
Successful System and Its Impact on Free TV . . 17
2. The Disconnect Rate Indicated Public
Dissatisfaction 19
C. Pay-TV Excludes the Lowest Income Levels - 30%
of the Population 20
IV. THE PROPONENTS MEASURE THE ALLEGED BENEFITS
OF PAY-TV ON THE BASIS OF PROJECTIONS WHICH
ASSUME A SUCCESSFUL SYSTEM. ITS IMPACT ON
FREE TV, HOWEVER, IS MEASURED IN TERMS OF
ThE HARTFORD FAILURE 21
PAGENO="0429"
425
A. There is No Evidence from Which to Conclude
that Pay-TV Would Facilitate the Growth of New
Television Stations 23
1. The Recent Growth in the Number of UHF
Stations and Applications Suggests that the
UHF Problem Was More a Lack of Receivers
than Programming . 23
2. The Pay-TV System Which Proponents Allege
Will Assist In the Development of New Stations
is a Successful System, the System of Their
Projections, and Not The Failure that They
Produced In Hartford 24
B. The Deleterious Effects of a Successful Pay-TV
System on Free Television Cannot Be Measured
by the Statistics of Failure 26
1. The Extent of Audience Siphoning is Dependent
Upon the Number of Subscribers and the
Quality of Programs 26
2. The Time Pre-Empted by Pay-TV is Prime
Time 27
3. The Experience in Hartford Does Not Provide
a Basis for Evaluating the Extent to Which a
Successful Pay-TV System Would Siphon
Talent and Programs from Free TV 28
C. Conclusion 29
V. JURISDICTIONAL AND RELATED QUESTIONS . . 30
A. The Commission Does Not Have Jurisdiction to
Authorize a Permanent Pay-Television System . . 30
B. The Commission Should Not Act Without
Guidance from Congress 36
VL THE COMMISSION SHOULD DEFER ACTION UPON
AUTHORIZATION OF A PAY-TV SYSTEM UNTIL
THE IMPACT OF CATV UPON THE PRESENT
SYSTEM IS KNOWN 41
A. The Extent of CATV Development 43
33. CATV as a Form of Pay-TV 45
C. CATV as an Adjunct to Free TV 49
D. Summary 51
PAGENO="0430"
426
Page
VII. ASSUMING ARGUENDO THAT THE COMMISS]ON IS
PREPARED TO AUTHORIZE A NATIONWIDE
PERMANENT PAY-TV SYSTEM, ANY SUCH
AUTHORIZATION MUST BE COUCHED IN TERMS
OF A REGULATORY PAT~TERN DESIGNED TO
INSURE THE SURVWAL OF FREE TELEVISION . . . . 52
A. Pay-TV Applications in the Top 100 Markets Will
Be Granted Only After a Hearing 53
B. Subscribers Will Be Limited to a 10% Penetration . . . 55
C. No Pay-TV System Will Be Authorized Until It
Has a Minimum of 2,000 Subscribers 57
D. Pay-TV Must Be Limited to Preclude Siphoning
of Programs and Talent 58
E. Pay-TV Stations Should Be Limited to UHF
Stations and to Communities Within the Grade A
Contours of at Least Four Commercial Television
Stations 62
F. Pay -TV Programming Should Be Limited in Total
Hours of Operation and to Certain Segments of
the Broadcast Day 63
G. Pay-TV Licensees Shall Be Prohibited from
Engaging in Network Operations or Other Types
of Multiple Program Purchase Agreements . . . . 66
H. The Commission Should Regulate Charges, Terms
and Conditions Concerning Pay-TV Operation . . . . 67
I. CATV Systems Should Be Prohibited from
Originating Programming or Carrying Pay-TV
Programming 68
J. Pay-TV Licensees Should Be Required to Comply
with All Commission Rules Imposed Upon
Broadcast Licensees 69
CONCLUSION 69
APPENDIX A - Excerpt froz~i "The Economic Journal"
June 1966 - The Redistributional Effect
of Television Advertising A-i
APPENDIX B - Proposed Rules B-i
PAGENO="0431"
427
4766
BEFORE ThE
J,Ii,rut Oimnmuntruftnrni ~nmmtiiMnn
WASHINGTON 25, D, C.
In the Matter of:
Amendment of Part 3 of the Commission's Docket No 11279
Rules and Regulations (Radio Broadcast
Services) to Provide for Subscription
Television Service
COMMENTS SUBMITTED BY JOINT COMMITTEE
AGAINST TOLL TV
The Joint Committee Against Toll TV (hereinafter referred to as
"Joint Committee") by its attorneys, hereby submits its Comments in
the above-captioned rule making. The Commission has requested Com-
ments on a number of matters concerning Pay-TV, including the question
as to whether Pay-TV should be authorized on a permanent basis and, if
so, the nature of the rules and regulations which should be adopted con-
cerning Pay-TV. The Joint Committee respectfully submits that the
Commission should not authorize Pay-TV on a permanent basis, and
should not adopt the proposed rules and regulations promulgated by the
Commission in its March 24, 1966, "Further Notice of Proposed Rule
Making and Notice of Inquiry~" In support, the Joint committee states:
PAGENO="0432"
428
2
I. STATEMENT OF INTEREST
The Joint Committee Against Toll TV (sometimes also known as
the "Committee Against Pay-as-you-see TV") is a voluntary association
which has previously identified itself in the above-captioned proceeding
and which has indicated its interest in the subject of pay television by
filing Comments in the above docket on June 6, 1955, and by participating
thereafter.
IL BACKGROUND
A. Procedural History
A review of the procedural background of the instant proceeding is
necessary to place the instant Comments in proper perspective.
In 1955 the Commission, in response to Petitions by a number of
pay television proponents, instituted the instant proceeding to seek Com-
ments on a number of issues, including the question of whether the Com-
mission had jurisdiction under the Communications Act to authorize pay
television operations without further legislation and, even if such power
existed, whether the Commission could find that such operations were
in the public interest.1 The Commission thereafter issued its First Re-
port on pay television2 which concluded (a) that the Commission had the
power to authorize pay television operations under the present Act, and
(b) that the Commission, however, could not make the determination that
a permanent pay television system is in the public interest without having
before it the results of a technical trial or trials of pay television~ The
First Report would have allowed trial operations of any pay television
system in any of 20 major markets which received at least four televi-
sion services. No one system, however, would have been permitted in
1 ~[atter of Subscrintion T~levision Servlce, FCC 55-165 (released Feb. 10, 1955).
2 16 R.R. 1509 (released Oct. 17, 1957).
PAGENO="0433"
429
3
more than three markets. it was hoped that trial operations would shed
some light upon the important policy questions Involved in the establish-
ment of pay television as a permanent medium, particularly its effect
upon the free system.
The issuance of the First Report stirred much critical comment.
The House Committee on Interstate and Foreign Commerce held hearings
on the First Report and adopted a resolution stating that until the Com-
munications Act was specifically amended to grant the Commission pow-
er to authorize pay television operations, no such action should be under-
taken. The Senate Interstate and Foreign Commerce Committee took
similar action. The basis of Congressional apprehension was that so-
called "trial operations," and the consequent investment of large sums
of money in pay television systems by promoters and by the public, would
virtually establish pay television as a fait accompli without specifió Con-
gressional approval.3 In response to these fears the Commission Issued
its Second Report which withheld the processing of applications filed un-
der the First Report until the expiration of the 85th Congress.4 This
policy was voluntarily continued by the Commission until the end of the
86th Congress.
Upon the expiration of the 86th Congress, the Commission re-
evaluated the matter and issued its Third Report.5 The Third Report
readopted and reaffirmed virtually all the conditions for trial operations
set out in the First Report, the only significant changes being that trials
would be now limited only to any one of the 20 major markets which re-
ceive four television stations, and that authorizations would be further
See Remarks of Congressman Oren Harris, Chairman of the House Interstate
and Foreign Commerce Committee, 105 Cong Rec. 5362. In addition, numerous
bills have been Introduced in Congress which would have prohibited the Commis-
sion from authorizing pay television operations. See, ~.g., H R. 586, 85th Cong.
1st Sess. (1957); H.R 166, 86th Cong. 1st Sess. (1959); H.R, 68, 86th Cong. 1st
Sess. (1959); H.R. 3020, 86th Cong. 1st Sess. (1961); S. 2268, 86th Cong. 1st Sess.
(1957); S. 591, 86th Cong. 1st Sess, (1959)
Second Report, 16 RR. 1539.
16 R.R. 1~4~Oa.
86-399 0 - 67 - 28
PAGENO="0434"
40
4
limited to one system per market and one market per system (Third Re-
port, par. 8, 16 R.R. at 1540b). The Commission also reaffirmed its de-
cision in the First Report that when "sufficient and meaningful" data be-
came available, it would hold public hearings to decide whether pay
television should be permanently authorized. (See First Report, par.
92, 16 R.R. 1533). The Commission, in limiting the nature and scope
of the proposed test operations, was explicitly recognizing the obvi'ous
danger inherent in allowing extensive trial operations. The Commis-
sion clearly indicated that the limitations were imposed precisely to
forestall the possibility that trials would be "so extensive as to consti-
tute the virtual establishment of a service about which final decisions
on a number of important points must be reserved until later." (First
Report, par. 63, 16 R.R. at 1524). More particularly, the Commission
in its First, Second and Third Reports has consistently stressed the
need for sufficient and meaningful data on the many questions which it
must decide.
B. The Instant Proceeding
On March 24, 1966, the Commission instituted the instant Further
Notice of Proposed Rule Making in which, the Joint Committee submits,
the Commission abandoned its heretofore careful approach to the ques-
tions at issue. Thus, the Commission In the instant Notice made a pre-
liminary determination that "it appears that it may well be in the public
interest to authorize such operations on a permanent nation-wide basis"
(Further Notice, par. 10), and then shifted the emphasis of the proceed-
ing away from what the Commission had previously indicated the next
step in the procedure would be (i.e., public hearings in which the results
of the Hartford test cotild be analyzed)~6 The Further Notice, instead,
placed the emphasis of the proceeding not upon whether a permanent
nationwide Pay-TV system should be established, but upon the specific
6 See First Report, 16 R.R. at 1533.
PAGENO="0435"
431
5
rules and regulations which the Commission should adopt in authorizing
such a system.
The Joint Committee respectfully submits that the Commission
gravely erred in making the preliminary determination that the author-
ization of a permanent Pay-TV system is in the public interest, conven-
ience and necessity. On the contrary, the Joint Committee asserts (and
will demonstrate in the instant pleading) that the Commission's deter-
mination in this regard was erroneous for the following reasons:
(a) The Commission's determination was based almost com-
pletely on the results of the Hartford test and those re-
sults do not warrant any such conclusions. Pay-TV was
able to attract less than 5,000 people over a three-year
period of time in one of the major television markets in
the country. The limited number of subscribers precludes
any valid conclusions concerning the effect of pay televi-
sion as a nationwide, permanent medium. The inability
to attract more subscribers denotes failure, and the sta-
tistics of failure provide no basis for evaluating the im-
pact of Pay-TV on free television.
(b) The Commission does not have jurisdiction under the
present Communications Act to authorIze a permanent
pay television system; assuming arguendo, that it did,
the Commission should not do so without guidance from
Congress in the form of statutory amendments to the
Communications Act, particularly since pay television's
proponents have not demonstrated any pressing public
need or desire for the institution of a permanent pay tele-
vision system.
PAGENO="0436"
432
6
(c) The Commission should defer authorization of a perma-
nent Pay-TV system until the shape of CATV activity
throughout the country has been established and the ef-
fect of such activity on the free local television service
has been assessed. The impact of CATV activity, wheth-
er It involves the importation of large numbers of distant
television signals or the carriage of programs which
originate with the CATV system, may have a serious
impact on the free local servlce~ This type of CATV
activity must be considered by the Commission before
it can reach sound judgments with respect to the type of
additional impact that a broadcast Pay-TV operation may
have upon the free local television service~
(d) The most that is warranted at the present time is the
continuation of the Hartford authorization in the hope
that it will produce the data necessary for a valid public
interest determination.
(e) If, for any reason, the Commission does permit a
permanent nationwide pay television system, it must be
under the most careful regulatory scheme embodying
conditions and provisions calculated to protect the free
broadcast system.
IlL THE HARTFORD TEST DID NOT PROVIDE THE
DATA THE COMMISSION MUST HAVE FOR A
PUBLIC INTEREST DETERMINATION IN CON-
NECTION WITH A NATIONWIDE PERMANENT
PAY-TV AUTHORIZATION
Stripped of excess verbiage, the public interest inthe authoriza-
tion of any Pay-TV test and, specifically, the Hartford authorization,
was to determine essentially three factors:
PAGENO="0437"
433
7
1. To what extent would the public pay for programs?
2. Does the service represent a potential for programming
which is not otherwise available on free television?
3. What would be the impact of the service on free tele-
vision?
Stated otherwise: Will it work? What will it provide? And at what cost
to the public?
In requesting a nationwide authorization, the Pay-TV proponents7
have consciously interwoven what occurred in Hartford with excuses for
what did not occur, relying upon the excuses to justify failures and the
failures to justify speculation as to what would occur in the context of a
nationwide authorization.
A test can lead to valid conclusions only to the extent that those
conclusions reflect the facts developed during the course of the test.
Conclusions as to what might have occurred if things had been different
are essentially conjectures.
As will become evident hereinafter, the conclusions that flow from
Hartford are not the conclusions suggested by the proponents. There
were so few subscribers as to make the test virtually valueless. Pay-
TV was a failure in Hartford in much the same way that it has failed
wherever it has been tried. It did not provide programming which rea-
sonably could be described as a supplement to free television. The pro-
gramming that was presented did not attract an audience. The Commis-
sion, consequently, knows as little now concerning the effect of Pay-TV
on free TV as h did in 1955, unless it assumes that Pay-TV will continue
to present the same unsuccessful programming and attract the same size
audience in the future,
Joint Comments of Zenith Radio Corporation and Teco, Inc~ In Support of Peti-
tion for Nation-Wide Authorization of Subscription Television (dated March 10,
1965).
PAGENO="0438"
434
8
We turn first to the programming that was offered in Hartford,
programming which the proponents have characterized as proving that
Pay-TV will provide a "beneficial supplement" to the program choices
now available to the public on free television, a characterization which
the Commission (par. 12) appears to have accepted without regard to
the facts.
A. Pay-TV Programmingin Hartford Was Scarcely
Competitive with, Let Alone a Beneficial Sup-
plement to, the Program Choices Available to
the Public on Free TV
The Hartford test was authorized by the Commission on the rep-
resentation that:
The subscription programs which the applicants
propose to broadcast will be limited to box of-
fice attractions, i.e., those programs which are
not regularly available to the public without the
payment of a fee. In this category are current
releases of motion picture film, ligitimate [sic]
theater plays, operatic performances, educa-
tional programs and sports events for which fees
are being charged as a condition to witness a
performance 8
If this was meant to suggest movies, then the proponents complied with
their representations.
1. Movies
During the first two years of the test, proponents presented 432
motion picture films, 414 of which were domestic and 18 foreign. These
films represented 86.5% of the total pay television programming. Dur-
ing this entire two-year period, however, proponents presented only one
8 Exhibits submitted by Hartford Phonevision Company, RKO General, Inc.,
Zenith Radio Corporation and Teco, Inc. in connection with the application of
Hartford Phonevislon for authority to conduct subscription television opera-
tions over Station WHCT, Hartford, Connecticut (hereinafter referred to as
Application Exhibits), Exb. 8, p. 1.
PAGENO="0439"
435
9
first-run movie~ Far from showing current film, moreover, the major-
ity of the films, 304 of the 432 (70.41%) were six months old at the time
of showing. At least 149 of these films were two years old or older at
the time of showing. Some, in fact, were over five years in age.9
2. Sports
The sports programming consisted of six heavyweight champion-
ship fights (0.3% of the programming presented during the first two
years), five college football games and two college basketball games
(0.4%), 21 professional basketball games and 44 professional hockey
games (3.7%).
3. Other Programs
The category "Special Entertainme~it" programs constituted 5.5%
of the total programming and consisted of 4 concerts, 4 programs In the
category "Opera and Ballet," 11 programs characterized as "Drama,"
7 variety programs and 6 programs characterized as "Night Club and
Cabaret." Programming characterized as "Educational and Instruction-
al" accounted for 3.2% of the programming~
4. The Contrast With Free Television
To characterize such programming as a "beneficial supplement"
to free television is to leave the phrase devoid of meaning. In essence,
the people of Hartford were requested to pay for a diet of run-of-the-
mill movies. If there was any benefit it was limited to the fact that some
of the product was available earlier than it would have been on free tele-
vision.
A schedule showing the release date of each film and the month. and year the
picture appeared on WHCT is attached to the Opposition of the Joint Committee.
PAGENO="0440"
436
10
Conversely, during the same period, free television exhibited films
of equal or superior merit. On a regularly scheduled basis, moreover,
it presented all types of sports including professional football, profes-
sional basketball, NCAA football and basketball and professional base-
ball.10 During the same period the television audience.SaW, without
charge, Barbra Streisand, Carol Burnett and a weekly Danny Kaye show.
Free television is, in fact, growing in scope. Contracts have been
entered into for the regular presentation this fall of professional hockey
as well as professional basketball. ~ CBS has contracted for the presenta-
tion of professional soccer for a period of 10 years at an estimated cost
of one million dollars per year.12 The fall schedule includes ballets, new
and old, among them "Beauty and the Beast"; operas and musical comedies
including Ethel Merman in "Annie Get Your Gun" and Robert Goulet in
"Brigadoon."
And, if more were needed, the October 3, 1966, edition of Broad-
casting magazine reports (p. 25) that the free television networks have
or are about to acquire 93 million dollars worth of recent films. These
purchases were motivated by the success of the three-hour presentation
by ABC-TV of "Bridge on the River Kwai" which overwhelmed its pro-
gram opposition. 13 Included in this total are an estimated 52.8 million
10 Championship fights were not then, but have since been, telecast by free TV.
During the test period there were a total of six. championship fights presented by
Pay-TV in Hartford (0.3% of the total programming)
These two sports constituted the great bulk of the Pay-TV sports programs
and 3.7% of the total programming.
12 Washingtop~~ Oct. 4, 1966, p. D-1,
13 ABC paid 2 million dollars for two TV showings Based on rating informa-
tion, that was immediately available, ABC estimated that 60 million viewers
across the country had watched the three-hour colorcast in whole or in part.
According to Broadcast~g, "Ratings on `Kwai' proved to be more than `Bonanza
and `Moore' [the other two network programs during the 9-10 p.m. slot] combined."
PAGENO="0441"
437
11
dollar purchase by CBS-TV of 63 MGM films14 (18 of which are new
features that MGM is preparing for full theatrical distribution prior
to TV showing) and ABC-TV's acquisition of 17 motion pictures from
20th Century-Fox for 19.5 million dollars (e.g., "Cleopatra," The
Longest Day," "The Magnificent Men in Their Flying Machines," and
"The Agony and the Ecstasy") and 32 Paramount features for approx-
imately 20 million dollars.15
The season has also witnessed a revival of interest in television
drama inspired, perhaps, by the success of the CBS presentation of
"Death of a Salesman" in May of 1966.16 ABC's fall schedule includes
"Stage 67."~~ Trade reports also indicate an ABC "Sunday Night Theater,"
a Sunday afternoon "Experimental Theater" by NBC and a CBS "Play-
house."
5. The Proponents Recognize That The Programming
Left Much To Be Desired And Excuses Are The
Order of the Day
The proponents excuse their failure to provide programming as
follows (p. 12):
Except for one film, the producers and distributors
have refused to supply film on a "first run" basis.
However, they have supplied product on a "first sub-
sequent run" basis, i.e., several weeks after first
theater run, which corresponds to the time when
14 ~g., "The Sandpiper," "Cat on a Hot Tin Roof," "The Night of the Iguana,"
"The Glass Bottom Boat," "Yellow Rolls Royce," and "North by Northwest."
15 ~g, "Casanova's Big Night," "A Breath of Scandal," and "Appointment with
Danger."
16 . .
This fall the same sponsor will present The Glass Menagerie.
17 The opening program in this series was an original drama, Murray Schisgal' s
"The Love Song of Barney Kempinski," widely applauded by the critics.
PAGENO="0442"
438
12
pictures are released to neighborhood theaters.
In our opinion, any nation-wide subscription
system could, if it were deemed important, ob-
tain "first run" pictures thy-and-date with their
showing in first run theaters, since a principal
cause of the lack of availability of first-run and
certain outstanding film features was the fact
that the Hartford operation was on a trial basis.
In the absence of any assurance that the Com-
mission would extend subscription television to
a nation-wide basis, some film producers and
distributors did not desire to release their best
or newest product.
This excuse could be accepted more readily were it not for the fact
that the sanie theme runs through the representations made to the
Commission prior to the time Hartford was authorized:18
Inasmuch as current motion picture releases for
box-office exhibition have been considered by the
applicant, and those in privity with it, to be a
principal part of the program fare it would offer
through subscription and inasmuch as the avail-
ability of such product has been an important
consideration in determining the feasibility of
the test, extended efforts for the last two years
have been made to determine availability of fea-
ture motion picture films during the period of
their distribution as box-office attractions. Ma-
jor distributors and owners of such product were
extensively consulted~ We, in general, found
great enthusiasm among producers and distribu-
tors for a test of Phonevision's feasibility. While,
in no case, did a major distributor or producer
state that current releases would not be made
available, it was found impossible to obtain firm
commitments. It was apparent to us that the wait-
and-see attitude on the part of the major distribu-
tors and producers was motivated by some or all
of the following considerations:
18 Applicant's Exhibit 8, pp. 1 -3.
PAGENO="0443"
439
13
1. Our proposals have inherent irremovable
uncertainties until the requisite governmental au-
thorization is obtained.
2. In view of the uncertainties, and until they
have been cured, an agreement to furnish specific
product on specific dates under specific conditions
cannot be made sufficiently definite and precise to
constitute a firm commitment.
3. Arrangements between the distributors
and producers and their respective independent
contractors and joint venturers that may be pre-
requisites to commitments to the applicant are
not feasible to undertake until the present uncer-
tainties have been removed.
4. There seemed to be a natural unwillingness
to upset or confuse existing business relationships
so long as a public decision or position with respect
to the tests could be postponed.
* * *
On the basis of its investigation of motion pic-
ture box-office product and the fact that motion
picture product has been made available to every
subscription experiment to date, the applicant has
concluded that there is sufficient promise of a sup-
ply for the tests here proposed to justify proceed-
ing to the point where the present disadvantageous
uncertainties have been eliminated and where firm
commitments can reasonably be expected or de-
manded.
The lack of Broadway plays and other special programs is excused as
follows (pp. 15-16):
During the first year RKO experienced some diffi-
culty in securing the cooperation of producers,
writers and talent in connection with obtaining
special entertainment productions primarily be-
cause of their ignorance of the purpose of the
Hartford trial. However, during the second year,
RKO was able to obtain better cooperation be-
cause of the steadily increasing subscription
audience, the greater knowledge concerning sub-
scription television brought about by the subscrip-
tion operation in Hartford, and the realization by
producers and talent that the type of subscription
television programs produced for the Hartford
trial could be of great value in the future,
PAGENO="0444"
440
14
The economic limitations inherent in a single mar-
ket test with a limited number of subscribers pre-
cluded a continuous supply of plays then showing
on Broadway. The asking price, including the price
of putting such shows on videotape, plus certain un-
economic demands of some local New York City
unions, often made impractical the subscription
broadcast of such shows beyond a limited number
for test purposes~ However, these economic
problems, which flowed primarily from the lim-
itations inherent in the trial, would be eliminated
if there were a number of subscription stations
bargaining from a broader economic base for such
Broadway plays.
Prior to the commencement of the test, the proponents stated:19
With respect to legitimate theater productions, the
parties hereto have had numerous conferences with
interests who participate in that field. The uncer-
tainties heretofore mentioned and the multiple in-
terests involved have made it impossible to obtain
firm commitments at this juncture~ The enthusiasm
exhibited by mOst of those participating in this field
has led us to conclude that, once we have removed
the indefiniteness in our proposals, we will be able
to broadcast legitimate plays in current exhibition
over the Phonevision system proposed here.
We are less impressed by the actual loss of well over a million dollars
in Hartford when we recall the prior representations of a willingness to
invest between two and ten million dollars, the effectuation of which
would have gone a long way toward eliminating "the economic limitations
inherent in a single market test."
19 Applicant' s Exhibit 8, p. 3~ The paragraph concluded with the statement:
We intend also to determine whether economic support for our
proposed operations would support regular stock-company pres -
entation of great plays over the medium
We note that no such programs were, in fact, presented in Hartford.
PAGENO="0445"
441
15
The Commission knows little more now concerning the alleged
program potential of Pay-TV than it did prior to Hartford, Hartford
showed programming that was incapable of attracting an audience -
programming which pales in comparison with the ever-expanding hori-
zons of free television.
B. Market Penetration was Virtually Non-Existent.
Pay-TV did not Attract Subscribers In Hartford.
After three years commencing June 29, 1962, the maximum num-
ber of subscribers in Hartford was 4,851. The breakdown as set forth
in the Zenith-Teco Comments and in Appendix A of the Commission's
Further Notice is as follows:
Number of
Subscribers at End
Installed Disconnected of Year
First Year 3,183 422 2,761
Second Year 3,394 1,386 4,769
Third Year 1,752 1,670 4,851
Three Year 8,329 3,478 4,851
Total
It is to be noted that the number of subscribers was in no way limited by
the Commission, Application of Hartford Phonevision Co., 20 R.R. 754,
(1961). It verges on the ludicrous to suggest that the benefits of a nation-
wide pay television system and its overall impact on free television can
be determined on the basis of such a chance, unscientific sampling of so
small a magnitude.
The foregoing three-year pattern is now characterized by the pro-
ponents as "planned growth and experimentation consistent with the best
use of manpower and facilities" (p. 48). That this Is an afterthought is
evident from the anticipations and representations made to the Commis-
sion prior to the authorization of the Hartford test:
PAGENO="0446"
442
16
The number of decoders that applicants will install
depends, in the first instance, upon the demand for
the service, which cannot be established with any de-
gree of certainty except through the actual experi-
ence of offering definite and specific service~ Ap-
plicants intend, however, to commence operations
after 2,000 decoders have been installed and to pro-
ceed to increase such installations if there is a de-
mand for at least 10,000 decoders by the end of the
first year. The restrictions upon supply of decoders
and the rate at which they can be installed limit the
number of decoders that would be installed during
the first year of operation, in any event, to approx-
imately 50,000 installations. The desirability of in-
creasing the number of such installations after the
end of the first year of operation is left for deter-
mination after a year of experience with the system.20
At another point, the proponents stated:
Zenith Radio Corporation anticipates that it will be
able to produce decoding units at the rate 1,000 per
week; therefore, no more than 5,200 decoders could
be supplied within the first year of operation. While
the rate of installation equal to the rate of supply of
decoders might be achieved, the minimum goal of the
applicants will be to install at least 10,000 decoders
during the first year of operation They will com-
mence operation after 2,000 decoders have been in-
stalled. The number of installations, therefore,
that applicants anticipate during the first year of op-
eration will vary between 10,000 and 50,000 depend-
ing upon demand, feasible rate of installation and ex-
perience with the system as operations proceed dur-
ing the year~21 (Emphasis supplied.)
The Commission itself was acutely aware of the failure to attract sub-
scribers (Appendix A):
The 4,851 STV subscribers at the end of the third
year represented 0.6% of the net weekly circulation
in the TV market or 4.5% of WHCT's weekly circu-
lation prior to its STV operation.
20 Applicant s Exhibits, Introduction, p 1
21 Exhibit 5, PP. 4-5.
PAGENO="0447"
443
17
The ARB net weekly circulation figure may be pertinent for pur-
poses of comparing subscription television service with penetration
prior to the commencement of Pay-TV operations. For purposes of de-
termining the penetration of Pay-TV, however, it is even more appro-
priate to note that the market in question contained 1,524,600 television
households *22 The actual penetration, consequently, was in the order of
0.3%.23
1. The Statistics Of Failure Are Not A Rational
Basis For Estimating The Audience Of A
Successful System And Its Impact On Free TV
The test, consequently, was conclusive evidence of public rejection
and the Commission was sufficiently disturbed by this failure and the
prior failures in Etobicoke and California to question the economic via-
bility of Pay-TV (par. 17). Nevertheless, without identifying the failure
as such or relating the limited penetration to the poor programming that
was offered, the Commission conjectured concerning the overall impact
of Pay-TV on free television. Thns, in paragraph 13 of the Further No-
tice, the Commission recited the facts developed in Hartford - the pene-
tration of less than 1% (.6%) of the market and an average per program
audience of 5.5% of the subscribers; it thereafter concluded that even if
the penetration were 10% and the average per program audience io% of
the subscribers, this could have little or no effect on free TV since, at
most, this would result in a penetration of 1% of the television homes in
the United States.
22 Television Factbook, 1966 Edition, p. 38-a.
23 Even if the base be limited to the City of Hartford alone, the 4,851 subscribers
represent in the order of 2.2% of the 220,000 television homes in the city (~j~-
vision Factbook, 1966 Edition, p. 108-b).
PAGENO="0448"
444
18
The tone of the paragraph suggests that ~e Commission regarded
even a 10% penetration as being unrealizable and we agree, if one as-
assumesth$ sarae q~iality of programming~ This, however, is an essential
assumption and in its absence the figure relating to penetration is pure
speculation totally unrelated to the test situation. If speculation is in
order, it was just as reasonable to assume 2% or 20%. The proponents,
in fact, treat a 10% penetration as an absolute minimum and their con-
jectures include a 50% penetration as within reasonable expectation.
As noted, in order to conjecture as to the effect on television
generally, in addition to suppositions as to penetration, the Commis-
sion indulges in suppositions concerning the average audience per sub-
scription television program. A io% penetration is more than 16 times
greater than the .6% penetration (4,851 subscribers) actually achieved
in Hartford. Notwithstanding this, the Commission assumes that only
10% of this 10% penetration would constitute the average audience for
any particular program. The second figure clearly bears no relation-
ship to any fact derived from the Hartford test. A 16-fold increase in
subscribers could be achieved only in response to a substantial and
significant improvement in programming~ No assumptions can reason-
ably be drawn concerning the average number of viewers per improved
program. The fact that when programming was so unattractive as
to produce only a 6% penetration, the average audience was very small --
5.5% - is in no way related to what the audience would be for program-
ming sufficiently attractive to result in a 16-time increase in the num-
ber of subscribers.
If Hartford proved anything, it was to the contrary. A review of
the statistics contained in the Zenith-Teco Comments demonstrates that
the 5.5% average resulted substantially from the lack of an audience f or
old movies. When attractive programming was presented, the audience
changed drastically - the Patterson-Liston fight showed an audience of
82.6% of the subscribers and all of the 6 boxing matches had an average
audience of 63,3%~
PAGENO="0449"
445
19
The Hartford test was authorized in substantial part to determine
the effect of a successful Pay-TV system on free TV. The test was un-
necessary if the Commission were willing to determine the public inter-
est in this regard solely on the basis of speculation. The test was, in
fact, a failure and, as such, it provided no indication of what an econom-
ically viable Pay-TV system would do to free television, The conclusions
drawn by the Commission purportedly from the Hartford experience bear
no relation to the facts in question and are as much pure speculation to-
day as they would have been if offered in 1955.
2, The Disconnect Rate Indicated Public Dissatisfaction
The Commission essentially ignores the number of disconnects
although disconnects may be as significant in assessing the test as the fail-
ure to attract additional subscribers, Of a total of 8,329 subscribers during
the three years, there were 3,478 disconnects. During the third year
the disconnects (1,670) virtually equaled the new installations (1,752).
In the overall, disconnects constituted 40% of the total installations,
There is no detailed explanation concerning the disconnects and it
is never adverted to except in the context of explaining future projections.
Thus, on page 29 of the Comments we are told that the proponents have
allowed for a 20% disconnect rate in their projections and that this is
comparable to the "15-20% `disconnect-connect' annual turnover exper-
ienced by telephone companies in many markets." The fact remains,
however, that the disconnect rate in Hartford over the three-year period
was 40% and no clearer evidence of public disapproval is required.
86-399 0 - 67 - 29
PAGENO="0450"
*Statistical Abstract of the United States, 1964, Table No. 457, p. 338.
Unbelievable as it may seem, 4,633 subscribers are urged as estab-
lishing that Pay-TV is not limited to high income groups but primarily
attracts middle income subscribers. If this Is established by this data,
then it also establishes an even more significant fact - that Pay-TV ex-
cludes the bottom 30% of the population. The proponents cavalierly dis-
pose of this group with the comment that this segment "unfortunately
does not provide a market for any goods and services beyond minimal
shelter, food, clothing and medical care" (p. 22). This is the very group,
however, that is dependent upon free television for its principal source
of entertainment. To the extent that this group is incapable of providing
a market for more than minimal needs, it is being subsidized by free
television and it is least capable of absorbing any loss of this subsidy.
446
20
C. Pay-TV Excludes the Lowest
Income Levels - 30% of the
Population
We have been provided with the following Information as to the
income level of subscribers:24
Proportion of
Proportion of
Total
Average
Weekly Programs
Total U. S.
Subscribers
Expenditure
Income Levels
Famlhes*
0-$3,999
$4,000-$6,999
$7,000-$9,999
$10,000 and Over
29.1%
32.5%
21.0%
%
i.s%
40.8%
43.3%
14.4%
$0.99
1.25
1.23
1.18
Totals (rounded)
ioo.o%
ioo.o%
(avg.) $1.22
24
Joint Comments of Zenith, et al., p 21.
PAGENO="0451"
447
21
The consequence to the lower income groups of a shift from free
to pay television was considered in a recent study entitled "The Redis-
tributional Effect of Television Advertising."25 The authors, F. A. Lees
and C. Y. Yang of St. John's University stated:
Our study reveals that in 1963, under the present
commercial television system, all income groups
in the United States experience a redistribution of
income slightly in excess of one-quarter of 1 bil-
lion dollars, Conversion of the commercial system
to an alternative system of pay television would
result in a complete or nearly complete elimina-
tion of the benefits of this redistribution currently
enjoyed by families with a disposable personal
income of less than $6,400, If a metered system
of pay television were adopted the entire redistribu-
tional effect would be removed. If a flat-fee system
were used a small amount of redistribution would
continue to exist, but the size and direction of such
redistribution would depend on the viewing pattern
of subscribers. Conversion to a government-
supported system could be expected to alter the
redistributlonal effect, the extent of which would
depend upon the relationship between viewing pattern
and progressiveness of the tax structure,
IV. THE PROPONENTS MEASURE THE ALLEGED
BENEFITS OF PAY-TV ON THE BASIS OF
PROJECTIONS WHICH ASSUME A SUCCESSFUL
SYSTEM, ITS IMPACT ON FREE TV~ HOWEVER,
IS MEASURED IN TERMS OF THE HARTFORD
FAILURE
From the very outset the Joint Committee has believed that Pay-TV
would fail. Its continuing concern had a two~fold motivation:
a) There would be a period of Pay-TV operation prior to
Its collapse during which the public interest - including
the broadcast and theater industry - could be drastically
affected,
25 The Economic Journal, Vol. LXXVI, June 1966, pp. 328-336. A copy of the
article is attached hereto as Appendix A.
PAGENO="0452"
448
22
b) A successful Pay-TV system is essentially incompatible
with free TV. In the competition for audience and pro-
duct, Pay-TV would endanger free TV and would achieve
its greatest success with the destruction of free TV.
The public interest could not, consequently, and should
not be determined solely on the basis of an assumption
of failure. The public interest required a careful eval-
uation of the impact of a successful Pay-TV system on
the economy and, specifically, on free television.
The inability of the proponents to attract subscribers in Hartford, we
believe, demonstrated that Pay-TV was a failure. We are also of the
opinion that the test itself was a failure in that the number of subscrib-
ers was too small to produce any probative evidence concerning the
nationwide impact of Pay-TV on free TV. Certainly it produced no evi-
dence concerning the nationwide impact of a successful Pay-TV system
on free TV.
Nevertheless, the proponents urge upon the Commission that con-
clusions on this subject can be based on the test, and their contentions
are made in such a manner as to intertwine success and failure beyond
logical recognition. The benefits alleged to follow from Pay-TV are
measured on the basis of "Business Projections," projections which
assume a successful system. The impact of Pay-TV on free TV, how-
ever, is assessed in terms of what actually happened in Hartford.
PAGENO="0453"
449
23
A There is No Evidence from Which to
Conclude that Pay-TV would Facilitate
the Growth of New Television Stations
1. The Recent Growth In The Number Of UHF Stations
And Applications Suggests That The UHF Problem
Was More A Lack Of Receivers Than Programming
Before attempting to sustain the assertion relative to the benefits
that will flow from Pay-TV, Zenith stops to review the allocation data
to establish the need for a further expansion of the number of television
services. In this context it is appropriate to compare the allocation data
supplied bythe proponents as of January 1, 1964, with comparable current
allocation data. Thus, the proponents stated (p~ 23):
The Commission, as of January 1, 1964, has allocated
1,942 commercial UHF and VHF television channels
and 346 educational UHF and VHF channels to 1,206
communities. As of January 1, 1964, there were 564
commercial television stations in o;eration in 271 mar-
kets (476 VHF and 88 UHF)~ As of the same date
there were 30 VHF and 61 UHF construction permits
in the hands of permittees~ There were also 85 edu-
cational stations on the air and an additional 28 edu-
cation construction permits outstanding.
As of January, 1966, the Commission had allocated 1,756 VHF and UHF
channels to 792 cities. Of this total, 615 are reserved for educational
use (107 VHF and 508 UHF channels) and 1,141 are unreserved (551 VHF
and 590 UHF) channels.26 There are now some 230 metropolitan markets.27
As of September 29, 1966, there were 605 commercial television stations
(490 VHF and 115 UHF) in operation; 28 VHF and 139 UHF construction
permits (not on the air) outstanding; and 124 educational stations in op-
eration and 34 educational construction permits outstandtng~28 As of July
31, 1966, there were applications pending for 95 channels (4 VHF and
91 UHF).
26 Fifth Report and Memorandum Opinion and Order, FCC 66-137, 2 FCC 2d
527, 551 (adopted February 9, 1966).
27 1966 Television Factbook, pp. 38 -a-43 -a
28 .
Television Digest, October 3, 1966, Addenda to Television Factbook
PAGENO="0454"
450
24
Between January 1, 1964, and September 29, 1966, the number of
UHF stations increased from 88 to 115 and the number of VHF stations
from 476 to 490. During the same period of time the number of con-
struction perwits Increased from 30 VHF and 61 UHF to 28 VHF and
139 UHF. This phenomenal growth occurred without benefit of Pay-TV.
It suggests that the principal problem confronting UHF television in
1964 was conversion and that the basic solution was contained in the
enactment of the All-Channel Bill. The mere enactment of the Bill
did not place UHF receivers in the hands of the public. As the months
pass, however, and old sets are replaced by sets capable of receiving
UHF, the interest in the construction of new UHF stations increases
and this is reflected in the foregoing statistics.
2, The Pay-TV System Which Proponents
Allege Will Assist In The Development
Of New Stations Is A Successful System,
The System Of Their Projections, And
Not The Failure That They Produced
In Hartford
Zenith's review of television allocations was for the purposes of
establishing a need for additional programs and revenue, a need which
allegedly will be met by Pay-TV.
The Pay-TV which will meet this need is not the Pay-TV of the
Hartford test - the Pay-TV which had less than 5,000 subscribers, a
0.6% penetratIon, In three years - but a successful system with a mini-
mum of 20,000 subscribers and including 40~000, 75,000 and 100,000
subscribers (p. 27, 35) and a penetration characterized "conservatively"
as a minimum of 10% (p. 35) and ranging up to 50%.
PAGENO="0455"
451
25
There is little point, consequently, in analyzing the projection~, in
detail. They have no greater validity than similar calculations offered
to the Commission in 1954. They cannot be tested or measured any
more now than they were then.
One point is of academic interest -- the assertion (p. 27) that pro-
gram producers and distributors will be paid 35% of the total subscrib-
er program expenditure; that this is based on the Hartford experience;
and that "It also conforms to the percentage which motion picture pro-
ducers and distributors, with a few exceptions, have traditionally charged
motion picture theaters." If this is the purchase price, it will guarantee
little more than the programming that failed in Hartford and a consequent
.0.6% rather than 10%-50% penetration,
Exhibitors compete with each other for the purchase of film,
Quality product will bring as high as 90% for first-run exhibition in New
York or Los Angeles, "Front" money or a guarantee to the producer is
also a frequent prerequisite to securing top product, First quality films
frequently pay 50% or more even for subsequent neighborhood runs
("Who's Afraid of Virginia WcrnLr"'), Theater television can anticipate
paying 50%-6o% of the gross,
The economics of theater distribution result in product being sold
where it will produce the highest return. Pay-TV is competing for pro-
duct not only with exhibitors but with free television, The proponents
notwithstanding, free television has demonstrated that is is capable of
paying two million dollars for the right to telecast "Bridge on the River
Kwai" twice - one million dollars per showing. The recent film ac-
quisitions which were adverted to earlier demonstrate that this was not
an isolated instance, The cost-per-listener economics of free television
are not nearly as limited as the Pay-TV proponents have asserted,
PAGENO="0456"
452
26
Any exhibition of a film or a play before a large audience, whether
in theaters, Pay-TV, or free TV, dilutes the markeL With respect to
film, theater exhibition i~ a'nown quantity and free-TV has demonstrated
its capacity to pay~ Pay-TV will secure the product only where it can
demonstrate that Pay TV exhibition alone or in conjunction with a diluted
theater market will produce revenues equal to or in excess of revenues
that will be available from theater exhibition and free television. Par-
ticularly at the outset, Pay-TV will need current and quality films to at-
tract subscribers and a substantial number of subscribers to obtain cur-
rent and quality films. This circle was never broken in Hartford~ If it
can be broken, it will require the expendithre of large sums of money in
the form of cash guarantees to producers or enlarged percentages, or
both~ The 35% figure isn't even close.
B. The Deleterious Effects of a Successful
Pay-TV System on Free Television Cannot
Be Measured By the Statistics of Failure
Although, as we have noted, the beneficial effects of Pay-TV are
set forth in terms of a successful Pay-TV system, the ability of Pay-TV
to impair free TV is measured in terms of the actual events in HartforcL
1. The Extent Of Audience Siphoning Is
Dependent Upon The Number Of Sub-
scribers And The Quality of Programs
There is little doubt that the loss of 267 people (5~5% of the 4,851
subscribers) would have little siphoning effect on a market with a net
weekly circulation of about 8OO,OOO~ This would be true whether the
group watched two hours per week or ten hours per weekS This is not
what the test was intended to demonstrate; nor is it likely that a system
which attracted an average audience of 267 people out of an 800,000 po-
tential would remain in existence for long~
PAGENO="0457"
453
27
The proponents postulate a minimum penetration of ten percent
to and including 50%. To determine the impact of Pay-TV on free TV
in the Hartford market, the subscriber potential must be assumed to
range between 80,000 and 400,000, If programming were available in
a quality and quantity to attract a group of this size how many would
watch a particular program? Would the average viewing time be two
or ten hours per week? These are the questions which must be an-
swered to determine the audience siphoning effect of a successful Pay-
TV system and these are the questions that Hartford doesn't even fur-
port to answer, The 82.6% that constituted the audience for the Liston-
Clay fight would have had a disastrous impact on free television on the
night in question if the subscriber group had been between 80,000 and
400,000 rather than less than 5,000,
2. The Time Pre-Empted By Pay-TV Is Prime Time
The next assertion is that Pay-TV would not pre-empt any signi-
ficant amount of time now utilized by advertising sponsors, In this con-
nection, it is urged that the average time utilized in Hartford was 30
hours per week, that assuming 30-40 hours a week of Pay-TV there
would still be ample time in multiple station markets for advertising,
Conveniently overlooked is the fact that the 30 to 40 hours in ques-
tion are the prime listening hours, Also overlooked is the fact that the
proponents do not propose to be limited to multiple station markets.
The 30 to 40 hour limitation derives, we are told, from the limited
amount of "box-office" programming available and limitations inherent
in the family recreational budget. ~The latter is a convenient limitation
since it is incapable of measurement. The former, the availability of
programming, was a limitation in Hartford but not quite in the context
suggested by the proponents. Good programming required money that
the proponents were unwilling to spend. Moreover, they specifically
committed themselves not to present programming to the exclusion of
PAGENO="0458"
454
28
free television that was available on free television - a commitment
that is not now being made.
3. The Experience In Hartford Does Not Provide
A Basis For Evaluat.ing The Extent To Which
A Successful Pay-TV System Would Siphon
Talent And Programs From Free TV
Every program which is suitable for Pay-TV is suitable for free
TV. The exhibition of a movie on Pay-TV dilutes the potential free tele-
vision audience and vice versa. In this context any use by one affects the
other. Talent useful to free television is also useful to pay television and
vice versa. Although, absent contractual restriction or limitation, talent
could work for free and Pay-TV, it cannot do so at the same time. If the
talent in question is a performer rather than an author, he or she may be
subject to the same problems of audience dilution as the movie.
Stated otherwise, the two techniques, free TV and Pay-TV, are di-
rectly and actively competitive for talent and progratus as well as audi-
ence. Obviously people will not pay for what is available free, but this
is axiomatic only as long as the program remains free.
The word "box-office" is not susceptible of any real meaning. It
is used as a magical incantation to create an illusion of a difference that
the proponents know does not exist. One episode of "The Man From
UNCLE" constitutes a television program. Two episodes tied together
constitute a movie for which people are now. paying at neighborhood
theaters throughout the country. The availability of the Yankees on free
television did not deter Pay-TV, the Los Angeles Dodgers and the San
Francisco Giants from contracting for the exclusive presentation of
Dodger and Giant games on pay television to the exclusion of the home
audiences.
The competition for product and talent is obvious. The purpose of
a test was to determine whether a successful Pay-TV system would de-
stroy free TV. In this context Hartford was of no value whatsoever.
PAGENO="0459"
455
29
C~ ~
The Further Notice cannot be reconciled with the Third Report.
The Third Report postulated a test situation for purposes of determining
the benefits and evils inherent in a different distribution technique -
Pay-TV. The essence of the test was that this new technique was so
inherently competitive to and with the existing system of free television
that it could not be authorized on a nationwide scale until the Commis-
sion had facts upon which it could determine the public interest -- the
benefits to be derived and the effect of the system on existing television.
Every use by Pay-TV precludes a simultaneous use of a scarce com-
modity - broadcast frequency space - at the same time, and such use
could be authorized only if the benefits conferred were substantially
superior to the detriment that could result.
The only conclusion the Commission can draw from the Hartford
experience is that Pay-TV is a total failure, If the proponents, in fact,
invested as much time and effort as they claimed and, in so doing, pro-
duced so few subscribers, then no further authorizations are warranted.
The Further Notice recognizes the failure - it questions the
economic viability of Pay-TV. Notwithstanding this, the Commission
appears to be prepared to ignore the failure and undertake a permanent
nationwide system on the basis of supposition rather than fact~
If the Coliimission can properly determine `the public interest on
the basis of conjecture and supposition, then the entire test procedure
was a farce. The Commission had before it in 1955 evidence of a mag-
nitude comparable to what it now purports to rely upon. The Hartford
test does not, under any circumstances, justify a nationwide authoriza-
tion. If the Commission is not persuaded of the fact that the system is
a failure, the most that Hartford warrants is an extension of the existing
test authorization,
PAGENO="0460"
* 456
30
V. JURISDICTIONAL AND RELATED QUESTIONS
A. The Commission Does Not Have Jurisdiction to
Authorize a Permanent Pay-Television System
The Commission has stated in its First Report, and reiterated
in the Further Notice of Proposed Rule Making here at issue, that it pos-
sesses the statutory authority to authorize nation-wide permanent pay
television. Moreover, the Commission asserts in its Notice that the
Court of Appeals, in Ccnnectkut Committee Against Pay Television v.
Federal Communications Commission, 391 F.2d 835 (D. C. Cir.), cert.
denied, 371 U. S. 816 (1962), concluded that the Commission possessed
such statutory authority. The Commission has asserted that if (as the
Court held in Connecticut Committee) it possessed the statutory author-
ity to authorize a test, then, of necessity, the Commission possesses the
statutory authority to authorize pay television on a permanent basis
(Notice of Further Rule Making, Par. 19).
The Joint Committee respectfully submits that the Commission's
reading of the Court of Appeals' opinion is erroneous Although the ap-
pellant in Connecticut Committee urged that the Commission did not have
the power to authorize pay television on a permanent basis, nevertheless,
the Court refused to decide this question in its decision in that case.
The Court never addressed itself to whether the Commission possessed
the power to authorize pay television permanently. The Court held mere-
ly that the Commission's power to provide for experimental uses of fre-
quencies constituted a sufficient basis for the trial authorization there
in issue. The Court's opinion was explained and justified exclusively by
the experimental nature of the authorization, and the Court went to great
lengths to emphasize the experimental nature of the operation as the
basis for its decision, stating (301 F.2d at 837):
PAGENO="0461"
457
31
The distinguishing characteristics of the Federal
Communications Commission? s authorization of
subscription television in this case is the experi-
mental or trial basis upon which the system is to
operate for the duration of its three years authority~
The Commission's belief that the statutory authority to institute
a test also carries with it the statutory authority to authorize pay tele-
vision on a permanent basis, is a proposition which finds no support
either in the Court's holding in Connecticut Committee, or any other
court decision of which the Joint Committee is aware~ It should be ob-
vious that the statutory framework and guidelines which would be re-
quired to support a nation-wide permanent pay television system is far
different from the type of legislation required to support a small ex-
periment so limited in size as the Hartford test, and with such a nec-
essarily inconclusive effect on the free broadcast system~ The danger-
ous effect which pay television will have on the free television system
does not arise from a limited system of tests~ It arises precisely be-
cause such testing is fruitless and futile~ The dangers of pay television
will not be apparent until the system is extensive enough to accomplish
the very things feared~ At this point, the existence of an extensive and
expensive pay television operation will present the Commission with a
fait accompli~ Section 303(g) of the present Communications Act, as the
Court noted in Connecticut Committee, expressly confers jurisdiction
on the Commission to authorize "experiments~" There is no provision,
however, in the Act which would authorize the Commission to permanent-
ly authorize a system so radically different in nature from the present
American free broadcasting system, and with such a potentially destruc-
tive effect on that system.
Indeed, the precise difference between the power to authorize lim-
ited tests of pay television systems, and the power to authorize pay tele-
vision on a permanent basis wan clearly pointed out by Congressman
Harris, the then Chairman of the House Interstate and Foreign Commerce
PAGENO="0462"
458
32
Committee~ Congressman Harris indicated that the Committee allowed
tests such as Hartford pursuant to the Third Report solely because of
the experimental nature of the venture, and he stated that (105 Cong.
Rec. 5362-63, emphasis added):
* * * the Congress reserves to itself the right to
determine whether or not to enact legislation to
amend the Communications Act of 1934, as amend-
ed, to empower the Commission to grant, and to
prescribe the conditions under which the Commis-
sion would have the power to grant, authorizations
for extended or permanent operations
Mr. Speaker, therefore, in conclusion, under no
circumstances can the action of the Federal Com-~
munications Commission fin the First and Third
Reports] and the action of the Committee on Inter~
state and Foreign. Commerce be construed as plac-
ing a stamp of approval on subscription television
as a permanent service.
It seems clear, therefore, that the mere power to aUthorize experimental
operations (which was the only power approved by the Court of Appeals
in Connecticut Committee, supra) does not carry within it the power to
authorize pay television on a permanent basis.
The Joint Committee is aware that the Commission in the First Re-
port has concluded that the Commission has such permanent authority.
The Joint Committee believes that the Commission's determination in the
First Report was erroneous, and that it should be carefully reconsidered
at this time.
It cannot. be emphasized too strongly that a system which demands
direct payment of fees by the public in order to receive programs broad-
cast on publicly controlled broadcast facilities represents a major and
drastic change in the nature of American broadcasting. Prior to the ad-
vent of pay television, broadcasting.had been solely supported by com-
mercial advertisers. There was, and is, no direct financial relationship
between a listener and a broadcast licensee. The absence of this relation-
ship is more than just a matter of commercial choice; it represents an
PAGENO="0463"
459
33
important feature distinguishing broadcasting from public utilities, and
common carriers - a distinction which was explicitly recognized by
Congress when it drafted and adopted the Communications Act~29
This single fact also sharply distinguishes pay television from
other changes in broadcasting which have occurred over the years, such
as color television, FM broadcasting, simplexing, multiplexing and func-
tional music operations,30 It also distinguishes pay television from
CATV since in CATV there, again, is no direct financial relationship
between a listener and a broadcast licensee The relationship is between
a listener and the ~ATV operator who is. in effect, charging the listener
for the use of wire lines which he has constructed so as to bring the pro-
gramming presented by the licensee to the public,31 On the other hand,
a licensed pay television system permits the licensee to charge for the
use of public facilities (the air waves) without any governmental regula-
tion of those rates; the Supreme Court clearly indicated in the Sanders
case32 that rate regulation of broadcasting is not encompassed within
the present Act.
See ~., the remarks of Senator Broussard who, during the debates on the
Communications Act o. 1927, stated "radio makes no direct charges whereas the
others (telephone and telegraph) are in the business of serving the public for di-
rect pay." 67 Cong. Rec. 12504. See also ~uUtzer Pubiish~Co, v. FCC, 68
U. S. App. D, C. 124, 126, 94 F2d 249, 251.
30 Although it is true that certain subscribers of functional thusic pay for the
privilege of receiving material broadcast over the air, it is also clear that the
~ listening audience does not pay for this brcadcasting. Stores, factories
and buildings which desire such operations purchase them so as to provide the
public in those stores and buildings with background music as an additi~al serv-
ice, The public is not simultaneously ~fl~ed of the service,
31 It should be noted, of course, that, as was pointed out above, the CATV op-
erator may, himself, originate programming, charging the public for it. Under
these circumstances ~ATV becomes quite similar to pay television, It is signif
icant, however, that the Commission has specifically refused to hold that origina-.
tion of programming by CATV systems on a permanent basis is in the public in-
terest and has sought guidance from Congress on thls matter. See Second Report
in Docket No, 14895, at Par, 153(u), 2 FCC at 787.
32 FCC v. Sanders Bros ~dio Station, 309 U. S 470, 474.
PAGENO="0464"
460
34
In the First Report the Commission, although admitting that the
Communications Act of 1934 makes no specific or direct delegation of
power to authorize such a major change in the concept of American
broadcasting and the regulatory scheme surrounding it, nevertheless
found that power in the statute, and found support for its interpretation
in its legislative history. The Commission reasoned that Sections 301
and 303 of the Act gave it broad powers over the use of radio frequen-
cies, and it specifically cited Section 303(g) as giving it the power to
study new and experimental use of frequencies and to generally encour-
age the larger and more effective use of radio in the public interest.
It then cited what it considered to be certain specific statutory limita-
tions on the Commission's licensing power (Sections 310(a), 313, 317,
325(a), 325(b) and 326) and concluded that if Congress wished to further
limit that power in regard to pay television operations it would have
specifically done so. Thus, by this strained interpretation the Commis-
sion concluded that it had been given the authority to regulate an indus-
try never conceived of at the time of the drafting of the statute
The statutory provisions relied upon by the Commission, however
(Sections 301 and 303), do not support the Commission's interpretation
of its power and authority. Section 301 of the Act merely states the gen-
eral purposes which the Act was drafted to effectuate. This broad state-
ment does not grant the Commission any power. It nowhere suggests or
even hints that the use of the public channels can be permanently licensed
to those who would withhold the benefits of those channels from persons
who fail to pay a per-program fee.
The general powers of the Commission are stated in Section 303.
Thus, Section 303(b) gives the Commission power to prescribe the nature
of the service to be rendered by each station. Section 303(c) allows the
Commission to assign frequencies to various classes of stations and to
designate the power and the time which they may operate. Section 303(d)
allows the Commission to determine the location of the different stations;
PAGENO="0465"
.461
35
Section 303(e) allows regulation of the apparatus to be used; and 303(f)
grants the Commission power to make such regulations as are neces-
sary to prevent electrical interference between stations and to carry
out the provisions of the Act. The balance of Section 303 covers mis-
cellaneous rules to insure the proper technical operation of all stations.
None of these provisions even remotely indicate that the Commission
has authority to authorize a permanent pay television system.
The only part of Section 303 which gives any support to the inter-
pretation adopted by the Commission in the First Report is Section 303(g)
which empowers the Commission to study new uses for radio and to pro-
vide for experimental uses for frequencies and generally to encourage
the larger and more effective use of radio in the public interest. Un-
questionably, this section grants the Commission the power to run tech-
nical tests such as the ones carried out by Zenith in 1950. This section,
as interpreted by the Court of Appeals in Connecticut Committee Against
Pay-TV v. FCC, supra, also allows the Commission to authorize trial
experiments such as the Hartford test. However, there is a vast differ-
ence between allowing the Commission to conduct experimental tests,
and authorizing it to establish pay television on a permanent basis. The
Communications Act, as now written, neither sets out nor attempts to
set out the kind of regulatory scheme that would be necessary to encom-
pass a permanent pay television system. The right to experiment in-
cluded in Section 303(g) does not supply the statutory deficiency.
It is true, of course, that the Communications Act gives the Com-
mission broad regulatory powers over the broadcast field. As the Com-
mission correctly indicated, broadcasting is a rapid and dynamic field
and Congress allowed the Commission great flexibility to enable it to
cope with new problems as they developed. It is also true, and the Courts
have already indicated, that these powers are not all encompassing and
that matters regarding the manner in which stations derive their revenue,
as well as other internal business affairs, were never conceived as being
within the Commission's regulatory power. See Sanders Brothers, supra.
86-399 0 - 67 - 30
PAGENO="0466"
462
36
The concept of a pay television operation and the introduction of
a direct financial relationship between the individual listener and the
station is more than a mere advance in the broadcasting arL It intro-
duces a major change in the entire concept of broadcasting and must
necessarily introduce a major change in the regulatory sheme which
surrounds the broadcasting Ilidustry. If rates are to be charged the
public f or the privilege of using public facilities, the question arises
as to whether and how these rates must be regulated~ The present Act
does not provide this guidance to the Commission. Moreover, if rates
are to be regulated, it would mean that the Commission must assess
such things as cost of operation, cost of equipment and cost of talent
and then decide - as though the licensee were a public utility - what
constitutes a reasonable return upon the iicense&s investment. It is
apparent that the Communications Act as now written neither sets out
nor attempts to set out such a broad regulatory scheme The absence
of such a scheme Is plain evidence that Congress did not grant the Corn-
mission power to authorize a permanent pay television system.
B. The Commission Should Not Act Without
Guidance From Congress
Even assuming, however, that the Commission possesses the stat-
utory "power" to authorize permanent pay television, nevertheless, it is
clear that it should not do so without further guidance from Congress
Indeed, the Commission, itself, in the instant Further Notice of
Proposed Rule Making, has indicated that amendment of the Communi-
cations Act may indeed be necessary in order to properly protect the
public from the detriments inherent in pa.y television. However, the
Commission has indicated that it will apparently follow the procedure
of first establishing pay television on a permanent basis and then seeking
guidance from Congress through amendments of the Communications Act
to correct the abuses which may occur precisely as a result of the Corn-
mission~s authorization of permanent pay television (Notice, Par. 20).
PAGENO="0467"
463
37
This is indeed a strange view of the Commission's responsibilities: to
allow the abuses first to occur and then to seek from Congress methods
by which to correct them. It is even stranger yet to hear the Commis-
sion, on the one hand, earnestly urging that with regard to CATV it is
seeking to fashion rules to protect the public before CATV becomes "en-
trenched,"33 while, at the same time, virtually ignoring the vastly more
serious dangers of pay television "entrenchment" by vaguely asserting
that at some later time (after it has allowed pay television to be perma-
nently authorized) it may seek some guidance from Congress on such a
vital matter. One of the problems which the Commission has always
faced is the fact that events move so quickly, and interests vest so rapid-
ly, that the Commission is often swept ahead by technological and other
changes, rather than controlling or regulating them properly or effective-
ly. It is disheartening to see the Commission so forcefully pushed by the
desire of pay television gadgeteers for profit as to allow permanent pay
television to be foisted upon the American public without appropriate
statutory amendments necessary to protect the public from gouging. It
is particularly inappropriate for the Commission to do so in the face of
the clear Congressional intent, as indicated by the House Interstate and
Foreign Commerce Committee, that the ultimate decision to authorize
extended or permanent pay television operations must rest with Congress
and not with the Commission.
Congressional developments during the intervening years have
clearly indicated Congressional concern with the possibility that the free
television system would be supplanted by pay television. As noted above
(footnote 3, supra), numerous bills have been introduced into the Con-
gress which would prohibit pay television. Moreover, the House Inter-
state and Foreign Commerce Committee has made quite clear its belief
that the Commission has no statutory authority under the present Act.
"3
See particularly Second Eeport in Docket 14895 et. al., at Pars. 28-46, 2 FCC
at 737-745.
PAGENO="0468"
464
38
Both the House and the Senate Interstate and Foreign Commerce Com-
mittees vigorously attacked the Commission's conclusion in the First
Report that it had such authority.34 The House Committee only ac-
quiesced in the Hartford trial to be held pursuant to the First and Third
Reports because of the limited and experimental nature of. the proposed
trials. Chairman Harris made it quite clear, however, that the Commit-
tee's acquiescence did not indicate a belIef that the Commission should
authorize pay television on a permanent basis without first obtaining
Congressional guidance in the form of statutory amendments.
Moreover, public concern has always been evident. It might con-
ceivably be argued that if a groundswell of public opinion or demand
was present seeking the prompt institution of a pay television system,
the Commission might be obligated to act even in the absence of a clear
Congressional mandate, and despite the fact that the Communications
Act gives no clear guidelines. Thus, for example, in the case of CATV
systems, the Commission has been confronted with an industry which,
as a result of public demand for increased television service in areas
which cannot receive adequate signals, has been burgeoning at such a
rapid rate that it threatened to distort or destroy the Commission's
carefully considered nationwide television allocation plan. Under these
circumstances the Commission recently indicated that it intended to
take jurisdiction of off-the-air CATV systems even in the absence of
a clear Congressional mandate, and even where the Commission once
See Second Report, 16 R.R. at 1539-1540. Thus, on February 28, 1958, the
Senate Interstate and Foreign Commerce Committee voted to recommend the
adoption by the Senate of the following resolution:
Resolved, that it Is the sense of the Senate that the Federal
Communications Commission should not, without specific
authorization by law, authorize or permit any television
licensee or agent thereof to impose a toll, fee, subscription
or other charge on the general public or any portion there-
of, for the privilege of viewing television programs received
over television receivers located in the home, with the ex-
ception of both community antenna systems and those pro-
grams transmitted by cable or wire or both.
PAGENO="0469"
465
refused to take such action without Congressional guidance.35 It is
clear, however, that there is no such public demand or pressure evi.~
dent in the case of pay television. It can hardly be contended that the
public has been besieging the Commission (or any other regulatory
agency or public authority) with demands that a permanent pay tele-
vision system is either necessary or appropriate. Indeed, in California,
as the Commission is aware, the public voted down by a decisive mar-
gin the institution of a wired pay television system in the only state-
wide referendum ever held on this question. Similarly, it is significant
that only one test of a pay television system pursuant to the First and
Third Reports has been conducted, It is at least reasonable to assume
that if a real demand for such a service were evident, it would be re-
flected in requests by prospective pay TV proponents for authority to
conduct experimental operations Nor has it been demonstrated that
the public of Hartford has demanded the service. Although RKO arti-
ficially limited the Hartford test to 5,000 subscribers and alleged that
there is a "backlog" of demand, nevertheless, neither they nor any other
proponent of pay television has indicated the extent of such a demand
or has demonstrated the existence of public clamor for a pay television
system. The information supplied by Telemeter concerning its Canadi-
an experiments corroborates the fact that, far from demanding a pay
television service, the residents of Etobicoke and Mimico actually re-
jected it. In these communities, the number of wired, pay television
subscribers actually declined more than 50% during the five-year test
from an initial high of 5,500 to 2,500 even after Telemeter expanded its
potential service area from 12,000 to 14,000 (see Telemeter Comments,
pp. 7-9). There were, no doubt, many reasons for the decline in demand
for the Telemeter service. Whatever the reason, the Canadian experience
See, e~g., Notice of Inquiry and Proposed Rule-Making in Docket No. 15971,
30 Fed. Reg. 6078. Even here, however, the Commission requested Congressional
guidance and Congressional clarification of its authority to act. Id. at 6082-83,
par. 31
PAGENO="0470"
466
40
clearly indicates that a widespread public demand for the institution of
a pay television system simply does not exist.36
Finally, and most importantly, the Commission should not attempt
to authorize pay television on a permanent basis since it is plain that the
Communications Act gives no guidelines to the Commission as to the
manner in which pay television should be operated. One of the most
pressing problems raised by a permanent pay television system is the
question of rate regulation. There is serious doubt under the Sanders
Brothers and Pulitzer Publishing cases37 as to whether the Commission
may regulate the rates which may be charged by a pay television licensee
to its subscribers. Proponents of pay television vigorously assert that
such regulation is not authorized by the present Act. The Commission,
In the First Report, did not decide this question. Nevertheless, it would
be a total abdication of responsibility for the Commission to allow the
institution of charges to the public by Commission licensees for the use
of the public airways in the face of the very real possibility that it has
no statutory authority to regulate rates
In short, subscription television representsa marked departure
from the present pattern of broadcast operations. It raises, for the first
time, fundamental policy questions which, heretofore, there has been lit-
tle or no occasion to consider. Its introduction will cause dislocation,
disruption and confusion in the industry. Clearly, the Congress is the
proper body to legislate a change of this magnitude and consequence,
even if it can be determined that the Commission has the requisite juris-
diction to authorize a permanent pay television system. The determina-
tion of whether or not pay television should be permanently authorized,
and, if so, the circumstances which should surround its operation, are
legislative functions. They should not be undertaken in the absence of
a clear Congressional mandate.
36 It is also significant that after the cessation of the Etobicoke-Mimico test,
less than 20 per cent of Telemeter's subscribers indicated regret that the sys-
tem had stopped, despite the fact that Telemeter sought an expression of opinion
from all of its subscribers. See Telemeter Comments, p. 7.
Sanders Brothers v. FCC, 309 U. S. 470; Pulitzer Broadcasting Company v
FCC, 68 U. S. App. D. C. 124, 94 F,2d 249,
PAGENO="0471"
467
41
VL THE COMMISSION SHOULD DEFER ACTION
UPON AUTHORIZATION OF A PAY-TV SYS-
TEM UNTIL THE IMPACT OF CATV UPON
THE PRESENT SYSTEM IS KNOWN
Throughout all of its consideration of the possible authorization
of Pay-TV, the Commission has adhered to one fundamental principle -
that any action authorizing Pay-TV would be taken only if it were clear
that the result would be at least to preserve the traditional free televi-
sion system in the United States, or1 indeed, possibly even to strengthen
it~ The Commission's manifest position on this subject needs no reit-
eration. Its deliberations during the years preceding the present con-
sideration of the subject have been devoted largely to efforts to ascer-
tain whether a Pay-TV system could come into being without depriving
the American public of the free television service on which it relles~
The Joint Committee respectfully urges that at the present moment
in time the Commission is in a poorer position to make any determina-
tion with respect to that all important matter than it has been at any
time since It first engaged in formal consideration of Pay-TV~ The es-
sential reason for the inability to determine at this time whether the au-
thorization of Pay-TV would result in serious harm to the free television
system is because the free television system faces a clear threat from
the rapid growth of CATV. That threat, the result of which cannot be
predicted at this time, may so effect free television that the additional
impact of Pay-TV could constitute a mortal blow. At the very least, the
Commission, the industry, and the public must acquire additional infor-
mation from the operation and growth of CATV under recently adopted
Commission regulation and possible Congressional action before any
reasonable judgment can be made concerning the ultimate impact on the
free television system or Pay-TV.
PAGENO="0472"
468
42
Underlying the issuance of the Further Notice of Proposed Rule
Making in this docket is a fundamental two-fold assumption of the Com-
mission that a basic decision with respect to pay television may be made
at this time. The assumption is:
(1) That the shape of the free television industry
is sufficiently ftxed so that the impact upon it from a
pay television authorization may be measured with suf-
ficient precision for regulatory purposes; and
(2) That the form a nationwide pay television
system will take is sufficiently known at this point so
that Federal regulation may be intelligently applied.
As indicated elsewhere herein, the Joint Committee believes the
Commission may not rely upon the Hartford test as a basis for authoriz-
ing a nationwide Pay-TV system, and is without sufficient data from that
test to determine what the impact of nationwide Pay-TV will be on the
traditional free television service. It is the further position of the Joint
Committee, however, that the Commission is not able at this point to as-
sess what form a pay television system is likely to take, nor is it in a
position to assess the nature of the television system which may finally
evolve in this country with or without pay television. Knowledge concern-
ing both these factors is essential if the Commission's action with respect
to Pay-TV will safeguard the oft-repeated concern for maintenance of
healthy free television service.
The unsettling and unknown factor in the equation at this point is
the burgeoning growth of the community antenna television industry, not
only in small and isolated communities but in large cities, and the pos-
sibility that such CATV activity will itself become a vehicle for Pay-TV
operations. In its current deliberations in the CATV field, the Commis-
sion has refused to make final decisions as to the role of CATV in the
national television structure, and as we shall show, until basic decisions
have been taken with regard to the CATV industry, and its role in the
national television allocations structure is understood, no action should,
or properly can, be taken to authorize a nationwide Pay-TV service.
PAGENO="0473"
469
43
A. The Extent Of~ATVDeve1opme~
The rapid growth of CATY systems within the last several years
must be Considered a factor of prime significance to this proceeding.
This growth appears to be concentrating in the large television markets
of the country, the very areas which would be the first targets of Pay-Tv
operations, This activity formed much of the basis for the Commission's
decision to assert jurisdiction over all CATV systems in the Second Re~
tort and Order in Dockets 14895, 15233, and 15971, 2 F,C,C,2d 725.
Thus, at Paragraph 38 the Commission stated (2 F~C,C,2d at 741):
38. There is also widespread CATV activity
within major cities, Our attention has been called
to the asserted intent of CATv interests to wire
up "almost all American cities - small and large"
and 85 percent of all television sets - 40 million
homes,43 The December 1965 issue of Television
Magazine (vol. 22, No. 12) states that franchise
applications have been filed in San Francisco,
Seattle, Pittsburgh, Baltimore, Fresno, Columbus,
Tucson, Birmingham, Providence, and Sacramento,
Two of the commenting parties in this proceeding
are applicants for CATv franchises in Philadelphia,
The comments of Columbia Broadcasting System
(CBS) refer to applications for CATV franchises
in Albany and Syracuse, N. Y~; Galveston, Tex~;
and the grant of a CATV franchise in Wilmington,
Del. D~ H. Overmyer, permittee of new UHF sta-
tion WDHO-TV in Toledo, Ohio, comments that
local authorities have granted a CATV franchise
fOr that city since the issuance of the joint notice
herein, Toledo has two VHF stations, a UHF ed-
ucational station, and - according to Storer Broad-
casting Co,, receives the signals of four Detroit-
Windsor VHF stations, off the air and without re-
ception difficulty. Telerama, mc,, az~ applicant
for a CATV franchise in Cleveland, has filed com-
ments describing its proposed cable operation for
that city which has three VHF stations, a UHF ed-
ucational station, and applications pending for two
PAGENO="0474"
470
44
new UHF facilities.24 Taft Broadcasting Co., in a
June 1965 petition to deny a microwave application
(file No. 6226-C1-P-65) to bring the three New
York independent stations to CATV systems in the
Wilkes-Barre-Scranton area of Pennsylvania, states
that in the last 6 months 90 franchise applications
have been filed in 54 communities in Lackawanna
and Luzerne Counties. The Scranton-Wilkes-Barre
area is served by three UHF stations, providing
three full network services. [Footnotes omitted]
This current activity in the large cities by CATV interests is sig-
nificant because it reflects the fact that CATV service no longer appears
to be confined to its originally assumed purposes. Instead, despite the
presence of numerous local signals, CATV systems now planned in the
larger markets propose to provide an unusual number of additional broad-
cast programs.
Such activity in the large markets has the potential to threaten local
free television service. This threat exists because CATV systems frag-
ment the audience otherwise available to local stations by importing other
broadcast signals. In addition they may be used as a vehicle for distri-
buting programs which either originate with the CATV system or are
made available to it on an exclusive basis. It is clear that substantial
investments have been and are being made by CATV interests in the large
markets of the country. There are currently on file with the Commission
112 requests for waiver of the Commission's new CATV rules requiring
an evidentiary hearing before "distant" signals may be imported into the
large markets. In addition, several significant CATV systems are in op-
eration in the very largest cities of the country, such as New York, Cleve-
land, San Diego, etc. The economic pressure to utilize these systems in
the maximum manner possible under the state of art, is likely to increase
in the next few years. In addition, there is increasing interest in origi-
nating programming on CATV systems. These developments must be
fully understood before a Pay-TV, off-the-air system should be authorized.
PAGENO="0475"
471
45
B. CATV As A Form of Pay-TV
A clear threat to the continued healthy existence and growth of
free television is posed by the possibility that CATV systems may be
converted into Pay-TV operations, or that they will originate program-
ming on vacant video channels. In fact, there is now formal interest in
utilizing CATV systems to carry programming which does not originate
with broadcast stations. See applications of Dal-Worth Microwave, Inc.,
File No. `7661-C1-P-66. It is common knowledge that CATV systems
have been utilized to distribute specialized programming, e.g., heavy-
weight championship fights, that is not otherwise available to television
broadcast stations, and substantial interest now exists among CATV
groups for program origination on a broad scale.
The Dal-Worth applications apparently do not propose to charge
subscribers on a per program basis for the nonbroadcast programming
that would be provided. It is nevertheless clear that program origina-
tion undertaken by CATV systems can have as serious consequences for
free local service as the most widespread pay television operation con-
ducted on a broadcast frequency. Manifestly, such CATV operation
would be in active competition with free television both for audience and
for program material.
That no valid distinction between such CATV and Pay-TV may be
based on the difference per program and monthly subscription payments
has repeatedly been recognized. Indeed, the Commission uses the terms
"pay television" and "subscription television" interchangeably. More-
over, one of the first pay television operations in the country involved
a community antenna television system located in Bartlesville, Oklahoma,
("Telemovies") which did not charge subscribers on a per program basis
but on a monthly basis. There was no doubt that this was pay television.
(See Broadcasting, September 9, 1957, p. 31).
PAGENO="0476"
472
46
Former Chairman Oren Harris o. the House Committee on Interstate
and Foreign Commerce has stated:
Now I think we are kidding ourselves when
we try to say that Pay-TV is limited to dropping
a coin in a box and getting a program out of the
whirL I think a lot of people in this country are
going to wake up one of these days and find them-
selves in the midst of a new policy or program
that they cannot get out oL (Hearings on H.R.
7715, su~ra, at 185~)
*: *. *
Now what we are doing, I must say in all
frankness and candor, in my judgment we are
sitting around here and watching a nationwide
Pay-TV operation develop ~Id at 186.)
* * *
~W]hether you talk about collecting on a
monthly basis or per program basis, whatever
method it is, it is still Pay-TV~ ~Thid~)
It is true that the Commission has already expressed its concern
over the possible impact on free television service from a hybrid CATV-
Pay-TV operation~ Thus, in the Second Report and Order in Docket
15971 at Paragraph 128, the Commission stated (2 F~C.C.2d at 777):
Whether a form of Pay-TV operation will re-
suit from CATV is uncertain and would appear to
depend again very largely upon the growth factor,
particularly in the larger cities which would nat-
urally be the backbone of any wire Pay-TV opera-
tion~ But we would agree that in the circumstances
its authorization should stem from the Commission
(or the Congress) after appropriate proceedings~
For, what is involved is not the strictly wire Pay-
TV proposals such as recently attempted in Cali-
fornia~ A hybrid CATV-Pay-TV operation would
be baseth in an integral and substantial fashion,
on use of broadcast signals (to provide the econom-
ic base for the Pay-TV "frosting"), and such use
of broadcast signals should be allowed only if it is
found to be in the public interesL We have petitions
now under consideration, which seek the authoriza-
tion of Pay-TV on a regular basis using broadcast
PAGENO="0477"
473
47
facilities, perhaps only in the UHF portion of
the spectrum~ It is clear that until resolution
of the very important policy issues, Pay-TV
operations based in substantial part on use of
broadcast signals is inappropriate~
The Commission further stated at Paragraph 153 that Congres-
sional consideration of Pay-TV in conjunction with CATV was "partic-
ularly called for~" The Commission stated (2 F~C~C.2d at 787):
W~ believe that congressional consideration
of Pay-TV aspects of CATV is particularly called
for~ For the reason stated in pars~ 128-129, we
shall urge that Congress prohibit the origination
of program or other material by a CATV system,
with such dmitations or expectations as are deemed
appropriate~ A hybrid CATV-Pay-TV operation
would be based, in an integral and substantial fash-
ion, on use of broadcast signals, and such use of
the broadcast industries signals would appear to
be both inequitable and inconsistent with the pub-
lic interesL It is inequitable because it is clear-
ly unfair to use the broadcast industries product
as a basis for wire Pay-TV operation which could
adversely effect that industry or indeed supplant
IL More important, were wire Pay-TV to sup-
plant "free" television broadcast service, it would
be inconsistent with the public interest, since it
would mean that the public would receive, at least
in part, the same service it now does, but for a
fee. Finally, we are considering petition seeking
the authorization of Pay-TV in the broadcast spec-
trumP
Despite the above statements reflecting the Commission's concern
over joint CATV-Pay-TV operation, it may be that CATV systems will
nonetheless enter into the Pay-TV fleld~ For instance, if the Commis-
sion rigorously prohibits the importation of "distant" broadcast televi-
sion signals by CATV systems into the larger markets, such systems
may be required to look elsewhere for program sources in order to at-
tract subscribers and compete with existing off-the-air television serv-
ice. Much of the Commission's CATV regulation has been bottomed upon
PAGENO="0478"
474
48
the unfair competitive aspects of CATV service where no charges are
paid for the program product by the CATV system and where television
stations themselves must compete in the market place for such program-
ming. However, if CATV systems are required to pay copyright fees
and are not permitted to import distant signals, then much of the justi-
fication for prohibiting program origination op rations by such systems
will have been dissipated. The Senate Judiciary Committee has recent-
ly approved a new copyright statute which, it is reported, would not pro-
hibit original programming by CATV systems so long as copyright lia-
bility to local broadcasting stations was acknowledged for the programs
of such stations carried by the CATV system.
While the economics of the matter are not clear, it certainly can-
not be denied that a `arge scale CATV system in the major markets
would have the potential to compete for program originations. Even if
CATV systems were required to pay reasonable license fees to local
stations, adjustment of subscribers monthly fees to reflect copyright
costs of the CATV system would not necessarily result in pricing of
the CATV "product" beyond the reach of a substantial segment of the
public One of the factors which the Commission must investigate is
the extent to which possible copyright liability may be an insufficient
deterrent to the commencement of Pay-TV operation by CATV systems.
The relevance of this discussion to the instant proposal to estab-
lish a nationwide Pay-TV service utilizing broadcast frequencies is read-
ily apparent. Insofar as the impact upon the free television service may
be concerned, pay television originating on broadcast frequencies cannot
be distinguished from pay television carried by wired systems. In fact,
wired systems may have the physical potential to carry more than one
original program at the same time. This is exactly the type of operation
which was proposed by the subscription television service offered in Los
Angeles and San Francisco. It is impossible to measure the impact of a
Pay-TV service originating on broadcast frequencies upon the local free
PAGENO="0479"
475
49
television unless the Corn: lission knows all of the other competitive
threats to the local free television service extant at the same time.
Unless the Commission is assured, either by an explicit prohibition
on program origination through Congressional legislation, or by un-
disputed economic data demonstrating that such CATV-Pay-TV oper-
ations would never get. off the ground, that there is no such threat to
local television service, it cannot reasonably conclude that the addi-
tional authorization of nationwide off-the-air Pay-TV would not ser-
iously harm the free television service.
C~ CATV As An Adjunct to Free TV
The unsettled nature of the regulatory scheme and, indeed, the
unsettled nature of the CATV industry, itself, dictates at this point that
no definitive action can be taken with respect to the current proposal.
This is so even if no hybrid CATV-Pay-Ty operation is assumed, For
insofar as CATV may import distant TV signals into a market, the im-
pact upon the free television service may be precisely the same as the
threat of program origination by CATV systems. Importation of New
York independent broadcast stations into Philadelphia by a CLTV sys-
tem will have the similar effect upon the local free television service
in Philadelphia as an off-the-air Pay-TV service. In both cases, the
public would be receiving programming from a source not otherwise
available to it, and the impact upon the local television stations in that
respect is the same. Thus, if the CATV service does not develop into
a Pay-TV form of operation, it may still represent a substantial threat
to the local television service if signals not otherwise available locally
are permitted to be shown in the particular market, While the Commis-
sion has established procedures for investigation of CATV operations
in the larger markets, it is not entirely clear that the importation of
distant signals will be rigorously prohibited by the Commission. In fact,
the very decision of the Commission in th: See~nd Repcr;~ an~ Order to
PAGENO="0480"
476
50
"grandfather" existing systems, even though they are located in the large
markets and importing distant signals, is fair indication that at least
some cities will be subjected to the competition of a CATV system, with
an effect upon the local television stations exactly as if an off-the-air
Pay-TV service had been established~ The extent of the CATV develop-
ment at this point in time is not such that the Commission can dismiss
the impact of distant signals upon local television stations before meas-
uring that factor in determining whether off-the-air Pay-TV service
should be established~
In addition, the same type of procedures should be adopted by the
Commission with respect to the proposed broadcast Pay-TV service as
have been adopted for new CATV activity in the larger markets When-
ever CATV systems bring to a particular community television programs
which are not otherwise available off-the-air, they are affecting the com-~
petitive viability of the local television service in exactly the same man-
ner that a Pay-TV system from a local broadcast station would do~ Log-
ical analysis requires the Commission to adopt procedures which would
permit scrutinizing of the impact of broadcast Pay-TV operations upon
the local television services in exactly the same manner that the Com-
mission now requires CATV systems in the larger markets to prove in
an evidentiary hearing that other stations will not be harmed by such
operations~ Since the threat is the same, the Commission's procedures
to handle each should be the same.
It should be emphasized that the importation of distant signals is
not merely a potential factor to be measured together with proposed off-
the-air Pay-TV operations~ According to a study of the National Com-
munication Television Association, 92 percent of the CATV systems in
this country carry at least one distant television signal and most sys-
tems carry moreS See Cable TV Review, September 19, 1966, pp~ 4-5.
If the Commission is to treat the Pay-TV threat to local service in the
same manner as it has treated the CATV threat, it must conclude at a
PAGENO="0481"
477
51
minimum, as in the CATV field, that evidentiary hearings in the partic..
ular markets on the proposal of the Pay-TV proço~ient must be con-
ducted. Such hearings are an unsatisfactory alternative to deferral of
action upon the instant proposal until the Commission's regulatory
program in the CATV field has been developed. If, however, the Com-
mission is determined to go forward with authorization of a nationwide
Pay-TV service, then it must permit individual evidentiary hearings
to be conducted so that the impact upon the local free television serv-
ice may be assessed in a realistic manner, Such hearings would de-
velop: (1) the nature of the Pay-TV service proposed, including its
proposed penetration of the market; (2) the posture of the local free
television service in existence and likely to come into existence; and
(3) the extent of existing and proposed and CATV activity in the par-
ticular market.
D. Summary
The Commission has proposed here to authorize on a permanent
basis and throughout the nation a broadcast service which has no sub-
stantial precedent, Whatever the merits of such a service in bringing
additional programming to the public, it is clear that there are serious
and substantial questions concerning the impact of the service upon ex-
isting free television operation, The Commission's proposal is put f or-
ward when the shape of the television industry has not been settled. All
that is clear now is that the industry faces a five to ten year period of
maximum instability. The burgeoning growth of CATV systems, par-
ticularly in the larger markets, must be assessed by the Commission
before it can take definitive action in the Pay-TV field,
The Commission also must not lose sight of the fact that with an
ever increasing need for frequency space, authorization of an unprec-
edented and largely unknown service such as Pay-TV on broadcast
86-399 0 - 67 - 31
PAGENO="0482"
478
52
frequencies is not justified in light of the potential impact upon free
television. The Commission may not also close its eyes to the poten-
tial impact of satellite communications upon the television industry
and the public at large. While it Is not clear how satellite communi-
cation might be used to bring service to the public, this kind of tech-
nical innovation no doubt will permit a greater number of television
services to be brought to the public. In sum, the Commission is pro-
posing at this time to permanently authorize a controversial and little
needed auxiliary broadcast service in the face of widespread changes
in the television industry which may become necessary or unavoidable
within the near future. At a minimum, the Commission should defer
further consideration of an off-the-air Pay-TV service.
VII. ASSUMING ARGUENDO THAT THE COMMISSION
IS PREPARED TO AUTHORIZE A NATIONWIDE
PERMANENT PAY-TV SYSTEM, ANY SUCH AU-
THORIZATION MUST BE COUCHED IN TERMS
OF A REGULATORY PATTERN DESIGNED TO
INSURE THE SURVIVAL OF FREE TELEVISION
If Pay-TV is to be authorized on a nationwide basis, it must be in
the context of a regulatory pattern designed to protect free television
and the public. The Commission has never suggested that it would per-
mit Pay-TV to supplant free TV. The grant of a permanent authoriza-
tion rests upon the assumption that the two techniques can coexist. This
assumption cannot be left to chance and must be incorporated as best as
possible in an overall regulatory pattern.
We have attempted to set forth below the minimum restrictions
which we believe appropriate If any authorization is to be made at the
present time. Each proposed rule is set forth separate arid apart from
the others as well as ~part of a complete regulatory system.
PAGENO="0483"
479
53
As was indicated earlier, we do not believe the Commission has
the data upon which to conclude that any nationwide authorization was
warranted - the data necessary to determine the economic viability of
Pay-TV as well as the impact of a successful pay television system on
free TV. Nevertheless, if Pay-TV is to be authorized, the rules set
forth herein constitute the minimum necessary to protect the public
interest.
A~ Pay-TV App1tc~ions In the Top 100
Markets will be Granted Only Alter
a Hearing
The basic question permeating the Commission's Notice of Pro-
posed Rule Making in both the CATV and Pay-TV matters pertain to
the impact of those respective services on the national television struc-
ture. With respect to CATV, hundreds of systems were operated in all
types of markets prior to the adoption by the Commission of rules in-
tended to assure the orderly integration of CATV with free television.
Extensive studies of CATV were conducted by Drs. Seiden and Fisher,
the National Community Television Association (NCTA), CBS, and
AMST (Second Report and Order~ Docket Nos~ 14895, 15233, and 15971,
paragraph 44). Consequently, prior to the adoption of the CATV rules,
exhaustive data was available to the Commission concerning the t~utia~
impact of this service on free television. Despite the voluminous in-
formation available to the Commission on CATV, despite the recogni-
tion by the Commission of significant contributions made by CATV
(Second Report and Order, supra, paragraph 139), the Commission
adopted rules which require an evidentiary hearing where a CATV sys-
tem proposes to extend the signal of a television broadcast station be-
yond its Grade B contour into the top 100 markets. In contrast to this
mass data on CATV, the Commission has very little material on Pay-
TV -- one test in one market, and a test conducted under controlled
PAGENO="0484"
480
54
conditions promulgated by the Commission to assure minimal impact
on free television.
The significant factor common to both Pay-TV and to CATV sys-
tems proposing to extend Grade B signals of broadcast stations beyond
their contours into the top 100 markets is the introduction of program-
ming into a given market not otherwise available on free television in
the said market. The foremost concern to which the Commission has
addressed itself in both the CATV and Pay-TV proceedings is the im-
pact on free television. In attempting to assess the impact on free tele-
vision from CATV systems operating in the top 100 markets, the Com-
mission adopted rules which require a hearing. In attempting to assess
the impact on free television from Pay-TV, the Commission can do no
less. The method by which the pertinent issue (impact) is to be ascer-
tained cannot justifiably vary because the sources of the impact are dif-
ferent. Indeed, the need for a hearing to determine impact prior to the
grant of a Pay-TV authorization is more apparent in view of the dearth
of information available to the Commission concerning Pay-TV in con-
trast to the abundance of information which was available to the Commis-
sion at the time it adopted the CATV rules.
PROPOSED RULES
No Pay-TV station shall be permitted to operate
in the 100 largest markets except. upon a showing,
approved by the Commission, that such operation
shall be consistent with the public interest, and
specifically the establishment and healthy mainten-
ance of free television broadcast service in the area.
Commission approval of a request to operate a Pay-
TV station i.n the foregoing circumstances will be
granted where the Commission, after consideration
of the ~quest and all related material in a full evi-
dentiary hearing, determines that the requisite show-
ing has been made. The market size shall be deter-
mined by the rating of the American Research Bu-
reau on the basis of net weekly circulation for the
most recent year.
PAGENO="0485"
481
55
B. Subscribers Will Be Limited to
A 10% PenetratIon
Any Pay-TV authorization is based upon the Commission's as-
sumption, derived presumably from the Hartford experience, that Pay-
TV would achieve, at best, a 10% penetration, and the average subscrib-
er audience would be 10%. Consequently, Pay-TV would not affect more
than 1% of the television homes in the United States From this, the
Commission deduced that there would be no noticeable impact on free
TV.
Since the impact of Pay-TV on free TV is of paramount impor-
tance, the assumptions should be crystallized as rules. There is no
way of precluding subscribers from watching any given program and,
consequently, any limitation must be in terms of a limit on the number
of subscribers. We believe that a 10% penetration a limitation of
the number of subscribers to io% of the net circulation in the market -
is, in fact, excessive in light of the actual experience in Hartford.
Since the Commission, however, has utilized this figure in the Further
Notice, we have assumed its validity for purposes of this discussion.
If the Commission adopts the hearing requirement for Pay-TV
in the top 100 markets, no specific additional rules will be required
in this context. It is assumed that during the course of such a hearing,
the proponents would be required to demonstrate the number of antici-
pated subscribers, the penetration of the market, and the effect of such
a penetration on free television. Any final decision by the Commission
to grant any particular application would necessarily contain a deter-
niinationas to tin maximum number of subscribers proposed and the ef-
fect of such a penetration on free television, The Pay-TV system,
thereafter, would be limited to its proposal and any growth beyond this
point would require prior Commission approval and another hearing.
PAGENO="0486"
482
56
The problem also exists in markets other than the top 100.38
The problem may be obiated by a rule which limits Pay-TV to four-
station markets, In, such event2 Pay-TV will be, for all intents and
purposes, precluded from the small markets. The proposed rule has
been drafted to cover the maximum contingency and it can be adjusted
in light of the discussion above.
PROPOSED RULE
1. No Pay-TV station shall be permitted to operate
where more than 10% penetration is proposed or
will be achteved except upon a showing, approved
by the Commission, that such operation would
be consistent with the public interest, and, spe-
cifically, the establishment and maintenance of
a healthy free television broadcast service in
the area, Commission approval of a request to
operate a Pay-TV station in the foregoing cir-
cumstances will be granted where the Commis-
sion, after consideration of the request and all
related material in a full evidentiary hearing,
determines that the requisite showing has been
made. Penetration shall be determined by the
rating of the American Research bureau on the
basis of the net weekly circulation for the most
recent year.
2. Pay-TV stations shall file with the Coinmission
monthly subscriber lists. Pay-TV stations
shall either (1) maintain subscribers at this 10%
penetration level (or at such other level as the
Commission may have approved in an eviden-
tiary hearing) or (2) request Commission ap-
proval of additional subscribers. Commission
approval of such a request will be granted
where the Commission, after consideration of
the request and all related material in a full
evidentiary hearing, determines that the requi-
site showing described above has been made.
38 It is to be noted that the minimum number of subscribers deemed by the
proponents to be economically feasible is 20,000 and the proponents indicate
that operation below the top 100 markets, consequently, will require a pene-
tration substantially greater than 10%.
PAGENO="0487"
483
57
C. No Pay-TV System Will Be Authorized
Until it has A Minimum of 2,000 Sub-
S scribers
Every family or individual possessing a television receiver within
technical range are potential viewers for free TV. Thus, considering
television set saturation, there is no need to require applicants for tele-
vision broadcast stations to demonstrate the existence of an audience.
Pay-TV, however, absent the addition of a new element - subscribers,
has no potential, audience and the Commission cannot blightly assume
that such an audience will materialize. In fact, based on the results of
the Hartford test, there is an adequate basis to forecast that Pay-TV
will not achieve a sufficient audience base necessary to survive. In
short, whereas free TV has a potential audience recognizably available,
Pay-TV does not until subscribers are obtained, The proposed rule
would translate this basic difference (the new element - subscribers)
into a meaningful standard.
Based on the Hartford test, proponents state that a 20,000 sub-
scriber system is the smallest system economically feasible (Joint
Comments, p. 35). Accepting this as an accurate projectioa, the Com-
mission should adopt a rule looking toward reasonable assurance of
continued operation (Ultravision Broadcasting Co., 1 FCC 2d 544).
Such a rule would help protect against the type of public and private
detriment suffered as a consequence of the early failures in UHF tele-
vision~ While it is not realistic `to expect Pay-TV stations to commence
operation with 20,000 subscribers, it is reasonable to require, as a
part of the basic showing of need, that Pay-TV applicants demonstrate
by firm, binding agreements at least 2,000 subscribers, prior to the
grant of a Pay-TV authorization.
PAGENO="0488"
484
58
PROPOSED RULE
~4o pay TV authorization shall be granted except
upon the affirmative showing that the applicant
has obtained at least 2,000 subscriber contracts.
Only contracts under which the subscriber has
agreed to pay the regular prescribed charges
will be considered in ascertaining compliance
with this rule.
D. Pay-TV Must Be Limited to Preclude
~pboning of Programs and Ta1ent~
Underlying proponents' definition of "box-office" Is the impli-
cation that Pay-TV programming will consist of programs not avail-
able to free television. For example, in the area of sport events
proponents state:
subscription television's major contribu-
tion to sports fans will be the making available
of those events such as heavyweight champion-
ship boxing matches, home professional football
and baseball games and the vast number of col-
lege football games which are kept off conven-
tional television by the owners thereof because
of fear of the drastic effect conventional televi-
sion may have upon box-office attendance.
(Joint Comments, p. 46.)
As previously set forth, supra, the conditions under which the Hartford
test was conducted, rendered Impossible the formulation of meaningful
conclusions pertaining to its impact on free TV. Nationwide Pay-TV,
through the inducement of greater profits, may well siphon-off pro-
grams and talent now available on or to free television. Illustrative
of this point is the disappearance from local free television of the
games of certain major league baseball teams in California.
PAGENO="0489"
tevjsjon
goal and proponents? representations that I.
is a Supplemental service to the existing televj~
ably
tournaments
eason -
s not been c I on a re~
PAGENO="0490"
486
60
It is virtually impossible to proscribe entertainment prOgram-
ming as such Any limitations written in terms of particular programs
would Involve the Commission in the type of detail that is considered
in copyright lltigatiqn At what point does a program change sufficient-
ly so that it becomes a different program? The obvious instances are
few - change in title does not create a new program. Does the addi-
tion of one new character or the change in character names create a
new format? Is "Run For Your Life" the same program as "The Fugi-
tive"?
We have also considered the possibility of a rule precluding pro-
grams or program series revolving around a main character. Tele-
vision is not limited to such programs and, conversely, the problem
of identification continues to exist.
The only approach which bears any hope from an administrative
point of view is to preclude the siphoning of talent in such a way as to
make that talent unavailable to free television and, accordingly, we
have drafted a rule in this context. ~9
It is to be noted that the rule on talent cannot reasonably be ap-
plied to motion picture film exhibited on Pay-TV while, at the same
time, every utilization by Pay-TV of motion picture film impedes the
use of that film by free television. The Commission, consequently,
should adopt a rule which limits the amount of time that a Pay-TV sta-
tion ca~ devote to fllms~ The benefits inherent in such a rule extend
beyond reducing the impact on free television. Movies occupied 86%
of the Pay-TV programming in Hartford and, as such, the service pro-
vided by Pay-TV coald be described charitably as analogous to the
service provided by a neighborhood theater and the neighborhood theater
does not utilize scarce broadcast frequencies. If the broadcast of mo-
tion picture film were limited, Pay-TV would be forced into the type of
programming which heretofore has been limited to the speeches of com-
pany officials.
Comments looking toward a talent restriction were requested In Paragraph
14 of the Further Notice.
PAGENO="0491"
487
61
We have suggested a 50% limitation as an equitable balance de-
signed, in conjunction with the sports that will be available, to afford
the proponents sufficient programming to operate and yet requiring
new programming resources.
PROPOSED RULE
No licensee shall broadcast any program in-
volving sports events for which a fee is charged
which was regularly televised into the market
via a free television station within 5 years from
the last date on which the event appeared on free
television.
a. Notification of the sports events proposed
to be carried by the Pay- TV station shall
be provided to all other television broad-
cast stations located within 25 miles of the
Pay- TV station at least 30 days prior to
the designated broadcast date of said sports
event.
b. Petitions to prohibit the carriage of such
sports events on a Pay-TV shall be filed
with the Federal Communications Com-
mission no later than 21 days prior to the
designated broadcast date together with a
copy of the contract (if available) upon
which the petitioner relies.
2. No licensee shall broadcast any program for
which a fee is charged, if the talent for such
program is restricted, prohibited, or in any
way induced or influenced from appearing at
any time on free television.
3. No Pay-TV licensees shall devote more than
50% of its subscription hours in any week to
the transmission of motion picture film.
PAGENO="0492"
488
62
E. Pay-TV Stations Should Be Limited to UHF
Stations and to Communities within the Grade
A Contours of at Least Four Commercial
Television Stations
Historically, the Commission has striven to attain television dis-
persion throughout the United States. Incidental to this goal, the Com-
mission has deemed it significant to provide conditions looking toward
the establishment of parity among the national networks. Operation of
a Pay-TV station in a market within the Grade A contour of less than
four commercial television stations will subvert the progress hereto-
fore accomplished. The displacement of network programming by a
Pay-TV movie during the prime time in a major market would disrupt
the competitive position of that network, vis-a~-vis, the other two and
it would also deprive the viewing public of the displaced network pro-
gramming.
Presumptively, pay television is to be authorized as a supple-
mental service. No such justification exists if its authorization will
result in the displacing of a major program source.
The available data from the Hartford test provides no basis for
deviation from the policy considerations set forth in the Third Report
and Order, limiting Pay-TV operation to markets within the Grade A
contour of four commercial television stations.
PROPOSED RULE
No license shall be granted to a television broad-
cast station proposing to carry programming for
which a fee is charged except upon a showing that
the market which it serves or proposes to serve
is within the Grade A contour of at least four com-
mercial television stations (including the Grade A
contour of the Pay-TV station). The market shall
be the market as used by the American Research
Bureau for the most recent year.
PAGENO="0493"
489
63
It is also to be noted that one of the principal claims advanced
on behalf of Pay-TV is its alleged ability to promote the growth of
new stations by providing additional economic and program resources.
Since, as a practical matter, this relates almost exclusively to UHF
stations, any authorization of Pay-TV should, we believe, be limited
to such stations.
PROPOSED RULE
No license shall be granted to a television broad-
cast station proposing to carry Pay-TV program-
ming except to a station operating on a UHF fre-
quency.
F. Pay-TV Programming Should Be Limited
In Total Hours of Operation and to
Certain Segments of the Broadcast Day
The necessity of restricting Pay-TV authorizations to communi-
ties within the Grade A contour of four commercial television stations
has been previously discussed and such arguments are equally appli-
cable here, Bearing significantly on this question is the matter of re-
stricting the broadcast hours of a Pay-TV station. While conditions
imposed upon Pay-TV authorizations must not be so burdensome as to
unreasonably fetter operation, the objective of preserving free televi-
sion as it is recognized today, remains the paramount consideration.
The data available from the carefully cc
simply does n
t' ,
C
(
C
n all types .~ts, the ColT
tion and adopt rules which will av
rtheless,
3 part could
S.
PAGENO="0494"
490
64
Assuming the adoption of a rule limiting Pay-TV authorizations
to markets within the Grade A contour of four commercial television
stations, the Joint Committee believes that the Commission's proposal
set forth in Appendix C, Secton 73 643 should be modified to the extent
of restricting the Pay-TV station to devoting not more than 60 per cent
of its prime broadcast time to Pay-TV programming The Joint Com-
mittee urges, however, that this restriction should be applied to any
Pay-TV station and not be limited solely to markets with a maximum
of four stations The lick of information respecting the impact on free
television does not warrant the risk of permitting any Pay-TV station
to operate on unlimited time in any market.
Should the Commission fail, to adopt a rule limiting Pay-TV au-
thorizations to markets within the Grade A contour of four commercial
television stations, the Commission must apply a more strict limita-
tion on the hours of operation available for Pay-TV programming in
the smaller markets. The utilization of prime time hours for Pay-TV
will upset the competitive positions of the networks and will deprive
the public of the benefits of noteworthy network programming.
In its proposed Section 73.643, the Commission has recognized
the need to reserve broadcast day segments for free TV in relation to
the number of stations in the market. Thus, it is more imperative that
a Pay-TV station in a market within the Grade A contour of only one
station reserve significantly more time for free TV than a Pay-TV sta-
tion in a community within the Grade A contour of four or more stations.
While the Joint Committee agrees in principle with the proposal, it be-
lieves that a greater percentage of prime time must be reserved for
free television. Accordingly, it is submitted that in single station mar-
kets, not more than 25 percent of the station's prime time broadcasting
time, computed on a weekly basis, with a maximum of three hours in
any one prime time segment, be permitted for Pay-TV use; that in two
and three station markets, not more than 40 percent of a station's prime
PAGENO="0495"
491
65
time broadcasting time, computed on a weekly basis, with a maximum
of three hours in any one prime time segment, be permitted for Pay-.
TV use. If the Commission adopts rules authorizing more than one
Pay-TV station in a market, the time and percentage should continue
to be calculated on the basis of only one authorization.
In addition to the reservation of broadcast day segments for
free television, the Joint Committee further believes that it is neces-
sary that the Commission impose a limitation on the number of hours
per week which can be devoted to Pay-TV. Proponents state that on the
basis of the Hartford test the feasibility of b:roadcasting more than 30
to 40 hours is unlikely. Since there is really no basis for knowing
whether this condition would continue in the event of the authorization
of nationwide Pay-TV, the Commission should affirmatively adopt a
rule placing a weekly time limitation on the number of hours to be
utilized for Pay-TV programming in a market.
PROPOSED RULE
If a television broadcast station supplies the only
Grade A signal to a community, not more than 15
percent of its non-prime broadcast time (includ-
ing subscription and non-subscription broadcast
time during that period) and not more than 25 per-
cent of its prime broadcasting time (including
subscription and non-subscription broadcast time
during that period) may be devoted to Pay-TV; if
a television broadcast station supplies the second
or third Grade A signal to a community, not more
than 25 percent of its non-prime broadcast time,
and 40 percent of Its prime broadcast time may
be devoted to Pay-TV; if a television broadcast
station supplies the fourth or more Grade A sig-
nal to a community, not more than 50 percent of
its non-prime broadcast time and 60 percent of
its prime broadcast time may be devoted to pay
television.
PAGENO="0496"
492
66
a. In no event shall a Pay-TV station or sta-
tions devote, individually or collectively,
more than tI*ee hours to Pay-TV program-
ming. in any on~ broadcast day during prime
broadcast tlme;in markets within the Grade
A contoursOf one, two or three television
stations (including the pay television sta-
tion.).
b. In no event shall a Pay-TV station or sta-
tions devote more than four hours, individ-
ually or collectively, to Pay-TV program-
ming in any one broadcast day during prime
broadcast time in markets within the Grade
A contour of four or more television sta-
tions (including the Pay-TV station).
C. Prime time broadcast hours are defined
as those hours of the broadcast day between
6:00 p.m. and 11:00 p.m.
d. In no event shall a Pay-TV station or sta-
ti~ns in a market exceed 35 hotirs, collec-
tively, per week of Pay-TV programming.
e. In the event that more than one Pay-TV au-
thorization is granted in the same market,
the percentage of prime time authorized
for Pa'j-TV programming will be calcu-
lated on the basis of a total of 35 hours
and the percentage of non-prime time au-
thorization for Pay-TV programming will
be calculated on the basis of the station
operating the fewest hours.
0. Pay-TV Licensees Shall Be Prohibited from
Engaging in Network Operations or Other
Types of Multiple Program Purchase
Agreements
The Commission itself questioned the wisdom of interconnection
and, in Paragraph 14, it requested Comments concerning rules pre-
venting or limiting interconnection of Pay-TV operations by micro-
wave or otherwise. This questioning relates to the limited nature of
the Information provided by the Hartford test. The Commission stated:
PAGENO="0497"
86~399 o - 67 - 32
PAGENO="0498"
494
68
Both free TV and Pay-TV, as licensees, are recipients of a public
trust and both utilize valuable public airways. Unlike free broadcasting,
Pay-TV proposes to make a direct charge on the members of the public.
It is this basic distinction; a direct charge on the public for services
provided over the public's property, whIch requires government rate
regulation. It is the nature of the Pay-TV operation, as in the case of
common carriers and public utilities, which dictates rate regulatiozi.
If jurisdiction is to be asserted over Pay-TV, concomitantly the Com-
mission must regulate rates. Lacking the express authority to regulate
rates in the broadcast Industry, it is incumbent upon the Commission
to seek legislation in this field In order to validly carry out its asser-
tion of jurisdiction.
I. CATV Systems Should Be Prohibited
from Originating Programming or
Carrying Pay-TV Programming
We have previously discussed the significance of CATV in the
context of any Pay-TV authorization. Suffice it here to say that if the
Commission determines that a nationwide off-the-air Pay-TV author-
ization is warranted at the present time, the very least that should be
done is to prohibit CATV systems from originating programs or func-
tioning or serving as an outlet for Pay~TV programming at least until
such time as the Commission is prepared to evaluate the significance
of CATV generally on free television.
PROPOSED RULE
No CATV system shall carry Pay-TV programs
originating from a Pay-TV broadcast station or
originate any programs for carriage to its sub-
scribers.
PAGENO="0499"
495
69
Conversely, the Pay-TV licensee should be prohibited from entering
into any arrangement, the purpose of which is to utilize CATV systems
as direct outlets for Pay-TV programming.
PROPOSED RULE
No license shall be granted to a television broad-
cast station having any contract, arrangement, or
understanding, expressed or implied, which pro-
vides for the distribution or furnishing of Pay-TV
programming to or through CATV systems.
J. Pay-TV Licensees Should Be Required to
Comply with All Commission Rules Imposed
Upon Broadcast Licensees
Proponents have indicated, based on the Hartford test, that Pay-
TV licensees can comply with the Commission's Rules otherwise ap-
plicable to a television licensee.40 In the clear absence of any objec-
tion of hardship, such rules should be made applicable to Pay-TV li-
censees.
In addition, we believe that the Commission should adcpt rules
in connection with the application to be submitted by Pay-TV applicants
which solicit information comparable to that set forth in the Commis-
sion's Third Report and Order, Paragraph 32.
CONCLUSION
The Commission today has as little meaningful data from which
to determine the impact of Pay-TV on the economy and on free televi-
sion as it did when the subject first arose more than ten years ago.
Hartford was virtually useless. The Hartford experience demonstrated
nothing more than an inability to secure subscribers. Hartford provided
40 As was done in Hartford, the minimum hours of operation required of tele-
vision licensees should not include the hours devoted to Pay-TV.
PAGENO="0500"
496
70
no information as to the impact a successful pay television system would
have on free television. The Commission, however, appears to have
succumbed to a belief that, having authorized the test, it must now ac-
cord weight to its results. The experience in Hartford does not provide
a basis for the conclusions which the Commission is attempting to draw
and, at this stage, the Commission, in the public Interest, should either
terminate the test authorization or, at best, permit Pay-TV to continue
in a limited test context In the hope that the ensuing years will produce
the necessary data or that Pay-TV will recognize Its own limitations
and quietly fade away. Free television has not remained stagnant dur-
ing the period and its value to the public is such that its continued growth
should not be retarded.
The entire problem has now been complicated by the development of
CATV. CATV has mushroomed to such an extent that the Commission
is now attempting to assess its impact on free television. Certainly,
the Commission cannot permit a new attack from a different source -
Pay-TV - without first determining that free TV can survive under the
existing conditions.
We are still of the opinion that the Commission does not have the
necessary authority to grant Pay-TV on a permanent basis. Even more
important, in light of the dangers inherent in a successful Pay-TV op-
eration, the Commission should seek Congressional guidance before the
problem becomes insurmountable.
The Commission has seen fit to request guidance from Congress
concerning CATV. Pay-TV presents even greater regulatory problems
and the Commission has the opportunity of securing guidance before the
situation becomes catastrophic.
PAGENO="0501"
497
71
Finally, Since the Commission's Further Order, as written,
suggests the Possibility of an immediate Pay-TV authorization on a
nationwide basis, we have set forth a regulatory pattern which we be-
lieve to be the minimum necessary if free TV is to Survive.
Respectfully submitted,
JOINT COMMITTEE AGAINST TOLL TV
By
~
By
~
~
its Attorneys
Cohn and Marks
317 Cafritz Building
Washington, D. C. 20006
October 10, 1966
PAGENO="0502"
498
APPENDIX A
x~. 302 JUNE 1966 Vol. LXXVI
THE
ECONOMIC
JOURNAL
THE QUARTERLY JOURNAL OF THE ROYAL ECONOMIC SOCIETY
Editors: C. F. CARTER and E. A. G. ROBINSON
Associate Editor: R. C. 0. MATTHEWS
I. ARTICLES
Planners' Preferences, Priorities and Reforms A. NOVE 267
Control of the Money Supply A. B. CRAMP 278
A Proposal for the Reform of Exchange Rates j. BLACK 288
Optimal International Reserves H. it. HELLER 296
Consumer Asset Formation and Economic Growth-
The United States Case H. G. VATTER and it. L. THOMPSON 312
The Redistributional Effect of Television Advertising
F. A. LEES and a. y. YANG 328
Indifference Curves in Asset Analysis 0. 0. BIERWAG and M. A. GROVE 337
On the Theory of Induced Invention s. AHMAD 344
Long Term Economic Criteria for Foreign Loans A. QAYUM 358
II. REVIEWS (For a List of Books Reviewed see inside cover) 370
III. NOTES AND MEMORANDA
Mcasurement of Capital, the Production Function and Relative Factor-Endowments
J. L. FORD 425
On the Shape of the Production Possibility Function-A Delayed Comment j. p. sioucx 428
Obituaries:
Oscar Lange, 1904-65 M. KALECK! 431
Walter Thomas Layton, 1884-1966 E. A. 0. ROBINSON 432
Current Topics 434
IV. RECENT PERIODICALS AND NEW BOOKS 438
LONDON: MACMILLAN (JOURNALS) LIMITED
NEW YORK: ST. MARTIN'S PRESS
PRICE: FIFTEEN SHILLINGS NET
PAGENO="0503"
499
THE REDISTRIBUTIONAL EFFECT OF T~LE VISION
ADVERTISING
THE economic merit of advertising must be judged on the basis of its
ultimate contribution to consumer welfare, as well as by its immediate
effects on production and distribution costs.1 The purpose of this paper is
to investigate the redistributional effect which results from television
advertising.
Our study reveals that in 1963, under the present commercial television
system, all income groups in the United States experienced a redistribution
of income slightly in excess of one-quarter of 1 billion dollars. Conversion
of the commercial system to an alternative system of pay television would
result in a complete or nearly complete elimination of the benefits of this
redistribution currently enjoyed by families with a disposable personal in-
come of less than $6,400. If a metered system of pay television were
adopted the entire redistributional effect would be removed. If a fiat-
fee system were used a small amount of redistribution would continue to
exist, but the size and direction of such redistribution would depend on the
viewing pattern of subscribers. Conversion to a government-supported
system could be expected to alter the redistributional effect, the extent of
which would depend upon the relationship between viewing pattern and
progressiveness of the tax structure.
If the same redistributional pattern prevailed in Great Britain for .the
commercial portion of its system the magnitude of redistribution would have
been approximately £15 million in 1963, or 11 % of the total expenditures
on television, as compared to 18% for the United States. The lower
percentage for Great Britain is attributed to the existence of a government-
operated system.
The Concept and Measures of Redistribution
In 1963 American advertisers spent $l~6 billion to support the existing
commercial television system. In the same year this system provided viewers
in all income groups with a total of 3'4 million station hours of entertainment
and news programmes. The costs of this entertainment were shifted to
consumers in the form of higher prices for advertised goods and services.
We may assume that approximately the same amount of expenditures
1 Nicholas Kaldor points to the impossibility of evaluating advertising simply by reference to its
direct effects. He considers at least six types of direct and indirect effects from advertising. They
are: an increase in productive efficiency, an improved quality of product, a stimulus to business
activity, reduced amplitude of cyclical fluctuations, greater shopping convenience and a subsidy to
newspapers which promotes a free and independent press. "TheEconomic Aspects of Advertising,"
Review of Economic Studies, Vol. XVIII, 1950-51, pp. 7-8.
PAGENO="0504"
500
JUNE 1966) REDISTRIBUTIONAL EFFECT OF TELEVISION ADVERTISING 329
would be necessary to support the television system in the absence of advertis-
ing, if the same volume and types of programmes were to be supplied.' In
this event direct payments for programmes would have to be made by con-
sumers to television stations under a pay television system, or to the Govern-
ment under a governmentsubsidised system. It then follows that the bene-
fit received by any given consumer under the present system is equivalent
to what he would have to pay for the programmes viewed in the absence of
advertising; and the cost to the consumer would be what he pays for advert-
ising, which is included in the prices of the advertised goods and services he
purchases.
In so far as the purchases of advertised goods and services by families at
different income levels are not proportional to the volume of their tele-
visiOn viewing, discrepancies inevitably develop between benefits received
and costs paid. This creates a redistribution of income between income
groups. When the benefits received by a family exceed the costs paid a
net positive subsidy arises, whereas when the costs exceed the benefits a net
negative subsidy exists.2
Three sets of equations have been constructed to measure: (1) the net
subsidy to a family with a given income for a given product group (equations
(1.11) and (1.12)) and a total net subsidy for all product groups (equation
(1.21)); (2) the level of income at which a net subsidy becomes zero (the
break-even point) for a given product (equation (2.11)); and (3) an aggre-
gate net subsidy to families in a given income bracket for a given product and
also for all product groups (equations (3.11) and (3.21)).
A net annual subsidy received or paid (se) by a family with a given in-
come (Y) for a given product is the difference between the value of television
programmes viewed by the family that are sponsored by advertisers of the
product and the amount of advertising expenditures included in the ex-
penditures of the family on that product. Thus,
= Ch~ - a~E~ (i = 1,2, 3,.. .n) (1.11)
~etting h~ = 0% (H), and E~ = f~ (Y); where, H = g(Y) and 0% =
Then, s~ = G{0%g(Y)} - a1f~ (Y) . (1.12)
In the case oIpay television, costs may vary somewhat, depending on the type of system adopted.
If a wired system is used, there will be additional cable charges; and if an over-the-air system is
used with a meter that enables the operator to charge differential rates for different programmes
there will also be additional costs of providing and maintaining a black box. It is entirely possible,
however, that a system can operate with a meter that is similar to that which is being used by
electric power companies in measuring power consumption. Under such a system additional
costs of meter reading and billing would be nominal. The costs of operating a totally government-
sponsored system can be lowered by as much as 10% because of savings in selling costs.
An advertising subsidy is sometimes regarded as the difference between the value of the benefits
received and the actual costs paid by a consumer, such as subscription fees for magazines and
newspapers. See, for example, W. B. Reddaway, The Economics of Newspapers," ECONOMIC
JOURNAL,JUflC 1963, pp. 201-18.
PAGENO="0505"
Definition.
s~ Net subsidy to a family for ith product
group
C Value per hour of television programme
viewed as obtained from dividing the total
advertising expenditures in television by
the aggregate number of hours viewed by
all families
oc~ Percentage of programmes sponsored by
zth product group as estimated from tele
vision advertising expenditures of each
product group
H Total number of hours of' viewing by a
family per year. Estimated from Nielsen's
viewing data as follows:
H = l414~7 + 0*200451' = 0'O0O01'~,
where H~l,400 hours
h5 Number of hours of viewing per family
sponsored by the advertisers in ith product
group. h5 n~ (H)
4g Amount of advertising expenditures of the
advertisers in ith product group
a~ Advertising expenditures per dollar of
spending for ith product group, as obtained
from dividing television advertising expen-
ditures of ith product group by consump-
tion expenditures on that product group
Y Disposable personal income per family
E, Consumer expenditures of a family for ith
product group. Computed as function of
income.
Source.
Total television advertising expenditures, Fines.
clot Report for Television, 1963, Federal
Communications Commission, The number
of hours of viewing, Nielsen Television Index,
January through December, 1963
Television advertising expenditures of each
product group were estimated from the net-
work billings and spot billings published by
Television Bureau of Advertising
Nielsen Television Index January through Decent
ber 1963. Since viewing data are not avail.
able for the upper income groups, a lower
limit has been set at 1,400 hours which is the
number of hours viewed by a family with a
disposable income of $11,900
See cc~ and H
Seeag
Television advertising expenditures of each
product group, see aj; consumption expendi-
tures in each product group, Consumer Expendi.
lures and Income, 1960-61, Bureau of Labor
Statistics. Data for the urban families were
projected to the total universe due to the un
availablity of data for rural families
Same as above
Same as above. The following product.
consumption functions have been computed:
E = 2l9*1 + 0*225Y - 0'0000049Y'
£ 148.1 + 0~I70Y - 0~00000205y'
- 0000000000094Y'
£ = 17.3 + 0~0l7Y - 0~000000527'~
£ - 14*7 + 0*0575Y - 000000096Y~
E= ll~0+00129y
E = 422~2 + 00851 Y
E= 658 + 0~0356Y + 0~000000861"
£ = 82~8 + 0~051 Y - 000000059Y~
E=58.4~o.o49y
E = -4~3 + 0~0544Y
E 359*2 + 0~147Y
And for all product groups combined the total subsidy is
s=Cg(Y) - ~a1f~ Y
* (1.21)
The level of income at which a net subsidy to a family becomes zero (the
break.even point) for a given product group can be computed as follows:
C{oc~g(Y)} = a1f(Y). . . . . (2.11)
501
330 ThE ECONOMIC JOURNAL CJtJNE
T~LEI
Definition of Symbols and Sources of Data Usedfor Computation in Subsequent Tables
1. Food
2. Automobile
3. Tobacco
4. House furnishings and equipment
5. Alcoholic beverages
6. Clothing and related materials
7. Household operations
8. Medical care
9. Personal care
10. Recreation and Transport
11. Others
Since C and g(Y) are th~ same for all product groups, variations in the
PAGENO="0506"
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1966] REDISTRIBUTIONAL EFFECT OF ~LEVISION ADVERTISING 331
break~even point among different product groups must come from differences
in the values of the remaining terms. Hence, a higher value of eitherfj(Y)
or a~ will lower the break~even point, while a higher value of rs~ will raise it.
TABLE II
The Values of ~ and a~ fo, all Product Groups in 1963
Percentage programmes Television advertising
sponsored by expenditure per dollar
product group~ of consumer spending.
a~, cents.
Food
026
O~O6
068
0'29
Automobile . . . .
Tobacco . . . . .
House furnishings, and equipment
Alcoholic beverages . . .
Clothing and related materials
Household operations. . .
Medical care . . .
0~O8
O~04
005
0 02
0~12
0~12
0~l6
.
288
O~49
i~90
0 12
1~29
1~l6
3*53
~crsonal care . . . .
Recreation and transport . .
Others . . . . .
002
0~07
022
019
Source: See Table I.
That iS, the relative size of'the net subsidy to a family is significantly affected
by the slope off~ (Y).
The aggregate net subsidy for all families in a given income bracket for
a given product group can be obtained as follows:
S~J =f[C {oc~g(Y)} a~f~ (7)) ~ (7) dY . . (3.11)
where the jth income bracket covers all families with income of from a to b,
and ~(Y) denotes the distribution of families as a function of income.
Similarly, the aggregate net subsidy for a given income group can be
computed for all product groups combined,
(3.21)
i-I i-i a
The Estimc!ion R~'su1ts and Interpretations
Net subsidies have been computed for two hypothetical families, one
with a disposable personal income of $3,000 and the other with $10,000.
The results are presented in Table III.
In 1963 a family with an income of $3,000 viewed television programmes
valued at S34~2l, while paying an equivalent of only $21'20 in higher prices
for advertised products. This leaves a net subsidy received on all product
groups of $13~0l, or 38% of the benefits received. The comparable figures
No. 302.-VOL. LXXVI. Z
PAGENO="0507"
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THE ECONOMIC JOURNAL
(JUNE
for a family with an income of $10,000 are $32*56, $51.73 and a net subsidy
paid in the amount of $19*17. This represents 59% more than the benefits
received from television viewing. When the subsidy is broken down into
TABLE III
Net Subsidies to Hypothetical Families with Disposable Incomes
of $3,000 and $10,000 Respectively-1963
(1) (2)
Benefits Payments
received, $. made, 8.
(3)
Net
Subsidy, $.
(4)
Subsidy-
~
(5)
Income
elasticity.
A Family with Disp
osable Person
al Income of $3,000
Source: See Table I.
product groups considerable divergency emerges. Thus, a family with an
income of $3,000 received a net subsidy as high as $313 from programmes
sponsored by food advertisers and as low as $032 from clothing. The abso~
8*91
2*06
2*74
1.36
1.71
0*68
4~l0
4~l0
5.48
0~68
2~39
5*68
0*99
1*87
0*73
0*95
0~36
2~33
2~68
3'64
0~35
l'52
3*13
1~07
0*87
0*63
0~76
032
l'77
1*42
184
033
087
35
52
32
46
44
47
43
35
34
49
36
0*70
1~36
0*65
l*04
0~77
086
0.68
0'61
0*43
1~03
0'55
Food .
Automobile
Tobacco
House furnishings and
equipment
Alcoholic beverages
Clothing and related
materials
Household operations
Medical care
Personal care.
Recreation and transport
Others.
Total
Food .
Automobile
Tobacco
House furnishings and
equipment
Alcoholic beverages
Clothing and related
materials
Household operations
Medical care
Personal care
Recreation and transport
Others .
Total .
34~21
21*20
13*0l
38
A Family with Disposable Personal Income of $10,000
8~48
l*95
2*61
13.46
3.63
3*92
-4~98
-.1~68
-l*31
l*3l
1*64
0~64
2~27
2~66
1.07
-O'96
-l~02
-0*43
3*90
3.9O
5~23
0~64
2~26
6*55
6~19
7*3l
l*19
3'48
-2~65
-2*29
-2~08
-0.55
l~22
-59
-86
-50
-73
-62
-67
-68
-59
-40
-86
-54
0*64
0*80
049
0~83
0*92
095
1~04
0~73
0~72
101
0~80
32*56
51.73
-l9~l7
59
Note: The values in each column were computed as follows:
(I) C{cqg(Y)}; (2) asfs(Y); (3) column 1 minus column 2; (4) column 3 divided by
column 1; (5)sj=~~-.
PAGENO="0508"
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1966] REDISTRIBUTIONAL EFFECT OF TELEVISION ADVERTISING 333
lute size of subsidy for each product group is roughly proportional to the size
of its advertising expenditures. The relative size of subsidy, i.e., the subsidy-
benefit ratio, however, is significantly affected by the income elasticity of
demand for the product. Thus, we observe a positive correlation between
the subsidy-benefit ratios and the income elasticities for both a family with
an income of $3,000 and a family with an income of $10,000. Hence, the
higher the income elasticity of demand, the larger the relative size of net
subsidy.
A break-even point is attained for each product group when the value
of benefits received is equal to payments made, at which point the net
subsidy becomes zero. This break-even point varies from product to
product, depending upon the value of ~ and the level of E. A higher value
of ~ tends to raise the break-even point, while a higher value of a and E
lowers it. The break-even points for all product groups are presented in
Table IV. For all groups with the exception of personal care, the break-
even point falls within the relatively narrow range of $6,000-$6,800.
TABLE IV
The Levels of Disposable Personal Income at which a Net
Subsidy Becomes Zero, 1963
S
Food
Automobile
Tobacco
House furnishings and equipment
Alcoholic beverages . .
Clothing and related materials .
Household operations . .
Medical care . . . .
Personal care
Recreation and transport .
Others
.
.
.
.
.
.
6,250
6,005
6,133
6,200
6,646
6,710
6,667
6,340
7,080
6,230
6,765
Note: Equation (2.21) was used in computing the break-even points.
Source: See Table I.
For all families taken together, television advertising brought about a
redistribution of income in the magnitude of $291'l million in 1963. This
represents 18% of the total sum spent on television advertising. The largest
gainers were the families in the lowest income bracket. The size of net
subsidy received declines as income increases until the break-even point is
reached, thereafter the size of net subsidy paid rises as income increases.
The lowest income bracket (under $3,000) gained $1514 million or
approximately half of the net subsidy received. In contrast, the highest
income bracket ($15,000 and over) experienced a negative net subsidy of
$79~2 million. Thà largest negative net subsidy, however, fell upon the
PAGENO="0509"
TABLE V
Total Net Subsidies for All Income Groups 1963
($ million)
Under
$3,000.
Disposable personal income.
$7,500- $10,000-
$9,999. $14,999.
$3,000-. $4,000- $5,000- $6,000-
$3,999. $4,999. $5,999. $7,499.
-5-2
-24
-1-5
-1-1
-0-2
0-0
0-0
-1-5
2-4
-0-4
0-2
4.3
1-0
1-1
0-9
1-7
0-8
4.5
2-8
5.9
0-6
2-2
Food 399 14-2 10-7
Automobile . . . . . 12-0 4-9 3.9
Tobacco 11-6 4-1 30
House furnishings and equipment. . 9-2 34 24
Alcoholic beverag~ . . . . 8-2 33 3-0
Clothing . . . . . . 3-4 1-3
Household operations. . . . 20-5 8-5 7-5
Medical care . . . . . 17-7 68 56
Personal care . . . . . 15-3 9-1 84
Recreation and transport . . . 4-3 16 1-4
Others 9-0 3-8 3-2
Net subsidy received:. . . . 1514 61-0 50-3 25-8 2-6
(52.0%) (21-0%) (17.3%) (8.8%) (0.9%)
Net subsidy paid: . . . . - 12-3 -78-1 -121-5 -79-2
_______________________________________________________________ (4-2%) (26-8%) (41-8%) (272%)
Notes:
I. irs computing a total subsidy for each product group, a net subsidy for the family with the median income, computed in the same manner as
in Table III, is multiplied by the number of families in the group.
2. The figure of 46-8 million families was used.
3. A 100% saturation rate was assumed for television ownership. The actual saturation rate was 91% irs 1963. A lower saturation rate, however,
does not alter the results, irs so far as the rate is the same for all income groups, which is considered to be a valid assumption.
Source: See Table I.
-21-7
-7-8
5.9
-4-2
-4-0
-1-6
-94
-6-4
-2-2
-28-5
-8-9
7.5
-6-3
-2-6
-164
-13-6
- 19-3
-3-1
-7-8
$15,000 Net redis-
and over. tribution..
-13-7 69-1
-3-0 22-1
49 19-8
-3-1 15*9
_57 16-2
-2-5 6-7
-14-7 41-0
-8-4 32-9
-14-9 41-1
-2-2 7.9
-6-1 184
291-I
(100-0%)
-291-1
(100-0%)
tTS
C)
o ~
`-4
0
PAGENO="0510"
506
1966] REDISTRIBUTIONAL EFFECT OP TELEVISION ADVERTISING 335
second highest income group ($lO,000-$14,999). This amounted to
$121~5 million, or 41.8% of total negative net subsidies.
The net redistributional effect varies widely among the various product
groups, with the food group leading with a net shift of $694 million, followed
by person.~~ care, with $41.1 million, and household operations, with $41
million. A breakdown of the net subsidy by income bracket and redistribu-
tional effect by product is presented in Table V.
Compariso7ls with Other Systems
In the previous section we have shown how commercial television
generates a substantial welfare effect in the United States through the
redistribution of income. This pure commercial system, however, does not
exist in other countries. In many cases the burden of expense connected
with television programming is shared either by the Government or by
viewing households which pay licence fees for the operation of television sets.
Potentially there are two additional types of pure television systems,
nai~cly pay television and a government-supported system. While pay
television operates in the United States and in Canada on an experimental
basis, the fully government-supported system rarely exists in non~~omxnunist
countries. A number of countries use a hybrid system.
The two most popular hybrid systems that exist in several of the more
important television~viewing countries are: (1) the combination of com-
mercial and licence fee system, and (2) the hybrid of a licence fee and govern-
ment-supported system.
Great Britain operates a dual television system, consisting of the British
Broadcasting Corporation (BBC) and the Independent Television Authority
(ITA).' BBC is financed (1964) by a ~4 ($1 120) annual licence fee paid by
television-Set owners, and ITA programme companies are financed by
revenues from the sale of advertising time and programmes.2
Assuming no differences in viewing pattern for BBC programmes among
families in different income groups, the flat fee charged by BBC minimises
and possibly completely removes the redistributional effect for this portion
of programmes viewed by consumers. On the other hand, the ITA net-
work tends to generate a redistributional effect similar to that found in the
United States. It cost £133 million to support both the BBC and ITA
television systems in 1963, £50 million and £83 million, respectively.
As noted earlier, the net redistribution towards lower-income families
in the United States in 1963 represented approximately 18% of aggregate
1In 1963 there were approximately 12'6 million television sets in operation almost all of which
were licensed to receive BBC broadcasts. In that year 475% of the 144 hours of weekly viewing
per family was tuned in on the BBC network, with the remainder receiving ITA programmes
(Bl3C Handbook, 1963).
`For the fiscal year ended March 31, 1964, BBC received £326 million and expended ~34'8
million, leaving a deficit of only £22 million.
PAGENO="0511"
507
THE ECONOMIC JOURNAL [JUNE 1966
television advertising expenditures. Assuming a similar redistributionai
effect in Britain for ITA programmes, we would expect a net redistribution
of approximately £15 million ($42 million) in 1963, or I % of total ex-
penditures on television (advertising expenditures and licence fees combined).
Thus, the larger the role of the government4icensed television sector (in
this case BBC), the smaller the relative importance of the redistributional
effect. If we relax our assumptions regarding viewing patterns for BBC
and ITA programmes, and with respect to qualitative differences in pro-
grammes, the welfare results would be changed somewhat.
The other popular hybrid sySt(.:sn is exemplified by the French system,
which is supported by licence fees paid by set owners and by government
subsidies. In places of expenditures by advertisers, the French Govern-
ment provides financial support. In 1963 the 4'2 million set owners each
paid 85 francs ($17). Although the precise amount of government subsidy
is ~io~ knt.wn, it is estimated that the Government supported as much as half
of the expenses of television incurred in 1963.
The extent of redistribution under this system depends upon the magni-
tude of government subsidies and upon the tax structure, from which the
French Government derives revenues to subsidise the television system.
The more progressive the tax structure, the greater the shift of income from
higher-income brackets to lower-income brackets through television viewing.
This assumes a viewing pattern similar to that found in the United States.
F1t~Ncrs A. LEES
CHARLES YNETJ YANG
St. John's University,
New York.
PAGENO="0512"
508
APPENDIX B
PROPOSED RULES
No Pay-TV station shall be. permitted to operate in the 100
largest television markets except upon a showing, approved
by the Commission, that such operation shall be consistent
with the public interest, and specifically the establishment
and healthy maintenance of free television broadcast serv-
ice in the area. Commission approval of a request to oper-
ate a Pay-TV station in the foregoing circumstances will
be granted where the Commission, after consideration of
the request and all related material in a full evidentiary
hearing, determines that the requisite showing has been
made. The market size shall be determined by the rating
of the American Research Bureau on the basis of net weekly
circulation for the most recent year~
No Pay- TV station shall be permitted to operate where more
than 10% penetration is proposed or will be achieved except
upon a showing~ approved by the Commission, that such opera-
tion would be consistent with the public interest, and, specifi-
cally, the establishment and maintenance of a healthy free
television broadcast service in the ar~a, Commission appro-
val of a request to operate a Pay-TV station in the foregoing
circumstances will be granted where the Commission, alter
consideration of the request and all related material in a full
evidentiary hearing, determines that the requisite showing has
been made~ Penetration shall be determined by the rating of
the American Research Bureau on the basis of the net weekly
circulation for the most recent yearS
Pay-TV stations shall file with the Commission monthly sub-
scriber lists. Pay- TV stations shall either (1) maintain sub-
scribers at this 10% penetration level (or at such other level
as the Commission may have approved in an evidentiary hear-
ing) or (2) request Commission approval of additional sub-
scribers~ Commission approval of such a request will be
granted where the Commission, after consideration of the
request and all related material in a full evidentiary hearing,
determines that the requisite showing described above has
been made~
No Pay-TV authorization shall be granted except upon the af-
firmative showing that the applicant has obtained at least 2,000
subscriber contracts~ Only contract~i under which the subscriber
has agreed to pay the regular prescribed charges will be con-
sidered in ascertaining compliance with this rule.
PAGENO="0513"
* 509
B- 2
No licensee shall broadcast any program involving sports
events for which a fee is charged which was regularly tele-
vised into the market via a free television station within
5 years from the last date on which the event appeared on
free television~
a. Notification of the sports events proposed to be car-
ried by the Pay- TV station shall be provided to all
other television broadcast stations located within 25
miles of the Pay- TV station at least 30 days prior
to the designated broadcast date of said sports event.
b~ Petitions to prohibit the carriage of such sports
events on a Pay- TV station shall be filed with the
Federal Communications Commission no later than
21 days prior to the designated broadcast date to-
gether with a copy of the contract (if available) upon
which the petitioner reiies~
No licensee shall broadcast any program for which fee is
charged, if the talent for such program is restricted, pro-
hibited, or in any way induced or influenced from appearing
at any time on free television~
No Pay-TV licensee shall devote more than 50% of its sub-
scription hours in any week to the transmiSsiOn of motion
picture fiim~
No license shall be granted to a television broadcast station
proposing to carry programming for which a fee is charged
except upon a showing that the market which it serves or pro-
poses to serve is within the Grade A contour of at least four
commercial television stations (including the Grade A contour
of the Pay- TV station)~ The market shall be the market as
used by the American Research Bureau for the most recent
yearS
No license shall be granted to a television broadcast station
proposing to carry Pay-TV programming except to a station
operating on a UHF frequency~
If a television broadcast station supplies the only Grade A sig-
nal to a community, not more than 15 percent of its non-prime
broadcast time (including subscription and non-subscription
86-399 0 - 67 - 33
PAGENO="0514"
510
B- 3
broadcast time during that period) and not more than 25 per-
cent of its prime broadcasting time (including subscription
and non-subscription broadcast time during that period) may
be devoted to Pay-TV; if a television broadcast station sup~
plies the second or third Grade A signal to a community,
not more than 25 percent of its non-prime broadcast time,
and 40 percent. of its prime broadcast time may be devoted
to Pay-TV; if a television broadcast station supplies the
fourth or more Grade A signal to a community, not more
than 50 percent of its non-prime broadcast time and 60 per-
cent of its prime broadcast time may be devoted to pay tele-
vision~
a. In no event shall a Pay-TV station or statiais devote,
individually or collectively, more than three hours to
Pay-TV programming in any one broadcast day during
prime broadcast time in markets within the Grade A
contours of one, two or three television stations (in-
cluding the pa.y television station).
b. In no event shall a Pay- TV station or stations devote
more than four hours, individually or collectively, to
Pay- TV programming in any one broadcast day during
prime broadcast time in markets within the Grade A
contour of four or more television stations (including
the Pay-TV station),
c. Prime time broadcast hours are defined as those hours
of the broadcast day between 6:00 p~m. and 11:00 p.m.
d~ In no event shall a Pay- TV station or stations in a mar-
ket exceed 35 hours, collectively, per week of Pay-TV
programming.
e. In the event that more than one Pay- TV authorization is
granted in the same market, the percentage of prime
time authorized for Pay- TV programming will be calcu-
lated on the basis of a total of 35 hours and the percen-
tage of non-prime time authorization for Pay-TV pro-
gramming will be calculated on the basis of the station
operating the fewest hours.
No license shall be granted to a television broadcast station
having any contract, arrangement, or understanding, expressed
or implied, with a network organization, providing for the fur-
nishing of programs intended, for Pay~TV use.
PAGENO="0515"
511
B- 4
No license shall be granted to a television broadcast station
having any contract, arrangement, or understanding, expressed
or implied, with any other Pay-TV licensee, franchise holder,
or agents thereof, for the purpose of purchasing Pay-TV pro-
gramming.
No license shall be granted to a television broadcast station
having any contract, arrangement, or understanding, expressed
or implied, with any company, organization, etc., providing
Pay-TV programming as a part of an interconnected system.
No CATV system shall carry Pay-TV programs originating
from a Pay- TV broadcast station or originate any programs
for carriage to its subscribers.
No license shall be granted to a television broadcast station
having any contract, arrangement, or understanding, expressed
or implied, which provides for the distribution or furnishing
of Pay-TV programming to or through CATV systems.
PAGENO="0516"
PAGENO="0517"
5083
BEFORE THE
uutrattLnw QlnmmiøMrnt
WASHINGTON, D, C. 20554
In the Matter of:
Amendment of Part 3 of the Commission's ) Docket No. 11279
Rules and Regulations (Radio Broadcast
Services) to Provide for Subscription
Television Service
FURTHER COMMENTS SUBMITTED BY
JOINT COMMITTEE AGAINST TOLL TV ANI)
NATIONAL ASSOCIATION OF THEATRE OWNERS
SEPTEMBER 15, 1967
The Joint Committee Against Toll TV, and the National Associ-
ation of Theatre Owners (hereinafter referred to as "Petitioners"),
by their attorneys, hereby submit Further Comments in the above-
captioned rule making. The Commission has scheduled oral argu-
ment October 2, 1967, on matters relating to whether pay television
should be authorized on a permanent basis and, 11 so, the nature of
the rules and regulations which should be adopted concerning pay TV.
The Commission has allowed parties to file written comments on the
Issues involved on or before September 15, 1967. The instant Further
Comments are being filed pursuant thereto.
513
PAGENO="0518"
* 514
2
1. The October 2 argument concerns the Report submitted
by the Commi~ion's Subscription Television Committee Iherein-
after "Committee") which recommended the institution of pay
television on a permanent basis, and which suggested the rules,
regulations, and conditions pursuant to which the pay television
service should be authorized.1 Petitioners respectfully submit
that the Report should not be adopted, and that the Commission
should not, and, indeed, cannot, authorize pay television on a per-
manent basis under its existing statutory authority.
2. Petitioners do not intend, in the instant document, to
repeat all of the grounds which they believe require the Commis-
sion to decline to institute permanent pay television. Some of the
arguments have already been made at length to the Commission
in various papers filed by the opponents of pay television. They
have also been covered in more detaU in the papers previously
filed by the Joint Committee Against Toll TV, to which the Com-
mission is respectfully referred. The purpose of the instant doc-
ument is to point out what Petitioners believe to be the errors in
the Report of the Subscription Television Committee.
1 The Subscription Television Committee consists of Commissioners
Wadsworth, Lee and Cox. Commissioner Wadsworth, the Committee
Chairman, indicated that while he agreed that the issues should be
brought to the attention of the full Commission, nevertheless, he stated
that his agreement to the submission of the Report should not be con-
strued as an endorsement of it.
PAGENO="0519"
515
3
i. Statement of Interest
3. The Joint Committee Against Toll TV (sometimes also
known as the "Committee Against Pay-As-You-See TV") is a vol-
untary association which has previously identified itself in this
proceeding, and which has indicated its interest in the subject of
pay television by filing Comments thereon on June 6, 1955, and
by participating thereafter. The National Association of Theatre
Owners is a nationwide organization consisting of the owners of
motion picture theatres.
II. jurisdictional Considerations
4. The Subscription Television Committee did not reeval-
uate or reconsider the question of whether, under the Communica-
tions Act, the Commission has the statutory power to authorize
pay television on a permanent basis. The Committee merely noted
that the Commission, in its First Report,2 had concluded that it
possessed such authority, a conclusion which was reiterated in the
Third Report,3 and again in the Commission's March, 1966 Further
Notice of Proposed Rule Making and Notice of Inquiry. Petitioners
believe, however, that the Commission's determination in the First
Report was erroneous and should be reevaluated and reconsidered
by the Commission at this time.
2 16 R.R. 1509, 1514-1520 at Pars. 20-44.
16 LR. 154(a).
PAGENO="0520"
516
4
5. Although at times the Committee's Report overlooks or
ignores the fact, it cannot be emphasized too strongly that a system
which demands direct payment of fees by the public in order to re-
*ceive programs broadcast on publicly controlled broadcast facilities
represents a major and drastic change in the nature of American
broadcasting. Prior to the advent of pay television, commercial
broadcasting had been supported solely by advertisers. There was,
and is, no direct financial relationship between a listener and a
broadcast licensee. The absence of this relationship is more than
just a matter of commercial choice. It represents an important
feature distinguishing broadcasting from public utilities, and com-
mon carriers - a distinction which was explicitly recognized by
Congress when it drafted and adopted the Communications Act.4
6. This single fact also sharply distinguishes pay television
from other changes in broadcasting which have occurred over the
years, such as color television, FM broadcasting, simplexing, mul-
tiplexing and functional music operations.5 It also distinguishes
pay television from CATV, since in CATV there is no direct finan-
cial relationship between a listener and a broadcast licensee. The
relationship is between a listener and the CATV operator who
See, ~g., the remarks of Senator Broussard who, during the debates on
the Communications Act of 1927, stated "radio makes no direct charges,
whereas the others (telephone and telegraph) are in the business of serving
the public for direct pay 67 Cong Rec 12504 See also Pulitzer Publish
v. F.C.C., 68 U. S. App. D. C. 124, 126, 94 F.2d 249,251.
Although it is true that certain subscribers of functional music pay for
the privilege of receiving material broadcast over the air, it is also clear
that the ~ listening audience does not pay for this broadcasting.
Stores, factories and buildings which desire such operations purchase
them so as to provide the public in those stores and buildings with back-
ground music as an additional service. The public is not simultaneously
~~e4 of the service.
PAGENO="0521"
517
5
charges the listener for the use of wire lines which he has constructed
so as to bring the programming presented by the licensee to the public.6
But a licensed pay television system permits the licensee to directly
charge for the use of public facilities (the air waves) without any gov-
ernmental regulation of those rates,7 while at the same time depriv-
ing the public of the free service it previously enjoyed over the air.
7. In the First Report, the Commission, although admitting that
the Communications Act of 1934 makes no specific or direct delegation
of power to authorize such a major change in the concept of American
broadcasting and the regulatory scheme surrounding it, nevertheless
found, that power in the statute, and found support for its interpretation
in its legislative history. The Commission reasoned that Sections 301
and 303 of the Act gave it broad powers over the use of radio frequen-
cies, and it specifically cited Section 303(g) as giving it the power to
study new and experimental use of frequencies and to generally encour-
age the larger and more effective use of radio in the public interest.
It then cited what it considered to be certain specific statutory limita-
tions on the Commission's licensing power (Secttons 310(a), 313, 317,
325(a), 325(b) and 326) and concluded that if Congress wished to further
6 It should be noted, of course, that, as was pointed out above, the CATV
operator may, himself, originate programming, charging the public for it.
Under these circumstances, CATV becomes quite similar to pay television.
It is significant, however, that the Commission has specifically refused to
hold that origination of programming by CATV systems on a permanent
basis Is in the public interest and has sought guidance from Congress on
this matter. See Second Report in Docket No. 14895 at Par. 153(11), 2 F.C.C.
2d at 787.
The Supreme Court clearly Indicated in F.C.C. v. Sanders Bros. Radio
Station, 309 U. S. 470, 474, that rate regulation of broadcasting is not en-
compassed within the present Act.
PAGENO="0522"
518
6
limit that power in regard to pay television operations, it would have
specifically done so. By this strained interpretation, the Commission
concluded that it had been given the authority to regulate an industry
never conceived of at the time of the drafting of the statute.
8. The statutory provisions relied upon by the CommIssion,
however (Sections 301 and 303), do not support the Commission's in-
terpretation of its power and authority. Section 301 of the Act mere-
ly states the general purposes which the Act was drafted to effectuate.
This broad statement does not grant the Commission any power.
9. The general powers of the Commission are stated In Section
303. Thus, Section 303(b) gives the Commission power to prescribe
the nature of the service to be rendered by each station. Section 303(c)
allows the Commission to assign frequencies to various classes of
stations and to designate the power and the time which they may op-
erate. Section 303(d) allows the Commission to determine the loca-
tion of the different stations; Section 303(e) allows regulation of the
apparatus to be used; and 303(f) grants the Commission power to make
such regulations as are necessary to prevent electrical interference
between stations and to carry out the provisions of the Act. The bal-
ance of Section 303 covers miscellaneous rules to Insure the proper
technical operation of all stations. None of these provisions even re-
motely indicate that the Commission has authority to authorize a per-
manent pay television system.
10. The only part of Section 303 which gives any support to the
interpretation adopted by the Commission in the First Report is Sec-
tion 303(g) which empowers the Commission to study new uses for
radio and to provide for experimental uses for frequencies, and gen-
erally to encourage the larger and more effective use of radio in the
PAGENO="0523"
519
7
public interest. Unquestionably, this Section grants the Commission
the power to run technical tests such as the ones carried out by
Zenith in 1950. This Section, as interpreted by the Court of Appeals
in Connecticut Committee Against Pay-TV v. F.C.C.,8 ~lso
aUows the Commission to authorize trial experiments such as the
Hartford test. However, there is a vast difference between allowing
the Commission to conduct experimental tests, and authorizing it to
establish pay television on a permanent basis. The Communications
Act, as now written, neither sets out nor attempts to set out the kind
of regulatory scheme that would be necessary to encompass a perma-
nent pay television system. The right to experiment included in Sec-
tion 303(g) does not supply the statutory deficiency.
11. It is true, of course, that the Communications Act gives
the Commission broad regulatory powers over the broadcast field.
It is also true, and the Courts have already indicated, that these
powers are not all encompassing and that matters regarding the
manner in which stations derive their revenue, as well as other in-
ternal business affairs, were never conceived as being within the
Commission's regulatory power. See Sanders Bros., su~ra.
12. The Commission asserted in its Further Notice of Pro-
posed Rule Making, and the Committee asserted in its Report, that
the Commission's decision as to its jurisdictional power was sup-
ported by the Court of Appeals' decision in Connecticut Committee
Against Pay-TV v. F.C.C. The Commission has asserted that if
8 112 U. S. App. D. C. 248, 301 F.2d 835, ~ ~ 371 U. S. 816 (1962).
PAGENO="0524"
520
8
(as the Court held in Connecticut Committee) it possessed the stat-
utory authority to authorize a test, then, of necessity, the Commis-
sion possesses the statutory authority to authorize pay television on
a permanent basis.
13. Petitioners respectfully submit that the Commission's
reading of the Court of Appeals' opinion is erroneous. Although
the appellant in Connecticut Committee urged that the Commission
did not have the power to authorize pay television on a permanent
basis, nevertheless, the Court refused to decide this question in its
decision in that case. The Court never addressed itself to whether
the Commission possessed the power to authorize pay television
Permanently. The Court held merely that the Commission's power
to provide for experimental uses of frequencies constituted a suf-
ficient basis for the trial authorization there in issue. The Court's
opinion was explained and Justified exclusively by the experimental
nature of the authorization, and the Court went to great lengths to
emphasize the experimental nature of the operation as the basis for
Its decision, stating (301 F.2d at 837):
The distinguishing characteristics of the Fed-
eral Communications Commission's authoriza-
tion of subscription television in this case is
the experimental or trial basis upon which the
system is to operate for the duration of Its
three years authority.
14. It should be obvious that the statutory framework and guide-
lines which would be required to support a nation-wide permanent pay
television system is far different from the type of legislation required
to support a small experiment so limited In size as the Hartford test,
and with such a necessarily inconclusive effect on the free broadcast
system. The dangerous effect which pay television will have on the
PAGENO="0525"
521
9
free television system does not arise from a limited system of tests.
tt arises precisely because such testing is fruitless and futile. The
dangers of pay television will not be apparent until the system is ex-
tensive enough to accomplish the very things feared. At this point,
the existence of an extensive and expensive pay television operation
will present the Commission with afait accompli. Section 303(g) of
the present Communications Act, as the Court noted in Connecticut
Committee, expressly confers jurisdiction on the Commission to au-
thorize "experiments." There is no provision, however, in the Act
which would authorize the Commission to permanently authorize a
system so radically different in nature from the present American
free broadcasting system, and with such a potentially destructive ef-
fect on that system.
15. The concept of a pay television operation and the introduc-
tion of a direct financial relationship between the individual listener
and the station is more than a mere change in the broadcasting art.
Tt introduces a major change in the entire concept of broadcasting
and must necessarily introduce a major change in the regulatory
scheme which surrounds the broadcasting industry. If rates are to
be charged the public for the privilege of using public facilities, the
question arises as to whether and how these rates must be regulated.
Moreover, the Committee itself recognized that novel conditions, the
like of which have never heretofore been imposed on any television
station, must now be placed upon pay television stations if the free
service is to be protected. Yet, the present Act does not provide the
Commission with authority to regulate broadcasting rates. Moreover,
If rates are to be regulated, it would mean that the Commission must
assess such things as cost of operation, cost of equipment and cost of
PAGENO="0526"
522
10
talent. It must then decide - as though the licensee were a public
utility what constitutes a reasonable return upon the licensee's
investment, for which no guidance is given In the Act. The pay
television proponents, as well as certain of its opponents, strenu-
ously urge that the Act as now written does not, in fact, allow the
Commission to institute even the minimum controls recommended
by the Committee, on the grounds that those conditions represent
"censorship" forbidden by Section 326. If such assertions are cor-
rect, then the Commission will be deprived of the power to promul-
gate and enforce even the conditions which the Committee recognizes
are vital to the protection of the public interest.
16. It is apparent that the Communications Act as now written
neither sets out nor attempts to set out a broad regulatory scheme
sufficient to promulgate and regulate a permanent pay television
system. The absence of such a scheme is plain evidence that Con-
gress did not grant the Commission power to authorize a permanent
pay television system.9
III. The Commission Should Not Authorize
Permanent Pay Television Without
Further Congressional Guidance
17. Even assuming, however, that the Commission possessed
the statutory authority to authorize pay television on a permanent
basis, nevertheless, it must then face the question whether stich au-
thorization is appropriate in the absence of Congressional guidance.
Petitioners believe, and will discuss more fully below, that the conclusions
in the Committee's Report concerning rate regulation of pay TV represent per-
haps the most serious error contained in the Report.
PAGENO="0527"
523
11
Various parties in the instant proceeding have pointed to the many
reasons why the Commission should not act without specific Con~-
gressional direction. Among these reasons are the following:
(1) pay television represents a basic modification of the American
system of broadcasting a modification which should originate
with Congress and not the Commission; (2) the jurisdiction of the
Commission is, at the very least, questionable and should not be
assumed without further Congressional action; (3) the Commerce
Committees of bothHouses of Congress have forcefully expressed
their views either questioning the Commission's jurisdiction, or
emphatically stating that such operations should not be authorized
by the Commission without further specific authorization by law;
(4) amendments to the Communications Act will unquestionably be
required if pay television is to exist as a permanent medium; the
Commission should not wait until after establishment to seek or
obtain necessary changes in the law; proper control and regulation
of pay television should be implemented before events and vesting
interests render it difficult or impossible for proper regulations
to take effect; (5) there has been no evidence of public demand or
need for the implementation of permanent pay television which would
warrant the establishment of permanent pay television in such haste
as to preclude the necessity of awaiting Congressional implementa-
tion; and (6) it would be a total abdication of responsibility for the
Commission to permit licensees to charge for the use of public air-
ways in the face of the very real possibility that the Commission
has no statutory authority to regulate rates. petitioners submit that
any one of these reasons is sufficient to withhold Commission author-
ization pending Congressional action.
PAGENO="0528"
524
12
18. The Committee noted some, though not all, of these objec-
tions in its Report (Par. 7), and attempted to answer a few of them.
The points made by the Committee, however, are untenable.
19. The Committee rejects the need for awaiting Congression-
al clarification by stating (Report, Pars. 8-9) that Congress has not
acted, although it was aware of the pendency of this proceeding for a
number of years, and although the Commission specifically announced
that it would allow a lengthy period for the filing of Comments so that
Congress could act if it so desired. But this Is no answer. Concededly,
Congress as a body has not acted. Congressional inaction per Se,
however, obviously can mean either of two mutually contradictory
things: either it believes that no guidance is necessary and that pay
TV can be established and fully regulated under the present Act or,
on the contrary, Congress may believe that no further statutory ac-
tivity is required since the Commission cannot, under the present
Act, authorize permanent pay television at all. If Congressiotial in-
action is based upon the second of these propositions then, clearly,
inaction cannot be used as an excuse by the Commission for author-
izing the system on a permanent basis. And it appears that the weight
of the evidence indicates that the second of these propositions is
precisely the explanation for Congressional inaction for, as the Com-
mittee candidly noted (Par. 7), both Committees of Congress most
intimately concerned with the Commission have indicated their judg-
ment that the Commission does not have the requisite jurisdiction.
Under these circumstances, it would appear that Congressional action
(not inaction) affirmatively indicating that the Commission has such
power is necessary before pay television should be permanently au-
thorized. Such action, of course, has not been forthcoming.
PAGENO="0529"
525
13
20. The Committee urges that the Commission should not await
Congressional guidance because it is the Commission's "present duty"
to establish pay television if it can be found to be in the public inter-
est, such action being required by Section 303(g) of the Act which re-
quires the Commission to encourage "the larger and more effective
use of radio in the public interest." (Report, Par. 9) Yet, the Com-
mittee's assertion merely begs the question, for it does not indicate
why it believes that the institution of such a basic modification in the
American broadcasting scheme (a modification which, it should be
noted, the Committee itself recognizes has a potentially catastrophic
effect upon the free service)10 must be instituted before Congress
has expressed its views legislatively on the question, and in the ab-
sence of a statutory scheme adequate to regulate a pay television
system.
21. The Committee certainly does not, and could not, point to
any demonstration of public demand seeking the prompt institution of
a pay television system. Had such a ground swell of public opinion
or demand been present, the Committee could conceivably urge that
the Commission must act even in the absence of a clear Congression-
al mandate, and despite the fact that the Communications Act gives no
clear guidelines. In the case of CATV systems, for example, the Com-
mission was confronted with an industry which, as a result of public
demand, had been growing at such a rapid rate that it threatened to
distort or destroy the Commission's carefully considered television
allocation plan. Under these extreme circumstances, the Commission
10
The Committee s explicit recognition of thIs fact is demonstrated by the
conditions which it imposed.
86-399 0 - 67 - 34
PAGENO="0530"
526
14
was required to take jurisdiction, even without Congressional guid-
ance. It is clear, however, that there is absolutely no such public
demand or pressure evident in the case of pay television.
22. It can hardly be contended that the public has been be-
seiging the Commission with demands that a permanent pay tele-
vision system be established. To the contrary, in California, as
the Commission is aware, the public voted down by a decisive mar-
gin the institution of a wired pay television system in the only pub-
lic referendum ever held on this question. And, it is significant that
only one test of a pay television system pursuant to the First and
Third Reports has been conducted. It is at least reasonable to as-
sume that if a real demand for such a service were evident, it would
be reflected in requests by numerous prospective pay TV proponents
for authority to conduct experimental operations.
23. Nor has it been demonstrated even that the public of Hart-
ford has demanded the service. Although RKO artificially limited
the Hartford test to 5,000 subscribers and alleged that there is a
"backlog" of demand, nevertheless, neither RKO nor any other pro-
ponent of pay television has indicated the extent of such a demand,
or has demonstrated the existence of public clamor for a pay tele-
vision system. The information supplied by Telemeter concerning
its Canadian experiments corroborates the fact that, far from de-
manding a pay television service, the residents of Etobicoke and
Mimico actually rejected it. In these communities, the number of
wired, pay television subscribers actually declined more than 50%
during the five-year test from an initial high of 5,500 to 2,500, even
after Telemeter expanded its potential service area from 12,000 to
14,000 (see Telemeter Comments, pp. 7-9). There were, no doubt,
many reasons for the decline in demand for the Telemeter service.
PAGENO="0531"
527
15
Whatever the reason, the Canadian experience clearly indicates that
a widespread public demand for the Institution of a pay television
system simply does not exist.11
24. The Committee urges immediate action because it does
not see the necessity of amendments to the Act at this time, and, in
particular, it does not believe that rate regulation is necessary. In-
deed, the Committee goes further: it contends that the authority to
regulate rates is not even necessary to the Commission's authority
to authorize the system on a permanent basis (Par. 221). In the
Committee's view, it does not matter one whit that the Commission
may not (and, under the present Act, does not) have the authority to
protect the public against gouging.
25. In order to defend this type of "the public be damned" at-
titude, the Committee is forced to contend that the entire history of
the present American system of broadcasting should be Ignored and,
in some magical fashion, pay TV should be considered in legal and
practical effect as if it were free TV. Thus, the Committee asserts
(Par. 221) that free TV is not really "free" because the cost is
passed on to the consumer In the form of hidden additions to the
price which the consumer pays for goods and services to cover ad-
vertising costs. The alleged Indirect cost increase (which Is never
analyzed and the existence or amount of which is nowhere demon-
strated by the Committee) Is thereupon analogized to the direct per
It is also significant that after the cessation of the Etobicoke-Mimico test,
less than 20 per cent of Telemeter's subscribers indicated regret that the sys-
tem had stopped, despite the fact that Telemeter sought an expression of opinion
from all of its subscribers. See Telemeter Comments, p. 7.
PAGENO="0532"
528
16
program cost which exists in pay television, and because the Commis-
sion cannot and does not regulate the rates charged by free television
stations for time,12 the Committee reasons by analogy that there is
no need to regulate the direct costs to be charged to the public under
a pay television system.
26. The difficulty, however, with the Committee's analogy is
that it is both legally and historically unsound. The very difference
which the Committee seeks to ignore is precisely the reason why rate
regulation of broadcasting is not authorized by the present Act. 13
Ironically, this is made clear by the very case which the Committee
cites in support of its novel theory. 14 In Pulitzer, the Court of Ap-
peals pointed out that the absence of a direct charge by broadcasters
to their listening audience is precisely the reason for the lack of rate
regulation, and this fact was to be distinguished from the situation
where such a charge would be present. It is inexplicable to Petition-
ers how Pulitzer can be read by the Committee as obliterating the
clear historical distinction between free and pay TV when the ration-
ale of the case is based precisely upon the existence of such a distinc-
tion.
27. The difficulties to which the Committee's position lead are
demonstrated by the justifications which It offers in order to defend
its abdication of responsibility. Thus,the Committee urges that rate
12
Which rate is then reflected in the hidden indirect cost.
13 See, ~g., note 4, p~, where Senator Broussard pointed out the differ-
ence between radio, whose rates are not regulated, and public utilities, whose
rates are regulated, as being that radio makes no direct charge to the public
for service while the others do.
14Pulitzer Publish1ng~ç~. v. F.C.C., 94 F.2d 249 (D. C. Cir. 1937).
PAGENO="0533"
529
17
regulation is not necessary because: "The public is free to subscribe
or not to subscribe to STV services." (Par. 222) The contention,
however, is untenable. Obviously, the same could be said about any
public utility: the public is free to subscribe or not to subscribe for
phone service; it is free to obtain or not to obtain gas or electricity;
it is perfectly free not to send a wire by telegraph or cable; it is free
to refuse to travel by airplane, railroad or bus. Yet, these facts have
not resulted in an absence of regulation over telephone costs, gas and
electric services, telegraph and cable fees, and transportation rates.
The fact that the public might ignore a service which is licensed by
the government has never commended itself as a reason to refuse
government regulation of the rates to be charged the public. Indeed,
the Committee's argument sounds suspiciously like Anatole France's
famous comment:
The law, in its majestic equality, forbids the rich
as well as the poor to sleep under bridges, to beg
in the stores and to steal bread.
28. The Committee urges that rate regulation is unnecessary
since: "We believe that the market place will regulate charges that
are paid and that if they are excessive, the operations will not suc-
ceed." (Par. 222) Yet, it can fairly be asked: "What market place?"
The conditions which the Committee, itself, recommends as govern-
ing permanent pay television for the immediate future limit pay tele-
vision to only one station in each city with five television allocations.
There is certainly no guarantee that this condition wUl be changed or
liberalized to allow more than one in each city. The Committee has
no right to assume that the limitation which it proposes will become
unnecessary; in all probability such a condition will always be neces-
sary so as to render the free service at least the minimal protection
which even the Committee recognizes is necessary in the public inter-
est.
PAGENO="0534"
530
18
29. Under these conditions, it is simply fallacious to argue that
a "market place" exists, the operation of which would protect the pub-
lic. There is no "market place" when there is a government-authorized
monopoly. Petitioners are unaware of any instance in which a govern-
ment-sanctioned monopoly has been established without clear indication
that the rates charged the public are to be regulated.
30. The Committee asserts rate regulation to be unnecessary
because there was "nothing in the Hartford trial to indicate that rates
will be exorbitant." It asserts that the rates charged appeared "rea-
sonable." (Par. 222) Yet, the Committee did not indicate the gauge
by which it determined the rates to be "reasonable" or "non-exorbitant."
The Committee did not indicate whether reasonableness was to be de-
termined by return on investment, by capitalization of assets, by com-
parison to the price of similar events in non-television media such as
legitimate stage, motion picture theatres, sports arenas or by a com-
bination of these methods. 15 The Committee simply cannot make
15
The Committee cited with apparent approval the fact that at Hartford nine
persons viewed a heavyweight fight at a cost of $3.00 while the same fight was
shown on closed circuit television for a price of $5.00 per head. Yet, the fact
that the per capita cost was less on pay television does not mean that the pay
television cost to the subscriber was "fair" and "reasonable." Such a judg-
ment could only be made after assessing RKO's cost in presenting the fight,
and allocating that cost over the number of subscribers. Thus, it may be that
RKO's cost per subscribing set was 25ç~ for which it then charged $3.00. At
the same time, the per capita cost to the theatre owner may have been $2.50
so that he may have made a $2.50 profit on a $2.50 investment. Under these
circumstances, which of the two arrangements was "fairer"? And, more per-
tinent, should the pay TV station have been allowed to reap over a 1,000% pro-
fit when the only reason for him making any profit at all was that he was al-
lowed to use publicly-owned spectrum space?
Of course, it should be noted that the operators of the Hartford test lost
over three million dollars. As the Committee recognized, these business en-
terprises are not charities. In order to recoup their expenses, the prices
which they would charge would logically have to be higher than those which
they did charge at Hartford. Under the circumstances, the fact that they were
willing to absorb a loss during the test period is hardly a sound basis upon
which to postulate the costs to the public which would accrue under a perma-
nent system.
PAGENO="0535"
531
19
judgments as to "reasonableness" in a vacuum without appropriate
standards which have not yet begun to be formulated.
31. The simple fact which distinguishes pay television from
other traditional entertainment media making direct charges to the
public is that the other media do not use scarce public facilities
(the airwaves) to make their profit, nor do they deprive the public
of what the public could once enjoy free. It is only the pay TV pro-
ponents which desire a free and unregulated ride at public expense.
W. The Detriments to the Public From a Permanent
Pay Television System Clearly Outweigh Any
Minimal Benefits Which May Be Derived
32. The Committee's recommendation to move upon the un-
charted sea of permanent pay television Is even more seriously
impaired when the reasons for its recommendation are considered.
For it is obvious that the Committee has lost sight of the nature of
the judgment which the Commission must render before it can au-
thorize pay television on a permanent basis. That judgment Is
whether there are any benefits to be gained by the public by the
authorization of the service and, if so, whether the benefits clearly
outweigh the detriments. And the record makes it painfully obvious
that the benefits to the public are minimal at best, while the detri-
ments are substantial and potentially catastrophic.
A. The Alleged Benefits.
33. It is clear, of course, that the promises and siren-songs
of the pay television proponents have been demonstrably proven false.
Pay television was first portrayed to the American public as a means
PAGENO="0536"
532
20
by which television programming fare would allegedly be diversified
and improved through the presentation of high quality, minority-type
programming which was allegedly unavailable over the free system.
Thus, as the Commission noted in its First Report (Par. 48), 16 pay
TV proponents promised that the system:
could and would provide a wider choice of
members of the public interested in the fine
arts, operas, educational and informational ma-
terial and other similar kinds of programs.
The proponents of the Hartford test promised to present significant
amounts of such high-quality minority-type programming17 and the
Court of Appeals, in approving the Commission's authorization of
the test, noted that:18
It seems to us imperative that the licensee be
held to adhere faithfully to the high standard
of programming which it has promised.
The Committee has candidly recognized, however, that pay television
will not, in fact, yield these benefits which were its original raison
d'etre. The Committee recognized what the opponents of pay televi-
sion have continually pointed out - that pay television will not, in any
way, offer additional cultural and high-quality diversified minority-
type programming, but would program for the mass audience. The
Committee has now recognized that whatever hopes may have been
1616 R.R. at 1521.
17 See Exhibits submitted with the application of Hartford Phonovision, Exh.
8, p. 1.
18 301 F.2d at 838; emphasis added.
PAGENO="0537"
533
21
held out for such programming can no longer be realistically en-
tertained (see Report Pars~ 54-57). The Committee has rejected
as the basis for its recommendation the requirement that such
programming be forthcoming. It does not now even urge that any
such benefits would accrue to the public.
34. The sole benefits which the Committee has been able to
discern are that pay television (1) can bring to the public some
motion picture films somewhat more quickly than these films would
be shown on free TV, and (2) can present certain sports events
such as heavyweight championship bouts and other sports programs
which are now, for one reason or another, "blacked out" on free TV.
35. With respect to films, the Committee does not even urge
that the films to be presented are first-run features. It holds that
even the presentation of films from six months to two years old
would be a sufficient justification to authorize a permanent pay tele-
vision service (Report, Par. 53), despite the fact that free television
now presents a plethora of motion picture films, some of which are
less than two years old, and despite the fact that the average age of
movies presented on the free system has steadily been lowered dur-
ing the past five years. And with respect to sports, the Committee
acknowledges that the occasional spectacular sports event such as
championship boxing is rare and unusual (Par. 107).
B. The Substantial Detriments.
36. Having thus pared down the high touted "benefits" to a
realistic bare minimum, the Committee was then required to assess
these benefits against the detriments which its own Report revealed,
and particularly to determine (a) whether the presentation of such
PAGENO="0538"
534
22
programming warranted the deprivation to the public of a scarce
broadcast frequency and (b) even if so, the effect which it would
have upon the free service. Perhaps the most revealing aspect
of the Committee's Report, however, is that it never realistically
assessed the first of these questions, and it attempted to solve the
second of them upon a totally inadequate basis (i.e., the Hartford
failure), buttressed by the sheerest form of speculation and con-
jecture.
37. The first, and most obvious detriment is that, in order
to give the public a few more current motion picture films, and
some sports events, the public will thereby be deprived of the abil-
ity to receive a scarce broadcast frequency on a free basis. To
state the obvious, if there are 5 channels allocated to a particular
community, and one of them is being used as a pay television facil-
ity, there are no longer 5 free television allocations; there are 4.
The public is simply deprived of the programming which it other-
wise would have received, but for the pay television operation. Yet,
nowhere in the Committee's Report is there any realistic recogni-
tion of the fact that the institution of a pay television system would
rob the public of the benefits of a scarce frequency. Indeed, at one
point, the Committee refused even to acknowledge that the public
would be deprived of anything. Thus, at Paragraph 75, the Commit-
tee can blithely state that listeners "will not be deprived of anything"
if pay television is authorized, apparently forgetting the plain and
simple fact that authorization of a pay television station deprives the
public of the use of that station on a free basis.
38. Moreover, the Committee failed to consider the importance
of the fact (heavily stressed by the Committee in another context) that
the audience to be reached by pay television is a minority, and one
PAGENO="0539"
535
23
which totally excludes all of the families in the lower one-third eco-
nomic level of the United States. Thus, in attempting to demonstrate
that a permanent pay television system will have no adverse impact
upon the free system, the Committee heavily stresses (Par. 107) that,
on the average, pay television could not expect to attract more than
a small percentage: of the total television listening audience. And
(again, in another context) the Committee notes (without apparent
concern) that this small percentage excludes the lowest economic
third of the nation (Pars. 74-75). Yet, nowhere in the entire report
does the Committee even face the question of whether the use of a
scarce broadcast frequency, which would be totally denied to one-
third of the families in the United States and, at best, would be lim-
ited to a fraction of the total listening audience, is justified merely
for the purpose of presenting some additional movies and occasional
sports events. 19 The Committee, Instead, appeared to view its task
as one of finding any benefit, no matter how slim, which would then
be used as a justification for recommending pay television.
39. The Committee's casual attitude toward waste of frequency
space is odd, indeed, when contrasted to the concern which the Com-
mission manifested in its CATV proceedings. In the Commission's
First and Second CATV Reports, it made it abundantly clear that the
Commission's main concern was to protect the viabUity of the one or
two new UHF facilities which might be instituted in communitIes
throughout the country as a result of the passage of the all-channel
19 Petitioners do not wish to imply that they agree with the Committee's
evaluation of the percent of penetration which pay TV could achieve, although
it does agree that this penetration would not occur in the lower economic
levels. Petitioners have here attempted merely to demonstrate that even
on its own terms, the Committee failed to make the required assessment of
benefits and detriments.
PAGENO="0540"
536
24
receiver legislation. The Commission there recognized that the
potential programming to be offered by a single new UHF facility
was so necessary to the public interest that it was to be protected
from destructive competition by CATV systems which sought to
import distant signals. The necessity of such protection led the
Commission to take Jurisdiction over CATV and to require a show-
ing by any CATV system desiring to import distant signals that
such importation would not adversely affect existing stations and,
particularly, new UHF facilities.20 It is obvious, of course, that
instituting a pay television station over a UHF facility effectively
deprives the public in that community (at least during the prime
time listening hours) of the benefits of free UHF service, in the
same way as if that UHF station had been driven off the air by a
CATV system which imported distant signals. Yet, the concern
with the protection of the viability of a scarce television frequency
manifested by the Commission in the case of CATV systems Is no-
where manifested or even recognized by the Committee in consid-
ering the effect of the authorization of pay television.
40. The Committee at least attempted to evaluate the second
potential detriment of permanent pay TV, i.e., the effect which it
might have upon the free service. Its error in this regard, however,
lay in accepting the results of the Hartford test as a responsible
gauge upon which to measure future impact.
20 There are now pending before the Commission numerous hearings in which
a CATV system is required to justify extension of signals into an area with only
a single UHF facility in it. See, ~g., the hearing on the Dalton, Ga. CATV sys-
tem (Docket No. 17066).
PAGENO="0541"
537
25
41. The folly of such an attempt is made clear by the fact that
the Hartford test, despite the promises of RKO to install up to 50,000
units, was limited to a maximum of 4,851 persons who were asked to
subscribe to a diet of run-of-the-mill movies, the great majority of
which were more than six months old at the time of showing, and at
least 149 of which were two years old or older at the time of presen-
tation. The test represented a penetration of 0.6% of the net
weekly circulation in the Hartford market, and only 0.3% of the tele-
vision households in that market. Moreover, as the Committee re-
cognizes (Par. 87), only an average of 267 families tuned in to the
programs presented during the Hartford test. And it is not merely
the small size of the sample which renders the data virtually mean-
ingless. The Hartford operators did not even purport to obtain a
valid scientific statistical sample such as is done, for example, by
the rating services. It is simply naive to contend that such data is a
meaningful basis upon which to make any predictions or projections
of the actual effect of pay TV as a permanent media. Yet, the Com-
mittee attempted to do just that.
42. The impossibility of projecting the Hartford test on a na-
tional basis is made manifest by the Committee's own Report. The
Committee pointed out that two of the most critical statistics in de-
termining impact are (a) the amount of television homes which would
adapt to pay TV (i.e., the "penetration rate"), and (b) the average
numbers of pay TV homes who would watch each attraction (i.e., the
"subscription rate"). Yet, as to the "penetration rate" the Committee
recognized that it could not use the Hartford rate since it was simply
impossible to do so. The Hartford penetration rate was, in fact, less
than 1%, and the Committee realized that such a figure was totally
unrealistic. Instead, the Committee noted that the penetration rate
was a matter of sheer speculation,although it "guessed" (with no
PAGENO="0542"
538
26
explanation for the basis of the guess) that the rate might be some-
where between 10% and 20% (see Par. 149). And with regard to the
critical question of program diversion, the Committee also recog-
nized that the Hartford test could provide little meaningful explana-
tion, and pointed out that the question "is one of the impondera-
bles . . ." (see Par. 111).
43. At the same time that the Committee recognized the de-
ficiencies in the Hartford experiment, it inexplicitly accepted as
gospel truth the notion that only an average of 5.5% of the persons
who subscribed to pay TV would tune in to the pay TV offerings.
The Committee's entire conclusion as to the lack of substantial
adverse impact upon the free service (Par. 107) is couched entire-
ly upon an uncritical acceptance of the 5.5% figure whIch, it must
be noted, is based upon the weekly average of only 267 Hartford
subscribers.
44. But this is akin to creating an empire built upon quicksand.
The Committee offered no persuasive explanation as to why it chose
to accept so readily the 5.5% figure. Although the Committee indi-
cated its reason to be that the 5.5% figure remained constant whether
the station presented first subsequent-run, or whether it showed
older movies, the Committee failed to recognize that the steadiness
of the figure merely reflected the fact that, to the average viewer,
a first subsequent-run movie is no more attractive than a movie
which may be three, four or five years old. The run-of-the-mill
movies shown at Hartford were simply not attractive enough, or dI.f-
ferent enough from material shown over the free service, to interest
pay TV viewers. Rather than reflect a need for the programming of-
fered, it indicated that the Hartford test, in fact, did not offer any
meaningful "supplement" whatsoever to the material presented on the
free service, much less a "beneficial" supplement.
PAGENO="0543"
539
27
45. At the same time, the test indicated that when a popular
and unavailable item, such as a heavyweight championship fight,
was presented, the viewing percentage rose to 83.6%, and it takes
no great prophetical insight to discern that if similar popular pro-
ductions are kept off the free service and placed only upon the pay
service, the viewing percentage would rise far above 5.5%, and the
Committee's conclusions would be revealed as erroneous.
46. There is yet another deficiency in the Committee's rea-
soning concerning impact, even if the 5.5% figure is accepted. The
Committee, based upon this figure, has assumed the audience diver-
sion to be 2-3/4% even if there were a 50% penetration, i.e., if 50%
of the television homes subscribed to the pay TV service. It then
held that such a low percentage, combined with the rules which it
adopted covering program and talent siphoning, gave it no cause for
cpncern (Par. 107). In so doing, however, the Committee obviously
treated all of the stations in the cities to be affected as if they were
on an equal level. In other words, it failed to recognize the well-
known fact that in cities with four stations, three of them network
affiliated, the non-affiliated station can only count upon a small frac-
tion of the total potential audience, the overwhelming majority of
whom would normally be tuned to the three network affiliates. Thus,
while the three network stations might have significant strength to
resist the small diversions which the Committee prophesied as oc-
curring, the independent station would be in a far worse position, and
its financial viability may be destroyed even by a small further frac-
tionalization of its audience.
47. Indeed, it was precisely the effect of fractionalization of
the small potential audience of UHF stations which lay behind the
adoption of the CATV rules and which made it necessary for a CATV
system desiring to import distant signals to demonstrate that such
PAGENO="0544"
540
28
Importation would not have the adverse impact which the Commission
envisioned.21 The Commission, in considering CATV, recognized that
new UHF stations would be marginal, and that even sn~iall shifts In
viewing might be sufficient to destroy them. No such recognition can
be discerned In the Committee's Report. The obvious threat to non-
pay TV UHF stations is virtually ignored.
48. Moreover, It Is no answer to Imply that UHF stations will
be aided because they might apply for pay TV authority and therefore
supplement their free TV revenue by pay TV revenue (see Par. 76).
In a five-station market with more than one UHF station, In which
only one station can become a pay TV outlet, obviously the UHF sta-
tion which does not obtain the pay TV franchise could not possibly be
helped by a fractionalizatlon of its audience. And It Is a contradic-
tion in terms to argue that the pay TV UHF station will be helped so
that UHF will be thereby fostered. The pay TV UHF station may be
helped to survive financially, but It will survive not as the type of
UHF station originally envisioned by the Commission, but as primari-
ly a pay TV station which also happens to show some free television
at non-prime time hours as the price it must pay for the privilege of
reaping the pay TV bonanza. Petitioners submit that the Commission's
strenuous attempts to aid UHF stations were not undertaken for the
sole purpose of having stations broadcast free UHF programming dur -
Ing the daytime hours only.
49. The danger in the Committee's glib use of the Hartford fig-
tires as projections, and In Its failure to realize that It simply does
not have sufficient meaningful data upon which to base Its conclusions,
Is made manifest by the catastrophic results which might occur if the
Committee's speculations are erroneous.
21 See, ~ CATV Second Report and Order, 6 R.R. 2d 1717, 1772-1781, and
particularly Par. 123 at 1777-78.
PAGENO="0545"
541
29
50. The Committee, itseLf, recognizes explicitly in its Report
the absolute necessity of protecting the free service. Thus, the Com-
mittee noted with approval (Par. 77) the Commission's statement in
its Further Notice that:
We also emphasize that we regard the preserva-
tion of conventional television service and the
continued availability of good program material
to the free service as extremely important con-
siderations.
And the Committee noted (Par. 147) that it would be a breach of faith
with the public who have invested millions of dollars. on television
equipment on the expectation of receiving abundant free television
programming to suddenly find such programming denied to them be-
cause it was shifted to a pay television system.
51. As a further indication of its concern, the Committee re-
commended the adoption of novel and unique conditions limiting the
types of programs which could be shown on the pay TV service (i.e.,
that pay TV movies cannot be more than two years old in general
release), and further prohibiting the presentation of programs which,
during the preceding two years, had been seen on the free service.
52. But If the Committee's speculations as to impact are
erroneous, and if the conditions which it imposes are ineffective to
protect the free service, then the free service would be rendered a
blow from which It might never recover. In addition, with the invest-
ment of substantial funds by pay television proponents and the public,
the Commission would be faced with a fait accompli, and It would be
difficult, if not impossible, to unscramble the egg. Can the Commis-
sion truly believe that it has sufficient data upon which it can make
reasonable judgments regarding future impact based upon the smidgins
86-399 0 - 67 - 35
PAGENO="0546"
542
so
of statistical data which it gleaned from the Hartford test, some of
which the Committee itself recognizes is unreliable as a gauge for
the future? Is it not more rational to conclude that until more pro-
bative and responsible data is collected, the Commission should not
move into such a dangerous and potentially destructive area?
V. The Hartford Test Demonstrates That
* Authorization of Permanent Pay TV
Would Improperly Discriminate Against
the Poor
53. There Is one area, Petitioners submit, in which the Hart-
ford test yields some meaningful data. A breakdown of the subscrib-
ers demonstrates that virtually no persons in the income level 0 -
$3,999 (an income level which represents almost one-third of all
famUies in the United States) were able to subscribe to the test.
Based upon these statistics, there can be no question that the author-
ization of a pay TV system would systematically deprive 30% of the
nation of the free use of public frequencies, which would instead be
turned over to the pay television proponents to be used for the bene-
fit of wealthier American citizens. In effect, the Commission would
be systematically discriminating against the lower Income level fam-
ilies, and depriving them of the ability to use what heretofore have
been recognized as broadcast frequencies available free to all parts
of the population, regardless of income.
54. This systematic discrimination against one-third of a na-
tion appears not to bother the Committee; the manner in which they
treat this fact is one of the most startling aspects of their Report.
Thus, the Committee blithely ignores the fact that the precise dis-
tinguishing feature of the American broadcasting system since Its
PAGENO="0547"
543
31
inception was that it was free to all members of the public, and that
the public's airways were not to be sold to any particular segment of
a listening audience only if they would pay a direct fee. When the
Commission allocated its scarce television frequencies, it plainly
did so with the intention of maximizing the amount of free television
spectrum space which could be equitably distributed throughout the
country. Yet, the Committee would now have the Commission effec-
tively deprive one-third of the nation of the ability to use certain
of the allocated facilities. It would have the Commission say, in
effect, that it has sufficient spectrum space to accommodate five
stations in a city, but, nevertheless, it chooses to deny one-third
of the public the right to free access to all five, but limit free ac-
cess to four, with the fifth to be used only for that portion of the
audience wealthy enough and willing to pay for the service. Thus,
rather than meeting its statutory obligation of effectuating the "lar-
ger" use of broadcast facilities, the Commission would now narrow
the use of such facilities by restricting a significant portion of them
for use by the wealthy American citizens.
55. This creation of a type of second-class citizenry is treated
most cavalierly by the Committee. Thus, the Committee rationalizes
the discrimination against the lowest income level by asserting that,
under the rules adopted, all those in the lowest income group "will be
able to continue to see ample amounts of free TV programming, so
that they will not be deprived of anything . . . ." (Par. 75) This rea-
soning is specious. It first assumes, with little Justification, that the
rules which the Committee proposes will be effective in preventing
the siphoning of free TV programming. But what if the Committee is
wrong, and the siphoning and destruction of the free service cannot
be protected? How will the Committee then give back to this third of
PAGENO="0548"
544
32
a nation the programs of which it was deprived? And how will it
protect them from further deprivations?
56. And by what standards can the Commission so patroniz-
ingly assume that the lowest income group has "ample" amounts of
free TV programming, while at the same time urge that the free
service is not "ample" enough for the wealthier citizens? Does
the Commission assert one standard of programming for the
wealthy and a lesser standard for the poor ?22 Is the Commission
so satisfied with the quantity of free TV programming that it can
conclude, even in cities with five or more stations, that the loss of
one station's potential programming is a desired or non-harmful
result? This patronizing attitude hardly commends itself as a
standard which the Commission should follow.
57. And it is, of course, incredible for the Committee t&as-
sert that these persons "will not be deprived of anything." Of course
they will be deprived of something - the free programming which
the station would have presented had it not been given the opportunity
of directly charging the public for the use of the public's own airways.
58. The Committee's final attempt to rationalize its disregard
of a third of a nation is reflected in the Committee's attempted analogy
to the color TV. The Committee argues that (Par. 75):
The same economic difference presently exists
with regard to color TV. Many in the country
who desire color sets with large screens cannot
afford them.
The analogy is totally false. It is quite true that economic differences
allow the wealthy to purchase color sets and deny the poor the same
opportunity. But the ability of the wealthy to receive color sets can
22 Is the Commission urging in the Orwellian sense that: "All animals are
equal, but some animals are more equal than others"?
PAGENO="0549"
545
33
be accomplished without any deprivation whatsoever to the poor.
Color television is a true supplement - available to those who can
afford it without cost to those who cannot. Over-the-air pay televi-
sion is totally different, for it benefits those who could afford it only
at the expense of those who cannot.
59. It needs no elaboration to demonstrate that television is
perhaps the most successful and effective mass media which the
world has ever known. It has allowed the poorest citizen to obtain,
in return for the mere purchase price of a television set, entertain-
ment, information and news of a quality and quantity unobtainable in
the past by the richest prince or king. It is, in truth, the poor man's
theatre; the benefits which it has brought redound most strongly to
those persons and groups in the lowest income level. It is strange,
indeed, that the Committee can so easily ignore this group, and seek
to deprive them of some of the benefits of which television is capable.
60. It is even stranger when it is recalled that, at this point in
our history, the country as a whole is making the most determined
efforts to bring to the lowest economic levels of our nation the full
benefits of the American society as they are enjoyed by the more
fortunate majority of our citizens. Federal and state governments
have instituted far-reaching programs in urban development, open
housing, work training, education, and a myriad of poverty programs
so as to enrich the lives of the poor. The country has recognized
the disparity in income which exists in our society, and has moved
to correct it through massive Federal and state aid. It is anomalous
that the Committee would now have the Commission turn precisely
in the opposite direction, and deprive the very portion of the nation
which needs it most of the fullest opportunity to take advantage of
the free service. The Committee, in essence, has created its own
anti-poverty program - its program is directed against the poor.
PAGENO="0550"
546
34
VI. Conclustons
61. It is gratifying to note that the Committee has recognized
the potentially disastrous effect which pay TV could have on the free
service by at least attempting to impose conditions to protect free
TV. Petitioners believe that the conditions which the Committee
would impose, though laudable, are not stringent nor comprehensive
enough to obtain the result which the Committee desires. The ad-
ditional conditions which petitioners believe should have been im-
posed, and the reasons for their imposition, have been discussed
at length at pp. 52-70 of the October, 1966 Comments submitted by
the Joint Committee Against Toll TV, and will not be repeated here.
Suffice it to say that the overwhelming weakness of the Committee's
recommended conditions is that they are easily surmounted merely
by withholding material from free TV for a two-year period, with
the knowledge that thereafter such material can reap, unhampered,
the profits of pay TV. Again, it takes no great insight to realize that
proponents of pay TV systems could well decide to make good any
loss which a program producer may suffer during the two-year hiatus.
There is simply no way for the Commission to prevent circumvention
of its conditions.
62. And it is particularly distressing that the Committee has
rejected the suggestion that, if pay TV is permanently authorized,
individual pay TV stations should not be licensed until after they de-
monstrate in an evidentiary hearing that operation of the station will
not damage the free stations in the community, and will affirmatively
serve the public interest. The Commission has required such hear-
ings in the case of CATV systems desiring to import distant signals
precisely because it was unable to determine without proper evidence
PAGENO="0551"
547
35
the impact of an individual system upon the existing local TV stations
in its community. The determination to hold such hearings was made
at a point when the Commission had before It far more statistical
evidence of the effect of the CATV upon TV stations than the Commis-
sion now has with regard to the effect of pay TV on free TV. It is dis-
tressing that the Committee is so certain of the absence of adverse
impact that it refuses to take this realistic and practical approach.
63. In sum, petitioners do not believe that the Commission has
the authority to authorize permanent pay TV under the existing stat-
utory scheme. But even if the Commission decides otherwise, and
even if it attempts to enter the field without appropriate legislative
guidance, nevertheless, the Commission today has as little meaning-
ful data upon which to determine the impact of pay TV on the economy
and on free TV as it did when the subject first arose more than ten
years ago. The Hartford test did not yield such information. The ex-
perience in Hartford does not provide a basis for the conclusions
which the Commission is attempting to draw. At this stage the Com-
mission should, at most, permit pay TV to continue in a limited test
context in the hope that the ensuing years will produce the n~ces5ary
data.
Under all of these circumstances it is submitted that the Com-
mittee's recommended Report should not be adopted.
Respectfully submitted,
JOINT COMMITTEE AGAINST TOLL TV
NATIONAL ASSOCIATION OF THEATRE
OWNERS
By ____________
Marcus Cohn
By ____________
September 15, 1967 ~ai'thui Gaynes
PAGENO="0552"
54~
Mr. GAYNE& We believe first of all and perhaps primarily that this
committee should make it very clear to the Federal Communications
Commission, one, that the Commission does not have the statutory au-
thority to institute pay television under the Communications Act of
1934 and, two, that even if it did it certainly should not do so be-
cause pay television is not in the public interest.
I do not think I have to speak too long about the fact that pay tele-
vision is a tremendously drastic change in the television system we
have in this country today.
I think the fact that this committee has beenworking so assiduously
at it and the fact that so many people have appeared before them
arguing pro and con demonstrate the novelty of pay television and the
change it would make.
For the first time in the history of television broadcasting there
would be a direct charge from the broadcasting licensee to the view-
in~ public. In fact, it seeks to adopt a pay system which I think was
rejected by the drafters of the Communications Act and certainly
finds no support in it.
I find the lack of statutory authority in three aspects most par-
ticularly.
One, the present act has not a word about it which would indicate
that the Commission has the power to institute a direct pay system.
The legislative history of the act which is long and which we have
analyzed in some of our comments make it quite clear this was never
conceived as a real practical possibility at the time the act was passed.
Two, this is demonstrated I think by the absence of rate regulation
which I think is perhaps the most striking demonstration of the Com-
mission's lack of authority.
The Communications Act is, of course, broad and gives the Commis-
sion many powers but it does not give them the power I believe to
regulate the rates.
If the Congress wished to give the Commission the authority to
institute pay television I cannot believe they would have done so
without giving them the authority to regulate the rates.
This is a public utility. The airways belong to the people of the
United States. They are given to broadcast licensees to use for limited
periods and no property right is given therein. I just cannot conceive,
it would be singular in the history of regulatory authority for this
kind of power to be given without the regulation authority.
Yet the Commission does not have the power to regulate the rates.
It wo~i't even say it does have the power to regulate rates. It would
launch this venture without the kind of protection that is necessary
to protect the public.
I think there is a third reason. That can be found right in the
fourth report. The Commission has recognized as we all have recog-
nized the tremendously destructive potential which pay television
has to destroy the free system. It tries to protect the free system by
instituting program controls of a type which have never before been
attempted.
It would limit movies on pay televisiOn only to those which are
less than 2 years old in general release. It would prohibit the presen-
tation of sporting events that appeared on free television in the past
PAGENO="0553"
2 years. It would go farther, it would prohibit the presentation of a
series of programs with an interconnected plot
This, I submit, is regulation of program content, the very one thing
which the Commission has resisted throughout its entire career. The
farthest the Commission has ever done insofar as regulating program
content is indicating it might have some authority over broad cate-
gories of types of programs but never to my knowledge did it ever
come out before the fourth report with a regulation which would de-
pend upon the very nature and content of the program being pre-
sented.
Now obviously these are the only conditions under which even the
Commission or the committee would allow pay television. Yet, both
the proponents and the opponents of pay television have argued
vociferously-not aM proponents but some-that these are unconstitu-
tional if not illegal under the censorship provisions of the Com-
munications Act.
Commissioner Loevinger pointed out that under the committee's
recommendation pay television might not be able to present the plays
of Shakespeare because there are a series of interconnected plots or
* they could be so defined. This kind of judgment would lead the Com-
mission into a morass of programing judgments which they have here-
tofore, I think properly, eschewed..
But in any event, the present act, I believe, does not give them the
power to do it or at least there is a very serious question that the act
gives them the power to dolt.
Under these circumstances, how can it seriously be contended that
the present Communications Act gives them the authority to authorize
pay television? The very conditions which they think are necessary
may not be within their power to impose. This would start litigation
that I think would be with us for years on definition of programs.
The chairman just touched one area of definition, whether the sports
program to be prohibited must be within the community or through-
out the country. That is just one of them, that is an easy one. I don't
consider that one a particularly hard one. That is one of the easy
ones.
I don~t think the Commission really wants to do that in this way.
Those are perhaps the main reasons why I don't think they have the
power. Even if they did, I don't think they ought to do it before this
committee at least would tell them to have the power.
I am a lawyer with no particular repute and if I don't know the
answers to the question it does not mean very much I don't think this
committee knows the final answer to this question. It ought to be made
very clear instead of leaving them in a morass of uncertainty.
Secondly, the history of the Hartford test has made it clear that
there is no demonstrthle demand for pay TV. The committee is un-
doubtedly aware that the only instance in which this question was put
to the people in California They voted it down by a sizable margin
Later the courts struck down the legislation but I think the public
reaction was at least indicative that there is no tremendous public de-
m~.nd for this service. There has been only one test.
Now the Commission envisioned a number of tests I think in the
third report but there has been only one test run under the Third
Report.
PAGENO="0554"
550
If there was a demonstrable public demand isn't it logical to assume
there would have been more than one?
We should contrast this with CATV. The whole CATV industry
developed in 3 or 4 years, burgeoning at a fantastic rate; almost
unbelievable.
There was a demand and need. The people demanded it and they got
it. I don't think there is this demand for pay TV, not in Hartford.
The average audience in Hartford was 267. It was less than 1 percent.
Mr. Macdonald, you raised the question yesterday which I think is
a very pertinent and excellent one. That is, aren't people like myself
a little bit inconsistent saying on the one hand there is no demand, on
the other hand it is such a tremendous demand that it will destroy free
television? Certainly it does appear inconsistent.
I don't think upon reflection it is that inconsistent because demand
is a `strange thing. It can be created. Demand can be created by scar-
city. Right now you don't have a tremendous demand for pay television
because the people can get pretty much everything, virtually every-
thing, that pay TV would offer, over free TV.
You take that away from free TV and you will create the demand.
That is the answer to the apparent inconsistency. It is the economics
of scarcity which will create the demand that does not now exist.' Let
me use a simile.
If you banned automobiles today you would have the greatest de-
mand for the horee and buggy that you ever saw in your life. If peo-
ple don't have something then, of course, they will go to the vehicle
from which they can get it.
I think it is clear beyond doubt that you will not get the sports pro-
graming that you have now.
Here I would like to speak for a moment to the question that was
raised yesterday about whether the pay TV people could put on pro
football sports if it appears anywhere in the United States. I think
that they can because the conditions that the committee wc'uld impose
in the fourth report speak not about absence from free television any-
where in the United States but absence from free television in the
community.
The proposed rule is section 73.643(b) (2). It says:
Sports events shall not be broadcast which have been televised live on a non-
subscription regular basis in the community during the two years preceding .the
proposed subscription broadcast.
I agree with the representative from ABC and from the NAB that
tinder the conditions of the fourth report the home games can imme
diately be sold to pay TV and they can withhold the away games for
2 years. They would not lose very much money.
At the end of the 2 years they would `reap it all back. But I don't
rely. strictly on legal interpretation. I think events have proven that
they will `do this. The Los Angeles Dodgers and the San Francisco
Giants kept their baseball games off free TV for years and they did it
admittedly because they were looking forward to the pay TV bonanza
which turned out did not result for many reasons but they certainly
were willing to keep it off.
In the face of that experience I think it is at least reasonable to
argue that the proponents of pay TV would do exactly the same thing.
Now what are the benefits to be gained? For years the proponents
PAGENO="0555"
551
of pay TV have contended that you are going to get high-level, min-
ority cultural programing, operas, ballets, this type of material.
The i~ationale for pay TV was that you will get on pay TV the kind
of minority programing you cannot get on free TV. The Hartford
experiment did not prove a heck of a lot I think but it did prove this,
you are not going to get this kind of programing on pay TV.
You just are not going to get it. They had virtually none of the
things that they promised in this area. It was movies and sports. I
think it is realistic to conclude that that is what you are going to have
if you authorize this as a permanent medium.
I think the Commission was quite realistic in saying that we no
longer would authorize it for this kind of programing, we will author-
ize it for movies and sports.
What about movies? Movies have been presented on free television
in overwhelming proportions. The peop'e demand it, the people like
it. It has gotten the highest ratings. The average age of movies has
been declining. Movies of less than 2 years old have been shown and
will continue to be shown.
I think that what the imposition of pay television would have, the
effect it would have would be to stop this development of better
movies and would retard it.
It would make it impossible, I think, to present the kind of movies
that we are now getting over free television. As far as sports are con-
concerned we have such a plethora of sports now on free television
that it has even come in for great criticism. There is a plethora of
sports. Are we going to deprive the majority of the American people
of the ability to utilize a scarce spectrum for the presentation of a
few more occasional sports programs?
I don't think that is in the public interest. I don't think that this
is what the Communications Act was set up to do. I don't think this
is what this committee wants to do, to give entrepreneurs the use of
a public facility to serve what would probably be a minority viewing
audience in the higher economic class.
I do not think it is justified.
Now I think perhaps the most startling aspect of the Commission's
fourth report was the institution for the first time of an economic
discrimination in the use of broadcast facilities. Up until now the
radio spectrum was available to all without regard to the income level,
without regard to the ability to pay.
Yet, pay television would divide the country along economic lines
and I think the Hartford test also proved that it would eliminate from
that viewing audience the lower 30 percent of our Nation in the less
than $4,000 class.
Now the committee said, we don't have to worry too much about
these people because they still will be able to see plenty of free tele-
vision. I find this argument very tenuous. In fact, the implications of
it are kind of startling. What the Commission is saying is that for you
people, the lower third of the Nation, you have ample television; but
the wealthier, they don't. Because they don't, we are going to give
them, m effect, the bonanza of pay television.
This is a kind of Orwellian argument, all animals are equal but
some animals are more equal than others. The lower third, you have
enough, the upper two-thirds, you don't. HOw can this Commission
come to this kind of judgment? How can they say you who have less
PAGENO="0556"
552
than $4,000 have enough, when it is those people on whom television
makes the greatest impact.
I can't thmk I have to argue now at this late date that television
is the theater for the poor. Television gives to the poor the kind of
entertainment that was never available to the richest prince years ago.
They are the ones who get the greatest benefit not only from what they
see-it was very interesting to me during the riots they would take
pictures of people who were looting.
What were they taking? They were taking television sets. I remem-
ber a very vivid picture of them taking those television sets out.. Why?
Because this is their medium. This is the medium I think that you are
going to deprive them of if you allow the authorization of a pay tele-
vision system.
Now I was very struck with th~ words of Congressman Celler yester-
day. He also gave some details before the Federal Communications
Commission. I think his concluding statement was quite eloquent. I
beg leave to say that I adopt it.
We should not authorize pay television. There is no benefit. It is
going to increase the cost. It has such a potentially catastrophic effect
on the free system that I don't think we ought to gamble on it because
I think that effect will take place.
You will not see what you now see free.
I would like to conclude by perhaps speaking to a few of the points
that were made by the other speakers. Mr. Wright, who was here, I
respect, and he is very competent and his company makes the best
television set on the market.
He assures the committee that Zenith would never siphon off sports
that are now seen on free TV. I think Mr. Wright is more than serious.
He believes it. There are two problems that I could point out. One,
Zenith is not going to be the licensee of the pay TV stations so far as I
know.
Zenith is the &iuiprnent manufacturer. The licensee will be the
broadcast station. Flowing from that it is very clear that Zenith is not
going to be the one who has the say about programing, not from choice
but by law, because the fourth report has within it a condition which
states and I would like to cite it for the record.
It is section 73.642(e). It says:
No subscription television authorization or renewal thereof shall be granted to
the party under any contract, arrangement or understanding, expressed or im-
plied, which among other things-
And I skip-
prevents or hinders it from or penalizes it for making a free choice of subscrip-
tion programs, whatever their source.
Zenith under the fourth report does not have the legal power to
impose any such condition that they told the committee here they
would follow. It is kind of ironic, you see, because that condition was
the condition that was placed in the fourth report at Zenith's
instigation.
If you look at the bluebook that they gave to you, you will find on
page 68 the Zenith proposal which says:
No subscription television authorization shall be granted to a television sta-
tion having any contract, arrangement or understanding, expressed or Implied,
which prevents the television station from making a free choice of subscription
programs whatever their source.
PAGENO="0557"
553
Zenith can't impose the condition legally that it told the committee
it wishes to follow.
Let me say again, I think Zenith is quite sincere in what they are
doing. But Zenith is not the only one in this ball game aside from
the tact it is not the only system; there are other systems, aside from
the fact that they can't bind their future managements.
Now Mr. Brown raised a point I think, a very good one, to which
I would like to address myself. The point was that we have so many
UHF stations that ,are unallocated. How can you say that there is
a demand for scarce spectrum space? Aren't you being foolish by
using this argument when so many UHF stations lay fallow? That
is an argument.
But I think there is an answer and the answer is this: First, the
great number of those stations which lie fallow are allocated to the
smaller communities, not to the large ones; They are in very small
towns. They would not be put into operation even if pay TV existed,
the audience is not there.
Some of them, over a hundred, are reserved for educational sta-
tions. Someone pointed out earlier that perhaps with one or two
exceptions there are no unallocated UHF stations in the top 51 in the
United States.
As a matter of fact, the last ones in Cleveland were just allocated
after bitter fights. People are willing to spend thousands of dollars
in legal battles to get the UHF stations in a big city. If anybody
has an open UHF station in a large city and does not want it let
him turn it in.
I will guarantee there are four people trying to get it. There is no
real shortage of UHF in the major markets which is in the com-
munity where this would be issued.
There are some arguments made by Mr. Ottinger, ~y others, by Mr.
Preminger, that we need this because it is going to force competition.
Pay TV is going to put in their best efforts. This will force the net-
works to compete.
1 don't think so. Why? There are two reasons. The networks have
frankly said if this is authorized we have a responsibility to our stock-
holders, we are not going to sit by and let that bonanza flow to pay TV.
Second, we will get into it from the production end.
If this thing comes to fruition, they are going to produce program-
ing. After all, that is their business. They are one of the greatest
sources of program production. What makes anybody think they are
not going to go into that business? They are in the business now.
You will have the networks on the one hand trying to protect their
investment in the free system, on the other hand they are going to be
producing things to put on the pay television. Thus, what they feel
will go on pay television they will put on pay television.
What they feel will go on free television they will put on free tele-
vision. It will be quite similar to the arrangement that used to be
present in motion pictures before the Paramount decision.
I think this argument about competition is a little unrealistic.
Many members of this committee have rightly said, what is the
Hartford experiment, what did they really do? Zenith gave you what
they did in this blue book. One of the significant parts about the book
is the date, it says March 10, 1965.
PAGENO="0558"
554
Now this is 1967, so this is ~½ years old. Do you know they have
not given any more detailed showing than this yet? We don't know
what happened in the last 3 years in Hartford.
The "Fourth Report" is based on the first 2 years of the 5 years'
experiment. They have never given any more information than the
program guide which I think they wish they had never given anyway.
I would like to find out what happened in the past 3 years. I would
like to analyze what we analyzed before. But we have not seen it yet.
We know virtually as little now as we did 3 years ago.
If anything, perhaps we should have some more experimentation.
I would like to conclude with one last point: There is a kind of
assumption among the committee that free TV is not free, and I think
some of the committee members have doubt whether it is free. I don't
want to indulge in semantics, it is not important., but I would like to
point out that the theory that advertising represents an indirect charge
to the public because the advertising costs are passed on to them in the
cost of the product is a theory that is held by many people. I think it
underlies the skepticism which this committee has in the word "free."
I would like to point out to the committee that that theory is not
universally accepted. There is a substantial body of economic opinion
which holds that advertising reduces the unit cost of the product be-
cause it creates the demand. That theory was, I think, set forth most
recently in a book published in 1967 `by Dr. Jules Backman called "Ad-
vertising and `Competition," in which he makes the point that the
cost-price in volume relationships are very complex but that to the
extent advertising is successful, total sales volume expands and may
result in reductions in unit costs for production and overhead.
In such cases total unit costs could be lower with heavy advertising'
than without it.
Jam quoting from page 143.
I commend the book to the study of the committee because I think
it sheds some light on this very complex question of the relationship
between prices and advertsing.
Incidentally, this theory was also put forth as far back as 1943 in
other works, a book by Borden, called "Economic Effects of Advertis-
ing" and a book by Sandage, called "Advertising, Theory and Prac-
tice."
I would like to conclude by thanking `the committee for giving me
the privilege of appearing before it and expressing our views.
Thank you. I shall be `happy to answer any questions you have.
Mr. MACDONALD. On behalf of the committee I certainly thank you
for coming here. I just have `two short questions.
We have many other witnesses who are scheduled to be heard. Also,
aren't you talking very inconsistently because as I understand from the
title, you represent the National Association of Theatre Owners?
Mr. GAYNES. Yes, sir.
Mr. MACDONALD. Aren't they in the business of pay TV on occasion?
Mr. GAYNES. If you are referring to the occasional broadcast of
sports over the wire to that extent, yes. But that is not this business.
Mr. MACDONALD. Has it worked out for you? Have you made money
onit?
Mr. GAYNES. I suppose some have, some haven't. Some have lost
money on it.
PAGENO="0559"
555
As a matter of fact, we have had some problems as I recall with
short fights and people demanding their money back and breakdowns,
there have been J?roblems One of the interesting things is, there is this
difference, we build our own theaters.
Mr. MACDONALD. You do what?
Mr. GATNES. We put the money up to build our own theaters. The
method by which we reach these people is by money we have expended.
We don't ask the Government to build the theater for us.
Mr. MACDONALD. I haven't heard of any, except the new bill that we
have, I haven't heard of any TV station asking the Government to put
up their station either.
Mr. GAYNES. Because of the system we have they get the most im-
portant aspect of their business virtually free, that is the license, the
right to use public facilities. That is a kind of subsidy. It is only given
that right because we are going to use it, or the television Stations are
going to use it in the interest of public convenience and necessity which
I think is all the people.
The theaters are different.
Mr. MACDONALD. You are talking about the poor people who are
going to be robbed of their right to see things for free. I have never
gotten into a theater free. Do you give away tickets to people?
Mr. GATNES. No; we don't. We take our risks, we spend a lot of
money on theaters. We spend a lot of money getting films in, we spend
a lot of money on advertising. We hope enough people will come in
on Saturday and Sunday to make up for the middle of the week when
no one is in that theater.
Mr. MACDONALD. My only question is what is the relative between
your taking a championship fight or something you think can be sold
to the public and what pay TV would do? It just moves it from the
home into a large amphitheater.
Mr. GAYNES. I think there are two basic differences. First, as I said
we don't use public airways to do it.
Mr. MACDONALD. You do. How does it get in the theater?
Mr. GATNES. By wire.
Mr. M4CDONALD. Whom do you pay?
Mr. GAYNES. I don't know. I guess we pay A. T~&T.
Mr. MAcDONALD. You know the thing we have kicked around, the
Olay fight, in Phoenix that got blacked out because it was shown in
the theater in Phoenix. isn't that correct?
Mr. GAYNES. I am not familiar with the Phoenix situation but the
people who blacked it out, I think, were the people who owned the
rights to it. They felt they could get more money.
Mr. MACDONALD. They could not have done it unless the theater peo-
ple had pcrrnitited it to be done.
Mr. GAYNES. That is true.
Mr. MACDONALD. Aren't you talking out of both sides of your mouth?
Mr. GAYNES. No, because I think the occasional theater TV pres-
entation will not have the effect on the free TV system that this is
going to have. I still say that we are not using the public airways. We
were not given this theater on the representation we were goiwr to
serve everybody. Aside from that, the occasional theater presentations
how many times do we have it? It has not destroyed or even impaired
free television yet. I don't think it ever will. It is a different kind of
thing.
PAGENO="0560"
556
Mr. MAODONALD. You are not talking about free TV, you are talk..
ing about commercial TV, isn't that right?
Mr GAYN~S I will accept that I think it is a matter of impact In
certain respects they are similar They are both in the entertainment
business, but I think there are significant differences. I think the most
significant differences for the purpose of this committee is the impact
this will have on commercial TV. I think the impact of pay television
over the air would be disastrous to it.
Mr. MACDONALD. I will yield to Mr. Brown in a minute but I have
just one other question which bothered me yesterday and it bothers
me again today.
You say that if the home games of professional football or baseball
teams under the regulation are not used for 2 years, they would then
become public property, shall we say, and could go on subscription
Say the Redskins are going to play in Los Angeles. Although it is
an away game for the Redskins, isn't it a home game for the Rams?
So it still could be sold.
Mr. GA~nti~s. I am not sure I understand your question.
Mr. MACDONALD. I am not sure I understood any answers I got yes-
terday in which it was said that if they sold the away game, it would
automatically free them to become the property of subscription TV
In other words, somebody will broadcast that game whether it is at
home or away. Isn't that rig)it?
Mr. GAYN~Is. Yes, somebody will.
Mr. MAODONALD. If one-half of the contestants are from one city,
why, isn't that the selling of their performance?
Mr. GAYNDS. Yes.
Mr. MACDONALD. Then how can it become subject to becoming public
property and therefore able to be put on subscription TV after a 2-
year period?
Mr. GAYNE5. Supposing they take it off entirely, supposing the
Redskins decided they are not going to show any games-
Mr. MAODONALD. Somebody said yesterday that the league gets a
certain amount of money and divides it into the number of teams that
there are in the league.
Mr. GAYNES. That is right.
Mr. MACDONALD. Aren't they getting paid just as if they were
on-
Mr. GAYNES. Yes, the individual team. The individual team could
say, "Look, I am not going to give you rights to my game at all, I
am giving up my share of the pot, I am going to sell the home games
to pay TV, I am going to make as much money. I don't want my away
games to be put on at all."
Mr. MAcDONALD. Do you think they could make that stick?
Mr. GAYNE5. I think they could, yes.
Mr. MACDONALD. The Redskins playing in Los Angeles against the
Rams, they tell the Rams, "No broadcasting."
Mr. GAYNES. I think the Rams would do the same thing.
Mr. MACDONALD. Do you think the Redskins would tell the Rams
not to sell their rights or vice versa?
Mr. GAYNES. I don't know. I certainly envision conflicts that may
arise. Let me say about conflicts in professional football between teams,
PAGENO="0561"
557
they always manage to be resolved somehow. I think there would be
agreements between them in order to do that.
Because the future promises such a fantastic bonanza for them I
think they are willing to take the short-term loss.
Mr. MACDONALD. I don't want to sound like Johnny One Note and
talk about sports all the time but that is the original question I asked
the Zenith people. They said no, they would not do that.
Mr. GAYNES. I know they said it and they meant it.
Mr. MACDONALD. I am on your side in a way and yet I don't under-
stand your answer.
Mr. GAYNES. My answer merely is that I think the Redskins could
say that we are going to stay off because I think the Rams would
say so, too. I think every other group would say so. They would say
we are foregoing all the money we would get from the network and
each one of us individually will then sell our games to the local pay
television station because we can make as much money as we could by
getting our share of the whole pot.
I am not saying this is going to happen tomorrow, obviously it won't
because there won't be that many pay television stations but it will
happen in 10 years.
The minute you get a pay television station in every home city, at
that point the team I think would be more than willing because it is
again a question of creating demand They are creating a demand by
their refusal to give it to the free television station.
I think from their point of view they are quite right. They are not
charitable organizations, either. They have to maximize their profits.
I think the longrun benefits to them would be enough to do it.
Let me say this, I would hate to be right.
Mr. MACDONALD. Which-you hate to be wrong or you hate to be
right?
Mr. GAYNES. I hate to be wrong. I certainly have been that. But I
would hate to be right which would be worse because you won't see pro
football on television any more. It seems to me it is a terrible risk that
you are running.
Certainly it is a terrible risk-you and I can disagree on what these
rules mean and their effect. I don't know the answer. If you don't know
the answer, who does?
Mr. MACDONALD. The FCC, I hope.
Mr. GA~s. Oh, no.
Mr. MACDONALD. Mr. Brown.
Mr. BROWN. I would like to go through your written testimony here.
I would like to ask for an expansion on a couple of points you raise.
You mentioned that "A licensed pay television system permits the
licensee to directly charge for the use of public facilities (the airways)
without any governmental regulation of those rates, while at the same
time depriving the public of the free service it previously enjoyed
over the air."
Now I am not sure I will accept the last part of that, but I would
like to discuss the question of the use of public facility without regula-
tion of those facilities.
What about the U.S. mail?
Mr. GAYNES. It is regulated. The rates are regulated.
Mr. BROWN. The rates charged by magazines, newspapers, and others
for their product is regulated by the Federal Government?
86-899 O-67---36
PAGENO="0562"
*558
Mr. GAYNES. No; but the amount I have to pay to use the U.S.
mail is.
Mr. BROwN. Should we require the payment of the use charges by
radio and television stations? Is that what you are suggesting? I un-
derstood your suggestion to mean that we should regulate the advertis-
ing rates.
Mr. GAYNI~S, No; I am sorry. Then I have been misunderstood and
I apologize.
What I am saying is that right now you do not have the power to
regulate the rates that will be charged by pay television stations to
the user, to the individual consumer The $1 50 or so that the pay
television station will charge the public under the present act the
FCC does not have the power to say, "for this movie you can only
charge no more than. $1.50."
Mr. BROWN. It seems to me that is a little closer to telling Life or
Esquire how much they must charge for their issue, for each edition
which is sent through the mail rather than charging for the mail
handling of that.
If you say that we are charging for the use of the mail a certain
rate-we have been all through this in the last couple days in the
House-then ar~ you suggesting that we should charge for the use of
the airways in some way?
Mr. GAYNES. No.
Mr. BROWN. But you are suggesting that we limit the charge which
may be levied for the individual programs
Mr. GAYNES. Yes.
Mr. BROWN. Would you draw an analogy that we should be able to
say to Esquire magazine, "You can only charge ~25 cents a copy or 35
cents a copy since you use the tnails"?
Mr. GAYNES. No, I would not. It would raise very serious consti-
tutional questions.
Mr BROWN I wonder if there are not constitutional questions in
volved here.
Mr. GAYNES. Yes; there are very serious constitutional questions in-
volved as to whether you could do that. The most serious question.-
I know Zenith would get up and go to the Supreme Court and say you
certainly can draw the same analogy you draw and they might win.
If they won, there would be no regulation. I think that would be
terrible because I think there is a difference between the use or the
expenses which Life and Time have vis-a-vis the mailing rates, set
against the total amount of their cost, and giving in effect a frequency
to a station.
They are not exactly similar but they are enough similar to raise
very serious constitutional questions. If the constitutional question is
resolved against regulation, a private entrepreneur can use a scarce
facility for the use of all people, he could charge what he wants for
it and there is no one in the world who could tell hini how much
he could charge.
I don't think that is the desirable result. You may be right. It is
conceivable that you don't have the power to do it either. I don't think
that is an argument for it.
Mr. BROWN. You raise the question and I have some figures, Mr.
Chairman, which I would like to put in the record. They relate to
PAGENO="0563"
~59
the figures I presented yesterday although they are not exactly what
those figures were.
There is a slight variation. The figures I had yesterday have been
corrected by the FCC. I would like to have them inserted at this point
in the record.
Mr. MACDONALD. Without objection, it may be done.
(The information referred to follows:)
UHF AND VHF CHANNELS ALLOCATED, AS OF MARCH 1966; OPERATING AND AUTHORIZED, AS OF SEPT. 30, 1967
TOTAL ALLOCATIONS AS OF MARCH 1966
UHF VHF
Total
Commercial 626 593
Educational 514 118
1,219
632
TotaL... 1,140 711
1,851
STATIONS OPERATING AS OF SEPT. 30, 1967
Commercial 128 498
Educational 73 74
Total 201 572
626
147
773 -
CONSTRUCTION PERMITS AS OF SEPT. 30, 1967
Commercial 167 11
Educational 41 6
178
41
Total 208 17
225
Source~ Research Office, Federal Communications Commission.
Mr. BROWN. These figures relate to the number of allocations of
UHF and VHF licenses, the number of stations operating and the
construction permits which have been granted. The total number of
commercial stations only-we are not talking about educational tele-
vision-as of March 1966 was 1,219.
The total number of stations operating is 626 as of September 30,
1967, which is just slightly over half of those which have been allo-
cated. The construction permits granted as of September 30, 1967, are
178. That still leaves a rather sizable number of stations, in the area of
450 or so, for which allocations have been made but which are not on
the air.
The question I would raise is this: You suggested that in the large
markets everybody who has an allocation is actively pursuing that
allocation. I don't have figures to verify or refute that. I, frankly,
would doubt it because I recognize again that there are so many slots
on my television dial here in Washington and it is a fair market, if it
is not a fluent market, and they are not all utilized.
I don't know about New York but I presume from what has been
said that the largest market in the United States, New York, would,
under your argument, have all of its potential channels in use.
Now, is that correct?
Mr. eAYNES. Yes; there is nO open channel in New York.
Mr. BROWN. Are they in use? Are they broadcasting?
PAGENO="0564"
560
Mr. GAYNES. Certainly all the VHF's, are. There is an educational
UHF that is on. I know that everyone in Washington is in operation
except for the one which is still in hearing and will go in operation
right away.
Mr. BROWN. They are broadcasting; is that right?
Mr. GAYNES. Yes; I think they arc. The only one that is still avail-
able I think i's channel 50 and that is in hearing status now. The Com-
mission has not decided who is to get it.
Mr. BROWN. In other words, the potential number of stations that
could be on the air in New York City and in Washington are all now
operating on the air?
Mr. GAYNES. I can't say for sure but I think that is true; they are. If
they are not on the air, in the case of Washington, it is because they
have not decided who is to get the channel yet.
May I speak to this? Don't be misled by the number of spaces you
have on the dials. That does not represent the number of stations you
can have in the community. It is limited by physics and by mileage
separations. You have 12 VHF stations. You can't have 12 channels~
All you can have are the ones you have, four.
The potential number of channels, in fact, the realistic number for
most communities, is four or five~ including UHF. That is the total
number which has been allocated.
Mr. BROWN. Let us look at CATV. Could I pick up on my set here in
Washington, with the proper grid system of projection, a pay-TV
station from, say, Asheville, N:C.?
Mr. GAYNES. You mean physically? Is it technically possible to do it?
Mr. BROWN. Yes.
Mr. GAYNES. Yes'.
Mr. BROWN. Can I get all 12 of the VHF channels on my set utilized?
Mr. GAYNE8. By CATV? Yes, you could. Not really because there
are certain nondtiplication rules that would make it impossible.
In other words, the way the Commission operates now, if you have
a CATV system in Washington and you have the technical capability
of bringing in the Asheville `stations it could not duplicate what the
local stations now present. It would have to block out those stations.
Mr. BROWN. Let us assume that Asheville, N.O., is not such a hot
market for commercial advertising on television and somebody in
Asheville, N.C., wants to put up a television station and support that
station part of the time by subscription TV.
Mr. GAYNES. This is a television station?
Mr. BROWN. Yes.
I wonder if it is not possible for him to extend his subscription
market-and perhaps I should ask this of Zenith or the people who
developed the system-by means of a combination of the system we
have had described to us on pay TV and CATV, or cable coverage to
Washington so that in Washington I have a choice of three or four
of these pay channels plus the channels you are allbwed on the spectrum
because of the physics you mentioned and so forth?
Mr. GAYNES. I think the answer would be no because the Commission
would not allow it.
Mr. BROWN. Under the present ruling. I am just asking if it is
physically possible.
PAGENO="0565"
561
Mr. GAYN]~S. I think it is technically feasible because almost any-
thing is technically feasible.
Mr. BROWN. I go to this point because of the question you raised
with reference to the fact that the small markets will not get pay TV
and they will not get their channels utilized because of the limit of
advertising support for stations in that area.
Now I am pursuing a philosophy which came out of this committee
and the FCC and that is that there is something good about making as
many television selections as possible available to `the general public.
If we follow that idea, then maybe some entrepreneur in my small
community will want to put up a pay TV station and offer certain
things on that station which might, through the cable system or some
other system, satellite or whatever, be available in Washington, D.C.,
so that here in Washington, D.C., by whatever system there is to be
used for pay TV, I can have a choice of tha~t channel out in my town
which is not a big commercial market.
Mr. GAYNES. Yes; it is technically possible. I don't believe it is
likely because the' present Commission attitude is not exactly the atti-
tude of "as many signals as you can possibly get." It really is as many
signals as you can possibly get without destroying the health of the
local stations.
I think that though certainly what you say could be done, I don't
see that it is a likely probability under the present regulatory scheme.
Mr. BROWN. I don't want to destroy the health of the local stations.
I want to give the local stations another source of revenue besides
advertising.
Let me go to two other points. You mentioned on page 10 that in
California a decisive margin voted against pay TV by wire. Now is it
___-~j~ur assumption, legally or otherwise, that because there have been
examples where over half the population decided that they did not
want this system that therefore the system should be precluded?
Mr. GAYNES. No; I do&t necessarily mean that, just because more
than half the people don't want it does not necessarily mean you should
have it.
I think it is indicative of a lack of demand for the service so great
that it should not be instituted now by the Commission in the face of
the figures.
Mr. BROWN. Do you have the vote?
Mr. GAYNES. The margin was 3 to 2. The exact numbers I don~t
have. It was a 3-to-2 margin.
Mr. BROWN. I find some conflict as I read your written testimony
and listen to your oral views and I just happened to be in `a place in
your written testimony when you said something different that did
not square.
You say in the written testimony that "pay television will not in any
way, offer additional cultural and high quality diversified minority-
type programing, but would program for the mass audience, and
would create no long-term improvement in either the quantity or the
quality of television programing."
And just about that same time you were saying that if pay TV is
instituted, in addition to all the film makers we have in this country
today you will have all the networks going into the movie business,
too.
PAGENO="0566"
562
That seems to be a broadening of production of programing. I would
agree with your oral comment and disagree with the written views.
Mr. GAYNES. I think that if you do decide to do this you will create
the demand which now doesn't exist by the very fact that you are doing
it. As of now, if you really protect the free system, I don't think there
will be any beneficial supplement. But there will be a beneficial supple-
ment if you take what we now have free off; yes.
Mr. BROWN. Finally, let me suggest to you two things.
I agree thoroughly with Dr. Backman that advertising does reduce
the unit costs of products and I am all for it. That is part of the free
enterprise system. I would like to know if there is an adverse effect on
movie theaters from competition of free television because of the limita-
tions in the size of the total available audience. You have not touched
on this at all and I think it would be a very strong point in your argu-
ment against pay TV. But I don't know if it would be; I would like to
have the facts.
What has happened to the number of theaters in the TJnited States
since the institution of free television and what has happened to the
theater audience that goes out to see a movie?
Let me just make this one other point in that connection: Again it
seems to me that if somebody put a buck in the set to watch it at home
that it may be a little cheaper for all these poor folks everybody seems
to be worrying about to be able to sit at home in their underwear if they
want to without having to hop in an automobile and drive to the city to
watch a first-run production and pay two bucks for the garage and
three bucks for each theater ticket and so forth.
Can you give us some statistics on the numbers of theaters and the
numbers of people who pay to watch presentations in the theater and
also the numbers of dollars spent in theaters with reference to free
television which certainly, I would think, is a competitive factor in
the theater business?
Mr. GAYNES. I cannot off the top of my head give you figures. I
will do so. I will say the number of theaters has declined but the num-
ber I don't know.
Mr. BROWN. The number of theaters, the audience in theaters and
the dollars involved.
Mr. GAYNES. I certainly will do so.
(The information requested follows:)
S MARCUS COHN, LAW OFFICES,
Washington, D.C., October 18, 1967.
Re hearings on pay television.
Hon. ToiEmsar H. MACDONALD,
Chairman, ~5ubeommittee on Commnnications and Power, House Interstate and
Foreign Commerce Committee, Rayburn House Office Building, Washing-
ton, D.C.
DEAR MR. CHAIRMAN: Last week I had the pleasure of appearing before the
Subcommittee on behalf of the National Association of Theatre Owners and the
Joint Committee Against Toll-TV on matters Involving pay television. Members
of the Subcommittee requested that, if possible, I furnish certain information
concerning the effect of television upon motion picture exhibition houses. This
letter is in response to that inquiry.
1. You inquired as to the relative number of motion picture theatres in the
United States prior to and subsequent to the advent of free television. The infor-
mation at our disposal indicates that in 1946 there were 18,760 motion picture
theatres in the United States. In 1963 this number had declined to 12,652 motion
picture theatres. While we do not have any definite figures available, it is esti-
PAGENO="0567"
563
mated that at least 1,500 additional motion picture theatres have ceased opera-
tion since 1963.
2. You inquired as to the relative number of persons attending theatres prior
and subsequent to the advent of free television. Our information indicates that
in 1946 82,400,000 persons per week attended motion picture theatres in the
United States. In 1006 approximately 44,000,000 attended motion pictures the-
atres per week.
3. You inquired as to the effect of television upon gross receipts. In 1946 the
gross receipts of motion picture theatres In the United States totaled $1,800,-
000,000. In 1963 the gross receipts totaled $1,062,732,000. It should be noted that
this drop of over $700,000,000 occurred despite an increase in admission price
of approximately 150% from 1946 to 1963.
4. You asked us to supply any information we might have about the effect
of the Hartford pay television experiment upon the motion picture theatres at
Hartford. We do not have at our disposal specific or definite data concerning the
effect on Hartford motion picture houses which can be definitively ascribed to
the Hartford pay television experiment. In general, some small theatres in the'
area closed, but at the same time new drive-in theatres were built around Hart-
ford during the period of the experiment.
As I indicated in my testimony, it is our impression that the Hartford ex-
periment had no measurable effect, and not too much Impact, for two reasons:
a. In most cases during the Hartford test the pay television station carried
subsequent run features.
b. More Important, however, the test was simply too small to have any discerni-
ble effect. The pay television experiment never achieved anywhere near the
50,000 subscriber limit it envisioned in its application and, in fact, was able to
attract a total of less than 5,000 subscribers'. Average audience was 237 sets.
Even if 2,000 persons would have tuned in at Hartford to listen to a pay tele-
vision feature, this is still a small number compared to the total number of seats
available In Hartford motion picture theatres.
For these reasons, we do not believe that the Hartford test was at all proba-
tive of the effect which the institution of pay television would have upon the
motion picture exhibition industry.
I thank you once again for the pleasure of appearing before you.
Sincerely,
MAirrrs J. OAYNns.
Mr. MACDONALD. Thank you, Mr. Brown.
I think also when you are getting those figures, I have been very
curious as to what effect the subscription TV experiment in Hartford
had on the theaters of Hartford. I am sure you can get those figures
as well.
Mr. GAYNES. I can get those figures, but I can tell you now, it bad
none. It was just too small. (See letter above.)
Mr. MACDONALD. In other words, it had no effect on the theaters?
Mr. GAYNES. I don't think it had a perceptible effect on the theaters.
That is only because it was too small to have any effect. You have
average viewing of 237.
Mr. MAcDONALD. Then what are you so afraid about?
Mr. GAYNES. I think it will have an effect. There is no question about
it. If it comes it is going to come and it is not going to be 237 people.
Mr. BROWN. How do you square that, that there is not enough de-
mand, vis-a-vis the California thing? You have to be on one side or
the other.
Mr. GAYNES. The only problem is that I can't foretell the futur'e.
I have to take what appears to look like an inconsistent position but
this demand, I again point out, will be a created demand. It will be a
demand that is there because you can't get it anywhere else.
You are not going to get it on free television. You are going to
create your own demand.
Mr. MACDONALD. I don't follow that.
PAGENO="0568"
564
Mr. GAYNES Right now I think you have a choice and, therefore, the
demand is not present If you deprive the people of the ability to have
that choice you are going to get a demand. You take those movies off
free televisjon-~--_
Mr. MACDONALu. As I said yesterday is it not wrong to deprive
the American people of having a choice?
Mr. GAYNES. The American people are not deprived of having a
choice because the producers of these programs, the ones who produce
them, the manufacturers, are going to say we can by this device, the
use of public facilities, desired by a minority of the audience, make
more money than we could by doing it free.
We are going to have a minority dictating what the majority can see,
the choice to black out made by the producers the same way they choose
to black out sports now.
They are going to say, all right, supposing NBC makes a movie;
they make a real blockbuster movie. They started to make that movie
because they wanted to fill a time period 8 to 11 on the network. But
they find out if they put it on pay television they will make five times as
much.
What will they do?
Mr. MACDONALD. What is wrong with that?
Mr. G-AYNES. That movie would have been seen free for the benefit
of more people. What is wrong with it is that they are using, in effect,
the roadway that was given to them by the Federal Government to do
that.
Mr. MACDONALD. Thank you very much.
Mr. Lester W. Lindow, executive director of the Association of
Maximum Service Telecasters, Inc.
STATEMENT OP LESTER W. LIRDOW, EXEcUTIVE DIRECTOR,
ASSOCIATION ~OP MAXIMUM SERVICE TELECASTERS; INC.;
ACCOMPANI~ BY HENRY GOLDBERG, COUNSEL
Mr. LINDOW. Thank you, Mr. Chairman.
I am accompanied this morning at the witness table by Mr. Henry
Goldberg, of Covington & Burhng, who represents the association,
and who will be here to be of assistance if required. -
My name is Lester W. Lindow. I am executive director of the Asso-
ciation of Maximum Service Telecasters, Inc. (MST), an association
of approximately 160 television broadcast stations, both UHF and
VHF, commercial and noncommercial educational, serving urban and
rural areas throughout the United States.
MST is dedicated to the development, improvement, and expansion
of our nationwide system of free, competitive local and area television
broadcasting. In keeping with this goal, MST is opposed to the authori-
zation of pay TV by the FCC. MST believes that such authorization
would be fundamentally incompatible with the public interest in free
television broadcasting and that free television service would be seri-
ously impaired by pay TV.
This position has been adopted by MST's membership and has bee.n
stated in pleadings filed with the FCC in the pay television docket.
MST's further comments on pay TV was filed on September 15, 1967.
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5f~5
At this time I would like to incorporate this latest pleading into the
record. These further comments set out the details of MST's position
on pay TV. I will discuss only the highlights and submit a copy for
the record of these hearings, if that is agreeable, Mr. Chairman.
Mr. MACDONALD. Without objection, it is so ordered.
(The document referred to follows:)
Before the Federal Communications Commissio~, Washington, D.C.
(Docket No. 11279)
IN TUE MATTER OF AMENDMENT OF PART 73 OF `rxii~ CoMMISSION'S RULES AND
REGULATIONS (RADIO BROADCAST SERVICES) To PROVIDE FOR SUBSCRIPTION
TELEVISION ~S'ERVICE
Further Comments of the Association of Ma,~v1mum~ service Telecasters, Inc.
On July 14, 1967, the Commission released the proposed Fourth Report and
Order in Docket No. 11279, prepared by its Subscription Television Committee
(hereafter "STY Report"). Although the STY Report took into account in-
formation received during the entire period of this extensive proceeding, it was
most directly based upon the data of the Hartford, Connecticut (WHCT, Channel
18) pay television experiment and the comments submitted to the Commission in
response to its Further Notice of Proposed Rule Making and Notice of Inquiry
in Docket No. 11279 (FCC 66-268, March 24, 1966). The Association of Maximum
Service Telecasters, Inc. (hereafter "MST") filed Comments in this proceeding
on October 10, 194i6, and Reply Comments on November 10, 1966.
MST has opposed the authorization of over-the-air subscription television
(hereafter "STY") because of its faith in the capacity of the present and potential
system of free television to meet the public's needs, tastes and Interests. STY
would sharply impair the ability of free television broadcasting to serve effec-
tively all segments of the American public, including those unable to pay for
television. At the same time, STY would not produce the "benefits," claimed for
it.
As we have previously pointed out, the basic public policy issue the Commission
must decide is not whether STY should be given a chance to fail, but what would
happen if it succeeds. Based upon the conservative estimates of the STY Com-
mittee's Report, even though the STY penetration were limited to as small a
figure as 16 percent of the nation's television homes and to revenue per year
of only $105 for each subscribing borne, STY's annual revenues would be almost
$1 billion. This is almost 50 percent of the total 1966 broadcast revenues of all
three commercial television networks and their 15 owned and operated stations
and all other commercial television stations in the United States! Revenues of
these dimensions, which assume all of the "limitations" which the STY Com-
mittee's Report would place on STY operations, would have a devastating effect
on the ability of the American public to continue to receive what it now receives
for free. Even such "limited" success would provide STY with financial resources
of such a magnitude as to enable it to siphon from free television many popular
programs now provided without charge. The Commission must determine
whether it is prepared to permit this to occur by licensing television stations to
serve, for a fee, only those who can afford to pay and who live in communities
where the economics justify the establishment of STY.
Further, many of the basic public interest issues, as well as the specific
regulatory issues, raised by the Commission, which assume pay television
on some permanent basis, reflect the fundamental incompatability of STY with
the public interest in free television broadcasting and show further that free
television would be seriously impaired by STV.a Discussion of some of these regu-
latory issues and of the likely effects of the STY Committee's conclusions on each
of them is for the purpose of demonstrating that fundamental incompatibility
and inevitable impairment.
Finally, MST continues to take no. position, at this time, on subscription tele~
vision by cable, except when it is combined with CATY. MST firmly opposes any
such combination.
a Since the Commission excluded the Issues ot whether It has statutory authority to
authorize STV on a permanent basis and whether 5TV is broadcasting, MST will not coin-
meat on these issues at this time.
PAGENO="0570"
566
I. Basic Public Intere8t Issue8
A. STV WOULD NOT CONSTITUTE A "BENEFICIAL SUPPLEMENT" TO ETEE TELEVISION
EROAI~OASTIN~
The Commission has long recognized that one central issue relating to per-
manent authorization of STV is "whether subscription television would provide
a beneficial supplement to the program choices now available to the public
[on free television]." Indeed, the STY Report states that, "if the programming
of STY is merely duplicative of types of programs now appearing on free TV
in quantity . . . we would be inclined to agree, that it would not appear that
other public interest considerations could justify the authorization of STY
using broadcast channels."
Since this is the determinative issue, it is ironic that, to the extent the Hart-
ford experiment has proven anything, it has proven that STV must provide
essentially the same type of programming as free television if It is to be at all
acceptable to the public, and, therefore, an economically viable service. STY had
always promised previously that it would give those willing and able to pay
the opportunity to enjoy programming essentially different from that generally
available on free television. In Hartford, movies and sports-which are provided
in quantity by free television-accounted for 93.7 percent of the programming,
with only 5.5 percent devoted to so-called "special entertainment programs."
Movies and sports found the greatest public acceptability and this, rather than
diversity, has become the sine qua non of STY financial viability. The STY Re-
port recognized that STY programs would be largely duplicative of free televi-
sion programs, since "the reality Is that the major part of the programming, as
`opponents had argued, will be of a kind that would appeal to a mass audience."
Aside from films and sports, under the STY Committee's proposed rules, STY
would be able to carry all the entertainment programming now available on free
television with the exception of series with "interconnected plot or stibstantially
the same cast of principal characters Such programming, which has
nttracted millions of families to television, could and would be diverted to STY.
What then would STY offer as a "beneficial supplement," if it cannot offer
the diversity and nonduplicative programming originally promised? With respect
to feature films, which are expected to be 85 percent of STY programming, the
STY Report states that STY would offer "recency"; not better films, not differ-
ent types of films, just recent ones.° STY would allow those people who could
afford it the opportunity to sell films in their home sooner than they could see
them on free television. For this "beneficial supplement," the STY Report justi-
fies diversion of scarce spectrum space and broadcast facilities to STY! "Re-
cency" of films' on television is a function of the feature film distribution sys-
tem. The elements of this system. are not immutable, although the' Report treats
them as if they were. Film distribtuion practices have changed and continue
to change and the trend has steadily been toward making better and more re-
cent films available to free television. This trend is bound to be reversed if STY
is authorized. Film distributors would doubtless delay the sale of such films to
free television until they had a "run" on STY.
Moreover, "recency" as such is not determinative as to whether STY films
would in fact be a "beneficial supplement." "The Bridge on the River Kwai" was
successful on free television not because it was recent, but because it was an
outstanding, Academy Award winning film. On the Committee's own data derived
from the Hartford experiment, it can be seen that "recency" is virtually ir-
relevant; "the average subsc~iber paid $1.20 per week for programs whether 27
percent or 70 percent of the feature films shown on STY were first subsequent
1 First Report on Subscription Television, 10 ER. 150i1, ,1i520-2'l (1957).
`STY Report, ¶ 47.
`Moreover, most of the "special entertainment programs" (for example, drama, variety,
and "night club" programs) are either alre'ac~y available regularly on free television or are
essentially the sante kinds of programs that are now available on free television. Insofar
as concerts aacl opera and ballet are concerned-the types of programs that used to be
promised by STV-lt will be noted that a tOtal of only four concerts and four opera and
ballet programs were presented In Hartford over the period of two years.
STy Report, ¶ 50, at 19-20. It is important to note that even the proposed STY program
rules lmj~ltcitly assume that STV programming would duplicate free television programming
substantially. Granting this, the proposed rules attempt te prevent siphoning of programs
from free television by STy.
`STY Report, App. D, §73..64a(b)(3).
See STV Report, ¶11 51-52.
PAGENO="0571"
567
run." ~ Yet an illusory standard of "recency" is the only way in which the STV
Committee expects 85 percent of STY programming would be a "beneftcial supple-
ment" to free television.
As for sports programming, the other major component of projected STY
program formats, STY proponents stated that they would be able to offer heavy-
weight championship fights and blacked out games.8
The STY Report treats this as rendering STY a "beneficial supplement" by
offering sports events not regularly available on free television. Again the Report
sees what free television programming is (or was) and concludes that this
pattern must be present in the future and proposes rules to assure that it ~vill.
But while these proceedings have been going on, an increasing number of heavy-
weight championships and home games, which STY proponents said they alone
would present, have become available on free television.
The Commission must compare what the STY Report expects to be SPY's
"beneficial supplement" with the programming that free television is offering
now and can be expected to offer in the foreseeable future, and not what free
television programming was when this proceeding began. Local free television
stations and the national networks have responded to the changing tastes and
needs of the public with flexible program formats, which include feature films;
regularly-scheduled variety and dramatic programs and entertainment, news
and public affairs specials; and many different types of sports events,9 With
respect to sports events, free television has moved from the days when boxing,
wrestling and baseball were the staples to coverage of many diverse types of
sports.1° The STY Report recognized that changing sports programming patterns
with respect to broadcast of home games, title boxing matches and soccer will
create problems to which solutions are presently unknown.11 It would be much
simpler for the proponents of STY if free television programming would re-
main static, But, free, commercial television has consistently demonstrated its
capacity, when demand is sufficient, to pay for very expensive sports,12 film
features a and other programming.
The All-Ohannel Receiver Act has greatly facilitated the growth of UHF
broadcastin.g by increasing the percentage of homes that have television receivers
capable of receiving UHF transmissions and, thus, encouraging the establish-
ment of new UHF stations.14 Most of these new UHF stations are likely to be
unaffihiated with the three major commercial television networks and will have
to rely on diverse program sources. To be financially viable, these new UHF
~STV Report, ¶ 104.
STV Report, ¶ 84.
° f~ec discussion of proposed STV program rules, in/ra.
15 When the Hartford experiment began, none of the networks presented professional
hockey or basketball (over two-thirds of the Hartford sports presentations), whereas both
are now presented on free television. One of the proponents of pay television said in 1955~~
"Nevertheless television today is not portraying certain outstanding sports events and is
likely to do so less in the future." Comments of Skiatron Electronics and Television Corpo-
ration, June 8, 1955, p. 42. Free television has proven this prediction to be Inaccurate.
Some professional sports rely on free television to build up an audience for the sport. For
example, professional soccer was on free television for the first time last season and pro-
moters expect free television to help establish soccer as a popular spectator sport in the
United States.
11 Iiee STV Report, ¶11 267-69.
~ E,g., CBS Television Network purchased the rights to broadcast certain National Foot-
ball League contests, not including the championship, the Pro Bowl and the Playoff Bowl,
for $37.6 million for two years. Broadcasting, January 3, 1966, p. 124. The NBC Television
Network has purchased television and radio rights to the World Series, All~Star Games
an8 weekly "Game of the Week" telecasts for the 1969, 1970 and 1971 seasons for $50
million. The Washington Post, August 5, 1967, p. Dl.
~ For example, recent trends show that some commercial advertisers are willing to pro'
vide support to enable free television to show recent "blockbuster" films. The Ford Motor
Company is paying $2.5 million to sponsor and promote the telecast of "Mutiny on the
Bounty" on ABC in September 1967. New York Times, August 2, 1967, p. 59, col. 4.
14 Under the stimulus of the All-Channel Receiver Act, commercial UHF broadcasting
has grown significantly. As of July 21, 1966, there were 122 commercIal UHF stations on
the air (90 licensed and 32 with CP's) and 96 stations with CP's5 but not on the air. As of
July 27, 1967, there were 126 commercial UHF stations on the air (101 licensed and 25 with
CP's), 3 stations licensed,, but not on the air, and 135 stations with CP'~, but not on the
air. Uon,pao*e Broadcasting, August 1, 1~966, p. 92, with Broadcasting, July 31, 1967, p. 106.
UHF penetration figures show a rise of over 10 percent in 12 months; 22.8 percent of all
television sets in the United States were equipped for UHF in August, 1965,. while 33.8
percent of all sets were so equipped in August, 1966. See U.S. Bureau of the Census, Cur-
rent Housisg Reports-Housing Characteristics-Households With Television Sets in the
United States, August, 1906, p. 2 ~February 19.67). Moreover, based upon data compiled
by the American Research Bureau in February and March, 1967, out of 62 metropolitan
areas in the United States in which UHF is a "significantf actor," 19 have UHF penetra-
tion rates of 90 percent or more. See 7 TelevIsion Digest 29 (July 17, 1967).
PAGENO="0572"
568
stations must "counter-program" against the affiliated stations and established
independents in their markets by offering programs that appeal to public needs
and interests presently unserved by those stations. This means that the new
UHF stations do and increasingly will present feature films and sports events not
otherwise available over the existing stations in their markets. The total effect
of increased UHF penetration in all television markets will be to offer the public
more diverse, free program services.
It now appears likely that the role of noncommercial educational television
broadcasting in terms of diversity of program content will be greatly strength-
ened. The Report of the Carnegie Commission on Educational Television placed
great stress on free, noncommercial television ("pubic television") providing the
American public with programming of high quality, catering to diverse interests
and tastes and not tied to the economics of satisfying a mass audience.15 Pro-
posed legislation incorporating this concept of programming has been passed by
the Senate.16 Chairman Hyde predicted that passage of the legislation would add
20 noncommercial educational television broadcast stations a year.17 Ultimately,
almost all of the American people will be able to receive this new programming
service free of charge.
It can be seen, therefore, that free television broadcasting, both commercial and
noncommercial, will continue to expand its programming to meet developing
needs and interests. This development offers a much better prospect for bene-
ficial supplementary program services than STY. By diverting stations that
would otherwise be providing such services to pay operations, Commission
authorization of STV would hinder realization of a beneficial supplementary
free television service. STV would not supplement this expanded programming,
but would, if allowed to develop as outlined in the STY Report, begin merely by
duplicating free television programming and ultimately would siphon off the
cream of present programming.18
B. 5TV COULD GENERATE ENOUGH REVENUES TO HAVE AN ADVERSE IMPACT ON
FREE TELEvIsION
Some parties have concluded from the rather disappointing results of the
Hartford experiment that STV would not find sufficient public acceptance and
support to make it economically viable, and, that, it should not be authorized
for this reason. The SPY Report recognized that STY might have financial
problems but recommended authorization of STY to give it a chance to succeed or
fail. However, as we observed at the outset-the real issue before the Commission
is not whether STY should be given a chance to fail but what would happen
if it succeeds.
~ven though there is no public need or demand for STY because it would
not offer beneficial supplementary program services, STY could use its economic
leverage to procure the free television programming that is most successful in
attracting the mass audience and siphon off the cream of this programming. The
end result would be that, while there is no significant present public interest in
or demand for STY, once established it would create and generate its own
demand by siphoning programs that were available free of charge and "snowball"
until it destroys free television.
Would SPY have the success it needs to give it the economic leverage to begin
this "snowballing?" As MSP has pointed out, SPY does not have to be very
successful to impair free television. Even at its inception, with relatively little
~ "Public television" itself Is defined In terms of program content of wide ranging di-
versity. It "Includes all that is of human Interest and importance which Is not at the
moment appropriate or available for support by advertising, and which Is not arranged for
formal instruction." Carnegie Commission on Educational Television, Public Television: A
Progrc~m for Action, Introductory Note (Bantam ed. lfidT).
16 5~ 1160, passed May 16, 1967.
11 ~ee Testimony of Chairman Hyde before the House Committee on laterstate and
Foreign Commerce, July 13, 1967.
18 Recent developments in the field of low-cost video recording and playback systems,
whereby television viewers will be able to purchase television programs and play them
back on equipment coanecteci to their home receivers, much like a long playing phono-
graph record, may perform the limited function contemplated by the STV Report without
using broadcast frequencies. ~ee Broculca~sting, August Z8, 1967, pip. 67-08. As one com-
mentator has stated, with such equipment widely available, "the entertainment world
presumably would have a means of leapfrogging over such complex systems as pay-as-you-
see TV . . ., and directly tap the box-office potential of the individual viewing family
Jack Gould, "Soon You'll Collect TV Reels, Like LP's," New York Timesi, September 3, 1~J07,
p. P13.
PAGENO="0573"
569
penetration, it could gain sufficient revenue to start the "snowball" rolling. For
example, a local free television station is tied to cost-per-thousand economics.
Based upon information available to MST, the national average station rate for
prime time is $3 per minute per 1000 homes!. Therefore, an hour long program
delivering 100,000 homes and containing 10 commercial minutes is, on the
average, worth $3,000 to a commercial advertiser. On the other hand, any STY
operation, even at its inception, enjoys "box office" economics, it "sells" programs
to an audience and not time to an advertiser. Even if the SPY station has only
5000 or 0000 subscribers tuning in a program that sells for $1, it could outbid
free television for that program,
Once begun, the potential revenues of STY are almost unlimited. The STY
Report has very conservatively estimated that STY penetration would be
approximately 10 percent to 20 percent." On the STY Report's figures, there
is a potential for STY being authorized in markets constiuting 80 percent of
the nation's television homes or 45,100,000 television homes.'° At the 20 percent
penetration rate, this would give nationwide STY a conservative total potential
of approximately 9,000,000 subscribers, or 10 percent of the total television
homes. Assuming only this level of penetration and the Report's low projected
revenue of $105 a year for each subscribing home, this would give STY at least
potential annual revenues of $945,000,000 21 ~f this, between $545 million and
$630 million would be merely annual program revenue. ($65-$70 per year from
each subscribing home.)
The STY proponents estimate that 35 percent of annual program revenue
must go to pay program acquisition costs; no reason is given why this should
not be 35 percent of all revenue. However, even using this conservative estimate,
SPY would have a potential of between $190,750,000 and $220,500,000 available
each year with which to purchase programs. It must be pointed out that all of
these figures are low. Once STY began to snowball, the penetration rate could
rise to 50 percent or more. Moreover, the 35 percent estimate is largely mean-
ingless. As the STY Report appreciates, if more than the 35 percent expenditure
is required to purchase programming that would attract a large number of
viewers as some parties believe, STY operators would pay more for the program
and "could charge more for the bettor product." ~` In practice, once STY began
to snowball, the amount available to STY operators for the acquisition of
programming is limited only by what their subscribers would be willing to pay.
Throughout the STY Report, great reliance is placed on what is described
as the "healthy competition" between STY and free television that would result
to the benefit of all concerned, But, the benefits of this competition are illusory
because free television would not be in a position to compete effectively with
SPY. In the first place the "box office" economics of STY, when matched with
the cost-per-thousand economics of free television, would give STY enormous
financial leverage with which to dominate program procurement both locally and
nationally. In the second place, under the proposed rules, STY operations are
not required to telecast the costly news, public affairs and other public service
programs that are expected of free television and which free television provides
in the public interest. Cbmpetition between free television and STY could have
seriously deleterious effects if free television had to reduce its costly public
service programming.
In its initial Comments, MST showed that the financial resources derived
from STY operations would not be used to aid marginal, free broadcast stations,
largely UHF, because STY would be competing with free television for station
time (even on the same station), audience, programming and talent. Even if we
were to accept the somewhat dubious proposition that the revenues derived from
STY operations would be used to strengthen free operations on the station, there
would be only one healthy UHF station in the market; the STY-UHF station.
The station.s that did not have the STY authorization would be severely injured
by the one station with STY.
155TV Report, ¶ 149, at 52.
~° STV Report, a. 37, at 51. ARB estimates that there will be approximately 56,375,000
television homes by December 31, 1967, Buoadcasting, August 7, l!~67, p, 5!7~
21 This is close to half of the $2.2 billion figure whIch represents the total 1966 broad-
cast revenues of all three national commercial television networks, and their 15 owned and
operated stations and all 50.3 other commercial television stations ia the United! States.
Idee FCC's TV Broadcast Financial Data-1966, August 2t5, 1967.
STV Report, ¶ 73.
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570
C. STV'S ADVERSE IMPACT ON FREE TELEVISIO~~~ WOULD BE LARGELY FELT IN TERMS OF
PREEMPTION OF TIME, AUDIENCE DIVERSION, AND aIPHONING OF PROGRAMMING AND
PROGRAM TALENT
The STY Report correctly analyzes the potential adverse impact of STY upon
free television largely in ternis of preemption of time, audience diversion, and,
especially, siphoning of programming and program talent. However, these aspects
of impact are distinct only for purposes of analysis and evaluating the possible
effects of STY. In reality, these effects overlap and, in some instances, are
cumulative; this is what creates the "snowball" effect.
1. Preemption of time
The STY Report defines this possible adverse effect as the broadcasting of
STY programs over a station that would otherwise have been broadcasting free
television, programs. The Hartford experiment, operating with less than 5000
subscribers and incuring a loss of over $3 million, preempted approximately 30
hours of free television time each week. The STY Report assumes that this
amount of preemption by an isolated STY trial operation would be the "maxi-
mum number of hours which STY will show per week The Report con-
cedes that even 30 hours per week could cause dangerous preemption of time
in certain communities. The preemption is likely to occur in peak viewing
hours ~ :~fld, thus, is likely to have a disproportionately adverse effect, since, such
hours comprise segments of the broadcast day in which free television generates
Its largest advertising revenues and the revenue necessary to sustain public
affairs programs. Rules are proposed that are intended to minimize the adverse
effects of preemption of time, but MST will show that the proposed rules would
not do so.
2. Audience diVCt-S~On
The Hartford experiment indicated that an average of 5.5 percent of the
5000 subscribers watched a single STY program. The Report generalizes this 5.5
percent "average rating" achieved by an isolated, fledgling STY station, into
the "average" for an established, nationwide STY system and finds that even at a
nationwide STY penetration of 50 percent of all television households, audience
diversion would be minimal and dismisses the problem.'~ The Report acknowledges
that some STY programs might produce very high subscriber Viewing (e.g., 82
percent in Hartford for a Clay-Liston championship boxing match) but equates
this to "blockbuster" presentations on free television (e.g., "The Bridge on the
River Kwai"). It states that "such highly attractive presentations are unusual,"
and concludes that the answer to such great audience diversion "might be better
competing programming. ~" 26 But the Report is both inconsistent and un-
realistic, In the first place, the STY Report justifies STY as a "beneficial sup-
plement" for the very reason that it could offer programs of mass audience ap-
peal both regularly and often. Certainly STY would make every effort to maxi-
mize its audience and revenues. Those revenues would be used to divert programs
and hence further audience from free television. By skimming off the cream of
free television programs (including `movies like "The Bridge on the River
Kwai"), SPy would make usual the "unusual" occurrence of large audience diVer-
sion. The suggested answer of "better competing programming" on the part of
free television is no answer if, through the feedback effects of program siphon-
ing and `audience diversion, the amounts of such programming available to free
television are diminished.
Finally, the potential STY audience would probably be the same audience
that has been the most devoted to free television programming. STY program-
ming of 90 percent films and sports and 10 percent other light entertainment is
not going to attract as STY subscribers those who have not been viewing free
television. When STY siphons free television programming, the new subscribers
would be those who comprised the audience for such programming on free
television and are willing and able to pay for it when it moves to STY.
~ STV Report, ¶ 108. `The STY Report does not `recognize that the 541/2 hours per week
per channel (s.e., total of 1031/2 per week) presented on the Etobl~oke pay television system
might be more typical, though it does concede that "more than 30 hours of STY program-
ming might be available to preempt free TV time STV Report, ¶ 1110.
241d at ¶ 108.
26~ee STV Report, ¶ 107.
26lbid.
PAGENO="0575"
571
At the same time, families that could not afford to subscribe to SPY, would
be depriived of programs they may now view free of charge.27 In this connection,
it must be noted that Zenith-Teco submitted a table showing the breakdown
of Hartford STY subscribers by family income level relative to the proportion of
income for all families in the United States to support the argument that STV
is not solely for the wealthy.28 The STY Report accepts this argument and even
suggests that to the extent low income level families did not subscribe, they
could not afford television sets, let alone STY.29 However, it is unrealistic to take
the results of the Hartford experiment, with its 4,633 subscrIbers and its limited
amount of programs, and generalize to a STV operation-situation in which there
is an established, nationwide operation.
But even accepting the validity of this generalization, the Zenith-Teco sta-
tistics indicate that approximately 30 percent of all families in the United States
could not afford to subscribe to SPY and the STY Report so concedes.3° The
suggestion that such low income families could not even afford television sets is
incorrect, when applied to the Hartford situation. The statistics for Hartford
County show that 96 percent of total households are television households.8'
Moreover, the percentage of low income families who did not subscribe In Hart-
ford is probably greater than 30 percent, since Zenith-Teco did not break down the
$4,000-$6,999 income level category. It may be that most of the 40.8 percent of
the Hartford subscribing families fall into the upper reitches of this category. It
must also be noted that, while 30 percent or more of Hartford low Income
families did not subscribe to STY, STY at Hartford was not as expensive as it
could be nationwide, since, to attract subscribers, program and decoder rental
discounts were given.82 Moreover, an average weekly program expenditure of
approximately $1.25 appears to be much lower than subscribing families would
have to spend to view a substantial pattern of programming provided by a
regular STY operation, rather than the experimental Hartford STY operation.
3. ~8iphoning of free television prograAn8nisMl and program talent
The STV Report defines the program-siphoning effect as the diversion of pro-
grams from free television to STY and concludes that some program siphoning,
which would be contrary to the public interest, might occur. But the problem is
much more severe than the STY Report indicates. It is well recognized that one
of television broadcasting's greatest challenges is to secure an adequate amount
of program material worth broadcasting.~ Therefore, free television is highly
vulnerable to selective program and talent siphoning by STY. Program siphoning
by STY would be inevitable when one takes into accoun.t that STY programming
would be largely duplicative of free television programming. STY and free
television would be competing for the same type of programming, with STY
having great leverage because it could use its large financial resources for
"selective" program siphoning and because it would need only a fraction of the
audience needed to support free television programming to make it financially
viable.
Because of the very real danger of selective program siphoning by STV, the
proposed rules are designed to minimize the adverse effects of that danger
upon free television. MST will analyze some of these proposed rules below.
It is somewhat simplistics to view the siphoning problem solely in terms of
program siphoning.
The danger Is also one of STY's siphoning performers, producers, directors,
writers and other program talent from free television. The primary danger of
talent siphoning is not that of restrictive contracts, which the STY Committee
has said it will "view with a jaundiced eye."84 The more subtle, but real, danger
is that STY would have the financial resources to tie a performer to STY without
resorting to restrictive agreements. If STY can contract with such stars as Ed
27Tbe STV Report states that families in the low Income groups, who can afford tele
vision sets, but not STV, "will be able to continue to see ample amounts of free program-
ming so they will not be deprived of anything (STV Report ¶ 75) However this
assumes that STV would not have the adverse impact on free television, in terms of
siphoning free television programs, that MST submits it would.
~ ~ee STV Report, App. B, p. 2.
STV Report, ¶ 74, at 25.
3° Id. at 25.
31 See 1007 Television Factbook, Services Volume, p. 56-a.
32 See STV Report, App. B, p. 3.
33See, e.g., Speech of Commissioner Lee Loevinger before Geneva World Conference on
World Peace Through Law, p. 19 (luly ii, 1967).
3° STV Report, ¶ 27t.
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572
Sullivan, the Smothers Brothers, Carol Burnett, Johnny Carson, or Dean
Martin for a season's variety series, the stars would not have time for regular
free television variety shows and appearances, which are presently available
regardless of whether the viewer is in the largest markets or can afford to pay a
fee. No Commission rule could prevent against the danger of program talent
siphoning by STY.
IL The CommIssion Should Await an Eo,plicit Congressional Mandate Support-
ing Authorization of STV
On the basis of the public interest issues discussed above, MST urges that the
Commission refuse to authorize a nationwide system of STY. However, at the very
least, the Conimission should take no action with respect to such authorization
without an explicit, affirmative Congressional mandateP
When the Congress determined that an 82-channel television system is essen-
tial to the public interest and, accordingly, passed the All-Channel Receiver Act,
its determination assumed use of these channels for programming available to
all of the American people. Use of some or all of these channels during some or all
of the time for STY would cut into the effective number of channels found by the
Congress to be required. for free television. Moreover, the radical change in the
structure of television broadcasting that would be caused by authorization of
nationwide STY should not be undertaken without explicit Congressional ap-
proval. It is not sufficient to say that it is proper for the Commission to go ahead
because the Congress did not act during the lengthy period that has elapsed
while his proceeding has been in progress. The type of regulation proposed by
the STY Committee raises issues of a kind that are more properly resolved by the
Congress-an an~biguous Congressional silence Is not sufficient justification for
the Commission to proceed.
III. Specific Regulatory Issues Raised by the Commission
When MST first filed Comments in this proceeding, it stated that, since it is
opposed to STY under any conditions, it took no substantive postion on most
of the issues and proposed rules specified in the Further Notice of Proposed
Rule Making. This is still MST's position.
The regulatory issues themselves, the STV Report conclusions on these issues,
and the rules it proposes all demonstrate the fundamental incompatibility of
STY with free television. Not even the complex regulation of STY proposed in
the STV Report would prevent the adverse impact of SPY. Over and above the
qucetion of whether the proposed rules offer the intended protection of the
public's interest in a sound free television service, it is clear that undue govern-
ment intervention into broadcasting would reach intolerable levels if nation-
wide STY is authorized by the Commission.
There follows a discussion of the STY Report's conclusions with respect to
some of the fifteen specific regulatory issues posed by the Commission in its
Further Notice of Proposed Rule Making.
A. PROTECPION AGAINST PREEMPTION or FREE TELEVISION TIME ANt)
DIVERSION OF FREE TELEVISION'S AUDIENCE
1. Five grade A signals-STY Report, paragraphs 144-52 and proposed section
7,~.642 (a)
Proposed Section 73.642(a) provides that an STY authorization would be
issued only for a station "the principal community" °~ of which is located entirely
within the Grade A contours of five or more commercial television stations. The
Report states that the proposed rule is primarily intended to minimize the
°5 The question of whether the Commission should authorize STY without explicit Con-
gressional guidance is not the Same as the question of whether the Commission should
regulate CATY without detailed Congressional guidance, Like unlimited CATY, STY poses
a substantial threat to free television system, now serving the American public. But,
whereas Commission Inaction would have allowed unregulated CATV to disrupt e~tabllshed
national policy, such diisnuption would be caused in the ease of STY only by a~flrmative
act of the Commission. Thus, the same consideration-protection of existing national tele-
vision policy-which justified prompt Commission action with respect to CATY-dictates
at least awaiting Congressional judgment on SiTV.
3°While the proposed rules use the term "community," the STY Report constantly speaks
of five station markets. ~8ee, e.g., STV Report, n. 38, at 50; and ¶IJ 148, 102, 164, 172,, 199
and 230. The precise intention Is not clear.
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danger of preemption of free television time by STY, and also to reduce possible
audience diversion. The Committee believes that:
"The rule protects against such loss [time preemption] in smaller markets.
In the markets where it permits STY, it assures three network services and one
independent service. To the extent that existing stations in. those markets offer
STY, there will be a relatively small amount of time preempted. To the extent
that STY operations occur on new stations, there will be no preempting at ~
These assumptions are incorrect; therefore the proposed rule would not accom-
plish its intended purpose.
*The proposed rule does not restrict STY to only the largest communities.
Given the configuration of Grade A contour overlaps in many areas, there
could be many smaller communities in which STV could be authorized contrary
to the intent of the STY Report. Taking the southeas't coast of Florida as an
example of such an overlap area, it can be seen that Channel 51 in Fort
Lauderdale could be authorized as an STY station. Its principal community is
served by the Grade A signals of five operating commercial television stations.38
The only channel allocated to Fort Lauderdale to provide local service would
thus be preempted for STY.
As a result of overlapping Grade A contours between different communities
and television markets, STY would not be confined within the seeming limita-
tions of the proposed rules, and certainly would not be restricted to the com-
munities which have been selected for STY service. In addition, the mandatory
service requirement within the Grade A contour of the free television service of
the STY station,19 when combined with the Grade A overlap situation, would
permit STY penetration into smaller communities. In sum, what appears to be
a restriction of STY to the largest communities and television markets, is no
restriction at all.40
To the extent that the Commission could devise a rule that would restrict
STY authorizations to' large cities and guarantee that people in those cities
would receive at least three network service's and one independent service, the
rule would still not prevent preemption of free television time in those cities,
where more people would be deprived of the time and more audience would be
diverted to STY. It would also not protect the public from being deprived of
the free service of a second independent or a fourth specialized, national or re-
gional network amliate. Moreover, if free television is impaired in the larger
cities, the effect of program siphoning would be felt in the smaller communities
whose residents could not even pay to see the siphoned programs on STY.
2. Minimum free broa4east 1bours-~TV Report, Paragraphs 162-65 and Pro-
posed ~ect~on 73.643(e)
The limitation intended by proposed Section 73.043(c) is also illusory. The
STY Report asserts that requiring STY stations to broadcast at least the' mini-
mum number of free television hours required by Section 73.651 of the Com-
mission's Rules, would assure adequate free programming for the public. At
most, after three years of operation, Section 73.651 would require the STY au-
thorized station to' broadcast only 28 hours of free television a week! The STY
Report rejected limiting STY programming to' certain segments of the broadcast
day; 41 therefore, there' is nothing to prevent the STY station fro'm scheduling
its minimum free television hours in off-viewing hours and preempting prime
time for wholly-STY operations.°~
~ STV Report ¶ 148.
`°° Three Miami stations, WCE3T (Channel 7,, NBC), WLBW-~TV (Channel 10, ABC) and
WTVJ (Channel 4, CBS), and two West Palm Beach stations, WPITV (Channel 5, NBC)
and WIOAT-TV (Channel 12, ABC). Data are compiled from the 196i7 `Television Factbook,
Station's Volume, pp. 14a-b-145-b, 149-b--150--b.
~` STY Report, ¶ 230.
~° The seepage of STV beyond the seeming limitations proposed in the STY Report may
be further accentuated when one takes into account the Report's conclusion that STV sta-
tions may make the arrangements with CATV systems operating In the Grade B contour
of the station's free television service to carry the scrambled STV signal of the station.
with the prior approval of the Commission. STV Report, ¶ 309. The most likely effect of
such arrangements would be that communities not eligible for direct authorization of STY
would receive it Indirectly by CATV. There would be a corresponding diversion of audience
from free television in those communities.
°~ STY Report, ¶ 164, at 56.
4~ The Report recognizes that this would be a serious loss, since: "the effect fpreeznption
of time] would be even more marked, for although the loss in terms of hours is the same
regardless of the time of day when the preempting occurs, the loss in prime time would
generally speaking be a loss of more popular programs." STV Report, ¶ 147.
86-399 O-67------37
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574
3. One STV station in a com~munity-,s'qjv Report, Paragraph 172 and Pro-
posed 73.642(a)
Proposed Section 73.642(a) states that, "only one snch authorization will be
granted in any community." The rationale of the STY Report is, "if more than
one station should broadcast BTV programs in ~r single market more time could
be preempted than we consider to be in the public interest at this juncture." ~
However, there are many communities (and even markets) in which ~TV pro-
grams from more than one station will be aVailable.
This restriction breaks down because of the interaction of the overlapping
Grade A contour situation with the Grade A mandatory service requirement
described above. As an example of the breakdown of this apparent restriction,
it is possible that the Springfield-}Jolyoke, Massachusetts, television market
would be required to receive the STY programs of three STY stations. Under
the proposed "five Grade A" rule, STY stations could be authorized in Worcester,
Massachusettsp and Springfield-Holyoke,'~ and WRCP in Hartford, Connecticut,
could receive a permanent STY authorization. Therefore, there could be service
required from three STY stations In the 7Sth television market.
Under the STY Report's own rationale, the preemption of free television time
caused in multi-STY signal communities would not be in the public interest.
To the extent that a rule could be devised, or the present proposed rule
administered, to limit STY authorizations to only one per Community or market,
problems caused by the creation of STY monopolies in those communities would
arise.4' Moreover, an entity representing a combination of these monopolies
would be in a strong position to siphon free television time and divert free
television audiences.47 The strong "group monopoly" leverage would pose a serious
threat to the nationwide free television system, and not merely jeopardize the
service provided the public by free television stations in the communities in
which STY is authorized. It is not merely a question of what individual STY
stations can do to free television, but what the combined efforts of all STY
stations could do to free television with selected siphoning of programming
and even at selected prime time hours.
11. GUARANTEE OF LICENSEE RESPONSIBILITY-STV REPORT, PARAGRAPHS 195-208
AND PROPOSED SECTION 73.642 (e) (1 )-(4)
In Issue (7) of the Further Proposed Notice of Rule Making, the Commission
posed two alternative means of assuring licensee responsibility for the STY
operations carried on over his station, but the STY Committee chose neither
in its proposed rules.~'
The proposed rules basically apply the philosophy underlying the chain broad-
casting rules to STY operations and prohibits the SPY stations from entering
into agreements that hinder their free choice in procuring or scheduling programs
and prohibits them from optioning station time. However, the proposed rules
would allow for restrictive "networking" arrangements and option time agree-
ments, in violation of this basic philosophy, upon Commission approval. The
STY Report states that this is the "middle course" between regulation and no
regulation.4' However, it is either no regulation at all or, if it is a meaningful
restriction, it would involve the Commission in the day to day program~ acqui-
sition efforts of STY stations and would result in an intolerable substitution of
Commission responsiblity for the licensee responsbility, which is essential for
a mature and independent medium, of communications.
~ STV Report, ¶ 172 (emphasis added).
~4 Worcester is covered by the Grade A's of the three Boston commercial VHF stations
and by the Grade A of the Worcester station. 1967 Television Factbook, Stations Volume,
pp. 329-b-332-b, 339-b.
~` Springfield and Holyoke are covered by the Grade A's of at last two Hartford, Con-
necticut, commercial stations (WTIC-TV and WHNB-TV) and the Grade A's of two
Springfield-Holyoke stations (WHYN-TV and WWLP). 1967 Television Factbook Stations
Volume, pp. 123-b-124--b, 337-b-338-b.
~ The divisiveness in television broadcasting that would be caused by such rigid segrega-
tion Is inconsistent with the premise of this proceeding, which the Commission has stated
as being: "that subscription television on a nation-wide scale can be effectively integrated
into a total TV system, with advantages to the viewing audience Further Notice of
Proposed Rule Making and Notice of Inquiry, FCC 6Z-268, ¶ 16 (March 24, 1966).
~ The proposed rules would in no way prevent the establishment of such an entity.
48 To the extent that the proposed rules allow for the separation of STV franchisees
from station licensees, they are inconsistent with the Commission's policy of strengthening
licensee programming responsibility.
STV Report, ¶ 204.
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575
In addition, one expected effect of allowing equipment manufacturers and
STY franchisees to procure programs for STY stations' would be to create a
"broader purchasing base" for STY programs, which might "be helpful in
obtaining more and better mass-appeal programs, thereby aiding STY to achieve
greater market penetration. . . ." ~° This' would lead inevitably to program
siphoning and result in audience diversion.
C. REASONABLE ChARGES AND NONDISCRIMINATORY SERVICES BY STV OPERATORS-
STV REPORT, PARAGRAPHS 219-22, 226-30, 234-35, 238 AND PROPOSED' SECTION
73.642(f) (1)-(3)
The Further Notice of Proposed Rule Making reflected the deep concern of
the Commission that STy o'perations would lead to the abuses of rate gouging,
and discriminatory and unfair treatment of subscribers. Because of these poten-
tial abuses, the Commission considered a public utility type of regulation.
However, the STY Report declined to propose rules regulating STY rates., leaving
the protection of subscribers to the market place. The STV operator in each
community would have the advantages derived from monopoly status, but
would not be subject to regulation to assure that reasonable rates would be
charged to subscribers. On the other hand, the extent of government involvement
in television broadcasting, if the Commission adopted regulations such as those
suggested in its 1966 Further Notice of Proposed Rule' Making, would be
enormous and would constitute an unacceptable degree of governmental inter-
vention in broadcasting, which would be contrary to the public's interest in a
strongly independent television service. As a matter of principle, television
broadcasting, like the other media of communication and information, should
be left as untrammeled of government regulation as possible.
The STY Report did, however, incorporate some of the principles of public
utility regulation, when it proposed rules to guarantee noludiscriminatory service
to the public by STV stations. Although this proposal is ohviously a compromise,
it is a halfway measure which does not solve the Commission's basic delimma of
having to decide whether to take no action at all to deal with the range of
possible STV abuses that concerned it, leaving the public unprotected, or to
develop, adopt and administer an extensive and far-reaching type of public
utility regulation. This Hobson's choice, which still faces the Commission, is
but another compelling reason for the Commission not authorizing SPY at all.
P. PROTECTION AGAINST SIPHONING OF FREE TELEVISION I~ROGRAMS BY ,STV
It is MST's position that, if STY is authorized, it should not be allowed to
present the same kind of programming that free television presents, otherwise
there would be no' limitation on the destructive impact of program siphoning
from free television. However, MST recognizes that it would be most difficult
to regulate the programming of STY, in order to prevent siphoning, without
raising serious questions' of law and policy. At the very least, the rules propo'sed
in the STY Report, and the conclusions found in the "legislative history" of
those rules, would involve the Commission in detailed regulation of program-
ming transmitted over broadcast facilities. The Commission would be' making
decisions which it has consistently avoided in order to promote licensee respon-
sibility and independent judgment.5° This further Hobson's choice between no
STY program regulation, which would allow STY to have a severe adverse im-
pact on free television, and complex STY program regulation, which would
involve governmental interference with licensee programming responsibility,
again leads MST to oppose any authorization o'f STY.
Moreover, the rules propo'sed in the STY Report to prevent program siphon-
ing by restrictive STY to certain types of programming are unrealistic an4 im-
practical and essentially do not prevent siphoning of free television programming
or program talent.
~° STV Report, ¶ 199.
51 See Report and Statement of Policy Re: Commission En Bane Program Inquiry (FCC
60-970), 20 HR. 1902 (1960). For example, under the proposed rules the Commission
would become Involved in scheduling programs for broadcast! An STV operator would be
required to get prior Commission approval before he can show more than one film over
10 year's old per week per month. See S(TV Report, n. 4G, at 87.
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5~6
1. Feature films and entertainment programs-STV Report, Paragraphs 246-52
aiM Proposed Section 711.643(b) (1) and (3)
As MST has shown above, STY programming would be substantially dupli-
cative of free television programming. This becomes all the more apparent when
one considers the proposed rule restricting STY to the broadcast of feature films
within two years of the date on which they have been given general release to
any theater in the United States. Feature films would be the major type of pro-
gram on STY; they have long been a major program category on free televi-
sion. In the 1967-68 television season, the three networks alone will be presenting
feature films six nights a week, in prime time, or 12 hours of prime time each
week.~ Contrary to what the STY Report indicates, a "recency" rule is no pro-
tection against such films being siphoned from free television. Of 130 films
scheduled by the networks to be shown in prime time during the 1967-68 season,
it appears that approximately 20 percent would be eligible for presentation on
STY.~ As MST has shown above, given the potential revenues of STY, STY could
consistently outbid free television in the competition for recent films.
Moreover, the proposed rules allow older films (more than 10 years from the
date of general release), "which might or might not be available to free TV," ~ to
be presented on STY. Approximately 12 percent of the public listing of 130 fea-
ture films to be shown by the three networks during the 1967-68 season appear to
fall within this category.55 Therefore, comparison of the proposed rules, which
are intended to prevent siphoning of films from free television, with the films to
be presented by the three networks in one season, shows that approximately
coie-third of those films could be siphoned from free television by STY.5' Films
in the category of older films eligible for STY comprise a significant part of the
film acquisitions of local stations and are the mainstay of many independent
UHF stations, which are mbst vulnerable to the adverse impact caused by STy.57
Moreover, the STY Report's basic conclusion about the ability of free televi-
sion to obtain recent films, "because free TV cannot pay enough to cover produc-
tion costs and potential box-office revenues that would be lost because of the free
TV showing," is doubtful,58 For example, CBS "plans to televise four or five
feature-length films it will produce for TV and subsequent theatrical release."59
The only type of free television programmin.g for which the proposed rule
offers complete protection is television series with interconnected plots or sub-
stantially the same cast of principal characters. However, recent data show
that this type of program is becoming less and less important, in prime time,
to free television.60 One cause of the decline is that the series cannot compete
successfully for audience with feature films and specials,61 The former will com-
prise the great majority of STY programming and the latter will be open to STY.
The entertainment programs that are becoming more important to free televi-
sion would not be protected from STY siphoning by the proposed rules! The
STY Report states that "it is conceivable that this [the proposed rule] still
leaves some types of programs open to siphoning 62 A review of the 1967-
68 free television season proves this to be an understatement. The three networks
62VaAriety, July 26~ 1967, p. ~fT, col. 2.
~ Variety, July 26, 1967, p. 39, cois. 4-5. Since the networks will broadcast some 180
films during the regular sea~on, this listing Is incomplete by 50 films. These 50 film~ may
well be the more recent one~-wblcb, for competitive reasons,, the networks are not willing
to publicize so far In advance of their presentation.
~ STY Report, ¶ 252.
5' ~See Variety, July 26, 19'6'7, p. 39, cols. 4-5.
5' Moreover, a review of every feature film that has been televised on any network from
September 1961 through December 1966 shows that, using January 1, 1967 as a base
date, approximately 41 percent of those films fall into categories that are not protected
from siphoning by STY. ~ee Television, September 1967, pp. 76-86.
~7 There are indication's that many of the older films,, even pre-1948 films, are still very
popular with the viewing public. ~ee Broadcasting, September 4, 1967, p. 5.. The ratings
of many of these films further show that, contrary to the conclusions of the STY Report
"recency" is not the most attractive characteristic of feature films.
5' STY Report, ¶ 51.
~ New York Times, August 2, 1967, p. 59, col. 4 (emphasis added). The comment has
been made that the viewers do not like films produced for television and prefer films, made
for theater release. `STY Report, n. 23, at 18. However, of the seven films telecast during
the 1966-67 season which received the highest audience rating, three were produced
especially for free television. ~ee Variety, July 26, 1967, p. 43'.
60 ~ee Variety, July 26., 1967, p. 27, col. 2; New York Times, August 2, 19'67, p. 59,
cols. 1-4; The Washington Post, August 4, 1967, p. Dli, cols. 1-2.
61 Ibid.
62 STY Report, ¶ 114.
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577
are planning more than 150 dramatIc and entertainment specials.~ There will
be at least five or six specials every week during the 1967-68 regular season.64 In
addition to "special" programs, which could be siphoned by STY, there are many
regular free television programs that do not fall within the protected series
category. Such popular variety shows as "The Ed Sullivan Show," "Hollywood
Palace," "The Dean Martin Show," etc.; dramatic shows appearing on "The
Bob Hope Theatre," ABC's "Stage 67," NBC's "Experiment in Television," etc.;
and various musical programs all may be siphoned by STV.~ This is not the kind
of problem that can be brushed aside by praising competition and leaving it to the
market place.5' As MST has shown, the "box-office" economics of STY would con-
sistently allow it to outcompete free television for these programs, and, more
important, for the talent that makes such programs possible. Programs in these
nonprotected categories of "specials" and variety shows are often the only types
of programs with which networks can counter the feature films appearing on
rival networks.°~ Therefore, the proposed rules would offer no protection to the
programs which may be free television's only defense against the feature films
presented on STY.
2. S'ports event s-$TV report, paragraphs 256-70 and proposed section
73.643(b) (2)
The proposed rule on feature films available for presentation on STY would
not protect against siphoning, but it at least has the advantage of being rela-
tively clear. The proposed rule on sports programs does not even have this ad-
vantage.68 If these highly complex proposed rules are adopted, the Commission
would find itself involved in endless disputes as to whether certain sports events
are protected from siphoning by STY and would still not accomplish the in-
tended purpose of protecting against siphoning of sports events which the public
now can, or in the near future would, see free of charge.
In essence, the proposed rule provides that, "sports events shall not be broad-
cast [on STV] which Mve been televised live on a nonsubscription, regular basis
in the community during the two years preceding their subscription broad-
cast. .
Under this rule, any sports e'vents conid be siphoned from free television by
~S~TV. All that a STV entrepreneur would have to do would be to arrange to
black out a sports event in a certain community. The next year, and for every year
thereafter, the event could be presented by STY in that community. Such situa-
tions would be likely to develop, since the STY operator would have the financial
resources with which to persuade those holding the television rights to sports
events to withhold the event from free television for one year to cash in on the
SPY revenues. Moreover, this siphoning would not have to be undertaken by
STY on a large scale to be successful. Selective siphoning of a few of the most
popular sports events could be undertaken community by community until the
event is withdrawn, from a large number of people across the nation who could
not afford STY or who are not served by STY.7° In some communities, popular,
specific sports events have already been blacked out in the communities in which
they are played, and STY would only have to outbid free television for the right
to broadcast that event in that community next season when it would not be
blacked out! For example, under the proposed rules, the NFL-AFL "Super
Bowl" could be carried by an STY station In Los Angeles in January 1968 or
January 1969, since Los Angeles was blacked ont for the "Super Bowl" in
January of 1967.
The whole category of taped sports programs is not protected from STY
siphoning. Sports events originating in foreign countries, such as the Euro-
pean Grand Prix automobile races, that may be taped for rebroadcast in the
United States because of the time differential, would thus be available for STY.
64 150 additional specials will deal with news and public affairs. New York Times, August
2, 1967, p. 59, col. 1.
64 Ibid.
64 It must be noted that many of the fine dramatic and entertainment programs appear-
ing on noncommercial television would also not be protected from siphoning by STV.
68 See STV Report, ¶ 276.
61 New York Times, August 2, 1967, p. 59, cols. 3-4.
68 The STV Report seems to concede this. See STV Report, ¶ 276.
69SpV Report, App. D, Section 73.643(b) (2).
~° The fact that the Commission might expect that the hue and cry that would arise if
popular specific sports events were siphoned from free television would move the Congress
to prevent this from happening is no reason for the Commission to abdicate its responsi-
bility to protect the public interest.
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Iii addition, the whole category of sports events that are n~ot now regularly
broadcast on free television could be shown for a fee on STV. If STV were
authorized five years ago, professional golf would probably be on STY and
millions of viewers would not be able to see it free of charge. Under the proposed
rules and absent contractual restrictions, professional soccer could be siphoned
to STY next season, since last season was its first on STY. The point is that free
television, in its sports and other programming, has shown great flexibility in
seeking out new attractions to present to the public. The proposed ru~les as to
sports events would tend to cast free television in a rigid mold of certain types of
sports programming and deprive viewers, who would not be served by STY, of
viewing different types of sports attractions.
Sports that are not presently regularly shown on free television could also
provide a program source for marginal UHF stations and could lead to the
establishment of specialized sports networks with those stations as the affiliates.
A specialized network, perhaps one that could offer a baseball game every week
night during the baseball season, could develop if there were an "extra" UHF
station in the major markets and an independent UHF station in the other
markets.E If the sports events that such a network could offer are already com-
mitted to STY, no such supplementary free television services could develop.
Aside from the substantive provisions, the lack of clarity in the proposed rules
raise other siphoning problems. For example, it is not clear how many games or
matches of a specific event must be broadcast by free television to constitute a
"substantial number," so as to protect that sports event from STY siphoning.
There is also ambiguity with respect to the effect of the proposed rules as to
limitations on STY presenting categories of nonspecific sports events. It appears
that the STY Report proposed limitations on STY's ability to present entire
categories of nonspecific sports events. In this way the proposed rules would
distinguish between specific events, as to which there would be limitations for
each event, and nonspecific events, as to which there would be limitations for
each category of such events. If "a substantial number of events in a category
were not televised in the community, the category will be considered not to have
been regularly televised therein and STY may show the contests rn that cate
gory." 72 Assuming that the converse is true, if a substantial number of contests
in a category were broadcast on free television in the community, STY would
not be permitted to broadcast any of the contests in that category over and above
those broadcast on free television. However, the examples set out in Paragraph
267 of the STY Report would seem to indicate that free television would have to
broadcast all of the nonspecific events in a category in order to preclude STY
from siphoning the games that had been broadcast on free television. In one
example used, "some, but not all" home baseball games of the Washington
Senators were regularly shown on free television. The STY Report Indicated that
STY could present the balance of the games in that category "above and beyond"
the average number of games. broadcast on free television for the preceding two
years. This appears to be inconsistent, since "some, but not all" may be a
"substantial number."
If the latter interpretation of the proposed rules is correct, there would appear
to be no distinction between the STY limitations upon presenting specific sports
events and nonspecific sports events. If such were the case, there would be no
limitations on program spihoning by STY. A STY promoter would be able to use
his economic leverage to purchase the balance of the games in a category and
present them without delay. For example, a baseball team may play 80 home
games and an average of ten to twenty each year may be regularly broadcast
on free television in the home community. STY could purchse the television
rights to the other 60 to 70 games the very next season, while the games pre-
viously broadcast by free television could be withdrawn by the ball club during
that season so that they, too, could be made available to STY the following
year, thereby immediately depriving the public of any home games broadcast
on free television.
F~. APPLICATION OF COMMISSION'S BROADCASTING RULES TO sTy-STy REPORT, PARA-
GRAPH 286 AND PROPOSED SECTION 73.643 (d)
If STY is authorized, MST sees no reason why the provisions of the Coni-
munications Act and of the Oommission's Rules which govern free television
71 Øf course, if the "extra" TifF station is engaging in STy operations, it would most
likely be lost to a free television specialized network,
72 STV Report, ¶ 266, at 93 (emphasis added).
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should not also govern STY. For example, these areas include the three-year
license period (Section 307(d)), political broadcasts (Section 315) ,n rebroad-
casts (Section 325), exemption from the prohibition of unauthorized publication
of communications of radio broadcasts (Section 605) and the fairness doctrine
(as to the legality of which MST takes no position).
F. OTHER SPECIFIC REGULATORY ISSUES
1. Uomrnercia~ csnnounoemcnts-STV Report, Paragraph 275 and Proposed Sec
tion 73.643(a)
The STY Report recommended that commercial announcements of any kind
be prohibited during SPV programming hours. MST supports this recommen-
dation but, as MST pointed out in its initial Comments, advertising on STY
would be likely only after free television had lost the battle for broadcast time,
audiences and programming. At that time, retaining the prohibition against
commercial announcements on SPY might not be in the public interest; the de-
mand for STY to fill the advertising void left by the impairment of free televi-
sion might be irresistible.74 Instead of waiting until it is too late, the Commission
should face the fact that STV threatens ultimately to impair free television to
the point of destroying its essential advertising role In the economy of the
nation.
2. UATV and STy-STy Report, paragraphs 306-12
The STY Report made a threefold distinction concerning the relationship of
CATV and STY: (1) STY systems in which the programs travel entirely by
cable from the studio to the sets of subscribers, (2) CATY systems which, in
addition to their traditional function of receiving and. retransmitting free televi-
sion signals, also originate STY programs that are distributed by cable to sub-
scribers, and (3) CATY systems which, in addition to their traditional functions,
transmit over-the-air STY programs which they have picked up off the air or by
microwave.
MST takes no position on the first category, which is purely closed-circuit STY.
Although there was no recommendation in the STY Report concerning Com-
mission jurisdiction over the seco~ld category, it is incorrect to state that there
are presently no STY operations in the Unled States in this category merely
because the program originations of some CATV systems are made available to
suiscribers at no additional charge. The program origination by some CATV
systems at present,75 and the much greater program origination that CATY
systems plan for the future, is wired STY and it is totally Irrelevant whether
payment for those programs is made by the program, by the day or by the month.
Nothing compels SPY operators to charge' by the program. Indeed, STY pro-
moters have indicated that there might be STY stations that sell "magazines" of
programs.76 A's MST has stated in the past, program origination over CATY
systems is a form of pay television and MST is strongly opposed to such opera-
tions. The Commission recognized in its Second Report and Order on OATV,
that CATY should not be allowed to use free television programs as the
financial base for STY operations, which would impair free television. If wired
STY is to be authorized, it must succeed or fail upon its own merits and not use
revenues derived from exploitation of free television programs as a stepping
stone.
With regard to the third category of combined OAT'Y-SPV operations, the
rules proposed in the STY Report would allow SPY stations to make arrange-
ments, upon prior Commission approval, with CATY systems operating in the
station's Grade B contour to carry the STY programs of the station. As dis-
cussed above, such arrangements would have been the effect of broadening
the adverse impact of STY on free television beyond the apparent limits pro-
posed in the STY Report.
~ However, a licensee's Section 315 and fairness doctrine responsibilities for pay pro-
gramming should apply Independently of its responsibilities for free programming, so that,
for example, a station should not be able to balance a candidate appearance on STV against
a candidate appearance on free television.
~ The fact that STV proponents have not proposed commercials is irrelevant. CATV
proponents disclaimed any such intent, but some are now selling commercial time. See
Broadcasting, July 4, 1967, p. 30; Hornberger, "Your Friendly Neighborhood Video Chan-
nel." 23 Television 45, 71, 74 (December 1966).
7'For example, International Artists, Inc. is selling films foi- program origination on
CATY. Agreements have been signed with, 27 CATV systems, with 12.5,000 subscribers.
(IATV Magazine, August 7, 1967, p. 10.
~°Broadcasting, July 24, 1967. D. 42.
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580
Wherefore, the Commission should not authorize over-the-air subscription
television on any basis, uniess the Congress explicitly directs such authorization.
Respectfully submitted.
ASSOCIATION OF MAXIMtM Sisnvioz TELRCASTERS, INC.,
By ERNEST W. JENNES,
By hENRY GOLDBERG,
Attorn~eys.
SEPTEMBER 15, 1967.
Mr. LINDow. If you review the history of the pay television pro-
ceeding at the FCC and the results of the Hartford pay television ex-
periment, it is clear that a nationwide system pay TV would represent
a drastic, fundamental change in the system of American broadcasting
as we know it. The most apparent change is that viewers would have
to pay, whether by the program, day, week, or month, for the oppor-
tunity to see television programs they now see free of charge.
The imposition of program charges would mean that pay TV would
be available only to those who could afford to pay such charges and
who live in communities where the economics justify the establish-
ment of pay TV. The FCC has concluded that such pay TV "narrow-
casting" constitutes "broadcasting" under the Communications Act
and is, therefore, within the Commission's jurisdiction. But this asser-
tion of jurisdiction is of doubtful validity.
In any event, by asserting jurisdiction over pay TV upon such
grounds, the Commission is faced with a very serious dilemma. On
the one hand, it is trapped by its conclusion that pay TV is "broad-
casting" and thus its rates and related practices cannot be regulated.
On the other hand, the Commission is aware that authorizing pay
TV on a permanent basis without the type of control imposed upon
public utilities would create dangers of rate gouging and other serious
abuses to pay TV customers. And the dilemma becomes even greater
because the imposition of such controls would result in an intolerable
degree of governmental involvement in television.
Furthermore, under the rules proposed for pay TV authorizations,
pay TV would be regulated primarily in terms of its programing
content, even to the extent of regulating the scheduling of certain
types of programs. This would involve the Government in an area in
which, as a matter of law and policy, it clearly should not be.
On the other hand, without adequate regulation of program con-
tent, pay TV poses the danger of severe adverse impact on the service
the public receives from our present system of free television broad-
casting. Many segments of the American public would be deprived
of the free television broadcast service that they now receive free
of charge. This is another regulatory dilemma which merely points
up the drastic change in our television system that authorization of
pay TV would involve.
Given these radical changes in television broadcasting that pay TV
would involve, MST believes that, even if it has jurisdiction to au-
thorize pay TV, the Commission should not act without an explicit
and affirmative mandate from the Congress. When it enacted the
All-Channel Receiver Act, the Congress determined that an 82-channel
television system is essential to the public interest.
This was a determination that these channels would be used for
all, the American people, not just those able to pay. Use of some or
all of these channels during some or all of the time for pay TV would
PAGENO="0585"
581
reduce the effective number of channels found by the Congress to be
required for free television. The FCC should not proceed with a
course of action that represents a fundamental modification of the
structure of television broadcasting without explicit congressional
approval.
The report of the FCC's Pay TV Committee justified proceeding
without such approval on the ground that the Congress was allowed
a sufficient amount of time in which to make its views on pay TV
known to the Commission. Even if the Commission were faced with
an ambiguous congressional silence, this would not be sufficient justifi-
cation for it to proceed on issues of a kind that are more properly re-
solved by the Congress.
However, the congressional reaction to pay television since the FCC
first began consideration of it in 1955 can hardly be characterized as
"silence." The resolutions of this committee and these hearings are
indications of the vital interest that the Congress has taken in pay
television.
Of course, the question of whether the FCC should authorizç~ pay
TV without explicit congressional guidance is not the same as the
question of whether the Commission should regulate CATV without
such guidance. Like unlimited CATV, pay TV poses a substantial
threat to existing free television service. In the CATV situation, how-
ever, Commission inaction would have allowed unregulated CATV
to disrupt established national policy. With respect to pay television,
such disruption would result from the affirmative action of the
Commission.
Thus, the same consideration which justified prompt Commission
action with respect to CATV should require deference to the judg-
ment of Congress with respect to pay TV. It is significant to note that,
in its second report and order on CATV, as to the CATV operator who
originates programing, the Commission specifically refused to hold
that this type of pay television is in the public interest and stated that
it would seek guidance from the Congress.
One obvious question that must be answered is what advantages of
pay TV could be expected to outweigh its adverse effects on our pres-
ent system of free television broadcasting. When pay TV was first pro-
posed, and indeed before the committee earlier this week at least one
of its supporters promised that it would serve the unique and diverse
programing tastes and interests of minority audiences, audiences which
the pay TV proponents said were unserved by free television. This
was to be a "beneficial supplement" to free television.
However, to the extent that the Hartford pay television experiment
can be relied upon for anything, it has completely ended this myth.
The pay TV report repeatedly recognizes that pay TV must provide
the sames types of programing as free television if it is to be at all
acceptable to the public and, therefore, a financial success.
TJnder the proposed rules, feature films and sporting events, which
are provided in quantity by free television, may comprise 90 percent
of pay TV programing. Furthermore, the Hartford experiment shows
that the balance of pay TV programing would not be made up of the
so-called cultural programs that were promised, but would be made
up of drama-not necessarily Shakespearean drama-variety shows
and entertainment programs appealing to mass audiences.
PAGENO="0586"
582
I might mention that, of the so-called cultural programs that were to
be the staples of pay TV, a total of only four concerts and only four
opera and ballet programs were presented in Hartford over a 2-year
period. There is little doubt on this point.
The report of the FCC's Pay TV Committee recognizes that pay TV
programs would be largely duplicative of free television programs.
It states that "the reality is that the major part of the programing,
as opponents had argued, will be of a kind that would appeal to a
mass audience." (STV Report, para. 56, at 19-20.)
The other day, Mr. Wright, of Zenith, when he was before you, did
not even mention diverse cultural program offerings. You hear this
from other proponents of the pay TV who have not operated a sys-
tem over a period of 3 or 4 years as Zenith has but you don't hear the
promises of culture from the experienced people who have seen the
balance sheets. Previously, Zenith talked culture but they sold movies
and sports. Now they talk "free enterprise" and "competition," but
they still sell movies and sports. It is somewhat ironic to hear this
kind of argument from a business entity that would be a legal mo-
nopoly under the proposed Commission rules and is said to be a natural
monopoly even without the proposed rules.
As a practical matter, the promises for pay TV's beneficial supple-
mentary programing have proven to be lacking in substance. Yet, the
pay TV report says to go ahead with permanent authorization of pay
TV without regard to the realities of the situation. We must face up
to the question of whether the public need for pay TV programing,
which would be duplicative of free television programing, justifies the
use of scarce broadcast frequencies and the likely, if not probable, im-
pairment of free television service for all the people.
One need only look at the recent action of both Houses of Congress
in passing the Public Broadcasting Act of 1967 and the revitalization
of UHF broadcasting under the stigmiation of the All-Channel Re-
ceiver Act to know that free television broadcasting is well on the way
to bringing into being what pay TV has promised and cannot deliver.
These positive developments with respect to increased program diver-
sity for free television service could be impeded by establishment of
pay TV.
Much of the argument has revolved around pay TV's chances for
financial success. There are those who minimize its threat merely be-
cause it would not be a "beneficial supplement" to free television. They
suggest, therefore, that pay TV would not create sufficient public de-
mand to allow it to succeed financially.
The question, however, is not whether pay TV should be given a
chance to fail, but what will happen if it were to succeed. It is pre-
cisely because we know that pay TV would not be a beneficial supple-
ment that MST believes that it would have to attract free television's
audiences by siphoning programs and talent now available free of
charge in order to survive.
Pay TV does not have to be very successful to impair free television.
It operates with box office economies which, when compared with the
cost-per-thousand economics of free television, would allow pay TV
to outbid free television for programing and dominate it at the local
and national level. Even based upon the revenue figures derived from
the Hartford failure, nationwide pay TV could easily have annual
PAGENO="0587"
583
revenues of $1 billion, and this at only 16-percent penetration of U.S.
television homes. This is almost half the total of 1966 broadcast rev-
enues of all three national commercial networks and their 15 owned
and operated stations and all 593 other commercial television stations
in the United States. That is at a 16-percent penetration.
Of this $1 billion, pay TV program revenues alone of at least be-
tween $550 and $630 million would almost equal the total program
expenditures for the three commercial networks in 1966.
By adjusting the figures for family program expenditures to only
$1.25 more than the weekly figure for Hartford's 2 hours of run-of-
the-mill programs a day, or raising the cost per program slightly, one
can project program revenues alone for a moderately successful na-
tionwide pay TV system of at least $1.1 billion, which is greater than
the total program expenditures of all commercial broadcasting in 1966.
This is still at a 16-percent penetration.
Increase the penetration rate, as pay TV can do once it begins to
"snowball," and the program and other revenues climb that much
higher.
You can buy a lot of feature films, sports events, and other enter-
tainment for the kind of money that pay TV would make. Pay TV
program siphoning would seriously impair the ability of free tele-
vision to serve all segments of the American public, including the
approximate one-third of American families who would be unable to
afford pay TV, plus those who could afford pay TV but live in areas
where the economics do not justify its establishment.
As may be seen from the detailed analysis in MST's "Further
Comments," which we have just put into the record, the complex
proposals of the pay TV report, which are intended to minimize this
harmful siphoning, would simply not do the job. For example, the
rule proposed to limit siphoning of feature films from free television
would not cover at least one-third the feature films to be shown by
the three commercial networks in the 1967-68 season, as they have been
announced thus far.
Moreover, any sports event now shown on free television could be
siphoned to pay TV. This siphoning would not take 2 years, as this
committee has been told, but could be done with only a 1-year wait or
blackout on free television and, in many cases, not even a 1-year wait.
There has been considerable discussion this week about the proposed
FCC rules for pay TV as they would affect sports events. Quite under-
standably, there has been a certain amount of confusion. Let me say,
first of all, that the proposed rules regarding sports are quite complex.
It is certainly understandable that confusion has been created. I do not
blame you one bit for having problems with these things.
However, the proposed FCC Fourth Report and Order does set
forth the proposed rules although, as I say, they are somewhat com-
plicated. First of all, it is important to understand that there are two
kinds of sports events established by the proposed rules. The first type
is what are called specific sports events. These include such features as
the world's series, the all-star game, the various bowl games, league
championships, and, of course, they extend not only two baseball
but other kinds of sports, as well.
The second type is what is described as nonspecific sports events.
Generally speaking, these include those games played as a part of a
PAGENO="0588"
584
regular season, in other words, all the regular games of the Washing-
ton Redskins or the Washington Senators.
Within the nonspecific type there is a further breakdown of cate-
gories, again applying to all types of sports having a regular season. It
includes home games, games away from home, preseason games or
exhibition games, or the so-called games of the week. These matters
are set forth in detail on page 91, paragraph 261 of the proposed FCC
report, as well as in paragraph 262 which immediately follows that.
Let us refer back to the type described as specific sports events;
the world's series, the all-star game. The proposed Commission rules
would provide that if such an event had been broadcast on free tele-
vision for 2 consecutive years in the community, and I emphasize "in
the community," where the pay television station is located, not na-
tionwide but in the community, pay television cannot broadcast it. I
refer now to page 92 of the proposed report at paragraph 264.
Let us take the world's series as an example. If the series were on free
TV in that community in October 1965 as well as in October 1966, both
years, pay television could not show it in October 1967 on the pay TV
station licensed to that community. Here I quote from the report, "If
the series were on free TV in that community in either October 1965 or
1966 but not in both years it would be viewed as not having been
regularly televised there and an STV station could show the series
in October 1967."
This is the rule. Would it prevent siphoning? I don't think that it
would. Let us see how this could conceivably work. It could work in
several ways. Assum.e that the series was broadcast on free television
in 1966 and again this year, in 1967. The pay television station opera-
tor in Washington, D.C., could go to the baseball people, offer them a
sufficient amount of money if they would refuse to sell the world's
series right for Washington for free television in 1968-they only have
to do it in Washington-_and agree to make up the difference in income.
The following year it could be placed on pay TV and every year
thereafter.
Another method to get around this might well be to keep it off free
television ~ 1968 but, through mutually agreeable arrangements, put
the series in 1968 into theater pay television in Washington, in near-by
Maryland, Virginia, all through our whole area, with the idea of
bringing it on pay TV the following year. Under this method, the base-
ball people would not stand to lose any revenue and the public could
see that series provided they were able to go to the theater and pay for
it for 1 year.
Now, we do not say that this would necessily happen on a national
basis overnight but it could happen on a selected basis in market A
and B this year, in C and D next year, and, incidentally, Zenith said
that they did not expect to go into operation all Over the country; they
are just talking about a couple of markets at a time; Mr. Wright made
that point the other day-_they could do this progressively and so on
until in a relatively short time, for all practical purposes, the world's
series would be taken out of the realm of free television and into a
completely pay TV setup.
Certainly there would be outcries from the public. There were
outcries from the public when championship fights were put into the
theaters on a pay basis and taken off free television. You have re-
PAGENO="0589"
585
minded us on several occasionS, again this week, that there were very
serious outcries from Arizona this spring on this very matter, in the
case of the Clay-Foley championship fight. But the situation still
exists. That is part of what we are up here talking about today.
Now let us turn to the second type of sports event set up by the
proposed Commission rules, that of the nonspecific sports event; the
game which is played as a part of a regular season. The proposed Com-
mision rules cover this as well. I refer you now to paragraphs 266 and
267, commencing at the bottom of page 92 of the proposed FCC report.
If a substantial number of nonspecific events, such as home games
or away from home games, or the so-called games of the week, were
televised over free television in the pay TV community and were, and
and I quote from the proposed FCC report, "within each of the 2
years preceding the proposed STV broadcasting thereof," then no
games in that category may be presented by pay television in that
community.
As the proposed FCC report states, the standard is to be applied
on a category-by-category basis, and, here I quote again from the re-
port, "If during one but not both of the 2 years preceding proposed
STV broadcast, a substantial number of events in a category were not
televised in a community, the category will be considered not to
have been regularly televised therein and STV may show the con-
tests in that category." That means all such contests.
Now, that is the rule that is proposed. Does it prevent siphoning?
A pay TV promoter could use his economic leverage to purchase the
games in a category of nonspecific sport events, such as regular season
home baseball games which may not have been broadcast in the com-
munity over free television, and present them without any delay. For
example, assume that a baseball team plays 80 home games and no
games in this category are broadcast on free television in the home
community. Pay TV could purchase the television rights to all of the
home games in this category the very next season, while the away
from home games previously broadcast by television could be with-
drawn from free television by the ball club during that season so
that they, too, could be made available to pay TV the following year.
The same situation could exist if some but not all of the home games
were broadcast on free television.
Now, I hope this may help clear up the so-called 2-year provision
which I think is a snare and a delusion.
Whole categories of regularly scheduled variety shows, such as the
"Ed Sullivan Show" or the "Dean Martin Show," and free television
drama, such as the "Bob Hope Theater" or last season's ABC "Stage
67," and entertainment and dramatic specials, such as "Death of a
Salesman" or the "Barbra Streisand Special," are not even offered
protection from pay TV siphoning.
What is also important is that the proposed rules do not and could
not stop pay TV from pirating free television program talent. Thus,
the rules that are intended to limit siphoning are ineffectual, despite
the fact that they would involve the FCC in detailed, day-to-day reg-
ulation of every aspect of the programing transmitted over broadcast
facilities by pay TV.
The impossible choice between no pay TV program regulation at all,
which would have a severe adverse impact on free television service,
PAGENO="0590"
586
and complex pay TV program regulation, which would involve gov-
ernmental interference with licensee programing responsibility is
another reason that leads MST to oppose, pay TV and should l~ead
the Congress `to act now to forbid the establishment of pay television.
The Congress should reaffirm the principle that the future of broad-
casting in this country belongs to all the people, not merely to those
who are able to pay and who live in communities in which STV
operators would find financial gain.
Thank you very much, Mr. Chairman.
Mr. MACDONALD. Thank you, sir.
Mr. Lindow, I just have two questions.
On page 3 you say that "the dilemma becomes even greater because
the imposition of such controls will result in an intolerable degree of
Government involvement in television."
Don't you think that the Government is already quite involved?
Mr. LINDOW. Yes, sir; I certainly do.
Mr. MACDONALD. What would change?
Mr. LINDOw. As I tried to point out in the statement, sir, faced with
this dilemma the Federal Communications Commission would set up
complicated rules such as the sports rule that I went into in detail and
this, of necessity, would involve `the FCC in the type of programing
regulations which they so far have not practiced.
As I think the preceding >witness so aptly put it, if we are having
problems here whep we have been studying this thing and trying
to understand it, it is very easy to appreciate that these problems
would become more and more severe as a Government agency is
trying to regulate the entire pay television industry. It would be
intolerable.
Mr. MACDONALD. I have read the Fourth Report. Everyone hints
around but I don't see anything in there that further regulates TV
than it is already regulated.
Mr. LINDow. Yes, sir; they are saying under what conditions pro-
graming can be presented by pay TV.
Mr. MACDONALD. The programing of 10 percent cultural programs
which I think is a mistake, frankly, but outside of that.
Mr. LINDoW. I think you find in here a considerable number of
things that they are suggesting they will look into from time to
time, that they will have to regulate and provide for in a degree that
`they just' don't do at this time, sir. I have been a licensee in one way
or another of the FCC for 33 years.
Mr. MAcDONALD. All broadcasters are subject to review to see
whether they should have their licenses renewed. The witnesses yester-
day pointed out there has not been any revoking of licenses for quite'
some time and certainly no major broadcasters. I don't see how the
Government could get more involved by allowing pay TV to happen.
If you have some specific illustrations, I am sure the committee
would like to hear them.
Mr. LINDOW. Counsel reminds me that one of the places the Com-
mission provides for increased governmental involvement in the pro-
posed Fourth Report is in connection with where pay TV can operate
and where it cannot, where it must provide nondiscriminatory service.
Do you have the citation on that, Mr. Goldberg?
We might give you that for the record.
PAGENO="0591"
5~7
Mr. MACDONALD. Indeed, it would be helpful.
Mr. LIND0w. It is. in paragraph 230 on page 7~. That is an example
of the sort of thing we are talking about.
Mr. MACDONALD. What does it cite?
Mr. LIND0W. This is the citation; yes, sir. It is very brief, if I may
read it to you.
Mr. MACDONALD. Please do.
Mr. LIND0w (reading)
As to geographic or other reasonable patterns of installation for new STY
services the rule is drafted to permit this. Such a provision seems reasonable
and likely to make for a more rapid and efficient development of the new
service in any community.
There is also a footnote:
Finally, our preliminary study of the technical systems for STV leads us
to recognize that the service area of an STy operation may well be smaller
than that of its free TV service that our rules were required to provide. The
rule adopted today in the instant issue of whether STV service should be pro-
vided within all the service area of the station is designed to strike what seems
a reasonable requirement; namely, that STY service must be provided to all
within the grade A contour of the free TV service of the station with the excep-
tions mentioned above concerning nonpayment, poor reception pockets and the
like. This rule is consistent with our use of the grade A contour limiting STY
to five station markets. No doubt many subscribers will be obtained outside
that service area but service there will not be mandatory.
Mr. MAcDONALD. Does that not overlook the fact that CATV will
be in operation, as well?
Mr. LIND0w. CATV is another operation.
Mr. MACDONALD. CATV could interlock with pay TV.
Mr. LINDOw. I think C.ATV is bound to interlock itself into the
pay TV.
Mr. MACDONALD. As I understand, I hope one of the counsel will
correct me if I am wrong, but, as I understand the grude A contour, it
just means a radius of 58 miles. Am I correct?
Mr. LISIiMAN (committee counsel). Depending on whether it istJHF
or VHF.
Mr. LINDOW. It depends, but that is approximate.
Mr. MACDONALD. The use of CATV just throws that out of the
window, does it not?
Mr. LINDOw. I am not sure that I understand, but CATV can con-
ceivably bring in signals from quite a distance away.
Mr. MACDONALD. Therefore, what is now in this year of our Lord
1967, grade A does not necessarily mean that it will be grade A con-
tour if CATV i~ successfully used in, say, a year or 2 years?
Mr. LIND0w. Grade A is the measurement of a signal of an in-
dividual station. So, grade A for a station is a particular thing. CATV
does not have anything to do with changing where that signal goes.
Mr. MACDONALD. No, but the use of that station, if I have CATV I
can pick up a station that is farther away than 58 miles, can't I?
Mr. LIND0w. Yes; in some cases, you can.
Mr. MACDONALD. Therefore, ttie use of the words "Grade A" does
not mean very much any more.
Mr. LIND0w. It depends on what you are using it for, sir. It is a
term of the art, so to speak, describing the signal strength of a
specific station, without assistance of CATV. It is the measurement of
an off-the-air signal.
PAGENO="0592"
588
Mr. MACDONALD. As Mr. Brown indicated to me, it presumes the
nonexistence of CATV with STV. It seems to me the whole ball game
is changed.
Mr. LINDOW. I agree that CATV coupled with pay television, which
is bound to happen unless something is done about this, poses some
tremendous problems for this committee and the Congress and the
Federal Communications Commission, to say nothing of the broadcast
industry. I think the two do have a direct relationship to each other.
Mr. MACDONALD. I do not mean to get into the technical aspects of
the thing.
You have made a fine statement.
Mr. LINDOW. Thank you, sir.
Mr. MACDONALD. On page 9, you, like all the other opponents, and I
am not saying that I am for this pay TV, but you keep calling it a
failure. You say based on the revenue they derived from the Hart-
ford experiment. If it was such a failure, why are the commercial
networks fearing it so much?
Mr. LINDOW. I didn't think the concern is that of the commercial
networks alone The commercial networks, incidentally, sir, are not
members of our association. We represent individual stations. I think
the concern of the networks is shared by the individual broadcast-
ers, as well.
Mr. MACDONALD. If it were a fialure and the public does not want it,
then they are not going to use it; is that right? If they are not going to
use it, Zenith and the other four or five stations are going to fall flat on
their face and lo~se a lot of money. Is that right?
Mr. LINDOW. That is right.
Mr. MACDONALD. Therefore, are you not putting the cart before the
horse in saying that this has proven to be a failure and yet you are so
fearful of it? I cannot connect up the two thoughts.
Mr. LINDOW. Sir, as I said in my statement, I think the problem
before us is not what happens if pay TV fails If you and the members
of this committee and other Members of the Congress, the Commis-
sion, everybody else, agree that this thing is a complete failure, then
we all have been wasting an awful lot of time and money because in
that case why establish pay TV and utilize scarce broadcast frequencies
for this purpose? We have to address our question only to the question
of what happens if it succeeds.
Mr. MAODONALD. It is not the substance of this hearing so I have not
made a point of it. Mr. Dingell made a point of it, but the U.S. Govern-
ment, itself, uses over half of the spectrum or reserves it. All this talk
about spectrum or lack of space, to use somebody's words yesterday, is
hogwash; it does not mean anything because the spectrum is there and
it is not being utilized.
Mr. LINDOW. May I speak to that point, sir?
Mr. MACDONALD. Of course.
Mr. LINDOW. The spectrum is being utilized to a considerable degree
and the degree of utilization has been growing at a fantastic rate-I
am speaking now of the television broadcast spectrum-at a fanta:stic
rate in these past years. Originally, when Zenith and others were
trying to start the pay TV argument some years ago, Zenith made a big
hue and cry on this point; we were not using the spectrum so what
difference does it make?
PAGENO="0593"
589
Mr. MACDONALD. The land mobile people are the ones who were
really pushing that part and I think they are right.
Mr. LIND0w. Mr. Brown referred to the 400-and-some unused tele-
vision channels that are not in operation, 450, I believe is what the
gentleman from Ohio said. Let us look at those 450 for just a minute.
As I understood it, you qualified it further by saying this excluded
all the educational, these were all commercial stations. Now, ~i sub-
stantial number of those are located in remote, sparsely populated
parts of the United States where they may very well never come to life
as a full-fledged television broadcast station.
We have a pet expression in our business and I do not mean to cast
any aspersions on the great State of Nevada, but Broken Jaw, Nev.,
meaning a small crossroads community far away from everybody else.
A good part of the channels not presently in use you will find dis-
tributed among such communities.
Mr. MACDONALD. May I interrupt you?
Mr. LINoow. Yes.
Mr. MACDONALD. I have a house in a place called Cape Neddick,
Maine, which I don't get to use as often as I like. I can get double the
channels at Cape Neddick, which is a rural area, that I can in Boston
because I can draw from Manchester, N.H.; Portland, Maine; Ports-
mouth, N.H.; educational station in Durham, N.H. Then I can get the
Boston stations, too. All this without OATV.
So, your argument about the rural areas being harmed by this thing
is specious.
Mr. LIND0w. The rural areas will be harmed in this sense, that if
the programing that is now on free television which provides a big
part of our income, revenue, and enables us to do all the things that
you and the Commission tell us we have to do and we want to do, if
that income is jeopardized then our programing will be reduced. The
type of programs we are now carrying will be siphoned off to pay TV.
Mr. MACDONALD. Would the opposite happen? Would you up your
type of programing? Would you be afraid of competition and there-
fore put on better programing? Instead of having 17 commercials in
a movie, you might cut them down to seven?
Mr. LIND0w. I don't think the number of commercials is causing
any problem.
Mr. MACDONALD. I guarantee you they are.
Mr. LINDOW. I meant in the sense of limiting the amount of accept-
ance that television is having in most cities.
Let me try to answer your question. The fact that there would be
some problem of competition is not a matter of our being afraid to go
out and fight. We have competition now. You talk to any station oper-
ator in any market, particularly this year when things are a little bit
rough, he will tell you he has plenty of competition.
But, as I pointed out in my statement, it takes not only a desire to
compete but it takes money to go out and buy the raw material, if you
will, of our business~ which is talent and programs, and yOU have to
have the resources in order to do that.
These pay TV people, on the very, very unoptimistic projection that
I gave you, would have $1,100 million to spend on programs when they
would have only a small degree of penetration and this is the equiva-
lent of a great part of what free television broadcasting has to spend
86-899 O-~67------88
PAGENO="0594"
590
flow, you can see they are going to outbid us, and there are just so
many features, there are just so many world series.
Mr. MACDONALD. Would not the public end up getting better pro-
grams than they flow have available? Do you not have to go to the
least common denominator of intelligence and taste to sell the stuff
that you try to sell over your stations? Would not the public benefit
from a change from that?
Mr. LINDOw. I don't know.
Mr. MACDONALD. I don't, either. You are in the business. I have a
million things to do. I am just th~ lowest kind of worker in the vine-
yard. I just watch TV. I have not made up my mind one way or the
other. I am not sure a little competition would not do you some good.
Mr. LINDOw. I listened the other day, and I will try to answer your
question, sir. I listened the other day when Mr. Wright was on with
the station manager, I guess it is not his station, it was the station's
general manager from Hartford. Members of the committee were talk-
ing about the programs offered there. Your questions related to the
quality of programing. He said they had to take the kind of film they
could get from the film companies and they could not alter it or change
it, because there had been some questions about whether this was of a
standard that was acceptable or not, they could not alter or change it or
cut it.
Mr. Preminger made a big point about the fact that there would
not be any changes on some of these programs.
That does not sound to me like they are looking toward any great
big improvements in programs. They are suggesting taking the same
kind of program material now offered on free television, except they
are not going to exercise the kind of control over it apparently that
we do regularly. Ninety percent of this is going to come from films
and sports. How is this going to improve the programing? I can't see
it.
Mr. MACDONALD. You said that that formula was a failure. It is, in
your judgment. You said that the Hartford experiment was a failure.
Mr. LINDOW. I said Hartford was a failure as a test.
Mr. MACDONALD. You also said that that was the breakdown, that
ii was; namely, movies and sports. I read in the paper yesterday. I
bBheve, or the day before, that the Nielsen ratings buttressed the fact
that movies were the biggest draw on TV.
Mr. LIND0W. Yes, sir; they sure are.
Mr. MACDONALD. I don't know how accurate the Nielsen ratings are
but at least it is an expression of opinion and has some authority in it.
So maybe what they are experimenting with in Hartford was wrong
because if you say it was a failure, maybe the programing was the
reason it was a failure. I, personally, would not stay at home to watch
movies and sports events all the time. I certainly like a more diverse
type of entertainment than that.
Mr. LINDOW. I think they pointed out that it was their intention,
they certainly did not disagree with the Commission's findings that 90
percent of the programing of pay television would be in feature films
and sports. So, if the feature films and sports which they had been pro-
graming up in Hartford was wrong, maybe they should change to
something else. At least, they don't believe it is wrong.
PAGENO="0595"
591
As I indicated in my statement, I have heard very little said, by the
Zenith people at least, on the subject of new and different types of
programing, different sorts of programing in the future. They used to
talk about that but right now they are talking films and sports and
that is what they are selling. The films they are selling up there, as Mr.
Wright so correctly pointed out are the ones that are currently shown.
Mr. MACDONALD. Yes, but you said `the experiment was a failure.
Mr. LIND0w. I said the test was a failure, sir.
Mr. MACDONALD. If you did an experiment and showed that a certain
formula was wrong, as a businessman wouldn't you change it?
Mr. LIND0w. I certainly would.
Mr. MACDONALD. Maybe they will.
Mr. LINDOW. I didn't say their formula was wrong. I said as a test
of the extent of the success of subscription `television it was a failure.
1\~[r. MACDONALD. Mr. Brown.
Mr. BROWN. I do not follow what you are saying to Mr. Macdonald
with reference to your comments on page 9. You talk about the 16 per-
cent penetration. Was that the Hartford penetration?
Mr. LIND0w. This is based on the Pay TV Committee's figures of
what pay TV could reasonably expect to do. Again this is based on the
proposed FCC "Fourth Report" and what the FCC and Zenith and
everybody else said.
Mr. BROWN. What was the Hartford penetration?
Mr. LINDOW. That was much smaller than that.
Mr. BROWN. What was it?
Mr. LINDOW. 0.75 or thereabouts.
Mr. BROWN. Was that a controlled percentage or was that as much
as they could get?
Mr. LINDOW. I think Zenith set forth certain limits, the total size
of their test.
Mr. BROWN. Here again, if there was a forced limitation, then we
have `another question, have we not? Because we don't know how far
Hartford might have gone if it had been left free and everybody who
wanted to could have joined.
Mr. LIND0W. It was not a. forced limitation. I think they just de-
cided they wanted to spend just so much on the test.
Mr. BROWN. If they had been able to make available as many control
units to as many people in Hartford that wanted it, it might have been
different.
Mr. LINDOW. I think if `this was spread all over the country I think
it would be considerably different. If pay `television was instituted as
a nationwide system, it would be considerably different; yes.
Mr. BROWN. You don't think it would have been a failure?
Mr. LIND0w. This is the point I have been trying to make, sir. Again
a pay TV system wi'th this type of programing and the opportunity
t? get it that `they will have under the rules proposed by `the Commis-
sion, I don't think it will be a failure. I think it will be a howling suc-
cess. As a financial operation, it would be a howling success. It might
be disastrous as far as the public in' concerned who would wind up
paying for something they have beeii getting for nothing up to now.
Mr. BROWN. Wai't a minute.
If people are willing to pay for a service even though somebody
else is offering that service free, what is wrong with that?
PAGENO="0596"
592
Mr. LINDOW. We have set up, the Congress has set up, a system of
free broadcasting in this country.
Mr. MACDONALD Commercial; not free.
Mr. LINDOW. Commercial and educational, different categories of
stations; yes, sir. It is one where the viewer does not have to pay a
specific amount to view the program.
Mr. BROWN. Wherein the advertiser determines, along with the sta-
tion or the network, what is going to go on the air and what selection
that the public has. This Congress just got through passing public
broadcasting legislation in order to provide with public funds an
alternative to that choice because the Congress apparently felt that the
existing "free" choice was not adequate. I happened not to Support
that piece of legislation.
But I think it is highly inconsistent for the Congress to take the
taxpayers' money willingly and put it into public broadcasting, really
free broadcasting except the taxpayer pays, and say that the public
cannot, given the possibility of a system to do this, put some money in
the meter and see what they would like to see themselves and cannot
have a choice between the commercial broadcast and the public free
taxpayersuppo~te~ Government broadcast.
Mr. LINDOW. Of course, Congress can and it has the power to change
our system. This is well within the authority of Congress to do this if
they want to.
Mr. BROWN. I am trying to figure out where the morality is in the
other two systems and the immorality is in this system.
Mr. LINDOW. I think it is a basic policy question, the philosophy
under which our system of broadcasting has operated. It is quite
unique and distinctive and was the first in the world to operate on this
basis. It has done extremely well for the public and for those who laid
their money on the line.
Mr. BROWN. Let us get into a policy question here. Do you feel that
any control should be exercised by the FCC over the program content
of television?
Mr. LINDOW. No; I do not.
Mr. BROWN. I share that view and am concerned that we may get
to the point where, because of what is involved, people are going to
say we have to have some control over it.
It seems to me that One of the controls might be exercisable directly
by the citizens rather than through their Government.
Mr. LINDOW. That has been the way it has been Operating. Somebody
said the other day, I guess it was Mr. Van Deerlin, about how he has
to run for office every 2 years. I can sympathize with his problem. We
have a vote taken as a television broadcaster every second because the
viewer can either switch it on or turn it off, It is a big problem to do
the job. People do exercise control over us, considerable control over
us believe me, by that device.
`Mr. BROWN. Where do I vote to see the National Symphony
Orchestra on television?
Mr. LINDOW. Channel 9 has been over a period of years carrying
concerts of the National Symphony Orchestra, I believe.
Mr. BROWN. How about sponsors?
Mr. LINDOW. They have been sponsored.
Mr. BROWN. At what price?
PAGENO="0597"
593
Mr. LINDOW. I don't know what the figures for the sponsors were. I
suspect that probably WTOP may have dug into its own pocket to
make up the difference between what it got from the sponsor and what
it paid for the symphony but I don't know. I am not familiar with
that. That is frequently the case with cultural events.
Mr. MACDONALD. I must be voting wrong all the time because some
of the programs I like run about 8 weeks or a month.
Mr. LIND0w. You and I have the same problem.
Mr. MACDONALD. I don't know who does the voting, but it certainly
is not the public.
Mr. BROWN. Let me ask this question: I happen to be in the news-
paper business in real life. I think that there is an analogy here, if
every station were allowed to be a combination of pay and subscrip-
tion TV wherein you would probably sell your prime time, that is, the
station would sell its prime time to the audience and not to the adver-
tiser in much the same way that the newspaper sells its front page to
the reader and not to the advertiser on the theory, which you devel-
oped so effectively on page 9 of your testimony, that you can make
more money from the audience for that time than you can from the
advertiser with that time. Does that make sense?
Mr. LINDOW. I don't think there is any question but what you can
make more money out of pay television than you can out of what we
call free television or commercial television. I think there is no doubt
about that. The potential is much greater. You have more people to
draw on. If you charge everybody to see everything that you are giving
to them for free now, of course, you are going to produce a lot more
money.
But with it come a great many penalties that we are not prepared
to accept, that we don't believe are right; and this is why we feel the
way we do.
Mr. BROWN. You see, I think we have an issue here, not an argu-
ment; I don't see it as an argument between Zenith and RCA or any-
body else or an argument between two or three networks or an argu-
ment between a number of different stations.
If the Congress acts in an area, it can say to the FCC the jurisdic-
tion is ours; we will permit or not permit pay television. It can also
act and say further, your regulations as proposed should be limited or
changed in this way or that way. This is what we have come to in this
hearing-I don't know whether we intended to get into it this far or
not, but of necessity we have.
It occurs to me one of the rules that may be wrong is the five-stations
market rule. Maybe we ought to permit everybody, who wants to,
to go pay TV.
Mr. LIND0w. Then you are changing our whole system over to a
pay system from a free system.
Mr. BROWN. Perhaps because it may just be that there would be a
station in that market that would say to themselves, I think we can
make more money as a free TV system in our particular market and
offer good programing between 8 and 10 o'clock at night which would
be available to a high-bid advertiser in such a way that we would
counter the pay TV. Let us be frank about the system under which
we operate. Watching free TV is not the only choice I have at night.
I can go out, if I have the money, I can go out to the Shoreham and
PAGENO="0598"
594
have a meal and watch topnotch entertainers, live. I can go to a movie
and see something that I will later be able to see on either pay TV
or free TV. I can watch the ETV channel which I help support by
my contribution or which the University of Maryland or somebody
else sponsors with Federal, State, and local funds. Or I can go to the
symphony and hear Iturbi or to the boxing matches.
Mr. LINDOW. You are a fortunate man, sir. There are a good many
people who are not in that position, right here in the District of
Columbia.
Mr. BROWN. Precisely. Those people also buy things, don't they?
Mr. LINDOW. Yes.
Mr. BROWN. As a matter of fact, if you take the number of people
and the number of dollars that move with these people a lot of
them buy more than the people who go out and watch live enter-
tainment at the Shoreham because those people drive out in their Cad-
illacs and Lincolns and there are not very many Cadillacs and Lincolns
sold versus the number of Fords that are sold.
What I am getting at is that we are in a position in free TV now
where the number of things which are most common in our society,
and I don't use the word "common" in a deprecatory way, are the
things that the advertiser wants to sell to people he cannot get to~
through free television. If you want to sell something to people who
have money, you sell it through the Wall Street Journal because the
people who have money buy the Wall Street Journal.
Now my question is: Does not pay TV offer the possibility of aiming
for audience selection that would provide for the selection of an eco-
nomic strata market and intellectual strata market, and wit.h pay TV
in combination with free TV you would be offering to the advertisers
of this country, for instance, a broader possibility of making the eco-
nomic system work?
Mr. LINDOW. The proposed FCC pay TV report recognizes, as I
indicated, that pay TV programs would largely be duplicati've of the
free TV program. Let me quote this again. They state: "The reality is
that the major part of the program, as the proponents argue, will be of
a kind that would appeal to a mass audience" and not this select group
that you are just talking about, sir.
Mr. GOLDBRRG. The economic pressures are the same in commercial
television as they are in pay television, to maximize the profit. You
don't have this in public television because you don't worry about the
profit. But where you are worrying `about the profits you want to
maximize them. The economic pressure, whether they are using the
cost per thousand of free television or the box office economics of pay
television, is the same. It would lead to the same kind of programing.
The Hartford test was not a failure in terms of what could be
financially successful on pay television.
At Etobicoke, the experiment showed the same thing. This is in the
proposed FCC report, that the programing which seemed to satisfy
most of the people most of the time was the readymade audience pack-
ages of films and sport~
The Hartford experiment was a failure in terms of its concept of
programing to minority audiences. This failed. As a result, they are
still sticking with movies and sports, as you saw in their program
guide.
PAGENO="0599"
595
Mr. BROWN. You know, if your analogy were followed all the way
through, we would not have an ballet or symphony in this country.
We would be watching the same thing. This seems to me unfortunately
the direction in which free TV may be headed. If the only criteria
you use is the sale of your time that is available because you have this
franchise from the Federal Communications Commission, to make
money, the most money from the guy who wants to get the broadest
audience, you wind up with the least common denominator.
I should not say the least common denominator, the broadest com-
mon denominator, because the least common denominator infers some
very low taste which will offend enough people that they will not
watch it and you will lose it at the other end.
Mr. LINDOW. This is not the case in free television. We have been
putting on ballet. We have been putting on opera. We have been put-
ting on concerts. We have been putting on programs of the highest
standards. These are done in proportion. We try to have a balanced
program schedule which is what the Federal Communications Com-
mission has urged. We quite readily accept that as good business.
We have done this to the extent that we have gone far overboard.
We have spent millions and millions of dollars on providing the type
of programs which, if you measure it by the pure standards of their
commercial attractiveness, would never get on. But they are done
because we have this obligation which we freely accept and try to
honor.
The record is full of this sort of thing, to say nothing of the public
service activities that free television takes part in, to say nothing of
the news and special events programs that we do. Believe me, sr, I
can't sit quietly here and accept the suggestion that free television is
not doing a job in that area. I believe, sir, that it is. I think we can
do better and we would like to do better and we are going to try but
we have to have money to do it.
Mr. BROWN. If you infer this as a flat statement, you are wrong.
What I am concerned about is that we are trending in that direction
in free radio and television because of the commercial problems in-
volved. Now, my only suggestion in this area, my only question really
to you is, why can't we have a combination of audience interest and
commercial interest?
In any event, it is not free unless we go to a Government system and
it is not free that way, either. There is a political interest.
Mr. LIND0w, If the Congress wants us to have that kind of system,
you can have it.
Mr. BROWN. I understand. I am asking you as a representative of
the group in whose behalf you are testifying what your feeling about
it is. I know Congress can do it if it wants to.
Mr. LINDOW. Because I think you would be depriving a great many
people of the opportunity that they now have. I don't think that that
is right in terms of the system that we operate under.
Mr. BROWN. The assumption being that everybody, all commercial
broadcasters, would go to the pay TV system.
Mr. LIND0w. I think that would be a very unfortunate decision for
the American people.
Mr. BROWN. And also broadcast 100 percent of the time on pay
TV. Is that your assumption?
PAGENO="0600"
596
Mr. LINDOW. I don't know whether they could all sustain them-
selves but maybe they could. Broadcasters have a lot of ingenuity. I
see some small radio stations sustaining themselves in areas where
I did not think they could possibly exist, but I don't know.
Mr. BROWN. I don't think we know, either. To say that it is a
failure and therefore we should not go into it or that it is such a
howling success that it is going to completely disrupt the present
system of free TV seems to me to be an assumption so broad that I
have to have a better rationale for why one or the other is true. I
think you will find the true place is right down the middle.
Mr. LIND0W. Once you start this thing snowballing, it does not
happen overnight, but the siphoning effect we have been talking
about starts to come into play and increases and increases and de-
velops further and further and I think this is what the witness that
preceded me tried to point out, as well.
Mr. BROWN. Will the chairman be patient for one more statement?
It seems to me the station in Broken Jaw, Nev., will have to wind
up using a combination of pay and commercial television in order
to supply the people in Broken Jaw, Nev., full usage of the spec-
trum that the Government makes available to them.
Up in Torbert's area, in that cabin, he may get it all free or all pay;
I don't know. But why could not all stations use a combination of the
two systems?
Mr. GOLDBERG. We don't believe that pay TV and free television
service could exist side by side because of the siphoning effect. They
are both going to be competing for the same kind of programs.
There is only a certain kind of program that apppeals to a great
many people in the context of their home viewing. One of the greatest
problems in broadcasting is that there is not an adequate supply of
programs worth broadcasting. That is the problem that the network
have each season. They will be competing for the same general type
of progra.m to present in the context of the home.
It becomes then a question of who can compete better or who has
more revenue with which to compete. We feel that pay TV, given
its potential of unlimited penetration nationwide, would dominate
the program acquisition races.
Mr. BROWN. You had on channel 18 in Hartford a combination of
pay and free TV because that station was oniy pay TV a few
hours a day. This was a controlled experiment in such a way that
it loses some of its impact. But, in a market like New York City
where you have a wide number of stations available, if all stations
were pay and free both, you would have free TV available on some
stations some of the time, and pay TV on some stations some of the
time. I think you would have a spectrum of selections that would
serve the public interest better. I would submit this is something
that we have to prove is or is not going to be the case. I don't think
it has been well proved. If we can, prove it some bettetr way.
Mr. GOLDBERG. On your example, if you have that situation existing
in New York City you would find that this would be true but what
you would have is a free system during the clay, the off viewing hours,
and a pay system in the prime evening time and the 20 or 25 to 50 per-
cent of the people who could afford that service would have the service
on pay TV in the evening and the people who could not afford it would
be totally deprived of any service in prime time.
PAGENO="0601"
597
Mr. BROWN. You don't think that somebody would keep their
evening hours free and sell them to Schick to sponsor the boxing
matches?
Mr. LINDOW. He would not get the boxing matches. The pay TV
stations would outbid him.
Mr. BROWN. I submit that some stations in New York, perhaps more
than just one, are going to say those hours are going to be free, there
will be a lot of people watching and those people will sell the Metropoli-
tan Transit Authority or somebody else because those viewing are the
guys that ride to work on the subway and those are the ones some
advertiser will want to get. It is the same reason that not everybody
advertises in the Wall Street Journal, in Life or Esquire or in subway
cars.
Mr. GOLDBERG. That is assuming the advertiser wants to reach the
bottom economic third of the people in New York City who can't afford
pay television.
Mr. BROWN. Those people do spend money and do buy things
commercially.
Mr. LINDOW. The advertiser does not want to be cut out from that
very important middle-class market.
You mentioned you are in the newspaper business. You know your
circulation. If it were just limited to that lower segment, it would
not be as attractive to the purchaser of advertising.
Mr. BROWN. I will tell you what market he is looking for if you tell
me what he is selling.
Mr. LINDOW. That is true. I am talking about the mass commodities
that appeal to the mass of people in all income brackets.
Mr. BROWN. They don't want to be cut out of that lower third, either~
So they will put a little money into free televesion.
Mr. LIND0w. Maybe they will put more in the newspaper.
Mr. MACDONALD. Thank you very much.
In conclusion, I would just like to correct two things.
I don't have a cabin. It is a house.
Secondly, I would think that the strongest argument you make
against yourself is the fact that you say that all these poor under-
privileged people who can't afford pay TV are going to go to pay
TV, because if your programs are that bad, to paraphrase an adver-
tisement, you must be doing something wrong, because people are not
going to pay for a program that is good if they dont have to pay for
it unless they are willing to pay for it.
I would think the networks, and I know you don't represent the
networks and perhaps you are not the proper person to say it to, but
there must be something being done wrong on TV, and I guess radio,
that irritates people enough that they are willing to pay for what they
are getting free now. When you say that you fear this pay TV will
just spread like wildfire-I forget the exact words you used but they
had that connotation-then you don't have much faith in what you
are doing, yourself.
I should think that the network broadcasters would try to upgrade
what they are doing if they are afraid of pay TV. I think if they came
with a comparable type of entertainment that would be successful,
it is just the law of human nature that nobody is ready to pay for
somethmg that they can get for nothing un'ess what they are getting
PAGENO="0602"
598
for nothing is so irritating to them that they are ready to pay to get
away from it.
You know, like all these ads that you hear about, mouth wash and
all, you know, all the rather distatsej~ul things you have to watch.
I would like to put in a word for the networks because nothing much
good has been said about them today. I think they do an outstanding
job in news coverage and in sports and some other fields. But the vast
wasteland that got so overpublicized is there. Have you ever had to
be in bed or in a hospital for a day or two~ and watch daytime tele-
vision?
Mr. LINDOW. Yes, sir.
Mr. MACDONALD. I agree with you 100 percent when you say that
nobody would watch that.
Talking about free TV, they would have to pay me to watch some
of those programs. I think I am speaking as the typical listener of
TV. On the other hand, as I said yesterday, the program ABC did
about Africa and many programs that are done by the networks are
superb.
It is like the thing about the girl with the curl. When you are good,
you are very, very good, but when you are bad, you are really horrid,
it seems to me.
It seems to me that is why people should have the choice to choose
whether they want to take something for nothing or they will pay for
something, just to get away from the inaneness of some of the things
that go on TV.
As long as you go to the least common denominator, there will be a
market; I don't know how big the market is going to be, but there is
going to be a market for people who just can't put up with a lot of this
stuff that is shown on TV. I would think, you know, a sort of plague
on both your houses. Every witness who has appeared here has made
a good argument. It is true that perhaps things would be siphoned off;
I don't know.
The FCC went into rather complicated rules in my judgment. How
that would work out, who knows. But, on the other hand, if you would
upgrade your product, you would not have any fear of pay TV because,
as I repeat for the last time, nobody is about to pay for something that
they can get for nothing.
Mr. LINDOW. May I respond to that, Mr. Chairman?
When these programs are siphoned off, and we believe they will be
siphoned off, then what will we have left? We have the soap operas that
you were talking about, perhaps. We would have our news and public
affairs programs, which cost a tremendous amount of money to pro-
duce, without the revenue to sustain them.
I think Mr. Adams stated on the first day of these hearings in be-
half of NBC they spent a substantial amount of money in that case
and I know the other networks do, too, and I know the individual sta-
tions do. You would have secondhand programs that have been re-
run over and over and over again. You would have very little worth-
while program fare to offer.
Now, these people that you are referring to, sir, in the lower 30
percent economically, have desires, too. They want to see better pro-
grams. They want to see the best that they can see a:nd I think they
ought to see the best they can see. I think if we are to try to help them
PAGENO="0603"
59~
improve their status we have to give them better things. So they will
have to go to pay TV to get those if they are denied them because we
don't have the financial basis to provide the sort of thing we are pro-
viding now, and we hope to improve.
Mr. MACDONALD. I don't think the networks have been losing money
lately.
Mr. LINDOW. No; `they are not. Believe me, they are not. We are not
talking about this year or next~year. We are talking about the ultimate
effect; what happens if pay TV succeeds, not if it fails. As I said
before, if it fails, we might as well all go home and forget about it, if
we agree it is going to fail.
Mr. BROWN. I ha;sten to point out that soap operas got their name
from their sponsors and not from their content, and a whole genera-
tion grew up on free radio sponsored by soap companies and some
others. I happen not to find not too much fault with that. I don't find
too much fault with the fact th~vt sponsors ought to be allowed to
sponsor things to be made available to the public free. What I am
trying to suggest is a combination of these things rather than resist a
technological possibility and development that is here.
Now, I am wondering whether CBS' attitude will change if they can
come up with a patent possibility that will make a pay TV system
available-maybe they have it; I don't know-but I wondered if their
attitude would change if they had to pay money to somebody else.
Mr. LINDOW. I don't know, either.
Mr. BROWN. Second-hand programs, "Our Miss Brooks," and some
of those things are still floating around on free TV. I prefer not to
watch them because I have seen them three or four times before. Some
of my kids are delighted with them and I think they are good enter-
tainment for children.
Mr. LIND0W. My point on that, sir, was that they would be even
more second hand, if possible, before they would become available
because pay TV would have wrung every nickel out of them at the box
office before we got them. We know you can play a program a number
of times and still command a good audience.
Mr. BROWN. That is a matter of viewpoint.
I think the gentleman who preceded you, if he had leaned on what
his real interest was rather than picking an argument out of the air,
he would have been able to establish that there are a lot of people who
pay box office to see it when it is first run but there are a lot of people
who will wait and see it when it is free.
I don't think we are raising a question here as to whether you are
going to see good stuff on pay TV and rotten stuff on free TV. I think
you are raising a question as to when you will see it.
If you want to see the world series ball game right now, you may
watch it on free TV. If you don't have time to see the game until next
weekend, you may watch it on pay TV. They are doing this with sports
right now. If I want to go to the Firestone open when it is played,
I can go to Akron.
Mr. LINDOW. Under the Commission's rules, those could be siphoned
off right now and they would not have to wait 2 years or any length
of time.
Mr. BROWN. I could spend the money to go see it or I could wait
until it is on ABC's "Wide World of Sports." I do the latter because
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6O~
I don't have the time or money or inclination for the former. But let
me ask another question. Is the technology developing in the broadcast
industry to such an extent that it will permit more television channels
on the spectrum or is that a frozen commodity that is unlikely to
change? This is a scientific question.
Mr. LINDOW. I am not an engineer but I do have a little under-
standing of this matter. I believe the short answer to it is this: There
has been suggested from time to time ways in which the bandwidth
could be adjusted in order to provide more spectrum space. I haven't
yet heard of or seen anybody who has come up with a way in which
this could be done and still be sure that we have the same type of high-
quality reception we have.
And, No. 2, to overcome the problem of the existing number of sets
running into the many, many millions in the hands of the American
public without making them obsolete overnight were you to change
that. That is the short answer to your question, sir.
Mr. MACDONALD. Thank you very much for your testimony.
Mr. LIND0W. Thank you. I appreciate the opportunity to be here.
Mr. MACDONALD. Without objection the statement of Harry L.
Graham, legislative representative of the National Grange, will `be in-
cluded in the record at this point.
(Mr. Graham's statement follows:)
STATEMENT OF HARRY L. GRAHAM, LEGISLATIVE REPRESENTATIVE, NATIONAL
GRANGE
Mr. Chairman and members of the subcommittee, the Grange appreciates
the opportunity of appearing before this distinguished subcommittee today to
express our opposftion to proposals for paid TV, and to discuss our reasons
for this position.
One of the problems concerning all rural America throughout our history has
been that of communications. This is an area in which the Grange has had a
consistent interest, beginning wi'th our successful attempts to provide rural free
delivery service. We have supported the organization of mutual telephone
companies, and later *on cooperative telephone services und'er the REA, and
other public and semi-public `cooperative endeavors to improve rural communi-
cations.
You will remember that we appeared before you concerning CATV. We are
not opposed to CATV or to paid TV per se so much as we are concerned that
the result's of both of these will be the further diminution of the TV coverage
which is available to vast sections of sparsely populated rural America. We
opposed OATV in the smaller towns because we believed it would siphon off the
revenue necessary to keep free television continually beamed into the rural
areas. It is with this same thought in mind that we come before you today hop-
ing that this subcommittee, in its judgment, will not approve pai'd television as
a means of mass communications in the United States.
We do not believe that paid TV offers any attractive alternative to free tele
vision. In fact, the opposite might be true. Paid television could become so much
of a commercial enterprise that it could further deteriorate the quality of TV
programs. Paid television would undoubtedly cure some of the problems created
by an over-emphasis and increasing `frequency of `television commercials, but
the quality of the programs could very well suffer as a result of this, and we
would get a steady diet of "Grade B" movies with considerably less of the kind
of news and special events coverage that we have at `the present time.
The exception to this would probably be more sports coverage. The prize fights
now available to paid TV audiences in movies with giant s'creens would be avail-
able to those on `the subscriber list. However, considering the quality of this so-
called "sports", especially in recent years, this does not offer much attraction
to us. On the other hand, at the present time, free television is bringing us most
of the sports spectaculars of general interest to the public, including the Olympics,
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601
the World Series, professional football, ice hockey, road racing and many others.
Another problem is that paid TV could siphon off the best of these programs
and leave only the second rate and highly undesirable programs for free TV.
This would have the effect of further reducing the quality of televisioll pro-
grams which has been a major concern of the National Grange at its annual
sessions for the last several years. All across the country, our Grange members
have submitted resolutions to their Subordinate, County, and State Granges,
petitioning us to find some way to improve the quality of `television programs
and to keep some of those programs offensive to morals and decency off the air.
Paid television, like CATV, would be available only in urban markets or iii
centers of population, and the vast rural areas would be shut off from the bene-
fits of these programs, if any benefits were forthcoming.
In the so-called Hartford Report, which suggested $05 a year as' a fee for paid
TV if it did become an acceptable fact in our urban life, then the available re-
sources to the companies would not be measured in hundreds of millions' of dol-
lars, but rather in billions. These companies could very well become "the tail
which wags the dog." Since they would be in the realm of private enterprise,
they would be considerably more difficult to control in terms of the general weF
fare and the public interest.
As an alternative to paid TV, we would be of the opinion that it would be much
cheaper for the American public and probably considerably more beneficial if
there were additional allocations of funds at all levels of government for the ex-
pansion of `the so-called "educational television" with the word "education'al"
being used in its broadest sense so that the arts, sciences and humanities might
all be included.
My observation of some of the educational programs indica'tes to me that they
certainly are more acceptable in terms of our own concepts of morality in our
own home and generally in the homes of our Grange people across the country
than either what we are getting today in free TV or what we are afraid we would
get in paid TV.
However, to conclude with our initial point, our greatest objection is' the
possibility that the rural areas would be left in the darkness as far as tele-
casting is concerned, as they were left in the dark without electric lights and
many of the other services for many years which were available to urban
America.
Even today, we are suffering from difficiencies of education facilities', health
and welfare facilities, general planning and many other of the recognized
requirements of urban living which are just as vital to American rural devel-
opment and revitalization as they are to our urban centers. The loss of any
kind of quality television to our rural areas would, in our judgment, be a
major disaster at a price which our national welfare cannot afford.
We therefore urge this subcommittee to reject this concept of paid TV
until there is conclusive evidence that it can be made available to all who wish
it rather than solely to our urban citizens simply by reason of geography.
Mr. MACDONALD. The next witness is Mr. Solomon Sagall, presi-
dent of Teleglobe Pay-TV System of New York.
STATEMENT OP SOLOMON SAGALL, PRESIDENT, TELEGLOBE
PAY-TV SYSTEM, INC.
Mr. SAGALL. Mr. Chairman, my name is Solomon Sagall. I am
president of Teleglobe Pay-TV System.
Teleglobe is one of the pioneers in the field of pay TV. It has
developed systems for use both over the air and over cable. rreleglobe
holds approximately 30 granted patents of which nine are in the
United States as well as several patent applications.
I had the privilege of testifying before the House committee on
January 21, 1958. I would like to incorporate my statement in the
record and I will only address myself to a few basic points.
Mr. MACDONALD. Without objection, it is so ordered.
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602
(Mr. Sagall's prepared statement follows:)
STATSMENT OF SOLOMON SAGALL, PRESIDENP, TELEGLOBE PAY-TV SYsTE1~i, Iwo.
My name is Solomon Sagall. I am President of Teleglobe Pay-TV System,
Inc., whose address is 400 Madison Avenue, New York, New York 10017. Tele-
globe is one of the pioneers in the field of Pay-TV. It has developed systems
for use both over-the-air and over cable. Telegiobe holds approximately 30
granted patents of which nine are in the United States as well as several
patent applications.
I had the privilege of testifying before the House Committee on January 21,
1958.
I will address myself today to a number of specific points:
Why subscription-TV? May I quote in this connection from my testimony
given to the House Committee nearly 10 years ago?
"The whole conception of Pay-TV is a natural result of dissatisfaction on
the part of the American public, with the substandard, low-level anemic pro-
grams that they have been offered for so many years.
"Some of the purveyors of TV entertainment have been treating the American
public as immature children, dumping on the airways third-rate material, being
only concerned with filling air time.
"Television has largely become a kind of a soporific, a mild narcotic having
the effect of preventing the majority of the viewers from exercising their
thinking faculties. Television, instead of being the most dynamic, most stimu-
lating force towards creating Interest in higher quality intertainment and
culture, has had largely an opposite effect."
Has there been a change for the better during the decade that has elapsed? I
will claim your indulgence in quoting a few excerpts from an article published
in the New York Times of October 23, 1966, by Mr. Jack Gould, its Television
Editor, entitled "Almost of Age and No Prospect in Sight":
"How long, then can TV go on saying that it is young, underdeveloped and in
need of time to find itself? Two decades is a long period in which to grow up, yet
TV is in deep difficulties * * *~
"Television has a deep-rooted problem that is becoming more evident with each
passing year. The medium patently does not really require an incentive to im-
provement in its daily output. It can be wildly profitable by just doing what it is
doing, and reap handsome dividends from sustained mediocrity. Even if there
were substantial defections of viewers, the remaining audience would be more
than enough to make television a sound advertising buy."
The article goes on to say:
"The medium is living dangerously on borrowed time, and reflects unmistakable
signs of overwhelming executive fatigue. The tired men cling to their saddles and
do not want to step aside for a new generation * *
Mr. Chairman, this was an article published in the New York Times on October
23, 1966. A year has gone by. Has the situation improved since? Most emphatic-
ally-NO. It is illuminating to quote some excerpts from the same Mr. Gould in
the New York Times of Sunday, September 24, 1967. The article is headlined
"Balony Sliced Very Thin":
"With the completion of the premieres of the new season, the report card of
the networks makes for dismal reading * * * taken as an overall group, the net-
work crop of weekly features is probably the sorriest collection in many years.
The bankruptcy of the Hollywood Factory is manifestly complete, and discerning
network executives whose thoughts must turn immediately to the 1968-69 sea-
son foresee little or no promise in the ideas being advanced for a year from now.
"All in all, the new season is electronic baloney sliced with a minimum of
imagination and innovation.
"The current season suggests primarily a weary band of old hands who are
exhausting the tried and true formulas and have lost their zest for recognizing
that broadcasting-like all affairs of mankind-now faces a radical1~r different
new day."
Conventional, or advertiser-financed, TV has had 20 years of growth, 20 years of
unparalleled affluence and prosperty and still has been unable to offer anything
better to the American public than the same stale diet. Why is the result of the
last 20 years so dismal? It is because the networks have had an unhampered, un-
restricted monopoly of the nation's airwaves, one of the nation's greatest natural
resources. Only competition of the kind that STV may be able to supply could jolt
PAGENO="0607"
the networks out of their 20 years of complacency. Such competition is healthy
and in the public interest.
The opponents of STV have done their utmost to create confusion and to mis-
lead the public and occasionally the legislators by advancing totally unfounded,
spurious arguments against Pay-TV. The basic anti-STV claims are:
a. There is a shortage of spectrum space.
b. There will be a siphoning of programs and talent from conventional or ad-
vertiser-financed TV.
c. There will be pre-emption of free air time.
d. The underprivileged cannot afford Pay-TV.
Cold facts and hard figures belie each and every one of these claims.
There is no shortage of spectrnm-space in the UHF part of the spectrum.
Many of the UHF construction permits are still lying idle-and in some of the
major markets. Even affluent grantees are trying to delay putting the stations
on the air as long as possible. Harcourt, Brace & Co., the well known publishers,
withdrew altogether from the privilege of losing millions in the UHF fleld~
Quite a number of UHF operators are losing money, many are continuing opera-
tions in the hope of selling their respective stations to prosperous major com-
panies, who are able to utilize the tax loss.
How abont siphoning?
It is high time to explode the bogy of siphoning. Let's consider the economics.
Let's assume the most optimistic Pay-TV penetration of approximately 20%
of the present 55 million homes, or say 10 million homes. It will take a decade
to reach a 20% penetration. Let's assume that one-half of Pay-TV homes or say
5 million homes will be paying on the average $2 a week for programs and equip-
ment leasing charges, or $100 a year. I am using the Hartford figures. This will
provide, within 10 years, an annual Pay-TV gross of $500 million. At say
$2.50 a week, or $1.30 a year, the gross will amount to $650 million a
year. But-ten years from now the gross of conventional advertiser-financed TV,
would rise-according to a recent statement by Mr. Walter D. Scott, Chairman
of NBC, to $6.5 billion, or exactly ten times the amount of the most optimistic
forecast of pay-TV annual take. Is it not logical to assume that the purchasing
power of $6112 billion for programs and for talent will dwarf that of $650
million? It may not be inappropriate to mention that the nation's tele-
casters grossed last year $2.2 billion with pre-tax profits of $492.9 millions. The
profits accumulated by the telecasters during the last 20 years of their dead-
head monopoly of the public airways provide an extraordinary cushion, which
will more than enable them to outbid any offers from the fledgling Pay-TV
industry for programs. In light of the above-any assertion that conventional
TV needs potection i's ludicrous!
The networks are now rapidly invading the field of movie production. Mr.
Otto Preminger stated yesterday that he does not agree with the decision of
the Motion Picture Producers Association to make representations to the De-
partment of Justice, with a view to preventing the incursion of the networks
into movie production. Mr. Preminger welcomed competition in this field as well,
as a basic tenet of the American free enterprise system. A `C'BS~-1VtGM production
deal was reported last week, according to which a number of movies will be
made for theatrical release and later for network showing. CBS will pay to MGM
between $700,000 and $900,000 per picture. It Is assumed in the case of
Pay-TV that on the average one-third of every Pay-TV dollar will go towards
the cost of production. With a $700,000 tab, the gross Pay-TV take will have to
be $2,100,000. Taking the price charged in Hartford, in respect to the bulk of
the STV programs, namely $1.50 for the entire family, it will require 1,400,000
Pay-TV homes to sustain a movie of that cost. But since on the average no more
than one-half of the Pay-TV homes will tune into a given program, it will require
2,800,000 Pay-TV homes to gross $2,100,000. 2,800,000 represents approximately
5.80% penetration of the present TV homes. And I venture to say it will take
probably 4-5 years for Pay-TV to reach such a penetration. At $100 per annum,
the gross Pay-TV take from 2,800,000 subscribers will amount to $2,800,000, but
by that time advertiser-financed TV will be grossing probably 3~/2-4 billion dol-
lars, with a purchasing power exceeding 12-14 times that of Pay-TV.
CBS has also announced a far more ambitious $21,000,000 production deal with
Jack Lemmon and the average cost per movie is expected to be $2.9 million, with
Jack Lemmon getting $1 million guarantee per picture against 10% rentals. With
the customary overhead added on, each picture has to bring a minimum of
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$3,600,000. With two-thirds of this sum expected from theatrical exhibition, each
picture will cost CBS $1,200,000. In the case of Pay-TV, it will require a net
of 2,400,000 homes paying $1.50 each, which means a total of 4,800,000 Pay-TV
homes to be able to afford this type of picture and with a star of the magnitude of
Jack Lemmon, or Elizabeth Taylor, or Richard Burton; 4,80,000 homes means
almost a 10%. Pay-TV penetration.
In light of these incontrovertible figures, could the opponents `still honestly and
seriously assert that Pay-TV will at any time be able to outbid conventional TV
for programs and talent?
The situation might have been different 20 years ago at the inception of TV in
this country. If Pay-TV and conventional TV would have had an equal starting
chance-20 years ago-the situation might have been `different. Today-given
every opportunity, and even without `any FCC proposed restrictions, Pay-TV
would only be able to grow slowly and painfully into a supplemental service.
Now, let's deal with the pre-emption of air-time. The question is: Will STV
encroach upon conventional airtime to the detriment of the public? Certainly NO!
Affluent, prosperous VHF or UHF stations will not go into Pay-TV with all its
headaches. It is the independent UHF operator who in the struggle for survival
in VHF markets will turn to part-time Pay-TV, in order to minimize his losses~
Teleglobe estimates that he will have to find $2,500,000 to be able to reach break-
even point with 20,000 subscribers. Let's take a four-station market, with all the
stations in operation. Each station is on the air an average of, say, 16 hours a
day, or 112 hours a week; the four `stations are on the air for a weekly total
of 448 hours. Pay-TV will enable the fifth independent to go on the air much
earlier than he would do otherwise. Let's assume the independent will provide
as much as 4-5 `hours o'f Pay-TV programs daily. He is not ta'king away anything
from conventional TV! The `economic viability of his `station as a result of part-
time Pay-TV will enable him to provide ultimately a hundred or so hours a week.
There is really little likelihood that he will be able to use more than half of the
airtime for Pay-TV. The other half or, `say, 50 hours a week will thus be a net
addition to free or conventional airti'me in the market. Pay-TV will thus not
deprive the public of the amount of free airtime available at present. It will
make possible maximum utilization of broadcast channels, at present still idle,
or otherwise ineffectively used, in some cases nourished by `sub-standard pro-
grams, of no benefit to the viewing public at large.
The low-income groups and Pa~y-TV
In their fear `of the competitive element that Pay-TV can bring about, the
opponents are assuming the role of the champion of the underdog, namely the
underprivileged, low income classes-the 30% of viewing families-who, they
claim, will not be able to afford Pay-TV. Let's explode this bogey as well. There
are possibly many low-income families who cannot afford and will not be able to
afford for years to come a color television set. It would certainly be a nice and
generous gesture on the part of the networks to allocate a certain amount of
their annual income to providing the low-income families with color television
sets for free. After all, telecasters have waxed fat over so many years by using
the natural resources belonging to the American public-the air frequencies. By
the same token, some of the underprivileged 30% cannot afford to pay the sky-
rocketing admission prices to the neigh'borhoo~ motion picture theatres. Would
it not be an excellent idea for the theatre owners to provide during certain hours
in the day-prime evening hours included-free admission for members of the
low-income groups?
It is the Teleglobe philosophy, largely `shared by other Pay-TV proponents,
that subscribers should never be charged more than the price of one single admis-
sion ticket to a neighborhood theatre. The average American family consists
of 3'/2 persons. Pay-TV will enable the cnt~re family~, and often friends of the
family, to watch a Pay-TV program at home for the price of only one single ticket.
This will represent a substantial saving to a low~income family. The STV op-
ponents are therefore not prompted by genuine sympathy for the underprivileged,
but by a fully understandable desire to protect their vested interests.
As a matter of fact-it is the low income groups that stand to benefit a great
deal from Pay~TV. They may be enabled to see via Pay-TV Broadway plays that
may not be shown on advertiser-financed TV for ten years or so. Let's take for
example a musical like Camelot. It played on Broadway some six years ago.
One has to pay on Broadway anything between 15-20 dollars for a pair of seats;
add cost of parking a car, and sometimes of a baby-sitter and perhaps `of a supper
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605
in town. This may mean an expenditure of $25-30 an evening~ Only a privileged
minority can afford seeing "live" theatre. But nobody calls this undemocratic.
Camelot is now-six years later-about to make its debut as a movie on Broadway
and probably in selected theatres in major cities-at hard ticket prices, in the
range of $2.50-$4 a seat. The selective presentations of the movie will attract a
wider audience, but the hard ticket prices may still exclude possibly 3/4 or more
of the potential moviegoers. Does it not sound rather undemocratic? A couple of
years later-~dependent upon the picture's appeal-it will reach the screen in the
neighborhood theatres, where the average charge is approximately $1.50 a ticket.
This creates an additional, much wider level of audiences. But the millions of TV
viewers are still deprived of the opportunity to see it. Camelot-or the Man of
La Mancha, or Fiddler on the Roof, or My Fair Lady-may not reach the home
screen for 10 years or perhaps longer. Pay-TV on the other hand will make it
possible for many-including the underprivileged segment- to vieW these out-
standing Broadway attractions shortly after they reach the neighborhood
theatres, and perhaps 3-5 years earlier than on advertiser-financed TV. The
theatre, by the way, is not being deprived of its steady audience. Moreover, the
young will always prefer to go to a neighborhood movie theatre than sit at
home. Pay-TV creates a new audience level. And 3-5 years later the same Broad-
way attraction will come on for free on conventional television-with its mass
audience level.
If STV is successful, then the 1/3 underprivileged will be able to sit at home
and for $2-$3 for the entire family and friends see the Man of La Mancha, for
$1 or $2 for the entire family, see legitimate Broadway plays and operas, for the
price of $1 for the entire family, see Off-Broadway productions, in short every-
thing which is today unavailable for economic reasons, to the very segment of the
population for whom the opponents are shedding crocodile tears.
Teleglobe supports the Fourth Report
Teleglobe is here to express its support of the Subscription Television Com-
mittee's recommendations to the FCC to authorize nationwide Pay-TV on a
permanent basis, as outlined in the Fourth Report. The SPV Committee declared
that subscription television is in the public interest and benefit, and at the same
time decided to impose certain restrictions in order to safeguard conventional
or advertiser-financed television against siphoning of programs or pre-emption
of airtime. We are of the opinion that conventional television does not need any
safeguards, does not need any sheltering, does not need any coddling; it is too
solidily entrenched to fear serious undermining of its position. We are, however,
willing to accept the FCC proposed restrictions, perhaps with some minor modi-
fications, if the FCC decides, in its wisdom, to make authorization of Pay-TV
conditional upon such restrictions,
Let's examine some further objections raised by the opponents:
The opponents claim that there is no proven public demand which would jus-
tify FCC authorization of Pay-TV. There was no public demand for conventional.
television when it was introduced 20 years ago. There could have been no demon-
strable demand for it since the public could hardly have visualized what it was all
atout. There was no public demand for ETV, or for FM, nor, for that matter, was
there any public demand for radio when it was introduced some 40 years ago. It
was the duty of the Commission placed as it was in charge of the Communications
Act to foster all such new developments; it was the duty of the Commission to
look ahead. Looking ahead remains the clear duty of the Commission; hence it
has accordingly a duty to authorize nationwide Pay-TV now.
The opponents are afraid-on the one hand-of the success of nationwide
Pay-TV; on the other hand they continue to assert that Hartford was a failure,
that there is no demand for Pay-TV and that it will flop. C~msequently, they are
against FCC authorization. The FCC does not have to be assured beforehand of
the success of a particular innovation. There was no guarantee in 1927 that
Radio would be successful; there was no guarantee in 1947 that TV would suc-
ceed. The FCC allocated some 15 years ago frequencies in the UHF part of the
spectrum; the majority of those frequencies remain unutilized and the bulk of
the UHF stations that courageously started operations at that time failed. This
did not prevent the FCC, aided by means of the All-Channel Set Law, from
trying to revive UHF. And still-without part-time Pay-TV, many UHF stations
may fail again. Teleglobe accordingly believes that the FCC will be derelict in its
duty as guardian of the nation's airwaves if it were not at long last to open the
door to Pay-TV now.
86-399 O-67-39
PAGENO="0610"
606
The Hartford programs
The oppofleuts continue to assert that Hartford failed to fulfill the promise of
better and different programs How could Hartford do better than it did with
a the difficulties and uncertainties of a test Operation? it is indeed a miracle in
the circun~stances that Hartford did as well as it did.
This does not mean that I am satisfied with the performance in Hartford. Quite
the contrary firmly believe that Pay TV if it is to become a beneficial supple
mental service in the interest of American TV viewers, will have to do a lot
more than Hartford did thus far; it will have to offer more than merely current
movies; it will have to evolve a new Programming format. If people are willing
to pay for "adult" programs, then that is a good enough reason why they should
get them, but this type of program will have to be balanced with far more
diversified fare.
Marshall McLuhan, the communications expert, made a frightening prediction
last week that the United States will have an economic depression in about five
years because its youth lacks direction and described "the TV generation" as
being "in a slump of human drive and ambition."
Television is one of the most powerful means of influencing the human mind
that the world has ever known. We accuse Conventional TV of having failed to
make adequate, beneficial use of the medium. Twenty years o~ brain-washing
the American public by a fare of mediocrity was bound to produce a negative,
paralyzing impact, particularly on the minds of the impressionable younger gen-
eration. There is little that conventional TV can do about it. Advertiser-financed
TV and mediocrity are as inseparable as Siamese twins.
Can STV do better? It can and it will. I have great ambitions for STV. I firmly
believe that STV will be able to evolve a new programing format, that it will be
able to create programs that will awaken the mind, programs that will stimu-
late the brain.. . - And a new generation of creative writers, directors, actors-
who have little chance to get ahead in conventional TV-will be attracted to
Pay-TV and to its challenge to produce new ideas, new forms. A new approach
that will be able to capture the attention of both the older as well as the younger
generation will emerge. Not dependent on the advertising dollar, Pay-Tv pro-
ducers will not be afraid to experiment. A new dynamism will be introduced
into American TV, and herein lies the great promise and the real future of
Pay-TV.
Cultural programs do not have to be synonomous with dullness. Viewers can
and will be educated-via Pay-TV to appreciate and desire operas, concerts,
ballet and the like. You have to get men like Leonard Bernstein to teach appre-
ciation of music as lie used to do-in a dramatic, exciting way-with his masterly
introductions to some outstanding concerts. Advertiser-financed TV can no longer
do it, since it has to cater to the lowest common denominator in order to sell the
wares of the advertisers. Pay-TV is fortunately free from such stultifying
shackles! And that is why Pay-TV ought to be given every chance of fullllhnent.
The question has been raised in the Sub-Committee hearings whether one
Pay-TV operation in a five station market-as proposed in the Fourth Report,
would not create a Pay-TV monopoly for the particular station. Teleglobe agrees
with this point of view. Teleglobe did accordingly suggest in its statement to the
Commission and in the oral arguments held last week, to permit competition by
authorizing two Pay-TV operations in markets with siw or more TV stations.
Mr. Chairman, the opponents fearing the healthy competition of Pay-TV have
done their utmost to mislead the American public. One has but to remember the
testimony of Dr. Frank Stanton, head of CBS, before the House Committee on
Interstate and Foreign Commerce in January 1958, in the course of which Dr.
Stanton pictured the frightening prospect of an average American family having
to spend about $480 a year for Pay-TV programs. The figures submitted by
Zenith and Teco show an annual subscriber cost of approximately $104 ($65 from
programs and $39 from decoder rental and maintenance). This is approximately
but 1/5 of the figure given to the Congressional Committee by Dr. Stanton. Tele-
globe projections for nationwide Pay-TV visualized, in its statement to the FCC
of July 8, 1965 and its Comments of October 10, 1966 a possible gross income from
programs and decoder rentals and maintenance of $2.50 a week or $130 a year
per subscriber, approximately 1/~ of the estimate given by Dr. Stanton. One ha~
but to remember that Mr. Richard Salent, President of CBS New-s, and at the
time a CBS Vice President, in a TV debate on Pay-TV sometime in 1958, drama-
tically displayed and read to the multi-million TV audience a letter from an old
widow who stated that she invested her life savings in the purchase of a TV set
PAGENO="0611"
607
and now with the advent of Pay-TV, she will be deprived of the opportunity to
view "free" television. Reference has been made to the misleading campaign of
the California theatre owners against Pay-TV. These are but a few examples of
the methods to which the Pay-TV opponents stooped in order to "blackent"
Pay-TV. All methods were considered fair in the opponents' efforts to kill the
Pay-TV embryo.
Pay-TV opponeats are fighting progress
Mr. Chairman, the opponents are trying to stifle competition-the very essence
of the American free enterprise system. Like King Canute, they are trying to
stem the tide of progress. It may be appropriate to mention here the decision of
California Superior Judge Irving H. Perluss, who declared that the outlawing
of Pay-TV by the California referendum of November 4, 1964 was unconstitu-
tional. Judge Perluss said that he found the success of the initiative was based
on a "speculative and illusory evil"-that Pay-TV might destroy free television.
"Publicity statements issued by the Citizens Committee during last fall's (1964)
campaign hammered at this theme, warning the public that Pay-TV would ulti-
mately corner all the most popular television offerings and leave commercial or
`free' television with less popular programs." "In the final analysis," Judge
Perluss said in his ruling, "it would appear that the charges here made could
have been made by the radio industry when television was made available for
the home, and by the producers of silent pictures on that memorable day when
Al Jolson appeared on the motion picture screen and sang in the Jazz Singer.
Invention and progress may not and should not be so restricted, at least when
they are cloaked with the immunity of that fundamental `freedom of speech.'"
The opponents are now screaming their heads off that it is up to Congress to
settle the issue of Pay-TV. They are hoping for delay and perhaps for a ban of
Pay-TV.
The opponents of Pay-TV desire to move the clock back to the year 1683 when
the manufacturers of metal buttons for men's clothing succeeded in getting the
Virginia legislature to institute a law to prohibit the manufacture of cloth but-
tons; the law declared the making of cloth buttons a penal offense; it remained
on the statutes of Virginia from 1683 to 1721.
We are sure that Congress will have no desire to move the clock back to 1683.
We are certainly against further delay, and we pray and hope that the delibera-
tions of this Sub-Committee will enable the FCC to proceed constructively and
give-after 14 years of delay and frustration-the green light to Pay-TV. Pay-TV
is entitled to its opportunity in the American market place.
Of course there are still many unknowns, many unchartered areas. There
were, however, many unknowns when conventional TV started to emerge. No
amount of further experimentation on a test basis will bring about additional
useful information. Only actual STY operations-on a basis of permanency-
is a gradually growing number of markets-can provide the conclusive proof
of the ability of Pay-TV to make a constructive contribution to American
TV.
Mr. Chairman, may I say in conclusion:
The mere fact of FCC authorization will not bring about overnight nation-
wide Pay-TV. We are realistic enough to visualize the difficulties in the path
of Pay-TV. It will be an uphill fight. Vision alone Is not sufficient. Good
intentions are not enough. Dedication on the part of Pay-TV proponents to
achieving a new breakthrough will be required. Tremendous capital resources
will be required. Readiness on the part of the Pay-TV entrepreneurs to risk
money and to shoulder losses for possibly years to come will be required. For
many it will prove merely "a license to lose money".
If Pay-TV succeeds it will be to the benefit of-
(a) the American public at large,
(b) the millions of viewers,
(c) the UHF broadcasters,
(d) producers of entertainment,
(e) a new generation of writers, directors, actors,
(f) manufacturers of equipment, and
(g) many others who will share in the development and operation of this
new industry.
If it fails, nobody will be hurt except its courageous backers.
Mr. Chairman, STV-we claim-is a new, progressive, beneficial force Its
future is in your hands; it fully merits your support.
I thank you.
PAGENO="0612"
`608
Mr. SAGALL. I refer in my statement to the effect that a great deal
of confusion has been introduced into the subject of pay TV by the
opponents and indeed many misleadiug statements. I think I would
like to start with the projection given to us just before I came to this
table.
On page 9 of the statement of the Association of Maximum Service
Telecasters it is stated:
Even based upon the revenue figures derived from the Hartford failure,
nationwide pay TV could easily have annual revenues of $1 billion, and this
with only 16-percent penetration of the United States television homes.
Now I engaged in some simple arithmetic. A 16-percent penetration
would mean 8,800,000 homes and with each contributing a total of
$104 a year, $65 in program charges and $39 in equipment leasing and
maintenance charges-as in Hartford-the gross would be
$915,200,000.
This would, however mean 100-percent rating. It would mean that
every one of the homes, each of the 8,800,000 pay TV homes in the
United States, would be willing to pay a total of $104 a year. But this
is perfectly ridiculous.
We would all be very happy-and I think the Hartford figures
prove it-if on the a'verage 50 percent of the pay TV homes will pay
$104 a year-SO percent. In this way you can immediately halve the
figures introduced by AMST just before.
It would mean, not $1 billion annual revenue from pay TV, but half
a billion dollars. A little later the AMST statement says that one can
project program revenues alone from a moderately successful nation-
wide pay TV system of at least $1.1 billion by adding $1.25 more a
week. That means adding $65 a year. That means doubling the figures
received in Hartford from program fees.
Instead of the present Hartford figure of $65 this statement visual-
izes $130 in program charges. But I believe even more misleading it
is when you come to read further tl4at -
Of these $1 billion, pay TV program revenues alone of at least $550 to $630
million would almost equal the total program expenditures for the three commer-
cial networks in 1966.
The average dollar that will be brought in by any pay TV operator
will allocate no more than one-third of the gross receipts for programs.
Therefore, the actual figure should be no more than $380 million out of
a billion dollars, or, if based on a 50 percent rating, as in Hartford, no
more than $160 million out of half a billion dollars.
I need not go into any further examination of the AMST statement.
Now, Mr. Chairman, you just said there must be something wrong
with free television if there is a movement toward pay TV.
I would like to quote one sentence from my statement to the House
Commerce Committee made 10 years ago:
The whole conception of Pay-TV is a natural result of dissatisfaction on the
part of the American public, with the substandard, low-level anemic programs
that they have been offered for so many years.
Some of the purveyors of TV entertainment have been treating the American
public as immature children, dumping on the airwaves third-rate material, being
only concerned with filling air time.
It is interesting to quote almost 10 years later from an article in the
PAGENO="0613"
609
New York Times by Jack Gould, its television editor, on September 24,
1967. The article is headlined "Baloney Sliced Very Thin":
With the completion of the premieres of the new season, the report card of the
networks makes for dismal reading * * * taken as an overall group, the network
crop of weekly features is probably the sorriest collection in many years. The
bankruptcy of the Hollywood Factory is manifestly complete, and discerning
network executives whose thoughts must turn immediately to the 19G8-6~ season
foresee little or no promise in the ideas being advanced for a year from now.
This is the explanation why there is growing dissatisfaction with
the present-day commercial TV programs.
May I deal now for a moment with a vital point, the quality of the
Hartford programs;.
Hartford, I think, did as much as it could under the difficulties and
uncertainties of the test operation. Incidentally, I would like to reply
to a question posed here: Why are there no other pay TV tests?
The Teleglobe System was approved for a pay TV test by the Com-
mission in Denver, Cob. We did grant a franchise to the firm of
McFadden-Bartell, publishers and operators of radio stations.
Because of the stringent FCC regulations governing tests, our fran-
chise holder was unable to proceed with the test, after having sunk
into it almost a quarter of a million dollars. They had difficulty at
the time of getting programs from motion picture producers~
All this has been set out in briefs filed with the Commission. I think
a great deal of credit is due to our competitor Zenith and RKO-
General who had the means and courage to go ahead with their
Hartford test.
But anybody else who would have contemplated to go into further
tests and experiments really should have had his head examined.
Now coming back to the Hartford programs, tha~t does not mean-
Mr. MACDONALD. Excuse me, sir. Would you mind expanding on
that?
Mr. SAGALL. There is not the slightest chance of making a success
with an experimental operation under the test conditions imposed by
the FCC.
Mr. MACDONALD. Is that why you backed out of Denver?
Mr. SAGALL. That is why our franchise holders were unable to get
going.
Mr. MACDONALD. What was the relationship between your company
and the franchise holder?
Mr. SAGALL. We granted them a franchise under the Teleglobe
patents.
Mr. MACDONALD. You charged them?
Mr. SAGALL. Yes. We would have charged them a royalty of 5 per-
cent. It is a public document filed with the Commission.
Mr. MACDONALD. I haven't seen it. That is the oniy reason I have
asked.
Mr. SAGALL. I am explaining `that this information is public and
in the same way, as the Zenith franchise contract granting similar
terms in respect to Hartford to IRKO-General, is on file with the
Commission.
Mr. MACDONALD. Why would you have to be out of your mind?
Mr. SAGALL. Not we but anybody who would be willing, as Mc-
Fadden-Bartell did at the time, to spend to the tune of a quarter
PAGENO="0614"
610
of a million dollars. McFadden-Bartefl had a great deal of support
of public opinion in Denver.
The Denver Post came out in favor of givin~ every possible help
to McFadden-Bartefl to introduce pay TV in Denver. They stated
it would make a valuable contribution to Denver's cultural life. They
felt there would be an improvement in Denver television programs as
a result.
Indeed, I don't want to tire you, Mr. Chairman, but I have here
in one of the briefs filed with the FCC the Denver editorial. May I
continue?
Mr. MACDONALD. Yes, sir, but I am not really sure why they backed
out.
Mr. SAGALL. First of all, they had difficulty in getting programs.
They were starting in 1963. They were supposed to start in Denver
a year or so after the Hartford operation started. Hartford had diffi-
culty in getting motion pictures. They only got them from a couple
of companies, Warner Bros., I believe, and perhaps one or two other
companies.
The majority of the motion picture producers refused to supply
such programs. Hartford and RKO-General had to make representa-
tions to the Department of Justice before they were able to get the
other motion picture producers to fall in line.
When McFadden-Bartell came to the same motion picture producers
who originally were willing to supply Hartford, they refused.
They said-
We have taken a chance on Hartford; we antagonized the theater owners. Let
some other motion picture company take a chance in Denver. We don't want to
bear all the criticism and the stigma for Supporting pay TV.
Mr. MACDONALD. How marty sets of whatever you call them did you
contemplate to lease to these people in Denver?
Mr. SAGALL. The original statement filed with the Commission set
an experimental ceiling-remember, it was only experimental-of
2,000.
Mr. MACDONALD. I don't quite understand why the motion picture
people would get that exercised actually, just 2,000 families involved.
Mr. SAGALL. The theater owners are a very powerful body. They
were at that time even more than now, the bread and butter of the
motion picture producers.
In the intervening years the sale of motion pictures to television
stations has been gradually increasing. Of course, they haite now two
customers, theater owners and commercial television. Both of them
today are, of course, against pay TV.
I would like to deal with the Hartford programs. I am not satisfied
with the performance in Hartford. Quite to the contrary, I firmly
believe that pay TV, if it is to become a beneficial supplemental serv-
ice in the interest of American TV viewers, we will have to do a lot
more than Hartford did thus far. We will have to show more than cur-
rent movies.
We will have to evolve a new program format. If people are willing
to pay for adult programs to which reference was made the other
day, that is good enough reason why they should get them but this
type of program will have to b~ balanced with a far more diversified
fare.
PAGENO="0615"
611
I would like to quote Dr. Marshall MeLuhan, the communications
expert who made the other day the frightening prediction that the
United States will have an economic depression in about 5 years be-
cause its youth lacks direction and described "The TV generation as
being in a slump of human drive and ambition."
Television is one of the most powerful means of influencing the hu-
man mind that the world has ever known. We accuse conventional TV
of having failed to make adequate, beneficial use of the medium.
Twenty years of brainwashing the American public by a fare of medi-
ocrity was bound to produce a negative, paralyzing impact, particu-
larly on the minds of the impressionable younger generation. There is
little that conventional TV can do about it. Advertiser-financed TV
and mediocrity are as inseparable as Siamese twins.
Can S'TV do better? It can and it will. I have great ambitions for
STV. I firmly believe that STV will be `able to evolve a new program-
ing format, that it will be able to create programs that will awaken
the mind, programs that will stimulate the brain, and a new gen-
eration of creative writers, directors, actors-who have little chance
to get ahead in conventional TV-will be attracted to pay-TV and
to its challenge to produce new ideas, new forms. A new approach
that will be able to capture the attention of both the older as well as
the younger generation will emerge. Not dependent on the advertising
dollar, pay-TV producers will not be afraid to experiment. A new
dynamism will be introduced into American TV, and herein lies the
great promise and the real future of pay-TV.
Cultural programs do not have to be synonymous with dullness.'
Viewers can and will be educated-via pay-TV to appreciate and
desire operas, concerts, ballet, `and the like.
I am not impressed by the way by the lipservice contribution made
by some of the networks to bringing in an occasional concert or an
occasional ballet. The history of the ballet is rather illuminating.
A company in Britain called British Home Entertainment~ Ltd.,
started making programs for pay television for Britain and the Amer-
ican market. They are now a part of a British experimental pay tele-
vision operation called Pay Television, Ltd.
Incidentally, in a part of London, Westminster, I think they only
started about 18 months ago, in January it will be 2 years, and I think
the last figure I had was that they had 9,000 or 10,000 subscribers.
They started in February in a part of Sheffield with only 3,000 sub-
scribers. The experiment has been working so well that there is a firm
belief that i~e British Government is going to approve permanent
pay-TV li~ .~es, possibly at the end of this year or early next year.
Now this British Home Television, Ltd., produced the Royal Ballet
with Margot Fonteyn and Rudolf Nureyev. They were unable to sell
it here. By that time the California operation was suspended. They
were going to sell it to California.
I don't remember whether Hartford did show it or not, but the
~ British company needed money. They succeeded to sell it to CBS.
CBS kept it in cold storage for a year or 2 years until Christmas
1965 and then during the Christmas season they offered it as a sus-
taining program.
I would not call that a particularly remarkable contribution to
cultural TV.
PAGENO="0616"
612
You have to get men like Leonard Bernstein to teach appreciation
of music as he used to do-in a dramatic, exciting way-with his mas-
terly introductions to some outstanding concerts. Advertiser-financed
TV can no longer do it, since it has to cater to the lowest common
denominator in order to sell the wares of the advertisers.
I want to make only a couple more remarks, I know that members
of the subcommittee will get very impatient if I keep them beyond
the lunch hour and impose on. them involuntarily a fast on which I may
have to-not may but will embark on a little later this evening after
sunset.
I did not mention anything in my statement about sports. Of
course, I think that the pay TV proponents, those who preceded me
and those who will come after mc will make out a good case that there
will be no siphoning of programs of motion pictures and the like, that
there will be no preemption of air time.
As members of the subcommittee know, there is plenty of space in
the air spectrum; the underprivileged will not suffer; just on the
contrary.
In this respect I don't know whether I am permitted to dare to
criticize a Congressman of the eminence of Mr. Celler, when he took
up the championship of the underprivileged.
Indeed, when he came into this room yesterday I was almost shiver-
ing because I remember, I believe, there was a bill introduced b
Congressman Celler some years ago to punish pay TV operators wit
substantial fines and with jail sentences up to 5 years. So I was some-
what worried about it.
But I believe that we have made out a good case and I don't think
we need to belabor this point. The underprivileged will only benefit
from pay TV.
But I would like to deal now with sports, the question of outbidding
for sports. Again figures were mentioned here yesterday that in New
York City 500,000 homes would install pay TV and would each pay
a dollar and obviously they would outbid commercial TV for the
sports.
First of all, that would assume a rating of 100 percent for every pay
TV home. But I unerstand that sports events, pro football does not
get a higher rating today than 10 to 14 percent, even when it is offered
for free.
So why come up with those fantastic, indeed, I woulld say ridiculous,
figures?
I assumed in my statement figures, most optimistic ones, that in 10
years we will have 2O-percent penetration, more than 16 percent sug-
gested by AMST, of which only half will be paying. I take the
Zenith figures of $2 a week, or I take slightly higher figures of $2.50
a week, between $100 to $130 annually that will give pay TV a
gross of from $500 to $650 million a year 10 years from now.
Now, Mr. Walter P. Scott, the chairman of NBC, predicted a couple
of weeks ago that 10 years from now the gross billings of advertiser
financed TV will reach $6.5 billion.
Let us take last year's pretax profits of commercial television; $492
million on billings of $2.2 billion. That means 22 percent. On $6.5
billion the pretax profits will rise to almost $1.5 billion.
PAGENO="0617"
613
Pay TV 10 years from now, even with my higher figure, will gross
$650 million; let us take the same 22-percent pretax profits. The pre-
tax profits will reach $143 million on the maximum optimistic pro-
jection of pay TV 10 years from now. This will compare with $1.5
billion of pretax profits of commercial television. Would they really
in the circumstances let sports events go to pay TV? It would really
be ridiculous.
Now I would like to make an additional observation. Mr. Chairman
we think that no restrictions by the Commission are really warranted
or required but we accept them and, therefore, if it would appear
that the 2-year provision of not showing on pay TV sports which have
been shown regularly, I am quoting from the third report: "Sports
events may not be broadcast on STV which were regularly televised
in the community within the 2 years preceding proposed STV broad-
cast," is not adequate, if there is still any fear that the public may
be deprived of the free sports events, I, for one, on behalf of my com-
pany would not object to even a more stringent provision on the part
of the Commission.
Maybe the Commission in their wisdom will decide then to increase
it from 2 years to 3, maybe 5 years. Now would there be sufficient money
on the part of all the pay TV entrepreneurs in the country then to
outbid the networks for the sports events? I think that I do not have
to belabor this point any more.
I would like to refer to one question raised by one member of this
subcommittee. With only one pay TV operation in a given market
would there not be established a strong monopoly for this pay TV
station?
We agree.
We made the suggestion to the Commission to authorize two pay
TV operations in markets with six stations or more. And all the major
markets have six stations or more.
Mr. BRowN. Mr. Sagall, may I interrupt you at this point?
Mr. SAGALL. Please.
Mr. BROWN. There are two principles here that I think we ought
to be concerned with.
One is whether or not you are penalizing a portion of the stations
already on the air, by not permitting everybody that wants to go to
Then the other principle is this one of trying to encourage as many
stations as possible to go on the air in an area where the advertising
dollar has been pretty well sopped up by the stations which are on
the air a.nd the only way perhaps to get a new station on the air is
with the principles of STV.
`Would it make sense to you if the Commission were to say in its
rules that STV is available only to stations not now on the air at this
point for a certain time?
In other words, say, a 3-year or 5-year permission on that basis, and
then to open STY up to anybody who wishes to go into the field
including every station in the market if they want.
The idea I am suggesting here is aimed at increasing the number of
stations on the air by giving the STV to new stations and then eventu-
ally not limiting STY to the stations in the market? Do you follow
my thought?
PAGENO="0618"
.614
Mr. SAGALL. I follow you, Mr. Brown. However, there is a big prob-
lem in it. Fifteen years ago or so the Commission allocated many fre-
quencies in the UHF part of the spectrum. Some people jumped into
them hopefully and the overwhelming majority lost money and they
had togo off the air.
Now there are today many markets where there are UHF opera-
tors, independents, who are losing money. If pay TV were to be limited
to stations not yet on the air today would get an opportunity to have
viable stations and those who pione.ered and spent millions of dollars
in UHF and are still losing money would be deprived of it, there is a
danger they would get off the air.
Mr. BROWN. Would you prefer then to see the STV available to
everyone in the market? Why the limitation? I am not sure I follow
you.
Mr. SAGALL. Mr. Brown, I would say that no affluent operator, no
one who is making any money, will want to go now into pay TV. It does
require a lot of money to engage in the franchise operation-$2.5 mil-
lion, maybe $3 million.
Mr. BROWN. I did not understand. No affluent operator will want to
go into it.
Mr. SAGALL. Affluetit will not, certainly not, not until the success of
pay `TV is proven over a period of 5 or 10 years, not until some of the
pioneers break their bones in the process. I happen to be a pioneer some-
what. I don't happen to have the resources of some `of my major com-
p~titors ,and it is a very hard task to be pioneering. `Therefore, the
same would apply to the UHF operators.
Let me give you an example that right now in New York there is one
construction permit and they are `trying to sit it out as long as possible
on the construction permit.
All the people, even major companies who have the means, are try-
ing to sit as long as possible on the construction permits.
New York has one construction permit and it may be a year or two
before the station will be on the air. There are two o'thers which are
losing money, UHF. One is privately owned, the other one is the city
of New York owned, station 31. Its cost of operation is $1.1 million a
year.
`The taxpayers of New York City are worried. Very few people are
tuning in to that channel. It is quite possible if pay TV is authorized
the New York municipal authorities may want to use it part time.
Chicago has two stations which are losing a lot of money. There is also
a construction permit and the grantees are trying to delay going on the
air as long as possible. I have information on the situation in other
major markets.
Mr. BROWN. I accept the principle that drowning men clutch at
straws. So maybe a station that is losing money will look at STV
and decide that that is the way out and invest in it. But it seems to me
that the person who does the investing will invest on the basis of one
reason or another of all the arguments that we have heard, that there
is a great deal of demand or there is no demand.
You have modified the statement of the gentleman who preceded
you, Mr. Lindow, to the extent that you think there will be some
failures.
PAGENO="0619"
615
I am not sure whether you are right or he is right or somebody else
is right. If it is not a success and there is no demand for it, then the
whole thing will fall of its own weight. I don't think that is the issue
that we have to determine-ho~1 much he is going to make or what
prospect there is for a quick and easy way of making money.
I don't think that is the issue. The issue is whether or not it offers a
possibility and a broadening of the opportunity which viewers have to
see a selection of programs. I would suggest to you that if pay TV is
quite successful that Congress and the FCC ought to permit any sta-
tion, which wants to, to get into it, any network that wants to get
into it, so that competition will ultimately bring down the prices of
pay TV to the consumer and also so that they can make a little money
to have the opportunity to do public service programing.
Would you agree with that?
Mr. SAGALL. I agree wholeheartedly. I think ultimately after the pay
TV pioneers of today, if they are successful, I hope they will be
successful in proving that it is a paying proposition, certainly some
commercial broadcasters may want to go into pay `TV unless they
feel that revenues from part-time advertising are more lucrative.
On the other hand, I feel this is a point that can be safely left to
the Commission and, of course, to Congress.
I remember when I read economics in London, where I lived be-
fore, I heard a famous authority on the British Constitution say:
"Parliament is all powerful; it can do everything except turn a man
into a woman and a woman into a man."
I think this goes for the Congress as well. Congress is all powerful
and 5 or 10 years from now there may be all sorts of different ap-
proaches and expansion and so on of the whole broadcasting situa-
tion, that will have to be considered.
But the important point is, and that is why I feel we are here today,
to see that this young fledgling of pay TV is not suppressed before
it is given a chance to prove something. The danger is here that the
opponents have combined and they have terrific resources and very
powerful lobbyists and they are trying to kill-by the bill of Congress-
man Dingell-pay TV before it is even given a chance to emerge.
There I see is the great danger for the development of broadcasting
in the United States. If I may, I would like only to refer in conclu-
sion-
Mr. MACDONALD. Obviously, that British parliamentarian never
heard of Denmark. Perhaps it is not possible in England but in other
places it is.
My question specifically is: Do you feel that it will be possible to
have two or more pay TV networks?
Mr. SAGALL. Networks? I think, Mr. Chairman, sooner or later
there will emerge, I believe, an association of the UHF, largely pay
TV operators, which would be `the foundation for a fourth network.
I think it could easily arise in the first 5 years of pay TV operation
but I don't know that it would immediately lead to a fifth network.
Mr. MACDONALD. If the Congress does permit pay TV to happen
don't you think it is almost necessary that there be a network to be
successful? You have already talked about how difficult it is for a
station to operate in this field.
Would there not have to be a network to be successful? By network
I mean interconnection.
PAGENO="0620"
616
Mr. SAGALL. I am sure something like this will have to happen.
Since I visualize that there will be attracted to pay TV a new gen-
eration of directors and producers and actors and so on, they will not
want just to work, it would not be economical to sell it to just one
pay TV operation.
Therefore, there would have to be a number of customers. Indeed
when I was referring to a new programing format I was not just
indulging in fantasy. I personally and I am sure the other pay
TV proponents had discussions about such programing-indeed I had
many discussions with one of the leading talent agencies how to
get about it, how to start with Broadway productions.
The programs will have to be sold to a number of stations and
therefore we do have immediately the foundation of a pay TV net-
work.
Mr. MACDONALD. I happen to agree with you that it will have to
be more than one or two stations in operation to have any chance of
financial success. My original question was, Do you think that there
is room in this field for, let us say, two or more types of systems as
a concrete example?
Mr. SAGALL. You mean technical system?
Mr. MACDONALD. I know that Zenith has one. I know that you have
one.
Mr. SAGALL. There is also Skiatron and there is Telemeter.
Mr. MACDONALD. We will hear from them later. Do you think it is
feasible to have-you know, it is sort of like having a telephone, it is
not quite feasible to have two telephone systems in your house because
half of your friends would have one cable and the other half would
have a second cable. Don't you think that this lends itself in some
ways to having just one system preempt the field?
Mr. SAGALL. Mr. Chairman, the Commission in rulemaking proceed-
ings posed this question. Now the Commission decided against a
single nationwide system. Therefore, we all have the same chance-
Mr. MACDONALD. Excuse me, sir. I did not understand.
Mr. SAGALL. The Commission recommended in the fourth report
against introduction of a single nationwide system. This would have
created possibly a $1 billion monopoly for one pay TV manufac-
turer or developer of a system. Therefore, everybody, all the four sys-
tems known today, there may be others, will have an equal chance of
competing in the marketplace and trying to grant franchises for their
respective systems.
The question you have asked, Mr. Chairman, refers to another
point, namely, could there be in one given market more than one
system.
Mr. MACDONALD. Right.
Mr. SAGALL. Now we, like the other pay TV proponents, have said
we don't object to there being more than one system even in one .market,
but we did indicate that we think in practice it will not work. The
practical experience will mitigate against it. Namely, is it not quite
like having two telephone systems.
I believe that at one time Philadelphia had two telephone systems
many years ago. One was an independent, one was Bell, and many
subscribers had to have both systems installed.
What would happen is that if Zenith has a better sales organization
they will go into a given market. If Teleglobe has an efficient sales
PAGENO="0621"
617
organization we will get into some markets. Now, if there is a second
station which wants pay TV and if the Commission should authorize
it, they can join; there is no technical difficulty in the second station
joining the Teleglobe or the Zenith pay TV local network for that
purpose.
Therefore, I do tend to agree, much perhaps to my regret, that in
a given market it will not probably be practical to have more than
one technical system.
Mr. BROWN. If the gentleman will yield, is the analogy more like the
analogy on the color systems? I understand the FCC some years ago
had to make a decision on which color system they would permit or
encourage because it related to both broadcast and receiving of color
and th4 they finally went with the system that was basically an RCA
system as opposed to the Columbia Broadcasting System.
Is this the same kind of thing that you think we will get into?
If this is broadly available and not restricted will this likely be built
into the set in some way so that you can get your free or pay?
Mr. SAGALL. I don't think the analogy will hold good. The decoders
of the various companies are different and the billing and collection
methods are different. By the nature of things many members of the
subcommittee have been referring to a coin in the slot. The majority of
pay TV proponents are not going to use that. So there are differences
in the systems.
Therefore, I don't know whether we could combine into a uniform
decoder. I am not talking of patent arrangements. Those would have
to be worked out.
The other question raised was about making it part of the tele-
vision set. This would not be practical as long as pay TV is not uni-
versal in every American home. Moreover, under the FCC regulations
the potential pay TV subscriber will not have to buy the decoder.
Mr. BROWN. Are you suggesting that if there are three networks in
this operation there might have to be three different decoders installed?
Mr. SAGALL. In the home. There need not be if there is only one
technical system authorized in the market. It could be done and I
believe the Zenith representative, Mr. Wright, explained it the other
day. Let us say `that there is a pay TV operation on channel 4 and over
an independent channel 31 in New York City and they use the Tele-
globe system.
Therefore, the program is encoded by means of the Teleglobe en-
coder at the channel 31 transmitter. Let us say there are x number of
homes in New York City which will have decoders. Now comes NBC.
They would like also to use the same local pay TV network for the
already installed homes for showing the program of theirs for pay. We
could easily encode it at our transmitter or we could give NBC a
Teleglobe encoder at their transmitter to encode the program and
everybody sitting at home could tune into either channel 31 or chan-
nel 4, and there could be simultaneous transmission of two programs.
Now I may say in conclusion one more word. I offer my apologies for
being perhaps late.
I would like just to refer to a little historical item. I have a son who
is a historian. He dug out for me a very interesting observation that
in the year 1683 the manufacturers of metal buttons for men's clothing
succeeded in getting the Virginia Legislature to institute a law to pro-
PAGENO="0622"
618
hibit the manufacture of cloth buttons. The law declared the making
of cloth buttons a penal offense.
It remained in the statute of Virginia from 1683 to 1721. I hope,
Mr. Chairman, that you and members of the subcommittee will agree
that we should not turn back the clock to the year 1683.
Thank you, Mr. Ohairman, for your patience.
Mr. MACDONALD. Thank you very much for a very interesting presen-
tation. As a matter of fact I think that historians are probably right
and cloth buttons are probably coming back.
Mr. SAGALL. Thank you.
Mr. MACDONALD. With this the hearing will have to be adjourned
until Monday morning at 10 a.m.
(Whereupon, at 1:25 p.m., the subcommittee adjourned, to recon-
vene at 10 a.m., Monday, October 16, 1967.)
PAGENO="0623"
SUBSCRIPTION TELEVISION
1\~ONDAY, OCTOBER 16, 1967
HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON COMMUNICATIONS AND POWER,
COMMITrEE ON INTERSTATE AND FOREIGN COMMERCE,
Wa$hington, D.C.
The subcommittee met at 10 a.m., pursuant to notice, in room 2123,
Rayburn House Office Building, Hon. Torbert H. Macdonald (chair-
man of the subcommittee) presiding.
Mr. MACDONALD. The hearings will come to order.
The first witness is Mr. William Putnam, accompanied, as I under-
stand it, by Mr. Stevens and Mr. Firestone.
STATEMENT OP MARTIN B. PIR~STONE~ COUNSEL, ALL-CHANNEL
TELEVISION SOCIETY
Mr. FIRESTONE. Mr. Putnam and Mr. Stevens did not make it down,
Mr. Chairman. I will appear.
My name is Martin E. Firestone and I am appearing today as coun-
sel for the All-Channel Television Society, an organization represent-
ing some 100 UHF television licensees and permittees.
UHF operators support the proposition that the Federal Communi-
cations Commission has the authority to provide for a national sub-
scription, pay, television service. In general, they believe that the
authorization of such a system will, under proper regulatory condi-
tions, aid in the economic development of marginal UHF stations in
the larger television markets; and will encourage the lighting up of
presently dark UHF allocations.
In reaching this conclusion, however, UHF operators are aware of
several unresolved questions concerning subscription television which
can drastically condition their conclusion.
First, there is no real exidence that a public demand exists for a
subscription television service. They are aware of this in the same
degree that there was no way of ascertaining whether there was ini-
tially a public demand for radio service or for television service. You
had to take your chances and get in before you know whether people
were going to buy your service. Therefore, they are aware that UHF
operators entering this phase of broadcasting will be engaging in a
highly speculative operation.
Second, subscription television, regardless of attempts to the con-
trary, will, to a degree, be a competitor of over-the-air free broad-
cast services. Subscription television will compete with the over-the-
air free services for both audience and program material.
This is an unavoidable conclusion. Anybody who watches sub-
scription service will not be watching over-the-air service. The lat-
(6li~)
PAGENO="0624"
~2O
ter competition will become more acute as program material be-
comes in even more short supply.
Third, if subscription television is a competitor of over-the-air free
services, will its entry into the national television distribution system
be accompanied by appropriate regulatory safeguards?
If subscription television is to compete with existing over-the-air
broadcast services, then it should compete with them as an integral
part of the national television distribution system; that is, it should
be subject to the same FCC rules, regulations, and policies to which
the existing stations are subject.
The impartial imposition of these rules, regulations, and policies
is not required solely by the dictates of fair competition; it is the only
means by which subscription television can be truly tested with re-
spect to public demand and economic viability.
Spokesmen for subscription television interests assert that their
systems can make an important contribution to the total television
service available to the public; that it can supplement and enhance
service by providing programing not available through regular tele-
vision facilities. This assertion can be put to the test only if subscrip-
tion television is authorized to operate under the same regulatory con-
ditions as existent television facilities.
Thus, if subscription television is proposed for a particular market,
let the system demonstrate to the FCC, as television broadcasters are
now required, in their applications for construction permits, renewal
applications, and applications for assignment of licenses, how it pro-
poses to serve unmet programing needs and interests in that market.
Let the subscription system demonstrate exactly what programing
is not being provided the community and how it intends to fill this
void. Once these representations are made to the FCC by the system,
the subscription system, if it is authorized, should be held accountable
to the FCC for failure to provide service in accordance with its rep-
resentations.
A consistent issue before the FCC has been whether or not more than
one subscription service should be authorized in any given market.
Again, were the FCC to apply its existing television rules, regulations,
and policies, the matter could be easily and practically resolved. If
two systems are proposed for a market, let those seeking the authoriza-
tion demonstrate to the FCC, as broadcasters are now required to dem-
onstrate, that the market can support more than one system or in a
comparative hearing afford them the opportunity to show the FCC
which system will serve better the public interest.
By using its existing rules and regulations, the Commission can also
deal effectively with the problem of program "siphoning" which has
been a matter of sharp discussion. Subscription television systems
should be licensed by the FCC just as television stations are now. The
programing representations which they make to the commission to
justify their authorization can be made conditions of their license.
Then, if a subscription television system fails to adhere to its program-
ing representations and commences to "siphon" programing to an un-
conscionable degree, the Commission can act to revoke or fail to renew
the license.
The proponents of subscription television contend that it has a valu-
able contribution to make to the national television system. Opponents
PAGENO="0625"
621
of the service argue that there is no demand for subscription television
and that it will only provide that which is, or will be, available from
commercial television, educational televãsion, and the new corporation
for public broadcasting. ACTS is not prepared to tell this commit-.
tee that one side or the other holds the whole truth.
We are, however, prepared to state that we support authorization of
subscription television service so that it may have a chance to prove
its value and viability. If in competition with existing facilities sub-
scription television services can obtain subscribers and flourish, then
obviously it is providing a service the public wants and for which it is
willing to pay.
If the systems cannot obtain subscribers, then it is equally clear
that it is not providing a service desired by the public.
But this competitive, marketplace test can be of value only if the sub-
scription services compete on exactly the same footing as the existing
facilities.
The FCC's proposal for authorizing subscription television does not
provide the basis for a true competitive test of the service's public
value and economic viability. Rather, it creates subscription television
as a form of regulatory hybrid, within the Commission's rules for some
purposes outside the rules for others, in what appears to be an attempt
to shoehorn jnto the national system a new service for which there
was no clear evidence of public demand.
Establishment of subscription television as a special form of tele-
vision service will prevent proper assessment of its true role. The op-
ponents of the service will contend that it survives only because of the
special treatment afforded by the FCC's rules. Proponents will argue
that the service has never reached its potential because of the limiting
impact of the rules. In all of this it will be the pu~blic which is most di-
rectly affected.
There is no question but that the FCC's authorization of subscrip-
tion television service represents a major development in the national
television distribution system. While the FCC has the jurisdiction to
act, ACTS believes that it must be the role of the Congress to insure
that the step is taken with all the safeguards appropriate for such
an undertaking. It must insure that the FCC takes no half measure in
authorizing this service but utilizes the full scope of its regulatory
authority to insure proper accommodation of the new service into the
existing system to the ultimate benefit of the public. The FCC's present
proposal does not accomplish this goal.
Our concern for the establishment of conditions for a true competi-
tive test between subscription television service and existing free f a-
cilities leads to one additional but crucial point. Subscription tele-
vision must be clearly and unequivocally limited for over-the-air UHF
use and not. be authorized for use by community antenna television
(CATV) systems.
The reason for this position is twofold:
A true test of the viability of subscription television cannot be ob-
tained if the service is to be subsidized by the revenues of CATV
systems which derive their revenues from the sale of programing being
broadcast by free commercial facilities. There is, of course, the factor
that broadcasters are naturally repugnant to see the programing they
pay for used to support a competing service.
86-399 O-67-----40
PAGENO="0626"
6~2
Limiting subscription television to over-the-air UHF facilities will
provide economic support to these UHF stations-assuming subscrip-
tion television is successful. This will result in the public not only
obtaining a subscription service, but also additional free service. `For
the UHF stations engaged in subscription television service will not
do so on a ful-time basis. When not broadcasting the subscription
service, they will be providing free television service which in part
will be subsidized by revenues from the subscription programing.
On the other hand, use of subscription television by CATV systems
will not carry this collateral benefit. CATV sells every facet of its
service; it provides nothing for nothing.
Should Congressman Dingell's proposal which would limit tele-
vision on the basis of FCC jurisdiction in this area and which
would effectively prohibit it by being utilized by over-the-air fa-
cilities, this proposal would not eliminate `the possibility of purely
wire, intrastate pay television operations outside the jurisdiction of
the F~C and probably subject only to limited and ineffectual regu~
lations by the State and local communities.
Thus you have the problem of siphoning and consequent deleterious
effect on local stations.
I would rather see it come within some Federal regulatory scheme
under FCC jurisdiction and the supervision of the Congress than
leave it to a purely ad hoc State-by-State regulation of intrastate wire
systems.
Additionally, and perhaps from the standpoint of the public the
use of subscription television by wire `systems will not provide the
maximum benefit to the public because on a CATV system there will
be no means by which that subscription television service can support
a free. TV service. C'ATV systems charge for everything they provide
regardless of it's source and therefore we feel that a strong public
interest determination with respect to pay TV as it is now proposed
is its ability to provide an economic base for new and additional free
television service.
This is why we feel that to promote free service, subscription service
should be limited to the use by the ultra high frequency stations.
That concludes my statement, Mr. Chairman.
Mr. MACDONALD. Mr. Broyhill.
Mr. BROYHILL. What do you mean by this last sentence ~ You say
that CATV provides nothing for nothing.
Mr. FIRESTONE. That is correct. Their service is a pure pay service.
There is no, shall we say, free service provided.
If you don't pay, you don't get a service, period. If you put sub-
scription television on CATV, since you have to pay for all services,
pay TV is not going to generate income which will provide additional
free service. That revenue will not flow toa local station. which may be
carrying subscription television for 3 or 4 hours a day and doing free
programs the rest of the time as they did in Hartford.
Mr. BROYHILL. As I understand your position, you are in favor of
subscription TV but through another route, through another way of
doing it than through the proposed rules that we have seen published.
Mr. FIRESTONE. Our membership agrees that the rules are ineffec-
tual, that they are totally incapable of being properly enforced, and
PAGENO="0627"
623
they would create pay TV as an odd sort of animal, as a result of which
you will never get a true test of whether it can survive.
I do not think that we should have this strong set of restrictions on
its ability to compete in the sense of what programing they can carry,
what hours they can operate, where they can operate. I think those
determinations can be made more properly by the marketplace. I do
think that the FCC jurisdiction should be utilized to create a general
scope of operation which will insure that all parties going into* the
arena go in properly equipped and equipped in the same manner and
not permit one side or the other to carry a horseshoe in its glove.
I think without this free competition within the present framework
of the Commission's broadcast policies, pay TV is not going to get a
fair test.
Mr. BROYHILL. I thought the proposed rule wants the pay TV station
in Hartford to permit free TV.
Mr. FIRESTONE.. Yes; that would be a flat prohibition. I don't think
that is the way it should be handled.
Mr. BROYHILL. I think more should be approved.
Mr. FIIiEST0NE. That is true. I think a question should be resolved
under the Commission's broadcast regulations.
In a market where an applicant wants to add an additional broad-
cast service, an existing station in that market can raise an objection
that the entrance of a new service will adversely affect them economi-
cally and that this will result in a deterioration of program service to
the public.
Well, the Commission permits both the applicant for the new facil-
ity and the objecting existing facility to thrash it out and then on the
basis of the evidence the determination is made whether or not the
market can stand the additional service. I think this is the sam.e way
the question of whether one or two subscription services should be
permitted in a particular market can be resolved rather than just flatly
prohibiting the entrance of a second service.
I am sure New York could probably stand more than one service and
probably some of the other larger markets.
Mr. BROWN. Will you yield at this point?
Mr. BROYHILL. Yes; I will be glad to yield.
Mr. BROWN. Is there a presumption of the FCC at that point in
your experience in favor of expanding channels available to viewers?
Isn't that the policy of the Congress, the FCC, and this committee?
Mr. FIRESTONE. Yes; it has been very rare that the Commission has
denied the entrance of an additional service if the facility is available.
It has been somewhat more stringent where someone is asking, say in
the television field, to put in a totally new channel that was never allo-
cated there to begin with.
But there is a general feeling on the part of the Ommission-I
would not say it is the policy, hut the trend has always been to expand
the service unless a very clear-cut showing was made that the addi-
tional service would result in a general deterioration of service to the
public.
Mr. BROWN. Thank you.
Mr. BR0YmLL. Thank you, Mr. Chairman.
Mr. MACDONALD. Mr. Brown.
Mr. BROWN. I would like to pursue this particular point.
PAGENO="0628"
624-
Do you think it would be appropriate, if the FCC makes this pre-
sumption under normal usage (some markets in Texas notwithstand-
ing), that the present STV regulations they have made are proper now
but that it might be modified so as to broaden the STV action in cer-
tain markets later on?
What I am saying is this. We don't know what STV may do to com-
mercial stations on the air at present. This has been one of the great
issues discussed in this hearing, that STV will have an adverse effect
if it is highly successful on both talent and programs available and
also on the viewing audience so that advertisers won't want to continue
to `advertise when put up against something that has a high box-office
appeal.
Do you think it proper that the FCC has written a decision into its
anticipated rules allowing only one STV station in a five-channel mar-
ket? Perhaps, after it sees what happens, the FCC will open it up to
more STV stations in those markets?
Mr. FIRESTONE. No, sir. I would not say that this is a proper de-
termination at this time because I am aware of UHF stations which
are the fourth stations in four-station markets, where there are three
VHF network-affiliated stations and a fourth UHF station, an inde-
pendent, these stations are suffering economically at this time for many
reasons. They might very well feel that the way for them to develop
their total program service would be to take a subscription television
franchise in the hopes of generating additional revenue to support
their operation.
Mr. BROWN. What about markets that presently have two commercial
stations?
Mr. FIRESTONE. If there are two, it would mean that there is a `very
strong possibility that the third station-the third station being
UHF-will thtain a network affiliation, which will have a dramatic
impact on its ability to obtain revenues. For various reasons, having
network affiliation can assure quicker turnaround for a UHF station
than having to operate in an independent market.
Mr. BROWN. I don't think you have to talk of UHF as set apart
from VHF because what we are talking about is three- or four- or five-
channel markets. Isn't that it?
Mr. FIRESTONE. Yes. In those markets the stations that are the ones
that would be most likely to utilize pay TV service would be the UHF
stations.
Mr. BROWN. You have Metromedia in the Washington market as the
fourth VHF. Are you suggesting that Metromedia would not want to
get STV?
Mr. FIRESTONE. Not at this time.
Mr. BROWN. And if we prohibit the fourth VHF from getting STV,
would that leave STV to UHF?
Mr. FIRESTONE. Metromedia's profit picture is such that there would
not be any tremendous desire at this time to go into STV when it
would be still a somewhat speculative operation. They make a sub-
stantial profit in this market. They might do it 5 years from now if
STV would prove successful and very profitable.
Mr. BROWN. I am trying to find out whether or not it is the three-
station market situation, wherein the network possibilities have all
been absorbed or is it the UHF factor that is in back of your thinking?
I am trying to get the rationale.
PAGENO="0629"
625
Mr. FIRESTONE. I don't think you can divorce the two, M~. Brown,
because in general there are very few markets in which there are UHF
network-affiliated stations. When you get into the three-station mar-
ket situation with three network affiliates, those are VHF stations.
Too, you are really talking about the fourth station in that market
which nine times out of 10 in the smaller markets outside of New York,
Los Angeles, and so forth, will be the UHF channel. So, there is no
real separation of those two points.
Mr. BROWN. I think there is on the 10th station. Are you worrying
about the fourth VHF or just the UHF
Mr. FIRESTONE. I am worried about the UHF, whether it is the
fourth, eighth, or 10th station in the market.
Mr. BROWN. You are worried about that fourth station, anywhere
that station is?
Mr. FIRESTONE. If the fourth station is making money now it is not
going to go to subscription television service in a five-station market.
Mr. BROWN. Let us say vis-a-vis a VHF station.
Mr. FIRESTONE. I think we can demonstrate the why to the Com-
mission. Denver had a fourth VHF station which for many years has
been a marginal station. If that station came in and demonstrated
that it would require STV support or maintain part of its free service,
I would say, yes; go ahead and do it.
Mr. BROWN. You would make STV available to stations not yet on
the air or to those stations which are on the air and are losing money?
Mr. FIRESTONE. Stations which are marginal and which will be
forced to terminate free service if they don't have the availability of
STV service to help subsidize the operation.
Mr. BROWN. Should subscription television and advertising be al-
lowed on the same program?
Mr. FIRESTONE. On the same program? You mean when you pay for
the program?
Mr. BROWN. When I pay for the opportunity to watch somebody.
Mr. FIRESTONE. As an individual, I would oppose it. I don't think
it should be permitted, but I won't say that that is my association's
answer. I will say that that is my opinion.
Mr. BROWN. Do you have a philosophical thinking or position about
this?
Mr. FIRESTONE. My feeling is that a prime asset to the viewer of sub-
scription television is the ability to avoid commercials. I think as prac-
tical businessmen subscription `television operators would be detractng
from its appeal.
But, philosophically, I `think where a person is paying, in effect
giving dollar for dollar back to see a program, that either the charges
be set so that the public does not have to see t.he commercials on sub-
scription television or `they should be kept off or maybe the service will
have to go down the drain absent the ability not only to charge the
viewer but also to charge advertisers.
Mr. BROWN. And finally, you mention CATV, but I am at something
of a loss `to figure out how, from a technical point of view, you are go-
ing to keep CATV and the neighborhood bar, or anybody else who
wants to bring an audience in to watch pay television programs, out~
of the business of selling admissioii to that program to other people,
so-called pirating the program?
PAGENO="0630"
626
Mr. FIRESTONE. On the over-the-air system, it depends on whether
they had the ability to unscramble the signal. I am not a technical ex-
pert on the subscription television operation.
Mr. BROWN. If they pay a dollar and a half for the program, they
have the right to unscramble it.
Mr. FIRESTONE. That is right, if they take the decoder box. You
cannot prevent that.
What I am concerned about at this point in the development of sub-
scription television is the Dingell proposal which would prohibit
over-the-air subscription, period. This would then open up the door to
widespread wire use of subscription television on an intrastate basis.
That would not provide a true test of the viability of the service.
Mr. BROWN. My question is, Ca.n you prohibit by regulation the use
of that dollar and a half right to view the screen from being trans-
ferred into either a wire system of some kind to spread to other sets
or from bringing an audience in to watch?
Mr. FIRESTONE. No, because you are not treating the subscription
service as a common carrier. They could stop it by merely refusing to
lease their decoder box or to give their decoder box to the local bar
and grill.
Mr. MACDONALD.' Thank you very much, Mr. Firestone.
Mr. FIRESTONE. Thank you, Mr. Chairman.
Mr. MACDONALD. The next witness is Mr. Robert Hall, on behalf of
Skiatron Electronics & Television Corp. We are glad to have you,
Mr. Hall.
I have known you under different circumstances. You represented
a great university from Connecticut. It has been my pleasure to know
you for many years. I am delighted to have you here this morning as
I am sure all members of the committee are.
STATEMENT OP ROBERT HALL, SKIATRON ELECTRONICS &
TELEVISION CORP.
Mr. HALL. Thank you, Mr. Chairman.
I greatly appreciate the opportunity of being here and having this
chance to give my feelings and views on the proposal, particularly as
it relates to sports.
For the record, my name is Robert Hall, of New Haven, Conn. I
am appearing on behalf of Skiatron Electronics & Television Corp.
I believe I am specifically qualified as an expert on sports in general
and on football in particular and the relation to the public and to
television.
I might also add that I am heavily involved in presenting live en-
tertainment with leading stars in theatrical offerings, including both
variety and musical shows.
I was former chairman of the board of athletic control and director
of athletics at Yale University, chairman of the NCAA Television
Committee representing well over 400 football playing institutions.
I was the principal architect of the first NCAA restricted or con-
trolled football program for television and I am sorry to admit, Mr.
Chairman, that among my sins is the blackout which I also recom-
mended to the late Bert Bell, commissioner of the National Football
League and which was adopted in their plan.
PAGENO="0631"
627
At the time the restricted national football program was adopted
the networks and the advertising agencies made many dire predictions
concerning its feasibility and salability. Their predictions and specula-
tions were just as unsound then as many of the fears which they are
now voicing are about STV.
I have `been actively involved in STV efforts to obtain a' fair oppor-
tunity in the marketplace for over 15 years and it is still rather in-
credible to me that `the pressure groups have been able to block this
effort to establish this service in the marketplace along with so-called
free or commercial TV with its many admitted faults and shortcom7
ings.
I should like to discuss the proposed sports rule and my understand-
ing of its application to the college football season.
The University of Southern California team is apparently one of
the best teams in the Nation. Assume then that this team is to have
exposure on commercial television once on a national basis and once
on a regional basi's, as is now permitted under the N'CAA rules.
By the time the University of Southern California and the Univer-
sity of California at Los Angeles game is to be played they are both
undefeated and the winner will emerge as the undisputed national
champion. Provided that game-and I emphasize the word "game"-
has not been broadcast by commercial television within, 2 years on a
national basis, it would be available for subscription television.
If it had been broadcast on a regional basis within 2 years, it would
only be available for STV outside of that region of the previous broad-
cast.
Another example would be the case of a team like Houston. It might
have been one of the great football teams in the Nation, perhaps it may
still be. If this team were eligible for an NCAA telecast it could have
been overlooked in the early summer selection of the teams and games
to be telecast this fall under the NCAA program.
STV if it were now operating would certainly have wanted a Hous-
ton game and under the proposed rules could carry it. The proposed
rule provides an opportunity to see more football without any siphon-
ing away of football from free TV.
The rule would enable games of special and local interest `to be seen
by segments of the sports-minded public who now have no opportu-
nity to see the game either live or on commercial TV.
There are many sports events which could be seen in the home for a
small fee which are not now and in the foreseeable future will not be
available on commercial TV. I could cite examples but I am sure tha't
there are many such examples already in the record. I am sure that I
am speaking for a majority of the sports world, both the public and
the organizations that sponsor and hold or stage sports events, when
I urge the very early adoption of the proposed rules and regulations.
I don't know how much more delay is warranted. Seventeen or more
years it has been on the fire and that has been long enough for any
tests and determinations. After 17 years of study of the problem of
subscription television with respect to sports I am convinced that un-
der the rules that are proposed that allow only one STV operation and
only in class A markets having at least five TV stations operating, is
unduly restrictive and that such a rule defeats the basic efforts of
PAGENO="0632"
628
providing the public with programing that commercial TV cannot or
will not provide.
The NCAA won't broaden its advertiser-sponsored offerings because
the reason for the NCAA plan and the pro plan is to protect the gate.
But they would like to extend that box office which STV would enable
them to do,
Another important point is that college football has a very definite
and important stake in its public, image. I am convinced in my own
mind that free TV or commercial TV is a very important element to
secure the Success of college football, to maintain its image and posi-
tion with the public and to further the interest that we have in sports
that do provide an important element in our process of educating these
young men.
I do not see any chance that the NCAA will broaden its plan of
restricting the amount of television that you now can get at home via
commercial television. There is a great deal of security in that with
respect to this siphoning problem. When you charge for entertainment
you are very definitely limited in what people will consistently buy.
I know this because this is my business.
Furthermore, product is in very short supply. I am now addressing
myself to other areas in the entertainment fields that will not and can-
not go via commercial television; 52 weeks a year, every evening, cov-
ers many more hours than can ever be filled with box office attractions.
I emphasize that again because when you charge, whether it is in
the home or down the road, you have to have what they want or you
can't give it away.
To answer a question that Mr. Brown raised the other day, if many
STV stations were competing for specific entertainment events, cer-
tain of those stations would obviously lose out and would offer some-
thing else, I would assume either competing for that box office dollar
or perhaps a combination of when they could get one that they could
sell they would put it on and when they could not they might revert to
commercial television.
The winners would also have to be careful that they do not price
themselves out of the market. This is not hard to do. When you pay
so much for talent, and we are doing that every day now in our live
operations that we are almost getting ourselves priced out of the mar-
ket with the public.
So there is a control that just exists by virtue of the economics.
The reason that the commercial television does not upgrade more
than it has was answered by Mr. Lindow in his testimony. I was rather
surprised, it is true, he said they just cannot afford to do it. He said
they would if they had the money. We are running into this in the
field of live entertainment.
We already now in our theaters pay more to the box office attrac-
tions than Las Vegas and we have reached a point where if we go any
further we just won't have the people there.
Now I should emphasize again that colleges want commercial tele-
vision or free TV for their public image. This is most import.ant to
them, it is paramount. The problem is very complicated. I have spent a
great deal of time studying the proposed rules. I will admit they are
not easy to completely understand and I am talking only about the
sports rule, but I believe the examples that I gave this morning would
PAGENO="0633"
629
be permissible under the rules and I am convinced that the rules do
provide reasonable protection against siphoning.
But in the event there should be further grave concern on this matter
of siphoning, I would suggest that the proposed rule might run along
such as follows, that no games-and I am addressing myself to 1)0th
college and professional football-no games which are a part of the
NCAA or the National Football League or the American Football
League approved programs for free or commercial TV shall be avail-
able to STV for a period of 2, 3, 4 years-let us make it 4 years-fol-
lowing the actual broadcast of such games except where such games
have been blacked out in the home team's market, presumably a 75-mile
radius.
In that case such games may be available to STV in such hometown
market. Now if the time bar is extended, if it is felt this committee and
the FCC, they can secure both commercial or free TV and give the
public a chance to see these events which will not now be available and
won't be available until the box office can be extended.
Further, where a game is broadcast by commercial TV on a regional
basis, then such game may be available to STV in any communities out-
side the particular region covered by the commercial broadcast, pro-
vided such game was not broadcast in such community or communities
within 2 years or 3 years from the date of the proposed broadcast by
What this would do in brief would be-let us take the Yale-Harvard
game which will not be on the national or regional telecast under the
controlled NCAA program. There is a great deal of interest in that
game in the greater New England area.
There would be, if STV were operating in Boston, Worcester, et
cetera, a demand for that game. Admittedly on a limited audience
basis but sufficiently large enough to warrant the extension of the Yale-
Harvard box office, if you will, to those people who would like to
have it.
In fact, I have made available several Yale games to the Zenith
experiment in Hartford. I might add also that when the first NCAA
plan was prepared and put into force and for every year since that
time great care has been taken to leave room under the plan to provide
for cooperation with pay TV when, as and if it should come about.
So, I suggest that the bar might be extended to a longer period of
time or they might wish to take certain specific events and reserve
those strictly for commercial TV.
I, myself, would not advocate that as a part of the rule but if they
wanted to go that far I think they could, and solve this siphoning
problem.
I do not think very much stress has been placed either on the fact
that because of the wonderful advan ces thathave been made in the
technical aspects of television, that now you can see on commercial
television, and no matter how broad STV might get, a replay on that
event on the tapes and see the reruns and get an analysis of the
game, which is difficult to do now with the reruns in the time al-
lowed when the game is being actually played.
It seems to me that those who have the requirement to get box
office extensions for their events might be given that opportunity
PAGENO="0634"
630
and I cheerfully would be one that would pay2 as other people have
indicated, to be free of commercial interruptions.
But if I don't care that much I can wait a couple of hours or that
evening and see that same event played at home for free. I think a
great deal of attention should be given to that fact.
I would limit STV or pay TV to box office attractions which are
not now available. TV channels have been allocated for educational
TV and that has been done in the public interest. It seems to me
it would be in the public interest to do the same thing for STV.
I have indicated that other reasonable regulations would be in
order and I think would be both legal and in the public interest.
I have addressed myself to the time bar. I have indicated that on
the time bar if the interests which control various events which are
now on free TV should elect to keep them away from the public for
4 or 5 years, the loss in public interest and in prestige as well as in
dollars would be more than they could afford. That is an element
that I haven't heard raised so far either before the FCC or here.
There is much more at stake than just dollars when you are talking
about college and professional football.
Their stake in the public has to depend on this kind of exposure.
If they attempt to price themselves right out of the market because
pay TV could come along, as one gentleman suggested, and make it
possible for them to take their games that are on and hold them
off for a couple of years, they would have another serious problem
to concern themselves with.
How long can you keep this away from the public and maintain
this great interest of the kids that are coming along, that you have
to have to keep that sport going, as long as you need to have a gate
to keep it going.
Unfortunately college football has to depend on the gate, too. I
say the public clamor would also be such that the public image of
the particular sport would be seriously impaired.
Now the professional football people as well as the colleges can
have the best of two worlds under the rules as they are proposed or
as they might be modified; they can supplement commercial TV by
putting their home games on STV, talking about the professionals,
and stay with commercial TV for the network presentation.
The FCC rules can protect siphoning away from commercial TV and
yet make it possible to provide more college and professional football
for viewers via STV. This statement also can apply to other sports
events.
Further, events with special audience interest, both sports and other
forms of entertainment, would be readily available in the home and
under the present system we can get them.
That is the sum and substance of my statement, Mr. Chairman. I
would like to place in the record a letter from Mr. Weaver, who is the
president of the company which operated the Skiatron system out
on the west coast.
This letter addressed to the Commission sets forth rather completely
the experience that they had out there and the broad acceptance which
a form of STV had received. With your permission I would like
to put that in the record.
Mr. MACDONALD. Without objection, it is so ordered.
PAGENO="0635"
631
(The letter referred to follows:)
SUBSCRIPTION TELEVISION, INC.,
Los Angeles, Calif., July 28, 1965.
Re docket No. 11279, file No. RM-748.
FEDERAL COMMUNICATIONS C~MMIS5ION,
Washington, D.C.
DEAR SIRS: Although we are not a party to the proceedings In the Matter of
Amendment of Part 73 of the Commission's Rules and Regulations (Radio
Broadcast Bervices) to Authorize Nationwide ~v,bseription Television, we would
like to express our views with respect to the rule-making petition of Zenith
Radio Cbrporation and Teco, Inc.
We support the petition of the joint petitioners for authorization of nation-
wide subscription television, subject to the modifications urged by International
Telemeter Corporation.
In 1964, this company offered a cable subscription service to two areas in
Los Angeles, California and San Francisco, California. The cable passed or would
pass one hundred thousand homes in these two areas, and before our business
was declared illegal by initiative action in the election of November, 19~34, the
public had already ordered the subscription service in tremendous numbers.
(The initiative has since been declared unconsitutional by the Superior Court in
Sacramento.) Although the selling effort in the two areas had only approached
mid-point, we already had twenty-five thousand homes signed up for the service,
with an additional twenty thousand homes ordering the service but outside
the initial area. Our projections show that we signed up half of the homes in these
areas where the families owned television sets, and were not moving.
We believe this indicates in a degree far surpassing the experience of the
other predecessor's attempts at subscription service, the public understanding of
the difference in programs available by cable or fees, and the kind of product
that commercial and educational television are limited to, one because of the
nature of the advertising-supported `system, and the other because of the nature
of the donation-supported system.
In the case of over-the-air service, which is properly a matter for the Com-
mission's jurisdiction, which is by no means clear in the case of cabled service
our company believes that the need has been established for the public to re-
ceive programs that can never be available on television as constituted, that is
to say, (i) material where the audience is too small for commercial sponsor-
ship, such as the cultural coverage programs of opera, ballet, symphony, recital,
and the like, (ii) educational material which cannot be afforded by educational
stations nor used in any major way by commercial `stations, but which is needed
by our adult population and will be increasingly needed as we get more leisure,
and more incentives to learn and (iii) material which ivill never be affordable
by commercial television, such as current motion pictures, or blacked out home
games of sports events, or plays or attractions playing at the box office at the
time of televising.
Our experience in California on the use of the service was too brief to be re-
suitful, but we do know that while half the time was spent on motion picture~
and another twenty-five percent on sports, mainly baseball, the important fact
to professional management in communications is that twenty-five percent of the
time spent on system was in the categories of cultural coverage, non-fiction cov-
erage, educational materials, and special events. The promise of the cable serv-
ice is an intelligent population, with elevated tastes, upgraded standards, and the
opportunity to enjoy the pleasures of civilized and literate human beings. We
do not believe that, good as it is, commercial broadcasting can perform the mis-
sion of bringing to groups of our people coverage of the interests they share
in large enough numbers to be able to afford that coverage, although such num-
bers are wholly unsuited to television on an advertising-supported basis.
Our company believes that the new UHF stations may be sufficient in quantity
to permit spectrum use of subscription television as an additional source of in-
come to the station without reducing the number of services now available to
people through broadcasting. Thus, in any community, without harm to broad
cast service, the program range and scope could be increased through subscrip-
tion service. The company does believe, however, that over-the-air subscription
service will, for many reasons, always be a -supplemental delivery system
to the cable service, with its multiple channels, its capability to move `to a 1000-
line system in the near future with the great quality improvement available, its
PAGENO="0636"
632
range of programs, its service to shared tastes of small size but great intensity as
well as to the great popular events that are forever unaffordable by an ad-
vertising-linilte~ source of funds.
In view of the foregoing considerations, we urge the Comimissiori to adopt
the rules proposed in the joint petition of Zenith Radio Corporation and Teco,
Inc., subject to the modification suggested by International Telemeter, Inc.
SYLVESTER L. WEAVER, Jr.,
Pre8ident.
Mr. HALL. I thank you for this opportunity and I am open to any
questions.
Mr. MACDONALD. I repeat it is a pleasure to see you again. I can
personally vouch for your vast wealth of experience in the field of
sports.
The only question I have really, because I could not follow one wit-
ness who testified and I did not want to get into an argument with
him-said under the present FCC regulation of sports that had been
habitually and regularly shown in an area could go on STV within
1 year.
As I read the rule, I thought it would take at least 2 years for the
franchise. I was thinking of pro football at the time, but I guess the
same thing would hold true of college football. Is he right? I should
think they would have to hold back getting revenue from the com-
mercial broadcasts for a 2-year period.
He stated that it would only be a period of 1 year and I could not
follow him, frankly. Could you clear that up for me?
Mr. HALL. Yes, Mr. Chairman.
I have read and reread the proposed rule many, many times. I am
convinced that the language definitely means that a game-and I keep
stressing the words "a game"-would not be available to STV in any
community in which it had been put on commercial TV within 2 years
prior to the proposed date of the STV broadcast.
I am familiar with the testimony to which you refer. I just must
feel, myself, that the gentleman had not read the rule as carefully as
I think I may have.
Mr. MACDONALD. Just to buttress what you say-and I am not taking
any sides, I repeat-I happened to have the occasion to see the Colts
game yesterday. I must have spent $20 in phone calls trying to get
tickets. Finally, I was successful.
I know very well if it were going to be on pay TV that I would
have gladly paid $4 or $5 to have seen it on pay TV. When commercial
broadcasts permit blackouts in the very areas in which the team is
supported, why do they now say that pay TV is going to ruin them?
You couldn't get a ticket, period.
Do you have any comment on that?
Mr. HALL. Yes; I do. I had the same experience the week before
when I came down to attend t.he hearings before the FCC. It just
happened I got here on a Sunday, by design, hoping to see the Red-
skins play the Giants.
I went through the same experience that you encountered in trying
to get to the game.
I would like to comment particularly on this blackout rule. Now
the whole basis for controlling television of the sport, controlling the
amount that can go on, stems from the basic idea that we have to pro-
tect our box office.
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633
As I said, unfortunately college athletics are supported primarily
by the box office. That is a mistake but there it is. So in the subsequent
plans we provided the blackout rule and the professionals picked that
rule up for the same reasons that we established it.
To show you what happened, I recall the statement made: "Why
don't the networks insist that there be no blackout." I will say in the
case of college football I doubt that NCAA would ever accede to that.
If the networks said, "Either give us the whole works or not at all,"
I think it would be not at all and that certainly would not be in the
public interest.
On the other hand, I don't think Congress would have any right to
tell the colleges that they have to damage their box office and what
supports the college financial structure of the Nation.
So we do have the blackout rules, still have the blackout rules in
force.
To show you what can happen. You have a sellout game. In the first
rule I said if we have sellout games we are now going to get into
trouble with the public because they can't get a ticket and they are
going to turn on college football and say quite properly, "I can't buy a
ticket and I can't see the game."
So I said that we will provide that in the event the game becomes a
sellout and is so declared by both directors of athletics, that then the
game will be available for commercial television within the backout
area, provided, in the case of college football, no other game. is to be
played within that area that will be seriously hurt by the telecast.
A specific example arose, the Michigan-Michigan State game was
a sellout. As chairman of the committee I called up Fritz Crisler.
I said, "Fritz, you are a sellout and you and Biggie Munn can both
declare this and can make it available to WJR in Detroit," an area
where tremendous interest in that game existed and people could not
buy a ticket. Under that rule it was done.
To show you what can happen and what did happen, Mr. Crisler,
the director of athletics of Michigan, was inundated by telegrams,
letters, and phone calls, the gist of which was, "If we had known that
your game was going to be televised we would not have paid $5 for
those lousy seats behind the end zone."
I think you might recognize that there are more so-called bad
seats-that is, the average membe.r of the public considers them bad
seats-available in a football stadium than there are good.
In the Yale Bowl we can pack 65,000 to 70,000 people in there. There
are 25,000 seats goal line to goal line on each side.
In other words, 12,500 on the Harvard side and 12,500 on the Yale
side. That leaves an awful lot of seats that people would rather not
pay $5 for, if that happens to be the price, if they can stay home and
see it for free. Now that is one of the answers.
Mr. MACDONALD. Thank you.
I might also add you can be on the 40-yard line in the Yale Bowl
and see the game better from a helicopter.
Mr. HALL. That is right.
I do not want to say this for the record but that is not the best de-
signed stadium to see sports from.
Mr. MACDONALD. Mr. Kornegay.
Mr. KORNEGAY. Mr. Hall, I have certainly enjoyed your testimony.
PAGENO="0638"
634
There are a few things I would like to ask you for my own information
and edification.
No. 1 is that you suggest that the rule with reference to sports events
be changed or made in such a way as to permit the showing on STV in
blacked out areas of particular sports events. I don't quite understand
that because as I understand it, that is a p~irt of the contract between
the network and the institutions involved in the sports events.
Mr. HALL. Yes.
The NCAA rule provided that there be no telecast within the home
area within a 75-mile radius. But the NCAA very easily could, and in
my opinion very definitely would, say that the game may, however,
go on STV in that area.
Do I answer that question?
Mr. KORNEGAY. Would they not be-
Mr. HALL. No, it would extend the box office so that they might-
now this would be a calculated measure. If I were the director of ath-
letics at the particular institution where the game is to be played and
that game is blacked out, if the interest is running very high in that
game, (a) I would like to satisfy the public who can't get in my stadium
(b), I would like to pick up additional revenue; I would then balance
how much would I get from the pay TV telecast as against what ero-
sion will there occur in the sale of my tickets at the box office at the
stadium.
Mr. KORNEGAY. I can certainly see that if it is a sellout. Is your
suggestion limited only to those cases where it is sold out?
Mr. HALL. I think the rule would not necessarily cover that. I think
that is the rule that would be made by the people who have the sports
event themselves. There is no thought here that the FCC is telling any-
body that they have to go on television in any form if they don't
want to.
I say in the way it is actually happening now you will as far as I can
determine, forever have a situation where you can't buy the ticket and
yet it won't be shown in your area. That is the conditions that exist.
But those are made by the Owners or the proprietors of the event, not
by the networks themse]ves.
Mr. KORNEGAY. You are starting with the network in that case.
The network would prefer to have it shown all over, would they not?
Mr. HML. Absolutely.
Mr. KORNEGAY. So they would probably pay more for the show if
it could be shown all over without any blackout.
Mr. HALL. Yes. Take the Michigan-Michigan State game, for exam-
ple. That is a very important market so that the advertiser would
have paid additional revenues, advertiser dollars, for the privilege
of putting that game on Detroit. But STV would also be there to put
it on.
Mr. KORNEGAY. But the promoters of the institutions involved, the
tea~ms involved, have not seen fit to take the risk, that calculated gam-
ble you spoke of?
Mr. HALL. Because the amount that the advertiser dollar can come
up with can't match the erosion of the free offering in the home right
in your backyard.
Mr. KORNEGAY. In other words, you say subscription TV can come
up with a greater amount of money to buy the show for the blackout
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635
area than what the networks would pay for it, blackout or no black-
out?
Mr. HALL. That would be a measure that the director would have
to concern himself with. An example that I had to live with was the
determination of the pricing of a ticket for a particular event. We
could reduce the price, and we did this on several occasions much to
our chagrin; we thought we would fill the bowl for a Georgia game.
We said we are going to charge a dollar a ticket. The Georgia bowl
boys took a pretty strong exception to that dollar a game. I think it
had a lot to do with their attitude on the field. But we had to sell an
awful lot more tickets at a dollar to make up for what I could get with
many fewer people at $3.
Now, if I am balancing a situation between what commercial TV
and what STV might say, I think I would be much more inclined to
at least want a price for that blacked out game in my backyard at the
home rather than try to get more money from the advertiser and say,
"Well, I will just let it go free."
I just don't think they would. I don't think it comes down as much
to dollars and cents as to the fact, and this is why the professional
teams obviously don't sell those markets-when you black out New
York for the Giants games you are blacking out a fantastic market
from an advertiser point of view, but they don't dare release that for
more advertiser dollars because if they do, you gentlemen and I won't
have nearly as much difficulty buying that ticket at the home game.
Mr. KORNEGAY. I have one other question.
On commercial television of sports events we have the timeouts be-
tween innings in baseball and timeouts in football games and that is*
the period when the commercials come on.
What would STV substitute for the commercials during those peri-
ods when there is no commercial?
Mr. HALL. A very careful analysis of what had transpired up to
that point. I think that the interest in the sports events would `be
greatly heightened by the opportunity at those periods to make expert
comment on what has transpired.
With these tapes that are instantaneous now it would heighten your
interest in the game immeasurably.
Mr. KORNFJGAY. Thank you.
Mr. MACDONALD. Mr. Harvey.
Mr. HARVEY. No questions, Mr. Chairman.
Mr. MACDONALD. Mr. Brown.
Mr. BROWN. Is there a danger in STV that we are going to put
broadcasting into the entrepreneurial kind of business for the factors
of Broadway theaters or the backers of sports events that are not regu-
lar like professional football `or baseball, such as prizefights, where
it will be a boom or bust business; that is, where they will either make
a killing if they guess right on the home box office or they will lose
their shirts if they guess wrong?
Mr. HALL. I am not sure that I clearly understand the question. Let
us `take the Broadway producer. I have had `one fiin~ at a Broadway
production. Like most of them it went down the drain.
With respect to the cost of a Broadway production of a musical
today, I am sure you are aware of the fact that no matter how much
you trim it it will run $500,000 or $600,000. It looks like it will go
PAGENO="0640"
636.
higher. Broadway productions are currently not put on as a pre-
Broadway show on commercial television. The costs of converting that
for that purpose are extremely high.
I believe that if STV does become a reality and it is broad enough
across the land, that there would then be an opportunity `to try out
via the air which would in my opinion provide many more of the
Broadway shows `being tempting.
Obviously, I would pay my dollar or $2 or $3 and the show may be
a bomb. Just like anything else, you go `to the box office and put your
dollar clown. `Sometimes you don't get what you look for, vis-a-vis
some of the football games we just talked about.
I do feel that pay television would provide support for the sheer
commercial entertainment arts. There `is a great deal of `stress placed
on the cultural activities and I am all for them. But they are not
necessarily a's salable as people w'ould like to have you believe other
th'an the fact that pay TV can take a ,fairly small `segment of the audi-
ence that is of not real great in'terest `to the advertiser-sponsor but
that group in itself can provide enough support via the home box
office to support that activity.
`So, I do believe that STy will help the `cultural activities. There are
enough people but they are spread. A good example is the very success
of the show, "The Three Penny Opera." That play ran with great
success for, I don~t know how many years, in a relatively small theater
in New York.
The individual who owned the ri~hts to that show decided to take
it on `the road. In my discussion I said, "I think you are going to have
a sorry experience because five women come in from Kansas City and
they `are bound to see the `Three Penny Opera.' They are coming in
every day to New York from all over the country."
There is a segment of those people who do wan't to see these more
cultural activities. But you take that out to the area and you ~won't
have enough to fill the theater in that community.
But STy, if it were broad enough, could do something like that be-
cause as an offering it would pick up ~ number within the framework
of ~t5 miles or so.
I do not think I have answered some of the questions that you asked.
I don't know if I have thrown some light on the subject.
Mr. BROWN. You have raised another interesting point and stated
it very well.
What I was `thinking of was a broader appeal than what you sug-
gested: the possibility that broadcasters will be in the business of
guessing public taste at the local level.
In other words, broadcasters must guess the community reac'tion to
"Three Penny Opera" as an STV project when `they pay the price to
get it. If nobody signs up or indicates that `they are going `to watch it
and pay their dollar for it, `the broadcasters have lost out.
As it stands now through your networks, `the local programer's in-
vestment in a return is somewhat smaller. The risk is taken by the net-
works who can `bring together a fairly sizable chunk of money and
buy a series or expensive program. And then if it bombs out in Kansas
City, `they have already sold it for a time and they get back some
of their money.
But when the local UHF station, which is marginal anyway, is pay-
ing a substantial amount of money to get a film or a sports event or a
PAGENO="0641"
637
Broadway production on the air and they guess wrong they have lost
a fair amount of money.
Isn't that going to be the case
Mr. HALL. I would say that I would be quite surprised if the owners
of the events that would like to extend their box office would refuse to
make them available unless they got the money up, whether it was
going to be accepted or not. I would expect that in most instances they
would go on a trial basis. If it happens to go in this area, well and
good.
I will agree that the owner of the STV station involved will have
other costs which, as you might say, will go down the drain if nobody
happens to want to buy it.
I certainly agree this can happen. We have five theaters that seat
about 2,500 people each and we provide live entertainment in these five
areas. We have one in Wallingford about halfway between Hartford
and New Haven.
We have another one less than 75 miles away. The very show, I will
give you a good example, "Sweet Charity," that might be a bomb with
us. The same show, the same star can go 75 miles up the line and do a
fantastic business. We just don't know how to measure the difference
in area to area.
I agree that the STV op~rator will put something on in Kansas City
that will be successful for many and he may find out if he owns a
station down in Lincoln, Nebr., that that one was a bomb. This will
probably happen.
But I think the STV people have said, "We want to take our chance
in the marketplace, it is our dough. We are going to take these
gambles."
I don't think the owner of the event will. I think he will go along
and say, "Let us try it out. If they take it in Kansas City and don~t like
it in Lincoln, we will pick up what we get in Kansas City."
Mr. BROWN. I have one question that relates to the expansion of both
baseball and football leagues since the advent of television.
Now I am trying to figure out how that relates or would relate to
STV. Is there a presumption on your part that STV would encourage
the interest in and support of local sports teams or would discourage
it or would have no effect onit ~
Mr. HALL. I think STV would, as I indicated previously, enable
events, and I am talking specifically about college and pro football,
games which no matter what transpires here in Washington will not be
available to the public.
The NCAA plan is serving a very important purpose. So that those
games not being available on free TV will now become available in
my opinion on STV.
Mr. BROWN. I understand your point about blackouts. What I am
trying to ask is this. I must admit that I thought when they started
telecasting free all the baseball and football games around the country,
even though they were blacked out in local areas, that we would have
a deterioration of the attendance in the park generally because people
could sit in the comfort of their home and watch the game, and that
you would also have a falloff of the less-competitive teams, those that
were losing every Saturday, and that they would not be commercially
salable and that you would begin, to get a concentration .of fewer
highly expert teams.
PAGENO="0642"
638
Instead, we have had an expansion of both major baseball leagues
and also expansion of the NFL and AFL football leagues. Is there a
conclusion that can be drawn from that with regard to STV?
Mr. HALL. In this instance you must look at college football with a
very definite understanding of how its problem differs from that of
pro football.
I will come back to that in a moment.. Now we will go to professional
football. Professional football now has come very close in my opinion
to establishing franchises in areas which can support a modern fran-
chise I doubt that there will be many more communities, and this is
my own personal observation obviously, where there will be expansion
I can think of possibly two or three.
Now this means, therefore, that pro football can still look to the
big, big segment of the population of this country who occasionally
may get to the community and want to get in the park but who
wouldn't get pro football at home now. So in the case of pro ~ootball
I think the biggest impact will be the availability of the home game,
which is presently blacked out, on some form of box office extension.
I don't think the impact of STy, jf ~e do h'ive it, I don't think it
will make any material difference in whether we are going to see pro-
fessional football in the foreseeable future. With respect to college
football, there the problem is entirely different. The whole basis for
the control plan of college football is to protect some 400 box offices.
So there is almost no area where you can put a game that does not to
some degree possibly interfere.
But if you extend the box office you are now going to have to have
somebody pay for something when there is something free `ilongside
of it and it will be the special audience that will want to see it.
You probably could not give the Yale-Harvard game away in some
areas of the United States but we know of areas where that game
would have a special audience appeal and we would like to give it to
them. We don't want to give it to them at the expense of walking away
from the NCAA plan.
Mr. BROWN. I want to suggest one other problem. Somebody asked
you what they would do. at half time. I am inclined to think we might
have a little pirating on STV because at half time you might have
your ham and coke in centerfield where you see the Anheuser-Busch
ad and maybe the football team could sell the centerfield sign a little
more dearly than they have now?
Mr. HALL. No comment.
Mr. MA000NALD. Mr. Springer.
Mr. SPRINGER. Could I ask one question and I hope you can keep this
brief, at least your opinion on this.
In just what areas would pay TV expect to have programing? Could
you name those?
Mr. HALL. When you use the word "areas," are you referring to
geographical or events?
Mr. SPRINGER. I am referring to programing areas.
Mr. HALL. I named blacked-out professional games.
Mr. SPRINGER. Blacked out?
Mr. HALL. Yes; the game played in New York by the Giants on a
given Sunday will not be televised within 75 miles of that area.
Any college game that is not on the NCAA program which is
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639
Selected in the summer before the season begins. This embraces a con-
siderable amount of college football that could and would go to STV.
Mr. SPRINGER. That is two.
Mr. HALL. I would say many offerings of live entertamment thai
would be Broadway bound. I would say special sports events like the
Indianapolis 500. I would say a full schedule perhaps of National
Hockey League. I would indicate that the Madison Square Garden
major track meets such as the Meirose games and track meets of that
national character.
Mr. SPRINGER. What about movies?
Mr. HALL. I would certainly expect that there would be motion pic-
tures that would be made available to STV prior to their being made
available to commercial TV. I would fully expect that to happen.
Mr. SPRINGER. May I just refresh your recollection. I don't know
that is altogether accurate but reading the ratings, I believe it was in
last Thursday night's Star or Wednesday night's Star, the ratings of
this fall's new programing, that the No. 1 programing was the "Satur-
day Night Movie."
The second rated program was the "Friday Night Movie." The third
rated program was the "Thursday Night Movie."
If those are the ones that are the big movies under free TV, there
is the area that they are going to make money, isn't it?
Mr. HALL. I thought I said, sir, that in my opinion they would
go-
Mr. S~RINGER. A big part of what you have been talking about in
the sports field, Mr. Hall, is already covered by a ruling of the FCC.
I would guess that that ruling would be made even tighter because I
don't think Congress will stand around and let you make, at least 1
would not, and let free broadcasts of sports events be made into p~y~
TV for sports events that can be received on free TV.
Mr. HALL. I concur.
Mr. SPRINGER. Out of the seven you have imined four in that cate-
gory. Boxing is a different thing. That is a closed circuit. kind of thing.
I can think of one or two others. But the broad spectrum of sports is
the exception. There are really only two areas where they could really
make some money.
I have been trying to find out whether they can. One would be in
the field of special programing of their own, which would be Broad-
way-bound plays.
A season would be in the field of movies. Are those not the two big
areas?
Mr. HALL. I can't agree with you, sir. What I think you are doing
is overlooking the vast amount of special interest in special football
offerings that are not now and will not be available to commercial TV.
It is nothing thnt Congress has to do with.
It is just that it will not be made available bet it would go to the
STV because of the special audience appeal that the local game would
have. Right now it is not available to commercial TV.
Mr. SPRINGER. Your thought is that they would change the rules of
the National Football League and the American Football League to
make those available at a price. Is that what you are talking about?
Mr. HALL. I can say that the rules of the NCAA as they exist today
have provided specifically for cooperation with STV if it ever is avail-
able.
PAGENO="0644"
640
In the case of the Hartford experiment, Yale football games were
placed on STV offerings.
Mr. SPRINGER. Then we are talking about live entertainment pro-
graming, movies, and a certain spectrum of the sports field.
Mr. HALL. Yes, sir.
Mr. SPRINGER. We have narrowed it down to those three and that is
about right.
Mr. HALL. I would say that is about right.
Mr. SPRINGER. I think we have on the record what would happen.
This is what I want to know. Can you give any opinion as to what you
think the areas of a million dollars will run into?
Mr. HALL. No, sir; I can't make such a projection now~
I believe that the calculations that are made by the opponents of
subscription television when they are arguing against it and, there-
fore, have to build up as much potential purchasing power against
them as they can, I believe they have gone far overboard than what
will be the case.
I do believe that the UHF station in the community where they are
struggling will be able to find events that will supplement or pick up
some additional revenue and that can afford to do it and that it will
put some revenue, additional revenue, supplementary revenue, if you
will, into the hands of the people that have these limited events you
have spoken about.
Mr. SPRINGER. I think this is a third major problem. I think these
are fundamentals that we ought to see just as broadly as we can.
Now we have passed the field of programing. The second is, how
much money and who is this going to apply to when you talk about
UHF? How the third, I would like to know what you think about how
broad this appeal will be.
Let us review Hartford. It is my understanding they thought they
were going to get somewhere between 3 and 6 percent. Did you under-
stand that?
Mr. HALL. No, sir; I don't know that.
Mr. SPRINGER. As I understand it from our staff I think that was
their projection. Instead of that they got 0.75, which is three-quarters
of 1 percent.
Would you think three-quarters of 1 percent would fit this thing if
it were put into effect?
Mr. HALL. I think I can answer that in a different way. I would
not expect Zenith, and I do not represent Zenith, would be down here
and spend the kind of money they have spent on experiments in the last
5 years if they did not feel they were going to be successful.
Since it is their money and not coming out of me as a taxpayer, more
power to them.
Mr. SPRINGER. In the Hartford area it is my understanding that
Hartford itself is somewhere between 250,000 and 300,000 people. We
will say at 5 percent that would be in the nature of 15,000 receivers
but this would be in the nature of 2,500 receivers. lam talking about
in the city of Hartford.
They might go outside the city of Hartford which might be a half
million people. That would be 2,500 sets. Do you feel this is a serious
problem in opposition if this should be true nationwide?
This is a projection I don't know anything about. I am~ trying to
apply what we do know to the national situation.
PAGENO="0645"
641
Mr. HALL. Before I answer that I would like to make one statement.
In the case of the trial in Los Angeles and San Francisco they passed
some 100,000 or more homes. They signed up-
Mr. SPRINGER. A 100,000 or more homes in both or each?
Mr. HALL. In both. rrhey had subscribers waiting for the service,
until the referendum put the thing out of business, some 45,000 sub-
scribers.
One other thing, if I may, sir, because you have touched on this
programing problem. Unlike the Zenith experiment, in the case of
the San Francisco-Los Angeles, the programing involved sports and
movies but the amount of sports and movie time was in the area of
some ~t5 percent with 25 percent of the time being allocated to other
special offerings.
Mr. SPRINGER. I have one final question.
How much does it cost in Los Angeles and San Francisco on an
average per month to receive a reasonable amount of programing?
Mr. HALL. I think there was an installation fee. I am sorry, I have
the answer here but I do not wish to take the time to look for it.
I think the installation fee was in the neighborhood of some $20.
Then I think it. was $4 or $5 a month but I am not sure.
Mr. SPRINGER. It was my understanding in the Hartford thing that
to get about what you wanted was somewhere in the neighborhood of
between $30 and $40 a month.
Mr. HALL. I did not make myself clear. First, you had an installa-
tion fee. I am not clear as to whether from that point on your service
was maintained without any further charge and you only paid for what
you saw. Bear in mind that in the Los Angeles and San Francisco oper-
ation there were supplementary services provided the set owner around
the clock so there may have been a slight charge for that supplemen-
tary service. But I don't think that is germane to the issue because in
the over-the-air you don't have that.
Mr. SPRINGER. As I understand in the Hartford experiment it ran
between $30 and $40 a month if they wanted to get anything reason-
ably substantial. That part I am not sure about but I hope the staff
can get this because, I take it, it is not a great deal of trouble to get
this particular thing.
Mr. HALL. I can only put an observation on that statement. My ob-
servation is this: When you are trying to sell somebody something and
it is entertainment it is awfully hard to get very much of that enter-
tainment dollar for any particular operation.
Mr. SPRINGER. In the Los Angeles-San Francisco experiment did
they put a coin in the box?
Mr. HALL. No, sir; they didn't need to use a coin there. There was a
transponder that enabled the base office in the middle of town to sweep
set of the subscriber and determine instantaneously whether he was
tuned into that pay program.
Mr. SPRINGER. In the Hartford experiment was this a coin in the
box?
Mr. HALL. Some form of payment was made in the home but I am not
qualified on that.
Mr. SPRINGER. I understood it was a coin in the box but I am not
making that as a categorical statement.
Mr. MACDONALD. It was a billing device.
PAGENO="0646"
642
Mr. SPItINGER. Do we have anything in the record how much that
cost?
Mr. MACDONALD. Yes. To correct the witness, it was my recollection
that in Hartford the total cost averaged about $100 a year.
Mr. SPRINGER. Thank you, Mr. Chairman.
Mr. MACDONALD. I just have one last question if the committee will
indulge me.
I know one of the members of our subcommittee is very interested
in this. I don't know if you are qualified to answer it or not. I know
you put together the NCAA package. He was very interested in this
so-called fake time outs put on so that the commercials can come on
the TV. It was alleged by a number of people that sometimes the peo-
pie would have a drive underway but they had a command from the
network man down on the field and he would give the signal it is
time for a commercial and action on the field would stop then and
there.
That as I understand it is in professional football, I was wondering
if it is also true in college amateur, so-called amateur football.
Mr. HALL. This has been a matter of grave concern to, fir~t, the
team and the coaches. Obviously since the advertiser dollar is paying
for this he has to get an agreed number of commercials.
The situation did arise in the past in college football and there was
a notable case of a team-as you know, Mr. Chairman, when you are
moving-that stopped and that is why the opposing team might take
time out to get the steam down, stop the momentum.
Every effort has been made and I must say the commercial networks
have been very sympathetic with the problem and to my best informa-
tion and belief that is not very likely to happen in college football
this fall because the men who are on the job there who are assigned
by the networks to cover the game are aware of this problem and will
use their good judgment but it still does remain the fact they have
paid for an x number of commercials and they are entitled to get them
in somehow, somewhere. They are just going to try to guard against
doing it at the wrong time.
Mr. MAcDONALD. It is true in pro but it is also true in college?
Mr. HALL. Yes; but they are doing their best not to overdo it.
Mr. MACDONALD. They are using their best judgment?
Mr. HALL. Right.
Mr. MACDONALD. Thank you very much, Mr. Hall.
The next witnesss is Sidney Dean. Is he in the room? He represents
Americans for Democratic Action. If not, with unanimous consent if
he submits a statement it may go into the record at this point.
(Mr. Dean's prepared statement follows:)
STATEMENT OF SIDNEY W. DEAN, JR., CHAIRMAN, COMMUNICATIONS COMMITTEE,
AMERICANS FOR DEMOCRATIC ACTION
ADA'S CONCERN
ADA is a non-partisan, independent organization of private citizens in local
chapters throughout the country, concerned that the social, economic, and po-
litical institutions and policies of the United States serve the public interest in a
free, just, humane, and expanding nation. ADA'$ exclusive concern in national
policies for subscription television is that they serve, and not thwart our vital
needs and objectives for a national system of high-eapacity, broad channel car-
riers of communications services to the public and business over the air and
by cable. ADA concurs with leaders in the communications industries and tech-
PAGENO="0647"
~43
nology who believe that such an integrated system will become the carrier, not
only for television and radio as we now know them, but will take over the func-
tions of the greater part of our present systems of print media and telephone
services.
ADA has previously communicated to the FCC and to the Congress its concerns
with the public-interest aspects of broadcasting policy; in [955, ADA called for
the development of audience-payment television as a new, independent system of
public communica~ions under common carrier utility regulations. ADA has con-
sistently called for FCC and Congressional restrictions over the common owner-
ship and control of the public media in our metropolitan markets, including news-
papers, radio, TV, and CATV. ADA was among the first to support the reserva-
tion of educational channels, the all-channel receiver requirement to open up
UHF, and, more recently, the establishment of a comprehensive system for
public broadcasting.
ADA gives high priority to the development of audience-payment television as
a lyrecursor of many new communications services which will become feasible
when a public payment system becomes available. Under forward-looking and
wise public policies, such public payment systems can finance a vast new range
of diversified information, educational, commercial, and cultural services which
cannot be financed by the economics of mass advertising These new services can-
not be free to grow and compete in response to the needs and free choices of the
public and business if they are to be organized only as "beneficial supplements'
(to use the terminology of the Committee) to commercial broadcasting and net-
working, which must give paramount consideration to advertising revenues.
The U.S. now possesses all of the requisite technical and economic resources for
such an integrated on-the-air and cable system. Within a comparatively brief
time-span, such a system will be established for the public distribution and sale of
news, -entertainment, education, data processing and retail services; the services
will be "live" or "dialled" from central exchanges to "libraries" of information
and cultural resources. Subscribers may rent receiving and sending instruments
for audio-video, facsimile, printing, or computer terminals: there will be `elec-
tronic editions" of our newspapers, magazines, and books. The equipment may be
used live, or programmed to make recordings for future reference. The rapidly
expanding demands of the public and business for these services will require
the most efficient, integrated use of on-air transmission by existing stations.
microwave and laser interconnections, relay satellites, plus high-capacity cable
like OATV which will soon interconnect nearly every home, place of business, and
institution in the United States, precisely as the telephone system now functions.
The over-riding criterion of public policy for this fulbservice national system
is that it be made available at reasonable and equitable rates and conditions to
all who wish to distribute or market communications services to the ~ublic
whether for direct public payment or for sponsor or advertiser payment. It is
1ne~mpatible with this criterion that carrier stations, interconnecting networks
and cable systems, which are temporarily in short or monopoly supply, exercise
unilateral privileges to control public access to the system by media and services,
and offer competition with their own services. It would `be equally opposed to the
public interest if these carriers be permitted to fix ratesand terms at will contrary
to constitutional safeguards of free press and free competition which have been
historically applied to all other carriers of public communications, including the
telephone and telegraph systems, the postal system, goods carriers, and even the
motion picture industry.
STJMMARx OF ARGUMENT
The establishment of public policies to inaugurate a new national system of
direct public payment television and other feasible electronic services can be
regarded in either of two ways: as a set of minimum niodifications and adapta-
tion's to accommodate present broadcast services unchanged, or as a framework
for a new yet clearly projectable public cOmmunications system to meet the needs
of the immediate future.
The report of the STY Committee has chosen the firs't alternative, with little or
no recognition of the requirements and safeguards for our needs of the future.
In fact, two far-ranging studies of future U.S. requirements for electronic com-
munications have been ignored; one, by the President's Commission on Tele-
communications; the second by the Federal Communications Commission itself.
ADA submits that the adoption of the Committee's recommendations for a new
direct public payment `system owned and operated by the present commercial
system would be irresponsible. It would foreclose the rights of the Congress,
PAGENO="0648"
644
given access to these two studies, to make a determination as to the effect of
public needs on future policies ; it would preclude recommendaUons from the
Executive Branch that may fo1l~w from its own study. It would deprive the Corn-
mission, itself, `of the opportunity to apply the findings of its own study.
Furthermore ADA submits that there are major defects in the Committee s
assumptions `and findings, cited later `in this argument.
SPECIFIC ARGUMENTs
ADA believes that many of the defects of the Committee's proposal stern from
underlying assumptions which are often not identified or evaluated in t:he public
interest For the sake of brevity and Conciseness ADA arguments are addressed
to those assumptions as well as to specific provisions of the proposed regulations
~TV as a "beneficial supplement" to commercial broa'clca$ting: ADA considers
this basic premise of the Committee's Report to be fallacious. Educational pro-
gramming was also first regarded as a beneficial supplement to commercial
broadcasting; it required twenty years of experience to learn that the two were
incompatible, and required separately licensed channels. FM channels were re-
garded as beneficial supplements to AM; only recently, the two services have
been severed to permit `development of their individual capabilities for diversity
in the public interest.
separate ohaoiisels: STy operations can be profitable on fractions of `one per
cent of sets-in-use. This economic fact contravenes all of the economic' and profit
principles of `the commercial broadcaster who can produce greater revenues by
advertiser payment mass programming and who cannot accommodate such SPy
audience flows into his advertising programming Under commercial broadcaster
control, therefore, there will be no incentives for specialized `audience program-
ming to students, cultural interests, vocational groups such as doctors' and `tech-
nicians, etc., possible on a full broadcast day schedule. This situation illustrates
only one of the irreconcilable conflicts that flow from authorizing STV for com-
mercial licensees, as opposed to licensing STy in exclusive channel's, like educa-
tional broadcasting The conflict of interest is irremediable because it flows from
the commercial broadcasters' and networks' revenue, profit, `and economic incen-
tives. These incentives compel the commercial licensee to:
1. Maximize the audience for each program.
2. Maximize the advertising rate per thousand audience.
3. Stabilize both his audience deliveries and rates.
He can accomplish `these objectives by:
a. Striving to minimize the number of channel choices available to his
potential audience, on-the-air or by cable.
b. Opposing and delaying the activation of new bands, channels, and serv-
ices which may erode his audiences, whether educational, CATY, or "pub-
lic"-paid or free.
c. Acquiring or controlling his program sources of supply (film, sports,
talents, etc.) as well as all channels to markets (syndication, records,
foreign, etc.).
d. Acquiring the political, legal, economic, and journalistic capabilities to
accomplish the above objectives from growth through multiple station acqui-
sition, supply and marketing integration; employing these capabilities to
influence the Congress, the FCC, and public opinion.
The principles of common carrier structure and regulation, which have been
imposed on all other public communications systems like the telephone and postal
sytems, carry with them beneficial incentives to operate in the public interest.
The common carrier's profits and stability are a function of the number and
total capacity of his systems, since his earnings are fixed by return on invest-
ment or revenue. The common carrier Is therefore ceaselessly striving to promote
new, improved, and lower-cost services to communicators in order to maximize
the channel capacity on which his profits are based. ADA believes that common
carrier principles are not only the best, but the daly system which can protect
and advance the public interest in STV and other public electronic communi-
cations.
Perhaps the most disastrous effect of authorizing STV in commercial chan-
nels will be to create huge economic vested interests in the perpetuation of the
control of all public payment electronic communications, whether broadcast-
ing, data processing, banking and retailing, of electronic equivalents of news-
papers and magazines, by private, virtually unregulated carriers. A public pol-
PAGENO="0649"
645
icy of this magnitude and imj~act on the future of our media of communica-
tions and the emerging non-entertainment communications services certainly
requires Congressional action.
The awarding of exclusive franchise rights to commercial stations for the
development of STV, the precursor of a national system of public payment elec-
tronic communications, would constitute a shocking give-away of our public
domain to private interests which have proven to be virtually unregulatable.
Pre-einption as an Evil: Granting the public interest in reserving four full-time
channels per market for "free" programming (advertiser sponsored), it does not
follow that STY should be authorized for only one channel in five, six, seven, or
ten channel markets, thus unnecessarily creating a monopoly situation. A more
reasonable rule would authorize STY service on any number of active or inactive
channels per market provided it did not reduce the number of "free" channels
below four, or exceed the total number of free channels.
$iphoning as an Evil: Granted the wisdom of reserving a minimum of four
full-time "free" stations in each area, the imposition of further direct FCC
controls over STY programming for the purpose of controlling competition be-
tween public-payment and advertiser-payment systems violates basic American
principles of free press and free competition.
FCC Consideration of Broadcaster Profltabifity: Throughout the Report, an
assumption is clearly made that commercial licensees are entitled, as a matter
of right, to freedom from the possible competitive effects of STY on their profita-
bility. This doctrine has no sanction in law or in the free market-place. Even
if commercial licensees were to pay franchise taxes for the use of a pablic
domain, profit protection has no place in public policy.
Minimum Free Time per ~TV Channel: Granted the reservation of a minimum
of four full-time "free" stations per area, the requirement that an ~TV station
must find advertiser sponsorship, or pay for sustaining time to meet the minimum
"free" time requirements of commercial stations, is irrelevant, uneconomic, and
an unworkable intermixture of two incompatible forms of broadcasting. A
broadcast channel divided against itself cannot function in the public interest.
Block-booking: The sanction, on request, of STY's contracts to procure the
entirety of their programming from a single source is a pernicious invitation
to suppliers of programs and technical `systems to constrain block-booking.
(73.642: (e)(3)).
kS'TV on cable or CA TV: ADA can find no reason for not mandating the carriage
of STY by CATY systems on an optional-to-tbe-CATY-subScriber basis. However,
the far-reaching future potentials of cable distribution may doubtless justify
ample time and fact-finding opportunity to study the potentials of a system
whose ultimate revenues will surpass all present broadcasting revenues by ten
times and exceed those of A.T. & P.
CATV loophole: Assuming the prudence of delaying STY carriage, there is no
justification for exceptional treatment of private agreements for carriage be-
tween STY stations and CATY operators (paragraph 309 of the "Report"). The
effect of such agreements would be to aid and abet the common ownership of
CATV and broadcast stations and give improper comn~ercial advantage to such
combines, which ADA opposes as a matter of principle.
FCC direct responsibility for rates and terms to the public: A broadcast license
is a franchise for use of a public domain for private gain. While broadcast ad-
vertising rates are restrained by intet-inedia conitietition (print, mail, display,
radio, TV, etc.), there will be no effective competitive restraint over STV rates.
There would be no restraint whatsoever under the Committee's proposal for
single SPV station market monopolies. For this reason alone, common carrier
utility regulation is essential to the public interest.
Common ownership and control of technical systems and program sources:
With diversified, highly competitive program sources available, there is no
justification for permitting, even on an exception basis, restrictive agreements
between systems operators and prograni sources. ADA has already affirmed its
conviction that STY stations should be operated as common carriers, assured
fair return on capital, and regulated to ensure carriage to all program and
services suppliers at uniform, regulated rates and terms. Moreover, the precedent
of technical system control over programming will have unfortunate consequences
when cable carriage of STY is authorized, since proprietary and patented tech-
nical systems are not required for control of cable services.
Non-uniform technical systems: The proposal that a multiplicity of technical
systems be authorized for various markets can readily lend itself to use as an
instrument for furthering the growth and concentration of station chain systems.
PAGENO="0650"
646
Exclusive technical system controls can also be instruments of restraint over
network affiliations other than on the competitive merits of programming and
services This provision is one of many in the Committee s Report that strongly
suggests that the entire rule-making is premature It appears to be a second
phase of highly restricted STY market-testing ra:ther than a wisely conceived,
national system.
CONOLIYSION
In conclusion, ADA urges the FCC to avoid pre-eihptii~e, premature, and uni-
lateral action on policies which would establish guide-lines or precedents for
any segment of direct public payment mass electronic communications on the-air
or by cable, until the findings of the FCC's own study and of the Pre~1dent's
Commission on Telecommunications become available We urge the FCC to re
study national requirements for public-payment, broa~d channel, electronic com-
munications by the essential criteria of public interest. We urge the FCC to
reject the premises of the Committee Report which would constitute a give away
of the public domain of unmeasured and massive potentials for social usefulness
and economic yield, to regressive and virtually unregulatable private interests.
Mr. MACDONALD. We will hear next from Mr. Thomas A. Banning,
Jr., .5520 South Shore Drive, Ohicago, Ill.
STATEMENT OP THOMAS A. BANNING, PATENT ATTORNEY~
CHICAGO, ILL.
Mr. BANNING. Mr. Chairman and members of the subcommittee:
I am pleased to be able to speak to you this morning on this subject
but I am not going to talk about baseball games or football games
or details of that kind. I am going to talk about pay television in
its broader aspect
In the first place, I will introduce myself by reading the first para-
graph of this monograph which has been passed around.
My name is Thomas A. Banning. My address is 5520 South Shore
Drive, Chicago, Ill By profession, I am an attorney specializing in
patent practice, as I have clone since 1910. Before commencing my
legal education, I earned my undergraduate degree in electrical en-
gineering and throughout my career I have followed the develop-
ments in the fields of communications and electronics.
I presume to read that because, as an individual not connected
with any of the conventional organizations that are presenting them-
selves either for or against pay TV, I view the matter not only from
my own standpoint but from that of the public.
Now, in the first place, what is pay TV l We have been brought up
to believe for the last 15 years that pay TV is something that is bad,
something that the public is not going to benefit from, something that
is going to be exclusively for a very small percentage of the viewing
public and therefore in the nature of a monopoly that will not benefit
either the viewing public or television industry as such. You give the
dog a bad name and that dog will operate badly.
I am going to give pay television a good name. I am going to show
you a pay television operation which is free to the public. In other
words, when the pay program is put on the air not only the sub-
scribers who pay a fee of a dollar or $2 or $3 or whatever it may be
for that program, are going to be able to get it but every member
of the public within viewing range, receiving range, of the broad-
casting station is going to receive that same program. in just as fine
a quality as is going to be received by the subscriber.
PAGENO="0651"
647
But the public nonsubscribers will receive it in monochrome or
black and white whereas the pay subscribers, who may wish to have
it dressed up better, will pay their dollar or $2 to get it in color.
Now, this is not a double broadcasting system although it is a com-
pletely over-the-air system. But it is a system in which the color pro-
grams are put out from the broadcasting station in such a manner that
a color receiver will normally receive them in monochrome but in such -
a manner that the subscriber by a slight attachment to his receiver,
which we will call the "little black box," is able to supplement the
reception which he gets over the air by a locally produced "burst"
signal as it is called which he has to pay for and that immediately
converts his reception. into a color reception.
Now, in order to emphasize what this means, I will presume to call
your attention to the single sheet which is set into the monograms as a
flyer, and under the caption of "B" we find the listing of special or
pay programs broadcast without "bursts" as a color program~ That
program can be received in monochrome by an ordinary monochrome
receiver. It can be received in monochrome on a color receiver. in the
hands of the public because they don't get this burst signal but when
it comes to the subscriber he can receive it also in monochrome if he
does not care to make payment but if he wants to make payment his
receiver, the supplemental unit, will supply the burst signal so that
he now gets the program in color.
Now, I followed the tests of Zenith at Hartford, the tests of Tele-
meter up in Canada near Toronto. There has been a great deal of
effort placed in a careful analysis of how many persons in a given
area or what percentage are probably going to be willing to subscribe.
As near as the estimates which have been made at the present time, I
think there the estimates run about 5 or 10 percent of a total viewing
population of an area of 20,000 receivers and up.
I am going to present a system which doesn't require any change in
the subscriber's receiver. It does not require any change in the receiv-
ers, television receivers, of a million viewers within the viewing area if
there are that many; it doesn't require any change in the complexity
of the circuitry in the broadcasting station with the exception of the
addition of one or two simple switching operations.
It doesn't require a complex supplemental unit for decoding or elim-
inating the scrambling signal. It requires in place of that only a very
simple unit which produces the burst signal which has not been sent
out by the broadcasting station for this particular special program
Now, due to that circumstance, due to the fact that when a special
program is to be put on the `ur the attendant at the sending station
pulls the switch that eliminates a burst, signal, as it is called, from the
broadcast, all the viewing public having any kind of televison receiver
will be able to receive that same special program in black and white
without pay but, as I have explained before, the subscribers may also
receive either in black and white without pay or in color with pay..
Now, what is the result of this ~ The result is that that special pro-
gram is made available not to zero persons of the nonpay public, it is
made available to 100 percent of the nonpay public as well as to the
members who subscribe and who are willing to pay a $1 or $~ or $3
to have the program' in color..
PAGENO="0652"
648
Now, the result is that all of the objections which I have heard
against pay television on the ground that it will create a monopoly, on
the ground that it will tend to create moneyed classes, on the ground
that it will, as I heard over in the FCC hearings a couple of weeks ago,
tend to inspire and bring on race riots; I don't know where in the
world anybody ever got that idea but it was so declared. It will place
every member of the public, subscribers and nonsubscribers, on the
same parity that they are today with the single exception ~that the
subscriber is able to get the program in color, by making `a payment
for it. If he does not care to make the payment for it, he does not have
to do so and he will not get it in color; he will get it in black and white.
Now, this approach is entirely consistent with the American way.
We have classes in this country. Let us face it. I go over to the station
to get a train to go back to Chicago or I go to the airport to buy my
transportation on the airline. I am given a choice. I can go back in a
coach on the train and get through and sit up all night if I am willing
to do so and save money, or I can go up in the Pullman, first class, pay
a little more money. Even up there I have a choice between a roornette,
a compartment, a bedroom, drawing room or even the whole car if I
want to, or if I can do so I can rent a train. In other words, these are
all recognized as a part of the American system. Not only that, they
are placed under the control of the Interstate Commerce Commission
or this commission or that commission so that these differences are
recognized.
Now, I say in view of the circumstances here it seems entirely proper
to offer a pay television system to the public which is not one that is
limited in its reception to that 5 or 10 percent that Zenith has been
telling about after the Hartford test. I say it ought to be a pay tele-
vision system that is open to everybody in the country to get the pro-
gram; if it is a good program they can get it but they can get it~ in
monochrome if they don't care to pay for it.
Now, I am not asking that any system, any one system or another,
be given a monopoly of the pay or subscription television business. It
is open to anybody who can enter it properly. The only monopoly that
the owners of this particular system would ask is that that is granted
naturally under the patent system and is recognized as such. Even so,
the patent holders are subject to the regulations of the FCC in regard
to granting licenses to anybody who is entering the business.
Now, if I may, I would like to pass over to the written text which
I have supplied and read very shortly from that
I have requested this opportunity to appear before the subcommittee
because the debate in the past between the advocates and the opponents
of subscription television has been proceeding on the' basis of an erro-
neous assumption. That erroneous assumption is that whenever a tele-
vision broadcast transmission channel is used for subscription televi-
avon service, such channel in the reception area of the transmitter
would necessarily be unavailable for the benefit of all those members
of the general public who are unable, or do not choose, to pay a charge.
`The term "pay television" has been widely used as `being synonymous
with and limited to a system in which the picture is scrambled as sent
out from the broadcasting station so that no member of the public
who is not a subscriber to the service is able to secure that program ifl
an intelligible form.
PAGENO="0653"
649
Thus, it is argaed that the nonsubscribers to the system are being
deprived, for the time and duration of the pay program, of reception
of any program on that particular channel.
I am here to explain an alternative system of subscription or pay
television, using that term in a broader and more correct sense. This
alternative system makes it possible for a program broadcast on a
single television transmission channel of standard width to be received
in two satisfactory intelligible forms. One form is a color rendition
available only for a charge and by the use of subscription equipment.
attached to a subscriber's receiver; the other form is black and white
reception receivable on any conventional television set without any
additional equipment.
At this point, I would like to inject that one of the changes or one of
the modifications which has been extensively discussed by the FCC
and those who have been talking about pay television up to this time
is the fact that the system must be one, if possible, which does not
necessitate the allocation of any new channel or does not include or
does not require the enlargement of a presently allocated channel.
The system that I am proposing here and trying to enlighten you
on does not require any of these changes whatsoever. Any broadcast-
ing station in the city of Washington or in the State of Illinois or in
the country that is equipped today to emit color signals can use tlii~
system without putting a single additional piece of equipment into
their sending station with the exception of a simple switching opera-
tion which will enable them to discontinue temporarily during the
sending of this special program, to discontinue the burst signals. Then
when that program is completed, then the ordinary so-called commer-
cial programs are back on the air, the attendant throws the switch back
in again and color programs that are sent out can be received by any-
body with a color receiver without pay for the duration of that com-
mercial program or 10 others during the day.
In other words, this not only meets the requiremen±s which were
established and set forth in some of the modified rules of FCC govern-
ing pay television, it goes beyond those requirements.
Now at this point I want to emphasize that under this proposed sys-
tern all nonsubscribers to the pay or subscription system are never-
theless able to receive not only the conventional programs which they
are today receiving free~ but also they may receive any and each of
the special or pay or subscription programs in monochrome (black
and white) and without pay or charge. This is an additional dividend
which is offered to the public, which they will not and could not possi-
bly receive under the scrambled type of operation.
Thus, I first call attention to the fact that we must dispel the mis-
conception-widely held, I'll admit-th~t the use of any pay television
system would deprive the public of the use of the channel in question,
and above all would forbid the public from receiving that particular
program.
Up until now whenever talk has beemi indulged in with reference
to pay television, people have thrown up their hands in holy horror,
why that is going to deprive 90 percent of the p~tblic of that pai~ticu1ar
very fine program. It is not, under this arrangement.
The pay system which I am now proposing and discussing has no
such limitation or handicap. Under this new system, which may per-
PAGENO="0654"
650
haps be described as a two-level system, the public is not deprived of
anything. On the contrary, the public nonpay viewers are able to gain
free access to pay programs of the very highest quality and many of
which would not otherwise be put on the air because of their cost of
production.
Under this two-level system, any owner of a receiver, whether mono-
chrome or color, who is within receiving range of the broadcast sta-
tion may receive that special program in just as fine a rendition, as far
as picture is concerned, as the person who makes the payment. The
differenôe is only that the nonpayer has the picture presented to h~m
in monochrome whereas the subscriber and payer pays money to re-
ceive the same program in color. Thus, all TV sets could be tuned into
the same programs-but only those having color sets and who could
afford to pay would be paying for the advantage of color, if they
wish it.
Having thus briefly outlined this proposed two-level pay or sub-
scription television system, I pass to certain other observations which
are of importance from the practical standpoint of television broad-
casting and receiving techniques. These I have already referred to but
I would like to summarize them at this point.
1. Any broadcasting station can be brought within the sphere of the
operations already outlined. It is not necessary to provide special
broadcasting equipment to enable production of the results and opera-
tions which I have described. In other words, the additional equipment
necessary in a conventional broadcasting station would be minimal,
and the required alterations would be neither extensive nor expensive.
Furthermore, the system is one that does not require the use of any
new channels to carry special program signals. The operations already
defined require no change in the channel frequencies, no enlargement
of the channel width or other interferences with previously estab-
lished and assigned channels.
Mr. MAcDONALD. Mr. Banning, I know you have come a long way
to testify before us. We appreciate it.. The House is in session. We
have one more witness and technically we should not be sitting. Any
member of the committee may make a point of order that the House
is in session and we can't sit. We have one more witness. We were
very hopeful that we could wind up the complete hearing today.
Since you have summarized your testimony, it might be possible for
you to insert your entire statement in the record and it will be as if you
had gone through it word for word. Actually, I am not sure that we
are the right forum or you to be testifying before, because it seems to
be a matter of more concern to the FCC than to ourselves. Techni-
cally, we are sitting on a bill introduced by Mr Dingell, of Michigan,
to ban pay TV, prohibit pay TV. So, therefore, if you would not
mind, if you would insert the rest of your statement which, as I say,
you have already summarized, into the record, it would certainly help
the committee.
Mr. BANNING. I was going to say that I can summarize in 2 or 3
minutes, if that is what you mean, and then I will be through.
Mr. MACDONALD. All right.
Mr. BANNING. I was just going to read these other two short para-
graphs. I appreciate very much the opportunity to explain this.
2. This proposed system does not require any change in the circuitry
PAGENO="0655"
651
of any receiver, either monochrome or color, in the hands of nonsub-
scribers to the service. All such receivers will be able to receive the
secia~ pay program without pay or charge operation, but in mono-
chrome.
3. This proposed system does not require any change or modific~i-
tion of the internal circuitry of the color receivers used by the sub*
scribers to the service; neither does the use of this system require any
connection into the circuitry of such receiver other than connection to
existing external terminals.
4. The operations by which the system is made available are ex-
tremely simple in themselves.
I will then conclude by simply saying t.his, that I am not here to
urge the adoption or rejection of any particular system of pay tele-
vision. I think that the good American system of selling those ques-
tions in the marketplace should be available.
All I ask is that any rules or statutory enactments that may b~
made, I would like to see them such that they would not forbid this
type of operation as well as allowing those.
I thank yOu very much.
(Mr. Banning's prepared statement follows:)
STATEMENT OF THOMAS A. BANNING, PATENT ATTORNEY, CHICAGO, ILL.
Gentlemen, my name is Thomas A. Banning. My address is 5~20 South Shore
Drive, Chicago, Illinois. By profession I am an attorney specializing in patent
practice, as I have done since 1910. Before commencing my legal education I
earned my undergraduate degree in electrical engineering and throughout
my career I have followed the developments in the fields of communications and
electronics.
I am not appearing on behalf of any client. In addition to my work for
clients in highly technical fields I have myself been the inventor of a number
of devices and methods in electrical and mechanical fields and my various
inventions are covered by approximately 70 patents issued by the Patent Office.
J~hgbt of those patents issued to me are in the field of television and additional
developments by me are covered by a number of pending patent applications
I am appearing before you to explain certain of my developments in the field
of subscription or pay television which are particularly relevant to the hearings
you are now conducting. While I am appearing on behalf of myself, I feel
that in a very true sense I am appearing for the benefit of the public in general.
This is because I hope to show that developments of mine, if permitted to be
put into practice in television broadcasting, will have substantial and far
reaching benefits for the public, which might not otherwise be made available
to them.
The Communications and Power Subcommittee is presently holding bearings
on the subject of pay television and whether authorization of pay television
would be in the public interest Fears have been expressed from very respect
able sources that subscription television would substantially interfere with
the quantity and quality of television broadcasting which would otherwise be
available to the public without charge.
Last week the Federal Communications Commission heard oral arguments
regarding the proposed establishment of over the air subscription television
service for the nation and proposed rules governing such service Those propo~
als included various provisions designed as safeguards against diminution in
the quantity and quality of free television programming available. Various op-
ponents of subscription television have maintained that proposed safeguards
would be insufficient and ineffective.
I have requested this opportunity to appear before. the Subcommittee be-
cause the debate in the past between the advocates and the opponents of sub
scription television has been proceeding on the basis of an erroneous assunip-
tion. That erroneous assumption is that whenever a television broadcast trans-
mission channel is used for subscription television service, such channel in the
reception area of the transmitter would necessarily be unavailable for the
PAGENO="0656"
652
benefit of all thc~e members of ~ the general public who are unable, or do not
choose, to pay a charge.
The term "pay television" has been widely used as being synonymous with
and limited to a system in which the picture is scrambled as! sent out from
the broadcasting station so that no member of the public who is not a sub-
scriber to the service is able to secure that program in an intelligible form.
Thus, it is argued that the non-subscribers to the system are being deprived,
for the time and duration of the pay program, of reception of any program
on that particular channel.
I am here to explain an alternative system of subscription or pay te1e~viuio!n,
using that term in a broader and more correct sense. This alternative system
makes it possible for a program broadcast on a single television transmission
channel of standard width to be received in two satisfactory intelligible forms.
One form is a color rendition available only for a charge and by the use of sub
scripflon equipment attached to a subscriber's receiver; the other form is black
and white reception receivable on any conventional television set without charge
and without any additional equipment.
Now at this point I want to emphasize that under this proposed system all
non-subscribers to the pay or `subscription system are nevertheless able to receive
not only the conventional programs which they are today receiving free, but also
they may receive any and each of the special or pay or subscription programs in
monochrome (black and white) and without pay or charge. This is an additional
dividend which is offered to the public which they will not and could not possibly
receive under the scrambled type of operation Thus I first call attention to the
fact that we must dispel the misconception-widely held Ill admit-that the
use of any pay television system would deprive the public of the use of the chan-
nel in question, and above all would forbid the public from receiving that par
ticular program. The pay system which I am now proposing and discussing has
no such limitation or handicap Under this new system which may perhaps be
described as a two4evel system, the public is not deprived of anything. On the
contrary, the public non-pay viewers are able to gain free access to pay programs
of the very highest quality and many of which would not otherwise be put on the
air because of their cost of production.
Under this two-level system, any owner of a receiver, whether monochrome or
color, who is within receiving range of the broadcast station may receive that
special program in just as fine a rendition, as far as picture is concerned, as the
person who makes the payment The difference is only that the non payer has
the picture presented to him in monochrome whereas the subscriber and payer
pays money to receive the same program in color Thus all TV sets could be tuned
into the same program~bu~ only those who could afford color sets would be
paying for the advantage of color, if they wish it.
Having thus briefly outlined this proposed two-level pa~ or subscription tele.
vision system I pass to certain other observations which are of importance from
the practical standpoint of television broadcasting and receiving techniques
1. Any broadcasting station can be brought within the sphere of the operations
already outlined. It is not necessary to provide special broadcasting equipment to
enable production of the results and operations which I have described. In other
words, the additional equipment necessary in a conventio!na.l broadcasting station
would be minimal, and the required alterations would be neither extensive nor
expensive. Furthermore, the system Is one that does not require the use of any
new channels to carry special program signals The operations already defined
require no change In the channel frequencies no enlargement of the channel
width or other interferences with previously established and assigned channels.
2. This proposed system does not require any change in the circuitry of any
receiver, either monochrome or color, in the hands of non-subcribers to the serv-
ice. All such receivers will be able to receive the special pay program without
pay or charge operation, but in monochrome.
3. This proposed system does not require any change or modification of the
internal circuitry of the color receivers used by the subscribers to the service;
neither does the use of this `system require any connection into the circuitry of
such receiver other than connection to existing external terminals.
4. The `operations by which the system is made available are extremely simple
in themselves I will try to explain in brief non technical terms why the system
is entirely feasible. Not only can it be achieved at a very minimum of cost for
change of equipment in the sending station, but the possibilities of trouble
developing after long usage are minimized. In brief:
PAGENO="0657"
653
Under conventional practice and FCC rules and regulations, color signals
broadcast in a manner to be translated by color receivers include the following.
At the broadcasting station the video signals include a luminance component
a chrominance component, the line synchronizing signals, and what are known
as color burst signals. Without these color burst signals, the chrominance or
color signals for production of the color picture cannot be translated into color.
If the color burst signals are absent, the color receiver (whether owned by a
non-subscriber or a subscriber to the system) will translate the received broad-
cast signals as a monochrome picture. It is therefore evident that when the color
burst signals are not included in the transmission broadcast from the sending
station, all color receivers (as ~vell as all monochrome receivers) tuned to that
station will translate the signals as a monochrome or black and white picture.
Since, as I have explained, the subscriber may receive the program in color by
making pay or subscription operation, it then becomes necessary to make provi-
sion for supplying the color burst signals locally to the color receiver of any
particular subscriber who desires to have the special or pay program rendered
in color and is willing to pay for it. Accordingly, my system makes provision for
locally delivering to the color receiver of each subscriber properly synchronized
color burst signals when such a subscriber operates either a prepayment device
or a device for recording charges.
All of the foregoing special operations are produced without entering the
circuitry of the subscriber's color receiver. This result is obtfllned by the use of
a small receiver supplemental unit, including a color burst generator, which is
attached inductively to the antenna of the subscriber's receiver, or to the line
extending from such antenna to the r.f. input element of such receiver.
To sum up, pay or subscription television operations need not deprive the
general non-paying public of the use and benefit of available television broad-
casting channels. I submit that this is a fundamental consideration in the whole
field of authorizing and regulating television service, including subscription tele-
vision service. While certain possible applications of some of my developments
relating to subscription television would not require free monochrome reception
of any program receivable in color for a charge, the particular development I
have outlined to you today affords one entirely feasible method whereby subscrip-
tion television operations can be commenced on a basis which, beyond question,
is beneficial to all of the public. Beyond question. it would result in a greater
variety and quality of programming being available to all of the public thai'
would be the case if no subscription television service were permitted.
I am not stating any conclusion that other systems of subscription television
are not in the public interest. Nor am I stating any conclusion that FCC rrgula-
tion of other systems would not adequately safeguard the quantity and quality
of available free television. Further, I am not attempting here to project far
various localities and various future periods the economic feasibility and attrac-
tiveness of the system I have outlined to you today. What I am urging is that
(1) here is one system which clearly would not harm but rather would benefit
all of the public and (2) any investors willing to risk their capital in endeavoring
to establish a market for the subscription television system I have outlined
should not be barred from doing so.
In conclusion, it is my sincere hope that the Federal Communications Com-
mission and the Congress will recognize that it is in the public interest to give
due weight to the foregoing considerations when providing for and regulating
the future development of subscription television in the United States.
Thank you, gentlemen.
CHART SHOWING VARIoUs BRoADCASTING OPERATIONS PossIBLE UNDER PilE Pao-
rosno BANNING SYSTEM ron SUBscRIPTION TELEVISION ("STV"), AND SHOWING
TIlE VARIoUs RECEPTION RENDITIONS PosSIBLE TINDER Sr~cn PROPosED BANNING
SYsTEM
A. Conventional broadcast Non-Pay Program:
1. Broadcast in Monochrom~
(a) Rendered in Monochrome by Monochrome receiver.
(b) Rendered in Monochrome by Color receiver.
(c) Rendei~ed in Monochrome by SPV receiver.
2. Broadcast in Color Signals with Color Bursts:
(a) Rendered in Monochrome by Monochrome receiver.
(b) Rendered in Color by Color receiver.
(c) Rendered in Color b~ STV receiver (F~ree).
86~-399 O-67---42
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B, "Special" or `~Pay".Progra~rn: Broadcast without Bursts (Color Signals):
3. Received by Non-Subscribers ($`ree):
(a) Rendered in Monochrome by Monochrome receiver.
(b) Rendered in Monochrome by Color receiver.
4. Received by Subscribers: May be rendered by STY receiver in-
(a) Monochrome, without m~aking pay or charge operation; or
(b) Color, by nuilcing pay or charge operation.
Note particularly: That under the Banning proposed
system any non-subscriber member of the public may receive
any "B" program ("Special" or "Pay" program) without
pay or charge, Free, being thus on a complete parity with
Subscribers to the Banning system, when ~uch Subscribers
do not desire to make payment or charge operation for the
particular Special' or Pay program The benefit recei~ ed
by the Subscriber when he makes payment or charge opera-
tion consists of having the program rendered to him in
Color instead of Monochrome, whereas the non-Subscriber is
restricted to Monochrome reception.
C. Provision may be made for eliminating any "Commercials" from the audio
(Sound) component of the Special or Pay Progrims as received and
rendered to Subscribers; such Commercials may either be allowed or dis-
allowed on the renditions of such "Special" or "Pay" Programs as produced
by Non-Subscriber receivers in the hands of the general public. This Is a
matter of policy to `be decided by the F.C.C., or elsewhere.
D. Reception and rendition of the "Special" or "Pay" Programs by Non-Sub-
scribers, in Monochrome, is as perfect a rendition as may be produced by the
particular receiver when rendering any conventional or Non-Subscription
Program.
Mr. MACDONALD. Mr. Brotzman.
Mr. BROTZMAN. Mr. Chairman, I want to take this opportunity to
thank Mr. Banning for coming down here, at his expense, to present
his testimony.
I note you have been practicing since 1910, which means you have
been doing it for a long while.
I. do want to thank you very much, Mr. Banning, for coming.
Mr. `BANNINO. I am very happy to come down. I was happy many
years ago to be a classmate of Barrett O'Hara. We graduated from
college in the same class.
Thank you very much, gentlemen.
Mr. MACDONALD. Thank you, sir.
The last witness is Mr. Robert McKinsey, president of WJR.J-TV.,
Atlanta, Ga.
STATEMENT OP W. ROBERT' McI~INSEY, PRESIDENT, WJLT.-TV,
ATLANTA, GA.
Mr. MCKINSRY. Mr. Chairman and members of the subcommittee,
I am William Robert McKinsey, president and general manager of
WJRJ-TV, channel 17, in.Atlanta, Ga.
I thank you for this opportunity to appear before you and express
my views on the very important issue you are considering-subscrip-
tion television broadcasting.
I come here before you to give the viewpoint of a UHF television
broadcaster on subscription television programing. I will not leave
you in doubt about where I stand-and where I believe almost every
other present or future UHF broadcaster stands on this issue. I am in
favor of subscription television and I urge this committee to' do what-
ever it can to encourage its development.
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By way of background, I am a graduate of Oklahoma State Univer-
sity, in three areas of study-in business administration, electrOnics,
and music. During World War II, I was a major in the infantry, serv-
ing as communications director on the staff of the 2d Army.
I have been in broadcasting for the past 21 years, starting out in
1946 in Oklahoma where I built and commenced the operation of a
radio station in Stiliwater. Since then I have served in a variety of ex-
ecutive capacities with radio and television stations in Minneapolis,
Baltimore, Rochester, San Antonio, and now in Atlanta.
I think it might be helpful in this discussion if I briefly describe
the Atlanta market, a fairly typical one in which subscription tele-
vision programing might develop if allowed.
We are the 19th largest television market, with over 800,000 tele-
vision homes, according to the latest statistics. We have three VHF net-
work-affiliated stations which have been on the air for approximately
20 years. There are three commercial UHF and two educational TTHF
channels allocated to Atlanta. One of the educational television chan-
nels has been operated by the Atlanta School Board for the past 9
years.
On September 1 of this year, we became the first commercial UHF
station to go on the air. A construction permit has been issued for one
of the other UHF channels, and an application is pending with the
Commission for the third available channel.
Gentlemen, let me assure you that in a market like Atlanta it takes
considerable nerve, courage, and financial resources to put a UHF
station on the air in competition with the three established network
affiliates. Our monthly cash requirements just to keep the station oper-
ating are approximately $65,000. It will be many months-probably
two and a half years-before our monthly billings or income will match
that figure, and we expect to absorb losses in excess of $600,000 before
we cease to have a monthly cash deficit. How much longer it will take
before we show an actual net profit on the books is anyone's guess. Is
it any wonder then why we are looking for an opportunity to increase
our income by providing the people of Atlanta with programing that
is unavailable to them on the three network affiliates
The most difficult part of a successful television operation is obtain-
ing good programing that will attract viewers. If this is difficult
for a network affiliate, think how much harder it is for me, under the
circumstances and the present rules of the game which govern my
operation. We are on the air from .4 to midnight, and while naturally
we are trying to provide the most attractive programing available,
I am frank to say that our present programing is not the type of
program service we hope to render in the future.
When I go out shopping for programs, what is available on the
shelf at a price we can afford to pay? I assure you, gentlemen, that
shelf is rather bare, and all that's on it for me to buy are programs the
network affiliates in Atlanta have rejected, very old movies which have
been shown already five to six times in the Atlanta market, and re-
runs of old network serial and situation-type comedies.
I know you will agree that, if we are to perform a meaningful
public service for the people of Atlanta by providing them with
better programing than it is now possible for us to do, there must
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be a new development in the marketplace. This is why we are inter-
ested in subscription television programing.
You gentlemen are very familiar with the FCC's proposed rule
authorizing subscription television programing, and I know you have
heard much about it from many witnesses during the past week, so
there is no need for me to discuss it in detail. There are parts of it,
however, which I would like to see modified.
For example, the five-station.market rule would have to be modi-
fied or waived in our case to permit us to broadcast subscription tele-
vision programs in Atlanta, since, as I have indicated, we are pres-
ently only the fourth station on the air. However, I believe the pro-
posed rule is basically sound and provides a good point of departure
for further experimentation and innovation in subscription television
programing~and I earnestly hope that the Commission will proceed
to issue the rule.
Now, let's assume that the Commission does issue the rule and either
as a result of modification or waiver of the five-station provision,
channel 17 can commence to offer subscription television programs.
What's going to happen? Well, for the first year there would be no
significant change in our operation because I assume it would take
at least that long to negotiate a contract with an equipment manufac-
turer who could provide us with the studio scrambling devices and
the decoders required for subscription television broadcasting. But,
at some point in the following year, I would hope we could com-
mence some subscription programing. What our penetration of sub-
scribers in the Atlanta market might be is obviously a matter of
conjecture at this time.
I believe, however, it is reasonable to expect that at the end of 2
years, after we commence subscription programing, we might achieve
a lO-percent penetration. In the Atlanta market, this would be about
80,000 homes. With this as my box office, I assure you will be able to
provide a type of programing that is not now-and I do not believe
ever will be available on the so-called free or conventional system. op-
erating within the framework of the proposed rule, we could provide
our subscribers with the very best movies within a few months after
their release.
As you know, 4~tlanta is very proud of its newly acquired status in
professional football and baseball, and the Atlanta Falcons and the
Atlanta Braves keep our flew stadium filled, or nearly so, when they
are playing at home. I would hope that we could bring to our sub-
scribers the home games of the Falcons and the Braves which are not
presently available on TV, with the exception of two or three out of 80
baseball games played at home each year.
I realize that, in the case of baseball, this would require a waiver of
the Commission's 2-year rule on sports programing, but I would hope
that, with the assurance of the Braves that they would continue to
provide on "free" television at least the same number of games as they
are now making available to the public, that the Commission would
grant such a waiver.
Atlanta is a great community for college and high school sports,
particularly football and basketball. Presently, with few exceptions,
these games are not available for televising, for the simple reason that
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the economics of the present system will not support their program-
ing; or, in the case of Georgia Tech and University of Georgia, their
±o9tball games cannot be shown on television because of NCAA restric-
tions.
I believe there would be a substantial demand to see Georgia Tech's
and the University of Georgia's football games on subscription tele-
vision and that the schools would find it in their interest to make them
available, and that this could be done with the approval of the NCAA,
and within the framework of the Commission's proposed rule.
We have an excellent repertory theater in Atlanta whose produc-
tions we could show on subscription television in prime time several
times a month. As you know and I know, the network-affiliated stations
in Atlanta are never going to devote their prime time to this type of
programing. These three stations seek and must find an audience in
the Atlanta market each night of more than 400,000 people. We will
be able to show the productions of our repertory theater on a basis that
is profitable both to them and to us if only 10,000 people are willing
to pay $1 for the privilege, and I am confident that there are at least
that many people in Atlanta who will do just that.
Now remember, I have only been talking about what we might do
in Atlanta with 80,000 subscribers. If subscription television is per-
mitted to develop throughout the country and a 10-percent penetra-
tion of subscribers is attained, the potential box office approaches 6
million people. Then the range of programing that might be offered
runs the gamut of your imagination, and the very existence of this
large box office will necessarily encourage the development of new
talent in the creative arts.
The smash Broadway musical comedy can be brought to the homes
of viewers across the country in its first year, whereas, now, people in
Atlanta-and in every other city except New York, for that mat-
ter-do not have the opportunity to see a road show performance
for more than 3 years after a big hit opens on Broadway; and it is
5 or more years before they can see the filmed version, and 10 to 20
years before they have the opportunity to see the filmed version on
"free" television and, I might add, with 21 commercial interruptions.
Do you realize that when "My Fair ~ady~~ opened in New York
it played to standing-room-only audiences for 3 years and during all
that time only 600,000 people in this entire country had the oppor-
tunity to see it ~ And at scalpers' prices I suspect the average viewer
paid $25 for the privilege. If we had had nationwide subscription tele-
vision, and a 10-percent subscriber penetration, and if only 20 percent
of the subscribers tuned in, more than twice as many people through-
out the country-at less than 10 percent of the price-would have had
the opportunity to see that lovely work of art in one night than were
able to see it in 3 years on Broadway.
To me, the case for subscription television seems so overwhelming
it is difficult to understand why the Commission has not authorized
it long before this. Everyone, including its opponents, recognizes the
great benefits that might be derived from subscription television. But
the opponents say that these benefits are outweighed by many alleged
detriments, so that the net effect of subscription television is contrary
to the public interest.
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You have heard from many of these opponents during the past week
and almost without exception they have represented a vested interest
in the existing system. The opponents are easily identified. They are
the networks, the network-affiliated broadcasters, and the theater
owners. They are so content with the existing system, and the huge
profits they are reaping, that they dor~'t want to give me and other
UHF broadcasters a chance to compete.
The principal argument advanced against subscription teleinsion is
that somehow or other it will result in program siphoning so that
people will have to pay for what they now see "free."
I might add that there is a form of economic siphoning going on
right now with the networks and the stations outbidding me by many
thousands of dollars, for example, for the movies that are approxi-
inately 2 to 3 years old. It is impossible for me to compete in the
economic market in buying this type of programing.
One opponent said that once people pay to see a program, they will
never again have the opportunity to see it free. The fact is once people
have seen a program free they will never pay for it, and there is no
possible chance that subscription television will succeed if it attempts
to charge the public for the type of programs presently available on
the so-called free system.
The FCC has gone to great length to devise restrictions on sup-
script.ion television designed to prevent program siphoning. In my
opinion, these restraints are unnecessary, since the economics of the
marketplace will achieve the same objectives. Those of us who are
interested in subscription television see it as an opportunity to provide
the public with a supplement to the programing made available by the
network's, and we know that unless we offer something truly new and
distinctively different from what is available on the networks, we are
doomed to an early failure.
Remember that under the Commission's proposal, when'ever a sta-
tion is offering a subscription program, it will d'o so in competition
with the three- networks at the very same time and in the very same
market. How, then, can subscription television possibly succeed under
such adverse competitive circumstances unless it is offering something
genuinely different from what the networks are providing?
Representatives of the networks who have appeared before you have
attempted to justify the many commercial interruptions which occur
on `their programs by saying that the income derived from. these com-
mercials is necessary to support the 25 percent of their programing
devoted to news and public affairs. What I would like to know is how
our `station in Atlanta under the present system will ever be able to
finance the `type of news and public affairs programing oriented to the
Atlanta community which I think the people in Atlanta deserve?
If we are `able to broadcast subseriptionprograms part of the day,
I am confident we can do `this at a profit, which will enable us to con-
tinually improve the balance of our program day when we are operat-
ing conventionally-and, in particular, to develop the very best in
news and public affairs programing of special interest to the Atlanta
community.
Gentlemen, I have talked only about Atlanta because this is the only
market in which we are on the air. However, what I have said as a
UHF broadcaster `struggling to compete in the Atlanta market against
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the three network affiliates applies to UHF broadcasters throughout
the country.
The problems I face are the same ones that have caused many of
them to go off the air and huge financial loss for those who have
struggled to stay on the air. Subscription television will provide us
with the means of providing healthy and vigorous competition with
the network affiliates-from which the public is bound to benefit
I urge you, gentlemen, to give subscription television a chance.
That concludes my statement.
Mr. MACDONALD. Thank you very much, Mr. McKinsey.
Obviously you acknowledge a prejudice and an understandable one
for subscription or toll TV, whatever name you want to give it. But
do you not think there would exist a problem of siphoning of pro-
grams?
Mr. MOKINSEY. I honestly don't think so, Mr. Macdonald.
Mr. MACDONALD. The argument has been matle, and persuasively by
some witnesses, that the good programs would tend to go, through the
natural law of economics, to those who would pay to see the good pro-
grams, just leaving the really bad programs on so-called commercial
I am not saying who is right or wrong about it but it is a problem in
my judgment.
Mr. MOKINSEY. I believe the FCC would be watchful and certainly
would have the authority to step in if this were to happen. I honestly
don't think it will happen. Now the present networks are not able to
present brandnew movies. I think they never will be. This would
immediately destroy the box office value of a movie. But we would be
able to do that, we would be able to put them on and 2 or 3 years later
the people without subscription television would still be able to see
those movies just as they do now.
Mr. MACDONALD. Mr. Brotzman.
Mr. BROTZMAN. Thank you, Mr. Chairman.
I will just acknowledge the fact that you have given us this testi-
mony and thank you very much.
Mr. MCKIN5EY. Thank you.
Mr. MACDONALD. Mr. Brown,
Mr. BROWN. I also want to thank you for your testimony. I am
uncertain about where you are going to get the programing that you
can't afford to get now if you have STV.
Do you really think you will get that much income from 10 percent
of your market?
Mr. MOKINSEY. We would be putting our money on the line to the
extent that we think we would.
Mr. BROWN. At what kind of prices?
Mr. MCKINSEY. I would say at approximately slightly under the
price you would pay if you went to see the event in person.
Mr. BROWN. Let me ask you just two other questions if I may. You
say the cost was $65,000 a month to stay on the air. Is that a minimum
cost or are you a Cadillac kind of station?
Mr. MOKINSEY. This is a very minimal operation.
I have 22 full-time employees and three part-time employees as
compared to, for example, WSB television which has 27 men in its
news department alone.
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Mr. BROWN. What would. a station need to get on the air with
UHF at a minimal cost? The other question after that is what does
it cost to get this 10 percent of your market where they could watch
pay TV?
Mr MCKIN5EY The cost of getting on the air with equipment you
are talking about and plant, that sort of thing?
Mr. BROWN. I don't want to ask you what it cost you to get on the
air because you may not want to reveal that figure. What does it
cost a UHF station to get on the air as a minimal figure?
Mr. MCKINSEY. The only direct experience is mine and I don't
mind telling you it cost $1.2 million. There would be additional cost,
not great, in the nature of maybe 6 or 8 percent more to provide our
equipment with the necessary scrambling devices.
Let us say $1.25 million to put a station on the air with the maximum
power which would be required.
Mr. BROWN. A minimum, to get on the air, let us say, a very low
cost UHF station, is about a million dollars, is that right?
Mr. MCKINSEY. Yes
Mr. BROWN. Another $75,000 to get into the STV business?
Mr. MCKINSRY. That is correct.. Of course, that does not count the
cost of decoders and that sort of thing which is a matter entirely--
Mr. BROWN. The subscriber bears that cost, does he?
Mr. MOKINSEY. The decoders would cost, I don't know what the
market price might `be at the time they are ready but anywhere from
$75 to $120.
Mr. BROWN. Let us say $100. You want 80,000 of them. So you are
going to have a cost of a considerable amount.
Mr. MCKINSEY. That is right. We would certainly pass along part
of this cost. With the experiment in Hartford they tried it several
different ways, charging the whole cost, I believe, a portion of that
cost and in some instances not charging them at all to install the
decoder.
We would have to arrive at some compromise here and probably
arrive at maybe half of the cost as a so-called installation charge to
the customer.
Mr. MACDONALD. I have just one last question.
Everyone always has one last question. Everyone says "My Fair
Lady" could be seen by only hundreds of thousands of people. Tha~t
would be true but how many "My Fair Lady's" will ever happen.
You know it is hard to keep good programs on.
Mr. MCKINSEY. That is correct. On the other hand there was a show
that opened and closed one night on Broadway this past season. If that
had been available to subscription television, sight unseen, there
would have been sufficient subscribers watching that brandnew Broad-
way musical, written and produced by top people, it had top stars,
with just the advanced promotion they could have paid off what they
call the net on that production in that one night and it could have
continued to run on Broadway. Maybe they could have gotten over
that hump. We might help the creative arts that way.
Mr. MACDONALD. Thank you very much.
Mr. MCKINSEY. Thank you, sir.
Mr. MACDONALD. At long last the hearings are closed.
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(The following material was submitted for the record:)
STATEMENT OF KAISER BROADCASTING COin'.
Kaiser Broadcasting Corporation has a vital stake in the future of advertiser-
supported television broadcasting. It now operates or is constructing four UHF
television stations: KHJK-TV, San Francisco (request for call letter change to
KBIIK-TV pending); KMTW-TV, Chrona (serving Los Angeles); WKBD-TY
Detroit; and WKBS-TV, Burlington (serving Philadelphia). In addition it
holds 50% interests in UHF Stations WAFT-TV, Cleveland (request for call
letter change to WtKBF-TV pending) and WKBG-TV, Cambridge (serving Bos-
ton). Moreover, Kaiser Is considering the establishment of an advertiser-sup-
ported network, utilizing these stations as a nucleus.
If we believed that subscription television would destroy the advertiser-sup-
ported system, we would have every reason to oppose it. However, we have con-
siderable confidence in the vigor and health of the advertiser-supported system.
Our decision to invest large sums in television broadcasting rests essentially or'
that confidence. Moreover, we believe that carefully designed subscription tele-
vision operations, of the kind represented by the TECO system, can offer new
sources of programming and revenues to the television industry, and new pro-
gram services to the public, without impairing in any way the vitality of adver-
tiser-supported television. Accordingly, Kaiser Broadcasting Corporation has
obtained an option to acquire a franchise for the use of the TECO system in the
Los Angeles area.
More generally, Kaiser firmly believes that the public will be best served if
new ideas are given a reasonable chance to prove their worth. The concept of
subscription television has been subjected to exhaustive scrutiny by the Con-
gress, the Federal Communications Commission, and. the governments and courts
of several states over a period of years. No one now proposes that responsible
government authorities should close their eyes and permit subscription television
operations to proceed on any uncontrolled, unscrutinized basis. The only issue
is whether an idea which is still alive after so much study should be given an
opportunity-free from artificial and unnecessary restrictions-to show in
practice whether it can produce the public benefits that are claimed for it. We
think subscription television has earned a right to that chance.
STATEMENT OF LAWRENCE H. ROGERS II, PRESIDENT, TAFT BROADCASTING Co.
Gentlemen, I appreciate the opportunity the Subcommittee has given me to
share with you my thoughts on the serious problem of Pay TV. You have beard
a great deal of testimony about numerous facets of that problem. I would like to
focus on one facet which, in my judgment, is of controlling significance.
Pay TV forces vigorously contend `that Congress and the Commission should
let the people decide whether or not Pay TV is in the public interest by letting
Pay TV freely compete with free TV. This invocation of the tenets free com-
petition i~ chimerical `and deceptive.
"Market determination," "consumer dollar voting" and "competition rather
than regulation" are not barren shibboleths. They describe free enterprise-the
American way. I believe in them, Taft believes in them and, I have no doubt
the members of this Subcommittee believe in them. Regulation is no substitute
for competition. Regulation is appropriate only where competition cannot func-
tion.
That is the case here. Contrary to what Pay TV advocates would have us be-
lieve, the relevant arena of competition is not the competition between Pay
TV and free television for audiences. Rather, it is the competition in the televi-
sion program product market between free television and Pay TV for advertisers
dollars, on the one hand, and the public's dollars on the other.
To illustrate the importance of `this fact, assume that a nationwide system of
Pay TV is permitted to come into existence and achieve the iiiodest penetration
of 15%. A first run film comes onto the market for television exhibition. Pay TV
can show it in 7.5 million homes if it charges $1.Q0, yielding a gross revenue o
$7.5 million. It therefore bids $5 million, knowing that, at that price, it can
make a 50% profit.
No advertiser or gro'up of advertisers, however, are willing to pay that much.
For, based on their realistic estimates of the markets for the products which
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they sell, the value to them of the advertising minutes which they would obtain
during the course of the film's broadcast is less than $5,000,000.
The result is that, in the television program product market, Pay TV bids the
first new film away from free television networks. But, from the point of view
of American viewers, what is the result? They see the same film, but pay for it'
rather than receiving it free. If they cannot afford to pay, they will not see
it. The public interest has been injured, not advanced.
Moreover, it makes no sense to say that we will meet the problem I have
described by limiting those kinds or types of programs which Pay TV can carry.
Definition of what is to be included and excluded is virtually impossible. Even
the seemingly rigorous limits suggested in the FCC's Pay TV Report are loaded
with loopholes, escape hatches, and opportunities for gimmickry and evasion.
For example, as Mr. Lindow and Mr. Anello made clear, the apparent two year
limit on Pay TV's siphoning off the sports programming now available on free
television is illusory. Under the Pay TV Report proposal it would not take two
years. It could be done in one year and, in many cases now.
We need look but a very short way into the future to foresee the time when
most Americans will enjoy not only the programming of two or three major net-
work affiliated stations, but also two, three, or even more independent tTHF
stations in addition to educational television stations. The availability, free of
charge, of virtually every type and kind of television programming fare imagina-
ble will be a reality. The specialized tastes of small groups of Americans will be
served, as well as `the wants and interests of the majority.
We know from our experience in major market radio that, as the number of
stations increases, the amount of specialized programming, e.g., foreign language
programs or fine music, also increases. This will and is happening in television.
Washington, D.C. is a good example. Today, served by seven television stations,
and soon to receive an e'ighth, our Na'tion"s Capitol enjoys a wide diversity of
programming fare, ranging from `ballet to bull fights, from lacrosse games to
symphony concerts, from Ed Sullivan to `birth control lectures. I seriously doubt
that there is a single interest or taste for which Pay TV could reasonably hope
to program, as a practical economic matter, which is n*ot~'today served by one of
the seven Washington television `stations.
It is `true that the programs in which Pay TV will be most interested and for
which it will pay the most are the World Series, professional football, first run
films and top rated entertainment shows-he programs which all of us now enjoy
without charge. But `the Congress `and the Commission cannot ignore Pay TV's
threat to the countless educational and independent commercial stations now
coming on the air throughout America. If Pay TV carries art films, ballet or opera,
it will also directly deny that programming to free broadcasting.
I have heard it suggested that, because the Hartford experiment did not sub,-
stantially injure local broadcasting, free television and the American people have
nothing to fear. This is incorrect. The economic power of Pay TV to siphOn
programming from free `television cumulates geometrically as Pay TV penetra-
tion grows. One isolated Pay TV station cannot bid programs away from free
television. Many Pay TV stations can.
Pay TV does not, therefore, offer the American people a viable choice of pro-
grams. It offers them the requirement of paying for programs which would
otherwise be free, or not seeing them at all.
`The multi-million dollar competition `between Pgy TV executives and major
advertisers will cast the die. The American people will only pay the piper.
COLUMBIA BROADCASTING SYSTEM, INC.,
New York, N.Y., October 23, 1967.
Hon. Tonnnn~ MACDONALD,
Chairman, Subcommittee on Communicatjon,s Of the Committee os~ Interstate
and Foreign Commerce, House of Representatives, Washington, D.C.
Dn~n Mn. CHAIRMAN: This letter is submitted for incorporation in the record
of your recent bearings on the subject of subscription television and on HR-12435.
In submitting it, it is not our intention to burden the Committee with a repetition
of the voluminous Comments and Statements which CBS has presented over a
period of years before committees of the House and of the Senate, as well as before
the Federal Communications Commission. We do, however, submit for your con-
venient reference~ as attachment A, a copy of the Statement of Frauk Stanton,
President of CBS, before the Committee on Interstate and Foreign Oominerce on
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January 22, 1958, in which Dr. Stanton sets forth the basic position of CBS on
the issue of subscription television, and, as attachment B, a copy of the Comments
filed hy CBS in FCC Docket No. 11279 on October 7, 19G~, in which the results of
the liartford trial of subscription television are analyzed. We continue to adhere
to the views there expressed.
We at CBS are encouraged that your Committee has undertaken its study of
subscription television. We have always been of the opinion that the Commission
does not have the authority under the existing statute to authorize subscription
television and that the question whether it should be authorized is one properly
for the Congress. As long ago as 1955, at the time of our First Comments in the
Commission's subscription television proceeding, we said:
"When all of its elements are considered together, it must be concluded that
pay television is a hybrid which defies classification under the statute because
it does not fit within its framework. That hybrid character would make it im-
possible for the Commission to deal effectively with the regulatory problems
which have been suggested. Any effort to solve these problems would carry the
Commission far beyond the function delegated to it by the present statute. The
problems of regulation involve serious social and economic questions~ as Well as
questions as to the proper area for governmental action. Such questiens should
be answered by the Congress."
The need for Congressional Intervention in this matter cannot be better shown
than by reference to the Proposed Fourth Report and Order, devised by the Com-
mission's Stihscription Television Committee and currently under consideration
by the Commission. The Proposed Fourth Report and Order not only illustrate
the inability of the Commission to deal effectively under the existing statute with
the regulatory problems presented by subscription television proposals but also
presents in bold relief the grave issues of public policy which underlie stich
proposals.
The Proposed Fourth Report and Order-
reflects concern about the blackout of free television channels, capable of
serving large audiences, for the purpose of devoting such channels to pro-
gramming for the privileged few, but in attempting to limit the scope of such
blackout, would permit an absolute monopoly for such operations In the
communities where they would be permitted;
reflects concern over the cost to the public of subscription television but-
operating under a statute that provides for no rate making authority over
broadcast licensees-fails to make possible any competition between sub-
scription television entrepreneurs which will protect the subscriber from
price-gouging practices;
reflects concern that subscription television, if it succeeds, may permit
a small but economically advantaged subscription television audience to
siphon away many of the attractions which all members of the public may
now see without charge, but proposes as a solution to such siphoning un-
precedented-and we think unconstitutional-restraints which would forbid
the presentation on subscription television operations of large categories of
program material;
reflects concern for the scarcity of spectrum space and recognizes that
wired services may have the potentiality for furnishing subscription televi-
sion programming to the public, but makes no adequate assessmentS of the
criteria which would justify the allocation of broadcast spectrum space to a
service which-in the only test authorized by the Commission-has failed
to demonstrate the presence of a significant public demand.
It seems clear that if the Commission were to adopt the Proposed Fourth Report
and Order, or any similar proposal for a permanent nationwide system of over-the-
air subscription television, it would have decided important issues of national
communications policy which it is not empowered to decide under the authority
previously granted to it by the Congress. Your Committee can make an important
contribution by strongly reasserting the authority of the Congress in this area.
In so doing, we hope that you will agree that it i~ self-evident that the free tele-
vision system, while sharing the imperfections of other democratic institutions.
is an affirmative public good, both as a communications medium and as an integral
part of the American economy and we would urge you not to take any action
which would hazard its existence and vitality, certainly not in the absence of
the most compelling showing that the public interest would be served ~y an
alternative system. We believe that your inquiry Into this matter will establish
that the facts do not justify a finding that subscription television would be in the
public interest.
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If CBS may be of any further assistance in connection with your Committee's
consideration of these questions, please do not hesitate to let me know.
Very truly yours,
LEON R. BaOoKs,
Vice President and Genera~ Counsel.
ATTACHMENT A
STATEMENT or FRANK STANTON, PRESIDENT, COLUMBIA BROADCASTING SYSTEM,
IN~i, BEPOBE THE COMMITTEE ON INTERSTATE AND PORETON COMMERCE, JANUARY
22, 1958.
Mr. Chairman and members of the committee, my name is Frank Stanton. I am
President of the Columbia Broadcasting System.
In the interest of conserving the time of this Committee, I ask permission to
submit, for the record, the Comments that we have filed in the pay television
proceedings before the Federal Communication Oommission. I also ask permis-
sion to introduce into the record an analysis of pay television, "Free Television
and the American People." We prepared this for a meeting last week with the
affiliates of the CBS Television Network.
CONGRESS IS THE PROPER FOiWM
With all deference to the FCC, I am comforted by the feeling that the issue
of pay television is now in the proper forum. The Comments Which I am sub-
mitting for the record set forth the reasons why our lawyers entertain profound
doubts that the Commission has the power to authorize or regulate pay television.
Quite apart from the legal considerations, however, pay television involves a
question of national policy in which the pu~blic has an enormous stake As I will
develop in the course of this statement, public tests are inadequate to resolve
the issues in this case. Therefore, we stand in the right place now when we ask
the Congress, as the representative* of the people, to decide the fundamental
public policy question of pay' television.
Now, let me state in most summary terms: first, the position of CBS on pay
television and second, the reasons for that position. Then, I shall move as quickly
as possible to a statement in somewhat more detail of the basic question before
this Committee-the question of a public test, and why we believe that such a test,
whether limited or unlimited, is fundamentally fallacious.
THE CBS POSITION ON PAY TELEVISION
The basic position of CBS is this: We are for free television. We are for it as it
is today and as we are confident that it will develop and improve in the future.
Since we are deeply convinced that pay television and free television are incom-
patible, our stand for free television means that we necessarily must be against pay
television. We believe that it is impossible to be for both, because there can be
no coexistence between pay television and free television `as we know It.
Therefore, we support legislative action which would prevent administrative
authorization of the use of the free airwaves for pay television, until the Con-
gress itself has granted that authority.
I should make clear that our position concerning closed-circuit or wired pay
television-which I do not understand to be before this Committee and which
is not before the FCC-is a little different. Closed-circuit pay television does not
involve the use of the airwaves dedicated to free television. We feel that for us
to seek prohibitory legislation would put us in the position of asking Federal
protection from competition which does not use the airwaves which free tele-
vision has done so much to develop. Therefore, we do not ask for legislation
which would prohibit closed-circuit pay television. Nevertheless, I would point
out (1) that closed-circuit pay television proposes to ride piggy-back on free
television since it must use existing television sets which were bought to re-
ceive free programming; and (2) except for the fact that closed-circuit pay
television would not. directly black out the airwaves, it will have all the same
injurious effects on free television as will over-the-air pay television.
THE REASONS FOR CBS' OPPOSITION TO PAY TELEVISION
We do not believe that our own ultimate economic interests are at stake in
the resolution, one way or the other, of the Issue of pay televiSion. If the Con-
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gress should decide that pay television is in the people's interest, and if pay tele-
vision then begins to take hold and to supplant free television, we shall partici-
pate in it, if we must, to survive economically. We would have all the facilities,
the know-how and the experience for providing entertainment on the television
screens in the American home. If we must go into it we believe we would get
our fair share of the multi-billion dollar bonanza which the pay-television
promoters portray.
So we do not think that the economic fate of CBS Television hangs in the bal-
ance on the issue. But we do believe that the fate of free television as we know
it today does hang in the balance. We believe that the major-the only impor-
tant-stake in the issue is the public's. We believe that if pay television becomes
a reality, not we, the networks and the broadcasters, but the people will be the
losers.
Since other witnesses have already ably stated the reasons against pay tele-
vision, I want to review briefly why we have become convinced that the public
would most surely be the loser if pay television goes forward and should succeed.
Pay television, by its very nature, must be essentially subtractive rather than
additive. It is subtractive because it proposes to use channels now dedicated to
free television. Each time a scrambled signal goes over the air, it necessarily
blocks out a free signal. Thus ultimately here in Washington, for example, pay
television would use Channels 4, 5, 7 and 9-not the unused ones in between
because those are occupied in neighboring population centers.
Pay television is also subtractive because of its enormous potential for siphon-
ing programs from free television. It cannot and will not limit itself to "new"
programming not now on the air. It must turn to the programs, the people, the
talent now making up free television. And with the enormous number of dollars
which just a small minority of the audience can bring in, pay television will most
certainly be able to take those free porgrams away. It will have to do so if its
promoters are to amortize their tremendous initial costs.
But I need not labor the point, for the pay-television promoters have already
made it for me. It is they-not we-~--who have talked about seizing baseball,
professional and college football, star talent and plays from free television.
I agree that the World Series might be one of the last programs to go, but
what the lawyers for the promoters say to you about the World Series Is
different from what the promoters say to prospective investors. Telemeter
recently said: "The World Series in the future conceivably will be able to
gross as much as $25,000,000." (They were talking about pay television.)
The siphoning process has nowhere been summed up more simply than by
the only station applicant which has ified with the FC'C for a iice~ise to go
forwiard with pay television~ That a~plicant has said: "We ask merely for
the authority to sell, if we can, something which is now being given away."
I cannot say it any better than they have said it.
The consequence's of pay television will be a real misfortune for the American
people. Viewers will have to pay for what they now receive free. And for the
first time, television, now a democratic unifying force, will be divisive. Where
now the best in television is available to all Americans, pay television will fence
off the best for the carriage trade. One prosperous viewer can pay-and deprive
a dozen of his neighbors of the programs they are now enjoying.
The costs to the American people will be enormous. Eadh family would have
to buy or rent a decoder costing between $4~ and $85.
On top of that will be the charges for programs. To watch pay television for
two-thirds of the number of hours that it now actually watches free television.
the average family would have to pay $473 a year. This is seven times what the
average family spends annually on shoes; three times what it spend's on beating
and lighting its home; and, more than it spends on all medical and dental bills.
plus all drugs and medicines, plus all cosmetics and shaving suppics, plus all
dentifrices.
Even if we take a figure of only $100 a year, which has been suggested by the
pay-television promoters as the anticipated average collection per family, that
amount is more than three times what the average family now spends for all
admission fees put together, and substantially more than it spends for shoes.
And for this $100,, at an average of 50 cents an hour, the family would get only
four hours of viewing a week-which is only a little more than one4entb of the
time it now devotes to free television.
Again, not we, but the pay-television promoters have put this problem of cost
to the American family moat forcefully. "We can," said an officer of Telemetef,
"nickel-and-dime them to death."
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Those, briefly, are some of the reasons why we feel compelled to oppose pay
television: it will black out free channels; it will siphon away free programs;
and it will divide the audience along economic lines.
THE FALLAcTY OF THE TEST
Let me turn now to the imminent issue-the issue on which the controversy
concerning pay television has tended to focus. That issue is whether there
should not be some sort of test of pay television. I think that perhaps confusion
arises out of the fact that different people are talking about different tests-and
sometimes the same people are talking about different tests at different times.
And nobody has really stopped to analyze whet, if anything, needs to be tested
or how success or failure can be measured.
What I want to do now is to demonstrate: first, that no test is necessary;
second, that the entire concept that there can be a democratic public choice
with respect to pay television is fallacious; and third, that the test proposed
by the FCC cannot achieve the Oommission's objectives,
A TRIAL IS UNNECESSARY
You have been told that a trial is necessary because the FCC lacks the dod.
sional facts required to determine whether pay television would he in the public
interest. But the decisional facts sufficient to justify denial of the pay television
proposals are available in abundance.
There is no dispute with respect to the blackout of free channels. When a
station i's broadcasting pay television, it is blacked out for those who want to
see free programs.
There is no dispute with respect to divisiveness. It must be clear that the
prosperous family will be able to view more programs than the average family.
There is no genuine dispute with respect to the siphon The pay television
promoters have said, over and over again, that they intend to put on the air
the mass-appeal attractions which are now on free television. And the FCC
itself has stated in its Report "that some kinds of programs hitherto available
under the present system would Probably be subjected to a charge on the
viewer.t~ Indeed, ordinary common sense shows that producers, stars, writers,
motion picture companies and others will respond to the lure of higher pay just
as everybody else does. If they can make more money out of pay television than
out of free television, they will move to the greener pastures.
In addition, it is clear that people would rather see a baseball game free
than pay for It. And all available evidence indicates that people would pay
for the programs they like best if they could not get them without paying
A Gallup Poll found that 31 percent of those interviewed said that they would
pay for the Ed Sullivan Show if they could n'ot see it free. Surveys by Politz,
Pulse, Roper, and the major league baseball owners have reached similar con-
clusions.
On the other hand, there is a striking absence of decisional facts to demonstrate
the advantages of pay television. The briefs led by the proponents' lawyers
contain only the vaguest and most illusory promises. No principal of any major
proponent has appeared before the FCC or this Committee. Where a small group
of people are proposing a scheme, which bears within it so much danger and
disadvantage to the public, one wonders what has happened to the old-fashioned
concept of asking a proponent to meet a burden of proof.
The Canadian Royal Commission on Broadcasting, a Government body com-
posed of distinguished citizens, had these same proponents before it. This
Commission had no difficulty in making the predictions which resulted in their
rejection of pay `television. They said "subscription television would tend to
canalize for its own use the great popular programmes now offered free to the
viewing public."
We feel that `the decisional facts for free television and against pay television
are clear. A test is unnecessary. An informed decision can `be made now.
A TEST CANNOT ESTABLISH MAJORITY PUBLIC CHOICE
Not only is `the test unnecessary, but the very concept of a test is, in this case,
fallacious. The `broad argument is made that America is built on new enter-
prises which must have an opportunity to succeed or fail in the market place.
Therefore it is urged that the public should `be permitted to decide the fate of
pay television by accepting or rejecting it. This sounds overwhelmingly sensible
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and in the best traditions of free enterprise. But, in this case, it just doesn't
workout.
There are two reasons for this, First, there is no majority choice involved.
Nobody is proposing that the test be whether a majority of the people want pay
television. That is a test which pay television cannot meet.
The concept of a test by public choice in the market place is nothing more
than a test to determine whether pay-television promoters can make money. This
is only a test of whether a minority will pay enough to make pay television
profitable. But proving economic profitability does not prove public interest.
We know right now that it is not in the public interest to permit one viewer
to black out a dozen.
Second, there is a vital distinction which destroys the analogy involving
competition between new and traditional products. Let me demonstrate this with
some examples. The ball point pen competes with the fountain pen and the
electric razor competes with the safety razor. But, although the ball point pen is
a competing means of writing, it does not prohibit the founain pen from
occupying a place in a pocket. The electric shaver is a competing means of shav-
ing, but it does not forbid the safety razor from occupying a place in the medi-
cine cabinet. There is a crucial distinction between pay television and such
examples; pay television does propose to occupy the scarce television channels
dedicated to public use. It does propose to oust free television from these very
channels.
It is these fundamental distinctions which make the notion of a people's choice
during a test of pay television wholly unrealistic.
THE TEST PROPOSED DY THE FCC
I ~rigina1ly came here to oppose the Commission's Report, which set forth the
conditions of the test. I have since learned, from statements made before you
last week by members of the FCC, that the conditions will be varied from case
to case and improvised from station to station as applications, are processed,
without continuity, uniformity or certainty.
It seems to me, however, that I must initially take the Report at face value. It
is our conviction that the so-called test there proposed is neither limited nor
controllable and that, in fact, it Is no test.
According to the Report, each pay television system may operate in three of
iiiore than 20 eligible areas. These areas include more than 40 different cities `In
which stations, assigned to those cities, are actually on the air. In these areas are
the largest markets in the nation, precisely where the advocates of pay television
have said they want to operate if there were no restrictions at all.
There is no limitation on the number of pay-television systems. Five have al-
ready been proposed, and more may be feasible. The so-called test could, during
its duration, become effective in all 20-odd markets. On the assumption that only
the three principal proponents will elect to participate and that they will decide
to operate in the nine largest markets, 15 million television families-843 per cent
of the nation's total-will be within the test area.
The period of the trial authorization is three years. The Commission has
stated in its Report that it would not terminate the tests before the three-year
period without evidentiary hearings; and that it might permit them to continue,
after the three years, during the time required to conduct hearings, and reach a
final decision.
The Report places no restrictions on the number of stations in a market which
may participate, or on the number of hours during which each station may broad-
cast pay programs (except that it must broadcast 28 hours of free television a
week), or on the times of day during which pay programs may be broadcast, or
on the prices that may be charged to the public, or on the kinds of programs, or
on the use of advertising.
The Commission stated In the Notice which preceded its Report that it did
not want to encourage "inordinate investment" during the trial. But it has done
just that. If only the nine largest markets were involved, the cost of equipping
only 1 out of 4 of the television homes in the test area with decoders would, on
the assumptions most favorable to the proponents, be just under a quarter of a
billion dollars.
In addition, `huge investments would have to be made, largely by local business-
iiien, in establishing and maintaining the expensive organizations for distribut-
ing decoding information and collecting program charges. All of these expenses
the public would, of course, be expected to bear in one way or another.
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These inordinate investments will inevitably generate their own pressures. It
will be extremely difficult to terminate this test and, thus, to destroy these ei4er-
prises and investments.
I am not under the illusion that th~ test will immediately bring about all of
the evils of pay television or that it will demonstrate the full power of a perma-
nent authorization. But during the trial, the power to siphon will be present. If
only ten per cent of the television families now viewing the Ed Sullivan Show
in the nine-market test area paid 50 cents for the program, the promoters of pay
television could pay the stations, take $100,000 for their own costs and profits,
and still offer the talent appearing on the show 2'/2 times what is now being paid.
Certainly, during the protracted period of the test, the blackout will be in
operation. This would be true even if only one station in the eligible markets
were broadcasting pay programs. In many of the eligible markets there are rural,
outlying and fringe areas of considerable extent which receive Grade A service
from only one of the four (or more) stations serving the area. For instance, in
the Milwaukee area, if WISN-TV went to pay television, approximately 180,000
people would lose their only Grade A free service during the period of pay
operations. The shift to pay television by a single station in each eligible test
area will deprive, in total, more than one million people of all free Grade A
service.
Beyond this, there is nothing in the~ Report to prevent all of the stations in the
market from presenting pay programs at the same time during the peak viewing
hours of the evening, and during that period from producing a total blackout
for everybody in the market.
Broad as this test is, it may not show the full impact of pay television on free
television. It is reasonable to expect the pay-television promoters to be on their
best behavior pending full authorization. They may indeed occasionally give us
differential calculus, as they have promised, instead of Jayne Mansfield. They
may Indeed leave Perry Como an'd the World Series alone. With so much at stake,
self-restraint would simply be self-preservation.
An attempt to pass judgment on the ultimate programming of pay television
on the basis of a trial is like attempting to write a book on child behavior based
on the actions of children during the week before Christmas. But here the stakes
are not a tricycle or a doll-they are $6 million a year. The proponents will have
the incentive, the resources, and the patience to walk carefully.
Thus far, I have been discussing the proposed test specified by the FCC Re-
port. When appearing before this Committee, however, members of the Com-
mission stated that they might depart from the Report and adopt varying rules
on an applieation~by-applicati.on basis.
In these circumstances, it is difficult if not impossible for us, or this Com-
mittee, to assess the test since its rules are still being improvised. But even
to the extent that the improvisation has begun, new difficulties have already
emerged. For example, although no such limitation appears in the Report, the
Chairman of the FCC indicated that all stations in a market might not be per-
mitted to participate in pay television and that he might be reluctant to grant
the last two or three applications in an eligible area. If this suggestion should be
adopted, a built-in incentive to abandon free television would be provided. The
first station to apply might have an advantage to the point of monopoly bY
squatters' rights. It would put a premium on early desertion from free television.
The stations which remained loyal to free television would be subject to the great
risk o!1~ being frozen out of pay television.
In any event, it would appear that the FCC is improvising new rules which
cannot result in a meaningful test. For example, if it will not grant the applica-
tions of the last three stations in a market, or if it will allocate different hours to
different stations in the same market, it may well alleviate some of the evil conse-
quences of the test. But by the same token, it will have robbed the test of all
possible validity for it will have made it impossible to prove thu basic point
at issue-the impact of pay television on free television.
CONCLUSION
To launch an explosive missile from Cape Canaveral over the lonely wastes
of the ocean is an experiment. To drop that missile on Pennsylvania Avenue is
not an experiment. The impact of the so-called pay-television experiment which
is proposed will have immediate effect upon 15 million television families.
Thh Commission apparently believes that after inordinate investments have
been made, after pay television has `been in oper~tion for years, after artists
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and producers have been accustomed to vastly higher pay, after millions of view-
ers have become habituated if not reconciled to the pay -system, hearings will
be held to determine whether the fait accompli created by the Commission should
be reversed. It may well be too late at .that point to 1!everse the course of his-
tory. People will be paying to unscramble pay-television signals, but the pay-
television test itself will be hard to unscramble.
The difficulties of these tests are not difficulties of details; they cannot be
fixed by a little patching here and there. These difficulties are symptomatic of
the fundamental fallacy and impracticability of the basic concept of these tests.
Forty-two million American families watch telveision on an average of five
hours a day. They have invested $22 billion on the assumption that they would
continue to have free access to the channels which have been dedicated to the
public use. We feel that the investment and the reliance of the public in these
airways deserve Congressional protection.
In the final analysis, there is no easy way out-the matter has to be voted
up or down. Tests provide no escape from decision. The decision can be reached
by analysis and expert judgment. That must be done here-by you gentlemen
who represent the people.
ATTACHMENT B
Before the Federal Communications Commission, Washington, D.C.
Docket No. 11279
IN THE MATTER OF AMENDMENT OF PAnT 73 oF THE COMMISSION'S RULES AND
REGULATIONS (RADIo BROADCAST SERvICES) To PRovIDE ron SUBsCRIPTION TELE-
VISION SERVICE
Comments of Columbia Broadcasting $ystem, Inc., October 7, 1966
I. INTROJYtJOTION
In its First and Third Reports in this Docket, adopted on October 17, 1957
and on March 23, 15i~, respectively, the Commission declared that it was in no
position to determine whether the adoption of subscription television would be
in the public interest `without the benefit of any significant demonstration of the
proposed systems in operation". (First Report, para. 47)
Now, almost nine years after the Commission first determined that a trial
of subscription television was necessary and should be `authorized, the time
has come to assess the result of the only trial which was bad pursuant to the Com-
mission's action, that which began in Hartford in June 1962.
On the basis of that trial Zenith Radio Corporation and Teco, Inc. (herein
referred to as "Petitioners") requested the adoption of rules authorizing sub-
scription television on a nationwide basis and contend that the trial demon-
stration has now provided a sufficiently adequate basis for concluding that an
authori~atiofl of subscription television would be in the public interest. The
Commission adopted on March 21, 1966 a Further Notice of Proposed Rule
Making and Notice of Inquiry in this Docket inviting interested parties to com-
ment on whether subscription television should be' authorized on a permanent
nationwide basis and, if so authorized, on the possible conditions and limitations
which might be appropriate. The Notice invited parties to "focus their comments
particularly on whether permanent nationwide subscription television would be
in the public interest . . ." and on the issues directly relating to that question
(Notice, para. 44). In addition, in its Notice of Inquiry, the Commission for the
first time in this Docket requested comments as to "the appropriate Federal
role, if any, with respect to the establishment and manner of operation of wire
or cable subscription television, and how that role should be effected." (Notice.
para. 48).
We submit that the results of the trial do not support the conclusion which
Petitioners urge. If anything, they demonstrate that the public interest would
not be served by the Commission's authorization of subscription television and
they do so in more dramatic terms than we could have anticipated.
The Hartford trial shows that subscription television would not provide a
beneficial supplement to the program choices now available to the public through
free television but in fact would be duplicative of the programming of free
television.
The Hartford trial shows that subscription television furnishes programming
aimed almost exclusively at the mass audience, that any hopes that it would
86-899 O-67-----43
PAGENO="0674"
670
be ~ vehicle capable of furnishing significant artistic, cultural or informational
programming for minority interests were without foundation and that free
television in fact is better suited by far to perform this function.
The Hartford trial, while resulting in a clear-cut failure to achieve, any sig-
nificant degree of audience penetration and casting doubt on the viability of
subscription television, nevertheless prompts Petitioners to project audience
penetration levels which would enable subscription television to bid away from
free television selective mass appeal attractions which free television now offers
to the public.
And, finally and importantly, the Hartford trial shows that subscription
television would furnish such attractions for pay to an audience which would
for all practical purposes exclude the economically less advantaged 30% of the
nation's population.
We note that the Petitioners rely exclusively on the Hartford trial and con-
tend that in every respect it has established an adequate basis for the permanent
nationwide authorization of subscriptiQn television. In that connection we note
the statement of Petitioners that since the Commission's Third Report adopted
on March 23, 19~9 the ". . . only new facts developed concerning broadcast
subscription television . . . are those available from the Hartford subscription
trial." (Petitioners' Comments, p. 6~) We would point out that additional "new
facts" necessarily arise from the changes in the broadCast environment during
the past seven and a half years, particularly those relating to the program
choices which free broadcasting~-both commercial and educational-offers to
the general public, and we propose to relate such changes as well to the public
interest issues which are at stake.
In response to the Commission's Notice of Inquiry with respect to wire or
cable subscription television, our comments will urge that the Commission does
not have jurisdiction over a system of subscription television not using the
broadcast spectrum, for the same reasons expressed in our comments in the
OATV proceeding, Docket No. 15971.
n. THE HARTFORD TRIAL SHOWS THAT SUBSCRIPTION TELEVISION, FAR FROM PROvrDIN~
A BENEFICIAL SUPPLEMENT TO TI~E PROGRAM CHOICES AVAILABLE TO THE PUBLIC ON
FRRR TELEvIsIoN, WOULD DRVOTE ALMOST ALL OF ITS PROGRAM TIME TO TYPItS OF
PROGRAMS DUPLICATIVE OF PROGRAMMING OFFERED IN QUANTITY BY FREE TELEVISION
The most important single issue before the commission is whether subscription
television would provide, in the Commission's phrase (Notice, para. 15), "a
beneficial supplement" `to the program choices now available to the public
through free television. If it would, doubts which arise ~s to other public
interest aspects of subscription television operations might conceivably be
resolved in its favor. But if a subscription television operation in any communit~r
will merely duplicate types of program offerings already available to the public
in quantity on free television, it would not appear that any other considerations
of public interest could justify the authorization of such a service using broad-
cast channels.
Some confusion is di$cernible in the Commission's Notice as to the distinction
which is drawn between prograipmjng which beneficially supplements free tele-
vision and that which duplicates its offeripgs. The Commission's Notice (Notice,
para. 12) appears to accept Petitioners' underlying assumption that if subscrip-
tion television offers programs which, as individuajl units, were not available on
free television its function would be supplementary. Elsewhere in the Notice
(Notice, para. 42) the Commission invites "comments on Whether there should
be any limitation on the type of programming that subscription operations may
present, and if so, what types should be excluded, or how a line might be drawn
to determine what types of programs could be shown and what could not."
(Emphasis added.) Surely the whole thrust of the Commission's. concern over
the threat posed to free television is not whether subscription television can
at times present individual programs not otherwise available to the public-
any network or individual station licensee often does present programs not
otherwise 50 available-_but upon whether, taken as a whole, subscription tele-
vision operations will provide "a different service from that of conventional
television . . ." (Notice, para. 42).
Petitioners `themselves are confused or disingenuous with respect to this
distinction. While generally urging that their programming constituted box
office attractions not otherwise available on conventional television Petitioners,
PAGENO="0675"
671
in specifically addressing themselves to whether subscription television should be
limited to programs of a box office nature, define such programs as follows
(Petitioners' Comments, p. 64)
"Generally defined, a box office attraction embraces any type of program which
is not seen on a regular or frequent basis on conventional television and for
which the public would ordinarily pay an admission charge." (Emphasis added.)
We propose, with this distinction in mind, to ask whether the programs in fact
presented to the public during the Hartford trial' constituted, by any reasonable
test, a beneficial supplement to the programming offered by free television.
A. Feature-Len~gth~ Motion Pictures
Petitioners ask the Commission to accept the proposition that a programming
schedule in which 86% of the time is devoted to the broadcast of feature-length
motion pictures-each film, on the average, broadcast more than three and one-
half times-is a beneficial supplement to the program choices available on free
television. No reference is made by Petitioners to the fact that feature films were
then and are now abundantly available on free television and a reader of their
Oomments, unmindful of free television programming, might well believe that
the nation's television stations do not offer high quality feature films to the
public.
We have made no calculation of the number of feature films which were in
fact presented on free television in Hartford during the trial period but the
three nationwide commercial networks offered to their affiliates in Hartford a
total of 160 feature films during that time.'
It may therefore, be useful, since Petitioners' claims rest almost entirely upon
the nature of the feature film product which they sold to subscribers, to analyze
their product in some detail.
Of 432 feature films presented during the trial period only one, an obscure
British film, is listed by Petitioners under "First Run Films". An additional
116 are listed by Petitioners under `Fir~t Subsequent Run Films (Shown several
weeks after first theater run) ". These 117 films, as the listing indicates, were
presented to subscribers during the period of their release in motion picture
theaters. The remaining 315 films, however, comprising 297 films characterized
by Petitioners as "Older Feature Films (Over 6 Months in Theater Release)" and
18 films characterized as "Foreign-Language Films", and representing 73% of
the total number of feature films presented, Included films released to theaters as
early as 1940 and, on average, were first released, in theaters in 1960.'
If we are to rely on the information disclosed by Hartford, and not on mere
speculation, the question presented is a concrete one. In its consideration of the
subject, the Commimission has consistently assumed that ~he feature films to be
offered by subAcription television would be so-called "first run feature films'.
noting that ~f1rst run feature films have not, with rare exceptions, been made
available for television broadcasting". (First Report, para. 50). The Commis-
sion observed that such films would not be likely to become available in the fore-
seeable future for free broadcasting and concluded: "Thus, to the extent that
first run film might become a substantial feature of on-the-air transmissions they
would provide a kind of entertainment not now generally avallable to the tele-
vision audience.."
Even if we treat "First Subsequent Run Films" as fully satisfying the Com-
mission's expectations we would still find that only 27% of the films presented to
the Hartford subscribers did so.
In this respect itis worth noting that the Hartford trial confirms what we in
television already know-that the public will view high-quality films even though
they are not shown on television for some time after theatrical release. Petitioners
who originally placed great reliance on the ability of subscription television to
bring to the American public feature films while the negatives were not yet dry,
are silent about the fact that, of those films shown in Hartford obtaining a cumu-
lative subscriber viewing percentage of over 30%, 43 were listed in Petitioners'
Exhibit 1 as "First Subsequent Run Films (Shown several weeks after first
theater run)" while 47 were "Older Feature Films (Over 6 months in theater
`Since Petitioners' Comments include detailed data only as to the first 104 weeks of the
trial we have confined our analysis to the programming o1~ered to Hartford subscribers
during that period. Programming references to the "trial period" herein are to such 104-
week period. We are not aware of any contention that programming offered during the
third year of the trial differed in any material respect.
`Source: Broadcast Information Bureau. .
3 Id.
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672
release) ". Thus, It would appear, the Hartford subscribers placed greater stress
on film quality than they did on film release date.4
Upon analysis, it appears that of the 432 films for which the Hartford sub-
scribers spent 83% of their dollars (Petitioners' CQmments, p. 19) 228 have since
been released to free television.5 Of these 76 had been released prior to the end of
the second year of the trial period. It therefore appears that, to a very large de-
gree, the advantage which subscription television promises to the public is not
that it will receive programs of a type not otherwise available on free television
but that, for a price, subscription television will somewhat accelerate the pre-
sentation of feature films to the public.
The Hartford findings serve to underscore the plain fact that the function of
reducing the lag between theatrical and television release dates is hardly impor-
tant enough to warrant the use of broadcast channels for a system depending al-
most completely on such fare.
There is, moreover, every indication that the function which subscription
television might perform in somewhat accelerating the availability of feature
films is becoming of even less significance as free television continues to develop
its potential. When the proceeding in this Docket was first begun, it may have
been possible to argue, as subscription television proponents in fact did, that
feature films available on free television were older features, of comparatively
minor calibre, many of them obtained from foreign sources. This was due to a
combination of reasons, among them the inability of free television circulation
to support the costs of film rights, union and guild restrictions on the use of
recent films and, not unimportantly, the belief of major film producers and
distributors that subscription television, or a variant thereof, would replace
the theater box office and be a new market for their output of current films as
well as for their backlog of existing films.
However the number of major theatrical feature films released to free tele-
vision increased rapidly during the late 1950's and that increase continues today.
There are presently more than 12,000 feature films released for free television
broadcasting.6 During the current (1966-67) season 120 feature films of high
calibre have been scheduled for television broadcast by the networks alone. These
include such outstanding films as Fail Safe (1964), the Bridge on the River
Kwai (1957), Music Man (1962), Bye Bye Birdie (1963), Advise and Consent
(1962), Breakfast at Tiffany's (1961), Lilies of the Field (1963), a Raisin In
the Sun (1961), Two for the Seesaw (1962) and the Ugly American (1963).
Thus the progress of events since the Commission's First Report and Order
in 1957 has almost completely negated the prime program claim of subscription
television.7
B. Sports
Other than feature films the audience attraction of greatest popular appeal
to the Hartford subscribers was the presentation of spectator sports. This
type of programming occupies a significant portion of the program schedules
of both network and independent stations throughout the country. Indeed the
sports diet offered on free television-comprising as it does professional baseball,
football, basketball and ice hockey games played in the professional leagues,
together with a heavy schedule of championship golf, college football, bowling,
as well as outstanding attractions of tennis, track and field and lesser sports-
has led some observers to question whether the American public can continue
to absorb so large a quantity of sports programming.
Again, as in the case of feature pictures, Petitioners' real claim is not that
the Hartford trial presented programming of a different type than that available
on free television but that it presented a number of specific sports events which
in fact were not carried by free television. We concede the contention of Peti-
This phenomenon was recently demonstrated by the huge audience obtained for the
network showing of a 1957 feature, The Bridge on the River Kwai, which was estimated
to have been viewed by 60 million people. Variety, September 28, 1966.
~` Source: Broadcast Information Bureau.
6 TV Feature Film Source Book, Vol. 7 (1966).
This fact has not been lost on outside observers, Columnist Jack ~lould in the New York
Times of September 28, 1966, commenting on the recent decision of major motion picture
producers to agree to release large additional blocks of feature films to the networks,
wrote: "As a result of the separate agreements, more than 112 features, including so-called
`blockbusters' that commanded record box-office grosses in theaters, will be reaching the
home screen over a period of five years." Mr. Gould had reference to acquisitions announced
in late September 1966 by CBS and ABC. The CBS films to be acquired from MGM,
include at least 14 films released to theaters in 1965 and 196é.
PAGENO="0677"
67~
tioners that heavyweight championship boxing has been absent from free tele-
vision for a number of years. This is due partly, as Petitioners note, to the fact
that promoters of such fights have found it more profitable to distribute them
to closed-circuit theater outlets and partly, we believe, because of a variety of
other factors, including the quality of the bouts themselves and the unhealthy
aura which has surrounded heavyweight boxing in recent years. The other sports
offered to Hartford subscribers are all seen regularly and frequently on free
television and Petitioners' contention with respect to such sports essentially boils
down to an assertion that subscription television could circumvent existing
limitations imposed by college and professional sports organizations to protect
teams from the loss of gate receipts in their home areas. Thus Petitioners urge
that subscription television could carry local and regional college football games
in "which there is a strong local interest without being restricted to the so-called
`game of the week' now permitted by NCAA" (Petitioners' Comments, p. 14)
and that "one of the major sports program supplements which subscription tele-
vision could provide in . . . cities having major league professional baseball or
football would be the broadcast of home games" (Petitioners' Comments, p. 15).
Even Petitioners' contention that a "home game" is *a box office attraction
not available on free television i.s not entirely correct. In New York City, for
example, the Yankees' and Mets' home games have long been carried on free
television, and the experience in New York and elsewhere suggests that whatever
adverse effect, if any, the televising of home games may have on the box office
is offset by receipts from free television as well as heightened interest in the
sport. Indeed, in some major league cities there is evidence that honie games
are being kept off free television in anticipation of some form of subscription
television.8
Passing the question whether home games will, with the passage of time, become
more generally available to free television, we believe that the restrictions im-
posed by coil~ge and professional sports represent at this time a reasonable
accommodation of conflicting economic and social interests, an accommodation
in the case of major -professional sports, recognized and confirmed by Federal
legislation which sanctions the black~out arrangements.
If the offering by subscription television of such home games be regarded as
a supplement to the sports fare being offered in large quantities by free television,
is it so beneficial as to justify an authorization of subscription television in the
public interest? An audience accustomed to see "home games" of a professional
football, baseball or basketball team on subscription television would, of course.
have an undiminished desire to continue to see the "away games" of their honie
team, now generally available on free television. If subscription television was
able to make home games available to subscribers it would appear probable
not only that it would bid away from free television the right to import ~away
games", but that it would no loii~ger be advantageous for it to permit audiences
to be diluted by permitting free television to import distant games of other
teams. It strains credibility to believe that free television could continue to obtain
the rights to these events under such circumstances.
(1. $pcoial entertainment, cultural, educational and informative progra mining
We have dealt in the above discussion with motion picture feature films an(1
sports presentations which together, according to Petitioners' Comments, made UI)
91% of the first two years of Hartford subscription television programming. ac-
counted for 95% of subscribers' expenditures and for 96.3% of the number of
subscribers viewing all offerings of stFbscription television during the Hartford
trial. We have urged that in these two categories subscription television is
duplicative of free television programming and not supplemental to it.
We turn now to the remaining programs presented during the Hartford
experiment-programs which Petitioners divide into two general categories,
"Special Entertainment Programs" and "Educational and Instructional Pro-
grams". These furnish a crucial test of whether the authorization of nationwide
suhscription television would be in the public interest. For the bright promise
of subscription television was never that it would be devoted almost entirely
to presenting mass appeal programming to the American public and certainly
not that it would preempt such programming from free television. Its greatest
appeal to all critics and students of the television art, as well as to the Com-
mission itself, has been the allegation that "subscriber financed broadcasts could
8 Thus, for example, in Los Angeles and San Francisco, home game broadcast rights
were granted by the Dodgers and Giants to the now defunct Subscription Television Inc.
PAGENO="0678"
674
and would provide a wider choice to members of the public interested in the fine
arts, operas, educational and informative material and other similar lçind.s of
programs." (First Report, para. 48) It should be clear from the Hartford trial
that this bright promise was merely an illusion.
Even a casual review of the 35 "Specially Produced Entertainment Features"
listed by Petitioners as presented during the trial period shows that they are
of a type which free television presents in abundance through programs of
outstanding excellence.
The light entertainment items on the list-4he Kingston Trio, Eddie Fisher
in Las Vegas, The McGuire Sisters, The Limelighters, etc-obviously are attrac-
tions of a type familiar to viewers of free television. Excluding regularly sched-
uled variety programs on which such talent is commonly utilized we point out
that among entertainment specials presented by the networks during the trial
period were The Bing Crosby Show with Mary Martin, The World of Benny
Goodman, Richard Rodgers Concert with Diahann Carroll, Peggy Lee, Roberta
Peters and Cesare Siepi, An Evening With Carol Burnett, The Victor Borge
Show, Here's Edie, The Danny Kaye Show, As Caesar Sees It, Judy Garland
and Her Guests and The Bob Rope Show.
Turning to musical items of a more classical nature Petitioners point to four
concerts as well as four presentations of opera and ballet. These included Even-
ing With Carios Montoya, Piano Recital-Lateiner, a Joan Sutherland Con-
cert, and Menotti's opera The Consul. Network attractions in this same vein
included such examples as concerts with Leonard Bernstein and The New York
Philharmonic, the St. Matthew Passion, Montemezzi's opera The Love of Three
Kings, Menotti's opera The Labyrinth, Donizetti's Lucia Di Lammermoor and
Triptych-The Nativity in Music an4 Dance.
Ability to present theater attractions has always been a major claim of sub-
scription television proponents and eleven plays were presented to the Hartford
sulbscribe.rs during the trial period, including Hedda Gabler, and Androcles
and the Lion. In the field of drama the networks presented among others, Celeste
Holm hi Cry Out in Silence, David Wayne in The Teahouse of the August Moon,
Christopher Plummer in Cyrano de Bergerac, Ralph Bellamy In Impact of an
Execution, Julie Harris in Pygmalion, Mary Martin and Cyril Ritchard in
Peter Pan, Trevor Howard and Greer Garson in The Invincible Mr. Disraeli,
Maurice Evans and Richard Burton in The Tempest, Charlton Heston in Sidney
Kingsley's The Patriots, Jason Robards, Jr. in Robert Sherwood's Abe Lincoln
in Illinois and Julie Harris and Dirk Bogarde in Little Moon of Alban.
The same kind of comparison can easily be made with respect to the 50 so-called
"Educational and Instructional Programs" presented during the trial period in
Hartford. While Hartford subscribers were paying for 50 programs in this cate-
gory-but not in very large numbers, for all 50 educational features which were
seen by a cumulative total of only 838 subscribers-the networks were presenting,
in addition to their regular series offerings of neWs, documentaries, public affairs
and cultural broadcasts, such special broadcasts as The River Nile; Winston
Churchill-The Valiant Years; Shakespeare: Soul of An Age, with Michael Red-
grave and Ralph Richardson; 109 Days to Venus, An Account of Mariner II's
Probe of Venus; Parnassus `63, Readings from Shan-, Frost and MacLeish; The
Death of Stalin, Study of Six Crucial Years in the Kremlin; The Great Chal-
lenge, Appraisals of Aspects of the American Democracy; Exhibitions: Twelve
American Painters, Survey of Contemporary Artists at Work; The Kentucky
Coal Miner, Story of a Distressed Industry; American Landmark: Lexington and
Concord, narrated by Frederic March: 1492, A Decisive Year in the Saga of
Western Man; Greece: The Golden Age; and innumerable others.
The offerings of commercial television in the areas enumerated have not di-
minished since the Hartford trial and indications are that the forthcoming 1966-
67 season will set a new high water mark in special entertainment and cultural
programming.
I may be superfluous as well as somewhat unfair to cite, in comparison with
the limited offerings made to the Hartford subscribers, these examples of vari-
ous special entertainment and cultural programs presented by the commercial net-
works during the same period. We cite such examples, however, only for the
purpose of reminding the Commission that in this area as well Hartford fails to
demonstrate that subscription television will offer program types not available on
free television.
We turn now to the consideration of a development in American television
which has emerged almost entirely since the Commission's First Report in this
PAGENO="0679"
675
Docket, which the Petitioners have paid no attention to in their Comments, and
which represents a crucial part of the "new evidence" presented since the Hart-
ford trial was authorized.
Tb~t new development is the emergence of a strong and creative educational
television service in this country whose prime purpose is to do what subscriptioii
televisioli claimed it could do best, the presentation of cultural and informaional
programming of scope and quality.
It is an irony of circumstances that only three months after the subscription
television experiment began in Hartford an experiment of a different nature was
commenced there with the establishment of an educational television service. The
Hartford ETV station (Channel 24) began on October 1, 1962 with 171/2 hours
per week of programming on a five-day per week basis.
During the trial period Channel 24's programing consisted almost exclusively
of that furnished to it by National Educational Television (NET), but that pro-
graming by far eclipsed the cultural, educational and informational offerings
made available on subscription television.
In the fall of 1962 alone NET's schedule included 62 hours of programing under
the general heading "Festival of the Arts" (including 15 90-minute programs in
the Shakespearean drama series, "An Age of Kings," and twelve two-hour pro-
grams in the NET Drama Festival series); 38 hours of programing under the
general heading of "Fine Arts" (including a series each of master classes with
Jascha Heifetz, Pablo Casals and Lotte Lehmann) ; 18 hours of programing under
the general heading "The Light Show" (including programs on jazz and folk
music) as well as children's programing and a wide assortment of informational
programs in the physical and social sciences. During the remainder of the trial
period NET's programing was, if anything, even more distinguished.
Interestingly enough, the comparative merits of subscription television and
educational television in Hartford which we have been discussing were the sub-
ject of an informal public debate which took place at the close of the trial period.
Writing in a local newspaper9 in response to an editorial which had praised sub-
scription television in Hartford the General Manager of Channel 24, Mr. Ben
Hudelson, presented the issue in sharp relief:
"It is surprising that you characterize the service rendered by the subscription
television station as `a new and more effective use of television' since by and, large
this service offered 114 hours of theatrical motion pictures while presenting only
seven and one-half hours of any other kind of programing during the period June
6 through July 3.
"During this same period of time, Channel 24 was on the air slightly less
(94~/2 hours vs. 121'/2) than the pay TV service of the other station and offered
an infinite variety of programing-none of which was strictly instructional in
nature since in-school programs were suspended for the summer as of May 29.
"Aside from movies, pay TV viewers were treated to three performances of a
two hour special program featuring Carol Channing and one ninety minute show
with The Limelighters.
"Channel 24 viewers were able to see concerts by four leading American sym-
phony orchestras-Pittsburgh, San Francisco, Cleveland and National; four
thirty minute programs featuring outstanding jazz personalities like Muggsy
Spanier and John Coltrane; four thirty minute portraits of Sweden; four pro-
grams with well-known Connecticut journalists discussing important develop-
ments of the day; four delightful and informative sessions with Julia Child, the
French Chef; a fine television performance of Shakespeare's `A Midsummer
Night's Dream'; programs on science, art, the dance, psychology, antiques,
bridge and many more.
"And Channel 24 presented three movies, too; `Moana,' `Man of Aran' and
`Louisiana Story,' three of the most celebrated documentary motion pictures of
all time, products of the `father of the documentary,' the late Robert Flaherty.'
* * * * * *
"In fact, it appears that much of the promise which was predicted for pay TV
is now being delivered by Channel 24 an4 the other non-commercial educational
stations across the eonntry. This sentiment has been ea~pressed by a number of
Channel 24 viewers and is borne out by a comparative analysis of the two sta-
tions' schedules." (Emphasis added.)
Recent developments, of which the Commission is well aware, make it prob-
able that the educational television service throughout the country will be
°Farmiagton Valley Heral.~Z, July 2, 1964.
PAGENO="0680"
676
better financed in the future than it has been in the past and will be able to
enhance and strengthen its already excellent program offerings. Needless to
say its service, like that proposed by subscription television, is free of com-
mercial interruptions.10
We have dealt at some length with educational television only because we
believe that it has in fact, during the almost nine years since the Commission's
First Report on subscription television, provided that "beneficial supplement"
to commercial television programming which, it was first thought, might be
the contribution of subscription television. During that nine-year period the
number of educational television stations has increased from 23 to well over
100, reaching a number of markets which exceed the number which could ac-
commodate a subscription television service under Petitioners' "conservative"
10% penetration projections.
Entirely apart from any specific comparison between the cultural, educational
and informational offerings of free television-both commercial and educa-
tional-and those of subscription television we would urge on the Commission
the proposition that subscription television by its very nature is not suited to
give "a wider choice to members of the public interested in the fine arts, operas,
educational and informative material and other similar kinds of programs".
(First Report, para, 48) Early in the debate over subscription television, in a
1956 statement before the Senate Committee on Interstate and Foreign Com-
merce, Richard S. Salant, Vice President of CBS, stated:
"But we doubt that pay television's promise of more educational and cul-
tural programming will be kept. Nothing in the history 01' those mass entertain-
ment media which are dependent for their revenues on direct payment by the
public supports the likelihood of more culture and more education. One need
only look at the history of Hollywood and its motion pictures. Exactly the
same factor of the economic interest for mass audiences am operative in pay
television, which will be dependent on obtaining the most dollars directly from
the largest possible audience."
The Hartford trial bears out Mr. Salant's prediction concerning the reliance
of subscription television on mass audiences. Over 90% of all Hartford offerings
were theatrical features and sports events and these accounted for over 96%
of all viewing. Hartford shows that a single Liston-Clay fight obtained almost
four times as many viewing subscribers as the cumulative total of sub-
scribers viewing all 50 so-called "educational features" broadcast during the
trial period and that the six heavyweight championship fights obtained 89% of
the cumulative number of subscribers who looked at all 35 "Specially Produced
Entertainment Features."
Should it not now be abundantly clear, as Mr. Salant predicted in 1956, that
subscription television is not a medium suited to provide a wider choice to
members of the public interested in cultural, educational and informative
material?
And-to the extent that subscription television is of only questionable viabil-
ity-it will have to depend more, and not less, on mass appeal programs.
III. WHILE THE HARTFORD RESULTS ARE INCONCLUSIVE ON THE sIPHONING ISSUE,
PETITIONERS' PROJECTIONS SHOW THAT NATIONWIDE SUBSCRIPTION TELEVISION
WOULD BID AWAY SELECTIVE MASS APPEAL PROGRAMMING FROM FREE TELEVISION
As we have already shown, Hartford clearly demonstrates, and the Comments
jointly filed by Petitioners confirm, that the program service to be offered by
nationwide subscription television is duplicative of the program types now being
offered the American public without charge. This fact alone should lead the
Commission to conclude that the allocation of scarce spectrum space for this type
of service Would be against the public interest.
Authorization of nationwide subscription television, far from providing a
"beneficial Supplement to the program choices now available to the public" (Notice,
pam. 15), Would-based on Petitioners' financial Projections-seriously impair
free television's capacity to present types of programming made available now
and in the foreseeable future.
Such impairment would result from subscription television's reliance for prod-
uct on the same program sources currently utilized by free television and its pro-
10 Although subscription television would not be free of commercials advertising its own
offerings. These, under Petitioners' Proposed Subscription Television Rules, are excluded
from the definition of commercial advertising. Petitioners' Comments, p. 67.
PAGENO="0681"
677
jected financial ability to siphon significant programs away from free television.
While Hartford obviously establishes subscription television's reliance on the
same program sources, RKO's decision to limit Hartford subscribers (Petitioners'
Comments, p. 4) to 5,000 (rather than the 50,000 it originally contemplated as a
maximum) prevents any meaningful conclusions to be drawn from Hartford on
the issue of program diversion. Thus, the Commission is not now possessed with
any more data on the issue of subscription television's ability to siphoti away
programming from free television than it had prior to Hartford. The Comznis-
slon must therefore make a determination on the issue of possible siphoning
without the aid of empirical data. Petitioners' own projections, if correct, make
clear that subscription television would have the financial resources to siphon
significant amounts of quality programming from free television.
Petitioners' most "conservative" assumption contemplates a 10% penetration
of television homes by subscription television in the top 91 United States markets.
At a 20% penetration, they claim economic viability for subscription television
in the top 175 United States television markets.
According to Petitioners, a nationwide subscription system achieving a 20%
penetration of television homes would produce $650 million annually In subscrip-
tion program revenues (Petitioners' Comments, p. 44) based upon a $63 per year
expenditUre on programs per subscriber (although they state that $70 or $75
would be "equally realistic"). At these revenue levels, we submit that the Com-
mission must conclude, at least, that selective programming now being seen with-.
out charge by the public will in the future be seen only by those willing and, more
importantly, able to pay for such programs.
It should also be clear that those programs selected for siphoning by subserip
tion television will be in the most popular programming categories. Hartford dem-
onstrates what we all already knew-that for bet~ter or worse the American pub-
lic is more interested in seeing a major sports event than an educational feature.
Thus in the Hartford trial, 829% of subscribers paid to see a Liston-ClaY fight.
while not one subscriber could be found who was willing to pay to see a feature
called "Presidential Leadership." If events such as the World Series, the NFL
and AFL Professional Football Championship Games, the major Bowl games, the
Kentucky Derby and feature films such as Music Man and The Bridge on the
River Kwai were unavailable for free home viewing we know that a significant
number of Americans would pay to see them on television.
The Commission must realize that the $650,000,000 projected by Petitioners w-ill
be dedicated to outbidding free television for major sports events and high qual-
ity feature films-not to the acquisition of such titles as "Meet Your Federal Gov-
ernment" or "Planning For Spending" which appear in Peitioners' Exhibit 1.
Petitioners suggest that only 35% of the projected program revenues (35%
of $650,000,000 or $227,500,000) could be available for program procurement
purposes. While we do not for purposes of this discussion quarrel with Peti-
tioners' 35% figure it is our view that in allocating program revenue to types of
attractions Petitioners have arbitrarily related such allOcations to the percentage
of expenditures by the American public for admissions to specified spectator
events. (Petitioners' Comments, Table 9, p. 45) Thus, $152,425,000 or 67% is
allocated to "Motion Pictures"; $43,225,000 or 19% is allocated to "Legitimate
Theaters and Opera and Entertainments of Nonprofit Institutions (Except
Athletics)"; and the remaining sum of $31,850,000 or 14% is allocated to "Specta-
tor Sports". While Petitioners' Comments contain no information on how program
procurement dollars were actually allocated iii Hartford, it should be noted that
the various programming categories available to Hartford subscribers signifi-
cantly differed from the percentages contained in Petitioners' Table 9.
Since Hartford suggests that a major sports event would produce the highest
single paying audience. we note with interest PetitiOners' Comments to the effect
that financial limitations would prevent a nationwide subscription television
system from siphoning major sports events now seen on free television:
"If we apply the percentage of the public's spectator event recreational dollar
which is spent on sports (14%), this would allow a national subscription televi-
sion system, under the above assumptions, $31,850,000 a year for acquiring sports
evenils. But this amount is only E~0% of the approximate fifty million dollars that
conventional television is now paying to the promoters and owners for the tele-
vision rights to the following top sporting events: (1) AFL professional football
games, including championship and all-star games; (2) NFL professional foot-
ball games, including title games; (3) baseball, including local, regional, network.
weekend, world series and all-star games; (4) NCAA college football games, in-
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68
eluding Sun, Orange, Rose, Cotton, Gator, Bluebonnet, East-West Shrine and
Senior Bowls; (5) Kentucky Derby, Preakness and Belmont Stakes: and (6)
Masters playoff, U.S. Open and PGA Championships. In addition are the amounts
which conventional television is now paying for specially staged golf tourna-
ments, professional basketball, track and field events and numerous otl~er special
sport attractions such as the U.S. Olympics." (Petitioners' Comments, p. 45)
While subscription television's $31,000,000 possibly could not outbid free tele-
vision's $50,000,000 for all the sports events listed above, subscription television,
given its limited programming needs, would be able to concentrate its dollars on
the lion's share of the major events listed above. Thus, it is quite conceivable
that at least 60% of the major sports events listed above could be siphoned by
a nationwide subscription television system from free television.
In point of fact, subscription television would allocate its procurement
resources so as to obtain the most subscribers. Since it can restrict Its pro-
gramming to prime time availabilities, it can concentrate its procurement dollars
on the relatively few programs it needs. In the case of feature films it could (as
it did in Hartford) repeat them a number of times. Petitioners do not contem-
plate that subscription television systems will offer a news service, which fact
will, of course, conserve dollars for other program procurement needs. Finally,
subscription television may well be in a position to siphon "box office" pro-
gramming from free television without even offering as much money for these
events as free television. This, as Petitioners suggest because
"* * * subscription television can show box-office attractions while conven-
tional television cannot. The reason is not that subscription television will neces-
sarily have more money available for program procurement than conventional
television. The reason lies primarily in other economic factoraL"
* * * * * * *
"Subscription television exhibitiOn can be combined with simultaneous theater
rOlease without significant hiss of box-office revenue by program producers and
distributors; Plie combined amount of these box-office revenues will ordinarily
exceed what sponsors can pay for a single conventional television release ~vhlch
largely exhausts all residual value of the feature. Furthermore, subscription
release will have little effect on the residual value of motion picture film when
ultimately released to conventional television. In short, subscription television
and theatre box-office release are compatible while conventional television and
theater box-office are incompatible." (Petitioners' Comments, pp. 19-~20)
Hartford shows that it was never realistic to assume that a nationwide sub-
scription television system would limit itself tO those types of programs not
presently being broadcast by free television. Quite obviousl~ the Introduction of
a nationwide subscription television system would cause proprietors of major
box office events now seen on free television to invite offers from both subscription
and free television. Petitioners in their Comments concede the threat of siphon-
ing in a most eloquent fashion;
"In the final analysis, it would not only be contrary to our national policy
which encourages competition, but also impo~sihle as a practical matter for the
Commission to erect a fence around conventional television which would protect
it from all competition for talent or for audience. When people noiv go to the
theater, concert ball or sports arena to see events which are not available on
conventional television, they have been diverted from television viewing during
the time that they see these box-office events. The motion picture industry, the
theater industry, and the record business now compete with television for talent.
This competition will continue whether or not subscription television exists. In
addition, closed circuit theater television, in competition with conventional
television, *has taken over many types of programing, such as championship
boxing matches, the Indianapolis Speedway races, and the home games of some
of the teams in the professional football leagues. Finally, despite wired sub-
scription television's misadventures in California, other such ptojects are re-
ported to be well beyond the planning stage." (P. 47)
~L Petitioners request In conclusion that the Commission "simply let the public itself
evaluate subscription television in the market place" (Petitioners' Comments, p. 58).
Without addressing ourselves to the constitutional questions Involved, it is interesting to
note that the California public rejected by a margin of almost 2-1 such an opportunity to
evaluate pay televiSion in connection with a wired pay teJevision system that involved no
use of the spectrum space. In reporting the outcome, the New York Times of November 5,
1964, noted: "The key reason for the outcome, observers agreed, was that a majority of
the voters were convinced that they would eventually have to pay to watch the same TV
shows that they now get free were Proposition 15 not approved."
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679
Finally, we remind the Commission ;~f the conclusions reached cor~eerniflg
proposals to authorize a subscription television service in the United Kingdom
in the Report of the Committee on Broadcasting 1960-the so-called Pilklngton
Report, published in 1962:
"We do not doubt the intention's of those `who propose to put on minority
programmes. But the dynamic of profitability would compel the `pursuit of the
biggest audiences. We are unable to accept that a service financed by subscription
would in the event either widen the range of programming, or complement the
present services. We conclude that `a service of subscription could provide a few
items of programming which `a service financed in any other way could not, but
that it would not make good the deficiencies viewers find in the present services."
(Paragraph 987)
"Subscription television is necessarily much the dearest way of providing a
service. If the case for `introducing it is to `be made out its supporters have,
therefore, to show that the service would bring marked increases in the range
and quality of programming. They have also to `show that these advantages
would not `be offset by `a decrease in the range and quality of the existing serv-
ices. In our view, it is highly unlikely that a service of subscription television
would significantly increase the range and quality of programming. If it were
comnwrcially successful, it would certainly and significantly reduce the value
to viewers of the present services, Some viewers would, if the service did not
have national coverage, be unable to' make this rednction good by paying for the
subscription service; others would not be able to afford to; the rest would pay
where now they do not. We concluded in `Chapter XVIII that the neEt. two
national services to be provided should not be financed `by subscription. We now
recommend that no service of sub'scription television be authorized, whether
`by wire, or, if frequencies become available, `by radio." (Paragraph 1001, empha-
sis added.)
iv. THE HARTFORD TRIAL ESTABLISHES THAT SUBSCRIPTION TELEVISION WOULD IN
FACT DIVIDE THE AMERICAN TELEVISION AUDIENCE ALONG ECONOMIC LINES
Hartford indicates that subscription television must obtain rights to major
sports events and motion `picture features to get an audience. Much of this
product u oulci be siphoned away from free television Opponents of subscription
television, including CBS, have long argued that the `authorization of a nation-
wide subscription television system would for the first time divide the American
television public on an income basis. If Hartford establishes anything, it estab-
lishes `the validity of `CBS' position. It is significant that Petitioners' Table No. 2
~7' (Petitioners' Comments, `p. 21) indIcates that only 1.5% of the Hartford sub-
/ scribers had income levels of less than $4,000 while 29.1% of American families
fell within such category. Petitioners dismiss 30% of the country's population
in the following manner:
"The small percentages of subscribers with incomes of less than $4,000 a year
in Tables 2, 3 and 4 are not surprising, since a $3,000 annual family budget
has been described by President Johnson as the boundary below which any fam-
ily must be considered to live in poverty and to which the nation's anti-
poverty program is being directed. This so-called poverty segment of our popula-
tion unfortunately does not provide a market for any goods and services beyond
minimal shelter, food, clothing, and medical care. Economic Report of the Presi-
dent, transmitted to the Congress January 1964, pp. 58-59. A considerable por-
tion of those in this poverty classification may also represent that 8% of U.S.
families who do not own televisIon receivers." (Petitioners' Comments, p. 22)
At a time when this nation's domestic resources are being directed towards
eliminating poverty and integrating those in the lowest economic strata of our
population into the mainstream of American life, we submit that the public
convenience, interest and necessity will not be advanced by using scarce spectrum
space for a subscription television service that would for all practical purposes
be unavailable to 30% of our population. This unfairness to a substantial ele-
ment of our population is further compounded by the fact that major program-
ming now seen on free television would be siphoned away by subscription
television.
Petitioner'~ tall of the impo',slbility of setting up fences to protect free
television. The only fences being contemplated in this proceeding are those
designed to keep out 30% of the public from an alleged "beneficial supplement"
to the existing free service.
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~68O
V. TEE HARTFORD TRIAL DOES NOT SUPPORT THE VIEW THAT SUBSCRIBERS COULD BE
OBTAINED IN SUFFICIENT NUM~ER5 TO MAnE SUBSCRIPTION TELEVISION A VIABLE
BUSINESS
The Commission decided in its First Report that it was unable to make a
determination that the authorization of subscription television would be in the
public interest without the benefit of empirical data. In considering the eco-
nomic viability of a nationwide subscription television system the Commission
wrote in its First Report:
"An important factor-the degree of acceptance and support which the serv-
ice might be able to obtain from members of the public in a position to make
a free choice-could be reasonably tested in suitably limited trial demonstra-
tions. We think it is neither necessary nor desirable that decisions upon which
this factor and other important factors have an immediate bearing should be
made on the unsatisfactory basis of speculation and conjecture which, With
few exceptions, is the only ground available In support of the argument that
even a limited trial would disserve the public." (Paragraph 54)
Petitions suggest in their Comments that Hartford now has furnished the
Commission with sufficient empirical data on Which to authorize a nationwide
subscription television system.
However Petitioners arrive at their financial projections, we submit that they
cannot be based on the results of the Hartford trial. Nor does the Commission
view Hartford as establishing the economic viability of a nationwide subacripton
television system. On this issue, the Commission's Notice states:
"Finally, although the Hartford trial, together with the experience of Inter-
national Telemeter in Etobicoke and of Subscription Television, Inc., in Cali-
fornia, has demonstrated that a subscriber market does exist where such service
is offered, we cannot conclude from such a small sample that subscribers can be
obtained In sufficient numbers to make this a viable business." (Paragraph 17)
We are in no position to determine how many subscribers RKO could have
obtained in the Hartford tests if RKO bad continued its efforts in that direction.
RKO's decision to limit the number of Hartford subscribers to 5,000 resulted,
according to Petitioners, from RKO's determination that "business prudence and
fairness to the subscribers did not warrant further substantial expansion with-
out some assurance that the Commission would authorize the trial beyond the
third year." (Petitioner's Comments, p. 4) In approving RKO's application for
testing in Hartford, the Commission took note in its findings of the fact that
RKO (whose application proposals were endorsed by Petitioners) was prepared
to invest on an unrecoverable basis up to ten million dollars' in Hartord ançl
was looking toward 10,000 subscribers by the end of the first year and a maximum
of 50,000 during the trial. it is surpising that the considerations of "business
prudence and fairness to the subscribers" which lcd RKO to limit their test
operation in Hartford were not apparent to RKO and Petitioners at the time
they submitted their application for testing wih the Commission.
If RKO and Petitioners intentionally limited their Hartford subscribers to
5,000 It would appear that they misled the Commission at the time of their
original Hartford application. In any event, a decision to limit the subscribers
to 5,000 had the effect of torpedoing the Commission's ability to obtain valid
empirical data from Hartford. There is, of course, a further possibility-that
the 5,000 subscriber "limit" was not a voluntary decision on R~O's part, but
reflected its inability to sign up additional subscribers.12 The Commission ap-
pears to recognize this possibility in paragraph 13 of the Further Notice: "While
the fact that RKO decided not to increase the number of subscribers at the
end of the second year of the trial could account in part for that low figure, there
is a question whether if it had elected, instead, to continue to promote new
subscriptions, it would have achieved a subscription penetration of much more
than 1%."
The Commission's recognition of the inconclusiveness of the Hartford data
bearing on the issue of the economic viability lead's it now to suggest that this
~ Or to keep them. We note that Petitioners, In explaining the high voluntary cancella-
tion rate among Hartford subscribers, attributed it In their Comments to "such factors as
subscribers moving from the community (the average American family moves once every
five years), discontinuing service during extended vacation ~erlods, credit dellilqueneles and
related economic reasons, such as loss of employment, Insufficient use by customer to ~ustlfy
expense, etc." However, In supplemental Information filed with the Commission covering all
three years of the trial Petitioners list the three principal reasons for subscriber cancella-
tions as "Non-use", "Dissatisfaction with programming" and "economic reasons'. Of a
total of 3,478 voluntary cancellations during the entire trial period over 62% were due tO
these reasons,
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issue can be resolved by requiring "a showing by the applicant of potential for
sustained operation". (Notice, para. 17) While the "sustained operation" stand-
ard is now applied by the Commission to applicants for free television construc-
tion permits, the public, of course, is not there required to expend any money
(other than in connection with television sets themselves) in reliance upon such
"sustained operation". We assume it was the prospective inducement of addi-
tional consumer expenditures that led the Commission to request, in its First
Report, data on the degree of acceptance and support by the public of a sub-
scription service.
Petitioners state in their Comments that Hartford accomplished "what it wa~
designed to do; namely, the gaining of empirical knowledge and the obtainiug
of significant and reliable data which would serve as a basis for appraising the
potentials of subscription television in other types of circumstances. The experi-
ence so gained and the demonstrable facts so developed offer for the first time
the parameters for reasonable business projections of the potentials of subscrip-
tion television to provide additional economic and program resources which
would facilitate significant increases in the number of television services avail-
able to the public." (Petitioners' Comments, p. 25)
Hartford demonstrated for whatever reasons an inability on the part of a
subscription television system to obtain more than 1% of the net weekly circula-
tion of the market. Even conceding that this figure can be improved upon in a na-
tionwide subscription television operation, we doubt that there is any empirical
data to support Petitioners' projections of a 10% or even 20% market penetration
for subsuription television.
In sum we can see no grounds for the Commission to conclude that economic
viability of subscription television has been established by its proponents.
VI. WHAT, IF ANY, ROLE SHOULD TIlE FEDERAL GOVERNMENT PLAY WITH REGARD TO SUB-
SCRIPTION TELEVISION BY WIRE OR CABLE, NOT USING THE BROADCAST SPECTRUM?
By its Notice of Inquiry the Commission for the first time has enlarged this
proceeding to include an inquiry into subscription television transmitted by wire
or cable.
We do not believe that the Commission has jurisdiction over wired subscrip-
tion television. An exercise by the Commission of purported regulatory authority
in this area would in our view go beyond any Previous assertion of its authority.
We argued in our comments in the CAPV proceeding, Docket No. 15971 that:
"The form of regulation which the Commission attempts to adopt over CAPV
systems is not based upon a licensing structure. The Commission would apply
a regulatory scheme to non-licensees under a statutory structure designed for
licensees. This is unique in Commission regulation. The Commission has never
asserted that its jurisdiction can reach the networks, or other program produc-
ers, directly, and without reference to their status as station licensees. The
hearings that resulted in the passage of Section 508 of the Communications Act.
and in the all-channel receiver legislation, furnish persuasive legislative history
establishing that, absent specific statutory grant of authority over the persons
affected, only Commission licensees are subject to regulatory authority-under
reasonable standards set by the Commission and derived from the Act."
While the Commission ultimately did assert jurisdiction over community an-
tenna television systems, its Jurisdictional Memorandum made clear that in so
doing an all important element was the fact that television stations' signals were
extended by CATV system's beyond the area or zone to be served by the originat-
ing station, a factor not involved here.
Even if we believed that the Commission does have jurisdiction to regulate
wired subscription television, we would oppose such regulation. This is not
because we think wired subscription television would represent a beneficial
supplement to free television. On the contrary, we believe that many of the ad-
verse effects resulting from the anthorisation of an over-the-air subscription tele-
vision service could also be presented by wired subscription television.
Yet, the fact that wired subscription television does not involve the utilization
of scarce spectrum space should convince the Commission that, given our plural-
istic society, it best not regulate wired subscription television. For again, as we
stated in our (1ATV comments:
"Over the years, CBS has emphasized the basic nature of American broadcast-
ing as a system operating in the context of free competith~e enterprise. In general.
historically OBS has urged that, except for such areas as technical interference
or direct impingement on the exercise of licensee responsibility, the Commission
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682
should not, as a matter of public policy, intrude in the programming or the
business and economic aspects of broadcasting.
"It is precisely because of this philosophy, for example, that CBS took the
position, before the Congress, that no legislation should be enacted which would
forbid wired pay television (as distinguished from over-the-air pay television,
where the government must make a choice between uses of broadcast spectrum
space). CBS took this position in recognition of the fact that wired pay tele-
vision could, if successful, present a serious~compefitive challenge to the present
system of broadcasting.
"The same philosophy compels CBS to refrain from supporting the proposed
Rules. While it is possible that unrestricted and unregulated CATV may eco-
nomically hurt the present system of broadcasting, CATV does not propose to use
broadcasting spectrum space."
As indicated in the above-quoted Comments CBS has previously urged the Con-
gress not to enact legislation which would forbid wired subscription television.
CONCLUSION
We submit that the Hartford subscription television trial does not furnish
support for the conclusion that the nationwide auhorization of over-the-air sub-
scription television would be in the public interest.
Because we strongly believe that Hartford, if anything, supports the contrary
conclusion, we have not undertaken to comment on the restrictions which might
be applied to subscription television were it authorized by the Commission or the
rules under which it might operate.
Respectfully submitted.
COLUMBIA BROADCASTING SYSTEM, INC.,
LEON R. BRooKs,
RICHARD W. JENCKS,
ALBERT II. DWYER,
RALPH E. GOLDBERG,
Its Attorneys.
ASSOCIATION OF MAXIMUM SERvIcE TEIECASTE1iS, INC.,
Washington, D.C., October 20, 19~7.
Hon. PORJ3EIST HART MACDONALD,
U.S1. House of Representatives,
Raqburn House Oj~Zce Building, Washington, D.C.
DEAR CHAIRMAN MACDONALD: I appreciated the privilege of appearing before
the Subcommittee on Communications and Power of the House Committee on
Interstate and Foreign Commerce on October 13, 1967. In my prepared statement
I presented the position of MST in opposition to the establishment of a system of
pay television by the FCC Although copies of my prepared statement were made
available to each of the members of the Subcommittee, it may be of interest to
you to see my analysis of the FCC's proposed "two-year" sports rule, since this
is a matter which was not covered in detail in my prepared statement.
It was quite evident during last week's hearings that there was considerable
confusion as to what the FCC's Pay-TV Committee recommended regarding the
availability of sports events now broadcast on free television for showing on
pay-TV. Moreover, this confusion was compounded further by the testimony of
Mr Robert Hall the sports expert' for Skiatron Electronics and Television
Corporation, when he appeared before the Subcommittee on October 16, 1967.
What has come to be called the "two-year rule" on sports events was intended
by the Pay-TV Committee to prevent pay-TV from siphoning sports events now
presented on free television. In my presentation to the Subcommittee I analyzed
how the proposed FCC rule intended to accomplish the desIred result `of limiting
siphoning, and whether the proposed FCC rule would be successful in achieving
this result. I pointed out that, contrary to what appeared to be a common mis-
conception, the proposed "two-year" limitation on siphoning amounted at the
most to only a one-year limitation and in. many instances was no limitation at all.
In making this point I quoted from the relevant paragraphs of the Pay-TV Com-
mittee's Report. I cited specific language that was used by the Report in making
clear that regularly televised by free television in the pay TV community for
two years preceding the proposed pay-TV broadcast meant free television broad-
cast in each of two consecutive years. Therefore, if the sports event were "regu-
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68g
larly televised" in oneS but not both of those two years preceding the proposed
pay-TV showing, the event could be siphoned by pay-TV.
In addition I made clear in my presentation that wholly apart from the con
fusion over the length of time involved in the "two-year" rule, there could be
siphoning of sports events from free television by pay-TV even if there were
a true two-year limitation for the reasons set forth in the attached transcrtpt
of my remarks.
Since this is a matter of some importance, I am taking the liberty of supplying
you with a copy of the official transcript of my remarks on the proposed sports
rule for your files.
Sincerely,
Lnsr~r~n W. LINDOW,
lixeoutive DirectOr.
SUPPLEMENTAL STATEMENT OF LESTER W. LINDOW, EXECUTIVE DIRECTOE,
AssoolArioN OF MAXIMUM SERvIcE TELECASTERS, INC.
"There has been considerable discussion this week about the proposed FCC
rules for pay TV as they would affect sports events. Quite understandably, there
has been a certain amount of confusion. Let me say, first of all, that the proposed
rules regarding sports are quite complex. It is certainly understandable that
confusion has been created I do not blame you one bit for having problems
with these things.
"Ilowever the proposed FCC Fourth Report and Order does set forth the
proposed rules although, as I say, they are somewhat complicated. First of
all it is important to understand that there are two kinds of sports e~ ents
established by the proposed rules. The first type is what are called specific
sports events. These Include such features as the World Series, the All Star
Game, the various Bowl games, League Championships, and, of course, they ex-
tend not only to baseball but other kinds of sports, as well.
"The second type is what is described as non-specific sports events. Generally
speaking, these include those games played as a part of a regular season, in
other words, all the regular games of the Washington Redskins or the Washing-
ton Senators.
"Within the non-specific type there is a further breakdown of categories, again
applying to all types of sports having a regular season. It includes home games,
games away from home, pre-season games or exhibition games, or the so-called
Games of the Week. These matters are set forth in detail on page 91, para-
graph 261 of the proposed FCC Report as well as in paragraph 262 which im-
mediately follows that.
"Let us refer back to the type described as specific sports events; the World
Series, the All Star Game. The proposed Commission rules would provide that
if such an event had been broadcast on free television for two consecutive years
in the community, and I emphasize "in the cothmunity", where the pay television
station is located, not nationwide but in the community, pay television cannot
broadcast it. I refer now to page 92 of the proposed Report at paragraph 264.
"Let us take the World Series as an example. If the Series were on free TV
in that community in October 1965 as well as in October 1966, both years, pay
television could not show it in October 1967 on the pay TV station licensed to
that community. Here I quote from the Report, `If the Series were oii free TV
in that community in either October 1965 or 1966 but not in both years it w-ould
be viewed as not having been regularly televised there and an STV station
could show the Series in October 1967.'
"This is the rule. Would it prevent siphoning? I don't think that it would.
Let us see how this could conceivably work. It could work in several ways.
Assume that the Series was broadcast on free television in 1966 and again this
year, in 1967. The pay television station operator in Washington, D.C. could go
to the baseball people, offer them a sufficient amount of money if they would
refuse to sell the World Series rights for Washington for free television in
1968-they only have to do it in Washington-and agree to make up the dif-
ference in income. The following year it could be placed on pay TV and every
year thereafter.
"Another method to get around this might well be to keep it off free television
in 1968 but through mutualh agree'ible arrangement'~ put the Series in 1968
into theater pay television in Washington, in near-by Maryland, Virginia, all
through our whole area, with the idea of bringing it on pay TV the following
year. Under this method, the baseball people would not stand to lose any revenue
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684
and the public could see the Series provided they were able to go to the theater
and pay for it for one year.
"Now, we do not say that this would necessarily happen on a national basis
overnight but it could happen on a selected basis in Market A and B this year
in C and D next year and incidentally Zenith said that they did not expect
to go into operation all over the country; they are just talking about a couple
of markets at a time; Mr. Wright made that point the other day-'--they could
do this progressively and so on until in a relatively short time, for all practical
Purposes, the World Series would be taken out of the realm of free television
and into a completely pay TV setup.
"Certainly there would be outcries from the public. There were outcries from
the public when Championship fights were put into the theaters on a pay basis
and taken off free television You have reminded us on several occasions again
this week, that there were very serious outcries from Arizona this Spring on this
very matter in the case of the Clay Foley Championship fight But the situa
tion still exists. That is part of what we are up here talking about today.
"Now let us turn to the second type of sports event set up by the proposed
Ooiñmission rules, that of the non-specific sports event; the game which is played
as a part of a regular season. The proposed Commission rules cover this as well.
I refer you now to paragraphs 266 and 267 commencing at the bottom of page 92
of the proposed FCC Report.
"If a substantial number of non-specific events, such as home games or away.
from home games, or the so-called Games of the Week, were televised over free
television in the pay TV community and were, and I quote from the proposed
FCC Report, `within each of the two years preceding the proposed STV broad-
casting thereof', then no games in that category may be presented by pay tele-
vision in that community.
"As the proposed FCC Report states, the standard is to be applied on a category
by category basis, and, here I quote again from the Report, `If during one but
not both of the two years preceding proposed STV broadcast, a substantial num-
ber of events in a category were not televised in a community the category will
be considered not to have been regularly televised therein and STV may show the
contests in that category.' That means all such contests.
"Now, that is the rule that is proposed. Does it prevent siphoning? A pay TV
promoter could use his economic leverage to purchase the games in a category of
non-specific sport events such as regular season home baseball games, which may
not have been broadcast in the community over free television, and present them
without any delay. For example, assume that a baseball team plays 80 home games -
and no games in this category are broadcast on free television in the home com-
munity. Pay TV could purchase the television rights to all of the home games in
this category the very next season, while the away from home games previously
broadcast by television could be withdrawn from free television by the ball club
during that season so that they, too, could be made available to pay TV the follow-
ing year. The same situation could exist if some but not all of the home games
were broadcast on free television.
"Now, I hope this may help clear up the so-called two-year provision which I
think is a snare and a delusion."
WASHINGTON, D.C., October 9, 1967.
Housu OF REPRESENTATIVES,
SUBCOMMITTEE ON COMMUNICATIONs AND Pownn,
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,
Rayburn House Office Building, Washington, D.C.:
The attached "Comments of International Telemeter Corporation" were filed
with the Federal Communications Commission in Docket No. 11279, on October
10, 1960, in the Commission's rule-making proceeding looking toward the adoption
of Rules and Regulations to provide for subscription television service.
It is respectfully requested that the attached Comments be incorporated in the
record of the Hearings on Subscription Television to be conducted before the
House Subcommittee on Communications and Power. These comments set forth
in some detail the position of International Telemeter Corporation with respect to
the various issues pending before the FOderal Communications Commission in
the subscription television rule-making proceeding.
Respectfully submitted,
ARNOLD & PORTER,
Coun~sei for International Telemeter Corp.
PAGENO="0689"
BEFORE TH]~
FEDERAL COMMUNICATIONS COMMISSION
WAsrnNGT0N, P. 0.
IN TH~ Mi~a OF:
A~MENDMENT OF PART 73 o~ ~ra~ OOMMISSION'a EULES AND
REGULATIONS (RADIO BROADCAST SERVICES) To PROVIDE
FOR SUBSCRIPTION TELEVISIoN SERVICES
Docket N~. 11279
COMMENTS OF INTERNATIONAL TELEMETER
CORPORATION
October 10, 1966
685
86-399 0 - 67 - 44
PAGENO="0690"
686
TABLE OF CONTENTS
Page
I. SUMMARY OF PELEMEIqJ~~'$ CONCLUSIONS ..
A. Telemeter Has Developed the Equipment and Has the Experience.
to Implement a Successful Subscription Television Service
B. Subscription Television Service Offers the Only Path to Improved
Television Programming 2
C. Subscription Television Will Not "Syphon" Programming Far
from Existing Television Services but Will Present "Box Office"
Entertainment Not Now Regularly Available to Television Viewers 2
D. There Should Be No thwecessary Limitations Imposed Now
Upon the Ability of Subscription Television Concerns To Do
Everything Required To Institute Successful Operations 2
B. Closed-Circuit Subscription Television Takes No Spectrum Space
From Other Uses. The Commission Does Not Have Jurisdiction
Over Closed-Circuit Subscription Television and the Public Inter-
est Requires That It Be Permitted To Grow, Irrespective of the
Role of CATV 3
F. Recommendation
II. TELEMETER'S PREVIOUS SUBMISSIONS 3
III. DESCRIPTION OF TELEMETER'S SYSTEM 4
A. The "Cash or Credit" Decoder 4
B. VHF-UHF Capability 6
C. Video Scrambling 6
D. Sound Fidelity 6
B. Transmission Characteristics 7
IV. BACKGROUND CONSIDERATIONS 7
A. The "Free" Programming Contentions 7
B. The "Monopoly Strawman" 9
V. COMMERCIAL ORGANIZATION OF THE TELEMEPEF~ SYSTEM 12
PAGENO="0691"
687
Page
VI. COMMENTS ON SPEcIrIc QTJESPIONS RAIsnu BY rim Norion 13
(1) Should Subscription Television Be Limited to C~nnmunities
Receiving a Minimum Number of Television Signals . . . or
Whether It Should Not Be So Limited but Should, in Communi-
ties Not Lying Within Four Commercial Grade A Contours Be
Restricted to a More Limited Scope, Especially as to Hours of
Operation, Than in Four-Service Communities? 13
(2) (a) Should Stations Engaged in Subscription Television Broad-
casting Be Required To Broadcast a Minimum Number of
Hours of Conventional Television Daily? If So, how
Many HoursQ 13
(b) Should Subscription Television Be Restricted to Certain
Segments of the Broadcast Day and, if So, What Segments? 13
(c) Should a Maximum or Minimum Number of Hours of
Subscription Television Per Day or Week Be Specified? .. 13
(3) Should Subscription Television Be Permitted Over Any Tele-
vision Station (Subject to Possible Qualification Concerning the
Number of Stations in the Market), UHF Stations Only, or
Should Some Other Limitation Be Imposed? 14
(4) Should More Than One Station Be Permitted To Engage in
Subscription Television in Any Market and, if So, Should These
Stations Be Permitted To Transmit Subscription Television
Simultaneously? 15
(5) Should More Than One Subscription Television Technical System
Be Authorized and, if So, Should More Than One Technical
System Be Authorized To Operate in Any One Community? .. 15
(6) Should a Party, Manufacturing or Selling Equipment, or a
Holder of a Subscription Television Franchise in More Than
One Market, Be Permitted To Engage in the Procurement and
Supply of Programs to Television Stations for Subscription Use? 16
(7) What Requirements Should Be Imposed Upon Subscription
Licensees To Assure Licensee Control? 17
(8) The Nature of the Technical Rules That Should Be Adopted .... 17
(9) Whether and to What Extent the Commission Should Regulate
the Charges, Terms and Conditions Pursuant to Which Sub-
scription Television Service Will Be Offered the Public~ 18
(10) Whether a Subscription Licensee Should Be Required To Fur-
nish Service to All Persons Within Its Service Area Who De-
sire It? 18
PAGENO="0692"
688
Page
(11) Should Requirements Be Imposed To Insure That the Pub1j~
Would Not Be Adversely Affected by Obsolescence of Subscrip.
tion Television Equipment or Cessation of Service and Should
the Commission Require That Such Equipment Be Leased Rather
Than Sold?
(12) What Restrictions Should Be Adopted Concerning the Nature
of Arrangements Among Patent Holders, Patent Licensees,
Franchise Holders, and Television Station Licensees, Concerning
Such Matters as Whether and Under What Terms and Condi-
tions, Patents on Any Particujar Subscription Television System
Will Be Required To Be Made Available to Franchise Holders
and Station Licensees, and Whether Stations Engaged in Sub-
scription Television Should Be Permitted To Enter Into Con-
tracts That Would Give Them Exclusive Rights To Use a System
in a Particular Community~ 19
(13) Whether Means Should Be Provided To Insure That Subscription
Television Will Be Available to. All Eligible Stations on a Non-
Discriminatory Basis? 20
(14) Should a Limitation Be Placed on the Type of Programming
Which Subscription Television Operations May Broadcast and,
if So, What That Limitation Should Be and Whether Appli-
cation.s for Subscription Authorizations Should Be Required T~
Make a Showing of How Their Programming Will Differ From
Conventional Programming? 20
(15.) Whether Various Sections of the Act, Rules and Policjes~ e.g.,
the "Fairness Doctrine," Should Be Modified as They Affect
Subscription Television ~ 23
VII. RESPONBE P0 NOTICE OF INQUIRY REGARDING Wmm SUBSCIUPTYION
TELEVISION 24
(1) Would it Be Necessary To Have Built-in Antennas in the De-
coders Attached to Sets of Subscribers ~j 25
(2) Would a Single Decoder Attached to the Antenna of a CATV
Which Delivered the Unscrambled Signal to Subscribers Suffice ~
If So, What Arrangement~ for Collection of Subscription Fees
Could Be Made `~ 25
(3) Would the Rules on Carriage of Signals; of Local Stations Over
CATVs Apply to Carriage of Subscription Programs? 25
VIII. Omoi~rio~ OF SUBSCRIPTION TELEVISION ON CATV 25
IX. CONCLUSION 27
PAGENO="0693"
689
Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D. 0. 20554
In the Matter of
Amendment of Part 73 of the
Commission's Rules and Regulations
(Radio Broadcast Services) to provide Docket No. 11279
for Subscription Television Services
For Action by the Commission
COMMENTS OF INTERNATIONAL TELEMETER
CORPORATION
International Telemeter Corporation (hereinafter Telemeter), by
its attorneys, respectfully submits the following comments in response
to the Commission's Further Notice of Proposed Rule Making and
Notice of Inquiry in Docket No. 112W, released March 24, 1966.
I. SUMMARY OF TELEMETER'S CONCLUSIONS
1. Telemeter `s principal conclusions, as developed herein, are
as follows:
A. Telemeter Has Developed the Equipment and Has the Experience To
Implement a Successful Subscription Television Service.
2. On the basis of sixteen years of development and five years
of experimental operation, International Telemeter Corporation has
developed a subscription television system permitting maximum
operating flexibility. The system may be operated on a cash or credit
basis, over-the-air or via coaxial cables, and in color or black and
white. It is low in cost and compatible with television stereophonic
sound. The Telemeter broadcast decoder functions as a UHF con-
verter on free programs. It converts VHF only receivers to all-
channel receivers.
PAGENO="0694"
690
2
B. Subscription Television Service Offers the Only Path to Improved
Television Programming.
3. Today, those who watch trends in television programming are
expressing alarm that the "wasteland" will become even more arid
because of the accelerating depletion of feature motion pictures avail-
able for television showing. Subscription television, on the contrary,
because of its vastly superior economic base, will be able to supply
fresh, new programming of top quality to its viewek's. The trans~
mission of "Show Girl" from Broadway, and of' "blacked-out"
championship sports events on Telemeter's experimental system, has
demonstrated this capability.
C. Subscription Television Will Not "Syphon" Programming Fare From
Existing Television Services but Will Present "Box Office" Entertain-
ment Not Now Regularly Availableto Television Viewers.
4. Subscription television will be able to furnish current motion
pictures, blacked-out sports events, and cultural programs which can-
not be presented on commercial television because' of economic fac-
tors. In addition, subscription television will bring current Broad-
way plays and similar entertainment into viewers' homes at' a fraction
of the cost involved' in box office ticket purchases. By broadening
the base of support of the' legitimate theatre and other cultural at-
tractions, subscription television will give an impetus to the growth
and improvement of these media at the same time that it makes their
productions available to more people at lower price's.
D. There Should Be No Unnecessary Limitations Imposed Now Upon the
Ability of Subscription Television Concerns To Do Everything Required
To Institute Successful Operations.
5. The financial investment required to enter the subscription
television industry is significantly large. Fnrthermore, a subscrip-
tion television operation is a complex business, involving the pro-
duction and distribution of entertainment, transmission, reception
and billing facilities, as well as related components. If any aspect
of this complex operation is deficient-for example, if programs are
not available' when they are needed-the operation will not succeed
and the investment will be l~st. Therefore, at the outset, the sub-
scription television concern should be allowed complete control of the
various ingredients necessary to its success. This means in practice
that there should be no limitation on the ability of broadcasters to
be subscription television franchise holders, to engage in program-\
ming activities, to own and maintain subscription television devices in
homes and to' engage in other activities essential to success.
PAGENO="0695"
691
3
E. Closed-Circuit Subscription Television Takes No Spectrum Space From
Other Uses. The Commission Does Not Rave Jurisdiction Over Closed-
Circuit Subscription Television and the Public Interest Requires That
It Be Permitted To Grow, Irrespective of the Role of CATV.
6. Experience in existing subscription television systems shows
that only about five percent of public viewing time goes to the medium.
In view `of this figure, the arguments urging the regulation, or pro-
hibition, of closed-circuit subscription television border on the mdi-
croiis. Its viewers spend such a small percentage of their viewing
time watching subscription television that it is not truly competitive
with existing commercial television-it is a new entertainment medium.
Closed-circuit subscription television results in no diminution of
existing or potential services because it does not use the air-waves.
Obviously, the same remarks are applicable to closed-circuit subscrip-
tion television in conjunction with community antenna television.
Here the opponents *of subscription television have used `the argu-
ment that such closed-circuit operations ought to be prohibited because,
with `OATV operations sharing the expense, the ultimate cos't to the
public will be lower. It is a strange doctrine that something which
costs the public less should, for that reason, be made illegal.
P. RecommendatIon.
7. Telemeter recommends that subscription television be instituted
as a regular service without del'ay and that, to the exten't that it is
consistent with the public interest, there be no limitations on the
ability of subscription television opera~ing companies to do every-
thing necessary to develop successful operations, all to the end ,of
providing a new, vital and viable service to the public.
II. TELEMETER'S PREVIOUS SUBMISSIONS
8. This proceeding was commenced in 1955, over eleven years ago,
by the issuance of a Notice of Proposed Rule Making inviting comments
as to whether the public interest would be served by `the adoption of
rules authorizing and governing subscription television operations.
Tinder date `of June 9, 1955, Telemeter submitted extensive comments
directed to the various aspects of `the proposed rules originally under
consideration. On May 25, 1965, Telemeter submitted `additional
comments in support of the Joint Petition of Zenith Radio Corporation
and Teco, Inc., which urged the prompt authorization of subscription
television service. On June 17, 1966, Telemeter filed with the Com-
mission a technical description `of its system.
PAGENO="0696"
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4
9. Over the eleven-year period since the filing of Telemeter's
original comments, numerous changes and improvements have evolved,
both in the technical system offered by Telemeter, and in the business
and economic patterns in which subscription television may be expected
to operate. `The comments to follow may thus be at variance in some
particulars with those filed in 1955. Telemeter requests the Com-
mission to take notice `of the matters and facts set forth in its earlier
comments and filings, much of which remains valid. To the extent,
however, that the earlier comments vary from those now filed, the
latter should, of course, prevail.
10. The background of Telemeter in the pay television field has
been amply documented in the submissions cited `above and need not
be here detailed. Briefly, however, Telemeter has been engaged in
research and development in the subscription television field for
seventeen years, has had five years of extensive field experience in
commercial operation `of its closed-circuit subscription television
system and has had five years of experimental operation `of its broad-
cast system. As will `be evident from the following comments,
Telemeter, as a result of its research `and development, and of its
operating experience, has arrived `at several basic changes in its
approach to the institution of widespread subscription television
operations.
IlL DESCRIPTION OF TELEMETER'S SYSTEM
11. The technical submission `of .June 17, 1966, contains a detailed
description of the Telemeter system operation. For convenience,
however, a brief summary is included here.
A. The "Cash orCredlt" Decoder.
12. Although Telemeter originally proposed `a cash system `only,
one of the results of Telemeter's five-year field test in a Toronto,
Oanada, suburb (Etobicoke) was the decision to develop a combined
cash and credit subscription television system. As part of the Toronto
operation, the company conducted a credit experiment In which a
number of customers, some of whom had previously had cash units,
were equipped with credit, or billing, units. On t'he basis of com-
parisons of gross income, customer reaction, preference and con-
venience, and `other considerations, Telemeter ascertained that there
is a sufficient requirement on `the part of certain segments of the
public for a credit unit to warrant development of a compatible cash
and credit `system.
PAGENO="0697"
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5
13. This cash and credit system is capable of operating both on
cable and over-the-air. The system is compatible in the sense that
both cash and credit units operate using the same transmissions. The
price demand and control mechanism in the cash unit are controlled
by the same set of pulses and tones that control the billing mechanism
in the credit unit. Thus, the system provides maximum convenience
and flexibility for the public, as well as the subscription television
operator.
14. The heart of the Telemeter system is the Telemeter decoder-
either the cash `or credit version-which is placed in the subscriber's
home. The decoder is connected between the lead wires from the
subscriber's antenna and the antenna terminals on the back of his
television set. No modifications are required in the set in order to
install the decoder, regardless of make, model, year, or other factors.
After the decoder is installed, the set continues to *be usable for the
reception of non-subscription programming. If the subscriber wishes
to discontinue the service, removal of the decoder involves merely
the reconnection of the antenna lead to the antenna terminals of the
subscriber's receiver. The receiver is totally unchanged in the process.
In the course of installing, repairing, removing, or otherwise per-
forming operations connected with the `Telemeter decoder, the back
of the subscriber's receiver is never removed.
15. In the Telemeter broadcast system all television viewers,
regardless of whether they have decoders, are provided with a message
in the normal television sound channel giving them information about
subscription programs when they turn to a subscription television
channel. Included in the message is information about the identity
of the program, its price, and for the benefit of subscribers only, its
code number. At the same time, all viewers see a scrambled picture
on the screens of their television receivers.
16. A credit subscriber who wishes, on the basis of the informa-
tion he has heard, to purchase a program, need merely "dial" the
code number into his unit by moving four levers so that the four
numbers of a code appear in a window on the unit. Following this,
he pushes a purchase button to receive the program. Instead of
pushing the purchase button, the cash subscriber deposits cash in a
mechanism in order to purchase a program.
17. In either case, a printed record is made automatically within
the decoder, consisting of the identity number and price `of the program
which has just been purchased. One copy of this record is delivered
PAGENO="0698"
694
6
to the credit customer by the unit monthly, and another copy is
retained within the decoder. The credit subscriber's unit is furnished
with a key so that it is possible for him to lock it against unauthorized
use.
18. All Telemeter decoders contain a special code card. The
subscriber must remeve this code card monthly, .and substitute a new
one for it. Unless the correct code card is in place, the Telemeter
decoder will not unscramble subscription television programs. Since
the Telemeter operator is able to withhold mailing code Oards to
delinquent subscribers, the card gives' the operator a mechanism for
controlling the utilization of decoders.
19. In the case of cash subscribers, of course, a collector visits
the home periodically to remove a cash drawer within the decoder,
and substitutes a new one for it.
B. VHF-UHF Capability.
20. The Telemeter decoder is fully transisterized and contains
both all-channel VHF and UHF tuners. If a subscriber's television
set does not have a UhF tuner, the Telemeter decoder on free programs
serves as a UHF' converter. In operation, the subscriber's television
set is tuned to an output channel. This may be either channel 2 or
channel 3. There is no need for further tuning of the television set.
In watching subscription `television programs, the subscriber uses
the VHF and UHF tuners on his decoder.
C. Video Scrambling.
21. The Telemeter system of scrambling and unscrambling the
picture is unique in that the picture signals themselves are never
subjected to distortions. Instead, the synchronizing signals which
control the operation of the scanning circuits in the subscriber `s set
are sent in a manner different from normal television, so that the
picture is scrambled because normal receiving sets cannot use these
new synchronizing signals. As another result, the Telemeter decoder
functions equally well on monochrome and color transmissions.
D. Sound Fidelity.
22. It is inherent in the Telemeter sound system that the frequency
range and freedom from noise of normal television are retained. The
Telemeter sound system is fully compatible with television stereo-
phonic sound transmissions, currently under consideration by the
Commission.
PAGENO="0699"
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7
E. Transmission characteristics.
23. Finally, from the point of view of the television broadcaster,
switching from normal to subscription operation and vice-versa, is
extremely simple. All of the Telemeter encoding and special trans-
mission equipment is contained in a package and can be easily con-
nected to the existing transmission equipment. Switch~over can be
accomplished remotely under the control of a master switching unit.
IV. BACKGROUND CONSIDERATIONS
24. Since the inception of the idea of subscription television, and
particularly since the institution of this rule-making proceeding
eleven years ago, those who oppose subscription television have been
active and. vociferous in their denouncement `of the concept. It is
therefore as important to point out `and underscore what subscription
television is not as it is to describe what it is.
A. The "Free" Programming Contentions.
25. Telemeter predicted in 1955 that conventional television
programming was headed for the type of "vast wasteland" in which
it now resides. With the rising costs `of television production,
necessitating multiple sponsors among the nation's largest industries
to support even average programs, and with the constant depletion of
feature motion pictures available to television, conventional television
progamming has reached a level of mediocrity that constitutes a near
abuse of the potential which the medium could achieve.
26. Subscription television in contrast, bec'ause of its highly
superior economic base,1 promises to irrigate the vast wasteland with
box-office type attractions not now available via conventional television.
27. For example, during Telemeter ~s Toronto experiment, which
continued for a period of five years, Telenieter brought to the sub~
scribing public not what it already received "free," but rather top
quality, box-office attractions, such as current feature motion picture
films, not available on conventional television; a live transmission
from the stage of the Eugene O'Neill Theatre in New York of a
performance of "Show Girl," starring Carol Channing; taped per-
1 Telemeter's original comments in 1955 contain a detailed economic analysis of the
potential of subscription television as compared with sponsored television. As is there
described, the broader economic base provided by subscription television will enable it to
bring to the public programs vastly superior to and beyond the economic reach of sponsored
television.
PAGENO="0700"
696
8
formances of Broadway and off-Broadway productions; especially
produced drama for Telemeter viewers; the re-creation of the night-
club performance of the McGuire Sisters; a specially produced
presentation by Gracie Fields `and Stanley Holloway; the away-from-
home games of the Toronto Maple Leafs Hockey Club, never before
available locally on television; the ot'herwise "blacked-out" home
games of the Toronto Argonauts professional football club; "blacked-
out" championship boxing matches; and other attractions not avail-
able to the public on conventional television. It must be noted that
the "blacked-out" Clay-Patterson Championship Fight last year,
available to Telemeter `s subscribers in Toronto, was brought into the
home via the same closed-circuit facilities that carried the major boxing
event to theatres throughout the United `States and Canada, but at
a fraction of the cost, per viewer. Theatres charged from five to
seven dollars per person-Telemeter subscribers paid two dollars for
the entire household.
28. When Telemeter terminated the Toronto experiment in April
1965, `a large percentage of the subscribers responded to a question-
naire, with 96.9 percent of the respondents expressing regret at `the
discontinuance of the service.
29. In its five years of uninterrupted service, Telemeter estab-
lished, beyond question, that there is a large audience willing to pay
for superior entertainment in the home on a continuing basis. It thus
demonstrated that the Telemeter "Theatre in the Home" performs
a service to members of the public who are unable, or find it incon-
venient, to avail themselves of facilities away from home.
30. Opponents of subscription television, while recognizing `the
superior quality of the special programming presented by Telemeter
on its experimental system in Toronto, have complained about the
paucity of such presentations. It is true that in the 1961-62 season
there were only seven special s'hows, apart, of course, from sports-
events and hundreds of current motion pictures-but the specials `had
to be produced at substantial financial losses because the audience was
limited to the number of subscribers in a small experiment. As the'
size of the subscription television audience grows, obviously the
number and quality of special programs will grow. `Telemeter
recognizes `that only with such programming can `subscription television
be successful for Telemeter has never assumed, nor does it believe,
that the American public will be willing to pay directly for the type
of entertainment which it now pays for indirectly on `advertiser-
sponsored television.
PAGENO="0701"
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9
31. To the contrary, if subscription television is to be successful,
it will be because the vastly larger economic base provided thereby
will enable its owners to bring to the public unusual and superior
attractions which can never be provided by advertiser-sponsored
television because of their prohibitive costs. Sponsored television-
even with the giants of industry as its clients-cannot afford, on a
regular basis, to bring current feature pictures to the viewer.
Sponsored television cannot afford regularly to purchase the rights
to otherwise blacked~out major sporting events. Sponsored television
cannot afford, on `a regular basis, to bring many of the outstanding
events to the viewing public which subscription television can do with
comparative economic ease.
32. Yet, those who are entrenched in other entertainment media
with whom subscription television would to some extent compete, in-
cluding the networks and many broadcasters, persist in the vocal but
invalid contention that subscription television will require the public
to pay for what it now receives "free";' that existing television
programming will be "syphoned off" to subscription television; and
that motion picture theatres will close and dire monopolistic con-
sequences wil1~ follow. Telemeter's answer to these contentions is the
same as it was in 19~5. All that subscription television seeks is a
chance to compete openly in the market place. If subscription
television offers to the public, at a price, no more than it now receives
"free, "it will fail. Telemeter seeks `only a chance to succeed or fail.
It believes that it will succeed and that the viewing public will be
the benefactor of its success.
B. The "Monopoly Strawman."
33. Like the reports of Mark Twain's death, the fears of monopoly
in subscription television are "greatly~ exaggerated." Subscription
television, as an industry, does not yet exist. Indeed, there is but one
subscription television system in operation in the United States today
-and the subscribers to this system represent a small minority in
their community. This `small minority spends less than five percent
of its total viewing time watching subscription television programs.
Is `this the monster which is to steal talent, close theatres, `and
destroy "free" television? Telemeter believes that the Commission
has recognized it is not as is evidenced by its findings in paragraphs
1 As Telemeter's 1955 Comments discuss in great detail, existing television programming
is net "free." The public pays for it through consumer purchases of advertised products.
The amount expended for advertising is reflected in the purchase price of the product.
PAGENO="0702"
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10
10-17 of its Further Notice of Proposed Rule Making to which these
comments are addressed.
34. The fact is that subscription television is not even an infant
industry. Its opponents have attempted, by raising false issues, to
stifle it before it can be born. Any regulations which the Commission
makes at this time should recognize the essential truth of this
statement.
35. The elements of a subscription television industry have not
yet emerged in any clear-cut form. There are no subscription
television programming companies, syndicators, maintenance com-
panies or other needed components. The elements of the existing
structure which constitutes commercial broadcasting, or which con-
stitutes the motion picture production, distribution and exhibiti~n
industry, do not yet exist. The Commission must therefore proceed
with caution in adopting rules to regulate an industry whose essential
character has not yet begun to emerge, lest its natural and successful
growth be unduly restricted and inhibited.
36. The subscription television business, regardless `of the form
which it will ultimately assume, will have at its core today the sub-
scription television entrepreneur. He is the man, or the corporation,
which must bring all of the elements required for successful subscrip-
tion television into existence. At some time in the future, after the
business has been started, there will be producers, maintenance firms,
syndicators, broadcasters and others, but these elements do not exist
*today. It `serves no useful purpose, therefore, to talk about separating
the components and establishing regulations to govern their relation-
ships. If a single firm is not allowed to start a total subscription
television business including everything from the production of enter-
tainment through it's broadcasting, through it's sale to the public,
through installation of decoders, and through the collection of money,
and every other aspect' of the enterprise, subscription television is
unlikely to come into existence.
37. Subscription television, in its present stature, is analogous to
the motion picture industry in its beginnings. A motion picture
theatre, like any other theatre, is an enclosure containing means for
exhibiting entertainment for which the patron must pay. The
enclosure of a theatre may be analogized to the scrambling and un-
scrambling means of the broadcast subscription television system, `and
the box office to its credit or cash charging system. `The projection
equipment constitutes a means of communicating the entertainment
PAGENO="0703"
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ii
on film to the public, and is analogous to the ~transmitting equipment
of a broadcast. The theatre owner picks his programs and determines
the timing and duration of their exhibition and their pricing,
incidentally, on the basis of his knowledge of his market.
38. In the early days of motion pictures, exhibitors would not
go to the expense of building theatres because there was no entertain-
ment available to be shown in them. Therefore, in order to get the
industry under way, a natural identity developed between producers,
distributors, and exhibitors. This identity was an absolute necessity
if the industry was to come into existence.
39. At this stage in the development of subscription television,
no company (which is truly independent) is going to invest in decoders
if it does not control broadcast faeilities, and if it is not able to assure
itself that it will be able to make its own efforts to obtain programming
by every means physically available. The infant motjon picture
industry had a programming problem which was actually simpler
than the infant subscription television industry. The problem of the
motion picture industry was that entertainment was not available.
The problem of the infant subscription television industry is that
even where entertainment is available, it has been withheld, so that
it is naive to assume that a subscription television operator, at this
stage, can sit in his office and expect purveyors of entertainment of
top quality to come to him.
40. Furthermore, in view of the obvious and manifest hostility
of existing media toward subscription television, it is equally naive
to suppose that commercial broadcasters in significant numbers will
approach a detached subscription television operator-without his
own broadcast facilities-for the privilege of showing an occasional
subscription television program. If subscription television is to
develop, it is Telemeter's considered judgment that it will, have to
be started by those in full control of every aspect of the subscription
television business with no, or exceedingly few', limitations upon their
ability to solve the multifarious problems which experience has shown
they cannot avoid.
41. It is within this framework that we shall comment upon the
specific questions raised by the Commission in its Notice.
PAGENO="0704"
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V. COMMERCIAL ORGANIZATION OF THE TELEMETER SYSTEM
42. Telemeter proposes that, during the initial stages of the
development of subscription television, it will grant exclusive franchises
for use of the Telemeter system in various television markets. These
franchised operators will be broadcasters or affiliated with broadcasting
so that they may have access to, and control over, broadcasting
facilities. `They will have the right to sub-franchise others, and to
allow other broadcasters to use their facilities, but initially, Telemeter
believes that these matters must be in the franchisees' sole control.
43. Only under these circumstances will such franchisees invest
capital in home decoders, encoding equipment, programming guaran-
tees, and all other facets required for the successful introduction of
subscription television in each market. This pattern of proposed
operations is already reflected in franchise agreements which have
been signed for Telemeter `s broadcast system, although these agree-
ments, of course, are effectively subject to Commission action. This
arrangement is, in fact, the one which has already existed in Hartford,
and in Toronto. it is dictated by the total situation existing at this
time.
44. On the other hand, Telemeter does not believe that the Com-
mission should require subscription television operations to be by
* exclusive franchise. `On the contrary, until the service has had a
reasonable chance to develop, it is neither possible nor practical to
attempt to mold the relationship of system proponent and franchisee
into a fixed pattern. Time, experience or conditions in a particular
market may indicate that a nonexclusive franchise is desipable. More-
over, while it now appears unrealistic to think of franchising anyone
but a br&adcas'ter, time and experience may indicate that the fran-
chising of broadcasters may be `too restrictive `and that other
entrepreneurs may be in a better position to initiate and develop ~`
subscription operations, either through appropriate `arrangements with
broadcasters or, in some cases, by the restrIcted use of channels not
otherwise employed in broadcasting. For `these reasons, Telemeter
urges that no rules be adopted that would abridge or restrict the
complete freedom of the `system owner to grant exclusive or non-
exclusive franchises either to broadcasters or non-broadcasters
PAGENO="0705"
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VI. COMMENTS ON SPECIFIC QUESTIONS RAISED BY TEE NOTICE
(1) Should Subscription Television Be Limited to Communities Receiving
a Minimum Number of Television Signals . . . or Whether It Should
Not Be So Limited but Should, in Communities Not Lying Within Four
Commercial Grade A Contours Be Restricted to a More Limited
Scope, Especially as to Hours of Operation, Than in Four-Service
Communities?
45. Telemeter urges the Commission not to limit subscription
television to communities receiving a minimum or specified number
of Grade A signals. If it is to have a reasonable chance to succeed,
subscription television must not be hamstrung by artificial and
arbitrary restrictions. Telemeter believes that the new service has
a tremendous potential which may find expression and usefulness
under varying circumstances in different sized and types of com-
munities. Indeed, as Zenith pointed out in its March 10, 1965, petition,
subscription television has the potential of "generating the construc-
tion of new stations" and this could develop in small, underserved
markets as well as in the larger markets. Subscription television
could well provide the economic sustenance to support a station which
might otherwise not be built in a marginal community.
46. On the other hand, in communities where three network
stations and possibly strong non-network affiliated stations flourish,
subscription television could well provide the necessary economic basis
needed to develop a viable UHF competitor. Particularly is this so
in the case of Telemeter's system, where its decoder unit acts as a
UHF converter as well as subscription decoder, thus enabling every
VHF-only set to receive UHF signals. In short, the nature of the
community in which subscription television is permitted should not
be controlled by rule but should, at most, be determined on an ad hoc
basis in light of all of the factoi\s involved in each particular situation.
(2) (a) Should Stations Engaged Subscription Television Broadcasting
Be Required To Broadcast a Minimum Number of Hours of Con-
ventional Television Daily? If So, How Many Hours?
(b) Should Subscription Television Be Restricted to Certain Segments
of the Broadcast Day and, if So, What Segments?
(c) Should a Maximum or Minimum Number of Hours of Subscription
Television Per Day or Week Be Specified?
47. Telemeter agrees with the Commission's proposed rule
(Section 73.043[c]), providing that any television station authorized
to broadcast subscription programs shall broadcast, in addition to its
subscription broadcasts, the minimum hours of programs required by
86-399 0 - 67 - 45
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Section 73.651 of the present Rules. The experience of Zenith in
Hartford and Telemeter in Toronto would indicate that this can be
done and still provide adequate. time for subscription programs. In
its franchise agreements, Telemeter has provided that a minimum of
thirty hours of subscription television be broadcast per week. Since
the public has already shown in the experimental operations a
tendency to restrict its subscription television viewing to prime time,
it would appear that to achieve maximum service to the public the
minimum of thirty hours per week of subscription television broad-
casting should take place in prime time with appropriate allowance
made for weekend events.
48. The time limitations proposed by the Commission in Section
73.643[d] do not appear to be unrealistic in light of the experience
gained in experimental operations to date. Telemeter believes, how-
ever, that too many variations exist as among markets of differing
sizes and nature, e.g., crowded spectrum space in comparatively affluent
eastern markets as opposed to ample channel availability in small, less
affluent western markets, to permit the easy application of an hour `s
limitation as proposed. For this reason, Telemeter again urges that
no rules be adopted limiting the hours which stations in particular
markets may devote to subscription television. It is believed that free
competition as between subscription and conventional programming
as well as the limits upon the pocketbooks of the viewing public will
provide the hourly limitations most desired by the public. This would
be true whether one or more subscription operations are permitted in
a given community.
(3) Should Subscription Television Be Permitted Over Any Television Sta-
tion (Subject to Possible Qualification Concerning the Number of
Stations in the Market), UHF Stations Only, or Should Some Other
Limitation Be Imposed?
49. Subscription television should be permitted over any qualified
station, whether VHF or UHF. Here again, it seems likely that the
dictates of competition in the particular market will answer the
question which the Commission poses. In cities with *three or more
VHF stations, it is likely that subscription operations will be espoused
only by the independents, be they VHF or UHF. And the com-
munities in which VHF independents might use subscription service
would be minimal since only a few of the cities in the top one hundred
markets have more than three VHF channels allocated. Thus, it is
probable that the numerous UHF `stations and allocations~ in the top
PAGENO="0707"
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one hundred markets will provide the likely outlets for subscription
television. There would appear to be no sound reason, however, for
foreclosing subscription operations by VHF facilities in the limited
number of markets where such usage might be made.
(4) Should More Than One Station Be Permitted To Engage in Subscrip..
tion Television in Any Market and, if So, Should These Stations Be
Permitted To Transmit Subscription Television Simultaneously?
50. Subscription television will not necessarily mean less "free"
television. As we have indicated, subscription television has the
potential for creating new television stations and causing marginal
ones to become viable. Moreover, it will encourage and support UHF
growth and development. Competition as between subscription
stations in a given market should result in improved program service
for the public not only from the subscription television stations but
from the conventional stations as well. Both Telemeter and Zenith
have pointed out the importance of encouraging competition in the
subscription television field. But the decision as to whether to allow
multiple station subscription television operations in a given market
is a complex one, and should be decided on a case-by-case basis-at
least until some pattern emerges.
51. On the other hand, closed-circuit subscription television
systems do not use up allocations, and are clearly an additive service,
so there is no reason for restricting them in any event.
(5) Should More Than One Subscription Television Technical System Be
Authorized and, if So, Should More Than One Technical System Be
Authorized To Operate in Any One Community?
52. Telemeter believes that it is premature to authorize one
system. If this were a purely technical question, the answer might be
simple. However, the question of whether to allow one technical
system at this time goes to the heart of the commercial organization
of subscription television. The advantage which has been given for
fixing on one technical system is that the public would be required
to have only one decoder in each home. But who is to control this
decoder'? If it is to be a broadcaster, how is he to be compelled to
encourage the competitive programming of another broadcaster? If
it is not to be a broadcaster, how are we to expect a businessman to
invest in tens of thousands of decoders without any guarantee that
anyone will program for them or broadcast to them?
53. As we have attempted to point out in earlier portions of these
comments, Telemeter believes that broadcasters, decoder owners and
PAGENO="0708"
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maintainers, and programmers will have to be one and the same in
the initial stages of this industry. Moreover, it is probable, at the
outset, that exclusive franchise arrangements will be necessary to
induce investment by the subscription television pioneer. Tinder these
circumstances, the only way for there to be competition is for the
government to authorize as many systems as meet general standards
*of good practice. Dual standards in other fields have been successful.
Indeed, in the automotive field, Buick, Oldsmobile and Pontiac, all
made by General Motors, compete with one another while, in the
detergent field, soap manufacturers successfully market commonly-
owned competing products.
54. Furthermore, from the point of view of the development of
the subscription television technology, the effect of picking one
standard at this time will be to stifle invention and eliminate com-
petition.' There is much room for improvement in the "hardware"
of subscription television as well as in system methods. If a single
standard is adopted, the incentive for further improvement will be
lessened. If more than one technical system is permitted, inventive
ingenuity, in the American tradition, will "build a better mouse trap"
under free competition-all to the benefit of the consumer and the
viewing public. Finally, because the adoption of a single standard
would eliminate *competition, it would prematurely necessitate a
plethora of rate regulations, patent license regulations, and similar
burdens all of which would tend to stifle an as yet non-existent industry.
(6) Should a Party Manufacturing or Selling Equipment, or a Holder of a
Subscription Television Franchise in More Than One Market, Be Per-
mitted To Engage in the Procurement and Supply of Programs to Tele-
vision Stations for Subscription Use?
55. As we have indicated above, if the subscription television
operator cannot engage in programming activities himself, the chances
for initial success of subscription television will be seriously reduced.
Those in the normal ohaunels of distribution of entertainment have
obvious motives for not dealing with the subscription television
entrepreneur as the experience in Hartford has clearly shown (where
the threat of lawsuits was required to obtain certain programming).
The subscription television operator `should, therefore, be free to
develop and procure programming from whatever source `available.
But Telemeter agrees with the Oommission in its proposed rule that,
1 The Zenith equipment of four years ago and the Telemeter equipment of five years ago
have been improved. It is only logical to expect that further technological improvements will
occur in succeeding years.
PAGENO="0709"
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within this broad frame of reference, no restrictive agreements in this
field he permitted.
56. On the other hand, Telemeter emphatically disagrees with
the petitioner who would preclude exclusive franchise agreements
between Teleme;ter and television station licensees. As we have
indicated previously, an exclusive franchise may well be the only
vehicle for instituting service in the early days of the subscription
television industry. Moreover, at least in the formative stages of
the industry, the subscription franchisee will need help and assistance
in program procurement. The individual franchisee in many, if not
most, cases will not have adequate financial or bargaining strength to
obtain the type of box-office attractions so necessary for the success
of a subscription operation. It may well be that the help of Telemeter
will be required to obtain such programming fare as major sporting
events or Broadway shows. The experiments to date prove that a
subscription system is not an easy business to start. For these reasons
Telemeter urges that, at the outset at least, there should be no limita-
tions placed upon the system proponent, such a Telemeter, or upon
the franchises in terms of their ability to produce, acquire, obtain
or supply subscription television programming.
(7) What Requirements Should Be Imposed Upon Subscription Licensees
To Assure Licensee Control?
57. Telemeter urges that the rules designed to assure licensee
control over subscription programming be no more restrictive than
necessary to assure *that the licensee retains `the power to reject
programs which it deems unsuitable and to substitute other programs,
whether subscription or conventional, which it deems of greater public
interest. Telemeter believes `that the rules proposed by the Com-
mission in Section 73.642(e) of Appendix C to t'he Notice would
assure `adequate licensee control. It would support `the proposed rules
provided it is made clear that they do not preclude exclusive franchise
arrangement's and do not impair the contractual arrangements there-
under whereby the franchisee undertakes to broadcast a minimum of
subscription programs within specified time segments.
(8) The Nature of the Technical Rules That Should Be Adopted.
58. As previously asserted, Telemeter urges that subscription
service not be limited to `a single technical sys'tem. In its technical
comments, ified June 17, 1~166, Telemeter set forth in detail the tech-
nical nature of its system. Zenith and other `system proponents have
done likewise. Telemeter d'oes not believe that it should undertake
PAGENO="0710"
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to draft technical rules designed to accommodate the multiple
standards and devices embodied in the differing systems. The rules
or technical standards to be adopted by the Commission should be
broad and flexible so as to permit the use of all systems seriously
advanced.
(9) Whether and to What Extent the Commission Should Regulate the
Charges, Terms and Conditions Pursuant to Which Subscription Tele-
vision Service Will Be Offered the Public?
59. In its previous comments, Telemeter has urged that the Com-
mission has no authority over the prices of subscription television
programs. Similarly, and particularly since the Commission has
determined that subscription television is "broadcasting," it is
Telemeter's contention that the Commission has no authority over
the price or terms of the service supplied to the subscriber.1 Further-
more, since subscription television furnishes "box-office" attractions,
it should enjoy the same freedom in pricing these attractions that
other "box-office" entrepreneurs enjoy. As a practical and legal
matter, it is difficult to envision any other arrangement.
60. We might add in this regard that Telemeter has consistently
opposed the broadcast of commercials during subscription programs
(and such a restriction is contained in the Telemeter franchise agree-
ment) other than the announcements of available subscription
programs and rates, similar *to trailers of coming attractions shown
in motion picture theatres.
(10) Whether a Subscription Licensee Should Be Required To Furnish
Service to All Persons Within Its Service Area Who Desire It?
61. Telemeter agrees that all persons desiring subscription service
should receive it, provided `only that the franchisee must be free to
terminate service for non-payment of subscription fees or for
irresponsible or unauthorized damage to or use of the decoder equip-
ment leased to the subscriber. Telemeter would, of course, want the
right to extend credit to certain customers who will be equipped with
credit units, and to equip customers who do not qualify for credit
operation with cash units.
1 Rate regulation and the prescription of terms of service have traditionally and legally
been limited to the common carrier and public utility fields. Sec Section 3(b) of the Com-
munications Act of 11)34, as amended, to the effect that broadcasting shall not be deemed
common carriage.
PAGENO="0711"
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(11) Should Requirements Be Imposed To Insure That the Public Would
Not Be Adversely Affected by Obsolescence of Subscription Television
Equipment or Cessation of Service and Should the Commission Require
That Such Equipment Be Leased Rather Than Sold?
62. Telemeter proposes that decoders be placed in the homes of
the public for a small monthly maintenance fee. The public should
not be required to invest in this equipment. In this manner the public
will not be adversely affected by obsolescence of equipment, nor will
an individual subscriber suffer any penalty should he decide to change
from one subscription television company to another.
(12) What Restrictions Should Be Adopted Concerning the Nature of Ar-
rangements Among Patent Holders, Patent Licensees, Franchise Hold-
ers, and Television Station Licensees, Concerning Such Matters as
Whether and Under What Terms and Conditions, Patents on Any Par-
ticular Subscription Television System Will Be Required To Be Made
Available to Franchise Holders and Station Licensees, and Whether
Stations Engaged in Subscription Television Should Be Permitted To
Enter Into Contracts That Would Give Them Exclusive Rights To Use
a System in a Particular Community?
63. Telemeter has already indicated its position on the question
of exclusive franchises. As previously stated, it is premature for
the Commission to decide at this point how subscription television
will organize itself from a business and franchise standpoint. The
ç only systems which have existed in this hemisphere have been
franchise operations in which franchise holders were also patent
~ licensees, broadcasters, and programmers. Regulation of the type
required by a mature broadcast industry with a developed form
should not be applied to an as yet nonexistent subscription television
industry. Instead, the industry should be allowed freedom `of growth,
as we have stated above, and at `an appropriate time, regulations may
be formulated, as required, consistent with the form the industry has
t'aken and the dictates of fairness and service to the public.
`64. If the Commission adopts Telemeter's proposal not to limit
subscription television to a single `technical standard or `system, it is
possible that some cross-licensing and pooling of patents may `occur.
Moreover, some system propon'ents may engage in manufacturing
while `others may no:t. For these reasons, and until the shape `of the
industry becomes more definite, it is impractical to attempt to become
specific about patent licensing terms and conditions.
PAGENO="0712"
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(13) Whether Means Should Be Provided To Insure That Subscription Tele-
vision Will Be Available to All Eligible Stations on a Non-Discrimina-
tory Basis?
65. Whether or not subscription television authorizations should
be made `available to all stations, VHF and UHF, or all stations in a
given market, has been the subject of comment earlier in this document.
Assuming that the Commission establishes a class of eligible stations,
be it all *or a more limited group, it is Telemeter's belief that sub-
scription service should be available to all within the eligible class
on a non-discriminatory basis, subject only to the ability of the
system operator to reach satisfactory franchise and business arrange-
ments with the station. Just as a network may establish an exclusive
affiliation arrangement with one of several stations in a market,
dependent upon the business judgment of t'he network and `the `affiliate,
so should a subscription system operator be free to negotiate with one
of several stati'ons upon an exclusive franchise basis if considered
desirable.
(14) Should a Limitation Be Placed on the Type of Programming Which
Subscription Television Operations May Broadcast and, if So, What
That Limitation Should Be and Whether Applications for Subscrip-
tion Authorizations Should Be Required To Make a Showing of How
Their Programming Will Differ From Conventional Programming?
66. Those who have opposed subscription `television have created
the bugaboo that `subscription television will destroy "free" television
by "syphoning off" the actors, directors, writers, and other con-
tributors to the program product. The simplest quantitative analysis
of `the situation shows the absurdity of th'ese fears. With less `than
five percent of viewing time going to subscription television in the
experiments conducted to date, it is hardly likely that a substantial,
or even noticeable, quantity of the available talent will be "syphoned
off."
67. Subscription television is not a different variety Øf commercial
television. It is a theatre in the home, drawing its talent from that
currently involved in box~office attractions of every kind. Its programs
are exhibited several times, unlike commercial programs which are
exhibited once within a reasonable period of `time. Hence it requires
an even smaller fraction of entertainment `time than might at first
be supposed. Subscription television must essentially supply quality,
rather than quantity programming. As existing subscription tele-
vision experiments have illustrated, a major portion of subscription
programming will be drawn from box-office attractions such as Broad-
PAGENO="0713"
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21
way plays, operas and revues, which are not now available to more
than a small minority of the population.
68. Moreover, if subscription television can offer the public
cultural programs of an uplifting quality in which talented actors do
not have to step out of their roles in order to advertise toilet water
and deodorants, it should be permitted to commit this "crime."
69. It must be said too, that the fact exists that there has been a
"syphoning" of all kinds of talent away from the quality media such
as the Broadway stage, into the quantity medium of commercial
television. The result of this "syphoning" process is that talented
writers and artists of every kind, have diverted their talents from the
production of entertainment of a high, cultural level, into the pro-
duction of vast quantities of endlessly repetitive situation comedies
and soap-opera dramas in addition to other forms of mediocrity.
Subscription television will provide the opportunity for talented
people to work once again upon the creation of entertainment of
superior quality. From the point of view of the public, subscription
television will allow them to enjoy this superior programming at prices
they can afford.
70. In this connection, Telemeter wishes to quote from its sub-
mission of May 215, 1965, wherein it stated:
"The average motion picture today is seen by only 5% of
the population, according to industry sources. A major picture
is seen by only 8% or, in rare instances, 10% of the population.
A large percentage of the over 90 percent that does not attend
movies would like to but does not because of inconvenience to the
family or because of cost.
"A young couple with children are faced with a cost of $4
to $5 to go out to a movie-in addition to the expense of a baby
sitter-much `as they would like to see current pictures. They
could afford to pay $1 or $1.50 to see these movies in their home.
This does not mean, however, that those able and who can afford
a night out at the motion picture theatre will not continue to
do so. Nor does it mean that subscribers of Telemeter will not
continue to spend five or `six nights a week watching commercial
television.
"A Broadway show that runs a whole ye'ar in a 1,200-seat
theatre is seen by 499,200 persons, if every performance is sold
out. A large percentage of the 9,500,000 inhabitants of the New
York area and millions of others throughout the U. S. would
like *to see that show. They cannot for either of two reasons:
price or distance from Broadway.
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"Telemeter~s THEATRE IN THE HOME would enable this
huge segment of the populace to buy such entertainment at home
and at a price it could well afford, whether in Miami, Florida,
or Portland, Ore. Telemeter may not satisfy those who prefer and
can afford to see a Broadway show in person and they would
continue to frequent the theatre.
"In addition to providing a valuable service to the public,
Telemeter could well be a great stimulant to theatrical producers,
ifim producers and those presenting cultural attractions that
require public support to survive."
71. In this regard, however, Telemeter submits that from a
regulatory standpoint the Commission does not have the authority to
regulate the content of subscription programming. Telemeter does
not wish to belabor this point but believes that brief remarks are in
order based principally upon the Commission's determination, as
reflected in the notice herein, that subscription television is appro-
priately considered a broadcast service.
72. Section 326 of the Oommunications Act of 134, as amended,
provides that the `Commission has no censorship powers in connection
with radio broadcasting. In this respect the Act only restate's, to an
extent, an existing and immutable constitutional concept. The Supreme
Court has made clear that radio and television are entitled to the
protection of the First Amendment `*s guarantees of freedom of `speech
and freedom `of the press. United States v. Paramount Pictures, Inc.,
334 U.S. 131; Estes v. Teaas, 381 U.S. 532. T'he broadcaster, there-
fore, is subject to no greater encroachment in this respect than is the
newspaper editorialist or the public orator.
73. Nothing could present a clearer case `of censorship `and abridg-
ment of the broadcaster's constitutionally guaranteed freedom, we
submit, than governmental proscription of certain program's or the
direction `that certain programs or types `of programs be carried.
Because of the practicalities of the matter, we need n'ot develop the
position further.
74. Without conceding the Commission's jurisdiction to regulate
the program content of `subscription programming, as `set forth above,
Telemeter nevertheless recognizes the desirability of `a `broad regula-
tion which would serve `to cast subscription television into the mold
in which it is most likely to develop and succeed if for no other reason
than to placate the alleged fears of the medium's `opponents. As `set
forth in its `statement in this Docket filed May 25, 165, and already
reiterated herein, Telemeter believes that because of its nature, sub-
PAGENO="0715"
711
23
scription television programming will be of the box-office nature
rather than a duplication of conventional television programming.
Therefore, any rule, regulation or policy announcement promulgating
a requirement that subscription television not duplicate conventional
programming would probably have little influence on the actual
program output of subscription television.
75. To assure all interested persons who have exhibited concern
in the past, therefore, Telemeter agrees that it may be desirable
for the `Commission to make clear that subscription television is not
to duplicate conventional programming but rather is to be a theatre-
in-the-home type operation providing box-office attractions, such as
current motion pictures, major sports events otherwise deleted from
commercial television programs, theatrical performances of dramatic
and musical offerings, operas, operettas, ballets, recital's, and similar
presentations, the precise form and content thereof to be determined
by the subscription television licensee or entrepreneur and the viewing
public. This differ's from existing commercial television programming
which is basically dictated by the networks and sponsors with little
regard for viewer preferences.
(15) Whether Various Sections of the Act, Rules and Policies, e.g., the
"Fairness Doctrine," Should Be Modified as They Affect Subscription
Television?
76. As illustrated in the preceding discussion, by its nature, sub-
scription television programming will develop as the box-office
attraction type of offering, including current motion pictures, operas,
Broadway plays, otherwise blacked-out sporting eyents, and the like.
In this type of programming, the chance' of the necessity for the
application of such policies as the "fairness doctrine" is somewhat
remote. To the extent that programming is presented which would
bring such policies or rules into play, however, Telemeter see's no
reason why they should not apply to subscription programming. It
would appear, on the other hand, that no new safeguards, rules or
regulations would be necessary to assure the proper discharge `of the
subscription licensee `s responsibilities in these areas.' The *Oommis-
sion's existing powers have been adequate with respect to conventional
programming and `should remain adequate to the task of `subscription
television.
1 During the course of Telemeter's Toronto operation, political candidates for public
office were presented to viewers, without charge to the candidate or the subscriber, via the
closed circuit facilities under policies in accord with the political, broadcast provisions of the
Communications Act and the "fairness doctrine."
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24
VII. RESPONSE TO NOTICE OF INQUIRY REGARDING WIRED
SUBSCRIPTION TELEVISION
77. The Commission's Notice of Inquiry indicates (par. 48) that
it will take notice of the comments ified in `the inquiry in Docket
No. 15971 pertaining t'o subscription television as related to CATV.
Telemeter, in its Reply Comments in that Docket as well as in its
Statement ified May 25, 1965, in the instant proceeding (pp. 26-27),
made the contention that the Commission ha's no `statutory authority
to regulate subscription television by wire or cable. As we there
set forth:
"In its comments filed in 1955, Telemeter contended that
since subscription television over the air falls within the definition
of broadcasting, a term mutually exclusive with the definition of
common carrier service, the Commission obviously doe's not have
Title II regulatory authority over subscription TV.
"Cable subscription TV, of course, would no't fall within the
definition of `broadcasting,' for the simple reasons that it makes
no use of the airwaves and that the bridging of the geographic
gap between the subscribers' sets and the subscription television
studio would not involve the radiati.on of electro-magnetic energy.
Nor would this difference in the technique of bringing subscrip~
tion television signals to the subscribers' `sets make the cable
subscription television operator a common carrier. WSTV, 1Gw.
v. Fortnightly CorporatioGi, 23 RB 184 (1962). In fact, t'he estab-
lishment of a cable subscription television `system does not, under
existing law, require any authorization from the Commission."
78. Telemeter is aware, of course, of the `Commission's assertion
of jurisdiction over non-microwave served C'ATV's and of the pending
legislation in C'ongress to support that jurisdiction. In the case `of the
closed-circuit subscription operation by wire, however, which involves
no use of frequency space whatsoever, and in the case of the CATV
system which, itself, originates *subscription television programs (as
distinguished from the `off-the-air pick-up or microwave-fed subscrip-
tion programs), there `should be no question that no federal regulatory
authority exists.
79. Assuming that the Commission's assertion of jurisdiction
over CATV "s is affirmed either by the Court's or the Congress,
Telemeter `s further comments will be directed to those situations
where a regulated CATV system either picks up subscription programs
off-the-air from the originating station or receives them on its cable
system via microwave from the originating station. Under these
circumstances and assumptions, response to the `specific inquiries of
the Commission is made.
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25
(1) Would It Be Necessary To Have Built-in Antennas In the Decorders
Attached to Sets of Subscribers?
80. It would not be necessary to have built-in antennas in this
case. The coded transmission could be delivered via the CATV
system in the same manner that free broadcasts by the same station
would be delivered. Subscribers would have decoders connected
between the OATV cables and their television sets, and the operation
would be exactly the same as has been described earlier.
(2) Would a Single Decoder Attached to the Antenna of a CATV Which
Delivered the Unscrambled Signal to Subscribers Suffice? If So, What
Arrangements for Collection of Subscription Fees Could Be Made?
81. While it would be possible technically to decode subscription
television programs at the input to a CATV system and make some
kind of flat-rate arrangement with the CATV operator, this is com-
mercially impractical. The suppliers of entertainment of high quality
have always preferred to participate in gross receipts via percentage
arrangements. Clearly, such an arrangement with a CIATV operator
as has been described above, would be commercially impossible.
Furthermore, the public has shown a reluctance to pay a flat fee for
blocks of entertainment, and such an arrangement implies a flat fee
for CATV subscribers.
(8) Would the Rules on Carriage of Signals of Local Stations Over CATVs
Apply to Carriage of Subscription Programs?
82. it seems logical to suppose that the same rules would apply
since, as has been indicated above, broadcast stations in the subscrip-
tion television service will probably be required to function as
commercial stations about half the time.
VIII. ORIGINATION OF SUBSCRIPTION TELEVISION ON CATV
83. Although the Commission has not in this Docket called for
specific comments regarding this subject, Telemeter respectfully
submits the observations which follow.
84. The origination of subscription television on OATV systems
is both technically and commercially feasible. Telemeter has already
added three channels of subscription television to an eleven channel
television system in an experimental operation in Montreal, Canada.
The obvious advantages which may accrue to both CATV and sub-
scription television from this `arrangement include the following:
(a) Sharing of the cost of transmission facilities by subscription
television and CATV.
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26
(b) The provision at low cost to the public of a purely additive
service which takes no spectrum space whatsoever from other uses.
(c) The provision of subscription television service at a signifi-
cantly low investment above and beyond the already existing invest-
ment in CATV plant.
85. The `Commission in Docket No. 15971, has under consideration
the question of whether C'ATV systems `should be `allowed to originate
programming. It is natural to suppose that the question of whether
CATV systems should be allowed to originate subscription television
programming should be considered in the same context. However,
the distinction between the origination of `subscription programming
and all other types of programming is so great, that an injustice may
be done if the same considerations are applied to both. Therefore,
Telemeter urges that the question of allowing CATV systems to
originate subscription programming be considered separately in this
Docket.
86. The origination of commercial programming on C'ATV systems
presents obvious competitive problems, vis-a-vis commercial broadcast
programming. The effect of such `origination upon the continued
existence of local broadcast stations would therefore be a prime con-
`sideration in any determination to be made. *But the'se considerations
do not operate in the case of subscription originations because as
experience in experimental operations has shown, the viewing public
devotes only about five percent `of its viewing time to subscription
television. Therefore, subscription television is not really competitive,
viewer-wise, with commercial television, either closed~circuit or broad-
cast. `Subscription television is a new entertainment medium which is
not truly competitive with advertiser-sponsored mass media.
87. The' opponents of subscription television have, of course,
attempted to prevent its origination in any form. `They have `objected
to subscription television via CATV because this might result in quality
program's to the public at lower cost (the cable facilities being shared
with the C'ATV operation). The `assumption here is that `somehow it
is illegal to supply a quality product at lower cost! The opponents
have also attempted t'o stifle' subscription television on CATV because
this might be the "back door" to the general institution `of subscription
television. If the public is going to receive the benefit of programming
of superi'or quality at lower prices, it does not seem germane whether
it enters by the front door or the back door. If, however, `the opponents
of subscription television would prefer, Telemeter would be happy to
institute subscription television at the front door, as soon as the
originators of `these phra'ses explain what that is.
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27
IX. CONCLUSION
88. In conclusion, Telemeter urges that the Commission regularize
subscription television operations forthwith by the adoption `of rules
authorizing `such service. Eleven years have elapsed since the institu-
tion of this Docket. Unlike most proposals, subscription television
has not only undergone extensive comment and study but actual
experimentation in the market place. These experiments have demon-
strated an acceptance by the public of the concept without harm to
the conventional television media.
89. The subscription television industry is ready and waiting to
provide superior programming in the public interest. Its opportunity
to do so should no longer be delayed.
WHEREFORE, Telemeter urges the adoption of rules authorizing the
regular use of subscription television consistent with the suggestions
contained in these and its earlier comments.
Respectfully submitted,
INTERNATIONAL TELEMETER CORPORATION
PAUL A. PORTER
REED MIU4ER
ARNOLD & PoRTER
1229 19th Street, N.W.
Washington, D. C. 20036
Counsel for
International Telemeter Corporation
October 10, 1966
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A~IERICAN CIVIL LIBERTIES UNION,
Washington, D.C., October 19, 1967.
Hon. HARLEY 0. STAGGERS,
Chairman, Interstate and Foreign Commerce Committee, U.S. House of Repre-
sentatives, Rayburn House Office Building, Washington, D.C.
DEAR MR. CHAIRMAN: I am enclosing copies of comments of the American
Civil Liberties Union which were filed with the Federal Communications Com-
mission concerning proposals for Subscription TV Service.
I believe the comments are self-explanatory, and I would appreciate it if they
could be included in the record of the hearings on Subscription TV recently con-
ducted by your Committee.
Sincerely yours,
LAWRENCE SPEISER,
Director, Washington Office.
Before the
Federal Communications Commission
Washington, D.C.
Docket No. 11279
IN THE MATTER OF AMENDMENT OF PART 73 OF THE COMMISSION'S RULES ANI)
REGULATIONS (RADIO-BROADCAST SERVICE) To PROVIDE FOR SUBSCRIPTION TV
SERVICE
Comments of the American Civil Liberties Union, February 8, 1967-Supplement
to the October 7, 1966 Comments
INTRODUCTION
The American Civil Liberties Union has concluded that subscription or pay-
by-the-program television (herein termed STV) offers a means of increasing
diversity In broadcasting under regulations Which insure civil liberties objectives.
It was not possible for the ACLU to deal with all of the many and inter-related
questions raised by the FCC's "Further Notice" in the time allotted for com-
ments. In its "Comments" of October 7, 1966, the ACLU therefore stated e
intend to present supplementary comment on the broader issues noted above,
hopefully by January 30, 1967."
In order to place these supplementary comments in context with ACLU's orig-
inal comments, as Well as avoid the need to make separate references to them,
they are excerpted in the following section.
EXCERPTS FROM ACLU COMMENTS OF OCTOBER 7, 1966
we regard diversity1 of expression as an application of the First Amend-
ment's free speech guarantees.
"We wish to emphasize that our criteria and objectives for STV, whether over-
the-air or cable, are that it meets the requirement of diversity preferably through
the self-regulatory effects of free and fair competition, but where competition is
not, or cannot be, effective, that the government provide equally effective regula-
tion including through implementation, where necessary, of the Commission's
fairness doctrine and Section 315 of the Federal Communications law. .
"The ACLU believes that STV . . . cannot be regarded as simply a `bene-
ficial supplement' (in the language of the Commission's notice) to present over-
the-air broadcasting, but must be considered to be an indepeudent system of
public communications which demands appraisal of its Inherent capabilities.
potentials, and regulatory requirements in the public interest. A wholly new
relationship between the ptlblic and the producer of the program or service will
be created when the public makes a direct payment.
"On the premise that (1) STV can be a system for presenting new and different
programming, and (2) open competition will enhance diversity, the Civil Liberties
Union favors no restriction as to permitting STV to function in all markets, re-
gardless of the number of television stations therein.
- . consistent with these objectives of fostering STV as a resource for
diversity, the ACLU believes that the public will be best served by separation
~ Italic added tbroug~sout e;cerpt.
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of the two systems, so that both subscription and free (commercially sponsored)
television will have the greatest freedom and scope for development of their
individual potentials. We therefore recommend that two categories of commercial
licenses be established. One category would include commercial licenses author-
ized, as at present, to broadcast unscrambled sustaining and commercially
sponsored programs. The second-and new-category would include commercial
licensees authorized to broadcast subscription and sustaining programs only~ but
not unscrambled commercially sponsored programs. Subscription licensees would
have no limitations on the proportion or amount of subscription time.
". . . no limitation should be imposed on eligibility of STV for the various
categories of stations."
(FCC Question) "Should subscription television be permitted over more than
one station in a community, and if so, should such stations be permitted to broad-
cast subscription programs simultaneously ?"
(ACLU reply) "Here, again, the reliance on open competition as fostering
diversity causes us to conclude in the affirmative.
"The allowance of multiple [technical STV} systems would have a deleterious
effect on diversity.
"The ACLTJ believes that there should `be complete divorcement between the
sources of STV programming and all the other facets of ~TV operation. This is
based on our firm belief that diversity is (a) limited by monopolizing pro-
gramming in the hands of those who control the means of distribution, and is
(b) broadened by developing new entrepreneurs, hopefully with new ideas and
approaches to programming.
". . . we oppose any limitation on types of programming presented by ~TV.
We find particularly offensive any action by the Commission to dictate directly
the specific kinds of programs that may be seen on STV as unwarranted govern-
ment intrusion into program content, and a form of censorship."
SUPPLnMENTARY C0MM~NPS
Shibscription television by wire or cable
ACLTJ believes that the initial regulations to establish STV broadcasting
should require that STV be made available to the entire population served by
SPY carrier stations, both by cable and over-the-air. ACLTJ supported the FCC's
responsibility to regulate CAPV, and endorsed the requirement that CATV sys-
tems must carry the signals of all local stations. This regulation promotes
diversity and should not now be modified to exempt stations that are coded for
SPY purposes. Consistent with these principles, all homes served by cable and
CATY must have the right to become individual STV subscribers.
If the FCC should fall to require that cable and CATV systems carry all STY
stations, millions of families could arbitrarily be deprived of "free" programs,
without the compensating right to subscribe to the STY services which replaced
them.
ACLU has noted that leading authorities have predicted startling increases in
the diversity and usefulness of public electronic communications by cable sys-
tems of distribution which can provide a greater number of channels, higher
capacities for new types of services, and eventually multiply choices by the two-
way "telephone exchange" principle. Such forecasts have recently been made by
such responsible leaders as General David Sarnoff and Dr. Joseph Charyk. In
1963, the Stanford Research Institute predicted that 15 million families might
subscribe to pay television by the mid-1970's, of whom 10 million, or two-thirds,
would be connected by cable.
It therefore seems essential that the basic regulatory structure of STY, from
the beginning, incorporate provisions for integration of cable with on-the-air
distribution in the interest of maximum diversity. Even now, new types of STV
services can be provided on cable channels which are not required for local TV
stations.
Regulation of STV systems
In its October 7, 1966 comments, the ACLU pointed out that direct public pay-
inent creates a new type of relationship between the audience and the producers
and distributors of program services, arid called for "divorcement between the
sources of STV programming and all other facets of SPV operation." Consistent
with this objective ACLU re-affirms its belief that all systems of interconnection
and networks, whether cable, microwave, or satellite, be directly regulated.
Since the public will be making direct payments to STY systems which will
be local monopolies, the FCC should carry out its responsibility under Section 1
PAGENO="0722"
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of the Act, to regulate directly, rather than through station licensees, "the
adequacy of facilities and reasonableness of charges."
Eligibility of station licensees for $TV
Although the FCC notice is silent on thIs question, ACLTJ believes it to be in
the public interest to permit educational, municipal, and non-profit stations to
employ STY for portions of their broadcasting schedules. STY programming by
such stations could be expected to add to the variety of services available to the
public, as well as contribute to their financial self-support.
COLORADO TRANSLATOR AssocIATIoN,
Leadville, Cob., October 5, 1967.
Hon. JOHN DINGELL,
House of Representatives,
Washington, D.C.
Mx DEAR Mn. DINGELL: We are enclosing a copy of our comments to the FCC
regarding Subscription Television. We fully agree with you on your anti-pay TV
bill.
We feel the FCC should have more important things to do than to succumb
to the pressures of the few who will gain from such a system. We amy need bet-
ter TV in the country but we need it for everyone, not just the ones that can
pay for it. Pay TV is not the way to better TV for everyone.
We see no way that siphoning of programming can be prevented in the long
run.
Sincerely yours,
A. K. SMITH, President.
COLORADO TRANSLATOR ASSOCIATION,
Leadville, Cob., ~8epternber 27, 1967.
Docket No. 11279
In the Matter of Amendment of Part 73 of the Commission Rules and Regulations
(Radio Broadcast Services) to Provide for Subscription Television Service:
The Colorado Translator Association is comprised of approximately 60 trans-
lator organizations and represents approximately 250,000 translator TV viewers
throughout the State of Colorado. Most of these viewers would like good quality.
good programmed, multiple signal TV to be extended into their areas. We are
interested in improvement and expansion of "free" broadcasting. We feel that the
rural population of this country should be considered in FCC rule-making and not
be forgotten to fend on our own.
STV apparently will only be allowed in the top 100 markets and further only in
areas having five or more licensed stations. In both the case of CATV importing
distance signals and in STY this can only have the effect of decrease or elimi-
nating the possibility of a greater number of licensed stations in these areas.
Further, this will then eliminate the possibility of a greater number of stations
for the remainder of the outlying communities.
We, therefore, stand against any form of STY whether by over-the-air meth-
ods or by wire.
There is just so much programming available to place on TV. Any amount of
siphoning will be detrimental to all television now received. It is stated that 85%
of programming will be newer movies and combined with sports will take up a
maximum of 90% of viewing. If it is felt that the new movies are such a boon
to better programming, why is it only considered for a small portion of the popu-
lation of the country? If this is the area that is to swell the knowledge of the
people and give them the better things of life, maybe it should be considered to
allow these on free TV so all could enjoy their benefits. The cultural benefits to
be derived from such a system are just about nil. These can be put on ETV just
as well where everyone can benefit by them.
We see no need for such a system nor any warrant for such a system. The only
people who will benefit by this will be the suppliers of the equipment and the col-
lectors of the dollars from the sale to the chosen few who can afford it.
With just a small percent of the population subscribing to STV there will be
enough money involved to outbid any free broadcasting system and gradually
siphon all the lucrative programs so that only a few will see them.
PAGENO="0723"
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Apparently, the FCC has been sold a bill of goods in this matter. We think that
California in its vote against it showed the will of the people even though It
was declared illegal.
We are sorry that we can give no constructive criticism on this proposal rule-
making because we feel that any part of it is destructive to the TV viewing of the
country as a whole.
Yours very truly,
A. K. SMITH, Pre8ident.
WGN CONTINENTAL BROADCASTING Co.,
UMeago, Iii., October 10, 1967.
Hon. TORBERT H. MACDONALD,
Chairman, Subcommittee on Comuwnications and Power, House Interstate and
Foreign Commerce Committee, U.S. House of' Representatives, Washing-
ton, D.C.
M~ DEAR CHAIRMAN MACDONALD: As President of the corporate licensees of
television stations WGN-TV, Chicago, Illinois, KDAL-TV, Duluth, Minnesota,
and KWGN-TV, Denver, Colorado, I am writing in support of H.R. 1243~, a bill
sponsored by the Honorable John D. Dingell of Michigan. This bill would pro-
hibit the Federal Communications Commission from authorizing over-Ithe-air
pay television.
The proposed Fourth Report and Order adopted by the Commission's Subscrip-
tion Television Committee would authorize over-the-air pay television on a per-
manent basis. Such an action by the Commission would run wholly counter to
the scope of its statutory jurisdiction and the will of the Congress. The Commerce
Committees of both houses of Congress have expressed their vieW~ either ques-
tioning the jurisdiction of the Commission to license pay television operations or
stating that such operations should not be authorized by the Commission with-
out specific authorization by law.
The jurisdiction of the Commission to act in this area is at best questionable
and is an additional reason why it should be barred from proceeding further with
the permanent establishment of pay television without specific Congressional
approval.
If the Commission were to establish pay television, the rates of this new pay-
as-you-go service would have to be regulated to protect the public.
However, if pay television is "broadcasting," as the Commission has found,
there is no authority in the Communicatiotis Act to regulate the rates charged
for pay television. Since the Commission's Subscription Television Committee ad-
mits that its "authority to regulate rates for the new service--a broadcast serv-
ice-is open to question," the Commission should get Congressional guidance
before proceeding any further.
Pay television is, by any standards, a basic modification of the American sys-
tem of free broadcasting and consequently, any decision on the authorization of
such a service should originate with the Congress and not the Commission Oh-
vioulsly, the Commission should not be allowed to establish on a permanent basis
a service for which there has been neither a public demand nor an indication of
public benefit. It has never been established that (1) there is either a substantial
need or public demand for pay television or (2) that pay television would pro-
vide a meaningful supplement to existing free television broadcasting.
The contention that subscription television will provide a beneficial supplement
to existing television service is not supported by the record. Ninety-one percent
of the programming ultimately provided in the Hartford experiment consisted
of sports events and feature films, a current staple of conventional television
broadcasts. Even the Commission's Subscription Television Committee noted in
its proposed Report that".. . . the major part of the programming as opponents
had argued, will be of a kind that will appeal to a mass audience."
Thus, in reality, pay television had little to offer that has viewer appeal which
is not now offered by free television or which cannot be offered by free tele-
vision or public television.
We have faith in the capacity of our nation's free television system to meet
and grow with the public's changing needs, tastes and interests. This system pre-
sently offers and will continue to offer the best way of serving the public. Pay
television poses a grave threat to free television as we know it today. If Con-
gress allows the Commission to establish pay television, the ability of free tele~
vision to provide effective service to the entire public (including those unable to
pay for service) would be drastically curtailed. Indeed, the public, those of means
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and those without, would be forced to pay for that which they now receive free
of charge.
For these reasons, we strongly support the enactment of H.R. 12435.
We respectfully request that this statement be made a part of the record of
your Subcommittee's hearing on pay television.
Respectfully submitted.
WARD L. QUAAL, Presi&~nt.
AMERICAN FARM BUREAU FEDERATION,
Washington, D.C., October 17, 1967.
Hon. TORBERT H. MACDONALD,
Chairman, Power and Commanieations E~ubcommittee, Interstate and Foreign
Commerce Committee, UJ~. base of Representatives, Washington, D.C.
DEAR CONGRESSMAN MACDONALD: The American Farm Bureau Federation has
followed with great interest the hearing conducted by the Power and Commu-
nications Subcommittee relative to subscription television. Farm Bureau Is com-
posed of more- than 1,700,000 dues-paying farm families in more than 2,700
County Farm Bureaus in 49 states and Puerto Rico.
Our interest in this matter is predicated on the importance of television to
rural America. In addition to providing entertainment, television has become a
working tool for many farm families who depend upon it as a source of up-to-
date weather and market reports and also information of a technical nature con-
cerning cultural and marketing practices essential for efficient and profitable
farming operations.
Consequently, the American Farm Bureau Federation for many years has
maintained a firm policy position on broadcasting which, in essence, calls upon
the Congress and the Federal Communications Commission to take such steps
as may be required to assure rural residents the best possible radio and television
service consistent with technological developments and within the framework of
the American private, competitive enterprise system. Our most recent policy
statement dealing with radio and televisIon broadcasting, adopted by the voting
delegates to the 1900 annual meeting states, in part:
"Adequate daytime and nighttime radio and television `service should be avail-
able to farm and rural families in all areas of the nation. Neither Congress nor
the Federal Communications Commission should take action to impair existing
service in those areas where it is adequate. In cases where broadcasting oppor-
tunities become available, we favor allocations to rural areas not now receiving
adequate service.
"We encourage broadcasters to use their franchises in the public interest and
to serve adequately the interests of rural families. . . ."
Although this policy statement does not deal specifically with what generally
is known as "pay television," it leaves no doubt that Farm Bureau members
favor only those governmental actions or utilization of new techniques which
will improve-rather than impair-present service to rural areas.
We recognize that current proposals for authorization of a subscription tele-
vision system at this time would be applicable only to those centers of population
which have at least five television broadcasting facilities, Including the one
which might be converted to a pay broadcasting basis. On the surface, it might
appear that this limitation would not involve stations now serving rural areas
and, therefore, would not substantially affect rural viewers. Although the effect
on stations serving rural viewers might be inconsequential at the outset, the long-
range results would be highly significant.
We are concerned in two respects that subscription telecasting, regardless of
the degree to which it is limited initially, in the long run will tend to erode the
current system of commercial television. First, any alteration of the present com-
mercial television system which requires allocation of one or more of the limited
number of channels for SPY use obviously would narrow the total scope of tele-
casting. The public, including rural residents, would be denied access to the
channels so allocated either for existing commercial usage or for expanded
service.
Second, the erosion of total service doubtless would extend also to the quality
of programming. With subscription service in existence, it Is most likely that
some of the most popular-and most expensive-productions now made available
by commercial sponsors would shift to a subscription basis. In any event, top-
flight talent-writers, producers, and entertainers-certainly would tend to be
PAGENO="0725"
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drawn to the STV productions. Also it appears unrealistic to assume that most
major sports events of nationwide interest would not be shifted to a subscription
basis as quickly as the proposed FCC ruling would permit4
It is the sincere desire of Farm Bureau that new techniques be applied to
broadcasting whenever those techniques will improve the service now available
to farmers and residents of small towns in rural areas. We do not favor changes
in the present broadcasting practices which will reduce or impair this service.
We respectfully recommend that you and Members of the Subcommittee con-
sider carefully the effect upon service available to rural America of any altera-
tion in the present system of broadcasting. It is our firm belief that decisions of
such far-reaching significance as authorization of a system of subscription tele-
vision necessarily must rest solely with the Congress.
We request that this letter be made a part of the hearing record.
Sincerely,
JOHN C. LYNN,
Legislative Director.
B. F. HUTTON & Co., Ixc.,
Los Angeles, Calif., september15, 1967.
Hon. TORBERT MACDONALD,
House of Representatives,
Washington, D.C.
DEAR MR. MACDONALD: In view of your interest in pay television, I am enclos-
ing a copy of my recent radio broadcast on the subject.
If your committee should hold public hearings, I would appreciate an opportu-
nity to appear as an informed witness on behalf of the poor, long-forgotten pub-
lic.
Very truly yours,
ALLAN MACDOUGALL, Jr.,
West Coast Research.
LABOR DAY BROADCAsT, SEPTEMBER 4TH 19437
Telephone rings . . . girl's voice: Good morning, B. F. Hutton and Company.
Good morning, Charles Stone speaking for B. F. Hutton . . . In observance of
Labor Day, all major stock exchanges are closed today, and instead of the
usual Business News, B. F. Hutton & Company brings you a special `transcribed
program prepared by Allan MacDougall, Jr., of our West Coast Research De-
partment.
Some time ago we devoted two of our holiday broadcasts to the subject of
pay television, and many listeners expressed an interest in our explanation of
this controversial but potentially-dynamic new industry.
Last July 14th the pay television subcommittee of the Federal Communica-
tions Commission issued a report and a second Notice of Proposed Rules-Making
which envisage the creation of a national pay television system by the end of
1967 . . . Therefore, this seems an appropriate time to discuss further the poten-
tial of pay television, and, specifically, the rules under which the Commission pro-
poses to let it operate.
First, by way of review, let me explain that our previous broadcast discussed
over-the-air pay television, which really bears no relationship to the local ill-
fated cable television venture of a company called Subscription TV, Inc.
The rules of the Federal Communications Commission are the result of a five-
year experiment conducted in Hartford, Conn., by Zenith Radio, its licensee,
Teco Inc., and the RKO Division of General Tire. Under this system, the broad-
cast station sends out a scrambled television signal. A subscriber leases a decoder
which is attached to the antenna terminals of his set. When he wishes to watch
a program, he adjusts certain dials on the decoder and the program is then re
ceived in the clear. A built-in recording device keeps a record of the programs
watched, and the customer is billed only for those programs that he actua]lv dialed
for viewing.
This all sounds very simple, but setting up the rules for a new type of broad-
cast service is very complicated. Furthermore, pay television has been fought
at every turn by the theatre interests, who realize what formidable competition
it would be for the public's entertainment dollar. In addition, the television net-
works, who have prospered under the status quo, have opposed pay television.
It has been a shocking lesson in the procedures of bureaucracy and the
political power of pressure groups to realize that pay television Ms been tech-
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iñeally feastthle for iT years ! The first Federal Communications Commission
action the subject took place in 1955 with the issuance of a proposed Rules
Making, which invited comments to help it deeide if it would be in the public
interest to transmit programs paid for on a subscription basis. By 1957, these
comments had been received and evaluated, but the F.C.C. stated that no ap-
plications could be filed until after adjournment of the 85th Congress, in order
to give the legislators an opportunity to consider the matter.
This delay on behalf of C¼)ngress lasted until 1959, when the Commissioii
said it would accept applications. By 1962, three applications had been filed.
Two were granted, one of which was relinquished, and only the Zenith-Teco-
RKO team carried on. The experiment ran for three years on station W.H.C.T.
in Hartford, Conn., and on the basis of this experiment, Zenith and Teco applied
for a nationwide license in 1965. Based on this data, the Commission issued a
further notice of proposed rules-making and again invited comments from
interested parties.
Now, after an interminable preamble of hearings, tests, and allowance of
time for Congressional action, the F.C.C. has issued a proposal to allow nation-
wide pay television. Further comments are invited until September 15th, as the
opponents make a last stand at preventing a new industry from being born.
Doesn't it sound to you as if the matter has had a thorough and lengthy-
enough discussion?
The Federal Communications Commission, like any government agency is
obviously not going to let this infant industry establish itself in the market-
place under free competitive conditions. Rather, the Commission has severely
limited its potential, which is seemingly the main object of the set of rules we
will now discuss and comment on.
First of all, no commercials are to be allowed on pay television, which is only
to be expected. . . .It will be allowed only in large cities which have five licensed
stations. This rule is intended to make sure that ample so-called free television
is still available.
An ultra-high frequency or very-high frequency station carrying pay television
in such a five-station market is not limited as to the amount of subscription
time it may broadcast; but not more than 90% of is programming shall be
utilized for feature films and sports events. This rule is intended to insure
that pay television will create other types of programming not now generally
available such as plays, opera, ballets, and the like.
Only one pay television authorization will be granted per community, but
the permittee may use any technically-qualified unscrambling system.
All decoders must be leased to protect the consumer from early obsolescence:
and all charges, conditions, and terms must be applied uniformly. Any orga-
nization receiving a permit must prove it has the financial capability to main-
tain operations for at least erie year.
These generally mundane rules seem. quite sensible from the point of view of
protecting the public with guarantees that it will receive adequate service,
reception, and continuity of operation. But in its rules as to programming.
the F.C.C. ranges far afield in its efforts to protect the "sacred cow", free
television.
Let's consider the progamming rules. As to feature films, a pay television sta-
tion can show only films within two years of the date of their release to the
theatres. Supposedly, this is to protect the consumer from paying to watch an old
film. But is this necessary? Certainly an individual is not going to pay to watch
a film he can see for free. But even then, many people might consider it
with 5O~ to see an old film without the endless commercials. Why shouldn't
we have the option of paying not to have commercials?
In the field of sports, the regulations really get complicated. Again the period
is two years, and no event can be shown en pay television which has been avail-
able for free in the last two years. This will insure that events like the World
Series, basketball, football, and golf can still be seen on so-called free television.
About the only new programs available will be big championship fights, which
heretofore have been pre-empted by pay television in the theatres; also those home
baseball and football games which have been "blacked out." It is believed that
this ruling raises some very touchy legal questions. If organized baseball owns
the World Series, and pay television can afford to pay a higher price than com-
mercial television, has the Federal Communications Commission the legal au-
thority to deprive the owner of selling his property at the best price available?
Why didn't the F.C.C. ban theatres from monopolizing prize fights at $10 a
person? The one ruling would be just as logical as the other.
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Finally, in order to protect special high-rating features, such as Bon-
anza, Peyton Place, or whatever, pay television is banned from "siphoning"
such programs. Actually this is silly, because 2M from one million tele-
vision sets would pay for a program of infinitely better quality than the
customary weekly series.
The unnecessary complexity of these regulations and the 12-year procrasti-
nation in authorizing pay television actually provides an ideal case study of the
folly of Government interference with the normal free enterprise system.
If over-the-air pay television had been promptly authorized, investors would
not have lost $22,000,000 in Subscription TV, Inc. Building a cable system did
circumvent the F.C.C. and investors realized the fantastic potential of pay
television. But where Subscription TV's proponents erred was in underestimating
construction costs and the political power of their opponents.
The ruling being here discussed consists of 108 closely-written pages; but in
reality it misses the entire point. The Federal Communications Commission is
concerned with "protecting" free television, but why does a bureaucracy believe
that an industry should be protected from competition? Why can't the bureauc-
racy let the American people make its own free choice? Pay television or free
television should be allowed to stand or fall on its own merits. If pay television
provided superior programming and eliminated the commercials to the extent
that everybody preferred to watch it, free television would be wiped out. But it
would be eliminated by the popular vote of the viewers! On the other hand, if
enough people prefer to watch free television, it will continue to prosper. Why
does a government agency feel it should "protect" an individual from exercising
his own choice?
It should be here emphasized that pay television can fail, but at least it should
have a chance to compete! In view of the many problems still to be overcome,
the political pressures involved, and further possible litigation, nothing in this
discussion should be taken as a recommendation concerning the companies
mentioned.
Copies of this morning's broadcast (written by Allan MacDougall, Jr.) may
be obtained by writing to EL F. Hutton and Company, 623 South Spring Street,
Los Angeles 90014.
Charles Stone speaking for B. F. Hutton. Tuesday morning at this same time.
David Boyle will be here with the usual Business News, now in its 26th year of
continuous service to California investors.
WIsHING WELL CLUE MomL, INC.,
Easton, Md., October 15, 1967.
Congressman MACDONALD,
Washington, D.C.
DEAR CONGRESSMAN: Pardon the omission of your first name. I wanted to get
this message to you as soon as possible. The newspapers didn't print your first
name.
I have followed the controversy over the question of TV as is versus Pay T~
and I have not seen where Mr. Average Oitizen or anyone whose business in-
eludes TV showing in the package It sells to the public, has testified.
Although, I am small in the motel industry with 30 TV sets in use and am
only an average citizen I am very much concerned about the possible impact
Pay TV would have on consumers and small businesses such as ours. Most motel
publicity centers on the well-known chains but it is a fact that 75% of the accom-
inodations in the country are in the small motel category. There are also many
taverns, cocktail lounges and gathering places where TV has become an integral
part of the business.
I belong to the National Federation of Businessmen and there are many
such organizations plus Chambers of Commerce who could speak out. There is
also the Small Business Administration in Washington. If none of these have
the energy to speak on this issue I can assure you that I am very able to fill the
void.
Yours truly,
SAMUEL J. SIerrA.
(Whereupon, at 1~ :30 p.m., the hearing was concluded.)
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