In using VCRS, and that number is growing rapidly. That means about 10 million people have access to VCRS in their homes. In 1978, total VCR sales to dealers amounted to 401,930. the first three quarters of 1981 alone, that figure had jumped to 883,729 units. If sales continue at the same rate during the final quarter of this year, total sales to dealers during 1981 will represent nearly a 200 percent increase over the 1978 figure. The monetary value of the American public's investment in VCRs and related products exceeds $3 billion. In spite of the rapid growth that currently characterizes the industry, few VCR manufacturers have managed to profit from the sales boom because of the enormous initial investments required and the highly competitive nature of the market. The industry is, thus, in one of its most fragile stages of development. Time-Shifting Home video taping occurs primarily for time- shifting purposes. is going to be out at a PTA meeting when a television program he wants to see is going to be on the air, he can set a time dial much like an oven timer, and the program will be recorded so that he can view it at a convenient time. Surveys indicate that 70 to 90 percent of all VCR owners make use of their VCRs primarily to view television programs that they could not otherwise have watched. Time-shifting increases broadcast audience size by allowing those unable to view a program to view it later. A report commissioned by the Federal Communications Commission to assess the effects on broadcasters of home video recording recognizes the benefits copyright owners reap from timeshifting: -1 Because both major rating services A.C. Nielsen and Arbitron - now include an indication of VCR use, this time-shift phenomenon should actually be an asset to the networks and broadcasters. Shows which would have been missed can now be recorded for later viewing. Because rating services are prepared to report such time-shifting, broadcasters should actually be helped by this consumer convenience. An audience that was previously unavailable to them is now viewing, and the viewing is properly attributed in audience reports. Federal Communications Commission Network Inquiry Special Staff Appendix "Home Video: A Report on the Status, Projected Development and Consumer Use of Videocassette Recorders and Videodisc Players" (1980) p. 61. Any fair analysis of VCR usage leads to an inevitable conclusion: time-shifting, the principal use of VCRS, economically benefits rather than injures copyright holders. VCRS are the most popular product in our industry today. Video tape Our trade association runs two big trade shows a year. VCRs as consumer products have been displayed and discussed at these trade shows for 10 years. recorders were first used in this country as a home product as long ago as 1965. There is no proof that any copyright holder is being damaged by this private copying. The Ninth Circuit left that issue of remedy and damage up in the air and left the whole problem in an incredible state of confusion and uncertainty. It could take years to finally resolve the issue in the courts assuming the Supreme Court agrees to hear the case. There is no certainty the Supreme Court will even agree to grant an appeal. We believe the Ninth Circuit decision violates the public interest by threatening to prohibit American consumers from utilizing and enjoying a product which significantly improves the quality of their lives. The VCR has numerous uses of educational, entertainment and informational value. We are not attempting to appeal the Ninth Circut decision to this Committee. But we do feel that certain farreaching public policy issues, such as this one, should be resolved by Congress and not by the courts. Too many recent federal court decisions have taken liberties with the private lives of citizens. Legislation is the only way to bring about a prompt restoration of common sense on this issue. In some instances, such as the recent one on interest paying checking accounts, courts have specifically recognized that the problem was one which should be handled by Congress and have delayed the effective date of their decisions to await congressional consideration. what should have been done here. That is The Economics of the Motion Picture Industry We favor any company or industry making all the money it can. But let me point out that the motion picture companies are already triple dippers in the economic pot. And some of them may want to become quadruple dippers at the expense of the profit-squeezed consumer electronics industry. When a new movie is made, the producing company releases it first for showing in theatres. If the movie is a hit, the company makes a bundle. Then, as a second dip the company can release the movie, in exchange for generous payments, to a manufacturer of prerecorded video tapes. In virtually every case of regular Hollywood-type movies the manufacturer of the prerecorded tapes belongs to a motion picture company. These prerecorded tapes, of which there are already some 35,000 titles (including over 4,000 general interest, entertainment movies) sell at retail between $50 and $100. Then the movie company has a third dip: negotiated royalty arrangements to let the movie be shown on television. It is common knowledge that some of these movies are shown on the air dozens or even hundreds of times some, year after year by broadcasters large and small, and by networks, all with royalties paid to the motion picture company which owns the copyright. The royalty paid by the broadcaster is subject to negotiation; thus, the broadcaster with a large viewing audience pays more to the movie company than a broadcaster with a small audience. As already mentioned, because of the consumer convenience feature of time-shifting, recording off the air for private, noncommercial use increases the broadcaster's viewing audience. The two major rating services recognize this factor in assigning television programs ratings. VCRS have thus created the potential for increased royalties payable by broadcasters to movie companies. The licensor of copyrighted movies is financially motivated to favor tapes and discs because the royalties obtained from such agreements are higher than those derived from cable operations. Instead of recognizing these advantages, some movie companies apparently want to take a fourth dip to in some way charge the consumer for off-the-air recording for purely private, noncommercial use. However, we are now becoming convinced that Universal-MCA, and perhaps other motion picture companies, may not really be aiming for this fourth economic dip. We think what they may actually want is to put video cassette recorders completely out of business by obtaining a court injunction against their use. An injunction is a conceivable remedy which the Los Angeles federal district court could impose if the Ninth Circuit decision stands. The Ninth Circuit left the determination of the remedy entirely to the district court. An injunction against use would be cruel and unusual punishment in this situation. This is particularly so because an injunction would apply, at the present time, to only one company selling at the manufacturer's level Sony since Sony is the only manufacturer that is a defendant in the Ninth Circuit case. Even though the Ninth Circuit's decision is law only in that Circuit, an injunction might apply nationwide, not just to Sony, but to retailers and distributors and advertising agencies involved in selling Sony VCRs. Although Sony is Japanese-owned, it conducts substantial manufacturing operations, including the making of VCR tapes, here in the United States. Its VCRS are also sold under their own brand names at the manufacturer's level by other companies in the United States. The source of VCRS to these other companies would be cut off even though they were never parties to the lawsuit and never had a trial. The original lawsuit against Sony was started in 1976 by just two motion picture companies and Disney Telecommunications. Recently Disney has issued a press release recommending that this problem be solved by Congress. Very recently a new lawsuit was started in Los Angeles against the other companies that sell VCRs at the manufacturer's level, and against their advertising agen cies 42 defendants in all. a plaintiff. Significantly, Disney was not Universal-MCA is going it alone. We believe its reason for filing the new suit was to forestall a conflict between federal circuits so that a federal dis trict court in Los Angeles could, in effect, control the entire United States as far as VCRS are concerned. |