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the total distributions of the performing rights societies ASCAP, BMI and SESAC which in 1974 was reported to be approximately $97.5 million.
The manufacturers believe the operators are contributing their fair share for their use of music and recommend approval of Section 116 of H.R. 2223 as drafted. They oppose any amendments which would expose the operators to additional monetary burdens.
JUNE 1, 1971. TO THE SHAREHOLDERS OF WURLITZER :
It is interesting to realize that the modern, complex, multi-national Wurlitzer Company of today was founded 118 years ago in a simple, pastoral setting in Cincinnati, Ohio. Here a young German named Rudolph Wurlitzer was engaged in the business of importing musical instruments for a frontier society. The company he founded thrived, as did the nation, with various members of the Wurlitzer family active in the management for well over a century. The last surviving son of the founder was Farny R. Wurlitzer who died May 6, 1972 after 68 years of dedicated service.
In the 118 year span of the Company's growth, the steady rise in standards of living in the countries served by The Wurlitzer Company has provided the public with time and money to enjoy musical instruments of all types. The Company has been successful in fulfilling this need and each year has continued to supply the kinds of instruments most wanted, both in the United States and throughout the world.
Two major new product lines were established during the year. One was the highly competitive Sprite organ line supplementing our medium and higher priced electronic organs. The introduction of the Sprite models to Wurlitzer dealers produced the largest number of advance orders for a new product in the history of the Company. Manufacture of a line of low-priced electronic organs including table models was also initiated during the year for sale through private label distribution. This product line has excellent growth potential.
Engineering and research activities have continued unabated to achieve innovative products, outstanding styling, and the greatest possible cost savings in manufacturing. Wide use of electronics in our products has been aided by the continued application of the new technology of Large Scale Integrated Circuits (LSI). The Wurlitzer Company was the first in the industry to produce electronic organs using LSI components.
Manufacturing efficiency has advanced during the years with the continued trend toward mechanized assembly and test in our factories. Although capital expenditures are necessarily high for special equipment, the operating cost savings are substantial. Additional manufacturing capacity resulted from the establishment of a Central American facility operating on a contract basis. This facility manufactures certain subassemblies for use in our various plants. The major Wurlitzer manufacturing activities are conducted at four plants in the United States and two in Europe, with additional manufacturing or licensed assembly operations in three locations in Latin America and one in South Africa.
To grow in the musical instrument world market requires the use of a variety of up-to-date marketing techniques. This year we have successfully brought into use many techniques in market research, sales training, advertising and promotion, and a variety of other skills necessary for aggressive world-wide operations. Marketing skills must, of course, be closely coupled with engineering, manufacturing, and financial activities of the highest order to achieve the overall forward thrust of growth for which the Company has been noted in recent years.
Our U.S. marketing operations for keyboard products consist of orer eight hundred independent Wurlitzer music dealers and forty-seven Company owned retail music stores. Foreign marketing operations are handled by seven Company owned marketing subsidiaries as well as a large number of worldwide independent music dealers and phonograph and vending equipment distributors. This marketing organization grew in strength and breadth during the year, bringing fine Wurlitzer products to new markets.
REVIEW OF OPERATIONS
In the year ended March 31, 1974, The Wurlitzer Company achieved the highest level of consolidated sales in its 118 year history. Major achievements were also made in strengthening the Company for future growth and earnings through progress in technology, manufacturing, and marketing.
During the rear engineering and research programs brought into being new mietitive models in our pianos, key and action products, electronic pianos, elee. tronie organs, and coin-operated products. Research programs in progress promise further important advances for the future. Manufacturing capability has been improved in all of our U.S. plants through the introduction of new methods and specially developed machinery. Manufacturing operations were started at the new Wurlitzer plant in Levern, Germany and a subassembly manufacturing operation was started with an associate firm in Guatemala, C.A. Final steps in tlie closing of the manufacturing plant at DeKalb, Illinois were completed eariy in the year, and manufacturing operations at Logan, I'tah are improving steadily, Marketing operations have been strengthened by careful training and assignment of skilled personnel at both wholesale and retail levels. At (heshire, England a new sales office and warehouse building was completed at the Parkgate Industrial E-tate for Wurlitzer Limited, our subsidiary for keyboard product sales in Great Britain. Marketing operations in Europe were realigned for improved sales cor. erage in various Common Market countries. A major decision was reached to discontinue manufacture and sale of coin-operated phonographs in the U.S., a Inote which is expected to enhance future earnings.
Consolidated net sales on a world-wide basis for the year were $90.609.712, an increase of 79% over the previous year's sales of $83,942,546 and the highest ever achieved. The U.S. sales accounted for 81% of the total and foreign sales for 19%. Important growth occurred in all products except coin-operated phonographs.
Electronic organ sales continued its vigorous growth pattern of recent years showing an increase in dollar sales rolume of about 24% over last year largely in our medium and higher priced organ products manufactured at Corinth, Missis. sippi. Two new electronic organ product line programs were undertaken by the Company during the year with manufacturing responsibility placed at the North Tonawanda Division. One is the Sprite organ line, a moderately priced series of Oranns with wide popular appeal. This product line, introduced at the June 1973 coprention of National Association of Music Merchants, was an immediate success and produced a very substantial backlog of orders. At Worth Tonawanda intensive effort has been devoted to getting production underway on Sprite products to satisis dealer demand. A second product line was also initiated during the year consisting of a series of low priced organs including battery-operated table models. Distribution has been primarily through non-Wurlitzer dealer channels. Acceptance of this line has been good and the future growth possibilities look attractive.
The Wurlitzer electronic piano is becoming a very popular product, and the increase in dollar sales over last year was 13%. Wurlitzer conventional pianos also showed an increase in dollar sales volume over last year. Sales of the widely accepted Wurlitzer cigarette and vending machine line in Europe continued to grow in the amount of 1576 orer last year.
Although our keyboard products business is profitable, rigorous, and growing rapidly, the overall operations of the Company resulted in a loss. Fortunately, many of the problems producing this result are now behind 11s and improved parnings for the future are clearly in prospect. The major tronhle aren nffecting the earnings picture during the past year was our coin-operated phonograph business which has been insatisfactory from the profit viewpoint for the last few years. At a Board of Directors' meeting on March 5, 1974 it was decided to dis. continue plonograph manufacturing and selling operations in the l'nited States, It was also decided to continue to manufacture and sell phonogranhe and related products outside of the l’nited States through our Germon subsidiarr, Deutuche Wurlitzer. as well as other enheidiaries engaged in sales on a worldwide basis, The derision to discontinue l'.S. phonogranh operations was a diffelt one to make, but it is expected to enhance our financial position in the future in a numer of heroficial wars.
The consolidated net loss for the tear ender March 31, 1971 was $7,702,6S? or SR 33 per share after a pre-tax provision of $11.360.00 for locups on disposal of our l'.S. coin-operated phonograph lunsiness. This provision was a direct result of the decision to discontinue the coin-operated phonograph business and is believed to be adequate to cover the expected loss and costs associated with liridation of the 1'.s. phonograph operations. We expect orerall company op eratinine for the year ending March 31. 1975 to be profitable.
Consolidated not earnings in the previous vear ending March 31, 1973 were $2.. 191.171. or $1.77 per share before an extraordinary charge of $313,747 and $1,577,421, or $1.52 per share after the extraordinary charge.
The achievement of record dollar sales this year is evidence of the wide acceptance of Wurlitzer products all over the world. We believe world-wide interest in music is being stimulated partly by the new types of sounds and musical features available to the public, Products such as the Wurlitzer Orbit series of electronie organs with synthesizers and the Wurlitzer electronic piano have been a part of the growth of interest in new sounds, and it is expected that the trend will accelerate.
THE WUBLITZER Co.,
Chicago, Mi., March 5, 1974.
[News Release] R. C. Rolfing, Chairman of the Board of The Wurlitzer Company, reported that the Company's directors decided at their meeting today that the coinoperated phonograph segment of the Company's business in the United States should be disposed of by sale or liquidation. The importance of this product in United States operations has diminished, and it is no longer profitable. Sales rolume in the current fiscal year is estimated at approximately fifteen per cent of the Company's over-all volume. The decision does not affect the Company's European operations, where Deutsche Wurlitzer coin-operated phonographs, cigarette and other vending equipment and accessories will continue to be produced for sale throughout the world.
Mr. Rolfing said that as a result of this decision it is expected that the Company's operations for the current fiscal year ending March 31, 1974 will resuit in a loss, inclusive of losses from liquidation of approximately $7,000,000 after tax benefits.
Mr. Rolfing added that the action taken would materially strengthen the Company and improve its operations, and that he is optimistic as to future parn. ings in its continuing manufacture, distribution, and sale of electronic organs, pianos, electronic pianos and related equipment at wholesale and in its 47 retail stores.
AGO KOERV, Treasurer, Mr. KASTENMEIER. Thank you, Mr. Patterson.
Just for clarification, Mr. Patterson, you said the law review article suggests it would not be in the economic best interest of the industry to provide performing rights for artists. To what industry were they referring when using the term "industry" ?
Mr. PATTERSON. Well, they are talking primarily about the record industry and the tape industry, and they do not touch on the constitutional implications of the creation of what I would characterize as an anomalous copyright, because I can conceive that, if Al Hirt could collect a performing artist royalty, by the same token Jack Nicklaus could copyright his swing, and the same with Mark Spitz, or Chris Evert, and I do not think that a literal reading or even an updating of the copyright clause to our present times would cover that as a proper vehicle for utilization of the copyright clause.
Mr. KASTENMEIER. Mr. Mawdsley, do you wish to make your statement?
[The prepared statement of Mr. Mawdsley follows:]
STATEMENT OF RUSSELL MAWDBLEY, IMMEDIATE PAST PRESIDENT AND CHAIRMAN
OF THE LEGISLATIVE COMMITTEE OF MUSIC OPERATORS OF AMERICA, INC. Mr. Chairman, I am Russell Mawdsley of Holyoke, Massachusetts. I appear here in behalf of Music Operators of America, Inc., the national organization of jukebox operators which has members in every State of the Union. I am the immediate past president of the organization and presently serve as chairman of its national legislative committee.
I have been a member of MOA for 20 years, and I have served on its board of directors and as an officer in each of its several offices over the past 13 years.
I am also vice-president of the Massachusetts Coin Machine Association, the state-wide organization of jukebox operators, and vice-president of the Western Massachusetts Music Guild, a local association of jukebox operators in the western part of the State.
In my city of Holyoke, I am presently a director of one of our leading commercial banks, and I am a member of the Holyoke Planning Board, having served as its chairman for two years.
I bave been a member of the board of directors of the Holyoke Chamber of Commerce. I am a past president of the Holyoke Kiwanis, and a former trustee of a loxal savings bank.
I am president of Russell Hall, Inc. a firm which operates jukeboxes, amusement machines, and a full line of vending machines, in the greater Western Massachusetts area, an area which is centered around the City of Springfield,
Isachusetts. My firm operates about 100 jukeboxes, 150 amusement inachines, aud 700 vending machines, in about 430 localities in this area.
THE JUKEBOX INDUSTRY I would now like to give you a comprehensive view of the jukebox industry, pationwide. According to industry estimates, which we believe to be substantially correct, there are about 7500 jukebox operators, and about 450,000 jukeboxe, on locations throughout the United States. We also estimate that jukebox operators purchase about 75,000,000 records each year for play in their machines. l'rior to 1974, there were four manufacturers of jukeboxes in the United States, including Rock-Ola, Rowe-AMI, Seeburg, and Wurlitzer. In the spring of 1974, however, Wurlitzer discontinued its manufacture of jukeboxes, due to a significant decline in jukebox business.
ECONOMIC CONDITION OF THE JUKEBOX INDUSTRY
We would also like to give your Committee as clear an understanding as possible regarding the current economic condition of the jukbox industry.
Like most other industries, the costs of our equipment and materials have been rising drastically. New jukeboxes cost up to $2500 each, as compared with a maximum of about $2000 ten years ago when this Comunittee held hearings on this subject (Hearings on H.R. 4317, 9th Congress, Part I, page 561). Our singles rexords now cost on the average 75€ per record, which is a marked increase from the 60€ which a typical operator reported to this Committee at its hearings in 1865 (Hearings, Part I, page 570). Wages of our electronic and mechanical technicians and our other costs of operations have risen even more drastically, and are continuing to rise.
On the other hand, jukebox operators are unable to increase prices per play so as to keep abreast of their increasing costs of operations. In some businesses prices can be increased merely by changing the price tag, and the change mar not be noticed. In our industry, it is a matter of reducing the number of songs a custotner can play for a quarter, and also of changing the coin receiving mechallism on every one of the operators' machines. Also, the location owner must be consulted and his consent obtained, for he may object that a raise in the cost to play music will be detrimental to his business. Prices of two plays per quarter have been established by operators in some areas, but this is by no means generally accepted. In many areas, rates are still at 10€ per play or three plays for a quarter, and there are even some areas where the rate remains at o per play.
These contlicting and continuing pressures have necessarily and inevitably resulted in a general reduction in the level of operators' income from operation of jukeboxes. While we do not have statistics on operators' revenue throughout the United States, I think we can state with reasonable certainty that revenues are declining. As a general a verage, gross receipts do not exceed $25 per jukebox per week. I know that in my own area gross receipts average only $24 to $25 per machine per week. And I would like to stress that these figures are gross receipts before they are divided between the operator and the loxution owner, which is done usually on a 50-50 basis. Thus, the operators' gross revenues average something on the order of $12.50 per week. It is out of this small figure, of course, that we must pay for our equipment and all of our costs of operations.
This economic picture explains why alınost all operators have diversified their activities by adding amusement and vending machines to their jukebox operations. In fact, I am quite certain from my own experience that most operators cannot afford to operate jukeboxes unless they also operate amusement
and vending machines. It may be asked, then, why do operators continue to operate jukeboxes. The answer is that location owners usually require jukeboxes to be installed as a condition to having amusement and vending machines placed in their locations. And they insist on having jukeboxes in their locations so as to attract customers to their amusement and vending machines. This situation reflects the fact that jukeboxes provide the principal musical entertainment which most working people can now afford, Jukeboxes are, indeed, as someone has said, "the poor man's orchestra."
EFFECT OF H.R. 2223 ON THE JUKEBOX INDUSTRY H.R. 2223 will have a serious impact on the jukebox industry. It must be noted that the jukebox industry has never before been subjected to copyright performance royalties. Thus, any new royalty will impact severely upon the industry, and will necessitate economic readjustments throughout the industry. The $8 royalty under Section 116 will add a completely new burden in the total sum of at least $4,000,000 per year. Over and above this, there will be at least $4,500,000 in mechanical royalties on the 75,000,000 records (at 6€ per record under Section 115) which jukebox operators buy each year. This amounts to an increase of at least $1,500,000 per year in mechanical royalties over the existing rate of 2¢ per recording (4¢ per record). We understand that a study made for the Record Industry of America (RIAA) indicates that the increase which would result from the proposed new 3c mechanical royalty would amount to at least $5 per jukebox per year, or to some $2,250,000 more than the existing mechanical royalty. Thus, it is evident that the royalty burden imposed upon juke. box operators by H.R. 2223 will amount to at least $8,500,000 per year. We hope the Committee will agree with us that this is more than a fair return to copr. right owners from this industry of small businessmen who serve as promoters of records, as well as being the largest single industry consumer of records.
THE JUKEBOX INDUSTRY POSITION OX 1.R. 2223 We would like to summarize the position of Music Operators of America, Inc., on the jukebox royalty provisions of H.R. 2223 as follows:
1. We support the proposed new $8 jukebox royalty as provided in Section 116. 2. We oppose any increase in that proposed royalty.
3. We also oppose any provision for readjustment of that royalty through a Copyright Royalty Tribunal, or otherwise.
4. And finally, we oppose any fee for registration of jukeboxes.
Our reason for supporting the $8 royalty is the fact, as your Committee is well aware, that our representatives made an agreement with the other interested parties to accept this royalty at the time the General Revision Bill (H.R. 2512, 90th Congress) was under consideration by the House of Representatives. It was, and is, our understanding that this compromise was intended to be a complete resolution of royalty claims against our industry. We have stood hy this coinpromise in the expectation that all other interested parties would likewise do so.
We oppose any increase in the proposed $8 royalty for whatever reason, whether because of adjusments in the Consumer Price Index, or otherwise. As we hare shown above the jukebox industry simply cannot withstand any further increase in copyright royalty burdens.
Our opposition to any provision for a readjustment of the proposed statutory royalty rates rests upon the same grounds, that is, that the inkehox royalty is an agreed compromise which does not include any provision for such readjustment, and further that the jukebox industry cannot withstand any royalty inicreases, and should not be exposed to the uncertainties of such open-ended linbilities.
We continue to oppose any fee for the registration of jukeboree, again, for the reason that such a fee would be inconsistent with the agreed compromise, and for the further reason that the administrative costs of registering jukebores should be borne by the beneficiaries of the new royalty. rather than by the jukehox operators who bear the burden of the royalty. In this connection, te wonld like to ask your Committee to delete from Section 116(b)(1)(A) the phrase which appears at lines 4 and 5 of page 24 of the Bill, and rends as follows: "and' in addition to the fee prescribed by Clause (9) of Section 708(a)". That phrase was left in the companion Senate bill (S. 1361, 93d Congress) through oversight when the registration fee that was then provided by Sertion 708 (a) (9) was deleted from that Bill. We understand there is no objection by the Copyright