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to the conditions of economic distress from which, hopefully, we are now emerging.
Music Operators of America, Inc., in unalterably opposed to section 116 of this bill, S. 597, in its present form. This section would impose upon our operators a burden of administration and bookkeeping which would be impossible for them to comply with.
We estimate that the bookkeeping, reporting, and registration requirements of this section would cost our operators at least as much again as the $9.2 million of new royalties which it would impose on them.
It must be remembered also that mechanical fees from our industry under section 115 of the bill, will be increased to over $2.5 million per year.
Royalties in such amounts, totaling over $11.7 million per year, plus administration costs probably totaling as many million dollars more, would be out of proportion to the royalties paid by other kinds of musical entertainment, and would be grossly unfair to our industry. This section, we submit, will benefit primarily the performing rights societies, ASCAP, BMI, and SESAĆ.
Faced with such impossible requirements for compliance with the administrative provisions of this section 116, there can be no doubt that our operators will be forced to take out licenses from the performing rights societies at whatever rates they choose to impose on us. We ask this committee how can our operators be expected to bargain with these hugh societies on equal terms? How can such legislation be viewed as fair and in the public interest?
MOA has previously offered to this committee a proposal for an on-the-record royalty which would establish a fair royalty to be paid by music operators that would bring in to music copyright owners more than $2.1 million per year. Its administrative provisions would be simple and enforcible.
We do not ask this committee for a "free ride." We are willing to pay additional royalties for our use of music if the committee is satisfied that the performing rights societies have proven such additional royalties are required for fair compensation to songwriters. If the committee does so decide, then we urge you to accept this MOA proposal as the basis for a complete substitution for the language of section 116 as it is now written.
I appreciate the opportunity to appear before this committee on behalf of Music Operators of America, Inc. Thank you very much. Senator BURDICK. Thank you. We will withhold our questioning until all have testified.
Mr. ALLEN. That will be helpful, Mr. Chairman, if we could proceed and then have questions.
Our next witness will be Mr. Lumpkin, Mr. William R. Lumpkin.
STATEMENT OF WILLIAM R. LUMPKIN
Mr. LUMPKIN. Mr. Chairman, honored members of your committee, my name is William Richard Lumpkin. I was born in Hanover County, Va., May 24, 1903, and have lived there my entire life.
My work is quite diversified. First, I operate a livestock farming operation of about 327 acres. The livestock consist of 110 head of Hereford cattle and about 100 head of Hampshire hogs.
Second, I am an active justice of the peace for Hanover County, Va., and have held this office for 20 years. I am a partner in a real estate subdivision, known as Hanover Country Club Hills, Inc., in Hanover County. I operate a small route of automatic music machines in my county.
I am president of the Music Operators of Virginia, president of the Association of Justices of the Peace of Virginia-12 years as presidenta member of the board of the First and Merchants National Bank-Ashland Branch-a member of Independence Christian Church, a 32° Mason and a Shriner, and a member of the chamber of commerce and small business association.
The Music Operators of Virginia have 81 members and there are approximately 145 operators in the State. This association was organized in 1958 and has grown steadily since. My thought is that the average operation in Virginia would be about 60 to 80 machines.
My operation is small, consisting of 22 music locations. We operate in a rural section and my gross collection for 1966 was $10,218.65, or $8.94 from each machine per week. My record cost for 1966 was $1,609.97. Having talked with most of the operators who are members of our association, I find that the approximate gross take per week is about $9.05 per machine in Virginia.
My association has given a lot of study and research on the proposed legislation, namely, section 116, and we find that it would create untold hardship and, in fact, would cause most of the operators to close out their businesses, as the profit from operating has decreased, due to the increase in cost of everything pertaining to this operation. Our national association has offered what we believe would be a fair and workable royalty. It would be based on purchases of records and it would not require such burdensome and costly administrative procedures as are now in section 116. We hope very much that the committee will accept this proposal as a substitute for section 116. Until and unless such a workable solution can be agreed upon, the present exemption under which the people of this industry have lived and worked should be retained in the new law.
Mr. Chairman, allow me in behalf of the operators in Virginia to thank you and your committee for allowing me to present these facts. We feel that the caliber of men that have been selected by the people back home to represent them in this great body as their Senators will look into section 116 with a lot of thought as to the hardships and unworkable manner that will be created by its passage.
If there are any questions that your committee would like answered, please call on me and I will give you the facts as I know them. I again thank you, sir.
Senator BURDICK. Thank you.
Mr. ALLEN. Our next witness, Mr. Chairman, is Mr. Ted Nichols, of Fremont, Nebr.
STATEMENT OF TED NICHOLS
Mr. NICHOLS. Thank you.
My name is Ted Nichols. I live in Fremont, Nebr. I am the president of Automatic Vending Service, a corporation, which operates music machines and other types of coin-operated devices. I have been
in business since 1936, except for 3 years of military service during World War II.
I am an active member of the Missouri Synod Lutheran Church, Sertoma Club, chamber of commerce, Veterans of Foreign Wars, and American Legion. I am on the board of directors of Music Operators of America, and a member and past president of our State organization, Coin Operated Industries of Nebraska-COIN.
Coin Operated Industries of Nebraska presently has 45 members with an average of 60 music machines. Average gross income for these operator companies last year was about $30,000, or approximately $9.60 a week per unit. Most of these phonographs give one play for 10 cents, three for 25 cents, and seven for 50 cents. These Nebraska operators purchase, on the average, 8,500 records each at a cost of around $5,500 per year. Approximately 380,000 records are purchased each year by the members of our State organization and we pay over $15,000 in mechanical royalties a year.
Almost all of the members own and operate their own small businesses. They employ an average of three men. Smaller operators have other part-time work or their wives work. Most operators have other sources of income, such as cafes, taverns, real estate business, merchandise vending, and distributors of machines.
The average net profit from music machines in our area has been estimated at from 65 cents low to $2.50 high per week.
I should add that the $2.50 figure is exceptional, and is from a parttime operator of only 14 machines and is therefore unrepresentative of the great majority of the operators in our area.
In our own corporation we figure $1 per week is an absolute minimum net for successful operation of any amusement or music machine. However, if we try to make much more than this, we lose customers to competitors or to location ownership.
Our corporation operates and services 48 automatic phonographs, 15 background music locations, 50 amusement machines, 100 cigarette vending machines, 70 candy vending machines and 15 coffee machines. We conduct our operations in 25 small towns that lie within a 60-mile radius of Fremont, Nebr., some in Iowa. We employ two men full time, one man part time, and my wife and me.
Our corporation's gross receipts from phonograph operations last year was $23,400. This is an average per machine of $9.65 per week. We purchased approximately 5,600 records last year at a cost of $3.388.
There has been a decline in the number of operator companies in our area in the past 10 years but without any significant change in the total number of machines on location. Our small towns now have fewer machines, the larger cities have more. Most of our machines are located in small cafes and taverns in towns spread throughout this farming area. Residents of these towns have little other entertainment. In past years, many phonographs have been removed because they did not bring in enough revenue to support them.
The automatic phonograph has never been given much credit for popularizing records, but I feel this is changing, especially with adult music. Kid or teenage records are still requested largely because they are played over the radio top 40. Older people are requesting records
they have heard somewhere on a music machine. Exposure of records on our phonographs does enhance sales.
We are willing to see our industry pay what Congress considers to be fair, if additional royalties are required, and we believe the best, fairest, simplest way would be a fee paid at the time of record purchase. Our National Trade Association has offered this concept in a proposal made to this subcommittee.
I feel our proposal is infinitely superior to the provisions in section 116 of this copyright bill, which would set up a royalty based upon inventories of records in the music machines and would require very complicated and very costly records to be kept and maintained by every operator.
If these provisions cannot be changed to remove the terribly complicated and voluminous recordkeeping, we would have to take machines out of poorer paying locations because we could not afford the cost of all this work, and we would have to receive a greater percentage of the gross income from all retained locations because of this added cost plus the additional performance fees.
However, rather than go through all of this costly recordkeeping, we would be forced to bargain with the two copyright societies with whom we would have to deal, for whatever licensing terms and conditions they would impose on us. In this situation we would be at a serious disadvantage because of the language of section 116, which would give us no workable alternative.
I thank the committee very much for listening to my statement, and hope it will aid them in a decision that is fair and workable for all concerned.
Senator BURDICK. Thank you.
Mr. ALLEN. Our next witness, Mr. Chairman, is Mrs. Leoma W. Ballard of Belle, W. Va.
STATEMENT OF LEOMA W. BALLARD
Mrs. BALLARD. Mr. Chairman, members of this committee, my name is Leoma Ballard. My home is in Belle, W. Va. I am the owner and operator of Belle Amusement Co., which operates amusement machines and jukeboxes in Charleston, W. Va., and the surrounding area.
I am associated in many activities in my community, including the Judson Baptist Church, American Legion Auxiliary, YMCA, Women's Club of Belle. I am married and provide the principal support for myself and my husband, who worked with me in my business until he became totally disabled 2 years ago. I am, and have been for the past 7 years, treasurer of West Virginia Music and Vending Association. We have about 60 members, out of a total of 80 operators throughout West Virginia. I have been a jukebox operator for 20 years.
The members of our association operate on an average about 55 jukeboxes, although a few have routes of from 50 to 100 or more such machines. Most operators have jukeboxes in connection with other amusement machines. About 20 percent of the operators also engage in cigarette and candy vending. The average gross income for jukebox operators in our State is between $7.15 and $8.50 a week per machine. Most of our jukeboxes are operated for 10 cents per play,
four for 25 cents, and nine for 50 cents; a few are operated at 5 cents per play.
I estimate that our members purchase about 100 new records per machine per year, and that all 60 of them collectively purchase around 436,800 records, and pay over $17,472 in mechanical royalties per year. Most of our members' businesses are family operated. Together, they own and operate their routes, service their machines, change records, make collections, and do their own office work.
For myself, with two employees, I operate 101 jukeboxes and 93 other amusement machines. I have 102 locations, 31 in the city of Charleston, and the others in an area of 20 to 45 miles east and west of Charleston. My gross income from my entire operation in 1966 amounted to $73,505.01, half of which, $36,752, was derived from jukeboxes. The jukebox income amounted to $363.88 per machine for the entire year, or $6.99 per machine per week.
Mr. Chairman, there have been a few words omitted in this next couple of sentences, and I would like to insert them.
Record purchases totaled $7,471.63; other overhead expenses totaled $51,129.80, out of which I paid State and local taxes amounting to $2,352.35. One-half of the total expenses for the year, $25,564.90, was for my jukebox operation. Thus my jukebox operation cost $33,036.53 or $327.09 per machine for the entire year, or $6.29 per week.
From these figures it is readily apparent that my net profit from my jukeboxes was only 70 cents per machine per week. And please note that I took no salary for myself before figuring this net profit.
Of course, I should point out that the other part of my diversified business-the amusement machines-provided a better margin of profit so that from the combined operations in 1966, my total net profit, without allowance of any other salary to myself, was $14,903.58. And, gentlemen, as I have stated, I have only two employees. This means I do a lot of route work myself. I regularly do my own collecting, record service and maintenance. Weekends I do my bookkeeping.
This description of my business is typical, not exceptional, of the great majority of music operators throughout the United States. This is why the music operators cannot possibly comply with the fantastically burdensome, administrative procedures, and pay the extremely high royalties that are required by section 116 of this bill.
If anyone thinks this section gives the operators any real alternative to bargain with the performing rights societies for negotiated licenses, I hope they will remember the thousands of small operators who will be in no better position than I am to deal with them. I know that for myself if this section becomes law my jukebox business will be finished.
Last year I bought 10,625 phonograph records for my jukeboxes, and I figure this provided $425 in mechanical fees for the songwriters who produced the music that was played on my machines. I think this is fair compensation for the songwriters. However, if for some reason the committee thinks I should pay more to them, I want to see this done on the basis of the records I purchase, rather than some unworkable basis such as section 116 provides.
The proposal which the National Association of Music Operators has made would do this, and it would permit me to make simple reports, which I am capable of doing.