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To demonstrate the unsoundness of it, if we use the accepted national average gross of $18.50-House Report 2237-per machine per week, the greatest number of plays possible-three for 25 cents-is 222 for the week. A limited number of records are hits at any one time. Therefore, it is quite possible that a 200-capacity jukebox may play 10 records 22 times each, or 20 records 11 times each. In that case, there would be no performance of the other 190 or 180 despite the presumption.
In practice we find the current hits get the top play and those on their way up and on their way down get scattered attention. The majority of the records in a large-capacity machine are those diminishing and those done.
Our conclusion is obvious. Section 116 is unworkable and no operator would ever attempt to follow its procedures. Its stated "limitations" are not limitations in reality and their purpose of establishing a maximum liability are defeated by the required procedures.
On the other hand, the method of paying a standard performance royalty on records as they are acquired, while certainly not perfect, has the practical value of comparative simplicity. Music Operators of America has made such a proposal.
I suppose it is suspect because of its origin but I assure you it was devised with all interests in mind and written as objectively as we were able. It has many desirable features.
The purpose of the proposed registration and divulgence of the exact number of machines operated is to make available to every copyright owner a list of all jukebox users of music. With this list, the owner would know who the users are and could come very close to estimating what the operator should be paying him. Every jukebox would have to bear this identification to be a legal user of music.
All of the other sanctions of copyright law would apply to operators as well.
Actual performance would be very closely approximated. Currently paid royalties would be for currently played works. More primary hits are bought than secondary hits, et cetera, on down to a very few purchases of those least popular. There is a direct relationship between records purchased and performance.
The method of payment and reporting are based on information already available to the operator. His record invoices already show the number of records purchased and he only has to instruct his supplier to itemize his invoices, if this is not being done, presently.
This royalty would begin at the same rate as future payments so no inventory on records presently in use would be required.
The procedures would not be overly expensive to maintain and the rate of royalty is more fitting to the comparative importance of the song to the other very important ingredients of a hit record and, in turn, the economic comparison between the record and the many other components of jukebox operating.
In the case of T. & A. the royalties payable would be $376.96. This compares fairly with the amount of music that is popular at any one time on their machines.
There is little doubt that jukebox operators would prefer to negotiate blanket licenses rather than even the easier method proposed by
MOA. However, if a statutory alternative is not available we feel we could not survive the demands which would ensue.
We respectfully urge you to delete section 116 of S. 597, replace it with practical procedures and more reasonable rates, if royalties must be paid, or reinstate the existing exemption in the present copyright law until a practical solution is arrved at.
Senator BURDICK. Thank you, Mr. Cannon.
STATEMENT OF NICHOLAS E. ALLEN
Mr. ALLEN. Mr. Chairman, at the outset, I would like to summarize the position of the operators on this bill.
First, they do not oppose the bill; they oppose only section 116; and they do so because this section is grossly unfair to this industry. It would impose a new royalty on this industry that is excessively high, and it would subject the operators to burdensome administrative requirements that would be oppressively costly and impossible for most of them to comply with.
Second, they are willing to pay additional royalties if that is the judgment of Congress, but they insist that these royalties should be fair in amount and that the administrative provisions for carrying them out should be workable. I want to emphasize right here that the operators are not looking for a "free ride," they are willing to pay their fair share, and they believe they do so now. They insist that the proponents of a new royalty from this industry must prove to the satisfaction of the Congress that additional royalties from this industry are necessary in order that writers whose music is played on the music operators' machines are fairly compensated.
Third, the operators say that the most appropriate method for imposing new royalties on their industry is one that is based on record purchases, and that is payable by a method similar to the one which has been in successful use for "mechanical" royalties for more than 50 years.
That method applies to mechanical royalties which are provided for in section 115. Music Operators of America, Inc., has submitted such a proposal to the chairman of this subcommittee and urges that this proposal be accepted as a substitute for the present language of section 116, provided again, that the committee concludes that a new royalty from this industry is needed for fair compensation to songwriters.
The automatic phonograph industry in the United States today consists of several manufacturers of phonographs, a large number of distributors of phonographs, and several thousands of operators and their employees. Phonorecords are produced by many record manufacturers, and are sold to music operators through distributors, most of whom are referred to as "one stops," because each selects and sells records from many record manufacturers.
We accept as being essentially correct the industry statistics as reported by the House Judiciary Committee in its report on a companion bill for revision of the copyright laws, H.R. 2512, 90th Congress, Report No. 93, dated March 8, 1967.
At pages 82 and 83 of that report it is indicated that there are somewhere between 7,000 and 9,000 music operators and from 450,000 to
500,000 jukeboxes and that operators purchase approximately 54 million records per year, most of which are single records containing two selections each.
The average operator has between 60 and 75 jukeboxes, buys about 115 records or 230 selections per box per year, and grosses per box roughly $1,000 per year or $18.50 per week; and this he usually shares with the location owner on a 50-50 basis, making his gross receipts approximately $9.25 per box per week.
We believe this is just about the national average although as some of the witnesses have indicated, there is an upward swing in some parts of the country which may make the average somewhat higher. Any increase in this national average gross figure is offset, however, by increasing costs of operation, so that there is no increase in net profit to the operators.
I would now like to direct the committee's attention to the provisions of existing law which section 116 of this bill would change.
Section 1(e) of the copyright law (17 U.S.C. 1) confers upon "any person entitled thereto", "the exclusive right," "to perform the copyrighted work publicly for profit if it be a musical composition", and it further provides:
"The reproduction or rendition of a musical composition by or upon coin-operated machines shall not be deemed a public performance for profit unless a fee is charged for admission to the place where such reproduction or rendition occurs."
Section 1(e) also grants to copyright owners the exclusive right to "mechanically reproduce" their music and authorize a royalty of 2 cents for each mechanical reproduction that is made by any member of the public after the copyright owner has initially issued a license to any one manufacturer.
It is important to bear in mind that the present copyright law provides for two kinds of musical copyright royalties. The performance royalty, which is the first, and older, of these, was created and made a part of our copyright law in 1897. This royalty arises out of the exclusive right which is granted to the composer of music to license public performances for profit. The mechanical royalty is the second of these and it was created and made a part of our statute law in 1909. It is sometimes referred to as a compulsory license. It was created as the combined result of the Supreme Court's decision in 1908 in WhiteSmith v. Appollo, 209 U.S. 1, which had declared recordings beyond the scope of statutory performance rights, and the demands of composers that Congress should add exclusive recording rights to their rights of exclusive performance under the existing law.
Congress granted this second royalty right, but in doing so, it imposed two conditions. First, it required that the composer, upon granting a recording right to any one manufacturer, should thereupon be compelled to permit any other manufacturer to record the composition, provided such other manufacturer paid a mechanical royalty in an amount not to exceed 2 cents per recording. The second condition written into the law was that a performance royalty could not be changed with respect to the playing of a recorded composition upon a coin-operated machine, provided no admission was charged to enter the place where that performance was rendered.
To understand the present controversy with respect to section 116 of S. 597, it is essential, therefore, to remember that in the field of musical copyright there are two-not just one-statutory royalties, and further, that the coin-operated phonograph industry is exempted from only one of these, the performance royalty.
Although the reports of the committee hearings and congressional debates on the 1909 Copyright Act offer little help in discerning the congressional intent behind the so-called mechanical music exemption described above, there is authoritative history which shows that this provision was deliberately included in the law as part of a thoroughly considered compromise between the creators of music, on the one hand, and the users of music on the other.
Mr. Chairman, from that point on page 5 to near the bottom of page 7, I refer to the history of this provision as it is reported by Richard Rogers Bowker in the work entitled "Copyright, Its History and Its Law."
I will say that the point that is shown by this historical reference is that the exemption of coin-operated machines was not an accident, as our opponents often say. They refer to it as a historic accident. We say that it is not an accident; it was a deliberate compromise, and this reference is good proof of it. It was written by the representative of the music owners interests of that time and he participated in the legislative considerations himself in that year and wrote his own personal recollections of it. He refers to this particular controversy as the principal dispute in the course of enactment of the 1909 law.
He called it the canned music fight. He shows that the exemption on which our industry is based was deliberately intended to limit to the creators of music one royalty on records played on coin-operated machines.
It is estimated that operators of automatic phonographs purchase approximately 54 million records per year (H. Rept. 83 on H.R. 2512, 90th Cong., p. 82). On the basis of the presently authorized mechanical royalty of 2 cents per composition, or 4 cents per record, it is apparent that at least $2,160,000 in mechanical royalties is received each year from records purchased by music operators.
Under section 115 of S. 597, which raises the rate of royalty to 22 cents per composition, the royalties from purchases of records for automatic phonographs would exceed $2.5 million per year.
The fact that automatic phonograph operators are the largest group of purchasers of records, and thus provide the largest source of income from mechanical royalties, is especially significant in considering the question whether they should also be subjected to additional royalties under the method provided by section 116, or the alternative of negotiated licenses which it authorizes. Their bulk buying of large numbers of records is the distinguishing factor which would justify their continued exemption from performance royalties, unless and until additional royalties are justified by proponents of this section.
Comparative figures have not been provided by the proponents of this legislation to justify their claim to additional royalties from this industry group. From the few published figures that are available, however, it is clear that the $2 to $3 million per year contributed: through operators' purchases of records compares favorably with the
royalties paid by other sources of musical entertainment. The latest statistics publicly released by ASCAP, in 1958, show that no group of licensees, except radio and television broadcasters, pays to ASCAP as much in royalties as the mechanical royalties which are produced by the operators of automatic phonographs. ASCAP's statistics were furnished to Subcommittee No. 5 of the House Select Committee on Small Business and show that 3.1 percent of its total receipts in 1957 from licensees ($26,588,391.95) or $824,240.15 were received from "bars, grills, taverns, and restaurants." In fact ASCAP's total receipts in that year from all licensees other than radio and television broadcasters amounted to only slightly in excess of $3 million.
Before this committee accepts the demands of ASCAP and the other proponents of this legislation that the automatic phonograph operators should pay additional royalties, we believe that they should be required to support their demands with concrete proof that additional royalties are necessary for fair compensation to composers.
International considerations also have been advanced as reasons for repealing the exemption of performances on coin-operated machines from performance royalties. Those who advocate repeal of the present exemption argue that claimed inequities in the treatment of foreign composers in some way impair our foreign relations, and that our law should be changed for this reason. We submit that this is not a valid argument. There is no inequity in the treatment of foreign composers under our law. They are entitled to the same royalties under our law as are our own composers. This is all that international comity can require. There is no more reason to conform our copyright law to that of other countries than there would be to change any of our other laws or constitutional principles to conform them to the laws of other countries.
Now I would like to turn to the general revision bill which is now before the committee. As the bill was introduced in the 89th Congress, it contained a section, section 114 (S. 1006, H.R. 4347), which would have repealed outright the present exemption (17 U.S.C. 1(e)) for performance of music on coin-operated machines, but without including any protection to music operators against exhorbitant licensing charges by copyright owners. Subsequently, after public hearings in which the music operators and phonograph manufacturers strenuously objected to this "open end" aspect of the bill, the House Judiciary Committee added new language which created a new "jukebox" royalty, but which, at the same time, did set a top limit on statutory royalties payable on any one machine. The amended section was renumbered section 116, and is the same as section 116 in the bill, S. 597, and the companion bill, H.R. 2512.
We are encouraged that the House Judiciary Committee has accepted our arguments against "open-end" statutory royalties, but we are gravely concerned with other aspects of this new section which were developed by the committee in its executive sessions following the public hearings. We strongly believe that if the committee had permitted our members to come before it in public hearings, we could have convinced the committee of the impracticability of its proposal and the excessivenes of the royalties it would impose on our industry. Section 116 would establish a royalty based upon phonograph