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"inventories," that is upon the numbers of recorded songs that are made available for performance in a phonograph. The royalty would be computed and paid quarterly. Songs would be inventoried cumulatively, however, by song title and copyright owner, and also phonograph by phonograph. They would be reported on lists furnished quarterly to copyright owners and other lists furnished annually to the Copyright Office.
We believe the House committee could not possibly have been aware of the magnitude of these administrative requirements. The average operator's 60 to 75 jukeboxes, each having a capacity of 80 records, or a minimum of 160 compositions, as stated in the House committee's report, would have a total capacity of 9,600 to 12,000 compositions to be accounted for. Also, as the House committee's report shows, record purchases average 115 records to 230 compositions per year, and these would also have to be accounted for. Thus, the average operator acquires and would have to account for 3,450 to 4,312 new compositions each calendar quarter or from 13,800 to 17,250 per year, and he would have to maintain inventory records, phonograph by phonograph, for some 13,050 to 16,312 compositions each calendar quarter, and some 52,200 to 62,250, or more, such inventory records each year. Quarterly reports to the copyright owner, again on a phonograph by phonograph basis, would have to be made by the average operator for the 13,050 to 16,312 compositions made available for performance on his machines. Annual reports to the Copyright Office also would have to be made by him for some 23,400 to 29,250 items.
Section 116 would also require every operator to register every one of his phonographs with the Copyright Office in Washington, within 1 month after he places it on location, showing its identifying serial number, its capacity, and the location's name and address. Section 116 also would require the operator to obtain from the Copyright Office, and affix to each machine, a certificate showing the fact of such registration. Any change in location of a phonograph, such as for routine rotation, replacement for repairs, of for any other reason, would require reregistration in the same manner. Furthermore, in January of each succeeding year, every operator would have to reregister and certificate every one of his phonographs in the same manner and his applications for registration would have to be accompanied by lists of the previous year's musical compositions, phonograph by phonograph. These lists, as already described, would total for each operator on the average some 23,400 to 29,250, or more, items, all listed by titles and songwriters.
For the larger operators these requirements would be even more burdensome and costly. But even the smaller operators, including those who operate just one machine, would be subject to the same requirements. We would remind the committee, also that music operators are small businessmen. The typical jukebox operation is a family-run affair, in which the husband and wife, and perhaps another member of the family, do all or most of the work, as well as the recordkeeping. We submit that it is an understatement to say that compliance with these unrealistic, impractical provisions would be an impossibility for these people. It is equally true that the costs of carrying out these requirements would be prohibitive for every operator.
Turning to the amount of royalties that would be imposed by section 116, it can readily be seen that these would be exorbitant and out of proportion to royalties from all other comparable users of copyrighted music. This section provides for royalties at the rate of 3 cents per composition per quarter. This would amount to an industry total of at least $9,216,000 per year, using the 80-record, 160-composition jukebox as the industry average, as the House committee has done in its report (Report No. 83, p. 83).
In addition to this new royalty, the operators will continue to bear the cost of statutory mechanical royalties under section 115, which are being raised in this bill from 2 to 22 cents, maximum, per composition. Mechanical royalties derived from this industry would amount to more than $2.5 million per year.
The combined royalties under section 115 and 116 which would be imposed on this single industry thus would total over $11.7 million per year. This far exceeds royalties paid by all other segments of musical entertainments except radio and TV broadcasting.
Finally, we invite the committee's attention to the provisions in section 116 which give the music operators an alternative to negotiate licenses under written agreements with copyright owners or their agents (see 116 (c) (2)). But we ask this committee if this can truly be regarded as a free choice for the operators in view of the practical impossibilities of doing business under section 116 as it now reads. We submit that the choice is illusory, that our operators would in reality be forced by the unbearable burdens of this section to come to terms with the performing rights organizations.
This brings me to the problems for the operators of the negotiated license.
Neither the existing law nor S. 597 prescribes a maximum limit on performance royalties which can be charged under licenses negotiated with music users by composers or by the organizations representing them. In the hearings on the companion bill, H.R. 4347, it was shown that a statutory maximum based upon a per box royalty would be difficult to administer, and that it might also be objectionable to the Department of Justice because of the antitrust implications of such a provision. Indeed, it is not at all clear that the proponents could agree among themselves on a statutory ceiling on per box performance royalties.
It is probable that negotiated performance royalties, if authorized, would be applied to operators of automatic phonographs on the basis of blanket licensing, as is presently done by the performing rights organizations covering their complete repertories. This is because it is impractical to institute any kind of counting system to log the plays on thousands of phonographs of many thousands of songs. Such blanket licensing, of course, would be unrelated to, and would not accurately reflect, the actual play of individual records on automatic phonographs.
Thus, it would be inherent in any system of blanket licensing for automatic phonographs, that royalties would be paid to composers whose songs were included in the licensed repertory, irrespective of whether or not their particular songs were played. Unavoidably, therefore, some of the performance royalties paid by the operators would
go to composers other than those whose records are played on these machines.
This objectionable feature would be compounded in the case of ASCAP by the fact that its distribution system prevents songwriters from getting full benefit from royalties on their songs. Fifty percent of all the ASCAP royalties, after deduction of overhead expenses, are distributed to publishers; and of the remaining 50 percent for the writers only a fraction is distributed on the basis of current performances. In the 1963 hearings before the House Judiciary Committee, hearings on H.R. 5174 (p. 197), it was shown that only 20 percent of the writer revenues (10 percent of the total net receipts) went into the current performance fund. An election was provided for writers with small revenues to take more from current performances, but the effect of that provision is far from clear, and certainly warrants examination in depth by this committee before ASCAP's claims for additional royalty revenues for those composers are accepted. The committee should not overlook the complexity of ASCAP's rules for distribution of royalties and the fact that those rules as well as other policies and practices of ASCAP have been subjected to judicial scrutiny in antitrust proceedings begun many years ago and that they are subject to continuing court jurisdiction (United States v. ASCAP, civil action No. 13-95, U.S. District Court for the Southern District of New York, 1960).
BMI, the second largest royalty organization, also has been subjected to an antitrust decree at the instance of the U.S. Government (United States v. BMI, civil action No. 459, U.S. District Court for the Eastern District of Wisconsin, 1941).
BMI's relations with composers and publishers are said to be founded upon individual contracts, but the details of its licensing and royalty distribution systems need further explanation. We suggest that the public interest requires that this be done in these hearings.
If the automatic phonograph operators are compelled to negotiate with these huge performing rights organizations ASCAP and BMI-as would certainly be the case if section 116 is enacted, they cannot possibly do so on equal terms. With their multimillions of revenues (ASČAP's was over $40 million in 1965, and BMI's is said to be about $18 million), and consequent generous resources for bargaining expenses, the small businessmen who operate automatic phonographs will be placed at a decided disadvantage in any so-called free bargaining over performance royalties.
ASCAP's spokesmen have referred to a provision in the ASCAP antitrust decree which entitles a dissatisfied customer to appeal to the U.S. district court in New York City for protection against exorbitant performance royalties. But we ask you gentlemen of the committee how much protection, as a practical matter, would there be under this provision for a phonograph operator in your State. We submit that to an operator in any of the cities in your State, or in the thousands of other cities throughout the length and breadth of our land, such a protection would be almost completely illusory. Moreover, this protection exists only with respect to ASCAP. There is no equivalent protection with respect to BMI, or SESAC, or the unorganized songwriters.
Moreover it is pertinent to observe that despite the enormous extent of the licensing powers granted by Congress to the performing rights organizations, they are subject to no public regulation, except insofar as they are regulated by court antitrust decrees. Why should these organizations be permitted to impose and collect those huge sums without some public disclosure and reporting requirements to the Government which clothes them with their powers in the first place? Music Operators of America, Inc., speaking for its members, wishes to make it very clear that they do not have and do not want any "free ride" at the expense of composers of the music that is played on the operators' machines.
As we have pointed out, the operators believe they now pay their fair share of musical copyright royalties. In fact, they now pay more than any other comparable segment of the musical entertainment field.
If, however, this committee and the Congress believe that the operators should pay more, then it is MOA's view that this should be done through a royalty that is based upon the purchase of records, as we proposed in a letter to the chairman of this subcommittee, dated January 7, 1966. We are working on a modification of this proposal to include some minor revisions for its improvements and will submit our proposal as so revised as soon as possible to the subcommittee. The significant features of this proposal are royalties that are more reasonable in amount; namely, 2 cents per composition at time of purchase, which would total in excess of $2,160,000 per year, and procedures that would require a minimum of additional bookkeeping. This proposal is offered in an effort to provide an acceptable solution of the jukebox royalty question, should this committee decide that a new jukebox royalty is necessary in the public interest.
We sincerely believe that this is the best and most practcial solution that has yet been proposed. It is workable, it is enforceable, and it will best serve the public interest.
We appreciate this opportunity to present the operators' views on this legislation and earnestly request the committee's support of their position on section 116 of this bill.
(The portion of Mr. Allen's prepared statement referred to earlier follows:)
For this purpose I refer the Committee to the statement by the author Richard Rogers Bowker in his book entitled "Copyright, Its History and Its Law", published by Houghton Mifflin Company of Boston and New York in 1912. Mr. Bowker, who was a leading figure in the hearings which led to enactment of the Copyright Act of 1909, was Vice President and principal spokesman for the American Copyright League; and he wrote from personal knowledge of the subject. In this book, he presents the background of the "mechanical music provisions" of the Act and demonstrates conclusively that the exemption for playing of music on coin-operated machines is the result of extended considerations and deliberate compromise. At the outset of his discussion of this subject he said:
"As the international copyright provision with the manufacturing clause was the central feature of the copyright campaign culminating in the law of 1891, so the provision for the control of mechanical music with the compulsory license clause was the central feature of the contest culminating in the act of 1909. This came to be known as the 'canned music' fight, and arguments pro and con consumed the greater part of the hearings before the Committee on Patents. The solution finally reached was in the provisos added to the musical subsection (e) of Section 1 of the bill, which in full is as follows:" and there follows a full quotation of this section, including the so called "mechanical music" exemption.
Those who seek repeal of this exemption contend that it is an "anomaly" and a "historic accident", evidently in the belief that these characterizations bolster their arguments for its repeal. We categorically reject this contention, and submit to this Committee, that the exemption was a carefully conceived compromise and that its justification is as pertinent and appropriate today as it was in 1909 when it was enacted. We suggest to this Committee that the members of Congress of 1909 were motivated by the realization that the mechanical royalties which they were then authorizing would amount to such substantial sums from mechanical uses of music that they could not justifiably impose performance fees upon these same uses.
The proponents of this new legislation have referred loosely and repeatedly to the alleged fact that the legislators of 1909 were dealing only with unsubstantial problems of "penny parlors", as contrasted with automatic phonographs as we know them today. But it has been demonstrated in previous hearings before this Committee that these allegations are unfounded, that in fact phonographs and automatic musical instruments were well known and in wide use in 1909; and extensive documentary evidence has been presented to this Committee which establishes this fact. (Hearings on S. 1106 in 1953, at pages 73, 81, 95, 96.) In fact, the Supreme Court's opinion in the White-Smith v. Appollo case, referred to above, noted that 70,000 to 75,000 mechanical music instruments were in use as early as 1902 (209 U.S. 1, at p. 9).
Another passage from the writing of Richard Rogers Bowker referred to above adds further evidence which shows that on this point Congress was necessarily cognizant of the development and widespread use of the automatic phonograph at the time of the 1909 amendments. The passage referred to at page 209, in discussing the international copyright convention of 1908 reads as follows: "With the increasing development of the phonograph and of the mechanical player, mechanical reproductions became so important a matter to musical composers and publishers, that much of the discussion in respect to the amendatory convention of Berlin in 1908 was upon this subject. In the amended convention, the subject was fully covered by article 13:"
Mr. ALLEN. In conclusion, Mr. Chairman, I would like to ask, as we are working on our proposal, to include revisions which have been suggested. We would like to have permission to submit this, as soon as it can be done, to your committee.
I also would like to ask, in view of the fact that we are making our case, or I am making my case, before the proponents are heard, we would like to ask permission to file a brief in answer to what they present at the hearings next week.
Senator BURDICK. There will be no objection to that.
Mr. ALLEN. Thank you, sir.
Senator BURDICK. Your proposal, then, is to add 2 cents per composition to records if they are going to place any further royalty on in this business?
Mr. ALLEN. Yes, sir, our proposal is not just an add on to what is already in section 115, but to operate a second royalty, as does section 116
Senator BURDICK. Would that apply to everyone in the general public?
Mr. ALLEN. No, very definitely not, Mr. Chairman. I would like to emphasize that point. We have proposed, just as 116 does in that respect, a royalty solely to the music operators. The record manufacturers under the procedures we have suggested would not be involved nor have any burden of paying as they do under 115. It would be strictly our obligation.
Senator BURDICK. If I should go down to the music shop in Fargo to buy a record, would they inquire of me if I were an individual or a jukebox operator to determine whether or not I was to pay additional fees?