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We understand the questionnaires were mailed by the manufacturers of automatic coin-operated phonographs in late January and the first part of February of this year. As of March 10, 1967, 803 responses had been received. Of this total, 27 were from operators who sent in more than one response, 88 were from operators who supplied incomplete or unreasonable answers which could not, in all fairness, be tabulated, and 37 were from people who stated they had not been in the jukebox business during 1966. A total of 651 replies were used in compiling the statistics presented in this testimony. This number represents approximately 10 percent of the jukebox operators in the United States.
The usable replies reflect a good geographical cross section of the United States. All the States except Hawaii, Nevada, and New Hampshire are represented. Two replies were received with no discernible postmark. We have prepared a schedule which shows the number of replies received from each State. The schedule which is entitled "1966 Jukebox Survey Table A-Distribution of Usable Replies by State" will not be read here but is submitted for the record.
We have prepared our statistical data by grouping the owneroperators into six size classifications as follows:
(The table follows:)
The 651 operators reported that they owned a total of 47,965 machines, an average of about 74 for each operator. They reported revenue collections of $24,600,303, expenses of $17,613,662, and net revenue collections of $6,986,641. This amounts to an average net annual revenue collection by each operator of $10,732 or $894 a month.
The smaller operators, those who own 50 machines or less and who constitute 54.2 percent of the total usable replies, reported smaller earnings. They reported average net revenue collections of $4,966 or $414 a month.
Counsel has informed us that each jukebox contains an average of 80 records or 160 selections. Assuming that this arrangements governs in every case, we have calculated how much a royalty of 3 cents for each selection for each calendar quarter ($19.20 a year) would affect net annual revenue collections. We have prepared a table (table B) which shows the income for each size group after a reduction of reported net annual revenue collections by a 6 percent allowance for a return on investment and a reduction for the proposed royalty. This final figure is the amount available for the normal salary for work done by the owner-operators and for the payment of Federal and State income taxes. If expenses were incurred to maintain records and prepare reports contemplated by the proposed royalty, the income available to the owner-operators would be further reduced.
A 6 percent return on investment appears to be a reasonable return when compared to other investment opportunities. For instance, the 10-year average yield of low-risk good quality bonds (Moody's Baa) is approximately 5 percent. Certainly an owner-operator of jukeboxes should expect a yield of at least 1 percent more than this as his investment most certainly is subject to greater risk.
Table B shows that for the 353 operators who reported less than 50 machines, the proposed royalty amounts to 4.2 percent of revenue collections before expenses and 10.4 percent of net revenue collections after deducting expenses (not including owner-operator salary or Federal and State income taxes). It shows also that for the 17 operators who reported over 300 machines, the proposed royalty amounts to 3.1 percent of revenue collections before expenses and 13.5 percent of net revenue collections after deducting expenses (not including owneroperator salary or Federal and State income taxes). For each of the 651 operators, large and small, the table shows the proposed royalty amounts to 3.7 percent of revenue collections before expenses
and 13.2 percent of net revenue collections after deducting expenses, again not including owner-operator salary or Federal and State income taxes.
As shown by table B, the average amount available for salary and for Federal and State income taxes is $10,732, a year, or $894 a month for each of the 651 operators. If this amount is reduced by a 6 percent return on an average investment of $61,887 or by $3,713 and by $1,415 for the proposed royalty, the owner-operator would have $5,604 a year of $467 a month available for salary and for Federal and State income taxes.
For the operators who own less than 50 machines and who constitute 54.2 percent of the total replies received, the average amount available for salary and for Federal and State income taxes is less than the average for all operators, and is $4,966 a year or $414 a month. If the annual amount is reduced by $1,422 representing a 6 percent return on a $23,709 average investment and $517 for the proposed royalty, the owner-operator would have $3,027 a year or $252 a month available for salary and Federal and State income taxes.
Other data may be derived from table B. For instance, it can be calculated that the average owner-operator, the owner-operator of 74 machines, derives an average revenue collection from each machine of $9.82 a week ($1.40 a day) after paying the location owner a similar amount. Similarly, it can be calculated that the gross revenue collections from each machine, the amount that is shared equally by the location owner and the jukebox owner-operator, averages about $20 a week or $1,000 a year. It can also be calculated that the average owneroperator would derive only $76 a year from each machine for his own salary and Federal and State income taxes if the net revenue collections are reduced to allow for a 6 percent return on investment and by the proposed royalty of $19.20 a year now under consideration.
I might add a few words for the record relating to the responses to the last item on the questionnaire. The operators were asked to report the number of records purchased during the year 1966. For the few who stated the dollar value of records purchased, we calculated the number of records purchased by dividing the dollar value reported by 65 cents which we understand is about the average purchase price.
The 651 operators reported purchases of 5,042,503 records. This amounts to 7,746 records for each operator or 105 records for each machine during 1966.
This concludes the presentation of data assembled from the questionnaire as reported to us by the operators.
(The tables referred to follow:)
1966 JUKEBOX SURVEY
8 6 51 12 3
TABLE A.-Distribution of usable replies by State Alabama.
9 Nevada.. Alaska
8 New Hampshire.. Arizona.
2 New JerseyArkansas..
10 New Mexico. California.
46 New York.... Colorado..
8 North Carolina. Connecticut.
4 North Dakota. Delaware
1 Ohio. Florida..
19 Oklahoma. Georgia
6 Rhode Island. Illinois.
38 South Carolina. Indiana.
18 South Dakota... Iowa..
12 Tennessee. Kansas.
12 Texas. Kentucky
15 Utah. Louisiana.
15 Vermont. Maine..
13 Washington... Massachusetts.
6 West Virginia. Michigan..
23 Wisconsin. Minnesota
16 District of Columbia.. Missouri.
16 Unclassified.. Montana.
Table B.--Schedule showing effect of proposed revision in copyright law on operators
replying to the questionnaire
Average investment per
operator.. Annual revenue per operator..Annual expenses per operator..
Net annual revenue per
operator. Less 6 percent return on in
vestment Less proposed royalty at $19.20 per machine i
Balance remaining for op
erator's salary and Fed-
3.7 13. 2
! Assumes an average of 80 records per machine, 160 sides and a proposed royalty of $0.12 per year per side ($0.03 per calendar quarter per side):
Senator BURDICK. Thank you very much for this testimony. I have really no questions. I have one out of curiosity. What is the ordinary life of these machines?
Mr. ARNOLD. I am not sure as to whether the rate of depreciation or normal life of the machines is governed more by obsolescence, or style change than by normal depreciation. It would take someone knowing more about the life of the machine than I do.
Senator BURDICK. Was not there available to you a table showing you the life expectancy of these machines?
Mr. ARNOLD. No; we asked them the figures on depreciation but they did not give us any details. They gave us the summary figures.
Senator BURDICK. Thank you very much.
The next witness is Mr. Perry S. Patterson, of the firm of Kirkland, Ellis, Hodson, Chaffetz & Masters.
STATEMENT OF PERRY S. PATTERSON; ACCOMPANIED BY ROGER
D. MIDDLEFAUFF, JR., REPRESENTING THE WURLITZER CO., THE SEEBURG CORP., ROCK-OLA MANUFACTURING CO., AND ROWE MANUFACTURING CO.
Mr. PATTERSON. I have submitted a somewhat lengthy statement and much of what I have to say buttresses from a legal standpoint the practical considerations advanced by witnesses for MOA. I propose to summarize my statement to the best of my ability without impairing the flow or persuasiveness. I might say, at the outset, I have been advised that the useful life of these machines is normally considered to be 5 years. That is the depreciation pattern generally followed.
Senator BURDICK. What is the practical use? Is it much longer than that?
Mr. PATTERSON. Well, there is quite a turnover, because the style changes are comparable to the automobile industry and there is considerable competition among our four clients in new models. I would say competition is intense. So, there is a turnover and there is a flow of used machines into marginal operation and out of the country. I would say, probably, in prime locations the useful life is less than 5 years, because these machines are moved out as newer models with more atractive features are developed and promoted.
Senator BURDICK. Without objection, your full statement will be made part of the record. The Chair wants you to know that we appreciate very much these summaries, because we follow the testimony better and we have your complete statement before us at all times anyway.
Mr. PATTERSON. Thank you, Mr. Chairman.
My name is Perry S. Patterson. I am a member of the firm of Kirkland, Ellis, Hodson, Chaffetz & Masters with offices in Chicago, Ill., and Washington, D.C. Herbert J. Miller, Jr., of the firm of Miller, McCarthy, Evans & Cassidy, and I represent the Wurlitzer Co., the Seeburg Corp., Rock-Ola Manufacturing Co., and Rowe Manufacturing Co.
These companies comprise all of the manufacturers of automatic phonographs, otherwise known as jukeboxes, in the United States.
Early in the course of the congressional deliberations on the general copyright revision, the manufacturers were charged by governmental backers of section 116 with intending to direct a "concerted and unyielding opposition" to the "entire revision.” This is simply not true. We want the record to show that we consider the enactment of a general copyright revision as one of the most important pieces of legislation before Congress.
In this connection, during the past year, we have met on a number of occasions with the Register of Copyrights, the Honorable Abraham L. Kamenstein, and with his associates, George D. Cary, Barbara A. Ringer, and Abe A. Goldman. We have been impressed with their tremendous accomplishments as embodied in the general copyright revision and wish to express our appreciation for their sincere and conscientious efforts, which still continue, to arrive at a workable soluton to the problem of jukebox royalties.
We support the revision—but we resolutely oppose section 116 of this bill—an administrative nightmare, never in the original bill, conceived in executive sessions, and never, until now, examined in the critical light of public hearings.
Since 1909, ASCAP, later joined by BMI and SESAC, has repeatedly sought to have the Congress grant them the right to license the jukebox operators—just as they have licensed first the radio and then the television networks. Since 1926 there has been legislation introduced or pending in every session of Congress aimed at creating this new right.
Hearings were held on such bills in 1929, 1931, 1932, 1935, 1936, 1947, 1951, 1952, 1958, 1959, and 1963, again in 1965, and now here.
I earnestly refer the committee members and your counsel to the House hearings on H.R. 4347 and also on the articles as exhibits to our testimony in such hearings from Broadcasting magazine of March 15, 1965, which appear on page 607 of the printed testimony of those hearings.
I also refer you in the same hearings to page 634, which sets forth photographs and descriptions of coin-operated phonographs in existence prior to 1909. Also, I wish to quote in this record from the committee report on the 1909 Copyright Act. That is Report No. 2222 at page 9, because there, in summarizing the then pending legislation with respect to the general revision of the copyright laws, the report said, and I quote:
The exception regarding the public performance of a musical composition upon coin-operated machines in a place where an admission fee is not charged is understood to be satisfactory to the composers and proprietors of musical copy. rights. A representative of one of the largest musical publishing houses in the country stated that the publisher finds the so-called "penny parlor" of first assistance as an advertising medium.
I might add that the representative of the composers in these hearings was the noted copyright lawyer and predecessor of Mr. Herman Finkelstein. It was Mr. Nathan Burkan. In this connection, it is critically important for this committee to recognize that even while undertaking such a radical departure from the consensus of some 13 prerious Congresses, even the principal authors of section 116, Mr. Kamenstein and his associates, have made it plain that the creation of an unlimited right to license performance on jukeboxes is not in the public interest.