are replaced with 20 other public domain records each three-month period while the copyrighted works are not changed at all:

If this confuses you, think of the impact it will have on the several thousand 50-jukebox operators or the one-hundred-fifty 300-jukebox operators.

Continuing now with the "alternative" to ASCAP and BMI licensing, Clause (3) of Subsection (c) requires that "Where the name and address of the copyright owner or his agent are made known as provided by subclause (A) of clause (1), royalty payments shall be made quarterly, in January, April, July, and October, and shall include all royalties for the three-month period next preceding." Thus, even if the parties have made a separate agreement for royalties, the statute requires them to be paid quarterly.

Clause (c) (3) further states that "Each quarterly payment shall be accompanied by a detailed statement of account which shall include a complete list identifying, by their titles and any other indicia that the Register of Copyrights may prescribe by regulation, all the musical works made available in the phonorecord player for performance during any part of the three-month period." This complicated, detailed quarterly statement of account (potentially 17,000 works for the 70-jukebox operator) is in addition to that statement of account required to be made annually in accordance with Subclause (b) (1) (A). This statement must be mailed every three months to each copyright owner entitled to a royalty payment."

However, the detailed statement need not include "any works whose public performance by means of that phonorecord player during the particular quarter was expressly licensed by an instrument in writing and signed by the copyright owner or his agent." This is just another way of saying if the jukebox operator uses only records of ASCAP, BMI, or SESAC, and makes an agreement with them, he is not required to prepare any quarterly detailed statement nor his annual statement. Thus, by the simple expedient of tying in with ASCAP, BMI or SESAC the operator can avoid hiring extra employees and save himself extraordinary trouble and work. Again, the operator is pressured into a shotgun wedding with selected performing rights societies.

Actually, the quarterly statement serves no real purpose except as a basis for harassing the jukebox operator. I do not believe that a copyright owner would have anything more than passing interest in what his fellow composers are receiving. And, since the jukebox operator may or may not have changed the records during that three-month period and may or may not be entitled to avoid reporting some of the works since he had signed with a copyright owner, there is no way a recipient of the quarterly statement can ascertain whether the jukebox operator is reporting for all the records he has played on the machines. This quarterly report appears to be an unwieldy, unnecessary, and costly extravaganza with little if any practical use, except as an added cattle prod to force dealing with the societies.

But the problems with Section 116 are not just those of vagueness and unworkability. Clause (C) (6) states that "every musical work whose title" appears on the jukebox "during any part of a three-month period is conclusively presumed to have been publicly performed at least once during that period by means of the phonorecord player." This type of statutory presumption is unconstitutional unless there exists a rational connection between the facts proved and the facts presumed." Careful consideration of the nature of the jukebox industry reveals the lack of such a rational connection: the list on the jukebox might be incorrect so a work listed may not even be on the machine, the jukebox may not have been played at all during the quarter-for example, during the winter in a summer resort-or it may have simply been broken. It is plainly not rational to conclusively presume that the work was played at least once when the facts relating to this jukebox conclusively demonstrate otherwise.

7 A list of 17,000 works could be more than 50 typewritten pages to just one composer! Tot v. United States, 319 U.S. 463 (1943).

79-397-67-pt. 1—19

Indeed, the whole concept of equating presence in a machine with performance is highly questionable. It has been challenged by no less an authority than the Register of Copyrights, testifying in 1963 before the House Judiciary Committee, on H.R. 5174, which would have given him the responsibility of collecting a set fee for each jukebox and distributing all the fees collected to the copyright owners according to a formula of distribution. He then told Congress :

"The records in a box at a particular time do not necessarily reflect performance; since some may be performed frequently and others not at all, the possibility of rigging cannot be ignored."

And on the subject of reports of records in jukeboxes, he added:

"While less impractical than logging performances, it would probably be prohibitively expensive for the Government to make an accurate survey of records in boxes.

"In order for the distribution system contemplated in this bill to work, the administrator must be given authority to command a reasonable amount of cooperation from jukebox operators on the one hand and copyright holders or performing rights societies on the other. I believe the statute should provide specifically that:

". . . The administrator should be empowered to call on the operator of a coin-operated machine for reports concerning the number of performances or records on the machine. Failure of an operator to cooperate in furnishing reports would give the administrator the right to cancel or withhold his license. However, in order to keep report making from becoming an unnecessarily expensive burden, the statute might provide that a particular jukebox operator should not be required to furnish reports more than once in several years. In some cases the statistics he maintains for his own purposes might be sufficient.'

Now, compare Mr. Kamenstein's foregoing statements in 1963 with the requirements of Section 116 in 1967. He said then that even to take count of the records in jukeboxes would be prohibitively expensive for the Copyright Office. (I estimated that it would cost $1,000,000 or more.)" What would be prohibitively expensive for the Copyright Office in 1963, Section 116 would throw upon the shoulders of the jukebox operators today. Even Mr. Kamenstein, in 1963, was more considerate. He would have asked the operator to produce his accounts only once in several years; Section 116 asks for detailed reports every three months. He would have asked in some cases for no more detailed accounts "in some cases" than the jukebox operator normally keeps; Section 116 demands that the operator hire at least one additional employee to prepare the necessary tallies.

There, gentlemen, is just a short stroll through the complexities, ambiguities and patent coerciveness of Section 116.

For Section 116, by specific terms, makes it painfully clear that if the operator cannot gamble on whatever regulations the Register of Copyrights may decide to pass in the future; if we cannot take a chance that an innocent mistake might cost him $16,000 minimum damages on one machine; if he cannot understand just how much he has to pay as to performances in each machine; if he cannot ascertain who he has to pay it to; if he cannot afford the help needed to prepare thousands of pages of reports to the Government and individual composers; if he cannot risk inadvertent infringement of compositions conclusively presumed to have been performed-although they may never have been; if he cannot comply with a statutory provision which no knowledgeable person in the trade can validly defend as workable,-well, all he has to do is go bargain with ASCAP and BMI-and he may be "home", but hardly "free".

Can anyone say with a straight face that the Section 116 would not in the words of the House Committee Report-place the operators in a position that would be unjustifiably weak with respect to bargaining and unnecessarily perilous with respect to liability"?

Is Section 116 a law which in all honesty a legislator can expect a music operator to comply with-and stay in business?—Everyone in this room knows this is not 80.

II. The Public Interest Is Not Served By Section 116

I believe it is perfectly clear, from this brief review, and from the testimony of the MOA counsel and witnesses, that Section 116 places an intolerable burden

• Hearings on H.R. 5174 before a Subcomm. of the Comm. on the Judiciary, 88th Cong., 1st Sess., ser. 2, at 34 (1963).

10 Id. at 35.

11 Id. at 111.

on the individual operator-and that under its provisions, he has no choice but to deal with ASCAP and BMI in order to ever attempt to continue in business. The final irony is that if the operator is ever able to come to fair terms with either or both of these societies, the proposed Copyright Law suddenly loses all interest in just what songs are in the machine, or indeed even if they are played at all!

For, as the operators have learned, a set fee would be paid by them to ASCAP and/or BMI-completely unrelated to which records were on the jukebox, how long they were in the box, how often they were changed or even how many times they were played. In other words, any license agreement between a performing rights society or societies and the operators would be, practically speaking, wholly unrelated to the performances of that society's works in that jukebox. Instead, the license agreement will be a set fee per box or related to the gross receipts of the operator."

But the vice of a federal statute which has no demonstrable function but to force operators into hopelessly unequal bargaining with the ASCAP-BMI duopoly-transcends the obvious injustice and injury to small business operators. This Committee should ask itself, how is the public interest served by legis lation which would give two organizations possessing monopoly power over the music played on jukeboxes-a potential power of life or death over 7,000 to 8,000 small businesses?

How will the public interest be served by a statute which ensures that the only way that the independent composer or publisher can be recompensed for the use of his works on jukeboxes will be by joining ASCAP and/or BMI. For make no mistake about it, under Section 116, the only operator who remains in business will be those who can meet ASCAP and BMI's terms-and you can be sure that those who can scrape up the money to pay the ASCAP or BMI people will make sure that the compositions of its licensor, and none other, will be the only ones played on his machines. The potential penalties of Section 116 will take care of that!

Nor is this potential monopolistic squeeze-out aimed solely at composer and publisher who will not affiliate with ASCAP or BMI. Who, having survived bargaining with ASCAP, BMI or both and thus having obtained licensing for the bulk of the musical material his operation requires, is going to bother with SESAC?

The public interest is not going to be served by placing into the hands of ASCAP and/or BMI the power to "bargain" with the operator under conditions which, viewed realistically, deprives them of any bargaining capacity.

The societies have pointed to their outstanding consent decrees as some kind of insurance against the unequitable use of even their present power. But BMI's decree would not cover the rates charged to operators-and what practical remedy is the U.S. District Court in the Southern District of New York (the origin of the ASCAP decree) to the operator of 70 boxes in Seattle, Washington? Among the leading exponents of S. 597 is the Register of Copyrights. However, in 1963, he saw the danger to the public interest in unlimited licensing. As he said then:

"[U]nder the conditions now existing the imposition of royalties without any statutory limitations could have a measurable economic impact upon the jukebox industry which, in turn, would be felt by the consuming public. One also cannot ignore the practical problems that might face an operator with respect to keeping detailed accounts and insuring that payments are made to all those entitled."

99 18

Can the Register of Copyrights today assure this committee that Section 116 is a viable alternative to licensing by the performing rights societies? Or how its enactment could fail to have a "measurable impact upon the jukebox industry which, in turn, would be felt by the consuming public"?

In 1963, according to the Register, Congress could not "ignore the practical problems that might face an operator with respect to keeping detailed accounts and insuring that payments are made to all those entitled" why can it ignore the grossly more oppressive requirements levied by Section 116 today?

The license agreement between Broadcast Music, Inc. and radio stations is 1.2% of the time sales, with television stations 1.09% of the time sales. ASCAP charges television stations approximately 2.05% of time sales and radio stations approximately 2.125% of time sales, SESAC's rates are based on other factors. See generally Hearings on H.R. 4347, et al., Before a Subcomm. of the House Comm. on the Judiciary, 89th Cong., 1st Sess., ser. 8. pt. 1, at 607-624 (1965).

13 Hearings on H.R. 5174 before a Subcomm. of the House Comm. on the Judiciary, 88th Cong., 1st Sess., Ser. 2, at 34 (1963).

III. The Bill is Thoroughly Unrealistic From an Economic Standpoint

Section 116 would put an extraordinary financial burden on the individual operator of the jukeboxes, much greater than initially evident from the face of the S. 597. And, Section 116 guarantees minimal, if any, final compensation for even the composer member of a performing right society, let alone the independent copyright owner not a member of such a society. This entire analysis is a matter of a little simple arithmetic and plain common sense. There are an estimated 450,000 jukeboxes in the 50 states. The jukebox industry does not consist of only one company or even a half dozen companies. On the contrary, it is an industry in which there are over 7,000 independent small businessmen. Mr. G. Dewey Arnold, of Price Waterhouse & Co. clearly demonstrated that except for the very few jukebox operators with over 300 jukeboxes, this is a marginal industry which will have difficulty absorbing the extra costs required under Section 116. Fifty-four per cent of the operators after payment of the royalties alone would earn $3,027 or less annually from their jukeboxes, which would place them in the lowest one-third income group in the U. S." and close to the President's classification of poverty-stricken.

Mr. Arnold's calculations included a deduction for the Section 116 royalty but not deductions for Federal and State income taxes and no deductions for the cost of making the inventories, reports, and distributions required by Section 116. The members of the Music Operators of America demonstrated to you that the additional costs of administration created by Section 116 could mean about $6.088 annually for every 70 jukeboxes. It is immediately obvious that if jukebox operators are to be allowed at least $5,000 salaries from their jukeboxes (indeed a minimal amount), 97.5% of the jukebox operators throughout the country will be forced to raise their prices and to pass on the consumers the additional costs created by Section 116.

We can only guess how much the performing rights societies will be demanding. Based on the $20 to $30 that ASCAP now collects from the non-coin musical boxes in establishments, they and BMI and SESAC might well expect nearly half of the average jukebox operators yearly $120.95 earnings per jukebox: $25 for ASCAP, $25 for BMI, and $5 for SESAC.

As you see, either way the jukebox operator turns, he will be severely taxed. Obviously, these royalty costs would have a grave impact on the entire jukebox industry, which would have deleterious repercussions throughout the entire industry, including the record producers, artists, performing talent, distributors, retailers, and even the copyright owners.

The profits of the jukebox operators are already squeezed to a minimum; they cannot absorb the royalties and the related expenses. This would make the business financially unattractive for newcomers and drive the present operators into bankruptcy.

Unless the operators significantly raised their charges to customers, the higher royalty costs would generate irresistible pressures tending to force out many operators, especially the smaller ones-in an industry where consolidation at the expense of the smaller operator has already manifested itself. There were an estmiated 10,000 operators in 1950 with an average of 61.5 jukeboxes each." Now there are about 7,000 operators with an average of 73.7 jukeboxes each. The operators upon raising their prices would undoubtedly suffer some loss in the number of records played-even though their gross might increase somewhat-so that they would have to take additional steps to meet the increased expenses. The operators would be forced to reduce the number of selections in their jukeboxes and rely only on those selections which are sponsored by the copyright owners with whom they have negotiated agreements. The operators may resort to drawing more works from the public domain. They may reduce costs by rotating records no more than once a quarter and by reducing the discards. It is quite probable that they will stop buying little L.P.'s with six selec tions per record. This decrease in purchases will reduce the number of sales of records and reduce the amount of mechanical royalties received by the copyright owners. Aside from the fact that this general reduction will have the effect of

14 W. Bowen, The U.S. Economy Enters a New Era. Fortune, 113 (March 1967).

15 "A household is statistically classified as poor if its total income falls below .. $3.200 for a family of four." Economic Report of the President, 138 (1967).

16 Hearings on S. 1106 before a subcomm. of the Senate Comm, on the Judiciary, at p. 63-64 (1953).

reducing the beneficial exposure and sales stimulus generally given new releases by jukeboxes and thereby reduce the purchases of new releases, the jukebox operators will be forced to curtail their purchases to the detriment of the entire record industry.

This would reduce the level of activity in the record industry and the number of new recordings would be seriously depressed, in the face of an industry which alleges a serious impact by the proposed 2 cent per work increase in mechanical royalty. In the 1965 Hearings, the record producers maintained that some 80% of all releases in 1964 lost money (although copyright owners still received their royalties on them), and that net profit of record companies in that year amounted to only 3.8%; in contrast, between 1955 and 1964 the percentage of the record sales dollar payable to copyright holders increased from 8% to 11.1%."

The jukebox industry buys more than 50 million records per year which, under a mechanical royalty of 22 cents per composition or 5 cents per record, means that jukebox operators would be indirectly paying copyright owners over $2,500,000 a year. This $2,500,000 would be paid directly to the copyright owners, and not filtered through an agency which deducts 15% for administration expenses. No one has shown why this would not be ample.

Of the $570 million dollars of records sold each year, jukebox purchases account for 21% of the total number of records sold and 39% of the single records sold. Already, the copyright owners receive substantially greater financial gains from the phonorecord industry than the performing talent, or the supporting talent, or the record companies themselves. The authors and composers receive each year $22.5 million from the performing rights societies, $22.0 million from mechanical royalties and $18.0 million in negotiated sales to advertising companies.18

To fully illustrate the inequitable impact of Section 116 on the jukebox operators, a comparison will be made with the royalty paid by the radio and television broadcasting industry to the performing rights societies.

The Federal Communications Commissions financial data discloses that the radio and television broadcasting industry reported annual revenues of more than $24 billion for calendar 1965. This was an increase of 9.2% above 1964 broadcasting revenues. Industry profits (before Federal income tax) increased 8.1% to $525.7 million.

The net radio (AM-FM) time sales for 1965 was $739,545,000. The $81,086,000 AM-FM profit has been reduced by the $31,639,937 loss of 1,215 AM and FM stations, out of almost 4,000 reporting stations. These one out of four losing stations nevertheless had to pay royalties to the performing rights societies. And 63 of these stations would have ended in the black if they had not been required to pay royalties.

As for television, the net time sales in 1965 was $1,393,700,000. Of the 541 reporting stations, 90 lost money, to the tune of $13,888,015.

Radio and television pay about 88% of the total domestic royalties receipted by ASCAP and presumably to BMI and SESAC. ASCAP receipted $45,681,587 from licensing revenues in 1966, with $6,092,967 coming from overseas. Therefore, ASCAP collects $36 million from radio and broadcasting and all three performing rights societies collect about $50 million.

17 Hearings on H.R. 4347, et al., before a subcommittee of the House Committee on the Judiciary, 89th Cong., 2d Sess., ser. 8, pt. 2, at p. 801-3 (1965).