legislative proposal is not solely prospective in its scope but would create and give by Congressional action substantial additional rights to copyright owners including the right to demand additional revenues from the jukebox operators. Several questions immediately arise. Has it been demonstrated by its proponents, that S. 597 will promote the "useful arts." In view of the substantial mechanical and performing royalties currently being collected from the American public, have the proponents demonstrated a need for more money within the Constitutional framework. Even assuming an additional incentive is required, have the proponents proved that suggested expansion of copyrights apply to existing as distinguished from songs composed in the future. Unequal Bargaining Power-The Necessity of a Working Alternative Since 1926, ASCAP and others have vigorously and forcefully importuned Congress to extend performing rights to coin-operated phonographs. After hearing the evidence, Congress has consistently refused to accede to ASCAP demands. A review of prior Congressional actions demonstrates that the main concern was that it would be unfair to force small operators to deal with the powerful performing rights societies. By extending the right to be paid for public performance for profit to operators of coin-operated phonographs, S. 597 would force the small business jukebox operator to the bargaining table with ASCAP, BMI, SESAC, and any performing rights societies which might be formed in the future. But in a true sense, because of the disparity in wealth, in power, and monopolistic control, it cannot truthfully be said that jukebox operators are in a position to "bargain" or "negotiate" for performing rights fees. Any objective person would so agree. For example, how much bargaining position would Leoma Ballard, who testified before you this morning, have in such a bargaining conference. Mrs. Ballard testified she has two employees and operates 101 jukeboxes in Charleston, West Virginia. She grossed approximately $36,000 from her jukebox operation, and after deducting expenses, had a net profit of 70 cents per jukebox per week or a total profit of $3676.40 per year, which "profit" included her wages. Mrs. Ballard would be required, under the proposed legislation to "bargain" with ASCAP for a "reasonable" royalty. ASCAP, on the other hand, has gross revenues in excess of $45,000,000 a year from which it spends approximately 15% for overhead, including the necessary services of highly specialized and talented lawyers. She would also have to negotiate with BMI and SESAC, both of whom take in substantial annual revenues, the amounts of which, to the best of my knowledge, are unavailable to the public. Aside from the disparity in economic power, ASCAP or the other performing rights societies, by the simple expedient of setting a royalty which Mrs. Ballard could not afford, could force her out of business, since she could not operate without a royalty license. Multiply this situation by the seven to nine thousand operators in this country and the devastating impact on these thousands of small businessmen, their families and employees becomes obvious. Nor is it any answer to say that under the antitrust decrees which seek to limit the monopolistic power of ASCAP as well as BMI, there is an acceptable alternative. In order for the operator to avail herself of the provisions of those decrees, it would be necessary for her to hire counsel in New York to conduct proceedings in New York, hundreds of miles from her home in West Virginia. Such a procedure is far beyond the limited means of the average jukebox operator in the United States. Consequently, the only way in which these small entrepreneurs can be protected from the overwhelming power of the performing rights societies is to provide a workable, feasible, statutory alternative that the small operators can utilize if in the course of "bargaining" ASCAP demands exorbitant royalties far beyond the limited resources of the operator. Basic fairness alone requires this to be an integral part of S. 597. The Present Alternate Proposal In Section 116 Is Unworkable The alternative to negotiating a performing royalty with the socities proposed by the House Judiciary Committee in Section 116 of S. 597 is not workable, is not fair, and in fact, in operation would merely be used by the powerful performing rights societies as a bludgeon to force the payment of inequitable performing rights royalties. The very langauge of Section 116, upon which neither the operators nor the manufacturers have had any opportunity to be heard publicly prior to this hearing, imposes such a financial burden and requires such a morass of recordkeeping and administrative details that the operator, under this provision, has no alternative but to place himself at the mercy of ASCAP and the other socities. Small Businesses Must Not Be Left to the Mercy of ASCAP History has demonstrated that in extracting fees, the operators can expect little mercy from ASCAP. The history of ASCAP conclusively demonstrates this. There are very few organizations whose activities were so blatant that many States enacted restrictive legislation directed to their activities, as was the case with ASCAP. Watson v. Buck, 313 U.S. 387; Marsh v. Buck, 313 U.S. 406. In 1941, ASCAP after being sued for a violation of the antitrust laws, entered into a consent decree with the United States limiting its monopoly power. Nine years later, ASCAP again had to agree to the entry of antitrust consent decrees because of monopolistic practices. Despite this, the gross of ASCAP has risen from 1951 when it was $14,000,000 to 1966 when it is reported in the trade press, it had a gross income of $46,000,000. It should, of course, be borne in mind that half of this income, after administrative expenses, goes to the corporate publishers, many of whom are controlled by the larger motion picture industry. To prove that ASCAP should not be granted untrammelled rights over small businessmen, one need go no further than the Consent Decree entered in United States v. ASCAP (D.C. N.Y. C.A. 13-95 (1950)), which Decree specifically enjoins ASCAP from dealing with small businessmen who operate theatres. The Decree provides in part: "Defendant ASCAP is hereby enjoined and restrained from: "(E) Granting to, enforcing against, collecting any monies from, or negotiating with any motion picture theatre exhibitor concerning any motion picture performance rights; "(F) Instituting or threatening to institute, or maintaining or continuing any suit or proceeding against (1) any motion picture theatre exhibitor for copyright infringement relating to motion picture performance rights or against (2) any user for copyright infringement of any musical composition not contained in the ASCAP repertory. ***” If ASCAP is enjoined from negotiating with theatre owners for a performing royalty by judicial decree, it is axiomatic that even smaller businessmen should not be forced into such an unequal bargaining process. This concept is even recognized in Section 110 (5) of S. 597 since that section exempts from performing royalties businesses using radio or television for the amusement of their patrons. Even the House of Representatives Committee on the Judiciary in its March 8, 1967, Report noted that withdrawing the jukebox exemption might "place the operators in a position that would be unjustifiably weak with respect to bargaining and unnecessarily perilous with respect to liability." The Discriminatory Impact on Jukebox Operators Additionally, the proposed legislation, by singling out the jukebox operator. places them at a competitive disadvantage in addition to requiring the payment of royalties. Under the present-the 1909 Copyright Law-the performing rights societies have the right to demand royalties from any small business which plays music, whether it be on the radio, television or a non-coin-operated phonograph in its place of business. This would even cover professional men, such as a dentist who has background music playing in his office and a barbershop playing a radio. The only figures that I have indicate that in 1957 bars, grills, taverns and restaurants paid royalties to ASCAP amounting to 3.10% of its total revenue. Assuming this percentage remains the same (while I have no means of finding it out. I am certain this Committee does), this would represent in terms of ASCAP's gross of $46,000,000 in 1966, the sum of $1,384,600. One reason that this percentage is so low, looking at the tremendous number of small businesses throughout the United States who use music in their places of business, is that if the demands of ASCAP and other performing rights societies became too onerous and unfair, many of these small businesses would replace the radio or television with a coin-operated phonograph. Since Congress never found it would be fair or equitable to extend the right to collect performing rights royalties to performances on coin-operated phonographs, such phonographs provided the small businesses with an alternative to submitting to exorbitant demands from ASCAP. If they felt the royalty demand was too high, they could use a coinoperated phonograph in place of the radio or television. This entire concept is changed under Section 110 (5) of the present legislative proposal which denies to ASCAP and other performing rights societies the right of collect royalty fees from public performances resulting solely from the playing of the radio or a television in a business operation. The impact of this is potentially two-fold: first, it might be that many location owners currently using jukeboxes will decide they prefer free radio and television music and request that the jukebox be removed. Secondly, it gives the location owner a strong bargaining power in dealing with the jukebox operator as to what percentage of the gross take of the jukebox goes to the location owner instead of the jukebox operator. Thus, it appears that the thrust of this proposal is to take a financial burden from one small businessman and place it upon another small businessman, the jukebox operator. No justification has been adduced and there can be none for such discriminatory treatment. It appears that ASCAP, in conjunction with the Register of Copyrights, having attempted vigorously for 38 years to induce Congress by one means or another to require jukebox operators to pay performing royalties, are now advocating that the entire small business royalty burden be borne by its antagonists during the past decades. The Performing Rights Societies Should Not Be Opposed In Principle To A Royalty On Purchases The jukebox operators have suggested on more than one occasion that they would be willing to pay a reasonable royalty for the right to publicly perform a musical composition. Thus, suggestions have been made to increase the mechanical royalty by a stated amount which increase would, of course, go directly to the authors and composers and would bypass the performing rights societies. Not surprisingly, the societies have vigorously attacked such suggestion. If the name of the royalty is of transcending importance, there is no reason why such an additional royalty could not be classified by the statute as a royalty for a performing right, and in this way be subject to collection by the performing rights societies instead of the authors and composers. Even counsel for ASCAP has stated: "If some practical way can be found to overcome the administrative problems and assure compliance, if the fee per record is a performing rights fee commensurate with value of the performance to the user, ASCAP would feel that this offered real possibilities for solving the problem." 1 Similarly, during the 1965 Hearings, Mr. Finklestein agreed that an increase in the mechanical recording fee would be equivalent to a performance fee.2 Whatever opposition he had to a lump sum fee was with regard to the policing of its payment.3 Mr. Sidney M. Kaye, spokesman for BMI, at that point could offer no practical solution to the jukebox royalty problem. His only constructive recomendation, distribution based on a survey, he criticized as being "rough justice." * It would also be quite feasible to provide in the statute a method whereby royalties could be paid directly to the performing rights societies on the basis of invoices showing the number and the record purchased by operators. Such a plan would free the operator of a substantial part of the onerous administrative burden imposed by the provisions of Section 116 and at the same time would provide-if this Committee deems it necessary in the public interest-the additional royalties sought by these societies. It would appear that the only reason that the performing rights societies object to this type of a royalty payment is that it does not appear to be a performing rights royalty. However, if it was so designated in the statute there would be no question that the performing rights societies would receive the royalty and not the authors and composers. Indeed, the performing rights societies seem to be hard pressed to rely on the principle that the royalty must be intimately tied to performance of songs when it has insisted on including in S. 597 a provision creating a conclusive presumption 1 Hearings on H.R. 5174 before a subcommittee of the House Committee on the Judiciary, 88th Cong., 1st Sess. 189 (1963). Hearings on H.R. 4347. et al., before a subcommittee of the House Committee on the Judiciary, 89th Cong., 1st Sess. 193 (1965). a Id. at 201-202. 4 Id. at 209. that each record in the machine has been played. Furthermore, as ASCAP, et al. will be frank to admit, in seeking the enactment of Section 116, they are looking to the issuance of "negotiated” blanket licenses to each jukebox operator arrived at through the "bargaining" process. Such a blanket license, of course, has no relationship to the number of times each composer's songs might be performed on the jukebox itself. It is quite clear that the sole basis of the societies' demand that Section 116 be enacted is to provide a method of collecting revenues which is so unworkable and imposes such a substantial administrative expense that no operator can utilize it and remain in business. Thus, the operators would be forced to deal with the various societies and on the societies' terms. Public Interest-The Independent Composer and Publisher It has been estimated that ten percent of recorded songs are written by persons not members of a performing rights society. The many independent composers and publishers are few and weak compared to the tremendous publishing corporations. As independent publishers testified in earlier hearings, the jukebox is now practically the only outlet through which a new composer and a small publishing firm can present their works to the public. Were performing rights extended to jukeboxes, the operators remaining in business would have to limit their selections to the big performing rights societies to avoid infringement suits. The small publishers, the small record companies, and the independent composers would lose their jukebox sounding board, now their most effective avenue to the public. The operators have enither the time, money, nor the staff to contact independents and negotiate a license to use their songs. Consequently, only songs licensed by the large societies will be used. The independent, like the operator, is either forced to submit to a society or to go out of the music business. The effect of the present proposal is thus to force independents into an already powerful monopoly operation. How could this be in the public interest? Conclusion In summary, before considering any change in the existing law, the proponents of S. 597 should carry their burden of proving that change is necessary by clear and convincing proof. This evidence should include a full and detailed showing of the modus operandi of how the performing rights societies enforce their existing copyrights, how they operate under existing consent decrees, as well as how this income is funneled to authors and composers as an incentive to write more songs. If additional money should be paid by music users, then a workable, statutory method by which operators can pay royalties must be included. Absent such a provision the operators will have but two choices-accede to exorbitant demands or go out of business. If Congress feels it should levy a royalty on these small businessmen, basic fairness requires a workable method of paying the royalty. Senator BURDICK. Mr. J. H. Wilburn. By the way, before we get to Mr. Wilburn, would Mr. Patterson approach the witness table? Mr. PETERSON. Yes, sir. Senator BURDICK. Before I forget this, I wonder if you could supply me with some information. On page 30, you made a comparison of the royalties paid to radio and television stations as compared to what might be paid by the jukebox operators under the House bill. Mr. PATTERSON. Yes, sir. Senator BURDICK. It may require some speculation, but could you submit to me an amount that would be fair? Mr. PATTERSON. I think that we can. You are referring to page 30? Senator BURDICK. Yes, in that area. Mr. PATTERSON. In that area, and develop the comparative percentages of the contribution in relation to the gross revenues of radio and television. Senator BURDICK. Considering all the facts and circumstances of the situation, will you submit a statement to the Committee indicating what you think the amount would be that would be fair? Mr. PATTERSON. We will give it most serious thought and submit it, Mr. Chairman. Thank you. (The material requested above was subsequently received and is as follows:) Hon. JOHN L. MCCLELLAN, KIRKLAND, ELLIS, HODSON, CHAFETZ & MASTERS, Washington, D.C., April 3, 1967. Chairman, Subcommittee on Patents, Trademarks, and Copyrights, DEAR CHAIRMAN MCCLELLAN : During the course of this Subcommittee's public hearings on S. 597, I appeared together with Herbert J. Miller, Jr. to testify on March 17, 1967, on behalf of the sole domestic manufacturers of coin-operated phonographs, The Wurlitzer Company, The Seeburg Corp., Rock-Ola Manufacturing Co. and Rowe Manufacturing Co. I welcome this opportunity to present my views in response to a specific inquiry to me by Acting Chairman, Senator Quentin N. Burdick on March 17, 1967, during the public hearings on S. 597. The question posed by the Senator was: "Assuming that this Committee has been persuaded that copyright owners are entitled to some royalties from coin-operated phonographs, what would you recommend as an appropriate amount of royalty?" This letter constitutes my reply to the Senator's question. I would like to emphasize, however, that my comments, while reflecting the views of these manufacturers, may not necessarily coincide with the views of the jukebox operators themselves or their representatives. An answer to Senator Burdick's question would be much simpler if there presently existed an industry which was similar to the jukebox industry in all significant respects and which was presently paying royalties to the performing rights societies. The rate paid by such an industry might provide a valid basis for the development of a reasonable royalty rate for the nation's jukebox operators. Unfortunately, there simply is no industry which even approaches those requirements. The difficulty in developing a reasonable rate proposal is further complicated by the traditional secrecy with which the performing rights societies cloak the details of their receipts and disbursements. They disclose very little financial data from which I or anyone else can prepare any rate comparison with confidence. What little information I have gathered is unverified data from trade journals and general statements made at different times by counsel and their representatives of the performing rights societies. Without reliable data, any analysis of industry royalty rates by necessity can only be approximate and tentative. Nonetheless, on the basis of the information available to me at this time, I have attempted to make a useful comparison. To begin, a recent issue of Billboard stated that ASCAP received $45,681,587 from licensing revenues in 1966, with $6,092,967 of that coming from overseas. The best figures I have from BMI is its admission of receipts of 40 per cent of ASCAP. No more specific data of their 1966 receipts has, to the best of my knowledge, been publicized. Neither society has disclosed any such data in their testimony before your Subcommittee. A report of a House Select Committee on Small Business, following its investigation of ASCAP, disclosed that of the entire revenue received by it during the year 1957, 36.31% was from radio and 52.10% was from television, for a total of 88.41% from broadcasting. Bars, grills, taverns, and restaurants contributed 3.10% of ASCAP's receipts; nightclubs and lounges, 2.7%; hotels, 1.54%; dance halls, ballrooms, and skating rinks, 1.0%; wired music, 1.09%, and symphonic and concert, 0.33%. Miscellaneous sources contributed 2.22%. One industry's royalty rates which could be used for comparison purposes is the radio and television broadcasting industry. However, Herman Finkelstein in his testimony on March 20, 1967, before this Subcommittee indicated that "Broadcasters pay a little over 2 percent [of their adjusted gross revenues]". He did not mention that the radio industry is currently challenging in the Federal District Court for the Southern District of New York the present 2% rate which is claimed to be too high or in the face of this challenge ASCAP has voluntarily agreed to a reduction of the existing rate. |