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COPYRIGHT LAW REVISION

THURSDAY, AUGUST 19, 1965

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE No. 3 OF THE
COMMITTEE ON THE JUDICIARY,

Washington, D.C. The subcommitee met at 10 a.m., pursuant to recess, in room 2226, Rayburn House Office Building, Hon. Robert W. Kastenmeier (chairman of the subcommittee) presiding.

Present: Representatives Kastenmeier, St. Onge, Edwards, Tenzer, and Poff.

Also present: Herbert Fuchs, counsel; and Allan Cors, associate counsel.

Mr. KASTENMEIER. The committee will come to order. We are now in the 19th day of hearings on general copyright revision. This morning we are pleased to start with Mr. Robert R. Nathan representing Music Publishers Protective Association, Inc.

Mr. Nathan, welcome to the committee.

STATEMENT OF ROBERT R. NATHAN, MUSIC PUBLISHERS

PROTECTIVE ASSOCIATION, INC. Mr. NATHAN. Thank you. Mr. Chairman and members of the committee, in the interest of time, since my written statement has been submitted to the committee, I would appreciate having it entered into the record and to summarize it orally, presenting the high points rather than read this extended statement, if that is acceptable.

Mr. KASTENMEIER. Without objection your statement will be received and made a part of the record.

(The statement referred to follows:)

STATEMENT OF ROBERT R. NATHAN

My name is Robert R. Nathan. My offices are at 1218 16th Street, NW., Washington, D.C. I am president of Robert R. Nathan Associates, Inc., a firm of consulting economists. We have been retained by the Music Publishers' Protective Association to analyze the economic factors involved in the statutory fee for the mechanical reproduction of copyrighted music.

When approached on this issue, I first ascertained a few basic facts and, as an economist, was amazed to learn that there is a statutory fee and compulsory sale (licensing) requirement and that these were established by law over 50 years ago and are still in effect. The reasons for my amazement are at least twofold. First, to my knowledge such a statutory fee is unique. In no other business field am I aware that statutory price fixing is to be found. True, for public utilities regulatory agencies establish rates, but fixed rates are not written into a statute and there is a procedure for recurring review and revision of rates.

The question immediately arises, why a statutory fee only for the music publishing industry? Why not the book publishing industry? Or why not steel, an industry basic to our economic health? How about a fee for the discovery of oil or a price for its extraction from the earth set by statute? Why not for patents? Whatever the logic or illogic, it is only in the music publishing industry that we find statutory price fixing and compulsory licensing. It is no wonder, then, that we find this section of the 1909 act described in Latman's edition of “Howells' Copyright Law,” 1962 edition, as the “** * rather unique, verbose 'compulsory license provision." Statutory fee for a product wholly produced and distributed within the private sector of our economy is a strange incongruity. The situation seems to defy all the basic principles under which we live in the United States.

The second reason for my amazement is wholly economic rather than ideological. The U.S. economy in 1909 bears about as much relation to today's economy as the original Wright brothers soaring at Kitty Hawk to the recent Gemini flight. In 1909 the economy was just emerging from the horse-and-buggy days. The Taft administration was taking over from Teddy Roosevelt. Trustbusting and antimonopoly measures were the important economic weapons of the day for the executive and legislative branches of the Federal Government Economic knowledge and economic policies have changed to a revolutionary degree and the functioning of our economy today is far different from the "let nature take its course" views of those earlier days of recurring severe booms and busts.

Automobiles were still a rarity in 1909 and the model T had not yet come into its own. The telephone was not yet a rapid and inexpensive means of regular communication. Our population was only 92 million and the Nation's gross national product was about $100 billion in 1964 prices. Contrast that, if you will, with today's space age. Our population is nearing 200 million people, and our gross national product will surely exceed $650 billion this year by a comfortable margin. Total production has risen more than sixfold and per capita output has increased about threefold since 1909.

A still greater difference between the two periods can be illustrated by citing a few prices. In 1909 one paid a nickel for a loaf of bread and 8 cents for a full quart of milk. Round steak sold for 16 cents per pound. A relatively new gadget called a talking machine could be bought for under $50, but it was still regarded as an amusing entertainment toy.

In 1909 an ad in the Journal of Commerce for Florenz Ziegfeld's latest production on Broadway-"Miss Innocence"-listed ticket prices ranging from 23 cents to $1.50. Any of you who, like me, has recently gone to the theater in New York, need not be reminded of the change in Broadway ticket prices.

According to the Bureau of Labor Statistics, based on the 1957-59 average, in 1909 the wholesale price index stood at 37. Last year it was 100.5, an increase of some 170 percent. The Consumer Price Index using the same base stood at 32 in 1913 and reached 108.1 last year. With such great shifts in prices, it is astonishing to find still prevailing in 1965 the 2-cent statutory fee that was legislated in 1909 for mechanical reproductions of songs. The 2 cents of today will buy what could generally be bought with about six-tenths of 1 cent in 1909. Or, to put the matter the other way around, it takes almost 7 cents for the consumer to purchase today what 2 cents could buy in 1909. Of course, incomes have risen much more and our production and standard-of-living levels have gone way up, but the price of almost everything has zoomed-except the legislated price for music that is put on records.

The technological revolutions we have experienced over this span of half a century can only be described as fantastic and earth shaking. In 1909 the fastest way to get across the country was to spend 6 days and nights on a train. If you wanted to be leisurely about it, however, one could take a ship to Panama, cross the isthmus by train (the canal was not yet finished) and embark again on a ship in the Pacific that would take you to San Francisco or Seattle, requiring some 3 weeks in all. Today we make it from ocean to ocean in less than 5 hours by jet.

I cite these random facts not for nostalgic purposes nor merely to dramatize the remarkable pace of progress but to bring home the enormous differences between our economy and economic relationships in 1909 and today. Through all the changes and upheavals that have taken place since 1909, including two great wars and the disastrous depression, we find one apparently immutable price fixed by statute. The question that I put to this subcommittee, Mr. Chairman, is: with all the changes that have taken place in our economy since 1909 and in a relatively free pricing, relatively free bargaining and relatively competitive economy, is it economically sound, is it equitable, is it sensible to hold rigid by law over so many decades the same fixed price for a valuable piece of property?

I should like to describe the music industry as it was structured in 1909 and compare it to today's industry. Perhaps I should use the word "contrast” instead of "compare," for today's industry-like the economy-bears little relation to the industry in 1909, except for some familiar names. In the early 1900's the largest moneymakers in the industry were sheet music and player piano rolls. A bare half dozen music publishers did most of the business and about 90 percent of their total receipts came from the sales of sheet music. The publishing side of the industry was strong, concentrated, and profitable.

Today, estimates of the number of music publishing companies range from 2,000 to over 3,000. Over 1,000 music publishers use the service of the Harry Fox Office to license and to collect mechanical royalties.

Where once the music publishers made most of their money on sheet music sales, today this once broad avenue for revenues has become a small footpath. Far and away the most important sources of revenue accruing to the music publisher today are the mechanical and performance royalties. Thus, the legislated royalty source of income is far more important to the music publishers than when the legislation was enacted. Its degree of importance could not have been anticipated back in 1909. Mr. Chairman, I would strongly emphasize this point, namely, that when this legislation was enacted, mechanical royalties were a small portion of the revenues of music publishers, whereas today they are a major element.

In 1909 the largest music reproduction company was the Aeolian Co., makers of player pianos and piano rolls. In fact, it was precisely because this company--anticipating the copyright law of 1909—had purchased on an exclusive basis some 80 percent of all music rights then existing, that the Congress enacted the 2-cent fee for mechanical reproduction of music and the compulsory licensing provision at that fee. The legislative intent of the Congress, as we all know, was to forestall a monopoly situation such as that threatened by the Aeolian Co. Bear in mind that the entire country, including the Congress, was engaged in a war against trusts and monopolies, just as our generation has engaged in a war, more successfully I believe, against depressions and recessions. Monopolies are menaces in a free society, but there are all kinds of ways to deal with monopolies and what might be an appropriate technique at one time might be all wrong under other circumstances.

There is no monopolist threat today either in the copyright owning music publishers industry or in the recording industry. Viewed in the light of legislative intent, the 2-cent fee becomes even more anachronistic. The conditions that gave rise to its enactment simply do not obtain in today's competitive music industry.

The 2-cent price fixed in 1909 was a flat fee. It was not even a percent based on total sales. Our legislative search has failed to turn up any significant evidence that the level of the fee was set in relation to a percent of sales. In fact, in 1909 three bills were introduced, each with a different fee provision. One would have set royalties at 10 percent of sales; another at 5 percent; and a third at the fixed amount of 2 cents. We have located nothing in the hearings, the committee report, or debate on the floor which would tell us clearly why the 2 cents was chosen instead of a percentage of sales.

We have been interested to determine whether the 2-cent fee today acts as a ceiling, or whether it is the price most commonly used for the privilege of mechanical reproduction of copyrighted music. With the cooperation of the Harry Fox Office, we considered the question of different methods of figuring license fees. The 2-cent fee seems to prevail if one uses as a base of computation the language employed in the great majority of Harry Fox Office contracts, namely, all records manufactured and sold, except those sold through record clubs where the negotiated fee is three-quarters of the original license agreement fee.

But if one uses the legislative language of all records manufactured, then most of the contracts are well below the 2-cent rate. This is because some record companies supply distributors with free records along with records purchased and then do not pay royalties on the "free" records. It is clear that there is vigorous competition pricewise and all kinds of terms or arrangements among record producers and distributors, except for the 2-cent ceiling paid to music publishers.

Let us turn, if you will, to the phonograph industry of 1909. This was a fledgling, albeit a robust, bird in all respects. There were only three makers of phonographs in 1909. These were Columbia, Victor, and Edison. Not only were they the only three producers of talking machines, but they were also the only producers of records. The battle between disk records and cylinders was still going on. Both methods of recording concentrated on music mechanically reproducing the human voice. The great performing artists of the day-Caruso, Slezak, Melba, and Tetrazzini to name a few-etched their voices on records that sold from $1 to $7. The most expensive records were the highly successful “red seal" series.

As a recording media for symphonies, the phonograph made slow headway until 1913 and did not really come into its own until electric recording was introduced in the twenties. In passing, it is interesting to note that great composers such as Victor Herbert and John Philip Sousa appeared before congressional committees to urge the removal of the 2-cent fee and the compulsory licensing provision.

Very few records were sold in 1909. In 1964, some 421 million records were sold, an alltime high for the industry. In the first decade of this century the record industry was small and relatively weak, though expanding rapidly. But the music publishers' industry was relatively large and powerful.

Today, we find just the reverse in the music industry. The record-making industry has grown by leaps and bounds. In 1964 sales of records exceeded the whopping sum of $693 million, more than tripling sales of just a decade earlier. Where only 3 companies made phonograph records in 1909, it has been estimated before this subcommittee that there are as many as 3,000 record-making companies today. Though the volume was small, competition was brisk among Columbia, Victor, and Edison in 1909; how much brisker is it today with so many companies in the field.

The record-making side of the music industry has several other interesting quirks today. With one exception, the biggest record companies are subsidiaries of radio networks and movie companies. As a recent study made by the Library of Congress points out, “The phonograph industry is one of the most intricate and fascinating in the American economy.” With hit tunes changing so rapidly, at the risk of being dismissed for alliteration, in my own opinion record making is a frantic industry, with many firms fraught by the fads of a fickle public.

There is no reason to doubt that the record industry will become a billion dollar industry before the end of this decade and that it shows every prospect of prospering more and more for years to come.

A few minutes ago I referred to the technological revolutions experienced in our economy since 1909. The scope of technological changes in the music manufacturing industry has been exceeded only by the space industry and selected other sectors. I refer not only to the introduction in the twenties of electrical recording, in the forties of longplaying records and to the reproduction of music electronically on disks or tapes. There are today three major entertainment industries closely interlinked with the music industry that no one had ever heard about or even imagined in 1909. These, of course are the radio, talking picture, and television industries. The impact of these three industries, especially radio, on both the publishing and the recording segments of the music industry has been marked indeed. Then, also, there is the tremendous jukebox industry which has profoundly affected the economics and the impact of the music industry.

So I think that it is obvious, Mr. Chairman, that the big music recording companies of today can simply not be compared to the fledgling recording industry of 1909. These are two different eras, and, within each, one finds a music industry so different each from the other that we need dwell no longer on the 1909-65 contrast. About the only part of the industry that has not changed is the 2-cent statutory fee and the compulsory license provision of the 1909 Copyright Act.

During the 56 years that these provisions have been the law of the land, they have been challenged time and time again by composers and by music publishers. In 1928, for example, a bill was introduced in the 70th Congress, 1st session, that would have repealed the price-fixing clause for mechanical reprodue tions. The then chairman of the board of the Music Publishers' Protective Association, Mr. E. C. Mills, argued eloquently and at length for repeal. Among other appellations, he called the 2-cent statutory fee "ridiculously incommensurate with the value of the service * * rank injustice," and pleaded before

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