These conflicting and continuing pressures have necessarily and inevitably resulted in a general reduction in the level of operators' income from operation of jukeboxes. While we do not have statistics on operators' revenue throughout the United States I think we can state with reasonable certainty that revenues are declining. As a general average, gross receipts do not exceed $25 per jukebox per week. I know that in my own area gross receipts average only $24 to $25 per machine per week. And, I would like to stress that these figures are gross receipts before they are divided between the operator and the location owner, which is done usually on a 50-50 basis. Thus, the operators' gross revenues average something on the order of $12.50 per week. It is out of this small figure, of course, that we must pay for our equipment and all of our costs of operations.

This economic picture explains why almost all operators have diversified their activities by adding amusement and vending machines to their jukebox operations. In fact, I am quite certain from my own experience that most operators cannot afford to operate jukeboxes unless they also operate amusement and vending machines. It may be asked, then, why do operators continue to operate jukeboxes? The answer is that location owners usually require jukeboxes to be installed as a condition to having amusement and vending machines placed in their locations. And they insist on having jukeboxes in their locations so as to attract customers to their amusement and vending machines. This situation reflects the fact that jukeboxes provide the principal musical entertainment which most working people can now afford. Jukeboxes are, indeed, as someone has said, the poor man's orchestra.

H.R. 2223 will have a serious impact on the jukebox industry. It must be noted that the jukebox industry has never before been subjected to copyright performance royalties. Thus, any new royalty will impact severely upon the industry, and will necessitate economic readjustments throughout the industry. The $8 royalty under section 116 will add a completely new burden in the total sum of at least $3.6 million per year. Over and above this, there will be at least $4.5 million in mechanical royalites on the 75 million records-at 6 cents per record under section 115-which jukebox operators buy each year. This amounts to an increase of at least $1.5 million per year in mechanical royalties over the existing rate of 2 cents per recording-4 cents per record. We understand that a study made for the Record Industry of America, RIAA, indicates that the increase which would result from the proposed new 3 cents mechanical royalty would amount to at least $5 per jukebox per year, or to some $2,250,000 more than the existing mechanical royalty. Thus, it is evident that the royalty burden imposed upon jukebox operators by H.R. 2223 will amount to at least $8 million per year.

We hope the committee will agree with us that this is more than a fair return to copyright owners from this industry of small businessmen who serve as promoters of records, as well as being the largest single industry consumer of records.

We would like to summarize the position of Music Operators of America, Inc., on the jukebox royalty provisions of H.R. 2223 as follows:

One: We support the proposed new $8 jukebox royalty as provided in section 116.

Two: We oppose any increase in that proposed royalty.

Three: We also oppose any provision for readjustment of that royalty through a copyright royalty tribunal, or otherwise.

Four: And finally, we oppose any fee for registration of jukeboxes. Our reason for supporting the $8 royalty is the fact, as your committee is well aware, that our representatives made an agreement with the other interested parties to accept this royalty at the time the general revision bill, H.R. 2512, 90th Congress, was under consideration by the House of Representatives. It was, and is, our understanding that this compromise was intended to be a complete resolution of royalty claims against our industry. We have stood by this compromise in the expectation that all other interested parties would likewise do

So.

We oppose any increase in the proposed $8 royalty for whatever reason, whether because of adjustments in the Consumer Price Index, or otherwise. As we have shown above, the jukebox industry simply cannot withstand any further increase in copyright royalty burdens. Our opposition to any provision for a readjustment of the proposed statutory royalty rates rests upon the same grounds, that is, that the jukebox royalty is an agreed compromise which does not include any provision for such readjustment, and further that the jukebox industry cannot withstand any royalty increases, and should not be exposed to the uncertainties of such open-ended liabilities.

We continue to oppose any fee for the registration of jukeboxes, again, for the reason that such a fee would be inconsistent with the agreed compromise, and for the further reason that the administrative costs of registering jukeboxes should be borne by the beneficiaries of the new royalty, rather than by the jukebox operators who bear the burden of the royalty. In this connection, we would like to ask your committee to delete from section 116(b) (1) (A) the phrase which appears at lines 4 and 5 of page 24 of the bill, and reads as follows: "and in addition to the fee prescribed by clause (9) of section 708 (a)." That phrase was left in the companion Senate bill-S. 1361, 93d Congress-through oversight when the registration fee that was then provided by section 708 (a) (9) was deleted from that bill. We understand there is no objection by the Copyright Office to this request and that the staff of your committee already have been advised of this needed correction.

Section 115 would increase the existing mechanical fee from 2 to 3 cents per recording. This new royalty would have its most burdensome effect upon the jukebox industry, as this industry is the largest user of phonograph records. Thus, the jukebox industry faces a doubling up of new royalties under both sections 115 and 116. This goes far beyond the proposal offered by our representatives in the 1965 hearings when they recommended an add-on to the mechanical fee to be paid by jukebox operators-hearings, part I, page 583.

In 1966 and 1967, this committee recommended an increase in the mechanical fee from 2 cents to 22 cents-House Report No. 83, 90th Congress, page 74-and that was the amount of the proposed mechanical fee when the $8 jukebox royalty was agreed to and adopted. We urged the committee to require music publishers and composers to come forward with proof that any increase in the existing royalty is needed to compensate them fairly for the music they produce. In the absence of such persuasive proof, we urge the committee to retain. the present rate of 2 cents per recording.

Although H.R. 2223 does not include any provision for a recordings arts performance royalty, we note such a proposal has been made in H.R. 5345, a bill which we understand is also before this committee. We are opposed to this proposed new royalty for the reason that it would upset the compromise agreement by which the proposed $8 jukebox royalty was first established. We also oppose any such new royalty as a matter of principle because we believe that there should be but one royalty for any one performance, and that if Congress creates any new kinds of musical copyrights, they should be shared in a single royalty among all of those who claim to have contributed to the finished product.

In closing, I would like to state to the committee that within the jukebox industry there have been, and still are, many who vigorously oppose conceding any performance royalty to copyright owners. This is because they believe jukebox operators perform a compensating service to the benefit of copyright owners. Any new proposal to increase the royalty rate, or to subject it to further revision, would substantially intensify that opposition and would make it increasingly difficult for the industry's leaders to preserve support for the provisions of the bill as they have been agreed to.

We earnestly urge your committee, therefore, to approve the provisions of H.R. 2223 relating to the jukebox industry in their present form, with the exception of the minor change in section 116(b) (1) (A) discussed above, and excepting also any increase in the mechanical royalty under section 115.

Thank you for giving us this opportunity to present the views of Music Operators of America, Inc.

Thank you, Mr. Chairman.

Mr. KASTENMEIER. Thank you, Mr. Mawdsley.

Mr. Mawdsley, for my benefit, I would ask you, or Mr. Allen, on page 8 you refer to "and in addition to the fee prescribed by clause (9) of section 708 (a)," which certainly is in the bill, you have as

sumed that to be 50 cents.

How did you arrive at the fact that that would be 50 cents, you know, just for my benefit?

Mr. ALLEN. Well, are you speaking now—are you speaking of the registration fee?

Mr. KASTENMEIER. Yes; correct.

Mr. ALLEN. Well, it was 50 cents when added to the bill by the Senate subcommittee back in 1969, I believe. It was at that time that the committee reversed their original Senate bill provision with respect to the royalty and adopted the $8 as passed by the House, which added three other things. One of them was the 50-cent registration fee. Mr. KASTENMEIER. It does not appear in the bill.

Mr. ALLEN. That is right.

Mr. KASTEN MEIER. Designated as 50 cents, but a sum-it would be that?

Mr. ALLEN. We are assuming it would not. We are hoping it would not be put back in there.

Mr. Chairman, we are only talking about 50 cents because that is what it was. It never was anything else, and when the 50-cent registration fee was deleted by the Senate Judiciary Committee, that tie-in phrase that Mr. Mawdsley referred to was not also deleted. It really was just an oversight, and I understand both on the Senate side and on

57-786-76-pt. 1-28

this side, that it is considered to be a drafting error that would be corrected.

Mr. KASTENMEIER. I understand.

One other question I have. Supposing a bill more or less like this is passed, and a number of years go by, and you are able to live with and absorb the $8 fee, but it becomes evident that there has been an erosion, that there has been a cost-of-living increase, and that given the standards of, let us say, 1975, 1976, or 1977, with inflation and whatnot, suggests that a comparable fee at that time, some years hence, let us the year 1980, would be $10 or $12. Would you oppose the matter being reopened for a determination of what an equitable fee would be by Congress or otherwise for the purpose of an adjustment, or do you consider the $8 nonadjustable, in concrete forever?

say

Mr. ALLEN. Well, Mr. Chairman, this is the way I think I should put this: The jukebox industry, the jukebox operators look to you, Mr. Chairman, and they look to the Congress to do the thing that is right in the public interest. Certainly no future Congress is going to be bound by what this Congress does, and no future committee is going to be bound by what your committee does. But, the jukebox people look to Congress for their protection, and we have made this point, or endeavored to make this point, whenever this question has come up in the past. We have made it when your committee was holding hearings 10 years ago. We cannot bargain on equal terms with the big performing rights societies, and we know it. We know from the history of the societies themselves that BMI was spawned because ASCAP could not be dealt with. We do not expect that we can bargain on equal terms with the people who control the music we play, but we can look to Congress.

Absent a ceiling in the statute, and this is the thing that has been so important to us all the way through, and so important to us when we agreed to the $8, the thing that we need most is the protection that is afforded by a statutory ceiling.

Now going back, if the Congress in its wisdom, and your committee in its wisdom, in the future should decide that a higher rate is in order, certainly our industry will abide by it and will gladly do so. But, we do not feel that we can bargain on equal terms, nor do we feel we can before a copyright tribunal litigate, let us say, on equal terms with an adversary who can pour in millions of dollars in an effort to raise the fee.

Ours would be a pittance. We could not do the job adequately of meeting the kind of opposition we anticipate.

Mr. KASTEN MEIER. Well, I appreciate your statement, and that, as I recall, is a consistent statement, although I do wonder, with all deference, whether the Music Operators of America with 7,500 members plus the manufacturers, even though it may be an economically distressed industry at the moment, are not on equal terms with the three performing rights societies, given, as I think one of you has suggested, the slight difference from Mr. Korman's figures, that their gross receipts are somewhat under-I think you suggested $100 million, and they suggest somewhat over, that you are not on really equal economic footing with them.

Now, I should understand why it is that you would not want to have to bargain if, in fact, you were protected statutorily, so that such bargaining was unnecessary, obviously. But, the question as to whether

you are equals in a tribunal, should one be created, is a question about whose answer I am not very sanguine.

Mr. ALLEN. It is a matter of economics, Mr. Chairman, and just the sheer power of financial strength. Billboard magazine last month reported that the societies' yearly take is $97 million, almost $100 million. That is a different world from the jukebox people, whose incomes are in just thousands. They cannot possibly organize studies, economic studies or reports, analyses that come anywhere near what their opponents would be able to do; and that is why we do not feel that we can look down that road for the protection that we believe would be much more meaningful to us through the Congress.

Mr. KASTEN MEIER. Yes.

I appreciate your statement, although in terms of economics, Mr. Mawdsley says that a box grosses perhaps $25 a week, and then it has to be split and so forth.

Looking merely at the gross alone, 50 times $25, $750 a year, times around half a million boxes, suggests somewhere approaching grosses handled by machines in the order of $375 million. That is not the net income, of course. That compares with perhaps $100 million handled by the performance rights societies in a year. So in comparing economic strength, one group against the other, you know, I am not altogether persuaded that you are at that sort of disadvantage, notwithstanding the fact that I should understand why you would not want to have to negotiate at all.

Mr. ALLEN. I would like to respond to some of the figures, Mr. Chairman.

You were using a $25 figure, and our point is that our people receive only a half of that.

Mr. KASTENMEIER. Yes. That is the outer figure of total money that the operator puts his hands on. He has to share that 50-50, and he then has to buy the machines, he has got the overhead, so his net is first of all, you split the $375 million in two, and then figure a net on the balance of $180 million plus. Obviously it is much smaller as a figure for 7.500 operators.

Mr. ALLEN. Now, our organization, Mr. Chairman, is not 7,500. It is about less than 1,000. So, we are small. We are small people compared with the people on the other side of this problem.

Mr. KASTENMEIER. Mr. Mawdsley said there were 7,500, but I gather those that are actual members of your organization are more or less 1.000?

Mr. COLLINS. Right.

Mr. MAWDSLEY. I maybe have not explained what I meant to imply. We feel there are about 7.500 operators of jukeboxes in the country. Mr. KASTEN MEIER. That might be affected by this bill, whether or not they are members of your organization?

Mr. MAWDSLEY. That is right, and the members of our association are about 1.000.

Mr. PATTERSON. Mr. Chairman, if I may refer the committee to hearings before the Senate Subcommittee on Patents, Trademarks, and Copyrights on S. 597 in 1967, there is a study in there prepared at our request by Price, Waterhouse & Co. You may recall the details of that. And it appears on pages 268 through 273. But the Price, Waterhouse study states: