COMMENTS AND VIEWS SUBMITTED TO THE COPYRIGHT OFFICE ON THE ECONOMIC ASPECTS OF THE COMPULSORY LICENSE IN THE COPYRIGHT LAW

By Ralph S. Peer

OCTOBER 16, 1957.

[Referring to Mr. Blaisdell's study on "Economic Aspects of the Compulsory License in the Copyright Law":]

It must always be remembered that the "standard popular" repertoire in any country and the "current hits" are the product of what must be called a "national urge." It is the population itself which created this form of "property"— the intangible values are extremely high and practically never capitalized. According to available information, the Congress in 1909 was not aware of these intangible values, nor did it realize that it was interfering with the economic aspects of national forces which through the years have created vast property rights. The real point at issue was whether or not mechanical rights should, in the public interest, be granted on an exclusive basis. Actually it seems that "public interest" was not considered-the general idea was to protect piano roll and phonograph record manufacturers from the evils of a possible monopoly. This point could quite easily have been covered by a provision that mechanical rights could not be licensed or assigned exclusively. There is no easy explanation for going beyond this and fastening an arbitrary compulsory rate on the then very insignificant music publishing industry. The usual explanation is that a "lobby" put over this proposition because the Congress was not fully and completely informed, but this hardly accounts for the fact that no really great effort has been made during the intervening years to do away with this great injustice and this extraordinary interference with free competition.

If the price of butter had been established at a maximum of 15 cents per pound in 1909, one can well imagine the hue and cry which would have been set up in intervening years. It is only because music is intangible, and the income from mechanical royalties of secondary importance, that the situation has remained stagnant.

It is not generally realized that both the quantity and quality of popular music offered to the public is dependent upon the income derived by authors, composers, and publishers. The compulsory license interfered with normal income under competitive conditions and therefore tends to affect the available supply of popular music.

If one takes a broad view of the subject, it will be observed that the large commercial users of music-film producers, record manufacturers, and the operators of jukeboxes-have been able to impose huge restrictions on the income of authors, composers, and publishers. In spite of all of the efforts of the Congress during the last 50 years to eliminate restraint of trade, I offer the estimate that the components of the music publishing industry collectively are able to obtain only from one-third to one-half of the income available in an "open" market. Necessarily this limitation on income is against public interest-music has always brought joy and pleasure to the human race, both before and after the development of our great civilization. The number of persons engaged in producing and distributing commercial music is in direct relation to the total available compensation for this work-a fact easily demonstrated by the great increase in the activity of the commercial music industry which occurred after the formation of BMI, and which in turn is probably responsible

for the tremendous broadening of the phonograph record industry occurring about the same time. I would think that a careful investigation should be made of the methods by which income is presently limited, because the Congress would obviously prefer to create a free and open competitive market for this small but important industry. I rather imagine that Congress would be horrified to know that this group of creative artists and its associated publishers have been singled out in our supposedly free economy for restrictive treatment. Quite obviously against public interest. If these restrictions could be removed, the creation and use of music would, in my opinion, increase tremendously, and the mental health of our country would be greatly bettered by the resultant entertainment value.

You are already familiar with my views about compulsory mechanical license. Recently, I had luncheon in Paris with the head of BIEM. It is his business to collect maximum possible amounts for mechanical use of music in all continental countries. None of the difficulties envisioned by the framers of our 1909 act have risen to the surface in Europe. Every 2 years there are meetings between BIEM and the international organization representing the recording industry. A mutually satisfactory contract has been in existence for a number of years, and there are no insurmountable difficulties on the horizon.

Sincerely yours,

RALPH S. PEER

By George E. Frost

SEPTEMBER 20, 1957.

Mr. Blaisdell is to be complimented on a fine job of collecting the most interesting economic data relevant to the compulsory licensing problems. I am impressed with the case he makes for the proposition that the recording monopoly phobia that vexed the framers of the 1909 act no longer has an economic basis.

Without dwelling on the matter, I would like to emphasize that we have also had far-reaching developments in the antitrust law since 1909. These developments make it clear-it seems to me that the antitrust law is fully capable of handling any monopoly problem that may develop in the future. I merely pause to mention U.S. v. Aluminum Company of America (148 F. 2d) 416 (2d Cir. 1945)), with its broadened definition of exclusionary tactics under section 2 of the Sherman Act; U.S. v. Paramount Pictures (334 U.S. 131 (1948)), with its strictures on coercive package licensing practices; Kobe v. Dempsey Pump Co. (198 F. 2d) 416 (10th Cir. 1948)), with its very clear condemnation of attempted acquisition of monopoly power by purchase of patents (and, by analogy, purchase of copyrights). There are many other cases that could be cited.

With an economic situation showing little evidence of possible monopoly power, coupled with almost 50 years of antitrust law development, it strikes me that proponents of a compulsory licensing provision along the lines of that now in effect must point to some decided different reason than that expressed by the framers of the 1909 act.

Sincerely yours,

GEORGE E. FROST.

By Ralph S. Brown, Jr.

OCTOBER 17, 1957.

Mr. Blaisdell's memorandum is exactly what is needed to advance our knowledge of the operation of the compulsory licensing provisions and of the probable economic effects of altering it. It strengthens my belief that the present scheme of compulsory licenses in section 1(e) should be altogether discarded, and that any inequalities of bargaining power, or undue concentration of economic power, should be dealt with under the antitrust laws.

RALPH S. BROWN.

By Ernest S. Meyers

JUNE 4, 1958.

You have asked for my appraisal of the probable economic effects of eliminating the compulsory license provision in connection with Mr. Blaisdell's preliminary study. I am opposed to the abolition of the compulsory license provisions of the present copyright law for the reasons hereinafter set forth. The phonograph record industry, though a small one by comparison to other industries in the United States, has grown during the past 50 years from 3 companies to an industry of 2,191 companies in good standing with the Music Performance Trust Fund under the present compulsory license law.

It is my view that: Composers, music publishers, musicians and the public at large have all benefited under the present law which has stood the test of time and usage, and which is still fair. The abolition of compulsory licensing would bring chaos to the record industry; and seriously injure the entire music industry with consequent damage to the consuming public.

The compulsory licensing feature of the law has played an important part in the growth, development, and diversification of the record industry. If some recording companies had been able to obtain exclusive mechanical rights in many of the new important musical compositions by outbidding their competitors, many small recording companies never would have started, or if they did get started, would not have survived. This would have led to a drastic reduction in the number of recording musicians employed and would have reduced or eliminated the choice of different recorded versions of the same musical work which the record-buying public now enjoys.

A new record company would be forced to bank its future on original and public domain material exclusively. The percentage of original hits out of original "at bats" would hardly provide the kind of financial security in the infancy of a company which is necessary for a future of growth and ultimate success. And as for public domain, recording access to the entire Stephen Foster repertory would not be likely to add materially to the new company's chances for survival, let alone, success.

The new company can parlay a few appealing artists and a repertory made available via compulsory licensing into a handsome business in a relatively short time. It then is in a position to provide increased revenues to every other phase of the music business. More records sold mean more "mechanicals" (royalties) to the holder of copyrights. More artists are employed. The public's musical appetite has greater variety to choose from and may even be enlarged. Finally, the hopeful young composer and his publisher have one more door on which to knock while trying to sell their latest composition. It just may be the door to success.

The one constant and indispensable element in the pattern of the industry's growth is the principle of compulsory licensing of records to be found in the Copyright Act. Remove it, and you knock out from under the new company its ability to compete in the market. In a sense, you would freeze the industry in its present configuration and quite possibly shrink it.

The argument is often made that if the composer (or his publisher acting for him) has freedom to license a record company of his choice-that is, if compulsory licenses are abolished--he will not make exclusive licenses, but will license a number of record companies. That argument is unrealistic: it ignores the selling power of the recording artists who work exclusively for record companies and whose performance of his music the composer enthusiastically seeks. The argument also ignores the powerful effect which a cash advance against potential royalties can have on a composer. It ignores, too, the powerful effect of a promise to give the composer's song special exploitation. Such a promise is eloquently persuasive when there are so many songs vying for public favor. In these circumstances, composers are bound to flock to the company with the big names in its roster of recording stars, and to the company that promises the big advance and song promotion. Furthermore, even if the better known composers do resist giving exclusive licenses they may grant licenses only on such high rates that the smaller record companies will be excluded by monetary considerations. Thus, monopoly can grow even if the licensor chooses to give nonexclusive licenses.

The following injurious consequences would result should compulsory licensing fall:

(a) Phonograph records will cost more. It is simple economics to reason that the abandonment of the compulsory licensing principle will result in higher prices to the consuming public. At present the statute insures the public against wholesale record price increases. By fixing a 2 cent ceiling on royalties it forces the industry to maximize its income through volume of records sold rather than by resorting to price increases.

That this policy has benefited the public can be seen in the fantastic rise in the number of record companies and in the ever-widening market for popular records. For example in 1954, 145,345,871 records were sold with a value of $163,098,925 by members of the RIAA who do approximately 80 percent of the industry's business. In 1956 the comparable figures were: 176,175,582 records sold having a value of $273,673,451. The 1956 dollar figure is the more indicative figure since it reflects the sale of increased numbers of extended play and long-playing records which, of course, sell at higher prices than the usual singleplay record. If the number of records sold reflected the number of selections included on long-playing and extended-play records, the ever-widening market for popular records would be even more strikingly illustrated.

By keeping the price of records stationary in an inflationary economy, the compulsory licensing provision has enabled the public to continue even expand-its enjoyment of one of life's more modest luxuries. As Billboard points out, there are 9 million teenage consumers in the market for popular records. Raise the price of records and they can no longer consume, as their funds are, understandably enough, limited.

The popular record industry is a luxury industry of mass appeal. For its very existence it must sell its product to as large a public and at as low a cost as possible. Popular records are not a staple commodity like milk, nor are they an item of select appeal where price is of little consequence as, for example, Venetian glass. As most popular record consumers are people of limited means (even as most of our population are people of limited means) a rise in the retail price of records brought about by the removal of the compulsory license clause would seriously diminish public consumption.

Under the present system, for example, a record manufacturer can plan its album releases with full knowledge that any song which may be needed can be obtained. And the price for it is readily ascertained. Suppose a record manufacturer plans to do an album on the "Songs of Jerome Kern." If one or more of these songs, which are essential for a balanced album, are published by a music publisher that will not grant a license except at an especially high rate or as part of a tie-in sale deal, the record manufacturer will not be able to plan the contents of the album as he does now.

Even if it is assumed that the record manufacturer will consult the copyright proprietor in advance and thus work out the cost of each license, the fact of wide variations in license fees will cause the record companies to record less material. If album A has a high cost because the license fees are well above the average, the record company will have to look to album B to help level costs. This, of course, penalizes the public who can now neither afford album A nor album B, and the royalties of the composers and artists who made album B possible, will be correspondingly diminished.

(b) Circumscribed tastes mean fewer records sold.—A phonograph recording is a work of collaboration-the composer, the arranger of the music (for recording purposes), the orchestra and the performing artist join their talents to make a combination of words, sounds, and music they hope will have wide appeal. Different artists and different arrangements account for the variations. The public has a wide choice, thanks to the present democratically competitive compulsory licensing law. It can express its preferences. If exclusive licensing takes the place of the present system there will be no variations for the public to choose from especially in the popular single record field. And while there are many more versions in the field of popular music than in the classics, serious music that is in copyright would also be limited to one version under a system of exclusive licenses. Bing Crosby's record of "White Christmas", it is alleged, sold 20 million copies. If that song had first been recorded by an unknown artist under an exclusive contract and the public has not liked the particular rendition, the song might have died. And it has come to my attention that 23 record companies have each issued their individual version of the current "Gigi" score, an unprecedented industry-wide bonanza, impossible but for compulsory licensing.