Rather than again detail the basis for these conclusions-all of which are already set forth in our earlier filings-ABC will herein address what it considers to be the essence of the performance royalty question. As discussed more fully below, when viewed in its proper context: (1) the performance royalty issue is, in reality, a proposal to readjust economic relationship between the record companies and their "employees"; (2) it is unnecessary to require the broadcast industry to shoulder this burden when the record industry is well able to do so; and (3) the performance royalty is most unfair to broadcasters who represent the principal promotional vehicle leading to the success and well-being of recording artists and companies. THE PRINCIPLE JUSTIFICATION FOR THE PERFORMANCE ROYALTY PROPOSAL THAT IT WILL COMPENSATE UNDERPAID PERFORMERS IS A RECORD COMPANY CONCERN AND NOT ONE FOR THE COPYRIGHT LAW In the myriad of comments filed and testimony offered by the proponents of a performance right in sound recordings, one overriding justification now emerges; that a performance royalty will provide additional income to background singers, musician sidemen, and the like. However, when ore considers that the record companies are to receive 50 percent of the royalty revenues and that the administrative costs of implementing the royalty proposal are expected to be substantial, very little, if anything, will be left to the remaining participants.10 More importantly, whatever the validity of this justification, it is a record industry concern-not one for the Copyright Law. The Constitutional basis for Congressional authorization of copyright protection is to "promote the Progress of Science and useful Arts" "-not to provide a means for redistributing income from one industry to another.12 Nor is it intended as a substitute for collective bargaining procedures under applicable labor laws. If non-star performers such as background singers and sidemen are underpaid, this is a matter for the recording industry to deal with in the context of traditional employer-employee relationships; it should not be clouded by the injection of so-called "copyright" considerations. Government intervention in such a process here will inevitably lead to requests that Congress "legislate" compensation adjustments in other industries. We do not think the Constitution intended that Congress thrust itself into commercial enterprise in this manner under the quise of the Copyright laws. THE RECORD INDUSTRY IS WELL ABLE TO AFFORD COMPENSATION ADJUSTMENTS TO ITS EMPLOYEES A very critical aspect of the economic issue involved in the performance royalty matter has been ignored by the Copyright Office; it similarly finds no place in the multi-page Werner Report. While both conclude that the performance royalty will not yield a substantial windfall to the record companies, neither acknowledges the fact that the record companies do not need such royalties and, in fact, are in a better position to fund additional compensation to background musicians and singers than is the radio broadcast industry. In 1976, total record and tape sales exceeded $2.7 billion-a 15.9 percent increase over 1975.13 Profit figures for some of the major producers are similarly impressive: "RCA Records celebrated its 75th anniversary with an all-time high in sales and a doubling of earnings for a second consecutive year. . . . RCA Records ... The term "employer" is used broadly to include those individuals hired to provide specific services on a contractual basis. 10 Evidence in the record before the Copyright Office indicates that, under certain assumptions. the administrative costs of implementation could well "eat up" all of the estimated $15,000,000 in royalty payments. And, even if this were not the case, testimony by proponents of the bill (Los Angeles, July, 1977), indicate that these individuals are likely to receive only several hundred dollars annually as their share of the royalties. 11 Article I. section 8, clause 8. 13 Copyright protection as we know it is a statutorily created right to which no individual or entity is automatically entitled as a matter of law or policy. The courts have consistently held that in enacting copyright legislation pursuant to the grant of Constitutional authority, Congress must give paramount consideration to the advancement of the public welfare remuneration to the owner-or. in this case. the performer-is only of secondary importance. Mazor v. Stein, 347 U.S. 201 at 219 (1954). See also Kendall v. Winsor, 21 How. 322, 327-28 (1859). 13 Billboard International Buyers Guide, 1977-78, page 8. improved its market share at home and abroad." (RCA Annual Report, 1976, page 4.) "Arista Records experienced the most productive year in its history, showing nearly 300 percent growth in net revenues since its formation under the direction of President Clive Davis in 1974." (Columbia Pictures Industries, Inc., Annual Report, Fiscal 1977, page 22.) "Warner Communications "recorded music and music publishing showed gains of 32 percent in revenues and 13 percent in pretax income over last year's results.. (Securities and Exchange Commission Form 10-Q for the quarter ending September 30, 1977, page 9.) The record industry as a whole is clearly prospering without a public performance right, as are many recording artists. 14 15 By contrast, the radio broadcast industry is characterized by declining profit margins. And recent Federal Communications Commission (FCC) statistics show a decline in the number of radio stations reporting profitable operations.1 In this connection the Register, relying on the Werner Report, concludes that there "is no hard economic evidence in the record to support arguments that a performance royalty would disrupt the broadcasting industry, adversely affect programing, and drive marginal stations out of business." 18 Logic, however, compels the conclusion that the imposition of an additional royalty payment on radio stations (particularly unprofitable or marginal operations) would require that radio broadcasters make certain judgments concerning the implementation of operating adjustments and other cost saving means to offset the additional costs incurred.' As suggested by many of those participating in the hearing, such measure would include cutback in news services, public affairs and other program areeas that are generally not highly profitable in their return to the broadcaster. The question here not fully addressed by the Register-is whether the risk of a reduction in broadcast service quality is outweighed by the necessity of imposing upon radio broadcasters the obligation to provide additional compensation to record company employees. We do not think it is. 17 THE PROPOSED ROYALTY IS UNFAIR TO BROADCASTERS WHO ARE LARGELY RESPONSIBLE FOR THE SUCCESS OF RECORDING ARTISTS AND RECORD COMPANIES A second royalty payment for sound recordings would be most unfair to broadcasters in view of the fact that it is the broadcast industry which is singularly responsible for the financial success of composer, artists, record publishers and producers, alike. No recognition at all is given in the bill to the substantial value inherent in broadcast air play. The Register states that this "is the strongest argument put forward by broadcasters. . . ." 18 Nevertheless, she concludes that while "there is no question that broadcasting and jukebox performances give some recordings the kind of exposure that benefits their producers and individual performers through increased sales and popularity", the "benefits are hit-or-miss.” 19 14 See FCC Public Notice, Nov. 8, 1976, Mimeo 73357, Table 2: Year: 1968 1972 1975 Radio profits as percent of revenues 11.09 9.55 5.30 15 According to the FCC, in 1973, 69% of AM and AM/FM stations reported a profit; in 1974 this percentage dropped to 65% in 1975, the percentage dropped to 61%; and, in 1976, it rose slightly to 67%. Only 49% of independent FM stations reported earning a profit in 1976. FCC Public Notice, Dec. 13, 1977, Mimeo 92277. 16 Addendum to the Report of the Register of Copyrights on Performance Rights In Sound Recordings, page 10. 17 These adjustments would not necessarily be tied to a station's profit level, although stations in a poor financial condition could be expected to implement such cost saving adjustments much more quickly than their more profitable counterparts. It is important to remember in this context that the payment schedule in the proposed legislation is tied to "receipts" not profits, so that a station showing revenues of $400,000 would still pay a royalty fee of $4,000, even though it was a loss operation. 19 Addendum, supra, page 9. 19 Id. As the Register reluctantly recognizes, there is no question that the record industry is dependent, in large part, upon radio broadcasting for its success. The comments filed, and the oral testimony given, show conclusively that the radio broadcast industry represents the principal promotional device leading to the success and well-being of recording artists and companies.20 For more than fifty years broadcasting stations have substantially benefited recording companies and artists (not to mention the composers who are already entitled to use royalties under existing copyright) by providing essentially free and valuable exposure for new recordings: "Broadcasters would seem to be doubly injured. They must pay fees for playing recrods which they previously played without charge [i.e., for performer's rights], and they are deprived of the opportunity of using negotiations over public performance fees as a means of recouping the value of the free advertising they provide the record industry."1 The contribution made by air play to the sale of records is more than enough to permit the record companies to make whatever increased payments are merited. CONCLUSION ABC firmly believes that the establishment of a record public performance right is unsound public policy. ABC urges the Congress to retain Section 114 of the Copyright Act (17 U.S.C. § 114) in its present form and that a new performance royalty in sound recordings not be established. SUPPLEMENTAL STATEMENT OF AMERICAN FEDERATION OF MUSICIANS, AMERICAN FEDERATION OF TELEVISION AND RADIO ARTISTS AND RECORDING INDUSTRY AssoCIATION OF AMERICA, INC. This Supplemental Statement is submitted by the American Federation of Musicians (AFM), the American Federation of Television and Radio Artists (AFTRA), and the Recording Industry Association of America, Inc. (RIAA) in response to the request of the Subcommitee on Courts, Civil Liberties, and the Administration of Justice of the House Judiciary Committee for additional information regarding the implementation of the collection and distribution of performance royalties under H.R. 6063. I. INTRODUCTION Some have suggested that collecting royalties from the users of copyrighted sound recordings and distributing them to performers and recording companies would be highly complex. They have stated that the collection and distribution of royalties will impose substantial paperwork burdens on radio stations and other users. Critics of the legislation have predicted that the cost of these administrative functions would be prohibitive. The fact is, however, that collecting and distributing royalties for the public performance of sound recordings is not complicated at all. Such administrative functions are already routinely performed, efficiently and economically, by performing rights organizations in the United States (ASCAP, BMI, SESAC) and all around the world (e.g., Gramex, PPL, LSG, GVL). Moreover, the 1976 revision of the Copyright Law provides still additional models for the collection and distribution of royalties now required to be paid by cable system operators (Section 111), jukebox operators (Section 116) and public broadcasting (Section 118). To put an end, once and for all, to these concerns about the implementation of a performance right for sound recordings, AFM, AFTRA and RIAA have jointly developed, for the record, a model system for the collection and distribution of royalties. This model is simple, cost-effective and equitable. It can be accomplished, we believe, for less than $750,000 a year. We do not propose this model as the only method for collecting and distributing royalties. There are undoubtedly other workable approaches. This model, cer 20 The hearing record shows that almost without exception record companies and individual artists plead with broadcast stations to air their records-sometimes going to the extreme of offering illegal payments in exchange for air play. 21 "A Public Performance Right in Records: How to Alter the Copyright System Without Improving It". Robert L. Bard and Lewis S. Kurlantzick, The George Washington Law Review, Vol. 43, No. 1, pages 152-238, November, 1974, as page 204. tainly, will illustrate that a performance right in sound recordings can be administered fairly and efficiently. II. A PROPOSED MODEL We set forth below, step by step, each of the administrative functions that must be carried out to monitor the public performance of recordings, and to collect and distribute performance royalties. We then describe what we believe would be an efficient technique for accomplishing each such function. A. Collection of royalties 1. Registration.-A prerequisite for the collection of performance royalties is that users of copyrighted sound recordings register to obtain a compulsory license. We propose that users do so by filing a single form with the Copyright Office (with updated filings as necessary). The form to be filed should be promulgated by the Copyright Office, after consultation with the Copyright Royalty Tribunal. The procedures for such registration are already well-established under existing copyright law. There are two direct precedents: (1) Cable system operators are required to file in the Copyright Office "a notice including a statement of the identity and address of the person who owns or operates the secondary transmission service or has power to exercise primary control over it, together with the name and location of the primary transmitter or primary transmitters whose signals are regularly carried by the cable system. . . ." 17 U.S.C. § 111(b) (1). (2) Operators of coin-operated phonorecord players (jukeboxes) are likewise required to file in the Copyright Office "an application containing the name and address of the operator of the phonorecord player and the manufacturer and serial number or other explicit identification of the phonorecord player. . . .” 17 U.S.C. § 116 (b) (1) (A).1 In both situations, the Register of Copyrights is to prescribe by regulation (after consultation with the Copyright Royalty Tribunal) the information to be included in the form. Section 114 (c) (3) (A) of the draft bill prepared by the Copyright Office proposes essentially the same registration procedure for users of copyrighted sound recordings. We endorse that approach. It is noteworthy that, under this system, registration forms would have to be filed with the Copyright Office only infrequently. Cable systems, for example, are required to file either one month before they commence operations, or within 180 days after the enactment of the copyright law, whichever is later. Registration is required thereafter only when the ownership or control or the signaľ carriage complement of the cable system changes. This model is probably appropriate for sound recordings, too. Thus, the administrative burden on users of copyrighted sound recordings would be minimal, limited in most cases to the filing of a single form with the Copyright Office. 2. Collection of Fees.-We propose that the collection of the royalty fees also be handled by the Copyright Office. The Copyright Office is already performing this function in connection with two of the compulsory licenses newly created by the 1976 revision of the copyright law. It is collecting royalties on a semi-annual basis from cable system operators (Section 111(d)(2)), and on an annual basis from jukebox operators, (Section 116(b) (1) (A)). It would be just as simple for the Copyright Office to collect once each year a royalty payment from radio stations and other users, of copyrighted sound recordings. B. Distribution of royalties 1. Monitoring and Weighting Airplay.—To determine the appropriate distribution of royalties among performers and record companies, it is necessary to develop a data base which will (a) identify the copyrighted sound recordings being performed, and (b) measure the use of those copyrighted sound recordings on a comparative basis. We proposed that this administrative function be performed by a private entity under the supervision of the Copyright Royalty Tribunal. The Tribunal 1 Unlike the situation with Jukebox operators, the major users of copyrighted sound recordings-radio stations-can easily be notified of their obligation to register. They are readily identifiable since they are licensed by the Federal Communications Commission. would be directed to review the procedures developed by the private organization to assure that its monitoring approach accurately depicts the performance of copyrighted sound recordings in the United States. The actual compilation of the data can be performed by either of two existing performing rights societies or by another organization. Existing organizations ASCAP and BMI-have been identifying and measuring the use of copyrighted musical composition for 64 and 39 years, respectively. We believe it would be possible for either of these organizations to augment their current systems to accommodate the information required for logging sound recordings, too. The use of one of these existing organizations could be advantageous in that it should be relatively inexpensive to augment a system already operational.3 Moreover, composers and publishers could benefit from a reduction in their share of the administrative costs of the operation. Because we cannot assure the Subcommittee that either or both of these private entities would be willing to perform this function, however, and because we cannot now estimate the incremental costs of such activities to ASCAP or BMI, we have chosen an independent approach. We solicited the advice of one of the nation's leading experts in opinion research and data gathering-Burns W. Roper, Chairman of The Roper Organization Inc. (Mr. Roper's background is described in an attachment to this Statement.) We asked Mr. Roper to devise a system to measure the public performance of copyrighted sound recordings across the United States. He came up with a system that is of startling simplicity and relatively modest cost. A copy of Mr. Roper's proposal is attached to this submission. It is the proposal itself that most clearly describes Roper's system for achieving a reliable and continuing measure of the recordings played over the nation's radio stations. We briefly summarize the key points: Roper would monitor a statistically valid sample of radio time segments to determine airplay. He offers two alternatives for monitoring: (1) on-air monitoring, using panels of experts to identify the recordings, and (2) special station logs. There are precedents for each approach (ASCAP uses both techniques, while BMI relies on logs exclusively), and Roper discusses the pros and cons of each. On-air monitoring imposes virtually no burden on the radio station being taped. The logging system costs less and produces a larger sample. Roper's sample would be many times greater than that employed for a typical national opinion poll. He proposes monitoring 20,000 radio time segments. This sample would encompass some 50,000 recordings, if done by on-air monitoring, or 300,000 recordings, if done by logging. Roper calculates the margin for error at less than plus or minus three-quarters of one percent, compared to three percent for the typical national poll. The size of the sample reduces to a practical minimum the chance that an individual performer or recording company will not be compensated because "their" recording was missed in the sampling." A weighting system would be used to achieve a fair distribution of royalties. These weights would reflect such factors as airplay on large stations vs. small, prime time vs. off-hours, length of recording, etc. We suggest the weighting formulas be developed by the Copyright Royalty Tribunal to assure fairness to all royalty recipients." 2 Indeed, the prevailing international practice is for the composer/publisher performing rights societies to collect royalties for the public performance of sound recordings for distribution to recording companies and performers. See Sixth Ordinary Session of Intergovernmental Committee of the International Convention for the Protection of Performers. Producers of Phonograms and Broadcasting Organisations, ILO/Unesco/WIPO/ICR, 3/7 Add 1, Paragraph 2.5 (December. 1977). 3 The economic report prepared for the Copyright Office in connection with its study on the creation of a performance right in sound recordings likewise suggests that the operations of ASCAP and BMI could be augmented, and notes that the "incremental costs" of doing so "should not be considerable.' "Performance Rights in Sound Recordings," Committee Print No. 15 of Subcommittee on Courts, Civil Liberties, and the Administration of Justice of the House Judiciary Committee, 95th Cong., 2d Sess. at 108-109. 4 This chance can be lessened somewhat-although not by much-by increasing the size of the sample substantially, at much greater cost. 5 Any number of factors can be accounted for by the use of a weighting formula. ASCAP attempts to reflect differences in the economic value of performances by the use of a very refined weighting formula, which adjusts for the following variables, among others: The use of the copyrighted sound recordings (i.e., whether it is the featured performance, used as a theme for a show, as background, as a jingle, etc.): The time of day that the performance is broadcast (i.e., morning, evening, weekday, weekend, holiday, etc.) : The medium of the performance (i.e., local radio station, network radio, local tele vision, network television, etc.); The length of the actual performance; and The nature of the work (i.e., entertainment, concert and symphonic, religious, etc.). |