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Mr. KASTENMEIER. May I remind my colleague that we have a number of witnesses remaining?

Mr. PATTERSON. Thank you very much.

Mr. KASTEN MEIER. Now the committee will be pleased to hear from Mr. Herbert J. Miller, appearing in behalf of automatic phonograph manufacturers, particularly the Wurlitzer Co., Rock-Ola, and Rowe A/C Manufacturing Co.

STATEMENT OF HERBERT J. MILLER, ESQ., ON BEHALF OF THE WURLITZER CO., ROCK-OLA MANUFACTURING CO., AND ROWE A/C MANUFACTURING CO.

Mr. MILLER. In the interest of time, might I submit my statement for the record?

Mr. KASTENMEIER. Without objection, we will receive your statement and make it a part of the record.

(Mr. Miller's prepared statement follows:)

PREPARED STATEMENT OF HERBERT J. MILLER, JR.

My name is Herbert J. Miller, Jr., a member of the law firm of Miller & Evans in Washington, D.C. I appear today in behalf of the Wurlitzer Co., Rock-Ola Manufacturing Co., Rowe A/C. These companies are manufacturers of coinoperated phonographs otherwise known as jukeboxes.

THE CONSTITUTIONAL REQUIREMENT

The basic premise from which any proposed amendment of copyright laws must spring is of course the Constitution. This basic charter for congressional action permits legislation to "promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries." This clause of the Constitution can be interpreted only as permitting copyright legislation primarily to further the public interest and not primarily for the benefit of authors and inventors. Because it is, in the last analysis, the interests of all citizens of the United States which must govern what type of legislation is proposed by this committee, it is absolutely necessary for the committee to obtain all of the facts which underlie the present utilization of copyrights and the impact which this limited monopoly has upon the rights of other citizens. Consequently, in order for there to be an informed judgment, it is necessary, particularly in reference to the question of whether performing rights should be extended into new fields such as the jukebox field, that the operations of performing rights societies be examined to determine if additional legislation is required to promote the public good.

The report of the Committee on Patents accompanying the 1909 copyright law (H. Rept. 2222, 60th Cong., 2d sess.) indicated deep concern with the extension of the right to demand performing fees. The report referred to the possibility of "the formation of oppressive monopolies" which could be based on the suggested extension of such performing rights. It is an unfortunate fact, which I am sure even ASCAP would recognize, that the very fears of that committee came to be realized by the modus operandi adopted by ASCAP, particularly during the 1930's. The history of ASCAP discloses quite clearly that the banding together of the authors' and publishers' limited monopoly rights did in fact create the "oppressive monopoly" foreseen by the Committee on Patents in 1909.

The activities of ASCAP were of such a nature that many States felt it necessary to enact restrictive legislation aimed directly at ASCAP (cf. Watson v. Buck, 313 U. S. 387; Marsh v. Buck, 313 U. S. 406). Other evidence of ASCAP activities have been the subject of discussion at many of the prior hearings at which ASCAP sought an extension of the performing rights monopoly to cover coin-operated phonographs. But the real impact of the nature of ASCAP's activities was illustrated when the powerful radio broadcast industry formed

its own performing rights society, Broadcast Music, Inc., because of what it termed the "extortionate demands" of ASCAP.

Additionally, of course, following a complaint charging a violation of the antitrust laws, ASCAP entered into a consent decree in 1941. Nine years later, in 1950, ASCAP again agreed to an antitrust consent decree, the most salient feature of which is that ASCAP is enjoined from dealing with one class of small businessmen, i.e., the theater owners. That decree is an admission by ASCAP that the monopolistic power vested in the association by a combination of performing rights had given ASCAP such a substantial economic bargaining power that there could be no fair negotiations between ASCAP on one hand and the small businessman theater owner on the other.

Despite the formation of a competing organization, Broadcast Music, Inc., founded basically on the same principles as ASCAP, the ASCAP revenues have soared through the years. For example, in 1951, the ASCAP gross was approximately $14 million. In 1964, ASCAP revenues had increased more then twofold to $40.1 million. This figure has a dual significance one, it demonstrates conclusively that a substantial sum annually is made available to the authors, composers, and publishers who comprise ASCAP. Even more importantly perhaps, it demonstrates the substantial economic power which ASCAP possesses when placed at the same bargaining table with an operator of 60 jukeboxes who has a capital investment of some $43,000 and a profit of approximately $4,000 a year. Size alone, not even adverting to the monopoly ASCAP possesses with respect to its songs, dictates the basic unfairness. When Congress is seeking to foster and encourage the small businessman, subjection of small business to this type of unfair bargaining runs directly counter to this policy.

ADDITIONAL INCENTIVE NECESSARY?

One threshold question this committee must determine is whether the public interest requires additional incentive to compose more songs. ASCAP in the 50 years of its existence has accumulated a repertory estimated at more than 1 million songs according to the trade press. BMI, which commenced business in 1940, again according to the trade press, has an estimated 700,000 to 800,000 songs. SESAC, which was founded in 1931, estimate their repertory at approximately 150,000 songs. It would be impossible to estimate with any degree of accuracy how many other songs have been composed in the last 50 years. But taking only the songs over which performing rights societies have control, it is quite obvious that there has been a tremendous outpouring of musical compositions since the turn of the century. Substantially all of this tremendous number of songs have been composed under the present copyright law and the number of titles alone would seem to demonstrate that the financial incentive for composers and authors is more than adequate, particularly when the annual disbursements to them have been at a constantly increasing rate since 1921.

INCOME TO AUTHORS

Another aspect to be considered by this committee is whether the performing rights societies properly disburse the funds available, so as to effectuate the constitutional requirement that copyright legislation promotes the public interest. To best understand the operation of ASCAP, it is necessary to pierce the facade of authors and composers who normally represent that association in public appearances such as before this committee. We must not overlook the highly significant fact that the association is run by the publishers. The profits of ASCAP are divided between the corporate publisher members and the authors and composers. The publishers receive 50 percent and authors and composers receive 50 percent. Thus, when pleas for more money are addressed to this committee, as they have been continuously for over 36 years, it must be remembered that half the ASCAP profit goes to the corporate giants in the publishing field, many of whom are owned by even larger corporate entities in the movie and recording industry. According to the trade press Paramount Pictures Corp. owns the ASCAP publishing firms Paramount Music Corp. and Famous Music Corp. Metro-Goldwyn-Mayer, Inc., has a substantial interest in the so-called Big Three of the ASCAP publishing firms Robbins Music Corp., Leo Feist, Inc., and Miller Music Corp. 20th Century Fox Films Corp. has a large interest in the same Big Three publishing firms mentioned above. Uni

versal Pictures, United Artists. Columbia Pictures, and Warner Bros., own publishing firms affiliated with ASCAP, the latter constituting the largest publisher group in ASCAP. Thus, when this committee is considering whether an increase in royalty payments is necessary, it must consider whether the current revenue from songs is not more than sufficient incentive to composers, and if not, whether the incentive has been stifled by the control the giant corporations of the entertainment industry have over ASCAP through their publisher-members-the result being a lower profit to the actual authors and

composers.

Whether there is an insufficient return to members of that particular profession is, to say the least, questionable. The income for ASCAP in 1951 was some $14 million. In 1954, it had risen to $15.5 million. According to figures released recently, the ASCAP gross for the year 1964 was a substantial $40.1 million. Assuming the deduction of the 18 percent overhead, of which probably more than $400,000 was spent for legal fees, there is substantial revenue available for the authors and composers, many of whom probably receive more than $40,000 a year from ASCAP.

In addition to this income, it was estimated by the Register of Copyrights that there were mechanical royalties of $9.75 million per year paid direct, not through ASCAP. What income is paid composers as royalties for sheet music must be answered by the publishers and composers. We don't know, but this committee should. Another area of inquiry by this committee should be the income, if any, from the motion picture industry for licensing the synchronization rights for sound tracks which may or may not be a part of the ASCAP gross income.

When to these sums are added the gross income of BMI, some $18 million per annum, the substantial income from SESAC, which figures have never been made public to my knowledge, the composer income is substantial. It seems apparent that even though these additional sources of income are unknown to this committee it could well determine on the facts it does know that the public interest does not require additional royalties at this time.

PUBLIC INTEREST THE INDEPENDENT COMPOSER AND PUBLISHER

It has been estimated that 10 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 neither 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?

THE JUKEBOX INDUSTRY

While accurate statistics are not available, it is estimated that there are approximately 7,000 operators of jukeboxes in the United States. These music machines are sold to the operators located in key areas throughout the United States. There are currently but four manufacturers of coin-operated automatic phonographs. There was a time in the late forties when there were several. The shrinkage in the market has led to a constriction of the number to the present four.

In 1959, a survey was conducted by Price, Waterhouse & Co., a well-respected firm of certified public accountants. These statistics, which conclusively prove that the operator is, in fact, a very small businessman, were outlined in the testimony of a representative of that firm in the 1959 hearings before this committee. On the basis of the returns submitted in answer to the survey, it

was shown that the average machine had a gross income per year of $880 which was split 50-50 with the location owner so that the annual return of each machine to the operator was $440. On the basis of this survey, it was ascertained that after deducting the expense of operating the business the average operator had an income of approximately $5,871 a year, which included not only his salary but also his return on his investment, which investment averaged $43,000. The average operator thus had a monthly income of $489. Deducting 5 percent for return on the average investment of $43,652, which would be $2,183, the amount available for the average operator's salary and profit would be $3,688 or $307 per month. The survey also established that for the smaller operation, the net income was $3,596 or less than $300 per month.

Despite this small return, it has been conservatively estimated that the operators pay approximately $2.2 million in mechanical royalties directly to the composers and publishers, bypassing ASCAP, BMI, and SESAC.

THE "REASONABLE" ROYALTY

With these operator income figures in mind, let us examine what ASCAP would consider a "reasonable" royalty should Congress extend the performing royalty to jukeboxes. The "reasonable" request by ASCAP was $30 per year per machine. Assuming the average operator owned 70 machines, he would be required to make an annual payment of $2,100 to ASCAP. This would be solely what ASCAP demanded. BMI would, of course, demand the same performing royalty, as indeed might SESAC. If these two demanded $30 per year per machine, the operator would have to pay BMI and SESAC $2,100 each or a total royalty payment to all three societies of $6,300, twice the net income of a substantial number of operators included in the Price, Waterhouse survey. In view of these figures, it is incomprehensible how any objective individual can contend that the payment of a "reasonable" performing rights fee would not have a substantial, if not devastating, impact on these operators.

But these figures are only "starters." While ASCAP would start at $30 per machine, it believes a more "reasonable" figure would be $60 per machine. Assuming a like demand by all three societies, an operator-owner of 70 machines would have to pay the astonishing sum of $12,600 per year. Certainly such a levy could only have the effect of driving these small businessmen to the wall. What makes these suggested figures even more ludicrous is a computation of the additional income which the performing rights societies will realize. Assuming that there are 444,000 jukeboxes in the United States which are licensed at $60 per year by ASCAP, its income will be increased from $40 million to $66 million, the operators paying $26 million. At the same figure, BMI would more than double its 1964 income of $18 million, bringing its gross to $44 million. Since SESAC's income has not been made public, the effect on its income is unknown. The very suggestion that a depressed industry pay such a tremendous amount demonstrates the impossibility of a small businessman dealing with these societies.

FAIR BARGAINING IMPOSSIBLE

Aside from the overwhelming economic power and monopoly position in the music business of ASCAP, the most terrifying thing to a small businessman would be his constant exposure to substantial civil penalties should he inadvertently play the wrong record. Thus, even if the operator were licensed by ASCAP, if an investigator for one of the other two societies found a BMI or SESAC record on the machine which had been played 10 times in the course of the evening, the copyright owner could recover minimum demages of $250 per play or $2,500 plus costs and reasonable attorney's fees. Recovery of damages for infringement can run as high as $10,000 per infringement. This is one of the few areas of the law where an innocent mistake can result in financial disaster. For this reason the operator must pay all performing societies; for this reason the work of independent composers will be immediately excluded from jukeboxes. It is this ultimate in economic weapons which adds the final and most telling element of unfairness. To reach a fair bargain, there must be an equality in bargaining strength. Here, obviously, there is none and can be none. The extension of the performance rights to these small businessmen would indeed be directly contrary to the public interest.

The basic element of fairness requires that Congress not saddle these small businessmen with the economic might of the performing rights societies.

It is probably this element more than any other which has caused one Congress after another since 1928, when the first copyright extension to cover jukeboxes was introduced, to refuse to give ASCAP and the other societies the rights it demands here. Time and again, Congress has been importuned to do away with this "anomaly" to give the composers their fair share. The failure of 37 years of effort by ASCAP to obtain this right demonstrates conclusively that the equities lie with the small businessman.

By increasing mechanical royalties Congress can avoid all of these inequities and yet increase composer income by direct payment. For this reason, we interpose no objection here to the suggested increase in mechanical royalties from 4 to 6 cents a record, even though it will require the operators to pay an additional $1,100,000 directly to the composers. If composers need additional compensation, we concur that this is the proper way to increase their income.

To summarize, it would be highly inequitable to subject operators to the heavy burdens of dealing with performing rights societies when an increase in mechanical royalties could resolve any inequities without the consequent hardships.

Mr. MILLER. I would like to make this very short, but I would like to bring out some points which I think are very important.

When we get into the question of property rights, and we get into the question of copyrights, everything that this Congress does in the field transcends from the constitutional clause.

In other words, this committee, in order to comply with the Constitution, must pass, or may pass, legislation which will promote the

arts.

I think, at the present stage of the music industry, this committee is going to have to ascertain, as in fact the committee in 1909 ascertained, whether or not the public interest, the interest of all of the citizens of our country, requires that there be created the additional monopoly which is, in fact, the right created when you pass additional laws extending the copyrights.

There has been a lot of talk here today about the fact that there is a jukebox exemption. That is obviously a misnomer. The 1909 Congress did not extend performing rights to include the jukebox operator. It was not an exemption. It was a refusal to extend the law.

I think that probably the primary difficulty, and the reason why Congress has never to this day extended the copyright law to include the jukebox operator, is the basic issue of fairness.

You start from the fact that ASCAP has tremendous economic power. Every year its income continues to grow. In 1951 it was approximately $14 million. Last year it was $40.1 million.

Because of the nature of ASCAP, it being a banding together of monopoly rights, it is not surprising that it became involved and ran afoul of the antitrust laws, resulting in the fact, which I think is very important, that there was a consent judgment which kept ASCAP and keeps ASCAP from dealing with one class of small businessmen-namely, the theater owners.

Mr. KASTENMEIER. May I interrupt you, Mr. Miller!

Mr. Patterson alluded to that, too. Perhaps the committee ought to ask counsel for ASCAP for an explanation of that in writing, if he later would care to allude to that, because there does seem to be on the surface an analogy, if a performance society is restricted from dealing with theaters which apparently does permit what would otherwise be a public performance for profit-and from obtaining royal

ties from them.

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