TESTIMONY OF STANLEY GORTIKOV, PRESIDENT, RECORDING INDUSTRY ASSOCIATION OF AMERICA; LEONARD FEIST, PRESIDENT, NATIONAL MUSIC PUBLISHERS ASSOCIATION; GEORGE DAVID WEISS, PRESIDENT, AMERICAN GUILD OF AUTHORS AND COMPOSERS; AND JOHN MARMADUKE, PAST PRESIDENT, NATIONAL ASSOCIATION OF RECORDING MERCHANDISERS AND PRESIDENT, HASTINGS BOOK AND RECORDS & WESTERN MERCHANDISERS

Mr. GORTIKOV. Thank you, sir.

I am Stanley Gortikov, president of the Recording Industry Association of America. My colleagues and I request that the joint statements of all of our organizations be entered into the record of this proceeding.

Mr. KASTENMEIER. Without objection those statements and, indeed, other materials that you may wish to submit in connection with those statements will be received and made part of the record. Mr. GORTIKOV. Thank you.

I hold in my hand now what is an audio record rental. It is a copyrighted LP album which was rented right here in Georgetown earlier this week. It happens to be No. 1 on our industry best seller list. It cost only 50 cents to rent this album overnight. Here is a blank tape cassette that was purchased in the very same store which rented that album.

What happens next is obvious. The rental customer tapes this copyrighted album at home before returning it the next day to the rental shop. That practice that I have just described-that is, home taping from audio record rentals-is frightening to the American music industry, both economically and creatively.

Record rental is parasitical. It exists to encourage the unauthorized duplication of our copyrighted product. In using the haven of current law in a way that was never anticipated, the rental shop operator makes a profit by displacing our sole source of income, which can only come from the sale of our recordings.

There is no doubt about the home taping intentions of rental shops. I invite you to look at these ads from rental shops. The first one is from a shop in Taos, NM. It says, "Two dollars for two days . . . and one free blank cassette to each rental customer."

Here is an offer from Illinois: "Rent your favorite album for $2.50... and get an Ampex cassette free . . . plus 50 percent off TDK cassettes.'

This final ad says it all and says it best: "Never, ever buy another record."

So, we come before you to ask for legislation to protect the right that we thought we already had, the right to control the reproduction of our copyrighted works. Does this mean that we are acting like Professor Lange's "greedy children"? Are we out of line? Let me address the tests suggested by Professor Lange to demonstrate that even under the stringent standards he proposes the record rental legislation we seek is good policy.

One test called for by Professor Lange is a cost benefit analysis of the proposed legislation. Let me approach that by first offering you a cost benefit analysis of the status quo. That analysis is quite

simple: We bear the costs and the record rental stores get the benefit.

When a record is rented, the only earnings generated go to the rental shop operator and the blank tape maker. Revenue is thus denied those musicians and vocalists who performed on the record, those who composed and published the songs, those who took the risks, those who own the copyrights.

Thus, rental shops merely feed off the talent and investments of others, jeopardizing jobs, careers, and music itself. They offer a cheap alternative only because they bear no costs. The legitimate retailer down the street is also cheated of possible sales from this unfair competition.

Rental shops primarily feature hits to rent and copy. Yet, hits are the lifeblood of our industry because about 84 percent of the albums released do not ever recover their costs. We are dependent on the 16 percent that do make money in order to develop new talent, record new music and provide diversity in music that is recorded and to seek those elusive hits and make a profit. Yet, it is precisely this hit category of recordings that is rented and taped the most. That is a direct blow to our economic and creative gut. With this background, the benefits of the record rental legislation are obvious. H.R. 1027 and S. 32 would restore the benefits that the copyright laws are intended to provide: to the music community, to legitimate record retailers and to the public.

Creators would receive compensation for their work, retailers would no longer suffer a competitive disadvantage against rental shops, and the public would be assured a continuing supply of diverse music, thus satisfying a second requirement suggested by Professor Lange, that the legislation should ultimately enhance the public domain.

Yet, the costs of the legislation are insignificant. Few rental stores are engaged exclusively in the record rental business and none of them can fairly claim to have relied on well-established practices when they decide to make a quick buck in this business. Fortunately, though, record rentals are still in an early stage of development, so that corrective legislation can be enacted without having to dismantle a nationwide industry. Moreover, the bill would not apply to records purchased by rental shops prior to enactment, so they would lose no rights with respect to records which they had already paid.

Theoretically, under existing law we are supposed to have the exclusive right to reproduce our copyrighted works. But the first sale doctrine, in a way that was never anticipated, opened a loophole in the law. H.R. 1027 and S. 32 would do no more than close that loophole. It would not create any new copyrightable works. It would only modify the first sale doctrine in a limited way. As such, the record rental legislation readily passes Professor Lange's third test, which requires that the proposed copyright protection must be susceptible to a reasonably clear definition.

Additionally, the legislation satisfies Professor Lange's fourth and complementary test, that the new production must also be able to be defined "in terms of what it is not." It is not a statutory prohibition on record rentals.

Private borrowing or lending by libraries or other noncommercial rentals would not be affected. The first sale doctrine for other copyrighted works would not be changed, and neither would there be any effect on the law governing other unrelated and conventional rental practices, such as the rental of lawnmowers, or cars, or trailers, or cement mixers. After all, unlike recorded music, when you take home a rental car, you cannot make an exact duplicate of it.

The final test suggested by Professor Lange is that the amendment be compatible with the structure of the existing copyright law. The record rental bills readily meet this standard. They solve the record rental problem in the traditional manner prescribed by a century of copyright law, giving the copyright owners the right to control the commercial use of their own copyrighted works.

By the way, when I refer to copyright owners, I mean the copyright owners of both the sound recording and the underlying musical works. As Mr. Feist will explain in his testimony, all of uscomposers, publishers, record companies, and retailers-support the clarifying amendment to S. 32 adopted by the Senate, confirming that the right to control commercial record rentals extends to all the copyright owners whose work is embodied in the recording.

Record rentals exist today because technology has made it as easy to copy our recordings as it is to play them. Now, technology has brought us something even more remarkable and, at the same time, even more threatening: the digital compact disc.

This small wonder offers the finest quality sound reproduction available today. Unlike vinyl LP's and tapes, it does not wear out. To the record rental store, it is like a bottomless well. It can be rented over and over again, and taped over and over again, without any loss of quality.

Thus, the success of the compact disc could spur an enormous and rapid growth in the number of record rental stores. That is why we hope this subcommittee can report this legislation out this fall. Delay hurts everyone, not only the creators whose works are being rented and taped instead of sold, but also the small businessman who tomorrow may decide to enter the record rental business. Thank you.

Mr. KASTENMEIER. Thank you, Mr. Gortikov.

Which of your colleagues will proceed next?

Mr. GORTIKOV. I think Mr. Feist.

Mr. KASTENMEIER. Mr. Feist.

Mr. FEIST. Thank you very much for your warm welcome.

I am Leonard Feist, president of the National Music Publishers Association. The members of our association publish the greatest part of all copyrighted music in this country, spanning the entire range of musical tastes.

Since it is our copyrighted music that is recorded, we as music publishers must be concerned with any threat to the vitality and viability of the record industry. Any development which threatens the well-being of that industry must be viewed by us with alarm. Royalties are paid on the basis of records sold. Of course, no royalties are derived from the rental of records.

Records sold are of major importance to us and to the writers whose works we publish. Those sales are vital to all other elements

of the music industry, an industry historically marked by fierce competition and internal differences. Never before has this industry come together so spontaneously to commit itself unanimously to a single cause.

However, let me emphasize that we appear before you today not only to speak on behalf of that united music industry-the publishers, composers, record companies, and retail stores-but also as representatives of the entire music community, which speaks with a single voice on this issue through the Coalition to Save America's Music.

Twenty-five independent music organizations have joined together to express through that coalition their deep concern over the pernicious effects of record rentals. This coalition is unique. Never before has such a cross section of all facets of America's music life demonstrated such a unity of purpose.

Let us turn for a moment to consider a dramatic demonstration of the consequences of record rentals: the Japanese experience. More than 1,600 record rental shops have opened in Japan since their first appearance there 3 years ago. Surveys indicate that in areas where rental shops appear, record sales by retail record stores have declined by 30 percent.

Disturbing and revealing is the response by patrons of record shops in Japan. More than 97 percent of those surveyed said that they taped the records they rented. In fact, after making their own tapes, the majority of them loaned their rental record to friends so that they, too, could tape it at home.

The effect of these lost sales is most seriously affecting the ability of record companies to produce new artists. Reduced royalties to publishers will make it difficult for them to finance new composers and, therefore, new music.

We today have spoken of the effect on record retailers, composers, record companies, and publishers. But what about the public? Is the unauthorized reproduction of rented records really in the public interest?

Rentals are unfair to the legitimate record buyer. Reduced sales volume will mean higher prices for records as producers will spread the risk over fewer sales. Unfairly, the buyer will have to subsidize the renter. The renter himself will have less to tape.

Rentals siphon off the income needed to find, nurture, produce, and promote new songwriters, new artists, and new music. Record companies will no longer be able to continue to underwrite production of concert, symphonic, and operatic recordings, which even in boom times are marginal earners at best. The public will enjoy less new music, less variety, and ultimately less music.

This committee has before it S. 32, as well as H.R. 1027. As amended by the Senate Judiciary Committee and passed by that Chamber, S. 32 varies in some respects from H.R. 1027. These variations are essentially of a technical and clarifying nature. They are designed to make clear that the bill is applicable to the copyright owners of recorded musical works, as well as of the sound recording itself; that the right of the copyright owners of musical works is subject to the compulsory licensing system conventionally applicable to phonorecords; and to assure that the bill's restriction of

commercial rentals will not be avoided by subterfuge. These amendments are fully supported by the coalition.

As requested by the chairman, I have read with great care and interest the testimony of Professor Lange of Duke University delivered before this subcommittee in July. While I may differ from the Professor in certain of his perceptions of copyright, I will focus on the core of his testimony, in which he suggests five criteria Congress should consider in connection with any amendments of the Copyright Act.

It seems to me that in its deliberations under Chairman Kastenmeier over a period of almost 20 years, a process which I had the opportunity of observing almost in its entirety-and, on occasion, had the privilege of participation-this subcommittee in its approach to copyright has been guided by considerations very similar to those tests proposed by Professor Lange.

Indeed, this committee and the Congress have been constantly and consistently alert to the impact of any of its decisions upon the public and upon the shape of the entirety of the law itself. Further this committee and the Congress have been guided by the constitutional directive upon which copyright in this country is based, a fundamental which does not seem to be central to Professor Lange's approach.

Finally, as reviewed in greater detail in the joint statement of AGAC, ÑARM, NMPA, and RIAA, the proposed record rental legislation is entirely consistent with and supported by Professor Lange's criteria.

Record rental, in its damaging, chilling impact on musical creativity, clearly thwarts the constitutional purpose of copyright itself: To benefit the public by promoting the progress of science and the useful arts by compensating creators.

To assure that this purpose is served, the Coalition to Save America's Music urges your favorable consideration of the Record Rental Amendment of 1983 and the amendments thereto as passed by the Senate.

Thank you very much.

Mr. KASTENMEIER. Thank you, Mr. Feist.

Before we proceed to the next witness, I would like to yield to my colleague, the gentleman from California, Mr. Moorhead, because he may need to leave temporarily for a very important caucus. Mr. MOORHEAD. Thank you.

I want to thank each one of you for coming this morning and for the testimony that you are giving. I very strongly support this legislation. I think it is really wrong what is happening in so much of the entertainment industry, where people who have contributed very little to the product end of the entertainment are trying to reap the profits out of it, and those who have done the work and provided their capabilities and their talent are left without the profits that they are entitled to.

It can hurt the body of entertainment for everyone in our country unless we do what we can to protect those whose product and whose private property it is. For that reason, I very strongly support this legislation

Mr. KASTENMEIER. I thank my colleague for his comments. Mr.