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previous witnesses, opponents of this bill-I don't know if the figures are accurate, but I assume they are accurate and certainly the thrust of what they were saying is accurate-that the film industry has made a great deal of money from this whole video cassette market. I think $350 million last year was the figure cited.
They have made it in a market which is 90-percent rental, 10percent sale. The reason it is 10-percent sale in part has to be because the price of these cassettes is so high. They want to change that because they want to make more than $350 million a year and, it seems to me, it is quite plausible that the way they will end up doing that is through one of two mechanisms. But the lowering of prices will end up increasing the sales tremendously which they can't do now because the people who are in the business of commercially renting them would lose a huge amount at the same time as they are picking up a broader sales market.
They are going to want to-through attractive pricing, which doesn't have to mean higher rentals-get some of those people who are renting now, but who would buy at $29 or at $30, to start buying, and they make more money. The retailer benefits in that situation as well.
We will see. Presumably we will have a mechanism for seeing what is, in fact, happening and knowing who is right, but it does seem that there is a very logical argument that does not have to involve increases in rental prices to produce what the proponents of this bill want.
I know they want to establish a fundamental underlying principle, but I think they probably as much want to increase their profits.
Mr. MAZZOLI. Would the gentleman yield?
Mr. BERMAN. Certainly.
Mr. MAZZOLI. I thank the gentleman. Unfortunately, I wasn't here today and I may be going over plowed ground, but did the question of some sunset or anything like that come up at all today, in order to guarantee that we would have a chance to look at this again and revisit it in the event that it doesn't work like we think it might work?
Mr. BERMAN. I don't know that it has come up today. I missed the first part of the hearing myself.
Mr. KASTENMEIER. The gentleman from Kansas, Mr. Glickman, raised the issue of a 3- to 5-year sunset provision in the course of his questions.
Mr. MAZZOLI. Thank you, sir.
Mr. KASTENMEIER. He made some allusion to it.
Mr. BERMAN. Which would institutionally build in a way of seeing what is happening; seeing whether all these predictions that the proponents of the bill have made are, in fact, true.
Mr. KASTENMEIER. Thank you.
Mr. Golodner, can you clarify for us which unions have contracts that give them a share of the action? Do any of them get a specific share of copyright royalties, per se?
Mr. GOLODNER. In answer to your first question, Mr. Chairman, the American Federation of Musicians, the American Federation of Television and Radio Artists, the International Alliance of Theatrical Stage Employees and the Screen Actors Guild all have provi
sions in their contracts to share in the revenue realized, and, in addition, provisions regarding sell-offs to television have been in their contracts for many, many years. They share in any sales to television of a product made for theater exhibition primarily. So they do share in that. Four years ago, or thereabouts, most of them negotiated new contracts with the Alliance of Motion Picture and Television Producers, which provides for a formula-and I say, they are varied, depending on the contracts-for sharing in other uses of the filmed product.
Mr. KASTENMEIER. Do any of them share in profits derived from theater display, from the traditional means of showing a motion picture?
Mr. GOLODNER. I can't answer that, Mr. Chairman, I am not
Mr. KASTENMEIER. I was just wondering-▬
Mr. GOLODNER. As we know, the stars, writers, directors can very often, because of their importance to a production, negotiate something above and beyond the union contract and usually that entails a percentage of gross sales. It gets very complicated.
Mr. KASTENMEIER. I guess we would all realize that the directors and stars get more than union scale, but the reason I ask is because part of your testimony indicates that this whole scheme is contingent upon a sharing by the people you represent and we would like to know how that is going to happen.
Apparently, it would go into a pool. I take it the gaffer or whomever isn't going to get an extra percentage directly from the studio, is he? Could it go into some pool or how do you-
Mr. GOLODNER. Mr. Chairman, could I ask Mr. Guthrie to address that?
Mr. KASTENMEIER. Yes, Mr. Guthrie, maybe you could enlighten the committee on that.
Mr. GUTHRIE. Sir, it is impossible to generalize on the contracts. In some cases, they do participate directly in the revenue—individuals do participate directly in the revenues.
As you have indicated, there are other instances where the money goes into a pool, but it varies from union to union, from contract to contract. As Mr. Golodner indicated, you can't make generalizations here.
Mr. KASTENMEIER. As far as you know, Mr. Guthrie, no union members, by virtue of a union contract, have a share of copyright royalties as such. Is that correct? Only insofar as the general profits of the studio from certain sources may provide revenue?
Mr. GUTHRIE. They get a return-I believe in the case of the Screen Actors Guild, they get a return based on the producers revenues, which I understand are wholly based on copyright.
Mr. KASTENMEIER. Producers' revenues?
Mr. GUTHRIE. Yes, sir.
Mr. KASTENMEIER. Which you believe are based wholly on copyright.
Well, because I would think studios would be hard-pressed to constitute x number of employees coholders of a copyright-
Mr. GUTHRIE. I don't believe they constitute these employees as co-holders, but through contract, they accord to them a specific portion of the revenues that accrue to them.
Mr. KASTENMEIER. Well, copyright royalties may be a part of the revenues. I gather they would share in all revenues with respect to cable television or whatever.
Mr. GUTHRIE. There are specific provisions relating to the after market in television, the after market in video disk and video cassette. Now, it is my understanding that in the case of the Screen Actors Guild, insofar as video disks and video cassettes are concerned, you have to meet a threshold of 100,000 sales before the revenues begin to accrue to the individuals, and that, of course, increases our concern with seeing a very active sale market here.
Mr. KASTENMEIER. I see what the arrangement is. You could have written a contract to participate in the rental markets, too, and then maybe
Mr. GUTHRIE. Well, you can't participate in the rental market, Mr. Chairman, because you can't get to it. The first-sale doctrine prevents that.
Mr. GOLODNER. We are not in privity with the retailers. If we were, we would get a percentage.
Mr. KASTENMEIER. But what you should do is encourage your studios to do-as they did with "Flashdance" and some of the othersis drop the price to $29.95 and they will sell a half million.
Mr. GUTHRIE. I have the impression, Mr. Chairman, that was more in the nature of an experiment. It is not designed
Mr. KASTENMEIER. It was a very successful one.
Mr. GOLODNER. Mr. Chairman, could I address that, though? There aren't many "Flashdances," as I indicated before. There aren't many "Tootsies" and there aren't many "Star Wars." Sure, you could sell an awful lot of "Flashdance," but who is going to buy the ones-I don't even-"Northern Lights," if you remember that; that was, I believe, filmed up in your area of the country.
Mr. KASTENMEIER. It was filmed in the Dakotas, I think.
But, under any circumstance, you are not going to sell 100,000 copies of "Northern Lights." They just won't sell, whether they are in the rental market or not. I think that may be an unavailing argument to make since the expectancy and anticipation leads people to different conclusions.
Mr. GOLODNER. Well, I think my point, Mr. Chairman, was that they can't keep selling product at low prices because there are these other products they are not going to make a profit on. They have to-in other words, you have to take into consideration your entire your total product inventory and end up with a profit, your big hits as well as your poor ones. Eight out of 10 movies, I believe the figure is, do not return a profit.
Mr. KASTENMEIER. You told Mr. Mazzoli that the several unions that do have contracts will participate in the profits on releases for certain purposes, is that correct? For example, the sale market of video cassettes, certain television markets, and perhaps premium cable, HBO-type releases? Are your people sharing in the profits on those?
Mr. GOLODNER. I believe that is correct; yes, Mr. Chairman. As I say, it is impossible to make generalizations here, but most of the unions that have been mentioned do have specific contractual arrangements to participate in the after-theater markets, cable, all the various markets that you have mentioned.
Mr. KASTENMEIER. Let me ask one concluding question. It is very possible that a bill will evolve which will include a number of things, some which you might support and some which you might not. Indeed, the first-sale aspect of it may be substantially modified, as you have heard from the colloguy here from Mr. Glickman and other members of the panel. Do you think you could support a compromise version that would include a number of different items, such as a section on home taping, which would probably legitimatize the Supreme Court decision, and perhaps a section on cable television?
Mr. GOLODNER. Well, we are certainly amenable to any suggestions within the framework of this legislation. I would think that to revisit the issues in the Sony matter, which you raised this morning, would-this is an initial reaction-it would seem to me to confuse the matter, rather than clarify it. It embraces a different set of problems, I think.
Mr. KASTENMEIER. Well, let's say we might seek to balance some of the competing interests with that device.
I won't press you for an answer to that. In any event, thank you very much for your testimony this morning, Mr. Golodner.
Mr. GOLODNER. Thank you, sir.
Mr. KASTENMEIER. We are always glad to welcome back Bob Guthrie as well. We appreciate your brief, but excellent, testimony. That concludes our hearings on the video first-sale doctrine.
Until we come back after Easter, the subcommittee will stand adjourned, and we will then consider the matter.
[Whereupon, at 12:45 p.m., the subcommittee was adjourned, to reconvene subject to the call of the Chair.]
(By Paul C. Mawhinney)
First I'll give you some background on my qualifications to write this paper. 1. Owner of Record-Rama Sound Archives in Pittsburgh, Pa., founded in 1968. Record-Rama now recognized by the Library of Congress as the Largest archive of 45 RPM recordings in the world.
2. Creator of the "MUSICMASTER" database. This on-line information system covers 35 years of recorded music history. Soon to be in use at the Library of Congress and other sound archives.
3. Author/editor/publisher of MUSICMASTER: The 45 RPM Record Directory. A two volume, 2500 page history of 45 RPM recordings in America, (1947-1982) IŠBN 0-910925-02 PP 2500 $150.00 Recently reviewed by Charles Hamm, Dartmouth College, he said, "MUSICMASTER is a unique and highly valuable source of information to librarians and scholars alike. A myriad of facts not readily available elsewhere is at the fingertips of the owner or user of the two volumes. Mawhinney is a pathbreaker."
4. Manufacturer of the Spin-Clean Record Washer System. The only bath type record cleaner in America. Recently reviewed inthe Tarakan Music Letter as follows: "We found that even the stickiest and most heavily finger-printed records got nice and clean after only one application. All things considered, we recommend the Spin-Clean system. Keeping it clean is important... don't forget."
5. Broadcast Music Service to radio stations, syndicators and film companies. As provider of air quality recordings, we recently did work for Noble Broadcasting's "Great Gold Radio Series" and presently work with United Stations (Dick Clark), Toby Arnold, Bob Harper, Ed Salamon, and many others. Canon Films used our service for music in the new Natasha Kinski/Robert Mitchum film.
6. Management of Record-Rama retail/mail order record sales. Involved in all aspects of this retail record store located in Pittsburgh's North Hills section. Buying, selling, trading, and renting of sound recordings.
7. I am an active member of the following organizations:
ARSC-Association of Recorded Sound Collections.
IASPM-International Association for the Study of Popular Music.
IAML-International Association of Music Librarians.
NAB-National Association of Broadcaster. NRBA-National Radio Broadcasters Association.
IASA-International Association of sound Archives.
As owner/creator/author/editor/publisher/manufacturer/service provider and retailer of sound recordings and related products, I am requesting a full review and investigation of the enclosed allegations before you take any action on (S. 32 and H.R. 1027). In my opinion the proposed legislation is nothing more than a power struggle by the record companies to gain a federal license to take additional money from the American consumer and in the process making the regulations so difficult to administer that it would eliminate the small independent record merchant from competition. I am not anti big business, but I am against unearned profits and unfair competition. In this paper, I will outline all of my concerns and upon request and with proper funding, I am willing to provide evidence and testimony in any court of law to substantiate these allegations.
1. Record-Rama Sound Archives started renting records in September 1982.
2. Rental customers also buy some recordings.
3. Record sales increased over 26% the first year of the rental club.
4. Record purchases from one stop distributors increased 44% the first year of the rental club.
5. 60% of all record rentals at Record-Rama Sound Archives are for records no longer in print or available.
6. Our rental fee of 94¢ gives the consumer a chance to listen to a recording before making the purchase. If they decide to buy the record, we give them credit for the rental fee against the purchase price.
7. Record-Rama Sound Archives encourages record purchases by reducing the price of rental copies. This practice is called "rental rollovers." This gives the consumer a new source for budget priced sound recordings. This practice unlike the widespread practice of selling promotional copies, provides the artist with full payment of all royalties. In addition the manufacturer gets his full price and profit from every sale.
If the record companies were sincere in their concern about lost artist royalties due to record rentals, they would eliminate the sale of promotional "DJ" copies in every major market of U.S.A. The artist never receives a penny from any recording marked promotional, yet millions are pressed each year. They have become a subsidy for every underpaid promotion person in the business. I can name at least five retail outlets in Pittsburgh alone that openly sell promotional copies of all the latest album releases on Capitol, Columbia, Polydor, Warner Brothers, Arista, RCA, Motown, MCA, and others for less than $3.00 each. Sometimes the same stores have new promotional releases before the local record distributor gets his regular "stock" copies. Even more damaging is the practice of shipping "unmarked" promotional copies that end up in the regular supply line after being converted to cash without a royalty paid to anyone. This is where the "spiff" money comes from for a multitude of purposes. The loss to artists in unpaid royalties is in the millions.
This area of the record business is almost a joke. Every record sold includes a portion for promotion, but if my fifteen years in the business indicates how much of that is really spent on promoting a record, it's next to nothing. What money is spent is mismanaged.
Since my entry into the retail record business in 1968, I can count on one hand the number of times record promotion people have visited my store or offered in any way to promote an artist or record.