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A HIGHER STATUTORY RATE WOULD NOT BE "MERELY A CEILING," AS ARGUED BY MUSIC
PUBLISHERS; ALONG WITH STANDARD VARIATIONS, IT WOULD BE THE RATE AT WHICH
ROYALTIES ARE PAID

The music publishing industry argues that a higher rate would
merely be permissive; just "more room for bargaining" between
the parties on the basis of their "relative strengths." The
higher rate, it is argued, would merely be a ceiling to the out-
come of bargaining.
The argument suggests, by way of conclusion, that since the out-
come of bargaining cannot be foretold, the effects of raising
the statutory rate are uncertain, and may be not very
significant.
The notions and conclusion are fallacious. They disregard basic
facts as to how the licensing and royalty collection process works,
why it works as it does, and must work under any new higher rate.

Any new higher rate would, together with standard variations,
inevitably become the rate, just as the statutory rate is now,
and for the same compelling reasons.

The Licensing And Collection Process

The licensing of copyrights and the collection of mechanical roy-
alties is a massive process. Organizations and procedures have
been established that make it practical to handle the mass of
detail economically and routinely.

Scores of publishing companies hold copyrights to thou-
sands of tunes. Recording companies release more than
50,000 tunes a year over 200 per working day.
Royalties must be paid and collected on these and on
thousands of other active licenses issued in previous
years.

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In sum, there are three main kinds of possible impacts of higher royalty rates:

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Higher prices to consumers

Lower profits to record makers

Reduction of riskier recordings, innovative, ethnic and jazz musical
offerings, and the works and performances of less well-known
and younger composers and performers.

The actual impacts of higher royalties would be a mixture of these kinds of results. No one can say for sure in what proportions they would come to pass.

But each and all of them are undesirable to everyone, except co music publishing companies and other parties to copyrights. All of them would operate to reduce employment in the recording industry.

None of these effects is called for on the grounds of compensating for the effects of inflation for copyright owners. Payments to them have been . far outstripping inflation.

The proposed increase would result in a large windfall to the publishing industry not offset by any increased contribution by it to recorded music its production, distribution or its enjoyment.

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The music publishing industry uses agents to issue the many
licenses to the many record makers and to collect royalties
on outstanding licenses from many licensees. One single
agency, owned by publishing companies jointly, for years
has handled a very large fraction of all licensing and
collection.

As regards the issuance of licenses for mechanical repro-
duction of copyrighted music, there are two avenues to
obtaining a license: either through the route of "negoti-
ation" or through the "compulsory" route. According to
the theory of the copyright law, a person wanting to use a
tune in mechanical reproduction of music can try to "negotiate"
a license from the copyright owner. Then, if a copyright
owner is uncooperative or intractable, any party wanting to
record a tune that has once been recorded nay simply go
ahead and do so and pay royalties at the compulsory statutory
rate of 24 under conditions and procedures prescribed by the
Register of Copyrights. In fact, the administrative and pro-
cedural mechanics of the compulsory route are cumbersome for
all parties, and are only very rarely used. Instead, publish-
ing companies have set up routine procedures for going the
route of "negotiation". By definition and usage in the trade,
any license that is issued under any procedure other than the
"compulsory'' provision is said to be "negotiated", even if --
and this is crucial to understanding how the industry works -
the license is actually issued under the most routine, the
nost automatic procedure. But this practice of seldon invoking
the compulsory licensing procedures should not be confused with
paying the statutory rate, which, in fact, occurs in the vast

majority of cases.
The outcomes of this enormous licensing process must in all reality
conforn to a relativeiy straight-forward structure and routine.

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When not issued at the statutory rate, licenses are issued at stan-
dard variations that pertain to common situations recognized in the
trade. Exhibit I details this pattern of standard variations for a
sample of 2,593 licenses, those being all licenses obtained by two
recording companies over most of the year 1974. (Incidentally,
these companies sold well over 50 million records last year.) The
left-hand side of the exhibit shows that three main kinds of dis-
counts from the statutory rate occur for regular price records:

Artist discount, where the performer is also the copyright owner.
These accounted for 5.1% of the rates on tunes from regular price
records.

Block discount, where a record contains several tunes owned by
the same publishing company. These accounted for 3.0% of the
rates paid on tunes on regular price records.
Medley discount, where a tune or theme is used for a short period
of time in combination with one or more tunes. These explained
2% of all rates paid on tunes on regular price records.

These three discounts together accounted for 10.1% of rates paid on tunes from regular price records. These standard discounts also explained all of the rates on these tunes that were paid below 24. Fully 84.5% of tunes on regular price records were paid at the 24 rate, and the remainder, 5.4%, were paid more than 24.

We turn now to a discussion of records in the sample which were
sold at other than regular price, shown on the right-hand side of
Exhibit I. These include "budget label" records, which are often
reissues released sometime after an origina! release on a regular
price label; and "club" records, which are records sold at reduced
prices through a record club, much like a book club. Here, dis-
counts are much more prevalent in the mechanical rates paid. Fully
37% of all races paid were "budget" or "club" discounts. When a
record is released through a "club", as anyone knowledgeable in the
trade can cestay co, the mechanical rata paid in almost all cases
iri!! je 5% of the original commercial :a::. There is cer-

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