record clubs and retail establishments so as to prevent the major labels from putting a complete stranglehold on prerecorded music distribution.

(4) In addition to an economic impact survey we ask this Committee to look into the current indictments against people in the recording industry as currently served by the Newark Attorney General's Office and into the "alleged fraudulent commercial practices in all facets of the recording industry" as presently being conducted by the Federal Grand Jury in the Central District of California.

ARTISTS

One of the prime reasons the major labels cite as necessity for an anti-piracy provision in the copyright bill is protection of the artist. We are in agreement with the spirit of intent of the anti-piracy provisions, HOWEVER, THE ANTIPIRACY PROVISIONS AS THEY CURRENTLY EXIST (AS IN THE 1974 INTERIM ANTI-PIRACY BILL) THE ARTIST IS NOT BEING PROTECTED; HE IS BEING HURT. AN ANTI-PIRACY PROVISION, WITHOUT SOME FORM OF MODIFICATION—SPECIFICALLY MANDATORY LICENSING—IS NOT IN THE ARTISTS BEST FINANCIAL INTERESTS! That is to say, an artist will definitely benefit financially under a mandatory licensing provision because the artists will be paid when they are no longer being paid and/or produced by the major labels and the major labels won't lose anything by it.

To understand how an artist would benefit under mandatory licensing-while the major will not be hurt let us examine the following facts and definitions. (1) A musical artist is someone responsible for the creativity part of a record; the writer and the singer (or musician).

(2) An artists' longevity-as an artist-is quite limited! Elvis Presley and Frank Sinatra have been around twenty years or more. But how many Elvis Presleys are there? How many artists are no longer around after one or two years. Therefore, it is only right that an artist make as much as possible in his productive years to keep him in his non-productive years. Also, the artist should be able to have the opportunity for reward to inspire him to create.

(3) The term cut-outs: In the past a retailer had guaranteed sales. He would buy a record or tape and at the end of a season return the tape or record for full credit. The record companies would, in turn, dump those records and tapes at firesale prices. To keep a retailer from buying at firesale prices and then claiming he found a whole group of tapes in his basement that he overlooked (and now wants to return them to the major labels for full credit) a corner of a record album was cut or a hole is drilled through a tape. This indicates that that particular tape or record was bought on a no return basis.

In defense of my claim let us consider that after a record becomes a cut-out the artist is no longer paid-or, at best, if he is a powerful performer who has renegotiated his contract, paid less than the regular royalty rate.

How will mandatory licensing correct that situation and earn the artist his just rewards. I would like to quote from Page 5 of the Simon & Garfunkel contract dated 2/10/64 and running through 2/9/72 with Columbia Records. Section d. "No royalty shall be payable to you in respect of phonograph records sold as "cut-outs" after the listing of such records have been deleted from our catalogs or in respect of phonograph records distributed as "free" or "no charge" records to promote the sale of phonograph records. . ." (There will be further discussions about record clubs in my comments on the retailers, thoughts about the copyright bill.)

As of last week the average life on the charts was 16 weeks for the average record. This is to say, if record number one is on the hit charts for 20 weeks and record number two is on the hit charts for ten weeks, collectively they are on the charts for a total of 30 weeks or, 16 weeks average per record. If you take a look at Billboard's survey of the top 200 record and tape albums and add the total number of weeks and divide by 200 you will come up with this 16 week average. And, on the average a record or tape becomes a cut-out in about six months.

Tommy Noonan, assistant to the president at Motown, pointed to a five month selling curve for an LP noting that "if you issue an RA in the fifth month and you get it back by the seventh, the product is in effect a cut-out". (Sic: at the time you issue the RA-Return Authorization) (Billboard March 15, 1975.)

Furthermore, might I point out that the artist is now always paid in full, or on time, by the major labels according to J. Cooper, President of the N.A.R.A.'s "The artists are paid on 90% of what is sold which is a figure that dates back to

when records were breakable; Now this is a way to cheat the artist." (Both of these quotes can be found in the August 17, 1974 issue of Billboard Magazine.) "Attorney J. Cooper offered a rare insight into the problems from the standpoint of artists and publishers. One of the big problems in the reserve situation that labels use to hold back royalties. The attorney said he knows of companies holding back 80% (sic of royalties) and withholding royalties for from one to ten years.

"If an artist has been told he's sold 1 million records and he may get paid for 200,000 units in his statement, this makes him very unhappy." Cooper said, "the record companies say they must hold back in reserve because they don't know what's coming back." Cooper said he felt there was no reason to hold back the royalties. (Billboard March 15, 1975) Under compulsory licensing the artist would be paid.

As a matter of fact, just recently several executives of major labels were indicted by the U.S. Attorney General's Office for, among other things, a "scheme (sic: to) defraud recording artists, songwriters and music publishers of royalties and fees owed them. . . ." (Billboard July 5, 1975) "The indictment also charges that the defendants obtained in excess of $371,000.00 in cash and merchandise by selling the product at less than wholesale prices, and then not entering a sale on the companies's books. The scheme, charged to be in effect from January 1, 1971 through presentment of grand jury findings, was directed solely for personal gain or for payment to radio personnel.

I fail to understand how the record companies are protecting the artist when (A) they are not paying royalties on anything that goes off the charts (B) 95% of the records that were produced a year ago are no longer being produced and (C) under mandatory licensing the artist would be getting paid royalties on records that the record companies aren't selling and, therefore, aren't losing any money on.

I know that the above is the most simple and logical argument for mandatory licensing that there is. Everybody gains and nobody loses.

As a matter of fact, mandatory licensing provides additional benefits to the artist and to the record companies.

Let me explain that statement with an analogy. When I was studying advertising in college we learned that the people who study the automobile ads most intently are the people that have just bought new cars. It is called positive reinforcement. It is my finding as a retailer that some people who have become a fan of a particular artist like to have his entire series of albums and/or tapes. If they obtain this entire series, this then becomes a positive reinforcement to collect his newer releases and creates an even stronger demand for the artist on the personal appearance level. It is on the newer releases that the record companies earn their monies.

But that's not just my opinion. Ed Barsky, President of Kester Marketing, who was quoted in Billboard Magazine as saying for example, "if someone buys a Lobo album at $1.99 and then hears a Lobo hit on the radio, he may buy some of the new product".

Might I point out that there are currently some artists (song writers) who fare far better with the duplicators than they do with the major labels.

The 1909 copyright law requires that a mechanical royalty of 2¢ be paid to the owner of a song. That owner is paid the full 2¢ by duplicators. I do not believe he is paid such by the major labels despite the 1909 copyright law. My belief is based on the following excerpts from an anti-trust law suit. In addition I feel that a full economic impact survey by the Justice Department is called for

"I would like to refer to a class action for a conspiracy and violations of antitrust laws filed June 8, 1972 in the U.S. District Court for the Middle District of Tennessee, Nashville Division by Mr. Clarence Selman, Buddy Mize, et al and on behalf of themselves and all others similarly situated (about 20 names were mentioned as plaintiffs) versus Columbia, RCA, MCA et al. defendants. The brief said the following, "the continual creation of original lyrics and/or music for musical compositions; (referred to hereinafter as songs) acceptable to the mood and taste of the public, requires a very high degree of skill and knowledge. The inception of the vast economic activity generated by the music business is dependent upon and conceived in the talents and abilities of the songwriter, and the total industry is sustained and its growth nurtured only by the continual creation of new songs. The usual way in which a songwriter brings his songs to the public is through a music publisher . . . and it is standard for the writer to

receive 50% of the mechanical-license fees collected by the publisher... the publisher promotes and exploits the song for the purpose of getting it recorded by a recording artist. If the publisher is successful in this endeavor, he applies for a copyright on the song . . . and, thereby, becomes entitled to receive a royalty fee of 2¢ for each and every mechanical reproduction of all subsequent recordings of that song pursuant to the compulsory licensing provisions of the copyright act." [See exhibit 2 for balance of this quote.]

There is a definite reason why the major labels are for strong anti-piracy provisions in the general copyright bill, and are against mandatory licensing. However, I do not feel that it is truly to protect the artist-or the profits of the major labels (they cannot lose profits on items they do not make). I feel it is to prevent competition, an aspect I will discuss further.

Another way the record companies protect the artist is with a slavery clause in an artist's contract called the suspension clause. It gives the record companies the right to suspend an artist for whatever period of time it deems necessary where he may be unproductive. And tack that period of suspension onto the end of his contract so that if he had a two year contract and was under suspension for six months the full contract becomes two years and six months. In a way this does not jive with what the record companies have been telling Congress about how they have to pay non-productive artists.

"Capitol Records has filed a $5 million suit against Grand Funk Railroad and MCA Records in State supreme court here charging the group with failure to complete its contractual commitments, and challenging the legality of Grand Funk's move to sign with MCA Records. MCA's pacting of the top-selling act was announced last week." (Billboard, June 28).

"At the same time, the Capitol suit seeks a court ruling on the validity of the "suspension" clause in its agreement with Grand Funk and its right to extend the contract term until artist obligations are met. The suspension issue has gained prominence recently via a case, still pending, involving Vanguard Records and Larry Coryell." (Billboard Magazine, July 5, 1975.)

RETAILERS

One of the reasons the major labels cite as a necessity for strong anti-piracy provisions in the General Copyright Revision Bill is to protect their customers, the retailer! I am a retailer. I am here to testify about the way the average small non-chain retailer feels about the General Copyright Revision Bill.

In addition to myself, I speak for hundreds of mom and pop shops across the country. I am President of the Record and Tape Association of America whose membership roster is mostly small New Jersey retailers. But, we have spoken to other retailers in Connecticut, New York, Pennsylvania and Vermont and feel that our views are reflective of most of the mom and pop shops across the country.

In essence we are against the anti-piracy provisions of the general copyright revision bill! The provisions as they are currently designed, without some kind of modification-specifically a mandatory licensing provision-will not only not protect. They will harm.

As small retailers we make our living solely from prerecorded music (and possibly some hardware such as recorders and players). This is in contrast to a department store which runs a record department.

If my customer does not buy what I sell I am out of luck. In a department store, if they don't buy a record (or tape) the customer will buy something else, such as a pair of jeans.

Because department stores do not rely solely on their record departments for their livelihood, therefore, they can run loss leader record sales to draw customers. They usually run sales on the most current records and, in a way, they are "skimming the cream" because that is all they offer, only the current hits.

As a small retailer I have to offer a service to justify my existence. One of the services I used to offer is out of date prerecorded music to complete the collections of fans who suddenly were "turned on" to an artist and wish to complete his entire collection. I sold duplicated tapes that were no longer being produced by the major labels. Those duplicate tapes sold retail-provided a marginal profit that meant the difference between staying in business and working for someone else.

I have recently been precluded from selling duplicated tapes by a Court decision of a Federal District Court.

"It is the official national policy that small business deserves a thumb on the scale to help balance the greater financial muscle and managerial sophistication of the big corporations". (Business Week 6/30/75)

It is for the above reason that I am here today. I, and my fellow retailers, need protection not only from tape pirates (who should be distinguished from tape duplicators) but we want to be protected from the major labels as well.

To begin with, as small retailers, we need all of the sales and profits we can get. We fail to see how the major labels are protecting us by preventing us from selling merchandise that they no longer produce. That is our first and prime complaint against the major labels.

Under mandatory licensing we would have available to us additional product that will help us get and keep customers so that we can sell current major label products as well.

In addition, previous testimony has shown that five major labels control 85% of the music industry either directly or indirectly.

The major labels claim that they seek anti-piracy provisions in the copyright law to protect us, the retailer. But what is to protect us from the major labels who compete with us by forming their own record clubs and opening up their own record stores?

We know about RCA's record club and Columbia's. In addition, the president of Polydor music says that direct marketing is a goal and GRT plans direct mail campaign through the use of fan clubs. (Billboard)

How many other major labels will protect me by stealing my customers?

We know that CBS and ABC own several hundred record stores. Mr. Heilman, who is also giving testimony today, has tried, in court, to find out what other labels own stores but has been unsuccessful to date.

The major labels with record clubs protect the small retailer by offering special albums "not available in any retail store" (such as songs of the 40's that Columbia offered on Television in June, 1975). Mandatory licensing would be a thumb to weight the scale in our favor.

Additionally, they offer "special deals" such as "buy four for $1.99 (plus shipping and handling, of course) and nine more at the "regular" price (which is full list price) in the next two years. This they are able to do by taking it out of the financial hide of the artists by not paying the artist full royalties (and in some cases no royalties at all). Please see Exhibit One, Sections, B, C, and D, Page 5, of Columbia Records contract with Simon & Garfunkel. Again we ask for a thumb to weight the scales in our favor.

Why does Columbia Records, which we believe is a separate corporate entity than Columbia Music, get, it appears, their merchandise at costs lower than a regular retailer? We think that a Justice Department inquiry into their interrelationships between the record clubs and their parent campanies, during the course of a much needed economic impact survey might provide some interesting

answers.

Furthermore, the small independent retailers are quite concerned about those inter-relationships because some inference that can be drawn about the possibilities of Restraint of Trade.

Specifically, we know that ABC & Columbia own retail record outlets. We also know Columbia was thinking about selling record club selections through department stores. If a major label which has a monopoly-via copyright-to a particular song makes that song available only in its retail outlet, it does so to an independent retailer's detriment. Again I quote Billboard, "CBS and Columbia, long the industry bellwether". The conclusion is obvious. Mandatory licensing is needed as some sort of a thumb to tilt the scale in the favor of the retailer who is supposedly being protected by the major labels.

Some of the smaller retailers feel that the major labels may be in violation of the Robinson Patman Act. I refer specifically to my experience with RCA. This June, 1975 I tried to buy directly from RCA and was told by RCA that if I wanted to achieve a price of less than $4.01 a tape that I had to prove one of two things. Either I was a distributor in which case I had to file affidavits showing that I was a distributor and reselling to their retail outlets or that I was getting a lower price than $4.01 from Columbia Records. RCA told me that they are followers, not leaders in the record industry and that if I could document that I was getting a lower price than $4.01 from Columbia records then they would give me the same price.

Now the Robinson Patman Act says that for some one customer to achieve a lower price than another customer it has to be on economies of scale. If 300 of

ABC's stores order 100 tapes; and each store's order is filled on an individual basis that is 300 orders of 100 tapes each which cost the major label the same to ship as my 100. Why should I pay a higher price.

Therefore, as president of the Record and Tape Association of America; and spokesman for hundreds of small retailers I humbly ask for the following "Thumb", from the Judiciary Subcommittee, to help us tip the scale not against the record companies but just back to zero.

(A) Mandatory licensing of merchandise the major labels are no longer producing (and some safeguards designed to keep them from claiming they are producing things they are not, or on such a small scale that for all intents and purposes they are not producing).

(B) An economic impact survey to determine the feasibility of the above (in the interests of justice).

(C) An expansion of the economic impact survey to see how completely vertical the major labels are and whether or not their affiliated record stores, and record clubs are in restraint of trade and are violators/or potential violators, of the Sherman-Clayton Anti-Trust Acts.

(D) That the action in regards to mandatory licensing be immediate because of the fact that hundreds of mom and pop stores across the country were put out of, or will be put out of business shortly by a court interpretation of the 1909 Copyright law. It was indicated that the 1909 law said “similar use" and that the Judge found duplicated tapes exact use. However, if Congress were to spell out what can be duplicated, the issue would be at an end and many small retailers would once again be provided with the marginal profit that spells out keeping a shop open or closed.

There was a point I tried to raise in Paragraph 5, Page 8, that appears unclear. which I am unable to correct in the text. I will do so now.

We know that ABC and Columbia own retail record outlets. We also know that the major labels have been uncooperative in revealing any further relationships with any additional retail outlets (CBS owns Pacific Records, ABC owns Target retail outlets). If a major label which has a monopoly-via copyrightto a particular song and, if that major label makes that particular song or album available only through its retail outlets (as they currently do through their record clubs), then what will be the effect on the poor, struggling, independent retail outlet. The result of that is obviously that the independent will be put out of business.

The members of my organization have voiced their opinions that such actions are a feared possibility and feel that mandatory licensing will serve as a thumb on the scale to help balance this eventuality (of going out of business) by allowing us to offer merchandise that a record company's retail outlet does not offer; we can offer out of date merchandise no longer being produced by the major labels that will allow us to draw customers.

CONSUMERS. THE PUBLIC AND SOCIETY

As retailers, my colleagues and I serve the consumers. Therefore, we know we can state what they want, and what is in their best interests.

The major labels claim that anti-piracy provisions are needed, as part of the General Copyright Revision Bill, to protect the consumer.

We, as retailers, and members of the Record and Tape Association of America, state that not only will the anti-piracy provisions not protect the consumer-the anti-piracy provision can only serve to hurt and deny the consumer. In addition, anti-piracy provisions reverse what the public has decreed and are not beneficial to society as a whole.

To begin with, the major labels claim duplicated tapes are inferior to major label tapes. As a retailer who has handled both I say this is not so. Furthermore, I suggest that this Committee read what Consumers Reports, September, 1975. has to say about the quality of major label 8 track tapes. I am sure that after reading the above, the argument of major label superior quality will be buried forever.

Representative Danielson has been quoted as saying, "to copyright is to promote the arts"!

The primary goal of Article I, Section 8, of the Constitution, relative to promoting science and the arts is to enrich all of society by assuring the free flow of ideas and creation. Congress, in implementing this goal has awarded monopolies in the form of patents and copyrights to enable the creators to reap the rewards of their efforts and to spur those creators to new efforts.