In terms of recorded music we can understand an anti-piracy statute as it applies to music that is currently being produced by the record companies. However, we feel that the goal of patents and copyrights is to enlarge science and the arts. Rewarding creators is only the method. When the record companies remove a song from the public domain at that point mandatory licensing should be allowed because the public has the right to that continuum of music or ideas for which it has already rewarded the holder of that patent or copyright.

One argument that has been made for mandatory licensing is the fact that less expensive music would be available to the public. I think we should dispense with this argument immediately, in a qualified manner. The record companies have invested a certain amount of money on which they should be entitled a fair return on investment, mandatory licensing would not infringe upon the profits and sales of the record companies.

However, what mandatory licensing would do is make available to the public songs that are no longer being produced by the major labels. Again, we reiterate that the average life on the hit charts is 16 weeks.

Coincidentally, I am positive that although the duplicators would have to pay the full royalties to the recording artists and the songwriters, it has been my finding that the duplicators work on a fair profit (instead of the highly inflationary profits of the major labels) and since there should not be a monopoly as to only one duplicator having one artist (such as only RCA has Elvis Presley) that the duplicators would practice free competition and that would automatically keep the prices low.

As retailers, we need customers to stay in business. We are all aware that our economy is in terrible shape; unemployment is rampant. When a person is unemployed he doesn't spend on goods and services; this leads to further unemployment. Social unrest, which is one result of unemployment, is detrimental to society.

In today's economy society has to be worried about an industry which could employ directly and indirectly up to 100,000 people. Governor Milliken of Michigan, in vetoing that state's anti-piracy bill found it would put 300 people directly out of work. Since the average family is 4.3 people that means that duplicating in the State of Michigan is directly responsible for feeding 1,290 people (and since the multiplier of money spent is 2.3 in calculating GNP) and indirectly responsible an additional 1,677 people for almost a total of 3,000 people in the State of Michigan alone.

The figures that we have cited are for those people that are directly involved in duplicating in the State of Michigan but what about those involved in the auxiliary services such as the manufacture of raw tape, plastic parts, labels, packaging materials and distribution. We can readily see that just in the State of Michigan alone duplicating can be a viable industry that (extrapolating to 50 states) can be responsible for directly and indirectly feeding 100,000 people in America.

Might I further point that in the shape the economy is in, quite frankly, we could use an additional 100,000 employed people.

I would also like to cite Page 6 of the July 5, 1975 Billboard where it says "18 Labels Face Boycott By Youngsters". The planned boycott is the outgrowth by Youth Action Now Group who are trying to get the major labels to hire inner city youngsters in conjunction with President Ford's youth employment program.

TO CONCLUDE

The consumer has the right to be able to buy recorded music. If the major labels-which have been given copyrights so that they can profitably produce music-refuse to do so then, the copyright should be licensed to others so that the consumer can be served. Therefore, to protect the consumer some form of mandatory licensing is needed.

MAJOR LABELS: THE REAL REASON WHY THEY REALLY WANT AN ANTI-PIRACY LAW

The major labels have been requesting special protection laws claiming that protection is needed for the artist, the retailer and the consumer. We have just seen that not only will anti-piracy laws not do the job intended; they will be of detriment to the artists, the public and to us, the retailers.

But, it is about time someone considered the real reasons why the major labels want the anti-piracy (anti-duplication) provisions attached to the General Copyright Revision Bill. And, if the reader will be kind enough to read this entire

article through it will be obvious that the one reason the major labels seek an anti-piracy (anti-duplication) bill is to prevent future and potential competition. (It is necessary that the reader read Exhibit Two.)

Mr. Dave Heilman is a reasonable example of what I refer to. (He is a duplicator who is also testifying.) Mr. Heilman's firm distributed prerecorded, pre1972, music on a national basis. Since Mr. Heilman can distribute, on a national basis, "old" music it is possible for him to promote and distribute newer artists; and this is what the major labels fear. Also, since Mr. Heilman has been paying the full 2¢ mechanical royalty fee (and, according to the excerpts of the law suit, Exhibit Two, the major labels do not) it is conceivable that some songwriters might sooner want to do business with Mr. Heilman than with the major labels.

Also, let us consider a duplicator I know, who works in the New York City area. New York has some large ethnic concentrations and this duplicator produces and distributes his own legal music. He produces Yiddish, Greek, Spanish and Arabic music. He has the ability to distribute soul music as well. Now that poses a threat to the major labels. All the guises that they are using to claim unfair competition just are not so. I grant you that a pirate is a major threat to the economic well being of the artist and the retailer. However, in no way is a duplicator a threat-quite the contrary he would be an asset as I have demonstrated before. Yet, why do they fear the duplicators? The answer is only as possible future competition for the distribution of new artists (as I feel an economic impact survey would show, just as it would show that 85% of all music distributed is distributed by just five firms).

If the public got wise to the fact that mandatory licensing is beneficial to everyone then, we may end up with mandatory licensing being allowed-or at the least not banned. That is why the major labels are seeking anti-duplication laws on the state level. It's funny to note how many millions of dollars the record companies are spending on a state level for state anti-duplication lawsunder the guise of anti-piracy statutes. Why seek anti-piracy penalties when there are Federal laws with stiff penalties?

The best they can do is seek to ban the pre-1972 music which, up until March, 1975 was not covered by the Federal Government, and, this is music that they are no longer producing, and that the pre-1972 music keeps on getting older and older and less and less salable. Why are they spending all this money in an area of sales that will phase out in history? The answer is to prevent possible future competition.

As it is now, the major labels can prevent an artist from leaving to join another major label by extending, unilaterally, the artists contract via the Suspension Clause (discussed previously). As an example Capitol Records is suing the musical group, Grand Funk Railroad, to enjoin them from recording for MCA records until their contract (extended under the Suspension Clause) is completed.

Furthermore, we should ask that this Judiciary Sub-Committee call for an economic impact survey and look into an aspect of anti-trust, called structural anti-trust, which is an anti-competitiye effect that comes about naturally when a small number of companies account for a substantial portion of an industry's sales. Five major labels control 85% of all music in America.

We also ask that you look into the inter-relationships of CBS and RCA with the book publishing companies such as Random House and Holt-Rinehart & Winston (which I believe are being looked into right now by the Justice Department but under a separate matter), their relationships with music publishing companies, radio broadcasting companies (again Justice Department is looking into this), the motion picture industry and, as retailers we are most concerned about the relationships of the major labels, their record clubs, and their ownership of retail outlets.

The June, 1975 issue of Consumer Reports covers structural anti-trust and economic concentration and points out that the Justice Department is bringing suit against A.T.&T. for similar reasons of economic concentration. There is a better word for what the major labels are-it is called oligopoly. To quote Consumers Reports, “once an industry is concentrated it often stays that way because potential competitors can't get started. They run up against market factors called entry harriers (or in this case an anti-duplication law). In an ideal competitive market many sellers vie for the consumers dollars. The sellers must constantly compete for the consumers favors through innovation that raise quality and efficiencies that lower costs and permit price reductions."

However, a study conducted by the Center for Study of Responsible Law noted, "Because there are a few firms (in an oligopolistic industry), the actions of one are noticed by the rest; each realizes that any move on its part-a price increase, for example-will generate a reaction by the other firms. Since the best way to maximize profits is to act as a monopolist would, the oligopolistic firms begin to march to the same corporate drummer. Such joint behavior has been described as 'parallel pricing', conscious parallelism or what one former anti-trust official has called conspiracy through newspaper pronouncements. The technique is simple. U.S. Steel announces a price increase of 6% on any major product; within two days all other firms increase their prices by an identical amount. No formal price fixing conspiracy has occurred-but the effect is the same". Price in oligopolistic industries, according to various estimates, are ten to 30% higher than they would be if those industries were less concentrated. If the oligopolist's prices are high, they are relatively impervious to the workings of supply and demand, according to economist John Blair.

And Senator Philip Hart, Chairman of the Senate Anti-Trust and Monopoly Sub-Committee contends that oligopolists "can often establish price independent of the forces of supply and demand. They fuel chronic inflation.

That brings me to the record companies. Last year there was a five cent increase in a pound of oil based plastic parts, and, according to Billboard magazine, all of the major labels raised all of the prices on most of their titles by the sum of $1.00 at the exact same point in time. (And that is for an eight track tape that cost less than 60¢ to produce that now retails for $7.98.) Furthermore, I mentioned this fact in my December letter to Mr. Wayne Valis, Assistant to the President of the U.S., and bet him that if the interim anti-piracy bill was passed there would be another go round and the major labels would raise their prices again. Sure enough in January, 1975 we read in Billboard that Columbia has raised the price on some of its titles by the sum of $1.00 and, that the other major labels are keeping their eyes on Columbia because Columbia is the leader (which goes back to what Mr. Steve Feldman of RCA told me about proving my price accomplishments with Columbia before RCA will grant me the same price concession). And if I can quote from Consumers Reports again, "Oligopolists needn't formally conspire to control prices; they just follow the price leader". As I have said, Columbia is the industry leader and if I may quote the June 2, 1974, Page 10 Bilboard it says, "the consensus of opinion means that once CBS moves into the new suggested list price the entire industry will follow suit" holds true.

In addition, I would like to suggest to the members of this Committee that they ask the Justice Department to conduct that economic impact survey and also investigate the pricing structure of records and tapes. If you take a look at Billboard Magazine you will see almost every tape that has the same number of songs in it lists for the same list price, regardless of the costs to produce that tape and the different costs among manufacturers. Although RCA can claim they are doing it to remain competitive with Columbia and vice versa it is an absolute crock of nonsense simply for the fact that the industry is really non-competitive. How, and with whom, can Columbia compete with RCA who has, for instance, Elvis Presley? Columbia cannot sell Elvis and, therefore, can't compete with RCA.

As retailers we frown on dumping! When a firm dumps-or sells overseas at a lower price than domestically-it means that our customers are being cheated. Furthermore, if dumping hurts the local industry of the foreign country that an American product is being dumped in, our country once again suffers the title of "ugly American". Yet the major labels have been doing that (if the reports in Billboard are correct). "British Seek Ways To Curtail U.S. Cutouts U.S. Cutouts Draw Canadian Complaints . . . . Showing Complete Disregard For Songwriters, Publishers And Artists Trying To Make A Living... (headlines of recent Billboard articles). Why are cut-outs available overseas-and at lower prices when cut-outs are hard to come by in the U.S.A. and, when they are available it is at much higher prices than the 50¢.

Section B

EXHIBIT ONE

In respect of phonograph records sold through any direct mail order operations or through any direct sales to consumer operation carried on by us, our subsidiaries, affiliates or licensees including, without limitation, the Columbia Record Club (hereinafter collectively referred to as "Club Operation"), the royalties pay

able to you shall be one-half the royalties which would have otherwise been payable to you with respect to such phonograph records; provided, however, that no royalty shall be payable to you with respect to (i) phonograph records which are distributed to members of any such Club Operation, either as a result of joining Club Operation, recommending that another join such Club Operation and/or as a result of the purchase of a required number of records including, without limitation, records distributed as "bonus" and/or "free" records, or (ii) phonograph records for which such Club Operation is not paid.

Section C

In respect of phonograph records sold to our clients for promotional or sales incentive purposes, the royalty rate payable to you shall be one-half of the royalty rate otherwise payable and shall be computed on the basis of the actual sales price therefor (less all taxes and container charges) to our said clients or their designees.

Section D

No royalty shall be payable to you in respect of phonograph records sold as "cut-outs" after the listing of such records has been deleted from our catalog or in respect of phonograph records distributed as "free" or "no charge" records to promote the sale of phonograph records embodying your performances.

EXHIBIT TWO

Excerpts from class action law suit against major labels filed June 8, 1972, U.S. District Court, Nashville, Tennessee by Mr. C. Selman et al. versus Columbia. RCA, MCA, et al.

Section 3

Each of the plaintiffs is owner of original musical compositions and/or the copyrights thereto, entitling them to be paid royalties for all sound recordings and mechanical reproductions thereof pursuant to the Copyright Act of 1909. Section 6

The plaintiffs bring this action on their own behalf and as representatives of the class herein described, to wit: songwriters and independent music publishers who, in lieu of the royalty fees afforded them by the Copyright Act of 1909, have become parties or beneficiaries to licensing agreements with one or more of the defendants. The number of said songwriters and publishers is estimated to be in excess of four thousand.

Section 22

Capitol Industries, Inc., is a corporation organized and existing under the laws of the State of Delaware with its principal place of business at Hollywood and Vine, Hollywood, California, and transacts business in the Middle District of Tennessee and controls Capitol Records, Inc.

Section 23

American Broadcasting Companies, Inc., is a corporation organized and existing under the laws of the State of New York with its principal place of Business at 1330 Avenue of the Americas, New York, New York, and transacts business in the Middle District of Tennessee and controls ABC Records, Inc.

Section 24

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. The writer and the publisher enter into an agreement substantially in the form of Exhibit "A" attached hereto, and it is standard for the writer to receive fifty percent of the mechanical-license fees collected by the publisher.

Section 25

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, usually in conjunction with the initial recording, and thereby becomes entitled to receive a royalty fee of two cents for each and every mechanical reproduction of all subsequent recordings of that song pursuant to the compulsory license provision of the Copyright Act. However, in lieu of the statutory rights afforded by this Act, it has, through necessity, become the common practice of the independent publishers to enter into a so-called negotiated or private licensing agreement with the record companies substantially in the form of Exhibit "B" attached hereto.

Section 26

The defendants are the major producers of first class phonograph records and other mechanical reproductions of sound recordings used both publicly and privately by the consuming public for listening entertainment purposes. By virtue of this position, the defendants establish the policies and procedures which are implemented throughout the industry as standard industry practice. Section 27

The defendants have absolute control over all aspects of sound recordings produced by their companies, including which songs get recorded, the recording artist and musicians used, the technical personnel and recording facilities, and ultimately the release, distribution, promotion and sale of the product. These products of the defendants are advertised and distributed throughout the United States, and abroad, and are sold in virtually every community in this nation and extensively in foreign countries.

Section 28

The defendants are in violation of Section 1 of the Sherman Act (15 U.S.C. Section 1), by entering into and carrying out contracts, combinations or conspiracies effectuating an undue, unreasonable and direct.restraint of trade and commerce with regard to the production, reproduction and sale of sound recordings of copyrighted songs, including, among other things, the matters more specifically described hereinafter.

Section 29

Beginning many years ago and continuing up to this date, the defendants have engaged in the unlawful concerted activity of refusing to contract with the plaintiffs and members of their class under the terms of the compulsory license provision of the Copyright Act of 1909 (17 U.S.C. Section 1(3)). This Act provides, among other things, that once a copyrighted musical composition has been performed, or recorded, ". . . any other person may make similar use of the copyrighted work upon the payment to the copyright proprietor of a royalty of 2 cents on each such part manufactured, to be paid by the manufacturer thereof; ." The defendants, through their control over the recording and the mechanical reproduction and sale of phonograph records, have circumvented this statutory provision afforded to plaintiffs and the class in the great majority of cases by refusing to record a song unless the copyright owner enters into a private licensing agreement, substantially similar to Exhibit "B" hereto. The so-called private licensing agreement reduces the royalty fee to a maximum of two-thirds of the statutory amount and imposes a further limitation on the number of units to be paid on, from the number “manufactured" to the number "manufactured and sold."

Section 30

In order to do business with the defendants, the plaintiffs and their class must agree to be relegated to royalty fees of less than the amount provided by law as aforesaid, notwithstanding that the statutory provision was enacted in 1909, and since that time the cost of living has greatly increased and the average retail price paid for a phonograph record has increased an even greater amount. Moreover, in the past few years these defendants, along with other phonograph record companies not made parties hereto, have purchased, established or otherwise acquired extensive holdings in music publishing companies whose operations are in direct competition with the plaintiffs and their class. In addition to having to compete in the publishing business with the publishing companies owned or controlled by defendants, plaintiffs allege and verily believe that the defendants do not impose upon their own companies these same financial restraints of reduced royalty fees.