Mr. HEILMAN. Starting in 19

Mr. DANIELSON. Approximately.

Mr. HEILMAN. September 1972 through May of 1975.

Mr. DANIELSON. ÔK. You have got 212 years, 234 years. How much did you send in and how much was cashed?

Mr. HEILMAN. All right, sir. I don't have the exact

Mr. DANIELSON. Give me ball park figures.

Mr. HEILMAN. Let's say it is a $300,000 figure. I said $50,000 earlier. I would say about $75,000 was cashed.

Mr. DANIELSON. About $225,000 uncashed.

Mr. HEILMAN. That is correct.

Mr. DANIELSON. That is what-I just wanted to get the size. Thank you.

Mr. KASTENMEIER. The gentleman from New York, Mr. Pattison. Mr. PATTISON. If you were one of you was involved in actually producing records.

Mr. GRAMUGLIA. That is right. We are a New York record company in Massina, N.Y.

Mr. PATTISON. You employ performers.

Mr. GRAMUGLIA. That is right. Correct.

Mr. PATTISON. You make a tape or record from that.

Mr. GRAMUGLIA. Yes.

Mr. PATTISON. Whenever you did that, if the song has previously been published, you send in the 2 cents.

Mr. GRAMUGLIA. That is right. We don't have the problems as Dave Heilman has. They accept our 2 cents. They accept our 2 cents, but the problem is that in this bill there is section 115, where it says a person may not obtain a compulsory license in the use of a work in duplication of a sound recording made by another. We have a small studio in Massena, and you can imagine how small that is, because you are from New York. We are in the middle of nowhere, with a population of about 10,000 people. For us to produce a recording in Massena, N.Y., we actually can't sell much there, so therefore we produce in Massena, and we license a guy out in Michigan or

Mr. DANIELSON. Speak into the mike.

Mr. GRAMUGLIA. We will license a person in Michigan or license a person in Georgia to share the actual production costs, but if this bill passes with that clause that we cannot obtain a compulsory license in use for duplication of a work by another, the person that we license in Georgia would not be able to obtain a compulsory license to reproduce our sound recording.

Mr. DANIELSON. Mr. Chairman, I hate to take all the time, but I have got a couple of more questions.

Mr. KASTENMEIER. If the gentleman from New York will yield. He has the time.

Mr. PATTISON. I yield.

Mr. DANIELSOx. If you send in $300.000 and realize this is a ballpark figure, nobody is holding you to it, are you sort of in the right area there? Are you talking about $300.000 or $30,000 or—

Mr. HEILMAN. Let's say there are 600,000 pieces produced. Let's say, and it is difficult-I would say anywhere from $200,000 to $300,000.

Mr. DANIELSON. Up in six digits.

Mr. HEILMAN. Right.

Mr. DANIELSON. Let's take $300,000 at 2 cents. That is 15 million tunes.

Mr. HEILMAN. Each tape has 16 songs on it.

Mr. DANIELSON. That is all right, but it is still 15 million tunes played once. Each constitutes 2 cents.

Mr. HEILMAN. Right.

Mr. DANIELSON. 16. Very nearly a million tapes. Not quite. I was trying to get at the size of the business, Mr. Chairman. For $300,000 at 2 cents for each tune, you come to 15 million recordings of a tune, counting each recording as one, no matter how many times you did it. That is an awful lot of tunes, a lot of recordings, anyway.

Now, that money-when you record on your equipment, let's say it is one of these cartridges, you have a bookkeeping system whereby you know that you have recorded "My Wild Irish Rose."

Mr. HEILMAN. Right. We know X amount of numbers each year has been produced and from that there are 16 songs in that particular year.

Mr. DANIELSON. But, you do keep track of the number of times you record a given selection?

Mr. HEILMAN. That is correct, sir.

Mr. DANIELSON. And you then remit periodically. How often do you make your remittances?

Mr. HEILMAN. Every 20 days.

Mr. DANIELSON Every 20 days approximately you remit to the copyright holder.

Mr. HEILMAN. Which is the publisher.

Mr. DANIELSON. The 2 cents per tune.

Mr. HEILMAN. That is correct, sir.

Mr. DANIELSON. You know, as a matter of common knowledge, I guess, within your business that out of 2 cents, a penny goes to the publisher and a penny is supposed to go to the composers.

Mr. HEILMAN. Yes; but it is sent directly to the publishers, never sent directly to the composers.

Mr. DANIELSON. You send it to the publisher, but out of that 2 cents, he keeps 1 and then sends 1 on, theoretically at least.

Mr. HEILMAN. That is right.

Mr. DANIELSON. Now, out of that $300,000, then, they accepted roughly $100,000 of which, of course, $50,000 went on to the various composers and $50,000 remained with the publisher.

Mr. HEILMAN. If that is the figure we used, supposedly, yes. Mr. DANIELSON. I am using it only as an example. But, $200,000 did not get accepted and therefore one-half of it was not retained by them and one-half was not forwarded on to the owner of the the composer, owner of the copyright.

Mr. HEILMAN. That is correct.

Mr. DANIELSON. The creator of the selection. Now, then, you do not. I gather-it is implicit in your statement that when you do make recordings, you never overlook the requirement of sending this 2 cents on to the publisher.

Mr. HEILMAN. Absolutely not, sir.

Mr. DANIELSON. Do you know whether within related businesses to yours, there are those who make the recordings, duplicate the tapes, but fail to send the 2 cents on?

Mr. HEILMAN. Yes, sir. Any tape or record being sold in the United States that purports to be a duplicated tape that is selling retail at $1, it is absolutely utterly impossible to pay, if he has 16 songs on it, 32 cents, pay a manufacturing company approximately 50 cents. It is impossible.

Mr. DANIELSON. You make your statement inferentially. You know there are tapes which are sold at a price which would not permit the inclusion of the record royalty?

Mr. HEILMAN. That is correct.

Mr. DANIELSON. And from that fact, you infer they must be doing it without observing the copyright royalty.

Mr. HEILMAN. That is right.

Mr. GRAMUGLIA. I would like to make a point. One of our fiercest competitions is major label cutouts. No royalty is paid at all to the composer or publishing company.

Mr. DANIELSON. What is a cutout?

Mr. GRAMUGLIA. Once a record plays the 16 weeks that it is on the chart and it becomes no longer sellable at the full retail price of $6.98 or $5.98, they delete it from their catalog and sell it to schlock dealers. Schlock dealers sell it off at a lower price, exactly what you would have in a discount house, like a Woolworth's.

Mr. DANIELSON. What do they do, remove the

Mr. GRAMUGLIA. No.

Mr. WALLY. Mr. Congressman

Mr. DANIELSON. One at a time.

Mr. GRAMUGLIA. What they usually do is punch a hole in the record and delete it.

Mr. DANIELSON. Deleted means removed.

Mr. GRAMUGLIA. From the

Mr. DANIELSON. No record.

Mr. GRAMUGLIA. Deleted from the actual catalog of the manufacturer. Once it is deleted from the catalog of the manufacturing company, it is then sold at a lower than the normal wholesale price. Anything that is sold for a lower than the normal wholesale price, no royalties are paid either to the artist or the composer.

Mr. DANIELSON. Now, the manufacturer of that record was the publisher; isn't that right?

Mr. GRAMUGLIA. No; the manufacturer of the record is the record company.

Mr. DANIELSON. I see. In other words, the publisher turns a record. over to a record company which manufactures it. He presses the actual record.

Mr. GRAMUGLIA. No; you are mistaken. A publishing company is a company that owns the rights to the written musical composition. A record company is the company that hires the performers and musicians to sing that or perform that musical composition and then markets the records.

Mr. DANIELSON. They make the impression on a vinyl disc, or some such.

Mr. GRAMUGLIA. Right. They will go into the recording studio. Mr. DANIELSON. That is a record company.

Mr. GRAMUGLIA. They will go into the studio.

Mr. DANIELSON. I am trying to find out who these people are. That is the record company.

Mr. DANIELSON. The record company, after the 16 weeks of preferred market are gone, he punches a hole in the record and sells it through some discount house. Is that the idea?

Mr. GRAMUGLIA. That is what usually happens.

Mr. DANIELSON. Where do they punch the holes? The only holes I see in the record are in the middle.

Mr. WALLY. I think I should explain.

Mr. DANIELSON. You see, you are using a lot of jargon which means something to you but doesn't mean anything to me, but it is not going to mean anything else.

Mr. WALLY. Mr. Danielson. The term "cutout" and I would like to refer to page 2 of the term "cutout", if in the past the retailer had guaranteed sales, he would buy a record or tape and at the end of a season or at the end of a run, the retailer got full credit. In others words, if I buy a tape from RCA, I pay them, let us say, $4.25.

Once it goes off the charts, I can then return it to RCA for $4.25 credit. They then want to get rid of, let us say, 20,000 or 30,000 excess tapes that they have and they will sell it at fire-sale prices. What is to prevent an individual like myself from saying to, I think it is Mr. Gramuglia, what is to prevent me from saying, Hey, Mr. Gramuglia, you buy the tape at fire-sale prices, bring it down to my basement, and I am going to holler to RCA, look at what I find in my basement. You owe me $4.25.

So, what they do is make a cutout, a generic term. If you have ever seen a record album on sale, a corner of the jacket is cut out at an angle or on an 8-track tape, a little hole, a tiny hole is drilled into the side over here, or else a burr mark is run across. This signifies to everybody that this tape is a final-sale tape.

Mr. DANIELSON. In other words, it has gone through its prime marketing period and it is now being sold at a discount.

Mr. WALLY. Right, but once this item becomes a cutout, at that point, and this is, I think, germane to the entire situation here, the artists do not get royalties. Under some of the legislation

Mr. DANIELSON. Does the publisher get any royalty?

Mr. WALLY. No, sir.

Mr. DANIELSON. All right. I have got you now.

Mr. WALLY. This is what we want to propose.

Mr. DANIELSON. Once it is cut out, got the corner clipped off the jacket or a hole or a burr mark in the case, then royalties cease on that item.

Mr. WALLY. Right. Now, this is what is the interesting fact, or one of the facts. Once RCA, let us say, gets rid of all of their titles on that cutout, that is it. It will never appear again unless something unusual happens and a group becomes so strong that they revive that group and that is very rare.

What we are saying and I am saying as a retailer and these gentlemen are saying, we are all leading to the same thing. Hey, the artist is entitled to make money. How many artists are around that were around 5 years ago? There are very few Elvis Presleys and Frank Sinatras. He is entitled to make as much money as he can in his productive years, but after 16 weeks, he is no longer paid. A year from now, what happens if somebody wants to bring out a song that was

very nice or very beautiful? We want to promote the arts. Well, it is no longer available, but if we do it and we pay royalties on it, who

loses? The record

Mr. DANIELSON. I think what you are saying is that sometimes there are duplicators who will take a "cutout" and re-record that and have it available for sale.

Mr. GRAMUGLIA. Yes; for instance, like

Mr. DANIELSON. When I was a young man, there was a tune named "Sylvia" that you don't even remember. Let's assume it is a cutout. If somebody wants "Sylvia" would you re-record it and in the event you did, you would look up somewhere and find out that that-the copyright belongs to Mr. "J" ?

Mr. GRAMUGLIA. And we would pay him a royalty.

Mr. DANIELSON. You would send him the 2 cents.

Mr. GRAMUGLIA. Right. But, under our proposal for compulsory license for sound recordings, we would not only pay the copyrighter but also the performer that sang the song, John Smith. We would send him a royalty and the record company a royalty. The royalty would be split. Just like the royalty is split now for the publishing company 50-50, the royalty for the sound recording would also be split.

Mr. DANIELSON. I think I understand what you mean. We have got two things. We have got the duplicating in which the duplicators are willing to pay the royalty and you have got the duplications in which the need for royalties is being circumvented. That is what I would call true piracy.

Mr. HEILMAN. It was my understanding when Public Law 92-140 was passed, you added a criminal section to section 104 to make it a misdemeanor for failure to pay the compulsory license. The ninth, tenth and fifth circuits, two-to-one divisions on a three-judge court, have said that similar is not identical, so a duplicator, even though he pays the money, he is actually making an identical use, rather than a similar use, because if he made a similar use that means, well, if he makes an identical use, he is just copying something, but as I pointed out, I could not get performances for Judy Garland's greatest hits. I could pay $100,000 for them, and then when I go to the people that own the underlying works based on the new court decisions, they could say I want a half million dollars for the words of that music or say no. They have complete control.

Mr. DANIELSON. You used another two words I would like to have you distinguish, "similar" and "identical."

Mr. HEILMAN. The compulsory license says once you acquiesce to mechanical reproduction, once the publisher allows it to be reproduced mechanically, any other person may make similar use of that work. For years and years it was thought simply pay the payment of 2 cents to the publishers and you could record the work.

Mr. DANIELSON. What is the difference between that? Why does "similar" change from "identical"?

Mr. HEILMAN. The courts have said similar is not identical. Assuming that I take Maurice Chevalier and I copy the 1929 version of "Louise" by Maurice Chevalier, I say I didn't go out and get him and bring him to a studio and have him record that song All I did was copy it from an old 78. So, therefore, I am making an identical use of