The data on radio advertising expenditures developed from a survey by the Cambridge Research Institute indicates that in 1972 the comparable total was on the order of $32 million. One reason for this is again that few tunes receive any airplay at all.

All of these observations notwithstanding, whether recording companies or performers benefit in any way from the broadcasting of their products is a subordinate argument. As Senator Tunney pointed out in 1974,

"The real issue is whether or not a person who uses creative talents should receive compensation from someone else who takes them and profits from them. More than 75% of the airtime during which advertising is sold is spent playing music. I believe if the artist's creative efforts are used in this way he is entitled to some compensation."

A performance royalty should be paid in the United States as it is in most other western nations

An "International Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations” was adopted in 1961. This convention, known as the Rome convention, stated in Article 12:

"If a phonogram published for commercial purposes, or a reproduction of such phonogram is used directly for broadcasting or for any communication to the public, a single equitable remuneration shall be paid by the user to the performers, or to the producers of the phonogram, or to both."

So far the convention has been ratified by fifteen countries, including the United Kingdom, West Germany, Austria, Denmark, and Sweden.

Although the details of the laws vary, Japan and most countries in Europe also have domestic laws specifying that performance fees should be paid to recording companies and/or performers for the use of recordings in broadcasts, and arrangements are made on either a legal or a voluntary basis for the two groups to share the performance fees collected. (See Exhibit 4 on the next page.) In Japan, the four Scandinavian countries, Austria, and Czechoslovakia, the law grants performing rights to both record producers and performers. In the United Kingdom, Ireland, Spain, and Italy, the law grants performing rights to record producers alone, but the record producers have sharing arrangements on a voluntary basis with performers. In West Germany, on the other hand, a law gives performing rights to performers, with a share to be paid producers. In France, Belgium, and the Netherlands, the law does not specifically recognize performance rights in records, but broadcasting organizations nevertheless pay fees to the record producers.

EXHIBIT 4.-Countries in which the law grants performance rights to performers and/or record makers

Note: In some countries, such as France, Belgium, and the Netherlands, the law does not specifically recognize performance rights in records, but broadcasting organizations nevertheless pay fees to record producers.

Source: International Producers of Phonograms and Videograms. "General Survey on the Legal Protection of Sound Recordings As At December 31, 1974."

35 The survey conducted for RIAA by the Cambridge Research Institute is based on reporting by seven companies representing 42.3 percent of industry sales, with respect to purchases of non-co-op radio time; as to co-op radio time, six companies representing 40.7 percent of industry sales reported. The total recording industry figure of $32 million was grossed up to 100 percent of the industry from the foregoing bases. See also, Billboard 5/10/75 and 5/15/75, p. 1. Billboard has estimated that radio advertising including co-op in 1974 was $3.5 million, a figure that obviously is inaccurate.

36 U.S. Senate. Committee on the Judiciary, Report on Copyright Law Revision (Report No. 92-983), July 3, 1974, p. 222.

Canada, moving in a contrary direction to the rest of the world, recently abandoned performance fees for performers and record companies. However, this action was taken primarily because most payments were remitted to United States recording artists and United States record makers, with no reciprocity for Canadian artists in the United States. This explanation was documented by the statement of The Honorable Ron Basford, the Minister responsible for the introduction and passage of the Government Bill, at the commencement of the hearings before the Standing Senate Committee on Banking, Trade and Commerce in the Canadian Parliament in December, 1971:

"May I be permitted, Mr. Chairman, to draw your attention and that of honourable senators to what I view as certain important considerations. I shall be very brief and will then subject myself to whatever questioning that honourable senators have. As has been made clear in evidence before you, 95 percent of the record manufacturers, through this performing right society known as Sound Recording Licenses (SRL) Limited, are subsidiaries of, or associated with, foreign firms, in very large measure American firms. The American principals of the SRL group do not have the right in the United States that their Canadian subsidiaries are now demanding and trying to exercise in Canada through the tariff that was accorded to them in the recent decision of the Copyright Appeal Board.

"What is not available to the record manufacturers in the United States is apparently regarded as necessary in Canada. What is not available to the foreign parents is claimed in Canada. Surely this is an anomalous position for us in Canada to find ourselves in, and surely it is an inequitable one from the point of view of Canadian users of records."

In addition, United States record producers are often denied performance royalties from abroad because foreign record companies do not enjoy reciprocal rights in this country.

37

"For example, in Denmark, payment is made only for the performance of recordings originating in Denmark itself or in a country which grants reciprocal rights to recordings of Danish origin. As a result, no payment is made for the use of U.S. recordings there."

19 38

If this country followed the precedent of others in paying performance fees to record producers and performers, more performance fees would flow into this country than would flow out. In 1974, for example, ASCAP received from abroad $12.3 million in performance fees, but it paid out to foreign performing rights societies only $5.9 million. Were the performance right enacted, the performance fees paid to U.S. artists and recording companies would contribute positively to the balance of international payments.

III. THE IMPACT OF A PERFORMANCE ROYALTY UPON BROADCASTERS, ADVERTISERS, AND CONSUMERS WOULD BE SLIGHT

Economic analysis indicates an ability on the part of broadcasting companies to pay the proposed performance royalty. A growing amount of airtime which radio has been able to sell to advertisers has combined with an expanding audience for radio programs to produce sharply rising radio revenues and profits. Even if the proposed performance fee were not covered by either higher ad sales or higher ad prices, the fee would increase total radio expenses by less than 1%, and amount to 8%-10% of radio's pretax profits (for radio stations with revenues of $25,000 or more).

If instead, radio stations elected to pass forward the expense of a performance royalty to their advertising sponsors, the increase would be minimal compared with advertising rate increases posted in recent years. In addition, radio's advertising advantages are such that a 1% (maximum) increase in advertising rates is very unlikely to scare away advertisers.

The proposed performance royalty for television stations would amount to a mere 0.07% of 1973 pre-tax television profits. Television's return on sales would not be affected.

If advertisers also passed forward the costs of a performance-royalty for recording companies and performing artists, the impact on wholesalers and consumers would be scarcely perceptible.

37 39 Statement by Sidney Diamond in Hearings Before the Subcommittee on Patents, Trademarks, and Copyrights of the Committee on the Judiciary, U.S. Senate, Part 2, March 1967, p. 508.

Broadcasters have the ability to pay a performance royalty

Radio industry trends indicate the industry can cope easily with the added expense of a performance royalty paid to performers and recording companies. Radio is a growing and prosperous industry, as reflected by the following trends based on 1973 data, the last year for which FCC statistics are available.

Radio is a larger industry than the recording industry; in 1973, net radio revenues were $1.5 billion while net sales by the recording companies were about $1 billion." The profitability of the two industries has been about the same in recent years even though recording industry profits are notably volatile: radio pre-tax profits were 7.4% of net revenues in 1973, and recording company pretax profits were 7.8% of net sales.

40

Radio advertising revenues have grown even more rapidly than total advertising revenues for all media. While total advertising revenues grew 49% between 1967 and 1973, radio advertising revenues grew over 61% during those years.* (See Exhibit 5 on the next page.) The Commerce Department projects that radio revenues will grow $2.7 billion by 1980, an increase of 60% over the 1973 figure.

41

Total radio pre-tax profits rose 39% between 1967 and 1973, the last year for which data is available, to a level of $112.4 million. " (See Exhibit 5.)

42

The number of radio stations grew 20% between 1967 and 1973." So many new radio stations would not be opening up if the financial future of the radio industry were not considered to be attractive.

30 Retail sales of recordings at list prices are reported in Billboard International Buyers Guide, September 14, 1974, as about $2 billion. Since most recordings are sold at a discount. actual retail sales are about 80% of the Billboard figure. The prices at which recording companies sell records and tapes to distributors average about 50% of list prices. 40 According to Advertising Age's Research Department, total advertising revenues rose from $16.9 billion in 1967 to $25.1 billion in 1973, while radio advertising revenues rose from $1.05 billion in 1967 to $1.7 billion in 1973.

41 "Government Report Plots Good Growth Through 1980 for Radio, TV, Cable," Broadcasting, November 11, 1974. p. 48.

42 FCC annual reports on AM-FM Broadcast Financial Data indicate that radio's pretax profits rose from $80.9 million in 1967 to $112.4 million in 1973.

43 Accounting to the FCC's annual reports on AM-FM Broadcasting Financial Data. the number of radio stations rose from 4,481 in 1967 to 5,358 in 1973.

EXHIBIT 5.-Radio revenues and pretax profits 1967-1973

Sources: FCC annual reports on AM-FM Broadcast Financial Data.
Research department of Advertising Age.

The prices at which existing radio stations are sold have shot up. For example, "Back in 1970 *** the price in Cleveland for a 'raw FM license' (meaning any given facility regardless of its particular pro and con attributes) was $70,000. Now, reports a Midwest broker, it would go for $1.2 million. Four years ago a raw facility in Miami would sell for about $500,000. Today you couldn't pick it up for less than $1 million.' ."" Prices for AM stations are rising, too. The average

"One Sure Indicator of FM Growth: High Price Tags on Stations," Broadcasting, October 7, 1974, p. 50.

45

transaction price per trade of all radio stations rose from $54,674 in 1954 to $188,829 in 1967 to $464,820 in 1971. Thus, between 1967 and 1971 the average transaction price rose 146% while the Consumer Price Index rose 21% during those years, and radio station revenues advanced 38%. Apparently investors consider that radio has good future prospects, for just as they might accord a high price/earnings ratio to a desirable common stock, they are valuing radio stations far in advance of their actual revenue and earnings growth.

Radio has been able to sell increasing amounts of time to advertisers despite the rise in its advertising prices. This is reflected in the fact that radio advertis ing revenues have been rising more rapidly than the prices radio charges advertisers. For example, while radio spot ad prices rose 19% between 1967 and 1973, radio spot ad revenues rose over 21% during that period." (Radio spot advertising is national advertising which permits the advertiser to select the radio markets to which his message will be beamed. Spot advertising is distinguished from network advertising, which is also national advertising but which restricts the advertiser to network-affiliated stations.)

47

Radio has been able to increase its audience considerably. Between 1968 and 1973, the audience for radio spot ads grew 32%. Because of the substantial growth in radio audiences, the cost of radio spot ads/1,000 listeners grew only 7% between 1967 and 1973, even though an advertiser's cost/minute of radio spot ads went up 19%.

48

The audience for radio encompasses almost the entire population of the United States. Of all adults, 96% are reached by radio at some time during the week. Each adult on the average listened to radio 3 hours and 22 minutes per day in 1974-a dramatic increase from the 2 hours and 31 minutes the average adult devoted to radio in 1969. The average time adults listened to radio in 1974 is only slightly less than the comparable television figure: 3 hours and 48 minutes, and television had only a three minute increase between 1969 and 1974. Of all U.S. homes, 98.6% had at least one radio in working order, and 95% of all cars are equipped with radios. Cars with radios have the radio on 62.5% of driving time.

49

It is interesting to compare this prosperity of the radio industry with the proposed fees spelled out in S. 1111-H.R. 5345, the text of which is similar to that of Section 114 of the Copyright Bill passed by the Senate Judiciary Committee in July, 1974. The provisions require broadcasting corporations to pay performance fees to recording artists and recording companies. These bills favor smaller radio stations by exempting them from the proposed performance royalty. Stations with annual revenues of less than $25,000 (2.6% of stations in 1973) would be completely exempt from the performance royalty. Stations with revenues between $25,000 and $100,000 (26.5% of all stations in 19.3) would pay only a token performance royalty of $250 a year. Stations with revenues between $100,000 and $200,000 (33% of all stations in 1973) would pay a performance royalty of just $750 a year. Only the remaining 38% of stations, which have revenues above $200,000 a year, would pay the full performance fee equal to 1% of their net receipts from advertisers, and this fee would be reduced for those stations using less than the usual amount of recordings. Thus, 62% of all radio stations would be exempt or pay only a token performance right to performers and recording companies, and only the large stations would pay the full performance right of 1%.

On the basis of this fee schedule, the Senate Judiciary Committee one year ago concluded that, "The committee's analysis of the economics . . . of the broadcasting industry, indicates an ability to pay the royalty fees specified in Section 114." 50

Indeed, as can be seen in Exhibit 6 on the next page, an estimate can be made (based on 1973 radio revenues) that the total performance fees paid by radio to performers and recording companies under S. 1111-H.R. 5345 would have been

45 Using statistics in the 1973 Broadcasting Yearbook, the average transaction price for radio stations only (not combined radio-TV stations) was derived from the total dollar valne of FCC-approved transactions, divided by the number of radio stations changing hands, including both majority and minority transactions.

46 Radio spot ad revenues rose from $313.5 million in 1967 to $380 million in 1973, according to Advertising Age's Research Department. Radio spot ad prices rose 19% according to "1974-75 Cost Trends," Media Decisions, August 1974, p. 45.

47 "Broadcasting in 1975: Shipshape in a Shaky Economy," Broadcasting, January 13, 1975. p. 35.

48 1974-75 Cost Trends," Media Decisions, August 1974, p. 45.

49 Radio Advertising Bureau, Radio Facts: Pocket Piece, 1975 and 1970 editions. 50 U.S. Senate, Committee on the Judiciary, Report on Copyright Law Revision (Report No. 93-983), July 3, 1974, p. 140.