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SUMMARY

My name is John D. Glover. I am a Director of the Cambridge Research Institute, a management consulting firm located in Cambridge, Massachusetts. Our firm and its principals have made economic studies of many industries, including, among numerous others, banking, retailing, footwear, paper, telecomunications, coal, and hotels. We have also studied the health care field for hospitals and government agencies.

On behalf of the Recording Industry Association of Anerica, we have made an extensive study of the economics of the recording industry. A particular focus of that study has been the effects of a possible increase in the statutory mechanical royalty for the licensed use of copyright music, and specifically the issues raised by Section 115 of H.R. 2223.

We appeared on behalf of the recording industry just 10 years ago, when an omnibus Copyright Bill was being considered. In preparation for these hearings, we have collected a mass of new data that bear on the economics of the recording industry over the past decade.

It is our hope to lay before this Committee the economic data which are essential for an understanding of the economics of recorded music and for an equitable judgment on Section 115 of the Copyright Bill now before you.

In addition to this summary, we should like to have included in the record the appended detailed analysis of the recording industry and of the impacts of the proposed changes in the Copyright Act that relate to royalty payments for the use of copyright music.

To summarize, as shown in Exhibit A, our study leads to two major conclusions thoroughly documented by firm statističal data:

FIRST, there is no economic justification for increasing the
statutory royalty rate.

The music publishing industry has argued that a higher rate is justified by virtue of inflation. We shall show that, in fact, income going to music publishing companies and other owners of copyright music has risen much faster than inflation, as measured either by (a) the Consumer Price Index, or (b) Median Family Income. In fact, publisher income from mechanical royalties has more than doubled in the past 10 years.

SECOND, the higher rate would have serious impacts on all other
interested parties:

There would be considerable pressure for a rise in record prices
of perhaps as much as $100 million to consumers and other buyers of

recordings, including the jukebox industry.
• Profits of record makers, especially smaller ones, would be

under grave, not minor, pressures.
The incentive to record and release new and experimental,
and hence unknown and riskier music and performances
by unknown artists both popular and "serious" would be
impaired.
Employment in the recording industry would tend to fall. This
would affect artists, working musicians, sound technicians,
and production workers.

5

A No economic

justification for an increase

Copyright owners' income has outpaced inflation

Increased statutory rate could hurt:

consumers recording artists and musicians record makers

6

THERE IS NO ECONOMIC JUSTIFICATION FOR RAISING THE ROYALTY RATE

Let us respond first to the arguments of the publishing industry that a higher statutory rate is justified simply by the passage of time and by inflation. As to those arguments, we would like to place before you several facts.

Price Per Tune Is Down; Copyright Owners' Share Is Up

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Since then, because of technological progress, the
price per tune has fallen. Å record maker now typically
receives something like 27¢ per tune, in current, cheaper
dollars, for a two-sided "single" and for each of the 10
to 12 tunes included on a 12-inch LP record.

At the same time, the share going to music publishing com-
panies and other copyright owners for royalty payments has
increased by half and now represents 7.4% of the producer's price.

And it must be noted most especially that this greater
share going to publishing companies per record now applies
to the enormously increased volume of records and tapes now
being sold.

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