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If Fully Absorbed, The Cost Of Increased Royalties Could Cut Record Makers'
Profits By $47 Million

FIRST: The most obvious possible impact could be a decrease in profits of record makers.

In 1974, the second-best year the recording industry ever
had, the pre-tax profits of the entire U.S. recording
industry from all sources were not greater than $121 million.
If all of the increase in the royalty payments were to come
out of that pre-tax figure, total industry pre-tax profits
from all sources would have been something like $74 million,
that is to say, 39% less than they were.
Pre-tax profits of the industry from records made and sold in
the United States came to $50 million in 1974. The proposed
increase in mechanical royalties of $47 million would take 94%
of those pre-tax profits.

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Actually, any impact on profits would not be distributed evenly
among all record makers. The marginally profitable and the
smaller companies would be hit especially hard; many of them
would be driven into the red.


Annual Cost To Consumers Could Go Up $100 Million

SECOND: Since recording companies could not be
expected to absorb this kind of increase, the second
kind of impact of the higher royalty rate could be
higher prices to consumers. As shown in Exhibit G,
if the rate increase were to be passed downstream
through wholesalers and retailers to the ultimate
buyers, actual retail prices could move up something
like $100 million per year.


G Annual cost

to consumers
could go up by...

$ 100 million


Recordings Of New Performers And Music Forms Would Be Riskier

THIRD: As portrayed in Exhibit H, higher royalties could cause a reduction in the number of recordings brought out.

Higher royalty rates would raise the breakeven point of releases.
The breakeven point is the number of copies of a record that have
to be sold in order to recoup the cost of making a recording and
getting ready to sell it. These initial outlays have to be covered
before a record maker makes his first penny of profit.

The probabilities are already low that these costs will
be covered and that any profit whatever will be nade.

The average breakeven point of popular LP's is up
to 61,000 copies; and 77% of new popular LP's fail
to recover their costs and to make any profit what.


Other types of releases 45 RPM singles and new
"serious" and classical LP's, for instance offer
even lower probabilities of covering their initial out-
lays and making any profit at all. Ninety-five percent
of classical releases now fail to break even.

Raising the mechanical royalty rate could reduce the probabilities
of profitable release still further. Offering new releases would be
riskier. A reduction in the number of recordings released could ensue;
the most vulnurable would be those releases felt to be the riskiest.

Generally speaking, these risky releases are those of new and experi-
Dental nusic of all sorts and performances of unknown artists. These
are the ones who would be hurt the most by a rise in the breakeven
point due to higher nechanical royalty rates.
One consequence of a reduction in the number of recordings made and
releases brought out would be a reduction in employment for artists,
ausicians, recordiag studio people, and production workers.

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