I. THE HIGH INCOME ENJOYED BY COPYRIGHT OWNERS 1. A. THE LONG STANDING OF THE STATUTORY MECHANICAL ROYALTY DOES NOT, The passage of time does not, of itself, justify an increase in the royalty rate record makers pay copyright Owners: Unlike most other prices, record prices have been cut nearly in half as compared to 1909, hence; the 2¢ royalty gives copyright owners today a larger share of a recording's price than 66 years ago. Background The Copyright Act of 1909 gave owners of music copyrights a The copyright license royalty is widely referred to as the "me- The purpose of the compulsory feature of the law was, of course, the prevention of monopolization of recorded music by publishing companies and/or record companies. Such monopolization was then a clear and present danger which has since been averted and diminished by this feature of the copyright law. As a matter of fact, the compulsory procedure of issuing licenses for the use of copyright music in recordings is almost literally never 33 2. 3. resorted to. It is too inconvenient and cumbersome for all concerned. The royalty is typically paid by a record maker to an agent whose a composer's interest in a copyright is bought out by a copyright owner, Nowadays, a number of performing artists and groups form their own companies for making recordings, and sometimes, their own publish- Argument of the Music Publishing Industry Publishing corporations and other copyright owners argue that the statutory license royalty. which has remained essentially unchanged since 1909, does not take account of the inflation that has occurred over the years. Consumer prices, they point out, are now much higher than they were in 1909; and yet the statutory royalty is still 2¢ per time. At first sight, the general rise in prices might seem to justify an increase in the rate. Some Facts However, this seemingly plausible argument overlooks some important facts. The first is that record prices have not escalated along with other prices since 1909, but are now actually very much lower. Back in 1909, record makers sold a record with one tune on one side. 34 The price they received was 40¢. The price per tune was 404. In When the 1909 statute was passed, Congress took note of the fact that the statutory royalty rate represented 5% of the maker's price. Because the price of recorded music is now lower, that rate, of course, represents a higher percentage of the price. In fact, that royalty now represents 7.4% a share in the proceeds that is almost 50% greater - than seemed reasonable at the time. In sum, music copyright owners today are getting a larger sum of a recording's price than they did in 1909. (See Exhibit 1.) As we shall show later on, this is only part of the story about the relationship between inflation and copyright royalties. Not only are copyright owners getting a larger percentage of a recording's price, their total income from recordings of their tunes has grown enormously with the vast increase in the volume of recordings sold in this country and abroad a sales growth to which publishing corporations have not contributed. The increase in sales of recordings has resulted in an escalation of total copyright royalties which has been far more than would have been needed to offset the effects of inflation. - On top of mechanical royalties, the music publishing industry also receives large income in the form of performance royalties from the use of recorded music on radio, in commercially supplied "background" music, and on some television programs. (The recording industry and performing artists, arrangers, and musicians receive no such performance royalties.) To see whether an increased mechanical fee can be justified, it is necessary to understand the total income which copyright owners receive from recorded music. 35 In 1909 the price of a one-sided record sold to wholesalers was 40¢. "From a survey by CRI of 13 recording companies, it was reported that 36 |