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OF

SUMMARY

57-786 O - 76 - pt. 3 - 4

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I.

THE HIGH INCOME ENJOYED BY COPYRIGHT OWNERS

A.

· THE LONG STANDING OF THE STATUTORY MECHANICAL ROYALTY DOES NOT,
OF ITSELF, JUSTIFY AN INCREASE IN THE STATUTORY RATE

owners:

The passage of time does not, of itself, justify an increase in the royalty rate record makers pay copyright

Unlike most other prices, record prices have been cut nearly in half as compared to 1909, hence; the 24 royalty gives copyright owners today a larger share of a recording's price than 66 years ago.

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The Copyright Act of 1909 gave owners of music copyrights a

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property right in the recording use of that music for sale. vides that, once a license for recording a tune has been granted by the copyright owner to any one party, then a license must be granted also to any and all other parties requesting a license, and at a rate of 2¢ pe: part, that is, for each tune on each record. This 24 rate is often referred to as the "statutory"' rate.

The copyright license royalty is widely referred to as the "mechanical royalty" because it is paid for the use of any tune recorded by any mechanical means, for commercial purposes, whether on playerpiano rolls, as was common in 1909, on long-playing records, or on tapes.

The purpose of the compulsory feature of the law was, of course, the prevention of monopolization of recorded music by publishing compani-s ind/or record companies. Such aonopolization was then i clear and present danger which has since been averted and dininished by this feature of the copyright law.

As a natter of fact, the compulsory procedure of issuing licenses for the use of copyright music in recordings is almost literaliy never

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resorted to. It is too inconvenient and cumbersome for all concerned.
With few exceptions, licenses are issued almost automatically, in a
nondiscriminatory fashion, to any and all applicants in accord with
established procedures and through established organizations. As
we shall show later on, more than 99% of all licenses are paid for
at the 24 rate or at standard variations therefrom.

The royalty is typically paid by a record maker to an agent whose
business it is to collect such payments for music publishing companies
and other copyright owners. These receipts by publishing companies
and others are commonly, but not always, shared on a fifty-fifty basis
with composers, according to terms of particular contracts. Sometimes,
a composer's interest in a copyright is bought out by a copyright owner,
for instance a music publishing company.

Nowadays, a number of performing artists and groups form their own companies for naking recordings, and sometimes, their own publishing companies for holding the copyrights to music they compose or purchase as well as perform.

2.

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 night seem to justify an increase in the sate.

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However, this seemingly plausible argument overlooks sone 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 nakers sold a record with one tune on one side.

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The price they received was 40€. The price per tune was 404. In
1974, for far better product, the record makers received for a two-
sided 45 RPM "Single" a price of 54.8¢. That amounts to 27.4¢ per
tune as compared to 40¢ in 1909.

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 enormous ly 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.

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a In 1909 the price of a one-sided record sold to wholesalers was 40€. The 2¢/tune statutory license royalty was recognized to be 5% of the price to wholesalers: 2¢=5% of 40€. (See Harry Henn, The Compulsory License Provision of the U.S. Copyright law, Study No. 3, Copyright Law Revision Studies, Wasaington: Govert.ment Printing Office, 1960.)

bfron a survey by CRI of 13 recording companies, it was reported that

in December 1974 the average price at which they sold an i.? album
was $2.84. Each had an average 10.5 tunes, naking the price
per tune = 27. The same survey also revealed that record companies
sold a 2-cune 15 RPM record for an average price of 50.548. This works
cu: to 27.4¢, a comparabie figure.

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