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Let us now examine more closely who has benefited from this growth, and by how much.

The Revenues, Costs, and Profits of the Recording Companies.

The revenues of recording companies have grown with only a few set-backs -- as in 1960 since 1955. Their profits, however, have fluctuated widely. Sone years are better than others in terms of absolute dollar profits as well as margins. The recording industry does not always reap high rewards for the ingenuity and capital it has invested in improving the technology the musical quality, and the marketing of records. Its profits are uncer. tain. It is a risky industry, in total, and record by record.

Over the years, the recording companies have been deriving an increasing share of their profits after taxes from the licensing of U.S. nade nasters to foreign record companies for nanufacture and distribution abroad. These gains amount to about one-half of the "other income" obtained by the recording industry. In recent years fees from foreign recording companies for use of U.S. recording masters have fluctuated from a high of something like 4.8% of record company sales in 1969 to a low of 0.8% in 1973. Similarly, recording companies derive important revenues from rentals of recording studios and equipment, for instance and interest :- on accounts receivable, for instance.

The costs of recording, manufacturing, and marketing and of mechanical foes also fluctuate and vary over time, as do the successes of the recorded offerings of the industry. It is for these reasons that the profits of record makers fluctuate widely, is chey io.

Over the past 4 years, two that were good and two that were somewhat poorer, the earnings of the recording industry from records, betore caxes, can be summarized as follows:

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In addition, the industry had profits before taxes from income sources other than making, nan':facturing, and selling records, of an amount about equal to foreign fee incute. (Profits after taxes, of course, were much less than the indicated pre-tax profits -- probably something like half, or less.)

Income to Copyright Owners from Records

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Copyright owners are in a position somewhat similar to that of preferred stockholders when it comes to income from records: their mechanical fees get paid, record by record or, rather, license by license irrespective of whether individual records, or record makers make any money or not. With only one set-back, in the very poor year of 1973, mechanical royalties going to publishing companies have increased every year since 1967. Going back still farther, mechanical royalties have increased every year since the aid 1950's, excepting, pur data shows, only the year 1962.

in summary, the mechanicai royalties paid by the recording industry to the publishing industry over the past four years have been as follows:

Estimated is 50% vi ucher :icone.

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The percentage of the recording industry's revenues from records that goes to the publishing industry averages nore than the before-tax profit that goes to the record nakers ! Over the past 4 years, an average of 1.9% of revenues has gone to the publishing industry as compared to 7.1% of pretax profits to record makers. In dollar terus, mechanical royalties paid to the publishing industry over the four years came to $311.8 million as compared to the pre-tax profi:s to the recording industry from records of $279.9 million.

It would be interesting to compare the net profits after taxes which the two industries derive from records. The net profits after taxes for the recording industry are estimated in Exhibit s. Unfortunately, the publishing industry has refused to provide the necessary data despite requests from Congress. In the absence of such disclosure, the best that can be done is to compare mechanical royalties bezore taxes with record companies' profits from records, also before :axes. Actually, che comparison is not at all unreasonable: The pubii3jung :ompanies incur little or no expenses in connection with recorded music other than to collec: che Dechanical royalties. Even more important, the comparison compietely sets aside the very large periormance fees the publishing industry derives som recorded music. Again, about the only cost incurred in that connec:ion is une coilection oi ne coes.

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Taking into account both mechanical royalties together with performance fees from records which are certainly not less than one-half of the dollar value of mechanical royalties and probably considerably more than that the publishing industry derives considerably greater dollar benefits from records than does the recording industry, itself.

Contribution of the Music Publishing Industry to Recorded Music

It is not unreasonable to inquire into the contribution of the music publishing industry to the creation, production, risk-taking and marketing of recorded music. The point need not be labored: No one who loves musical experiences would wish to downplay for a moment the importance of tunes, compositions, and the unique contributions of composers. Equally, however, it is clear that the success over the past twenty years and growth oi recorded music is attributable in large measure to unique performances; to arrangements; to accompaniment; to advances in electronic technciogy and recording artistry; to marketing; to innovation and risk-taking oy record nakers and to their narketing efforts, including very large outlays for advertising, designed to bring new recordings to the attention of musicloving publics.

Conclusion

There is no obvious reason of justice or of economics for Congress, by legislation, to attempt to increase -- by almost 60% the share of the proceeds of record sales going to the music publishing industry which includes music publishing companies, other copyright owners, and composers. There is no more economic reason for Congress to attempt to increase that parricula: shar, oi recorl revenues ran the share ai any of the other parties who ire surely 20 less ceserviag in ight of hei: unique contributions to recorded music. But that is what Section 115 vi 9.2. 2223 vould io.

This conclusion must be reinforced by ce fac: that pubi:shing companies and other copyright Jwners are already der ring ncre 2 che cocai peneri-5 com recorded music ...ciucing jerzormance coes crom Ormerciai se ni :ecords - chan -ne acording : duszy i-seis.

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II.

THE IMPACT OF AN INCREASE IN THE STATUTORY MECHANICAL ROYALTY

A. THE 3¢ RATE WOULD GIVE A LARGE AND UNJUSTIFIED WINDFALL TO

COPYRIGHT OWNERS

If the statutory license royalty were increased to 3t, with
a higher statutory rate for renditions over 4 minutes long,
the average royalty per record would rise about 59%. Total
license royalty payments would rise by amounts which would
be enormous windfalls to the music publishing industry and
a staggering burden to the record industry.

Although the income of music copyright owners from recordings has grown fa: faster than inflation, even inder the provisions of the 1909 law, and even though copyright owners derive zuch more financial benefit from recorded music chan recording companies do, thenselves, a higher statutory royalty of at least 3¢ per tune has been wrišten into the bill before you.

An increase in the statutory royalty from 24 to 3$ does not sound like very much. However, this seemingly trivial "penny increase" would have a major impact on the earnings of the music, the publishing industry and other copyright owners, on the prices consumers pay for recordings, and quite likely on the amount and kind of music recorded.

In the first place, raising the nominal statutory rate from 24 to 3¢ represents an increase of 50%. The actual increase would be considerably larger, for H.R. 2223 calls for payment to the copyright owner of not just 34 per tune, but of 3¢ per tune, or 3/4¢ per minute of playing time, or fraction thereof, for each tune, whichever is greater. Thus, a composition running four ainutes or less would incur i rate oi ję. But i pisce lasting aore than four ainutus vouis be subject coin idded :35€: 2 "5-zinuter une voula cali cor a rate of 3-5/16; 1 "5-minuten tune would cal for 1-1/25; a "?-piaute" tune would call for payment jf j-lide; ind an 8-ninute' tune would cal! for 5c, ind so on. The proposed rate based on playing cime is something new; that concept is 200 provided for in de xisting copyr:ght iaw. The proposed rate is i substantial increase over tre vldespread current lo!antary industry Pric:-03 or parong :: 2: per ainute vi i cine's pieving me over zive zinutes.

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