To study the impact of the "34 rate" on the typical hit record and on the recording industry, an analysis was made of the Top 150 LP albums listed in Billboard magazine on March 3, 1973, selected as random illustration. Because some albums contained two records, a total of 165 records with 1,653 tunes were examined. If, for purposes of calculation, one assumes that the current statutory rate of 24 per license and released tune was paid, the average record in this sample would have called for a royalty of 20¢. If allowance is made for royalties currently paid in excess of 24 as a result of an additional "per minute" rate, the average mechanical royalty paid on the records in this sample is estimated to have been about 22¢. The statutory royalty that, in contrast, would have been payable under the new rates proposed to this Subcommittee by the publishing companies was computed based on 3 per tune or 3/4¢ per minute of playing time, whichever was greater. By actual count, the statutory mechanical royalty for the average LP in this study, under the new provisions, would have been 35¢, an increase of 59% over the current rate. (See Exhibit 6). What would this increase in the mechanical royalty rate mean in terms of its impact on the profits and revenues of the publishing and recording industries? Obviously, the answer would depend upon whether one were talking about a good or a poor year. In Exhibit 7 some data are set forth which gauge what would have been the impacts of the proposed increase of mechanical royalty rates on the two industries in each of the past four years, 1971-1974, of which two (1972 and 1974) were good from the standpoint of recording industry profits, and two (1971 and 1973) were bad. As shown in Exhibit 7, the dollar increase of the 59% hike in mechanical royalty sales would have ranged from a low of about $45.5 million to a high of about $46.8 million, for a total of about $183.0 million for the four years. This would amount to an annual average of about 546 million. In terms of the cut which these increased royalties to the music publishing industry would have taken from the pre-tax profits of the recording indus This analysis is based on the Top 150 of the "Top 200" LP albums listed in Billboard on March 3, 1973. Because some albums contained two records, a total of 165 records with 1,653 tunes were timed from the 1973 hits. b.The 1909 copyright law specifies a statutory rate of 24 per selection but in recent years, record companies have generally adopted the practice of paying an additional amount of 1/2¢ per minute of a tune's playing time over five minutes. This practice was taken into account in calculating the average of 22; per record. The rate specified in H.R. 2512, passed by the House of Representatives in 1967, was 2-1/2 per tune or 1/24 per minute of playing time, whichever is larger; hence, with this rate, an additional amount over 2-1/28 would be paid for any tune with a playing time over five minutes. The rate specified in S. 22 and H.R. 2223, the bills currently before the Congress, is 3e per tune or 3/4 per minute of playing time, whichever is larger; hence, with this rate, an additional amount over Je would be paid for any tune with a playing time over four minutes.. 58 60 try, these increased royalties would have represented not less than 38.6% of the pre-tax profits, from all sources, of the whole recording industry (in 1974) up to as much as 57.6% (in 1973). For the four-year period, including the two good years and the two bad, the increased royalties would have taken 45.5% of the entire recording industry's pre-tax profits from all sources. In dollar terms, the increase in royalty rates would have taken an average of about $46 million a year over the four-year period from the recording industry (a total of $184 million) and given that money to the music publishing industry. The publishing industry's "take" from mechanical royalties would have been increased from an annual average of about $78 million to an average of about $124 million. This would have represented an increase in average mechanical royalty income of about 59%. The aggregate pre-tax profit of the recording industry from all sources for the four-year period would have been reduced by the same $184 million, from a figure of about $402 million to about $218 million. In terms of an annual dollar average, the pre-tax profit of the recording industry would have been reduced from about $100 million to $54 million. - Those figures of impact on pre-tax profits of the recording industry relate to pre-tax profits from all sources, including foreign fees for records made abroad from U.S.-made masters on which foreign mechanical royalties were paid to U.S. copyright owners by foreign record companies together with income from studio rentals, interest, etc.. This impact could also be compared to pre-tax profits on records made and sold in the United States, because it is to these records that domestic mechanical royalties relate. The following figures, shown in Exhibit C, make that comparison with actual mechanical royalties at the "2 Rate" and with the royalties that could have bee payable at the "3c Rate". As is shown clearly in Exhibit 3, the proposed increase, alone, in the mechanical royalties on recoras nade and sold in the United States during the years 1971-1974 would have averaged 15% of the pre-tax profits earned by the recording industry on those records. The mechanical royalties, under the |