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To study the impact of the "3¢ 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 2¢ 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 2¢ 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 bout 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 ninute 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 ar.d 1973) were bad.

As shown in Exhibit ?, the dollar increase of the 599 uke ia nechanical royalty sales would have ranged from a low of about $45.5 million to a high of about $46.9 million, for a total of about $133.0 million for the four years. This would amount to an annual average or abou: 546 million.

In terms of the cut which these increased royaities to the music pubiishing industay wouii have taken from the pre-tax procics or ne recording indus

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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.

bi 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 cal-
culating the average of 224 per record.

The rate specified in it.R. 2512, passed by the House of Representatives in 1967, was 2-1/?ç per tune or 1/24 per minute of playing time, whichever is larger; hence, with this rate, an additional amount over 2-1/25 would be paid for any tune with a playing cime cver five minutes.

dohe

rate specified in S. 22 and 4.2. 2223, the bil!; currently before che Congress, is je per tunc or 3/4 per ninuce mi piay:ng ne, nic. ayer is larger; sonca, Y.::: :::3 :300, un cubiczonai amount sver je wouid be paid for any une viti i piaying came over four zinutes.

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1971

$77.3

$45.6

1972

78.1

46.1

1973

77.1

45.5

1974

79.3

46.8

4 years $311.8

$184.0

59.0%

$495.8

$402.1

$218.1

45.5%

* See Exhibit 3, note "a".

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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 royaities 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, fron 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 aade 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 Exibit , nake that comparison with actua! secaanical royalties at the "2¢ Rate" ind with the royalt:es that couid have bee payabia as the "3c Rate''.

As is shown clearly in Exhibit 3, the proposed increase. alone, in the mechanica! royalties on recoras naae and sold in the United States during the years 1971-1974 vould have averaged !:53 pi che pre-tax profits eamed by the recording industry on those records. The nechanical royalties, under he

Proposed Increase in Mechanical Poyalties as % of Rccording Industry Pre-Tax Profit from Records (Percent)

Exhibit 8

MI:TIANICAL ROYALTIES COMPARED TO RECORDING INDUSTRY PRE-TAX PROFITS

FROM KI:CORDS MADE AND SOLD IN TUE UNITED STATES, 1971-1974

Kucuriling Industry
U.S. Pio - Tax l'utits
from Kecords*

Mechanical Royalties
on Those Records at
"2¢ Rate"**

Proposed Dollar
Increase in
Royalties

Mechanical Royalties
on Those Records at
Proposed "3¢ Rate"**

(Millions)

(Millions)

(Millions)

(Millions)

$38.4

$77.3

$45.6

$122.9

118.8%

1912

52.9

78.1

46.1

124.2

87.1

1975

16.5

77.1

45.5

122.6

275.8

19.8

79.3

46.8

126.1

94.0

$157.6

$311.8

$184.0

$495.8

116.1%

* See lixhibit 50

biar lulus sicchanical royaldes on records made and sold in foreign countries. Suo aliliils 5C und 7

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