This analysis is based on the "Top 150" LP albums listed in Billboard
on March 6, 1965 and the top 150 of the "Top 200" LP albums listed in
Billboard on March 3, 1973. Only the 150 of the "Top 200" albums were
studied in 1973 to provide direct comparison with the 1965 list, which
consisted of only 150 albums. Because some albums contained two records,
a total of 165 records with 1,653 tunes were timed from the 1973 hits.

bAlthough the Top 150 LP's analyzed averaged only 10 tunes per record
in 1973, the "typical" LP must have around 11 tunes. According to
statistics reported by 8 record companies with about 51% of the
industry's sales, in 1972 the average mechanical royalty per popular
LP disk was 22.5¢ (at the 2¢ rate). If a flat license rate of 2¢ per
tune were paid, this would indicate that the "typical" LP had 11.25
tunes (22.5 24). Some tunes do pay a license fee based on playing
time, as indicated in footnote c below, but some tunes, being from the
public domain, call for no copyright royalty at all. (These 8
record companies were among the 13 included in the CRI financial
survey.)

Current practice is generally to supplement the 24 per tune rate with payment of 1/2¢ per minute of a tune's playing time over 5 minutes. Hence the actual royalty paid on the sample 1973 LP's probably averaged about 22 because of the long playing time of their tunes, and the decrease in the average royalty between 1965 and 1973 was only about 8%.

able to get jobs making recordings, or would find themselves booking fewer recording hours. This would be unfortunate, for musicians' employment opportunities have already been reduced by the growing use of recordings rather than live music.

Reduction of the number of tunes on LP's and tapes would also be inflationary; to the extent that this alternative defensive action were adopted, the consumer would receive less music for the money spent on recordings. In sum, raising the statutory mechanical rate may benefit popular established composers and their publishing companies and others who own or have an interest in the music of popular, established composers; but it would tend to hurt other composers, less well-known and younger and not yet recognized; it would also injure musicians and the American record buying public.

2. Reducing the Risks Inherent in the Business

Another defensive measure record makers might take to keep a mechanical royalty increase from destroying their profit position would be to reduce their production of recordings which their judgment indicates are among the least likely to enjoy sufficient sales to cover their costs of recording production, and manufacture, and to make a profit.

Eight out of ten recordings, even now, do not generate sufficient revenue to cover the cost of producing, manufacturing, and marketing them. (See Exhibit 13). In 1972, the latest year for which data on releases are available, 82% of "Singles" releases failed to earn a profit, as did 77% of popular releases, and 95% of classical LP's. Of popular LP's, 80% failed to break even; of classical tapes, 99% did not recover their costs.

-

a minority

-

must cover

-

that

The profits from the successful recordings the losses on the large number of recordings--the large majority do not sell well enough to cover their costs. Yet, regardless of whether or not the recording earns a profit, the publishing company or other copyright holder is paid its mechanical royalty. In financial terms, the mechanical

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Source: These figures are based on an analysis done by Cambridge Research Institute of a sample of the relcases of cight record companies which had 51% of the industry's sales in 1972.

1

royalty "comes off the top". The record maker bears the risk of loss, and this already very substantial risk would rise even further to the extent that the increase in the statutory license rate could not be passed on

to consumers.

As the figures in Exhibit 13 indicate, to break even on a 45 RPM single in 1972, a company had to sell, on the average, about 46,000 copies. In a year's time, over 80% of all single releases by record companies failed to reach the breakeven point. About 64% of the releases of all singles didn't even come close; they sold in amounts of 10,000 or less. The breakeven point has risen dramatically since 1963, when only 11,200 45 RPM discs had to be sold to break even.* No doubt, the breakeven point has changed strikingly even since 1972, considering the rising costs of making recordings.

The breakeven volume for popular LP's in 1972, was, on the average, about 61,000 copies. About 77% of the releases of all popular LP's failed to sell enough to break even. About 57% didn't come close; they sold 20,000 or fewer. Here, too, the breakeven point has risen sharply since 1963, when only 7,800 copies of the LP albums had to be sold to break even.'

They

Ninety-five percent of all classical LP's failed to break even, and about 79% of popular tapes did not have sufficient sales to break even. lost money. The figures for classical tapes are even worse. Rarely, if ever, has a classical tape enjoyed sufficient sales to break even. The classical releases of most firms are "carried" along by the funds generated by the few pop records that are profitable.

This dramatic increase in the breakeven point for all classes of recordings since 1963 is a reflection of the severe cost increases experienced by the recording industry and the greater fixed costs incurred before a record is released. As a result, the recording business has become even more risky. Whereas 74% of all 45 RPM single record releases failed to

The 1963 figures are from the 1965 Glover Report. For full reference see Exhibit 13.

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