Lapas attēli
PDF
ePub

77

break even in 1963, 81% failed in 1972. Similarly, the breakeven for popular LP's has deteriorated to the point where 77% do not break even, in contrast to 61% in 1963. And, of course, the losses sustained now on these recordings that don't break even are much, much greater.

Another indication that the record business has become more costly and more risky is the growing problem record makers have with recordings returned by wholesalers and retailers. Exhibit 14 shows that since 1969 record returns have risen from 16% to 21% of record manufacturers' gross sales. The dollar cost each year of returns has been enormous: from $164 million in 1969, this cost has gone up to $311 million in 1974. These statistics indicate the increasing extent to which record makers must invest must expose themselves to risks in the manufacture and distribution of new recordings without the assurance even of a final sale, let alone a profitable sale.

In sum, the recording business is exceedingly risky. The recordby-record odds against success are especially difficult for the smaller or newer company which can produce only a few releases a year. An increase in copyright royalties, if not passed on, would raise the breakeven point and the odds against success for all record people still higher. It is, therefore, grossly misleading to assert, as the publishing companies have done, that the proposed new mechanical rate would "only" raise the failure rate by 2 or 3 percentage points. It is true, for example, that under a 34 mechanical rate, with the increase in rate not passed on, the percentage of 45 RPM single records which did not break even that is the failure

would increase from 81% to 83%, a "mere" two points. But the other side of the coin is what really counts: The success rate, already slim, would drop from 19% to 17%. For the marginally profitable, such a drop in an already low probability of success would be forbidding, if not fatal.

A higher statutory license rate could discourage even further the production of classical recordings, which are currently-financed -- subsidized is not a bad word to use here to a very large extent by profits from popular records. Because higher royalties, if not passed on, would reduce those

rate

[blocks in formation]

79

profits drastically, as we have seen, even fewer revenues than now would
be available to invest in classical, "modern jazz", ethnic, show, esoteric,
and experimental offerings. The recording industry would thus be under
pressure to reduce the cultural diversity it currently offers the American
public.

3. Possible Elimination of Smaller, Marginal Record Makers

The increase in statutory license royalties would have a greater impact on small record makers than on the large ones, for the small firms tend to have smaller profit margins and thus less flexibility in coping with cost increases. With lower profits, the small record makers could absorb even less of a statutory rate increase than the more profitable firms.

Thus, a substantial increase in the mechanical royalties rate might reduce the number of firms in the industry. This is scarcely a desired or desirable effect.

[blocks in formation]

Allegations which have been made as to excess concentration in the recording industry are not well founded. It is true that there are large firms in this industry, as there are in any industry where there are economies of scale. In 1970, the top four firms in the industry accounted for 62% of the total value of shipments in the industry. A substantial portion of this volume is represented by the product of small, independent record companies, which merely distribute through these larger organizations. But the Federal Trade Commission defines an industry as "highly concentrated" if 75% or more of shipments are accounted for by the top four firms. Thus, by that definition, the recording industry falls short of being "highly concentrated".

The Commission also gets concerned when the overall trend in "concentration" is rising. However, as Exhibit 15 shows, there has been a decline in the percentage of record shipments attributed to the top four, to the top eight, to the top twenty firms over the last 23 years for which Commerce Department data are available. These shares are volatile from year to year, as musical tastes change and as new entrants pour into the industry. But a trend was clear: In 1947, the top four firms had 79% of the industry's shipments; by 1970; the share of the top four had fallen to 62%.

[blocks in formation]

The Top Four firms had 79% of the industry's shipments in 1947, but in
1970 only 62%.

The Top Eight firms had 87% of the industry's shipments in 1947, but in
1970 only 73%.

57-786 O - 76 - pt.3 - 7

81

This is an industry characterized by ease of entry. This is reflected in the rise of the independent record producer in recent years.

All he or she needs is an idea and a little money not much. He can rent a recording studio. He can rent a sound team. A record manufacturer perhaps another company will press his records for him. A record company perhaps a third outfit will undertake to distribute his or her records. This is actually what is happening. Independent producers are proliferating; some of these are performing artists who can achieve both financial and artistic results to their liking by producing their own masters.

The number of independent record producers listed in Billboard rose from 380 in September 1969 to 1,482 in September 1974, an increase of nearly 300% in just 5 years.* Conversely, 12 leading recording companies, in a telephone survey conducted by RIAA in 1975, reported that they had 94 inhouse producers in 1965, but only 54 in-house producers in 1975

a 60% decline in 10 years.

It is important to realize that a higher statutory license rate may endanger this socially desirable trend toward proliferation of the entities in this industry. For the smaller firms, gaining distribution today is like competing in the grocery or discount store business before you even get a chance to compete for the buyer's dollar, your product competes for "shelf space" with everyone else's. For those outlets in which you do gain distribution, it is important that your product sell as well as anybody else's, or you will lose that space and distribution. For the smaller firms, which are already struggling for marketing appeal, a price increase due to a higher statutory license rate, or other defensive measures of the sorts we have been describing, might make it more difficult for them to sell their products.

Few small firms could afford to absorb any increase in their mechanical license payments. Surely, reducing the threshold of survival for smaller record makers can not be one of the intended results of the bill before

this Subcommittee.

These figures are based on the listing of independent producers in
Billboard's International Buyer's Guide for 1968-69 and for 1974-75.

« iepriekšējāTurpināt »