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Owners -

A majority of copyright licenses are, and have been for many years granted through a single, common agency of the music publishing companies the so-called "Harry Fox Office". This agency has been owned since 1969 by the National Music Publishers' Association. This agency is the commonly and generally used instrumentality where licenses are routinely and, for practical purposes, well-nigh automatically issued on behalf of copyright

that is to say, "negotiated". When a record producer wants to use a tune, he fills out a standard license form indicating his intentions and sends it to the Harry Fox Office. He does not wait to receive some form granting permission; that is unnecessary. He obtains permission through filling out and filing the contract form, and proceeds to make his recording automatically. Later, the Harry Fox Office will issue to the recording firm a standard contract, specifying the standard conditions, standard rates, or standard variations therefrom, under which the license is granted. The recording firm later sends the royalties due upon the license to the Harry Fox Office which remits payments to the copyright owner or owners of the tune licensed. *

There appear to be a few publishing companies that now do not use the Harry Fox Office to issue licenses and collect royalties and monitor payments. More important, publishing companies and recording companies sometimes go around the Office when they are under common ownership. So also, sometimes, do artist-composers own the whole or a share of copyrights to music they are performing on a record; the record company generally pays royalties to them directly in such cases.

Nevertheless, the fact, alone, of the existence and use of common licenseissuing and royalty-collection and monitoring agencies, as I pointed out 10 years ago, could be a sufficiently important factor in industry practice to establish, at very least, a strong "pattern" in contract forms used and license royalties charged.

There is a third reason why there is not, and will not be, as argued by publishing interests, bargaining according to the relative strengths of the

Often, tunes are subject to fractional ownership interests. In such instance, a separate payment is remitted to each owner for his share of the royalty payment due on the particular license.

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parties. As I pointed out 10 years ago, some might question the legality of a situation in which a publishing company accepted royalty rates not regularly made available by it to all record companies on a non-discriminatory basis, or in which a recording company pays rates not regularly paid by it on a nondiscriminatory basis to all publishing companies. It might be argued that payment and receipt of different royalty rates arrived at, case by case, on the basis of "relative bargaining positions of the parties" would undermine the intent of Congress to make copyright music available to all and to prevent more powerful companies whether publishing companies or recording companies from achieving monopoly positions.

Let us turn now to a re-examination of the merits of the argument of publishing companies that raising the statutory rate would "mere ly" raise the ceiling below which, or up to which, publishing companies and recording companies would "bargain according to their relative strengths". We have just examined in great detail a large sample of records issued recently by two recording companies. In mid-December, 1974, we asked two large record companies, one being among the four largest firms in the industry and the other among the next four, to cooperate with us in the preparation of an extensive copyright royalty analysis. We asked them to provide us with mechanical rates agreed to be paid on licenses for all tunes included on all records which they had released in 1974 up to that time. One of these companies, which updated its files only on a quarterly basis, supplied us with information on all of its releases for the first three quarters, or 9 months, of 1974; the other provided us with information for all 1974 releases through the end of November. These data, covering the royalties paid for all of the copyrights on all of the records released by the two record companies in those periods, formed the basis for our analysis. To give some idea of the size of the two companies who provided the data, it is estimated that in 1974 they had record sales (not including tapes) on the order of 50 million records.

The data are in two parts. The first part covers records distributed through the trade and the second consists of records distributed only through record clubs, or as premiums through non-music channels. Each part will be analyzed separately. First it is necessary to distinguish among three broad classes of these records released through the trade:

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a)

b)

"Singles", that is, 45 RPM records, usually with 2 tunes, one on
each side;
Regular Price LP albums of popular or classical music, usually
with multiple tunes or "bands" on both sides of a long playing
record or records; and
Other LP albums issued for budget priced distribution as, .for
example, reissues of older records under "budget" labels.

c)

In Exhibit 16, the data relate to the numbers of separate tunes included on each of the three types of records, classified by the level of the mechanical royalty rate to be paid for each copyright. The exhibit covers data on 1,723 separate tunes: 324 on "Singles"; 1,219 on "Regular Price" LP albums; and 180 licenses on tunes on "Budget" albums. *

Also, one should note that no royalty was paid on many tunes. In practically all of these cases, the tunes are in the public domain, and of course, no royalty is required of the record company. These tunes are, primarily, classical music. In a few cases, the company providing the data acted only as the distributor of the record released. The license fee or fees, if any, in these instances would have been paid by the independent record producer or other party for whom the record company was acting as distributor. The numbers of tunes on which no royalty was paid are shown in the lower section of the table.

The distribution patterns of royalty levels vary markedly among the three types of records:

1. For singles, the statutory rate of 2¢ was paid in 95.9% of the cases. Only 4.1% of the rates were below 24. None were paid at more than 24. As a generality, rates that are paid at more than 24 are paid in connection with

Because of the marked differences among the three patterns of rates paid
on Singles, Regular Price albums and Budget albums, the overall pattern of
rates paid on all licenses will be affected greatly by the relative numbers
of licenses paid on the three types of records. Although we have no ques-
tion as to the representativeness of the rate levels paid for each class
of record, we do not know whether or not the proportions of the three
types of records in our sample are representative of the whole universe
of records released by the recording industry. For example, some com-
panies do not issue "Budget" records. For this reason, we have not shown
an overall percentage distribution paid for all licenses in the "Total"
column for all types of records.

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Exhibit 16

DISTRIBUTION OF ROYALTY RATES PAID ON COPYRIGHTS,
BY TYPE OF RECORD, ON REGULAR PRICE AND BUDGET-LABEL RECORDS

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Does not include 15 tunes individually licensed in the 1974 period, tut where the entire record was not released in the period. These 15 tunes include 5 on Singles at 2¢, 4 on regular price LP's at 2¢, 1 on a regular price LP at more than 2¢, and 5 on regular price LP's with a fee. None of these

tunes were licensed at a discount. Note: Exhibits 17, 18-A, and 19 show the tune by tune royalties paid for each

of the 1,541 paying licenses shown above, and will be found on pages 67-80.

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the renditions of tunes that run longer than 5 minutes. It is difficult, if not impossible, to get more than 5 minutes of music on a 45 RPM single. For that reason, no mechanical royalties above 2¢ are to be expected on such records. The pattern of royalties for singles, therefore, is clearly one where the statutory rate is the established norm and where discounted fees are truly exceptional. We shall return to the topic of discounted rates in just a moment.

2. For Regular Price LP albums, the statutory rate is also the standard practice. More than 80% of the licenses were at 24. In this type of record, we do see some longer than average renditions. On these LP's, about 7% of the rates paid were above 2¢. The frequency of rates below 2¢ is greater than for singles, and amounts to nearly 12% of all licenses. These rates will be analyzed in depth in just a moment.

3. For Budget LP albums, the pattern is quite different. On these records, discount rates are a prevailing practice. On these albums, nearly two-third's of all the licenses were at less than 24. About one-third of the licenses were at the 2¢ statutory rate.

Having established the existence of these three patterns, we then set out to ascertain the reasons for appearances of rates other than the 2¢ statutory rate in each record category. Specifically, three types of discounted raics appca: in corneciion with Regular Price records:

1. "Artist Interest" - This sort of discounted rate occurs on both singles and albums when the performing artist has an interest in the copyright of the tunes.

2. "Block Discount" This discount occurs when several tunes on an album record are owned by a single holder.

3. "Medley Discount" This discounted rate occurs when several tunes are interwoven in a rendition, where a fragment of a tune is used in transition between two tunes, or in other instances, where a tune is used for only a short duration. The extent of a medley discount in a particular instance seems to be governed in part by the length of time the medley, theme, or excerpt is used.

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