Exhibit S. cont.

CONSOLIDATED INCOME STATEMENT OF RECORDING COMPANIES SURVEYED BY CRI in 1972, 1973, and 1974

Exhibit 6

STATUTORY LICENSE ROYALTIES PER TOP 150 LP ALBUMS
IN 1973 AT VARIOUS STATUTORY RATES

This exhibit, together with the discussion on pages 56 and 57 is fairly self-explanatory. Nevertheless, it is important that the derivation of the 59% figure be completely understood.

The calculation is based on a sample of the top 150 of the "Top 200" LP albums from Billboard, March 3, 1973; these albums accounted for 165 LP records (because some albums contained two records) and 1,653 tunes. The number of tunes per record was counted, and playing times were measured, tune by tune. This, clearly is not a sample of all recordings. Tapes and singles were excluded. There would be some releases on singles which did not appear on LP's, but there would be virtually no tape releases which did did not come out on LP's or singles. Probably, the top 150 would be representative of the majority of U.S. sales, but they are not statistically representative of total U.S. releases or sales.

For purposes of calculation, it was assumed that each of the tunes in the top 150 was at the 2¢ statutory mechanical royalty rate. In fact, some may have been at a higher rate, some at a lower rate; and there could have been included some public domain tunes at 0¢. Most likely, there was little or no public domain material included; it does not "sell."

In addition, the current general (but not universal) practice of paying an additional royalty of 1/2¢ per minute of playing time over five minutes was included in the calculation of 22¢ as the average mechanical royalty per record under the present law and present practice. That would take care of the tunes that were over 24.

There was then calculated what the mechanical royalty would be under H.R. 2223, tune by tune, applying the proposed statutory provisions to the data on tunes per record and on playing times. The result of this calculation was an average mechanical royalty of 35¢ per record.

Whether or not any of

The increase from 22 to 35¢ is 59%, as reported. the tunes in the sample actually were licensed at less than 24, as some

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probably were, is immaterial to the calculation of the 59%. The calculation
can be looked upon as expressing the statutory rate change (taking account of
the current playing time practice); or it can be regarded as a measure of
the change if, whatever the actual rate, all licenses moved up by 50% (and
the playing time provision in H.R. 2223 were taken account of).

If we had not taken account of the current practice of paying 1/2¢ per minute over five minutes, the percentage increase shown would be greater than 59%. As it is, since as we understand this playing time practice is not universal, probably we are slightly understating the percentage increase of 59%.

As to the fact that singles were excluded from the sample, two points are in order. First, their exclusion tends, if anything, to understate what the calculated percentage increase (59%) would be were they to be included in the sample. This is so because there is only one tune per side on a single; on an LP, a longer band (incurring the playing time provision of H.R. 2223) subtracts from the playing time available for other bands on the same side. Second, LP's taken by themselves constitute a large and significant portion of total unit sales of recordings. We do not know precisely what portion, but we do know that LP's accounted for about 62% of dollar sales in 1974.

Were tapes to have been included in the sample, the results probably would have been little different. Tunes released are essentially the same as those on records (LP's in the main, we understand). And, far fewer licenses on tape are at less than 2¢, we are told; the mechanical royalty rate, tune by tune, otherwise is very similar to, or exactly the same as, the rate for LP's.

Note that 1973 data were employed. The results could be somewhat different if 1974 data were examined.

Exhibit 7

-

FINANCIAL IMPACTS OF PROPOSED INCREASED MECHANICAL
ROYALTIES ON MUSIC PUBLISHING INDUSTRY AND RECORDING
INDUSTRY, 1971-1974

This exhibit applies the 59% figure developed in Exhibit 6 to total mechanical royalties paid during the four-year period, 1971-1974. Totals

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arrived at in the exhibit are self-explanatory and are discussed in the text. The emphasis in this exhibit is on the effect of a 59% increase in mechanical royalty payments on U.S. recording company pre-tax profits from all sources.

Exhibit 8

MECHANICAL ROYALTIES COMPARED TO RECORDING INDUSTRY
PRE-TAX PROFITS FROM RECORDS MADE AND SOLD IN THE
UNITED STATES, 1971-1974

This exhibit shows in similar fashion the effect of the proposed 34 rate on pre-tax domestic recording industry profits (line 11, Exhibit 5-C, p. 49). Mechanical royalties are paid on the basis of recordings made and sold in the U.S. As the exhibit illustrates, the potential impact of a higher rate on domestic profits is disastrous.

This exhibit is self-explanatory. However, it is important to recognize that the prices and dollar margins presented are only illustrations, based on a $6.98 list price record. The average price paid by consumers on all records is much less than the average $5.77 they pay for a $6.98 record.

The exhibit also shows the more moderate impact on the consumer price a mechanical rate increase of 1/2¢ would have, as compared to the proposed 1¢ increase.

It must be recognized that a cost increase at the producer level cannot be passed along without increases along the way. The increase in cost to middlemen that would result from an increase in the mechanical royalty being passed on by recording companies would lead to still further increases by middlemen in order that they be able to maintain their margins. Such further increases would be justified by the additional costs they would incur, such as for insurance, inventories, financing, bad debts, and the like.

57-786 - 76 pt. 3 12

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Exhibit 10 COST TO CONSUMERS OF A 3 STATUTORY LICENSE RATE

(RIAA estimates of

This exhibit, with footnotes, is self-explanatory. retail sales of recordings, at list prices, are made annually.)

Statistics for this exhibit are derived from the principal financial survey, as explained in the footnotes to the exhibit.

Exhibit 12

TUNES AND PLAYING TIME OF TOP 150
LP ALBUM RECORDS

The exhibit, with footnotes, is self-explanatory.

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Date in this exhibit are based on an analysis of results that were an integral part of the 1973 financial survey. (See Technical Appendix, on Exhibit 5). The distribution of sales by volume is from Form # (5) of the questionnaire. The breakeven information is from Form # (4), and is summarized on the following page: