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Now, if I may move on to the next chart, chart No. 6, very briefly, which chart shows the percentage of selections and total payments and licenses which fall below the 2 cents ceiling. Here, I would like to emphasize that we did not include a superficial sample. We took the top three record companies which accounted for more than 40 percent of the payments through the Harry Fox Agency which, I said, in turn account for some two-thirds of the total mechanical royalty payments. We included in our sample something in the nature of 145 million selections, namely the actual sale of musical compositions. If there happen to be 10 selections on every album, and this was nothing but albums in the sample, then we would have included in our sample a total of 14.5 million sold albums.
We show here that the percentage of selections in the fourth quarter of 1974 below 2 cents was 54 percent. That means that the number at 2 cents, and there are, as Dr. Glover pointed out correctly, a few over 2 cents because of payments on a time basis rather than on a cent basis, that 46 percent were at 2 cents or above and 54 percent below 2 cents. And if you look at the total royalty payments, 40.2 percent are under the 2-cent level. That is so because there is a weighting factor, all those at 2 cents would be weighted more in the money column than they would in the number column.
Then we have the number of licenses: 67.6 percent are under 2 cents And gentleman, we are very happy to give you every detail of that sample to present to your staff or anyone else you would like: the tabulations, the computations, the results in greatest details. We feel that the establishment of this as a ceiling is very clear and definitive.
Now this next chart, chart No. 5, shows the breakdown of selections, by rate. Here you see that 46 percent I quoted before : 3.4 percent of selections were over 2 cents and 42.6 percent were at 2 cents. And that adds up to 46 percent. Then we find that between 1.5 cents and 2 cents we have 2 percent; at 1.5 cents we have 29 percent; between 1 and 1.5 cents we have 1.7 percent; at 1 cent we have 10.8 percent; and under 1 cent we have 10.4 percent. If this can be characterized as nice and simple and orderly variations with everything except standard variations at 2 cents, then I must say I do not know how to read charts or numbers, and I am not willing to concede that.
It is quite clear that what we have here is a ceiling and not a rate. Now if I may move on to the next chart, chart 8, we also took a careful look at what has happened to the prices of records. We took the 200 top albums in Billboard, except in 1965 with 150 top albums, and we looked at what the most prevalent price is, what economists and statisticians call the mode. We found that $3.98 was the most prevalent price in 1965, $4.79 in 1967, $5.98 in 1974, and the latest figure this year is $6.98. This gives us a pretty good idea of what has happened in terms of list prices.
I must say we have looked for and have no evidence whatsoever that would lead us to conclude that discounts as a percentage of the list price are any greater today than they were 10 years ago. In my judgment, given the nature of the inflationary process, I would expect that the discounts from the list prices would be lower today than they were then. And therefore if we did have the actual discounted prices, I think, we would find an even larger price increase than we find in the list prices.
Now, we have just one other chart, chart 12; this shows the royalties per album at the 2-cent ceiling, as a percentage of the most prevalent album price. For instance, in 1965 you will recall that the prevailing price, the most predominant price, was $3.98, and at that time even if we use the ceiling royalty rate of 2 cents, that would be 24 cents with 12 songs per album. And 24 cents would be 6 percent of $3.98.
Now if we move to the present time, we find the most prevalent album price is $6.98, and we also find the most prevalent number of compositions per album is down to 10. Therefore if we take the $6.98 and divide it by 10 compositions, the average price per composition is roughtly 70 cents; the royalty rate of 2 cents comes to 2.9 percent of 70 cents.
This shows royalties at the ceiling rate as a percentage of the most prevalent album price dropped by more than one-half.
Now, I want to try to summarize what this particular set of charts means to us. First of all, Mr. Chairman and members of the committee, the repetition of figures does not prove wrong figures to be correct. I must say I cannot understand, in a situation like this, where you have a ceiling and variations substantially below the ceiling, how anybody can take a 1-cent increase from a 2-cent royalty to a 3-cent royalty and say that the increase in royalties will be $17 million because you literally apply 1 cent to every composition and you just add it up assuming that every composition is going to be increased 1 cent. Today we have half of the records with a payment at less than 2 cents. I find nothing in economic experience, nothing in economic theory which would indicate that every single negotiation would lead to a 1-cent increase. I am sure the record manufacturers are not so generous in their undertakings that the prices they pay today are higher than what they need or want to pay. As the publishers will tell you, they do bargain to the fullest extent that they can, and succeed in substantial measure.
Saying that if there were a 1-cent increase, it would result in a $47 million increase and repeating that several times, does not make that figure correct. I might say that Mr. Gortikov sells himself short. He said, if it is 1 cent, it is $i7 million, and he said it was $84 million at 2 cents, but double $47 million equals $94 million.
Mr. DANIELSON. And he corrected himself.
Mr. NATHAN. The second point, gentlemen, is that you would not get anything like $17 million. But even if you did, you would not get more than double that through the various distributive channels;
in that case you would have a cost of $47 million resulting in an increase of $50 million in profits, and I do not think that is quite the way our system works.
So to briefly summarize, let me say this. What we have here is a unique phenomenon that has no place in our pattern of economics. I think it should be removed entirely. But if we must come to the conclusion that if this royalty arrangement, which is a ceiling, is not removed, then the logic is to open it up so that the marketplace, competition, bargaining can work its way through this whole process.
I see no basis, no criteria, no considerations on which one could logically come to a price determination through the legislative procedure. You gentlemen sitting here today have had evidence presented before you as to the fact that the ceiling is a rate or that the ceiling is not a rate. I do not understand how a congressional committee can possibly deal with that kind of subject in that kind of detail on a purely rational basis. Nor do I understand what the economic rationale would be to give a set of criteria to some kind of an organization to set rates as has been done for the public utilities.
I believe that the ceiling should be removed entirely; but if it is not, then it ought to be opened widely for negotiation. What we are dealing with here is a rate and the cost-of-living is a very important factor influencing all rates. You can tell the AFL-CIO, or the Government workers or the Federal Reserve System or any bank that they are making a lot of money and wages or interest rates should not be allowed to increase. They will not accept such curtailments in buying power. The important thing is that you must take account of bargaining considerations. The lack of an impact on changes in rates has buying power as a result of rising prices. I very strongly urge this committee to take this into account and to raise that ceiling to at least 4 cents. It will be a ceiling and everything is not going to go up by the same amount, or even in the same proportion—I think that is the second best solution. It certainly will give ample reign for some effective bargaining.
Mr. DANIELSON. Thank you, Mr. Nathan.
[Prepared joint statement of American Guild of Authors and Composers and the National Music Publishers Association follows:]
Joint STATEMENT OF THE AMERICAN GUILD OF AUTHORS AND COMPOSERS AND THE
NATIONAL MUSIC PUBLISHERS ASSOCIATION
Since 1909, America's songwriters and other musical copyright holders have by statute been denied the right to bargain with the record companies for a royalty higher than 2€ per song, to be divided among composer, Lyricist and publisher.
The record industry has become a multi-billion dollar industry but our maximum is still 2¢. The actual average paid is 1.62€.
The copyright Revision Bill proposed by the Register of Copyrights in 1964 after a series of panels and studies recommended 3¢. After the record industry warned that this could produce a horrendous 12¢ increase in the $3.98 price of a long-playing record (which now costs $6.98 or more), the House compromised on a ceiling of 2-1/2¢.
Two and one-half cents! A song that sold 24,000 recordings could not earn for its creators more than $600.
Today that 2-1/2¢ ceiling is worth less than 1-1/2€. Merely to restore our ceiling to the same level of purchasing power prevously approved, we need a ceiling of more than 4€.
In this past decade, the consumer Price Index has risen by more than 70%; the standard rate for 3 hour recording sessions for musicians has increased 64%; record industry sales have increased 1908; the list price per song in a typical record album has increased 112%; but total royalty payments to musical copyright holders by the record industry, according to its own figures, have declined as a percentage of industry sales by 32%. Royalty payments per songwriter have also declined. And yet the record industry dominated by four giants still wants Congress to permit no negotiations, no discussion, no bargaining above 2-1/2.
When 2-1/2¢ was approved it represented roughly 8% of the price per song. Now it's 3.6%.
A 4¢ ceiling instead of 2-1/2 would not fully restore this ratio of royalty ceiling to prices; nor would it fully restore the purchasing power of 2-1/2¢ in 1965. It would do little or nothing for the majority of songs not able to reach even 2¢ today. Even if every one of the 10 songs on a typical record or tape were able to command the full 4¢ instead of 2-1/2€, that additional 15€ per record would represent only 2% of today's price and only 5% of the last decade's price increase.
But it would give the creators of American music a fairer chance to seek a fair return.
SUMMARY TABLE Why the 2.5 Cent Mechanical Royalty Ceiling Approved After the House Hearings of 1965
Must be Raised to 4 Cents in 1975
$ 61 $100 +640
$10,250 $18, 463
7.6 3.68 -538
$758 mil. $2.2 bil. +1908
5.61 3.88 -32%
17,536 35, 350
$2,424 $2,424 $ 2,362 $1,375
- 38 -438
Percent of typical price per song
Purchasing power in 1965 dollars
Even 4° Will Only Partially Repair the Effects of Inflation
Price 2.5° as per
per centage of song
Total royalty payments
4¢ Represents a
2.5° in 1965.