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Joint Statement

of the
AMERICAN GUILD OF AUTHORS AND COMPOSERS

and the
NATIONAL MUSIC PUBLISHERS ASSOCIATION

submitted to he
Judiciary Committees of the U. S. Congress

regarding copyright revision

(s. 22) (H.R. 2223)
(Sec. 115 (c) (2))

September 1975

We the creators of American music the composers, songwriters, lyricists and publishers of musical works respectfully petition Congress to permit us to seek a fair compensation for the recording of our work.

PART I.

A FAIR CEILING ON OUR RATE
OF COMPENSATION: 4 CENTS

In the past we have sought the right to bargain freely with the record industry without any statutory ceiling on our earnings. The authors of books and the composers of dramatic musical works have that unrestricted bargaining right; so do recording engineers and musicians and manufacturers. There is, after all, no monopoly, no shortage of supply, no public utility characteristic, affecting the song writing and song publishing business. But that right to bargain freely has been denied us.

In the past we have sought the right to share in the enormous price increases obtained by the record industry for recordings of our songs, by converting that statutory ceiling on our royalty rate if there must be one from a flat cents per unit figure to a percentage of record prices. Recording artists and producers obtain this kind of percentage share of record prices; so do musical copyright holders in Europe and other countries. But, for U.S. musical copyright holders, that right to a fair sharing has been denied.

Instead we must continue to bargain with the giants of the record industry under a one-sided statutory ceiling that arbitrarily fixes the dollar maximum we can hope to receive but does not assure us of any minimum. Because Congress adopted in 1909 a system of compulsory licensing for the mechanical reproduction of music (for fear that one

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piano roll company might otherwise obtain a monopoly), the royalty for a musical copyright is not negotiated freely in the market place today like virtually every other royalty or rate of earnings in this country. But if it is not now feasible to abolish this system entirely, if "political reality" makes it necessary for the 94th Congress to fix our negotiating ceiling, then at least it should be set high enough to give ample range for the bargaining process.

In 1967, after 58 years of our being required by statute to accept a ceiling of no more than two cents a song for each record manufactured 2¢ ! - the House of Representatives, in passing the same comprehensive Copyright Revision Bill that remains before Congress today, voted to compromise the 3¢ ceiling recommended by the Register of Copyrights at two and one-half cents. Two and one-half cents was not a fair or adequate ceiling. It represented about one fourth of the purchasing power that the original 2¢ ceiling itself represented when first adopted in 1909. At 2-1/2€, even a song that sold 24,000 1/ recordings could not earn for its creators more than $6007 to be divided among the composer, lyricist and publisher in accordance with their private contractual arrangements.2/

But if 2-1/2¢ in 1967 did in fact represent the House's considered judgment as to where the "mechanical royalty rate" ceiling for musical copyright holders should be fixed, then in 1975 that ceiling in all fairness should have at least the same relative purchasing power. Because of the tremendous inflation since 1967, we need a ceiling of at least 4€ per selection in 1975 if Congress is merely to fix the ceiling at the same level as the House did previously.

A Decade of Inflation

That 2-1/2¢ ceiling was adopted as a compromise by the House Judiciary Subcommittee on copyright in 1966 on the basis of its 1965 Hearings in which the testimony relied largely on 1964 data. The House itself then ratified this figure in 1967. Compared with today, 1964-1967 was a time of very different economic conditions and dollar values in this country. Since 1964 the Consumer Price Index has risen by more than 70% (and since 1967 by more than 60%). That two and one-half cents today would buy only what one and onehalf cents bought in 1964-67. To equate 2.5 cents in 1964 dollars or even 1967 dollars in today's purchasing power now requires more than 4 cents; and by the time this bill could take effect next January 1976 (at the earliest), approximately 4-1/2¢ will be required to match that 2.5 cents.3/

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During this decade of inflation, as record companies doubled their pr per song without one cent of the increase going to the composer, as the standard rate per 3 hour recording session for musicians increased 64%, and as record artists, producers and company officials obtained higher and higher wages, salaries and royalties, the average royalty per recorded selection paid to the creators of the music (the only group unable to obtain an inflation adjustment without Congressional action) actually fell by more than one-third. With the 2¢ ceiling still in effect, the average royalty fell, in terms of 1965 dollars, from 1.51 cents per song in 1965 to less than .99 cents per song in 1974. 4/

For Congress to allow this steadily shrinking real rate of compensation for music creators and their families to continue, by freezing the statutory ceiling at the level originally approved by the House in the 1965-67 period while leaving record companies, the rest of the music industry and virtually all other segments of the economy free to increase their prices and earnings would be grossly unfair and in our society unprecedented. Congress has recognized the ravages of inflation in Social Security, in civil service and military pensions, in governmental salaries and in other legislation; and it cannot in good conscience fail to take account of it here, particularly in setting not a fixed rate but merely a ceiling rate.

A Reasonable Base for the Tribunal

If in the future a Copyright Tribunal, as proposed in Chapter 8 of the pending bill, is to review periodically the mechanical royalty rate ceiling set by Congress in order to consider subsequent developments, then Congress has a special obligation to make certain that the basic level it now fixes represents the fairest figure as of the date of the law's enactment. If the bill soon becomes law, the Tribunal can at its first review take into account any increase or decline in the ceiling's value or other developments occurring between now and then. But the unprecedented inflation since 1965 -- which before this bill becomes law will have cut the value of the 2-1/2¢ based on that year's data almost in half is for this Congress to take into account. Fixing a 1975 ceiling below 4 or 4.5 cents would not only give musical copyright holders less than the House was willing to give them previously but also give the Tribunal an artificially and inequitably low base for its future calculations.

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We have not the slightest doubt that, had this bill become law a decade ago, as intended, with the 2-1/2¢ ceiling included, a Copyright Tribunal meeting today would (a) take note of the 72% increase in the cost of living, (b) take note of the even greater increase in the price per recorded song received by the record industry, and (c) adjust the ceiling to at least 4¢ in order to give musical creators an opportunity to negotiate for no less than Congress had intended to give them originally. Although the law was not enacted a decade ago, there is no reason why the creators of music should be penalized by this prolongation of the legislative process. Today Congress and its Committees must act as that "tribunal" for purposes of this simple inflation adjustment.

A Ceiling, Not a Rate

Bear in mind that whatever figure is adopted by Congress will serve merely as a ceiling on negotiations and not as the actual rate paid. Musical copyright holders are of course willing to negotiate with any and all legitimate record companies for mechanical licenses on any and all compositions (and would do so even in the absence of statutory compulsion); and thus virtually every license has long been issued without resort to the compulsory licensing provisions of the statute. But ina smuch as both parties know that it would be useless for the copyright holder to request more than 2¢ when any record company can always invoke the statute and thereby obtain a compulsory license at that level, all negotiations (with the customary exception for those few involving compositions of extended length) necessarily take place beneath that absolute ceiling. Similarly, if the record company argues that a song is not even worth 2¢, there is no point in the copyright holder's "insisting" on the statutory ceiling because the statute will never be invoked. Thus even today, when there has been general agreement in the industry that the 66-year old 2 cent ceiling is outmoded and inequitable, negotiations on the royalty fee to be paid for most songs are still concluded at rates below that 2 cent level, with an average of 1.62€ per song (less than .99€ in 1965 dollars).5/

Clearly, therefore, raising the negotiating ceiling from 2¢ to 4¢ would not require any record company to increase its royalty payments to that level or by that same amount or percentage. Nor would it assure composers and publishers of receiving any increase of any amount. It would merely grant us permission to negotiate under a more realistic ceiling. As the Register of Copyrights recommended some years ago, if

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bargaining is to play any role at all,

"the statutory rate should be at a high end of a
range within which the parties can negotiate
for actual payments of a rate that reflects market
values." 6/

A song of truly "hit" potential today, for example, is obviously worth far more than 2-1/2¢ per record. Were there no statutory ceiling, its creators would obviously receive more than the 3 cents per record allowed by the 1974 Senate bill. Even an inflation-adjusted ceiling of 4¢ or 4.5€ per record would still help record companies hold down the compensation due to the author of a real hit. But at least the higher figure would allow some additional room for bargaining which 2.5€ or 3& does not.

In short, if a creator's song is certain to be among the very limited number of popular best sellers and the record industry is anxious to get it, it would be harsh and unfair to put an artificially low lid on creativity by denying that creator the right to seek more than 2-1/2¢ or 3¢ per record. But if a record company realistically values a new song at only 1€ per record, and the copyright holder lacks the certainty of success to insist on more, then he will only get one cent per record for that song regardless of where the statutory ceiling is set.

Thus a 4¢ ceiling would not be a guarantee; for most songwriters it would not even be a hope. Even the creator of a sure-fire popular "hit" will not be assured of full and fair compensation for any one of his songs; but at least it will grant him the right to seek it. For most songwriters, their period of top creativity and marketplace acceptance is severely limited; and it is grossly unfair to restrict so harshly their ability to make the most of that brief period.

The Unfair Bargaining Power of the Record Companies

One reason the majority of licenses go for less than 2¢ today, and will in the future go for less than any new ceiling adopted, is the powerful market position of those major record companies with whom the creators of a song must deal if that song is to fulfill its potential for success. of all the royalty payments made in 1974 through the Harry Fox Agency in New York (which acts as collection agent for the vast majority of such payments), over half were paid by only four giant record companies, constituting less than one-half of one percent of the members of the

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