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industry. (Not even the 21 largest music publishers of the many thousands competing for royalty payments can account for even half of the royalties received.) 1/

For better or worse, it is a fact of life that hundreds of thousands of copyrighted but unrecorded songs offered by tens of thousands of eager writers, composers and publishers compete for the right to record. This places these few dominant record companies in an invulnerable position to pick, choose and bargain. As pointed out by the Register of Copyrights in his 1958 Report to the House of Representatives, the compulsory license is

"compulsory only on the copyright owner...

.. the record producer can bargain for a lower rate, but the copyright owner can never bargain for a higher one." 8/

Because the number of writers and composers has more than doubled during the last 10 years, increasing far more rapidly than the increase in the mechanical royalty pool, the average writer-composer's gross receipts from this source have actually declined even without taking inflation into account. 97 Many of these write not "pop" best-sellers, but for children, gospel, classical, Latin, country and other markets. For this handful of enormous record companies now to be arguing that Congress should hold down the ceiling rate on their negotiations with these individual composers and publishers is ludicrous.

Thus the dispute before Congress on whether Sec. 115 should provide 3¢ or 4¢ or some figure higher or in between is nothing more than a dispute over negotiating room. The record industry, no doubt acknowledging internally that the song is the key ingredient in the sale of a $6.98 disc or $7.98 tape or cassette recording 10/ - after all, without it, what would they have to sell? wants Congress to keep the tightest lid possible on the bargaining position of the songwriter by preventing the negotiators, even on hit songs, from even discussing 4 cents. (of course, these record companies would not be willing to have congress grant every broadcaster a compulsory license to use their recordings for a paltry royalty or have Congress fix the retail prices of their recordings below the market level. Yet they somehow believe that such restrictions on the rights of composers are justified.)

All that we the musical copyright holders are asking of Congress is not a guarantee of 4 cents per song but room to negotiate if we can a fair and realistic royalty up to that level on those occasions when market values

57-786 0 - 76 - pt.3 - 14

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enable us to do so. The Copyright Law was intended, after all, to protect the creators of American music, not the giants of the entertainment industry. If Congress were to keep the ceiling at an unrealistically low figure such as 2.5 or 3 cents in the face of a substantial decline in the value of the dollar, thus permitting bargaining only below that level but never above, it would convert this already one-sided compulsory license provision into a still harsher anti-composer statute.

PART II.

THE BACKGROUND OF THE
MECHANICAL ROYALTY ISSUE

The 1909 Act

11/ In 1909, for reasons set forth in the footnote, the concept of a "compulsory license" was introduced into law. For 66 years musical composers, lyricists and publishers have been tied to this same archaic 2€ ceiling. Piano rolls gave way to discs, which gave way to long playing records, which are now giving way to tape cartridges and cassettes, each more highly priced and more highly profitable than its predecessor. Radio and TV entered the scene, the U.S. population more than doubled and the Gross National Product rose by more than 4000%. But still -- although the copyright proprietors and record companies did adopt with the advent of long-playing records the custom of a 1/4€ per minute minimum for long compositions - the statutory mechanical royalty rate has through it all remained at 2€.

The Current Revision

In 1956, when the process of revising the outdated Copyright Act of 1909 was begun with a series of studies and panels, the Register of Copyrights initially recommended total elimination of the compulsory licensing provision. This recommendation was bitterly fought by the record industry, and its point of view prevailed. Thus the first draft of the new law in 1963 retained a compulsory licensing provision. But it did provide that the statutory royalty rate would be, as in Europe, a percentage (8% of retail list price) rather than a fixed sum, thereby safeguarding everyone's interests in the decades of economic and technological change that lay ahead. But once again the record companies were opposed, once again their powerful opposition prevailed, and the second draft of the new bill in 1964 maintained the concepts of both a compulsory license and a statutory ceiling on royalty rates fixed in dollars and cents terms.

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The ceiling embodied in that second draft was at a compromise level of 3per composition. To the surprise of the composers and publishers, the Recording Industry Association of America was still opposed and attacked this proposal at the House Judiciary Subcommittee Hearings of 1965. An elaborate RIAA statistical presentation argued that the billion dollar record industry was actually operating at a marginal profit, that even the 2¢ ceiling was excessive, and that a 3d ceiling threatened to raise the retail price of $2.83 records to $3.03 (they now are listed at $6.98 and more). The Bill finally reported by the House Judiciary Committee in 1966 and passed by the House early in 1967 (H.R. 2512, 91st Congress) "compromised" the ceiling still further at 2-1/2.

In 1969, after additional Senate hearings, a lengthy Library of Congress economic analysis of the recording and music publishing industries (the "Knight Report") requested by the Senate Judiciary Subcommittee reported doubt as to whether available data could be certain of the economic effect of whatever statutory figure was to be adopted, noting that this figure would serve only as a ceiling beneath which "the actual rates charged would depend upon prevailing market conditions and the relative bargaining strength of the parties involved."12/ This same fact that the statutory rate is a ceiling had also been emphasized by the Register of Copyrights in his Report (Part 6) to the House of Representatives in 1958:

... If the present 2 cents ceiling is raised, licenses could still be negotiated at 2 cents or less if current market conditions did not justify more; and if a higher ceiling resulted in negotiated licenses at more than 2 cents, it could well be argued that a 2 cents ceiling had proved to be too low." 13/

The copyright proprietors sought as a matter of equity to restore in the Senate Subcommittee the concept of a percentage royalty rate ceiling 8% of the suggested retail list price instead of a fixed rate; but this effort was again defeated by the record industry.

Finally, in 1974, the Copyright Revision bill which was reported by the Senate Judiciary Committee and passed by the Senate returned to the 3¢ ceiling originally recommended by the Register of Copyrights and introduced in the House back in 1964. That bill has been reintroduced in both Houses this year.

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PART III.

THE ECONOMIC CONSEQUENCES

OF A 4 CENT CEILING

Costs

As pointed out in Part I, raising the ceiling will only increase the room for negotiations. It will not weaken a record company's bargaining position, automatically raise any actual rates or costs, guarantee any return to composers or enable the kind of song that was previously unable to earn 2¢ to suddenly earn more. Only the kind of song that has been penalized by the 2ť ceiling because it deserved and could have earned more if the parties had been free to bargain for more will definitely be affected. Equally obvious is the fact that all existing licenses which specify a figure will remain at their present level, averaging as noted above less than 2¢.

For these reasons there is simply no basis whatsoever for record industry assertions -- on which all their dire calculations appear to be based that an increase in the statutory ceiling of 2 cents would automatically result in a proportionate increase in the cost of music for their industry, their consumers, and their customers in the jukebox industry. The 1969 Library of Congress Report to the Senate Judiciary Subcommittee politely termed "highly conjectural" the record industry's contention that "an increase in the statutory rate would simply involve an automatic and proportional increase in existing mechanical royalty fees."14/

Moreover, in the light of both record company profits and the prevalence (acknowledged by the RIAA testimony of 1965) of retail record discounting, the record industry's insistent claim that all royalty increases plus mark-ups as well -- will be passed on to the consumer (including the juke-box industry) is simply unsupportable. But even if we were discussing a guaranteed 4¢ rate instead of a ceiling, even if every song on that typical 10 song record were now paid at the ceiling rate and would all be paid at the new 4 cent ceiling, even then that increase of 1-1/2¢ per song over the 2-1/2€ per song set by the House Committee in 1966 would constitute at most a cost increase of only 15€ per record.15/

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A maximum 15€ per record increase

only 2% of today's typical $6.98 list price over a decade during which the cost of living has risen more than 70% is hardly exorbitant.

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a maximum 15€ per record increase is only 5% of the total amount by which the industry has increased the price of that typical record over the last 10 years.

a maximum 15€ per record increase (a 4¢ instead of a 2-1/2¢ royalty per song) would still give those who created the music a much smaller share of the current purchase price per composition on today's typical 10 song album than the original 2-1/2¢ per song would have given us on the typical 12 song album back in 1965. (Nor, as already demonstrated, would that 4¢ today purchase as much as 2-1/2¢ would purchase in 1965.) 16/

Prices

Indeed it is the record industry's own history of price increases over the last ten years that destroys the credibility of its renewed protestations on the consumer's behalf. Before the Members of the House and Senate Judiciary Committees consider this year's presentation of economic prophecy by the Recording Industry Association of America and its consultant Professor Glover, they should contemplate their Judiciary Committee's summary of the same predictions made by the same Association using the same consultant to the House and Senate in 1964-1967:

"On the basis of the situation existing at the
time of the hearings, the record producers
predicted an increased price to consumers of 20
cents per $3.98 longplaying record, or a total of
possibly $ 30 million per year, if the statutory
rate were raised to 3 cents. This prediction
assumed that the record manufacturer could not
absorb any of the 12-cent increase on a record
containing 12 selections, and that record marketers
in turn would have to pass the increase on down
the line to the consumer, with each distributor
adding an increment to his price because of his
added costs and risks. Moreover, the record
producers forecast that the variety of musical
offerings would be restricted; that the quality of
musical offerings would deteriorate; that composers,
especially unknowns, would find fewer opportunities
for having their works recorded; that record
manufacturers would have to avoid risks on new and
unusual compositions, reduce the number and length
of selections, record fewer serious works, and
rely more on the public domain for popular material."
17/

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