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(1) Consumer Price Index (CPI) for July 1975, U.S. Department of Labor. (2) The value for 1975 was obtained by multiplying 2.5¢ by 0.582, the ratio of the CPI for 1965 to the CPI for July 1975. (3) The value for 1975 was obtained by multiplying 2.5¢ by 1.717, the ratio of the CPI for July 1975 to the CPI for 1965. (4) For current dollar figure, survey by Robert R. Nathan Associates of royalty payments made through the Harry Fox Agency in the fourth quarter of 1974. This survey covered the sale of 145 million recorded songs. The 1965 figure is based on a similar survey for the second quarter of 1965, which covered 32 million songs. The 1975 survey included the twenty largest publishers for each of the three largest record companies. The value for 1975 in 1965 dollars was obtained by multiplying 1.62¢ by 0.612, the ratio of the average CPI for the second quarter of 1965 to the average CPI for the fourth quarter of 1974. (5) Contract scale of American Federation of Musicians (Local 802, New York). (6) As reported by the Federal Pay Advisory Commission. (7) Prices of the top 200 best selling albums as reported in Billboard, the industry trade journal, for May 5, 1965, and January 4, 1975. It should be noted that the price of a typical tape in January 1975 was $7.98. Tapes account for about 30 percent of the total sales of all recordings, thus the average price per recording is more than $7.25. (8) Based on a count of songs on the best selling albums listed in Billboard. (9) Column (7) divided by column (8). (10) 2.5¢ divided by column (9). (11) Values are for 1964 and 1974. For 1974: Record World, June 7, 1975, page 3. For 1964: Billboard 1972-73 International Music-Record Directory, page 9. (12) Values are for 1964 and 1974. As stated by the Recording Industry Association of America in material submitted to Congress. RIAA also alleges that royalty payments totalled $77.1 million in 1973. However, it appears that the RIAA data over state total royalty payments for the following reasons:

a) In the 1974-75 International Music-Record Directory, Billboard made the following estimates for 1973:

292 million record albums and tapes sold

193 million single records sold With 10 songs per album or tape, 2 songs per single record, and a maximum royalty of 2¢ per song:

$58.4 million maximum royalties on albums and tapes
$ 7.7 million maximum royalties on single records

$66.1 million maximum royalties
Thus even if all royalties were paid at the ceiling rate (which.
they are not, as shown in 14]), total payments could not have

amounted to more than $66.1 million in 1973, or $11 million less than the RIAA figure.

b) In their news release about 1974 sales (Record World, June 7, 1975) the RIAA indicated that the total dollar volume of recording sales rose by more than 9 percent in 1974, but that the number of units sold decreased as a result of the sharp rise in record prices. Because royalties depend on the number of units sold, not on the total dollar volume, total royalty payments would have fallen in 1974, not risen by 8.3 percent as alleged by the RIAA. The data for 1974 show the obvious fallacy in the RIAA argument that composers and publishers have benefitted greatly from the increase in the dollar volume of record and tape sales. Much of this increase, especially in recent years, has been the result of higher prices, not of an increase in the number of units sold. (13) Combined author, composer, and lyricist dues-paying, workpublished memberships of American Society of Composers, Authors, and Publishers (ASCAP) and Broadcast Music Incorporated (BMI), on June 30, 1965 and June 24, 1975. (14) For the values in current dollars, column (11) multiplied by column (12) divided by column (13). The value for 1975 in 1965 dollars was obtained by multiplying $2,362 by 0.582, as in (2). (15) For 2.5¢ in 1965, from column (10). For 4.0¢ in 1975, obtained by multiplying 4¢ by 10 (songs per album), and dividing by $6.98. (16) For 4.0¢ in 1975, obtained by multiplying 4¢ by 0.582, as in (2). (17) 15¢ divided by $6.98. (18) 15¢ divided by $3.00 ($6.98 minus $3.98).

ROBERT R. NATHAN ASSOCIATES, INC.,

Washington, D.C., October 24, 1975. Congressman ROBERT KASTENMEIER, Rayburn House Office Building, Washington, D.C.

DEAR CONGRESSMAN KASTENMEIER: I testified on September 11, 1975, before the Subcommittee on Courts, Civil Liberties, and the Administration of Justice of the Committee on the Judiciary on behalf of the National Music Publishers' Association. During this testimony Congressman Wiggins asked for my evaluation of Exhibit E on page 13 of the summary statement of John D. Glover on behalf of the Recording Industry Association of America (RIAA). This exhibit is titled "Mechanical royalties paid per released tune outpace inflation and median family income, 1963 vs. 1972.” I had not seen this exhibit prior to the hearing of September 11, and thus I was not able to provide an evaluation of it at that time.

I have now had an opportunity to analyze this exhibit and the supporting material in the full statement by John D. Glover. I believe that this exhibit is very misleading. There are two general reasons for my belief :

(A) Questions about the exhibit itself

(B) Omission of important factors relevant to the Subcommittee's consideration of this matter.

With regard to (A), in order to calculate mechanical royalties paid per released tune, obviously it is necessary to have data on total royalty payments and on the number of released tunes. We do not have sufficient data to estimate the total amount of royalties actually paid. However, we believe that the estimates presented by Mr. Glover overstate the level of royalty payments in recent years. On page 43 of his statement Mr. Glover estimates that total mechanical royalties paid by U.S. record makers were $78.2 million in 1972. But even if all royalties were paid at the 2¢ ceiling rate (which they are not, as shown conclusively in the joint statement of the American Guild of Authors and Composers (AGAC) and the National Music Publishers Association (NMPA), and confirmed by data in Mr. Glover's analysis), total payments could not have amounted to more than $62.7 million in 1972, which is $15.5 million less than Mr. Glover's estimate."

Regarding the number of releases, Mr. Glover cites Billboard as the source, but no dates are given, thus I have been unable to examine the validity of his statistics on this.

It appears that Mr. Glover may have purposely selected 1963 and 1972 as the years for comparison in order to be able to draw the conclusions he desired. Accepting for the moment Mr. Glover's data on total royalty payments, the conclusions differ dramatically if more relevant points of comparison are used. For example, over the last three years for which data are available : Consumer Price Index has risen by 30 percent.” Median family income has risen by 25 percent. Record prices have risen by 28 percent. Record sales have risen by 26 percent.

Record companies' profits have risen by 42 percent (by the industry's own data, on page 157 of Mr. Glover's statement).

Royalties have risen by only 2.6 percent (based on the data on page 54 of Mr. Glover's statement). If the number of releases has remained approximately constant, then royalties per release would also have risen by only 2-3 percent.

It is especially misleading to make statements about inflation using data no more recent than 1972. In the last 10 years the Consumer Price Index has risen by 73 percent, nearly twice the 37 percent shown by Mr. Glover in Exhibit E.

1 In the 1973–74 International Music-Record Directory, Billboard made the following estimates for 1972, from RIAA date: 277 million record albums and tapes sold ; 183 million single records sold.

With 10 songs per album or tape, 2 songs per single record, and a maximum royalty of 2¢ per song : $55.4 million maximum royalties on albums and tapes ; $7.3 million maximum royalties on single records ; $62.7 million maximum royalties.

? As reported by the Bureau of Labor Statistics.

3 U.S. Department of Commerce, Bureau of the Census, Current Population Reports, Series P-60. No. 99, July 1975, table 2, p. 7.

* Of the Billboard list of 200 best selling albums for Jan. 15, 1972, 81 were listed at $4.98, 110 at $5.98, and 9 at $6.98, yielding an averdage $5.62. On the Billboard list for Jan. 4, 1975 1 was listed at $3.98, 23 at $5.98, 157 at $6.98, 5 at $7.98, 1 at $8.95, 5 at $9.98, 6 at $11.98, and 2 at $12.98, vielding an average of $7.17.

5 From $1,744 million in 1971 to $2,200 in 1974, as reported on p. 6 of the Billboard 1975–76 International Music-Record Directory.

In fact, Mr. Glover admits that his estimates of royalties per tune are not accurate (page 41). He believes that his estimate of the trend is accurate, but obviously one cannot obtain an accurate estimate of a trend from two inaccurate estimates of the level of royalties per tune.

It is very important to note that in his calculation of royalties per release Mr. Glover includes royalties paid in 1972 on tapes released (page 43) but does not include the number of tapes released. This obviously and substantially overstates royalties per release in 1972. It also overstates the trend in royalties per release, because tapes were not available in 1963 but they accounted for 28 percent of total record and tape sales in 1972. That is a big factor in rendering the Glover figures invalid.

As eloquently stated by composers Marvin Hamlisch and Eubie Blake in their testimony before the Subcommittee, even the royalties paid on a best seller have been and continue to be woefully inadequate, whether the song be "I'm Just Wild about Harry" in 1921 or "The Way We Were” in 1971.

With regard to (B), Mr. Glover omitted the following important facts, which should be taken into account by the Subcommittee :

(1) In terms of purchasing power, royalties per songwriter have fallen by more than 40 percent in the last ten years (as indicated in column 14 of the summary table in the statement of AGAC and NMPA).

(2) The total dollar volume of record sales has nearly tripled in the last ten years (as indicated in column 11 of the summary table in the statement of AGAC and NMPA).

(3) List price per song on a typical album has risen by 112 percent in the last ten years (as indicated in column 9 of the summary table in the statement of AGAC and NMPA). The actual retail price per song on a typical album has risen by 142 percent in the last ten years. The price per song on a typical album which is charged to distributors by record companies has risen by 136 percent in the last ten years. Thus, however one looks at it, record prices have risen sharply. During this time, the mechanical royalty ceiling has remained fixed at 2¢, and the average royalty actually paid has risen only 7 percent, from 1.51¢ to 1.62¢, (as indicated in column 4 of the summary table in the statement of NMPA and AGAC). Sincerely,

ROBERT R. NATHAN,

President.

NOVEMBER 6, 1975. SUPPLEMENTARY STATEMENT OF THE AMERICAN GUILD OF AUTHORS AND COMPOSERS

AND THE NATIONAL MUSIC PUBLISHERS ASSOCIATION SUBMITTED TO THE HOUSE JUDICIARY SUBCOMMITTEE ON COPYRIGHT WITH REGARD

TO SEC. 115 OF H.R. 2223 As promised during the hearing on September 11, 1975, we have reviewed the “report” on Sec. 115 of H.R. 2223 submitted on that date by John D. Glover on behalf of the Recording Industry Association of America (RIAA). With all due respect to Dr. Glover and his employers, we submit that this “report” provides no basis for a meaningful analysis of the economic issues inherent in the Sec. 115 dispute. 1. The use of irrelevant data

A. Dr. Glover attempts to use 1909 as a base year for those calculations that thereby favor his employers. This borders on the absurd. No reliable data for 1909, consistent with either 1975 statistical information or with the modern structure of the music industry, can be derived from available sources. Were we to follow that path, we would note that a 12 cent ceiling would be necessary today to restore the purchasing power of a 2 cent ceiling in 1909.

* On p. 53 of the 1965 statement of John D. Glover on behalf of the Record Industry Association of America, it was indicated that an album listed at $3.98 typically was sold at retail for $2.83, or 24¢ per song on the prevalling 12-song album. On p. 65 of the 1975 statement of John D. Glover, it is stated that an album listed at $6.98 typically sold at retail for $5.77, or 58€ per song on the prevailing 10-song album.

On p. 59 of the 1965 statement of John D. Glover on behalf of the Record Industry Association of America, it was indicated that an album listed at $3.98 typically was sold by the record company to the distributor for $1.70, or 14¢ per song on the prevailing 12song album. On p. 65 of the 1975 statement of John D. Glover, it is stated that an album listed at $6.98 typically is sold by the record company to the distributor for $3.33 or 33€ per song on the prevailing 10-song album.

57-786–76—pt. 3—17

B, Dr. Glover also uses supposed 1909 statistics to support his claim that the price per recorded tune is down and the copyright owner's share up. The more relevant question is what happened to these admittedly important yardsticks as a result of the traumatic changes of the last 10 years since the House passed the 2.5 cent ceiling. We acknowledge the undue conservatism of our previous statement (in column 9 of our "summary table") that the price per song on a typical album had risen by 112 percent over the last 10 years. That referred to list prices. According to Dr. Glovers' own data, in the last 10 years the actual retail price per song on a typical album has risen by 142 percent, and the price charged by record companies to distributors has risen by 136 percent.”

C. Dr. Glover attempts to conceal the low level of mechanical royalty rates by including the income of composers and publishers from other sources, such as performance fees and foreign royalties.” He failed to tell the Subcommittee how these figures were relevant, how he arrived at his estimates or why some of his mathematics were garbled."

D. Dr. Glover attempts to plead poverty for the RIAA by citing questionable figures (see Item 5D, page 9) about recordings that fail to make a profit. Even if his data were accurate, it would be irrelevant in view of the record industry's stated policy of recovering through a few best selling records their losses on any others. In fact, there is limited overall risk in the record industry, as indicated by the steady uptrend of sales year after year, even in periods of recession. There are a lot more impoverished song writers, and a lot more songs which fail to be recorded at all, no matter how much time and effort their authors and publishers invest in them. 2. The use of unreliable data

Dr. Glover attempts to base most of his analysis on a "survey" of record companies conducted by his own company, the Cambridge Research Institute. Yet the letter accompanying the questionnaire was an open invitation to submit biased information. It is thus small wonder that he concludes that total mechanical royalty profits for 1973 were $77–82 million, despite the fact thateven if all royalties were paid at the ceiling rate (which his own renort can. firms not to be the case)—total payments for 1973 according to the RIAA's own data at the time could not have exceeded $66.1 million." 3. The use of unsubstantiated assumptions

A. Dr. Glover's key allegation—that an increase in the royalty ceiling from 2 cents to 3 cents would automatically lead to an increase in royalty payments of $47 million -is based on the assumption that all royalty rates would rise by 50 percent or even more. There is absolutely no basis for assuming that all payments would rise proportionately with any change in the ceiling level, or

10

1 P. 6 of the Glover statement of 1975.

"On n. 53 of the 1965 statement of John D. Glover on behalf of the RIAA it was indicated that an album listed at $3.98 typically was sold at retail for $2.83, or 24 cents per song on the prevailing 12 song album ; on p. 65 of Dr. Glover's 1975 statement it is stated that an album listed at $6.98 typically is sold at retail for $5.77, or 58 cents per song on the prevailing 10 song album. On p. 59 of Dr. Glover's 1965 statement it was indicated that an album listed at $3.98 typically was sold by the record company to the distributor for $1.70, or 14 cents per song on the prevailing 12 song album : on p. 65 of Dr. Glover's 1975 statement it is stated that an album listed at $6.98 typically is sold by the record company to the distributor for $3.33, or 33 cents per song on the prevailing 10 song album.

3 Performance fees, it should be added, do not depend on th existence of recordings. While performances on local radio today are almost invariably from recordings, if there were no recordings, these nerformances would either be live or from the electrical transcriptions which in the 1930's and 1940's were the mechanical means by which radio stations broadcast music.

4 On p. 39 of his statement, the percentage increase in the last two rows of the fourth column is overstated by 100 percent. The corresponding references on pp. 40 and 41 are also in error.

5 Pp. 20–21, 73–77, 162.

enn a poonla album selling 1 million copies, record company's profit is $1.06 million, according to the data on p. 162 of Mr. Glover's statement.

7 Record companies were told in advance that the very purpose of the survey was to "Illustrate the severe impact on the record industry of raising mechanical fees." P. 128. 8 P. 39.

In the 1974–75. International Music-Record Directory, Billboard reported that the RIAA made the following estimates for 1973: 292 million record albums and tapes sold; 193 million single records sold; with 10 songs per album or tape, 2 songs per single record, and a maximum royalty of 2 cents per song: $58.4 million maximum royalties on albums and tapes ; $7.7 million maximum royalties on single records ; $66.1 million maximum royalties.

10 Pp. 15–17 et seq.

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