from the second panel of witnesses consisting of Ms. Sis Kaplan, president of the National Radio Broadcasters Association; Mr. Hesch, president of the Amusement & Music Operators Association; and I understand Mr. Popham will represent the National Association of Broadcaster. Until then, the subcommittee stands recessed.

[Whereupon, at 12:35 p.m., the subcommittee recessed, to reconvene at 1:30 p.m., the same day.]

AFTERNOON SESSION

Mr. KASTENMEIER. The committee will come to order. This afternoon as the other panel on H.R. 997, performance rights in sound recordings, we have Sis Kaplan, president of the National Radio Broadcasters Association; Mr. Hesch, president of Amusement & Music Operators Association; and representing the National Association of Broadcasters is assistant general counsel, Mr. James Popham. Will you be good enough to come forward.

I understand that, Mr. Hesch, you have a time problem. I don't think we will be proceeding as long as we did this morning. I hope you will stay as long as you can. Accordingly, do you wish to proceed first?

PANEL OF OPPONENTS OF H.R. 997: JAMES J. POPHAM, ASSISTANT GENERAL COUNSEL, NATIONAL ASSOCIATION OF BROADCASTERS; SIS KAPLAN, PRESIDENT, NATIONAL RADIO BROADCASTERS ASSOCIATION, WAYNE E. HESCH, PRESIDENT, AMUSEMENT & MUSIC OPERATORS ASSOCIATION; NICK ALLEN, LEGAL COUNSEL, AMUSEMENT & MUSIC OPERATORS ASSOCIATION; AND BOB NIMS, NATIONAL PRESIDENT, AMUSEMENT & MUSIC OPERATORS ASSOCIATION

TESTIMONY OF WAYNE E. HESCH

Mr. HESCH. Mr. Chairman, I am Wayne E. Hesch, Past President and Chairman of the Government Relations Committee of Amusement & Music Operators Association, the national organization of operators of jukeboxes.

Also in attendance today is our national president, Bob Nims, who is seated behind me, along with Nick Allen, our legal counsel. I have a written statement that I would like to have entered into the file.

Mr. KASTENMEIER. Without objection, your statement will be received and made part of the record.

[The information follows:]

STATEMENT OF WAYNE E. HESCH, ON BEHALF OF AMUSEMENT AND MUSIC

OPERATORS ASSOCIATION

Mr. Chairman. I am Wayne E. Hesch, Past President and chairman of the Government Relations Committee of Amusement and Music Operators Association, the national organization of operators of jukeboxes.

I am here in behalf of the Association to oppose H.R. 997, a bill to amend the Copyright Law which would create copyright performance rights in sound recordings.

We are opposed to this legislation on two basic grounds. First, on grounds of the unfair economic burden upon jukebox operators. Second on grounds of principle.

I. THE UNFAIR ECONOMIC BURDEN UPON JUKEBOX OPERATORS

Let me say with all the emphasis I can express, the jukebox business is an economically unprofitable business, and Government royalty burdens, plus the oppressive regulations that are being imposed on us are accelerating that decline. This bill would add one more burden upon us, $1 per jukebox per year, that is certain to make more jukebox locations economically unprofitable. As a result fewer jukeboxes would be registered under the Copyright Act and the jukebox royalty pool would become correspondingly reduced. At the same time the bill would expand the numbers of royalty beneficiaries, adding record manufacturers and performers to other copyright owners to share in the reduced royalty pool.

Imposition of this new royalty upon jukebox operators would create a burden that would be most unfair to them at a time when they already face a redetermination of the $8 royalty rate in proceedings before the Copyright Royalty Tribunal that are to begin in 1980.

I want to emphasize to the Committee that jukebox operators are small businessmen, and that this industry continues in a depressed condition. This Committee recognized this fact in its report on the General Revision Bill in 1976 when it said: "The Committee was impressed by the testimony offered to show that shifting patterns in social activity and public taste, combined with increased manufacturing and servicing costs, have made many jukebox operations unprofitable." (Report No. 94-1476, page 113, on S. 22, September 3, 1976.)

I would like to remind the Committee that the jukebox business has declined to such an extent that Wurlitzer, one of the four American manufacturers of jukeboxes, stopped producing jukeboxes in 1974. A second manufacturer, Seeburg, filed for reorganization under the Bankruptcy Act on October 19, 1979, (Bankruptcy No. 39597-79, U.S. District Court, Northern District, Illinois, Eastern Division).

While the operators' costs are increasing drastically, the operators are not able to make changes in prices per play to keep pace with those increases. In some businesses, prices can be increased by merely changing the price tag, and the changes may not be noticed. In the jukebox industry, however, it is a matter of reducing the number of songs a customer can play for 25 or 50 cents, and also of changing the coin receiving mechanism on every one of the operators' machines. Also, the location owner must be consulted and his consent obtained to any price rise as he can object to any change that he considers to be detrimental to his business. Prices of two plays per quarter or 5 plays for 50 cents are an accepted standard in most areas. In a few areas operators are starting to charge 4 plays for 50 cents. In other areas jukeboxes can still be found priced at 7 plays for 50 cents.

In accordance with U.S. Bureau of Labor Statistics Information, based on the year 1940, it would take $5.53 today to purchase the same amount of goods that was purchased by $1 in 1940. Proportionately, it would take 28 cents per play on a jukebox to realize the same income as was realized in 1940 at 5 cents per play. In my company's operations in Northern Illinois we have charged the following prices per play: before 1953, 5 cents per play; from 1953 to 1969, one play for 10 cents, or 3 plays for 25 cents, or 7 plays for 50 cents which averaged 83 cents per play; from 1969 to 1979 our charge was 2 plays for a quarter, 5 plays for 50 cents, and eleven plays for $1.00, for an average charge of 10 cents per play. At the present time we are starting to change our prices to 4 plays for 50 cents, or 9 plays for $1.00 for an average charge of 122 cents per play. This, the committee will note, is an increase of only 4 cents per play, or an increase of approximately 50 percent over a period of 26 years. During this same period of time the Consumer Price Index has risen 172 percent. I believe our experience is typical of the experiences of jukebox operators generally. This gives the committee a clear picture of just how difficult it has been for jukebox operators to keep up with spiraling inflation.

Another problem of the operators has been the tendency of the record companies and the performing artists to turn out longer and longer records, that is, records that take longer and longer playing time. Up to about 12 years ago single records were only about three minutes long. Since then the playing time has been increased to as much as 61⁄2 minutes. Even the addition of one minute per song cuts down the number of records that can be played in one hour on a jukebox from 20 to 15, with a corresponding cut back in receipts. We still have this problem, and it is a serious one for us.

The conflicting and continuing pressures I have described have resulted in a general reduction in the level of operators' income from their operation of jukeboxes. This economic picture explains why almost all operators have diversified their activities by adding coin-operated amusement and vending machines to their jukebox operations. Coin-operated amusement games and vending machines now

constitute by far the greatest part of the operators' business and the jukebox has become a relatively small part of their business.

We wish to emphasize, therefore, the apprehension with which jukebox operators view any proposal that would create a new royalty and thereby increase their royalty burden under the Copyright Act. We believe the depressed condition of this industry demonstrates the unfairness of imposing any such added burden upon it. We submit that, in all fairness, jukebox operators should not be subjected to any increase in the $8 royalty, as this bill would do.

II. OUR OBJECTIONS IN PRINCIPLE

Record manufacturers, who are included among the beneficiaries of this legislation, cannot be considered as "authors" of "writings" within the terms of the Constitutional grant of authority to Congress, except by stretching those terms beyond their true meaning. Article 1, Section 8, Clause 8, confers upon Congress the power to legislate:

To promote the progress of science and useful arts by securing for limited Times to Authors and Inventors the exclusive Rights to their Respective Writings and Discoveries."

Even this Committee acknowledged at one time that record manufacturers (producers) do not always contribute a copyrightable element to a musical recording, when the Committee stated in its report on the General Revision Bill that there are "cases in which sounds are fixed by some purely mechanical means without originality of any kind," and added:

"The copyrightable elements in a sound recording will usually, thought not always, involved 'authorship' both on the part of the performers whose performance is captured and on the part of the record producer responsible for setting up the recording session, capturing and electronically processing the sounds, and compiling and editing them to make the final sound recording. There may, however, be cases where the record producer's contribution is so minimal that the performance is the only copyrightable element in the work, and there may be cases (for example, recordings of birdcalls, sounds of racing cars, et cetera) where only the record producer's contribution is copyrightable." (Report No. 94-1476, p. 56, on S. 22, September 3, 1976.)

While H.R. 997 does not define a record manufacturer as an "owner of copyright in a sound recording" or as an "author of a sound recording," it is unmistakeably clear, nevertheless, that they are intended to be included in those terms. By including all record manufacturing in this indiscriminate fashion, the constitutionality of the Bill is necessarily questionable.

We oppose the creation of a new performance right for record manufacturers and performers, also, on the ground that there should be but one performance right in the playing of a musical recording. If multiple rights are to be given statutory recognition with respect to the contributions that are asserted to be embodied in a recording, the most that can be claimed, we believe, is that playing of a record constitutes only one performance of all such rights. This is not just a matter of semantics. It is at the root ot the question posed by this legislation of whether Congress should create more than one performance right in the playing of a musical record-and so, impose upon jukebox operators two liabilities instead of one, as in the present law.

We oppose the proliferation of claimed rights of creativity in sound recordings, also, because this can open a pandora's box for the assertion of many more claims beyond those that are now covered by the definitions of the term "performers" in this legislation. In this connection, we note the failure to expressly include "record manufacturers" in the legislative definitions, thus requiring their coverage to depend upon interpretation of the legislative terms, "owner of copyright" and "author." An even more serious deficiency is the failure to attempt any definition that would identify those who serve the record manufacturers in ways that could be claimed as contributing creativity to their recordings. These ambiguities are matters of serious concern to jukebox operators as these operators are the ones who will bear the brunt of any further claims for performance rights that go beyond those that this legislation recognizes.

We submit that record manufacturers and performers do not need the enactment of a new royalty right. They traditionally have secured compensation for their recordings through contractually negotiated royalties. They really do not need added Congressional assistance to obtain fair compensation for their recordings. We earnestly hope, therefore, that the Committee will see fit to take no further action on this bill.

Thank you for giving us this opportunity to express our views.

Mr. HESCH. I will read part of the written statement and some other comments.

I am here in behalf of the association to oppose H.R. 997, a bill to amend the copyright law which would create copyright performance rights in sound recordings.

We are opposed to this legislation on two basic grounds. First, on grounds of the unfair economic burden upon jukebox operators. Second, on grounds of principle.

1. THE UNFAIR ECONOMIC BURDEN UPON JUKEBOX OPERATORS

Let me say with all the emphasis I can express, the jukebox business is an economically unprofitable business, and government royalty burdens, plus the oppressive regulations that are being imposed on us are accelerating that declined. This bill would add one more burden upon us, $1 per jukebox per year, that is certain to make more jukebox locations economically unprofitable. As a result, fewer jukeboxes would be registered under the Copyright Act and the jukebox royalty pool would become correspondingly reduced. At the same time the bill would expand the numbers of royalty beneficiaries, adding record manufacturers and performers to other copyright owners to share in the reduced royalty pool. Imposition of this new royalty upon jukebox operators would create a burden that would be most unfair to them at a time when they already face a redetermination of the $8 royalty rate in proceedings before the Copyright Royalty Tribunal that are to begin in 1980.

I want to emphasize to the committee that jukebox operators are small businessmen, and that this industry continues in a depressed condition. This committee recognized this fact in its report on the general revision bill in 1976 when it said:

The committee was impressed by the testimony offered to show that shifting patterns in social activity and public taste, combined with increased manufacturing and servicing costs, have made many jukebox operations unprofitable. (Report No. 94-1476, page 113, on S. 22, September 3, 1976.)

I would like to remind the committee that the jukebox business has declined to such an extent that Wurlitzer, one of the four American manufacturers of jukeboxes, stopped producing jukeboxes in 1974. A second manufacturer, Seeburg, filed for reorganization under the Bankruptcy Act on October 19, 1979-Bankruptcy No. 39597-79, U.S. District Court, Northern District, Illinois, Eastern Division.

While the operators' costs are increasing drastically, the operators are not able to make changes in prices per play to keep pace with those increases. In some businesses, prices can be increased by merely changing the price tag, and the changes may not be noticed. In the jukebox industry, however, it is a matter of reducing the number of songs a customer can play for 25 cents or 50 cents, and also of changing the coin-receiving mechanism on every one of the operators' machines. Also, the location owner must be consulted and his consent obtained to any price rise as he can object to any change that he considers to be deterimental to his business. I would also like to mention that we must also deal with the consumers, the customers' resistance to any increased price rise.

Prices of two plays per quarter or five plays for 50 cents are an accepted standard in most areas. In a few areas operators are starting to charge four plays for 50 cents. In other areas jukeboxes can still be found priced at seven plays for 50 cents.

In accordance with U.S. Bureau of Labor Statistics information, based on the year 1940, it would take $5.53 today to purchase the same amount of goods that was purchased by $1 in 1940. Proportionately, it would take 28 cents per play on a jukebox to realize the same income as was realized in 1940 at 5 cents per play. In my company's operations in northern Illinois we have charged the following prices per play: Before 1953, 5 cents per play; from 1953 to 1969, one play for 10 cents, or 3 plays for 25 cents, or 7 plays for 50 cents which averaged 8% cents per play; from 1969 to 1979 our charge was 2 plays for 25 cents, 5 plays for 50 cents, and 11 plays for $1, for an average charge of 10 cents per play.

At the present time we are starting to change our prices to 4 plays for 50 cents, or 9 plays for $1 for an average charge of 122 cents per play. This, the committee will note, is an increase of only 4 cents per play, or an increase of approximately 50 percent over a period of 26 years. During this same period of time the Consumer Price Index has risen 172 percent. I believe our experience is typical of the experiences of jukebox operators generally. This gives the committee a clear picture of just how difficult it has been for jukebox operators to keep up with spiraling inflation.

Location-owned jukeboxes have been increasing recently. This reduced the number of jukeboxes in the royalty pool. Independently owned machines are liable. However, the enforcement people have found it very expensive to bring these people into the pool. This hurts the jukebox operator on a competitive level, and it reduces the royalty pool that is proposed under the legislation. Another problem of the operators has been the tendency of the record companies and the performing artists to turn out longer and longer records, that is, records that take longer and longer playing time. Up to about 12 years ago single records were only about 3 minutes long. Since then the playing time has been increased to as much as 61⁄2 minutes. Even the addition of 1 minute per song cuts down the number of records that can be played in 1 hour on a jukebox from 20 to 15, with a corresponding cutback in receipts. We still have this problem, and it is a serious one for us.

Many people have the mistaken impression that the jukebox operator receives the records he uses free of charge. The operator pays for every record on each jukebox. We purchase in excess of 70 million records, and pay approximately $61 million each year for these records. From that $61 million, $3.8 million is channeled to the royalty owners annually. This does not include the $8 royalty under section 116. This amount represents only the mechanical royalties.

The conflicting and continuing pressures I have described have resulted in a general reduction in the level of operators' income from their operation of jukeboxes. This economic picture explains why almost all operators have diversified their activities by adding coin-operated amusement and vending machines to their jukebox operations. Coin-operated amusement games and vending machines now constitute by far the greatest part of the operators' business