al radio stations what they call promotion people, and these people's total job is to get you, the broadcaster, to play the record that they are pushing at that time, and it may be a different record every week, but thousands and thousands of dollars are expended in this effort.

In addition to that, all sorts of promotions are figured out by the record company. One of the hit songs today, "Pina Colada," has a whole promotion going throughout the country, in which the record company has come up with the idea of having the performer of this record, the artist, in fact on a boat in south Florida take a cruise, and the various radio stations have a contest to decide who gets to go, and then they send the people down there, totally and utterly paid for by the record company, not illegal, not payola, in the sense that the record company barters this out, so to speak, with the radio station for time. The radio station gives the record company time in order to pay for this contest.

In addition, the amount of money that is spent by the record companies in trade publications, which are read and are made to influence the industry. They spend hundreds and thousands of dollars every week, and millions of dollars a year in this advertising, just to reach the broadcaster. This has nothing to do with the consumer, because they are strictly trade publications, and yes indeed, they do advertise on the air of radio stations, and why do they? They do in order to sell their records, which is exactly what the radio stations do, and the commercials, another aspect of that which was discussed earlier today, was the aspect of the name of the record company when a record is played.

Well, the truth of the matter is when a commercial is aired, yes, the name of the record company has to be in there, because that is FCC law. However, the fact is when they buy commercials, they are not promoting the name of their record company. They are promoting that record that they are trying to sell. That is what they are after, not just selling an individual record company.

The efforts are not necessarily illegal efforts derived out of payola, plugola, rugola, or whatever, but they are purely legitimate promotional practices, which include a network of these regional PR representatives, and the extent of the record company's investment in these practices makes it obvious that they receive without payment to the broadcaster as being very valuable, and I can state as a broadcaster that it is impossible for a popular record to be a major hit today without radio airplay.

As noted above, the existing regulatory system does not permit broadcasters to charge for this effective but free advertising time. For instance, it also should be noted that with the Government forcing the broadcaster to pay artists for airplay, it is conceivable that the existing amicable relationship between broadcasters and artists could become adversary in nature, with the broadcaster forced to consider means by which the imbalance might be corrected.

Another example of what can happen here is what is called cutting the play list of a radio station, in order to stop the payment, if this bill were enacted. Radio stations many times play additional amounts of records as part of the amicable relationship between the record company and the radio station, in order to

expose product, and many times that is not always in the interest of a radio station. It has been proven over many years that tight play lists, as they are called in the industry, meaning a small number of records, indeed creates good numbers in the rating books, which indeed create high dollars for the radio station, so it means playing less records.

Given the present regulatory structure governing broadcasters, it is difficult to say what other means might be available to them. Nonetheless, it strikes us as broadcasters that something is wrong when it is proposed that a satisfactory self-regulating system based on amicable relationships and mutual benefits should be thrown out and a one-sided, bureaucratically controlled system be established in its place. This is especially true in light of the fact under the present system of broadcast regulations broadcasters are not in a position to take the obvious responsive action; that is, to start charging for airplay.

As we have stated in the past, it adds injury to insult when broadcasters already prohibited from receiving money must, under the proposal, pay money to the very people who would be willing to pay them, a 180-degree reversal of the free marketplace concept. This is an inequity in the highest order. It really is not in the interests of our system of the broadcaster or of the artist.

Thank you, Mr. Chairman. I failed to ask that the testimony be put in the record.

Mr. KASTENMEIER. Thank you, Ms. Kaplan. Without objection your testimony will be received and made part of the record. [The statement of Ms. Kaplan follows:]

COMMENTS OF THE NATIONAL RADIO BROADCASTERS ASSOCIATION RELATIVE TO PERFORMANCE RIGHTS FOR SOUND RECORDINGS

(By Sis Kaplan, President)

The National Radio Broadcasters Association ("NRBA"), a non-profit trade association representing approximately 1,200 AM and FM radio broadcast stations throughout the United States, has previously made known its strenuous opposition to any legislation which would require radio broadcast stations to pay recording companies, performers and/or producers (who, for ease of reference, will hereinafter be referred to collectively as "artist") for playing their recorded product on the air. As we have noted in the past, any such requirement would represent a step backwards, a counter-productive effort working against the public's interest in shifting the focus of government away from over-regulation and away from Washington. Further, it would intrude upon the competitive marketplace situation which has evolved, and would upset the delicate balance between the respective interests of broadcasters and artists which the marketplace has nurtured.

If there is one trend which has in recent years been apparent throughout America, it is the trend away from centralized, bureacratic regulation. The American people have tired of the notion that every aspect of their lives-business or otherwise-must be subject to the whims of a faceless bureaucratic structure. And yet, despite this obvious trend, the present bill would in effect create a new bureaucratic structure, to be grafted onto the existing copyright bureaucracy. The new structure, while apparently intended to aid artists, would interpose a system of government collection and government payment between the artists and those from whom royalties might be expected.

As a "middleman" in the system, the government would obviously exact its percentage of the deal. Whether or not the government would be able to fulfill this role efficiently is, at best, an open question. But what is of greater concern to the NRBA is the fundamental question of how the proposed performers' rights bill might adversely affect the existing relationship between artists and, in particular, radio stations.

As we have explained to this Subcommittee in testimony relative to previous attempts to create a performers' right, the present relationship between artists and radio stations is essentially symbiotic. That is, both parties appear to be contributing something to the relationship while deriving satisfactory benefits therefrom. The artist provides recorded music which the broadcaster may use to attract an audience. Of course, the broadcaster's ability to attract an audience enhances his or her ability to sell advertising time. In return, if a broadcaster chooses to air an artist's record, that artist automatically receives valuable publicity by virtue of the fact that his or her record is being brought to the attention of an entire audience. This type of publicity cannot be bought, but its value is unquestioned.

Because of the two-sided nature of this arrangement, with both artist and broadcaster giving something and receiving something, there has been no need for government intervention. For some reason, however, a need has now been perceived to translate one side of the arrangement into dollars. As a result, under the proposed bill, broadcasters would be required to pay artists for the recorded product used by their stations. However, no provision is included which would permit broadcasters to translate the other side-that is, the de facto advertising time which artists receive for free as a result of airplay-into cash for broadcasters. And indeed, the present system of regulation under which broadcasters operate prohibits them from charging for this extremely valuable air-time. As a result, the instant proposal is, in our view, inequitable to the highest degree.

Perhaps the extent of the inequity involved can be illustrated through some figures. Let us assume that broadcasters were permitted to, and chose to, charge artists for the advertising value derived from the playing of their records on the air. About a year and a half ago, we asked a number of our member stations to carefully log the number of records they played during a normal week as part of their entertainment programming. We also asked them, in turn, to calculate the commercial value of the time which was thus dedicated to the artists' product. The responses we got were staggering. The values, we were told, ranged invariably in the six figures, with one station reporting a weekly value in excess of $475,000.

The benefits which artists derive from the broadcast of their music have not been ignored by their record companies. Weekly, and even daily, the major record companies engage in a massive promotional effort aimed at getting their records played on the air. I am not referring here to the normal purchase of advertising time which is, in itself, substantial. Rather, I am talking about efforts specifically directed toward getting broadcasters to add certain songs to the station's playlists. These are not necessarily the illegal efforts, such as payola, plugola, or drugola, which have been a cause celebre from time to time in the past. These are purely legitimate promotional practices which include a network of regional PR representatives, provision of free records to stations, promotion of contests and the like. The extent of the record companies' investment in these practices makes it obvious that they view broadcast airplay-which they receive without payment to the broadcaster-as being very valuable. Indeed, I can state that it is impossible for a record to become a major hit without radio airplay.

As noted above, the existing regulatory system does not permit broadcasters to charge for this effective, but free, advertising time. Nor would such charges necessarily be desirable, particularly as long as the records themselves, and their use, are provided to the stations for free. That, of course, is simply one of the natural features of the present mutually beneficial system, which has operated and continues to operate quite well without government interference. But the instant proposal would bring the government into the system, and thereby disrupt the balance of interests which has developed. For instance, with the government forcing broadcasters to pay artists for airplay, it is conceivable that the existing amicable relationship between broadcasters and artists could become adversarial in nature, with broadcasters forced to consider means by which the imbalance might be corrected. Given the present regulatory structure governing broadcasters, it is difficult to say what other means might be available to them. Nonetheless, it strikes us as broadcasters that something is wrong when it is proposed that a satisfactory, self-regulating system based on amicable relationships and mutual benefits should be thrown out, and a one-sided, bureaucractically-controlled system be established in its place. This is especially true in light of the fact that, under the present system of broadcast regulation, broadcasters are not in a position to take the obvious responsive action, that is, to start charging for airplay. As we have stated in the past, it adds injury to insult when broadcasters, already prohibited from receiving money, must, under the proposal, pay money to the very people who would be willing to pay them, a 180 degree reversal of the free marketplace concept. This is inequity of the

highest order, disserving broadcasters and artists alike. Accordingly, the NRBA urges that the proposal be rejected.

Respectfully submitted.

Mr. KASTENMEIER. Last, the committee would like to hear from Mr. Popham representing the National Association of Broadcasters.

TESTIMONY OF JAMES J. POPHAM

Mr. POPHAM. Thank you, Mr. Chairman. My name is James Popham, assistant general counsel of the National Association of Broadcasters. The NAB is an association of radio and television stations, virtually all of whom are vitally interested in the proposed legislation to establish a performance right in sound recordings.

I would like to ask that my statement be entered into the record, and also that a study, which I will refer to later during my testimony entitled "A Study of Economic Issues in the Recording Industry," which has been prepared for NAB by James Dertouzos and Steven Wildman of the Department of Economics at Stanford University, along with a summary of that study, and a critique of some of the Copyright Office studies prepared by the same gentleman, also be included in the record.

Mr. KASTENMEIER. Without objection, the statement will be received and made part of the record, and the study to which you refer will also be received.

[See app. 2B at p. 699.]

[The prepared statement of Mr. Popham follows:]

STATEMENT OF JAMES J. POPHAM

Mr. Chairman, I am James Popham, assistant general counsel of the National Association of Broadcasters. The NAB is an association of television and radio licensees, many of whom are vitally interested in the proposed legislation to establish a performance right in sound recordings or "performers royalty".

As in the past, the NAB opposes the legislation that would establish a performers royalty. Beyond the constitutional questions raised so eloquently by Senator Sam Ervin of North Carolina in 1974, we submit that a performance right in sound recordings, as a matter of public policy, is unfair, unwise, and unnecessary.

We see no reason whatsoever to insert another layer of cumbersome, complex, and costly governmental intervention into the process of providing broadcast program service to the public-Governmental intervention which, I might add, would defy the wisdom and enlightenment reflected in the trend present in Congress and at the Federal Communications Commission to remove the heavy hand of government where its only function has been to provide meaningless solutions to nonexistent problems. Indeed, whatever the superficial or theoretical appeal of a performance right in sound recordings, a rational view of the true facts reveals that here is a case where without the shadow of a doubt, the government should stay out!

What the main focus of this committee should be then is the serious question of the "need" for a performance right and the real benefits to the public, if any, that it offers. The basic question is whether performers and record companies are adequately compensated in the absence of this right or must there be a further government intrusion and governmental disruption of the economic marketplace in order to "promote progress. . . in the useful arts."

It is our contention that performers and particularly record companies, are well compensated already for their efforts and thus there is no sound policy reason to establish a performers right. The revenues that would flow to performers and record companies if a performance right were established would, in fact, constitute an unwarranted windfall, offering no hope of public benefit.

During the revision process, the NAB retained Dr. Frederic Stuart of Hofstra University to study the relative extents to which the various parties to record

production, distribution and performance were compensated in the absence of the performance right.

With no performance right, only composers and publishers receive direct payment for broadcast performances through the present music/licensing agencies such as ASCAP and BMI. However, all parties, performers, publishers, composers and record companies share in the royalties from record sales. Based on revenue estimates from a random sample of records, Dr. Stuart found that performers and record companies received shares of revenues which exceeded those of composers and publishers. Dr. Stuart concluded that the performing artists were "well ahead" of composers and publishers in the distribution of income generated by the broadcasts and sales of records but still "far behind" the record companies.

Not surprisingly, the record industry conducted a similar study of its own. Not surprisingly, they were highly critical of Dr. Stuart's study. Not surprisingly, they found performers better compensated than record companies. What both studies showed quite conclusively, however, and what is most illuminating in the context of the present legislation, was that performers and record companies already garner the lion's share of the revenues from broadcast and sale of records. Whereas Dr. Stuart found that performing artists and record companies received 68 percent of the revenues, the recording industry's study found their share to range from 66 percent to 72 percent over the same period of time. In short, the only beneficiaries of this legislation already are the largest beneficiaries of the broadcast and sale of records.

If additional factual material is needed to throw light on the true financial condition of the performer, a new NAB study provides it. This study, done by Professors James Destouza and Steve Wildman of the Department of Economics at Stanford University, indicates that in comparison with incomes of the population in general, performers are doing relatively well. In 1976, the median household income for AFM and AFTRA members surveyed was $16,000 and $18,000 respectively, while for the population as a whole, the median household income stood at $12,686. On an individual basis for all industries, the average income was $11,623 while for AFM members it was $12,970 and for AFTRA $13,590.

The conclusion of the study is that at least among AFM and AFTRA members, the median incomes are higher than those of the population in general and hence it is difficult to understand how they can argue that the incomes of performing artists are low.

Furthermore, the Stanford Study indicates that if H.R. 997 would have cost the radio industry $15.2 million in royalty payments in 1975, as estimated, and if half of these payments went to the record companies leaving $7.6 million for recording artists (and assuming zero costs for distributing royalty payments) the 20,000 musicians in recording in 1975 would have received an average of about $250 each. In fact, it seems very likely that only about one-sixth of the performers would receive this much and quite probable that the bulk of the funds would go to the artists already in the upper income brackets. We doubt that the Congress believes it necessary to provide even more wealth for the major performing artists than they now obviously receive.

There remains an additional question concerning performer's compensation. It is possible, as the legislation attempts to do, to guarantee that performers do in fact receive additional money. Whatever the legislation may provide in terms of preserving the efficiency of the 50-50 split between performers and record companies, enactment of the performance right would not alter the overall bargaining positions of the two parties. We seriously doubt whether the performer's royalty payments ever could be isolated from the bargaining process. If, indeed, the record companies now have the upper hand, will they not be able to use their superior bargaining position to ultimately extract a bit more than what was intended—at the expense of performers and recording artists?

Furthermore, establishment of a performance right in sound recordings hardly will engender a greater need for performer's services, thus leading to greater employment among performers. Indeed, the Stanford Study reveals that while performer's compensation on an hourly or daily basis is high, the real difficulty is an oversupply of performers relative to the demand for their services. Thus, only a small percentage of them work full time as performers, a condition that this legislation would not address, much less correct.

Thus, it is impossible to believe that a performers right royalty would have any appreciable effect on the creative efforts of those producing and performing sound recordings today. Is there any doubt that successful performers and recording companies are well compensated already, and that the relatively small amount (com