While we anticipate Senate concurrence with the House's action, we also recommend for the Subcommittee's consideration the following additional matters:

(1) That the annual royalty for each particular jukebox be set at a figure not greater than eight dollars, if not lower, and

(2) That Section 116 be modified to permit the Register of Copyrights, by regulation, to allow a proportionate annual fee to be submitted with respect to a jukebox first put into operation sometime during the calendar year.

In addition, we shall discuss briefly several reasons why this Subcommittee should not consider favorably the amendment to S. 597 proposed by Senator Williams of New Jersey.

I. It has been demonstrated that the jukebox operators should not be required to pay, in all fairness, more than $4.50 in royalty per jukebox

The principal thrust of the testimony sponsored by the jukebox operators in opposition to the original Section 116 of S. 597 was a demonstration of its unworkability. Responding to the facts developed on that testimony, the Subcommittee urged the operators to develop a workable solution.

However, the initial testimony (by means of an extensive survey of the jukebox industry) additionally illustrated that this was far from being a rich man's industry.

Thus, G. Dewey Arnold of Price Waterhouse & Co. on March 17, 1967 disclosed that his firm's survey indicated that the average jukebox operator has 74 jukeboxes. The average net annual revenue collection of each operator was $10,732 a year or $894 a month. Reduced by a 6% return on an average investment of $61,887, or $3,713, and by $592 for the proposed Section 116 royalty, the owneroperator is left with $6,427 a year or $536 a month for salary and Federal and state income taxes.

Moreover, the smaller operators-those who own 50 machines or less and who constituted 54.2% of the total usable replies-reported even smaller earnings. Their reported average net annual revenue collections was only $4,966, or $414 a month. If the return is reduced by $1,422, representing a 6% return on a $23,709 average investment, and by $216 for the proposed Section 116 royalty, this owner-operator would have only $3.328 a year or $277 a month available for salary and Federal and state income taxes.

Even the average owner-operator of 74 machines derives an average revenue collection from each machine of only $9.82 a week after paying the location owner a similar amount. Also, the gross revenue collection from each machine, the amount that is shared equally by the location owner and the jukebox owneroperator, averages about $20 a week or $1,000 a year.

Further relevant data was adduced through the testimony of Perry S. Patterson on March 17, 1967, when he subjected the initial Section 116 rate to a comparison with the royalty rates paid by other music user industries.

A recent issue of Billboard disclosed that ASCAP's domestic revenues were about $39,600,000 in calendar 1966. Applying the relative percentages in ASCAP's receipts in 1957 to this total, about $35,000,000 came from the radio and television industry; $1,200,000 from bars, grills, taverns and restaurants; $1,070,000 from nightclubs and lounges; $610,000 from the hotels; $410,000 from dance halls, ballrooms, and skating rinks; $430,000 from wired music; $130,000 from symphonic and concert; and $880,000 from miscellaneous sources.1

According to the ASCAP standard Local Station Blanket Radio License, the 2.125% license fee charged such users is based on the "net receipts from sponsors after deduction." The "deduction" from revenues is up to 15% for advertising commissions and 15% for sales commissions. All compensation (above a minimum stated in the License) paid to the following personnel is also deductible: (a) a master of ceremonies or disk jockey on a musical program, (b) vocalist or instrumentalist engaged for a specific program, (c) featured newscaster and news commentator, (d) featured sportscaster, (e) master of ceremonies on an enter tainment program, or (f) announcer.

The BMI standard Statement of License Fee permits similar deductions, Consequently, ASCAP and BMI each permit a deduction in excess of 30% of broadcasting industry gross revenues before assessment of royalties.

According to data released October 18, 1966, by the Federal Communications Commission, radio and television had total gross revenues of more than 2% bil1 H. Rept. No. 1710, 85th Cong., 2d Sess., p. 4 (1958).

lion dollars for calendar year 1965. We can approximate that ASCAP's domestic revenues of $39.6 million included approximately (based on the 88.41 percentage reported in the 1958 House Report)" $35 million from radio and television. Thus, the royalties paid by the broadcasting industries to ASCAP were only 1.2 percent of the total revenue of broadcasting during 1965. For all performing rights societies the figure is probably 2% of gross revenue.

It is obvious that the royalty base used for the ASCAP 2.125 percent fee is not the full annual revenue of radio and industry but a figure one billion dollars less when the deductions of approximately 36% are taken into account. The royalty base appears to be only 64% of the annual revenue of the broadcasting industries. We can reasonably assume that BMI uses approximately the same base figure but with a royalty rate of about one-half that of ASCAP.

Assuming that the jukebox operators' share of the annual gross revenue is approximately $225,000,000 and applying to that figure which is 100% of the operator's gross share-the aggregate royalty rate for all performing rights societies which we have computed at 2%, the total annual royalty from jukebox operators should be approximately $4,500,000.

Actually, this royalty fee should, in turn, be reduced to take into consideration the substantial mechanical royalties paid by the jukebox operators. Jukebox operators purchase on the average 230 works per machine per year. Under Section 115's two and one-half cent royalty, the operators would pay a mechanical royalty of $2.702,500.

In short, on a basis comparative with the television and radio industries, net Section 116 royalty should be approximately $1.8 million.

In view of the fact that jukebox operators have been operating under an exemption since 1909, any greater jump in royalty would have a substantial and undesirable economic impact on the jukebox industry. The figure of $1.8 million then should be the royalty, which is approximately $4.50 per box annually.

In sharp contrast, H.R. 2512 Section 116 would require for a royalty payment per year of $8 per phonorecord player. Consequently, under H.R. 2512 the jukebox operators will be paying royalties (Section 115 and Section 116 royalties) of over $6,300,000. This is more royalties than the total paid by all domestic user industries, excepting radio and television. And, the jukebox operators will be paying a 20% greater rate of royalty than the radio and television industries.

Thus, if any change is made in the amount of royalty provided under Section 116, then comparative data indicate that such changes, to be equitable, must reflect a decrease in the statutory rate now proposed.

II. Section 116 should be amended to authorize the Register of Copyrights, by regulation, to allow a pro rata reduction in annual royalty with respect to jukeboxes first placed in operation sometime during the calendar year As we have demonstrated, the $8 per jukebox royalty places an essentially unequal burden on the jukebox industry as compared to the royalties paid by the other user industries. Some form of relief is in order. Absent a reduction in the $8 rate, we suggest that Congress at least should permit the Register of Copyrights, by regulation, to prorate the amount of royalty fee paid with respect to a jukebox if that jukebox is first placed into operation at some time during the year rather than at the beginning of the year.

For example, if the jukebox is not purchased, and not placed into operation until July 1, then only a $4 royalty should be required for that year.

This matter of proration is especially important to the jukebox manufacturers who, historically bringing out new models of jukeboxes in the fall of each year, fear that if no proration is permitted the operators will postpone all purchases until the month of January.

Our requested amendment could be effected by simply adding to the end of the sentence at Subclause 116(b)(1)(A) “or such portion thereof as shall be determined by the Register of Copyrights depending on when performances are first made available."

III. Full performing rights in sound recordings for performers is unwarranted, unfair, and without any basis in reason

On March 16, 1967, (the day we submitted our initial statements to the Subcommittee) Senator Williams of New Jersey announced his proposed amendment to S. 597. In general, the amendment provides for an exclusive right to perform

2 Id.

publicly a copyrighted sound recording. Royalties are paid at rates set by binding arbitration, without right of appeal, quarterly to the copyright owners (presumably the record companies). The record companies keep one-half the royalties and distribute the remainder to the performers. To lighten slightly the royalty load of the users, the Williams amendment would decrease the Section 115 royalty, payable to the composers and publishers, from “two and one-half cents, or onehalf cent per minute of playing time." to "two cents, or one-quarter cent per minute of playing time."

We submit that the proposed amendment should not be adopted.

History of exclusive right in public performance of sound recordings

The principle of an exclusive right in the public performance of sound recordings has been considered and rejected before.3

The first bill ever introduced in Congress which specifically included sound recordings as copyrightable work was H.R. 11258, submitted by Representative Perkins on January 2, 1965.*

This bill limited the rights of the manufacturer to making, copying, and vending, while implying that public performance and broadcasting rights would accrue to records reproducing public domain material. During the hearings, Nathan Burkan, counsel for ASCAP, testified in opposition to the compulsory licensing provision. He stressed the inequality in recording rights between the author, who was limited to two cents per record, and the performer, who could bargain freely for his remuneration. His argument was: if the compulsory license should be retained for authors, it should also be attached to the rights of record manufacturers in their records.5

Representative Vestal introduced similar bills in the years 1926 through 1931. On February 24, 1936, Representative Sirovich introduced a new general revision bill. In response to this bill during the hearings the idea of protection for performers was suggested by the National Association of Performing Artists. the American Federation of Musicians, and various individual performers and orchestra leaders."

Excepting the above and the record companies, nearly all opposed protection either for the performer or the manufacturer. The leading opponents were ASCAP, the broadcasting organizations, the Music Publishers Association, the jukebox manufacturers, and the motion picture producers, who argued that this would encourage the creation of a new licensing society which would cut off the people's supply of music, and that there were many practical difficulties in having to obtain licenses from more than one copyright holder. This would also represent a possibly unwarranted abridgment of the rights of the author-publisher groups.

In 1947, Representative Scott introduced H.R. 1270. Although the main purpose of the bill was to prevent copying of the record, the author-publisher groups offered strong opposition. It was based on their feelings that the aim of the bill was to prevent the broadcasting and public performance of records and that this, coupled with the compulsory licensing provisions of the present law. placed the author in an unjustly inferior position.10 Also opposed to this bill were the broadcasters, owners, the jukebox operators, and manufacturers, the authors league, and the motion picture producers and distributors.

Finally, the Copyright Office expressed opposition to the bill because of its technical deficiencies.

MORE RECENT STEPS

In response to the position of the American Federation of Musicians in oppos ing to the 1965 Copyright Revision because it would deny performers "a medium

3 See, generally, Comm. on the Judiciary, 86th Cong., 2d Sess., Copyright Law Revision, Study No. 26 (Comm. Print 1961).

5 Hearings on H.R. 11258, Before House Comm. on Patents, 68th Cong., 2d Sess. 180 (1925).

H.R. 11420, 74th Cong., 2d Sess. (1936).

7 Hearings on Revision of Copyright Laws Before the House Comm. on Patents, 74th Cong., 2d Sess. at 618-622, 632-645, 1363-1367 (1936).

8 Id. at 439-440, 486-489, 801, 1083. 1085–1086.

H.R. 1270, 80th Cong., 1st Sess. (1947).

10 Hearings on H.R. 1269, H.R. 1270, and H.R. 2570, Before a Subcomm. of the House Comm. on the Judiciary, 80th Cong., 1st Sess. at 18-19, 24-53, 61-76, 84-86, 267-285, 292-294 (1947)

of economic incentive and participation in the vast profits derived from the public performance of records. . "" the Register of Copyrights replied: "[P]roposals to this effect are strenuously opposed not only by those users who would have to pay additional royalties, but also by the owners of copyright in musical compositions who would probably get a smaller slice of the pie. Musical copyright owners also stress the argument that, since record producers enjoy a compulsory license at their expense, it would be fundamentally unfair to give the producers a copyright in their recordings under which they could claim a share of the performing royalties. Underlying these arguments is a further concern that, since performers contribute substantially to the aggregate of sounds fixed in a sound recording, the recognition of a performing right could introduce new and unpredictable factors of bargaining with performers into an already crowded and complicated copyright structure." 12

The House Committee on the Judiciary stated:

"Although there was little direct response to these arguments [for performance rights for performers], it was apparent that any serious effort to amend the bill to recognize even a qualified right of public performance in sound recordings would be met with concerted opposition. The committee believes that the bill, in recognizing rights against the unauthorized duplication of sound recordings but in denying rights of public performance, represents the present thinking of other groups on that subject in the United States, and that further expansion of the scope of protection for sound recordings is impracticable." 13

THE WILLIAMS AMENDMENT

Aside from the impracticability of a performance right in a sound recording, cogent and valid reasons which have been created over the years, the proposed Williams amendment has created serious problems which are reason alone for its rejection.

For example, Clause 117(b)(2) requires interested users to sign a royalty agreement or have consented to "binding arbitration by an independent private tribunal of any dispute." Binding arbitration without the right of a de novo appeal in a court could raise constitutional problems.1

Aside from that, all the advantages derived from the Section 115 compulsory licensing process for the works is lost under the procedure suggested by the Williams amendment." All of the jukebox operators' efforts to develop a workable procedure for paying royalties is lost. Under the Williams amendment, the users must negotiate with the record companies for royalties. The evils of negotiating with them are no less than the evils which were shown to you to exist at negotiations with performing rights societies.

The Williams amendment imposes on the Register of Copyrights an extraordinary administrative burden. To begin with, he must prescribe the procedural regulations for conducting the arbitration, Subclause 117(b) (2); prescribe regulations requiring the quarterly reports accompanying the royalty payments, Subclause 117(d)(1); and be depositor for funds to which performers are entitled, with all the responsibilities of a trustee, Clause 117(e). Additionally, under that Clause, he must then receive the claims of the performers, weigh them on their merits, distribute the money accordingly, and, of course, prescribe all the necessary regulations.

Subclause 117 (d) (1) also requires royalty payments accompanied by a "detailed statement of account." The jukebox owners have already demonstrated to this Subcommittee the unworkability of such a royalty payment method. This Subclause is no improvement over the outmoded procedure described in Section 116.16

The distribution procedure of Clause 116 appears to have been added as an afterthought. What is omitted, however, is the complex formula of distribution

11 Hearings on H.R. 4347, et al., Before a Subcomm. of the House Comm. on the Judiciary. 89th Cong., 1st Sess., ser. 8 Part 3, at 1387-1405 (1965).

12 House Comm. on the Judiciary 89th Cong., 1st Sess., Copyright Law Revision Part 6, at 51 (Comm. Print 1965).

18 H.R. Rep. No. 83, 90th Cong., 1st Sess. 65 (1967).

14 Cf. Cooke v. Des Moines Union Ry Co., 16 F. Supp. 810 (D.C. Iowa 1936); See, generally, 5 Am. Jur. 2d Arbitration and Award § 9: 55 ALR qd 440–449.

15 In the 1965 hearings "it became apparent that record producers, small and large alike, regard the compulsory license as too important to their industry to accept its outright elimination." House Comm. on the Judiciary, 89th Cong., 1st Sess., at 53 (Comm. Print. 1965).

10 The detailed statement of account must be mailed to every copyright owner.

that must be devised with respect to every recording. Initially, the Williams amendment-automatically and with out requiring any affirmative showing of entitlement-confers 50% of these new royalties on the record companies.

By contrast the distribution process for the remaining 50% creates a multitude of questions. For example, the "performers" are designated as "musicians, singers, conductors, arrangers, actors and narrators." (Section 3 of the amendment). Do these persons each receive an equal share of the royalty? Do they each receive a negotiated share based on their importance of their contribution to the end results? How are the shares weighted? These and other questions are thrown into the lap of the Register of Copy rights.

There is no direction given the Register regarding the manner of distribution. nor whether he may use any tribunal as assistance. In effect, the Register is constituted a governmental agency with the power to receive and analyze claims, then distrubute accordingly.

PERFORMERS ROYALTY IS UNFAIR IMPOSITION ON THE JUKEBOX OPERATORS

From the standpoint of the jukebox operator the Williams Amendment is particularly oppressive.

It is common knowledge that the groups whose records find their way to the top forty are paid as much as $10,000-$20,000-or even $30,000 a night. Compare this to the $6,427 that the average jukebox operator earns in one year of backbreaking work.

For records alone, the record companies pay the performers $38,043,000 for recording session costs, plus artists payments, plus payments to unions' pension funds, not including the performers' share of the $14,614,000 paid by record companies for purchased masters and records."

Consequently, the Williams Amendment proposes to have jukebox operators pay royalties to the recording companies and performers who already receive $48,160,000 in payments from records alone, let alone what the performers receive from television and radio appearances, personal appearances, and endorsements.

CONCLUSION

For the reasons stated above, we submit to this Subcommittee that if any change is to be made to the royalty fee in H.R. 2512, it should be as a decrease, that in the event there is no decrease of royalty, Section 116 should be amended so as to allow a prorating of fees for jukeboxes first placed into operation something during a year, and that the proposed Williams Amendment should not be adopted.

(The following correspondence is printed at this point of the record by order of the Chairman. Note the bill S. 597 referred to is the Health Science Library Assistance Act of 1965 enacted by the 89th Congress and should not be confused with S. 597 of the 90th Congress, the present Copyright Law Revision Bill.)

Dr. WILLIAM STEWART,

The Surgeon General, Public Health Service, Washington, D.C.

OCTOBER 7, 1965.

DEAR DR. STEWART: AS Chairman of the Senate Subcommittee on Patents, Trademarks and Copyrights, my attention has been directed to the recently passed Health Science Library Assistance Act of 1965. This legislation as passed by the Senate (S. 597) in section 399 authorizes the Surgeon General to make grants to various medical libraries which have agreed "to provide free loan services to qualified users, and make available photo-duplicated or facsimile copies of biomedical materials which qualified requesters may retain."

This Subcommittee is currently engaged in the consideration of S. 1006 to provide for a general revision of the copyright laws. One of the major controversies which has arisen during the hearings on this bill has been the extent to which copyrighted materials may be reproduced without permission of the copyright owner or payment of a royalty, provided the materials are used for educational purposes.

17 Hearings on H.R. 4347 et al. Before a Subcomm. of the House Comm. on the Judiciary, ser. No. 8, Part 2, 89th Cong., 1st Sess., at 372 (1965).