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Those who seek repeal of this exemption contend that it is an "anomaly" and a "historic accident", evidently in the belief that these characterizations bolster their arguments for its repeal. We categorically reject this contention, and submit to this Committee, that the exemption was a carefully conceived compromise and that its justification is as pertinent and appropriate today as it was in 1909 when it was enacted. We suggest to this Committee that the members of Congress of 1909 were motivated by the realization that the mechanical royalties which they were then authorizing would amount to such substantial sums from mechanical uses of music that they could not justifiably impose performance fees upon these same uses.
The proponents of this new legislation have referred loosely and repeatedly to the alleged fact that the legislators of 1909 were dealing only with unsubstantial problems of "penny parlors”, as contrasted with automatic phonographs as we know them today. But it has been demonstrated in previous hearings before this Committee that these allegations are unfounded, that in fact phonographs and automatic musical instruments were well known and in wide use in 1909; and extensive documentary evidence has been presented to this Committee which establishes this fact. (Hearings on s. 1106 in 1953, at pages 73, 81, 95, 96.) In fact, the Supreme Court's opinion in the White-Smith v. Appollo case, referred to above, noted that 70,000 to 75,000 mechanical music instruments were in use as early as 1902 (209 U.S. 1, at p. 9).
Another passage from the writing of Richard Rogers Bowker referred to above adds further evidence which shows that on this point Congress was necessarily cognizant of the development and widespread use of the automatic phonograph at the time of the 1909 amendments. The passage referred to at page 209, in discussing the international copyright convention of 1908 reads as follows:
"With the increasing development of the phonograph and of the mechanical player, mechanical reproductions became so important a matter to musical composers and publishers, that much of the discussion in respect to the amendatory convention of Berlin in 1908 was upon this subject. In the amended convention, the subject was fully covered by article 13:"
Mr. ALLEN. In conclusion, Mr. Chairman, I would like to ask, as we are working on our proposal, to include revisions which have been suggested. We would like to have permission to submit this, as soon as it can be done, to your committee.
I also would like to ask, in view of the fact that we are making our case, or I am making my case, before the proponents are heard, we would like to ask permission to file a brief in answer to what they present at the hearings next week.
Senator BURDICK. There will be no objection to that.
Senator BURDICK. Your proposal, then, is to add 2 cents per composition to records if they are going to place any further royalty on in this business?
Mr. ALLEN. Yes, sir, our proposal is not just an add on to what is already in section 115, but to operate a second royalty, as does section 116 now.
Senator BURDICK. Would that apply to everyone in the general public?
Mr. ALLEN. No, very definitely not, Mr. Chairman. I would like to emphasize that point. We have proposed, just as 116 does in that respect, a royalty solely to the music operators. The record manufacturers under the procedures we have suggested would not be involved nor have any burden of paying as they do under 115. It would be strictly our obligation.
Senator BURDICK. If I should go down to the music shop in Fargo to buy a record, would they inquire of me if I were an individual or a jukebox operator to determine whether or not I was to pay additional fees?
Mr. ALLEN. It would actually not be the responsibility of the seller there, but the buyer. However, we believe that under our proposal, the record made of that transaction, that memorandum of sale, invoice, or whatever it is called, which is made in the regular course of business, would be available for inspection, whether it be in the shop of the seller or the music operator buyer. But the responsibility would be that of the music operator.
Senator BURDICK. Perhaps we are not on the same wave length here. If I go into a store and buy a record, on that record today is 2 cents royalty, right now, the mechanical royalty. That is reported by somebody to someplace. Now, if I go into that store again, will that music store ask me whether I am a jukebox operator to charge me additional fees? Won't he have to keep separate records?
Mr. ALLEN. No, sir; he would not.
Mr. ALLEN. The record and the payment of this royalty would be the responsibility of the music operator.
Senator BURDICK. I understand that.
Mr. ALLEN. Yes, sir. He would be the one to pay. The seller, the distributor, would have no responsibility either under the bill, section 116 as it is now, or under our proposal. The seller would not be involved in the royalty accounting or paying process.
Senator BURDICK. Then who would be involved?
Senator BURDICK. Well, you are trying to get away from bookkeeping?
Mr. ALLEN. That is right. Under our proposal, the bookkeeping would be the difference between night and day with the simplicity of it. It would be a reporting by quarter of the list of compositions purchased, one list.
Senator BURDICK. All you would report monthly or quarterly is your list of new purchases and make your payment at the same time?
Mr. ALLEN. You list your purchases and make your payment right on the basis of those purchases and that is the end of it. The great difference, as I see it, as we see it in studying this–Mr. Cannon is the one who has run this test for us, which has been very helpful to us to help clear up the problems. The great difference in the committee's administrative provisions regarding recordkeeping, in the committee's 116 as it now reads, is on a phonograph-by-phonograph basis. Our proposal is on an operator basis. He reports all his purchases in one report and, thereby, everything follows from that. The great difference in cost is in the simplicity on one side and the complexity on the other.
Senator BURDICK. If the bookkeeping as provided by this bill is as complicated as you say, and I don't know whether it is or not, it'certainly seems to be a gigantic job. If you have to report an inventory every time you move a box or a record, this seems unreasonable to me.
Mr. ALLEN. We hoped we would convince not only this committee but the House committee, but unfortunately, we did not have the opportunity to test out and present to them what we presented today. So our great hope rests on our presentation today.
Senator BURDICK. It seems to me this does not help the performing artists, to have a lot of this money go into paperwork. That is just my reaction at the moment.
Mr. ALLEN. I would like to add, Mr. Chairman, I have the greatest respect for the folks who have been working on this over in the Copyright Office. This is a tough thing to write. We know how hard they have worked on it, we worked hard on it ourselves and we have come up with different versions, ourselves based on operators' practical experience and their's on the basis of their study of it. We have been in consultation with them. I hope that, one of these days, our ideas will coincide on the problems of administrative procedures.
Senator BURDICK. Has any thought ever been given to placing a royalty on a per-box basis?
Mr. ALLEN. Yes, many times. Of course, this is what is undoubtedly contemplated in the alternative provided in that language in section 116. There are inherent difficulties, as I have stated in my statement, in the per-box basis. It would be the simplest from the operator's point of view because there are fewer number to count when you go on that basis.
It would be very complicated, on the other hand, for the copyright owners. This is more the committee's problem than ours. A single royalty for all copyright owners has the inherent problem of division of royalties among copyright owners and performing rights societies. As I say, that is their problem; it is the committee's problem, too. But this underlies the per-box royalty problem.
Let's put it this way: I do not think it is possible to write a performance royalty of a per-box basis unless there is a top put on it.
Senator BURDICK. Unless there is what? Mr. ALLEN, A maximum, a statutory maximum written into it. This is the "open-end" problem that we fear so very much. But when you go to write a maximum, then you have a problem of division of royalties among copyright owners. We have gone through this several times on the House side. It is a possibility, but one that we have not found out how to use yet.
Senator BURDICK. It is an old equitable principle that when you do not know whom to pay, you pay to the court and the court divides the money.
Mr. ALLEN. This is one of the possibilities that faces us in our considerations. I may be encroaching upon their time on this one, because it is mainly their problem. If you put it in court, then you really might have things tied up for a long time.
Senator BURDICK. I only used that as an illustration. I am not suggesting that.
Mr. ALLEN. Well, if you put it in the hands of a Government trustee, he would have the same problem. We question whether our opponents could get together that effectively.
Senator BURDICK. Have you made a statement here of what your suggestion will give to the composers as compared to their suggestion?
Mr. ALLEN. Yes; our royalty at the rate of 2 cents per composition at the time of purchase would come to about $2,160,000 minimum, just like the mechanical fee at the same rate today. So it would work out to about $2 million-plus a year.
Senator BURDICK. What did the committee's elaborate accounting system produce ?
Mr. ALLEN. Approximately, using the average box size of 80 records a machine, approximately $9.2 million a year. To that, we say, add $2.5 plus mechanical royalties and you have about $11.7 million. You add our proposal of $2,160,000 to the mechanical royalty of $212 million, you get about $4.6 million. About $4.6 million would be the total revenues from royalties generated by our industry per year under our proposal.
Senator BURDICK. Your suggestion takes care of the complications of the additional expense for reporting and accounting, but it does not yield the same revenue.
Mr. ALLEN. No; that is right. We think the other revenue is much too high. And here again, we have prepared figures that we are sure will bear us out on this.
Senator BURDICK. Your proposal, of course, would incorporate the 2.5 cents on the mechanical ?
Mr. ALLEN. Yes; it would supplement that.
I would like to anticipate just this argument that has been made by performing rights representatives in our discussions. That is, the problems as they see them of enforcement. In this area, we have undertaken to add some revision to our own proposal that we have already submitted to the subcommittee, so as to add to the reporting requirements the additional requirement of furnishing the data to the Copyright Office in a usable way, and making any false statements expressly punishable as a violation of the law.
Senator BURDICK. Like so many of the other ones?
Mr. ALLEN. Yes, sir, that is right, and to make it explicit that the Copyright Office would have all the necessary powers of investigation and enforcement. We are undertaking to do that in our proposal. In a very short time, we should have a rewrite of our proposal for the committee.
Senator BURDICK. Senator Fong!
Senator Fong. Mr. Allen, see if I summarize your statement and your colleague's statements correctly. First you say that if you are forced to live under the provisions of the House bill, you will be either faced with a mountain of paperwork no operator would be able to carry, or you would be forced to negotiate?
Mr. ALLEN. Yes.
Senator Fong. So therefore, to eliminate the great amount of paperwork which would
cost a lot of money, you will be forced to negotiate with ASCAP and BMI and the other organizations; is that right?
Mr. ALLEN. That is right.
Senator Fong. If you are forced to negotiate with these organizations, you then will be at their mercy, because these are great organizations which have tremendous amounts of income versus a small operator? Mr. ALLEN. Yes, sir.
Senator Fong. And the average operator operates around 60 juke boxes a year, or somewhere around there. There are no big operators in this business?
Mr. ALLEN. Oh, I am sure there are some. Here is one with 180.
Senator Fong. Then when you negotiate with ASCAP or BMI, you are negotiating with a provision which has no limitation; is that correct?
Mr. ALLEN. All right, yes. Senator Fong. In other words, the sky is the limit! Mr. ALLEN. The sky is the limit on the negotiating table. Therefore, what we need is a statutory alternative to fall back on that is workable. Without that, we are bargaining under duress. With that, we have a free choice.
Senator Fong. If you choose to follow paperwork, then there is a limit as to what you pay?
Mr. ALLEN. That is right.
Senator Fong. This money that is received by ASCAP and BMI, you say, is distributed one-half to the publisher?
Mr. ALLEN. This is ASCAP's story. I don't want to tarnish my friends of BMI.
Senator Fong. Why is the publisher coming into the picture! I thought this money was paid to the copyright owner.
Mr. ALLEN. I will be real blunt, Senator. I think the publishers own ASCAP. That is a good question for ASCAP.
Senator Fong. I see. If the money goes to ASCAP, you also make a point that a popular songwriter is at a disadvantage, because he does not get his percentage of the cut, is that right?
Mr. ALLEN. Exactly.
Senator Fong. A man who writes a song puts it on a record, and if the jukebox operator uses the song, he gets just as much percentage as the man who writes a very popular song?
Mr. ALLEN. That is one of the inherent difficulties of the per box license or the blanket license that the chairman was asking me about. It does allow those whose music is not played on juke boxes to share. That is the ASCAP system.
Senator Fong. Now, in your proposal, the popular songwriter would get what he deserves, and the man who does not write a popular song does not get it?
Mr. ALLEN. Absolutely. The royalty would go exactly as the records are bought. We say that the purchase of the record as the basis for determining their royalty is the closest to the actual performance that can be devised as a practical method of determining royalty.
Senator Fong. Then from the standpoint of equity, the payment of a single amount for a record really helps the popular songwriter?
Mr. ALLEN. That is correct. And on that point, I must be very candid here, the committee's section 116 also does this. But the difficulty is the way it is done, it just cannot work as a practical matter.
Senator Fong. Because of the paperwork?
Senator Fong. You either do that or go through the tremendous amount of paperwork, and then arrive at a very far place down the road, the amount that is to be paid to each individual composer?
Mr. ALLEN. Right, sir. This has been the nub of our presentation and our discussions with the copyright folks, our opponents, and our presentations in all the committee hearings, that our method is the