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facturers, our firm assisted in preparing a questionnaire which was sent by the manufacturers to all known jukebox operators in the United States. We have summarized and tabulated the replies which were received directly by us and have prepared some information designed to show the probable effect on the jukebox operators of a proposed change in the copyright law, now under consideration by this subcommittee.
The questionnaire used and the procedures followed in circularizing the operators and in tabulating their responses were the same in all material respects as those previously used in the survey made by my firm in 1952 with reference to the year 1950 in connection with the hearings on H.R. 5473 conducted by this subcommittee, and the survey made in 1959 with reference to the year 1958 in connection with hearings on H.R. 5921 conducted by the House Subcommittee on Patents, Trademarks, and Copyrights. Mr. Theodore Herz, then of my firm, gave testimony during
each of those hearings. The testimony appears on page 134 and page 227, respectively, of the transcripts of the proceedings before the subcommittees.
Counsel informs us that approximately 22,000 questionnaires were mailed on the basis of mailing lists of the several jukebox manufacturers to approximately 6,000 to 7,000 jukebox operators in the United States. Each operator was asked to return one completed questionnaire directly to Price Waterhouse & Co. and each operator was assured that the information furnished in response to the questionnaire would be kept confidential.
Since an operator could appear on more than one mailing list, each operator was asked to send in only one reply and, of course, the responses received were checked to avoid tabulation of more than one response from any one operator. We have not examined the records of any of the operators. The statistics and information presented in this testimony are based solely, first, on the information furnished to us by the operators through these questionnaires and, second, on information supplied to us by counsel with respect to the proposed changes in the copyright law now under consideration by this subcommittee.
The people who own, operate, and service coin-operated phonographs were asked in the questionnaire-which is similar to the questionnaires used in 1952 and 1959—to supply data for the year 1966 concerning number of jukeboxes operated, revenue, expenses, investment in jukeboxes, and number of records purchased.
The operators were asked to state their 1966 revenue collections from coin-operated machines net of the amount they must pay to location owners. We understand this payout is equal, in general, to 50 percent of total collections. The operators were asked also to report the amount of the expenses incurred during the year. We understand that none of these expenses are borne by location owners. To prevent possible confusion in the minds of sole proprietors or some of the smaller operators, this question specifically asked the operators to exclude their own salary and Federal and State income taxes.
The operators were asked also to supply us with their total investment in coin-operated phonographs at the end of 1966. Among accountants and businessmen, the most commonly accepted interpretation of “investment” in real or personal property is cost less accumulated depreciation. We think the answers received to this question indicate that the operators responded with this commonly accepted interpretation of "investment."
We understand the questionnaires were mailed by the manufacturers of automatic coin-operated phonographs in late January and the first part of February of this year. As of March 10, 1967, 803 responses had been received. Of this total, 27 were from operators who sent in more than one response, 88 were from operators who supplied incomplete or unreasonable answers which could not, in all fairness, be tabulated, and 37 were from people who stated they had not been in the jukebox business during 1966. A total of 651 replies were used in compiling the statistics presented in this testimony. This number represents approximately 10 percent of the jukebox operators in the United States.
The usable replies reflect a good geographical cross section of the United States. All the States except Hawaii, Nevada, and New Hampshire are represented. Two replies were received with no discernible postmark. We have prepared a schedule which shows the number of replies received from each State. The schedule which is entitled "1966 Jukebox Survey Table A-Distribution of Usable Replies by State” will not be read here but is submitted for the record.
We have prepared our statistical data by grouping the owneroperators into six size classifications as follows:
(The table follows:)
The 651 operators reported that they owned a total of 47,965 machines, an average of about 74 for each operator. They reported revenue collections of $24,600,303, expenses of $17,613,662, and net revenue collections of $6,986,641. This amounts to an average net annual revenue collection by each operator of $10,732 or $894 a month.
The smaller operators, those who own 50 machines or less and who constitute 54.2 percent of the total usable replies, reported smaller earnings. They reported average net revenue collections of $4,966 or $414 a month.
Counsel has informed us that each jukebox contains an average of 80 records or 160 selections. Assuming that this arrangements governs in every case, we have calculated how much a royalty of 3 cents for each selection for each calendar quarter ($19.20 a year) would affect net annual revenue collections. We have prepared a table (table B) which shows the income for each size group after a reduction of reported net annual revenue collections by a 6 percent allowance for a return on investment and a reduction for the proposed royalty. This final figure is the amount available for the normal salary for work done by the owner-operators and for the payment of Federal and State income taxes. If expenses were incurred to maintain records and prepare reports contemplated by the proposed royalty, the income available to the owner-operators would be further reduced.
A 6 percent return on investment appears to be a reasonable return hen compared to other investment opportunities. For instance, the
10-year average yield of low-risk good quality bonds (Moody's Baa) is approximately 5 percent. Certainly an owner-operator of jukeboxes should expect a yield of at least 1 percent more than this as his investment most certainly is subject to greater risk.
Table B shows that for the 353 operators who reported less than 50 machines, the proposed royalty amounts to 4.2 percent of revenue collections before expenses and 10.4 percent of net revenue collections after deducting expenses (not including owner-operator salary or Federal and State income taxes). It shows also that for the 17 operators who reported over 300 machines, the proposed royalty amounts to 3.1 percent of revenue collections before expenses and 13.5 percent of net revenue collections after deducting expenses (not including owneroperator salary or Federal and State income taxes). For each of the 61 operators, large and small, the table shows the proposed royalty amounts to 3.7 percent of revenue collections before expenses and 13.2 percent of net revenue collections after deducting expenses, again not including owner-operator salary or Federal and State income taxes.
As shown by table B, the average amount available for salary and for Federal and State income taxes is $10,732, a year, or $894 a month for each of the 651 operators. If this amount is reduced by a 6 percent return on an average investment of $61,887 or by $3,713 and by $1,415 for the proposed royalty, the owner-operator would have $5,604 a year of $467 a month available for salary and for Federal and State income taxes.
For the operators who own less than 50 machines and who constitute 54.2 percent of the total replies received, the average amount available for salary and for Federal and State income taxes is less than the average for all operators, and is $4,966 a year or $414 a month. If the annual amount is reduced by $1,422 representing a 6 percent return on a $23,709 average investment and $517 for the proposed royalty, the owner-operator would have $3,027 a year or $252 a month available for salary and Federal and State income taxes.
Other data may be derived from table B. For instance, it can be calculated that the average owner-operator, the owner-operator of 74 machines, derives an average revenue collection from each machine of $9.82 a week ($1.40 a day) after paying the location owner a similar amount. Similarly, it can be calculated that the gross revenue collections from each machine, the amount that is shared equally by the location owner and the jukebox owner-operator, averages about $20 a week or $1,000 a year. It can also be calculated that the
average owneroperator would derive only $76 a year from each machine for his own salary and Federal and State income taxes if the net revenue collections are reduced to allow for a 6 percent return on investment and by the proposed royalty of $19.20 a year now under consideration.
I might add a few words for the record relating to the responses to the last item on the questionnaire. The operators were asked to report the number of records purchased during the year 1966. For the few who stated the dollar value of records purchased, we calculated the number of records purchased by dividing the dollar value reported by 65 cents which we understand is about the average purchase price.
The 651 operators reported purchases of 5,042,503 records. This amounts to 7,746 records for each operator or 105 records for each machine during 1966.
This concludes the presentation of data assembled from the questionnaire as reported to us by the operators.
(The tables referred to follow :)
1966 JUKEBOX SURVEY
TABLE A.—Distribution of usable replies by State
6 West Virginia.
8 6 51 12
3 26 13
4 13 49 3 1 9 13 10 23 7 4 2
TABLE B.-Schedule showing effect of proposed revision in copyright law on operators
replying to the questionnaire
Number of operators.
per operator..---Average investment per
$74,951 $111, 223 $199, 350 $491, 583
37, 788 27,056
operator. Annual revenue per operator.-Annual expenses per operator..
Net annual revenue per
operator Less 6 percent return on in
vestment Less proposed royalty at $19.20 per machine 1
Balance remaining for op.
erator's salary and Fed.
(11,961) (29, 495)
! Assumes an average of 80 records per machine, 160 sides and a proposed royalty of $0.12 per year perefde ($0.03 per calendar quarter per side):
Senator BURDICK. Thank you very much for this testimony. I have really no questions. I have one out of curiosity. What is the ordinary life of these machines?
Mr. ARNOLD. I am not sure as to whether the rate of depreciation or normal life of the machines is governed more by obsolescence, or style change than by normal depreciation. It would take someone knowing more about the life of the machine than I do.
Senator BURDICK. Was not there available to you a table showing you the life expectancy of these machines ?
Mr. ARNOLD. No; we asked them the figures on depreciation but they did not give us any details. They gave us the summary figures.
Senator BURDICK. Thank you very much.
The next witness is Mr. Perry S. Patterson, of the firm of Kirkland, Ellis, Hodson, Chaffetz & Masters.
STATEMENT OF PERRY S. PATTERSON; ACCOMPANIED BY ROGER
D. MIDDLEFAUFF, JR., REPRESENTING THE WURLITZER CO., THE SEEBURG CORP., ROCK-OLA MANUFACTURING CO., AND ROWE MANUFACTURING CO.
Mr. PATTERSON. I have submitted a somewhat lengthy statement and much of what I have to say buttresses from a legal standpoint the practical considerations advanced by witnesses for MOA. I propose to summarize my statement to the best of my ability without impairing the flow or persuasiveness. I might say, at the outset, I have been advised that the useful life of these machines is normally considered to be 5 years. That is the depreciation pattern generally followed.
Senator BURDICK. What is the practical use? Is it much longer than that?
Mr. PATTERSON. Well, there is quite a turnover, because the style changes are comparable to the automobile industry and there is considerable competition among our four clients in new models. I would say competition is intense. So, there is a turnover and there is a flow of used machines into marginal operation and out of the country. I would say, probably, in prime locations the useful life is less than 5 years, because these machines are moved out as newer models with more atractive features are developed and promoted.
Senator BURDICK. Without objection, your full statement will be made part of the record. The Chair wants you to know that we appreciate very much these summaries, because we follow the testimony better and we have your complete statement before us at all times anyway.
Mr. PATTERSON. Thank you, Mr. Chairman.
My name is Perry S. Patterson. I am a member of the firm of Kirkland, Ellis, Hodson, Chaffetz & Masters with offices in Chicago, Ill., and Washington, D.C. Herbert J. Miller, Jr., of the firm of Miller, McCarthy, Evans & Cassidy, and I represent the Wurlitzer Co., thé Seeburg Corp., Rock-Ola Manufacturing Co., and Rowe Manufacturing Co.
These companies comprise all of the manufacturers of automatic phonographs, otherwise known as jukeboxes, in the United States.
Early in the course of the congressional deliberations on the general