reducing the beneficial exposure and sales stimulus generally given new releases by jukeboxes and thereby reduce the purchases of new releases, the jukebox operators will be forced to curtail their purchases to the detriment of the entire record industry.

This would reduce the level of activity in the record industry and the number of new recordings would be seriously depressed, in the face of an industry which alleges a serious impact by the proposed 1⁄2 cent per work increase in mechanical royalty. In the 1965 Hearings, the record producers maintained that some 80% of all releases in 1964 lost money (although copyright owners still received their royalties on them), and that net profit of record companies in that year amounted to only 3.8% ; in contrast, between 1955 and 1964 the percentage of the record sales dollar payable to copyright holders increased from 8% to 11.1%.1

The jukebox industry buys more than 50 million records per year which, under a mechanical royalty of 22 cents per composition or 5 cents per record, means that jukebox operators would be indirectly paying copyright owners over $2,500,000 a year. This $2,500,000 would be paid directly to the copyright owners, and not filtered through an agency which deducts 15% for administration expenses. No one has shown why this would not be ample.

Of the $570 million dollars of records sold each year, jukebox purchases account for 21% of the total number of records sold and 39% of the single records sold. Already, the copyright owners receive substantially greater financial gains from the phonorecord industry than the performing talent, or the supporting talent, or the record companies themselves. The authors and composers receive each year $22.5 million from the performing rights societies, $22.0 million from mechanical royalties and $18.0 million in negotiated sales to advertising companies.18

To fully illustrate the inequitable impact of Section 116 on the jukebox operators, a comparison will be made with the royalty paid by the radio and television broadcasting industry to the performing rights societies.

The Federal Communications Commissions financial data discloses that the radio and television broadcasting industry reported annual revenues of more than $24 billion for calendar 1965. This was an increase of 9.2% above 1964 broadcasting revenues. Industry profits (before Federal income tax) increased 8.1% to $525.7 million.

The net radio (AM-FM) time sales for 1965 was $739,545,000. The $81,086,000 AM-FM profit has been reduced by the $31,639,937 loss of 1,215 AM and FM stations, out of almost 4,000 reporting stations. These one out of four losing stations nevertheless had to pay royalties to the performing rights societies. And 63 of these stations would have ended in the black if they had not been required to pay royalties.

As for television, the net time sales in 1965 was $1,393,700,000. Of the 541 reporting stations, 90 lost money, to the tune of $13,888,015.

19

Radio and television pay about 88% of the total domestic royalties receipted by ASCAP and presumably to BMI and SESAC. ASCAP receipted $45,681,587 from licensing revenues in 1966, with $6,092,967 coming from overseas. Therefore, ASCAP collects $36 million from radio and broadcasting and all three performing rights societies collect about $50 million.

17 Hearings on H.R. 4347, et al., before a subcommittee of the House Committee on the Judiciary. 89th Cong., 2d Sess., ser. 8, pt. 2, at p. 801-3 (1965).

Compare the $50 million or 1.8% which the societies extract from the two and three-quarter billion dollar broadcasting industries with the $12 million royalties plus 39 million in administrative expenses, 11%, (Section 116 and mechanical), that the small businessmen jukebox operators will be required to pay.

The broadcasting industries gross almost four times as much as the jukebox operators and pay about $50 million in royalties, with the performing rights societies performing-at their own cost-all the distribution processes for the broadcasting industries. In comparison, the jukebox industry will be paying a $12 million royalty at a total cost of themselves of $51 million, or 102% of the payments made by the broadcasting industries.

Of the $51 million expended by the jukebox industry, $2.5 million would go directly to the composers and publishers as a mechanical royalty. The $9.1 million which will pass through the hands of the performing rights societies will be distributed as follows: $1.4 million as administrative expenses; $3.85 million to the publishers and $3.85 million to the composers.20 That is, of the $51 million expended by the jukebox operators, $5.1 million at best will find its way into the hands of the composers and even then not necessarily to the composers of jukebox music. Out of every dollar spent by the jukebox operator, 10 cents will be received by a copyright owner.

CONCLUSION

In conclusion I can state the the representatives of the manufacturers are prepared to continue to work actively in cooperaiton with the Music Operators of America, the Register of Copyrights, and the performing rights societies in an effort to arrive at a workable, economically acceptable solution to the jukebox royalty problem.

Section 116 clearly is not the answer. We believe it can be redesigned into a practical workable format. The manufacturers have no fixed preconceptions as to the solution and believe that the Register of Copyrights is equally flexible and open to suggestions as to alternatives to Section 116. Unfortunately, experience compels the conclusion that the performing rights societies will continue to be rigidly uncompromising since the more unworkable a statute is, the more it redounds to their benefit.

Senator BURDICK. Thank you for your testimony.

Were you in the hearing room this morning?

Mr. PATTERSON. Yes; I was, Mr. Chairman.

Senator BURDICK. Did you hear the statement of one of the witnesses that proposed an adequate mechanical royalty as a solution to the problem?

Mr. PATTERSON. I am familiar with that, Mr. Chairman, because we have worked in cooperation with him and counsel, Mr. Allen. We do not conceive it to be an added mechanical royalty because of the way in which it is to be handled. tI is a royalty predicated solely on purchases by jukebox operators of records for their operations.

Senator BURDICK. It would be a royalty collected and paid much as the present 2 cents would be collected and paid; would it not?

Mr. PATTERSON. The 2 cents royalty goes from manufacturers, as I understand it, to the Harry Fox Collection Agency, which in turn distributes it to the copyright owners. The Harry Fox Agency has to deal with a relatively limited number of record producers and has the entitlement to audit their books. That, I gather, has been a practical, workable operation. Here, the approach in the interests of simplicity and recordkeeping would envision the use of the invoices accompanying the record purchases by the jukebox operators.

Those invoices would be designed to reflect the identification of the copyright owner entitled to payment of this 2 cents royalty. He would have only to make duplicate copies of these invoices to submit in sub

20 See generally H. Rept. No. 1710. 85th Cong., 2d Sess. (1958).

stantiation of his royalty payments. The statutory penalties that would accompany the making of a false statement or report would be sufficiently stringent, just as they are under the copyright law, to dissuade him from omitting to reflect his records. Among other things, we assume, Mr. Chairman, that these individuals on their form 1040, reflect the annual cost to themselves as a business expense of the records purchased by them and we would assume that the submissions of the 2 cents royalty payment per purchase would coincide with the tax deduction taken for the records purchased.

Senator BURDICK. I would think so.

Mr. PATTERSON. You should.

Senator BURDICK. Who would receive that extra 2 cents?

Mr. PATTERSON. The extra 2 cents would be payable to the copyright owners or their agents who would be identified on the record label, who for the most part, we would anticipate to be ASCAP, BMI, SESAC, although not necessarily in that order quantitatively.

Senator BURDICK. Well, again, thank you for the testimony.

Herbert J. Miller, Jr., a partner, of Miller, McCarthy, Evans & Cassidy, Washington, D.C.

STATEMENT OF HERBERT J. MILLER, JR., PARTNER, MILLER, MCCARTHY, EVANS & CASSIDY, WASHINGTON, D.C.

Mr. MILLER. I am Herbert J. Miller, Jr. I am associated with Mr. Perry S. Patterson. I would like to submit my statement for the record and make a few oral comments.

Senator BURDICK. Your statement will appear in full in the record. Mr. MILLER. One of the major factors to be considered is that the jukebox industry has grown up from its beginning prior to 1900 not subjected to the payment of any performing royalty. In the course of the time period that has passed since 1900, certain standards and safeguards have been evolved and applied to those who have been subject to performing rights royalties. I refer to the several antitrust decrees resulting from complaints filed by the U.S. Government against ASCAP and BMI. It was found in 1941 and consented to by the performing rights societies, that with their monopoly powers, or shall we say the grouping of individual monopolies represented by copyrights, they were deemed in a position so that even substantial industries, like the radio industry, were incapable of facing ASCAP and the performing rights societies across the bargaining table and arriving at a fair and equitable result. The power was weighted just too heavily on one side and, consequently, the Department of Justice moved in and there were provisions in the antitrust decree which tended to limit the power of ASCAP, in effect trying to make the bargaining a more equal process. Subsequent antitrust decrees were entered against ASCAP

and BMI.

Here again, you had a situation where ASCAP was specifically, by the terms of the antitrust decree entered in 1950 "enjoined and restrained by granting to, enforcing against, collecting any money from, or negotiating with any motion picture exhibit or concerning any motion picture performance right."

Now, obviously, one of the basic reasons behind that provision of the decree is the fact that the theater owner, even though the theater

owner is, from an economic standpoint, in a much better position than the ordinary jukebox operator, is not able to bargain effectively with the substantial performing rights societies. So as these safeguards have grown up throughout the years, if this law is enacted, if the performing rights are extended to the jukebox operator, they will not have some of the safeguards that have been evolved through the years through the entry of antitrust consent decrees against the performing rights societies.

Another thing which Mr. Patterson brought out and I would like to emphasize, is that the very problem that is being considered here; namely, whether a jukebox operator should pay a performing rights fee has been considered time and time again, in many hearings before many different committees of Congress. In the 40 years the issue has been before Congress, no bill has been enacted by Congress.

Now, I am not saying, of course, that because prior committees and prior Congresses did not enact a statute this one should not. But I submit to you, Mr. Chairman, that the fact that in great detail, this problem has been considered on a great number of occasions and ASCAP and BMI have made their approach, their arguments, what have you, and so have the jukebox operators. In every instance, the Congress has refused in its wisdom to extend these rights to apply to these small businessmen.

I think one of the basic reasons why is simply a question of fairness. Looking at ASCAP with an annual revenue of $45 million dealing with someone like Mrs. Ballard, who testified before you this morning, who has a net income from her jukebox operation of, say, $3,000 or $4,000, you just cannot have a fair bargaining process when you have that economic difference. It just cannot be done.

Senator BURDICK. At this point, counsel, this lady might have an association representative, might she not?

Mr. MILLER. The lady might have an association representative, that is true, but bear in mind, ASCAP would not have to deal with the association. ASCAP deals with the individual operators. There is nothing in this legislation to the contrary, and as a practical matter. the only way that it would be done would be through dealing with the individual operator.

The same question was asked in 1941. ASCAP wanted to deal with individual radio stations, because they knew by dealing with individual radio statons, they could come away

Senator BURDICK. Is that the practice?

Mr. MILLER. That was the practice then. The consent decree required that if a network wanted to negotiate with ASCAP in order to have the performing rights cover a network program, ASCAP was required to deal with the network as distinguished from the individual stations.

The same thing is true with theaters. There ASCAP must deal with whoever produces the motion picture. They are specifically enjoined from dealing with the individual theaters. And I am sure, just looking at it, that it is basically unfair to expect these small businessmen and businesswomen to deal with an economic goliath which has the absolute power, by simply refusing to grant a license or simply setting a proposed license fee at such a high, exorbitant rate that the person cannot pay it, to drive the operator out of business.

And again, looking at the way this is shaping up, there is another fact that I think is exceedingly interesting.

This I think bears out what I have been saying, that the trend has been to force ASCAP away from dealing with the small businessman. Thus, in section 110(5) of the legislation which is being considered here this morning, there is a provision which, in effect, pulls back the existing performing rights which Congress earlier granted to ASCAP. If a small proprietor plays an ordinary radio set or a television set in his business place, his place of business, under existing law, he has to take out a performing license from ASCAP, from BMI, from SESAC, whose ever songs might be played over the radio.

Now, the House bill and the Senate bill in section 110(5) both say that this style of performance no longer shall be subject to the payment of a performing rights royalty. The House report, at page 48, referring to 110 (5) says:

The main effect of this exemption would be to allow the use of ordinary radios and television sets for the incidental entertainment of patrons in small business or professional establishments such as taverns, lunch counters, hairdressers, drycleaners, doctor's offices, and the like.

I submit to you, Mr. Chairman, that one of the reasons, one of the basic reasons for that provision has to be that it is recognized that the small businessman cannot successfully negotiate with a large performing rights society like ASCAP.

I would like to point out one other factor which I think bears on the question of royalties from jukebox operators and how they are paid. The mechanical royalties, of course, go directly from the record companies to authors and composers. Any other type of a mechanical royalty, if it were paid by the jukebox operators, would go directly to the authors and composers. And while I may be wrong, I think that one of the difficulties that we have had in reaching agreement as to a simple method of the jukebox operators making royalty payment has been the feeling among the performing rights society that if it is not a performing right, then it will not go into their treasury.

I say, Mr. Chairman, all that need be done, is to label it a performing right. Let ASCAP and BMI collect it, that is fine, instead of having it go directly to the author and composer as a mechanical royalty. But I suggest it is no reason to try to impose the terribly onerous administrative burden that you find in section 116, simply because the performing-right societies feel it has to be a performing right and the money collected has to go into that society as distinguished from being paid directly to the authors and composers.

If the Congress wishes to pass a law, label it a performing right and let them collect it, but don't let the whole process of trying to reach a simple method of paying a royalty bog down because ASCAP feels it has to be a performing right rather than a direct payment to the authors and composers.

One other thing I would respectfully suggest to the chairman and to this committee. Information is not available to us as to the gross income of, and how it is divided by ASCAP, BMI, and SESAC. There are figures in the trade press which I can assume are accurate. I would respectfully suggest that this committee, in considering this entire problem, very carefully look at the amount of revenues generated, how