essentially vitiates that right by stating that the copyright does "not include any right of performance under section 106 (4)." However, the bill vests rights of public performance in every other member of the creative community except the record company and the performers who produce a record. The justification for providing composers and publishers with a performance royalty on a lead tune is that the radio station is making a profit on the use of the composer's talents. To deny similar rewards to the creative talent which produces a record is blatantly unfair.

Second, to determine the extent by which exclusively radio stations profit on the use of sound recordings, we have examined all Federal Communications Commission renewal applications over the last 3 years for more than 1,100 radio stations-which we estimate play to well over 30 percent of the Nation's population. From these official documents we have compiled data to determine the total time that radio stations devote to playing records, and more critically, the total time that is commercially sponsored which is devoted to playing records. I ask that this study be incorporated into the record at the conclusion of my remarks.

Significantly, this study demonstrated that in the top 10 markets the reporting radio stations indicated that 77.40 percent of their commercial time-that is, the time sold to sponsors who provide the station's revenue-was made up of playing records.

The results in the top 10 markets are set forth on page 20 of our study. In New York City, radio stations had pretax profits of over $8 million. Almost 79 percent of those stations' commercial air time was devoted to playing our records without cost for the broadcasters' economic benefit.

Third, our study further demonstrates that the broadcasting industry can easily afford to pay a reasonable royalty for the commercial use of our products.

For example, at a time when record industry profits were plummeting, the broadcasting industry has shown the following increases in their pretax profits over the prior year: 1962, 48 percent over the prior year; 1963, 26.2 percent over the prior year; 1964, 29 percent over the prior year; 1965, 9.9 percent over the prior year.

I would like to introduce our report on that which is you have the complete report and listing the profits of the broadcasters.

Fourth, both the Register and the House committee have recognized the equity of the record companies' case for performance rights. The Register said:

I am wholly sympathetic with the testimony from representatives of performers and some record companies urging recognition of a performing right in sound recordings. There is much to be said for this point of view, and it is possible that this right will eventually be recognized in the copyright law of the United States as it is now in other countries." (Hearings, p. 1863.)

The House committee in the last session emphasized "the creativity and value of the contribution of performers and record producers to sound recordings." And, it noted "the possibility of a full consideration of the question by a future Congress." (H. Rept., p. 94).

Although the issue was fully presented on the House side, there is no evidence in the record in opposition to recognizing performance rights. The Register's opposition was based wholly on the fact that he felt the issue was "explosive" and that recognition of the right might be strenuously opposed by the broadcasters. The House committee apparently agreed.

We submit that merely because this issue might meet opposition is no reason whatsoever for this committee to turn its back on this vital question, the merits of which demonstrate unalterably that the recognition of public performance rights, as proposed in Senator Williams' bill, is long overdue.

And now, if there are no questions, I would like to defer to Mr. Livingston.

(The supplement to Mr. Arnold's statement follows:)

SUPPLEMENT TO STATEMENT OF THURMAN ARNOLD, SPECIAL COUNSEL, RECORD INDUSTRY ASSOCIATION OF AMERICA, INC.

STUDY OF PROFITS OF THE RADIO BROADCASTING INDUSTRY AND SURVEY OF RELIANCE OF BROADCASTERS ON RECORDED MUSIC AS SOURCE OF PROGRAMING

The purpose of this study, which has been developed by Arnold & Porter, Special Counsel to RIAA, is to demonstrate the financial soundness of the radio broadcasting industry and the extent to which radio stations rely on recorded music as a source of programing and revenues.

A. Source

I. FINANCIAL DATA

All radio station operators and networks are required to file annually with the Federal Communications Commission financial reports of their operations. A report must be filed for each station subject to the qualification that an owner of both AM and FM stations operating in the same community may, at his option, file one report covering the combined operation. A licensee having broadcast stations in different communities must file separate reports for each of the stations. The reports contained somewhat detailed schedules showing the source of revenues and items of expense. Also included, inter alia, is a schedule showing the cost of plant and cost less accrued depreciation. Moreover, the reports contain a breakdown of payments (other than from earnings) to proprietors, partners, stockholders or close relatives of such persons.

These financial reports are not available for public inspection; rather, they are maintained in confidential files by the Federal Communications Commission. The Commission's Office of Research and Education does, however, prepare each year a comprehensive report for the industry based upon the data obtained from these reports. The Commission's report is released in the fall of each year and thus the most recent one is for calendar year 1965. The Commission's report contains figures for the radio industry as a whole. Moreover, for each market where at least three stations filed the required financial report, the Commission provides composite market figures. No figures for individual stations are released. B. Analysis of Radio Industry Finances-1961-65

As noted, the most recent official data concerning radio station finances is for 1965. There are detailed reports available for the industry for several years earlier. An analysis of these reports for the five most recent years (1961 through 1965) discloses that

(a) Pre-tax industry profits increased by a factor of 164.62 percent from 1961 (when they totaled $29.4 million) through 1965 (when they totaled $77.8 million).

(b) Revenues, however, for the industry increased by a factor of only (used in a comparative sense) 35.68 percent in the same period (from $590.7 million in 1961 to $792.5 million in 1965). The number of stations contributing to the growth, on the other hand, increased by only 18.05 percent (from 4,548 to 5,322).

(c) Average profits for profit-making stations rose 33.63 percent from 1961 to 1965, and the number of stations showing profits by a factor of 30.33 percent. Moreover, the amounts paid to station principals, over a four-year period (no figure is available for 1961) other than from earnings, increased by 28.47 percent (from over $33 million in 1962 to over $43 million in 1965). The following table contains figures for the industry for each of the past five years:

Figures for all reporting radio stations and the 4 nationwide radio networks, 1961-65

There is every reason to believe that the growth has continued. In the February 27, 1967 issue of Broadcasting Magazine it is estimated (page 43) that radio industry time sales for 1966 totaled $926,018,000, an increase of 11.87 percent over time sales for 1965.1 (In 1965 time sales increased from 1964 by a factor of 8.38 percent-from $763.7 million to $827.7 million).

As indicative of radio's successes in 1966 and the prospects for further improvements in 1967 (and thereafter) the following is taken from the February 27, 1967 edition of Broadcasting:

"Radio is moving into 1967 with brighter hopes-and with more solid reasons for bright hopes-than at any other time since television first cast a dark shadow over the radio business." (p. 44).

"Overall, the consensus appears to be that-unless the general economy goes into a spin-radio billings ought to rise between 8% and 12%." (p. 45).

"Best Yet to Be--[Radio Advertising Bureau's] President Miles David, who felt that even the unexpectedly good showing radio made in 1966 was not real progress in relation to what the medium is capable of doing, said that ‘radio has the potential to pull ahead of its recent good growth patterns and start achieving consistent 12% to 15% over-all annual increases and better.'" (p. 48).

Again, the most recent official figures available are for 1965 and there follows an analysis of the FCC report for that year.

D. Analysis of Radio Industry Finances for 1965

On December 31, 1965, there were 4,004 commercial standard broadcast stations (AM) in operation, 83 of which operated only during a part of the year. Of the total, 3,941 filed the required financial data, including 83 which filed reports

1 If Broadcasting's estimate proves to be correct, the percentage increase in time sales from 1965 to 1966, will be the industry's largest since 1947, when the increase was 12 percent over 1946.

for only part of the year.2 In addition, of 1,393 commercial FM stations in operation (of which 1,043 were owned by standard broadcast licensees), 1,381 stations filed the required financial data.

3

The radio industry had before-tax profits of $77.8 million in 1965. The profit figure represented a 9.9 percent increase over 1964. Broadcast revenues for 1965 totaled $792.5 million, representing an 8.3 percent increase from the preceding year. The $77.8 million profits were recognized on a total depreciated investment for the industry in tangible broadcast property of $308,588,000.

Included in the expenses (thus having the effect of reducing the profit figure) were $43,466,513 in payments to proprietors, partners, stockholders or close relatives thereof, by 2,589 stations. Of these, 17 stations made such payments amounting to over $1 million and there were 1,090 stations which made such payments in excess of $10,000.

The average pre-tax profit for profit-making stations was $41.956. Profits, related to population of the community, for such stations were as follows:

On the negative side, there were 1,386 stations which operated the full year which reported losses totaling $31,638,937. But, of these, 693 reported payments to principals of $8,694,563 and 1,086 reported depreciation expense of $14,355,436. There were 622 of the losing stations which reported payments to principals and/or depreciation expense in excess of the loss reported and 357 whose payments to principals along exceeded the amount of losses.

Of the stations reporting losses, at least 713 reported losses of less than $15,000 and 419 reported losses of less than $5,000. Six stations which reported losses in excess of $50,000 had revenues in excess of $1 million. (Losses for these six stations alone totaled at least $1.35 million.) An additional 29 stations which reported losses had revenues of between $500,000 and $1 million, and 78 more stations with losses had revenues of between $250,000 and $500,000.

Industry expenses, excluding independently-owned FM operations for which such figures are unavailable, totaled $695,703,000, which divide into broad categories as follows: technical expenses-$81,366,000; program expenses-$229,617,000; selling expenses-$131,662,000; general and administrative expenses$253,058,000. The following table shows the principal expense items of AM and

2 Twenty-two of the stations filing only partial reports were in operation a full year but filed figures for only a portion of the year. This is probably attributable to the fact that the station was sold sometime during the course of the year and the seller (or buyer) did not file the required report for the portion of the year during which it operated the station. 3 This includes the four nationwide radio networks and all operating stations which tiled

the information.

Defined as time sales, less commissions, plus talent and program sales.

5 The 19 stations owned and operated by the networks reported pretax profits of $4 million on a depreciated investment of $4,749,000.

The amount of loss per station is unavailable for 338 of the stations, so these figures should no doubt be substantially higher.

AM-FM stations with time sales of $25,000 or more, classified by volume of revenues for 1965, as a proportionate part of the total broadcast expenses:

A person who does any degree of radio listening is aware that many stations place substantial reliance, for actual program content, on recorded music. This is true for both classical music and "rock and roll" stations and, it would appear, the latter are more prolific than the former. A Federal Communications Commission Hearing Examiner recently evaluated typical AM station programming as follows:

"In approaching resolution of the issues, it may be well to make a preliminary comment on today's programming in the standard broadcast band. As every casual listener knows, standard broadcast stations, as their name implies, are, in fact, highly standardized. As a general proposition, about 50% of their air time is devoted to commercial continuity, i.e., commercial spot announcements, sponsor identification announcements and promotional material. Of the remaining 50%. the vast majority of that time is devoted to playing musical records and to disc-jockey chatter. Of the time that remains, after deductions for spots, records, and idle-talk, a certain amount is devoted to the perfunctory reading of news clips from press service wire copy. Finally, non-commercial spot announcements invariably take some toll from the station's broadcast day."

The Examiner also took note that some stations do not employ the "standard" programming format, as follows:

"The Examiner is aware that in the nation there are some few stations that eschew the standard-standard broadcast program format. In any large body of marching men there are always a few who do not keep step. He is also aware that there is a currently popular trend to substitute so-called 'Talk Programs' for the playing of records. To the extent that the talk is of significance, the time thus used, of course, falls outside standard format. To the extent that it is vacuous, e.g., one witling ridiculing another, such programs simply involve an exchange of platters for chatter with basic format remaining unchanged," (Boardman Broadcasting Company, Inc., FCC 67D-9, February 17, 1967 [Initial Decision].)

In spite of what the Examiner concluded that "every casual listener knows," this section of the study is designed to show the extent of reliance on recorded music as a source of radio programming and revenues.

B. Source of Data

To determine the extent to which radio stations utilize recorded music in their programming, reference was made to the stations' renewal applications on file with the Federal Communications Commission. The Commission maintains in its public reference room an individual file for each station. These files contain virtually all materials which are available for public inspection pertaining to the stations, including renewal applications which have been granted. The files are