4. Smaller Markets.-As previously noted, the Commission publishes composite figures for a particular market only if at least three stations in the market file the required financial report. This aspect of the study is concerned with nonmetropolitan markets for which FCC financial figures are available. The Commission's 1965 financial report contains figures for 87 such markets. A total of 30 markets in 30 different states were analyzed.

In considering these smaller markets, consideration was given network commercial programming in order to give a more realistic picture of the extent to which recorded music is utilized, particularly in the revenue-producing end of the stations' operations. Of the 92 stations operating in the 30 markets analyzed for which data was obtained, 72 carried network programming. The analysis shows that network programs account for a disproportionately small share of the revenues for a station in comparison with the amount of network commercial programming carried.

Thus, in Selma, Alabama, for example, where time sales (including network) totaled $217,667, network programming accounted for 24.73 percent of the total commercial time. Network revenues to stations, however, totaled only $5,512 or 2.48 percent of total sales. Similarly, in Alexandria, Louisiana, where time sales totaled $553,039, network programming accounted for 22..1 percent of the total commercial time, although network revenues to stations totaled only $8,241, or 1.49 percent of the total revenues.18

During the composite weeks analyzed by the 92 stations for which usable data was obtained in these 30 markets, a total of 10,846 hours were broadcast, 7,162 (or 66.03 percent of all hours) of which were of the recorded variety. There were 7.471 commercial hours broadcast, of which 4,898 (or 65.56 percent of all commercial hours) were of the recorded variety. The 72 stations utilizing network programming broadcast a total of 1,484 network commercial hours which represented 19.86 percent of all commercial time, although network revenues accounted for only 2 percent of the time sales in the markets. Thus, network and recorded programming accounted for 6,832 hours (85.42 percent of all commercial hours). Assuming, except for network programming, a direct relationship between commercial hours and time sales, the 4,898 (65.56 percent) recorded commercial hours accounted for 77.27 percent of sales, while the 1,484 (19.86 percent) network commercial hours account for only 2 percent of sales."

The following table contains detailed figures for the 92 stations:

is Because of the larger numbers of nonaffiliated stations in the 10 larger markets, it was not necessary to consider network programing, except in general terms, because the substantial disproportion does not there result. On an overall basis, however, network revenues to stations totaled $11,039,606 which represents only 1.39 percent of total time sales for stations.

1 The 77.27 percent figure is obtained by subtracting from the network commercial time 149 hours (representing 2 percent of total commercial hours) and crediting recorded commercial with 65.56 percent of the balance of network commercial hours.

5. One-Station Markets.-As heretofore noted, the Commission publishes market figures only if three or more stations operating in a particular market file the required financial report. Figures for individual stations are not released and, accordingly, it is not possible to relate directly programming and revenues for one and two-station markets.

In 1965 there were 1,481 communities in which only one station operated. Under the Commission's method of reporting, a community with one AM and one FM facility operated under common ownership would be considered a one-station market.

Of these one-station market we selected at random three markets from each state. Usable programming data was available for 120 stations so selected, representing, of course, 120 different communities.

During the composite weeks analyzed these 120 stations reported broadcasting a total of 13,539 hours, 9,357 (or 69.11 percent of all hours) of which were of the recorded variety. There were 8,595 commercial hours broadcast, 6,051 (or 70.40 percent) were of the recorded variety.

There were 78 of the 120 stations which reported broadcasting network programming a total of 1,065 commercial hours which represented 12.39 percent of all commercial time. Thus, network and recorded programming accounted for 7,116 hours (82.79 percent of all commercial hours). On a nationwide basis, network time sales for individual stations accounted for only 1.39 percent of total time sales. Using this percentage and assuming, except for network programming, a direct relationship between commercial hours and time sales, the 6,051 (70.40 percent) recorded commercial hours accounted for 78.15 percent of sales, while the 1,065 (12.39 percent) network commercial hours accounted for 1.39 percent of sales.20

6. Other Stations.-As previously noted, programming information was obtained from renewal applications which are filed in alphabetical order by call letters. In order to obtain a random sampling of other stations we analyzed programming information for every eighth station for which usable data was available and for which figures are not contained elsewhere in this study.

Figures for a total of 455 stations were thus obtained. During the composite weeks analyzed by these stations, a total of 49,941 hours were broadcast, 36,558 (or 73.20 percent of all hours) of which were of the recorded variety. There were 32,263 commercial hours broadcast, of which 24,506 (or 75.95 percent of all commercial hours) were of the recorded variety. These stations also reported broadcasting a total of 2,729 network commercial hours which represented 8.45 percent of all commercial time. On an industry-wide basis, however, network sales to stations accounted for only 1.39 percent of total time sales. Using this figure and assuming, except for network programming, a direct relationship between commercial hours and time sales, the 24,506 recorded commercial hours accounted for 81.33 percent of sales, while the 2,729 network commercial hours accounted for only 1.39 of sales."

Senator BURDICK. I have just one question at this time, and we will reserve more questioning until the testimony of the entire panel is finished, unless the Senator has a question.

Senator MCCLELLAN. NO.

Senator BURDICK. Was the subject and the text of the Williams amendment argued and presented in the House?

Mr. ARNOLD. The record industry offered no testimony on performance rates before the House committee. The Register had informed us that it would prefer not to have that issue raised and we therefore confined our efforts to insisting that the mechanical rate remain at 2 cents. However, Mr. Livingston, on behalf of Capitol Records, did raise the issue of performance rates. In answer to Mr. Livingston's testimony the Register concluded:

20 The 78.15 figure is obtained by subtracting from the network commercial time 119 hours (representing 1.39 percent of total commercial hours) and crediting recorded commercial with 70.40 percent of the balance of network commercial hours.

21 The 81.33 percent figure is obtained by subtracting from the network commercial time 448 hours (representing 1.39 percent of total commercial hours) and crediting recorded commercial with 75.95 percent of the balance of network commercial hours.

79-397-67-pt. 2- -12

I am wholly sympathetic with the testimony from the 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 U.S. as it is now in other countries.

So the Register agrees that the record industry is entitled to performance rights. The only reason he does not give the record industry rights is that he is opposed. I do not think that is a sufficient reason. Senator BURDICK Who is the next witness?

Mr. ARNOLD. Mr. Livingston.

STATEMENT OF ALAN W. LIVINGSTON

Mr. LIVINGSTON. In the interest of brevity, I am going to skip certain paragraphs and certain material which is in the nature of backup information and examples. But I would like to have my entire statement in the record as if read, if I may.

Senator BURDICK. Without objection, it is so ordered.

Mr. LIVINGSTON. My name is Alan W. Livingston, and I am a resident of Beverly Hills, Calif. I have been in the entertainment business for over 20 years.

Early in my career, I was a musician and songwriter. Subsequently, I became a record producer, a record company executive, and, later, vice president in charge of television programing in Hollywood for the National Broadcasting Co. I returned to the record business to become president of Capitol.

I fully support the proposition that the record industry cannot stand the increased copyright royalties proposed in the pending copyright bill. This is amply proved by the economic study, already a part of the record before the House subcommittee, made by Prof. John Desmond Glover of the Harvard Business School. Since that subject is being covered in detail by others, I shall deal with what I consider to be the outstanding weakness of the pending copyright bill; namely, its failure to enable recording artists and record manufacturers to control, in any manner, the public performance for profit of the products created through their combined artistic efforts.

Under existing law the income from the recording and exploitation of music on phonograph records is divided among (1) the record manufacturer; (2) the publisher and writer of the music and lyrics; and (3) the record artist (soloist), musical arranger, and performing (supporting) musician.

THE RECORD MANUFACTURER

The record manufacturer makes his profit, if any, solely from the sale of records. His profit is the money remaining after he has paid recording costs, physical manufacturing costs, selling and promotion expenses, overhead, mechanical license fees, and artist royalties.

In the United States, phonograph records are the source of almost all popular music. Through the producing and selling of phonograph records, musical works are "created," exploited, and given their real copyright value.

To the music publisher and songwriter it might appear that the only contribution which the record company makes is to supply the

money and take the financial risk involved in making a record. In point of fact, the record manufacturer not only takes the financial risk but makes an important creative contribution. The record company provides the musically trained personnel who determine what song is to be sung best by what performer. Such personnel determine the nature and instrumentation of the orchestra to play the song. It selects and works with the highly skilled person who arranges and orchestrates the song, and often it may make technical and musical contributions to the performance itself which are far beyond what the songwriter contemplated. Indeed, the contributions of the record company's personnel are very often the deciding factor of whether or not a record and the song become a hit, and result in a valuable musical copyright to the long-range benefit of the writer and publisher. This point was well made by a music critic in the New York Times1 when writing about the Beatles. He said:

The care with which their . . . (Record Company Producer) George Martin figures out microphone placement and sound levels for each new LP is responsible for much of their success.

Continuing, he said:

Mr. Martin's delicate hand insures that each track will have a particular electronic focus and atmosphere, and this is one reason Beatles LP's generally avoid monotony. . . Mr. Martin also is the Beatles' arranger and must be given a good deal of credit for the increasing musical sophistication that marks the group's progress on records.

The record business is one of great risks. For example, although Capitol is one of the three top companies in the record industry, Capitol loses money on five out of six single records and on 50 percent of the popular longplaying albums released. Recently the head of Warner Bros. Records 2 said that nine out of 10 records released by his company are losers. Of the approximately 3,000 individuals and companies with which the American Federation of Musicians had phonograph record labor contracts, only 300 had a profitable year in 1964. For an industry fraught with such risks, one would surely expect that successful companies in their profitable years would then reap larger than normal rewards. Professor Grover's report showed an average 1.7 percentage of net profits to sales for the industry. And yet the pending copyright bill proposes a minimum increase of 25 percent in the mechanical license fees. Its adoption would thus increase our cost of doing business, increase our risks and lower, and in some periods even eliminate, the profit margin.

THE MUSIC PUBLISHER AND SONGWRITERS

The proposed increase in mechanical license fees is designed to increase compensation presently paid too the music publisher and the songwriter. They receive their income from:

(a) Payments from the sale of sheet music, lyric magazines, synchronization rights (use in theatrical and television film), et cetera; (b) Mechanical license fees paid on the sale of every record embodying the music or lyrics; and

1 Dan Sullivan, New York Times drama section, Mar. 5, 1967.

2 Mike Maitland, Warner Bros. Records, Harvard Club Luncheon, Los Angelies, Calif., Feb. 15, 1967.