Now we do not mean to imply that radio is not a good business. But the relative prosperity of particular broadcasting entites and for that matter, of particular recording entities, is primarily the result of business acumen. It is not because particular records are played. An advertiser buys a spot in a program unrelated to the particular musical numbers the program might contain. The format of the program represents the business judgment of the licensee. If it is good, the program sells; if it is not, he may find spare time on his hands.

Nor is it correct to state that broadcasters do not pay for the music they play. Last year radio and TV paid some $45 million to music licensing organizations. Of this some $20 million was paid by radio. This is more than 25 percent of the pretax profits of $77 million. To add another $20 million to this, and I assume that the record manufacturers and the performers would not settle for less than is already being paid by the composers-by the imposition of recording rights for sound recordings would place the burden on those least able to afford it-the small stations. And what of television? How many records are played on television stations? And while the record manufacturers have not made a claim against television per se, there are indications in the transcript-for example, Mr. Livingston's testimony on page 635 and on page 644 indicating a desire, in my opinion at least, to also go after performance rights for television stations.

Another factor overlooked by the manufacturers in their zeal to equate themselves with the authors and composers is the compulsory license problem. Under the present and proposed copyright law, the recording rights of composers are subject to a compulsory license. Once an owner has licensed his work to be recorded, anyone else may record it for a statuatory fee. This is designed to prevent a monopoly in the recording industry. It would appear to us that copyright and performance rights for record manufacturers would promote such a monopoly since the largest companies have exclusive contracts with the most popular artists. Judge Arnold is well aware of this problem and adverted to it in his testimony on March 21. On page 621 of the transcript, he stated that since there was no compulsory license for performing rights, composers and publishers were free to do as they pleased with respect to those rights. The result was "they built up a monopoly" and it was necessary for the Department of Justice to bring a criminal indictment against ASCAP and a civil proceeding against BMI. What assurance do we have that the grant of perform

ance rights to record manufacturers will not result in a similar abuse of power, making it necessary for the Department to step in once again? Turning now to the question of performing rights for performers. Presently, a performer obtains two fees: one, from the record manufacturer for making the initial pressing; and two, a stipulated sum for each record sold. This compensation is a result of bargaining between performer and record manufacturer and will be influenced, of course, by the reputation and popularity of the artist. To this dual compensation the performers would not add a third payment, compensation each time the record is played.

Contrast this with what the composer now receives and can receive under the copyright law, present and proposed. Once he permits a record to be made of his work, he must afford similar privileges to other record manufacturers. This precludes his ability to bargain with any manufacturer for the initial recording. He must be content with his performing rights and his royalty of 2 cents per copy.

Performing artists benefit from the wide exposure given their reeords by broadcast stations. Not only does it stimulate the sale of their recordings, but it promotes their personality and permits them to augment the demand of the public for personal appearances, endorsements, and other remunerations.

Finally, it has been stated on this record that some other countries have performing rights for sound recordings. I do not think it necessary to tell this committee that most broadcasting in other parts of the world is government owned. In the United States, under a system of free enterprise, we have built up the finest system of broadcasting in the world. By giving the widest possible dissemination to music of all kinds to people of all classes we have contributed substantially to the culture of the Nation.

The insertion of performers' rights in S. 597 would create tremendous complexities for all users of music. It would upset the traditional practice of decades and would breach all known copyright concepts. Gentlemen, we urge that you reject the proposed amendment to S. 597 that would extend performance rights to record manufacturers and performers.

Thank you.

(The statement of the National Broadcasting Co., Inc., previously referred to follows:)

STATEMENT OF NATIONAL BROADCASTING COMPANY, INC., BEFORE THE SUBCOMMITTEE ON PATENTS, TRADEMARKS AND COPYRIGHTS, SENATE JUDICIARY COMMITTEE NBC submits this statement for consideration by the Subcommittee on the question of the status to be given under the copyright laws to sound recordings. Special counsel and representatives of members of the Record Industry Association of America and the National Committee for the Recording Arts, testifying before this Subcommittee on March 21 and April 11, proposed that the producers of sound recordings, the recording companies, be granted an exclusive right of public performance and consequently a right to collect performance royalties for the benefit of themselves and the performers for sound recordings.

Such a grant would be at the expense of all those entities, including broadcasting stations, that use sound recordings, and it would be to the great detriment of the public.

NBC therefore fully supports the Statement which Douglas A. Anello, Esq General Counsel for the National Association of Broadcasters, is presenting today in opposition to the recognition of such a right under the copyright laws.

A brief analysis of the statistics and the arguments advanced by the RIAA, the NCRA and their representatives and members and submission of facts they omitted will establish, we believe, that their position is unjustified and that Amendment #131 should be rejected.

BACKGROUND

Under the bill (S. 597) in its present form, sound recordings would be given recognition in American copyright law as copyrightable works for the first time. This would be done under a definition of "fixation of a series of musical, spoken and other sounds", whether on disc, tape or other phonorecords. See sections 101 and 102.

That recognition will protect against unauthorized duplication and against distribution of phonorecords duplicated without authority. See sections 106 and

114.

To make clear the purpose of this limited extension of traditional copyright, section 114 of the present bill specifically states that the owner of the copyright in a sound recording is denied an exclusive right of public performance.

To the extent that copyright recognition protects against unauthorized duplication and distribution of phonorecords duplicated without authority, the bill carries over, federalizes, and perhaps refines a right of protection afforded to producers of and performers on sound recordings by the common law of unfair competition and related case and statutory law of the several states. In that context alone, assuming that appropriate exception is made to allow ephemeral recordings for broadcast purposes, NBC has offered no objection to using the device of copyright to afford that protection.

However, NBC opposes any further extension of copyright benefits and specifically opposes the establishment of an exclusive right of public performance in sound recordings.

NATURE OF BROADCASTING

The American system of broadcasting is based on the government grant of a license to use a portion of the spectrum for a public service and incidentally to have available a means of emergency communication between the government and the public.

In lieu of government subsidy or a tax or a charge on the ownership or use of receiving equipment, the American people have elected to have their broadcasting system supported predominantly by advertising. Most of this advertising is in the form of commercials of various advertisers, inserted in programs like newspaper and magazine advertising is inserted in publications, and without advertiser proprietorship of the program or identification with it. To the extent that the advertiser does seek identification with the programming, it is an identification with the program concept and not with particular item of material, whether it be musical numbers, conversation, news, discussions, or etc.

Accordingly, there is no such thing as the "sale" of a "sound recording" performance by the broadcaster to the advertiser for identifiable quid pro quo. The program is broadcast regardless of the presence or absence of commercial messages or the degree to which the station is able to obtain advertising material for broadcast.

NATURE OF THE RECORDING INDUSTRY

The business of the recording industry is the production and distribution of phononrecords to the public for use as the purchasers choose. The rewards to the recording company are realized through the proceeds from the public sale of the phonorecords.

The performing personnel who engage in sound recording activities do so primarily for two reasons: first, to increase their income by the sale of their phonorecords; and secondly, to promote their personalities and performance so as to increase the demand for their services. In the former aspect they may negotiate with the recording company a contract which gives them a share of the gross or net proceeds from the sale of the phonorecords.

Any analogy to motion pictures and other visual arts in terms of "production" and "artistic contribution" is superficial at best since these latter are typically in a pattern of limited circulation for exhibition rather than for mass distribution for personal use.

79-397-67-pt. 3- -14

THE RECORDING INDUSTRY ACTIVELY SEEKS AND PROFITS FROM THE BROADCASTING OF RECORDS

The broadcasting performance of phonorecords has traditionally been and continues to be a keystone in the development of the recording industry to its present size. That fact is inherent in the protests of the representatives of the recording industry themselves. Mr. Livingston even articulates it:

"Our aim is to take advantage of the immediate demand caused by initial radio exposure." Statement of Alan W. Livingston, page 16.

"... Capitol has endeavored to time distribution of records to radio stations with the date retailers are supplied with stock." Same, page 17. The simple fact is that the record companies are not now at all unhappy when their records are played by broadcasting stations. On the contrary, the record companies actively seek the broadcast of their records. They often give broadcasters free records together with promotional material for use when the records are broadcast. Occasional excesses in this regard, involving the paying of "payola" to individual disk jokeys to get them to play certain records, have come to the attention of Congress in past years and legislation enacted by it to deal with the problem.

Except for the depression years and with an occasional hesitation, the record industry's own figures of United States sales volume indicate a solid growth of manufacturers sales from an annual rate of around $33 million in the late 1920's to around $80 to $90 million after World War II to $300 million for 1965. In terms of list price value the figures are a little more than twice those amounts. Over the past nine years the number of "gold record awards" for records or albums selling over a million copies each has increased from one album and four singles in 1958 to some 58 albums and 23 singles in 1966.

This suggests that any lack of sizeable profits is attributable to competition in the industry rather than to any draining of values by the freedom of public performance.

BROADCASTING STATION STATISTICS

In their attempts to divert attention from their own tremendous expansion over the years and to arouse sympathy in favor of their request for performing royalties, the RIAA representatives have presented tabulations which do not accurately represent the economic facts concerning broadcasting stations. For example, they depict "average profits for profit-making stations" as ranging from about $31,400 o $42,000 anually over the five-year period from 1961 to 1965 (Supplement to Statement of Thurman Arnold dated March 21, 1967, page 4. bottom line). What is not indicaed in the tabulation is the percentage of stations with profits which were lower than the average indicated or the number of stations reporting losses or the extent of those losses. In 1965, of the 2,708 "profitmaking" stations, 2,261 or 83% reported profits below the $41,956 average for all "profit-making" stations. In 1965, there were 1,150 unprofitable stations. losing an average of almost $27,000 each. Moreover, independently owned FM stations showed an aggregate average loss of over $3 million per year during the five-year period.

Thus a large segment of the broadcasting industry can ill afford the burden of an additional direct cost for record company and record performer performing rights or the indirect cost of negotiating, administering and litigating which would also be involved. That such burden would not be insubstantial is the lesson from countries which have allowed such legislation to pass, notwithstanding tribunal findings contrary to some of the arguments made by the proponents.

The RIAA representatives rely on a few cases of early release by the broadcasters as a reason for giving a performing right control to the recording companies. Abuses by a few are not a sound basis for revolutionizing a system which has been in operation for many years with great service to the public and a high rate of industrial operation for the record makers.

CREATIVITY

The RIAA and the NCRA representatives endeavor to emphasize the "creative" contribution of the producer and of the performing "artists" to the value of the record, and emphasize the importance of these elements at the expense of the contribution of the composer.

There is no doubt of this considerable contribution in many instances because these are prime factors for business and professional success.

However, the producers and performing artists make their contribution for that very success, as do persons in many professions and business activities. Composers on the other hand create primarily for performance by others, and it is their creativity which the Constitution intendes (since generally speaking they are not in a position to perform their own works) to be encouraged by assurance of. reward.

The granting of an exclusive performing right to the recording company for the benefit of itself and the performer signifies a limitation on the availability of sound recordings for public performance. The overall effect of such a limitation would, if anything, be to stulify the creativity of the recording producers and of the performing "artists" rather than to enhance that creativity, since it would end to cause them to lose what incentive they have for variety and improvement in their output.

THE PUBLIC INTEREST

The granting of an exclusive public performing right to the recording companies would limit the ability of broadcasting and other media to serve the public. Broadcasting has been able to give the widest possible opportunity for the dissemination of musical works in the public domain to people of all classes and walks of life. It has contributed in large measure to popularizing serious music during the lifetime of the composers. It has fostered the development of new musical art forms in the field of popular music as well as in serious music, contributing to the enhancement of our musical culture in the broadest sense. It has enabled the very record companies and performers who have appeared before you to become widely known to the public and to obtain substantial income and profits. To place a power of limitation or taxation of these activities in the hands of the recording companies, operating under financial pressure from the performing personalities, is to give them the power to limit or deprive the people of this country of the benefits of free access. The public has traditionally had such success and should continue to have it as a matter of right.

Senator BURDICK. Thank you, Mr. Anello.

The chart that you have on page 6; I wonder if you would be kind enough to give me the source of that table, giving the manufacturer

sales.

Mr. ANELLO. The source of this? This came from a publication of the Record Industry Association of America. The original graph started with 1921.

John, do you know the source of this?

Mr. SHUTE. Other than stated, it came out of the research material from public information.

Mr. ANELLO. But this is from the RIA itself, Mr. Chairman, and it came from a publication. I can trace it down for you and submit it for you if the RIA objects to it.

Senator BURDICK. No, I am just asking, do you know what issues so I can pinpoint it.

Mr. ANELLO. No, sir; I do not.

Senator BURDICK. If you can, I would appreciate learning that.
Mr. ANELLO. I shall, sir.

Senator BURDICK. Going to the first part of your statement, Mr. Anello, I get the impression that you concede that the composer or the author is an originator, but anyone who deals with that origination is not in the same category?

Mr. ANELLO. That is correct, sir.

Senator BURDICK. That is, if I produce a song with words and music, then the one who uses that song is not in any way an originator; is that your theory?

Mr. ANFLLO. The one who uses it? You mean like a performer or a record manufacturer?