NRM - National Association of Recording Merchandisers

Regular membership, 225 campanies consisting of retailers, rack-jobbers and
independent distributors of sound recordings. Trade association founded in
1958 to protect the interests of the merchandising community and to promote
the industry. Associate members include record companies and suppliers.
National Music Council

Membership, 1,500,000 in 61 national music organizations. Umbrella organization
chartered by Congress to function as an information and coordination service
for members that include camposers, lyricists, musicians, singers, teachers,
publishers, music licensing groups and recording companies.

National Music Publishers' Association

Membership, 275 publishers. Trade association representing publishers of American music, including fields of popular, classical, sacred, educational, concert, gospel and country music; collects and administers royalties through the Harry Fox Agency.

Recording Industry Association of America

Membership, 55 U.S. sound recording companies. Trade association founded in
1952 to work for the mutual interests and betterment of the industry.
Activities include Anti-Piracy Intelligence Unit and certification of
RIAA Gold/Platinum Record Awards.

RIAA/VIDEO

Membership, 25 U.S. video recording companies. Trade association founded

in 1980 to represent interests of emerging video recording industry and
to work for its betterment and expansion.

SESAC Inc.

Affiliates, 1,500. Licenses and collects fees for use of the works of its 1,000 songwriter and 500 publishers members, and actively promotes its membership.

Society of Professional Audio Recording Studios

Membership, 100 recording studios, major manufacturers, record companies and

producers. Trade association dedicated to excellence through innovation,
communication and education.

Mr. KASTENMEIER. Thank you, Mr. Chiantia, for that excellent testimony.

Mr. Gortikov will be our next witness. Mr. Stanley Gortikov is president of the Recording Industry of America and on many occasions has ably presented the views of his association before this subcommittee and we are really very pleased to again greet you, Mr. Gortikov.

TESTIMONY OF STANLEY M. GORTIKOV, PRESIDENT, RECORDING INDUSTRY ASSOCIATION OF AMERICA

Mr. GORTIKOV. Thank you. Our association's company members comprise those organizations which create and market about 90 percent of the prerecorded discs and tapes that are sold in the United States.

I come here this morning scared and so is my industry. Changing technology today is threatening to destroy the value of our copyrights and the vitality of the entire music industry. Our nemesis is home taping and it is costing our industry about $1 billion a year in lost sales. Now, at the mere touch of a pushbutton, an individual who sits at home or anywhere else can now copy our recorded music free. He can build an entire collection of recordings without ever buying one record. That all would be just fine except a lot of people, too many, are getting hurt.

And there is one additional silent and helpless victim of this changing technology and that is the copyright system itself. On the chart to your right, take a look at this handy dandy copyright killer. Its manufacturer describes it as "Tape City" and here is what it does. It can copy onto a tape cassette recorded music from AM radio, from FM radio. It can copy from a single record or a long-play album on the turntable at the top. It can copy from an eight-track cartridge in the slot in the lower right and in a side-byside double cassette slot, it can even copy from another cassette.

So, we need your help because of this bulldozer of copyrights that you see on that chart and other machines like it, which enable more and more people to tape all the time. Thirty-nine million are taping and they are taping more than ever before. In fact, they tape just about as many albums as we sell, almost 1 for 1.

Dramatic changes in technology have triggered an absolute explosion in hometaping and in the sales of blank cassettes. In 1981, 228 million cassette units were sold, but the recording time of those tapes is even more devastating because in the last 10 years blank tape music recording time on those tapes has jumped 291 percent to over 17 billion minutes and this fantastic increase comes not just from the growing sales, but also from the skew toward longer and longer cassettes, mostly 90 minutes.

Today's hometaping explosion is also reflected in a research report that was recently released by Warner Communications and I would like to go over briefly the seven key findings of that survey.

First, that 39 million persons taped music at home in the surveyed year, which was 1980. The retail market value of that taping was $2.85 billion. Now, hometapers copied 251 million complete albums, plus over 2 billion individual selections. That means the

equivalent of 455 million albums were hometaped in a year. Yet, in 1921 our industry sold the equivalent in prerecorded albums of 475 million So, that is 475 million albums that we sold versus 455 milhon albums that were hometaped. So, for every album we sold, there was one taped.

The reason most often cited for hometaping was, "So I didn't have to buy it."

Americans spent about $600 million in blank tape to record music and tapers have made the majority of records they copy from records they do not own. Most hometaping, it was found, is done by affluent, educated, individual adults betweem 20 and 34 years of age, not by kids who are trying to scrimp along on their weekly allowance.

Again, the effect of this gigantic taping explosion has been an annual sales loss of about $1 billion in an industry whose total retail sales are more than $3 billion.

All of those facts and figures came alive for me not long ago when I rode on an airplane next to a senior executive from a large American brewery who was listening to his personal tape player. He was a man about 40 years old. I asked him how many cassettes he carried with him. He told me eight. I said, "What are your favorite artists that you usually buy on those cassettes?" And he said, "I don't buy any cassettes." He said, "About six of my friends got together in kind of a tape club and we just copy from each

other.'"

So, it is hometapers like that executive who are having a devastating effect on the American music industry. Those tapers are appropriating the copyrighted recordings and the talents of vocalists, musicians, composers, publishers, recording companies. They are diminishing the worth of our investments. They are expanding our risks. They are reducing the chance for fair income and a reasonable profit. They jeopardize employment and careers and they curb new releases and new artists. And, of course, they displace sales. Beyond that they reduce opportunity for creative musical experimentation and the availability of new music for the public.

Now, all of that is real economic harm. That brewery executive that I spoke about was allowed aboard that airplane carrying eight threats aimed at my industry and they all looked like this. It is a blank cassette. It is 90 minutes long and I bought it for $2.17 at a drug store. And take a close look. It is nothing more than a bunch of plastic and spindles and hubs and plastics and oxides and chemicals. This pile of plastics and chemicals is absolutely useless in itself. It becomes valuable to its manufacturer, to its importer, and to its purchaser only when it records music, our copyrighted music. So, this scramble of parts and pieces can capture 90 minutes of copyrighted prerecorded music, two complete albums, 20 copyrighted recorded tunes.

So, that brewery executive and tapers like him pay nothing, absolutely nothing, to recording musicians, vocalists, composers, publishers, recording companies. Only the plastic fabricators of this stuff get paid. Only the marketers of the medium that is useless without us. For the American music industry, from this little pile here, there is no income, no employment, no careers, no investment recovery, no profit, not even a chance.

We very well know how hometaping is hurting us. While blank tape sales continue to rise, unit sales of prerecorded albums decline. Just last week we published figures on the number of new LP album titles released in 1981. For the fourth year in a row, that number of new releases declined, 8 percent below the year before and a massive 32 percent less than 1978-32 percent. Can you imagine 32 percent fewer books or 32 percent less movies or 32 percent dip in television show choices? But this is hardly surprising for us. With diminishing income from record sales, record companies have less money to invest in new albums, especially albums by unknown artists or new musical directions where greater risks are at stake. So, that decline in record releases gives fewer and fewer choices to music lovers, which violates the public interest and the real goals of the Copyright Act.

H.R. 5705 establishes a copyright royalty system that will help maintain a fair incentive for the recording of music. And the royalty, however, will be paid by those who benefit from our losses, the manufacturers and importers of tape and taping equipment. Now, you are the guarantors of copyright protection and the sentinels who can stem technology's erosion of copyrights. By your action, 5705 can help correct the imbalance that hometaping is creating between those who use the music and exploit it on the one hand and those who must create it, perform it and record it on the other. H.R. 5705 serves the interests of another constituency that is important to us, as it is to you, the American consumer. The royalty we support will directly benefit the consumer who enjoys and who even tapes the recorded music. If you carry hometaping to its logical conclusion, there will be less and less music even for the consumer who wishes to tape. But if you compensate those who create the music, then you assure the availability and the diversity of that music for all consumers.

Now, the failure to enact the royalty, unfortunately, will insure that those who do buy recordings must pay more, so that those who hometape instead can pay absolutely nothing. So, a reasonable royalty then is the consumer's only protection to assure access to the broad range of music he wants and our assurance that we can continue to provide it.

The royalty system proposed in the legislation can rely on existing precedents and benchmarks to assure that it is fair and reasonable and workable. The tribunal has already set royalty rates for public broadcasting, jukeboxes, cable operators, and our own industry. It would be able to do so in this case, too, and in the course of the evidentiary proceeding that is prescribed in the bill, the tribunal would also be able to factor in the amount of taping that is done for nonmusic purposes. Similarly, the tribunal is already supervising the collection and distribution of royalties from cable and jukebox fees and it can assume comparable functions for home. taping royalties.

Moreover, a royalty collection and distribution system already exists in the private sector, not only in the United States but throughout most Western countries. Every year, ASCAP, BMI, SESAC collect royalties from thousands of sources and then distribute shares to more thousands of recipients determined by accepted sampling methodology.

The royalty system proposed in this bill could be even simpler because the audio royalty would be paid from only about 42 blank and 95 taping equipment manufacturers and importers.

In this legislation, the tribunal, in setting a royalty rate, may consider the modest amount of taping for nonmusic purposes. It might even reduce royalties to take account of such use or it might even exempt altogether certain kinds of tape or equipment. But Congress or the tribunal need not stand alone as protectors of the nonmusic taper. In addition, the manufacturers and importers of blank tape and taping equipment themselves will have the capability to assure fairness for the nonmusic taper because they are going to have the total and unilateral capability to control the pass-on of these costs. They can decide whether any royalty at all should be passed on to the consumer or how it is passed on and on which products.

Therefore, a given manufacturer or importer, to be fair to the small percentage of nonmusic tapers, could, for example, choose to add no royalty factor, say, to a business tape recorder or to very low-priced tapes being sold primarily for office dictation or school uses. The decision would be theirs, not ours or yours, and they could understandably confine royalties for music use to those who get the benefits of music use.

Finally, I would like to turn briefly to section 6 of 5705, which addresses for the first time a problem the recording industry views as a ticking time bomb. I speak of the emerging practice of renting sound recordings. Shops which rent records charge a small rental fee for 24-hour use of a recording. Such rentals are for one purpose only, for hometaping. Such audio rentals are rather new to our shores and shops are now popping out in many places, but record rental already is a raging cancer in the recording industry in Japan.

I have spoken with Japan industry executives and as recently as mid-1980-that is just 2 years ago-there were only about 2 dozen rental shops in Japan. Now, that count is close to 1,200 such stores. In Japan, 97.4 percent-and this is right out of a Japan study-97.4 percent of those who rent audio records admit they record at home the records which they rent. And wherever a given record rental outlet operates, the conventional record stores in that zone are experiencing declines in sales of more than 30 percent.

Every recording rented and taped is a lost sale, 1 for 1. The Japanese study shows that copies are even made from copies, once the rental is completed. That chart shows that over 61 percent of copies made from rentals are passed along to others for further taping. That is why we are so genuinely fearful of audio record. rental. Such rentals are a pure displacement of sales.

So, we urge you not to allow the economic disease afflicting Japan to become an epidemic here, too. Only your support of section 5 of 5705 can assure that it won't happen here.

We know hometaping to be a monumental problem and it is a massive curtailment of opportunity when you find that $1 billion a year in legitimate sales are lost. We know that changing technology that spawns hometaping is destroying the value of our copyrights, our jobs, our careers, creativity and we are not opposing technological change.