Comments on Exhibit 16

A summary of effects of an increase in the statutory copyright license fee on larger, medium-size, and smaller companies is contained in Exhibit 16.

Exhibit 16

EFFECTS OF INCREASE
IN COPYRIGHT FEES

ON LARGER, MEDIUM AND SMALLER
RECORD COMPANIES

■Most profits are made by larger companies ■But even larger companies can not support an increase in copyright license fees ■Medium size record companies are still less able to support an increase ■Small companies--which predominate in the record industry--can not at all support an increase

■For small companies, especially, an increase would require a drastic revision in ways of doing business in order to remain in the record industry

VI. RECORD COMPANIES AS A SOURCE OF INCOME
TO COMPOSERS AND PUBLISHERS

The total income to publishers and composers from record sales and record performances is substantial. During 1964, in addition to the $42.5 million, publishers and composers received from copyright license fees, they received $43. 4 million from performance fees, collected principally for the broadcasting of recorded music.

These performance fees are attributable in large part to activities of record companies in arranging and producing record releases, in promoting these records through trade and consumer advertising, and in promotional activities aimed at broadcasters.

The total income received by copyright holders from copyright license fees and performance fees has increased significantly. Between 1960 and 1964, the total copyright and performance income of copyright holders increased from $63.2 million to $85.9 million: an increase of 36%.

This income was generated in large part by, and attributable to, an increasing number of record releases and the sale of millions of records. From 1960 to 1963, the number of releases by record companies rose from 9,700 to 11, 200 releases. During 1963, some 215 million disks were sold.

See Exhibit 17.

Exhibit 17

Est. total copyright license fees ($million)

30.1

34.9

404 37.6

42.5

VII. IMPACT ON MARKETERS AND CONSUMERS

The next two exhibits, 18 and 19, show that an increase in record company prices to marketers, occasioned by an increase in the statutory copyright license fee, would have to be passed along by record marketers to consumers. Record marketers do not have wide enough gross margins to absorb the increase in record prices from record companies.

In the case, for example, of a "$3.98 list price" popular monaural LP which was discovered to typically retail at about $2. 83, an increase in the copyright license fee from 2 to 3¢ per composition per record would result in an increase of 20¢ in the retail price to the consumer from $2.83 to $3.03. (See Exhibit 19.)

No doubt, many record companies would experiment with actions designed to reduce or avoid such increases in price. In their LP's, for instance, record companies might make a practice of devoting one or more of the customary 12 bands or compositions to public domain music on which there is no copyright license fee. They might reduce the number of bands from 12 to 11, or even 10. They would try to avoid arrangements of pieces that ran over three minutes.

The actual outcome of events would probably be various combinations of increases in price, reductions in the number of copyright offerings, and other efforts to offset the increase in copyright fees.

Note: The data in this section of the presentation are based upon a sample of wholesalers that are members of two trade associations, the National Association of Record Merchandisers, Inc. and the American Record Merchants and Distributors Association, Inc. The 38 companies providing data consist of, respectively, 25 rack jobbers and 13 independent distributors. They are situated in various sections of the United States and their 1964 net sales ranged from less than $500,000 to more than $5 million.