3.

(c) The average number of records which had to be sold per release in order to earn sufficient "revenues" to cover the average "investment" made per 1963 release. The following formula was used to calculate the information requested:

Average "Investment" per release
Average "Revenue" per record

=

Average number of records to be sold per release to cover the "investment"

("Investment", for this purpose, was considered to be those
out-of-pocket costs incurred in order to release a particular
record which are distinct for that release as compared to
another release. This investment would include such expenses
as any artists' advances, talent costs, and funds payments.
Recording overhead, if any, was allocated to the releases in
proportion to the number of selections.

"Revenue" was considered as the net sales price per record,
less the total direct out-of-pocket costs per record to manu-
facture and ship records to wholesalers. Direct out-of-pocket
costs included such variable costs as artists' royalties, if
they were not chargeable against advances, and copyright
licence fee payments. General and Administrative overhead
was allocated to the releases in proportion to the number of
selections.)

(d) A description of those elements included in the "investment" and "revenue" figures mentioned above.

(e) Total overhead costs, calculated thus: The total costs of goods sold plus the total operating expenses, less the total "investment" made in 1963, plus the total direct-out-of pocket costs incurred in 1963.

Data contained in this section refer to both monaural and stereophonic releases.

Exhibit 10 Record Companies

1.

Unit Sales Per Release

The following unit sales data were obtained directly from the 6-company survey data:

2. The calculation of the number of records required to earn a profit from each category of release was based upon the following revenue and cost estimates obtained from the survey companies:

*Artist royalties payable to artists after artists' royalties equal "talent" costs (sometimes studio and related costs also).

**Typically, classical artists receive royalties on all copies sold. In addition, most major orchestras receive lump sums contractual payments for exclusive recording privileges.

Catherine Corry[6, p. 216] has estimated from a variety of published sources the costs of a "Model $3.98" record, as follows:

3.

4.

5.

The breakeven points are a weighted average of the breakeven points of the sample companies. The weights used were each company's relative share of the total releases.

The breakeven data for the "3 cent rate" were obtained by increasing 50 per cent the copyright license fee payments included in the "2 cent rate" breakeven calculations. All other figures were held constant.

In terms of units, the increase of the statutory copyright license fee would raise the breakeven as follows;

Unit Sales needed to make a profit

50% Increase in

6.

The above calculation of classical LP breakeven is based upon the present copyright license fee rate of 1/4 cent per minute of playing time paid as a matter of practice by record companies to classical music copyright holders. This rate reflects the fact that classical records are a "loss" operation. If the 1 cent per minute rate was substituted for the 1/4 cent per minute the "breakeven" point for classical LP records would rise from the present 9, 700 to about 15,700 records per release. In this case, nearly 90 percent of all classical LP releases would lose money.

7. According to Catherine Corry, three of the companies in the survey (RCA Victor, Columbia, and Capitol) accounted for 75 per cent of the classical LP market in 1960 [6, p. 160].

8.

"Classical" was defined according to each company's definition for catalog purposes. All other records were called "non-classical", i. e., "popular".