V. FINANCIAL RESULTS OF RECORD COMPANIES-

PROFITS, COPYRIGHT FEES,

ARTIST ROYALTIES, FUND PAYMENTS

1.

2.

The financial data shown in this section were obtained from 20 record companies:

ABC-Paramount Records, Inc.
Capitol Records, Inc.

Colpix Records

Columbia Records

Continental Record Co., Inc.

Crescendo Records

Decca Records, Inc.

Disneyland Records

Dot Records, Inc.

Folkways Records & Service Co.

Kapp Records, Inc.

Laurie Records, Inc.

London Records, Inc.

Mercury Record Corp.

M-G-M Records

Premier Albums of N. J., Inc.

RCA Victor

20th Century Fox Record Corp.

Warner Bros. Records, Inc.
Word Records, Inc.

Each of these companies provided the following financial data, which was collected and consolidated by the certified public accounting firm of Brach, Gosswein & Lane, 1776 Broadway, New York, New

York 10019:

Gross Sales

(Gross sales included all domestic and export sales of records
and tapes. Since record clubs were being considered as
"retailing" or "distributing" operations for purposes of analysis,
sales to, not by, record clubs were reported in gross sales
just as sales made to any other type of distributive organization.
In those cases where the company sold through a wholly owned
sales subsidiary, sales, as well as the expenses of the sales
subsidiary, were included in the financial reporting of record
manufacturing operations. If the company sold or marketed

records through partially or wholly owned distributors, financial results of the distributor organization were not reported, although sales to distributors were. In addition, income from activities other than record manufacturing, such as income from leased facilities or custom pressing of records for others was accounted for in other accounts shown below.)

Less: Federal Excise Taxes

(Excise taxes actually paid.)

Returns, Exchanges, Allowances,
Cash Discounts, Bad Debts, and
State Excise Taxes (if any)

(Bad debts arising from record club operation were
included in this account. Record club bad debts were
included in record manufacturing operations so as to
avoid a misleading picture of bad debts in those cases
where record manufacturers sold to their own record
clubs and hence avoided the bad debts associated with
these sales. The bad debts arising from club
activities were about 1.8% of net sales for the
sample companies.)

Net Sales

(Self-explanatory)

Cost of Goods Sold

A&R Costs

(These costs were the salaries of the A&R Department and/or wages paid to part-time A&R personnel.)

Studio Costs

(Salaries of engineers and technicians and costs of studio facilities were included in this account. Such costs included editing and manufacture of the so-called "lacquer." If a company owned studios which were leased to others, then income derived from this activity was deducted from the Studio Costs. If the firm did not own a studio but leased studios owned by others for recording sessions, these leasing costs were included in this account.)

Recording Session Costs

(These costs are often referred to as talent costs and included all payments made to musicians, vocalists, leaders, arrangers, orchestrators, copyists or other "talents." Artists' royalties were included.)

Artists Payments

(This included net payments made to recording artists which were usually in the form of royalties and/or advances.

With

respect to advances, only the unabsorbed portion was included.)

AFTRA Payments

(Payments to the Union's pension fund)

AF of M Payments

(Payments to the Union's pension fund)

Actors Equity Association Payments

(Payments to the Union's pension fund)

MPTF

(All payments to the trustees of this fund, including the U. S. Trust Company portion since January 1, 1964.)

Purchased Masters

(In some instances, record companies purchased masters produced by others, often by independent A&R men. The total cost of any purchased masters, including royalties, if any, was included in this account.)

Art Department Costs

(This is the cost of an in-house art department, or fees paid for outside art services for use on album jackets and for related art work.)

Manufacturing Costs

(This includes all the labor, material, and manufacturing overhead costs associated with the reproduction of records packed ready for shipping. For companies manufacturing records for others, a net figure was shown, i. e., manufacturing costs, less income from records manufactured for others. Companies paying for records manufactured by others included these costs in the purchased record account below.)

Shipping, Transportation, and Warehousing

(Self-explanatory)

Research and Development Engineering Costs

(A few companies expended funds in efforts to improve the state-
of-the-art of sound reproduction. Such expenses were identified here.

Purchased Records

(In some instances, record companies purchased records manufacture by others. The manufacturing portion of this cost, as defined above, was included here. If payments made also included payments for purchased masters, those portions of payments for purchased masters were included under the "Purchased Masters" account.)

Copyright License Fees

(All mechanical royalty, i.e., copyright license, payments to
music copyright holders made directly or through agents to
publishers and/or composers and lyricists.)

Total Cost of Goods Sold

(Self-explanatory)

Expenses

Selling, Advertising and Promotion

(These expense categories were combined.

If the company had a

wholly owned sales subsidiary, the costs of the subsidiary were included in this account.)

General Administrative

(For the sake of convenience, interest expense, if any, was included here.)

Total Operating Expenses

(Self-explanatory)

3.

Other Income

(This account includes fees received for use of masters overseas.
It did not include income from record clubs. Income from
leasing of studio facilities and manufacture of records was not
included here. Income from publishing was not included. Any
income from non-record-related activities was not included.)

Net Operating Profit Before Income Taxes

(Self-explanatory)

Income Taxes

(This was an estimate of the record manufacturing operations share of income taxes paid.)

Net Profit After Taxes

(Self-explanatory)

Net Worth (End of Year)

(Independent record companies indicated their net worth,
i.e., stockholders' net capital, including retained earnings
and surplus. In cases where companies were engaged in
activities other than those covered by this survey, a best
estimate of net worth related to record manufacturing
operations was made.

The following consolidated financial results were obtained from the survey: