not to date formally asked for a decrease in the statutory rate. They made this compromise only because they did not want to raise an issue which might impede the passage of the bill.

We hope that the Register, after reexamining the massive data and arguments presented by the record manufacturers, will endorse their position as to the extreme reasonableness of the current statutory royalty or, in the alternative, call on the music publishers for their profit figures. In the absence of these figures, no rational judgment can be made which contradicts the evidence given by Dr. Glover.

(3) A third consideration which does not exist in the ordinary case is the principle that composers should be given every advantage consistent with the public interest. The publishers are a bottleneck through which the composers must go. Individual composers have no bargaining power. A central question before the Register and before this committee is whether there is a fair distribution of the royalty dollars going to copyright holders-a fair division which accurately reflects the ratio of creative contribution made by publishers and composers. The question of the fairness in protection of the composers as opposed to publishers has not been considered by the Register. We think it should be.

(4) A fourth consideration essential to the protection of individual artists and performers, which we assume is implicit in this bill, is whether a combination of publishers and composers-which controls the lead sheets (the basic notes of the composition played by one finger on the piano)—is getting more than its fair share of the royalty dollar to the disadvantage of the artist or performer on the recording side who contributes quantitatively the great bulk of the final recorded performance. There are numerically more creative parties on the record side than on the publishers' side. Obviously, an adverse economic impact on record manufacturers, by reason of any increase in the mechanical royalty, must also have a similar impact on artists and performers.

As we have pointed out, the composer's lead sheet is but one element in the complete recorded product. Record manufacturers contribute creativity in the form of arrangements, selection of performers, and technology. This was illustrated by the variations on the basic theme of "I Believe" played on a record before this committee. The Register seemed to agree when he testified in favor of a copyright for phonograph records, stating "I also believe that the contribution of the record producer to a great many sound recordings also represent true authorship' and are just as entitled to protection as motion pictures and photographs."

(5) Finally, there is the public interest in promoting classical music which seems to have been ignored by the Register. Dr. Glover's report shows that such records usually lose money. Indeed, it would be scarcely necessary to engage in an economic study to prove this. Most older people, including myself, do not understand classical music. Orchestras and grand opera have to be heavily subsidized. Had I had the opportunity in my schooldays to hear more classical music, I would undoubtedly have better taste today. It is only in recent years and due, I think, entirely to the record industry that classical music has been brought into the home and, as a result, American musical taste is improving. tunately, the easiest way for a record company to absorb the proposed extra cost of an increased compulsory license fee is to cut down on unprofitable recordings of classical music, thus substantially depriving the American public of such music.

Unfor

The music publishers' spokesman recognizes that any increased fee means increased risks with the probable cutback in classical recordings. But he seems indifferent to these effects.

Compare this attitude to that of the Federal Communications Commission with respect to broadcasting licenses. In granting such licenses, the FCC puts every possible pressure on the applicant to give more time to relatively unprofitable programs which will improve popular tastes. In considering the terms of musical licenses, we think that the Register of Copyrights has the same obligation to encourage the production of unprofitable classical music.

With respect to classical music, it is impossible to set any fixed rate for a composition as is done ordinarily in popular music. Although the statute does not provide a rate for a record based on playing time, it is the practice in the record industry today to allow a quarter of a cent per minute on longer playing works. In respect to this practice, the Register says, "The quarter cent per minute rate now prevalent in the industry strikes me as much too low, but I am also impressed by the undesirability of establishing a rate that would impose

artificial time restrictions on recordings. I am now inclined to think that the 1 cent per minute rate is too high. ***"

Contrary to the Register's position, the only factual evidence on the issue is that the present quarter of a cent per minute rate, arrived at through negotiations, is on the high side. Any further increase would substantially impair the production of classical records, 87 percent of which already lose money.

If we are wrong on this, there should be some evidence to rebut Dr. Glover's position. The Register should not, and need not, engage in speculation, nor should the committee. In the absence of this showing, Dr. Glover's testimony should be taken as conclusive.

We submit that the five factors which we have outlined above are essential to a rational decision on the issue of whether the compulsory licensing fee should be increased. Dr. Glover's investigation and report are the only evidence in this record which gives to this committee the facts relevant to making its decision. The music publishers have refused, so far at least, to give similar facts with respect to their own profit picture. In the absence of that information, one can only compare the net profit figures of the record manufacturing industry with the gross royalties of the copyright holders. Indeed, the president of a major record company, having some considerable experience in the publishing field, stated to this committee that a music publisher has relatively low operating expenses and, therefore, its net income is virtually the same as its gross. Certainly the figures on chart 13 of Dr. Glover's statement establish the strong inference that the music publishers are getting more than their fair share of the sales dollar.

Instead of producing their figures, the spokesman for the music publishers presented a four-page summary of the services which they perform with no hint of what these services cost. Page 24 of the music publishers' spokesman's statement sums up the character of these services as follows: First, they are a “kind of a funnel." Second, the publisher is "a business partner in a marriage," and, third, "he is a wet nurse."

It may be that carrying out the roles of a funnel, a husband, and a wet nurse at the same time may be difficult and expensive. We suspect, however, that it is easy and cheap. Yet the costs of funneling, wet nursing, and marrying composers have not been disclosed by the publishing industry.

It is our own belief from Dr. Glover's study, and also from general experience in the industry, that the music publishers are earning much more than a fair return on their investment, that all they do is promotion for the sale and distribution of their copyright, and that their market is largely created by the record industry, not only from mechanical royalty fees but from performance fees, the bulk of which are accrued as a result of records being played on radio.

The committee can resolve this question only by calling on the music publishers for their net profits. We request them to ask the publishers to submit these figures.

MR. NATHAN'S STATEMENT

In the light of the history of attacks on compulsory licensing-all of which have failed after congressional study between 1909 and the present date-we think it unnecessary to take the committee's time in rebutting Mr. Nathan's recent attack in detail. We refer the committee to the study made by the record industry in 1963, which is part of this record and which compelled the Register to change his mind and to recognize the necessity of such a system.

In general, Mr. Nathan's testimony is based on the erroneous theory that the situation with respect to recorded music is the same as that of a patent or a book copyright where compulsory licensing is not required. What Mr. Nathan does not understand is that, with respect to a book copyright, the doctrine of fair use precludes the author having the kind of monopoly power which the original composer would have over recorded music if compulsory licensing had not been developed. In the case of a patent, which is a reward for a flash of genius, the courts are able to strike down such basic patents as would exist in the copyright industry without compulsory licensing. The judicial tests of originality or the flash of genius are not applicable to the copyright system. Therefore, a copyright is far more dangerous as an instrument to deprive the record industry of access to basic themes which they are required to obtain in order to remain in business than are book copyrights.

Finally, as to the statement of the spokesman for the music publishers that the proposed increase in the statutory rate will be absorbed by the industry, we

refer the committee to the Glover presentation which demonstrates that there is no "fat" available in margins, at any level of disribution, in the record industry which could absorb these substantial cost increases.

CONCLUSION

Finally, we wish to dispel any impression that the committee may have gained in the hearings that record manufacturers have in any way organized to negotiate mechanical royalty rates with publishers groups. On the contrary, the record manufacturer is the only segment of the music industry which is not a member of any collective bargaining organization dealing with royalty arrangements. For example, the composer is usually a member of an association, such as the American Guild of Authors & Composers, which has been responsible for the preparation of a uniform license fee sharing contract with publisher groups relating to the collection of mechanical royalties. Publishers in turn are usually members of ASCAP, BMI, or SESAC who fixed performance rates to be imposed on broadcasters until antitrust decrees regulated their monopoly power. Publishers are also members of other publisher groups such as the Music Publishers Protective Association which deals with the matter of establishing and collecting mechanical royalties from record manufacturers.

The compulsory license and the 2-cent mechanical royalty rate have enabled record manufacturers to operate in an unorganized competitive industry. If this compulsory licensing fee is raised, music publishers having a monopoly on primary themes will be enabled to form record companies of their own. We submit that nothing would contribute more to a monopolization of the record industry than to raise a rate which is at present giving that industry only 3.8 percent on its net worth.

Congressman Poff suggested at the close of the last hearing that it might be desirable if conflicting interests investigate the possibility of a compromise. In connection with this suggestion, we would like to point out that the record industry has been most moderate in its recommendations to this committee. It has not pushed those recommendations to the fullest extent that Dr. Glover's study would justify. For example, we think the industry could, on the basis of Dr. Glover's study, make a strong case showing that the present 2-cent mechanical fee is too high.

We further believe that the factual analysis we have presented before this committee clearly indicates that we should be equitably entitled to ask for a decrease in the alternative rate based on playing time for which we are now paying one-fourth cent per minute and which we have agreed to continue. Nevertheless, in order not to raise controversial issues, the Record Industry Association is willing to live with the 2-cent mechanical fee and the one-fourth cent playing time fee, both of which are clearly demonstrated as being on the high side by Dr. Glover's study.

The record industry is, of course, fully prepared at any time to present additional data to this committee and to discuss any issues of fact or equity with the chairman and members of this committee, the Register, and representatives of the music publishing industry.

Mr. KASTENMEIER. Your next witness will be?

Mr. ARNOLD. Mr. Lieberson.

Mr. KASTENMEIER. Mr. Goddard Lieberson, president of Columbia Records.

Mr. Lieberson.

STATEMENT OF GODDARD LIEBERSON, PRESIDENT, COLUMBIA RECORDS

Mr. LIEBERSON. Mr. Chairman, after listening this morning, I am afraid that a great deal of what I will say has already been said, but I think that one of the things that Congressmen have in common with recording men is that they learn to suffer repetitions and redundancies. Mr. KASTENMEIER. Mr. Lieberson, in this connectionMr. LIEBERSON. In connection with redundancies?

Mr. KASTENMEIER. You might state your own view as concisely as possible as to what it is you want this committee to do with reference to the so-called mechanical royalty.

Mr. LIEBERSON. Well, to be not only concise but terse, I would say it would be to retain the present fee, but I think in what I have to say this will come out.

Mr. KASTENMEIER. Proceed, sir.

Mr. LIEBERSON. Well, to continue the redundancies, I will say that my name is Goddard Lieberson. I am president of the Columbia Records Division of Columbia Broadcasting System, Inc., and I am also president of the Record Industry Association of America.

I think I would like to point out that, while indeed Columbia Records is a division of CBS, we are wholly autonomous, and completely independent, sometimes to the irritation of our parent company, but that is the case.

I am here to testify today on only one provision of the copyright revision bill, but it is a provision that is vitally important to the record industry, to the tens of thousands of persons who derive their livelihood from this industry, whether they be record company employees, performing artists, distributors, subdistributors, or record dealers, all over the country.

Even more important is this issue to that large segment of the American public, the millions of phonograph record purchasers.

And I want to point out, if I may-it is not in my speech, but I was struck by it in the discussion, here that this is a very large industry, and that while the consideration, I think, in the last statement was that the Big Five has 50 percent of the industry, you should realize that the remaining manufacturers in the industry have 50 percent of the industry, $600 million, probably, this year, so we are speaking about a very large amount of money in these proportions.

I think it is well to keep this in mind. Otherwise, perspective can go wrong as to the amount that falls into the lap of the larger companies.

Despite the truly herculean efforts of the Register of Copyrights, and I think that since you have been attending these meetings, you will know just how herculean these efforts have been-I think they must involve all of the 12 efforts of Hercules-and I say despite this effort on the part of the Copyright Register and his colleagues to draft a satisfactory copyright revision bill, and with full recognition of their sincere dedication and general accomplishment, I submit to you that they are deeply in error in recommending a 50-percent increase in the statutory copyright royalty from 2 cents to 3 cents, as provided in section 113 (c) (2) of the bill.

I would like to add, too, that I think this error is certainly due in part to the fact that all of the information was not available to the Register when he made this decision.

The raising of royalty, like the raising of pay, is an appealing idea, and if one does not consider the effect of such increases, it is easy to fall into an uneconomic trap.

Indeed, it does not sound radical to propose an increase of only 1 cent, especially when it is dramatically stated that the previous rate has been in the statute since 1909. However, this argument is com

pletely specious. It wholly neglects to consider what has happened in the intervening time period.

Obviously, the record industry has not remained static. Several technological revolutions have taken place, and this has been reflected in price adjustments, including tremendous proportionate royalty increases to copyright proprietors.

In fact, I think the present-day record bears the same relationship to the 1909 record that the present automobile does to the horse and buggy.

The longplaying record, which today accounts for over 75 percent of dollar sales of phonograph records and by the way, if you are confused by that figure in terms of what Professor Glover gave you, this is our figure, as far as Columbia Records was concerned-was only first introduced in 1948.

Whereas reports show that in 1909 the consumer paid between $1.50 and $7 for a record embodying 1 or 2 compositions, today he pays between $2 and $3.98 for a record carrying 12 compositions.

This is the true comparison: Copyright owners received 2 to 4 cents for a record selling between $1.50 and $7 in 1909. Today, they receive an aggregate of 24 cents for a record which sells between $2 and $3.98.

Because of the superficial attractiveness of the publishers' argument, which emphasizes the one little penny difference, the Record Industry Association of America decided to retain outstanding economic experts to study the problem and report to record manufacturers what would be the effect of the proposed increase.

You have heard from Professor Glover of the Harvard Business School, and, from the exhausive and objective study made by him and his colleagues, you know that the proposed increase would be devastatingly injurious to the record industry.

I am delighted that Professor Glover has demonstrated some facts here today, many of them, I think, that were new to us in the industry. That second chart, which I believe I could understand if I were to go back to Harvard and study, shows the true picture. Our industry is so often erroneously considered an industry of hits; it has a lot of publicity, it is the industry of the Beatles, of "My Fair Lady," it seems rich beyond all accounting, and very often people who are interested don't take the trouble to look at the percentage of profit in the total industry.

Today, a record company receives between $1.50 and $1.80 from its distributors for a record bearing a suggested list price of $3.98. Of this, the artist receives approximately 15 cents for each such record sold, and the copyright proprietors receive 24 cents.

To legislate an increase of 50 percent from 24 to 36 cents for publishers is simply unfair, especially since they do much less today than they did in 1909, and it is a grave question as to whether their role is not considerably less important than that of the performing artist, to say nothing of the creative talent supplied by the record company. The increase would leave even less money available for the record company to absorb the costs of the recording studio, the engineers, the producers of the recording session, the creation and manufacture of the record and jacket, the royalties to the musicians' and vocalists'