Mr. LIEBERSON. Let me make this clear, Congressman Hutchinson. The idea is that it depends upon our sale of the record.

Am I not correct? It is our sale, so the record could be in somebody's inventory, but it is based on our sale. We would still have to pay for it, you see.

Mr. HUTCHINSON. Yes, but until you sell it, you don't have to make the payment?

Mr. LIEBERSON. That is correct.

Mr. DAVIS. Unless we use the compulsory license procedure, which is rarely used. But when that is used, you would pay based on the records that are manufactured, yes.

Mr. HUTCHINSON. That is what I thought we were reaching.

This section that we were talking about, section 113 (c) (2), has to do with compulsory licensing.

Mr. DAVIS. That is correct.

Mr. HUTCHINSON. And in connection with compulsory licensing, then, do you pay this 2 cents on every record pressed?

Mr. DAVIS. That is correct.

Mr. HUTCHINSON. Regardless of whether you actually make a sale of that inventory or not?

Mr. DAVIS. That is correct.

Mr. HUTCHINSON. Thank you.

Mr. KASTEN MEIER. I thank Mr. Hutchinson for his questions.

If I may just ask one more, to follow up on that, I assume apart from compulsory licensing in your contracting with the various individuals, publishing houses or others, that your contract really calls for sale, rather than pressing?

Mr. LIEBERSON. That is correct.

Mr. DAVIS. Harry Fox's office represents over 70 percent of publishers and performs this collection role for the publishers, as does ASCAP and BMI in the performing rights area for the publisher.

The collection office which is used the great majority of times has in its own license, "manufactured and sold."

Mr. KASTENMEIER. Thank you.

The committee thanks the witnesses for their very enlightening testimony this morning.

We will now recess to answer a quorum call and for lunch. We will return after lunch to hear from Mr. Kapp, Mr. Livingston, and Mr. Mevers.

The subcommittee will stand adjourned until 2 o'clock this after

noon.

(Whereupon, at 12:20 p.m., the subcommittee recessed, to reconvene at 2 p.m., the same day.)

AFTERNOON SESSION

Mr. KASTENMEIER. The committee will come to order. The Chair would like to announce that we may be interrupted by further quorum calls this afternoon, and we will try to expeditiously complete our hearings, and try to work around any further quorum calls or votes that may interrupt the hearing.

This morning we recessed at the point where Mr. Lieberson had completed his testimony, and the next scheduled witness is Mr. David Kapp, president of Kapp Records, Inc.

Mr. Kapp, welcome to the committee.

Proceed, sir.

Mr. KAPP. My name is David Kapp. I am the president of Kapp Records, Inc. That is Kapp, K-a-p-p, not Capitol Records, which is to follow me.

The company is privately owned. Roger Williams, Jack Jones, Hugo Winterhalter, Eartha Kitt, Bill Dana, Fred Astaire, David Rose, Harry Simeone, Joe Harnell, Louis Armstrong, and many other important artists are or have been on the Kapp label. The company, with offices in New York, has a diversified product-popular, folk, and classical albums, as well as popular "single" records. We have been forced to discontinue the recording of classical recordings, because it became economically unsound. Our losses were too great.

My family has been in the record business since 1906, when my father started to work for the original Columbia Record Co. In 1921 my brother Jack and I opened our own music store in Chicago and we operated the store until the record business reached its lowest point in 1932. We then went out of the retail record business.

In 1934 my brother Jack, together with E. R. Lewis-now Sir Edward Lewis-of London, founded Decca Records in the United States. I joined Decca in 1934 as a recording director and in 1945 I became vice president of Decca, in charge of all recordings. In 1951 I joined Radio Corp. of America as manager of popular artists and repertoire. In August of 1953 I resigned from RCA, and in October of the same year I formed Kapp Records, Inc. From its inception, I have been president of this company, which is privately owned.

Our first few years as a manufacturer were difficult ones. We suffered great losses. Despite our losses, however, we were able to continue to make new recordings of practically any song because of the compulsory licensing provision in the copyright law. It was a means of providing us with equal access to songs and competition with other companies for songs. I would not have attempted to start a new record company, if there were no compulsory license. As a matter of fact, I believe it would have been impossible.

I speak as I do of the compulsory license because the economic survey just completed shows that an increased royalty rate for recordings would be tantamount to an elimination of the compulsory license. And if there had not been a compulsory license we could not have survived. It would have been impossible for us to record songs which had been recorded by other companies. It would have been impossible for us to take a song which had been recorded more than 20 times before, by other labels, and record it by a new, young artist. The song I refer to is "Autumn Leaves." The artist I refer to is the pianist, Roger Williams. This recording insured for us a place as a strong independent in the record industry.

I would like to add that, because of the success of our recording, there have been nearly a hundred new recordings of the same song,

which have brought hundreds of thousands of dollars to the publishers and the writers.

It is this freedom of choice of musical material which has been the lifeblood of our industry. It has played a vital part in our being able to continue in business for the past 12 years.

In 1962 I addressed a meeting of record distributors from every State in the country. The subject of the speech was the diminishing profit for record manufacturers and distributors. Because the trade papers felt that what I had to say was important, the speech was reprinted and distributed to all parts of the world. The basis for my comment in the speech at that time was summed up in two words"profitless prosperity." And the survey just completed indicates that although the dollar volume of the record industry may have increased, the profits are on the decline.

A manufacturer can spend x amount of dollars to make recordings which do not sell. The mortality rate of recordings is extremely high. If a record company can make 1 hit out of 20 records, it can be a successful company. But, of course, that 1 record must make up for the losses of the 20. An increased royalty rate could conceivably force many record companies to close their doors, because the additional royalty cost, if the rate were increased, would wipe out the manufacturer's profits. Moreover, it would discourage new enterprise and make it more difficult for new artists and new companies to enter the field. Needless to say, our company, too, would be affected. An alternative would be for the record companies to raise the price of the records, which we are all trying to avoid.

I have been a writer-member of ASCAP for 22 years. I submit that my fellow writers and the music publishers should not kill the goose which is laying the golden eggs for them. The music publishers and the writers need the record industry. The record industry fills one of the greatest needs of the people. It fills it today more than ever before.

Approximately 95 percent of all new music in America is introduced to people by means of phonograph records. Apart from the music which is heard in the musical theater, some movies, and an occasional new concert work, there is no other way for people to hear new music. Music publishers and writers will agree, I am sure, that generally the sale of piano copies has fallen off. The chances are that 90 percent of the new music that you and your family know was first heard on a phonograph record.

There was a time when a music publisher could bring his song to singers and musicians of the popular band and concert stage. Today this is not the case. Today there is practically only one way the publisher and writer can reach the millions of Americans quickly with his new song-via a phonograph record. This applies equally to a classical work, a teenage specialty, or the Louis Armstrong rendition of "Hello Dolly" which we made.

Incidentally, I can't remember the other side of the record. I am sure there is no one here who could remember, but I do remember we paid the same royalty to the publisher of the other side which we paid for "Hello Dolly."

I think we ought to ask the publisher how he would popularize his publications if the recording companies did not invest large sums of money in the recording and distribution of the publisher's new copyrights. I think we ought to ask the publisher, too, how he could develop the important writers of the future if he did not have access to the record companies who could introduce the new songs. An increase in the statutory rate would penalize and work havoc in the medium which makes a most important contribution to survival and the future of the writer and publisher. I repeat-we should not strangle the goose which is laying golden eggs.

Mr. KASTENMEIER. Thank you, Mr. Kapp.

I gather the thrust of your statement is that, even with the experience of your family and yourself in the record business, you still require as a record manufacturer the compulsory license, and you need the present rate in order to insure survival, despite the hits that you may have had?

Mr. KAPP. Yes; that is basically it, so we can live under this law as it exists.

Mr. KASTEN MEIER. When you refer to the golden egg, here, I assume you are referring to the golden records that represent millions of copies?

Mr. KAPP. Not quite the records which sell the millions of copies. But I believe so strongly, and I see the evidence around me every minute, every time a publisher publishes a new song, I don't care who he is, the first step in popularizing that song is to go to a record company. He can't do it any other way. "Hello Dolly" may have been a big hit because of a show called "Hello Dolly," and a girl named Carol Channing, and it is a fabulous show, but as far as the world is concerned, they only know "Hello Dolly" because it was sung by Louis Armstrong and played in every country of the world.

Mr. KASTEN MEIER. Do you not think that probably what people would ordinarily perceive, in terms of how well record manufacturing companies are doing, is then distorted by pictures and interviews with people like Presley, showing 18 or 25 records hanging up in their dens, representing millions of copies. One has only to assume, "Think of the people who made the records," that is, the manufacturers, "how much money they must have made."

Mr. KAPP. But if they could put up black records for the ones that didn't sell, they could fill the whole of the RCA Building in New York. [Laughter.]

Mr. KASTENMEIER. Thank you, Mr. Kapp.

Mr. St. Onge?

Mr. ST. ONGE. No questions, Mr. Chairman.

Mr. KASTEN MEIER. Mr. Edwards?

Mr. EDWARDS. No questions.

Mr. KASTEN MEIER. Mr. Tenzer?

Mr. TENZER. No questions.

Mr. KASTEN MEIER. Thank you, sir.

Mr. KAPP. Thank you, Mr. Chairman.

Mr. KASTEN MEIER. Next we would like to hear from Mr. Alan W. Livingston, president of Capitol Records, Inc.

Mr. Livingston, we welcome you to the committee and you may proceed.

Mr. LIVINGSTON. Thank you, Mr. Chairman.

STATEMENT OF ALAN W. LIVINGSTON, PRESIDENT, CAPITOL RECORDS, INC.; ACCOMPANIED BY ROBERT E. CARP AND MORTIMER EDELSTEIN, COUNSEL, CAPITOL RECORDS, INC.

Mr. LIVINGSTON. My name is Alan W. Livingston, a resident of Beverly Hills, Calif. I am president of Capitol Records, Inc., and have been in the entertainment business 20 years.

Some of these years were spent as a songwriter; some as a record producer; later as a vice president of the National Broadcasting Co. in charge of television programing in Hollywood, and eventually as president of Capitol Records, Inc.

There are three "major" labels in our business: Capitol, Victor, and Columbia. RCA Victor is a division of the Radio Corp. of America, owners of the National Broadcasting Co. and various owned-andoperated radio and television stations. Victor's record business is only incidental to the much larger business of RCA. Similarly, Columbia Records is a division of the Columbia Broadcasting System.

I make this distinction in order to stress the fact that Capitol speaks for the record business alone, and for the public interest with regard to the music business. Nevertheless, I want to make it clear that I support the figures and data supplied by these companies which are part of our industry's economic study presented by Professor Glover of Harvard, and believe that they fully establish the fact that our industry cannot stand the increased costs indicated by the proposed bill. But as an independent company, not involved with ownership of radio and television stations, I must go deeper into what I consider the true weakness of the present Copyright Act.

And I make this distinction, gentlemen, because I seem to be the only one who is going to or who has espoused anything beyond the present ceiling on the statutory rate. I think that the present Copyright Act has inequities which are, in my opinion, far greater. I support completely what has been said to date, and I back it, and I believe it is correct and true. I would even take a stronger position and state that perhaps the statutory rate should be reduced. But be that as it may, I think there are even greater ills; and as an independent, I think I can best give you the background of them.

I will outline the various sources of income created in the music business, identify the recipients, and show that there now exists a great inequity in this division of profits very much in the favor of the songwriter and music publisher. The purpose of this explanation is to oppose the suggested increase of mechanical license fees over the amount paid by record companies under the present Copyright Act. Any increase in mechanical license fees would serve to further distort this inequity in compensation, and I will in fact suggest measures to balance it instead, offering a new approach in support of the lines that have been followed in the past.