Senator DECONCINI. It troubles me because, realistically, what are the chances of someone making a recording of their daughter's wedding or their first child's steps or the first bicycle ride or the graduation or something and then recording, say, Laverne and Shirley over that? That is not really very realistic, is it?

Mr. LADD. It is possible.

Senator DECONCINI. Possible, I agree.

Mr. LADD. But there is another comment that I would like to make to that point. The bill in its present form allows the negotiators in the voluntary negotiation stage, or the arbitrators in the arbitration stage, to take into account the uses of tapes or machines for purposes other than copying copyrighted works. So these ancillary uses are factored into the bill.

Senator DECONCINI. Thank you, Mr. Ladd. Does the chairman have questions he wants to submit or does the staff want to ask questions?

Mr. OMAN. Senator Mathias was called to the telephone. He should be back momentarily.

Senator DECONCINI. Do you want to wait?

Mr. OMAN. Can we take a 3-minute recess?

Senator DECONCINI. If you can just stay, we will take a 3-minute recess. Thank you.

[A brief recess was taken.]

Senator MATHIAS. The committee will come back to order. I apologize for having had to leave the Chair. I was called away because of a report in connection with the operation in Grenada, where I regret to say we have lost the lives of some marines.

If we could turn back to this question, Mr. Ladd, you indicate in your prepared statement that several other countries-Sweden, West Germany, Austria-have implemented royalty systems similar to those proposed by Senate bill 31. I think it might be a very useful thing to start out by trying to get some definitions into this dialog.

And I am wondering, because I have a personal interest in consumers, I think there may not be a general agreement in this debate as to who the consumers are. Are the consumers the people who buy recording devices, or are consumers those who look at the artistic productions or the copyrighted productions that appear on the television screen? How would you define consumer?

Mr. LADD. I think they are consumers in both instances.
Senator MATHIAS. So, we are looking at two kinds of consumers.
You cannot just say the consumers without further defining it as
you would see it?

Mr. LADD. Yes.

Senator MATHIAS. Well, now, how have the royalty systems in Sweden and Germany and Austria succeeded in providing fair compensation to the artists and other creative talent while not unduly raising the prices of tape and recording equipment?

Mr. LADD. Dorothy Schrader, our general counsel, has made a special study of that, and I will ask her to respond to that.

STATEMENT OF DOROTHY SCHRADER

Ms. SCHRADER. I have some information about this subject. Of course, we do have experts in the hearing room who would be able to give more detailed information.

We understand that the systems in operation in other countries have been successful generally, but have not met with total success. There has been a certain amount of unhappiness from time to time about the amounts of the royalties that have been collected, and some countries are considering changes in their laws.

In West Germany, for example, the amount collected in 1980 on audio hardware was approximately $15 million which, by our calculations, comes to about $1.21 per machine.

The Swedish Government has approved a levy of a half cent per minute per audio tape and 5 cents per minute per video tape. It is estimated that these levies will bring in about $24 million annually which is a relatively modest amount to start out with. And, as I said, most of those countries are considering further changes in their laws in this area.

Senator MATHIAS. Do you know how those figures were arrived at? Was it by negotiation between manufacturers and creative talent as we have proposed, or was it by arbitrary legislation?

Ms. SCHRADER. I believe they were arrived at through a combination of legislation and negotiation. In the case of West Germany, there is a levy on hardware with a maximum amount set in the statute, but the precise remuneration is determined by negotiations. The proposals under consideration would remove the statutory ceiling-now 5 percent-so that, as part of negotiations, it would be possible to collect additional royalties.

Senator MATHIAS. Mr. Ladd, we will be discussing this subject, I know, with you and your associates on other occasions, and so I will not delay the other witnesses with prolonged questioning now. But we appreciate very much your continued interest and help. Mr. LADD. We are at your disposal, Mr. Chairman.

Senator MATHIAS. Our first panel today represents the audio industry: Mr. Stanley Gortikov, the president of the Recording Industry Association of America; Mr. Solomon Dutka, chief executive officer of Audits & Surveys in New York; Mr. George David Weiss, president of AGAC/Songwriters' Guild; and an old friend, Dr. Alan Greenspan, who has probably testified more often before Congress than almost any other living human being. [Laughter.]

Gentlemen, I remind you of our 5-minute rule. Do you have a preference as to how you will-Mr. Gortikov will go first.

STATEMENTS OF STANLEY M. GORTIKOV, PRESIDENT, RECORDING INDUSTRY ASSOCIATION OF AMERICA, INC.; DR. ALAN GREENSPAN, TOWNSEND & GREENSPAN, NEW YORK, N.Y.; SOLOMON DUTKA, CHIEF EXECUTIVE OFFICER, AUDITS & SURVEYS, NEW YORK, N.Y.; AND GEORGE DAVID WEISS, PRESIDENT, AGAC/THE SONGWRITERS GUILD

Mr. GORTIKOV. Good morning. First, we would like to thank the Senators for interrupting their busy schedule to hear our plight.

I am Stanley Gortikov, president of the Recording Industry Association of America. Our creators, our performers, and our compa

nies are economic victims of the increasing practice of audio home taping, which is now growing at a frightening pace.

Now anybody can copy our recorded music free and even build a collection of recordings without ever buying a single record. Let me show you what this is all about. I have before me here a copyright killer. The maker of this machine calls it the tape factory. In its advertisement, which is placed on the board up here, it says: "If one of your friends has a tape you want to own, copy it. Start a tape copying service." This handy-dandy bulldozer of copyrights duplicates onto a cheap blank cassette the copyrighted, recorded music off an LP album, a 7-inch single, off the radio, or directly from another prerecorded cassette in the side-by-side cassette slots here.

In the left slot, I have placed a prerecorded—

Senator MATHIAS. You called it a copyright killer?

Mr. GORTIKOV. Yes.

In the left slot here I have placed a prerecorded cassette of Barbra Streisand's hit recording "Memories," and in this right slot alongside, a blank cassette purchased for $1.95. And while I talk to you I have been copying the prerecorded cassette onto the blank. Now, if my engineering ability holds true, I will rewind it briefly and then play for you the infringing cassette.

[Recording of "Memories" played.]

Senator MATHIAS. I should advise Senator DeConcini that this is a copyright killer.

Senator DECONCINI. Mr. Chairman, with that note of humor, and I take it as such, and I am glad to have that explanation. When you do not refer to this as a tax, it seems to me like the old saying that Governor Askew used yesterday: A win is a win because he had more votes down there than anybody else.

Something that sounds like a duck and looks like a duck has got to be a tax. That is what I think we are talking about.

Mr. GORTIKOV. What you have just witnessed here in this little demonstration is a wondrous feat of technology, but nobody is going to get paid for what I just did other than the maker of this machine and the blank tape. The artist gets nothing; neither do the supporting musicians, the music publisher, the composer, the unions, or the recording company. And that is not fair nor consistent with the principles of copyright.

Our problems emerge from this audio blank cassette that costs $1.95. It is nothing but a pile of plastics and film and oxides and hubs and spindles, useless in itself. It becomes valuable to its manufacturer or importer and to its purchaser only when it records our copyrighted music.

There is simply no blank tape or equipment industry without that music. Those blank tape and equipment industries prosper with more and more units sold every year. In contrast, our industry has been in trouble, and the experts who follow me will underscore how home taping activity is exploding and how economic harm is staggeringly high.

It is no surprise, therefore, that in 1982 our companies released 1,540 fewer albums than they did in our peak year of 1978, or down 37 percent.

We are here to make sure that you know that every time a recording is home taped and a sale displaced, we have absolutely no way of recovering that lost revenue. Record sales are our one and only source of income.

And that is why we call upon you to create a fair and reasonable royalty to help offset our income displaced by home taping. That revenue rightfully should be collected from those who commercially profit from home taping, the 150 manufacturers and importers of blank audio tape and audio taping equipment.

We approach Congress to urge passage of S. 31, because, frankly, we have no other recourse. First, we have tried for years to coexist with home taping, and that is not working. Taping grows, and sales displacement keeps escalating. We have also tried direct approaches in Japan to the tape and equipment manufacturers who make the bulk of these products.

They refuse even to discuss our problems or the economic damage or the possibility of a royalty solution. They will not even meet with us. In fact, their most recent refusal occurred just 2 weeks ago. So we have no place to turn except to Congress. We ask Congress to respond now to the audio home taping problem.

We feel there is no reason to wait until the Supreme Court decides the video Betamax case. The Court's decision will not resolve the audio taping problem or the fundamental policy issues, no matter what it says.

We do not oppose technological change; we are not opposing some exotic new development here that outclasses our product in merit and cost.

We are instead vigorously opposing the flatout copying of our recordings on devices that yield commercial gain to others and massive economic harm to ourselves. We are also not attempting to short circuit the consumer. The public wants new talent and music to continue to flow. But it is not a free lunch. Like any other product, a reasonable payment also must flow. It is certainly not fair for the purchasers of our prerecorded records and tapes to pay higher prices for records they buy so that others can tape them for free.

[The following statement was received for the record:]

29-034 0-84--6

audio home taping. Now at the touch of a pushbutton,

single record.

-

This audio home taping is growing at a pace that is frightening for us. And it is causing

One

Let me show you what this is all about. I have before me a "copyright killer." One of the makers of machines like this one calls it the "Tape Factory." advertisement for a machine like this says, "If one of your friends has a tape you want to own, copy it. Start a tape copying service." An ad for still another brand states: "Beat the system. Copy your own cassette Duplicate a favorite tape for a friend or a copy

tapes.

of a borrowed cassette."

This little handy-dandy bulldozer of copyrights shows you how it's done.. This one machine can duplicate

onto a cheap blank cassette copyrighted recorded music