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four for 25 cents, and nine for 50 cents; a few are operated at 5 cents per play.
I estimate that our members purchase about 100 new records per machine per year, and that all 60 of them collectively purchase around 436,800 records, and pay over $17,472 in mechanical royalties per year.
Most of our members businesses are family operated. Together, they own and operate their routes, service their machines, change records, make collections, and do their own office work.
For myself, with two employees, I operate 101 jukeboxes and 93 other amusement machines. I have 102 locations, 31 in the city of Charleston, and the others in an area of 20 to 45 miles east and west of Charleston. My gross income from my entire operation in 1966 amounted to $73,505.01, half of which, $36,752, was derived from jukeboxes. The jukebox income amounted to $363.88 per machine for the entire year, or $6.99 per machine per week.
Mr. Chairman, there have been a few words omitted in this next couple of sentences, and I would like to insert them.
Record purchases totaled $7,471.63; other overhead expenses totaled $51,129.80, out of which I paid State and local taxes amounting to $2,352.35. One-half of the total expenses for the year, $25,564.90, was for my jukebox operation. Thus my jukebox operation cost $33,036.53 or $327.09 per machine for the entire year, or $6.29 per week.
From these figures it is readily apparent that my net profit from my jukeboxes was only 70 cents per machine per week. And please note that I took no salary for myself before figuring this net profit.
Of course, I should point out that the other part of my diversified business—the amusement machines-provided a better margin of profit so that from the combined operations in 1966, my total net profit, without allowance of any other salary to myself, was $14,903.58. And, gentlemen, as I have stated, I have only two employees. This means I do a lot of route work myself. I regularly do my own collecting, record service and maintenance. Weekends I do my bookkeeping.
This description of my business is typical, not exceptional, of the great majority of music operators throughout the United States. This is why the music operators cannot possibly comply with the fantastically burdensome, administrative procedures, and pay the extremely high royalties that are required by section 116 of this bill.
If anyone thinks this section gives the operators any real alternative to bargain with the performing rights societies for negotiated licenses, I hope they will remember the thousands of small operators who will be in no better position than I am to deal with them. I know that for myself if this section becomes law my jukebox business will be finished.
Last year I bought 10,625 phonograph records for my jukeboxes, and I figure this provided $425 in mechanical fees for the songwriters who produced the music that was played on my machines. I think this is fair compensation for the songwriters. However, if for some reason the committee thinks I should pay more to them, I want to see this done on the basis of the records I purchase, rather than some unworkable basis such as section 116 provides.
The proposal which the National Association of Music Operators has made would do this, and it would permit me to make simple reports, which I am capable of doing.
If any new royalty is legislated, I can assure the committee that in my case it is going to come out of reduced purchases of records and equipment, because my business will not stand any increase in my already heavy overhead.
I sincerely hope that this committee will seriously consider the capabilities and the limitations of music operators in deciding whether any new royalty should be imposed on the jukebox industry.
Thank you for giving me the opportunity to appear before this committee.
Senator BURDICK. Thank you, Mrs. Ballard.
Mr. ALLEN. Our next witness, Mr. Chairman, is Mr. William Cannon, of Haddonfield, N.J.
STATEMENT OF WILLIAM CANNON, HADDONFIELD, N.J. Mr. Cannon. I am William Cannon, of Haddonfield, N.J., where I own and operate the Cannon Coin Machine Co. I am also the president of the New Jersey Council of Coin Machine Operators, our State trade association, secretary of Music Operators of America, and a member of MOA's legislative committee.
My State association has 104 member companies ranging from oneman operations to large distributors, out of the approximately 300 New Jersey companies engaged in the many phases of the coin machine industry.
The jukebox business is declining somewhat in New Jersey despite some population increase. Urban renewal, purchase of liquor licenses from neighborhood taverns for use by lounges and motels, the great popularity of drive-in eating places which have attracted great numbers of young people away from soda fountains and lunch counters have reduced the number of locations available. These trends, plus rising costs and fixed incomes are causing the slight reduction in business.
My company is larger than the average of its type in my area, but is a comparatively small business. We have 11 employees, operate approximately 180 jukeboxes and about the same number of amusement games. Our average income is about $12.50 per machine per week and profit is about $1.20 per week per machine.
The point of my testimony concerns an actual test I have made, attempting to follow the procedures required in section 116 and I wish to submit the results of that test.
As my own business was not suitable for an average test I contacted Mr. Harry Witsen, of T. & A. Amusement Co. of Vineland, N.J. T. & A. operates 70 jukeboxes, somewhat more than average for New Jersey, but Mr. Witsen was willing to devote his time and facilities so we used his route for our test. T. & A. has no office personnel so they employed a temporary office girl for the inventories. The more complicated work was done in my own office.
There has not been enough time available to run the test through a complete quarterly cycle so we have sampled the procedures and projected the costs over 3-month periods and annually. We have attempted to be completely fair and objective and have given much thought to methods of saving time and cost just as if this were an existing law that we would have to continue with.
We have divided the procedures and results into four parts:
i (1) RECORDATION
T. & A. maintains an inventory of machines on location so the noting of the company name and address, the jukebox manufacturer, serial number and capacity, and the name and address of the location would require only the transferring of this information to the recordation application form and the additional function of periodic notation of capacity changes on their existing machine inventory. This would take about 20 minutes each or an annual cost of $50.
When T. & A. buys new machines they move older equipment accordingly and usually make four moves for each purchase. Most operators feel it is good policy to change equipment as often as is practical, to stimulate business. T. & A. encounters a considerable turnover in accounts, as do most of us, and moves 15 to 20 machines a year for that reason. They also have a few seasonal accounts which they fill each year.
They estimate, conservatively, that they move 57 machines into locations a year. As these re-recordations would be made one at a time (and may require an accompanying list of all of the compositions made available in the machine or the location during the preceding year) they would take, without the statement, at least an hour each, or $114 annually.
I would like to point out here that there is a feature of the recordation process that is difficult to follow. At the annual re-recordation a statement showing all of the works made available on the machine during the preceding four quarters is required. As you can see, the majority of these jukeboxes will have been moved during that year.
That annual statement, if for the machine, would show works made available at another location-or if for the particular location would show works that had been available on another machine. To show both, and that would be the only way this requirement would have any sig. nificance, would require dating every change of every composition in every machine and researching and compiling this data annually. This would require hundreds of additional man-hours to the already staggering man-hour requirements. *.
If we assume that a list of the works made available only on that particular machine must accompany the recordation application, then the lists compiled for the quarterly reports may be photostated for this purpose. The quarterly reports we ran for our test totaled 14 pages of compositions and other indicia. We would, therefore, have to have 56 photostats for each recordation of each of the 70 machines, a total of 3,920 copies would cost about 10 cents each (much more if purchased commercially) for a total of $392. There would be additional time involved with getting these copies made, collating, et cetera. But we did not attempt to determine those costs or materials, postage, et cetera.
So for recordation and re-recordation we have determined an absolute minimum cost of $556.
(2) INITIAL INVENTORY
Because of limited time (we began February 28), because we wanted to inventory a number of machines to attain speed, and, most important, because it requires experience to remove and replace records in jukeboxes, we used two people—one to handle and read the records and one to write down the information. It would take one person twice as long. We inventoried a total of 3,120 compositions on 2,400 records on 16 machines—an average capacity of 195. compositions on 150 sides. (7ð records)
The job took 30.5 hours. At $2 per hour the office girl cost $61. At $3 per hour the mechanic cost $91.50, a total labor cost of $152.50 or an average of $9.53 per machine. Transportation and material costs were minimal and not included here. T. & A.'s 70 jukeboxes would cost $667.10 to inventory and would require additional part-time help plus the loss of the mechanic's services for 133 hours.
This would be at least an annually recurring expense—to make sure that the inventory maintenance was continuing accurately; that is, to check the office accuracy; and because mechanics must remove defective records, replacing them with whatever they have with them.
(3) INVENTORY MAINTENANCE
Records must be changed periodically-either every week or every 2 weeks. T. & A. changes most of theirs on a 2-week basis. The person changing them would have to make written record of both those in and those out of the machine. The office inventory would have to be changed accordingly, both to show additions and to delete the compositions removed. The deletions are necessary so the following quarters would not show those.
T. & A.'s routine record changes for those machines inventoried were noted and the inventories altered accordingly. The notations of compositions, composers, publishers, and performance rights organizations for an average of 16 works takes about 15 minutes. It takes another 15 minutes to add these to the office inventory and 15 minutes to search the inventory and delete those taken out. This totals 52.5 hours every 2 weeks for T. & A.'s 70 machines-$52.50 for the serviceman's time and $70 for the office girl's, or $61.25 per week to maintain the inventory. An annual cost of $3,185.
(4) MAKING STATEMENTS OF ACCOUNT AND PAYING ROYALTIES
To bring these processes within the realm of possibility, we must assume that the performance rights organizations, or some other agency, would receive and disburse the royalties. Otherwise, hundreds of thousands of individual payments and hundreds of thousands of detailed statements would be required.'.'.
Because section 116 so states, I am compelled at this point to show you what we had to do to comply but I am somewhat reluctant to introduce this requirement as it is so immense as to dwarf the other requirements, unreasonably extensive and expensive as they are.
Subsection (c)(3) requires that each quarterly payment must be accompanied by a detailed statement including a list, identifying by their titles and other indicia, all of the musical works made available in the phonorecord player during any part of the proceding quarter, unless a performance license has been negotiated.
We completed a test run of this requirement as applied to a typical jukebox in a typical location as operated by T. & A., one of the 16 on which we made the initial inventory. The machine has a capacity of 160 records but because it contains 20 little LP records, which have a maximum of three songs per side, the maximum capacity at which it is now adjusted is 240 musical works.
Starting with the initial inventory already compiled, we projected the normal changes T. & A. makes (five or six singles every 2 weeks and one LP a month) to arrive at the total compositions which would be available during the 3-month period ending April 1, 1967. This projection shows a total of 330 for that quarter.
A highly skilled typist took 6 hours to transfer the written accumulated inventory directly to mimeograph stencils. As there were 330 compositions and therefore 330 royalties due, each of which must be accompanied by a complete list of all of the works in the jukebox during the quarter, we had to make 330 statements each showing the 3:30 compositions made available on that single machine. These statements cannot be condensed as they are on an individual machine basis.
Two additional people spent 91/2 hours each, making the duplicates and collating the reports. Fourteen pages of single spaced listings were required plus an additional page for the report itself. We devised a shortcut by marking the individual compositions on each accompanying statement and thereby saved the time required to individually type each work on a separate report. Even so, it cost, at $2 per hour and $12 for materials, $62 for the reports. The 330 statements, of 15 pages each, totaled 4,950 pages. There are 108,900 listings. It cost over 18 cents (plus postage) to report and pay the royalty of $.0218 for each of the 330 copyright owners to split the $7.20 royalty for the quarter.
I thought I could better illustrate the size of the job if I brought these reports in. These are the reports required by that subsection for one jukebox for one quarter. T. & A. would be required to make 280 of these per year.
Senator BURDICK. You say one jukebox for one quarter?
Mr. CANNON. Yes, sir; under that subsection. This would be one jukebox for one quarter. For the four quarters and 70 machines, they would be required to make 280 of these annually.
Senator BURDICK. I thought these were the quarterly reports.
Mr. CANNON. No, sir, the subsection requires when you make a report for a single composition, it must be accompanied by a listing of all the compositions used on that jukebox for each quarter. These are all actually duplications, but each owner of each copyright gets one.
The reports make a stack 24 inches high, for one machine for one quarter.
The annual cost for T. & A. would be $12,717.80.
As the foregoing requirement is obviously absurd, we chose an alternative more reasonable method of reporting, using lists typed from the accumulated handwritten inventory. It took the typist 4 hours to do this. If we are able to send the complete list to each of the disbursing agencies, merely marking the musical works that agency