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One of the objectives in the protracted negotiations by which we arrived at the $8 annual rate was to insulate the operators, and here again, speaking for the manufacturers, they obviously are not going to pay the annual fee directly. Their concern is with the economic implications of what annual fee the operators may have to pay.

In that connection, we had extended negotiations with the representatives of the performing rights societies, the Register of Copyrights, representatives of the manufacturers, and did come up with the $8 annual fee.

And, again in hearings before the Senate subcommittee, we did persuade the committee that this was a valid approach, and the utilization of the Office of Copyrights as a vehicle for distribution of the fees was equitable and reasonable as a substitute for direct negotiations on behalf of the operators with each of the performing rights societies.

Obviously as the testimony on behalf of the performing rights societies has indicated, they feel that the 1967 $8 rate is too low, and they oppose the insulation of reconsideration of that rate by the copyright tribunal.

Now, the manufacturers feel that the $8 rate, and here again, the three manufacturers whom I have canvassed tell me that their best information is that there are between 450,000 and 500,000 boxes in the country at the present time, they advise the the urban renewal programs have eliminated an awful lot of neighborhood taverns and restaurants. The interstate highway systems have insulated countless taverns from traffic patterns and patronage, so their business has not really enlarged. And in this connection, the first time I was here, let's say 20 years ago when I first was an associate in my firm participating in these hearings, I think there were 10 manufacturers of jukeboxes, and today there are 3.

Last year the Wurlitzer Corporation, which had been in existence, I think, since around-well, for 118 years-went out of the jukebox business. And, in their annual report to shareholders, they stated:

In our coin-operated phonograph business, operating losses were sustained both in U.S. and some foreign subsidiaries due to steady rising costs, limited market growth, heavy investment in all areas, and high interest rates. As a result of the current situation as well as poor future prospects in the domestic market for this product, the board of directors of Wurlitzer, on March 5, decided to sell or liquidate the coin-operated segment of the company's business in the United States, and to close all branches of Wurlitzer Distributing Corporation.

And, in a press release on that same date, again the chairman of the company said that the company had sustained an operating loss of $7 million and concluded for business purposes to get out of the business. The three remaining manufacturers are highly competitive, and they have provided me with information on the understanding that individual company figures would not be set on the record. The three remaining manufacturers advise me that in the aggregate, dollar sales volume and unit production is down between 20 and 30 percent. Employment is down drastically in all of the companies, in one particular, from 1,450 employees to 450. One of the other manufacturers has shut down its jukebox production from April to date. And, I am advised that their distributors' inventories are up to 300 percent and not moving. In other words, the jukebox business has not kept pace with population growth.

As I previously advised you, there are fewer jukeboxes in operation in this country by the manufacturers' estimate than there were in the years immediately succeeding World War II.

Now, in Mr. Mawdsley's testimony, I know he is going to detail the monetary contribution of the industry, the operators to the composers and artists, which historically, again, record after record will show, has not been negligible by any means.

In summary I note that no mention was made in the testimony of the performing artists, representatives of the performing societies, relative to the performing artists royalty, although there is a bill before this committee, and Senator Scott has introduced a bill to establish again this, what we feel is a rather anomalous utilization of the copyright law, that it would add to the $8, $1 a year to be paid to the Register of Copyrights, of which 50 percent would go to the performing artist, such as Al Hirt or Helen Reddy, and 50 percent would go, half of it, 50 cents would go to the record manufacturers.

As I note in my statement, I think this really is an anomalous extension of the whole concept of paragraph 8 of the Constitution, which states that its purpose was:

To promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.

To use the copyright clause of the Constitution as a vehicle for payment of royalties to record companies or to artists, because of their talents, which they are compensated for in any event, we feel is an abuse of the constitutional concept of copyright.

In this connection, I just noted recently that the November 1974 issue of the George Washington Law Review, has an 80-page article on the public performance right in recordings, and at the end, in summary, they conclude that they do not feel that it would be in the best economic interest of the industry to establish a new public performance right, and conclude that it would not be a desirable element in the general copyright revision.

I would commend—and I know Mr. Fuchs is familiar with the article, but it is an in-depth analysis of the implications of this problem. So, in conclusion, we do support the $8 annual fee. We feel that the operators should not have to be subjected to a copyright tribunal review. The manufacturers, as I have just stated, oppose a performing artist royalty.

Thank you.

[The prepared statement of Mr. Patterson follows:]

STATEMENT BY PERRY S. PATTERSON ON BEHALF OF ROCK-OLA MANUFACTURING CORP., THE SEEBURG CORP. AND ROWE INTERNATIONAL, INC.

Mr. Chairman and Members of the Subcommittee, my name is Perry S. Patterson. I presently reside in Coudersport, Pennsylvania and appear as counsel for the Rock-Ola Manufacturing Corporation. The Seeburg Corporation, and Rowe International, Inc., the only manufacturers of coin operated automatic phonographs in the United States.

I am a member of the District of Columbia, Maryland, Illinois and Pennsyl vania bars. I am a retired partner of the Chicago and Washington firm of Kirkland, Ellis and Rowe and the foregoing companies, and other manufacturers who have vanished from the scene, have been represented by partners of my former firm and by me on copyright legislation matters for at least forty years.

I am here to reflect the manufacturers' unqualified support of Section 116 of H.R. 2223 as now drafted providing for an $8.00 annual royalty per automatic phonograph. This is the royalty provision originally approved by this Subcommittee in 1967 and enacted by the House in that year in H.R. 2512. It represented a compromise arrived at only after protracted negotiations by the Office of the Register of Copyrights, The Music Operators of America, the manufacturers and the representatives of the performing rights societies, ASCAP, BMI and SESAC. It was in fact the first time that Congress had imposed a performance royalty on coin operated automatic phonographs.

Section 116 in H.R. 2223 is the same provision passed by the Senate in S. 1361 in September, 1974. In its present form it is wholly acceptable to the automatic phonograph manufacturers and we urge approval without modification.

My last appearance before this Subcommittee was in 1966 at the time of the consideration of H.R. 2512. The composition of this Subcommittee has so changed that the only surviving members of the 1967 Subcommittee are your chairman, Robert Kastenmeier and staff counsel, Herbert Fuchs, Esquire. For this reason I feel it relevant to note briefly in the current record some of the historical background of the juke box exemption.

Section 1(e) of the Copyright Law of 1909 expressly exempted the public performance of copyrighted works on coin operated machines from the obligation of making performance royalty payments. This exemption was not a frivolous or lightly considered action but rather a recognition by Congressional members after being presented with extensive documentation of the existence of a very substan tial coin operated music machine industry that the payment of performance royalties, by the thousands of nickelodeon pianos and music boxes in saloons, restaurants and hotels would work undue economic hardship on the owners of such devices.

Representatives of ASCAP stated explicitly in the record of the hearings before this Subcommittee in the 80th Congress on H.R. 1269, H.R. 1270, and H.R. 2570 that ASCAP had no desire to extract performance royalties from the "little fellows", the little restaurant keepers or ice cream parlors and, that the representatives of ASCAP had instructions not to attempt to collect from the small businessmen even though they claimed they had such a right if they chose to exercise it. (Record of Hearings on above bills, pages 148-159, incl.).

The royalty structure in H.R. 2223 effectively protects the small operators and little businessmen from direct negotiations with the performing rights society.

I will not burden this record by detailed repetition of the history of efforts by the performing rights societies to repeal the 1909 exemption other than to say in brief summary as follows:

In 1926 the Vestal Bill H.R. 10434 was introduced at the initiation of ASCAP to repeal the juke box exemption and collect royalties from coin operated phonographs. Since then, for nearly 50 years legislation has been introduced or pending in every session of Congress, including the present one, aimed at repealing or modifying the provision of the 1909 Act exempting coin operated machines from the performing rights provisions of the law.

Hearings have been held on such bills in the Senate and House on at least 14 separate occasions to say nothing of extensive debates in both the Senate and House. Subcommittee members interested in the detailed history of legislative efforts of the performings rights societies for repeal of the exemption and the suc cessful opposition of the operators and manufacturers to such repeal have available in the files of the Subcommittee, thousands of pages of testimony, statements, exhibits and reports. They amply document the unwillingness of prior committees and Congress to accept the argument for repeal.

The manufacturers will not, of course, be directly subject to royalty payments under Section 116 of H.R. 2223. As in the past, the surviving manufacturers are concerned about the legislation for the basic business reason that the businesses of their customers, the operators who buy their machines will be significantly affected by any increase in the proposed $8.00 annual rate. My clients' concern, however, is not confined to the $8.00 annual rate in H.R. 2223 as now drafted, but to three important prospective legislative considerations involving increased monetary exposure for the operators which are not presently in Section 116 of H.R. 2223 but which may be introduced by amendment for inclusion in Section 116 before final action on H.R. 2223.

The first anticipated problem affecting Section 116 is the prospect that an effort will be made to increase the $8.00 annual rate. On November 27, 1974, Senator McClellan sent a letter to the operators, the manufacturers, and other in

terested parties in which he discussed what he thought would be a reasonable annual rate per phonograph for juke box operators to pay. He concluded that in lieu of the $5.00 rate that consideration be given to an annual rate of $19.70 per box, per year. Over the years of hearings suggested royalty rates had ranged from $4.00 annually to $80.00 annually but the apparent source for Senator McClellan's figure was a self-serving resolution passed by the National Licensed Beverage Association in 1967 in the course of hearings on repeal of the juke box exemption which association or its members would not in any event have been liable for payment of any royalty.

The second problem involves a provision in the Senate version of the General Copyright Revision, which, in addition to the $8.00 annual fee, provided for a Performing Artists Royalty payable by juke boxes at the rate of $1.00 annually but also payable at much higher rates by the broadcast industry and vigorously opposed by that industry. Prior to Senate passage, this provision was deleted by an amendment sponsored by Senator Ervin who expressed grave reservations as to its Constitutionality. The manufacturers strongly oppose the re-introduction of this royalty in Section 116.

Finally, the Senate passed General Copyright Revision while setting an $8.00 annual royalty fee per phonograph did not subject this fee to periodic review by the Copyright Tribunal established by the bill. The manufacturers favor retention of this exemption, because it relieves them of inevitable confrontations with the performing rights societies.

In summary, the automatic phonograph manufacturers oppose:

(1) Any increase in the proposed $8.00 annual rate.

(2) Any attempt to establish a Performing Artists Royalty.

(3) Subjection of the $8.00 annual fee to periodic Copyright Tribunal Review. The Performing Artists royalty ignores the fact that the performing artists and record manufacturers are already compensated for their performing efforts; musicians on the basis of union scale, their popularity and bargaining powers.

The Performing Artists Royalty, particularly as it compensates manufacturers, achieves a result never conceived by the draftsmen of the copyright provision of the Constitution; Section 8, Clause 8, "To promote the Progress of Science and the Useful Arts by securing for limited times to Authors and Inventors the exclusive Right to their respective Writing and Discoveries."

Mr. Mawdsley has described the problems faced by the music operators and their monetary contribution to the performing rights societies and music industry. I will direct myself to the plight of the manufacturers. We are not living in what can be described as normal economic times and there are few industries that cannot demonstrate declining sales and employment over the past several years. However, in the case of the automatic phonograph manufacturers, which numbered about 10 thirty years ago, three now remain. The three companies for which I speak are Rock-Ola, Seeburg, and Rowe International.

In 1974 the Wurlitzer Corporation, which had manufactured musical instruments since 1856 and automatic phonographs since 1908 discontinued the manufacture of automatic phonographs because of the deteriorating economic climate in the industry.

I attach as Exhibit A an extract from the 1974 Annual Report of Wurlitzer explaining its reasons for withdrawal from the automatic phonograph field. Also, as Exhibit B, a Wurlitzer Press Release on the same subject.

The three surviving manufacturers for whom I speak have not benefited yet from Wurlitzer's withdrawal from competition. Each company has supplied me with information concerning their operations but have requested that I consolidate such information for reasons of competitive confidentiality.

In the aggregate, dollar sales volume and unit production is down by between 20% and 30%. Employment is down drastically, in one company from 1,450 employees to 450 employees. Another company has shutdown production for three months. Distributors' inventories in certain instances are as much as 300% above normal and sales are not improving.

The juke box business has not kept pace with population growth. It is estimated that there are fewer juke boxes in operation now than in the period 25 years ago after World War II.

Mr. Mawdsley has detailed the present and prospective monetary contribution of the industry to the record industry and the performing rights societies. Enactment of H.R. 2223 as now drafted will result in a contribution by the operators to the music industry of an estimated $8,500,000.00 a year. This is nearly 10% of

the total distributions of the performing rights societies ASCAP, BMI and SESAC which in 1974 was reported to be approximately $97.5 million.

The manufacturers believe the operators are contributing their fair share for their use of music and recommend approval of Section 116 of H.R. 2223 as drafted. They oppose any amendments which would expose the operators to additional monetary burdens.

EXHIBIT A

TO THE SHAREHOLDERS OF WURLITZER :

JUNE 1, 1974.

It is interesting to realize that the modern, complex, multi-national Wurlitzer Company of today was founded 118 years ago in a simple, pastoral setting in Cincinnati, Ohio. Here a young German named Rudolph Wurlitzer was engaged in the business of importing musical instruments for a frontier society. The company he founded thrived, as did the nation, with various members of the Wurlitzer family active in the management for well over a century. The last surviving son of the founder was Farny R. Wurlitzer who died May 6, 1972 after 68 years of dedicated service.

In the 118 year span of the Company's growth, the steady rise in standards of living in the countries served by The Wurlitzer Company has provided the public with time and money to enjoy musical instruments of all types. The Company has been successful in fulfilling this need and each year has continued to supply the kinds of instruments most wanted, both in the United States and throughout the world.

Two major new product lines were established during the year. One was the highly competitive Sprite organ line supplementing our medium and higher priced electronic organs. The introduction of the Sprite models to Wurlitzer dealers produced the largest number of advance orders for a new product in the history of the Company. Manufacture of a line of low-priced electronic organs including table models was also initiated during the year for sale through private label distribution. This product line has excellent growth potential.

Engineering and research activities have continued unabated to achieve innovative products, outstanding styling, and the greatest possible cost savings in manufacturing. Wide use of electronics in our products has been aided by the continued application of the new technology of Large Scale Integrated Circuits (LSI). The Wurlitzer Company was the first in the industry to produce electronic organs using LSI components.

Manufacturing efficiency has advanced during the years with the continued trend toward mechanized assembly and test in our factories. Although capital expenditures are necessarily high for special equipment, the operating cost savings are substantial. Additional manufacturing capacity resulted from the establishment of a Central American facility operating on a contract basis. This facility manufactures certain subassemblies for use in our various plants. The major Wurlitzer manufacturing activities are conducted at four plants in the United States and two in Europe, with additional manufacturing or licensed assembly operations in three locations in Latin America and one in South Africa.

To grow in the musical instrument world market requires the use of a variety of up-to-date marketing techniques. This year we have successfully brought into use many techniques in market research, sales training, advertising and promotion, and a variety of other skills necessary for aggressive world-wide operations. Marketing skills must, of course, be closely coupled with engineering, manufacturing, and financial activities of the highest order to achieve the overall forward thrust of growth for which the Company has been noted in recent years. Our U.S. marketing operations for keyboard products consist of over eight hundred independent Wurlitzer music dealers and forty-seven Company owned retail music stores. Foreign marketing operations are handled by seven Company owned marketing subsidiaries as well as a large number of worldwide independent music dealers and phonograph and vending equipment distributors. This marketing organization grew in strength and breadth during the year, bringing fine Wurlitzer products to new markets.

REVIEW OF OPERATIONS

In the year ended March 31, 1974, The Wurlitzer Company achieved the highest level of consolidated sales in its 118 year history. Major achievements were also made in strengthening the Company for future growth and earnings through progress in technology, manufacturing, and marketing.

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