It could be a reduction of opportunity. Also, the record business is like winners' or losers' poker. If companies are experiencing a grand rush of success, then it is more bullish about its recording practices than if it has a string of losers.

Mr. PATTISON. But the notion that you would, for instance, not pick out the new artist or the new work because it is somehow different. Any record company that followed that kind of a philosophy would not have picked up Paul McCartney or John Lennon or a variety of other people.

Mr. GORTIKOV. A company that I was once president of rejected the Beatles twice before it ultimately chose them. So it is a peculiar capability of choices in this business.

Mr. PATTISON. We have all made bad mistakes.

Let me address a question to Mr. Cohen and then I will quit.

Your figures were that you have a markup, I think, of 40 percent in the 3 percent net profit. That is not a return on investment now, or is it? Mr. COHEN. No; it is not.

Mr. PATTISON. Per record?

Mr. COHEN. On our gross sales we have a markup of 40 percent and a net of 3 percent after taxes.

Mr. PATTISON. But that 3 percent figure is not the same 3 percent figure that the railroads are telling us about? I mean you would not stay in the business very long. There would not be anyone opening up record stores if you had a 3 percent return on your investment. Mr. COHEN. Oh, no.

Mr. PATTISON. I have no further questions.

Mr. DANIELSON. I have two questions only.

Mr. Wiggins raised a question on a vinyl album that you have there, whether they were multiple composers or one composer, as I recall it. I think that you responded that they were multiple composers.

Could it be, distinguishing between composers and the owners of copyrights, it is my understanding that composers sometimes sell their interest to someone else, assign them or license them or transfer ownership, could it be that all of you might have multiple composers, you might have one copyright owner?

Mr. GORTIKOV. That is correct. It is a good practice that many recording artists today are composing their own music, writing their own tunes and also are establishing and owning their own publishing companies.

Therefore, they make available to themselves income as performers, as composers, and as publishers. They engage in a contractual relationship with a form of publishing company to handle the administrative processing that they require. These practices vary all over the lot. There is every gradation and every form of this, but the reality is that the publishing companies and the composers, regardless of what these various formats are, have in aggregate been doing handsomely. Mr. DANIELSON. I notice a reference to that in, I believe it was your statement, Mr. Kapp.

The other question, the mix of tunes that you put onto a given album of 10 or 12 tunes, I am sure that that is one of the things over which your management agonizes as to what to put on one album. If you were to put on one or two or three hit tunes, you have probably very nearly assured a good market in that particular album. And you can fill up,

I would assume then, the remaining six, seven, eight, or nine recordings on that particular album with more speculative compositions. The mix of what is sure fire and what is speculation is a judgmental thing within the recording industry, I assume.

But if that is true, I assume, I am going to assume and I would like to be corrected if I am wrong, that for the hit tunes you will have the statutory 2 cents as the royalty because you have a compulsory license where you can use that. On the speculative tunes, is it customary to negotiate perhaps a lower figure?

Mr. GORTIKOV. Mr. Kapp can speak to that but I have one response. There was a period, many, many years ago, when a hit was usually made with a single record, that is a 7-inch 45, small record. And the existence of that hit single then generated the willingness of a record company to put out an album including that hit single, and with other tunes that the artist also was called in to record. It is far more common now for an album containing tunes to be put out with no single record and then, for the public, or the radio in its skew of radio airplay, to dictate what tunes in that album emerge as hits. And then a single record will be put out.

But very often the album is put out with a concept in mind by the creators, or the artist, with no knowledge of which particular tune is going to hit the public's fancy, so that there is therefore no premeditation as to which are the major tunes or which are minor tunes on the record.

Mr. Kapp may have some supplemental comment.

Mr. KAPP. Could you explain what you mean by the word speculative?

Mr. DANIELSON. An unproven tune, an unknown tune.

Mr. KAPP. As a record producer for about 10 or 15 years, I can tell you that every song that comes in is a speculative tune. The judgment. is the producer's, together with the artist, as to whether any given tune will make it.

Mr. DANIELSON. Every new tune that comes in, but if you pick up a proven tune, one that is already established as a hit and put it in an album, that will have some effect in selling that album.

Mr. KAPP. Depending on the artist, not automatically.

Mr. GORTIKOV. Mr. Danielson, I would like to point out though that as the statistics that we have presented here, 99 percent of those tunes on the regular priced records, regardless of whether they are hits or nonhits, are paid at or very near that 2-cent level.

Mr. DANIELSON. That was my ultimate question.

Thank you very much.

Mr. Wiggins?

Mr. WIGGINS. Do you have any profit information on the recording industry?

Mr. GLOVER. Yes, sir. We have submitted it 10 years ago and we submit it to you now, not only the profit information, but the line items on individual costs.

Mr. WIGGINS. Just in fairness, I think we ought to have that. You emphasize, obviously, the position of the composer which is important information. But we need the other half of that equation. I would like to compare how well you have been doing. So, if that could be submitted for the record, I would appreciate it.

Mr. GLOVER. On the document you had before you, it is on page 49, sir. Page 49 is 1967 and 1974. On page 47 there is data that we presented before and it is in greater detail in the technical appendix.

Mr. DANIELSON. For the record, that is in the rather thick, detailed statement of Mr. Glover which is not in our file and which I am going to—I will defer judgment on whether to put it in the printed record to Mr. Kastenmeier. But it is in that thick volume.

Mr. GLOVER. On page 119, if you wish to pursue this, Mr. Wiggins, or any of the other members of your staff, on page 119 in the technical appendix, there is further discussion. It begins on page 119 and there is discussion in that concerning the major sample calculation and so forth and so on.

Mr. WIGGINS. Well, I will read that.

Mr. GLOVER. On page 49, there is information for the record industry.

Mr. WIGGINS. At first blush, it appears that the gross sales, the profit picture of the industry as a whole is pretty well tracked on a percentage basis, the same kind of gain that you reported to us is experienced by the publishers and the composers. Do you share that view? That is, if you put them on a graph, they just about track each other. Mr. GORTIKOV. Except in our case, we are talking about profits. Mr. GLOVER. That is not correct, sir. The owners of the copyright really are in a position of preferred stockholders because they get their take irrespective of whether the record industry as a whole or a record company or an individual record makes any money at all. So their earnings are much more stable, as we see in this data here, and the earnings of the phonograph recording industry fluctuates very substantially up and down, 1974 was a very good year for the industry, 1973 was a lousy year, 1975, I guess, is kind of a mixed bag.

Mr. WIGGINS. Well, I was just making a quick comparison of the years 1967 and 1974. You did not go back to 1963 and this would go with regard to the composers, but I see that the net sales, for example, have approximately doubled in that 5-year period for the industry as a whole.

Mr. GLOVER. That is correct.

Mr. WIGGINS. I guess if we went back over a 10-year period the figure would be even higher. It would be quadrupled.

Mr. GLOVER. In 1955, the sales were somewhere in the neighborhood of $277 million, at list price. And list price was much more common then than it is now, in 1974. It is now up to well over $1 billion, so there has been substantial growth.

Mr. WIGGINS. Yes; indeed. The net profit, after income tax, on page 49, has better than doubled between the years 1967 and 1974.

Mr. GLOVER. Yes, sir: it has.

Mr. WIGGINS. You had a bad year in 1973, and 1975 may be a bad

year.

Mr. GLOVER. And 1971 was a bad year. It comes and goes. Mr. WIGGINS. I understand.

Mr. GLOVER. There is one point, if I could submit it, Mr. Wiggins. If you distinguish between aggregate profits and profits which are made in the United States, it should be perfectly clear that the profits made these are using U.S. recorded masters abroad-that but for them, this has been a very sizable growth industry. But for them, the

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profit picture of the record industry would be a very doleful picture. Mr. WIGGINS. The information you furnished earlier was really only meaningful to me insofar as it referred to the per release return. These are gross figures here. The gross figures may disguise an awful lot of poverty within the industry. You can have one person making $1,000, and you can say he is a poor man, but if you get a million people making $1,000, that is $1 billion. But there are still a million poor people out there, even though the aggregate is a lot of money.

And so, the chart that indicated the return per release was a much more meaningful figure to me than the gross figure.

Mr. GLOVER. I agree with you, and that is the proper unit of measure. Mr. DANIELSON. Mr. Pattison.

Mr. PATTISON. Let me put a question to the panel. Suppose, as you predict, the price has to be passed on to the consumer, and the consumer will resist that, and will not buy as many records, or will not buy any records, what would happen then? Why should we care about that, other than that you are all nice fellows, and everything, but why should we care about that? What is our role in worrying about that? This is not the defense industry, or some essential industry. What is our role in that?

Mr. GORTIKOV. Among the effects could be employment reduction. In terms of public interest, there could be less music available to the public, which is one of the principles of copyright law.

Mr. PATTISON. But would not the buying public be making that decision. Is it not up to the buying public if the price of a record goes to $10, and very few people buy it? Is that not up to the public to decide to spend it on records, or on boats, or something else?

Mr. GORTIKOV. It is not your direct responsibility to assure that the publishers or the record industry make profit in a given year.

Mr. PATTISON. Or ever for that matter. And would there not be other kinds of adjustments that would be made? Would you not pay less rent? Would you not move to smaller stores? Would you not pay your help less money? Would you not increase your productivity? Do all those things that Adam Smith says you are supposed to do? And maybe keep the price of the record where it is, or even lower?

Mr. GORTIKOV. The public interest here is availability of music, employment, promotion of the arts, those matters that are associated with copyright.

Mr. PATTISON. I think the problem that we have here is that we are sitting as a very nonexpert body in a ratemaking case, and with no capability, at least on my part, to make reasonable judgments about that. And I am very troubled by the whole notion that we should decide what the effect of another penny, or a penny less, or a dollar more, or anything else we are not-we do not have the staff, or the capability of making those judgments, and it is really a very troubling kind of question.

Mr. KAPP. As I tried to point out in my statement, the publishers claim that the rate is negotiated, and since the bill would only raise the ceiling, therefore, it is not an increase.

Mr. PATTISON. Let me interrupt. Let's suppose you have 2 cents, or 3 cents let's suppose you made it 15 cents per tune-do you think there would be negotiation then, or do you think it would go to 15 cents? Let's make it $1 a tune.

Mr. KAPP. Negotiation is always a question of how far down you can go. I'd never be able to bring $1 a tune down to the 2 cents level where it might be profitable, so using your example, I think we would be out of business.

Mr. PATTISON. But my point is, would not-if the effect is as you say, less records being produced, and less records being sold, would you not then be going back to the publishers and saying, look, we are not making any money, so we are not paying you 2 cents any more. We are not paying you 3 cents; we are not going to pay $1. We are going to pay you 4 cent, and that is it, or else we are going to hire a bunch of people out of Juilliard School, and put them in the house here, and put them on the payroll, and create tunes, and have them assign their copyright to us as a part of the condition of their employment. I mean, would not those kinds of adjustments end up being made? I am not saying which ones would be made, but is that not all likely?

Mr. GORTIKOV. I can understand your concern about having to be a rate-setting body and the confusion from all the data that we present to you, but I think the essence is that the public is being very well served so far under the present system. I think the figures that we show, and the data the publishers are going to offer you, show nothing to dispute this. All parties are doing well under the system, and there is no need to change what works. So I think you have a very simplistic kind of problem, rather than a complex one, despite the preponderance of the material we are offering you.

Mr. DANIELSON. I am going to have to interrupt. Mr. Gortikov said the magic word that the others are going to offer some testimony. In order to insure that, with great regret we will bring this to a close. All time has expired on the opposition side, and we will now hear from those in favor of the rate increase.

While they are coming forward, thank you, gentlemen. We appreciate your help. While they are coming forward, I will state that the first witness we have scheduled is Mr. Leonard Feist, executive vice president of the National Music Publishers Association; vice president of the Copyright Society of the U.S.A.; member of the State Department Panel of Experts on International Copyright; and member of the U.S. delegations on revision of the Berne Convention and the Universal Copyright Convention. That is a rather intimidating introduction. But I do not scare very easily, so, Mr. Feist.

TESTIMONY OF LEONARD FEIST, EXECUTIVE VICE PRESIDENT. NATIONAL MUSIC PUBLISHERS ASSOCIATION

Mr. FEIST. I would like to make very clear that I am appearing here today on behalf of the National Music Publishers Association, and not in relation to any of the credentials which you so kindly recited.

Mr. DANIELSON. Thank you. We understand that.

I am going to recommend that we move the microphone up closer to Mr. Feist, as I am sure the folks on the back row are as interested in hearing as I am. Thank you.

Mr. FEIST. In addition to myself, speaking on behalf of the American Guild of Authors and Composers are Messrs. Marvin Hamlisch;