3. During this decade of inflation, as record companies doubled their price per song without one cent of the increase going to the composer, as the standard rate per 3 hour recording session for musicians increased 64%, and as record artists, producers and company officials obtained higher and higher wages, salaries and royalties, the average royalty per recorded selection paid to the creators of the music (the only group unable to obtain an inflation adjustment without Congressional action) actually fell by more than one-third. With the 2 ceiling still in effect, the average royalty fell, in terms of 1965 dollars, from 1.51 cents per song in 1965 to less than .99 cents per song in 1974. 4/ For Congress to allow this steadily shrinking real rate of compensation for music creators and their families to continue, by freezing the statutory ceiling at the level originally approved by the House in the 1965-67 period while leaving record companies, the rest of the music industry and virtually all other segments of the economy free to increase their prices and earnings - would be grossly unfair and in our society unprecedented. Congress has recognized the ravages of inflation in Social Security, in civil service and military pensions, in governmental salaries and in other legislation; and it cannot in good conscience fail to take account of it here, particularly in setting not a fixed rate but merely a ceiling rate. A Reasonable Base for the Tribunal If in the future a Copyright Tribunal, as proposed in Chapter 8 of the pending bill, is to review periodically the mechanical royalty rate ceiling set by Congress in order to consider subsequent developments, then Congress has a special obligation to make certain that the basic level it now fixes represents the fairest figure as of the date of the law's enactment. If the bill soon becomes law, the Tribunal can at its first review take into account any increase or decline in the ceiling's value or other developments occurring between now and then. But the unprecedented inflation since 1965 -- which before this bill becomes law will have cut the value of the 2-1/2 based on that year's data almost in half is for this Congress to take into account. Fixing a 1975 ceiling below 4 or 4.5 cents would not only give musical copyright holders less than the House was willing to give them previously but also give the Tribunal an artificially and inequitably low base for its future calculations. 4. We have not the slightest doubt that, had this bill become law a decade ago, as intended, with the 2-1/2¢ ceiling included, a Copyright Tribunal meeting today would (a) take note of the 72% increase in the cost of living, (b) take note of the even greater increase in the price per recorded song received by the record industry, and (c) adjust the ceiling to at least 4 in order to give musical creators an opportunity to negotiate for no less than Congress had intended to give them originally. Although the law was not enacted a decade ago, there is no reason why the creators of music should be penalized by this prolongation of the legislative process. Today Congress and its Committees must act as that "tribunal" for purposes of this simple inflation adjustment. A Ceiling, Not a Rate Bear in mind that whatever figure is adopted by Congress will serve merely as a ceiling on negotiations and not as the actual rate paid. Musical copyright holders are of course willing to negotiate with any and all legitimate record companies for mechanical licenses on any and all compositions (and would do so even in the absence of statutory compulsion); and thus virtually every license has long been issued without resort to the compulsory licensing provisions of the statute. But inasmuch as both parties know that it would be useless for the copyright holder to request more than 2 when any record company can always invoke the statute and thereby obtain a compulsory license at that level, all negotiations (with the customary exception for those few involving compositions of extended length) necessarily take place beneath that absolute ceiling. Similarly, if the record company argues that a song is not even worth 24, there is no point in the copyright holder's "insisting" on the statutory ceiling because the statute will never be invoked. Thus even today, when there has been general agreement in the industry that the 66-year old 2 cent ceiling is outmoded and inequitable, negotiations on the royalty fee to be paid for most songs are still concluded at rates below that 2 cent level, with an average of 1.62 per song (less than .99% in 1965 dollars).5/ Clearly, therefore, raising the negotiating ceiling from 2 to 4 would not require any record company to increase its royalty payments to that level or by that same amount or percentage. Nor would it assure composers and publishers of receiving any increase of any amount. It would merely grant us permission to negotiate under a more realistic ceiling. As the Register of Copyrights recommended some years ago, if 5. bargaining is to play any role at all, "the statutory rate should be at a high end of a ... for actual payments of a rate that reflects market values." 6/ A song of truly "hit" potential today, for example, is obviously worth far more than 2-1/2¢ per record. Were there no statutory ceiling, its creators would obviously receive more than the 3 cents per record allowed by the 1974 Senate bill. Even an inflation-adjusted ceiling of 4 or 4.5¢ per record would still help record companies hold down the compensation due to the author of a real hit. But at least the higher figure would allow some additional room for bargaining which 2.5¢ or 34 does not. In short, if a creator's song is certain to be among the very limited number of popular best sellers and the record industry is anxious to get it, it would be harsh and unfair to put an artificially low lid on creativity by denying that creator the right to seek more than 2-1/2¢ or 3 per record. But if a record company realistically values a new song at only 1 per record, and the copyright holder lacks the certainty of success to insist on more, then he will only get one cent per record for that song regardless of where the statutory ceiling is set. Thus a 4 ceiling would not be a guarantee; for most songwriters it would not even be a hope. Even the creator of a sure-fire popular "hit" will not be assured of full and fair compensation for any one of his songs; but at least it will grant him the right to seek it. For most songwriters, their period of top creativity and marketplace acceptance is severely limited; and it is grossly unfair to restrict so harshly their ability to make the most of that brief period. The Unfair Bargaining Power of the Record Companies One reason the majority of licenses go for less than 2 today, and will in the future go for less than any new ceiling adopted, is the powerful market position of those major record companies with whom the creators of a song must deal if that song is to fulfill its potential for success. Of all the royalty payments made in 1974 through the Harry Fox Agency in New York (which acts as collection agent for the vast majority of such payments), over half were paid by only four giant record companies, constituting less than one-half of one percent of the members of the 6. industry. (Not even the 21 largest music publishers of the many thousands competing for royalty payments can account for even half of the royalties received.)7/ For better or worse, it is a fact of life that hundreds of thousands of copyrighted but unrecorded songs offered by tens of thousands of eager writers, composers and publishers compete for the right to record. This places these few dominant record companies in an invulnerable position to pick, choose and bargain. As pointed out by the Register of Copyrights in his 1958 Report to the House of Representatives, the compulsory license is "compulsory only on the copyright owner... the record producer can bargain for a lower rate, but the copyright owner can never bargain for a higher one." 8/ Because the number of writers and composers has more than doubled during the last 10 years, increasing far more rapidly than the increase in the mechanical royalty pool, the average writer-composer's gross receipts from this source have actually declined even without taking inflation into account.9/ Many of these write not "pop" best-sellers, but for children, gospel, classical, Latin, country and other markets. For this handful of enormous record companies now to be arguing that Congress should hold down the ceiling rate on their negotiations with these individual composers and publishers is ludicrous. - Thus the dispute before Congress on whether Sec. 115 should provide 3 or 4 or some figure higher or in between is nothing more than a dispute over negotiating room. The record industry, no doubt acknowledging internally that the song is the key ingredient in the sale of a $6.98 disc or $7.98 tape or cassette recording 10/ after all, without it, what would they have to sell? wants Congress to keep the tightest lid possible on the bargaining position of the songwriter by preventing the negotiators, even on hit songs, from even discussing 4 cents. (Of course, these record companies would not be willing to have Congress grant every broadcaster a compulsory license to use their recordings for a paltry royalty or have Congress fix the retail prices of their recordings below the market level. Yet they somehow believe that such restrictions on the rights of composers are justified.) All that we the musical copyright holders are asking of Congress is not a guarantee of 4 cents per song but room to negotiate if we can a fair and realistic royalty up to that level on those occasions when market values 57-786 76 pt. 3 14 enable us to do so. The Copyright Law was intended, after all, to protect the creators of American music, not the giants of the entertainment industry. If Congress were to keep the ceiling at an unrealistically low figure such as 2.5 or 3 cents in the face of a substantial decline in the value of the dollar, thus permitting bargaining only below that level but never above, it would convert this already one-sided compulsory license provision into a still harsher anti-composer statute. 7. PART II. THE BACKGROUND OF THE The 1909 Act 11/ the In 1909, for reasons set forth in the footnote, concept of a "compulsory license" was introduced into law. For 66 years musical composers, lyricists and publishers have been tied to this same archaic 2 ceiling. Piano rolls gave way to discs, which gave way to long playing records, which are now giving way to tape cartridges and cassettes, each more highly priced and more highly profitable than its predecessor. Radio and TV entered the scene, the U.S. population more than doubled and the Gross National Product rose by more than 4000%. But still -. although the copyright proprietors and record companies did adopt with the advent of long-playing records the custom of a 1/4 per minute minimum for long compositions the statutory mechanical - royalty rate has through it all remained at 24. The Current Revision In 1956, when the process of revising the outdated Copyright Act of 1909 was begun with a series of studies and panels, the Register of Copyrights initially recommended total elimination of the compulsory licensing provision. This recommendation was bitterly fought by the record industry, and its point of view prevailed. Thus the first draft of the new law in 1963 retained a compulsory licensing provision. But it did provide that the statutory royalty rate would be, as in Europe, a percentage (8% of retail list price) rather than a fixed sum, thereby safeguarding everyone's interests in the decades of economic and technological change that lay ahead. But once again the record companies were opposed, once again their powerful opposition prevailed, and the second draft of the new bill in 1964 maintained the concepts of both a compulsory license and a statutory ceiling on royalty rates fixed in dollars and cents terms. |