13. companies or musicians to charge them less because of the record industry's financial state). But in truth the record industry, thanks in large part to the songwriters' appeal to youthful tastes, is one of the fastest-growing, multibillion dollar industries in this country today. Its estimated retail sales have risen 190% (from $758 million a year in 1964 to $2.017 billion in 1973 and $2.2 billion in 1974), more than twice as much as our mechanical copyright royalty collections. Even on the basis of the RIAA's dubious "survey" of mechanical copyright royalty payments, they fell from 5.61% of retail sales receipts in 1964 to 3.82% in 1973; i.e. a 1/3 reduction in our share. 22/ - - The record industry continues to prosper. A recent in-depth analysis of the industry estimates that its record and tape sales will reach $3.4 billion by 1982.23/ In 1974, a recession year for most of the economy, the record industry now larger than the motion picture industry and virtually as large as television broadcasting had a record year: $2.2 billion in sales, an increase of almost 10%. Increases of that proportion or greater have been occurring annually since the RIAA's last appearance before this Committee to plead poverty, regardless of the state of the national economy. "I don't see a recession in the record business," said the President of CBS Records at the height of the recession last winter.24/ At the time he spoke, record prices were being increased again by another $1.00 per album while sales continued to climb at most stores.25/ It is staggering to note that a record company's profit on the typical recording sold is far greater than that of the composer and publisher combined. According to the courtroom testimony of the President of Warner Bros., confirmed by a 1974 National Academy of Recording Arts and Sciences chart, of the $6.97 or $6.98 list price on a typical 8-track tape, 20-24 is before-tax income to the copyright holders at 24 per song, 32-72¢ is before-tax income to the performing artists, and 45-85 (62 according to the Warner estimate) is before-tax profit to the record company (gross income less advertising, overhead, etc.).26/ The record industry has tried to make much of the fact that increased record sales have increased aggregate payments to all musical copyright holders combined. Those total payments have of course increased, although not by the same proportion or amount as record sales. But the ceiling rate of payment has remained at an inequitable 24; and it is the rate that needs adjustment. 14. - - Were there only one musical copyright holder in the country, the increase in total royalty payments would be relevant. But in fact the far greater increase in the number of composers, lyricists and songwriters sharing in that enlarged royalty pool has substantially reduced even before taking inflation into account the average benefits per writer. It is thus the individual creator who suffers under a system that allows record companies and other music industry participants to increase their prices or rates at will while the rates paid to composers and publishers are frozen under an obsolescent ceiling. Congress, after all, would not reject a Social Security cost-of-living increase merely because the aggregate paid to all Social Security beneficiaries had increased. A government employee GS-12 (first step), who was paid $10,250 in 1965, has since then received 10 inflation adjustments with the approval of Congress and since October of last year has earned an annual salary of $18,463. Clearly the fact that the aggregate of government employee salaries had been increasing did not blind Congress to the need to increase the individual employee's rate of earnings in order to keep up with inflation. - We have no doubt that inflation has posed a problem for the record industry as well. But that industry has been free to adjust its rate of return to cope with inflation and has done so, as noted, by raising the typical record list price some 110% while composers and authors have not. If a 2-1/2 ceiling was deemed reasonable by the House Judiciary Committee in 1966, on the basis of its examination of all the comparative ingenuity and contributions made by music creators and recorders, then 2-1/27 now worth less than 1-1/24 -- clearly cannot be reasonable today. Since then a rate of inflation unprecedented in this country, except in major wartime mobilization, has helped bring about two devaluations of the dollar, a series of economic stabilization measures and a host of adjusted prices and other rates of return both by statute and collective bargaining. Congress cannot fail to take this phenomenon into account. - CONCLUSION That is why we plead with Congress to restore the level approved in 1965-67. To defend themselves against the ravages of inflation in the intervening years, the record companies, while enjoying large increases in aggregate income, have increased their rates (prices); record performers, producers and musicians have increased their rates (wages); 15. and those lending money to the record and publishing industries have increased their rates (interest). Only the composers, songwriters, lyricists and music publishers of America have been forced to operate under the same ceiling rate which is steadily declining in purchasing power. Treating the creators of American music more fairly can only encourage the writing, recording and consumption of still more songs to the benefit of all concerned. Respectfully but urgently, therefore, we petition Congress to rectify this inequity, to let us at least ask for a fair royalty, by increasing the ceiling over negotiations to no less than 4 per selection. FOOTNOTES 1. 2. 3. 4. 5. The record industry statement in favor of a "performance right" royalty asserts that a popular tape recoups its costs when sales reach 24,000 units. - The Recording Industry Association of America (RIAA) For the source of these and other figures, see the Id. Id. A recent study by Robert R. Nathan Associates, Inc. (RRNA), details of which are in the attached tables, indicates that mechanical royalty payments during the last quarter of 1974 were below 24 for 54% of all selections, and 67.6% of all licenses. For some 23% of the licenses, a fee of less than 1.5g was paid. Obviously that will vary from song to song and record company to record company with no clearly predictable pattern. During the fourth quarter of fiscal 1974, for example, one record company paid a royalty of more than one cent per selection 98.3% of the time to one publisher but only 26.6% of the time to another publisher. The 1969 Knight Report to the Senate Judiciary Subcommittee on Copyright by the Library of Congress Legislative Reference Service also concluded that "rate variations ... do exist below the statutory maximum and do affect a sizeable portion of the copyrighted selections being recorded." One example of low-royalty recordings can be seen in the "Top 50 Hits of the 1940's" type of album heavily advertised on TV. Royalties on these selections average less than 1 per record manufactured. 6. Register of Copyrights, Report to the House of Repre- ii. 9. 10. 11. 12. 13. 14. 15. See Note 3. In terms of real (1965) dollars, this has - work are like the small farmer of an earlier genera- CBS Records president Goddard Lieberson in a May 1974 Congress feared that the Aeolian piano roll company was 1969 Report on Mechanical Royalty Rate on Sound Record- See Note 6. See Note 12. For a single, of course, the maximum increase would be |