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other provisions of 506 (a). Indeed, the legislative history of the record piracy legislation indicates that Congress feels that record piracy is of greater societal concern than other infringements. Therefore, the Department of Justice proposal to provide at least an equivalent term of imprisonment is fully justified.

4. Section 506, Destruction of Infringing Article8.-Finally, we urge the inclusion of the amendment to Section 506 noted on pages 24 and 25 of the Department of Justice testimony. Although we believe a reading of the present copyright law may permit the Government to destroy infringing articles, this has been a matter of some debate. Therefore, the Government powers should be made explicit. This would preclude the necessity of the recording industry filing expensive and essentially superfluous-civil suits to permit the destruction of infringing articles after the Government has successfully concluded its criminal prosecution.

Mr. GORTIKOV. Gentlemen, I am president of the Recording Industry Association of America. Our member companies create and market about 85 percent of the recorded music sold in the United States.

We strongly object to the proposed mechanical royalty rate increase in section 115. The mechanical royalty is the amount of money a music publishing company can charge a recording company for the use of a composer's tune in a sound recording.

Section 115 proposes a statutory increase for mechanical royalty from 2 cents to 3 cents. This increase is glossed over as "only a penny" increase. However, that seemingly innocuous penny involves added payments of about $17 million per year to the music publishing industry, which is an increase of 59 percent.

The $17 million "penny” payment is the biggest money issue in this bill, and it is the major commercial and consumer question before this committee. It is more than 11 times greater than the $1 million annual payment by jukeboxes provided in section 116.

It is more than seven times greater than cable television's hotly contested payments to broadcasters of $6.7 million per year. And it is almost five times greater than the estimated $10 million for performance royalties to recording vocalists, musicians and record companies. It is actually more than twice all of those payments combined.

The economic facts, to be detailed by the next witness, show that there is no reason for an increase. Music publishers and composers are doing handsomely at the present rate. Their income from mechanical royalties alone has more than doubled in the past 10 years because of increased sales, which more than offsets inflation.

Significantly, in the 10-year debate over copyright revision, up to today and including today, the publishers have not presented any profit data that would justify an increase. This morning I scanned the material that the publishers are offering into evidence here, and, once again, incredibly, there is not a shred of profit information as to how well or how poorly they are doing in that mass of material they are going to offer. Yet, with no such supportive documentation to date, they ask for an additional $47 million per year.

The text of their presentation-they are asking even for 4 cents, which will be $94 million a year.

That proposed penny increase in itself is inflationary and will stick the public with an increase in record prices of almost $100 million per vear at 3 cents, and $200 million at 4 cents. That penny increase is punitive, both to our industry and to the consumer. It will impose harsh burdens on small, fledgling record companies. It could further discourage the already risky business of recording classics, jazz, and experimental music.

Moreover, the public interest is being well served at the present rate. There is no monopoly on music, and plenty of music is available to the public. And these originally were the major congressional objectives in putablishing the compulsory licensing system and the 2-cent rate.

The basic case of the publishing industry boils down to the statement that a 2-cent rate established way back in 1909 cannot possibly be adequate in 1975, and that “only a penny" increase is involved. However, as we shall demonstrate, that 2 cents is far different from what it was in 1.909.

This is a piece of music. It is a tue. Every time-peculiarly, it has a recording artist's picture on the front, not the composer. Every time a recording company arranges for an artist to record this tune, the record company must pay the music publishing company and composer a mechanical royalty for every record sold. This rate was set in the copyright statute at 2 cents. This royalty was called mechanical because the state of the recording art at the time utilized the mechanical parts, such as a piano roll or later a one-tune Edison wax cylinder, such as this one here. So 2 cents was paid for one tune, and one tune comprised a recording.

Recorded music next moved into a one-sided disk, like this one, one tune and one side. And, again, one tune comprised a recording.

Wow started the changes which benefited music publishing companies and composers so dramatically, with no additional risk or effort by them. First came the two-sided 78-rpm, 10-inch disk, which gave the publishing company and the composer 4 cents, not 2 cents, from the sale of one record.

Then in 1948 the vinyl long-playing album was developed, with 10 to 12 tunes on 1 disk. Publishing companies and composers earned 20 to 21 cents per disk, not 2 or 4 cents.

Mr. Wiggins. Excuse me, Mr. Chairman.

In the album which you have in your hand, is there only one composer involved, or are there multiple composers?

Mr. GORTIKOV. There are probably multiple composers involved. There are multiple composers involved.

Mr. WIGGINS. You are speaking of the aggregate payment? To the composer, it may be 2 cents.

Mr. GORTIKOV. The individual payment to the composer and publisher may be 2 cents, yes. The aggregate income would be 20 to 24 cents,

Finally, the ingenuity and risk capital of recording and equipment companies developed the eight-track tape cartridge and cassette. These created an entirely new market-about 29 percent of the total record sales, each earning 20 to 24 cents for the publishers and composers, not 2 cents.

In addition, publishers and composers receive multiple income from the recordings of one composition. I am holding a list of the current recordings of a familiar hit song, "By the Time I Get to Phoenix”, which was made famous by Glen Campbell. This shows 81 separately produced records of that song from the United States alone, not foreign-81 separate sources for that 2 cents to multiply. “Bridge Over Troubled Waters”, made famous by Simon and Garfunkel's recording, has 80 current separate recordings, and Paul McCartney's hit recording of “Yesterday” has 91 U.S. recorded renditions, 91 multiple sources of mechanical royalty income.

So, a composer's tune made famous by one recording artist and his rendition, can suddenly become a major financial asset and catalyst for these multiple sources of income.

The music publishing companies claim that the rising cost of living justifies the proposed 59-percent rate increase. Music companies which do the greater share of industry volume are not individual entrepreneurs or homemakers worrying about the rising cost of bread or beef or gasoline. Instead, many are large corporate owners of copyrights. Publishing companies deal in copyright catalogs as one would buy or sell any investment. Music copyrights are assets of value. The return on these assets has far exceeded any changes in the cost of living.

Publishers certainly cannot argue that they deserve more because they are doing more to make a recording a success. Formerly, music publishers performed many more creative promotional and marketing functions for their 2 cents than most do today for their 24 cents. Their function today is heavily administrative and clerical. They are largely service entities, conduits for the processing of income and paper transactions. They do not promote as they used to. They do not advertise as they used to. They do not help create demand as they used to. They do not employ field representatives as they used to.

These promotional functions necessarily have been taken over by recording companies. Publishing companies deserve to be paid reasonably for their service functions, but certainly not to split an added $47 million or $94 million a year.

When this subcommittee heard testimony on this issue a decade ago, it rejected the publishers' request for a 3-cent rate. At that time, it reported out section 115 with a 25-percent rate increase to 212 cents per tune and 1/2 cent per minute of playing time. Although the recording industry vigorously opposed that increase, the revision bill in that form passed the House in 1967.

The bill remained in the Senate with a 21-cent rate for more than 7 years. Last year, without any hearings receiving additional economic evidence, the Senate Judiciary Committee raised the rate to 3 cents per tune, and added a new damaging provision for 34 cents per minute of playing time. This action was taken upon the music publishers' request for an alleged “inflation adjustment"—an argument which is at best spurious and at worst blatantly misleading.

There is no economic justification today, just as there was no justification in 1966 when this subcommittee last considered this bill, for a 3 cent mechanical rate, let alone one that is higher. Indeed, hard cold economic facts demonstrate irrebuttably that the 2-cent rate is still fully adequate today. Since the public is now being well-served, and since the economic facts do not justify any increase, we urge that section 115 be amended to provide for a continuation of the present 2-cent rate.

Further support will next be detailed by Dr. John Glover of the Cambridge Research Institute and the Harvard Graduate School of Business Administration. Mr. DANIELSON. Thank you, Mr. Gortikov.

I would like to inquire of the committee members present whether, in order to expedite this matter, we could hear from all of the opposifiret. We could direct our questions to them. Septhere supporting the increase. Would there be any

Har.. none, we will then - thank you. We will proceel list Ink you very much.

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STATEMENT OF JOHN D. GLOVER, DIRECTOR, CAMBRIDGE

RESEARCH INSTITUTE, ON BEHALF OF THE RECORDING
INDUSTRY ASSOCIATION OF AMERICA

Summary Statement on
Section 115 of H.R. 2223

by John D. Glover
Director
Cambridge Research Institute

on behalf of the Recording Industry Association of America

before the Subcommittee on
Courts, Civil Liberties,
and the Administration of Justice
of the Committee on the Judiciary

United States House of Representatives
Ninety-Fourth Congress, First Session
September 11, 1975

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