The 1973 figure is based on statistics supplied by 13 companies with about $71 of the industry's sales; as for the 1974 figure, the same 13 companies had 641 of the industry's sales in that year. Statistics supplied in response to an additional questionnaire by 34 companies with 981 of the industry's 1973 sales indicate that 1973 mechanical royalties paid were closer to $82.1 million, and, for 1974, closer to 83.5 million. These figures do not include mechanical royalties paid to U.S. copyright holders by foreign record companies or by foreign subsidiaries of U.S. record companies. Foreign mechanical royalties grew rapidly. In 1973, they were approximately 35 million, or nearly 501 of the mechanical royalties paid by U.S. recording companies. This estimate of the 1973 foreign mechanical royalties earned by US. publishing companies and other copyright owners is sore than five times the royalties estimated to have been paid in 1963. The 1973 estimate is based on Billboard reports about sales abroad of recordings of U.S. music.

"Foreign fee income and other miscellaneous income are not included in net sales. Foreign fee income is from the licensing of U.S. record masters for pressing overseas, and is estimated to be roughly one-half of the total figure shown. The remainder is from domestic fees from record and tape clubs, inventory adjustments, other one-time items, interest, and rent. They are expressed as a percentage of net sales to show how much they contribute to the profits recording firms make on their recording sales.

dincome taxes include state as well as federal taxes.

*Estimates of the 1 of industry sales represented by the surveyed companies are based on the assumption that industry sales are about half retail sales at list prices as reported by Billboard. This assumption is supported by the prices the surveyed companies reported charging for their various types of recordings. These figures almost surely overstate, the profits of the recording industry, for they are based on statistics supplied by larger companies whose profit levels are generally far higher than those of the multitude of small companies not encompassed in the CRI survey. These profit figures are only for the U.S. operations of record companies, they do not include the profits of foreign subsidiaries.

NOTE: Totals do not always add precisely because of rounding. The figures here are only for the U.S. operations of the record companies. Figures for their foreign subsidiaries are not included.

SOURCE: CRI'S 1973, 1974 and 1975 surveys of leading record companies. For details of survey see Technical Appendix. The statistics here are the sum of the actual figures reported by the companies surveyed divided by the estimated percentage of the industry's sales these companies had.

Cost and profit data contained in Exhibit 5 (and several other exhibits) are based upon a 1973 survey conducted by the Cambridge Bomarch Testitute, and updated in 1974 and 1975 The survey obtained data from tes companies for 1969, increasing to 13 companies

u, these tem companies accounted for about 5% of the total industry sales, the 13 componies reporting data

*4 aunted for between 5% and 6 of the total industry sales during those years. The ten companies reporting data in 1960 are in the sample companies through 1974. A few companies also reported data for 1965-1968, however, too for companies reported 1905 and 1900 data for any meaningful analysis to be made. Because of the somewhat larger numbers of companies best of the somewhat larger percentages of the whole industry represented by them, the figures for the years 1960-1964 and wat.fy somewhat greater statistical confidence than the data for 1955-1957 and 1967-1968. The 13 companies which provided the 1971-1974 financial data shown in this section of the presentation are listed below.

ABC/Dunhill

Atlantic

Buddah

Capitol Records
CBS Records

Disneyland/Vista

CRT

London Records, Inc.
MCA

Phonogram (formerly Mercury)
Polydor

RCA

Warner Bros Records, Inc

These 13 companies represent 16 companies surveyed by John D. Glover in 1965 for his report before The Subcommittee on Patents, Trade. shad. Competights of the Committee on the Judiciary, U.S. House of Representatives, 89th Congress, First Session. MCA is now the group name for Decca, Lapp, and imi; ABC/Dunhill is a consolidation of those two companies.

The questions anked in the 1973, 1974, and 1975 surveys were similar to those used in the 1965 Glover survey. The data were collected and put in a computer by J & Lasser & Co, CPA'S. The estimates of the percentage of industry sales represented by the Compan Les were based on the commonly accepted estimating convention that industry sales were about half of retail sales ings at list prices as reported by RIM.

The Technical Appendix contains a copy of the 1973 questionnaire, the instructions for filling out this questionnaire, and copy of the 19th questionnaire. The 1974 questionnaire is not included since it was virtually identical with that of 1975. The Imsiructims for filling out the income statements in the 1973, 1974, and 1975 surveys were identical in order to insure comparabiity of the data

Additional Data Based on Sample of 34 Companies

In the interest of obtaining as accurate information as possible concerning mechanical royalties paid to the publishing industry by the recording industry, Cambridge Research Institute solicited the cooperation of a larger number of companies than had responded to ita mariser, sure extensive questionnaire

Statutory License Royalties Paid by U § Record Makers in 1973 and 1974,

The 34 companies that responded to the questionnaire accounted for about 981 of industry sales in 1973 and probably more than that in 19 4. On the basis of this data, further estimates of mechanical royalties paid in 1973 and 1974 were obtained as follows:

These estimates of mechanical royalties paid by the industry resulting from this survey are higher than the estimates from the 13-company financial survey conducted by CRI and reported elsewhere in this report, ... Exhibit 3-C. The estimates above are probably more accurate because the sample is larger. See the Technical appendia for a description of the 34-company survey.

The mechanical reyalty payments of the 34 reporting companies were used to estimate industry totals by relating the reported sales of the 34 companies to industry total sales as provided by RIAA annually.

ever, actual retail dollar sales are probably about 75% to 80% of those "list" figures.

Increase in Record Prices and Relationship to Profit. Although the suggested list price for regular price albums has been raised several times in the last decade, these increases are heavily discounted at retail. The increases in the prices which consumers actually pay have not offset the effects of inflation, nor have they resulted in high profits for the recording industry. BLS figures for actual prices paid by the consumer for a typical LP were $4.25 in 1964 and $4.74 in 1974, an increase of only 11.5%. (The CPI rose 59% during these years.) Recording industry pre-tax domestic profit margins from these sales rose from 2.1% in 1964 to 4.5% in 1974, still well below the norm for American industry.

Growth in Recording Company Sales and Profits. Sales of record makers rose from something like $138 million in 1955 to something like $1.1 billion in 1974. Profits of recording companies from all sources, including rentals and interest, rose from something like $21 million in 1955, to something like $121 million in 1974.

Growth in Incomes to Copyright Owners. In this same period of 1955 to 1974, mechanical royalties paid to publishing companies and other copyright owners rose from something like $22.1 million in 1955 to $79.3 million in 1974. The additional rise in, and the impressive amounts of income derived by copyright owners from performance fees have already been brought

out.

A Growth Industry. Clearly, the recording industry has been a growth industry over the past 20 years.

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Let us now examine more closely who has benefited from this growth, and by how much.

The Revenues, Costs, and Profits of the Recording Companies.

The revenues of recording companies have grown with only a few set-backs -- as in 1960 -- since 1955. Their profits, however, have fluctuated widely. Some years are better than others in terms of absolute dollar profits as well as margins. The recording industry does not always reap high rewards for the ingenuity and capital it has invested in improving the technology the musical quality, and the marketing of records. Its profits are uncertain. It is a risky industry, in total, and record by record.

Over the years, the recording companies have been deriving an increasing share of their profits after taxes from the licensing of U.S. made masters to foreign record companies for manufacture and distribution abroad. These gains amount to about one-half of the "other income" obtained by the recording industry. In recent years fees from foreign recording companies for use of U.S. recording masters have fluctuated from a high of something like 4.8% of record company sales in 1969 to a low of 0.8% in 1973. Similarly, recording companies derive important revenues from rentals of recording studios and equipment, for instance -- and interest on accounts receivable, for instance.

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The costs of recording, manufacturing, and marketing and of mechanical fees also fluctuate and vary over time, as do the successes of the recorded offerings of the industry. It is for these reasons that the profits of record makers fluctuate widely, as they do.

Over the past 4 years, two that were good and two that were somewhat poorer, the earnings of the recording industry from records, before taxes, can be summarized as follows:

In addition, the industry had profits before taxes from income sources other than making, man:facturing, and selling records, of an amount about equal to foreign fee income. (Profits after taxes, or course, were much less than the indicated pre-tax profits I probably something like half. or less.)

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Income to Copyright Owners from Records

Copyright owners are in a position somewhat similar to that of preferred stockholders when it comes to income from records: their mechanical fees get paid, record by record -- or, rather, license by license -- irrespective of whether individual records, or record makers make any money or not. With only one set-back, in the very poor year of 1973, mechanical royalties going to publishing companies have increased every year since 1967. Going back still farther, mechanical royalties have increased every year since the aid 1950's, excepting, our data shows, only the year 1962. In summary, the mechanical royalties paid by the recording industry to the publishing industry over the past four years have been as follows:

Estimated it 50% of other income.