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Exhibit 10

11 na DONT OF AN INCREASE IN THE STATUTORY MECHANICAL ROYALTY (CONT'D)

MERS OF A 36 STATUTORY LICENSE RATE

C. DE MICHEN STATUTORY MECHANICAL RATE WOULD ALSO BE COSTLY TO

WUXI ONAS

| retail sales of

list prices

$2.2 billion

Increasing the statutory rate to 3¢ could cost ukebox aparat rs 33 per b. per year,

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If the increase in the statutory rate caused record makers to raise their prices, it would raise the cost of recordings not only to consumers, but also to Jukebox owners.

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mer operators, as the Subcommittee well knows, purchase aillions #dollars worth of records each year in order to provide access to cur. temt msic for the listening public. Correspondingly, they bear the cost

millions of dollars in copyright royalties. As can be seen in Exhibit 11, - increase in the statutory license to be would imply an additional est to these operators of $6.97 per box, a substantial increase in their ent: This imp*t, too, does not seem warranted

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With 34 rate (specified in S. 22 and H.R. 2223 currently before Congress), a rate of 3//minute would be charged for every minute of a tune's playing time over four minutes. The calculations above are based on the assumption that no 45 RPM records purchased by jukebox owners would have more than four ainutes playing time per tune. If any significant number of the tunes had a longer playing time, the increase in mechanical royalties at the 34 rate would be greater than the figures indicated above. singles (45 RPM's) have a tune on each side, or two tunes/record. CRI's financial survey of 13 leading record companies with 64% of the industry's sales indicated that in 1974 the average gross margin of these companies was 35 of net sales. The gross margin must cover a company's sales, promotional and adninistrative costs as well as its profits. 'Statistics supplied by 13 leading record companies with 64% of the industry's sales indicated that in December 1974 the average price at which a record company sold its 45 RPM records was $0.5475. A RIMA survey of "one-step distributors in early 1975 indicated that the average price at which they sold records to jukebox owners was 70%. Given footnote d, this indicates a gross margin of 211. ***The Jukebox Story' published by the Music Operators of America in 1973, indicates that there are 400,000 to 500,000 jukeboxes in the country. Jukebox owners buy about 75 million records a year at a cost of about $52 million. If 450,000 jukeboxes are assumed to be in operation, then record purchases cost on the average about $115 per year per jukebox, and jukebox owners on the average purchase 167 records per year per jukebox.

II.

THE IMPACT OF AN INCREASE IN THE STATUTORY MECHANICAL ROYALTY (CONT'D)

D.

THE HIGHER RATE MIGHT CAUSE RECORD MAKERS TO RECORD LESS MUSIC

To compensate for an increase in the statutory license rate,
record makers might, among other defensive measures, record
less copyrighted music and might put fewer tunes on a recording.
To compensate for the reduction in their profits, they might
reduce their recordings of classical and experimental music,
on which they generally suffer losses. The higher license
rate night eliminate some of the smaller marginal record
makers. To the extent that these developments take place,
there would be less diversity in the industry and in the re-
cordings offered the public, less employment for musicians
and performing artists, and fewer opportunities for new or
experimental composers to get their music recorded.

If record makers passed on the substantial increase in license royalties which H.R. 2223 would exact, the higher prices charged consumers and jukebox owners for recordings would undoubtedly generate at least some, if not considerable buyer resistance. Sales of recordings might fall, and record makers would be under pressure to seek still further alternate strategies for coping with the $47 million increase in their mechanical Toyalty payments, in order to minimize necessary increases in price at the retail level. Given their inability to absorb the increase out of profits, and still make a return commensurate with risk and investment, still further defensive measures would be sought.

What alternatative measures might a record maker take to ensure his survival if the statutory rate is increased so steeply? .

1. Reducing the Use of Copyrighted Music

Faced with such a dramatic rise in their mechanical royalty payments, record makers might elect to reduce their use of copyrighted music. The most obvious way to reduce the use of copyrighted music is to reduce the number of tunes per record. As an alternative, this is not particularly attractive, but, in judicious combination with other defensive actions, this unfortunate step might have to be taken.

Some cutting down on the number of tunes on a recording has already occurred over the last 10 years. Record makers currently try to keep their mechanical royalties per LP down to a reasonable level. If the royalty for any tune is greater than the statutory rate because of its longer playing time, a record maker may tend to reduce the number of tunes on the recording in order to keep within his total budget for mechanical royalties on the recording. As can be seen in Exhibit 12, the average playing time per tune has risen a whole minute since 1965. This trend is related to changing tastes which enjoy more complex and sophisticated renditions and recordings of music. Record makers have compensated for this longer playing time and the resulting increase in the mechanical royalties per tune in part by cutting down on the number of tunes on an u.

Because the copyright bill currently before Congress proposes to increase not only the royalty per tune but also to increase the playing time rate and to impose it on any tune longer than four ainutes, record makers sight try to hold down the playing time of tunes and try to keep as many as possible under four minutes. In sum, the increase in the statutory license rate may cause record makers to record fever copyrighted tunes and to be sore selective about the tunes they do record.

Efforts to reduce the use of copyrighted music on recordings would, of course, hurt publishing companies, composers and other copyright owners, for fever of their tunes would be recorded. There would be fewer tunes earning sechanical royalties and performance fees from recordings. Popular established composers would still get their tunes recorded, no doubt, but the new tunesmiths and composers of experimental or classical music right face greater obstacles in gaining public exposure.

If the increase in the statutory license royalty caused record makers to put fever tunes on LP's or tapes, fewer musicians and artists would be

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in on the number of tunes on a recording has arrats t 10 years. Record makers currently try to keep Ities per LP down to a reasonable level 1! is greater than the statutory rate because of 133 a record maker way tend to reduce the number of 3 in order to keep within his total budget for noch le recording. As can be seen in Laidat it, the ler tune has risen a whole sinute since : 550 anging tastes which enjoy more complex and support

recordings of music. Record miers have come*s*** & time and the resulting increase in Inst.. part by cutting down on the number vf 1 sent

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ght bill currently before Congress proposes to 184 Pest T tune but also to increase the planin tin rate and e longer than four ainutos, record makers night tr 1 ime of tunes and try to keep us many as pontidos mult the increase in the statutory license rate was cute fewer copyrighted tones and to be more sext.r* shoul

7!ani. 1. based on the Top 150 L albums listed in Billboard No. 1$ and the top 150 of the top 20" LP albuns listed in

te Maris ), 193. Only the 150 of the Top 230" albums were "" 19"! to provide direct comparison with the 1995 list. which

lite e! y 150 aibuns. Because some albuns contained to records, . &; of 165 tecords with 1.653 tunes vere tined from the 1975 hits.

he use of copyrighted music or recordings would of companies, composers and other copyright in fe ld be recorded. There would be truer tar un performance fees from recording Popular *** schenk

their tunes recorded, no doubt, but the tho ** xperimental or classical music sight two re* 1c exposure

*.** the sp 150 Dis analysed averaged only 10 tunes per record 10.the "inicals Umst have around 11 tunes, According to *** rt by record companies with about $it of the

Hier, in the average bechanical royalty per popular

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d indicate that the semical" LP had 1125 :. See tunes do pay a license te based on playing

re statutory license royalty chased record sa es

or tapes, fewer susicians and artists od

foute e bel at e tunes, teine fron the

Cena:& ver. Among the

included in the CRI financial

**1# ii ferally to supplement the 24 per tune rate with ** .. per anst. of .tunes piaying time over Salutes

Den ble of the inisying time of their fures, and the se overage foya. ty betwees $

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