II. THE IMPACT OF AN INCREASE IN THE STATUTORY MECHANICAL ROYALTY (CONT'D) C. THE HIGHER STATUTORY MECHANICAL RATE WOULD ALSO BE COSTLY TO Increasing the statutory rate to 3 could cost jukebox 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. Jukebox operators, as the Subcommittee well knows, purchase millions of dollars worth of records each year in order to provide access to current music for the listening public. Correspondingly, they bear the cost of millions of dollars in copyright royalties. As can be seen in Exhibit 11, an increase in the statutory license to 34 would imply an additional cost to these operators of $6.57 per box, a substantial increase in their costs. This impact, too, does not seem warranted. 68 With a Se rate (specified in 5.22 and H.R. 2223 currently before Congress), a rate of 3/4e/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 minutes playing time per tune. If any significant number of the tunes had a longer playing time, the increase in mechanical royalties at the Se 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 358 of net sales. The gross margin must cover a company's sales, promotional and administrative 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 RIAA survey of "one-step" distributors in early 1975 indicated that the average price at which they sold records to jukebox owners was 704. Given footnote d. this indicates a gross margin of 211. fuŢhe 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 tukebox, and jukebox owners on the average purchase 167 records per year per jukebox. II THE IMPACT OF AN INCREASE IN THE STATUTURY MECHANICAL ROYALTY (CONT'D) THE HIDHER RATE MIGHT CAUSE RECORD MAKERS TO RECORD LESS MUSIC if record makers passed on the substantial increase in license revalties which m# 2223 would exact, the higher prices charged consumers and jukebox omers for recordings would undoubtedly generate at least some, if not considers).e buyer resistance. Sales of recordings might fall, and record makers wis.d be under pressure to seek still further alternate strategies for coping with the 14" million increase in their mechanical royalty payments, in order to mutumise necessary increases in price at the retail level. Given their stab 1.*y to absorb the increase out of profits, and still make a return combensurate with risk and investment, still further defensive measures would be that alternatative measures might a record maker take to ensure his survim, if the statutory rate is increased so steeply? 1 kg these of Minyrighted House Faced with such a dramatic rise in their me, hani al royalty payments, Phuurd maurs might elect to reduce their use of copyrighted aus.c The must de out way to reduce the use of copyrighted music is to reduce the num3 er of Talas per te „rá As an alternative, this is not particularly attractive, but, chuk Trænination with other defensive actims, this unfortunate step 70 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 LP. 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 minutes, record makers might 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 fewer copyrighted tunes and to be more 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 fewer of their tunes would be recorded. There would be fewer tunes earning mechanical 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 might face greater obstacles in gaining public exposure. If the increase in the statutory license royalty caused record makers to put fewer tunes on LP's or tapes, fewer musicians and artists would be 71 *his analysis is based on the "Top 150" LP albums listed in Billboard The Top 150 LP's analysed averaged only 10 tunes per record the "typical" LP must have around 11 tunes. According to statiatura reported by § record companies with about Sil of the industry a $3.01, in 15°2 the average mechanical royalty per popular 3 bulk was 22 be at the 2e rate). If a flat license rate of de per tute were paid, this would indicate that the "typical" LP had 11-25 Tales 23-24). Some tunes do pay a license fee based on playing fum abated in fouthute c below, but some tunes, being from the Pan is domain, call for no copyright royalty at all (These & torand companies were among the 13 included in the CRI financial Current practice is generally to supplement the 24 per tune rate with 72 |