able to get jobs making recordings, or would find themselves booking fewer recording hours. This would be unfortunate, for musicians' employment opportunities have already been reduced by the growing use of recordings rather than live music. Reduction of the number of tunes on LP's and tapes would also be inflationary; to the extent that this alternative defensive action were adopted, the consumer would receive less music for the money spent on recordings. In sum, raising the statutory mechanical rate may benefit popular established composers and their publishing companies and others who own or have an interest in the music of popular, established composers; but it would tend to hurt other composers, less well-known and younger and not yet recognized; it would also injure musicians and the American record buying public. 2. Reducing the Risks Inherent in the Business Another defensive measure record makers might take to keep a mechanical royalty increase from destroying their profit position would be to reduce their production of recordings which their judgment indicates are among the least likely to enjoy sufficient sales to cover their costs of recording production, and manufacture, and to make a profit. Eight out of ten recordings, even now, do not generate sufficient revenue to cover the cost of producing, manufacturing, and marketing them. (See Exhibit 13). In 1972, the latest year for which data on releases are available, 821 of "Singles" releases failed to earn a profit, as did 77% of popular releases, and 951 of classical LP's. Of popular LP's, 80% failed to break even; of classical tapes, 99% did not recover their costs. The profits from the successful recordings a minority must cover the losses on the large number of recordings -- the large majority -- that do not sell well enough to cover their costs. Yet, regardless of whether or not the recording earns a profit, the publishing company or other copyright holder is paid its mechanical royalty. In financial terms, the mechanical 73 Source These figures are based on an analysis done by Cambridge Research Institute of a sample of the releases of eight record companies which had 511 of the industry's sales in 1972. revalty "comes off the top". The record maker bears the risk of loss, and As the figures in Exhibit 13 indicate, to break even on a 45 RPM single The breakeven volume for popular LP's in 1972, was, on the average, about $1,000 copies About 77% of the releases of all popular LP's failed to sell enough to break even. About 571 didn't come close, they sold 20,000 er fewer Here, too, the breakeven point has risen sharply since 1963, when only 7,800 copies of the LP albums had to be sold to break even.** Ninety-five percent of all classical LP's failed to break even, and about "9% of popular tapes did not have sufficient sales to break even. They lost money. The figures for classical tapes are even worse. Rarely, if ever, has a classical tape enjoyed sufficient sales to break even. The classical Minuses of most firms are "carried" along by the funds generated by the few pop records that are profitable. This dramatic increase in the breakeven point for all classes of recordings since 1963 is a reflection of the severe cost increases experishind by the recording industry and the greater fixed costs incurred before a record is released As a result, the recording business has become even more risky Whereas 748 of all 45 RPM single record releases failed to The 1961 figures are from the 1965 Glover Report. For full reference 76 break even in 1963, 81% failed in 1972. Similarly, the breakeven for popu lar LP's has deteriorated to the point where 77% do not break even, in contrast to 61% in 1963. And, of course, the losses sustained now on these recordings that don't break even are much, much greater. Another indication that the record business has become more costly and more risky is the growing problem record makers have with recordings returned by wholesalers and retailers. Exhibit 14 shows that since 1969 record returns have risen from 16 to 211 of record manufacturers' gross sales. The dollar cost each year of returns has been enormous: from $164 million in 1969, this cost has gone up to $311 million in 1974. These statistics indicate the increasing extent to which record makers must invest must expose themselves to risks in the manufacture and distribution of new recordings without the assurance even of a final sale, let alone a profitable sale. In sum, the recording business is exceedingly risky. The recordby-record odds against success are especially difficult for the smaller or newer company which can produce only a few releases a year. An increase in copyright royalties, if not passed on, would raise the breakeven point and the odds against success for all record people still higher. It is, therefore, grossly misleading to assert, as the publishing companies have done, that the proposed new mechanical rate would "only" raise the failure rate by 2 or 3 percentage points. It is true, for example, that under a 34 mechanical rate, with the increase in rate not passed on, the percentage of 45 RPM single records which did not break even -- that is the failure rate would increase from 81% to 831, a "mere" two points. But the other side of the coin is what really counts: The success rate, already slim, would drop from 191 to 171. For the marginally profitable, such a drop in an already low probability of success would be forbidding, if not fatal. A higher statutory license rate could discourage even further the production of classical recordings, which are currently financed -- subsidized is not a bad word to use here to a very large extent by profits from popular records. Because higher royalties, if not passed on, would reduce those 77 |