11. 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 Je would imply an additional most to these operators of $6.57 per box, a substantial increase in their Loots This impact, too, does not seen warranted. 68 With a 34 rate (specified in S. 22 and H.R. 2223 currently before Congress), a rate of 3/4¢/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 3 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 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 21%. "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. 69 THE DEACT OF AN INCREASE IN THE STATUTURY MECHANICAL ROYALTY (CONT'D) THE HIGHER RATE MIGHT CAUSE RECORD MAKERS TO RECORD LESS MUSIC In mengate for an increase in the statutory license rate, If record makers passed on the substantial increase in license royalties uth # # 2223 would exact, the higher prices charged consumers and jukebox owners for re-ordings would undoubtedly generate at least some, if not consideral-e buyer res.stance. Sales of recordings might fall, and record makers ein.d be under pressure to seek still further alternate strategies for coping ■ 14" million increase in their mechanical royalty payments, in order to muhumile necessary increases in price at the retail level. Given their lah .fy to absorb the increase out of profits, and still make a return comfurate with risk and investment, still further defensive measures would be What alternatative measures might a record maker take to ensure his sur f. if the statutory rate is increased so steeply? Farmd with such a dramatic rise in their me hani al reyalty payments, record manrs might elect to reduce their use of copyrighted music The mist đây qua way to reduce the use of copyrighted m sic is to reduce the number of *abes per re stå As an alternative, this is not particularly attractive, but, -Pa® (makination with other defensive actims, this unfortunate step wp. More to be fam 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 his analysis is based on the "Top 150" LP albums listed in Billboard hugh the Top 150 LP's analyzed averaged only 10 tunes per record 18 19 3, the "typical" LP must have around il tunes. According to statistics reported by 8 record companies with about 5.1 of the abdustry a sales, in 1972 the average mechanical royalty per popular t disk was 22 Se at the 24 rate). If a flat license rate of 24 per Tune were pa.d, this would indicate that the "typical" IP had 11 25 Some tunes do pay a license fee based on playing as dated in futute e belw, but sume tunes, being from the puh.. dman call for no : pyright royalty at all (These 8 **=*d companies were among the 13 included in the CRI financial Tatrast practice is generally to supplement the 24 per tune rate with 72 |