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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 sea sure record makers aight take to keep a mechanical royalty increase fros 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, sanufacturing, and marketing thes. (See Exhibit 13). In 1972, the latest year for which data on releases are availa able, 821 of "Singles" releases failed to earn a profit, as did 771 of popular releases, and 951 of classical LP's. of popular LP's, 801 failed to break even; of classical tapes, 999 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 hoider is paid its mechanical royalty. in financial ters, the mechanical

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• Risks Inherent in the business

8-10 10-20 umber of Disc. Sold (Thousand.

61.000 Disco

Sos CLASSICALI

981 of all releso failed to ceram profit 19%.

in 1

ve measure record makers nupat tale to keep a ***

destroying their profit position would bts must ecordings which their judgment indicates 17" ang Bjoy sufficient sales to cover their costs of 7*3% N icture, and to make a profil, recordings, even now, do me! generate 1.!!.. you roducing, manufacturing, and market in the sea the latest year for which data fo.nam * ***. reieases failed to eam a profit, u 6:4 *:!, of classical '1, 2 xpiar I, AI 18.

tapes, 991 did not rooster 68 cer's

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Successful recordings -- #9r!!! - Blog lumber of record1ags -- the large w;r",". *Re: o cover their calls Yet, mogurtimi it were given porn

profit, the pubi ssalap cray at 143 18po gra icai royalty. In f: 74412: torus

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Source: These firures are based on an analysis done by Cambridge Research
institute of a sample of the releases of cinst record companies which had
$11 of the industry's sales in 1 2 .

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r ity comes off the top". The record saker bears the risk of loss, and
this already very substantial risk would rise even further to the extent
that the increase in the statutory license rate could not be passed on
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the figures in Lahibit 13 indicate, to break even on a 45 RPM single in 1991, a compay had to sell, on the average, about 46,000 copies. In #rout 1 time, over $0$ of all single releases by record companies faited to reach the breakeven point. About 641 of the releases of all singles didn't even con close, they sold in amounts of 10,000 or less. The wane point has risen dramatically since 1963, when only 11,200 45 RPM Am to be sold to break even.. No doubt, the breakeven point has damped strikingly even since 1972, considering the rising costs of making recordings

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The Wealeven volume for popular LP's in 1972, was, on the average, thout $1.000 copies About 771 of the releases of all popular LP's failed to wll mough to break even. About $t didn't come close, they sold 20.000 e fruttere, too, the breakeven point has risen sharply since 1963, en taly 1,000 copies of the albuas had to be sold to break even."

maty five percent of all classical LP's failed to break even, and hot » af popular tapes did not have sufficient sales to break even. They int me the figure for classical tapes are even worse. Rarely. 18 ever.

* * elaniul tape on joyed sufficient sales to break even. The classical mam at ment fins are carried along by the tunas generated by the *** oras tut are proticable.

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m. draatio Increase in the breakeven point for all classes of rip sin. I 1. a reflection of the severe cost increases experi. ne by the ending industry and the greater fixed costs incurred befor. and to reimavell Arrerult, the recording business has become even ay breus 141 of all 46 single record releases falled to

Tapes Sold Thousandat

34,00

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al fine are from the 1965 Clover Report. For full reference

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break even in 1963, 816 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 now 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 never 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 sisleading 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 5* mechanical rate, with the increase in rate not pas sed on, the percentage of 45 RPM single records which did not break even -- that is the failure rate -- would increase from $18 to 831, a "mere" two points. But the other side of the coin is what really counts: The success rate, already slin, 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

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