parties As I pointed out 10 years ago, some might question the legality of a situation in which a publishing company accepted royalty rates not regularly made available by it to all record companies on a non-discriminatory basis, or in which a recording company pays rates not regularly paid by it on a nondiscriminatory basis to all publishing companies. It might be argued that parret and receipt of different royalty rates arrived at, case by case, on the basis of "relative bargaining positions of the parties" would undermine the latent of Congress to make copyright music available to all and to prevent wire powerful companies--whether publishing companies or recording companies from achieving monopoly positions. Let us turn now to a re-examination of the merits of the argument of publushing companies that raising the statutory rate would "merely" raise the cwulung below which, or up to which, publishing companies and recording companies would "bargain according to their relative strengths". We have just eared in great detail a large sample of records issued recently by two recording compan,e1 In mid-December, 1974, we asked two large record companies, me being among the four largest firms in the industry and the other among the mest frur, to cooperate with us in the preparation of an extensive copyright TOPK.CY ANALYSİN. We asked them to provide us with mechanical rates agreed to be paid on licenses for all tunes included on all records which they had misased in 1974 up to that time. One of these companies, which updated its f..as m.y on a quarterly basis, supplied us with information on all of its te.cases for the first three quarters, or 9 months, of 1974, the other provided with Laformation for all 1974 releases through the end of November. These data covering the royalties paid for all of the copyrights on all of the mcards released by the two record companies in those periods, formed the basis for our analysis to give some idea of the size of the two companies eho provided the data, it is estimated that in 1974 they had record sales "ape i'm using tapes; on the order of 50 million records. The data are in two parts. The first part covers records distributed through the trade and the second consists of records distributed only though record clubs, or as premiums through non-music channels. Each part be alalind separately First it is necessary to distinguish among throw brand Cases of these recoris released through the trade 88 profits drastically, as we have seen, even fewer revenues than now would 3. Possible Elimination of Smaller, Marginal Record Makers The increase in statutory license royalties would have a greater impact on small record makers than on the large ones, for the small firms tend to have smaller profit margins and thus less flexibility in coping with cost increases. With lower profits, the small record makers could absorb even less of a statutory rate increase than the more profitable firms. Thus, a substantial increase in the mechanical royalties rate might reduce the number of firms in the industry. This is scarcely a desired or desirable effect. 4. "Concentration" in the Recording Industry Allegations which have been made as to excess concentration in the recording industry are not well founded. It is true that there are large firms in this industry, as there are in any industry where there are economies of scale. In 1970, the top four firms in the industry accounted for 621 of the total value of shipments in the industry. A substantial portion of this volume is represented by the product of small, independent record companies, which merely distribute through these larger organizations. But the Federal Trade Commission defines an industry as "highly concentrated" if 75% or more of shipments are accounted for by the top four firms. Thus, by that definition, the recording industry falls short of being "highly concentrated". The Commission also gets concerned when the overall trend in "concentration" is rising. However, as Exhibit 15 shows, there has been a decline in the percentage of record shipments attributed to the top four, to the top eight, to the top twenty firms over the last 23 years for which Commerce Department data are available. These shares are volatile from year to year, as musical tastes change and as new entrants pour into the industry. But a trend was clear: In 1947, the top four firms had 791 of the industry's shipments; by 1970, the share of the top four had fallen to 621. 79 Amua. Survey of _faturers Consentration Ration. US Department The top Your firms had "9% of the industry's shipments in 1947, but in The Top fight firms had " of the industry's shipments in 194”, but in This is an industry characterized by ease of entry. This is reflected in the rise of the independent record producer in recent years. All he or she needs is an idea and a little money -- not much. He can rent a recording studio. He can rent a sound team. A record manufacturer -- perhaps another company will press his records for him. A record company perhaps a third outfit will undertake to distribute his or her records. This is actually what is happening. Independent producers are proliferating; some of these are performing artists who can achieve both financial and artistic results to their liking by producing their own masters. The number of independent record producers listed in Billboard rose from 380 in September 1969 to 1,482 in September 1974, an increase of nearly 300% in just 5 years. Conversely. 12 leading recording companies, in a telephone survey conducted by RIAA in 1975, reported that they had 94 inhouse producers in 1965, but only 54 in-house producers in 1975 -- a 601 decline in 10 years. It is important to realize that a higher statutory license rate may endanger this socially desirable trend toward proliferation of the entities in this industry. For the smaller firms, gaining distribution today is like competing in the grocery or discount store business before you even get a chance to compete for the buyer's dollar, your product competes for "shelf space" with everyone else's. For those outlets in which you do gain distribution, it is important that your product sell as well as anybody else's, or you will lose that space and distribution. For the smaller firms, which are already struggling for marketing appeal, a price increase due to a higher statutory license rate, or other defensive measures of the sorts we have been describing, might make it more difficult for them to sell their products. Few small firms could afford to absorb any increase in their mechanical license payments. Surely, reducing the threshold of survival for smaller record makers can not be one of the intended results of the bill before this Subcommittee. These figures are based on the listing of independent producers in 81 THE IMPACT OF AN INCREASE IN THE STATUTORY MECHANICAL ROYALTY (CONT'D) 8 THE HIGHER STATUTORY RATE WOULD BECOME THE STANDARD RATE, NOT A "CEILING" More than 931 of all royalty rates are at the statutory rate or the 2 rate ve and below de represent standard variations fre it are the norm and but a few rates are at standard variations the_statutory_rate or are at the 2e rate itself. In short, as was the case 19 years ago, the statutory rate of 2e and standard, **a_iz_available, non-discriminatory variations therefrom account for Mork of all royalty rates payable on licensed tunes. 1 are based on an analysis of all records released by 1974 which covered 1, 36] picensed times on 112 other courted to the trade records and IP albums, which were heavily dis |