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We have shown thus far that a higher statutory mechanical royalty rate is unwarranted. No less important, surely, it would have adverse ispacts on the public interest, performing artists, new and experimental music, and upon the recording industry. These are the reasons:
The share of the total revenues from record sales that goes to copyright owners is more than generous. It is higher than that provided by Congress when it granted copyrights in musical compositions and, at the same time, instituted compulsory licensing of such compositions.
The aggregate dollar revenues paid by the recording industry to copyright owners for copyright royalties have been increasing much faster than inflation.
The dollar revenues generated per license and per tune have increased much faster than inflation.
The increase in the compulsory rate to 54, an' rore, as proposed in Section 115 of H.R. 2223, if passed on to wholesalers, retailers, and buyers would have a burdensone dollar impact on consumers.
18 not passed on, the aggregate dollar value of the increase would be so large that it could not be absorbed out of profits. For many companies, especially smaller companies, the increase in royalties payable would be greater than their profits. Record
producers would be faced with serious problems. These fact notwithstanding, there is one final argument put forth by publishing companies, copyright owners, and their representatives that must be addressed and dismissed.
M: Isting companies and other copyright owners and their representatim lan tried to waive any serious, documented discussion of the impacts
701.ng the statutory royalty rate. They have argued that there is * *** of knowing what the effects on payments and on the recording Industry
& bar 17 any They suggest that even the present 24 rate is merely a ***l.. and that, because of bargaining between record people and publishing per1.ss, the actual royalty rate paid is often less than 2¢. They have said that 82.119the rate above 2¢ would merely be perlesive, and that it would *** 1."here room for bargaining" between publishing companies and Best maketi. They have said that "the Se would merely be a ceiling" - I 8.4 10..*7 = 4! ve which this bargaining could not go. They have said the m es of all these "negotiations" would be subject to bargaining
tals of the relative positions" of copyright owners and recording Lates, case by case. They have implied and have argued that the large
9, ty of licenses panted would be bargained down to rates less than the ****** rate
be potue fuested by this argument, of numbers of publishers and re. r&. COM * -- there are foundreds of each -- all sitting down together,
3. And no gotiating rates and bargaining on the strengths of their rel. #. pt. 117, case by case, for each of more than 50.000 liconses granted u representative year is a beguiling one. And it is a grave mi portrayal of the lustry has worked, now works, and must work.
The very compulsory license rate is, and has been the standard e, sel, along with standard, recomised non-discriminatory variations
free, *. cunts for practically all license rater paid. The present x ury rate is a "ceiling". 16 in the standard rate. In fact, some
* *s* paid that are above that standard, but there, also, are at standard, ***.. Ahed variations ave the statutory rate.
that and variations provide for lower rates for such uses as so
get ronts and reroris distributed by record sies, and for ** snart r***s on kuitial roditi. that run top me than
5 minutes. Most of these variations are issued by means of standard licenses, issued routinely and practically automatically by a licensing agency used in common by most publishers. This is a point to which we shall return in a moment.
It was almost exactly 10 years ago that I presented here incontrovertible evidence that the vast majority of the rates paid to publishing companies were at 2¢ and that, with rare exceptions, the rest were at standard variations from the statutory rate. These rates were not the results of "bargaining" or "negotiation" case by case. They were the outcomes of prevail. ing and necessary industry practice.
To make the point again, and to lay this ghost of "bargaining" to rest once and for all, I shall in a moment give you added, very recent evidence that shows that the practice of 10 years ago is -- inevitably -- still the practice today. This is no nere happenstance. But before doing so, let me explain briefly why it is that the industry does and must operate on the basis of standard license rates and standard variations, and cannot operate on the basis of case-by-case bargaining. When this is understood, it will be seen why the present statutory rate is the standard rate and why any new statutory rate would, in turn, become the new standard.
First, as I pointed out a moment ago, sone 50,000 licenses may be granted in a representative year. It is simply not feasible for publishing companies and recording companies to bargain together for each of these many. many licenses. A major recording sin may obtain, and a major publisaing company may grant, a score or more licenses on a working day. As a practical matter, there must be, and there is, some administrative mechanisa for handling this problem. And that men chanism is based on standard contracts that incorporate standard conditions under which licenses are granted and standard rates which, together with standard variations, account for practically all rates, with only a few exceptions. These standard, prevailing rates are not mbargained". Only very seidon, as I showed ten years ago and as I shall show again, are unusual arrangements "bargained' out and entered into. Any other procedure would simply be impractical.
La passing. let se point out very briefly a source of semantic conta. as to the process of what is sometimes called "negotiation" of is conse rate for use of copyright music in mechanical reproduction. In
ory, there are two avenues to obtaining a license: either through the out of negotiation" or through the "compulsory route. According to the theory of the copyright law, a person wanting to use a tune in
ul reproduxtion of music can try to negotiate" a license from the copet!** Owner. Then, 18. copyright owner is uncooperative or in
***, **v party wanting to record a tune that has once been recorded ** pe amend and do so and pay royalties at the compulsory statutory tutt of water conditions and procedures prescribed by the Register of Computery is fact, the administrative and procedural mechanics of the pre route are cumbersome for all parties, and are only very ranury user Pettead, publishing companies have set up routine procedures
* p. ph route of negotiation, By definition and usage in the trade, 20 that is issued under any procedure other than the "compulsory **.l.* 11 -14 to be "negotia ", even if and this is crucial to mia* standing how the industry works - the license is actiholly issued under se *t routine, the most automatic procedure. Tens of thousands of isme are inued overy year absolutely routinely, absolutely automati.
. ' And because they are not issued under the compulsory procedure heyne - definition - "noge.aird". The fact that they are thus se od we the trade shou!d not mistead one to suppose for a moment that *** * i es real sense hagled over or mbargained for.
1 lends w to the second point in understanding why any new prypused ***www.4, in tur, become the standard rate.
'.. **. ** ** prcdalymout .licenses are applied for and grarted in
* ** fan breier than fr ! of reording tot bet re, as one w ill
A majority of copyright licenses are, and have been for many years granted through a single, common agency of the music publishing companies -the so-called "Harry Fox Office". This agency has been owned since 1969 by the National Music Publishers' Association. This agency is the consonly and generally used instrumentality where licenses are routinely and, for practical purposes, well-nigh automatically issued on behalf of copyright owners -- that is to say, "negotiated". When a record producer wants to use a tune, he fills out a standard license fors indicating his intentions and sends it to the Harry Fox Office. He does not wait to receive some fora granting permission; that is unnecessary. He obtains permission through filling out and filing the contract fon, and proceeds to make his recording automatically. Later, the Harry Fox Office will issue to the recording fin a standard contract, specifying the standard conditions, standard rates, of standard variations therefrom, under which the license is granted. The recording firm later sends the royalties due upon the license to the Harry Fox Office which remits payments to the copyright owner or owners of the tune licensed."
There appear to be a few publishing companies that now do not use the Harry Fox Office to issue licenses and collect royalties and monitor payments. More important, publishing companies and recording companies sonet ises go around the Office when they are under common ownership. So also, sometimes, do artist-composers own the whole or a share of copyrights to music they are perforing on a record; the record company generally pays royalties to then directly in such cases.
Nevertheless, the fact, alone, of the existence and use of common licenseissuing and royalty-collection and monitoring agencies, as I pointed out 10 years ago, could be a sufficiently important factor in industry practice to establish, at very least, a strong "pattern" in contract forms used and license royalties charged.
There is a third reason why there is not, and will not be, as argued by publishing interests, bargaining according to the relative strengths of the
Often, tunes are subiect to fractional ownership interests. In such instance, a separate payment is remitted to each owner for his share of the royalty payment due in the particular license.