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Exhibit 5, cont.

Survey - 2

155

Part B: Wholesale Prices, Titles Released, Units Sold, Number of Employees

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4. Number of independent producers whose records you distribute:

PART IV

CONSOLIDATED INCOME STATEMENT OF RECORDING COMPANTES SURVEYED BY CI IN 1965

(Millions of dollars)
1956 1957 1959 1960 1961

1962

1963

1964

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19.9
17.1

3.0
9.3
10.3
$ 22.6

49.5
$ 51.4

$ 33.3

71.3
$ 60.7

15.3

14.5
$ 33.8

76.2
$67.3

21.2

21.3
$ 47.4

20.8

17.5
$ 43.1

90.2
$ 78.8

15.3
$ 37.

79.6
$ 71.8

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Net Sales of Recordings

$74.9
Loss: Artist & Recording Expenses

. Contributions to funds
• Artists' royalties

• Talent & recording expenses
Total Artist and Recording Expenses

$14.7
Less: Production Manufacturing

32.3
Gross Margin Before Mechanical Fees

$27.9
Less: Selling Promotion, Administrative &
General Expenses.

17.6
Less: Mechanical Royalties
Net Profits on Sales Before Taxes & Before

Foreign Fee Income and Other Miscellaneous

Income
Plus: Other Incone (including foreign fee incone)** 1.4
Net Profit Before Income Taxes

$ $.6
Income Taxes ***
Net Profit After Income Taxes

$ 2.1

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$ 14.2

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$ 7.1

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6.1

$ 10.3

$

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The estimate of the I of industry sales represented by the surveyed coapantes was based on excise taxes paid by these companies in 1955-1963.
The 1964 percentage vas calculated by the method used for 1967-1973 in Part I of Appendix A.

Note: Totals do not always add precisely because of rounding. The figures here are only for the U.S. operations of the record companies surveyed.

Figures for their foreign subsidiaries are not included. Source: ORI', 1965 survey of leading record companies. For results in sore detail see Exhibit S. The statistics here are the sum of the figures

reported by the surveyed companies and do not include any estimates for the multitude of companies not in the survey. Exhibit S, cont.

PART IV

CONSOLIDATED INCOME STATEMENT OF RECORDING COMPANIES SURVEYED BY CRI in 1972, 1973, and 1974

1967 - 1974

(Millions of dollars)
1967 1968 1969 1970 1971 1972

1973

1974

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Net Sales of Recordings

$256.4
Less: Artist & Recording Expenses

.. Contribution to funds
- Artists' royalties

36.1
. Talent & recording expenses

17.2
Total Artist and Recording Expenses

$ 58.2
Less: Production & Manufacturing

893
Cross Margin Before Mechanical Fee Payments $108.9
Less: Selling Promotion, Administrative
General Expenses

75.8
Less: Mechanical Royalties

23.2
Net Profits on Sales Before Taxes Before

Foreign Fee Income and Other Miscellaneous $ 9.8

Income
Plus: Other Incone (including foreign fee incode)** 10.8
Net Profit Before Income Taxes

$ 20.7
Income Taxes***

10.0
Net Profit After Income Taxes

$ 10.1

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Number of Reporting Companies
Estimated I of Industry Sales Represented***

44.08

43.05

$2.01

63.08

62.05

60.71

56.81

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Estinates of the l of industry sales represented by the surveyed companies are based on the assumption that industry sales are about half retail
sales at list prices as reported by Billboard. This assumption is supported by the prices the surveyed companies reported charging for their
various types of recordings. See Exhibit 2.

Note: Totals do not always add precisely because of rounding. The figures here are only for the U.S. operations of the record companies surveyed.

Figures for their foreign subsidiaries are not included.
Source: CRI's 1973, 1974, and 1975 surveys of leading record companies. For results in more detail see Exhibit 2. The statistics here are the

sus of the actual figures reported by the companies surveyed and do not include any estimates for the multitude of companies not in the
survey.

158

Exhibit 6 -- STATUTORY LICENSE ROYALTIES PER TOP 150 LP ALBUMS

IN 1973 AT VARIOUS STATUTORY RATES

This exhibit, together with the discussion on pages 56 and 57 is fairly self-explanatory. Nevertheless, it is important that the derivation of the 591 figure be completely understood.

The calculation is based on a sample of the top 150 of the "Top 200" LP albums from Billboard, March 3, 1973; these albums accounted for 165 LP records (because some albums contained two records) and 1,653 tunes. The number of tunes per record was counted, and playing times were measured, tune by tune. This, clearly is not a sample of all recordings. Tapes and singles were excluded. There would be some releases on singles which did not appear on LP's, but there would be virtually no tape releases which did did not come out on LP's or singles. Probably, the top 150 would be representative of the majority of U.S. sales, but they are not statistically representative of total U.S. releases or sales.

For purposes of calculation, it was assumed that each of the tunes in the top 150 was at the 2¢ statutory mechanical royalty rate. In fact, some may have been at a higher rate, some at a lower rate; and there could have been included some public domain tunes at 04. Most likely, there was little or no public domain material included; it does not "sell."

In addition, the current general (but not universal) practice of paying an additional royalty of 1/2¢ per minute of playing time over five minutes was included in the calculation of 22¢ as the average mechanical royalty per record under the present law and present practice. That would take care of the tunes that were over 2€.

There was then calculated what the mechanical royalty would be under H.R. 2223, tune by tune, applying the proposed statutory provisions to the data on tunes per record and on playing times. The result of this calculation was an average mechanical royalty of 356 per record.

The increase from 224 to 35¢ is 59%, as reported. Whether or not any of the tunes in the sample actually were licensed at less than 2¢, as some

159

probably were, is immaterial to the calculation of the 599. The calculation
can be looked upon as expressing the statutory rate change (taking account of
the current playing time practice); or it can be regarded as a measure of
the change if, whatever the actual rate, all licenses moved up by 50% (and
the playing time provision in H.R. 2223 were taken account of).

If we had not taken account of the current practice of paying 1/2¢ per minute over five minutes, the percentage increase shown would be greater than 59%. As it is, since as we understand this playing time practice is not universal, probably we are slightly understating the percentage increase of 59%.

As to the fact that singles were excluded from the sample, two points are in order. First, their exclusion tends, if anything, to understate what the calculated percentage increase (59%) would be were they to be included in the sample. This is so because there is only one tune per side on a single; on an LP, a longer band (incurring the playing time provision of H.R. 2223) subtracts from the playing time available for other bands on the same side. Second, LP's - taken by themselves - constitute a large and significant portion of total unit sales of recordings. We do not know precisely what portion, but we do know that LP's accounted for about 62% of dollar sales in 1974.

Were tapes to have been included in the sample, the results probably would have been little different. Tunes released are essentially the same as those on records (LP's in the main, we understand). And, far fewer licenses on tape are at less than 2¢, we are told; the mechanical royalty rate, tune by tune, otherwise is very similar to, or exactly the same as, the rate for LP's.

Note that 1973 data were employed. The results could be somewhat different if 1974 data were examined.

Exhibit 7 -. FINANCIAL IMPACTS OF PROPOSED INCREASED MECHANICAL

ROYALTIES ON MUSIC PUBLISHING INDUSTRY AND RECORDING
INDUSTRY, 1971-1974,

This exhibit applies the 59% figure developed in Exhibit 6 to total mechanical royalties paid during the four-year period, 1971-1974. Totals

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