arrived at in the exhibit are self-explanatory and are discussed in the text. The emphasis in this exhibit is on the effect of a 591 increase in mechanical rovalty payments on U.S. recording company pre-tax profits from all sources. Exhibit 8 -- MECHANICAL ROYALTIES COMPARED TO RECORDING INDUSTRY This exhibit shows in similar fashion the effect of the proposed 34 rate ax domestic recording industry profits (line 11, Exhibit S-C, p. 49). Mechanical royalties are paid on the basis of recordings made and sold in the 5 As the exhibit illustrates, the potential impact of a higher rate on domestic profits is disastrous. This exhibit is self-explanatory. However, it is important to recognize that the prices and dollar margins presented are only illustrations, based on 36 98 list price record. The average price paid by consumers on all records is much less than the average $5.77 they pay for a $6.98 record. The exhibit also shows the more moderate impact on the consumer price a mehanical rate increase of 1/2¢ would have, as compared to the proposed le It must be recognized that a cost increase at the producer level cannot be passed along without increases along the way. The increase in cost to Bidd.mem that would result from an increase in the mechanical royalty being passed on by recording companies would lead to still further increases by iddleman in order that they be able to maintain their margins Such further shcreases would be justified by the additional costs they would inrur, such as for insurance, inventories, financing, bad debts, and the like. 160 Exhibit 10 COST TO CONSUMERS OF A 3 STATUTORY LICENSE RATE This exhibit, with footnotes, is self-explanatory. retail sales of recordings, at list prices, are made annually.) (RIAA estimates of Exhibit 11 -- IMPACT OF A COPYRIGHT FEE INCREASE Statistics for this exhibit are derived from the principal financial survey, as explained in the footnotes to the exhibit. Exhibit 12 - TUNES AND PLAYING TIME OF TOP 150 The exhibit, with footnotes, is self-explanatory. Exhibit 13 - RECORD MAKERS UNIT SALES PER RELEASE AND Date in this exhibit are based on an analysis of results that were an integral part of the 1973 financial survey. (See Technical Appendix, on Exhibit 5). The distribution of sales by volume is from Form (5) of the questionnaire. The breakeven information is from Form (4), and is summarized on the following page: 161 0.644 0.562 1. 104 *. A&R Studio Recording, and Talent Costs wed selling. Promotion, and General Costs. Req-red Nin her of Pecords which have to be Sold 45,678 60.584 22,131 24,092 34, 371 bese costs are charged to the records which are manufactured before the tapes. Tapes are produced only when explanation was given by the reporting company of why a negative number was given for "fixed manufacturing 162 Exhibit 14 RECORD RETURNS, 1969-1974 The industry has long had a practice of allowing free returns of unsold merchandise to manufacturers. This exhibit summarized the dollar magnitude of this activity. Exhibit 15 - CONCENTRATION IN THE PHONOGRAPH The exhibit shows clearly that the trend toward reduced concentration which began at the end of World War II has continued since the 1965 hearings. Concentration in the recording industry is declining. The final six exhibits provide specific, new information on what has come to be known as the "ceiling vs. rate" issue. To obtain the data contained in these exhibits, CRI undertook a comprehensive study of all licenses issued in 1974 by two companies and for which data were available at the time of the study. The nature of the study is spelled out in detail in pp. 82-118 of the main report. As an aid to understanding this section of the report, the following guide to the exhibits might prove useful: Basically, the exhibits fall into two main groups -- (1) tabular 163 Looking at the total of tunes studies, the frequency dis- Exhibit 18-8 on page 94 demonstrates explicitly the standard A study of licensing needs to be based upon a sample of licenses. Studies bused on samples of records sold are interesting but they are not directly rele var to an examination of the licensing process. For example: in a study of 1. ms.ng 150 licenses are examined; 98 are at 2¢, and 2 are at 1.5e. The picture of licensing rates derived is quite different than if the sample were to be weighted by the fact that one of the 1.5 licensed recordings was a part....... arly outstanding seller In any event, licensing routinely occurs before anyone knows what the Mume of sales will be for a particular licensed recording, consequently, the oppertunity for sales volume (which comes after) to affect the pricing of #lense transaction (which comes befere) is highly limited. The percentage distribution of various rate categories reported from the We estimate that the two comperating retarding companies sold over 50 164 |