Originally, there was a publisher monopoly as well as a piano roll company monopoly. I think that if the compulsory license were lifted, in other words, if it were completely deregulated, you open the way for putting too much clout in the hands of publishers or in the hands of record companies.

I think that the system has worked well. I think that the main argument, the defense of what is, is that it is working very well. The parties are doing well. I think that there is no reason to change them. And I think that this is the greatest argument for maintaining the compulsory license system: It is doing well.

Mr. DRINAN. DO I understand that in Europe and in other countries the recording artists do, in fact, get a percentage of the record price? Mr. GORTIKOV. Yes; they do.

Mr. DRINAN. Would you elaborate a bit on that?

Mr. GORTIKOV. In some European countries, a percentile of the price is paid and divided by the composers and publishers. Just because Europe does it, does not necessarily make it such a grand proposal to copy for ourselves.

Our system has worked well for us. And unfairness is implicit, I think, in a percentile mode. For example, on this LP here, if the royalties were paid on a percentile basis and if there were 8 publishers and composers on it the same amount of money would accrue to the 8 as would be paid if there were 16 publishers and composers. Some would be getting too much and some too little.

Also, if, back to the compulsory question, if there is a decontrol envisioned, then you might as well decontrol all the way and not have the life plus 50 protection.

Mr. DRINAN. Where is it really different from the book industry? We do not get rid of copyright there and the person who writes a book has his publisher negotiate with the paperback company and his publisher deals with serializations or excerpts from the books without any statutory safeguards.

Mr. GORTIKOV. A book is a definitive work. It is an end product. This piece of music is not an end product. This is a piece of music, which has a price tag, incidentally, of $1.50 on it. It comes alive when a performer does something with it. A book is a definitive work, start to finish, in itself. It declares itself complete.

The imposition of a performance and the creative effort done by a recording company make a musical work come alive and become of commercial value. It also can result in multiple uses and multiple sources of income. It is altogether different from books.

Books may have a multiple use, such as a motion picture or a paperback. But the multiple uses of this song are almost infinite, whereas, for a book they are not.

Mr. DRINAN. Is there any sentiment, either among the composers or the publishers, for deregulation?

Mr. GORTIKOV. Certainly not among record companies and I think composers and publishers should speak for themselves.

Mr. DRINAN. I was hoping that we could get the Federal Government out of something. But we are not getting any votes here at all.

Well, I have listened to your arguments and I will listen to the other side. And I am afraid my 5 minutes are up. So, I yield back whatever time there is. And I thank you gentlemen for appearing.

Mr. DANIELSON. Mr. Wiggins of California.

Mr. WIGGINS. Mr. Chairman, I am not sure my voice is going to hold out for questions, so I will just listen. I think the issues are pretty easily stated, but difficult to resolve.

I yield back my time.

Mr. DANIELSON. Mr. Pattison.

Mr. PATTISON. Father Drinan asked all my questions.

I am interested in this notion that you take a loss on certain records, on 87 percent or 77 percent or whatever happens to be. You do not do that intentionally do you?

Dr. GLOVER. No, sir.

Mr. GORTIKOV. No; the loss is certainly not done intentionally. Every genius in the record industry thinks he has a winner when he records it. But the consumer comes to a different judgment in most cases.

Mr. PATTISON. Well, the notion that follows that is that if you were to be paying a higher price for the mechanical royalty, that this would have an effect on certain kinds of records that you produce. In other words, that you would produce less innovative records, less classical records, less records that maybe do not have as good a chance of succeeding. And I am wondering if in fact you intentionally pick out a record that you think is not going to succeed and produce it because you think that you are doing a young artist a favor or a classical composer a favor, or it is good for the country or something like that. In other words, is that your motivation?

Mr. GORTIKOV. The rationale is that if there is a decline in profit or profit potential-and that is our greatest fear out of this-that decline will make that record company less bullish in its recording practices. What we fear even more, if all this cost is passed on to the consumer, is that there will be a real decline in consumer purchasing.

Now, although a record company approaches every recording session optimistically, it does have degrees of optimism and faith in the various new artists or categories, such as jazz or the classics, where there is a very marginal chance for profit.

So, what I am talking about is an attitudinal result that will be more marginal than ever, if there is a subsequent decline in income. potential.

Mr. PATTISON. In other words, you are saying that your selection process of selecting the works that you are going to form will differ in some way?

Mr. GORTIKOV. Yes.

Mr. PATTISON. But, is that not inconsistent with the notion that you really pick out a record, a performance to put on wax or tape that you intend, in each and every one of those you hope, to make a profit or you would not-a judgment is made that this is going to sell more copies and you are going to make something out of it?

Mr. GORTIKOV. I cannot give a fixed answer. If a record company has five potential new artists to record, it is possible that everybody in that company will be wildly enthusiastic about one of them, and there would be no question about their willingness to record that, and the predictions for success. And they may be right.

Down the scale, for the fifth one on that list, there may be only one producer who has genuine faith in his potential. And that may be the one that is dropped off.

It could be a reduction of opportunity. Also, the record business is like winners' or losers' poker. If companies are experiencing a grand rush of success, then it is more bullish about its recording practices than if it has a string of losers.

Mr. PATTISON. But the notion that you would, for instance, not pick out the new artist or the new work because it is somehow different. Any record company that followed that kind of a philosophy would not have picked up Paul McCartney or John Lennon or a variety of other people.

Mr. GORTIKOV. A company that I was once president of rejected the Beatles twice before it ultimately chose them. So it is a peculiar capability of choices in this business.

Mr. PATTISON. We have all made bad mistakes.

Let me address a question to Mr. Cohen and then I will quit.

Your figures were that you have a markup, I think, of 40 percent in the 3 percent net profit. That is not a return on investment now, or is it? Mr. COHEN. No; it is not.

Mr. PATTISON. Per record?

Mr. COHEN. On our gross sales we have a markup of 40 percent and a net of 3 percent after taxes.

Mr. PATTISON. But that 3 percent figure is not the same 3 percent figure that the railroads are telling us about? I mean you would not stay in the business very long. There would not be anyone opening up record stores if you had a 3 percent return on your investment. Mr. COHEN. Oh, no.

Mr. PATTISON. I have no further questions.

Mr. DANIELSON. I have two questions only.

Mr. Wiggins raised a question on a vinyl album that you have there, whether they were multiple composers or one composer, as I recall it. I think that you responded that they were multiple composers.

Could it be, distinguishing between composers and the owners of copyrights, it is my understanding that composers sometimes sell their interest to someone else, assign them or license them or transfer ownership, could it be that all of you might have multiple composers, you might have one copyright owner?

Mr. GORTIKOV. That is correct. It is a good practice that many recording artists today are composing their own music, writing their own tunes and also are establishing and owning their own publishing companies.

Therefore, they make available to themselves income as performers, as composers, and as publishers. They engage in a contractual relationship with a form of publishing company to handle the administrative processing that they require. These practices vary all over the lot. There is every gradation and every form of this, but the reality is that the publishing companies and the composers, regardless of what these various formats are, have in aggregate been doing handsomely. Mr. DANIELSON. I notice a reference to that in, I believe it was your statement, Mr. Kapp.

The other question, the mix of tunes that you put onto a given album of 10 or 12 tunes, I am sure that that is one of the things over which your management agonizes as to what to put on one album. If you were to put on one or two or three hit tunes, you have probably very nearly assured a good market in that particular album. And you can fill up,

I would assume then, the remaining six, seven, eight, or nine recordings on that particular album with more speculative compositions. The mix of what is sure fire and what is speculation is a judgmental thing within the recording industry, I assume.

But if that is true, I assume, I am going to assume and I would like to be corrected if I am wrong, that for the hit tunes you will have the statutory 2 cents as the royalty because you have a compulsory license where you can use that. On the speculative tunes, is it customary to negotiate perhaps a lower figure?

Mr. GORTIKOV. Mr. Kapp can speak to that but I have one response. There was a period, many, many years ago, when a hit was usually made with a single record, that is a 7-inch 45, small record. And the existence of that hit single then generated the willingness of a record company to put out an album including that hit single, and with other tunes that the artist also was called in to record. It is far more common now for an album containing tunes to be put out with no single record and then, for the public, or the radio in its skew of radio airplay, to dictate what tunes in that album emerge as hits. And then a single record will be put out.

But very often the album is put out with a concept in mind by the creators, or the artist, with no knowledge of which particular tune is going to hit the public's fancy, so that there is therefore no premeditation as to which are the major tunes or which are minor tunes on the record.

Mr. Kapp may have some supplemental comment.

Mr. KAPP. Could you explain what you mean by the word speculative?

Mr. DANIELSON. An unproven tune, an unknown tune.

Mr. KAPP. As a record producer for about 10 or 15 years, I can tell you that every song that comes in is a speculative tune. The judgment is the producer's, together with the artist, as to whether any given tune will make it.

Mr. DANIELSON. Every new tune that comes in, but if you pick up a proven tune, one that is already established as a hit and put it in an album, that will have some effect in selling that album.

Mr. KAPP. Depending on the artist, not automatically.

Mr. GORTIKOV. Mr. Danielson, I would like to point out though that as the statistics that we have presented here, 99 percent of those tunes on the regular priced records, regardless of whether they are hits or nonhits, are paid at or very near that 2-cent level.

Mr. DANIELSON. That was my ultimate question.

Thank you very much.

Mr. Wiggins?

Mr. WIGGINS. Do you have any profit information on the recording industry?

Mr. GLOVER. Yes, sir. We have submitted it 10 years ago and we submit it to you now, not only the profit information, but the line items on individual costs.

Mr. WIGGINS. Just in fairness, I think we ought to have that. You emphasize, obviously, the position of the composer which is important information. But we need the other half of that equation. I would like to compare how well you have been doing. So, if that could be submitted for the record, I would appreciate it.

Mr. GLOVER. On the document you had before you, it is on page 49, sir. Page 49 is 1967 and 1974. On page 47 there is data that we presented before and it is in greater detail in the technical appendix.

MI. DANIELSON. For the record, that is in the rather thick, detailed statement of Mr. Glover which is not in our file and which I am going to--I will defer judgment on whether to put it in the printed record to Mr. Kastenmeier. But it is in that thick volume.

Mr. GLOVER. On page 119, if you wish to pursue this, Mr. Wiggins, or any of the other members of your staff, on page 119 in the technical appendix, there is further discussion. It begins on page 119 and there is discussion in that concerning the major sample calculation and so

forth and so on.

Mr. WIGGINS. Well, I will read that.

Mr. GLOVER. On page 49, there is information for the record industry.

Mr. WIGGINS. At first blush, it appears that the gross sales, the profit picture of the industry as a whole is pretty well tracked on a percentage basis, the same kind of gain that you reported to us is experienced by the publishers and the composers. Do you share that view? That is, if you put them on a graph, they just about track each other. Mr. GORTIKOV. Except in our case, we are talking about profits. Mr. GLOVER. That is not correct, sir. The owners of the copyright really are in a position of preferred stockholders because they get their take irrespective of whether the record industry as a whole or a record company or an individual record makes any money at all. So their earnings are much more stable, as we see in this data here, and the earnings of the phonograph recording industry fluctuates very substantially up and down, 1974 was a very good year for the industry, 1973 was a lousy year, 1975, I guess, is kind of a mixed bag.

Mr. WIGGINS. Well, I was just making a quick comparison of the year 1967 and 1974. You did not go back to 1963 and this would go with regard to the composers, but I see that the net sales, for example, have approximately doubled in that 5-year period for the industry as a whole.

Mr. GLOVER. That is correct.

Mr. WIGGINS. I guess if we went back over a 10-year period the figure would be even higher. It would be quadrupled.

Mr. GLOVER. In 1955, the sales were somewhere in the neighborhood of $277 million, at list price. And list price was much more common then than it is now, in 1974. It is now up to well over $1 billion, so there has been substantial growth.

Mr. WIGGINS. Yes; indeed. The net profit, after income tax, on page 49, has better than doubled between the years 1967 and 1974.

Mr. GLOVER. Yes, sir; it has.

Mr. WIGGINS. You had a bad year in 1973, and 1975 may be a bad

year.

Mr. GLOVER. And 1971 was a bad year. It comes and goes. Mr. WIGGINS. I understand.

Mr. GLOVER. There is one point, if I could submit it, Mr. Wiggins. If you distinguish between aggregate profits and profits which are made in the United States, it should be perfectly clear that the profits made these are using U.S. recorded masters abroad- that but for them, this has been a very sizable growth industry. But for them, the

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