The main issue that is presented here, with respect to a variation from the 21-cent royalty ceiling which the Congress enacted $ year ago now, concerns the matter of inflation that has taken place sin then. I would emphasize again that I am talking here about a rate a royalty rate, not aggregate numbers. If one tried to compare, say the price index with aggregate numbers, one finds that in any growing or expanding area, the aggregate numbers will go far beyond the pri index. It is a meaningless comparison. For instance, if one went back to 1909, and studied the automobile industry, I would be surprised if automobile sales today are not a thousand, or many thousand times over what they were in 1909. To say that the cost of living has gone up sixfold, whereas automobile sales have increased a thousandfold means that the automobile prices ought to be where they were in 1909, is, I think, a meaningless comparison. Here, we are talking about a rate, which is a price, which is a unit cost, and the royalty rate, I think has to be looked upon in that perspective.

Now, if I may turn just briefly to the charts. The first chart I haveand by the way. I am only showing here only some of the charts from the numbers that are included in this presentation for you. But here we see a chart, the Consumer Price Index from 1965 through July 1975. You see a phenomenon which is just as disturbing. I am sure, to every member of this committee as it is to most citizens in the United States: we have had a very serious inflation in this country. Prices have risen very substantially, to an unprecedented degree in the entire peacetime history of this country.

Since 1965, when testimony was presented on this issue before this committee, we have had an increase, of some 72 percent in consumer prices. I also did a projection for January 1976 on. I think, the unrealistic expectation when I did this that the bill might be enacted and implemented by then. We would expect about a 7-percent price increase from 1965 to January 1976. Or if we looked at the series on any other basis, we find a very substantial amount of inflation.

Now, if I may turn to another chart. Here we find Chart No. 4. It is entitled Purchasing Power in July 1975, and in January 1976, of the 21-cents royalty ceiling rate, either in 1965 dollars, when the testi mony was presented before this committee in 1965 prices, and in 1967 dollars, when the 21-cents royalty rate was enacted. Let's look at just 1967; we find that in July of 1975, 2% cents enacted in 1967 will now buy only 1.54 cents of the same goods and services as at that time. In other words, the buying power of that 21, cents, in those prices, has shrunk to about 112 cents. Roughly, the same thing would be true next January. So we see what has happened in terms of inflation.

Now, the next chart is chart No. 3. I reversed these. This shows, gentlemen, the key element that we are proposing here, namely that if the 21 cents in 1967 were considered an adequate ceiling rate of pay ment in terms of its command over goods and services, then that 2% cents is hopelessly inadequate today, because of rising prices,

If we looked again at only 1967, if today this Congress said we want to preserve that 212 cents we enacted in 1967, and wanted to have the same buying power, in July 1975, the ceiling would need to be 4.1 cents per selection. Next January, it would need to be 4.2 cents. So here we see the ravages of inflation in terms of the impact. This is why we are saying, in a meaningful sense, that a 4 cent plus ceiling royalty is needed for reasonable terms,

Now, if I may move on to the next chart, chart No. 6, very briefly, chart shows the percentage of selections and total payments and enses which fall below the 2 cents ceiling. Here, I would like to

size that we did not include a superficial sample. We took the 14 three record companies which accounted for more than 40 pert of the payments through the Harry Fox Agency which, I said, *mum account for some two thirds of the total mechanical royalty ntents. We included in our sample something in the nature of 14. on selections, namely the actual sale of musical compositions, He happen to be 10 selections on every album, and this was nothng but albums in the sample, then we would have included in our a total of 14.5 million sold albums.

We show here that the percentage of selections in the fourth quarter 4174 below 2 cents was 54 percent. That means that the number at its, and there are, as Dr. Glover pointed out correctly, a few ser 2 cents because of payments on a time basis rather than on a cent that 46 percent were at 2 cents or above and 54 percent below And if you look at the total royalty payments, 40.2 percent are the 2 cent level. That is so because there is a weighting factor, à those at 2 cents would be weighted more in the money column than "ey would in the number column.

Ton we have the number of heenses: 67.6 percent are under 2 cents Ad gentleman, we are very happy to give you every detail of that wine to present to your staff or anyone else you would like: the

stions, the computations, the results in greatest details. We feel at the establishment of this as a ceiling is very clear and definitive. Now this next chart, chart No. 5, shows the breakdown of selec Fork by rate. Here you see that 46 percent. I quoted before: 3.4 perent of wlections were over 2 cents and 42.6 percent were at 2 cents, Aitat adds up to 46 percent. Then we find that between 1.5 cents 112 cents we have 2 percent; at 1.5 cents we have 29 percent; be"weet, 1 and 15 cents we have 1.7 percent; at 1 cent we have 10,8 *rent, and under 1 cent we have 10.4 percent. If this can be char*to* zed as nice and simple and orderly variations with everything stept standard variations at 2 cents, then I must say I do not know * to read charts or numbers, and I am not willing to concede that. te clear that what we have here is a ceiling and not a rate. I may move on to the next chart, chart 8, we also took a care Took at what has happened to the prices of records. We took the 29 tag a'bat is in B.board, except in 1965 with 150 top albums, and and at what the most prevalent price is, what economists and ans call the mode. We found that $3.9% was the most preva ce in 1965, 84 79 in 1967, 85 98 in 1974, and the latest figure this 37 38 86.998. This gives us a pretty good idea of what has happened tort wof list prices

ידי

"

we have looked for and have no evidence whatsoever at wou'd lead us to conclude that discounts as a percentage of the * price are any greater today than they were 10 years ago. In my end given the nature of the inflationary process, I would expect thed wcourts from the list prices woull be lower today thin were then And there fore if we did have the actual discounted - I think, we would find an even læget price increase than we the list prices,

Now, we have just one other chart, chart 12; this shows the roya ties per album at the 2-cent ceiling, as a percentage of the most prev alent album price. For instance, in 1965 you will recall that the pre vailing price, the most predominant price, was $3.98, and at that ti even if we use the ceiling royalty rate of 2 cents, that would be 24 cents with 12 songs per album. And 24 cents would be 6 percent of $3.98.

Now if we move to the present time, we find the most prevalent al bum price is $6.98, and we also find the most prevalent number of compositions per album is down to 10. Therefore if we take the $9 and divide it by 10 compositions, the average price per composition is roughtly 70 cents; the royalty rate of 2 cents comes to 2.9 percent of 70 cents.

This shows royalties at the ceiling rate as a percentage of the most prevalent album price dropped by more than one-half.

Now, I want to try to summarize what this particular set of charts means to us. First of all, Mr. Chairman and members of the committee, the repetition of figures does not prove wrong figures to be correct. I must say I cannot understand, in a situation like this, where you have a ceiling and variations substantially below the ceiling, how anybody can take a 1-cent increase from a 2-cent royalty to a 3-cent royalty and say that the increase in royalties will be $47 million because you literally apply 1 cent to every composition and you just add it up assuming that every composition is going to be increased 1 cent. Today we have half of the records with a payment at less than 2 cents. I find nothing in economic experience, nothing in economic theory which would indicate that every single negotiation would lead to a 1-cent increase. I am sure the record manufacturers are not so generous in their undertakings that the prices they pay today are higher than what they need or want to pay. As the publishers will tell you, they do bargain to the fullest extent that they can, and succeed in sub stantial measure.

Saving that if there were a 1-cent increase, it would result in a $17 million increase and repeating that several times, does not make that figure correct. I might say that Mr. Gortikov sells himself short. He said, if it is 1 cent, it is $17 million, and he said it was 8×4 million at 2 cents, but double $47 million equals $94 million.

Mr. DANIELSON. And he corrected himself.

Mr. NATHAN. The second point, gentlemen, is that you would not get anything like $47 million. But even if you did, you would not get more than double that through the various distributive channels; in that case you would have a cost of $47 million resulting in an increase of $50 million in profits, and I do not think that is quite the way our system works.

So to briefly summarize, let me say this. What we have here is a unique phenomenon that has no place in our pattern of economies. I think it should be removed entirely. But if we must come to the conclusion that if this royalty arrangement, which is a ceiling, is not removed, then the loge is to open it up so that the marketplace, compet tion, bargaining can work its way through this whole process,

I se no basis, no criteria, no considerations on which one could logsally come to a price determination through the legislative proce dure. You gentlemen sitting here today have had ev.dence presented

before you as to the fact that the ceiling is a rate or that the ceiling is got a rate. I do not understand how a congressional committee can

bly deal with that kind of subject in that kind of detail on a Parely rational basis. Nor do I understand what the economic rationale wod be to give a set of criteria to some kind of an organization to set rates as has been done for the public utilities.

I believe that the ceiling should be removed entirely; but if it is tot, then it ought to be opened widely for negotiation. What we are wag with here is a rate and the cost-of-living is a very important factor influencing all rates. You can tell the AFL CIO, or the Govrett workers or the Federal Reserve System or any bank that they are making a lot of money and wages or interest rates should not be allowed to increase. They will not accept such curtailments in buying power. The important thing is that you must take account of bargating considerations. The lack of an impact on changes in rates has Vtg power as a result of rising prices. I very strongly urge this en thee to take this into account and to raise that ceiling to at least 4 ts It will be a ceiling and everything is not going to go up by t'e same amount, or even in the same proportion I think that is the word best solution. It certainly will give ample reign for some 4.tive bargaining.

M. DANIELSON. Thank you, Mr. Nathan.

Prepared joint statement of American Guild of Authors and ComJors and the National Music Publishers Association follows:]

JOINT STATEMENT OF THE AMERICAN GUILD OF AUTHORS AND COMPOSERS AND THE NATIONAL MUSIC PUBLISHERS ASSOCIATION

SUMMARY

Since 1909, America's songwriters and other musical copyright holders have by statute been denied the right to bargain with the record companies for a royalty higher than 2 per song, to be divided among composer, lyricist and publisher.

The record industry has become a multi-billion dollar industry but our maximum is still 2. The actual average paid is 1.62.

The Copyright Revision Bill proposed by the Register of Copyrights in 1964 after a series of panels and studies recommended 3. After the record industry warned that this could produce a horrendous 12 increase in the $3.98 price of a long-playing record (which now costs $6.98 or more), the House compromised on a ceiling of 2-1/24.

Two and one-half cents! A song that sold 24,000 recordings could not earn for its creators more than $600.

Today that 2-1/2g ceiling is worth less than 1-1/2g. Merely to restore our ceiling to the same level of purchasing power prevously approved, we need a ceiling of more than 42.

In this past decade, the Consumer Price Index has risen by more than 70%; the standard rate for 3 hour recording sessions for musicians has increased 64%; record industry sales have increased 190; the list price per song in a typical record album has increased 112; but total royalty payments to musical copyright holders by the record industry, according to its own figures, have declined as a percentage of industry sales by 32. Royalty payments per songwriter have also declined. And yet the record industry --dominated by four giants still wants Congress to permit no negotiations, no discussion, no bargaining above 2-1/24.

-

When 2-1/2 was approved it represented roughly 8% of the price per song. Now it's 3.68.

A 4g ceiling instead of 2-1/2g would not fully restore this ratio of royalty ceiling to prices; nor would it fully restore the purchasing power of 2-1/2 in 1965. It would do little or nothing for the majority of songs not able to reach even 2 today. Even if every one of the 10 songs on a typical record or tape were able to command the full 4g instead of 2-1/24, that additional 15g per record would represent only 21 of today's price and only 5% of the last decade's price increase.

But it would give the creators of American music a fairer chance to seek a fair return.