In fact, Mr. Glover admits that his estimates of royalties per tune are not acenrate (page 41). He believes that his estimate of the trend is accurate, but obviously one cannot obtain an accurate estimate of a trend from two inaccurate estimates of the level of royalties per tune.

It is very important to note that in his calculation of royalties per release Mr. Glover includes royalties paid in 1972 on tapes released (page 43) but does not include the number of tapes released. This obviously and substantially overstates royalties per release in 1972. It also overstates the trend in royalties per release, because tapes were not available in 1963 but they accounted for 28 percent of total record and tape sales in 1972. That is a big factor in rendering the Glover figures invalid.

As eloquently stated by composers Marvin Hamlisch and Eubie Blake in their testimony before the Subcommittee, even the royalties paid on a best seller have been and continue to be woefully inadequate, whether the song be "I'm Just Wild about Harry" in 1921 or "The Way We Were" in 1971.

With regard to (B), Mr. Glover omitted the following important facts, which should be taken into account by the Subcommittee:

(1) In terms of purchasing power, royalties per songwriter have fallen by more than 40 percent in the last ten years (as indicated in column 14 of the summary table in the statement of AGAC and NMPA).

(2) The total dollar volume of record sales has nearly tripled in the last ten years (as indicated in column 11 of the summary table in the statement of AGAC and NMPA).

(3) List price per song on a typical album has risen by 112 percent in the last ten years (as indicated in column 9 of the summary table in the statement of AGAC and NMPA). The actual retail price per song on a typical album has risen by 142 percent in the last ten years. The price per song on a typical album which is charged to distributors by record companies has risen by 136 percent in the last ten years. Thus, however one looks at it, record prices have risen sharply. During this time, the mechanical royalty ceiling has remained fixed at 2e, and the average royalty actually paid has risen only 7 percent, from 1.51¢ to 1.62¢, (as indicated in column 4 of the summary table in the statement of NMPA and AGAC).

Sincerely,

ROBERT R. NATHAN,

President.

NOVEMBER 6, 1975.

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

SUBMITTED TO THE HOUSE JUDICIARY SUBCOMMITTEE ON COPYRIGHT WITH REGARD TO SEC. 115 OF H.R. 2223

As promised during the hearing on September 11, 1975, we have reviewed the "report" on Sec. 115 of H.R. 2223 submitted on that date by John D. Glover on behalf of the Recording Industry Association of America (RIAA). With all due respect to Dr. Glover and his employers, we submit that this "report" provides no basis for a meaningful analysis of the economic issues inherent in the Sec. 115 dispute.

1. The use of irrelevant data

A. Dr. Glover attempts to use 1909 as a base year for those calculations that thereby favor his employers. This borders on the absurd. No reliable data for 1909, consistent with either 1975 statistical information or with the modern structure of the music industry, can be derived from available sources. Were we to follow that path, we would note that a 12 cent ceiling would be necessary today to restore the purchasing power of a 2 cent ceiling in 1909.

On p. 53 of the 1965 statement of John D. Glover on behalf of the Record Industry Association of America, it was indicated that an album listed at $3.98 typically was sold at retail for $2.83, or 24e per song on the prevailing 12-song album. On p. 65 of the 1975 statement of John D. Glover, it is stated that an album listed at $6.98 typically sold at retail for $5.77, or 58é per song on the prevailing 10 song album.

On p. 59 of the 1965 statement of John D. Glover on behalf of the Record Industry Association of America, it was indicated that an album listed at $3.98 typically was sold by the record company to the distributor for $1.70, or 14e per song on the prevailing 12song album. On p. 65 of the 1975 statement of John D. Glover, it is stated that an album listed at $6.98 typically is sold by the record company to the distributor for $3.33 or 33¢ per song on the prevailing 10-song album.

57-786-76-pt. 3—17

B. Dr. Glover also uses supposed 1909 statistics to support his claim that the price per recorded tune is down and the copyright owner's share up.1 The more relevant question is what happened to these admittedly important yardsticks as a result of the traumatic changes of the last 10 years since the House passed the 2.5 cent ceiling. We acknowledge the undue conservatism of our previous statement (in column 9 of our "summary table") that the price per song on a typical album had risen by 112 percent over the last 10 years. That referred to list prices. According to Dr. Glovers' own data, in the last 10 years the actual retail price per song on a typical album has risen by 142 percent, and the price charged by record companies to distributors has risen by 136 percent."

C. Dr. Glover attempts to conceal the low level of mechanical royalty rates by including the income of composers and publishers from other sources, such as performance fees and foreign royalties. He failed to tell the Subcommittee how these figures were relevant, how he arrived at his estimates or why some of his mathematics were garbled.*

D. Dr. Glover attempts to plead poverty for the RIAA by citing questionable figures (see Item 5D, page 9) about recordings that fail to make a profit. Even if his data were accurate, it would be irrelevant in view of the record industry's stated policy of recovering through a few best selling records their losses on any others." In fact, there is limited overall risk in the record industry, as indicated by the steady uptrend of sales year after year, even in periods of recession. There are a lot more impoverished song writers, and a lot more songs which fail to be recorded at all, no matter how much time and effort their authors and publishers invest in them.

2. The use of unreliable data

Dr. Glover attempts to base most of his analysis on a "survey" of record companies conducted by his own company, the Cambridge Research Institute. Yet the letter accompanying the questionnaire was an open invitation to subinit biased information.' It is thus small wonder that he concludes that total mechanical royalty profits for 1973 were $77-82 million, despite the fact thateven if all royalties were paid at the ceiling rate (which his own report confirms not to be the case)-total payments for 1973 according to the RIAA's own data at the time could not have exceeded $66.1 million."

3. The use of unsubstantiated assumptions

10

A. Dr. Glover's key allegation-that an increase in the royalty ceiling from 2 cents to 3 cents would automatically lead to an increase in royalty payments of $47 million is based on the assumption that all royalty rates would rise by 50 percent or even more. There is absolutely no basis for assuming that all payments would rise proportionately with any change in the ceiling level, or

1 P. 6 of the Glover statement of 1975.

2 On p. 53 of the 1965 statement of John D. Glover on behalf of the RIAA it was indicated that an album listed at $3.98 typically was sold at retail for $2.83, or 24 cents per song on the prevailing 12 song album: on p. 65 of Dr. Glover's 1975 statement it is stated that an album listed at $6.98 typically is sold at retail for $5.77, or 58 cents per song on the prevailing 10 song album. On p. 59 of Dr. Glover's 1965 statement it was indicated that an album listed at $3.98 typically was sold by the record company to the distributor for $1.70. or 14 cents per song on the prevailing 12 song album: on p. 65 of Dr. Glover's 1975 statement it is stated that an album listed at $6.98 typically is sold by the record company to the distributor for $3.33, or 33 cents per song on the prevailing 10 song album.

3 Performance fees. It should be added, do not depend on th existence of recordings. While performances on local radio today are almost invariably from recordings, if there were no recordings, these performances would either be live or from the electrical transcriptions which in the 1930's and 1940's were the mechanical means by which radio stations broadcast music.

On p. 39 of his statement, the percentage increase in the last two rows of the fourth column is overstated by 100 percent. The corresponding references on pp. 40 and 41 are also in error.

Pp. 20-21, 73-77, 162.

On a popular album selling 1 million copies, the record company's profit is $1.06 million, according to the data on p. 162 of Mr. Glover's statement.

Record companies were told in advance that the very purpose of the survey was to "Illustrate the severe impact on the record industry of raising mechanical fees." P. 128.

* P. 39.

In the 1974-75 International Music-Record Directory. Billboard reported that the RIAA made the following estimates for 1973: 292 million record albums and tapes sold: 193 million single records sold; with 10 songs per album or tape, 2 songs per single record, and a maximum royalty of 2 cents per song: $58.4 million maximum royalties on albums and tapes; $7.7 million maximum royalties on single records; $66.1 million maximum royalties.

10 Pp. 15-17 et seq.

that all royalty licenses would increase at all, or that even those royalties now at the 2 cent ceiling would all increase by any given amount. By Dr. Glover's logic, an increase of 10 cents in the ceiling rate would increase royalties by $470 million, an increase of $1.00 in the rate would up total royalties by $4.7 billion, etc.

As documented in detail in our statement and confirmed in Dr. Glover's own report on "standard variations," a large proportion of selections is not licensed at the ceiling now. There is no reason to believe that the relative bargaining power of the copyright holders versus the record companies will suddenly change sufficiently to alter this picture, no reason to believe that the record companies will sit by and acquiesce in a rise of all rates to a new ceiling.

B. Dr. Glover then proceeds to allege that this supposed $47 million increase in royalty payments could cost consumers $100 million." This assumes totally without substantiation that every record company, distributor, and retailer would seize on an increase in royalty costs as an opportunity to further fatten their profit margins, that they would succeed in this profiteering, and that their gain from a ceiling increase would thus be substantially greater than ours. C. Dr. Glover argues that a higher royalty ceiling would reduce the quality as well as the quantity of recorded music, including the number of classical releases." There is no basis for such an assumption. Almost all classical music is in the public domain, and thus not subject to mechanical royalties; and by allowing composers and music publishers the chance to earn a decent income, a higher royalty ceiling will inspire a greater quantity and quality of music available for recording.

4. The use of incomplete data

Dr. Glover attempts to argue that total mechanical royalties have increased faster than the cost of living and median family income." Even if his figure for total royalties were correct (it is not, see item 2 above and item 5 below): A. He has carefully selected base years to yield this conclusion---he might instead examine the last 3 years, during which the Consumer Price Index has risen by 30 percent, median family income by 25 percent, record sales and prices by 26 percent, record companies' profits before taxes by 42 percent, but mechanical royalties by only 2.6 percent," causing a 16 percent decline in their purchasing

power:

B. He has chosen to ignore the size of the pool of songwriters and composers among whom these royalties are divided-in truth an increase of more than 100 percent in this pool over the last decade has, combined with inflation, caused a decrease of more than 40 percent in real royalties per writer;" and

C. He has likewise chosen to omit the key yardstick of net record sales, relative to which royalties (according to his own figures) have fallen from 11 percent in 1964 to 9 percent in 1971 and 7 percent in 1974.1

5. The use of inconsistent data and assumptions

A. Dr. Glover argues that the present 2 cent ceiling is not a ceiling but a uniform rate, at the very same time acknowledging the existence of substantial numbers of licenses for less than 2 cents. He dismisses these as simple "standard variations" but requires nearly 40 pages to explain them.

B. Dr. Glover argues that a higher ceiling would decimate record company profits," at the very same time that he assumes they would not use their bargaining position to negotiate for rates below a new ceiling level (see 3A above); he also argues that any increased royalty costs will be not only passed on to the consumer but used as an excuse for increased profit margins (see 3B above), hardly a profit decimating position.

C. Dr. Glover argues that the impoverished record companies made profits in 1973 from recording sales, before taxes, and excluding foreign fees and other income, of only $16.5 million; 1 but in sworn courtroom testimony, the president

Pp. 4. 18-19, 63-67.

12 Pp. 20, 22.

18

# P5, 4, 5. 10. 11, 14, 30, 31, et seq.

Consumer Price Index: as reported by the Bureau of Labor Statistics: median family Income: as reported by the Census Bureau; record sales: as reported by Billboard, hosed on RIAA data, and given at table 16 of our statement: mechanical royalties; on p. 54 of Dr. Glover's statement; profits, p. 157 of Dr. Glover's statement.

15 As shown in cols. 13 and 14 of the summary table of our statement.

Pp. 47-49. Net record sales are valued at the prices charged by record companies to distributors. As a percentage of retail sales, royalties fell from 5.5 percent in 1964 to 4.5 percent in 1971 and 3.5 percent in 1974.

1 Pp. 4. 5, 17, 22, 30, 31, et seq.

18 P. 53.

of Warner Brothers indicated that these profits on an industry-wide basis were 34 cents per LP or tape," which would amount to total profits of more than $100 million from this source alone.

20

For years record industry spokesmen in Billboard and elsewhere have proudly pointed to everincreasing levels of volume and profit. (For the most recent example, see Exhibit A attached.) Even by Dr. Glover's own analysis, record company profits before taxes over the last 3 years have risen 42 percent. The fact is that the major record companies are integral parts of huge entertainment conglomerates whose ability to shift profits and costs from one division ot another in a consolidated balance sheet is legendary; and the constantly reiterated claim that the record industry is the only party to this dispute which has "revealed" to the Congress its true profit picture is a complete myth.

D. One final indication of the invalidity of this data: Dr. Glover asserts that the financial break-even point for a popular long-playing (LP) record is much higher than it is for a regular tape; but for years the record industry has claimed that higher prices for tapes over LP's were justified on the ground that the tapes were more expensive to produce.

Conclusion.-Dr. Glover's mass of irrelevant, unreliable, unsubstantiated, incomplete and inconsistent data and assumptions cannot alter or conceal one basic fact: his employers are asking Congress to hold down the ceiling on mechanical royalty negotiations, thereby continuing to permit authors and publishers only a steadily lower rate of return in real dollars and a steadily lower share of record prices and receipts, simply because they do not want to dip into their enormous profits on a hit song to pay the writer of that song.

[From the Wall Street Journal, Thursday, Oct. 30, 1975-p. 1]

HOT PLATTERS

The recording industry is busy setting records.

After being "brushed by the recession" earlier this year, business is booming, says a spokesman for CBS Inc.'s records division. "This has been the fastest turnaround in the history of the business," he says. The division's sales in the third quarter were a record and 19% above the previous year. Warner Communications Inc.'s recorded music division also had a record third quarter. “We haven't been able to press records fast enough," says a spokesman. RCA Records' third quarter sales were "the best for that period in our history," says Kenneth Glancy, president of the RCA division. MCA Inc. reports its domestic record sales are up 13% so far this year.

Warner cites several reasons for the recent surge. Among them are "a lot of new, good product" being offered on albums in preparation for the big Christmas season, a pickup in the economy and "a lot of buying" by college students this fall.

Industry executives expect the boom to last a while. Says Walter Yetnikoff, president of CBS Records, "All indications are that this pattern of success will continue well into next year.

Mr. DANIELSON. Our next scheduled witness is Ralph Peer II, vice president of Peer Southern Organization, music publishers.

Mr. Peer?

I might say so that we do get through here, Mr. Peer is recognized for 5 minutes.

TESTIMONY OF RALPH PEER, VICE PRESIDENT, PEER-SOUTHERN ORGANIZATION; DIRECTOR AND OFFICER, NATIONAL MUSIC PUBLISHERS ASSOCIATION

Mr. PEER. Thank you, sir.

I am very pleased to be here today with two excellent composers who will speak following me. I am Ralph Peer. I am vice president of the

19 Billboard, July 6, 1974, p. 4.

20 The price of an LP at that time was given as $5.98, the price of a tape as $6.97. With 3 LP's for every 2 tapes, the average price per LP or tape would be $6.38. A unit profit of 34 cents would be 5.3 percent of $6.38. Applying this profit percentage to 1973 industry sales of $2.017 million yields a total profit of $107 million.

P. 157.

Pp. 74-75.

Peer-Southern Organization which is an independent music publishing firm. It was founded by my father some 50 years ago and is now headed by my widowed mother. We were pioneers in American country music. We helped bring Latin music to this country and we are now working in popular and symphonic music as well.

I take great pride in our work, in discovering, encouraging, and nurturing composers, promoting their works around the world, obtaining multiple recordings of their works, safeguarding their copyrights, representing them in negotiations with record companies and with others. I feel that we are making a real contribution to the enrichment of American culture. As a young man, I look forward to a lifetime in this business, fulfilling our responsibility to American music and keeping our company independent of the large conglomerates.

Frankly my future depends upon what you gentlemen decide. The bill you are considering will probably govern music copyrights for the rest of my life. Although record company opposition has apparently ruled out the concept of the percentage or royalty ceilinglike those adopted in most of the other countries in which my company is active at least the concept of the copyright tribunal in the pending bill gives me some hope that the ceiling on our earnings will not be frozen for another 66 years.

But the starting place for that tribunal will be the ceiling you place on the bill. If you fail to adjust it for these last 10 years of inflation I doubt that the tribunal will do so. If you fail to provide for a fair ceiling for my negotiations with record companies, then no amount of determination or bargaining skill on my part can obtain for our composers the level of incentive they need and deserve if they are to continue their creative activities.

Put yourself in my shoes. As publishers go, we are relatively large, but compared to the market power of the four or five record giants, we are minuscule. When they make me an offer which is below the statutory ceiling, frankly, I can rarely refuse it. They simply tell me that the package they are putting together will exclude our company and our composers entirely unless we accept their terms.

If they are anxious to get a particular song or composer, I can at least make a counterproposal but I can never ask for more than the statutory ceiling, no matter how good the song is, because a record company can always get it for 2 cents. Frankly, we are sometimes passed by altogether because I will not accept an unjustly low rate for our composers. But usually we end up agreeing to a rate below the ceiling in order to have our music included.

Do you understand the position I am in? On the lower end of the scale. I am faced with a buyer's market in which the thousands and thousands of songwriters and publishers compete to provide the lowest bid for a handful of powerful record companies. The statute imposes no floor, no minimum, only a maximum.

But in those instances where we might have some bargaining power, where we might have a song or a writer that is very much in demand, there Congress has cut off the law of supply and demand and inter