This analysis is based on the Top 150 of the "Top 200" LP albums listed
La Bobrand on March 3, 1973. Because some albums contained two
recards, a total of 165 records with 1,653 tunes were timed from the

copyright law specifies a statutory rate of 2e per selection
Te ent years, record companies have generally adopted the practice
of paving an additional amount of 1/26 per minute of a tune's playing
This practice was taken into account in cal-

time over five minutes

*** average of 221 per record.

58

Exhibit 7

try, these increased royalties would have represented not less than 38.6% of the pre-tax profits, from all sources, of the whole recording industry (in 1974) up to as much as 57.6% (in 1973). For the four-year period, including the two good years and the two bad, the increased royalties would have taken 45.5% of the entire recording industry's pre-tax profits from all sources. In dollar terms, the increase in royalty rates would have taken an average of about $46 million a year over the four-year period from the recording industry (a total of $184 million) and given that money to the music publishing industry. The publishing industry's "take" from mechanical royalties would have been increased from an annual average of about $78 million to an average of about $124 million. This would have represented an increase in average mechanical royalty income of about 59%.

The aggregate pre-tax profit of the recording industry from all sources for the four-year period would have been reduced by the same $184 million, from a figure of about $402 million to about $218 million. In terms of an annual dollar average, the pre-tax profit of the recording industry would have been reduced from about $100 million to $54 million.

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Those figures of impact on pre-tax profits of the recording industry relate to pre-tax profits from all sources, including foreign fees for records made abroad from U.S.-made masters on which foreign mechanical royalties were paid to U.S. copyright owners by foreign record companies -- together with income from studio rentals, interest, etc.. This impact could also be compared to pre-tax profits on records made and sold in the United States, because it is to these records that domestic mechanical royalties relate. The following figures, shown in Exhibit 0, make that comparison with actual mechanical rovalties at the 2e Rate" and with the royalties that could have bee payable at the "3 Rate".

As is shown clearly in Exhibit 3, the proposed increase. alone, in the mechanical royalties on records made and sold in the United States during the rears 1971-1974 would have averaged 15 of the pre-tax profits earned by the recording industry on those records. The mechanica. royalties, nder the

Exhibit 8

61

proposed "3¢ Rate", including the increase, would have averaged 315% of those pre-tax profits. This would compare to the actual royalties at the "2¢ Rate". which, in fact, averaged 198% of the pre-tax profits of the recording industry on records made and sold in the United States.

In other words, whereas mechanical royalties were about twice the profits before taxes which recording companies derived from records made and sold in the United States, the royalties under the "3 Rate" would be over three times those pre-tax profits.

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In the foregoing paragraphs, we have been speaking of the recording industry as a whole. One can assume correctly--that some record makers are more profitable than others. The impact of the increased mechanical royalties on averagely profitable recording companies would have been staggering -- an average of 46% of their pre-tax profits from all sources over a four-year period. For a less profitable firm, the impact would have been disastrous.

What is at issue is not a "mere penny" increase, but a transfer of a major amount of money from one industry to another. Given, as we have seen, the relative contributions of the two industries to recorded music, and the financial benefits they derive respectively from recorded music, this transfer would be a major, unearned windfall for the one and a major a staggering burden for the other.