THE WASHINGTON-based Copyright Royalty Tribunal will issue a decision soon that will affect every owner and user of copyrighted music -- and could end up costing record buyers an additional $700 million a year (or as much as $2 more per disc).
The issue is an increase in the mechanical royalty (automatic payment for each song on every record sold) from its current 2 3/4-cent rate. Three groups are at the center of the dispute: the Recording Industry Association of America, which is opposed to any change in the existing system; the National Music Publishers Association, which wants the payment changed from its historic flat rate to 6 percent of list price; and songwriters, represented by the American Guild of Authors and Composers and the Nashville Songwriters Association, who want 8 percent.
The battle has engaged such prestigious law firms as Arnold and Porter and Robert G. Nathan, and produced heated charges and counter-charges. Often during the 47 days of hearings before the three-year-old Copyright Royalty Tribunal, it has been easy to forget that these industries have been working together since 1909.
"Most publishers are administrators, historians, collectors, auditors, custodians of catalogues," says Stanley Gortikov, president of the Recording Industry Association of America. The RIAA feels that most music publishers, who number in the thousands are "the recipients of record company efforts without making investments" and that they are "already earning handsome returns under the existing statutory mechanical royalty rate" of 2 3/4 cents (raised from 2 cents per song in 1976, the first adjustment since the compulsory licensing portion of Copyright Law went into effect in 1909). "Do they need the extra money? They haven't shown that they do."
"Since when is need a condition for compensation in the United States?" answers Leonard Feist, president of the National Music Publishers Association. "Are salaries paid on the basis of need or on the value of the product? It's a preposterous argument. It is the song that is the content of the record. The whole damnn thing starts with that very special kind of creative genius that makes people want to own, hear, whistle, hum and dance. For songwriters and publishers to be underpaid and unrewarded seems shameful."
The RIAA has questioned the CRT's statutory authority to change the royalty formula from a fixed rate to a percentage basis. The CRT is a five-member, independent regulatory agency set up by Congress in 1976 when it realized it was not equipped to deal with the periodic review of certain music industry royalty rates. Recent issues before the Tribunal have included an industry appeal to raise the jukebox royalty fee and the question of how to divide cable royalties. Congress mandated the CRT to make a decision in the royalty matter by Jan. 1, 1981, and also to balance the income requirements of copyright owners with the financial health of copyright users (record companies). Since each side insists that the other is taking the lion's share of profits under the existing system, money is a central issue.
The record industry's sales growth has been spectacular, from $361 million in 1963 to $4.35 billion in 1978, with retail prices jumping up 40 percent in 1979 from the 1974 prices. When the two-cent mechanical royalty rate was in effect after the revolutionary impact of long-playing records in 1950, it represented approximately 6 percent of the $3.98 list price on a 12-song album of the time -- comparable to its value during the pre-LP days of piano rolls and Edison cylinders and 78-rpm shellac units with one or two songs. As record prices have increased, the royalty now amounts to around 3 percent of the list price -- and records now average about nine songs each. So while the aggregate total in royalty dollars has increased (leading to record-industry charges of windfall publisher profits), the ratio of royalties to sales in the expanding music market has fallen.
The RIAA has responded that increases in sales volumes and other record-related sources (performance, print and cable royalties) have provided sufficient added income. That's not enough to redress decades of discriminatory laws and to compensate for past inflation, says the NMPA, which argues that it takes six new songs to equal the income potential of one song in 1909.
In the United States, the idea of intellectual property dates back to colonial times: The 10th statute passed by Congress began to fear a music monopoly at the hands of the Aeolian Piano Roll Co., which had begun buying up a sizable number of copyrights. Fearing restricted access and higher costs to the public, Congress developed the radical legal concept of the compulsory license: After the first recording was licensed, the copyright owner was obliged to license the right to record to anyone who asked. It has since become a worldwide practice in the music industry. It has also led to creative conflicts: When Elvis Presley recorded "White Christmas" in 1957, Irving Berlin tried to stop him (and couldn't) before sending letters to radio stations begging them not to play the song (they went ahead).
Congress set the two-cent ceiling in 1909, and it was increased to the present rate with the 1976 Copyright Revision that went into effect in January 1978. But NMPA argues that the statute still rigidly fixes the writers' and publishers' incomes, while record companies set their rates on the open market. That's why the publishers want a percentage basis -- a system already in operation in Europe, Japan and Australia. (Artists, of course, are free to negotiate their royalty terms with record companies, which sometimes go as high as 15 percent of list price.)
For songwriters, mechanical royalties are the most important source of income, followed by performing royalties and print revenues. The craft is described by an NMPA study as "high risk, high failure, with a low chance of success and miserly rewards, in general." The typical American songwriter, says the NMPA earns less than a secretary or taxi driver: 61 percent of them were earning less that $100 a week over the last five years. They have little bargaining power and no fringe benefits. Yet they keep coming on strong: Since 1974, the supply of newly copyrighted songs has exceeded 100,000 a year, but the supply of newly recorded songs has diminished from 56,000 in 1972 to 43,000 in 1979.
"The subsistence of the American songwriter will depend largely on what he will be getting from record royalties," says Ervin Drake, president of the American Guild of Composers and Authors. The RIAA claims that performance and print-sale royalties have gotten larger because of the popularity of recordings, but Drake disagrees: "Two advances in technology and listening patterns have led to a concomitant reduction in the sale of sheet music. The new, young public is a listening, nonplaying group. Sheet music has become almost nonexistent on sales of new hits."
A major problem has been the usurpation by the record industry of the publishers' historic role as discoverers and developers of talent. From the mid-60s on, the industry has witnessed the rise of the singer/songwriter -- who soon learned he could earn more by having his own publishing company, which enabled him to collect as writer, artist and publisher. Nowadays, 85 to 90 percent of the best-selling albums contain songs written by the artists or producers. In 1979, more than half of Warner Brothers' mechanical royalties, or a total of $6 million, went to 16 singer-songwriters. The Riaa claims that 50 to 75 percent of mechanical royalties are paid to publishers controlled by singer/songwriters. Gortikov says that in 1978, 2 percent of recording artists accounted for 80 percent of dollar sales; of those, 75 percent wrote their own songs and dealt through artist-controlled publishers.
And there's a rub, says the RIAA. Who will benefit from a rate hike? A small group that already controls the market and collects the majority of royalties? Or the struggling composer who will suffer if record companies cut back to conserve money?
And then there's the most serious problem: higher prices. The RIAA fears that record-buyers -- already highly sensitive to prices -- will resist buying or be led into home taping. "We estimate that for every tenth of a penny increase [in royalties], it will cost record companies $4.4 million a year," says Gortikov -- which he says could translate to $9.9 million when fully passed along to "ultimate victim," the consumer. He argues that increased royalties would price records out of reach and reduce the availability and variety of the music in general. "There's little or no marginal profit for record companies, so there's little or no marginal capability to absorb any increases," Gortikov says. "It will curtail consumer purchases, hurt the bottom line, raise the break-even point and make companies less able to take risks."
How much will it really cost? Depending on the system adopted, the royalty could jump from an average of 27 1/2 cents an album to 48 to 54 cents. "And usually costs that go out of pocket tend to be doubled when translated into a retail price," says Gortikov. The RIAA estimates that the publishers' request for a percentage rate would mean $100-200 million in added mechanicals, with a jump of $300-700 million for consumers. But Feist disagrees: "Saying that the mechanical royalty rate drives up the cost of Band-Aids drives up the cost of medical care."
The RIAA made a last-minute proposal two weeks ago that it calls a "constructive alternative": a flat rate adjusted for inflation using an average of suggested retail list prices. Testimony on that proposal will occupy the Trubunal this week; Gortikov calls it a realistic response to the impact of inflation on the mechanical royalty rate. Feist says "It's pretty late for them to make a proposal," and calls it "meager niggardly, measly -- too little, too late."
The ultimate issue is reward of authorship, with songwriters trying to change what they regard as a discriminatory law that makes them second-class citizens. "It's a buyers' market," says Feist. "They can take what they want and leave the rest." "The life of the recording artist is severly limited," counters Gortikov. "It's pitifully short in most cases. But songs have an ongoing life [the lifetime of the copyright owner plus 50 years for heirs] and get recorded over and over by other artists."
Both sides are anxiously awaiting the Copyright Royalty Tribunal's decision.