Variety (May 1941)

4P MUSIC Wednesday, May 21, 1941 A Factual Analysis of a Tactual Analysis' B; LOUIS G. CALDWELL Counsel for Mutual Broadcaating System, Inc. Washington, May 20. A factor contributing effectively last week to opposition to the Mutual-ASCAF proposal among broadcasters at SL Louis was a 'factual analysis' of the proposal which appeared In N.A.B. Reports for May 9. Its authors were unnamed. Previously, on May 1, Neville Miller, president of N.A.B. and BMI, had sent a telegram to all N.A.B. members advls- . ing them that 'a factual analysis is being made' and that at would 'be transmitted to stations in time to be available for consideration at convention.' This telegram was published as the headline item in Reports for May 2, and* was sent while Mutual was in process of transmitting the ASCAP proposal to its affiliates and before many of them had re- ceived it. The anonymous factual analysis' is devoted primarily to an ill-concealed attempt to show that the proposal, If ap- plied to the industry as a whole on a blanket fee basis, will increase the total annual cost of music (when BMI fees are taken into consideration). This attempt is based on pur- ported comparisons between the cost to the industry as a whole under' the Miitual-ASCAP proposal and (a) the cost under the ASCAP 1940 licenses, and (b) the cost to certain classes of stations under the ASCAP. proposal made in March, 1940. Such' comparisons, if accurately and honestly made, are undoubtedly helpful to an appraisal of the Mutuel-ASCAP proposal. They are not conclusive, of course, since the cost of music under the former ASCAP licenses, or under its 1940 proposal, may have been (and In my opinion was) too high, either for the industry as a whole or for particular groups in the industry. But they do provide a sort of yard- stick for approximate measurements. The comparisons set forth in the N.A.B. factual analysis,' however, are certainly not accurate and, in my'opinion, were not made in good faith. A little study reveals that a slight error of some $ll,000i000 was made in the estimates used for 1940 net time sales to the disadvantage'of the Mu- tual-ASCAP proposal,' that every effort was made to con- ceal rather than to reveal the real figures, and that the con- cealment was particularly flagrant where the interests of the major networks were involved as against the interests of the independently-owned stations (including network af- filiates). * ^ For simplicity, the Mutual-ASCAP blanket fee will be as- sumed to be 3%, as it is for the first four years of the. con- tract'period. (After the first four years it becomes 3Vi% for the remainder of the contract, period to December Zl, 1S49.) COMPARISON WITH COST UNDER ASCAP 1940 LICENSES The factual analysis' of the N.A3. Reports declares that . the Mutual-ASCAP blanket-fee proposal, if accepted by the industry as, a whole, would result In a saving of only $4B4,- . . 000 in. the cost of ASCAP music. The anonsrmous authors estimate that the cost of ASCAP music to the whole indus- try in 1940 was $5,100,(H)0, but do not disclose how much of this represents sustaining fees, or how much of a remainder consists of fees .paid on (a) national non-network and local time sales, and (b) network payments to affiliates. They carefully omit to mention the fact that in 1940 and, indeed, 'ever since 1932, the networks have paid nothing on the so- called twilight zone, that , is, the portion of the network net time sales which Is reined by the networks and from which much of . their profits have been derived. Let us scrutinize the statistics appearing in the factual analysis,' which are stated to be 'according to the best estimates that can be made,' and based on estimated 1940 net times sales.' This ^lay best be done by first calcu- lating the estlnvates for 1940 net time sales which .were used by the anonymous authors, and then setting side by - side their estimates of .thfe cost of music under the Mutual-, ASCAP plan and my corresponding estimates of the cost' of music under the ASCAP 1940 licenses by the simple process of grammar school arithmetic: Cost under Actual ^ Mutual- aavlnir ASCAP 3% Cost under under .Amount ot proposal ASCAP IMO Mutunl-' 1010 net (NAB llcen9e!>-ri% A6CAP Claoa of buolness . time enles flffuree) (My figures) Plan Kattonat non-netfforh. and local 179,133,883 12,374,000 RDSe,Ue3 |1,BS2,66(I Network — Paymanta to aRlllatea 23,400,007 7U,000 1,373,339 800,385 Total — Individual nta- tlona 1104,600.000 t3.188,Ono 15,230,000 12,092.000 Networks (twilight zone). •34,200,000 fS3,000 -753,000 'Total oommerclal ^138.800,000 t3,801,OO0 '|S,23(1,000 tl,S30,000 Euslainlne (eea 723,000 723,000 O Total tor lnduatry......}lS8,SOO,000 (4.010,000 $.1,993,000 $1,339,000 ♦ -This is approximate. $753,000 is 3% of $25,100, to which tnvst be added'the deductions i^rmttted on nettDorlc receipts under the Mutual-ASCAP plan. My estinuite of these de- ductions is $9,100,000, but it may be slightly more or less. The authors of the 'factual analysis' should reveal the figures which they actuatly used for these deducttOTis. Thus, instead of only $464,000, the Mutual-ASCAP proposal actually represents a saving of $1,339,000 to the industry as a whole (including networks), and a saving of $2,092,000 to individual stations (including network a^iliates), on the basis of the very figures used in the N.A.B. 'factual analysis.' In fact, the networks do not undefgo an Increase in cost of $753,000 (as apparently indicated in the above) since their M&O stations are included -wfith individual stations and share In the decreases from 5% to 3%. 'When their decreased sus- taining fees are taken into consideration, as explained below, I doubt whether the total increased network cost will amount to more than $350,000 or $400,000. ■What accounts for these huge discrepancies between the calculations of the N.A.B. statisticians and the results ar- rived at by elementary arithmetic? One important cause is an obvious error of over $11,000,000 in cftmputing the 1940 net time sales for national non-network and local business, and in applying the Mutual-ASCAP 3% fee to the excessive amount thus computed. I am told that the anonymous au- thors arrived at their estimates of 1940 net time sales by taking the FCC figures for 1939 and allowing for an increase of 15% In business In 1940. This would have resulted In total net time sales of $128,872,004 in 1940 instead of the $138,000,000 assumed in the 'factual analysis,' and in na- tional non-network and local time sales of $68,034,428 in 1940 instead of $79,133,333. 'When these figures are corrected, the Mutual-ASCAP proposal shows a saving to the industry as a whole of $1,145,511, consisting of a saving to independent stations (incliiding network affiliates and MtO stations) of 11,698,211 and an increased cost to networks on the twilight zone of $752,700 over the zero representing their paymepts on this zone-in the past. Dr. Hettinger has estimated that, instead of 15%, the 1940 time sales showed an Increase of 21.5% over 1,930. If he is correct, the Mutual-ASCAP proposal represents a saving of oven greater proportions to the independent stations (in- cluding network affiliates and M&O stations), and to the industry as a whole. There are other reasons why a companion based simply on the.estimated total of $5,100,000 received by ASCAP in 1940 is worthless. Unless the total figure is broken down' the companion gannot take Into account such variables as (a) the ASCAP newspaper contracts enjoyed by slightly over 40 stations, which were much more favorable than the stand- ard' contracts, and. represented a discrimination which can- not be continued, under the consent decree, (b) political broadcasts which accounted for about $2,250,000 of receipts in 1940 and (c) failures of stations to make payments in- cluding pending disputes with ASCAP over accounting. So far, I have assumed that the total of sustaining fees under the Mutual-ASCAP proposal would remain the same as under the ASCAP 1940 licenses. Frankly, I do not have access to sufficient figures to make any positive assertion. I note that the N.A.B. 'factual analysis' assumes that there is . no increase and I feel safe in concluding tlmt if there were ah Increase its authors would have, stated so. The few Instances I have examined tend to show that the over-all effect is to have the total about the same, with increases in some cases and decreases in others. The most notable de- crease is with respect to the New 'York key sraltions of NBC and CBS, for- which sustaining fees of $195,000 were, I am told, paid in 1940, and~ for-which sustaining fees of only $43,- 400 would be payable under the Mutual-ASCAP proposaL This is a saving of $151,600, which I do not believe is counter- balanced by increases elsewhere. I am told that other M&O stations will benefit from a substantial decrease. COMPARISON WITH COST UNDER THE ASCAP MARCH, 1940, PROPOSAL The 'factual analysis' reveals a painstaking effort to point out alleged disadvantages of the Mutual-ASCAP proposal . when compared w^th the ASCAP proposal ot March, 1940. Strangely enough, this comparison is not made on the basis of cost to the industry as a whole (which is,carefully omitted) but simply with reference to two Jow-income groups of st4- tions on their • non-network business. ■> The . effect of the March, 1640, proposal on the network business of these sta-. . tions is completely overlooked, as is also the dallars-and- cents effect of the proposal on all the networks and their affiliates. Yet it was these latter effects which led to the industry's revolution against ASCAP in 1940 and to the formation ot BMI. The real effect of the ASCAP March, 1940, proposal, as compared with the Mutual-ASCAP proposal, may be seen • from the following (based on net time sales 15% higher than in 1939): Coal ■ Actual Coat under saving under ASCAP under Amount ot Mutuof- Marcti, Mutual- 1940 net ASCAJ^ 1040, ASCAP Cloos ot buslnesa time sales 8% proposal propoaal proposal National non-network and local ♦08,084.428 ♦2,041.083 •♦2,081.680 ♦020,517 Network — Payments to . atrjiiates 28,876,194 800,288 12,015,712 1,200,427 Total — Individual sta- tions ♦04.0»0,B82 ♦2,847,318 ♦4,077,262 ♦2,120 944 Networks (twilight xone). 83,901,1182 702.700 t2,347,119 l,7»4i419 Total commercial......,♦128,872.004 ♦8,UOO;018 ♦7,824,331 ♦3 024 803 Sustaining fees 723.000 1600,000 -^129,'ooo Total tor Industry ♦128,872.001 84,323.018 ♦8,124.881 ♦3,790.868 (•) Not having access to exact figures I have assumed that stations having annual revenue less than $50,000 (obligated to pay 3% under the March, 1940, proposal) accounted for $10,000,000 of the total net^time sales, that stations having an- nual revenue from $50,000 to $150,000 (obligated to pay 4%) accounted for $24,017^14 of the total net time sales, and that the two classes together accounted for half of total net time sales in 1946. I believe these are excessively liberal esti- mates and that accurate figures' will show a greater saving for the Mutual-ASCAP proposal. (t) The rate on this classification' was 7%%. (t) This is purely an estimate but is believed to be lib- eral. Nothing need be added to the foregoing to demonstrate the absurdity of the comparisons In the N.A.B. 'factual an- alysis.' The underlying fallacy Is the lower rates offered to the low-income groups of stations in 1940 were conditioned on the industry's acceptance of much- higher rates on net- work revenue, including network payments to affiliates. COST OF BMI MUSIC Once the cost of ASCAP music under the Mutual-ASCAP proposal is correctly calculated, it becoines - apparent that, contrary to the implications contained In the N.A.B. 'factual analysis,' the combined cost of ASCAP and BMI music 'will be substantially less than was the cost of ASCAP music alone in 1940, for the independent stations (including affiliates and MttO stations). This i? apparent from the following tabula- tion, which assumes that 1940 net time sales were 15% higher than the FCC figures for 1939, and that the BMI blanket fees will range from 1 to 12/3%, as recently an- nounced: Cost Combined Cost of ASCAP . - , under and BMI ASCAP Mutual- Saving on 1040 ASCAP total cost Class ot business licenses proposal BMI Total o( muslo National non-network and local ♦3.401,721 ♦2.041,038 •♦080.383 ♦3,02!r.416 ♦3.774,308 Network — Payments to amilatea 1,343,808 806,283 't44*,03S 1,254,221 89,S8T Total - Individual stations ♦4,743,529 ♦2.S47.818 ♦1,434,819 ♦4.281.637 ttOS.SSl Networiis (twilight fone) ...'. 782,700 169,808 922,508 -922,608 Total commercial. ^♦4,749,629 ♦8,600,618 ♦l,6M,127 ♦3,204,149—♦408,618 SusUlnIng fees 723,000 723,000 0 726,000 O Total for Industry.... ♦3,470.l&0 ♦4,823,018 ♦1.604,127 ♦6,029,140-♦498,618 (*) I have made the same assumptions as those Indicated In footnote (•) to the tabulation under the preceding head- •ing. (t) This has been calculated on a straight 1 2/3%, although ■a substantial portion of the times sales involved would benefit from lower-percentage fees. The only increase In total music cost will |all on the net- works, and will fall on them only with, respect to the twi- light zone on which they have esc&../ed paying any music tax since 1932. The above tabulation indicates an apparent in- creascvin the cost of music, to networks of $922,506, but, for reasons already sufficiently stated, their increase will be much less, probably in the neighborhood" of $520,000 to $570,000. In any event. It is.clear that the unnamed authors of the N.A.B. 'factual analysis' did not care to explain that, If the Mutual-ASCAP proposal does entail any increase in the total cost of mi;tsic, the increase falls entirely on the networks, who can well afford it, and not on the stations. For whom does the N.A.B. speak, and for whom does it seek to provide helpf.i^ information—all its members or just the networks? N.A.B.-BMI Continued tram jpage 3!: calls for 3% from low Income sta- tions (taking in less than $50,000 a ' year) and 5% for all other stations, but with no guarantees. In making his accounting to the broadcasters Kaye said thct BMI had spent $1,- 800,000 during the' first contract year ' of Its existence, that BMI could claim that the neW contracts it had jrlrom 654 stations would bring in $1,973,000 during. the current year and that BMI had- proved ,to be the Magna Cbarta - for the struggling, cmbitldus fonripos^ and writer, ' Kaye also painted-a dramatic pic- ture of how BMI had struck the 'shackles' of ASCAP from the broad- .asting industry and produced a brilliantly operated and richly suc- cessful' music publishing and per- fofming rights enterprise. He . warned the broadcasters against dropping this venture becatise, as he put it, ASCAP may give signs of now being a purring kitten but they can never know when it again will .turn into, a tiger and sink its claws ■ into the broadcasters. This bit of rhetoric got a big laugh. If, Kaye continued, the broadcasters didn't continue to support BMI, they will be 'digging their own grave.' At the finish of bis speech Kaye got a rising ovation, ' Trammell congratulated the exec- utives of BMI on the 'magnificent' Job they had done and said that, even if NBC eventually took out an ASCAP license it would continue to give BMI its wholehearted support. Runyon, after adding his congratu- lations, said that CBS likewise ulti- mrtely hoped to have ASCAP music and that his organization would sup- port the further existence of BMI. Elmer On Smallness Only rap taken at this meeting against Mutual came from John Elmer, of WCBM,'Baltimore, which was recently named an NBC-Blue affiliete after WFBR, of the same town, had quit NBC to join Mutual. Elmer, who is on the BMI board as the representative of non-network stations; since he had previously been without network affiliation, said that he had 'never known how small some business men can be until the past few days,' This ref- erence to Mutuzl's decision to go ASCAP drew a loud chortle from the NABites. Neville MUler, the N.A.B.'s pres- ident, presided at the meeting and twice advised the- delegates that Father Bi^rke had left a sick bed to be with them at this occasion. 'When shortly before the session' opened BMI executive approached Father Burke about speaking, the 'WEW op- erator sEld he didn't know what to say, but he was assured that any- thing he said would be okay. Father Burke was also entriisted wlth^the reading of the resolution which urged the perpetuation of BML This resolution was carried unanimously. Kaye told the convention the next dEy (Thursday) that even though they had resigned from the N.A.B. and signed up with ASCAP the Mutualites, 'WGN, Chicago; 'WOR, New York; 'WFBR, Baltimore; WCAE, Pittsburgh, and the Don Lee. Network, would continue as BMI subscribers. Outside the convention these outlets explained that such a continued alliance was necessary tintil ASCAP had been able to catch up with BMI on current dcnce mu- sic and popularized some of its new pop tunes. .X Milton Bosen and Everett Carter wrote three songs for The Man From Montana' at Universal. Ditties are 'Call of the Range,' "The West- ern Trail' and 'Bananas Make Me Tough."