White House On Copyright: PRA, Yes! Illegal Streaming, No!

Administration white paper urges creation of performance right for broadcast of sound recordings

Last June, the White House officer charged with protecting “the ideas and creativity of the American public” – that would be the U.S Intellectual Property Enforcement Coordinator – issued a Strategic Plan on the enforcement of Intellectual Property. Prepared in coordination with a wide range of Federal agencies, the Strategic Plan examined existing laws to identify (among other things) “deficiencies that could hinder enforcement” of intellectual property (IP) rights. Following up on that initial effort, the White House has now issued the Administration's White Paper on Intellectual Property Enforcement Legislative Recommendations (White Paper), in which it offers suggestions for legislation to beef up IP enforcement.

Much of the 20-page report – which addresses such esoteric as corporate espionage, drug counterfeiting and criminal sentencing standards – is probably of limited direct interest to our readers. But two items in the White Paper do warrant attention here.

First, the White Paper urges Congress to “clarify that infringement by streaming . . . is a felony in appropriate circumstances.” (We can hear it now – “Book ‘em, Dan-O. Streaming in the first degree”.) The brief discussion accompanying this recommendation isn’t entirely clear, but the appearance of the word “streaming” got our attention. 

At first glance, one could take “streaming” here to mean “webcasting” in the broadest sense. In that case it would be a good idea to heed our frequent admonitions about jumping through all of SoundExchange’s various hoops. But our gut instinct is that this isn’t the “streaming” that the Administration is worried about. Rather, the White Paper refers to “the illegal streaming of content” – so we’re guessing that its real target is something along the lines of the illegal file sharing we’ve discussed in the past, or maybe the live streaming of broadcast content – often sporting events – by some users of services like UStream.com or Justin.Tv.  That more limited interpretation makes more sense in terms of the actual economic damage involved. But given the plain language meaning of “streaming”, we can’t rule out the possibility that the Administration may indeed want to criminalize any unauthorized streaming of music. Such a get-tough approach would arguably be consistent with the Administration’s recommendation (described below) concerning performance rights.

The second item of interest appears in the very last section of the White Paper, which recommends that “Congress create a right of public performance for sound recordings transmitted by over-the-air broadcast stations." That's right – the White House is now on record as officially endorsing the Performance Rights Act (PRA). According to the White Paper, the fact that the U.S. has no performance right for recordings “disadvantages” U.S. copyright owners overseas, since “[t]hey are not permitted to collect overseas royalties because they are not granted rights in the U.S.” The White Paper contains no extensive discussion (much less specific support) for this assertion. Indeed, the entire section on this point is a total of five sentences long.

We don't know how much effect this endorsement will have. The PRA has yet to be reintroduced in either the Senate or the House in the 112th Congress, and the last time it was introduced (in the 111th) it clearly didn’t have the votes to pass.  But, as endorsements go, this is a pretty big one. If nothing else, it might lead to the introduction of a bill, thus starting the legislative process yet again. Or it could resurrect the currently dormant discussions between the NAB and the RIAA regarding an accord on this issue. (The success of any legislation will likely depend on those two parties reaching an agreement that both can live with.) But the White House could play a role here, especially if it follows up on the White Paper by using its “bully pulpit” to bring the parties to the negotiating table.  Let’s just say the gauntlet has been thrown down and we think the PRA can fairly be described as “in play” at this point. 

Of course, despite the fact that these recommendations come from the White House, they are nothing more than recommendations. It is up to Congress to act on them or not, as it sees fit. And it remains to be seen whether Congress will do so.  We’ll just say that, if it does, we hope that Congress will consider all points of view and move cautiously, with clarity and precision, to ensure that legitimate rights, including First Amendment rights, are not infringed.

NAB Term Sheet: Roadmap To Performance Right?

A hard bargain: Proposal would accept new performance right burden for broadcast while easing burden on non-broadcast side.

The NAB has endorsed a “Term Sheet” which, IF fully adopted and implemented by all concerned (note the big “if”), would establish the existence of a “performance right” requiring radio licensees to pay royalties to musical artists (in addition to composers). 

And from that I think it’s safe to conclude that, while we have a ways to go before this becomes reality, there will one day be a performance right adopted into copyright law.  Despite the NAB’s continued insistence that it opposes the concept of a performance right – and despite the fact that the Term Sheet is, at least for the time being, still just a unilateral proposal and not a universally-embraced agreement – I’m convinced that a performance right will happen. This isn’t an endorsement or repudiation of the concept. It’s just a gut feeling of inevitability. My real questions involve “when” and “how much”.

The NAB’s Term Sheet, issued and delivered to the musicFirst Coalition on October 25, 2010, is couched as a “take it or leave it” offer to jointly move the Performance Rights Act (PRA) through Congress. As I’ve said before, taking affirmative steps to resolve the long-running/long-rancorous PRA issue in Congress may not be a bad thing. That’s especially true as long as the NAB (a) continues to hold the upper hand on the Hill vis-à-vis the PRA, and (b) takes care to ensure that all of its members, big and small, are satisfied that their interests are being adequately protected.

For now, the NAB must feel it does have that upper hand: the Performance Rights Act is not likely to pass in 2010, so if the music industry wants some performance right sooner rather than later, it will have to work with, not against, the NAB.  But is the NAB’s offer a show of strength or a retreat in the face of inevitability? 

Let’s take a look at the major provisions of the Term Sheet, which amounts to an outline of performance rights legislation that the NAB (and, if it signs on, musicFirst) would seek to push through Congress.

  • Revenue-based royalty payment structure for over-the-air performance of music

The NAB proposes that the performance right royalty be calculated as 1% of a station’s revenue for commercial stations with at least $1.25 million in revenue. The following tiers would apply to smaller and/or noncommercial radio stations:

  • Annual revenues                                                                    Payment

< $50,000 (commercial or nonprofit)                           Lesser of $100/year or 1% of revenue

$50,000-$100,000 (commercial or nonprofit)       $500/year

> $100,000 (nonprofit only)                                           $1000/year

$100,000-$500,000 (commercial only)                     Lesser of $2,500/year or 1% of revenue

$500,000-$1.25 million (commercial only)              $5,000/year

> $1.25 million (commercial only)                                   1% of revenue

Stations making only incidental use of music (e.g., news, talk or sports stations) would not pay at all for use of copyrighted music. Similarly, no payment obligation would arise from music used in religious services broadcast on the radio, although religious music stations would still be subject to the rate structure above.

Note that these royalty levels would be phased in subject to the extent of inclusion and activation of radio chips in mobile devices (see below).

  • Broadcasters would receive a break on royalties arising from their webcasting/streaming or other non-terrestrial transmissions.  Those non-broadcast rates would be tied to the “pureplay” webcasting rates, resulting in a reduction in current streaming rates. This new calculation approach would be effective until December 31, 2016, with rates to be adjusted for six years terms thereafter.
  • The NAB and MusicFirst would push for legislation requiring the inclusion and activation of radio chips in mobile devices, with an acceptable phase-in period and inclusion of HD when feasible. Because the electronics manufacturers would likely oppose such a requirement, the Term Sheet specifies a “market-based phase-in” approach to the royalty rates listed above. That phase-in would apply if the NAB and musicFirst “determine that legislation mandating the inclusion of radio chips on mobile devices is unattainable”, and would apply as follows:

    • The percentage rate would be “tied to (mirror) the market percentage of mobile devices that include an enable radio chip”, although a 0.25% floor would apply regardless of penetration. In other words, even if no mobile devices included chips, large commercial stations would be on the performance royalty hook for 0.25% of their revenues; they would then increase in a way that mirrors the market percentage of mobile devices until 75% of all mobile devices have a radio chip, at which point the full rates kick in.
    • The phase-in approach would apply to small, noncommercial, religious and/or non-music stations as well.
    • The discounted rates for webcasting/streaming/non-terrestrial transmission would not take effect until 50% of all mobile devices have a radio chip.  But if that 50% threshold is not reached by 2016, any existing streaming rates will continue to apply.
  • Broadcasters would report their data using the sample reporting methodology currently used by ASCAP/BMI rather than the more intensive “census” reporting currently submitted to SoundExchange for the webcasting statutory license
  • The NAB and musicFirst would agree to the following “policy” considerations:

    • The Copyright Royalty Board (CRB) would have absolutely no involvement in setting terrestrial or streaming rates.
    • The agreed-to royalty structure would be predicated on the express acknowledgement by AFTRA that broadcasters have a right to fully simulcast their terrestrial broadcasts on the Internet. In other words, the ongoing dispute regarding the requirement to remove some broadcast commercials from streamed content will be resolved.
    • The text of any eventual bill would explicitly acknowledge the “value to artists and record labels of promotion on free, over-the-air terrestrial radio”. 

From a practical perspective, we should also note that, by including the radio chip as an essential element of the deal, the NAB has roped the electronics manufacturers into the process. Ditto for AFTRA, with respect to the provision about streaming commercials. Of course, the presence of these particular additional players is technically not necessary for the resolution of the essential question of whether or not any performance royalty obligation exists. But by increasing the number of parties at the negotiating table, the NAB has almost certainly assured that the negotiation will take considerably longer than would otherwise be the case.

But now that we know what the Term Sheet looks like, the real question is: does it make sense for broadcasters?

Hard to say for sure, because different stations will be affected in different ways. Even the smallest station might have trouble paying $100 per year if it’s barely meeting expenses anyway. But that same station might find – maybe now, maybe in the relative near-term – that the reductions in streaming royalties more than offset the new royalties for over-the-air broadcasts in the long term. Locking in reduced streaming royalty rates now may pay handsome rewards down the line, particularly if, absent some such legislation, the CRB continues its exponential increase of webcasting royalties.

For that reason, you might want to run some numbers yourself.  Figure out how much you’d be paying this year, and for the next five years, under the NAB’s proposal. (We’re happy to help you work through this – though, as lawyers, we can’t vouch for the math.) Compare that to what you’re paying now.   If your overall royalty obligation would go up, would the increase be completely untenable under your current budget (or your anticipated budgets for future years)?

But before you answer, consider a couple of other factors. The NAB’s approach would remove the CRB from the rate-setting process, and would ideally substitute a more rational, and predictable, rate-setting mechanism going forward. Nothing wrong with that. Moreover, the NAB Term Sheet would also streamline reporting requirements for webcasting – which could relieve broadcasters of a significant headache and thereby encourage them to stake out a more substantial web presence.

And while the question of performance royalties – or anything relating to your pocketbook – is among the most important issues facing any radio broadcaster, it’s not the only issue. It’s just one of many legislative and policy matters facing the industry. NAB members expect, and need, the NAB to represent them before Congress and the agencies on all these issues. And for itself to survive, the NAB has to be sure that it’s doing precisely that. As I noted in an earlier post, the siege effort that the NAB has waged for years against the PRA has been successful, but costly. And unless something happens – like a negotiated settlement – it’s likely to continue to be costly for years more, sapping the NAB’s, and broadcasters’, political capital.

Of course, if you’re an unhappy NAB member, speak up about it – especially if your unhappiness derives from a lack of communication from between leadership and membership. That’s one of your rights as a member and the only way any final deal will be the best deal for the majority of radio broadcasters.

The NAB And The PRA: What's Up With That?

Brilliant stratagem or craven sell-out? It’s too soon to tell – so concentrate and ask again later.

Despite the fact that things on the Performance Rights Act (PRA) front remain quiet down on Capitol Hill, talk about the PRA has been burning up the trade press and the blogosphere lately. The reason? Reports that the National Association of Broadcasters (NAB) sat down with representatives from the music industry to discuss, among other things, the question of performance rights. Throw in a statement from an NAB spokesman alluding vaguely to “possible alternatives to pending legislation” (i.e., presumably, the PRA), and you’ve got the grist for a blog-tastic free-for-all in which anybody and everybody has an opinion, even though most lack a complete picture of exactly what might be going on.

CommLawBlog has done its fair share of writing on the PRA, but it’s been a while. In the midst of the sturm und drang, I think it might be useful to clarify what we know and what we don’t know before the chatter gets out of hand (and if you know something that we don’t, feel free to chime in in the comment section). 

Here’s what we know:

  • The PRA (HR 848 and S 379) was introduced in Congress over 18 months ago. While HR 848 passed the House Judiciary Committee soon after introduction, neither bill has moved forward since. This is largely because there are more than 260 House Members on record as opposing a performance right applicable to over-the-air broadcasts. That’s a strong level of opposition – a factor which can be ascribed at least in part to a substantial lobbying effort by the NAB and broadcasters generally. Basically, despite years-long, high-profile efforts by the recording industry to secure some form of legislative relief on the performance rights front – efforts which have gained support from a number of influential legislators – the bill has been stalemated. That may be viewed as a success story for broadcasters.
  • But now the NAB appears at least to be considering compromise on the issue. Note that the NAB has not, to my knowledge, said that it will compromise on this issue, now or in the future. To the contrary, an NAB spokesperson told RBR that the NAB has “reiterated its strong opposition to the pending bill in Congress”. But – and here’s a big “but” – the NAB has acknowledged “an ongoing dialogue with the Board and NAB membership on possible alternatives to pending legislation that would be devastating to the future of free and local radio . . . while agreeing that it is appropriate for NAB representatives to continue discussions with musicFirst.”
  • According to published reports, those discussions have centered on:

a permanent, tiered royalty rate which would not exceed one percent of net revenue for any broadcastpermanent removal of Copyright Royalty Board jurisdiction over terrestrial and streaming royalty rates;

a reduction in those streaming rates;

the possibility of requiring radio chips to be installed on all new mobile phones; and

resolution of all ongoing issues regarding insertion of commercials into webcast.

Here’s at least some of the stuff we don’t know: 

  • Would the tiered rate in the proposed agreement apply to royalties for over-the-air performances only or to over-the-air and internet/digital performances?
  • If the tiered rate were to apply only to over-the-air, how would the adjustment of internet/digital royalty rates occur? Would the reduction in streaming rates also be permanent?
  • If the CRB were to end up with no jurisdiction over terrestrial or streaming operations, but there was still some statutory license applicable to performances, who would oversee and implement it, especially if the rates aren’t permanent?
  • Would performance to a mobile phone with a radio chip be considered an over-the-air performance or a digital transmission (webcast)?

Obviously, these are all factors which could dramatically affect the extent to which any compromise might work to the ultimate benefit of broadcasters in the long run. It would therefore help to have a better handle on them – and many others – before we all start debating the wisdom of the NAB’s approach here.

Too late. That debate has already started.

Many broadcasters and their allies are expressing serious concern about anything that might be interpreted as a retreat on performance rights issues, and certainly NAB discussions with musicFirst (or any other recording reps) could be seen as a retreat. After all, broadcasters have incredibly strong arguments here, arguments which they have brandished effectively. The mere contemplation of “alternatives” to the PRA suggests that the notion of any performance rights might be valid – and broadcasters (including the NAB) have argued convincingly that that notion is not valid.

Moreover, the argument goes, since when does it make sense to run up the white flag when you’re winning?   If anything, the broadcast industry’s track record on the PRA front in Congress has been remarkably good. If you’ve got the enemy on the run, why try to negotiate a truce?

And finally, even if the NAB is on the right track here, some broadcasters question why the NAB hasn’t been a bit more forthright – “transparent”, to invoke a favorite FCC descriptive – with its them. Having faithfully followed the NAB in its staunch resistance to the PRA, many feel seduced and abandoned upon hearing that the NAB may be getting in bed with the bad guys. This is especially so in view of the fact that many small radio licensees, in particular, may legitimately fear that any performance rights royalties could have a devastating effect on their bottom lines. Why shouldn’t they feel bitter and resentful if it looks like the NAB is now helping those fears become a reality?

While these broadcasters' views are understandable and while I agree with their calls for transparency, let’s not lose sight of the fact that there may be some method to the NAB’s seeming madness. In particular, at the risk of appearing to defend the PRA (or any other performance rights claim) – and let me stress here that I am NOT defending or endorsing anything of the kind – I think a couple of things should be considered.

Are broadcasters’ arguments against performance rights claims valid? Of course they are. Will they stay that way forever? That’s impossible to say. Historically – up to and including today – performers and radio broadcasters have enjoyed a quasi-symbiotic relationship which has benefited both sides, thus eliminating any need for the strict debit-and-credit accounting called for by the PRA. But like it or not, technology and demographics and society all change. Let’s not forget that the FCC is pushing more and more insistently on the expansion of Internet capacity to serve as a common medium. 

Suppose over-the-air radio listenership decreases and online listenership continues to increase (in part because people are listening via Internet in their cars or on their phones). And suppose that, in response, broadcasters shift their focus to more Internet-centric operations. And finally, suppose that a compromise is struck providing that performances to a mobile phone are to be considered digital transmissions (a/k/a “streaming”), rather than over-the-air broadcasting.  

If the NAB were able – today, in advance of those changes – to reach an agreement with the recording industry that, in exchange for, say, 1% of net revenues for over-the-air performance royalties, royalties for streaming would be reduced significantly, that could be a boon for broadcasters in the foreseeable future. And if that decrease in streaming royalties were locked in for the long term, during which time over-the-air listenership continues to decrease and online listenership continues to increase – well, I’m not an economist, but I can envision that situation actually leading to an overall decrease in royalty rates over the long term.

What about calling a truce when the enemy’s on the run? The critics are right: it normally does not make sense to do that. But that’s not necessarily the situation we have here. What we have is more like a siege. Neither side is on the run; rather, both are deeply dug in for the long haul. Can broadcasters sustain the siege? Probably. Can the recording industry? Probably.

And that’s precisely the problem.

A siege is expensive in many ways. It chews up resources and creates distractions that may impede progress in other arenas. And it goes on and on and on. In this case, the broadcast industry as a whole has spent, and continues to spend, an enormous amount of “political capital” in rallying legislators to its anti-PRA cause. In so doing, however, the industry has almost certainly lessened its ability to convince those same legislators to back other pro-broadcast measures. And that political capital is being spent not in a way which puts a permanent end to the threat, but rather in a way which merely tends to perpetuate the stalemate.

In these circumstances, it might make sense for broadcasters to take advantage of the leverage that their current superior position gives them to try to devise an endgame strategy that looks to the future. After all, there’s no doubt that the more than 262 co-sponsors of the Local Radio Freedom Act give the NAB a strong bargaining position.

To be sure, the NAB’s less-than-inclusive approach leading up to its initial talks with the recording industry has alienated a number of its erstwhile supporters. That alienation is regrettable. However, negotiations have to start somewhere, and often they require initiative from one or two players to get the ball rolling. Perhaps that’s what’s going on here. But the NAB disserves its members when it consults only with a select group on an issue of this magnitude, as it appears to have done to this point. If momentum builds, the NAB must, voluntarily or otherwise, find ways to include a more representative universe in the discussions (if you take one thing away from this particular blogger's take on the subject, I hope it is my call for increased transparency in the process and inclusion of “the little guys” that might be the most affected by these changes).

So yes, there’s a lot of buzz about the possibility of a brokered resolution of the PRA impasse. And yes, it’s easy to see why many broadcasters may view that possibility with considerable alarm. And yes, very few of us currently know exactly what has been done, said or offered – by either the NAB or the recording industry – much less how any such discussions will ultimately shake out. 

Two things that we do know for sure are that (a) we don’t know very much of what is actually happening here, and (2) none of us can be sure of precisely what the future holds for any communications operation in this era of dramatic technological change. Because of that, it may be best to keep an open mind for the time being, with eyes fixed firmly, if warily, on the future in the broadest sense.

It's ALIVE!!! Performance Rights Bill Approved By Senate Committee

But the odds are still against PRA enactment

The American public is seriously into zombies just now – how else to account for the fact that Zombieland took in some $25 million during its first weekend, and Pride and Prejudice and Zombies has spent considerable time on many best seller lists? So we should not be surprised that, on October 15, the Senate Judiciary Committee passed S.379, the Senate’s version of the Performance Rights Act (PRA), by a 21-9 vote. 

Yes, that means that S.379, like its House counterpart, H.R. 848, is still alive and kicking, in an undead sort of way. And either version could, theoretically, become law – if, that is, it survives a floor vote in its own chamber, gets approved by the other chamber, and is eventually signed by the President. Should all those stars happen to align, broadcasters would for the first time be required to pay copyright royalties for over-the-air performance of sound recordings.

No, we still don't know how either bill will actually survive. After all, 250 members of the House have co-sponsored the “Local Radio Freedom Act”, a nonbinding statement of opposition to the performance right embodied in H. R. 848 and S.379. Since 250 votes would constitute a majority of the House, the defeat of H. R. 848 in the House would still seem to be a mortal lock, thus pounding a stake through the PRA’s heart.  (For the record, we’re not surprised at all that S.379 passed the Senate Judiciary Committee, since that Committee’s Chairman, Patrick Leahy – like his House counterpart, John Conyers – is a supporter of the legislation, and that alone can be enough to get legislation through a committee.)

That’s all we feel the need to say on the matter right now.

Responding To A False Alarm?

FCC invites comments on alleged improprieties in Performance Rights Act debate

A new front has been opened in the on-going struggle over the Performance Rights Act (PRA). The new battleground is the FCC, which has invited comment on a “Request for Declaratory Ruling” filed by MusicFIRST Coalition back in June.

As we have previously reported (here and here, for example), the PRA would require radio stations to pay for the on-air performance of copyrighted sound recordings. That would be over and above the royalties broadcasters already pay to the composers of the underlying works (through ASCAP, BMI and SESAC). Historically, of course, radio has provided on-air exposure to recording artists for free, just as the artists have made their recordings available to broadcasters for free. That quid pro quo arrangement has served everybody – artists, broadcasters and the listening public – well for decades. The artists – well, at least some of the artists, and certainly the record companies for which they work – now want to change the deal.

Whether the proposed change makes much sense is a matter of considerable (to put it mildly) debate. (See our colleague Peter Tannenwald’s post here for an interesting take on the situation.) But thus far, the debate has been thrashed out in Congress, in connection with various bills which would either impose a new performance rights royalty obligation or not. (While no final votes have been taken, some observers – including our colleague Kevin Goldberg – have concluded that the PRA is doomed to failure in this Congress.)

Perhaps sensing a need to expand the battlefield, MusicFIRST – a “partnership of artists and organizations in the music community who support compensating performers for their work when it's played over the air” – has tried to lure the FCC into the fray. 

And the FCC has taken the bait.

In June MusicFIRST filed its Request, alleging that, “[b]y using their licenses over public airwaves to promote their own pecuniary interests and to distort an important matter of public debate”, broadcasters are violating their public interest obligations. The Coalition suggested that the Commission should consider “strengthening the license renewal process and shortening license terms”.

Acting with unusual speed – in our experience, this kind of declaratory ruling request can gather dust for months, if not years, before the FCC even acknowledges that it’s been filed – the Commission has invited comments. In particular, the agency is looking for input on the following points:

  • whether and to what extent certain broadcasters are “targeting and threatening artists who have spoken out in favor of the PRA,” including a refusal to air the music of such artists;
  • the effects of radio broadcasters’ alleged refusal to air advertisements from MusicFIRST in support of the PRA;
  • whether and to what extent broadcasters are engaging in a media campaign, coordinated by NAB, which disseminates falsities about the PRA; and
  • whether certain broadcasters have evaded the public file requirements by characterizing their on-air spots in opposition to the PRA as public service announcements.

MusicFIRST is clearly trying to get broadcasters’ attention by attacking them where they are arguably most vulnerable – in the soft white underbelly of the regulatory/licensing process.

Of course, the Request does not ask the FCC to address the merits (or lack thereof) of the PRA . . . and properly so, since the FCC has neither the expertise nor the statutory authority to weigh in on such issues. Rather, the Request gets the FCC’s attention by claiming that at least some broadcasters may not be playing by the rules and may be acting unfairly in some way. Using that as a hook, MusicFIRST suggests regulatory responses (e.g., shortened renewal terms, possible disciplinary action) that might, um, incentivize broadcasters to be more, er, open to the PRA and its advocates.

The Request is particularly interesting for what it does not provide: any significant, detailed, factual information to support its extravagant claims of some industry-wide cabal resulting in rampant disregard for any particular rule(s). While the Request purports to “reveal a pattern of threats and intimidation by which broadcasters are using their licenses” improperly, the Request describes in the tersest possible manner a total of five instances of such supposed misconduct. And those instances are not identified with respect to the station(s) in question or the artists who were supposedly threatened or intimidated. While such vague, unverified and unverifiable charges may have worked for Joe McCarthy back in the day, we thought that government had gotten past that particular gambit by now. Apparently not.

Moreover, even if the five examples sketched anonymously in the Request could be shown to be every bit as bad as MusicFIRST would have us believe, that would still reflect the conduct of but a very, very small handful of stations in a radio industry numbering more than 14,000 stations. (By the way, one of the five anonymous instances referred to in the Request has been tracked down by a newspaper: it turns out to be a 100-watt noncommercial high school station in Delaware at which the students opted for a one-month boycott of MusicFIRST-related artists two years ago. It would be difficult to claim with a straight face that that incident reflects some industry-wide “pattern of threats and intimidation”.)

The Request also alleges that “broadcasters are refusing to accept ads” from MusicFIRST and its allies relative to the PRA. Again, however, the “evidence” of such refusals is slim at best. The Request mentions six – count 'em, six – stations (by call sign) which purportedly declined the MusicFIRST spots. It also says that a request to run the spots “in 38 different markets on a variety of different types of stations” was sent to Clear Channel – and as of the date of the Request, Clear Channel had not responded, even though “[i]t has now been over a week since we sent the script.” No real smoking gun there.

The Request claims that broadcasters are “spread[ing] malicious and untruthful information about the PRA.” MusicFIRST’s knickers are all in a twist because, for example, some anti-PRA materials distributed by some broadcasters refer to the PRA as a “tax”.   MusicFIRST’s position is that the term “tax” can refer only to situations involving making payments to a government, and since the PRA provides for no such payments, well, then, obviously, use of the word “tax” has got to be a Big Lie. But the word “tax” also means “a heavy burden”, without reference to the precise nature of the burden. If the promo items in question had been hypertechnical legal documents in which the use of the word “tax” called for ultra-precision, MusicFIRST’s criticism might have some basis. But the materials don’t appear to have called for such nice distinctions. And since pretty much everybody agrees that the PRA would, in fact, impose a heavy burden on broadcasters, it’s hardly malicious or untruthful to refer to it as a “tax”.

Finally, MusicFIRST frets that all of this supposed nefarious skullduggery is being orchestrated by the NAB and is “blatantly anti-competitive”.

So, gesticulating wildly at all that blue smoke and all those mirrors, MusicFIRST urges the Commission to come to the rescue. Interestingly, while the gist of the Request sounds an awful lot like a complaint under the long-gone Fairness Doctrine, MusicFIRST defensively claims that that’s not the case. But it asserts that broadcasters “have a statutory duty to use their monopoly . . . responsibly and not simply to further their own economic interests.”

The Commission, for its part, acknowledges that “substantial First Amendment interests are involved in the examination of speech of any kind.” It also recognizes that no remedies may be necessary, or available, to address the activities which MusicFIRST alleges.

But none of that is stopping the Commission from jumping right into this fracas with both feet, notwithstanding the anonymous, non-specified, unverified and unverifiable nature of MusicFIRST’s claims. By doing so, the FCC seems to be signaling its sympathy for the artists’ position – for sure, by inviting any comments at all the Commission appears to be giving the benefit of every conceivable doubt to MusicFIRST.

If you want to chip in your two cents’ worth, you have until September 8, 2009 to file comments. Reply comments are due by September 23.

Senate Judiciary Committee: Ignoring the Magic Number

Hearing on doomed Performance Rights Act scheduled anyway

The Senate Judiciary Committee has scheduled a hearing on the Performance Rights Act for 2:30 pm on August 4.   No idea yet on who will be testifying for and against the bill, but we wonder if it even matters, given the clear message from the House that this legislation WILL NOT PASS.

There are now over 240 House co-sponsors of the "Local Radio Freedom Act", with more signing on earlier this week.  Shoot, there are now 22 co-sponsors of the Senate version of the Local Radio Freedom Act (S Con. Res 14).  If the House members are good to their word, HR 848, the House version of the Performance Rights Act is -- and we believe this is the mathematically accurate  term -- dead in the water. 

Is holding a hearing on a bill that has virtually no chance of being enacted into law a good use of the Committee's time (especially when they still haven't passed the Free Flow of Information Act, among other, more pressing and realistic pieces of legislation)?    Committee Chair Patrick Leahy apparently doesn't think so, as he won't even be presiding over this hearing.  Instead, he has passed that task on to Senator Dianne Feinstein (D-CA). 

Victory!?!

Opposition to a performance right applicable to over the air radio reached 218 and beyond as five more Representatives signed on as co-sponsors to the Local Radio Freedom Act (H. Con. Res. 49).  While this is a non-binding resolution, its plain language is clear: 

That Congress should not impose any new performance fee, tax, royalty, or other charge relating to the public performance of sound recordings on a local radio station for broadcasting sound recordings over-the-air, or on any business for such public performance of sound recordings

We've added the emphasis on "any" because House Judiciary Chairman John Conyers continues to work toward passage of  the Performance Rights Act, which would impose precisely the kind of new performance fee that the Local Radio Freedom Act would bar.  Conyers recently introduced amendments to the Performance Rights Act in the hopes that it would be more palatable to opposing Member; he also held a "Town Hall" meeting in his home district on Tuesday.  But with support for the Local Radio Freedom Act now exceeding a majority of the House, the prospects for success of Conyers's contrary proposal appear non-existent.

We always knew that HR 848 would pass Conyer's committee, but despite his best efforts, it's hard to believe that the number of co-sponsors for the Local Radio Freedom Act will do anything but continue to increase. 

NAB says: "Don't Tax That Dial!"

Radio stations: Put you thinking caps on -- it's contest time!

The NAB is running a cool new contest through its "NoPerformanceTax.org".  Entrants can help in the fight against the move for performance rights.  And one lucky radio broadcaster can win $ 2,500.00 and coach airfare, hotel for two nights and registration for two to the NAB Radio Show in Philadelphia on September 23-25 (where, as an added bonus not being touted by the NAB, you'll likely get the chance to meet real live Fletcher, Heald & Hildreth, PLC attorneys). 

The "Don't Tax That Dial" contest invites over-the-air radio broadcast stations within the United States to submit an original 30 second advertisement by July 1, 2009 that advocates against the imposition of a performance right applicable to over-the-air broadcasting.  The advertisement must specifically play off of one of these themes:

  • Record labels, artists and radio broadcasters have a mutually beneficial relationship: Free airplay of music by radio stations promotes record labels and artists, and generates billions in music sales.
     
  • Three out of the four largest record label conglomerates are internationally-based, which means such a tax would take money out of local communities and send it overseas.
     
  • The effects of a performance tax would be catastrophic to communities, potentially forcing stations out of business, threatening jobs, stifling new artists and reducing choice for the listening public who depend on local radio.
     
  • Because the big foreign-owned record companies have a failing business model that has not adapted to the digital age, they are now asking Congress to upend a mutually beneficial relationship and tax local radio stations.

Be sure to review the full contest rules and regulations, as they contain sponsorship identification and political advertising requirements. 

The contest comes as the fight over the Performance Rights Act continues to heat up.  As have previously reporters, HR 848 passed the House Judiciary Committee by a 21-9 vote on May 13. However, support for H. Con. Res. 49 is now at 208 co-sponsors, very close to the all-important number of 218 representatives that would constitute a formal majority against the performance right.   More Representatives are expected to sign on to H. Con. Res. 49 as legislators presumably will be hearing from local radio broadcasters while home for the Memorial Day recess. 

Opponents are working the Senate as well, with Radio Ink reporting that minority broadcasters have asked Senate Judiciary Committee Chairman Patrick Leahy to hold a hearing on S 379 before moving forward with a Committee vote.  That could be enough to delay any effective action on the Performance Rights Act in the Senate in light of a presumptive House defeat.  

So go forth, radio broadcasters, and take the advocacy into your own hands!  

Dear Madame Speaker . . .

Last week, I delivered to House Speaker Nancy Pelosi a letter urging her to look into the impact on minority broadcasters of the Performance Rights Act (PRA) pending before Congress. I signed the letter as a Director of the Spanish Broadcasters Association and Washington counsel to the Puerto Rico Broadcasters Association. Co-signers included David Honig, Executive Director of the Minority Media and Telecommunications Council, and Barbara Arnwine, Executive Director of the Lawyers' Committee for Civil Rights Under Law.  

Two weeks ago I moderated a panel of Spanish language radio broadcasters from across the country who gathered on Capitol Hill top brief Congressional staffers on the detrimental effects of such legislation.  If passed into law, the PRA would impose hundreds of millions of new fees on local radio stations for music aired free to listeners. Fifty percent of the new fee would go directly to the record label companies, three out of four of which reside outside the United States.

The bill was approved by the House Judiciary Committee last week, over the objections of various minority groups that wanted a hearing on the potential effects of the bill.  As we said in our letter to Speaker Pelosi, the PRA "would disproportionately harm present and future minority radio broadcasters and their listening communities" and could bankrupt as many as one-third of all minority-owned radio stations.  Another point we make in the letter is that there has been no examination of whether radio should be compensated for the promotional value of their airplay; as a result, the PRA “is not ripe for floor consideration”.  

While the bill is not, by any means, a uniquely minority-focused issue, it is clear that many minority owned stations, which frequently struggle in a healthy economy, and are barely surviving in the economic downturn. They could be snuffed out entirely by the imposition of an additional performance fee. As Amador Bustos of Bustos Media noted during the Capitol Hill briefing I moderated, "The performance tax would be the added and final nail in the coffin for these small broadcasters like ours, and I think that it is just absolutely ludicrous that the record companies are trying to sort of bite the hand that feeds them." The encouraging news is that while our letter was making its way to the Speaker’s desk, additional lawmakers threw their support behind a bipartisan resolution opposing "any new performance fee, tax, royalty, or other charge" on local radio stations.

Performance Rights Supporters Win Battle But Face Mounting Enemy to Win the War

We reported yesterday that the House Judiciary Committee was preparing to mark up HR 848, the Performance Rights Act that would require over-the-air broadcasters to pay for the right to perform sound recordings.  The Committee has now passed the bill by a 21-8 margin.  However, by all indications, things will be a lot closer -- if not an outright defeat for HR 848 -- when it gets to the House floor. 

The Judiciary Committee also took up action that will allow even more webcasters to reach agreements with SoundExchange, Inc. regarding the royalties paid to perform sound recordings via the Internet through 2015. 

As Judiciary Committee Chair John Conyers is also the sponsor of HR 848, the outcome of this vote was never really in doubt.    But even as a watered down version was working its way out of the Judiciary Committee, more Representatives were jumping in to block the legislation.  By the time the Committee voted, 192 Representatives were official co-sponsors of the Local Radio Freedom Act (H Con. Res 49).  Just 26 more are needed for this opposition movement to become the necessary majority to defeat HR 848.

Sensing that his chances are slipping away,  Chairman Conyers amended HR 848 prior to the Committee vote to reduce the impact on small broadcasters.   The major amendments are:

  • Creation of a multi-tiered flat fee paid by qualifying "Minority, Female, Religious, Rural, Small, Noncommercial, Public, Educational and Community Stations and Certain Uses"  which actually have nothing to do with these designations everything to do with gross revenues: 

    • For any station that qualifies as a "public broadcasting entity" under the Copyright Act: 

      • A station with less than $ 100,000 in gross annual revenues must pay annual royalties of $ 500.00
         
      • A station with at least $ 100,000 in gross revenues must pay annual royalties of $ 1000.00
         
    • For any other stations:

      • A station with less than $ 100,000 in gross annual revenues must pay annual royalties of $ 500.00
         
      • A station with at least $ 100,000 but less than $ 500,000 in gross revenues must pay annual royalties of $ 2500.00
         
      • A station with at least $ 500,000 but less than $ 1.25 million in gross revenues must pay annual royalties of $ 5000.00. 
         
      • A station with at least $ 1.25 million in gross revenues will pay according to the results of any eventual Copyright Royalty Board ratemaking proceeding. 
         
  • The station's payment requirement becomes effective on a delayed basis, according to the total gross revenues achieved by the station during the previous four calendar quarters: 

    • A station with less than $ 5,000,000 over the previous four calendar quarters will not have to pay a performance royalty for the three years following enactment of this law
       
    • A station with less than $ 5,000,000 over the previous four calendar quarters will not have to pay a performance royalty for the first year following enactment of this law
       

Of course, even most small broadcasters will still fall into the highest payment bracket.  We've had conversations with broadcasters large and small and every one of them says, without fail, that adding a $ 5,000 annual expense would be difficult to endure.  We doubt that having 3 years to prepare for such payments would ease the pain. 

That may not be a problem, though, as it's hard to believe these amendments will move the co-sponsors of the Local Radio Freedom Act.  H. Con Res. 49 is a rather unqualified statement against any performance right:

Congress should not impose any new performance fee, tax, royalty, or other charge relating to the public performance of sound recordings on a local radio station for broadcasting sound recordings over-the-air, or on any business for such public performance of sound recordings.

Meanwhile, the Judiciary Committee also passed HR  2334, a bill only recently introduced by Chairman Conyers.  HR 2334 creates a 30 day window in which webcasters and SoundExchange can continue to negotiate alternative royalty rates for performance of sound recordings via the Internet to those which were adopted by the Copyright Royalty Board in March 2007 and those which are being considered in a current proceeding applicable to the years 2011-2015.  Because the NAB and several noncommercial webcasters have already reached distinct agreements with SoundExchange, HR 2334 primarily works to the benefit of larger, web-only music programmers. 

Time to Put Up or Shut Up on Performance Rights

The House Judiciary Committee is poised to "mark up" (vote on) HR 848, the Performance Rights Act, this Wednesday, May 13.   

With HR 848 currently boasting 41 co-sponsors, and the opposition movement claiming formal support from 184 Representatives who have signed on to H Con Res 49, the Local Radio Freedom Act, the future of this legislation is currently wide open. 

Both sides have been jockeying for position and more support.  Opponents of the performance right received a huge boost from the Hill itself, when members of the Congressional Black Caucus and Congressional Hispanic Caucus wrote to Judiciary Chairman John Conyers, seeking another hearing on the issue, one which would focus specifically on how a performance right would affect minority broadcasters. Outside groups, including the Rainbow PUSH Coalition, the Lawyers Committee for Civil Rights Under Law and the Leadership Conference on Civil Rights, have also sent letters of opposition to Chairman Conyers.  But the timing of this first formal vote comes at an awkward moment for the NAB, due to the recent departure of CEO David Rehr. 

On the other side, Rep. Conyers might move to curry more support for the bill.  Radio and Records is reporting that Conyers will attempt to bring opposing Representatives into his camp by easing the bill's impact on small, mainly community-oriented broadcasters. Conyers will apparently propose a $500 annual fee for "small broadcasters", though that term has not yet been defined.  (Earlier definitions as applied to the "Small Webcaster" exemption to an analogous webcast-related performance right defined  a "small broacaster/webcaster" as an entity with gross annual revenues below $1.25 million). 

Stay tuned for more updates.

Radio Reps Rip Proposed Performance Rights Royalties

Spanish-language broadcasters bring the fight to Capitol Hill.

“It’s like throwing a surprise party for a friend, and at the end of the night your friend charges you for an appearance fee.”

That's how Spanish Broadcasting System VP/GM Frank Flores described the push by record labels to impose a performance fee on radio stations. Flores’s comparison, which was a reference to the roughly $2 billion in music sales that the Free Radio Alliance claims is earned by the record industry as a result of the free airplay of their songs on commercial radio, was made during a May 5 panel discussion by leading Spanish-language radio broadcasters, which I moderated. The broadcasters gathered on Capitol Hill to brief Congressional staffers on the potential impact of a performance royalty on their stations. Flores went on to say that "we have worked real hard with the record labels and the artists.  And to be honest with you, a lot of these artists wouldn't be where they are if it wasn't for these radio stations."

Univision Radio's top morning show host, Eddie "Piolín" Sotelo, and ten other Spanish-language radio broadcasters told a room of Congressional staffers that a new performance tax on local radio stations could mean bankruptcy and more job losses for many Hispanic stations.The performance tax would be the added and final nail in the coffin for these small broadcasters like ours, and I think that it is just absolutely ludicrous that the record companies are trying to sort of bite the hand that feeds them," Amador Bustos of Bustos Media told the audience.

Border Media's Miguel Villarreal noted the potential for more layoffs in the radio business. After the panel discussion, the broadcasters walked the halls of Congress through the afternoon, meeting with members of the Congressional Hispanic Caucus. 

The event was organized by the Free Radio Alliance, which opposes passage of HR 848, the bill which would impose a performance fee on radio stations that air recorded music. Under the terms of the bill, 50% of the royalties would go directly to the recording labels. After the panel discussion, the broadcasters met with members of the Congressional Hispanic Caucus throughout the afternoon. According to one broadcaster, the broadcasters were able to obtain additional support in opposition to the bill and in favor of the Local Radio Freedom Act, a non-binding resolution opposing the performance fee.

Time For A New Spin On "Pay For Play"

I think broadcasters have let the record companies put them on the defensive by establishing a one-sided framework for the public discussion of the performance royalty issue. And that may be why broadcasters seem to be having trouble in the struggle with record companies over that issue.  Maybe it’s time to change that framework.

At the NABOB annual awards dinner a couple of months ago, I listened to NABOB President Jim Winston bemoan the burden that would be placed on struggling minority station owners if they had to pay the “performance royalties” being touted by the record industry. I thought to myself that the performance royalty debate has been in favor of recording artists, because the record companies have managed to cast their side as poor suffering recording artists who have supposedly been victimized by a freeloading broadcasting industry.  Artists have worked hard to create these recordings – as the argument generally goes – so why should they have to let their work be used for free by fat-cat broadcasters?

That approach, of course, misses the other side of the debate: the undeniable truth that airplay provides artists with valuable, if not vital, exposure to vast audiences, exposure that helps those artists sell records (pardon me – I mean CDs and downloads), fill concert seats, move merchandise, and establish the public images which are so crucial to their popular success. You will notice that in most music awards shows, artists give an appreciative shout-out to the radio industry in their acceptance speeches.

Broadcasters have historically provided exposure for free, just as the artists have made their recordings available to broadcasters for free. That quid pro quo arrangement has served everybody – artists, broadcasters and the listening public – well for decades. But if artists now want to change the deal by charging for the use of their recordings, that is a two-way street. Why not let broadcasters ask artists to pay for the exposure they get on the radio?

Well, how are we going to do that? Isn’t that illegal “payola” that can get you jail time? Not so, if you do it right, with proper disclosure. The trick is to fix the disclosure rule so that it does not stand as a barrier but rather can be complied with reasonably and practically.

Somewhere over the last 50 years, the term “pay for play” seems to have become synonymous with “payola”, which in turn is associated with Fraud and Deception and Bad Things (even though I lived in New York as a teen-ager and loved listening to Alan Freed, the disc jockey who gave rock’n’roll its name before becoming the disgraced poster boy for payola).

But “pay for play” is not in and by itself improper or illegal. After all, isn’t conventional advertising payment for air time? Paying for play is perfectly legal, as long as appropriate sponsorship identification is provided. (Sponsorship ID was the “gotcha” that caught Freed and of the other big-time jocks.) So as long as a broadcaster provides appropriate sponsorship ID for playing songs, why not develop a rate card for music and let artists know what it will cost to get their songs on the air?

Now we would have an approach that would permit standard marketplace forces to operate. Each side would have something that the other side wanted, and they would negotiate who pays whom for what.

In some ways, that arrangement would be similar to the “retransmission consent” alternative in the cable television carriage arena. By allowing cable operators and television licensees to negotiate carriage terms, Congress allowed those parties to determine the value of carriage. Historically, cable operators were thought to have the upper hand in the Cable/TV relationship – hence the need for “must-carry” legislation – but in recent years, the broadcasters, as owners of content that is in high demand, have taken control, and the marketplace has demonstrated that, in many cases, cable needs TV stations as much as (or more than) the stations need cable. As a result, many TV stations have developed retransmission consent into a significant revenue stream.

The radio/performance royalty situation is a bit trickier. Recording companies have been allowed to consolidate their rights through SoundExchange, a monopoly which may be administratively convenient but (like any monopoly) is plainly anti-competitive. So if performance royalties are imposed, SoundExchange will be the single 800-pound gorilla with which that all broadcasters will have to deal.

But the existence of Sound Exchange would not prevent individual broadcasters from formulating rates for putting music on the air. They could be paid by individual record companies, who of course would have to include the right to play the music, thereby bypassing and leaving Sound Exchange as the place to go for a blanket license for whatever music is left over.

Since the law already allows pay-for-play with adequate disclosure, the major barrier that broadcasters would face is developing a means of identifying the sponsors that is both legally sufficient and realistic. Some (though not all) lawyers think that the present law requires disclosure of payment every time a paid musical selection is played. Broadcasters may want to petition the FCC to clarify that the law imposes no such requirement and that it is sufficient for stations to make, say, a general announcement four times a day relative to music sponsorship. (Think: “Dear listeners: To keep the FCC happy, and to comply with a tangle of stressful laws, we want you to know that we have been paid to play the music you hear today. Here are the record companies that paid us….”) The public would be told who is paying, and broadcasters would get a fair chance to counter the royalty demands of Sound Exchange with corresponding demands of their own.

If necessary, Congress might be asked to break SoundExchange’s monopoly, to allow more options for negotiations between artists and radio licensees short of separate negotiations for each recording. Some rights aggregation could continue, to avoid administrative chaos, but the ultimate goal would be to achieve a more competitive marketplace setting.

A free marketplace may have some disadvantages. The best artists will presumably be able to charge stations for playing their music, while lesser-known artists may have to pay for airtime. Royalty rates may turn out to be prohibitively high for many broadcasters, particularly the smaller ones. It is not difficult to envision a possible scenario in which only the wealthiest radio broadcasters could play the most popular music, lesser-known artists have to pay for exposure while their better known counterparts rake in cash, and small radio stations have to get creative to stay in business. It could be rough sledding for many on both sides, particularly in the early rounds. I have no desire to disadvantage small broadcasters and would support some regulatory intervention to ensure to ensure that they are not streamrollered.

Still, if the broadcast industry sits back and lets the record companies limit the debate to the narrow question of whether performers should be paid for their work, they are looking for a chance to get hosed. Broadcasters have significant economic muscle which can and should be flexed, letting the artists and recording companies know that upsetting their longstanding relationship with broadcasters may backfire. They should go to the FCC and Congress and demand that legal barriers to free and open marketplace negotiation be removed rather than having lawmakers decide which way the cash flows. Fix the sponsorship identification rule so that it becomes practical to comply with it, and then let the fur fly. TV has a free marketplace for retransmission consent. Why not radio as well?

Once the playing field is leveled, so that legal barriers like the details of the sponsorship rule do not interfere, maybe lawmakers who have jumped on the artist/record companies’ “fairness” bandwagon will recognize that that bandwagon is all about money, like so much else in the business world, rather than about “fairness”. And maybe there is something to be said for retaining the status quo.

NAB Seeks to Mow Down Performance Rights Act

With the Performance Rights Act creeping like a weed around Capitol Hill, the NAB is going grassroots, having created a new website that allows broadcasters to take action to defeat the legislative proposal that would require them to, for the first time, pay to perform sound recordings  in radio broadcasts. 

The "No Performance Tax" website contains:

  • Basic background information on the issue.
     
  • Multimedia and Resources, including video from the recent House Judiciary Committee hearing on the Performance Rights Act, galleries of radio and print advertisements and congressional resources.
     
  • A "Newsroom" containing articles, editorials, op-eds and letters to the editor that have appeared in major media on this issue.

Most importantly, broadcasters can take the matter into their own hands by registering through the site to get sample scripts for radio advertisements, advocacy letters directed at Members of Congress and other ideas. 

The Performance Rights Act currently has 39 co-sponsors in the House (HR 848) and 6 in the Senate (S 379).  A resolution opposing the application of a performance right  to over-the-air broadcasting, the Local Radio Freedom Act, has the support of 168 Representatives and 3 Senators. 

New and Improved Performance Rights Act Hearing -- Now with More Witnesses!

The scheduled -- and then cancelled --  House Judiciary Committee hearing on the Performance Rights Act is back on.  The Committee website says it will now be held on Tuesday, March 10 at 10:00 a.m.  Even better: RBR claims to know the identity of some of the witnesses for the broadcasters (Steve Newberry and Larry Patrick). 

As that RBR article notes, the Local Radio Freedom Act, the nonbinding resolution demonstrating opposition to creation of a performance right applicable to over-the-air radio, now has 135 co-sponsors.  Only 83 more to go...

Judiciary Committee -- Hard of Hearing?

We now understand that  Wednesday's House Judiciary Committee hearing on the Performance Rights Act (which we mentioned to you earlier today) has been postponed. 

The Committee's calendar makes no mention of the cancellation (though information regarding the hearing has never been updated).  However, other outlets are reporting the cancellation (with the Radio and internet Newsletter ("RAIN") site surmising that the hearing has fallen victim to a conflict with a Joint Address to Congress by British Prime Minister Gordon Brown, also scheduled for 10 am on Wednesday, March 4).    A call to the House Judiciary Committee confirms what the Committee website will not:  the hearing is off. 

As our own Frank Jazzo said, "Probably just as well from the broadcasters' perspective".  That's especially true given that the number of supporters for the counter-movement known as the "Local Radio Freedom Act" (LRFA) is up to 131 -- did the scheduling of this hearing which never actually occurred spur more Representatives to add their names to the list of LFRA supporters?

The (Performance) Right to a Fair Hearing?

There will be a hearing on the Performance Rights Act, but will it be fair?  This week's schedule for the House Judiciary Committee shows that the Committee will hold a hearing on H.R. 848 Wednesday, March 4, at 10:00 a.m. in Room 2141 of the Rayburn House Office Building, As we have previously discussed, H.R. 848 would require payment of copyright royalties by broadcast radio stations for performance of sound recordings.

We’re not trying to cast aspersions on the fairness of the legislative process.  We don’t know anything else about the hearing.  As you can see for yourselves, there isn't even a witness list posted yet.  But our guess is that there will be more witnesses testifying in favor of H.R. 848 than against it.  That’s only natural when the Committee Chairman, John Conyers (D-MI), is the bill’s sponsor.   This is the first House hearing for the Performance Rights Act in the 111th Congress. The bill is gaining some momentum, with 22 House Members now signed on as co-sponsors. The Senate companion measure, S. 379, introduced by the Chairman of the Senate Judiciary Committee (Patrick Leah (D-VT)), has five co-sponsors.

Those interested in the issue should also be keeping tabs on the Local Radio Freedom Act, (H. Con. Res 49), a resolution sponsored by Rep. Gene Green (R-TX). Green’s resolution is, in effect, the Anti-Performance Rights alternative, opposing imposition of a performance royalty.  It has the support of 125 House Members. The magic number is 218 – that’s the number of House votes necessary for either side to claim victory).

February 4: The Day the Music Started to Die?

Talk about irony. Just one day after the 50th Anniversary of “The Day the Music Died”, legislation – the Performance Rights Act (PRA) – was introduced that could hasten the death of all music on over-the-air radio.

If you believe PRA supporters (including perhaps most prominently the Recording Industry Association of America), payment of copyright royalties for performance of sound recordings is nothing more than fair and just compensation for intellectual property. 

Opponents of the proposal – including the NAB, State Broadcast Associations and others – see it differently. In their view, it’s a new tax that would cripple broadcast radio. The opposition goes further: the ultimate effect of the PRA would also be disastrous for the recording artists and record companies who are pushing for its enactment. That’s because the revenues many recording artists and record labels seek in exchange for performance of their copyrighted recordings would be reduced, while the essentially free broadcast advertising of concerts (and related merchandise) that has existed for years would also dwindle, leaving everybody involved worse off than before. And the record industry would have no one to blame but itself.

Readers of this blog may recall that similar legislation was introduced in late 2007 (during the 110th Congress) as HR 4789 and S 2500. HR 4789 passed the House Judiciary Committee before time ran out on the bill; the Senate version did not advance. 

The current version of the PRA differs slightly from the 2007 flavors. Introduced in identical House and Senate bills on February 4, 2009, this year’s model must be taken seriously simply because it has the backing of key members of each chamber.  The primary co-sponsors of   S 379 are Senate Judiciary Committee Chairman Patrick Leahy D-VT) and the Ranking Member of that Committee, Orrin Hatch (R-UT), with Senators Dianne Feinstein (D-CA), Bob Corker (R-TN) and Barbara Boxer (D-CA) claiming original co-sponsorship.  HR 848 was introduced by House Judiciary Committee Chairman John Conyers (D-MI) and Darrell Issa (R-CA); other original co-sponsors are Howard Berman (D-CA), Marsha Blackburn (R-TN), Jane Harman (D-CA), John Shadegg (R-AZ), and Paul Hodes (D-NH). 

According to Senator Leahy’s Statement on Introduction, the PRA is intended to remedy two disparities: 

  • “When webcasters, satellite radio companies, or cable companies play music, and profit from its use, they compensate the performing artists.  Terrestrial broadcast radio is the only platform that still does not pay for the use of sound recordings.”
     
  • “[The United States] is the only Nation that is a member of the Organization for Economic Cooperation and Development but still does not compensate artists.  An unfortunate result of the lack of a performance right in the United States is that American artists are not compensated when their recordings are played abroad.”

A brief primer on copyright law as it applies to the music you hear on the radio may be in order here.  Every song heard on the radio or via an Internet stream consists of two copyrighted works.  There is the copyright in the “musical work”, which is the written music and lyrics (sometimes known as the “composition”).  Think sheet music – the notes and words in their unperformed state.  This copyright is most often owned by the songwriter (or his or her music publishing company, if the rights have been transferred). 

There is also a separate and distinct copyright in the “sound recording”, which is that version of the song you’re actually hearing.  This copyright vests in the actual performer (or his or her record label, if the rights have been transferred). 

Here’s an example that might assist the uninitiated in understanding the difference between the two:

The song “Yesterday”, according to the Guinness Book of World Records, has the most registered cover versions of any song in history (over 3,000 exist).  The copyright in the original musical work (before that right was later sold) was owned by the publishing company set up by its credited songwriters, John Lennon and Paul McCartney.  They, along with the rest of the Beatles, separately owned a copyright in the sound recording of “Yesterday” that we’re all familiar with. When Ray Charles recorded a version of “Yesterday” in 1967, he had to pay royalties (to the Lennon/McCartney publishing company) for use of the musical work, but he obtained his own copyright in his cover version.  Anyone who uses the Ray Charles version of “Yesterday” has to pay royalties to both Lennon/McCartney (for the underlying musical work) and to Ray Charles (for his particular performance as captured in that sound recording).

A crucial question at this point in the discussion is: what is a “use” of a copyrighted work? That is, what do you have to do with a musical work in order to subject yourself to the obligation to pay royalties? With some limited exceptions, any public performance of a musical work triggers that obligation: juke boxes, stadium PA systems, Internet streaming, satellite radio, Muzak services, etc., etc. They’re all public performances. And so, too, is broadcasting – with one major difference.

As noted above, public performance of a particular recording of a song involves two separate and distinct copyright interests, one in the underlying musical work, the other in the particular recorded performance. A single playing of a recording may constitute multiple “performances” or “uses” for copyright purposes. For example, if a radio station is simultaneously streaming its over-the-air programming onto the Internet, it would have to pay royalties:

            to ASCAP, BMI or SESAC, for performing the musical work over-the-air; and

            to ASCAP, BMI, or SESAC, for performing the musical work by streaming it; and

            to SoundExchange, Inc., for performing that particular recording by streaming it.

Note that the broadcast of the sound recording would NOT trigger any obligation for the radio station to pay for the “performance” copyright under current law. That’s because broadcast stations have always been exempt from paying royalties for performing sound recordings over the air. The theory is that the broadcast of the work provides advertising to the performer. The exemption recognizes the essentially symbiotic relationship between recorded music and radio.  As discussed above, there exists no equivalent exemption from performance of sound recordings in digital format (via the Internet, digital download, on satellite radio, etc).  

Efforts to impose a performance right obligation on broadcasters have been made, and rejected, at least three times in the past (in 1971, 1976, and 1995).  The PRA tries again, proposing:

  • Application of the performance right in sound recordings for all audio transmissions, including over-the-air broadcasting.  This new performance right can have no adverse impact on the right of songwriters to recoup royalties for performance of their musical works. 
  • Broadcasters will not be subject to the “sound performance complements” applicable to digital performances (which include prohibitions on certain pre-announcing of songs, on the consecutive playing of songs by the same artist or from the same compact disc or the repeating of programs)
  • Broadcasters will be forced to pay performance right royalties at a rate set by the Copyright Royalty Board, with the following exceptions: 
    • Incidental performance of a sound recording (less than 30 seconds of music coming in or out of commercial or in the background of talk or news programming or during a commercial of less than 60 seconds’ duration) or performance of a sound recording during a religious service will not trigger payment of royalties for the performance. 
    • Small Commercial Broadcasters – defined as broadcasters with less than $1.25 million in gross annual revenues – can elect to pay a flat performance royalty fee of $ 5,000.00 per year.
    • Noncommercial broadcasters – defined as public, educational or religious broadcasters under Section 118 of the Copyright Act – can elect to pay a flat performance royalty fee of $ 1,000.00 per year.

Of course, the NAB and various State Broadcast Associations are already mounting a defensive effort.  NAB CEO David Rehr drafted this letter that has already been circulated to all Senators urging them to vote against S. 379 because it is nothing more than a “performance tax” that will put “at least half of” all royalties “directly into the pockets of the big record labels, funneling billions of dollars to companies based overseas.”  Mr. Rehr argues that “For more than 80 years, a symbiotic relationship has existed between local radio stations and the recording industry” that has resulted in “85 percent of listeners of all audio services [identifying] radio as the place where they first heard music that they purchased”.

Several State Broadcast Associations have jointly signed a resolution asking Congress to refrain from imposing “any new performance fee, tax, royalty or other charge relating to the public performance of sound recordings on a local radio station for broadcasting sound recordings over-the-air, or on any business for such public performance of sound recordings.”  In support of the resolution, the Associations argue, among other things, that: 

  • “Local radio stations already contribute more than $2.4 billion in value to the record labels and their performers by promoting their recorded music, concerts, merchandise and careers to an average of 235 million listeners per week.”
     
  • The imposition of a performance tax will harm local broadcasters’ abilities to serve the public interest by imposing additional financial obligations on an already financially weakened broadcast industry.  (They estimate that more radio stations – in addition to the 235 stations which have already gone dark – would be forced to go off the air, to change formats from music to talk, or to refrain from programming niche music formats.) 
     
  • The PRA is nothing more than a “bailout” of record labels and performers. 
     
  • There are key differences (a) between over-the-air radio and digital radio and (b) between the United States and foreign countries, in terms of the radio business and regulatory schemes. Those differences justify continued disparate treatment under copyright laws. 

While we do not agree that the PRA constitutes a “tax” (since a tax is generally charged by the government to serve the needs of the public, while these royalties would be paid in exchange for the use of another’s copyrighted materials), we do not believe that the PRA is the “right” answer, either.  Record labels and artists are compensated for the performance of their works in the form of the free advertising they receive each time a song is played.  This leads to purchase of CDs and, more importantly, sales of concert tickets and merchandise (the latter two benefitting  the performer, not the songwriter, if they are not one on the same).  Requiring payment of these royalties would provide a double benefit – and in many cases, it wouldn’t even be the performer that receives this double benefit, but the record label that often gets the lion’s share of the revenues.  Imposing this royalty at this time does not benefit anyone – well, certainly not those for whom the benefit is intended.  Indeed, it is most likely to victimize all when there is less overall music played on fewer radio stations in the end. And as the amount of music played plummets toward zero, so too will the royalties that artists could expect to be paid.

What’s fifty percent of zero again?  Oh yeah: zero.