(LEGAL) Performance Royalties: The State Of Play

8-1-2014

There is much afoot these days in the world of copyrights and performance rights and royalties. Any radio station owner knows about the license fees collected by ASCAP, BMI, and SESAC, which pay royalties to composers and publishers. Less familiar are royalties collected by performers and the recording industry. For musical recordings, radio stations pay SoundExchange when streaming music over the Internet, but not for over-the-air broadcasts. The logic has been that the recording industry already reaps a huge benefit from having its records played over the air. In fact, traditionally the money stream has flowed in the opposite direction, with radio stations, DJs, and PDs being paid to play recordings on the air. There?s even a name for it: payola.

Performance Tax
The term ?performance tax? is used for the perennial attempt to impose, through legislation, a requirement that radio stations pay royalties for over the-air broadcasts of musical recordings. Through the years these attempts have been thwarted, and even now there are already 224 U.S. representatives co-sponsoring a resolution against it.

But this year there appears to be additional momentum for the performance tax. The House Subcommittee on Intellectual Property held hearings on music licensing, and Rep. Jerrold Nadler, ranking member of the subcommittee, said, ?I am developing legislation to address the various problems in existing law in one unified bill.? He went on to say that the most glaring problem is that ?rights holders of sound recordings receive absolutely no compensation when their music is played over the air on terrestrial, meaning AM/FM, radio.?

With an introduction like that, it sounds more like a witch hunt than a hearing. However, there appears to be a new tactic, namely a top-to bottom review of the copyright laws (rather than just the singular issue of radio paying to air recordings). Although broadcasters still appear to have the votes in Congress, others quietly worry that a radio performance fee is just a matter of time.

Songwriter Equity Act
Even before the Congressional hearings in June, there was a House bill attracting attention ? the Songwriter Equity Act. This legislation charges the Copyright Royalty Board with setting fair songwriter (ASCAP and BMI) royalty rates for digital music services by broadening the pool of evidence that rate courts like the CRB may examine. At first, this sounds like a money grab by composers and publishers against Internet streamers like Pandora, but it could open the door for the CRB to adjust any perceived inequities between songwriter and artist rates on the backs of broadcasters.

Geofencing
Although radio stations do not currently have to pay performance fees for recordings broadcast over the airwaves, they do pay for simulcasts of the station?s programming over the Internet. This goes back to passage of the Digital Millennium Copyright Act in 1998, when there was debate over the royalty radio broadcasters should pay for streaming their content. The DCMA provided that any retransmission of a broadcast signal was exempt from the sound recording copyright royalty, provided that the broadcast is not ?retransmitted more than a radius of 150 miles from the site of the radio broadcast transmitter.?

Broadcasters argued that the exemption extended to retransmissions over the Internet. The recording industry argued that ?transmission? must be a terrestrial broadcast (like a translator) and cannot include streams, which have a global reach well beyond the 150-mile radius. In its final ruling, the Copyright Office determined that Internet simulcasts are not exempt from copyright liability.

However, this year a radio group filed a declaratory judgment complaint in federal court, claiming they use a technology called ?geofencing? to restrict Internet retransmissions of their broadcast signals to a 150-mile radius, and therefore they should be exempt from streaming royalties. A favorable ruling would provide precedent for other stations that seek only a local audience for their Internet streams, but could impact aggregators like iHeartRadio because some stations would then want to restrict the radius of their streams.

What can you do about the increased pressure being applied for new licensing fees? Station owners should reach out their counsel and the NAB, but also to the Radio Music Licensing Committee and to their state broadcast associations for information and ways to have their voices heard. Radio is a vital medium that serves the public in ways no other service does. Lawmakers need to be constantly reminded of that. And as broadcasters increasingly look to stream their content on the Internet and streaming companies like Pandora are moved to purchase radio stations to become more like broadcasters for copyright reasons, the lines will continue to blur. So it?s up to the radio industry to keep the message clear.

Frank Montero is the managing partner of the Washington, DC law firm of Fletcher, Heald & Hildreth and can be reached at montero@fhhlaw.com.

(8/1/2014 10:57:18 AM)
"Lawmakers need to be constantly reminded of that'.
Let's face it - money wins in Washington and in most other places too. But especially in Washington. So the money grab by the labels is being preceded by a money grab by lobbyist and lawmakers. So to win, this is going to cost us a lot of money for lobbyists. The only reminder our lawmakers need is a check.

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Lawmakers Zero In On AM/FM Royalties

November 28, 2012

Performance royalties for terrestrial radio aren't even part of the Internet Radio Fairness Act, but that didn't stop lawmakers from repeatedly raising the issue at Wednesday's hearing on the bill by the House Judiciary Committee's Subcommittee on Intellectual Property, Competition, and the Internet.

The focus on AM/FM started early, as subcommittee Ranking Member Mel Watt (D-NC), said in his opening remarks that the exemption for terrestrial radio is "about 90 percent of the problem" with regard to music royalties. Judiciary Committee Ranking Member John Conyers Jr. (D-MI) also pressed the issue, after criticizing the IRFA for potentially reducing Internet performance royalties by as much as 85 percent and calling it the "Paycheck Reduction Act."

Before testimony even began, Conyers expressed a lack of sympathy for Pandora, whose CEO, Joe Kennedy, was set to testify. He didn't mention Pandora by name, but said, "Here we have the leading supporter of this bill, a publicly traded company valued at $1.4 billion at the end of last month, essentially urging that we consider a measure that would cut royalties and deprive artists of the fair market value of their work." He went on to say the debate over the bill "may well be the catalyst" for a performance royalty for AM/FM radio, saying, "Outside of the experts here, most people assume, listening to a song or performance on the radio, that [artists] were getting some kind of compensation all the time."

Kennedy was the first witness after the lawmakers' opening statements (in the interest of time, all the witnesses' prepared testimony was entered into the record, and each was asked to summarize the testimony during the hearing). Pandora is part of the Internet Radio Fairness Coalition supporting the IRFA, and Kennedy began, "Americans' embrace of Pandora reflects the potential of Internet radio." He said the "willing buyer, willing seller" standard created in the 1998 Digital Millennium Copyright Act and used in by copyright royalty judges in setting performance royalties for Internet radio creates an "unfair process" in which judges are prevented from reviewing all the relevant evidence.

Kennedy noted that Pandora will account for only 7 percent of U.S. radio listening this year, but will pay SoundExchange more than half its revenue. He said, "Pandora pays more in absolute dollars than any other company, including SiriusXM, a company with eight times our revenue."

SiriusXM pays its royalties under a different, market-based standard; one of the goals of the IRFA is to put Internet radio under that same "801(b)" standard. Kennedy said the "willing buyer, willing seller" standard has been ineffective because there is no "market" for radio rates, adding that the recording industry "has actively sought to prevent any such market from developing."

Rep. Howard Coble (R-NC) later asked Kennedy if Pandora could be "profitable and successful without changes in the law" and asked how it generates revenue. Kennedy responded, "I don't think this issue is really about the profitability of Pandora," but added that if that is relevant, 801(b) would be the proper rate-setting standard, because it takes the financial performance of companies involved into account, while the current standard does not.

Hubbard Radio CEO Bruce Reese, a former NAB Joint Board chairman, testified on behalf of NAB members, saying that many broadcast stations still choose not to stream their music programming because they find the royalties unaffordable, and, no matter how much listening grows, "the cost curve never bends in a favorable direction."

He said Hubbard streams because listeners expect it, but has never done better than break even; Reese said, "The majority of broadcast radio stations and the local services they provide remain out of the reach of Internet listeners." He noted that the NAB doesn't support any particular legislation, but said NAB members' biggest concern is the unpredictability of the current rate-setting process for Internet performance royalties. Reese said reforms "must not be bogged down by past fights over controversial performance rights bills."

Asked later in the hearing how terrestrial radio differs from satellite, cable, and Internet radio, Reese noted that AM/FM radio is "local and free." He noted radio has been in place for 90 years and has played a "multi-billion-dollar promotional role in the music industry." SoundExchange President Michael Huppe, testifying against the IRFA, had earlier said music "makes radio possible," to which Reese responded, "Radio makes music possible." He said, "We believe the free, local nature of our business is very important in continuing to make music popular."

Huppe had earlier begun his testimony by bluntly stating, "The music industry stands united in its opposition to the Internet Radio Fairness Act," and complaining that the bill "blatantly ignores" the fact that AM/FM radio pays no performance royalties. He said Internet radio is "flourishing," and added, "SoundExchange wants to foster that growth, which is good for everybody."

Huppe said the statutory license has been a "tremendous gift" to Internet radio and that "the very least Congress can do is make sure artists are paid fairly for this transfer of rights." After pointing out that Pandora would pay only $4 if a listener streamed Pandora 20 hours a month for a year, Huppe noted, "That is less than some people here paid for their coffee this morning."

He also said SiriusXM, MusicChoice, and Muzak are the only digital music services not operating under the Digital Millennium Copyright Act's rate-setting standard simply because they existed before the bill was passed: "They're getting this break because they've been around a while." Huppe added, "We cannot have a discussion of fairness if the $14 billion radio industry pays nothing."

Recording artist and producer Jimmy Jam, also testifying in opposition to the bill, compared an artist's payment for a song purchased on Amazon -- about 70 cents -- to payment for a song streamed on Pandora, about 1/10 of a cent. He also pointed to terrestrial radio's exemption, saying, "One business in America is allowed to take and use another's intellectual property without permission or compensation."

Conyers focused again on terrestrial radio during the Q&A with witnesses, "I'm still trying to determine why artists and performers whose music is played 24 hours a day on terrestrial radio don't get a dime," he said, calling the situation "unacceptable." He asked Jimmy Jam if it's time for performers to get "some share of all the enjoyment they're giving to hundreds of millions of people," to which Jam responded, "This is an area where it doesn't really make a whole lot of sense, that artists do not get paid royalties on AM/FM radio." Jam did say artists "like the idea" of private arrangements such as that reached by Clear Channel and Big Machine Records because they are "an acknowledgement that it is a fair thing to do," but still insisted that only Congress can create an industry-wide solution.

Rep. Howard Berman (D-CA) spoke up to call Reese "disingenuous" to talk about "finding the rate that will incentivize more webcasting without acknowledging any obligation for a performance right for over-the-air broadcasters." Berman added, "If radio stations want to be all Talk radio, they shouldn't have to pay a penny for music performance rights."

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How Much Should Sirius Pay in Royalties?

10-26-2012

Broadcast attorney David Oxenford (pictured) says the royalties that Sirius XM will pay to SoundExchange for the next 5 years will be decided by the Copyright Royalty Board in December. The CRB held an oral argument last week, where Sirius XM and SoundExchange presented their arguments as to what those royalties should be. Sirius wants to pay less and SoundExchange wants them to pay a lot more. Oxenford details how this upcoming SiriusXM decision will lay the groundwork for what happens to all Internet Radio Broadcasters.

Read the entire Oxenford blog HERE

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Chaffetz, Polis Introduce 'Net Royalties Bill.

9-21-12

Reps. Jason Chaffetz (R-UT) (pictured) and Jared Polis (D-CO) have introduced the "Internet Radio Fairness Act," which will change the way streaming royalties are calculated. Chaffetz said Internet radio is "barely hanging on" because it pays such a large proportion of revenues in royalties, and said the legislation will "level the playing field for Internet radio services by putting them under the same market-based standard used to establish rates for other digital services."

Polis said, "When I was in college, making a mix tape was the height of technology but fans can now legally make their own playlists in the cloud to share and enjoy. Our laws shouldn't penalize the innovators who made that leap and created jobs by forcing them to pay outrageous royalties that are far greater than their competitors.We should pass the Internet Radio Fairness Act now because it's what's right for consumers and our economy."

Internet radio royalties are established by a panel of copyright royalty judges under an unusual "marketplace" standard that has led to performance royalties considerably higher than those paid by other audio services; the bill would put streaming royalties under the same "801(b)" standard that considers a variety of factors and is used to calculate other statutory royalties, including those paid by cable and satellite radio.

Statements From Clear Channel, NAB

Clear Channel released a statement on the bill, saying, "We share the view of Representative Chaffetz and Senator Wyden that fundamental aspects of the system governing sound-recording licensing royalty rates are out of sync with the realities of the 21st-century marketplace and must be fixed. This legislation is an important part of that process. We believe that the rate-setting process and royalty standard for the [Copyright Royalty Board's] determinations must support rather than stifle the growth of digital music for the benefit of consumers, artists, and businesses -- helping consumers gain more access to their favorite artists, assisting artists in reaching as many listeners as possible, and enabling the digital music industry to flourish with a sustainable business model.

"We look forward to working with policymakers and business leaders in the coming months to develop the kind of fair music licensing rate setting royalty standard that benefits artists while reflecting both consumer preferences and the business realities of the 21st century."

The NAB also approves of the effort; the organization released a statement reading, "NAB appreciates the leadership of Reps. Chaffetz and Polis and Sen. Wyden and strongly supports legislative efforts to establish fair webcast streaming rates. NAB will work with the bill's sponsors and all interested parties to create broadcast radio streaming rates that promote new distribution platforms and new revenue streams that foster the future growth of music."

(9/21/2012 4:36:22 PM)
A bi-partisan effort. Who'd a thunk it?
Good for internet radio. Not so good for terra. Let the whining begin.
Wait... I know. More de-regulation! Yeah! That's the ticket.

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RMLC, ASCAP Make Royalties Deal

December 5, 2011: ASCAP and the Radio Music License Committee have come to a settlement in principle that will, when finalized, put radio back on a revenue-based fee structure while expanding coverage for distribution platforms like the Internet and smartphones and other wireless devices. The RMLC represents more than 10,000 radio stations.

The new settlement covers 2010-1016 and will also, says ASCAP, "greatly simplifies the reporting process and administrative burden through electronic filing."

"This is a gratifying result for the radio industry, which reflects the current realities of our industry and puts the industry back on sound footing insofar as its licensing relationships with ASCAP are concerned," said Saga CEO Ed Christian, who chairs the RMLC. "We appreciate the goodwill which ASCAP has demonstrated in working with our industry to get this resolution."

ASCAP CEO John LoFrumento said, "The process of building this agreement was based on mutual trust and appreciation, and reflected both sides' clear understanding of the challenges and opportunities we each see for the future. I want to thank the Radio Music License Committee for its creative approach in respecting the value provided by music creators in our negotiations."

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