Royalty Debate Shifts to Broadcast Radio

Senate Takes Up Royalty Fees for Over-the-Air Stations!

A Senate Judiciary Committee hearing late last year (November 13th, 2007) on "Exploring the Scope of Public Performance Rights" saw both sides of the debate on the additional royalty for radio speak before lawmakers. National Association of Broadcasters (NAB) Radio Board Vice Chairman Steven Newberry, President/CEO of Commonwealth Broadcasting Corporation, spoke on the organization's behalf at the hearing. Newberry said, "The existing model works for one very simple and significant reason: the promotional value that the record labels and performers receive from free airplay on local radio stations drives consumers to purchase music. A survey done by Critical Mass Media shows that 85 percent of listeners identify FM radio as the place they first heard music they purchased. With an audience of 232 million listeners a week, there is no better way to expose and promote talent."Newberry added, "What I fail to understand after nearly 30 years in the radio industry is why the recording industry is willing to essentially bite the hand that feeds it. The 'free airplay for free promotion' concept has established a natural symbiotic relationship between local radio and the recording industry. Both grow and flourish together. But a new performance tax takes this mutually beneficial system and transforms it into an unfair, one-sided scheme that financially benefits only the recording industry - and to the detriment of the local radio stations. The negative effect of such a dramatic increase in radio station costs will be felt by radio stations and their listeners across the country and in every one of the states you represent. Many many radio stations across the country are struggling to be profitable since most of our operating costs are fixed. The money to pay for this new performance fee has to come from somewhere."Singer-songwriters Lyle Lovett and Alice Peacock spoke on behalf of musicFIRST, the organization pushing for the performance right.. "When radio plays recorded works, they generate profit for themselves because they attract listeners and advertising dollars. Yet radio has never compensated performers for the value their creative work brings to the radio industry, because the Copyright Act does not protect sound recordings in the same way it protects the underlying songs,” said Lovett. “Let’s face it. No one tunes into a radio station to hear the commercials.”Alice Peacock rebutted the NAB's argument, saying, "Every performance has the potential to be promotional, but why should that make a difference. I just got back from a gig in Grand Rapids, MI. Imagine if the club owner used the same logic about promotion. What if at the end of the night, after I had filled his club with paying customers, he told me he didn’t have to pay me because my performance helped promote my record sales. Such a scenario would be unacceptable by any standard. Frankly, the promotion argument sounds a little silly."AFTRA (American Federation of Television and Radio Artists) has voiced its support once again for the proposed new royalties. "Recording artists fuel the business that sustains radio in the U.S.," said Kim Roberts Hedgpeth, AFTRA National Executive Director. "Advanced nations recognize artists' value to terrestrial radio. The U.S. has recognized artists' value to satellite and webcast radio. It is time for this last isolated area of inequity--terrestrial radio in the U.S.--to be fixed by establishing the right of recording artists to receive fair compensation for the value they bring to the American airwaves."

 

MTB Point of View -

The issue currently under review by US lawmakers stems from early moves by the recording industry to impose royalties on any and all internet activities involving copyrighted music, including streaming internet radio stations such as Music Tampa Bay.  These efforts, begun with the Digital Millennium Act adopted in the 1990's have set a precedent for expanding royalty obligations to the  broadcast medium.  MTB opposes the imposition of these fees on over-the-air radio stations in the belief that such practices will abate, rather than promote, the ability of new artists to have their work heard over the public airwaves.  But unless and until current trends toward widening the royalty net are abated, or reversed, this new model for compensating artists and their recording companies appears inevitable. 

Summer of '08 Update -

A bill prohibiting new royalties against over-the-air broadcasters has gained sufficient support in the U.S. House of Representatives to block moves to change copy right laws in favor of record companies trying to recover from the loss of CD sales to internet downloading. A similar measure in the Senate is gaining support, but still falls short of the number of co-sponsors needed to permanently end this aspect of the complex and contentious royalty debate.  A recent development (announced Wednesday, June 24th) follows the latest in a series of Congressional inquiries into copyright fees, or royalties,  held earlier that same month in Washington.  The House Subcommittee on Courts, the Internet, and Intellectual Property heard arguments (6/11) for and against a performance royalty fee for terrestrial radio, which have traditionally been exempted, essentially since commercial broadcasting began, because of the presumed inherent promotional value of having music played on radio as a catalyst to record sales.  Democratic Texas Representative Sheila Jackson is reported as declaring “this system is broken, and we need to fix it”.  The current debate that proposes to establish royalty rates for commercial radio, follows similar hearings last year which let stand existing obligations by Internet stations, such as Music Tampa Bay, to pay amounts that are considered by many to be in excess of potential revenues that may be generated from advertising and other sources.  Additionally, separate rates have been set forth for satellite and cable radio that establish amounts that represent only a small percentage of actual revenues.  The National Association of Broadcasters has, predictably, taken a strong stand against the imposition of new royalty obligations and has been engaged in an intense lobbying campaign to defeat the proposed legislation.  NAB says that record labels have been given invaluable airtime in exchange for royalty waivers.  Recording companies on the other hand, faced with double digit declines in CD sales in recent years are arguing that the free ride for radio is over, and stations must begin to pay.  Additional hearings are expected to be scheduled to consider the various bills now pending in both houses of Congress.  Webcasters are also awaiting the outcome of litigation filed in federal court contesting the imbalance of fees charged for Internet streaming.  Music Tampa Bay circumvents most payment obligations by playing songs for which royalty waivers have been granted.  However, a method of payment for local, unsigned artists is currently under consideration, with establishment of a formal fee paying process based on the satellite/cable/broadcast model based on a percentage of revenue expected to be formally adopted when all legislative and court issues have been resolved.  A Coalition of Local Artists - possibly through an existing entity such as Southeast Music Alliance, Pinellas Musicians Coalition, or other local group - is proposed to enable payments for web-play based on national models, but without some of the ludicrous provisions that are included with obligations, like limiting certain numbers of plays per artist or prohibiting advance announcing of songs by titles and artist.  The national debate on the royalty issues tends to consider these objections basically negligible, or at least has until recently, when broadcast radio was brought into it by proposed legislation that forces it to begin including payments to recording companies and performers, an effort that continues to develop with an outcome that may be delayed well into next year, or beyond.  As of this past summer, a House bill to kill the radio royalties initiative was just a few votes shy of a majority.  In the Senate however, only about half the needed members had signed on to this measure.

Webcasters File Appeal Briefs

March 2008 - Appeal briefs on behalf of webcasters and broadcasters have been filed (early March) in opposition to royalty rate increases proposed and adopted last year by the Copyright Royalty Board (CRB) at the request of The Recording Industry Association of America (RIAA).  A combined brief, presumably representing webcasters - notably members of DiMA (Digital Media A-something) plus Accuradio, Radioio, Radio Paradise & Digitally Imported Radio – argues that the CRB rates should be denied for a variety of reasons.  Among these is the failure to include a flat rate fee option.  The CRB instead determined that all royalties should be determined by a scale based on specific amounts for each song heard by a single listener and multiplied by the number of times played and the number of listeners that each station is known to reach.  The total annual fees under this method would reach substantial amounts over time.  Music Tampa Bay estimates the cost of playing a single copyrighted song in normal rotation over the course of a year would amount to a payment equaling roughly the retail cost of an entire CD – and that’s for each song, and for each listener, and also would have to be paid over and over again every year.  Such costs would quickly escalate to tens of thousands of dollars annually for multiple songs with just a few hundred listeners, amounts that would be virtually impossible to recover through advertising or other revenue generating methods.  The CRB decision makes no distinction between websites that produce income, and those that don’t.  The appeal also claims the method that was used for determining how much per song should be paid in copyright fees was flawed.  The original rate was based on amounts set for websites that offer music downloads, and newer on-line services that also permit listeners to determine specific songs to be added to playlists that operate like individually programmed radio stations.  The court appeals also address the $500 annual minimum fees to be paid by webcasters to the licensing agency as arbitrary and improperly determined, and declares that it was inappropriate for the CRB to make a decision that did not reach a compromise between the recording industry and broadcast/webcast industries, choosing instead to simply decide in favor of record companies demands.  A response to these briefs will be filed by the Justice Deparment, which is defending the CRB case, and SoundExchange, representing the RIAA.  The process is expected to continue well into the summer months, after which oral arguments in the dispute will be heard, probably sometime this coming fall.  The attorney representing the webcast and broadcast appeal, David Oxenford, indicates that a final decision in the case may well not be rendered until sometime next year.

MTB Note: The royalty issue that began with a ruling setting rates for internet streaming has spread to encompass broadcast radio with legislation introduced requiring over the air stations to pay fees which have historically been waived by Congress (see story below).  Progress of these developments will be reported here as it becomes known. 

Background Information (from reports filed last year)

Royalty Relief!

For a quick read of an innovative proposal for commercial, over-the-air radio stations - now being targeted by the recording industry for massive increases in royalty obligations - check out

 STOP THE MUSIC!.

  

 

St Pete Times tunes in on Royalty Rate Debate

A article in the  St Peters-burg Times in 2007 revealed that the real purpose of the royalty issue facing webcasters was to set the stage for a fight with broadcast radio, to force over-the- air stations to begin paying artists and record labels for playing copyrighted music.  As indicated in the story above, this fight is currently being debated in Congress and in the music and broadcast communities.

The Times reported "Record companies and musicians are looking at a new potential pot of money, royalties from broadcast radio stations".  The newspaper says "with satellite and internet radio forced to pay “public performance royalties" ... the record companies and musicians have a strong hand."  The full story was printed in The Times Business Section, May 29th, 2007. 

MTB responded with a letter to the editor which was printed a short while after the above story appeared.  A portion of it is reprinted here for your information:

(It might be proposed that) the posturing of the music industry in targeting broadcast radio for the payment of royalties on behalf of performers and recording companies – in addition to those already paid for authors and composers – began with heavy lobbying that resulted in the 1998 Digital Millennium Copyright Act.  This, in turn, led to these obligations being imposed first on satellite radio, and now ... internet radio.  Having established a precedent in these areas, music lawyers now see broadcast radio as the next logical step in reversing the long established practice of seeking airplay for recorded music for its promotional value ... and charging radio stations instead for the privilege of playing their copyrighted product.

Now, if broadcast stations can be compelled by law to pay the new millennium bill for listening to over-the-air music, the music industry sees, as (the Times) story points out, “a new potential pot of money”, amounting to “hundreds of millions of dollars”.  As your report also reveals, “broadcasters are girding for the fight”, and the clash over who pays whom in the music business in the months, and perhaps years ahead, is, in all prospects, likely to fill the skies with more fireworks than Memorial Day, the 4^th of July, Labor Day and New Year’s Eve combined. 

There was however one item in your story that barely scratches the surface of a

previously fought in an earlier episode just a few years ago).  .... The latest saga is over enormous increases in royalties imposed under a ruling by the Copyright Royalty Board in early March of this year affecting internet radio stations.  As proposed by the music industry itself, through the Recording Industry Association of America (RIAA) and its royalty collection brotherhood known as Sound Exchange, small music streaming websites...are faced with being forced to pay tens of thousands of dollars, even with very small audiences of less than a thousand listeners.  One such station ... known as The Atlantic Sound Factory (www.asfradio.com) estimated its royalties under the recent ruling would increase from approximately $140, to about $6,500.) 

Larger internet stations, such as Pandora, Radio Paradise, Live365 and numerous others, are looking at rates in the millions, and tens of millions of dollars.  No wonder many such operations have had to face the reality of bankruptcy, or simply shutting down altogether.  Recently a new proposal has been suggested, which has not yet been officially adopted, that may provide relief for (webcasters) in the very small category, but the big picture is that record companies are already playing rough with new media, and are now aiming their guns at broadcasters. 

Note: The MTB Letter to the Editor was published in the Business Section of the Times, Sunday, June 3rd, 2007.

Key Links:

      SoundExchange

Recording Industry Association of America (RIAA)

Copyright Royalty Board

House Judiciary Subcommittee on Courts, the Internet and Intellectual Property

Analysis - Comment by RAIN (Radio And Internet Newsletter - Blog)

BY DANIEL MCSWAIN
For an issue that has frustratingly slipped from the high public profile it occupied just months ago, the CRB decision to impose higher royalty rates on webcasters once again had the attention of the United States Congress.

In the "Future of Radio" hearing held in October (2007) before the Senate Committee on Commerce, Science and Transportation, members heard familiar testimony from familiar voices on a variety of radio issues.

The usual suspects, such as Pandora founder Tim Westergren and representatives for NPR and broadcasters repeated their case for adopting a solution to the CRB royalty crisis that encourages growth in the webcasting industry.

So why does it feel like the Internet Radio Equality Act, with two of the bill's Senate co-sponsors present at today's hearing, is stuck in the mud?

That's a good question which appears to have no good answer.

       Congress knows the facts

When Pandora founder Tim Westergren loaded a Pandora stream over a mobile phone during his testimony, the committee members were audibly wowed at the power and versatility of the medium. Each time a witness, like Withers Broadcasting CEO Russell Withers Jr., spoke in support of vacating the CRB rates, someone from the other side of the bench would voice their support for fostering the healthy growth of fledgling Internet mediums.

By now, Congress has heard the arguments. When Westergren cringed at the thought of shutting out Pandora's 9 million registered users, he wasn't telling anyone in the stands anything they didn't already hear from Pandora's listeners and the tens of thousands of other constituents who have voiced their support for the IREA.

Westergren's statistic that "Pandora listeners are 3-5 times more likely to buy music than the average American," may have provided supporting information for webcasters' arguments, but it's not a blockbuster figure that's likely to move the IREA needle. Ditto for his insistence that Pandora is "losing money hand over fist," true as it may be.

The bottom line is that webcasters and their audiences have done an exceptional job of educating Congress on the issue at hand. Congress, which often times has appeared completely uneducated about media technology matters, seem to be working with a better knowledge of this complex issue than many might expect.

Hearing also confirms Internet's "sexiness"
Take, for example, Chairman Daniel Inouye's (D-HI) acknowledgment that "radio is not as sexy as the Internet or other media before us," or his bewilderment at the fact that a piece of 1990's media tech legislation that only contained the word "Internet" a scarce three times. Sen. Byron Dorgan (D-ND) similarly defended the medium, praising the value of diversity of programming found in online radio and demanding a solution to the CRB crisis.

The only plain example of confusion on the issues came when Sen. John Sununu (R-NH) conflated the topic of performance royalties paid by online webcasters with the coming legislation to impose a similar royalty on terrestrial broadcasters. When Withers asked the Senator to clarify exactly which medium's royalties were in question, the Senator replied, "What's the difference?".

While that sort of flub is certainly discouraging, it does appear to be below par for Congress' current understanding of the webcasting business.

Hope for webcasters?
The hearing was brief, clocking in at just over an hour before committee members rushed out to a vote on the floor. But the hearing's closing statements from Sen. Claire McCaskill (D-MO) were perhaps a good sign for webcasters whose fate now lies largely in the hands of Capitol Hill.

"I find my listening habits have changed remarkably since I've gotten decent headphones for my computer," said McCaskill. "The sound is remarkable, and its so convenient, and so easy. I got this from my kids. They said, 'Mom, get a life. Quit turning on the radio at home, listen on the Internet.'"

The Senator's subsequent question, which asked how webcasters could possibly succeed when saddled with royalty obligations far higher than those faced by their competitors, went unanswered as the hearing was adjourned.

What webcasters need now is someone in Congress with a good answer.