The week, Congressman Rick Boucher, a member of both the House of Representatives Commerce and Judiciary Committees, told an audience of broadcasters at the NAB Leadership Conference that they should accept that there will be a performance royalty for sound recordings used in their over-the-air programming and negotiate with the record companies about the amount of a such a royalty. He suggested that broadcasters negotiate a deal on over-the-air royalties, and get a discount on Internet radio royalties. Sound recordings are the recordings by a particular recording artist of a particular song. These royalties would be in addition to the payments to the composers of the music that are already made by broadcasters through the royalties collected by ASCAP, BMI and SESAC. Congressman Boucher heads the Commerce Committee subcommittee in charge of broadcast regulation, and he has been sympathetic to the concerns of Internet radio operators who have complained about the high royalty rates for the use of sound recordings. Having the Congressman acknowledge that broadcasters needed to cut a deal demonstrated how seriously this issue is really being considered on Capitol Hill.
The NAB was quick to respond, issuing a press release, highlighting Congressional opposition to the Performance royalty (or performance tax as the NAB calls it) that has been shown by support for the Local Radio Freedom Act - an anti-performance royalty resolution that currently has over 150 Congressional supporters. The press release also highlights the promotional benefits of radio airplay for musicians, citing many musicians who have thanked radio for launching and promoting their careers. The controversy was also discussed in an article on Bloomberg.com. In the article, the central issue of the whole controversy was highlighted. If adopted, how much would the royalty be? I was quoted on how the royalty could be very high for the industry (as we’ve written here, using past precedent, the royalty could exceed 20% of revenue for large music-intensive stations). An RIAA spokesman responded by saying that broadcasters were being alarmists, and the royalty would be "reasonable." But would it?
Last month, the House Judiciary Committee held a hearing on the broadcast performance royalty. The hearing demonstrated the seriousness with which the House Committee viewed the prospect of a royalty being imposed on over-the-air broadcasters, with several Congressmen issuing warnings similar to that conveyed by Congressman Boucher, warning broadcaster representatives to sit down and work out a royalty with the recording industry, or Congress would impose one on the broadcasters which they might not like. At the same time, broadcaster representatives emphasized an issue that, while important before, has become more crucial now -the economy and the financial health of the broadcast industry. With broadcasters suffering from the poor economy, a royalty could be crippling to many. But on the question of how much the royalty would be, RIAA President Mitch Bainwol echoed the line from the RIAA spokesperson in the Bloomberg article, saying that it would be "reasonable." When asked what that meant, he said the it would be a bit more than is currently paid by broadcasters to ASCAP, BMI and SESAC (approximately 4-5% of revenues), saying that something in the area of 6-8% might be normal in these sorts of situations.
That range of numbers - the first numbers that I have heard from a representative of the recording industry - is somewhat surprising. Two weeks ago, the recording industry was in the Court of Appeals arguing that a Copyright Royalty Board decision setting a royalty of 6-8% of revenues for satellite radio was too low. In the Internet radio world, SoundExchange asked for more than 30% of gross revenues, and ended up with a per performance royalty that most webcasters have said works out to 75% or more of their revenues. Yet the recording industry is saying that 6-8% would be reasonable? It will be interesting to see if that number is repeated in other forums as evidence of their reasonableness, or if this was a one-time statement of this individual, not adopted by the industry as the benchmark for what they seek.
The back and forth at the hearing may provide some indication as to the next steps in the process of trying to impose these royalties. There was significant discussion of an independent study to assess the impact any royalties would have on radio operators and musicians. While no party publicly objected to a study, there has seemingly been no follow up to authorize that study since the hearing. And, as the recording industry said that the study should not slow the adoption of the royalty, one questions why a study would be authorized if Congress was planning to go ahead and authorize a royalty before the results of the study were available. Why let the facts get in the way of legislation?
While Congress heading for their Spring recess, look for more action on the royalty in May after they have returned.