The broadcast trade press has recently been full of talk of the possibility of reaching a settlement with the recording industry on the adoption of a Performance Royalty for broadcast stations -paying performers and record companies for the use of music by radio stations (on top of the fees already paid through ASCAP, BMI and SESAC to composers).  The latest controversy was set off by comments made at the Conclave Radio Conference by Bonneville Radio’s CEO Bruce Reese, who has also been prominent in NAB activities, who suggested that broadcasters were on the defensive in Congress, and that a good settlement was better than a bad legislative outcome.  Other broadcasters have disagreed with Reese’s assessment, asking why broadcasters would be willing to settle when they have a majority of Congress on their side, having signed the NAB-supported resolution opposing the royalty.  Which side is right?

It should be emphasized that, even though broadcast groups have done an amazing job rounding up support for their opposition to the "performance tax" - signing up far more than a majority of the House of Representatives on a resolution opposing the royalty – that resolution is non-binding.  Congressmen can change their mind, and of even more concern, the proposed performance royalty can end up getting tagged on to some must-pass legislation that Congress needs to adopt before the end of the year.  Congress has many budget bills that need to pass to fund the government’s operation, and these huge bills have a way of attracting all sorts of unrelated matters being folded into their provisions.  With leaders of many important committees in the House and Senate being supporters of the royalty, its easy to imagine that one of these bills can end up with performance royalty language included.  While one broadcast trade publication suggests that NAB lobbyists are paid to stop this sort of thing from happening, it is unrealistic to believe that the NAB is invincible, as provisions on unrelated bills can pop up seemingly out of nowhere and surprise everyone, especially when pushed through by powerful congressional leaders who less committed representatives are unwilling to challenge (especially when to do so might mean voting against some important legislation to which the performance royalty is attached).  Congressman simply will not vote down the defense appropriations bill just because there is a performance tax attached.  This kind of maneuver is of particular concern given that many of these bills may well be considered after the election in November, during a "lame duck" session of Congress when, especially this year, there will be many representatives who may not be around again in January to face the wrath of voters (or of broadcasters) who may be disappointed by their final votes.

This is not to say that the broadcasters will not keep the issue bottled up in Congress for the rest of the year, as there are many vocal broadcast supporters on the Hill who will fight to keep the language out of any bill.  But this issue will keep coming up in future Congressional sessions, and broadcasters will need to continue to use precious political capital to keep the issue bottled up.  Broadcasters, having very good arguments why they should not pay the royalty (some of which we have summarized in the past), should not accept any settlement that is offered just because something might happen in Congress in the future.  With the future of the industry riding on the issue, that would be crazy.  But, because the future of the industry is riding on the outcome of this debate, shouldn’t broadcasters consider a settlement which brings certainty to the issue, and which may bring benefits as well?

What benefits could a settlement bring?  As digital operations become more and more important to broadcasters, there could be concessions from the record labels on the streaming royalties and other digital uses of music that relieve broadcasters from some of the concerns that hold back many broadcasters from fully exploiting the potential of their Internet and mobile applications.  This has long been discussed by many in the digital side of broadcast operations as being an outcome that could be, in the long run, advantageous to broadcasters, provided that what they have to give up to get the benefits is a manageable fee that is capped by law – and one where there are serious commitments made by all parties that the royalties that are set will stay in place.  Are such commitments possible, or will they just be the "camel’s nose under the tent"?  That would be an important issue to work out, as it was only 12 years ago that the DMCA was adopted, setting sound recording performance royalties for digital transmissions, with the explicit agreement that over-the-air broadcasters would be exempt.  Now, this negotiated exemption is labeled an historical anomaly by performance royalty supporters.  The "nose under the tent" concern has always been the fear of small and noncommercial broadcasters who are already offered special deals under the terms of the pending Performance Rights Act, but who look at similarly situated Internet radio companies who are paying royalties 10 times as high as those proposed for small broadcasters and wonder if the promised low rates are going to be there in the long term.  As we have written before, SoundExchange, who would collect any fee that is agreed to, has been very aggressive in other services in collecting high fees – 15% of revenue or greater - so agreeing to any lower fee now would have to come with a guarantee that this lower rate would not be characterized as an anomaly in the next decade.

And broadcasters would have to decide if even these kinds of concessions would make it worth doing a deal, while the representatives of the record labels and artists would need to decide to make concessions.  Who knows if either side could get to a point where the parties they represent would be happy with a deal to which the other side would agree.  We’ve written before about the issues that broadcasters would face in arriving at a one-size-fits-all solution, and the controversy in the press this week illustrates the differing views of broadcasters.  There is without a doubt a major gulf between where each side started in any discussions of a possible compromise, if meaningful discussions have even taken place.  Stay tuned for further developments, as these recent press reports are certainly not the last ones that you will read on this topic.