Broadcast Law Blog

We wrote yesterday about the introduction of a bill in the House and the Senate proposing to impose a performance royalty on broadcasters for the use of sound recordings on their over-the-air signals.  At that time, we did not have a copy of the bill itself, but were basing our post on press releases and a summary of the provisions of the bill that was available on Senator Leahy's website.  We have been able to obtain copies of the bill titled the  "Performance Rights Act" - or actually of the "bills," as the House and Senate versions are slightly different.  Reading those bills, many of the questions that we had yesterday are answered, and some new questions are raised as to how this bill, if enacted, would affect radio broadcasters.

One question about which we wrote yesterday was whether these bills would require that any royalty be determined by the Copyright Royalty Board using a "willing buyer, willing seller" standard or the 801(b) standard that takes into account more than a simple economic analysis in determining the royalty.  The 801(b) standard is used for services in existence at the time of the adoption of the Digital Millennium Copyright Act (essentially cable audio and satellite radio) and evaluates not only the economics of the proposed royalty, but also factors including the interest of the public in the dissemination of copyrighted material and the disruption of the industry that could be caused by a high royalty.  In connection with the recent CRB decision on the satellite radio royalties, the potential disruption of the industry caused the CRB to reduce the royalty from what the Board had determined to be the reasonable marketplace value of the sound recordings (13% of gross revenues) to a figure rising from 6 to 8 % of gross revenues over the 5 year term of the royalty.  In the Internet radio proceeding, using the willing buyer, willing seller model, no such adjustment was made.

In these bills, the proposal is to use the willing buyer, willing seller standard for broadcasting.  For a service that has been around far longer than any other audio service, it would seem that a standard that assesses the impact of a royalty on the industry on which it is being imposed would be mandatory.  Who wants to disrupt an entire, well-established industry that has served the public for over 80 years?.  But such a reasonable term is not part of the proposal here.

Another issue that we did not address yesterday are the specific requirements imposed on digital music services that restrict their ability to pre-announce when a song is going to play, that prohibit them from making any efforts to encourage the recording of sound recordings, and require that they identify in text the song being played.  These requirements also mandate that services observe the "performance complement", i.e.the restrictions on playing more than a specified number of songs from the same CD or by the same artist within a given period of time (e.g. no more than 3 songs from the same CD in a 3 hour period, nor more than 2 in a row; no more than 4 songs by the same artist in a 3 hour period).  For details of these requirements, see our memo, here.  The question of whether or not to impose these requirements on broadcasters is where the House and Senate bills diverge - the Senate not requiring these efforts for broadcasters; the House proposing that they be observed.  Obviously, requiring some of these limitations could significantly change the way some broadcast stations are programmed.

Clearly, these bills are but the opening salvo in a battle that is certain to intensify.  Already, there is a bill pending in the House of Representatives, the Local Radio Freedom Act, with over 130 co-sponsors, that rejects the idea of a performance royalty for broadcasters given the potential for disruption to their public service programming.  Just as the FCC is suggesting the re-imposition of more stringent and detailed public interest requirements (see our summary here), broadcasters cannot afford to be hit by a new cost of doing business that could in theory take a large percentage of their gross revenue.  As we've written before, in other proceedings, SoundExchange has requested royalties of 20 or 30 per cent of gross revenues.  Imagine what a royalty even half that would do to broadcasters.  Certainly, it is not the modest royalty that would not impact broadcaster's public service, as initially suggested by the supporters of this royalty.  With Congress about to recess for its Christmas vacation, we will all have time to ponder these issues before they are considered again next year. 

Isnt this a fine example of what goes around comes around? BigRadio devised a scheme to jam competitors off the air, render billions of existing radios worth trillions of dollars worthless, and make us buy their new stooge sets. Some call it a 'carny shill'. Cheerleaders call it HD Radio.

HD radio costs everybody - you the listener, in particular - plenty, and enriches a small gang of crony broadcasters and their shadowy Wall Street pals.

BigRadio was on a roll. HD cheerleaders boasted of 'having balls' and 'achieving historical greatness'. They crowed, spit in our eye, and mocked us, saying,'too bad about your Kelvinator radios. HD Radio is your inevitable digital future, get over it!'

Now, RIAA proposes a little poetic justice for these braggarts.

Isn't life filled with joyous surprises? What was that about inevitable? Wasn't that what they said about the imminent arrival in Manhattan - of the Titanic?

Dr. Paul Vincent Zecchino
Manasota Key, Florida
20 December, 2007

This is an excellent and pertinent article. I can think of nothing I've read thus far concerning the issue of royalties that more effectively addresses the central aspects or the urgency of these matters.

Although this might be wishful thinking, perhaps this development, more than any other development since the CRB imposed exorbitant royalty rate increases where Internet radio is concerned, will galvanize groups like the NAB to lobby for comprehensive reform that will benefit not only terrestrial broadcasters but all broadcasters, regardless the medium through which they transmit their programs.

At a minimum, perhaps this development will propel all broadcasting groups to petition Congress to revisit and revamp the terms of the DMCA (the Digital Millennium Copyright Act of 1998). As well, maybe this latest news will motivate all concerned to fully support passage of much needed legislation like that of the Internet Radio Equality Act.

If royalties for performing rights are to applied at all, they should be applied uniformly and fairly where all broadcast media are concerned and according to the terms contained in the 801(b)standard. And this is one of the many reasons why the provisions of the DMCA itself need to be reformed. Obviously, "the willing seller and the willing buyer" criterion itself is being applied inconsistently and unfairly.

Such rates need to be reasonably set and need to be set at a level that is truly affordable for all broadcast media. Failing that, some or all provisions of the DMCA should be declared as violating the due process rights of broadcasting entities that are being discriminated against. If such rates cannot be administered fairly and consistently relative to all broadcasting entities, then it is time for the courts and Congress to reform or repeal the DMCA.

Regardless the size of the broadcasting entity or the medium through which it operates, we need to unite in this endeavor. We need to insist that Congress protect the rights and interests of all broadcasters.

Thank you for allowing me to share my views.

Charles St.James

Radio Orenovscotia

If an online radio station only plays unsigned independent artists do they still have to pay the royalty?

Rachel:

Royalties are paid for the use of any legally recorded music, whether issued by a major label or by the band itself. SoundExchange is supposed to be a "one-stop" shop where an online station (or a broadcast station if this proposed legislation passes) can get rights to play all recorded music. Services can, of course, get waivers from independent artists to avoid paying royalties on their music.