Posted on November 4, 2009 by David Oxenford

Congressional Supporters of Performance Royalty Tell NAB to Negotiate With Music Industry - Will It Resolve Anything?

This week, six Congressional supporters of the broadcast performance royalty wrote a letter calling upon the NAB to sit down with music industry representatives to reach a "negotiated resolution" of the "longstanding disagreement" in a session to last from November 17 through December 1.  The letter suggests that the negotiations will be supervised by Members of Congress and the staff of the Judiciary Committees of Congress, with a report to be made by the Committee staff at the end of the negotiation period which will be considered by Congress in further actions on this issue.  The parties are instructed to bring individuals who have decision-making power to reach an agreement.  Could this call for negotiations really result in a deal that would lead to a law requiring that radio broadcasters pay a fee for the use of sound recordings on their over-the-air stations?

First, we must ask whether there will even be any negotiations.  The NAB's only statement issued thus far says that they are willing to "talk to Congress" about the matter, but that they hoped that the discussion would include some of the almost 300 members of Congress who oppose the royalty.  As we've written before, the NAB has over 250 Congressmen and over 20 Senators signed on to resolutions opposing the performance royalty.  With the initial letter being signed by 6 supporters of the royalty, and the Judiciary Committees of both the House and Senate being filled with its supporters, why would the NAB be willing to jump into what could be seen as the lion's den - engaging in a high stakes competition where the referees are on the record as favoring one side?  Note that the NAB statement says nothing about participating in "negotiations", which the former President of the NAB had said that he would never do.  We will have to see whether the change at the top of the NAB will bring a change in the attitude of the NAB.  New NAB President Gordon Smith, who has been in his job less than two weeks,  is said to be more of a consensus-builder than his predecessor, but he has had a very short time to come up to speed on the issue or to build any sort of consensus among those he now represents on where to go on this issue. 

But, beyond the question of whether the parties are even willing to participate, could these sorts of negotiations actually be successful?  Copyright issues, as they are so detailed and technical given the complexity of the mechanics of the Copyright laws, are often resolved through negotiations - often at the urging of Congress.  Congress tends to believe that a negotiated solution is more likely to anticipate the issues that could arise than is an imposed legislative solution where one side totally prevails over the other.  But here, there are many parties involved who may not see eye to eye on the kinds of issues that might be discussed in any negotiation. 

Congress has called on the parties to bring people who can make decisions to participate in the sessions, yet who would that be?  On the recording industry side, it would seem that the 4 major labels, the association of independent labels, and the artist union representatives would be able to easily fit into a room to negotiate.  On the other side, while it might seem that the NAB is the appropriate party, the NAB itself does not pay royalties - its members do.  And its members are a diverse group.  There are many public companies that own stations, and hundreds of private ones. There are large market stations and small market ones - differing constituencies that have differed on performance rights issues in the past.  And, perhaps most importantly, there are many stations with differing interests as to what might be included in any negotiations.  Some groups have evolved digital operations while others are still focused almost solely on their broadcast operations.  Some have interests in waivers of the performance complement (which was an issue in the NAB-SoundExchange agreement on Internet radio royalties) while others don't.  Some do significant amounts of talk or news, while others are much more music intensive.  All these diverse interests would have to be taken into account in reaching any deal that would cover broadcasters - and two weeks with Thanksgiving in between does not seem to provide the time to reach a deal.  In fact, given that broadcasters for the most part believe that the issue is all but dead given the majority of the Congress signing on to the anti-performance royalty resolution, how do you then convince broadcasters nationwide that a deal is in their best interests when they have been so adamant against even talking about a deal.  Given all these obstacles, it simply does not look possible to have a deal in this time period - even were the parties to actually sit down and try to work something out.

So, if the parties are not sure to negotiate, and if the prospects of a deal in two weeks in late November are so slight, why bother with the letter?  One thought is that the letter is another well-orchestrated publicity move by royalty proponents.  Just like the MusicFirst petition filed at the FCC complaining about broadcasters supposedly boycotting musicians who supported the royalty (with little or no evidence of any real boycott by any commercial station), this letter has already generated press attention putting a spotlight back on the issue - attention that has perhaps flagged somewhat since the NAB had signed up its majority of the House of Representatives onto the resolution opposing the royalty.  Perhaps by trying to make the NAB look bad, the supporters of the royalty are trying to pry some of the legislators off their positions in favor of the NAB and against the performance royalty (see our post here about the potential for ways that the bill could move even with a majority now signed onto the anti-performance royalty resolution).

So, will any of this work?  Watch and see, as we should know whether negotiations take place very soon.
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Posted on May 13, 2009 by David Oxenford

Broadcast Performance Royalty Passes House Judiciary Committee - A Work In Progress

The House of Representatives Judiciary Committee today approved a bill that would impose, for the first time, a royalty on radio broadcasters for the public performance of sound recordings in their over-the-air broadcasts.  if this bill were to be adopted by the full House of Representatives and the Senate, and signed by the President, broadcasters would have to pay for the use of sound recordings (the actual recording of a song by a particular musical artist) in addition to the royalties that they already pay to ASCAP, BMI and SESAC for the public performance of the underlying musical composition.  While, from the discussion at the hearing today, the bill is much amended from the original bill (about which we wrote, here) to try to address some of the issue that have been raised by critics, the Committee made clear that there were still issues that needed to be addressed - preferably through negotiations between broadcasters and the recording industry - before the bill would move on to the full House for consideration.  It was, as Representative Shelia Jackson Lee of Texas stated, still a "work in progress."  In fact, the Committee asked that the General Accounting Office conduct an expedited study of the impact of this legislation on radio and on musicians - but it did not wait for that study before approving the bill - despite requests from some royalty opponents that it do so. 

While I have not yet seen a copy of the amended bill that Congressman John Conyers, the Chairman of the Committee, said had been completed only a few hours before the hearing, the statements made at the hearing set out some details of the changes made to the original version of the bill.  First, changes were made to reduce the impact on small broadcasters - reducing royalties to as little as $500 for stations that make less than $100,000 in yearly gross revenues.  Interestingly, Representative Zoe Lofgren pointed out that, in a bill that means to address the perceived inequality in royalties, a small webcaster with $100,000 in revenues would be paying $10,000 in royalties - 20 times what is proposed for the small broadcaster.  And the small broadcaster who would pay $5000 for revenues up to $1.25 million in revenue would be paying 1/30th of the amount paid by a small webcaster making that same amount of revenue.

Other changes to the bill would apparently delay the effective date of the royalties - delaying the date 3 years for stations making less than $5 million in revenue, and a year for those stations making more than $5 million.  It will be interesting to see the exact language of this provision - as it will likely take several years for the Copyright Royalty Board to issue a decision setting the royalty rates.  Thus, even if the effective date is delayed for broadcasters so they can prepare for the new royalty, they won't know what to prepare for, as they will not know much the royalty will be until well into that period - certainly after the 1 year delay proposed for the larger broadcasters, if the one year period runs from the adoption of the legislation as opposed to running from the date on which the royalty rate is established by the CRB.

From the statements made at the hearing, the standard for deciding cases has also been changed from the original bill - moving away from the "willing buyer, willing seller" standard used in setting the royalties for Internet radio companies toward the 801(b) standard that has been used for setting satellite radio royalties.  We wrote about the difference that standard made in the satellite radio proceeding.  However, importantly, from the comments made by one Congressman, the entire 801(b) set of criteria has not been incorporated in the new bill.  Specifically, the new criteria omit the one factor that was the most important in cutting the satellite radio royalties from what probably would have been 14% of revenue had a "willing buyer, willing seller" analysis been used, down to 6-8% of revenues.  That factor, the potential for disruption of the industry, has apparently been omitted from the criteria to be applied to broadcasters.  The 801(b) criteria were applied to satellite radio and digital cable radio at the time the sound recording performance royalty was first adopted in the late 1990s as these services already existed, and it was felt that the criteria that were being used had to help make sure that these existing businesses were not severely affected by the implementation of the royalty.  Using that same logic, one would think that this factor that has apparently been omitted would be crucial in setting a fair and workable royalty for radio - an industry that has existed for far longer than satellite or cable radio, and which could most certainly be adversely affected by the new royalty.

The committee discussion repeatedly highlighted the Committee members desire to not imperil broadcasters by adopting a royalty - including statement that the CRB would be instructed to take into account, in setting royalties, the impact the royalties would have on minority and female radio operators, small broadcasters, and religious and community stations.  But it was not clear how this expression was to be conveyed to the Board.  The exact wording used is crucial as, from their analysis in the satellite radio decision, the CRB takes its direction from the precise words in the legislation, and applies the standards of 801(b) in a very narrow way.  In fact, the Board found that most of the 801(b) considerations were immaterial in reaching to their decision - only taking into account the potential impact on the stability of the industry as having any decisional impact.  Thus, the wording of the instructions to the Board will be crucial.

There is much to be learned from the precise wording of the Bill, and we will address those issues in coming days, and address in more depth some of the issues raised at the hearing.  But it is clear that we have not seen the last of this debate that will continue to evolve over this Congressional session.  But, from today's decision, it is clear that there is a real prospect that a performance royalty could become a reality, and radio broadcasters must consider that potential in developing their business plans for the future, and in their interactions with their elected representatives in the next weeks and months.
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