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First, this is but an offer to musicFirst, which has to be accepted.  Today, musicFirst issued a cautious statement, saying that they were still studying the proposal, but expressing disappointment that the NAB did not accept the proposal that "both parties agreed upon in July."  That in itself is an interesting statement, as the NAB has been very clear to state that it has never agreed to anything in July - but that it instead needed to vet the musicFirst proposal with its members before agreeing to anything.  Presumably, musicFirst itself had to seek approval for any deal.  As any deal would need the blessing of Congress to become effective and binding on broadcasters and copyright holders, each party would need broad approval for any deal from all affected parties.  So how could the NAB member involved in the discussions and those representing musicFirst have "agreed" to any proposal back in July, when no such broad approval had been received for a deal that was not yet public?

And what has really changed in this Term Sheet from what was discussed in July?  Seemingly, very little.  While this Terms Sheet proposes a phase in of the 1% royalty depending on how many phones are FM enabled, the July proposal made the whole deal contingent on mandated FM chips in cellphones.  In effect, this proposal is more favorable to copyright holders than was the proposal on the table in July, as at least some royalty would be paid even without that mandate.  So how could the labels complain about that provision?

The only other substantive change appears to be the provision that allows direct licensing of music to reduce the liability of broadcasters.  But this too seems to be noncontroversial.  How can musicFirst, which claims to be standing up for the rights of copyright holders and musicians to be compensated for the use of their work, turn around and say that those copyright holders that want to exercize their rights by waiving the royalty be denied that right?

Other changes from the proposals set out in July seem cosmetic and insubstantial. 

So what comes next?  Obviously, musicFirst must formally respond.  Then the details of a deal must be worked out.  While the Terms Sheet may, at first glance, seem detailed and thorough, in fact it is but an outline of a deal.  Any deal will need to be written into statutory language and offered to Congress.  And this will not be easy, as each term will need to be defined, and the language will need to be carefully reviewed to make sure that there are no unintended consequences.  Many questions will need to be fleshed out.  How are the percentages of FM-enabled cell phone penetration measued?  What standard would a rate court use to determine the streaming royalty if that royalty is not set by the CRB?  How is gross revenue defined?  How are stations that are part talk and part music treated?  Issues that will need resolution.

Then, any agreement must be presented to Congress.  Adoption of the deal as proposed may not be all that simple, as there may well be attempts by other interested groups to latch on to any bill to attempt to remedy other problems with the royalty process.  Why should Internet radio pay royalties that are a minimum of 25% of gross revenues for large pureplay webcasters like Pandora, if radio is paying but 1%.  Why should smaller webcasters with revenues between $500,000 and $1.25 million be paying 12 or 14% of revenues, when a small radio station pays only $5000, less than a tenth of what the webcaster with the same revenues would pay?  Expect that others will attempt to use the process to raise issues such as these, so the Congressional process will not necessarily be quick and easy.

All in all, while this may seem like the beginning of the end of the performance royalty dispute, we will no doubt hear much more about these issues in the weeks to come.  We will write more about the issues in the days to come, especially as reactions to this proposal are made public by various parties either involved in the discussions, or from those that are affected by their outcome.  A no doubt very interesting debate is sure to play out in the coming days and weeks. 

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. 

One question which the Copyright Office letter raises is that of who the copyright laws are intended to protect.  We have touched on this issue before.  Some have advocated the position that the Copyright Laws are intended to protect the public by encouraging the dissemination of artistic and literary creations.  They are not necessarily meant to protect the copyright holder, especially where that copyright holder is not in fact the creator of the work in question.  The Copyright Office's letter focuses primarily on the interests of the record companies, without considering the impact on the creators of the sound recordings - the musicians themselves.  Are the musicians served by the imposition of a performance royalty?  While the Copyright Office suggests that broadcasters no longer have the promotional impact on the sales of music that they once had, as sales of music have so dramatically decreased and as there are other sources of music discovery, there is no assessment of whether artists themselves still value radio play for the exposure of their music to mass audiences, or whether the performance royalty will have any impact on the creation and dissemination of new musical works.  The NAB has argued that broadcast airplay is still very important to artists, in separating their music from the tens of  thousands of recorded songs released every year.  Some statistics have suggested that there is now more recorded music available than ever before - even without a broadcast performance royalty - and it is often radio that still has a significant impact on those who become mass-appeal artists, and those who are ignored.

The Copyright Office also suggests that the GAO be careful in estimates that they are supposed to be deriving as to how much the royalty would cost broadcasters if it was imposed, based on the Copyright Royalty Board decisions for other services.  The Copyright Office suggests that the GAO note, in any such estimate, that it is being provided without the benefit of any hearing testimony before the Copyright Royalty Judges from broadcasters or the recording industry as to how much that royalty should be.  Obviously, as there is no law yet adopted, and unless and until there is a law and the final rules for the administration of any new royalty are adopted, there will be no hearings before the CRJs.  However, from past Copyright Royalty Board decisions, an estimate of what those royalties might be, using the standards set out in the pending bill, can be made.  As we have written before, only in cases using a standard different than that proposed here, has the recording industry been satisfied with a royalty of less than 15% of gross revenues.

Obviously, this is the Broadcast Law Blog, and the author of this piece represents broadcasters.  But it is clear that the Copyright Offices letter demonstrates how polarizing this issue can be, as even a government agency can seemingly end up taking sides in the debate.  This issue is not one which is going away, so broadcasters need to continue to be engaged and vigilant in this debate.  Moreover, as we have written before, it is possible that there will be attempts to voluntarily resolve the issue before any final Congressional resolution - so watch as this matter plays out in coming months. 

In fact, several trade press articles today suggest that the NAB is at least talking to record company executives about a way to resolve the issue in a "revenue neutral" manner.  This would presumably mean that broadcasters would pay no more for music than they are currently paying - seemingly meaning that ASCAP, BMI and SESAC would have to take less than they are currently.  As the current broadcaster negotiations with ASCAP and BMI may well be headed toward a trial, this may be a difficult negotiation.  But, in the world of copyright law, the negotiations all seem difficult, as the users of copyrighted materials and the copyright owners quite often seem to have vastly different views on the value of copyrighted materials, and their relative contributions toward the value of that material.  In the broadcast debate, broadcasters contend that copyright owners would have less value in their copyrighted material without the promotional value conveyed by broadcast airplay, while the copyright owners contend that broadcasters could not profitably operate their stations without the use of the copyrighted music.  Music composers and publishers (represented by ASCAP, BMI and SESAC) also would argue with those who own the copyrights in the sound recordings (usually the record companies) about whether it is the song or the performance of that song that conveys more value.  These debates are not easy ones to resolve. 

We have also seen articles in trade publications that suggest that the broadcast performance royalty issue is dead for this Congressional session, given the other issues that Congress has to deal with, and the over 255 signatures in the House of Representatives on a resolution opposing the royalty.  But, as we have written before, there is still the fear that the bill could be added as a rider to some other piece of unrelated legislation that must pass Congress and against which some of the resolution's signers could not vote.  Clearly, given the Times article, and the continuing push given this issue by the Music First Coalition supporting the imposition of the royalty, broadcasters cannot sit back and assume that the issue is dead.  That was one reason why this was such an important issue on the agenda of broadcasters who visited Congress last week during the NAB's Leadership Conference in Washington, and behind ads that have run on stations over the last month bringing the issue to the attention of the public.  It is an issue that cannot be overlooked. 

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.

Senator Feinstein also identified another issue.  Under the manager's amendment (as in the House version of the bill), a provision of the law would prohibit any use of these royalties as evidence in any proceeding to set the royalties for ASCAP and BMI in a way that would reduce the royalty paid to those organizations to compensate songwriters for the public performance of the musical composition or musical work (the sound recording royalties addressed in this bill go to the performers and the copyright holders in the recordings - usually the record companies).  Presumably, the songwriters' organizations are concerned that high performance royalties for sound recordings could be used by broadcasters or other companies that pay these royalties (webcasters, satellite radio, cable radio or other digital music services) to argue that they could not afford to pay ASCAP and BMI royalties at the levels at which they are currently paid (see our article here, about the potential for contentious proceedings to determine new ASCAP and BMI royalties for broadcasters, where the sound recording royalty is not even a factor yet ).  However, the provision that is now in the bill could be read as prohibiting music services from introducing any evidence about the sound recording royalties to argue that the composer's royalties should be reduced, but would allow such evidence to be introduced by the songwriters to argue that the royalties should be increased.  In other words, the songwriters could argue that, as the sound recording royalties were higher than the composition royalty, and that the composition royalty should be increased - while the music service would be helpless to defend themselves against such evidence as the use of such evidence by the services would be prohibited by the law.  Senator Feinstein suggested that this one way street might constitute a denial of due process to the services, and that a more even-handed provision should be worked out before the final bill is adopted.  There is currently a provision in Section 114 of the Copyright Act, the section that first extended the sound recording royalty to digital services, that prohibits either party from introducing evidence of the sound recording royalty in proceedings dealing with the musical works royalty.

Senator Specter raised another issue.  At Senator Feinstein's urging, the bill proposes to use a single standard to set royalty rates for all services - whether they be broadcasters, webcasters, satellite radio or cable radio.  As we've written before, webcasters have had to pay under a "willing buyer, willing seller" standard, while satellite and cable radio have ended up with far lower royalties because their royalties were decided based on the standards of Section 801(b) of the Copyright Act.  The bill proposes to extend the coverage of 801(b) to all services but, like in the House Bill, the entire 801(b) standard would not be adopted.  As Senator Specter observed, the last of the four factors set out in 801(b) is omitted in the bill - the factor that looks at the royalties to determine if they at levels that will preserve the stability of the industries involved.  That factor was the factor relied on by the Copyright Royalty Board to cut the royalties that would otherwise have applied to satellite radio by half (see our analysis, here).  As we wrote, if the broadcast royalty were adopted, this would be a very important factor to take into consideration in setting a royalty rate for broadcasters.  According to Senator Feinstein at today's session, the record companies objected to the inclusion of this fourth factor, and certain webcast groups agreed to the 801(b) standard without the fourth factor.  Obviously, broadcasters and other services concerned about the lack of the final 801(b) factor will need to push to have this factor included in any final legislation that may be adopted.

Two amendments to the bill were offered by Texas Senator Cornyn, who said that the revisions to the bill with the small broadcaster provisions were a move in the right direction, but he was still concerned with whether the bill went far enough.  One amendment proposed to postpone the effective date of any royalty until the FCC held a rulemaking proceeding and determined that the royalty would not decrease diversity in the broadcast media.  This amendment was rejected by the committee with little discussion. 

The second amendment  proposed that, instead of the royalty, the FCC should establish a "do not play list", a list of artists who did not want their music played without a royalty.  This would address the claims of the royalty supporters that artists are exploited, as they have no right to tell broadcasters that they don't want their music played without a royalty.  Senator Leahy objected to this proposal, saying that it did not provide that artists who were included on this list could negotiate for compensation to be played - that instead it was an all or nothing proposal - either the artist could have its music played for free, or it would not be played at all.  Leahy did acknowledge that the idea was an interesting one that he would work with Senator Cornyn to modify.  The amendment was rejected without much further discussion, but should be considered for the future as debate over this issue progresses, as it may present a potential alternative to the royalty.

All of the Senators who spoke at the session urged the broadcasters to come to the table to negotiate the royalty.  This has been a common refrain at all of the hearings held on the bills in both the House and the Senate.  With a new NAB leader, will the broadcasters actually come to the table?  Time will tell.  But, there is no need to look into the crystal ball to determine that this issue is a real one that the proponents of this royalty will continue to aggressively push forward.   Broadcasters need to stay on the alert, and stay in touch with their Congressional representatives, to counterbalance this aggressive push on a bill that has cleared committees in both Houses of Congress, and may one day come to a vote which will finally resolve whether these bills will become law.

The problem with the ASCAP and BMI royalties stem from the agreements with these organizations which broadcasters reached about 5 years ago.  These deals provide for set yearly fees to be paid to ASCAP and BMI by the radio industry as a whole (over $230,000,000 to each organization this year).  The fees are divided among all broadcast stations based on formulas set out in the agreements.  The agreed upon fee grew in each year of the agreement (from about 150 million dollars in 2001 to the current levels).  These agreements were entered into in an economic climate where it was thought that radio revenues would continue to grow, and broadcasters did not want to cut the PROs in for a "piece of the action", i.e. a percentage of the revenue that they make (which was the formula before the current deals).  But, as radio revenue has not continued to climb, but has in fact fallen in recent years, the fixed industry fee has caused the ASCAP and BMI fees to constitute far higher percentages of radio revenue than ever before.  At the same time, ASCAP and BMI and the composers that they represent have become accustomed to receiving an established, growing pot of money each year.  With two sets of differing expectations, conflict could arise. 

In addition to amount of the royalty, there are also questions of what the royalty will cover.  In the old days, it was simple - the royalty would cover the over-the-air signal of the station.  Now, broadcasters are interested in covering streaming, music-on-hold, music sent to mobile devices, and other uses.  These issues can become difficult, too, as it is not always clear where ASCAP and BMI's rights end and where a broadcaster must deal directly with music publishers.  For instance, there is a question of whether a podcast is a public performance of a song or the making of a reproduction of that song - a different copyright licensed by the publishers, not the PROs (a topic we'll discuss in another post).  This may present another difficulty in the royalty negotiations.

With all these issues, there are questions of whether a voluntary deal can be reached between the RMLC and ASCAP and BMI.  What happens if there is no agreement?  These two organizations are subject to antitrust consent decrees entered into with the Department of Justice over 50 years ago.  As such, the rates are set by a "rate court", a US District Court judge who hears evidence from the broadcasters and from ASCAP or BMI in a trial-type hearing (each organization traditionally being considered in a separate proceeding).  These can be long and expensive hearings.  Like any litigation, the ultimate decision cannot be easily forecast.  Thus, the current negotiations are important, so broadcasters should carefully watch as this case progresses to see what impact these royalties may have on their operations in the future. 

There is another irony in the premise of the MusicFirst complaint.  They complain that stations are not playing the music of musicians that support the performance royalty.  But one of the premises of  supporters of the royalty is that broadcasters should not be playing the music of performers without paying a royalty.  But when a few noncommercial stations even suggest that they are planning to stop playing this music, MusicFirst comes running to the FCC to complain that broadcasters are not doing the very thing that MusicFirst supposedly doesn't want - playing music without a royalty. 

The whole complaint seems to be a way to generate a few headlines to shine on the issue - an issue where broadcast interests already have almost 250 members of the House of Representatives on record as being opposed to the new royalty.  But perhaps the publicity has generated some response, as rumors are that further consideration of the bill in the Senate may be forthcoming soon.  So broadcasters concerned about a potential royalty cannot relax.

In fact, the first three questions asked by the FCC all go to First Amendment issues that we raised in our prior post.  Do we want the FCC to be deciding what musical artists a station plays on the air?  If a broadcaster decides not to play an artist because of his or her position on gay marriage or gun control or foreign policy, do we want the FCC to intercede and judge the quality of the reason for denying airplay?

Do we want the FCC to decide the truth or falsity of advertising?  The FCC does not even get into that issue with broadcast candidate ads, yet MusicFirst is asking that the FCC make that judgment here.  Do we want the FCC making judgments, for example, on the truth of ads about the health care reform debate, which may very well have a direct effect on broadcasters bottom line? 

Do we want the FCC to decide what advertising a station takes?  Last week, the FCC's Media Bureau, in dismissing a Petition to Deny a broadcast station's license renewal, found that, other than in connection with political advertising by candidates, stations were free to set their own advertising rates and policies.  In that case, the FCC found that broadcasters did not need to treat obituaries as public service announcements, but were free to charge for those announcements.   Why should ads for a music royalty - a proposal that is an anathema to most radio broadcasters - be different than obituaries or any other advertising?  The broadcaster is not a common carrier, as the FCC has said many times including in Friday's case, and it is free to make decisions as to what it will air and what it will not.

The one remaining issue, the public file issue, seems to turn on the provisions of the Bipartisan Campaign Reform Act's requirements that certain issue advertising have the same public file requirements as political candidate ads (see our post here).  Specifically, Section 315 of the Communications Act requires that a station keep records of "a request to broadcast time" dealing with a Federal candidate or a Federal issue.  Where a broadcaster itself chooses to run a spot of its own opposing the Performance Royalty, there would seem to be no "request to purchase time" and thus no public file obligation.  On the other hand, if MusicFirst makes an actual request to purchase airtime on a specific station, the station should note in its public file whether or not the request was accepted.

We are also troubled by the lack of specificity in the MusicFirst petition.  Artists and stations involved are not named.  How can the Commission take action when there is no one to take action against?  Why are they even considering a petition that does not allege any specific wrongdoing but instead raises wrongdoing but does not identify any alleged wrongdoer?

We hope that this is just an attempt by the FCC to demonstrate the openness of its process on what is admittedly a controversial issue.  But we also hope that the First Amendment rights of broadcasters will be respected in the final decision.   

We have written before how, using the Copyright Royalty Board decision that was reached for XM and Sirius in 2007 (and recently upheld by the Court of Appeals), it could be concluded that the "willing buyer willing seller" standard could lead to a broadcast performance royalty as much as 25% of gross revenues.  We reached that conclusion by looking at the CRB decision which set a royalty for XM and Sirius (at that point separate companies) of 6% growing over a six year period to 8% of gross revenues (with some adjustments subtracting those revenues clearly attributable solely to non-music programming).  The CRB reached that decision after finding that a fair market rate (essentially what the willing buyer willing seller standard is supposed to determine) would be approximately 14% of the XM/Sirius revenues (principally their subscription revenues as their music streams were commercial free).  This value was adjusted down to the final royalty to preserve the stability of the industry, a factor required to be taken into account by the 801(b) standard that applies to the determination of the satellite radio (but a factor left out of the House version of the broadcast performance royalty bill).  That 14% of revenue was computed on the assumption that about half of the subscription revenue could be attributed to non-music programming (e.g. news, sports, Howard Stern and Oprah, etc).  So, if the perceived market value of the music in Sirius XM programming was 14% of the total subscription revenue, and half of that value came from non-music programs, then the value of a pure music service would be double that number, or something in the vicinity of 25%.

At the House hearing on the performance royalty held in March, an RIAA witness seemingly implied that the royalty would actually end up being closer to the 6-8% of revenue that Sirius XM now pays.  But recent royalty decisions give one pause about such a claim.  Look, for instance, at the recent settlement between the Pureplay webcasters (some of whom I represent) and SoundExchange, where the percentage of revenue royalties range between 12 and 14% of revenue for small webcasters to 25% of revenue (at a minimum) for large pureplay webcasters.  And this rate is deemed an experimental rate, reached as a compromise and not reflecting the true value of music, according to the SoundExchange press release.

In other services where there is no adjustment made for the preservation of the industry subject to the royalty, the royalty has been high - though perhaps not quite as high as in the webcasters' case.  For instance, in connection with "new subscription services", the audio services provided with DISH and DirecTV video services, the parties planning to provide those services and SoundExchange reached an agreement for a royalty rate of 15% to avoid a CRB hearing.  Even in connection with Business Establishment Services (like Muzak) that do not pay for the public performance of music, but only for the ephemeral copies made in the digital transmission process (the most insignificant part of the webcaster royalty - assumed to be about 8% of the total royalty), the parties agreed to pay a royalty of 10% of gross revenues.  In no case of which I am aware has the royalty for the public performance of sound recordings been set at less than 10% of gross revenues, and then only in connection with "small webcasters," who have revenues similar to those of radio broadcasters who would pay a flat fee under the pending legislation for the broadcaster performance royalty. 

Thus, the conclusion of the CBO, that the broadcast performance royalty would be substantial, seems right on target, unless the new legislation adopts the full 801(b) factors. These factors would have to include the factor looking at the preservation of the stability of the industry which was so important in the Sirius XM decision - the one factor omitted from the standard proposed in the revised House bill. 

Of course, even at 6-8% of revenues, broadcasters will probably find the royalty significant).  But at 25%, in today's economic climate, it would virtually drain the radio industry of its profit margins.  We will be interested in seeing if these factors are discussed in tomorrow's Judiciary Committee hearing.

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.