Posted on March 9, 2010 by David Oxenford

Proposed Broadcast Performance Royalty Back in the News - Where is It Going?

In one more indication that the Broadcast Performance Royalty (or "performance tax" as opponents of the legislation call it) is not dead yet is an article in yesterday's New York Times reviewing the issues at stake in the proceeding.  What was perhaps most interesting about that article was the fact that it appeared only one page away from an article about Internet Radio service Pandora, and a discussion of how that hugely popular service was almost driven out of business by music royalties set by the Copyright Royalty Board in their 2007 royalty decision.  The article about the broadcast performance royalty mentions that one of the difficulties in assessing the impact of the proposed royalty is that no one knows how much it will be, as it would be set by the Copyright Royalty Judges on the CRB.  Yet the Times makes no mention of the controversy over the previous decisions of the Board in the context of the Internet radio royalties, and how such royalties almost impacted services such as Pandora.  

How much would the proposed royalties on broadcasters be?  We have written before on that subject,here.  Under previous decisions using the "willing buyer, willing seller" royalty standard which is set out in the legislation that has passed House and Senate Judiciary committees dealing with this issue, the lowest royalty for the use of music in any case before the CRB has been 15% of gross revenues.  Even using a standard seemingly more favorable to the copyright user (the 801(b) standard that assesses more than the economic value of the music but also looks at the impact that the royalty would have on the stability of the industry on which it is imposed), the royalties have been in the vicinity of 7% of gross revenues for both satellite radio and digital cable radio, the two services that are subject to royalties set using the 801(b) standard.  This is more than broadcasters currently pay to ASCAP, BMI and SESAC - rates which are also currently the subject of proceedings to determine if these rates should be changed (see our posts here and here).   

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. 
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Posted on November 17, 2008 by David Oxenford

Is A Settlement on Internet Radio Royalties Near? Will All Webcasters Be Included and Will They Be Able to Afford It?

The Webcaster Settlement Act, about which we write here, has been signed into law by President Bush, giving parties to the Internet Radio royalty dispute until February 15 to enter into a settlement and have it become effective, without the need for any public comment or any further government approvals.  Several recent articles have indicated that a settlement is close - for at least some of the webcasters.  In several recent statements, Tim Westergrin of Pandora has indicated that the webcasters in DiMA (the Digital Media Association), in their negotiations with SoundExchange and the record labels, were getting very close to results.  At a the Digital Music Conference held in Los Angeles last month, Jon Potter, the President of DiMA, seemed to echo that sentiment.  However, neither could state with absolute certainty when the deal would come, or what its terms would be, though in Westergrin's comments at that conference, available here, he stated that webcasters probably would not be happy with the likely outcome of the settlement, implying that there would be a high rate that would be agreed to by the parties, though it would be one less than what the Copyright Royalty Board ordered (and one which would allow companies like his to survive).  However, he indicated that perhaps not all webcasters would be able to survive at the rate being discussed, and some might have to try to enter into their own agreements to fit other types of webcast operations.  In fact, the Webcasters Settlement Act is not limited to a single settlement, so various other parties who participated in the CRB proceeding - including broadcasters who stream their signals online, small commercial webcasters, and NPR and other noncommercial groups - could negotiate settlements as well, though there have not been any recent public statements that these negotiations were close to bearing fruit.

At a panel that I moderated at the CMJ Music Marathon later in October, which included a SoundExchange representative and a member of its Board, there was a suggestion that further settlements with groups other than DiMA might follow if and when the deal with the large webcasters is concluded.  This approach may make some sense as the copyright holders don't want any deals that they cut with small webcasters or noncommercial parties that could affect their negotiations with larger webcasters, from whom the vast bulk of their revenues are derived.  Copyright holders naturally want to address the interests that will be the most lucrative.  However, this approach does put smaller parties, who are often most worried about potential liabilities and most sensitive to uncertainty, into a very uncomfortable position. As we've written before, the statutory license that is administered by SoundExchange was granted by Congress at least partially to make access to music possible, especially to smaller parties with little bargaining power and little ability to cut deals with thousands of copyright holders, which would be required without this license.  Yet these are the parties most in need of relief from the rates imposed by the Copyright Royalty Board, so we hope that the talks of future settlements in fact are accurate.

If and when the settlement is reached, the next major question will be how the Internet radio service will be monetized.  A recent New York Times article asks that question, interviewing a number of operators about the difficulties in attracting advertisers to the service.  A new blog, Audio4cast, covering the business side of the Internet radio and digital music industry, looks at the question of how the industry can benefit from the current economic crisis.  The New York Post has run an article highlighting the fact that, more and more, Internet-only webcasters are cutting back on their services due to the high royalties, while broadcasters are able to grow their on-line listeners by subsidization from their over-the-air business.  Recognizing that the industry still has not figured out how to make money from their operations is an important issue in any discussion of royalties, as royalties have to be realistic in light of the real-world business conditions for a vital Internet radio business to exist.  We will all have to see if any settlements which do result from the Webcaster Settlement Act recognize these realities and set rates that allow the Internet radio industry to survive and thrive.
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