If you are a broadcaster, you know that it’s not going to be a good day when you walk into a hearing on the possible extension of the performance royalty in sound recordings to over-the-air broadcasters and see buttons saying "I Support a Performance Right NOW" on the lapels of every other witness on the panel – including the Register of Copyrights, Marybeth Peters.  But that was the scene in Washington, as the House Judiciary Committee’s subcommittee on Courts, the Internet and Intellectual Property held a hearing as to whether the right to collect a royalty for the public performance of a sound recording (the actual song as sung by a particular artist, as opposed to the underlying musical composition) should be paid by broadcasters.  Broadcasters in the United States have paid only a royalty on the public performance of the composition (to ASCAP, BMI and SESAC), and have never paid a royalty for the public performance of the sound recording.  The lack of a sound recording royalty has always been justified in the past on the theory that the artists and copyright holders in the sound recording benefit more than composers through the airplay of the sound recording, as they receive the bulk of the proceeds from CD sales, and the performers benefit from the promotion of live performances.  As they benefit from the promotion provided by the airplay of the song, there is no need for any sort of performance royalty.  As the music and radio businesses have both thrived in the United States – more so than anywhere else in the world – it seemed that this arrangement was mutually beneficial.

But, in recent years, the consensus over this mutually beneficial arrangement seems to have broken down.  Starting in 1995, a performance right in sound recordings has been imposed on digital services, including the royalty on Internet radio which has recently been so controversial (and about which we have written so much, here).  And, with the recent downturn in the record companies’ business, additional sources of revenue are being sought – thus the RIAA and SoundExchange, the collective that receives sound recording performance royalties, have started a Congressional push to require the collection of royalties from over-the-air radio.  And that push was reflected in the hearing held on Tuesday before a House Committee that seemed clearly to favor the imposition of this royalty on broadcasters.

Congressman Howard Berman chairs the subcommittee, and he opened the hearing with a summary of the issues – indicating that he expected that the committee would move legislation this year to impose a performance royalty on broadcasters.  Congressman Berman pointed to the lack of equality between performers and composers in getting royalties (when both contribute to the popularity of a song), the fact that most other Western nations collect royalties on the public performance of both the composition and the sound recording, and platform equality (the fact that satellite radio, digital cable radio and Internet radio all pay royalties while broadcasters do not), as justification for the imposition of a new royalty on broadcasters.  Congressman Berman indicated that the royalty that he was seeking to impose would cover only broadcasters – and not be extended to commercial establishments like bars, restaurants and retail stores, which also currently pay a performance royalty to the composers of music.  He also said that he wanted to insure that any royalty would not hurt the ability of radio stations (especially smaller stations) to cover the news, and he would consider the possibility of special provisions to protect smaller stations.  He also made clear that he did  not want any sound recording royalty to decrease the amount currently paid to composers.

These themes were presented throughout the hearing – echoed by most of the witnesses and most of the committee members.  Testifying for the royalty were performers Judy Collins and Sam Moore, and New Hampshire Congressman Paul Hodes – who also enjoyed a pre-Congressional career as a recording artist.  Marybeth Peters, Register of Copyrights, also testified in favor of a performance royalty to be imposed on broadcasters, echoing the themes of Congressman Berman, and restating a position that has long been taken by the Copyright Office.  The Broadcasters were represented by a sole witness – Charles Warfield, President of ICBC Broadcast Holdings, a broadcaster with stations in New York and several other radio markets.

The artists made the argument that the current system was unfair, as they made significant money for composers whose songs they made hits on the radio – but they received nothing from the radio play of these songs.  Of course, neither mentioned what they received from the increased sales of their recordings that resulted from the increased airplay of their music.  Both also argued that the need for the revenue from these royalties was acute, as artists are forced to keep touring for their entire lives to make money, and the royalties would provide a safety net for them.  While Mr. Warfield suggested that the record companies, who stand to profit the most from the royalty and who already profit the most from the sale of recorded music, should better compensate artists so that they did not find themselves in these dire financial positions, his arguments seemed to fall largely on deaf ears.

On the issue of international royalties, the artists contended that foreign broadcasters, who do pay royalties on the public performance of recorded music, do not pay American artists for the performance of their music on these foreign stations as there is no reciprocal right in the US to pay foreign artist for US airplay.  The artists envision a pool of money waiting in the hands of foreign performing rights organizations that should start flowing to US artists.  No distinction was made between the US and foreign markets, nor was there discussion of how the royalty in foreign markets serves as a subsidy for local talent to develop in these smaller music markets in various international jurisdictions – to avoid having American music become the standard worldwide. 

The disparity between digital media and broadcasters was also explored in depth.  Many of the witnesses and the committee members made the point that it was unfair that the digital competition to broadcasters paid royalties, but broadcasters themselves did not.  Some even suggested that, given this competition, the broadcasters no longer provided the amount of promotional benefit they once did (Ms. Peters going so far as to suggest that they provided no promotional benefit that would outweigh the need for a royalty).  In response, Mr. Warfield pointed to the continuing vast reach of radio – reaching over 230,000,000 US residents each week, and the fact that record companies still constantly hound broadcasters seeking the airplay of recorded music – belying the claims that radio performance hurts record sales.  By the end of the hearing, even Mr. Berman acknowledged that radio does provide promotional exposure to artists, but he still questioned whether that alone justified the exemption from sound recording royalties.  The unique obligations of broadcasters to provide public interest programming was also cited as a reason for the different treatment of broadcast and digital services.

In fact, the concern that the imposition of a royalty could harm the local news and information services provided by local radio stations was the one ray of hope for the broadcaster in the hearing.  Virtually all of the committee members were concerned about the possibility that small stations would be hurt by royalty increases.  Especially at small stations, there was a recognition that there is a limited pool of money that is available and, if an additional expense is added, then broadcasters have to find the money some place, and cutting service to the community is not a desired result.  Several committee members suggested that broadcasters could just raise their advertising rates to handle the increased fees.  That, to this observer, seemed a bit naive – if broadcasters could simply raise their rates to bring in more revenue – wouldn’t they have already done that?  Most broadcasters are businesses out to maximize their profits and – if they could get greater profits from increased advertising rates – they would have already raised those rates.  The reality is that broadcasters compete for advertising dollars in an ever-expanding media pool.  By raising rates, other forms of advertising – print, direct mail, billboards, TV, digital media and others – become more attractive to the advertiser.  If a broadcaster has a new significant fee to pay, with fixed revenue, the money to pay the new cost has to come from cutting funds used for other purposes.

From recent experience of smaller broadcasters complaining about the relatively modest increases in the past few years in royalties paid to BMI and ASCAP, one can only wonder how these broadcasters could deal with an entirely new royalty.  While Ms. Peters suggested that the "willing buyer, willing seller" standard of Section 114 of the Copyright Act would allow for the distinction between rates paid by large and small broadcasters, small webcasters can testify that this standard doesn’t always produce the desired result, as the recent Copyright Royalty Board decision on Internet radio  royalties shows (where the Board found that public interest concerns – like the preservation of diverse sources of media outlets, did not factor into the economic analysis of a willing buyer, willing seller standard). 

The Internet radio experience, where SoundExchange requested royalties of 30% of revenues – 6 times more than the royalties paid for the rights to play the composition, should frighten all broadcasters.  And, while the current proposal is for royalties only on broadcasters, Ms. Peters made clear that she saw no theoretical reason why that royalty should not also extend to other performances of music – like in retail stores.  With hundreds of millions of dollars or more at stake in yearly broadcast royalties, and potentially more from retail outlets, this is sure to be a major battle in coming months.  The proponents of the new royalty have made a facially attractive case for imposing this new obligation on broadcasters.  Broadcasters must pay attention to this issue now , and explain to their Congressional representatives the impact that such a royalty would have, as this is currently the single most direct threat to their bottom line and, if the tenor of the conversation at the hearing is any indication, the threat is real.