On Friday, in a number of publications, a story was carried questioning the claims made by the NAB that the broadcast performance royalty being sought by the music industry could amount to 10-35% of the revenue of the radio industry. A post on the Wired Listening Post blog seemed to have started the story. This is the royalty which would be paid to the copyright holders in the sound recording – and would be in addition to the royalties paid to ASCAP, BMI and SESAC for the composers of music (see our post on the topic, here and here) . Wired quoted a spokesman for the Music First Coalition (the music industry coalition seeking the performance royalty) claiming that the NAB’s claims are overstated – and that any broadcast royalty to be paid to sound recording copyright holders would be similar to those paid in Europe for the use of sound recordings, and similar to the amounts currently paid to ASCAP, BMI and SESAC for the use of the musical compositions, in the range of 3-5% of revenues. Only the Radio and Internet Newsletter seemed to question this statement. From looking at the history of SoundExchange’s claims made in other royalty proceedings, the questions raised by RAIN seem entirely justified. SoundExchange has consistently argued in connection with all of the other on-going royalty proceedings that the sound recording royalty is far more valuable than the composition royalty – asking for a royalty over 6 times the amount of the composition royalty – 30% of gross revenues. How can Music First now contend that the royalty will be only a few percent of revenue, when their representaives have consistently requested royalties many multiples of that amount?
At the House Judiciary Committee hearing on the broadcast performance royalty (see our post, here), when committee members asked how much the royalty would be, Marybeth Peters, the Register of Copyrights, suggested that it could a simple matter of applying the "willing buyer, willing seller" criteria of Section 114 of the Copyright Act to broadcasting. That standard is exactly the same one that led to the current Internet radio royalties which have been so controversial (see our coverage here). In that proceeding, SoundExchange had asked for royalties of the greater of the per performance royalty that the Copyright Royalty Board imposed or 30% of gross revenue. While the Copyright Royalty Board did not adopt a percentage of revenue royalty because they feared that it was too difficult to compute for services that had multiple revenue streams, most observers have estimated that the pe performance royalty exceeds 100% of revenue of the small commercial webcasters, and are close to 100% of revenue even for the Internet radio services provided by the major Internet content companies. In making their offer of a "special deal" to Small Commercial Webcasters on May 23, with royalties between 10 and 12% of gross revenue, SoundExchange specifically stated that it thought that the 10-12% rate was "a below-market rate to subsidize small webcasters … to help small operators get a stronger foothold" in developing their businesses. While 10% is suggested to be a "below market" rate in an immature industry still struggling to find a business model, the Music First Coalition now suggests that a royalty less than half that amount is what they would request for broadcast radio.
One might suggest that there is something special about Internet radio that makes the music industry think that the royalty should be higher for those services than for broadcast radio. But the proposals made for royalties in other digital services echo the proposals made for Internet radio. For instance, in the current proceeding for royalties for satellite radio and the "pre-existing subscriptions services" (e.g. digital cable music services), the royalties requests were much the same as for Internet radio. The SoundExchange proposal can be found in the executive summary of the case it filed with the Copyright Royalty Board. There, they suggest a royalty of 10% of satellite radio’s gross revenue for 2007, rising to 23% of the satellite radio services’ gross revenue for 2012, the last year of the royalty period for those services. For cable radio, SoundExchange proposes a royalty beginning at 15% of revenue for 2008 and increasing to 30% of cable radio’s gross revenue for 2013, the last year of the royalty period for those services. Are these proceedings also anomalies?
Together with the proceeding for satellite and cable radio, the Copyright Royalty Board is also hearing a case for the royalties that apply to "new subscription services" including music services to be provided by XM and Sirius to Echostar and DirectTV. In those services, too, SoundExchange has also requested a royalty of 30% of revenues. A copy of the Executive Summary of their proposal can be found here.
Thus, SoundExchange, a member of the Music First coalition and the principal agent for the collection of performance royalties for sound recordings, has consistently requested royalties in the range of 30% of gross revenues – far in excess of the 3 to 5% claimed by the Music First spokesman. Do actions speak louder than words?