On Tuesday, the Senate Judiciary Committee held a hearing on the possibility of imposing on broadcasters a performance royalty for the use of sound recordings. This would be a new royalty, paying for the public performance of the recording of a song by a particular artist – a fee that would be on top of the fees that broadcasters already pay to ASCAP, BMI and SESAC for the public performance of the underlying compositions. Unlike the House of Representatives Judiciary Committee Hearing, about which we wrote here, this hearing was a much more measured proceeding, weighing carefully the implications of imposing a new royalty – both as to whether it was really necessary to encourage creation of more music by performers, and as to whether radio stations could afford to pay such a royalty. In fact, in closing the hearing, Senators asked the representatives of the Broadcasters and of the musicians to provide the committee more information on these two issues.
The Music First Coalition seeking the new royalty was represented by two recording artists, Lyle Lovett and Alice Peacock. Committee members were clearly excited to have Mr. Lovett testifying, thanking him repeatedly for taking time out from his touring schedule (he had played a concert the night before in suburban Washington, at the Birchmere Club in Alexandria that Senator Leahy, Chairman of the Committee, said was attended and enjoyed by some of his staffers), and the committee was even treated to a few bars of Ms. Peacock’s song "Bliss." But between the performances and the star treatment, committee members did ask hard questions – including whether a royalty was really needed. Both artist stated that music was their passion, that they would be performers no matter how much they were paid. If passion drove the creation of music, asked one Senator, as the purpose of copyright is to encourage the creation of artistic works, why is a new royalty on broadcasters even necessary?
The answer – given by both artists – was "fairness." Lovett pointed to the fact that, even though he may benefit from radio airplay because more of his CDs are sold and more people attend his concerts, the background musicians on his recordings don’t get the benefit of such publicity (if the royalty is paid in the same manner as are the royalties on Internet radio and other digital audio services, then background nonfeatured performers would receive 5% of the royalties, contributed to a fund and distributed by the musician’s unions). Peacock pointed to the fact that it was unfair that other digital services (like Internet and satellite radio) paid the royalty and broadcasters did not. She made the point that, even though radio might have some promotional value, that alone did not excuse the industry from paying royalties. She pointed to other performances that have promotional value for the sale of CDs, yet still pay her for performing (pointing to a live concert where she said that it would be crazy to expect that a club owner would not pay her because of the promotional benefit of her singing in his club).
The Senators, while conceding the fairness point, asked if that was enough to carry the day. Senators made the point that radio promotion was so important that some artists seemed to be willing to pay for it – apparently an allusion to the payola issues of recent years. An interesting question was asked of the commercial broadcaster witness, Steve Newberry of Commonwealth Broadcasting – whether broadcasters might favor a system where broadcasters would pay artists who wanted to hold out for a royalty, but be able to take money (without payola issues) from other artists who were willing to pay for their music to be aired on the radio (though see our post on the issues that arose when Clear Channel tried to get royalty waivers from new artists). While Newberry declined that offer, it is an intriguing one – though one with many adverse consequences. First, as some of the Senators themselves pointed out, it would hurt new artists who could not pay for play (and certainly couldn’t demand payment for being played). And, as Mr. Newberry pointed out, smaller radio stations outside of major metropolitan markets would not benefit from such a system, as promotional payments would probably be targeted to large market stations. And it would be those very same smaller radio stations with tighter operating margins which would be most impacted by any new royalty.
This discussion then flowed into a very brief discussion of the one issue that tends to get overlooked in these proceedings – that it is not the small struggling artist versus big corporate radio that really is at issue here. Instead, it is the broadcaster versus the big artist and record labels who are rarely, if ever, asked to testify at these hearings. But, as Senator Hatch, himself a music performer and writer, pointed out, most artist would get nothing out of such a royalty, as the vast majority of musicians don’t have their music played on the radio. In fact, he worried that a new royalty might make radio stations reluctant to take a chance on a new artists knowing that they had to pay for the performance, causing the station to instead opt to play an established hit or some form of non-music programming. And, as with any new government imposed-obligation on broadcasters, it would probably be the smaller broadcasters who would be most affected by any new performance royalty. When the BMI royalties on small stations rose by only a few dollars four of five years ago when a new royalty system to compensate BMI’s composers was adopted, I had dozens of calls from small market stations complaining about the impact that the minor rise in expenses had on their operations. A whole new royalty imposing what would probably be a larger obligation on these stations would no doubt be greeted with similar outcries.
In fact, one wonders how much artists like Ms. Peacock and Mr. Lovett would themselves receive from a new royalty – as neither are staples of most hit-driven radio stations. The bulk of any performance royalty – 50% (assuming that these royalties are structured in the same manner as Internet or satellite radio royalties)- goes to the copyright holder in a performance, i.e. the record company (in most cases). 45% goes to the featured performer and, as the royalties are distributed based on airplay, one would assume that Britney, U2, Carrie Underwood and other artists who already are very much in the public eye and who already receive substantial compensation from their performances through music sales and concerts would receive the great bulk of any royalty pool.
The Committee did not get into the debate over semantics – whether this should be referred to as a "performance royalty" or a "performance tax." In contrast to the substantive discussion had by the Committee, the NAB and the Coalition pushing for the new royalty engaged in some theatrics in the last week – the Coalition sending the NAB a dictionary highlighting the passage that says a tax is the collection of revenue for use by the government, while the NAB sent each Congressman a stuffed duck, arguing that the proposed royalty sure looked like a tax to the broadcaster (see the NAB ad in Washington publications directed to Congress explaining the duck, here). As with so much else in these copyright debates, there is an element of truth in both sides arguments – the revenue from the royalty does not go to the government for the government’s use – at least not directly. But it sure does smell like a government-imposed redistribution of wealth as millions (or perhaps billions depending on the royalty rate) would move from the broadcast industry to the pockets of the record companies and, for the most part, the established recording artists.
The Committee meeting adjourned without any real indication where the royalty would go in the Senate – again unlike the House where the passage of a bill through committee seemed certain after the hearing there (though we are still waiting for a public draft, several months after the expected early September release). About the only thing that seemed certain was that the issue was not going away – and would certainly be the subject of more debate and theatrics in the future.