In a pre-Christmas surprise that most broadcasters could do without, identical bills were introduced in Congress on Tuesday proposing to impose a performance royalty on the use of sound recordings by terrestrial radio stations.  Currently, broadcasters pay only for the right to use the composition (to ASCAP, BMI and SESAC) and do not pay for the use of sound recordings in their over-the-air operations of the actual recording.  This long-expected bill (see our coverage of the Congressional hearing this summer where the bill was discussed) will no doubt fuel new debate over the need and justification for this new fee, 50% of which would go to the copyright holder of the sound recording (usually the record label) and 50% to the artists (45% to the featured artist and 5% to background musicians).  The proponents of the bill have contended that it is necessary to achieve fairness, as digital music services pay such a fee.  To ease the shock of the transition, the bill proposes flat fees for small and noncommercial broadcasters – fees which themselves undercut the notion of fairness, as they are far lower than fees for comparable digital services.   

While, at the time that this post was written, a complete text of the decision does not seem to be online, a summary can be found on the website of Senator Leahy, one of the bills cosponsors.  The summary states that commercial radio stations with revenues of less than $1.25 million (supposedly over 70% of all radio stations) would pay a flat $5000 per station fee.  Noncommercial stations would pay a flat $1000 annual fee.  The bill also suggests that the fee not affect the amount paid to composers under current rules – so it would be one that would be absorbed by the broadcaster. 

The summary of the bill says that it would make other broadcasters not covered by these flat fees subject to Section 114 of the Copyright Act -meaning that their royalties would be set by the Copyright Royalty Board.  But the summary does not make clear what standard would be used.  Would it be the "willing buyer, willing seller" standard that is used for (and produced such controversially high rates for webcasters – see the various discussions of those issues, here), or the more lax 801(b) standard that just resulted in a 6-8% of revenue royalty for satellite radio and has resulted in a 7% royalty for cable audio services (see our post here)?  That may well be a crucial issue.

Already, opponents of the performance royalty have signaled their opposition, suggesting that the low, introductory rates for small and noncommercial broadcasters are just that – an opening rate that will allow the royalty to be imposed, but will quickly be raised.  They point to a similar experience in Canada, where there was a low starting rate for smaller broadcasters that grew over time at the request of the recipients of the fees.  In fact, when one compares the proposed royalties for small broadcasters with those paid by small webcasters, even those paying under some form of the Small Webcaster Settlement Act, an Internet radio station with $1.25 million in revenue would pay over $130,000 in royalties for sound recordings – which would seemingly raise questions either of fairness (why is the Internet radio company paying so much if a similar broadcaster only pays $5000), or suggests that SoundExchange will try to have the rates raised in the future.  And imagine what a $130,000 royalty would do to a small broadcaster’s business.

SoundExchange and the Music First coalition have also issued their own press release supporting the bill.  With a bill finally introduced, the battle will really begin.  Watch for the fireworks in 2008.

[Update – December 19, 2007 – see our update, here, prepared after we reviewed a copy of the Bills introduced in Congress]