We wrote yesterday about the introduction of a bill in the House and the Senate proposing to impose a performance royalty on broadcasters for the use of sound recordings on their over-the-air signals.  At that time, we did not have a copy of the bill itself, but were basing our post on press releases and a summary of the provisions of the bill that was available on Senator Leahy’s website.  We have been able to obtain copies of the bill titled the  "Performance Rights Act" – or actually of the "bills," as the House and Senate versions are slightly different.  Reading those bills, many of the questions that we had yesterday are answered, and some new questions are raised as to how this bill, if enacted, would affect radio broadcasters.

One question about which we wrote yesterday was whether these bills would require that any royalty be determined by the Copyright Royalty Board using a "willing buyer, willing seller" standard or the 801(b) standard that takes into account more than a simple economic analysis in determining the royalty.  The 801(b) standard is used for services in existence at the time of the adoption of the Digital Millennium Copyright Act (essentially cable audio and satellite radio) and evaluates not only the economics of the proposed royalty, but also factors including the interest of the public in the dissemination of copyrighted material and the disruption of the industry that could be caused by a high royalty.  In connection with the recent CRB decision on the satellite radio royalties, the potential disruption of the industry caused the CRB to reduce the royalty from what the Board had determined to be the reasonable marketplace value of the sound recordings (13% of gross revenues) to a figure rising from 6 to 8 % of gross revenues over the 5 year term of the royalty.  In the Internet radio proceeding, using the willing buyer, willing seller model, no such adjustment was made.

In these bills, the proposal is to use the willing buyer, willing seller standard for broadcasting.  For a service that has been around far longer than any other audio service, it would seem that a standard that assesses the impact of a royalty on the industry on which it is being imposed would be mandatory.  Who wants to disrupt an entire, well-established industry that has served the public for over 80 years?.  But such a reasonable term is not part of the proposal here.

Another issue that we did not address yesterday are the specific requirements imposed on digital music services that restrict their ability to pre-announce when a song is going to play, that prohibit them from making any efforts to encourage the recording of sound recordings, and require that they identify in text the song being played.  These requirements also mandate that services observe the "performance complement", i.e.the restrictions on playing more than a specified number of songs from the same CD or by the same artist within a given period of time (e.g. no more than 3 songs from the same CD in a 3 hour period, nor more than 2 in a row; no more than 4 songs by the same artist in a 3 hour period).  For details of these requirements, see our memo, here.  The question of whether or not to impose these requirements on broadcasters is where the House and Senate bills diverge – the Senate not requiring these efforts for broadcasters; the House proposing that they be observed.  Obviously, requiring some of these limitations could significantly change the way some broadcast stations are programmed.

Clearly, these bills are but the opening salvo in a battle that is certain to intensify.  Already, there is a bill pending in the House of Representatives, the Local Radio Freedom Act, with over 130 co-sponsors, that rejects the idea of a performance royalty for broadcasters given the potential for disruption to their public service programming.  Just as the FCC is suggesting the re-imposition of more stringent and detailed public interest requirements (see our summary here), broadcasters cannot afford to be hit by a new cost of doing business that could in theory take a large percentage of their gross revenue.  As we’ve written before, in other proceedings, SoundExchange has requested royalties of 20 or 30 per cent of gross revenues.  Imagine what a royalty even half that would do to broadcasters.  Certainly, it is not the modest royalty that would not impact broadcaster’s public service, as initially suggested by the supporters of this royalty.  With Congress about to recess for its Christmas vacation, we will all have time to ponder these issues before they are considered again next year.