In the last two weeks, we have seen Capitol Hill rallies by the Free Radio Alliance, opposing what they term the “performance tax” on radio, and yesterday by the Music First Coalition, trying to persuade Congress to adopt a performance royalty on the use of sound recordings for the over-the-air signal of broadcast stations. We’ve written about the theories as to why a performance royalty on sound recordings should or should not be paid by broadcasters, but one question that now seems to be gaining more significance is the most practical of all questions – if a performance royalty is adopted, how would broadcasters pay for it?
The recording industry and some Congressional supporters have argued in the past that, if the royalty was adopted, stations could simply raise their advertising rates to get the money to pay for the royalty. While we’ve always questioned that assumption (as, if broadcasters could get more money for their advertising spots, why wouldn’t they be doing so now simply to maximize revenues?), that question is even harder to answer in today’s radio environment. With the current recession, radio is reporting sales declines of as much as 20% from the prior year. Layoffs are hitting stations in almost every market. In this environment, it is difficult to imagine how any significant royalty could be paid by broadcasters without eating into their fundamental ability to serve the public – and perhaps to threaten the very existence of many music-intensive stations. And the structure of the royalty, as proposed in the pending legislation, makes the question of affordability even harder to address.
Broadcasters obviously already pay for music that they play – to ASCAP, BMI and SESAC. And the rates that are being paid to these organizations may well be going up in the coming year, as both the ASCAP and BMI deals with the radio industry are to be re-negotiated this year. Of course, this money goes to the composers of the music, not to the performers (and the copyright holders in the performances – the record companies) who would be receiving the proposed new performance royalty on sound recordings. The proposed legislation states that the imposition of the performance royalty on sound recordings is not to have any effect on the amount that broadcasters pay to ASCAP, BMI and SESAC. Thus, the money would by necessity have to come from other station operations. Some broadcasters have suggested that one way of paying a sound recording royalty would be to simply pay what they are paying now to ASCAP, BMI and SESAC into a pot, and let the artists, composers and labels fight for it. This, of course, is opposed by the composers who rightly see the royalty as one of the principal ways in which they are compensated, as they do not share in the profits from the sale of CDs and downloads, but instead get a flat fee for a “mechanical royalty” established under Section 115 of the Copyright Act, and the composers do not typically get money from concert tickets or merchandise receipts that performers may enjoy.
This is not, as suggested by royalty proponents, a simple matter of broadcasters getting more money to pay for any royalty. It is a zero sum game, and if the money can’t come from the composer’s royalty, it has to come from station operations. Given the high fees sought (and received) by the recording industry for the performance royalty in sound recordings from digital services (where the least that has been paid is 6-8% of gross revenues by satellite radio, and that was only after the computed "willing buyer willing seller" royalty was found to be twice that amount but adjusted down to preserve the stability of the industry, and after having been initially adjusted based on the finding that half of the gross revenues of satellite radio were the result of talk programming not subject to the royalty), broadcasters could be asked to pay a huge bill (see our post here on computing that bill). And, with the FCC poised to potentially impose new localism requirements on broadcasters that would entail even more operational costs, something has got to give. Broadcasters hope that it is not their economic viability that is the thing that does the giving.