At the end of 2009, we wrote about the interim royalties agreed to by both ASCAP and BMI, agreeing to reduce the amount of royalties paid by commercial radio stations by 7% until final royalties were agreed to by these Performing Rights Organizations and broadcast groups (principally the Radio Music Licensing Committee), either
The Radio Music Licensing Committee ("RMLC") has announced that it has entered into agreements with both ASCAP and BMI for interim royalties to be paid by commercial radio stations until final royalties are set. These royalties will be set either through negotiation or through litigation in Federal Courts which act as a "rate court" to determine what reasonable rates will be under the antitrust decrees that govern these organizations. As we wrote here and here, the RMLC has been involved in negotiations seeking a significant reduction in the royalties paid by radio stations for the right to make a public performance of musical compositions (or "musical works"). Both organizations have agreed to a 7% reduction in the amount currently paid by radio broadcasters, to be reflected on the invoices sent by these organizations for 2010 royalties. According to the press release on the ASCAP agreement, the discounts are interim agreements only, and will be subject to retroactive adjustment to January 1, 2010 once final royalties are set.
This money goes to composers of music, as contrasted to the controversial SoundExchange royalties that pay the performers of music (currently only in the digital world, but proposed in legislation pending before Congress to be extended to over-the-air broadcasting). ASCAP and BMI are essentially collection agencies (called Performing Rights Organizations or PROs) for large groups of songwriters. By signing up and paying royalties to these organizations and to SESAC, a smaller but still significant PRO, broadcasters obtain a "blanket license" to play all the songs covered by songwriters who are members of these organizations – which are essentially all of the songwriters whose songs are likely to be played by radio. The existence of these organizations save radio stations from having to negotiate independently with the thousands of songwriters and publishing companies that own the copyrights to these compositions – an arduous task that might be almost impossible without the existence of the PROs.
Radio broadcasters all over the country have been receiving letters about music royalties – from ASCAP, BMI and the Radio Music Licensing Committee (RMLC). The ASCAP and BMI letters are asking for the broadcaster to sign a letter committing themselves to some royalty obligation for 2010. They pose three options to the broadcaster – sign up to pay royalties for 2010, join the RMLC negotiating group, or notify ASCAP and BMI that they will be negotiating their own royalties. The RMLC letter suggests that the broadcaster join in their negotiating group to help to establish a new royalty structure with these entities. What does it all mean, and what should a broadcaster do?
These letters are all triggered because the rates for royalties that commercial radio broadcasters pay to ASCAP and BMI for the musical compositions that they play on the air expire at the end of 2009. (Noncommercial broadcasters have a special rate set under the review of the Copyright Royalty Board, and thus are not subject to these deals) RMLC represents most radio broadcasters in their dealings with the performing rights organizations (or "PROs" as ASCAP and BMI, and SESAC, are called). We wrote about the many issues that have held up an extension of the current agreements between radio broadcasters and ASCAP and BMI here. If there is no new deal covering these royalties in place by the end of the year, broadcasters who continue to play these compositions (which will be virtually all commercial radio operators) will need to determine how to pay royalties when the current royalty agreements expire. The current agreements do not have any automatic extensions in them, as the antitrust consent decrees that bind these companies call for royalty deals of no more than 5 years in duration. Thus, as the old agreements are about to expire, and no new agreements are in place, the flurry of letters has followed to put broadcasters on notice of the current situation. Of course, none of these letters is entirely clear in spelling out all the issues involved. So we’ll try to explain some of those issues below.
The Senate Judiciary Committee today approved the bill to impose a performance royalty (or the "performance tax" as the NAB had called it) on radio broadcasters for the public performance of sound recordings on their over-the-air stations. As was the case in the House of Representatives when its Judiciary Committee approved their version of the bill, the Committee acknowledged that there was still work to do before a final bill would be ready for the full Congress. Nevertheless, this is the first time that the Judiciary Committees in both Houses of Congress have approved the performance royalty, serving as a warning to broadcasters that this issue may well be moving to a showdown before the full House and Senate during the current session of Congress.
There was only limited debate on the bill at the Committee hearing, yet several open issues were identified. The Committee made clear that, even though it was approving the bill in the form introduced and amended by its managers, there were still changes that would be made in the future before any legislation was ready to be finalized. Senator Feinstein of California discussed several of the issues. First, the bill as amended by the Senate managers (Senators Leahy and Hatch), the bill provided relief for small broadcasters so that any performance royalty would not impose an undue burden on them. The bill proposed the following royalty structure for small broadcasters:
(I) revenues of less than $50,000 – a royalty fee of $100 per year;
(II) revenues of at least $50,000 but less than $100,000 – a royalty fee of $500 per year;
(III) revenues of at least $100,000 but less than $500,000 – a royalty of $2,500 per year;
(IV) revenues of at least $500,000 but less than $1,250,000 – a royalty of $5,000 per year.
Senator Feinstein, who stated that she favored parity between all music services that pay a royalty, suggested that this same royalty structure should be applied to small webcasters who, under current settlement agreements, can pay almost 30 times the amount that a small broadcaster with the same revenues would pay under this bill – and those settlements were an improvement on the royalties that would have been paid under the decision of the Copyright Royalty Board. Senator Feinstein stated that "the parties" were working on an agreement that would amend the bill to extend these rates to small webcasters.
While we have written much about the battle over the broadcast performance royalty (or the "performance tax" as broadcasters call it) – whether broadcasters will have to pay artists and record labels for the right to play their music on the air – we have not written much about another looming issue with the royalties that broadcasters must pay to play music on their stations. While broadcasters are very familiar with the ASCAP and BMI royalties, they may not be fully aware that there is a looming dispute over the amount that broadcasters will pay to these organizations in the near future. At a panel that I moderated at the NAB Radio Show, Bill Velez, the head of the Radio Music Licensing Committee, talked about the current negotiations for the renewal of the royalty agreements between radio stations and these two Performing Rights Organizations ("PROs"). Both of the current agreements expire at the end of this year, and the RMLC is in the process of trying to negotiate new agreements. However, because many broadcasters feel that the current deals charge more for these music rights than is justified in the current economic environment, while the PROs are reluctant to decrease the royalties that the composers they represent currently receive, the differing perceptions of the value of these rights could lead to litigation over the amount that should be paid by broadcasters for the use of this music.
First, it is important to understand what rights ASCAP and BMI are providing. These organizations, along with SESAC (about which we have written here), provide the copyright license for the "public performance" of the "musical work" or the composition, the words and musical notes to a song. This is in contrast to the rights to the sound recording (the song as performed and recorded by a specific artist), which is licensed by SoundExchange. Webcasters have to pay ASCAP and BMI for the use of the composition, as well as paying SoundExchange for the use of the sound recording when streaming music on the Internet. Broadcasters only have the obligation to pay ASCAP,BMI and SESAC for the composition in connection with their over the air broadcasts but do not, under the current law (unless the broadcast performance royalty is passed), have to pay SoundExchange. Because the current ASCAP and BMI royalties have been in place for several years, most broadcasters probably don’t think much about them, but they may have to in the near future.
On September 25, 2009, David Oxenford moderated a panel at the NAB Radio Show in Philadelphia called "The Day the Music Died – Streaming, The Performance Tax and Other Copyright Issues." In addition to the music royalties involved in webcasting and the possible broadcast performance royalty, the panel discussed other copyright issues, including…
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.