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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.Continue Reading Rallies on Capitol Hill on the Performance Royalty – Who Will Pay?

Last week, the FCC released a Public Notice asking for comments on whether it should begin a Section 403 investigation into the use of Arbitron’s Portable People Meter ("PPM").  A coalition of broadcast groups, the "PPM Coalition," principally comprised of broadcasters providing service to minority communities, sought the investigation as a way of delaying the implementation of the PPM technology next month in a number of large broadcast markets.  In their request, which can be found on the Minority Media and Telecommunications Council website, the PPM Coalition argues that the investigation is justified based on the Commission’s objectives (and various administrative and legislative mandates) to improve minority ownership in broadcasting.  The PPM Coalition contends that methodology problems in PPM implementation result in artificially low ratings for minority owned stations.  These parties argue that, if the system is implemented, a number of minority-programmed stations will disappear.  Arbitron has argued that the Commission does not have the jurisdiction to regulate ratings services (who are obviously not FCC licensees) or the methodology that they use.  Comments on the request for an investigatory hearing are due on September 24, and replies on October 6 (two days before the PPM system is to be implemented in eight markets).

Section 403 of the Communications Act gives the Federal Communications Commission the power to conduct investigations of any complaint of any violation of its rules or of provisions of the Communications Act, or to explore any other matter relating to the provisions of the Act.  Such investigations are often conducted before an Administrative Law Judge, but can be conducted before the Commission itself, and allow the FCC to use full discovery techniques (e.g. document production requests and depositions) and to conduct an evidenciary hearing.  In the past, the process was used much more frequently.  It has been used both to investigate specific complaints of possible misconduct by individual licensees, and to conduct broader inquiries into business practices in a regulated industry to decide if FCC regulation was necessary.  For instance, in the 1960s, there was an investigation into network practices to determine if those practices required FCC action to regulate the network-affiliate relationship.  In recent years, the power has been rarely used, and when used has tended to relate to specific allegations of misconduct to determine if the FCC should bring some sort of enforcement action against a regulated entity.Continue Reading FCC Seeks Comment on Whether to Begin Investigation of Arbitron PPM – How Far Does FCC Regulatory Power Extend?

Once again, the extension of the sound recording performance royalty to broadcasters has become a hot topic in Washington. The subcommittee on Courts, the Internet and Intellectual Property of the  House Judiciary Committee yesterday approved the bill introduced by Congressman Berman (about which we first reported here).  That bill would include broadcasters in the Section 114 sound recoding royalty currently applicable to digital music users including Internet radio, satellite radio and cable radio. Under the bill, the Copyright Royalty Board would be charged with the responsibility of determining what a royalty would be using the "willing buyer, willing seller" standard. Following this subcommittee approval, the bill would next be considered by the full committee. To become law, the Committee and the full House of Representatives would have to approve it, and similar legislation would need to be enacted by the Senate. As the NAB has garnered the support of a majority of the members of the House on a non-binding resolution opposing the imposition of the royalty on broadcasters, and as there is not much time remaining in the legislative session before the election and the end of this Congress, the whole process may well have to start fresh in 2009 (bills have to be reintroduced after the end of each two-year Congressional session). Yet, with all of the controversy over the issue in recent weeks, it appears certain that the issue will arise again, so it is important to look at some of the recent action.

Two weeks ago, the House subcommittee held a hearing on the issue. Prior to the hearing, the MusicFirst Coalition (principally supported by the RIAA and the affiliated record companies as 50% of any royalty goes to the copyright holders who are usually the labels) had Nancy Sinatra and the Nitty Gritty Dirt Band making the rounds on Capitol Hill in support of the royalty. These appearances follow the precedent set in earlier Capitol Hill proceedings, where the Coalition has brought in niche or oldies artists to address Congress – not major popular current acts. The artists who have testified (who have included Judy Collins, Sam Moore, Lyle Lovett, and Alice Peacock) have argued that the additional income that they would receive from a performance royalty would supplement their incomes which, in some cases, has either never been great or has declined as the demand or ability to tour has declined. The argument is always made that the royalty will encourage musicians to produce their music – though it is rarely if ever claimed that music wouldn’t be made if the royalty is not adopted, as songs have been written and sung for time immemorial, well before any royalty existed, merely for the pleasure or to fulfill the need for self-expression. The question is not one of ensuring the availability of music, but instead it is one about who should get how much of whatever money is made, directly or indirectly, from the use of that music. Continue Reading Broadcast Performance Royalty Passes House Subcommittee – But It’s Not Done Yet

At today’s Future of Music Policy Summit in Washington, DC, there has been much talk about issues of interest to broadcasters, including the performance right in sound recordings for terrestrial radio, multiple ownership, and many other issues. The Future of Music Coalition, whose website is here, is dedicated to bringing the voice of musicians and the public to Congress and other decision-makers in Washington. Thus, the Coalition is involved in music issues before Congress and the Copyright Office, as well as before the FCC and other agencies on issues including multiple ownership, net neutrality, and similar matters. Members of the Coalition have been involved in the Low Power FM debate. At the panel session titled "The Hill Was Alive with the Sound of Music," dealing with legislative matters affecting music that are pending or which may arise before Congress, only one issue was perceived as being likely to be considered and potentially resolved by this Congress, before the Presidential election.  That was the issue of LPFM, where bills have been introduced in Congress to eliminate the restrictions that prohibited LPFM stations from causing third-adjacent channel interference to other stations.

The panel included staffers from both the House of Representatives and the Senate, who both indicated that, while there were many other issues of importance to those in the music industry that might be considered this year, LPFM was the one issue that had a chance of actually being adopted this year, given bipartisan support for pending bills.   The pending legislation, The Local Community Radio Act of 2007, has been introduced in both the House and the Senate.  This legislation would lift restrictions on interference to third adjacent channel stations – restrictions which were adopted by Congress about 7 years ago.  We wrote about this legislation, here.Continue Reading LPFM Set to Move?

On Friday, in a number of publications, a story was carried questioning the claims made by the NAB that the broadcast performance royalty being sought by the music industry could amount to 10-35% of the revenue of the radio industry.  A post on the Wired Listening Post blog seemed to have started the story.  This is the royalty which would be paid to the copyright holders in the sound recording – and would be in addition to the royalties paid to ASCAP, BMI and SESAC for the composers of music (see our post on the topic, here and here) .  Wired quoted a spokesman for the Music First Coalition (the music industry coalition seeking the performance royalty) claiming that the NAB’s claims are overstated – and that any broadcast royalty to be paid to sound recording copyright holders would be similar to those paid in Europe for the use of sound recordings, and similar to the amounts currently paid to ASCAP, BMI and SESAC for the use of the musical compositions, in the range of 3-5% of revenues. Only the Radio and Internet Newsletter seemed to question this statement.  From looking at the history of SoundExchange’s claims made in other royalty proceedings, the questions raised by RAIN seem entirely justified.  SoundExchange has consistently argued in connection with all of the other on-going royalty proceedings that the sound recording royalty is far more valuable than the composition royalty – asking for a royalty over 6 times the amount of the composition royalty – 30% of gross revenues.  How can Music First now contend that the royalty will be only a few percent of revenue, when their representaives have consistently requested royalties many multiples of that amount?

At the House Judiciary Committee hearing on the broadcast performance royalty (see our post, here), when committee members asked how much the royalty would be, Marybeth Peters, the Register of Copyrights, suggested that it could a simple matter of applying the "willing buyer, willing seller" criteria of Section 114 of the Copyright Act to broadcasting.  That standard is exactly the same one that led to the current Internet radio royalties which have been so controversial (see our coverage here).  In that proceeding, SoundExchange had asked for royalties of the greater of the per performance royalty that the Copyright Royalty Board imposed or 30% of gross revenue.  While the Copyright Royalty Board did not adopt a percentage of revenue royalty because they feared that it was too difficult to compute for services that had multiple revenue streams, most observers have estimated that the pe performance royalty exceeds 100% of revenue of the small commercial webcasters, and are close to 100% of revenue even for the Internet radio services provided by the major Internet content companies.  In making their offer of a "special deal" to Small Commercial Webcasters on May 23, with royalties between 10 and 12% of gross revenue, SoundExchange specifically stated that it thought that the 10-12% rate was "a below-market rate to subsidize small webcasters … to help small operators get a stronger foothold" in developing their businesses.  While 10% is suggested to be a "below market" rate in an immature industry still struggling to find a business model, the Music First Coalition now suggests that a royalty less than half that amount is what they would request for broadcast radio.Continue Reading Broadcast Performance Royalty – Getting Fooled Again?