NAB position on broadcast performance royalty

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The NAB Radio Board today voted to adopt a Terms Sheet to offer to the musicFirst Coalition which, if agreed to by musicFirst and adopted by Congress, will settle the contentious issue of whether to impose a sound recording performance royalty (the "performance tax") on over-the-air broadcasters.  If adopted, that will mean that broadcasters in the United States, for the first time, will pay a royalty to artists and record labels, in addition to the royalties paid to ASCAP, BMI and SESAC that go to the composers of the music.  What does the Term Sheet provide, and what will this mean for broadcasters, webcasters and others who pay music royalties?

The Term Sheet sets out a number of points, including the following:

  • A 1% of gross revenue sound recording royalty to be paid to SoundExchange
  • A phase-in period for the 1% royalty, that will be tied to the number of mobile phones that contain an FM chip.  A royalty of one-quarter of one percent would take effect immediately upon the effective date of the legislation adopting it.  The royalty would rise in proportion to the number of mobile phones with enabled FM chips.  Once the percentage of phones with FM chips reached 75%, the full royalty would take effect.
  • The 1% royalty could only be changed by Congressional action.
  • The royalty would be lower for noncommercial stations and stations with less than $1.25 million in revenue – from a flat $5000 for stations making between $500,000 and $1.25 million in revenue down to $100 for those making less than $50,000 per year.
  • Broadcasters would also get a reduction in their streaming rates – but only when FM chips in mobile phones exceed 50% penetration.  The reduction would be tied to the rates paid by "pureplay webcasters" (see our summary of the Pureplay webcasters deal here), but would be set at a level significantly higher than pureplay webcasters, rising from $.001775 in 2011 (if FM chips were quickly deployed) to $.0021575.
  • Future streaming royalties would not be set by the Copyright Royalty Board but by a legislatively ordered rate court – presumably a US District Court similar to that which hears royalty disputes for ASCAP and BMI.
  • An acknowledgment by AFTRA that broadcasters can stream their signal on the Internet in their entirety – apparently agreeing to relieve broadcasters from any liability for the additional amounts due to union artists when commercials featuring union talent are streamed
  • An agreement that broadcasters can directly license music from artists and reduce their  liability for the new royalty by the percentage of music that the broadcasters is able to directly license
  • Agreements to "fix" issues in Sections 112 and 114 of the Copyright Act in making the provisions of these laws regarding ephemeral copies and the performance complement consistent with the waivers that major record labels gave to broadcasters when the NAB reached its settlement with SoundExchange on streaming royalties last year.  See our post here on the provisions of those waivers.
  • musicFirst would need to acknowledge the promotional effect of radio in promoting new music, and would need to work with radio in attempting to secure legislation mandating the FM chip in mobile phones.

[Clarification – 10/26/2010 – Upon a close reading of the Terms Sheet, it looks like the phase in of the 1% royalty and the delay in the streaming discount only kick in if Congress does not mandate active FM chips in cell phones.  If the mandate is enacted, then the full 1% royalty and streaming discount is effective immediately. Given the opposition of much of the wireless industry to a mandated FM chip, this may represent a recognition that the legislation requiring the active FM chip will not be enacted in the near future]

What does this all mean?Continue Reading NAB Radio Board Adopts Proposal for Settlement of Performance Tax Issue – Where Do We Go From Here?

The broadcast trade press has recently been full of talk of the possibility of reaching a settlement with the recording industry on the adoption of a Performance Royalty for broadcast stations -paying performers and record companies for the use of music by radio stations (on top of the fees already paid through ASCAP, BMI and SESAC to composers).  The latest controversy was set off by comments made at the Conclave Radio Conference by Bonneville Radio’s CEO Bruce Reese, who has also been prominent in NAB activities, who suggested that broadcasters were on the defensive in Congress, and that a good settlement was better than a bad legislative outcome.  Other broadcasters have disagreed with Reese’s assessment, asking why broadcasters would be willing to settle when they have a majority of Congress on their side, having signed the NAB-supported resolution opposing the royalty.  Which side is right?

It should be emphasized that, even though broadcast groups have done an amazing job rounding up support for their opposition to the "performance tax" – signing up far more than a majority of the House of Representatives on a resolution opposing the royalty – that resolution is non-binding.  Congressmen can change their mind, and of even more concern, the proposed performance royalty can end up getting tagged on to some must-pass legislation that Congress needs to adopt before the end of the year.  Congress has many budget bills that need to pass to fund the government’s operation, and these huge bills have a way of attracting all sorts of unrelated matters being folded into their provisions.  With leaders of many important committees in the House and Senate being supporters of the royalty, its easy to imagine that one of these bills can end up with performance royalty language included.  While one broadcast trade publication suggests that NAB lobbyists are paid to stop this sort of thing from happening, it is unrealistic to believe that the NAB is invincible, as provisions on unrelated bills can pop up seemingly out of nowhere and surprise everyone, especially when pushed through by powerful congressional leaders who less committed representatives are unwilling to challenge (especially when to do so might mean voting against some important legislation to which the performance royalty is attached).  Congressman simply will not vote down the defense appropriations bill just because there is a performance tax attached.  This kind of maneuver is of particular concern given that many of these bills may well be considered after the election in November, during a "lame duck" session of Congress when, especially this year, there will be many representatives who may not be around again in January to face the wrath of voters (or of broadcasters) who may be disappointed by their final votes.Continue Reading Talk of A Settlement on the Terrestrial Radio Performance Royalty – What Would Broadcasters Get?

The battle over the broadcast performance royalty has begun anew, with the introduction of legislation to impose a performance royalty for the use of sound recordings on broadcast stations.  This royalty would be in addition to the royalties paid to ASCAP, BMI and SESAC (which go to compensate composers of music), as this royalty would be paid to the performers of the music (and the copyright holders in the recorded performance – usually the record companies).  The statement released by the sponsors of the bill cites numerous reasons for its adoption – including the facts that most other countries have such a royalty, that satellite and Internet radio have to pay the royalty, and that it will support musicians who otherwise do not get compensated for the use of their copyrighted material.  The NAB has countered with a letter from its CEO David Rehr, arguing that musicians do in fact get  compensation through the promotional value that they get from the exposure of their music on broadcast stations.  The 50 state broadcast associations also sent a resolution to Congress, taking issue with the premises of the sponsors – citing the differences in the broadcast systems of the US and that of other countries where there is a performance royalty, and arguing that broadcasting is different from the digital services who have a greater potential for substitution for the purchase of music.  What does this bill provide?

The bill introduced this year are very similar to the legislation proposed last year (which we summarized here); legislation that passed the House Judiciary Committee but never made it to the full House, nor to the Senate.  Some of the provisions of this year’s version include:

  • Expansion of the public performance right applicable to sound recordings from digital transmissions to any transmission
  • Royalties for FCC-licensed noncommercial stations would be a flat $1000 per year
  • Royalties for commercial stations making less than $1.25 million in annual gross revenues would pay a flat $5000 per year.  There is no definition of what constitutes "gross revenues," and how a per station revenue figure could be computed in situations where stations are parts of broadcast clusters
  • Excludes royalties in connection with the use of music at religious services or assemblies and where the use of music is "incidental."  Incidental uses have been defined by Copyright Royalty Board regulations as being the use of "brief" portions of songs in transitions in and out of programs, or the brief use of music in news programs, or the use in the background of a commercial where the commercial is less than 60 seconds – all where an entire sound recording is not used and where the use is less than 30 seconds long
  • Allows for a per program license for stations that are primarily talk
  • Establishes that the rates established for sound recordings shall not have an adverse effect on the public performance right in compositions (i.e. they can’t be used as justification for lowering the ASCAP, BMI and SESAC rates)
  • Requires that 1% of any fees paid by a digital music service (such as a webcaster, or satellite radio operator) for the direct licensing of music by a copyright owner (usually the record company) be deposited with the American Federation of Musicians to be distributed to non-featured performers (background musicians), while the distribution of any fees to the featured performer be governed by the contract between the performer and record company
  • Requires that any 50% of any fees paid by a radio station for direct licensing of music be paid to the agent for collection of fees (i.e. SoundExchange) for distribution in the same manner that the statutory license fees are distributed (45% to the featured performer, 2.5% to background musicians, and 2.5% to background vocalists)

Continue Reading Broadcast Performance Royalty Battle Begins Anew – Bills Introduced in the House and Senate