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Congressman Mel Watt from North Carolina this week introduced his long-awaited bill proposing that over-the-air radio broadcasters pay a royalty to sound recording copyright holders (usually the record label) and to artists. As we have written many times, currently, royalties on sound recordings are paid only by companies that make digital performances, including webcasters (see our summary of the current webcasting rates here) and satellite radio (see our summary of the recent decision on satellite radio rates here). While the bill’s proposals for a broadcast royalty has been covered in many other news reports, few note that the Watt bill, called the Free Market Royalty Act, goes far beyond past proposals for a royalty on over-the-air broadcasters. In addition to the over-the-air royalty, the bill proposes that the Copyright Royalty Board be taken out of the equation in setting royalties.  And the removal of the CRB from the process applies not just to the proposed new performance royalty on broadcasters, but also to the setting of royalties for all other noninteractive commercial digital music services. Instead of a CRB proceeding to set rates, commercial music users, including webcasters and satellite radio, would need to negotiate a royalty with copyright holders – principally with SoundExchange – a royalty not subject to review as to the reasonableness of the rates by the CRB or by the Courts.

And the proposal goes further than simply designating SoundExchange as the party with whom all noninteractive digital audio services would go to negotiate royalties. In addition, the bill provides that any copyright holder could opt out of the rates negotiated by SoundExchange, after they are set, and negotiate direct licenses for its music with music services, including radio broadcasters. Seemingly, a popular band, or a label with a number of hit acts, that thought that it could get more from its music than any rate to which SoundExchange agreed, could withdraw from any "deal" with SoundExchange, and negotiate on their own for what would presumably be higher royalties.  If the copyright holder withdraws its music from the SoundExchange royalty, broadcasters and other music services could not play that music unless and until a license deal was reached.Continue Reading Congressman Watt’s Music Royalty Bill – Performance Royalty For Over-the-Air Broadcasters And Other Fundamental Copyright Act Changes Impacting All Digital Music Services

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 debate over the proposed performance royalty (or "performance tax") on over-the-air radio is once again front page news in all of the broadcast trade press, as radio executives who make up the NAB Radio Board reportedly are making their way to Washington, DC to decide on whether to pursue a settlement with those seeking to impose the royalty.  What’s on the table?  Reportedly a very low (perhaps 1% of revenue as reported in some of the trades) royalty for terrestrial radio, a royalty set in legislation for at least a several year period.  In exchange, broadcasters would get a break on streaming royalties and a push towards getting working FM chips into cell phones – a potentially big audience boost for radio operators.  But from all we have heard, this is not, by any means, a done deal.  What will happen?

We wrote just a few weeks ago about a proposed settlement and why it might or might not be a good idea, and received many comments on our post.  As was clear from the comments, many are not sure why a settlement of any sort makes sense at this point, when the NAB has so far bottled up the royalty in Congress, and where the next Congress is, at least in the eyes of many, going to be far more Republican and, in some people’s eyes, a lot less likely to impose the royalty.  Proponents of a settlement respond that the royalty is not necessarily a partisan issue, with Republicans such as Senator Hatch of Utah, Congressman Issa of California, and many members of the Tennessee delegation taking strong positions in favor of the royalty.  So, just because there is a change in Congress (if it in fact occurs) does not necessarily mean that the current Performance Rights Act or some other version of the royalty proposal would be dead.  Moreover, as we wrote in our recent post, there still is the remainder of the current Congress to get through, including the "lame duck" session after the election, when Congressmen who may no longer have jobs will be voting on much legislation, including many big budget bills in which a performance royalty rider can get hidden. Continue Reading NAB Board Comes to DC to Discuss Radio Performance Royalties – Is There a Deal in the Works?

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?

In an email blast that went out this morning, the musicFIRST Coalition, the group organized to pursue a performance royalty on radio broadcasters for the use of music in their over-the-air broadcasts, announced that they would be holding a rally and concert with a member of the 1960s rock band the Monkees, musically backed by three Congressmen. …

According to a letter from the Copyright Office that has recently been made public, the economic troubles of broadcasters, which have been used to argue against the imposition of a performance royalty for the use of sound recordings by radio stations, are cyclical and are largely over.  Thus, argues the letter, the improvement in the fortunes of radio stations merits a reexamination of whether the Performance Rights Act imposing such a royalty should be adopted.  The letter contrasts the reportedly good news for radio broadcasters with the Copyright Office’s view of the plight of the record industry, which is deemed to be more permanent, based on the pervasive nature of illegal downloading.  Given the Copyright Office’s concern with the fate of the record companies, and their need to establish a more stable revenue source through payments of fees from the users of music to replace the sales of music that have declined so dramatically, the Copyright Office suggests that further review, with an eye toward adoption of the performance royalty, is merited.  This letter was addressed to the US General Accounting Office, which in February issued a report concluding that the imposition of a performance royalty would have a negative impact on the radio broadcast industry, as it has been hard hit by both fundamental changes in competition and from downturns in the business cycle, and that the imposition of the royalty would cause some stations to go out of business and others to cease playing music.  But the GAO promised a further review of certain issues, and the Copyright Office had not weighed in before the initial GAO report, this letter was prompted. 

The Copyright Office has long been on record as supporting the imposition of a performance royalty in sound recordings in the United States – not just for radio, but for all industries that use music.  This would match the performance royalty in the musical composition, as collected by ASCAP, BMI and SESAC, for the public performance of musical compositions not only by radio, but also by television, cable television, in bars and restaurants and stadiums, and in virtually any other location where music is used in a public setting.  Thus, it should come as no surprise that the Copyright Office would take the position that it does in this letter.  What is perhaps surprising is that the letter seems to go beyond a legal document setting forth the legal justifications for the imposition of the royalty, and instead has the tone of an advocacy piece that takes a firm position in support of the recording industry over the interests of broadcasters, and one which advocates only the position of the recording industry.Continue Reading Copyright Office Issues Letter In Support of Broadcast Performance Royalty – Suggests that Economic Comeback for Radio Makes Royalty More Affordable

The Copyright Royalty Board has announced its approval of new sound recording performance royalties for "new subscription services", i.e. music services provided to the customers of cable or satellite television systems by companies not in this business in 1998 at the time of the adoption of the Digital Millennium Copyright Act.   This royalty was adopted after a settlement between Sirius XM Radio, the only music service which filed to participate in this proceeding, and SoundExchange.  The settlement as approved provides for royalties that are the higher of 15% of the revenues of the service (subscription payments plus other revenues such as advertising and sponsorships provided by the service), or a minimum per subscriber fee that increases over the five year course of the royalty period.  The details of this settlement, including the escalating per subscriber royalties, can be found in the Federal Register notice of its approval, here.

This royalty has very limited applicability, governing only the payments due from audio services "transmitted to residential subscribers of a television service through a Provider which is marketed as and is in fact primarily a video service," i.e. music services bundled with a subscription to a cable or DBS service – and only where that service is delivered to residential users.  Given the limited applicability of this service, one might be inclined to ignore its adoption.  However, broadcasters in particular should pay attention to this royalty, as it is again indicative of the value that the music copyright holders and SoundExchange place on the use of their music in an audio service, and thus of what SoundExchange would seek were they to get a performance royalty on over-the-air broadcasting.   Continue Reading Copyright Royalty Board Approves Settlement for Sound Recording Royalty Rates for “New Subscription Services” – Any Hints As to What A Broadcast Performance Royalty Would Be?

Using music on your website, employees on Facebook or twitter, doing podcasts?  Everyone needs a guide to the legal issues that you may face as broadcasters move their content to new platforms.  At the Convention of the Oklahoma Association of Broadcasters, held in Oklahoma City on March 18-19, David Oxenford…

In one more indication that the Broadcast Performance Royalty (or "performance tax" as opponents of the legislation call it) is not dead yet is an article in yesterday’s New York Times reviewing the issues at stake in the proceeding.  What was perhaps most interesting about that article was the fact that it appeared only one page away from an article about Internet Radio service Pandora, and a discussion of how that hugely popular service was almost driven out of business by music royalties set by the Copyright Royalty Board in their 2007 royalty decision.  The article about the broadcast performance royalty mentions that one of the difficulties in assessing the impact of the proposed royalty is that no one knows how much it will be, as it would be set by the Copyright Royalty Judges on the CRB.  Yet the Times makes no mention of the controversy over the previous decisions of the Board in the context of the Internet radio royalties, and how such royalties almost impacted services such as Pandora.  

How much would the proposed royalties on broadcasters be?  We have written before on that subject,here.  Under previous decisions using the "willing buyer, willing seller" royalty standard which is set out in the legislation that has passed House and Senate Judiciary committees dealing with this issue, the lowest royalty for the use of music in any case before the CRB has been 15% of gross revenues.  Even using a standard seemingly more favorable to the copyright user (the 801(b) standard that assesses more than the economic value of the music but also looks at the impact that the royalty would have on the stability of the industry on which it is imposed), the royalties have been in the vicinity of 7% of gross revenues for both satellite radio and digital cable radio, the two services that are subject to royalties set using the 801(b) standard.  This is more than broadcasters currently pay to ASCAP, BMI and SESAC – rates which are also currently the subject of proceedings to determine if these rates should be changed (see our posts here and here).   Continue Reading Proposed Broadcast Performance Royalty Back in the News – Where is It Going?

This week, six Congressional supporters of the broadcast performance royalty wrote a letter calling upon the NAB to sit down with music industry representatives to reach a "negotiated resolution" of the "longstanding disagreement" in a session to last from November 17 through December 1.  The letter suggests that the negotiations will be supervised by Members of Congress and the staff of the Judiciary Committees of Congress, with a report to be made by the Committee staff at the end of the negotiation period which will be considered by Congress in further actions on this issue.  The parties are instructed to bring individuals who have decision-making power to reach an agreement.  Could this call for negotiations really result in a deal that would lead to a law requiring that radio broadcasters pay a fee for the use of sound recordings on their over-the-air stations?

First, we must ask whether there will even be any negotiations.  The NAB’s only statement issued thus far says that they are willing to "talk to Congress" about the matter, but that they hoped that the discussion would include some of the almost 300 members of Congress who oppose the royalty.  As we’ve written before, the NAB has over 250 Congressmen and over 20 Senators signed on to resolutions opposing the performance royalty.  With the initial letter being signed by 6 supporters of the royalty, and the Judiciary Committees of both the House and Senate being filled with its supporters, why would the NAB be willing to jump into what could be seen as the lion’s den – engaging in a high stakes competition where the referees are on the record as favoring one side?  Note that the NAB statement says nothing about participating in "negotiations", which the former President of the NAB had said that he would never do.  We will have to see whether the change at the top of the NAB will bring a change in the attitude of the NAB.  New NAB President Gordon Smith, who has been in his job less than two weeks,  is said to be more of a consensus-builder than his predecessor, but he has had a very short time to come up to speed on the issue or to build any sort of consensus among those he now represents on where to go on this issue. Continue Reading Congressional Supporters of Performance Royalty Tell NAB to Negotiate With Music Industry – Will It Resolve Anything?