We’ve previously written about the value of music in connection with the royalties to be paid by Internet Radio and the performance royalty (or "performance tax" as it’s labeled by the NAB) proposed for broadcasters. One of the questions that has always been raised in any debate about royalties, and one often dismissed by the record industry, is to what extent is there a promotional value of having music played on the radio or streamed by a webcaster.  In discussions of the broadcast performance royalty, record company representatives have suggested that, whether or not there is promotional value of the broadcast of music, that should have no impact on whether the royalty is paid. Instead, argue the record companies, the creator of music deserves to be paid whether or not there is some promotional value. The analogy is often made to sports teams – that the teams get promotional value by having their games broadcast but are nevertheless paid by stations for the rights to such games. The argument is that music should be no different. That contention, that the artist deserves to be paid whether or not there is promotional value may be tested in connection with what was once thought to be an unlikely source of promotional value for music – the video game Guitar Hero.

Guitar Hero, in its various versions released over the last few years, has proven to be a very effective tool for the promotion of music – with various classic rock bands experiencing significant sales growth whenever their songs are featured on a new version of the game. The use of a sound recording in a video game is not subject to any sort of statutory royalty – the game maker must receive a license negotiated with the copyright holder of the recording – usually the record company.  In previous editions of the game, Guitar Hero has paid for music rights. However, now that the game has proved its value in promoting the sale of music, the head of Activision, the company that owns the game, has suggested in a Wall Street Journal interview that it should be the record companies that are paying him to include the music in the game – and no doubt many artists would gladly do so for the promotional value they realize from the game. Continue Reading Will Guitar Hero Show the Promotional Value of Music and Change the Music Royalty Outlook?

Last week, we wrote about one issue that was addressed at last week’s Senate Judiciary Committee hearing on music royalties – the standards used to derive the royalties, and expressed hope that there was at least some interest in compromise on behalf of the Senators and industry representatives.  However, another issue which came out of those hearings suggests that compromise may not be so easy if the parties really believe what they say – as there is a fundamental distinction in both how the parties view the health of the Internet radio business, and how they view the relationship between royalties and the music business generally.  One can only hope that the gulf that was evident was just due to public posturing as, if it was not, there may well be an insurmountable differences between the parties that cannot be bridged in any settlement negotiations over the royalties that Internet radio pays for the use of sound recordings.

The gap became evident from the opening statements of the first panel – comprised of two Senators interested in the issue- Senator Wyden on behalf of the Internet Radio Equality Act stating that it was necessary to avoid having the high royalties decided by the Copyright Royalty Board destroy a fledgling technology, while Senator Corker of Tennessee talked about the importance of music to radio and the exhaustive process that the CRB had gone through in arriving at the royalties that it approved.  But in the day’s principal panel, the issues became crystal clear, as John Simson of SoundExchange talked about the "vibrant" business of Internet radio, citing an analyst’s report that Internet radio would be a $20 billion advertising market by 2020, and the statement of an employee of CBS that Internet radio was a great business and that CBS was going to "own it."  Speaking next, Joe Kennedy, CEO of Internet radio company Pandora had a dramatically different perspective – talking about an industry analyst who stated that the royalties that would result from the CRB royalties would exceed the revenue of the Internet Radio industry, and that, for Pandora, the failure to find a compromise solution to the CRB-imposed royalties would mean that his service would "die."  He pointed to Pandora’s position as the largest of the Internet radio companies in terms of listenership, the $25 million in revenue that it expects to make this year, and how $18,000,000 of that would go just to the SoundExchange royalties – 75% of its revenue to this one expense.  Continue Reading Senate Hearing: The Search for Compromise on Music Performance Royalties – Part Two: The Issue of Perspective

On Tuesday, the Senate Judiciary Committee held a hearing on the possibility of imposing on broadcasters a performance royalty for the use of sound recordings.  This would be a new royalty, paying for the public performance of the recording of a song by a particular artist – a fee that would be on top of the fees that broadcasters already pay to ASCAP, BMI and SESAC for the public performance of the underlying compositions.  Unlike the House of Representatives Judiciary Committee Hearing, about which we wrote here, this hearing was a much more measured proceeding, weighing carefully the implications of imposing a new royalty – both as to whether it was really necessary to encourage creation of more music by performers, and as to whether radio stations could afford to pay such a royalty.  In fact, in closing the hearing, Senators asked the representatives of the Broadcasters and of the musicians to provide the committee more information on these two issues.

The Music First Coalition seeking the new royalty was represented by two recording artists, Lyle Lovett and Alice Peacock.  Committee members were clearly excited to have Mr. Lovett testifying, thanking him repeatedly for taking time out from his touring schedule (he had played a concert the night before in suburban Washington, at the Birchmere Club in Alexandria that Senator Leahy, Chairman of the Committee, said was attended and enjoyed by some of his staffers), and the committee was even treated to a few bars of Ms. Peacock’s song "Bliss."  But between the performances and the star treatment, committee members did ask hard questions – including whether a royalty was really needed.  Both artist stated that music was their passion, that they would be performers no matter how much they were paid.  If passion drove the creation of music, asked one Senator, as the purpose of copyright is to encourage the creation of artistic works, why is a new royalty on broadcasters even necessary?  Continue Reading Performance Royalty (or Tax) on Broadcasters – Promotion, Fairness and The Impact on the Small Guy

If you are a broadcaster, you know that it’s not going to be a good day when you walk into a hearing on the possible extension of the performance royalty in sound recordings to over-the-air broadcasters and see buttons saying "I Support a Performance Right NOW" on the lapels of every other witness on the panel – including the Register of Copyrights, Marybeth Peters.  But that was the scene in Washington, as the House Judiciary Committee’s subcommittee on Courts, the Internet and Intellectual Property held a hearing as to whether the right to collect a royalty for the public performance of a sound recording (the actual song as sung by a particular artist, as opposed to the underlying musical composition) should be paid by broadcasters.  Broadcasters in the United States have paid only a royalty on the public performance of the composition (to ASCAP, BMI and SESAC), and have never paid a royalty for the public performance of the sound recording.  The lack of a sound recording royalty has always been justified in the past on the theory that the artists and copyright holders in the sound recording benefit more than composers through the airplay of the sound recording, as they receive the bulk of the proceeds from CD sales, and the performers benefit from the promotion of live performances.  As they benefit from the promotion provided by the airplay of the song, there is no need for any sort of performance royalty.  As the music and radio businesses have both thrived in the United States – more so than anywhere else in the world – it seemed that this arrangement was mutually beneficial.

But, in recent years, the consensus over this mutually beneficial arrangement seems to have broken down.  Starting in 1995, a performance right in sound recordings has been imposed on digital services, including the royalty on Internet radio which has recently been so controversial (and about which we have written so much, here).  And, with the recent downturn in the record companies’ business, additional sources of revenue are being sought – thus the RIAA and SoundExchange, the collective that receives sound recording performance royalties, have started a Congressional push to require the collection of royalties from over-the-air radio.  And that push was reflected in the hearing held on Tuesday before a House Committee that seemed clearly to favor the imposition of this royalty on broadcasters.Continue Reading House Judiciary Committee Hearing on Broadcast Performance Right – No Breaks for the Broadcasters