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?