Radio Expert: Performance Royalties Could Usurp 100%+ of Net Income

Last week's announcement of the formation of a US-based content industry activist organization called the Copyright Alliance was greeted with a flurry of positive press, echoing the sentiments of influential congressmen such as the chairman of the House Judiciary Subcommittee handling the Internet and IP matters, Rep. Howard Berman (D - Calif.). In an environment where patent reform is at last being debated seriously, "stronger copyright protection" has also become a rallying point for lawmakers.

But a Los Angeles Times story published yesterday revealed that the Alliance, which Rep. Berman supports, has as its key mission to establish a system of rates which both terrestrial and Internet-based radio stations would pay as performance royalties, to a group representing the recording industry and recording artists.

Currently, all radio stations pay royalty fees - the amount of which is negotiated in advance - to performance rights organizations (PROs), which then distribute those royalties to songwriters. Language in the Digital Millennium Copyright Act may have been the first codified into US law that distinguishes between the copyright on a recorded work held by the recording studio (partly on behalf of its artists), and the copyright on the underlying work of music being performed.

Now, the Copyright Alliance is arguing that the broadcasting industry at large has gotten away with failing to subsidize recording artists - and studios, by virtue of its size and relative clout...which is now diminishing, ironically, when contrasted against the growing power of the Internet.

In the wake of the LA Times story, veteran radio industry expert Kurt Hanson released his estimate yesterday, based on industry statistics, that a performance rights organization commissioned to collect artists' royalties at the rates currently proposed -- rising to $0.0019 per performance per listener by 2010 -- could result in a 2007 royalties fee of $2.23 billion distributed among all US terrestrial (broadcast) radio stations.

With the entire broadcast radio industry having earned roughly $20 billion last year, Hanson estimates, performers' royalty fees could end up costing the industry 11.2% or more of its total revenues. At the higher 2010 rate proposed by the recording industry, and approved last month by the US Copyright Royalty Board to be charged to Internet radio, Hanson predicts royalties could end up absorbing nearly 20% of broadcasters' revenues.

The National Association of Broadcasters has already signaled its disapproval of the measure, characterizing it as a "performance tax."

Hanson's estimate could actually be a conservative one. Using a formula derived from the one BetaNews used last March to estimate royalties the Internet radio industry could pay, based on formulas supplied by leading industry sources, the broadcast radio industry could find itself owing $4.1 billion in fees under the proposed 2007 rates, and $7.2 billion by 2010, based on the BetaNews formula.

By that same formula, using updated statistics, the Internet radio industry cumulatively would owe $2.3 billion by 2009, rising again to $3.1 billion by 2010. This at a time when the existing royalty fees terrestrial broadcasters pay to PROs is expected to be capped at $550 million.

Hanson's math does go on further, however, to estimate how much a performing artist might actually take home in a fair world. Specifically, his estimate concerns Mary Wilson, former singer with The Supremes, whose support for copyright strengthening was registered in the LA Times article.

Using rudimentary though reasonable math (the formula for which is presented here), Hanson shows where Wilson may be entitled to as much as $98,000 per year in performance royalties from works by The Supremes still performed on oldies stations across America.

"But does anyone truly think that the lack of a broadcast performance royalty is what's preventing Mary from going into the studio and making new art?" Hanson asks on his blog. "That's the actual supposed intent of copyright law: to encourage innovation and creation of new work!"