Record Labels Propose Extending Royalties to All Radio

As a means of eliminating the appearance of disparity between the performance royalties about to be charged to US Internet streaming music providers such as AOL Radio and Pandora, and what terrestrial broadcasters pay for the same privilege - which, for that category, is currently zero - lobbyists representing the recording industry, according to Billboard magazine, are pressuring Congress to resolve this problem by extending essentially the same sharply higher performance royalty rates to all broadcasters.

If such a measure were to become law, an industry which once had the problem of overcoming the appearance of paying off radio broadcasters to increase the airplay for their songs -- a practice known as "payola" -- would begin charging broadcasters in all media for the privilege of having their songs played.

In response, National Association of Broadcasters President and CEO David Rehr is asking senators to oppose what he describes as a "performance tax." "Not only would this new performance tax upend the longstanding mutually beneficial business relationship that exists today between record labels, recording artists and broadcasters," Rehr writes, "but it would have a serious financial impact on broadcasters that could affect their ability to serve their local markets."

According to the Billboard report which was repeated in The Hollywood Reporter, the coalition backing lobbyists' efforts include representatives of record labels, plus the RIAA, musicians' and vocalists' unions, the Recording Artists Coalition, and the SoundExchange organization which would serve as the royalties collection body.

For seven decades, radio stations have paid royalties that are distributed to songwriters, and for most of that time, performance rights organizations (PROs) such as ASCAP, BMI, and SESAC have served as songwriters' representatives. Long-standing agreements between bargaining groups representing broadcasters and these PROs have limited royalty fees to amounts the stations could live with - for the smallest stations, as little as $972 per year to all three PROs combined.

The passage of the Digital Millennium Copyright Act in 1998 introduced into US law the concept of relatively higher value for digital content than for traditional analog. This enabled the recording industry -- which holds copyrights on the performance of music as opposed to the authorship of it -- to acquire the right to charge royalties to digital music streamers and distributors (such as iTunes), on the basis that a digital performance essentially constituted a duplication of that performance. Such fees would theoretically offset losses caused by any piracy that emerged from that duplication.

Up to this point, terrestrial radio broadcasters have never had to pay performance royalties, on the basis that analog performances did not constitute duplications. Now, it appears that the "digital performance = duplication" argument may be in the midst of replacement in favor of a less technical, more populist argument centering on the rights of performers - people whose work appears in music, even if they didn't write the music - to be compensated for their work.

But a report published today by the Information Technology and Innovation Foundation (PDF available here) suggests that performers appearing in popular music haven't exactly gone poor all these years.

With regard to the new populist argument adopted by the recording industry, the ITIF writes, "Considering the historical relationship between the music industry and terrestrial radio there seems to be little merit to this argument. Terrestrial radio could not exist without the music provided by the record labels; however, they have managed to avoid paying royalty fees for sound recordings. On the other hand, the record labels depend on terrestrial radio to create hits, promote their music and drive music sales. If copyright owners could establish separate royalty fees for each sound recording, some copyright owners would actually allow radio stations to broadcast their music for free and some would even pay the radio station. Getting your music played on the radio provides a huge boost for an artist."

The NAB may end up being a strange bedfellow for Internet radio providers who would also prefer the possibility of compromise. Two weeks ago, webcasters were upset by a statement from NAB Executive Vice President Dennis Wharton, which included the sentence, "We will work with Congress to craft a solution that helps ensure the survival of a fledgling audio platform."

As USC Professor of Music Industry Jerry Del Colliano responded last week in his Inside Music Media blog, "Hell, the only reason it's fledgling is because it has been in a battle for its economic life over royalty rates for years. That doesn't really create stability or set the atmosphere right for growth. When universal WiFi is available, Internet radio will be the next radio...See, another reason why the National Association of Broadcasters might want to be seen as useful to this 'fledgling' group."

5:00 pm ET May 10, 2007 - While all this was going on, Senators Ron Wyden (D - Ore.) and Sam Brownback (R - Kansas) (a candidate for President) introduced a Senate version of the Internet Radio Equality Act on the floor of the House, presumably in an effort to expedite the bill's passage through both houses of Congress.

If a merged form of this legislation does pass -- as current bipartisan support indicates is likely -- then any effort by the recording industry coalition to make terrestrial broadcasters pay the same performance royalty rates as Internet radio streamers, may be limited by new caps the Act would impose, which are based on royalty rates currently paid by XM and Sirius satellite radio.