Lopsided Case for Performers' Royalties Made by House Subcommittee

In the midst of this staggering setup, ICBC's Charles Warfield took the floor. He began swinging away by characterizing a new set of royalties for terrestrial radio stations, including those he owns, as a "performance tax," borrowing a term coined by the National Association of Broadcasters.

"We oppose a performance tax because compensation to the record labels and artists is provided under the current system," stated Warfield, "and the effort to upset the careful balance envisioned by Congress and beneficial to all parties for the last 80 years, is misguided. The existing model works for one very significant reason: The promotional value that the record labels and artists receive from free airplay on local radio stations drives consumers to purchase music." He cited a survey where 85% of listeners polled identified FM radio as the medium where they first heard music they later purchased.

"Local radio is, without question, the engine that drives music sales," Warfield continued. "Any suggestion that radio play does not boost sales, or actually diminishes sales, runs counter to simple common sense. While it is true that the recording industry has seen its profits dip in this new digital world, in no way can that decline be attributed to radio. Just the opposite: Local radio is free advertising for record labels and artists, and provides the best and most direct way to reach consumers.

"What I have failed to understand after 30 years in the industry," he went on, "is why the recording industry is willing to essentially bite the hand that feeds it. The free airplay for free promotion concept has established a natural, symbiotic relationship between local radio and the recording industry. Both grow and flourish together. A performance tax, however, will financially hamstring broadcasters. The effect of such a dramatic increase in radio station costs will not go unnoticed."

In other words, those costs will have to be compensated with either more advertisements or reduced public affairs features such as news and traffic - or both.

Many of today's questions were directed at Warfield. Rep. Bob Goodlatte (R - Va.) asked how new digital media were undermining the promotional capabilities of terrestrial radio. Warfield wouldn't accept the premise:

"When we're looking at these challenges, unfortunately, the record industry has not kept up with these changing times." He took issue with those who were "coming here as part of a coalition seeking taxes from local broadcasters to subsidize their challenged business model. There's no question that the industry is challenged today in selling music with these new alternatives that are out here. But in no way would we indicate that there's any evidence that the work that local broadcasters do, and the free promotion that we provide, is responsible for [that]."

Rep. Goodlatte countered by suggesting that other platforms that do pay performance royalties would also contend they too are partly responsible for promoting artists. As a result, some promoters are paying royalties and others aren't - a disparity he believes needs to be addressed.

To everyone's surprise, Collins -- whose songs through the decades evoke images of peace, harmony, and brotherhood -- suggested that she was considering a way to address that disparity:

"I'm sitting here wondering about class-action suits," she said. "Excluding the issue of whether or not we should be paid as artists in this country -- and I think I have settled that in my own mind -- the fact that my records across the world have not been paid for, means that many thousands -- millions, perhaps -- of artists over a period of 80 years, and all of these musicians who are not being paid in countries which have laws which protect the artist...Where is that money? It's not in my pocket."

In a later exchange with Rep. Hank Johnson (D - Ga.), Warfield made the bold attempt to shift the blame for artists' unfair treatment from terrestrial radio to the recording industry.

"I would put that back as a responsibility of the record labels: Why are the record labels allowing that to happen with artists that have helped make them as successful as they are today, and [why is it] the responsibility of the broadcasters to cover, in some cases, the misdeeds of the record labels?"

This began a surprisingly fumbling exchange between Rep. Johnson and Warfield, which began by Johnson suggesting that radio stations receive a cut of record sales...as a matter of everyday business. Warfield explained that the revenues are generated by the recording labels from the consumers, and suggested that revenue could be shared with artists as well as songwriters.

Johnson then said he meant that the existence of recorded music makes it possible for radio to deploy its advertisements, which he then suggested led to "revenues that are derived from the exploitation" of sound recordings. Warfield responded that it perhaps shouldn't be called "exploitation," and that some radio stations don't exactly fare well with that business model.

"The imposition of this additional tax on many of these broadcasters in small and medium markets, could be the difference between whether they remain in business or not, whether they continue to service the communities that they are licensed to serve," remarked Warfield.

Radio stations -- especially the smaller ones in rural areas -- don't have the means to generate additional sources of revenue, he said. Johnson cited Clear Channel Communications' quarterly report which showed a revenue gain over the previous quarter, suggesting that those gains were commonplace.

But this is where Johnson made an odd suggestion: that radio stations already do generate additional revenue through the licensing of its signal for rebroadcast by those Internet streamers you read so much about.

"Part of that money comes from Web broadcasters who pay royalties to the terrestrial broadcasters for running their transmissions over the Web, isn't that correct?" Johnson asked.

Johnson may have at first thought the resulting silence was one of those stirring Congressional moments, like Howard Baker asking what the president knew and when did he know it. It was actually the sound of Warfield trying to find a way to graciously respond. He began by trying to change the subject:

"I would respectfully indicate that...the broadcast industry has grown from $15 billion to a $20 billion industry from 1998 to 2006, but what I would indicate is that all of that growth occurred between 1998 and 2000, and [since then] there has been absolutely no growth in our industry."

"My question is this," Johnson tried once again. "Webcasters pay a fee to broadcast terrestrial radio over the Web, correct?"

It was unavoidable now. The question was firmly on the record. "In some cases, that may be true," Warfield tried, politely. But Johnson dug his hole deeper: "No respectable broadcast radio transmitter would allow their signal to be broadcast over the Web without getting paid for it."

Warfield then tried a different tack, explaining his stations stream to the Web using their own resources. Johnson wouldn't let it go: "If anybody wanted to broadcast your programming over the Web, you would want them to pay you for that."

There was no other out now for Warfield but to put his foot down and squash. "If you know anyone who would like to do that," he said, "I'd love to speak with him. I've not had that opportunity."

At last sensing the depth of the hole he'd dug for himself, Johnson tried to emerge by once again saying he meant something else. "There are a lot of folks out there who are broadcasting over the Web and paying money for it. If you look at that in terms of that Web broadcasting like a sound recording, it's paying the performer, in other words, to broadcast. So I don't see why terrestrial broadcasters should be exempt from having to pay..." Chairman Howard Berman (D - Calif.) put Johnson out of his misery by announcing that time had expired.

The discovery that at least one congressperson believed Internet radio streams consisted of terrestrial radio streams that were sublicensed to them, and that few others appeared eager or capable of correcting him, could be the first indication that Congress' stance to date on the issue of Internet streamers' royalties is at least the partial product of a deep confusion.

Were it not for Warfield's presence on today's panel, the fact that at least a portion of Congress remains confused about the basic business model of broadcasting, might have been drowned out by a heart-wrenching rendition of "Send In the Clowns."