In every other developed country worldwide, copyright laws grant protection to songwriters and publishers as well as performers and producers for the public performance of their recordings and compositions. The rates differ from country to country but each upholds its responsibility to require broadcasters to pay for sound recordings via digital and analog transmissions.
(Internationally, rates vary according to station revenue: in the UK, the rate is between two and five per cent, for example.)
As a result of incongruous copyright laws, it has been upheld that since international owners of music records don't get performance royalties from US radio play, they are justified in withholding royalties otherwise payable to US copyright owners. The record companies hope that by pushing Congress to impose a royalty on broadcasters, they will not only receive additional income from US radio but also from foreign performing rights organizations.
So what's at stake?
If the record companies prevail, they'll be rewarded with a fraction of the estimated $20bn radio earned in ad revenue last year. If the rate applicable to satellite radio - which does pay royalties - is applied to terrestrial radio, the amount would be 7.5 per cent of $20bn, that, is $1.5bn.
It is important to keep in mind that this is an estimated number. The National Association of Broadcasters and musicFIRST Coalition are arguing not only about whether broadcasters should have to pay record companies but how much they would have to pay. Broadcasters claim member stations will have to pay between 10 and 35 per cent of their revenue to artists and record labels, most likely through SoundExchange. But musicFIRST claims that these figures are grossly exaggerated and points to a statement by the US Copyright Office which upholds that sound recording owners should be paid the same amount music composition owners are currently paid.
Webcasters take note
As the battle wages on, a third party is watching developments with great interest. Webcasters will be required to pay dramatically increased rates to labels to stream pre-recorded music, and are watching to see what percentage of revenue broadcasters will pay. If the figure is in the range of three per cent of revenue, as the US Copyright Office claims, then webcasters, some of whom have argued that their rates will cost up to 125 per cent of their total revenue, would be more than justified in protesting the settlement. It seems incongruous at best that webcasters would have to pay a figure approaching $2.3bn by 2008 under the CRB ruling, a sum which the US Copyright Office declared "grossly and purposefully overestimated", when terrestrial broadcasters are generating far more income.
Although webcasters may harbor some grudge against broadcast radio - which has always been exempt from paying performance royalties - some insiders believe that webcasters may actually join forces with the labels to urge Congress to make terrestrial radio pay its fair share for recorded music. In exchange for throwing their weight behind the labels, webcasters hope the labels will agree to reduce the rate they're requiring webcasters pay to stream their catalogue.
For more on the current webcasting controversy, check out my recent article, Who'll Win the Webcasting War?.
Politically speaking, the broadcasters are extremely powerful. Radio is everywhere: in every town and every city of every state, and politicians know how to use the power of the airwaves to reach the people.
Besides offering politicians a forum for campaigning, broadcasters offer campaign dollars and the support of the National Association of Broadcasters which represents approximately 70,000 radio stations and five broadcast networks. At the July 31 hearing, Mary Beth Peters testified that the lobbying power of broadcasters is the main reason that US law does not fall in line with the rest of the world.
The record industry does not have the same sort of clout or nation-wide influence. It operates out of a few particular locations in the United States, namely, New York City, Los Angeles, Nashville and Miami. And while it might have the support of the webcasting community, the latter does not have the political clout of the broadcast community. And yet the Judiciary Subcommittee on Courts, the Internet, and Intellectual Property, which is in charge of this matter seems to favor the imposition of this royalty on broadcasters.
Subcommittee chair Berman has said: "I will come right out and indicate my bias - I have supported the expansion of the performance right for over 20 years". Berman also indicated that he expected the committee to move legislation by the end of this year.
So even with the support of the webcasters, it will still be a steep uphill climb to get the traditional broadcasters to pay for recorded music. ®
Steve Gordon is an entertainment attorney and consultant in New York, and the author of The Future Of The Music Business. He was Director of Business Affairs, TV and Video at Sony Music for ten years. His website is at www.stevegordonlaw.com.