On Thursday, June 26, a U.S. House subcommittee passed the Performance Rights Act, a bill that would require radio stations to pay royalties to artists for playing their music. The bill, known as H.R. 4789, passed on voice vote in the House Judiciary Committee’s Subcommittee on Courts, the Internet and Intellectual Property, and the next step is a vote by the full Judiciary Committee before the bill can reach the House floor. While there is still a long way to go before the royalty fee can become a law, the vote represents a small victory for the musicFIRST Coalition, a partnership of more than 160 artists and over a dozen industry organizations – including the Recording Academy, the Recording Industry Association of America (RIAA), Sound Exchange, the American Association of Independent Music, the American Federation of Musicians and more – who are rallying in favor of the legislation.
The musicFIRST (Fairness In Radio Starting Today) Coalition was officially formed in June 2007 with the purpose of securing a performance right for artists, but the issue dates back for decades.Frank Sinatra was one of the first to bring the debate over radio royalties to a larger public forum when in 1988, he wrote a letter to 24 of the biggest artists in the world, including Paul McCartney,Bruce Springsteen and Stevie Wonder, asking them to help establish an organization that would fight for legislation to procure performance royalties for artists when their music is played on the radio.
More recently, the issue has been fiercely debated amongst musicFIRST, the National Association of Broadcasters (NAB), and just about anyone else involved in the music and radio industry. On one side of the coin, the NAB argues that because bands and record labels aren’t making as much money from record sales anymore, they are now turning to radio royalties in hopes of bailing out a failing business model. However, musicFIRST points out that the United States is the only Western democracy that doesn’t have a performance right for radio, making it unfair to U.S. artists. Furthermore, the organization feels that if satellite radio, Internet radio and cable television have to pay royalties for the music they play, then why should terrestrial radio be exempt?
“What this means for artists in a very tangible way is that when their music is played abroad – and the estimates are somewhere between 30 percent and 50 percent of the content played abroad is American music – those foreign countries are taking royalties for those songs, but they don’t distribute it to U.S. artists because there’s no reciprocity. When European artists are played in the United States they don’t receive a royalty, and when American artists are played abroad they don’t receive a royalty either,” explains musicFIRST spokesman Tod Donhauser. “I think the inequity, if you’re looking across countries or looking across intellectual property platforms, is pretty glaring – nowhere more so than if you look at how music is heard in the United States. If a song is played on cable television, the Internet or satellite radio, all those different platforms are paying a performance royalty, but the one place they are not is on AM and FM radio. The musicFIRST coalition is advocating a fundamental issue of fairness. First of all, it should be fair to artists. They should be compensated for their intellectual property. But it should be fair across platforms as well. Terrestrial radio shouldn’t have an advantage over satellite, Internet or cable television when they’re using content and are required to pay a performance royalty.
However, the NAB says that comparing terrestrial radio to those other platforms is about as equal as comparing the Backstreet Boys to Iron Maiden. “To equate the promotional value of satellite radio – which has combined about 18 million listeners a week – with the promotional value of over-the-air radio, which has 235 million listeners a week, is ludicrous,” NAB EVP Dennis Wharton toldFMQB. “No one denies that over-the-air radio’s promotional value far exceeds any other media platform.”
A recent analysis conducted by former Stanford economics professor Dr. James Dertouzosof took a look at local radio’s impact on the recording industry and found that $1.5 billion to $2.4 billion in annual music sales are generated through radio airplay. Dertouzosof’s study examined the relationship between local radio airplay of music and sales of albums and digital tracks from 2004 to 2006 in the 99 largest markets, and the results showed that an increase in spins resulted in a subsequent increase in album and digital track sales. Still, musicFIRST says radio’s promotional value and ability to drive record sales is not what it used to be.
“With the diversification of platforms in which people can learn about music, whether it’s in a movie, on the Internet or over satellite television, clearly the influence of traditional AM and FM radio is on the decline,” says Donhauser. “The key here is that, for example, when radio broadcasts Major League Baseball games, certainly there’s an argument that they are promoting the local team by broadcasting them on the radio. But they still have to pay Major League Baseball to broadcast those games even though there’s a promotional value. The copyright board would take into consideration what the promotional value of radio is in setting the rates that would determine the royalty.”
musicFIRST advocates a sliding scale for the fees, saying that it should be based on the percentage of a station’s revenue. As it is written now, the Performance Rights Act caps the royalties at $5,000 per year for radio stations with less than $1.25 million in annual revenue. For public broadcasting and college stations, the cap would be even lower.
“The objective here is to create fairness for everyone. We want small broadcasters to be successful. This in no way should be punitive,” says Donhauser. “But if you create this royalty, I think it can be advantageous for broadcasters in that you allow more people to have music as their career, and if you have more people who are able to dedicate their working hours to the creation of music, that only diversifies the amount of music out there. And as the number of platforms increases for AM and FM radio when they go digital and they have these niche high definition [HD2 side] channels, there will be more music out there they can choose from. If more people are engaged in the music profession as a business, it will only create more diversity and better music that the radio stations can then play. The bottom line is this is going to encourage more people to enter into the music industry, and there will be better and broader music out there for people to listen to. I think that, in the end, will be advantageous to radio stations.”
But while there are concessions for small and public broadcasters, what about those who are well above the $1.25 million mark in annual revenue? Wharton says, “What’s really happening here is that the RIAA is now using artists as a shield to try to get a tax on radio stations to compensate for their failed business model. Given the state of the radio industry right now, the fact that we’ve had three years in a row of flat to declining revenue, the stock prices of the publicly traded companies have been in decline – why would congress want to shift the business model of the music industry to a second business which is free, over the air radio? We’re talking about a payment here of anywhere from $2 billion to $7 billion a year from radio to the record labels. That would absolutely devastate the radio business. A lot of stations who play music would become all talk stations, and a lot of stations would lay off employees. The reason radio is successful is because there’s a public service component to it where we’re not only playing music but we’re doing public service programming and fundraising events in the community. So a lot of unintended consequences come into play when you talk about this type of disruption to the radio business.”
With the Performance Rights Act on the table, the NAB has been advocating a resolution of their own called the Local Radio Freedom Act, which at press time had the signatures of 219 House members, representing a majority of the 435-member House of Representatives. The resolution states that “Congress should not impose any new performance fee, tax, royalty, or other charge relating to the public performance of sound recordings on a local radio station for broadcasting sound recordings over-the-air, or on any business for such public performance of sound recordings.”While the House subcommittee passed the Performance Rights Act and the Bush Administration also has voiced support of the bill, the NAB is counting on House members who have signed the Local Radio Freedom Act to help block the legislation.
Furthermore, Wharton says the fact that artists like Radiohead, Madonna and Nine Inch Nails are finding new ways to release music – and in some cases forgoing record labels entirely – only helps the NAB’s cause, because it puts on display the artists’ displeasure with record labels and the RIAA. “If [the radio royalty fee] is about fairness to artists, then let’s talk about how the record labels have been not only unfair to artists, but have exploited and abused artists for decades,” says Wharton. “It’s pretty amazing that we’ve had three or four congressional hearings now to talk about fairness to artists, and we have yet to have one witness from the RIAA or an executive from a record label called on the carpet and asked to explain these abusive contracts they’ve had with their artists since the days before Frank Sinatra. From Prince to Radiohead to Trent Reznor to Madonna, the litany of artists who have protested their record label treatment is pretty long.”
While this may be true, many artists have still gone to bat for the RIAA and musicFIRST when it comes to the issue of radio royalties. Judy Collins, Sam Moore, Nancy Sinatra, Lyle Lovett and others have all testified before Congress on the importance of a performance right for artists.
“If you look at the diversity of the musicFIRST coalition, from musicians to labels to independent labels to the unions, you’re looking at many groups that are often negotiating with each other over contracts. But on this particular issue they’re all on the same side,” asserts Donhauser. “Even if you look in Congress, the legislation is moving in both the House and the Senate and it has both Democratic and Republican support. We have conservative groups that are supporting this because it protects intellectual property, and we have liberal groups that are supporting this because they believe that workers should be paid when they’re producing intellectual property. Then if you look at our membership, the RIAA is a member as is AFTRA [American Federation of Television and Radio Artists]. It’s incredibly broad.”
Donhauser concludes, “[Musicians] work incredibly hard to hone their skills, to bring these songs to life. They’re dedicated to their craft, and when you finally hear that song on the radio, it’s often the result of many years of hard work, perseverance, struggling, and really believing in themselves to get their music out there. It comes back to this fundamental issue that they deserve to be compensated for their intellectual property. There shouldn’t be a corporate radio loophole that is protected just because of political muscle on Capitol Hill. We feel very strongly that if you lay out the merits of the argument in a complete way, there’s only one conclusion that can be drawn: This is intellectual property and people deserve to be compensated.”
** QB Content by Mandy Feingold **
