Monthly Archives: August 2009

The Performance Rights Act of 2009: What’s the Fuss?

As Congress holds hearings to consider passage of the Performance Rights Act of 2009, the National Association of Broadcasters (NAB) mounts a nativist opposition. According to the NAB’s vice-president Dennis Wharton, the law is un-American – not only a “tax,” but an “effort to line the coffers of foreign record labels at the expense of America’s free and local radio stations.” [1] Given this level of hyperbole, it is be helpful to consider what the bill proposes as well as the history of the sound performance copyright, its related royalties and the role radio plays in the Internet age.

The bill proposes to amend the copyright law to grant copyright owners of sound recordings, and producers and recording artists whose performances are embodied thereon, the right to collect a royalty when their records are played on conventional, so-called “terrestrial,” radio. (The right to collect such royalties are generally known as “neighboring rights.”)  While the big terrestrial broadcasting companies like Clear Channel, Cumulus Media, Citadel Broadcasting, CBS Radio and the ABC Radio Network (a subsidiary of Disney) will have to negotiate away percentages of their gross advertising receipts, the proposed law allows individual stations with gross revenues of less than $1.25 million to pay a flat fee of $5,000 per year. Non-commercial stations will pay a flat fee of $1,000 per year and “religious” broadcasters, bars, clubs and concert venues will pay nothing at all.

Webcasters, including those FCC-licensed terrestrial stations which simulcast on the Internet, are already paying royalties for neighboring rights. Under U.S. copyright law, these royalties are split 50% to sound recording owners (usually, but not always, record companies); 45% to featured artists (which can be an individual or a band); 2.5% to an escrow account managed by an independent administrator jointly appointed by copyright owners of sound recordings and the American Federation of Musicians (AFofM) for distribution to non-featured musicians (whether or not they are members of the AFofM); and 2.5% to a similar escrow account related to the American Federation of Television and Radio Artists (AFTRA) for distribution to nonfeatured vocalists (whether or not they are members of AFTRA).

Moreover, both terrestrial broadcasters and webcasters pay royalties to be distributed to copyright owners of musical compositions (50%) and songwriters (50%) each time a song is broad- or webcast. This raises the question why terrestrial broadcasters should be treated differently from webcasters, or musical compositions differently from sound recordings.

A Little Background.

Copyright protection in musical compositions began in 1831, but it wasn’t until 1972 that a federal copyright in sound recordings was recognized. Initially, music publishers and Congress viewed sound recordings as a species of infringement on copyrights in musical compositions. In White-Smith Music Publishing Company v. Apollo Company, a case which began to wend its way through the courts in 1905, a publishing company sued the maker of perforated player-piano rolls, claiming that the rolls copied its musical compositions in violation of its exclusive rights to publish, copy, and sell reproductions of its works. In 1908 the Supreme Court threw the case out, ruling that the plaintiffs were “entitled to copyright in three sheets of music” but not to “the production of the sounds indicated by or on those sheets of music; … nor to any mechanism for the production of such sounds or music.” If Congress wanted to accord relief, the Court said, it could do so by amending the copyright laws.[2]

Congress did that in 1909, giving music publishers the right over first-time “mechanical reproductions” of their musical compositions but requiring publishers to accept a statutorily-specified royalty for any subsequent mechanical reproductions. Consistent with the Supreme Court’s view in the White-Smith case was the law’s failure to recognize in sound recordings any type of protectible intellectual expression. They were, like a piano-player roll, merely “mechanical” copies of underlying creative works. Unauthorized copying of sound recordings, including player-piano rolls, could be dealt with under state and common law provisions prohibiting the piracy of goods and unfair competition.

When, by act of Congress on October 15, 1971, sound recordings were finally recognized as works subject to copyright protection, they were still viewed as not quite products of the intellect. The new law did not grant public performance rights for sound recordings, but limited the scope of rights to reproduction and distribution “in a tangible form that directly or indirectly recaptures the actual sounds fixed in the recording.” The protectability of sound recordings, in other words, did not lie in any intellectual aspect of its creation – for example, how the recorded song was interpreted or conceived in the minds of the recording artists. To the contrary, the law protected only the particular fixation of the song. Anyone could (and still can) make another sound recording faithfully reproducing any other artist’s interpretation, but as long as the sounds are newly recorded, not only is there no infringement on the referent recording, but the new recording is separately copyrightable.

Alongside this legal history, publishers and broadcasters have successfully argued for years that radio play gave sound recordings a benefit that musical compositions did not earn: promotion resulting in sales. This was an odd argument, since publishers and their songwriters did (and do) earn a benefit by way of the mechanical royalty that record companies paid them every time a record was distributed or sold. The fact is that until now publishers and songwriters have been  paid both on radio play and record sales, while sound recording owners and recording artists have been paid only on record sales. (Furthermore, unlike recording artists, publishers and songwriters are not subject to recoupment of advances and recording costs.) Music publishers, however, had the upper hand historically. They wanted no encroachment on their earnings from record companies,[3] just as broadcasters had no desire to pay two types of performance royalties on the same record. It was also true that, at least until recently, record companies and recording artists were dependent on broadcasters to promote their records and concerts.

The Digital Era

The presumption against sound recording performance rights began to erode, at least in the minds of lawmakers, once digital technology pointed the way to new distribution methods via the Internet. The copying of sound recordings over the air was always imperfect at best. Over the Internet, however, the “broadcast” of a song was in fact the delivery of a perfect reproduction, indistinguishable from its digital “original,” straight to the listener’s computer. This changed the notion of what a broadcast was and record companies feared, correctly to some extent, that it might supplant traditional record distribution.

Consequently, in 1995 Congress passed the “Digital Performance Rights in Sound Recordings Act,” which recognized a limited public performance right in sound recordings with respect to webcasting. Sound recording copyright owners could refuse to license interactive broadcasts outright, but for simulcasting and subscription services (with certain limitations), the law forced record companies and webcasters to negotiate mutually acceptable royalty rates.[4] Congress exempted terrestrial radio (with the exception of their digital simulcasts) to avoid upsetting what it viewed as a decades-long symbiosis between broadcasters, record companies and recording artists. The truth, however, is that the business of radio and the rise of the Internet was already destroying that symbiosis.

Today it is fair to ask to what degree radio promotes record sales. In “Don’t Play It Again Sam: Radio Play, Record Sales and Property Rights,” Stan J. Liebowitz (School of Management, University of Texas at Dallas) found that the assumption that it does at all is unjustified. Overall listening, in fact, is today a substitute for the purchase of sound recordings, according to the study.[5] Prior to the advent of digital communications, radio was one of the only places you could hear new music. But today the new music is on the Internet, while the majority of music played on terrestrial radio is at least two years old.

This conclusion is supported by The Future of Music Coalition’s study, “Same Old Song: An Analysis of Radio Playlists in a Post-FCC Consent Decree Word,” which analyzes terrestrial broadcasting overall and on a format by format basis.[6]

Here are a few of the study’s findings for the major formats in 2008:

CHR/Pop: New releases accounted for 39% of the playlists, while songs that were at least two years old accounted for 30%.

Country: 20% of the playlist was dedicated to new releases, while 59% was dedicated to releases before 2007 (38% for 2000-2006 releases and 21% for pre-2000 releases).

Triple A Commercial:  Nearly 50% of this format’s 2008 playlist was dedicated to songs released prior to 1999. New releases accounted for only 19%, while releases that were two or  more years old accounted for nearly 70% of the total playlist.

Urban AC (Adult Contemporary): New releases accounted for a mere 12% of the playlist, while music that was more than NINE years old accounted for 56%. Over all, music that was two or more years old accounted for over 70% of the playlist.

Since the top 5000 songs on each of the format charts account for 77% of the spins on these radio stations, one can see, by extrapolation, how little music is being “promoted.” In Urban AC, we’re talking around 60 new songs a year. In Country and Triple A Commercial, around a hundred. In CHR/Pop, where competition is fiercest, as many as a few thousand, assuming many albums that are only a year old are still in the promotion phase. It would thus appear that terrestrial radio stations are not so much promoting new records, as attracting listeners and earning advertising dollars by playing songs and artists that have already stood the test of time. This is the position that Nancy Sinatra argued in her recent New York Times guest editorial. The FMC characterizes the programming practices of terrestrial radio as “risk averse” and they’re right.

In light of the FMC study, the NAB’s defense against the Performance Rights Act of 2009 based on localism also appears rather fraught. “By 2002,” the study concluded,

virtually every geographic market was dominated by four firms controlling 70 percent of market share or greater. In addition, nearly every music format was controlled by an oligopoly. In 28 of the 30 major music formats nationwide, four companies or fewer controlled more than 50 percent of listeners. As a result, an increasingly small number of companies determined what music was played on specific formats. In addition, radio station group owners introduced cost-cutting measures that reduced local staff and centralized programming decisions at the regional, or cluster, level. With individual station autonomy drastically limited and a broad trend toward shorter playlists, musicians had far fewer opportunities to receive airplay.

Save local radio? If it’s local radio the NAB is concerned about, the proposed law already takes them into account.

The Bigger Picture

If the United States doesn’t yet recognize neighboring rights, this isn’t true for most of the rest of the world. As early as the 1961 “Rome Convention for the Protection of Performers, Producers of Phonographs and Broadcasting Organizations,” countries have allowed sound recording copyright owners and recording artists to collect royalties on public performances of their works. The original signatories to the treaty – France, Germany, the Netherlands, Belgium, Luxembourg and Italy – have since been joined by nearly seventy “Qualifying Countries” whose national laws recognize neighboring rights as a condition for reciprocal treatment.[7]

The United States is not among those countries which qualify. Consequently, American record companies, producers and recording artists are generally unable to collect the royalties that would otherwise accrue to them throughout the world. On its website, the RIAA puts the figure at “tens of millions of dollars each year.”[8] The uncollected money is used in France, according to attorney Nancy Prager, to subsidize music education in French schools.[9] One could imagine that in other countries the royalties might simply be redistributed to rights holders from qualifying countries, to the loss of American-based rights holders and artists.

The existence of uncollected foreign neighboring rights royalties turns the NAB’s argument on its head, making the specter of windfalls by “foreigners” even more laughable than it already is. Each of the “foreign-owned” majors have substantial assets in the United States, employ thousands of people and record thousands of American artists and performers who stand to gain under the new law. Moreover, Warner Music Group (which is still American-owned) and independents which are American-owned or have distribution deals with American companies, account for well over 30% of the market. Does the NAB think they aren’t worthy of consideration? Or do their broadcasters simply not play their music?

Putting aside the issue of uncollected foreign royalties, the case for a sound performance royalty on radio play is easy to make. The sound recording – the actual performance of a musical work captured on record – is at least as important as the song it embodies. People don’t want to listen to just any old songs, but ones recorded by recording artists they like. This is what attracts listeners and thus advertising dollars. Publishers and songwriters already share in radio’s revenues. Why shouldn’t record companies and recording artists?

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Endnotes

[1]http://www.nab.org/AM/Template.cfm?Section=Press_Releases1&CONTENTID=14717&TEMPLATE=/CM/ContentDisplay.cfm

[2] http://www.altlaw.org/v1/cases/383541

[3] The Performance Act of 2009 specifically provides that neighboring rights royalties will not diminish public performance royalties paid to publishers and songwriters.

[4] News of recent settlements by webcasters, including Pandora, can be found at http://www.soundexchange.com/ For a good, short article on webcasting royalties without the hyperbole of those who think they should be able to earn money from advertising but pay nothing for the music which brings it, see http://slog.thestranger.com/2007/06/update_on_webcaster_royalty_rates

[5] Mr. Liebowitz’s study may be downloaded at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=956527

[6] The complete report is at http://futureofmusic.org/files/FMCplaylisttrackingstudy.pdf

[7] http://futureofmusic.org/article/soundexchange

[8] http://www.riaa.com/newsitem.php?id=7BE7264B-5BC4-C823-777D-73D5B410805A&searchterms=performance%20rights%20act&terminclude=&termexact=item

[9] http://nancyprager.wordpress.com/2007/04/24/a-primer-on-music-performance-licenses-sound-recording/