By Kyle O’Brien
When lawmakers recently announced legislation that would force broadcasters, internet streaming companies and satellite radio companies to pay royalties to musicians, it was another in a long line of efforts that pitted artists against broadcasters, and it undoubtedly won’t be the last.
Representatives Jerrold Nadler (D-N.Y.) and Marsha Blackburn (R-Tenn.) were surrounded by musicians like Elvis Costello, Cyndi Lauper, Roseanne Cash and others in New York as they gave their support of the Fair Play Fair Pay Act in April.
The act would regulate new performance rights for AM and FM stations, which currently don’t pay royalties to musicians and labels, only to songwriters through ASCAP, BMI and SESAC.
It would also require satellite radio companies to pay market rate royalties.
“The current system is antiquated and broken. It pits technologies against each other and allows certain services to get away with paying little or even nothing to artists,” said Nadler in his speech.
Royalty fees haven’t been agreed upon, but smaller stations wouldn’t pay the same rates as conglomerates. For stations making less than $1 million a year, the bill allows them to pay a flat $500 in royalties a year, while college radio stations would pay $100.
Nadler said the provision was meant to prevent “large radio conglomerates” from hiding behind the potential threat to smaller stations, meaning that the radio clusters could not use smaller stations as a way to circumvent paying royalties.
The act would also close a loophole that allows Internet radio companies to avoid paying royalties to musicians on songs that were created before 1972, an issue that is currently before the courts with the band The Turtles leading the way.
“Music artists, especially in our society, are chronically under compensated for their huge contribution to our culture, except for the fraction of one percent at the top,” said William Hochberg, Partner at Greenberg Glusker, who handles creative legal matters and writes on legal entertainment topics for The Atlantic and WIRED.
The National Association of Broadcasters has fired back at this legislation.
“We think it would be potentially devastating to the economies of a lot of local radio, kill jobs and actually hurt artists in the long run because if you have fewer financial resources, you have less ability to expose new artists,” said Dennis Wharton, NAB’s executive vice president for communications.
To counteract the Fair Play bill, the Local Radio Freedom Act has been proposed, which opposes a performance royalty on broadcast radio, backed so far by over 200 members of Congress, who are co-sponsoring the act. This act was introduced by Reps. Michael Conway (R-Texas) and Gene Green (D-Texas) early last year, and it is against “any new performance fee, tax, royalty, or other charge” on local AM/FM radio stations.
This is not a subject that will go quietly into the night from either end of the spectrum, but this debate is sparking more conversation in hopes that there might be a middle ground found.
“There’s more intensity now, in light of the introduction of legislation,” said Robert Jacobs, Partner and Co-Chair, Entertainment & Media Litigation with Manatt, Phelps & Phillips, who has represented labels and artists like Warner Bros. Records, Usher and Rascal Flatts, among others.
Add to that the trend that paid downloads on iTunes and other places are falling, that Apple is releasing a streaming music service http://www.cnbc.com/id/102733605, and that the streaming audience continues to fracture, and you have a lot of people from the more traditional areas of the music world trying to figure out how to capitalize. This at a time when a recent Nielsen study found that 90% of millennials listens to the radio each week, which further confounds the issue.
That intensity and uncertainty has opened what Jacobs has called a “very honest debate on how to move forward finding balance.”
A BRIEF HISTORY
Artist and songwriter royalties have made for complicated payment issues since recorded music became viable.
Early artists, especially black blues artists who toiled in relative obscurity and early rock ‘n’ roll practitioners, often signed away the rights to their songs for a lump payment or a short-lived recording deal. This gave them no bargaining and often the owners of their rights would profit while the artist faded away, which created many disgruntled musicians over the years. Look to early blues artists like Robert Johnson, Muddy Waters and Bessie Smith. Even Louis Armstrong made only a portion of his earnings from his recordings while his manager took a larger cut. This was all before the 1972 Sound Recording Act and the 1976 Copyright Act, both of which gave more protections for artists.
Before those regulations, in 1940, ASCAP tripled its music fees for radio. Broadcasters balked, arguing that the exposure from radio popularized music and boosted sales. By 1941, most radio stations boycotted ASCAP music.
That was one of many run-ins between artists and radio, and there have been efforts over the years to give artists more royalties and radio more leeway to break artists. On the other end of the spectrum, radio companies were often courted by the labels, which resulted in the Payola scandal of the late 1950s, a “pay-to-play” racket that led to broadcasters being fined for taking bribes to play certain artists pushed by the record companies.
“Performers like Bing Crosby and Frank Sinatra pushed for artist compensation from radio in the ’40s and ’50s. More attention has been focused on the issue recently because digital delivery systems, such as streaming services, do compensate performers, leaving AM/FM radio as the only holdout, and the U.S. the only remaining country in the developed world without this right,” said Daryl P. Friedman, Chief Industry, Government & Member Relations Officer with The Recording Academy.
Broadcast veteran Jerry Lee, Owner and President of Philadelphia independent station WBEB-FM (101.1 More FM), takes a different view, especially that the U.S. is the only country that doesn’t pay for performance on radio, pointing out that other countries, in the 50s, 60s and up until fairly recently, had very restrictive rules about playing artists on the radio. He cites Mark Lewisohn’s book “Tune In” about the Beatles, noting that they struggled to get any airplay on the BBC and had to perform constantly and fight for every fan. That, he says, is why other countries imposed radio performance royalties, because of these restrictive rules.
“Artists weren’t being compensated because they weren’t getting exposure on radio,” said Lee.
Lee sees the positive benefits of letting radio promote artists through playing their songs. “In the U.S. we’ve been a godsend to the artists. Radio produces visibility so they can have concerts and (promote themselves),” he said. He thinks those proposing the tax aren’t necessarily looking to support the artist but rather save their way of making a living, like the labels. He says of the money the tax on radio would bring in, “only five percent would go to struggling artist. The industry is in trouble right now. We just happen to be a convenient place (to blame),” said Lee.
Still, many argue that the U.S. must pay something for performance royalties. Said Friedman; “Even Maria Pallante, U.S. Register of Copyright, in her April 29, 2015 testimony before Congress, said, ‘It is indefensible as a matter of law, and frankly embarrassing as a matter of policy that the United States does not pay for the public performance of terrestrial radio to the creators of the music.’”
In 2009, a Performance Rights Act bill was introduced, though it also wasn’t enacted, although it did lead to some negotiations by both sides.
Current copyright regulation means that terrestrial broadcasters (AM/FM radio) pay performance royalties to songwriters but not the recording artist.
Even then, the numbers get fuzzy. Some artists complain that internet streaming companies aren’t paying their share either, even posting their lack of profits online. Armen Chakmakian, a Grammy-nominated composer, keyboardist and recording artist, shared his quarterly royalty statement on Digital Music News in 2014 and it showed that for 14,227 performances on streaming audio, he generated only $4.20 in royalties.
SO WHAT HAPPENS NEXT?
“If the (Fair Play Fair Pay) bill passes — a big if — the rates radio will be paying to labels and artists for terrestrial radio play are going to be substantial, a welcome relief to artists and labels,” said Hochberg. He thinks that if the bill fails, he expects more private licensing to occur, like that which has happened between Taylor Swift’s label and the radio industry.
“Warner Music Group and Scott Borchetta’s Big Machine Music Group (Taylor Swift’s label) have negotiated privately with Big Radio for sound recording licensing, even though it’s not required by law. In this way, the broadcasters have more predictability and control over the process than if they have to deal with legislation and a rate setting board,” stated Hochberg.
“Interestingly, the labels are crying poor when they come to Congress with their FPFPA bill, because they are not seeing any income from terrestrial radio while publishers get the lion’s share of their income from that very same source. On the other hand, the publishers are upset that the labels are seeing, on average, 10 times more income than the publishers from online streaming services, because of the consent decree. At the end of the day, Big Radio will find out who it will have to pay — just publishers and songwriters as before or also record labels and artists — and just how much of their advertising dollars will need to be allocated,” said Hochberg.
Wharton, with the NAB, thinks that radio stations, especially the smaller ones, will suffer if the bill is passed.
“Record labels have seen a steep drop in their revenues since their heyday and they want to make that up by instituting a performance fee on broadcasters,” said Wharton. “Radio stations, especially in mid-to-smaller markets, operate with very thin profit margins. Imposing a performance fee on them could force them to lay off employees or otherwise downsize their operations in order to afford paying new fees. What the record labels are failing to grasp is that imposing a performance royalty on radio stations will make it harder for the public to hear artists,” he added. Plus, he says that “the Fair Play, Fair Pay Act would do little to help the musicians that are truly struggling. Under the bill, 50% of royalties from radio stations would go to the records labels, 45% would go to millionaire artists like Katy Perry and Justin Timberlake, and the scraps would go to the ‘struggling artists.’
The radio industry hasn’t responded as a whole as to what it will do if this law is enacted, and how it will adapt to the changes. Disruption to the norm is never easy. Some think that the mid-market stations and those whose margins are tight may fold while others will have to switch to a talk format to avoid paying the fees.
“This bill is not going to go through. They’ve tried so many times,” added Lee.
THE SOLUTION?
Both sides think their legislation will be a fix, though this issue is far more complex than what has been laid out here. Both, it seems, want some sort of compromise though, even with all the contentious rhetoric being bandied about.
“A compromise is the best thing here. The political process must be involved somehow. It’s how it’s pitched and how a consensus can be reached. Some sort of olive branch should be offered by the broadcast side, because it’s been a little one-sided,” said Jacobs.
“We believe the private marketplace should be where a solution is found,” said Wharton. “Broadcasters are already working towards that. In the past few years, some broadcasters such as iHeartMedia, Entercom and Beasley have reached agreements with record labels to pay a performance royalty in exchange for reduced streaming rates. This is a solution that we believe works best rather than impose government intervention. A better rate structure would make streaming profitable and encourage more radio stations to stream, which in turn would help expose more artists to more listeners, and generate more revenues for the record industry.”
The other side isn’t wholly convinced, which is why these competing legislative acts may prove another stalemate — until the next one comes along.
“Even many radio broadcasters have admitted behind closed doors that the NAB’s position on performance right is untenable and it’s simply a matter of time,” said Friedman.
“If this bill does not pass, a similar bill will come up to the Hill again and again until it passes. The NAB’s influence in Washington won’t go away anytime soon, but other music players outside of its umbrella, like Spotify, Google/YouTube and Apple Radio, will get into the picture. They have to pay to play sound recordings and it doesn’t seem fair that their competitors in terrestrial radio get it for free,” concluded Hochberg.
