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American radio royalties up for debate in Congress

By | Published on Friday 8 June 2012

Clear Channel

Following the news earlier this week that country music independent Big Machine had reached a deal with Clear Channel Radio, which will see the broadcaster pay a revenue-share royalty to the label for the use of the latter’s recordings on the former’s FM and AM radio stations, the topic of public performance royalties for sound recordings in America was the subject of debate once more yesterday as part of US Congress’s previously reported ‘Future Of Audio’ session.

As previously noted, while in Europe radio stations must pay royalties to the owners of both the song and recording copyrights that exist in tracks (so generally music publishers and record labels respectively), under the US copyright system terrestrial broadcasters only need to pay a song royalty, meaning record labels do not earn any money when their recordings are played on air. The record companies have never liked this, but have lobbied ever harder on the issue in recent years as traditional record sales have slumped and licensing revenue becomes more and more important for the labels.

There is some sympathy for the record industry in Washington on this issue and, after pressure was applied by the American political community, the radio industry did begin talks with the labels a couple of years back, and a deal was on the table for a while, but it all fell through at the last minute. And while there are supporters on Capitol Hill for the introduction of a statutory right for the owners of sound recordings to receive royalties from radio, the radio lobby is strong in Washington, not least because of the big influence talk radio has on popular political opinions in the States.

Big Machine’s landmark deal with Clear Channel sees the country label offer more favourable terms on internet radio services, where US copyright law says a royalty is due, in return for payment for airplay on FM and AM stations. Clear Channel is investing a lot in the net side of its business, which is why Big Machine’s proposals were well received, plus it’s possible the broadcasting giant recognises that some sort of statutory obligation to pay royalties to the labels is now inevitable, and if it can reach deals now it will have a competitive advantage if and when that happens. Though the Big Machine arrangement is very much a pilot with a relatively small label – it remains to be seen if similar deals are struck with other indies and the majors down the line.

But yesterday in Washington the radio industry remained opposed to paying sound recording royalties, relying on to the classic argument in this domain: that the labels get free promotion from radio airplay. Though much of the debate actually centred on the discrepancies that now exist, where online and satellite music services do have to pay the labels a royalty, but AM/FM outlets do not.

In the words of Cary Sherman, boss of the Recording Industry Association Of America: “The bottom line is that every platform that legally plays music pays to do so – except for one. AM/FM radio stations use music to draw billions of dollars in advertising revenue for themselves, but they don’t pay a cent to artists, musicians and sound recording owners who make the music they use. Music remains a centrifugal force in culture and commerce, and it’s only going to get stronger. It’s worth creating, and it’s worth protecting”.

Pandora boss Tim Westergren was also on hand to criticise the inequality that exists in US copyright law that gives traditional broadcasters a big competitive advantage over his business. According to Billboard he told the amassed congressmen: “While Pandora and other internet radio services compete directly with broadcast and satellite radio for listeners in every place you find music – the home, the car, the office, on the go – we are subject to an astonishingly disproportionate royalty burden compared to these other formats”.

Presenting the maths, he said: “Last year, on revenues of $274 million, Pandora paid $137 million in performance fees to performing artists and labels, or 50% of revenue. That same year, [satellite broadcaster] Sirius/XM, on revenues of $2.74 billion, paid $205 million, or 7.5% of revenue; and broadcast radio, on revenues of roughly $15 billion, paid zero. Now I am fully supportive of fair compensation for artists. I’m a musician, and I strongly beliee that radio can and should reward musicians for the use of their work – both songwriters and performers. But this lack of a level playing field is fundamentally unfair and indefensible”.

But Steven Newberry of the Commonwealth Broadcasting Corporation, speaking for the traditional radio industry, argued that it was wrong to equate AM/FM radio with newer online music services. He told Congress: “Given the evidence of broadcast radio’s continuing appeal, I am not at all surprised that new digital music services endeavour to style themselves as ‘radio’. They want to claim our heritage, but the concept and reality of the radio industry that I represent before you today is much more than the mere audio transmission offered by many [online] services. We are part of the fibre of our local communities, and we intend to stay that way”.

Pointing out that moves to introduce a “performance tax” for the AM/FM broadcasters comes at a volatile time for both the radio and recording industries, Newberry said that the American radio industry still “vigorously opposes” the introduction of any public performance royalty for sound recording owners, arguing that “record labels and performing artists profit from the free exposure provided by radio airplay”. However, Newberry said his industry supported more debate and sought more clarity on royalty issues, especially in the online domain, and was willing to take part in further discussions, even though, he claimed, the record industry torpedoed their last attempts at a compromise.

So there you go, all parties basically confirmed they still think what they’ve always thought in this debate. Though all eyes will still surely be on the Big Machine/Clear Channel alliance, which is possibly where resolution really lies. You can read more of Sherman, Westergren and Newberry’s statements on Billboard here.

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