To the surprise of few – other than perhaps the timing of the event – bills were introduced in both Houses of Congress that would create, for the first time, a performance right requiring payment of copyright royalties for playing sound recordings on terrestrial radio stations. The performance right found in Section 106 of the Copyright Act has always required payment of copyright royalties for performance of the underlying musical work (the composed music and lyrics), which are often collected by ASCAP, BMI and SESAC. These royalties are also paid for performing the musical work on the Internet. But when Congress created the performance right in sound recordings (the actual version of the song heard on the radio or webcast) that is found in Section 114 of the Copyright Act, it declined to apply that right to over-the-air broadcasters.
The recording industry has for years clamored to resolve the perceived inequities resulting from the existence of a performance right in sound recordings applicable to every medium other than terrestrial radio, such as webcasting, music played via cable or satellite television, and satellite radio, and the existence of that right in virtually every technologically advanced country in the world other than the United States. Meanwhile, broadcasters consistently point to the non-monetary benefits received by recording artists whose works are played over the air.
The introduction of the Performance Rights Act takes this debate from the theoretical to the practical. Introduced in the Senate by Patrick Leahy (D-VT) and Orrin Hatch (R-UT) and in the House by Howard Berman (D-CA) and Darrell Issa (R-CA) the bill explicitly amends the definition of the performance right to include public performance "by means of an audio transmission". At the same time, it says that radio stations will be able to take advantage of a statutory licensing scheme in order to pay for the right to perform these sound recordings over the radio, similar to statutory licensing schemes applicable to the other media discussed above.
The actual royalty rate would be set by the Copyright Royalty Board. Unfortunately, the Performance Rights Act does not state how this rate will be set, so we cannot at this time predict the full effect this legislation might have on most commercial radio stations. The Copyright Royalty Board has utilized different methods to create rates for different media. The widely reviled webcasting rates are the result of a "willing buyer/willing seller standard". But that standard has been limited to webcasting, with rates for the other media being adjudicated by a different standard that has taken into account many factors, including the desire to maximize public availability of the work. That standard has proven more beneficial to the media. The lack of a standard to setting rates prevents us from further speculating as to the manner of calculating actual payments, such as the "per performance" or "aggregate tuning hour" methods that have been utilized for webcasting or the percentage of gross revenues method used for cable or satellite radio.
While the overall royalty rates are uncertain, some clear exemptions and limitations are included in the statute. First, certain stations can pay a flat fee on an annual basis. These are:
- Any individual terrestrial broadcast station that has less than $ 1.25 million in gross revenues in a given calendar year will pay a flat fee of $ 5,000.00 per year. It is interesting to note that the law states "individual broadcast station", meaning that even stations which are part of a larger chain can take advantage of this exemption.
- Any public broadcasting entity — essentially any noncommercial educational station — can pay a flat fee of $1,000.00 per year.
Small broadcast stations and noncommercial stations can still choose, however, to pay according to whatever royalty rate is eventually reached, if it makes more financial sense to do so. In making that determination, it will be important for these smaller and noncommercial broadcasters (and all larger commercial broadcasters as well) to note the following are exempted from the performance right and, thus, not to be calculated under any royalty scheme that is created:
- Any "incidental" use of a musical sound recording, such as music going into or out of a commercial or between segments on a talk or public affairs station.
- Any music played during services at a place of worship or other religious assembly.
With that in mind, how worried should broadcasters be? Should station owners return the iPhone that they bought for each staff member as a first cost cutting measure (we emphatically say "no" regardless of whether this passes). Will the market for broadcast stations heat up as the profit margin looks to shrink considerably?
The long term prospects are unclear, but we see no reason to think that the Performance Rights Act will become law in 2007 or even early 2008. Congress is expected to adjourn for the year on Thursday, December 20, which leaves just one legislative day from the time this article is being written. That is clearly not enough time to get this bill passed through both Houses of Congress.
2008 may not be any friendlier to the recording industry. A tentative Senate calendar shows that body returning to business on January 22. With both Presidential and Congressional elections in November, there is little work that will occur after Congress recesses in August. Thus, 2008 is being considered pretty much a wash for all but the most important and/or least controversial legislation due to the focus on the 2008 elections.
This bill is certainly controversial and probably, in the greater scheme of things, relatively unimportant. The National Association of Broadcasters, one of the strongest lobbies going, will throw all its resources at this. They have already moved 127 Representatives, which is the number that have signed on as Co-Sponsors of the Local Radio Freedom Act (H Con Res 244), a nonbinding resolution against the imposition of a performance right for over-the-air radio. Can they move the 92 more required to kill this bill? Can they get the 41 in the Senate that would effectively prevent a vote on the bill? While the Recording Industry Association of America is nothing to sneeze at, more worrisome are the list of heavy hitters supporting this bill. Senators Leahy and Hatch, the co-sponsors, are the Chairman and perhaps the most influential member of the Judiciary Committee, which has jurisdiction over this bill. On the House side, Rep. Berman is the Chair of the Judiciary Committee’s Subcommittee on Courts, the Internet, and Intellectual Property, the first stopping point for any copyright legislation; we also understand that Rep. John Conyers (D-MI), the Chair of the full Judiciary Committee, will also be a co-sponsor. Thus, the proper people are on board to move this bill forward. So this may really be a case of irresistible force meets immovable object. If that’s the case, broadcasters should hope that the old adage "it’s always easier to defeat legislation than pass it" stays true to form.
