Wednesday, October 24, 2007

Senate Commerce Hearing Tackles Performance Royalties

Yesterday, the Senate Commerce Committee held a hearing on the Future of Radio. This hearing was set up to address a range of issues -- LPFM, ownership, royalties, public radio, etc -- but after a New York Times article last week disclosed that FCC's Chairman Kevin Martin was considering a fast track effort to loosening media ownership rules even further, the Senators also used this time to send a message to the FCC, reminding the commission that a bi-partisan majority had objected to the efforts to deregulate media in 2003, and the Senate was ready to do so again.

During the hearing, Senators Snowe, Inouye and McCaskill all had cautionary messages for the FCC. Senator Dorgan was the most focused, warning the FCC that it was in for a "huge battle" if they thought they were going to relax the media ownership rules by mid-December. Immediately after the hearing, Dorgan met up with his Republican colleague Trent Lott for a bi-partisan press conference to introduce a bill that would prevent the FCC from rushing to judgment in the ongoing media ownership proceeding.

The Senators also spent a lot of time asking witnesses about on the ongoing debate about performance royalties, for both internet radio play and terrestrial radio play.

A bit of background: When you hear a song on regular radio in the US, the composer/songwriter are compensated for that "public performance" via ASCAP/BMI/SESAC, but the performer and record label are not.

However, if you hear the same song performed via a digital platform of some sort -- this includes XM or Sirius, or via a webcast, or on a cable music station, even on that very same terrestrial radio station's webcast -- the songwriter gets her/his ACSAP/BMI/SESAC royalties AND the performer and record label are compensated via SoundExchange. Huh? Different royalties for the very same performance?

This difference exists because US terrestrial broadcasters have been exempt from paying a public performance right for sound recordings for decades, despite the fact that this right exists in almost every other Western country. The exemption has withstood repeated criticism -- this was a right that Frank Sinatra lobbied for back in the 1960s, and the US Copyright Office has supported the establishment of a public performance right for just as long -- but the National Association of Broadcasters is a very powerful trade group that has been able to beat it back every time.

However, this right *does* exist for digital performances (i.e. webcasts, satellite radio, etc) because of the passage of the Digital Performance Right in Sound Recordings Act by Congress in 1995. This means that, when you hear John Coltrane playing "My Favorite Things" on an XM station, composers Rodgers and Hammerstein are compensated via ASCAP, and John Coltrane's estate and his record label are compensated via SoundExchange.

[If this still isn't clear, you can learn more by reading our fact sheet about the performance right, a SoundExchange Primer, or a letter that we sent to Congress in 2005 supporting public performance right for sound recordings]

So, back to the hearing.

During his testimony, broadcaster Russell Withers, who was also testifying on behalf of the NAB, mentioned their opposition to the "performance tax". That's the NAB's new way of trying to sully this debate because, you know, nobody likes taxes.

During the questioning, Senator Sununu tried to dig in a bit on this topic by asking about the NAB's position on the current webcasting royalty debate, asking Withers whether the NAB opposes the rates that the Copyright Royalty Board (CRB) set for webcasting, or whether they oppose the royalty altogether. After some deflection, Withers said that he "objects to paying them", though Sununu's line of questioning left us wanting more clarity.

Then Sununu asked Tim Westergren from Pandora who Pandora competes against. According to his testimony, Pandora is the third largest webcaster in the US and paid out over $2 million in performance royalties in 2006, something they are very proud of. Answering Sununu's question, Westergren said that he thinks they compete against anything that resembles radio, including stations like Mr. Withers'. Pandora, he said, and other webcasters operate under a radically different rate structure than established terrestrial broadcasters, and that they are simply looking for "rate parity".

Senator McCaskill had the final question of the hearing, which was directed at Mr. Withers. Taking up where Sununu left off, she asked the broadcaster how the NAB can justify the differences in costs for licensing music between different platforms. She asked him (to paraphrase): how can it work when Pandora has to pay for something that you get for free?

This led to the tensest moment of the hearing. Unfortunately, the question was left unanswered by the witnesses because the senators had to leave for a floor vote. McCaskill did, however, request a written answer.

For seven years, FMC has consistently reiterated our view that Congress should establish a public performance right for terrestrial broadcasts that does not curtail the traditional royalties received by songwriters/ publishers or unduly burden non-commercial broadcasters.

FMC has also weighed in on the webcast rate debate through testimony and news releases, saying that the best solution is a proportionate royalty structure: large commercial webcasters should pay rates that use their audience size and associated revenue as a means to measure their royalty rates, and there should be reasonable rates and reporting requirements for clearly-defined categories of small, noncommercial, college and hobbyist webcasters that will ensure the future development of this medium.

Artists need small webcasters. Small webcasters need music. And artists deserve royalties. Congress needs to create a royalty rate structure that doesn’t damage both in the process.

Whether this hearing gets us closer to resolution remains to be seen, but performance royalties and webcasting rates are certainly on the congressional radar.

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