Author: National Law Forum

In February 2009, Representative John Conyer, Jr. (D-MI) introduced H.R. 848, the ‘Performance Rights Act,’ to Congress. This legislation proposes to expand copyright protection for sound recordings and require broadcast radio stations to pay performers for the use of their sound recordings. If passed, H.R. 848 would provide another source of revenue for copyright holders, musicians, and performers. This paper will analyze the major provisions in H.R. 848 and its potential effects on the broadcast radio and recorded music industries. 

State of the Music Recording Industry: Who Is To Blame?

The recorded music industry is in a state of emergency. The RIAA reports that record sales have steadily decreased for the past ten years.[i] The sale of physical records, has declined by approximately sixty (60) percent from 1999 to 2008.[ii] CD sales decreased nearly twenty-two (22) percent from 2008 to 2009 alone.[iii]

Industry analysts contend that this decline is directly linked to new music technology and the rise in piracy.[iv] Technology has enabled listeners to hear music without buying it and has shifted consumers away from the purchasing behavior that historically supported the recording industry.[v] The Internet, piracy, and the ability to acquire music-on demand has created a culture where listeners believe that music should be free.[vi] According to theInternational Federation of the Phonographic Industry (IFPI), a membership organization representing the worldwide recording industry,there are 29.8 million frequent users of file-sharing services in the top five EU markets alone.[vii]

Industry analysts also attribute changing consumer-purchasing habits to the decline in sales. Consumers have shifted from physical to digital sales. In 2009, more than one quarter of domestic record companies’ revenues came from digital channels.[viii] The a-la-carte download model, pioneered by iTunes, remains the largest revenue source in the online sector, with more than 100 million accounts across 23 countries.[ix] Recent reports suggest that while these downloads do generate revenue for the recording industry, the move to digital sales has not completely offset the revenues lost to piracy.[x]

The recording industry has struggled with identifying effective solutions that will offset the declining sales. The courts have provided assistance, as evidenced by the recent injunction on LimeWire.[xi] Similarly, Congress is doing their part to ensure the health of this industry going forward. In February 2009, Representative John Conyer, Jr. (D-MI) introduced H.R. 848, commonly known as the Performance Rights Act,[xii] which offers to provide another revenue stream for the recording industry.

Performance Right Act

The primary purpose of H.R. 848 is to “provide parity in radio performance rights under title 17, United States Code.”[xiii] Under current law, broadcast radio (analog, non-subscription AM and FM radio) is exempt from paying a performance license fee for sound recordings. The proposed billwould require broadcast radio stations to pay performance fees to copyright holders and would bring terrestrial radio into line with its digital counterparts.[xiv] The following provides a brief overview of the major provisions of H.R. 848:

H.R. 848 Section 2: Establishing Equitable Treatment for Terrestrial, Cable, Satellite, and Internet Services:

This section amends §§106 and 114 of the Title 17 and provides for:

• A performance right applicable to radio transmissions generally and inclusion of terrestrial broadcasts in existing statutory license;
• Reasonable rates and terms of royalty payments for transmissions; and
• Procedures for determining reasonable terms and rates of royalty payments for a new type of service on which sound recordings are performed or those that will become operational.

H.R. 848 Section 3: Treatment for Minority, Female, Religious, Rural, Small, Noncommercial, Public Educational, and Community Stations and Certain Uses

Amends §114(f)(1) and provides for the following:

• Each individual terrestrial broadcast station that has gross revenues in any calendar year of:
• Less than $100,000 may elect to pay its over the air non-subscription broadcast transmission a royalty fee of $500 per year;
• At least $100,000 but less than $500,000 may elect to pay for its over-the-air non-subscription broadcast transmission a royalty fee of $2,500 per year; and
• $500,000, but less than $1,250,000 may elect to pay for its over-the-air non-subscription broadcast transmissions a royalty fee of $5,000 per year.
• Each individual terrestrial broadcast station that had total gross revenues during the 4 full calendar quarters immediately preceding the date of enactment of the Performance Rights Act of:
• Less than $5,000,000 shall not be required to pay a royalty during the three years immediately following the date of enactment of the Performing Rights Act; and
• $5,000,000 or more shall not be required to pay during the one year immediately following the enactment of the Performance Rights Act.
• Each public broadcasting entity as defined in §118(f) and has gross receipts in any calendar year of:
• Less than $100,000 may elect to pay for its over-the-air non-subscription broadcast transmission a royalty fee of $500 per year; and
• $100,000 or more may elect to pay for its over-the-air non-subscription broadcast transmission a royalty fee of $1,000 per year.

Section 4: Availability of Per Program License

Amends § 114(f)(1)(b) by providing a per program license option for terrestrial broadcast that make limited feature uses of sound recordings.

Section 5: No Harmful Effects on Songwriters

Amends § 114(i) and provides that:

• License fees for public performance of sound recordings under § 106(6) shall not be cited, taken into account or used in any administrative, judicial or governmental forum or proceeding, to set or adjust the license fees payable to copyright owners of music works for the purpose of reducing or adversely affecting such license fees;
• Nothing in this Act or the amendments made by the Act shall adversely affect the public performance rights of or royalties payable to songwriters or copyright owners of musical works; and
• Notwithstanding the grant of a license under §106(6) to perform work publicly, a licensee of that sound recording may not publicly perform such sound recording unless a license has been granted for the public performance.

Section 6: Payment of Royalties

Amends § 114(g) and provides that:

• Featured artists who perform on a sound recording will be entitled to payments from the copyright owner in accordance with the terms of the artist’s contract.
• Copyright owners will be required to deposit 1% of the receipts from the license with the American Federation of Musicians and American Federation of Television and Radio Artists Intellectual Property Rights Distribution Fund for non-featured performers who have performed on sound recordings.
• The Fund will be distributed as follows: 50% to non-featured musicians (whether or not members of American Federation of Musicians) and 50% to non-featured vocalists (whether or not members of American Federation of Television and Radio Artists); the fund may deduct reasonable costs related to making such distributions.
• Amounts that are not paid by the date specified in such clause shall be subject to interest at the rate of 6% per annum for each day of nonpayment.
• Sound recording copyright owner will be required to include with deposits, “subject to consent, if necessary,” the following information: identity of the artist; International Standard Recording Code; title of the sound recording; number of times the recording was transmitted; and total amount of receipts collected from that service.
• To the extent that the license extends to a station’s non-subscription broadcast otherwise licensable under a statutory license, the station shall pay to the agent designated to distribute statutory license receipts 50% of the total royalties that the station is required to pay for such transmissions and payments shall be the sole payments to which featured and non-featured artists are entitled by virtue of such transmissions under the direct license with that station.

Section 7: No effect on Local Communities:

Adds an additional section to §114(f), which ensures that the payment of royalties will not affect the public interest obligations of a broadcaster to its local community.

Section 8: Preservation of Diversity

Amends §114(f) of Title 17 and requires that the Copyright Royalty Board, in making their determinations or adjustments to the rates and terms of royalty payments, consider “religious, minority-owned, female-owned, and noncommercial broadcasters;” “non-music programming;” and “religious, minority-owned, or female-owned royalty recipients”

The GAO Report on H.R. 848 and its Effects

Congress asked the United States Government Accountability Office (GAO) to analyze the potential effects of H.R. 848. The GAO reviewed 1) the current economic challenges facing the recording and broadcast radio industries; 2) the benefits both industries receive from their current relationship; 3) the potential effects of the proposed act on the broadcast radio industry; and 4) the potential effects of the proposed act on the recording industry.[xv]The GAO released two reports: a draft report in February 2010[xvi] and a final report in August 2010.[xvii]

The GAO reports that the broadcast radio and recording industries have maintained a mutually beneficial relationship. The broadcast radio industry benefits from using sound recordings to attract listeners, which in turn generates advertising revenue.[xviii] The recording industrybenefits from receiving airplay. Stakeholders from both industries agree that broadcast radio airplay facilitates the discovery of new music; increases exposure and raises awareness of sound recordings; and promotes music sales.[xix] However, the GAO found no consistent pattern between broadcast radio airplay and the cumulative number of digital single sales.

The GAO indicates that H.R. 848 would result in an overall gain for record companies, musicians, and performers.[xx]Several factors would influence potential revenues including: the individual or organizational role in the creation of a sound recording,the amount of airplay a sound recording receives, andtotal royalty payments paid by the broadcast radio industry.[xxi]Using a 2.35 percent royalty rate[xxii], the GAO estimated that fifty-six (56) percent of performers would receive $100 or less per year, and fewer than six (6) percent of performers would receive $10,000 or more per year in royalties from airplay in the Top 10 markets.[xxiii]

H.R. 848 has many supporters. To date, nearly 50 representatives in the House have signed their names in support. The bill is also backed by the United States Department of Commerce, which “has long endorsed amending the U.S. copyright law to provide for an exclusive right in the public performance of sound recordings.” The Department believes that this proposed legislation will “provid[e] fair compensation to America’s performers and record companies through a broad public performance right in sound recordings;” “provide a level playing field for all broadcasters to compete in the current environment;” and “provid[e] incentives for America’s performing artists and recording companies.”[xxiv] President Barack Obama also supports the bill.[xxv]

Proponents argue that adopting H.R. 848 would correct an imbalance in the current system. As Cameron Kerry, General Counsel for the Department of Commerce has pointed out, the United States is the only major industrialized country to have an exemption for over-the-air radio.[xxvi]Foreign musicians and performers receive a performance royalty when their music is broadcast on the radio.[xxvii] Many American artists are unable to collect the public performance money due from  foreign countries because of the lack of reciprocal protection under U.S. copyright law.[xxviii] As a result, substantial royalties for the public performance of U.S. sound recordings abroad are either not collected or not distributed to American performers and record companies. The U.S. Copyright Office estimated the amount of international performance royalties due in 2007 to be about $70 million dollars.[xxix] Adopting H.R. 848 would both protect our American copyrights in the international market by putting us on equal footing with our international counterparts, and add value to our American copyrights by providing a multi-million dollar annual revenue stream for copyright holders. Record industry stakeholders have suggested that the additional revenue could lead to more investment in the creation of music. Additional revenue for artists and musicians, especially session performers, would allow these groups to remain working in the music industry.[xxx]         

Not surprisingly the National Association of Broadcasters (NAB), a trade association representing radio and television broadcasters,does not support H.R. 848. They argue that this “new performance tax” would financially cripple local radio stations, stifle new artists trying to break into the recording business, and harm the listening public who rely on local radio.[xxxi] Others more see the bill as “an attempt by the record labels to get their own bailout courtesy of radio stations.”[xxxii] Opponents argue that H.R. 848 offers a zero-sum equation as a solution: the recording industry gains, while the broadcast industry loses.[xxxiii] Clearly, this result would be counterproductive to the overall system. Opponents of H.R. 848 also suggest that the new “tax” will largely benefit foreign record companies such as Universal (France), Sony (Japan), and EMI (UK).[xxxiv]

Broadcast radio industry stakeholders argue that they already provide revenue to copyright owners by purchasing licenses that allow radio stations to broadcast music. The cost for this license varies by station, however, the GAO estimates the industry pays approximately 3 percent of its annual revenues to the performance rights organizations (PROs) and SoundExchange.[xxxv] Adopting this legislation would add additional financial costs, in the form of royalty payments for the use of sound recordings,[xxxvi] and administrative costs, in complying with the reporting requirements.[xxxvii] The total additional annual costs to the industry could range from $258 million to $1.3 billion.[xxxviii]

The main concern regarding the adoption of H.R. 848 is that an additional license fee might cause some radio stations to shut down.[xxxix] A limited or narrow play-list would accordingly decrease the number of potential licenses the radio station would need to acquire and would ease the work needed to fulfill the reporting requirement. However, a narrow play-list could potentially alienate listeners by decreasing the variety of music offered, which could lead to fewer listeners and decreased advertising dollars. The GAO reports that the broadcast radio industry is already experiencing an 8 percent decline in advertising revenue from its peak of $18.1 billion.[xl] However, if a station uses a large music library, then the reporting would become more tedious. This result could likely lead to an increase in staffing costs and license fees, but could also likely ensure a broader listening audience and attract potential advertisers.[xli] A radio station would also have the option of switching to a non-music format or ceasing operation altogether to reduce the license fees, however, these options would not benefit the broadcast radio industry.[xlii]

The GAO offered both the draft and final report to Federal Communication Commission (FCC) and the U.S. Copyright Office for comments. The CopyrightOffice generally supports the proposed legislation. Speaking on behalf of the Copyright Office, Marybeth Peters, former Registrar of Copyrights, mentioned that the Office has established a long history of recommending extension of full performance rights to sound recordings, including recently voicing support for the Performance RightsAct in Congressionalhearings.[xliii] The FCC critiqued the GAO’s analysis on the effects of the broadcast radio industry.[xliv]

Another significant critique of H.R. 848 is that the legislation is short-cited in its scope in that it targets an increasingly less-influential industry. While broadcast radio remains the most common place to discover new music, this reliance has decreased with younger audiences, who increasingly rely on the Internet to learn about new music. A recent Arbitron research study reports that 52% of 12-34 year olds turn to Internet to learn about new music first.[xlv]The presence of other promotional outlets, such as music blog sites, puts a strain on an already complex relationship between the recording and broadcast industries.[xlvi] Although requiring performance fees for radio may create parity within our own laws and on an international scale, it is likely not the most effective means to achieve the overall goal of monetizing the recording industry. Using the underlying premise of monetizing uses of copyrighted material, Congress may be better suited to consider focusing on other businesses and industries that are tangentially related to the recording industry. For example, the IFPI reports that there has been last a sharp rise in non-peer-to-peer piracy, such as downloading from hosting sites, mobile piracy, stream ripping, instant message sharing, and downloading from forums and blogs.[xlvii] Urban music creators, in particular with its mixtape culture, often usurp radio’s ability to attract new listeners and break new music by releasing their new music thru music blogs. Instead of working to shut down these illegal music channels, Congress should draft legislation that monetizes these consumer habits. Perhaps, if music blogs, or the hosting sites that they use to share copyrighted works, were taxed in a similar fashion to what H.R. 848 proposes (however which greatly reduced fees), then the proposed legislation would have a greater effect.

Conclusion:

 While H.R. 848 may not provide the “perfect” solution, this legislation does demonstrate Congress’ dedication and commitment to intellectual property issues. Regardless of the outcome, this will remain to be an important piece of legislation for all intellectual property practitioners.

[i]See RIAA, 2008 Consumer Profile, http://76.74.24.142/CA052A55-9910-2DAC-925F-27663DCFFFF3.pdf(last visited Dec. 26, 2010).

[ii]See GAO, Preliminary Observations on the Potential Effects of the Proposed Performance Rights Act on the Recording and Broadcast Radio Industries, GAO-10-428R (Washington, D.C.: Feb. 26, 2010) at 7. Available at http://www.gao.gov/new.items/d10428r.pdf.

[iii]See, RIAA, 2009 Year-End Shipment Statistics, http://76.74.24.142/A200B8A7-6BBF-EF15-3038-582014919F78.pdf (last visited Dec. 30, 2010).

[iv]See Growing Threat From Illegal Web Downloads,December 18, 2009, http://www.bpi.co.uk/press-area/news-amp3b-press-release/article/growing…); IFPI Digital Music Report 2010, January 21, 2010, http://www.ifpi.org/content/library/DMR2010.pdf at 6 (last visited Dec. 28, 2010).

[v]GAO-10-428R at 8.

[vi]SeeGAO-10-428R at 7; IFPI Digital Music Report 2010 at 23 (“We live in a world where 1€ is considered extravagant for a music download, but a couple of euro is considered reasonable for a Starbucks coffee.”).

[vii]IFPI Digital Music Report 2010 at18.

[viii]See IFPI Digital Music Report 2010 at 3.

[ix]SeeIFPI Digital Music Report 2010 at 4.

[x]Eric Pfanner, Music Industry Counts the Cost of Piracy, N.Y. Times, January 21, 2010. Available at http://www.nytimes.com/2010/01/22/business/global/22music.html (last visited Dec. 29, 2010).

[xi]See http://www.scribd.com/doc/40191948/Injunction-Lw; The Song Is Over, Portfolio, Oct. 27, 2010, http://www.portfolio.com/views/blogs/daily-brief/2010/10/27/judge-kimba-wood-orders-limewire-to-shutdown(last visited December 29, 2010).

[xii]The Senate has also proposed a similar bill, S. 379, 111th Cong. (2009), sponsored by Senator Patrick Leahy. This bill can be found at: http://thomas.loc.gov/cgi-bin/query/z?c111:S.379. While the House and Senate bills differ in detail, both bills include a statutory royalty with a tiered structure.

[xiii]H.R. 848, 111^th Cong. (2009). Full text of this bill can be found at: http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.848.

[xiv]The Digital Performance Right in Sound Recordings Act of 1995 (17 U.S.C. §§ 106, 114-115; Pub. L. No. 104-39, 109 Stat. 336)created an exclusive public performance right for copyright owners of sound recordings for certain performances made by satellite and cable digital subscription services, but exempted broadcast radio. http://en.wikipedia.org/wiki/Digital_Performance_Right_in_Sound_Recordin….

[xv]See GAO-10-428R at 2.

[xvi]See GAO-10-428R (Washington, D.C.: Feb. 26, 2010).

[xvii]See GAO, The Proposed Performance Rights Act Would Result in Additional Costs for Broadcast Radio  Stations and Additional Revenue for Record Companies, Musicians, and Performers, GAO-10-826, (Washington, D.C.: Aug 4, 2010). Available at http://www.gao.gov/new.items/d10826.pdf.  

[xviii]See GAO-10-826 at 12.

[xix]Id.at 12-15.

[xx]SeeGAO-10-428R at 4.

[xxi]SeeGAO-10-826 at 27-28.

[xxii]SeeGAO-10-826 at 4. (The GOA used royalty rates considered in previous rate-setting decisions—2.35, 7.25, and 13 percent).

[xxiii]SeeGAO-10-826 at 28-29; Id.at 2, fn. 4.(“While the proposed statutory license requires direct payment to musicians and performers, agreements between record companies and artists could take into consideration this additional source of revenue. Record companies and others in the recording industry have signed a Memorandum of Understanding agreeing that those signing the memorandum will not attempt to recover any performance royalties from the musicians or performers.”).

[xxiv]Available at http://www.scribd.com/doc/29299229/Commerce-Department-Letter-on-Perform… (last visited on Dec. 27, 2010).

[xxv]See Nate Anderson, Obama admin: time to make radio pay for its music, http://arstechnica.com/tech-policy/news/2010/04/obama-admin-make-radio-p… (last visited Dec. 28, 2010).

[xxvi]Id.; Fair or Not “The Performance Rights Act” will affect more than Artists’ Royalties, Oct. 24, 2010, http://musicindustryreport.org/?p=27721 (last visited Dec. 27, 2010)(Currently, China, Iran, and North Korea are the only foreign countries that do not provide a fair performance right on radio.).

[xxvii]See GAO-10-428R at 14.

[xxviii]Available at http://www.scribd.com/doc/29299229/Commerce-Department-Letter-on-Performance-Rights-Act(last visited on Dec. 27, 2010).

[xxix]See GAO-10-826 at30. The GAO report, however, did not factor into its calculations royalties that may due to foreign artist, which could negative the overall sum collected domestically.

[xxx]GAO-10-428R at 15.

[xxxi]Anderson, Obama admin: time to make radio pay for its music http://arstechnica.com/tech-policy/news/2010/04/obama-admin-make-radio-p…. (last visited Dec. 27, 2010).

[xxxii]Mike Masnick, How The Recording Industry Changes Its Own Story, Jun 16, 2009,http://www.techdirt.com/articles/20090614/2223175228.shtml (last visited Dec. 28, 2010); Masnick, Bailing Out The RIAA?, May 14, 2009,http://www.techdirt.com/articles/20090514/0218574881.shtml (last visited Dec. 29, 2010).

[xxxiii] Matthew Lasar, Performance Rights Act might shut down some radio stations

http://arstechnica.com/tech-policy/news/2010/06/gao-report-performance-r… (last visited Dec. 29, 2010).

[xxxiv]Anderson, Obama admin: time to make radio pay for its music http://arstechnica.com/tech-policy/news/2010/04/obama-admin-make-radio-p…. (last visited Dec. 27, 2010).

[xxxv]GAO-10-826 at 14; Donald Passman, All You Need To Know About The Music Industry, Seventh Edition, Free Press (New York 2009) at 234-236.

[xxxvi]See H.R. 848 Section 3: Treatment for Minority, Female, Religious, Rural, Small, Noncommercial, Public Educational, and Community Stations and Certain Uses.

[xxxvii]See Section 6: Payment of Royalties.

[xxxviii]GAO-10-826.

[xxxix]Lasar, Performance Rights Act might shut down some radio stations

http://arstechnica.com/tech-policy/news/2010/06/gao-report-performance-r…. (last visited Dec. 29, 2010).

[xl]GAO-10-826 at 8.

[xli]Amos Biegun, Fair Or Not, The Performance Rights Act Will Affect More Than Artists’ Royalties, Oct. 24, 2010, http://www.musicdish.com/mag/?id=12773 (last visited Dec. 27, 2010).

[xlii]GAO-10-428R at 12.

[xliii]Comments From The Copyright Office On GAO-10-428R (GAO-10-707SP), an E-supplement to GAO-10-428R, April 16, 2010. Available at http://www.rbr.com/radio/24888.html (last visited Dec. 30, 2010).

[xliv]GAO, The Proposed Performance Rights Act Would Result in Additional Costs for Broadcast Radio  Stations and Additional Revenue for Record Companies, Musicians, and Performers, GAO-10-826,  Appendix V: Comments from the Federal Communications Commission, page 56-57 (July 21, 2010).

[xlv]The Infinite Dial 2010: Digital Platforms and the Future of Radio at 15-16.  Available at

http://www.arbitron.com/downloads/infinite_dial_presentation_2010_reva.pdf (last visited Dec. 29, 2010).

[xlvi]GAO-10-826 at 11-20.

[xlvii]IFPI Digital Music Report 2010 at 19. 

© Copyright 2011 Nyasha S. Foy