The recent brouhaha spawned by the Copyright Royalty Board’s revised rate structure for sound recording rights on Internet radio has had an important secondary effect: It has drawn attention to a seeming imbalance in royalty rates paid by different forms of radio.
Rights fees have been paid by Webcasters since 2002 and by satellite radio essentially since its inception, yet terrestrial radio broadcasters are exempt from them for over-the-air programming.
In essence, the statutory license for sound recording rights established by the U.S. government allows the largest and most profitable segment of the radio market to pay nothing to rights holders while the emergent players (satellite and Internet radio) pay a substantial — and likely increasing — amount for the same rights.
A reasonable outsider might see this as a serious disparity.
The lack of U.S. broadcast royalties also has thwarted the establishment of reciprocal agreements with other countries where terrestrial radio does pay such fees. Thus American rights holders are deprived from collecting revenue from their substantial airplay abroad due largely to the domestic U.S. broadcaster exemption.
Of course, there are numerous reasons behind such tiered rates, not least of which is the simple historical process under which each section of copyright law that governs these matters was created. Different times — and different regulators or legislators — produce different rules. The business models and competitive environments of the respective sectors also vary significantly. And of course, there is the traditionally held quid pro quo of increased record sales due to terrestrial radio airplay.
To many observers, though, terrestrial radio seems like it’s getting something of a free ride. The longer the discussion of revising royalties continues, the more scrutiny will be placed on this “platform inequity” and the more risk that radio will lose its historic free pass.
Radio has benefited from the license arrangement, and it has survived challenges. But in the past, terrestrial radio never had such closely fashioned competitors working under such dissimilar rules. (The last time this came up, the industry didn’t need the “terrestrial” modifier.) Today, a harsher light would be shed on broadcast radio in any such inquiry. The addition of new digital delivery methods further supports those who argue that terrestrial radio is ripe for reassessment.
Some wonder how much appetite major record labels will have to challenge the status quo for terrestrial radio; but under the new CRB process, this issue is likely to come up, perhaps early next year.
We expect broadcasters to mobilize strongly against this. NAB’s David Rehr knows there’s a risk and used his recent NAB keynote to ramp up the rhetoric against labels. “Imagine the brazen greed it takes for the record companies to expect us to pay them for the honor of marketing and promoting their artists’ music,” he said. “It would make much more sense for us to charge them for our promotional efforts.” Once joined, this battle could make the current Internet radio struggle seem like a gentle skirmish.
Radio critics can make strong arguments on this case, in part because the industry has failed to nourish its valuable relationship with labels. Radio had best gird for a fight. Meantime, stations would do well to learn from the current hubbub among Internet broadcasters and ask themselves what would happen if the “free music for free promotion” understanding with labels were to unravel.
— RW
