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Radio Royalty: A New Dynasty Born?

Jousting Heats Up Over Ye Olde Broadcast Exemption, and We Provide the Play-By-Play

The issue of performance royalties for the airplay of music on the radio has been contentious over the past several years, and while it has followed the typical ebb and flow of legislative calendars, it just won’t go away. Initial discussion of the issue was limited to Internet and satellite radio, but in the last year or so it has spread its potential scope to over-the-air (OTA) broadcast, so both the stakes and the rhetoric naturally have ramped up.

The changing face of federal politics has also played a role in the latest trends, so the story has recently become even more volatile.

For those who don’t spend a lot of time thinking about these things (like most of us working in radio), let’s take a moment to review what the issues are and how we arrived here.

Some background
Copyright law in the United States has long provided methods that were intended to maximize the commercial potential of intellectual property. Among these are so-called “compulsory licensing” and “statutory royalties.”

Compulsory licensing is a legal framework that grants a legitimate user of published content an automatic license to use any content published in the U.S., without requiring permission of the copyright holder for the usage rights set by that license. Typically, the arrangement further states that the user will compensate the copyright holder for certain usage, based on standard fees that are set by the federal government — the so-called statutory royalty.

This usage generally centers on so-called “performances,” which hearkens back to the days before electronic media. Consider the public performance of a musical work or a play. The thinking goes that since a musician (or orchestra, theater troupe, etc.) is typically compensated for its performance of a work initially created by a third party (i.e., a composer, playwright, etc.), a portion of the performance’s compensation should be paid to that originator of the work.

Thus the term “performance royalty” often is used to describe this process. The “statutory” term is applied when the royalty terms and rates are governmentally set rather than mutually established by the parties in bilateral negotiations (i.e., contracts).

When electronic media came along, recordings and broadcasts of such content also were considered as “public performances” and thus subject to similar licensing rules.

Today compulsory licensing does not apply to all forms of copyrighted content in the United States — for instance it does not apply to software — nor does it apply to all possible uses of content.

For example, it covers the performance of published music, but not to the resale of that music’s recordings. Permissions and terms for the latter must be negotiated directly between the seller and the rights holders. Insofar as our interest here goes, however, compulsory licensing currently does apply to the broadcast of published music in the U.S. today.

This means that broadcasters can play any music they want, without any clearances required from the record companies, artists or songwriters involved.

(First flag: This is unlike almost every other country in the world, where radio broadcasters must obtain some clearance from rights holders prior to broadcast; it is also different than the film and television industries even in the United States, where music clearances are required for each work used.)

This obviously is a great convenience for the radio industry, but the story of radio’s special case doesn’t end there.

Free ride
U.S. radio broadcasters also have uniquely enjoyed an exemption from paying statutory royalties to the rights holders of the recordings they play on the air.

Note the word “recordings” in the previous sentence, however, because U.S. radio broadcasters do pay statutorily set royalties to songwriters for the songs they broadcast. Those are fees paid to ASCAP, BMI and SESAC, which then redistribute them to their songwriter members. These are separate royalties from those assessed for the use of a particular recording of a song, the rights for which are usually held by a record label or other music publishing company.

(Second flag: Royalties for songwriters hearken back to the sheet-music and piano-roll days, which predated radio; royalties for recordings came into effect after radio broadcasting was well established, so some would argue that radio was grandfathered in on its exemption.)

A fundamental reason often given for retaining the broadcast exemption from recording royalties over the years is that radio airplay generated increased record sales, so a quid pro quo was achieved.

(Third flag: While this makes intuitive sense, it does not appear in a codified manner on any relevant statute.)

In fact, so influential to record sales was this airplay considered that it sometimes engendered payments in the opposite direction — by record companies to radio stations, to secure guarantees of airplay. Of course, this was ultimately deemed illegal under a broadcaster’s license terms (“payola” and “plugola” rules), but that’s another story …

A new chapter
Upon this classical stage, enter the era of digital broadcasting.

Now “radio” is no longer an unmodified term; it comes in three different flavors (so far): satellite, Internet and traditional “terrestrial” (or “local”) radio.

Because the two newer forms came into being after U.S. Copyright Law acknowledged compulsory license and statutory royalties for music recordings, those mediums have paid both songwriter and recording performance royalties since their inception, while terrestrial broadcasters have continued to enjoy their exemption from the latter.

Complicating things further, satellite and Internet radio each pay these statutory royalties under separate rate plans, since they are respectively covered by different sections of U.S. Copyright law.

Moreover, since they are both considered still to be emerging technologies, each of their royalty rate schedules are reviewed and potentially adjusted every five years or so.

Most of the recent squabbling about music royalties for broadcast has been over the methods of setting and adjusting these rates, which Congress delegates to the U.S. Copyright Office.

(Fourth flag: The Copyright Office is not a part of the Executive Branch, where most other similar regulatory functions are managed, but actually an arm of the Library of Congress, and thus still part of the legislative branch of the federal government.)

Justifying inequities
Although this is not the first time OTA radio’s exemption from royalties has been put in the congressional spotlight, it has always escaped intact from previous challenges. But connect the dots noted in the four “flags” above, and you’ll see how far out on a limb this exemption stretches, and how Congress — and Congress alone — must now decide if it should stand further.

All the discussion about Internet and satellite radio royalty rates in recent years has heightened awareness of OTA radio’s unique case here, and some observers believe it is becoming less likely that the tradition will remain unchanged for long. Broadcasters rebuffed efforts to establish new royalties in the last Congress, but there is a growing sense that the current Congress may provide a different outcome.

As a result, the rhetoric on all sides has ratcheted upward, and it’s becoming a story in itself. Next time we’ll consider the latest arguments raised by both the music and the broadcast industries, and make some projections for the tourney’s outcome.