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Radio Royalty Re-dealt

Wherein We Put on Our Best Poker Face and Flush Out the Arguments of Both Players

Last time we set the stage for the battle royal — make that the royalty battle — that is playing out in Washington over whether radio broadcasters should pay performance rights for recordings of music that they play over the air.

Since then, we’ve heard even more rhetoric on both sides of the issue. How these arguments ultimately settle will determine which side gets the most traction and prevails.

Let’s run through a few of these points and play devil’s advocate to test their merit.

Is it even copyrightable?

Fundamentally, a few still question whether the recording of a song is actually a copyrightable work in itself.

After all, it wasn’t until the early 1970s that a special form of copyright — called the phonogram,

— was even created for such works. This distinguished the recording from the underlying song and made the individual instance of the original composition a copyrightable, artistic work of its own.

Prior to that time, recordings had been simply considered a necessary or convenient vehicle, often referred to in legal parlance as “mechanicals.” While this concept remains, along with a similar right for “ephemeral recordings” required for the convenience of broadcasters (originally for carts or tape automation systems, now for hard-disk copies), the phonogram elevated the published musical recording to a stature roughly equivalent to the original song.

Most legal scholars today consider this water under the bridge, but the distinction remains in some memories, and is still considered a “recent” change by legislative standards. It generally resurfaces whenever these royalty issues are on the table.

A more current matter along these lines came up a few years ago when the World Intellectual Property Organization considered a “Treaty on the Protection of Broadcasting Organizations,” which would have created a new copyright for broadcasters on the programs they aired, even if they did not contain original content.

Note the similarity here to the phonogram right, whereby one is granted a copyright for the performance of a work in which he/she has no rights to its original creation. The treaty has been proposed and deferred several times, most recently in 2008, and it could be back on WIPO’s table again anytime.

The point here is to show just how arguable (and re-arguable) copyright issues are, particularly for the kinds of “nested” rights that come up in the context of distribution or derivative-works discussions. The Internet and today’s culture of sampling, mash-ups and YouTube is only deepening this debate, and keeping the entire area quite legally fluid.

Thus these royalty questions indeed are built upon a house of (face?) cards, and a single court decision or new law could substantially reshuffle the deck at any time.

For the plaintiff

Playing Card iStockphoto/Kasia Biel; Knight iStockphoto/bubaone Moving to the arguments, the music industry’s position is fairly simple and consistent, essentially stating that all forms of music performance/distribution should be subject to some form of statutory royalty.

Occasionally, precedent also is cited, given that other media in the United States — and broadcast radio in most other countries — already pay these royalties. Just how fees for the various platforms are determined and collected is where things get more complicated, but those are details for another day.

The traditional defense to this argument by broadcasters is that radio airplay stimulates record sales, so a quid-pro-quo inherently exists, and no further compensation should be required.

Some broadcasters even feel payment should go the other way, with record companies compensating broadcasters for their promotional efforts (see the Guest Commentary by Tony Coloff in the May 20 RW); but, of course, there are other statutes on the books regulating this, as we discussed last time.

The music industry’s rebuttal: Even if radio airplay does stimulate record sales, this does not eliminate the requirement for equitable royalties to be assessed.

Music proponents stress something that seems to have escaped many broadcasters (Tony Coloff apparently among them): Without the free and unfettered access to broadcast music that stations enjoy, they would have no audience. As the primary audience attractor for most U.S. radio stations, these music recordings are the foundation of music-radio’s business model. This should be worthy of some direct compensation, the music industry opines.

And what of non-music stations — sports and news formats, primarily? Their content is not acquired freely, nor is it available via compulsory license. The bilateral negotiations these stations undertake to obtain their content generally results in exclusivity clauses and significant cost (in cash or barter). And this is notwithstanding the promotional value that the content originators (sports figures, network personalities, syndicated talk-show hosts, etc.) might accrue from the stations’ broadcasts.

So the argument comes down to a kind of détente over who needs whom more: Record companies or radio stations? And since radio pays for the acquisition of broadcast rights for other audience-attracting content it doesn’t own, why not do the same for music?

For the defendant

In contrast to the relatively focused music industry argument, U.S. radio broadcasters’ positions against paying these royalties are diverse, and continue to take on new directions as the debate ensues.

Over the course of recent discussion, these arguments have included the following, distilled to their essentials:

  1. Radio airplay sells records, as discussed above;
  2. Any new royalties assessed won’t go to the artists — it will just line the pockets of record labels; and,
  3. Radio can’t afford this right now; small and minority stations will be hardest hit.

Let’s examine these a bit further — individually first, and then in combination.

On point #1, beyond the counterpoint presented above, broadcasters also observe that record companies spend good money to promote their records in the hope of airplay, so that proves its effectiveness.

To that, however, music industry experts often respond that they sell a lot of records and fill a lot of halls for artists that get little or no radio airplay. So whatever the value of airplay, they argue it is declining in terms of its relative impact to overall music industry revenues. Deeper discussions also present data showing how the relationship between airplay and sales is not always as straightforward as radio broadcasters might think.

Next, NAB’s recent premise that new royalties would not actually benefit artists much is a curious one. First, it seems intrinsically contrary to broadcasters’ first point, to wit: If royalties will be siphoned from artists by labels, doesn’t the same nasty practice apply (potentially even more so) to revenues from record sales?

Music industry representatives generally respond here that record deals are individually negotiated by labels and artists, and the most candid among them will admit that some deals are better than others, occasionally producing disproportionate profit to labels at the expense of the artists involved.

They will then argue, however, that the current structure for U.S. statutory broadcast-performance royalties (i.e., those collected today from satellite and Internet radio by Sound Exchange) explicitly addresses this issue by stipulating that 50 percent of a recording’s royalty goes directly to its performers, regardless of who owns the rights to the recording (typically the record company). The latter party gets the other half.

Since performance royalties for on-air broadcast probably would be collected by similar means, broadcasters’ argument here is weakened. In fact, when fully laid out, this point oddly strengthens the opposition on item #1, in that the new royalty would at least partially redress the grievances that exist under the assumption that artists benefit from the record sales generated by airplay. Put together, this seems to be an argument that you can’t have both ways.

Broadcasters’ third point above, also made recently by NAB, seems even more vulnerable to attack. The fairly obvious counterargument states that radio stations’ current financial conditions have no bearing whatsoever on the merits of a royalty. Critics would argue that the ability to pay rarely obviates such assessments, and broadcasters may not want to risk opening their books to any further scrutiny right now, anyway. Further, if this were a viable argument, it would certainly apply far more to independent Webcasters, many of whom are far less able to afford the royalties they already pay for online music streaming, so they shouldn’t have to pay it either.

Another reaction to #3 above that is gaining momentum among lawmakers involves the platform inequity issue: If broadcast radio can’t afford to pay these royalties, why should Internet and satellite radio have to? Doesn’t airplay on the latter forms generate record sales, too? And does it make sense that the only currently profitable sector of the industry is exempted from these royalties, while the emerging components are not? Arguments that the technologies are different enough to warrant separate compensation schemes have been lost on many legislators.

But it can be plausibly argued that if on-air radio airplay generates its own reward from record sales, then satellite and especially Internet radio could generate even more such sales per capita, given the latter media’s richer and more consistent metadata that better identifies artists, song titles and albums — even with direct click-throughs to online sales venues on some Internet radio sites.

And if you want to compare business impacts, consider the fate of the music industry due to the precipitous decline in record sales. This is not radio stations’ fault, of course, but neither can one blame the music industry for seeking alternative shelter in a rapidly changing environment.

Finally, there is the slippery slope that radio has already entered: If it’s acceptable to broadcasters to pay royalties to songwriters for airplay, why not to recording artists? And if it’s OK for broadcasters to pay royalties for online streaming, why not for on-air broadcasts?

All this contributes to the overt posturing that much of the radio industry has maintained throughout this process, which some observers feel has been disingenuous and counterproductive to reasoned debate. The NAB’s labeling of the proposed on-air royalty as the “Performance Tax” is one good example — although the term seems to have gained traction only within the radio business itself. Another is the naming of proposed legislation banning new royalties as “The Local Radio Freedom Act.” Some critics feel this may not be the best strategy to garner allies and build sympathy for the cause.

Handicapping the outcome

Parsing the arguments shows how difficult the broadcasters’ position is to defend on this matter. Their highly nuanced positions are open to easy attack, and the frequently changing (and sometimes self-defeating) arguments raised by the industry have presented the appearance of desperation to some observers.

So far, music industry forces indeed appear to be winning the day. It seems about the best broadcasters can hope for is keeping the issue off the table this session, but that would likely be only a temporary reprieve. Recent moves toward compromise — such as proposed annual flat-rate caps on the fees assessed to small and minority broadcasters — may thwart even this result, however.

If I were a betting man, I’d put money on legislation that levies these new royalties on over-the-air radio broadcasts becoming law within the next three years (maybe much sooner) — perhaps with a phase-in, and likely with caps on certain parties’ assessments (which might be periodically revisited).

But it’s never a good idea to mix gambling with politics — or are they synonymous?

Skip Pizzi is contributing editor of Radio World.