BY DANIEL MCSWAIN
In an effort to stave off what could become a major hurdle for terrestrial broadcasters, NAB president David Rehr sent a letter yesterday to members of Congress urging them to "oppose the imposition of a new performance tax" that could resemble the performance royalty currently paid by digital music transmissions like Internet radio.

The letter comes after an article in the Hollywood Reporter stated that music industry groups "are gearing up to lobby Congress for a performing right over terrestrial radio." The article names the RIAA, SoundExchange, AFM, AFTRA, and A2iM among the recording industry groups supporting this performance royalty proposal.

Terrestrial broadcasters have traditionally payed songwriter royalties to ASCAP, BMI and SESAC, but have been exempt from performance royalties similar to those levied on digital broadcasts in recent years. Rehr, in his letter, writes that, "radio has prospered with the use of recorded music, and record labels and performers have benefited from airplay and other promotional activities of local broadcasters. From this free airplay, the recording industry enjoys increased popularity, visibility and record sales."

Rehr's letter also argues that, historically, Congress has "repeatedly declined to impose a performance tax on radio broadcasters," and that an additional royalty would disrupt what he calls "the epitome of fairness for all parties: free music for free promotion."

Read the NAB's letter to Congress here (.pdf).

...

. A lucky "historical accident" Representatives of the music industry lately have been calling the lack of a performance right (i.e., royalty payment) for sound recordings when played on terrestrial radio in the United States a "historical accident," as if for the past 70 years Congress simply forgot to grant that right. The truth is that Congress has correctly understood the promotional value of radio airplay better than the record labels themselves have understood it. As a direct result of this "historical accident" that's unique to the U.S.,  the record industry in the U.S. has become the the largest and most profitable in the world! Yes, CD sales are down lately, but that's not due to consumers replacing CD purchases with radio listening. It's due to things like increased competition from video games and DVDs, which are wildly undercutting CD pricing in terms of value per dollar spent, and inappropriately-high download pricing (with the music industry trying to maintain or even raise prices, even when all of the costs of physical distribution are removed from the sales process).  The purpose of copyright law is not to prop up every industry suffering a sales decline. Rather, it's to insure that artists (e.g., musicians) are motivated to keep producing art (e.g., music) for the benefit of the public.  And, as Rehr correctly notes, the current "free music for free promotion" solution seems to be the world's best solution to achieve that end. -- KH ...

Note: The following article contains revisions and corrections (underlined below; added 5/14/07) based on RAIN reader feedback -- I had a couple of important facts wrong in my original piece. Thanks to Jim Griffin, Gary Greenstein, and Rusty Hodge, among others, for helping set me straight. -- KH


Business Week Online recently published a "Viewpoint" piece by SoundExchange executive director John Simson (pictured right), the first of a series of opinion pieces regarding the Copyright Royalty Board's decision on webcaster royalty rates.

In our presentation here, we've interjected responses and counter-arguments from RAIN Publisher Kurt Hanson into Simson's article. The full article is available here.

"There's a lot of commotion in Washington these days over Internet radio royalty rates. Much of it is coming from large corporate Webcasters and their lobbyists, who are trying to execute a classic Washington end-run. They don't like the results they got from a process they set in motion, so they have gone back to Congress with sky-is-falling histrionics in hopes of getting a do-over.

"They're hiding behind a coalition that portrays itself as being a grassroots movement made up of small, independent Webcasters, when in fact large corporate Webcasters funded the coalition and are calling the shots.

x RAIN analysis: I can personally assure you that the coalition that has come together under the name SaveNetRadio.org is in fact a mix of large webcasters, small webcasters, public radio stations, commercial broadcasters, and working musicians, with the various parties making contributions (manpower, cash, etc.) in accordance with their means, and is in fact simply an expansion of the efforts that began with the small webcasters' website, our very own SaveTheStreams.org. x

"The issue? Fair and reasonable royalty rates to compensate performers and record labels when their music is played via Webcasting (also referred to as Internet radio) and on satellite radio and cable audio music channels...

"After the first Webcasting proceeding ended in 2002, Webcasters claimed that the process cost too much and yielded unfairly high rates, so they successfully lobbied Congress to set up an impartial panel to set rates. This resulted in the creation of the Copyright Royalty Board (CRB), comprised of three impartial expert judges...

"Large corporations like Time Warner's AOL, Microsoft , Yahoo!, and Clear Channel are in the Webcasting business in a big way. But you would not know it from the coalition set up by big Webcasters to fight the CRB's decision. According to the Chicken Little-themed coalition, the industry is made up of small, independent business Webcasters, and the new rates will cause Webcasting to "die."

"While nothing could be further from the truth, a bill was recently introduced by Representatives Jay Inslee (D-Wash.) and Don Manzullo (R-Ill.) that would drastically cut the royalty rates and provide large commercial Webcasters with an estimated annual windfall of $10 million or more that would otherwise be paid to artists and labels. Comparable legislation was introduced in the Senate May 10 by Ron Wyden (D-Ore.) and Sam Brownback (R-Kan.).

"If the intent of the Inslee and Manzullo bill was truly to help small Webcasters, a bill to push forward the Small Webcaster Settlement Act of 2003 would have accomplished that. In 2003, Congress decided on policy grounds that small Webcasters should receive a below-market rate, given the infancy of the medium.

"Viable, financially profitable Webcasters seem to feel they should be able to play music and make a healthy profit without fairly compensating performers and record labels...

"To put the whole matter in context consider that, under terms of the CRB decision, a consumer who listens 40 hours a month to one Webcaster will cost the Webcaster only 68 cents a month in royalties in 2007—a sum far less than most Webcasters charge listeners for subscriptions.

"A pretty fundamental premise for running a business is that if you make a product, you sell it for whatever price you wish and keep the profits—but if you don't make the product, you sell it only if you pay a reasonable fee to those who did make it. But that's a premise with which some of those in the Webcasting business don't agree, and that's why they're running to Congress to escape.