Should Radio Broadcasters Pay a Performance Tax?

I have been on a “vision quest” the past three months. A quest for knowledge. A quest for lessening the tension created in my mind over three things I love dearly – the Copyright Act, broadcasting and music.

This past GRAMMY® awards in 2015 saw The Recording Academy ban together with other interested parties to require free, terrestrial broadcast to begin paying royalties on sound recordings to artists and labels. They want artists to be “fully compensated” for the creative work they create.  The broadcast community is against this.

I am a proud second generation broadcaster. My father instilled a love of radio in me at a very young age. I am also a musician who was blessed to learn to play the piano, even taking lessons in college. Music runs in my veins alongside life-giving oxygen. Some of my favorite people and friends are musicians who feed their families because of music. I appreciate the work my fellow attorney friends do on behalf of major record labels. I am SUCH a fan of The Recording Academy and have loved the GRAMMY awards ever since I can remember. Because of ALL these things, I have been intellectually torn over the past year.

While my father instilled in me a love of a radio at a young age, my parents also made sure their strong-willed child always made her mind up for herself. I was encouraged to research, think, reason and come to my own conclusions, even if it ultimately did not agree with theirs. Much to my parent’s chagrin, this encouragement has often led to many debated points and frustrating conversations. So, I have been on a vision quest the past three months.

I have been researching. I have been reading. I have been thinking a great deal. What did I believe? What did the law say? What makes sense economically? And, what about the general public? I decided to make good use of my research by agreeing to present the topic to the Intellectual Property Section of the Mississippi Bar as part of a Continuing Legal Education talk this past week. The deadline and the pressure of articulating the law and what I believe helped to motivate me.

I decided to take this topic on knowing I might not end up agreeing with the stance of my family and broadcasting employer, but coming to solid ground in my mind was important to me. I did this knowing I would inevitably not agree with some of my friends, people I respect.  It took me a moment, but I have reached a conclusion. Since this post is a bit more complex and longer than some of my others, I have divided it up by headings, which I hope is helpful.

What is Terrestrial Broadcast and What is Not?

Terrestrial, free, over-the-air radio broadcast is dial position based. You do not pay a subscription fee to receive it, you simply need a radio to receive the signal. It is limited by geography, meaning once you travel outside the range of the radio airwaves you can no longer receive the signal. Unlike satellite radio, Pandora, Spotify, apps on smart phones or other web-based services, you have no ability to interact or control the music played outside of calling in a request to the local station and hoping the radio personality is kind enough to put your song into the rotation. A person cannot change the format from country to rock on a station with a click of a button, like you can with Pandora or Spotify.

What Parts of Copyright Law are in Question?

For every song played on the radio, Pandora, Spotify or that you listen to in your home, there are two (2) copyrights on the song recognized by The Copyright Act. There is the musical work copyright and the sound recording copyright.

The musical work copyright protects the songs and lyrics, the sheet music. The sound recording copyright protects the actual recording of the song, or the way the musical copyright/sheet music is recorded. The songwriters and publishers receive royalty from the exploitation of the musical work copyright, and the record labels receive money from the sound recording’s exploitation. Most of the time the recording artist also receives royalty money from the sound recording; how much the artist receives is dependent upon the contract agreement/negotiations they enter into with their respective record label.

To visually see how this looks, check out this graphic I put together.

Legal Anatomy of a Song

What Does Broadcast Radio Currently Pay?

Terrestrial, free, over-the-air radio broadcast currently pays royalty rates on the musical work copyright of a song. Radio broadcast has never paid royalty rates on sound recordings. The reasoning behind this is because of the value radio provides to record labels and artists. The value is not only in exposing people to new music, but is also in the ancillary services radio provides like increasing ticket sales when an act comes thru a town or providing a platform for the artist to be interviewed. There are also some very good public policy reasons behind providing wide and free access of music to the general public.

The Copyright Act states “The performance of a sound recording publicly .. is not an infringement of section 106(6) if the performance is part of (A) non-subscription broadcast transmission.” 17 U.S.C. §114(d)(1)(A), Limitations on Exclusive Rights. The Copyright Act has not provided an exemption for broadcasters. Rather, the Copyright Act simply states it is not infringement of the exclusive rights held by copyright owners; therefore, no licensing and no royalty payment for use is necessary for the sound recording.  For more on the exclusive rights held by copyright owners, read my earlier post The Magic Wands of Copyright.

Digital radio services like SiriusXM, Pandora, Spotify and on-line based radio stations do pay royalties on both musical work copyrights and sound recording copyrights. Digital transmissions of sound recordings are covered under the Copyright Act. These services, which require money to be paid in order to receive access, compensate for both copyrights held on music.

What Do the Record Labels and Artists Want?

The record labels, artists and friends are now advocating for terrestrial, free, over-the-air radio broadcasters to also pay a royalty on the sound recording copyright of each composition, much like the on-line music subscription services. They are wanting Congress to intervene and for changes to be in The Copyright Act that would require free over-the-air terrestrial broadcasters to pay for sound recordings aired.  The record label group is wanting this additional revenue stream because of changing industry conditions.

It is no mystery digital music services have hurt album sales, the music industry needs a reliable revenue stream and digital sales have not filled the profit margins for labels. The bulk of their claims state a change to what broadcast radio should pay is necessary because terrestrial radio is no longer relevant. It does not provide the service it once did. Therefore, free over-the-air broadcast should not enjoy an exemption from paying this royalty also.

The broadcasting industry claims the payment would not only create an economic hardship, especially for smaller broadcasters, but is also unnecessary because radio provides a free service to record labels and artists by providing a readily and easily accessible vehicle for exposure to over 239 million people each week. They do pay a royalty to the songwriters and publishers, the holders of the musical work copyright, because those entities do not receive the free promotion and exposure labels and artists receive.

Both sides can agree their reasoning is based on economics.

What Did Ryanne Decide?

The music industry has changed. Record labels and artists do need to find some way to fill the gap created by the change in technology. They need smart ideas, new revenue streams and good business minded decisions for their companies. I feel for my musician friends and record label buddies because I am not certain of a solution. However, doing so at the expense of free over-the-air terrestrial radio broadcast is not the answer.  The public good of broadcasting and access to music far outweighs any business concerns, even if I did not play for Team Broadcaster.

The group advocating for broadcasters to pay more base most of their argument on the idea that free over-the-air radio is no longer relevant. To them, the lack of relevancy means they should pay. Further, since digital music services are here to stay and pay then so should free over-the-air broadcast. The existence of digital services decreases the relevancy of free over-the-air broadcast.

The facts show free over-the-air radio reaches 239 million people each week. Radio has and continues to be a free source for the public as a whole to be exposed to new music. Unlike satellite radio or web-based services there is no subscription fee to access it. And, while there are other choices via digital services, it is still the most widely consumed product for music.

For me and most others, radio increases the desire to purchase music. Just because a song is popular today and is on heavy rotation (for my non-broadcasting readers that means you are hearing it at least every hour and a half) does not mean that a year from now you will ever hear it. Purchasing music is necessary in order to continue to hear the songs and artists you love. Purchasing music is also necessary in order for me to have complete control over what I hear and the order in which I hear it.

The promotional value free over-the-air radio provides goes way beyond simply selling music. Who is the main source the public looks to in order to find out what concerts are coming to their area? Who is the group that pushes ticket sales to those concerts, which then leads to t-shirt sales, program guides and more music being purchased? It’s the local radio stations.

In the 80 plus year history of radio, record labels and artists have never compensated terrestrial free over-the-air broadcast for the hours upon hours of service it has provided. In fact, it is actually forbidden for a broadcaster to receive anything of value from a record label with the idea the artist they are representing will then get air play on the radio station. This is called pay-for-play, is a bribe and is illegal unless the broadcaster points it out obviously, which would be nearly impossible to do in a way that satisfies the requirements.

While this sounds like backdoor dealing made famous in movies based in the 50s or 60s, it is still very much a real thing. While record labels cannot offer bribes to stations, they still place resources and time towards encouraging program directors at radio stations to give their new Lady Gaga hit a turn in the play list line-up. Record labels to this day hire contract workers to make calls to reporting radio stations and highly encourage program directors to add their music. Why take all of this time, if radio is no longer relevant?

What about The Copyright Act? Isn’t its purpose to protect for a limited amount of time and to provide protection for the arts? Yes, absolutely. However, our nation was founded upon and values access, and wide access, to a variety of types of art. It is and I hope always will be important to our country. This type of free access is the reason we have libraries. There is the initial first sale of the book (i.e. revenue to the author who created it and completely in-line with The Copyright Act), but after that books are placed in libraries for public consumption because it is important for a well-versed and educated populace.

Congress has stated main times the, “main purpose of the Copyright Act is the public good of use and access to works of art, even if such a public good comes at the expense of the author of the work.” Webber, Amanda. “Digital Sampling and The Legal Implications of its Use After Bridgeport,” pp. 387-388. In the same way libraries offer important access to books on a free or reduced fee, the same arguments apply to free over-the-air radio. It serves the underserved, the non-broadband connected with no access to internet, by providing them a free or very inexpensive way to receive and be exposed to new music. It provides access. To penalize that service so that it snuffs out a complete business model feels un-American. What other vehicle is available for wide consumption and exposure to new music at a nearly free cost?

While the music community touts they are not fully compensated by free over-the-air terrestrial broadcast, I would argue they are compensated by broadcasters. More than compensated. America has the most successful music system in the world, and it was built on the backs of free over-the-air terrestrial radio broadcasters. The labels have never once paid for all the services free over-the-air broadcasters provide, nor should we want to live in a country where they do. It would lead to only those with the deepest pockets getting exposure on radio. Where is the creativity or free-choice in that? It is already hard enough for an independent artist to ever hope to get a break.

Free over-the-air radio broadcast continues to be the best source of reaching wide groups of people and exposing them to music. While technology creates different types of devices for consumption, dial positioned based radio is still simply the best, least expensive and serves the underserved of our country. The Copyright Act is wonderful, but it is important to always keep in mind access to the arts and the public as a whole.  Just like we have new devices to read books, libraries still have the ability to freely rent out books to the general public. The ability to access and be exposed to new art and creativity is important. It should always be important, protected and celebrated. Making sure free over-the-air broadcast still has the ability to broadcast and is a viable revenue stream is something the record labels should be championing.

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