Scott Hunter, the Executive Director of NRB’s Music License Committee (NRBMLC), testified last week before the Senate Judiciary Subcommittee on Intellectual Property to insist that no changes be made to the longstanding exemption from sound recording royalties granted to radio broadcasters for over-the-air radio transmissions.
NRBMLC is the only entity representing the interests of noncommercial religious broadcasters in the United States. It represents approximately 1,800 full-power AM and FM radio stations (comprising approximately 400 commercial and 1,400 noncommercial stations, respectively) in their musical work and sound recording licensing issues.
In his testimony, Hunter re-iterated the argument that the creation of a new sound recording performance royalty is unwarranted, unnecessary, and would inject damaging uncertainty into the delicate music licensing ecosystem – especially in the midst of the crises resulting from the COVID-19 pandemic.
Performance Fees Unwarranted
First, Hunter recalled that the goal of copyright law is not to maximize the revenues of copyright owners or the return to authors. Rather, the goal is to provide an appropriate level of incentive to induce the creation and dissemination of an amount of creative work that maximizes the overall welfare of society.
Radio broadcasters, he stated, “fulfill a unique and vital part of this goal by providing record companies and performing artists with valuable promotion of sound recordings to broadcasters’ loyal audiences and by giving record companies and artists the benefit of free access to each radio station’s branding efforts.”
“The tangible benefits provided by radio broadcasters certainly offset, and likely far outweigh, any royalty payment that would be assessed upon broadcasters for transmission of sound recordings over the airwaves,” he shared.
Performance Fees Unnecessary
Hunter went on to note that a new royalty is unnecessary because the promotional value and free access to loyal radio listeners that radio broadcasters offer to record companies continues to exceed the value of any new sound recording royalty.
“Since the early days of radio, radio broadcasters have greatly contributed to the income of the recording industry and performing artists and to the value of sound recordings. This promotional value remains strong today even with the advent of other music listening platforms and services,” he stated.
Hunter shared how artists and record companies regularly thank local radio broadcasters for “breaking” their recordings – introducing them and promoting them to the subscription-paying, record-buying, concert-attending public.
“The vast majority of sound recordings that exist today owe much, if not most, of their economic value to radio airplay,” he pointed out. “Even with the adoption of other digital means for people to access music, the recording industry goes to great lengths and spends hundreds of millions of dollars annually to induce radio broadcasters to play their recordings.
“If airplay did not pay, the record companies would not spend this money,” he posited.
The one thing record companies cannot do is directly pay broadcasters for the enormous benefits the broadcasters confer. Thus, broadcasters are able to play sound recordings, but are not entitled to compensation for the enormous promotional benefits they confer.
“A significant compensatory benefit they obtain for this value is the right to perform sound recordings without the obligation to pay a license fee,” Hunter noted.
For many decades now, Congress has decided not to upset the mutually beneficial relationship between radio stations and copyright holders by introducing a performance right. Instead, Congress established a system whereby no direct compensation flows in either direction.
And, Hunter added, it has “repeatedly reaffirmed that decision in the face of continued and unceasing pressure from the recording industry to create a new performance right.”
“At least unless and until broadcasters are granted the right to charge for the significant promotional, branding, and other programming benefits that they confer so that the market of rights conveyed runs both ways, it is unnecessary to create a new, one-sided performance right,” he stated.
Performance Fees Inject Damaging Uncertainty
Lastly, Hunter said new royalty would inject damaging uncertainty and harmful unintended consequences for radio broadcasters. He pointed out that the hearing was being held in the midst of a once-in-a-century global pandemic – when very little about the future of most businesses, including radio broadcasting and the recording industry, is clear.
“While we can take comfort in the resilience of Americans to emerge from this crisis on solid footing, and hopefully stronger than ever, the short- (and even mid-) term economic impacts to our industries already have been chaotic and disruptive,” he stated.
“Any action between now and the end of 2021 to introduce a new performance royalty that justifiably and repeatedly has been repudiated by Congress over many decades would only exacerbate this uncertainty and would undoubtedly lead to unintended consequences.”
Hunter also suggested that the introduction of a new performance royalty could possibly lead to wholesale format changes by many radio broadcasters away from music and towards talk programming – especially as the impact of the current pandemic, coupled with declining profit margins, have forced many operators into survival mode.
“The introduction of increased royalty costs may very well force many of these stations to consider shifting programming away from music and towards spoken word,” he said.
“This is one example of a counterintuitive but very possible unintended consequence of a new performance royalty – fewer artist performances, and concomitantly less exposure, rather than increased royalty payments.”
Another uncertainty associated with implementing a new performance royalty is the relative impact to independent artists who do not get big promotional pushes from the three major record companies.
Independent record labels assert that their artists would reap a larger portion of royalty revenues if this new performance royalty were enacted, but Hunter pointed out that there is a significant possibility that independent artists would fare worse with a new royalty in effect.
“If the cost of licensing songs increases, the incentive to air more mainstream popular (i.e., less independent) music only intensifies,” he stated. “Put simply, the more that a broadcaster pays to play a song, the more conservative it may be about which songs it plays and which artists it features. The marginal cost of playing each track is the same, but the commercial payoff in the form of increased listeners, ratings, and ad revenue, is greater for established artists.”
Hunter concluded his testimony by urging that no action be taken at this time with regard to the creation of a new sound recording right for over-the-air radio broadcasting.
The May 27 hearing was part of a larger inquiry into the potential need for updates to the Digital Millennium Copyright Act.
NRB has long opposed a radio performance tax in any form and voiced concern with proposals such as the Fair Play Fair Pay Act and the more recently introduced Ask Musicians for Music Act, which has failed to gain any co-sponsors since its introduction last November.
NRB supports the Local Radio Freedom Act, which declares that Congress should not impose any new performance fee, tax, royalty, or other charge relating to the public performance of sound recordings on a local radio station, for broadcasting sound recordings over-the-air, or on any business for such public performance of sound recordings. The legislation is sponsored by Reps. Michael Conaway (R-Texas) and Gene Green (D-Texas) in the House and Sens. John Barrasso (R-Wyo.) and Heidi Heitkamp (D-N.D.) in the Senate. The legislation currently has 211 co-sponsors in the House and 27 in the Senate. A 218 majority is needed in the House to block any bill from passing.