Fair Play and American Exceptionalism

On December 24th, 1906, Reginald Fessenden, his wife, and a few helping hands began performing live music and readings of bible passages over the airwaves, representing the first time that radio was used as a music based entertainment medium rather than exclusively a public service announcement platform. Similar stations followed suit, leading to the model becoming more popular, and necessitating the creation of the “American Society of Composers, Authors, and Publishers” (ASCAP) in 1915, for the purpose of collecting royalties on behalf of songwriters whose compositions were being performed publicly both over the airwaves and elsewhere. ASCAP provided a way for composers to collect royalties from public performances of the individuals who bought their printed music and enabled songwriters to be compensated financially even if they weren’t performing the piece themselves, such as live performances over the radio. However, performing musicians without songwriting credits were yet to be compensated for the public performance of their sound recordings, and would not be for some time. The issue of compensation for sound recordings remains a point at contention between the recorded music industry and the American broadcasting industry to this day.

The music-radio relationship in the United States remained fairly consistent for at least half of the 20th century. Once phonograph recordings hit the radio scene, musicians saw radio airplay as a prerequisite for selling large sums of records in addition to selling tickets for performances. Local radio stations benefited from popular recorded music because they were able to grow a larger listenership, which allowed them to generate more advertising revenue. This relationship was seen as relatively symbiotic until the very definition of the word “radio” began to expand around the 21st century with a series of technological advances in the platforms through which people listen to music.

When Digital and interactive radio services were being developed in the mid to late 90s, they instigated a string of amendments to The Copyright Act of 1976. These included the “Digital Performance Right in Sound Recordings Act of 1995” (DPRA), which recognized the absence of digital performance rights on satellite services, digital cable audio services, interactive services, and commercial online music providers. Internet radio’s unprecedented ability to track the exact quantity of listeners they had at a given period in time was a compelling point in distinguishing how to fairly charge internet radio providers, making this amendment more justified. As a result, royalty fees were assigned to individual online platforms based on their listenership not only for compositions but also sound recordings (often called “neighboring rights”) which allowed for both performers and songwriters to be compensated for online public performances of their work.

Since 1995, Internet radio platforms have been expected to pay royalties for both the composition and sound recording of a song, yet it remains that terrestrial radio is still responsible only for paying songwriters public performance royalties on their compositions. This apparent discrepancy can be traced to the initial launch of new technology means of listening to music. Digital music services, especially those with interactive technology, were feared as outlets that could potentially cannibalize recorded music sales, resulting in courts recognizing digital and terrestrial radio to be of two different markets, requiring one to face neighboring rights fees, but not the other. However it remains that performing artists are providing an invaluable service to terrestrial radio stations, so there an apparent paradox as to why being of different markets necessitates that one merits payment and not the other, given that the two are both of immense importance.

The United States is one of four countries (including North Korea, China, and Iran), to deny their performing artists, as well as international performers the neighboring rights royalties that they earn on terrestrial radio. As a result, when a song performed by an American artist is played on international airwaves, the revenue generated from that public performance sits in a “black box”, serving as a lost and found for unclaimed royalties due to strict collection limitations on American Performance Rights Organizations (PROs) effectively prohibiting neighboring rights collection. The money will then stay idle for a designated period of time until it is absorbed and dispersed among the foreign PROs that initially collected it. The global recorded music industry is currently worth $15 billion dollars, of which the United States contributes more than a third. Our inability to make a change to this legislation (which has been stagnant since the ‘90s) is forcing our nation to leave millions of dollars drifting in international airwaves.

It is not for lack of trying. The first attempt to amend neighboring rights royalty circumstances for terrestrial radio occurred in 2009. This amendment attempted to establish smaller annual flat fees instead of neighboring rights royalty payments for “certain religious, minority, female, small, rural, noncommercial, public, educational, and community terrestrial broadcast stations that have revenues falling within corresponding separate specified changes (H.R. 848).” But the courts ruled in favor of free airplay for local radio stations in fear of upsetting the “mutually beneficial” relationship between the recording industry and local radio, wherein neighboring rights royalties are exchanged for promotion. They also considered, that broadcasters “provide tens of thousands of hours of essential local news and weather information during times of national emergencies and natural disasters, and…(sic) hundreds of millions of dollars of time for public service announcements and local fund raising efforts for worthy charitable causes, all of which are jeopardized if local radio stations are forced to divert revenues to pay for a new performance fee (H.R. 848).”

This amendment made a second appearance last April in the “Fair Play, Fair Pay Act of 2015” (FPFP), in which more specific fees were established for designated major radio stations while ensuring more affordable rates to smaller and local radio stations, “[capping] royalties for stations with less than $1 million in an annual revenue at $500 per year (and at $100 a year for non-commercial stations), while protecting religious and incidental uses of music from having to pay any royalties at all (Nadler).” This tiered system is in response to the assertion of large radio conglomerates that neighboring rights pose a potential threat to smaller stations. FPFP also proposed to solidify the appropriate statutory rate for any sound recording pre-1972, protect current songwriter and publisher royalties, keep a more orderly practice in allocating royalty payments to music producers, and unlock the millions of dollars in the international ‘black box’ of undistributed money.

Radio stations stand strongly opposed to the “Fair Play, Fair Pay Act”. They claim that the local radio-artist relationship is a truly unique form of music promotion, unlike any other platform. Broadcasters suggest that the value of terrestrial radio’s promotional use, in addition to the financial perks that come from it, will be harmed. They also contend that the inevitable clout and monopolistic power of Sound Exchange, which collects and distributes this neighboring right for record labels, featured performers, vocalists and sidemen, also causes local stations to be hesitant to get involved in sound recording performance fees. If fees are found to be excessive, they say, local stations will be forced to cut employees and stop expanding, ultimately providing less exposure for both new and popular artists. (Editor’s Note: we feature a full article on SoundExchange elsewhere in this issue.)

Yet U.S. terrestrial radio is a $17.5 billion industry, with a proven business model that has survived the proliferation of its more ‘techy’ competitors. Paying neighboring rights is unlikely to be the death knell of U.S. radio. Payments would probably amount to much less than one in every twenty dollars made in advertisements. Moreover, the rest of the world has done it and moved on. In fact, language is a natural broadcasting barrier to many smaller European nations, and its broadcasting industry is much smaller than its powerful coast-to-coast U.S. cousin. If many in radio feel that artists’ rights legislation is a money grab by both artists and labels to compensate for declining record sales, they are being silent too about the exceptional treatment they have been afforded for years.

By Lydia George


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