The Wrong Way to End the Terrestrial Radio Exemption

by on April 19, 2015 · 0 comments

A bill before Congress would for the first time require radio broadcasters to pay royalty fees to recording artists and record labels pursuant to the Copyright Act. The proposed Fair Play Fair Pay Act (H.R. 1733) would “[make] sure that all radio services play by the same rules, and all artists are fairly compensated,” according to Congressman Jerrold Nadler (D-NY).

… AM/FM radio has used whatever music it wants without paying a cent to the musicians, vocalists, and labels that created it. Satellite radio has paid below market royalties for the music it uses …

The bill would still allow for different fees for AM/FM radio, satellite radio and Internet radio, but it would mandate a “minimum fee” for each type of service for the first time.

A February report from the U.S. Copyright Office cites the promotional value of airtime as the longstanding justification for exempting terrestrial radio broadcasters from paying royalties under the Copyright Act.

In the traditional view of the market, broadcasters and labels representing copyright owners enjoy a mutually beneficial relationship whereby terrestrial radio stations exploit sound recordings to attract the listener pools that generate advertising dollars, and, in return, sound recording owners receive exposure that promotes record and other sales.

The Copyright Office now feels there are “significant questions” whether the traditional view remains credible today. But significant questions are not the same thing as clear evidence.The problem with the proposed Fair Play Fair Pay Act is two-fold. First, notwithstanding that there is now some uncertainty around the traditional view of the AM/FM market, the bill mandates new minimum fees anyway. Second, it would empower a government panel consisting of three judges appointed by the Librarian of Congress to engage in what could become highly-subjective decision-making.

The Copyright Royalty Judges shall establish rates and terms that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller.

The most efficient way to get an accurate indicator of what a willing buyer and a willing seller would’ve negotiated in the marketplace is to call for private negotiations. The Copyright Office recommends this approach, too. Only when a music rights organization (MRO) and a licensee are unsuccessful in reaching an agreement on their own would the Copyright Royalty Board set the rates.

Each MRO would enjoy an antitrust exemption to negotiate performance and mechanical licenses collectively on behalf of its members—as would licensee groups negotiating with the MROs—with the CRB available to establish a rate in case of a dispute.

If Congress wants to end the terrestrial radio exemption, this is the better way to do it. Plainly, however, promotional value counts for something—and even the proposed Fair Play Fair Pay Act acknowledges that the value of the promotional effect qualifies as a legitimate form of compensation to recording artists and record labels.

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