Senate Judiciary Approves Performance Rights Act with Tiered System

Leahy decried the “glaring inequity” in the current law, requiring Internet, satellite and cable music services to pay royalties while broadcasters can deny performers their “property right” in recordings. U.S. artists are losing $70 million to $100 million a year abroad in royalties that are withheld because the U.S. doesn’t pay foreign performers for U.S. playback, he said. The NAB should “end the stonewalling” on S-379 and negotiate, because with the new tiering structure stations will pay “a lot less than they're paying a lobbyist to lobby against this bill,” Leahy said.

The Leahy-Hatch amendment sets a range of flat-fee royalties for stations with up to $1.25 million in revenue. For noncommercial stations, they are: $100 for stations under $50,000, $500 for those between $50,000 and $100,000, and $1,000 for those above $100,000. For commercial stations, they are: $100 for stations under $50,000, $500 for those between $50,000 and $100,000, $2,500 for those between $100,000 and $250,000, and $5,000 for those between $500,000 and $1.25 million. The committee said three in four radio stations of all stripes bring in less than $1.25 million. Leahy said the tiering provisions were shaped by Sen. Al Franken, D-Minn., among others. Franken recently told musicians at a conference he was still concerned about small stations being crushed by new royalty obligations.

“For too long the United States has stood apart from other industrialized nations” by not paying performers for terrestrial airplay, said Sen. Dianne Feinstein, D-Calif., a cosponsor of S-379. The new harmonized standard for setting royalties across different platforms, a provision Feinstein pushed, will eliminate the “hodgepodge” of different standards, she said. Internet radio stations in particular have complained they pay abnormally high rates under the “willing buyer, willing seller” standard. The Leahy-Hatch amendment would extend the rate structure currently used for “eligible nonsubscription services and new subscription services” to all platforms.

But the amendment also would prevent Copyright Royalty Board judges, in setting rates, from considering how to “minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.” That effectively nullifies Section 801(b)(1)(D), one of four “tests” in the current law. The omission confused Sen. Arlen Specter, D-Pa. Feinstein told him that record labels and webcasters had asked the bill sponsors to nullify the provision. “This is a compromise, and I thought the compromise was agreeable to everybody.” Specter said that didn’t answer his question but he wouldn’t hold up the bill. He also said he'll ask the Congressional Budget Office for a report that sheds “more light” on the promotional benefits of radio.

Feinstein said the bill still needed more work, namely to answer concerns from “justifiably concerned” songwriters that their royalties from radio stations could be diminished if performance obligations were added. The amendment includes similar protections for songwriter royalties as in the approved House Judiciary Committee bill, HR-848 (CD May 14 p3). By preventing any “adverse effect” in songwriter royalties due to performance royalties, the bill may be setting up a due-process headache, Feinstein said -- preventing music services from introducing evidence that could bring down songwriter royalties. Feinstein said she met with representatives on “all sides” this week to address the problem. She also wants tiered “discounts” for small broadcasters made available to small webcasters as well -- a suggestion previously made by Rep. Zoe Lofgren, D-Calif., for HR-848. “We'll keep working on that,” Leahy said.

Sen. John Cornyn, R-Texas, said the bill represented a “trend” in Congress to make it harder for businesses to create and retain jobs. New payment obligations will primarily hurt small, midsize and minority-owned stations by sucking away $1 billion from them -- the labels’ own estimate of how much they would receive in new royalties, Cornyn said. The U.S. has led the world in creation of new styles of music, from jazz and rock to hip-hop and Tejano, because of the terrestrial exemption, which is also why Alabama has more radio stations than the U.K. as a whole, he said. Cornyn noted a recent estimate from minority groups that the bill would put a third of minority broadcasters out of business (CD Oct 15 p14). The bill would help “famous” but not “up- and-coming” artists, and drive some stations to switch to talk formats, he said.

Hatch said the number of stations in the U.S. relative to Europe didn’t matter: “It’s a matter of decency, it’s a matter of doing right,” and “fringe” artists could still become famous. Asked by Sen. Amy Klobuchar, D-Minn., if songwriter Hatch considered himself a fringe artist, he replied that “everybody thinks I'm a fringe artist.” Klobuchar said her local radio stations were worried about the bill and asked for more changes. “I think we'll get the final pieces done” on the Senate floor, Leahy said.

Cornyn’s two amendments went down. The first would have let artists opt out of airplay through an FCC-maintained database that radio stations would have to consult in designing playlists. Leahy called that option “more of a Hobson’s choice” for artists, since it wouldn’t let them negotiate payments with stations for airplay, in contrast to broadcasters’ right to negotiate with cable systems for carriage.

The second Cornyn amendment would have delayed the effective date of the legislation pending a rulemaking by the FCC on whether new payments and costs would reduce diversity over the airwaves, and task the Copyright Royalty Board with ensuring diversity when setting rates. Leahy said his amendment delayed the effective date of new rates for at least a year for all stations, and three years for those with less than $5 million revenue. The delay gives “all but the largest corporate stations more than enough time to prepare for the transition and get out of this economic climate,” Feinstein said. About four in five minority and female-owned stations would be covered by the delay, she said.

Voters don’t favor the legislation, the NAB said after asking 1,000 likely voters about the issues it raises. They gave survey participants a recent Wall Street Journal article as additional information. About 75 percent of respondents said they don’t support requiring stations to pay performance royalties, the association said. “This survey demonstrates that the more Americans know about a proposed performance tax, the more likely they are to oppose it,” an NAB spokesman said.

But fairness means being paid for work, a group of supporters of the legislation wrote in a letter to Leahy Wednesday. The group includes the AFL-CIO, League of Rural Voters, American Federation of Musicians, Black Leadership Forum, National Coalition of Latino Clergy and Christian Leaders, Labor Council for Latin American Advancement, National Congress of Black Women and National Hispanic Media Coalition. “We believe in the old-fashioned idea that musicians, like all workers, deserve to be paid for their hard work,” they wrote.