The following guest post comes from music industry attorney Steve Gordon, with assistance from Emily Borich and Ariel Greenberg.
Never before has a terrestrial radio station in the United States paid for the public performance of a musical recording. Yet on June 5th, Clear Channel, the nation’s biggest radio network, delivered some incredibly shocking news. But this wasn’t an act of altruism: frankly, Clear Channel couldn’t care less if a label gets paid, but they’ve decided to take a lead in challenging the steep fees demanded by the CRB (Copyright Royalty Board) and SoundExchange. And most likely, they’ll win.
“That’s the game here. And make no mistake, this is a huge detour from the policy of NAB and the radio industry, which has always fought against paying anything for the standard radio transmission of music.”
Just look at the long history, which is almost as long as radio itself. For decades, radio stations have been heavily lobbying Congress to deny record companies the right to charge them for the performance of their records. They argued that the labels actually wanted them to play their records to promote physical sales and so they should not have to pay them. In fact, the record companies notoriously gave radio station DJs and managers cash, gifts, free vacations, women and drugs to ‘persuade’ them to play their artists’ records.
Read the rest after the jump! –Digital Music News
In other words, textbook payola. Technically it’s against the law, and as recently as a few years ago, the labels had to pay millions of dollars in fines to the government for continuing this practice. But you tell me if it’s really stopped, either through more creative gifts to stations or shady Capitol Hill contributions.
And the peddling continued in Washington. When the Copyright Act was amended in 1976, radio stations succeeded in getting Congress to agree that they should not have to pay the record companies. Perhaps because Congress is made up of politicians who need radio stations for their next re-election campaign. Or maybe there was enough cash flowing through back channels to secure the loophole.
“Whatever the shady reason, the last incarnation of the Copyright Act, known as the Copyright Act of 1976, specifically excludes public performance as an exclusive right of the owners of sound recordings.”
The rest is a history lesson in clawing back history. In 1995, the record companies, alarmed by the rise of digital audio transmission – particularly by a startup based in Hershey, Pennsylvania called Music Choice – successfully lobbied Congress for an amendment to the Copyright Law called the Digital Performance Right in Sound Recordings Act (DPRA). They argued that companies such as Music Choice were transmitting perfect digital copies of their recordings that listeners could copy and illicitly distribute to consumers. Unlike normal radio, which is analogue, a listener could make perfect copies of recordings using these new digital services. Since the record labels’ only opposition was powerless Music Choice, Congress was not afraid to reward the record companies for their lobbying efforts and declared that the labels have the exclusive right to publicly perform their records over digital services such as Music Choice.
Oh, but this fight was far from over, and the seeds of an entirely new mess were getting planted. As the internet exploded and new digital services such as Yahoo and AOL began to digitally transmit music, these new digital services faced a rough negotiation with the labels over how much to pay them for the use of their records. Of course, the labels wanted exorbitant amounts. But facing huge pressure exerted by these new and more powerful internet companies, Congress reacted by passing a bill known as the Digital Millennium Copyright Act of 1998. The DMCA, among other things, granted the right to digital music services to perform recorded music in exchange for a ‘compulsory license’ under which they would pay the record companies and artists for the use of their records. Under this compulsory license, digital music providers were to pay a set rate to the record companies and the artists.
That’s about when things started getting outrageous.
A three judge panel called the Copyright Royalty Board (CRB) was eventually set up to set the rate, and a not-for-profit organization representing labels and songwriters called SoundExchange was organized to collect the money and distribute it to artists and record companies. But the digital broadcasters such as Pandora complained that the rates proclaimed by the CRB were too high.
Although those rates were somewhat reduced in negotiations between SoundExchange and the digital service providers in 2010,Pandora was right then, and they’re right now. It’s simple math, and it worked against the streaming startup. The CRB demanded that the digital broadcasters pay for use of recorded music per stream, and SoundExchange insisted on maintaining the per stream rate rather than a percentage of income except for very small webcasters (those earning less than 1.25 million dollars). Although internet radio stations have to pay only a fraction of a penny for each stream that they transmit, the fraction of a penny adds up to a huge percentage of their income as they became more successful, and more and more people listened to their streams.
It’s ridiculous: Pandora has to pay over almost half of its income to the labels and artists to play their records. But Pandora only has to pay less than five percent of its income to ASCAP, BMI, and SASAC, collectively, for the use of the songs. See the problem here?
In the meantime, regular terrestrial radio stations pay absolutely nothing for the use of recorded music. Their chief lobbying arm, the National Association of Broadcast (NAB) has continually stonewalled the labels’ attempt to get paid by the radio stations.
Meanwhile, the gradual erosion towards digital presents a royalty problem of avalanche-like proportions. Clear Channel broadcasts its stations primarily through standard radio, and 98 percent of its listeners come through their stations on standard broadcast radio. But a growing number of listeners now listen via Clear Channel’s digital feeds and that percentage is expected to increase sharply in the coming years. And when a terrestrial broadcaster like Clear Channel simulcasts its content via the internet or smartphone, they have to pay the same, alarmingly-high fees to SoundExchange that Pandora is forced to pay.
Clear Channel doesn’t want to see that bill. Which means that instead of screaming bloody murder into the wind, Pandora now has the biggest ally imaginable. Which also means this little side deal with Big Machine could change history again – this time, in the direction of fair streaming royalty rates and a more rational royalty landscape for labels, artists, and big stations alike.
That’s the hopeful version, at least.
