Is the Long War Between American Radio and the Record Business About to End?
A deep look at a long history of acrimony.
It's just like old times. In a skirmish nearly a century old, the broadcast radio and recording industries are squaring off once again, over master recording performance rights.
MusicFIRST -- the coalition that includes the RIAA, the Recording Academy, the American Assn. of Independent Music, SAG-AFTRA, Sound Exchange, American Federation of Musicians, the Christian Music Trade Assn., the Rhythm & Blues Foundation, the Music Managers Forum-U.S., the Latin Recording Academy, the Society of Singers and the Vocal Group -- launched the first shot in this oft-revisited war when it held a press conference on April 13 at SAG-AFTRA headquarters to introduce the Fair Play, Fair Pay Act. Representatives of all of the above organizations, as well as high-profile artists like Martha Reeves, Cyndi Lauper and Elvis Costello, came out to make their case for radio to pay royalties on performance masters.
Some background: When a song is played on radio in the U.S., songwriters and publishers receive a royalty -- the U.S. radio industry pays them nearly $400 million a year -- but the recording artists and labels receive nothing. The recording industry, record labels and their artists, believe they deserve to be paid when their music is played on the radio -- like they are in virtually every other country in the world (except China, North Korea and Iraq). The U.S. radio industry sees payment demands as a betrayal, claiming that the free promotion the industry provides has driven the economic model of the music industry for more than 60 years.
“They are talking about hundreds of million of dollars in punitive fees, which could do serious economic harm to radio's business model,” says National Assn. of Broadcasting vp of communication Dennis Wharton. He wonders why the record industry would want to impose such royalty payments on radio when “we view ourselves as the best friends artists can have. Look around the globe. We have the most successful music and radio industries in the world because of that relationship.”
We can look to the U.K. for a reasonable comparison of how much the new royalty could generate in the U.S. Across the pond -- where commercial radio competes alongside the government's own BBC -- music licensors, including commercial terrestrial radio, pay anywhere from two to five percent of their advertising revenue to labels and artists, according to the PPL, the organization responsible for public performance royalties in that country. Sources say that the two to five percent range is a common rate worldwide. As well, the lack of AM/FM performance right stateside means $100 million in annual royalties is left overseas, withheld because the U.S. music industry is unable to reciprocate. (On April 29, the US Register of Copyrights Maria Pallante endorsed the legislation, on this point specifically.)
If the Fair Play, Fair Pay Act were to become law, and if the rate was set at two percent of radio advertising revenue -- where the terrestrial commercial radio industry generated an estimated $16 billion last year -- we arrive at a countrywide payout of about $320 million, $80 million less than the estimated $400 million songwriters and publishers collect from U.S. radio currently.
Record labels and artists have tried to get U.S. legislators to enact this radio royalty about 20 times over the last 100 years. (Frank Sinatra led the fight for master recording performance rights from the '50s through the late '80s.) Each and every time, the powerful radio lobby has beaten back the efforts of the record industry.
The record industry was ready for that lobby this time, however. Wary that the radio industry would attempt to siphon money from songwriters and publishers to pay artist and record labels, the Fair Play Fair Pay Act contains wording that protects songwriters' own radio royalties. Having that component written into the proposed legislation isn’t the only pro-active mode the MusicFIRST coalition has made on the front-end.
"We knew the big radio networks would hide behind the indie local radio stations, so we addressed that in the bill," says a music label source. The bill calls for college stations to pay a master recording royalty fee of $100 per year to play all the recorded music they want, while small local stations, those with $1 million or less in annual revenue, only have to pay $500 a year. In the past, NAB engaged in fear-mongering among smaller stations, letting them line up grassroots support to fight the royalty in Congress. To combat this, MusicFIRST is preparing to send letters to smaller stations throughout the country explaining what their fee will be under the proposed legislation. Record executives seem to think it's ironic that large radio networks have used indie stations in the past to beat the drum away from the new royalty -- they say these national broadcast networks pose a bigger threat to the existence of indie ration stations whenever they enter their markets.
Not to be outdone, the NAB saddled up its own horses, putting forth (once again) a non-binding resolution called the Local Radio Freedom Act, which already has the signature of 171 congress members. As well, NAB was a founding member of the MIC Coalition, announced on April 29. That coalition represents a formidable list of companies, including Amazon, NPR, the Hotel and Lodging Association, Google, the National Restaurant Association, Pandora, the Digital Media Association, the Consumer Electronics Association, and iHeartMedia. MusicFIRST said of this new rival coalition: "The supposedly new 'MIC' coalition looks like little more than some of the world's biggest and wealthiest corporations -- and the trade associations they fund -- hiding behind a new website and a gauzy mission statement as they continue their campaign to deny fair pay to working musicians, to stiff artists on AM/FM radio, and to ignore the pleas of elderly performers seeking their due.”
As MusicFIRST executive director Ted Kalo points out, "The last time, they had about 260 co-sponsors on the resolution and not withstanding [radio's] claims of strength, the radio performance act passed the house and senate judiciary committees by a majority."
Kalo is referencing the most recent (failed) attempt at a radio royalty, in 2009-2010. Then, both the Senate and the House committees had each approved their versions of the proposed legislation, but instead of releasing the bills to the floor for a full vote, the committees instructed the radio and record industries to compromise on a settlement. Those negotiations lasted about eight months before coming to an agreement of 1 percent of radio advertising revenue, or $160 million, in exchange for a reduction in digital royalties.
The circumstances that led to what happened next is disputed by both sides.
Label sources tell Billboard that the radio industry ignored the compromise, issuing a counteroffer -- but neglecting to relay that the initial compromise had been rejected. "NAB pretended like they were being forward-leaning by offering a deal, without once acknowledging that they had walked away from the one both sides had negotiated," says a source in the recording industry who is familiar with the talks. Another recording industry source put it more bluntly: “We negotiated for seven, eight, nine months and came to a conclusion to get a performance right in exchange for giving them slightly lower digital streaming rates. We thought we had a deal; then they told us to go shit in our hat." Even worse, according to label sources, the counteroffer the radio industry proposed would have ultimately been a net negative for the recording business -- the amount paid by terrestrial and digital would be less than the amount labels were already receiving from digital alone.
"Hogwash," says the NAB's Wharton. "We asked for a set of conditions -- we wanted their support to have the radio chips in cell phones turned on; we wanted them to acknowledge the promotional value of radio to music; we wanted the CRB [Copyright Royalty Board] kept out of the process for setting rates [for terrestrial radio]," Wharton says. In exchange, we were willing to pay $25 million [to record labels and performers] in the first year, ramping up to a $100 million a year. For whatever reason, they decided our offer wasn't good enough; and after that, time ran out on the legislative congressional calendar."
Though it looked at the time like labels and artists would finally get what they had been seeking for a almost a century, ultimately the NAB outmaneuvered them, running out the congressional clock. When that legislative session ended without an agreement, the bill was dead, requiring reintroduction.
Master performance royalty rates have occasionally made the news in the time since, mostly due to Clear Channel cutting direct deals with dozens of independent labels and one major (Warner). Depending on how you look at it, Clear Channel has either been engaged in a righteous move, negotiating a master performance rate for artists and labels without having it imposed by law. Recording industry executives suggest that Clear Channel is establishing a strategically low rate benchmark -- one percent of advertising revenue in exchange for lower, more predictable master recording royalty rates -- should Fair Play, Fair Pay become law.
In light of the more aggressive infighting coming from record labels and artists, will MusicFIRST efforts be successful in beating back the powerful lobbying effort of NAB and the MIC Coaliton? Or if NAB and its allies fail in stopping the legislation at the Congressional committee label, will they still be able to run out the clock again so that the congressional session ends without passage, forcing the music industry to start all over again with the next Congress? Time will tell.
The current Congressional session ends Jan. 3, 2017.