Business Matters: SOPA Delayed, Not Dead, After House Judiciary Committee Session Ends
Business Matters: SOPA Delayed, Not Dead, After House Judiciary Committee Session Ends

Different sectors of the music industry -- including reps from RIAA, NAB, NARAS, Pandora and others -- squared off before the House Subcommittee on Communications and Technology yesterday (June 6) over differences on issues like whether U.S. terrestrial radio should pay a sound recording performance royalty, parity for digital royalty rates and whether a radio chip installed in mobile phones should be activated.

Exclusive: Clear Channel, Big Machine Strike Deal to Pay Sound-Recording Performance Royalties To Label, Artists

The news that Clear Channel had cut a deal with Big Machine to pay a sound recording performance royalty (which broke) in exchange for a predictable percentage rates for digital radio instead of per play rates, was commented on frequently throughout the panel. The music industry has fought for 80 years -- so far unsuccessfully -- to have a sound performance royalty from terrestrial radio, while the radio industry battled tooth and nail to prevent what it called "a tax" from being mandated on it.

RIAA chairman and CEO Cary Sherman applauded the concept of the deal while reserving endorsement until he knows the specific terms. "I am glad to hear that Bob Pittman and Clear Channel is stating that artist and record companies deserve to be paid and that promotion isn't enough."

Earlier, before Sherman spoke, jazz musician Ben Allison, governor of the New York chapter of the National Academy of Recording Arts and Sciences, started his testimony by complaining about the lack of that very royalty. "Terrestrial broadcasters have an inexplicable "free ride" when it comes to performance royalties," he said. He said they use music to fuel their multi-billion dollar industry. "All of the other broadcast platforms-Internet, satellite and cable-pay a performance royalty for sound recordings, regardless of promotion," Allison said. "Every other country in the developed world has such a right…This makes corporate radio the only business in America that can legally use another's intellectual property without permission or compensation."

Business Matters: As Clear Channel Lands Royalty Deal, Pandora Speaks Up About Webcasting Royalties

Allison noted that two years ago, the music industry and the NAB board hammered out a compromise deal which would have given the music industry a terrestrial performance royalty in exchange for specific rate reductions on simulcasting.

"Unfortunately, when the NAB Board voted on the deal, they changed the agreed- upon numbers, making it a net loss for the music side, and the deal collapsed," he said.

"To add insult to injury, terrestrial broadcasters are now asking for another legislative perk-a mandate to include FM receivers in smart phones. They already exploit one anomaly in the law-they do not pay performers while new audio technologies do. Now they want a second legislative anomaly-to have a free ride-quite literally-on the backs of new devices." Allison was referring to the radio chip that the radio industry wants activated in cell phones.

In his statement at the hearing, Emmis Communications chairman, president and CEO Jeff Smulyan made his case for such a chip, saying that while it is true the industry wants the cell phone radio chip activated, it is not seeking a congressional mandate. He said the industry wants a Congressional discussion so that the consumer can become aware that most cell phones actually come with a radio chip and while in the rest of the world, those phones are sold with the chip activated, in the U.S., the chip is not activated. Smulyan said if the chip was turned on, it would help listeners in times of disaster, when cell phone and cable services are either down or overwhelmed by traffic.

But representatives from both the consumer electronics industry and the wireless industry trade associations denounced the radio chip saying that it is a consumer issue. If they want a cell phone with a radio chip, they can buy one as there are 59 such cell phones available in the U.S. market.

The RIAA's Sherman said it's a shame that the radio industry was more focused on getting a radio chip than working to resolve the issue of sound recording performance royalties for terrestrial radio. Instead of working with the music industry to resolve their differences, Sherman said broadcasters are more focused on getting the government to mandate the insertion of an FM chip in mobile devices" because, he suspects, to prevent being overtaken by the popularity of Internet radio services Internet radio services such as pandora on those devices.

Pandora chief strategy officer and founder Tim Westergreen said he fully supports fair compensation for artists and he has no problem in paying a sound recording performance fee, but he wishes there was payment parity, with his competition.

"Last year, on revenues of $274 million, Pandora paid $137 million in performance fees to performing artists and labels, or 50% of revenue," he said. "That same year, Sirius/XM, on revenues of $2.74B, paid $205 million, or 7.5% of revenue; and [terrestrial] broadcast radio, on revenues of roughly $15 billion paid zero…this lack of a level playing field is fundamentally unfair and indefensible."

Nowadays, new cars come equipped with AM/FM, satellite and Internet radio, all through the vehicle's sound system. "If a song is delivered over AM/FM, the associated performing artist and label receive no compensation," he notes. "If the same song is delivered over satellite, the performing artist and label do receive compensation. But if the song is delivered using Internet transmission over 3G or 4G, then the effective percentage of revenue that must be paid by the company delivering the song goes up six fold. It's the same song, same car, and the same sound system."

He called on Congress to level the playing field and to approach radio royalties in a technology neutral manner. He noted that all forms of radio technology compete everyday for listeners, for advertising dollars and subscription revenue.

"What amounts to a subsidy of entrenched radio media stifles innovation, discriminates against the Internet and adversely affects consumers," he said. "It is time to unshackle innovation and allow new technologies and new forms of audio consumption to compete fairly."