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Terrestrial Radio Performance Royalties for Labels and Artists: Wait for It or Go for It?

January 3, 2013

By: D. Page Kelley III

Until the advent of so-called “360 deals,” U.S. record labels’ income was derived almost entirely from sales or licenses of their recorded music, and their artists (if fully recouped, of course) were paid royalties as a percentage of that income.  However, while music publishers and songwriters have historically shared in performance royalties from radio airplay of recordings of their songs, the labels who funded those recordings and the artists who performed on them (unless they happened to be songwriters) did not share in those performance royalties.  This has been true because from the inception of performance royalty legislation here, the radio industry and its supporters have successfully argued that the promotional value they provide to labels by providing “free” airplay of their recordings should be viewed as adequate compensation for the radio industry’s use of those recordings.

This is not the case in most other industrialized countries,  including virtually all of the EEC, Central and South America, the former Soviet Bloc countries and Japan.  These countries (but not the U.S.) are parties to the Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations of 1961 (known as the “Rome Convention”), which provides in part for content owners  and artists featured on recordings to share in income generated from the public performance of their recordings. This right is among those referred to as “neighboring rights.”  (Statutory copyright law in most jurisdictions explicitly contemplates the payment of performance royalties to the authors of musical compositions, but does not provide for the payment of performance royalties to the producers or owners of recordings or to featured artists.  Signatories to the Rome Convention have effectively agreed that performance royalties should be paid to holders of these “neighboring rights.”)  Each of these countries provides reciprocity with the others (i.e.,  for the payment of a share of performance royalties generated in that country to labels and artists residing in any Rome Convention country or for recordings made in any Rome Convention country).  However, because no such “neighboring rights” royalties are paid to non-U.S. artists for terrestrial radio performances here in the U.S., no foreign jurisdiction provides for reciprocal payments to U.S. labels and artists for recordings made in the U.S.

To be clear, this holds true only for terrestrial radio broadcasts.  For internet radio and similar services, the Digital Performance in Sound Recordings Act of 1995, together with the Digital Millennium Copyright Act of 1998, provide for the payment of performance royalties with respect to “non-interactive digital transmissions,” both to publishers and writers and to labels and artists.  The organization SoundExchange was created as part of that legislation for the primary purpose of allocating and paying digital performance royalties to labels and artists.  Just this summer, SoundExhange began entering into reciprocal agreements with performing rights organizations in EEC countries and Japan providing for reciprocal payments of such digital radio royalties.  However, given that terrestrial radio airplay still accounts for the lion’s share of performance royalty income in the U.S., labels and artists remain intent on seeking a share of performance income generated from those terrestrial performances.

How can this be accomplished?  Short of changing one’s domicile to a Rome Convention country or recording one’s albums there, both of which may be impractical or cost-prohibitive, there seem to be two options.  The first is to wait or work for a change in U.S. law.  Congressional hearings on the topic began in earnest in 2007, and in 2009 the Performance Rights Act was introduced in both the House and Senate (HR 848/S 379).  Although the bill passed a vote of the Judiciary Committees in both houses of Congress, it did not come to a vote before either body.  Negotiations have continued since that time, and competing legislation has been introduced, but little progress has been made.  Passage of the bill is anything but certain, given the legislature’s other priorities and the certainty that the bill will continue to face opposition from the radio industry and others, including publishers and songwriters concerned that sharing the performance royalty “pie” will mean that their slices become smaller.

 

As a result, certain labels have tackled the problem more directly.  Most notably, Big Machine Label Group has entered into two separate direct licensing agreements with ClearChannel Radio and Entercom, which provide for the payment to Big Machine of performance royalties on both digital and terrestrial airplay of recordings by Big Machine artists.  Although the deal terms remain confidential, it has been reported that in consideration of Big Machine’s agreement to “cap” its digital performance royalties at a predictable amount, Clearchannel and Entercom have agreed to pay performance royalties to Big Machine for terrestrial radio performances based on a percentage of their net advertising revenues from both terrestrial and digital radio.  Both Clearchannel and Entercom are in the process of negotiating similar agreements with other labels providing for (presumably) similar terms.

From the broadcasters’ perspective, these deals allow them to predict and cap their digital broadcast performance royalty obligations with contracting labels at a time when these royalties represent an increasing expense.  From labels’ perspective, the deals allow them to share in new revenue stream.  The benefits are less clear for artists.   The expectation is that contracting labels will split these performance royalties 50/50 with their artists.  However, although SoundExchange pays digital performance royalties directly to both labels and artists, the deals being struck between labels and the broadcasters provide payments to labels only.  If such royalties are not paid through to artists by their labels without regard to recoupment, a label could effectively retain both the label’s and the artist’s share of such income, while the artist sacrifices his or her direct SoundExchange royalty stream.  In addition, in the event that the Performance Rights Act becomes law, it would presumably result in reciprocal payments through SoundExchange to and from other Rome Convention countries, but such broad-based reciprocity will not exist with private deals.

 

Unless and until legislation such as the Performing Rights Act is enacted, it seems likely that there will be more privately-negotiated deals between labels and broadcasters, providing labels and (hopefully) their artists with an immediate share of performance royalties from those broadcasters’ terrestrial radio broadcasts.  If broad-based legislation is ultimately enacted that provides for reciprocity with other countries regarding the payment of “neighboring rights” royalties, labels and especially their artists may find that to be the preferable alternative.