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Free Market Royalty Act: Plenty of swirl around an unlikely law

Rep. Melvin Watt yesterday introduced the Free Market Royalty Act (FMRA) which would address the lack of parity in statutory royalty requirements levied on terrestrial broadcasters and Internet radio services. (Read Rep. Watt’s statement and rationale here.)

By law, broadcast radio is exempt from paying a performance royalty to artists and labels. Broadcast stations do pay royalties to publishers and songwriters. Also by law, Internet radio is not exempt, and must pay for use of recordings in addition to paying songwriters and publishers.

The Free Market Royalty Act introduced by Rep. Watt aims to remove government from setting royalty rates, and to turn the matter over to free market negotiations. As such, the bill has a compulsory impetus, but no compulsory mechanism. It would repeal the existing blanket license that makes label-owned recordings available to broadcasters free of charge. To gain a license for playing music recordings over the air or in an Internet radio stream, programmers would negotiate with labels directly, or with SoundExchange, a performing rights organization that represents labels and performing artists.

Labels and broadcasters are already striking out on the non-statutory path, ditching government compulsory licenses for negotiated ones. This summer, Warner Music and Clear Channel Media & Entertainment agreed to establish broadcast royalties payable from Clear Channel radio stations to Warner labels, and to lower label performance payouts on Clear Channel digital streams. (Clear Channel operates iHeartMusic, a streaming platform that features broadcast webcasts.)

Is it a good idea to push government out of its long-standing role as copyright arbiter? RAIN spoke to David Oxenford, law partner of Wilkinson Barker Knauer LLP in Washington, who specializes in broadcast regulation, and who has represented radio groups and digital media companies. “No. The government has almost always been involved, either through the Copyright Royalty Board, or through rate courts that ASCAP and BMI go through on the publishing side. The only collective in the performance rights world that is not subject to government oversight is SESAC, and SESAC is being sued by radio and TV broadcasters to bring it under that kind of oversight.”

The National Association of Broadcasters, radio’s chief lobbying voice, unsurprisingly disputes the bill. NAB head of communications Dennis Wharton cited the Warner Muisic/Clear Channel deal in his refutation of the FMRA as an unnecessary correction: “NAB believes market-based negotiations like the recent Warner Music-Clear Channel accord demonstrate that this issue is already being addressed in the free market. This legislation would impose new costs on broadcasters that jeopardize the future of our free over-the-air service.”

From the other side of the opinion fence, burdensome costs are exactly what the bill might correct. Pandora and other Internet radio pureplays arguably serve the same music-discovery mission as terrestrial radio, and provide a corresponding benefit to performers and labels that broadcast does, yet are legally bound to add a cost line item that doesn’t exist on traditional radio balance sheets. Rep. Watt’s statement on that point: “Those deals expose the unfairness and inadequacy of the current system and they strongly point out the need for a legislative solution that will apply market wide.”

Previously introduced bills have sought to even the balance from the opposite direction — by lowering or eliminating performance royalties on the Internet side. The Internet Radio Fairness Act was put into congressional play last year, suggesting an adjustment to the makeup of the Copyright Royalty Board, and the standards by which it sets compulsory royalties to labels and recording artists. According to David Oxenford, “They deal with things totally differently. Essentially, the structure that Watt is proposing makes the Internet Radio Fairness Act meaningless.”

The MusicFIRST Coalition, which advocates for musicians, clearly had its PR gun locked and loaded, ready for the Watts bill. Executive Director Ted Kalo delivered an instant response supporting the FMRA with plenty of historical context and criticism of the NAB. (Read it here.) “After saying no to each and every approach to date, the broadcasters have run out of excuses. […] This bill sends all parties back to the bargaining table […] and critically, for artists, it preserves protections in current law.”

Casey Rae, Interim Executive Director of the Future of Music Coalition, puts a global spin on his organization’s support of the FMRA: “First, there is no defensible excuse to not pay recording artists for the use of their music, especially considering that the rest of the developed world recognizes the contributions of performers. Second, the lack of a reciprocal right internationally means that millions of dollars are left on the table that would otherwise go to American creators. You’d be hard pressed to think of another export that the United States would freely give away in the global marketplace with no expectation of remuneration.”

Will the FMRA become law? Oxenford doubts it. “I think Congress has a few other things to deal with. Besides that, the NAB has got over 100 Congressional representatives signed on the anti over-the-air bill, I think it’s unlikely to pass. Most copyright legislation — unless you get all parties to agree on it, Congress is reluctant to act on it.”

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Brad Hill

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