Sounds and cents

Kurt,

Webcasters should pay recording artists and labels because all digital broadcast of music requires and deserves compensation. The injustice is not that webcasters have to pay royalties; it is that the terrestrial radio broadcasters do not have to pay. If the radio broadcasters were legally obligated to pay, then the webcasters would be playing on a level playing field with the radio broadcasters—and both the webcasters and the artists and labels would benefit.

The U.S. is one of the only developed nations in the world that does not require terrestrial radio broadcasters to pay public performance royalties to artists and labels. This is a double injustice—not only are U.S. artists and labels deprived of royalties they legally and morally deserve, the European countries withhold public performance money otherwise owed to U.S. artists and labels for sound recordings recorded in the United States.

There are a number of reasons for this injustice, but arguably the most significant is the opposition by the National Association of Broadcasters (NAB). In Washington, D.C., money and lobbying power rule; the NAB has always been incredibly well endowed financially and has no qualms about flexing their lobbying muscle.

The NAB has always argued that radio airplay is promotion for artists and labels, and therefore the exemption is warranted. While there is some truth that radio airplay offers some promotional bump, the reality is that the radio broadcasters have built their radio networks by using music. The public does not listen to radio for the commercials; they listen for music. So there is really no reason—other than political arm-twisting—for the continuation of such an onerous practice.

Now to the question of what share of the revenues from online station should go to the copyright owners:

As you know, Kurt, the U.S. Copyright Royalty Board (CRB) rejected a "percentage of revenue" formula. It had good reasons for doing so. But the case has been appealed to the D.C. Circuit Court, and if the court determines that the CRB abused its discretion by applying the wrong formula or ignored key factors and arguments, then the case may go back to the CRB with instructions to re-evaluate and perhaps change its decision to include a percentage of revenue formula.

Even though I fully support the CRB decision and the CRB process, and I believe the ruling was fair, I also recognize that a percentage-of-revenue approach has a lot of appeal to small webcasters and nonprofits, and perhaps even to some of the major webcasters. The problem, however, is that for some of the major webcasters like Yahoo, there has been a great deal of disagreement not just about the percentage of revenue, but what the percentage is applied against. Artists and labels would like the percentage to be applied against all revenue earned by the company, and not just revenue earned by the so-called "music services."

Now there is no clear answer to this question. The services argue that the artists and labels should only receive revenue generated solely from the music divisions—not from other parts of the website offering non-music entertainment or information, like travel or sports services. There is some logic to this, but not much because many of the major webcasters use music to draw users to their websites; the users then go to other parts of the service not using music. Perhaps the answer is a form of negative premium—something that would take into consideration the entire revenue base of a webcaster, but perhaps discount the revenue from non-music divisions of the service.

Obviously, small webcasters and non-profits would like a percentage-of-revenue formula applied to their services. The CRB did not provide for that option for many reasons—the most obvious being that the presentation of evidence by the smaller webcasters—some participating and most not participating—in the proceeding either failed to make the case or was just absent from the proceeding. A private negotiation with Soundexchange for the smaller webcasters may be the only real option left.

But one totally misguided option is to consider a legislative fix. The CRB as an institution and a process must be respected. Allowing Congress to fix a royalty rate or formula based solely on politics is an abhorrent idea. Congress created the CRB to set the rates, and to take politics out of the equation. The Small Webcaster Relief Act of 2002 was passed before the creation of the CRB. Congress clearly intended for the rates and formulas to be set by the CRB and not Congress. Congress punted, and going back to Congress just because the webcasters essentially lost the case is a major mistake. Not only will the webcasters lose in a political fight for the imposition of a percentage-of-revenue formula, taking an absolutist position with Congress may prevent a negotiated deal as well.

Jay Rosenthal is a partner with the Washington DC law firm Berliner, Corcoran & Rowe, LLP; co-legal counsel to the Recording Artists' Coalition; and a SoundExchange board member. He also represents numerous recording artists, independent record companies, producers, songwriters and independent film companies and is an adjunct professor of entertainment law at the George Washington University School of Law and at the Washington College of Law of the American University.

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Let's start out today, Jay, by stepping back talk about the purpose of copyright law. As I understand it, the primary beneficiary of copyright law is not supposed to be the copyright owner but rather the general public. In other words, the purpose of granting creators some rights to their works is to ensure the continued production of new creative works; the purpose of granting only certain limited rights is to ensure the vibrant use of those works by others and thus maximize the availability of those works to the public.