Tag: sound recordings

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Copyright

The Changing Nature of Sound Recording Rights

The following post comes from Meghan Carlin, who is in her second year at Osgoode Hall Law School in Toronto, Ontario. In addition to her work with the IPilogue, Meghan is a Fellow with the Innovation Clinic and is Co-President of the Osgoode Entertainment and Sports Law Association. This post first appeared at IPilogue.

2020 Evolving Music Ecosystem Conference flyerBy Meghan Carlin

The ongoing history of sound recording rights continues to provide a fascinating study in the United States’ copyright regime’s ability to contemplate and absorb new technologies into its framework. The evolution of these rights in America over the last 50 years charts alongside the country’s evolving music industry, crystallizing the importance, and distinctiveness, of music law in relation to the broader copyright regime.

Over the last 20 years, global music industry players have seen traditional revenue streams decrease as the shift towards digital distribution has intensified. In 2018, reported global revenues from recorded music were 25% lower than those reported in 1999 – without adjusting for nearly 20 years of inflation. With the worldwide concert industry grinding to a halt, removing a major source of revenue for performers and copyright owners alike, the effect of COVID-19 on the global music industry has placed a spotlight on moving the conversation on sound recording rights forward.

On September 9th through 11th, 2020, the Center for the Protection of Intellectual Property (CPIP) hosted The Evolving Music Ecosystem conference. Streaming online from George Mason University Antonin Scalia Law School in Arlington, Virginia, day one of the conference saw panelists tackling a number of topics in music law, including the colourful history of sound recording rights in America and their current status under the US copyright regime. The below provides a deeper look at the issues discussed during the Changing Nature of Sound Recording Rights panel on September 9th.

Looking Back: The Music Modernization Act

Revenues from recorded music have grown over the last five years in the US, with the Recording Industry Association of America (RIAA) reporting four years in a row of double-digit growth. In 2019, revenues from recorded music grew 13%, primarily through paid subscription services. Total revenues from streaming alone grew 19.9% in 2019, accounting for almost 80% of all recorded music revenues in the United States.

Consider these statistics against the legislative backdrop that governs the payment of royalties for recorded music. On October 11, 2018, the Orrin G. Hatch-Bob Goodlatte Music Modernization Act (H.R. 1551) (“MMA”) was signed into law by President Donald Trump. The MMA combines three previously introduced bills intended to modernize copyright law as it relates to the music industry.

Title I of the MMA is the Musical Works Modernization Act, which impacts the conversation on sound recording rights in a number of ways. First, Title I changes the standard used by the Copyright Royalty Board (“CRB”) in setting digital royalty rates, bringing the standard used for digital radio stations up to date. Under the old regime, the standard used for setting statutory royalties relied on public interest considerations, preventing the CRB from considering what a licensee might pay as a market rate. Under the MMA, the rates for all compulsory blanket licences are to be determined through a market-based standard, sometimes referred to as a willing buyer/willing seller standard, ideally creating a fairer standard of compensation for the owners of sound recordings.

Further, Title I establishes the Mechanical Licensing Collective (MLC). While the primary role of the MLC is to collect and distribute section 115 mechanical publishing royalties, it has also been tasked with the creation of a Musical Works Database, intended to link sound recordings to their underlying compositions. In theory, the database will provide music users with a one-stop shop for uncovering all potential rightsholders involved in a song, on both the sound recording and the composition side.

Title II of the MMA tackles the grey zone inhabited by pre-1972 recording artists, otherwise known as “legacy artists”. The Classics Protection and Access Act extends the same protections to the digital public performance of pre-1972 sound recordings as those extended to post-1972 recordings. The practical outcome of this legislation? Digital radio stations and streaming services are now responsible for paying royalties for the expansive catalogue of pre-1972 recordings in their repertoires, according to the uniform rate setting standard outlined in Title I.

Title III, The AMP (Allocation for Music Producers) Act, creates a new “letter of direction” process, allowing recording artists to distribute a portion of the royalties collected for a sound recording to the producers, sound engineers or mixers involved in its production. Title III enables SoundExchange, the entity collecting and distributing sound recording royalties under section 114 statutory licenses, to distribute these royalties directly to the producers involved on behalf of recording artists who submit a “letter of direction” outlining their intention to make such a payment.

Simply put, and as it currently stands, the US legislation regarding sound recording rights maintains its focus on digital plays. What about analog?

Looking Forward: AM-FM Act

The AM-FM (Ask Musicians For Music) Act, introduced to Congress in November 2019, is a bi-partisan bill aimed at creating a terrestrial radio (AM/FM) performance right for sound recordings. The AM-FM Act arrives following the Fair Pay for Fair Play Act, introduced in both 2015 and 2017 with the same goal, but which failed to pass.

Supporters of the AM-FM Act describe it as ending a “a decades-long loophole” stemming back to the early days of radio that has allowed AM-FM radio broadcasters to play recorded music on air without obtaining the permission of the recording’s copyright owner, and without paying royalties for the use. In essence, it is argued, terrestrial radio broadcasters are being subsidized by the recording industry and will continue to be until the creation of an AM-FM radio performance right in sound recordings.

The National Association of Broadcasters has come out in opposition of the AM-FM Act, countering with their support of the Local Radio Freedom Act, stating that  “Congress should not impose any new performance fee, tax, royalty, or other charge relating to the public performance of sound recordings on a local radio station for broadcasting sound recordings over the air, or on any business for the public performance of sound recordings on a local radio station broadcast over the air”.

In contemplating the ongoing battle over the creation of a terrestrial broadcast performance right in sound recordings, we’re provided with the opportunity to consider the role of analog radio in a digital era, and to think through the questions of promotion versus consumption that relate to music copyright as a whole.

Today: CUSMA

One argument made by proponents of the AM-FM Act is that while countries with a terrestrial radio performance right for sound recordings collect royalties for American artists whose sound recordings are played outside the US, they are unable to pass on these royalties to US rights holders as there is no domestic royalty scheme. In written comments filed in February 2020 in response to the USTR’s Request for Comments and Notice of Public Hearing Regarding the 2020 Special 301 Review, SoundExchange identified 6 territories which deny full national treatment to American recording artists – UK, France, Australia, Japan, the Netherlands, and Canada.

On July 1, 2020, the Canada-United States-Mexico Agreement (CUSMA) entered into force in Canada, providing full national treatment to sound recordings. Chapter 20 on intellectual property rights states at Article 20.8 that “in respect of all categories of intellectual property covered in this Chapter, each Party shall accord to nationals of another Party treatment no less favorable than it accords to its own nationals with regard to the protection of intellectual property rights”. As explained by panelist and Attorney Eric Schwartz of Mitchell Silberberg & Knupp, Canada’s implementation of its CUSMA obligation to give national treatment to sound recordings is sure to result in new payments to American copyright owners for uses occurring in Canada.

The effect of COVID-19 on the worldwide music industry has put the focus on the copyright regime’s ability to respond to change, both cultural and technological. For those interested in music law, and in the modernization of copyright more generally, the complicated and curious history of sound recording rights provides countless jumping off points for creatively thinking through the issues affecting artists and copyright holders today.

Categories
Copyright

The AM-FM Bill and the Status of Terrestrial Music Broadcast Performance Rights

The following post comes from David Ward, a rising 2L at Scalia Law who is working as a Research Assistant this summer at CPIP.

U.S. Capitol buildingBy David Ward

This past Wednesday, the Senate Intellectual Property Subcommittee, led by its Chairman, Senator Thom Tillis (R-NC), held a virtual online briefing on the current state of music rights. Specifically, members of the music and broadcast industry debated a bill called the Ask Musicians for Music Act (AM-FM Act), which would create new terrestrial broadcast performance royalties for sound recordings. Some of the biggest names in the music and broadcast industry were invited to testify, including: Harvey Mason Jr., CEO of the Recording Academy; Curtis LeGeyt, COO of the National Association of Broadcasters (NAB); Dr. Richard Burgess, CEO of the American Association of Independent Music (A2IM); Scott Hunter, Executive Director of the National Religious Broadcasters Music License Committee (NRBMLC); and Colin Rushing, Chief Legal Officer of SoundExchange. These panelists represented both musicians and broadcasters, big and small, who have been engaged in a sometimes-tense dialogue about the future of terrestrial broadcasting rights.

For a bit of background, all music we hear on the radio has two copyrights: a copyright for the musical work (lyrics, notes, melodies, chords that an artist writes), and a copyright for the sound recording itself (that a producer or sound engineer usually helps create). The scope of the discussion here is about performance royalties for the sound recording, not the musical work. It should be noted, however, that radio stations still need licenses to play musical works over the air. These are usually obtained in the form of blanket licenses from performance rights organizations (PROs) such as ASCAP or BMI. Blanket licenses allow radio stations to broadcast musical works from the PRO’s repertoire, within the scope of their agreement.

Under the current system, though, radio stations are not required to pay a per-performance royalty when they broadcast a sound recording over a terrestrial broadcast, such as AM or FM radio. However, stations that broadcast over the internet, or any other entity that broadcasts performances digitally (such as a webcast), are required to pay digital performance royalties for the sound recordings they play. This being the 100th anniversary of broadcast radio, the AM-FM Act currently being debated aims to end this exemption that radio broadcasters have enjoyed for exactly 100 years.

Curtis LeGeyt from the NAB and Scott Hunter from the NRBMLC represented the interests of broadcasters who have long opposed the introduction of such a royalty on their expense reports. Mr. Hunter testified that a terrestrial sound recording performance royalty is “unwarranted” and “unnecessary,” and that Congress has repeatedly declined to create such a right even as recently as 2018. In 2018, Congress passed the Music Modernization Act, which made major reforms to music copyrights, including extensive reforms of how royalties are set and split for both musical work and sound recording copyrights. Mr. LeGeyt argued that Congress could have created a terrestrial performance royalty for recordings then, but did not. He further argued that copyrights are statutory devices intended to promote the creation and distribution of works, and that allowing radio to freely broadcast sound recordings best serves the purposes of copyright law.

Both Mr. LeGeyt and Mr. Hunter characterized the exemption as a mutually beneficial promotional tool for performers and broadcasters. They warned of a decline in local radio programming and further financial instability of the industry if new royalties were mandated. Noting the financial instability caused by the coronavirus pandemic, they argued this could be fatal to many local radio stations in the short term as well as disrupt radio business models in the long term.

On the other side of the issue were Harvey Mason Jr. from the Recording Academy, Dr. Richard Burgess from A2IM, and Colin Rushing from SoundExchange. Mr. Mason began his testimony by contrasting our current system with the rest of the world’s; namely, most other major countries have sound recording performance royalties for terrestrial broadcasters. Musicians are some of the hardest hit in the economy during the pandemic, and despite this, Mr. Mason testified, they are still playing free online shows for the benefit of others. This situation underscored the need to do away with the outdated exemption from paying sound recording performance royalties enjoyed by terrestrial broadcasters. Mr. Mason suggested that the AM-FM bill could be included in a new coronavirus relief package, so musicians can recoup some of the losses they have recently experienced.

Dr. Burgess of A2IM echoed these sentiments, adding that musicians are the only copyright owners that are not allowed to profit from the performance of their works over terrestrial broadcasts. In Dr. Burgess’ view, musicians are being forced to subsidize the radio industry even though their own revenues have been decimated.

Colin Rushing of SoundExchange, the company that collects digital performance royalties for sound recordings suggested there are few, if any, major differences between digital and terrestrial broadcasts in the modern age. Most broadcasters are simulcasting online, which already requires them to pay digital (but not terrestrial) performance fees. Many apps and devices also seamlessly transition between digital and terrestrial broadcasts. He testified that the lack of terrestrial performance rights creates a loophole that distorts the market and creates an incentive to invest in old technologies, making it harder for new platforms to compete. Echoing many of his colleagues’ sentiments, he also reiterated that the U.S. is an outlier on this issue and that this harms music creators who are generating value for broadcasters, now more than ever.

Questioning by Senate offices drew out the sharpest differences in positions. Mr. LeGeyt of the NAB and Dr. Burgess of A2IM engaged in a (sometimes terse) dialogue. Mr. LeGeyt painted a picture of mom and pop broadcasters forced to consolidate operations and lay off workers, even before the pandemic, while Dr. Burgess was not persuaded that struggling musicians should therefore be forced to take promotion and exposure as the only consideration for radio plays.

Senator Coons’ office (D-DE) began the staff questioning with something that was likely on everyone’s mind: what level of royalties are at issue. Being the expert in performance royalties, Mr. Rushing from SoundExchange chimed in with a short “we’re not sure” answer. In his mind, and even in the minds of the broadcasters, it would be impossible to speculate. Either the free market would dictate the rates, or some other rate-setting entity would set the rate based on the current market rates. Since the current market rate is zero in the U.S., defining any number would be speculation. However, Mr. LeGeyt was quick to draw a comparison to the royalties they already pay for digital performances, and that they already inhibit the growth of mid- and small-sized broadcasters.

The costs incurred by mid- and small-sized broadcasters was another topic that came up frequently in responses. Mr. Mason of the Recording Academy made a point to share that the proposal would put a cap of $1.50 per day on terrestrial performance royalties for true small and local radio stations. Mr. Rushing of SoundExchange added to this, stating that even most larger radio stations would likely be paying less than $500 per year. The broadcasting representatives again pointed out the already constrained budgets of many stations and that any increase in costs would hurt the industry.

Perhaps the most contentious issue was the purpose of terrestrial radio in the music ecosystem, and the role of “promotion” in that ecosystem. Broadcasters argued that terrestrial radio is and always has been a public service. It provides weather, news, and other important public service announcements for free while also promoting musicians’ work. Therefore, broadcasters should not have to pay performance royalties, as they have not for a century. Music industry representatives, however, argued that providing a public service does not warrant profiting off others’ work for free.

Senator Tillis’ office asked the question that got to the heart of the “promotion” issue: whether radio mainly plays music that is already popular and does not need promotion, or whether sound recordings become popular because they are promoted on the radio. Mr. Rushing of SoundExchange offered his view that it is a bit of both. He and his colleagues did not contest that many artists benefit from the promotion and exposure of broadcast radio plays, but not all of them do. In their opinions, the free market should decide what the rates should be for sound recording performance royalties so that any artists who want to provide their product for free in exchange for promotion and exposure would be able to make that choice. The broadcasters argued that broadcast radio is different than other forms of media, and that the value of promotion has been time-tested.

Although all participants committed to continue good faith discussions on the matter, it does not bode well for a quick agreement that the radio sound recording royalty exemption has already reached its century mark.