Congress to consider radio royalties for artists

Nate Rau | The (Nashville) Tennessean

The decades-old debate about how royalties should be paid when a song plays on the radio has re-emerged, with Congress taking up the issue and record labels breaking new ground by striking private deals with broadcast companies.

The battlefront is in Nashville, where performers, labels, songwriters, publishers and radio stations accustomed to working side-by-side have renewed their disagreement. And it comes against the backdrop of Warner Music announcing a breakthrough deal last week to collect royalties when its artists have a song played on one of Clear Channel's 850 radio stations.

At stake are tens of millions of dollars in performance royalties that federal law exempts broadcast companies from paying to artists and labels for songs broadcast on terrestrial radio. Those payments go exclusively to the songwriters and publishers, as has been the arrangement for decades.

But U.S. Rep. Mel Watt, D-N.C., said the time for change has come. He plans to file legislation soon that would recognize performance royalties for artists and require broadcast companies to negotiate royalty arrangements with labels. In 2009, Watt and others in Congress pushed the Performance Rights Act, which would have mandated a new royalty for artists and labels when a song is played on traditional radio.

The 2009 bill cleared the House Judiciary Committee, but never reached a floor vote over pushback against that mandate. In response, Watt said his new bill instead would recognize performance royalty rights and require broadcast companies and labels to work out their own arrangements over royalty payments.

"I've felt that it was unfair for AM/FM stations to use the works of artists to make money for themselves without paying the artists whose stuff they're using," Watt said. "I was on the original bill that did not move several years ago. Part of it had to do with the fact (broadcasters) thought the compensation structure proposed in the bill was not fair or onerous. And I said, 'Well, OK, maybe it would be better if you all just go out and work among yourselves.' "

As it turns out, this is already happening. Big Machine Records, home to country music superstars Taylor Swift, Tim McGraw and Rascal Flatts, was at the forefront, agreeing to a performance royalty deal with Clear Channel in 2012, and more recently reaching agreements with other broadcast companies. The deal between Warner Music and Clear Channel that came to light last week is truly groundbreaking, because it is the first involving one of the three major labels.

Radio resistance

Despite the private market starting to move in this direction, the radio industry stands in staunch opposition to Watt's efforts. They say artists and labels effectively receive free promotion when their song is broadcast, and this marketing leads to consumers buying albums, concert tickets and merchandise.

Whit Adamson, president of the Tennessee Association of Broadcasters, worried that Congress legislating a new royalty would lead to smaller radio stations either shuttering or choosing to change their format.

"It has a profound impact on our industry overall, if it were to come to pass," said Dennis Gwiazdon, Nashville vice president and general manager for South Central Media, which owns Mix 92.9 and JACK-FM 96.3. "The major concern centers around the amount of the fees that are involved here and how that could potentially alter the radio landscape, potentially for music stations, who if they felt the fees were onerous to the extent they didn't want to pay them, might go to a spoken-word format."

Democratic U.S. Rep. Jim Cooper of Nashville said he was sympathetic to the financial challenges facing smaller, independent stations. Cooper said he proposed such stations pay a very small royalty fee under the 2009 bill.

But Cooper added that it behooves Congress to act despite the private deals being struck because U.S. artists and labels are missing out on foreign performance royalties. Cooper said lawmakers are leery about taking money out of the pockets of broadcast companies because there's a radio station in every congressional district. And unlike his Nashville-area constituency, there's not the presence of professional songwriters and musicians in every district.

"The issue has been gridlocked for years, primarily due to the political power of the broadcasters," he said. "This is ironic and it's tragic, because there is a European fund that is waiting to distribute money to American artists. But they won't distribute that money unless we acknowledge a performance right."

Changing media

The question is muddied by the emergence of Internet radio, which does pay out a royalty to artists and labels. In fact, the deals between Clear Channel and the record labels include the trade-off of paying out terrestrial radio royalties on the bet that digital royalties will continue to grow in the coming years.

"I think the debate has heated up in light of the transition from the purchase of CDs as the dominant medium of music consumption, to a move and expansion into new forms of media such as streaming, satellite radio, webcasting and so on," said Denise Stevens, senior counsel at the Nashville office of Loeb & Loeb, which specializes in entertainment law. "And when people look at digital broadcasters, who have an obligation to pay royalties, they see a discrepancy."

Last year, SoundExchange, the nonprofit group that collects and distributes royalties for Internet radio plays, paid out $462 million in digital royalties last year.

Take Luke Bryan's 2012 hit song "Drunk on You," which has 223,889 spins on terrestrial radio and has been streamed 24.9 million times according to research provided by Nielsen BDS. Bryan and his record label Capitol Records were not legally entitled to the royalties generated by his radio airplay.

In a 2012 letter to Congress, the National Music Publishers' Association, Nashville Songwriters Association International and the Church Music Publishers Association stated that 92 cents of every dollar paid in digital royalties goes to labels and artists while 8 cents goes to publishers and songwriters.

David Macias, president of Nashville independent record label Thirty Tigers, worried that the trend of agreements between broadcast companies and record labels could have a chilling effect on independent music if the radio stations are more inclined to play songs produced by labels with which they have business deals. He said he supported Watt's pursuit of a law.

"It's a win-win for Warner and for the radio chain, but competition loses," Macias said.