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Bill would create royalty market for broadcaster payments to musicians

Rep. Mel Watt (D-NC)

Rep. Mel Watt (D-NC)

North Carolina Representative Mel Watt introduced a new bill to tackle music performance royalties for terrestrial radio this week. His timing isn’t the greatest however, as the government shutdown certainly threatens to overshadow his Free Market Royalty Act.

As its name implies the Free Market Royalty Act would create a market wherein broadcasters and copyright holders would negotiate royalty rates. This is not unlike what Clear Channel has been doing recently, striking deals to pay royalties on its terrestrial stations in exchange for better rates for its online iHeartRadio plays. But the crucial difference with the FMRA is that participation would be compulsory for all broadcasters. This includes online services like Pandora, satellite radio and terrestrial broadcast.

In a statement, Watt explained “The FMRA’s solution for royalty setting is the one the broadcasters have called for: let the market decide. But it also provides equal rights and bargaining power to both sides by allowing recording artists to reject offers they find unacceptable – something they currently cannot do under the copyright laws because the compulsory license requires them to make their music available.”

Musicians groups responded positively to Watt’s effort. Casey Rae, interim executive director of the Future of Music Coalition, said “It is nowhere near certain that the bill’s avoidance of a compulsory rate-setting process will result in greater market confidence. However, there is much to applaud in its call for clear and equitable creator splits as well as direct payment to performers.”

musicFirst Coalition executive director Ted Kalo said that this group “has been flexible in supporting a variety of approaches” to royalties, including the failed 2009 Performance Rights Act. However, he continues, “After saying no to each and every approach to date, the broadcasters have run out of chances.”

Unsurprisingly, the National Association of Broadcasters opposes the bill. VP of communications Dennis Wharton issued a statement saying, “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.”

The issue that small labels and independent artists have with this approach is that they are not even at the table, which means they are left out from receiving royalties from broadcast altogether. But making such negotiations compulsory does not make it any clearer how thousands of independent artists would strike deals with thousands of broadcasters. This should be of particular concern for community and college stations which are much more likely to play a wide diversity of music from these independent musicians and labels.

If passed, legislation like the FMRA might spur the creation of performance rights agencies similar to BMI and ASCAP which collect songwriting royalties on behalf of rights holders. Organizations like the National Federation of Community Broadcasters, College Broadcasters and the Intercollegiate Broadcasting System historically have worked with rights agencies to negotiate rates on behalf of community and college stations.

It stands to question how willing the major labels would be to negotiate reasonable rates for the smallest noncommercial broadcasters. The failure to come to agreement could suddenly render thousands of albums off-limits for these broadcasters if royalty payments are too high. At the same time, that could have the unintended consequence of boosting airplay for independent music.

Obviously, this is just speculation. But if the bill is able to pass out of committee independent and noncommercial broadcasters should pay close attention, because the devil will be in the details.

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