Tuesday, March 16, 2010

NAB v Musicians Royalty Dispute: Finally, A Solution Emerges

Most people aren't aware that the National Association Of Broadcasters (NAB) has gone to war against musicians and their record companies in order to prevent performance artists (musicians and singers- even drummers!) from being paid sound recording royalties by commercial radio stations for airplay.

The gist of it is that broadcasters feel the airplay recording artists and their record labels receive = "free promotion"- and is a sufficient form of "compensation," while musical perfomers on records spun on radio stations claim they should be paid a royalty for the privilege (irregardless of promotional value)- as songwriters of the same songs embodied in the sound recordings already receive (the latter of which are called public performance royalites which ASCAP/BMI/SESAC collect from blanket licenses, then distribute to their songwriter & music publisher-members). Musicians and singers feel that if songwriters of the songs get paid, so too should they. It's an important point- and performers do have a valid claim in my opinion. Certainly, writing a great song is very difficult- and the songwriter collects royalties in relation to each recording artist that "covers" the song that is played on a valid medium (like on radio, TV). The performer would only get paid from having performed on the particular recording of the same song. And a performance on a record should deserve equal footing with writing a song- you would think (but that's a whole other article).

However, the owners of many, if not most songs' sound recordings and their associated copyrights which actually get airplay on commercial radio stations are the record companies. When an artist signs a record contract with a record label, the artist (who can be a solo artist or a band) typically signs over (in a back-handed way) the sound recording copyrights to the label. The label then pays the artist (called a "royalty artist") a piece of the sound recording royalty pie out of incoming record sales and from digital downloads in accordance with the deal points in the record contract.

So, for example, an artist might be contractually obligated to receive, say, 12% of all record sales (simplified)- but only after the record label first deducts ("recoups") monies it has "advanced" (loaned) to the artist according a set of contractual recoupment variables- before the artist ever sees a penny. Once the record company has recouped- only then will the artist begin to receive sound recording royalties. An artist on a major label (whose records receive the majority of airplay on commercial stations) can easily end up having to pay the record company back a cool million or two before actually receiving ANY sound recording royalties. Record companies take the position that, as they are advancing most or all costs of signing an artist and making and selling the artist's records (such as for promotion and advertising)- and assume all of the risk of losing money if the artist fails- the labels deserve to get paid back off the top of incoming sales. The problem is that an artist will hit "red-line positon" (the point where they are finally due sound recording royalties), only to then have the record company apply new costs to the position- creating a seemingly endless cycle whereby by the artist doesn't really ever get to see any such royalties...unless the artist sells a gazillion records or has a ton of downloads.

Therefore, one can clearly make the case in regard to this new broadcast royalty, that the record company, as owners of the sound recording copyrights, might simply find a way to lump these new royalties into the same game- and the proposed benefactors of these new broadcast royalties will end up caught in the viscious cycle of record company payout-versus-recoupment...and other tricks.

You see, according to the Bills proposed by Congress, the "fund" is paid to the sound recording copyright owners (the labels, essentially) and are THEN to be paid to non-featured musicians and vocalists. Artists on labels would be considered to be featured performers, hence the non-featured performers are actually not the artists signed to labels, yet who perform on the recordings issued by the labels. Backround singers and session musicians. Would these people not be subject to the same recoupment schemes as the artist performers and therefore get paid "from record one" (the label pays out from the first record sold, without the non-featured performer being subject to record company advances)?

Hmmm. And how many bands on labels actually use outside musicians? Certainly, a solo artist would. Yet, given the creative ways record companies have come up with over the years to warp their accounting and audit practices, or circumvent contract terms with clever trap door clauses, etc., would a non-featured performer ever see the full amount due? Why doesn't Congress clearly stipulate in its proposed Bills that the "fund" will be paid directly to independent bodies like the AF of M (American Federation of Musicians) and AFTRA (Amercian Federation Of Television and Radio Artists)- who would then disburse these royalties directly to their members, as is the case with songwriting royaties from radio play- with ASCAP or BMI as the middlemen. As long as a record companies get their hands on the money first- there is likely to be trouble ahead.

Also important is the exact definition of a "non-featured" performer. For example, would the bass player and drummer in an act who have signed a record contract (and are, therefore, royalty artists) considered to be "non-featured" per the language of the Bills proposed? Would record companies put language in their contracts whereby all performers on their sound recordings are deemed to be "non-featured" performers- except the lead vocalist? This would be language aimed directly at garnishing the lions' share of incoming broadcast royalty revenues- and would add significantly to the label's bottom line.

Anyways, the battle between broadcasters and performers has been going on now for a few years. Sirius XM Radio (SIRI), per a 2009 settlement, already pays out an internet radio royalty. However, other than that- there are few broadcasters who are willing to give in. The NAB is pulling no punches in defending such behemoths as Clear Channel Radio (CCU), Emmis Communications (EMMS) and National Public Radio- and will continue to do so until the fat lady finally sings (and is forced to get paid).

And in this corner: the RIAA (Recording Industry Association of America) represents the interests of some 1600 of our favorite record labels, including Sony Music Entertainment (SNE), Warner Music Group (WMG) and Univeral Music Group (Vivendi/VIVDY). Riding shotgun in the fight against the NAB is the musicFirst Coalition- who "represent" the interests of musical artists and performers (is there a difference?) and the like. Now, before you get all huffy and body slam the labels- you need to understand the following.

This is not the first war waged against musicians and record companies. In fact, there has been an ongoing world war waged against the creators and sellers of music by digital downloading pirates for many years now. These pirates have devastated the record industry- and have deprived musicians and songwriters of hundreds and hundreds of millions of dollars in lost "artist" and "mechanical" royalties (monies that would have been paid by record companies to their royalty artists and the songwriters from record and digital downloading sales).

As sure as you're reading this article- I guarantee that you know many of these pirates personally. They're your friends. Your brothers and sisters. Your classmates. You may have been one yourself. Right? Caught ya, didn't I.

Despite the "ah, who cares, music should be free anyways" attitude all you pirates have- you've failed to understand the gravity of your acts. You've stolen money. Period. No different than if you'd gone into a record store, grabbed a bunch of albums from the shelves and ran out of the store without paying. And if you'd have been caught- you'd have been arrested. Get my point? Sure you do...except you've come to realize that no one's adequately enforcing the laws against piracy or that the courts have not slammed down on you from the git-go. If I'd have been any judge in any file-sharing case since the beginning of this thievery- I'd have sided against the perps and thrown your sorry butts in digital piracy jail (that's a special jail which exists in my backyard- where I stick copyright thieves and make them listen, 24/7, to Yankee Doodle Dandy- as sung by Joe J.D. Dandy).

So now that we're on the same page- this is my solution to this entire broadcast royalty smackdown. Listen closely. Then, when you get all closet Republican on me and start barking about bailouts, remember the copyright jailhouse in my backyard.

The taxpayer should pay all of the broadcast royalties due performers on an annual basis. You taxpayers have stolen money from performers, songwriters and record companies (whether done intentionally or by sticking your heads in the sand as your kids looted the internet). You need to pay it back. Parents and universities (the real taxpayers) have let piracy exist in the first place. And if you and your pals had been pirates when you were in your teens- and not yet paying taxes- well you're all grown up now and you're earning a living- oh and, congratulations, you're a taxpayer. Let's just say you now owe some back taxes.

We're talking about $2-5 billion a year that the broadcasters should NOT have to pay out of pocket. Both the NAB and musicians have legitimate beefs- yet instead of these parties fighting each other- they should be demanding restitution from taxpayers. All of them. Musicians, singers and songwriters do what they do to in order to make a living- no different than an insurance underwriter, a shoe salesman, a GM factory worker or a Bank Of America CEO. People seems to think that musicians are somehow at the bottom rung of society's employment ladder- who have no values, no work ethic. Do drugs- and live out of trailer parks. They're mistaken. Music professionals and up 'n comers work as hard, if not harder, than the average person. They put in long hours every day- and without the safety net of a college degree or a rich daddy in case the "ultimate payoff" of a record deal and big sales don't pan out. There is tremendous risk involved. And to then be "rewarded" by having people steal their music is, simply put, a crime. A crime of the pocketbook. A crime of the heart and soul that music is. Where would we all be without music...don't take it for granted. Foster its creation. Which also means that musicians (even drummers) must get paid. Do the right thing.

So, in what has been a terrible 18 months of "bailouts gone wild" - a lousy few billion dollars per annum is chump change. And it's money not only well deserved- it's money the taxpayer already owes.

So exactly how will the passage of the Performance Rights Act affect both broadcasters and record company stocks (in case it's not particularly obvious? And it isn't).

The "performance tax" (as the broadcasters are calling the currently proposed royalty), would probably have little, if any, negative affect on the larger Clear Channel-esque radio corporations- and may well end up helping them. The performance tax may hurt the smaller stations and their owners, who have claimed stuff like this could "put them out of business." And of course, whenever companies go out of business, well there is less "competition"- and the larger companies can swoop in and swallow up their market shares...assuming it fits nice 'n good within the anti-trust laws of the land as applied in the real world.

The record companies may stand to benefit from adding more "sound recording" income into their coffers- why else would they be fighting so hard for the broadcasting royalty. Of course, non-featured singers and musicians are destined, in theory, to benefit greatly, except the last time I checked, record companies don't get particularly excited by helping musicians unless there's something substantially in it for them. If the money came in and then went right out the door to the performers- that would not qualify as helping the labels' financial well-being. However, if the labels found a way to get a piece of a piece, well that's a whole other ballgame. Deeming performers (other than the lead singer) to be "non-featured" and snapping up big income caught in the red-line position recoupment cycle trap would certainly be an important boost toward income streams.

And, of course, labels are always looking for more leverage in their holy quest for a greater share of digital downloading revenue streams. Apple (AAPL) - are you listening out there in iTunes land? A broadcast royalty designed to pay performers is a "win" for the record companies on the road to a future digital download dogfight that ropes Washington in on the side of the RIAA. Can you say "big digital downloading 'tax'?"

My idea of having taxpayers pay the broadcast "performance tax" for past dirty deeds is designed to help the "little guy"- both small stations and performers alike. The labels and large radio companies are going to be what they're going to be. They'll survive in some shape or form. But, competition on the airwaves (and exposure for artists on smaller stations) is a good thing. Helping performers survive so they can continue to create better music that pushes the creative boundaries- is a great thing.

The two Bills on the table in Congress are: Senate Bill S.379 and House Bill H.R.848 .

What you need to do is pick up your cellphone or (iPhone) -or grab that mouse- and click the link below (yes- even if you're on a file-sharing site downloading music files)- and call or write your representatives and demand that- not only must a Bill finally (and immediately) be passed paying the darn annual royalty- but state that you equally demand Congress comes up with the annual stipend out of taxpayer funds- wherever they exist. Sell some more bonds to the Chinese if they have to.

And that you won't take "NO" for an answer. Tell them, at very least, that taxpayers are willing to subsidize the tab- in case the entire amount isn't do-able (hey, buddy- can you spare a billion-five?).

The NAB has more important things to deal with- like the newly proposed FCC broadband spectrum plan.

That way- the next time any of you steal music and rip-off record labels and musicians (even drummers) - at least you will have already paid a bit of your debt to the piper.

Write or Email your Representative: here.

Tell 'em GT McDuffy sent you. We've mobilized before (uptick rule and mark-to-market accounting for example). Let's do this one for the music guy...

GT McDuffy

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