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John Simson
December 1, 2009
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It was a busy and productive 2009 for SoundExchange. This year saw the resolution of public radio webcasting royalty rates, online streaming rates for local radio broadcasters and rate agreements between it and webcasters. Not content to sit on those laurels, SoundExchange Exec. Director John Simson has now set his sights on helping fashion a performance royalty agreement.
Considering the forces against it -- mainly the NAB and the country's largest radio groups that have already assembled a majority of House members who at least symbolically oppose it -- his task won't be easy. Yet Simson, originally a singer/songwriter who later managed Mary Chapin Carpenter, Steve Forbert and others before becoming an entertainment lawyer, remains confident that some sort of royalty will inevitably become law. Here's how he sees that happening amidst the current legislative situation.
SoundExchange was a major player in the recent resolution for Internet radio and radio streaming royalties. What brings you to the terrestrial radio side of this issue?
SoundExchange collects royalties on behalf of U.S. recording artists and both major and independent labels from Internet and satellite radio, including the websites of terrestrial radio stations. So when over-the-air broadcasters stream music, they make payments to us.
The terrestrial radio issue is critically important to the thousands of artists and labels we represent and they've encouraged us to take a leadership role. As our members are focused on it, we wanted to be part of the team that lobbies to get the radio performance royalty law passed
We are working hand in hand with musicFIRST, which is a coalition of music community groups such as the RIAA, AFTRA, AFM, the Recording Academy and the Rhythm & Blues Foundation. There are now 13 music industry organizations that are members of the coalition and many more who are supporting this effort.
Does the performance royalty bill explicitly spell out where the money goes between the artists and the labels?
Yes. The performance royalty bill spells out the same split found in the digital rights law. To be precise, 45% of the royalty goes to the featured recording artist; 5% goes to other non-featured recording artists such as session musicians and singers; and 50% goes to the copyright owners. I'd like to point out that the legislation never mentions "record labels." While they are often the copyright owners, there are many instances where the artists own the masters and the number is growing.
The NAB has recruited over 250 House members to sign on to the Local Freedom Act, a resolution opposed to a performance royalty. How do you intend to overcome that obstacle in getting your bill passed through the House?
The resolution that many House members signed expresses concern about the impact of the bill on small radio stations. We took their concerns very seriously and, working with our congressional champions, addressed every one of their concerns in the bill. We included accommodations for small and minority broadcasters; the vast majority of stations will make low flat-fee payments as part of the legislation. For example, a small broadcaster with revenues under $50,000 has a $100 obligation. If you make more than $50,000 and less than $100,000, you're talking about a $500 payment. From $100,000-500,000, the flat fee is $2,500, and from $500,000-$1.25 million is $5,000. All these flat fees are built into the statute. Many of these stations will be paying less than one percent of their revenue.
Another feature in the bill is that any radio station with less than $5 million in revenue has three years before they make a payment, and there's a one-year ramp-up for stations making over $5 million a year. This will give everyone time to adjust and prepare for it. So a lot of the concerns expressed in that resolution have already been addressed in the bill.
It seems that a lot of people signed on because they were lobbied heavily by their local broadcasters and are not aware of these accommodations. When they are educated on the issue I'm sure they'll join the members who initially signed the resolution and are now calling for radio to come to the negotiating table to negotiate a fair resolution.
How do you counter the argument that, for years, radio airplay has been -- and continues to be - the best promotion vehicle for record sales?
People don't take into account the fact that many people who listen to radio don't buy CDs; they just listen to radio because they can hear music for free. Clearly, radio airplay can help sell records for some artists, but not all artists. But promotion will be taken into account when royalty rates are established. That is one of the factors that the Copyright Royalty Board must consider when setting rates.
So this performance royalty bill, judging by the artists who have testified before Congress, seems to be a salve for "Oldies" artists.
Absolutely not. While artists who have had longer careers have been more engaged in this issue, I believe much of that stems from them gaining a greater understanding of radio's role. They understand that 15% of radio's audience is comprised of "active" listeners who buy music and concert tickets, and about 85% is "passive" listeners who are content to hear "free" music in exchange to listening to advertisements. Music radio makes $14 billion using sound recordings to reach that entire audience -- which is down from $16 billion two years ago -- and they pay recording artists zero.
Several radio group owners have publicly stated that if they had to pay for music, they'd much rather save money and flip to a Talk format. How do you counter such pronouncements?
This is radio fear-mongering. We've heard those who say if the bill is passed, a lot of stations will simply go to Talk formats. We feel those stations that want to go Talk, will go to Talk anyway, but the reality is that the vast majority of the radio audience wants to hear music. Look at Talk radio today; people say Talk radio is so successful, yet that format generates maybe 25% of the ad revenue at best. People will go where the music is, and we feel there will be always be stations that will put music on the air and would be willing to pay for it, so they can attract the largest audience. That was the situation in New York, back when I was a teenager listening to WABC. They had two-thirds of the market because they were playing the music that everyone wanted to hear. Eventually, more and more stations tried to compete with because they were successful. The same thing will happen again.
Another argument from radio is that such a law would prompt station to play established artists to "get their money's worth," and not risk taking chances on new music.
As far as the notion that stations will only play the hits, first of all they're practically only playing hits now. Even the record labels will tell you that getting new music on the radio today is incredibly hard. We've looked at the airplay spin data and 60% of the music that radio plays is two years old or older.
Negotiations could even foster new music airplay. One Congressman suggested that records by brand new artists could be royalty-free for the first six months to encourage the playing of new music. That's what artists and record companies want. Who knows if that's a feasible system from an administrative point of view? At least it's an attempt to create a marketplace for new music. As it is, radio's is playing more established artists and taking fewer chances than ever; why not experiment with differential price points in a market? Maybe that would encourage them to play more adventurous things.
I read an interview with two heads of Emmis Communications, and they were asked if they had an obligation to promote new music. They said no; their obligation was to play what their listeners want to hear and to serve their advertisers. They have no obligation to the public, artists or record companies to play anything new at all.
NAB CEO Gordon Smith recently gave a speech where he basically claimed that radio is tapped out in royalty payments, but they'd be willing to divvy up the money they already pay to songwriters.
There have been other attempts to get performance rights passed in years passed, and the broadcasters have always tried to use this: to divide the songwriter and the recording artist community. They want to pit us against each other, but it's not going to work. Not a penny of performance royalties should come from the songwriters. We're going to hold true and steadfast in our determination to make sure it doesn't. Just look at what American radio pays for rights compared to other countries. In the U.S, 3% of radio revenues go to songwriters and 0% to recording artists. In the U.K., it's 5% to each party. I can't think of another business that gets its content for just 3% of its revenue.
When radio's revenues still declining, wouldn't a performance royalty make radio's economic future - as the very least perceptually - more precarious?
We certainly tried to send a message in the bill with these very modest payments to smaller broadcasters, but we recognize this is about the largest chains and markets that comprise the lion's share of ad revenue. We don't want them to fail; we don't want radio to go out of business. We do want to work with a strong radio community not just on this, but on other pertinent issues. Radio has been our partner for years, and it has been an interesting and challenging partnership, but the bottom line is radio hasn't been paying recording artists anything for their product.
If one or more major radio group declares some form of bankruptcy in 2010, wouldn't that put a crimp in your assertion that radio could handle a new royalty?
The debt service those companies took on in their rapid expansion is certainly a factor, and I guess one could say, "Gee, if you had been paying performance royalties all along, maybe you wouldn't have had all this money to spend foolishly on expansion. That got you into real trouble." But the real answer is that the reasons we included the three-year ramp up in the bill is to give the economy time to turn around and give people time to plan for this. Radio is still very profitable when you take away the debt service. These public companies have operating margins of 30-40%; that is pretty healthy in any economy.
It seems that the performance royalty bill and the Local Freedom Act both cross party lines. Does the fact that this is a nonpartisan issue make you lobbying efforts easier or harder?
Frankly, it not being a partisan issue makes it far easier for us. Once members of Congress hear the merits of our stance, they typically side with us. We're making progress with this every year. The more people we reach the more support we have. It's very encouraging that every year our side is getting stronger. There's an inevitability of this becoming law sometime in the future; even broadcast publications have started to write this story.
How does 2010 being an election year impact your efforts?
The fact that this has become a much bigger issue is important. The NAACP and other groups have weighed in on this; the labor unions have weighed in on this as a workers' rights issue. Artists and musicians have created recordings that radio uses without payment. We're gaining traction among other allies and public interest groups. Our coalition keeps growing. That fact that 2010 will be an election year may make it more of a challenge, but it won't stop us from keeping the pressure on until this becomes law.
So, bottom line, do you expect some sort of royalty bill to pass both Houses in 2010?
I'm not going to make promises, but I do have high hopes. I have never been more confident that this will get done.
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