White House Recommends Performers Share in Copyright Royalties

Among the bundle of rights set forth in 17 U.S.C. § 106, copyright owners of certain works have the exclusive right to publicly perform the work. In particular, this statute maintains a public performance right for the copyright owners of “literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works….” Notably absent from this list, copyright owners of sound recordings have no such general public performance right. This exclusion is confirmed by 17 U.S.C. § 114, which provides that the rights granted to the copyright owners of these works “do not include any right of performance under section 106(4).

This may change if Congress agrees with a little noticed addendum to a recent White House policy statement. That addendum followed a more detailed recommendation to broaden criminal penalties for copyright enforcement. In fact, the two parts of the policy recommendation have different objectives: better protection against foreign copyright infringers is the objective of the primary recommendations in the statement. Giving performers on U.S. recordings parity with those making foreign recordings seems to be the objective of the second part of the statement. But the latter change, if enacted by Congress, has been a long time in coming.

Practically speaking, under the current regime, only songwriters receive royalties each time the work is “publicly performed” by broadcast over terrestrial radio. In this regard, the radio broadcaster purchases a license to play the song from a non-profit performance rights organization (such as ASCAP or BMI), who then distributes the royalties to the author and/or publisher of the work. Notwithstanding that the success of a song may rest upon the ability and/or appeal of the performer, the sound recording owners – lacking the public performance right – have no right to receive royalties from radio broadcasters.

The legislative history behind these provisions demonstrates that the recording industry bargained for exactly this arrangement. Prior to the 1971 amendments to the Copyright Act, there was no copyright protection for sound recordings. Indeed, the recording industry acquiesced (however grudgingly) to the exclusions contained in 17 U.S.C. § 114 in exchange for the creation of a copyright in recordings “fixed, published and copyrighted” on or after February 15, 1972, as provided for by the 1971 amendments to the Copyright Act. At that time, the recording industry primarily concerned itself with record piracy, eventually conceding to these narrowed rights in order to placate the loudest opposition, i.e., radio broadcasters, and obtain a sound recording copyright.

Since then, the recording industry has advocated for parity in public performance rights. For its part, Congress has made few concessions. In the mid 90s, amid growing concerns that subscriptions to internet radio would displace CD sales, sound recording owners petitioned for a limited right regarding transmission via newer media. Congress responded by enacting an exclusive right for the public performance of a work “by means of a digital audio transmission.” Pursuant to this limited right, internet radio operators must pay royalties to performers and record companies. Broadcasters, of course, have staunchly opposed any change in the status quo of terrestrial radio broadcasting.

Proponents of an expanded public performance right have aggressively stepped up their game over the past few years, due in part to mounting economic pressure from the declining album sales faced by performers and their record labels. In 2009, Congressman John Conyers, Jr. introduced the Performance Rights Act (PRA), which sought to amend the Copyright Act to include an unrestrained public performance right for sound recordings. Immediately, seemingly equally matched bipartisan forces aligned against each other. As an effort to accommodate lower income broadcast operations, a sliding scale royalty was proposed. Representatives for the radio broadcasters countered with terms including a percentage of net revenues for terrestrial broadcasts, but in exchange for a lower royalty rate for digital transmissions. The recording industry balked at the terms, claiming that the new royalty was cannibalized and more by the lower digital rate. The parties did not reach a resolution, and the bill ultimately died in 2010.

Many commentators expect the bill to reemerge in the near future. In fact, the most recent movement on this front comes at the tail end of a list of White House recommendations of a distinctly different tenor. On March 15, 2011, the White House issued its White Paper on Intellectual Property Enforcement Legislative Recommendations, which proposes enhancing criminal penalties for certain intellectual property crimes. On the last page, the White House recommends the enactment of a public performance right, as “[t]he absence of such a right puts U.S. copyright owners at a disadvantage internationally.” This disadvantage refers to the exclusion of U.S. sound recording owners from receiving royalties in foreign countries, many of which recognize a public performance right for sound recordings, solely due to a lack of reciprocity.

But this lone justification does not adequately convey the host of interests on the table, nor does it seem to acknowledge the complicated transactional relationships existing in the music industry.

In addition to the lost opportunity to recoup foreign royalties, performers and record labels communicate a desire for fair treatment. Fairness, they argue, requires a royalty each time terrestrial radio broadcasts their sound recording. The fairness argument seems most cogent with respect to older performers who no longer command appreciable album sales, but whose broadcasts remain popular. Moreover, the recording industry acknowledges the economic value it receives through broadcast radio exposure. They argue, however, that this economic value is dwarfed by the multi-billion advertising empire. Accordingly, the recording industry contends that broadcast radio can afford a modest royalty.

Radio broadcasters hail the proposed public performance right as a tax on business that may drive the marginal enterprises out of the industry. In addition to purchasing a license from ASCAP under the publishing rights (of the songwriter) as they do under the current law, broadcasters would also have to purchase a second license under the performance rights. Broadcasters also argue that, in addition to increasing transaction costs, the proposed change comes as a windfall to the recording industry. Adding insult to injury, broadcasters contend that they will end up paying for the valuable exposure received by the recording industry and provided by broadcast radio – exposure that demonstrably leads to increased sales of albums and concert tickets.

The division of royalties among the record label and the performer also presents potentially difficult issues. Rex Glensy, a professor of law and director of the intellectual property program at the Drexel University Earle Mack School of law, identifies another potential boon for the record labels based on the allocation of the proposed royalty and the nature of record contracts. As one exemplary method, the PRA proposed allocating the new royalty three ways: 1) 50 percent to the performance copyright holder (usually the record label); 2) 45 percent to the performer; and 3) 5 percent to various background performers. Knowing that the performer stands to make more money from an external source (i.e. the royalty), Glensy says that the record label now has at least an argument to renegotiate the contract it holds with the performer to pay a lesser amount. Put simply, the record label will seek to maximize its gain, regardless of the allocation method, at the expense of the performer.

In sum, unless the economic slump in album (physical media) sales rights itself, the recording industry will probably continue to champion a public performance right amendment to the copyright laws. Should this Congress follow the recommendation of the white paper and consider such a right, the hotly contested issues discussed above may resurface. Based on the negotiations that occurred during the PSA, it appears as though both parties are, at a minimum, willing to come to the table. Out of this morass, one concept remains evident: getting broadcast radio to pay for something it has always received at no cost will likely require some dynamic concessions on the part of the recording industry.