U.S. Performance Rights in Sound Recordings

In 2008, the Department of Commerce urged Congress to expand the statutory royalty scheme for digital music streaming to include terrestrial radio transmissions, arguing that this would: (1) level the playing field between satellite, Internet, and terrestrial broadcasters, (2) increase the incentives for performers and record companies to produce new recordings, and (3) make it possible for U.S. record producers and performers to receive substantial amounts of foreign performance royalties that have previously been held back by foreign PROs.  Public performance royalties would also replace some of the mechanical royalties that record producers and performers have lost due to the proliferation of unauthorized downloads.

The Obama Administration’s support for performance rights in sound recordings is consistent with the position that the Copyright Office has argued for decades.  However, opposition from the broadcasting industry has consistently scuttled legislation designed to achieve this goal.  Until the U.S. enacts a broader public performance right for sound recordings, domestic performers and record companies will be unable to claim their share of foreign performance royalties (a share which probably exceeds $100 million per year), because most countries (or their collecting societies) impose a reciprocity requirement which U.S. law does not satisfy.  It is ironic that the country that produces the most popular sound recordings in the world is unable to collect the royalties from those overseas performances.

The Performance Rights Act

The 2010 Performance Rights Act (PRA) would have been a large step in the right direction. At the congressional hearings, musicians and record company executives testified in favor of the bill, while representatives of the broadcasting industry opposed it. Although both the House and Senate Judiciary Committees approved the bill, it never proceeded to a floor vote.  There is a good chance that some version of this legislation will be re-introduced in the 112^th Congress.

If enacted, the PRA would dramatically change the rights of musicians and record companies by giving them the right to receive royalties from public performances of their sound recordings on terrestrial radio.  In contrast, current law grants public performance rights only with respect to digital transmissions of those recordings – e.g., satellite radio and webcasting.

Recognizing that the new performance royalty will increase the cost of broadcasting –the chief objection raised by broadcasters — the PRA would provide relief to smaller radio stations as well as public broadcasters, giving them the option to pay, in lieu of the statutory royalty, an annual flat fee determined by their gross revenues.  For the lowest-grossing broadcasters, the annual fee was as low as $100 in the Senate version ($500 in the House version).  This relief should help niche broadcasters, such as college radio, to continue to bring diversity to the airwaves, and to offer a platform for new and emerging artists.  In the next iteration of the PRA, it would be helpful to extend this relief to small webcasters as well, since they, too, can foster diversity and help new artists find an audience.

The PRA would also improve the royalty rights of the nonfeatured performers on sound recordings (both vocalists and musicians). Under current law, when a statutory royalty applies to a digital audio performance, a specific portion of that royalty is set aside for nonfeatured performers.  However, some digital performances (e.g., Rhapsody and Spotify) are not eligible for the statutory royalty, because they are “interactive” – meaning that the user determines which recordings will be played.  The royalty for these interactive transmissions is negotiated by the record company and the company that provides the streaming service.  A nonfeatured performer receives no share of these negotiated royalties unless the performer’s contract with the record company so provides; as a result, most nonfeatured performers receive no payments at all. In contrast, the PRA would require the record company to deposit 1% of the negotiated royalty for each recording into the AFM/AFTRA Intellectual Property Rights Distribution Fund, to be distributed 50/50 between the nonfeatured vocalists and musicians. Thus, under the PRA, nonfeatured performers will be entitled to at least a small share of the negotiated performance royalties.

Unfortunately, the bill does not require the licensee to inform record companies which recordings were performed or how often – information which is necessary to enable the AFM/AFTRA fund to allocate royalties to nonfeatured performers.  Thus, the burden falls on the record companies and the performers to determine these allocations.  This increases costs, and reduces the funds actually distributed to performers.  While the PRA’s new allocation scheme would improve on current law (under which nonfeatured performers typically receive nothing), it does not guarantee that nonfeatured performers will collect their full legal share.

The absence of recordkeeping requirements in the PRA would also affect the allocation of the new statutory (i.e., non-negotiable) royalty for terrestrial radio broadcasts of sound recordings.  Although the PRA would give both featured and nonfeatured performers, as well as record companies, a share of this royalty, it would not assist them in tracking those broadcasts so that the royalties could be accurately disbursed.  Under current law, digital audio transmissions are eligible for statutory licensing only if they are “accompanied, if technically feasible, by the information encoded on that sound recording,” which identifies the title of the sound recording, the featured recording artist, and “related information, including information concerning the underlying musical work and its writer.”  Because terrestrial radio broadcasts do not carry digital encoding, record companies and performers will need some other way to determine which recordings are being played, and how often. Unfortunately, neither the House nor the Senate version of the PRA would impose any duty on terrestrial broadcasters to maintain records of this information.

To monitor usage, radio stations should be required to maintain logs of their musical transmissions and deliver these records to the parties charged with allocating the royalty. This requirement may be burdensome, especially on smaller stations.  However, radio stations are already required to maintain logs — at least periodically — under their blanket licensing arrangements with ASCAP and BMI.  If ASCAP and BMI are willing to cooperate with SoundExchange, it may only be necessary to add additional information to those logs, identifying the particular sound recordings (as opposed to merely the musical compositions).  Although some of the burden of tracking usage may inevitably fall on the recording industry, other countries (including Canada) have imposed rigorous recordkeeping requirements on radio broadcasters.  While the Canadian approach may be too burdensome, surely some compromise is possible.

Beyond the PRA

While the PRA would be a tremendous improvement over current law, it would not give musicians and record companies a full public performance right equivalent to the right enjoyed by songwriters and music publishers.  The PRA would not give musicians and record companies a right to receive royalties from  performances of recorded music in public venues such as clubs, restaurants, bars, retail stores, or other business establishments. Thus, even if the PRA is enacted, public performances of sound recordings in these venues will continue to generate royalties only for songwriters and publishers.

While this type of limited progress is typical of incremental legislative reform, there is no principled justification for continuing to exempt these businesses, and eventually they, too, should be required to pay for the use of these recordings.

With respect to recordkeeping, however, the expansion of the performance right to public venues will be even more problematic than its expansion to terrestrial radio.  In order to allocate royalties (whether compulsory or negotiated) among the various rights holders, the agent in charge of collecting and disbursing those royalties (SoundExchange or a similar entity) will need to determine which recordings have been played, and how often.  If this burden falls on the rights holders, this will be even more difficult than the task of monitoring radio broadcasts.  It is impossible to monitor thousands of individual venues, geographically disparate, with widely varying music usage (e.g., dance clubs versus grocery stores).  How, then, will royalties be allocated?

ASCAP and BMI do not require venue operators to maintain records of the music they play, relying instead on radio airplay and other proxies to estimate frequency of performance. As noted earlier, however, the PRA would not require terrestrial broadcasters to maintain records of the specific recordings they play. Thus, the convenient “radio proxy” would not be available for sound recordings.  This is another reason why future versions of the PRA should require radio stations to engage in some degree of recordkeeping.  In addition, operators of large commercial venues (or the music services with which they have contracts) could be subject to a limited recordkeeping requirement — perhaps only for a few days per year — and these records could be used as proxies for the smaller venues.

Under their blanket licensing arrangements with ASCAP, BMI, and SESAC, public venue operators normally pay a license fee that reflects their revenues as well as the nature of their business, because music plays a greater role in some businesses than others.  If the statutory license for public performances of sound recordings is extended to public venues, then the Copyright Office will need to take similar factors into consideration.  The statutory licensing scheme for digital audio services, and the proposed extension to terrestrial radio, distinguishes between services only on the basis of revenues and audience size; this approach simply will not work for public venues as varied as dance clubs and grocery stores.

Fortunately, collecting societies outside the United States have already developed methods for estimating usage of sound recordings by public venues as well as broadcasters, and these methods could serve as useful models for the United States.

Rate-setting will present another challenge if the performance right is extended to public venues.  To what extent should the government play a role in establishing the royalty rate?  Should public venues be subject to a statutory license, with the rate set by the Copyright Office, or should the rate be negotiated by the parties?  Should the royalty scheme be modeled after ASCAP and BMI performance licenses for musical compositions, with a collecting society (such as SoundExchange) setting a blanket license rate, subject to judicial or administrative oversight?

There are precedents for both approaches in other countries, and their models can offer helpful guidance.  If there is no government oversight at all, an impasse in negotiations could harm songwriters and publishers, whose royalty income depends to a great extent on public performances of sound recordings.   In contrast, if the license is statutory, or if it is privately negotiated but subject to government oversight, this would avoid the bottleneck problem, but it would also mean that the government entity charged with setting the royalty rates would have to consider the cumulative effect of the sound recording royalty combined with the songwriters’ and publishers’ royalty.  If the cumulative royalty is too high, venues will cut back on the amount of recorded music they play; some will stop playing music altogether.  Ideally, rate-setting authorities should ensure that the cumulative burden on music services and broadcasters is reasonable and not subject to major fluctuations over time. Thus, the government will need the authority to reduce the ASCAP, BMI, and SESAC licensing fees – an outcome which songwriters and publishers have vehemently opposed.  Indeed, both the current statute on sound recording performance royalties and the PRA contain language that precludes the government from reducing songwriters’ and publishers’ royalties in order to make room for sound recording royalties.

Clearly, there are substantial obstacles on the road to a full performance right in sound recordings.  These obstacles are routed in the long-standing perception that the creative work of performers and record producers does not deserve the same degree of copyright protection as the creative work of composers and publishers.  This discrimination has been known to create strife among band members, some of whom receive substantial songwriter royalties while others must settle for the lesser stream of income generated by performing.  The rest of the world grants performers and record producers a public performance right far superior to that of the U.S.  If other countries can overcome the obstacles to a full performance right, then the U.S. can do so as well.

Mary LaFrance is IGT Professor of Intellectual Property Law, William S. Boyd School of Law, University of Nevada, Las Vegas.  For the author’s more detailed treatment of this topic, see From Whether to How: The Challenge of Implementing a Full Public Performance Right in Sound Recordings, 2 Harvard Journal of Sports and Entertainment Law 221 (2011).

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