Performance Royalty or Performance Tax?

In the last few weeks Sound Exchange has agreed to lower the license fee for the performance royalty for certain internet broadcasters, easing the pressure for many small broadcasters, and the National Association of Broadcasters (NAB) has claimed that they want to remain exempt and that this license fee is an unfair tax for “traditional” AM/FM broadcasters. For those of you that don’t know what the performance royalty is, it is one of 2 types of royalties enforced by the Copyright Royalty Board paid to either musicians, songwriters, producers or publishers. All types of broadcasters pay a songwriter’s royalty that is split between songwriters and publishers. The performance royalty is only paid by satellite radio, digital cable and internet broadcasters and is split 50 percent to the copyright owner/record label, 45 percent to the featured recording artist, and 5 percent to a fund for non-featured vocalists and musicians (from Sound Exchange). Is this an “unfair tax” or is it really a royalty?

Merriam-Webster’s dictionary defines a tax as “1 a : a charge usually of money imposed by authority on persons or property for public purposes b : a sum levied on members of an organization to defray expenses.” The dictionary defines a royalty as “a share of the product or profit reserved by the grantor especially of an oil or mining lease b : a payment to an author or composer for each copy of a work sold or to an inventor for each item sold under a patent.”

Looking at these definitions it might be hard to distinguish whether or not the performance royalty is a tax, because it is being “imposed by authority,” in this case the Copyright Royalty Board. However, if you consider that broadcasters make billions of dollars annually because “radio chooses and plays music to attract listeners, which in turn attracts advertisers” (Pay for Play, Billboard, Aug 4, 2007) so they are paying “a share of the product or profit.”

While satellite radio, digital cable and internet broadcasters with smaller revenues are subject to paying these royalties, the AM/FM conglomerates like Cox Radio and Clear Channel Radio who make billions of dollars in advertising revenue refuse to pay this and want to continue to remain exempt from the royalty. The talking points are the same by all these broadcasters, they say they can’t afford to pay the license fee and that the performers already make millions, and records won’t sell without them playing the records. “The reality is that if radio doesn’t play their music, they’re not gonna sell their recordings,” said Robert Neil, President/CEO of Cox Radio on Fox News (reported here). Neil goes on to say, “The songwriters may make a million dollars over a lifetime on their royalties,” he said. “But the performers made a hundred million dollars up front on record sales and concerts. Now they’re coming back and telling us to pay them. We won’t.” These statements by Robert Neil are outrageous and ill informed.

For Robert Neil to say that “the songwriters may make a million dollars over a lifetime on their royalties,” is naive because of the way the everyone reports the music they play. AM/FM stations only report a sample of what they play 2-3 days per quarter to BMI, ASCAP and SEASAC, and the satellite radio, digital cable and internet broadcasters must report a sample of what they play 2 weeks per quarter to Sound Exchange. These are really small sample periods, which benefit a small amount of artists. As I’ve reported before, on stations like 92.3 K-Rock ( a CBS Radio station) the top 100 songs are by a handful of bands or artists. For example, in the top 100 on 92.3 K-Rock, Green Day and Smashing Pumpkins each have 6 songs and Nirvana and Foo Fighters have each 5 songs; 4 bands make up 22% of the top 100. According to a Live365 study (reported here) 56 percent of music played their stations comes from independent artists and labels, and only 10-13% from AM/FM. That means that 87-90% of music played on AM/FM radio are on major labels. The majority of royalty payments are going to bands and artists that get are in the Billboard Top 40 or a stations Top 100 playlist. I know that I’ve had songs on the radio for many years and because of the way the royatly reporting structure is setup I, and others like me have made little or nothing.

And to say that “performers made a hundred million dollars up front on record sales and concerts” is also inaccurate. Having played on many albums and played many concerts, I would love to claim that I have made millions of dollars. But, the reality is that there a small percentage of performers that make this kid of money, performers like Justin Timberlake, Britney Spears, Madonna – the big names. The performers behind the performers don’t get millions. They get flat fees, union rates and sometimes, but not always, a percentage of sales. This maybe adds up to thousands of dollars a year for the drummers, guitar and bass players and other, not millions. Working in concert for one of the big names can earn you thousands a week, but there is a small community of musicians that get those gigs, plus, the performers in concert don’t benefit by the performance royalty, the album performer does.

In today’s music industry saying that “the reality is that if radio doesn’t play their music, they’re not gonna sell their recordings,” is untrue. With the satellite radio, cable, internet, soundtracks, video games, iTunes, Napster and many other media, it is getting easier to sell recordings without the help of radio. As I’ve already pointed out, radio is a closed medium to all but the major label artist and hot indie artist. What is true is that advertisers pay more to advertise on stations that are playing the new Beyonce, Jay-Z, Smashing Pumpkins and Gwen Stefani than they are to stations playing the Atomic Brother, Otto’s Daughter, King Hell and Carfax Abbey.

Clearly this all points to a royalty paid on profits, not a tax being levied. If the AM/FM stations had to pay these fees then the Internet broadcasters probably would not have this fee hike. I think that it is the direct result of the strength of the NAB lobby keeping these fees from AM/FM radio, is why satellite radio, cable and internet broadcasters are being levied these higher fees by the CRB. They are trying to make up for the lack of support by the NAB. It only seems fair that AM/FM broadcasters should be subject to paying the same performance royalty fees that everyone else pays, perhaps easing everyone’s burden, and should let the performers in on the profit sharing.