The RIAA and the Broadcaster Shakedown
p2pnet news view | RIAA News:- The New Terrestrial Radio Performance Royalty Bill (AKA the Record Industry Bailout Bill of 2009) and the same old story
After 15 years of failing to understand that their traditional business models are completely useless on the Internet, the RIAA has returned to the only way they know to make a dime in the new neighborhood; the broadcaster shakedown.
Using the Internet streaming performance royalty as a template, and using recording artists as their puppet spokespeople, the RIAA managed to get a new version of last year’s bill introduced by “bipartisan” sponsors. (In RIAA-speak, bipartisan means anyone who accepts campaign contributions from the RIAA and its fronts. The only “party” that matters is the victory party.)
Last year’s attempt got stalled last fall when Congress got distracted by the possibility of real doom happening to real people, and while they ran around in small circles not really solving anything, they forgot their friends in the RIAA entirely, which proves there’s always a silver lining in the darkest cloud.
So, now they’re back, collective hat in hand, asking for Congress to force broadcasters to give them money to keep them and their broken business models afloat. And once again, SoundExchange, using all that money they’ve absorbed from the revenue intended for artists they say they can’t find, is leading the parade through their own false front organization; musicFIRST.
musicFIRST needs artists as spokespeople. These artists, who are a lot more attractive than Doug Morris of UMG and speak better English than EMI’s Elio Leoni-Sceti, have been very visible in explaining to Congress and the press how they deserve a performance royalty from terrestrial radio, and they tell stories about how their peers have died in poverty. They never seem to mention that the real reason they died in poverty wasn’t because the radio stations weren’t paying them anything, it was because their record labels weren’t paying them what they promised to. It’s those same labels that stand to make the most from a performance royalty on terrestrial radio. It has been estimated that 90% of the music heard on terrestrial radio comes from only four RIAA members (the number drops to about 70% on the Internet webcasts), but no one really wants to talk about that concentration of power and money. Instead, we hear about the poor artists who need the performance royalty to survive.
When a friend of mine was asked to testify on behalf of the performance royalty legislation last year, I warned him that the bill as introduced was designed to screw artists out of their share. He assured me that he had promises from both SoundExchange (which runs musicFIRST) and from members of the House committee that the rights of artists would be protected.
Well, the new bills have been introduced, and, despite the promises made to my friend, the artists are getting screwed over again.
In the House version of the bill is the following language »»»
SEC. 6. PAYMENT OF CERTAIN ROYALTIES.
Section 114(g) of title 17, United States Code, is amendedâ
(1) by amending paragraph (1) to read as follows:
1) Except in the case of a transmission to which paragraph (5) applies or a transmission licensed under a statutory license in accordance with subsection (f) of this section, the following shall apply:
A) A featured recording artist who performs on a sound recording that has been licensed for public performance by means of a digital audio transmission shall be entitled to receive payments from the copyright owner of the sound recording in accordance with the terms of the artist’s contract.
How does this screw artists?
Let’s say that the annual total statutory royalty ClearChannel owes for playing music from the Warner Music Group (WMG) record catalog is $1 million. (It will probably be much higher, but this is to keep the math simple enough for me to do.)
If ClearChannel had to pay the statutory rate, they would pay it to SoundExchange, who would then take their expenses off the top, split the net, send 50% to WMG, 5% to the backup fund run by AFTRA/AFM and the remaining 45% goes to the artists. A pretty good deal, and fair all around, presuming SoundExchange actually gets around to finding and paying the artists, and we know they’re not really good about that, but they’re the only game in town when it comes to collecting and distributing this money.
But that provision I quoted leaves a loophole big enough to drive a Brink’s truck through it, and the broadcasters and labels already know about it.
Let’s say ClearChannel doesn’t want to pay the whole $1 million, so they go to WMG and say “We’ll enter into a direct license with you for a rate set at 75% of the statutory rate.”
ClearChannel sees that as reducing their bill by $250,000, so they obviously like the idea.
And WMG looks at the offer like this: If we make ClearChannel pay the statutory rate, we get half of the $1 million, or $500,000, less SoundExchange’s expenses. But if we make a direct license with ClearChannel, they pay us $750,000 directly.”
But doesn’t WMG then have to credit the artists for half of that license fee, $375,000? Nope, thanks to that neat little provision I quoted above.
“A featured recording artist…shall be entitled to receive payments from the copyright owner of the sound recording in accordance with the terms of the artist’s contract.”
45% of the license fee reserved for artists? Forget about it.
Say Hello to whatever royalty rate the artist contract sets for sales of physical copies. If you were unfortunate enough to sign a contract 40 or 50 years ago, like some of those Congressional witnesses were, that means maybe 3 or 4% , subject to contractual set-offs, deductions, and God knows what other reductions the label can figure to stick on there.
Contractual royalty rates have gone up over the years, but if you figure that the average rate, over all the artists ever signed to labels under the Warner Music Group banner is 10%, then WMG only has to pay, at the most, $75,000 of the $750,000 they got from ClearChannel in our example. They get to keep $675,000, which is $175,000 more than they would have gotten under a statutory license.
And they could end up with the whole $750,000. Legally.
Remember the royalty bill says the label has to pay the artists according to their contract. The punchline here is that almost all those contracts never talk about a performance royalty, because almost all those contracts were signed when no one thought a performance royalty was possible. There are labels that will say, “We don’t have to pay anything from a broadcast license because the contract doesn’t say we have to pay anything from a broadcast license.”
If you think this is farfetched, remember this was exactly the position many labels took when they started making money from licensing their music for uses in movie and TV soundtracks and in commercials.
Before that was a common practice, that kind of license was never covered in artist contracts. It wasn’t until B.J. Thomas sued over not getting paid for the use of “Raindrops Keep Falling On My Head” in “Butch Cassidy & The Sundance Kid” that “standard industry practice” changed to recognize that the artist has a right to share in that revenue, and even today there are many instances where the labels fight it.
And there’s another standard industry practice that will screw artists just as badly under the current legislative language.
In our example, if a broadcaster and a label enter into a direct license, it will be what is known as a “blanket license,” because it will involve a single lump sum payment intended to cover every broadcast of everything in the label’s catalog, from current stars to artists who put out a single or two back in the 50s. When the payment is made, nobody, not at the broadcaster and not at the label, knows who is going to get played on the air, or how many times. This happens today when a label licenses their complete catalog to a repackager or a record club.
So the label has a problem: how do they decide what artists are entitled to what share of that license revenue. Some labels have struggled with this and end up dividing the money by complex formulas they have a hard time explaining.
Others take the easy way. They say, “since we can’t figure out how much we should pay, and who we should pay it to, we won’t pay anyone anything.” These labels call the blanket license fee they receive “administrative revenue” and they say that “administrative revenue” falls outside the royalty contract. So they don’t pay royalties at all. And they know that no individual artist is going to sue them about it, because the amount that an individual artist is entitled to out of a blanket license is not large enough to justify a lawsuit.
The direct license on performance royalties game is fixed. The broadcaster wins a lower payout. The label wins more revenue. The only losers are the artists.
Again.
And the proposed terrestrial radio performance royalty legislation perpetuates it.
In case you think this won’t happen, it’s already happening. The Internet performance royalty legislation, found in Section 114 of the Copyright Act, contains the exact same provision about direct licenses. Back in 2007, when the Copyright Royalty Board announced the new high rates, SoundExchange reminded everyone that they could always negotiate directly with the copyright holding labels. If you needed any further proof that SoundExchange was willing to sell out artists for the good of the labels, that should have given it to you.
There have been direct licenses signed by webcasters like last.fm. And their license fees go straight to the labels. And the artists on those labels are getting paid “according to their contracts,” and not the 45% they would have gotten from the statutory license.
So, unless the final bill language is changed (and it won’t be, given the way the RIAA is known to make sure things like that don’t happen), the terrestrial radio performance royalty isn’t going to help the very people the record industry is using to tell you how much the royalty is needed.
If everyone involved in this scam was not already beyond embarrassment about being a party to this thievery, they should die of shame. Unfortunately for artists, they won’t. They’ll continue to thrive by taking what isn’t rightfully theirs, and they’ll have the willing assistance of SoundExchange in doing so.
Fred Wilhelms – p2pnet
[If the corporate music industry had any ethics, Wilhelms would be its 'ethicist-in-chief,' wrote CounterPunch's Dave Marsh. Wilhelms is an entertainment attorney based in Nashville, Tennessee. You can contact him at fred.wilhelms @ gmail dot com. ]
February , 2009
Use free p2pnet newsfeeds for your site. It`s really easy!
Subscribe to p2pnet.net | | rss feed: http://p2pnet.net/p2p.rss | | Mobile – http://p2pnet.net/index-wml.php
Net access blocked by government restrictions? Use Psiphon from the Citizen Lab at the University of Toronto. Go here for details.
February 26th, 2009 at 12:06 pm
Shameful is also that the artists with money (Madonna, Metalica, U2, etc…) are so confused or blinded by what the labels say and take it to be true, their money can’t be used to help their fellow artists.
Imagine what could happen if these artists would could easily afford to donate did and helped not even those being sued but other artists stand up together, with a team of lawyers, and battle the labels. You could see the artists actually get their deserved share!
The artists could expose the labels for their scams with proof, by providing financial statements, contracts, and mounds of testimony countering the exaggerations and fictional claims of the labels. This could go a long way to helping those who are being shafted, as in the artists and consumers!
February 26th, 2009 at 12:29 pm
Not to mention SoundExchange just announced it’s auditing XM and Sirius. I’d link it here but the comment system would eat my comment
Remember the Last.fm audit they announced, what, a year ago? And where did that ever go? Nowhere, or at least nowhere anybody’s saying.
February 26th, 2009 at 2:08 pm
what i would like to know is how much ground the riaa sorry cria would have in getting the fee from me if i set up an internet radio station that plays nothing but my own music with no commerical material, samples, etc on it
February 26th, 2009 at 3:48 pm
Devious,
If you stuck strictly to your own performances of your own compositions, you would not have to register with SoundExchange.
February 27th, 2009 at 10:09 am
The sad thing is, too many people actually BELIEVE the BS that RIAASS spews.
Oh we’re gonna pay the artists!!!!
NOT!
stw
February 28th, 2009 at 1:52 pm
It is the same that is done to songwriters by publisher, ASCAP, BMI.
If artists listened more to the songwriter plight instead of looking out only for #1, they could avoid their own plight.
This has been going on for songwriter from day 1, when songwriters, stupidly, partnered with publisher, their natural enemy in ASCAP and BMI.