All on Board for the “Music-Bus” Ride?

On June 25, 2014, the HR Committee on the Judiciary, Subcommittee on IP, convened for its Part Two of hearings on music licensing issues under Title 17.  Committee Member remarks seemingly indicate a general awareness, and even bi-partisan agreement, that changes to the current music licensing system may be useful, and in some instances necessary.  In particular, Ranking Member Nadler (NY) suggested the system needs comprehensive reform, as the current system is inequitable and has aspects that are wholly irrational.  As a key point, Rep. Nadler focused on how terrestrial (i.e., conventional AM/FM), satellite, and internet radio all operate under different licensing and artist compensation rules, assuming there is compensation.  To correct downfalls in the current system, an omnibus (or so-called “Music-Bus”) bill supported by Rep. Nadler and others has been introduced for consideration.

During the hearing it became clear the Subcommittee is fixated on two key aspects of the current payment system legal framework that might have a chance of staying in any resultant bill:

1) Rights holders, including singers, performing artists, background musicians, recording companies, and the like, receive zero compensation when applicable music is played (“broadcast”) on terrestrial radio.   While Congress acted to require payment for digitally transmitted sound recordings back in 1995, the requirement was not extended to AM/FM radio.[1]

Based on the back and forth of the Subcomm Members between Mr. Charles M. Warfield Jr., appearing on behalf of the National Association of Broadcasters (NAB), and Mr. Ed Christian, Chairman Radio Music License Committee Inc. (RMLC), it is abundantly clear that special interest groups that profit from the current system will not be interested in divesting their share of the current pie.

The current equitable system at its core is based on a “free promotion for free play” mindset, which has likely served numerous artists very well over the years.  Or put another way, the thought is a consumer hears a song on the radio, and then decides to go buy the record or CD, thus ultimately resulting in some form of downstream compensation to the artist stemming from the free play.

However, parties speaking on behalf of artists, such as Ms. Rosanne Cash Singer, Songwriter, Author and Performer, and on Behalf of the Americana Music Association (AMA), made their position clear that this is failed thinking in the modern world.  More to the point, that the artist has no say or choice in the matter.

While a majority of Members indicated desire and interest to take action here, it remains to be seen whether any legitimate and useful legislation will come about, as doing so requires congressional approval and sign off by POTUS.  In addition to already-present lobbyists, Member Chabot mentioned the HCR16 Local Radio Freedom Act – which declares Congress should not impose any new performance fee, tax, royalty, etc. related to the “public performance” of sound recordings on a local radio station for broadcasting sound recordings over-the-air – currently has 225 bi-partisan cosponsors.

2) Legacy Artists (e.g., artists that made a sound recording prior to February 15, 1972) receive zero payment or royalty for the digital use or transmission (including internet and satellite) of the pre-1972 sound recording. [2]  Most of the Subcomm and the Panel seemed to agree that the current pre/post-72 distinction makes no sense, although it was appropriately noted by some that the distinction exists as a result of prior Congress-created legislation.[3]

Several Members and parties on the Panel gave favorable comment to the recently introduced RESPECT Act, which is intended to close the loophole in the current system that seemingly allows digital providers to refrain from paying royalties to Legacy Artists.

The Panel also consisted of parties that presently benefit financially from the loophole, for example, Mr. Chris Harrison, VP – Business Affairs for Pandora Media Inc., and Mr. David J. Frear, CFO for Sirius XM Holdings Inc., whom made obvious indications that if congress acted in a way that required payment for pre-72 digital transmission, the respective companies would make the payment.  Reading between the lines, there was no indication they would be willing to just let this happen volitionally.

Alas, these aspects of Title 17 have been under scrutiny well before the recent hearings on music licensing, and it seems plausible, if not highly probable, that the comments and findings from the hearings will fall by the wayside, only to rise to the surface again 5-10 years from now with a new cast of Members.  Still, if congress does act in some manner, by the time special interests and constituents have their say, followed by congressional compromise, it is hard to see a “Music Bus” coming to fruition.  Instead, expect a ‘Music Bicycle’ and a rough ride.