Radio, Record Labels Chafe Over Streaming

Radio and record companies have long had a love/hate relationship. But the recent fight over streaming fees has churned up emotions and ignited fears in the radio industry that the labels are after more than Webcasting royalties.

Although ra-dio operators

in much of the world pay both performance and composing royalties, U.S. broadcasters do not pay a performance fee -- to labels' chagrin. For years, the record industry has been urging Congress to re-quire broadcasters to pay for the music they air, but to no avail.

Artists say that at the same time the record labels are trying to dip their hands into broadcasters' wallets, the labels are also finding ways to keep whatever money they do collect for themselves -- at the expense of musicians who have no choice but to sign increasingly stringent contracts.

Now, in a battle involving the courts and the U.S. Copyright Office, labels are fighting for royalties from online radio -- but radio executives fear this move is ultimately intended to wrest similar royalties from

traditional broadcasters.

The National Assn. of Broadcasters (NAB) argues that the fight over streaming fees is just a "back door" way to reopen the longstanding

dispute over radio royalties. "They will come back in five or six years and say, `We now we want it for over-the-air [broadcasts],' " says Ben Ivins, an attorney for the NAB.

It is a theory shared by some of the largest radio groups, especially Clear Channel, which, with a 1,200 radio-station roster, has the most at stake. Clear Channel Internet Group CEO Kevin Mayer adds, "I don't think the fee is as important to them as getting their foot in the door so that they're part of this transition to the Internet. The amount of money we're talking about is pretty small in the scheme of things."

A 50-Year campaign

There are few industries in America that have legal protection from paying a supplier for their raw materials, but radio was the lucky recipient of such a congressional blessing. In 1971, Congress passed the Sound Recordings Amendment, altering federal copyright regulations to grant limited copyright protection for reproductions of sound recordings to battle the growing bootleg industry. Despite the recording industry's arguments, though, Congress upheld radio's decades-old pay-nothing-for-play relationship with the recording industry, saying that free over-the-air broadcasters provide mass-audience exposure to artists and music, thus stimulating sales for the labels.

Today, the relationship between radio and labels is again the subject of a debate -- and a legal challenge, as record companies seek to recoup fees from radio stations broadcasting on the Internet. It is a battle that pits large media conglomerates against the multinational corporations that run today's recording industry.

Last December, the NAB and a half-dozen of the largest radio groups filed suit in U.S. District Court for the Eastern District of Pennsylvania in Philadelphia, asking to block the U.S. Copyright Office from moving forward on a proceeding to determine how much traditional terrestrial radio stations must pay to simulcast their over-the-air signals on the Internet (Billboard, Dec. 23, 2000). The suit came just three days after the Copyright Office found that broadcasters' decades-old exemption from paying record companies royalties for airing their music, while legal for traditional broadcasting, does not carry over to the Internet.

In their 15-page filing, the radio groups and the NAB said the rule exceeded the Copyright Office's authority and was "arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law, and therefore is invalid." In addition to costing untold sums, the radio groups argued, the fees would "wreak havoc" with over-the-air radio formats and stifle streamed broadcasts.

Moreover, NAB attorneys argue that the Copyright Office's ruling is counter to the wishes of Congress' scheme "to exempt from liability non-subscription broadcast transmissions posing no threat to the sale of sound recordings." Instead, they say Congress simply wanted to leave unaltered the "mutually beneficial relationship" between radio and the record industry.

The court has yet to act, but one thing the judge will surely spend time reviewing is the 1995 Digital Performance Right in Sound Recordings Act (DPRA), under which Congress expanded the scope of copyright protection to include a new right for public performances of sound recordings sent by digital audio transmission. At the time that President Bill Clinton signed the bill into law, few foresaw the rise of the streamed-media industry. In fact, it was widely believed the DPRA would cover the so-called "celestial jukeboxes" and pay-per-listen services.

Then in 1998, Congress passed the Digital Millennium Copyright Act, which ordered radio stations that simulcast programming on the Internet to start paying labels and their artists for their music. In April 2000, the Digital Media Assn., which represents Internet-only broadcasters, asked the Copyright Office to convene a copyright arbitration royalty panel (CARP) to decide the "reasonable" rate for streaming a station on the Internet.

While it is still early in the process, it appears that the two sides are still very far apart. In April, the Recording Industry Assn. of America (RIAA) and broadcasters submitted their opening proposals. In the meantime, several Web-only broadcasters are cutting deals with the RIAA in hopes of paying a lower rate than what will eventually be settled upon. Both sides say that while on the surface it seems they will not be able to agree, it is likely that a negotiated settlement will be hatched before the CARP rules.

The Digital Music Assn. (DiMA) says all Webcasters should be forced to pay, not just Internet-only stations. To DiMA executive director John Potter, the NAB missed an opportunity to work with Webcasters in 1998, believing they were competitors, not allies in the war against streaming royalty fees. He says, "We have more in common than we have different."

NAB president/CEO Eddie Fritts says broadcasters already pay about $300 million a year to such licensing societies as ASCAP and BMI, which represent authors, composers, and publishers. "There is a symbiotic relationship between the station and the record companies whose songs are played," he observes. About 5,000 of almost 14,000 U.S. radio stations rebroadcast their signals over the Internet.

Even if broadcasters lose their court case and the CARP moves forward with its royalty assessment, the NAB could take the fight to Capitol Hill -- where the group has been successful in getting laws passed allowing further media consolidation and the restriction of low-power FM. "The Hill is waiting to see where the dust settles on the suit," Ivins says, noting that Congress doesn't like to get in the middle of a battle between two big industries.

Last month, the RIAA and the Justice Department, working on behalf of the Copyright Office, filed a motion for summary judgment in the U.S. District Court in Philadelphia. The NAB is expected to follow suit shortly. The move will put the case on a fast track, asking Judge Berle M. Schiller to hear arguments, then make a ruling (Billboard, May 12). Both sides say they hope to reach an out-of-court settlement before Schiller rules.

Even if it is left up to the CARP, Ivins says it won't settle all the issues at hand, including the pre-announcement of songs, the limits on how often an artist or an album can be played, or the posting of information, such as who the songwriter is. "Are radio stations then going to switch their over-the-air format to comply to stream?" Ivins asks. "At some point, this isn't going to be cost-effective."

A foot in the door

Although the labels say they are merely after what is due their artists, many in the radio business believe this is the latest effort in a 50-year campaign to get broadcasters to pay for the records they play on the air.

Emmis Radio president Doyle Rose concedes that the amount of money at issue is relatively small. But he believes the RIAA wants to use the Web issue as leverage and eventually get the kinds of broadcast fees that labels are able to collect in Europe and the rest of the world. "This is their attempt to get their foot in the door and get them here."

Infinity Broadcasting senior VP John Gehron points out that the RIAA was "very instrumental" in drafting the legislation that dictates who pays. "The RIAA is out to get every penny they can for their artists, which is their job, but sometimes you can do more damage by being greedy than letting something flourish and benefiting from the upside." Among the plaintiffs in the suit against the Copyright Office, Infinity has a corporate policy not to stream its stations until fee issues are worked out.

For artists, the fact that they do not get a dime when radio plays their music has long been a sore spot, exacerbated by the fact that other countries pay artists. Moreover, U.S. artists do not get royalties when their music is performed on foreign radio stations, just as non-U.S. artists don't get money for when their songs hit American radio. "It would be foolish for the industry not to try to get that second royalty," says Jenny Toomey, executive director of the Coalition for the Future of Music, a group formed to fight for artist rights. Although she would like to see stations pay, Toomey worries that the NAB is so powerful in Washington that, if an over-the-air royalty fee becomes a reality, it would be split from the fee already paid to organizations like ASCAP and BMI, which pay songwriters.

new PRESSURE ON ARTISTS

To the record industry, the issue of compensation is a sensitive one, as it pits the labels and the artists against one another. RIAA senior VP of business and legal affairs Steve Marks says talk of record industry plans to go after over-the-air broadcasts for royalties or their Web businesses is nothing more than a "paranoid conspiracy theory." Instead, Marks says that when a business uses sound recordings and makes money off of them, then the artist should be compensated. "It's not as if this law was targeted toward broadcasters. There are hundreds of Internet-only Webcasters that are in the same position."

Recording Artists Coalition (RAC) executive director Noah Stone says it is "an injustice that artists don't get paid for broadcasts in the terrestrial world."

During a hearing in April, Warner Bros. recording artist Don Henley, speaking on behalf of the RAC, agreed that radio stations owe artists for their Internet broadcasts. "It is fundamentally unfair that broadcasters have always been exempt from paying performers a performance right for [over-the-air] broadcasts; we don't want to see this inequity extended to the Internet."

But there's a larger issue than whether artists think radio should pay: Many feel more strongly that whatever money is collected should never reach the label. "It is vitally important that artists receive digital-performance royalties directly from the source without the record company recouping royalties against outstanding accounts or by engaging in unnecessary bureaucratic disputes," Henley said, splitting no hairs in saying flat out that the RIAA does not speak on behalf of artists.

Much of the fight brewing between artists and labels rests in the contracts that many artists have signed. "The framework of how artists are paid is so unfair, and I'm worried that the same unfair structure will be replicated in the future model," Toomey says. Recognizing that many artists unknowingly sign away their Internet rights, the coalition is working with a team of lawyers to draw up a list of contract clauses that are not illegal but are designed keep money out of artists' hands. These include paying breakage fees on digital downloads and the standard new-media deduction, which charges an artist for development of the new technology even though the labels have spent nearly nothing on development of the Internet. "Most artists don't have the power to negotiate them out," she explains.

Attorney Jay Rosenthal says that, as more contracts are being drawn in the Internet age, lawyers working on behalf of the labels have come up with more rigid and unavoidable contract clauses to hold against artists. "There are a lot of contracts to compare to now, so a standard is being created, and there is less room to maneuver."

The norm has been that, with new technology, the labels try to pay the artist less. It is a strategy that saved the majors millions when CDs were introduced nearly 20 years ago. But Stone says artists have also complained to him that they have been under increasing pressure. "With the bigger artists, [the labels don't have] the same power to cut down the rate, but at the same time the labels are trying to get more control."

Many musicians have hoped the Internet would give them added leverage, yet with the labels getting into the download business with such services as Duet and MusicNet, it appears artists will end up getting paid as though the sale went through the label in its traditional relationship. Stone says, "I think the artists will come out on the short end."

Toomey says her group may even launch a public-relations campaign, to point out just how egregious some of the contracts' more outlandish clauses are.

Broadcasters' FearS

While radio broadcasters fear that the RIAA's long-term goal may be to get them to pay such fees, Marks says, that would mean taking on the powerful lobbyists from the NAB. "As much as we might want that, realistically it will never happen because the broadcast lobby is too strong, and that's not on our agenda right now; it's focusing on the Internet and other digital media and ensuring that we get fairly compensated there." He also refutes claims that record labels are trying to put the squeeze on radio to advance their own Internet efforts.

Bonneville Broadcasting CEO Bruce Reece fully expects that it would need to pay artists if it were to stream a side channel. But Reece, whose company is among the six seeking a court injunction against the Copyright Office, thinks over-the-air broadcasters should not have to pay a penny to simulcast their stations on the Internet. "The vast majority of people who listen online are people who could listen to us over-the-air, and we're not expanding the geographic area that we cover."

Clear Channel's Mayer worries that if the labels are not careful, they're going to impede radio's ability to promote music on the Internet. "It is a tough time to come at us, when business is off and the economy is down. They should be careful to negotiate something to not push this too hard right now." Mayer predicts the labels will end up asking for a flat fee, rather than a percentage, because a percentage of what radio is making is less than zero.

Although broadcasters say the rate proposed by the RIAA would put them out of business, Marks says broadcasters have countered with a rate that amounts to the cost of a McDonald's Happy Meal ($2.50) for one person listening to five hours of streamed radio a day for one year. "We would like as many radio stations to play music on the Internet as possible, and we want to work with broadcasters to come up with a licensing rate structure that allows them to make money as well."

WEBCASTERS SIDE WITH radio

For Webcasters, the thought that they would be required to pay for streaming their audio while over-the-air broadcasters are let off the hook is unfair.

RadioFreeVirgin.com GM Zack Zolan says that record companies should focus on distributing their artists, not on the little bit of money they could collect from streaming fees. He doesn't believe terrestrial or online broadcasters should have to pay. "But if we have to pay," Zolan adds, "so should terrestrial radio, because once they broadcast digitally on the Internet, they're the same as us."

Real Networks CEO Rob Glaser, whose fledgling company is counting on streaming to find its way out of its deep well of red ink, agrees that the record industry needs to "play fair" and require everyone to pay. "There's no reason to justify it any other way."

Zolan says the RIAA is a "collusive organization" that is after as much money as it can get. "If they can get the numbers, that's it. What will eventually happen is they will control the marketplace." The ultimate fear many have is that new fees will crush the industry in its embryonic stage. Zolan says it is shortsighted of the RIAA and the labels to press this issue, since "it's going to hurt us and the industry, and if that happens, then we won't still be around" to give labels the distribution they crave. Zolan is also concerned about the proposed numbers. "There's no business that could survive those negotiated rates -- and some say [the labels] want that."

Bonneville's Reece doubts that the record labels have ulterior motives and says that instead of fighting over the issue the two sides should work together. "They need us, and we need them. There's no point in us picking fights that create huge problems; instead, we need to figure out a solution for both of us."