Distinguished Fellow Asia Pacific Foundation of Canada Vice Chair Canadian Committee on Pacific Economic Cooperation (PECC)
From the title of this draft legislation, introduced into the US House of Representatives in late June, you can surmise that something is unfair about music in America. What is unfair–from the perspective of performers and record labels–is that US terrestrial radio stations are not required to pay royalties to performers or labels for playing recorded music on air. Online broadcasters and streaming services do, but not over-the-air AM/FM radio stations. Terrestrial stations do, however, pay royalties to composers and songwriters for music played on air, but not to performers. Why is this, and what is the justification for this free-ride on the work of others?
It goes back to the birth of radio in the 1920s and is related to political clout, in this case the political influence exercised by the National Association of Broadcasters (NAB) in the US. I mean, who wants to pay for something, even if that something is the essence of the service you are offering your customers, if you can get it for free? The argument advanced by the NAB is that radio stations shouldn’t pay performers for playing their music because the stations provide “free air-time” that promotes new recordings. If you want to get your music promoted, you need to get it on air, and therefore—so the broadcasters’ argument goes—performers should be grateful for the free publicity. It is similar to the specious argument that seeks to justify piracy by claiming that it helps promote movies or books. It’s also like raiding the orchard next door and selling their apples for personal gain but justifying the theft on the basis that the more people buy apples (from me), the better it will eventually be for the apple growing industry and for the grower next door. Moreover, because internet radio broadcasters are required to pay performance royalties, while terrestrial broadcaster are not (the requirement for digital transmissions to pay performance royalties was introduced in the US in 1995; prior to this date performance royalties applied only to public performances), the exemption for AM/FM stations is another way of tilting the playing field in favour of just one segment of the broadcasting industry. The
AMFA would deal with this longstanding injustice.
The arguments for passage of the AMFA have been well laid out by several commentators, including retired music industry executive Neil Turkewitz (Broadcasting Rights for Performers & Labels: The Fair Thing To Do) and copyright blogger David Newhoff (Has the Moment Finally Arrived for Fairness to Music Performers?). Both point out that the tired old arguments about free publicity and advertising for performers is thread-bare; if they ever had any validity in the past, that has changed with the introduction of many other ways to promote and distribute music. Terrestrial radio competes with streaming services and satellite radio, neither of which are arguing that they should be exempt from the payment of performing royalties. Radio stations are far from the only game in town when it comes to giving exposure to artists, but they are the only ones to get a free ride on the artistic efforts of third parties, which they monetize through advertising. In fact, the US appears to be one of the only countries in the world not to require the payment of performance royalties by over-the-air broadcasters. (I’m not sure about North Korea).
This US exceptionalism (which the AMFA is trying to address) also results in the situation where US artists whose music is broadcast in other countries generally are deprived of royalties for the on-air playing of their work abroad, even though terrestrial broadcasters in those countries are required to pay performance royalties. This loss of overseas income to US artists has been estimated at over $300 million annually. Most countries apply the principle of reciprocity (“tit for tat”) when it comes to collection and payment of royalties. Since US law provides a royalty exemption for radio stations for all music played, this means that foreign artists also don’t get paid when their recorded works are broadcast. Therefore, most countries reciprocate (one might say “retaliate”) by applying the same rule to US performers, either by not requiring collection of royalties on music performed on terrestrial radio by US artists, or by allowing collecting societies to keep the funds generated by US artists and distribute them to domestic performers. The best way to counter this, and to ensure that royalties flow to US performers, is to fix the problem in the US by removing the broadcast exemption. This would also have the additional benefit for non-American artists of ensuring that they receive compensation when their works are played on terrestrial radio in the US.
However, there is another way to address the problem of collecting foreign royalties for US artists—by pushing for “national treatment”. This is a trade principle whereby foreign entities in a given country are treated as well as (or one could say as badly as) domestic entities. The term of art used is that the treatment must be “no less favourable” than that accorded to a domestic equivalent. No favouritism is allowed to be shown to domestic companies, entities or artists vis à vis foreign entities, and there is no tit-for-tat reciprocal treatment. For example, under the principle of national treatment, if British law has a requirement for payment of performance royalties on radio, all performers should receive them, whether they are British, American or Zulu. The fact that British performers in the US are denied royalties when their music is played on radio is not relevant because British performers are no worse off in this respect that their US counterparts. In other words, US law discriminates against all performers, regardless of nationality. Everyone is treated the same—badly.
But national treatment is not granted by countries willy-nilly. It is usually negotiated bilaterally and is subject to many qualifications. Only certain sectors or products are accorded national treatment, and there are usually exceptions. National treatment concessions are carefully negotiated to ensure a balance of benefits overall between countries, which is the main concern of trade negotiators.
Because there is no national treatment in music between the US and UK (there being no bilateral trade agreement), we get the situation described below by the US advocacy group Music First which, among other objectives, is urging the US Government to negotiate national treatment commitments with foreign governments, under the deceptively catchy slogan “All music creators deserve equal treatment”. The following example is put forward by Music First to substantiate its case;
“because the United Kingdom doesn’t recognize national treatment, if a band has members from both the United Kingdom and United States, only the U.K. artists get paid directly from the U.K. collective when their music is played on U.K. radio.”
Some would say that is only fair because the US doesn’t allow British artists to collect royalties in the United States; others would say that two wrongs don’t make a right. Artists lose out in both scenarios. One way for the US music industry to deal with the overseas royalties issue is to push the US government to negotiate national treatment provisions with foreign countries that respect broadcast performance rights. But this is, at best, a stop-gap measure. A far better solution, one that will benefit all artists, including US and foreign performers both in the US and abroad, is to rectify the injustice by eliminating the US terrestrial broadcast exemption once and for all.