AN INTERVIEW WITH SOUNDEXCHANGE EXECUTIVE DIRECTOR JOHN SIMSON All Access Two of the hottest issues facing radio in 2007, both terrestrial and on the Internet, are the current Internet streaming royalty negotiations and the proposed performance royalty bill for terrestrial radio. The matter has engendered a heated debate between the labels and radio, potentially jeopardizing the chances of any amicable resolution.
Fresh off appearing before Congress on Tuesday (NOV. 13th), SoundExchange Executive Director John Simson spoke exclusively to All Access to offer the major labels' perspective on both issues.
One of the arguments the NAB makes is that a performance tax...
First off, a tax is collected by a governmental body; something that is paid from one party to another is a transaction or, in this case, a royalty-not a tax! Although, back in 1920,when ASCAP started collecting publishing royalties from radio stations, radio formed the NAB to try to get that abolished by calling for a "tax-free music bureau." It's interesting that they called royalties a "tax" on them back then.
Among the concerns expressed by the radio side is that the money that radio would pay on the royalty would be taken from very tight budgets, considering the economic climate, which could cause the cutback or elimination of local programming, news gathering and promotions. There are those who say that the less-profitable music stations would be forced to flip to a more profitable non-music format.
If you look at radio, it's more profitable than pharmaceutical companies and oil companies, and stations still sell for a lot more money than the original owners paid for them. It's a $20 billion a year industry, so we don't buy that argument at all. Certainly we want to make accommodations for small mom-and-pop stations; we don't want to hurt them, but I don't believe the argument that a lot of radio stations will stop playing music.
Perhaps what will happen is that this will get radio more engaged in playing newer and emerging artists more often, instead of giving the majority if airplay to established superstars. Record companies and new artists would be more likely to make a deal, something like "We'd love you to play this record, so we'll give you break on performance rates for the first 90 days [the record's] out."
Realistically, radio isn't playing the Beatles, Led Zeppelin and all those superstars to promote or sell their records; the listeners have heard and most likely bought those records a long time ago. Who are they kidding by saying otherwise? In fact, I think a royalty would encourage innovation, they'll play newer music and probably make deals.
But while the major artists have no reason to cut deals on performance royalties, you're suggesting that new and emerging artists - those who would certainly need that money more - to be cutting deals.
That's one way to look at the problem, but the performance royalty is more for singers like Mary Wells, who couldn't afford to pay for her daughter who had cancer. There are a lot of legacy performers and older artists who didn't write the songs they sang, and get nothing from airplay. Background musicians could also get a piece of it, those guys aren't millionaires. Radio would like you focus on one-half-of-one-percent who became superstars.
NAB counter-attack about labels not paying artists...
SoundExchange is run by a board of nine artists and nine labels, and our job is to bargain for an equitable royalty for performance rights. What happens to those performance rights is up to the individual recording contract. If the artists own the masters, they'll reap the benefits. If the labels own the masters, the benefits are split. Over 65% of the money we generate goes to indie labels. The NAB wants to make claim they the label mistreat the artists because it's easier for them when it's a battle between the RIAA and the artists than it is for the artists and radio. They want to come off more sympathetic. This is really about redistributing the wealth from corporate radio.
It's interesting that it was a big band leader in 1939, Paul Whitman, who thought that he should be paid for performing on radio shows. Look at the rest of the world; how come every other country believes artists have every right to be paid? There's no explanation for that. Right now, the U.S., China and Russia are the worst at protecting performers; why should be with those other two countries?
Even when you look at the artists on the sale charts; it's not like everyone on radio runs out and buys the records they hear, or even go to their concerts. A very large percentage is a passive audience. The only exposure to music is what they hear in their car. There have studies that asked people why they don't buy more CDs, and one reason is that they're satisfied just listening to the music on the radio. What you have to recognize is that radio play can be substitute for CD sales.
If that was the prevailing reality, then why would the labels spend hundreds of thousands of dollars on hiring people to work their records to radio and then spend many thousands more to companies that track radio play?
I'm not saying that radio play doesn't sell records; I am saying that a certain number of records played on the radio will be sold regardless, and that the promotion of getting artists airplay is universal. Radio play is one way to maximize sales of certain records, which helps labels build market share, which is where the real battle is. But again, there was a study done in England where they had all thes radio stations playing music, yet Cd sales didn't rise. There are a lot of different reasons why people buy records, and radio play is one reason that is becoming less prevalent over time. Most people are not avid music consumers.
The record companies have found that 55% of what's being played on the radio is two years old and older. They're playing a lot of old music and very little new music. A lot of artists work hard and build an audience slowly over the course of three to five years.
Again, I'm not saying radio play has no promotional value. We think it's like when radio broadcasts Dodger games. Those broadcasts help promote the Dodgers, which could help not only ticket sales, but merchandise. But radio doesn't get to air those games for free. They pay for it. Movie studios pay John Grisham to make movies out of his books. Why are songs the only entities that are free to the broadcaster?
Do you feel it would be worthwhile, even if it's just from a public relations standpoint, to make some sort of guarantee that the money you collect from streaming broadcasters and terrestrial radio, should there by a performance royalty enacted, actually does go directly to the artists?
As it is now, the law states that 50% of all the royalties we collect goes directly to the artist -- one-half to the performers and one-half to whoever owns the masters.
What's the state of the negotiations with Net radio interests?
It's ongoing. We're having meetings with the other side, both small and large webcasters. We're also meeting with NPR. I think the talks have been productive and some progress has been made, we'll continue to engage in dialog as long as they talks are productive.
On both the performance royalty and the Net streaming issues, SoundExchange's strategy seems to be splinter the opposition by negotiating with different parties. Is that the best wayto get what you want?
We think a two-tiered system is what's necessary. We heard from members on Congress who, on policy grounds, wants to support smaller broadcasters. If Congress wants is to accommodate smaller broadcasters and public radio on this, we will certainly work with Congress on that.
You've recently concluded a deal with cable radio for a royalty rate that you turned down for Net radio interests. Why should the latter pay more than cable radio?
There was a separate proceeding with cable radio services, who are very specific, narrow group - just three companies, DMX, Music Choice and Muzak - who existed before the copyright law was passed in 1995. Congress said they should get a special rate, because we don't want to interfere in the business of preexisting subscription services. Look at them now: DMX is bankrupt and the music streaming is a marginal part of the other two's business. They're not as much music services anymore than audio visual services. The money we would make form them would not be able to pay for the litigation, so we settled to the rate that was put in place back in 1998.
However, the very same services run by newer, different companies - such as MTV.com - saw their rates double. Congress mandated that a panel of experts should determine what rates should be taken into account. Since the business models are fundamentally different than each other, the rates should be different. We're used to getting 70% from iTunes -- roughly 10% go the publisher and 60% to the record company and artist. Then when you look at Napster and Rhapsody, they pay 50% of their revenue to record companies, which are shared with the artist. A lot of different percentages apply to different types of business activities.
If this panel of experts has dictated this higher rate, why should you negotiate at all?
We made it very clear that we're willing to discuss any issues with other side. If there was some problem with the cases they put before judges, or made some major mistake when they put their finances before the judges, we're willing to look at that. We do feel that based on what was given to them, the judges came up with rates that are very affordable. We're not convinced that for every Net service out there, these rates don't work.
Some on the radio side claim that rates are more than doubled over the existing rate. Do you feel that's an affordable increase?
We don't know where that figure comes from. In 2006, the rate was raised 5% over the existing rate in 2005, but the rate had been flat for the seven years prior to that. We figure the increase to 35% in 2007, but that's not much when you put that in context to the rate almost 10 years ago.
Gut feeling -- Will this be negotiated or will Congress have to come to the rescue?
I think it will get resolved on the negotiating table. Remember, when Congress first stepped in to craft a copyright bill, put the current process in place, where a panel of experts crafted this copyright royalty. When the webcasters didn't like, they ran to Congress. Well, it was Congress who created this whole process in the first place because it was a complicated issue. They were trying to separate the interests of different industries. The whole idea was to have these three experts, who had the ability to listen to study all the technological and economic evidence of radio's huge audience and profitability, then make an infromed decision on the proper royalty rate. For radio and the Internet broadcasters to now go back to Congress to propose their own rates -- after Congress set this whole panel up to do just that -- goes against all common sense, given the reason why the board was set up in the first place.
Granted, these are not simple issues, which is why we have engaged with other side. Obviously, this is an ongoing process; lot of data is being exchanged and discussions are going on. We're moving forward and I'm hopeful for an amicable resolution.
Both the NAB and the recording industry have strong lobbies on Capitol Hill and they contribute to the campaign coffers of members of the Committees that set policy. In such a scenario, do you feel all this lobbying is worthwhile, or do you have to do it because the other side is doing it?
I actually think biggest problem the recording industry, its artists and labels and all those engaged in this face is that there are broadcasters in every Congressional district. The NAB has always been one most formidable lobbying forces, because every Congressmen needs radio and TV exposure to get elected.
Yet when you look at this on paper, it's still a pretty simple question: What other entity, be it a person or a business, can use another party's property for profit -- without permission and payment? The broadcasters have been saying, "Well, we provide all of this public service in case of emergencies and disasters." Well, you know what, they get free spectrum for that. That's why they don't pay for the airwaves, which is valued at a half-trillion dollars. To enjoy that free spectrum, you're supposed to provide a public service.
Look, I don't want to put broadcasters out of business; they're the ones paying royalties. I do want them to provide interesting and exciting ways to break new music and artists. To me, this all boils down to working with your partner to ensure that the public gets quality entertainment -- but it shouldn't be at the expense of the artists. |