Sorting out PRA: The CRB threat


RBR-TVBR Analysis:

While a lot of attention has been paid to the royalty rate (1%) proposed in negotiations between the NAB and RIAA/musicFirst, much less attention has been paid to the reason the broadcasters want that fixed in law. That’s the fear of ever having to deal with the Copyright Royalty Board (CRB).

The CRB hasn’t been around long, but it’s already been denounced repeatedly by various Members of Congress – the body which approved its creation. It was formed in 2005 via a 2004 Act of Congress as a permanent panel of three judges to replace the former Copyright Arbitration Royalty Panel System. The CRB went right to work and in 2007 set performance royalties for Internet streaming which worked out to roughly 125% of the revenues that any streamer could hope to bring in.

The outcry against the CRB rates was so great that Congress passed the Webcaster Settlement Act, which gave SoundExchange (the authorized collection agent for the royalties) the authority to negotiate alternative rates and terms to the prevailing royalty rates set by the CRB. The NAB negotiated such an alternative deal for radio station streaming and further reducing that rate is part of the current PRA negotiation.

But while a majority in Congress disapproved of what the CRB did in setting Internet streaming performance royalties, the lawmakers didn’t get rid of the CRB. The three judges remain in office. If PRA were to pass in its current form as approved by the House and Senate Judiciary Committees, that trio would be put in charge of setting performance royalty rates for broadcast AM & FM radio.

Veteran broadcaster Ken Dardis, whose involvement in performance royalties dates back to at least 1998 when he worked with the Digital Media Association to lobby on aspects of the Digital Millennium Copyright Act, has seen the CRB in action close up and understands why the NAB doesn’t want anything to do with it. But he faults broadcasters for not getting involved sooner when satellite radio and Internet streaming were targeted for performance royalties. “These were just the dominos falling before coming after broadcast,” Dardis said, noting that he has been issuing such warnings on his Audio Graphics website since at least 2001.

By successfully imposing performance royalties on other media sources for music the RIAA has succeeded in turning the debate away from whether radio has promotional value for records to one of parity, since the others are already paying.

Dardis has his doubts that the radio industry will be able to hold its performance royalties to as little as 1%, despite the current negotiations between NAB and RIAA/musicFirst. “I just don’t see that happening, knowing how these people play the game,” he said of the well-oiled record industry PR machine.

If there is a deal, though, a rate set in law by the US Congress would keep the radio performance royalty rate out of the CRB. Dardis learned from the streaming rate proceeding that the CRB judges were not impressed by the arguments of the Internet broadcasters that the rates being sought by the record companies would drive them out of business. “It is not our business to sit here and decide whether what we come up with will help or hinder your ability to hold a business – the profitability of your business,” Dardis said, paraphrasing the panel. “Their concern is myopic. It’s how much is an equitable payment to a musician whose music is used for commercial gain.”

So, if radio performance rates are ever before the CRB, the judges would likely pay no attention whatsoever to the financial impact that their rate-setting would have on broadcasters. Whatever the rate might be, you could bet it would be a lot more than 1% of net revenues.

So the options facing the radio industry today are: 1) Cut a deal that guarantees a fixed rate that avoids any CRB involvement; or 2) Fight against any PRA and run the risk that it will eventually pass and have the CRB set rates for radio that could be unpredictably high.