The Senate judiciary hearing on performance rights and parity was held yesterday on capitol hill to discuss the controversial Performance Rights Act. If you are unfamiliar with the bill you should know that it carries significant implications for the music industry. If this bill passes, terrestrial radio will be required to pay royalties to the performers of the songs they play, in addition to composers.

If you’ve been around the blog a while you might remember an article I wrote a few months ago dismantling what I considered to be five key flaws in the proposed legislation. At the risk of sounding self-important I suggest that you read that article if you haven’t already. The bill and my opinion of it have both evolved since then, but I still consider those 5 points to be critical. Particulary if you are an artist, because while it’s natural to instinctively support a bill that promises to increase your income it is still important to check the facts.

As I mentioned above, some key amendments have been made since the Performance Rights Act was introduced. They establish a sliding fee scale to address the concerns of smaller and minority broadcasters’ ability to afford new royalties. Here’s a concise summary of how that breaks down courtesy of Variety:

• Royalty rates for stations that have annual gross revenues of $1.25 million or more would be established by the Copyright Royalty Board if broadcasters and performers are unable to negotiate rates on their own.
• Commercial stations that gross less than $100,000 per year will pay a $500 annual fee.
• Commercial stations that gross more than $100,000 and less than $500,000 pay a $2,500 annual fee.
• Commercial stations that gross more than $500,000 and less than $1.25 million will pay a $5,000 annual fee.
• Public, nonprofit religious and college music stations that gross less than $100,000 will pay a $500 annual fee. Those above $100,000 will pay a $1,000 fee.

None of the royalties will take effect for at least a year. For stations that gross less than $5 million per year, no royalties will be due for three years. For those above that figure, none would be due for another 12 months.

While these amendments don’t address many of my concerns, they are a big step in the right direction. I have no love for ClearChannel, but I don’t want to see local and volunteer radio pushed out of business by crippling rates. I still haven’t found anything that addresses the heavy record keeping burden that will be imposed on these small stations, however, and I know that is a big concern for many of them.

One important item in the above amendments is that royalty rates for the highest earning stations “would be established by the Copyright Royalty Board if broadcasters and performers are unable to negotiate rates of their own.” The creative industries – particularly music – rely far to heavily on government legislation in my opinion. This is supposed to be a free market. Rates and fees should be determined through a process of negotiation between buyer and seller, not by government.

That’s why the issue of payola throws such a wrench in the idea of record companies requiring additional fees from broadcasters. The market – in spite of government legislation – determined that air-time was worth paying for, not the other way around. Record companies were so determined to get their acts on the air that they were willing to throw down significant bribes to get it. The practice of payola continued until at least 2005 when Sony BMG was found guilty of buying airplay despite laws forbidding it.

Unfortunately, the National Association of Broadcasters (NAB) has to date been unwilling to participate in negotiations. As infuriating as this is it does make sense – they don’t want this bill to pass at all. Either way, they may not be able to hold that position much longer. During the hearing yesterday Senator Patrick Leahy said this to the broadcasters present: ”Legislation will move, and I suggest that you talk to the artists because I would want the legislation to be in the interest of both the broadcasters and artists.” In other words, start negotiating.

Whether or not Senator Leahy’s predictions are accurate remain to be seen. Before the hearing even took place a group of 22 lawmakers requested that the vote on the PRA be delayed ”until such time as the impact of this legislation can be fully examined.” It is at least encouraging to see that some lawmakers realize that this bill will have major implications and needs to be considered carefully.

For those who aren’t familiar with the Performance Rights Act, it is a bill that was introduced in February that would require radio stations to pay performance royalties in addition to fees they already pay to songwriters. The RIAA, along with a few big names such as Billy Corgan (pictured), is pushing this bill under the pretense that it benefits the artists and that the industry needs it to survive.

The problem is that their claims simply are not true. The Performance Rights Act would have potentially disastrous consequences across the music business, and I’ve put together a quick list that explains why.

1. The Performance Rights Act would cripple local radio

The PRA is basically a new tax on radio stations that would be paid directly to the recording industry. This fee is already being paid by Internet, satellite and cable radio stations, and has caused the untimely demise of more than one service providor since it went into effect in 2002. What makes congress think that local radio stations will be able to avoid the same fate?

Jesse Walker of ReasonOnline also pointed out recently that the fees themselves aren’t the only costs that this bill would impose on radio stations:

“The record labels are completely out of touch as to how college radio stations operate,” Warren Kozireski, president of College Broadcasters Inc., recently complained on his organization’s website. “The extensive record keeping requirements that will be required by the Copyright Royalty Board alone will add hundreds, if not thousands of dollars to the true cost of a performance fee.” It’s relatively easy to do that book-keeping if you have a narrow playlist and rarely deviate from it, as is the case with most large commercial radio stations. But if you have a library of thousands of albums and 45s, many of which were never reissued on CD, and if you allow your DJs to choose which ones they play—or even to bring in still more music from their personal collections of rare soul or jazz or bluegrass or electronica obscurities—then tracking the data suddenly becomes a full-time job.

2. The PRA hurts independent artists

I’ve heard some supporters of this bill touting that the independent artists have the most to gain. This is because the money would go to performers and copyright owners, which in the case of independent artists are the same thing. Therefore, the PRA would provide a  potentially significant revenue stream for the artist. Right?

In a perfect world, maybe. But in this world playlists at major stations are chosen by advertising dollars, not DJs. Adding an additional fee for every song played will only make stations even more unwilling to take risks on unproven acts. Independent acts have a hard enough time getting on major stations – they don’t need another hurtle.

3. Payola

Payola, for those who don’t know, is an illegal but very common industry practice where agents of the record labels bribe radio stations to broadcast their music. As Mike Masnick of Techdirt puts it:

The most damning argument against the recording industry’s demand for money here is the fact that, for decades, the industry has (illegally) had the money go in the other direction. The system of payola has shown, quite clearly, how much the recording industry values airtime, in that it’s willing to pay radio stations to play its music.

So, can anyone explain why it’s illegal for record labels to pay radio stations to play music, but it’s okay for Congress to force radio stations to pay the record labels for playing their music? It defies common sense.

In other words, the RIAA values the promotional benefits of radio airtime so much that it’s willing to break the law and pay out large amounts of cash to get it, yet it now wants the radio stations to start paying them for the privelidge of providing  this benefit. Make sense? Didn’t think so.

4. The bill is based on misinformation

According to a recent press release by the musicFIRST Coalition - a lobby group created to push for the PRA  – Radio should pay performance royalties because it is the only platform that currently does not. They accuse brodcasters of believing that “AM and FM music radio stations should continue to get special treatment, that AM and FM music radio stations do not have to play by the rules, and that AM and FM music radio stations should enjoy a competitive advantage over other music platforms.”

The problem is that they are ignoring the fact that they were the ones who created this disparity. When the other platforms such as online streaming were required to pay performance royalties it had everything to do with controlling the reproduction of digital music – a problem not shared by terrestrial radio. As Jesse Walker points out, the industry’s argument “hinged on the idea that digital broadcasting is different from conventional broadcasting. Forteen years later, as it attempts to impose a performance fee on AM and FM broadcasters as well, the industry now wants to claim the channels are equivalent after all.”

5. The PRA doesn’t benefit musicians as much as the RIAA claims

I already talked about the ways that independent musicians would be hurt by the PRA, but what about bigger acts? The problem here is that the royalties would be paid to performers and copyright owners, which in most cases are the major record labels.

After the label takes its cut, there remains the issue of whether or not the rest of the fee will ever reach the artist. To quote Walker:

The Web radio experience is instructive. The institution that distributes performance fees to artists is SoundExchange, an organization that spun off from the Recording Industry Association of America in 2003. In 2007, the Houston Press noted that the group was apparently unable to locate about 25 percent of the performers on whose behalf it was allegedly acting. After perusing the list of lost musicians, the Press‘s John Nova Lomax reported that “in less than five minutes of Googling, I found the official Web sites and/or MySpace pages of Fito Olivares, Goudie, Mark May, the Hollisters and Los Skarnales. What’s more, highly visible people like Cam’ron (fresh off a highly-publicized appearance on 60 Minutes), Fat Joe and Danzig are on the ‘lost’ list too.”‘

Conclusion

I want artists to have the ability to make a good living creating music, but this is not the bill to make that happen. The Performance Rights Act amounts to little more than a last ditch manuever by a flailing industry. What do you think? Does the bill make sense, or will it cause more harm than good?