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How Republicans are trying to ObamaCare the music industry
By meddling with songwriter royalties, a group of congressional Republicans could topple a finely balanced mess
 
Utah's Hatch is behind an effort to overhaul the music industry.
Utah's Hatch is behind an effort to overhaul the music industry. (AP Photo)

Last week, Senate Republicans introduced their version of the Songwriter Equity Act, with much ado, at Nashville's famous Bluebird Cafe. Some well-known Nashville songwriters were there to promote the legislation. So were music-publishing and royalty-collection companies. Everyone used carefully poll-tested phrases like "level the playing field," "road to fairness," "fair market value," and "unsung heroes."

You'd have to be a heartless jerk to not want songwriters to make a living from their craft. Without them, we'd have no music, and the world would be a paler, more joyless place. But you'd also have to be a copyright lawyer or music business insider to figure out what the politicians — Sens. Bob Corker (R-Tenn.), Lamar Alexander (R-Tenn.), and Orrin Hatch (R-Utah), plus Rep. Doug Collins (R-Ga.), who introduced a House version in February — were talking about. You may not be surprised to learn that they were only telling part of the story — a long, complicated story about how music creators are paid.

The Songwriter Equity Act tinkers with two sections of the U.S. Copyright Act, which has done much to shape and regulate the music industry for more than 100 years. More recent laws have updated and complemented the original 1909 law. Congress has also created or designated special courts to set royalty rates and arbitrate disagreements. As a result, there are archaic elements in U.S. copyright law and quirks found only in the American music licensing system.

In short, nobody would design the music industry this way if they were starting from scratch — just like nobody would create the complicated, expensive health-care system that has evolved in the U.S. Instead of scrapping that system and starting over, the Affordable Care Act is trying to reform the market without upending it. The Songwriter Equity Act is trying to do that, too — except that, unlike ObamaCare, it's just tackling one leg of a rickety table. At best, the songwriter law would lengthen that one leg, all but ensuring that the other legs would have to be raised as well; at worst, it would make the table collapse.

To understand how congressional Republicans propose to funnel more cash into the pockets of songwriters, it's important to understand how people make money in the music business.

How songwriters get paid
Once you write a song and put it down on paper or tape, you own the copyright. Songwriters generally share or sign over that copyright to a music publisher, which then tries to get the song recorded, preferably by the right artist. Once a song is recorded, the songwriter and publisher get paid every time that song is purchased or played in public: On the radio, in a restaurant or bar or elevator, over internet streaming services, in movies and ads and films — just about anywhere.

Songwriters get royalty payments from four streams — sales of recorded songs (mechanical royalties), primarily on CD or when they're (legally) downloaded online; performance of the song (performance royalties), either live or public/internet play of recordings; whenever their song is played on a TV show or ad, or in a movie (synchronization royalties); and sheet music royalties.


(Scott Houston/Corbis)

The federal government sets minimum rates for mechanical and performance royalties. For mechanical royalties, set by a three-judge Copyright Royalty Board, the rate is currently 9.1 cents per unit sold. Once songwriters record or allow their song to be recorded once, they can't deny anybody permission to record it — they are bound by a compulsory license. Barring a negotiated agreement, each performance of a song (5 minutes or less) generates 9.1 cents, half of which usually goes to the publisher.

Performance royalties are adjudicated by a rate court, which is a federal court given special jurisdiction of performance rates. Performance royalties are generally paid either as a percentage of the revenue of users — e.g., radio stations, web-streaming services — or a flat fee, by restaurants, bars, universities, etc. In March, a rate court in New York decided that Pandora has to pay 1.85 percent of its revenue to songwriters; the songwriters had wanted more.

Synchronization royalties are generally the most lucrative for songwriters, and they are negotiated on a case-by-case basis. With published sheet music, the songwriter is paid for each copy sold.

How recording artists get paid
The pay for singers and other musicians is typically determined in contracts with record labels, with mechanical royalties set between 8 percent and 25 percent of each recording's suggested retail price. The record company will usually give the artist or artists an advance, and the artists won't see any royalties until the label recoups the advance, recording costs, promotional expenses, some portion of the touring costs, administrative fees, and other costs.

The mechanical royalties for recording artists are higher than those for songwriters, but 1) it costs a lot more to record an album than to write a song, and 2) the musicians don't get any performance royalties — with one recent exception, internet streaming. Webcasters, both commercial and non-commercial, pay a flat fee — typically $500 per channel for commercial webcasters, plus roughly a quarter-cent for each performance. For unsigned artists, the digital royalties would look like this (right), according to SoundExchange, which collects and distributes digital performance royalties.

If an artist is signed to a label, the label gets a large cut of that pie. Recording artists also tend to make money — often most of their money — by touring and performing live.

Meet the middlemen
Songwriters and recording artists don't go out and collect their own royalties. There are a handful of large nonprofits and corporations that collect and distribute them instead. Here are the major ones.

Musicians and record labels both get their digital (internet) performance royalties through SoundExchange, set up for just that purpose in 2003.


(Facebook.com/SoundExchange)

Songwriters and publishers receive their performance royalties through whichever performing rights organization (PRO) they belong to, probably either ASCAP or BMI (there's also a small third PRO called SESAC). ASCAP and BMI negotiate rates on behalf of their members and then distribute the royalties based on a complicated formula that takes into account a song's popularity, the frequency with which it's played, and the medium on which it is performed (live, TV, radio, film, etc.).

Mechanical royalties are collected and distributed by a company called the Harry Fox Agency. It typically takes a 6 percent cut of the royalties as administrative cost.

So what would the Songwriter Equity Act do?
The proposal in Congress would do two things, primarily, both aimed at increasing the amount that accrues to songwriters (and thus music publishers and PROs like ASCAP and BMI). The first would be to expand the criteria the rate court judge could consider when determining the fair performance royalty rates, notably adding the performance rates paid to musicians and record labels (though SoundExchange).

The second thing would be to urge the three-judge Copyright Royalty Board to scrap the 9.1 cent mechanical royalty in favor of rates that "most clearly represent" the fair market value. The CRB currently is asked to determine rates based on what "would have been negotiated in the marketplace between a willing buyer and a willing seller." The new language would add that the CRB should also take into account "marketplace, economic, and use information presented by the participants," as well as the royalty rates paid out for "comparable uses and comparable circumstances under voluntary license agreements," like film and television.

That sounds pretty reasonable, right? Proponents point out that while 9.1 cents per copy is better than the 2 cent rate in effect from 1909 to 1976, it is, as ASCAP argues, "substandard" and "does not reflect market value."

There are some problems with this plan.
The first is that, while "fair market value" sounds good, how do you determine the market worth of a songwriter's composition? This is especially true when there is no "willing seller" in the market — the compulsory license means that the songwriter has to sell, whether she likes it or not. Nashville NBC affiliate WBIR spoke with musical copyright lawyer Raymond Scott, and even the man who made Kiss millionaires isn't sure the "well-intentioned" bill would work as intended or help figure out what a new song is worth. (You can listen to his thoughts here.)

The bill specifies that it would be the "intent of Congress" that songwriter royalties "shall not be diminished in any respect as a result of the rights granted" by the changes to the copyright law. But there's a good chance that the fair market value of music, especially digital downloads — the crux of the legislation — is actually less than 9.1 cents a sale. I'd argue that while not "fair," the value is closer to zero, and has been since Napster broke the music industry in the late 1990s.

The "fair market value" the legislators, successful songwriters, and their royalty collectors are talking about, especially for performance royalties, involves the money that advertisers, movie studios, and TV networks pay to play copyrighted music in their ads, films, and TV shows. This is apples to your Pandora-playing oranges. If Pandora or Spotify or Rdio can't afford to stream music, songwriters won't get more money — they'll get nothing as people move back to pirating music from the internet.

And we even have a test of the real market value for songwriters' mechanical royalties. "It is not uncommon — in fact, it is more the norm — for record companies to negotiate a deal to pay only 75 percent of the [9.1 cent] statutory rate," says Lee Ann Obringer in her excellent How Things Work primer on music royalties. "Although there is a statutory rate, there is no law against negotiating a deal for a lower one."

Then there's the question of how many songwriters would actually benefit from the legislation. A copyright lawyer I spoke with pointed out that even if you double the relatively small performance royalty songwriters get each time their song is played, that won't matter for songwriters who don't get much of the pie ASCAP and BMI slices up; the real winner will be already successful songwriters whose songs are widely played in prominent places.

Remember, songwriters — unlike recording artists — get paid every time their song gets played in public. "The sum of these performance royalties can add up rather quickly," notes Gregory Alan Barnes, a lawyer for the Digital Media Association, at Roll Call. BMI and ASCAP are both thriving financially.


Songwriters Charlie Wilson and Linda Perry | (Jared Milgrim/The Music Access/Corbis)

To make their case that it's hard out there for even successful songwriters, proponents of the legislation bring up Linda Perry, who earned a measly $349.16 from January to March 2012 for her song "Beautiful," a hit recorded by Christina Aguilera that streamed 12 million times on Pandora in that three-month period. Or Desmond Child, who earned a paltry $110.42 in that same quarter for his hit song "Living on a Prayer," which played 6 million times on Pandora.

Barnes — whose organization opposes the law — still makes a good point about those sob stories: Aguilera recorded "Beautiful" in 2002, and "in the 10-year history prior to 2012 the song had sold more than 3 million copies, been covered on at least 10 different occasions, and performed on a countless number of televised award shows, talent competitions, charitable events, and live concerts," generating "millions of dollars in performance and mechanical royalties for Perry, her music publishers, and other business partners." Bon Jovi's triple-platinum "Living on a Prayer" was released in 1986.

Writing songs isn't easy, and writing good songs (or hit songs — not always the same thing) is a skill and an art. But once you write it, it's done. Musicians not only have to spend enormous sums to record a professional-quality song, but to earn a living they usually have to tour and perform the songs again and again. The copyright laws reflect that.

What does any of this have to do with ObamaCare?
Are the musical royalty laws a mess? Yes, probably. They grew organically alongside an ever-evolving industry, starting with the first U.S. copyright law of 1790. To fix them, though, you'd have to scrap the whole house of cards and start from scratch. That would be extremely disruptive to the whole music industry — like turning the U.S. health-care market into a more cost-effective, simpler, European-style single-payer system. The three senators and Rep. Collins are, like Obama and his team, trying to patch up the system we have.

Unlike ObamaCare, though, there's no pretense of trying to benefit the consumer. Today's music copyright system is hanging in a quirky balance, and everyone involved — record labels, recording artists, music publishers, royalty collectors, Hollywood studios, and music broadcasters — wants a bigger cut of the royalties or smaller slice of the payments. And they've sent armies of lobbyists to Washington to wheedle on their behalf. If songwriters get higher performance royalties, everyone will demand more money and music will cost more or be less available.

It's nice of Corker and Alexander and Collins to stick up for the songwriters (and BMI and ASCAP), not to mention politically astute — it's helpful to have Nashville in your corner, and it never hurts to look like you're sticking up for the sympathetic little guy. Hatch, a published songwriter himself, has a little more than self-interest in the law.

Still, Utah's senior senator made a good point on Monday: "You folks here in Nashville where music is king, it's easy to be for these things."

It's easy for successful songwriters and deep-pocketed royalty collectors to be for this piece of legislation. But our love of good songwriters doesn't mean the rest of us should agree with them.


Sources: These are some of the more helpful articles I used in my research. In addition, I spoke with a copyright lawyer who is also a published singer/songwriter, and his knowledge and opinions are reflected in this article. For more information, you can read:

 
Peter Weber is a senior editor at TheWeek.com, and has handled the editorial night shift since 2008. A graduate of Northwestern University, Peter has worked at Facts on File and The New York Times Magazine. He speaks Spanish and Italian, and plays in an Austin rock band.

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