The Performance Rights Act: a lack of impact on a transitioning music industry.

• Author: Yeh, Michael C.

INTRODUCTION I. THE MUSIC INDUSTRY--A BASIC BACKGROUND A. Recording Contracts B. Organizations II. THE COPYRIGHT ACT AND THE PERFORMANCE RIGHTS ACT A. The Copyright Act on the Music Industry B. The Performance Rights Act 1. The Great Debate III. CHANGES IN THE MUSIC INDUSTRY DUE TO TECHNOLOGY IV. WHY NOT FORCE ANALOG RADIO STATIONS TO PAY ROYALTIES? A. The Radio as a Medium B. The Difference between Analog and Digital V. CONGRESSIONAL SILENCE IS GOLDEN: FORCE THE RECORD COMPANIES TO ADAPT CONCLUSION INTRODUCTION

The music industry is in a decline. Compact disc sales in the United states topped 785 million albums in 2000, (1) and dropped to only 535 million albums sold in 2008. (2) This sales decline is due largely to advances in digital technology, specifically the widespread integration of the Internet. "The Internet appears to be the most consequential technological shift for the business of selling music since the 1920s...." (3) However, major record labels have been slow to adapt to this technological shift, preferring to alienate the new digital consumer base (4) and push for legislation that will prolong the lifespan of their archaic business models.

Music sales are not creating the same profits as before, and rather than change or adapt, record labels are petitioning the legislature to create new modes of revenue. one way the music industry is petitioning the legislature to add a new source of revenue, without changing its archaic business model, is by pushing congress to pass the Performance Rights Act. (5) This Act proposes that analog radio stations pay musicians and artists royalties to play their songs on the air, just like on digital radio. (6)

While the Performance Rights Act looks great on the surface, it is just a quick fix to a much larger, underlying problem--the record industry in general. For years, artists have complained that the contracts the current business model forces them to sign are unfair and monopolistic. (7) There are many issues within a record contract to deal with, such as contract length, accounting practices, and copyright ownership. (8) Now with the expansion of technology and the Internet, artists are free to take the role of the recording company into their own hands.

Nationwide promotion and exposure, once accessible only through record labels, is now accessible to anyone with Internet access. (9) As the paradigm of power shifts towards the artists, record labels are stubbornly still trying to make a profit through old business models. Some congressional advocates and recording artists, who are urging the passage of the Performance Rights Act, say that this Act is equitable and will benefit artists and artists' rights. (10) However, when one looks at the overall policies and practices of the record industry, any policy that prolongs the current structure of the music industry, and allows record companies to continue to profit without adapting to changes in technology, is detrimental to artist equality.

Section II of this comment will discuss the background of music industry contracts and the issues artists face. Section III will discuss the proposed Performance Rights Act and what the Act is attempting to change in more detail. Section IV will discuss the changes that have occurred in the industry because of technological advances, and Section V will compare the differences between analog and digital radio. Finally, Section VI will explain how Congress, by staying silent on this issue, can provide artists with a more permanent solution to their right for equality in the music industry.

1. THE MUSIC INDUSTRY--A BASIC BACKGROUND

   During the 1980s and 1990s, a consolidation in the record and music publishing industry took place. (11) This meant that there were fewer "major" labels and now the "[g]iant conglomerates" controlled the record industry. (12) This in turn affected how business was done and shifted the power of agreements to the record companies. Contracts went from five or six pages in length in the 1950s, to modern-day contracts consisting of at least thirty-five pages and sometimes well over a hundred pages; and included in these contracts were detailed royalty rate calculations with complex accounting and payment procedures. (13) However, to get national publicity and promotion, many artists had no choice but to sign these contracts. (14)

   1. Recording Contracts

      Imagine for a moment that you are in a band and one of the major record labels, such as Sony, Atlantic, BMI, or Warner, just offered your band a contract. After years of touring across the country in a van, self-promoting and releasing CDs, silk-screening T-shirts in your garage, and working several part-time jobs to pay the rent, you seemingly have finally "made" it. As an artist looking to make a living off your music, the passage of the Performance Rights Act seems like a great idea because it will pay you for your songs that are played on analog radio. However, if you look closely at your royalty contract, you will see that the record company likely will stand to make more money off of analog radio royalties than your band will.

      Assume that the contract stipulated that you will receive 14% royalties and your album achieved the "Gold Record" status, meaning that you have sold over 500,000 copies. (15) While this seems as if you are entitled to a large amount of royalties from the album sales, a typical record contract contains many more provisions concerning royalty payments than just how many albums are sold. (16) For instance, typical record contracts have a "recording fund," money set aside to pay for the recording costs and advances to the producers that range in the hundreds of thousands of dollars. (17) Before an artist sees any of the profit from album sales, he or she must first pay back the recording fund to the record labels. Then, the record company will deduct the costs for shooting music videos, paying mechanical license fees to songwriters--if someone other than the artist wrote the songs, and packaging fees. (18) After all of these fees, deductions, and complicated royalty calculations, many artists find themselves not only receiving much less money than first envisioned when signing the contract; they end up actually "owing" money to the record company.

   2. Organizations

      The consolidation of the music industry and amendments to the Copyright Act caused the formation of many different organizations. Several of the main parties in the industry, the "musical works" copyright owners, the "sound recording" copyright owners, and the radio broadcasters have created special interest groups to better facilitate their members on a large scale. For instance, the "musical works" owners formed the American Society of Composers Authors and Publishers (ASCAP) that collects and distributes royalty payments to members. (19) In 2007 alone, ASCAP distributed revenues of $863 million to its 315,000 members. (20) The "sound recording" artist copyright owners have also formed numerous groups: the most notable groups being the Recording Artists' Coalition (RAC), the American Federation of Television and Radio Artists (AFTRA), and the Featured Artists Coalition (FAC). (21) The record labels, being "sound recording" copyright owners as well, have formed the Recording Industry Association of America (RIAA). (22) The main advocate group for radio broadcasters has been the National Association of Broadcasters (NAB). (23) These are just a few groups given for explanatory purposes; many more groups actively work for the interests of their respective members.

      Much of the debate and litigation that occurs in the music industry is done on behalf of the musicians or broadcasters by one of these groups. For instance, after Congress passed the Digital Millennium Copyright Act, (24) the RIAA created a new division called SoundExchange "to collect the webcast royalties for artists and labels." (25) Since the record labels essentially created SoundExchange, many artists were concerned their interests would not be represented fairly by it. In 2003, to try and offset this concern, the RIAA spun off SoundExchange and incorporated it as an independent and non-profit business entity. (26) However, this may have been an empty gesture, as the majority of SoundExchange's board of directors is comprised of executives from the major record labels and their supporters. (27)

2. THE COPYRIGHT ACT AND THE PERFORMANCE RIGHTS ACT

   1. The Copyright Act on the Music Industry

      The Copyright Act of 1976 protects musical works under section 106 and grants the owner of such a copyright the right to perform the work publicly. (28) There are two different copyrightable categories when a song from the radio is referenced under copyright law: a "musical work" and a "sound recording." (29) The first category, a "musical work," refers to words, lyrics, and notes, basically the sheet composition of the song. (30) Typically, either the songwriter who composed the song owns these rights, or a "music publisher who purchases or licenses" the rights of the composition from the songwriter. (31) The second category, the "sound recording" right, refers to the actual recorded version of the song, or "rendition ... captured in a tangible medium of expression such as a compact disc." (32) The owners of this copyright are typically the performers, singers, musicians, and record labels that produced the version of the song played on the radio. (33) While one entity can own both copyrights to a song, this is generally not the case. Many artists and musicians own only the "sound recording" for their songs, while another party, typically the recording studio, owns the "musical works" copyright. (34)

      The original Copyright Act did not grant any protection for "sound recordings" until Congress amended the Act in 1971. (35) Congress made the Sound Recording Amendment in "response to the increased amount of unauthorized duplication of records and tapes." (36)...