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The President of SoundExchange Issued a Statement

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APS Radio News — As a representative of the music industry, which includes worldwide entities like Warner Music, Universal Music-Vivendi and BMG, the President of SoundExchange would be expected to speak vigorously and adamantly about the determination of the industry to extend the requirement to pay royalties for the broadcasting of music recordings.

And so it was in January.

In a statement he issued last month, Michael Huppe said that the fact that Congress came close to passing the American Music Fairness Act was a sign that the era of large entities like iHeart’s and Cumulus’ avoiding the payment of royalties is coming to an end.

According to the provisions of the Digital Millennium Copyright Act, over-the-air or terrestrial radio stations and the like were and have been exempt from paying royatlties to record labels and recording artists.

SoundExchange, which collects royalties, distributes about half of those to recording artists, like Paul Simon or Bob Dylan, and about the other half to record labels like Warner Music or Columbia Records (BMG).

In 1998, when over-the-air radio was still more commonly used than radio, and when the National Association of Broadcasters had a greater degree of influence and clout, broadcasters managed to create an exemption in the DMCA.

Since that time, radio stations have been exempt from paying royalties to SoundExchange.

For its part, the NAB regards the royalty payments that the American Music Fairness Act would impose, if the legislation were enacted by Congress and signed into law by the president, would represent a “tax” on radio stations, a number of which are “small town” businesses.

As well, NAB argued that a number of radio stations that play Indie music, or music independent relative to the large record labels, would be harmed by the imposition of royalties.

According to a number of observers and Mr. Huppe, Congressional leaders were rather close to including the performance royalty legislation in a package of initiatives it passed on the final days of the session but failed to reach an agreement.

Mr. Huppe and others maintain that the lobbying of the NAB and iHeart Radio prevented passage of the AMFA.

In addition, over the years the NAB has argued that the broadcasting of music has helped promote the sales of records.

In the days before the internet became ubiquitous and a universal utility, many people still purchased CDs and records at physical stores.

The argument of broadcasting music has marketed records was more relevant when record stores were a viable and profitable type of busines, for example, before 2000, some analysts say.

But during the past 20 years sales at records decreased substantially, as more and more people streamed music over the internet.

During the past 15 years, music has become ever more accessible as people are able to access various types of songs and genres of music through Youtube and Pandora.

As such entities pay royalties to SoundExchange, the latter maintains that it is “fair and just” that over-the-air radio stations also pay those royalties.

As it is, many terrestrial radio stations simulcast broadcasts over the internet, in their attempt to stay competitive, as fewer younger people listen to AM or even FM these days.

To the extent that such stations simulcast, those too pay royalties to SX, but those pay royalties only for the simulcasts, whereas SoundExchange argues that terrestrial radio stations should pay the performance royalties for the portion of broadcasts sent over the airwaves.

To put matters into perspective, internet-based entities that broadcast music recordings over the internet are required to pay a percentage of a penny per performance.

For example, if such an entity gets about 400,000 performances in one month, it must pay SX about $1,100 for that month.

For its part, satellite pays SoundExchange a percentage, about 6%, of its revenue for the broadcasting of digital recordings.

But to the extent that a number of radio stations broadcast recordings only over the airwaves and fail to simulcast over the internet, such entities pay SX nothing, with respect to the broadcasting of digital recordings and the like.

The NAB argues that royalties required of radio stations would constitute a tax, as SoundExchange was authorized by the DMCA to collect & distribute royalties.

Congress enacted the DMCA in the late 1990’s, through and as a result of the influence of the music industry and as a result of the support of the Clinton administration.

The NAB maintains that such a “tax” would “devastate” small radio stations.

However, a number of community radio stations have supported the AFMA, maintaining that supporting radio stations by denying recording artists royalties is a “false choice”.

Those lobbying Congress not only SoundExchange but a number of recording artists like Randy Travis and Max Weinberg.

Other supporters included the AFL-CIO & the Center for Individual Freedom.

Mr. Huppe said that the history is on the side of extending royalty requirements to terrestrial radio stations.

He and others argued that broadcasting entities make billions from advertising revenue.

Still, a number of online service providers are small entities and make or get no revenue.

In 2007, when SoundExchange was seeking to increase royalty rates, a number of small webcasters, many of whom were “hobbyists” united to oppose increases in royalties, arguing that those increase would shutter many such entities.

A few years later, in 2010, through the intervention of Congress, SX and small webcasters came to a temporary agreement, which expired several years later.

That agreement allowed for differential rates, where small webcasters were concerned.

However, once that agreement ended, even small webcasters who weren’t creating revenue, were paying higher rates per performance.

As a result, a number of those enties shuttered their services.

A few years ago, the Copyright Royalty Board granted almost all of SoundExchange’s demands, including the minimum fee per channel.

SX had petitioned and obtained an increase in fee per channel from $500 to $1,000.

Thus, a small webcasting entity featuring five channels experienced an increase in its annual minimum fee to $5,000 from $2,500, irrespective of whether it was earning revenue.

As well, according to the terms of service, SX requires that the annual minimum fee be remitted by the 31st of January.

Exceptions to that rule are not made, regardless of individual circumstances.

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