Another Victory for Artists' Rights: Direct Collection of Royalties from Digital Performances

By Eric de Fontenay (Founder & Publisher) (more articles from this author) 2001-11-26

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After just a few years of great hope and expectations in the Internet's ability to improve the lot of artists, dot-com failures and difficulties in breaking out on the Net has built up a creeping level of cynicism. Musicians have grown to the realization that the Internet does not necessarily bring success without the need to sign with a major label or even improve their negotiating position.

A recent agreement on the payment for digital performance royalties, though, provides a picture of how the Internet may in fact spell important changes for artists. A broad coalition; including artists' unions the American Federation of Television and Radio Artists (AFTRA) and the American Federation of Musicians (AFM), Recording Artists Coalition, Music Managers Forum (MMF) and the National Academy of Recording Arts & Sciences; reached a landmark agreement with SoundExchange, recording labels and the RIAA to ensure that royalties collected from digital performances are paid directly to performers.

The agreement is significant for several reasons. While songwriters have been compensated for performances through ASCAP & BMI, performers have found themselves shut out from this revenue stream. "In 1960, AFM and AFTRA started working for the creation of a performance right that would provide royalty payments to the musicians and singer when their recordings were broadcast on the radio," explained Thomas F. Lee, President of the AFM. "Unfortunately, we were able to get nowhere because of the broadcast lobby [National Association of Broadcasters] who are enormously powerful." The result was that music was being used by a growing broadcast industry with no compensation for artists.

Fast-forward thirty years later, when a proposal for similar legislation surfaced that would provide for payment for digital performances of sound recordings. "The original proposal held no benefits for the performer, the payments would have gone directly to the recording industry," said Mr. Lee. "Our union and AFTRA indicated to the recording industry that we would oppose any legislation unless it provided for payments to the recording artists and background musicians. The recording industry, realizing that they would have to confront the broadcast industry once again, decided to work with the unions & musicians on the issue."

The result was passage of the Digital Performance Right in Sound Recordings Act of 1995 ("DPRA") and Digital Millennium Copyright Act (DMCA) of 1998, which permitted copyright holders to collect a royalty for public performances made by digital transmission and provided webcasters with a statutory license to use sound recordings in their streamed programming. DMCA further determined the split of these royalties: 50% to record companies, 45% to featured recording artists, 2.5% to AFTRA for non-featured vocalists and 2.5% to AFM for non-featured musicians.

Although this was a clear victory for all members of the recording industry, a new concern emerged: the distribution of those royalties. Organizations, like the Music Managers Forum (MMF), were concerned that if royalties owed to the featured recording artists were distributed through the label, they would be subject to recoupment against debit balance in their accounts at the label. In his testimony on behalf of the International MMF to Congress prior to the passage of DPRA in June 1995, Music Managers Forum - US President Barry Bergman stated, "We cannot emphasize enough how essential it is that the artist portion of royalties from this bill must flow directly into the artists' hands without any party being able to reduce this revenue for any reason whatsoever. That unless direct payment is made, all of your efforts to protect artists will be impaired."

"We worked very hard in order to make sure that this was not going to be controlled by the recording industry and part of that had to do with the CARP hearings," said explained Mr. Lee. "In the hearings, the industry indicated that they wanted to use the money going to the artists for recoupment against expenses and advances. We were very clear that the money should really go to the artists and had nothing to do with recoupment and expenses."

The recently negotiated agreement thus ensures that the performers' share of performance royalties collected by SoundExchange under statutory license will be distributed directly to the featured recording artist. It needs to be noted that royalties earned from licenses issued by a label under its exclusive right -- such as licenses issued for interactive services -- are unaffected by the agreement. This issue may be significant to the extent that record labels may have an incentive to offer favorable private licensing agreements as compared to the statutory rate, thus avoiding the direct payment provision of the agreement. When asked whether this represented a dangerous loophole, Barry Bergman stated: "This is up in the air right now. It is still too soon to be able to address a lot of these questions. But I feel that we are at the beginnings. We have to take this direct payment further, but this is a good first step on the way to being paid directly for interactive and other performances."

The other significant provision of the agreement, in fact, may hold some hope that the artist community will continue to have input on the issue. Originally established and wholly owned by the RIAA on behalf of the sound recording copyright owners, the agreement places SoundExchange under the joint control of recording artists and record companies. As such, artists, artist representatives, copyright owners and copyright owner representatives will share governance of the SoundExchange Board equally. "We believe that the decisions that will be made will be fairer and not attributable to one company because they are so large," said Mr. Lee

Linkography

AFM - www.afm.org
AFTRA - www.aftra.com
MMF - www.mmf-us.org
NARAS - www.grammy.com
Recording Artists Coalition - www.recordingartistscoalition.com
RIAA - www.riaa.com
SoundExchange - www.soundexchange.com

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