Telecommunications:

Preliminary Observations on the Potential Effects of the Proposed Performance Rights Act on the Recording and Broadcast Radio Industries

GAO-10-428R: Published: Feb 26, 2010. Publicly Released: Jun 7, 2010.

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The recording and broadcast radio industries combined generated over $25 billion for the U.S. economy in 2008. These industries provide jobs for a range of skilled workers, including songwriters, producers, engineers and technicians, and radio announcers, among others. At the same time, recording studios and radio stations allow musicians, vocalists, and performers to share their talents with listeners across the nation. Through their work, the recording and broadcast radio industries contribute to the everyday American experience by creating and delivering music to people in their homes, cars, and workplaces. Beyond providing a popular form of entertainment, the recording and broadcast radio industries have helped music become a prominent feature of American culture. Music, like other forms of creative art, is protected by copyright law. Congress is considering legislation that would expand copyright protection for sound recordings. In particular, the proposed Performance Rights Act would eliminate an exemption that currently allows analog, nonsubscription AM and FM radio (broadcast radio stations) to broadcast a sound recording without acquiring permission from and paying a royalty to the copyright holder, performers, and musicians. The act would amend the statutory license for nonsubscription transmission services to include terrestrial broadcast stations. Under the amendments to the statutory license, a radio station would pay a royalty based on its revenue and its status as a commercial or noncommercial station. Furthermore, the proposed act exempts some uses of music, such as music in broadcasts of religious services and the incidental use of music by nonmusic stations. Under the House bill (the proposed act), revenues from the proposed statutory royalty would be divided among recipients as follows: 50 percent would be paid to the copyright holder, 45 percent would be paid to the featured performer or musician, 2.5 percent would be paid to background musicians, and 2.5 percent would be paid to background performers and vocalists. A designated third party would collect and distribute royalties directly to the featured performer or musician. Finally, existing royalties paid to publishers, songwriters, and composers are to be unaffected by the proposed royalty. In response to Congress' request that GAO determine the potential effects of the proposed Performance Rights Act, GAO reviewed (1) the current economic challenges facing the recording and broadcast radio industries, (2) the benefits both industries receive from their current relationship, (3) the potential effects of the proposed act on the broadcast radio industry, and (4) the potential effects of the proposed act on the recording industry. This letter provides preliminary findings based on ongoing work. As discussed with staff from the House Committee on the Judiciary, GAO intend to issue a final report that will provide additional information on the value of the current relationship between the broadcast radio and recording industries through analysis of revenue data, as well as additional information on the potential revenues generated from stations that would not make a flat annual royalty payment.

Based on GAO's review of the recording and broadcast radio industries and the proposed Performance Rights Act, it found the following: (1) Both the recording and the broadcast radio industries face economic challenges. Digital technology and piracy have decreased the sale of records, the recording industry's main source of revenue. Economic conditions and the fragmentation of listeners among newer media platforms, such as the Internet and mobile devices, have reduced advertising sales, broadcast radio's primary revenue source. (2) Both the recording and broadcast radio industries benefit from their current relationship. The recording industry receives broadcast radio airplay, which promotes sales for sound recordings and concert tickets. For the radio industry, sound recordings attract listeners to radio stations that sell advertisements. (3) The proposed act would result in additional costs for broadcast radio stations. Costs from performance royalties would vary based on whether the station broadcasts music and its gross annual revenue. Stations may also face administrative costs from record-keeping and playlist reporting requirements as well. Some radio stations that are unable to adjust to these new costs may reduce staffing levels; change from music to nonmusic programming, such as news, talk, or sports; or discontinue operations. (4) The proposed act would result in additional revenue for record companies, musicians, and performers. Musicians and performers whose songs are broadcast on the radio would receive an additional income stream. Record companies could use the additional revenue to invest more heavily in the creative process of music.

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