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

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.