The American Music Fairness Act: Will Justice Cross the Finish Line

The American Music Fairness Act is still alive in the 119th Congress in the post-Labor Day political season, and with Congress heading toward the final stretch of the year, it is worth remembering both what the bill actually does and why it matters.

The basic proposition behind AMFA is remarkably simple: when terrestrial radio uses a sound recording to make money, the people who made the recording should be paid. That is not currently the law in the United States, and that’s what the #I Respect Music campaign is all about.

Songwriters and music publishers receive public-performance royalties when AM/FM radio plays a song. But the recording artists, background singers, session musicians and owners of the sound recording receive nothing for the terrestrial performance of that recording. Digital radio services, by contrast, already pay sound-recording performance royalties.

AMFA—S. 326 in the Senate and H.R. 861 in the House—would finally close that anomaly by extending the Section 106(6) sound-recording performance right to terrestrial audio transmissions and bringing AM/FM broadcasts within the Section 114 statutory licensing system.

This Is Not a Small-Radio-Killer Bill

One of the more persistent arguments against AMFA is that a new royalty would threaten small and community broadcasters. Congress has addressed that concern rather directly.

Under S. 326, a qualifying station with less than $100,000 in annual revenue would pay $10 per year. Qualifying public broadcasters with revenues between $100,000 and $1.5 million would pay $100 per year, while other qualifying stations in that range would pay $500. Those protections are limited to genuinely smaller operations; among other requirements, the station’s owner and affiliated entities must have aggregate revenues below $10 million. Let’s be real; that’s a fair deal for small broadcasters, come on.

For everyone else, the Copyright Royalty Judges would establish the rate. And Congress expressly tells the judges that they can consider radio’s much-invoked “exposure” value when determining that rate. (I’m so sure they’ll net out the indie payments, but hush my mouth.)

In other words, “radio promotes records” is not ignored by AMFA. It becomes an economic proposition that can be tested in an actual rate-setting proceeding rather than a vague slogan chanted by NAB lobbyists in sack cloth and ashes justifying a permanent entitlement for large broadcasters to use recordings for free.

And Artists Actually Get Paid

There is another important feature of AMFA that deserves considerably more attention. The bill plugs a potential direct-licensing loophole. If a copyright owner directly licenses transmissions that otherwise could have been made under the Section 114 statutory license, the broadcaster doesn’t get to use that deal to contract the performers out of their statutory share. The transmitting entity must pay 50 percent of the applicable direct-license royalties to SoundExchange (the collective Congress designated to distribute Section 114 royalties), which then distributes the money according to the statutory performer allocations.

That protection is important. It means AMFA isn’t merely creating another revenue stream payable to record companies with the hope that something eventually trickles through an artist’s recording agreement around recoupment in the royalty waterfall. The legislation deliberately preserves a statutory payment path for featured and nonfeatured performers.

That’s an important piece of artist protection and one of the better features of the bill.

The Whip Count

The reality is that AMFA is not sitting on the President’s desk. Neither chamber has reported the bill so far, and that’s the reality in the cold light of dawn. But— look at the Senate sponsorship.

S. 326 is led by Sen. Marsha Blackburn (R-TN) and now has Thom Tillis (R-NC), Bill Hagerty (R-TN), Alex Padilla (D-CA), Cory Booker (D-NJ), and Adam Schiff (D-CA) aboard. That is a 3–3 Republican/Democratic lineup, and importantly, Tillis chairs the Senate Judiciary Intellectual Property Subcommittee while Schiff is its ranking member.

That’s only six senators including the sponsor, so this is certainly not a 60-vote whip count. But six names don’t tell the whole story. Having the chairman and ranking member of the relevant subcommittee supporting the legislation is rather different from having six random cosponsors.

The Senate also did something important in December: it held an actual IP Subcommittee hearing on terrestrial performance rights, with Gene Simmons and SoundExchange President Michael Huppe making the case for performers and broadcasters presenting the opposing view.  And when Gene Simmons makes the case before Congress (“the word ‘if’ is for losers….”) and in his Washington Post op-ed, that’s a sight to behold and is must-see TV if you haven’t watched it.

AMFA support in the House of Representatives is also bipartisan. H.R. 861 is sponsored by Rep. Darrell Issa (R-CA), with support that crosses the aisle, including our long-time supporters Jerry Nadler and Ted Lieu. The House bill has accumulated additional cosponsors since introduction, although it likewise has not yet been reported from Judiciary.

So call the whip count what it is: not enough yet, but unusually well positioned institutionally for a music bill that hasn’t moved through committee.  And let’s be clear—fighting the National Association of Broadcasters is tough work, right up there with the Augean Stables and Sisyphus.  Although closer to the Stables in our opinion.

Don’t Rule Out the Lame Duck

That brings us to the calendar. There isn’t much legislative runway remaining in the 119th Congress, and AMFA still faces formidable opposition from the broadcast lobby. A conventional committee-to-floor path is getting increasingly difficult. But Congress will return after the November elections, and that is where things could get interesting before January 3, 2027 when unpasted bills die.

Music legislation has a history of moving when bipartisan agreement finally intersects with a legislative vehicle. The Music Modernization Act itself ultimately became a package containing several pieces of music legislation and passed with overwhelming bipartisan support.

AMFA now has something it did not have at the beginning of this Congress: a Senate hearing, bipartisan support from the leadership of the relevant IP subcommittee, bipartisan sponsorship in both chambers, and a legislative record establishing both the case for paying performers and the protections afforded small broadcasters.

While that doesn’t guarantee anything, it does make AMFA a plausible candidate for a lame-duck legislative vehicle if the right copyright, intellectual-property or broader year-end package starts moving.  Stranger things have happened.

And this is one of those issues where Congress has been “studying” the problem for a very long time. As SoundExchange CEO Mike Huppe reminded the Senate last December, the Senate Judiciary Committee actually reported the predecessor Performance Rights Act in 2009. It never reached the floor.

Seventeen years later, the underlying inequity is still the law:  American radio broadcasters can build a commercial business around recorded performances without paying the performers for those performances. Digital services pay. Broadcasters in most other developed music markets pay. American terrestrial radio does not.  Artists still die of exposure.

The American Music Fairness Act would finally change that.

Six Senate sponsors isn’t 60 votes. But with Blackburn, Tillis, Hagerty, Padilla, Booker and Schiff already aboard—and Tillis and Schiff occupying the two key positions on the IP Subcommittee—there may be enough bipartisan infrastructure here to keep watching very closely as Congress heads toward the lame duck.

Sometimes the last few weeks of a Congress are when supporters of legislation that has been waiting years finally ride Justice across the finish line.

Historical Losses from Statutory Rates–Are you ready for CRB 5 and the New Frozen Mechanicals?

The red line is the actual mechanical rate in pennies (nominal rate) compared to the blue line which is the inflation-adjusted rate (real rate). Notice that during periods without a COLA adjustment like we won for physical and CDs in CRB 4 (aka Phonorecords IV), the blue line is less than the red line.

An important feature of this graph is that the blue line continues the downward slope until it is saved by an increase in rates followed by a cost of living adjustment or stair step increases (some of which were due to a COLA).

As soon as the COLA comes off, the downward slope returns, meaning the buying power of the statutory rate declines. This is to be expected due to inflation–the downward slope will be more pronounced in times of high inflation.

Notice that this places a blank space on the area of the graph between the red and blue lines. That blank space represents lost revenue due to a fixed rate that is not adjusted for inflation. It is theoretically and industrywide loss of revenue.

It would be possible for songwriters to make the same calculation for streaming if the Copyright Office were required to publish the results of the CRB’s streaming mechanical calculation. This would be much easier because there has never been a COLA for streaming mechanicals, although there clearly ought to be.

One place to start making that case might be to calculate the industrywide loss from the failure to adjust for inflation in the rates the government forces us to take.

All Economic Indicators Are Flashing Red at the Copyright Royalty Board on Frozen Mechanicals–MusicTech.Solutions

by Chris Castle

All of the economic indicators are telling us that inflation is going to be around for a while–so songwriters should expect some cost of living adjustment based on the Consumer Price Index when the Copyright Royalty Board sets mechanical royalty rates, especially for the frozen mechanical rate on physical phonorecords. Why do I say that?

The U.S. Consumer Price Index closed 2021 at 7%. That is the highest inflation level since 1982–and remember in 1982 the U.S. had already had a solid two to three years of Federal Reserve Chairman Paul Volker’s anti-inflationary surge after the malaise of the 1970s.

The Producer Price Index for 2021 was measured at 9.7% by the Bureau of Labor Statistics, the largest calendar year increase since 2010. The PPI is a leading indicator of inflation as measured by the CPI because it measures a large basket of raw inputs and future price increases that will affect the CPI in weeks or months.

The University of Michigan survey of consumer sentiment fell to 68.8%, its second lowest level in a decade (the lowest being in November 2021). The survey also measured “confidence in government economic policies is at its lowest level since 2014.” The consumer sentiment survey indicates that consumers expect bad times ahead, or at least expensive times. This can have a pronounced effect on consumer inflation expectations.

Consumer inflation expectations remained unchanged after rising strongly over the last year, particularly the one-year outlook. Inflation expectations can be a self-fulfilling driver of inflation for a number of reasons such as FOMO pricing on homes and cars as well as wages–if you expect inflation to rise x% in the next 12 months, today you will seek wage increases of at least x% (if not more).

All of this tells us that the entire idea of extending the freeze on statutory mechanical royalties gets more absurd by the day. It’s entirely reasonable to “index” statutory mechanical royalties during the current rate setting period of 2023-2027 as we’ll all be very lucky to get through that period without suffering crippling inflation that will further erode the 2006 rates the CRB has used for the past 15 years.

[Why this wasn’t fixed in Music Modernization Act is anyone’s guess. This post first appeared on MusicTech.Solutions]