How the AM-FM Act Seeks to Cure an Antiquated Inequity in Music Copyright Law

By: Kelsey Cloud

Allowing intellectual property owners control over their creations is a fundamental, constitutionally protected right in America. However, terrestrial radio, or stations broadcast by a land-based AM/FM radio station, is the only industry in the country that allows the usage of others’ intellectual property without permission or compensation. American terrestrial radio generates billions of dollars broadcasting advertisements to listeners without paying the creators of sound recordings, depriving musicians of vital compensation essential to creating music.

The Ask Musicians for Music Act (AM-FM Act), introduced by Congress last November, aims to alter copyright laws exempting terrestrial radio stations from distributing sound recording royalties and strives to compensate copyright holders for an estimated $200 million annually in royalties. If passed, the AM-FM Act would eliminate the provisions of the Copyright Act that limit sound recording royalties to digital performances, making the provisions applicable to all audio transmissions that require radio services to pay fair-market value for the music they play. Given the proliferation of technology, the exemption held by radio broadcasters is antiquated, illogical, and furthers economic inequality amongst music creators domestically and internationally.

The Current State of Music Copyright Law

Every track contains two separate sets of copyright ownership: the composition rights and the sound recording rights. Composition rights are for the lyrics and musical arrangement, while the sound recording rights are for the produced and recorded performance. While the copyright of the composition is generally held by the composer, lyricist, and/or songwriter, the copyright of the sound recording is typically owned by the performer and/or record label.

In 2018, Congress passed the Music Modernization Act (MMA), which implemented groundbreaking modifications to copyright law related to sound recordings. Title III of the MMA, known as the Allocation for Music Producers Act (AMP Act), establishes a procedure for distributing performance royalties to those who made a contribution to a sound recording. While the AMP Act provides royalty payouts for contributors when their recordings play on satellite and online radio, the Act does not apply to terrestrial radio. For example, when a song is played in someone’s car on SiriusXM or iHeartRadio, those stations must compensate sound recording rights holders, while AM/FM broadcasters are exempt ­– even though the same song plays out of the same speakers. As a result, the MMA perpetuates terrestrial radio broadcaster’s exemption from royalty obligations for copyrighted sound recordings and those owning the copyright are denied compensation for their work.

In response, Congress introduced the AM-FM Act in November 2019 which would extend sound recording performance royalties to terrestrial broadcast radio and close this loophole.

Advocates and Opponents of the AM-FM Act

The Senate Intellectual Property Subcommittee held a virtual online briefing on current music rights on May 27th,2020, in which advocates of the Act argued that by failing to provide sound recording royalties, copyright owners essentially subsidize the terrestrial radio industry against their will. Proponents of the Act testified that in the modern age, few differences exist between digital and terrestrial broadcasts, as most broadcasters simulcast online and already pay digital performance fees. Colin Rushing of SoundExchange, the company responsible for collecting digital performance royalties for sound recordings, argued that the “lack of terrestrial performance rights creates a loophole that distorts the market and creates an incentive to invest in [antiquated] technologies.” As the consumption of music continues to steer away from physical media such as CDs and towards digital media, performers become more likely to receive revenue from performances than traditional retail sales, furthering the importance of compensating them properly.

The National Association of Broadcasters argue that the exemption is justified by providing performers and labels with free promotion received through radio play intertwined with public service announcements. Terrestrial broadcasters contend that increased airplay translates to increased album sales, leading to compensation for performers and labels. However, providing a public service does not warrant profiting off musicians’ work for free. If the free market were to decide what the rates should be, any artists desiring to provide their work for free in exchange for promotion would have the power to make that decision. Instead of broadcasters exploiting artist’s works, artists should have the right to negotiate rates the broadcasters must pay in exchange for airing their music.

Moreover, the majority of leading countries distribute sound recording performance royalties for terrestrial broadcasters, making the U.S. one of the few industrialized countries that does not. While foreign terrestrial broadcasters compensate performers, the U.S. does not have that reciprocal right, leaving foreign performance rights organizations with no way to distribute these royalties to American performers. Consequently, an estimated $200 million in performance royalties owned by American performers remain in purgatory. $200 million that would otherwise be paid to them in any other country. Those performers hold a disadvantage in the international arena, discouraging international growth in the music industry and greatly hurting the U.S. economy.

The Bottom Line

According to Neil Portnow, President and CEO of the Recording Academy, terrestrial radio is the “only industry in America that is built on using another’s intellectual property without permission or compensation.” Terrestrial broadcasters use music to bring in listeners which allows them to receive $14.5 billion annually from advertising, while not paying performers a dime for the music that drew in listeners to their station in the first place. The AM-FM Act provides a solution by ending the distortion in copyright law that forces artists to subsidize the terrestrial radio broadcast industry worth billions of dollars and finally remedy a longstanding inequity in copyright law.

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