The Senate Judiciary Committee today approved the bill to impose a performance royalty (or the "performance tax" as the NAB had called it) on radio broadcasters for the public performance of sound recordings on their over-the-air stations. As was the case in the House of Representatives when its Judiciary Committee approved their version of the bill, the Committee acknowledged that there was still work to do before a final bill would be ready for the full Congress. Nevertheless, this is the first time that the Judiciary Committees in both Houses of Congress have approved the performance royalty, serving as a warning to broadcasters that this issue may well be moving to a showdown before the full House and Senate during the current session of Congress.

There was only limited debate on the bill at the Committee hearing, yet several open issues were identified. The Committee made clear that, even though it was approving the bill in the form introduced and amended by its managers, there were still changes that would be made in the future before any legislation was ready to be finalized. Senator Feinstein of California discussed several of the issues. First, the bill as amended by the Senate managers (Senators Leahy and Hatch), the bill provided relief for small broadcasters so that any performance royalty would not impose an undue burden on them. The bill proposed the following royalty structure for small broadcasters:

(I) revenues of less than $50,000 - a royalty fee of $100 per year;

(II) revenues of at least $50,000 but less than $100,000 - a royalty fee of $500 per year;

(III) revenues of at least $100,000 but less than $500,000 – a royalty of $2,500 per year;

(IV) revenues of at least $500,000 but less than $1,250,000 – a royalty of $5,000 per year.

Senator Feinstein, who stated that she favored parity between all music services that pay a royalty, suggested that this same royalty structure should be applied to small webcasters who, under current settlement agreements, can pay almost 30 times the amount that a small broadcaster with the same revenues would pay under this bill - and those settlements were an improvement on the royalties that would have been paid under the decision of the Copyright Royalty Board. Senator Feinstein stated that "the parties" were working on an agreement that would amend the bill to extend these rates to small webcasters.

Senator Feinstein also identified another issue. Under the manager's amendment (as in the House version of the bill), a provision of the law would prohibit any use of these royalties as evidence in any proceeding to set the royalties for ASCAP and BMI in a way that would reduce the royalty paid to those organizations to compensate songwriters for the public performance of the musical composition or musical work (the sound recording royalties addressed in this bill go to the performers and the copyright holders in the recordings - usually the record companies). Presumably, the songwriters' organizations are concerned that high performance royalties for sound recordings could be used by broadcasters or other companies that pay these royalties (webcasters, satellite radio, cable radio or other digital music services) to argue that they could not afford to pay ASCAP and BMI royalties at the levels at which they are currently paid (see our article here, about the potential for contentious proceedings to determine new ASCAP and BMI royalties for broadcasters, where the sound recording royalty is not even a factor yet ). However, the provision that is now in the bill could be read as prohibiting music services from introducing any evidence about the sound recording royalties to argue that the composer's royalties should be reduced, but would allow such evidence to be introduced by the songwriters to argue that the royalties should be increased. In other words, the songwriters could argue that, as the sound recording royalties were higher than the composition royalty, and that the composition royalty should be increased - while the music service would be helpless to defend themselves against such evidence as the use of such evidence by the services would be prohibited by the law. Senator Feinstein suggested that this one way street might constitute a denial of due process to the services, and that a more even-handed provision should be worked out before the final bill is adopted. There is currently a provision in Section 114 of the Copyright Act, the section that first extended the sound recording royalty to digital services, that prohibits either party from introducing evidence of the sound recording royalty in proceedings dealing with the musical works royalty.

Senator Specter raised another issue. At Senator Feinstein's urging, the bill proposes to use a single standard to set royalty rates for all services - whether they be broadcasters, webcasters, satellite radio or cable radio. As we've written before, webcasters have had to pay under a "willing buyer, willing seller" standard, while satellite and cable radio have ended up with far lower royalties because their royalties were decided based on the standards of Section 801(b) of the Copyright Act. The bill proposes to extend the coverage of 801(b) to all services but, like in the House Bill, the entire 801(b) standard would not be adopted. As Senator Specter observed, the last of the four factors set out in 801(b) is omitted in the bill - the factor that looks at the royalties to determine if they at levels that will preserve the stability of the industries involved. That factor was the factor relied on by the Copyright Royalty Board to cut the royalties that would otherwise have applied to satellite radio by half (see our analysis, here). As we wrote, if the broadcast royalty were adopted, this would be a very important factor to take into consideration in setting a royalty rate for broadcasters. According to Senator Feinstein at today's session, the record companies objected to the inclusion of this fourth factor, and certain webcast groups agreed to the 801(b) standard without the fourth factor. Obviously, broadcasters and other services concerned about the lack of the final 801(b) factor will need to push to have this factor included in any final legislation that may be adopted.

Two amendments to the bill were offered by Texas Senator Cornyn, who said that the revisions to the bill with the small broadcaster provisions were a move in the right direction, but he was still concerned with whether the bill went far enough. One amendment proposed to postpone the effective date of any royalty until the FCC held a rulemaking proceeding and determined that the royalty would not decrease diversity in the broadcast media. This amendment was rejected by the committee with little discussion.

The second amendment proposed that, instead of the royalty, the FCC should establish a "do not play list", a list of artists who did not want their music played without a royalty. This would address the claims of the royalty supporters that artists are exploited, as they have no right to tell broadcasters that they don't want their music played without a royalty. Senator Leahy objected to this proposal, saying that it did not provide that artists who were included on this list could negotiate for compensation to be played - that instead it was an all or nothing proposal - either the artist could have its music played for free, or it would not be played at all. Leahy did acknowledge that the idea was an interesting one that he would work with Senator Cornyn to modify. The amendment was rejected without much further discussion, but should be considered for the future as debate over this issue progresses, as it may present a potential alternative to the royalty.

All of the Senators who spoke at the session urged the broadcasters to come to the table to negotiate the royalty. This has been a common refrain at all of the hearings held on the bills in both the House and the Senate. With a new NAB leader, will the broadcasters actually come to the table? Time will tell. But, there is no need to look into the crystal ball to determine that this issue is a real one that the proponents of this royalty will continue to aggressively push forward. Broadcasters need to stay on the alert, and stay in touch with their Congressional representatives, to counterbalance this aggressive push on a bill that has cleared committees in both Houses of Congress, and may one day come to a vote which will finally resolve whether these bills will become law.