Membership Newsletter
May 23, 2019
FCC SEEKS 20% HIGHER ANNUAL FEES
FROM STATIONS. NAB ASKS WHY.

FROM INSIDE RADIO
If broadcasters are perplexed why the Federal Communications Commission is proposing to hike annual regulatory fees on radio stations by an average 20% just a year after reducing the burden, they have plenty of company. The National Association of Broadcasters has told the Commission that because it has offered no explanation for the “remarkable” increase for its size, it’s nearly impossible for the industry’s trade group to offer any feedback on the proposed assessment.

As Inside Radio has been reporting, under the FCC’s proposed menu of fees, most stations would see a double-digit increase in what they’d have to pay to the FCC. For the biggest FMs in the largest markets, the annual fee would jump to $22,650 compared to $18,880 last year. On the AM dial the FCC has taken a similar approach, proposing the biggest AMs see their annual fee go up to $17,950 from last year’s $15,050. The Notice of Proposed Rulemaking approved by the Commission  two weeks ago  offered no explanation for why radio’s annual fees would suddenly increase just a year after they were reduced by  an average 13% in 2018.

In a letter to the Commission, the NAB says the notice makes no attempt to explain or justify the increase, which it says will bring “an unexpected and substantial burden” for many broadcasters. “To make matters worse, the fee surge comes at a time when the radio industry is losing both audience share and advertising revenues to rapidly expanding digital competitors,” it says.
The puzzled NAB works through several possible reasons in its letter, concluding the reasoning doesn’t back up the proposal. One option is the FCC’s 2019 budget totals $339 million. That’s up 5.2% from the 2018 budget. But the NAB says that’s a smaller percentage than the proposed radio fee hikes. Another possible reason is that a fewer number of stations means those that remain pay more. Yet the reverse is true as the FCC has itself reported the number of commercial stations has increased. NAB also points out the agency has stopped sharing the number of full-time employees working in the Media Bureau dedicated to radio.

“These are only a few examples of the notice’s shortfalls that make it virtually impossible for interested parties to usefully comment,” the NAB says. It is urging the Commission to issue another notice that better explains the proposed fee changes and include updated staffing data so that the industries impacted “can have some level of confidence in the millions of dollars they are being assessed for their regulation.”

Unless there’s a change, the Commission is giving broadcasters until June 7 to file their first round of comments on its proposal. Reply comments will then be due by June 24. By late summer it’s likely to adopt the final order and the fees will be due on or before Oct. 1.

Failure to pay on time not only results in a 25% surcharge, but the FCC is also authorized to revoke a station’s license for failure to pay a regulatory fee. More common, however, are unpaid fees that trigger the “red light rule,” which blocks any applications or other requests filed by a station from being processed.
SENATE COMMERCE COMMITTEE PASSES PIRATE ACT
On May 15, the Senate Commerce Committee unanimously passed the  PIRATE Act . The bill will better equip the Federal Communications Commission (FCC) to combat pirate radio operations that interfere with legal broadcasts and pose a threat to air traffic control communications. We appreciate the leadership of Sens. Steve Daines (MT) and Gary Peters (MI) on this issue and strongly urge Senate passage of the PIRATE Act. The PIRATE Act previously  passed  the House of Representatives in February by unanimous consent.
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PRESIDENT'S COLUMN
Chris Winkle
KBA President & CEO

Pre-1972 Sound Recordings and the July 8th SoundExchange Filing Deadline
Recently, the Radio Music License Committee sent out a memo to broadcasters about a July 8, 2019 SoundExchange payment deadline for pre-1972 sound recordings. As with everything in copyright law, the issues surrounding pre-1972 sound recordings are complicated, and the RMLC notice, while seemingly straightforward, still resulted in several questions from our members.

I've asked our friend David Oxenford to weigh in on the subject to help sort through the confusion...
First, let’s look at the basics.  Sound recordings (the recording of a particular band or singer performing a song) were originally not covered by federal copyright law. The law provided protections for “musical works” (i.e. the musical composition, the words and musical notes of the song), but the mere recording of that work was initially not seen as a creative work. It was thought of more as a mechanical rendering of the real creative work – the underlying song. So when recordings came to have real value in the first half of the last century, recording artists had to rely on state laws to prevent other people from making and distributing copies of their recordings. Laws against what we would refer to as bootlegging or pirating of recordings were passed in most states, and lawsuits against bootleggers would be brought under these state laws. It was not until 1972 that Congress, through an amendment to the Copyright Act, recognized that the recordings were themselves creative works entitled to copyright protection. But that amendment did not fully make all pre-existing recordings subject to the Copyright Act, instead leaving most sound recordings first recorded in the United States prior to the adoption of the amendment to the Act in February 1972 subject to state laws until 2067.

The 1972 amendment to the Copyright Act also did not create a public performance right in sound recordings.  That meant that, when sound recordings were played to a public audience, the recording artist (or the owner of the copyright in that sound recording, usually the record label) did not get paid. Instead, as had been the case prior to 1972, only the composer of the underlying musical work (or the copyright holder of that composition – usually a publishing company) got paid, usually through a performing rights organization (also known as a PRO – ASCAP, BMI and SESAC until recent years when other PROs including GMR arose). It was not until 1995, and then again in a more definitive way in the Digital Millennium Copyright Act of 1998 (“DMCA”), that sound recordings received a federal performance right protection – but only for digital performances.

Royalties for non-interactive performances of sound recordings are paid to what is essentially a PRO for sound recordings – SoundExchange.  Royalties for interactive performances of sound recordings must be directly negotiated with the copyright holder. But, the DMCA established these payment requirements only for those recordings covered by Federal copyright law, thus excluding pre-1972 sound recordings (except for certain foreign pre-1972 recordings which, by international treaty, were brought under federal copyright protections).

So, when the DMCA created the public performance right for digital transmissions of a copyrighted sound recording, some contended that, as these pre-1972 works were not subject to the Copyright Act, they were not covered by the sound recording performance right. When the time came to pay SoundExchange for the digital performance right, some services counted the performances they had made of these oldies and did not pay the royalties on those songs.

However, most broadcasters and smaller webcasting services did not go through the trouble of determining which recordings were pre-1972 recordings and pulling them out of the computation of the number of performances reported to SoundExchange. Why not? Because most services found it to be too much trouble to subtract the pre-1972 recordings. It is difficult to determine the recording dates of many songs, and the international recordings brought under the Act by treaty made that computation even more confusing. Moreover, most broadcasters and webcasters use their streaming service providers to count performances through a system of matching through access to a station’s music scheduling software the song that is playing at a particular time with the number of listeners to the webcaster at the time. These counting systems usually did nothing to identify which songs were pre-1972 recordings and thus did not make it easy to exclude certain songs – whether pre-1972 or ones to which a service received a direct license. For the most part, it was only the very large webcasters who found it cost-effective to develop their own software systems to identify and count pre-1972 recordings and to exclude them from royalty payments.

But, in the last few years, several pre-1972 artists began to sue these bigger services that had not paid for pre-1972 sound recordings, arguing that the artists had a right the be paid under state laws. Some of these artists even argued that broadcasters owed royalties for over-the-air performances of pre-1972 recordings under these state laws, even though there is no such right under federal copyright law. No state had a specific public performance law for these pre-1972 recordings, but the argument was made that such a right was somehow inherent in the state law – even though, by practice, royalties had never been paid. Most of these suits were unsuccessful (see for instance our articles on decisions in  New York  and  Florida ). But California courts initially found liability and the litigation is ongoing.
Efforts followed to amend federal law to bring these pre-1972 recordings under the sound recording performance royalty. One of these pending bills ended up being incorporated into the recently enacted Music Modernization Act. The MMA makes clear that these recordings are covered by the sound recording performance royalty, and it also establishes a staggered system for bringing the recordings fully under federal copyright laws. Since the adoption of the MMA, it is clear that SoundExchange must be paid for digital performances of pre-1972 sound recordings.

However, there was a recognition that some services had not been paying and that they might not be able to transition over to a payment system immediately upon the adoption of the MMA. The April filing deadline provided for services that still were not paying for pre-1972 recordings  after the enactment of the MMA  to avoid statutory royalties if they registered and paid those royalties upon receiving a demand from the copyright holder. Services that had been paying for these recordings for the most part did not receive a substantial benefit from this registration except to the extent that they might get a degree of protection if a service at some point in the future messed up and didn’t properly pay its royalties. However, there is no provision for copyright holders of post-1972 recordings having to give notice before suing a service behind in its payments, and those post-1972 copyright holders would be entitled to statutory damages. So the services that really benefitted from the April registration were those few digital services who were only playing pre-1972 recordings and not paying for them.

The new July date in the RMLC notice is for those webcasters who were not paying for digital performances of pre-1972 sound recordings  prior  to the enactment of the MMA. They can avoid claims for back royalties, including state law claims, by paying SoundExchange by July 8 for all their pre-1972 performances in the 3 years prior to the adoption of the MMA. For most broadcasters who had been paying for their streaming of pre-1972 sound recordings and were current in their royalty payments, there would appear to be nothing to true up in July. But for services who had been excluding the pre-1972 performances from their SoundExchange payments, they should true up by July 8 to avoid liability.

The MMA specifically applies all of the exceptions to sound recording royalty obligations to pre-1972 recordings. So over-the-air broadcasts of these recordings do not trigger a performance right, and performances in bars, restaurants, retail outlets, and other venues still do not trigger a performance royalty (though certain digital “business establishment services” providing music to these venues may have general royalty issues – see our article here about those royalties).

The enactment of the MMA and its provisions dealing with pre-1972 recordings, once fully implemented, should end our need to write about these issues. These songs will eventually be treated for most purposes like any post-1972 recordings. The MMA does, however, recognize that (especially for some of the older recordings) it may be difficult to determine who owns the copyrights to these recordings. The Copyright Office separately has several ongoing proceedings for claiming those rights. But, for broadcasters – pay your digital royalties for all that you stream, including the pre-1972 recordings, and if you were one of the few stations that had not been paying for these recordings prior to the adoption of the MMA, take care of your true-up for the prior 3 years prior to July 8. As always, check with your own legal counsel for more details and specific analysis on how these changes affect your operations in connection with these confusing issues.
THURSDAY, NOVEMBER 14, 2019
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DATES TO REMEMBER
KBA | Upcoming Events

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SEPTEMBER 12-14
Small Market Television Exchange (Austin, TX)

SEPTEMBER 24-27
NAB/RAB Radio Show (Dallas, TX)

OCTOBER 13
Broadcasters Cup Golf Scramble
OCTOBER 14-15
KBA's Annual Membership Conference (Belterra Casino Resort)

NOVEMBER 14
Midwest Broadcast & Multimedia Technology Conference (Columbus, OH)
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