(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)
Most music is directly associated with the artists who perform the work, yet, under the current royalty system, these same musicians are not compensated when their music plays on terrestrial broadcast stations via AM/FM radio. The American Music Fairness Act (AMFA) seeks to address this gap. This bipartisan bill—introduced in the House last summer by Reps. Ted Deutch (D-FL), Darrell Issa (R-CA), Jerrold Nadler (D-NY), Barbara McClintock (R-CA), Karen Bass (D-CA), Diana Harshbarger (R-TN), and Judy Chu (D-CA)—now has 32 cosponsors. On behalf of the American artists who contribute substantially to the $20 billion and growing global recording industry, Congress should pass the AMFA.
It generally takes a village to create a hit song, from songwriters to publishers, producers to labels, and artists to studio musicians. One study from 2017 found that it takes an average of four to five writers to create a hit song. While some, generally more-established, contributors might play multiple roles in the process (think singer/songwriter Taylor Swift or producer/artist Pharrell Williams), many do not. These are different skills, after all, and each creative contributor must be compensated for their role. Royalties are typically pennies on the dollar for creators or fractions of a penny when multiple creators are involved. This means greater sales and adequate compensation are vital for an artist to survive in the industry.
The current U.S. music royalty system comprises several pots of money from specific sources, each designated for a particular role or set of roles. For example, performing rights organizations (PROs), such as the American Society of Composers, Authors, and Publishers (ASCAP) and Broadcast Music, Inc. (BMI), compensate writers and publishers for broadcast performances of their works, such as via terrestrial radio, recorded performances in clubs, or live performances in arenas. Likewise, the collective rights management organization (CMO) SoundExchange collects and distributes digital royalties—for services such as streaming, satellite radio, and private copying—on behalf of artists and sound recording owners (generally labels).
As reflected by the different roles of these PROs and CMOs, the music royalty system splits between the sound recording and the underlying work (think sheet music). Historically, songwriters and publishers could receive compensation in perpetuity for their part in producing hit songs, so long as sheet music sells, recordings are made and sold, artists keep performing the song, the work is included in an ad or movie, etcetera. Meanwhile, the artists who made the songs famous predominantly relied on the gig economy for income, especially since traditional recording contracts only offered artists 10 to 25 percent in royalties, irrespective of reductions for various business costs. Part of the reason for this discrepancy was the bargaining power terrestrial radio held during the rise of sound recordings, as indicated by the historical practice of “pay for play.” For digital music royalties, artists and sound recording owners have found a seat at the table.
However, American artists continue to miss out when their music plays on terrestrial broadcast stations. This loss doesn’t stop at the U.S. border, either. Without a U.S.-based CMO to collect and distribute terrestrial broadcast royalties for artists and sound recording owners, American creators do not receive compensation for performances of their works on foreign terrestrial broadcast stations. This means American artists are missing out on tens of millions of dollars in royalties every year. Considering the United States is one of only four countries without a means to compensate artists and sound recording owners for terrestrial broadcasts—the others being China, Iran, and North Korea—it is time for Congress to step up and redress this imbalance.
The broadcast industry relies on sound recordings for most of its content, yet the industry does not compensate those who make the sound recordings. This is equivalent to car manufacturers not being paid by car dealers. The AMFA would fill this gap, providing artists and sound recording owners with compensation for domestic terrestrial broadcasts of their work. Again, these royalties are pennies on the dollar, as the figures proposed would cost broadcasters less than 0.05 percent of their annual revenue. Once the United States has a collection and distribution system set up for this type of royalty, the CMO overseeing the royalties can then engage in bilateral agreements with foreign CMOs, ensuring compensation for American artists for foreign terrestrial broadcasts of their work.
As the House Judiciary Committee considers its next steps, it should not forget about the musicians who fill our lives with songs. The AMFA fills a significant gap in the U.S. royalty system and puts artists on a more equal footing in terms of compensation. On behalf of American artists and sound recording owners, Congress should pass the AMFA.