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Summary:

The enemy of my enemy is my friend — sometimes. When XM and Sirius Satellite Radio announced their proposed merger two weeks ago, the first to oppose the union was the National Association of Broadcasters. If satellite radio didn’t compete with terrestrial radio, this merger would […]

The enemy of my enemy is my friend — sometimes.

When XM and Sirius Satellite Radio announced their proposed merger two weeks ago, the first to oppose the union was the National Association of Broadcasters. If satellite radio didn’t compete with terrestrial radio, this merger would be a lot more troubling – and a lot less bothersome to NAB.

NAB’s motive is transparent: it always seeks to harm XM and Sirius. Broadcasters have done that for 10 years, and they’re doing it still. Yet the two satellite companies have lured more than 13 million into paying nearly $13 a month for the news, talk and music they used to get for free.

The one lobbying group that might have something useful to say about this merger is the Recording Industry Association of America. Having had their own high-profile battles with the satellite companies, RIAA is the “enemy of the enemy,” if you will. But RIAA has decided to keep quiet. Why the silence? Read on.

The recording industry, whether performing artists or “suits,” is not exactly a friend of the broadcasters. For more than a generation, musicians and disc jockeys have been arguing over who should be paying whom for airplay. The power of the NAB is the alleged reason why the United States, along among industrial nations, does not recognize a copyright in the public performance of songs played over AM and FM radio.

RIAA has its reasons for remaining neutral. On the one hand, said its president Cary Sherman, satellite royalties could be lower without two competitors in the marketplace. On the other hand, Sherman said, the recording industry is pleased that XM and Sirius tout the Apple iPod as competition. That’s what the RIAA has been arguing in their copyright lawsuit against XM Satellite Radio. At last week’s House Judiciary Committee hearings, they were conspicuous by their absence.

A small matrix would help lay readers sort through this copyright thicket. Music copyrights protect at least two things: the sound recording and the underlying musical composition. The other dimension concerns whether the copyright covers reproduction or public performance:

drewmatrix2.jpg

With reproduction royalties three orders of magnitude higher than the performance rights, the recording industry has an interest in reclassifying a “performance” in Quadrant 2 as a “reproduction” or a “distribution” subject to the Quadrant 1 rates. That’s what RIAA companies are trying to do against XM Satellite Radio.

But at least satellite radio already pays the performance right in Quadrants 2 and 4! They’ve had to, under the 1995 law for digital transmissions. Broadcasters and their analog transmissions were exempted from Quadrant 2.

It’s also clear that a lot of outstretched hands complicate any legal music business. Internet music companies like America Online, Apple and Yahoo! pay for a public performance right to webcast, or stream, Internet radio. They still have to worry about music publishers arguing for a cut. And when they pay the big bucks to RIAA and Harry Fox for “download” services, the American Society of Composers, Artists and Performers in turn demands a percentage of revenue on the grounds that a download is also a performance. Last week the Digital Media Association, the techies’ trade group, filed a legal brief rejecting that view.

In spite of attempts at double-dipping, copyright experts say that the line between these quadrants is thin. “On the Internet, there is no difference between a stream and a download – the only difference is whether the bucket is emptied after the play occurs,” says Fred von Lohmann, senior intellectual property attorney for the Electronic Frontier Foundation.

Von Lohmann opposes RIAA’s lawsuit against XM – which is also part of a legislative push by the recording industry – because it cramps the freedom of device manufacturers to implement time-shifting technologies. He’s also opposes the recording industry’s attempt to lay the groundwork for eventually collecting sound recording revenue from the big radio broadcasters. There is no evidence a performance right is necessary to stimulate music creation, says Von Lohmann.

Not all copyright skeptics agree. Consider the perspective of Public Knowledge Executive Director Gigi Sohn, a critic of both the NAB and the RIAA. With so many other ways to get music and audio content, Sohn said at last week’s Judiciary Committee hearing, she wasn’t unduly concerned about monopoly power by an XM-Sirius combination. On the contrary, her concern was that the merger might be grounds for imposing a PERFORM Act mandate.

But if NAB is the enemy, and if RIAA is the NAB’s enemy, Sohn did manage to find some friendly ground with the recording industry. NAB’s exemption makes no sense, said Sohn: like webcasters and like satellite radio, NAB should also pay for a performance right.

  1. hmmm…interesting observation “The enemy of my enemy is my friend — sometimes.”

    Who is who’s enemy here??

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  2. Hank Williams Monday, March 5, 2007

    I just want to clarify something that is slightly misstated or confusing. The recording industry is divided into the recording owners and the song owners. The recording is the actual recording of the song. The song owners own the notes and the lyrics. The record companies do not receive payments for the performance of the recording from terrestrial radio (they do from digital – which is part of the whole soundexchange uproar). The song owners do receive payments for the performance of the songs when played on radio. So it is confusing to say that terrestrial does not pay a performance royalty. They pay the song owners (also known as the publishers – represented by ascap and bmi) but not the performance royalty to the recording owner.

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  3. Once again, the real problem is that there are too damned many lawyers. I have a master’s degree and I can barely follow the legal issues raised in this article.

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  4. David Touve Monday, March 5, 2007

    The information in your quadratns needs some updating. From the present rate at which mechanical (per song) licenses are granted, to the rate on webcasts, and the split of SoundExchance royalties. However, it was probably helpful to explain to people the multiple layers of rights in music.

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  5. Doesn’t the fact that the NAB strenuously opposes the merger futher the case that it’s not actually a monopoly?

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  6. It seems like terrestrial radio will be for the poor while satelite radio will be for the less-poor!
    I for one stopped listening to radio, too many commercials, and too much commercial music, where’s all the good music?! (oh yeah, on KNAC!)

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  7. When I was a kid, there was just radio. After tv arrived, radio’s primary audience became those in vehicles.
    Now, you can listen to any number of things in your vehicle.
    For example, when cassette and cd players were put in vehicles, radio had it’s first competitor.
    I think this market now is a purely audio market and radio is just part of it.

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  8. [...] months, there had been chatter about a possible corporate coupling between XM Satellite Radio (XMSR) and Sirius Satellite Radio (SIRI). The discussion reached a [...]

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  9. Isaac, Rotterdam, Holland Wednesday, January 16, 2008

    Just think of the file material the DoJ requested and got: 6 million pages to study. I know it is important not to create a positive precedent for a merger which is alledgedly viewed as a monopoly.
    Of course, there is this 10-year-old FCC limitation in that one company should not be able to control the entire sprectum. But that was 10 years ago. Moreover, it is a merger of equals, combining forces to obtain efficiency and benfits for the consumer, their astonishing 17 Million Voluntary Subscribers!

    For years I had not studied anti-trust law and boy, what subject to read.
    However, it comes down to recognizing market power and monopoly power — both do not apply in this case.

    In my view therefore a monopoly 100% not the case — as the strongest merger-opponent is the NAB: why would they worry, if not fishing in the same, wide pond? Cross-elasticity is the word; it is not as if radiolisteners have starved from entertainment before the SDARS were there… on the contrary: the market landscape has become so wide every consumer has a free choice of radioconsumption. If as a consumer you desire uninterrupted, ad-free reception and CD-quality throughout the country, driving from coast-to-coast of course you buy one, or two or soon: just one supplier of this service. If you can’t or do not want to pay: fine, stick to good old FM or AM or CD or even cassette.
    Even if the happily merged companies nastily would up their charges to say $29.99/month , they would shoot in their feet as consumers still have a choice and would churn rapidly. This is not about about a milk-cartel!
    So DoJ, so FCC: this is 2008 go ahead, give the merger a greenlight and get back to bigger matters.

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