Compromise or Catastrophe? SiriusXM Pre-72 Settlement Sells Out Creative Community

April 4, 2017

Ray Hair  -  AFM International President

In a compromise, each party usually walks away with something they want and something they value. But when you are hampered by unfavorable Federal regulation, while fighting huge media conglomerates, compromise can lead to catastrophe. And you might not even know it until it’s over.

Case in point: late last year, a “compromise” settlement between weary recording artist litigants and satellite radio giant SiriusXM (with a market capitalization of more than $24 billion) set the stage for an economic catastrophe, which could impact the streaming income of America’s creators—our featured recording artists and the session musicians and vocalists who back them—for many years to come.

The backstory: using the “pre-1972” loophole in current copyright law, SiriusXM refused to pay legacy artists for the commercial use of their work. In response, two original members of the ’60s-’70s group The Turtles (known professionally as Flo and Eddie), initiated class action lawsuits in California, Florida, and New York.

While newer artists receive the benefit of clear protection (and royalties) under federal law, legacy artists are denied this protection for sound recordings made prior to February 15, 1972. Those recordings are protected by state law; so legacy artists must endure the hassle, expense, and uncertainty of state by state litigation to seek compensation for the use of their work. Artists and rights owners bear all of the costs and all of the risks in these lawsuits in countless state courts. And that’s what Flo and Eddie did.

Eventually, on the eve of the trial, SiriusXM agreed to settle the litigation. This may sound like a win, but it wasn’t. Granted, the legacy artists who were included in the case against SiriusXM will receive some compensation, but the trade-off was to agree to a prospective, going forward rate that radically undercuts the market and threatens the future value of music streaming for all artists, backup musicians, and vocalists.

In addition to a flat sum settlement for past uses, SiriusXM agreed to pay a pro rata share of 5.5% of its revenue to the artists prospectively. This is half of the 11% of revenue royalty rate that they are currently obligated to pay for federally protected sound recordings. What’s worse is that the 5.5% may drop even further in the wake of a recent decision by the New York Court of Appeals, and the outcome of other pending court proceedings.

In addition to the half-price royalty rate, SiriusXM was able to capitalize on artists’ lack of federal protection to extract a series of concessions, including an agreement to explicitly characterize the settlement as “market rate” and a clause forcing artists to agree to this “fire sale” royalty structure for 10 years into the future.

To make matters even worse, the settlement doesn’t do anything to actually solve the underlying problem of our broken copyright regime. It merely papers over the ongoing second-class treatment of legacy recording artists, musicians, and singers. It shortchanges them by paying only half, at most, of what should be required, and it risks the permanent devaluation of all digitally distributed music going forward. The fix is clear. We need to afford pre-1972 recordings the same federal protection that all other recordings enjoy.

In last year’s Congress, Representatives Jerry Nadler (D-NY) and Marsha Blackburn (R-TN) attempted to fix this inequity. They introduced the Fair Play Fair Pay Act. This bipartisan legislation proposed real copyright reform and went a long way towards addressing these and other injustices in the realm of recorded music. If enacted, the Fair Play Fair Pay Act would have secured performance rights for all recording artists across every platform.

The efforts of Nadler and Blackburn must be continued. The shabby treatment toward recording artists and musicians must stop. The devaluation of America’s cultural heritage must end. All platforms should play by the same rules. Government subsidies afforded by our copyright policies to satellite and broadcast radio should be eliminated. Artists and musicians of all eras should be treated fairly when their music generates value. It’s time to treat legacy artists like the legends they are. Let’s pay all creators what they deserve—instead of forcing them to sell their futures for 50 cents on the dollar.

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