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FOR IMMEDIATE RELEASE
June 11, 2008
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Dennis Wharton
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Prepared Oral Testimony for Broadcast Executives Steve Newberry and Charles Warfield

WASHINGTON, DC – Steve Newberry, president and CEO of Commonwealth Broadcasting Corporation, and Charles Warfield, president and COO of ICBC Broadcast Holdings, Inc., testified today in a hearing before the House Subcommittee on Courts, the Internet and Intellectual Property on behalf of the National Association of Broadcasters. Below are the transcripts of their oral testimony.



ORAL TESTIMONY OF STEVE NEWBERRY

Good afternoon, Chairman Berman, Ranking Member Coble and members of the subcommittee. My name is Steve Newberry, and I am President and CEO of Commonwealth Broadcasting Corporation which operates 23 stations located in Kentucky. Thank you for inviting me to testify today on behalf of the over 6,800 local radio members of the National Association of Broadcasters.

I can tell you that all broadcasters – urban, rural, religious, public, community, ethnic, large and small broadcasters like me – all oppose H.R. 4789.

Local radio provides to the recording industry what no other music platform can: Pure Music Promotion. Radio is free, radio is pervasive, and no one is harming record label sales by stealing music from over-the-air radio. Don't take my word for it, just look at the recent studies that confirm local radio's promotional value.

First, NAB compiled a report using data from The Nielsen Company and Pollstar that shows the extraordinary promotional value local radio provides to artists and the record labels. These slides unequivocally show that there is a direct correlation between the number of "spins"– or plays on local radio – and the sales of albums and singles. This direct and positive impact on record sales is consistent across diverse genres, and is seen regardless of the artist. As you can see on the screen, this is a slide for new country artist Taylor Swift: with each increase in free radio airplay, you can see a corresponding spike in record sales. The sales mirror the spins, and it happens over and over with each song.

This correlation is also seen with artists who may initially "break" on the Internet, like Colbie Caillat. On her slide, you can see the early but modest bump in sales that resulted from Internet play of her song "Bubbly." But once she gets exposure on local radio, her sales hit the roof.

So clearly there is a strong and predictive relationship between radio airplay and sales. But can we quantify it into dollars and cents? Yes we can.

In a paper just released, economist and PhD, Dr. James Dertouzos, completed an economic analysis that measures the promotional value of free radio airplay to record sales. According to this analysis, Dertouzos found that a significant portion of record industry sales of albums and digital tracks can be attributed to local radio airplay – at a minimum 14 percent and as high as 23 percent. That translates to between $1.5 and $2.4 billion of promotion annually. These numbers only include the promotional value to record sales – it would go even higher if it included the promotional value to concerts tickets and merchandise sales. And this is promotion that artists and the labels are getting for FREE.

Under H.R. 4789, the value of this extraordinary promotion, and all of the financial benefits that come from it, will be harmed. Ultimately, less music will be played, less exposure will be provided for artists, particularly for new artists, and music sales will suffer.

On the international front, it's simplistic to argue that, because other countries pay a performance royalty, the United States should as well. First, comparing the U.S. to totalitarian countries like Iran or North Korea is just plain silly when you consider the artistic freedom of expression we have here in the U.S. But it is also like comparing apples to oranges.

Most of these other countries created performance royalties when the broadcasting systems were either government owned and operated, or at least substantially subsidized by tax dollars. Often it was the government who was paying the royalty. The U.S. broadcasting system, however, is predominantly privately-owned and operated and does not receive tax subsidizes.

Clearly the lack of a performance right has not affected the quality or quantity of music in the United States. At the end of the day, the U.S. recording industry is the most prolific in the world – and is more successful than the United Kingdom, France, Germany, Canada, Australia, Italy, Spain and Mexico combined – all of which have a performance fee.

Additionally, levying a new performance fee on local radio will not, and can not, establish true "parity." Yes, satellite and Internet radio pay performance fees, but satellite and Internet generally rely on subscription fees and offer interactivity so often listeners aren’t encouraged to buy the music.

Most importantly, I want this subcommittee to understand what it means to local radio should H.R. 4789 become law. Many local radio stations are struggling to be profitable since most of our operating costs are fixed and our advertising revenues are flat – and they are projected to remain flat. I know the intent was to protect smaller radio broadcasters, but as an owner of local stations in rural markets, I fear it does not.

I have been in local radio for many years, and for the life of me, I fail to understand why the record labels are looking to local radio to make up its lost revenues, because weakening radio will ultimately harm the performers. Local radio is a purely promotional vehicle for artists. Radio airplay drives record sales. The system in place today has produced the best broadcasting, music and sound recording industries in the world. It is not broken and is not in need of fixing.

Thank you for inviting me today to give my perspective on H.R. 4789 and I am happy to answer any questions.

* * *


ORAL TESTIMONY OF CHARLES WARFIELD

Good afternoon, Chairman Berman, Ranking Member Coble and members of the Subcommittee. Thank you for inviting me back to the subcommittee to give you my comments on H.R. 4789, the "Performance Rights Act."

My name is Charles Warfield, and I am President and COO of ICBC Broadcast Holdings serving primarily African American communities in New York City, San Francisco, Columbia, South Carolina and Jackson, Mississippi.

It should come as no surprise to anyone that local radio stations are strongly opposed to H.R. 4789 and the imposition of any new performance royalty – what broadcasters consider a "performance tax"– on local radio for the benefit of the recording industry. And we oppose H.R. 4789 for one very simple reason: this bill is not fair.

It's said all the time - the music business is a product of a true symbiotic relationship. Unfortunately, today you have before you only two of the three groups that make up that relationship. The witness table is missing the third arm of the music industry trio – the Recording Industry Association of America, or RIAA, which represents the big four record labels.

Clearly, the crux of this issue is performer compensation. And frankly, I don't blame the artists. For over 2 years I worked for a record label, and I've seen from the inside how this industry works. But I can tell you, the artists have focused their aim on the wrong target. We should be addressing the root cause of the artists' compensation concerns: the record labels.

First, is it "fair" that the record labels will take a full 50 percent of any new performance royalty under H.R. 4789? Unfortunately, RIAA is not here to explain why it needs half of a new performance fee that is designed for "artist compensation."

Second, H.R. 4789 is unfair in that it targets local radio stations when the real culprit for the lack of artist compensation is the result of inequitable, one-sided contracts that artists find themselves entangled in for years after they've signed with a label. I've heard these awful stories about artists who are "forced" to tour in their later years. But the reason these older artists are slogging from city to city instead of spending time with their families is not local radio, it's their record label.

An example is rock pioneer Bo Diddley who recently passed away at the age of 79. Despite ill health, Diddley remained a live performing artist almost until the end of his life. That's because, according to the Associated Press, he and his contemporaries were often paid a flat fee to record an album with all rights going to the recording company. Records were sold, but Diddley received no royalties. The AP quoted him saying, "I am owed. I've never got paid. A dude with a pencil is worse than a cat with a machine gun."

Even today artists continue to complain that they lack true bargaining power when they sign with a record label. Don Henley, front man for The Eagles, called the recording industry a "dirty business." According to Henley, most artists don't see a penny of profit until their second or third album.

One of the most reported examples is the artist Prince, who scribbled the word "slave" on his cheek to describe his relationship with his label, Warner Brothers. Ultimately, Prince was so desperate to get out of his recording contract that he abandoned his name to his label.

And you have multi-platinum artists like TLC and Toni Braxton who were forced to declare bankruptcy because their recording contracts didn't pay them enough to survive.

And these are only the most publicized stories. There are untold others by smaller, lesser known artists that never get reported. There is undoubtedly a problem with artist compensation, but it is not the fault of local radio.

Third, H.R. 4789 equates artists being paid "fairly" as being paid the same as composers. Yes, composers and their publishers – who are typically a division of the big four record labels – receive a royalty from local radio airplay. This makes sense because unlike performers, the composers do not have the ability to capitalize on their "celebrity" as do performers. Rather, an artist is compensated with radio airplay and free exposure to 235 million listeners a week. It is this broad and far-reaching promotion that propels music sales, touring revenues, merchandise sales and a variety of other gains.

Finally, in addition to targeting the wrong industry to solve the artist compensation problem, H.R. 4789 is unfair in that it claims to achieve "parity" between music platforms, when no true parity can exist. Being a local radio broadcaster carries with it large regulatory burdens which the other platforms do not have. True "parity" would mean Internet and satellite radio abide by decency regulations, public interest obligations, payola rules and emergency alert requirements. But the fact of the matter is that local radio is different. We are local. We are free. We are purely promotional. And true parity can not exist.

The current symbiotic relationship that has existed for years between the radio and recording industries is the very essence of fairness. But H.R. 4789 takes this balanced system and places the heavy thumb of government on one side of the scale, tipping it dramatically in favor of the performers and record labels.

My belief is that H.R. 4789 will ultimately have a negative impact on everyone at this witness table – and even those, like RIAA, who are not at the table. Thank you for inviting me here today and I am happy to answer any questions.

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About NAB
The National Association of Broadcasters is a trade association that advocates on behalf of more than 8,300 free, local radio and television stations and also broadcast networks before Congress, the Federal Communications Commission and the Courts. Information about NAB can be found at www.nab.org.

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