When the Music Stops Being Free

With declining sales across the board, the music industry is looking for opportunities to create secondary revenue streams and make up for the decline in CD sales caused by Internet music distribution. On its radar: nightclubs.

An article in the New York Times last week highlighted a recent copyright settlement in Australia that increased the royalty charge paid by Aussie nightclub owners to record companies and recording artists from 7 cents per guest per night to 50 cents per guest per night; a second hike, anticipated to be enacted within the next few years, would increase that rate to $1.05 (AUD) per guest per night. “Without music, there wouldn’t be a nightclub,” Stephen Peach, chief executive of Phonographic Performance Co. of Australia, told Times reporter Eric Pfanner while defending the rate increase.

Nightclub owners and operators already are scrambling to find ways around the new settlement and the substantially higher expenses they will now be taking on. A representative from the Australian Hotels Association told Pfanner that one possibility they were investigating involved creating playlists solely consisting of U.S. songs involving all American artists, which would then be ruled by America’s vastly different copyright laws (we’ll get to them in a second).  Having secured the higher royalty rates for Aussie nightclubs, the music industry has turned its attention to other Australian businesses that use music within their operations, including restaurants, fitness centers and television broadcasters.

It’s not just the land down under where the music industry has tuned its ear to the hospitality sector. Recent agreements in Italy had more than 200,000 restaurants and bars begrudgingly agree through a trade organization to accept a standardized license to play recorded music within their venues. Under this new agreement, Italian operators who choose to volunteer for the revised license receive a discount; those who do not and are discovered pay a higher rate and penalty. Any owners thinking the new agreement would follow the Italian’s lax nature in enforcing these laws were in for a surprise, as investigators from the Federation against Music Piracy (FPM), working with the Italian Fiscal Police, almost immediately began carrying out raids across Italy, charging bar and nightclub owners and seizing computers and digital music files.

The United States remains somewhat isolated from this drama so far because it operates under a vastly different royalty and copyright system whereby radio stations pay royalty rights to the songwriter only and all recorded music is strongly protected for 95 years. This allows American recording artists to capture record sale revenue for a much longer time period than artists from elsewhere; the European Union, for example, recognizes copyright protection for only 50 years. Currently, only American satellite and Internet radio services are required to pay artist and record company royalties because they charge subscription fees to the end-user, but the music industry has very quietly put several balls in motion stateside, including new proposed legislation that would require radio stations to pay the same royalties to artists and record companies as their pay-to-listen brethren. Obviously it is legislation that will be strongly lobbied against by the radio industry, which undoubtedly will argue the attention and publicity air-play gives the artists is what sells records in the first place — the very reason anti-payola laws are in place to prevent record companies from paying radio stations to give their tracks preferential airtime.

It is certainly something American nightclub and bar owners need to be aware of and keep an eye on, especially because of the high costs of the battleground. Watching the music industry’s change of tactics on the international stage clearly indicates these companies are no longer content to downsize their operation as they attempt to find the middle ground between music accessibility and Internet profitability. Instead, they are looking in wider circles to identify ways to recoup lost revenues. If the record business is able to get copyright laws changed for radio stations, can nightclubs profiting from packed dance floors be that far behind?

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