Music Industry Sees Nightclubs as a New Source of Revenue

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Posted by on June 02, 2009 at 21:54:24:

Music Industry Sees Nightclubs as a New Source of Revenue


PARIS - In Australia, every nightclub-goer is now a lucrative V.I.P. - to the music industry, at least.

To pump music out to their dance floors, Australian clubs used to have to pay record companies and artists a nominal 7 Australian cents in royalties per guest, per night. Under a recent copyright settlement, that rate has risen to 50 cents per customer, and it is set to jump to 1.05 dollars, or 84 U.S. cents, in a few years.

"We looked at this and thought, 7 cents just doesn't seem right, when people are paying 10 to 15 dollars to get in and at least 5 dollars for a drink," said Stephen Peach, chief executive of Phonographic Performance Co. of Australia, which collects the fees. "Without music, there wouldn’t be a nightclub."

As the music industry searches for a way to make up for plunging sales of compact discs, it is pushing to generate new revenue, not just from Australian clubs but also from Italian restaurants, Chinese karaoke bars and U.S. radio stations, as well as fitness centers, retail stores and myriad other businesses that play music, around the world.

"This has always been seen in the past as a secondary source of revenue," said John Kennedy, chief executive of the International Federation of the Phonographic Industry, a London-based trade group for the major record labels. "But with the declines in revenue from physical sales in recent years, it has become more and more important."

Royalty payments to the record industry from so-called performance rights rose 16 percent last year, according to the federation, even as overall music sales fell by 8 percent. The federation is coordinating a global campaign to double the amount raised from performance rights over the next decade.

To reach that goal, it is urging other countries to follow the Australian example and increase the rates paid to music companies and artists. Elsewhere, it is pushing for stricter enforcement of existing agreements. And in the handful of countries where such royalties do not exist - most notably the United States - it is lobbying aggressively to try to establish them.

Last month in Washington, the House Judiciary Committee approved a bill, sponsored by Representative John Conyers Jr., a Democrat from Michigan, that would require U.S. radio stations to start paying royalties to record companies and artists when they play their music over the airwaves.

U.S. radio stations already make royalty payments, but only to songwriters, who are protected by a different kind of copyright. In much of the rest of the world, songwriters, record companies and musicians all get paid for air play, as well as for the use of their music in public places.

"The thing that draws people to radio is the music, and performers don’t get any of that" revenue, said Michael Huppe, general counsel at SoundExchange, an organization that collects royalties for record companies and artists when music is performed on U.S. Internet and satellite radio services, which are required to pay such fees.

Music executives say they are hopeful that Congress will pass the performance rights bill into law by the end of the year, but the radio industry is also lobbying hard to try to prevent that from happening.

"It's going to be a nasty, ongoing fight," said Dennis Wharton, a spokesman for the National Association of Broadcasters. "The record labels are just trying to make up for their struggling business model. It's not radio's fault that they’ve had a couple of down years."

Mr. Wharton said it was unfair to compare the United States to other countries, because copyright conditions are different. In the United States, for instance, sound recordings are protected for 95 years, compared with 50 years in Europe, so music labels and artists earn royalties from record sales for a much longer time in United States.

Record companies and musicians ought to be grateful for free air play, because it generates sales, Mr. Wharton added. Indeed, because of the marketing power of radio, music companies in the past sometimes paid for radio time, under the outlawed practice of payola.

Elsewhere, some businesses are going along with the music industry's demands. In Italy, for instance, a trade organization for the more than 200,000 restaurants and bars in the country agreed in March to accept a standardized license allowing them to play recorded music on the premises.

Previously, said Gianluigi Chiodaroli, president of SCF, a collection agency, few of these establishments were complying with Italian copyright law, which authorizes such royalties for record companies and performers. Under the new system, bars and restaurants are given discounts if they step forward voluntarily; if they do not, and inspectors from the agency discover the infraction, a higher rate will be levied, he said.

"In a country like Italy, which has a significant problem with acceptance of, shall we say, the legality principle, this was a very important agreement," Mr. Chiodaroli said. "Looking at the bank accounts, I see day by day an increasing acceptance of it."

Meanwhile, in Australia, having secured a higher royalty rate for nightclubs, the music industry is moving on to other music users, including fitness centers, restaurants and television broadcasters. The country's Copyright Tribunal is expected to decide in the coming months on some of these cases.

"The record companies are using us as a bit of a guinea pig," said Bill Healey, chief executive of the Australian Hotels Association, which represents nightclubs and is fighting any additional rate increases. "They're clutching at straws."

Mr. Peach said the higher nightclub fees, set by an arbitration panel, could generate millions of dollars once they were fully in place. An accompanying increase in royalties that nightclubs have to pay music publishers and songwriters, which are often owned by the same parent companies as the record labels, is expected to raise additional money.

Faced with a substantial increase in their costs once the rate increases are fully in place, Mr. Healey said, club owners have started looking for ways to avoid paying royalties.

One possibility, he said, was to put together play lists composed entirely of U.S. songs, with no involvement from non-American musicians. Because the United States has no performance copyright for recordings and artists, he said, this might exempt the clubs from paying any fees.

Mr. Peach, the chief of the Australian royalty collection organization, said the higher royalties simply reflected the changing ways in which people listen to music in the digital era.

With music available in many more ways, and in many more places, fewer people feel the need to buy CDs. Yet music is increasingly valuable to businesses, he said - encouraging customers, for example, to linger in a store or restaurant, where they buy more items or order extra drinks.

But he acknowledge that persuading business owners to go along with higher rates would be challenging.

"It's quite a battle to say, 'Forget what we used to do. This is what we're going to do now,'" Mr. Peach said.

(NY Times)

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