This is the accessible text file for GAO report number GAO-10-707SP 
entitled 'Comments From The Copyright Office On GAO-10-428R (GAO-10-
707SP), an E-supplement to GAO-10-428R' which was released on June 7, 
2010. 

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GAO-10-707SP: 

Comments From The Copyright Office On GAO-10-428R (GAO-10-707SP), an E-
supplement to GAO-10-428R: 

June 7, 2010: 

The Honorable John Conyers, Jr. 
Chairman:
The Honorable Lamar Smith: 
Ranking Member:
Committee on the Judiciary: 
House of Representatives: 

The Honorable Jason Chaffetz: 
The Honorable Charles Gonzalez:
The Honorable Sheila Jackson-Lee: 
The Honorable Dan Lungren: 
House of Representatives: 

Subject: Comments from the Copyright Office on GA0-10-428R—Preliminary 
Observations on the Potential Effects of the Proposed Performance 
Rights Act on the Recording and Broadcast Radio Industries: 

On April 16, 2010, we received a letter from the Copyright Office 
providing comments on Preliminary Observations on the Potential 
Effects of the Proposed Performance Rights Act on the Recording and 
Broadcast Radio Industries (GAO-10-428R). As you know, this report 
provided our preliminary observations on the potential effects of the 
proposed Performance Rights Act (the proposed Act). Because we did not 
receive the Copyright Office's letter before we issued our report
to you, we were unable to include the letter in it. However, because 
the Copyright Office is responsible for administering U.S. copyright 
laws, which the proposed Act seeks to modify, and its letter provides 
a number of relevant insights on the proposed Act, we are providing 
the letter as a supplement to our report. 

In its letter, the Copyright Office voiced support for the proposed 
Act and suggested that our report elaborate more fully on several 
issues. In particular, the Copyright Office noted that the broadcast 
radio industry faces both cyclical and permanent challenges, and that 
the proposed Act includes provisions to take into account the cyclical 
challenges. The Copyright Office suggested that we elaborate on the 
permanent nature of the challenges facing the recording industry, and 
in particular, the challenges arising from the illegal downloading of 
music. The Copyright Office also noted that the illegal downloading of 
music has significantly diminished the promotional value of radio 
airplay. Finally, the Copyright Office noted that the proposed Act 
will establish a new revenue stream that would allow record labels to 
prevent job losses and even the cessation of operations. We will keep 
the Copyright Office's comments in mind to inform our work as we 
pursue these issues in the future. 

As we note in GAO-10-428R, that report reflects our preliminary 
observations on the potential effects of the proposed Act. It was 
prepared by steps such as reviewing relevant reports and analyses 
about the broadcast radio and recording industries and interviewing 
stakeholders from the broadcast radio and recording industries, as 
well as officials from the Copyright Office and the Federal 
Communications Commission, and the Chief Judge of the Copyright 
Royalty Board. As we agreed with committee staff, we will provide a 
final report that will include more extensive quantitative analyses of 
the relevant issues. 

Signed by: 

Mark L. Goldstein: 
Director, Physical Infrastructure Issues: 

Attachment: 

[End of section] 

Attachment: 

The Register of Copyrights of the United States of America: 
United States Copyright Office: 
101 Independence Avenue SE: 
Washington, DC 28559-6000: 
(202) 707-8350: 

April 16, 2010: 

Michael E. Clements, Ph.D. 
Assistant Director, Physical Infrastructure Team: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, D.C. 20548: 

Dear Dr. Clements: 

The United States Copyright Office (the "Office") appreciates the 
opportunity to review the Government Accountability Office ("GAO") 
February 26, 2010 draft report Preliminary Observations on the 
Potential Effects of the Proposed Performance Rights Act on the 
Recording and Broadcast Industries ("Draft Report"). 

As you may know, the Office is responsible for the administration of 
U.S. copyright law. In fulfilling this role, the Office has 
established a long history of recommending extension of fun 
performance rights to sound recordings, including recently voicing 
support for the Performance Rights Act ("PRA") in Congressional 
hearings. Congress first created a limited performance right in sound 
recordings in 1995 to cover public performances made by digital 
satellite radio and cable systems and Congress expanded the right 
again in 1998 to cover all performances of sound readings made via a 
digital transmission, The PRA, as expressed in H.R. 848 and S.379, 
goes a step further and would expand the performance right by 
requiring terrestrial broadcasters to compensate performers and sound 
recording copyright owners for broadcast performances of sound 
recordings just as webcasters, satellite radio services and cable 
services do. In the course of crafting the PRA, Congress asked the GAO 
to provide information on the economic factors related to enacting 
performance royalty legislation. After having reviewed the Draft 
Report, the Office respectfully suggests that the Report should 
elaborate on a number of issues. 

The Draft Report identifies two chief factors contributing to the 
radio broadcast industry's current economic challenges, namely today's 
economic climate and consumer fragmentation, both of which have led to 
declines in advertising revenue. However, the Office suggests that the 
Report should elaborate on whether the challenges currently faced by 
the radio broadcast industry are of a cyclical nature or whether the 
cited challenges are permanent. The technological advances, such as 
the development of Internet and mobile listening alternatives, which 
have caused consumer fragmentation for the broadcast industry, are 
likely permanent. On the other hand, the current economic climate and 
the resulting downturn in advertising revenue is more aptly described 
as cyclical. The Office suggests that the Report should acknowledge 
that the ad market for radio is cyclical and that current data 
suggests that the latest cycle in which ad revenue for radio 
broadcasters was in a downturn has indeed come to an end. The Office 
observes that not only do the recent forecasts predict an increase in 
radio ad revenue in 2010, they also call for several years of 
compounding growth.[Footnote 1] Additionally, recent analysis reveals 
that the ad market is improving so rapidly that market analysts are 
having to race to issue updates on the steadily improving market. 
[Footnote 2] Furthermore, the cyclical nature of the radio ad market 
and the perceived health of the overall industry is reinforced by the 
fact, noted in the Draft Report, that there is no shortage of parties 
seeking to acquire licenses to operate broadcast radio stations. 

While evidence indicates that broadcast radio is at the beginning of a 
recovery, neither the Draft Report nor any identifiable current 
economic forecasts indicate a similar recovery for the recording 
industry. The Draft Report identifies several factors that have 
contributed to the recording industry's economic challenges, including 
the ease of illegal downloading and a shift to on-demand listening in 
which consumers pay to access music rather than purchasing a copy of 
the music. Both of these factors appear to be permanent in nature. 

The Office suggests that it would be worthwhile for the Report to 
elaborate on the permanent nature of the challenges to the recording 
industry and the extent these changes affect the economic health of 
the recording industry. For instance, the Office suggests that the 
Report should make note of the evidence that illegal downloading is a 
growing method of music acquisition and that this sustained growth is 
an indication that illegal downloading is a permanent challenge to the 
recording industry for the foreseeable future.[Footnote 3] The Office 
also suggests that the Report should elaborate on the fact that the 
same technological advances that cause consumer fragmentation for the 
broadcast industry will continue to cause a shift toward business 
models through which consumers access music rather than purchase it 
and that the technological advances driving these challenges to both 
industries appear to be of a permanent nature.[Footnote 4] Moreover, 
it would be of particular interest for the Report to consider whether 
the respective industries can adjust to these changes and make a 
reasonable profit. 

The Draft Report correctly observes that the recording industry has 
asserted that the promotional value of broadcast radio has decreased 
due to the emergence of competing technologies. In addition to noting 
these assertions, the Office suggests that the Report should take note 
of a recent study noting that 52% of younger listeners between the 
ages of 12 and 34 learn about new music from the internet while 32% 
said radio was their primary source for discovering new music. The 
same Arbitron and Edison "Infinite Dial" surveys show that 39% of the 
respondents still turn to radio as the primary source for discovering 
new music — a significant reduction from the 2002 figures when up to 
63% said radio was their primary source for this information.[Footnote 
5] 

While the Office agrees that promotional value is decreased by the 
emergence of competing technologies, it suggests that the Report 
should not focus on a single competing technology, Internet based 
music "access" services, as driving the decrease. The focus on music 
"access" services appears to discount attention to the much more 
significant cause of the decreased value of radio's promotion of 
record sales, namely illegal downloading. The Office suggests that the 
Report should more prominently acknowledge illegal downloading as a 
growing method of music acquisition.[Footnote 6] In addition, it 
should evaluate more fully the negative consequences of this illegal 
practice on record sates. Furthermore, the Office suggests that the 
Report should acknowledge that to the extent that radio has a 
promotional effect that prompts listeners' interest in a particular 
song, any positive effect on sales is severely diminished in a world 
of rampant illegal downloading. In other words, the Report should 
address whether whatever promotional value radio broadcasting may have 
offered to the music industry in the past has diminished or even 
ceased to exist either because radio now plays a lesser role in 
promoting sales or because radio no longer promotes sales. 

Aside from analyzing the economic health of the broadcasting industry 
and the recording industry, the Draft Report also considers the 
economic impact that passage of the PRA would have on the industries. 
The Draft Report relays the broadcast radio industry's concerns that 
the PRA may cause job losses, format shifts and even discontinued 
operations. However, as noted above, the Draft Report fails to 
acknowledge the cyclical nature of the ad market and recent evidence 
of growth in broadcast radio ad revenue. Additionally, the Draft 
Report does not acknowledge that the PRA includes provisions that take 
into account the recent difficult economic climate for the radio 
broadcast industry. The Office therefore suggests that the Report 
highlight the fact that the PRA would not require broadcasters to pay 
royalties for their public performance of sound recordings for 
anywhere from one to three years after the date upon which the PRA is 
enacted, depending upon the size and nature of the broadcast station. 
These delayed obligations were inserted into the PRA as a way to avoid 
imposing an undue economic burden on the industry during an difficult 
economic time. Additionally, the Report should more thoroughly examine 
the extent to which the provisions setting low flat fee annual 
royalties for noncommercial and certain commercial broadcast radio 
stations alleviates or even eliminates any negative impact on the 
broadcast radio industry. 

The Office suggests that the Report should elaborate on some of the 
more concrete positive effects that will likely come about with 
passage of the PRA. For instance, the establishment of a new revenue 
stream for performers and the recording industry would offer an avenue 
through which record labels would be able to prevent job losses and 
even the cessation of operations. While the Office has no figures on 
job losses or the cessation of business operations among record 
labels, news reports continue to provide detailed accounts of the 
perilous financial state of EMI, one of the "big four" major labels 
which is currently facing bankruptcy.[Footnote 7] The Office 
encourages more detailed attention to the positive impact that passage 
of the PRA would have on the ability of both large, small and minority 
owned record labels, as well as individual performers, to finance 
continued operation and investment in the future of their businesses 
amidst today's shifting market. The Draft Report acknowledges 
statements regarding passage of the PRA leading to more investment, 
including labels signing and developing the careers of more 
performers. The Office encourages elaboration on these assertions in 
order to determine whether and to what extent the PRA would result in 
such investment. 

The Office also suggests that the Report should explore whether the 
recording industry will be able to adapt to market shifts toward music 
"access" services involving public performance, and away from a market 
in which the exclusive rights of reproduction and distribution are 
exercised in the same manner as other copyright owners, without a more 
complete public performance right. The Office notes that songwriters 
and music publishers, who unlike the copyright owners of the sound 
recordings, possess the exclusive rights of reproduction and 
distribution as well as foil public performance rights, seem to have 
been able to successfully adapt as markets shifted toward music 
"access" services without suffering the exponential diminished 
revenues experienced by the recording industry.[Footnote 8] The Office 
observes that the relatively new and less well established satellite 
radio and webcasting industries fulfill their obligation to make 
royalty payments for public performance of sound recordings as they 
continue to develop their businesses. In light of this and the 
predicted economic upturn for the broadcast industry, the Report 
should explore whether the broadcast radio industry will be able to 
adapt to passage of the PRA, specifically elaborating on the broadcast 
radio industry's ability to pay a sound recording performance royalty. 

Finally, the Office observes that the Draft Report indicates that the 
final report will include estimates of broadcaster royalty payments 
that will be due after passage of the PRA. These estimates are to be 
based on prior decisions of the Copyright Royalty Judges setting 
royalties for licenses similar to the one that would be established by 
the PRA. The Office notes that any such estimates should take into 
account, and expressly acknowledge, that neither broadcast radio 
industry stakeholders or sound recording industry stakeholders have 
yet had an opportunity to present evidence or arguments regarding the 
license for public performances of sound recordings via radio 
broadcast that would be established under the PRA. 

Again, thank you for the opportunity to comment on the Draft Report. 
The Office remains interested in providing any necessary assistance 
GAO may desire as it completes its report. 

Sincerely, 

Signed by: 

Marybeth Peters: 
Register of Copyrights: 
 
[End of attachment] 

Footnotes: 

[1] [hyperlink, 
http://adage.com/mediaworks/article?article_id=142940]; See also, 
"Scranton radio revenue skyrockets by 42%," [hyperlink, 
http://www.insideradio.com/Article.aso?id=17407978espid=32060]. 
 
[2] [hyperlink, http://www.rbr.com/media-news/22798.html]. 
 
[3] Research by Harris Interactive shows an increase in illegal 
Internet downloads in 2009 [hyperlink, http://www.bpi.co.uk/press-
area/news-amp3b-press-release/article/growing-threat-from-illegal-web-
downloads.aspx]. 

[4] IFPI Digital Music Report 2010. 

[5] [hyperlink, 
http://www.radioink.com/article.asp?id=1763483&spid=24698]. 

[6] Research by Harris Interactive shows an increase in illegal 
Internet downloads in 2009 [hyperlink, http://www.bpi.comk/press-
area/news-amp3b-press-release/article/growing-threat-from-illegal-web-
downloads.aspx]. 

[7] [hyperlink, 
http://businessiimesonline.co.uk/tol/business/industry_sectors/banking_a
nd_finance/article7091054.ece]. 

[8] [hyperlink, 
http://nashville.bizjournals.com/nashville/stories/2008/02/11/dailyl5.ht
ml]. See also, "Music publishing's steady cash lures investors" 
[hyperlink, http://www.reuters.com/article/idUSTRE53M6TK20090424].