Monthly Archives: March 2009

Taxation of digital downloads

By guest author, Cory Greenwell, Esquire*

“The customer is always right” has long been a mantra of the business world. Over the last ten years, consumers within the entertainment and software industries have begun to demand instant access to products off all types. Products such as the Apple iPod®, Sony PSP® and the Amazon Kindle® among countless similar products have created an ever-increasing demand for instant access to media content. As a result, the increase of digital distribution of media content has grown, with iTunes alone accounting for more than $5 billion dollars in the US and the industry continues to grow. As a direct result of the increase in volume of the digital distribution of media content, the distribution of physical media, such as compact discs that are customarily subject to sales tax fell sharply in 2007. The paradigm shift has resulted in a major sector of the entertainment industry acquiring virtually tax-freConstitution2e status or consumers.

In the 1992 landmark decision in Quill v. North Dakota, 504 U.S. 298 (1992), the court found that states cannot require out-of-state retailers to collect taxes from customers who live in states where the retailer does not have a related physical presence or “substantial nexus”. The basis for the decision was to give a “safe harbor” for businesses wishing to avoid the burdens of complying with the numerous state tax laws by transacting business online.

Seventeen states, including Tennessee, have updated their tax code and now impose a tax on digital downloads. The legality regarding the taxation of digital media appears to have been resolved in favor of taxation. After Quill, the responsibility rests on the individual consumer to report the transaction on their annual tax return and pay the appropriate amount of sales tax. Some reports indicate that nationwide state and local governments will have lost more than $500,000,000 in uncollected taxes by 2011.

The court in Quill recognized the importance of the emerging e-commerce sector and declared that alternative means to require retailers to collect sales tax, namely that 1) Congress may require retailers to collect sales tax or 2) States may require retailers to collect taxes provided that Congress has provided a mechanism by which to reduce the burden of retailers to comply with the tax laws of the several states.

Since the Quill decision, twenty-two states including Tennessee have joined together under the “Streamlined Sales Tax Agreement” to create a uniform tax code to reduce the burden of complying with the law of the several states. Among other things, the SSTA have created uniform rules regarding digital media. The National Conference of State Legislatures has called for Congress in its next session to review the Sales Tax Fairness and Simplification Act (H.R. 3396) which gives those states that have complied with the Streamlined Sales Tax Agreement the authority to require out-of-state retailers to collect sales tax for online purchases.

Rather than waiting on Congressional action, New York has attempted to circumvent the requirement of a physical location within the state by interpreting their law to include any “affiliate”. In the case of Amazon, affiliates include anyone who advertises on the website. This interpretation, if adopted by the several states, would negate the benefit of the safe harbor by exposing the online retailer to liability throughout the nation.

In conclusion, as the law presently stands, states may tax digital media, however it cannot require out of state retailers to collect taxes. If Congress adopts the legislation proposed by the members of the Streamlined Sales Tax Agreement as anticipated, the Quill case no longer prevents states from requiring retailers to collect sales tax.

Cory Greenwell *Jonathan “Cory” Greenwell is an intellectual property lawyer who practices in Louisville, Kentucky at the firm of Greenebaum Doll & McDonald.  Cory is the co-founder of the website Backseat SandBar and was featured on the WFPK 91.9 feature, “Off the Record.”

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Politico’s interview with Corgan following his testimony before Judiciary Committee on HR 848

Link to Politico Interview

As a follow up to my previous post on the subject, the radio widget above should play Politico’s interview with Smashing Pumpkin’s founder and frontman Billy Corgan following his testimony in front of the House Judiciary Committee in support of HR 848, the Performance Rights Act.

Corgan testified on Capitol Hill on behalf of the musicFIRST Coalition yesterday.  Corgan testified that the current sytems is “hurting the music business” because of radio stations’ failure to compensate musicians for performing their music.

My readers know my thoughts on this subject.  While I agree with Corgan’s overall sentiment, I stand by my emphasis yesterday that the legislation as it is written may be drafted in favor of the record labels more so than the performing artists. 

HR 848 should have a provision that provides for direct payment of royalties to the artists who performed on the sound recording and which specifically does NOT rely on the record labels to distribute these royalties “in accordance with the terms of the artist’s contract.”  (See my previous post).  This kind of language contained in the House version of the legislation at Section 6 only assures that the record labels would receive all the performance royalties and that performing artists would have to overcome numerous obstacles to ever see any of the additional income, inevitably leading to more disputes with the record label.   The current artists agreements with record labels simply do not contain provisions addressing payment of these types of royalties and, even if they did, the artists who have unrecouped balances on their ledger sheets would never see a dime. 

My proposal is that the current system for collection and distribution of performance royalties for musical compositions be utilized.  Specifically, why not allow BMI, SESAC and ASCAP to collect and distribute the performance royalties for sound recording copyrights on behalf of member artists, allowing these organizations to pay 50% of the income directly to the artists (the original owners of the sound recordings) and 50% to the record labels (the assignee owners of the sound recordings).  This structure is identical to the distribution of performance royalties for owners of the musical composition copyright.  It’s a systems that has functioned well since the turn of the 20th century and it is a systems that, overall, works fairly well. 

In general, members of the performance rights organizations have fewer royalty disputes with these entities over  than artists do with record labels, since these entities, for the most part, do not function as profit generators.  There is no doubt that this idea has some flaws as well, but in comparing the alternative, it seems to me that this would benefit the artists and musicians much more than giving the money to the record labels.

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Judiciary Committee holds hearings on HR 848, the “Performance Rights Act”

The House Judiciary Committee will hold hearings on H.R. 848 (this year’s version of HR 4789) tomorrow morning at 10:00 a.m.  Although the Committee’s website does not identify any witnesses at this time, I am informed by musicFIRST that Smashing Pumpkins’ founder Billy Corgan and Mitch Bainwol, chairman and CEO of the RIAA will be speaking on their behalf at the hearing.

Billy Corgan H.R. 848 was introduced to the 111th Congress by Rep. John Conyers on February 4, 2009 then referred to committee on the same day.  It was co-sponsored by Tennessee representative, Marsha Blackburn.  If passed, HR 848 would amend The Copyright Act (specifically Title 17) to provide “parity in radio performance rights” under the Copyright Act.  In other words, the Bill would grant a performance rights in sound recordings performed over terrestrial broadcasts (i.e., traditional radio broadcasts, not satellite).   S. 379 is the Senate’s complimentary bill, introduced by Senator Patrick Leahy.

The act has certain provisions to accommodate concerns by the broadcast industry, such as the provision which establishes a flat annual fee in lieu of payment of royalties for individual terrestrial broadcast stations with gross revenues of less than $1.25 million and for non-commercial, public broadcast stations; the provision which grants an exemption from royalty payments for broadcasts of religious services and for incidental uses of musical sound recordings; and the provision which grants terrestrial broadcast stations that make limited feature uses of sound recordings the option to obtain per program licenses. 

The Act specifically states that it will not adversely affect the public performance rights or royalties payable to songwriters or copyright owners of musical works.   In particular, the Act prohibits taking into account the rates established by the Copyright Royalty Judges in any proceeding to reduce or adversely affect the license fees payable for public performances by terrestrial broadcast stations. Requires that such license fees for the public performance of musical works be independent of license fees paid for the public performance of sound recordings.

The full text of the bill can be found at govtrack.us.

One provision I found interesting was Section 6, (1)(A), regarding payment of certain royalties, that states, in full:

A featured recording artist who performs on a sound recording that has been licensed for public performance by means of a digital audio transmission shall be entitled to receive payments from the copyright owner of the sound recording in accordance with the terms of the artist’s contract.

Emphasis added.  This last clause intrigues me.  What I find interesting about it is that under the current structure, the record labels own most, if not all, of the commercial sound recording masters, i.e., they are the “copyright owner of the sound recording.”  This clause entitles the “featured recording artist,” e.g., Madonna, Michael Jackson, etc., to receive payments from the owner “in accordance with the terms of the artist’s contract.” 

In most artists’ contracts, payments are based on a percentage of the gross revenues from sales of physical units – current artist contracts do not have provision for payment of performance royalties on the sound recording.  It would seem that under the Act as written, there is silence as to what happens in this instance where these specific payments of performance royalties are not addressed in the artist’s contract.  One possible remedy would be for the legislators to draft language that would apply, such as what they have done with regard to the “non-featured artists in subsection (B) of the same Section 6.   This Section 6 is not found in the Senate’s version of the legislation.

All of this makes me curious about what will happen to performance royalties that are paid under this Act to the owners of the sound recording copyrights, i.e. the record labels if there is no language in the artists’ recording agreements to specify as to what percentage the artist is entitled?  One thing is certain:  an artist who is not recouped under his artist recording agreement will never see any of these performance royalties under such time as his balance is recouped.

One proposal you might suggest to your representatives is that they consider a payment structure similar to that of the current performance rights organizations that collect and pay performance royalties for musical compositions, wherein one half of the royalties go directly to the songwriter and the other half directly to the publisher.  If this were the case under the new Act, half of the royalty payments would filter directly to the artist and the other half would go to the record labels.  If there truly is a concern about the recording artists not getting paid for his or her performances, this is the only method that would assure this happens.

If you are a recording artist whose performances are being playing on local FM and AM radios, you should investigate the impact this legislation will have on you.  Call you Senators and Representatives and ask them to keep you updated.

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Randy Owens receives “Artist Humanitarian Award”

Country Radio Broadcasters, Inc. today announced that country legend Randy Owens was the recipient of this year’s Artist Humanitarian Award

Together with his cousins Jeff Cook and Teddy Gentry, Owens was the front man for the one of the best selling country acts of all time, Alabama.  The band, which peaked in the 80’s, racked up over thirty No. 1’s on Billboard’s Country Singles Charts, with memorable hits such as “Love in the First Degree,” “Feels So Right,” “Close Enough to Perfect” and “Take Me Down.”  They also sang backup vocals on Lionel Richie’s 1987 single “Deep River Woman,” which peaked at No. 10.  The group has won two Grammy Awards for "Best Country Performance By A Duo Or Group With Vocal" in 1982 for Mountain Music and in 1983 for The Closer You Get.

Owen co-founded Country Cares for St. Jude Kids® in 1989 after meetingRandy Owen St. Jude Children’s Research Hospital founder Danny Thomas the year before.  To date, Country Cares has raised more than $345 million to fund research in the fight against childhood cancer.  Earlier this year, more than 800 members of the country music industry gathered at the annual seminar in Memphis to celebrate 20 years of support for the children of St. Jude.  In 2008, Broken Bow Records released the Grammy Award-winner’s debut solo album, One On One, and HarperOne published his memoir, titled "Born Country." 

Country Radio Broadcasters, Inc. leads the music industry in recognizing the humanitarian achievements of country artists.  In 1990, CRB instituted the Artist Humanitarian Award, which was first presented during the CRS-21.  Past honorees include Brad Paisley, Brooks & Dunn, Garth Brooks, Charlie Daniels and Kenny Rogers.  For a complete list of past winners, click here.

Last year’s recipient, Clay Walker, presented Owen with the award Wednesday morning during the award ceremonies in the Convention Center. 

The Radio Humanitarian Awards for 2009 went to 97.3 WGH, Norfolk-Virginia (Large Market), 107.7 WIVK, Knoxville, Tennessee (Medium Market) and 93.3 WFLS, Fredericksburg, Virginia (Small Market).  The CRB Radio Humanitarian Awards are presented to full-time country radio stations for their efforts to improve the quality of life for communities they serve. 

This year’s Tom Rivers Humanitarian Award was given to CBS Minneapolis VP Market Manager Mick Anselmo, Sr.  During his tenure at KEEY-FM, Anselmo organized and created a radiothon which has helped raise more than $12 million for St. Jude Children’s Research Hospital.  His partnership with Sharing and Caring Hands of Minneapolis during a run of Garth Brooks concerts in 1998 set a Minneapolis-St. Paul food drive record.  The former Clear Channel radio executive also created Project Northern Lights, an effort that collected calling cards for troops stationed in Baghdad.

The intent of the Tom Rivers Humanitarian Award, given at the discretion of the Country Radio Broadcasters Board of Directors, is to recognize an individual in the Country Radio industry who has displayed a magnanimous spirit of caring and generosity in service to their community.  The award is given when the board feels an individual, through outstanding service, warrants the recognition. 

Congratulations to Randy and the other winners.

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Oscar-nominated short film “I Met the Walrus”

As a Beatles fan, I thought I’d share this interesting little film, which animates an interview which Jerry Levitan conducted with John Lennon in 1969 when Levitan was only 14.

 

Just to give a little historical perspective, 1969 was the year that Abby Road was released, the Beatles performed together for the last time, and was the year that Lennon and Yono conducted their famous “Bed-In” in Montreal Quebec.  A lot happened in 1969:  it was a time wApollo11patchhen the space race was in full force, with Russia and the U.S. leap-frogging each other into the great frontier, culminating in the U.S. landing the first man on the moon, Apollo 11, with Neil Armstrong’s famous “one small step for mankind”  proclamation.  The Cold War with Russia was at a boiling point.  It was a tumultuous time:  Nixon was president, the Vietnam war was in full force, the draft lottery was held for the first time since WWII, and Nixon proclaim the “Nixon Doctrine” that he expected Asian allies to be responsible for their own military defense.  Antiwar demonstrations were at their peak, so much so that Nixon asks for the “silent majority” to join in solidarity in support of the troops.  Some events that changed our lives forever that year include: a little Arkansas corporation called Wal-mart is formed, the first GAP store opens in San Francisco, the AIDS virus first spread to the US, the first automatic teller machine was installed in the US in Rockville Centre, New York and the first ARPANET link, the ancestor of the Internet, was established.  CultuArpanetrally, Monty Python’s Flying Circus debuts in the UK, Sesame Street premieres,  and the New York Jets defeated the Baltimore Colts in Superbowl III.  Notable births that year included Brett Favre, Catherine Zeta-Jones, Matthew McConaughey, and Jennifer Lopez.  Notable deaths include Dwight D. Eisenhower, King Saud (Saudi Arabia), Judy Garland, Boris Karloff and Rocky Marciano.

Levitan was producer for I Met the Walrus.  In 2007, he hired Josh Raskin to direct and animate the short film on behalf of his production company.  It was illustrated by James Braithwaite, who Levitan described as “brilliant.”  It has won numerous awards, including the Best Animated Short awards from the American Film Institute, the Middle East International Film Festival, the Manhattan Short Film Festival, the Cleveland Film Festival, RiverRun International Film Festival and the Coup de Coeur award from the Regard-Saguenay International Sort Film Festival.  It was nominated for an Academy Award (Oscar) in 2008 by the Academy of Motion Picture Arts & Sciences.

Jerry Levitan informs me that he written a book by the same, I Met the Walrus, which comes out in May under the Harper Collins imprint.  You can find out more about Mr. Levitan at www.sir-jerry.com

Thanks to my good friend Gray for turning me on to this film and thanks to Jerry Levitan for the kind words about my humble blog!

See these related links:

Film company website.

Read more about the film here.

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Music Row gears up for CRS

When big events like the Country Radio Seminar occur, Music Row begins to buzz with various activities and talk about the celebrities.  The Country Radio Seminar is an annual convention designed to educate and promote the exchange of ideas in the country music industry.  This year marks the event’s 40th anniversary and it promises to be another great year for attendance.

Among the buzz this year is Gerry House’s induction into the CountrGerry House y Music DJ Hall of Fame.  House is without a doubt one of the most well known country radio personalities of all time and has been honored many times during his long career as a spinner of vinyl (and now polycarbonate, or make that digits!).  He began that career in the small Tennessee town of Maryville at WBCR.  In 1975, he stared at WSIX-AM in Nashville then moved over to the FM side in the early ’80s.  In 1985, he moved his show to the granddaddy of Country Music Radio, WSM and then to KLAC in Los Angeles.  Ultimately, as life often does, he came almost full circle returning to WSIX-FM.  In 2008, the Gerry House and the House Foundation morning show on WSIX won “Personality of the Year” awards from the Country Music Association, the Academy of Country Music and Radio & Records.  House also received the National Association of Broadcasters’ Marconi Award and Leadership Music’s Dale Franklin Award. Also an accomplished songwriter, House wrote “The Big One” (George Strait), “Little Rock” (Reba McEntire) and “On The Side Of Angels” (LeAnn Rimes).   House is joined by the induction Cleveland Ohio’s Chuck Collier, a 30-year veteran of country music radio.  On the programming side of the equation, Bob McKay and Moon Mullins are the Country Music Radio Hall of Fame inductees.   Merle Haggard will receive the Career Achievement Award and Shelia Shipley Biddy will be presented the President’s Award.

The Country Music DJ and Radio Hall of Fame events unofficially mark the beginning of CRS each year.  The Hall of Fame Cocktail Party begins at 5:30 p.m. Tuesday evening. The Dinner and Induction Ceremony follows at 6 p.m.   The remainder of scheduled events for CRS are as follows:

Wednesday, March 4

Wednesday’s events kick off at 9 a.m. with the Opening Ceremonies and Award Presentation.  The keynote address, delivered by marketing expert Seth Godin, will follow at 10 a.m. in the Performance Hall, with the Sylvia Hutton Motivational Speaker/Life Coach panel at 11:15 a.m.  This year’s speaker will be former No. 1 country artist-turn motivational coach Sylvia Hutton.

New label Golden Music will sponsor Wednesday’s luncheon, featuring performances by Benton Blount and Williams Riley.  The previously scheduled morning Artist Radio Taping Session (sponsored by SESAC) will now be combined with the afternoon A.R.T.S. panel.  As a result, the afternoon session will be extended by one hour (2:30 p.m. – 4:50 p.m.).

Performers at ASCAP’s KCRS Live! will include artists and songwriters Jimmy Wayne, Kelley Lovelace, Ashley Gorley and Jonathan Singleton.  The popular Music City JamTM (7:30 p.m. – 9:30 p.m. in the Performance Hall) will be hosted this year by Tim McGraw and sponsored by the Academy of Country Music. 

Additionally, two educational panels will be featured Wednesday afternoon: “Country Radio As Seen Through The PPM Lens,” sponsored by Arbitron, and “Back to the Future: 1969-2049.”

Thursday, March 5:

Designated as Music Industry Town Meeting Day, single day registration for Thursday’s activities may be purchased on-site for $265.  The day’s agenda includes the return of the Tech Track and Small Market Track panels.  Tech Track panels include “Spinning a Web” and “40 New Media Ideas.”  Small Market panels include “Come Hell or High Water: Disaster Preparedness,” “You’re a PD, Now What?” and “Champagne Production on a Beer Budget.”  Sixteen panels will be offered in all during the day between 9 a.m. and 4 p.m.

Thursday’s events begin at 9 a.m. with The Country Music Association revealing the results of its 2008 Country Music Consumer Segmentation Study, conducted by Leo Burnett Co. and Starcom MediaVest Group.  Sony Music Nashville’s luncheon (noon – 1:50 p.m.) will feature performances by Miranda Lambert and Jake Owen.  At 4:10 p.m. Bobby Pinson, PauMiranda Lambert l Overstreet, Josh Turner and Jamey Johnson will perform during WCRS Live! (sponsored by BMI and Country Aircheck).

Friday, March 6:
Friday is Radio Sales Day.  Single day registration, including entrance to the New Faces of Country Music Show®, is available for $370 on-site.  Friday’s events will kick-off with the Managers’ Breakfast at 8 a.m., followed by CRS-40’s second research study, which will present findings from the Edison Research / CRB National Country P1 Study 2009 at 10 a.m. 

Panels during the day will focus on important topics that affect the Country Radio format, such as consumer habits, promotional and research ideas, voicetracking and tools to increase sales.  Prominent sales panels include “20 Ideas Even a PD Would Love,” “PPM!  Selling the Country Format,” “What’s NTR Got To Do With It?” “Creative Closing” and “A Car Dealer Tells All About Advertising.”  More than a dozen panels will be offered during Friday’s activities.

Friday’s luncheon, sponsored by Capitol Nashville, will feature performances from Darius Rucker and Little Big Town.  Also during lunch, Operation Troop Aid, a non-profit charity organization, will send 500 care packages from CRS-40 to deployed U.S. troops.  Packages will contain phone cards, MP3s, beef jerky, trail mix, hand wipes, hand sanitizer, cookies, candy, granola bars, toiletry items and thank you letters.  At 4:10 p.m., Barbara Mandrell will interview Kix Brooks during the Life of a Legend series.

One of Country Radio Seminar’s most popular events, The New Faces of Country Music Show and Dinner (sponsored by R&R and CMA) starts at 6:30 p.m. with performances from Lady Antebellum, James Otto, Kellie Pickler, Chuck Wicks and The Zac Brown Band.  CRS-40 will then Julianne Hough officially close with the unique 40th Anniversary Jam: A Musical Thanks to Radio, to be held at Cadillac Ranch and sponsored by DigitalRodeo.com.  Artists will cover their favorite radio hits from the last 40 years, featuring performances by Emerson Drive, Andy Griggs, Julianne Hough, Jamie O’Neal, James Otto, Blake Shelton, Jimmy Wayne, Chuck Wicks, Mark Wills and Darryl Worley, among others.

A new CRS documentary can be seen during the three-day seminar at the Renaissance and Hilton hotels in downtown Nashville.  The film, produced by Art Vuolo and titled WCRS-TV, chronicles various CRS highlights over the last 21 years.

CRS-40 will be held March 4-6, 2009 at the Nashville Convention Center in Nashville, Tenn. 

About CRB:
Detailed seminar information and a full agenda can be found online at www.CRB.org.  On-site registration is still available for $699 and may be purchased at the Convention Center.  The Country Radio Broadcasters, Inc.®, the event sponsor, is a 501(c)3 non-profit organization founded in 1969 to bring radio broadcasters from around the world together with the Country Music Industry to ensure vitality and promote growth in the Country Radio format. 

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