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No More Needle In “Needletime” Royalty Negotiations Between Broadcasters And Sound Recording Copyright Holders

September 26, 2014

Importance of the case

National Association of Broadcasters v South African Music Performance Rights Association and Another [2014] 2 All SA 263 (SCA)

This judgment sets out in clear terms the royalty rate and formula to be used in determination of a royalty to be paid by radio stations to record companies for the use/play of their copyrighted sound recordings.

To a large extent, the court has removed the difficulty in negotiating and the variability seen among royalties given to record companies by radio stations. It is particularly useful for record company clients and performers on sound recordings, as it has provided clarity on, and aided transparency in, the process of negotiating royalty rates with radio stations.

Further, although this case dealt primarily with radio station broadcasters, other broadcasters of sound recordings, for example television networks, would do well to take head of the Court’s findings in this matter.

Background and context

The court had occasion to deal with the issue of the reasonableness of “needletime” royalties paid by radio stations to record companies.

The Copyright Act 98 of 1978 and the Performer’s Protection Act 11 of 1967 recognise three distinct copyright holders in the broadcast of a sound recording by a broadcaster:

  • the composer,
  • the performer and
  • the owner of the copyright in the sound recording i.e. the record company.

The rate of royalty obtainable from broadcasters by these three rights-holders has always been uncertain, as the above statutes do not prescribe a rate of royalty nor do they detail how the royalty is to be calculated.

The Legislature decided to leave this issue to be resolved by agreement between broadcasters i.e. radio stations and owners of copyright in sound recordings i.e. record companies. Failing agreement between the parties, arbitration may be used to settle the dispute. As a last resort, as in the present case, where the parties still cannot agree on a rate or whether to arbitrate, the matter is to be determined by the Copyright Tribunal.

Court’s decision

  • This case did not involve the copyright of the composer, but dealt with the reasonableness of the rate of royalty and its determination between radio stations and record companies (who then split the royalty obtained between it and the performer/s on the sound recording).
  • The court summarised extensive evidence by experts in the field on South African and international standards in the music industry, and more particularly the broadcast sub-industry. Further, experts for both parties had put forward their own formulae for determining royalties to be paid by radio stations to record companies.
  • After considering the evidence of these experts, the Court rejected the maximum rate of 7% given by the Copyright Tribunal and 10% proposed by the South African Music Performance Rights Association (“SAMPRA”). It decided that a maximum rate of 3% of revenue was reasonable in the circumstances.
  • Further, the Court espoused its own formula for the determination of royalties between radio stations and record companies, giving its reasons for the inclusion and exclusion of certain elements advanced by the parties in this case. The formula is as follows:

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Where:

A = amount of time used by radio station in any period to broadcast the sound recording administered by SAMPRA;

B = total amount of time used by radio station in that period to broadcast editorial content; and

C = a radio station’s net broadcasting revenue based on what is reflected by its accountants and certified in its financial statements.

‘Editorial content’ is defined as content, including repertoire, broadcast for entertainment, information or interest of members of the public, and shall not include broadcast time allocated to advertisements.

Useful for record company and musician clients, as it has provided clarity and aided transparency in the process of negotiating a royalty rate with radio stations.

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