A House Judiciary panel on Wednesday tried to mediate a dispute between Internet radio providers and musicians over how much compensation they should receive when their music is played over the Internet, with lawmakers suggesting that Congress may need to take a broader look at how royalties are awarded across all musical platforms.
The committee’s Intellectual Property, Competition and the Internet Subcommittee debated legislation offered by Rep. Jason Chaffetz, R-Utah, that would address complaints from Internet radio providers such as Pandora and radio broadcasters that simulcast on the Internet that they are forced to pay much higher rates to performers than cable and satellite radio providers. Chaffetz’s bill, favored by Pandora and some big radio broadcasters such as Clear Channel, would require the Copyright Royalty Board to use the same rate-setting standard used for cable and satellite services to set rates for Internet radio stations like Pandora.
“This important legislation will address two extraordinary inequities in the copyright act,” Pandora CEO Joe Kennedy told the panel. “First is the unfair rate-setting standard that applies only to Internet radio, not to cable radio or satellite radio or to record companies when they obtain licenses for music works from songwriters; and second, an unfair process that deviates in many important ways from how our federal court system works, one that actually prevents royalty judges from reviewing all relevant evidence when determining Internet radio rates.”
Chaffetz and other supporters argued that the current system has stunted the growth of Internet radio services. He noted that several big companies have tried to get into the business but have failed because they can’t make a profit under the current royalty system, which Pandora has argued requires it to pay half of its revenues in royalties. “Outside of Pandora, name one other company that has been successful” in the digital music business, Chaffetz pressed Michael Huppe, president of the digital royalty collector Sound Exchange. “There isn’t one.”
Huppe and other music industry representatives told the panel that Chaffetz’s bill would result in lower revenues for musicians and that Congress should first deal with the fact that traditional terrestrial AM and FM radio stations pay performers nothing when their music is played over the air.
“We believe before there can be any discussion of rates or rate standards, Congress should close the corporate radio loophole,” Jimmy Jam, the legendary music producer, artist, and songwriter and chairman emeritus for the Recording Academy’s Board of Trustees, told the committee. “The Internet Radio Fairness Act is anything but fair. But by all means it’s time to have a real conversation about fairness.”
There was some sympathy for that view on the committee. Several members said lawmakers need to address all the problems with the current music royalty system at once. The committee approved legislation a few years ago that would have required traditional radio stations to pay performance fees but the bill was defeated in the wake of strong resistance from broadcasters.
“I am open to the idea of harmonizing the rate-setting standard to create more parity across music delivery platforms, but I am also concerned about ensuring that those who create and perform music are fairly compensated for their creative works,” Subcommittee Chairman Bob Goodlatte, R-Va., who will lead the full committee in the next Congress, said. He told reporters after the hearing that the committee will hold more hearings in the next Congress on the issue with the goal of “finding a comprehensive solution to the issue.”
Rep. Howard Berman, D-Calif., a longtime champion of protecting the intellectual property rights of the entertainment industry who was defeated for reelection earlier this month, told broadcasters that it is “disingenuous for you to talk about finding a rate that will incentivize more webcasting by radio stations without acknowledging any obligation to be subject to a performance right for over-the-air broadcasting.” He added that “there is potential bargain here … but it’s in the context of dealing with all the inequities in [musical] platforms.”
Hubbard Radio CEO Bruce Reese, who testified for the National Association of Broadcasters, argued that musicians benefit from the exposure they get from airplay on traditional AM and FM radio stations and noted that broadcasters’ webcasting operations cannot make a profit under the current rate structure. He said that some broadcasters such as Clear Channel have reached individual deals with musicians and record labels that would require their traditional radio stations to pay performance fees in exchange for lower webcasting rates. Reese added that the industry prefers to address the issue through private negotiations rather than a “one-size-fits-all” solution mandated by Congress.