Congressional Fight for Internet Radio: Round One Goes to Fairness! Round Two, Consumers?
Congressional Fight for Internet Radio: Round One Goes to Fairness! Round Two, Consumers?
Congressional Fight for Internet Radio: Round One Goes to Fairness! Round Two, Consumers?

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    To the average observer Wednesday’s House Judiciary
    Subcommittee hearing on Internet music royalties may have simply looked like a
    typical DC fight between large industry interests over how to split up a
    dollar.  While that may be partly
    true, it is also important to remember how these decisions can impact what
    music that we (the consumers) have access to and the choices we have in how we
    listen to it. Public Knowledge provided that voice of what is important for
    both consumers and artists through a written
    for the record. 
    However, the main event on Wednesday was the oral testimony by an
    industry-dominated panel, so lets get to the blow-by-blow.

    If you missed it, the House
    Judiciary Subcommittee on Intellectual Property, Competition, and the Internet
    held a hearing
    on the topic of “Music Licensing Part One: Legislation in
    the 112th Congress” featuring six witnesses: Joseph Kennedy, CEO of
    Pandora; Bruce Reese on behalf of the National Association of Broadcasters;
    David Pakman from venture capital firm Venrock; Michael Huppe, President of
    SoundExchange; Jimmy Jam, Super Producer/Artist/Chair Emeritus of The Recording
    Academy; and, Jeffrey Eisenach, an economist from Navigant Economics, American
    Enterprise Institute, and George Mason University.  The hearing focused on legislation introduced this fall by
    Rep. Jason Chaffetz (R-UT), H.R. 6480, the Internet Radio Fairness Act, or
    IRFA.  Chaffetz’ bill (as detailed
    by PK’s Jodie Griffin here)
    sets out to balance the royalty rates paid by similar radio services on a
    variety of technology platforms. 
    It would in effect likely lower the rate that is paid on Internet radio
    by setting their royalties under the Section 801(b) standard currently used for
    cable and satellite radio, and unleash new opportunities for innovative online
    services that can compete with radio delivered on other platforms.  These royalty rates determine if new
    radio stations are able to compete for your attention while at the same time,
    ensure that new artists have an opportunity to profit off of the art that they

    The most striking theme of the hearing was the strong
    interest from the members of the Subcommittee in what IRFA is missing: a right
    for artists and copyright holders to receive royalties for their works when
    broadcast on terrestrial radio, AKA tradition AM/FM radio.  If members did not outright assert that
    AM/FM radio should join satellite, cable, and online radio in paying royalties
    to artists, they asked pointed questions to the broadcast industry
    representative Mr. Reese, who testified in favor of IRFA.  Outgoing Rep. Howard Berman (D-CA) and IRFA
    skeptic commented that, “Broadcasters have to come to terms with [the fact]
    free doesn’t work anymore.”  At the
    same time, IRFA cosponsor Rep. Darrell Issa (R-CA) questioned, “Isn’t a rate
    higher than free fair” for all technologies?

    Mr. Reese attempted to draw distinctions between AM/FM radio
    and satellite or Internet radio but his argument that terrestrial radio
    provides a greater or distinct promotional value of beyond its digital cousins
    was not convincing.  In fact,
    Internet radio providers such as Pandora seem to provide a greater opportunity
    for promoting artists due to the unlimited permutations in which it can
    personalize stations to suggest new music most likely to resonate with each
    listener.  There are only so many
    stations that you can fit on a radio dial in one location.  Oblivious to his own double standard,
    Mr. Reese also argued that IRFA (without royalties for AM/FM radio) would help
    terrestrial broadcast stations provide their broadcasts over the Internet
    through streaming services. 
    Somehow the unfairness of paying artists for their work in one medium
    while at the same time not paying the artist for the exact same use on another
    medium failed to register with Mr. Reese. 
    It was encouraging to see that so many members of the Subcommittee
    agreed with Public Knowledge’s position
    that in order for IRFA to be truly fair, it must remove copyright law’s
    exemption for terrestrial radio and set their royalties by the same standard as
    everyone else.

    The other major theme of the hearing was the beating taken
    by the definition of a healthy and vibrant market.  Dr. Eisenach’s oral testimony described the online market as
    both “vibrant and growing”.  Both
    Dr. Eisenach and SoundExchange’s Michael Huppe argued that the current “willing
    buyer/willing seller” standard for determining Internet radio royalties is
    preferred because it is based on actual market evidence.  This argument falls on its face when hit
    with the facts of the current Internet radio marketplace.  There is only one willing seller
    (SoundExchange) and not one “willing buyer” has been able to turn a profit on
    the current rates!  Rep. Chaffetz
    jabbed at this point repeatedly when he challenged Mr. Huppe to name an
    Internet Radio provider that is currently turning a profit (Mr. Huppe could not
    name one).  Pandora, for all its
    popularity, has not been able to turn a profit despite using both subscription
    and advertising revenue, and competing services started by major companies such
    as Microsoft and MTV have folded. 

     As Jodie
    Griffin details in PK’s written
    , the willing buyer/willing seller standard was placed on Internet
    radio in 1998 before a market had developed.  A market did not exist upon which to base the royalty
    rates.  It is no wonder that Congress
    has repeatedly been asked to recalibrate rates set for Internet Radio based on
    the willing buyer/willing seller standard, and that even under those lower
    rates no major service has turned a profit.  The Section 801(b) standard however has proven to provide
    both a framework for a competitive market in satellite radio while providing
    fair compensation for the artists who create the music. 

    Perhaps the upset of the night was the lack of attention
    paid to the venture capitalist witness, Mr. Pakman.  Few Subcommittee members tested him when his thoughts may
    have shed further light on what conditions would lead to a robust sustainable
    Internet radio market.  Mr.
    Pakman’s testimony pointed to the importance of a compulsory licensing regime
    that ensures that the market is not controlled by the three major labels who
    control two-thirds of all record sales and hold the rights to large catalogues
    of songs.  Members of the
    Subcommittee missed their opening to challenge him to describe what would
    encourage him to invest in Internet radio again.

    As the title of Wednesday’s hearing suggests, this
    was only round one.  One cosponsor,
    Rep. Issa openly admitted in the hearing that the bill may require changes, but
    that he put his support behind IRFA-2012 because it provides a path forward.  The Senate has yet to weigh in and
    Senate Judiciary Chairman Patrick Leahy (D-VT) has been a supporter of the terrestrial
    radio performance right in the past. 
    It would not be surprising to see newly selected House Judiciary
    Committee Chairman Rep. Bob Goodlatte (R-VA) set up hearings part two and part three
    early in 2013.  When those rounds
    begin, the consumer’s voice should not be relegated to the undercard.