Internet Radio Fairness Act

Writing about the Internet Radio Fairness Act, musician David Fagin points squarely at the "one-sided, unfair exemption terrestrial radio currently enjoys" on royalties, and says the solution is to "make them pay their fair share of performance royalties to artists and labels -- just as the rest of the radio-playing world has to do."

Fagin is also a writer and producer and former member of the band The Rosenbergs, and represented independent artists in webcasting copyright hearings in 2001.

In a piece for the Huffington Post, he suggests IRFA foes are really on the same side when it comes to wanting to artists to succeed and get paid, and on the matter of FM radio's royalty exemption. But the music industry and webcasters are stuck fighting each other, because neither has the power to fight broadcasters. 

"Congress is scared to go after big radio and their lobby, and the RIAA is 'just fine' with the status quo. In the meantime, both sides have decided to just kick each other's asses, instead."

(Interestingly, he holds that the current royalty situation is harming the webcasting industry, evidenced by the fact that just a single "brand-name" success exists, Pandora. He also cuts through the music industry anti-Pandora rhetoric: "The 'fleecing of artists'... argument makes no sense, whatsoever. Why would a company, whose main business model consists of promoting independent artists over 60% of the time, and is practically the only place to hear new music on a regular basis, want to destroy the very artists whose careers it's sustaining, and who are sustaining it?")

Interesting read, in Huffington Post, here.

The Hill reports Republican Sen. Bob Corker of Tennessee is circulating a letter in the Senate strongly critical of the Internet Radio Fairness Act (IRFA), a bill proponents hope will make Internet radio royalty fees more equitable to those of similar forms of radio (read more on the IRFA here).

While the IRFA would simply give Net radio the same royalty-setting standard (known as "801(b)") as cable and satellite radio, Corker's letter says the bill would "force American property owners and creators to provide a subsidy to digital radio services, primarily Pandora." Leading webcaster Pandora currently pays more than half of its revenue for royalties, while cable and satellite radio pay less than 15% of revenue.

The Hill points to the Center for Responsive Politics site (here), which shows "As a senator for Tennessee, Corker's constituents include representatives from the country music hub of Nashville. Corker received $201,241 from the TV, movie and music industries during the 2012 election cycle."

Read more in The Hill here.

Washington, D.C.-based public policy organization Public Knowledge supports the proposed standard-change for Internet radio royalty proceedings, with the ultimate goal of robust and sustainable business models for all players in the digital music marketplace. This week the group has published an essay to explain its support, and suggest a few key improvements to the relevant bill now in Congress.

Public Knowledge staff attorney Jodie Griffin wrote the piece, the follow-up on an introductory essay we covered last week in RAIN here.

First-and-foremost, Public Knowledge advocates the use of the Copyright Act's 801(b) standard for determining Internet radio royalties, the focal point of the Internet Radio Fairness Act.

The IRFA, a bill now in both the U.S. House and Senate, would change the legal standard by which judges determine the statutory rate for streaming radio. The royalty rates for most other, related uses of copyright sound recordings use the standards set in section 801(b) of the Copyright Act. The 1998 Digital Millennium Copyright Act made an exception for Internet radio, requiring rates to be set to what the judges felt a hypothetical "willing buyer and willing seller" would agree.

"The fact that there was no robust online radio licensing market for sound recordings prior to 1998 meant that the judges charged with setting the compulsory license rates were effectively told to emulate a market that did not exist," Griffin reasons. "It is unsurprising that the current standard has led to a disproportionate burden on online-only radio services."

By requiring use of the 801(b) standard for Internet radio, the IRFA would bring it in line with other forms of digital radio, like satellite and cable. Read more in RAIN here. Setting webcasting royalty rates using 801(b), writes Griffin, "allows and requires the CRJs to consider the entire online radio ecosystem when it sets the rates, rather than solely attempting to recreate a market that never existed."

What's more, since webcasters like Pandora make the "same type of use" of music as satellite- and cable-radio (that is, it's "performed" on a non-interactive platform -- it's not "on-demand," nor do webcasters sell downloads, etc.), rates should be set by the same standard. Answering critics of the IRFA, she writes, "This does not mean that the actual fees need to be the same for every service, but simply that all similar services will be evaluated by the same standard."

Griffin suggests, however, that the IRFA should be amended "to truly be technology-neutral and to fairly balance the interests at stake in the radio marketplace."

One interesting measure would allow the adjustment of the "50/45/5%" split of statutory royalties.

[NOTE: Currently, half of the money webcasters pay in statutory royalties (after SoundExchange's vig) goes to the copyright owner of the sound recording (most usually, the record label). The other half is split between a recording's "featured performer," who gets 45%, and back-up musicians and vocalists (through their unions), who split the remaining 5%.]

Griffin argues an amended IRFA should allow for an adjusted split, for example, giving the label 40%, then 50% to the featured artist, and 10% for side musicians and backup vocalists. This would "alleviate the risk put upon artists of lower revenues by guaranteeing them a larger piece of the royalty pie."

Another way to improve the IRFA, Griffin says, would be to include a sound recording performance royalty requirement for AM/FM radio.

The fact that legacy radio broadcasters do not pay labels and performers, and services that were existing at the time of the DMCA (satellite and cable) pay a small percentage of revenue, while webcasters pay such weighty rates "is the opposite of what copyright policy should be," the piece reads. "We should be encouraging new market entrants to reach broader audiences through innovative technologies and to pay a fair price for their use of the works. Disproportionately burdening the most innovative companies in the business is no way to help the music industry find sustainable business models in the digital world."

For all of this, however, the Public Knowledge piece stresses how important it is to gather ample data on the marketplace, study "the economic incentives and business relationships that affect how much money ends up in the actual artist’s pocket," and monitor how changes to royalty schemes affect performers, copyright owners, and services alike.

Read the Public Knowledge piece here.

Late last month we heard (our report here) the House Judiciary's Subcommittee on Intellectual Property, Competition, and the Internet would hold a hearing on Internet radio royalties. Billboard.biz now reports its sources say a hearing will likely take place at the end of this month, "on or around November 27, 28 or 29."

Lawmakers will hear testimony regarding on the Internet Radio Fairness Act, recently introduced to both chambers of Congress. The IRFA would require copyright judges to use the same "801(b)" standard in setting the royalty rates for Internet radio it uses for other forms of digital radio, like cable and satellite. Read more here. Billboard's sources say Pandora and a broadcaster will likely testify in favor of the bill, and SoundExchange and a recording artist will likely testify against.

The House bill, H.R.6480, is co-sponsored by subcommittee members Jason Chaffetz (R-UT), Darrell Issa (R-CA), and Zoe Lofgren (D-CA).

Read Billboard.biz here.

An article in yesterday's New York Times likens the conflict over Internet radio royalties to the presidential race: business suffering under government-inflicted costs vs. wealthy industrialists cheating the middle class.

What the different players are saying sure makes the comparison apt.

Pandora founder Tim Westergren told journalist Ben Sisario, "This adversarial reaction toward Internet radio is counterproductive. It’s causing other businesses to sit on the sidelines, and that is hurting musicians. Ultimately, you want to have many boats in the harbor."

But MusicFirst Coalition, the record industry group that's the main face in the fight against proposed royalty reform, "says it believes that if Pandora gets everything it wants, it could cut its royalty bill by up to 85%," writes Sisario.

The Internet Radio Fairness Act, co-sponsored in the House of Representatives by Republican Congressman Jason Chaffetz of Utah (more here), would require Copyright Judges who determine Internet radio's royalty rates to make their decisions using the "801(b)" standard of Copyright Law, instead of the controversial "willing buyer willing seller." Webcasters like Pandora support the bill, as all other forms of digital radio have their royalties set using 801(b). The music industry is firmly against the bill.

Westergren said, "No one has yet explained to us why Internet radio is under a different standard. No one responds to that fundamental premise."

Naturally, for RIAA CEO Cary Sherman, it's really a matter of companies like Pandora trying to cheat the "entire music community" out of "a fair return on the creative works that are the reason companies like Pandora exist."

Clear Channel CEO Bob Pittman is largely credited with making his company a major online radio force with its launch of the iHeartRadio platform. He says the record industry is wrong to focus on rates. With lower rates, more companies will stream more music, and lead to more income. "If the rate suppresses the volume, there’s less money. If it encourages volume, there’s more money."

Of everyone siding with Internet radio services, it was Rep. Chaffetz himself who stood out with a shot at the music industry establishment: "The old-school dinosaurs are trying to help, but they’re stuck in the tar. They can go talk to the pterodactyls."

Read the New York Times article here.