Internet Radio Fairness Act Will Help Artists Long Term, Advocates Say

Wyden and Rep. Jason Chaffetz, R-Utah, introduced their bicameral bills in September aimed at aligning the differing broadcast platform royalty payments under the Copyright Act 801(b) standard, which is used to establish rates for cable and satellite radio services (CD Sept 24 p1). The idea behind the bill is to treat Internet radio “the same way that you treat satellite and cable radio,” Wyden said. A legislative solution is necessary because innovators like Slacker Radio, iHeartRadio and Pandora currently face “discrimination” from the Copyright Royalty Board, he said. The method developed by the three-judge panel has led to webcasters paying five times the amount of royalties as a percentage of revenue as other digital music broadcasters like satellite and cable, he said: “I just don’t understand the case for allowing that.”

Wyden said he wants the legislation to work for artists as well as consumers and Internet radio. “I personally think that if the royalty rates are lower the Internet broadcasting market becomes larger and that’s a strategy for creating more income for artists, more music choices for consumers and a broader array of music, and that looks to me like a worthy outcome.”

Wyden sought to debunk what he called a misconception about the bill regarding its collective bargaining provision, something which audience members said could chill free speech and prevent artists from speaking negatively about direct licensing deals. Section 5 of the bill would prevent copyright owners from acting jointly or in collective representation to take action that would prohibit direct licensing of sound recordings by labeling such actions as a violation of the Sherman Act (http://xrl.us/bnzhzp). But Wyden said there was “nothing in the bill that would restrict speech” and told audience members he would work with them to resolve any ambiguities in the legislation. “I would never ever support anything that restricts free and open speech,” he said. “If this restricts the First Amendment it will be a very short-lived provision. That is not what is intended."

David Lowery, a musician, said he was particularly concerned about the implications of the collective bargaining provision, during a separate panel. Some elements of the bill are more about “agency capture” than fixing the rate structure that online music streaming sites pay to performers and composers, he said. “This has nothing to do with rates,” he said, pointing to the section 5 provision. Lowery said he would “rather have free speech than money. I would rather preserve my right to negotiate."

Wyden would not say if Congress was likely to act on the bill before the end of the 112th Congress, saying only that “this is the beginning of the debate.” The House Judiciary Committee plans a hearing this fall to examine music royalty rates, a committee spokeswoman said last month. The spokeswoman would not confirm the date, timing or witnesses for the hearing, saying details would be released as the hearing date nears.

Westergren touted the Internet Radio Fairness Act as a narrowly written legislative attempt to bring parity to the rate setting process for Internet, satellite and cable radio. “The act is intended to do one very specific thing, which is to extend to Internet radio the same standards for setting rates called the 801(b) standard that is used by virtually every other copyright arbitration process around us,” he said in a separate panel.

Current royalty rates for Internet radio are unfair, said Westergren: Though Pandora is “keeping its chin above the waterline,” in general the business “really struggles to make ends meet.” “It’s kind of a Jekyll and Hyde business. On the growth side, it’s been a wonderful story,” he said. “Profitability is a different story for us ... we're really struggling to make that happen.” Looking back, the rates set by the Copyright Royalty Board in 2007 “would have put Pandora under without a doubt” if the company had failed to reduce them through a lengthy lobbying and negotiation effort, he said. The company pointed to increased subscriber numbers when it initially sought to overturn higher Copyright Royalty Board rates through legislation.

Westergren argued that the high rates paid by music webcasters are “ultimately detrimental to the artist community” because they would benefit from greater exposure to listeners rather than suffocating an industry with an “inequity that is hard to deny.” If the rates were leveled for Internet radio, artists would receive lower royalty rates but they would be getting a “smaller piece of a bigger pie,” because other companies would be incentivized to invest and expand into the space, he said. “If Internet radio could operate under better economics there would be more participants, it would grow faster and it would easily swap whatever near-term changes there were,” he said.

Government involvement is “absolutely essential” for the health of the streaming business, said Westergren. “Absent a compulsory licensing system that allows us to get permission to play all that music a lot of that stuff would just not get to participate because the economics of chasing one independent label after another to get the rights to play their music just wouldn’t add up.”