Internet Radio Bill no Panacea for Industry Problems, ITIF Report Says
The Internet Radio Fairness Act won’t solve the core problems in the music performance market, namely lack of true competition, said a new report by a group that sometimes opposes regulation. The Information Technology and Innovation Foundation said the royalty system envisioned by the bicameral bills introduced in September favors “the status quo over innovation in the music and broadcasting industries.” The bill “doesn’t address inter-platform competition, intra-platform competition, or inter-music competition, all of which suffer in the current royalty system,” ITIF Senior Analyst Daniel Castro wrote.
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
An “obvious failing” is the proposal doesn’t “address the fact that terrestrial radio pays royalties for musical composition but not for sound recordings, while other music services must pay both types of royalties,” Castro wrote in an 11-page paper (http://xrl.us/bn3mo6). Any system should promote competition among platforms such as Internet, satellite and terrestrial radio, competition among companies on the same platform, and competition between different copyright holders, he wrote. Sen. Ron Wyden, D-Ore., introduced the act (S-3609) in his chamber (http://xrl.us/bn3m53), while Rep. Jason Chaffetz, R-Utah, introduced HR-6480 (http://xrl.us/bn3m5v).
Pandora has supported the bills, while some musicians including those seeking a law that would for the first time require terrestrial radio stations to pay a performance royalty for songs they broadcast have opposed it (CD Nov 14 p13). Castro’s report is “balanced” because it recognizes that any royalty model should apply across platforms where music is heard, an official at a nonprofit that’s sought performance royalties told us. “I don’t think you can talk about fairness without addressing that fundamental inequity” between platforms, said Deputy Director Casey Rae of the Future of Music Coalition. “The idea that terrestrial radio will enjoy an unfair terrestrial advantage by not paying performers is definitely something that needs to be” addressed, he continued. The bills “could slash by 85 percent royalties paid to musicians and artists when their songs are played over Internet radio,” said a Nov. 14 news release from the MusicFirst coalition of groups including RIAA that seek terrestrial performance royalties and SoundExchange. Spokeswomen for the coalition and Pandora had no immediate comment Monday.
Castro said the bills’ lack of a performance royalty for terrestrial radio, long exempt from such royalties, is its fundamental flaw: “No amount of wrangling about the rate-setting process will address this inherent inequality.” The bill’s supporters are wrong in claiming they simply want rate parity with cable and satellite music providers, since those rates only apply to companies grandfathered into the new system devised in 1998, he said: It partly explains why there are few platform competitors to SiriusXM and Music Choice. Beyond leaving in place the choice of Congress through the statutory license to eliminate “competitive pricing for sound recordings,” the Internet radio bill’s provision that would set royalty rates in part on a music service’s ability to earn “reasonable returns” on past investments, Castro said, begs the question of “Why should a company pay lower royalty rates because it made bad investments in the past?”
It’s not clear why the bill drops the current requirement that Copyright Royalty Board judges have expertise in economics and copyright law or why it proposes judges become presidential appointees, “since this would further politicize the process,” Castro said. Congress would be “favoring the status quo over innovation” in music and broadcasting if it approved the bill, because it seeks a rate-setting process that minimizes the “disruptive impact” on the industry, he said: “Historically, many technological innovations have resulted in substantial disruptions in the economy and society,” such as the effect of Netflix and Redbox on Blockbuster. The willing buyer/willing seller royalty standard, which the bills would pivot away from, is an area worthy of a “realistic discussion,” Rae told us. “No single technology should be bearing a disproportionate royalty burden, but no burden should be completely exempted” either, he said of terrestrial radio, satellite radio and Internet streaming. All those platforms are “important” for musicians’ careers, he said.
Any bill should require all broadcasters to pay a performance royalty, and Congress should replace the “broken” CRB system with one that has the Library of Congress, partnering with SoundExchange, set up an electronic database of recordings that lets copyright owners determine the license rate for their works, Castro said. Copyright owners would be able to specify separate rates for different types of services, both by platform and status -- whether they are commercial or noncommercial -- and they should be able to not specify a rate at all if they don’t want to charge royalties, he said: There also should be a maximum rate set “to limit a music service’s potential liability for broadcasting a song.”