House Panel Seeks Broadcaster Performance Royalties for Musicians
Several leading Democrats on the House Judiciary IP Subcommittee questioned in a hearing Wednesday why broadcasters do not compensate performance artists for music played on terrestrial radio broadcasts. Though the hearing focused on the Internet Radio Fairness Act (IRFA) (HR-6480), the Pandora-backed bill aimed at bringing parity to the royalty rates paid by Internet, satellite and cable broadcasters, several members said the legislation fails to address the lack of royalty payments to performance artists whose music is played on broadcast airwaves. Republicans were largely silent on the issue of broadcaster compensation for performance artists, though some said they would like to see a market-based, comprehensive solution for all the stakeholders involved.
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The panel did not arrive at any clear solution to fix the disparate standards that govern how artists are compensated by Internet, cable, satellite and terrestrial outlets, but lawmakers said the hearing will set the tone for a coming debate on the issue in the next Congress. The sponsors of IRFA said the draft legislation is not final and may incorporate changes when it’s reintroduced next session. The bipartisan House bill is co-sponsored by Reps. Darrell Issa, R-Calif., Zoe Lofgren, D-Calif., and Jared Polis, D-Colo., among others.
The focus of the legislation is “shortsighted” for ignoring the lack of a performance royalty requirement for terrestrial broadcasters, said Subcommittee Ranking Member Mel Watt, D-N.C. “That is about 90 percent of the problem, yet HR-6480 fails to address this at all and at best nibbles around the edges of the challenge,” he said.
House Judiciary Committee Ranking Member John Conyers, D-Mich., said the title of the bill is “misleading” and would be better labeled as the “Paycheck Reduction Act.” He said the legislation would reduce artist royalty payments from Internet broadcasters by more than 85 percent. The bill would “cut royalties and deprive artists of the fair market value of their work,” he said.
Rep. Jerrold Nadler, D-N.Y., said he opposed IRFA because the legislation would only “increase the distortion” of the arguments against a terrestrial performance right. Nadler is the author of the interim Fairness in Radio Starts Today (FIRST) Act, which would direct the Copyright Royalty Board to incorporate the price of artists’ intellectual property into broadcasters’ royalty payments related to music feeds they stream over the Internet.
Hubbard Radio CEO Bruce Reese said the National Association of Broadcasters had not endorsed any specific legislation but strictly opposed any “government mandate” that would impose a performance right on music played by terrestrial radio stations. “This important discussion over how best to ensure the growth of Internet radio must not be bogged down by past fights over controversial performance rights legislation,” Reese said. “This is an issue best addressed through private marketplace agreements and NAB continues to oppose an industry-wide government mandate.”
Rep. Ted Deutch, D-Fla., asked Reese to explain why he described performance royalties as a “performance tax” when broadcast stations already compensate talk radio hosts for their work. “If you could just explain to me … the difference between your station that pays an awful amount of money to Rush Limbaugh and the station that plays Rihanna many times an hour and doesn’t pay [her] anything,” asked Deutch. Reese said the broadcasters have helped labels who represent artists like Rihanna to sell their albums by increasing their exposure on public airwaves. “We are more than a music service,” Reese said. “We are more than someone who pushes a button randomly and music comes out.”
Issa also grilled Reese and said harmonization in music royalty standards may require broadcasters to pay “an amount that is greater than zero.” Issa, who cosponsored IRFA, said he doesn’t think the legislation is the final bill, but is a starting point for a legislative discussion on the state of music royalties.
IRFA author Rep. Jason Chaffetz, R-Utah, reaffirmed his argument that all forms of digital radio should “compete against each other on a level playing field,” and said his bill would help accomplish that. Chaffetz engaged in a heated debate with SoundExchange President Michael Huppe over whether the royalty rates paid by Internet broadcasters are prohibitively high and dissuade other Internet radio companies from entering the webcasting marketplace. Chaffetz asked Huppe to name one company that had successfully been able to survive in the webcasting marketplace other than Pandora. Huppe could not name any. American Enterprise Institute visiting scholar Jeff Eisenach later told lawmakers there “is a lot of entry in the marketplace” including competition from Spotify -- which is backed by the major labels and doesn’t pay compulsory rates -- and interest from Skype and Apple.
Pandora CEO Joe Kennedy endorsed IRFA to help bring parity to what he called the “unfair” rate-setting standard known as “willing buyer, willing seller” that only applies to Internet radio. The standard has caused Pandora to pay “more in absolute dollars than any other company, including SiriusXM -- a company with eight times our revenue,” he said. Kennedy urged lawmakers to adopt the Copyright Act 801(b) standard for Internet webcasters, already used by cable and satellite radio and which results in lower rates than Pandora now pays, before the Copyright Royalty Board begins the process of adjusting the current rates in 2014.
Subcommittee Chairman Bob Goodlatte, R-Va., would not say whether he believed terrestrial radio stations should compensate artists but said he’s “open to the idea of harmonizing the rate setting standard.” After the hearing he told reporters: “We are going to work to see if we can come up with a consensus here among all these different industry players to try to find that harmony.”
House Judiciary Committee Chairman Lamar Smith, R-Texas, was also silent on the issue of broadcaster royalties but said he preferred a free market solution to a government-dictated one. “I don’t believe copyright law is perfect,” he said, “but it is my hope that this hearing will begin the process."
CEA thinks that since current law requires Internet radio companies “to pay vastly more in royalties than other digital or over-the-air music sources,” the government is “effectively picking winners and losers in the digital music marketplace,” said Michael Petricone, senior vice president-government and regulatory affairs. “Unjustifiably high royalty rates discourage new competitors and many Internet streaming companies have closed or left the industry,” he said. “By rationalizing the royalty structure, the Internet Radio Fairness Act will stimulate investment in the internet music industry. That means more royalties for artists, more choices for consumers, and more exciting new products and services for Internet music.”