Jason Chaffetz (R-Utah) and Jared Polis (D-Colorado) recently introduced the Internet Radio Fairness Act, designed to change the way Internet streaming royalties are calculated. The lawmakers cited Internet radio's inability to compete because of the disproportionate proportion of revenues that goes to pay for performance rights. The goal, the Congressmen say, is to level the playing field between Internet and terrestrial radio.
The label-backed lobbying group MusicFIRST Coalition opposes the bill; MusicFIRST Exec. Director Ted Kalo called the Internet Radio Fairness Act a "Pandora subsidy bill" that will impose a government-mandated royalties rate and "break the backs of artists, while Pandora executives pad their pockets."
A coalition of radio and Internet broadcasters, including Pandora, Clear Channel, and Salem, has formed to support the bill -- but the NAB is keeping its distance this time, and isn’t part of that group.
Everyone is trying to make this about the money. But if you read the bill, it never mentions lowering rates (despite what Rep. Chaffetz said about how much Internet radio is paying). People are assuming that this bill is about rates, but its primary purpose, I believe, is to do away with the "willing buyer, willing seller" standard under which the Copyright Royalty Board sets performance royalties for streaming.
That standard was originally created as part of the Digital Millennium Copyright Act in 1998, and it has been a source of controversy ever since. During the dot-com boom, it looked like everyone was going to get rich on digital -- but that obviously couldn't be further from the truth.
Though Pandora has created a giant market cap based on the promise of success, even Pandora can't survive based on the current rate structure and other onerous DMCA mandates. Their money is coming from stockholders who are -- for now -- still hopeful.
I speak as someone who was an Internet radio pioneer. But tens of millions of investors’ dollars were lost because we finally realized the model of being "taxed" for each listener -- streaming royalties, of course, go up with each additional listener -- was not sustainable. In order to have a sustainable digital radio market that will provide income for everyone concerned -- artists, labels, and radio -- we need a system that is truly to the benefit of all parties.
The present system will not and cannot work. And though the labels want to fight the Internet Radio Fairness Act, it’s the best chance we have to create a royalties structure that will work. But, just as we see in any political argument, there’s a partisan opposition that's unwilling to consider anything new. It's the same myopic approach that's led the labels to the troubles they are experiencing today.
Royalties dollars are based on rate times volume. The labels, by way of the CRB, control rates, and radio controls volume. I don't want radio to "win: this battle. But neither should the labels win. Music and radio go together like peanut butter and jelly, and one without the other is not as tasty.
Though the music industry is of the opinion that they can fight this bill and keep everything their own way, they are missing the larger point: If digital radio can't succeed financially and streamers are forced to shut down, their high CRB rates won’t bring them any revenue. In the end, if this cannot be resolved, everyone will lose.
The Internet Radio Fairness Act would end the "willing buyer, willing seller" standard and substitute standards from Section 801(b) of the Copyright Act, which lays out key factors to be considered in determining the rates to be set for a statutory royalty. According to my understanding, these are the only things the bill would change.
The factors to be considered in setting rates:
(A) To maximize the availability of creative works to the public.
(B) To afford the copyright owner a fair return for his or her creative work and the copyright user a fair income under existing economic conditions.
(C) To reflect the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression and media for their communication.
(D) To minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.
In contrast, the current "willing buyer, willing seller" standard looks only at one question: what a willing buyer and willing seller would agree to in a marketplace transaction. Which approach makes more sense?
This battle has been raging for years, and there has been no end in sight. But a resolution may finally be possible, thanks to this bill. It would be reasonable for all parties concerned to put their anger and diehard attitudes aside and create a summit for discussion with the lawmakers who introduced the bill, the broadcast companies, and the label heads -- to make an opportunity to truly hear the positions and needs of the other side. This summit should be arranged as soon as possible so all parties have a hand in developing something that works for everyone.
Though this should be a private meeting, without the press, I encourage and invite both sides to hold a reasonable discussion at my Forecast Conference, on November 28 in New York. I’d even provide a room at the Harvard Club for a full extra day if a private meeting could be arranged. This battle has reached an impasse.
It’s time the parties seek a reasonable solution before all opportunity is lost. This bill has a chance of solving an otherwise unmanageable problem and should be considered seriously by everyone involved.