RAIN 11/7: Public Knowledge stresses importance of IRFA's effect on digital music market

Paul Maloney
November 7, 2012 - 1:35pm

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.

Paul Maloney
November 7, 2012 - 1:35pm

Rdio, like several subscription on-demand music companies (Spotify, MOG), has long offered "artist radio stations" -- that is, "radio" streams of one or more user-selected artists. They've now announced a partnership with The Echo Nest to use the latter's "music intelligence" services to vastly improve the radio offering.

In April, GigaOM reported that Rdio was looking to "become more like Pandora," and was developing a custom online radio feature (our coverage here) The web-based version of Rdio will offer the Echo Nest-powered streaming radio beginning this week. Rdio also promises more offerings based on the new partnership with The Echo Nest.

Rdio was created by Skype co-founders Niklas Zennström and Janus Friis.

Paul Maloney
November 7, 2012 - 1:35pm

Rep. Pete Stark lost his re-election bid last night to fellow Democrat Eric Swalwell, which means the IRFA, for now, has one fewer co-sponsor.

Stark, a long-time Democratic Congressman from California, was one of the original House co-sponsors of H.R.6480, The Internet Radio Fairness Act, introduced by Utah Republican Representative Jason Chaffetz in September (background here).

Chaffetz, and all other co-sponors of the bill in the House, were successful in their re-election bids. The remaining co-sponsors are Rep. Jared Polis (D-CO), Rep. Darrell Issa (R-CA), Rep. Zoe Lofgren (D-CA), Rep. Gene Green (D-TX), and Rep. Mike Coffman (R-CO).

The Senate counterpart bill, S.3609, was introduced by Oregon Democrat Ron Wyden. He was not up for re-election this year.

You may remember proposed opposing legislation, the Interim FIRST Act, released as a "discussion draft" by New York Democratic Rep. Jerrold Nadler (more here). He also handily won his re-election last night.

Paul Maloney
November 7, 2012 - 1:35pm

The leading webcaster, which regularly reports its own audience measurements, says its share of total U.S. radio listening reached 6.75% in October. That figure had fallen to 6.55% by the end of the month following Hurricane Sandy, according to Pandora.

Pandora also reported streaming 1.25 billion hours of content during the month, up from both September (1.15 billion hours) (keep in mind September has one fewer day) and October 2011 (754 million). The service claims 59.2 million "active listeners" now. It had 58.3 million a month earlier, and 40.3 million a year ago.