RAIN 9/21: Internet Radio Fairness Act introduced to Congress

Paul Maloney
September 21, 2012 - 11:25am

As expected (see RAIN here), Congressmen Jason Chaffetz (R-UT) (left) and Jared Polis (D-CO) this morning introduced to the House of Representatives a bill they hope will create a more level playing field for Internet radio concerning sound recording royalties. An accompanying bill has been introduced to the Senate by Sen. Ron Wyden (D-OR) (right). 

The Internet Radio Fairness Act 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 bills would bring Internet radio in line with media like cable- and satellite radio, requiring rates to be set along 801(b) guidelines.

Proponents of the bills argue that the current standards discrepancy creates a competitive environment in which broadcast-, cable-, and satellite radio can flourish, while Internet radio operators are faced with royalty obligations equal to or greater than their annual gross revenue. It's interesting to note that the royalties that record labels (who've already come out in opposition to this bill) pay to publishers and songwriters to record their music are also based on 801(b).

Consider that satellite radio operator SiriusXM pays around 8% of its revenues for the right to use copyright sound recordings in its broadcasts, based on a determination using the 801(b) standard. Pandora, on the other hand, says nearly 70% of its total revenue (based on its Q1 FY 2013) will go to royalty payments (and that's per a deal Pandora struck that actually decreased its obligation (again, here, under "Pureplay Webcasters") from the CRB decision -- a decision based on "willing buyer/willing seller").

The bill does not, as some critics point out, address the fact that AM/FM broadcasters do not pay royalties on the sound recordings they play on the air (which in sense, makes the competitive burden to Internet radio that much heavier). New York Congressman Jerrold Nadler (D) plans to introduce a bill in opposition to the Chaffetz/Wyden bill, the Interim FIRST Act (see RAIN here). That bill would raise the royalties broadcasters pay to stream online to a level that would, in effect, equal what they'd pay for an over-the-air royalty. It would also impose the "willing buyer willing seller" standard to royalty rate settings for media currently using 801(b). 

Currently, under the "willing buyer/willing seller" standard, when CRB judges determine the royalty rate at which webcasters pay copyright owners and performers for the use of sound recordings, they do not (and in fact, are instructed to not) consider the "real world" ramifications of their determination, only the perceived economic value of the right.

"In setting royalties, (801(b)) assesses not only the economic value of the sound recording, but also the public interest in the wide dissemination of the copyrighted material and the impact of the royalty on the service using the music," explains attorney David Oxenford (here).

The 801(b) standard is a set of four criteria the U.S. Copyright Office has historically used to determine a royalty rate. They are:

  • Maximize the availability of creative works to the public;
  • Insure a fair return for copyright owners and a fair income for copyright users;
  • Reflect relative roles of capital investment, cost, and risk, and;
  • Minimize disruptive impact on the industries involved.

Read 801(b) of the Copyright Act here.

More, including commentary, coming soon in RAIN.

Paul Maloney
September 21, 2012 - 11:25am

Groups representing the consumer technology industry and major online media companies, as well as Internet radio's largest webcaster, have now publicly supported the Internet Radio Fairness Act, introduced to both houses of Congress today by Reps. Jason Chaffetz (R-UT) and  Jared Polis (D-CO) and Sen. Ron Wyden (D-OR).

Michael Petricone, senior vice president of government and regulatory affairs, Consumer Electronics Association (CEA): "Under today’s outdated rules, Internet radio providers are forced to pay a significantly larger percentage of royalties than their competitors," commented CEA SVP/Government and Regulatory Affairs Michael Petricone. "This irrational and unfair royalty system hinders investment and innovation in Internet radio. The changes proposed by the Internet Radio Fairness Act are simple and long overdue... We urge the House and Senate to pass the Internet Radio Fairness Act as quickly as possible."

The CEA represents two-thousand consumer technology companies and produces the International CES, the world's largest consumer technology tradeshow.

In Pandora's statement supporting the bills, company founder and Chief Strategy Officer Tim Westergren said, "Royalty rates for different formats of digital radio are astonishingly unequal... Last year, Pandora paid roughly 50% of its total revenue to royalties, more than six times the percentage paid by SiriusXM." He added, "A more equitable rate structure would drive investment and innovation, bringing greater choice for consumers, and ultimately greater revenue for performing artists."

Pandora remains the far-and-away leading webcaster in Internet radio, with nearly 1.3 million "Average Active Sessions" in the U.S. only (M-Su 6a-12M), according to Triton Digital Webcast Metrics (here). This is seven times that of the nearest competitor, Clear Channel, and represents listening growth of 89% so far in 2012.

CCIA (the Computer & Communications Industry Association) counts Google, Microsoft, Yahoo!, Ebay, and Pandora among its members.

CCIA President/CEO Ed Black said, "Charging different rates for different digital radio providers is fundamentally unfair and goes against the interests of an economy that has time and again chosen to boost competition and innovation." VP Matt Schruers added, "This legislation would update the law to no longer discourage competition since technology has enabled different distribution methods for radio offerings."

Representing larger webcasters, online media, digital services, and technology innovators, DiMA (Digital Media Association) members include Amazon, Apple, Live365, Real/Rhapsody, Slacker, YouTube, and more.

DiMA Executive Director Lee Knife said today, "The 801(b) standard has been widely used for nearly half of a century; and it’s worth pointing out that those who complain about applying the 801(b) standard to Internet Radio today have conspicuously never complained about the application of that very standard by the CRB when setting the rates to be paid for their mechanical licenses."

Broadcast groups like Clear Channel and Salem Broadcasting are also reportedly in support of the bill, and several others are expected to issue statements to that effect. 

Paul Maloney
September 21, 2012 - 11:25am

Two radio industry groups have issued statements of support for the just-introduced Internet Radio Fairness Act (here).

Both thanked Reps. Chaffetz and Polis and Sens. Wyden and Moran for the introduction of the bill, and decried the unfairness that Internet radio alone is subjected to rates determined not by the 801(b) standard of the Copyright Act, but by the imagined marketplace of the "willing buyer willing seller" standard.

"In 1998, Congress passed the Digital Millennium Copyright Act (DMCA), instructing the Copyright Royalty Board (CRB) to set (an Internet royalty) rate 'that a willing buyer and a willing seller would agree to,'" explained Kurt Hanson, founder and CEO of webcaster AccuRadio (and publisher of this newsletter), speaking on behalf of the Small Webcaster Alliance (which includes services like Digitally Imported, 977 Music, and Radio Paradise). "The difficult-to-interpret language of that standard has been a nightmare for our industry ever since, leading to CRB decisions that have forced Internet radio companies to pay unreasonably high royalty rates and hindering innovation and growth."

The National Association of Broadcasters joined in support of the bills. "NAB... strongly supports legislative efforts to establish fair webcast streaming rates. NAB will work with the bill's sponsors and all interested parties to create broadcast radio streaming rates that promote new distribution platforms and new revenue streams that foster the future growth of music."

We expect to soon have reaction from other supporters, as well as opposition statements from music industry representatives like the RIAA, SoundExchange, and performers organizations, as well as Congressional opponents to these bills.

Paul Maloney
September 21, 2012 - 11:25am

The iHeartRadio Music festival opens tonight at the MGM Grand in Las Vegas, and will feature performances from Taylor Swift, Aerosmith, Rihanna, Usher, Bon Jovi, Brad Paisley, Lil Wayne, Green Day, Swedish House Mafia, No Doubt, Pitbull, deadmau5, Miranda Lambert, Calvin Harris, Enrique Iglesias, Linkin Park, Jason Aldean, P!nk and Mary J. Blige.  This week superstar performer Shakira bowed out of the 2-day event, announcing she's pregnant.

Also this week Yahoo! announced it will stream the concert live in HD. The show will also be broadcast on Clear Channel radio stations and streamed to the Xbox.

It's the second-annual iHeartRadio concert. The first coincided with the launch of the Clear Channel-owned Internet and mobile radio initiative, iHeartRadio.