Rep. Chaffetz: Congress should pass laws to encourage, not discourage, American innovation

Thursday, February 14, 2013 - 1:10pm

As we reported yesterday (here), representatives of small business webcasters and independent musicians traveled to Washington, DC yesterday and visited with nearly two dozen House representatives and staffs. Their ultimate aim: the passage of legislation that not only would lighten Internet radio's sound recording royalty burden, but would encourage American innovation in this sector.

A dozen of these small webcasters visited with Rep. Jason Chaffetz (R-UT) to thank him for his House sponsorship of the Internet Radio Fairness Act (IRFA), and the leadership position he is taking.

Chaffetz spent 20 minutes with the group, making a impassioned and compelling case for the importance of Congress passing laws to encourage — and not discourage — American innovation.

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

The IRFA was introduced into both chambers in the last Congress, and expected to be re-introduced this session.

In addition to webcasting professionals from operations like ShockNet Radio and HD Radio Network, several independent musicians joined the effort: Ivan Trevino of the instrumental rock band Break of Reality (more here), blogger and former member of The Rosenbergs David Fagin (read more from Fagin here), and country artist Bobby Ross.

Yesterday's group also included Liquid Compass CEO Zackary Lewis, Educational Media Foundation (EMF) in-house counsel Brian Gantman, and AccuRadio founder (and RAIN publisher) Kurt Hanson.

Competing royalty bills to come up in next Congress, reports Billboard

Monday, November 26, 2012 - 10:50pm

Word has officially come that the House Judiciary Subcommittee on Intellectual Property, Competition and the Internet will hold its hearing on Internet royalties on Wednesday (as we covered here). The hearing begins at 11:30am ET in the Rayburn Building. The witness list hasn't yet been published (we assume it will be, here). reports the Internet Radio Fairness Act (covered in RAIN here) will be re-introduced in Congress next year. It was introduced to this Congress by Reps. Jason Chaffetz (R-UT) and Jared Polis (D-CO) in the House and Sen. Ron Wyden (D-OR) in the Senate. The news source also finds it likely the competing bill, Rep. Jerrold Nadler's (D-NY) Interim FIRST Act (more in RAIN here) will be introduced.

The IRFA will attempt to bring the Internet radio royalty process in line with those for other forms of digital radio (satellite, cable) by requiring the use of the 801(b) standard (more here). Internet radio rates are uniquely determined by trying to replicate a market rate via a standard known as "willing buyer willing seller."

Nadler's Interim FIRST Act would apply "willing buyer willing seller" to satellite and cable radio royalty settings. Additionally, it would require broadcasters to pay a royalty for streaming their online content that would, in effect, "make up for broadcasters not paying a fee when they play artists' songs over the air."'s coverage is here.

House subcommittee to hold hearing on Net radio royalties

Monday, October 29, 2012 - 1:20pm

Inside Radio is reporting the House Judiciary Subcommittee on Intellectual Property, Competition, and the Internet will gather for a hearing on how Internet radio royalties are determined (there's no date or witness list yet).

Reforming the process for setting Internet radio royalties is at the heart of the Internet Radio Fairness Act (see RAIN here), recently introduced to both houses of Congress. The IRFA would require copyright judges to use the same "801(b)" standard in setting the royalty rates for Internet radio it uses for other forms of digital radio, like cable and satellite.

The House bill, H.R.6480, is co-sponsored by subcommittee members Jason Chaffetz (R-UT), Darrell Issa (R-CA), and Zoe Lofgren (D-CA). The subcommittee is chaired by Virginia Republican Bob Goodlatte.

Last week (in RAIN here) the Internet Radio Fairness Coalition, a group of interested webcasters, broadcasters, and technology groups, launched to support passage of the bill.

IRFA's royalty reforms not limited to change in rate-determining standard

Tuesday, October 9, 2012 - 11:55am

Most of the focus of the recently-introduced Internet Radio Fairness Act (in RAIN here) centers on the change of the legal standard by which Net radio royalties are determined. Namely, the bill calls for abandoning the "willing buyer/willing seller" standard in favor of what's known as 801(b) (for its location in the Copyright Act).

But the bill isn't limited to this single point. In a Broadcast Law Blog post, Net radio legal expert David Oxenford (pictured) explains some of the other points included in the bill intended to enhance the viability of a webcasting market in the U.S.

(To review, Internet radio sound recording royalties are based on what Copyright judges think a willing buyer and willing seller would agree to in a marketplace transaction -- a hypothetical one at that. If royalty judges were compelled to base their decisions on the 801(b) standard, as they are for satellite and cable radio royalties, they'd have to consider how their decision (A) Maximizes the availability of creative works to the public; (B) Affords the copyright owner a fair return on his/her creative work and the copyright user a fair income under existing conditions; (C) Reflects the relative roles of the copyright owner and the copyright user with respect to creative and technological contributions, capital investment, cost, risk, and contribution to opening new markets; and (D) Minimizes any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.)

In addition to the very important standards change, first of all, the IRFA calls for rates set by Webcaster Royalty Act settlements expiring in 2014 be extended through 2015. But perhaps more importantly, the bill removes "the precedential effect" of past royalty decisions. Moreover, it "explicitly put(s) the burden of proof on the parties seeking a royalty that the royalty... is reasonable -– a standard that is common in ASCAP and BMI rate court litigation, but is not at all addressed in the current Copyright Act addressing the sound recording performance royalties set by the CRB," Oxenford writes. Additionally, the IRFA changes the law in that it specifically removes "any suggestions that certain aspects of recent royalty decisions were in fact the preferred way of reaching a royalty decision." 

One important (and contentious) point between record labels and webcasters has been the "promotional" aspect of online plays. Remember, broadcasters' exemption from this royalty for over-the-air plays of copyright sound recordings is based on the fact that playing this music helps sell it. The record industry has a long history of reinforcing this very argument by way of promoting music to radio (even as far as committing payola, in some instances). But labels have gone out of their way to claim that online play doesn't at all help their sales (despite evidence to the contrary). The Chaffetz bill requires that a royalty rate decision should give "full-value" to "the promotional value of the playing of music by the service" and "the costs of the digital music service in putting together the programming that it features," Oxenford explains. Oxenford adds that the bill would also change to the law regarding "ephemeral" royalties -- for the use of music that's reproduced as cached files on servers, etc., which he intends to explore in a later piece.

Read Oxenford's report in Broadcast Law Blog here.

Supporters say Internet Radio Fairness Act would drive innovation and increase revenue for performers

Friday, 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.

IRFA would remove controversial "willing buyer willing seller" standard in webcast royalty determinations

Friday, 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.

Syndicate content