Interim FIRST Act

From today's early edition: Pandora CEO Kennedy, Hubbard CEO Reese, SoundExchange Pres. Huppe to speak on Capitol Hill

Wednesday, November 28, 2012 - 11:25am

The Internet Radio Fairness Act will get its first exposure in Congress today since its introduction, as the House Judiciary's Subcommittee on Intellectual Propery, Competition, and the Internet will hold a hearing called "Music Licensing Part One: Legislation in the 112th Congress" at 11:30am ET (10:30am CT). You can stream video here.  

IRFA backers contend the bill is necessary to allow Internet radio to more fairly compete against other forms of digital radio (more details here). Joseph Kennedy, Chairman/CEO of leading webcaster Pandora will speak in support of the bill, as will Hubbard Radio President/CEO Bruce Reese, who'll appear on behalf of the National Association of Broadcasters.

Former eMusic COO/CEO and Apple Music Group cofounder David Pakman will also appear. Pakman is now a partner at Internet and digital media investment firm Venrock, and writes the Disruption blog.

Critics of the IRFA say the bill would only result in lower payments to copyright owners and performers. Some support a draft of a bill called the Interim FIRST Act (more here), which may also be discussed in the hearing. Representing copyright owners and the music industry will be producer, songwriter, and recording artist Jimmy Jam (who's also The Recording Academy Chair Emeritus). He'll be joined by SoundExchange president Michael Huppe. Also speaking will be economist Dr. Jeffrey Eisenach, Managing Director/Principal of Navigant Economics.

To get the most out of today's hearing, it may help to have a handle on a couple key concepts:

801(b): That's the section of the Copyright Act (you can read it here) that sets out four important criteria Copyright Judges are required to follow when they decide royalty rates. Paraphrasing, 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.

"Willing buyer willing seller": This is the standard upon which Internet radio royalties are currently based, as per the 1998 Digital Millennium Copyright Act. With that law, Congress decided the webcast royalty process should eliminate 801(b)'s concern for the public's access to creative works, minimizing disruption, and fairness -- and instead require judges to devise a rate solely on what they think reflects the "fair market value" of the licensed works. That is, what a hypothetical "buyer" would be willing to pay to a hypothetical "seller" (the "buyer" being the licensing service, the seller being the copyright owner) in a free market.

The Internet Radio Fairness Act: The focus of the bill is to move webcast royalty determinations from the "willing buyer willing seller" standard to 801(b), the standard used for determining the royalties paid by Internet radio's two most-similar competitors: satellite radio and cable television radio. (It also happens to be the standard used to determine what record labels pay for the use of copyright song compositions when manufacturing recordings.)

The Interim FIRST Act: Draft legislation that's main focus would be to make all three digital radio platforms (Internet, satellite, and cable radio) use the "willing buyer willing seller" standard in royalty determinations.

Performance royalty: One final note that what will (most likely) be discussed will be the royalties these services pay for the use of copyright sound recordings (as opposed to song compositions). The beneficiaries of this royalty are copyright owners (usually record companies), and recording artists and performers.

We'll have follow-up coverage and analysis of the hearing later today. Please check back.

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).

Billboard.biz 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."

Billboard.biz's coverage is here.

Internet Radio Fairness Act co-sponsor Stark fails in re-election

Wednesday, 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.

Pandora's Westergren: Nadler's legislation would only worsen "astonishingly unfair" royalty situation

Thursday, August 23, 2012 - 12:05pm

Nadler's oppositionNew draft legislation from U.S. Representative Jerrold Nadler (D-NY) has sparked backlash from webcasters and broadcasters alike. The bill's opponents say it discrimnates against new technology and would kill jobs.

Nadler's bill, the Interim FIRST Act, would raise streaming royalty costs for AM/FM broadcasters by imposing an extra fee (essentially adding an over-the-air performance royalty to broadcasters' streaming bills; RAIN coverage here). It would also potentially raise royalty rates for satellite and cable radio by shifting those platforms' rate determinations to the "willing buyer/willing seller" model, instead of the 801(b) standard.

"Fairness demands that all music related rate settings utilize the same 801(b) standard," argued Pandora founder Tim Westergren in a statement.

Westergren called the current royalty system "astonishingly unfair," with Internet radio paying substantially higher rates than other radio platforms. Pandora paid nearly 70% of total revenue to royalties (based on its Q1 FY 2013), compared to SiriusXM which pays about 8%.

"Congressman Nadler’s discussion draft would only perpetuate this hypocrisy and worsen an already flawed legislative mistake that is discriminating against new technology and hampering innovation."

Cathy Rought of the Free Radio Alliance (FRA) said Nadler's bill "is misguided and would cause irreversible harm to free and local radio" (more here). The FRA continues on its blog (here): "It's clear that the ultimate objective is a back door attempt at a performance tax."

NAB spokesperson Dennis Wharton agreed, saying the draft legislation "fails to recognize" radio's "unparalleled promotional value" and "would kill jobs" at radio stations.

The National Religious Broadcasters (NRB) also "strongly opposes" Nadler's legislation, writing in a statement that it "would place a new and unwarranted burden on many Christian radio broadcasters" (more here).

Westergren quoteTechDirt's Mike Masnick writes (here), "As it stands now, [royalty] rates are so damaging that Pandora -- the top player in the space -- has made it clear it may never be profitable. Yes, never. Nadler's bill would effectively make sure that no one else in that market would be profitable either. The end result? Many of these services don't exist or never get started. That would actually mean fewer services, fewer listeners and lower royalties."

Nadler's bill has the support of the musicFIRST Coalition, which argues it would implement a system "that treats artists and platforms fairly and equally." Nadler thinks his bill would "both level the playing field for Internet radio and ensure that artists are fairly compensated."

Pandora disagrees, instead supporting legislation from Rep. Jason Chaffetz (R-UT). Chaffetz's bill, the Internet Radio Fairness Act of 2012, would move web radio royalty rate determinations to the 801(b) standard -- the same standard currently used to set rates for radio delivered via satellite, cable and other platforms (RAIN coverage here).

"Congress should embrace the Chaffetz approach," said Westergren. The Hill has more coverage here.

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