Internet Radio Fairness Act

Like presidential opponents, royalty bill foes rail against "burdensome regulation" and "cheating the middle class"

Monday, November 5, 2012 - 12:05pm

An article in yesterday's New York Times likens the conflict over Internet radio royalties to the presidential race: business suffering under government-inflicted costs vs. wealthy industrialists cheating the middle class.

What the different players are saying sure makes the comparison apt.

Pandora founder Tim Westergren told journalist Ben Sisario, "This adversarial reaction toward Internet radio is counterproductive. It’s causing other businesses to sit on the sidelines, and that is hurting musicians. Ultimately, you want to have many boats in the harbor."

But MusicFirst Coalition, the record industry group that's the main face in the fight against proposed royalty reform, "says it believes that if Pandora gets everything it wants, it could cut its royalty bill by up to 85%," writes Sisario.

The Internet Radio Fairness Act, co-sponsored in the House of Representatives by Republican Congressman Jason Chaffetz of Utah (more here), would require Copyright Judges who determine Internet radio's royalty rates to make their decisions using the "801(b)" standard of Copyright Law, instead of the controversial "willing buyer willing seller." Webcasters like Pandora support the bill, as all other forms of digital radio have their royalties set using 801(b). The music industry is firmly against the bill.

Westergren said, "No one has yet explained to us why Internet radio is under a different standard. No one responds to that fundamental premise."

Naturally, for RIAA CEO Cary Sherman, it's really a matter of companies like Pandora trying to cheat the "entire music community" out of "a fair return on the creative works that are the reason companies like Pandora exist."

Clear Channel CEO Bob Pittman is largely credited with making his company a major online radio force with its launch of the iHeartRadio platform. He says the record industry is wrong to focus on rates. With lower rates, more companies will stream more music, and lead to more income. "If the rate suppresses the volume, there’s less money. If it encourages volume, there’s more money."

Of everyone siding with Internet radio services, it was Rep. Chaffetz himself who stood out with a shot at the music industry establishment: "The old-school dinosaurs are trying to help, but they’re stuck in the tar. They can go talk to the pterodactyls."

Read the New York Times article here.

Public Knowledge breaks down details of Internet Radio Fairness Act

Friday, November 2, 2012 - 11:10am

A staff attorney at Public Knowledge named Jodie Griffin has posted a detailed examination of all the provisions of the Internet Radio Fairness Act, including the necessary background concerning the Copyright Act, the CRB, and the matter of the two key legal standards the CRB uses in determining digital performance royalty rates.

The Internet Radio Fairness Act is a bill in both houses of Congress to create a more level playing field for Internet radio concerning sound recording royalties. It was introduced to the House by Reps. Jason Chaffetz (R-UT) and Jared Polis (D-CO) and in the Senate by Sen. Ron Wyden (D-OR) (more here).

Public Knowledge is a non-profit public interest group focusing on "intellectual property law, competition, and choice in the digital marketplace, and an open standards/end-to-end internet."

While most coverge of the IRFA (including this publication's) has focused on the bill's key provision -- that is, changing the rate-determination standard from "willing buyer/willing seller" to 801(b) -- the IRFA would make other changes to the royalty process for Internet radio (which industry expert David Oxenford has covered, more here). Griffin's article points out these additional provisions of the bill.

"The change from the willing buyer/willing seller standard to the 801(b) standard is widely anticipated to significantly lower the royalty rates that online radio services pay," she writes. "There is also a substantial need here for more economic data and analysis to predict what practical impact this bill would have on consumers, artists, and online music services... The explanation of how this would actually impact the online music marketplace and artist revenues is tricky and deserves a post of its own, so I will leave that discussion for next week."

Griffin's article is on the Public Knowledge site here. A somewhat more detailed run-down, as well as a "redlined" excerpt of the copyright law, showing the bill's additions and deletions to the code, can be found here

CRB oral arguments on SiriusXM rates veer away from 801(b) and toward "marketplace" evidence

Thursday, November 1, 2012 - 1:30pm

Satellite radio provider SiriusXM, cable radio provider Music Choice, and music industry royalty administrator SoundExchange recently made their oral arguments before the U.S. Copyright Royalty Board on the matter of sound recording royalties for their next 5 year term (more in RAIN here). And while the law mandates that the rate-setting for royalties for these media is to be governed by the "801(b)" standard, industry legal expert David Oxenford reports the actual argument that took place "focused on the value of music in a marketplace -– essentially the 'willing buyer, willing seller' question."

Oxenford reports that "while other 801(b) factors were discussed, they were seemingly passed over quickly, with most of the focus being on the questions of the marketplace value of the music."

SiriusXM themselves used as evidence the direct licensing deals it has negotiated with dozens of record labels and artists as a benchmark for "the true marketplace value of music," Oxenford notes. "Sirius argued that these deals showed the true marketplace value of music, as they were negotiated outside of the royalty process by a willing buyer (Sirius XM) and willing sellers (the labels)."

What Oxenford is pointing out here is that even when the 801(b) standard is mandated for royalty-setting, there's no guarantee that judges won't use the marketplace precendents of "willing buyers and willing sellers" in their determinations.

Here's why this is important: Currently, the law requires copyright judges, when determining royalty rates for all forms of digital radio except Internet radio (and HD Radio, which pays no such royalty), base their decisions on the objectives of the 801(b) standard (named for its location in the Copyright Act). Those objectives are:

(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.

As Oxenford has explained (here), "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."

Judges use a different standard when they set rates for Internet radio. Instead of 801(b), the Digital Millennium Copyright Act requires judges to determine a rate based on what a "willing buyer" and "willing seller" might agree to in the marketplace. But no significant real-world examples of "willing buyer willing seller" agreements between webcasters and copyright owners exist. So judges are compelled to imagine a hypothetical marketplace based on the arguments of advocates for copyright owners and users to determine a rate. They do not (and in fact, are instructed to not) consider how their decisions affect the return on players' investments in the industry, or the public's access to creative works, only the perceived economic value of the right.

The bottom line result of using these two different standards: while royalties for SiriusXM are currently about 8% of its revenue, Internet radio royalty rates amount to 50%-100% of revenue (Pandora's latest finances would have them paying 70% of their revenue) or more.

The Internet Radio Fairness Act (more in RAIN here), a bill in both houses of Congress, would attempt to address this discrepancy by changing the Internet radio rate standard from "willing buyer willing seller" to "801(b)," the same standard used for satellite- and cable-radio royalties. If the IRFA is adopted, it would apply when the CRB next reviews webcasting rates in a case that will be decided by the end of 2015.

But, as Oxenford notes, "the (SiriusXM) oral argument made clear that the adoption of the 801(b) standard is not in and of itself a panacea for the concerns about the royalties that have been set by the Copyright Royalty Board."

Read Oxenford's report in the Broadcast Law Blog here. David Oxenford is a Washington, D.C.-based partner at Wilkinson Barker Knauer, LLP. He represents digital media companies, including a number of Internet radio companies, before the Copyright Office, the Copyright Royalty Board, and other government agencies. He advises them on music royalty issues as well as other general business and regulatory matters. He's a regular expert speaker at RAIN Summit events, and a regular contributor to this publication.

IRFA will ensure "best, fairest process possible" for royalties, says digital advocacy group EFF

Thursday, November 1, 2012 - 1:30pm

Non-profit digital rights advocacy and legal organization Electronic Frontier Foundation yesterday published an editorial supporting passage of the Internet Radio Fairness Act.

That's the bill, introduced to both houses of Congress, that advocates say "would establish an equitable royalty rate setting standard for Internet radio" (background in RAIN here). The bill, among other measures, would require copyright judges to determine sound recording royalty rates for Internet radio using the "801(b)" standard of the Copyright Act (as is used for all other forms of digital radio), instead of the DMCA-mandated "willing buyer willing seller" standard.

(You can read more on 801(b) and "willing buyer willing seller" here.)

"Congress gave older, more established companies a leg up. For satellite and cable radio, the judges set prices to give the labels and artists a 'fair return' and the music service a 'fair income,'" writes EFF. The "fair return" and "fair income" refer to the 801(b) standard. "In practice, the judges tell these services to pay about 10% of their revenues to the artists and labels. For Internet radio, though, the judges are supposed to set rates based on what a 'willing buyer and a willing seller' would do in an open market. This sounds pretty good, except that there is no open market, so there’s no consistent benchmark. As a result, judges have set Internet radio royalty rates at cripplingly high levels."

The EFF piece concludes, "As long as the government is setting these rates, they should be using the best, fairest process possible. The Internet Radio Fairness Act will help make that happen."

Read the EFF editorial on their website 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.

In blog post, Westergren shows how even little-known acts are seeing income from Pandora play

Wednesday, October 10, 2012 - 12:00pm

As it's done so well in the past, leading webcaster Pandora is showing an expert's edge in gathering support among its listeners and their representatives in Congress for the newly-introduced Internet Radio Fairness Act. Now, in his blog, Pandora founder Tim Westergren makes the case that a healthy, thriving Pandora is important for the future viability of artists.

Westergren reveals that his service in 2012 will pay $100,228, $138,567 and $114,192, respectively, in royalties for the use of music by Donnie McClurkin, French Montana, and Grupo Bryndis.

"They are artists whose sales ranks on Amazon are 4,752, 17,000 and 183,187, respectively," Westergren wrote. "These are all working artists who live well outside the mainstream - no steady rotation on broadcast radio, no high profile opening slots on major tours, no front page placement in online retail. What they also have in common is a steady income from Pandora."

He also reveals that his service will pay nearly $3 million each in royalties to play the music of performers Drake and Lil Wayne; for Coldplay, Adele, Wiz Khalifa, and Jason Aldean, it's more than a million dollars each.

"For over two thousand artists Pandora will pay over $10,000 dollars each over the next 12 months... and for more than 800 we'll pay over $50,000, more than the income of the average American household."

Further, he cites research from the NPD Group that concludes that Internet radio has a positive effect on both music sales and curtailing music piracy.

While record label-, artist-, and performer-lobby groups and unions like musicFIRST, AFTRA, and the AFM have publicly spoken against the IRFA, it's clear Westergren is looking to appeal to the actual artist members to support royalty reform.

"Making performance fees fair for Internet radio will drive massive investment in the space, accelerating the growth of the overall sector, and just as importantly accelerating the development of new technology that leverages the incredible power of the Internet to build and activate new audiences. That's where the great opportunity lies in the long run. The short-term reduction in revenue would be rapidly swamped by the overall growth of the sector. Imagine the impact on artists if this industry grew to become 25% or even 50% of radio listening," he concludes. "Artists, this is your future. Own it."

Read Westergren's blog here. Business Insider has coverage here

Syndicate content