Internet Radio Fairness Act

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.

Leading webcaster enlists D.C. law firm to lobby for bill, creates user resources page

Wednesday, September 26, 2012 - 2:40pm

Pandora is once again enlisting the power of its massive listenership -- not to mention some good old-fashioned professional lobbyists -- in hopes of getting lawmakers on board the recently-introduced Internet Radio Fairness Act.

The IRFA would instruct copyright judges who determine copyright royalties to use the same legal standard for Internet radio royalties as are used for satellite and cable radio. Internet royalties are currently based on a different standard, and webcasters pay a vastly higher percentage of their revenue to use music than other forms of radio.

Shortly after the bill dropped this week, Pandora began directing users to its dedicated "Support the Internet Radio Fairness" page. The page features a one-minute video of founder Tim Westergren explaining the bill and how to contact their Reps and Senators (using links on the page). There's a "frequently asked questions" section with further explanation, and links to post to Twitter (you can search the hashtag #FairNetRadio to see the traffic) and Facebook. Pandora listeners also received an e-mail from Westergren (here) requesting their help.

Pandora has in the past asked listeners to get behind its legal fights, with enthusiastic results.

Meanwhile, the company has also reportedly enlisted Washington, D.C. law firm Constantine Cannon for lobbying help with lawmakers. According to LegalTimes' blog The BLT (here), Pandora spent $90,000 on federal lobbying during the first half of this year.

Congress won't likely touch Internet Radio Fairness Act until after elections

Monday, September 24, 2012 - 12:25pm

The webcasting industry-backed Internet Radio Fairness Act, introduced to both chambers of Congress on Friday (see RAIN here), made The New York Times this morning, and journalist Ben Sisario presented the complicated manner in as clear and straightforward a way as we've seen.

"Willing buyer, willing seller. Those four words would seem innocuous, but in the world of Internet radio nothing is more contentious," read the opening paragraph.

As we reported, the bill would move noninteractive webcast services from the "willing buyer, willing seller" standard to the one used to determine rates for SiriusXM Radio and cable radio like Music Choice (known as 801(b), which is also the standard that record labels are happy is used when the rates for royalty rates they pay to songwriters and publishers are determined).

"That model would let the panel of federal judges that set the rates consider evidence both on the value of the music and on the effect the royalty rate would have on the industry overall. Pandora and its supporters believe that standard would yield lower rates," according to The Times. "Record labels and artists... believe that the existing rates are fair and accuse Pandora and others of wanting to deprive copyright holders of the income they deserve."

Congress will likely wait to deliberate the issue until after the national elections in November ("and probably into the spring," wrote Sisario).

We highly recommend Sisario's concise and even-handed treatment of the matter, and recommend you share it with listeners and clients. You can see it in The New York Times here. Finally, for a clear and entertaining analogy that demonstrates why "willing buyer, willing seller" can't work, please see RAIN publisher Kurt Hanson's "State of the Industry Address" from last week's RAIN Summit Dallas here (you can also launch the audio from the box in the right-hand margin of RAIN) -- scroll ahead, it's near the end (about 20 minutes in) of the speech.

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.

CEA, Pandora, and more add their support for Internet Radio Fairness Act

Friday, 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. 

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.

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