Jerrold Nadler

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.

Bill would potentially raise satellite, cable and AM/FM streaming royalty rates

Tuesday, August 21, 2012 - 1:00pm

Rep. Jarrold NadlerA new draft bill from U.S. Representative Jerrold Nadler (D-NY; pictured) aims to raise AM/FM streaming royalty rates, in effect implementing an over-the-air performance royalty. It would also potentially raise royalty rates for satellite and cable radio to the same levels as those for Internet radio.

Nadler's bill, dubbed the Interim FIRST Act and currently in "discussion draft" form, would "put cable and satellite radio services on the same royalty-setting standard as Internet radio," reports The Hill. That would mean switching cable and sallelite from the 801(b) standard, to the "willing buyer/willing seller" model currently used to determine web radio royalty rates.

Additionally, the Interim FIRST Act would "make traditional radio stations pay a higher fee for live-streaming their broadcast online." Nadler intends for this extra free to "make up for broadcasters not paying a fee when they play artists' songs over the air," writes The Hill.

Quote from Rep. NadlerThat extra fee would wind up being what the Copyright Royalty Board decides "most clearly represents the royalty that would have been negotiated in the marketplace between a willing buyer and a willing seller for the public performance of sound recordings by means of over-the-air non-subscription broadcast transmissions by affiliated terrestrial broadcast radio stations," reads Nadler's draft bill (Section 3).

Technically, it's not royalty on over-the-air radio. But it amounts to paying a royalty for over-the-air (plus the streaming royalty) if a station also chooses to stream.

An over-the-air performance royalty appears to be the overall goal here. Comments from the musicFIRST Coalition seem to explain the Interim FIRST Act's name: "The only real solution is for Congress to create a legal performance right, but raising terrestrial radio’s digital royalties is an important interim step towards that goal." Said Nadler in a statement: "The lack of a performance royalty for terrestrial radio airplay is a significant inequity and grossly unfair. We can’t start a race to the bottom when it comes to royalty rates and compensation for artists."

As for changing the standard for satellite and radio platforms from 801(b) to "willing buyer/willing seller," how much of a difference will that really make? While we'd have to wait for a determination from the Copyright Royalty Board to definitively answer that question, consider this: 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 based on on a deal Pandora struck that actually decreased its obligation from the CRB decision -- a decision based on "willing buyer/willing seller").

In July, we reported on (here) separate in-progress legislation from Rep. Jason Chaffetz (R-UT). That bill also aimed to bring more equality to radio royalty rates, but did so by potentially lowering web radio rates by determing streaming rates using the 801(b) standard.

Nadler says Chaffetz's bill -- which has Pandora's support -- could potentially "hurt performing artists." Not surprisingly, the musicFIRST Coalition has voiced support for the draft bill while the NAB opposes it.

You can find the discussion draft version of Nadler's bill here (PDF). The Hill has more coverage here.

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