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Pandora faces off with traditional radio as Congress debates music royalties

Pandora faces off with traditional radio as Congress debates music royalties


The recording industry spars with broadcasters over fairness

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US Capitol 5 (Verge Stock)
US Capitol 5 (Verge Stock)

Today the House Judiciary Committee held a hearing on music licensing as a first step toward voting on HR 6480, the Internet Radio Fairness Act of 2012, which would set new standards for determining internet radio royalty rates. It's an issue that Congress has struggled with for more than a decade, and its involvement has resulted in several stop-gap bills to appease the music industry. Both sides, radio broadcasters and the recording industry, say they want a fairer way to determine what the price of music should be. Much of the disagreement surrounds the rates set by the Copyright Royalty Board (CRB) — a trio of judges that set rates and terms for statutory licenses, which allow broadcasters to use and pay for copyrighted works without the artist's express permission. But the topic of internet radio took a back seat for much of the hearing, as the recording industry latched onto traditional radio's exemption from having to pay performers.

The basis for a new law stems from internet radio's entry into the market, which was nurtured (and arguably enabled) by Congressional intervention with the Digital Performance Right in Sound Recordings Act of 1995. That bill allowed digital broadcasters to play music on the internet. Since 1995, Congress has intervened multiple times in the debate to set payment rates for music, including several Webcaster Settlement Acts, enacted in the 2000s, that allowed webcasters to bypass the CRB to negotiate royalty rates with copyright holders. Just three years since the last settlement act, the parties have once again returned to the Congressional table to resolve their differences.

"We don't have a market here. Very few willing sellers, only a few buyers."

Pandora CEO Joseph Kennedy was first to testify at today's hearing, and argued that the existing scheme for setting rates doesn't work in practice. Kennedy said that there is no real market for determining the radio rates fairly, and that there's also "evidence that the recording industry has actively worked to prevent such a market from developing." That rhetoric is in tune with other internet radio advocates who have argued that current laws, which exempt terrestrial radio from paying for music, constitutes discrimination against internet radio. Bruce Reese, representing the National Association of Broadcasters, echoed Kennedy's concerns, but for different reasons: traditional local broadcasters, he says, want to offer streaming services, but can't afford the cost of royalties and infrastructure. "There is one primary reason," Reese says. "Unaffordable royalty rates." Kennedy agreed later in the hearing, claiming that "this is not a Pandora-specific issue," and that if Congress had not intervened last decade, the company would have had gone out of business from having to pay "more than 100% of our revenue in royalties." This year, Pandora will pay SoundExchange, a music clearinghouse, almost $250 million in royalties — more than half of the company's revenue. So where's all that money going?


Witnesses from the recording industry, predictably, argued that artists are hurting and can't afford any cuts in royalties — which go towards paying performers, songwriters, labels, and support staff. Jimmy Jam, a representative for The Recording Academy, said that "the majority of recording academy artists are middle class," and that "it's hardly fair" to force performers to sell their music at artificially low rates. Jam criticized Pandora for offering musicians a "tenth of a penny" for a song play, which amounts to just $4 of royalty revenue for about a year's worth of music, assuming users average 20 hours of listening a month. "That is less than some people in this room spent for coffee this morning," noted Michael Huppe, president of SoundExchange. Huppe says only half of that $4 goes to directly to artists.

But the focus of the recording industry wasn't just on paltry internet radio royalties: Jam said said that the argument for internet radio rates "fails to mention the most unfair aspect of the music royalty debate" — that radio stations in the US pay royalties to songwriters, composers, and publishers, but not to performers. Huppe agreed, saying that "the biggest elephant in the room is the $14 billion" radio industry, which doesn't pay royalties to performers. Reese, from the National Association of Broadcasters, justified the exemption by pointing to the promotional value of radio for performers. (He was cut off by Representative Darrell Issa (R-CA), who pointed out that Pandora would be happy to spend money to promote performers if the music was free). Huppe then sparred with Reese over the chicken and the egg, trying to sort out whether radio exists because of music, or vice versa — but neither reached the obvious conclusion that each played a part in the other's success.

"I'm still trying to figure out why artists and performers don't get a dime."

Several members of Congress at the hearing sympathized with the argument against traditional radio's special protection, which dominated much of the discussion. Representative John Conyers (D-MI) said "I'm still trying to figure out why artists and performers who play 24-7 on terrestrial radio don't get a dime." Others, like Representative Jim Sensenbrenner (R-WI), grumbled over having to deal with this issue at all. "Here we are back again," Sensenbrenner said. "Mr. Kennedy, when is a deal a deal?"

With industry representatives exchanging familiar blows and cherry picking stats about corporate revenues, there wasn't a clear victory for either side today — though the majority of members in the room appeared to side with the recording industry, particularly concerning traditional radio's exemption from royalty payments. We're not sure how the committee will land on the bill, but at least for now, internet radio's future seems tied to traditional radio's past.

Correction: The original version of this article mistakenly identified comments made by Rep. Jim Sensenbrenner (R-WI) as those made by Rep. Bob Goodlatte (R-VA). The attribution has been corrected, and we apologize for the error.