House Subcommittee Hears Opinions About The Internet Fairness Act, Songwriters' Groups Speak Out On Rate-Setting

Pandora's Joseph Kennedy

The House Subcommittee on Intellectual Property, Competition and the Internet has scheduled a hearing on: "Music Licensing Part One: Legislation in the 112th Congress" for this morning at 11:30a at 2141 Rayburn House Office Building.

This will be the first (of many) hearings to discuss The Internet Fairness Act, and various other proposals regarding royalty payments by webcasters.

On Today's Witness List

PANDORA Chairman/CEO JOSEPH J. KENNEDY
HUBBARD RADIO Pres./CEO BRUCE T. REESE, on behalf of the NATIONAL ASSOCIATION OF BROADCASTERS
VENROCK Partner DAVID B. PAKMAN 
THE RECORDING ACADEMY Chair Emeritus, Songwriter and Recording Artist JIMMY JAM
NAVIGANT ECONOMICS Managing Director/Principal Dr. JEFFREY A. EISENACH
SOUNDEXCHANGE Pres. MICHAEL J. HUPPE

Songwriters' Groups Speak Out On Rate Setting

In advance of a House Intellectual Property Subcommittee hearing on music licensing reform being held TODAY, ASCAP, BMI, SESAC and the NSAI have released a letter calling on Congress to address the concerns of songwriters and composers, whom the groups say are being "disadvantaged by a misaligned regulatory structure, resulting in artificially low payments to America's music creators." In a joint letter to Committee Chairman BOB GOODLATTE and Ranking Member MEL WATT, the groups laid out their reasons for opposing the Internet Radio Fairness Act of 2012.

As stated in the letter, "This undervaluation of the public performing right runs contrary to global practices which often yield two times the fees generated by U.S. license rates or more, when compared to equivalent economies, and represents a trend that is harmful to both America's music creators and the larger economy. Any Congressional examination of online music licensing issues needs to address this serious, broader issue to ensure that the interests of writers and publishers -- the very creative foundation fueling the music industry -- are not further deteriorated."

The letter points to the "gross inequities" that have developed in the music licensing landscape as a result of opposing rate setting systems applied to the amounts paid to songwriters, composers and publishers versus those paid to record labels and recording artists.

To illustrate this point, the letter notes, "PANDORA's 2012 annual report stated that it paid 49.7% of its revenue in royalties to SOUNDEXCHANGE, and 4.1% of its revenue in royalties to the U.S. PROs, namely, ASCAP, SESAC, and BMI. In other words, from the total pool of monies paid for the performance of music and sound recordings, almost 92% of the money paid by internet radio flows to record labels and performing artists through SOUNDEXCHANGE, and only 8% of it is paid to songwriters and publishers. This almost 12-to-1 disparity in SOUNDEXCHANGE and PRO payments is unprecedented in the global music marketplace. Around the world, the opposite occurs; the public performing right in the underlying music composition is paid at far higher rates than the public performance right in the sound recording. In fact, the latter right is sometimes referred to as a 'neighboring right,' in recognition that rewarding the creators of the musical work -- when it is publicly performed -- is a central tenet; without the creation of the underlying musical work, there would be nothing to record."

Testimony Of Hubbard Radio Pres./CEO Bruce Reese At Music Licensing Hearing

HUBBARD RADIO Pres./CEO BRUCE REESE, who represented the NAB, testified at the hearing, and said "Local broadcast radio is unique among music delivery platforms because it is always on, it is always free, and it is accessible to listeners in every local community across the country. There are now more than 14,000 local radio stations in the UNITED STATES. With a growing audience, over 240 million people listen to radio every week, including those in communities that are under-served by other communications platforms. Local radio is responsible for hundreds of thousands of American jobs and has been shown time and time again to be a lifeline during times of emergency.

"What makes broadcast radio so successful is the local flavor of our programming, which forges a unique connection with listeners in a way that other media do not. In a constant cycle of new technology, broadcast AM and FM radio has remained part of the fabric of American culture for more than 90 years.

"The Internet presents an enormous opportunity for broadcasters to expand both the reach and scope of locally-based services, including access to archived station materials, information about artists, and the ability to buy albums or concert tickets. Unfortunately, today many radio stations still do not stream their music over the web, which does not help broadcasters or artists.

"There is one primary reason for the low adoption of Internet streaming by broadcasters -- unaffordable royalty rates. For music-based radio stations, the advertising revenue simply does not cover the streaming costs. Further, no matter how popular your Internet service becomes, the cost curve never bends in a favorable direction. At HUBBARD we pay these high rates to stream our stations over the web because we believe our listeners expect us to be there. But in our best years, we do no better than break even in our music webcasting business. We are fortunate to operate in large markets and to have the financial ability to make that long-term investment. This is either a luxury that many of my industry peers do not have, or a risk they are unwilling to take. Whatever the reason, the majority of broadcast radio stations, and the local services they provide, remain outside the reach of Internet listeners.

"So how did we get here? When initially set in 2007 and then built upon in 2009, the rates set by the COPYRIGHT ROYALTY BOARD were universally decried as being outrageously high. Four problems at the CRB contribute most significantly to these high royalties. First, the 'willing buyer -- willing seller' rate standard provides the judges with no explicit guidance on how to determine a fair market value. Second, the process by which the parties present evidence of a fair market rate to the CRB is insufficient. Third, the CRB appointment and rate setting processes do not afford adequate congressional oversight, allowing these rate decisions to proceed essentially unchecked. And fourth, the CRB process itself is riddled with uncertainty. It is telling that when NAB made our latest offer to the musicFIRST coalition during the last Congress, our members' top priority was to escape the total unpredictability of the CRB proceedings.

"We are here today to begin a dialogue with this Subcommittee on how best to address these problems. NAB has members who are very supportive of the bill introduced by Congressmen CHAFFETZ and POLIS. Other members are still seeking a better understanding of how the bill would impact their businesses. So while NAB has not yet endorsed any specific legislative approach, it is fair to say that NAB supports congressional efforts to ensure fair webcasting rates and needed CRB process reforms.

"This important discussion over how best to encourage the growth of Internet radio must not be bogged down by past fights over the controversial 'performance rights' bills. Recent deals between individual broadcasters and record labels have included fees for AM/FM airplay. This reinforces our belief that this is an issue best addressed through private marketplace agreements. NAB continues to oppose an industry-wide government mandate.

"Regardless of your position on the performance fee issue, Congress can and should act to resolve the important webcasting rate-making problems. The alternative -- inaction -- risks stifling the growth of Internet radio to the detriment of broadcasters, listeners and artists."

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