House Subcommittee Hears Arguments For And Against The Internet Fairness Act

Bruce Reese

The House Subcommittee on Intellectual Property, Competition and the Internet held their hearing on: "Music Licensing Part One: Legislation in the 112th Congress" YESTERDAY (1128), and heard the clash over music royalties between those looking to reform fees for webcasters and those opposing any reform.
PANDORA CEO JOE KENNEDY told the panel that the "lack of a level playing field is fundamentally unfair and indefensible," and continued that "the inequity arises from the fact that Congress has made decisions about radio and copyright law in a piecemeal and isolated manner." He continued, "The effect has been to penalize innovation when setting the rules for music royalties. The current rate-setting structure is a clear case of discrimination against the Internet and innovative services."

PANDORA and other webcasters complain that they pay more than half of their total revenue in royalties compared with less than 10% paid by satcastere SIRIUSXM. 

THE RECORDING ACADEMY Chair Emeritus, Songwriter and Recording Artist JIMMY JAM testified that the bill would penalize those who create and produce music, and noted that PANDORA pays only a 10th of a cent in royalties for each song streamed. "When PANDORA tells you it's paying too much to the creators who are the backbone of its business, think about that 10th of a penny, and remember that small amount is shared by copyright owners, featured artists, session musicians, singers and producers," JAM said.

SOUNDEXCHANGE Pres. MICHAEL J. HUPPE agreed with JAM, saying PANDORA's argument is misleading because it intentionally limits advertising in order to gain listeners, and could easily fix its problem by increasing ads. "It would be ill-advised for Congress to step in and manipulate the market to subsidize a thriving and innovative company," he said. 

NAVIGANT ECONOMICS Managing Director/Principal Dr. JEFFREY A. EISENACH told the subcommittee that the proposal would change the free market, and asked the congressmen to "resist entreaties to backslide by passing legislation that would replace the current market-based standard for royalty rates with one designed to tilt the playing field in such a way as to subsidize a particular class of copyright users."

CONSUMER ELECTRONICS ASSOCIATION SVP/Government And Regulatory Affairs and member of the INTERNET RADIO FAIRNESS COALITION agreed, saying "By imposing disproportionately high costs on Internet radio companies, the government is effectively picking winners and losers in the digital music marketplace."

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 U.S.," and added "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."

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