House Subcommittee Holds Hearing On Internet Radio Royalties
November 28, 2012

As previously reported, the House Subcommittee on Intellectual Property, Competition and the Internet has scheduled a hearing today to discuss the proposed Internet Radio Fairness Act. Officially titled "Music Licensing Part One: Legislation in the 112th Congress," the hearing will be held this morning at 11:30 a.m. ET in Washington, D.C.

Witnesses announced for the hearing are: Pandora Chairman/CEO Joe Kennedy, Hubbard Radio President/CEO Bruce Reese (appearing on behalf of the NAB), RIAA Chair Emeritus/songwriter/recording artist Jimmy Jam, SoundExchange President Michael Huppe, Venrock partner David Pakman and Navigant Economics Managing Director/Principal Jeffrey Eisenach.

The NAB has released the text of Reese's testimony before the subcommittee. After discussing local terrestrial radio's power, Reese said, "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."

Reese added that there are multiple problems with the Copyright Royalty Board and the rates last set for broadcasters. He continued, "We are here today to begin a dialogue with this Subcommittee on how best to address these problems...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."

Meanwhile, in advance of today's hearing, ASCAP, BMI, SESAC and the NSAI released a letter calling on Congress to address the concerns of songwriters and composers.

In a joint letter to Committee Chairman Bob Goodlatte and Ranking Member Mel Watt, the groups have laid out their reasons for opposing the Internet Radio Fairness Act. In the letter, the organizations say, "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."

In their letter, the organizations note that due to different royalty rate settlements for different parties, there is now a inequality in royalty payments. The organizations note that, "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."

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