House Panel to Look at Radio Royalty Rates During Lame-Duck Session

Posted October 21, 2012 at 12:00am

The music industry and radio stations are preparing to square off over royalty rates as Congress signals its interest in taking up the issue after the elections.

The House Judiciary Committee plans to hold a hearing on music policy this fall, an aide confirmed to CQ. The panel likely will focus on two distinct, recently introduced proposals for leveling royalty rates among various radio providers.

Currently, how much a station pays to play songs depends on the technology it uses to reach listeners: Traditional, over-the-air stations pay nothing, while satellite and cable providers follow a different, cheaper fee schedule than their Internet counterparts.

Congress set that structure in place in 1998 when it passed the Digital Millennium Copyright Act (PL 105-304). But the growth of Internet radio stations such as Pandora and iHeartRadio since then has renewed interest in addressing the disparities among the various technologies, even though the battle lines drawn more than a decade ago remain entrenched.

One solution put forth by Rep. Jerrold Nadler, D-N.Y., and favored by record labels and artists would require terrestrial radio stations to make up for their free access to music by paying extra if they decide to run accompanying online stations. The plan also would end the less-expensive legacy rates for satellite and cable radio, so that they pay at the same rates as Internet stations.

Nadler has not formally introduced the legislation but will do so after receiving input from industry players and constituents, according to Nadler spokesman Ilan Kayatsky.

A competing proposal would lower the rates that Internet stations such as Pandora pay, making them level with satellite and cable radio providers.

Sen. Ron Wyden, D-Ore., and Reps. Jason Chaffetz, R-Utah, and Jared Polis, D-Colo., introduced the proposal in September. The legislation has the backing of a broad coalition that includes broadcast and Internet radio providers, along with the Consumer Electronics Association and the Computer and Communications Industry Association.

But that set of bills has also riled up industry and artist groups, who say it would unfairly reduce the royalties musicians get for their songs. Leading that side is the musicFIRST Coalition, which represents groups such as the Recording Industry Association of America and Grammy Awards host Recording Academy.

“The solution is to fix the terrestrial radio performance rights loophole and bring parity across all platforms, as opposed to this race to the bottom that Pandora is creating,” Ted Kalo, executive director of the coalition, said in an interview. His group has urged artists and labels to write to Congress to lobby against the Wyden-Chaffetz-Polis proposal.

Meanwhile, Pandora is airing ads on its radio stations that urge listeners to call Congress in favor of that legislation. CEO Tim Westergren said in an interview that the debate over whether traditional radio stations should pay for music should be kept separate from that over Internet radio.

“Because there is a problem in another industry doesn’t mean our problem should go unresolved,” he said.

Pandora’s position has been strengthened by support from the National Association of Broadcasters, which has dragged its heels in the past on proposals that would disrupt free access for terrestrial stations and reduce rates for online competitors. The dueling sides are unlikely to reach a compromise quickly, given that the NAB is unlikely to back any proposal that increases rates on its members, and the Recording Academy has said that discussion must be the starting point.

“First and foremost, broadcasters have to be brought in, and then we can talk about what the rate standard is. We can’t have a discussion until everyone’s paying,” said Daryl Friedman, chief advocacy officer for the Academy, which represents artists on traditional and independent labels.

Those divisions are reflected in Congress, where some members have sided with the music industry and others with the radio stations. When the House Judiciary Committee wades into the debate as early as next month, Nadler is likely to challenge the competing bill put forth by his fellow panel members Chaffetz and Polis.

“The solution is not to achieve parity at the expense of artists, as my colleagues’ bill proposes,” Nadler said in a written statement. “We can and should both level the playing field for Internet radio and ensure that artists are fairly compensated, at a fair market rate, which is what my proposal would do.”