Business Matters: SOPA Delayed, Not Dead, After House Judiciary Committee Session Ends
Business Matters: SOPA Delayed, Not Dead, After House Judiciary Committee Session Ends

In a Congressional hearing that was supposed to be about Internet radio royalties, lawmakers and speakers instead spent a good portion of their time taking aim at the National Broadcasters Association for not having to pay performance royalties to artists (although the Internet-radio companies supposedly at the center of the debate took plenty of lumps as well).

Over the two-and-a-half-hour hearing before a Congressional Subcommittee on Intellectual Property, Competition and the Internet, NAB representative Bruce T. Reese found himself under heavy fire from those who took issue with broadcast radio's exemption from having to pay sound recording royalties. (Radio companies do, however, pay musical composition royalties.)

Rep. Howard Berman (D-Calif.), for example, accused Reese of being "disingenuous" in pleading for lower royalties for their online broadcasts, while Rep. Darrell Issa (R-Calif.) blasted Reese and the NAB for "paying zero."

Jimmy Jam, speaking on behalf of artists as chairman emeritus of The Recording Academy, asked lawmakers to "close the corporate radio loophole," saying, "Is it fair for terrestrial broadcasters to pay nothing for sound recordings?"

While there was no consensus on the Internet Radio Fairness Act ostensibly being discussed, there was more common ground in targeting traditional, over-the-air radio broadcasters. Michael Huppe, president of SoundExchange, summed up the swelling group sentiment during the hearing when he said, "Terrestrial radio must also pay."

The swipes at the NAB, however, could amount to little more than political rhetoric as the actual bill under discussion proposes no change to what radio station pays for their over-the-air broadcasts.

Instead, the bill, sponsored by Rep. Jason Chaffetz (R-Utah) and eight other legislators, proposes to put Pandora and other Internet radio providers under a different rate-setting standard, one that would presumably reduce the amount of money they pay in sound recording royalties.

Business Matters: Internet Radio Bill is About Fairness -- and Money

Pandora Chief Executive Joe Kennedy testified that "In 2012, Pandora will account for only 7% of U.S. radio listening, yet we will pay … almost a quarter of a billion dollars [in royalties] - more than 50% of our revenue."

By contrast, Kennedy pointed out, satellite radio company Sirius XM Radio, which operates under a separate licensing arrangement, pays 7.5% of its revenue in royalties, while cable radio services pay 15% of their revenue.

Business Matters: If Big Radio Had Pandora's Royalty Rate, It Would Owe Billions

The proposed bill would put Internet radio services in the same rate-setting bucket as satellite and cable radio.

Many artists and music labels opposed the bill, arguing that the rate Pandora pays is already too low.

"The average Pandora listener listens to 20 hours per month," Huppe testified. "Pandora pays less than $4. 25 for more than 240 hours of music. That is less than some people in this room paid for their coffee this morning."

Jam concluded, "The Internet Radio Fairness Act is anything but fair."

Berman, who is stepping down at the end of the year after having lost his Congressional seat in the recent elections, had a more sanguine diagnosis that suggested the stakeholders have more in common than not.

"At the end of the day, this isn't about content versus technology," Berman said. "Musicians and artists need to get adequately compensated to continue to create and share their art. And services need to thrive to ensure that the music continues to be heard. There's more of a symbiotic relationship here. We just have to find the sweet spot that maximizes the ability of musicians and composers and songwriters to make the music … and the technologies to thrive and to play that music for the benefit of ... the world."

The hearing is the first of several expected in the coming months to debate the bill, which could come up for a vote next year by the House of Representatives should it pass through the subcommittee.