House Judiciary Subcommittee on Courts, Intellectual Property and the Internet Hearing

House Judiciary Subcommittee on Courts, Intellectual Property and the Internet Hearing in Washington DC.  

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Two of the most frequently uttered words during Tuesday's music licensing hearing on Capitol Hill were "free" and "market." Representatives for songwriters, music publishers, performers and producers expressed their desire for royalty rates that result from, or approximate, free market negotiations.
 
These witnesses want Congress to get out of the way -- which would require that Congress first amend copyright law to allow itself to get out of the way. Most of them argued Tuesday that regulations, such the rate-setting procedures for mechanical licenses, prevent creators and rights owners from getting a fair market value for their work.

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There were also calls to balance the desires of creators and rights owners with the needs of the technology companies that license their works. Lee Knife, Executive Director of the Digital Music Association, said he preferred a "fair market" model to a free market. Rep. Zoe Lofgren noted that streaming services pay 60% to 70% of revenue to rights owners yet don't earn a profit. "If we don't have a system that works, creators and rights owners don't get paid," she said.
 
There was agreement on how to make licensing a free market negotiation. David Israelite, President and CEO of the National Music Publishers Association, prefers that Congress abolish the compulsory license so publishers could freely negotiate with licensees for mechanical rights. Lee Thomas Miller, songwriter and President of the Nashville Songwriters Association International, called for Congress to eliminate or "drastically alter" the ASCAP and BMI consent decrees. Michael O'Neill, CEO of BMI, called for the elimination of the consent decrees. "We're trying to give the songwriters and publishers the power to make their own deals."
 
Two witnesses warned against eliminating the consent decrees. Will Hoyt, Executive Director of the TV Music License Committee, said it is an "absolute necessity" the consent decrees stay in place. Knife said the consent decrees should remain in place because three entities -- ASCAP, BMI and SESAC -- control the public performance marketplace.
 
To the extent government is involved, most witnesses favor rate-setting standards that more closely reflect free market negotiations. The "willing buyer, willing seller" standard approximates an exchange between a licensor and a licensee. The 801(b) standard is a more holistic approach, taking into account the rate's economic impact on the industries involved and the licensee's capital investment, technological innovation and contribution in opening new markets.
 
Neil Portnow, President and CEO of the Recording Academy, called for "fair market pay for all music creators across all platforms." In other words, the Recording Academy wants the "willing buyer, willing seller" standard to be used when setting rates for webcasters, satellite radio and cable radio. Israelite called the 801(b) standard "harmful and antiquated" and pays below a fair market value.
 
Knife disagreed, saying the "willing buyer, willing seller" standard "has resulted in disastrous results" that required congressional intervention. He was referring to the instances in which Congress passed bills that allowed SoundExchange to negotiate with webcasters for alternative rates following rates established by the Copyright Royalty Board using the "willing buyer, willing seller" standard.  
 
Much of the testimony mirrored recently introduced legislation. The Songwriter Equity Act would have Copyright Royalty Board judges set rates using the "willing buyer, willing seller" standard rather than the 801(b) standard currently used. It would also allow federal rate courts to consider sound recording royalty rates when setting performance royalty rates for songwriters and publishers.
 
The RESPECT Act would put pre-1972 sound recordings under federal law and ensure services such as SiriusXM and Pandora pay for plays of pre-1972 recordings (each already pays songwriters and publishers when these older recordings are played).
 
The establishment of a sound recording performance right at terrestrial radio is part of the Free Market Royalty Act bill introduced last year. Rep. Nadler and Portnow singled out the lack of this performance right. "Any copyright reform simply must include a radio performance right," said Portnow.