Industry Argues Its Worth to Congress (and Itself) In Second Round of Testimony

A Congressional hearing on music licensing Wednesday turned up mostly the same themes, frustrations and proposed solutions as the hearing two weeks earlier. Representatives of artists, record labels, songwriters, music publishers and broadcasters disagree on many points but were unanimous in their calls for solutions.

Describing the system of music licensing, Cary Sherman, chairman and chief executive officer of the RIAA, called it an "antiquated, complex, time-consuming licensing regime" that "must be fixed."

Although the witnesses implored Congress to update copyright law, the hard work will be done within the industry. Representatives called for the many stakeholders to work among themselves to find solutions. "If we do it, we'll start from scratch and nobody will like the results," said Rep. Cedric Richmond.

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Like the first music licensing hearing on June 10th, Wednesday's hearing was filled with talk of free markets. Darius Van Arman, co-founder of Secretly Group, said independent labels want a "free market with a level playing field." Singer-songwriter Rosanne Cash said royalties "are not set on fair-market basis." Paul Williams, president and chairman of the board at ASCAP, used the term "true value" multiple times. Broadcasters couldn't stay away from the term, either. SiriusXM CFO David Frear complained there is no "functioning free market" because of the market power of ASCAP, BMI and SESAC.

Throughout the two hearings, parties representing both sides of copyright told Congress they are worth more than what current royalty rates reflect. Music publishers and songwriters believe a more free-market approach would result in higher royalties and reduce the disparity between what sound recordings and musical works receive for digital performances. Record labels also believe that adhering to free-market principles would increase the revenue they receive from digital services.

Broadcasters argued that the free-market math doesn't add up. Chris Harrison, vice president, business affairs at Pandora, notes that royalties already account for 60-70% of Pandora's revenue. He suggested that giving both record labels and publishers the free-market parity they desire would create an untenable situation. "I don't think at 120% of revenue we can make it up on volume."

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Terrestrial radio also faces higher royalties. Charles Warfield, senior advisor at YMF Media who represented the National Association of Broadcasters, said the financial impact of a new performance royalty for sound recordings at broadcast radio would add "severe financial difficulties" to broadcasters. "Everybody wants to see the pie grow... but not at the expense of our companies."

Support for a new performance right was widespread among both Congressmen and witnesses. In addition to representatives for artists and rights owners, Pandora's Harrison and SiriusXM's Frear also voiced support for a performance right that would compel AM and FM stations to pay record labels and artists.

Other frequently mentioned topics in the hearing included federalization of pre-1972 recordings, which had widespread support, and greater transparency in the licensing process. The latter is especially important in a world where publishers can withdraw digital rights from performing rights organizations -- a position Williams supported. "We need transparency in terms of identification of catalog," said Ed Christian, Chairman of Radio Music Licensing Committee, Inc.

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Market concentration was lightly mentioned. "Big companies are using their power and resources" to take market share from independent labels, says Van Arman. A board member of independent group A2IM, Van Arman called for greater transparency and efficiency in the music licensing system. He also proposed a stronger Section 114 compulsory license for non-interactive services. He went into greater detail in his written testimony, explaining that semi-interactive services like iTunes Radio should be granted the compulsory license rather than depend on direct licensing.

The promotional value of broadcasting was another frequent topic. In opposing a new performance royalty, terrestrial broadcasters pointed to a new Nielsen study -- commissioned by the NAB and released Tuesday -- that shows radio play is highly correlated with music purchases. 

Pandora's Harrison noted that 80,000 of the 100,000 artists Pandora streams each month don't get played on terrestrial radio. Many artists value Pandora because it helps them find an audience, he said.

But some artists feel promotion should not exclude payment. Cash dismissed what she called broadcasters' "exposure argument," saying "it's somewhat manipulative, and I feel we end up subsidizing these multi-million-dollar companies.