Fair Is Fair But Politics Is Complicated: Why Congress Must Pass the CLASSICS Act (Column)

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Fair is fair. No one in the music business wants to pay more to play a track -- or for anything, for that matter -- than the next guy. Usually, that comes down to negotiation, on which executives pride themselves. When the level of royalty payments are set by laws or rate courts, though, those negotiations take place in public, where digital music services talk about how much more they pay than some of their competitors while labels and artists point out how little those services pay compared to others. Inevitably, online companies suggest that any money at all is better than what rightsholders make from terrestrial radio, which in the United States is nothing. It’s just not fair.

This is the essence of SiriusXM Satellite Radio’s argument about the CLASSICS Act, both in CEO Jim Meyer’s recent Billboard op-ed and a magazine ad that makes the same point: “Music is Music. Radio is Radio. Fair is Fair.” How can Congress consider passing a law that would make digital services like SiriusXM and Pandora pay royalties for their use of recordings made before 1972 -- which is the main goal of the CLASSICS Act -- without requiring the same from traditional radio? As the ad says, “Music is Music. Radio is Radio. Fair is Fair.”

(The ad omitted another truism: “Copyright is confusing!” While terrestrial radio pays for its use of songs but not sound recordings, digital radio services must also pay for recordings, as mandated by the Digital Performance Right in the Sound Recordings Act of 1995. Since recordings made before 1972 are covered under state laws, however, this act doesn’t apply to them, which has led to a series of lawsuits in various states about whether recordings can be used for free online. Pandora and most of the other companies the bill would affect, aren’t opposing it.)

This "fair is fair" argument is hard to disagree with, and in an ideal world U.S. radio stations would pay for their use of pre-1972 recordings, as well as ones made after then, for that matter. In this world, however, the music business has been trying to get radio stations to pay royalties for their use of all kinds of recordings for decades, with intermittent progress but no success. Adding this provision to the CLASSICS bill would practically guarantee it wouldn’t pass this year.

Understanding why requires realizing that, unfortunately, fairness matters far less in Washington than lobbying power. One reason the labels were able to push through the Digital Performance Right in Sound Recordings Act in the first place is that their trade association, the RIAA, had the foresight to do so before technology companies had the political influence to stop them.

But even in the 1990s, at their commercial peak, the labels never had as much power as terrestrial radio, because the music business is so concentrated in Los Angeles, New York, Nashville and Atlanta. Legislators there generally tend to support copyright. (Among the sponsors of the Fair Play Fair Pay Act, which would require radio stations to pay for recordings, are Rep. Jerrold Nadler, the liberal Democrat who represents parts of Manhattan and Brooklyn, and Marsha Blackburn, the conservative who represents the suburbs of Nashville.) But there are radio stations everywhere. That’s why the Local Radio Freedom Act, a resolution against requiring radio stations to pay to use recordings, has more than 200 co-sponsors in the House of Representatives -- even though it doesn’t do anything besides maintain the status quo.

This doesn’t mean radio will never pay royalties for recordings. As traditional stations lose audience to online services, radio conglomerates could be willing to pay royalties on their broadcasting businesses in exchange for better rates online -- and rightsholders have held discussions about this with the National Association of Broadcasters. At this point, though, the driving force behind copyright reform is House Judiciary Committee Chairman Bob Goodlatte (R-Va.), who has announced he will not run for re-election this year, which means legislation has to pass before the fall -- ideally before summer, given how frantic the mid-term elections are expected to be.

SiriusXM isn’t that interested in making traditional radio pay to use sound recordings -- if it were, it would lobby for it. The company simply thinks it looks better to make its support for the CLASSICS Act contingent on a change that will never happen, instead of opposing a bill to pay legacy artists. Sure, fair is fair. But SiriusXM already pays for recordings that traditional radio stations don’t.

And speaking of fairness? As long as the Copyright Royalty Board is setting the terms for what businesses pay for recordings, shouldn’t it at least try to come as close as possible to what they would be worth in a free market?

As it turns out, there is such a standard: It’s called “willing buyer/willing seller,” and it applies to every company that was started after Congress decided to make digital services pay to use sound recordings. The ones that were already in business then have their rates set according to the “801(b) standard” -- that catchy name comes from the section of the law -- which considers a number of factors, including “the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk and contribution to the opening of new markets for creative expression and media for their communication.”

You read that right: There’s no logical reason why companies that were already around at a certain time enjoy a different standard, which almost always results in a lower rate. It was a matter of influence. These lower rates arguably helped Sirius and XM get off the ground, since launching satellites is so expensive. (The lower rates now apply to SiriusXM and some very small companies.) But now that SiriusXM is established, in a market where there’s no competition, why should the company have an advantage over Pandora and other online radio services? Fair is fair.