Music Licensing Takes Center Stage at Congressional Hearing

The House Judiciary Committee Subcommittee on Intellectual Property, Competition and the Internet held a hearing on music licensing today at 11:30EST. The hearing focused on recent proposed legislation that concerns internet radio royalties. Pandora CEO Joseph Kennedy, National Association of Broadcasters spokesman Bruce Reese, SoundExchange President Michael Huppe, and accomplished producer Jimmy Jam, appearing on behalf of the Recording Academy testified. Economist Dr. Jeffrey A. Eisenach and venture capitalist David B. Pakman joined them as witnesses in front of the Committee.

The copyright in a sound recording — as opposed to the separate and distinct copyright in an underlying musical composition — has, since 1995, included a limited public performance right for digital audio transmissions. Congress created a compulsory license for certain performances of sound recordings, most notably for webcasting. The rates for these licenses, if voluntary negotiations fail, are set by a government agency — at first, the ad hoc Copyright Arbitration Royalty Panel, and, since 2004, a standing Copyright Royalty Board consisting of three Copyright Royalty Judges.

Since the creation of the compulsory license for webcasting, there have been three rate-setting proceedings. The first, Webcaster I in 2002, rejected a “percentage of revenue” royalty sought by many webcasters and set a “per performance” rate. Many smaller webcasters immediately opposed the determination and sought relief from Congress, which passed the Small Webcaster Settlement Act of 2002 (SWSA). The Act sought to foster further negotiations for agreeable rates. Such agreements were reached, setting rates through 2005.

In 2004, Congress passed the Copyright Royalty and Distribution Reform Act, which replaced CARP with a Copyright Royalty Board. This Board convened Webcaster II in 2006, which would cover rates from 2006-2010. A determination reached in 2007 resulted in a similar turn to Congress. Congress responded with the Webcaster Settlement Act of 2008, largely similar to (SWSA), which was extended by a subsequent Webcaster Settlement Act of 2009. The result was a number of settlements covering nearly all webcasters for royalty rates through 2015. Webcaster III, covering the few webcasters who had not opted into such settlements, for rates through 2015, concluded in 2009, but was vacated this past summer after the DC Circuit Court ruled that Copyright Royalty Judges were unconstitutionally appointed.

With the next rate proceeding for webcasters little more than a year away, legislative proposals for reconfiguring the rate making process have already begun to appear.

 The Internet Radio Fairness Act, introduced in the House by Rep. Chaffetz and in the Senate by Senator Wyden, would, among other things, change the standard used by the CRB in setting rates from the current “willing buyer/willing seller” standard to the multi-factored “801(b)” standard currently used to set rates for pre-existing satellite and subscription services like SiriusXM Radio. Rep. Nadler has also introduced the Interim FIRST Act, which seeks to do the opposite: move all current rate proceedings under the “willing buyer/willing seller” standard.

And so it would seem the House Judiciary Committee is interested in the start of what will be a broader conversation on Congress’s role in intervening in the internet radio market. This is evidenced both by the title of today’s hearing, which indicates it is only “Part 1” in such hearings, and chairman Goodlatte’s opening remarks, where he expressed his hope for comprehensive hearings over the coming months on the topic.

But while the hearing would ostensibly focus on the Internet Radio Fairness Act, several members of the Committee and witnesses brought the issue of a sound recording performance right for terrestrial (AM/FM) radio onto center stage. Sound recordings have only been protected by federal copyright law since 1972, but that right has not extended to public performances. As mentioned above, Congress created a limited public performance right for sound recordings for digital audio transmissions in 1995, but that excludes AM/FM broadcasts.

Rep. Conyers especially pressed upon this point, and in his opening remarks predicted that the Internet Radio Fairness Act would be the catalyst for a general public performance right for sound recording owners.

As the Committee turned to the witnesses, the questions tended to focus on a back and forth between the health of the online radio industry and how services like Pandora monetize their business. Pandora CEO Joseph Kennedy and IRFA sponsor Chaffetz pointed out that few businesses outside Pandora are able to survive under the current CRB rates. Dr. Eisenach responded that it shouldn’t be the government’s job to ensure “perpetual profitability” for companies like Pandora, which would be the effect if Congress adopts the 801(b) standard for webcasters. Mr. Huppe of SoundExchange added that Pandora could solve any revenue problems it has by increasing revenue through increased ad sales or subscriptions rather than asking Congress to have recording artists subsidize its current business model.

In the end, it seems that there was little support for the Internet Radio Fairness Act in its current form — even co-sponsor Rep. Issa stated that his support of the bill was primarily to get a dialogue going — and increasing questions over a broader performance right for sound recording owners. If this hearing is any indication, it does appear that Congress is willing to foster a broader dialogue on music licensing online.  Thus it seems likely that these issues will be in the forefront over the next year.