Lawmakers Ponder Disparity in Internet Radio Fairness Act

Music performance rates a pandora's box

A bill to lower music performance royalties for Internet radio is probably dead on arrival in Congress unless traditional broadcasters that have never paid a penny to musicians are asked to pay up.

During a House Judiciary subcommittee hearing on the Internet Radio Fairness Act, members on both sides of the aisle took the opportunity to open up the decades-old fight between music artists and terrestrial broadcasters.

The bill, sponsored by Rep. Jason Chaffetz (R-Utah) was introduced because the Internet radio business model doesn’t add up. Pandora, the largest pure-play Internet radio service that has championed the bill, has yet to make a profit.

“MTV, Microsoft, AOL, Yahoo tried to get in the space and all have exited because it doesn’t work,” Chaffetz said.

While few disputed that the Internet radio business is hamstrung, lawmakers found it hard to ignore the disparity between what Internet radio pays and traditional radio doesn’t pay with a bill that had the word “fairness” in its title.

“A more appropriate [bill] title might be the paycheck reduction act, because what it would do is lower the royalties that Internet radio pays by more than 85 percent,” said Rep. John Conyers (D-Mich.) “I want to make a prediction: This bill may well be the catalyst to advancing an AM/FM music performance royalty.”

Rep. Darrell Issa (R-Calif.), a co-sponsor of the bill, said he chose to co-sponsor "because there had to be a starting point."

The trajectory of the debate was exactly what traditional broadcasters—many which don't stream their stations because they can't offset the performance rates with advertising—had tried to avoid.

“Congress should not allow this debate to be bogged down by past fights over the performance tax, to which the National Association of Broadcasters remains staunchly opposed,” testified Bruce Reese, president and CEO of Hubbard Radio.

But Reese’s plea fell on deaf ears.

“You want to talk about parity without talking about the ultimate inequity,” said Rep. Howard Berman (D-Calif.) to Reese. “Broadcasters have to come to terms [with the fact] that free doesn’t work any more.”

Following the hearing, Rep. Bob Goodlatte (R-Va.), soon to be chairman of the House Judiciary Committee, indicated that any final bill would need to address all platforms. "We will see if we can come to a consensus with all the players. We are working towards finding a comprehensive solution," Goodlatte said.