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RAIN 7/30: Webcasters struggle to sway Senators in Judiciary hearing

Posted on: 07/30/2008

WEBCASTER ROYALTY RATES DEBATED IN SENATE HEARING: Things didn’t go as well for webcasters on Capitol Hill yesterday as they might have hoped. After finally winning a hearing from the Senate Judiciary (a “thrown bone” after Sen. Brownback agreed to remove a webcasting amendment from another bill, see RAIN coverage here), the Internet radio industry had hoped to make some headway in convincing Congress that without royalty reform, it is doomed.

As it turns out, yesterday’s hearing played out as just another sad episode in the now 18 month old story of the CRB royalty determination. Webcasters and their allies seemed at a loss to present a compelling argument, music industry representatives made the same, often misleading (but apparently effective) points, and lawmakers seemed either as confused or entrenched in their previously-decided stances as ever.

Present were Senators Ron Wyden (D-OR) (pictured right) and Brownback (R-KS), sponsors of IREA, a bill that would provide relief to webcasters who face certain bankruptcy under the royalty rates as they now stand. “Internet radio is a fledgling industry that has unlimited potential…But Congress is approaching this new industry using the same tools that it used on player pianos and AM Radio…Using old tools on new technologies could be like the sledgehammer that smashes this new industry to pieces,” said Wyden. He described the royalty process as “tax on technology…discrimination against innovation.”

Wyden and Brownback’s Internet Radio Equality Act — which was based on the House version of the IREA, H.R. 2060 (here), introduced by Reps. Jay Inslee (D-WA) and Donald Manzullo (R-IL) — would compel arbitrators to base royalty determinations on a standard known as 801(b)1, which has been used successfully for other royalty arbitrage for decades (For a more in-depth explanation of this, see Kurt Hanson’s essay “Copyright law and the CRB: What went wrong?” here, especially the sections “Enter digital” and “Enter the DMCA”).

Pandora CEO Joe Kennedy (pictured left) testified in favor of 801(b)1, opposing a continuation of the “abysmal failure” of the recent CRB decision. “It seems prudent to rely on the traditional four-factor test that has served so well for so long, and which seems to balance all the competing interests fairly,” he said.

Chairwoman Dianne Feinstein (D-CA) seemed unmovable on the matter of “fair market value,” brushing aside Kennedy’s point with a simple, “I’m not familiar with 801(b)1.” Feinstein introduced the PERFORM Act, which would assign royalty rates according to an arbitrator-decided “fair market value” and not a standard of fairness or public good.

Nearly as discouraging was when Geffen Records executive and hearing witness Jeffrey Harelston, apparently hoping to take advantage of legislators’ lack of deep understanding of the complex issues, associated Pandora with the illegal filesharing activities of the old Napster. He said, “The last time we had a technology…that was thought of as necessary for the industry, for the good of music, necessary for the good of the people, it was called Napster.”

Kennedy would have none of it, replying, “I’m offended that Internet radio would be compared to Napster…we are a legal licensed service…to compare us with piracy is offensive to all of the people who have been trying to build legitimate businesses.”

SoundExchange executive director John Simson seemed to use a similar ploy as Harelston, at one point claiming that Pandora’s service give listeners, “unlimited access to tracks all of the time.”

Senator Bob Corker (R-TN) argued against interfering with the Copyright Royalty Board’s decision, stating, “I urge this committee to allow this process to take its course instead of forwarding legislation that would overturn a decision that has already been made.” Simson agreed, defending the CRB’s rate decision and declaring that webcasters “want to pay less than what is fair…The fact is, the system is not broken and it does not need fixing.”

Performing artists John Ondrasik (of Five for Fighting) and singer/songwriter Matt Nathanson also testified on behalf of artists’ rights. Ondrasik argued for more royalty compensation for artists, claiming that “the royalty rate is $1.40 for 1,000 [played] songs.” What he omitted — and frustratingly, no one pointed out — was that this would be the royalty cost for a single listener. Services like Pandora, with an audience of millions, will face royalties magnitudes higher than “$1.40 for 1,000 songs.

Nathanson, on the other hand, wanted promotional outlets like Internet radio preserved. Said Nathanson, “It is wrong that the smallest industry [Internet radio]…pays disproportionately high royalties.”

More RAIN coverage on the hearing can be found here and here. Watch a recorded webcast of the hearing here.

SOMAFM’S STATEMENT TO THE SENATE JUDICIARY COMMITTEE: Several small commercial Internet radio stations, to ensure their viewpoints and interests were not lost amongst those of record labels, large media webcasters, and recording artists, submitted written statements for yesterday’s Senate Judiciary Hearing on music royalties. RAIN will publish several of these statements this week. Yesterday, we ran AccuRadio founder (and RAIN publisher) Kurt Hanson’s statement (here). We continue today with a statement from SomaFM’s founder and general manager Rusty Hodge, excerpted immediately below:

My name is Rusty Hodge. I am the founder and general manager of SomaFM.com, LLC, (Soma FM), an internet radio broadcaster with 14 themed channels of music programming. Each month, over 400,000 people listen to SomaFM, and we have over 100,000 “long term listeners” who have listened to us once a week for a year or more. We specialize on playing music that can’t be found on the AM/FM dial- music that there is a demand for yet which isn’t being served by traditional, corporate broadcasters. We operate like a traditional broadcaster: we do not have individually-customized streams or the ability to skip songs you don’t like. Everyone listening to one of our channels is listening to the same programming at the same time…

Keep reading here.

HD RADIO FOR $50…WITH REBATE: Radiosophy’s HD100 HD Radio receiver is now only $49.99 after a $50 mail-in-rebate. The rebate is being offered as part of the HD Digital Radio Alliance’s HD awareness campaign, which relies heavily upon text messages. Consumers find a link to the rebate after joining the text message campaign. The HD100 HD Radio is normally $100. For more, read Radio Business Report’s coverage here.

PANDORA FREE ON LOGITECH SQUEEZEBOX: Pandora is now free on Logitech’s Squeezebox line of home streaming devices. While the free streams now come with ads, users can now avoid the $36 annual fee which was previously required to tune in to the personalized Internet radio service (RAIN coverage here). Listeners can still opt to pay the fee and avoid commercials. Additionally, Pandora founder Tim Westergren did an interview with CNet (here) about the future of Pandora, in which he revealed devices similar to Logitech’s Squeezebox such as the Sonos Music System and Grace, will see similar free service plans soon. “The next 6 to 12 months will see a steady stream of devices that are going to allow for [Pandora],” he stated, “We’d like Pandora to be free everywhere.” For more on Pandora on the Logitech Squeezebox, read CNet’s coverage here.

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