But some in Congress want wider reform that would include radio

Pandora pressed its case for lower rates for music licensing to Capitol Hill on Wednesday, urging lawmakers to support a bill that would put it in parity with cable and satellite radio but at the same time reduce the amount it has to pay to artists.

But the legislation, backed by Pandora, Clear Channel and the Consumer Electronics Assn., may have hit a roadblock, as lawmakers on the House Judiciary Committee suggested that any action also address the issue of paying artists when their music is played on broadcast stations. The fight over a broadcast “performance right,” as it is called, has dragged on for decades, and even as the music industry has won bipartisan support, it has run into fierce resistance from broadcasters.

Rep. John Conyers (D-Mich.), long a champion of such a broadcast performance royalty, said that the Pandora-backed legislation “may be the catalyst to formulating an AM/FM performance right.”

“I absolutely think we are making it worse in attempting to solve the problem piecemeal,” Conyers said at the hearing, held by the House Judiciary subcommittee on intellectual property, competition and the Internet.

Such a broadcast royalty is not even part of the Internet Radio Fairness Act, which supporters say is aimed at ending an inequity in music royalty rates. Cable and satellite radio pay a statutory fee that is much less than the royalty paid by Internet radio outlets. Broadcasters do not pay artists when their songs are played, arguing that such reach is valuable promotion.

A coalition of artists is lobbying fiercely against the Internet Radio Fairness Act, and they were led at Wednesday’s hearing by Jimmy Jam, who said that the legislation would affect not just current artists but new acts. “It affects everyone across the board,” he said. Opponents say artists would see an 85% reduction in their royalty from Internet radio.

Jam, too, took the opportunity to argue for a broadcast royalty for artists.

“We need an industry-wide solution to the problem, and really only Congress can make that happen,” he said.

But Joseph J. Kennedy, chairman and CEO of Pandora, told the subcommittee that the currenty rate-setting standard was unfair, and were it not for previous congressional intervention, Internet radio would not exist. He said that Pandora will account for only 7% of U.S. radio listening in 2012, yet will pay SoundExchange almost $250 million in royalties, which is more than half of Pandora’s revenue. Satellite will pay 7.5% of their revenue, and cable will pay 15%.

“Pandora pays more in absolute dollars than any other company, including Sirius XM, a company with eight times our revenue,” he said.

Whether Congress takes action on that bill alone is a big question. Rep. Darrell Issa (R-Calif.), one of the cosponsors of the legislation, nevertheless said that he supported the legislation because it was an “important starting point” to discuss the issues.

Others suggested a solution that is wider in scope. Rep. Bob Goodlatte (R-Va.), chair of the subcommittee and the incoming chairman of the Judiciary Committee, said that “from time to time we need to step back at the pieces and look at how they fit in the broader whole.”

And Rep. James Sensenbrenner (R-Wis.) groused about the time that has been devoted to music licensing issues. “Members have probably spent more time with this issue than any other issue in the last decade, or decade and a half,” he said.

Kennedy said that the intent of the legislation was to fix a “fundamental flaw,” and that it was “precisely to get Congress out of the business of having to intervene in these proceedings.”

The MusicFIRST Coalition, the organization of artists and record labels which has been pushing for a performance right, opposes the legislation. So it may not have been much of a surprise that the two issues would be intertwined at this hearing.

Bruce Reese, president and CEO of Hubbard Radio, tried to argue that the debate should not be “bogged down by past fights over the performance tax,” but he was grilled by Issa on why broadcast stations should not be paying a royalty.

“We don’t believe a mandate is a way to address that,” Reese said. “We believe that a free market approach is the way to work.”

Rep. Howard Berman (D-Calif.), received a standing ovation when he arrived to the hearing, having been on the Judiciary Committee for 30 years. He lost his bid for reelection, and predicted that any legislation would not pass before he left office at the end of the lame-duck session.

He also connected the broadcast and digital royalties, warning stations that they have to “come to terms” that “free doesn’t work anymore.”

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