Nothing involving digital music is ever clear-cut, and things tend to become especially sticky when the federal government gets involved. Yet the coming conflict facing Congress over Internet radio royalty rates looks to be as knotted as any in recent memory, as the ability of long-standing copyright laws to accommodate the ever-changing biz is stretched ever further.
The most pressing issue concerns the wildly divergent royalty rates paid by various radio platforms. At present, terrestrial radio stations pay no performance royalties to artists. Cable and satellite radio pay a statutory fee, which for Sirius XM amounted to around 7.5% of its annual revenue last year. And Internet radio provider Pandora pays well over 50% of its revenue in royalties; in documents it filed with the SEC before going public last year, the company starkly noted that it may never be capable of turning a profit until these rate demands are altered.
Last month, a pair of bills were introduced in Congress that would dramatically change this structure. One, the Internet Radio Fairness Act, would lower the rates paid by webcasters like Pandora to the same “801(b)” rate paid by satellite broadcasters like Sirius and draws support from an odd quorum including Pandora itself, terrestrial radio giant (and iHeartRadio web-caster) Clear Channel and AccuRadio.
An opposing bill, dubbed the Interim First Act, would take a reverse approach, raising the rates of satcasters and cable stations to the same rate as Pandora’s. That bill is supported by MusicFirst, a lobbying group cosigned by the RIAA, American Federation of Musicians, A2IM and SAG-AFTRA and whose topper Ted Kalo memorably calls the IRFA “the Screw Artists Act,” for its effects on artists’ royalty receipts.
In other words, the options on the table are as follows: Keep the current rates and let Internet radio feel a disproportionate squeeze; pass the IRFA and put a further burden on already squeezed musicians, who would lose out on significant royalty payments; or raise satellite radio’s rates out of solidarity, at the risk of crushing it along with Internet radio. To put it mildly, while all sides can pose passionate, persuasive arguments, none of these final scenarios is ideal.
As Internet radio newcomer TuneIn’s topper John Donham, who supports the IRFA, puts it: “If you listen to a Rihanna song in your car on FM radio, then listen to the same song on Sirius, then on Pandora, then on Spotify, and then on mp3, you’ll encounter five totally different rate structures for listening to the exact same song in the exact same place.”
Are there other niggling details here? Of course.
For one, Pandora is considered a “non-interactive” digital service, in the sense that one can’t simply play any song at any time. But there’s a world of difference between, say, tuning in to the country hits station on the FM dial vs. dialing up the targeted Outlaw Country station on Sirius vs. launching a personalized radio station with skippable tracks based entirely on Gram Parsons on Pandora. Should this level of consumer control and customization be reflected in a royalty rate? Should the ability to “skip” songs lock a provider into a higher obligation? Perhaps, but none of these distinctions is actually addressed by any legislation at hand.
And maybe they would be were the guiding principles of current legislation not found in laws forged long before these problems even arose. Royalty rates are based on guidelines from the Digital Millennium Copyright Act of 1998, which was drafted before Pandora or its contemporaries, and its language is often strained under the pressure of accounting for newer technology.
And the radio row is hardly the only current issue exposing these sorts of strains. Later this month, hearings will begin on a suit filed by Capitol Records against upstart ReDigi, which claims to be the first site to allow the resale of digital music files. In this case, the label argues that since selling mp3s involves no physical exchange but rather replacement with a digital copy, the transaction is unprotected under the first-sale doctrine that usually protects selling used goods. Which essentially makes purchases from iTunes something akin to limited licenses rather than sales. That’s exactly why the labels themselves are staring at further litigation in the wake of Monday’s settlement of F.B.T. Prods v. UMG, which alleged serious underpayment of artists thanks to the whole digital license/sale dichotomy. And on and on…
The first-sale doctrine was established at a time when the trade of nontangible copyrighted property would have been inconceivable. And the DMCA was established to regulate online content at a point when Pandora, iTunes, Spotify and Grooveshark were all but glimmers in their developers’ eyes. And yet a billion-dollar industry relies on careful legal interpretations of these statutes.
While attempts to legislate the stickier quandaries of the Internet have never been particularly popular, at some point the government may have to grapple with these troublesome distinctions. And as the music industry has long been a canary in the coal mine for the rest of the entertainment biz, it would pay those in film and TV to keep close watch.