IRFA hearing testimony summarized

Six witnesses expressed their views of the Internet Radio Fairness Act before the House Judiciary Subcomittee on Intellectual Property, Competition and the Internet, with two supporting the measure, three opposing and one, testifying for the NAB, supporting the concept in general and calling for further study and discussion.

Here’s a summary of what the witnesses had to say.

* Mr. Joseph J. Kennedy, Chairman and Chief Executive Officer, Pandora Media, Inc.: 60M listeners in the last 30 days. 400 genres and subgenres. Asks for support for IRFA. Addresses unfair rate-setting and unfair process. Pandora will account for 7% of all radio listening but will pay more than half of its income in royalties. Would be even worse had not Congress intervened to lower original Copyright Board-set rates. Willing buyer-willing seller standard is not fair. Satellite/cable standard is fairer. CRB proceedings actually let recording companies to cherry-pick cases to set higher rates.

* Mr. Bruce T. Reese, President and Chief Executive Officer, Hubbard Radio LLC, on behalf of the National Association of Broadcasters: Local broadcast is unique because its always on, always free, and available everywhere. Emergency performance, local flavor are keys to success. The internet presents an opportunity to expand, but streaming is impeded by high unaffordable royalty rates. Simply not enough revenue to cover costs. Hubbard is paying the rates, but even in best years does no better than break even. Most stations haven’t begun streaming. CRB’s rates have always been seen as outrageously high. Numerous examples of dysfunction in the way CRB sets rates, including lack of proper guidance under existing standards. NAB has members supportive of Chaffetz bill, others members still studying. NAB therefore takes no explicit position on IRFA but does support the process of studying and fixing rate structure. Royalties for radio airplay should be a private, free market negotiation.

* Mr. David B. Pakman, Partner, Venrock: Venture capital form specializing in early stage entrepreneurial internet companies. Pakman was previously involved in entrepreneurial digital music companies, Venrock is staying out of the field because of the current licensing regime – it virtually prevents success. Failure rate of digital music companies is among the highest of all field Venrock looks at, making them non-investable businesses. Internet allows many musicians to be heard without the recording company filter, but the companies that provide this opportunity cannot sustain a business model. Pandora is just about the only standalone business to operate with any kind of success in this business. Says labels have resisted making music performance affordable on the internet. Music industry controlled essentially by three large companies that are exercising monopoly power to squelch internet audio. Rates frighten off capital and kill off entrepreneurs.

* Mr. Jimmy Jam, Chair Emeritus, The Recording Academy, Record Producer, Songwriter, Recording Artist:  Also a member of AFM, SAG/AFTRA, ASCAP. Majority of musicians are non-famous middle-class artists. There talent is necessary to make the industry work. Artist gets 70 cents per song download, but only a tenth of a penny for a Pandora stream – that’s why the internet royalty is so high. While pursuing this performance reduction, Pandora is also trying to lower payments to composers. Why should one business get to take the intellectual property of another without compensation. Terrestrial radio doesn’t pay a penny for performances. Congress must close the corporate radio loophole. IRFA is anything but fair, and by all means it is time to hold a conversation about fairness. Fair market royalties should be paid by all platforms.

* Dr. Jeffrey A. Eisenach, Managing Director and Principal, Navigant Economics:  Says his views are partly supported by the RIAA, but is nevertheless his own opinion. Congress has focused on market-based regime for rate setting. Twice this committee has passed legislation that would have extended that to broadcast. Passing IRFA would distort the marketplace. Replacing willing buyer-seller with downward standard is harmful. IRFA will impose below-market rates. Says new firms are entering the market, existing firms are making money, mobile is poised to further expand the market. Says Pandora’s costs are comparable to other businesses in other fields, and that Pandora could solve some of its problems by selling more advertising. Congress should not favor the industry that can generate the most political influence.

* Mr. Michael J. Huppe, President, SoundExchange, Inc.: Music community stands united in opposition to IRFA. Aids some companies at the expense of musicians. Meanwhile, terrestrial radio pays nothing. Digital services are increasing, and SoundExchange likes that – but musicians give these businesses the material upon which they base their existence. A Pandora listener who spends 250 hours with the service costs Pandora only $4 in royalties, and now Pandora wants to lower it further. What would a willing buyer pay a willing seller for this?