The Internet Radio “Fairness” Act Would Pay Musicians a FRACTION of a PENNY per PLAY

Billy Joel and Rihanna

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Billy Joel, Rihanna, and 123 other musicians wrote an open letter to Congress today asking lawmakers to reject the Pandora-backed “Internet Radio Fairness Act.”

Billy Joel, Rihanna, Missy Elliot, Common, Maroon 5,  and more signed the letter which claims that the Internet Radio Fairness Act would cut royalties to artists by 85 percent.

The letter states that the artists are all fans of Pandora’s internet radio but argues that the Internet Radio Fairness Act is unfair to musicians.

The letter reads:

“Why is the company asking Congress once again to step in and gut the royalties that thousands of musicians rely upon. That’s not fair and that’s not how partners work together.”

SoundExchange President Michael Huppe said that musicians could see their royalty pay slashed by as much as 85 percent if the Internet Radio Fairness Act gets passed.

Huppe said:

“This issue is critical to the tens-of-thousands of recording artists we represent – all of whom rely on this digital performance revenue stream to make a living … It is important that we protect artists and the long-term value of their music, which is, after all, the foundation of Internet radio.”

Pandora Media argues that internet radio stations pay higher royalties for songs than traditional radio stations and satellite radio providers. The Internet Radio Fairness Act, according to Pandora, would level the playing field.

Pandora writes:

“We are asking for our listeners’ support to help end the discrimination against Internet radio … It’s time for Congress to stop picking winners, level the playing field and establish a technology-neutral standard … The current law penalizes new media and is astonishingly unfair to Internet radio.”

The open letter signed by Billy, Joel, Rihanna, and 120 other artists will be published in full in this weekend’s Billboard Magazine.

The Internet Radio Fairness Act, a federal bill supported by Pandora, Clear Channel and others that would change the way online radio royalties are set, has come under new opposition from the N.A.A.C.P., which said in a letter to members of Congress that the bill would “unfairly deprive artists and performers of fair pay for their hard work.”

The bill, introduced in September, would direct a panel of federal judges to use the same standard in setting royalty rates for Internet radio that they use for satellite and cable radio services, a change that Pandora and others believe would substantially lower their rates.

It already has been opposed by music industry groups, as well as by the A.F.L.-C.I.O. But the N.A.A.C.P. letter, dated last Friday and publicized by a music industry coalition on Thursday, adds new pressure, portraying the issue not just as a business dispute, but as a civil rights matter.

“Quite frankly, the I.R.F.A. bill fails the basic test of economic fairness and discriminates against singers and musicians by slashing the compensation they receive when their work is played over digital online radio,” says the letter, which was signed by Hilary O. Shelton, director of the N.A.A.C.P.’s Washington bureau.

Members of the Internet Radio Fairness Coalition, which in addition to Pandora and Clear Channel includes the Digital Media Association and the Consumer Electronics Association, argue that the current royalty system is unfair and impedes the development of the industry.

Pandora, for example, has paid a much higher portion of its revenue in royalties than satellite and cable radio services. The new bill would make a number of other alterations to the rate-setting procedure, including a change in the way the copyright royalty judges are appointed.

This week, Pandora also started a new front in its campaign to lower royalties when it sued Ascap, a performing rights group that represents songwriters and publishers.

A spokeswoman for Pandora did not immediately respond to a request for comment on Thursday afternoon.

Rates are set by three judges on the federal Copyright Royalty Board, but they apply a different standard to Internet radio services like Pandora than they do to satellite and cable radio outlets like Sirius XM and Music Choice.

Sirius, for example, pays 8 percent of its revenue to record companies and artists. Pandora pays a fraction of a cent each time a song is streamed, which last year amounted to about 54 percent of its revenue, or $149 million.

“The rate being too high dramatically depresses how much music gets played,” Mr. Westergren said in a recent interview. “It has really suffocated the industry.”

The Internet Radio Fairness Act, introduced in September, would move Internet radio companies from their “willing buyer, willing seller” standard — which critics like Pandora say results in an unrealistically high rate — to the one used for satellite and cable radio. To determine a fair rate, that standard directs the judges to consider factors including whether the prices will have a “disruptive impact” on the industry.

Music industry groups also want one standard, but one that keeps rates high. For years they have also been pushing for laws that would require terrestrial stations to pay royalties to labels and artists. (In the United States — and almost nowhere else in the world — radio stations pay royalties only to music publishers.)

Representative Jason Chaffetz, a Republican of Utah who co-sponsored the bill, said in a phone interview that the bill was meant to encourage growth in the streaming business. But when Mr. Chaffetz, whose campaign committee has received $2,000 from Pandora, was asked to respond to complaints that the changes would hurt musicians, he could not resist taunting a bit.

“The old-school dinosaurs are trying to help, but they’re stuck in the tar,” he said. “They can go talk to the pterodactyls.”

Pandora has been down this road before, and in 2009 reached an agreement for a temporary discount of about 40 percent off the royalty board’s rates; that deal expires in 2015.

This time Pandora is a different beast: a company with a $1.4 billion market capitalization. Each month, 58 million people use it to stream more than 1.1 billion hours of music.

Streaming is now on every horizon in the music industry. SoundExchange, which collects royalties from Internet and satellite radio, recently announced that it had crossed the $1 billion benchmark in payments to labels and artists.

The royalties issue, Mr. Westergren said, has become a question about the wider health of the streaming business, which he believes has been stunted by royalties.

“This is not an argument about going out of business,” he said. “A fix here would be for the whole industry.”

But there is wide anger in the music industry that the bill would enrich technology companies at the expense of musicians. MusicFirst Coalition, which includes the recording industry association, SoundExchange and others, says it believes that if Pandora gets everything it wants, it could cut its royalty bill by up to 85 percent.

For Pandora, the critical question is whether streaming businesses can be successful at all in the current system. Digital music services have proliferated over the years, but just as many have died, and popular arrivals like Spotify have yet to turn a profit.

Clear Channel Communications, the radio giant, has recently moved more aggressively into streaming with its iHeartRadio app. Robert W. Pittman, its chief executive — who has been outspoken on the royalty issue — said in an interview that a change could generate more money for the music industry by allowing streaming businesses to thrive.

“It’s not so much about rates as about how much dollars you spend,” Mr. Pittman said. “The amount of dollars to artists is rate times volume. If the rate suppresses the volume, there’s less money. If it encourages volume, there’s more money.”

Mr. Westergren is revered as a self-made success with real musical bona fides; he is fond of telling stories about his years of scraping by as a touring musician. But the controversy over the Internet Radio Fairness Act threatens to tarnish that image.

The music industry says that if Pandora needs to improve its bottom line, it should sell more ads. When asked to respond, Mr. Westergren makes a gesture of banging his head on a table.

“It’s an easy thing to say,” he said. “But no one has yet explained to us why Internet radio is under a different standard. No one responds to that fundamental premise.”

Advertising sales, which make up almost 90 percent of Pandora’s revenue, doubled in the company’s last fiscal year.

For Mr. Westergren, though, the most difficult aspect of this battle has been the accusation that Pandora wants to take advantage of musicians.

“This adversarial reaction toward Internet radio is counterproductive,” he said. “It’s causing other businesses to sit on the sidelines, and that is hurting musicians. Ultimately, you want to have many boats in the harbor.”



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