Congress urges peace talks in Net radio conflict

Controversial new fees Webcasters say would cripple them are supposed to kick in July 15, but Congress is reluctant to intervene, at least not yet.

WASHINGTON--Members of Congress on Thursday expressed reluctance to intervene in a raging conflict over new Internet radio fees scheduled to take effect in scarcely two weeks, saying they hope Webcasters and the record industry can work things out.

The controversial fee decision by U.S. copyright judges earlier this year has prompted opponents--including large and small Webcasters, independent artists and record labels, public radio stations and listeners--to lobby for relief from Congress. So far, they've had some success, with nearly identical bills introduced in both the House of Representatives and the Senate that would overturn the fee hikes.

But after hearing from both fans and foes of the new rules at a morning hearing here, leaders of the House's Small Business Committee admitted they were struggling with the best way to balance Webcaster concerns about bankruptcy with the need for fair artist compensation. They concluded that crafting a legislative fix isn't necessarily the best idea.

"I really don't think that Congress would be the best vehicle to resolve this type of issue," said committee chairwoman Nydia Velazquez (D-N.Y.). She pointed to a similar rift that arose about five years ago, which prompted Congress to codify a settlement among Webcasters and the music industry, as evidence that legislative fixes can hold for only so long.

Through a quirk of history and politics, Webcasting rates and many other music-related licensing fees are set by a tribunal with members chosen by the Library of Congress, part of the legislative branch. That makes this area unusual among types of intellectual property: licensing rates for photographs, videos, movies, novels, and news articles are set by the free market, not the federal government.

Co-chairman Steve Chabot (R-Ohio) said it would be better for the parties to try to find common ground on their own because government intervention "often times (messes) things up even more than they already are."

Should Congress meddle?
Not all of their colleagues, however, feel quite the same way. Rep. Jay Inslee (D-Wash.) said in an appearance at Thursday's hearing that he firmly believes the government's Copyright Royalty Board has made a mistake that Congress may need to fix. He gave a pitch for his bill, called the Internet Radio Equality Act, which would level the royalty rates for Webcasters, satellite and cable radio broadcasters at 7.5 percent of their revenues. He did, however, say that he wouldn't object to the parties' working out their differences without Congress's help.

But many believe there's no way the bill will make its way through both chambers and to the president's desk before the fees kick in. Congress has been focusing on other hot-button topics of late, a weeklong July 4 recess looms, and no votes or debate are currently scheduled on the bill.

"These are businesses totally dependent on our work product--the creativity and investment of the record label and the creativity, passion and hard work of recording artists."
--Thomas Silverman, Tommy Boy Entertainment founder

Inslee, for his part, said the "effort in Congress will continue and swell dramatically, because when those decisions are made to shut off Internet radio, whatever congressmen and women have heard to date, you're going to hear five to 10 times as much after July 15."

Outside of reaching a compromise on their own, another potential lifeline for the Webcasters fearing shutdown is a federal appeals court, which has been asked to delay the onset of the fees, but action there is also uncertain.

Thursday's hearing highlighted again the pronounced split over the need for the increased fees.

On one side are Webcasters, public radio operators and primarily independent, emerging artists and record labels, who argue that the changes will raise large Webcasters' costs by as much as 300 percent and small entities' costs by as much as 1,200 percent, effectively shutting them down. On the other side are arguably more established record labels and artists and SoundExchange, the nonprofit entity that collects the fees on their behalf, which argue the changes were the result of a fair, impartial 18-month proceeding and are necessary to compensate artists adequately in a digital age.

Some music industry representatives on Thursday urged politicians not to get lost in the Webcasters' rhetoric and protests like Tuesday's highly publicized "day of silence," in which a number of Webcasters shut off their normal music streams. After all, it is the 20 largest Internet radio operators, such as Yahoo Music, RealNetworks and Pandora, that are responsible for 95 percent of the royalty payments, they said.

"These are businesses totally dependent on our work product--the creativity and investment of the record label and the creativity, passion and hard work of recording artists," said Thomas Silverman, the founder of Tommy Boy Entertainment, which began in Silverman's New York City apartment and has since grown to produce famed hip-hop artists like Queen Latifah and Naughty By Nature.

Besides, SoundExchange has not been insensitive to the needs of small Webcasters, they argued. They were referring to an offer to cap the fees for those that fit into the "small" category--a move that the Internet radio industry rejected, saying it would effectively stunt its growth.

Opponents argued before the politicians that it's not just small Webcasters who will be crippled by the new fees. The three largest Webcasters alone are expected to have to pay more than a billion dollars per year, thanks to a requirement that they pay a minimum of $500 per "channel"--of which those services have thousands. A SoundExchange representative said Thursday that the group has offered to cap that fee at $2,500 per year, although it was not immediately clear whether that would satisfy the Webcasters.

Opponents who spoke at the hearing further argued that preserving as many Internet radio options as possible is in the interest not only of listeners, but artists, because it has given a voice to smaller names--like Joey Allcorn, a Georgia-based "classic country" singer who testified before the committee--who can't make the playlists of traditional radio stations. They also noted that Webcasters often provide listeners with links to e-commerce sites where they can purchase the albums they play, further generating publicity and revenue for the artists they play.

All Webcasters are asking Congress to do, said Bryan Miller, general manager of the indie rock Internet radio station WOXY.com, is to equalize the royalty rates required of comparable digital services. "We're not talking about (giving away) anything for free," he said.

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