OPINION: What’s “Fair” in the Internet Radio Fairness Act?

Posted December 6

Welcome to the O Music Awards guest writer series, a place where we hand the proverbial reins over to qualified writers/musicians/etc and let them share their thoughts about music, technology and more. Today’s guest blogger is Jason Sigal, a DJ at the freeform radio station WFMU-FM, where he is former director of the Free Music Archive. He also writes music for Lame Drivers and plays bass in Home Blitz.

Last week, the biggest debate in music, radio and the Web kicked off as Congress held its first hearing on the Internet Radio Fairness Act (IRFA). The bill highlights a disparity between webcasting royalty rates in comparison to the rates for satellite and cable broadcasters, and it attempts to align them all under the same standard. Opponents to the bill have a very different definition of “fairness,” with lobbyists and PR campaigns on both sides. The controversy pits musicians against technology companies at a time when it is crucial for them to work together.

Sen. Ron Wyden (D-OR), a major IRFA supporter, believes that the bill “promotes diversity of music choices and adequate compensation for artists” by lowering royalties so that more webcasters are inspired to open up shop. IRFA is specifically concerned with the royalty that covers digital transmission of a sound recording — a split between the label who owns the recording and the performing artist (the composer is covered with a separate royalty). These rates are set by the government’s Copyright Royalty Board (CRB), and when they come up for renewal, webcasters panic. For example, in 2007, the CRB nearly enacted astronomical rates that would have shut down the entire burgeoning webcasting community. Even non-profit stations like KCRW were under threat, faced with $350,000 in retroactive royalties. At the noncommercial station WFMU, we prepared for Web radio doomsday by collecting waivers from labels and founding the Free Music Archive, a curated library of Creative Commons music that could power noncommercial royalty-free streams. Meanwhile, webcasters of all stripes rallied behind SaveNetRadio, a campaign spearheaded by Pandora. Negotiations reached a standstill until 2009, and the rates are pretty reasonable for a noncommercial webcaster like WFMU. Pandora was able to wrangle a special rate for themselves of $0.0011 every time a listener streams a song, to which founder Tim Westergren cheered, “We’re gonna make it.”

Three years later, with more than one billion listener hours per month, that fraction of a cent adds up to 54% of Pandora’s revenue. In comparison, Sirius XM’s royalties amount to just 8%. Pandora is the most popular webcaster, but they have never turned a profit. They’re not alone. In fact, no webcaster has been able to cover their costs under the current system. With the support of groups like the National Association of Broadcasters and the Small Webcasters Association, Internet Radio Fairness is an attempt to create an environment where webcasters can thrive.

On the other side of the fence, the MusicFIRST Coalition advocates for a very different definition of “fair” on behalf of organizations like RIAA and SoundExchange (who also happen to be the agency charged with collecting the royalty this particular royalty). MusicFIRST has solicited endorsements from a constellation of stars like Rihanna, Ne-Yo, Skid Row, Big Bad Voodoo Daddy, TOTO, Mariah Carey, Whodini and KISS under the banner of “Fair Pay for Artists.”

The fact that MusicFIRST artists are already well established undermines their case. They don’t have as much to gain from new avenues of exposure through services like Pandora, whose broad catalog of over 100,000 artists is nearly 75% independent and undiscovered. In fact, the MusicFIRST coalition originally formed to lobby for a Performance Rights Act on terrestrial AM/FM radio, where its artists are still among the handful in rotation. Rather than engage in a discussion about IRFA during last week’s hearing, MusicFIRST members took the conversation offline and back to traditional radio, where the steep royalty that webcasters are now contesting has always been null.

Traditional radio’s exemption from the royalty that breaks the webcasters’ backs has been historically justified as a form of free advertising that pays off through sales of records and concert tickets. It is the same reasoning that led labels to forego royalties on music videos during the early days of MTV. Such exposure is infamously worth enough for record labels to bribe broadcasters with money, cocaine, cars and the like in a shady practice known as “payola.”

So what turned radio airplay from a form of advertising that labels were willing to pay for into something that they now demand to be paid for? In the heydey of payola, radio was one of a few narrow promotion and distribution channels to which the mainstream music industry served as puppetmaster. But ever since Napster broke, the majors have fought to regain control and to dig up new revenue sources from lawsuits to ringtones. Now the recording industry hopes streaming royalties can help fill the void left by declining album sales. In fact, pop songwriter Jimmy Jam drew a direct comparison during his IRFA testimony: “An artist gets 70 cents per song download, but only a tenth of a penny for a Pandora stream.”

This math compares apples to oranges because a stream was never meant to be the same as a purchase. 1998’s Digital Millenium Copyright Act (DMCA) established rules for “non-interactive streams” to ensure a listening experience akin to traditional radio. Webcasters like 8tracks and Pandora are not a place where you can tune in and hear a song on-demand. They cannot repeat music from a single artist or album. They are legally obliged to mix it up, and so if you search for an artist, the best they can do is point you toward music that they think is “similar.” These restrictions combined with innovations like Pandora’s Music Genome Project turn Internet radio into a wonderful resource for music discovery. And this seems to be what frightens the MusicFIRST coalition more than anything about Internet radio: the prospect that their Music will no longer be FIRST, losing its edge over the hundreds of thousands of artists who could be just as talented but were never as lucky, and now, finally, have a platform. MusicFIRST seems bent on stifling this type of innovation through royalty rates that thwart even the mightiest webcaster.

Even as Internet radio serves to promote a wider range of artists, album sales are decreasing, which begs the question: What goods do artists have left to promote? Concerts are a popular answer for those who have never actually tried it themselves, but for Ted Leo, one of the most seasoned touring artists who has spent most of the past twenty years on the road, “touring was never the thing that was putting us over the top.” In a recent interview, Leo describes a brief moment when “we were actually being floated by record sales” in a way that he believes is no longer repeatable for an artist of his stature. This sentiment has recently been echoed by a slew relatively successful independent artists from Grizzly Bear to Galaxy 500.

One of IRFA’s most vocal opponents is David Lowery, a beneficiary of major label support who is unabashedly carrying the torch once held by Metallica’s Lars Ulrich. Lowery’s music career was propelled by his underground radio hit “Take the Skinheads Bowling” (Camper Van Beethoven) and by his modern rock radio staple “Low” (Cracker). Nevertheless, Lowery is convinced that new forms of radio are simply out to screw over artists. He proposes that Pandora “stop whining” to the government and instead just sell more advertising. Lowery has even found a way to frame IRFA as “the new SOPA” for a line that he claims would censor free speech.

In a post titled “What I Want From Internet Radio,” avant cellist Zoë Keating declared that she is neither for nor against IRFA. Citing a need for transparency, she shared a spreadsheet of all of her recent Internet royalties. Pandora accounted for more than 90% of this income, and the $1,652.74 check resulted from an astonishing 1.5 million listens. Keating believes that this money is not as valuable as the data Pandora keeps about those 1.5 million listens, data that could help guide her next tour. She also asks for a standard rate across all media, and for fewer middlemen; the organizations who distribute royalties should embrace technology that could help improve their accuracy. For example, webcasters at WFMU’s level are only asked to submit random airplay samples in a rather archaic process that doesn’t capture the diverse range of music we play. We want our royalties to go straight into the hands of the artists we support, but our DJs often traffic in obscurities. SoundExchange is already struggling to fulfill their mission of doling out royalties for all of the world’s recorded music, and last we heard, they couldn’t even find Grizzly Bear, LMFAO or Wiz Khalifa.

Congress is expected to hold another hearing on the Internet Radio Fairness Act early next year, but it is unlikely to pass in its current form. Given the fact that even the largest webcaster has yet to turn a profit, it seems unreasonable to expect performance royalties to also help replace lost revenue from a drop in album sales. Traditional radio was never designed to bring in this type of royalty, but as album sales continue to fall and we look toward a streaming future, webcasters can be part of a solution through royalties as well as valuable data. Imagine if there were not one Pandora, but a whole spectrum of non-interactive stations who by law are required to encourage music discovery. To the members of MusicFIRST, that is a frightening prospect, but to anyone who cares about non-mainstream music, it is inspiring. I hope that the parties on both sides of this debate can work together to help realize the potential of the web.

Image courtesy of Flickr, S. Diddy