Opening <i>Pandora's</i> Box; Why Congress and the Music Industry will Ruin Internet Radio - Again

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Back in 2001, when the landscape of the Internet was still as uncharted as the Pacific was to the pioneers, I was honored to be asked to represent independent artists at the Copyright Hearings on Capitol Hill.

These days, I'm so "out of the loop," I'm lucky if I recognize the band headlining the Mercury Lounge on a Saturday night. But, back then, I was a crusader.

The issue in '01, was the major record labels were attempting to wrap their greedy little paws around the neck of this fledgling technology called Internet Radio.

The way they sought to do this was by asking congress to force these new stations -- most of which were owned by bigger companies such as AOL and Yahoo -- to pay a fee that would be retroactive for every day since they began broadcasting online. This was the equivalent of NBC, CBS, and ABC knocking on your door and telling you, "For every day you've watched our network since it's been on, you owe us $5.00. Each."

Obviously, a fine like that would be in the billions, and would, no doubt, wipe you out. And, that's exactly what the R.I.A.A. (the Recording Industry Association of America) -- the D.C.-based lobbying group that represents the major labels -- was trying to do when it went after the webcasters the first time.

Luckily, it did not succeed. And, as we now know, the Small Webcasters Settlement Act of 2002, followed closely by the Copyright Royalty and Distribution Reform Act of 2004, drastically lowered the fees broadcasters would pay to stream music online, thereby opening the floodgates for dozens of new Internet radio stations, allowing them to flourish and grow, and today, there are so many successful ones, we can hardly count them all. But, let's try, shall we?

2. Did we say, Pandora? We did? Oh.

Well then, that's the end of the list.

Look around today, and one can't help but wonder if the R.I.A.A., and its cohorts, were, in fact, successful in their quest to keep Internet radio down for the count.

What else is there, really? After these so-called 'reasonable royalty rates' were handed down, so, too, were the majority of Internet stations, themselves. Microsoft, Yahoo and AOL all headed for the hills and sold their stations to the highest bidder, like CBS, etc.

At present, probably the only other relevant online radio station out there is Spotify. But, they're not even a U.S. company. They originated in Sweden, and, when all is said and done, can only claim one-fifth the listening audience of Pandora.

Compared to a decade ago, there are now hundreds, if not thousands, of online businesses geared toward every type of cyber-experience you can think of: shopping, dating, traveling, gossiping, buying a car, paying your bills, dining out, socializing, etc., etc.

So, why aren't there more well-known online radio stations, you ask?

Well, for starters, it seems when it comes to music, and the artists who make it, Congress is totally out to lunch, -- and have been, for some time. The Copyright Royalty Board that was established to oversee this hotly contested potato is constantly passing, then months later, amending, so many bills dealing with how and what monies are paid to artists, not even the shrewdest copyright attorneys can figure out what's going on from one minute to the next.

If nothing else, they should at least start referring to these ever-changing laws more honestly. Such as:

The Webcaster Settlement Act of Five o'clock (This bill is to amend and overwrite the previously passed Webcaster Settlement Act of Four o'clock, and shall serve as final governance with regard to the question of Internet royalties. Until tomorrow.)

All these different laws being passed every five minutes has done nothing but lead to massive instability, constant squabbling and overall uncertainty regarding the future of online music. After all, who would want to invest in any business if the laws surrounding its 'franchise fees' changed with the seasons?

"Today, you owe $1,000. Tomorrow, it may be $10,000. And, see those guys over there? They're special, so, they're exempt. Even though they're essentially doing the same exact thing as you. Now, pay up."

Considering this joke of a business model, it's a miracle there's any online music at all.

Because of this ridiculousness, it's come to the point where the folks at Pandora, once again, find themselves squarely behind the eight-ball; having to sponsor yet another piece of legislation to try and stabilize, for just a little while, this tremendously unequal playing field.

And, it is this issue, which now sees independent artists virtually biting the only real hand that feeds them, that has woken me from my multi-year slumber and caught my attention.

This latest bill, The Internet Radio Fairness Act, which is backed by Rep. Darrell Issa (R-Calif.), Sen. Ron Wyden (D-Ore.), and Rep. Jared Polis (D-Colo.), seeks to reduce the royalty rate Pandora, and other online broadcasters, currently pay to artists. Due to the bill's controversial objective, it's become the catalyst for artists, both mainstream and indie, as well as industry backers like the R.I.A.A., to join forces and lash out at Pandora, claiming the online broadcasting service is seeking to take the 'measly' tenth of a penny artists currently receive per play, and lower it. Something which Pandora does not dispute. They do, however, insist nowhere in their legislation are they attempting to lower the rate by 85 percent, something which groups like the musicFirst coalition claim they are.

Pandora's argument -- at least one of them -- is that this tenth of a cent eventually adds up to over a quarter billion dollars a year. More than half of their total revenue. Meanwhile, they point out satellite broadcaster Sirius/XM paid out less than 10 percent of theirs. And FM... nothing.

Why does terrestrial radio pay nothing? Because, way back before the invention of the Internet, when George Washington was chopping down cherry trees, it was agreed upon by the powers-that-be that radio was a "promotional tool" for record companies, and thus, should be exempt from having to compensate the artists and the labels it was helping promote.

That kind of logic may have flown when Farrah Fawcett was hot and Merv Griffin was the number one late-night talk show. Nowadays, when you hear guys like Bruce T. Reese, spokesman for the National Association of Broadcasters, sit before the House Subcommittee and say, with a completely straight face,

"What makes broadcast radio so successful is the local flavor of our programming, which forges a unique connection with listeners in a way that other media do not,"

it's all you can do not to crack up. That is, unless, by 'local flavor,' he's referring to the computers, which have all-but-replaced live disc jockeys, and which play the same 10 generic artists over and over again.

In the past three-plus decades, if a Program Director, in any major market, was 'caught' spinning a local artist in daytime rotation, he/she would be making cow pies on a ranch in Greenland faster than you can say, "Ridiculous Advertising Dollars Instead of Originality." On this, I speak from personal experience.

Back in '96, my band, The Rosenbergs, won K-Rock New York's "Best Unsigned Band" competition and were 24hrs. away from being put into a coveted daytime rotation spot. This obviously would have exposed us to tens of thousands of new fans. However, when the station manager got wind of this "insane" contest, the P.D. was immediately fired and the contest scrapped. We did get a nice set of steak knives, though.

Back to the issue at hand;

When it comes to The War on Pandora, we can sit here all day arguing over all the main sticking points of this current piece of proposed legislation:

  • Pandora may pay a higher percentage than Sirius, but Sirius pays1.00 per subscriber. So, 'Nyah!'

  • A 'Willing Buyer-Willing Seller' market is a better way to determine royalty rates than the "artist-destroying" conditions Pandora wants implemented.
  • Just like everyone else, Pandora's just another greedy company run by greedy executives at the top.
  • etc., etc. etc.

    Spend a few days -- or weeks -- reading up on all the mud being slung back and forth at the moment, and you'll realize the real problem here is not artists being "stiffed" by Pandora. Or, Pandora being "greedy." The problem is,= terrestrial radio.

    In fact, after speaking with the folks atSoundExchange (the lone organization responsible for collecting digital royalties), as well as renown copyright attorney, Ann Chaitovitz -- both of whom are opposed to the I.R.F.A. --, then discussing the issues with Joe Kennedy (CEO) and Tim Westergren (Chief Strategy Officer) of Pandora, both of whom support the act, it seems to me, when you take a step back, both sides are actually on the same side:

    • Both sides want to see artists get paid.

  • Both sides want independent artists to succeed.
  • And, both sides think the massive, corporate-owned FM stations being able to avoid paying a dime in performance royalties, while everyone else has to mortgage the farm just to survive, is ludicrous.
  • To give you an idea of how completely bizarre this whole situation is, when I asked Marie Farrar Knowles, SoundExchange Vice-President of Communications, what their alternative to the I.R.F.A. would be, she replied, at no fault of her own, "I don't know."

    With regard to the "fleecing of artists" allegations, in my own opinion, from my more than hour-long conversation with Messrs. Kennedy and Westergren, and speaking not as a journalist, but an independent artist, I would not hesitate in trying to assure every artist out there that Pandora is not trying to 'rip them off' when it comes to royalties.

    In fact, if you think about it, that argument makes no sense, whatsoever. Why would a company, whose main business model consists of promoting independent artists over 60 percent of the time, and is practically the only place to hear new music on a regular basis, want to destroy the very artists whose careers it's sustaining, and who are sustaining it?

    I can also assure you, as much as they'd like to think they do, no multi-platinum, Grammy-winning artist, such as a Rhianna or a Missy Elliot or a Maroon5, give a rat's ass about what happens to an indie band from Harrisburg, P.A. If you think they do, call Don Henley and tell him you want to come over to discuss the finer points of the bill.

    Nonetheless, as with any over-complicated mess, there's usually a simple solution. And, in this case, it's no different: End the one-sided, unfair exemption terrestrial radio currently enjoys, and make them pay their fair share of performance royalties to artists and labels -- just as the rest of the radio-playing world has to do.

    A few years back, Ms. Chaitovitz penned an informative article for The Huffington Post illustrating the reasons FM stations should absolutely begin paying a performance royalty to artists. She astutely pointed out, the song, "Respect," would never have been the classic it is without Aretha Franklin's amazing vocals. Yet, she's never gotten a dime in performance compensation from FM or AM radio.

    So, why hasn't this happened already? It's simple: Pandora tried once two years ago and realized, quite quickly, Congress is scared to go after big radio and their lobby, and the R.I.A.A. is 'just fine' with the status quo. In the meantime, both sides have decided to just kick each other's asses, instead.

    The situation as a whole, is very much like a wealthy plantation owner watching two of his prized Mandingo slaves fight to the death, while he sits back and looks on with arrogant amusement.

    Whatever happens with this particular bill, if artists, artists' reps, and the online broadcasters that support them, can't come together and focus their energy on the real enemy, in a few short years, the only 'royalty' we'll be talking about will be when referring to the Kings of the mega-companies that rule all the airwaves; both online and terrestrial.

    (A modified version of the I.R.F.A. is expected to be introduced before Congress sometime before the end of this year.)