Sunlight Foundation Reporting Group

Pandora gets heard but many lawmakers change the channel

To the delight of the recording industry, a congressional hearing about a bill that would decrease the royalties that Pandora pays to record labels and artists turned into a larger discussion about how Congress regulates the music business.

The hearing, on the Judiciary Committee’s intellectual property subcommittee, was about the Internet Radio Freedom Act, a bill sponsored by panel member Jason Chaffetz, R-Utah, that would subject Internet radio services to the same rate setting standard of cable and satellite radio.

MORE: Check out the archive of Sunlight Live's coverage of the hearing.

In a press release issued after the hearing, MusicFirst, a coalition of recording industry groups, said it was pleased that many members of the panel broadened the focus from the Chaffetz bill to "the much bigger injustice distorting the music licensing market today – the lack of a performance right for music played on ground-based AM/FM radio,” 

Rep. John Conyers, D-Mich., a former Judiciary Committee chairman who represents Motown, was among the lawmakers who steered the debate towards what they see as bigger issue: That radio stations are exempted from paying performance fees, depriving artists of money. The radio stations do pay songwriters but not performers.

But Pandora’s allies noted that requiring radio stations to pay a performance fee does not have wide support of the whole Congress.

Dennis Wharton, a spokesman for the National Association of Broadcasters, which had its chairman and CEO Bruce Reese testifying on behalf of radio stations, pointed to a congressional resolution opposing any performance fee on radio stations signed by 263 members of Congress. NAB is not backing Chaffetz's legislation but is supportive of legislation that would lower royalty rates for Internet radio.

Greg Barnes, a lobbyist and general counsel for the Digital Media Association, which Pandora belongs to, also said that if the radio measure were added, the bill would not have a good chance of passing.

Pandora’s CEO Joe Kennedy said that the current system discriminates against Internet services. In his testimony, he pointed out that Pandora pays over 50 percent of its revenue to artists and record companies while satellite radio pays 7.5 percent.

Chaffetz passionately supported Pandora’s cause because the Internet radio business is not profitable, he said. He noted that MTV, Microsoft, AOL and Yahoo all exited the business.

On the other side, Jimmy Jam, a record producer and artist, and the chair emeritus of The Recording Academy, pointed out the little bit that Pandora pays to artists per song played. “If a consumer downloads a song from Amazon’s mp3 store for 99 cents, Amazon pays the rights holders and creators about 70 cents.” For that same song, streamed on Pandora, the rights holders receive one tenth of one penny, he said.

Barnes said the Chaffetz measure it good policy and good politics – because it has a chance of passing. He said he thought the hearing went well.

“We were pleased with the outcome of today’s hearing.  Our primary goal was to have all members of the committee enter the room with an open mind and a willingness to listen to both sides of the issue and we easily accomplished that objective. In fact, I even believe we picked a couple of new supporters along the way,” Barnes wrote in an email.