Betting the Company: The Internet Radio Fairness Act has little to do with the Internet, Radio or Fairness
An interesting exchange with a reporter about the Internet Radio Fairness Act: He denied that IRFA created a new set of per se violations of the Sherman Act–the principal U.S. antitrust law–for sound recording owners who collectively engage in “impeding” the efforts of anyone (including Sirius XM and Clear Channel) who seek direct licenses with sound recording owners.
Apparently, no one is writing about this section, so it can’t be there.
You know a good way to find out about IRFA is to read the bill, not read what journalists are saying about the bill. IRFA is not very long and packs a lot of damage into a few words.
Why might the IRFA drafters (hiding behind Pandora’s Tim Westergren) be interested in chilling the speech of those who dare object to them? And who might those drafters be?
Congress Giveth What the Judges Take Away
Understanding the Sherman Act reference is where a page of history is worth a volume of logic. This story from Billboard sums it up:
SiriusXM has filed a lawsuit against SoundExchange and A2IM. The company alleges that the two organizations violated Section 1 of the Sherman Act and acted in concert with other organizations to interfere with the satellite’s channel efforts to obtain cheaper direct licenses that pay royalty rates of 5% to 7% instead of the 8% statutory rate for master rights owners.
In alleging that SoundExchange and A2IM are engaged in antitrust behavior that is causing the satellite operator economic harm, SiriusXM is asking the court to enjoin the two organization’s from interfering in its direct licensing efforts, and pay its legal fee and whatever economic damages the court determines SiriusXM has suffered.
The most significant redress it asks for, in terms of potential impact upon the U.S. music industry, is for SoundExchange to be dissolved and unwound on an orderly basis, or alternatively appoint an independent monitor to oversee SoundExchange’s compliance with the antitrust laws for a period of 10 years.
Last summer, SiriusXM made a deal with [Music Reports, Inc., or] MRI to try and obtain direct licenses with record labels, but were rebuffed by all four majors and most independent labels with only 80 signing on.
…SiriusXM alleges that the organization’s launched “a coordinated attack” of its direct license initiative, orchestrated by SoundExchange. In addition to SoundExchange, the National Academy of Recording Arts and Sciences, the American Federation of Television and Radio Artists, and the American Federation of Musicians all allegedly reached out to their memberships in a communication designed to achieve a collective refusal to Sirius direct licensing program. (emphasis mine)
Now compare Section 5(a)(1)(B) of IRFA:
Section 112(e)(2) of title 17, United States Code, is amended—…(B) by adding at the end the following: “Nothing in this paragraph shall be construed to permit any copyright owners of sound recordings acting jointly, or any common agent or collective representing such copyright owners, to take any action that would prohibit, interfere with, or impede direct licensing by copyright owners of sound recordings in competition with licensing by any common agent or collective, and any such action that affects interstate commerce shall be deemed a contract, combination or conspiracy in restraint of trade in violation of section 1 of the Sherman Act (15 U.S.C. 1).”.
So–it looks like the Internet Radio Fairness Act is designed enact into law the plaintiff’s claims in the Sirius XM lawsuit. I would suggest to you that the real purpose of IRFA is not so much “rate parity” but to chill the future speech of the types of entities that were defendants in the Sirius XM lawsuit.
It’s better PR for Sirius to sue labels and SoundExchange than it would be for Sirius to sue unions (who have an anti-trust exemption anyway). Why is it still better PR for Sirius to go to the Congress to pass a law that would not only give them a win in their litigation, but hand them the cudgel of threatening potential criminal penalties for any collective having the audacity to hope to represent or advise their members. Next thing you know Sirius will want to pay artists in scrip at the company store.
Seems to me that sounds a lot like–censorship. Violations of free expression and freedom of association. Other unconstitutional things.
But to hear the press reporting on Tim Westergren’s defense of IRFA, you would think that it was all about rate parity. I guess some animals are just more equal than others.
What’s the Issue with Direct Licensing?
Why is it worth it for Sirius XM to get such a black eye for their direct licensing campaign? The Future of Music Coalition sums it up:
In plain language, SiriusXM and MRI [Music Reports, Inc.] are proposing to have all the money flow through the record label, instead of paying performers their share directly. FMC knows and loves many record label people, but history has demonstrated that these passthroughs are subject to money being diverted to pay for album costs, or lack the same level of transparency that’s available to artists when receiving a check directly from SoundExchange. Having heard many stories about clever accounting practices in which even successful artists never “recoup,” we worry about whether performers will recieve their share of a growing revenue stream.
Then there’s this. Billboard reports:
The question arises if the labels will pay the artist half the royalty, or 50 percent, they receive for each time a song is played, or will some labels choose to pay them their artists the regular royalty rate, which typically ranges between 15 percent and 20 percent.
Yep. There’s also a chance that, under this direct licensing arrangement, performers would see their royalty rates reduced.
So you would think that the major labels and indie labels would be leading the charge to increase direct licensing, right? Wrong.
It sems pretty clear that the reason that Sirius XM was having trouble with their direct licensing campaign was that it was bad for artists–and SoundExchange and the unions gave their members the other side of the story. That lawful speech so infuriated Sirius XM that they sued and having stumbled in that lawsuit, they are now trying to get the Congress to make it a violation of the antitrust laws for unions to give their members the other side of the story.
And the way I read IRFA, it could be applied against the Future of Music Coalition posting the quoted language, too.
They just hate it when you organize.
The MRI/Royalty Logic Issue With SoundExchange
When you read the history of these issues, Music Reports is a frequent participant and apparently is actively involved in negotiations of regulations and other issues regarding the administration of the Copyright Act.
I think it is fair to say that Music Reports (or MRI) has in part made a business of working for digital services who rely on compulsory licenses to license songs. MRI is known for sending thousands of notices to copyright owners (most recently for the Amazon cloud service). Note that however commercially impracticable this process (known as “carpet bombing NOIs” in some circles), it is lawful. Although MRI is also known for sending checks for $0.01 to some publishers, they also report signficant payments. Like Rightsflow and other companies in the administration space, MRI collects significant data about music publishers and sound recording owners.
It is this “back room” operation that MRI operates that may be why they were singled out in the Future of Music post quoted above.
MRI also operates (or operated) a company called Royalty Logic which struggled to become a competitor to SoundExchange until 2007. When it comes to understanding that connection regarding SoundExchange, it may be helpful to understand what happened to Royalty Logic’s bid to become a SoundExhange competitor.
According to Billboard’s March 8, 2007 story by Susan Butler:
The Copyright Royalty Board (CRB) formally made SoundExchange the sole “collective” to handle compulsory performance royalties for sound recording owners and performers. The CRB officially adopted a single-collective system to collect and distribute royalties paid by webcasters and Internet simulcasters.
Near the end of its 115-page decision setting webcasting royalty rates released earlier this week (March 6), the CRB addressed a request by Royalty Logic. The for-profit company, a subsidiary of Music Reports, wanted to become a “designated agent” to receive and distribute royalties under the compulsory license scheme. The Copyright Royalty Judges not only denied the request, but they made it clear why SoundExchange is – and should be – the one and only collective….
The judges wrote that there is a “fundamental misperception” by Royalty Logic and, to a lesser extent, by SoundExchange regarding [a statutory requirement of a two-tiered system of royalty collection and payment]. The entire structure is a “legal fiction,” they wrote, and the judges are under no obligation to preserve it.
Declining to adopt the two-tiered agent system, the CRB adopted a system for
a single “collective,” i.e., an organization that would both collect and distribute compulsory royalties under section 114 of the Copyright Act. Every service using the compulsory license must pay royalties to this collective for all copyright owners.
“It represents the most economically and administratively efficient system for collecting royalties under the blanket license framework created by the statutory licenses,” the judges wrote.
In concluding a five-page comparison of SoundExchange to Royalty Logic, the
CRB expressed “serious reservations” about Royalty Logic. The judges concluded that SoundExchange “will best serve the interests of all copyright owners and performers” whose works are subject to the statutory licenses.
Given this history, not only the censorship provisions of IRFA but other provisions of IRFA that require gutting the current system of Copyright Royalty Judges (i.e., essentially the Copyright Royalty Board that ruled against Royalty Logic) may start to make more sense. And don’t forget the Sirius XM lawsuit against SoundExchange and A2IM asked to have SoundExchange dissolved. I wonder who thought of that. And what might replace SoundExchange were it to be dissolved?
Betting the Company: Little to Do with the Internet, Radio or Fairness
So you can see that at the end of the day, IRFA has a lot of other moving parts that I think are really bad for creators, and certainly seem quite burdensome to speech–possibly unconstitutionally burdensome. When you add to the mix that Clear Channel is also engaged in a program of direct licensing, it should at least become more apparent why the National Association of Broadcasters is reportedly in the mix supporting IRFA (Clear Channel is a member and NAB board member).
So IRFA clearly ain’t just about the rates that Pandora pays. IRFA seems to me to be as much about going to Congress to settle old scores as it does the Internet, radio or fairness. And in my view, Tim Westergren is making a big mistake in betting the company to defend the entire package.
If you want to take action, send a letter to Congress courtesy of the American Federation of Musicians.