How Pandora Became Music’s Big Villain – The Verge

The Verge reports on the battle over internet royalties…

Pandora struggles to win hearts and minds because its leadership lacks credibility, and has also been utterly inept at pitching the company’s plan to the public, press, and Congress. Pandora failed to generate congressional support to lower royalties last year and unless the company’s leadership dramatically changes its strategy, the popular radio service doesn’t appear to have a prayer of getting help from Washington any time soon.

Michael Pachter, a research analyst with Wedbush Securities, believes Pandora will eventually thrive but that its attempt to legislate lower costs is misguided. “The bill is idiotic,” Pachter said. “It’s insulting to Congress to say you want regulation to lower your costs at the expense of artists. Did you see who was on stage with Obama helping him campaign? Jay-Z and Bruce Springsteen. That’s the Democrats, and how many Republicans are going to want to legislate against capitalism and the free market?”

RED THE FULL STORY AT THE VERGE:
http://www.theverge.com/2013/7/9/4475102/pandroas-pr-problem-why-the-company-cant-win-in-washington

My Song Got Played On Pandora 1 Million Times and All I Got Was $16.89, Less Than What I Make From a Single T-Shirt Sale!

Pandora less than t-shirt sale

As a songwriter Pandora paid me $16.89* for 1,159,000 play of “Low” last quarter.  Less than I make from a single T-shirt sale.  Okay that’s a slight  exaggeration.  That’s only the premium multi-color long sleeve shirts and that’s only at venues that don’t take commission.  But still.

Soon you will be hearing from Pandora how they need Congress to change the way royalties are calculated so that they can pay much much less to songwriters and performers. For you civilians webcasting rates are “compulsory” rates. They are set by the government (crazy, right?). Further since they are compulsory royalties, artists can not “opt out” of a service like Pandora even if they think Pandora doesn’t pay them enough. The majority of songwriters have their rates set by the government, too, in the form of the ASCAP and BMI rate courts–a single judge gets to decide the fate of songwriters (technically not a “compulsory” but may as well be).  This is already a government mandated subsidy from songwriters and artists to Silicon Valley.  Pandora wants to make it even worse.  (Yet another reason the government needs to get out of the business of setting webcasting rates and let the market sort it out.)

Here’s an idea. Why doesn’t Pandora get off the couch and get an actual business model instead of asking for a handout from congress and artists? For instance: Right now Pandora plays one minute of commercials an hour on their free service. Here’s an idea!  Play two minutes of commercials and double your revenue! (Sirius XM often plays 13 minutes and charges a subscription).

I urge all songwriters to post their royalty statements and show the world  just how terrible webcasting rates are for songwriters.

The revolution will not be webcast.

* I only own 40% of the song, the rest of the band owns the other 60% so actually amount paid to songwriters multiply by 2.5 or $42.25)

**  I am also paid a seperate royalty for being the performer of the song.   It’s higher but also what I would regard as unsustainable.   I’ll post that later this week.

For frame of reference  compare Sirius XM paid me $181.00

sirius royalties

Terrestrial (FM/AM) radio US paid me $1,522.00

Terrestrial Radio royalties Low

Pandora is Stiffing Artists by Josh Kear | The Hill

Josh Kear is a songwriter, ASCAP member and Grammy Award-winning songwriter for such artists as Lady Antebellum, Carrie Underwood, and Darius Rucker to name of few. He’s written an excellent post at The Hill about Pandora’s latest attempt to cheat songwriters and musicians of their rightful royalties.

Pandora is another example that The New Boss, Is Worse Than The Old Boss for musicians, songwriters and creators and elitist technocrats seek to enrich themselves on the labor of others. Kear writes,

Savvy readers will note a mere four percent of Pandora’s total revenue is spent on licensing public performance rights from songwriters and composers. That means we make a fraction of a cent every time one of our songs streams on Pandora’s service

READ THE FULL STORY HERE AT THE HILL:

Pandora Wants You, the Working Musician, to Sign This Letter to Congress…

This is part of a broader attempt by Pandora to win the hearts-and-minds of working musicians, and bolster support in Congress.  Here’s an email shared with Digital Music News; we blotted out the name of the artist (and some other identifying details) but everything else is intact…

READ THE ENTIRE LETTER AT DIGITAL MUSIC NEWS:
http://www.digitalmusicnews.com

ALSO AT DIGITAL MUSIC NEWS:
Pandora Tries to Convince a Musician That He Isn’t Getting Screwed…

From: Blake Morgan
To: Tim Westergren @ Pandora

Without us, you don’t have a business.

The idea of “allowing” us to “participate” in a business that is built solely on distributing and circulating our copyrighted work is like a grocery store saying it has an idea to “allow” the manufacturers of the goods it carries to get paid. The store isn’t “allowing” Del Monte to get paid for their cans of green beans, right? Of course not.

Streaming Services Ranked By “Artist Friendliness”

There is a lot of debate concerning the amounts paid to artists by streaming services.  It’s often very confusing because what an artist sees in royalties on their statements is highly dependent on a number of factors including whether they have a record deal, publishing deal or whether they are a solo performer or a band.  From an artists perspective royalties may accumulate from multiple sources. The other problem is that in general royalties are based on a percentage of the streaming services revenue.  So the amount may vary month to month and year to year.

Still one good  way to compare services is to look at statements for a moderately sized catalogue and calculate the revenue per stream they pay to “the rightsholders” (label/publisher/performer/songwriter) over a period of months.   This would also be the same amount that a completely independent artist that owns 100% if their own recordings and songwriting receives.

But this is not the only way to look at these streaming services from an “artist friendly” viewpoint.   We also need to look at whether these services respect artists rights. That is, whether these services respect the Artists right to choose how to monetize their music.   When you look at it in those terms the picture is a little different.  Here I’ve ranked the 7 most common services.

1. Rhapsody (Napster/Zune).  These three “on demand” services allow you access to virtually any song at any time. From an artist’s perspective they are identical.   These all work on a paid subscription model.  Like Spotify these services pay a percentage of revenue to rights holders.   But because they do not offer an ad based free service they have more revenue and pay more per stream to each artist than Spotify.  All these services  (like Spotify) operate under a private license.  They do not rely on a government imposed compulsory licenses or rates.  This also means rightsholders can theoretically “opt out” of this service if they think it doesn’t pay well enough. Or better yet negotiate a better deal.

I’m not opposed to compulsory licenses and rates in certain situations. But as  an artist I have to note that these rates are set by political appointees.  Broadcasters generally have a lot more money than artists and are thus better positioned  to influence the political process.  This is not some sort of tin foil hat paranoia.   If you were paying attention this fall you will note  that this is exactly  what happened  with the Orwellian-named Internet Radio Fairness Act.  Pandora fronting for Clear Channel,  Sirius XM and various Silicon Valley firms tried to use their lobbying money and influence to force the government to reduce those compulsory license rates!  Artists could have got an 85% pay cut!  So in general private blanket licensing is better for the artist.  Compulsory federal government imposed rates benefit the politically connected.

As previously noted have access to the streaming royalty payments for a moderately sized catalogue. Here are the average per stream rates paid by these three services Jul-Dec 2011.

Zune 2.8 cents

Napster  1.6 cents

Rhapsody 1.3 cents

These are close to being a sustainable* rate for artists.  (See footnote at end for an explanation.)

As a consumer I enjoy Rhapsody’s  256k mp3s.  As a consumer I prefer Spotify’s interface. I’ve never tried Zune or Napster.

2. Spotify.  #2 ?!! This surprises many of you.  Right? Let me explain.

Currently Spotify appears to be paying rightsholders about .5 -.7  cents a stream.  Considerably lower than the three services above.     While my colleagues here believe this is not a sustainable rate and that it may never become a sustainable rate we can’t know for sure.   It  is unclear how much streaming services  “cannibalize” or displace traditional sales. If streaming services  displace 20% of sales Spotify’s per stream rate could be sustainable.  If they displaces 80% of sales? Probably not.

Spotify  relies heavily on it’s free streaming service that is ad supported.  Spotify pays 70% of revenue to rightsholders.  If Spotify manages to convert more users to it’s premium subscription services revenues will rise.  As a result  rightsholder’s revenues rise.  If the ratio of paying subscribers to free subscribers rises substantially the per stream rate rises to something  sustainable.

What we  like about Spotify:  It operates (mostly?**) under  private licenses which means that rightsholders can withdraw from the service if they wish.  More importantly Spotify  has quietly allowed individual artists to “window” their releases and limit which singles or albums are available in the free service.  This is very important. For instance my band Cracker which has had four top ten rock tracks might find it’s revenues from Spotify acceptable.  But a niche artist like Zoe Keating might find she is losing sales to streaming services. She might chose to have only some or none of her catalogue available.  Choice is the foundation of free markets. Allowing artists to experiment with how to use streaming services, and how to monetize their songs is good for everyone. It will eventually be clear the best way to balance revenue and access.

I also should note that Spotify is being unfairly blamed for the knock on effects of disintermediation.  Disintermediation creates winner-take-all markets, and in an industry that was already winner take almost all, the small and middle class artists have gotten clobbered.  On a positive note, in these kind of markets there are usually countervailing market forces at work that nudge us towards  risk and revenue sharing. Or in Layman’s terms: It usually gets better.    The explanation is kind of complex so I’ll skip it for now.  Suffice it to say that right now it’s not so much Spotify taking artists’ royalties but the superstars taking everyone else’s royalties.

Finally Spotify has gone out of it’s way to engage artists, even critics like myself.  The fact that they were willing to sit down with me and discuss my issues with  their service is encouraging.

#3 Pandora.   Oh how the mighty have fallen.    Once they were our favorite.  Look at early Trichordist blogs and note our enthusiastic tone whenever we speak of Pandora!

For those of you that don’t know Pandora is NOT an on-demand streaming service.  I call it a “virtually on demand streaming service.”  If I type in a song title and artist name, I dont’ get that song.  But I usually get a song by that artist.  Pandora is a music discovery service.  It’s not a replacement for owning an album.  As a result Pandora gets and should get a lower rate than on demand services.

What we don’t like about Pandora:

They operate under a compulsory license so artists can not opt out of the service if they do not like the rates!! But what is worse is they have adopted the tactics of Silicon Valley’s hardball monopolists.  Proudly on display are  lobbyists, fake bloggers, planted stories, paid mouthpieces  and all the usual Kabuki Theatre bullshit we’ve come to expect from the “innovators” of Wall Street- er I mean Silicon Valley.  As I mentioned previously  Pandora fronted for the Internet Radio Fairness Coalition and pushed the Orwellian-named Internet Radio Fairness Act. The bill had nothing to do with Internet radio or fairness and everything to do with screwing artists out of 85% of their royalties.

Curiously the Internet Radio Fairness Coalition which supports the bill  has a lot of traditional broadcasters like Clear Channel and Sirius XM. Kind of odd for an organization with the publicized  purpose of leveling the playing field between Internet broadcasters and traditional broadcasters. The CCIA and CEA are also  inexplicably members of the IRFC.  Well maybe not inexplicably.  Just as the Four Horsemen herald the Apocalypse,   The CCIA  and CEA seem to always herald  La Chingada of someone, somewhere by Google.

So for participating in this rapacious anti-artist skullduggery we move Pandora from the top of the list  to #3.   We would put it at the bottom of the list but the other two lower ranking  services in my humble opinion are not even completely legal.

#4.   YouTube/Google.   YouTube is the biggest on demand streaming service. I know people think of it as a video service but it turns out that it’s the most popular music streaming service.  The main problem is that a lot of the music is uploaded and monetized by people that have no right to the music in the first place.  For example here is one of my recordings:  All Her Favorite Fruit. The problem is I didn’t authorize this person to upload this song, nor did I authorize YouTube to sell advertising or sponsored videos against this song.  It’s possible that the record label did but as I am also the songwriter and legally I should have been consulted.  Worse, the person who uploaded the static image can receive advertising revenues  since they “own” the video.  This is no different than Kim Dotcomm/MegaUpload paying people to upload the most popular movies and songs.  Further I have no idea where the money goes since you can’t audit YouTube without signing an agreement with them that basically says you can’t audit them!  YouTube is like the exploitative 1950’s music business but even worse, as  the artist does not receive the occasional Cadillac in lieu of royalties.

Now consider this:  This track is competing with legitimate authorized  streams of my track on other services.  These services generate some revenue for me.  So say I find it in my financial interests  to take this down?  I have to file what’s called a  DMCA notice.  When I do this Google can place my DMCA notice  on this website to try to publicly shame me into not doing this anymore.  I don’t file DMCA notices with YouTube/Google because I don’t want some deranged Freehadists showing up at my  home or office. This is not a far fetched idea, many of us in the vanguard arguing for artists rights and the preservation of copyright receive constant threats from seriously deranged free culture nutbags.  So the result is I don’t file a notice and I let YouTube/Google get away with this. This website is a tool of intimidation. It is my belief that this is exactly what Google intended when it launched this site.

If Google and UC Berkeley (which hosts the site and lends it intellectual legitimacy) had any common decency they would stop this practice cause someone is gonna get hurt one day. Now while  I don’t hold out hope for Google developing any common sense anytime soon (they are still allowing advertising for no prescription Oxycontin despite a half a billion dollar fine and threat of jail time)  maybe the Chancellor of UC Berkeley will recognize how screwed up this is.  You should ask Chancellor Birgeneau yourself: “Why is UC Berkeley supporting Googles intimidation scheme?”  chancellor AT berkeley.edu.

My friend East Bay Ray of The Dead Kennedys  told me he recently got an “offer” from YouTube/Google to let him claim  his own songs and start receiving royalties.(“Really you’re letting me have control over my own songs? Gee thanks how nice!”).  All he had to do was sign away most of his rights and in return the band would get about .1 cents a view.   Considering your typical banner ad on a shitty pirate website gets 1.5 cents an impression,  this is not even a joke.  It’s an insult.   Honestly I can’t understand how artists can complain about Spotify when YouTube/Google is so much worse and certifiably evil.  As I’ve said before “Don’t be Evil” is not their corporate slogan, It’s their widely ignored corporate reminder. 

#5 Grooveshark.   Many young people I run across seem to think this is a legitimate streaming service. It’s not.  My entire catalogue is on this service. No license, no permission and not a dime ever from these guys.   The sooner these guys go to jail the better.  I’m tempted to have a conversation with Ted Nugent. You think he’s mad about Obama raising his taxes and restricting his gun rights?  Wait till he finds out that Grooveshark is not paying him royalties.

* “Sustainable Rate” is my attempt to figure out a streaming rate that compensates artists well enough to continue to write (and especially) record albums.   I’ve examined a lot of iTunes libraries and “most played” lists.   A typical 20 year old college student seems to play a track they have purchased around 25-30 times before they seem to tire of the track.   So if on demand streaming replaces all album sales a stream should pay about 2.3-2.8 cents to be the equivalent of the 69 cents net received from iTunes on a 99cent download.  But if on-demand streaming only replaces 50% of album sales it could be half that rate.  You see?

But a  word of caution.  First this assumes that 99 cents a track is the right price for all songs.  Not necessarily true.   This is a price that iTunes essentially imposed on the record business, against a backdrop of mass piracy.  You can make an argument that this artificially lowered the price of music.

Second the music business has always worked on a revenue sharing model that assumes the “winners” subsidize the “losers” through record companies, publishing companies and their advances.   If you have total disintermediation in the streaming market even with high per stream rates  niche artists like Zoe Keating and Camper Van Beethoven would never generate enough revenue to record albums.  Music sales exhibit a “wild” variation and with total disintermediation almost all the revenue goes to the winners.   So this “sustainable rate” is not necessarily sustainable at all.  It is only one piece in the puzzle.  Eventually the revenue and risk sharing roles once assumed by record labels will need to be assumed by the record labels again, or other mechanisms need to be developed.

Other’s have suggested non market based  mechanisms which  include “crowd funding” government subsidies and corporate patronage.  I am uncomfortable with all of these.   Government and Corporate funding allow powerful elites to decide what music is made.   Crowd funding works for the most extroverted and popular personalities.   While crowdfunding comes closest to market based incentivizing  I don’t believe crowd funding would have ever given us  important artists  like Jimmy Hendrix, Captain Beefheart, Frank Zappa,  NWA,  Black Flag or Nirvana.   Can you imagine Kurt Cobain or Jimmy Hendrix offering a premium support package that includes the artist coming to your house and cooking dinner for you and 4 of your friends? No crowdfunding works for people like me who already have a career or extremely extroverted self promoting personalities like Amanda Palmer (no offense intended). 

One day I hope that all my musician and digital utopists friends wake up and see that the West’s private market based system for creating culture  has produced some extraordinarily profound and non-mainstream work.   No other system can match it. Why are some so  hell bent on throwing it away?  

** My understanding is that there is a compulsory on demand rate for songwriters (song in abstract) not performers.  It’s not clear to me whether Spotify uses this rate.   And I can’t two experts that agree.  But certainly the bulk (if not all) the revenues Spotify pays our are under the private license not compulsory license.

Fair Pay for Air Play, Terrestrial Radio Performance Royalties for Musicians

In just about every other country in the world musicians are paid a performance royalty for terrestrial radio airplay. The United States is one of a few countries that does not, along with China, Iran and North Korea.

Congressional Research Service Memo on Constitutionality of IRFA Section 5

Senator Ron Wyden and his staff director Jayme White were kind enough to ask the Congressional Research Service to conduct a legal analysis of the concerns regarding Section 5 of the so-called “Internet Radio Fairness Act” that we have raised on Trichordist and that David Lowery raised directly with Senator Wyden at the Future of Music Coalition Policy Summit in Washington on November 13.

You can read the entire memo here, but the part that interests us the most is this section:

David Lowery, writing for the Thetrichordist.com, has argued that “Section 5 of IRFA is perhaps the most pernicious part of the bill, for it would make it illegal for anyone to criticize digital sound recording licensees. If IRFA becomes law, artists and artist organizations will need to watch what they say in public in opposition to [certain licensees’]direct licensing efforts.”  It seems that Lowery takes issue with the use of the words”any action” that would”prohibit, interfere with, or impede”negotiations.

He argues that these terms are too broad and could apply even to those who would criticize licensees for attempting to negotiate direct licenses with copyright owners. Another concern cited by Lowery in opposition toSection 5 is the ambiguity inherent in the language “any copyright owners acting jointly.”

This language does not necessarily seem to be limited to large member-based royalty collection organizations like SoundExchange. It may be broad enough to encompass, for example,the members of an individual band, who might be considered to be individual copyright owners, acting jointly. Under this broadreading of the language, an argument could be made that a band, posting its criticisms of direct licensing negotiations between a licenseeand a copyright owner, would betaking an action that would interfere with a direct licensing negotiation, therebyviolating Section 5.

Though this hypothetical presents a broad interpretation of the language of Section 5, it is not an implausible one. It is possible that the language may be broad enough to cover a blog post by a band expressing their opinion regarding contract negotiations between a licensee and a copyright owner. Nonetheless, it seems unlikely that, in practice, Section 5 would impinge upon First Amendment rights….

But it’s not “implausible.”

The Internet Radio Fairness Act’s Attack on Free Speech

In case you missed it: yesterday, the Future of Music Coalition held its annual summit, a full day’s worth of varied speakers and varied topics. The primary topic was the Internet Radio Fairness Act (IRFA) — Pandora’s Tim Westergren led off the summit with a “conversation panel” designed to drum up support for the bill. Senator Ron Wyden, sponsor of the Senate’s version of the bill, had the honor of keynoting the event, and his remarks centered around the legislation.

The Trichordist’s own David Lowery participated on a panel in between the two devoted to the bill. He was joined by General Counsel of the American Federation of Musicians Patricia Polach, SoundExchange General Counsel Colin Rushing, Consumer Electronics Association lobbyist Michael Petricone, and AccuRadio founder Kurt Hanson.

Lowery had earlier challenged Westergren on the free speech implications of Section 5 of IRFA. Westergren deflected: “I’m not going to get into a back and forth over legislative language.”

During the panel discussion, Lowery focused again on the chilling effect that Section 5 would pose to artists and artist organizations. The AFM’s Polach echoed his concerns.

When Senator Wyden took the podium, he attempted to address these concerns. With his voice raised, he conceded that “If the consensus in the legal community is that this restricts the First Amendment, it will be a very short-lived provision.” Techdirt’s Mike Masnick jumped to Wyden’s defense:

As we noted in our prior post, IRFA’s chilling effect on free speech is not a bizarre interpretation.

Satellite radio provider Sirius XM is currently suing SoundExchange and the American Association of Independent Music (A2IM) primarily because of blog posts expressing their opinion on direct licenses pursued by Sirius. It is seeking monetary damages, a permanent injunction, the dissolution of SoundExchange, and the invalidation of all copyrights licensed by SoundExchange — copyrights involving over 70,000 performers — because these organizations representing artists engaged in speech that Sirius disagrees with.

These groups have explicitly raised the First Amendment in defense. As A2IM argues in its memorandum supporting its motion to dismiss, filed last June, “a trade association’s mere recitation of facts and its opinion on an issue or standard cannot constitute an antitrust violation.”

Instead, such a recitation is protected free speech. … Sirius pleads nothing more than just such protected expressions of A2IM opinion.

Artists and artist advocates should not need to run things by their lawyer whenever they want to communicate to other artists their thoughts and opinions on deals offered by Sirius, Clear Channel, or any other business that relies on their music.

We don’t have to wonder if there is a free speech concern with Section 5 of IRFA — there is. We don’t have to guess if corporations will sue artist organizations for speaking up — they already are.

Section 5 would only codify and set in stone this suppresion of dissent.

That IRFA’s own authors, self-described defenders of the First Amendment, weren’t aware of the definite chilling effect of the bill until yesterday only reinforces the idea that Congressional tampering with artists’ royalties is not yet ready for prime time.

Muzzling Free Speech By Artists: IRFA Section 5 Analysis

The “Internet Radio Fairness Act” has a lot to concern artists. Today, we’re continuing our section-by-section analysis of the proposed legislation because knowing is half the battle. We’ve been looking at how the bill would affect current law: strikethrough text shows what the bill would remove, while underlined text shows what it would add.

SEC. 5. PROMOTION OF A COMPETITIVE MARKETPLACE.

17 USC § 112 – Limitations on exclusive rights: Ephemeral recordings

(e) Statutory License.—

(2) Notwithstanding any provision of the antitrust laws, any copyright owners of sound recordings and any transmitting organizations entitled to a statutory license under this subsection may negotiate and agree upon royalty rates and license terms and conditions for making phonorecords of such sound recordings under this section and the proportionate division of fees paid among copyright owners, and may designate common agents, on a nonexclusive basis, to negotiate, agree to, pay, or receive such royalty payments. 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).

17 USC § 114 – Scope of exclusive rights in sound recordings

(e) Authority for Negotiations.—

(1) Notwithstanding any provision of the antitrust laws, in negotiating statutory licenses in accordance with subsection (f), any copyright owners of sound recordings and any entities performing sound recordings affected by this section may negotiate and agree upon the royalty rates and license terms and conditions for the performance of such sound recordings and the proportionate division of fees paid among copyright owners, and may designate common agents on a nonexclusive basis to negotiate, agree to, pay, or receive payments.

(2) For licenses granted under section 106 (6), other than statutory licenses, such as for performances by interactive services or performances that exceed the sound recording performance complement—

(A) copyright owners of sound recordings affected by this section may designate common agents to act on their behalf to grant licenses and receive and remit royalty payments: Provided, That each copyright owner shall establish the royalty rates and material license terms and conditions unilaterally, that is, not in agreement, combination, or concert with other copyright owners of sound recordings; and

(B) entities performing sound recordings affected by this section may designate common agents to act on their behalf to obtain licenses and collect and pay royalty fees: Provided, That each entity performing sound recordings shall determine the royalty rates and material license terms and conditions unilaterally, that is, not in agreement, combination, or concert with other entities performing sound recordings.

(3) Nothing in this subsection 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).

(4) In order to obtain the benefits of paragraph (1), a common agent or collective representing copyright owners of sound recordings must make available at no charge through publicly accessible computer access through the Internet the most current available list of sound recording copyright owners represented by the organization and the most current list of sound recordings licensed by the organization.

This section is far more troubling than it first appears.

The effect of IRFA as a whole would be to reduce the amount of royalties that companies like Clear Channel, Sirius XM Radio, and Pandora have to pay to recording artists.

For most companies, arrangements between buyers and sellers are negotiated on the open market. But for a number of reasons, the Copyright Act establishes a compulsory license for certain uses of digital sound recordings with the license terms and rates set by the Copyright Royalty Board.

So companies like Sirius XM and Pandora already have an advantage that many businesses don’t have: government-guaranteed access to the content that drives their business at a rate set by law. Compulsory licensing is compulsory: there is no opting in or opting out for artists.

But compulsory licensing doesn’t preclude direct licensing under the current law — that is, without IRFA. Copyright owners are — and always have been — free to negotiate privately with copyright users. Sirius XM has been particularly aggressive in recent years in pursuing such direct licensing, and Clear Channel is right behind Sirius with their own direct deals.

What does this mean for artists? First of all, in practice, this means that the rates set by the Copyright Royalty Board act as a ceiling — no licensee is going to pay more than the compulsory rate. They are guaranteed access to every sound recording on the market at the CRB’s rates.

So why would recording artists or sound recording owners want to accept a deal that gives, say, Sirius XM more rights for less money?  (Bearing in mind that many artists own their sound recordings.)

Here’s one reason. During recent proceedings, Sirius XM Executive VP David Frear testified that “Among other things, [record companies] recognized that by entering into direct licenses with Sirius XM, they gained the potential for enhanced airplay and greater exposure for their recording artists.” Left unsaid was the corollary to this: refusing to enter into a direct license could mean less (or no) airplay.

Direct licensing, in conjunction with a compulsory licensing scheme, thus gives licensees all stick and no carrot. And when you’re terrestrial radio giant Clear Channel, or the only satellite radio provider, or Pandora — which accounts for 37% of all digital sound recording royalties — that’s a pretty big stick. (Pandora and Sirius XM together account for 90%.)

Section 5 of IRFA is perhaps the most pernicious part of the bill, for it would make it illegal for anyone to criticize digital sound recording licensees. If IRFA becomes law, artists and artist organizations will need to watch what they say in public in opposition to Sirius and Clear Channel’s direct licensing efforts.

This is not an exaggeration or hyperbole — it is already happening. The provisions of Section 5 seem to be a direct response to groups like American Association of Independent Music (A2IM), SoundExchange, and major record labels cautioning recording artists about the drawbacks to a push by Sirius XM to license recordings directly following the latest rate-setting proceedings.

In March 2012, Sirius XM filed a lawsuit against SoundExchange and A2IM alleging anti-trust violations for their efforts to resist what SoundExchange and A2IM saw as a raw deal from Sirius XM’s direct licensing push. Now, for starters, it might seem odd that a company with an effective monopoly on satellite radio is complaining that a non-profit nonexclusive collecting agency and a trade association representing hundreds of small companies are violating anti-trust laws.

But the allegations that Sirius made in the lawsuit should concern any artist. Sirius XM essentially argues that various public communications concerning its direct license program amount to anti-competitive behavior — not anti-competitive conduct, just speech.

One such communication identified in Sirius XM’s anti-trust suit includes this August 2011 blog post by A2IM. In its lawsuit, Sirius XM points specifically to a paragraph that states:

In general statutory licenses have been good for the independent music label community as statutory licenses insure that all music label copyrights, whether those of the major labels or those of independent labels or artists, are treated equally and paid the same rate amount for each stream (play) of that music. Under direct licenses there are cases where independents have received less than equitable rates.

And lest you think only industry groups would be caught in the crosshairs, it’s not unlikely that artist advocacy organizations could face legal liability. Sirius XM also refers to a statement made by the Future of Music Coalition, in its November 2011 newsletter:

Here at FMC, we want artists to get the money they’re owed for the use of their music on any platform. The statutory rate for digital performance plus direct payment via SoundExchange is an important piece of the compensation puzzle for creators. Bypassing it might benefit the bottom lines of major corporations in the short run, but it’s a dangerous thing for performing artists.

This is the type of explanatory speech — not conduct — that Sirius XM thinks is illegal and IRFA definitely would outlaw. Again, it would make it a violation of the Sherman Act for “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.” Whenever two or more artists are gathered, Sirius XM (and Clear Channel, and Google) will be there.

The statements above are already alleged by Sirius XM to violate existing anti-trust laws. To be clear, the allegations are absurd — these statements are clearly not urging an unlawful “boycott” against Sirius XM’s direct licensing, and even if they were, Sirius doesn’t lose out since it already has access to every sound recording on the market under the compulsory license. There’s also a much simpler and way less conspiratorial explanation to the public response that Sirius complains of: maybe the labels who spurned Sirius XM’s proposal just didn’t like the deal. But Section 5 of IRFA would ensure that the law explicitly prohibits any criticism of direct licensing deals.

So if IRFA becomes law, if you don’t like the deal, you better keep it to yourself.

Bad News, Good News, Bad News. Internet Radio “Fairness” Act Sponsor and Conservative UT Congressman Chaffetz Taunts Musicians; Admits to Belief in Evolution; Urges Government Interference In Markets.

Rep Jason Chaffetz R-UT “conservative” Republican from Utah and sponsor of the ironically named “Internet Radio Fairness Act” shocked his constituents by accidentally admitting to his belief in dinosaurs and evolution while attempting to taunt musicians and urging government interference in markets.  In response to musicians opposition to his bill he told The New York Times.

“The old-school dinosaurs are trying to help, but they’re stuck in the tar,” he said. “They can go talk to the pterodactyls.”

Never mind the taunt doesn’t make any sense. It brings up some intriguing questions:

Old school dinosaurs?  Are there new school dinosaurs? Who are the dinosaurs trying to help?  Musicians? Or Pandora? Or are the Musicians the dinosaurs?  Wouldn’t the pterodactyls be flying around and not stuck in the tar pits?  And who’s supposed to talk to the pterodactyls ? the other dinosaurs? Or the musicians? Do the pterodactyls represent internet radio? Are pterodactyls the implied “new school” dinosaurs? And I’m not trying to be purposely obtuse but I’ve been to the LaBrea tar pits and it was mammals like mastodons and sabre toothed tigers that got stuck in the tar pits.  Not dinosaurs.  Is this part of the metaphor I don’t understand? Is this a zen koan? Is the Congressman operating on a higher level of consciousness?

All kidding aside, should we really be surprised that Chaffetz could be so ideologically flexible? And to be clear there is nothing wrong with being ideologically flexible to a certain extent.  According to Wikipedia the anti-gay marriage conservative Utah legislator  is half brother of actor John Dukakis the adopted son of Governor Dukakis.  Chaffetz was originally a democrat.  Indeed he was the chair of the Dukakis For President campaign in Utah. Later in life he switched party affiliations to the Republican party.   With strong support for gay rights and democratic policies coming from his father and extended family thanksgiving dinners must be pretty complicated affairs at the Chaffetz house!

So it should be no surprise that this supposed free market advocate could be “ideologically flexible”  enough to sponsor a bill that asks the government to set prices; to pick winners and losers; and force musicians through government mandate to bail out a private company that continues to stick with a bad business model (one minute of ads an hour). Oh and this private company happens to be a campaign donor.

What happened to the free market ideals?  I guess that’s for dinosaurs.