[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
INTERNET STREAMING OF RADIO BROADCASTS: BALANCING THE INTERESTS OF
SOUND RECORDING COPYRIGHT OWNERS WITH THOSE OF BROADCASTERS
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HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, THE INTERNET,
AND INTELLECTUAL PROPERTY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
JULY 15, 2004
__________
Serial No. 99
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://www.house.gov/judiciary
______
U.S. GOVERNMENT PRINTING OFFICE
94-917 WASHINGTON : DC
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina HOWARD L. BERMAN, California
LAMAR SMITH, Texas RICK BOUCHER, Virginia
ELTON GALLEGLY, California JERROLD NADLER, New York
BOB GOODLATTE, Virginia ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
WILLIAM L. JENKINS, Tennessee ZOE LOFGREN, California
CHRIS CANNON, Utah SHEILA JACKSON LEE, Texas
SPENCER BACHUS, Alabama MAXINE WATERS, California
JOHN N. HOSTETTLER, Indiana MARTIN T. MEEHAN, Massachusetts
MARK GREEN, Wisconsin WILLIAM D. DELAHUNT, Massachusetts
RIC KELLER, Florida ROBERT WEXLER, Florida
MELISSA A. HART, Pennsylvania TAMMY BALDWIN, Wisconsin
JEFF FLAKE, Arizona ANTHONY D. WEINER, New York
MIKE PENCE, Indiana ADAM B. SCHIFF, California
J. RANDY FORBES, Virginia LINDA T. SANCHEZ, California
STEVE KING, Iowa
JOHN R. CARTER, Texas
TOM FEENEY, Florida
MARSHA BLACKBURN, Tennessee
Philip G. Kiko, Chief of Staff-General Counsel
Perry H. Apelbaum, Minority Chief Counsel
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Subcommittee on Courts, the Internet, and Intellectual Property
LAMAR SMITH, Texas, Chairman
HENRY J. HYDE, Illinois HOWARD L. BERMAN, California
ELTON GALLEGLY, California JOHN CONYERS, Jr., Michigan
BOB GOODLATTE, Virginia RICK BOUCHER, Virginia
WILLIAM L. JENKINS, Tennessee ZOE LOFGREN, California
SPENCER BACHUS, Alabama MAXINE WATERS, California
MARK GREEN, Wisconsin MARTIN T. MEEHAN, Massachusetts
RIC KELLER, Florida WILLIAM D. DELAHUNT, Massachusetts
MELISSA A. HART, Pennsylvania ROBERT WEXLER, Florida
MIKE PENCE, Indiana TAMMY BALDWIN, Wisconsin
J. RANDY FORBES, Virginia ANTHONY D. WEINER, New York
JOHN R. CARTER, Texas
Blaine Merritt, Chief Counsel
David Whitney, Counsel
Joe Keeley, Counsel
Alec French, Minority Counsel
C O N T E N T S
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JULY 15, 2004
OPENING STATEMENT
Page
The Honorable Lamar Smith, a Representative in Congress From the
State of Texas, and Chairman, Subcommittee on Courts, the
Internet, and Intellectual Property............................ 1
The Honorable Howard L. Berman, a Representative in Congress From
the State of California, and Ranking Member, Subcommittee on
Courts, the Internet, and Intellectual Property................ 2
The Honorable Rick Boucher, a Representative in Congress From the
State of Virginia.............................................. 4
The Honorable Zoe Lofgren, a Representative in Congress From the
State of California............................................ 5
WITNESSES
Mr. David Carson, General Counsel, Copyright Office of the United
States, The Library of Congress
Oral Testimony................................................. 6
Prepared Statement............................................. 8
Mr. Dan Halyburton, Senior Vice President/General Manager, Group
Operations, Susquehanna Radio Corporation, on behalf of the
National Association of Broadcasters
Oral Testimony................................................. 22
Prepared Statement............................................. 23
Mr. Steven Marks, General Counsel, Recording Industry Association
of America, Inc.
Oral Testimony................................................. 37
Prepared Statement............................................. 39
Mr. Jonathan Potter, Executive Director, Digital Media
Association (DiMA)
Oral Testimony................................................. 43
Prepared Statement............................................. 45
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Letter to Rep. Rick Boucher from David O. Carson, General
Counsel, Copyright Office of the United States, The Library of
Congress....................................................... 61
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement from the Honorable Howard L. Berman, a
Representative in Congress From the State of California, and
Ranking Member, Subcommittee on Courts, the Internet, and
Intellectual Property.......................................... 65
Prepared Statement from the Honorable John Conyers, Jr., a
Representative in Congress From the State of Michigan.......... 66
Prepared Statement of the American Federation of Television and
Radio Artists (AFTRA), the American Federation of Musicians of
the United States and Canada (AFM), the Recording Artists
Coalition (RAC), and the Future of Music Coalition (FMC)....... 66
INTERNET STREAMING OF RADIO BROADCASTS: BALANCING THE INTERESTS OF
SOUND RECORDING COPYRIGHT OWNERS WITH THOSE OF BROADCASTERS
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THURSDAY, JULY 15, 2004
House of Representatives,
Subcommittee on Courts, the Internet,
and Intellectual Property,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10 a.m., in
Room 2141, Rayburn House Office Building, Hon. Lamar Smith
(Chair of the Subcommittee) presiding.
Mr. Smith. The Subcommittee on Courts, the Internet, and
Intellectual Property will come to order.
I will recognize myself for an opening statement and then
other Members as well.
The purpose of today's hearing is to begin an examination
of issues that relate to the streaming of copyrighted sound
recordings over the Internet. A related issue is the potential
impact of new technologies and devices such as HD or digital
radio upon the balance of interest embodied in our copyright
laws.
After reviewing the testimony of the witnesses, it is
apparent that the concerns of the broadcasters, while
substantial, are but one thread in a complex and interrelated
quilt of issues. As is common with copyright issues, these
concerns involve, one, the incentives to create and protect
intellectual property; two, the economic interest of those who
benefit from broadcasting and distributing these created works;
and three, the public's interest in maximizing access to these
works at a reasonable price.
By enacting the Digital Performance Right in Sound
Recordings Act in 1995, Congress took an important and historic
step. It did so by establishing for the first time in the
United States an exclusive, though limited right, for sound
recording copyright owners to perform their works publicly by
means of certain digital audio transmissions. The law was
historic because it permitted sound recording owners, including
performing artists, to receive compensation for the commercial
use of their recorded performances and not solely rely on
income from sales of their recordings.
The law was limited because it exempted certain
performances from its protection, including those made by
traditional broadcasters. This exemption for FCC-licensed
broadcasters was premised on an understanding that, one, the
promotional air play of records by analog-radio broadcasters
has long served as a catalyst for music sales; and two, a
recognition that the consumer taping of analog-radio broadcasts
did not create a significant threat to recording artists.
As we will hear today, many broadcasters believe that DPRA,
as well as amendments that were included in the DMCA which was
enacted in 1998, have been inappropriately applied to their
operations by the U.S. Copyright Office and the Federal courts.
In their words, their view is that the application of certain
provisions of sections 114 and 112 of the Copyright Act have in
fact resulted in ``new and unreasonable burdens on radio
broadcasters,'' burdens they assert have resulted in more than
1,000 U.S. radio stations ceasing their Internet broadcasting
operations.
The general position of the broadcasters is they wish to
relax certain protections that are intended to make it more
difficult for those who intend to pirate sound recordings to
identify the songs that are about to be played. They also
object to paying royalties for the performance of sound
recordings and record-keeping requirements.
Not surprisingly, the RIAA which represents music labels,
is opposed to a lessening of existing protections. In fact,
they believe the development of new technologies such as
digital radio receivers that can selectively identify, record
and disaggregate specific songs poses a grave threat not only
to the livelihood of music artists, but also to the advertiser-
supported business model of radio broadcasters.
We are fortunate to have excellent witnesses with extensive
experience related to the issues before this Subcommittee
today, and we all look forward to their testimony.
The Ranking Member, Mr. Berman, is recognized for his
opening statement.
Mr. Berman. Thank you, Mr. Chairman.
I appreciate your holding this oversight hearing on
balancing the interest of sound recording copyright owners and
the broadcasters. While I am confident in the outcome of the
Bonneville case, I am not convinced that pure webcasting and
the simultaneous webcasting of an over-the-air radio broadcast
are identical activities which should be subject to the same
licensing conditions. It may be that the rule should be
technology neutral, or it may serve a greater public need to
carve out exceptions to the rule to account for the differences
between the technologies.
But before we get to the points of controversy, I think it
is important to note that at least all of the witnesses here
today acknowledge that the prevention of piracy of sound
recordings is an important goal. With the advent of new
technologies, we are once again faced with the problem of
ensuring that performing artists, record companies and others
whose livelihood depends upon effective copyright protection
for sound recordings will be protected. The Copyright Office
has suggested granting copyright owners of sound recordings a
full performance right to harmonize the rights of owners of
sound recordings with those of other copyright owners once and
for all. There is great appeal to that proposal in that we need
to focus not only on the immediate problem and seek the
particular solution, we can stop having the tail wagging the
dog of whatever technology is next.
Just a short time ago, we proposed a sound recording
complement to prevent copying of music which would replace
sales of sound recordings. Now, there is already technology
which allows users to copy all of the recordings transmitted on
a webcast channel, disaggregate them, save them to substitute
for purchases of legitimate downloads or CDs, and redistribute
them with peer-to-peer software. In the near future, we will
probably be back here to discuss in depth the effect of digital
audio broadcasting or HD radio on the sound recording
performance right as well.
I doubt that the witnesses before us today will express
unified support of a full performance right for sound
recordings. In fact, I don't even doubt it; I know they won't.
Instead, broadcasters and webcasters take issue with some of
the provisions of the section 114 license.
For its part, the record industry illuminates problems
emanating from the ease of copying sound recordings from a
broadcast or webcast. Clearly, if we are going to have a
section 114 webcasting license, it should be a workable
license. We should ensure that its terms do not unduly burden
licensees nor unduly impair the legitimate interests of
copyright holders.
On the latter issue, I am concerned that several provisions
of section 114 designed to deter piracy and preserve the
recorded media market are not working. Specifically, I refer to
the sound recording performance complement and the requirement
that transmitting entities accommodate copy protection
technologies used by sound recording copyright owners. It
appears these provisions have fallen short in terms of
protecting the interests of sound recording copyright owners.
There will be testimony about the need or lack thereof for
a separate license to cover multiple ephemeral copies. Section
112(e) created a statutory license to allow any service
operating under the section 114 statutory license to make one
or more ephemeral recordings of a sound recording to facilitate
the digital transmission of these works governed by section
114.
Even the Copyright Office has stated that section 112(e)
can be best viewed as an aberration. However, the marketplace
has borne out that there is a value to multiple ephemeral
copies.
There seems to be a discrepancy as to what the valuation of
an ephemeral copy is. Instead of computing a separate value for
the 112 license to copy, could we put before the CARP
establishing the rate for the 114 license? Can we put before
that CARP the requirement to include in its evaluation the
value, if any, of the multiple ephemeral copies?
I am aware it is described in the written testimony of NAB
and DiMA that there is some distrust among the broadcasters and
the webcasters of the CARP proceeding. After all, the claim is
made that stations pay at least five to six times as much for
sound recordings royalties than for musical works. However, I
am not sure that speaks as much to the CARP as it does to the
inequity of royalties paid to musical works copyright owners.
That being said, I agree that to some extent the CARP needs
to be reformed, and I therefore support H.R. 1417. Technology
provides many new opportunities to reach new audiences.
However, we have to be aware of trampling on certain rights in
order to get there.
Thank you, Mr. Chairman.
Mr. Smith. Thank you, Mr. Berman.
Are there other Members who wish to make opening
statements?
Mr. Boucher is recognized.
Mr. Boucher. Thank you, Mr. Chairman. I want to commend you
for convening today's hearing. This is an important subject for
our Subcommittee, and it does deserve our attention.
In my view, webcasting of recorded music should receive the
same treatment under the copyright law that the more
traditional terrestrial broadcasts receive. Both webcasts and
regular broadcasts deliver the same service, they merely
deliver it by a different means; and the current copyright law
imposes far higher payments on webcasters than on traditional
broadcasters.
For example, radio stations pay no performance royalty when
they terrestrially broadcast recorded music. The theory of the
exemption is that the copyright owners benefit enormously from
the publicity that accompanies repeat broadcast airings of
their music. Their reward comes through increased sales of CDs
arising from that publicity.
But radio stations must pay a performance royalty when the
station's signal is streamed over the Internet. Webcasting is
just another means for radio stations to reach an audience, and
the same theory that supports an exemption from royalty
payments for regular terrestrial broadcasts should also support
an exemption for webcasting of the identical signal. And yet
webcasting is burdened with a payment that averages about 11
percent of gross receipts from radio station webcasting.
This disparate treatment, to me, makes no sense. Here is
another example of the unfair treatment of webcasting in
comparison to the treatment of comparable services. Satellite-
delivered radio, such as XM or Sirius, and radio delivered over
cable systems pay a performance royalty based on the standards
that are set forth in section 801(b). At the core of these
standards is a fairness and reasonableness test.
But if the same radio signal is delivered over the
Internet, the fairness and reasonableness test no longer
applies. Instead, the webcaster royalty is set based upon what
a willing buyer would pay to a willing seller. That test
assumes the presence of a functioning competitive market for
the music.
But the market is broken; there is no competition. The
recording industry has a statutory antitrust exemption which
enables the labels to sell collectively and to establish a
uniform price for music. Essentially, there is only one seller
in the market who can extract a take-it-or-leave-it bargain.
The result is that the willing buyer-willing seller standard
imposes far higher royalties on webcasters than are imposed on
cable or satellite under the fairness standard when exactly the
same service is delivered. The only difference is the platform
that is used.
These disparities, Mr. Chairman, are wrong. We should not
discriminate against the Internet as a distribution medium, but
that is exactly the effect of current law. And this law, to me,
cries out for reform.
I very much appreciate your examining this subject, Mr.
Chairman, bringing to light these inequities, and I hope
following this hearing it will be the pleasure of this
Subcommittee to adopt the kinds of reforms that establish
parity in copyright treatment across all of the delivery
platforms.
Thank you very much, Mr. Chairman. I yield back.
Mr. Smith. Thank you.
Ms. Lofgren.
Ms. Lofgren. Mr. Chairman, I will be brief. I am
appreciative we are having this hearing. I do think it is an
important issue, and as has been mentioned by Mr. Boucher, it
provides us with an opportunity to level the playing field
across technologies.
The situation we have today provides disincentives for Web
streaming, and I don't think there is any public interest in
disincenting the particular form of technology. We certainly
want to make sure that content creators are properly
compensated. I think there is unanimity on that score. But if
that is the case in radio that is land-based, it should be
equally the same on satellite or on webcasting.
We need to have a system that does not discriminate based
on technology. I am hoping also that we can consider the
Bonneville case, because I do think we need to deal with that
on a head-on basis.
Finally, I am interested in the whole issue of interactive
services. I think we have failed to give appropriate guidance
to the Copyright Office on this issue, and although there will
always be a gray zone, I think the gray zone is a little bit
broader than it needs to be.
I think some of the new technologies and the Internet
companies have made it possible for listeners to request a
genre, to request a song, but they cannot decide when it is
going to be heard. I don't think that is a whole lot different
than when I was a girl and calling into the radio station and
requesting my favorite song, and some day the DJ might play it.
I am hopeful we can take a look at that and narrow the gray
area somewhat on the noninteractive question.
With that, I look forward to hearing the witnesses. I
appreciate your courtesy, Mr. Chairman, and also Mr. Berman.
Mr. Smith. Thank you, Ms. Lofgren.
Our first witness is David Carson, General Counsel of the
Copyright Office of the United States Library of Congress. Mr.
Carson is the principal legal officer of the office with
responsibility for the office's regulatory activities,
litigation and administration of the copyright law. He also
serves as a liaison on legal and policy matters to Congress and
other Government agencies. Mr. Carson is a graduate of Harvard
Law School, and received his Bachelor of Arts and Master of
Arts degrees in history from Stanford University.
Our second witness is Dan Halyburton, who is the Senior
Vice President and General Manager of Susquehanna Radio
Corporation. In that position, Mr. Halyburton oversees
programming, interactive marketing, and research and
engineering efforts for the group's 33 U.S. stations. A
resident of Dallas, Mr. Halyburton is a past board member of
the Texas Association of Broadcasters. He testifies on behalf
of the National Association of Broadcasters.
Our third witness is Steven Marks, General Counsel for the
Recording Industry Association of America. He routinely
represents the RIAA on legislative issues, particularly those
that relate to the Copyright Act. In addition, he oversees
litigation, licensing and technology initiatives for the
industry.
Mr. Marks is a graduate of Duke Law School where he served
as Articles Editor of the Duke Law Journal. In addition, he
received his B.A. from Duke University.
Finally, Jonathan Potter, Executive Director of Digital
Media Association, DiMA, a position he has held since DiMA was
organized in 1998. DiMA's goal is to represent the leading
companies that provide online audio and video content to
consumers.
Mr. Potter is a graduate of New York University School of
Law and the University of Rochester. Most importantly, he is a
newlywed, having just gotten married over the 4th of July. In
fact, this Committee did a very rare thing, we actually
postponed by a week this hearing to accommodate Mr. Potter's
schedule and wedding.
Mr. Berman. We did some other things during that week that
made up for it, though.
Mr. Smith. Yes. Mr. Berman was wondering whether that was a
fair decision and trade or not.
It is a tradition of the full Committee and, hence, needs
to be done by the Subcommittee to swear in all witnesses.
[Witnesses sworn.]
Mr. Smith. Just a quick reminder that all written testimony
will be made a part of the record. Please limit your comments
to 5 minutes.
Mr. Carson.
TESTIMONY OF DAVID CARSON, GENERAL COUNSEL, COPYRIGHT OFFICE OF
THE UNITED STATES, THE LIBRARY OF CONGRESS
Mr. Carson. Mr. Chairman, Mr. Berman, Members of the
Subcommittee, thank you for inviting me to testify on behalf of
the Copyright Office on Internet streaming of radio broadcasts
and section 114 of the Copyright Act.
As you know, the Digital Performance Right in Sound
Recordings Act of 1995 granted copyright owners of sound
recordings, for the first time, an exclusive right to make
public performances of their works by means of digital audio
transmissions subject to a compulsory license for certain uses.
The Digital Millennium Copyright Act updated section 114 and
expanded the scope of the compulsory license.
We at the Copyright Office believe that the creation of a
limited performance right in sound recordings was a step in the
right direction. It has fostered the growth of new digital
technologies which support the legitimate use of music
transmitted in digital networks such as the Internet and
satellite radio services. But technological advances since the
DMCA was enacted pose new threats to performers and copyright
owners, and this hearing provides an opportune occasion to
reconsider the scope of the sound recording performance right
and whether it offers sufficient economic incentives for the
investment in and creation of sound recordings in light of the
threats posed by the emergence of new technologies that
threaten to transform activities such as digital broadcasting
into interactive enterprises that may further weaken the
traditional market for distribution of sound recordings.
It has been the long and consistent recommendation of the
Copyright Office that sound recordings be given the same
panoply of rights as other categories of copyrighted works.
However, recognizing the political difficulties of extending an
exclusive public performance right to sound recordings, the
office has also gone on record in favor of a compulsory license
governing public performances of sound recordings that, among
other things, would require broadcasters who transmit
performances of sound recordings over the air to pay a
statutory royalty to copyright owners.
The DPRA and DMCA were steps in that direction, providing
for exclusive rights for copyright owners in connection with
interactive digital transmissions of public performances, and a
statutory license for noninteractive digital subscription
services, eligible nonsubscription services--or webcasters--and
satellite digital audio radio services; but over-the-air
broadcasts of sound recordings remain exempt from the digital
performance right.
While that state of affairs may have been acceptable in the
past, new technological developments lead us to believe that
the time has come for Congress once again to address the scope
of the performance right.
The advent of digital broadcasting threatens the continued
livelihood of the music industry as tools are being developed
that promise to make it a simple matter to make perfect digital
copies of all of the recordings you want off the air. If
Congress is not yet ready to grant a full performance right for
sound recordings, a right that is recognized in most parts of
the world, it should at least consider extending the existing
right to digital broadcast transmissions.
In the remainder of my time, I would like to give you an
update on some of the Copyright Office's activities in the
administration of section 114 and its statutory licenses.
Prior to the convening of the first copyright arbitration
royalty panel to determine rates and terms for the webcasting
license, we conducted a rule-making to address whether
broadcasters who retransmit their over-the-air signals on the
Internet have the same legal status as any other webcasters and
are subject to the statutory license for eligible
nonsubscription services, or whether they enjoy the same
exemption on the Internet that they enjoy when broadcasting
over the air.
We concluded that section 114 treats them just like any
other webcasters when they are webcasting, and a Federal
district court and the United States Court of Appeals for the
Third Circuit have agreed. That issue now appears to be
resolved, although broadcasters would dearly love to have you
change the law.
When the CARP made its determination on rates and terms for
webcasting for the years 1998 to 2002, we reviewed that
determination. The Register of Copyrights recommended to the
Librarian of Congress that he cut the rates for Internet-only
webcasters because the CARP's determination on that issue was
arbitrary, and the Librarian accepted that recommendation.
Those rates expired at the end of the year 2002, and the rates
that are currently in place were negotiated by broadcasters,
webcasters and copyright owners. Those negotiated rates are
remarkably similar to the earlier rates.
We are also establishing notice and recordkeeping
regulations governing digital music services operating under
the statutory license. These regulations play a crucial role in
ensuring that the royalties paid under these licenses
ultimately are paid to the copyright owners and performers
whose sound recordings are played on these services. Without
accurate identification of the recordings that are being
played, there is no way to ensure that the royalties reach the
artists and record companies who are entitled to them.
Just this week, we announced proposed regulations governing
notice and recordkeeping for the period during which webcasters
have not been reporting their performances. Those regulations
will designate the reports already made by preexisting
subscription services for the same period as proxies for
records of performances by webcasters. This solution will
resolve the problem of how to account for performances by
webcasters who have no records of what they have performed in
the past.
As always, Mr. Chairman, the Copyright Office stands ready
to assist you as you consider the important issues we are
addressing this morning.
Mr. Smith. Thank you, Mr. Carson.
[The prepared statement of Mr. Carson follows:]
Prepared Statement of David O. Carson
Mr. Chairman, Mr. Berman, and distinguished members of the
Subcommittee, I appreciate the opportunity to appear before you on
behalf of the Copyright Office to testify on internet streaming of
radio broadcasts. In my testimony today, I will address the workings of
the section 114 compulsory license and the role the Copyright Office
has played in administering this license. As you know, in 1995,
Congress passed the Digital Performance Right in Sound Recordings Act
of 1995 (``DPRA'') \1\ which, for the first time, granted to copyright
owners of sound recordings an exclusive right to make public
performances of their works by means of certain digital audio
transmissions, subject to a compulsory license for certain uses of
these works codified in section 114 of title 17 of the United States
Code. In the Digital Millennium Copyright Act (``DMCA'') \2\ of 1998,
Congress updated section 114 and expanded the scope of the compulsory
license.
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\1\ Pub. L. No. 104-39, 109 Stat. 336 (1995).
\2\ Pub. L. No. 105-304, 112 Stat. 2286 (1998).
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We at the Copyright Office believe the creation of a limited
performance right in sound recordings was a step in the right
direction. It has fostered the growth of new digital technologies which
support the legitimate use of music transmitted in digital networks
such as the Internet and satellite radio services. However, there are
those who still oppose a public performance right in sound recordings
and would oppose any further expansion of that right beyond the limited
performance right granted to the copyright owners by virtue of the
passage of the DPRA and the DMCA. Whether to expand the scope of the
performance right or limit it further remains the prerogative of
Congress. But we are convinced that after considering the current state
of affairs and the workings of the section 114 statutory license,
Congress should be reassured that the creation of a digital performance
right, although limited in its scope, was the proper step to take at
that time in order to strike a workable balance between the rights of
the copyright owners and the demands of users who wished to use these
works in new and creative ways.
In fact, technological advances since the DMCA was enacted in 1998
pose new threats to performers and sound recording copyright owners,
and this hearing provides an opportune occasion to reconsider the scope
of the performance right for sound recordings and whether it offers
sufficient economic incentives for the investment in and creation of
sound recordings in light of the threats posed by the emergence of
additional new technologies that threaten to transform activities such
as digital broadcasting into interactive enterprises that may further
weaken the traditional market for distribution of sound recordings
BACKGROUND
Sound recordings did not receive protection under the 1909
Copyright Act or under earlier versions of the copyright law. Instead,
a copyright owner had to seek relief at common law in state courts for
unlawful use of their works. That changed in 1971 when Congress enacted
a law, effective February 15, 1972, that granted exclusive rights of
reproduction and distribution to copyright owners of sound
recordings.\3\ Congress took this action in order to curb the mounting
losses suffered by the record industry from the burgeoning trade in
pirated records and tapes. However, Congress did not grant the full
bundle of rights given to other copyright owners because traditional
users of these works fiercely opposed a performance right for sound
recordings. Moreover, the more limited set of rights seemed sufficient
to deal with the immediate problem of record piracy.
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\3\ Sound Recording Act of 1971, Pub. L. 92-140, 85 Stat. 391
(1971).
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Even so, those who opposed federal copyright protection for sound
recordings mounted a constitutional challenge to the amendment adding a
limited copyright for sound recordings. Twice, the courts considered
the question and in both cases the courts upheld the law as
constitutional,\4\ confirming the position long held by the Copyright
Office that a sound recording was capable of being considered the
``writing of an author'' within the constitutional sense \5\ and
reinforcing the conclusion that sound recordings are creative works
worthy of full copyright protection.\6\
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\4\ See Shaab v. Kleindienst, 345 F. Supp. 589 (D.D.C. 1972) (sound
recordings qualify as writings of an author that may be copyrighted);
Goldstein v. California, 412 U.S. 546 (1973) (the term ``writing'' can
be broadly interpreted by Congress to include sound recordings).
\5\ See Supplementary Register's Report on the General Revision of
the U.S. Copyright Law, House Comm. Print (1965) at 51 (``1965
Supplementary Register's Report'') (``We believe that, leaving aside
cases where sounds have been fixed by some purely mechanical process
involving no originality whatever, the aggregate of sounds embodied in
a sound recording is clearly capable of being considered the `writing
of an author' in the constitutional sense. . . . Thus, as indicated in
the 1961 Report, we favor extending statutory copyright protection to
sound recordings.'').
\6\ See Statement of Barbara Ringer, Register of Copyrights, before
the Subcommittee on Patents, Trademarks and Copyrights of the Committee
on the Judiciary, United States Senate, pursuant to S. Res. 72 on S.
111, July 24, 1975, at 11(``July 1975 Statement of the Register of
Copyrights'').
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Although these events settled the basic question of
copyrightability and questions with respect to the reproduction and
distribution rights for sound recordings in the early 1970's, the
debate on whether and to what extent sound recordings should enjoy full
federal copyright protection that began in the 1960's has continued. In
most cases, stakeholders have retained their original positions during
the intervening period, although there is now a general consensus that
performers and record producers' creative contributions are entitled to
some degree of copyright protection.
Historically, television and radio broadcasters, jukebox operators,
and wired music services--the traditional users of the sound recordings
who publicly perform sound recordings--have opposed any changes to the
Copyright Act that would require payment of a royalty for the
performance of a sound recording. These users were already paying
authors and publishers of musical works for the right to perform the
musical works embodied in sound recordings and saw no reason to make a
second payment to performers and record companies for the same
performance. Traditional users, however, did not stand alone in their
opposition to the movement for a full performance right. In the early
1960's, music publishers aligned themselves with these users and
opposed the public performance right for sound recordings because they
feared that the creation of a sound recording public performance right
would result in a decrease in their stream of revenue. Basically, they
envisioned that the royalty pool generated from the public performance
of recorded music would remain fundamentally the same and that they
would have to share these royalties with the record companies and the
performers of sound recordings.
On the other side of the debate stood the representatives of the
record companies--e.g., the Recording Industry Association of America
(RIAA)--and representatives of the performers--e.g., the American
Federation of Musicians (``AFM''). The record company representatives
took the position that there was no principled reason for treating
sound recordings differently from other categories of works. AFM took a
broader view. It focused more sharply on the economic deprivation
experienced by performers who received no compensation from the public
performance of their own recordings, while others, including jukebox
operators, radio and television broadcasters and wired music services -
as well as composers and music publishers--benefitted commercially from
these actions. However, AFM did offer a solution to the problem in
1967, during the early stage of the debate regarding the revision of
the 1909 Act. It proposed an amendment to establish a ``special
performing right that would endure for 10 years and would be subject to
compulsory licensing,'' \7\ a novel idea that would not come to
fruition in any form until thirty years later.
---------------------------------------------------------------------------
\7\ See Second Supplementary Report of the Register of Copyrights
on the General Revision of the U.S. Copyright Law: 1975 Revision Bill,
October-December 1975, pp. 214-216 [Draft] (``Register's Second
Supplementary Report'').
---------------------------------------------------------------------------
Copyright owners and performers were not alone in their quest for
the elusive performance right. On a number of occasions during
consideration of the omnibus bill to revise the 1909 Copyright Act and
since, the Copyright Office has voiced its unwavering support for the
creation of a full performance right for sound recordings, while also
acquiescing to proposals to subject the right to a compulsory
license.\8\ In fact, the push for a performance right nearly paid off.
Proponents were successful in getting Senator Harrison Williams to
introduce a formal amendment to the 1967 Senate bill which, among other
things, aimed to create a compulsory license for the public performance
of sound recordings. The amendment was accepted when the revision bill
was reported by the Senate Subcommittee on Patents, Trademarks and
Copyrights to the full Judiciary Committee on December 10, 1969, and
remained in the 1971 and 1973 bills, which were reported favorably by
the full Senate Judiciary Committee on July 3, 1974. The amendment,
however, did not survive opponents' efforts to remove the provision
from the bill, and it was removed from the 1975 revision bills in both
the Senate and the House.
---------------------------------------------------------------------------
\8\ See 1965 Supplementary Register's Report; July 1975 Statement
of the Register of Copyrights; and Register of Copyrights, Report on
Performance Right in Sound Recordings, H.R. Doc. No. 15 (1978) (``1978
Report on Performance Right in Sound Recordings'').
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In fact, the issue was so explosive that in 1975, Register of
Copyrights Barbara Ringer refrained from pushing for the creation of
even a limited public performance right for sound recordings in the
omnibus bill, and testified accordingly:
At the same time it must be said that, on the basis of
experience, if this legislation were tied to the fact of the
bill for general revision of the copyright law, there is a
danger that it could turn into a ``killer'' provision that
would again stall or defeat omnibus legislation. This danger
exists even more clearly than when I testified to this same
effect last July, and would be very severe if the potential
compulsory licensees--notably the broadcasting and jukebox
industries--exerted their considerable economic and political
power to oppose the revision bill as a whole. Should this
happen, there could be no question about priorities. The
performance royalty for sound recordings would have to yield to
the overwhelming need for omnibus reform of the 1909 law.\9\
---------------------------------------------------------------------------
\9\ Testimony of Barbara Ringer, Register of Copyrights (December
4, 1975), before the House of Representatives, Subcommittee on Courts,
Civil Liberties, and the Administration of Justice of the Committee on
the Judiciary on H.R. 2223, Serial No. 36, part 3, at 1908 (1975).
Thus, when Congress passed the 1976 Copyright Act, it did not include a
performance right for sound recordings. It did, however, ask the
Copyright Office to submit a report on January 8, 1978, making
recommendations as to whether Congress should amend the law to provide
performers and copyright owners any performance rights in sound
recordings. But change could not occur in a hostile environment.
In that report, the Copyright Office reaffirmed its earlier
position and stated without qualification that a right of public
performance for sound recordings is fully warranted, offering the
following explanation for its unwavering position:
Such rights are entirely consonant with the basic principles of
copyright law generally, and with those of the 1976 Copyright
Act specifically. Recognition of these rights would eliminate a
major gap in this recently enacted general revision legislation
by bringing sound recordings into parity with other categories
of copyrightable subject matter. A performance right would not
only have a salutary effect on the symmetry of the law, but
also would assure performing artists of at least some share of
the return realized from the commercial exploitation of their
recorded performances.\10\
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\10\ 1978 Report on Performance Right in Sound Recording, at 177.
The predicate underlying this position--that the creation and
delivery of music requires a joint effort by songwriters and music
publishers as well as performers, record producers and record
companies--was not widely recognized in the early 1960's, and even in
the early 1970's certain opponents of the performance right continued
to argue that sound recordings lacked sufficient creativity to justify
copyright protection.\11\ Nevertheless, the realization that the
creation and delivery of music had changed dramatically over time and
was the result of the contributions not only of composers and music
publishers but also of performers and record producers gradually took
hold, becoming a generally accepted principle by 1978, and one which
remains unquestioned today.
---------------------------------------------------------------------------
\11\ See Register's Second Supplementary Report at 221.
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Yet, in spite of this general understanding and the efforts of
those who supported a full performance right for sound recordings, no
legislation was passed in response to the Office's 1978 recommendation,
and the controversy died down. The debate remained relatively dormant
until the late 1980's. Congress acknowledged that the development of
digital audio tape (``DAT'') machines posed a real threat to the record
industry and passed the Audio Home Recording Act of 1992
(``AHRA'').\12\ Congress passed AHRA to allay the fears of copyright
owners that consumers would use the new technology to make unauthorized
high - quality digital reproductions en masse, thus displacing sales in
the marketplace.\13\ It did so by requiring the incorporation of a
Serial Copy Management System into each digital audio recording device
in order to prevent serial copying, and by requiring payment of a
royalty fee for the importation and distribution, or manufacture and
distribution, of digital audio recording media and devices. AHRA also
immunizes a consumer who has made a noncommercial reproduction of a
musical recording as provided in Chapter 10 of Title 17 from suit for
infringing the reproduction right of the copyright owners, although it
does not transform infringing consumer uses into non-infringing ones.
And it does not cover reproductions of songs stored on a computer in
which one or more computer programs are fixed.
---------------------------------------------------------------------------
\12\ Pub. L. No. 102-563, 106 Stat. 4237 (1992).
\13\ H. Rep. No. 102-873, at 18-19 (1992).
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But use of DAT recorders was merely the tip of the iceberg. Digital
technology continued to advance at a rapid pace, forcing Congress to
reexamine the effect of new digital technologies on the record
industry. The outcome of this reevaluation was an acknowledgment from
Congress in 1995 that the advent of on-demand digital subscription
services and interactive services posed a serious threat to performing
artists and record companies. Record companies believed, and rightfully
so, that consumers would adapt to the new technologies and use these
services to fulfill their desire to obtain music, and do so without
having to purchase a retail phonorecord.
Consequently, after carefully weighing the rights of the copyright
owners against its desire to foster new technologies and business
models, Congress took action in 1995 and passed the Digital Performance
Right in Sound Recordings Act (``DPRA''), which granted copyright
owners of sound recordings an exclusive right to perform their works
publicly by means of certain digital audio transmissions, subject to
certain limitations. In taking this action, Congress sought to preserve
and ``protect the livelihoods of the recording artists, songwriters,
record companies, music publishers and others who depend upon revenues
from traditional record sales, . . . without hampering the arrival of
new technologies, and without imposing new and unreasonable burdens on
radio and television broadcasters, which often promote, and appear to
pose no threat to, the distribution of sound recordings.'' \14\
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\14\ S. Rep. No. 104-128, at 14-15 (1995).
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For this reason, the DPRA restricted the application of the new
digital performance right to interactive services and subscription
services, and specifically exempted traditional over-the-air broadcasts
and related transmissions, including certain retransmissions of radio
signals and incidental transmissions and retransmissions made to
facilitate an exempt transmission. It created these exemptions in
recognition of the fact that the possibility of these transmissions
displacing sales was never very high. It also included a statutory
license for subscription services so that these services could avoid
the difficulties involved in direct licensing and devote more of their
resources to developing new business models for the benefit of the
public.
However, services operating under the statutory license are subject
to specific terms that are designed to limit unauthorized copying of
the works by the recipient of the performance. These terms include
requirements that the service avoid the use of a signal that would
cause the receiver to change from one program to another; refrain from
publishing or preannouncing particular songs that will be played during
the course of a program; and schedule songs to avoid playing too many
different songs by the same artist or from the same phonorecord in a
short period of time or, to state it in legal terms, to avoid violating
the ``sound recording performance complement.''
While these terms did offer a measure of protection to copyright
owners and performers during the early days of the technological era,
they only covered those problems associated with services in existence
at the time. It soon became apparent that the DPRA was too narrow. It
failed to anticipate the rapid development of the Internet and its
ability to offer perfect digital transmissions to a global audience
instantaneously. Thus, three years later, Congress had to revisit the
issue of digital audio transmissions and consider how the digital
performance right applied to new non-interactive, nonsubscription
services that were springing up overnight and offering real time
transmissions of a wide variety of musical choices over the Internet to
anyone who had a computer.
These services, commonly referred to as webcasters, offered for the
first time a rich and diversified selection of music for free over a
communications network that was readily accessible to anyone with an
internet connection. The problem, however, was the unique programming
options that these services offered. For example, some webcasters
offered ``artist-only'' channels that played works of one artist
continuously 24 hours a day, while other webcasters offered programming
techniques that permit listeners to influence the selection of sound
recordings that are part of programs created by the webcasters.'' \15\
In light of these programming capabilities and the exponential growth
of these new services, Congress recognized that even nonsubscription
services can pose a threat to the economic health of the record
industry. For this reason, it again amended section 114 with the
passage of the DMCA to clarify that the digital performance right
applied to these non-subscription webcasters and that these services
came within the scope of the statutory license. Moreover, Congress
imposed additional terms, beyond those already adopted under the DPRA,
on these new nonsubscription services in order to address the
programming and technological problems raised by Internet
transmissions.
---------------------------------------------------------------------------
\15\ Committee of the Judiciary House of Representatives, Section-
by-Section Analysis of H.R. 2281 as passed by the United States House
of Representatives on August 4, 1998, at 52 (Comm. Print 1998).
---------------------------------------------------------------------------
Specifically, the expanded section 114 license requires licensees:
to cooperate with copyright owners to prevent recipients from using
software or devices that scan transmissions for particular sound
recordings or artists; \16\ to allow for the transmission of copyright
protection measures that are widely used to identify or protect
copyrighted works; \17\ and to disable copying by a recipient in the
case where the transmitting entity possesses the technology to do so,
as well as taking care not to induce or encourage copying by the
recipient.\18\
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\16\ 17 U.S.C. 114(d)(2)(C)(v).
\17\ 17 U.S.C. 114(d)(2)(C)(viii).
\18\ 17 U.S.C. 114(d)(2)(C)(ii).
---------------------------------------------------------------------------
Congress also made a few other modifications to the Copyright Act
in 1998. One major change was the creation of a second statutory
license in section 112(e). This license allows any service operating
under the section 114 statutory license to make one or more ephemeral
recordings \19\ of a sound recording to facilitate the digital
transmissions of these works governed by section 114. The DMCA also
differentiated between those services that were operating prior to the
passage of the 1998 amendments and those that came on line after the
DMCA's date of enactment, October 28, 1998. The three preexisting
subscription services (Music Choice; DMX Music, Inc.; and Muzak, L.P.)
and the two preexisting satellite digital audio radio services (Sirius
Satellite Radio, Inc. and XM Satellite Radio, Inc.) comprise the former
group and all other services fall into the latter category. Prior to
the DMCA, the rates for the preexisting services were set in accordance
with four statutory objectives that also apply to some of the other
statutory licenses but do not necessarily yield a marketplace rate.\20\
These services retained this standard when section 114 was amended in
1998 even though Congress adopted a willing buyer/willing seller
standard for setting rates for all other services operating under
section 114.
---------------------------------------------------------------------------
\19\ These reproductions are referred to as ephemeral copies
because they generally must be destroyed within six months of the first
transmission to the public.
\20\ Section 801(b)(1) provides that ``rates applicable under
sections 114(f)(1)(B), 115, and 116 shall be calculated to achieve the
following objectives:
(A) To maximize the availability of creative works to the
---------------------------------------------------------------------------
public;
(B) To afford the copyright owner a fair return for his
creative work and the copyright user a fair income under
existing economic conditions;
(C) To reflect the relative roles of the copyright owner
and the copyright user in the product made available to the
public with respect to relative creative contribution,
technological contribution, capital investment, cost, risk,
and contribution to the opening of new markets for creative
expression and media for their communication; and
(D) To minimize any disruptive impact on the structure of
the industries involved and on generally prevailing
industry practices.''
17 U.S.C. Sec. 801(b)(1).
Congress's responses to threats from new digital technologies in
1995 and in 1998 were limited, just as in 1971. Each time, Congress has
chosen to focus only on the immediate problems presented to it and to
calibrate the rights of sound recording copyright owners to address
these particular problems, rather than adopt a full performance right,
even though many urged Congress to grant sound recording copyright
owners a full performance right. In testimony before the Senate
Judiciary Committee in 1995, the Register of Copyrights restated the
Office's steadfast support for a full performance right for sound
recordings, citing the need to harmonize the rights for copyright
owners of sound recordings with those of the music publishers once and
for all.\21\ Moreover, an earlier study conducted by the Copyright
Office in 1991 had underscored the need for such a right as a means to
protect record companies and performers who suddenly were faced with
the high probability that digital technology would provide readily
available distribution channels for the reproduction and performance of
their works without a counterbalancing means to compensate the creators
of the sound recordings.\22\
---------------------------------------------------------------------------
\21\ Statement of Marybeth Peters, Register of Copyrights, before
the Senate Committee on the Judiciary (March 9, 1995).
\22\ Report of the Register of Copyright, Copyright Implications of
Digital Audio Transmission Services (October, 1991).
---------------------------------------------------------------------------
In light of this danger, there was no principled reason to continue
to allow one group--music publishers--to receive compensation for the
performance of their works while denying another similarly situated
group of copyright owners--record companies--the same right to collect
royalties for the very same performance, especially in the case where
the users' businesses relied heavily on the use of the creators' works
to turn a profit. This is an observation that has been made repeatedly
in support of a full performance right and one articulated by the
Working Group on Intellectual Property Rights in its 1995 report on
Intellectual Property and the National Information Infrastructure.\23\
This report characterized the lack of a performance right in sound
recordings as ``an historical anomaly that does not have a strong
policy justification--and certainly not a legal one. Sound recordings
are the only copyrighted works that are capable of being performed that
are not granted that right.'' \24\
---------------------------------------------------------------------------
\23\ Information Infrastructure Task Force, Intellectual Property
and the National Information Infrastructure: The Report of the Working
Group on Intellectual Property Rights (Sept. 1995).
\24\ Id. at 222.
---------------------------------------------------------------------------
Nevertheless, most users of these works continue to oppose a full
performance right for sound recordings and argue that the economies in
the current marketplace favor the user and the emerging technologies
over the creator, even those who stand on the opposite side of the
argument when it is their works that are being targeted for use by
another group. Indeed, in the last few weeks, broadcasters have
participated in meetings at WIPO considering proposals for a treaty
that would obligate countries to provide exclusive rights to
broadcasting organizations against the fixation, rebroadcasting and
retransmission of their broadcast signals, among other rights. The
broadcasters claim this new protection is necessary due to changes in
technology, such as the Internet, which threaten their existing
business models. They seek these rights notwithstanding their efforts
here in the United States to oppose and limit the same rights for the
creators of the sound recordings that the broadcasters transmit.
Paradoxically, if such a treaty is concluded, broadcasters may be able
to exercise exclusive rights over their performance of sound recordings
even though the copyright owners of the same sound recordings have no
rights in that context.
Congress has the power to remedy this situation and strike the
proper balance in favor of a full performance right. Thus, the question
should no longer be whether Congress should provide a full performance
right for sound recordings, but rather whether it should be subject to
statutory licensing and, if so, what the value of that right should be
in order to insure that copyright owners and performers have sufficient
monetary incentives to continue to create works for the enjoyment of
the public, and what restrictions, if any, should be placed on that
right to insure the viability of new businesses to disseminate the
works in a high-quality, readily accessible format. Stated another way,
the challenge of copyright in this context, as it is in general, is to
strike the ``difficult balance between the interests of authors and
inventors in the control and exploitation of their writings and
discoveries on the one hand, and society's competing interest in the
free flow of ideas, information, and commerce on the other hand.'' \25\
---------------------------------------------------------------------------
\25\ Sony Corp. of America v. Universal City Studios, Inc., 464
U.S. 417, 429 (1984).
---------------------------------------------------------------------------
THE SECTION 114 STATUTORY LICENSE- HOW IT AFFECTS BROADCASTERS
Although the digital performance right enacted in 1995 and expanded
in 1998 is a step in the right direction, it is not an unfettered
right. It is subject to certain exemptions--e.g., nonsubscription
broadcast transmissions are exempt--and to a statutory license for
certain noninteractive transmissions. Pursuant to this license, many
digital transmissions of performances of sound recordings may be made
without the permission of the copyright owner if the licensee adheres
to the terms of the license, pays the statutory royalties, and complies
with the Copyright Office regulations governing notice and
recordkeeping. Users, however, have complained that the license terms
and regulatory requirements have in some cases created barriers that
prohibit them from taking advantage of the license.
a. Scope of the exemption for nonsubscription broadcast transmissions.
Broadcasters have been particularly vocal about their treatment
under the license, arguing in the first instance that they should not
be subject to the digital performance right for their digital,
Internet-based activities, such as webcasting. At the outset of the
first rate setting proceeding for the webcasting license, broadcasters
argued that retransmissions of AM/FM broadcast programming enjoyed an
exemption from the newly created digital performance right and that
simulcasts of radio broadcast programming therefore were not subject to
the statutory license. The recording industry and associations
representing the interests of performers \26\ did not agree. They
opposed this interpretation and sought a ruling from the Copyright
Office declaring that retransmissions of a broadcast signal over a
digital communications network, such as the Internet, were not exempt
from the digital performance right under section 114(d)(1)(A) of the
Copyright Act, as amended by the DMCA. Because the resolution of this
question would determine whether broadcasters chose to participate in
the rate setting process and because it was necessary to resolve
whether the rates being set would apply to broadcasters'
retransmissions over the Internet, the Copyright Office postponed the
rate setting hearing until it could decide the legal questions posed by
the broadcasters and the record industry.
---------------------------------------------------------------------------
\26\ RIAA represented the interests of the record industry in the
rate setting proceeding and the rulemaking proceeding to address the
legal questions regarding the scope of the section 114 statutory
license as it relates to simulcasts of broadcast radio programming over
a digital communications network, like the Internet. The Association of
Independent Music, the AFM, and the American Federation of Television
and Radio Artists filed comments jointly with the RIAA in the
rulemaking proceeding.
---------------------------------------------------------------------------
Broadcasters, however, questioned the Office's authority to conduct
a rulemaking to ascertain whether simulcasts of AM/FM broadcast
programming over the Internet came within the scope of the section 114
statutory license. For this reason, the National Association of
Broadcasters (``NAB'') filed an action in the U.S. District Court for
the Southern District of New York, seeking a declaratory ruling on the
issue.\27\ This action was eventually withdrawn. In the meantime, the
Copyright Office conducted a notice and comment rulemaking proceeding
and made a determination that the exemption for broadcast transmissions
did not include transmissions made over a digital communications
network such as the Internet.\28\
---------------------------------------------------------------------------
\27\ See NAB v. RIAA, 00-CV-2330 (S.D.N.Y.).
\28\ 65 Fed. Reg. 77292 (Dec. 11, 2000) (amending the regulatory
definition of a ``service'' in order to clarify that transmissions of
sound recordings by means of digital audio transmissions over a
communication network, such as the Internet, are not exempt from
copyright liability under section 114(d)(1)(A) of the Copyright Act).
---------------------------------------------------------------------------
The key question in this proceeding centered on the meaning of the
phrase, ``nonsubscription broadcast transmission,'' which is not
defined expressly in the law. More specifically, the analysis focused
on the statutory definition of the term ``broadcast'' transmission. The
statutory definition characterizes a ``broadcast'' transmission as ``a
transmission made by a terrestrial broadcast station licensed as such
by the Federal Communications Commission.'' \29\ The Office then
focused on the phrase ``licensed as such by the FCC,'' finding that it
limited the exemption to those transmissions made under a license
issued by the FCC, and that these transmissions are limited to the
local service area of the radio transmitter. In reaching this
conclusion, the Office noted that Congress used the descriptive term
``over-the-air'' frequently in the legislative history to identify
those broadcasts that it sought to protect under the exemption and
never referenced any other type of transmission made by an FCC-licensed
broadcaster when discussing the scope of the exemption.
---------------------------------------------------------------------------
\29\ 17 U.S.C. Sec. 114(j)(3).
---------------------------------------------------------------------------
In addition, the Office determined that had Congress wished to
exempt all transmissions made by an FCC-licensed broadcaster--the
position urged by the broadcasters--then there would not have been a
need to carve out additional exemptions to cover certain
retransmissions of an AM/FM radio broadcast program. In reaching this
conclusion, the Office focused on an exemption in the law which
provides that the performance of a sound recording by means of a
digital audio transmission is not an infringement in the case of a
retransmission of a radio station's broadcast transmission, provided
that ``the radio station's broadcast transmission is not willfully or
repeatedly retransmitted more than a radius of 150 miles from the site
of the radio broadcaster.'' \30\
---------------------------------------------------------------------------
\30\ 17 U.S.C. 114(d)(1)(B)(i).
---------------------------------------------------------------------------
Broadcasters had argued that this 150-mile exemption applied only
to third parties who retransmitted the original broadcast programming
and not to the original broadcaster, but the Office rejected this
interpretation. The law draws no distinction between the original
broadcaster and third party retransmitters, nor does it or the
legislative history offer any reason why Congress would allow original
broadcasters to retransmit their programming globally while at the same
time restricting the retransmissions of others to a defined geographic
area.
In fact, an exception in the law to the 150-mile limitation for
retransmissions of a radio signal in the case where the radio signal is
``retransmitted on a nonsubscription basis by a terrestrial broadcast
station, terrestrial translator, or terrestrial repeater licensed by
the Federal Communications Commission'' \31\ supports this position. In
all cases, the purpose of these provisions is to restrict each
retransmission of a digital audio transmission of a radio signal to a
limited geographic area, even in those instances where the
retransmissions are done by terrestrial physical facilities regulated
by the FCC.
---------------------------------------------------------------------------
\31\ 17 U.S.C. 114(d)(1)(B)(i)(I).
---------------------------------------------------------------------------
The Office found further support for its determination that
broadcasters could not retransmit AM/FM radio programming over the
Internet when it examined section 112, the provision that governs the
making of ephemeral copies of sound recordings necessary to facilitate
a public performance under the section 114 statutory license. While
traditional broadcasters can make a single server copy of their radio
programs to facilitate their over-the-air broadcasts under an exemption
in section 112(a), webcasters are unable to rely upon this provision
for making all the necessary ephemeral recordings that are needed to
facilitate a transmission over the Internet. Webcasting requires more
than a single copy of a work to effectively transmit over the Internet.
For this reason, Congress created a second statutory license in section
112(e) which, subject to the rates and terms of the statutory license,
allows a webcaster operating under the section 114 statutory licensing
regime (or certain services that provide transmissions to a business
establishment for use during the normal course of business) to make one
or more ephemeral recordings to facilitate their transmissions. Thus,
broadcasters who wish to retransmit their radio station programs over
the Internet would have to operate under the section 114 license in
order to be eligible under the section 112(e) statutory license to make
all the ephemeral recordings needed to effectuate the retransmission of
the AM/FM radio program over the Internet.
Not surprisingly, the broadcasters did not accept the Office's
determination. They immediately filed a lawsuit under the
Administrative Procedure Act challenging the Register's determination,
but the Register's decision was upheld by both the district and the
appellate courts.\32\
---------------------------------------------------------------------------
\32\ Bonneville Int'l. Corp. v. Peters, 347 F.3d 485 (3rd Cir.
2003), aff'g 153 F. Supp.2d 763 (E.D. Pa. 2001).
---------------------------------------------------------------------------
In making its decision, the United States Court of Appeals for the
Third Circuit rejected the broadcaster's fundamental argument that
Congress had intended to provide a broad exemption to cover any
transmission made by a licensed broadcaster. Specifically, it held that
the reference to ``broadcast station'' in the definition of a
``broadcast'' transmission referred to the physical facility licensed
by the FCC and not to the broadcaster. It noted that under the FCC
rules a station must be a physical facility and that the FCC license
referenced in the statutory definition must be tied directly to the
operation of a particular facility rather than a corporate entity.
Consequently, the court held ``[a] `broadcast transmission' under
Sec. 114(d)(1)(A) would therefore be a radio transmission by a radio
station facility operated subject to an FCC license and would not
include a webcast. AM/FM webcasting does not meet the definition of a
`nonsubscription broadcast transmission' and does not therefore,
qualify under Sec. 114(d)(1)(A) for an exemption from the digital audio
transmission performance copyright of Sec. 106(6).'' \33\
---------------------------------------------------------------------------
\33\ Id. at 495.
---------------------------------------------------------------------------
The court found additional support for its conclusions in the fact
that Congress included additional exemptions from the digital audio
transmission performance right for retransmissions of certain
nonsubscription broadcast transmissions, noting that the common-sense
reading of the exemptions in Sec. 114(d)(1)(B) requires an
interpretation that does not differentiate between webcasting of AM/FM
radio programming by one group, i.e, broadcasters, and webcasts of the
exact same programming by third parties. Likewise, the court read the
legislative history of the DPRA and the DMCA as supporting an exemption
for traditional radio broadcasts, and concluded that the exemption for
a ``nonsubscription broadcast transmission,'' which was added with the
passage of the DPRA in 1995, did not contemplate protecting AM/FM
webcasts by any group.
This interpretation of the scope of the exemption for
``nonsubscription broadcast transmissions'' offered by the Office and
by the courts is totally consistent with Congress' perception at the
time the DPRA was enacted that traditional over-the-air radio did not
pose a threat to the record industry.
b. Interactive services.
The section 114 statutory license is not available to an
interactive service. Such a service is defined, in general, as ``one
that enables a member of the public to receive a transmission of a
program specially created for the recipient, or on request, a
transmission of a particular sound recording, whether or not as part of
a program, which is selected by or on behalf of the recipient.'' \34\
Interactive services must negotiate separate licenses in the
marketplace with the copyright owners of the sound recordings for the
right to perform publicly specific sound recordings by means of a
digital audio transmission. Congress took this position and imposed
full copyright liability on interactive services because Congress
realized these services had the greatest potential for displacing
record sales. Consequently, in 2000 the Digital Media Association
(DiMA) petitioned the Copyright Office to initiate a rulemaking
proceeding for the purpose of adopting an amendment to the rule
defining the term ``Service'' to make it clear that a service is not
interactive simply because it offers the consumer some degree of
influence over the programming offered by the webcaster.
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\34\ The statutory definition provides additional explanatory
language to distinguish between interactive and non-interactive
services, stating that ``[t]he ability of individuals to request that
particular sound recordings be performed for reception by the public at
large, or in the case of a subscription service, by all subscribers of
the service, does not make the service interactive, if the programming
on each channel of the service does not substantially consist of sound
recordings that are performed within 1 hour of the request or at a time
designated by either the transmitting entity or the individual making
such request. If an entity offers both interactive and noninteractive
services (either concurrently or at different times), the
noninteractive component shall not be treated as part of an interactive
service.'' 17 U.S.C. Sec. 114(j)(7).
---------------------------------------------------------------------------
After considering DiMA's arguments for initiating the rulemaking
and RIAA's opposing arguments, the Office determined that a rulemaking
was not the appropriate way to resolve the question of interactivity
because there was no way to articulate with any precision specific
guidelines that would distinguish between an interactive service and an
non-interactive service beyond what was already in the statute,
especially when business models were undergoing constant change.\35\
Moreover, the Office noted that ``such a determination had to be made
on a case-by-case basis after the development of a full evidentiary
record in accordance with the standards and precepts already
established in the law.'' \36\ Consequently, the Office denied the
petition.
---------------------------------------------------------------------------
\35\ 65 Fed. Reg. 77330 (Dec. 11, 2000).
\36\ Id. at 77332.
---------------------------------------------------------------------------
c. Notice and recordkeeping requirements.
Sections 114(f)(4)(A) and 112(e)(4) require the Librarian of
Congress to establish regulations specifying notice and recordkeeping
requirements for use of sound recordings in a digital transmission.
Accordingly, the Office issued interim regulations on March 11, 2004,
specifying notice and recordkeeping requirements for use of sound
recordings under the sections 112 and 114 statutory licenses.\37\ These
rules require users of the section 112 and 114 statutory licenses to
report on the sound recordings they perform so that SoundExchange, the
collective that collects the statutory royalties and disburses them to
copyright owners and performers, knows how to divide up the royalties
for performances of sound recordings. Because the amount of royalties
paid to each copyright owner and performer depends upon the number of
performances of each sound recording, such reporting is crucial to the
operation of the statutory license. Requirements have long been in
place for preexisting subscription services, and we believe they are
working well.\38\
---------------------------------------------------------------------------
\37\ 69 Fed. Reg. 11515 (March 11, 2004).
\38\ See 63 Fed. Reg. 34296 (June 24 1998).
---------------------------------------------------------------------------
However, the rulemaking proceeding governing notice & recordkeeping
requirements for eligible nonsubscription services such as webcasters
is ongoing, and it has proved to be difficult and controversial.
Representatives of record companies and performers have sought
comprehensive information about each and every performance of each and
every sound recording transmitted by a service, arguing that such
information is essential in order to ensure that the correct amount of
royalties is paid to each copyright owner and performer, and that
information that will permit monitoring compliance with the
requirements of the sound recording performance complement is also
needed. Webcasters and broadcasters opposed such detailed reporting
requirements, asserting that they would be excessive and too onerous
for an industry that historically has accounted for its performances of
musical works in a totally different manner. Throughout the rulemaking,
they maintained that the Office should require reporting of only that
information that would identify the sound recording for purposes of
making a distribution of royalties. Specifically, they submitted that
only five data elements would be needed for this purpose : name of the
service, sound recording title, name of the artist, call sign of the
station and date of transmission. They also suggested that the rules
should allow services to obtain this information through a sampling
process (e.g., providing information for only two weeks out of every
year) rather than accounting for each performance.
In adopting interim regulations setting the requirements for the
information that eligible nonsubscription services must report to
SoundExchange, we rejected the type of sampling proposed by
broadcasters because it would be likely to under report--or omit
reporting at all--performances of the lesser known artists and
performers receiving playtime from those webcasting services that offer
multiple channels of niche programming, covering an array of genres,
e.g., hip-hop, gospel, classical, country, folk, new age, and pop.
Morever, we found it difficult to credit claims from webcasters that
although their transmissions--and frequently the programming of the
content of their transmissions--are controlled and accomplished by the
use of computers, they would be unable to report all actual
performances of sound recordings. Ideally, this computer-driven medium
should be well-suited to the reporting of actual performance data that
would ensure that each copyright owner and performer is compensated for
the value of the transmissions of performances of his or her
recordings.
On the other hand, we recognized that for many webcasters,
maintaining and reporting any information at all about their
transmission of performances would be a novel experience, and that it
would be desirable to have a period of transition during which they
would become accustomed to such reporting. Thus, while it is likely
that we shall require year-round reporting of all performances in the
not-too-distant future, the new interim rules require licensees to
maintain records for two weeks out of every quarter, identifying which
sound recordings were performed during this period and how often they
were performed. In deriving these rules, the Office balanced the need
to obtain accurate information about performances of specific sound
recordings for purposes of compensating as many copyright owners
entitled to receive these fees as possible against the burden imposed
on the services to provide the needed information and the need for a
period of time during which licensees will become accustomed to
reporting actual performance data. The ultimate goal remains a final
regulation requiring year-round reporting.
Meanwhile, the interim rules require the licensees to report only a
relatively minimal amount of specific information needed to identify
and differentiate sound recordings from one another. In addition to its
own name and the category of transmission (e.g., eligible
nonsubscription transmission other than a broadcast simulcast, or
eligible nonsubscription transmission of a broadcast simulcast, or
eligible transmission by a business establishment service making
ephemeral recordings), a licensee is currently required to report as
few as four key items for each sound recording performed: sound
recording title; featured recording artist, group or orchestra; sound
recording identification; \39\ and total number of performances.\40\
They do not require the licensee to report other information sought by
the record industry, such as the catalog number, the track label (P)
line, the duration of the sound recording, the universal product code,
or the release year. Nor are the licensees required to report specific
information that would aid the copyright owners in assessing compliance
with the programming restrictions, e.g., the start date and time of the
transmission of the sound recording. Moreover, the rules do not require
a full census report at this time, although they do require licensees
to maintain precise records for two weeks out of every quarter.
---------------------------------------------------------------------------
\39\ The sound recording identification may consist of either the
International Standard Recording Code (ISRC) for the particular
recording or, in lieu of the ISRC, the album title and the marketing
label of the company that markets the album which contains the sound
recording.
\40\ Total performances may be reported either by reporting the
actual number of times a sound recording was performed by the licensee
multiplied by the number of recipients; or by reporting the total
number of times the sound recording was performed as well as the
licensee's aggregate tuning hours--i.e., the total number of listener
hours by all who have accessed the service during a given period of
time.
---------------------------------------------------------------------------
The rulemaking is ongoing. The Office is still considering rules
that would establish specific electronic formats for transmitting this
information. The format issue has proven difficult. One might have
imagined that although there would be differences of opinion over what
kind of information must be reported, the interested parties would be
able to work out the technical issues involving the electronic formats
in which the reports of use would be made. SoundExchange has been
working on its own system for maintaining the data that will be
reported to it on sound recording performances, and many broadcasters
and webcasters have their own electronic systems that already report
information on their performances. We had anticipated that
SoundExchange could sit down with broadcasters and webcasters to work
out the details of how these systems can communicate with each other,
but thus far very little progress has been made despite our
encouragement and urging.\41\ We at the Copyright Office have no
familiarity with or expertise about the electronic systems maintained
by SoundExchange, broadcasters and webcasters, but the interested
parties appear to have decided to leave it to us to prescribe the
technical rules on the formatting of reports of use of sound
recordings, specifying precise fields and delimiters for reporting the
required information. We remain hopeful that the parties may come to an
agreement--and we strongly urge them to do so--but meanwhile, we are
considering a recent submission from RIAA that proposes revised
specifications for filing electronic reports of the performance data
and has been forwarded to DiMA for consideration. We hope to publish a
notice of proposed rulemaking on formatting requirements this summer,
and we are optimistic that we can conclude that phase of the rulemaking
proceeding by the end of this year.
---------------------------------------------------------------------------
\41\ ``The Office encourages copyright owners, broadcasters and
webcasters to work together to agree on formatting requirements that
will serve all of their needs, and to submit joint proposals or
comments if possible.'' 67 Fed. Reg. at 59576 (Sept. 23, 2002).
---------------------------------------------------------------------------
We are also near to concluding the portion of the proceeding
concerning reports of use for the historic period. On Tuesday, we
published a Notice of Proposed Rulemaking concerning reporting
requirements for use of sound recordings during the period prior to
April 1, 2004. The notice proposes use of data already provided by the
preexisting subscription services to SoundExchange for the relevant
period as a proxy for the reporting of actual performances made by all
other services during the same time period. This approach had been
suggested in our Notice of Inquiry,\42\ and has been endorsed by the
copyright owners and performers as well as the affected licensees. Both
groups have acknowledged that little useful data exists at this point
in time and that there is no apparent way to reconstruct the
information needed to file reports of actual use. Consequently,
copyright owners, performers and licenses advocate the use of a proxy
to account for the historic performances.
---------------------------------------------------------------------------
\42\ 68 Fed. Reg. 58054 (Oct. 8, 2003).
---------------------------------------------------------------------------
Use of a proxy, however, is an imperfect solution, since it is
likely to undercount some performances and over-count others.
Nevertheless, it has many advantages. First, the data from the
preexisting services for the historic period offers accurate reporting
for programming that is by and large comparable to what was offered by
the nonsubscription services during the same time period. Second, the
preexisting subscription services had transmitted a diverse number of
sound recordings so that a large number of copyright owners and
performers can be compensated. And finally, the data has already been
used by SoundExchange for distribution of royalties received from the
preexisting subscription services and can easily be used for
distribution of the royalties received from the nonsubscription
services for the corresponding time period.
For these reasons, we believe the use of the reports of the
preexisting subscription services as a proxy represents the simplest,
most practical and cost-effective solution, and that the affected
parties will continue to embrace this solution. Interested parties have
thirty days to file comments either in support of this solution or
offering alternative proposals.
d. Conditions for use of the statutory license.
It is our understanding that, now that the question of whether
their Internet transmissions are exempt from the performance right has
been resolved against them, broadcasters are questioning whether
certain terms in the statutory license should apply to simulcasts of
AM/FM programming when retransmitted over the Internet. Specifically,
broadcasters have focused on those provisions that prohibit a service
from announcing its play schedule in advance and the requirement that a
service not play more than a limited number of selections from a
particular record album or by a particular recording artist within a 3-
hour period (the ``sound recording performance complement''). These
restrictions, among others, were adopted in 1995 to inhibit copying of
music by consumers who could make near-perfect digital copies of a
sound recording. The reasons behind the restrictions are simple to
understand. They were adopted to make it difficult for an individual to
identify in advance, and thereby copy, specific works, thus avoiding
the expense of purchasing a copy of the work.
The need for such restrictions, however, may be less obvious when
one considers a typical radio program offering Top-40 selections. Many
radio stations routinely play the same selections over and over so that
one need wait only a short time before the most recent release of a hit
song is played over the airwaves. Consequently, preannounced schedules
of these programs may do little to prevent a listener from copying the
newest hits. Thus, it is unclear whether the restriction has much value
with respect to these types of radio programs. On the other hand, it is
hard to understand how the term creates a hardship for broadcasters who
simulcast over the Internet today or to understand the need for such
preannounced schedules, since most listeners would not consult a
program guide before listening to AM/FM radio anyway. The typical
practice is to flip on the radio and surf the channels to see what is
playing at the moment or to tune in to a favorite talk show at the
regularly scheduled time. Thus, until more information comes to light,
it is hard to understand what harm the broadcasters suffer today under
the preannouncement restriction, or why there is a need to eliminate
this term with respect to broadcast programming.
Similarly, it is hard to understand the broadcasters' complaint
with respect to the sound recording performance complement restriction
since the definition was crafted so that it would permit programming
that was typically used by broadcast radio stations. Specifically, the
legislative history notes that ``[t]he definition [of the complement]
is intended to encompass certain typical programming practices such as
those used on broadcast radio.'' \43\ Whatever confusion does exist
with respect to the application of this provision may well stem from a
misunderstanding of what the complement does and does not allow. For
example, it would not prohibit a service from playing the same three
songs from a single phonorecord as many times as it wanted during a 3-
hour period, provided that no more than two of these songs were played
consecutively. The sound recording performance complement would
similarly allow a service to play up to four different songs by the
same featured recording artist or four different songs from any
particular boxed set of phonorecords over and over again during a 3-
hour period provided that no more than three of these songs were
transmitted consecutively. Since these provisions seem to accommodate
normal scheduling practices, it is hard to see how the sound recording
performance complement imposes a burden on a typical AM/FM broadcast
station.
---------------------------------------------------------------------------
\43\ S. Rep. No. 104-128, at 34 (1995).
---------------------------------------------------------------------------
Certainly, should these restrictions be shown to pose a substantial
burden on programming practices that outweigh whatever protection they
provide, then Congress should take another look at their application to
broadcast programming being retransmitted over the Internet. In fact,
that day may well be near at hand, because new technologies and
software that allow a consumer to capture and edit programming
transmitted via the Internet already threaten their effectiveness.
DIGITAL AUDIO BROADCASTING--DOES IT POSE A THREAT TO COPYRIGHT OWNERS?
Digital audio broadcasting, also known as HD radio, is no longer a
vision of the future. Technology to facilitate digital audio broadcasts
has already been approved by the Federal Communications Commission
(``FCC''). In 2002, the FCC adopted the in-band on-channel system
developed by iBiquity Digital Corporation as the standard technology
for enabling digital broadcasts by AM and FM radio stations that wished
to begin digital transmissions over the airwaves immediately.\44\
---------------------------------------------------------------------------
\44\ Digital Audio Broadcasting Systems and Their Impact on the
Terrestrial Radio Broadcast Service, 17 FCC Rcd 19990 (2002).
---------------------------------------------------------------------------
Although radio stations did not immediately embrace the new
technology, they are doing so now. In January of this year, KZIA in
Cedar Rapids, Iowa, began the movement when it announced its intent to
become the first station to offer HD radio.\45\ Less than five months
later, iBiquity issued another press release, announcing that radio
station KEMR-FM in San Jose, California, had become the 100th radio
station to launch HD radio broadcasts.\46\ It also has compiled a list
of more than 300 licensed radio stations that have begun offering HD
radio or will begin to do so soon.\47\
---------------------------------------------------------------------------
\45\ IOWA--First in the Nation for HD Radio, The Hollywood
Reporter.com (January 2, 2004) located at http://www.ibiquity.com/
press/pr/010204.htm.
\46\ HD Radio Going Live Coast-to-Coast . . . and Beyond (April 19,
2004) at http://ibiquity.com/press/pr/041904Coast2Coast.htm.
\47\ iBiquity has established a website, www.HD-Radio.com, where
visitors can find information about stations across the United States
that are either offering HD radio now or intend to do so in the near
future.
---------------------------------------------------------------------------
The electronics industry has also been hard at work. Companies are
manufacturing and marketing digital radio receivers for those who wish
to be among the first to receive clear, digital radio signals over the
airwaves. But technologists have not stopped there. Companies are also
busy designing and manufacturing new products to capture and record
these signals and anticipate the release of a number of new products
which will allow a consumer to record digital audio radio signals so
that a listener can listen to his or her favorite radio talk show, news
show or music program at a later time. In some instances, these
products will operate in the same manner as a VCR or a TiVo device,
allowing the listener to fast-forward over the segments that one
prefers not to hear.\48\ In fact, some early digital radio recorders,
e.g., Blaze Audio's Radio Recording Suite,\49\ already include
functions that allow the listener to program the device to record a
program at specified times, convert an analog signal into a digital
format, and upload the recorded program onto a personal computer in a
transferable file.
---------------------------------------------------------------------------
\48\ See Elisa Batista, A TiVo Player for the Radio, Wired News
(May 12, 2003), at http://www.wired.com/news/technology/
0,1282,58769,00.html.
\49\ http://www.blazeaudio.com/products/radiorecorder--
softpack.html.
---------------------------------------------------------------------------
In spite of these features, the early release of these devices did
not disturb the copyright community because radio programming was not
being offered in a digital format at the source. Consequently, programs
that were transmitted in an analog format and later converted to a
digital format were only as good as the original analog signal. In many
cases, recordings of these signals were plagued by static, fades, and
hisses.
The advent of digital audio broadcasting (``DAB'') and advances in
the recording devices, however, will greatly improve audio quality,
removing the flaws associated with analog broadcasts. Moreover, these
devices and software packages will allow the listener to change the
traditional passive listening experience into an interactive process.
They will give the recipient the means to edit and store specific
segments and songs from a prerecorded program, upload these selections
onto the recipient's personal computer, and allow for further
distribution of these segments to others via electronic transfers over
the Internet or by other means.
On-Demand Audio expects to offer a digital radio recorder this fall
that will provide these functions.\50\ It promises not only to capture
and record the digital radio signal, but also to include technology
which will allow the listener to skip from song-to-song and skip over
advertisements. Moreover, according to its promotional material, its
SongSurfer Technology will be able to identify specific segments of a
radio program or a song, and bookmark each segment for identification
and use at a later time. The product will also include a Jukebox Mode
which will allow the user ``to save songs, interesting ads, and talk
radio segments to a built-in Jukebox. . . . Saved songs can then be
sorted into playlists either when they are saved or later.'' \51\
---------------------------------------------------------------------------
\50\ See also Neuros HD 20GB MP3 Digital Audio Computer located at:
http://www.neurosaudio.com/ store/ product.asp?catalog%5Fname= Digital
Innovations Catalog & category%55Fname=
Neuros+Players&product%5Fid=401020.
\51\ On-Demand Radio Overview at http://www.gotuitcom/audio/
agradio.html. See also http://www.gotuit.com/audio/aConsumer.html.
---------------------------------------------------------------------------
Similar technology is available to capture online music over the
Internet. Replay Music promotes its ability to save every song played
by an on-line music service, automatically tag each song with the
artist name and song title, and separate the song into individual
tracks for easy access and play-back. The company claims that its
``Replay Music sports the most sophisticated track splitting algorithms
on the planet. Besides just recording and tagging, each MP3 file
contains the entire song--no more, no less.'' \52\
---------------------------------------------------------------------------
\52\ Replay Music at http://www.replay-music.com/.
---------------------------------------------------------------------------
These technological advances threaten to disrupt the careful
balance Congress struck between the record industry, on the one hand,
and the purveyors of new digital technologies, on the other, in the
DPRA and the DMCA. Moreover, widespread use of these products would
alter the longstanding relationship between record companies and radio
broadcasters in which record companies have provided radio stations
with the latest releases at no cost in exchange for promotional
airplay, a relationship based on record companies' expectation that
consumers would purchase new CDs based upon what they heard over the
airwaves. But today listeners are not limited to what they hear on the
radio to inform their choices, nor do they necessarily purchase CDs
containing the songs they like. Instead, new technologies, e.g., peer-
to-peer services, offer free access to music and a means to obtain free
copies of the works they enjoy. In this new environment, record
companies cannot necessarily have any expectation of financial reward
because consumers find ways to obtain copies of their works for free.
Nevertheless, radio broadcasters who use music as a hook to get
listeners and, by extension, advertising dollars, as well as the makers
of the software packages that facilitate the free exchange of music
over the Internet profit directly from their use of sound recordings.
Clearly, the threat posed by today's new technologies is most
ominous for the performers, the record companies and authorized on-line
record stores, like iTunes and MusicMatch, whose profits depend, at
least to some extent, directly upon sales of CDs or digital downloads;
but the potential harm is not restricted to these businesses.
Broadcasters and subscription services will suffer, too, from the use
of technologies that can capture, record, and preserve individual sound
recordings, and the more valuable segments of a radio station's
program. Subscription services will find it hard to sell reproductions
of a sound recording to listeners through use of a ``buy button,'' when
these listeners can capture the songs they want and upload them
directly to their personal computers with the use of a On-Demand Audio
device or Replay Music software. Why would anyone pay for a
reproduction of a sound recording when they can create their own
private music collection without expending a dime for the reproduction?
Broadcasters could also suffer from extensive use of these new
technologies, albeit in a more indirect fashion. In the event that the
TiVo type devices become popular, listeners will simply avoid the ads,
making it ineffective for businesses to advertise on radio. Were this
to occur, businesses will seek better ways to reach consumers, and
advertising dollars will no longer flow to the broadcasters.
The answer, however, is not to inhibit the roll out of HD radio;
nor is anyone suggesting a slowdown on this front. HD radio promises to
deliver a high-quality audio product that should draw consumers back to
the airwaves. The more promising approach would be to grant copyright
owners of the sound recording a full performance right so that they can
seek marketplace solutions to the problem, perhaps by negotiating
licenses for performance rights that would include measures to protect
against the types of activities that would make record sales obsolete.
At the moment, sound recording copyright owners have no means to
prevent a broadcaster from broadcasting their works over the airwaves
or to compel protection of their work. Alternatively, Congress may want
to consider technological methods to prohibit unlawful copying, an
approach the Federal Communications Commission has already begun to
explore. On April 20, 2004, it published a Notice of Inquiry to
consider the question of digital audio content control in response to
concerns presented to the it by the Recording Industry Association of
America.
While we take no position on the FCC's recent action, it is
apparent that digital audio broadcasting raises many of the same
concerns and fears voiced by the record industry when digital
technologies first made their appearance in the nineties, and these
concerns are even more valid today. How the issues should be addressed,
however, remains an open question. But what is clear is that the
process must include a careful analysis of copyright policies.
Moreover, any solutions adopted must provide strong incentives to the
creators to continue their artistic endeavors and equally strong
incentives to encourage the continued development of new technological
advances. In the absence of corrective action, the rollout of digital
radio and the technological devices that promise to enable consumers to
gain free access at will to any and all the music they want will pose
an unacceptable risk to the survival of what has been a thriving music
industry and to the ability of performers and composers to make a
living by creating the works the broadcasters, webcasters and consumer
electronic companies are so eager to exploit because such exploitation
puts money in their pockets.
Mr. Chairman, as always, we at the Copyright Office stand ready to
assist you as the Committee considers how to address the new challenges
that are the subject of this hearing.
Mr. Smith. Mr. Halyburton.
TESTIMONY OF DAN HALYBURTON, SENIOR VICE PRESIDENT/GENERAL
MANAGER, GROUP OPERATIONS, SUSQUEHANNA RADIO CORPORATION, ON
BEHALF OF THE NATIONAL ASSOCIATION OF BROADCASTERS
Mr. Halyburton. Thank you, Mr. Chairman, Ranking Member
Berman, and Members of the Subcommittee.
When Congress enacted section 405 of the DMCA, it clearly
sought to foster Internet streaming while preserving the long-
standing, mutually beneficial relationship between radio and
the recording industry. Unfortunately, the potentials of this
technology have not been realized.
In April 2000, there were more than 1,700 U.S. Radio
stations streaming their programming via the Internet. Industry
estimates predicted that each month 100 stations would add
streaming services. Today, those bright expectations have not
materialized. By the end of 2002, well over 1,000 stations had
discontinued streaming due in large part to copyright issues.
My company, Susquehanna Radio, helped pioneer radio
Internet delivery, and 23 of our stations are still trying to
make a go of it. However, the DMCA has made it impossible to
create a viable business model for simulcast streaming. In
fact, it is a recipe for losing money, which is exactly what we
are doing.
Here are the problems we face. First and foremost, we are
subject to a rate structure under which the more audience we
attract, the more we pay. The result is that once we draw
enough audience to attract advertisers, the RIAA fee becomes so
expensive we lose money.
Not only must we pay for the right to perform sound
recordings, but we also have to pay for so-called ephemeral
copies that are technically necessary to stream but have no
independent economic value.
Third, the statutory conditions interfere with our
programming. DJs cannot preannounce records, and we are limited
to the number of cuts we can play of one artist or from a
single album. And there is a concern that the complex and
expensive recordkeeping requirements may be adopted. No wonder
most stations looked at this scheme and said, No thanks.
So let me suggest five steps Congress should take to fix
the law so that Internet radio streaming can mature into a
workable business model and serve our listeners.
First, Congress should exempt from sound recording fees
streams to a station's local over-the-air audience. It simply
makes no sense to treat this audience differently when they
listen to our signal on the Internet; the same local public
service benefits are provided. Moreover, the recording industry
cannot deny the enormous promotional benefit that it gets from
radio air play, by far the most important driver of record
sales. This same benefit exists when a station streams its
programming over the Internet to its local audience.
Second, the sound recording performance fee and the
standard by which it is set must be reformed. The willing
buyer-willing seller standard and the DMCA is a recipe for
abuse. Before the CARP proceeding, RIAA set out to negotiate 26
agreements at fees far above the competitive market rate for
the purpose of establishing an artificially high benchmark in
order to influence the CARP. The CARP threw out 25 of those
agreements, but still relied entirely on a single agreement
between the RIAA and Yahoo to arrive at the current rate, and
that rate is exorbitant.
Susquehanna will pay RIAA six times what we pay ASCAP, BMI
and SESAC combined for those same exact performances. Just one
of our stations, KPLX in Dallas, will pay almost $50,000 in
fees in a year to reach a small fraction of its over-the-air
audience. Congress should establish a fee comparable to what is
paid to BMI, ASCAP, and SESAC.
Third, Congress must reform the statutory license
conditions and make them consistent with broadcast practices.
Radio stations should not be forced to choose between either
radically altering their over-the-air programming practice or
risk uncertain and costly copyright infringement litigation.
Fourth, Congress should eliminate additional copyright
liabilities for ephemeral recordings that simply exist to
facilitate a licensed or an exempt performance.
And fifth, Congress should ensure that the reporting and
recordkeeping requirements in the act do not preclude
broadcasters from streaming.
Mr. Chairman, coupling the powers of the Internet with the
long-standing strengths of free, over-the-air radio promises
exciting opportunities for our listeners, your constituents.
Let me thank the Subcommittee for its leadership and hard work
in moving forward legislation to reform the CARP system.
Unfortunately even if the CARP process is fixed, the law will
continue to stifle the growth of radio streaming.
We look forward to working with the Subcommittee to repair
the law and create a workable copyright regime that allows
fledgling service to flourish rather than suffocate.
Mr. Smith. Thank you, Mr. Halyburton.
[The prepared statement of Mr. Halyburton follows:]
Prepared Statement of Dan Halyburton
Chairman Smith and Members of the Subcommittee. My name is Dan
Halyburton. I am the Senior Vice President and General Manager for
Group Operations for Susquehanna Radio Corp., which owns 32 broadcast
radio stations.
I appreciate the opportunity to appear before you today on behalf
of the National Association of Broadcasters to discuss a matter of
importance to the radio industry and to the many members of the public
who want to hear their favorite radio station over the Internet on
their home or office computers but who have been frustrated by what has
become, through various judicial and administrative actions, a
burdensome and unworkable law.
In 1998, Congress enacted section 405 of the Digital Millennium
Copyright Act with the goal of fostering the growth of Internet
streaming while preserving the longstanding, mutually beneficial
relationship between the radio and recording industries. The Internet
offered an opportunity for all types of radio stations throughout the
country, small and large, urban and rural, to reach their audiences in
a new, more convenient and more creative way, coupled with information,
graphics, and other material that can be placed on a web site.
Unfortunately, that goal has been thwarted. A medium that was once
thought to have a bright future to enhance the ability of radio
stations to serve the public is vastly underused. As you may have
noticed, relatively few radio stations now stream their programming on
the Internet. In 2000, more than 1,700 radio stations were streaming
their programming and nearly 100 additional stations were expected to
commence streaming each month. By the end of 2002, however, well over
1,000 stations had stopped streaming and those stations that now come
online overwhelmingly are all talk stations.
There are a number of reasons for this, but the biggest part of the
problem lies with the rules governing sound recordings. Specifically:
The fee set by the copyright royalty arbitration
panel and the Librarian of Congress in 2002 was much too high,
and far exceeds a reasonable or even a hypothetical competitive
fair market rate. As an example, if the Internet listenership
of one of our most popular stations ever matched its over-the-
air listenership, the sound recording fees would be 15 millions
dollars a year. Even at today's listenership levels, our
stations pay 5 to 6 times as much for sound recording royalties
than we pay to the musical works copyright owners for the right
to make the same Internet performances of all of the musical
works embodied in the sound recordings.
The applicable statutory performance license is
subject to a host of conditions that are inconsistent with the
way radio stations program their stations. Radio stations are
faced with the untenable choice of making fundamental changes
to their programming, not streaming, or incurring the risk of
having to defend uncertain and hugely expensive and complex
copyright infringement litigation.
The law governing the making of copies that are used
solely to facilitate permitted transmissions unreasonably
requires the payment of still additional fees and is subject to
conditions crafted in the earlier days of radio that fail to
accommodate modern technological practices and realities.
The Copyright Office has raised the specter of
onerous and unnecessary record keeping and reporting
requirements in the near future. Many radio stations,
particularly smaller stations, simply will not be able to
comply using their existing systems and business practices. The
threat of these requirements keeps many from even considering
streaming.
Mr. Chairman, I know you are concerned about the failure of this
new opportunity for radio to serve the public to develop. You have
already moved to address the problems associated with the CARP
(arbitration panel) procedure that the DMCA put in place to set fees,
and we greatly appreciate your leadership and efforts. We strongly
support HR1417 and hope that the Senate will pass it promptly and that
it will become law.
Unfortunately, the CARP procedure is a relatively small part of the
difficulties current law and regulations pose for streaming radio
stations. There are major substantive problems with rights afforded to
the copyright owners of sound recordings in sections 114 and 112 of the
Copyright Act. These must be addressed if Internet streaming of radio
stations is to fulfill its promise.
I would first like to provide some history of the sound recording
performance right, to review how we got here. Then I will describe the
current state of radio stations simultaneously streaming their over the
air signals on the Internet (simulcast streaming). Finally, and most
importantly, I will offer specific suggestions to fix the problems that
are preventing simulcast streaming from happening.
I. HOW WE GOT HERE--THE HISTORY OF THE SOUND RECORDING PERFORMANCE
RIGHT
Until 1995 there was no performance right in sound recordings.
Instead, radio stations paid well over a hundred million dollars
annually to music composers and publishers while the producers and
performers of sound recordings made billions of dollars from the sales
of records promoted by radio airplay.
In 1995, Congress first created a carefully and narrowly
circumscribed performance right in digital audio transmissions to
address the specific concerns of record companies that certain
interactive and multi-channel, genre-specific subscription performances
would displace record sales. In 1998, in response to issues concerning
the status of Internet-only webcasts, the right was expanded to include
certain non-subscription transmissions. In our view these rights were
never intended to apply to radio broadcasters.
Congress has, for decades, recognized the symbiotic relationship
between the recording and radio industries, first refusing to grant a
public performance right in sound recordings, and then granting it
narrowly only in response to a specific threat. Even then, Congress
provided that nonsubscription broadcast transmissions would remain free
from any sound recording performance obligation. Although broadcasters
believe that Congress intended this exemption to include the Internet
streaming of radio broadcasts, the Copyright Office and the Courts
ruled otherwise.
It is not at all clear why radio stations should be required to pay
record companies for the right to stream their radio broadcasts over
the Internet. After all, the recording industry has for decades tried,
using every device imaginable and spending millions upon millions of
dollars annually, to encourage broadcasters to play their records in
these very same broadcasts. Why? Simply because radio play is, far and
away, the most important vehicle for exposing to the public the
products of the record industry. Consumers buy what they hear, and what
DJs they trust play. Arbitron studies have proven as much--fully two
thirds of those polled said they turn to radio first to learn about new
music.\1\ A radio broadcast has the same extraordinary promotional
value to the record companies whether it is heard over the air or over
the Internet. In a truly free, competitive market, the net balance of
payments would flow from record companies to radio stations, not vice-
versa, just as free copies of their recordings still flow every day
from the record companies to radio stations.
---------------------------------------------------------------------------
\1\ See, e.g., Internet 9: The Media and Entertainment World of
Online Consumers, Special Radio Industry Edition, available at http://
www.arbitron.com/downloads/I9NAB.pdf (viewed June 8, 2004).
---------------------------------------------------------------------------
A. Pre-1995
Throughout the history of the debate over sound recording
copyrights, Congress has consistently recognized that record companies
reap huge promotional benefits from the exposure given their recordings
by radio stations and that placing burdensome restrictions on
performances could alter that relationship to the detriment of both
industries. For that reason, in the 1920s and for five decades
following, Congress regularly considered proposals to grant copyright
rights in sound recordings but repeatedly rejected such proposals.
When Congress did first afford limited copyright protection to
sound recordings in 1971, it prohibited only unauthorized reproduction
and distribution of records but did not create a sound recording
performance right. The purpose of such protection was to address the
potential threat such reproductions posed to the industry's core
business: the sale of records. During the comprehensive revision of the
Copyright Act in 1976, Congress again considered, and rejected,
granting a sound recording performance right. As certain senators on
the Judiciary Committee recognized in their (prevailing) minority
views:
For years, record companies have gratuitously provided records
to stations in hope of securing exposure by repeated play over
the air. The financial success of recording companies and
artists who contract with these companies is directly related
to the volume of record sales, which, in turn, depends in great
measure upon the promotion efforts of broadcasters.\2\
---------------------------------------------------------------------------
\2\ S. Rep. No. 93-983, at 225-26 (1974) (minority views of Messrs.
Eastland, Ervin, Burdick, Hruska, Thurmond, and Gurney).
Congress continued to refuse to provide any sound recording
performance right for another twenty years. During that time, the
record industry thrived, due in large measure to the promotional value
of radio performances of their records.
B. 1995
It was not until the Digital Performance Rights in Sound Recordings
Act of 1995 (the ``DPRA'')--enacted less than ten years ago--that even
a limited performance right in sound recordings was granted. Even then,
the right was limited to certain subscription and interactive digital
transmissions that threatened to displace the sale of recordings.
In granting this limited public performance right in sound
recordings, Congress stated it: ``should do nothing to change or
jeopardize the mutually beneficial economic relationship between the
recording and traditional broadcasting industries.'' \3\ As explained
in the Senate Report accompanying the DPRA, ``The underlying rationale
for creation of this limited right is grounded in the way the market
for prerecorded music has developed, and the potential impact on that
market posed by subscription and interactive services--but not by
broadcasting and related transmissions.'' \4\
---------------------------------------------------------------------------
\3\ S. Rep. No. 104-128, at 15 (``1995 Senate Report''); accord,
id. at 13 (Congress sought to ensure that extensions of copyright
protection in favor of the recording industry did not ``upset[] the
long-standing business relationships among record producers and
performers, music composers and publishers and broadcasters that have
served all of these industries well for decades.'').
\4\ Id. at 17.
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Consistent with Congress's intent, the DPRA expressly exempted from
sound recording performance right liability non-subscription, non-
interactive transmissions, including ``non-subscription broadcast
transmission[s]''--transmissions made by FCC licensed radio
broadcasters.\5\ Congress made clear that the purpose of this broadcast
exemption was to preserve the historical, mutually beneficial
relationship between record companies and radio stations:
---------------------------------------------------------------------------
\5\ 17 U.S.C. Sec. 114(d)(1)(A). All statutory citations are to the
Copyright Act, Title 17 of the United States Code, unless otherwise
noted.
The Committee, in reviewing the record before it and the goals
of this legislation, recognizes that the sale of many sound
recordings and careers of many performers have benefited
considerably from airplay and other promotional activities
provided by both noncommercial and advertiser-supported, free
over-the-air broadcasting. The Committee also recognizes that
the radio industry has grown and prospered with the
availability and use of prerecorded music. This legislation
should do nothing to change or jeopardize the mutually
beneficial economic relationship between the recording and
traditional broadcasting industries.\6\
---------------------------------------------------------------------------
\6\ 1995 Senate Report, at 15.
The Senate Report confirmed that ``[i]t is the Committee's intent
to provide copyright holders of sound recordings with the ability to
control the distribution of their product by digital transmissions,
without hampering the arrival of new technologies, and without imposing
new and unreasonable burdens on radio and television broadcasters,
which often promote, and appear to pose no threat to, the distribution
of sound recordings.'' \7\
---------------------------------------------------------------------------
\7\ Id.
---------------------------------------------------------------------------
In explaining its refusal to impose new burdens on FCC-licensed
terrestrial radio broadcasters, Congress identified numerous features
of radio programming that place such programming beyond the concerns
that animated the creation of the limited public performance right in
sound recordings. Specifically, radio programs (1) are available
without subscription; (2) do not rely upon interactive delivery; (3)
provide a mix of entertainment and non-entertainment programming and
other public interest activities to local communities to fulfill FCC
licensing conditions \8\; (4) promote, rather than replace, record
sales; and (5) do not constitute ``multichannel offerings of various
music formats.'' \9\ Each of these features--i.e., nonsubscription,
non-interactive, mixed programming content and public interest content,
promotion of record sales, and single-channel--also characterizes the
web stream of a broadcast signal.
---------------------------------------------------------------------------
\8\ Radio broadcast stations are subject to numerous ``public
interest'' requirements in order to obtain and maintain their FCC
licenses--requirements that do not apply to Internet-only webcasters.
See 47 U.S.C. Sec. Sec. 307, 309-10 (1998). These requirements apply to
the content of licensed stations' broadcasts and to their operations
and record-keeping procedures. See, e.g., 47 C.F.R. Sec. 73.3526(e)(12)
(requiring a quarterly report listing the station's programs providing
significant treatment of community issues); 47 U.S.C. Sec. 315(a)
(requiring a station to offer equal opportunity to all candidates for a
public office to present views, if station afforded an opportunity to
one such candidate); 47 C.F.R. Sec. 73.1212 (requiring identification
of program sponsors); id. Sec. 73.1216 (providing disclosure
requirements for contests conducted by a station); id. Sec. 73.3526
(requiring maintenance of a file available for public inspection); id.
Sec. 1211 (regulating stations' broadcast of lottery information and
advertisements).
\9\ 1995 Senate Report, at 15.
---------------------------------------------------------------------------
C. 1998
Just three years after enactment of the DPRA, the record industry
voiced dissatisfaction with the scope of the new performance right,
contending that such right should encompass certain categories of
nonsubscription music services. At the same time, the Digital Media
Association (``DiMA''), a newly formed association of Internet-only
``webcasters,'' approached Congress seeking clarification of the status
of such webcasters with respect to sound recording performances on the
Internet. DiMA and RIAA, neither of which represented the interests of
FCC-licensed broadcasters, negotiated amendments to the DPRA, that were
put into the House version of the Digital Millennium Copyright Act of
1998 (``DMCA'') literally on the eve of passage, and that were enacted
without any hearing or debate.\10\ For their part, broadcasters were
assured by both parties and others that none of the DMCA would affect
the exempt status they enjoyed under the DPRA.
---------------------------------------------------------------------------
\10\ See, e.g., Jane C. Ginsburg, Copyright Legislation for the
``Digital Millennium,'' 137 Colum.-VLA J.L. & Arts 137, 166-68 (1999)
(noting that the Section 114 amendments regarding digital performance
right in sound recordings were a ``last minute'' addition to the DMCA
resulting from ``negotiations between copyright owners and digital
transmission services''); Bob Kohn, A Primer on the Law of Webcasting
and Digital Music Delivery, 20 Ent. L. Rep. 4 (Sept. 1998) (describing
the version of the amendments to Section 114(d) passed by the House, as
being ``negotiated'' and ``drafted'' by DiMA and RIAA, at the
suggestion of the Register of Copyrights, ``days, and perhaps hours''
prior to passage).
---------------------------------------------------------------------------
The RIAA/DiMA deal removed certain exemptions that had previously
been available under the DPRA, including the exemption for ``a
[digital] nonsubscription transmission other than a retransmission''
and expanded the types of transmissions that would be eligible for a
statutory license to include at least some of the previously exempt
nonsubscription, non-interactive transmissions.\11\
---------------------------------------------------------------------------
\11\ See, e.g., 17 U.S.C. Sec. 114(d)(2) (1998).
---------------------------------------------------------------------------
The relevant DMCA amendments were inspired by and directed to ``a
remarkable proliferation of music services offering digital
transmissions of sound recordings to the public,'' primarily via the
Internet.\12\ ``In particular,'' the House Manager reported, ``services
commonly known as `webcasters' have begun offering the public multiple
highly-themed genre channels of sound recordings on a nonsubscription
basis.'' \13\ As used in the legislative history, the term
``webcaster'' referred, not to radio stations streaming their AM/FM
over-the-air broadcast programming, but to ``services'' originating on
the Internet \14\ and offering ``a diverse range of programming,''
often ``customized'' to an individual user's preferences.\15\
---------------------------------------------------------------------------
\12\ Staff of House Comm. on the Judiciary, 105th Cong., Section-
by-Section Analysis of H.R. 2281 as passed by the United States House
of Representatives on August 4, 1998, at 50 (Comm. Print 1998)
(hereinafter, ``1998 House Manager's Report'').
\13\ Id.
\14\ See e.g., id. at 51 (discussing low barrier to entry for
Internet-based webcast services, which ``can be started by an
individual with one computer in his or her home'').
\15\ See id. at 50 (``Many webcasters also offer certain types of
programming, such as archived and continuous programming, that permit
listeners to hear the same recordings repeatedly and anytime the
listener chooses.''); id. (``Most significantly, the Internet enables a
music service to interact with its listeners so that listeners have the
ability to hear their favorite music whenever they wish, select certain
sound recordings or programs, skip to the recordings of their choice,
and to create personalized channels that are customized to their
specific tastes.'').
---------------------------------------------------------------------------
The DMCA, however, did nothing to disturb the DPRA's exemption for
``nonsubscription broadcast transmissions'' or the definitions that
accompanied the exemption. Indeed, AM/FM streaming is a conspicuously
poor fit with the ``webcasting'' services described in the DMCA
legislative history--and AM/FM streaming presents none of the
``webcasting''-related concerns that motivated passage of the DMCA.
Moreover, as I will discuss in greater detail below, the RIAA/DiMA
deal that was enacted in the DMCA imposed new conditions on the
statutory license for non-subscription services that were inconsistent
with the way radio stations are traditionally programmed. Thus, DiMA
and RIAA agreed to waive the conditions for third party webcasters that
retransmitted a radio broadcast. However, the waivers did not apply to
broadcasters transmitting their own programming. In other words, once
the sound recording right was construed to apply to radio broadcasters,
those broadcasters were placed at a significant disadvantage compared
to third party retransmitters of radio broadcasts.
Broadcasters believed, and still believe, that Congress intended
radio broadcasters streaming their own programming to be exempt under
the DMCA, and broadcasters vigorously, but unsuccessfully, pressed that
position before the Copyright Office in a rulemaking \16\ and on appeal
in federal court in Bonneville International Corp. v. Peters.\17\
---------------------------------------------------------------------------
\16\ Copyright Office, Public Performance of Sound Recordings:
Definition of a Service, Final Rule, 65 Fed.Reg. 77292 (Dec. 11, 2000).
\17\ 347 F.3d 485 (3d Cir. 2003).
---------------------------------------------------------------------------
Broadcasters still believe that the Bonneville decision was wrongly
decided and that the last thing Congress intended was to pass a law
that required record companies and radio stations to haggle over what
can be played, how often, who should pay whom what, and the records
broadcasters must keep of what they play. Yet that is precisely the
deeply-flawed system we are today confronting. That system must be
repaired, even starting from the premise that some portion of radio
broadcast streaming should be subject to the sound recording
performance right.
II. THE UNFULFILLED PROMISE OF SIMULCASTING RADIO OVER THE INTERNET
In April, 2000 the radio industry believed that simulcast streaming
was not subject to the sound recording performance right, and therefore
was not subject to the fees and conditions imposed by the statutory
license contained in Sections 112 and 114 of the Copyright Act. By
industry estimates, there were more than 1,700 U.S. radio stations
streaming their programming via the Internet.\18\ Nearly one hundred
(100) radio stations were expected to begin broadcasting over the
Internet each month.\19\
---------------------------------------------------------------------------
\18\ See BRS Media Inc., ``Web Radio Stats,'' www.brsradio.com/
iradio/ analysis.html (viewed April 16, 2000).
\19\ See BRS Media Inc., ``BRS Media's Web-Radio Report[s]
Strongest Growth Segment of Webcasting is Radio,'' www.brsmedia.fm/
press000410.html (viewed April 16, 2000).
---------------------------------------------------------------------------
These bright expectations have not materialized. By the end of
2002, well over 1,000 U.S. radio stations had stopped streaming their
signal on the air due to copyright issues.\20\ The stations to come on
line since that time are overwhelmingly news/talk/sports stations that
are not hamstrung by the sound recording statutory license. In Texas,
for example, only 130 of the more than 900 licensed radio stations
simulcast their streams, and more than half of those are news, talk, or
sports formats, according to radio-locator.com. In Wisconsin the
numbers are even more disappointing. Only 41 of the approximately 337
radio stations reportedly stream their signals. Only nine of those are
music-intensive commercial stations; the rest are either public radio
(which operates under a separate, confidential fee structure) or talk.
---------------------------------------------------------------------------
\20\ See ``BRS Media's Web-Radio reports a steep decline in the
number of stations webcasting,'' http://www.brsmedia.fm/
press020912.html (viewed June 8, 2004).
---------------------------------------------------------------------------
The nation's largest radio group, Clear Channel, for example, owns
more than 1,000 radio stations, but only 180 of them are simulcast
streaming today, and most of those are news/talk stations rather than
music stations. After the CARP sound recording fee rates were
announced, Clear Channel shut down most of its streaming, and has only
slowly brought back a few stations over the past few years, focusing on
news or talk stations that do not run up large license fees. The only
music stations Clear Channel currently streams are in its smaller
markets, where listenership will not be so large that the license fees
will eat up the station's entire marketing budget. Our colleagues at
Emmis Communications have taken a similar approach. Emmis currently
streams four out of its five (80%) of its news/talk stations, but only
eighteen percent (4 out of 22) of its music stations. At Entercom, they
have given up on streaming altogether for their 100 radio stations,
halting all streaming almost two years ago, in the face of the
substantial fee burdens and the additional requirements of the
statutory license.
Smaller group owned radio is faring even more poorly. Between the
fees, the need to change business practices that I will discuss, and
the threatened reporting burden, very, very few smaller group owned
music stations are streaming.
At Susquehanna, we are still trying to make a go of it, streaming
the programming of every station we operate. We were one of the very
first broadcasters to simulcast our over the air broadcasts. Way back
in 1995--a lifetime ago, in Internet time--our Dallas news/talk station
became one of the first radio stations streamed by a little unknown
outfit called AudioNet, which became Broadcast.com, and ultimately
Yahoo!Broadcast.
Despite our long involvement with simulcast streaming and our
successful broadcast business, we have still not found a viable
business model for simulcast streaming. Susquehanna has never made a
dime on streaming; in fact our stations consistently lose money on
streaming. The sound recording performance fees are simply too high--
right now, license fees are by far the single largest expense of our
streaming budget, and the vast majority of those license fees are for
the sound recording right. In fact, we are today paying between 5 and 6
times more for the sound recording rights than we pay to the musical
works copyright owners for the right to make the same Internet
performances of all of the musical works embodied in the sound
recordings. Moreover, the musical works licenses are broader and do not
contain the limitations and conditions included in the sound recording
statutory license.
We, like most broadcasters, stream in order to provide our local
listeners with an alternative means of hearing our station. There are
places radio waves do not easily reach, particularly inside of
buildings. Studies consistently show that about as many people listen
to the handful of stations within their local listening area, as those
who listen to all other stations (U.S. and worldwide) combined.\21\
---------------------------------------------------------------------------
\21\ See, e.g., Internet 9: The Media and Entertainment World of
Online Consumers, Special Radio Industry Edition, available at http://
www.arbitron.com/downloads/I9NAB.pdf (viewed June 8, 2004).
---------------------------------------------------------------------------
Streaming is a very small, ancillary part of any broadcaster's
business. Audiences for simulcasts are universally a small fraction of
a station's over-the-air audience.
In addition, the content of a broadcast simulcast is driven by
local and over-the-air needs, not by considerations relevant to the
development of a viable Internet business.\22\ Programming is selected
to compete in the local, over-the-air market, not an Internet market
characterized by webcasters with tens, or hundreds, of genre-specific
channels. A single radio station on the Internet simply cannot, and
does not, try to compete with the likes of AOL's Radio@Network,
Yahoo!'s LAUNCHcast, Live365, or Virgin Radio. The audience, and the
business model, are dramatically different.
---------------------------------------------------------------------------
\22\ Thus, whether disseminated solely over the air or
simultaneously streamed over the Internet, local radio broadcast
programming serves the needs and interests of the local community in
which the broadcaster has been licensed by the FCC. The programming
includes, for example, (1) locally produced public service
announcements to benefit the local community (Digital Performance Right
in Sound Recordings Act of 1995: Hearings on H.R. 1506 Before the House
Comm. on the Judiciary, 95th Cong. 1, at 118 (1995) (hereinafter ``1995
House Hearings'') (Executive Summary of Broadcasting Features--
independent study submitted by NAB)); (2) local news, sports and
weather; and (3) station announcements encouraging community members to
vote in upcoming elections. Id.
---------------------------------------------------------------------------
Even when streamed over the Internet, local radio broadcast
transmissions serve the needs and interests of the local community in
which the broadcaster has been licensed by the FCC. The programming
includes, inter alia, (1) locally produced public service announcements
to benefit the local community \23\; (2) local news, sports and
weather; and (3) station announcements encouraging community members to
vote in upcoming elections.\24\
---------------------------------------------------------------------------
\23\ 1995 House Hearings, at 118 (Executive Summary of Broadcasting
Features--independent study submitted by NAB).
\24\ Id.
---------------------------------------------------------------------------
Broadcasters are proud of their record of local service. Attachment
A to this Statement gives just a few examples of outstanding local
service, several of which were honored by NAB on June 14th. They
include work to combat domestic abuse, extraordinary efforts during
Hurricane Isabel, and work with students in remote parts of Alaska. The
Attachment also describes local broadcasters' work with the Amber Alert
system that works to recover abducted children. To date, local
broadcasters have helped recover 134 abducted children. Just this past
May, residents of Hallam, Nebraska credited radio stations KSLI, KTGL,
KZKX, KIBZ, and KLMY with saving their lives by joining a local
television station in providing several hours of uninterrupted coverage
of severe tornados and storms that devastated the town. Residents were
able to evacuate to safe areas because of the extensive coverage of the
storms provided by broadcasters.
III. SPECIFIC CHANGES IN THE LAW THAT ARE NEEDED
TO FOSTER SIMULCAST STREAMING
The root cause of the problems with simulcast streaming today is
easy to explain. The rules were developed by the record companies and
Internet-only webcasters to meet programming and business models that
differs dramatically from those of radio. A single set of sound
recording fees have been set for radio simulcasts and for multi-channel
Internet-only webcasters on the basis of a false premise that the two
compete in the same market. In fact, radio simulcasting has unique
needs that must be accommodated in the law, if the public is to have
access to this service.
The radio industry's concerns relate to four distinct sets of
issues--(i) the sound recording performance fee for Internet streaming,
including the amount of the fee, the fact that it is imposed on
broadcasters for listeners who are within the broadcaster's local
service area, and the standard by which that fee is determined, (ii)
the conditions under which the necessary statutory licenses are
available, (iii) the law governing the making of copies used solely to
facilitate lawful performances, and (iv) the threat of impossible and
unnecessary reporting and record keeping requirements.
A. Simulcast Streaming to Listeners within a Station's Local Service
Area Should Be Exempt.
Congress should make clear that Internet streaming of a radio
broadcast to members of a radio station's local over-the-air audience,
is not subject to the sound recording performance right, just as the
over-the-air performance is not. Internet transmissions to those local
audiences are indistinguishable from over-the-air performances. As
discussed above, they are provided as a service to the public that is
ancillary to the over-the-air transmission, to facilitate access.
Transmissions to these local audiences provide the same public service
benefits to the community as over the air transmissions.
Further, Internet transmissions to a radio station's local audience
provide the same promotional benefits to the record companies as the
station's over-the-air broadcasts. As the arbitration Panel concluded,
``[t]o the extent that internet simulcasting of over-the-air broadcasts
reaches the same local audience with the same songs and the same DJ
support, there is no record basis to conclude that the promotional
impact is any less.'' \25\ RIAA's own CARP witness agreed that ``[p]er
capita per listener minute, the promotional benefit to Sony of someone
listening to a radio signal over-the-air and someone in the same
geographical area listening to the same signal over their computer is
going to be very similar.'' \26\
---------------------------------------------------------------------------
\25\ Final Report of the Copyright Arbitration Royalty Panel in
Docket No. 2000-9 CARP DTRA 1 & 2 (February 20, 2002) (hereinafter
``Panel Report'') at 75.
\26\ Transcript of CARP Proceedings at 12861-62 (McDermott).
---------------------------------------------------------------------------
The Copyright Act recognizes that transmissions within a radio
station's local service area are special, and specifically exempts from
the sound recording performance right retransmissions of radio
broadcasts that remain within a 150-mile radius of the transmitter.\27\
This exemption is not available if the broadcast is ``willfully or
repeatedly retransmitted more than a radius of 150 miles.'' \28\ The
Copyright Office has held that this exemption does not apply to
Internet retransmissions, as Internet transmissions are not so limited.
---------------------------------------------------------------------------
\27\ Sec. 114(d)(1)(B).
\28\ Sec. 114(d)(1)(B)(i).
---------------------------------------------------------------------------
Of course, in 1995, when this exemption was enacted, Congress was
not focused on the fact that Internet retransmissions could not be
limited to 150 miles. There is no reason to limit this exemption to
retransmission services that prevent retransmissions beyond the
station's local service area. Transmissions beyond 150 miles can be
subject to the right and charged a fee. Transmissions to local
listeners should not be, regardless of the fact that other listeners
may be outside the local service area.
B. The Sound Recording Performance Fee, and the Standard By Which it
Is Set, Should Be Reformed.
The DMCA negotiations also produced a profound change in the
standard by which the sound recording performance fee is set. In 1995,
after a fully inclusive process, Congress determined that the fee
should be based on a consideration of four policy factors that
previously governed rate setting set forth in section 801(b) of the
Copyright Act. These factors include affording the copyright owner a
fair return and the user a fair income, recognizing the contribution of
both the copyright owner and the service, including the contribution in
opening new media for communication, and minimizing the disruptive
impact on the structure of the industries involved and on generally
prevailing industry practices.
The DMCA negotiations gave rise to a new standard--``the rates and
terms that would have been negotiated in the marketplace between a
willing buyer and a willing seller,'' \29\ a standard that has given
rise to a presumption in favor of agreements negotiated by the cartel
of record companies, acting under the antitrust exemption contained in
the Copyright Act.\30\ The standard, and the RIAA's use of that
standard, led to an unreasonably high fee in the CARP that set sound
recording fees.
---------------------------------------------------------------------------
\29\ Sec. 114(f)(2)(B).
\30\ Sec. 114(e)(1).
---------------------------------------------------------------------------
1. The ``Willing Buyer/Willing Seller'' Standard Is a
Recipe for Abuse.
In the 1998-2002 proceeding, RIAA relied on 26 agreements its
``Negotiating Committee'' had reached with webcasters that had specific
needs and a willingness to pay a fee far above the fee that would
prevail in a competitive free market. As the arbitration panel found:
[b]efore negotiating its first agreement, RIAA developed a
strategy to negotiate deals for the purpose of establishing a
high benchmark for later use as precedent, in the event a CARP
proceeding were necessary. The RIAA Negotiating Committee
reached a determination as to what it viewed as the ``sweet
spot'' for the Section 114(f)(2) royalty. It then proceeded to
close only those deals (with the exception of Yahoo!) that
would be in substantial conformity with that ``sweet spot.''
\31\
---------------------------------------------------------------------------
\31\ Panel Report at 48.
---------------------------------------------------------------------------
The ``sweet spot'' was not based on any calculation of a reasonable
rate of return or any economic study, but ``simply reflected on the
Negotiating Committee's instinct of what price the marketplace would
bear.'' Report 48 n. 28. The Panel found a ``consistent RIAA strategy''
to develop evidence to present to the CARP.\32\
---------------------------------------------------------------------------
\32\ Id. at 49. The Panel found that RIAA's denials ``lack[ed]
credibility'' in light of extensive record evidence. Id. 49-51.
---------------------------------------------------------------------------
The RIAA Committee adopted a ``take-it-or-leave-it'' approach,
entering into agreements with services willing to agree to its terms
for numerous reasons that did not reflect the value of the sound
recording performance right.\33\ In fact, not a single radio
broadcaster was willing to pay the fees sought by RIAA. For this, and a
host of other reasons--including the fact that many of RIAA's licensees
never paid any fees under their agreements, or never commenced
operations--the Panel concluded that 25 of the agreements ``do not
establish a reliable benchmark.'' \34\ The Librarian confirmed the
Panel's rejection of these agreements.
---------------------------------------------------------------------------
\33\ Id. at 51.
\34\ Id. at 51-60.
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Nevertheless, the Panel ultimately relied entirely on the twenty-
sixth agreement--the agreement between the RIAA Negotiating Committee
and Yahoo!--despite the fact that this agreement resulted from the same
common plan by the Committee to create CARP evidence. Further, despite
the fact that the Yahoo agreement defined the fee for simulcast
streaming at .05 cent per listener per song after an initial bulk
payment, the Panel increased the fee to .07 cent.
Incredibly, the Panel had before it Yahoo's own testimony that it
made the deal not because it believed the sound recording fee was
competitive, but because it wanted to avoid the cost of participating
in the CARP, estimated to exceed $2,000,000. Not by coincidence, this
amount was approximately the total amount Yahoo paid under its
agreement. In short, the deal did not reflect the value of the sound
recording performance right; it reflected the cost of avoiding
participation in the CARP litigation.
Yahoo also testified that it could not pass along to broadcasters
even the .05-cent per performance fee set forth in its agreement for
radio retransmissions. Yahoo's representative told the panel:
[W]e've not passed any of these fees along to the radio
stations because we have every interest in keeping those
stations signed up with us. So we've made the business decision
that it made more sense for us to actually stomach these fees
than to try to pass them on to our radio station partners
because we're afraid that if we tried to do that, they would
terminate their agreements with us.\35\
---------------------------------------------------------------------------
\35\ Transcript of CARP Proceedings at 11,429 (Mandelbrot).
Upon further questioning, Yahoo's representative confirmed that
``Yahoo!'s judgment is that if it passed along to the radio
stations the radio station retransmission rate that it has
negotiated, a lot of those stations would just pull the plug.''
\36\
---------------------------------------------------------------------------
\36\ Id. at 11,430.
Moreover, Yahoo terminated the deal at the end of 2001, before the
Panel issued its report recommending a fee. Then, within one week after
the Librarian announced his decision affirming the Panel's proposed
fee, Yahoo announced that it was shutting down its radio retransmission
business.
Later, after the Librarian's decision was rendered, other evidence
emerged, further confirming just how unreliable the Yahoo deal was as
an indicator of a competitive fair market fee. Mark Cuban, the founder
and President of Broadcast.com, the company that became Yahoo's
broadcast retransmission business, wrote in June 2002 to the industry
newsletter ``Radio and Internet News'' to say that ``the deal with RIAA
was designed with rates that would drive others out of the business so
there would be less competition.'' \37\
---------------------------------------------------------------------------
\37\ See Attachment B, hereto.
---------------------------------------------------------------------------
Why did the arbitration panel rely on this agreement under these
circumstances? Simply put, the Panel concluded that an effort ``to
derive rates which would have been negotiated in the hypothetical
willing buyer/willing seller marketplace is best based on a review of
actual marketplace agreements.'' \38\ In short, the Panel essentially
created a presumption in favor of the RIAA agreements, despite the
overwhelming evidence that those agreements did not represent the
relevant, hypothetical, competitive free market.
---------------------------------------------------------------------------
\38\ Panel Report, 43.
---------------------------------------------------------------------------
The radio industry, of course, believes this decision was grossly
incorrect, and we are continuing to prosecute an appeal in the D.C.
Circuit. Unfortunately, that appeal won't be heard until October, and
no decision is likely for months thereafter. In the meantime, the
Librarian's decision hangs around our neck like the Ancient Mariner's
albatross.\39\ Further, the D.C. Circuit has, in the past, applied a
very deferential standard of review to the Librarian's decision, so
while our cause is just, there is a significant risk that the courts
simply will not act to rectify this dysfunctional situation.
---------------------------------------------------------------------------
\39\ Indeed, in the face of this precedent, the crushing cost of a
second CARP proceeding after the first had cost millions of dollars,
and the lack of revenue to justify a second CARP proceeding, several
large broadcast groups including Susquehanna agreed to a continuation
of the existing fee through 2004, pending the outcome of the appeal of
the first proceeding, legislative action on HR 1417, and our hope that
Congress would act to reform the fee standard and provide the
legislative relief sought here. This agreement should in no way be
viewed as acceptance of the reasonableness or validity of that fee.
---------------------------------------------------------------------------
2. The Radio Industry Needs Prompt Relief from the Fee Set
in 2001.
Based on the Yahoo Agreement, Librarian decreed that broadcasters
engaged in simulcast streaming should be required to pay .07 cents per
listener per song, plus an additional 8.8% for the right to make server
copies to facilitate the performances, which I will discuss below. The
total fee is .07616 cent for each song played to each listener. While
this may not sound like a lot at this most granular level, the evidence
presented to the Panel showed that it was more than three times what
radio stations pay ASCAP, BMI and SESAC combined, for the right to
perform musical works over the air.
Further, the fee adds up quickly if a station has any Internet
audience at all. Considering that a typical music station plays about
11.5 songs per hour, on average, a station that made performances to an
average of just 500 listeners at a time would pay more than $38,000 per
year in sound recording licensing fees. Susquehanna's KPLX, known and
loved by Dallas radio listeners as Texas Country, 99.5 The Wolf, will
pay almost $50,000 in fees in 2004, if listenership follows the trend
set in the first quarter of this year. And that reflects a growth in
Internet listenership of about 55 percent since 2001, which is still a
small fraction of our over-the-air audience. If The Wolf's Internet
listenership were to ever approach its over-the-air audience, the bill
could eventually become a staggering $15 million a year in sound
recording royalties alone. And that is just one of our stations.
Compare this to what the entire radio industry pays for the right
to stream radio broadcasts over the Internet to the composers,
lyricists and publishers who combine to create the music that forms the
core of a recorded song. For example, under a negotiated agreement with
BMI, which controls about half of the music played on radio, the radio
industry as a whole pays a flat fee averaging $500,000 per year for the
unlimited right for each and every radio station to stream its
broadcast to as many listeners as possible, with no conditions on the
content of those performances.
There is absolutely no justification for a system that requires
radio stations to make payments to record companies that so
dramatically exceed the freely negotiated amount paid to musical work
copyright owners. We are aware of no other country in the world where
this situation exists. The situation is doubly absurd, because record
companies and artists receive far more benefit from record sales that
are stimulated by radio airplay than do the musical work copyright
owners.
The sound recording performance fees are simply exorbitant.
Congress should take action, just as it did when it passed the
Satellite Home Viewer Improvement Act of 1999 in part to vacate the
decision of a CARP and reduce by one third to almost one half, the
royalty fees to be paid by satellite television services.\40\ This
relief could take several forms, including cutting the fee to no more
than what the radio industry pays to all musical work copyright owners
for the right to stream their broadcasts over the Internet.
---------------------------------------------------------------------------
\40\ Pub. Law 106-113, 113 Stat. 1501, Sec. 1004, codified at 17
U.S.C. Sec. 119(c)(4).
---------------------------------------------------------------------------
C. The Statutory Performance License Conditions Must Be Reformed To
Accommodate Longstanding Industry Practice.
The statutory performance license applicable to Internet streaming
contains several conditions that are incompatible with the traditional
way radio stations are programmed and administered. These conditions
impose untenable choices on radio broadcasters:
Change their programming and business practices (an
absurd concept given the success of these practices, the
relatively miniscule audience that even successful stations
obtain over the Internet compared to over the air, and
Congress's clearly stated desire not to change radio
broadcasting practices);
Obtain direct licenses from each and every record
company whose music they play (an even more absurd concept,
considering the impracticability and Congress' longstanding
desire to keep record companies and radio broadcasters from
direct dealings over what gets played on the radio);
Stop streaming (an idea wholly inconsistent with
Congress' goal of getting more music to consumers over the
Internet and contrary to the interest of the listening public,
which wants the convenience of hearing their favorite station
when they might not have access to a radio); or
Face the prospect of having to defend uncertain and
hugely costly copyright infringement litigation if any claims
are made that the statutory license is not available.
The statutory sound recording performance license for streaming
contains nine eligibility conditions. Three of these conditions,
negotiated behind closed doors by the RIAA and DiMA on the eve of House
passage of the DMCA, are so inconsistent with longstanding broadcasting
practices that the parties recognized that they could not be complied
with. Thus, while the statute exempts third-party broadcasters that
retransmit radio broadcasts from these conditions, it requires
broadcasters who want to stream their own programming to comply with
them.\41\ The situation is unfair, unstable, not in the public
interest, and must be changed.
---------------------------------------------------------------------------
\41\ See, e.g.,Sec. 114(d)(2)(C)(i), (ii) and (ix).
---------------------------------------------------------------------------
The specific conditions that cause problems for broadcasters are:
Condition (i), which prohibits the play of sound
recordings that exceed the so-called ``sound recording
performance complement'' during any 3-hour period, of 3
selections from any one album (no more than 2 consecutively), 4
selections by any one artist (no more than 3 consecutively), or
4 selections from a boxed set of albums (no more than 3
consecutively); \42\
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\42\ Sec. 114(d)(2)(C)(i).
Condition (ii), which calls into question the ability
of a disc jockey to announce the songs that will be played in
advance; \43\ and
---------------------------------------------------------------------------
\43\ Sec. 114(d)(2)(C)(ii).
Condition (ix), which requires the transmitting
entity to use a player that displays in textual data the name
of the sound recording, the featured artist and the name of the
source phonorecords as it is being performed.\44\
---------------------------------------------------------------------------
\44\ Sec. 114(d)(2)(C)(ix).
---------------------------------------------------------------------------
1. The Sound Recording Performance Complement Is
Discriminatory and Inconsistent with Broadcasting
Practice.
Radio stations often play blocks of recordings by the same artist
or play entire album sides. These features, such as Breakfast with the
Beatles, or Seven Sides at Seven, are popular among listeners and
remind audiences of great music that is available to buy. Tribute shows
(or entire tribute days) are also common on the death of an artist, an
artist's birthday, or the anniversary of a major event in music. Thus,
many radio stations played numerous George Harrison songs throughout
the day after he died. Radio stations similarly played many Beatles
songs on the fortieth anniversary of their first arrival in New York.
All of these practices would violate the statutory license if the
station were streaming.
Even if a station wanted to change its practices to comply with the
complement, it would be virtually impossible to do so without the
assistance of a computerized music automation system to establish
playlists that comply with the complement. Many smaller stations do not
use such systems.
Again, third-party webcasters retransmitting radio broadcasts are
protected: this requirement does ``not apply in the case of a
retransmission of a broadcast transmission if the retransmission is
made by an entity that does not have right or ability to control the
programming of the broadcast station.'' \45\
---------------------------------------------------------------------------
\45\ Sec. 114(d)(2)(C)(i).
---------------------------------------------------------------------------
2. The Prohibition on Pre-Announcements Is Discriminatory
and Inconsistent with Broadcasting Practice.
Condition (ii) prohibits ``prior announcement'' of ``the specific
sound recordings to be transmitted'' or, even, ``the names of featured
performing artists'' other than ``for illustrative purposes.'' This may
well mean that every time one of our DJs says ``Next up, the latest hit
by Beyonce,'' or even, ``in the next half hour, more Led Zeppelin,''
the DJ is violating the license and putting our station at risk for
being sued for copyright infringement.
These, and the naming of songs to be played in the near future, are
all common broadcasting practices. Ironically, in all of the many years
I have been working in radio, record companies have always encouraged
radio stations to make such announcements, as they help keep the
listener tuned in and waiting to hear the latest and greatest song. To
make saying as much the trigger for copyright infringement is just
ridiculous, but that is the way the law is written today.
Of course, the DiMA-RIAA negotiations on the DMCA took care of non-
broadcaster webcasters. Like the other statutory license conditions
that don't match reality, third party retransmitters received a broad
exemption from this requirement.
3. The Obligation To Provide the Internet Player with a
Simultaneous Display of Title, Artist and Album
Information Is Discriminatory and Beyond the
Capabilities of Radio Stations.
Condition (ix) requires broadcasters to transmit a visual statement
of the title, artist, and album of the current song playing. This
requirement simply does not recognize the realities of the radio
business, which has developed over the years to meet the needs of its
over-the-air business model. For example, the condition requires a
transmitting entity to have a digital automation system to control its
broadcasts and to have title, artist and phonorecord information loaded
into that system. Many stations do use such a system. But many smaller
radio stations, and some of the largest, still run their broadcasts the
old-fashioned way--production staff place a CD manually into the
player, hit the play button, and turn dials to fade out one song and
start the next.
Further, the great majority of recordings played by radio stations
are received directly from the record companies, in the form of advance
promotional singles and albums, or from third party services. Although
these discs often include a phonorecord title, many do not. Moreover,
radio stations often do not load that title into their music
information databases, because it is not relevant to their primary
over-the-air activity. Even many of those that do capture this
information haven't been able to figure out the technology to make the
information appear on the player of the recipient. These stations
should not be disqualified from Internet streaming.
Once again, of course, DiMA and RIAA agreed that the statute should
exempt third party retransmitters of broadcast signals.
______
It makes no sense, and serves no one's interests, to require radio
stations to alter their programming practices, which have served both
them and the record industry well for decades. Nor is it fair or
practical to require broadcasters to incur substantial costs to change
the way they do business in order to stream their broadcasts over the
Internet. This would be worse than the tail wagging the dog, as
Internet streaming today isn't even a hair on the tail, compared to
radio's core business.
There has never been a showing that these three conditions offer
any benefit to anyone. They should be eliminated.
D. Congress Should Provide an Exemption for Reproductions of Sound
Recordings and Underlying Works Used Solely To Facilitate
Licensed or Exempt Performances, and Should Ensure That the
Conditions Applicable to Those Exemptions Are Consistent with
Modern Technology.
Section 112 of the Copyright Act provides the right to make certain
royalty-free temporary copies of musical works and sound recordings
from which transmissions are made and that have no purpose other than
to facilitate licensed or exempt public performances. These provisions
need to be expanded and adapted to accommodate modern realities.
The ephemeral recording exemption of Section 112(a) of the
Copyright Act allows an entity entitled to make a public performance of
a work to make one copy of the material it is performing in order to
facilitate the transmission of that performance, subject to certain
restrictions. This exemption is based in large measure on the premise
that if a transmitting entity had paid for the right to perform the
work, it would be unreasonable (and a form of double dipping) to make
the entity pay a second time for the right to make a copy that had no
other role than facilitating that performance.\46\ The exemption was
created during the 1976 revision of the Copyright Act and was crafted
to reflect the technology of the time, namely, the use of program tapes
by radio and television stations to facilitate their performances.\47\
---------------------------------------------------------------------------
\46\ Likewise, if public policy interests decreed that the
performance should be exempt, there was no rationale for charging a fee
to make a copy used solely to facilitate the exempt performance.
\47\ See H.R. Rep. No. 94-1476, at 101 (1976) (noting that ``the
need for a limited exemption [for ephemeral recordings] because of the
practical exigencies of broadcasting has been generally recognized.'').
---------------------------------------------------------------------------
Of course, program tapes are no longer the staple of broadcasters.
Now, radio stations typically use digital compact discs and digital
music servers to make their performances. However, stations still have
the practical need to make recordings in order to make licensed
performances. In fact, broadcasters may need to create multiple copies
in order to engage in Internet streaming, and the transmission
technology itself may cause additional copies to be made.
The DMCA recognized this practical reality when it created the
statutory license in Section 112(e) for multiple ephemeral recordings
of sound recordings performed under the new sound recording performance
license. However, by creating a statutory license instead of expanding
the Section 112(a) exemption, the law created an artificial opportunity
for record companies to double dip and earn added fees based on the
technology used by the transmitting entity rather than on the economic
value of the sound recording.
The Copyright Office opposed this statutory license in 1998 and has
recently restated its opposition and its belief that an exemption
should be enacted. In the report ordered under Section 104 of the DMCA,
the Copyright Office commented that the Section 112(e) ephemeral
recording license ``can best be viewed as an aberration.'' \48\ The
Office went on to say that it did not ``see any justification for the
imposition of a royalty obligation under a statutory license to make
copies that have no independent economic value and are made solely to
enable another use that is permitted under a separate compulsory
license. . . . Our views have not changed in the interim, and we would
favor repeal of section 112(e) and the adoption of an appropriately-
crafted ephemeral recording exemption.'' Id.
---------------------------------------------------------------------------
\48\ See U.S. Copyright Office, DMCA Section 104 Report at 144
n.434 (Aug. 2001).
---------------------------------------------------------------------------
Further, the DMCA left a significant gap in the law that has
created further risk and uncertainty for all transmitting
organizations, even those paying the double-dip ephemeral recording
royalty to the record companies. The Section 112(e) statutory license
applies to the sound recording, but does not apply to the musical or
other works embodied in those sound recordings. It makes no sense to
differentiate between the sound recording and the underlying work that
is the subject of the recording. Such copies should be exempt for the
same reason that multiple ephemeral recordings of sound recordings made
solely to facilitate a licensed performance should be exempt.\49\
---------------------------------------------------------------------------
\49\ Further, there is no known licensing mechanism available to
license the ephemeral recording of all works embodied in performed
sound recordings.
---------------------------------------------------------------------------
Moreover, three conditions applicable to the existing ephemeral
recording exemption (two of which also apply to the Section 112(e)
statutory license) discriminate against broadcasters and ignore the
realities of today's technology. First, the exemption in Section 112(a)
applies only to copies made to facilitate performances made in the
transmitting organization's ``local service area.'' The legislative
history of the DMCA made clear that, where the Internet was involved,
the ``local service area'' was congruent with the reach of the
Internet.\50\ However, in its December 11, 2000 rulemaking holding
radio subject to the sound recording performance right, the Copyright
Office attempted to support its conclusion by taking the position that
broadcasters, but not Internet-only webcasters, were subject to a
narrower ``local service area'' (their primary broadcasting area) and
that the Section 112(a) exemption was not available when broadcasters
streamed their programs on the Internet.\51\ Unfortunately, in making
these comments, the Copyright Office was focused on sound recordings,
which are subject to the Section 112(e) statutory license; it failed to
consider the impact of its position with respect to musical works,
which are not covered by Section 112(e). If the Office's dictum is
correct, radio stations that stream their broadcasts would face
significant uncertainty and risk with respect to ephemeral recordings
of the musical works they broadcast. Congress could not have intended
this result. Any ephemeral recording exemption should extend beyond
transmissions within a ``local service area.''
---------------------------------------------------------------------------
\50\ See Digital Millennium Copyright Act, H.R. Conf. Rep. No. 105-
796, at 80 (Oct. 8, 1998) (clarifying that Section 114(f)-licensed
``webcasters,'' whose local service area is the Internet, ``are
entitled to the benefits of section 112(a)'').
\51\ See 65 Fed. Reg. at 77,300.
---------------------------------------------------------------------------
Second, the exemption provides that ``no further copies or
phonorecords'' may be made from the exempt or licensed ephemeral
recording. While that limitation worked for program tapes, it does not
work with today's transmission technologies. The Internet operates by
making intermediate copies. Cache and other intermediate copies are
essential to any transmission.\52\ Digital receivers also typically
make partial buffer copies of the works being performed. The ``no
further copies'' condition should be amended so that it does not apply
to copies or phonorecords made solely to facilitate the transmission of
a performance.\53\
---------------------------------------------------------------------------
\52\ See H.R. Rep. No. 105-551, Part 2, at 50-51 (July 22, 1998).
\53\ For the same reason, the law should deal clearly with those
cache and buffer copies, which may or may not qualify within the scope
of the existing Section 112(e) license. The Copyright Office, in its
Section 104 Report, supports this recommendation; after extensive study
of the issue, the Copyright Office recommended ``that Congress enact
legislation amending the Copyright Act to preclude any liability
arising from the assertion of a copyright owner's reproduction right
with respect to temporary buffer copies that are incidental to a
licensed digital transmission of a public performance of a sound
recording and any underlying musical work.'' See DMCA Section 104
Report at 142-43.
---------------------------------------------------------------------------
Third, broadcasters more and more are using digital music servers
to make licensed performances. Music from compact discs may now be
loaded onto computers, from which the performances are transmitted.
These server copies have no use other than to facilitate the
performance. It serves no purpose, and creates a dead-weight economic
loss, to require transmitting organizations to purge these servers
every six months.
The ephemeral recording exemption is designed to ensure that
transmitting entities that are providing performances to the public can
operate efficiently and without uncertainty and risk. These
performances are already fully compensated or have been deemed exempt
from copyright liability. There should be no further payment needed to
make copies used only to facilitate the permitted performance.
E. Congress Should Ensure that Reporting Requirements Do Not Preclude
Broadcasters from Engaging in Simulcast Streaming.
The Copyright Act directs the Copyright Office to ``establish
requirements by which copyright owners may receive reasonable notice of
the use of their sound recordings'' under the statutory license and
``under which records of use shall be kept.'' \54\ The Copyright Office
has construed these provisions to require each and every service
performing sound recordings to provide identification of numerous data
points for each sound recording performed in order to facilitate
distribution of royalty fees, regardless of whether a service receives
such data in the first instance (e.g., from the record company
providing the sound recording for play, or from a third party
syndicators that creates the program) and regardless of whether the
service maintains such data in the ordinary course of its business.\55\
The Office has, on an interim basis, required these reports for two
weeks each calendar quarter. However, the Office has stated that ``it
is highly likely that additional requirements will be set forth after
the Office has determined the effectiveness of these interim rules''
and that its ``ultimate goal is to require comprehensive reporting on
each performance a webcaster makes.'' \56\
---------------------------------------------------------------------------
\54\ Sec. 114(f)(4)(A).
\55\ See 69 Fed. Reg. 11,515, 11,521 (March 11, 2004).
\56\ Id. at 11,518, 11,522.
---------------------------------------------------------------------------
To the Copyright Office's credit, the interim regulation is far
more manageable than its original proposed rule.\57\ That proposed rule
was based on the recording industry's wish-list of census reporting of
a multitude of data points for each and every performance, and would
have eliminated virtually all broadcasters from the Internet. The
industry is assessing the interim regulation, and I am confident that
those who are streaming are doing their best to comply.
---------------------------------------------------------------------------
\57\ 67 Fed. Reg. 5761 (Feb. 7, 2002).
---------------------------------------------------------------------------
Unfortunately, the interim regulation is still inconsistent with
the way many broadcasters--particularly smaller stations--do business.
Thus, it all but assures that such stations will be kept from streaming
their programming on the Internet. Moreover, the threat of added
burdens in the future weighs heavily on the decision to stream or not.
It is important to keep in mind that broadcasters have developed
their internal systems to run their primary over-the-air business, not
an ancillary Internet service that generates very few listeners. Most
of the sound recordings played by radio stations are provided to those
stations by the record companies themselves. Typically, these sound
recordings are provided on special promotional disks, not the retail
album sold to consumers. The precise nature of these promotional
recordings varies. In some cases, they are in slickly produced special
promotional singles. At other times, the recordings are on ``homemade''
CD-Recordables, or ``CD-Rs,'' not unlike the discs consumers would burn
using their home computers, that contain one or more songs and are
identified by nothing more than a handwritten or typed label. Some
stations get their music by direct electronic download into the
broadcast group's servers, or are sent MP3 files. Smaller labels
provide music with even less formality. There is only one constant--the
music provided by the record labels to radio Broadcasters commonly do
not contain all of the information required even by the interim rule,
much less the information that would be required by a ``more
comprehensive'' final rule. For example, record companies routinely
send radio stations songs with only title and artist information.
In addition, almost all radio stations broadcast third-party
content at some point during their broadcast day. These syndicated and
other third-party programs, provided for over-the-air use, are often
accompanied by little, if any, information about the music they
include. Nevertheless, the Copyright Office has concluded that it does
not have ``authority'' in the Act to exempt such programs from any
reporting obligation, despite the fact that the Act required only
``reasonable'' notice and recordkeeping.\58\
---------------------------------------------------------------------------
\58\ 69 Fed. Reg. at 11,521.
---------------------------------------------------------------------------
Further, even those radio stations that have automated their music
scheduling, have done so around the needs of their over-the-air
broadcasts. Thus stations typically have not captured the name of the
record label or the album name in their computers. Others don't rely on
automated scheduling, and it would cost millions of dollars to redesign
systems or to create new systems. Many stations simply cannot justify
such cost for the limited benefits of streaming.
The type of census reporting the Copyright Office says it intends
to require in the future is not necessary in order to permit reasonable
accuracy in royalty payments. Indeed, the large music performing rights
organizations (PROs), ASCAP and BMI use sampling for their
distribution, and require a smaller sample than the Copyright Office
has included in its interim rules--typically one or two weeks per year.
The PROs even shoulder most of the burden of gathering data themselves
by listening to radio stations.
Moreover, the music PROs, as well as standard recording industry
publications, identify recordings by title and artist information
alone. This information, which is consistent with the information
provided by record labels to radio stations when they provide the
records we play, should provide sufficient information to permit
distribution.
Congress should either clarify the law or make clear that the
``reasonable'' reporting obligation it imposed contemplates reasonable
sample periods, permits the exclusion of information a station lacks,
and would be satisfied by the reporting of sound recording title and
artist name.
CONCLUSION
We appreciate the Subcommittee's interest in this matter of great
concern for radio broadcasters. We hope that, as a result of this
hearing, the Subcommittee has the basic background information it needs
to repair the law governing the simulcast Internet streaming of radio
broadcasts.
The webcasting provisions of the DMCA were written with Internet-
only webcasters, not radio broadcasters, in mind. We urge the
Subcommittee to act promptly and decisively to begin the process of
fixing the law in a manner that properly accounts for longstanding
radio programming and business practices and recognizes the ancillary
nature of Internet streaming to radio broadcasters. The NAB stands
ready to work with the Subcommittee to reform the system so that radio
broadcasters will not continue to be kept off the Internet by excessive
fees and unrealistic and overly burdensome statutory license conditions
and reporting requirements.
The current state of affairs harms not only radio broadcasters, but
their listening public, who often are unable to listen to their
favorite stations in places where over-the-air reception is hampered.
It also harms the copyright owners of musical works, who are deprived
of their public performance revenues, and performing artists, who are
deprived of this additional avenue of exposure and promotion for their
music by an industry that for decades has worked hand-in-hand with the
recording industry to create demand for those sound recordings through
the airplay they receive through radio.
Mr. Smith. Mr. Marks.
TESTIMONY OF STEVEN M. MARKS, GENERAL COUNSEL, RECORDING
INDUSTRY ASSOCIATION OF AMERICA, INC.
Mr. Marks. Good morning, Mr. Chairman, Ranking Member
Berman, and Members of the Subcommittee. I am Steven Marks,
General Counsel of the Recording Industry Association of
America; and we appreciate the opportunity to present our views
concerning the balance between the interest of sound recording
creators and users.
I would like to begin by thanking the Subcommittee under
the leadership of Chairman Smith and Ranking Democratic Member
Berman for its commitment to ensuring that sound recording
creators continue to have the incentives necessary to make
music.
Today, we are at a critical juncture in ensuring that those
economic incentives continue to exist. New developments
threaten to undermine key assumptions of legislation designed
to protect the creators of sound recordings. Let me explain.
In the Digital Performance Right and Sound Recordings Act,
and the Digital Millennium Copyright Act, Congress recognized
that America's unique lack of a sound recording performance
right leaves creators of recordings singularly dependent on
sales income. This recognition led to the fundamental premise
of that legislation, that services performing recordings
through new digital technologies should not be allowed to
displace sales.
To that end, the DPRA and DMCA struck a carefully balanced
multifaceted compromise among competing interests. Congress
distinguished among three main categories of services:
First, free local over-the-air broadcasts were exempted
because they were thought not to pose a threat to the
description of recordings;
Second, digital subscription services and webcasters were
granted a statutory license with conditions designed to ensure
that sales would not be displaced;
Finally, interactive services were made subject to full
copyright protection because they were thought most likely to
displace sales.
Now, new recording functionality allows users to cherry-
pick recordings meant only to be performed, vitiating the
assumptions underlying the DPRA and DMCA. For example, software
such as Streamripper and Replay Music enable users to easily
record streaming music from webcasters and its simulcasters,
save it as individual, high-quality MP3 files which are
automatically tagged with the artist and song title. Some even
offer integrated CD burning.
Likewise, as broadcasters switch to digital over-the-air
broadcasting, opportunities for people to take music without
paying for it are inevitable unless the recordings in those
broadcasts are protected. The FCC has tentatively decided to
permit digital broadcasting ``in the clear,'' that is, without
any protection for the copyrighted works being broadcast. If
the FCC sticks with that decision, digital radio receivers will
permit listeners to automatically build CD-quality libraries of
music without ever listening to the broadcast. There will be
little reason for most consumers to buy a download from a
legitimate online service like iTunes or to buy a CD if they
only need to plug in a digital radio receiver to compile a
collection of every popular recording. Indeed, such copying
will replace peer-to-peer services as a source of music for
many who would rather take it than pay for it.
The effects of these kinds of products is to transform the
passive listening experience we know today as radio into the
equivalent of an interactive performance and distribution
service. Such a transformation dramatically changes the nature
of these services, which will become the next platform for
piracy. Such a transformation would also turn the policies of
the DMCA and DPRA on their head. That leaves the question of
how to maintain the balance struck by the DPRA and DMCA.
With respect to digital broadcasting, we are pleased that
the FCC is looking at the issue now. Hopefully, the Commission
will do the right thing and provide adequate protection for
recordings. We also hope that broadcasters will join us in
embracing use of such content-protection features because it is
not in their interest for users to automatically record
selected music and strip out the advertising.
Today, we ask this Subcommittee to support our efforts in
the FCC process to ensure that the FCC's regulation of
broadcasting does not undermine Congress' consistent copyright
policy. For webcasting, we understand that there is technology
available to protect webcast streams from unauthorized and
illegal copying, but webcasters and simulcasters do not employ
that technology.
The statutory license does not require webcasters and
simulcasters to use streaming technologies that effectively
protect recordings from widely available piracy tools. That
should change. And it is also why providing even less content
protection as some are proposing by relaxing the performance
complement or otherwise picking apart the compromises struck in
the DPRA and DMCA is not the way to restore balance to this
legislation.
Instead, we hope this Subcommittee will ensure that
protections put in place in the DPRA and DMCA are meaningful.
The recording industry wants nothing more than to be able to
keep creating the music that Americans enjoy and that make the
broadcasting and webcasting industries viable. The way to keep
the music playing is for Congress to remain true to its
consistent policy of maintaining real balance in copyright
legislation.
Thank you.
Mr. Smith. Thank you, Mr. Marks.
[The prepared statement of Mr. Marks follows:]
Prepared Statement of Steven M. Marks
Good morning. I am Steven Marks, General Counsel to the Recording
Industry Association of America (``RIAA''). I am grateful for the
opportunity to present our views concerning the use of sound recordings
by broadcasters, particularly as they move into the new business of
webcasting and rely upon the statutory licensing provisions of Section
114 of the Copyright Act. The provisions of Section 114 provide
important protection for creators at a time when the economic
incentives necessary for the creation of new musical recordings
increasingly are under assault from new uses that do not incorporate
protections against abuse of copying and redistribution technology. I
would like to begin by thanking the Subcommittee, under the leadership
of Chairman Smith and Ranking Democratic Member Berman, for its
dedication to assuring that the public enjoys access to a steady stream
of new creative works by providing protections in copyright law such as
those contained in Section 114. However, there is a substantial danger
that Congress' efforts in this regard will be undermined by the abuse
of new recording technologies not envisioned when Congress last
addressed this subject. I hope this Subcommittee will consider action
to ensure that the important protections it previously has written into
law are not erased by the current threats faced by creators.
As you probably know, RIAA is the trade group that represents the
U.S. recording industry. Its member record companies create,
manufacture or distribute approximately 90% of all legitimate sound
recordings produced and sold in the United States and comprise the most
vibrant national music industry in the world. This morning I will begin
with some background concerning the provisions of Section 114. I will
then explain why the content protection provisions of Section 114
protect vital interests of RIAA member companies that make it
financially possible for the music industry to keep bringing American
consumers the music they enjoy, and why it may now be necessary to
enhance the protective provisions of Section 114 to ensure that
Americans continue to have access to creative new music.
BACKGROUND
As the Committee knows well, copyright law confers upon creators a
bundle of exclusive rights. These rights are intended to ensure that
creators can receive a fair return from their creative investment and
so are encouraged to create--and able to finance the creation of--new
creative works for the benefit of the American people. These rights
generally include rights of reproduction, adaptation and public
distribution, performance and display. Today's hearing primarily
concerns performance rights. In the case of most kinds of copyrighted
works, performance rights allow creators to be paid for all means by
which works can be rendered, including to a live audience and by
broadcast, satellite, cable, Internet and other transmissions.
However, American copyright law has never afforded to the creators
of sound recordings the performance rights enjoyed by the owners of
copyright in every other kind of work, and by recording artists and
producers in many other countries. This is an historical anomaly. When
Congress comprehensively revised the Copyright Act in 1909, there was
little in the way of a commercial recording industry, and accordingly,
the legislation did not provide any protection for sound recordings.
The first efforts to amend federal copyright law to protect sound
recordings date to the 1920s. However, as the industry matured, and it
increasingly became clear that creators should be compensated for the
use of their recordings, proposals for extending copyright protection
consistently faced opposition from broadcasters and others who
benefited from the uncompensated use of recordings. Thus, it was not
until 1971 that sound recordings received any federal copyright
protection at all, and then it was only half copyright protection--
bereft of any performance right.
In the ensuing years, the Copyright Office twice studied the
absence of a performance right and unequivocally recommended that a
general performance right be extended to sound recordings. Over time,
the absence of a performance right became increasingly problematic in
light of new digital technologies--such as digital cable and on-demand
delivery technologies--that were clearly the wave of the future and
held the potential to replace record sales with uncompensated
performances. Eventually, record companies came to believe that this
risk was so great that they should accept a severely limited
performance right to equip the industry for the future. Under the
leadership of members of this Subcommittee and others in Congress,
input was sought from the Copyright Office and all the affected
industries: record companies, musicians' unions, broadcasters, cable
music services, cable providers, business music services, music
publishers and others. Through those consultations, a complex
compromise was fashioned in the Digital Performance Right in Sound
Recordings Act of 1995 (``DPRA'').
The key elements of that package of compromises are as follows:
Sound recording copyright owners received a
performance right, but it was severely limited: It only
extended to performances by means of digital audio
transmission.\1\ Thus, live performances, analog transmissions,
and audiovisual transmissions were not covered.
---------------------------------------------------------------------------
\1\ 17 U.S.C. Sec. 106(6).
Within the scope of that limited right, there were
numerous exemptions.\2\ Broadcast transmissions, certain
retransmissions of broadcasts, and certain other kinds of
transmissions were all exempted.
---------------------------------------------------------------------------
\2\ 17 U.S.C. Sec. 114(d)(1).
Most non-exempt digital audio transmissions were made
subject to a compulsory license so that users were assured that
they would have the ability to use recorded music at royalty
rates set by the government, so long as they complied with
certain content protection requirements carefully crafted to
prevent licensed transmissions from displacing sales.\3\ Those
requirements include:
---------------------------------------------------------------------------
\3\ 17 U.S.C. Sec. 114(d)(2), (f).
A numerical limitation, called the ``sound
recording performance complement,'' on the number of tracks
from the same album, artist or box set that can be transmitted
within a three hour period.\4\ By preventing transmission of
entire albums or larger numbers of works by an artist, the
complement encourages consumers to buy albums and therefore
diminishes the displacement potential of licensed
transmissions.
---------------------------------------------------------------------------
\4\ 17 U.S.C. Sec. 114(d)(2)(B)(i), (j)(13).
A prohibition on pre-announcement intended to
minimize home recording by withholding the identity of the
recordings to be transmitted.\5\
---------------------------------------------------------------------------
\5\ 17 U.S.C. Sec. 114(d)(2)(B)(ii).
A prohibition on automatic channel switching
intended to prevent evasion of the complement and otherwise
prevent a licensee from complying with channel-specific
requirements while offering a service with all the sales
displacement potential of an interactive service.\6\
---------------------------------------------------------------------------
\6\ 17 U.S.C. Sec. 114(d)(2)(A)(ii).
One important kind of transmission was not made
subject to the compulsory license: an interactive
transmission.\7\ Creators of recordings were permitted to
control interactive digital audio transmissions because they
posed the greatest threat to sales.
---------------------------------------------------------------------------
\7\ 17 U.S.C. Sec. 114(d)(2)(A)(i).
In 1998, Congress clarified that this basic arrangement applies to
Internet webcasting. Congress also refined some of the existing
conditions on the compulsory license, and added new ones, to strengthen
the protection of sound recordings against activities that would
undermine sales.\8\ Of these, perhaps the most important is a
requirement that transmitting entities not cause or induce copying by
users, and if the technology used by a transmitting entity enables the
transmitting entity to limit copying, the transmitting entity uses that
technology to limit copying.\9\
---------------------------------------------------------------------------
\8\ 17 U.S.C. Sec. 114(d)(2)(C).
\9\ 17 U.S.C. Sec. 114(d)(2)(C)(vi).
---------------------------------------------------------------------------
Thus, the current statutory system recognizes a basic tension
between the benefits and risks to the creation and dissemination of
music posed by digital technologies. As the Senate Report to the DPRA
observes:
new digital transmission technologies may permit consumers to
enjoy performances of a broader range of higher-quality
recordings than has ever before been possible. These new
technologies also may lead to new systems for the electronic
distribution of phonorecords with the authorization of the
affected copyright owners. Such systems could increase the
selection of recordings available to consumers, and make it
more convenient for consumers to acquire authorized
phonorecords.
However, in the absence of appropriate copyright protection
in the digital environment, the creation of new sound
recordings and musical works could be discouraged, ultimately
denying the public some of the potential benefits of the new
digital transmission technologies.'' \10\
---------------------------------------------------------------------------
\10\ S. Rep. No. 104-128, at 14 (1995).
The current statutory system carefully balances these concerns by
distinguishing various kinds of digital transmissions, and dealing with
them differently. At one extreme, free, nonsubscription, over-the-air
broadcasts consisting of a mix of entertainment and non-entertainment
and other local public interest activities were not in 1995 thought to
pose much risk to creators, even if digital broadcasting involved a
higher sound quality than analog, because the passive activity of
listening to broadcasts did not appear to pose a threat to distribution
of recordings.\11\ Accordingly, broadcasts were exempted from the new
performance right. At the other extreme, creators were given the
strongest rights with respect to interactive services, because
---------------------------------------------------------------------------
\11\ See Id. at 15.
Of all the new forms of digital transmission services,
interactive services are most likely to have a significant
impact on traditional record sales, and therefore pose the
greatest threat to the livelihoods of those whose income
depends upon revenues derived from traditional record
sales.\12\
---------------------------------------------------------------------------
\12\ Id. at 16.
In between are subscription services and webcasting, which were
thought to pose a risk of substitution, so that compensation to
creators and content protection provisions were clearly warranted, but
were not though to pose so much of a risk that creators should have the
power to withhold their content to make their own decisions about the
degree of risk posed by these services.
CONTENT PROTECTION IS A VITAL PART OF THE DPRA COMPROMISE
The basic architecture of the DPRA described above and the specific
content protection provisions of the DPRA protect the very core
interests of the recording business. The economics of the recording
industry reflect the scope of copyright protection for recordings.
Because the creators of recordings enjoy exclusive rights of
reproduction and distribution, they are paid for selling copies and, to
a much smaller degree, for licensing reproductions and distributions.
Because the creators of recordings have only an extremely limited
performance right, they receive only a tiny portion of their revenues
from licensing performances. That means that sales income is necessary
to finance the creation of new works, and displacement of sales by
uncompensated performances poses a grave threat to the industry's
ability to continue to produce the music Americans enjoy. The
limitations on the scope of the compulsory license and the specific
conditions on the license were included as an integral part of the
package of compromises represented by the DPRA to prevent transmissions
from substituting for sales.
Now would be a terrible time to consider picking apart the DPRA
compromise by weakening its content protection provisions. Anyone who
has read the newspapers in the last several years has heard about the
tremendous pain that piracy--particularly that caused by peer-to-peer
services--has inflicted on the music industry. Sales of recorded music
products have declined some 30% over the past three years. Likewise,
sales of the top selling albums for each of the past three years has
steadily decreased. Because the top selling albums provide the profits
that make possible creation of the vast majority of recordings that do
not achieve commercial success, these twin factors have deprived the
public of creative new music as record companies have been forced to
slash their artist rosters and support for new artists. Moreover, the
revenue loss occasioned by this reduction in sales of CDs affects not
only the record companies themselves, but the rest of the music
industry as well. Lost sales have reduced royalties paid to artists,
songwriters and music publishers, and thousands of Americans have lost
their jobs due to retail store closings. For example, during the first
half of 2003 alone, 600 record stores closed, probably in large part
due to the pressures of piracy.
Weakening the protections provided by the DPRA by giving creators
even less control over the use of their works is to invite more of the
same. By contrast, these protections should be an immaterial limitation
on broadcasters. It bears emphasis that the digital performance right
does not apply at all to the traditional analog broadcast activities of
broadcasters, or to their new digital over-the-air broadcasts. The
provisions of the compulsory license apply to broadcasters only to the
extent they choose to enter the new business of webcasting in search of
new profit opportunities. And even then, limitations such as the
complement were ``intended to encompass certain typical programming
practices such as those used on broadcast radio.'' \13\ In addition,
should a broadcaster wish to make webcasts in excess of the complement
or other limitations on the compulsory license, it is always free to
ask permission. The marketplace works. Broadcasters obtain clearance
for all the other copyrighted material they transmit, and many
webcasters have struck private licensing deals. Nothing in the DPRA
prevents a broadcaster from seeking permission to transmit sound
recordings on whatever basis the broadcaster and copyright owner might
agree.
---------------------------------------------------------------------------
\13\ S. Rep. No. 104-128, at 34 (1995).
---------------------------------------------------------------------------
NEW THREATS WARRANT MORE, NOT LESS, PROTECTION
Today, the vital interests the DPRA was designed to protect, and
Congress' intent that the DPRA ``ensure that performing artists, record
companies and others whose livelihood depends upon effective copyright
protection for sound recordings, will be protected as new technologies
affect the ways in which their creative works are used,'' \14\ are in
real jeopardy from risks not foreseen nine years ago when the DPRA was
negotiated and enacted. At this critical juncture, attention should be
given to more, rather than less, protection of those interests.
---------------------------------------------------------------------------
\14\ Id. at 10.
---------------------------------------------------------------------------
Perhaps the greatest threat the creators of recordings face today
comes from recording devices and software that use the identifying
information or ``metadata'' transmitted in digital radio and by
satellite services, webcasters and others to allow users to selectively
record or disaggregate programs into individual tracks to be listened
to again and again apart from the original transmission program, or to
be redistributed. Within the basic architecture of the DPRA, such
automated recording is a threat because it blurs the distinctions
between broadcasts, noninteractive and interactive services--giving
listeners on-demand access to recordings that have been transmitted and
so giving any kind of transmission the sales displacement potential of
an interactive service.
We already see this phenomenon in the case of webcasting, where
software such as ``Streamripper'' allows users to copy all of the
recordings transmitted on a webcast channel, disaggregate them, save
them to substitute for purchases of legitimate downloads or CDs, and
redistribute them with peer-to-peer software.\15\ Replay Music likewise
enables users easily to record streaming music from webcasters or
subscription services and saves them as individual, high-quality MP3
files that are automatically tagged with the artist and song title. The
program even offers integrated CD burning. Creators have little ability
to prevent webcasters from fueling the use of such software, since the
compulsory license does not require webcasters to use new secure
streaming technologies as and when they become available, but only to
take advantage of the security features of the technologies they do
use.
---------------------------------------------------------------------------
\15\ As Streamripper's own website explains, using Streamripper
``you can now download an entire collection of goa/trance music, an
entire collection of jazz, punk rock, whatever you want.'' http://
streamripper.sourceforge.net/about.php.
---------------------------------------------------------------------------
As broadcasters switch to digital broadcasting, we fear that we are
on the verge of devastation to the industry that will dwarf the harm
wrought by the peer-to-peer piracy problems of the last several years.
Digital broadcasting is a whole new medium dramatically different from
analog broadcasting. The FCC has tentatively permitted digital
broadcasting ``in the clear''--that is, without any protection for the
copyrighted works being broadcast--even though the technical
specifications for the approved transmission technology indicate it
incorporates a sophisticated digital rights management system. Today,
digital radio receivers like The Bug\16\ have storage that permits
features such as pause and rewind. Someday soon, digital receivers will
have built-in hard drives, multi-channel decoding, and electronic
program guide features that will permit users automatically to compile
enormous collections of near CD-quality recordings from digital
broadcasts, and to access whatever specific recordings they want
whenever they want them.
---------------------------------------------------------------------------
\16\ http://www.pure-digital.com/Releases/Release.asp?ID=212.
---------------------------------------------------------------------------
The unrestricted copying, disaggregation and redistribution of
digital transmission programs threatens to turn noninteractive
services, like webcasts and broadcasts, into the equivalent of on-
demand interactive services. This risk is particularly acute because
the music broadcast on radio tends to be the most popular music, which
fuels the economic engine of the recording industry, as well as pre-
release recordings, where copying in the days before a recording is
released in stores could eat substantially into sales. There would be
little reason for most consumers to buy a download from a legitimate
online service like Apple's iTunes store or buy a CD if they only need
plug in a digital radio receiver to compile a collection of every
popular recording. Indeed, such copying threatens to replace peer-to-
peer services as a source of music for those who would rather steal it
than pay for it. Why run the risks and endure the bother of using Kazaa
if one only need plug in a digital radio receiver to obtain
consistently high-qualities copies of every popular recording? This
kind of technology would mark an unprecedented shift in the nature of
broadcasting and home recording, and upset the delicate balance that
Congress and this Subcommittee have tried so hard to maintain over the
years.
We are pleased that the FCC is looking at this issue right now. We
hope that the Commission will do the right thing and require that the
content protection features we understand are in the digital broadcast
technology tentatively approved by the FCC be used to protect the
livelihoods of everyone in the music industry dedicated to providing
new music to American consumers. We also hope that broadcasters will
join us in embracing use of such content protection features, because
it is not in their interest for users to be able to record
automatically selected music they want to listen to and to strip out
the advertising and other broadcast programming. However, digital
broadcasting is only part of the problem, so the action we are
requesting from the FCC can only be part of the solution. We hope this
Subcommittee will consider adding to Section 114 of the Copyright Act
similar content protection requirements for the non-broadcast
transmissions covered by Section 114's compulsory license and will keep
an eye on the proceedings before the FCC to ensure that the Commission
acts with respect to broadcast transmissions in a manner consistent
with federal copyright policy.
Mr. Smith. Mr. Potter.
TESTIMONY OF JONATHAN POTTER, EXECUTIVE DIRECTOR, DIGITAL MEDIA
ASSOCIATION (DiMA)
Mr. Potter. Chairman Smith, Mr. Berman, and Members of the
Subcommittee, thank you for the opportunity to speak today
about whether the sound recording performance right
appropriately balances the interests of creators, broadcasters
and webcasters, and consumers.
My testimony will focus on how the performance right
impacts Internet radio services offered by DiMA member
companies, including Yahoo, AOL, RealNetworks and Microsoft.
DiMA members are pleased that in some respects section 114
is working as planned. By exposing new and diverse music to
enthusiastic audiences and paying many millions of dollars in
royalties, Internet radio has greatly benefited recording
artists, record companies and consumers. Unfortunately, the
potential success of Internet radio is limited by imbalances in
the legal standards for determining performance royalties under
the section 114 license and uncertainties in legislative
license requirements.
Perhaps the most fundamental imbalance is the continuing
exemption of broadcasters from sound recording royalties and
digital programming restrictions. As a result, cable radio,
satellite radio and Internet radio are competitively
disadvantaged as a matter of law.
Even more disturbing is the inequity suffered only by
Internet radio as a result of the new royalty-setting standard
that was enacted in 1998. Rates for most statutory licenses,
including for cable and satellite radio, are set using a long-
established standard in section 801(b) of the Copyright Act.
That equitable standard requires royalties to be reasonable and
fair to both copyright owners and users.
In the 1995 Digital Performance Right in Sound Recordings
Act, Congress and the Justice Department's Antitrust Division
considered the 801(b) reasonableness standard as an essential
safeguard against the collective licensing power of the
recording industry.
In 1998, without extensive consultation with the Antitrust
Division, Congress created a new standard only for Internet
radio, lacking a fairness or reasonableness requirement. In
fact, the new standard effectively compelled the CARP to adopt
above-market rates.
Under the new willing buyer-willing seller standard, the
Librarian of Congress ultimately imposed a royalty rate for
fledgling Internet radio services that was 50 percent higher
than that paid by more established competitors in cable and
satellite radio. This enormous rate disparity is indisputably
unfair and could not have been the result Congress intended.
Recently, Register of Copyrights Marybeth Peters suggested to
the Subcommittee that the standards for cable, satellite and
Internet radio be conformed. DiMA echoes that request.
Experience under the 1998 amendments has revealed a second
significant flaw, the new definition of interactive service.
For good reason, the 1995 act made interactive services
ineligible for the statutory license and defined them as
essentially on-demand music services. The 1995 definition was
clear and there were no disputes regarding whether or not a
service was interactive. In 1998, to address new services
enabled by new technologies, Congress modified the interactive
services definition, but the new standard was significantly
more ambiguous.
As the Copyright Office noted in a proceeding on this very
question, the amended definition of ``interactive service''
requires such an intensive, fact-specific analysis of each
service and its individual features that one cannot be certain
just how much consumer input is permissible before a service
crosses the line. However, the Copyright Office agreed with
DiMA that the new definition of ``interactive'' clearly permits
qualified statutory license services to utilize some amount of
consumer influence when creating programming and play lists.
Despite the Copyright Office decision, the recording
industry has sued for infringement virtually every innovative
company that provided consumers a modicum of influence in
programming. In fact, in one infringement litigation against a
service that sought to invoke and pay royalties under the
statutory license, the recording industry is asserting that any
element of consumer influence in Internet radio programming
makes a service interactive and thus infringing.
The combination of statutory ambiguity with the enormous
potential infringement liability if a service guesses
incorrectly how a court will rule on its eligibility for the
statutory license has chilled innovation, experimentation and
investment in Internet radio which would benefit consumers and
creators.
DiMA strongly urges the Committee to reconsider the 1998
amendment to the definition of ``interactive service,'' and to
either provide legislative clarity or authorize the Copyright
Office to provide regulatory guidance in ways that will not
impose retroactive and inappropriate infringement liability.
These and other issues described in my written testimony
have hindered the development of new, compelling services that
will better enable legitimate royalty-paying online music
services to compete against piracy. DiMA urges the Subcommittee
to consider legislative solutions that help bring the full
benefits of Internet radio to the creative community and to
consumers.
Thank you.
Mr. Smith. Thank you, Mr. Potter.
[The prepared statement of Mr. Potter follows:]
Prepared Statement of Jonathan Potter
Mr. Chairman, Representative Berman, and Members of the
Subcommittee:
Thank you for inviting me to testify today on behalf of the
Internet broadcast music performance services offered by DiMA member
companies, including by AOL, Apple, Live365, Microsoft, MusicMatch,
Napster, RealNetworks, and Yahoo!.
The subject of today's hearing is ``balance'' between the creators
and owners of copyrighted works on the one hand, and broadcasters of
sound recordings of all types--including broadcast radio, cable radio,
satellite radio and Internet radio--on the other hand. DiMA was formed
in 1998 to promote balanced copyright law and fair competition, as
reflected by our two core public policy principles:
1. Creators and copyright owners deserve fair compensation for
uses of their content; and
2. Copyright and commercial law should not discriminate
between classes of media companies based solely upon their
choice of technology to deliver content to consumers.
Since the Internet radio sound recording performance license was
enacted in 1998 as part of the Digital Millennium Copyright Act, DiMA
companies have paid several millions of dollars in royalties to
recording companies and recording artists. In part, these payments
reflect our first core principal, as we support and promote America's
creators and copyright owners. They also evidence widespread consumer
adoption of Internet radio. However, the very fact of and the amount of
these payments serves to underscore how the law discriminates against
Internet media companies based solely on our choice to deliver music to
consumers via the Internet, rather than broadcast, cable or satellite
radio technologies.
Congress' creation of a sound recording right for digital audio
transmissions explicitly exempted broadcast radio transmissions.
Accordingly, Internet radio services are significantly disadvantaged
vis-a-vis their direct competitors in broadcast radio, who are not
required to license or pay royalties for their performances of sound
recordings. In addition, 1998 amendments to the performance right made
it unequivocally favor satellite and cable radio--even when those
services compete directly with Internet radio in the broadband music
marketplace.
Internet radio competes directly against terrestrial radio for a
limited universe of listeners and advertisers, and competes directly
against cable and satellite radio for an even smaller universe of
subscribers and advertisers. Paying higher royalties requires Internet
radio to reduce programming or performance quality, or increase
advertising prices or frequency, in ways that unfairly inhibit Internet
radio's competitive opportunity. With respect to the point of this
hearing, if, as the Subcommittee will hear today, the sound recording
performance right is out of balance with respect to any music
performance service--then it is most out-of-balance with respect to
online media, as only Internet-based services are subjected to royalty
rates set under the ``willing buyer-willing seller'' standard.
Additionally, with respect to Internet radio only, there is a
further imbalance, namely, whether an online music service is
permissibly consumer-influenced within the scope of the Section 114
statutory license or is ``interactive'' and thereby fails to qualify
for the statutory license. The definition of ``interactive'' as amended
by the DMCA created an ambiguity in the law that has spawned two court
cases, has been the subject of an administrative proceeding in which
the Copyright Office declined to set standards or to provide a roadmap
for well-intended royalty-paying compliance, has materially inhibited
innovation, and has even driven DiMA companies into liquidation. Today,
more than five years since these legal proceedings were initiated, we
ask the Subcommittee to end this legal quagmire and fix the definition
of ``interactive'' service so that it reflects Congress' intention to
promote rather than inhibit innovative royalty-paying music performance
and discovery services.
Finally, I will discuss two additional points of imbalance in the
sound recording performance right: (a) the requirement that online
services pay a mechanical royalty for server copies of sound recordings
associated with licensed royalty-generating public performances; and
(b) the sound recording performance complement, which is overly
restrictive and significantly hinders Internet radio's competitiveness.
I. THE PERFORMANCE RIGHTS ACT IS GENERALLY UNBALANCED IN ITS TREATMENT
OF COMPETING NEW MEDIA SERVICES, AS INTERNET RADIO SUFFERS A MARKEDLY
LESS FAVORABLE ROYALTY-SETTING STANDARD.
When the sound recording performance right was enacted it was
expressly imposed only on new digital music services--not on FCC-
licensed broadcasts, which Congress exempted even for digital audio
terrestrial broadcasts. Thus, Internet radio and all digital music
performance services suffer a significant copyright royalty
disadvantage compared to our competitors in broadcast radio. I hope
this imbalance is not permanent, but I appreciate political reality and
the remote possibility--at best--that this Subcommittee will reconsider
the inequity between my powerful friends in traditional terrestrial
radio and their new online competitors as it respects sound recording
copyright royalties.
What is perhaps more surprising and unfair is how the law
advantages cable and satellite radio, even when those entities compete
against us on our own turf--in the broadband marketplace. This cannot
be what Congress intended when it created or amended the performance
right statute, and we are pleased that the Copyright Office has
suggested that the Committee review the issue.
a. Background: Though Imposed Only Upon New Digital Music Services,
the 1995 Act Balanced the Performance Royalty With Reasonable
Protections.
Understanding today's imbalance in royalty-setting standards
requires a brief review of the history of the performance right.
In 1995, when enacting the first sound recording performance right,
the legislative history documents Congress's dual and balanced
intentions: to protect and promote the interests of copyright owners
and recording artists and to promote the development of new
technologies. Congress wished to provide a new right and royalty
(benefiting creators and copyright owners), to promote efficient
collective licensing processes (benefiting licensors and licensees),
and also to incorporate the lessons of decades of antitrust controversy
that had confronted similar collective licensing efforts, most notably
of ASCAP and BMI.
After consulting with the Antitrust Division of the Department of
Justice, Congress incorporated into the Digital Performance Right in
Sound Recordings Act several provisions that sought carefully to
balance the goals of enabling efficient licensing processes and
ensuring that a new recording industry licensing cooperative would not
have unrestrained pricing power. The provisions that furthered these
goals included (a) a statutory license (rather than an exclusive right)
to ensure the availability of blanket licenses to play music over new
digital services; (b) an antitrust exemption to promote efficient
license negotiations; and (c) the availability of a royalty-setting
arbitration, or CARP, as a backstop or safeguard to ensure that above-
market royalties would not be imposed on licensees.
Integral to the safeguard provided by the CARP process were the
standards and factors to be used by the arbitrators to determine the
appropriate rates and terms for the new statutory license. In 1995
Congress applied the traditional standards set forth in the Copyright
Act at 17 U.S.C. Sec. 801(b)(1), that balance the interests of
licensors, licensees, and the public interest:
(1) To make determinations concerning the adjustment of
reasonable copyright royalty rates--[which] shall be calculated
to achieve the following objectives:
(A) To maximize the availability of creative works to the
public;
(B) To afford the copyright owner a fair return for his
creative work and the copyright user a fair income under
existing economic conditions;
(C) To reflect the relative roles of the copyright owner and
the copyright user in the product made available to the public
with respect to relative creative contribution, technological
contribution, capital investment, cost, risk, and contribution
to the opening of new markets for creative expression and media
for their communication;
(D) To minimize any disruptive impact on the structure of the
industries involved and on generally prevailing industry
practices.
This standard was applied in the first CARP under the 1995 Act, and
yielded a royalty rate that applied to the three then-existing cable
and satellite digital music services. Today, this royalty standard
continues to apply to cable and satellite radio services.
b. 1998 Amendments Unraveled the 1995 Balance By Stripping Away the
Act's Original Protections--but Only for the Newest Digital
Music Services: Internet Radio.
In 1998, Congress again considered how to appropriately balance
creative and new media interests, and clarified the applicability of
the sound recording digital performance right to Internet webcasters.
At that time, webcasting was in its embryonic stages and new business
models were just beginning to develop. DiMA companies were appreciative
of Congress' intent and accepting of the new royalty obligation that
would benefit creators, so long as it was competitively fair and set at
a reasonable level so as to permit the continued rapid growth of this
nascent industry.
To ensure the appropriate balance between licensing efficiency and
anticompetitive risk, Congress relied again upon the same three
elements: a statutory license, an antitrust exemption, and a CARP
safeguard. This time, however, at the RIAA's urging and without
consulting with the Department of Justice, Congress adopted a different
standard to be applied by the CARP to determine statutory license rates
and terms:
In establishing rates and terms for transmissions by eligible
nonsubscription services and new subscription services, the
copyright arbitration royalty panel shall establish rates and
terms that most clearly represent the rates and terms that
would have been negotiated in the marketplace between a willing
buyer and a willing seller. In determining such rates and
terms, the copyright arbitration royalty panel shall base its
decision on economic, competitive and programming information
presented by the parties, including--
(i) whether use of the service may substitute for or may
promote the sales of phonorecords or otherwise may interfere
with or may enhance the sound recording copyright owner's other
streams of revenue from its sound recordings; and
(ii) the relative roles of the copyright owner and the
transmitting entity in the copyrighted work and the service
made available to the public with respect to relative creative
contribution, technological contribution, capital investment,
cost, and risk.
In establishing such rates and terms, the copyright arbitration
royalty panel may consider the rates and terms for comparable
types of digital audio transmission services and comparable
circumstances under voluntary license agreements negotiated
under subparagraph (A).
17 U.S.C. Sec. 114(f)(2)(B) (emphasis added). Unfortunately, the
legislative history offers no explanation or any reasons why Congress
adopted this different standard for Internet radio, and little guidance
as to how the standard is to be applied:
The test applicable to establishing rates and terms is what a
willing buyer and willing seller would have arrived at in
marketplace negotiations. In making that determination, the
copyright arbitration royalty panel shall consider economic,
competitive and programming information presented by the
parties including, but not limited to, the factors set forth in
clauses (i) and (ii).
H.R. Rep. No. 105-796, 105th Cong., 2d Sess. at 86.
Given the care that Congress undertook in 1995 to prevent excessive
pricing power by antitrust-exempt licensors (including several written
consultations with the Antitrust Division of the Department of Justice)
and to ensure that the CARP would serve as an appropriate backstop,
Congress surely could not have intended that this new standard be more
susceptible to market power-based pricing by collective licensors.
Unfortunately that is precisely what the arbitrators concluded in the
first CARP under this new standard.
In their decisional Report the arbitrators in the first CARP under
the willing buyer-willing seller standard recount in some detail how
the RIAA adopted a ``take-it-or-leave-it'' licensing approach with a
limited group of impecunious webcasters likely to accept whatever deal
was offered them, in order to create a body of evidence of overpriced
agreements and then argue to the arbitrators that only these executed
agreements should be permitted as evidence of willing buyers and
willing sellers. The arbitrators found that the RIAA ``devoted
extraordinary efforts and incurred substantial transactional costs'' to
negotiate agreements only with ``minor'' webcasters ``that promised
very little actual payment of royalties'' in return--``sacrificial
conduct mak[ing] economic sense only if calculated to set a high
benchmark to be later imposed upon the much larger constellation of
[Internet radio] services.'' Id. at 50-51. Illustrating the strength of
the evidence supporting this conclusion, the arbitrators specifically
found that RIAA's effort to deny this manipulative intent ``lacked
credibility.'' Id. at 50.
More important to this Subcommittee than the RIAA's behavior is
that the strategy ultimately was successful because the arbitrators
concluded that their hands were tied, believing that the willing buyer-
willing seller statutory standard required them to consider only a few
executed agreements, but not the relevant experience of thousands of
services with music licensing royalty rates. The arbitrators,
therefore, ignored compelling evidence that would have led to a far
more reasonable and justifiable rate if they could have considered the
four factors utilized in the traditional CARP standard found in 17
U.S.C. Sec. 801(b), or even if they could have considered ``fair market
value,'' the CARP standard utilized in cable television royalty
proceedings.
This conclusion caused the Panel to adopt rates based on what the
arbitrators conceded were ``above market'' benchmarks obtained as a
result of RIAA's single-seller market power and its ``take-it-or-leave-
it'' licensing approach, and to ignore the most compelling and
analogous evidence in the case--the rates paid by thousands of radio
stations and webcasters to composers, lyricists and publishers to
perform their copyrighted music.
Setting aside whether the arbitrators incorrectly applied the
willing buyer-willing seller standard, DiMA urges the Subcommittee to
consider that the courts most experienced in the consideration of
collective licensing agreements--the ASCAP and BMI rate courts--
consistently have rejected evidentiary use of voluntary agreements
entered into at the inception of an industry, because such agreements
generally reflect extraneous factors such as the desire to avoid or
settle litigation, and rarely evidence fair market value. See, e.g.,
United States v. ASCAP; Application of Showtime/The Movie Channel Inc.,
912 F.2d 563, 579-82 (2d Cir. 1989). These very concerns underlie
provisions in the most recent ASCAP consent decree which preclude
agreements entered into during the first five years of licensing music
users in a new industry as evidence of a reasonable royalty. In support
of this provision the Department of Justice Antitrust Division
explained that ``[new] music users are fragmented, inexperienced, lack
the resources [to litigate over rates] and are willing to acquiesce to
fees requiring payment of a high percentage of their revenue because
they have little if any revenue.'' See United States v. ASCAP, No. 41-
1395 at 13-14 (S.D.N.Y. June 11, 2001). See Memorandum of the United
States in Support of the Joint Motion to Enter Second Amended Final
Judgment, at 35, United States v. ASCAP. Thus, the very type of
agreements that courts and the Department of Justice have rejected as
evidence of fair value were the only agreements that the arbitrators
believed the law allowed them to rely on using the willing buyer-
willing seller standard.
Consequently, by requiring arbitrators to ignore long-established
music performance license rates, by requiring reliance on inherently
unreliable licenses intended by RIAA to yield above-market rates, and
by eliminating the concept of fairness, balance or fair market value
from the rate-setting standard, the willing buyer-willing seller
standard resulted in a royalty rate for the performance of sound
recordings by Internet radio that is:
more than three times higher than the rates
historically paid for public performances of compositions, and
50 percent higher than sound recording performance
royalty rate paid by cable and satellite radio.
There is no principled basis why digital media services should be
favored or disfavored relative to one another merely because they
transmit performances to the consumer using different technologies.
There is also no principled basis why the recording industry utilizes
the traditional four-factor Sec. 801(b) rate-setting standard when it
is a licensee in proceedings to set songwriters' royalties, but
benefits from the more favorable willing buyer-willing seller standard
when it is licensor in the Internet radio context. DiMA respectfully
asks the Subcommittee to rectify these imbalances. We note that
Register of Copyrights Marybeth Peters--in responding to a written
question from Chairman Smith following a 2003 hearing on the issue of
CARP reform--also has suggested that the Subcommittee reconsider the
rate-setting standards that apply to essentially competitive digital
radio services.
a. The Law May Disfavor Internet Radio Even Against Digital Music
Competitors That Compete Directly in the Broadband Marketplace.
Recently DiMA has learned that Music Choice, a cable radio provider
that is defined as a ``pre-existing service'' under Section 114, and
therefore has its royalties set pursuant to the traditional 801(b)
standard rather than the willing buyer-willing seller standard, is
competing directly against DiMA companies and broadcasters in the
broadband radio marketplace, but Music Choice is not paying royalties
equivalent to those paid by online radio or broadcaster simulcasters.
Music Choice is utilizing the broadband connections of its cable
partners such as Comcast to essentially webcast its traditional cable
music channels plus additional new channels to cable broadband
subscribers. This may be a brilliant idea that earns Music Choice and
its cable partners lots of money. But it highlights the unprincipled
foundation of a performance rights law that enables two companies to
provide competing subscription broadband music services, but requires
them to pay different royalty rates to creators and copyright owners.
This law is unbalanced with regard to the competing services, and also
is unbalanced with regard to copyright owners and performing artists.
The Music Choice example (or loophole if Music Choice's legal
position is correct) highlights DiMA's core policy principle--that
copyright law should be technologically neutral so that all competing
media services pay the same royalty rates and compete on a level
playing field--and highlights the prejudice and disparities that result
when the law does not follow that basic principle.
III. CONTRARY TO CONGRESS'S INTENT, THE 1998 AMENDMENT TO THE
``INTERACTIVE'' SERVICES DEFINITION HAS PROMOTED LITIGATION RATHER THAN
INNOVATION.
Congress enacted the DMCA statutory Internet radio license to
promote the growth of Internet radio as an innovative, competitive
medium. Whether a particular Internet radio service qualifies for the
statutory license is dependent on several statutory factors, most
notably that it:
complies with programming restrictions, e.g., that
limits the number of songs of a single artist or album that can
be played in a 3-hour period, and
is not ``interactive'' as defined in the statute.
The ``interactive'' service exclusion was first included in the1995
Act, to ensure that statutory performance licenses were not available
to ``on-demand'' music services that threatened to directly displace
sales of pre-recorded music. The DPRSRA defined an ``interactive''
service as ``one that enables a member of the public to receive, on
request, a transmission of a particular sound recording chosen by or on
behalf of the recipient.'' This definition was clear, and there was
never any question whether a service qualified or did not qualify for
the statutory license on the basis of whether it was or was not
interactive. In the statute Congress even confirmed that a consumer's
ability to request a song was not enough to make a service interactive,
inasmuch as broadcast radio and other media regularly perform consumer
requests.
In 1998 Congress amended this clear, bright-line definition of
``interactive'' service. Unfortunately, the revised standard makes it
much less certain whether a service qualifies for the statutory
license. The amended law defines an ``interactive service'' as
one that enables a member of the public to receive a
transmission of a program specially created for the recipient,
or on request, a transmission of a particular sound recording,
whether or not as part of a program, which is selected by or on
behalf of the recipient.
As in the original definition, the 1998 definition continues with a
safe harbor: ``The ability of individuals to request that particular
sound recordings be performed . . . does not make a service
interactive, if the programming on each channel of the service does not
substantially consist of sound recordings that are performed within 1
hour of the request or at a time designated . . . by the individual
making the request.''
Relying on this safe harbor and their interpretation of the
``interactive'' restrictions, several DiMA companies developed Internet
radio services in 1999 and 2000 that permitted varying levels of
consumer influence. ``Consumer influence'' features included the
ability to rate songs, artists and albums, and to request that specific
songs or artists' recordings be performed (but not at a specific time
or in any specific order). Recording companies complained that these
services did not qualify for the DMCA license and threatened to sue. In
an effort to clarify the situation DiMA petitioned the U.S. Copyright
Office for regulations interpreting the definition. The Copyright
Office declined to propose regulations, or to specify specific features
that individually or in combination would disqualify programming from
the DMCA license. The Copyright Office did, however, affirm
unequivocally that services can incorporate consumer influence in their
programming without making the service interactive.
In May, 2001, several recording companies filed a copyright
infringement suit against Launch Media (now Yahoo!), contending that
the service's consumer-influence features disqualified it from the
statutory license. In a second effort to resolve the issue without
rancor, DiMA filed a declaratory judgment action on behalf of the
Internet radio industry, but that court declined to hear the action and
referred it instead to the court hearing the pre-existing infringement
lawsuit.
In a follow-on action the recording industry also sued several
additional DiMA companies, seeking again to disqualify consumer-
influenced radio from the statutory Internet radio license. Some DiMA
companies settled by agreeing to pay extraordinarily high royalties and
maintain some consumer influence features; others agreed to eliminate
all consumer influence features; and others went out of business.
As the Register of Copyrights determined, Congress clearly
expressed its intent that some amount of consumer influence be a part
of basic Internet radio and compliant with the statutory license. The
recording industry, through its licensing behavior and public
statements has agreed. However, through its litigation and conflicting
public statements, the recording industry has also proffered more
restrictive interpretations of the definition of ``interactive'' and
intentionally fostered an uncertain, litigious environment.
For example, the RIAA has entered into statutory licenses with
services that offer programs based upon listener preferences and with
services that allow users to skip songs and pause songs, but has sued
other services offering similar functionality. In fact, strikingly, in
the litigation that continues today, the last remaining recording
industry plaintiff has asserted that non-interactive webcasts are not
permitted to allow any level of individual consumer influence over a
program. This assertion clearly conflicts with the RIAA's own licensing
practices and the Copyright Office decision, and suggests that to be
non-interactive a service must replicate the experience of broadcast
radio. This would be an absurd result, as it would prohibit webcasters
who already operate under significantly more restrictions than
broadcast radio to utilize any functionality of the digital medium,
absent direct licenses from the recording labels that would cause even
greater anticompetitive impact than does the statutory license.
DiMA believes that the recording industry is taking unfair
advantage of the unfortunate uncertainty that was created by the 1998
amendments to the definition of ``interactive service,'' in pursuit of
grossly higher royalties for Internet radio services' use of any
consumer influence features, notwithstanding clear Congressional intent
and the Register of Copyrights' decision to the contrary. Moreover, the
higher royalties for so-called ``interactive'' services (or for
services that do not have million-dollar litigation budgets) will not
have to be divided evenly with recording artists as they will fall
outside of the statutory license.
As DiMA has testified in other contexts, in a strict liability
environment with high statutory damages, uncertainty chills innovation
and can destroy the entrepreneurial spirit. We urge the Subcommittee to
clarify the definition of Internet radio interactivity, or to revise
the statute to delegate regulatory authority to the Copyright Office so
that it periodically can re-define ``interactivity'' in light of newly
developing services and market conditions. DiMA companies want to focus
our energy on developing exciting royalty-paying products and services
that combat piracy, rather than on lawyers and litigation.
1.
Although Broadcasters Have a Copyright Exemption to Utilize
``Ephemeral'' Reproductions of Compositions In Support of Broadcast
Performances, Webcasters Do Not Have An Analogous Exemption for
``Ephemeral'' Reproductions of Sound Recordings And Are Required to Pay
Significant Royalties for Such Copies.
As the U.S. Copyright Office pointed out in its August 2001 Section
104 Report to Congress, there is an imbalance between the
legal and financial treatment of so-called ephemeral copies
of compositions in the broadcast radio context, and similar
copies of sound recordings in the Internet radio context.
This imbalance in favor of sound recording copyright owners
disadvantages Internet radio services, as well as broadcast
radio simulcasters.
Since 1976 broadcast radio has had a statutory exemption, and thus
royalty-free authority, to make reproductions of
copyrighted compositions so long as the reproductions
remain within their possession and are used solely to
facilitate licensed royalty-generating performances of the
same music. Internet radio services also require the same
ephemeral recordings to enable their webcasts; but whereas
a typical radio station requires only one copy to transmit
over the air, webcasters need copies in different formats
in order to let consumers listen using different software
players (such as RealPlayer or Windows Media Player) and at
different bandwidth speeds (for dial-up and broadband
access). Although each one of the webcasters' ephemeral
recordings functions exactly the same way as the copies
exempted for radio broadcasters, recording companies
persuaded Congress to provide it with a statutory license
for the same ephemeral recording for which terrestrial
radio stations are exempt. The CARP and Librarian of
Congress awarded the recording industry nearly a 9 percent
bonus on top of the performance royalty for the making of
these ephemerals.
In the Section 104 Report, the U.S. Copyright Office noted this
imbalance between the exemption that is provided
broadcasters for composition ephemerals but that is not
provided to broadcasters or webcasters for sound recording
ephemerals. The Copyright Office said that the compulsory
license for sound recording ephemerals, found in section
112(e) of the Copyright Act, ``can best be viewed as an
aberration'' and that there is not ``any justification for
the imposition of a royalty obligation under a statutory
license to make copies that have no independent economic
value and are made solely to enable another use that is
permitted under a separate compulsory license.'' Section
104 Report, p. 144, fn. 434. The Copyright Office urged
repeal of section 112(e); DiMA agrees.
2.
The Section 114 Programming Restrictions are Overly Rigid, and
Prevent Internet Radio from Engaging in Traditional Broadcast-Style
Practices That Do Not Undermine the Recording Industry's Interests.
Another disparity between the rights of broadcasters versus the
restrictions imposed upon webcasters is created by the
programming controls imposed by Section 114, namely, the
prohibitions against advance announcements and the sound
recording performance complement. See 17 U.S.C.
Sec. 114(d)(2)(c)(i) and (ii). While intended by Congress
to limit the digital public performance license to radio-
like activities, in reality these provisions prevent
Internet radio from engaging in many of the most common
practices of radio broadcasters that have proved, over
decades of experience, to promote rather than harm the
interests of the record labels and performing artists.
For example, radio stations typically announce specific songs that
are going to be performed either next or at an unspecified
time in the near future, as an inducement to keep listeners
tuned to their stations; Internet webcasters cannot. Or,
when a famous artist such as Ray Charles passes away, radio
stations have complete latitude to pay tribute by playing
extended blocks of the artist's work; the sound recording
performance complement limits the ability of Internet radio
to honor the artist to no more than two songs
consecutively, and four songs total over a three-hour
period. There is no evidence, however, that the
broadcasters' practices have harmed the record industry, or
that webcasters' adoption of these practices would be
harmful. Given the clear promotional benefits of webcasting
to the recording industry and performing artists, there is
no reason why webcasting should not also be permitted this
additional programming latitude to better attract and
maintain its audience against broadcast competition.
These restrictions, if they ever served a meaningful purpose, became
even more anachronistic in the age of personal computers as
media centers. Any consumer can use the same personal
computer to listen to webcasting or, by merely installing a
PC card with an FM tuner (or, soon, a digital radio tuner),
to broadcast radio. Soon it will not even be necessary to
use a PC card, since software-based radio tuners are being
developed and tested.
Under current law, nothing restricts that PC from digitally recording
broadcasts on a hard drive either temporarily or
permanently. And nothing prevents PCs from redistributing
those recordings over the Internet utilizing peer-to-peer
software. Yet, even though the very same PC can be used to
either listen to the radio or to webcasting, only
webcasting has unfairly been saddled with programming
restrictions. Indeed, webcasters even have additional
obligations under Section 114 that broadcasters do not
have, such as to identify all songs they perform, to
utilize available technological means in their transmission
technologies to prevent direct recording of the webcast
signal, and to prevent automatic scanning and switching of
channels to find particular songs.
The Section 114 programming-based restrictions cannot be justified,
particularly in light of the introduction of digital FM
radio and technological convergence. If Congress perceives
no danger from what consumers can do with broadcast radio
on a PC, then there is similarly no danger with respect to
webcasting. Therefore, the sound recording performance
complement and the restrictions on advance announcing
should either be eliminated or substantially relaxed, as a
matter of fairness, logic and parity.
3.
CARP Reform Legislation Accomplishes Much, But Additional Change
is Needed to Ensure Balance in Sound Recording Performance Rights
In recent years this Subcommittee has responded several times to
promote the business and legal environment of legitimate
online music services. The sound recording performance
right amendments provided a needed measure of stability to
our industry in 1998, and the Small Webcasters Settlement
Act was a lifesaver for many small webcasters.
Additionally, DiMA is most appreciative of the Subcommittee's efforts
and accomplishments with regard to H.R. 1417, and we are
hopeful that the Senate will soon approve this bill and
that it will be signed into law by the President. However,
as Chairman Smith and Ranking Member Berman stated clearly
as that legislation was being considered, H.R. 1417 only
corrects procedural flaws in the CARP system, and not the
substantive flaws that are equally important.
DiMA's goal with regard to the sound recording performance right is
the same goal we have urged before--that the law balance
the interests of copyright owners, creators and users, and
that all media companies be treated alike regardless of
whose business was created first or what technology a
service chooses to utilize.
DiMA hopes the Subcommittee will recognize that consumers and
creators should be indifferent, to the technological means
by which their music or other entertainment programming is
delivered, so long as the content is of a high quality, is
reasonably priced, is secure against piracy, and is
accounted for and reasonable compensation is paid. Rather
than focusing on fiber versus satellite versus copper wire
versus coaxial cable, the law should ensure fair payment
based on the value of the work and the use--and then the
law will be well-balanced.
Thank you for the opportunity to testify today.
Mr. Smith. First, it seems to me that under the umbrella of
the general subject of our hearing today are half a dozen
substantive issues. I don't know if we are going to be able to
address them all. It is rare that we would have so many issues
that come up, and it will probably be the future, probably next
year before we get to all of them, but at some point they do
need to be addressed.
Mr. Carson, in your testimony you implied a fairly bleak
future for performing artists. You did not use of the word that
is of interest to a lot of us, and that is ``piracy,'' but I
think that is what you meant in some cases.
How great a threat do you think that is to performing
artists?
Mr. Carson. Piracy is a very great threat to performing
artists, depending on how you define ``piracy,'' of course. But
just look at what is happening with peer-to-peer services right
now. They pose a major threat to recording artists and record
companies.
Beyond that, talking about other kinds of conduct that are
possible now or will be possible in the future, given the roll-
out of new technologies which do all sorts of wonderful things
for the consumer, but they may not be so wonderful for the
recording artist or record company trying to make a living off
the recordings.
Mr. Smith. Mr. Halyburton and Mr. Potter, do you agree with
what Mr. Carson said; and if you agree that there is a real
threat, who should be most responsible for preventing the
misuse that Mr. Carson talks about?
Mr. Potter. Mr. Chairman, that is a good question. The
business of many DiMA companies is the distribution of sound
recordings by sale, by subscription, by performance. So DiMA is
wholeheartedly aligned with the RIAA, with performers against
piracy.
We are very sympathetic to these technological concerns,
and as Mr. Marks has referred to, there are content protection
standards in the DMCA today, standards that we agreed to when
the DMCA amendments were developed.
Mr. Halyburton. In terms of broadcasting, we believe that
broadcast and even high definition broadcast do not represent a
threat. Our content is not presented in a way that makes it
kind of suitable content for the kind of process that is being
talked about. The music is played tightly together, the disk
jockeys talk over the fronts of the recordings and the backs of
the records. There are musical drop-ins.
It is not for radio stations just a back-to-back music
situation like it is on the Internet for webcasters. It is
really an entirely different kind of content and product.
Mr. Smith. What are the odds, Mr. Halyburton and Mr. Marks,
of you all, that is NAB and RIAA, reaching some kind of
consensus on the subject of content protection?
Mr. Marks. We have had preliminary discussions with the
National Association of Broadcasters and look forward to
further discussions to work cooperatively and to coordinate on
finding a resolution to this problem.
We would welcome further participation from Mr.
Halyburton's company and other broadcasters to sit down with us
and figure out the resolution here in a way that does not hold
up HD radio. That is not our goal. We are excited by the
opportunities that are presented by digital radio and do not
want to interfere with the roll-out of that to consumers.
Mr. Smith. Mr. Halyburton, do you agree with that?
Mr. Halyburton. I agree with that. It is important that we
not impair the roll-out of HD. We too face a lot of new
technologies and new services, and we need to move aggressively
into that area.
Mr. Smith. Another question for you, Mr. Halyburton, and
this is contracts with the performing rights organizations like
ASCAP and BMI that already require broadcasters to report the
songs they play. Given that, why do you consider it to be more
difficult to report this type of information in order to
qualify for the benefits under the 114 and 112 licenses?
Mr. Halyburton. I believe if we stay somewhere near where
we are now with the interim regulations, where we are talking
about title, artist and the name of an album, those are the
kinds of fields of information that are readily available to us
and could be reported. Just in the interim regulations, we
would be reporting a far greater number of times and a far
greater amount of information to the RIAA as a result of that.
So we believe these interim regulations are, for the most part,
workable.
What we really worry about is if we go beyond that and
increase the frequency or the amount of fields, it will be very
difficult to keep up with that.
Mr. Smith. Mr. Potter, what is DiMA's response to the
Copyright Office and also to NAB's suggestion that ephemeral
copies have no independent economic value and ought not to be
subject to a separate royalty payment?
Mr. Potter. DiMA believes that the full value of our
activities in the Internet radio space is found in the actual
performance and that the performance royalty should cover
essentially what we are doing.
DiMA also believes that the law should be technologically
neutral and where broadcasters and their over-the-air
activities have an exemption from ephemeral copies, there is a
reason for it, and we should have equal exemptions for
ephemeral copies vis-a-vis music publishing royalties, and we
should also have equal exemptions or equal obligations with
regard to sound recording royalties.
Mr. Smith. Thank you.
Without objection, I am going to yield myself one more
minute since we will only have one round of questions.
This question is in an effort to run some interference for
Mr. Boucher. If you all could very briefly respond to the point
he made which is, we ought to treat regular broadcast and the
streaming as virtually the same when it comes to royalties.
Mr. Carson.
Mr. Carson. We agree. Broadcasters should pay just like
webcasters should.
Mr. Halyburton. We believe local broadcasters should be
exempt in their local area from any fees. It is the same. It is
over the air, it is over the Internet. It is really the same
service.
Mr. Marks. We believe they should be treated the same.
It is worth noting that the United States is the only
country with sophisticated copyright laws that grant such as
exemption, and that exemption is all the more extraordinary
when you look at the facts in the marketplace today, where our
industry is being devastated by piracy and is in need of more
revenue streams, not less.
Mr. Smith. Okay.
Mr. Potter.
Mr. Potter. Mr. Chairman, if this is the only round of
questioning, I should thank you for your scheduling indulgence.
Particularly on behalf of my bride, who appreciated it at least
as much as I did.
In response to your substantive question, I think there are
two parts here. At least with regard to digital radio, Internet
radio, cable radio and satellite radio, it seems unfair we are
paying 50 percent higher royalties than satellite radio and
cable radio.
With regard to broadcast radio, we have a standing
principle that all technologies, all media, should be treated
the same. That is obviously a harder political effort, and we
welcome that discussion; but at least in the interim, we would
prefer, those of us in the digital space, to be treated the
same.
Mr. Smith. The gentleman from California, Mr. Berman, is
recognized for his questions.
Mr. Berman. Thank you, Mr. Chairman.
It is good to know at least three of the four witnesses
agree with Mr. Boucher that there should be a performance right
for all kinds of broadcasting and streaming.
Section 114 has language--and this is really for Mr.
Marks--has language about accommodating and not interfering
with digital rights management. Has that language aided in
protecting piracy or the technical measures being utilized; and
if not, why not?
Mr. Marks. In addition to that statutory license condition,
there is another statutory license condition, as well, that
requires webcasters to implement protection measures in
technologies that they are using. At the time that the
legislation was passed, we thought that adequately addressed
the content protection needs we had.
As it has turned out, the content protection within the
streaming technologies that are being used by webcasters and
simulcasters are not effective against the literally hundreds
of stream-ripping technologies that exist. Therefore, we
believe giving some teeth to those conditions so that effective
technologies are required to be used by webcasters and
simulcasters should be considered by Congress.
Mr. Berman. Given your answer, then, I would like to throw
out sort of just at least a hypothetical grand bargain, which
is the sound recording complement, from what you said, really
is not--none of these provisions are achieving the goal of
preventing piracy; and it is a problem for the licensees, such
as the broadcasters and webcasters. You are complaining of
different aspects of things you have to do which are not
achieving the goal that the recording companies and the
recording artists wanted to achieve.
So would it be a fair trade-off to remove the sound
recording complement requirements and, at the same time,
strengthen the requirements of copy protection and perhaps
shift that cost to the webcasters? In that situation, the DMCA
would be able to be a backstop for one who is attempting to
circumvent the anticopying technology; the copy protection
would aid in the interoperability of the standards when
accounting for different media players, like Microsoft or Real
Networks, and would possibly prevent a future problem with the
copying from HD radio. I would be interested in the panel's
reaction to that kind of a trade-off.
Mr. Carson. It is certainly worth thinking about. One part
which I would need to give more thought to is the part that
would shift the cost of that to the webcasters and
broadcasters. I am not sure who should be bearing that cost.
One could argue that record companies need to be thinking
about that protection, not just on the Internet, so maybe it is
a cost they are already going to bear. But I would agree that
the current provisions in section 114 with respect to
technological protection are pretty weak. There is a lot to be
said for doing something to strengthen those, and if the trade-
off is you strengthen those and you get rid of the complement,
we would want to hear what the interested parties have to say,
but it is well worth thinking about.
Mr. Potter. Let me start by saying that we have never been
approached by the recording industry to discuss strengthening
these technological protection measures, either as a matter of
negotiation or as a matter of law, so this is a new subject.
We clearly discussed it in 1998 leading up to the DMCA
legislation, and we were all fairly comfortable that there were
specific copy and no-copy possibility flags or bits in
streaming technologies that our companies were certainly
interested in using. DiMA companies are not interested in
creating radio programming that people can copy and
redistribute.
As for a compromise or the grand trade-off, I think we are
always interested in discussions that will inhibit piracy, and
we are always interested in freeing up some regulatory
restrictions. We might prefer to trade off willing buyer-
willing seller for technological protection measures, but if
there is going to be a grand negotiation, we are looking
forward to working with the Subcommittee and the stakeholders.
Mr. Berman. Let me ask one additional question. The
broadcasters and DiMA both say it is unfair to pay a separate
license fee under section 112 when you need to make the
multiple ephemeral copies to operate under the section 114
license and you claim there is no independent economic value.
Would it therefore makes sense to have that determination
made in the course of establishing the 114 webcasting rate? In
other words, do away with that provision of section 112, but
allow a 114 CARP to adjust the rate if, and only if they find
there is a value in certain aspects of making more copies to
facilitate webcasting?
Mr. Halyburton. Our big problem with the CARP and the whole
process of it is the willing buyer-willing seller does not
work, and then the sheer cost for both sides of litigating that
and going through the process. It ends up, we end up paying
more in legal fees than we would have paid in royalties. While
we do not like the fees that we operate under today, and yes,
they were negotiated, we did not have much choice because a
CARP would be a far worse process.
The CARP process is clearly flawed. This Committee has
taken steps to try to work on that, and there is more that
needs to be done.
Mr. Berman. But what about--I understand your answer,
although it did not focus on the specific issue. Wherein
ephemeral copies have no real inherent value, I think DiMA
makes not a bad case, why are we paying that? If that is the
test, why not fold that into the 114 process, whether through
negotiations or the CARP, too, I guess.
And let me ask, Mr. Potter, your reaction.
Mr. Potter. As a matter of practice, Mr. Berman, if we
review the transcripts of that CARP, it was one king of a CARP,
we would find that very, very little attention was actually
paid to the 112(e) royalty and the value of those ephemeral
copies. All of the testimony and all of the witnesses focused
on the value of the performance.
[11 a.m.]
Mr. Potter. It was only in the very late stages that people
threw a few quick arguments into the proceedings because they
realized that the CARP would have to make a separate decision
about whether the 112 ephemerals had any value. As a matter of
practice, I think the CARP almost went there and then realized
they had to make a decision, so they essentially threw in a 10
percent kicker.
We are not uncomfortable with saying the performance
royalty should compensate for all uses of the sound recording
associated with that performance, and essentially that glosses
over the issue, but including all the reproductions of the
sound recording, all the cache copies, all the network copies,
all the formats. Ultimately, we think there's a fair argument
that the value is in the performance, and whatever is
associated with that, we are happy to pay our fair share.
Mr. Berman. I am told that in certain situations, to get it
faster and better, you need more ephemeral copies than in other
situations. Some ephemeral copies are just a requirement to
actually do the act, but others actually enhance the value.
Mr. Potter. You're right, but they enhance the value of the
performance, and therefore, if the value of the performance--if
the consumer receives a higher-quality performance because more
ephemerals are out there in the network, then the value is
still in the performance, and the advertising dollars or the
subscription fees are associated with the performance. So you
might be correct that if there are more ephemerals cached out
in the network, you will get a higher-valued performance.
For the arbitrators to sit there and say, oh, my goodness
there is an Intel server farm over here, and there is a Qwest
server farm over there, and there's cache copies flying around,
and how much are they worth is a very hard thing. It is much
easier to say, how much is the performance being valued at,
what are the advertising rates, what are the subscription
rates, and it is a much more tangible economic argument. So I
think we would agree with you generally.
Mr. Marks. Can I give a brief answer on that? I think some
of this is a little bit of semantics. The question is whether
there is an independent economic value, whether you roll that
into a performance royalty or you have a separate statutory
license is really a different question. And as a practical
matter, the arbitrators for the performance did address at the
same time the ephemeral issue and found there should be an
additional fee. And in the negotiations that we had in the
marketplace last year, there was one fee--those two fees were
rolled into one for purposes of the fee that exists today.
But there is a misperception, I think here, that there is
no economic value. In truth, there are a variety of reasons why
there is economic value for those additional copies. Mr. Berman
touched on one of them, making additional copies that could be
on a distributed network architecture so that the reliability
of streams and the user experience is better, therefore
enabling a particular Webcaster to attract more listeners. Same
thing for making available different formats to give the
consumers choice so that one Webcaster versus another would be
attracting more listeners to its site. All of those are
examples of things that may lead somebody to make additional
ephemeral copies and, therefore, would be evidence of
independent, economic value.
Mr. Smith. Mr. Halyburton, you would like to respond to Mr.
Berman's question?
Mr. Halyburton. Broadcasters, we just need one copy. We
need it for our on-the-air performance, and it happens to be
the same on-the-air performance that ends up on the Internet.
Mr. Smith. The gentleman from Virginia Mr. Boucher.
Mr. Boucher. Thank you very much, Mr. Chairman, and I also
want to thank you for using some of your time to inquire into
one of the issues I raised. I appreciate very much your doing
that, and I think you have exhausted that particular point
thoroughly, so I will move on to other matters.
Let me at the outset just inject a bit of a note of caution
about the idea of applying a broadcast flag to digital--
terrestrial radio. I wouldn't want Members of the Committee to
make the underlying assumption that this is going to be
accepted without debate or controversy, and that the only
question is what do we trade it for, because I think this is
going to be extraordinarily controversial in and of itself. And
it implicates not only broadcasters and the RIAA, but it also
implicates the manufacturers of equipment and ultimately
consumers of broadcast radio services.
And so the debate, if this proposal is put forward in a
serious way, I think will be extensive, and it will not be
something that is easily resolved in and of itself, and I
wanted to note that at the outset.
Mr. Carson, I have a couple of questions for you. Fairness
and reasonableness is the standard that guides royalty rate-
setting with respect to the delivery of recorded music over
satellites, over cable, and even when the recording industry is
a licensee under the mechanical performance--the mechanical
royalty. But the willing body, willing seller standard governs
rate-setting under Webcasting, and experience has shown us that
that produces a higher rate. So there is a, in my view,
discriminatory treatment with regard to the Internet as
compared to these other means of delivering the same service.
When Mrs. Peters, the director of your office, testified
before this Subcommittee in a previous hearing, Chairman Smith
asked her if she thought that there should be harmonization of
the standard for rate-setting across these various mediums
given the fact that essentially the same service is delivered,
and the only thing that differs is the platform upon which the
service is delivered. And her answer to that question was yes,
that she believed that the same standard should apply. Now, I
don't think she went so far as to say what that standard should
be.
My question to you is this: Does the copyright office stand
by that position today? Do you believe that we should have the
same rate-setting standard with respect to all of the platforms
over which recorded music is delivered for these purposes? And
if you do stand by that recommendation, would you urge the
Subcommittee to take action to harmonize that standard?
Mr. Carson. You didn't get to the hard question.
Mr. Boucher. I am going to get to it in a moment.
Mr. Carson. The answer to that two-part question is yes.
Mr. Boucher. Now let me get to the hard one. You have seen
these two standard operations in operation. The fairness and
reasonableness standard has, in my view, withstood the test of
time. It is even enjoyed, as I indicated, by the recording
industry itself when it is in the position of being a licensee
and is paying royalties to songwriters and music publishers.
But the recording industry is in a very different position when
it is a recipient of royalties, and in that instance enjoys,
from its perspective, a far more favorable willing buyer,
willing seller standard. The way I'm posing the question, you
might guess what my answer to it is, but I would like to hear
yours. Which standard should we adopt once we go to parity and
uniformity?
Mr. Carson. I don't think the office has come to an
official position on that, but we are aware of the issue. I
spoke to the Register about it yesterday, and probably the best
way to state it is that it would be the present inclination of
the office to support a fair market value standard, which is
probably a lot closer to and, frankly, probably tantamount to a
willing buyer and willing seller standard. And the reason for
that is simply that compulsory licenses are exceptions to the
normal rule of exclusive rights, and the reason you have
compulsory licenses is generally----
Mr. Boucher. My time is limited, but I have an important
question about that. How do you establish a fair market value?
You are sort of endorsing by implication the willing buyer,
willing seller test when the market itself is broken, when you
really only have one seller, and that seller of the product has
an antitrust exemption given by this Committee so it can
collectively sell its product on the market. There is no
competition in the offering of this service. You wind up with a
take-it-or-leave-it proposition. Why in the face of that market
structure which is inherently nonmarket-oriented would you
suggest that willing buyer, willing seller or fair market value
should prevail?
Mr. Carson. Well, to say that fair market value is the
standard is not necessarily to say that in order to determine
what the fair market value is, you look to a particular
agreement that might have been arrived at under those
circumstances.
Mr. Boucher. How would you get to it?
Mr. Carson. I think there are a number of ways you can get
to it. There was another model that was proposed.
Mr. Boucher. Would you give me an example?
Mr. Carson. I will give you one example, and I am certainly
not endorsing it, but in that CARP that many people are upset
with, there was another model that was, in fact, to say let's
argue by analogy based upon what's happening with respect to
musical compositions (ASCAP, BMI, and so on). Had the CARP
elected to go in that direction, it would have been perfectly
permissible to do so. That would have been another way of
determining fair market value.
Mr. Berman. You mean percent of revenue?
Mr. Carson. It might have been.
Mr. Boucher. Your recollection of this may be better than
mine because I have to focus on lots of other things. You have
the luxury of being able to focus on this. But my recollection
of that CARP is that the arbitrators felt that their hands were
tied because they were restricted by the statute, and they had
to look at these transactions exclusively and couldn't go
beyond the bounds of those to look at anything else. In fact,
they protested that, did they not?
Mr. Carson. I don't recall them protesting, but if that was
their view, I think they had a rather inflexible reading of the
law.
Mr. Boucher. Well, I'm happy to hear you say that. Maybe if
we're confronted with this situation again, we can show them
the transcript of your answer here, and they will be a little
more flexible in the way they apply things.
I am going to ask one more question, with the Chairman's
indulgence.
Mr. Smith. Without objection, the gentleman is recognized
for an additional minute.
Mr. Boucher. I thank the Chairman.
I understand the concern of the recording industry that the
more interactive a service becomes, the more likely that
service is to displace sales; that it was on the theory of that
reality that the compulsory license was denied for interactive
services. But we have had a very difficult time in establishing
what is interactive and what is not, and it now appears that
even the slightest amount of listener influence is sufficient
to stimulate litigation and a potential denial of the
compulsory license.
For example, even these rating services that are nothing
more than a public opinion poll, where the station is saying to
the listeners in a Webcast, rate on a scale of 1 to 5 who your
favorite performers are, not--or something such as that, not so
that they can customize something for that particular listener,
but so they can get a response and feedback from the audience
in order to influence the general programming that that
particular Webcaster offers, and even that tiny amount of
listener influence, nothing more than a public opinion poll,
has generated litigation against some of the major Webcasters.
Even Yahoo has been involved in this litigation. And I think
that experience cries out for more certainty. We need to know
where the line is.
Would you support this Committee giving you rulemaking
authority so that you could draw the line and determine to the
certainty of all parties concerned exactly what is the proper
amount of listener influence in terms of deciding whether or
not the compulsory license is available?
Mr. Carson. Well, I'm not sure whether we don't already
have that authority. We were invited by Mr. Potter to assert
that authority.
Mr. Boucher. Do you believe you have it?
Mr. Carson. I think we may well have it, but I think it's a
much more difficult task than one might imagine.
Mr. Boucher. I don't discount the difficulty perhaps of
achieving the task, but my question is a different one, and
that is do you have the authority to undertake the rulemaking?
Mr. Carson. I think we probably do.
Mr. Boucher. Have you discussed this with Mrs. Peters?
Mr. Carson. Not since the year 2000. I don't have an active
recollection, but that was the last time it was on anyone's
agenda.
Mr. Boucher. Would you respond to us in writing with a
simple answer as to whether or not it is the position of the
office that you have rulemaking authority?
[The response from Mr. Carson follows:]
Mr. Smith. The gentleman's 9 minutes have expired, and the
gentlewoman from California is recognized.
Ms. Lofgren. I don't mind that 4 of my 5 minutes went to
Mr. Boucher because he was asking questions that I had in mind
as well. Just for clarification, as I was listening to the
discussion that I found quite fascinating on ephemeral copies,
it occurred to me that if instead of Members of Congress we had
18-year-olds who know how to use computers listening to the
concept that you would charge a special fee for cashing copies
so that you could adequately stream, that that would be an
additional fee is just astonishing. Is that what is really
being proposed here?
Mr. Potter. Actually that is what exists in the law, and I
think what Mr. Berman was asking is can we capture the value
that might or might not exist in those ephemeral copies in the
performance royalty. And my response was it is much easier to
quantify the number of performances and the value of the
performances than it is to have any clue as to the number of
ephemeral copies that are flying around a network or to assert
a value on any one of those or all of those, since all of the
value is upstreamed into the performance.
Ms. Lofgren. I think--I know we have been notified we are
going to have a vote in a few minutes, but it seems to me that
if we step back from arguing about technology and look instead
to analogizing the experience to the analog world, that this
would be a lot simpler for us to propose.
For example, on interactive, I do think that we need to
have some certainty. And I would--if the office does not feel
it has the ability to issue regulations, I look forward to
hearing that, because I think we need to have some certainty so
that the market can actually, you know, exist lawfully and
there is not all this litigation. People need to know what the
rules are. Having said that, if my kid can call into an on-air
radio station and request a song that will someday be played,
and that is not interactive in the real radio world, why would
it be interactive on a Webcast.
Mr. Marks. Could I address that point? I am not aware of
any copyright owner or label or artist that has taken the
position in a litigation that the mere calling in, so to speak,
over the Internet, providing views on programming that is not
especially created for the recipient, which is the test, is
interactive. So I don't think the uncertainty that is being
discussed now exists. Indeed, the definition is very
straightforward, the definition of interactive. It is whether
the programming, based on input from the user, is being
specially created for that user.
Mr. Potter. I would be happy to respond. I notice Mr. Marks
tempered his response with the phrase ``in litigation,'' and
nobody has asserted that in litigation. Under the threats of
litigation--first of all, the threats. Obviously, the
litigation is done by the individual companies. But the
discussions about what is legal or not often do not happen in
litigation because most of our companies do not have the
sizeable litigation budgets that the record industry has, and
therefore, they--having seen the first huge litigation when
every company, MTV settled, Musicmatch settled, Xact Radio went
out of business--having seen these companies driven out of
business or driven to their knees by an ambiguous statute, they
have decided not to innovate and not experiment and not to
invest in those sorts of technologies.
Ms. Lofgren. That is the impression that I had had. And it
seems to me that some certainty here, wherever we draw the
line, would be very helpful, and we ought to--I mean, if you
can go on the radio, and they do, and say, what is the top
tune, and Billboard says, what's the top tune, I mean,
basically the surveys are the same function. So I am just
urging, I guess, that we look to the consumer experience and
measure that against the analog world rather than, as we have
done for the past several years, chase our tails trying to
control technology, which we will fail at because the
technology is going to continue to change. We'll never be able
to contain it. And I think that the experience of the recording
industry is the poster child for how that is a losing strategy.
We need to get some certainty, and we need to make sure
that we do not deter different platforms from delivering
content. And I think that the system we have now is certainly
broken, and hopefully, with your efforts, we can fix it.
I just want to make one other comment on the broadcast flag
issue raised by Mr. Boucher. Too often, I think, we are
discussing these issues here between content owners, creative
artists, distributors of material. But Mr. Boucher is correct,
there is a whole other world that's involved in this. And
technology developers. And you could have any standard in the
technology world, and we'll live within it.
I am very concerned and alert to the possibility that we
might enable monopolistic approaches to the consumer electronic
world or software world that would be adverse to all of us,
including creative artists and content holders. So if there is
any interest in doing a broadcast flag, I do agree that we have
to have substantial review of this to prevent that kind of
adverse outcome that would really end up squeezing every other
act, including the RIAA and everyone else in this whole area.
And with that, thank you, Mr. Chairman.
Mr. Smith. Let me thank all the panelists. This was very,
very interesting. You all know that we are not likely to move
this legislation this year, but we do hope to get an early
start next year, and we will consider everything you mentioned
in your testimony and look forward to hearing from you again.
Thank you for being here, and we stand adjourned.
[Whereupon, at 11:20 a.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Howard L. Berman, a Representative
in Congress From the State of California, and Ranking Member,
Subcommittee on Courts, the Internet, and Intellectual Property
Mr. Chairman thank you for holding this oversight hearing on
balancing the interests of sound recording copyright owners and the
broadcasters. I'm looking forward to hearing from the witnesses about
the impact of internet streaming on various business models. While I am
confident in the outcome of the Bonneville case, I am not convinced
that pure webcasting and the simultaneous webcasting of an ``over the
air'' radio broadcast are identical activities that should be subject
to the same licensing conditions. It may be that the rules should be
technology neutral, or it may serve a greater public need to carve out
exceptions to the rules to account for the differences between the
technologies.
However, before we get to the points of controversy, it is
important to note that at least all the witnesses here today,
acknowledge that the prevention of piracy of sound recordings is an
important goal.
With the advent of new technologies we are once again faced with
the problem of ensuring that performing artists, record companies and
others whose livelihood depends upon effective copyright protection for
sound recordings, will be protected.
The Copyright Office has suggested granting copyright owners of
sound recordings a full performance right to harmonize the rights of
owners of sound recordings with those of other copyright owners once
and for all. There is great appeal to that proposal in that we need not
focus only on the immediate problem and seek the particular solution,
we can stop having the tail wagging the dog of whatever technology is
next. Just a short time ago we proposed the sound recording complement
to prevent copying of music, which would replace sales of sound
recordings. Now, there is already technology which allows users to copy
all of the recordings transmitted on a webcast channel, disaggregate
them, save them to substitute for purchases of legitimate downloads or
CDs and redistribute them with peer to peer software. In the near
future, we will probably be back here to discuss in depth the effect of
digital audio broadcasting or HD radio on the sound recording
performance right as well.
I doubt the witnesses before us today will express unified support
of a full performance right for sound recordings. Instead, broadcasters
and webcasters take issue with some of the provisions of the Section
114 license. For its part, the record industry illuminates problems
emanating from the ease of copying sound recordings from a broadcast or
webcast.
Clearly, if we are to have a Section 114 webcasting license, it
should be a workable license. Therefore, we should ensure that its
terms do not unduly burden licensees, nor unduly impair the legitimate
interests of copyright holders. On the latter issue, I am concerned
that several provisions of Section 114 designed to deter piracy and
preserve the recorded media market are not working. Specifically, I
refer to the sound recording performance complement, and the
requirement that transmitting entities accommodate copy protection
technologies used by sound recording copyright owners. It appears these
provisions have fallen short in terms of protecting the interests of
sound recording copyright owners. I expect to ask our witnesses a
number of questions about the continued utility of these provisions as
currently structured.
There will also be testimony about the need, or lack there of, for
a separate license to cover multiple ephemeral copies. Section 112(e)
created a statutory license to allow any service operating under the
Section 114 statutory license to make one or more ephemeral recordings
of a sound recording to facilitate the digital transmission of these
works governed by section 114. Even the Copyright Office had stated
that Section 112(e) ``can best be viewed as an aberration.'' However,
the marketplace has borne out that there is a value to multiple
ephemeral copies. There seems to be a discrepancy as to what the
valuation of an ephemeral copy is. Instead of computing a separate
value for the 112 license to copy could we put before the CARP
establishing the rate for the 114 license the requirement to include in
its evaluation the value, if any, of the multiple ephemeral copies?
I am aware as described in the written testimony of NAB and DiMA,
that there is some distrust among the broadcasters and webcasters of
the CARP proceeding. After all the claim is made that stations pay at
least 5 to 6 times as much for sounds recording royalties that for
musical works. However, I am not sure that speaks as much to the CARP
as it does to the inequity of royalties paid to musical works copyright
owners. That being said I agree that to some extent the CARP needs to
be reformed and therefore support HR 1417.
Technology provides many new opportunities to reach new audiences.
We must be wary though of trampling on certain rights in order to get
there.
Thank you and I yield back the balance of my time.
__________
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress From the State of Michigan, and Ranking Member, Committee
on the Judiciary
I believe that our laws are where they should be on digital music
rights. It is the songwriters, the recording artists, and the record
labels that actually create the content that the other industries
profit from; it is only fair that they get paid for it.
In the mid-1990's, I was a lead proponent of the idea that there
should be a digital performance right. The lay of the land, as we all
know, was that artists and labels received no royalties for radio play
of their music, although the songwriters did. When a new technology,
the Internet, came along, I believed it was the right thing to do to
make sure that all of the creators of music were compensated for their
creativity and efforts.
After all, it is copyrighted works that are the driving force of
our economy, providing what may be the only positive balance of trade
for our nation. It would be unwise to bite the hand that feeds us by
saying they should not be compensated for what they do.
I do not think that the fact that artists do not get paid for over-
the-air radio broadcasts is an effective argument for saying Internet
transmissions should be royalty free. An oversight in one technology
does not mean there should be an oversight in another.
I also believe that, as we develop newer technologies, we should
ensure that content is adequately protected. The development of
technology that permits copyright law to be evaded is not something to
cheer; in such instances, the copyright laws must be updated.
__________
Prepared Statement of the American Federation of Television and Radio
Artist (AFTRA), the American Federation of Musicians of the United
States and Canada (AFM), the Recording Artists Coalition (RAC), and the
Future of Music Coalition (FMC)
On behalf of the thousands of recording artists--both musicians and
vocalists, and both royalty artists and studio artists--who belong to
our organizations, the American Federation of Musicians of the United
States and Canada (``AFM''), the American Federation of Television and
Radio Artists (``AFTRA''), the Recording Artists Coalition (``RAC'')
and The Future of Music Coalition (``FMC'') would like to thank the
Chairman, the Ranking Minority Member, and the Members of the
Subcommittee for holding a hearing on the transmission of sound
recordings and in particular for their continued concern, oversight and
leadership on the many issues of crucial importance to recording
artists and the industries that depend upon their artistic product.
INTRODUCTION
The theme of the hearing is balance, and representatives of the
industries that are built upon selling, broadcasting and transmitting
our recordings appeared on the panel before this Subcommittee and
argued that elements of the current system are sufficiently out of
balance as to cause serious harm to their industries. Ironically, the
panel itself was off-balance in a critical way: it did not include any
representatives of the musicians and vocalists whose recorded
performances are at the heart of the recording, broadcasting and
webcasting industries. To be sure, as creators we desire the success of
the recording companies who invest in our art, as well as of the old
and new industries that help bring our art to the public. But it must
always be remembered that it is our music that the public wants to hear
and therefore our music from which these industries profit. Simply put,
without our creative work, there would be no sound recordings and no
musical product to broadcast or transmit.
Given that fact, there really is no feasible way to achieve a
balance in and among these industries unless the needs of recording
artists are met and our voices are heard. As we discuss in more detail
below, recordings do not spring by magic from our instruments, and
although innate talent is necessary, talent alone is not sufficient to
bring recorded work to fruition. Recording careers require hard work
and the investment of vast amounts of time, effort and perseverance on
the part of musicians and vocalists. Moreover, as we also discuss
below, most recording artists--whether they are royalty artists or
studio artists--do not fit the public stereotype of rich celebrities.
Very few talented and hardworking artists can manage to survive
economically, and those that do for the most part earn only modest
livings. Historically, a key part of those modest earnings hinged on
the sale of recordings because the lack of a performance right in sound
recordings deprived recording artists of any income stream from the
broadcast of their work. Now, even these modest earnings from sales are
threatened by the ongoing transformation of the business from one based
on the sale of product to one based on the sale of a listen. Unless
performers can survive economically during this time of change and in
whatever new world arrives, the relevant industries--and American
culture--will most assuredly be out of balance because there will be no
recording artists left who can afford to dedicate their working lives
to making recorded music. Before turning to our detailed discussion of
these issues, we set forth additional information about our
organizations.
AFTRA, THE AFM, RAC AND FMC REPRESENT THOUSANDS OF RECORDING ARTISTS
The American Federation of Television and Radio Artists (``AFTRA'')
is a national labor organization representing approximately 80,000
performers and newspersons that are employed in the news,
entertainment, advertising and sound recording industries. AFTRA's
membership includes more than 11,000 recording artists, including more
than 4,500 singers who have a royalty contract with a record label
(``featured artists'') and roughly 6,500 singers who are not signed to
a royalty contract (``non-featured artists'').
The American Federation of Musicians of the United States and
Canada (AFM) is an international labor organization composed of over
250 Locals across the United States and Canada, with over 100,000
professional musician members. AFM members perform live music of every
genre and in every size and type of venue and include over 10,000
musicians actively involved in recording music as featured artists or
studio musicians.
The Recording Artists Coalition (``RAC'') is a nonprofit coalition
formed to represent artists with regard to legislative issues and to
address other public policy debates that come before the music
industry.
The Future of Music Coalition (``FMC'') is a nonprofit organization
that identifies, examines and translates the challenging issues at the
intersection of music, law, technology and policy for musicians and
citizens.
Our groups represent a wide range of diverse royalty artists at all
levels and stages in their careers from Blink 182, the Temptations,
Elton John, Billy Joel, Jay Z, David Sanborn, Mandy Patinkin, Aimee
Mann, Quincy Jones, Lowen & Navarro, Anthony Hamilton to Ruth Brown, as
well as most of the professional studio musicians and session singers.
SOUND RECORDINGS ARE UNIQUE WORKS OF ART THAT ARE CREATED BY THE
TREMENDOUSLY HARD WORK OF TALENTED PERFORMERS
Traditional broadcasters and the new digital transmission services
often point out with some asperity that they already pay one set of
creators, the songwriters, for the right to broadcast or transmit the
underlying musical work embodied in the sound recordings they play. It
is absolutely essential that they do so, because songwriters, like
performers, are at the creative core of the music industry and must be
able to earn a living if American culture and its varied entertainment
industries are to be healthy. But it is equally essential to understand
that the act of recording the song involves an additional and different
creative process which also must be compensated if recordings are to be
made.
Thus, Harold Ray Bradley, the most recorded guitarist in history,
frequently adds his own conclusion to the songwriters' motto. ``It all
starts with a song,'' he agrees, ``but it doesn't end there.'' Songs
are beautiful and unique works of art, but they are meant to be heard,
and unless they are performed by musicians and vocalists, they can
reach no one at all. It is when a song is recorded, and the recording
is played and heard, that a song can reach out to hundreds of thousands
or millions of people.
Recording musicians and vocalists breathe life into a song, not
only by making it audible, but also by shaping its tone, style, rhythm,
sound and color--interpreting it, and in the process, creating yet
another unique work of art, the recorded musical performance. Two
recordings of the same song can be utterly different, and reach
completely different levels of success. In the 1960s, Ray Price
recorded the Kris Kristofferson song ``Help Me Make It Through the
Night'' in a Frank Sinatra, two-beat style. Ray Price was a popular
recording artist, but that recording was not a hit. In 1970, Sammi
Smith recorded the same song, and with it won a gold record, a Grammy,
and a #1 spot on the country charts. What was different? The song was
the same great song in both versions. But in the Sammi Smith version,
she contributed her beautiful, seductive voice. And the musicians made
an important creative contribution as well--they slowed the song down
and put it into a straight 8ths rhythm that gave Sammi Smith the space
she needed to put a lot of feeling into the lyrics.\1\
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\1\ Guitarist Harold Ray Bradley described and analyzed the two
recordings of ``Help Me Make It Through the Night'' in detail in his
written testimony submitted to the Copyright Arbitration Royalty Panel
that set certain Section 114 compulsory license rates for digital
performances of sound recordings. Direct Case of the American
Federation of Musicians of the United States and Canada, In the Matter
of: Digital Performance Right in Sound Recordings and Ephemeral
Recordings, Docket No. 2000-9 CARP DTRA 1&2, April 2001. Bradley
performed on the Ray Price recording.
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Recording artists work long and hard at their craft, whether they
are the ``featured'' or ``royalty'' artists whose names are most
associated with the recording, or whether they are the studio musicians
and vocalists whose performances form the musical backbone of the
recording. There is no one model of how the recording process works,
but the bottom line of every kind of recording is the talent, skill,
time, effort and work required of the performers in the process.
For example, recording artist Jennifer Warnes' 1986 recording
Famous Blue Raincoat was a tremendous commercial, critical and
audiophile success.\2\ She conceived of the album as a tribute to
songwriter Leonard Cohen, and in it, she reframed many of his songs
from folk renditions to edgy combinations of acoustic, electronic and
synthesized sounds. She invested a year of her time and worked on all
the creative and practical elements necessary to bring her concept to
fruition. She not only contributed the featured vocals, but also
secured the funding, chose material to be recorded, rented the studio,
found musicians, and with the collaboration of the fellow-artists she
chose, arranged, recorded, mixed and mastered the album. It takes
innate talent to be a recording artist, but it takes much more as well.
Royalty artists--whether they are primarily vocalists like Jennifer
Warnes, primarily instrumentalists, or a combination of all the
creative disciplines like singer-songwriter-instrumentalists--work hard
for many years to develop all the skills and abilities that allow them
to express their creative vision in the recording process. The whole
course of their professional lives, and each recording project
individually, represent investments of time, skill, energy and plain
hard work.
---------------------------------------------------------------------------
\2\ Jennifer Warnes described the creative process involved in
Famous Blue Raincoat in her written testimony written testimony
submitted to the Copyright Arbitration Royalty Panel that set certain
Section 114 compulsory license rates for digital performances of sound
recordings. Direct Case of the American Federation of Television and
Radio Artists, In the Matter of: Digital Performance Right in Sound
Recordings and Ephemeral Recordings, Docket No. 2000-9 CARP DTRA 1&2,
April 2001.
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Although the listening public often does not learn the names of
most of the studio musicians and vocalists who perform on the
recordings they love, the creative contributions of those performers
are also critical to the sound and success of the recordings. The
``background'' musicians and vocalists in a recording session style the
song with intros, fills, chord changes, solos, tempo and rhythms. Their
talent, insight and skills are necessary to achieve a truly great
arrangement, interpretation and performance.
A classic (and frequently analyzed) example that beautifully
illustrates the work and collaboration in the recording studio is Patsy
Cline's recording of the Willie Nelson song, ``Crazy''--the number one
jukebox hit of all time.\3\ Seven studio musicians were called to that
session, and with producer Owen Bradley they created a perfect
arrangement and performance that transformed the song into a timeless
hit. For example, bass players Bob Moore and Harold Ray Bradley are
said to have achieved the apex of country bass with the rhythms they
created together,\4\ Walter Haynes added a tremolo sound on pedal steel
and Floyd Cramer added a blues element on the piano, all of which,
together with the inimitable background vocals of the legendary
Jordanaires, are an integral part of the greatness of the recording.
Like the royalty artists, studio musicians and vocalists must have
innate talent, but they also must work hard to develop their skills and
hone that talent in order to deliver the performances that transform
songs. It is a lifetime career, and takes an investment of all their
time and abilities.
---------------------------------------------------------------------------
\3\ Guitarist Harold Ray Bradley described the ``Crazy'' recording
session in his written testimony submitted to the Copyright Arbitration
Royalty Panel that set certain Section 114 compulsory license rates for
digital performances of sound recordings. Direct Case of the American
Federation of Musicians of the United States and Canada, In the Matter
of: Digital Performance Right in Sound Recordings and Ephemeral
Recordings, Docket No. 2000-9 CARP DTRA 1&2, April 2001.].
\4\ ``30 Essential Bass Albums You Must Own,'' Bass Player, June
1997.
---------------------------------------------------------------------------
PERFORMERS DEPEND ON COMBINING MANY INCOME STREAMS
The popular image of recording artists as fabulously rich
celebrities is very far from the reality. A few creators in the music
business do earn substantial livings. Many more fail to survive at all
in the industry--despite being gifted musicians or vocalists who work
hard at their craft. And, of the successful creators--those who do
manage to survive financially--most either struggle financially or earn
no more than a modest living. They are ordinary, hard-working
Americans. What sets them off from the general population, other than
their musical talent, is the fact that living by their talents does not
provide them with a normal job or a steady paycheck. Instead, they are
participants in the unique and complicated music industry, and earn
their livings--or don't--from complicated statutory and contractual
arrangements that produce sporadic and varied income streams.
For example, royalty artists are not paid for all of the many
varied creative tasks they perform when they make a recording. Whether
they are vocalists or instrumentalists, they are, for the most part,
small businesspersons or entrepreneurs, with a complex web of creative
and business relationships developed to enable them to make their
recorded product. Typically, royalty artists enter into complex
contracts with recording companies in which the companies invest in the
production and promotion costs and then make royalty payments to the
artist based on sales. Later, those monies are recouped from the
artist's royalties. In most cases, the additional costs of marketing
and publicity, videos, tour support and other promotions are recouped
as well, all from the artist's small share of the pie. The bottom line
is that a royalty artist can be quite successful in terms of sales and
artistic value without making a substantial profit on recording sales.
Sales are crucial to recognition, survival and success--but they almost
never produce sufficient income on which to live. Royalty artists must
also develop--and they depend on--other income streams such as live
concert fees, T-shirt sales and other merchandising, songwriting income
(for those who are also songwriters) and other business opportunities
to help them make a living.
The income stream that all recording artists historically have
lacked is, of course, any income based on the performance of their
recorded work on the radio--even though radio airplay of recordings
built broadcasting into an enormously profitable industry. Under
current law, performers receive no payments as a result of digital or
analog radio airplay because there is no full performance right in
sound recordings in the U.S. However, since 1995 there has been a
limited digital performance right from which royalty artists benefit.
Royalty artists share in the license fees for interactive digital
performances (like on-demand streams on the Rhapsody or Napster 2.0
subscription services) in accordance with their royalty contracts (or
through direct licenses if they own their copyright in the sound
recording). As to the compulsory license payments made for non-
interactive streams transmitted by webcasters, satellite radio and
cable subscription services, royalty artists are paid 45% of the
license proceeds in accordance with a sharing scheme mandated by
Congress, and because this money is paid to artists directly, it is not
recoupable. The income streams produced for recording artists by the
digital performance right are very small now, but artists have a vital
stake in the growth of this new market for their work and its potential
to expand as an important income stream, one of the many streams
necessary for them to earn a living.
Like royalty artists, studio musicians and vocalists are far from
the typical employee of a standard business. They don't have nine-to-
five jobs but work in recording sessions for a host of different
employers whenever they are called. And, like royalty artists, they
historically are dependent upon the sales of recordings as a critically
important part of their income.
Musicians working under the AFM's Sound Recording Labor Agreement--
which is negotiated with all five major recording companies and later
agreed to by hundreds of small and independent companies--earn scale
wages, pension contributions, health and welfare payments, and ``re-
use'' fees if the recording later is used in another medium like a
movie. In addition, musicians earn deferred income based on sales.
Signatory record companies are required to make contributions to the
Sound Recording Special Payments Fund. These contributions are made
according to negotiated formulas based on sales. The Fund is then
distributed annually to recording musicians in accordance with a
formula based on their scale earnings in the industry over a five year
period. It is important to note that royalty musicians also earn these
benefits when they record for signatory companies.
Similarly, studio vocalists working under the AFTRA National Code
of Fair Practice for Sound Recordings--which is negotiated with all
five major recording companies and later agreed to by hundreds of small
and independent companies--also earn scale wages, contributions to the
AFTRA Health and Retirement Funds, and ``re-use'' fees if the recording
later is used in another medium. Health and welfare contributions are
based on earnings (not just scale wages, but all earnings including
royalty earnings for royalty artists) and thus form an important source
of health care coverage for vocalists. Under the Sound Recordings Code,
vocalists also benefit from sales because they receive ``contingent
scale'' (i.e., additional) payments when the records on which they
perform reach certain sales plateaus. As noted, royalty vocalists also
earn these benefits when they record for signatory companies.
Finally, studio musicians and vocalists also benefit from the
digital performance right in sound recordings created by Congress in
1995. Studio musicians and vocalists are entitled to receive a portion
of the major recording companies' interactive digital license income
pursuant to a 1994 agreement between those companies, the AFM and
AFTRA. In addition, they are entitled by law to 5% of the compulsory
license fees (2\1/2\% for musicians and 2\1/2\% for vocalists) paid by
the non-interactive digital streaming services such as webcasters,
satellite radio and cable subscription services pursuant to the Section
114 compulsory license for non-interactive digital transmissions. As
yet, these income streams are very small, but studio musicians and
vocalists have a vital stake in their growth.
The AFM and AFTRA are proud of the standards they have set in the
recording industry, which allow many musicians and vocalists to earn
decent livings in an occupation that is characterized by uncertainty
and intermittent employment. But overall, the earnings of studio
musicians and vocalists, like those of royalty artists, are modest, and
dependent on the ability to add together income from many sources.
INDUSTRY CHANGES AND NEW TECHNOLOGIES POSE SERIOUS THREATS
AS WELL AS NEW OPPORTUNITIES TO ARTISTS
As we move into the twenty-first century, new technologies,
services and business realities are affecting--and in some instances,
threatening--artists' ability to earn a living.
While the reasons for the reduction in sales of recorded music are
hotly contested, there is no question that in the United States and
internationally sales have dropped precipitously. Fewer sales
translates into real financial hardships for recording artists--less
money to invest in new recordings, even lower royalty payments, lost
Special Payment Fund contributions which decrease musicians' income,
lessened potential for contingent scale payments to vocalists, and
overall the contraction of the industry in which we work and strive to
earn a living.
Meanwhile, new technologies and new services offer exciting new
ways to deliver music. Digital downloads, digital subscription
services, internet radio, digital audio broadcasts are all developing
and are, or soon will be, competing with each other and hopefully
expanding the marketplace for music. Obviously, much of this new
development focuses not on selling recordings (in any format) but
rather on selling the opportunity to listen to the broadcast or
transmission of a chosen recording or genre of recordings.
How ever these new services and markets will develop, one abiding
truth will remain: an essential part of the balance that must be struck
by our copyright law is that the new models must provide adequate
compensation to recording artists, both royalty artists and studio
artists. If the recording, broadcasting and transmitting industries are
allowed to seek only to balance their business interests vis-a-vis each
other, without providing for the livelihoods of artists, there
ultimately will not be a varied, lively or vibrant creative product on
which to base their businesses.
THE NEED FOR PERFORMANCE RIGHT
In this new era, we would like emphatically to reiterate the
Copyright Office's call for a comprehensive performance right in sound
recordings. The denial of a full public performance right is
inconsistent with the philosophy of copyright law to secure the
benefits of creativity to the public by the encouragement of the
individual effort through private gain. Without a full performance
right, especially as we move into an era of digital technologies and
new business models, recording artists must rely disproportionately on
a dwindling sales income, which will not provide the necessary
incentive for recording artists to create in the twenty-first century.
The historical denial of a performance right to recording companies
and recording artists has always been inconsistent with the structure
of the ``bundle of rights'' that make up copyright in our country.
Copyright owners of every other copyrighted work that is capable of
being performed also enjoy a performance right in that work and, thus,
have the right to profit from their creative effort by licensing
performances and earning performances royalties. The Copyright Office
has explained the historical anomalies that resulted in denying sound
recording copyright owners and performers the same ability that other
creators have to benefit financially from their work when others
perform it publicly. We agree wholeheartedly that this situation should
not be allowed to continue.
The U.S. is one of the few industrial countries--if not the only
one--that does not have a broad performance right for sound recordings.
At least 75 nations, including most or all European Union member
states, have a performance right. Entertainment is America's number one
export and more U.S. recordings are performed overseas than foreign
recordings are performed here. As a result, in addition to not
receiving compensation when their works are broadcast here, U.S.
performers and record labels lose hundreds of millions of dollars each
year that are collected when U.S. recordings are broadcast overseas
because we do not have this right in the U.S.
This situation is all the more untenable in light of the fact that
radio stations have built vibrant and successful businesses--and earned
huge profits--based upon the broadcast of our members' work. It is our
music that attracts listeners to radio stations, and enables them to
sell advertising on the basis of market share. Broadcasters receive
their biggest resource--our recorded performances--at no cost, and then
do not share any revenue with the creators whose sound recordings are
actually responsible for the revenue.
The broadcasters' mantra--that radio broadcasts promote sales, and
that therefore they should have no obligation to pay for the
performance, is neither universally true nor particularly relevant.
``Promotional value'' of a performance does obviate the requirement to
pay creators of other creative works; for example, a novelist can
expect to see increased book sales if the novel is made into a movie,
but no one would suggest that the novelist therefore need not be paid
for the visual interpretation. In any event, the promotional value of
radio airplay cannot be universally assumed. Many recordings race up
the airplay chart but never make it out of the middle of the sales
chart. In addition, oldie sound recordings provide the radio stations
with an entire format and stream of revenue but do not result in
commensurate sales for the performer or record label.
Moreover, the rationale of the twentieth century no longer applies
in the twenty-first century. Even if the promotional argument provided
a justification for denying a performance right in sound recordings in
the twentieth century, business paradigms are now changing. As the
music industry changes, revenue streams also are changing--some are
new, some are growing and some are now less important. The public
performance revenue income stream is taking on increased importance in
the new business models. As we noted above, the time may soon arrive
when the presumed--and most important--``consumption'' of a sound
recording is no longer a sale but is a ``listen.'' In the future,
especially as we become wireless, many music fans may never ``buy''
product, but rather will rely on broadcast/transmission services to
hear all the music they desire. A great variety of such services, many
of them without any component of a traditional sales distribution,
already are becoming more important. There are many radio streaming
services such as XM, Sirius and Rhapsody where the consumer purchases
``listens'' instead of product or downloads.
The music industry must change, and we need to encourage new
creative legitimate models that serve customers and music fans in new
ways that the customers want. But as much as we support the development
of new technologies and new models--and we do support them because we
believe that they can be good for our art--we urge this Subcommittee
and all of the relevant industries to take seriously the fact that
these new developments cannot thrive if they result in imbalances that
harm our ability to survive as creators. The digital music services
that are subject to the Digital Performance Right in Sound Recordings
Act must pay performance royalties in order to use our music; but,
unfortunately, FCC licensed radio stations are not required to do so,
even when they are competing for the same listeners. That certainly is
not a level playing field. XM has to pay for using sound recordings, as
it should; why should Clear Channel have an unfair advantage when they
are both competing for the same listeners?
Copyright law must regain its focus so that it continues to provide
incentives for investment and creative works in the digital landscape.
In the past, Congress has worked to ensure that the Copyright Act
strikes the appropriate balance to provide incentive for the creation
of sound recordings and exploitation of those works in a digital world.
The balancing act must be an ongoing one. As technology propels
broadcasting and performances, rather than just sales, into the
ultimate consumptive use, it is more important than ever that sound
recordings be given a performance right, and that the real needs of
artists remain a critical consideration in the policy debates.
DIGITAL AUDIO BROADCAST
The emergence of digital audio broadcasting (``DAB'') reinforces
the immediate need for a performance right.
Digital audio broadcast has developed, and likely will continue to
develop, differently from what was envisioned in 1995. It is not simply
the same as analog radio transmitted digitally. Rather, DAB is being
advertised as ``radio you'' because it will be able to provide
individualized services and will have the capacity to broadcast--or,
more accurately, to ``narrowcast''--programming that is tailored for
each recipient. DAB receivers store data, while analog radios do not;
DAB provides audio ``on-demand,'' while analog radio does not; DAB can
provide customized programming, while analog radio does not; DAB allows
the listener to pause and then go back to where they left off, while
analog radio does not; DAB includes a program guide, telling the
listener what's coming, while analog radio does not; DAB is accompanied
by meta-data indicating artists and title, while analog radio generally
is not; DAB isn't limited to audio, while analog radio is; DAB is a
``fat'' data pipe, while analog radio is not.
Given these characteristics, DAB will provide the type of service
that Congress intended to be covered by a performance right. When
enacting the DPRA in 1995, Congress said
The limited right created by this legislation reflects changed
circumstances: the commercial exploitation of new technologies
in ways that may change the way prerecorded music is
distributed to the consuming public. It is the Committee's
intent to provide copyright holders of sound recordings with
the ability to control the distribution of their product by
digital transmissions, without hampering the arrival of new
technologies, and without imposing new and unreasonable burdens
on radio and television broadcasters, which often promote, and
appear to pose no threat to, the distribution of sound
recordings.\5\
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\5\ S. Rep. No. 104-128, at 15 (1995), reprinted in 1995
U.S.C.C.A.N. 356 (``DPRA Report'').
If DAB develops into a service which will be so personalized and so
narrow--and which will include the ability to rewind, skip, or scan the
channels in order to receive only the recordings a listener wants, and
then to record, store and catalog them--it will threaten both the
distribution of sound recordings via sales and, as well, the new
business models such as digital subscription services on the internet,
subscription digital satellite radio, and other services that are
subject to the digital performance right and pay royalties for the use
of recorded music. With DAB, members of the public may be able to
receive what they want, when they want it. They will no longer have to
purchase product or even ``listens.'' But if that is the case, how will
the services that pay us survive, and how will we, the artists, earn a
living? There will be no financial incentives left for the creators of
and investors in sound recordings.
CONCLUSION
The balance that Congress struck between record companies and
performing artists, on the one hand, and digital technologies and
broadcasters, on the other hand, is now off kilter. We firmly believe
that technological advances and fairness require Congress to revisit
the Copyright Act and enact a broad performance right for sound
recordings, in a form that ensures a fair benefit to artists.
Congress must be mindful that this is not simply one business
versus another. At the heart of these important issues are the
individuals whose talents create the sound recordings. Performance
royalties will provide critically important income to famous and
ordinary musicians and vocalists. Without recording artists, there
would be no music on any station. Please don't make sound recording
creators wait any longer for fair compensation for the performance of
their music.