[House Hearing, 111 Congress] [From the U.S. Government Publishing Office] PERFORMANCE RIGHTS ACT ======================================================================= HEARING BEFORE THE COMMITTEE ON THE JUDICIARY HOUSE OF REPRESENTATIVES ONE HUNDRED ELEVENTH CONGRESS FIRST SESSION ON H.R. 848 __________ MARCH 10, 2009 __________ Serial No. 111-8 __________ Printed for the use of the Committee on the Judiciary Available via the World Wide Web: http://judiciary.house.gov ---------- U.S. GOVERNMENT PRINTING OFFICE 47-922 PDF WASHINGTON : 2009 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 COMMITTEE ON THE JUDICIARY JOHN CONYERS, Jr., Michigan, Chairman HOWARD L. BERMAN, California LAMAR SMITH, Texas RICK BOUCHER, Virginia F. JAMES SENSENBRENNER, Jr., JERROLD NADLER, New York Wisconsin ROBERT C. ``BOBBY'' SCOTT, Virginia HOWARD COBLE, North Carolina MELVIN L. WATT, North Carolina ELTON GALLEGLY, California ZOE LOFGREN, California BOB GOODLATTE, Virginia SHEILA JACKSON LEE, Texas DANIEL E. LUNGREN, California MAXINE WATERS, California DARRELL E. ISSA, California WILLIAM D. DELAHUNT, Massachusetts J. RANDY FORBES, Virginia ROBERT WEXLER, Florida STEVE KING, Iowa STEVE COHEN, Tennessee TRENT FRANKS, Arizona HENRY C. ``HANK'' JOHNSON, Jr., LOUIE GOHMERT, Texas Georgia JIM JORDAN, Ohio PEDRO PIERLUISI, Puerto Rico TED POE, Texas LUIS V. GUTIERREZ, Illinois JASON CHAFFETZ, Utah BRAD SHERMAN, California TOM ROONEY, Florida TAMMY BALDWIN, Wisconsin GREGG HARPER, Mississippi CHARLES A. GONZALEZ, Texas ANTHONY D. WEINER, New York ADAM B. SCHIFF, California LINDA T. SANCHEZ, California DEBBIE WASSERMAN SCHULTZ, Florida DANIEL MAFFEI, New York [Vacant] Perry Apelbaum, Staff Director and Chief Counsel Sean McLaughlin, Minority Chief of Staff and General Counsel C O N T E N T S ---------- MARCH 10, 2009 Page THE BILL H.R. 848, the ``Performance Rights Act''......................... 2 OPENING STATEMENTS The Honorable John Conyers, Jr., a Representative in Congress from the State of Michigan, and Chairman, Committee on the Judiciary...................................................... 1 The Honorable Lamar Smith, a Representative in Congress from the State of Texas, and Ranking Member, Committee on the Judiciary. 18 The Honorable Howard L. Berman, a Representative in Congress from the State of California, and Member, Committee on the Judiciary 19 The Honorable Bob Goodlatte, a Representative in Congress from the State of Virginia, and Member, Committee on the Judiciary.. 20 The Honorable Pedro Pierluisi, a Representative in Congress from Puerto Rico, and Member, Committee on the Judiciary............ 21 The Honorable Darrell Issa, a Representative in Congress from the State of California, and Member, Committee on the Judiciary.... 22 The Honorable Zoe Lofgren, a Representative in Congress from the State of California, and Member, Committee on the Judiciary.... 22 The Honorable Ted Poe, a Representative in Congress from the State of Texas, and Member, Committee on the Judiciary......... 23 The Honorable Maxine Waters, a Representative in Congress from the State of California, and Member, Committee on the Judiciary 24 The Honorable Howard Coble, a Representative in Congress from the State of North Carolina, and Member, Committee on the Judiciary 25 The Honorable Steve Cohen, a Representative in Congress from the State of Tennessee, and Member, Committee on the Judiciary..... 25 The Honorable F. James Sensenbrenner, Jr., a Representative in Congress from the State of Wisconsin, and Member, Committee on the Judiciary.................................................. 26 The Honorable Brad Sherman, a Representative in Congress from the State of California, and Member, Committee on the Judiciary.... 27 The Honorable Daniel E. Lungren, a Representative in Congress from the State of California, and Member, Committee on the Judiciary...................................................... 27 WITNESSES Mr. Billy Corgan, Vocalist and Lead Guitarist, The Smashing Pumpkins Oral Testimony................................................. 28 Prepared Statement............................................. 30 Mr. Paul Almeida, President, Department for Professional Employees, AFL-CIO Oral Testimony................................................. 31 Prepared Statement............................................. 37 Mr. W. Lawrence Patrick, President, Patrick Communications Oral Testimony................................................. 39 Prepared Statement............................................. 41 Mr. Stan Liebowitz, Ph.D., Ashbel Smith Professor of Managerial Economics, University of Texas at Dallas Oral Testimony................................................. 51 Prepared Statement............................................. 53 Mr. Steven Newberry, Commonwealth Broadcasting Corporation, on behalf of the National Association of Broadcasters (NAB) Oral Testimony................................................. 142 Prepared Statement............................................. 144 Mr. Mitch Bainwol, Chairman and CEO, Recording Industry Association of America (RIAA) Oral Testimony................................................. 190 Prepared Statement............................................. 194 LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING Prepared Statement of the Honorable John Conyers, Jr., a Representative in Congress from the State of Michigan, and Chairman, Committee on the Judiciary........................... 14 Prepared Statement of the Honorable Zoe Lofgren, a Representative in Congress from the State of California, and Member, Committee on the Judiciary............................................... 23 PERFORMANCE RIGHTS ACT ---------- TUESDAY, MARCH 10, 2009 House of Representatives, Committee on the Judiciary, Washington, DC. The Committee met, pursuant to notice, at 10:08 a.m., in room 2141, Rayburn House Office Building, the Honorable John Conyers, Jr. (Chairman of the Committee) presiding. Present: Representatives Conyers, Berman, Nadler, Scott, Watt, Lofgren, Jackson Lee, Cohen, Pierluisi, Sherman, Gonzalez, Weiner, Sanchez, Wasserman Schultz, Maffei, Smith, Sensenbrenner, Coble, Goodlatte, Lungren, Issa, Forbes, King, Franks, Gohmert, Jordan, Poe, Chaffetz, Rooney, and Harper. Staff Present: Stacey Dansky, Majority Counsel; Benjamin Staub, Majority Professional Staff Member; and David Whitney, Minority Counsel. Mr. Conyers. Good morning, everyone. The Committee will come to order. I would like to welcome all here in connection with the Performance Rights Act, H.R. 848. [The bill, H.R. 848, follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Mr. Conyers. I think H.R. 848 is an important piece of legislation and I think that it is fair to say that the current situation involving recording artists is not one that we can be very proud of. We hear a song on the radio and someone is singing or playing melodies, who receives absolutely no compensation. But it's okay, I am told; someone will go out and buy their records, so you folks should be glad you're on the radio. And speaking candidly, I've heard about some performers that are a little reluctant to speak publicly in support of the bill because of the threatening tone that they have been told about why they shouldn't do something like that. And even in the Congress, amazingly, some of my colleagues have expressed hesitation to cross their local broadcaster, even though they say privately, Sure, we support the bill on its merits. Now, I have a prediction that sooner or later this measure is going to become law. And so the sooner that everybody in this room recognizes this and comes to the table in a spirit of negotiation, the better it is going to be and the sooner we'll get this subject off the table. Can you believe that there are only four countries, developed countries, on the planet that don't pay performance rights? The other three are Iran, North Korea and China. And so what we want to do today is to try to fairly examine this. Some would have us believe that the artists are being done a great favor by getting played at all. But every other platform for broadcast music, including satellite radio, cable, Internet, Web casters pay a performance royalty; terrestrial radio is the only platform that doesn't. And this exemption from paying a performance royalty to artists doesn't make much sense; and many of them--I don't know about my colleagues on the Committee, but I have been to so many charity events for musicians that were down on their luck--they've got big health care bills or they don't get work. I mean, everybody rises and falls. So I'm here to begin this discussion. I'll put the rest of my statement in the record and yield to my friend, the minority Ranking Member, Lamar Smith of Texas. [The prepared statement of Mr. Conyers follows:] Prepared Statement of the Honorable John Conyers, Jr., a Representative in Congress from the State of Michigan, and Chairman, Committee on the Judiciary [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] __________ Mr. Smith. Thank you, Mr. Chairman. The purpose of copyright law is to promote the public interest by encouraging the creation of new works of authorship. To accomplish this, the law seeks to balance the interest of creators in receiving compensation for their work with a public benefit that is derived from encouraging greater access to such works. The fundamental question presented by H.R. 848, the Performance Rights Act, is to what extent the copyright law should give rise to a royalty payment each time a sound recording is performed publicly. Requiring a full statutory performance right for sound recordings is a change that has been sought by performing artists in the record industry for years. H.R. 848 amends Section 106 and 114 of the copyright act to eliminate the exemption that AM and FM radio stations have enjoyed since the development of broadcast radio. The exemption permits these stations to broadcast sound recordings to the public without having to compensate performing artists. Proponents of current law assert that performing artists, particularly those with an active recording contract, benefit financially from having their songs performed extensively over free radio. They have asked why, if radio does not promote music sales, do artists and record labels send free CDs to radio stations and encourage programming managers to have their tracks spun as often as possible. On the other hand, copyright owners note they should be entitled to exercise their rights to license the use and distribution of their works. They assert that when the law restricts them from doing so, they should at the very least be compensated for the commercial use of such works. The economic downturn has resulted in a double hit for radio stations. It affects the ability of radio stations to generate revenue through advertising sales, which have decreased over 20 percent in the last 2 years. It also affects their ability to raise capital and secure financing to continue operations. While the economic future of radio stations, recording artists and record labels is uncertain, my own view is that they are likely to need each other for some time to come. The sooner the parties recognize and accept this fact, the better for all concerned. Frankly, though, negotiation on the subject of performance rates is unlikely in the near future. So in the short term, what I propose is that the parties agree to have a third party entity conduct an objective study of the economic impact of royalty payments on performing artists and radio stations. Stakeholders would offer issues to be evaluated, and at least there will be some quantitative analysis to help mold legislation. Such a study would need to be conducted by a party that is clearly not aligned with either side of the debate. This entity would evaluate the likely impact of a range of royalty rates in a variety of economic circumstances. During my time for questions, I will ask our witnesses if they will agree to this proposal. Before Congress chooses to act or withhold action on any matter, we have an obligation to ensure all legitimate concerns are fairly reviewed and addressed. Mr. Chairman, thank you for having this hearing today. And I'll yield back the balance of my time. Mr. Conyers. Howard Berman has long been our intellectual property leader on Judiciary, and though he is Chairman of Foreign Affairs, his interest in this subject still continues. We are glad that he is with us this morning. Mr. Berman. Thank you, Mr. Chairman. It was your reference to North Korea, China and Iran that brought me here--no. First, I would like to particularly thank the Chairman for his commitment and his dedication to getting this bill passed. Fairness to the artists and parity between the platforms are all reasons to support this bill. The equities for repealing the broadcaster exemption are clearly in favor of paying artists and musicians for songs that are played on terrestrial radio. What I'd like to do is raise a couple of questions for my amiable adversary, Mr. Newberry, and Mr. Patrick regarding their justifications for opposing the bill. Mr. Newberry's argument goes like this. This is testimony from the March 10th--from today's hearing. I quote: ``As Congress has repeatedly recognized, the radio industry provides tremendous practical and other benefits, both to performing artists and to record companies. The recording industry invests money promoting songs in order to garner radio airplay and receives revenues when audiences like and purchase the music they hear. ``Artists consistently recognize the fact that radio airplay is invaluable. Simply put, when audiences hear music they like on their radio, they are likely to purchase that music.'' A couple of responses to that argument: Specifically built into this bill is a way to take into account the value that Mr. Newberry talks about of promotion. Section 114(f)(2)(b) directs in this legislation, Title 17-- directs that when the copyright royalty judges establish reasonable rates in terms of royalty payments for public performances of sound recordings, when those performances are played on radio stations, they shall base their decision on economic, competitive and programming information presented to the parties, including subsection (i), whether use of the service may substitute for or may promote the sales of records of that performance. Now, if you don't like that standard, let us know. But the idea that the bill doesn't take into account promotional value isn't true. And if the promotional value outweighs the value of the music to the station, the determination on rates will reflect that. Secondly, while it is possible that the station provides such great promotion that it obviates the need to pay the artists, I ask you to consider the comparable situation, where the station in fact will pay, as they do now, handsomely to broadcast sports games. There is clearly promotion there, but there is also payment. The same with talk radio programs. Mr. Newberry also argues that in this economy radio can't afford the royalty fees prescribed by this bill. But as is clear in the bill, the royalty fees are assessed only on stations that make over $1.25 million in revenue. That is why the bill allows small broadcasters to pay a small flat annual fee, to ensure the viability of radio. If it's too high for some, let's hear alternatives. For other stations who reconsider a percentage of revenue royalty rate, that way during hard economic times you could pay less; during good times, you pay more. But let's not forget that this not a debate about economic impact. We can accommodate that in the structure. This is about a right of a creator to be able to negotiate and get paid for what they create. So I'd like to make it clear that I'm hopeful that we can work with the NBA to try and resolve any legitimate concerns it has with the bill. Continually saying ``no,'' as the Chairman mentioned in the beginning, is not a productive way to accommodate real issues. And I ask my fellow Committee Members, even those who oppose the current iteration of the bill, to call on the NAB to sit with the invested parties, to identify their issues and try to hammer out a mutual resolution. Without that, I believe the Committee may have no choice but to move forward without NAB's valuable input. Thank you, Mr. Chairman. Mr. Conyers. From Virginia, a senior Member of Judiciary, Bob Goodlatte. Mr. Goodlatte. Mr. Chairman, thank you. And I also want to thank Ranking Member Smith. We really appreciate your holding this hearing on the Performance Rights Act. Because the United States has been the pioneer for strong intellectual property protections, it is no surprise that the copyright industries are so successful and are so crucial to our national economy. The U.S. copyright industries have created millions of high-skilled, high-paying U.S. jobs and have contributed billions to our economy. Today we are examining whether an exemption that has existed for years which allows terrestrial broadcasters to play copyrighted works without paying performance rights royalties is still justified in the Digital Age. Broadcasters argue that recording artists receive great benefits from the airplay their songs get, which result in higher sales for the artists. While this is likely true, I believe that digital music technologies have come to fruition over the past 5 to 10 years and that consumers do not rely solely on terrestrial broadcast stations for their music anymore. Other media, like satellite radio and on-line broadcasters, also deliver promotional value to the recording artists, and they pay performance rights royalties. This way's in favor of lifting the exemption. On the other hand, I'm very concerned about maintaining local radio programming. Local radio programming is one of the best and least expensive ways that citizens can access news and emergency information in their communities. At a time when consolidation seems to be the norm, I believe it is important to do what we can to encourage radio stations to continue to provide local news and information, which often is done at cost or at a loss to the radio station. As such, I'm pleased that H.R. 848 contains provisions to grant relief to small radio operators who fall underneath the revenue threshold in the bill. However, I'm still concerned that the exemption does not strike the right balance and that some radio stations that provide excellent local programming and that may make enough money to just clear the revenue threshold in the bill will be on the fringe. It would be a shame if this legislation were the last straw that caused stations like these to make the decision to close their shops or sell out. Last year, during the Subcommittee markup of this legislation, I offered an amendment as an attempt to solve this problem. It is my hope that the Chairman will work with me to come up with language that addresses this local broadcasting concern. In addition, it seems that one of the same arguments that support a requirement that broadcasters pay a performance royalty, the argument that other technologies now compete with terrestrial radio and also provide promotional value, also weighs in favor of all these various music delivery technologies being subject to the same standard for determining what the royalties should be. I'm not commenting now on what that standard should be, just that perhaps the time is right for these rules to be uniform. I'm interested to hear what the witnesses today think about these ideas. And I thank you, Mr. Chairman, for holding this important hearing. Mr. Conyers. The former attorney general of Puerto Rico, Pedro Pierluisi. Mr. Pierluisi. Thank you, Mr. Chairman. I commend you for holding this hearing on your bill, H.R. 848, which would remove the exemption for paying performance royalties that over-the- radio broadcasters but not other radio platforms have long been granted under Federal law. I know this issue is of vital importance to broadcasters, record labels and artists. I believe there are good arguments on both sides. And I have not yet made up my mind whether to support H.R. 848 or the competing resolution, H.Con.Res. 49, introduced by Mr. Green, which expresses support for the status quo. I'm hopeful, though, that today's distinguished panel will help crystallize the issues for this Committee. I would note that I have received letters from several broadcasters in Puerto Rico urging me to cosponsor Mr. Green's resolution. Along with other members of the congressional Hispanic Caucus, I have also received a letter from the Spanish Radio Association, a coalition representing several of Hispanic radio's top players. This association claims that H.R. 848 would deal a financial blow to Hispanic radio from which it can't recover. Mr. Chairman, I do not believe for a moment that this is your intention. To the contrary, I believe your bill tries in good faith to strike a balance between competing interests. I also know you will not seek to move H.R. 848 until we understand the financial impact that this legislation might have on the broadcast industry. I know this hearing marks one step in an ongoing effort to craft a bill that addresses the legitimate concerns of all parties involved. In general, I subscribe to the view that artists should be compensated for their hard work. Puerto Rico, like so many of the districts represented on this Committee, has a rich and vibrant musical culture. Besides shortstops, rum and coffee, the island's musical talent may be its most renowned export, from Tito Puente to Luis Fonsi to Ricky Martin, and from Gilberto Santa Rosa to Don Omar. I tell you, although I expect this point to be vigorously disputed by other Members of this Committee, my extremely biased view is that Puerto Rico may produce as much good music per capita as any other U.S. Jurisdiction. So I believe--not Memphis. I'm correct. So I believe that any bill should treat artists in a fair and appropriate manner while acknowledging the fact that radio clearly provides artists with promotional value. I thank the Chairman and I look forward to listening to the panelists' testimony. Mr. Conyers. The distinguished gentleman from California, Darrell Issa. Mr. Issa. Thank you, Mr. Chairman. And thank you for holding the next in this series. And I certainly join with the gentleman from Puerto Rico in saying that not all great music comes from California, nor are all the artists in Memphis indigenous to Memphis. Having said that, Mr. Chairman, I think we are beginning to go down a road that is in the right direction, which is uncommon in Congress, and that is one where although many of us are on one bill or another and have a stake in them, we are beginning to realize that the balance between performance and the value of the copyright is, in fact, inherently unfair and that we must act, although we are not sure in which direction. In my case, I'm committed to see that the producers of intellectual property not always receive the exact same compensation for their work on terrestrial radio which currently is zero. But at the same time, I join with the Ranking Member, Mr. Smith, in saying that a study--and I would go one step further, a GAO study, should in fact be commissioned in order to move us in the direction of a neutral third-party, neither the broadcasters who seem to believe that it is always a privilege not to be charged for promoting your song by paying it nor, to be honest, my friends in the content community who cannot really decide which model, but they would like to have a model similar to terrestrial radio or satellite, the two of which are not consistent and neither one of which is necessarily the one that would be chosen if we were to come back again for broadcasters. So for that reason, Mr. Chairman, I will put the rest of my opening statement in the record. I certainly support what we are going to hear today. Hopefully, Mr. Chairman, what we're going to hear today, in addition to what we've heard in the past, is support for a high-level, independent study to get it right once and for all as to perhaps not just terrestrial, but perhaps also to our friends on the Internet and satellite radio who are currently paying because somehow their promotion value appears to be less. With that, I yield back. Mr. Conyers. A senior Member of the Committee, Zoe Lofgren from California. Ms. Lofgren. Thank you, Mr. Chairman. I appreciate this hearing today and wanted to just note that I have remained neutral on this legislation, in part, because I think while there is merit to the arguments made on both sides of the question, the arguments in favor of the artists really overlook the newest platform, which is Web radio. And I think if we are going to have a discussion of parity or fairness under our copyright law--and I think it is absolutely fair that we do so--we'll err if we do not also discuss the underlying platform inequality that exists with respect to Internet radio. I would just note that, to me, it makes little sense that while cable and satellite radio providers are paying 6 to 8 percent of their total revenues in royalties under the 801(b) standard, some Internet radio stations are paying 60 to 80 percent of their total revenues under the Copyright Royalty Board's decision. I don't understand why a terrestrial broadcaster with gross revenues of under $1.25 million has to pay $5,000 under this legislation, whereas an Internet radio broadcaster making the same amount would be forced to pay a sum just shy of $150,000. In short, it seems that in every possible way the smallest, newest and most innovative entities are the ones most disadvantaged by our current copyright laws. And I would hope that as we attempt to establish parity, as this legislation does, that we would not overlook the Internet providers as well. This is the opportunity to provide parity across all platforms, and I'm hopeful that as we move forward on this, that we can accomplish that as well. With that, Mr. Chairman, I thank you for recognizing me, and I will put the remainder of my statement in the record. [The prepared statement of Ms. Lofgren follows:] Prepared Statement of the Honorable Zoe Lofgren, a Representative in Congress from the State of California, and Member, Committee on the Judiciary Thank you Chairman. I have remained neutral on this legislation in part because there is merit to the arguments made on both sides of this question. The broadcasters contend that an obligation to pay royalties overlooks the promotional benefits of free air play and will decimate local radio. For their part, the record labels feel that, particularly at a time when sales of physical CDs and vinyl are declining rapidly, the exemption enjoyed by terrestrial broadcasters is unsupportable. Another argument marshaled by the recording industry is that fairness and parity require this change in our copyright law. However, I think any discussion of parity or fairness under our copyright law is incomplete until we address the underlying platform inequality that exists with respect to internet radio. It makes little sense than while cable and satellite radio providers are paying 6 to 8 percent of their total revenues in royalties under the 801(b) standard, some internet radio stations must pay 40 to 80 percent of total revenues under the Copyright Royalty Board's decision. Similarly, I don't understand why a terrestrial broadcaster with gross revenues of under $1.25 million has to pay $5,000 under this legislation whereas an internet radio broadcaster making the same amount could be forced to pay a sum just shy of $150,000. In short, it seems that in every possible way, the smallest, newest, and most innovative entities are the ones most disadvantaged by our current copyright laws. I would hope that any good faith attempt to establish parity in our copyright laws would address this inequity. __________ Mr. Conyers. Our country and western expert, Ted Poe of Texas. Mr. Poe. Thank you, Mr. Chairman. I promise not to sing. I think, of course, in the long term, the best solution is for the parties to get involved and solve the problem rather than having the government swoop in and make decisions that usually--in many cases, I will say--both sides are disappointed with. I do see some concerns that might not have been addressed at this time, and I just want to mention those. Local radio stations has seen their revenues drop anywhere between 10 and 40 percent because of the current economic crisis. I'm also concerned about the new performance fee spreading well beyond the local radio stations. I understand that new artists trying to break into the music business and listeners, they rely on the radio to get their music out initially, and that may make it difficult for them to ever break into the group of country music singers or Puerto Rican singers or whoever. But--the one thing that hasn't been mentioned is that this is not really an issue between just the broadcasters and the artists, but you have the big record labels, label companies involved in this, too. If I understand this bill, 50 percent of the performance fee goes to the record labels, and I think we ought to have a discussion on whether that is a good idea or not. And many of those record companies, they are based all over the world; I don't know that they are based in Texas, but they are based all over the world. And I think that we should have that discussion as well. Of course, this has been before Congress, I think, three times, and each time Congress has rejected changing the system. So I look for some insight into the comments that I just made about how it will affect the industry overall in this downturn, how it will affect new performers coming in, whether they will be able to have their songs played. And why is 50 percent of the fee going to the big record companies who, I think, are getting quite a share of this new tax or fee? So, with that, I will submit the rest of it in the record, Mr. Chairman. I yield back. Thank you. Mr. Conyers. Our human rights expert on the Committee, Maxine Waters of California. Ms. Waters. Thank you very much, Mr. Chairman. Today's hearing on the Performance Rights Act of 2009, H.R. 848, is an important first step in finally addressing an issue that has remained unsolved for a number of years. Technological advancements that have brought us to a new digital age that has highlighted the fact that our copyright laws must be updated to reflect the reality on the ground and in cyberspace. Over the years, my congressional district in Los Angeles-- in my congressional district, I've spoken with many performers, artists and broadcasters about their concerns regarding the need to find a fair way to compensate everyone for their work. There is no doubt that the Committee must step up to the plate and update the copyright laws to reflect the fact that musical performances are shared today in ways that were never envisioned when the copyright laws were last updated. But in modernizing the statutes, I'm determined that we do not do so in a way that diminishes the voice of minority broadcasters. Corporate mergers have had a bad enough impact on small- to medium-sized minority broadcasters. I don't want to make that problem worse with a new law, but I believe we can come up with a solution that doesn't hurt small or minority broadcasters, including religious broadcasters. Mr. Chairman, I commend you and my colleagues, Mr. Berman and Mr. Issa and others, for your efforts to bring this bipartisan proposal before the Committee today. No bill is a perfect bill and rarely is a bill enacted exactly as it is introduced. But H.R. 848 provides us with a good starting point, and I'm looking forward to working with you and my colleagues to improve this bill in a way that will provide fair payments to performance and impose the least burden on broadcasters. Mr. Chairman, as I understand it--and I have to take a look at this bill in detail--there is some discussion about promotions and the value of promotions and whether or not there can be some kind of reconciling of the value of promotions and the cost to the performance. So I'm very much interested in that. I come from a district--part of my district is Inglewood, California, where I have Stevie Wonder, who owns one of our most prominent African American radio stations, and of course, he is one of the most prominent and well-known performers. So he has got a little bit on both sides of this. And, of course, I work very closely with Ms. Cathy Hughes, who has done so much to give us a voice where we don't have a voice. We don't have--African American legislators don't have access oftentimes to all of the Sunday TV stations and the big radio stations; our voices are mostly heard through these minority broadcasters. So we have to be concerned about them, and of course, the fairness to the performers. People must be paid for their work. So we've got a challenge to resolve here, and I'm up to the task of working to help resolve that difficult task. Mr. Conyers. I know Stevie Wonder. Howard Coble has long been a leader in the intellectual property issues from North Carolina, and he is still very concerned about this issue. Mr. Coble. Mr. Chairman, I thank you and Mr. Smith for having called this hearing. Mr. Chairman, you conferred the expert title on the distinguished gentleman from Texas. If you will pardon my immodesty, I'm fairly well versed on bluegrass and old time country; so may I share that title, Mr. Chairman? Not unlike many Members on this panel, I have friends on each side--broadcasters on the one hand, performers on the other. And when you have friends on each side and ultimately cast a vote, we can't in good conscious say, I'm former friends, because one group is going to be feel jilted. I would like to associate with the expert from Texas, when he said the best of all worlds would be for these folks at the table to come together. If you could hammer out some sort of resolution, that would, I think, benefit all of us favorably. I spoke to a Member, Mr. Chairman, who sits on this Committee, 10 minutes ago; and I said, Are you with the broadcasters or the performers? He replied, Yes. So I think that says it. But I look forward to the testimony today, Mr. Chairman, And again I thank you for calling the hearing. I yield back. Mr. Conyers. Steve Cohen from Nashville, Tennessee. Mr. Cohen. It's a big district. Thank you, Mr. Chairman. Thank you, Mr. Chairman. I have spent time on this Committee with this issue and indeed I understand where the broadcasters come from. For when I was young, in the 1950's, in Memphis, Tennessee, Dewey Phillips, a disc jockey on WHBQ radio, played Elvis Presley. And if it weren't for Dewey Phillips, the world would not have known Elvis. So no question about the fact that the broadcasters gave Elvis the opportunity to be heard and to be known; and it was Dewey Phillips' stepping out that did that. But today it is different. People would have learned about Elvis over the Internet. They would have learned about Elvis in the new technologies that come out where people really learn about new artists. So I think that as we look at what has happened over the years, the argument that the performers benefit as they did from the play on the radio and that that's their compensation has changed, and that technology has come about--this is an anachronism that needs to be corrected; if we were starting with this type of system today, we would not have this type of system and the performers would be paid. When I was young, I sang, ``Don't Be Cruel.'' Elvis sang, ``Don't Be Cruel.'' Elvis did a lot better than me. The song writer was the same; the performer does make a difference, and it should be recognized and compensated. How you emote a song has a lot to do with how a song is perceived. The difference in what American artists receive in Europe and European artists is from something to nothing, and that's because of what we've done here. And we've heard our artists being compensated in Europe because of our system. So I think we need to recognize the performer's contribution. And while this meeting indeed is about and should be about performers' rights, Howard Berman brought up sports and sports is one of my favorite subjects, other than music. And it is interesting, in the discussion today, the Memphis Tigers started their season in Puerto Rico, and now they're on the way to Detroit, the Chairman's hometown. Last year we were on the way to the Ranking Member's hometown, San Antonio. And, Mr. Chairman, we'll see you in Detroit. Thank you. Mr. Conyers. And Marcia Blackburn from Nashville is coming over right away to correct the Chairman. Mr. Cohen. She also claims she is from Memphis and Knoxville and Kingsport. Mr. Conyers. Chairman Emeritus Jim Sensenbrenner. Mr. Sensenbrenner. Thank you very much, Mr. Chairman. I hadn't planned to make an opening statement, but since everybody else is, you know, let me disclaim the fact that country music got turned off in my house when I heard a ditty called, I Want My Woman to Be More Like My Dog; my wife turned off the radio or the TV player and that was the end of that. When I was Chairman of the Committee, we dealt with a lot of vexatious intellectual property issues. And one thing that came out and rose to the top is, to be successful in any amendment to the intellectual property law, you had to get all of the players at the table and at least all of the players not being opposed to the product of negotiation, which is not the same as all the players being in favor of the product of the negotiation. Now, it's my understanding that the broadcasters haven't wanted to come to the table. I may be wrong on that, but I think that most of the Members of the Committee have that impression, and I'm going to aim my cannon right between your eyes, Mr. Newberry. I hope you and your organization get to the table and get to the table ASAP. If you don't want to get to the table, can you please tell us why during your testimony? And if there is something that has to be done to get you to the table, like the Chair calling for a markup on this bill, then I will be happy to prod you along that way. So I want to make my message a lot more sharp, I want to make my message a lot more plain. And a lot of my other colleagues have. There is a problem with this law. You can either be a part of fixing the problem or you can be on the outside. And I think this Committee will be very happy to fix it for you. So I yield back the balance of my time. Mr. Conyers. Brad Sherman, California. Mr. Sherman. Thank you, Mr. Chairman. It is--I think everything I needed to know I learned in kindergarten; or I've been trying to understand the lessons of kindergarten, and you learn there what happens to a society when you don't pay the piper. I think that those who provide us with music are entitled to be paid for it. I look forward to the artists getting a performance right just as they do in most of the developed world, and I think it is particularly hard for anyone who benefits from intellectual property protections to argue against it. I can't imagine the broadcasters saying, Well, we produce all these programs and we don't want them stolen, but we don't want to pay a performance right to the musician. The intellectual property industry is what keeps Los Angeles afloat and functioning, and those who support intellectual property rights ought to be in favor of intellectual property rights for performers. And with that, I yield back. Mr. Conyers. Our last Member, Dan Lungren of California. Mr. Lungren. Thank you, Mr. Chairman. Even before we get to hear our panel, I'm learning things here. I knew Dewey Phillips was important, but I thought Ed Sullivan had something to do with Elvis Presley--and Steve Allen. I remember him being blacked out from the waist down, which just made him more intriguing as far as I was concerned. Mr. Chairman, this is an interesting hearing we are having, an interesting subject. The first time around in Congress I represented southern California, so I probably would have leaned toward the recording industry. Now I represent an area of northern California that has a number of small radio stations, so you might think I'd lean toward the radio stations. The problem is I don't think I have enough information, even with the testimony that has been presented here as to what the fair thing to do is. We are embarking upon a question as to whether or not we are going to make a fairly significant change in a law that dates back to 1909. And I just wonder if we would benefit, as Mr. Issa suggested, from an outside study. Maybe GAO could give us a study of the economic implications. Maybe I'm old fashioned. I mean, I'm attracted to buying what we used to call records and so forth, buy what I hear on the radio. That's where I am introduced to it and that's what attracts me to buy something or not buy something frankly. Or occasionally I might see it on television, but mostly it is when I'm in my car listening to the radio. And so I can see that argument very, very strongly, the promotional feature. On the other hand, we have the testimony of the artists who say it is unfair that we're not being compensated as we would be in other venues and the way the rest of the world is. But, Mr. Chairman, I don't know frankly what the true economic facts are. I don't know what the state of the small stations are, but I hear their pleas. I don't know what the proper cut would be if we were going to make a distinction between large, medium and small. I do know that, at least in my district, it appears that the radio stations are in some difficulty. They are not where they were 5 year, ago, 10 years ago, 15 years ago, 20 years ago. And if, in fact, what we did inadvertently had the impact of destroying the nature of some of the small, local radio stations, I think that is something we ought to keep in mind as we, at the same time, consider legitimate interests on the part of the recorders and the performers for their intellectual property. So I would just second what Mr. Issa suggested, which was, perhaps we could have some sort of neutral body like the GAO do a study that might assist us in terms of some of the economic questions here. That would be of great benefit to me in making a determination on this. And I thank the Chairman for allowing me this time. Mr. Conyers. Well, now that the witnesses have listened to all of us, it is time that we listen to you. We welcome Mitch Bainwol, Dr. Liebowitz, Steve Newberry, Lawrence Patrick, Paul Almeida. And we begin with Billy Corgan, who is not only a poet--and the Smashing Pumpkins have been reunited; they've come off a world tour. And we are delighted to have you begin your testimony. All witnesses' testimony will be entered fully into the record. And we welcome you here and thank you for your patience. TESTIMONY OF BILLY CORGAN, VOCALIST AND LEAD GUITARIST, THE SMASHING PUMPKINS Mr. Corgan. Thank you. I would like to thank you, Chairman Conyers, and the Committee for this opportunity to appear before you today about the Performance Rights Act. I'm here as a representative of the musicFIRST coalition, to give voice to fellow artists and musicians who join together to assert their right to be compensated for the airing of their musical performances on terrestrial radio. Because of my experiences in the music business for over 20 years, I have a particular sensitivity when it comes to artists' rights and who controls the distribution and, therefore, the worth of those rights. Like many of my peers, I come from a working-class background, beginning my musical journey playing in dingy bars and college lunchrooms. Being a performer requires countless hours of dedication to your craft. It is not an easy business to undertake, and for every success story there are many that have not had the opportunities that I have had. I was able to find an audience in no small measure because of the long support of my music by terrestrial radio. I'm a big fan of radio and am very interested in its continued health and well-being. Terrestrial radio has helped me discover many of the artists that became influential to my life and artistic pursuits. I, by no means, see them as the bad guy. The change to the law we are here to discuss only redresses an outmoded, unfair practice that favors one participant's needs over another. This legislation is simply a form of restoration to artists long overdue. The rights of any artist are often rife with vague distinctions and contradictions, as the worth of a creative endeavor cannot be calculated by any science. Works of art are judged subjectively, and if deemed good enough, plugged into a vast system that attempts to establish their mettle and eventually capitalize on that value. The debate over what any piece of art should command in an open market is as old as time itself. As it stands currently, if you've written a song you have the good fortune of being played on terrestrial radio, then you, as the author, are entitled to a fixed form of compensation as established by Congress. This compensation, of course, recognizes the unique contribution the author has made to the creation of the song. Conversely, if you also happen to be a performer on that very same song, by law, terrestrial radio owes you no form of compensation at all. The decision behind this long-held inequity stems back to 1909 when radio was in its infancy. And since sound recordings had only recently come onto the market, they were not included. The old-fashioned radio business has held on to this exemption for over 80 years, a law made in a bygone era for a set of reasons long past. This landmark exemption, however, stripped performers of their right to a free market evaluation of the value of their recorded works. From my perspective, this issue is one of fundamental fairness. If the performance of a song has value to a particular terrestrial radio station in its airing, I believe it is only right to compensate those performers who created the work. Simply put, if a station plays a song, both the author and the performer should be paid. These particular performances must have value to the stations or they wouldn't be playing them. Not every performer on a hit song is a big name, and they might not see the same windfall that a star might. One can't assume they participate in the merchandise or touring income that is linked to commercial radio success. Not everyone who hears a song on terrestrial radio buys a ticket or a T-shirt. Some listeners just listen, thereby rewarding only the station and their advertisers, and not the performers themselves. All areas in the modern music business are currently feeling the shifting tides as new models emerge and old ones are broken up. Ours is a business that always begins with the brilliance of the artists. Contrary to long-held myths, it does take money to create new music. As the traditional revenue streams have dried up, most notably in the overall decline of records sales, it has placed stress on who continues to benefit from the old models. The future demands new partnerships and a rethinking of long-held practices about how artists should be compensated for their music. The hallmark of any great entertainment career is sustainability. Recognizing both the significance of the author and performer in the music making process helps to create those future opportunities. In closing and with all due respect to those that oppose the passage of the Performance Rights Act, to classify this measure as a ``tax'' is an interesting choice of words, for who has been taxed more than the artists themselves? Artists have paid their dues, so to speak, to establish terrestrial radio as a great and dynamic medium. We must consider that for many artists, the difference between receiving these resources is the difference between a life in music and a life out of music. Few could deny that when a classic performance is captured, forever frozen as a musical snapshot in time, generation after generation returns to these moments, each finding something a little different. Whether we are talking about Motown, Stax, Elvis or Howling Wolf, when the public decides that a specific performance is worthy of their attention, then it seems only fitting that this little bit of magic as documented be recognized in the form of direct compensation for the artists and organizations that helped to create it. Thank you for your time. [The prepared statement of Mr. Corgan follows:] Prepared Statement of Billy Corgan I'd like to thank Chairman Conyers and the Committee for this opportunity to appear before you today about the Performance Rights Act. I'm here as a representative of the musicFIRST coalition, to give voice to fellow artists and musicians who have joined together to assert their right to be compensated for the airing of their musical performances on terrestrial radio. Because of my experiences in the music business for over 20 years, I have a particular sensitivity when it comes to artists' rights, and who controls the distribution, and therefore, the worth of those rights. Like many of my peers, I come from a working-class background, beginning my musical journey playing in dingy bars and college lunchrooms. Being a performer requires countless hours of dedication to your craft. It is not an easy business to undertake, and for every success story, there are many who have not had the opportunities that I've had. I was able to find an audience, in no small measure, because of the long support of my music by terrestrial radio. I am a big fan of radio, and am very interested in its continued health and well-being. Terrestrial radio has helped me to discover many of the artists that became influential to my life and artistic pursuits. I by no means see them as the bad guy. The change to the law we are here to discuss only redresses an outmoded, unfair practice that favors one participant's needs over another. This legislation is simply a form of restoration to artists long overdue. The rights of any artist are often rife with vague distinctions and contradictions, as the worth of a creative endeavor cannot be calculated by any science. Works of art are judged subjectively, and if deemed good enough, plugged into a vast system that attempts to establish their mettle and eventually capitalize on that value. The debate over what any piece of art should command on an open market is as old as time itself. As it stands currently, if you have written a song and you have the good fortune of being played on terrestrial radio, then you, as the author, are entitled to a fixed form of compensation as established by Congress. This compensation, of course, recognizes the unique contribution that the author has made to the creation of the song. Conversely, if you also happen to be a performer on that very same song, by law, terrestrial radio owes you no form of compensation at all. The decision behind this long-held inequity stems back to 1909 when radio was in its infancy, and since sound recordings had only recently come onto the market, they were not included. The old- fashioned radio business has held onto this exemption for over 80 years--a law made in a bygone era for a set of reasons long past. This landmark exemption however stripped performers of their right to a free market evaluation of the value of their recorded works. From my perspective, this issue is one of fundamental fairness. If the performance of a song has value to a particular terrestrial radio station in its airing, I believe it is only right to compensate those performers who have created this work. Simply put, if a station plays a song, both the author and the performer should be paid. These particular performances must have value to the stations or they wouldn't be playing them. Not every performer on a hit song is a big name, and they might not see the same windfall that a star might. One can't assume they participate in the merchandise or touring income that is linked to commercial radio success. Not everyone who hears a song on terrestrial radio buys a ticket or a t-shirt. Some listeners just listen, thereby rewarding only the station and their advertisers, and not performers themselves. All areas of the modern music business are currently feeling the shifting tides as new models emerge and old ones are broken up. Ours is a business that always begins with the brilliance of the artists. Contrary to long-held myths, it does take money to create new music. As the traditional revenue streams have dried up, most notably in the overall decline of record sales, it has placed stress on who continues to benefit from the old models. The future demands new partnerships and a rethinking of long-held practices about how artists should be compensated for their music. The hallmark of any great entertainment career is sustainability. Recognizing both the significance of the author and performer in the music making process helps to create those future opportunities. In closing, and with all due respect to those that oppose the passage of the Performance Rights Act, to classify this measure as a ``tax'' is an interesting choice of words. For who has been taxed more than the artists themselves? Artists have paid their dues, so to speak, to establish terrestrial radio as a great and dynamic medium. We must consider that, for many artists, the difference between receiving these resources is the difference between a life in music and a life out of music. Few could deny that when a classic performance is captured, forever frozen as a musical snapshot in time, generation after generation returns to these moments, each finding something a little different. Whether we are talking about Motown, Stax, Elvis, or Howling Wolf, when the public decides that a specific performance is worthy of their attention, then it seems only fitting that this little bit of magic as documented be recognized in the form of direct compensation for the artists and organizations that helped to create it. I thank you for your time. __________ Mr. Conyers. Paul Almeida is the President of the AFL-CIO's Department For Professional Employees. They represent their 4 million professional and technical workers. He is an engineer himself and was, for 7 years, president of the International Federation of Professional and Technical Engineers. Welcome to the hearing. TESTIMONY OF PAUL ALMEIDA, PRESIDENT, DEPARTMENT FOR PROFESSIONAL EMPLOYEES, AFL-CIO Mr. Almeida. Thank you, Chairman. Good morning, Chairman Conyers, Ranking Member Smith and distinguished Members of the Committee. My name is Paul Almeida, and I'm the President of the Department For Professional Employees of the AFL-CIO, a coalition of 24 national unions representing some 4 million white-collar workers. I'm here today to support the hundreds of thousands of recording artists, singers and musicians who seek to secure a performance right so that they may finally be able to receive the fair compensation they deserve for the work they create. I am especially pleased to be able to deliver a letter to the Committee which has been signed by the presidents of the American Federation of Teachers, the Communication Workers of America, the United Steel Workers, the International Association of Firefighters, the American Federation of State, County and Municipal Employees and the Service Employees International Union in solidarity with the brothers and sisters in the music industry. I would ask that the letter be made part of the hearing record. Mr. Conyers. We'll accept it into the record. [The information referred to follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] ---------- Mr. Almeida. Thank you. Like all professionals, singers and musicians spend years developing their musical talents and abilities and invest substantial resources in their careers. While a relatively small number of performers are able to attain, but not necessarily sustain, fame and fortune, the vast majority of recording artists, singers and musicians must work hard to patch together modest earnings from various sources in order to support their families. The most successful ones are able to build a middle-class career in music. Most performers, even those who appear to the outside world to be successful, have to work day jobs to pay the bills. In what other profession would you be required to give your work away for free? In all my years representing professionals, I have never encountered such a situation. Labor ardently supports the efforts of our brothers and sisters in the music profession to be fairly compensated for the music they have created and is played on the radio. Commercial radio stations earned over $16 billion in advertising revenue last year, yet they paid nothing to the performers whose music they played. AM/FM radio depends for its success on recordings created by great performers like the Four Tops, The Supremes, Miles Davis, Patsy Cline and so many other great artists and their equally talented session musicians and singers. What does it pay those artists? Not a penny. As union members, we believe that this is an issue of fairness. We believe in the principle that a fair day's work deserves a fair day's pay. The current system creates an unfair competitive advantage for AM/FM radio broadcasters over the new-medium radio platforms. All radio platforms, except AM/FM radio, including satellite, Internet and cable radio, pay for the music they play. Under current law, only the songwriters are entitled to compensation. While it is absolutely right that songwriters be paid for the broadcast of their songs, it follows their performers should also be paid for the broadcast of their recordings. We all know that that the musicians and singers play a crucial role in creating masterpieces we hum throughout the day, whether it is the National Symphony's version of Mozart or the Temptations singing My Girl written by Smokey Robinson and Ronald White. Performers, too, are creators who deserve and need to be paid. In this worsening economic crisis, we are also leaving $70 to $100 million on the table each year because we do not have a performance right for artists here in the United States. Talented artists are denied the ability to recover what they erode from airplay of their music overseas. Does it really make sense for the U.S. to continue to allow millions of dollars to go no the French cultural fund every year instead of coming home to the U.S., where it can help performers make ends meet and help local economies? Under the--unless Congress enacts the Performance Rights Act, our artists in the U.S. will continue to be precluded from collecting these royalties from overseas. It is long past time that our brothers and sisters who belong to the affiliated unions, the American Federation of Musicians and the American Federation of Television and Radio Artists, are paid for the work that they create. We all benefit greatly from their wonderful music. We listen to it in our cars on our way to and from work, on the job or at home. And like many others, for many years I assumed they were being paid a little bit for each time I heard the grateful dead play Touch of Grey or Jefferson Airplane play White Rabbit. Now, I know that the broadcasters have prevented this for over 80 years. I know it has been a long-fought battle from Glenn Miller to Frank Sinatra to those like Sam Moore, Martha Reeves, Herbie Hancock and others who are leading the charge now. It is time. It is only fair that the talented artists be fairly compensated for what they create. Thank you for asking me to be part of the hearing today, and I will be happy to answer any questions. [The prepared statement of Mr. Almeida follows:] Prepared Statement of Paul Almeida Good morning, Chairman Conyers, Ranking Member Smith, and distinguished Members of the Committee. My name is Paul Almeida. I am the President of the Department for Professional Employees (DPE), a coalition of 24 national unions affiliated with the AFL-CIO. I am honored to speak today on behalf of the more than four million professionals represented by our union affiliates, including the American Federation of Television and Radio Artists, the American Federation of Musicians, the Federation of Professional Athletes, the United American Nurses, the American Federation of Government Employees, and all of our other affiliates. I am here today to stand in support of the hundreds of thousands of recording artists, singers, and musicians who seek to secure a performance right so that they may finally be able to receive the fair compensation they deserve for the work they create. I am especially pleased to be able to deliver a letter today to the Committee which is signed by the Presidents of the Service Employee International Union, the American Federation of Teachers, the United Steelworkers, the International Association of Fire Fighters, the American Federation of State, County and Municipal Employees, and the Communications Workers of America, in solidarity with our brothers and sisters in the music industry. I would ask that this letter be made part of today's hearing record. We are joining this critical campaign as a united labor movement and we deeply appreciate the leadership of Chairman Conyers, Representatives Berman and Issa, and the other Members of this Committee who support this legislation. Like all professionals, singers and musicians spend years developing their musical talents and abilities and invest substantial resources in their careers. Just like other professionals, they make considerable sacrifices in an effort to succeed in their chosen field. And just like other professionals, recording artists, musicians and background singers deserve to be paid fairly for the work they do. In what other profession would you be required to give your work away for free without your permission? In all of my years representing professionals, I have never encountered such a situation. And while a relatively small number of performers are able to attain (but not necessarily sustain) fame and fortune, the vast majority of recording artists, singers and musicians must work hard to patch together modest earnings from various sources in order to support their families. The most successful ones are able to build middle-class careers in music. Most performers, even those who appear to the outside world to be successful, have to work ``day jobs'' to pay the bills. Labor ardently supports the efforts of our brothers and sisters in the music profession to be fairly compensated when the music they have created is played on the radio. The labor community is also concerned about the many, many hardworking singers and musicians who are now growing older and can no longer easily tour. Yet, their jazz hits, country tunes, and R & B melodies continue to be played over and over again on commercial radio stations. While these stations earned over $16 billion in advertising revenues last year, they paid nothing to the performers whose music they played. AM/FM radio depends for its success on the recordings created by great performers like the Four Tops, the Supremes, Miles Davis, Patsy Cline and so many other great artists and their equally talented session musicians and singers. What does it pay those artists? Not one penny. The radio stations have had a good gig for decades now, but it is time they start paying for the music they play. As union members, we believe that this is an issue of fairness. We believe in the principle that a fair day's work deserves a fair day's pay. Music broadcasters have fought hard over the years to avoid paying anything for the foundation of their business model--the music that they play 24 hours a day on a myriad of stations. Let's not kid ourselves--no one tunes into the local hard rock or oldies' station to listen to the commercials. We tune in for the music--to be entertained or energized or to reminisce. These same broadcasters pay their on air ``personalities'' and shock jocks millions each year to entertain their listening audience. And they pay millions more in licensing fees to broadcast baseball, football and basketball games. Yet, they refuse to pay anything at all to the artists and musicians who bring music to life. This is simply not fair. And, the current system creates an unfair competitive advantage for AM/FM radio broadcasters over the ``new media'' radio platforms. All radio platforms except AM/FM radio, including satellite, Internet, and cable radio, pay for the music they play--yet the AM/FM radio broadcasters continue to block artists' efforts to be paid when the same music is played over terrestrial radio. That is just not right! We believe that both songwriters and performers should be compensated when the music they have jointly created is played on the radio. Unfortunately, under current law, only songwriters are entitled to compensation. While it is absolutely right that songwriters be paid for the broadcast of their songs, it follows that performers also should be paid for the broadcast of their recordings. We all know that the musicians and singers play a crucial role in creating the masterpieces we hum throughout the day--whether it is the National Symphony Orchestra's version of a Mozart classic, or The Temptations singing ``My Girl'' written by Smokey Robinson and Ronald White. Performers, too, are creators who deserve and need to be paid. In this worsening economic crisis, we are leaving 70 to 100 million dollars on the table each year because we do not have a performance right for artists here in the United States. Talented artists are denied the ability to recover what they are owed from the airplay of their music overseas. Does it really make sense for the U.S. to continue to allow millions of dollars to go into a French cultural fund every year, instead of coming home to the U.S. where it can help performers make ends meet, and help our local economies? Unless Congress enacts this Performance Rights Act, artists in the U.S. will continue to be precluded from collecting these royalties from overseas. That too is unfair. The United States is the only developed country in the world that does not have a performance right in sound recordings. In our failure to provide a performance right we stand in the company of such countries as China, North Korea, Rwanda, and Iran. In so many other areas, we fight to ensure that the United States is a leader-- clearly we have fallen down on the job here. It is long past time that our brothers and sisters who belong to our affiliated unions, AFM and AFTRA, are paid for the work that they create. We all benefit greatly from their wonderful music--we listen to it in the car to and from work, on the job, and at home while relaxing with family and friends. And like many others, for many years I assumed that they were paid a little bit each time I heard The Grateful Dead play ``Touch of Grey'' or Jefferson Airplane perform ``White Rabbit.'' Now I know that the broadcasters have prevented that--for over 80 years. I know this has been a long fought battle--from Glen Miller to Frank Sinatra to those like Sam Moore, Martha Reeves, Herbie Hancock and others who are leading the charge now--It is time. It is only fair that these talented artists be fairly compensated for what they create and the joy they bring into our lives. Thank you for asking me to be a part of this hearing today. I, and thousands of my union colleagues, are eager to help our brothers and sisters in the music industry earn a decent living from the craft that they have chosen--music. I would be happy to answer any questions you may have. __________ Mr. Conyers. Lawrence Patrick is a veteran in this business. He graduated from Georgetown Law School, Ph.D. From Ohio University. He heads Patrick Communications, owns a number of small market radio stations, has been head of Gilmore Broadcasting, senior vice president of National Association of Broadcasters and chairman of Ion Media Networks. And we are glad to have you here today. We welcome you to the Committee. TESTIMONY OF W. LAWRENCE PATRICK, PRESIDENT, PATRICK COMMUNICATIONS Mr. Patrick. Thank you very much. Good morning, Chairman Conyers, Ranking Member Smith and Members of the Committee. My name is Larry Patrick and I'm managing partner of Patrick Communications. We are a media brokerage firm based in Elkridge, Maryland. I am also a radio broadcaster. My company, Legend Communications, owns 14 small-market radio stations in Wyoming. In my capacity as managing partner of Patrick Communications, I have extensive media brokerage experience. My firm has negotiated or consulted on over 500 radio and 150 television transactions in the past 15 years. I work with both publicly and privately held communication companies ranging from the largest group owners to many hundreds of mom-and-pop stations. I have been part of the radio industry for 40 years. I can tell you that over the course of my career, I have never seen what the radio industry is currently experiencing. The economic downturn is having a significant and devastating effect on local radio. But as bad as the current local radio landscape is, it will deteriorate even further and much more dramatically if H.R. 848 were to be enacted. Let me share with all of you where the radio industry is and what I believe a new performance fee will mean to the local radio stations. In 2008, radio revenues finished the year down 9 percent. 2009 doesn't look much better. A recent Wells Fargo analyst's forecast said there would be a 13 percent drop in revenues for the industry in 2009, and she warned that the forecast may be far too optimistic. She painted a picture of an industry that is now in free fall with no chance of a turnaround until the economy recovers or credit markets improve. I personally know of radio stations that are seeing a 35 to as much as a 50 percent revenue decline all across the country. Of course, radio, like virtually every other industry, is suffering the effects of the financial meltdown and the paralysis in the credit markets, which makes it difficult, if not impossible, to finance acquisitions. I know dozens of radio station owners--many of them in their 60's and even 70's--who want to sell their stations and retire, cannot find any buyer capable of financing a purchase in today's market. Almost every publicly traded radio company is in default with their lenders today, and many are facing delisting of their stock from the national exchanges. Right now, I'm advising lenders and investors on nearly a dozen workouts of radio companies involving over 300 radio stations. Salem Communications, based in California, the largest religious radio group; Saga Communications, based in your hometown of Detroit, Mr. Conyers; Radio One, the largest African American radio company; and others including Citadel, Cumulus, Entercom, Beasley, Emmis, Fisher--dozens of others-- have all had to lay off employees and reduce companywide compensation from 5 to 10 percent in the last few months. The radio industry is tightening its belt and moving forward into a world of financial uncertainty that none of us have ever experienced. We are facing an economic downturn that is sharper and steeper than anything I have ever witnessed. What I've described is the economic realities that the radio industry is facing right now. And having watched the industry for 40 years, I can sit here and tell you that the new fees that will be levied under H.R. 848 will do significant, long-term damage to the local radio stations across the country. Any further station costs will push even more stations into tripping their loan covenants with their banks and more workouts. Station owners will further reduce staffing and services, which will only hurt their local listeners while enriching the big music labels. The labels suggest that the provision for small market operators of an annual flat fee of $5,000 would not harm the small market operators. Well, I am a small market radio operator also and I know how much this will hurt. And I know hundreds of small market radio owners who barely make $25,000 a year from their stations. To pay this fee, even a $5,000 fee, stations could have to eliminate covering high school sports, give up more local origination and would reduce their staffing even further. Any additional fees also threaten their ability to provide emergency services that are so critical to the thousands of small towns across this country. The recording industry has also argued in the past that if a new performance fee were adapted, stations could simply raise their advertising rates to pay for that new fee. Nothing could be further from the truth. If radio broadcasters could actually get more money for their advertising spots, why wouldn't they be doing that already? The truth is that ad rates are dropping sharply; they are not increasing. At this time, stations are laying off employees, reducing wages by 5 to 10 percent; and a number of radio companies are literally teetering on the verge of bankruptcy. If this bill is enacted, it will put at risk an industry that employs nearly 106,000 people across America. I am not overstating the situation when I say that such extraordinary fees imposed on local radio stations, in light of the current economic plight of local radio, could be absolutely devastating. The recording industry is living in a fantasy world that is divorced from the critical, depressed financial position in which almost every radio station finds itself today. I strongly urge the Committee Members to oppose H.R. 848. Thank you very much, Mr. Chairman. And I look forward to answering any questions that you and the Committee Members may have. [The prepared statement of Mr. Patrick follows:] Prepared Statement of W. Lawrence Patrick [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] __________ Mr. Conyers. Dr. Stanley Liebowitz, economist, University of Texas at Dallas, trained at UCLA and Johns Hopkins. We welcome you. TESTIMONY OF STAN LIEBOWITZ, Ph.D., ASHBEL SMITH PROFESSOR OF MANAGERIAL ECONOMICS, UNIVERSITY OF TEXAS AT DALLAS Mr. Liebowitz. Thank you. Thank you, ladies and gentlemen and Members of the Committee, for inviting me to express my views. I am an academic economist, and I have performed research on topics related to today's issue. My research has tended to focus on the impacts of new technologies, the creation of intellectual products. I have been involved with these topics since the Canadian Government asked me to investigate the impact of photocopying on publishers, which was a long time ago, as most of you know. I have written two academic papers that examined one of the key topics at issue today--whether or not radio play benefits the owners of sound recordings. The approaches that I used in these two papers are very different from one another. One is an historical examination of old events and the other is an econometric examination using recent data. My historical examination looked at two different episodes. First, I took a look at sound recording sales in the United States after the introduction of radio; second, I examined the introduction of youth-oriented radio in Britain in the 1970's. In the U.S., what I discovered was that record sales were more mature than most people realized when radio was introduced and that record sales dropped dramatically after radio was introduced. In Britain, the BBC was in charge of all the radio; they had a state monopoly. They did not play rock-and-roll music. Most of you may remember that there were pirate radio stations that Texans, among others, put off the coast of Britain in the 1960's. Those were shut down. The BBC agreed to start playing more rock-and-roll, and they started to allow private stations in Britain. After that occurred, record sales did not go up. So, from those two, I found no evidence to support a view that radio playing increases record sales. My econometric examination compared record sales in 99 U.S. cities, and it looked at how the cities differed in terms of radio listenership. What I found was that the cities that had the largest increase in radio listening had the biggest decreases in record sales. So, again, no evidence that radio increased sales and, in fact, the opposite; the evidence is that radio decreased it. My papers are attached to my written statement, and people can look at them if they are interested. Now, you should note that I am looking at the overall sales of sound recordings, not the impact of radio broadcasts on the sales of the individual records that are actually broadcast. This is an important point that I want to spend a few moments on. I fully agree with the claims made by the radio industry that radio airplay increases the sales of individual records, particularly when they are heavily played by the stations, but that in no way means that radio broadcasting increases the overall sales of sound recordings. The time that individuals spend listening to the radio is time that they could have spent listening to sound recordings; and they spend much more time listening to the radio than they do listening to sound recordings, according to the U.S. statistical abstract. Now let me give you a simple example. Imagine you are in your car. On average, people are supposed to spend an hour a day listening to radio in their cars. Let us assume for the moment that radio does not exist, okay? What will happen? Well, you can either listen to the sound of your car's tires on the pavement or you can put in a tape, a CD or an iPod. What is it you are going to do? We all know most people are going to wind up listening to prerecorded music in that circumstance, most of the people who had previously been listening to radio. Since people spend an hour a day in the car, this switch would triple the amount of time that people would spend listening to prerecorded music according to the statistics. If people were to spend that much more time listening to prerecorded music, it would almost certainly increase the sales of sound recordings. That is the way in which you need to think about what the real impact of radio is on sound recordings, not the fact that radio has an important influence on which sound recordings people actually buy. Now, it is also sometimes suggested that payola proves that radio is beneficial to record sales, but this is again an incorrect inference. By looking at a small sample of the data, that doesn't give you a complete picture. In the current legal regime, all we can see is a distorted view of the market; that is because the record companies cannot demand payment for the broadcast of the records because they do not own the rights of the broadcast of the records. By way of analogy, there are many people who publish their own books in this country. If that fact alone were the only fact that you saw when you took a look at book publishing, you might come to the conclusion that publishers do not need to pay authors, because there is a whole set of authors who are perfectly happy not to get paid, but we know that that is an incorrect inference because we look and see the entire publishing industry, because the authors actually have the right to get paid; and in that case, we know that successful authors get paid a very high amount. Now, I do not view it as my role here to argue for the proposed law or against the proposed law. I cannot say whether the proposal would be superior to just requiring radio stations to be required to acquire the rights to the broadcast sound recordings. But I can say that it seems far more logical, given what I know of the economic factors involved, to have a system where radio stations are required to pay for their usage of sound recordings as opposed to the current system where radio stations can take their primary economic input for free without the permission of the owners of that input. Thank you. [The prepared statement of Mr. Liebowitz follows:] Prepared Statement of Stan Liebowitz [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] ATTACHMENT 1 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] ATTACHMENT 2 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] __________ Mr. Conyers. Mr. Steve Newberry has been here before. He is the president and CEO of Commonwealth Broadcasting, vice chairman of NAB's board of directors, and he has been in this business quite a while. We welcome you to the Committee. TESTIMONY OF STEVEN NEWBERRY, COMMONWEALTH BROADCASTING CORPORATION, ON BEHALF OF THE NATIONAL ASSOCIATION OF BROADCASTERS (NAB) Mr. Newberry. Thank you, Mr. Chairman, Ranking Member Smith and Members of the Committee. My name is Steve Newberry. I am president and CEO of Commonwealth Broadcasting Corporation. We operate 23 stations in the State of Kentucky, but today I am testifying on behalf of the over 6,800 local radio members of the National Association of Broadcasters. Now, I am sure it comes as no surprise to any of you that I am here to express my opposition to H.R. 848, but I can tell you that since the last time I had the privilege to testify before this Committee, this sharp economic downturn has intensified my concerns about this bill and the impact that it will have on local radio stations across America. At its heart, this bill attempts to create a conflict between artists and radio stations where no conflict exists. In reality, local radio stations have been supporting the music industry for decades, which is why it boggles my mind that a bill that is supposed to be about benefiting artists takes 50 percent of the performance fee and puts it into the pockets of the big record labels, predominantly the big four record labels, most of which are not even American companies. The record labels actually walk away with more money under this bill than do the featured artists. Let me be clear about that: The record labels walk away with more money in this bill than do the featured artists. The real problem, which this bill does not address, is between the artist and the mega record labels. Artists often find themselves in such difficult financial straits because of unfair, one-sided contracts they sign with their record labels. Toni Braxton, for example, received less than 35 cents per album of the $188 million in CDs that she sold. If these artists had had fair contracts with the labels that included fair royalty clauses, they would have benefited from the promotional value that radio airplay has brought to them and that they have enjoyed. Free radio airplay is the best friend of artists and of record labels. Herbie Hancock said it best just 2 weeks ago during his visit to Capitol Hill: ``Just as radio promotes music, music promotes radio.'' I could not agree more. That is why the system has worked so well, to the benefit of all parties for the last 80 years. But let me put this in the most stark of terms. Under H.R. 848, your local radio stations will be forced to cut services or employees. They may be forced to move from a music format to a talk format or may be facing bankruptcy, but the damage resulting from H.R. 848 will run far beyond local radio stations. Who else will be hurt? Composers: This bill creates a financial disincentive to play music. If there is less music played on the radio, composer royalties will decrease. New artists: This bill makes a steep mountain even steeper for emerging young artists. H.R. 848 forces a radio station to turn playing music into a return-on-investment proposition. Why take a risk on a new, untested artist when you can play the known and recognized performer? Now, every time you play a song, it becomes a decision that potentially affects your bottom line. Music diversity: This bill will decrease the diversity of music on the radio. I can tell you that many niche stations that offer Latino and hip hop are already on shaky ground. For many, even what is called a ``small'' $5,000 fee will take them from barely getting by to unprofitable. Minority ownership: NAB has long worked with Congress to support minority tax certificates, to help women and minorities realize the dream of station ownership. What help will the minority tax certificate be if you can afford to buy the radio station, but you cannot afford to run it? Finally, radio listeners will be hurt: Stations that listen to and serve their local communities may, indeed, disappear. In many of these cases, the radio stations in peril, possibly going off the air, are serving very rural communities where they may be the only stations serving their local town. What I am saying is that H.R. 848 has significant unintended consequences that I do not believe this Committee has fully investigated. The funding for this new performance fee has to come from somewhere. So what are my options? Do I reduce the community affairs programming, including essential news and weather service in times of emergency, because I cannot reduce my electric bill? Am I forced to lay off staff or cut the employee benefits at my station because I cannot reduce my FCC regulatory fees? Do I move to a nonmusic format which will have the effect of playing less music, which will ultimately harm the performers? That is the reason the National Religious Broadcasters, the National Association of Black Owned Broadcasters, the National Association of Farm Broadcasters, and the Spanish Broadcasters Association all oppose the imposition of any new performance fees. The answers are not simple, and the consequences of this debate will hit both industries in unanticipated ways. I strongly encourage and urge the Committee to carefully consider these very real consequences of H.R. 848. Thank you, Mr. Chairman. I look forward to answering your questions today. [The prepared statement of Mr. Newberry follows:] Prepared Statement of Steven Newberry [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] ATTACHMENT [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] __________ Mr. Conyers. The chairman of the RIAA, Mitch Bainwol, has replaced Hilary Rosen--now, a number of years ago--and he serves on the board of several boards including leadership music in Nashville, is a graduate of Rice University, and of Georgetown University as well. TESTIMONY OF MITCH BAINWOL, CHAIRMAN AND CEO, RECORDING INDUSTRY ASSOCIATION OF AMERICA (RIAA) Mr. Bainwol. My name is Mitch Bainwol. I am the CEO of the RIAA. Today, I am here as a member of the MusicFIRST coalition, which represents labels big and small, managers, musicians, and producers, all together, in supporting the performance right. This issue unites the creative community, property rights advocates and labor. I am pleased to be sitting here today with the incomparable Billy Corgan--my 10-year-old son is a huge fan, Billy--and Paul Almeida from the AFL-CIO. I am delighted to submit for the record a letter from the Property Rights Alliance in support of this bill. [The information referred to follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] ---------- Mr. Bainwol. I would like to focus your attention on five key points. The first point: The issue is not as complicated as the broadcasters suggest. On the contrary, this year, radio will spin almost a billion songs in the United States, making billions of dollars in advertising from our music. The payment to artists and labels for those recordings will not amount to even a penny, not a penny. As George Carlin famously said, ``What a ratio.'' I am not aware of any business elsewhere in the American economy where the primary input is not compensated. The broadcasters brandish diversionary rhetoric. We have heard it today; they call this a tax. You know better than I that a tax is what government collects, not a payment between private parties for private property. No, what is going on here is entirely different. It is a taking. When broadcasters use our music to build their business for investors, but performers and musicians don't get paid when our music is played and we cannot tell radio not to use our music, that's a taking. The second point: The U.S. in the case of terrestrial radio is unique. We're the only Nation in the OECD that does not provide the creator compensation for radio play; and ironically, the most economically secure platform that broadcasts music, over-the-air radio, dominated by big corporations, is the only platform in the United States that does not pay. Satellite does. Internet companies do. Cable does. Terrestrial radio is an anomaly. The competitive landscape, thus, is biased in favor of the old establishment players against new start-ups and innovative technologies. Third point: While this has always been a taking, the so- called logic behind the taking has totally collapsed. You hear broadcasters talk about promotions and the symbiotic relationship that exists between our industries. Here are the facts: More than half of what big radio plays on the air are oldies. I love oldies, and I know you guys do, too. Older artists do not tour, and they should not have to. The promotional value for playing oldies is hollow. We are no longer in a world in which listeners turn on the radio, hear a song and run down to Tower Records to buy that song. We are increasingly moving to a world where consumers get their music through the performance of it--through standard radio, through niche programming or on-demand access. We are not saying there is no promotional value. There is, but it has diminished. Sales have fallen from almost $15 billion to $9 billion since 1999, including digital, and hits are not what they once were. In 2000, the Top 10 song albums in the country sold 60 million units. Last year, the Top 10 song albums sold about 19 million units. Grammy-award-winning artist Herbie Hancock said it best, and you are right, ``While there is no question that radio promotes music, it is also clear that music promotes radio.'' The fact is that whatever value promotion represents should be made a factor for determining the appropriate rate. That's what this bill does. Fourth point: This bill focuses on big corporate radio, and we are anxious to roll up our sleeves to work with smaller stations, like those of Mr. Newberry's, to find responsible ways to address their concerns. As it is, almost 80 percent of the stations in the country are accommodated. Stations under $1.25 million in revenue enjoy a flat fee amounting to about $400 a month. Public stations pay less than $100 a month. Talk radio will not pay for music; neither will religious services. We are prepared to work with the smaller stations to build phase-in ramps, given the economic downturn. We just can't find anyone to sit down with. Despite the call last year from Members from this Committee for us to sit down and negotiate, Mr. Rehr, who runs the NAB, said he would rather slit his throat than talk. I have got to tell you that it makes it hard to negotiate with that kind of player. But to be clear, the issue in the end is not about small station owners; it is about whether big, consolidated radio can continue to flex its muscle to perpetuate this taking. As for Administrations of both parties, the Bush administration and the Clinton administration before it, Administrations of both parties stipulated there is no legal or policy rationale for the sweetheart deal that broadcasters enjoy. The fifth and final point: This issue is not merely about transferring revenue from one company to another, far from it. Half of the payments will go directly to the performers, by statute--radio stations, to Sound Exchange, to the artists, period. Many of the recipients are artists and musicians who are struggling. Additionally, due to international reciprocity, the law will return millions of dollars each and every year, dollars that are locked up now overseas. Broadcasters receive a government handout, corporate welfare in the form of free broadcast spectrum and a rigged economic advantage over every other radio platform. It is no mystery why they are fighting so hard to maintain the special exemption. What business would not love to avoid paying for their key input? Imagine Morton's not paying for beef or car manufacturers alleging economic hardship to suggest they should get free steel. Preposterous. Once again, we thank you for your attention to this matter. We look forward to working with you to get this right. [The prepared statement of Mr. Bainwol follows:] Prepared Statement of Mitch Bainwol [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] __________ Mr. Conyers. The Committee is pleased to welcome Marsha Blackburn of Tennessee to our Committee hearings. We think she is from Nashville, but some think that there are other parts of Tennessee she might be from. Mrs. Blackburn. Thank you, Mr. Chairman. I appreciate the opportunity to step in. I have a little bit of Memphis and a little bit of Nashville. I go all the way to the Kentucky border. Mr. Watt. Mr. Chairman, I ask unanimous consent to allow the gentlelady to make an opening statement. Mr. Conyers. Without objection. Mr. Smith. Mr. Chairman, I am afraid I have to object. Mr. Conyers. All right. Mr. Smith. If the Chairman would yield or maybe the gentleman from North Carolina, I will be happy to explain why to my good friend and colleague. Mr. Watt. Are you reserving the right to object or are you objecting? Mr. Smith. I am objecting. Mr. Watt. Well, if you are objecting, then that is the end of the conversation. Mr. Smith. Well, in that case, I will reserve the right to object. Mr. Watt. All right. In that case, I will listen to you. If you have already objected, I do not know why we are having the discussion, but go ahead. Mr. Conyers. Why are you so controversial, Mrs. Blackburn? Mrs. Blackburn. I will just say thank you, Mr. Chairman. I appreciate the opportunity to sit in. I did not want to make a statement, but I appreciate the opportunity to clarify all of the good people that I do represent in my little bit country/ little bit rock-and-roll district. Mr. Smith. Mr. Chairman, I would like to explain, just so that our colleagues and so, perhaps, those in the audience understand why I objected. It has been a longstanding policy on this Committee--that I thought the gentleman from North Carolina was aware of, and that I know the Chairman is aware of--that we do not have Members who are not Members of the Judiciary Committee make opening statements. If we were to set that precedent, as much as I might like to do so today, we might be inundated with dozens of Members who would appear at every hearing and who would have reason to make opening statements. Mr. Watt. Will the gentleman yield? Mr. Smith. Just a minute. So, at least in this Congress and in the last Congress, the Chairman and I have had an agreement that we would not have opening statements by other Members. I will be happy to yield. Mr. Watt. I thought I was being bipartisan in making this motion, and I thought I was the appropriate person to make it, since I was one of only two people who did not make an opening statement myself. But if the gentleman does not want his colleague to make an opening statement, that is fine with me. Mr. Smith. I yield back, Mr. Chairman. Mr. Conyers. I would like to ask any of the distinguished witnesses if they have any opening remarks that they would like to exchange about anything that they have heard from the other witnesses before we begin. Oh, yes, Mr. Almeida. Mr. Almeida. I understand the difficult times the small radio stations are in and the burden it would be on them. However, even more so are the musicians and the background singers who are further, if you want to call it, ``down the food chain.'' So they should be further penalized? I think it is a major injustice to those workers who do their work. I think that we have this common misconception of performers. We kind of hold them on a plateau in what we take for our personal enjoyment. I think we often do not connect that they are working people, trying to put bread on the table. So I think we take advantage of that often by the position that we put them in in society. Mr. Patrick. Mr. Chairman, we understand where they are-- the musicians, the background singers, all of those types of people. I want to make sure the Committee understands. We are not just talking about the small market stations. I was just recently in your home State 2 weekends ago, trying to help a family who owns an AM/FM radio station up in central Michigan. At the end of last year, the total money that they had made off that station was $33,000, and there is no doubt, at $5,000 a clip, they lost a third of their income almost. This is a husband and wife who work 50 to 60 hours a week. When I go through Intercom and Citadel and all of the big companies, and Radio One, that have been delisted from the exchanges, this is not just a small market radio problem; this is a radio problem. While $16 billion sounds like a lot, there are 13,000 radio stations, and the reality is, we have been down $5 billion in the last 2 or 3 years. So it is everywhere in radio, and we are hurting, and we are going to the same stations, working hard, and doing all of the things that we have to do to try to survive, and it is very tough. I will tell you that I am helping a couple of African American companies right now, and I am helping a Spanish company in Texas right now. If this bill were to pass, that Spanish radio operator, who is already losing money on an operational basis, would pay about a $1.8 million to $2 million more. They are already in trouble; that will absolutely push them into bankruptcy. Mr. Conyers. Yes, Mr. Bainwol. Mr. Bainwol. If I could, I think it is important to separate the conversation between the question of a right and the question of a rate, and that really is the core question here. We are not going to be in a down economy forever. Parenthetically, nobody has a monopoly on pain. We were both $15 billion industries about 10 years ago. They have gone up and we have gone down, but that is not the point. The question here really is, should there be a right? Is it acceptable for a taking to occur in this country with this one platform when it does not exist as a taking in any other industrialized nation in the world or in any other platform in the U.S.? There ought to be some compensation. There ought to be a right. Then the question is: Okay, if you say there is a right, then what should the rate be? We hear a lot of scare chat about how damaging this would be. Again, we are not going to be in a down economy forever. The question is, maybe this is done as a percentage of revenue. Right now, the composition side is about 3 percent. The typical ratio between the composition side and the sound recording side is that there is some plus-up. Whatever that might be, would the broadcasters at the table be comfortable with 6 percent or 7 percent? We are not talking about something that would be, you know, as draconian as the suggestions that you all have made to fight this back. We are talking about something modest and that represents a very modest payment for the cost of goods, in your case, sold. You know, Ford and General Motors, they pay 90 percent in cost of goods sold. Your cost of goods sold for music is 3 percent right now. Mr. Conyers. Howard Berman. Mr. Newberry. Mr. Chairman, may I ask for an opportunity to respond to that? Mr. Conyers. Of course you can. Mr. Newberry. There are two things that I would like to address. The first one is the word ``taking.'' These are not robber barons who show up in the middle of the night with a gun and take the music. We have one station in Salt Lake City that received 3,800 phone calls from record labels asking that their songs be played in a 6-month period. I have with me a trade magazine that is filled with ads of record labels, saying, ``Thank you for playing our songs. Thank you for making this happen for us.'' So this is not a transaction where the record labels and the artists are saying, ``Please do not take our music. Please do not play it.'' The second thing I want to do is draw a delineation. Radio does not equal music. Music is part of the radio industry, but we have talk stations; we have sports stations; we have many, many stations that contribute to that $15 billion industry. So for us to say that we are talking about an industry as a whole, when we are talking about a segment of the industry, I think it is a little bit contradictory. I want to make sure. I will be glad to answer questions from the Committee, but I wanted to make sure and draw the line there. Mr. Bainwol. The music is about 80 percent of radio revenue, isn't it? Mr. Conyers. Howard Berman. Mr. Berman. Thank you, Mr. Chairman. I hear that you actually pay the sports teams for the right to broadcast the sports radio, and I hear that you pay the talk radio hosts for the talk radio show, but--that was rhetorical, not to be answered. There are a couple of points that I would like to make, and then I would like to ask Mr. Newberry a question. Again, we have the issue of the right, which this bill seeks, to remove the exception for, and accord in this country that right which is recognized almost everywhere else in the world. Then we have the structure. My guess is, when radio stations have lost $5 billion, the payment for the musical compositions that go to the songwriters and composers goes down by a proportional number because there is a percentage of revenues. The system can adapt to the good times and to the bad times. When we talk about a GAO study in terms of the impact, I am fine with that, but that should not be the condition precedent to moving a bill ahead which establishes the right. We can get the GAO study; we can get into discussions about appropriate rates. And that leads me to my question, if I can just find it. Here it is: Again, Mr. Newberry, I would love to go to your testimony. You said for a small market operator of an AM station or a small FM station that may be dealing with less than $100,000 a year, with a profit margin of 10 percent or less--and a profit margin, in most of these cases, defines what the owner takes home. This is not after they have been paid; it is their take-home pay. So $5,000 is a significant amount. If you take a small broadcast operation that has an AM/FM combination in a small community like Princeton, Kentucky, or somewhere in rural North Carolina--Mr. Coble was asking the question--now you have $10,000 of obligations to pay. I think the amount is something that would be an economic burden on those who find it most difficult to find probability in our industry. That was an exchange from last year's hearings, and I have been giving that exchange a lot of thought. What if we graduated the fee for the smaller stations? What if we said that, for those who make $100,000, instead of $5,000, they pay $500? Less than $100,000 could pay $250. There are so many different ways to deal with the accommodations for people within the small broadcaster situation. Would you support a provision which took care of that situation which you laid out in response to Mr. Coble's question? Mr. Newberry. I will make the same delineation Mr. Bainwol did. We are discussing the right, then we are discussing the rate. I think your question addresses the rate. Let me say two things very quickly. Mr. Berman. Does that concede the right? Mr. Newberry. No, sir. It addresses it; it does not concede it. There are two issues that I would make from that very quickly. The broadcasters understand the concept of intellectual property. We get that. For it to be said that we have provided no value, that we have provided no remuneration, that we have provided no equity for the performances that we have had, it gets to the rate issue. I think that we have to understand that our industry has been built--we talk about the streaming; we talk about the satellite radio. Certainly, satellite radio and cable and several of the Web casters are fee based. It is an entirely different business model. So, when we do start talking about potential rates, whether it be for a small market or the largest market, I will tell you that the amount of promotional value that is provided by the larger stations is proportional; and I have grave concerns with the argument of principle before you get into the rate. Now, going back to the suggestion of the GAO study, we have a saying in Kentucky, ``Measure twice, cut once.'' I think that we are desperately lacking in information on this, and I think for you to move legislation before you have an opportunity to fully study it--it could cause irreparable damage to our industry. And we would certainly be comfortable with that independent, third-party study. Mr. Berman. How about two things at the same time, where we start the GAO study, and you start negotiating rather than slitting throats? Mr. Newberry. Yes, sir. Mr. Berman. Okay. Mr. Conyers. Did he agree? Mr. Newberry. No, sir. If I might say, I took that as another rhetorical statement. Mr. Conyers. Lamar Smith. Mr. Smith. Thank you, Mr. Chairman. Mr. Watt. Mr. Chairman, I think the record should show that he at least did not slit his throat. Mr. Smith. Thank you, Mr. Chairman. I did propose in my opening statement something that Mr. Newberry has just anticipated and that maybe Mr. Berman has just followed up on. That is the idea of the independent, third-party study that would be conducted to evaluate the economic impact of royalty payments on both the artists and the radio stations themselves. Let me say, while I consider the idea as being specific in talking about a GAO study, most GAO studies that I am aware of take more than a year to complete. If that were the case, I do not know that that would be that helpful to us in this Congress, so that is why I specifically kept that question open as to the outside entity. Mr. Newberry, I am glad you agree with that. Mr. Bainwol, what do you think of the idea of an outside entity's conducting that kind of study, that might well be the first step to the next step, which is wider negotiations? Specifically, I think it would be helpful myself, obviously. What do you think? Mr. Bainwol. Our preference would be to dual-track this, per suggestion by Mr. Berman. I think studying the issue has got great value. We are in favor of an informed process. I will note that in 1976, when we punted on this back then, we did a study as well. That said, if the study is done in the context of moving a right to make sure that the right is appropriately framed and structured, then we are absolutely for it. We think the concept of a quick shot clock is a good addition. Mr. Smith. Great. I am glad to hear that. I think it represents real progress. I might also add that I would expect all parties to have input as to what that study evaluated, so you all would be able to contribute the issues of the subject matter to be studied. So I would hope that that would be achievable in the next few months. Perhaps, if I can suggest it, why don't you all work with the Chairman and me to try to accomplish that in the next couple of weeks as far as designating the outside entity and coming up with issues that we would like that outside entity to study? Is that agreeable to you all? Mr. Bainwol. Yes, sir. Mr. Smith. Great. I do not mean to put you on the spot, but I do at the same time. This is a question for both Mr. Newberry and Mr. Bainwol. Would you all support an amendment to this bill that would designate that all royalty payments go to the recording artists? Mr. Newberry? Mr. Bainwol? Mr. Bainwol. The simple answer is no. Under Federal law now, in the context of the digital performance rights that we do enjoy, there is a 50-50 split. And there is a reason for the 50-50 split; it is 50 percent to the copyright holder--which is typically, but not always, a label--and 50 percent to the performer and the musician. We believe--we, my association and American philosophy-- when it comes to the economy, that it is a good thing to do to invest. In order to make an investment, you have to have a return. Our return in today's world is primarily from sales. Our return in the evolving economy will be based on income related to performance and income related to access. So to take out the income related to performance would simply dry up the ability of investors to support emerging new artists. We spend probably anywhere between $1 billion and $4 billion a year supporting artists, breaking acts--a couple hundred new acts a year--and that is predicated on the ability to earn a return, so taking that return out, I think, would be penny wise and pound foolish. Mr. Smith. Thank you, Mr. Bainwol. Mr. Newberry, I realize this question is a little bit theoretical since you do not support the concept necessarily of the royalty payments, but what do you think of the idea? Mr. Newberry. First, I would like to echo what Mr. Bainwol said. An investment without a return is not much of an investment, and that is what the entire broadcast industry is struggling with now. That is evident by what is happening to us. Moody's came out with a report yesterday that, of the sectors of the economy that are most damaged by the downturn of the economy, radio and television are two of the top five in the country. So we are struggling very much with the same economic investment and return concerns that cause them to want the money, that cause us to say, ``Wait a second. Why are you taking the money?'' I think the bill, with all due respect, Mr. Chairman, is not the appropriate time, and I do not agree with the legislation, obviously. But certainly I am very proud of the broadcasters I do business with. I would not support an amendment to the bill because I am not thrilled with the bill, but certainly taking the record companies out seems to be much more on target with what the Members want. Mr. Smith. Thank you, Mr. Newberry. Mr. Chairman, let me end on a positive note. Thank you both for agreeing to the outside study and for getting that initiated in the next couple of weeks. Mr. Conyers. Subcommittee Chairman Bobby Scott. Mr. Scott. Thank you, Mr. Chairman. This is complicated. Let me just get some understanding here. Mr. Bainwol, do radio stations pay somebody for the use of their intellectual property when they play a song? Mr. Bainwol. The radio stations pay, through SESAC, ASCAP and BMI, the songwriter, but they do not pay for the sound recording. Mr. Scott. And they do not pay for the recording. They pay the writers? Mr. Bainwol. They pay the writers, correct. Mr. Scott. How did that come about? Mr. Bainwol. This goes back 100 years. Mr. Scott. To congressional action? Mr. Bainwol. The writer has a copyright. When we got our copyright in 1972, an exemption was put into place that we would not have a performance right. Mr. Scott. Does the owner of the intellectual property have a choice on whether the radio can play their property or not? Mr. Bainwol. No, we do not. That is why we phrase it as a ``taking.'' They build their businesses on the backs of our sound recordings, and we cannot say ``no.'' Mr. Scott. Now, does the performer have an opportunity to negotiate anywhere to get rights for what is played on the radio? Mr. Bainwol. No. Mr. Scott. Terrestrial radio is unique. How do the performers get rights in the other platforms? Mr. Bainwol. By congressional passage in the mid-1990's. Mr. Scott. Do any other countries have performance rights? Mr. Bainwol. Virtually all industrialized nations in the world do. Mr. Scott. So, if you are a British performer on a British radio, you get performance rights/royalties? Mr. Bainwol. Correct. Mr. Scott. Do United States performers get any royalties from the foreign radio stations? Mr. Bainwol. No. There is a lack of reciprocity because we do not have the right. Mr. Scott. If they could get performance rights or royalties, would any performers negotiate and sell their revenue stream for the future? This is, pay me twice as much now, and the publisher could have the royalties? Mr. Bainwol. You know, I am not an attorney, but I presume that that is a basket of rights that they could sell. Mr. Scott. Thank you, Mr. Chairman. Mr. Conyers. Howard Coble, North Carolina. Mr. Coble. Thank you, Mr. Chairman. It is good to have you all with us, I say to the panelists. Mr. Newberry, as you know, section 3 of H.R. 848 provides special treatment for small, noncommercial, education, and religious stations. I am interested in knowing what stations in my district would be covered by that. Could you have someone from NAB provide that for me? Mr. Newberry. Certainly. Mr. Coble. I would appreciate that. Mr. Newberry. Let me qualify that, sir. As much as people are willing to share their personal and private information, but we will make every effort to do that for you. Mr. Coble. I understand that. That said, Mr. Newberry, there inevitably will be some stations that will not be covered. How will H.R. 848 financially impact those stations? Mr. Newberry. You are asking about the stations that are above the 1.25 threshold? Mr. Coble. Yes. Mr. Newberry. I think one of the real issues that people may not understand about the broadcasting business is that we are a fixed-cost business. Our business does not have input. We are not a hardware store. If we do not sell a hammer today, it remains on the shelf tomorrow like at a hardware store. We sell time. It costs basically the same amount for us to produce an hour of programming whether we have sold commercials in that or whether we have not sold commercials in that. As a result of that, it is critical that broadcasters try to maintain their cost. If you do not maintain that cost, you can lose money very quickly, very rapidly. So one would think that a station that was billing more than $1.25 million might have adequate funds, but when you factor in the royalty rates that you are paying to the composers at this point in time, when you factor in the cost of talent and the employees that you have, the rising cost of health care, the lease that you have to pay, all those fixed costs, I cannot answer that question directly. Mr. Coble. Okay. I thank you, sir. Mr. Almeida, in your testimony, you mentioned that millions of dollars go into a French culture fund every year instead of coming to the United States because of the lack of reciprocity in the law. What assurances are there, if the Congress amends the law as proposed here, that the French would, in fact, be compelled to direct those funds to you as performers? Mr. Almeida. I am not sure, exactly. Right now, there is reciprocity, and we assume that they would send the funds according to how it works in the other platforms. Mr. Coble. Well, that would be my conclusion, too, but I do not know that it is cast in iron. Nonetheless, thank you for that. Mr. Corgan, I am concerned, as are my colleagues, about the decline in the music industry's revenues. A, what is your belief as to what has caused that? B, how will H.R. 848 help the industry as a whole? Mr. Corgan. To answer the first part of your question, it is a very complex answer. The main reason that most people point to is the rise of the Internet culture and what is commonly known as ``free downloading'' or people transferring files. The record business kind of dug in their heels and tried to slow the whole thing down, and it actually kind of ended up working in reverse and creating a whole culture of, especially young people, who do not see music as something that they buy. Then, of course, you have got all of these different platforms now where people can listen to music, so you do not have that same sort of causal effect of ``I am going to go to the store and buy it because I want to listen to it.'' They have access to it. They can have it on their computer. It is complicated, and you could talk to 50 people and get 50 different answers on that. Mr. Coble. I thank you, sir. Mr. Patrick, let me alter my track here. A, do radio stations currently broadcast over the Internet? B, do they pay a performance royalty for those broadcasts? Mr. Patrick. Some do stream, and they do, in fact, pay for some streaming. It is a different situation than over the air. I also think that the Committee needs to understand--I mean, there are 235 million people a week who listen to over- the-air radio. When we start talking about satellite Internet as if they are all equal, we are talking about toy soldiers versus big armies. There are very few people. I mean, you can look at Sirius XM; their total audience in the morning on any one of their channels does not equal one station in New York City or in Los Angeles. So the answer is, these are not equal platforms, and because some came into the world with the idea that they would have to pay, we do. I can just tell you, sir, that I have run radio stations in Miami and Dallas and in lots of other middle-sized markets. Not a day goes by that the record companies and the promoters are not begging stations to play. I think Mr. Newberry has an example from Salt Lake City, but the reality is, radio play still drives record sales, concerts, tickets, merchandise, and all sorts of other things. There is a Tuzo study that was produced, I think, last year that indicates that 61 percent of all people who hear about new music hear about it on radio. Radio is still viable, and it's huge. That is why we think there is a value proposition there. The reality is, yes, we do pay for streaming. Mr. Newberry was on the Committee that just negotiated that. Perhaps he can answer it in more detail. Mr. Coble. Well, Mr. Chairman, I see that intimidating red light. Mr. Newberry, do you want to weigh in on it? Mr. Newberry. The broadcasters and the recording industry have entered into an agreement as a result of the laws that were passed by Congress. Certainly, we understand that the value of promotion that is provided by our Web stream is nowhere near what it is on the over-the-air, and there was a compensation made there and reached by both parties. Mr. Coble. I thank you, Mr. Chairman. I yield back. Mr. Conyers. Mr. Corgan, did you want to add to that comment? Mr. Corgan. I cannot speak for every artist, but I can speak for a lot of artists. The inability for the artists to have any leverage in this situation makes it very difficult in the changing markets to create our business models to make great music. At the end of the day, while everybody over here is talking about the turf wars between who gets what in the pie, if you do not have great music, you are not going to be able to have great radio. I think--my personal opinion is the reason that musical accomplishment has diminished over the last 15 years partially is due to the changing in the revenue streams, but you also have sort of a narrowing of the business models, and the artists are not able to invest in their careers in the same way, so this puts stresses on these things. No one is arguing that radio does not promote. Radio is a great tool for promotion, and nobody in the music business wants to see terrestrial radio go down. We are talking about the ability to negotiate and to find the right water level for everybody involved. In my particular case, I am a songwriter, I am a performer, and I am also a copyright owner, so in this particular instance, I have no leverage. I cannot go to anybody and say anything; it had been taken away long before I entered the music business. Mr. Conyers. Professor Liebowitz. Mr. Liebowitz. Yes, I just wanted to make this point again that everyone is talking about promotion. The nature of radio promotion is deciding which song gets the biggest piece of the pie. The question as to whether or not radio is beneficial to record sales overall is whether radio is making the pie bigger or not. The evidence on that is that it is not, even though it is clear that it determines which individual songs get the biggest piece of the pie. But if people are listening to radio as opposed to listening to prerecorded music, radio could very well be making the total pie smaller even when it is increasing the size of the pie for individual songs. I will give you a simple example with movies and television. Movie companies still advertise the movies on TV, and the big stars go around when the premieres come out, and they go on all of the late-night talk shows, and they do it virtually for free. If you were to look at that, you would say, Wow, television really helps promote movies, and it does, but if you take a look at the history of television and movies, television killed the movie industry. Back before TV came along, people went to see the movies 30 times a year, every other week. Now they see it 5 times, and it is exactly in the 1950's, when television started, that movies dropped like crazy. So, yes, television helps decide which movies get biggest, and that is why they are willing to advertise them and send their stars, but it had a terrible negative effect overall on the total size of the market. Mr. Conyers. The distinguished gentleman from North Carolina, Mel Watt. Mr. Watt. Thank you, Mr. Chairman. I have been trying to figure out one of the economic factors here. Maybe I am missing something because one of the arguments I have heard consistently is, if we ran a performance right--and I think a couple of you may have made this point--it is going to make stations not play music, but go more to talk formats. The last thing I want to do--because I hate talk radio, and I actually do not listen to it, so it is fine with me. When you have talk radio, it seems to me you have got somebody on the station, talking, who has to be paid. Even if I assume that that person who is doing the talking is getting paid the minimum wage over a month's period, that would be more than you would pay for the small station, the $5,000-a-year thing. So somebody explain to me why I am missing something. Maybe I am missing something here, and you all are anxious to explain it, so maybe there is an explanation. Mr. Patrick, and then Mr. Newberry. Mr. Patrick. Well, I think if you look at talk radio, you will understand that much of talk radio is satellite delivered. Mr. Watt. But you are paying somebody. Mr. Patrick. We are not necessarily paying those people. I mean, I can get talk radio right now for no money a month for a particular talent. Mr. Watt. Why don't you just go to that format instead? Mr. Newberry. We have in many cases. Mr. Patrick. We have in many cases. Mr. Watt. So what is the big deal? I do not understand how that militates against the performance right. I mean, I think you have got the option to do whatever you want to on your stations. You can talk and not pay somebody if you can find somebody who will work for free, although there are minimum wage standards in this country. I just do not understand what that has to do with the notion that you can just take somebody's commercial property and use it. I do not understand that. Mr. Newberry, maybe you can shed some light on this. Mr. Newberry. Sure. For instance, at many of our stations, we carry ESPN programming. So we have sports talk that is on 24 hours a day, 7 days a week. It is provided at no cost to us. Mr. Watt. But does somebody pay Rush Limbaugh? Mr. Newberry. I do not carry Rush Limbaugh on any of my stations. Mr. Watt. But somebody is carrying him as an option, and they have decided that there is some value there. Mr. Newberry. They are getting an exclusive right for that product in that market. Mr. Watt. I am not against your negotiating. Let me back up and approach this a different way. What if we just recognized on this Committee the right, and left it to individuals to enforce that right without a framework? I mean, you know, you all are into how much you get paid, how much is this fee format. If you then use my music and I am the artist, then I have got the right to come and find you and make you account for it. Does anybody think that is a terrible idea? I mean, that is the way our legal system is set up, isn't it? Mr. Patrick. This is not just the artists who are coming. This goes back to Mr. Smith's question. This is not just the artists who are coming and asking. This is the record label saying, We want half of the money. Mr. Watt. Don't they own something, too? Don't they own something? If you played the music, then wouldn't they have the right to come and enforce that just like the performer over here did? Mr. Corgan. I am not the biggest fan of the record labels. I have had my battles with them through the years. I, as an artist, negotiated in good faith with the labels over my rights. So, from my end and from the label's end, it is just a rights issue. If you go to a free market free-for-all, it probably would not work because it would be very hard to get everybody to agree, so I think that is why everyone is looking for some sort of framework by which to negotiate. Mr. Watt. People would not agree. I am not trying to make litigation, but if you all think that we ought not to be setting up a structure here to work this out, as we have in other entertainment settings, then the option is that we recognize the right and let the market and the individuals work it out. Mr. Corgan. So to answer a question you did not ask, they would not play the music if it were not worth something. It would just go to something else that would give their stations more value. They are playing the music, whether it is Motown or my group, because it adds value to the station. No one is arguing that they do not add value. Everybody just wants to work together, but if you do not establish the right, what can you do? There is no conversation. Mr. Watt. Mr. Newberry, you do not think there is a right. Everybody else has a right except the person who performed it? Mr. Newberry. I think we have a system that is not perfect, but I think we have a system that, if tinkered with, can become much more imperfect. I think we---- Mr. Watt. Are you going in the room to talk to people now? Mr. Newberry. May I finish my statement? Then I will answer your question. Mr. Watt. Okay. Mr. Newberry. I think we have a system where, if we go to where it is a business transaction, as proposed, the most recognized artists are going to get more play and the least recognized artists are going to get less play. I mean, we can find examples, and we can talk about big record companies, but Madonna bought a $38 million condo in New York; and that is more than the market cap of many of our largest companies right now. Mr. Watt. Mr. Newberry, this is not about Madonna. This is about whether individual artists have any rights. Madonna's right is more valuable because she has---- Mr. Newberry. She is played a lot on the radio. Mr. Watt [continuing]. She has made a lot of money, that's right. That is not a reason not to recognize a right that Joe Blow or Joe the Plumber has if he makes a record. I mean, you can still decide whether to play that music or not to play it; I am not trying to take that right away from you. But it just seems to me that for you all to say there is no ownership right here that ought not be enforced in some kind of way--under some framework or individually case by case by case--I do not understand that. Mr. Newberry. I understand your point, sir. Mr. Watt. Okay. I yield back. Mr. Conyers. Our first attorney general, Dan Lungren. Mr. Lungren. Mr. Chairman, I just say for my friend from North Carolina, I think if you want to hear Joe the Plumber, it will probably be on talk radio rather than singing radio. Mr. Watt. No, if they want to play him on music radio, it is fine with me. I mean, I don't listen--I won't listen---- Mr. Lungren. You won't listen in either event I'll bet. Mr. Watt. That's right, that's right. Mr. Lungren. If I can go back to why we are all here, as I read the Constitution, we are here because it says in Article 1 Section 8 that Congress has the power to promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respected writings and discoveries. In other words, it was to promote ingenuity, creativity and so forth. So I was very interested, Mr. Corgan, your comment that musical--I believe these are your words--musical accomplishment has diminished over the past few years, which would suggest that there is less creativity in the American musical industry today than there was before. Can you elaborate on that? Mr. Corgan. Well, it starts with the erosion of the revenue base. And like in any business, people get more conservative, and so you see a conservatism creep into the mainstream musical formats, and---- Mr. Lungren. I guess my question is, what is the quantifiable proof to that, that there is less musical accomplishment or it has diminished over the past few years? Mr. Corgan. It is a generally held opinion that I am voicing, and people would agree with me. But we, as a musical culture, and I'm talking about all genres of music, feel that music has been sort of hijacked by kind of corporate interests. And you see less of that leading-edge artist that you used to see. And as someone--I work with Mr. Azoff who was here recently said, we're not creating new stars. And I think that is the best quantifiable thing I can say. You're not seeing as many new stars per generation. If you think back to, say, the '60's and you look at the amount of stars that came out of that generation and the stars that are coming out of this generation, it is very different. And I don't mean different in style. I mean different in just sheer numbers. Mr. Lungren. Would that also mean that there are less new bands, less new performers? Mr. Corgan. No, there are actually more. There's more artists than ever. Mr. Lungren. But there's fewer stars? Mr. Corgan. Exactly. So if you want to try to make a math proposition out of it, there must be something going on that is creating less stars because they must be out there. I mean, just sheer numbers, you would say more people playing more music would equal more stars. Mr. Lungren. Okay. Let me ask you the question that has been raised by a couple of comments here, which is if, in fact, this proposal were to go into effect unamended, the suggestion by the operators is that since it is a business decision to run a radio station, that the bottom line is very important. So that would, if in fact they would continue to play music, mean that they would be most likely to play those performers who are already established stars as opposed to taking a chance on the cutting-edge, as you suggest, which is a manifestation of the fact that there has been a diminishment of creativity. How do you respond to that? Mr. Corgan. I would argue the flip side that you need the capital revenue to invest in the artists' careers. In my case, my band didn't really hit the top of the charts until really our third album. And now it is commonly understood you have one album when you are entering as a new artist. A lot of artists that are now established as big names--Bruce Springsteen is a classic example--he didn't become the Bruce Springsteen that we know on the first record. It took until the fourth or fifth record. Artists' careers aren't given the time to develop because the labels aren't willing to make the capital investment over the long term. Mr. Lungren. So your argument would be that the capital investment has been diminished; therefore, on that side of the equation, there would be fewer opportunities for emerging artists to become stars. On the other hand, what we've heard from the radio stations is that they would not take the chance on those. And I guess that would go to the question---- Mr. Corgan. I don't---- Mr. Lungren. Mr. Liebowitz, that somehow, as I understand what you are saying, actual exposure on the radio stations doesn't really increase the universe of artists that are getting played. If you accept that argument, then it seems to me to be somewhat of a self-defeating proposition, is what--I'm just trying to figure out---- Mr. Corgan. I would say it is like a sports franchise. Stars drive the business. The NFL is a huge business now because stars drive the business. They finally realized that seeing behind guys' helmets made for bigger revenues at the gates and more merchandise and stuff like that. Stars still drive the business. Mr. Lungren. So your definition of a star is someone who makes a lot of money? Mr. Corgan. My generation of a star is somebody who changes the musical culture and, through the change of musical culture, enacts an interest in the field. You know, like somebody mentioned Madonna. Well, when Madonna came in, suddenly there was a whole interest in people like Madonna. So, you know, it has a kind of a sweeping effect behind the star. Mr. Lungren. If you had more stars but fewer emerging--if you had more stars but fewer people actually going out there and trying out, that would still, by your definition, be an increase in creativity? Mr. Corgan. Again, sir, I would argue that the revenue base is necessary for the capital investment. It is like any business. If you don't have the capital investment, people get really conservative in their choice-making. Mr. Lungren. But if the capital investment is based in part on what the radio stations do, and the radio stations are telling you, in terms of their capital investment, they are more likely to continue to play already-established stars---- Mr. Corgan. I don't buy that, sir. Mr. Lungren. You don't buy that. Mr. Corgan. I think that is a fake argument, in all due respect. Mr. Newberry. This is one of the things that frustrates me as a broadcaster because for years, the recording industry--I have played Mr. Corgan's songs on your stations, big fan of his group. The radio and the recording industry should partner together to find ways to solve the business and the model moving forward instead of taking guns and knives to one another. Mr. Lungren. Well, that's the negotiations we're talking about---- Mr. Newberry. We are, as an industry--we as an industry are more than willing to find ways to promote the music, to find ways to take what we have, which is promotional value, and help the recording industry monetize that, for both the benefit of the performers and the labels. But instead, what we find in this legislation is it is being turned back on us and saying, wait, we are going to bite the hand that has fed us these years, because our business model is disrupted as a result of the Internet. Mr. Bainwol. For us to have an expectation--may I? May I, Mr. Chairman? Mr. Conyers. Yes. Mr. Bainwol. For us to be characterized that we're taking knives when all we want is to have a right and to be paid for our product is kind of a distortion. We---- Mr. Newberry. I would say both industries are doing it to each other. Mr. Bainwol. Well, the reality here is we need to work on this together. We do have a symbiotic relationship, but that shouldn't be one way. And we can figure out moving into the future, if we sit down and talk and you recognize that there ought to be a right. The world has changed dramatically. It is no longer a single platform world. And that is where this whole question of creativity really comes into question. I mean, you're as likely to break an act on YouTube now as you are on Clear Channel. And that is the reality. They are spending half of their air play on oldies. So they are not really breaking acts with that, and we're not getting paid for that because there is no promotional value in effect. So this is a very complicated question, but we can't get to the bottom of it until we sit down, and they recognize that we ought to have a right. Mr. Newberry. I would say that I think YouTube is very effective for babies crying and people falling down and some pratfalls, but I don't know any artist that has become a superstar because they were broken on YouTube. Mr. Conyers. The Chair recognizes the Constitutional Committee Chairman, Jerry Nadler of New York. Mr. Nadler. Thank you, Mr. Chairman. Mr. Newberry, I missed the beginning of the hearing. I was at an economic hearing. So if I repeat any question or concept, forgive me. As we have discussed, one of your primary--I have difficulty, I must say, with the idea that someone shouldn't get paid because someone else decides that the exposure is enough. One of your primary arguments is just that; it is that artists receive a tremendous benefit from their recordings being played, the promotional value should be enough to obviate the need for royalty payments. That is essentially the argument, correct? Mr. Newberry. It is an argument based on history, yes, sir. Mr. Nadler. All right. How much value is enough to take the place of royalty payments? How does one decide how much professional or other value is enough to obviate the need for royalty payments? How would you judge that? Mr. Newberry. I think that is the purpose of a suggested study that has been offered earlier that we had a discussion on, that there is not enough information at this point in time to identify a lot of this. I would argue that our promotional value is more than the value of the air play. I'm sure the recording industry would argue the other side. But we certainly would support a study to learn more information on that. Mr. Nadler. Should such a principle be extended to other industries? Mr. Newberry. Sir? Mr. Nadler. Would the same principle be valid in any other industry in your opinion? Mr. Newberry. I think it is risky to make a blanket statement because the metrics and the way that each business operates is different. Mr. Nadler. Can you think of any other industry where this might be a valid principle? Mr. Newberry. I'm sure I could. I haven't given any time to think of it in that context. Mr. Nadler. You cite a study by Dr. James Dertouzos in your written testimony that regular air play increases music sales. Mr. Newberry. Yes, sir. Mr. Nadler. According to another of our witnesses, Professor Liebowitz, Dr. Dertouzos was hired by the NAB, a fact not included in your prepared statement; is that correct? Mr. Newberry. Yes, sir, he was. Mr. Nadler. Now, Professor Liebowitz conducted an economic study and concluded that not only did radio not increase music sales but caused them to drop. The NAB called the study--you called the study bogus. But according to Professor Liebowitz, the methodologies employed by him and Dr. Dertouzos, who came out with the conclusions you liked, were similar methodologies. How would you differentiate their methodologies? And if you can't, why would you consider one bogus and one valid? Mr. Newberry. Well, Professor Liebowitz' testimony that he had earlier today is basically making the argument that there are 24 hours in a day. Mr. Nadler. Do you doubt that argument? Mr. Newberry. No, sir, I don't deny that. It is a very valid argument. But he also makes--goes back and says, if radio were to not be there. And he talks about, what would happen-- that is the reality of where we were. If TV were not there, if movie theaters were not there, if schools were not there, our children would have a lot more time for physical education. That does not necessarily mean it is a valid argument of why you should do away with schools. So we have---- Mr. Nadler. I'm sorry. You lost me. You went too fast. Mr. Newberry. There is X amount of time in a given day for someone to listen to recorded material or for them to listen to the radio or for them to go out and buy. That is the point of his study. You can make that same argument by saying there are only X number of hours in the day for a child. If we have them going to school, they can't exercise as much. That doesn't mean that school is a bad thing. And I'm saying--I stand by my point. There is a limited amount of time. There is a limited amount of inventory. I think that the study does not take into account the value of the promotional ad--promotional incentives radio play brings to the recording industry. And for him to say that radio has dropped the amount of record sales based on what occurred in 1930, I don't disagree with that. But I think it is out of connection with what is occurring in today's society. Mr. Nadler. Would you comment, Professor Liebowitz, please? Mr. Liebowitz. Yeah, thank you. I suspect--and I don't blame Mr. Newberry--that he hasn't read my paper or Professor Dertouzos' because it is very hard to understand what is in those papers if you're not an economist. In fact, we used a similar methodology. We looked at 100 different cities. I have two papers. This is the econometrics paper. I looked at 100 different cities and looked from 1998 to 2003 to see how record sales changed and radio listening changed. He took the period 2004 to 2006, took the same 100 cities, did a very similar thing with some slightly different variables in terms of how he measured radio usage basically. We got completely opposite results from one another, even when he said he was trying to emulate as closely as possible exactly how I did mine. Now, when you have differences that are that great, it is very unlikely that the slight years that we used that were different would be the cause. My guess is that one of us has made a mistake, that there is a problem with the data. Because you don't get results so black and white unless there is an error usually. So I suggested to him that we exchange the data to see if we could figure out who has made the mistake. He said he would be happy to do that, but the NAB wouldn't allow him to do that. Mr. Newberry. I will be glad to do that---- Mr. Liebowitz. That's where we are with that. Mr. Nadler. Mr. Newberry, Professor Liebowitz is saying in effect that the NAB wouldn't allow Professor--Dr. Dertouzos to share the data; is that correct? Mr. Newberry. The data belongs to the Arbitron Company. Our license did not allow us to distribute that. It is available if anyone--if the professor would like to get it, it is readily available from the Arbitron Company. Mr. Nadler. Professor? Mr. Liebowitz. Yeah, that is conceivable. See, I have data from the Arbitron Company as well. I don't have a time restriction. They say they do. I don't deny--doubt that. But you don't recreate someone's study from scratch if you just want to find out where the error is. What you do is you take what they have, and actually, a methodology that is relatively recent that the profession has come up with to try to be able to check the work of different scholars in leading journals now. You have to provide the data and you have to say how you created the data and you have to give all the formulas that you used in the statistical package to show how you got your results because otherwise there would be so much work for someone to recreate someone--effort that nobody would ever bother doing it. So to say, oh, yeah, I could go and get all the data from scratch for the years he did and redo it---- Mr. Nadler. What I don't understand is, if you can get the data from Arbitron and if Mr. Newberry--the NAB's objection is that the data is from Arbitron, I don't understand why there is a problem with allowing--first of all, I'm missing something. You can get the same data from Arbitron that he won't give you? Mr. Liebowitz. I'm not sure it is exactly the same. I had it for different years that he does. Mr. Nadler. If Arbitron doesn't mind their data being given out, though, Mr. Newberry, why can't you give or the NAB allow Dr. Dertouzos to show his data and so everybody can compare it? That is a normal scientific method. Mr. Newberry. We bought the data for a specific use, and that's what our license of the data was. I don't know what Arbitron---- Mr. Nadler. Would you ask them? Mr. Newberry. I can certainly inquire on that, certainly. Mr. Nadler. Because presumably if they are willing to give their data--we have got a conflict here that ought to be easily--normally if you can't reproduce results or if you get different results in any scientific experiment, you go back to the data, and the data is openly available and the peer- reviewed literature looks at it and so forth. It ought to be the same here. Mr. Patrick. Arbitron is a company based up in Columbia, Maryland. They are a research company. They would rather sell the same data to two different people. They are not giving NAB the right to allow anybody else to see it, other than the Dr. Dertouzos, who has been doing performance rights analysis for almost 20, almost 30 years now. Mr. Weiner. Will they give me the data? Mr. Patrick. If you want to buy it. Mr. Nadler. Let me just suggest---- Mr. Liebowitz. He doesn't have acces to it anymore. Mr. Nadler. Let me just suggest, because my time is up, I would just suggest that if the NAB wants anybody or Congress to rely on this--I mean, if you want to cite Dr. Dertouzos' study, you have to do whatever you have to do with Arbitron to make that data available so that people can look at its validity. Thank you. I yield back. Mr. Conyers. The gentleman from Virginia, Bob Goodlatte. Mr. Goodlatte. Thank you, Mr. Chairman. Let me ask a question of all the panelists and perhaps, starting with Mr. Bainwol and just move to the--proponents of the Performance Rights Act point to the arguments that other technologies, such as Webcasters and satellite radio and others, compete with terrestrial broadcasters and provide promotional value and thus that the exemption for terrestrial broadcasters does not make sense to them. Don't these same arguments also weigh in favor of all music-delivery technologies being subject to the same standard for determining the appropriate royalty to pay the recording artist? And if so, what should the standard be? Mr. Bainwol. We think the concept of parity on rate standard makes sense and feel like that is the direction we are moving in, yes, sir. Mr. Goodlatte. Any guidance on what that standard ought to be? Mr. Bainwol. It ought to mimic as close as possible the free market. Mr. Goodlatte. Mr. Newberry? Mr. Newberry. Congressman, I hate to ask you to repeat that, but I want to make sure that I understand the question completely. Mr. Goodlatte. Sure. I noted that there are other forms of music being delivered, through satellite and the Internet and so on, that do pay broadcast--they pay royalties, and so the question is, going beyond the issue that you're here today about, which is, should you be paying something at all; if you do, do you think it should be standard across all the different technologies? Mr. Newberry. That's a big assumption, so I will say, assuming that if we were to have to, which I would not agree with, but I think that the business model of each of those enterprises is entirely different. Webcasters don't have any of the public service obligations that a broadcaster does. Satellite radio is a subscription service. Cable is a subscription service. So I think for you to say that an equal rate creates an equal platform is an incorrect statement. Mr. Goodlatte. Okay. Professor Liebowitz. Mr. Liebowitz. In a general way, when I heard the term market, there would be a way to answer actually some of the general questions here about whether the promotional value is sufficiently high that the payment would be zero or not. And that would be better than a study, because studies are very hard to come to good definitive conclusions about that. Provide the right so that radio can't broadcast the music without the permission of the copyright owner and see what the price is. If the broadcaster is correct, the price would be zero. If the broadcasters aren't correct, the price would be positive and the performers will get the money that they feel they deserve. And that is a way that one would like the market to work. The reason it started might not being able to work properly in these circumstances is because there are 10,000 radio stations and there are hundreds and hundreds of thousands of songs and keeping track of what is going on at all the stations might be too difficult for that to occur. Mr. Goodlatte. I have to cut you off because I have got---- Mr. Patrick. I would agree with Mr. Newberry. Congressman, these are very different platforms. These are--I think you were out of the room for a moment. But these are very different sized businesses. And they were built on different assumptions, some subscription, some advertiser supported, and some that deliver huge promotional impact; others don't. And I don't think that the rate is necessarily the same in all cases. Mr. Goodlatte. True, but that is the same amongst radio stations as well, is it not? The size is different. The local contribution that they make is---- Mr. Patrick. There is no doubt. There is no doubt that the different sized companies and different stations and different markets deliver different value to the artists. Mr. Goodlatte. Mr. Almeida. Mr. Almeida. I think there are two points. One is, why do the other platforms have a performance right that go to the artist? And I think that is the inequity. And I think, from our vantage point, we've been willing to sit down and negotiate over this, and what the right position is as far as that is concerned. We have been more than willing to sit down and negotiate over that. And many of your colleagues have said that is what the parties should be doing. Mr. Goodlatte. Mr. Corgan. Mr. Corgan. From my end, artistic end and somewhat label representative, free market determines value, you know. And if you can create a system that encourages hard work, which is what the free market system is supposed to do, then innovation, better programming, better stars, everybody should profit from the idea of everybody pursuing a bigger piece of the pie. It is doing the opposite. It is creating almost, like, a negative return. Mr. Goodlatte. Let me--Mr. Chairman, if I might, the legislation currently establishes a threshold that protects many small broadcasters from much of the uncertainty concerning the level of royalties they will be required to pay. However, I'm still not convinced that the bill strikes the right balance, and I'm particularly worried about local broadcasters who may own multiple stations and who have decided to provide robust local news and information, one of the points that has just been made, sometimes at a loss to the owner's bottom-line for that station. My concern is that these broadcasters could be forced to eliminate that robust local coverage of news in order to make ends meet with the new obligation to pay royalty fees. And I'm asking if you would agree to work with those of us who have this concern, to find a solution to this concern before the full Committee markup on this legislation? Mr. Conyers. I think it would be very important to do that. Mr. Goodlatte. Thank you, Mr. Chairman. And with that I yield back. Mr. Conyers. All right. The gentlelady from Texas, Sheila Jackson Lee. Ms. Jackson Lee. Thank you, Mr. Chairman. I think this is a vitally important hearing, and I thank all of the panelists for their participation here today. And I would like to follow up with a line of questioning that some of my colleagues who preceded me engaged in. But first I'd like to suggest that a companion body of law, patent law, that provides copyrights, I think has already laid the precedent for establishing that songs and performance, performance artists have in fact a property right. Otherwise, we would not be asking them to rush to copyright or to insist that the particular talent or the particular property be registered to be protected. So, gentlemen, I think that we have a separate body of law, a separate process that establishes the fact that there is a property right. But saying that, I believe that we should be attempting to follow that great philosopher out in California, Brother Rodney, who said, can we all get along? And I do think there is a common ground. And I want to compliment the Chairman because we went through this last year, Mr. Chairman. And when we wrote this legislation, we provided--my colleague just mentioned it, Section 3, special treatment for small, noncommercial educational and religious stations because we were concerned about the group that you were speaking of, Mr. Patrick, and that we wanted to be open minded. Let me ask, Professor--let me ask Professor Liebowitz, on the economic analysis, can we find a balance to respect the property right of performing artists but answer the questions of our good friend, Steve Newberry? Mr. Liebowitz. Well, it is always going to be the case if you have to pay for something that you didn't have to pay for before, that you're going to be worse off because you have less money than you did before. The question is twofold. One is, should you have been paying, or is it something you should be paying regardless? And I think they have been using the property without any requirement that they get the permission of the owner, and that is very unusual. Can you---- Ms. Jackson Lee. You accept the premise that it is property? Go ahead. Mr. Liebowitz. Yes. When I first came across this particular market, I was astounded because I had known about the movie market, and I knew television broadcasters always had to pay to get a movie, except for that Christmas movie which apparently had the copyright expire on it. But then when I found out from radio that they didn't have to get anyone's permission, I thought that was very odd. The payment, if it is one that is run by either the government or some sort of organization and not the market, you can certainly manage it or massage it so that certain types of broadcasters pay much less. So I have dealt with, in Canada, where I've worked with performing rights for the composers, and I know that up there, they have multiple tiers of what the payment would be for the radio broadcasters, and the various smaller broadcasters pay almost nothing. And if you're in a different classification, if you're a nonprofit broadcaster, you pay almost nothing. And then, when you get above a certain level, then you start paying the full rate. Ms. Jackson Lee. If I could refer you to Section 3, we attempted to craft that language. And I know that all of us, as we proceed to markup, will look at that to refine it even more. Let me thank you. Let me go to Billy Corgan and thank you for your testimony. How do you answer the question--you own a property right. You've been hearing from the broadcasters that this is going to undermine their economic scheme. What is your response to that? What balance do you think this bill or the idea presents itself in terms of compensating the performing artists because you have a property right and balancing their needs? Mr. Corgan. I don't think anybody on the artistic side of the music business wants to see terrestrial radio go out of business. I can't think of anybody who would want that. I think the promotional value, the significance in the culture, the local cultures, is all recognized. I don't think that is at the base of the argument. It is simply a rights issue, and then when you have--establish the rights issue, then everybody should be able to negotiate in good faith in the value of the things. As I said before, if these--what is interesting is that it is particular performances. There is only one version of ``My Girl'' that people want to hear. They don't want to hear necessarily someone else's version. They want to hear that version. So---- Ms. Jackson Lee. I think that is a good point that you're making, That there is refinement in the type of versions that belong to that particular artist. Mr. Corgan. So you're recognizing an accomplishment. And that accomplishment continues to have value. So if you're talking about a 40-year-old song that continues to be played, it has value. Ms. Jackson Lee. And so would you be accepting of a stair step--if we had to look at stair step payments based upon how long or what level, you would be open to that? Mr. Corgan. Yes, ma'am. Absolutely. But you just have to establish the right to be able to figure out the formulas. Nobody wants to see anybody go out of business. That would be the last thing anybody would want. Ms. Jackson Lee. Mr. Newberry, very quickly, do you pay for Rush Limbaugh programming? Mr. Newberry. No, ma'am. Ms. Jackson Lee. So is his programming free? Mr. Newberry. I don't carry Rush Limbaugh. Ms. Jackson Lee. No, that is not the question I'm asking. When he is played on radio stations, do the we have--do the owners pay for it? Mr. Newberry. It will vary. In some cases, it will be on a barter basis. In other cases, it will be a compensated basis. They are buying the exclusive rights to that program in their market. Ms. Jackson Lee. And someone considers that--whatever our disparate tastes may be, some of us may turn that programming off. It is still the property right that goes to Mr. Limbaugh; is that correct? He is assessed as a property right? Mr. Newberry. It is a product. It is a negotiation, and stations do make compensation. Ms. Jackson Lee. With that in mind, inasmuch as I said, there will be stations that won't have to pay for him, knowing their audience would be happy that they did not. But with respect to the music, then it equates to the similar context, can you find a compromise for us? And how do we act to protect the property right of a performing musical artist and also work with your constituents in which you have been eloquent in protecting their rights? Can you see the need, an opportunity for balance? Mr. Newberry. For me to immediately say no to you sounds as if I'm digging in and trying to be obstinate. And, Congressman, I do not mean that at all. But I will go back to the fundamental issue that we have had an institution that has existed for years. And I certainly recognize that there are artists whose music we are playing decades after they were original hits. But many of those artists are still having the opportunity to monetize from that. And if they are not able to do that, I would tell you that I think that is a flaw in the original recording contract that they have with their record label. So it is an imperfect system. But changing it as proposed in this particular piece of legislation I think could really upend the system that much more. Ms. Jackson Lee. Mr. Chairman, let me--Mr.--if you'd just finish on my last question, Mr. Bainwol. We appreciate you being here. And I'm not trying to cast dispersions, but the record industry has been mentioned quite frequently. I think both of us would be dishonest not to admit the treatment that African-American artists got in the old days, barely a nickel on profit. We can call their names, call the rolls. How do you respond to the fact that this is generated from the miscontracting that the record industry engaged in? Mr. Bainwol. I understand the long history here and your particular assertion about the way African-American artists were treated in the past. I was a very good friend of Isaac Hayes, and I heard stories. And without pinning the blame on any one institution, I understand that what you are suggesting is something that we need to recognize. What we are talking about now, though, is a bill about moving forward, and the artist community, the label community, big labels, small labels, small businesses all over this Nation are seeking just compensation for the property that we generate. And we are joined at the hip together as a creative community. Again, the labels, the artists and the musicians, and this is with an equity moving forward where there will be direct payment to the artists and to the performers. Ms. Jackson Lee. And that's what I want to end on. You will be not--you will allow a pure direct payment to the artist and the performer? Mr. Bainwol. That is stipulated in the statute, yes, ma'am. Ms. Jackson Lee. Do you mean the bill we have before us? Mr. Bainwol. Yes. Ms. Jackson Lee. I just want to make that clear for the record. And there will be no intervening or intervention on behalf of the company. Mr. Bainwol. The revenues would flow from the radio stations to Sound Exchange, direct to the performer. Ms. Jackson Lee. Let me thank the Chairman, and I'm happy to yield back. Mr. Conyers. Former judge, Ted Poe. Mr. Poe. Thank you, Mr. Chairman. I appreciate all of you being here, especially appreciate the passion with which you try to educate us on this Committee. Clay Walker and Tracy Byrd are both from my district, very good friends of mine. And I like them because they sing songs I understand. But I'm also concerned about small town radio stations. I have several of those, not near as many as there used to be. And I know that they're operating on a shoestring. And when they quit operating, they go out of business or they get bought. And I'm also concerned about the big conglomerates that are buying up all of the radio stations in the country, and we don't have the local flavor. We have somebody from New York City down there in Baytown, Texas, talking on the radio. Be that as it may, I would hope there would be a study on this to see what the bottom line is. And also I would also hope that this could be worked out among the people involved rather than getting Congress involved in this. I really think that could happen. It reminds me of a divorce case I once saw or heard. After hearing the passionate pleas from both sides, I denied the divorce and told them they deserve each other and figure out how to stay together. And without being harsh, I think maybe that is something that ought to happen in this situation. I would like to know how much--I write a song, how much do I get paid to be on a radio station? How does that work mechanically? And how much do I get each time my song is played that I wrote? Mr. Newberry. Congressman, I can't tell you specifically what--I can tell you how we compensate. I can't tell you specifically how that is delineated to the individual composer. We pay one of three rights organizations, the ASCAP, BMI and SESAC organizations are the three that we are involved with. For many years, it was a percentage of revenue. In the current license term, it is a flat fee. So that is adding further stress on the broadcast industry---- Mr. Poe. What is the fee? Mr. Newberry. It will vary by market size. Mr. Poe. Give me some idea. Give me something I can understand. Mr. Newberry. Four or 5 percent generally is an approximation of what the income of the station is, but it is not based on revenue right now. I don't have the fee at the top of my head. I can certainly provide it. Mr. Poe. So 4 or 5 percent goes to the writers of the songs you play on the radio station? Approximately. Mr. Newberry. Yes, sir. Mr. Poe. Is that right, Mr. Patrick. Mr. Patrick. It goes to the music licensing organizations who then split it, but how each---- Mr. Poe. You'll have to turn the microphone on. Mr. Patrick. I'm sorry. Billy may be able to explain more. Each song writer has some leverage in negotiating with how much they are going to get. It is also based on number of spins or the number of plays, and it is not just radio, BMI, SESAC-- ASCAP, BMI and ASCAP are the big ones. They are pulling money from the people that have stereos in their businesses, from jukeboxes, to live performance from any number of things. And at end of the day, they ask--on the radio side, they ask us to tell them basically what songs we played in a sample week, and they go across the country and use different weeks. And at the end of the year, it is a compilation of saying it is--you know, Billy's, you know, group played X number of millions of times and that represents .9 percent of the total. And he gets--you know, they scrape off a little bit for administration, and he gets the rest of it. Now, the other issue obviously---- Mr. Poe. Let me interrupt you. I want to go on to another subject since my time is limited. Thank you, Mr. Patrick. It seems to me that there is value in the radio station playing music. But there is also value to the performer for the music being played on the radio station. So there is value each way. And if we are talking about compensation, why aren't we talking about compensation for both? It seems like this legislation automatically devalues the value of playing it on the radio to the performer. Would you like to comment on that, Mr. Patrick? Mr. Patrick. Okay---- Mr. Poe. I get to pick who I want to answer the question. Mr. Corgan. I understand. Mr. Patrick. There is no doubt there is value to the artist and value to the record company when we play a song, and it is why there are--I think, in Salt Lake City, one of the stations said they have got 3,800 calls in 1 month asking--from a record company asking them to play a particular song or to play a particular artist. It happens all the time. It is why they want radio stations, why they take full page ads out in the trade press constantly, begging the radio stations to basically play music. Mr. Poe. Do they have an agent or someone that contacts the radio station, saying, hey, play Bubba's music this Friday or whatever? Mr. Patrick. There are independent producers that in fact-- independent promotion people that in fact call the radio stations all the time. I've run radio stations where I have had to say, you can only call on Tuesday or only on Thursday because we're overwhelmed with how many calls are coming in. Mr. Poe. Mr. Newberry, let me ask you this question regarding value. Have you ever--has the industry ever put a price on the value to the performer when the song is played on radio stations? Mr. Newberry. Not that I'm aware of. And just one thing just for clarity, Mr. Patrick. We heard 3,800 in 1 month. I have since learned it is in 6 months. So I want to make sure that he is aware of that. It is a 6-month period. It is still a lot of calls. No, sir, I'm not aware of any placement of value. You could probably do an extrapolation, but it would be--it would be an unscientific method certainly for a broadcaster from Kentucky. I'm sure there are people qualified to do that, but I'm not aware of one. Mr. Poe. Maybe the GAO study will solve that for us. Mr. Newberry. That might be a good point. Mr. Poe. Let me ask you another question, Mr. Newberry. If what you say and Mr. Patrick say occurs and it hurts radio stations and they have to go to syndicated talk shows or whatever, would that--I mean, would that--what would happen, otherwise go out of business, you would go to a talk format where it may or may not appeal to the public? Mr. Newberry. I think what would happen is, and we talked about this when I had the opportunity to appear here earlier this year or last year, I don't think it is a case that every radio station that is playing music would disappear. But the number of stations playing music would dramatically decrease as alternative programming was introduced. Most of that programming is not going to originate nature from a local community. It is going to be brought in by satellite because of the economic question Mr. Watt raised earlier. So you're going to have local programming that is disappearing. You're going to have the amount of diversity of music that disappears, and you're going to have the most familiar artists that are getting played because of the business reality of the transaction, again, the unintended consequences that I spoke to in my opening testimony. Mr. Poe. Last comment, question. If we're talking about the free market. This industry is not a free market. It is regulated by Congress. And so this bill regulates the free market even more. In a true free market, there would be no-- there would be a contract between the broadcasters, the radio labels, the performers, with the broadcasters. There would be a contract, and they would figure out who pays who rather than Congress saying, you pay this person every time, or in this legislation, we are flipping the legislation where we pay the opposite person. What do you think about a free market industry? Mr. Patrick, I'll ask you, and that will be my last question. Mr. Patrick. We always like free market industries, and to some extent, what you are describing is some of what we have with BMI and ASCAP. We have regular, every couple of years, negotiating on behalf of the industry with them as to what the rates are going to be. And in essence, we take into account what the value that they bring and the value they bring to us. Mr. Poe. My time has expired. Thank you, Mr. Chairman. I yield back. Mr. Conyers. The distinguished lady from California, Maxine Waters. Ms. Waters. Thank you very much, Mr. Chairman. Let me just say that this has been a very beneficial discussion here today. And I think that all of us have learned an awful lot about what is happening in this industry. Let me just cite a few of my thoughts. Mr. Liebowitz, I don't think that, despite the fact that we respect your work, I don't think anybody here is going to believe that there is no promotional value that the performers enjoy that causes the purchase of records. Most of us believe that, when these radio stations play this music, that there are people that still go out and buy records, despite the other platforms that are being discussed here today. But to indicate that there is really no real promotional value is just hard for us to--most of us to digest. Let me also say, to Mr. Newberry, I think you have made an excellent case here today, but none of us, I think, believe that performance artists don't deserve to be paid. We believe that they deserve to be paid. So what we have here is basically an impasse. And Members of Congress at some point will make some decisions. Whatever the decisions are, somebody is going to benefit. I think there is a possibility that both sides could benefit, but the best way that both sides can benefit is that if both sides get together and work it out and then bring the solution to us. That would be the best of all worlds. Let me just say to Mr. Mitch Bainwol, why--why--why should the record companies get 50 percent of the performance fees? Mr. Bainwol. The record companies are the investors who put money into new artists and existing artists to help make their careers go. Ms. Waters. Don't they charge them for that? Isn't that what some of the young artists don't understand, that all of the production, all of the clothing, all of the what have you is being charged to them and they've got to pay it? Isn't that what happens? Mr. Bainwol. First of all, we are talking about--when we use the phrase labels, we're really talking about copyright holders. They can be major labels. They can be small mom-and- pop individual labels. And there are thousands of those around the country. Or they can be artists who have their own--artist- owned labels. So, in this case, what we are saying is the copyright holder gets 50 percent for making the investment that sets a career in motion. Ms. Waters. All of those that you just described, 50 percent across the board? Mr. Bainwol. Fifty percent of the performance royalty, correct. Ms. Waters. And my question is, whether you describe that as small, individual copyright holders or the big conglomerate, they should all be treated the same, with 50 percent? Mr. Bainwol. The objective, both behind the language and the Constitution and behind any kind of exercise that is venture capital, is to produce more of the product. And in order to produce product, you have to be able to get a return. And in today's marketplace, where sales have diminished so much, the future of the market is in fact in performance and in access. So it is important for the folks who invest capital, whether they are big or they're small or they are the artists themselves, to develop a return on that investment so you can have more creativity. Ms. Waters. Am I to understand that, say, the big copyright holders who invest and who promote and who charge the artists for every aspect of the promotion and whatever they do, they are not getting a return on investment? Mr. Bainwol. I can tell you that sales have gone from $15 billion in 1999 to about $6 billion physical last year. When you throw in digital, it is about $9 billion. So the investment in creativity is not realizing the same return. The marketplace is fundamentally different today than it was---- Ms. Waters. So they're not deducting this from the artists' earnings at all? Mr. Bainwol. No. No, ma'am. You make an investment in an artist, and there is an advance and you pay royalties on sales. Okay? When sales diminish, there are fewer royalties to pay, and there is also less of an investment basis to invest in the next Bruce Springsteen, the next Billy Corgan. Ms. Waters. Well---- Mr. Liebowitz. Can I respond to the question that you had about whether or not there is promotion? Ms. Waters. Yes. Mr. Liebowitz. I don't want you to misunderstand. I'm not saying radio doesn't promote music. It does. What I am saying is---- Ms. Waters. You are saying that it doesn't cause the purchase of records. Mr. Liebowitz. Oh, no. What I said is the net effect overall of radio is that it causes people to spend more time listening to radio than they otherwise would and therefore less time listening to music, and therefore, the net effect is to actually hurt the sales of sound recordings. But that is because there are two effects. There is a promotional effect, which is positive, which is being used these days to determine which songs are getting the biggest sales. But then there is also the substitution effect because when you're listening to radio, you're not listening to prerecorded music. And they conflict with one another, and the question is which one is stronger---- Ms. Waters. We are really interested in the bottom line here. There's some information that shows us that the companies, the industry solicit still radios to play their artists' recordings; is that correct? Mr. Liebowitz. That's correct. Ms. Waters. And they do that simply because they like to hear it or it has a bottom line for them? Mr. Liebowitz. They want to have increased sales of particular artists that they have. Ms. Waters. Do you think that they would continue to do that if, in fact, they did not see that the bottom line was being affected by the---- Mr. Liebowitz. They can't control whether or not radio is playing records. They can't reduce the amount of time radio is on there substituting for music, substituting for prerecorded music. Because they have no control, because they don't have a property right, all they can do is say, music is going to do what it is going to do, the radio is going to substitute the way it is going to substitute and we can't control that, we want to at least have our songs, the ones that have the biggest market. Ms. Waters. I'm old enough to have lived through payola. Mr. Liebowitz. Yes. Ms. Waters. What was Payola all about? Mr. Liebowitz. Payola was all about the fact that radio stations are willing to--record companies are willing to pay radio stations---- Ms. Waters. Why were they willing to pay them? Mr. Liebowitz. Because it helps the sales of individual songs. But there is nothing they can do to stop the substitution effect. So they can control the size of the piece of the pie, but the record companies have no control over the size of the pie because they can't keep radio from being the size it is. Ms. Waters. Well, still, the bottom line is that there is value in promotions. What that value is, I don't know. I am not saying that artists should not be paid because of the promotions. I'm saying that it just should be recognized as value. And having said that, let me just say to Mr. Corgan that your testimony here today was perhaps the best that I have heard in helping us to understand from so many vantage points that you have been able to share with us today. And so, again, I would like to see this worked out so that the artists are paid and the broadcasters are--the problems of broadcasters are recognized in some fashion. My bottom line on the broadcasting is this, I do not want to see small broadcasters, minority broadcasters, out of business. I think it is good for our communities. It is good for this democracy, and we must have that kind of interplay, otherwise we are at the mercy of the conglomerates who don't give a darn about some the issues that we care about. So I'm hopeful that you guys can work it out and not just leave it to us to try and figure it out. And I yield back the balance of my time. Mr. Sherman. [presiding.] Thank you. Mr. Gohmert. Oh, you're next? Oh. Mr. King. Thank you, Mr. Chair. Am I recognized? Mr. Sherman. Yes, you're recognized. Mr. King. Thank you. I have been patiently sitting here, and I'm sure Mr. Gohmert understands--we've had our conservations, and we are both very interested in this, and we have I think shown as much interest as anyone in the Judiciary Committee today by at least the length of our presence and our attention. I picked up a lot here. It is curious to me that we have been at this for several hours now, and the room is still full. That tells me not just that this is an important issue to this country, but there is an important broad constituency that supports each of your arguments that are before this Committee today. I tend to revert to the Constitution and try to determine the foundation that we are acting upon here in this Judiciary Committee especially. And I know that Mr. Lungren focused on the Constitution as well. I think there is a bit of an irony here. Article I, Section 8, the subject of our discussion here, to promote--it reads as, quote, to promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries, closed quote. It is interesting to me that that is in our Constitution, Article I Section 8, just slightly above to define and punish piracies. There is a certain irony there, and it happens to be right above the power to declare war. So we know the Founders put high value on property rights, on intellectual property. They put a couple caveats in there that we haven't discussed to much length here. One of them is the term--and I would have to look at it here--the useful--the useful arts. And that tells me that, then, that Congress has the authority to determine what is useful in the process of making a determination on what is going to be done with property rights. That is part of our subject here today, even though it has not been any part significantly that I've heard of the testimony. And I don't intend to go there. I just make that point. And another component of this is for limited times. And that is something that didn't come clear to me. But I wanted to follow up on the gentlelady from California's statement, and starting on my left. And that is that I expected to hear the testimony of an artist today, Mr. Corgan. And I heard the testimony of a businessman, I think, who has significant clarity in this. So I want to ask you in this way: If you write the lyrics of a song, you can copyright those lyrics and receive compensation? Mr. Corgan. Yes, sir. Mr. King. And if you write the musical, the instrumental for a song, you can copyright the instrumental and receive compensation? Mr. Corgan. As an author? Or in the performance---- Mr. King. As an author. Mr. Corgan. Yes, sir. Mr. King. And then if you write the lyrics and your base player writes the instrumental, which would be actually probably the opposite of what is likely to happen, I think, then you can join together and negotiate with a record label those copyrights to the lyrics and the instrumental that comprises a song that you have not yet performed? Mr. Corgan. Normally, those are internal agreements with the group or between the writers. They are not necessarily happening through the label. Mr. King. Fair enough. And I think you ought to have that right of contract to negotiate with whomever you're doing business with and package that up because it is more marketable as a package. Then when you perform that song that you and your base player have written, both the lyrics and the music, and have copyrighted, well, then you receive a payment on that if you perform in concert? Mr. Corgan. Yes, sir. Mr. King. And the label markets and you get royalties off the sales of anything that might be downloaded and paid for and anything that might be a CD or a DVD? Mr. Corgan. That's the concept. Mr. King. Yes, and I did mention---- Mr. Corgan. That is another tangent, but, yeah, that is the concept. Mr. King. I want to let you know, I have let the Chinese know about this. Mr. Corgan. Thank you. I appreciate that. Mr. King. And I think that it is a cost of business for them to continue to talk this thing to death. Sometime I'll take up another subject there. So that takes us down this other way, this other thought, the other side of the right to property. Now, Mr. Patrick said that his record labels calling him on Tuesdays and Thursdays; that is the days that are allowed. And I understand that. Do they ever--and again, I turn to Mr. Patrick. Do they then ever offer to pay you to play their songs? Mr. Patrick. Yes. But it is illegal for us to take it unless we disclose that to the FCC. And 99 percent of all stations say they will not allow an employee to ever do that. But that is Payola. Mr. King. But what about the company? If you own a radio station that is grossing $1.249 million and you decide that part of your revenue stream could be to negotiate with the record label created by Mr. Corgan, who might offer to pay you to play that, today is anybody doing that? Mr. Patrick. Nobody--to my knowledge, nobody is doing that, sir. I think they are all scared of the Payola rules. Mr. King. But isn't that--aren't you talking about disc jockeys on Payola rules? And isn't it a different equation when it comes to a radio station management transaction? Mr. Patrick. It doesn't matter. It is the station or the individual that does it. And could there be a world in which there was free market where Billy comes to a company and says, I've got a new release and I actually would like to buy my way on to make sure it gets enough spins, theoretically, it could. Mr. King. I'd just like unanimous consent to complete this line of questioning. I know my red light is up, and I'll make it brief, Mr. Chairman. Mr. Sherman. Sure. Mr. King. Thank you. Then I just make this observation, and that is that there is value to playing songs to the emerging artist who has not yet emerged on the stage. At some point--I mean, say, if I write a song and I play it as--then there would be value in me being able to pay the radio station to play that, so that we could get to the point where it got to the other side of the equation where I could collect payment on the other side. Wouldn't it be appropriate to allow for--if we are going to pay the artists copyright or the artists who perform this and require that that be paid over the radio stations that play it, who are promoting it, shouldn't we allow stations then to collect from those that want to promote before they become a marketable commodity? And I would ask Mr. Newberry. Mr. Newberry. What is good for the goose is good for the gander, but I don't think that is the appropriate model for anything that is based on artistic creativity and merit of the music as opposed to music that goes to the highest bidder. I think that our industry has always operated--there are always bad apples within any sector, and we've had issues, as Congresswoman Waters mentioned earlier with Payola. I'm absolutely against anything that even hints of that. And going to the highest bidder wins in terms of who gets played I think is a very slippery slope for our industry, for the recording industry, for the artist. Mr. Sherman. Thank you. And I think just the one answer. Mr. King. That will be the last word. Thank you. Mr. Sherman. Without objection, I'd like to enter into the record some letters the Committee has received from musicians supporting the bill, including Paul McCartney, Gloria Estefan, Brian Wilson, Ricky Martin, Celine Dion and John Legend. Without objection, those will be part of the record. [The information referred to follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] ---------- Mr. Sherman. I will now recognize myself for 5 minutes. Mr. Corgan, first, thank you for your excellent testimony, and also thank you for the effect you have had on American culture because now when people see a bald guy, they think rock star. Mr. Corgan. But, sir, you're not completely bald. You're not there yet. Mr. Sherman. I'm not completely a rock star? Mr. Corgan. No, sir. No, you're not. But we need new stars. We need new stars. Mr. Sherman. Bainwol, we'll talk. There has been some discussion as to whether the bill reflects a fair compromise between the artists and the label. It is my understanding that the artists and the labels are both behind this bill and this division; is that correct? Mr. Corgan. Yeah. That is the basic idea. Mr. Sherman. So the attempt by those that don't want to pay anything to create a fight as between the labels and the artists or to attack the bill for being unfairly artist or unfairly label, is that--you come here as a united front? Mr. Corgan. Yes, sir. But can I make one comment? In the mechanical rights issue with songwriters, which was, you know, was enacted by Congress, labels have been really wishy-washy on paying the full mechanical rate. And they have used that as a negotiating tool, so if you're going to do this, if you are actually going to say it is the right thing to divide this pie 50/50, make it 50/50, don't let the labels then exert pressure on the artists to whittle down their share, which they've done in the mechanical rights issue. That is something that is very irritating to me as an artist. Mr. Bainwol. If I can clarify---- Mr. Sherman. Mr. Almedia, do you also agree that the bill has the right division between the artists and the labels? Mr. Almeida. Yes, we have come together and---- Mr. Sherman. Mr. Bainwol, do you agree with the bill as it is drafted and you are going to pay the full 50 percent, or are you going to be negotiating the artist down? Mr. Bainwol. Yes, yes, and no. Mr. Sherman. So no to negotiating the artist down. Let me move on in the questioning. Mr. Newberry, you point out that the stations do public service. You didn't mention that you get tens of billions of dollars worth of free spectrum. And while almost all the businesses in this country perform important public service when they can, very few of them get that kind of valuable right. So the two go hand in hand. I'd like you to imagine a big rock band entourage that goes crashing into a restaurant, eats well, and then refuses to pay. And when they refuse to pay, when they steal the food, they say, well, our business model was created on the assumption that we'd always steal food. Or times are tough; we've got to steal the food now. Or this band performs a lot of good public service, so we should be able to steal the food. Or our band is so popular, we are providing promotion to this restaurant, it is going to be the hot restaurant because we were seen here. Or our band is a small local business, so we should be able to steal food. Or we need to do a study to determine whether or not we should steal the, food and until such time as that study is completed and agreed to by everyone as being an accurate study, we should steal the food. In this society, do we usually allow theft on the theory that the thief is struggling or the thief is public-spirited or that somehow the victim unwillingly and without their consent benefits from the theft? Mr. Newberry. Would you like for me to answer that? Mr. Sherman. Quickly. Mr. Newberry. If the restaurant went to the band 3,800 times in the course of 6 months and said, please come eat our food; we would like for you---- Mr. Sherman. Sir, I think that Mr. Liebowitz has well illustrated the fact that, obviously, each individual band, record label, and record has it in their interest to be played more, but in total, the industry suffers. And we've seen--I mean, I think he has illustrated that rather well. But to say that because you get 3,800 flyers saying, come eat at the restaurant, that you get to go for free, seems a bit absurd. But I do want to shift to Mr. Liebowitz. Mr. Newberry. Well, I would also like to go on record that the assertion that it is stealing and thievery is somewhat a mischaracterization. It is an industry that has worked jointly with the radio and recording industry over the years to promote---- Mr. Sherman. Sir, if one of your members produces a station--produces the Limbaugh show, which I know you don't air--and I put it on my station and I run it for free, but not with the barter, I just put only my own commercials in, and I say, wait a minute, I'm helping Limbaugh become popular in my area, and he wanted to be on my show, and I'm helping his book sales, therefore I don't have to pay or provide any barter for the show, I think you would be here asking the government to enforce the rights of the station involved. But Mr. Liebowitz, two rival studies, one is yours and one is the other's side. They won't share the data with you. Have you shared your data with them? And have they found any holes in it? Mr. Liebowitz. Well, I offered to exchange data, and they basically said---- Mr. Sherman. When you say ``exchange,'' is your willingness to share your data contingent on them providing their data? Mr. Liebowitz. Well, I wasn't sure exactly what my answer would be if they said, ``Well, we will take your data, but we are not going to give you ours.'' Mr. Sherman. I am asking the question, so tell us the answer. Mr. Liebowitz. So it never actually came up. Mr. Sherman. Okay. Now it is coming up. Mr. Liebowitz. I am not sure what my answer would be. Mr. Sherman. What would your answer be, Mr. Liebowitz? Mr. Liebowitz. I am a little reluctant to, sort of, let them make the final decision as to who is right and who is wrong. But if there was a third party, I certainly would be willing to---- Mr. Sherman. Maybe you would want to give the Committee your data. That would be the solution to this. Mr. Liebowitz. Excuse me? Mr. Sherman. What? Mr. Liebowitz. I am sorry, I missed what you said. I didn't catch it. Mr. Sherman. Maybe you would want to furnish to this Committee for this hearing the data---- Mr. Liebowitz. Sure, I can do that. Mr. Sherman [continuing]. So that everyone could then see whether either of these studies could withstand scrutiny. If your data is furnished and withstands scrutiny and their data remains hidden for reasons that have been previously talked about, then we will know which study we can rely on. My time has expired. I believe we have Mr. Gohmert. Mr. Gohmert. Does that mean I am recognized? Mr. Sherman. Yes, it does, for 5 minutes. Mr. Gohmert. Thank you, Mr. Chairman. Of course, Rush Limbaugh has been mentioned a few times, and I guess his radio show and Al Franken's show are not exactly analogous since, you know, like, Rush's show goes on for 3 hours--and that is right--Mr. Franken's doesn't go on at all anymore. But with a 3-minute song compared to a 3-hour program, I am not sure how analogous those are. You may have heard Howard Coble say earlier that he asked one of our Members of the Committee if that Member supported the performers or the radio stations, and the response was ``yes.'' Well, that was me. And I have been struggling with this a great deal. On the one hand, I represent east Texas. Most of our radio stations are very rural, and a lot of them are combined, so they might end up getting hammered for a couple of fees if this goes into effect. And they say their profit margin is so thin, especially these days with advertisers pulling out, it might just be what undoes them or sends them completely to talk radio. And I know, in deference to my friend Ms. Waters from California, I mean, I am living proof. I have bought two albums in the last couple of months. I am one of the old guys who--I may hear it on the radio and then go to the Web site to hear a little part--``Ooh, I like that''--and then I actually go physically buy the CD. But both of them I have heard on the radio and go, ``Ooh, I like that,'' and so I go buy it. So I know there is value in hearing things on the radio. I know there is. I hear that. And whether we can whitewash that and say that it is all a wash and that it doesn't really matter or that maybe it is costing, I don't know. But I would like to get to the bottom of it. I was shocked when I found out that performers didn't get any cut of the royalties that were paid, because that just seemed inherently unfair. It seemed fair that the writers got that. But then I come back to--and I have been trying to do research. And, as somebody who has written songs for my wedding, for my kids and stuff, I know it is a lot of work, and especially if you are going to make it as good a product as something that people will actually buy. But, Mr. Corgan, I go back to the record companies again. And I heard the comment that, you know, 50 percent may go to the record companies for setting a career in motion and its investment in creativity, but, as I understand it now, the artists have to go online and create their own career and get enough hits to their own Web sites and their own music, and so they have set their own career in motion. Finally, somebody says, ``Okay, I will help you. I will make 3,800 calls to radio stations and try to get them to play your music,'' or something, ``try to set you in motion.'' But I am wondering, I know what we have heard from people coming to our offices is that performers have really been cut in their income. But it sounds more like the record companies are suffering the biggest cut. And I am curious. I don't know who your label is, but what kind of cut does a record company normally get from a group as well established as Smashing Pumpkins? Mr. Corgan. Well, in our case, we are now an independent entity. We have actually decided to go without labels. So something like this---- Mr. Gohmert. Wait. You are saying that they no longer have all this help to give you as a performer? Mr. Corgan. Well, we have posthumous work--oh, I didn't understand. Sorry. Mr. Gohmert. I am sorry. I shouldn't be sarcastic. I am sorry. Mr. Corgan. We are without a label now. We are completely independent. Although we---- Mr. Gohmert. Has that devastated your sales now that you don't have a label? Mr. Corgan. Well, it is a new model that we are trying to arrange. And, you know, again---- Mr. Gohmert. The fact is more performers are going with this model; isn't that correct? Mr. Corgan. Well, because of what I was saying to the other Congressman before, because you have less capital available to the labels and then you have less investment, what is happening now is they are putting the onus on the artists to develop their own careers and then they just cherry-pick. Mr. Gohmert. Right. So, as an independent now, if you put your songs on iTunes--and I haven't looked. I assume you have songs available on iTunes, right? Mr. Corgan. Yes, sir. Mr. Gohmert. What cut of that do you get? Mr. Corgan. Well, we actually renegotiated our contract, our old contract, if you are talking about, like, say, my old music. So we have a 50-50 cut with our old record company. But that is very novel. We had to negotiate that. Mr. Gohmert. As I understand it, you may be lucky to get 30, 40 percent. Mr. Corgan. Most artists are probably in the 20 percentile range. Mr. Gohmert. And then if you sign with a record label, I have been told that perhaps the record label can negotiate 60 or 70 percent for them and 30 percent for iTunes, but then the artist still gets a small cut of that, after deductions for expenses. Mr. Corgan. Yes, sir. But, again, in a free-market situation, the artist has the right to say no. They decide, ``Well, do I want to enter into this system of opportunity?'' And I think what is being argued here is, there isn't that same system of opportunity. You know, you get the straight ``no,'' and then there is nothing to negotiate. Mr. Gohmert. Okay. Well, I see my time has expired, and I am obviously not going to get 10 minutes, like my other friend from Texas. So my time has expired. But let me just say I really appreciate everybody's input. You know, I was a judge, and we would get evidence from all sides. And I am still struggling with this issue, you know, what is fair. And so I really appreciate you all making the effort to be here and to participate. Thank you very much. Mr. Sherman. I thank the gentleman from Texas and recognize the gentleman from New York. Mr. Weiner. Thank you, Mr. Chairman. You know, I think in this, if we divide the issue between the right and the rate, I think that the equities of the right are almost agreed to. I mean, I didn't hear too many people on this panel who didn't believe that the performers have a right to something. So I think that issue is done. So then it becomes a conversation of rate, and I think that it is much better resolved, frankly, with guidance from Congress but, frankly, letting you all work out some of these things. I think, for example, a smart record company would probably negotiate a lower rate for an unknown artist, you know, one that they want to try to promote. I think that you might even have artists who say, ``Listen, I will take a discount because I am one of the 46,000 calls to get on the air.'' But if I could drill a little bit into this thing that we have glossed over, Mr. Newberry, do you believe that if you have a radio station that features Glenn Beck, do you believe you should have to pay for his programming? I mean, he, too, is benefiting from the promotion. He, too, is benefiting with his books and the marketing that he is getting for his things that are non-radio-related. As a matter of philosophy, do you believe that you should have to pay for his programming? Mr. Newberry. I don't believe I should have to pay for his programming. I believe I have the right to decide whether that is an investment or not. Mr. Weiner. Yeah, but do you believe that he should have a right that, if you play it, he should be compensated? Do you believe that right that exists on his part? Mr. Newberry. I think that is dependent on how each model is established. So I can't say whether he has a right to do it, but if that is how he wants to set up his business, that is his problem. Mr. Weiner. No, I am asking a different question. I am not asking about his motivation. I am asking about from your perspective. You have described that you believe--and forgive me for summarizing your position--that, since you provide such a value to performers by promoting their product, that they should not have a right to be compensated for that. Do you have the same belief about people who engage in another performance art, say, the spoken word? Mr. Newberry. I am saying that we have provided compensation to the recording artist through the promotion. I am not saying they don't have a right to compensation. I am saying we are providing compensation. Mr. Weiner. Do you believe the same thing exists for someone--I mean, I don't if you really don't understand my question or you are just dancing around it. But do you believe that the same circumstance exists with people like Glenn Beck, who, frankly, I believe, when I hear him on the radio, he should have to pay me, but that is a different story. Mr. Newberry. I would concur. Mr. Weiner. But I am just asking whether you have the same--you seem to have a philosophical position that, since you provide a promotion right to the performers, that that should be in lieu of any payment you give. Do you have the same philosophical sense about the spoken word? This has come up a couple of times here. I just want to hear what your position is. Mr. Newberry. Okay, let me address it then in something--I don't carry Glenn Beck, so let me address it because Chairman Berman earlier mentioned sports. We carry sports teams that we do not provide any compensation for the broadcast. Do they have a right to that compensation? No. They come to us and say, ``Listen, we have a struggling team. We have a team that would benefit from the exposure. We have a university that would benefit from the promotional value of having their games on your radio station.'' And they don't pay us. We make a decision, is that a programming decision, and is that something that is beneficial to our listeners. Mr. Weiner. And so do they. Mr. Newberry. Right. Mr. Weiner. They make that decision. But in the relationship you have with performance artists, you want to be able to decide that it is a no-compensation thing for the performers. That is the difference there. I agree with you, Mr. Newberry. I think, as a result of this legislation, which there now seems to be emerging consensus that performers have this right, as a result of this legislation, you could well find yourself having people come to you and say, ``You know what? I don't want a dime to be on your radio, so you don't have to compensate me at all, because it would be so good for me if I am going to catch up with--my artist is going to catch up with the Smashing Pumpkins that, you know what? You don't have to pay me a dime. I am going to negotiate that with you.'' But the question is different that I am asking you. The New York Mets have a right to negotiate that. The Glenn Becks of the world have a right to negotiate that. The performers, in your view, just to make sure I understand, should not have that same right. Is that just a fair explanation of your position? Mr. Newberry. The system that we have under the current circumstance is not perfect. I am opposed to changing it under the proposed legislation because I think it causes unintended consequences. So, to say should that right be introduced now after 80 years of a balanced relationship, yes, sir, I disagree with your position. Mr. Weiner. Mr. Newberry, I understand that that is the question you would like to answer. I am asking you a philosophical question, you and me, that we are not talking about 80 years of this. And I would stipulate, to what the gentleman says, that these are tough economic times, I would stipulate to Mr. Liebowitz--I mean, God bless you, but I think it is the least newsworthy research ever, that it helps some people but basically it doesn't help other people. Like, that was interesting, but it doesn't really get to this point, which is: On a philosophical level, do you believe, today, that there is inequity there? I mean, I think there is no doubt that all legislation involves a balance of equities and a balance of the politics. And, yes, clearly, you have a good hand you are holding, being someone who represents broadcasters from around the country. But on the equities of it, it seems that there is no really good argument except you don't want to change something for 80 years. Mr. Newberry. Would you like me to answer that? Mr. Weiner. I would, except the gentleman two seats to your right has been gesturing that he wants to. Mr. Patrick. One other thing is, when you are talking about Glenn Beck or anybody else, you are talking about exclusivity, and that may be what you are paying for. You may not like him, I may not like him, but you are getting that, and 10 other stations or 50 other stations in your market don't get that. Or sports rights--only one person gets the Mets in New York, not all of the other stations. Mr. Weiner. But, Mr. Patrick, you are right about those details, but you are missing the premise. The premise is the equity of the Mets or Glenn Beck being able to negotiate for themselves what that value terms and condition is of the performance that they are having. You are right, there are plenty different combinations of permutations, which is why, at the end of the day when we are about to pass this, you are going to get into a room and say, ``Please don't. We have worked out a deal.'' That is what is going to wind up happening. Mr. Sherman. I think the gentleman's time has expired. Mr. Weiner. Thank you, sir. Mr. Sherman. The Chair will now recognize the gentleman from New York. Mr. Maffei. Thank you, Mr. Chairman. I do want to clarify some of the stuff that came up in Ms. Jackson Lee, the gentlewoman from Texas's testimony. And I think she was talking to Mr. Corgan, so I want to address a similar question to Mr. Bainwol. I understand this legislation has accommodations for small commercial and noncommercial broadcasters, which would allow them to pay a lower rate than what would likely be set by the Copyright Royalty Board for large commercial stations. This is really good for districts like mine. I have a mixed district. It has a small city, it has rural areas, and we do have very small stations in my district. And even the accommodations provided in the bill might be too burdensome for them. For instance, if a small rural station makes only about $50,000 in revenue, that might be difficult for them to afford even $5,000. And, similarly, if you look at a tiny, noncommercial station, for instance a small college radio station, that makes no money at all, $1,000 might be a little unworkable to them. So would you be willing to consider some sort of a sliding scale that would allow even really the smallest stations--the student-run stations, the rural stations--to pay a rate that is commensurate with their actual income and ability to pay? Mr. Bainwol. The short answer is yes. We have been literally begging to get into a room to negotiate for a year, and we haven't found a partner with whom to negotiate. But this is not about the small stations. We are prepared to be perfectly rational and reasonable about how this gets crafted and make any adjustments. This is about whether or not big corporate radio that is consolidated is going to make payment for the property they use to build their businesses. Mr. Maffei. Okay. Mr. Newberry and Mr. Patrick, is there anything here that you could live with? Is that true? Mr. Patrick. I think you have hit on one thing that we had talked about earlier. The non-com stations, the little religious stations, the minority stations, and the very rural stations like Steve owns and I own---- Mr. Maffei. Don't forget the college stations. I used to work for one. Mr. Patrick. Yes--$5,000 is way too high. And I appreciate the fact that they would like to carve out a sliding scale, and what that is, who knows? That presupposes there is a right. And so far, broadcasters are not quite there yet, if they are ever going to get there. But on the rate issue, I think you are correct. There has to be much more flexibility on that concept. Mr. Maffei. Do you want to add something, Mr. Newberry? Mr. Newberry. I think it goes back--and I am not sure, Congressman, if you were here when we had the earlier discussions, but it is perplexing, as a broadcaster, the sliding scale. Is $5 better than $5,000? Sure, that is common sense, and I am not going to sit here and argue that. But there is basically a principle argument here, that if the effort is to protect the performers, if the effort is to improve the status of persons like Mr. Corgan. There was a panel discussion that occurred just this past Friday out in Nashville. And if I could take 30 seconds to read this, because this summarizes it. It is between Blake Shelton, who is a country music performer; Heidi Newfield, who is a country music performer; and Mike Dugan, who is the president and CEO of Capitol Records in Nashville. Mr. Shelton, talking about the performance rights debate: ``I think it is a terrible idea for now. I think it is a terrible time to be even going there.'' Heidi Newfield: ``I agree.'' Blake Shelton: ``But, I mean, I am really rich,'' to which the room laughs. Mike Dugan: ``There is no question that the timing of this is horrible. This would have been a much healthier conversation a couple of years ago.'' Then Ms. Newfield says: ``I think it also needs to start-- stems from the building of a record contract. I think the artists and management and their record companies need to sit down and get real about when it comes to the bottom line of what we are actually making. There is a huge misconception of what we are making. I am $100,000 in debt, but that is the cost of doing business. It was worth that to start over again. We need to talk about this more with our people.'' This is an artist saying this. Then the president of the record label says: ``There is no question that we get so much promotional value from radio. And I will tell you that, if it wasn't for radio, we would not be here.'' Radio also gets value from music. Mr. Maffei. Okay. No, actually, I appreciate those comments. I think my problem with that is that it just doesn't seem that only the radio station should decide the promotional value of radio. It seems that that should be something that---- Mr. Newberry. Well, that is from the president of a record label. Mr. Maffei. Maybe so, but I might disagree with it, and other Members of this Committee might disagree with it---- Mr. Newberry. I understand. Mr. Maffei [continuing]. Even though he is the president of a record label. So a lot of us, I think, would just like to see both sides get together and try to decide a little bit more what the promotional value is, rather than just one side of it. What my question is trying to get at is: Obviously, the promotional value is much less if you run a tiny college station or a station that doesn't bring in more than $25,000 or $30,000 a year, so trying to get to a sliding scale would seem fair on both sides of that. My time has expired, but I do want to make the point, though, that what we are looking for here is some sort of a way to find something that both sides can live with. And, you know, clearly, as has been said before, folks deserve to be compensated for their work. On the other hand, there might be a promotional value here. I just don't know if only one side of the debate should decide what that promotional value is. Thank you, Mr. Chairman. Mr. Sherman. I thank the gentleman from New York. And there, for a while, I thought the joy would end, but the music goes on. The gentleman from Texas is recognized, should he wish to be. Mr. Gonzalez. Thank you very much, Mr. Chairman. I rushed back. I am sure you think I have the most exciting question to pose, but not really. I think everything has been said in one form or another. But the concern and the difficulty we all have, especially on this Committee, with so many lawyers, is that we recognize a right, but it may be a right without rights or an unprotectable right. And that is a very foreign concept to us. That is why we are having such difficulty here. Then the question comes in the marketplace: How does that unprotectable right or the right without rights for so many years become protectable? And there is some sort of compensation for that particular right or for the acknowledgment of it. And I apologize. I had to run up here. The only way that you can justify the continuation--because you lose on the fairness argument, but you would have to say that the promotional value is the compensation, that the promotional value is the subsidy. Conceptually, you have to meet that first argument. And it is going to be very difficult, because I have, obviously, a difference of opinion as to whether that is true or not. And that jury is still out, are we going to have an independent study, and so on? At the end of this whole process, who knows? But I am not really certain where we are today, despite the testimony of Professor Liebowitz. The fallback position, to continue the status quo, is to say it will be the demise of radio station using the public airwaves. And I find great value in--whether it is television or whether it is radio, it is the only direct link that government has when it comes to communication out there, because of the use of the public airwaves. To diminish it in any capacity diminishes the ability for us to represent the best interests of our constituents. And I really look at it that way. I have made this argument before on Energy and Commerce when it comes to telecommunications, the Internet and so on, cable, satellite and such, as opposed to over-the-air broadcasters. So the real question is, where are we today? There is one aspect--and I am not sure, Mr. Chairman, whether it was covered in my absence--there is one school of thought of, why this now? I recognize that I think the performers and artists should be compensated. It really is a foreign concept to me that they are not and have not been, but I am willing to listen to that argument that has been advanced in the past and that was advanced here today. There is another argument--and I am not sure if this is true or not, maybe the professor and Mr. Patrick and others can enlighten me on it--and that is that maybe there is greater emphasis on it today because there is no single platform, Mr. Bainwol, as you had pointed out. And because of that, it is a whole new dynamic out there. So if you download, if you share, if you are part of all the tremendous piracy that goes on out there, where does the performer then realize just compensation? And that now, because it is not just one platform and because of technology, they have to make up that revenue stream elsewhere and maybe look to the radio stations. Can I have any comments regarding that particular thought that is out there and is being expressed? And I think I will start with Mr. Newberry. Mr. Newberry. I concur. I think that the record labels and the performers have been dealing with a very unfortunate circumstance of business that has occurred since the Internet and since downloading. I am sure that there are thousands of people who would like to say, ``Man, we really wish we could go back and change the way we handled the digital transition and the way we handled the whole issue of downloads.'' The model did not work. Our industry is absolutely against piracy. We want to do everything that we can to protect the integrity of those works. But it is a feeling of, ``Look, the model has collapsed around, so we are going to turn and go back toward the one source of consistent revenue where we know where it is, instead of finding ways to adapt to an expanding platform.'' Mr. Gonzalez. Well, Mr. Bainwol--and, of course, I sense that you are going to disagree with Mr. Newberry--but what about the argument simply that, if you can' control it in another delivery system--I don't know what we want to call everything that is out there--that you have to go to that which maybe is more accessible? At this point, it would be compensation from the radio stations. Mr. Bainwol. This issue is not about piracy. This issue is about a fundamental change in the nature of consumption of music. And in the old days--and I think our friends, the broadcasters, are nostalgically clinging to an American-pie past. We are not in the old days where you turn on the radio and you buy a piece of plastic. Today's model is entirely different. It is multiple platforms broadcasting music, with consumers, instead of buying music, accessing music and listening to performances, whether it is on YouTube, whether it is on Pandora, whether it is on cable TV, whether it is on their iPod. It is all about access and listening to performance. If we care about creativity and we care about creating an investment basis for the next generation of art, then we have to find a way to make sure that we connect to the emerging model. That means performance. In that context, having the single biggest platform enjoy a benefit relative to Pandora, relative to Real Networks, relative to any of the other DiMA companies, makes absolutely no sense to the integrity of the marketplace or to fairness for creators. Mr. Gonzalez. Well, do you think we would be here today had it not been for these new platforms? Mr. Bainwol. I think the new platforms dramatize why this is so outrageous as a matter of equity. And the other point here that I think is critical is the argument that this is symbiotic gets totally blown away with the question that Mr. Weiner was going through, where we don't get to participate in this question of balance. They get to take our property, use it, and we can't say no. They call it symbiotic; I call that a taking. Mr. Gonzalez. My time is up, Mr. Chairman. Mr. Sherman. I thank the gentleman from Texas. At the request of the Committee counsel, I have one clarifying question. Mr. Newberry and Mr. Bainwol, are you folks willing to sit down and negotiate, yes or no? Mr. Bainwol. I would like to have lunch first, but yes. Mr. Newberry. No, sir. We remain opposed to this legislation. To negotiate on that we think is counter to the interests of our industry and service to the public. Mr. Sherman. Don't slit your throat, but don't do it here. Thank you. [Whereupon, at 1:34 p.m., the Committee was adjourned.]